[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




  FREE TRADE DEALS: IS THE UNITED STATES LOSING GROUND AS ITS TRADING 
                          PARTNERS MOVE AHEAD?

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 OF THE

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 29, 2001

                               __________

                            Serial No. 107-9

                               __________

         Printed for the use of the Committee on Ways and Means






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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

E. CLAY SHAW, Jr., Florida           SANDER M. LEVIN, Michigan
AMO HOUGHTON, New York               CHARLES B. RANGEL, New York
DAVE CAMP, Michigan                  RICHARD E. NEAL, Massachusetts
JIM RAMSTAD, Minnesota               WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington            XAVIER BECERRA, California
WALLY HERGER, California             JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania
JIM NUSSLE, Iowa


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________
                                                                   Page
Advisory of March 12, 2001, announcing the hearing...............     2

                               WITNESSES

American Forest & Paper Association, and Mead Corporation, Donald 
  R. Burke.......................................................    76
Business Roundtable, Samuel L. Maury.............................    22
Council of the Americas, and GE Latin America, John T. McCarter..    59
Emergency Committee for American Trade, and McGraw-Hill 
  Companies, Harold McGraw III...................................    14
Institute for International Economics, Jeffrey J. Schott.........    64
National Association of Manufacturers, and 3M, Harold J. Wiens...    55
National Pork Producers Council, John Hardin, Jr.................    70
Purafil, Inc., William Weiller...................................    29
Tarullo, Daniel K., Georgetown University Law Center.............    32
U.S. Chamber of Commerce, Thomas J. Donohue......................     8

                       SUBMISSIONS FOR THE RECORD

National Center for Asia-Pacific Economic Cooperation, Seattle, 
  WA, Rudolph A. Schlais, Jr., statement and attachment..........    83
Rubber and Plastic Footwear Manufacturers Association, statement.    86
U.S. Integrated Carbon Steel Producers, statement................    88

 
  FREE TRADE DEALS: IS THE UNITED STATES LOSING GROUND AS ITS TRADING 
                          PARTNERS MOVE AHEAD?

                              ----------                              


                        THURSDAY, MARCH 29, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 1100 Longworth House Office Building, Hon. Philip M. Crane 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE

March 13, 2001

No. TR-1

              Crane Announces Hearing on Free Trade Deals:

                   Is the United States Losing Ground

                  As Its Trading Partners Move Ahead?

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on the increasing number of bilateral 
and regional trade agreements to which the United States is not a 
party, and the implications for the United States. The hearing will 
take place on Thursday, March 29, 2001, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be from both invited and public 
witnesses. However, 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 United States has not had a significant expansion in its trade 
relationships in many years. Of the estimated 130 free trade accords 
currently in force, the United States is a signatory to only two 
(Israel and the North American Free Trade Agreement (NAFTA)). 
Meanwhile, many of our major trading partners have been active at the 
negotiating table. For example, the EU has trade agreements in force 
with 27 countries (including important U.S. markets in Mexico and 
Central and Eastern Europe), and is in the process of implementing or 
finalizing agreements with Egypt, Jordan, the MERCOSUR nations, and the 
six countries of the Gulf Cooperation Council. Mexico, the second 
largest market for American exports, has trade agreements with at least 
28 countries and is currently negotiating several more.
      
    In announcing the hearing, Chairman Crane stated: ``We are at a 
critical juncture in U.S. trade policy. Right now, the United States 
has several pending opportunities to forge more bilateral and regional 
free trade agreements, and we must not squander those opportunities. 
American businesses, workers, and farmers are disadvantaged in foreign 
markets because the United States has been absent from the trade 
negotiating table. A commitment to trade liberalization will provide 
the crucial boost the economy needs to recover from the current 
slowdown through job creation, low prices, increased market access, and 
improved productivity. Quickly giving Trade Promotion Authority to our 
President would put the United States back in a leadership role.''
      

FOCUS OF THE HEARING:

      
    This hearing will (1) explore whether these new trade agreements 
disadvantage U.S. business, workers, and families; and (2) assess 
current opportunities for the United States to move forward with new 
negotiations.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Pete Davila at (202) 225-1721 no later than the close 
of business, Thursday, March 22, 2001. The telephone request should be 
followed by a formal written request to Allison Giles, Chief of Staff, 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. The staff of 
the Subcommittee on Trade will notify by telephone those scheduled to 
appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. The Five-Minute Rule Will Be Strictly Enforced. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies, along with 
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, 
of their prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the Subcommittee on Trade office, room 1104 
Longworth House Office Building, no later than Tuesday, March 27, 2001. 
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 12, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Trade office, room 1104 Longworth House 
Office Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 
format, typed in single space and may not exceed a total of 10 pages 
including attachments. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Crane. Welcome to this hearing of the Ways and 
Means Trade Subcommittee to examine the impact of bilateral and 
regional trade agreements being negotiated without U.S. 
participation.
    I give a special welcome to our two new members of the 
Trade Subcommittee, Mr. Phil English of Pennsylvania and Mr. 
John Tanner of Tennessee, and I would like to thank our 
witnesses who have all graciously reorganized their busy 
schedules so they could testify today. The members of the 
Subcommittee and I look forward to your commentary and reports 
from the frontiers of what can be described only as a new era 
of world trade.
    Since America's founding, new eras have usually been 
synonymous with new generations of American innovators, whether 
it was Frederick Douglass, Alexander Graham Bell, Susan B. 
Anthony, or Sally Ride, America has not sat in the bleacher 
seats of history. We have stood up, set the mark, and run the 
race. Likewise, in trade policy, the United States worked at 
the forefront of the creation of the General Agreement on 
Tariffs and Trade, which reopened and expanded the routes of 
international trade after World War II. More recently, America 
led in the creation of the World Trade Organization and guided 
efforts to negotiate the North American Free Trade Agreement 
(NAFTA).
    Trade agreements such as those contributed to the longest 
period of economic growth in U.S. history. Thanks to the NAFTA, 
Mexico is now one of the fastest-growing export markets for the 
United States and Canada and Mexico are the first and second 
most important U.S. trading partners. Yet here at the onset of 
the new millennium and a new administration, we mark the 
beginning of the seventh year without Congressionally approved 
trade promotion authority, or what was formerly called fast 
track. We are not the leaders we once were. In our stead, our 
trading partners have actively opened and expanded markets for 
their exporters, and as a result, there has been a 
proliferation of free trade agreements in recent years.
    There are now over 130 free trade agreements in force. The 
United States is party to only two, the U.S.-Israel Free Trade 
Agreement and the NAFTA. Europe, on the other hand, has in 
force Free Trade Agreements (FTAs) with 27 countries, and 
Mexico has 28. While our trading partners stand ready to 
negotiate trade agreements with the United States, we stand 
back and continue to debate among ourselves.
    During the seven years since the President's trade 
authority expired, America's exporters and workers have faced 
higher tariff differentials and more and more discriminatory 
rules, unfamiliar product standards, and unnecessary threats to 
their investments. For example, Automated Food Systems, Inc., 
is a small 11-person outfit based in Duncanville, Texas. 
Automated is a successful distributor of food processing 
equipment and exports to Egypt, the Middle East, and Europe. In 
recent years, Automated tried to export its equipment to 
Brazil, where there is demand for the company's products. 
However, because the United States does not have a trade 
agreement with Brazil, Automated's wares are subject to import 
duties of over 14 percent, while regional competitors may 
import their products duty-free.
    This differential treatment creates an insurmountable 
margin that prohibits small businesses like Automated from 
penetrating the market and expanding their operations. This is 
exactly the type of barrier that could be eliminated in trade 
negotiations if the President had the trade promotion 
authority.
    My friends, opportunities for renewed U.S. growth are being 
squandered. High-wage export-related U.S. jobs are being lost 
and, compared to others, U.S. manufacturers and consumers are 
paying extra for the same goods and services. In pairs and 
groups, the nations of the world are passing us by, writing the 
rules for international commerce and promoting their exports 
and their business practices. The costs to our country for 
failing to get back in the race are unacceptably high. Let us 
agree to work quickly to find common ground to pass trade 
promotion authority and regain our position as the true leader 
and innovator in this new era of trade.
    I would now like to yield to the ranking minority member of 
the Subcommittee, Mr. Levin, for any remarks that he would like 
to make.
    [The opening statement of Chairman Crane follows:]
  Opening Statement of the Hon. Philip M. Crane, M.C., Illinois, and 
                    Chairman, Subcommittee on Trade
    Welcome to this hearing of the Ways and Means Trade Subcommittee to 
examine the impact of bilateral and regional trade agreements being 
negotiated without U.S. participation. I give a special welcome our two 
new members to the Trade Subcommittee, Mr. Phil English of Pennsylvania 
and Mr. John Tanner of Tennessee. And I would like to thank our 
witnesses, who have all graciously reorganized their busy schedules so 
they could testify today. The Members of the Subcommittee and I look 
forward to your commentary and reports from the frontiers of what can 
be described only as a new era of world trade.
    Since America's founding, ``new eras'' have usually been synonymous 
with new generations of Americans innovators. Whether it was Frederick 
Douglas, Alexander Graham Bell, Susan B. Anthony or Sally Ride, America 
has not sat in the bleacher seats of history; we have stood up, set the 
mark, and run the race. Likewise in trade policy, the United States 
worked at the forefront of the creation of the GATT, which re-opened 
and expanded the routes of international trade after World War II. More 
recently, America led in the creation of the World Trade Organization 
and guided efforts to negotiate the North American Free Trade Agreement 
(NAFTA). Trade agreements such as these contributed to the longest 
period of economic growth in U.S. history. Thanks to the NAFTA, Mexico 
is now one of the fastest growing export markets for the United States, 
and Canada and Mexico are the first and second most important U.S. 
trading partners.
    Yet, here at the onset of the new Millennium and a new 
Administration, we mark the beginning of the seventh year without 
congressionally approved trade promotion authority. We are not the 
leaders we once were. In our stead, our trading partners have actively 
opened and expanded markets for their exporters and, as a result, there 
has been a proliferation of free trade arrangements in recent years. 
There are now 130 free trade agreements in force. The United States is 
party to only two--the U.S.-Israel Free Trade Agreement and the NAFTA. 
Europe, on the other hand, has in force FTAs with 27 countries.
    While our trading partners stand ready to negotiate trade 
agreements with the United States, we stand back and continue to debate 
among ourselves. During the 7 years since the President's trade 
authority expired, America's exporters and workers have faced higher 
tariff differentials, and more and more discriminatory rules, 
unfamiliar product standards, and unnecessary threats to their 
investments.
    For example, Automated Food Systems, Inc. is a small eleven-person 
outfit based in Duncanville, Texas. Automated is a successful 
distributor of food-processing equipment and exports to Egypt, the 
Middle East, and Europe. In recent years, Automated tried to export its 
equipment to Brazil, where there is demand for the company's products. 
However, because the United States does not have a trade agreement with 
Brazil, Automated's wares are subject to import duties of over 14 
percent while regional competitors may import their products duty-free. 
This differential treatment creates an insurmountable margin that 
prohibits small businesses like Automated from penetrating the market 
and expanding their operations. This is exactly the type of barrier 
that could be eliminated in trade negotiations if the President had 
trade promotion authority.
    My friends, opportunities for renewed U.S. growth are being 
squandered. High-wage, export-related U.S. jobs are being lost, and 
compared to others, U.S. manufacturers and consumers are paying extra 
for the same goods and services. In pairs and groups, the nations of 
the world are passing us by, writing the rules for international 
commerce, and promoting their exports and their business practices.
    The costs to our country for failing to get back in the race are 
unacceptably high. Let us agree to work quickly to find common ground 
to pass trade promotion authority, and regain our position as the true 
leader and innovator in this new era of trade.
    I'll now yield to the Ranking Minority Member of the Subcommittee, 
Mr. Levin, for any remarks he would like to make.
      

                                


    Mr. Levin. Thank you, Mr. Chairman, and welcome to each and 
every one of you. We are glad you are here.
    The issue is not whether there should be an expansion of 
world trade. The question is how that expansion occurs. 
Globalization is surely here to stay. The real question is 
whether and how that globalization should be shaped. That 
involves examining the role of bilateral, regional, and 
multilateral agreements. That includes an examination of the 
increasing number of free trade agreements, as I believe is the 
basis for this hearing today. That examination is necessary 
before we rush to conclusions as to the interaction between 
bilateral, regional, and multilateral agreements, and the 
actual impact of these types of agreements on the U.S. economy.
    In this examination, I urge that we need to look not only 
at the number of agreements, but beyond sheer numbers, to their 
contents, including the level and actual scope of trade covered 
by the agreements. I think we will find that many of these free 
trade agreements, as they are called, are much less 
comprehensive than agreements such as NAFTA. Indeed, some may 
be vulnerable to challenge under Article 24 of the General 
Agreement on Trade and Tariffs (GATT) and similar World Trade 
Organization (WTO) rules. We should give serious consideration 
to bringing challenges in appropriate cases.
    When it comes to the question of how to shape expanded 
trade as we enter into more trade agreements of our own, it is 
vital that we take into account the evolving nature and the new 
issues of trade. Trade policy is no longer just about tariffs, 
as important as they were and remain, and the more glaring non-
tariff barriers. It is also about labor standards, 
environmental regulations, health regulations, among other 
issues, and the impact that these have on the terms of 
competition. Each issue should be included in fast track and in 
the agreements negotiated pursuant thereto.
    Finally, as I have said before, the best way to move ahead 
with agreements on expanded trade is as we did last year with 
very substantial success, is to proceed step by step. The first 
step is clear. There is a free trade agreement that was 
negotiated and signed last year and transmitted to Congress at 
the beginning of this session. I am referring, of course, to 
the U.S.-Jordan Free Trade Agreement. Legislation to implement 
that agreement was introduced in the Senate yesterday and will 
be introduced by me and others in the House in the coming days, 
and that agreement, as written, should be acted upon 
expeditiously. With the King of Jordan visiting the United 
States next week, the time is now to send a clear message that 
we intend to make the U.S.-Jordan Free Trade Agreement 
operational.
    Thank you, Mr. Chairman, and I look forward to the 
testimony.
    [The opening statements of Mr. Levin and Mr. Ramstad 
follow:]
     Opening Statement of the Hon. Sander M. Levin, M.C., Michigan
     The issue is not whether there should be an expansion of 
world trade. The question is how that expansion occurs. Globalization 
is here to stay. The question is whether and how it should be shaped.
     That involves examining the role of bilateral, regional, 
and multilateral agreements.
     That includes an examination of the increasing number of 
free trade agreements, as we are doing today. This is necessary before 
we rush to conclusions as to the interaction between bilateral, 
regional, and multilateral agreements, and the actual impact of any of 
these types of agreements on the U.S. economy.
     In this examination, we need to look not only at the 
number of agreements, but beyond sheer numbers to their contents, 
including the level and actual scope of trade covered by the 
agreements.
     I think we will find that many of these free trade 
agreements are much less comprehensive than agreements such as the 
NAFTA. Indeed, some may be vulnerable to challenge under Article XXIV 
of the GATT and similar WTO rules. We should give serious consideration 
to bringing challenges in appropriate cases.
     When it comes to the question of how to shape expanded 
trade as we enter into more trade agreements of our own, it is vital 
that we take account of the evolving nature and new issues of trade. 
Trade policy is no longer just about tariffs and the more glaring non-
tariff barriers. It is also about labor standards, environmental 
regulations, health regulations--among other issues--and the impact 
these have on the terms of competition. These issues should be included 
in fast track and in the agreements negotiated pursuant to fast track.
     Finally, as I have said before, the best way to move ahead 
with agreements on expanded trade is to proceed step by step.
     The first step seems clear. There is a free trade 
agreement that was negotiated and signed last year and transmitted to 
Congress at the beginning of this session.
     I am referring, of course, to the U.S.-Jordan Free Trade 
Agreement. Legislation to implement that agreement was introduced in 
the Senate yesterday and will be introduced in the House in the coming 
days and should be acted upon expeditiously.
     With the King of Jordan visiting the United States next 
week, the time is now to send a clear message that we intend to make 
the U.S.-Jordan Free Trade Agreement operational as quickly as 
possible.
     Thank you.
      

                                


       Opening Statement of the Hon. Jim Ramstad, M.C., Minnesota
     Mr. Chairman, thank you for calling this important hearing 
on the free trade agreements being negotiated around the world.
     It is truly alarming that the U.S. is a party to only two 
of the 130 free trade agreements currently in force around the world. 
This means that U.S. companies are disadvantaged in their efforts to 
sell products overseas. Worse, it means that free trade rules are being 
written without U.S. input, harming our countries into the future.
     Last year, I think most of us on the Committee would 
agree, was a great one for trade. Congress worked to expand 
international trade and development. Now, we need to build on that 
success.
     How can we not? The U.S. economy is increasingly 
international in focus. Over 25% of our economic growth in the last 
decade is tied to foreign trade and 12 million Americans owe their jobs 
to exports. The unprecedented economic growth this country has 
experienced in recent years is in part a result of expanded trade 
between the U.S. and our trading partners.
     I strongly believe the cornerstone of congressional trade 
action must be approval of Trade Promotion Authority for President 
Bush. As long as we continue to deny this fundamental power to the 
President, our economy and our citizens will fail to capitalize on the 
trade opportunities before us.
     What are these opportunities? The U.S. must push 
aggressively to negotiate and enact the Free Trade Area of the 
Americas, preferably by 2003. The NAFTA agreement has been an enormous 
benefit to our country, and we will further benefit from expanding free 
trade to the rest of the hemisphere.
     We should also continue to push for bilateral trade 
agreements with countries like Chile, New Zealand, Australia, Singapore 
and others. Lastly, we should continue to work with Europe to amicably 
settle our differences and move forward.
     We have the opportunity to build on last year, and I hope 
that we seize that opportunity.
     Thanks again, Mr. Chairman, for holding this hearing and I 
look forward to hearing from today's witnesses.

                                


    Chairman Crane. Thank you, Mr. Levin.
    Mr. Ramstad, I will recognize with panel two, I guess is 
when your constituent is here?
    Mr. Ramstad. That is right, Mr. Chairman. Thank you.
    Chairman Crane. With that, I now welcome our first panel to 
the Subcommittee. Mr. Donohue, you can lead off. May I suggest 
that if you folks could try and keep your oral testimony to 
five minutes, any written testimony will be made a part of the 
permanent record. Mr. Donohue?

 STATEMENT OF THOMAS J. DONOHUE, PRESIDENT AND CHIEF EXECUTIVE 
               OFFICER, U.S. CHAMBER OF COMMERCE

    Mr. Donohue. Good morning, Mr. Chairman. I am here today to 
suggest that the United States is rapidly losing ground in the 
free trade arena and failure by Congress to grant the President 
trade promotion authority threatens our global economic 
leadership further.
    Let me just give you a few statistics. I think we lose 
sight of the fact that only four percent of the population in 
this world lives in the United States and the people we want to 
trade with live somewhere else. The World Trade Organization 
counts more than 130 regional free trade agreements that are 
currently in force around the globe, and that number, by the 
way, is increasing, but the U.S. is a party to just two, with 
Canada and Mexico through NAFTA and with Israel.
    Only 11 percent of the world's exports are covered by U.S. 
free trade agreements, compared with 33 percent of the European 
Union's. I came back just last night from a four-day visit with 
the European Union and find them aggressively pursuing further 
discussions around the world. And while Western European 
nations have negotiated 909 bilateral investment treaties, the 
U.S. is a party to just 43. This country can no longer afford 
to sit on the sidelines while our competitors are busy cutting 
deals with one another, often doing it at our expense.
    America must reengage global markets and the President must 
have trade promotion authority for that to happen. Under the 
authority, Congress agrees to grant the President the privilege 
of an up or down vote, assuming and demanding that during the 
process, the President consults with the Congress and if they 
do not like the agreement he made, they can vote against it. 
Every President since Gerald Ford, up until the first term of 
Bill Clinton, had this process and protection and our new 
President needs it, as well.
    Trade promotion authority gives U.S. negotiators the type 
of credibility they need. Negotiators from our potential 
trading partners have to feel confident that the U.S. 
government and Congress will not come back and take the 
agreement apart piece by piece. As anyone in business knows, 
you do not negotiate with people who are not in a position to 
keep their promises.
    Finally, I would like to emphasize that trade promotion 
authority must not be encumbered by extraneous labor and 
environmental positions. The business community does not oppose 
discussion of labor and environmental positions, but not as a 
direct part of the trade agreement and not backed up by 
sanctions. Mr. Chairman, in long discussions in the European 
Union (EU) with Commissioner Pascal Lamy and others, they are 
now coming to that decision and conclusion themselves. Our 
potential negotiating partners have told them and told us, and 
they told us in Seattle, that trade agreements that have these 
provisions directly involved and supported or pushed by 
mandatory sanctions are not going to fly with them and they are 
not going to fly here.
    Now, history has proven that countries that trade with the 
United States not only create more jobs, but they raise the 
standard of living and they generate wealth to pay for 
environmental improvements.
    In conclusion, Mr. Chairman, let me say that our success in 
the 21st century's global economy requires that we continue 
working to open global markets to U.S. business. American 
businesses cannot compete and win unless we have an 
opportunity. If we have the opportunity, we always compete and 
we usually win.
    Let me make one final point. Absence of a free trade 
agreement or trade promotion authority is not a significant 
problem for the biggest of our companies. If you make tractors 
in Peoria and you cannot sell them into someplace in the world 
because of high tariffs, you simply make tractors someplace 
else, like Brazil or Mexico and then sell them into the country 
you want to go to. Who is most hurt by this problem are the 
small and medium-sized companies who now, helped by technology, 
can trade around the world. They will pay a price for our 
neglect.
    It is time to put aside any rivalry that exists between 
different branches of the government and different parties, and 
it is important that you understand that the Chamber sees this 
vote as one of the critical votes this year, and it is 
important to us because the companies we represent are being 
disadvantaged in their trade around the world.
    I thank you, Mr. Chairman, for holding this hearing. I look 
forward to the discussions. I have a hunch they will be pretty 
interesting, and we appreciate being here.
    [The prepared statement of Mr. Donohue follows:]
Statement of Thomas J. Donohue, President and Chief Executive Officer, 
                        U.S. Chamber of Commerce
    Mr. Chairman, thank you for inviting me to appear before this panel 
today. I am Thomas J. Donohue, President and Chief Executive Officer of 
the U.S. Chamber of Commerce. I appreciate this opportunity to testify 
on behalf of the Chamber on free trade deals and whether the United 
States is losing ground.
    Simply stated, when fast-track trade negotiating authority expired 
in 1997, the United States no longer possessed the single most 
important tool for ensuring that its trade negotiators would enjoy 
maximum credibility vis-a-vis their counterparts in other nations.
    Over 130 regional trade agreements are currently in force 
worldwide. Most have been concluded in the past 10 years. The WTO has 
been notified of 90 such agreements since 1995. The European Union has 
free trade agreements with 27 countries, and 20 of these agreements 
have been signed since 1990. Just last year, the European Union and 
Mexico--the second-largest market for American exports--entered into a 
free trade agreement. The European Union is also negotiating free-trade 
agreements with the Mercosur countries and the Gulf Cooperation 
Council. And while there are approximately 130 free trade agreements in 
force globally, the United States is a party to just two: one is with 
Canada and Mexico (NAFTA), and the other with Israel.
    This pattern of diminished U.S. participation must not be allowed 
to stand. While our own government has yet to restore effective trade 
negotiating leverage, U.S. companies are facing growing disadvantages 
relative to their competitors as other nations negotiate agreements 
that provide preferences for their firms over our own.
The Need For Trade Promotion Authority
    Of paramount relevance to our global trade negotiating agenda is 
the provision of unfettered trade promotion authority to the President. 
Simply put, under trade promotion authority, Congress agrees to grant 
the President the privilege of an up-or-down vote, within a specified 
period of time, on agreements negotiated between the U.S. and its 
trading partners. Every President from Gerald Ford through Bill Clinton 
has enjoyed this authority. Access to trade promotion authority is a 
critical element to the success of any negotiating strategy. U.S. trade 
negotiators' credibility depends heavily on their ability to obtain 
Congressional approval of legislation to implement trade agreements as 
they were negotiated. As anyone in business knows, you do not waste 
your time making deals with negotiators who are not in a position to 
commit their principals--whether they are companies or countries--to an 
agreement.
    In return for that privilege, Presidents have agreed to extensive 
consultation with the Congress so that, when the agreement is finally 
concluded, Congress will have enough confidence in the agreement's 
benefits to the United States that it will be willing to approve the 
changes in U.S. laws that are needed to implement the agreement.
    By the same token, if the President fails to consult adequately or 
in good faith, Congress has the power to refuse to pass the 
implementing legislation. Or if it chooses, Congress can take an 
intermediate step--rescind the trade promotion authority process, and 
send negotiators back to the table to seek revisions in the agreement.
    Obviously, the Chamber strongly believes that the first scenario 
should prevail. Domestic disagreements between the executive and 
legislative branches should stop at the water's edge. It does us no 
good for our President's negotiators to reach arrangements with other 
countries, only to have them amended in numerous ways for whatever 
reason, after the fact. History shows that if the President and the 
Congress work closely together to craft a national trade agenda, real 
progress can be achieved. Without it, our trading partners will neither 
sit at the table with us, nor make vital market-opening concessions to 
America's most competitive products. Only the largest U.S. companies 
will be able to overcome the hurdles that remain or increase in the 
absence of pro-U.S. trade agreements generated with trade promotion 
authority.
Renewing Trade Promotion Authority--A Wrong Way And The Right Way
    On October 24, 2000, the United States and the Hashemite Kingdom of 
Jordan entered into a free trade agreement (JFTA) that would eliminate 
duties and commercial barriers to bilateral trade in goods and services 
originating in the United States and Jordan. The JFTA also includes, 
for the first time ever in the text of a trade agreement, separate sets 
of substantive provisions addressing trade and the environment, trade 
and labor, and electronic commerce. Other provisions address 
intellectual property rights protection, balance of payments, rules of 
origin, safeguards and procedural matters such as consultations and 
dispute settlement.
    The last administration made known its intention that the JFTA 
serve as a ``template'' by which subsequent trade agreements with other 
countries should be crafted. We respectfully but strongly disagree. 
Jordan has made admirable progress against the backdrop of continuing 
Middle East crises as it pursues economic modernization and 
liberalization. However, modeling our global trade negotiating strategy 
on our relationship with an economy as small and relatively 
uncomplicated as Jordan's would necessarily result in the neglect of a 
plethora of vital and much more complex U.S. national interests.
    In addition, we regard adoption of the JFTA's labor and 
environmental provisions--and the attendant possibility of trade 
sanctions deriving from labor or environmental policy disputes--as a 
dangerous precedent that, if approved, could seriously threaten our 
negotiating posture vis-a-vis many far more significant trading 
partners. We must find a basis for addressing substantive labor and 
environmental concerns without holding U.S. competitiveness hostage to 
special interest efforts to achieve extraterritorial application of 
policy objectives that are not relevant to international commerce. At 
the same time, the Chamber will oppose any trade agreement that 
includes labor and environmental provisions and accompanying sanctions 
in the agreement.
    There are other avenues for the United States to discuss labor and 
environmental issues with other nations. The President already has 
authority to address these issues in fora such as the International 
Labor Organization (ILO). Likewise, multilateral environment agreement 
(MEA) negotiations present opportunities to address environmental 
concerns.
    But provision of trade promotion authority--unencumbered with 
extraneous non-trade objectives--is the only way to effectively arm our 
negotiators with the tools they need to conclude beneficial trade 
agreements and thus level the playing field further for U.S. companies.
Advancing U.S. Interests With Trade Promotion Authority
    In general, Congress should grant trade promotion authority to 
Presidents that permit our negotiators to obtain:
     More open, equitable and reciprocal market access;
     The reduction or elimination of barriers and other trade-
distorting policies and practices;
     Strengthened international trading rules and procedures; 
and
     Increased economic growth and full employment in the U.S. 
and global economies.
    More specifically, trade promotion authority negotiating objectives 
should include verifiable provisions providing for:
     Expanded competitive opportunities for the export of U.S. 
goods;
     More open and equitable conditions of trade for U.S. 
services, including financial services;
     Reduction and elimination of artificial or trade-
distorting barriers to international direct investment;
     Maximum protection for intellectual property rights; and
     Transparent, effective and timely enforcement of 
agreements' rules and implementation of dispute settlement procedures.
    The Chamber also believes that trade promotion authority should be 
unencumbered by requirements to advance unrelated labor, environment 
and other social agenda objectives as part of trade negotiations. These 
issues also would require a considerably expanded level of technical 
expertise at the negotiating table and there would be a very real risk 
that a wide array of domestic labor and environmental laws could end up 
re-written on trade promotion authority timetables, with potentially 
serious consequences. Finally, numerous potential negotiating partners 
have stated repeatedly that they want these issues dealt with 
separately. Trade issues are contentious enough, with the well-being of 
tens of thousands of American companies and millions of American 
workers dependent on continued new access to foreign markets. What is 
already difficult to achieve could well become impossible if trade 
negotiations become loaded down with non-trade issues.
    If the United States does not jump start negotiations with its 
major trading partners soon, U.S. businesses will find their current 
markets eroding. U.S. companies won't be able to institutionalize 
favorable customer relationships because the U.S. can't negotiate the 
elimination of tariff and non-tariff barriers that other competitors 
don't have to face. The Chamber believes trade promotion authority is 
essential if the United States is to pursue a variety of legitimate and 
critical national objectives worldwide. These objectives include:
    Completing the Unfinished Business of Seattle. U.S. negotiating 
agendas for ``post-Seattle'' multilateral and other trade negotiations 
should include:
     Primary focus for services trade negotiations, with 
bilateral and regional cooperation playing a supporting role.
     An agricultural trading system free of restrictions and 
distortions on trade in processed and unprocessed foodstuffs.
     Prompt and full implementation of existing commitments 
undertaken by WTO members with respect to intellectual property rights 
(TRIPs), trade-related investment measures (TRIMs), services, 
telecommunications, tariff liberalization, government procurement, 
market access, subsidies and antidumping--coupled with expedited 
procedures where feasible to make the implementation process 
commercially meaningful.
     Continuing support for WTO ``built-in agenda'' 
negotiations that include, among other things, further tariff cuts for 
manufactured goods and greater liberalization in insurance, banking, 
telecommunications, legal and other financially related sectors.
     New rules to address foreign direct investment in non-
service sectors to ensure fair and open investment opportunities. 
Within an economy there should be no discrimination between domestic 
and foreign-owned companies in the application of national law, 
regulations, or taxes.
     New multilateral rules that establish the highest 
standards for the liberalized treatment and full protection of 
investment. The WTO TRIMs agreement represents a useful step forward in 
multilateral cooperation but does not address numerous other important 
investment issues.
     Clarification of how multilateral environmental agreements 
(MEAs) relate to the WTO system. To avoid creation of potentially 
significant new trade barriers, strict guidelines for the application 
of trade measures under MEAs must be established, and trade sanctions 
as a toll for advancement of labor and environmental objectives must be 
opposed.
     More transparent and expeditious dispute settlement 
procedures.
    Free Trade Area of the Americas (FTAA). In December 1994, thirty-
four western hemisphere heads of state committed to establishment of a 
FTAA--a market of over 750 million consumers--by 2005. Such an 
agreement would create the world's largest free trade area, 
encompassing 755 million people with a collective GDP over $10 
trillion. A Chile-U.S. FTA was envisioned as the first of many steps 
leading toward that goal. A successfully negotiated FTAA would:
     Eliminate existing tariff and non-tariff barriers and the 
avoidance of new ones;
     Remove other restrictions on trade in goods and services, 
and investment unless specifically exempted;
     Harmonize technical and government rule-making standards;
     Exceed World Trade Organization disciplines, where 
possible;
     Provide national treatment and investor safeguards against 
expropriation;
     Establish a viable dispute settlement mechanism; and
     Improve intellectual property rights protection.
    Since that time, various summits and ministerial meetings organized 
toward that end have taken place and real progress has been achieved. 
However, conclusion of a final agreement will require provision of 
trade promotion authority in order for the U.S. to participate credibly 
in setting the rules for trade in this region. The European Union and 
others clearly find these kinds of initiatives worthwhile. And while we 
stall, they are proceeding along, to our disadvantage.
    Chile. On its own and as part of broader efforts to negotiate a 
hemisphere-wide FTAA, the U.S. should seek a FTA that achieves the 
following objectives, and will require trade promotion authority to 
succeed:
     Eventual zero tariffs such as are already in force between 
Chile, and Canada, Mexico and Central America. Moreover, Chile is an 
associate member of the Mercosur customs union, which embraces 
Argentina, Brazil, Paraguay and Uruguay. In addition, we recommend that 
the FTA also include an understanding that Chile will join in any 
sectoral agreement to eliminate tariffs that is undertaken in the WTO.
     Government procurement liberalization modeled after the 
WTO Government Procurement Agreement (GPA). Unlike the current GPA, the 
bilateral agreement should cover procurement of services as well as 
goods.
     Strengthened intellectual property rights protection, 
including a stronger patent law and legislation to implement Chile's 
WTO TRIPs obligations.
     National treatment for U.S. service providers.
    While useful in its own right, a Chile-U.S. FTA also represents an 
opportunity to set standards that would ``raise the bar'' for the FTAA 
itself. By Latin American standards, Chile's economy is relatively 
advanced and open, and thus presents itself as a model for our other 
partners in the region to emulate.
    Singapore. On November 16, 2000, President Bill Clinton and 
Singapore Prime Minister Goh Chok Tong announced the intention of their 
governments to negotiate a bilateral FTA. The U.S. Chamber of Commerce 
strongly supports this step toward a closer economic relationship with 
one of America's most important allies in Asia. In 1999, the United 
States and Singapore had two-way trade of $34.4 billion, making 
Singapore America's tenth largest trading partner. The Singapore FTA 
will set an important precedent. It will be the first signed with an 
East Asian country and, for this reason, will be closely studied by 
other major trading partners in the region. Generally speaking, 
Singapore is already open to U.S. goods, services, farm products and 
investment. However, a variety of barriers and distortions disadvantage 
U.S. firms in that market. A properly negotiated FTA should address 
such issues as steep tariffs on selected products, improved 
intellectual property rights enforcement, service sector restrictions, 
discriminatory excise taxes, mutual recognition of standards, direct 
selling restrictions, and others. Again, however, the Chamber will 
oppose inclusion of labor and environmental provisions and accompanying 
sanctions in the agreement.
    Egypt. In 1997, Vice President Al Gore and Egyptian President Hosny 
Mubarak agreed to explore the possibility of establishing a U.S.-Egypt 
FTA. Since that time, U.S. and Egyptian officials have consulted on 
this matter and, in July 1999, the two nations concluded a Trade and 
Investment Framework Agreement (TIFA). The TIFA provides a mechanism 
for facilitating the concrete measures needed to continue moving the 
two countries to freer trade. Earlier this month, Egypt reportedly 
invited Jordan to set up a four-way free trade zone that would also 
involve Tunisia and Morocco. The initiative is proposed in the belief 
that such an alliance would bolster each country's economic position 
and increase investments between them as well as strengthen their ties 
with the European Union. Egypt, Jordan, Tunisia and Morocco are each 
bound by a ``partnership'' agreement with Europe. It is in the U.S. 
interest to be prepared to conclude an agreement that will advance our 
economic interests in the region. A properly negotiated agreement will 
reduce such impediments to U.S. business as may be caused by: 
discriminatory import restrictions; protectionist standards, testing, 
labeling and certification requirements; inadequate intellectual 
property protection; various banking, securities, insurance, 
telecommunications, transportation and other services barriers; and 
anti-competitive practices.
Creation of an Asia-Pacific Free Trade Area
    While 2020 may seem a long way off for some, in 1994 Asia-Pacific 
area heads of state similarly agreed that our combined long-term 
interests require the progressive elimination of trade and investment 
restrictions by that time (19 years from now) in a region with over 
half the world's population. Already, ASEAN nations have agreed to 
reduce tariffs to 5 percent or less on a preferential basis--meaning 
for them but not us--by 2003. But we weren't there. And we won't be 
there for the rest of the negotiations without trade promotion 
authority. This becomes particularly relevant when observed against the 
backdrop of the upcoming APEC summit scheduled for October in Shanghai.
Conclusion
    As both this administration, its recent predecessors, and outward-
looking businesses all over the United States believe, U.S. success in 
21st century competition requires that we continue working to open 
global markets to U.S. businesses. And with smaller businesses rapidly 
getting more involved in trade in the wake of NAFTA and the Uruguay 
Round--and at the same time continuing to grow most of the new jobs in 
this country--America must stay engaged at both business and 
governmental levels. American business is quite capable of competing 
and winning against anyone in the world when doors are open and the 
field is level. But when other governments block the doors and tilt the 
fields against us, it is time for our government--with the combined 
support of the legislative and executive branches--to make sure that 
business has the freedom to do what it does best.
    This concludes my testimony. I will be happy to try to answer your 
questions.

                                

    Chairman Crane. Thank you, Mr. Donohue. Mr. McGraw?

 STATEMENT OF HAROLD MCGRAW III, CHAIRMAN AND CHIEF EXECUTIVE 
    OFFICER, MCGRAW-HILL COMPANIES, NEW YORK, NEW YORK, AND 
        CHAIRMAN, EMERGENCY COMMITTEE FOR AMERICAN TRADE

    Mr. McGraw. Thank you, Mr. Chairman, members of the 
Subcommittee. Thank you for the opportunity to be here. I am 
Terry McGraw, Chairman and Chief Executive Officer of the 
McGraw-Hill Companies. I am here today as Chairman of the 
Emergency Committee for American Trade, ECAT.
    Mr. Chairman, the United States' trade policy is at a 
crossroads. The United States faces crucial choices in 2001 
determining whether our trade and investment policies will 
continue to support our economic growth and high standard of 
living. Over the past decades, America has enjoyed enormous 
prosperity, in large part because of the open trade policies 
adopted following the Great Depression. But the post-World War 
II consensus supporting expansionary trade policies has 
faltered.
    Last year, Mr. Chairman, you, Ranking Member Levin, 
Congressman Rangel, and others in the House and the Senate 
achieved some crucial victories on trade. We at ECAT very much 
appreciate all of your work and your leadership, but Mr. 
Chairman, much more remains to be done.
    The United States is losing ground. Since the NAFTA and 
Uruguay Round agreements, America has entered into few 
significant new trade liberalizing agreements. Meanwhile, our 
trading partners have aggressively negotiated new agreements 
throughout the world that exclude the United States and 
disadvantage U.S. companies, and Mr. Chairman, in my written 
testimony, I refer to numerous examples of some of those 
disadvantages.
    But even more significant, if America does not play a 
leadership role in new negotiations, then much of the impetus 
for negotiations in the Western Hemisphere and in the WTO will 
be gone. Without those negotiations, we will be unable to open 
new markets, we will be unable to reduce barriers, and unable 
to support the economic growth and standard of living that we 
have enjoyed in this country.
    In the Western Hemisphere alone, the loss of these 
opportunities is enormous. Many of these countries maintain 
some of the highest tariff and non-tariff barriers in the 
world. In the high-tech sector, for example, only three Latin 
American countries have signed the Information Technology 
Agreement. Brazil, with tariffs of nearly 35 percent on 
information technology products, cites the lack of trade 
promotion authority in the United States. The same story can be 
told in manufacturing, agriculture, and other service areas.
    An issue of great concern to content providers, such as the 
McGraw-Hill Companies, is piracy of our intellectual property. 
Sticking with Brazil, piracy, including motion pictures, music, 
software, books, totaled almost $920 million in 1999 and a huge 
$8.7 billion worldwide.
    Mr. Chairman, members of the Subcommittee, America must 
resume its leadership on trade issues. To do that, we must 
first rebuild the national consensus on trade and lay the 
foundation for passage of trade promotion authority this year. 
This is not only essential to rally support in this country, it 
is essential to progress with our trading partners.
    One-and-a-half weeks ago, I visited Brazil and Mexico and 
met with both countries' government and many business leaders. 
I left convinced that they are committed to substantially 
broadening trade and engagement with the United States, but 
they had concerns about the depth of our nation's commitment to 
far-reaching regional agreements.
    To build that national consensus, we at ECAT believe it is 
imperative to identify and translate to the public concrete 
trade and investment liberalization objectives to promote U.S. 
prosperity. We must make the case, just as we did with China, 
how trade agreements reduce barriers and result in concrete 
benefits for U.S. companies, their workers, and their families. 
This effort requires visible leadership from the President, 
Congress, and the private sector.
    Mr. Chairman, we must also proactively address concerns 
about the trade agenda, including the issues of labor and the 
environment. We must take a pragmatic approach to the 
international labor and environment arenas. After defining and 
then prioritizing our labor and environmental objectives, we 
need to identify the right solutions for each. We think these 
issues primarily are best addressed through their own agendas 
in organizations with the appropriate technical expertise and 
not as add-ons to the trade agenda. Much is being done at the 
International Labor Organization, the NAFTA Commission for 
Environmental Cooperation, and so forth. These efforts can and 
should be intensified.
    Now, there will be cases where our labor and/or environment 
and our trade goals complement one another. In such cases of 
complementarity, we should support both sets of goals in a 
cooperative and trade liberalizing way. Consider the issue of 
agriculture subsidies in China, which have a devastating impact 
on water and land resources in that country. It is important 
for both trade and environmental reasons to help China end the 
use of these subsidies and to open its market to agricultural 
imports. This is an area of complementarity.
    Three final points on these linkages. First, any linkages 
with labor and/or the environment should be positive and not 
the result in trade sanctions agreements.
    Second, trade promotion authority should not be used to 
mandate the inclusion of labor and environment issues in all 
trade agreements. The world is simply too complex for a single 
shot approach.
    And third, we must address many of our U.S. workers' 
anxieties about trade directly through the reauthorization and 
transformation of the Trade Adjustment Assistance programs.
    Trade and investment expansion are critical to America's 
prosperity. The U.S. occupies a unique position of influence in 
the world, as we all know. It is so important to provide the 
President with trade negotiating authority.
    My last point. After an incredible period of sustained 
economic growth, business is facing economic pressure not felt 
in some time. Consequently, it is more important and more 
timely than ever that we rededicate ourselves to expansionary 
trade practices and open markets so that the promise of the 
global economy can be made fully available to U.S. businesses, 
their workers, and their families, as well as our counterparts 
elsewhere.
    Thank you, Mr. Chairman, for the opportunity.
    [The prepared statement of Mr. McGraw follows:]
 Statement of Harold McGraw III, Chairman and Chief Executive Officer, 
  McGraw-Hill Companies, New York, New York, and Chairman, Emergency 
                      Committee for American Trade
    Mr. Chairman, Members of the Subcommittee. Thank you for the 
opportunity to be here today. I am Terry McGraw, Chairman and Chief 
Executive Officer of The McGraw-Hill Companies.
    I am here today as Chairman of the Emergency Committee for American 
Trade--ECAT--an association of the chief executives of major American 
companies with global operations who represent all principal sectors of 
the U.S. economy. ECAT was founded more than three decades ago to 
promote economic growth through expansionary trade and investment 
policies. Today, the annual sales of ECAT companies total more than 
$1.5 trillion, and the companies employ approximately 4.5 million 
people.
    The McGraw-Hill Companies is a global information services provider 
headquartered in New York City. We employ 17,000 people in more than 
300 offices in 32 countries worldwide. You know us best through the 
McGraw-Hill imprint in education, Standard and Poor's, and Business 
Week.
The Challenge on Trade
    The United States faces crucial choices in 2001 on whether our 
trade and investment policies will continue to support our economic 
growth and improve our high standard of living. Over the last century, 
the United States, now the world's largest trading nation, has enjoyed 
enormous prosperity in large part because of the open trade policies it 
adopted following the Great Depression, starting with the Reciprocal 
Trade Agreements Act in 1934. Over the last decade alone, U.S. exports 
have accounted for one-quarter of U.S. economic growth and have 
contributed significantly to the high standard of living enjoyed by 
American workers and their families. Imports have improved the variety, 
quality and availability of products throughout the United States, have 
increased the competitiveness of U.S. companies, and have been a 
significant factor in dampening inflationary pressures. As emphasized 
in the 2001 Trade Policy Agenda released by the United States Trade 
Representative, trade and investment not only support U.S. prosperity, 
they promote greater economic growth, freedom, and stability throughout 
the world.
    In 2001, the United States has an important opportunity to move 
forward with trade and investment policies that continue to support 
U.S. prosperity and our global interests. It can play a leadership role 
in shaping and propelling negotiations globally, in the Western 
Hemisphere, in the Asia-Pacific and bilaterally throughout the world.
    Yet, U.S. trade policy is at a crossroads. The post-World War II 
consensus on the value of liberalizing trade and investment policies 
has been shaken in recent years as is evident from Congress' failure to 
renew trade promotion authority, so-called trade-negotiating authority 
legislation or fast track, since its expiration in 1994 and protests 
against globalization in Seattle, Washington, D.C. and elsewhere.
    From an historical view, most striking is the failure to renew 
trade-negotiating authority legislation that had previously been 
provided to all presidents, Republican and Democratic, from 1975 
onward. Indeed, the forerunner to the modern fast-track procedures 
contained in the Trade Act of 1974 was tariff proclamation authority 
which had been granted to all presidents, almost continuously since the 
Reciprocal Trade Agreements Act of 1934; even that is no longer 
provided to the President except for some limited leftover authority 
from the Uruguay Round Agreements Act.
    Last year, Mr. Chairman, you, Ranking Member Levin, Congressman 
Rangel and others in the House and the Senate were able to achieve some 
crucial victories on trade:
     Congress overwhelmingly supported Permanent Normal Trade 
Relations with China.
     It also reached a broad consensus on unilateral 
preferences for Africa and the Caribbean Basin.
    We at ECAT very much appreciate all of your work on those and other 
matters. Indeed, the 106th Congress passed more trade legislation than 
any other Congress in the last decade; but it did not pass, nor did it 
even consider, trade promotion authority legislation.
    Clearly much more remains to be done.
The United States Is Losing Ground
    Since the NAFTA and the Uruguay Round Agreements, the United States 
has entered into few significant new trade-liberalizing agreements. 
Meanwhile, our trading partners have aggressively negotiated new free 
trade agreements throughout the world. These new agreements exclude the 
United States and disadvantage U.S. companies and their workers.
            Examples of Other Preferential Trade Agreements
    The following are just a few examples of countries pursuing free 
trade agreements that exclude the United States:
    Mexico: In the last year, Mexico continued its efforts to negotiate 
free trade agreements to build upon the NAFTA and free trade agreements 
that it had previously concluded with Chile, Venezuela, and other 
countries. On November 24, 1999, the EU and Mexico concluded a free 
trade agreement that was formally signed on March 23, 2000. The EU-
Mexican agreement went into effect for industrial goods, dispute 
settlement, government procurement, and competition policy on July 1, 
2000 and with respect to services, intellectual property, investment, 
and government procurement on March 1, 2001. The agreement is estimated 
to apply to 96 percent of EU-Mexican trade when the tariff reductions 
are phased in by 2003. As of July 1, 2000, 82 percent of Mexico's 
industrial goods were able to enter the EU free of duty. Approximately 
half of the EU's exports to Mexico are also duty-free.
    After eight years of negotiations, Mexico completed free trade 
agreement negotiations with Guatemala, El Salvador, and Honduras in May 
2000. The agreement covers market access, services, investment, 
intellectual property, and dispute resolution. Tariffs for industrial 
goods will be eliminated in 11 years and for agricultural goods in 12 
years. The agreement is expected to enter into force in 2001.
    On November 3, 2000, Mexico and the European Free Trade Association 
(Iceland, Liechtenstein, Norway and Switzerland) concluded free trade 
agreement negotiations that will eliminate tariffs by 2007. The 
agreement covers trade in goods, services, intellectual property, 
procurement, competition policy, and intellectual property issues and 
includes a dispute settlement mechanism. It will provide substantially 
similar access to the Mexican market as provided under the NAFTA and 
the EU-Mexican free trade agreement.
    Building on Mexico's existing free trade agreement with Uruguay, 
Mexican President Vincente Fox has indicated that he will seek to 
accelerate talks with Brazil, which began in early 2000, to reach a 
broad trade agreement. He also expressed willingness to extend any 
agreement reached with Brazil to the other MERCOSUR countries. Mexico 
is also engaged in discussions with Japan, Korea and Singapore.
    Canada: Canada is also continuing to seek out other countries with 
which to negotiate free trade agreements, to build on NAFTA, Canada's 
free trade agreement with Israel, and its NAFTA-like agreement with 
Chile. In 2000, Canada began looking into possible free trade 
agreements with Costa Rica, El Salvador, Guatemala, Honduras, 
Nicaragua, Japan, and Singapore.
    Chile: Chile is an associate member of MERCOSUR and has free trade 
agreements with Canada, Mexico, Venezuela, and Colombia. It has begun 
trade agreement talks with the EU and South Korea and is exploring the 
possibility of negotiations with New Zealand, Singapore and Japan.
    The European Union: The EU is already the world's largest market 
and it is expected to expand through its continued enlargement 
negotiations with twelve Eastern European countries. In 2000, the EU 
continued the process of deepening integration among member states, 
broadening its borders to Eastern Europe, and developing deeper trade 
relations with other countries through trade preferences and free trade 
agreements. In addition to its Free Trade Agreement with Mexico, the 
EU's free trade agreement with South Africa entered into force on 
January 1, 2000 and its association agreement with Morocco entered into 
force on March 1, 2000. It is also proceeding with negotiations with 
MERCOSUR, several Gulf States, Chile, and other countries.
            Effect on the United States and U.S. Companies and Their 
                    Workers
    By reducing or eliminating tariffs and providing other preferences 
among members, these agreements severely disadvantage U.S. companies. 
The tariff preferences alone directly raise the relative cost of 
American goods at the expense of our companies and workers. Other 
preferences act more subtly, but similarly result in the loss of U.S. 
exports and other activities in foreign markets.
    Perhaps the most oft-repeated, but very important, example is 
Chile. It maintains a 9 percent tariff on virtually everything we ship. 
That means U.S. exporters suffer a 9 percent price disadvantage 
compared to our competitors from Canada, Mexico and Chile's other free 
trade partners. This affects every exporter to Chile and reduces our 
ability to do business. This price disadvantage has severely affected 
U.S. agricultural exporters who have had deficits with Chile over the 
past several years. Notably, in 1996, the United States exported $4.132 
billion of goods to Chile. By the end of 2000, U.S. exports had dropped 
to $3.455 billion (actually an increase from 1999 exports of $3.079 
billion). While other economic factors have affected U.S. exports, the 
tariff disadvantage we face in the Chilean market severely 
disadvantages our exporters, their workers and their families. We are, 
therefore, very pleased that the Administration has resumed bilateral 
negotiations for a free trade agreement with Chile this week.
    The same stories can be told in other manufacturing sectors, in 
agriculture and for services as well.
            Loss of Forward Momentum on Trade
    Even more significant than these other agreements is the lack of 
forward momentum on trade when the United States sits on the fence.
    Two weeks ago, I visited Brazil and Mexico and met with both 
countries' government and business leaders. I came away convinced that 
they are committed to substantially broadening trade and engagement 
with the United States, but they had concerns about the depth of our 
nation's commitment to far reaching regional agreements. The absence of 
such a commitment will likely lead to the creation of regional and bi-
lateral agreements that exclude the United States.
    If the United States does not play a leadership role in new 
negotiations, then much of the impetus for negotiations in the Western 
Hemisphere and in the WTO will be gone. Without those negotiations, we 
will be unable to open new markets, unable to reduce barriers, and 
unable to support the economic growth and standard of living that we 
have enjoyed in this country.
    In the Western Hemisphere alone, the loss of these opportunities is 
enormous: The FTAA could join a population of 800 million, with a 
combined GDP of approximately $11 trillion. Yet, many of these 
countries maintain some of the highest tariff and non-tariff barriers 
in the world today. The United States' lack of trade promotion 
authority is one of the major reasons that Brazil has cited for its 
reluctance to enter into serious FTAA negotiations, which would reduce 
and eliminate tariff and non-tariff barriers. In the high tech sector, 
for example, only three countries in Latin America (Panama, Costa Rica 
and El Salvador) have signed onto the WTO Information Technology 
Agreement, which is likely to be included in the FTAA negotiations. For 
example, Brazil, with the eighth largest economy in the world, 
maintains tariffs of nearly 35 percent on Information Technology 
products. Even Mexico imposes 20 percent external tariffs on imports 
from non-NAFTA countries.
    An issue of great concern to content providers such as The McGraw-
Hill Companies is piracy of our intellectual property. Piracy of 
intellectual property--including motion pictures, music recordings, 
software and books--totaled over $8.7 billion in 1999. Sticking with 
Brazil, a country that has been placed on the U.S. Trade 
Representative's Priority Watch List, piracy of intellectual property 
totaled almost $920 million in 1999. Piracy of books in Brazil alone 
cost our industry almost $20 million that year.
    Earlier this month, law enforcement officials in Korea announced 
the discovery of some 600,000 counterfeit English-language books with 
an estimated value in excess of $14 million. The counterfeit books 
comprising some 2,000 separate titles, run the gamut from popular best-
selling fiction, to college textbooks, to reference and professional 
works. These books were in a warehouse belonging to Han Shin, one of 
the oldest book distributors in Korea. The raid on Han Shin underscores 
the fact that pirates are no longer fly-by-night operators requiring 
only a storefront and a photocopying machine, but have evolved into 
sophisticated high-tech enterprises that pose an even greater threat to 
legitimate publishers.
    Without U.S. leadership on trade, we will be unable to address 
these issues through existing agreements or to conclude new trade 
agreements with even stronger provisions protecting intellectual 
property rights that could further help eliminate several of these 
major problems.
Restoring U.S. Leadership/Rebuilding the Consensus
    Mr. Chairman, Members of the Subcommittee. The United States must 
resume its leadership on trade issues. It must aggressively pursue 
regional, global and bilateral trade-liberalizing agreements throughout 
the world.
    To do that, we must first rebuild the consensus on trade that has 
faltered in this country and lay the foundation for the passage of 
trade promotion authority later in 2001. To build that consensus, we at 
ECAT believe it is imperative to identify--and translate to the broader 
public--concrete trade and investment liberalization objectives to 
promote U.S. prosperity.
    All too often, we have used the language of those who oppose trade. 
Rather, we must effectively make the case--as we did in the China 
debate--that trade agreements reduce barriers and result in concrete 
benefits for U.S. companies, their workers and their families.
    This effort will require visible leadership--from the President, 
Congress and the private sector. We are working with the 
Administration, Congress and others in the private sector to define a 
set of concrete trade and investment liberalization objectives that 
will promote U.S. prosperity. Among the objectives are the specific 
benefits that the United States can reap from ongoing negotiations to 
conclude an FTAA and the launch of broad negotiations in the WTO, as 
well as other specific negotiations.
    Our objectives should also recognize the importance of expansionary 
trade and investment policies as essential components in the continued 
growth of the new economy. ECAT has commissioned a new study, from 
Dartmouth College economist Dr. Matthew Slaughter on the linkages 
between the growth of the new economy and trade and investment 
policies, as one way to help reinvigorate the debate on the importance 
of trade and investment liberalization. In addition, ECAT supports 
concrete trade and investment objectives that will promote the growth 
of digital trade and ensure that electronic commerce benefits from 
trade liberalization in the WTO and in bilateral and regional trade 
agreements.
    In defining our objectives, ECAT companies are particularly focused 
on the benefits for the United States, its workers and their families, 
that can be achieved through the conclusion of comprehensive, trade-
oriented agreements. We therefore strongly support the renewal of the 
broadest possible trade promotion authority. Trade promotion authority 
legislation is critical for the United States to regain its leadership 
role in international trade negotiations. Following their experience in 
the Kennedy Round negotiations and the adoption of the trade-
negotiating authority procedures in 1975, U.S. trading partners have 
generally supported, indeed sought, assurances that the President would 
have such authority to implement future trade agreements. Although only 
technically necessary to facilitate implementation of a final agreement 
by Congress, these procedures have taken on a much greater role in the 
eyes of U.S. trading partners, many of which have refused to take U.S. 
negotiators seriously (particularly in the context of multilateral 
negotiations) since this authority expired. Others have used the 
expiration of this legislation as an excuse to stall negotiations and 
not make important concessions. Timely renewal of such authority is 
critical in order to give U.S. negotiators the clout necessary to 
extract concessions and successfully conclude negotiations. Lack of 
this authority represents a serious impediment to the United States' 
ability to lead on trade issues, particularly with respect to both the 
FTAA and WTO negotiations.
    Among our specific priorities are:
     completion of China's negotiations to enter the WTO;
     concrete progress at the Quebec Summit of the Americas in 
April on expediting negotiations to complete the FTAA before or by 
2005;
     Congress' approval of the U.S.-Vietnam Bilateral 
Commercial Agreement;
     the launch of a broad WTO round encompassing agriculture, 
services, and industry; and
     bilateral negotiations with Singapore, Chile and other 
countries.
    We also strongly support efforts to modernize how the U.S. 
government itself handles trade--from the outdated automated systems 
and operations of the U.S. Customs Service to the export control 
system. These systems must be modernized to keep pace with 
technological developments and the rapid pace of globalization. 
Similarly, we must ensure that the trade agencies of the U.S. 
Government have adequate resources to perform their jobs, from trade 
financing, such as the Ex-Im Bank, which needs to be reauthorized this 
year, to trade agreements compliance. Without these concurrent efforts, 
U.S. competitiveness will continue to be undermined at the expense of 
U.S. companies, their workers and their families.
Addressing Concerns About Trade Liberalization
    In addition to defining our trade and investment objectives, we 
must also proactively address concerns about the trade agenda, 
including issues of labor and the environment. Without question, there 
are serious labor, environmental, and other issues that need to be 
addressed in the international context. Before rushing to adopt 
solutions that may not be effective, however, it is critical that 
policymakers first work to define the United States' objectives and 
then determine how they can best be achieved.
    As the World Bank and others have documented, it is precisely 
through increased trade and economic growth that developing countries 
are better able and increasingly motivated by a growing middle class to 
improve labor and environmental standards. Since World War II, the 
liberalization of trade has produced a six-fold growth in the world 
economy and a tripling of per capita income and enabled hundreds of 
millions of families to escape from poverty and enjoy higher living 
standards. Proposals that would impede trade liberalization and 
economic growth must, therefore, be seriously questioned.
    Mr. Chairman, Members of the Subcommittee. Most business leaders 
are practical people who generally approach issues without pre-existing 
ideologies. From my perspective, the way forward on these issues is to 
first reach consensus on what our objectives are in the international 
labor and international environment arenas--just as ECAT supports doing 
with respect to our trade and investment objectives.
    After identifying and prioritizing our labor and environmental 
objectives, we need to identify the right solutions for each. My 
initial view is that--for the most part--these issues are best 
addressed through their own agendas in organizations with the 
appropriate technical expertise and not as add-ons to the trade agenda. 
Much, for instance, is already being done at the International Labor 
Organization, the NAFTA Commission for Environmental Cooperation and 
elsewhere. Those efforts can be intensified. For example, if our 
priority is to ensure clean water and sewage treatment along the 
Southwest border, won't increased funding of the North American 
Development Bank and similar activities be more fruitful than imposing 
sanctions on Mexico?
    These issues are complex and some solutions that have been offered 
in the trade arena are counterproductive. Particularly compelling is 
the case of exploitative child labor. The International Labor 
Organization's International Program for the Elimination of Child Labor 
(IPEC), with significant financial support from the United States, is 
engaged in serious work to address child labor problems in several key 
countries. Their approach is based on almost a century of experience 
and recognizes not only the problem, but also its causes. IPEC has 
provided substantial support to many children and their families in a 
positive manner and does not, as some suggested solutions in this area 
have, result in moving children from one form of employment to another 
even less desirable sector.
    Now, there will undoubtedly be cases, where our labor and/or 
environment and our trade goals complement one another. In such cases 
of complementarity, we should support both sets of goals in a 
cooperative and trade-liberalizing way. Consider the issue of 
agricultural subsidies in China, which have a devastating impact on 
water and land resources in that country. It is important for both 
trade and environmental reasons to help China end the use of such 
subsidies and to open its market to agricultural imports. This is an 
area of complementarity. Another obvious area is the issue of tariffs 
on environmentally-clean technologies. Reducing tariffs and promoting 
trade in these items will have a positive environmental impact 
throughout the world.
            Linkages Must Be Positive; Sanctions Are Counterproductive
    Three final points on these linkages. First, I and my fellow CEOs 
feel very strongly that any linkages with labor and/or the environment 
must be positive and not result in trade sanctions. Let me offer a few 
reasons:
     The practical--most countries that have labor and 
environmental problems that we want to address will simply not accept 
trade sanctions as part of a trade agreement.
     The impact--trade sanctions target export industries, 
which oftentimes have the highest labor and environmental standards as 
a result of the involvement of U.S. companies. Trade sanctions would 
undermine precisely those industries and the examples they set.
     The result--such sanctions are largely counterproductive. 
By impeding economic growth and trade liberalization, sanctions limit 
the ability and motivation of countries to increase such standards.
            No Mandatory Inclusion of Labor and Environmental 
                    Provisions as Part of Trade Promotion Authority
    Second, we should not use trade promotion authority to mandate the 
inclusion of labor and environment issues in all trade agreements. 
There remains much disagreement in the developing world, not to mention 
in the United States, over how to address these issues. Mandating the 
inclusion of labor and environmental issues will impede, rather than 
promote, the very trade liberalization and economic growth that support 
the adoption of higher standards throughout the world.
    Already, many countries in the developing world are reluctant to 
move forward with trade liberalization. By mandating the linkage of 
labor and environmental issues to trade agreements, we create an 
additional incentive and excuse for these countries to oppose the very 
trade liberalization that will enable them to improve their economies 
and these standards.
            Review and Transformation of the Trade Adjustment 
                    Assistance Programs
    Third, we should address U.S. workers' anxieties about trade 
directly--through the reauthorization and transformation of the Trade 
Adjustment Assistance (TAA) programs that expire at the end of 
September. Despite the importance of trade and investment 
liberalization in supporting economic growth and a high standard of 
living in the United States, there remains much skepticism on whether 
the United States should continue to pursue liberalized trade and 
investment. In a recently published book, Globalization and the 
Perceptions of American Workers, Drs. Kenneth Scheve and Matthew 
Slaughter review public opinion surveys dating back to the 1930s 
documenting this uncertainly. Their review indicates that while a large 
majority of Americans acknowledge the gains from globalization, a 
plurality to a majority are worried about the impact of trade and 
globalization on labor issues, particularly lower wages and the loss of 
jobs in this country.
    The original TAA programs for workers and for firms were enacted as 
part of the Trade Expansion of 1962. These programs were premised on 
the recognition that while trade liberalization supports economic 
growth and prosperity for the United States as a whole, certain workers 
and companies may be adversely affected by the adjustment to trade 
liberalization. The TAA for Workers and the TAA for Firms programs 
enacted in 1962 were last modified in any significant manner as part of 
the Trade Act of 1974. The third TAA program, NAFTA-TAA for Workers, 
was enacted as part of the NAFTA Implementation Act in 1993 and is 
focused on workers adversely impacted by trade with Canada and/or 
Mexico. The NAFTA Implementation Act also established a fourth program, 
the Community Adjustment and Investment Program (CAIP), to provide 
funds for community adjustment and investment.
    As the U.S. economy has changed considerably since the enactment of 
the original TAA programs, so have the needs of the U.S. workforce, 
particularly as technological development accounts for a substantial 
proportion of the dislocations experienced in the U.S. workforce. ECAT 
supports, therefore, an extensive review and transformation of these 
programs to address more fully the needs of today's workers.
    While there is no lack of support for the objective of these 
programs, support for the extension of the TAA programs has declined in 
recent years as complaints have grown over the effectiveness and proper 
role of these programs. Last year, the Senate Finance Committee 
requested the General Accounting Office (GAO) to perform a 
comprehensive review of the three primary TAA programs and the CAIP in 
2000.
    The GAO's initial reports confirm some of the concerns over the TAA 
programs that have been raised in recent years. In its October 2000 
report, Trade Adjustment Assistance: Trends, Outcomes, and Management 
Issues in Dislocated Worker Programs, the GAO found that 75 percent of 
TAA beneficiaries in FY 1999 were able to find follow-up employment, 
but only 56 percent of those workers earned 80 percent or more of their 
prior wage. While training improved wage and employment outcomes for 
workers, training rates have declined substantially in the 1990s (from 
31 percent of eligible workers in FY 1995 to 18 percent in FY 1999). 
Some states have suspended training and established waiting lists 
because of Labor Department funding delays. Differing eligibility rules 
between the general TAA for Workers and the NAFTA-TAA programs also 
impede the provision of assistance, as do time limits on training.
    GAO's review of the TAA for Firms program and the CAIP illustrated 
even greater concerns. In its December 2000 report, Trade Adjustment 
Assistance: Impact of Federal Assistance to Firms is Unclear, the GAO 
was unable to determine the impact of these programs since there is no 
formal monitoring and tracking of program results, as well as limited 
funding. In its September 2000 report on the CAIP, Trade Adjustment 
Assistance: Opportunities to Improve the Community Adjustment and 
Investment Program, the GAO found significant managerial deficiencies 
and inefficiencies that delayed implementation of the program for more 
than three years and continue to delay approval of loans and grants. 
Eligibility procedures are complex and appear to undercount dislocated 
workers. Furthermore, notification and outreach to communities 
designated as eligible are very limited, further undermining the 
ability of this program to address the adjustment needs of communities 
and workers. Since 1997, the CAIP provided $257 million in loan 
guarantees, loans and grants to 83 of the 228 eligible communities. 
Like the TAA for Firms program, GAO found that the CAIP lacks any 
monitoring system and, therefore, was unable to determine whether 
distributed grants and loans have been effective.
    This year provides an important opportunity for engaging in an 
extensive review and transformation of the TAA programs to address more 
fully the needs of today's workers. Many scholars and others are 
already working on ways that this can be done. Proposals being 
developed include an expansion of the TAA programs to address 
technology-based dislocations, wage insurance, and/or health care 
portability. Notably, on November 14, 2000, the Congressionally 
established Trade Deficit Review Commission released a report--divided 
along party lines--on the causes and impact of the trade deficit. The 
primary area where members were able to achieve consensus, however, was 
on the need to provide effective worker adjustment assistance, 
including through the provision of new benefits, such as health care 
portability.
    Nor is this solely the role of the Federal Government. The McGraw-
Hill Companies and other ECAT member companies are actively involved in 
our own education and retraining efforts to address the needs of 
today's workforce. We have focused on continued education and intensive 
retraining through the use of community colleges, the Internet, and 
other education resources. These programs, in conjunction with 
government efforts, represent an important facet of worker readjustment 
efforts.
Conclusion
    Mr. Chairman, Members of the Subcommittee: Trade and investment 
expansion are critical to the prosperity of the United States. The 
United States occupies a unique position of influence in the world. It 
is so important to provide the President with trade promotion authority 
not only to provide him the power and flexibility to negotiate 
agreements that advance our national interests, but also to assume the 
mantle of leadership the global community expects from the U.S.
    One last point. After an incredible period of sustained economic 
growth, business is facing economic pressure not felt in some time. 
Consequently, it is more important and timely than ever that we 
rededicate ourselves to expansionary trade practices and open markets 
so that the promise of the global economy can be made fully available 
to U.S. business and workers as well as our counterparts elsewhere.
    I and my fellow ECAT CEOs are committed to ensuring that the United 
States regains its leadership role on trade and pursues aggressively 
trade-liberalizing opportunities throughout the world.
    I appreciate the opportunity to appear before you today on behalf 
of ECAT.

                                


    Chairman Crane. Thank you, Mr. McGraw. Mr. Maury?

  STATEMENT OF SAMUEL L. MAURY, PRESIDENT, BUSINESS ROUNDTABLE

    Mr. Maury. Thank you, Mr. Chairman, for holding this 
hearing this morning. My name is Sam Maury and I am President 
of the Business Roundtable, an association of chief executive 
officers of leading U.S. corporations. I want to thank you for 
providing us with the opportunity to share our views on the 
recent proliferation of free trade agreements, FTAs, that grant 
parties preferences at the expense of the United States.
    The world has entered a new era in international trade, an 
era in which our trading partners no longer consider the United 
States indispensable. One defining feature of this new era is 
the proliferation of FTAs. The United States is a party to only 
two of the more than 130 FTAs in force today. The European 
Union has FTAs with 27 countries. About one-third of total 
world exports in 1999 were covered by EU free trade and customs 
agreements, compared with only 11 percent for U.S. free trade 
accords.
    The EU is hardly alone. Mexico has FTAs with at least 28 
countries, and nine Southeast Asian nations are beginning to 
consider an FTA with China. The United States is not keeping 
pace and the implications are serious and they take a variety 
of forms.
    First, we face discriminatory tariffs. For example, the 
Canada-Chile FTA eliminated Chile's across-the-board tariff for 
Canada, but not for the United States. Most trade between 
Brazil and Argentina, two members of MERCOSUR, is now duty-
free, while U.S. companies face an average tariff of more than 
14 percent.
    The case of the Holland Binkley company illustrates the 
harm that many U.S. companies face every day. Holland Binkley, 
an Ohio company, recently bid to supply axle products to a 
customer in Chile. They lost that bid to a Canadian supplier 
because the Canada-Chile FTA exempted Canadian suppliers from 
all tariffs. Holland simply could not compete because of the 
discriminatory tariff regime. Now Holland Binkley exports 
transportation products to Chile from Canada, not from the 
United States, in order to take advantage of the Canada-Chile 
FTA.
    Second, because these FTAs increasingly cover trade and 
services, they often place our service industries at a 
competitive disadvantage against their foreign rivals.
    Third, these FTAs establish product standards that favor 
our foreign competitors. Their product becomes the standard 
while the U.S. product becomes non-standard.
    Fourth, these FTAs grant our foreign competitors investment 
opportunities that U.S. investors lack.
    Finally, they set dangerous precedents and allow our 
trading partners to present a united front in future 
negotiations with the United States. With respect to 
precedents, for example, the EU-Mexico FTA contains little 
coverage of agriculture, which supports the dangerous 
proposition that agriculture is too sensitive for international 
rules. As a result, the United States will find it increasingly 
difficult to open foreign markets to U.S. farmers.
    With respect to alliances, the four South America members 
of MERCOSUR hope to conclude FTAs with Chile, the Andean 
community, and Mexico before MERCOSUR enters the final and most 
difficult stage of negotiations with the United States on an 
FTA of the Americas.
    Mr. Chairman, U.S. trade policy makers need to reengage 
immediately and aggressively in trade negotiations. We must 
proceed on multiple fronts. We must deepen our commitment to a 
new round of WTO negotiations, complete negotiations with 
Singapore and Chile, reinvigorate the FTAA negotiations, and 
begin formulating entirely new trade and investment 
initiatives. Granting the President trade promotion authority 
is an important first step towards reengagement on all of these 
fronts.
    The Business Roundtable is determined to reach out to the 
public and help them understand the many benefits of 
international trade and the need for trade promotion authority. 
In 1998, we established the Business Round Table (BRT) Go 
Trade, a national grassroots program designed to help Americans 
better understand the benefits of international trade. The 
initiative continues to expand and build support for trade at 
the local level. From 11 Congressional districts in eight 
States in 1998 to more than 160 key Congressional districts 
covering 25 States today, the program has increased its reach 
across the country to ensure that the pro-trade message is 
heard.
    Mr. Chairman, in this era, standing still means falling 
behind. I urge the Congress to give the President trade 
promotion authority so that the United States can move forward 
and resume its position of leadership on trade. Thank you.
    [The prepared statement of Mr. Maury follows:]
      Statement of Samuel L. Maury, President, Business Roundtable
    Mr. Chairman, Members of the Subcommittee. Good morning. My name is 
Sam Maury. I am the President of The Business Roundtable, an 
association of chief executive officers of leading U.S. corporations 
with a combined workforce of more than 10 million employees in the 
United States.
    I want to thank you for providing me and The Business Roundtable 
with the opportunity to share our views on the recent proliferation of 
bilateral and regional trade agreements that exclude the United States.
    Mr. Chairman, the world has entered a New Era in international 
trade and investment policy, an Era in which our trading partners no 
longer consider the United States an indispensable party to market 
opening agreements. One defining feature of this New Era is the 
proliferation of bilateral and regional free trade agreements (FTAs) 
that grant parties preferences over non-parties. The United States is a 
party to only two of the over 130 estimated FTAs in force today. As a 
result, the vast majority of FTAs grant our trading partners 
preferences at our expense. Our failure to keep pace has both immediate 
and long-term implications for the health of the U.S. economy. Not only 
do FTAs that exclude the United States make it difficult for U.S. 
businesses, workers and farmers to compete today, they also diminish 
our ability to negotiate forcefully in the future, especially in the 
World Trade Organization (WTO).
    In this New Era, standing still means falling behind. The United 
States must move forward by re-engaging immediately and aggressively in 
trade and investment negotiations. Giving the President Trade Promotion 
Authority would enable the United States to retake its leadership role, 
and signal to our trading partners our commitment to reinvigorate the 
WTO and the Free Trade Area of the Americas (FTAA) negotiations, to 
move forward with the Singapore and Chile FTA negotiations, and to 
launch new initiatives.
I. The New Era in International Trade and Investment Policy
    The world has entered a New Era in international trade and 
investment policy. In the past ten years, our trading partners have 
become hyperactive, rewriting trade and investment rules and reshaping 
international economic relations. Our trading partners no longer 
consider the United States an indispensable party to trade and 
investment negotiations. They are cutting deals without us, gradually 
surrounding the United States with a network of preferential trade 
arrangements.
    When the New Era began, the United States kept pace with its 
partners. We negotiated the North American Free Trade Agreement (1994), 
promoted ambitious market-opening initiatives in the APEC, such as the 
Information Technology Agreement (1996), and negotiated 
telecommunications and financial services deals in the WTO (1997). 
After a pause of several years, we have started to get back into the 
game with the U.S.-Jordan FTA and the proposed FTA negotiations with 
Chile and Singapore. However, unable to agree domestically on an agenda 
for the next round of WTO talks or on comprehensive regional objectives 
in the FTAA negotiations, we run the risk of falling further behind.
            A. Free Trade Agreements
    Approximately 130 FTAs have been notified to the WTO (or its 
predecessor, the GATT) and are in force around the world today, most of 
which were concluded since 1990. Only two--the U.S.-Israel FTA and the 
NAFTA--include the United States. (The U.S.-Jordan FTA is not yet in 
force.) The actual number of FTAs may be even greater, as not all FTAs 
are notified to the WTO. In many instances, these FTAs are less 
comprehensive than U.S. FTAs. Nevertheless, they pose a considerable 
challenge to U.S. policymakers.
    The European Union. About 33 percent of total world exports in 1999 
were covered by EU free trade and customs agreements, compared to 
almost 11 percent for U.S. free trade accords. The EU has in force FTAs 
with 27 countries--20 of these have been signed since 1990. Last year 
alone it reached agreements with South Africa, Morocco and, most 
significantly, Mexico--the United States' second largest export market. 
Agreements with Egypt and Jordan have been signed but are not yet in 
force.
    The EU has 15 more FTAs on its active negotiating agenda--including 
FTAs with the four nations that comprise MERCOSUR, with the six 
countries of the Gulf Cooperation Council (Saudi Arabia, Oman, Kuwait, 
Qatar, UAE and Bahrain), and with Chile.
    MERCOSUR. Argentina, Brazil, Paraguay and Uruguay formed MERCOSUR 
in 1991. MERCOSUR began its first round of FTA negotiations with the EU 
in April of 2000. In September of 2000, MERCOSUR agreed to establish by 
2002 a trade union with the Andean Community. (The Andean Community 
comprises Peru, Venezuela, Colombia, Ecuador, and Bolivia.) At the end 
of 2000, MERCOSUR invited Mexico to join its bloc by 2004.
    ASEAN. The Association of Southeast Asian Nations began to form an 
FTA in 1992. (ASEAN comprises Brunei, Cambodia, Indonesia, Laos, 
Malaysia, Philippines, Singapore, Thailand and Vietnam.) In November 
2000, ASEAN began considering an FTA with China. Some consideration is 
also being given to a massive East Asian FTA between ASEAN, China, 
Japan and Korea.
    Mexico. Mexico has FTAs with at least 28 countries; 25 agreements 
were concluded since 1994. In addition to NAFTA and its agreement with 
the EU, Mexico has agreements with Bolivia, Chile, Venezuela, Colombia, 
Costa Rica, Nicaragua and Israel. It is presently negotiating FTAs with 
MERCOSUR, Japan, South Korea and Singapore. In November 2000, Mexico 
reached an agreement with EFTA (Iceland, Liechtenstein, Norway and 
Switzerland). According to Mexican President Vicente Fox, ``The fact 
that we belong to [NAFTA] does not impede us from reaching bilateral 
and regional accords. . . . Brazil, the MERCOSUR, and Latin America are 
our priorities.''
    South Africa. In addition to concluding an FTA with the EU, South 
Africa is the leader of the Southern Africa Development Community 
(SADC), an FTA among 12 South African countries. In December 2000, SADC 
and MERCOSUR agreed to pursue closer trade and economic ties.
    Japan. Following a long-standing policy of refusing to sign 
bilateral and regional FTAs, Japan in the past two years has decided to 
give serious consideration to several significant FTAs. Japan hopes to 
conclude a comprehensive agreement with Singapore by the end of this 
year. Japan is also holding informal discussions on FTAs with Mexico, 
Canada, South Korea, Australia and New Zealand--but not with the United 
States. A senior Japanese official has suggested that Japan's future 
may no longer be as closely tied with the United States and the WTO: 
``For the past several decades, Japan has been backing bilateralism and 
multilateralism, in which it has treated the United States as its key 
trade partner and GATT and the WTO as the supreme body to set global 
trading rules. This policy is changing as the time changes.''
    The United States. At present, the United States has in force FTAs 
with only three nations; the most recent agreement, NAFTA, entered into 
force in 1994--more than seven years ago. While the United States in 
1998 gained acceptance from 34 Western Hemisphere nations for the 
general principle of moving toward hemispheric free trade in the 
Americas by 2005, these negotiations have stalled. The objective of 
free trade in APEC by 2020, agreed to in 1994, is even less advanced.
            B. Bilateral Investment Treaties (BITs)
    Bilateral Investment Treaties (BITs) are international agreements 
that essentially prevent discrimination, remove barriers and protect 
investments against expropriation. The nations that are most active in 
negotiating BITs recognize the tremendous benefits that foreign 
investment provides to their economies. Although a full list of these 
many benefits is beyond the scope of this testimony, two of the most 
fundamental deserve particular attention.
    First, our investments and our exports are generally linked. 
Exports of goods by U.S. companies to their foreign affiliates total 
about $162 billion a year, 26 percent of all U.S. goods exports. It is 
easier for U.S. companies to export to foreign markets when these 
companies can establish a commercial presence in the foreign market. 
For example, a U.S. machinery manufacturer may find low tariffs on U.S. 
machinery meaningless if the manufacturer cannot establish a sales 
outlet or provide maintenance services for the exported machinery.
    Second, U.S. companies' overseas operations also generate income 
that is reinvested in the United States. Approximately $135 billion per 
year is invested in the U.S. economy from this source of income. 
Foreign investment also allows U.S. companies to enjoy greater 
economies of scale and scope, as well as greater access to important 
foreign technologies.
    The number of BITs quintupled during the 1990s, from 385 to 1,857, 
according to a recent report from the United Nations Conference on 
Trade and Developmet. The United States ranks only 26th in terms of the 
number of BITs concluded as of January 2000.
    While the United States is party to approximately 43 BITs, Western 
European nations have negotiated 909 and have negotiated with the 
largest and most commercially significant developing countries in the 
world. For example, 16 Western European countries have BITs with Brazil 
(the largest country in Latin America), 16 with China (the largest 
country in Asia), 10 with India (population nearly 1 billion), and 13 
with Indonesia (population over 200 million). The United States has not 
signed a single BIT with any of these nations.
            C. Mutual Recognition Agreements (MRAs)
    A Mutual Recognition Agreement (MRA) is an agreement between the 
parties to accept one another's (different) standards or regulatory 
certification systems.
    The EU leads the world in the development of MRAs. While the United 
States concluded several MRAs with the EU in 1997 and an MRA for 
telecommunications equipment with members of APEC in 1998, the EU has 
greater experience and familiarity with MRAs. Most recently, in 
December 2000, it concluded an MRA with Japan, after five years of 
negotiations. Its dominance in this area means that European exports 
often can gain entry into foreign markets at a lower cost and sooner 
than U.S. exports.
II. The Impact of U.S. Inaction
    A Presidential Report to the Congress several years ago recognized 
the harm that results from U.S. inaction in the New Era: ``[A]ny time a 
trade agreement is concluded that reduces barriers among the parties, 
and those parties do not include the United States, U.S. producers are 
put at a competitive disadvantage in that market. U.S. exporters are 
discovering every day the real and growing commercial costs of U.S. 
non-participation in these ongoing trade negotiations.'' (Presidential 
Report to the Congress: Recommendations on Future Free Trade Area 
Negotiations, September 25, 1997).
    While many of the FTAs and BITs described above are not as 
comprehensive as agreements to which the United States is a party, our 
failure to keep pace with our trading partners in this New Era 
nevertheless poses both an immediate and a long-term threat to U.S. 
businesses, workers and farmers. In the immediate future, and even 
today, U.S. businesses, workers and farmers are forced to compete on an 
uneven playing field. Longer term, our trading partners are creating 
rules that cut against us and are forming strategic alliances that are 
hostile to U.S. interests. The immediate and long-term threats take a 
variety of forms.
            A. Discriminatory Tariffs
    With the proliferation of FTAs that exclude the United States, U.S. 
exporters face higher tariffs than their competitors. For example, the 
Canada-Chile FTA eliminated Chile's across-the-board 11 percent tariff 
for Canada, but not for the United States. In addition, most trade 
between Brazil and Argentina (two members of MERCOSUR) is now duty-
free, while U.S. companies still face an average tariff of more than 14 
percent on exports to these countries. Unless the United States returns 
to the negotiating table, the situation is likely to deteriorate even 
further in the immediate future, as numerous proposed FTAs are 
concluded and enter into force.
    These discriminatory tariffs harm U.S. businesses and workers every 
day. For example, Holland Binkley Company, an Ohio company, recently 
bid on supplying axles to Chile. Holland lost the bid to a Canadian 
company, because the Canada-Chile FTA exempted Canadian products from a 
tariff that U.S. manufacturers must pay. To be able to compete with 
Canadian companies, Holland has to use its plant in Woodstock, Canada, 
to export transportation products to Chile.
    Henry Schein, Inc., headquartered in New York, is the world's 
leading distributor of healthcare products to office-based doctors and 
dentists. Henry Schein exports its products to over 400,000 clients 
around the world. But tariffs and duties as high as 100 percent place 
these U.S. exports beyond the means of many customers in Brazil and 
Argentina. MERCOSUR's preferential treatment of South American products 
force doctors and dentists to buy local products, even though U.S. 
healthcare products are widely regarded as the best in the world. 
Before MERCOSUR was formed, Henry Schein had much better access to 
these markets.
    Foreign FTAs are also adversely affecting U.S. farmers. For 
example, according to the Washington State Potato Commission, Chile has 
been the largest importer in South America of U.S. frozen potato 
products. However, because of Chile's FTAs with Canada and MERCOSUR, 
Chile is phasing out its duties on Canadian and Argentine potatoes, 
while tariffs on U.S. potatoes are stuck at 8 percent. As a result, 
U.S. potato producers are losing their market share. Recently, U.S. 
potato exporters lost the Burger King account to Canadian and Argentine 
suppliers.
    Finally, in your second panel today, you will hear the Mead 
Corporation explain how the lack of FTAs with Latin American countries 
has adversely affected exports from Mead and other U.S. forest and 
paper product companies.
            B. Discriminatory Services Provisions
    FTAs increasingly cover trade in services. Because many developing 
countries have yet to remove barriers to market access in many services 
sectors under the WTO's General Agreement on Trade in Services, FTAs 
provide fertile ground for preferences in such service areas as 
telecommunications, financial services, tourism, and government 
procurement. Our exclusion from FTAs means our service providers are 
placed at a competitive disadvantage against their foreign (especially 
European) rivals. Take, for example, the EU-Mexico FTA. The European 
Commission boasts that European service providers ``will be granted 
better access than that currently enjoyed by Mexico's other 
preferential partners and in particular the USA and Canada.'' (emphasis 
added)
            C. Unfavorable Product Standards and Regulations
    Our major trading partners are actively seeking to embed their 
technologies in standards and regulations adopted in other countries. 
FTAs often provide the institutional framework for doing so. When 
successful, these efforts grant foreign companies a decisive 
competitive advantage. Their product becomes the standard, while the 
U.S. product becomes obsolete.
            D. Discriminatory Regulatory Treatment
    Like FTAs, mutual recognition agreements (MRAs) create a 
preferential arrangement for the parties involved. Exporters covered by 
MRAs not only greatly reduce their costs by eliminating duplicative 
investigations of their products, they also get to the foreign market 
first.
            E. Preferential Investment Protection and Liberalization
    FTAs and BITs can provide each party's investors with protection 
against discrimination and expropriation without compensation. They 
also provide for the liberalization of investment rules. For example, 
BITs and FTAs increasingly include provisions regarding the right to 
establish a commercial presence in the foreign country and the free 
movement of managerial employees. Thus, FTAs and BITs that do not 
include the United States grant our foreign competitors opportunities 
that U.S. companies lack. These lost opportunities harm U.S. workers 
because, where our investments go, our exports follow.
            F. Losing the Benefit of Our Existing FTAs
    Our only FTA (other than the one with Israel) is NAFTA. In many 
instances, other countries are diminishing our preferential 
relationships by negotiating similar agreements with Mexico and Canada. 
Indeed, that is the very purpose of some of these FTAs, including the 
existing EU-Mexico FTA and the proposed Japan-Mexico FTA.
    The European Commission has stated that ``the main objective [of 
the EU-Mexico FTA] has been to restore the competitiveness of EC 
exports to Mexico and secure equivalent access to that market, in 
particular with respect to that enjoyed by products originating from 
the NAFTA countries.'' For example, European cars ``will enter the 
Mexican market under the same, and in certain cases better conditions 
than NAFTA cars. Tariffs will be reduced from 20% to 3.3% at entry into 
force and will be eliminated by 2003. Unlike in NAFTA, [European] 
vehicles imported by companies which are not established in Mexico will 
also benefit from these preferential conditions.'' (emphasis added)
    The lesson is clear: it is no longer possible for us to rest on our 
past success in negotiating preferential market access. Without an 
ongoing commitment, those preferences will be lost, and U.S. workers, 
farmers and exporters will pay a price for our inaction.
            G. Setting Dangerous Precedents
    FTAs set precedents for future bilateral, regional, and 
multilateral agreements. If the United States does not participate in 
shaping these precedents, the United States becomes isolated when new 
rules are negotiated in the WTO and elsewhere. For example:
     Anti-dumping Remedies. Without U.S. involvement, FTAs may 
threaten the careful balance that WTO negotiators struck over 
antidumping remedies during the Uruguay Round. For instance, in their 
1996 FTA, Canada and Chile agreed to discontinue the use of antidumping 
remedies with respect to one another's exports. Moreover, the Japanese 
Keidanren wants ``the network of FTAs to disseminate fairer anti-
dumping rules'' in order to ``strengthen Japan's position in the next 
WTO negotiations.''
     Electronic Commerce. Our trading partners are 
contemplating rules on electronic commerce that are inconsistent with 
U.S. interests. For example, the EU asserts that ``all electronic 
transmissions consist of services.'' In practice, because members have 
eliminated more barriers to trade in goods than to trade in services, 
this principle would allow our trading partners to backslide on 
existing tariff concessions for goods, such as books and music, that 
are digitally transmitted.
     Agriculture. The EU-Mexico FTA contains little coverage of 
agriculture. The imminent Japan-Singapore FTA and the proposed Japan-
Mexico FTA are unlikely to cover most agricultural trade. As Japan and 
the EU create the precedent that trade in agriculture is too 
``sensitive'' for international rules, the United States will find it 
increasingly difficult to open foreign markets for U.S. farmers.
            H. Blocked Alliances
    Preferential trade arrangements provide our trading partners with 
an opportunity to build alliances and to present a united front in 
negotiations with the United States. The formation of strategic 
alliances is perhaps most evident in the Western Hemisphere, where 
negotiations are underway to conclude the FTAA. MERCOSUR is negotiating 
FTAs with the Andean Community and Mexico, and has included Chile and 
Bolivia as associate members. Brazil, a powerful member of MERCOSUR, 
opposes an expedited FTAA negotiation and the rapid elimination of many 
trade barriers, while the United States has much to gain by moving 
quickly to eliminate trade barriers. Perhaps to enhance its position in 
FTAA negotiations, Brazil hopes to first solidify and expand MERCOSUR.
III. The United States Must Return to the Negotiating Table
    The growing network of preferential trade arrangements that 
exclude the United States clearly harms U.S. companies, workers 
and farmers. U.S. trade policymakers therefore must re-engage 
immediately and aggressively in trade and investment 
negotiations. In fact, because the United States is the most 
competitive nation in the world, we can expect to gain the most 
from greater access to foreign markets. Indeed, our economic 
growth depends on access to foreign markets, as one-third of 
that growth is the direct result of exports.
    We must proceed on multiple fronts. We must deepen our 
commitment to a new round of WTO negotiations, complete 
negotiations with Singapore and Chile, reinvigorate the FTAA 
negotiations and the APEC, and begin formulating entirely new 
trade and investment initiatives.
    Granting the President Trade Promotion Authority is an 
important first step towards re-engagement on all of these 
fronts. Trade Promotion Authority not only will enable the 
United States to conclude important trade agreements, it would 
give our negotiators credibility at the bargaining table and, 
as a result, encourage our trading partners to move forward in 
negotiations. Without Trade Promotion Authority, our trading 
partners will be reluctant to engage in comprehensive and time-
intensive negotiations with the United States and will turn to 
other nations to negotiate deals that exclude the United 
States.
    The Business Roundtable is firmly committed to helping the 
public understand the benefits of international trade and 
investment negotiations and the need to give the President 
Trade Promotion Authority. In early 1998, The Business 
Roundtable initiated its BRT goTRADE programs. BRT goTRADE is a 
grassroots trade education and information program designed to 
help Americans better understand the benefits of international 
trade, and build support at the local level for trade expansion 
initiatives.
    Why BRT goTRADE? Roundtable CEOs are convinced that the 
choices we make as a nation today on international trade rank 
among the important decisions that will define the American 
economic and social landscape decades from now. Forward looking 
trade policies will create increased opportunity and higher 
standards of living. A retreat on trade would imperil the 
prosperity and quality of life available to Americans of all 
ages and walks of life.
    In view of BRT goTRADE's success over the past few years, 
BRT goTRADE continues to expand across the country. From 11 
congressional districts in eight states in 1998 to more than 
160 priority congressional districts covering 25 states today, 
the BRT goTRADE program has increased its reach across the 
country.
    Each BRT goTRADE location undertakes a series of activities 
tailored specifically to the needs and circumstances of its 
site. These activities include:
     Establishing locally organized, pro-trade networks 
comprising businesses, workers and academics. These networks 
concentrate on developing, publicizing and leveraging positive 
local trade stories. In each district, scores of large and 
small companies and trade groups joined forces in these 
networks to promote a pro-trade agenda.
     Conducting statistical and qualitative studies on 
the local impact of international trade. These studies--the 
first ever done at the congressional district level--
demonstrate clearly and convincingly that trade helps increase 
the standard of living for workers in each district. The 
studies also show that small businesses, even more so than 
large companies, rely on exports to survive and prosper.
     Releasing state studies that explain the benefits 
of trade. Last year, these studies focused on China's accession 
to the WTO and why its accession would be a win-win proposition 
for America's companies, workers, farmers and consumers. These 
studies helped make the case for Permanent Normal Trade 
Relations (PNTR).
     Creating a schedule of special community events 
and forums devoted to trade education and awareness, including 
educational outreach to local schools.
     Working with the news media to generate positive 
coverage of local trade successes or opportunities, and placing 
letters to the editor and op-ed articles written by local pro-
trade luminaries in local papers.
    Mr. Chairman, in this New Era of international trade and 
investment policy, standing still means falling behind our 
foreign competitors. I urge the Congress to give the President 
Trade Promotion Authority, so that the United States can move 
forward and resume its position of leadership in the global 
economy.

                                


    Chairman Crane. Thank you, Mr. Maury. Mr. Weiller?

 STATEMENT OF WILLIAM WEILLER, CHAIRMAN OF THE BOARD AND CHIEF 
       EXECUTIVE OFFICER, PURAFIL, INC., ATLANTA, GEORGIA

    Mr. Weiller. Good morning, Mr. Chairman. My name is Bill 
Weiller and I am the CEO of Purafil, the leading manufacturer 
of air purification systems, based in Atlanta, Georgia. I 
prepared some testimony that I ask be submitted in the written 
record and have some brief remarks.
    I would like to thank you for the opportunity to testify 
before the House Ways and Means Trade Subcommittee on whether 
U.S. business is disadvantaged by the increasing number of 
trade agreements to which the U.S. is not a party. I am 
testifying on behalf of Purafil. I also serve on an 
International Economic Policy Steering Committee of the 
National Association of Manufacturers.
    Why is Purafil, a small American business with about 70 
employees, even remotely interested in 130 free trade accords 
currently in force to which the United States is not a party? 
Sixty percent of our sales, of Purafil sales, are made outside 
of the United States. Exporting is a cornerstone of our 
corporate strategy and I am here to let you know that the 
effect of these agreements is very real for Purafil. Staying on 
the sidelines while other companies move forward with their own 
trade agreements is having negative consequences that will only 
get worse. Frankly, Congressional inaction in the past six 
years has been my competitors' best friend, and I urge you to 
take immediate action on trade promotion authority.
    I will give you four examples. The EU-Egypt association 
agreement, Canada and Chile, MERCOSUR, and the EU-South African 
agreement illustrate the bottom line impact of not moving 
forward on trade.
    The EU-Egypt association agreement: Purafil's exports to 
Egypt face a ten percent duty and a three percent surcharge, 
not to mention a range of difficult non-tariff barriers. As a 
result of the recently initialed EU-Egypt association 
agreement, my competitors in the EU will have its tariff in 
Egypt phased out over a transition period and the 13 percent 
difference in duties that remains will be enough to turn over 
our sales in Egypt to our European competitor.
    Canada-Chile FTA: In Chile, our products are subject to a 
duty of nine percent. Purafil's Canadian-based competitors face 
zero duty, since Chile and Canada have an FTA. I can assure you 
that for any business, small or large, a nine percent price 
difference is enough to swing a sale. To level the playing 
field for my company in Chile, a U.S.-Chile FTA is essential.
    MERCOSUR: In Brazil, our products face a duty of 14 
percent. My Brazil-based competitor faces no such duty in the 
Brazilian market or in Argentina, Paraguay, or Uruguay, the 
other members of the South American MERCOSUR agreement. An FTA 
would allow Purafil to overcome this 14 percent cost 
disadvantage.
    EU and South Africa: As a result of the EU-South Africa 
Trade Agreement, my company faces two times the duties in the 
European markets as my South Africa-based competitor.
    Purafil will 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 a global market. Level the playing 
field by providing the President with trade promotion authority 
to put the U.S. in a leadership role and allow it to move 
quickly on the FTAA and the WTO. Do not force us to compete 
with the trade barriers and tariffs currently in place. Thank 
you.
    [The prepared statement of Mr. Weiller follows:]
Statement of William Weiller, Chairman of the Board and Chief Executive 
                Officer, Purafil, Inc., Atlanta, Georgia
    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 
Trade Subcommittee on whether U.S. business is disadvantaged by the 
increasing number of trade agreements to which the United States is not 
a party. I am testifying on behalf of Purafil. I also serve on the 
International Economic Policy Steering Committee of the National 
Association of Manufacturers (NAM).
    I'd like to tell you a little bit about my company and how 
important foreign markets are. 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.
    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 United States 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. That ``someone 
else'' could likely be a company from outside the United States.
    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.
    Many might be surprised that Purafil, a small American business 
with about 70 employees, is even remotely interested in the 130 free 
trade accords currently in force to which the United States is not a 
party. Just last year I testified before the full Committee that, in 
fact, we often have enough on our hands countering the notion that 
global free trade is good for big companies and bad for ``the little 
guy.'' Small and medium-size businesses do not attract the headlines 
the multinationals do, and neither do the trade agreements to which the 
United States is not a party. After all, when Canada signed a free 
trade agreement (FTA) with Chile, or when the European Union concluded 
an agreement with South Africa, it certainly did not make the headlines 
in Atlanta, or even Washington, DC, for that matter. I am here to let 
you know that the effect of these agreements is very real for Purafil 
and small business in general.
    In Chile, our products are subject to a duty of 9 percent. 
Purafil's Canadian-based competitor faces a zero duty since Chile and 
Canada have an FTA. I can assure you that for any business, small or 
large, a 9 percent price margin is enough to swing a sale. To level the 
playing field for my company in Chile, a U.S.-Chile FTA is essential. 
That is why the United States needs to move quickly on the FTA with 
Chile, and on the hemispheric Free Trade Area of the Americas (FTAA).
    Why the FTAA? For Purafil, it's quite simple. In Brazil, our 
products face a duty of 14 percent. My Brazil-based competitor faces no 
such duty in the Brazilian market, or in Argentina, Paraguay and 
Uruguay, the other members of the South American MERCOSUR agreement. 
How is Purafil to overcome this 14 percent cost disadvantage? Move 
quickly on the FTAA by giving the President Trade Promotion Authority 
(TPA) that would put the United States back in a leadership role. For 
businesses with a payroll to meet, one year is an eternity, and I will 
not be able to compete in these international markets unless the 
playing field is leveled, and leveled quickly.
    It's not just trade agreements in the hemisphere, or lack thereof, 
that disadvantage my company. Another example is the trade agreement 
between the EU and South Africa. We are beginning to see competition 
from a South Africa based firm. As a result of the EU-South Africa 
agreement, we face twice the duty in the European market as our South 
African competitor. That is a disadvantage for Purafil that the United 
States needs to address through the launch of a new round of 
negotiations at the World Trade Organization (WTO). We are facing 
similar high tariff situations in India, China and elsewhere. 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. If our trading partners do not come to the table with serious 
market access commitments in the FTAA and the WTO, then the United 
States needs to move swiftly with as many countries willing to do so on 
a bilateral basis.
    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. Level the playing field by providing the 
President with Trade Promotion Authority to put the United States in a 
leadership role and allow it to move quickly on the FTAA and the WTO. 
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.
    There is no substitute for U.S. leadership on trade. The right 
policies on trade, taxes and regulation are particularly vital at a 
time of slowing economic growth. 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. Thank you.

                                


    Chairman Crane. Thank you, Mr. Weiller. Mr. Tarullo?

     STATEMENT OF DANIEL K. TARULLO, PROFESSOR, GEORGETOWN 
                     UNIVERSITY LAW CENTER

    Mr. Tarullo. Thank you, Mr. Chairman. Let me say at the 
outset, Mr. Chairman, that I endorse fully the emphasis of the 
rest of the panel on the importance of U.S. leadership in trade 
policy. In general terms, I also agree with the proposition 
that a proliferation of bilateral and regional agreements to 
which the United States is not party can adversely affect U.S. 
commercial interests. But my point today is that the consensus 
on the desirability of U.S. leadership and justifiable concerns 
about trade agreements that exclude the United States do not 
take us very far in determining an appropriate policy response. 
I say this for three reasons.
    First, the fact that we can assume some damage to U.S. 
interests from these agreements does not tell us how much 
damage is being caused. Without more careful, systematic study, 
we will not have the answer to this question. Aggregations of 
numbers of agreements and a compiling of anecdotes are a 
helpful starting point for analysis, but they can be 
misleading. When one talks about the number of bilateral 
investment treaties, for example, one has to recognize that 
there are 15 different countries in the European Union, each 
individually negotiating the Bilateral Investment Treaty (BIT). 
Moreover, it is very difficult to tell from the existence of 
these treaties how much advantage, in fact, is accruing to the 
countries negotiating them.
    As to anecdotes, there are always anecdotes about lost 
sales because of trade agreements and I am sure that most, if 
not all, of them are accurate. But anecdotes alone do not tell 
us the overall effects of a free trade area upon non-member 
States. We cannot tell if the free trade area has promoted 
growth in the countries that are members to it, so that there 
are more exports from the United States and other non-member 
countries than would otherwise have taken place. We cannot tell 
if patterns of world exports have shifted in response to the 
preferential tariff agreements but have not resulted in much of 
a net change in world market share.
    My second point is that even where preferential trade 
agreements are of concern and are clearly harming U.S. 
commercial interests, we cannot assume that a more activist 
U.S. trade policy will necessarily blunt their effects. Some of 
these agreements exclude the United States not because of 
inaction on the part of the United States, but because of an 
affirmative desire on the part of some of the negotiating 
countries to exclude the United States. These agreements are 
intended precisely to reduce U.S. influence, an outgrowth of 
fears in some other countries of having international systems 
dominated by the world's remaining superpower.
    Now, these first two points do not, of course, mean that 
there is no sensible trade negotiating agenda which the United 
States can realistically pursue. Ultimately, the most important 
question before the Congress and the public is not whether the 
United States should undertake trade negotiations, but how and 
with what aim. The day has long passed when trade agreements 
could be approached as a simple balancing of the interests of 
import-sensitive industries with those of export-oriented 
industries and of consumers. The scope of trade agreements has 
so broadened in recent years that important domestic policies, 
as well as commercial interests, are regularly implicated in 
trade policy decisions. For example, recent events underscore 
the inadequacy of international arrangements to protect food 
safety and animal health, even as trade in food has been 
liberalized.
    The Business Roundtable's report, which I assume was in 
part the prompt for this hearing, quite rightly identifies the 
need to build the national consensus that can form the basis of 
an agreed mandate from the Congress. Whether one agrees or 
disagrees with the Roundtable's specific ideas, one should 
applaud the desire to engage on these issues. Indeed, those who 
most fear the costs of trade agreements that exclude the United 
States should have the greatest incentive to address the 
concerns of citizens who do not stand to benefit directly from 
new trade agreements involving the United States.
    Let me close by trying to place trade negotiations in 
perspective. As important as they are, they cannot on their own 
sustain U.S. economic leadership or protect U.S. interests. I 
would like to suggest just two, rather different additional 
policies for the consideration of Congress and the 
administration to complement trade negotiations.
    First, we do not need to be passive. I would like to echo 
Mr. Levin in suggesting that the United States reconsider its 
position of acquiescing in trade agreements concluded by the 
European Union that may well violate WTO rules. Historically, 
there were good foreign policy reasons for acquiescing in those 
agreements on the European continent. But as Europe seeks 
preferential trade agreements in other parts of the world, 
there seems to me no geopolitical or foreign policy reason to 
give the EU a free ride.
    Second, and in conclusion, successful international 
leadership by the United States requires more sustained 
attention at home and abroad to those who have difficulty 
benefitting from increased international trade. I think the 
members of the Committee are well aware of the range of 
possibilities and I hope that you and the administration will 
continue to pay attention to them as you move forward. Thank 
you, Mr. Chairman.
    Chairman Crane. Thank you, Mr. Tarullo.
    [The prepared statement of Mr. Tarullo follows:]
 Statement of Daniel K. Tarullo, Professor, Georgetown University Law 
                                 Center
    Mr. Chairman, Congressman Levin, I appreciate this opportunity to 
appear before you today. I am currently a professor at Georgetown 
University Law Center. Formerly, as you know, I was Assistant to the 
President for International Economic Policy. I testify before you 
purely in my individual capacity as an academic, with no client 
interests or representation.
    This hearing was presumably prompted in part by a recent report of 
the Business Roundtable entitled The Case for U.S. Trade Leadership: 
The United States is Falling Behind. Let me say at the outset that I 
endorse fully the Business Roundtable's emphasis on the importance of 
U.S. leadership in trade policy, as in other international economic 
matters. Constructive U.S. leadership maximizes the chances that the 
prevailing forms of trade arrangements--regional and multilateral--will 
reflect American values and promote American interests.
    My testimony today is intended to show that consensus on the 
desirability of U.S. leadership and observation of trade agreements 
that exclude the United States do not take us very far in deciding upon 
the best set of policy responses. First, we do not have the kind of 
data that permit even a rough calculation of the potential harm to the 
United States from these agreements. Second, we need to recognize that 
some of the actual or proposed agreements may be motivated precisely by 
the desire to exclude the United States. Accordingly, even a highly 
active U.S. trade policy may fail to derail them. Third, even if we all 
agree that it is important to move forward with trade agreements, the 
difficult question of our negotiating aims remains.
    Thus the Roundtable's report is more a useful starting point for 
discussion than the basis for action. Following an identification of 
the potential adverse effects on the United States from other 
countries' trade agreements, I will elaborate on each of the three 
points just noted. At the end of my testimony I will suggest two 
policies beyond launching trade negotiations--one reactive and one 
proactive--that could strengthen our international position.
Potential Adverse Effects of Agreements that Exclude the United States
    In general terms I agree with the proposition that a proliferation 
of bilateral and regional agreements to which the United States is not 
party can adversely affect U.S. commercial interests. These adverse 
effects come in three forms. First is the well-known effect of trade 
diversion. Products from Country A that were not competitive against 
those of Country Y when each faced a common tariff in Country B may 
become competitive when Country A's products receive zero tariff 
treatment in Country B as a result of a free trade area, but Country 
Y's products continue to be subject to the tariff. Similarly, the 
harmonization of certain product standards by members of a free trade 
area could operate to the detriment of producers from non-member 
countries. Our concern here, of course, is that competitive U.S. 
exports may lose market shares in other countries solely because they 
do not benefit from tariff preferences or other benefits.
    A second potential negative effect is that a pattern of bilateral 
and regional agreements with features disadvantageous to the United 
States might continue to have disadvantageous effects once multilateral 
negotiations get underway. The Business Roundtable report contains 
several examples of possible patterns in bilateral and regional 
agreements that could set precedents the Roundtable believes to be 
undesirable. For example, the Roundtable fears that the limited 
coverage of agriculture in free trade agreements concluded by the 
European Union with other countries may create the view that 
agriculture is too sensitive to be subject to the normal international 
rules that govern trade.
    While a fairly broad U.S. consensus likely exists around the 
desirability of fully including agriculture in trade negotiations, 
other concerns of the Roundtable about precedent are more 
controversial. For example, the Roundtable cites as another bad 
precedent certain provisions in the EU-Mexico agreement that protect 
the privacy of individuals in the dissemination of electronic data. 
Judging by public and Congressional discussion since passage of the 
Gramm-Leach-Bliley Act of 1999, I suspect that many members of Congress 
would be more sympathetic to efforts to protect individual privacy.
    A third possible negative effect of a proliferation of bilateral 
and regional trade agreements is that they may strengthen geopolitical 
ties among the members of those arrangements so as to diminish U.S. 
influence with the member countries. This possible negative effect is 
really the converse of the foreign policy gains that some believe 
accrue to countries that conclude free trade agreements. It is, 
however, very difficult to measure gains and losses in geopolitical 
influence, much less to separate out the effect of trade agreements 
from the many other factors that determine the state of relations among 
nations.
Some Questions About the Costs of Agreements that Exclude the United 
        States
    The existence of grounds for concern about the spread of agreements 
among U.S. trading partners does not in itself yield prescriptions for 
policy. For one thing, the fact that we can assume some damage to U.S. 
commercial and other interests does not tell us how much damage is 
being caused by these agreements, and thus how urgently a policy 
response is needed.
    There have not--at least to my knowledge--been any careful, 
systematic studies in recent years of the economic costs to the United 
States of being excluded from new trade agreements, though some may be 
underway. It is, of course, quite difficult to quantify accurately the 
net effects of a free trade agreement, including effects on producers 
in non-member states. Anecdotes about specific lost sales following a 
trade agreement may be quite valid, but alone they do not tell us very 
much. We do not, for example, know from such anecdotes whether there 
may simply have been a reshuffling of supplier-consumer relations, so 
that U.S. suppliers are selling more to countries which formerly were 
supplied by producers from the new free trade area.
    Furthermore, if the free trade area is a success and helps promote 
economic growth in the participating countries, consumers in those 
countries may make purchases from U.S. firms that they would not 
otherwise have been able to make. These purchases may be of altogether 
different goods or services from those which suffered initially as a 
result of the free trade agreement. Of course, no specific new sales 
can be traced to the agreement the way lost sales can be linked to a 
tariff disadvantage, so there are rarely countervailing anecdotes.
    Because of the complexity of calculations that are necessary to 
determine the net economic effects of free trade areas and customs 
unions, empirical assessments have yielded varying results. While some 
economic studies have produced findings of statistically significant 
relative increases in trade within various regional trade groupings (as 
compared to their trade with the rest of the world), it is very hard to 
project accurately the impact of any single agreement. Moreover, the 
difficulties in disentangling the specific effects a free trade 
agreement from other factors, such as accelerating economic growth in 
geographically proximate countries, remain substantial. For example, 
one might expect accelerating growth in both Brazil and Argentina to 
produce increased bilateral trade at a more rapid rate than that at 
which their global trade increases, quite apart from the effects of a 
preferential trade arrangement between them.
    The Business Roundtable report does not claim to be an economic 
study. It is an expression of concern by the organization's membership, 
which includes the nation's largest exporters. The concern is 
understandable, and the report has provoked a useful discussion, 
including this hearing. But it would be misleading to conclude too much 
from the raw numbers contained in the study. A couple of examples 
demonstrate this point:
     The report indicates that 33 percent of world exports is 
covered by preferential trade arrangements concluded by the European 
Union, whereas only 11 percent of world exports is covered by 
preferential trade arrangements to which the United States is party. A 
look at the list of agreements concluded by the EU suggests that the 
only way to reach the 33 percent figure is to include the Treaty of 
Rome itself. That is, this number must include exports from Germany to 
Italy, as well as from Germany to Latvia or Tunisia. Given that we now 
think of the EU as a single economic unit for trade purposes, the 
inclusion of such exports is accurate but not particularly meaningful.
     The report notes that as of January 2000 there are 1,857 
bilateral investment treaties (BITs) in the world, of which only 43 
involve the United States. In the 1990s numerous emerging market and 
formerly communist countries went on a kind of BIT binge, signing such 
agreements with just about any other country that wished to do so. 
Thus, Argentina signed 53, including one with the United States. The 
other 52 agreements do not ``exclude'' the United States--they simply 
provide comparable protections for other countries. The report further 
notes that Western European nations have negotiated 909 BITs. Again, 
these numbers are accurate, but standing alone they do not tell the 
whole story. Because European nations negotiate BITs individually, 
rather than through the European Union, there would need to be 15 
separate BITs to achieve the protection for all EU investors that a 
single BIT provides U.S. investors. Furthermore, as the report itself 
indicates, Germany alone has concluded 124 BITs, including with a 
number of very small countries that are unlikely to host significant 
foreign investment.
    The point of these examples is not to quibble with the report, but 
simply to caution that an inquiry into the potential negative impact on 
the United States requires considerably more analysis than the 
aggregation of numbers of agreements and anecdotes, useful as that may 
be as a starting point for a more extensive investigation. Again, I do 
not disagree with the proposition that some harm is likely to result 
from proliferating trade and investment agreements to which the United 
States is not party. I do believe that we are some ways from being able 
to identify the order of magnitude of that harm.
The Possibility of Competing Economic Blocs
    One frequently-cited concern in recent years is that Europe and 
Asia are self-consciously attempting to create economic ``blocs'' that 
exclude the United States. Based on the existence of Mercosur, some 
would add Latin America to the list of potential regional blocs. 
Concerns along these lines are frequently exaggerated, though not 
unfounded. More importantly, those who raise concerns about blocs 
sometimes erroneously conclude that these tendencies are due primarily 
to the failure of the United States to pursue an aggressive negotiating 
agenda in recent years, and that they can be reversed if the United 
States pursues just such an agenda.
    The European Union is itself a trading bloc, of course. In its 
external policies, however, the EU is not so much attempting to extend 
an exclusive, regional bloc as to extend its influence globally. Its 
free trade agreement with Mexico and its overtures to Asian nations are 
two good examples. To be fair to the EU, these initiatives are in part 
responses to American policy in NAFTA and APEC, respectively. They are 
also, however, part of an emerging European challenge to U.S. 
leadership in numerous areas, including trade. Europe's coherence as an 
international actor is still more latent than realized. But many 
European officials aspire to co-equal status with the United States. As 
a byproduct of those aspirations, they resist following U.S. leadership 
and resent occasions when--as in the Balkans--they are nonetheless 
forced to do so. In these circumstances, it seems misguided to believe 
that U.S. trade initiatives will substantially deflect European 
efforts.
    The dynamic between America and Europe that produced the Kennedy, 
Tokyo, and Uruguay rounds of trade negotiation was itself contentious 
at times. Even this brand of cooperation is probably gone forever. 
Rather than believe we can turn back the clock, it is more realistic to 
prepare ourselves for an extended period of friction with Europe as we 
redefine our relationship in the post-Cold War era. With skill and 
luck, our shared values will more than outweigh our sometimes diverging 
interests. But we should be under no illusion that Europe is simply 
waiting for us to take up the mantle of economic leadership and will 
then politely step aside.
    Proposals for exclusively Asian economic arrangements have issued 
for decades. Usually these proposals are not pursued. Even when they 
have been implemented, as in the case of ASEAN, the member countries 
have remained quite outward looking. Recent proposals for an approach 
based on exclusivity should be taken seriously, even though they are 
far from being realized. However, the very impulse to exclusivity 
contradicts the notion that a parallel U.S. or multilateral initiative 
will deflect these efforts. Some countries in the region favor 
exclusivity because they wish to confine the broad U.S. influence that 
comes from being the world's remaining superpower. Other countries are 
not antagonistic to the United States as such, but believe they need to 
reach a rapprochement on Asian terms with other Asian countries in 
order to achieve regional stability. To be effective, U.S. policies 
toward Asia will have to be both patient and nuanced.
    Concerns about Latin America have centered on Mercosur, an 
arrangement among Argentina, Brazil, Paraguay, and Uruguay (with Chile 
as an associate member). Mercosur began as a trade agreement, with aims 
for broader economic integration among the existing members and within 
Latin America as a whole. Yet even those who support a stronger 
Mercosur as a counterweight to the United States appear to contemplate 
an eventual negotiation with the United States (or, perhaps, NAFTA). 
Moreover, Mercosur has been weakened in the aftermath of Brazil's 
financial problems in 1998-1999. Most countries in the region prefer 
closer economic ties with the United States.
Trade Policy Decisions Remain
    Notwithstanding my first two points, there is surely a sensible 
trade negotiating agenda which the United States can realistically 
pursue. Ultimately, the most important question before the Congress and 
the public is not whether the United States should undertake trade 
negotiations, but how and with what aims. The day has long passed when 
trade agreements could be approached as a simple balancing of the 
interests of import-sensitive industries with those of export-oriented 
industries and consumers. The scope of trade agreements has so 
broadened in recent years that important domestic policies, as well as 
commercial interests, are regularly implicated in trade policy 
decisions. For example, recent events underscore the inadequacy of 
international arrangements to protect food safety and animal health, 
even as trade in food has been liberalized. Current proposals for trade 
provisions that would permit foreign investors to challenge non-
discriminatory state and local regulations, or that could subordinate 
consumer protection aims in antitrust policy, raise key issues of 
national policy.
    The Business Roundtable's report quite rightly identifies the need 
to ``build a national consensus that can form the basis of an agreed 
mandate from the Congress.'' In this spirit, the Roundtable goes on 
address labor and environmental issues and to suggest some possible 
approaches to those issues. Whether one agrees or disagrees with the 
Roundtable's specific ideas, one should embrace the Roundtable's desire 
to seek a serious discussion on how to move forward. Indeed, those who 
most fear the costs of other trade agreements should have the greatest 
incentive to address the concerns of citizens who do not stand to 
benefit directly from new trade agreements involving the United States. 
Only if we confront the risks and costs attendant to trade and economic 
integration will we build the consensus that permits full realization 
of the benefits that come from trade.
    Some may respond that a trade policy agenda that pursues such aims, 
or that excludes ill-advised ideas like placing competition policy in 
the WTO, will meet with resistance among our trading partners. Of 
course, some countries will resist some U.S. negotiating aims and 
preferences. But this is true for commercial negotiating aims as well. 
The task for Congress will be to devise an approach that can command 
broad support from the public. Moreover, there is no reason to think 
that--for example--labor and environment are qualitatively different 
from intellectual property, product standards, or government 
procurement in the reception U.S. proposals will elicit from other 
countries. Indeed, the U.S.-Jordan FTA has evidenced the willingness of 
a developing country to include labor and environment provisions in a 
trade agreement. And the importance which the EU attaches to the 
``precautionary principle'' assures that similar topics will be raised 
by other countries.
Policies to Complement Trade Negotiations
    My final point is that it is important to place trade negotiations 
in perspective. As important as they are, they cannot on their own 
sustain U.S. economic leadership and protect U.S. interests. Moreover, 
the difficulties in reaching domestic consensus and international 
agreement are such as to assure delay in achieving the desirable 
outcomes that trade negotiations can deliver. Let me close by 
commending to the Congress and the Administration just two examples of 
policies to complement trade negotiations.
    First, I suggest that the United States reconsider its position of 
acquiescing in trade agreements concluded by the European Union that 
may well violate WTO rules. Historically, the United States raised 
questions about the compatibility of free trade agreements concluded by 
what was then the European Economic Community with Article XXIV of the 
GATT. The most important, but not the only, issue has been whether 
certain of those agreements met the Article XXIV requirement that 
``substantially all trade'' be covered in a free trade area. While U.S. 
officials raised these issues, they did not attempt to block working 
party reports on the free trade areas in question. Nor has the United 
States invoked the dispute settlement provisions of the GATT or WTO to 
challenge any of these agreements. Within the U.S. Government, this 
posture was justified by the geopolitical imperative of strengthening 
Western Europe during the Cold War. In the 1990s, geopolitics again 
counseled restraint as the EU concluded agreements with Central and 
Eastern European countries, based on the reasoning that it was 
important to bring these new democracies closer to the established 
democracies of Western and Southern Europe.
    Today we are in substantially different circumstances. As the 
Business Roundtable report points out, the EU-Mexico agreement does not 
contain anything approaching complete coverage of agriculture. 
Presumably, the EU's intended agreements with South American countries 
will have similarly limited coverage. Insofar as European Commission 
officials have explicitly stated their intention to ``consolidate'' 
their leading commercial position in South America through such 
agreements, it seems to me that there is no strong geopolitical reason 
to acquiesce in possible WTO violations.
    This is not to say that the United States should immediately begin 
challenges to one or more EU agreements. Nor is it to say that any of 
these is a clear violation. In fact, the requirements of Article XXIV 
have barely been developed in the GATT and WTO. But the European Union 
should not have a free ride if it is evading multilateral rules 
governing the free trade areas it is concluding outside Europe. We 
should make this policy position clear. Then, if and as appropriate, 
the United States should challenge non-conforming agreements in the WTO 
Committee on Regional Trade Agreements, in dispute settlement 
proceedings, or both.
    My second recommendation is hardly novel but, I believe crucial 
nonetheless. Successful international economic leadership by the United 
States requires more sustained attention, both at home and abroad, to 
those who will have difficulty benefitting from increased international 
trade. At home we must take more seriously the plight of workers, 
particularly unskilled and semi-skilled workers, who will be dislocated 
because of agreements that are beneficial to Americans as a whole. 
Modest programs for dislocated workers, usually passed in an effort to 
move a particular fast-track authorization or trade agreement, will not 
do the job.
    Internationally, we must recognize how much our leadership suffers 
when we fail to meet financial obligations to which we have already 
committed ourselves, or when we only grudgingly contribute to 
development efforts for the poorest countries, such as replenishing 
funds the International Development Association. I can testify from 
experience as the President's ``sherpa'' in preparation for G-7 Summit 
meetings how much of my time was spent fending off criticism, even from 
our friends, to the detriment of our efforts to advance our affirmative 
agenda.
    Beyond the simple but important responsibility of the United States 
as the world's richest nation to do its part in meeting global 
problems, a more generous and well-conceived development policy can 
yield benefits for our capacity and credibility as a world leader. In 
some instances, there may also be ways to accomplish commercial aims 
through technical and financial assistance and to do so with less 
rancor than is often produced in trade negotiations. For instance, the 
Roundtable report mentions European and Japanese technical assistance 
programs for developing countries. One byproduct of such programs can 
be a leg up for companies from the assisting country, since the 
assistance is presumably compatible with standards developed at home. 
While such advantages should not themselves drive decisions on 
technical assistance, there is an obvious opportunity to serve 
commercial and genuine development needs simultaneously.
    There are obviously many other possible complementary policies. 
While the merits of any one such policy can be the subject of good 
faith differences of view, it is disconcerting that, at a time when we 
are preparing to spend a good part of the budget surplus anticipated in 
coming years, so little attention has been paid to the needs of 
globalization's losers.
    I thank you for your attention, and would be happy to answer any 
questions.
      

                                


    Chairman Crane. We are going to be interrupted here shortly 
by a couple of votes on the floor and we will recess, but we 
will wait until the second bells go off. In the interim, I have 
a question for the entire panel.
    Some have said that the U.S.-Jordan Free Trade Agreement is 
a political document closely related to the Middle East peace 
process. What do you see as the benefits and pitfalls of this 
agreement from a trade perspective? Yes, Mr. Donohue?
    Mr. Donohue. Mr. Chairman, the total trade between the U.S. 
and Jordan is less than $300 million. A great portion of that 
is money that we give them to buy weapons from us. They are a 
very important strategic country to us. We have hosted the King 
at the Chamber on a number of occasions. But this agreement, 
which he sought for strategic reasons, was then loaded up with 
the labor and environmental provisions as a cost of getting the 
agreement and was then sold to the labor unions and others as 
the template that they would use for future trade agreements. 
And to retract--there is very little trade going on here.
    If we decide that this is something strategically we should 
do, then Congress is very able to take care of it. It was not 
done under a fast track provision, so Congress can remove the 
defined template of labor and environmental issues, which can 
and should be dealt with in other ways, and pass the strategic 
agreement without any delusion that it is a free trade 
agreement. There is no trade going on.
    And the Chamber and other members of the business community 
will oppose this agreement if it contains those provisions, not 
because we have any problem with Jordan or with a free trade 
agreement with Jordan. But to set this template in such a 
visible and artificial way is not acceptable.
    Chairman Crane. Mr. McGraw?
    Mr. McGraw. Mr. Chairman, the member CEOs of ECAT look 
pretty much at the Jordanian bill as a foreign policy issue. 
And if it is one whose objective is to support the peace 
process in the Middle East, then I think most of the ECAT 
members are supportive of that kind of an agreement.
    However, there is the feeling that as a trade agreement it 
fails in terms of the language on labor and environment because 
of the fact that the United States does not have any real 
significant labor or environmental issues with Jordan. 
Therefore, I come back to my earlier comments that in terms of 
both labor and environment, it is very important that we set up 
in each individual case what are the specific objectives that 
we are trying to solve and then identify how we are going to go 
about achieving those objectives.
    I would also say that there is concern about the overall 
punitive nature of the possible inclusion of trade sanctions, 
and that when we start talking about developing agreements 
where developing countries are trying to be encouraged to 
undertake trade liberalization, that these provisions could be 
counterproductive in terms of their participation.
    One positive point that I would say is very much welcome in 
the language of the Jordanian agreement has to do with the 
intellectual property rights area. I think there is also very 
good language in terms of electronic commerce and in the 
information technology area. So I think that is a benefit to 
this agreement.
    But as a trade agreement, I think that the flaws in the 
overall package, you know, spelled out with the labor and the 
environment and the trade sanctions, are negative. But the 
peace element and the objective for promoting that process is 
one that I believe we all support.
    Chairman Crane. Thank you. Mr. Maury?
    Mr. Maury. Mr. Chairman, the Roundtable has not yet taken a 
position on the agreement, so my comments would have to be 
personal. I appreciate the way you asked the question, because 
what the question implied was that we need to have a balancing 
of interest tests and we need to look at each of these 
agreements on a case-by-case basis.
    What is the plus? Well, you know, the problem, and the 
testimony has demonstrated it here this morning, is that we are 
facing a logjam. I mean, the chairman's opening statement was, 
here we sit debating with ourselves while the world passes us 
by, and when the world passes us by, we lose. So I think there 
is a big plus from the standpoint of breaking the logjam and 
moving forward.
    The downside, as Mr. McGraw pointed out, I think there is a 
great deal of skepticism with respect to the use of sanctions.
    Chairman Crane. Is anyone else wishing--Mr. Tarullo?
    Mr. Tarullo. Two quick points, Mr. Chairman. First, on the 
foreign policy issue, I would just like to underscore that the 
situation in Jordan is potentially an unstable one. The United 
States does not have a lot of foreign policy instruments at 
this time to help stabilize countries in the region and I think 
it is essential that before King Abdullah arrives in 
Washington, we move forward with one of the instruments we do 
have at our disposal.
    Secondly, I think it is notable that Jordan, as an emerging 
market country, was willing to include the labor and 
environment provisions in the agreement. Moreover, I know from 
firsthand knowledge that some of the other countries which were 
beginning to line up for bilateral negotiations with the United 
States were not closed-minded about the proposition that they, 
too, would negotiate such terms.
    So again, I think it comes back to an issue of what does 
the United States, what does the Congress, what do the American 
people want to have in their trade agreements and then we can 
confront the issue of trade-offs of negotiating aims. But I do 
not think anything should be off the table from the outset. 
Thank you.
    Chairman Crane. Thank you. Mr. Weiller, a specific question 
along this same vein. Does an agreement with Jordan, does that 
adversely affect U.S.-Egyptian trade relations?
    Mr. Weiller. My company does no business with Jordan. We do 
business with Egypt. Egypt is a larger country. Obviously, its 
potential is great. I am actually concerned because this is a 
political matter that is being--to me, is almost disguised as a 
trade issue. I am concerned that our market in Egypt, small as 
it may be, has a lot of potential because it is a large 
population base and we feel that as they grow and as its 
importance grows, we will be able to establish help in 
determining some standards.
    Currently, we are ignoring Egypt and focusing on Jordan as 
if it was a trade issue, where I do not hear much trade going 
on, and we are ignoring this while the EU is in a process of 
initialing and carrying out agreements with Egypt. So I am 
concerned that, in real terms, we are losing market potential 
and future market potential.
    Chairman Crane. Well, I appreciate the input. I have met 
with some of the Egyptians and will continue to do so.
    Folks, because we are running out of time here, we will 
recess subject to call of the chair, until after that second 
vote. After everyone casts his second vote over there, if you 
could all hurry back here, we would appreciate it.
    [Recess.]
    Chairman Crane. Folks, if you would please take your seats, 
our groups should be coming back from the floor. In the 
interim, let me put another question to the entire panel. It is 
about mentioning the importance of expanding our market access 
in Latin America. What concrete steps can President Bush take 
to reinvigorate the FTAA negotiations and has lack of trade 
promotion authority raised concerns in the FTAA negotiations 
about a lack of will on the part of the United States to lead 
in these talks? Has this perception spurred others in Latin 
America to go ahead without us? Any comments from any of you?
    Mr. Donohue. Well, Mr. Chairman, as you know, MERCOSUR has 
been developing while we sit and watch and some people think 
that is bad. Other people think it is a good forerunner to 
bringing everyone together in a free trade agreement.
    The Chamber has said along the way to do a free trade 
agreement of the Americas is to allow everyone else to cut 
every bilateral or group deals throughout the region. When I 
went to Mexico ten days ago, when I arrived, they had 30 free 
trade agreements. I stayed for two days, met with the president 
and others, and when I left, they had 32 free trade agreements. 
So I think what is clear is that to get the ball rolling, we 
need to instruct the trade negotiators to put--and, by the way, 
I believe the President has done this--trade agreements high on 
the list and to continue these negotiations in an aggressive 
way to protect our interest, because the longer we wait, the 
more other agreements are being made that are going to 
complicate our ability to build the type of free trade 
agreement of the Americas that this part of the world needs to 
compete with what are the development of three or four very 
aggressive cartels around the world.
    Chairman Crane. Yes, Mr. Weiller?
    Mr. Weiller. Thank you. If I may just add to that, I would 
like to add a sense of urgency that is missing. While we are 
talking, the Europeans are working and concluding an agreement 
with the MERCOSUR countries. We are not even a player at this 
point. Companies such as mine--and I can only speak for myself, 
so I assume others like me, smaller companies--we are facing a 
very direct challenge to our ability to remain in those markets 
because the duties are so severe in terms of differentials that 
you will severely impair our ability to continue in that 
market.
    As far as I am concerned, potentially, the market in Latin 
America is, what, I think three or four times greater than in 
China. So this is something that is close by, it is important 
to us, and I am not seeing any sense of urgency in terms of 
concluding something of this sort.
    Chairman Crane. Mr. Maury?
    Mr. Maury. Mr. Chairman, I think that we need to have a 
consensus in this country on trade, and I know that you and Mr. 
Levin have been working very hard to develop that. So I would 
say that the first and best thing the President could do would 
be to step out and start to help develop that national 
consensus.
    I would say, secondly, he should be given trade negotiating 
authority. It should be as flexible as it can possibly be. And 
then the Congress should judge what he brings back. And third, 
I think we probably should start to focus on Chile.
    Chairman Crane. Anyone else with any comments? Mr. McGraw?
    Mr. McGraw. Mr. Chairman, I would just echo on some of 
those things, but I think the President needs to take a 
leadership position in speaking out to the American people, 
perhaps from Quebec City, in terms of the importance of this 
agreement, not only to his agenda but why, given the push for 
all the bilateral agreements, why we need a regional and a 
broader conclusion to that.
    To Sam's point about a lot of the agreements throughout 
Latin America, as described in my written testimony, it is mind 
boggling the number of bilateral agreements that are going on 
with Mexico, Canada, Chile, and it goes on and on and on. And, 
by the way, everybody wants to have a bilateral agreement with 
the United States, but positioning it becomes somewhat 
difficult. And where this is important, to be able to be 
included into those kinds of discussions, bilateral 
arrangements are second best to the development of those 
broader global and regional kinds of agreements.
    So, one, the President is going to have to take leadership, 
I believe, in developing that consensus with the American 
people on FTAA and the importance of trade. Number two, he is 
going to have to have trade promotion authority to be able to 
have the teeth to be able to pull that off. So I would put it 
in those priorities.
    Chairman Crane. Thank you. Mr. Levin?
    Mr. Levin. Thank you. First, let me apologize in a way for 
those who are not here. We are just starting the debate on 
another tax bill and it is not a very fortuitous coincidence. 
Mr. Rangel and others would otherwise be here, and I am sure 
the same is true on the Republican side. This is the Committee 
of jurisdiction on the tax bill.
    We were going to, I thought, focus mainly on the issue of 
proliferation of free trade agreements and others, but since 
other subjects have been raised, let me, if I might, take some 
time to just say a few words.
    I very much appreciate, Mr. McGraw, your statements about 
the progress that was made last year. I think progress was 
made. I think we regained momentum. I think we did so partly 
because we tried to work together across party lines. I think 
also because we tried to tackle some of the troublesome issues 
taking each agreement on its own, some of the issues that have 
been controversial, and I think they are important issues.
    In the Caribbean Basin Initiative (CBI) agreement, for 
example, in terms of labor provisions, we enhanced them as we 
gave greater access to countries to our textile and apparel 
market and other markets. Cambodia also tackled the issue of 
labor provisions. In China, which was a different proposition, 
I think we did take the lead, this country, in trying to work 
out an understanding with the Chinese, and there it was not a 
bilateral or regional. It was, as we know, accession to the 
WTO. We tried to tackle how we both engaged and kept pressure 
on China. We set up, as you know, the commission that includes 
human rights and worker rights. We have a major anti-surge 
provision in there, the strongest one ever written into 
American law. And we provided effective mechanisms for 
oversight.
    And this brings me, Mr. Maury, I think to your comment, and 
that is the logjam. I think the danger is that we are going to 
fall back into a logjam, which was broken last year, and that 
the forward momentum is now going to be imperiled. I think the 
only way to avoid that is for people to have some open minds on 
these issues, including labor and the environment, and 
understand what it is all about. I want to say just a couple of 
things in that regard, because Mr. Donohue and I have talked 
about these issues over a substantial period of time.
    There is a reference to special interest efforts. I would 
urge, as we have open minds, that we not readily use that term. 
When we were debating China, we did not talk about the business 
community interests as special interests. When we debate the 
Ex-Im Bank, I try to urge people to look at the merits and not 
just talk about special interests.
    There is a reference to extraterritorial application of 
policy objectives. When it comes to environmental and labor 
standards, these are often international standards like the 
International Labor Organization (ILO) core labor standards. In 
a sense, everything is extraterritorial in their application. A 
trade agreement is by definition.
    And in terms of relevance to international commerce, we 
have been dealing, for example, with labor provisions in GSP 
for years. I think the problem is not the lack of relevance but 
the fact that these are labor market and environmental issues 
that are relevant to international commerce. That was one of 
the bases for the President's position, whether you agree with 
it or not, on the Kyoto Accord, that it would be harmful to 
American interests in terms of trade and commerce 
internationally.
    So if we are not going to fall back into a logjam, there is 
going to have to be willingness to have open minds and to 
engage. Otherwise, we are going to go nowhere and it is going 
to be essential to do that in terms of rebuilding a national 
consensus.
    So let me just say a word about Jordan. There has been 
reference to intellectual property provisions. I think they are 
important. It is a small country in terms of our trade, but we 
have trade agreements with a lot of countries where there is 
relatively small trade. Cambodia is an example.
    I think that we also talk about trusting when the 
government negotiates, and our government negotiated an 
agreement with Jordan. I was there when the King said they 
wanted to discuss and negotiate on labor and environmental 
issues. We did not drag them across the line. I just hope that 
we will not draw hard lines in the sand, because if we cement 
ourselves in, we are going to be back to three or four years 
ago instead of the momentum we gathered last year. We need to 
build on that, not pull the rug out from under it.
    And so while that was not the purpose of the hearing today, 
and, therefore, I think it may be better just that I make my 
views clear, I just wanted to be very clear that we are headed 
for a return, Mr. Maury, to the logjam if there is not a 
willingness to engage on these issues with some openness of 
minds. If we fall back into the pitfalls of polarization, we 
are going nowhere.
    Mr. Donohue. Congressman, I think those were very useful 
comments. I would just like to make two comments that might add 
to your thinking.
    Number one, what really is the challenge for America in 
trading around the world is our compulsion to impose unilateral 
sanctions. We have unilateral sanctions in more places than you 
can count. We have missed the Vatican and Bermuda and other 
places, but we have got unilateral sanctions just about 
everyplace else. And every time we have a unilateral sanction, 
our trading partners, our best friends, have a cocktail party 
and celebrate because we are staying out of markets.
    And the challenge about labor and environment is not 
whether, as you and I have discussed, not whether we should 
find ways to establish our views, to encourage objectives, to 
have side agreements, to support the ILO, or to do any of those 
matters. The challenge is that what we are talking about here 
is including in trade agreements like Jordan mandatory 
sanctions, where it would not only be sanctions against Jordan 
but could be sanctions against the United States if some third 
party there took a complaint against us.
    And if we are going to continue to put sanctions in 
everything we do, you are going to find that as we become a 
smaller and smaller part of the world trading system that folks 
are just not going to play that game. And until this country 
recognizes that if every trading agreement, every time we have 
a disagreement with somebody around the world, we are going to 
establish a trade-based sanction, if we do not deal with that, 
it is going to be a lot worse than having logjams here in the 
United States.
    Mr. Levin. Before you make your second point, let me just 
respond. There is nothing mandatory about any enforcement 
provision in the Jordan agreement, as there is nothing 
mandatory about the provisions in GSP, which have been used in 
terms of mandatoriness without sanctions but effectively. There 
is nothing--for example, I forget who it was who referred to 
the intellectual property provision.
    Mr. Donohue. Mr. McGraw did.
    Mr. Levin. Okay. Those are important provisions. True, 
Jordan is small, but you said they were important. You have to 
make sure they are enforceable, and that does not mean the 
minute that they do not--in fact, the language of Jordan is 
written to undermine the notion that at the drop of a hat, 
there would be a mandatory sanction. The language is carefully 
written so that will not happen. And we have all kinds of 
consultation processes within and mediation processes short of 
there being any utilization of sanctions on either side.
    Mr. Donohue. Well, I would----
    Mr. Levin. I would just urge, before we raise that flag and 
get everybody into a polarized position, that we think twice, 
because we are going to go back to where we were three, four 
years ago if we are not careful. Now the second point.
    Mr. Donohue. Well, let me just say that I agree with you 
that there is a significant consultation and process before 
sanctions are implemented. So yes, and I was getting to the 
point. If all of those matters fall aside, sanctions are there.
    Let me just make the second point. I think, as I said in 
the Senate the other day--Mr. Sweeney was on the panel, as 
well--that the arguments and the debate about labor and 
environmental issues are not ones the business community 
shrinks from. We have an extraordinary record of what happens 
abroad when we trade. What we are saying is there are 
appropriate institutions for that. There are extraordinary 
numbers of environmental treaties for that. There is the 
willingness to even enter into sidebar objectives and working 
groups.
    But when you put sanction-involved programs in trade 
agreements, you are setting up a--I talked at great length with 
Pascal Lamy about it just Monday. You are setting up a 
situation that is just not going to work, and we know, and let 
me just end--when Jordan came here and wanted a free trade 
agreement, the only way they got it was with labor and 
environmental issues in it. Now, you can say that the King came 
here and asked for that----
    Mr. Levin. No, let me be clear, because I was there when he 
was there. Let me be very clear. He was very categorical about 
their willingness to negotiate on those subjects and he never 
for a minute said anybody was twisting his arm. And I have 
talked to Mr. Lamy, too, and I talked to the people from 
Singapore in terms of the willingness to negotiate. With CBI, 
we had extensive discussions with Central America and with 
Caribbean nations. There is now a growing recognition that you 
cannot escape the environmental and labor market aspects of the 
competition between nations. And if we try to put it under the 
rug, it is going to pull the rug out from under any real chance 
to move ahead. A lot of us want to move ahead. We did last 
year. I do not think we have to talk about our credentials on 
that subject.
    Mr. Donohue. No, you do not.
    Mr. Levin. And if we do not get some open-mindedness and 
some willingness to sit down and talk about, back to deadlock 
or back to logjam, as Mr. Maury said.
    Mr. Donohue. Well, nobody wants logjams, Congressman, but 
trade agreements at any price are something that we are not 
prepared to do.
    Mr. Levin. I do not suggest at any price. I suggest with an 
open mind and realization as to what is really going on.
    Chairman Crane. The time of the gentleman has expired. Mr. 
Houghton?
    Mr. Houghton. Thank you, Mr. Chairman. As you know, it is 
fascinating going over the script again. So many of us have 
been over this territory so many, many, many times, and it 
seems to me there are three issues. One is the labor issue. One 
is the ag issue. And the other is abiding by the rules.
    But let us get to the labor issue for a minute, and I would 
like to ask Sandy, if you could wave a wand and have any labor, 
critical, not detailed, critical labor standard, what would it 
be?
    Mr. Levin. If the chairman would allow, I will be very 
brief.
    Chairman Crane. Please.
    Mr. Levin. He asked the question, though.
    Chairman Crane. You volunteered to be brief. [Laughter.]
    Mr. Levin. What we are basically talking about are the core 
labor standards of the ILO, which virtually every nation has 
agreed to embrace. The question is whether they will apply 
them, and there is no enforcement mechanism in the ILO. There 
is clearly, like labor market issues relevant to economics 
domestically, they are internationally. The question is how we 
handle them.
    And my main point is that it will differ also from 
agreement to agreement. Cambodia was not the same as CBI. And 
everybody, both Mr. Donohue and those who have somewhat 
different views, agree Jordan is not a template. It is not 
going to be utilized automatically every time this issue is 
raised. And the WTO is different than a bilateral agreement, 
and the regional Free Trade Area of the Americas (FTAA) is 
different.
    I will close with this, going back to intellectual 
property. We are not going to negotiate an intellectual 
property agreement with Brazil in an FTAA without enforcement 
within the agreement. At least, I assume that will be totally 
unacceptable, including perhaps the possibility of sanctions.
    Mr. Houghton. Sandy, you are going to take all my time. 
Look, my understanding originally, when we were talking about 
the labor and environmental agreement, particularly the labor 
agreement, that if labor agreements had two concepts, one, that 
the labor agreement would apply only to trade issues--it would 
not just be for everything around the country, and secondly, 
that all we asked was that people abide by their own labor 
agreements. To me, that was never a problem. I did not see 
that. It is not an ILO standard. It is not an AFL-CIO standard. 
It is their own labor agreements.
    I do not know how you gentlemen feel about that, but if you 
could do something like this, it would get us over that 
terrible hurdle, more than the agriculture, more than the 
intellectual property rights, more than anything we are talking 
about as far as MERCOSUR or any of these other issues. How do 
you feel about that?
    Mr. Maury. I will attempt a brief beginning answer to that 
question, Mr. Houghton. I do not think it is a question anymore 
of whether labor or environment is included in trade 
negotiations because it is going to be, and I will take a 
second seat to none with respect to advocating the passage of 
NAFTA, and, of course, NAFTA has in it side agreements on 
labor, and actually in the main agreement, a provision on the 
environment. What is unacceptable is standing still and letting 
the world pass us by. It is not unacceptable just because it is 
nice to delay a decision, but these periods of time that we 
take having these debates are not for free. I mean, they cost 
people money.
    Mr. Houghton. Let me just interrupt, because my time is 
running out.
    Mr. Maury. I do not have any idea----
    Mr. Houghton. And I appreciate that. The only thing is that 
we can pose the problem and we can talk about sort of the 
generalities and the philosophies here, but that labor issue is 
the critical thing to get over, and it would seem to me that if 
you go back into the original understanding, that if people 
abided by a reasonable labor standard set up in their own 
country--not on our standards, not somebody else's standards, 
their own standards--that that would really solve that problem. 
Am I wrong? I have just got a few seconds left.
    Mr. McGraw. Congressman, I certainly do not think you are 
wrong. Again, I come back to the whole issue of making sure 
that in each individual agreement that we take the time to 
define what the objectives for labor and environment are that 
we want to achieve.
    Mr. Houghton. No, it is not what we want to achieve, it is 
they have already set those labor objectives.
    Mr. McGraw. No question.
    Mr. Houghton. Okay.
    Chairman Crane. The time of the gentleman has expired.
    Mr. Houghton. My time is up. Thank you very much.
    Chairman Crane. Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman. I, too, appreciate 
the input of this distinguished panel and I agree with one 
thing my colleague and friend from Michigan said, that it is 
too bad that everyone on this panel, on the Subcommittee, is 
not here to get your input. In fact, every member of Congress 
needs to hear from you, particularly those of you involved, 
engaged in the global marketplace who deal in your businesses 
or those you represent with real trade barriers in trying to 
grow the economy, create jobs, and we need your input on this.
    I just think it is economic suicide to not pass trade 
promotion authority, and it is alarming to hear your testimony, 
to hear the fact, Mr. Donohue, that the United States is a 
party to only two of the 130-plus free trade agreements 
currently in force around the world. This means, obviously, 
that U.S. companies are disadvantaged in their efforts to sell 
products overseas, to export products and services overseas. 
And on the issue of free trade rules, they are obviously being 
written, for the most part, without U.S. input. How are we 
going to influence labor and environmental standards if we are 
not engaged in these places, in these countries and with these 
countries, with these economies? And, of course, the 130, I am 
sure, most of the 130-plus trade agreements that you have 
referred to have been concluded since fast track, or as we now 
call it--the vernacular now is trade promotion authority, 
expired.
    Let me ask you this, any of you on the panel. Can any of 
you quantify the damage? Is there any empirical data that 
quantifies the damage that U.S. non-participation has cost our 
economy in terms of jobs lost, gross domestic product? Do any 
of you know of any such studies?
    Mr. Donohue. We can use experience. The NAFTA agreement, 
which Mr. Maury referred to, has created in the United States 
since its inception about a net 1.3 million jobs. It has 
significantly improved circumstances, by the way, in labor and 
environment, in Mexico at the same time. So one could suggest 
that in the absence of an agreement, others are reporting to 
their legislatures about the jobs that they are creating.
    Now, I will make one point. A large number of these 
agreements have recently been negotiated. As I said, when I was 
in Mexico, they were doing it while I was sitting there. So we 
are only going to begin to see the competitive disadvantages in 
the weeks and months ahead, and the longer we wait, the more 
egregious that is going to be.
    Now, we have some advantages here in the United States. Our 
economy is so big, we could go out and make the right six free 
trade agreements and we will be ahead of all the 
aforementioned. But we need to understand that agreements come 
because there are advantages to both parties, and while we are 
here discussing, appropriately, labor and environment, many 
people who will take up objectives and those kinds of issues 
are not going to do an agreement with us if it has sanction-
based labor and environmental standards.
    So the number--just use NAFTA as an example. Multiply that 
out for all the agreements that are going down the road and it 
is pretty clear that others will benefit and we will not. Now, 
we are going to still succeed--many of our companies are going 
to succeed because they are going to find a way around the 
obstructions that are in their way. They will move somewhere 
where they can build their product and then sell it in one of 
those free trade agreements without paying the penalties that 
are now paid by American companies all over the world.
    Mr. Ramstad. Thank you, Mr. Donohue. I certainly appreciate 
that response and I think it is the accurate one. I also 
appreciate the input, I think it was you, Mr. McGraw, who 
referenced the tripartite effort that is necessary to get this 
passed, and we do need strong Presidential leadership. Those of 
us who support these agreements and the trade promotion 
authority have pledged our best effort here in the Congress, 
and we also need the continued involvement and leadership from 
the business community, from you and those businesses that you 
represent.
    I know as a good friend of your predecessor, Ernie Micek 
from Cargill, who was a good friend of everybody on this dais, 
I know you will provide that leadership, and at least most of 
the rest of you on this panel, as well. So thank you again for 
working in a collaborative way with us. I do not think anything 
is more important that this Congress will do.
    Chairman Crane. Thank you. Ms. Dunn?
    Ms. Dunn. Thank you very much, Mr. Chairman.
    Mr. McGraw. Could I respond very quickly? Excuse me, 
Congresswoman.
    Chairman Crane. Yes, Mr. McGraw?
    Mr. McGraw. Thank you for your comments, and I will make 
sure I relay those to Ernie. He will feel very good about that.
    I agree with your comments. Again, you can look at a lot of 
facts and figures. Over the last decade, about a quarter of our 
growth, economic growth in this country, is a function of U.S. 
exports. When we start talking about the real benefit of 
economic growth and that kind of development in those foreign 
markets, now we are really starting to talk about how countries 
are starting to develop that middle class, how they are 
starting to develop all those labor practices, and it is going 
to influence labor and environmental issues in that way. So the 
economic growth through trade is certainly going to be a big 
part of that level of improvement in other countries. I just 
thought I would throw that out.
    Mr. Ramstad. Put another way, it is a win-win, a win for 
both. Thank you again, Mr. Chairman.
    Chairman Crane. All right. Ms. Dunn?
    Ms. Dunn. Thank you. Welcome, gentlemen. I am sorry we had 
to miss a little of this important time because of votes on the 
floor, but I am glad to have a chance to question you.
    I had a recent meeting with Dr. Supachai, who is going to 
become the Director General of the WTO in about 18 months, and 
we talked about labor and environmental provisions in trade 
agreements. He represented mostly developing nations when he 
ran for that post, so I wanted to know his opinion of whether 
something could be worked out in those two areas. He said in 
the environment, probably. But, he said, when it comes to 
labor, that is a big problem for developing nations. We all 
were aware of the enormous result of the President's speech 
during the WTO meeting in Seattle, where he said that there was 
a possibility the United States would use sanctions on nations 
that did not accept our standards of labor.
    I have a lot of concern about this and I am wondering, one 
of you mentioned that the ILO is involved and others are 
involved in a roundtable to try to solve some of these problems 
and I would like to hear more about that, because it is a 
political problem for us on the Hill, even though most of you 
make a very rational and strong and realistic, I believe, case 
for why we should not connect those two. Would anybody care to 
comment?
    Mr. Tarullo. Ms. Dunn, the ILO has obviously existed for 
almost 100 years precisely to promote labor standards. I think 
the perceived problem that many labor advocates have with the 
ILO is that it seems not to have been particularly effective in 
doing so. Indeed, a recent case in which, for the first time in 
memory, the ILO approved sanctions against Burma for violation 
of fundamental labor and human rights, has resulted in 
virtually no imposition of sanctions or change in Burmese 
practices, and I think that has reinforced the sense of a lot 
of people that the ILO is not an effective forum.
    Indeed, a lot of people say about the ILO what a lot of 
business people used to say about the World Intellectual 
Property Organization. It is a good organization, it has got 
some good ideas, but it has not been effective. And just as a 
lot of business people who are concerned about protection of 
intellectual property wanted to take the intellectual property 
issue out of WIPO and put it into the WTO, I think a lot of 
people concerned about labor standards want the WTO also to 
have a role because of the inadequacies of the ILO.
    Ms. Dunn. Okay, let me just stop you there. Does anybody 
else have any other comments on this? Tom?
    Mr. Donohue. When I testified at the Senate the other day, 
John Sweeney pointed out the ILO funding and so on was being 
cut. I offered to support continuance of it. I think the ILO 
has not been as effective as it needs to be but can be, and I 
think that, as you know, Congresswoman, I offered John Sweeney 
and supported a working group in the WTO on labor which would 
handle a lot of this, and we were making some progress in 
Seattle when the President gave that speech. It is an uphill 
issue here in the Congress, as we have seen in our discussion, 
but it is an up-mountain issue around the world. I hope we can 
find a way to work it out. It is important and you have been 
very helpful and I thank you.
    Ms. Dunn. Yes, Mr. McGraw?
    Mr. McGraw. Congresswoman, I would also add, it takes 
commitment. I agree with some of the comments on the 
International Labor Organization that you were making. The 
problem has been, and it was the same thing with the 
predecessor to the WTO when we were talking about GATT, when we 
do not have clarity in terms of the objectives that we are 
seeking, in terms of our agreement, it is very hard to place 
commitment behind those organizations that we want to address 
those particular kinds of issues.
    So yes, there has been a mixture of response to 
organizations like the ILO or the NAFTA Commission for 
Environmental Cooperation and the like, but if we are going to 
be serious about those issues and serious about going after the 
objectives that we are trying to establish and trying to 
achieve, then we are going to have to put our full commitment 
behind it.
    It is one of the problems, Congressman Levin, that I 
believe comes back to the process nature of putting in blanket 
labor or blanket environmental clauses into our trade 
agreements. It does not address the specificity of what 
particular objective we are trying to go after, and secondly, 
it undermines those various organizations that you are talking 
about Congresswoman, that are trying to deal with those issues.
    So when we do identify and have clarity about the 
objectives, then we have to decide and identify how we are 
going to go about achieving them and in what organizations we 
want to be able to achieve them.
    Ms. Dunn. All right. Let me just leave it at that. I am 
sorry, Mr. Weiller, but I am almost out of time and I just need 
to put a question out there for you all to be thinking about. I 
hope the chairman will yield me a few more seconds.
    I do not think we are very good about talking about free 
trade in the United States. Recently at an international 
meeting, I heard Brian Mulroney, for example, talk about the 
benefits of NAFTA to Canada and the United States and Mexico. I 
have heard Vincente Fox talk about the same thing. I just do 
not think we are good about doing that here. What do you 
suggest we do? It seems to me that we have got to start 
training our leaders to get out there and sell the benefits of 
free trade. We have not done it well and so we have not built a 
consensus behind it. We continue to have tough discussions 
every time this issue comes up when, from most of your 
testimony, it is obviously a very good place for us to be. Any 
thoughts?
    Mr. McGraw. Congresswoman, one quick observation. On the 
whole education front, we all can share a great deal of blame, 
I believe. When we start talking about educational reform 
initiatives and we start talking about our math and our science 
skills and how we have to do so much that way, we also have to 
improve upon our basic understanding of the world that we are 
living in. There are a lot of organizations, there are a lot of 
programs that are working very effectively at dealing with some 
of those, like the National Council on Economic Education, and 
on and on, lots of different programs.
    But I do believe that at the very top, the President is 
going to have to make trade a very, very important dialogue 
with the American people. I am very concerned about, as you 
are, about the lack of understanding that we talk about in 
terms of globalization and its ramifications on growth and on 
their own job security. When we talk about job security and 
when we talk about those kinds of issues, the anxiety that 
exists today with U.S. workers is abnormally high. They do not 
trust globalization. They are fearful. When they have lost 
their jobs, there are concerns about those dislocations and how 
they can reenter the workforce.
    And, therefore, I come back to the overall initiative of 
trade adjustment assistance programs, and I know that is coming 
up by the end of September in terms of its reauthorization, but 
it is not just trade that is doing that, it is a lot of the 
technological development, as well, that is costing those jobs 
and we have to understand those implications. But we need to 
put more emphasis behind those trade adjustment assistance 
programs, as well. But a great deal of effort has got to be 
done, not only by government leaders but by the business world, 
as well, in terms of trade and global education.
    Chairman Crane. Thank you. The time of the gentlelady has 
expired. Mr. English?
    Mr. English. Thank you, Mr. Chairman, and I want to thank 
you, Mr. Chairman, for convening this panel. I think it is very 
timely.
    Mr. McGraw, on your last point, in your testimony, you 
touch on trade adjustment assistance and, I think, establish 
very well the case for reauthorizing it and making the center--
one of the components of our trade strategy. One thing that was 
not clear from your testimony is what changes you might 
recommend in trade adjustment assistance to make it more 
effective. For example, would you consider favorably the notion 
of changing the Trade Adjustment Assistance (TAA) eligibility 
overall to more resemble the eligibility built into the TAA 
NAFTA-Mexico program?
    Mr. McGraw. Congressman, I am certainly not an expert in 
terms of being able to comment completely on your answer. I 
think that when we start talking about TAA modifications and 
modernization, we certainly are going to have to look at a far 
more inclusive set of programs that take into ramifications not 
just trade, but some of the technological changes that have 
resulted in a loss of those positions, as I was saying to 
Congresswoman Dunn on that one.
    In terms of inclusion, in terms of any part of the NAFTA 
assistance program, there are probably wonderful examples like 
that that we could work on. I do believe that a larger overhaul 
of the adjustment assistance program is necessary.
    Mr. English. Thank you. Mr. Donohue, thank you for your 
testimony, and if I could, I would like to delve a little bit 
into your approach to normal or standard trade negotiating 
authority for the President. My understanding is that the 
Chamber would oppose a fast track proposal or an expedited 
negotiating procedure proposal that would mandate that labor 
and environmental provisions be included in any trade 
agreement, is that fair?
    Mr. Donohue. Yes. If the legislation mandated labor and 
environmental provisions within the trade agreement that had 
ultimate sanctions involved, we would oppose it. Agreements to 
work together or agreements to set objectives, agreements to do 
those kinds of things are acceptable either in or out of the 
agreement. But the sanction-based ones, we would oppose it.
    Mr. English. And you would, then, oppose trade agreements 
that include in the body of the trade agreement non-trade-
related items, such as labor and environment, with trade 
sanctions being the specified penalties?
    Mr. Donohue. Yes.
    Mr. English. What would your position be on a fast track, 
or whatever you want to call it, proposal that would allow 
labor and environmental issues to be considered within the 
trade agreement but without trade sanctions being applied in 
cases of dispute?
    Mr. Donohue. We have always said that the trade discussions 
that include reasonable objectives that would be coming from 
the trade arrangement that would, hopefully, improve labor and 
environment provisions, that those statements of working 
together and objectives and so on, the devil being in the 
details, we would certainly support those agreements.
    Mr. English. Currently, I believe, Canada has side 
agreements with Chile that allow for labor and environmental 
standards to be applied, but that in the event of a dispute, 
there would be monetary penalties as opposed to trade 
sanctions. Is that a model your organization would consider, 
depending on the details?
    Mr. Donohue. Mr. English, that is a very good question, and 
you want to be very careful--we want to be very careful in 
answering it.
    Mr. English. Certainly.
    Mr. Donohue. It certainly is far more preferable than 
sanctions, but we do not want to suggest from the business 
community that we will pay for the behavior we choose. But 
obviously we might have something to work with there.
    Mr. English. My final brief question will be, would you be 
supportive of a fast track proposal that would be silent on how 
labor and environmental provisions would be addressed in a 
treaty that might be brought back by an administration with 
labor and environmental issues potentially addressed?
    Mr. Donohue. Yes.
    Mr. English. Thank you.
    Mr. Donohue. Thank you, sir.
    Mr. Ramstad. [Presiding.] The gentleman from Kentucky, Mr. 
Watkins.
    Mr. Watkins. Oklahoma.
    Mr. Ramstad. Oklahoma.
    Mr. Watkins. Mr. Donohue, you are correct. Let me say, I 
was in Seattle and the President pulled the rug right out from 
under us at a time when I thought we were on the verge of doing 
some good things, but that is not the only time. On fast track, 
there is no reason why we could not have passed fast track if 
Bill Clinton had truly been sincere about dealing and working 
on it. But he catered to labor and catered to the 
environmentalists totally. That is why we do not have fast 
track, and I get tired of people painting it over. That is 
exactly what happened to us here in that particular time.
    But I am interested in supporting a trade promotion 
authority. I want us to move it. I want us to get it. But I 
also want us to be on fast track. Fast track, or full court 
press, as I like to call it, is done--there was a question a 
while ago. We have not done the things necessary to build an 
image. We have got a Trade Subcommittee here in Congress. We 
have got a USTR that has hidden all of it. Why do we not make a 
Department of Commerce and Trade if we are sincere about trade 
and build that image. Let us make a United States Chamber of 
Commerce and Trade. It is image. I read this as just commerce. 
We do not talk about it.
    In 1980, I started working building a global trade center 
in Oklahoma, in Stillwater, Oklahoma, because I knew that my 
small businesses and my people did not understand global trade, 
and we need to be able to provide the right, yes, image, right 
perception, and the right reality, and we have not done the job 
out there. Small business industries are suffering.
    We have talked about the environment, labor, and ag. I have 
a strong background in ag. I wonder if your businesses had $7 
billion of export trade subsidies locked in against you, how 
would you survive it? That is what the GATT talks happened, Mr. 
McGraw. The GATT talks locked in $7 billion of export subsidies 
for the European Union. They grandfathered in about $200 
million in ag for the United States, but $7 billion. Twenty-
seven trade agreements have been signed by the European Union 
and some of them have allowed a loss to take place in 
agriculture in order to grab other trade agreements with other 
commodities and products of our country. That is why we are 
talking about ag. We are being sold down the drain by our own 
United States Trade Representatives and people who have been 
taking care of other factors. I do not deny it.
    But let us not talk like we have done a good job. We have 
not done a good job negotiating, and I want the United States 
to lead. I have asked Alan Greenspan before about--when I 
became, Mr. Donohue, really passionate about trade was in 1980 
when I woke up and realized we were at about a $69 billion 
trade imbalance. Look where we are today. We are at, what, a 
$400 billion trade imbalance, and Alan Greenspan said he does 
not know exactly how that is going to all play out with the 
overall economy. But we need to do some things, I think, to 
build that image that we are sincere about it. There is a lot 
that we can do. But also, do you have any feeling about what 
the situation is that we are confronted with on the trade 
imbalances, how that is going to in the long run affect our 
economy?
    Mr. Donohue. Well, Congressman, you certainly covered a 
number of issues and I wish I could respond to a number of 
them, and I will come and see you because we are doing a lot. 
We have 90 American Chambers of Commerce abroad. We have been 
running a grassroots trade operation in this country for a 
couple of years.
    Mr. Watkins. Could that be 90 commerce and trade----
    Mr. Donohue. Ninety American Chambers of Commerce operating 
in countries around the world who are pushing trading issues.
    Mr. Watkins. Chamber of Commerce, that is great.
    Mr. Donohue. But let me just respond very quickly to the 
question of the trade imbalance. You know, we started our trade 
deficits with George Washington, and we had some periods of 
time after the war when we did not have them, but very, very 
clearly we are a high-consuming nation, but we are also the 
largest exporting nation in the world. The more we push the 
exports and the better we are doing, the more jobs we create 
and the more increase in the standard of living here and there.
    When the number gets very big, it has to be looked at in 
two ways. Number one, it is a much bigger number in relation to 
a much, much bigger economy.
    Mr. Watkins. Right.
    Mr. Donohue. I mean, when you look at the trillions of 
dollars of commerce, the number is not as large as it looks. 
And second, that number could get painful, but it could get 
very much balanced if we would get the free trade agreements 
going, and when we see the China implementation of what 
everybody worked on last year in PNTR and when we expand into 
Asia and Latin and South America, you will see more balance. We 
need it. You are on the right track. There is a lot going on. 
Unfortunately, we do not have the time right now, but I will 
come by and see you.
    Mr. Watkins. I would welcome that and I ask that. In fact, 
I asked that about a year ago, but I hope you will come by.
    Mr. Donohue. I promise.
    Mr. Watkins. All right. You are a good man.
    Mr. McGraw. Mr. Chairman, can I make one comment?
    Mr. Ramstad. Mr. McGraw?
    Mr. McGraw. There is another danger here that we have to be 
very careful about. In many ways, we benefit from some of that 
trade deficit in terms of the prosperity that a lot of 
Americans have been able to enjoy in purchasing those goods and 
the like. The current economic slowdown in this country, if 
prolonged, could render a very different situation where a lot 
of foreign capital would be coming out. I would just add that 
the imperative in terms of making sure that our economic 
slowdown is a short one is also going to have some serious 
ramifications on our trade and our trade relations.
    Mr. Watkins. I understand. Thank you, Mr. Chairman.
    Mr. Ramstad. Let me apologize to my good friend, and he is 
my good friend, the gentleman from Oklahoma. Believe me, nobody 
fights harder for the cattle ranchers in Oklahoma, nobody 
fights harder for the small operators in the oil patch of 
Oklahoma than my good friend from Oklahoma, Mr. Watkins. I will 
never make that mistake again, I can assure you, Wes.
    Let me also thank the five distinguished members of this 
panel. We do appreciate your counsel, your input, your 
patience, as well. It is very important that we work together, 
all of us, in a collaborative way for the betterment of our 
economy and of our country. So thank you very much for being 
here today and sharing your wisdom with us. Thank you.
    I will call the second panel, Mr. John McCarter, Mr. Harold 
Wiens, Mr. Jeffrey Schott, Mr. John Hardin, Jr., and Mr. Donald 
R. Burke. I want to welcome all of you gentlemen of the second 
panel and thank you very much for your patience, for your 
indulgence. This process is often very tedious and slow, and 
you have seen examples of that this morning.
    I particularly am being a little bit parochial. I want to 
introduce a fellow Minnesotan member of this panel, Mr. Harold 
Wiens, who is Executive Vice President for Industrial Markets 
of 3M Corporation in St. Paul, Minnesota. Mr. Wiens is here 
today representing the National Association of Manufacturers, a 
longtime employee of 3M, a distinguished career, 34 years I 
guess it is now, Harold, and certainly your responsibilities 
with the company have been very, very important both 
domestically and abroad. I know you spent eight years in Europe 
and Asia gaining extensive experience in managing the many 
difficulties that companies like 3M face trading with countries 
there.
    We are certainly glad to have you here today and would ask 
you to lead off, please.

    STATEMENT OF HAROLD J. WIENS, EXECUTIVE VICE PRESIDENT, 
INDUSTRIAL MARKETS, 3M, ST. PAUL, MINNESOTA, AND MEMBER, BOARD 
    OF DIRECTORS, AND CHAIR, INTERNATIONAL ECONOMIC POLICY 
        COMMITTEE, NATIONAL ASSOCIATION OF MANUFACTURERS

    Mr. Wiens. Thank you, Mr. Chairman, very much for that kind 
introduction. It is a warm Minnesota welcome.
    Thank you again for giving me the opportunity to testify 
today. My name is Harold Wiens, as introduced by Mr. Ramstad, 
and I am testifying today on behalf of both the National 
Association of Manufacturers and 3M, but I am going to use 
actual 3M experience to support my points.
    The message that I want to leave with you today is that 
America has lost ground on trade access, and more importantly, 
the biggest impact is yet to come. This is hurting American 
workers and consumers, as well as countries around the world 
that depend upon U.S. innovation to raise living standards and 
develop their economies. In addition, it is hurting American 
business at a time when we are seeing a significant softening 
of the American economy.
    Let me begin by stressing how important trade already is 
for U.S. manufacturers and the 18 million employees who work in 
the manufacturing sector. U.S. manufactured exports last year 
totaled $650 billion, and one in five manufacturing jobs is 
supported by exports. For 3M, of our 37,000 U.S. employees, 
about 8,000 of those folks' jobs depend upon our ability to 
export.
    Last year, for example, $2 billion worth of our products 
manufactured in the U.S. were exported abroad. So I believe it 
is fair to say that 3M's success in no small measure lies in 
its commitment to compete everywhere in the global marketplace 
with the most advanced, highest-quality products that we can 
develop.
    But, you know, it is not just large manufacturers like 3M 
that benefit from exports. Many smaller companies, including 
many of our vendors, also do benefit from that export.
    Looking out across the globe today, 3M and other U.S. 
manufacturers do not see a level playing field for trade. The 
U.S. market is already open for trade and investment. While 
tariffs in other industrial countries have fallen sharply, they 
are still high in emerging markets and newly industrializing 
countries. In these markets, U.S. exporters face tariffs ten to 
15 times the U.S. average.
    3M's exports to Latin American typically encounter tariffs 
as high as 20 to 30 percent on major product lines. For 
example, in Venezuela, the duty on 3M's popular Post-It brand 
notes is 30 percent.
    The United States cannot afford to be shut out of these 
emerging markets, but over the past several years, we have lost 
ground by being forced to stand on the sidelines while our 
competitors have moved ahead. The European Union is pressing 
hard for quick free trade agreements with Brazil and other 
MERCOSUR countries that, frankly, would put us at a 
considerable disadvantage.
    An extremely important new element is that Japan has 
recently--that is, last year--changed its trade policy and is 
negotiating bilateral rather than multilateral trade deals. A 
Japanese free trade agreement with Korea or China would have 
huge long-term costs for U.S. exporters and all their 
stakeholders, including employees in small company suppliers. 
The United States needs to get started now to take the 
initiative on trade.
    First, the Congress needs to give the President trade 
promotion authority. Without it, no country will seriously 
negotiate a broad reduction in trade barriers. Our trading 
partners understand the American legislative system very well. 
For example, we have recently seen a press report that the EU 
is advising Brazil not to negotiate a free trade agreement with 
the U.S. without Trade Promotion Authority (TPA) because 
Congress would change the deal.
    Second, the administration should establish as its highest 
new trade negotiating goal the creation of the Free Trade Area 
of the Americas. South America is four times as large an export 
market for U.S. exporters as China.
    Third, the administration should conclude the agreements 
with Chile and Singapore and should explore opportunities to 
pursue free trade agreements with other trading partners, 
particularly those in Asia.
    We recognize the legitimate concerns about labor and the 
environment. Business wants to work positively to address those 
concerns in ways that do not harm trade.
    Companies like 3M and its stakeholders strongly support 
free trade not only because of its economic benefits to the 
United States, but also it is a form of positive engagement, a 
way for countries to interact peacefully and to learn to 
respect and value each other's values and cultures. So as we 
lose ground on trade by standing on the sidelines, we incur 
many losses--lost export sales, lost jobs, lost consumer 
choices, and lost opportunities for positive engagement to 
promote economic development and improved living standards.
    The United States still has time to resume its traditional 
leadership role in trade, but we need to act now. If we do not, 
we can be assured that others will continue to pursue their own 
trade agendas, leaving the United States behind and ultimately 
hurting American businesses, workers, and consumers. Thank you 
very much.
    [The prepared statement of Mr. Wiens follows:]
  Statement of Harold J. Wiens, Executive Vice President, Industrial 
 Markets, 3M, St. Paul, Minnesota, and Member, Board of Directors, and 
Chair, International Economic Policy Committee, National Association of 
                             Manufacturers
    Mr. Chairman and Members of the Committee, thank you for giving me 
the opportunity to testify today. My name is Harold Wiens. I am the 
Executive Vice President, Industrial Markets, 3M. I am also a member of 
the Board of Directors of the National Association of Manufacturers and 
chair of NAM's International Economic Policy Committee.
    The message that I want to leave with you is that America is losing 
ground on trade access, and this hurts American businesses, workers and 
consumers. It also hurts countries around the world that depend on U.S. 
innovation to raise living standards and develop their economies.
    I am testifying today on behalf of both the NAM and 3M but will 
draw on actual 3M experiences to support my point. International trade 
agreements affect, either directly or indirectly, the majority of NAM 
members. For 3M, international trade agreements are of vital importance 
for enhancing penetration in current markets and opening new markets.
    3M is a large multinational corporation with worldwide annual sales 
of nearly $17 billion. We produce more than 50,000 products that are 
sold in six market groups: Industrial; Health Care; Transportation, 
Graphics and Safety; Consumer and Office; Electro and Communications; 
and Specialty Material. International sales account for 53 percent of 
total sales. Our products are sold in nearly every country in the 
world. We have operations in 65 foreign countries. Our 72,000 employees 
are split almost evenly between facilities in the United States and 
abroad.
Importance of Trade
    I want to stress how important trade is for U.S. manufacturers and 
their stakeholders. Long gone are the days when manufacturers could 
focus solely on the large U.S. market. Companies that can't compete 
with the best companies in the world lose market share.
    3M has known this for a long time. We seek to compete in the global 
marketplace with the most advanced, highest-quality products that we 
can develop. Every year, we introduce, on average, 450 new products to 
stay ahead of the competition.
    U.S. manufacturers now depend on exports for sales more than ever 
before.
     Almost 1 in every 6 manufactured products coming off the 
assembly line goes to a foreign customer.
     America's manufacturers exported $650 billion last year--
almost 90 percent of U.S. merchandise exports.
     Exports support 1 in every 5 manufacturing jobs and about 
1 in 10 private sector jobs.
    3M exports a wide range of consumer and industrial products. 
Exports directly support 8,000 jobs, over 20 percent of our total U.S. 
employment. For example, at our Menomonie, WI, plant where we make 
electrical tapes, reflective sheeting and brightness enhancement film, 
60 percent of output goes to foreign customers. At the Brookings, SD, 
plant, where we produce surgical drapes, facemasks and surgical tapes, 
50 percent of production is exported.
    But it's not just large corporations like 3M that benefit from 
exports. Smaller companies do as well. For example, the benefits of 
3M's exports flow to some 36,000 supplier companies--most of them small 
and medium-size companies--that receive nearly $8 billion in orders 
from 3M. Many small companies export on their own, too. My NAM 
colleague Bill Weiller, the president of Purafil, will tell you how 
important exports are for his company of 70 employees.
Leveling the Playing Field
    Looking out across the globe today, 3M and other U.S. manufacturers 
do not see a level playing field for trade. Unlike many foreign 
markets, the U.S. market is already open to trade and investment. 
Approximately two-thirds of U.S. imports enter duty-free. The weighted 
average U.S. tariff on imported goods is only about 2 percent.
    While tariffs in other industrial countries have fallen sharply, 
they are still high in emerging markets and newly-industrialized 
countries. In these markets, U.S. exporters face tariffs 10-15 times 
higher than the U.S. average. They face other non-tariff barriers as 
well.
    For example, 3M's exports to Latin America typically encounter 
tariffs as high as 20 percent to 30 percent on major product lines. In 
Colombia, the duty on 3M electrical tapes is 20 percent. In Ecuador, 
our filter products face a 30-percent tariff. And in Venezuela, 3M's 
popular Post-It brand products can enter only after importers pay a 30-
percent duty.
    In addition to tariffs, other charges, such as excessive clearance 
and handling fees, add to the cost of our products. Some countries also 
require mandatory import licenses and/or pre-shipment inspections on 
every product, which can cause significant delays in customs clearance 
and add to handling expenses.
    Without these trade barriers, 3M would have much greater market 
penetration in Latin America. That would have been good for 3M, good 
for its workers in Menomonie and other U.S. plants, and good for Latin 
American consumers who could have bought more of our products at lower 
prices.
    This is why we are so concerned about the United States losing 
ground on new trade agreements. We need these agreements to level the 
playing field and get our trading partners to offer the same kind of 
open market access that we do.
    Trade liberalization agreements in the GATT and later the World 
Trade Organization have helped to lower tariffs and remove some other 
persistent barriers to trade. But in too many promising markets, like 
Brazil, Venezuela and Colombia, trade barriers are still too high.
    Trade with South America is particularly important for 3M as it is 
for many other U.S. manufacturers. Last year, 3M exported more than $2 
billion worth of U.S.-manufactured merchandise. Of this, only $220 
million was exported to Latin America.
    The NAM has focused on the Free Trade Area of the Americas (FTAA) 
for this reason. South America is already four times as large an export 
market for the United States as is China. Recognizing the trade 
potential in the region, the NAM has identified progress on the FTAA as 
its top trade priority this year.
    The current situation is bad enough. But if other countries were to 
negotiate free trade agreements with our most promising markets while 
we stood on the sidelines, that would be worse. Exports from our U.S.-
based plants would be further disadvantaged. And in today's highly 
competitive global markets, even relatively small preferences to our 
competitors can make big differences in our ability to win sales 
contracts.
    But we shouldn't restrict our trade negotiations to the Western 
Hemisphere. In Asia, U.S. exporters also face relatively high average 
tariffs. NAM members, including 3M, would like to see the U.S.-
Singapore Free Trade Agreement (FTA) negotiations brought to a 
successful conclusion. Trade agreements with our Asian trading partners 
would also help to offset recent moves by some Asian nations to 
consider an exclusive Asian regional trade community.
    Japan, which, up until recently, has supported trade liberalization 
mainly through global negotiations in the WTO, appears to be changing 
its trade philosophy in favor of more regional approaches. Some in 
Japan are fostering the idea of a regional free-trade area that would 
include ASEAN, Korea and China, but not the United States.
    Finally, we should not ignore the opportunities to improve market 
access through the WTO. We need to continue to clarify and strengthen 
WTO rules and compliance, and encourage further sectoral liberalization 
where possible. When there is a prospect for consensus on a new round 
of comprehensive negotiations, we should be prepared to move forward.
We Can't Afford To Be Shut Out
    What happens if the United States doesn't pursue regional and 
bilateral trade initiatives? We are already beginning to see the 
results.
    In the past, the United States was the trade-liberalization leader, 
but for several years now, the United States has been sitting on the 
sidelines. In the meantime, our trading partners are moving ahead and 
cutting their own trade deals. We are losing ground, and we worry that 
the worst may lie ahead of us.
    The European Union has been the most aggressive in negotiating 
regional agreements. Last year, the EU concluded free-trade agreements 
with Mexico and South Africa. It is currently negotiating 15 new 
agreements with other trading partners, including Chile, the MERCOSUR 
countries (Argentina, Brazil, Paraguay and Uruguay), and countries in 
North Africa and the Middle East.
    Recently, the pace of EU negotiations with MERCOSUR has 
accelerated, and the EU has reportedly promised to offer a market-
access package in July. Moreover, a senior EU trade official was quoted 
in the press as advising Brazil that negotiating with the United States 
without Trade Promotion Authority in place would be a waste of time 
because Congress would alter the agreement after it was signed.
    In addition to negotiating free-trade agreements with these 
countries, the EU is preparing more than 17 Central and Southern 
European countries for future membership in its own trade community, 
including several for as early as 2004. The EU continues to pursue 
preferential trading arrangements with its former colonies in Africa, 
Asia and the Pacific region.
    At the same time, we have a range of disputes between the EU and 
the United States, including beef, bananas and FSC, and an equitable 
resolution of these disputes is a priority for the NAM and 3M.
    The tariff preferences that the EU receives in these agreements 
will put U.S. companies at a disadvantage or, in the case of Mexico, 
will eliminate advantages that have helped to boost U.S. exports.
    The EU is not the only competitor cutting separate trade deals:
     Mexico has concluded trade agreements with at least 28 
countries, and is negotiating agreements with other important markets, 
such as South Korea, Japan, and MERCOSUR.
     MERCOSUR, with the strong support of Brazil, wants to 
establish a trade bloc with the Andean Community (Peru, Venezuela, 
Colombia, Ecuador, and Bolivia).
     South Africa is leading a trade initiative with 12 African 
countries called the Southern Africa Development Community, or SADC, 
which has started negotiating a trade agreement with MERCOSUR.
     ASEAN, which includes important Southeast Asian trading 
partners, is considering a trade agreement with China.
    The bilateral and regional agreements being negotiated by our 
trading partners involve not only free trade and tariff preferences; 
they cover other important trade-related areas as well.
    Bilateral investment treaties, for example, have proliferated. 
These treaties provide important protections to investors and remove 
investment barriers. They can encourage investment that helps to 
facilitate exports, but they can also serve to discriminate against 
investors from countries that have not negotiated these safeguards.
    U.S. companies are only beginning to feel the impact of these 
bilateral and regional trade initiatives. The agreements with many 
important markets are still being negotiated, such as the EU's free-
trade agreement with Chile and MERCOSUR, or, in the case of Mexico, are 
only now in the initial implementation phase. That is why it is so 
important that the United States get started now to launch its own 
trade initiatives.
Recommendations
    To maintain America's trade leadership, the NAM and 3M recommend 
the following:
     First, Congress needs to give the President Trade 
Promotion Authority. Without it, no country or group of countries will 
seriously negotiate a broad reduction in trade barriers.
     Second, the Administration should establish as its highest 
new trade-negotiating goal the creation of the Free Trade Area of the 
Americas because Latin America has such a large export potential.
     Third, the Administration should conclude the agreements 
with Chile and Singapore and should offer other interested trading 
partners, particularly those in Asia, opportunities to pursue free-
trade agreements with the United States. We should also seek further 
multilateral trade liberalization at the WTO.
Losing Ground on Trade Has Many Costs
    Companies, like 3M and its stakeholders--including customers, 
employees and retirees--strongly support free trade. We benefit from 
improved market access in countries around the world. But free and open 
trade is more than just business transactions, it is a form of positive 
engagement--a way for countries to interact peacefully, as they do 
through tourism and educational exchanges.
    Moreover, the benefits flow in both directions. Free and open trade 
doesn't just benefit the United States. It promotes economic 
development in our trading partners. Economic development is the first 
step in building a higher standard of living, including better health 
and education. Economic development creates meaningful jobs that serve 
to enhance human dignity and build the environment for more democratic 
forms of government. And as countries become engaged, they also develop 
a better understanding of each other's values and culture, and that 
helps to promote peace and security.
    So, as we lose ground on trade by standing on the sidelines, we 
incur many losses--lost export sales, lost jobs, lost consumer choices, 
and lost opportunities for positive engagement to promote economic 
development and higher living standards.
    The United States still has time to resume its traditional 
leadership role in international trade and, indeed, many countries 
around the world would like to see the United States play that role. We 
need to act now. If we don't, we can be assured that others will 
continue to pursue their own bilateral and regional trade agendas, 
leaving the United States behind and ultimately hurting American 
businesses, workers and consumers.

                                


    Mr. Ramstad. Thank you, Mr. Wiens, for your very compelling 
testimony, and I would remind all the witnesses that your 
complete statements will be entered into the record. Mr. 
McCarter, please.

 STATEMENT OF JOHN T. MCCARTER, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, GE LATIN AMERICA, SAO PAULO, BRAZIL, AND VICE CHAIRMAN 
             OF THE BOARD, COUNCIL OF THE AMERICAS

    Mr. McCarter. Thank you very much, Mr. Chairman, for 
inviting the Council of the Americas to appear today. The 
Council is the premier business organization dedicated to 
promoting regional economic integration, open markets, and the 
rule of law throughout the Western Hemisphere. The Council was 
the leading proponent of the NAFTA and strongly supports the 
earliest possible creation of the Free Trade Area of the 
Americas.
    I would like to give you an American businessman's 
perspective on the FTAA. Accordingly, I would like to make 
three broad points. First, there are real costs to the United 
States when our hemispheric trading partners conclude trade 
agreements without our participation. Second, the agreement 
will extend core values for which our country stands. And 
third, the FTAA will help create a stable, predictable, and 
transparent environment in which business can grow.
    Today, the United States has active free trade agreements 
only with Canada, Mexico, and Israel, but other countries in 
the hemisphere have entered into a multitude of free trade 
agreements. Virtually every country in the region has entered 
into new preferential trade agreements in the last three years.
    Mr. Chairman, here is a chart on this easel illustrating 
the many trade agreements that we have been talking about this 
morning that currently involve countries in this hemisphere. 
These agreements have benefits for the region, for sure, but 
this web of agreements is a suboptimal solution. It lowers 
barriers for some countries at the expense of creating a 
confused hemispheric trading landscape. More importantly, where 
these bilateral and sub-regional agreements do not involve the 
United States, they inevitably steer business away from U.S. 
companies.
    Mr. Chairman, in the last ten years, democratically-elected 
governments throughout the Americas have adopted market-
oriented economic policies and begun to sweep away the dead 
weight generated by closed markets, excessive government 
intervention, State-run enterprises. But the battle is hardly 
won and the specter of retrenchment looms.
    The FTAA is key to addressing the risk of backsliding on 
economic, social, and political reforms. Economically, the FTAA 
locks in and expands the economic policy progress underway. 
Socially, the agreement expand the application of free trade 
principles and increases the presence around the hemisphere of 
U.S. companies which carry the core American values of 
democracy and individual freedom with them. Politically, as the 
FTAA builds strong integrated economies and shared standards 
and institutions, it will build new bonds of friendship and 
common purpose between neighbors.
    GE's experience in Chile illustrates these points well. 
Several years ago, GE won the competition to build a gas-fired 
power plant near Santiago. That is a poster child for market-
oriented economic policies and free trade and investment in the 
Americas. The plant was owned by a private Chilean electric 
utility, a Canadian energy company, and a U.S. electric utility 
from the Carolinas. GE was the prime contractor and we chose a 
global engineer constructor from the United States to be our 
partner.
    The steam turbine and generators came from Schenectady, New 
York, the controls from Salem, Virginia, and the gas turbines 
from Greenville, South Carolina. The plant uses state-of-the-
art high-efficiency technology and advanced environmental 
controls. Local Chilean suppliers, including a large local 
construction company, participated in the project. And the 
plant is fueled, finally, by natural gas piped in from 
Argentina.
    We are very proud of this project, but despite the success 
and in spite of the fact that we are the leading supplier of 
combustion turbine power generating equipment in the world, we 
lost the next two similar plants to our principal global 
competitors from Europe and Japan. I point these losses out 
only to underscore the competitiveness of the market. In these 
competitions, all suppliers were equally treated from a tariff 
standpoint. So if the European Union or Japan gains 
preferential treatment in Latin America, it will make it much 
harder, if not impossible, for us to win with equipment sourced 
from the United States.
    Mr. Chairman, I am optimistic about the outlook for the 
FTAA. Already, the agreement is taking shape with draft text, 
though heavily bracketed, in all of the negotiating groups. 
Business facilitation measures, primarily in the form of 
streamlined customs procedures, were adopted last year, a 
process that the Council of the Americas was proud to 
facilitate. Hence, the process of creating the FTAA is already 
yielding benefits that will help businesses in the near term.
    In conclusion, I want to thank the Committee for its 
leadership on this important issue. I will also add my voice to 
supporting comments from the other speakers, who emphasized the 
importance of trade promotion authority for the ability of the 
United States to effectively conclude the Free Trade Area of 
the Americas. Thank you, and I will conclude my remarks with 
that.
    [The prepared statement of Mr. McCarter follows:]
 Statement of John T. McCarter, President and Chief Executive Officer, 
 GE Latin America, Sao Paulo, Brazil, and Vice Chairman of the Board, 
                        Council of the Americas
    Thank you very much, Mr. Chairman, for inviting the Council of the 
Americas (Council) to appear before your committee today. The Council 
is the premier business organization dedicated to promoting regional 
economic integration, free trade, open markets and investment, and the 
rule of law throughout the Western Hemisphere. The Council was a 
leading proponent of the North American Free Trade Agreement (NAFTA) 
that has led to so much economic growth in the United States, Mexico 
and Canada, and is at the forefront of private sector efforts to 
promote the Free Trade Area of the Americas (FTAA), which will spread 
those benefits throughout the Western Hemisphere.
    I particularly appreciate the opportunity in my remarks today to 
support the earliest possible creation of the FTAA. I would like to 
give you an American businessman's perspective on the FTAA, drawing on 
my five years of living and seven years working in the region and on my 
work with the Council and other trade associations. My remarks will 
cover three broad points. First, there are real costs to the United 
States when our Hemispheric trading partners conclude trade agreements 
without U.S. participation. Second, the FTAA not only offers economic 
benefits to the region, but also extends the core values for which our 
country stands. Third, the FTAA will help create a stable, predictable 
and transparent environment in which business can grow. Particularly in 
these difficult economic times for so many countries of the hemisphere, 
the Council sees the FTAA as a central building block of democracy, 
openness, freedom and economic hope.
Trade Agreements in the Americas
    Today, the United States has active free trade agreements only with 
Canada, Mexico and Israel. Other countries of the Hemisphere, however, 
have entered into a multitude of free trade agreements of their own. 
Chile, Canada and Mexico have been the most active in this regard, but 
virtually every country of the region has entered into new preferential 
trade agreements in the last three years. Most of the agreements 
concluded to date are between trading partners within this Hemisphere, 
but this too is starting to change. A free trade agreement between 
Mexico and the European Union entered into force last year, and the EU, 
Japan, Korea, Australia, New Zealand and Singapore are all said to be 
negotiating agreements with nations of this Hemisphere.
    Mr. Chairman, I have attached to my testimony a chart illustrating 
the many preferential trade agreements that currently involve countries 
in this Hemisphere. These agreements offer many benefits. They reduce 
overall trade barriers, and they keep the concept of trade 
liberalization active throughout the region. But the web of agreements 
is a sub-optimal solution, lowering barriers between agreement partners 
at the expense of creating a confused Hemispheric trading system that 
few can master--ideally, they should be only a stepping stone to more 
comprehensive regional and global multilateral agreements, like the 
FTAA. And of course, where these bilateral and sub-regional agreements 
do not involve the United States, they inevitably steer business away 
from U.S.-based companies.
Benefits Offered by the FTAA
    Over the last ten years, democratically elected governments 
throughout the Americas have adopted market-oriented economic policies 
and begun to sweep away the dead weight generated by closed markets, 
excessive government intervention, and state-run enterprises. The most 
visible benefit of these programs is that inflation is largely in 
check. But the battle is hardly won. With the possible exception of 
Mexico, growth rates have not matched popular expectations and in some 
parts of the region the specter of possible retrenchment looms.
    The FTAA is the key mechanism for addressing both the proliferation 
of free trade agreements and threats to Hemispheric trade 
liberalization and economic reforms.
     From an economic perspective, it is a means of locking in, 
buttressing and ultimately expanding the economic policy progress that 
is already widely under way. As it eliminates the disadvantages caused 
by current agreements to which the United States is not a party, and 
gives the U.S. preferential market access compared with nations outside 
the hemisphere, the FTAA will increase U.S. trade and investment with 
the nations of the Americas, simultaneously strengthening our country 
and our Hemispheric partners. The result will be new jobs, counter-
inflationary forces, greater choice for consumers, and the more 
efficient use of all our resources.
     From a social perspective, the FTAA will expand the 
application of free market principles, and inevitably increase the 
presence of U.S. companies, and the core American values of democracy 
and individual freedom they carry with them, around the Hemisphere.
     From a political perspective, as the FTAA builds strong 
economies closely linked to one another, and shared standards and 
institutions, it can also build new bonds of friendship and common 
purpose between neighbors who too often have viewed each other with 
suspicion.
    These points are nicely illustrated by GE's recent experience in 
the Chilean power generation market. Several years ago, GE won the 
competition to build a gas fired power plant near Santiago that is a 
poster child for market-oriented economic policies and free trade and 
investment in the Americas. The plant was originally owned by three 
companies: a Chilean electric utility, formerly a state company, now 
private (this company, by the way, has invested broadly throughout the 
region); second, a Canadian energy company and; third, a US electric 
utility and international developer from the Carolinas. GE was the 
prime contractor and we chose a global engineer constructor based in 
the United States to be our partner in this effort.
    The major equipment for the plant came from:
     Schenectady, New York for the steam turbine and generators
     Salem, Virginia for the controls, and
     Greenville, South Carolina for the gas turbines
    The plant uses advanced, state of the art technology for the core 
equipment and systems as well as controls and employs advanced 
environmental control technology as well. It was placed in service as 
the most efficient thermal plant in operation in Chile. Many local 
Chilean suppliers and a local large construction company participated 
in the project.
    Finally, the plant is fueled by natural gas piped in from 
Argentina.
    We are proud of this project and were pleased to be selected to 
build the first natural gas fueled advanced gas turbine power plant in 
Chile.
    However, in subsequent competitive bids over about a year's time, 
and in spite of the fact that we are the leading supplier of combustion 
turbine power generating equipment in the world, we lost the next two 
similar plants to our principal global competitors from Europe and 
Japan. I point these losses out, not to complain about the competitive 
environment--show us a stand up fair fight and we are always ready to 
compete--but to underscore the competitiveness of this market.
    These competitions in Chile took place in an environment where all 
suppliers were treated equally from a tariff standpoint. Should the 
European Union or Japan gain preferential treatment in Latin America, 
it will make it much harder, if not impossible, for us to win with 
equipment sourced from the United States. To win, we will be forced to 
source equipment elsewhere, because the US-made equipment would carry 
with it a defacto evaluation penalty. By contrast, if the U.S. enters 
into an FTAA (or, in this case, a free trade agreement with Chile), we 
would be operating on equal, and perhaps even favorable terms.
Helping Business Do Business
    The FTAA will help the Hemisphere in many ways that go beyond the 
obvious benefit of reducing trade barriers. Business is in many ways a 
natural human activity. It will get done one way or another. 
Entrepreneurs will stack opportunities up against each other, and 
pursue the highest anticipated positive returns wherever they may be. 
But where business will be done, how quickly it will be done and how 
much it will expand are all variables that are very much in the control 
of governments. Governments must foster an environment conducive to 
business, which includes three elements:
    1. the policy environment should be stable and predictable, with 
transparent laws and regulations, to make possible reasonable business 
decision-making;
    2. governments should impose costs on business only when absolutely 
necessary, and should weigh the impact of such costs on economic 
activity against the social benefits the policy is intended to yield; 
and
    3. governments should support or facilitate the provision of 
infrastructure which is critical to economic growth--be it in training 
and education, a sound legal structure, or capital investments.
    The FTAA can help in each of these areas. Its rules on services 
trade, intellectual property right protection, subsidies, standards, 
and investment combined with an effective dispute settlement mechanism 
can create stability, predictability and transparency. Tariff 
elimination, the end of discriminatory taxes on imported services, and 
simplification of procedures (such as the termination of antiquated 
consularization requirements), will reduce the cost of doing business. 
Increased transparency, anti-corruption measures, clear rules on 
foreign investment and non-discriminatory government procurement 
procedures will all contribute to improved Hemispheric infrastructure.
Perspectives on the FTAA
    Not only am I enthusiastic about the benefits of the FTAA, I am 
optimistic about the outlook for the FTAA. Already, the FTAA is taking 
shape. Draft texts, albeit heavily bracketed, have been produced in all 
of the negotiating groups. Business facilitation measures, primarily in 
the form of streamlined customs procedures, were adopted last year--a 
process that the Council of the Americas was proud to help facilitate. 
And a lively discussion is underway about exactly what the timing 
should be for reaching a final agreement in 2005. The fact that leaders 
of the Hemisphere will be meeting in Quebec on April 20-22 for the 
Summit of the Americas creates the opportunity to further the process 
with the new U.S. Administration. Latin American leaders see in 
President Bush a man who is committed to building closer ties with the 
Hemisphere, and virtually all participants see Hemispheric free trade 
as a necessary and fundamental part of that process.
    In conclusion, I want to thank the Committee for its leadership on 
this important issue. The creation of the FTAA will position the United 
States to continue to be the economic leader of an increasingly open 
and prosperous Western Hemisphere. Without the FTAA, and in the absence 
of U.S. engagement, the United States may face an increasingly 
fractured and inefficient trading landscape, where our partners 
establish trading patterns, standards and institutions that do not 
necessarily reflect U.S. interests or values.
[GRAPHIC] [TIFF OMITTED] T3528A.001

                                

    Mr. English. [Presiding.] Thank you, Mr. McCarter. Mr. 
Schott, it is a pleasure to have you back. Your testimony, sir.

 STATEMENT OF JEFFREY J. SCHOTT, SENIOR FELLOW, INSTITUTE FOR 
                    INTERNATIONAL ECONOMICS

    Mr. Schott. Thank you, Mr. Chairman. I greatly appreciate 
the opportunity to testify before the Subcommittee on the 
implications for U.S. trading interests of free trade 
agreements to which the United States is not a signatory.
    Four years ago, I alerted this Subcommittee to the growth 
of free trade areas and warned that U.S. trading interests 
could be adversely affected if this trend continues. The trend 
has continued. We have been affected. And bluntly put, we have 
paid a price for the seven-year-long impasse over fast track 
and the erosion of the bipartisan coalition in support of an 
open trade policy.
    As Chairman Crane noted in his introduction, free trade 
areas are proliferating. We need to be concerned about existing 
arrangements that we are not a party to. Though most of the 130 
agreements are not very important, some of them are very 
important. But we should be even more concerned, as Mr. Wiens 
noted just a moment ago, about prospective accords, both in 
Latin America and in East Asia. In particular, I would like to 
draw the Committee's attention to both the ongoing, though very 
slow-paced, negotiations between the European Union and the 
MERCOSUR countries and the prospective launch of new 
negotiations, possibly by the end of this year, of a Northeast 
Asia free trade agreement involving China, Japan, and Korea.
    My colleague, Fred Bergsten, just came back from China last 
night where he had meetings with senior Chinese leaders over 
the past week on this subject among others. He was informed 
that there has been progress in working on a study of a 
possible Northeast Asia arrangement. A vision group has been 
commissioned to report to leaders of those three countries by 
the end of this year and they have already decided to recommend 
the initiation of a free trade agreement. So that just 
underscores the point that Mr. Wiens made a moment ago and 
underscores why we need to reinvigorate U.S. leadership in 
trade talks in both the Western Hemisphere and in the APEC 
region.
    Now, what are the costs of non-participation? Let me make 
three quick points, and they cover a lot of the points that 
other panelists have made this morning. First, U.S. exporters 
face discriminatory treatment in foreign markets compared to 
that accorded producers from the participating countries. 
Export contracts are either lost or they are sourced from 
overseas production plants. Either way, it hurts U.S.-based 
production and it hurts U.S. workers. And remember that 
exporting firms in the United States, on average, pay much 
higher wages and provide much steadier employment for U.S. 
workers than those that do not export. So we are undercutting 
some of our most competitive firms in this country.
    Second point, when the United States is not a party to a 
negotiation, we cannot influence the outcome. Trade rules 
developed in such pacts may both increase transaction costs for 
U.S. businesses and establish precedents that differ from those 
that we may want to pursue in our own trade negotiations.
    For example, the Canada-Chile Free Trade Agreement contains 
a provision that excludes the ability to use anti-dumping 
duties on bilateral trade once bilateral tariffs are fully 
removed. I know there are members of this Committee that would 
find that type of precedent difficult to swallow in a free 
trade agreement. Mention has also been made of the side 
agreement on labor in the Canada-Chile Free Trade Agreement, 
and that perhaps provides more interesting precedents, as other 
panelists have noted.
    The third point and perhaps the highest price we pay for 
not participating in free trade agreements--is the lost 
opportunity to expand economic ties with our trading partners 
and promote economic growth and development. If one projects 
the future growth under a free trade agreement comparable to 
the growth that we have seen under NAFTA, the potential 
expansion of trade is notable. In that regard, I have run some 
numbers looking at what our bilateral trade with Brazil could 
be with a free trade pact. Bilateral trade is now very small, 
$29 billion. But if we had free trade with Brazil like we do 
with Mexico, that bilateral two-way trade could double or 
triple up to $87 billion in a short period of time.
    In conclusion, the best way to neutralize the adverse 
effects on U.S. trading interests of free trade agreements in 
which the United States is not a signatory is to engage more 
effectively in bilateral, regional, and multilateral 
negotiations. The FTAA is particularly important to level the 
playing field. We also need to work intensively with other WTO 
countries to develop an agenda for a new round of multilateral 
negotiations.
    And, of course, none of these trade initiatives are likely 
to be concluded unless the Congress and the administration 
develop a bipartisan agreement on trade policy objectives and 
trade negotiating authority. Our trade officials must have a 
strong domestic base of support, clear and consistent 
objectives, and sufficient flexibility to get the job done. 
Approving new trade promotion authority, hopefully later this 
year, is the best way Congress can respond to the problems 
facing U.S. companies in world markets and the best way to 
reassert U.S. leadership in the world trading system. Thank you 
very much, Mr. Chairman.
    [The prepared statement of Mr. Schott follows:]
     Statement of Jeffrey J. Schott, Senior Fellow, Institute for 
                        International Economics
    I appreciate the opportunity to testify before the subcommittee on 
the implications for US trading interests of free trade agreements 
(FTAs) to which the United States is not a signatory. Many of these 
arrangements (or prospective agreements) involve our trading partners 
in the Western Hemisphere, East Asia, and Europe. The United States has 
important economic and political interests in all these regions, and 
our ability to advance those interests is impaired when those pacts 
discriminate against US companies.
    I commend the committee on the timeliness of this hearing. Next 
week, US Trade Representative Robert Zoellick will be in Buenos Aires 
to meet with other trade ministers from the hemisphere to discuss 
progress in the negotiation of a Free Trade Area of the Americas 
(FTAA). The successful conclusion of the FTAA by the target date of 
January 2005, or possibly one year sooner, would create a more level 
playing field for US firms in markets in Latin America and the 
Caribbean that today are worth about $1.5 trillion (excluding 
Mexico).\1\
---------------------------------------------------------------------------
    \1\ For an analysis of the progress to date in the FTAA and current 
challenges facing the negotiations, see Jeffrey J. Schott, Prospects 
for Free Trade in the Americas, Washington: Institute for International 
Economics, April 2001.
---------------------------------------------------------------------------
    Four years ago, I alerted this subcommittee that ``most countries 
in the hemisphere continue to pursue bilateral and regional free trade 
pacts without us'', and that US trading interests could be adversely 
affected if this trend continues.\2\ It has, and we have. My testimony 
today will review the FTAs that have been negotiated without US 
participation and the long list of similar pacts currently under 
negotiation. I will then describe how US firms are affected and how the 
pacts affect the ability of US trade officials to advance US interests 
in other trade negotiations.
---------------------------------------------------------------------------
    \2\ ``The Free Trade Area of the Americas: US Interests and 
Objectives,'' statement by Jeffrey J. Schott before the Subcommittee on 
Trade, House Committee on Ways and Means, 22 July 1997.
---------------------------------------------------------------------------
Are Free Trade Pacts Proliferating?
    Over the past decade, there has been a sharp increase in the number 
of FTAs concluded between developed countries, between developed and 
developing countries, and between developing countries. The Inter-
American Development Bank has catalogued more than twenty preferential 
trade arrangements involving Latin American countries.\3\ These accords 
vary from simple tariff reduction pacts to comprehensive free trade 
agreements and customs unions. Both Mexico and Canada have concluded 
free trade pacts with Chile; Mexico also has agreements with Costa 
Rica, Colombia and Venezuela, and with other Central American 
countries. Canada is in the final stages of FTA negotiations with Costa 
Rica as well. In addition, the Mercosur countries (Argentina, Brazil, 
Paraguay, and Uruguay) are consolidating their customs union and have 
entered into or are negotiating free trade arrangements with Chile, 
Bolivia, the Andean Community, and the European Union. The prospective 
Free Trade Area of the Americas is, of course, the most extensive 
example of this trend.
---------------------------------------------------------------------------
    \3\ Inter-American Development Bank, Integration and Trade in the 
Americas, Periodic Report, December 2000.
---------------------------------------------------------------------------
    It is important to differentiate, however, between FTAs (which are 
the focus of this hearing) and other types of trade agreements between 
developed and developing countries. Some accords deal mainly with the 
conduct of trade relations; others provide trade preferences. Indeed, 
many pacts evolve in incremental steps over time from the granting of 
one-way trade preferences to reciprocal free trade agreements. For 
example, the United States often has first extended unilateral trade 
preferences (e.g., the Caribbean Basin Initiative and the Andean Trade 
Preferences Act) to our partner countries, and then negotiated so-
called ``framework'' agreements that establish forums for consultations 
on bilateral trade relations and the settlement of disputes. In turn, 
the CBI legislation enacted last year envisages the new trade 
preferences as a way station to the negotiation of reciprocal free 
trade pacts.
    The United States currently participates in two FTAs, the US-Israel 
FTA and the North American Free Trade Agreement (NAFTA), and has 
concluded talks but not yet ratified the US-Jordan FTA. It is also 
negotiating bilateral FTAs with Singapore and Chile as well as the 
broader FTAA with 33 democratic countries in the hemisphere. 
Consideration is also being given to expanding the current bilateral 
talks to Australia and New Zealand to create a broader ``P-5'' pact. 
Senator Baucus has proposed initiating FTA negotiations with those 
countries and with Korea.\4\ Such proposals have been advanced as part 
of an effort to revive progress on the commitments taken in the Asia-
Pacific Economic Cooperation (APEC) forum to achieve free trade and 
investment in the region by 2010 for developed countries and 2020 for 
developing countries.
---------------------------------------------------------------------------
    \4\ For the pros and cons of a US-Korea pact, see Inbom Choi and 
Jeffrey J. Schott, Free Trade between Korea and the United States? 
Policy Analyses in International Economics 62, Washington: Institute 
for International Economics, May 2001.
---------------------------------------------------------------------------
    The European Union, by contrast, has concluded a large number of 
``association'' agreements with countries in its neighborhood and in 
the Mediterranean Basin. More recently, it also has concluded a 
comprehensive FTA with Mexico, which entered into force on July 1, 
2000, and is conducting free trade talks with the Mercosur countries 
and Chile. Those talks, however, are advancing quite slowly. In 
addition, the recently minted ``Partnership Agreement'' between the 
European Union and its developing-country partners in Africa, the 
Caribbean, and the Pacific seeks to establish a more reciprocal 
relationship than existed under the previous Lome accords that 
eventually transforms into a FTA.\5\
---------------------------------------------------------------------------
    \5\ For an analysis of these initiatives, and the interests and 
objectives of the participating countries, see Jeffrey J. Schott and 
Barbara Oegg, ``Europe and the Americas: Toward a TAFTA-South?'' The 
World Economy, forthcoming summer 2001.
---------------------------------------------------------------------------
    In essence, the European Union has been pursuing new trade 
initiatives with its trading partners in Latin America and the 
Caribbean Basin that presage the development of a free trade zone over 
the next decade or two much like the FTAA. Unlike the United States, it 
has not yet integrated those initiatives into a single negotiation that 
over time could create a super-regional free trade zone. Rather its 
free trade strategy is more diversified and is proceeding at different 
speeds in various regions of the Americas. Discussions on a reciprocal 
trade agreement with the Caribbean countries are expected to begin 
within a few years, while similar initiatives with the Andean Community 
and the Central American countries are only in the planning stage. In 
short, the European Union is in the process of assembling the building 
blocks for free trade with Latin America and the Caribbean but it is a 
long way from putting such an initiative into effect.
    Over the past two years, there also has been a dramatic resurgence 
of bilateral trade initiatives in the Asia-Pacific region. Japan and 
Singapore began FTA talks in January 2001.\6\ Japan also has held 
extensive consultations with Korea on the possibility of entering free 
trade negotiations within the next few years. Japan and Mexico have 
explored the idea of bilateral talks, and have received support from a 
bilateral business working group.\7\ Korea has entered into FTA 
negotiations with Chile and discussed possible FTAs with Japan, New 
Zealand, and Singapore. New Zealand and Singapore concluded 
negotiations on a bilateral FTA in August 2000 and signed the pact in 
November 2000 just prior to the APEC summit meeting in Brunei. At that 
meeting, Singapore agreed separately with Australia and with the United 
States to launch FTA talks; the latter initiative in turn spurred the 
start of the oft-postponed US-Chile negotiations in early December 
2000. Soon after the APEC meeting, leaders of the ASEAN countries along 
with Japan, Korea, and China (the ``ASEAN + 3'') agreed to study the 
possibility over time of a broader free trade regime in East Asia.
---------------------------------------------------------------------------
    \6\ For background on these talks, see the September 2000 report of 
a joint governmental study group, ``Japan-Singapore Economic Agreement 
for a New Age Partnership,'' Tokyo: Keidanren.
    \7\ Mexico proposed new FTA talks with Japan in January 2001. 
Instead, both sides agreed to study further the implications of such an 
accord and possibly commission an inter-governmental study group as was 
done prior to the launch of Singapore-Japan FTA talks.
---------------------------------------------------------------------------
The Costs of Non-participation
    Overall, FTAs involving US trading partners but not the United 
States can affect US interests in several ways. On the positive side, 
such agreements can serve US trading interests if they promote broad-
based economic and political reforms in the partner countries and 
contribute to stronger and more sustainable growth in the developing 
countries. At the same time, however, they can--and do--discriminate 
against US exporters and complicate the achievement of US trade 
negotiating objectives, in particular:
     US exporters face discriminatory treatment in foreign 
markets compared to that accorded producers from the participating 
countries. Export contracts are either lost or sourced from overseas 
production plants; either way, it hurts US-based production and 
workers.
     Moreover, when the United States is not a party to a 
negotiation and agreement, we cannot influence the outcome. Trade rules 
developed in such pacts may both increase transactions costs and 
establish precedents that differ from US practices and proposals that 
the signatory countries may seek to extend to other regional and WTO 
accords.
    First, FTAs by their nature discriminate against outsiders; tariff 
preferences are accorded only to member countries and thus disadvantage 
foreign suppliers. As a result, US firms often are handicapped in 
competing for sales in South American markets when they have to pay 
sizable tariffs and their regional competitors do not. Sometimes US 
firms can source from foreign plants in countries that receive tariff 
preferences, although this is costly both for the company and diverts 
work away from US employees. Sometimes, US firms lose contracts to 
suppliers resident in the FTA partner countries. Such trade diversion 
is an important reason why multilateral liberalization is superior to 
discriminatory bilateral or regional accords.
    How much does such trade diversion cost US firms? In the aggregate, 
the lost sales represent a very small share of US GDP; but for the 
particular firms, and the workers and communities affected by 
production cutbacks, the aggregate numbers mask significant costs. In a 
new study that will be released shortly by the Institute for 
International Economics, Rob Scollay and John Gilbert have examined the 
potential US welfare losses from a variety of prospective FTAs in the 
East Asia region using a computable general equilibrium model. Their 
simulation results show that the negative welfare effects for the 
United States generally amount to much less than 0.1 percent of GDP and 
in many cases less than 0.01 percent of GDP. Again, these findings 
provide little solace to the particular companies and workers that lose 
out to competitors that benefit from FTA trade preferences.
    Second, FTAs usually contain trade rules that set criteria for 
qualifying for trade preferences (e.g., rules of origin) as well as 
other customs provisions that can impose significant transaction costs 
for US companies. The more complex and cumbersome the content/origin 
requirements, the more likely the policy will have a chilling effect on 
trade (and the harder to administer as well). To be sure, the most 
effective safeguard against abusive origin rules is multilateral tariff 
liberalization. Low most-favored nation (MFN) tariffs reduce the value 
of regional preferences; they also reduce the need for regional origin 
rules to block the transshipment of imported goods that have entered 
the regional bloc through low-tariff FTA member countries. So, the 
lower MFN tariff levels (and the greater the harmonization of tariff 
levels between countries in the regional pact), the fewer the problems 
posed by ``tight'' rules of origin.
    In addition, FTAs can discriminate by providing special treatment 
under escape clause and dispute settlement procedures only for firms 
from the partner countries (as is done in the NAFTA). The proliferation 
of different tariff rates, customs procedures, and content requirements 
can create a paperwork nightmare for businessmen. Indeed, after the 
entry into force of the US-Canada FTA, some firms did not request the 
FTA tariff preferences because the transaction cost of applying for the 
preferences was greater than the low most-favored nation tariff.
    However, in many cases it is not practical to apply different rules 
to the trade and investment of member versus non-member countries. For 
example, countries often implement investment reforms in a 
nondiscriminatory fashion lest the new investment regime run counter to 
the broader objective of promoting capital inflows from industrial 
countries which provide both advanced technologies and management 
skills.\8\ Usually the demands of the marketplace (not to mention the 
inordinate administrative costs of implementing different standards and 
requirements for different countries) require convergence toward the 
standards in the predominant market of the regional partners (which for 
most Western Hemisphere countries means the United States).
---------------------------------------------------------------------------
    \8\ For this reason, Mexico committed to investment reforms in the 
NAFTA but applied their policies on a most-favored nation basis to non-
NAFTA countries as well.
---------------------------------------------------------------------------
    Third, recently concluded regional agreements create precedents 
involving practices significantly different from those inscribed in US 
law that member countries may want to extend to the broader FTAA. For 
example, the Chile-Canada FTA prohibits the use of antidumping laws 
with respect to bilateral trade as soon as tariffs are removed (i.e., 
within six years). The Canada-Chile FTA also includes a side agreement 
on labor with enforcement provisions similar to those applicable to US-
Canada disputes in the NAFTA (i.e., non-compliance penalties may 
involve monetary fines but not trade sanctions). Some countries in the 
hemisphere consider these provisions to be possible models for what 
could be included in the FTAA.
Lost Opportunities
    Of course, perhaps the highest price we pay for not participating 
in FTAs is the lost opportunity to expand economic ties with our 
trading partners and promote economic growth and development. A number 
of recent economic studies conclude that as countries reduce barriers 
to trade (both internal and border restrictions), per capita income 
increases significantly. For example, Frankel and Rose (2000) estimate 
that over a period of 20 years, a 10 percent rise in the ratio of trade 
to GDP boosts per capita income by 3.3 percent.\9\ Their results can 
shed some light on the potential trade expansion generated by a FTAA.
---------------------------------------------------------------------------
    \9\ See, Jeffrey Frankel and Andrew Rose, ``Estimating the Effect 
of Currency Unions on Trade and Output,'' NBER Working Paper 7857, 
August 2000.
---------------------------------------------------------------------------
    If one projects future trade growth under a FTAA comparable to 
growth already achieved under NAFTA, the potential expansion of trade 
relations is notable. A comparison between Brazil and Mexico 
illustrates the medium-term possibilities of an FTAA agreement. In 
2000, two-way merchandise trade between the United States and Mexico 
was more than eight times larger than two-way trade between the United 
States and Brazil. How much of the difference can reasonably be 
attributed to NAFTA?
    The gravity model developed by Frankel and Rose can be used to 
estimate the potential increase in US-Brazil trade if the two countries 
were joined in a free trade agreement. The estimated parameter suggests 
that US-Brazil trade would double or triple, from $29 billion in 2000 
to $58 billion or even $87 billion, if an FTA had been in place.
    This estimate can serve as a proxy for the overall short to medium 
term potential between South America and North America under a FTAA. 
Over time, however, the potential volume of regional trade creation is 
far larger than the volume predicted by standard gravity models. This 
is illustrated by the fact that the density of merchandise trade flows 
within a country (e.g., between New York and Chicago, between Quebec 
and Ontario, or between Frankfurt and Hamburg) is estimated to be at 
least ten times greater than trade flows that cross international 
borders, holding constant the economic size and distance between the 
source and destination.\10\
---------------------------------------------------------------------------
    \10\ See, for example, John Helliwell, Do National Borders Matter 
for Quebecs Trade? NBER Working Paper 5215, August 1995.
---------------------------------------------------------------------------
Conclusions
    The best way to neutralize the adverse effects on US trading 
interests of FTAs in which the United States is not a signatory is to 
engage more effectively in bilateral, regional and multilateral trade 
negotiations. The FTAA is particularly important to level the playing 
field in our own hemisphere. Furthermore, by deepening the economic 
partnership with our neighbors in the hemisphere, we can also 
strengthen cooperative efforts on other important US political and 
foreign policy goals, including cooperation on drug interdiction, 
improving environmental and labor conditions, supporting educational 
reforms, and reinforcing democracy. Thus, an FTAA could have important 
spillover effects on overall US relations with the region. This point 
is well illustrated by the 2000 Mexican presidential election, which 
demonstrated the salutary effect of economic integration on political 
reform.
    In addition, we need to work intensively with other WTO countries 
to develop an agenda for a new round of multilateral negotiations that 
encompasses the priority concerns of both developed and developing 
countries. Fortunately, consultations to that end have resumed without 
the rancor and inflammatory rhetoric that inhibited efforts immediately 
after the ill-fated Seattle WTO ministerial. I am cautiously optimistic 
that trade ministers will succeed in launching a new WTO Round when 
they reconvene in Doha, Qatar, for the 4th WTO ministerial in November 
2001.
    Of course, none of these trade initiatives are likely to be 
concluded unless the Congress and the Administration develop a 
bipartisan agreement on US trade policy objectives and trade 
negotiating authority. Our trade officials must have a strong domestic 
base of support, clear and consistent objectives, and sufficient 
flexibility to get the job done. Approving new ``trade promotion'' 
authority, hopefully later this year, is the best way Congress can 
respond to the problems facing US companies in world markets and the 
best way to reassert US leadership in the world trading system.

                                


    Chairman Crane. [Presiding.] Thank you, Mr. Schott. Mr. 
Hardin?

    STATEMENT OF JOHN HARDIN, JR., PORK PRODUCER, DANVILLE, 
  INDIANA, AND PAST PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL

    Mr. Hardin. Thank you, Mr. Chairman. I am John Hardin, Jr., 
a pork producer from Danville, Indiana. I am Past President of 
the National Pork Producers Council and I currently serve as 
the Vice Chair of the Agricultural Policy Advisory Committee to 
USTR and the Secretary of Agriculture. I very much appreciate 
the opportunity to appear here today on behalf of U.S. pork 
producers to express our views on the importance of continued 
trade liberalization. My comments today will focus on the pork 
industry, but similar issues are holding back all of the 
export-competitive sectors of U.S. agriculture.
    U.S. pork producers are major beneficiaries of the Uruguay 
Round Agreement and NAFTA. Our industry needs prompt renewal of 
trade promotion authority so that further trade agreements may 
be consummated. These trade agreements permit U.S. pork 
producers to exploit their comparative advantage in 
international markets. The future of the pork industry rests in 
large part on our ability to expand exports.
    In the last decade, U.S. exports have increased 263 percent 
in value. Pork exports from the U.S. to Mexico exploded in 1994 
when NAFTA went into effect. Even with the devaluation of the 
peso, U.S. pork increased its market share in Mexico. This 
never would have happened without NAFTA. Mexico is now the pork 
industry's second most important market behind Japan.
    The United States is uniquely positioned to reap the 
benefits of liberalized world pork trade. Our pork producers 
are the lowest cost large-scale commercial suppliers of the 
safest, high quality pork in the world. But without renewal of 
trade promotion authority for the executive branch by Congress, 
U.S. pork producers and the rest of U.S. agriculture will be 
forced to remain on the sidelines while other countries 
continue to negotiate new trade agreements at a staggering 
pace.
    In order to expedite the WTO negotiations, U.S. trade 
officials need trade promotion authority. The longer the U.S. 
goes without renewing trade promotion authority, the longer the 
WTO negotiations will drag on. Trade promotion authority is 
also needed so that the U.S. can pursue liberalization 
regionally in the Free Trade of the Americas initiative, as 
well as with the countries of the Asia Pacific Economic 
Cooperation Forum.
    Finally, trade promotion authority is needed so that the 
U.S. can pursue bilateral free trade agreements with countries 
such as Chile and Singapore.
    The U.S. industry is disadvantaged by the failure of the 
United States to keep up with these pace of trade agreements. 
The rapidly expanding Brazilian pork industry, a key competitor 
to the U.S. industry, now has preferential access into many of 
our markets, including that of Argentina. We recently gained 
access to Argentina, but our pork is charged a 34.5 percent 
duty while Brazilian pork enters Argentina duty-free as part of 
the MERCOSUR customs union. We are currently trying to gain 
access to the Chilean pork market. Both Brazil and Canada 
already have preferential access to that market through trade 
agreements. Mexico, which has some world class pork operations, 
counts Japan amongst its pork export markets. It has negotiated 
close to 30 free trade agreements.
    While the U.S. has been on the sidelines, our higher cost 
competitors in Mexico and Chile, along with Canadian producers, 
are benefitting from their governments' active pursuit of free 
trade agreements. Unless the U.S. acts quickly to engage in 
similar FTAs, we will be shut out of many of the pork import 
markets in the Western Hemisphere.
    In Europe, the European Union continues to cut trade deals 
with countries of Central and Eastern Europe. These so-called 
double-zero agreements have the EU and the Central and Eastern 
Europe (CEE) country typically agree to offer duty-free quotas 
for a specific quantity of a given agricultural product, such 
as pork, while anything above the quota is subject to duty. 
Further, the EU and the CEE country agree not to use any export 
subsidies for the given agricultural product.
    The U.S. pork industry is disadvantaged in two ways by 
these double-zero agreements. First, the EU gets better market 
access to the CEE countries, and second, the EU is able to 
conserve its pork export subsidies for other markets outside 
Europe where we compete with them.
    In sum, the EU, Mexico, Chile, Canada, and others are 
gaining the benefits of trade for their citizens while the U.S. 
engages in a negotiation with itself about the benefits of 
trade. Our comparative advantage in pork is increasingly being 
offset by the failure of the U.S. to get in the free trade 
game. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Hardin follows:]
 Statement of John Hardin, Jr., Pork Producer, Danville, Indiana, and 
            Past President, National Pork Producers Council
    Mr. Chairman and members of the Subcommittee. I am John Hardin, 
Jr., a pork producer from Danville, Indiana. I am a past President of 
the National Pork Producers Council (NPPC) and a past chairman of the 
United States Meat Export Federation. I currently serve on NPPC's Trade 
Committee and am a representative on the Agricultural Policy Advisory 
Committee to the United States Trade Representative and the Secretary 
of Agriculture. I very much appreciate the opportunity to appear here 
on behalf of U.S. pork producers to express our views on the importance 
of continued trade liberalization.
I. Introduction
    The National Pork Producers Council is a national association 
representing 44 affiliated states that annually generate approximately 
$11 billion in farm gate sales. According to a recent Iowa State study 
conducted by Otto and Lawrence, the U.S. pork industry supports an 
estimated 600,000 domestic jobs and generates more than $64 billion 
annually in total economic activity. With 10,988,850 litters being fed 
out annually, U.S. pork producers consume 1.065 billion bushels of corn 
valued at $2.558 billion. Feed supplements and additives represent 
another $2.522 billion of purchased inputs from U.S. suppliers which 
help support U.S. soybean prices, the U.S. soybean processing industry, 
local elevators and transportation services based in rural areas.
    Pork is the world's meat of choice. Pork represents 47 percent of 
daily meat protein intake in the world. (Beef and poultry each 
represent less than 30 percent of daily global meat protein intake.) As 
the world moves from grain based diets to meat based diets, U.S. 
exports of safe, high-quality and affordable pork will increase because 
economic and environmental factors dictate that pork be produced 
largely in grain surplus areas and, for the most part, imported in 
grain deficit areas. However, the extent of the increase in global pork 
trade--and the lower consumer prices in importing nations and the 
higher quality products associated with such trade--will depend 
substantially on continued agricultural trade liberalization.
    U.S. pork producers were ardent proponents of the Uruguay Round 
Agreement and the North American Free Trade Agreement. The industry 
strongly supports further trade liberalization measures. As the low-
cost producers of safe, high-quality pork, these trade agreements 
permit U.S. pork producers to exploit their comparative advantage in 
international markets. However, even with the progress made in the 
Uruguay Round, much more needs to be done. The U.S. pork industry still 
is either locked out of many markets, or has only partial access to 
markets, due to high tariffs, non-tariff trade barriers, and subsidized 
competition.
II. Trade Promotion Authority Should Be Renewed
    U.S. pork producers are major beneficiaries of the Uruguay Round 
Agreement and NAFTA. Our industry needs prompt renewal of trade 
promotion authority so that further trade agreements may be 
consummated. These trade agreements permit U.S. pork producers to 
exploit their comparative advantage in international markets. The 
future of the pork industry rests, in large pork, on the ability to 
expand exports.
    Since 1995, when the Uruguay Round Agreement went into effect, U.S. 
pork exports to the world have increased 55 percent in volume terms and 
40 percent in value terms. In 2000 the U.S. exported a record 566,900 
metric tons of pork valued at $1.316 billion.\1\ Pork exports from the 
U.S. to Mexico exploded in 1994 when NAFTA went into effect. Even with 
the devaluation of the peso U.S. pork increased market share in 
Mexico--this never would have happened without NAFTA. Mexico is now the 
pork industry's second most important market behind Japan.
---------------------------------------------------------------------------
    \1\ The volume of U.S. pork exported in 2000 is a record amount 
because 1999 pork export data have been revised. USDA does not count as 
an export the approximately 50,000 metric tons of pork that was shipped 
to the Russian Federation as food aid in 1999.
---------------------------------------------------------------------------
    Pork exports generate wealth and create good paying jobs that 
contribute significantly to the economic well being of rural America. 
According to a study by CF Industries, exports were so important to the 
industry in 1997 (when cash hog prices were close to current prevailing 
levels) that cessation of exports (due for example to an embargo or 
animal disease outbreak) would have caused cash hog prices to plummet 
by $15.73 per head. Research conducted by the Economic Research Service 
of the United States Department of Agriculture (ERS) indicates that for 
each dollar of value-added agricultural exports such as pork, $1.63 in 
additional U.S. economic activity is generated. Moreover, ERS 
calculates that every billion dollars in pork exports creates an 
additional 23,000 new jobs in the U.S. economy.
    During the past decade the number of hogs processed in the United 
States increased from 85 million to 101 million while the pork derived 
from these hogs increased from 15.4 billion pounds to 19 billion 
pounds. While not all of this increase is attributable to exports, much 
of it is. As a consequence of this increased production, more people 
are employed in the supply and processing industries. This means that 
packers and processors will operate at higher levels of capacity and/or 
build new facilities. More U.S. inputs, such as corn and soybeans, and 
more U.S.-made machinery will be utilized. More packaging supplies are 
used and more shipping services are consumed. Exports contribute to the 
well being of rural America through such growth. Given that 96 percent 
of the world's population resides outside the United States, it is 
exports that will drive the future growth and viability of the 
industry. In the short term, the benefit will be higher prices. In the 
long run it will be a larger and growing, vibrant industry.
    Indeed, the Cross-Commodity Analysis conducted by the Foreign 
Agricultural Service of the United States Department of Agriculture 
(FAS) underscores the important contribution of pork exports to the 
U.S. economy. The report states that:

          The shift toward greater exports of high-value foods such as 
        meat instead of feed grain has major beneficial implications 
        for the U.S. rural economy. First, expanding exports of red 
        meat and poultry expands domestic demand for feed grain and 
        oilseed meal. Second, the income multiplier effect from high-
        value exports is greater than from bulk commodity exports (2.88 
        versus 1.86). This means dollar-for-dollar, high-value exports 
        generate more jobs than exports of bulk commodities.

    Further, another study by FAS points out that if the U.S. exported 
meat instead of the feed grains used to produce meat in foreign 
markets, U.S. agricultural employment would increase by approximately 
50 percent.
    The United States is uniquely positioned to reap the benefits of 
liberalized world pork trade. U.S. pork producers are the lowest cost, 
large scale commercial suppliers of the safest, highest quality pork in 
the world. But without the renewal of trade promotion authority for the 
Executive branch by Congress, U.S. pork producers and the rest of U.S. 
agriculture will be forced to remain on the sidelines while other 
countries continue to negotiate new trade agreements at a staggering 
pace. According to a report prepared for the Office of the U.S. Trade 
Representative, about one-third of total world exports are covered by 
EU free trade and customs agreements, compared to only 11 percent for 
U.S. free trade agreements. Of the approximately 130 free trade 
agreements in the world the United States is a party to only two, the 
NAFTA and the U.S.-Israel FTA.
    In order to expedite the WTO agriculture negotiations, U.S. trade 
officials need trade promotion authority. The longer the U.S. goes 
without renewing trade promotion authority, the longer the WTO 
agricultural negotiations will drag on. Trade promotion authority is 
also needed so that the U.S. can pursue trade liberalization regionally 
with our Western Hemisphere neighbors in the Free Trade Agreement of 
the Americas initiative (FTAA) and regionally with the countries of the 
Asia Pacific Economic Cooperation forum (APEC). Finally, trade 
promotion authority is needed so that the U.S. can pursue bilateral 
free trade agreements with countries such as Chile and Singapore.
    The U.S. pork industry is disadvantaged by the failure of the 
United States to keep up with the pace of trade agreements in the 
world. The rapidly expanding Brazilian pork industry--a key competitor 
to the U.S. industry--now has preferential access into many markets to 
the detriment of U.S. producers. For example, the U.S. pork industry 
recently obtained access to the Argentine pork market. We are 
disadvantaged selling into Argentina because of the preferential access 
that Brazilian pork exports receive by virtue of the MERCOSUR customs 
Union. Specifically, the U.S. faces a 34.5% duty on pork exported to 
Argentina while Brazil enjoys duty free access on its pork exported to 
Argentina. The U.S. pork industry currently is trying to obtain access 
to the Chilean pork market, another market in which Brazil has 
preferential access. Canada, which probably is our most significant 
competitor in pork, has gained preferential access into Chile through a 
free trade agreement. Mexico, which has some world class pork 
operations and counts Japan among its pork export markets, has 
negotiated close to 30 free trade agreements. If left unchecked, Mexico 
will dominate a number of Western Hemisphere pork import markets to the 
detriment of the U.S. pork industry. The export-competitive Chilean 
pork industry, which like Mexico counts Japan as one of its export 
markets, has preferential access into many Western Hemisphere pork 
markets to the detriment of the U.S. pork industry. While the United 
States sits idly by, Mexico, Chile, and Canada have wrestled away from 
the United States the mantle of the Western Hemisphere's trade leader.
    In Europe, the European Union continues to cut trade deals with the 
countries of Central and Eastern Europe (CEE). In these so-called 
double zero agreements, the EU and the CEE country typically agree to 
offer duty free quotas for a specific quantity of a given agricultural 
product, such as pork, while anything above the quota is subject to 
duty. Further the EU and the CEE country agree not to use any export 
subsidies for the given agricultural product. For example, in July 
2000, Hungary and the EU signed a double-zero agreement. The agreement 
calls for reduced tariffs and an end to export subsidies for 72 percent 
of Hungary's exports of unprocessed agricultural products to the EU and 
54 percent of the EU's agricultural exports to Hungary. The agreement 
established three lists of goods. For the first list, accounting for a 
third of Hungary's agricultural exports to the EU, all tariffs were 
abolished. For the second list, tariffs were abolished for exports up 
to a given quota, provided exports above the quota are not subsidized. 
This second list includes pork. The duty-free quotas on pork are to 
increase by 10 percent per year.
    The U.S. pork industry is disadvantaged in two ways by these double 
zero agreements. First, the EU gets better market access in CEE 
countries for its pork exports. Second, the EU is able to conserve its 
pork export subsidies for other markets outside Europe where we have to 
compete with them. Even with a small CEE country such as Estonia, the 
EU expects to `save' around 3,500 metric tons in pork export subsidies. 
Total EU shipments of pork to CEE countries are about 220,000 metric 
tons, an amount equal to about 40 percent of total U.S. pork exports.
    The EU, Mexico, Chile, and Canada are gaining the benefits of trade 
for their citizens while the U.S. engages in a negotiation with itself 
about the benefits of trade. Our comparative advantage in pork is 
increasingly being offset by the failure of the U.S. to get into the 
free trade game.
III. The U.S. Should Pursue A Zero for Zero on Pork in the WTO 
        Agriculture Negotiations
    NPPC believes that the United States should adopt as a primary 
negotiating objective in the World Trade Organization agriculture 
negotiations the total elimination in the shortest possible time frame 
of all tariffs, all export subsidies and all trade-distorting domestic 
support for pork and pork products. The U.S. industry is ready to 
compete in a free and open environment; we believe that pork producers 
in a number of other countries are willing to do the same. Indeed, the 
Canadian pork industry has also asked its government to pursue a zero-
for-zero initiative on pork and pork products and there is strong 
interest in this initiative in a number of other countries. The United 
States should use its negotiating leverage to push this objective with 
our more reluctant trading partners in order to ensure that we are 
afforded the opportunity to take advantage of our natural 
competitiveness.
NPPC Urges the Following Negotiating Objectives For Agriculture in the 
        WTO
    Fundamental liberalization in the pork industry can be most easily 
achieved in the context of an ambitious overall agreement in 
agriculture. NPPC supports an aggressive approach to this trade round 
which goes beyond the consensus Seattle Round Agricultural Coalition 
(SRAC) policy statement. Among other things, NPPC advocates the 
following points as general U.S. negotiating objectives for 
agriculture:
            1. Tariff Reductions Must Be Accelerated
    Notwithstanding the progress made in the Uruguay Round, tariffs on 
agricultural products remain very high. U.S. agricultural commodity 
tariffs, which according to the Economic Research Service of USDA 
average only about 12 percent, are dwarfed by the agricultural tariffs 
of other nations, which range on average from 50 to 91 percent. Foreign 
tariffs on pork, beef, and poultry average about 80 percent according 
to ERS.
    The best way to achieve such comprehensive liberalization is 
through the use of a tariff cutting formula that is applied to every 
product without exception. There are an infinite number of formulas 
that could be devised to cut tariffs, the ``best'' formula obviously 
depending on the results desired. NPPC prefers an approach like the 
Swiss formula used in the Tokyo Round negotiations, which resulted in 
substantially larger cuts in higher tariffs and had the effect of 
dramatically reducing the disparities in levels of protection. In 
addition, countries could engage in request/offer negotiations to 
achieve deeper-than-formula reductions for specific products. This 
segment of the negotiation would provide the opportunity to pursue the 
zero-for-zero objective in the pork sector.
            2. The Administration of Tariff Rate Quotas Must Be 
                    Improved
    In most instances, creating a TRQ satisfied the minimum access 
commitment for tariffied agricultural products in the Uruguay Round. 
Unfortunately, in some cases, the administration of TRQ's has been used 
as an instrument to thwart imports. In the upcoming trade negotiations, 
rules on TRQ administration must be clearly delineated. In addition, 
ceilings must be established for over-quota duty levels.
            3. Export Subsidies Should Be Eliminated
    Data compiled by USDA shows that during GATT year 1998/1999, the EU 
subsidized more than 750,000 metric tons of pork exports, a subsidized 
tonnage that exceeds our entire amount of exports. NPPC supports the 
complete elimination of all export subsidies and the complete 
elimination of all trade distorting domestic support.
            4. Trade-Distorting Domestic Support Should Be Further 
                    Disciplined
    The pork industry recognizes the complexities of agricultural 
politics and acknowledges that farm programs often are designed to meet 
social as well as economic objectives. Nonetheless, it is essential for 
the next trade round to accomplish much stricter disciplines on trade-
distorting domestic support programs than was possible in the Uruguay 
Round. The 20 percent reduction in the Aggregate Measure of Support 
(AMS) achieved in the Uruguay Round did not go far enough. We need to 
see further significant reductions. Moreover, those reductions should 
be applied on a commodity-by-commodity basis, rather than a sector-wide 
basis, as was the case under the Uruguay Round agreement. For pork, all 
trade-distorting supports should be eliminated, and all tariffs and 
export subsidies abolished as part of the zero-for-zero initiative.
    The U.S. advocated commodity-specific domestic support reduction 
commitments until the final stages of the Uruguay Round negotiations. 
The sector-wide approach was the result of a Blair House compromise 
with the EU. As a consequence of this change, countries such as the EU 
and Japan, both of whom have AMS limits over three times that of the 
U.S., have had significant flexibility to shift support between 
commodities and avoid painful reductions.
    Of course, commodity-by-commodity commitments could also lead to 
changes in U.S. domestic programs. However, the potential gains in the 
world market from achieving disciplines on EU and Japanese policies 
justify the acceptance of more discipline on U.S. policy making. We 
have acknowledged this to be the case with respect to export subsidies 
and import barriers, and it is just as true for domestic subsidies. 
Without stronger disciplines and greater reduction commitments, our 
major trading partners will continue to be permitted to subsidize their 
producers at a significantly higher rate than the U.S.
            5. The Peace Clause Should Not Be Extended
    One of the most promising sources of meaningful leverage for the 
United States is Article 13 of the Uruguay Round Agreement on 
Agriculture--the so-called Peace Clause. Article 13, which was included 
in the Agreement at the insistence of the European Union, suspends 
until January 1, 2004, the application to agricultural products of 
certain WTO disciplines, the most significant of which are Articles 3, 
5 and 6 of the Agreement on Subsidies and Countervailing Measures. With 
the expiration of Article 13, the EU would immediately be in breech of 
its obligations under Article 3 of the Subsidies Agreement, which 
prohibits export subsidies (Article 13(c)(ii)). At the same time, the 
U.S. would be in a position to begin dispute settlement proceedings 
under Article 6 against any domestic or export subsidies that are 
causing serious prejudice to U.S. exports in third-country markets 
(Article 13(b)(ii)). Obviously, these are powerful disciplines.
    The Peace Clause expires automatically. The only way to extend it 
would be to negotiate a new agreement that includes similar 
protections. The EU, in particular, will have a strong incentive to 
achieve such an agreement and will presumably be ready to pay a high 
price for it. It should be much easier to achieve an agreement within 
three years that includes a phased elimination of export subsidies and 
meaningful disciplines on trade-distorting domestic subsidies if the EU 
is facing, in the absences of such an agreement, the immediate 
application of even stronger measures.
    The United States should do everything possible to take advantage 
of the leverage offered by the Peace Clause. As a first step, the U.S. 
should publicly declare its willingness to allow the provision to 
expire. More important, the United States should begin preparing 
dispute settlement cases now against the European Union. The United 
States should be ready to file these cases against the EU under the 
Subsidies Agreement on January 1, 2004.
    Of course, U.S. programs could also be challenged if the peace 
clause expires. However, the U.S. is much less exposed than the EU. 
AMTA payments, which account for a significant portion of U.S. support, 
would almost certainly be considered non-product-specific, and 
therefore non-actionable, under the Subsidies Agreement. Product-
specific programs in the U.S. are much less significant than those in 
the EU, and it is difficult to demonstrate a link between U.S. programs 
and level of U.S. exports.
    More importantly, using peace clause leverage could actually reduce 
U.S. vulnerability to an eventual challenge. Doing so increases the 
likelihood of achieving a good agreement on agriculture before the end 
of 2003. Without such an agreement, the peace clause would inevitably 
lapse. In the context of such an agreement, the peace clause could be 
extended.
            6. Export Credits Should Be Disciplined in the OECD
    Under the Uruguay Round Agreement the United States committed, 
along with other WTO members, to negotiate disciplines on export 
credits and credit guarantees in the OECD. Unfortunately, the OECD 
talks have not yet produced an agreement. Now some countries are 
talking of developing disciplines in the WTO rather than the OECD.
    The OECD has experience in the area of export credits, having 
administered for many years an agreement on export credits for 
industrial products. It is the proper place to develop disciplines for 
credit programs for agricultural products. Despite the fact that the 
United States is currently the biggest user of such credits, we have a 
long-run interest in imposing disciplines to guard against future 
abuses by our trading partners.
            7. The S&P Agreement Should Not Be Reopened
    The pork industry does not support opening the SPS Agreement for 
further negotiation in the next trade round. It is working well.
            8. The U.S. Must be a Reliable Supplier of Agricultural 
                    Products
    Trade liberalization is not a one-way street. If we expect food-
importing countries to open their markets to U.S. exports and rely more 
on world markets to provide the food they need, we should at the same 
time commit to being reliable suppliers. Current WTO rules permit 
exporting countries to tax exports whenever they choose (GATT Article 
XI.1), and to prohibit or otherwise restrict exports to relieve 
domestic shortages (GATT Articles XI.2(a) and XX(i) and (j)). These 
provisions should be eliminated in conjunction with the phasing out of 
import barriers. Such a move would not affect the ability of the United 
States to impose trade sanctions for reasons of national security; that 
right would be preserved under GATT Article XXI.
IV. The U.S. Pork Industry Strongly Supports the FTAA Process and 
        Bilateral Initiatives With Chile and Singapore
    Given the strong support of the U.S. and Canadian pork 
industries for a zero-for-zero approach on pork in the WTO 
agriculture negotiations and the likelihood that Brazilian 
producers also will embrace this initiative, the FTAA process 
should provide fertile ground for the thorough liberalization 
of the pork sector in the western hemisphere. However, if the 
Congress does not pass Trade Promotion Authority and the FTAA 
process languishes, the United States pork industry and other 
sectors of the U.S. economy will be forced to continue to sit 
on the sidelines and watch as the Mexicans, the Canadians, the 
Chileans and others continue to cut trade deals in what once 
was considered the domain of the United States.
    The U.S. pork industry also supports bilateral initiatives 
with Chile and Singapore. Comments regarding each of these 
initiatives are attached as appendices to this statement.
    [The attachments are being retained in the Committee 
files.]

                                


    Chairman Crane. Thank you. Mr. Burke?

  STATEMENT OF DONALD R. BURKE, VICE PRESIDENT, MARKETING AND 
INTERNATIONAL, COATED BOARD DIVISION, MEAD CORPORATION, PHENIX 
    CITY, ALABAMA, ON BEHALF OF THE AMERICAN FOREST & PAPER 
                          ASSOCIATION

    Mr. Burke. Mr. Chairman, my name is Don Burke. I am Vice 
President of Marketing and International of the Mead Coated 
Board Division, a division of the Mead Corporation. We 
manufacture coated paperboard for use in beverage packaging and 
in the folding carton industry. I am appearing today on behalf 
of Mead, as well as the American Forest & Paper Association, of 
which we are a member. Mead is also affiliated with the 
Business Roundtable and its Go Trade network.
    The American Forest & Paper Association is the national 
trade association of the forest and paper products industry. 
This industry has annual sales in excess of $250 billion and 
accounts for nearly seven percent of total U.S. manufacturing 
output. The Mead Corporation is a forest products company with 
$4.4 billion in sales, 12 percent of which are derived from 
international activities.
    I am pleased to have this opportunity to appear today 
because, for my company and others in our industry, the premise 
of this hearing, that the U.S. has fallen behind in gaining 
market access for its manufacturers and that U.S. exporters and 
their workers are facing discriminatory customs tariffs as a 
result, is a painful fact of everyday life.
    Going into the Uruguay Round of trade negotiations, our 
industry was the first to propose zero-for-zero tariff concept, 
but we were largely unsuccessful. The result is that the 
competitive landscape for our industry has actually gotten 
worse over time. Let me offer a personal experience of what 
this has meant to American business.
    During the early 1990s, Mead began market development 
activities on two fronts in Brazil, one involving the supply of 
finished packages, primarily to the beverage industry, and two, 
the sale of our paperboard to independent customers for use in 
the manufacture of folding cartons. In 1997, our exports of 
paperboard in support of these initiatives exceeded 30,000 
tons, or $20 million worth of business. I should point out that 
we were able to capture this business against domestic 
competition even in the presence of tariffs, initially set at 
ten percent, but which reached 14 percent in 1997.
    In 1999, the MERCOSUR agreement required Brazil to raise 
its tariffs to bring them into line with its partners. Brazil 
raised its tariff on my product to 16.5 percent, just about the 
time the real was devalued. As a result, we were no longer able 
to compete with the Brazilian domestic suppliers. Today, that 
30,000 tons I referenced earlier is zero. Mead remains 
committed to the Brazilian market in its beverage packaging 
business, but today we purchase our paperboard from a local 
supplier and sales of our own paperboard are nonexistent.
    This experience is not unique to Mead. The MERCOSUR 
agreement required Brazil to increase its tariff on a wide 
range of paper and wood products. As a result, U.S. sales of 
pulp and paper declined by nearly 40 percent, from $348 million 
in 1997 to just $216 million last year. In wood products, they 
declined by over 50 percent.
    To take another example, in 1997 when Canada concluded its 
free trade agreement with Chile, virtually all Canadian wood 
and paper products received duty-free treatment immediately 
upon implementation. The effect on U.S. wood and paper sales 
was immediate and devastating. The U.S. share of the Chilean 
paper market dropped from 30 percent in 1997 to 13 percent last 
year. That cost U.S. suppliers an estimated $100 million last 
year. At the same time, U.S. exports of wood products declined 
by 25 percent.
    What needs to be done? First, we urge the administration to 
move rapidly to conclude the FTA with Chile, and in particular 
to ensure that all tariffs on U.S. wood and paper products will 
be reduced to zero immediately.
    Second, the administration must work with hemispheric 
trading partners to accelerate the timetable for a Free Trade 
Area of the Americas and achieve some early deliverables in 
selected sectors, such as forest products.
    Third, the administration must revitalize the effort in 
APEC to achieve zero tariffs in selected sectors, again, 
including forest products.
    Fourth, the U.S. should critically review the FTAs 
concluded by our major competitors and move quickly to restore 
the balance of competitive opportunity.
    Finally, the U.S. must, of course, continue to press for 
further industrial tariff negotiations in the WTO, including 
early sectoral tariff elimination. In doing so, however, we 
must make sure that these multilateral efforts do not undermine 
our bilateral and regional negotiations. And, of course, we 
must provide the administration with the authority to conclude 
negotiations in a way that is credible to potential partners.
    Mr. Chairman, over the decade of the 1990s, companies like 
Mead and others in the U.S. forest products industry have made 
the difficult decisions necessary to ensure we can compete in 
the global marketplace. We urge the U.S. to move quickly to 
catch up with our competitors, to achieve equitable tariff 
treatment in world markets. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Burke follows:]
      Statement of Donald R. Burke, Vice President, Marketing and 
 International, Coated Board Division, Mead Corporation, Phenix City, 
     Alabama, on behalf of the American Forest & Paper Association
    Mr. Chairman, my name is Donald R. Burke, I am Vice President, 
Marketing and International for the Coated Board Division of the Mead 
Corporation. I am appearing today on behalf of Mead, as well as the 
American Forest & Paper Association, of which we are a member. Mead is 
also affiliated with The Business Roundtable and its Go Trade network.
    The American Forest & Paper Association is the national trade 
association of the forest, pulp, paper, paperboard and wood products 
industry. This vital national industry accounts for 7% of total U.S. 
manufacturing output. Our industry employs approximately 1.7 million 
people, with an annual estimated payroll of $51 billion, and sales in 
excess of $250 billion.
    The Mead Corporation--a forest products company with $4.4 billion 
in sales in the year 2000--is one of the leading North American 
producers of coated printing paper, coated paperboard and consumer and 
office products. Mead is a world leader in multiple packaging and 
specialty paper, and a producer of high quality corrugating medium used 
in shipping containers. Mead employs more than 15,000 people, has 
offices in 32 countries, and sells its products in 98 countries. In 
management of the company's more than two million acres of forests, 
Mead is committed to practicing principled forest stewardship and using 
resources in a responsible and sustainable manner.
    The Mead Coated Board division, headquartered in Phenix City, 
Alabama, manufactures coated unbleached kraft paperboard. Approximately 
sixty percent of this product is used as a raw material by Mead's own 
converting operations which produce and market convenience packaging 
throughout the world for such products as soft drinks, beer, dairy, and 
other food products. The remaining forty percent is sold to customers 
in North America and Europe for use in multiple packaging and folding 
cartons. Mead is considered a global leader in this field. The division 
also produces dimension lumber. Mead Coated Board has more than 1,200 
employees and operates two paper machines at its Mahrt mill near Phenix 
City, which produced approximately 1 million tons of coated paperboard 
in 2000.
    I am pleased to have this opportunity to appear today because, for 
my company and others in the U.S. forest products industry, the premise 
of this hearing--that the U.S. has fallen behind in gaining market 
access for its manufacturers--and that U.S. exporters and their workers 
are facing discriminatory customs tariffs as a result--is a painful 
fact of everyday life.
    For the U.S. forest products industry, it is really pretty easy to 
see how we got here.
    Going into the Uruguay Round of trade negotiations, our industry 
was the first to propose a zero for zero tariff concept because we 
recognized several things about the future direction of our industry:
     We were then one of America's most globally competitive 
industries, and exports would be an increasingly important component of 
our business.
     Although developed country producers and markets still 
dominated, the real growth--in terms of demand and capacity expansion--
would be shifting to developing countries.
     As our industry globalized, surviving companies would be 
those capable of serving markets worldwide with the lowest transactions 
costs.
     With U.S. markets open virtually duty free to businesses 
offshore, aggressive U.S. market opening measures were necessary to 
level the economic playing field.
    All of this meant that the future competitiveness of our industry 
depended on the elimination of all tariff barriers.
    Regrettably, the U.S. was not able to fully achieve its zero tariff 
objective in the Uruguay Round. On paper, the Europeans insisted on a 
full ten year phase out for their paper tariffs--explicitly to protect 
their industry. However, in the spirit of full disclosure, I must 
report that the duty on our product--coated unbleached kraft 
paperboard--was phased out much faster and is now duty free in the EU. 
Most developing countries made no commitment to cut paper tariffs. On 
wood, the Japanese refused to eliminate tariffs, so we had to settle 
for cuts of one-third.
    The Congress attempted to address this deficiency by including in 
the Uruguay Round Agreements Act both the authority and the mandate for 
the Administration to continue to pursue total tariff elimination in 
our sector (and others in the zero for zero category) as a priority 
matter. Unfortunately, as The Business Roundtable report makes clear, 
the U.S. has not kept up with its trading partners in terms of major 
new trade agreements, so the Congressional mandate was never fulfilled.
    The result in terms of the competitive landscape for our industry 
has been that the tariff inequity we attempted to eliminate in the 
Uruguay Round has actually gotten worse over time:
     With impressive new capacity coming on line, developing 
country suppliers are now taking full advantage of the U.S. zero tariff 
on forest products to cut into our domestic sales base.
     International competitors are negotiating preferential 
trade arrangements and cutting into our share of existing export 
markets.
    Let me offer my own experience of what this means to American 
business.
    During the early-1990's Mead began market development efforts on 
two fronts in Brazil: one, involving the supply of finished packaging 
largely to customers in the beverage industry; and, two, the sale of 
our paperboard to independent customers for use in the manufacture of 
folding cartons. In 1997 our exports of paperboard in support of these 
initiatives exceeded 30,000 tons or $20 million worth of business.
    I should point out that we were able to capture this business, 
against domestic competition, even in the presence of tariffs initially 
set at 10% but which reached 14% by 1997. In 1997, the Brazilian 
government also unilaterally imposed import financing restrictions that 
effectively mandated 360 day payment terms on most imported goods, a 
further ``un-leveling'' of the playing field between companies such as 
ourselves and local Brazilian suppliers. In 1999, the MERCOSUR 
agreement required Brazil to raise its tariffs to bring them into line 
with its partners (Argentina, Paraguay, Uruguay). Brazil raised its 
tariff on coated natural kraft to 16.5%, just about the time the Real 
was devalued.
    At this point, Mead was no longer able to compete with Brazilian 
domestic suppliers. Today, our once-promising export sales to Brazil 
have fallen to zero. Mead remains committed to the Brazilian market in 
its beverage packaging business, but today, we purchase our paperboard 
from a local supplier and sales of our own paperboard to folding carton 
converters are non-existent.
    This experience is not unique to Mead. The MERCOSUR agreement 
required Brazil to increase its tariff on a wide range of paper and 
wood products, in addition to coated natural kraft:
     The newsprint tariff was raised from 6 to 9%; and,
     Tariffs on printing and writing papers went from 12 to 
15%.
    As a result, U.S. sales of pulp and paper declined from $348 
million in 1997 to just $216 million last year. In wood products, they 
declined from $12 million to $5.5 million over the same period.
    To take another example: In 1997, when Canada concluded its Free 
Trade Agreement with Chile, virtually all Canadian wood and paper 
products received duty free treatment immediately on implementation. As 
you can see from the charts attached to my statement, the effect on 
U.S. wood and paper sales was immediate and devastating.
     The U.S. share of the Chilean paper market dropped from 
30% in 1997 to 13% in 2000. We estimate that cost U.S. suppliers an 
estimated $100 million in 2000 alone.
     At the same time, U.S. exports of wood products declined 
by 25% and Chilean wood sales in the U.S. jumped from $253 million to 
over $377 million.
    What needs to be done?
    First, we urge the Administration to move rapidly to conclude the 
FTA with Chile and, in particular, to ensure that all tariffs on U.S. 
wood and paper products will be reduced to zero immediately on 
implementation. The mandate for U.S. negotiators must make it clear 
that the priority objective must be to achieve immediate parity with 
our Canadian competitors. The U.S. cannot accept an agreement which 
prolongs the period during which our country's products are treated 
less favorably than those of our Canadian competitors.
    Second, the Administration must work with Hemisphere trading 
partners to accelerate the timetable for conclusion of a Free Trade 
Area of the Americas (FTAA), and to advance the date when concrete 
results can be realized. The U.S. catch-up strategy for market access 
must include the concept of early deliverables in selected sectors--
including forest products.
    Third, the Administration must revitalize the trade liberalization 
dimension in our relationship with the countries of the Asia Pacific 
region, and especially the initiative to achieve zero tariffs in 
selected sectors in advance of the Bogor deadlines, know as Early 
Voluntary Sectoral Liberalization (EVSL). The U.S. must not allow 
Japanese obstructionism to continue to block regional trade 
liberalization. We must make it clear that we will proceed with 
partners willing to work with us--including Singapore, New Zealand, 
Australia, ASEAN and China and Taiwan.
    Fourth, the U.S. should look opportunistically at the FTAs 
concluded by our major competitors. We must identify those markets 
where there is a substantial competitive challenge to the U.S., and 
move quickly to restore the balance of competitive opportunity.
    Finally, we agree with the observation of The Business Roundtable 
that the WTO and multilateral negotiations offer the best, most direct 
route to achieving barrier free market access on a global scale. The 
U.S. must, of course, continue to press for the launch of industrial 
tariff negotiations, including early sectoral tariff liberalization, 
country by country, without necessarily being linked to a possible New 
Round. In doing so, however, we must learn from the experience of the 
past four years and not allow the advent of a possible Round to 
exercise a chilling effect on other types of bilateral negotiations.
    And, of course, we must provide the Administration with the 
authority to conclude these negotiations in a way that is credible to 
potential partners.
    Mr. Chairman, over the decade of the nineties, companies like Mead 
and others in the U.S. forest products industry have made the difficult 
decisions necessary to ensure we can compete in the global marketplace. 
As The Business Roundtable report cautions, and as Mead's own 
experience makes clear, unless the U.S. can move quickly to catch up 
with our competitors to achieve equitable tariff treatment in world 
markets, ``we as a nation will squander our remarkable competitive 
advantage and jeopardize our economic prosperity.'' We owe it to our 
shareholders, to our workers, and to our communities to make sure that 
does not happen.
    Thank you, Mr. Chairman.
    [GRAPHIC] [TIFF OMITTED] T3528A.002
    
    [GRAPHIC] [TIFF OMITTED] T3528A.003
    
                                

    Chairman Crane. Thank you, Mr. Burke.
    Mr. McCarter, sometimes a picture is worth 1,000 words and 
the diagram you attached to your testimony is that kind of 
picture. I am sure everyone has had a look at it already. Will 
successful conclusion of the FTAA negotiations help us untangle 
this tangled web of trade rules that have proliferated in Latin 
America since the United States signed the NAFTA agreement in 
1993?
    Mr. McCarter. In many cases, these agreements that are sub-
regional are being done along the same free trade area lines 
that the FTAA is intended to take on comprehensively. So it 
should position itself, if these specific agreements are not in 
conflict with the FTAA, to supplant them. So it is the 
intention, certainly from the standpoint of business, to see 
that this web is simplified and that the FTAA replaces many of 
these separate agreements.
    Chairman Crane. It is clear that your companies and 
employees need expanded trade, and I would appreciate it if you 
could tell me what steps your companies are taking to inform 
your employees about the benefits of trade.
    Mr. Wiens. Mr. Chairman, at 3M Company, as I mentioned 
earlier, we have about 8,000 jobs in the U.S. that depend upon 
trade out of the 37,000 employees we have in the U.S. We are 
educating our people every day in plant crew meetings, in our 
laboratory research and development sessions, so that they 
understand clearly the benefits of trade for them personally 
and also what their contributions can be.
    Chairman Crane. I applaud you for that. Something that I 
have mentioned in the past is about five years ago, I had a 
hearing out in my district on trade and Illinois was then the 
fifth largest export State in the union, and in my district, I 
have the corporate headquarters of Motorola, Sears, United, 
Baxter and Abbott right on the border, and so I knew my 
district was a big export district. What was revealing about 
the hearing, though, was that better than 90 percent of our 
Illinois exports came from companies employing 500 or fewer.
    When you bring up trade at a town meeting back home, people 
start falling asleep. We are failing big time in communicating 
the importance to the employees of trade, and that is for the 
survival of the business but the survival of their jobs. So I 
commend you for what you are doing, but if you could get that 
word out to some of the smaller businesses.
    I had a fellow who came in, doing business in the Persian 
Gulf, and he said, ``Congressman, have you any idea how many 
businesses in your district are doing business in the Persian 
Gulf?'' I had not the vaguest idea. He handed me a portfolio 
filled with the names of over 150 businesses in my district, 
employers of 150 or fewer, doing business in the Persian Gulf, 
and I looked at the list. I never recognized the name of a 
single one of those. I mean, I went back and examined them to 
make sure he was not pulling a trick on me, but they were 
businesses in my district doing business in the Persian Gulf. 
So that is one of the major jobs I think we all have on our 
hands, is to get it out so that the employees understand fully 
the importance of trade.
    I would like to ask you a second question, Mr. Schott. Can 
you give us a better sense of how United States workers are 
being hurt by the proliferation of trade agreements to which 
the United States is not a party?
    Mr. Schott. Mr. Chairman, many of the panelists today have 
noted that when there is an export opportunity, U.S. firms 
often can find a way to supply that export contract; if they 
are affected by higher tariffs if they try to ship from the 
United States, they sometimes can ship the product from a 
foreign plant. It comes at a cost to the firm in additional 
transaction costs, but it comes at a much greater cost to the 
U.S. worker, because the U.S. worker is not flexible enough to 
move to a production plant in Brazil or Argentina. As a result, 
he or she may lose the ability to help produce the exports that 
are so important for our economy.
    The fact that there is less production in that plant in the 
United States means there will be fewer high-paying jobs. As I 
noted in my opening comments, the firms that are shipping from 
the United States are the ones that are paying, on average, 
much higher wages and providing much more stable employment for 
U.S. workers. So the U.S. worker is taking a big hit when we 
cannot take advantage of these export opportunities.
    Chairman Crane. And finally, I was interested in the 
analysis you cited regarding how much trade would increase with 
Brazil if we had negotiated a NAFTA-like agreement with this 
important trading partner. Could you go through those results 
very quickly again?
    Mr. Schott. Well, basically, anyone who looks at our 
bilateral trade with Brazil should wonder why it is so small. 
We are doing $29 billion of two-way trade with Brazil, a 
country of 160 million people with a GDP of almost $800 
billion. By contrast, our trade with Mexico is almost $250 
billion a year. Some of the difference has to do with the fact 
that we have relatively free access to the Mexican market and 
have a number of barriers to two-way trade between the United 
States and Brazil.
    If you factor in the differences in size of the countries, 
the geographic distance between markets, and the differences in 
per capita income, gravity model simulations indicate that the 
conclusion that free trade with Brazil would result in a 
doubling or tripling of our bilateral trade. Now, we will not 
achieve all those gains because free trade agreements do not 
eliminate every obstacle to trade, but we would have a 
tremendous increase in our exports and our imports from Brazil. 
We are talking about $50 or $60 billion in increased trade with 
Brazil alone.
    Chairman Crane. I was about to yield, but I guess everyone 
has left for lunch. This has been a chaotic day, and I am 
particularly appreciative of your willingness to participate in 
this hearing.
    We have, as you know, debate going on on the floor chaired 
by the Ways and Means Committee on the elimination of the 
marriage penalty tax and we are going to then meet in Committee 
here in this room after that bill is finished on the floor to 
report out the elimination of the death tax, so this has been a 
kind of chaotic day for our Committee and I hope you will 
accept my apology on behalf of all the rest of our colleagues 
here.
    I also want to conclude this hearing by saying that we 
received powerful testimony from all of you folks and we are 
grateful for that. We need to reinvigorate the U.S. leadership 
and move forward on negotiations in WTO, regional negotiations 
in the FTAA, and bilateral negotiations with countries such as 
Chile, Singapore, New Zealand, Australia, Egypt, to name just a 
few. That will be an unending proposition.
    But we are grateful and I express my appreciation to all of 
you, and with that, the Subcommittee stands in adjournment. 
Thank you.
    [Whereupon, at 12:35 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
  Statement of Rudolph A. Schlais, Jr., Chairman, National Center for 
                   Asia-Pacific Economic Cooperation
    The Board of Governors of the National Center for Asia-Pacific 
Economic Cooperation (APEC) is pleased to provide the Subcommittee on 
Trade with its views on the importance of APEC as a regional trade 
organization. This statement shows the clear value of such 
organizations by illustrating the significant potential of APEC to 
achieve foreign policy and economic goals critical to the United 
States.
    The National Center for APEC is a non-profit organization whose 
mission is to generate U.S. support for and participation in APEC \1\ 
with the objective of liberalizing trade and investment in the region. 
The National Center's Board of Governors includes 35 major U.S. 
corporations with extensive operations in the Asia-Pacific region and a 
strong interest in APEC's work to increase prosperity, facilitate 
business and open markets. APEC is important; the government and 
business community can work together to achieve critical U.S. 
objectives through the APEC forum.
---------------------------------------------------------------------------
    \1\ The Asia Pacific Economic Cooperation (APEC) forum includes the 
following economies: Australia; Brunei Darussalam; Canada; Chile; 
People's Republic of China; Hong Kong, China; Indonesia; Japan; South 
Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The 
Philippines; Russian Federation; Singapore; Chinese Taipei; Thailand; 
United States and Vietnam. The Singapore-based APEC Secretariat's 
website can be found at www.apecsec.org.sg, and the APEC Business 
Advisory Council International Secretariat's website address is 
www.abaconline.org.
---------------------------------------------------------------------------
Asia's Importance to the United States
    Asia has the largest population in the world, some of the fastest 
growing economies in the world and, by a quantum measure, the greatest 
economic growth rates. Three powerful and related trends are 
fundamentally reshaping the global economy: (1) the exponential growth 
in Internet connectivity; (2) the convergence of content, 
interactivity, computer applications and communications networks; and 
(3) the increasing use of electronic commerce as a channel for 
conducting international business. This technological transformation is 
creating a networked global economy that is just beginning to 
demonstrate that e-commerce and the Internet can be powerful engines 
for economic growth, wealth creation and societal benefit.
    Asia represents no less than the future viability of U.S. 
companies, as well as an important arena where U.S. leadership is 
critical to generating growth and prosperity. The U.S. Government and 
private sector have worked closely together in APEC to support U.S. 
objectives. As we move forward into the year of China's APEC 
chairmanship, it is important that the private sector and government 
continue to work together to promote our common interests. The private 
sector has found APEC to be a successful forum in which to advance our 
objectives, and we look to the Bush Administration to take a leadership 
role in promoting APEC and continuing the momentum toward ensuring the 
ultimate goals are reached, as described below.
Why APEC Action is Time-Critical
    At their 1993 meeting in Blake Island, the APEC Leaders outlined 
their vision for a community of nations in the Pacific. The recent 
financial crisis and political events in the region have challenged 
this ideal, and a number of factions have begun to emerge that aim to 
exclude U.S. agenda and objectives. The absence of U.S. leadership has 
allowed voices critical of the U.S. to take the stage, and strong 
engagement from the U.S. early in the new Administration is needed to 
steer APEC back toward its Blake Island ideal.
    The need for action is critical and immediate. In order to achieve 
the APEC goals of free trade and investment in the region by 2010 (for 
developed economies) and 2020 (for developing economies), APEC members 
must take concrete steps toward this end immediately. The ASEAN 
countries have committed to an ASEAN Free Trade Area (AFTA) that would 
move that grouping significantly closer to their APEC goals; the AFTA 
deadline is the end of 2002. If ASEAN cannot meet that commitment, it 
will slow the momentum on APEC's progress and dim the chances for 
APEC's success.
How the United States Benefits from APEC
    There is a strong and mutually reinforcing relationship between 
foreign policy and economic policy issues. A strong and interlinked 
APEC region is in the U.S. national interest. APEC provides the most 
immediate and far-reaching platform for U.S. leadership, with Russia, 
Japan, China, Korea, all the major players of the regional security and 
economic environment involved. APEC, while limiting its formal 
discussions to trade and economics, offers through the annual 
``Economic Leaders Meeting'' a key opportunity to promote broader U.S. 
foreign policy objectives through the President developing personal 
relationships with the other APEC Leaders. The APEC meetings give the 
President the opportunity to broach sometimes difficult political and 
strategic issues with other Leaders in informal bilaterals without the 
rigid demands and harsh spotlight of official state meetings. The APEC 
meetings, with the Leaders, foreign ministers, trade ministers, APEC 
Business Advisory Council (ABAC) and the CEO Summit of leading regional 
business leaders, is the Pacific Rim's ``annual meeting.''
    APEC serves as a perfect counter to the contentious debate that 
dominates the US-European trade dialogue. The common membership between 
FTAA and APEC (5 members) can act as a foundation for a joint FTAA/APEC 
coalition that can serve as a catalyst to launch a new trade round in 
the WTO and make progress on important trade and investment 
liberalization issues. The Information Technology Agreement of 1996 was 
a good example of an APEC agreement providing the impetus for a very 
successful WTO agreement. The APEC Food System initiative and the Auto 
and Chemicals Dialogues provide similar opportunities within the APEC 
process to assure progress in other sectors of global importance to 
U.S. business.
    APEC's umbrella can ensure that bilateral free trade agreements 
under negotiation in the region maintain certain common interests. 
Every time APEC members enter into a bilateral free trade agreement, 
they need to ensure the agreement meets APEC standards for market 
openness and comprehensiveness (including all economic sectors). APEC 
also allows a multilateral venue in which to address issues that cannot 
be addressed bilaterally and provides a way to initiate new ideas that 
can have regional application.
    Getting the WTO negotiations back on track is a priority issue for 
the United States. The fact that China is chairing the APEC meeting 
just before the next WTO Ministerial provides an opportunity to both 
cement China's WTO commitments and push the cause of a new round of 
negotiations. As it has done in the past, if APEC can provide a 
positive impetus to the WTO Ministerial, it will further serve to 
bolster APEC's own reputation and effectiveness.
Opportunities the ``New Economy'' Presents in APEC
    Digital trade presents a new opportunity to advance the goal of 
expanded international trade in a converging environment. Trade 
policymakers must now ensure that new technologies, new business 
models, and new products are available to consumers, businesses, and 
governments around the world so these users can benefit from increased 
productivity, competition, and choice.
    The U.S.-sponsored APEC E-Commerce Readiness Initiative has set the 
stage for improving positioning for the digital economy and 
opportunities for U.S. industry. APEC Leaders in Brunei recognized this 
U.S. initiative for its global leadership in enabling economies to 
assess and improve their readiness for the New Economy.
    The Asia-Pacific region is experiencing the most extensive and 
strategic build-out of major infrastructure since WWII. If U.S. 
technology is not the standard used, it creates significant national 
security implications for the future as well as a lack of economic 
benefits for the U.S. economy. The U.S. Government's active involvement 
in APEC will reinforce the reliability of U.S. technology for critical 
applications.
APEC Relies on U.S. Leadership
    APEC's commitments to liberalizing trade and investment in the 
region have been hard fought victories for U.S. trade policy. It is 
imperative that APEC economies enact their implementation strategies 
immediately in order to meet the deadlines of 2010 for developed 
economies and 2020 for developing economies. Each economy's Individual 
Action Plan (IAP) provides the business plan to accomplish this. The 
U.S. should ensure APEC members take this process seriously.
    The position of the APEC chair--this year China, next year Mexico--
has a considerable impact on the progress APEC makes toward meeting its 
liberalization goals. The U.S. public and private sectors should be 
delivering a strong message to both members to take a proactive 
approach toward shaping the agenda during their year in the chair. 
China and Mexico are two of the United States' most important trade 
partners and an unprecedented number of U.S. firms will be on the 
ground at each of these APEC meetings and will be working their key 
issues through the APEC Business Advisory Council (ABAC) process. Full 
engagement from the U.S. Government at all levels will ensure maximum 
results for both the U.S. Government and the U.S. business community.
    APEC is unique in integrating the business community into its 
decision-making process and has made considerable progress in this 
regard. This offers a great opportunity for setting a practical agenda 
for both achieving free trade goals and for building up the capacity of 
the developing economies to participate effectively in a globalized 
economy. The ABAC has been an effective focal point of business 
engagement in APEC. The U.S. ABAC members, the U.S. business community, 
and the National Center for APEC are committed to working with the Bush 
Administration to achieve our mutual goals for the Asia-Pacific region 
in APEC.
How the U.S. Government and U.S. Business Community Can Achieve Their 
        Objectives in APEC
    The U.S. private sector can help the Bush Administration 
achieve its foreign policy objectives through the APEC process. 
The U.S. business community is looking to the new 
Administration for greater involvement and leadership in APEC 
and believes APEC can serve the Administration's policy 
objectives in the region.
    To be most effective, the U.S. public and private sector 
should speak with one voice, reinforcing each other in relevant 
APEC fora; the U.S. should identify its key messages for 2001 
and systematically deliver them in various APEC fora as well as 
in U.S. speeches.
    The U.S. government should organize the policy process for 
APEC to ensure it is integrated into the overall Asia-Pacific 
policy process at a very high level and maximizes the role of 
the private sector.
    APEC, through its many working groups and committees, is 
working on dozens of meaningful projects that will have a 
positive impact on the region's economic and business climate. 
Work on a number of these is progressing well this year and may 
produce solid deliverables for the Leaders Summit in October 
2001 in Shanghai:
     Expanded membership in plurilateral air services 
agreement.
     China APEC Shanghai Model Port Project.
     A standards harmonization outcome (material safety 
data sheets) at first public-private sector Chemicals Dialogue 
in October.
     Leaders Declaration forswearing food embargoes in 
APEC.
     Commitments to financial sector reform and 
restructuring.
     Continued prioritization and progress towards 
establishing policies which advance the goal of expanded 
international trade in a converging, digital environment.
    The Board of the National Center is hopeful Congress will 
recognize and support the important role APEC can play in 
achieving U.S. foreign, economic and trade policy objectives, 
with clear deadlines for achieving comprehensive trade 
liberalization and business facilitation goals while fostering 
greater economic cooperation.

                                


   Statement of Rubber and Plastic Footwear Manufacturers Association
    The Rubber and Plastic Footwear Manufacturers Association (RPFMA) 
is the spokesman for manufacturers of most of the rubber-soled, fabric-
upper footwear, waterproof footwear, and slippers made in this country. 
The names and addresses of the Association's members are attached 
hereto.
    Rubber footwear is a labor-intensive, import-sensitive industry: 
Labor constitutes more than 40 percent of total cost; imports of 
fabric-upper footwear and of slippers take more than ninety percent of 
the U.S. market and imports of waterproof footwear take more than fifty 
percent. These imports come from countries where wages are from one-
fifteenth to one-twentieth of the level in the domestic industry.
    The remaining companies in this industry represent the survival of 
the fittest. They are convinced that their state of the art production 
facilities, the quality of their products, and their name brand 
recognition will permit them to continue manufacturing in this country 
provided that there is no further tampering with the current level of 
tariffs on competing imports.
    The rubber footwear industry recognizes that the health of our 
economy depends to a considerable degree on America's ability to export 
its products to other countries. Unhappily, the ability of low-wage 
foreign producers to compete in the labor-intensive industry which 
produces rubber footwear presents an enormous obstacle in the path of 
this industry's efforts to export its products. Accordingly, while we 
understand the desirability of ongoing and anticipated trade 
negotiations for the purpose of reducing barriers to trade, we urge 
that there be greater recognition that exceptions must be made for 
those few industries, such as rubber footwear and slippers, where a 
reduction in duties would clearly threaten the continued existence of 
what is left of domestic production.
    A major concern of this industry with respect to trade objectives 
and initiatives is the distinction between our Government's approach to 
such multilateral negotiations as the Kennedy, Tokyo, and Uruguay 
Rounds and its approach to bilateral free-trade agreements. The rules 
for multilateral negotiations have permitted careful scrutiny of 
whether cuts in tariffs on specific Harmonized System items are 
warranted. Thus, in recognition of the unique import sensitivity of 
rubber footwear and slippers, the duties on the core items of this 
industry remained untouched in the Kennedy, Tokyo, and Uruguay Rounds. 
On the other hand, in bilateral negotiations the only flexibility has 
been in the length of time over which all duties would go to zero.
    When our government entered into a free trade agreement with 
Canada, this industry did not protest because of the relative 
comparability of Canadian and U.S. wage rates, and because we were 
assured that such an agreement was a natural consequence of the unique 
relationship between Canada and the United States and that it would not 
set a precedent. Before long, however, Mexico urged that a similar 
relationship existed between it, Canada and the United States, as a 
result of which we got NAFTA--with an assurance that NAFTA was based on 
special circumstances. It is true that rubber footwear was one of the 
very few industries to get a NAFTA phase-out of fifteen years, but 
nonetheless, at the halfway point of this phase-out, Mexico has become 
the second-largest exporter of rubber footwear and slippers to the 
United States.
    Before long, the Caribbean countries claimed that NAFTA put them at 
a competitive disadvantage, and the rubber footwear industry soon found 
itself facing unreciprocated duty-free treatment from that part of the 
world. As a result, CBI countries which previously had posed no 
meaningful threat to the domestic rubber footwear industry soon saw 
their exports skyrocket from 200,000 pairs a year to over 5 million. 
Nonetheless, this CBI enhancement is now being cited as a precedent for 
a free trade agreement with Chile and for the expansion of the Andean 
Trade Preference Act.
    Is it any wonder, with imports taking in excess of 90% of our 
market for fabric-upper footwear and slippers and in excess of 50% of 
our market for waterproof footwear, that what is left of this industry 
is concerned about any additional free trade agreements which do not 
permit exceptions in those cases where the continued existence of 
domestic production is truly threatened?
    Because of the drift of our national trade policy in the direction 
of unfettered free trade and the enormous advantage in rubber footwear 
wages enjoyed by countries in the Pacific and in Latin America, this 
domestic industry is continuing to suffer severe blows. Within the last 
several months alone, the largest domestic producer of waterproof 
footwear, Lacrosse Footwear, closed its domestic operations in favor of 
imports, and the largest domestic producer of fabric-upper rubber-soled 
footwear, Converse, has now followed suit.
    What is left of this domestic industry does have reason to believe 
that it can survive, provided, however, that our trade policy is 
modified so as to permit limited exceptions to duty-free treatment in 
bilateral and regional negotiations. The history of past negotiations 
demonstrates that there are very few domestic industries whose survival 
has been as threatened as that of rubber footwear and slipper 
manufacturers. Surely the benefits that would otherwise accrue from a 
free trade agreement would not be diminished by excluding this 
miniscule fraction of 1% of this country's trade from duty-free 
treatment. We therefore urge that, if and when this Congress grants the 
President fast-track authority, it will insist that the standards for 
exceptions which have prevailed in multilateral negotiations should be 
made applicable to bilateral and regional negotiations.

Appendix I

                 Names and Locations of RPFMA Companies


----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
American Steel Toe Company                    Johnson Technologies Corporation
South Lynnfield, NJ                           Nashville, TN
----------------------------------------------------------------------------------------------------------------
Apex Mills Corporation                        Jones & Vining
Inwood, NY                                    Needham, MA
----------------------------------------------------------------------------------------------------------------
Bixby International Corporation               New Balance Athletic Shoe, Inc.
Newburyport, MA                               Boston, MA
----------------------------------------------------------------------------------------------------------------
Converse, Inc.                                Norcross Safety Products
North Reading, MA                             Rock Island, IL
----------------------------------------------------------------------------------------------------------------
Draper Knitting Co., Inc.                     Packaging Corporation of America
Canton, MA                                    Cutchogue, NY
----------------------------------------------------------------------------------------------------------------
Emtex, Inc.                                   S. Goldberg & Co., Inc.
Chelsea, MA                                   Hackensack, NJ
----------------------------------------------------------------------------------------------------------------
Frank C. Meyer                                Sheehan Sales Associates
Division of Mafcote Industries                Beverly, MA
Lawrence, MA
----------------------------------------------------------------------------------------------------------------
Genfoot, America, Inc.                        Tingley Rubber Corporation
Littleton, NH                                 South Plainfield, NJ
----------------------------------------------------------------------------------------------------------------
Hudson Machinery Worldwide                    Worthen Industries Inc.
Haverhill, MA                                 Nashua, NH
----------------------------------------------------------------------------------------------------------------

      

                                


          Statement of U.S. Integrated Carbon Steel Producers
    This statement sets out the views of the four major integrated U.S. 
producers of carbon steel products--Bethlehem Steel Corporation; LTV 
Steel Company, Inc.; National Steel Corporation; and U.S. Steel Group, 
a Unit of USX Corporation--on a key issue connected to U.S. trade 
policy objectives and initiatives: official U.S. negotiating objectives 
relating to unfair trade practices and U.S. antidumping and 
countervailing duty (AD/CVD) remedies. We appreciate the opportunity to 
submit this statement for inclusion in the record of the hearing held 
by the Subcommittee on Trade on March 29, 2001.
    The steel industry continues to support trade promotion authority 
to further open markets but believes that legislation enacting such 
authority must, consistent with prior enactments, make clear that the 
U.S. Government will not engage in negotiations that could weaken our 
unfair trade remedies.
    Our industry has long supported a trade policy based upon open, 
fair, rule-based and market-based trade, coupled with effective trade 
laws to respond to unfair trade practices. The steel industry supported 
the Uruguay Round's WTO agreements, which made major revisions to the 
international rules governing remedies against unfair trade practices. 
To be sure, our industry did not favor all aspects of the Uruguay Round 
changes--particularly those that weakened domestic trade remedies. (It 
is important to note that since its inception the GATT has condemned 
unfair trade practices and sanctioned antidumping and countervailing 
duty laws in response to such unfair trade.) Nevertheless, the steel 
industry backed the WTO agreements as a whole based on an understanding 
that these rules would not be weakened further in subsequent 
negotiations and that the United States, with the world's largest open 
market, would have and enforce the strongest possible remedies 
consistent with the new rules.
    Despite the fact that there already exists a built-in agenda for 
the next round of WTO negotiations and that the antidumping and 
countervailing duty rules are not part of that established agenda, some 
WTO members, many of whom have been found to be among the most 
egregious violators of the U.S. trade laws, have launched a concerted 
effort to renegotiate these rules. This is one more element of a multi-
front attack on the U.S. trade laws. In the WTO, as well as in FTAA and 
APEC discussions, foreign governments continue to seek further erosion 
of U.S. trade remedies.
    Our foreign competitors want their governments to reopen these 
agreements for a single purpose. They need the United States to absorb 
their dumped and subsidized excess steel production instead of taking 
the painful yet necessary steps to restructure and reduce their 
production overcapacity. The WTO-sanctioned trade remedy rules are the 
best means to compel foreign producers to rationalize production. As 
such, efforts to reopen WTO trade remedy agreements would not only 
deprive domestic producers of basic fair trade remedies in their own 
market, but would actually encourage foreign producers to maintain and 
supplement uneconomic production capacity. This is unacceptable.
    The United States, therefore, needs strong negotiating goals to 
make clear to our trading partners that the Administration will not 
consider, and Congress will not implement, trade agreements that 
undermine U.S. unfair trade remedies.
    In the past, official U.S. negotiating goals have always stressed 
the importance of strengthening subsidy discipline and improving anti-
subsidy and antidumping remedies. For example, the 1988 fast-track 
provisions contained ``principal trade negotiating objectives'' 
specifically addressing the need to define, deter, and discourage the 
persistent use of unfair trade practices, including forms of subsidy 
and dumping.\1\ Other trade enactments, such as the NAFTA and CFTA 
Implementation Acts, have gone even further.
---------------------------------------------------------------------------
    \1\ Section 1101(b)(8) of the Omnibus Trade and Competitiveness Act 
of 1988 (19 U.S.C. Sec. 2901(b)(8)).
---------------------------------------------------------------------------
    During the Ways and Means Committee's 1997 consideration of fast 
track negotiating authority, the Committee adopted an amendment offered 
by Rep. Houghton (R-NY) that would have added the following ``guidance 
for negotiators'':

          In the course of negotiations conducted under this title, the 
        United States Trade Representative shall-- . . . preserve the 
        ability of the United States to enforce rigorously its trade 
        laws, including the antidumping and countervailing duty laws, 
        and avoid agreements which lessen the effectiveness of domestic 
        and international disciplines on unfair trade, especially 
        dumping and subsidies. . . .

    The fast track bill reported by the Senate Finance Committee in 
1997 also contained language highlighting the importance of strong 
rules against dumping and subsidies.
    Given the sustained attacks that we are witnessing on our basic 
unfair trade laws, it is essential that Congress establish ground rules 
for U.S. negotiators making it clear that WTO trade law rules will not 
be reopened for negotiation. Further, Congress should make clear that 
any statutory changes to AD/CVD laws will not be entitled to fast track 
procedures. To the extent changes to the trade laws are considered, 
Congress should have the opportunity to fully debate and amend any such 
proposals. Finally, it must be clear that Congress will not approve 
agreements weakening U.S. trade laws.
    Strong and enforceable trade remedy laws are a key component of the 
international trading system and are an essential ingredient to 
maintain public support for greater trade liberalization. By ensuring 
that basic fair trade laws are not weakened in future negotiations, 
Congress will maximize the chances for a successful extension of trade 
promotion authority procedures and will enhance support for the world 
trading system.

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