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




 OUTCOME OF SUMMIT OF THE AMERICAS AND PROSPECTS FOR FREE TRADE IN THE 
                               HEMISPHERE

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


                                HEARING


                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 8, 2001

                               __________

                           Serial No. 107-22

                               __________

         Printed for the use of the Committee on Ways and Means


                   U.S. GOVERNMENT PRINTING OFFICE
74-222                     WASHINGTON : 2001

For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov  Phone (202) 512ï¿½091800  Fax: (202) 512ï¿½092250
              Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                      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 April 25, 2001, announcing the hearing...............     2

                               WITNESSES

Office of the United States Trade Representative, Hon. Robert B. 
  Zoellick, United States Trade Representative...................    31
U.S. General Accounting Office, Loren Yager, Director, 
  International Affairs and Trade................................    55

                                 ______

American Apparel and Footwear Association, Stephen Lamar.........   129
American Federation of Labor and Congress of Industrial 
  Organizations, John J. Sweeney.................................    73
American Textile Manufacturers Institute, Carlos Moore...........   124
Bolivia, Republic of, Hon. Ana Maria Solares.....................   121
Christian-Christensen, Hon. Donna M., a Delegate in Congress from 
  the United States Virgin Islands...............................    16
Colombia, Government of, Hon. Marta Lucia Ramirez Rincon.........   112
Fisher, Hon. Richard W., Washington, DC..........................    65
Moran, Hon. James P., a Representative in Congress from the State 
  of Virginia....................................................     9
National Association of Manufacturers, Franklin J. Vargo.........    78
National Retail Federation, Erik Autor...........................   136
Tauscher, Hon. Ellen O., a Representative in Congress from the 
  State of California............................................    13
U.S. Chamber of Commerce, Association of American Chambers of 
  Commerce in Latin America, and BankBoston Colombia, William 
  Gambrel........................................................    95
United States Council for International Business, Daniel M. Price    87

                       SUBMISSIONS FOR THE RECORD

American Farm Bureau Federation, statement.......................   143
Asociacion De Exportadores De Prendas De Vestir A Los Estados 
  Unidos De America (Exporamerica), Lima, Peru, statement........   146
Coalition for Sugar Reform, statement and attachment.............   147
Distilled Spirits Council of the United States, Deborah A. Lamb, 
  letter.........................................................   150
Florida Farmers & Suppliers Coalition, Inc., Lake Worth, FL, Paul 
  DiMare, letter.................................................   151
Florida Fruit & Vegetable Association, Orlando, FL, statement and 
  attachment.....................................................   152
Grocery Manufacturers of America, statement......................   156
Kal Kan Foods, Vernon, CA, Marietta E. Bernot, letter............   159
Michigan Farm Bureau, Lansing, MI, statement.....................   161
National Electrical Manufacturers Association, Rosslyn, VA, 
  Malcolm O'Hagan, statement.....................................   163
North American Peruvian Business Council, Myles Frechette, 
  statement......................................................   163
Shaw, Hon. E. Clay, Jr., a Representative in Congress from the 
  State of Florida, statement....................................   165
Union of Needletrades, Industrial and Textile Employees, New 
  York, NY, Jay Mazur, statement.................................   166
West Indies Rum and Spirits Producers Association, statement.....   172

 
 OUTCOME OF SUMMIT OF THE AMERICAS AND PROSPECTS FOR FREE TRADE IN THE 
                               HEMISPHERE

                              ----------                              


                          TUESDAY, MAY 8, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:08 p.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
April 25, 2001
No. TR-2

                       Crane Announces Hearing on

                 Outcome of Summit of the Americas and

               Prospects for Free Trade in the Hemisphere

    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 outcome of the Summit of the 
Americas held in Quebec City, Canada, April 20-22, 2001, and the 
prospects and timing for achieving the Free Trade Area of the Americas 
(FTAA). Members will also consider proposals to expand trade with 
Andean countries through the extension and expansion of the Andean 
Trade Preference Act which expires on December 4, 2001. The hearing 
will take place on Tuesday, May 8, 2001, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 2:00 p.m.

    Oral testimony at this hearing will be from both invited and public 
witnesses. Invited witnesses will include United States Trade 
Representative, Ambassador Robert Zoellick, representatives from the 
business community, and other interested groups. Also, any individual 
or organization not scheduled for an oral appearance may submit a 
written statement for consideration by the Committee or for inclusion 
in the printed record of the hearing.

BACKGROUND:

    During the Trade Subcommittee hearing held March 29, 2001, 
concerning whether the United States should negotiate more free trade 
agreements, the Subcommittee heard testimony from small and large 
companies on the urgent need for the United States to pursue trade 
agreements to expand trade in this hemisphere. At this hearing, 
witnesses are expected to expand on that premise, address the 
advancements in the free trade agenda accomplished at the Summit of the 
Americas meeting held April 20-22, 2001, and discuss issues related to 
extension and expansion of the Andean Trade Preference Act.

    The FTAA negotiations were officially launched at the Second Summit 
of the Americas in Santiago, Chile, in April 1998. Leaders of 34 
Western Hemisphere nations have committed to completing negotiations by 
2005. The goal is to establish an agreement that would reduce barriers 
to trade region-wide, allowing all countries to trade and invest with 
each other under the same rules.

    The 1991 Andean Trade Preferences Act (ATPA), P.L. 102-182, grants 
Colombia, Bolivia, Ecuador, and Peru tariff preferences on certain 
goods for 10 years in an effort to help those countries fight narcotics 
trafficking. Several categories of import sensitive products, including 
textiles and apparel are excluded from the program. The ATPA has proven 
a valuable weapon in the war against drugs by creating economic 
incentives to encourage the Andean countries to move out of the 
production and shipment of illegal drugs and into legitimate products. 
The four beneficiary countries have requested that ATPA be extended, 
and benefits be expanded to include other products such as textiles, 
apparel, and tuna.

    In announcing the hearing, Chairman Crane stated: ``President Bush 
has indicated that a Free Trade Area of the Americas is one of his top 
trade priorities. The FTAA would open markets for U.S. farmers, 
producers and service providers, help the U.S. economy rebound from the 
current slump, and foster free and open societies in countries 
struggling to establish and maintain democratic roots. While we are 
moving toward hemispheric free trade, I would like to continue our 
Andean preference program and expand it to create more economic 
incentives for these countries to move away from drug production.''

FOCUS OF THE HEARING:

    Witnesses are asked to address the trade commitments made at the 
Summit of the Americas meeting in Quebec City and prospects for the 
FTAA negotiations, and to offer trade proposals to assist Andean 
countries in their fight against drug production.

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, Tuesday, May 1, 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 Thursday, May 3, 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, Tuesday, 
May 22, 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 or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.

    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.

    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.

    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.

    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://waysandmeans.house.gov''.

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

                                


    Chairman Crane. Good afternoon. This is a hearing of the 
Ways and Means Trade Subcommittee to consider the status of 
negotiations to establish a Free Trade Area of the Americas and 
also to receive testimony on the expansion of the Andean Trade 
Preference Act which expires on December 4th. Ambassador 
Zoellick is here to report on the outcome of the Quebec Summit 
meeting where President Bush communicated his deep commitment 
to the creation of a free trade area in this hemisphere 
encompassing 800 million people, $11 trillion in economic 
production, and $3.4 trillion in regional trade.
    Ambassador Zoellick reached a strong agreement on detailed 
deadlines that give the talks new structure and momentum. The 
heads of State indicated their decision to make the draft 
negotiating text public, which is an unprecedented step forward 
in fostering open discussion regarding the impact of expanding 
trade in the region. I welcome the President's pledge to 
achieve trade promotion authority and conclude the United 
States-Chile Free Trade Agreement by the end of the year.
    I am convinced that free trade success in the Americas will 
help spur the World Trade Organization (WTO) to launch a new 
round of multilateral negotiations. In recent years, the United 
States has lapsed in its responsibility to lead the world and 
the hemisphere on these issues, and I am anxious to build on 
the strong successes coming out of the Free Trade Area of the 
Americas (FTAA) Summit in Quebec.
    With respect to extension of the Andean Trade Preference 
Act, I want to welcome the Colombian Minister of Foreign Trade, 
Marta Lucia Ramirez, and Bolivia Vice Minister of Trade, Ana 
Maria Solares, who will speak later this afternoon. I would 
also like to recognize the other two Andean Ministers who are 
with us today.
    Today, the United States serves as both the leading source 
of the Andean region's imports and the largest market for its 
exports, a relationship that yields more than $18 billion worth 
of commerce. The four Andean nations are taking courageous 
steps to eliminate drug production among their farmers, and it 
is my intention to craft an Andean Trade Preferences Act (ATPA) 
bill that will offer real economic alternatives to the Andean 
citizens as they move out of the drug trade.
    Through expanded trade, we intend to undermine high 
unemployment and poverty as the factors and motivations for 
otherwise good, productive citizens to become involved in 
illicit crop cultivation that is eventually sold on our 
streets.
    And now I would like to yield to the ranking minority 
Member of the Subcommittee, Mr. Levin, for any remarks he would 
like to make.
    [The opening statement of Chairman Crane follows:]

  Opening Statement of the Hon. Philip M. Crane, a Representative in 
  Congress from the State of Illinois, and Chairman, Subcommittee on 
                                 Trade

    Good Afternoon. This is a hearing of the Ways and Means Trade 
Subcommittee to consider the status of negotiations to establish a Free 
Trade Area of the Americas and also to receive testimony on the 
expansion of the Andean Trade Preference Act, which expires on December 
4th.
    Ambassador Zoellick is here to report on the outcome of the Quebec 
Summit meeting, where President Bush communicated his deep commitment 
to the creation of a free trade area in this hemisphere encompassing 
800 million people, $11 trillion in economic production, and $3.4 
trillion in regional trade. Ambassador Zoellick reached a strong 
agreement on detailed deadlines that give the talks new structure and 
momentum. The Heads of State indicated their decision to make the draft 
negotiating text public, which is an unprecedented step forward in 
fostering open discussion regarding the impact of expanding trade in 
the region.
    I welcome the President's pledge to achieve trade promotion 
authority and conclude the United States-Chile free trade agreement by 
the end of the year.
    I am convinced that free trade's success in the Americas will help 
spur the WTO to launch a new round multilateral negotiations. In recent 
years, the United States has lapsed in its responsibility to lead the 
world and the hemisphere on these issues, and I am anxious to build on 
the strong successes coming out of the FTAA Summit in Quebec.
    With respect to extension of the Andean Trade Preference Act, I 
want to welcome the Colombian Minister of Foreign Trade Marta Lucia 
Ramirez and Bolivian Vice Minister of Trade Ana Marie Solares, who will 
speak later this afternoon. I would also like to recognize the other 
two Andean ministers who are with us today.
    Today, the United States serves as both the leading source of the 
Andean region's imports and the largest market for its exports-a 
relationship that yields more than $18 billion of commerce. The four 
Andean nations are taking courageous steps to eliminate drug production 
among their farmers, and it is my intention to craft an ATPA bill which 
will offer real economic alternatives to Andean citizens as they move 
out of the drug trade. Through expanded trade we intend to undermine 
high unemployment and poverty as factors and motivations for otherwise 
good, productive citizens becoming involved in illicit crop cultivation 
that is eventually sold on our streets.
    I'll now yield to the Ranking Minority Member of the Subcommittee, 
Mr. Levin, for any remarks he would like to make.
    And now I welcome my colleagues Mr. Moran, Ms. Tauscher, and Ms. 
Christensen to hear their testimony.

                                


    Mr. Levin. Thank you. Thank you, Mr. Chairman.
    It is time to move ahead on the trade agenda for 2001. I 
would like to offer a few brief observations and action items 
to consider. It will not help to misdescribe or misunderstand 
the record of the last administration. In the last session, 
there was forward motion. The Clinton administration and the 
Congress, working on a truly bipartisan basis, acted on China 
PNTR and Africa Caribbean Basin Initiative, CBI, breaking the 
5-year deadlock on trade legislation. The administration also 
negotiated new trade agreements with Jordan and Vietnam.
    It also will not help to frame the issues of 2001 in terms 
of old labels or old battles. There was movement during the 
last few years in good measure because there was a recognition 
that the nature of trade has been changing, both in its size 
and its contents. As developing nations with different economic 
structures from our own and other industrialized nations have 
become an increasing part of global trade, new issues have 
arisen. The effort to address these new issues is not a new 
kind of protectionism. Such labeling is mistaken and 
counterproductive, setting up a polarization that could help 
derail the trade agenda.
    No one can turn back the clock on globalization. On the 
other hand, it is a mistake to believe that one cannot or 
should not shape its course. Shaping globalization requires a 
forthright effort, among other things, to address the issues of 
labor and environmental standards because of their very 
relevance to international economic competition.
    The nexus between trade and labor is reflected in the 
recent New York Times article, ``Labor standards clash with 
global reality,'' where an executive of an American company 
stated, regarding its practices on labor standards, ``We cannot 
be the whole solution. The solution has to be labor laws that 
are adequate, respected, and enforced.'' And in the same 
article, the statement by the President of El Salvador, 
describing the variation of government enforcement of core 
labor standards, ``The difficulty in this region is that there 
is labor that is more competitively priced than El Salvador.''
    It is also reflected, whether one agrees with the decision 
or not, in the rationale stated by the Bush administration when 
it withdrew from the Kyoto treaty of global warming, and I 
quote, ``It exempts the developing nations around the world, 
and it is not in the U.S. economic best interest.''
    It will not be helpful to try to finesse these issues. They 
are not entirely new. We have had some previous experience. For 
example, labor standards have long been part of the General 
System of Preferences (GSP) where there has been a full array 
of enforcement mechanisms available to us, and they have been 
used by us responsibly. The same is true of the labor 
provisions in the Cambodia Textile and Apparel Agreement.
    It is time to build on these experiences and move ahead, 
not be stuck in past polarizations. I have urged we should move 
on Jordan as negotiated, we should move on Vietnam, doing so in 
a way that recognizes the need to further address labor 
standard issues as we negotiate a textile and apparel agreement 
with Vietnam. The steel crisis also needs to be addressed 
resolutely. Doing so in a collaborate and bipartisan fashion 
will help to build the experience and confidence necessary to 
work effectively on FTAA and the Andean Trade Preference Act 
and on the significant transfer of power from Congress to the 
executive branch embodied in fast track negotiating authority.
    Congress has taken this step only twice before in our 
history. On both of those occasions, in 1974 and 1988, extended 
in 1991, the laws contained three critical components: one, 
negotiating objectives and related legal mandates to the 
Executive; two, mechanisms for congressional involvement in and 
public input into the negotiating process; and, three, 
commitment to an up or down vote on the final package. It 
ignores history to say that Congress can recapture this grant 
simply through the implementation legislation.
    So how do we move forward to design the three components? I 
believe we need to start getting into this in detail. On the 
first component, negotiating objectives, we need to get beyond 
general concepts. For example, one issue is whether we are 
going to establish separate negotiating priorities for 
multilateral, regional, and bilateral agreements. I believe 
that that makes sense.
    Another issue, going beyond the general concepts of one-
size-does-not-fit-all, is to develop language that ensures that 
dispute settlement remedies are designed to be demonstrably 
effective in a variety of contexts, and that dispute settlement 
procedures are more open and inclusive in all contexts.
    Turning to the second component, updating the partnership 
between Congress and the Executive, we are going to have to 
decide what procedural mechanisms are needed to ensure 
effective congressional oversight of and public input into each 
step of the process. For example, how many and what kinds of 
congressional checkpoints should we build into the process? For 
instance, should there be a congressional Committee vote at the 
beginning and a midpoint in each negotiation? What additional 
mechanisms should we create? And how exactly should they work? 
For example, providing for meaningful labor standard and 
environmental reviews, updating the advisory Committee for 
business, labor, environmental, and other groups?
    There is a close relationship between negotiating 
objectives and procedural mechanisms. A right fast track 
approach requires that we move beyond slogans and sound bites, 
embrace all of the issues of trade, old and new, and strive to 
shape globalization with rules of competition that promote U.S. 
economic interests and raising living standards around the 
world. And I look forward to the testimony here as we talk 
about our relationships with the rest of the Americas.
    Thank you, Mr. Chairman.
    [The opening statement of Mr. Levin follows:]

  Opening Statement of the Hon. Sander M. Levin, a Representative in 
                  Congress from the State of Michigan

    It is time to move ahead on the trade agenda for 2001. I would like 
to offer a few brief observations and action items to consider.
    It will not help to mis-describe or misunderstand the record of the 
last Administration. In the last session there was forward motion. The 
Clinton Administration and the Congress, working on a truly bi-partisan 
basis, acted on China PNTR, and Africa/C.B.I., breaking the five-year 
deadlock on trade legislation. The Administration also negotiated new 
trade agreements with Jordan and Vietnam.
    It also will not help to frame the issues of 2001 in terms of old 
labels or old battles. There was movement during the last few years in 
good measure because there was a recognition that the nature of trade 
has been changing--both in its size and its contents. As developing 
nations with different economic structures from our own and other 
industrialized nations have become an increasing part of global trade, 
new issues have arisen.
    The effort to address these new issues is not ``a new kind of 
protectionism.'' Such labeling is mistaken and counterproductive, 
setting up a polarization that only helps to derail the trade agenda.
    No one can turn back the clock on globalization; on the other hand, 
it is a mistake to believe that one cannot or should not shape its 
course. Shaping globalization requires a forthright effort to address 
the issues of labor and environmental standards because of their very 
relevance to international economic competition.
    The nexus between trade and labor is reflected in a recent New York 
Times article, ``Labor Standards Clash with Global Reality,'' where an 
executive of an American company stated, regarding its practices on 
labor standards, ``We can't be the whole solution. . .The solution has 
to be labor laws that are adequate, respected and enforced.'' And, in 
the same article, the statement by the President of El Salvador 
describing the variation of government enforcement of core labor 
standards, ``The difficulty in this region is that there is labor that 
is more competitively priced than El Salvador.'' It is also reflected, 
whether one agrees with the decision or not, in the rationale stated by 
the Bush Administration when it withdrew from the Kyoto Treaty on 
Global Warming, ``It exempts the developing nations around the world 
and it is not in the United States' economic best interest.''
    It will not be helpful to try to finesse these issues. They are not 
entirely new; we have had some previous experience. For example, labor 
standards have long been part of our GSP system where there has been a 
full array of enforcement mechanisms available to us and they have been 
used responsibly. The same is true of the labor provisions in the 
Cambodia textile and apparel agreement.
    It is time to build on these experiences and move ahead, not be 
stuck in past polarizations.
    I have urged we should move on Jordan, as negotiated. We should 
move on Vietnam, doing so in a way that recognizes the need to further 
address labor standard issues as we negotiate a textile and apparel 
agreement with Vietnam. The steel crisis needs to be addressed 
resolutely.
    Doing so in a collaborative and bipartisan fashion will help to 
build the experience and confidence necessary to work effectively on 
FTAA and the Andean Trade Preference Act and on the significant 
``transfer of power'' from Congress to the Executive branch embodied in 
Fast Track trade negotiating authority.
    Congress has taken this step only twice before in our history. On 
both those occasions--in 1974 and 1988--the laws contained three 
critical components: (1) negotiating objectives and related legal 
mandates to the executive; (2) mechanisms for congressional involvement 
in--and public input into--the negotiating process; and (3) commitment 
to an up or down vote on the final package. It ignores history to say 
that Congress can ``recapture'' its grant simply through the 
implementation legislation.
    So, how do we move forward to design the three components? I 
believe we need to start getting into this in detail. On the first 
component--negotiating objectives--we need to get beyond general 
concepts. For example, one issue is whether we are going to establish 
separate negotiating priorities for multilateral, regional and 
bilateral agreements. I believe that makes sense. Another issue--going 
beyond the general concepts of ``one size does not fit all''--is to 
develop language that ensures that dispute settlement remedies are 
designed to be demonstrably effective in a variety of contexts and that 
dispute settlement procedures are more open and inclusive in all 
contexts.
    Turning to the second component--updating the partnership between 
Congress and the executive--we are going to have to decide what 
procedural mechanisms are needed to ensure effective Congressional 
oversight of and public input into each step of the process. For 
example, how many and what kinds of congressional checkpoints should we 
build into the process--for instance, should there be a congressional 
or committee vote at the beginning and a midpoint in each negotiation? 
What additional mechanisms should we create and how exactly should they 
work--for example, providing for meaningful labor standard and 
environmental reviews, updating the advisory committee system for 
business, labor, environmental and other groups. There is a close 
relationship between negotiating objectives and procedural mechanisms.
    A right fast track approach requires that we move beyond slogans 
and sound bites, embrace all issues of trade, old and new, and strive 
to shape globalization with rules of competition that promote U.S. 
economic interests and raise living standards around the world.

                                


    Chairman Crane. And now I welcome my colleagues, Mr. Moran, 
Ms. Tauscher, and Ms. Christensen, to hear their testimony, and 
I would like to ask you to try and keep the oral testimony to 
roughly 5 minutes. And any written testimony will be made a 
part of the permanent record.
    We will proceed in the order I introduced you.

   STATEMENT OF THE HON. JAMES P. MORAN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF VIRGINIA

    Mr. Moran. Thank you very much, Mr. Chairman. I appreciate 
the fact that on this Committee seniority trumps beauty and 
brains, so it is nice to be able to go first as a result.
    Chairman Crane and Ranking Member Levin and Mr. Becerra, 
Mr. Houghton, Mr. Camp, Ms. Dunn, Mr. English, Mr. Brady, I 
thank all of you for this opportunity to testify on two 
important hemispheric trade priorities: negotiation of a Free 
Trade of the Americas Agreement and reauthorization of the 
Andean Trade Preferences Act.
    I would first like to cite my firm support for granting 
trade promotion authority to the President. Trade Promotion 
Authority (TPA) is crucial to the President's ability to 
negotiate an FTAA, and its approval by Congress would 
demonstrate the United States' commitment to expanding 
hemispheric trade. I encourage Members of this Committee to act 
in a bipartisan manner to advance legislation implementing TPA 
that also appropriately addresses concerns over labor and the 
environment.
    The expansion of trade in the Western Hemisphere represents 
one of our greatest economic and societal opportunities in the 
coming decade. The creation of an FTAA will create a $10 
trillion trading bloc of 34 countries and 800 million people 
stretching from the Bering Strait to Tierra del Fuego. The 
stars are aligned in terms of Latin America's leadership, 
enabling us to have a historic opportunity to lead in this 
endeavor, to ensure that an FTAA reflects U.S. interests and 
values that can sustain the path of democracy and economic 
reform by our Latin American partners. Expanding trade 
relations with our neighbors in this hemisphere not only makes 
sense from a trade perspective, but also from a foreign policy 
and an economic security standpoint.
    As cochair of the New Democrat Coalition, we believe our 
future economic growth and prosperity depend on trade, but that 
we should be able to balance our economic interests with 
democratic values. Trade is and should be a non-partisan issue, 
the result of collective efforts by bipartisan Members to 
advance our overall economic interests. But in order for this 
to be a successful bipartisan effort, we must address labor and 
environmental concerns in a genuine and purposeful manner.
    I commend the administration's emphasis on expanding our 
trade relations in the Western Hemisphere. U.S. Trade 
Representative Bob Zoellick has already shown leadership in 
this endeavor. He has provided the guidance and expertise that 
is essential to crafting an agreement that represents U.S. 
interests in the region, but also secures the backing of our 
Latin American partners.
    Despite this bright start, I would like to sound the 
caution expressed by Peter Hakim, President of the Inter-
American Dialogue, in his article entitled ``The Uneasy 
Americas,'' that appeared in a recent issue of Foreign Affairs. 
He cites that, and I am quoting, ``If Latin America loses 
confidence in Washington . . . the opportunities for American 
leadership in the hemisphere will diminish, along with hopes 
for an effective U.S.-Latin American partnership.'' Mr. 
Chairman, this administration and Congress cannot overstate the 
importance of TPA renewal to securing the support of our Latin 
American neighbors for wider economic and political 
cooperation.
    We must also recognize the difficult economic and political 
situations faced by many of these countries, which are 
increasingly skeptical of the U.S. commitment to the region. 
The United States leadership in negotiating an FTAA, along with 
congressional approval of TPA, will send the right signal to 
our Latin American allies. Such steps as renewing the Andean 
Trade Preference Act and expanding consultation with our Latin 
American neighbors on trade and development matters will go a 
long way toward repairing ties with many countries in the 
hemisphere.
    Reauthorization of the ATPA, although of marginal 
consequence to the United States, is critical to the Andean 
region's economy. Renewal of ATPA should expand upon the 
existing program and allow similar preferences for apparel 
items that the Congress offered to the Caribbean countries last 
year. The formula that worked for the Caribbean countries fit 
the economic realities of the Caribbean's apparel industry 
while being sensitive to U.S. textiles. We need to find a 
similar approach for addressing the economic realities of the 
apparel industry in the Andean region.
    At a minimum, the Caribbean Basin Trade Partnership Act 
weakens the Andean countries' apparel industries and leads to 
revenue and job losses as apparel producers begin moving their 
operations to Caribbean locations. I encourage the Committee 
not only to reauthorize the Andean Trade Preference Act, but to 
expand the agreement to include items such as apparel, tuna 
fish, and petroleum products that are crucial to sustaining 
economic growth outside the drug industry.
    Under Plan Colombia, the United States has invested more 
than $1.3 billion in military aid in Colombia to fight the drug 
war. This aid, while important, does not go far enough in 
offering alternative economic development that can deter the 
cultivation and exportation of cocaine in Colombia. Expansion 
of ATPA benefits that includes apparel items is one critical 
for the United States to fight the drug war while also 
improving economic opportunity and stability in the region. 
Basically, poor farmers need alternative ways to feed their 
families. For Colombia to be truly successful in stemming the 
drug trade, it will need more economic opportunities that will 
provide jobs and wages that can sustain Colombian workers and 
farmers.
    We also need to encourage countries like Bolivia, which has 
successfully and courageously nearly eradicated the drug 
industry, but whose struggling economy depends upon textiles 
and apparel made of specialty wool from llamas and alpaca 
sheep. The relatively small investment of providing greater 
trade incentives under ATPA renewal would reap tremendous long-
term gains for these countries and for U.S. consumers. Our 
Andean trading partners are also poised to be strong allies in 
our mutual efforts to secure a larger hemispheric trading bloc. 
I urge the Committee to expedite consideration of an expanded 
ATPA before the expiration of this agreement later this year.
    Mr. Chairman, I would simply close by reiterating the 
importance of congressional approval of trade promotion 
authority legislation. I am confident we can successfully 
tackle the difficult issues of labor and the environment in 
this process. Hopefully, the Jordanian agreement will prove to 
be a helpful precedent in this regard. TPA is integral to 
demonstrating United States' resolve in the region and will 
offer the opportunity to negotiate other trade agreements that 
benefit American consumers and businesses.
    As expressed in the Declaration of Quebec City approved by 
President Bush and the 33 other heads of State from the 
Americas, ``we do not fear globalization, nor are we blinded by 
its allure. We are united in our determination to leave to 
future generations a Hemisphere that is democratic and 
prosperous, more just and generous, a Hemisphere where no one 
is left behind.'' The President's words best express the 
importance of an FTAA to our future.
    Mr. Chairman, I thank you for this opportunity to appear 
before the Committee and would be happy to respond to any 
questions you and other Members may wish to ask, and I urge 
your positive and timely passage of this crucially important 
trade legislation.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Moran follows:]

Statement of the Hon. James P. Moran, a Representative in Congress from 
                         the State of Virginia

    Chairman Crane, Ranking Member Levin, and Members of the 
Subcommittee, I thank you for this opportunity to testify on two 
important hemispheric trade priorities: negotiation of a Free Trade of 
the Americas Agreement (FTAA) and reauthorization of the Andean Trade 
Preference Act (ATPA).
    As an unwavering supporter of free trade, I would first like to 
cite my firm support for granting trade promotion authority (TPA) to 
the President, but it should appropriately address labor and 
environment concerns. TPA is crucial to the President's ability to 
negotiate an FTAA and its approval by Congress would demonstrate the 
United States' commitment to expanding hemispheric trade. I encourage 
Members of this Committee to act in a bipartisan manner to advance 
legislation implementing TPA.
    The expansion of trade in the Western Hemisphere represents one of 
our greatest opportunities in the coming decade. The creation of a FTAA 
will create a $10 trillion trading bloc of 34 countries and 800 million 
people stretching from the Bering Strait to Tierra del Fuego. If the 
sheer magnitude of this hemispheric agreement is not compelling enough 
to prompt Congressional approval of trade promotion authority, a Free 
Trade of the Americas Agreement is critical in another sense. We have 
an historic opportunity to lead in this endeavor to ensure that it 
reflects U.S. interests and values that can sustain the path of 
democracy and economic reform by our Latin American partners. Expanding 
trade relations with our neighbors in this hemisphere not only makes 
sense from a trade perspective, but also from a foreign policy and 
economic security standpoint.
    Mr. Chairman, as you know, I have been one of my party's strongest 
proponents of free trade. As co-chair of the New Democrat Coalition, I 
have worked with other members who believe our future economic growth 
and prosperity depend on trade, but that we should be able to balance 
our economic interests with democratic values. Trade is and should be a 
non-partisan issue, the result of collective efforts by bipartisan 
Members to advance our overall economic interests. In order for this to 
be a successful bipartisan effort, we must address labor and 
environmental concerns in a meaningful way.
    I commend the Administration's emphasis on expanding our trade 
relations in the Western hemisphere. U.S. Trade Representative Robert 
Zoellick has already shown outstanding leadership in this endeavor, 
providing the guidance and expertise that is essential to crafting an 
agreement that represents U.S. interests in the region, but also 
secures the backing of our Latin American partners.
    Despite this bright start, I would like to sound the caution 
expressed by Peter Hakim, President of the Inter-American Dialogue, in 
his article entitled ``The Uneasy Americas,'' that appeared in a recent 
issue of Foreign Affairs. He cites that ``If Latin America loses 
confidence in Washington . . . the opportunities for American 
leadership in the hemisphere will diminish, along with hopes for an 
effective U.S.-Latin American partnership.'' For these reasons, this 
Administration and Congress cannot neglect the regional importance of 
renewing trade promotion authority in securing the support of our Latin 
American neighbors for wider economic and political cooperation.
    We must also recognize the difficult economic and political 
situations faced by many of these countries, which are increasingly 
skeptical of the U.S. commitment to the region. The United States 
leadership in negotiating an FTAA, along with Congressional approval of 
TPA, will send the right signals to our Latin American allies. Such 
steps as renewing the Andean Trade Preference Act and expanding 
consultation with our Latin American neighbors on trade and development 
matters will go a long way toward repairing dormant ties with many 
countries in the hemisphere.
    Reauthorization of the ATPA, though of little consequence to the 
United States, is critical to the Andean region's economy. It should 
also be expanded to offer greater economic incentives to our Andean 
partners, including a reduction in tariffs on apparel goods. The 
formula that worked for the Caribbean Basin Initiative (CBI) countries, 
which last year were extended duty-free and quota-free treatment for 
U.S. imports of apparel assembled in these countries, fit the economic 
realities in the Caribbean's apparel industry. We need to find a 
similar approach for addressing the economic realities of the apparel 
industry in the Andean region.
    The apparel industry in Colombia, for example, has suffered as a 
result of the improved trade preferences extended to the CBI countries, 
with many manufacturers closing their operations and setting up 
facilities in the Caribbean. This has dealt a tremendous blow to 
Colombia and the other Andean countries which have lost any competitive 
advantage in apparel goods. For Colombia, trade in apparel represents a 
significant industry for a country suffering from economic instability 
and few employment opportunities. The United States has invested more 
than $1.3 billion in military aid in Colombia under Plan Colombia to 
fight the drug war. This aid, while important, does not go far enough 
in offering alternative economic development that can deter the 
cultivation and exportation of cocaine in Colombia. Expansion of ATPA 
benefits that includes apparel items is one critical way for the United 
States to fight the drug war while also improving economic opportunity 
and stability in the region. The relatively small investment of 
providing greater trade incentives to Colombia and the other nations 
under ATPA renewal would reap tremendous long-term gains for these 
countries and for U.S. consumers.
    While ATPA has offered the Andean countries tariff preferences on 
certain goods in an effort to enable them to pursue alternatives to 
cocaine production and trafficking, it has not gone far enough to 
stimulate long-term economic incentives that will sufficiently counter 
the narcotics industry in the region, most notably Colombia. For 
Colombia to be truly successful in stemming the drug trade, it will 
need more economic opportunities that will provide jobs and wages that 
can sustain Colombian workers and farmers.
    Renewal of ATPA should expand upon the existing program and allow 
similar preferences for apparel items that the Congress offered to the 
Caribbean countries last year. This is absolutely essential in the case 
of Colombia, whose apparel industry employs roughly 300,000 workers and 
comprises $408 million in U.S. imports. At a minimum, the Caribbean 
Basin Trade Partnership Act (CBTPA) will weaken the Andean countries' 
apparel industries and lead to revenue and job losses as apparel 
producers begin moving their operations to Caribbean locations.
    According to the U.S. International Trade Commission's March 2001 
report on U.S. Andean Apparel Trade, ``Among the most immediate 
potential impacts that could occur from Colombia's loss of 
competitiveness with the CBERA countries are (1) a decline in foreign 
investment and a diminished alternative to drug production in Colombia 
and (2) a further decline in production-sharing trade with the United 
States that has occurred since 1997.'' I would also add that the Andean 
countries will face additional competition from Asian suppliers of 
apparel goods, who will gain access to the U.S. market free of quota 
restrictions in 2005.
    Our Andean trading partners are also poised to be strong allies in 
our mutual efforts to secure a larger hemispheric trading bloc. We 
should start our efforts to expand trade in the Americas by first 
approving an expanded Andean Trade Preference Act that includes apparel 
and other goods from the region. I urge my colleagues on the Committee 
to expedite consideration of an expanded ATPA before the expiration of 
this agreement later this year.
    Mr. Chairman, I would simply close by reiterating the importance of 
Congressional approval of trade promotion authority legislation. I am 
confident we can successfully tackle the difficult issues of labor and 
the environment in this process. TPA is integral to demonstrating the 
United States' resolve in the region, and will offer the opportunity to 
negotiate other trade agreements that benefit American consumers and 
businesses.
    As expressed in the Declaration of Quebec City approved by 
President Bush and the 33 other heads of state from the Americas, ``we 
do not fear globalization, nor are we blinded by its allure. We are 
united in our determination to leave to future generations a Hemisphere 
that is democratic and prosperous, more just and generous, a Hemisphere 
where no one is left behind.'' I think this splendidly captures the 
importance of an FTAA to our future.
    Mr. Chairman, I thank you for this opportunity to appear before the 
Committee and would be happy to respond to any questions you and other 
Members may wish to ask.

                                


    Chairman Crane. Thank you, Mr. Moran. And now, Ms. 
Tauscher?

 STATEMENT OF THE HON. ELLEN O. TAUSCHER, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Tauscher. Thank you, Mr. Chairman and the ranking 
member and other members of the Subcommittee. Thank you for 
inviting me to express my views on U.S. trade with our southern 
neighbors. We are at a critical point in the ongoing 
relationship with our good friends in Central and South 
America. We have already established free trade agreements with 
Canada and Mexico. Now we must look to widen our horizons, 
expand business and cultural opportunities, share the good 
fortunes of free trade with our Andean neighbors, and then 
proceed with trade agreements for the rest of the democratic 
countries in South America.
    Through my role on the House Armed Services Committee, I 
have been deeply involved in U.S. operations in Central and 
South America, especially in terms of U.S. development and 
support of Plan Colombia. I recently traveled to this region 
and met with the fine young men and women of the U.S. armed 
forces who are working diligently to achieve the goals that 
Congress set when this body passed legislation to provide 
assistance in this most difficult of battles: the war on drugs.
    I met with the commanding generals in Southern Command, the 
troops in the field, the special operations community, and the 
Colombian military. Their morale is high, their missions are 
clear, and their work to achieve these goals is working well as 
we speak. We have every right to be proud of our military and 
must strive to provide them the best support possible.
    I have also met the Colombian leadership, President 
Pastrana, Minister Ramirez, the Colombian Trade Minister, Mr. 
Urrutia, the head of the Colombian Central Bank, and other 
cabinet-level leaders in Colombia. One constant through all of 
the discussion on how to win this war on drugs is this central 
thesis: to move a population from an industry of drug 
cultivation, production, transportation, and dissemination, 
there must be gainful employment somewhere else. The only true 
and proven method of increasing opportunities in an emerging 
economy is to open trade. There are no alternatives in a 
democratic society.
    The existing ATPA arrangement has been positive towards 
this end, but it needs substantial expansion of trade benefits. 
Colombian President Pastrana clearly stated his desire for 
expanded trade opportunities when he visited with President 
Bush here in February. Two weeks ago in Quebec City, he again 
declared his country's need for enhanced trade with the United 
States. While less than 1 percent of total U.S. imports of 
apparel come from ATPA beneficiaries, the U.S. exports 
approximately $10 billion in goods to these nations. Between 
1992 and 1999, the industries in Colombia favored by ATPA 
generated $1.2 billion in output and approximately 140,000 
jobs. It is also important to note that a 1999 Department of 
Labor report shows that preferential tariff treatment under 
ATPA does not appear to have had an adverse impact on or have 
constituted a significant threat to U.S. employment.
    As you know, last year the United States formalized our 
commitment to the Colombian government in the form of $1.3 
billion in assistance. Plan Colombia includes assistance in the 
peace process, counter-drug efforts, reform of the justice 
system with attention to human rights, enhanced efforts toward 
democratization and social development, and support of the 
Colombian economy. The Colombian government has committed $4 
billion to this program, which is expected to cost $7.5 billion 
over a 6-year period. Of the $1.3 billion U.S. dollars sent to 
the region, approximately $147 million is programmed for 
alternative economic development; this is far below what we 
need to do in this area. All the pillars of the program are 
critical, but the concept of ``weaning'' the Andean economies 
off drugs as an industry is intrinsically linked to the 
development of industries that engage in conventional trade.
    The most unasked question in the war on drugs is: ``What if 
the plan succeeds?'' A couple of numbers clearly illustrate how 
unprepared we, as a hemispheric community, are for the best-
case scenario: The World Bank estimates that the combined gross 
domestic product, GDP, of the four Andean nations involved in 
ATPA is approximately $200 billion. The Office of the National 
Drug Control Policy estimates that annual exports of cocaine 
from the Andean region are approximately $12 billion. A very 
cursory, macro examination quickly reveals that if tomorrow all 
the drug industries were crushed and drug money disappeared 
from this region, the Andean nations would experience a 6 
percent drop in gross domestic product. For comparison's sake, 
you will most likely remember one of our worst economic crises 
in the United States, the Arab oil embargo in the early 
seventies. That difficult time caused only a 3.5 percent drop 
in our own GDP, and it was catastrophic for us. Whether 
instantaneous or over the next 5 years, this region is clearly 
not prepared to replace drug money with wages and other sources 
of revenue that are derived from standard business practices. 
We must open up the doors of trade to speed the transition of 
these economies away from drug money.
    This is a multi-dimensional problem that we are deeply 
involved in: We are part of the problem and need to be part of 
the solution. To date, we in the United States have made a 
``bet'' that $1.3 billion of American assistance can help solve 
this problem. I believe that if we truly want to shape the 
environment to ensure our success, we must ``protect our bet'' 
with a trade package that sets the conditions to change their 
earnings source from drug money to industries that are part of 
the 21st century economy.
    Thank you, Mr. Chairman, for inviting me to speak to you 
today on the issues of Andean trade. It is my hope that we can 
develop an effective Andean Trade Preference bill with strong 
bipartisan support that expands the trade preferences and 
extends the timeline well into the future.
    Thank you.
    [The prepared statement of Ms. Tauscher follows:]

 Statement of the Hon. Ellen O. Tauscher, a Representative in Congress 
                      from the State of California

    Mr. Chairman, thank you for inviting me to express my views on U.S. 
trade with our southern neighbors. We are at a critical point in the 
ongoing relationship with our good friends in Central and South 
America. We have already established free trade agreements with Canada 
and Mexico. Now we must look to widen our horizons, expand business and 
cultural opportunities, share the good fortunes of free trade with our 
Andean neighbors, and then proceed with trade agreements for the rest 
of the democratic countries in South America.
    Through my role on the House Armed Services Committee, I have been 
deeply involved in U.S. operations in Central and South America, 
especially in terms of U.S. development and support of ``Plan 
Colombia''. I recently traveled to this region and met the fine men and 
women of the U.S. armed forces who are working diligently to achieve 
the goals that the Congress set when this body passed legislation to 
provide assistance in this most difficult of battles: the war on drugs. 
I met with the commanding generals in Southern Command, the troops in 
field, the special operations community, and the Colombian military. 
Their morale is high, their missions are clear, and their work to 
achieve these goals continues as we speak. We have every right to be 
proud of our military and must strive to provide them the best support 
possible.
    I have also met with the Colombian leadership, President Pastrana, 
Minister Ramirez, the Colombian Trade Minister, Mr. Urrutia, the Head 
of the Colombian Central Bank, and other cabinet-level leaders in 
Colombia. One constant through all of the discussion on how to win this 
war on drugs is this central thesis: to move a population from an 
industry of drug cultivation, production, transportation, and 
dissemination, there must be gainful employment elsewhere. The only 
true and proven method of increasing opportunities in an emerging 
economy is to open trade. There are no alternatives in a democratic 
society.
    The existing ATPA arrangement has been a positive influence towards 
this end, but it needs substantial expansion of trade benefits. 
Colombian President Pastrana clearly stated his desire for expanded 
trade opportunities when he visited with President Bush here in 
February. Two weeks ago in Quebec City, he again declared his country's 
need for enhanced trade with the United States. While less than 1% of 
total US imports of apparel come from ATPA beneficiaries, the U.S. 
exports approximately $10 billion in goods to these nations. Between 
1992 and 1999, the industries in Colombia favored by ATPA generated 
$1.2 billion in output and approximately 140,000 jobs. It is also 
important to note that a 1999 Department of Labor report shows that 
preferential tariff treatment under ATPA does not appear to have had an 
adverse impact on, or have constituted a significant threat to U.S. 
employment.
    As you know, last year the United States formalized our commitment 
to the Colombian Government in the form of $1.3 billion in assistance. 
Plan Colombia includes assistance in the peace process, counter-drug 
efforts, reform of the justice system with attention to human rights, 
enhanced efforts toward democratization and social development, and 
support of the Colombian economy. The Colombian government has 
committed $4 billion to this program, which is expected to cost $7.5 
billion over a six-year period. Of the $1.3 billion U.S. dollars sent 
to the region, approximately $147 million is programmed for alternate 
economic development; this is far below what we need to do in this 
area. All the pillars of the program are critical, but the concept of 
``weaning'' the Andean economies off of drugs as an industry is 
intrinsically linked to the development of industries that engage in 
conventional trade.
    The most unasked question in the War on Drugs is ``What if the plan 
succeeds?'' A couple of numbers clearly illustrate how unprepared we, 
as a hemispheric community, are for the best case scenario: The World 
Bank estimates that the combined GDP of the four Andean nations 
involved in ATPA is approximately $200 billion. The Office of the 
National Drug Control Policy estimates that annual exports of cocaine 
from the Andean region are approximately $12 billion. A very cursory, 
macro examination quickly reveals that if tomorrow, all of the drug 
industries were crushed and drug money disappeared from this region, 
the Andean nations would experience a 6% drop in GDP. For comparison's 
sake, you most likely remember one of our worst economic crises in 
recent times, the Arab Oil embargo in the early 1970's. That difficult 
time caused only a 3.5% drop in GDP. Whether instantaneous or over the 
next 5 years, this region is clearly not prepared to replace drug money 
with wages and other sources of revenue that are derived from standard 
business practices. We must open up the doors of trade to speed the 
transition of these economies away from drug money.
    This is a multi-dimensional problem that we are deeply involved in: 
we are part of the problem and need to be part of the solution. To 
date, we have made a ``bet'' that a $1.3B American assistance program 
can help solve this problem. I believe that if we truly want to shape 
the environment to ensure our success, we must ``protect our bet'' with 
a trade package that sets the conditions to change their earnings 
source from drug money to industries that are a part of the 21st 
century economy.
    Thank you, Mr. Chairman, for inviting me to speak to you today on 
the issues of Andean trade. It is my hope that we can develop an 
effective Andean Trade Preference bill with strong bipartisan support 
that expands the trade preferences and extends the timeline well into 
the future. Thank you.

                                


    Chairman Crane. Thank you.
    Ms. Christensen.

    STATEMENT OF THE HON. DONNA M. CHRISTIAN-CHRISTENSEN, A 
   DELEGATE IN CONGRESS FROM THE UNITED STATES VIRGIN ISLANDS

    Ms. Christian-Christensen. Thank you, Mr. Chairman, ranking 
member, distinguished colleagues, for the opportunity to 
testify this afternoon on the important hearing on the Andean 
Trade Preferences Act and a future Free Trade Area of the 
Americas. In particular, though, I am grateful for the chance 
to explain to the Subcommittee on Trade the critical importance 
of retaining current treatment for rum in any renewed ATPA and 
of opposing future tariff reductions for rum in the context of 
the FTAA.
    I am accompanied today by Mr. Andrew Wechsler, sitting 
behind me, of the Law & Economics Consulting Group, who is 
currently conducting an updated economic analysis of the rum 
tariff issues for the governments of the Virgin Islands and 
Puerto Rico. Both Mr. Wechsler and I would be pleased to answer 
any specific questions after my testimony, and I would like to 
submit a statement from the Governor of the Virgin Islands, 
Charles Turnbull, for the record with your permission.
    Chairman Crane. Without objection, so ordered.
    [The following was subsequently received:]

   Statement of the Hon. Charles W. Turnbull, Governor of the United 
                         States Virgin Islands

Introduction
    Mr. Chairman and distinguished Members of the Subcommittee on 
Trade, I am pleased to provide this statement on behalf of the 
government of the United States Virgin Islands (``GVI'') in conjunction 
with the Subcommittee's hearing on the future of trade in the Western 
Hemisphere. In particular, I appreciate the opportunity to outline for 
the Subcommittee the crucial role which rum plays in the economy and 
financial stability of government of the Virgin Islands and for other 
island jurisdictions in the Caribbean. For the reasons set forth below, 
Congress must assure that any legislation extending the Andean Trade 
Preferences Act (``ATPA'') includes the current exclusion of low-value 
Andean rum. For the same reasons, I also respectfully urge that 
Congress oppose additional tariff reductions for rum in the negotiation 
of any future Free Trade Agreement of the Americas (``FTAA'').
    In 1991, after careful consideration, Congress affirmatively acted 
to exclude rum from the list of products eligible for duty free 
treatment under the ATPA. The powerful reasons of this exclusion--
including the critical importance of rum to Caribbean Basin economies 
and the resource, cost and capacity advantages of Andean producers--
still exist today. Indeed, as explained below, U.S. duties on low-value 
bulk and bottled rum were recently affirmed after delicate and complex 
discussions among the United States, the European Union, Caribbean 
governments and non-governmental stakeholders in the 1997 ``zero-for-
zero'' agreement on distilled spirits.
    The result of these 1997 negotiations reflects longstanding United 
States policy to preserve tariffs on imported rum. This consistent U.S. 
policy is based on the fundamental fact that the rum industry and 
existing U.S. tariff preferences play a critical role in the economies 
of the Virgin Islands and other Caribbean jurisdictions. Under, a 
congressionally mandated program to foster the development of the 
Virgin Islands, Federal excise taxes on Virgin Islands rum shipped to 
the United States are returned to the GVI treasury. This revenue 
source--which accounts for approximately 15 percent of the GVI's total 
budget--secures hundreds of millions of dollars of government-issued 
bonds to finance the capital infrastructure of the Islands.
    Any reduction or elimination of existing tariffs on low-value rum 
would disrupt these carefully considered trade and finance programs. 
Any such steps would have particularly devastating consequences for the 
fiscal stability of the GVI, which is currently struggling with a 
financial crisis exacerbated by the massive destruction wrought by 
successive 100-year hurricanes and other natural disasters over the 
last dozen years. Moreover, the elimination or reduction of duties on 
rum would have dire consequences for U.S. producers in the Virgin 
Islands and Puerto Rico--who comprise virtually all of the domestic rum 
industry--and for Caribbean beneficiaries of the U.S. Caribbean Basin 
Initiative (``CBI'').
    Congress must, therefore, continue to oppose any efforts to 
facilitate reductions in rum tariffs in the context of the ATPA or the 
FTAA.
A. The Virgin Islands Economy Is Linked By Congressional Design To The 
        Health Of the Territory's Rum Industry
    As an unincorporated territory of the United States, the Virgin 
Islands is uniquely dependent upon the continuing health and vigor of 
its rum industry.
    Rum is a product of special significance to the Virgin Islands and 
other Caribbean jurisdictions. Rum has been produced in the Caribbean 
for centuries, providing important contributions to local economies, as 
well to the history and lore of the region. Today, the rum industry 
plays even greater role in the prosperity and stability of the Virgin 
Islands economy. Indeed, rum production is the second most important 
industry in the Virgin Islands, surpassed only by tourism.
    Most Virgin Islands rum occupies the low-price end of the market 
and is sold as unaged bulk rum to regional distributors in the United 
States. The distributors, in turn, bottle and sell the rum under 
private labels or sell to national beverage companies which market 
under various product labels. Virgin Islands-produced rum is also sold 
as prepared cocktail mixes. Because Virgin Islands bulk rum is 
generally sold as a commodity and does not have name brand recognition, 
it cannot command premium prices. Rather, bulk rum is extremely price 
sensitive and is sold in a highly competitive environment where pennies 
can literally make or break a sale. As a result of this position in the 
market, Virgin Islands-produced rum is vulnerable to imports from low-
cost countries, like Brazil and Colombia, with large indigenous sugar 
cane industries.
    In recognition of the special importance of rum to the Virgin 
Islands economy, successive Administrations have acted affirmatively to 
maintain tariffs on imports of low-value rum from non-CBI countries. 
Current U.S. tariffs on low-priced rum are 25.9 cents per proof liter 
for bottled rum valued at $3 per proof liter or less and 25.9 cents per 
proof liter for bulk rum valued at $0.69 per proof liter or less. These 
duties are critical to the continued viability of the Virgin Islands 
rum industry. (As noted below, the importance of these tariffs was 
affirmed as recently as 1997 in a U.S.-EU accord on rum.) Removal of 
the current duty on low-value rum, on the other hand, would confer an 
enormous advantage upon Andean and other non-CBI producers, who already 
enjoy substantial cost and production advantages and would likely 
expose Virgin Islands producers to immediate and destructive import 
competition. In short, the current duty is necessary to prevent serious 
injury to the Virgin Islands rum industry and, by extension, to the 
entire Virgin Islands economy.
    Corollary to its interest in ensuring the competitive health of a 
historic industry, the GVI and the United States Government also have a 
common interest in protecting one of the GVI's principal sources of 
governmental revenue. Congress has, by statute, mandated that Federal 
excise taxes imposed on Virgin Islands rum be returned to the treasury 
of the Islands to finance needed capital projects and public services. 
Under the Virgin Islands Revised Organic Act 1954 (``ROA''), Pub. L. 
No. 517, 68 Stat. 12, which established a comprehensive scheme of local 
self-government in the Territory, Congress provided that Federal excise 
taxes collected on rum manufactured in the Virgin Islands and shipped 
to the United States shall be returned to the treasury of the Virgin 
Islands. ROA, Sec. 28(b) (codified at 26 U.S.C. Sec. 7652(b), (e)). 
Prior to the enactment of the Revised Organic Act, the Virgin Islands 
was dependent upon ad hoc congressional appropriations for the support 
of its local government. As part of its statutory scheme for the 
political and economic development of the Virgin Islands, Congress 
intended that these tax cover-over provisions generate a permanent 
source of funds for the Virgin Islands government and thus contribute 
to the financial self-sufficiency of the Territory. See S. Rep. No. 
1271, 83d Cong., 2d Sess. 4 (1954), reprinted in 1954 U.S. Code Cong. & 
Ad. News 2585. See also Commonwealth of Puerto Rico v. Blumenthal, 642 
F.2d 622 (D.C. Cir. 1980), cert. denied, 451 U.S. 983 (1981) (purpose 
of cover-over provisions is ``to ease financial plight'' of the Virgin 
Islands and Puerto Rico).
    The rum industry and the cover-over provisions of the Revised 
Organic Act presently contribute approximately 15 percent of the 
Territory's total budget. For 2000, the GVI received approximately $75 
million in rum excise taxes. These cover-over revenues are used to 
secure bonds issued by the GVI and sold to mainland institutions and 
investors. These bonds, in turn, finance needed capital improvements 
and infrastructure development in the Territory including, inter alia, 
the construction of schools, health care facilities, airports and other 
vital projects throughout the Virgin Islands--projects made all the 
more necessary by the billions of dollars of damage caused by major 
hurricanes and other natural disasters over the last decade. In 
addition, the number of direct jobs generated by these capital 
expenditures run into the thousands--far outpacing the number of jobs 
in the rum industry, which is itself one of the largest manufacturing 
industries in the Territory.
    The rum industry thus provides one of the principal sources of 
employment and government revenue in the Virgin Islands. Even a modest 
increase in imports from Andean and other non-CBI producers triggered 
by extending duty-free treatment to low-cost rum would invariably 
result in depressed prices and correspondingly reduced profits for U.S. 
rum producers in the Virgin Islands. Because of the linkage established 
by Congress between the industry and excise tax revenues, even minimal 
displacement of Virgin Islands rum shipments to the United States by 
foreign competition will threaten the fiscal stability of the 
Territorial Government, raise the cost of the government borrowings, 
and, derivatively, put the entire economy of the Islands at risk. 
Accordingly, Congress must retain current restrictions on rum in the 
ATPA and oppose the inclusion of rum in any tariff negotiations under 
the FTAA.

B. Any Reduction or Elimination of Current U.S. Duties on Low-Value Rum 
        Would Run Counter to Long-Standing Federal-Territorial Policy
    Both the Congress and the Executive Branch of the United States 
have repeatedly recognized the unique role that the rum industry plays 
in the legal, economic and political relationship between the United 
States and its island territories in the Caribbean. The United States 
has taken affirmative action on many occasions to protect the Virgin 
Islands and Puerto Rico rum industries from potential competitive harm 
that would result from changes in trade preferences for rum.
    Historically, all foreign-produced rum imported into the United 
States was subject to U.S. customs duty. In 1983, in response to the 
President's foreign policy objectives for the Caribbean, Congress 
enacted the Caribbean Basin Economic Recovery Act (``CERA'')--popularly 
known as the ``Caribbean Basin Initiative''--which created a special 
system of tariff preferences for products (including rum) originating 
from eligible Caribbean countries. Pub. L. No. 98-67, 19 U.S.C. 
Sec. Sec. 2701 et seq. The legislation was carefully developed to 
balance domestic economic interests against U.S. foreign policy goals 
for the Caribbean. After careful Congressional deliberation, a 
legislative compromise was worked out to protect the Virgin Islands and 
its rum industry from any increase in Caribbean rum imports. Among 
other things, Congress enacted several compensatory measures in 
recognition of the heightened vulnerability of the Virgin Islands rum 
industry to CBI imports, including a partial rebate to the GVI of a 
percentage of excise taxes imposed on foreign-produced rum. See Pub. L. 
No. 98-67 Sec. 214, 19 U.S.C. Sec. Sec. 1202, 2251 (note), 2703 (note), 
33 U.S.C. Sec. 1311 (note).
    The Federal Government has also demonstrated its continued 
recognition of the special role of rum in the Virgin Islands economy in 
its disposition of various petitions under the Generalized System of 
Preferences. In 1981, 1982, 1987 and 1990, the U.S. government rejected 
various GSP petitions seeking duty-free entry of rum produced by non-
Caribbean producers. The rejection of these GSP petitions reaffirmed 
the import-sensitivity of the rum industry and reflects a considered 
judgment that the potential harm to the Virgin Islands and Puerto Rican 
rum industries outweighed any policy benefit to the petitioning 
countries.
    For all these reasons, efforts to eliminate or reduce current 
tariff preferences for rum--whether in the context of ATPA renewal or 
future FTAA negotiations--would be contrary to longstanding Federal 
policy against the extension of tariff preferences for low-value rum 
produced outside of the Caribbean.

C. Changes in Current Tariff Treatment for Rum Would Be Inconsistent 
        With the Considered Judgments Which Underlie the APTA and the 
        1997 Agreement on Rum
    Of particular importance in the context of the Subcommittee's 
consideration of a renewed ATPA is that fact that Congress expressly 
excluded rum from the list of products eligible for duty-free treatment 
when the ATPA was enacted in 1991. This action was taken by Congress 
and the Administration after very careful consideration of the impact 
that duty-free treatment for rum would have on the Virgin Islands, and 
Puerto Rico and CBI jurisdictions generally. In explaining this action, 
the House Ways & Means Committee stated:

          The Committee added rum to the list of articles that would be 
        ineligible for duty-free treatment under the Act in order to 
        preserve the benefits that Congress has provided to Puerto 
        Rico, the Virgin Islands, and the Caribbean Basin countries. 
        Rum is a product which the ITC has identified as benefiting 
        most from duty-free treatment under the CBI . . . Andean Rum 
        Producers have significant natural resource and cost advantages 
        over their Caribbean and U.S. Territorial counterparts as well 
        as large excess production capacity.

    H.R. Rep. No. 102-337 at 15 (1991). As explained below, the 
powerful reasons then for excluding rum from duty-free treatment under 
the ATPA still exist today.
    Developments over the last decade also make the retention of 
current rum tariffs even more imperative for the Virgin Islands and 
other CBI beneficiaries. As part of a tariff agreement initialed at the 
December 1996 WTO Ministerial in Singapore, the United States and the 
European Union (``EU'') committed to phase out their tariffs on ``white 
spirits'' (including rum) by no later than 2000. In response to this 
unexpected announcement, U.S. and Caribbean governments and producers, 
Administration officials and Members of Congress strongly emphasized to 
U.S. and EU negotiators that, unless exempted, such a drastic change in 
the duty structure for rum would deal a severe blow to the Virgin 
Islands, Puerto Rico and the island nations of the Caribbean, whose 
economies and governments depend heavily on revenues generated by trade 
in rum.
    In response to these demonstrable concerns, the United States and 
the EU returned to the negotiating table in 1997 and--with substantial 
input from the GVI and other Caribbean governments and producers--
subsequently fashioned a compromise tariff mechanism for rum. This 
mechanism sought to balance trade liberalization with the particular 
concerns of the Caribbean region. It did so by retaining existing MFN 
duties (and the duty preferences of Caribbean producers) on low-priced 
bottled and bulk rum while substantially liberalizing duties on more 
expensive rum. Pursuant to this agreement, current higher U.S. duties 
on low-priced rum are cut off above $3.00/proof liter for bottled rum 
and $0.69/proof liter for bulk rum.
    The willingness of U.S. and EU negotiators to reopen their initial 
tariff commitments to address the import sensitivity of low-value rum 
affirms the special and the significant role which rum generally plays 
for the economies and governments throughout the Caribbean. The 1997 
rum agreement was a reasoned compromise agreed to by the concerned 
governments with substantial participation by key non-governmental 
stakeholders. In renewing the ATPA and advising on a negotiating 
strategy for the FTAA, Congress must recognize and continue this 
careful approach to the unique issues raised by rum.
    The exclusion of rum from duty-free treatment under the ATPA and 
the careful compromise reached in the 1997 rum accord demonstrate that 
rum is not a product which can or should be included in any across-the-
board grant of duty-free treatment or formula-based tariff reduction 
schemes. Rather, any renewal of the ATPA and any tariff discussions in 
the context of the FTAA must address the special economic and political 
significance of the rum trade to the Caribbean region. The considered 
compromise reached in the 1997 agreement on rum provides a proper 
balance between the needs of the Virgin Islands and other Caribbean 
producers of low-value rum and liberalized trade for higher-priced rum.

D. The Reduction or Elimination of Current U.S. Duties on Rum Would 
        Result In Serious Injury To U.S. Producers In the Virgin 
        Islands And The Overall Economy of the Virgin Islands
    Duty reductions for rum pursuant to a renewed ATPA or as part of 
any FTAA negotiations would impose unacceptable hardships on the Virgin 
Islands and its rum producers. Because it lacks strong name brand 
identification and a well-developed national distribution network, 
Virgin Islands rum generally cannot command premium prices. Rather, as 
explained above, most Virgin Islands rum is sold at the low end of the 
market and is generally purchased in bulk as an unaged commodity by 
U.S. bottlers. In this sales environment, Virgin Islands producers must 
compete almost exclusively on the basis of price and, accordingly, are 
particularly vulnerable to competition from low-cost producers of bulk 
rum.
    Removal or reduction of current duties on low-value rum would 
provide producers from outside the Caribbean region with an 
irresistible incentive to target the low end of the U.S. rum market 
currently occupied by Virgin Islands producers. For example, Andean and 
Brazilian producers and producers from other large South American 
countries currently enjoy numerous economic advantages relevant to the 
production of rum. These include below-world-market prices for 
molasses, more highly developed transportation and distribution 
networks, inexpensive fuel, low manufacturing-sector wages and freedom 
from U.S. regulatory requirements. The extension of ATPA to rum would 
open the doors especially to Colombia, but also Peru. Colombia 
presently consumes more rum than France, 2.5 million cases per year. 
This does not include aguardiente, an extremely popular Colombian 
beverage that, like rum, is derived from sugar cane. Colombia has four 
major rum distillers and a mature industry. Colombia has a significant 
existing capacity in rum and an ability to augment it rapidly by 
diverting from aguardiente. Duty-free access to the United States, 
coupled with its clear cost advantages, would allow Colombia rapidly to 
enter the low-valued rum market, displacing the Virgin Islands 
producer.
    The extension of duty-free rum treatment to all of South America 
via the FTAA would create an even more grim picture for the future of 
this traditional Virgin Islands industry. Brazil is the global 
industry's 800 pound gorilla--it is the world's largest producer of 
caned spirits, accounting for 73 percent of global consumption in 1999. 
Cachaca, a product very similar to rum, is the national drink of 
Brazil. Brazil clearly has the capacity to single-handedly suffocate 
the Virgin Islands rum industry in its low-valued market. The role of 
the existing duties is crucial to the competitiveness of the Virgin 
Island's rum industry because Brazil's wage structure in the beverage 
industry is far below that of the Virgin Islands. Brazil is also a 
major producer of sugar and molasses, the key cost component in rum 
production. With more sugar than it can use, and low energy costs (due 
to both subsidies and the burning of cane stalk), Brazil would, 
overnight, become the lowest-cost large source for low-valued bulk rum 
if duties were removed.
    The GVI and other interested parties have commissioned Mr. Andrew 
Wecshler, Managing Director of LECG, LLP, a leading trade and economic 
consulting firm, to conduct an analysis of the probable economic 
effects of the elimination of current duties on rum. Attached to this 
statement is a Power Point presentation which summarizes Mr. Wechsler's 
preliminary conclusions. This analysis makes clear that, without the 
benefit of the current tariff protection affirmed in the 1997 rum 
agreement, Virgin Islands producers would quickly be overwhelmed by 
non-CBI producers in the price-based segment of the U.S. market in 
which Virgin Islands rum competes.
    The elimination of U.S. tariff protection for the price-sensitive, 
low-value segment of the U.S. rum market would also seriously threaten 
the future of the Congressionally mandated program to finance the 
development needs of the Virgin Islands through the return of excise 
taxes on rum to the GVI treasury. As explained above, this cover-over 
program finances some 15 percent of the GVI's annual budget and secures 
government bonds issued for crucial development and infrastructure 
projects. This vital economic program depends, however, on the 
continued existence of a viable rum production industry in the Virgin 
Islands.
    Without current tariff protections, non-CBI producers would likely 
use their tremendous competitive advantages to displace Virgin Islands 
rum from the U.S. market, thereby drying up GVI treasury revenues from 
the return of excise taxes on Virgin Islands-produced rum. This lost 
revenue could not be made up by the partial rebate of excise taxes on 
foreign rum granted by the CBI. The CBI provides only a limited 
guarantee of Virgin Islands rum revenues and simply does not make the 
Virgin Islands whole where foreign imports are increasing 
disproportionately at the bottom end of the bulk rum market--precisely 
the segment where the Virgin Islands industry competes. Moreover, from 
a practical political standpoint, even this limited rebate program 
would be unlikely to continue if Virgin Islands rum production were no 
longer viable.
    Finally, and perhaps most significantly, the very prospect of 
serious reductions in rum cover-over revenues would likely imperil the 
GVI's bond rating and overall economy even before any non-CBI rum 
producers could avail themselves of reduced U.S. tariffs. Bond markets 
and investors are justifiably wary of risk and would hesitate to 
provide needed bond financing at acceptable costs to the GVI based on a 
threatened and declining stream of cover-over revenues.
    Thus, the elimination of current tariff preferences for Virgin 
Islands rum would have a devastating domino effect on the Virgin 
Islands and its economy. Without these preferences, rum cover-over 
revenues would seriously decline and the GVI could lose access to 
financial markets. Because of the dependence of the Virgin Islands on 
rum-related revenues, these developments would ultimately put at risk 
the fiscal autonomy, if not solvency, of the GVI.

E. The Elimination of Current Tariff Preferences on Rum Would Be 
        Contrary To Sound Public Policy In Light of the Precarious 
        Fiscal State of the Virgin Islands
    As noted above, current tariff protections for Virgin Islands rum 
are founded on a longstanding Federal-Territorial policy which links 
the Islands' development with revenues from rum. This policy provides 
compelling reasons to resist any elimination of tariff preferences for 
Virgin Islands rum. Moreover, in view of the current precarious fiscal 
state of the GVI, any tariff reductions for rum pursuant to a renewed 
ATPA or FTAA tariff talks would be particularly ill-timed and 
inconsistent with sound public policy.
    Indeed, the new administration in the GVI has inherited a fiscal 
state of affairs of enormous and alarming proportions. The current 
recurring and non-recurring liabilities of the GVI exceed $1.2 billion, 
excluding the funding requirements for many capital projects such as 
schools, correctional facilities and solid waste management facilities. 
A sizeable portion of the Government's current liabilities is the 
direct result of successive hurricanes which have battered the Virgin 
Islands over the past decade. As of December 31, 2000, these hurricane-
related liabilities included nearly $200 million in outstanding FEMA 
loans. In addition, the GVI requires over $125 million in assistance 
for rebuilding/replacing a number of capital projects, such as schools, 
prisons and other facilities mostly destroyed during the hurricanes.
    The GVI is committed to extraordinary self-help measures to address 
this fiscal crisis. With the ongoing assistance of the U.S. Department 
of Interior, the GVI has developed a Five-Year Fiscal Recovery Plan and 
is implementing a number of specific measures to reduce or cut costs 
and enhance revenue collections. As part of this recovery effort, the 
GVI is seeking over $300 million in Federal relief relating to FEMA 
disaster loans and hurricane-related infrastructure reconstruction. 
Additionally, the GVI is seeking further Federal assistance through the 
extension of the increase in the rum tax cover-over rate to $13.25 per 
proof gallon, which Congress enacted in 1999 and which expires on 
December 31, 2001.
    In light of the Federal Government's substantial involvement and 
interest in these recovery efforts, it makes no sense for the U.S. 
Government to simultaneously undermine one of the major sources of 
revenue of the GVI through the elimination of current rum preferences 
pursuant to a revised ATPA or FTAA tariff negotiations. Sound fiscal 
policy--as well as longstanding trade and development policies embodied 
in the ATPA and other legislation--thus supports the maintenance of the 
current tariff structure and the preservation of the U.S.-EU rum 
accord.

Conclusion
    For reasons discussed above, the reduction or elimination of 
tariffs on rum in the context of a revised ATPA or future FTAA 
negotiations would pose an inevitable and serious threat to the health 
of the Virgin Islands economy and its rum industry, as well as to the 
fiscal autonomy of its Government. Granting duty-free treatment to rum 
would have a devastating impact on one of the Virgin Islands' most 
significant and historic industries and one of its largest and sources 
of governmental revenue. The United States has wisely refused to 
abandon the critical rum industry in the Virgin Islands. Because of the 
current weakened fiscal state of the Virgin Islands Government, the 
case against changing current U.S. tariff protections for rum is even 
more compelling today. For the reasons set forth above, the Congress 
must retain current ATPA restrictions against duty-free treatment for 
Andean rum and must preserve the careful compromise embodied in the 
1997 U.S.-EU rum accord by excluding rum from future FTAA tariff 
reduction negotiations.

[GRAPHIC] [TIFF OMITTED] T4222A.001

[GRAPHIC] [TIFF OMITTED] T4222A.002

[GRAPHIC] [TIFF OMITTED] T4222A.003

[GRAPHIC] [TIFF OMITTED] T4222A.004

[GRAPHIC] [TIFF OMITTED] T4222A.005

[GRAPHIC] [TIFF OMITTED] T4222A.006

[GRAPHIC] [TIFF OMITTED] T4222A.007

[GRAPHIC] [TIFF OMITTED] T4222A.008

[GRAPHIC] [TIFF OMITTED] T4222A.009

[GRAPHIC] [TIFF OMITTED] T4222A.010

[GRAPHIC] [TIFF OMITTED] T4222A.011

                                


    Ms. Christian-Christensen. Thank you. In 1991, after very 
careful consideration by Congress and the administration, rum 
was expressly excluded from duty-free treatment under the ATPA. 
The Ways and Means Committee then explained that this action 
was necessary to preserve the benefits that Congress had 
provided to Puerto Rico, the Virgin Islands, and the Caribbean 
Basin countries.
    Developments over the last decade--particularly a landmark 
1997 international trade understanding and agreement on rum 
tariffs--have made the retention of current tariff preferences 
on rum even more imperative for the Virgin Islands and the 
Caribbean region as a whole.
    Today, rum is the second most important industry in the 
Virgin Islands, surpassed only by tourism. It provides an 
essential revenue source for the Virgin Islands Government 
because under a congressionally mandated program for the 
development of the Islands, Federal excise taxes on rum shipped 
to the United States are returned to the local treasury. These 
funds currently account for more than 15 percent of the Virgin 
Islands total budget and have played a critical role in the 
economic and budgetary health of the Islands.
    Most rum produced in the USVI is sold as unaged bulk rum to 
regional distributors in the United States as a commodity 
without name brand recognition. Therefore, the rum cannot 
command the premium prices. It is also extremely price-
sensitive and vulnerable to imports from low-cost countries. As 
Congress recognized in 1991, Andean and other non-CBI producers 
have significant natural resource advantages in the production 
of rum. These advantages include: large, indigenous sugar cane 
industries, inexpensive fuel, low wages, and substantial rum 
and alcohol production capacity. Without current U.S. tariff 
preferences, these low-cost regional producers can be expected 
to overwhelm Virgin Islands and CBI producers of low-value rum 
in the U.S. market.
    In addition to excluding rum from duty-free benefits under 
the ATPA in 1991, Congress also adopted and maintained a 
special compensatory program for Virgin Islands rum in the 
context of CBI. Through the 1980s and 1990s, successive 
administrations also repeatedly rejected various GSP petitions 
for duty-free entry of rum produced by non-Caribbean producers. 
All of these decisions reflect a recognition that rum is highly 
import-sensitive. They were also the result of a carefully 
considered judgment that the likely harm to the Virgin Islands 
and the island nations of the Caribbean far outweighs any 
potential policy trade benefits from tariff liberalization.
    The unique and critical role of rum in the Caribbean region 
and the importance of maintaining preferences for low-value rum 
was most recently affirmed in a landmark 1997 understanding 
between the United States and the European Union. In WTO tariff 
negotiations in 1996, U.S. and EU negotiators had initially 
agreed to phase out all tariffs on rum and other ``white 
spirits'' by 2000. This unexpected development, which was the 
last occasion on which I testified before this Subcommittee, 
was met with alarm by Caribbean governments, administration 
officials, and Members of Congress, who emphasized to the trade 
negotiators that such a drastic change in the tariff structure 
for rum would deal a severe blow to the economics of the U.S. 
Virgin Islands, Puerto Rico, and the Caribbean.
    In response, the U.S. and EU, as well as Caribbean 
governments and producers, revisited rum tariffs in complex and 
delicate discussions to address the special role of rum in the 
Caribbean region. These discussions resulted in a carefully 
constructed compromise for rum under which the United States 
agreed to substantially liberalize duties on expensive rum, 
while protecting the interests of the USVI and other Caribbean 
island producers, maintaining existing MFN duties on low-value 
bottled and bulk rum.
    The 1997 agreement on rum forms the basis for current U.S. 
tariff preferences on rum.
    In summary, in 1991, this Committee wisely decided to 
exclude rum from duty-free treatment under ATPA. This decision 
reflected a longstanding concern by the United States that 
trade preferences for rum are vitally important to the 
economies of the Virgin Islands, Puerto Rico, and the island 
nations of the Caribbean. The wisdom of this decision has been 
confirmed by developments since 1991. In particular, the 1997 
agreement on rum between the United States and the EU reflects 
the understanding that tariff liberalization of rum must be 
tempered with an appreciation for the special role that rum, 
particularly low-value rum, plays in the Caribbean region. For 
these and other reasons, we ask Congress to assure that the 
current, carefully considered tariff preferences for rum are 
not disturbed by the ATPA or by other regional trade 
arrangements.
    Thank you, Mr. Chairman, ranking member, other members of 
the Subcommittee. Mr. Wechsler and I would be pleased to answer 
any questions, and thank you again for the opportunity to 
testify.
    [The prepared statement of Ms. Christian-Christensen 
follows:]

Statement of the Hon. Donna M. Christian-Christensen, Delegate, United 
                         States Virgin Islands

    Mr. Chairman and distinguished colleagues, I am pleased to 
participate in this important hearing on the future of hemispheric 
trade relations under a renewed Andean Trade Preferences Act (``ATPA'') 
and a future Free Trade Area of the Americas (``FTAA''). In particular, 
I am grateful for the opportunity to explain to the Subcommittee on 
Trade the critical importance of retaining the current treatment for 
rum in any renewed ATPA and of opposing future tariff reductions for 
rum in the context of the FTAA.
    I am accompanied today by Mr. Andrew Wechsler of the Law & 
Economics Consulting Group, who is currently conducting an updated 
economic analysis of rum tariff issues for the Governments of the 
Virgin Islands and Puerto Rico. Mr. Wechsler would be pleased to answer 
any specific questions that the Subcommittee may have. In addition, I 
am submitting a written statement from Virgin Islands Governor Charles 
W. Turnbull, which I respectfully request be included in the record of 
this hearing.
    In 1991, after very careful consideration by Congress and the 
Administration, rum was expressly excluded from duty-free treatment 
under the ATPA. At that time, the Ways & Means Committee explained that 
this action was necessary to preserve the benefits that Congress has 
provided to Puerto Rico, the Virgin Islands, and the Caribbean basin 
countries. Rum is a product which the ITC has identified as benefiting 
most from duty-free treatment under the CBI. . . . Andean rum producers 
have significant natural resource and cost advantages over their 
Caribbean and U.S. Territorial counterparts as well as large excess 
production capacity.
    Developments over the last decade--particularly a landmark 1997 
international trade understanding and agreement on rum tariffs--have 
made the retention of current tariff preferences on rum even more 
imperative for the Virgin Islands and the Caribbean region as a whole.
    Rum has been produced in the Caribbean for centuries and is an 
important part of the history, lore and economic fabric of the region. 
Today, rum is the second most important industry in the Virgin Islands, 
surpassed only by tourism. Rum also provides an essential revenue 
source for the Virgin Islands government. Under a congressionally 
mandated program for the development of the Islands, federal excise 
taxes on rum shipped to the United States are returned to the local 
treasury. These funds currently account for more than 15 percent of the 
Virgin Islands total budget.
    Rum has played a particularly critical role in the economic and 
budgetary health of the Virgin Islands over the last decade. During 
that period, the Islands have struggled to recover from the massive 
destruction and economic dislocation caused multiple natural disasters, 
including two of the most devastating hurricanes of the century.
    Most rum produced in the USVI is at the low-price end of the market 
and is sold as unaged bulk rum to regional distributors in the United 
States. Because it is sold as a commodity without name-brand 
recognition, this rum cannot command premium prices. It is also 
extremely price-sensitive and vulnerable to imports from low-cost 
countries. As Congress recognized in 1991, Andean and other non-CBI 
producers have significant natural resource advantages in the 
production of rum. These advantages--which continue today--include 
large, indigenous sugar cane industries, inexpensive fuel, low wages, 
and substantial rum and alcohol production capacity. Without current 
U.S. tariff preferences, these low-cost regional producers can be 
expected to overwhelm Virgin Islands and CBI producers of low-value rum 
in the U.S. market.
    This Congress and successive Administrations have repeatedly 
recognized the vital role which rum plays in the economies of the 
Virgin Islands, Puerto Rico and the Caribbean region, and have 
consistently resisted making significant changes to tariff preferences 
for rum. In addition to excluding rum from duty-free benefits under the 
ATPA in 1991, Congress has also adopted and maintained a special 
compensatory program for Virgin Islands rum in the context of the CBI 
program. Throughout the 1980s and 1990s, successive Administrations 
also repeatedly rejected various GSP petitions for duty-free entry of 
rum produced by non-Caribbean producers. All of these decisions reflect 
a recognition that rum is highly import sensitive. They were also the 
result of a carefully considered judgment that the likely harm to the 
Virgin Islands and the island nations of the Caribbean far outweighs 
any potential policy trade benefits from tariff liberalization.
    The unique and critical role of rum in the Caribbean region--and 
the importance of maintaining preferences for low-value rum--was most 
recently affirmed in a landmark 1997 understanding between the United 
States and the European Union. In WTO tariff negotiations in 1996, U.S. 
and EU negotiators had initially agreed to phase out all tariffs on rum 
and other ``white spirits'' by 2000. This unexpected development was 
met with alarm by Caribbean governments, Administration officials and 
Members of Congress. They emphasized to the trade negotiators that such 
a drastic change in the tariff structure for rum would deal a severe 
blow to the economies of the USVI, Puerto Rico, and the Caribbean.
    In response to this outcry, U.S. and EU negotiators, as well as 
Caribbean governments and producers, revisited rum tariffs in complex 
and delicate discussions aimed at addressing the special role of rum in 
the Caribbean region. These discussions, which involved officials at 
the highest levels of the various governments, resulted in a carefully 
constructed compromise for rum. Under this compromise, the United 
States agreed to substantially liberalize duties on expensive rum. 
However, to protect the interests of the USVI and other Caribbean 
island producers, the United States also agreed to maintain existing 
MFN duties on low-value bottled and bulk rum.
    This 1997 agreement on rum forms the basis for current U.S. tariff 
preferences on rum. In this landmark agreement, the United States and 
key trading partners struck a careful balance between tariff 
liberalization and the unique concerns of the Caribbean region. Any 
efforts to eliminate current tariff preferences for rum in the context 
of ATPA renewal or FTAA negotiations will upset this careful balance 
and will result in serious damage to the Caribbean region.
    In 1991, this Committee wisely decided to exclude rum from duty-
free treatment under the ATPA. This decision reflected a longstanding 
concern by the United States that trade preferences for rum are vitally 
important to economies of the Virgin Islands, Puerto Rico and the 
island nations of the Caribbean. The wisdom of this decision has been 
confirmed by developments since 1991. In particular, the 1997 agreement 
on rum between the United States and the EU reflects the understanding 
that tariff liberalization for rum must be tempered with an 
appreciation for the special role that rum--particularly low-value 
rum--plays in the Caribbean region. For these and other reasons, 
Congress must assure the current, carefully considered tariff 
preferences for rum are not disturbed by the ATPA or by other regional 
trade arrangements.
    Mr. Wechsler and I would be pleased to answer any questions.

                                


    Chairman Crane. Thank you, Ms. Christensen. Are there any 
questions of our witness?
    [No response.]
    Chairman Crane. If not, let me express--oh, Mr. Levin?
    Mr. Levin. I would like to thank them very much for their 
testimony, and this helps to kick off the discussion of these 
important issues. Thank you very, very much.
    Chairman Crane. Well, it does, and we look forward to 
working on a cooperative basis with you all, and we appreciate 
your testimony this afternoon. Thank you so much.
    And now I welcome our distinguished U.S. Trade 
Representative, the Honorable Robert Zoellick. Proceed when 
ready.

STATEMENT OF THE HON. ROBERT B. ZOELLICK, UNITED STATES TRADE 
        REPRESENTATIVE

    Mr. Zoellick. Mr. Chairman, Representative Levin, Members 
of the Committee, if I could request that my full statement 
will be entered into the record, and I would then summarize it.
    Chairman Crane. Without objection.
    Mr. Zoellick. I want to begin by thanking you for giving me 
this opportunity to speak before the Subcommittee. I have 
certainly benefited from discussions with the Members of this 
Committee, and I look forward to working closely with all of 
you. I also wish to thank, in particular, Representatives Levin 
and English for joining the President at the Summit of Americas 
meeting in Quebec City.
    I also appreciate Congressman Moran's fine statement. I am 
delighted to be one of his constituents, and recognizing where 
Congresswoman Tauscher and Christensen come from, I would be 
delighted to be their constituents, too, I think.
    I am pleased to report that in the administration's first 
months, with your help, we have been able to take steps to 
advance free trade in this hemisphere and around the world. We 
have launched the negotiations on the free Trade Area of the 
Americas, made progress on bilateral free trade agreements with 
Chile and Singapore, and have resolved productively a number of 
disputes with our trading partners.
    Yet we should not let this progress mask a more troubling 
reality: the United States is falling behind the rest of the 
world when it comes time to trade liberalization. Globally, 
there are 130 free trade agreements. The United States is a 
party to just two. The European Union has free trade or special 
customs agreements with 27 countries, 20 of which have 
completed in the last 10 years, and the EU is negotiating 15 
more right now. Last year, the European Union and Mexico--the 
second-largest market for U.S. exports--entered into a free 
trade agreement. Japan is negotiating a free trade agreement 
with Singapore and is exploring free trade agreements with 
Mexico, Korea, and Chile.
    We have no one to blame for falling behind but ourselves, 
and there is a price to pay for our delay. As Senator Graham of 
Florida has pointed out, during the last century, when it came 
time for countries to adopt standards for the great innovation 
of that era--electric power--Brazil turned to European models 
because the United States was not active in Brazil. So when you 
visit Brazil, be sure to bring an electric adapter. Today, as 
Senator Graham has explained, Brazil is making decisions about 
standards for autos and other products. So the United States 
needs to decide whether it wants to stand on the sidelines 
again.
    To cite just one other example, while U.S. exports to Chile 
face an 8-percent tariff, the Canada-Chile trade agreement will 
free Canadian imports of this duty. This is the same agreement 
that President Clinton said that we would no negotiate in 1994. 
As a result, U.S. wheat and potato farmers are now losing 
market share in Chile to Canadian exports.
    One of our colleagues, Congressman John Tanner, summed up 
the big-picture stakes as effectively to me as anyone that I 
have heard: ``America's place in the world is going to be 
determined by trade alliances in the next 10 years in the way 
military alliances determined our place in the past.''
    In any discussion of future free trade agreements, we need 
to highlight the benefits of previous accords. Together, North 
American Free Trade Agreement (NAFTA) and the completion of the 
Uruguay round have resulted in higher incomes and lower prices 
for goods, with benefits amounting to between $1,300 and $2,000 
a year for the average American family of four. That is real 
money for farmers, nurses, teachers, police officers, and 
office workers, not bonuses for corporate executives.
    Trade barriers hurt families. When trade is restricted, 
hardworking fathers and mothers pay the biggest portion of 
their paychecks for higher cost food, clothing, and appliances 
imposed through taxes on trade.
    NAFTA has also produced a dramatic increase in trade. U.S. 
exports to our NAFTA partners increased 104 percent between 
1993 and 2000; U.S. trade with the rest of the world grew only 
half as fast.
    Increased trade supports good jobs. In the 5 years 
following the implementation of NAFTA, employment grew 22 
percent in Mexico and generated 2.2 million jobs. In Canada, 
employment grew 10 percent and generated 1.3 million jobs. And 
in the United States, employment grew more than 7 percent and 
generated about 13 million jobs.
    I recognize that these benefits of open trade can only be 
achieved if we build public support for trade at home. To do 
so, the administration will enforce, vigorously and with 
dispatch, our trade laws against unfair practices. In the world 
of global economics, justice delayed can become justice lost.
    The administration will also be monitoring closely 
compliance with our trade agreements, as well as insisting on 
performance by our trading partners. Thanks to the help of the 
Congress and its support of the Trade Compliance Initiative 
advanced last year, USTR received additional staffing to 
strengthen its ability to ensure that the terms of agreements 
are fulfilled.
    The Bush administration is promoting free trade globally, 
regionally, and bilaterally. By moving on multiple fronts, we 
can create a competition and liberalization that will increase 
U.S. leverage and promote open markets in the hemisphere and 
around the world.
    The Free Trade Area of the Americas provides a framework 
for the administration's hemispheric strategy. This area, once 
completed, will be the largest free market in the world.
    At the Summit of the Americas in Quebec City, all 34 heads 
of State signed a declaration pledging to conclude negotiations 
on the FTAA no later than January 2005. The United States is 
committed, working with others, to meet or beat that deadline.
    Moreover, the draft text of the agreement will be released 
once it has been translated into the four official languages of 
the FTAA. This is an important, and perhaps unprecedented, step 
to build public awareness and support an open process. All 34 
nations participating in the Quebec City Summit also committed 
to help the smaller economies of the hemisphere, especially the 
nations of the Caribbean and Central America, so they could 
address the unique challenges they face in moving forward with 
hemispheric integration.
    Furthermore, summit leaders agreed that any 
unconstitutional alteration or interruption of the democratic 
order in a state of the hemisphere would disqualify that 
Government from further participation in the Summit of the 
Americas process.
    While pursuing regional free trade through the FTAA, the 
Bush administration is also negotiating a free trade agreement 
with Chile. During a visit I made to Santiago last month, I met 
with President Lagos and other senior Government and 
legislative officials, as well as representatives of business, 
labor, and environmental groups. I had two objectives: One, I 
wanted Chile to know that the Bush administration is serious 
about the free trade agreement, a point that President Bush and 
President Lagos made clear following their recent White House 
meeting, when they announced their goal of completing the 
negotiations by the end of this year.
    My second objective was to send a signal to the nations of 
Latin America and the rest of the world. The United States will 
reward good performers. Chile, for example, has been at the 
forefront of Latin American nations in liberalizing trade, 
while setting an example to the world of a free people 
reclaiming their democracy and making the transition to a 
mature, developed economy.
    Leaders from many other nations in this hemisphere have now 
told me that they want to pursue free trade agreements with the 
United States. We will consider each of these offers seriously, 
while focusing on the FTAA.
    We are also pleased to have made progress on a number of 
trade disputes. Last month, we settled the U.S.-EU banana 
conflict, an issue that interfered with our economic relations 
for nearly a decade. We have resolved a number of disputes by 
working through the World Trade Organization and the NAFTA 
Agreement. For example, Greece has moved to counter the piracy 
of U.S. films and television programs. Mexico has agreed to 
allow dry beans from the United States to be imported in a more 
timely and predictable manner, and India has lifted on U.S. 
agricultural, textile, and industrial products.
    Frequent and substantive communication lies at the heart of 
the executive-congressional partnership on trade, and I intend 
to keep our lines of communication open as we move on our free 
trade agenda.
    The Bush administration's top trade priority is for the 
Congress to enact U.S. Trade Promotion Authority by the end of 
this year. Under this authority, the Executive Branch would be 
bound by law to consult regularly, and in detail, with Members 
of Congress as trade agreements are being negotiated. But once 
that long and exhaustive process of consultation is completed, 
and the painstaking negotiations have ended in an agreement, 
our trading partners have the right to know that Congress will 
vote on the agreement, up or down. Indeed, in the absence of 
Trade Promotion Authority, which expired in 1994, other 
countries have been reluctant to close out complex, politically 
sensitive trade agreements with the United States.
    We would like to launch a new round of global trade 
negotiations in the WTO, emphasizing a key role for 
agriculture. Further reforms in the Middle East and Africa need 
our encouragement, and we are committed to working with the 
Congress to enact legislation for a free trade agreement with 
Jordan. I compliment the Committee for its important work with 
Africa and the Caribbean last year and look forward to working 
with the Congress to improve the implementation of the Africa 
Growth and Opportunity Act and the Caribbean enhancement 
provisions. We would also welcome your ideas about additional 
legislative authority to promote trade, economic growth, 
openness, the rule of law, and democracy in Africa.
    We hope to see the Andean Trade Preferences Act, which 
expires in December, renewed and expanded. I am delighted that 
the Committee has invited ministers from the region to provide 
them direct testimony about the effects of this law, and I plan 
to meet with them tomorrow. The Central American countries have 
expressed an interest in a free trade agreement with the United 
States, and we will seek your ideas and preferences as we 
consider that possibility.
    There are opportunities in the Asia Pacific Economic 
Cooperation and, I hope, with APEC. We will start with a free 
trade agreement with Singapore, and we will work with you to 
pass the basic trade agreement with Vietnam negotiated by the 
Clinton administration. We are encouraged by the renewed 
emphasis on structural and regulatory reform by the Koizumi 
administration, and we look forward to working with Japan as it 
pursues this agenda, which is long overdue.
    To help developing nations appreciate that globalization 
and open markets can assist their own efforts to reform and 
grow, we will need to extend the legislation authorizing the 
Generalized System of Preferences program.
    And now that there is a fragile peace in the Balkins, we 
must secure it by pointing people toward economic hope and 
regional integration. Therefore, we would like to work with the 
Congress to follow through on the prior administration's 
proposal to offer trade preferences to countries in Southeast 
Europe.
    As we pursue this agenda, we would like to work with you to 
consider a range of ideas for improving labor and environmental 
conditions of our trading partners, as long as these proposals 
are not protectionist. We might use incentives, not just 
disincentives, to encourage better environmental protection and 
labor standards. For example, incentives can be related to aid 
programs, financing through multilateral development banks, and 
preferential trade. We can also strengthen the role of 
complementary specialized institutions, such as the 
International Labor Organization (ILO).
    USTR has announced recently that we will conduct written 
environmental reviews of major trade agreements, including the 
FTAA and the negotiations on agriculture and services underway 
in the World Trade Organization. In addition to the current 
environmental advisors, the Bush administration agreed to add 
an environmental representative to the Chemical Advisory 
Committee, in response to requests by environmental groups for 
participation on that committee. I have already benefited from 
both individual and group meetings with representatives of many 
environmental groups from the United States and other 
countries.
    At the Summit of the Americas, President Bush stated, ``Our 
commitment to open trade must be matched by a strong commitment 
to protecting our environment and improving labor standards.'' 
As the Congress and the executive branch explore how to 
demonstrate that trade supports labor and environmental 
standards, we should look first to economic growth. As the 
President has said, ``When there is more trade, there is more 
commerce, and there is more prosperity. And a prosperous 
society is one more likely to have good environmental standards 
and to be able to enforce those standards.''
    The EPA and others can provide the kind of technical 
assistance that will improve the ability of our trading 
partners to improve both the adequacy of their environmental 
protection regimes and their ability to enforce their laws and 
regulations.
    We should enable advocacy groups to plant local roots. If 
labor standards and environmental protection come to be seen by 
developing nations as a price of trade imposed by wealthy 
countries, these causes will not gain widespread local support.
    When we think about the connection among trade, economic 
growth, labor, and the environment, we should see them as being 
mutually supportive, not in conflict with one other. So I look 
forward to working with the Congress, and interested parties in 
the private sector, to discuss these issues further and to seek 
to find common ground.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Zoellick follows:]

     Statement of the Hon. Robert B. Zoellick, United States Trade 
                             Representative

    Chairman Crane, Representative Levin, and Members of the Committee:
    I want to begin by thanking all of you for giving me this 
opportunity to speak before the Ways & Means Subcommittee on Trade. I 
have benefited from discussions with members of the Committee and look 
forward to working closely with all of you as the Bush Administration 
moves forward with its free trade agenda. I also wish to thank in 
particular Representatives Levin and English for joining the President 
at the recent Summit of the Americas meeting in Quebec City.
    In Quebec City, the President explained why free trade is one of 
his top priorities: ``Free and open trade creates new jobs and new 
income. It lifts the lives of all our people, applying the power of 
markets to the needs of the poor. It spurs the process of economic and 
legal reform. And open trade reinforces the habit of liberty that 
sustains democracy over the long haul.''
    I am pleased to report that in the administration's first months, 
with your help, we have been able to take steps to advance free trade 
in this hemisphere and around the world. We have launched the 
negotiations on the Free Trade Area of the Americas, made progress on 
our bilateral free trade agreements with Chile and Singapore, and have 
resolved productively a number of disputes with our trading partners.

The U.S. is Falling Behind
    Yet we should not let this progress mask a more troubling reality: 
the United States is falling behind the rest of the world when it comes 
to trade liberalization. Years ago, U.S. involvement in international 
trade negotiations was a prerequisite for them to succeed. That is not 
the case today.
    Globally, there are 130 free trade agreements. The United States is 
a party to just two: one is with Canada and Mexico--NAFTA--and the 
other is with Israel. The European Union has free trade or special 
customs agreements with 27 countries, 20 of which it completed in the 
last 10 years. And the EU is negotiating another 15 accords right now. 
Last year, the European Union and Mexico--the second-largest market for 
American exports--entered into a free trade agreement. Japan is 
negotiating a free trade agreement with Singapore, and is exploring 
free trade agreements with Mexico, Korea, and Chile.We have no one to 
blame for falling behind but ourselves. And there is a price to pay for 
our delay. As Senator Graham of Florida has pointed out, during the 
last century, when it came time for countries to adopt standards for 
the great innovation of that era--electric power--Brazil turned to 
European models because the United States was not active in Brazil. So 
when you visit Brazil, be sure to bring an electric adapter. Today, as 
Senator Graham points out, Brazil is making decisions about standards 
for autos and other products--so the United States needs to decide 
whether it wants to stand on the sidelines again.
    Our inaction hurts American businesses, workers, and farmers, as 
they find themselves shut out of the many preferential trade and 
investment agreements negotiated by our trading partners. To cite just 
one example, while U.S. exports to Chile face an eight percent tariff, 
the Canada-Chile trade agreement will free Canadian imports of this 
duty. As a result, U.S. wheat and potato farmers are now losing market 
share in Chile to Canadian exports.
    Congressman John Tanner has summed up the big picture stakes to me 
as effectively as anyone I have heard: ``America's place in the world 
is going to be determined by trade alliances in the next 10 years in 
the way military alliances determined our place in the past.''

The Benefits of NAFTA and other Trade Agreements
    In any discussion of future free trade agreements, we need to 
highlight the benefits of previous accords. Together, NAFTA and the 
completion of the Uruguay Round have resulted in higher incomes and 
lower prices for goods, with benefits amounting to $1300 to $2000 a 
year for an average American family of four. That is real money for 
farmers, nurses, teachers, police officers, and office workers, not 
bonuses for corporate executives.
    Trade barriers hurt families. When trade is restricted, hard-
working fathers and mothers pay the biggest portions of their paychecks 
for the higher cost food, clothing, and appliances imposed through 
taxes on trade.
    NAFTA has also produced a dramatic increase in trade between the 
United States and Mexico. When the Congress approved NAFTA in 1993, 
U.S.-Mexico trade totaled $81 billion. Last year, our trade hit $247 
billion--nearly half a million dollars per minute. U.S. exports to our 
NAFTA partners increased 104 percent between 1993 and 2000; U.S. trade 
with the rest of the world grew only half as fast.
    Increased trade supports good jobs. In the five years following the 
implementation of NAFTA, employment grew 22 percent in Mexico, and 
generated 2.2 million jobs. In Canada, employment grew 10 percent, and 
generated 1.3 million jobs. And in the United States, employment grew 
more than 7 percent, and generated about 13 million jobs.
    I recognize that these benefits of open trade can only be achieved 
if we build public support for trade at home. To do so, the 
Administration will enforce, vigorously and with dispatch, our trade 
laws against unfair practices. In the world of global economics, 
justice delayed can become justice lost.
    The Administration will also be monitoring closely compliance with 
trade agreements as well as insisting on performance by our trading 
partners. Thanks to the help of the Congress in its support of the 
Trade Compliance Initiative advanced last year, USTR received 
additional staffing to strengthen its ability to pursue a two-track 
strategy of negotiating agreements and ensuring that the terms of these 
agreements are fulfilled. With these added resources, USTR will 
increase the number of staff devoted to monitoring the practices of our 
trading partners under existing trade agreements and to litigating 
trade disputes in all sectors.
    For the United States to maintain an effective trade policy and an 
open international trading system, its citizens must have confidence 
that trade is fair and works for the good of all people. That means 
ensuring that other countries live up to their obligations under the 
trade agreements they sign.
Moving Forward
    The Bush Administration is promoting free trade globally, 
regionally, and bilaterally. We are working to help launch a new round 
of global trade negotiations in the World Trade Organization later this 
year, while pursuing regional agreements such as the Free Trade Area of 
the Americas and bilateral agreements with countries such as Chile and 
Singapore. By moving on multiple fronts, we can create a competition in 
liberalization that will increase U.S. leverage and promote open 
markets in our hemisphere and around the world.
    The Free Trade Area of the Americas provides a framework for the 
Administration's hemispheric strategy. This area, once completed, will 
be the largest free market in the world.
    We have made real progress in turning the idea of an FTAA into a 
reality. At the Summit of the Americas in Quebec City, all 34 heads of 
state signed a declaration pledging to conclude negotiations on the 
FTAA no later than January 2005. The United States is committed to 
working with others to meet, or beat, that deadline.
    Moreover, the draft text of the agreement will be released once it 
has been translated into the four official languages of the FTAA. This 
is an important, and perhaps unprecedented, step to build public 
awareness and support an open process. All 34 nations participating in 
the Quebec City summit also committed to help the smaller economies of 
the hemisphere--especially the nations of the Caribbean and Central 
America--address the unique challenges they face in moving forward with 
hemispheric integration.
    The commitment to free trade was made in tandem with an unambiguous 
pledge to support democracy. Summit leaders agreed that any 
unconstitutional alteration or interruption of the democratic order in 
a state of the hemisphere would disqualify that government from further 
participation in the Summit of the Americas process. For a region that 
was home to the strict Calvo doctrine on non-interference by others in 
states' internal affairs, this democracy clause is a striking sign of a 
new political outlook for the hemisphere.
    While pursuing regional free trade through the FTAA, the Bush 
Administration is also negotiating a free trade agreement with Chile. 
During a visit to Santiago last month, I met with President Lagos and 
other senior government and legislative officials, as well as 
representatives of business, labor, and environmental groups. I had two 
objectives. One, I wanted Chile to know that the Bush Administration is 
serious about the free trade agreement--a point that President Bush and 
President Lagos made clear following their recent White House meeting, 
when they announced their goal of completing the negotiations no later 
than the end of the year.
    My second objective was to send a signal to the nations of Latin 
America, and the rest of the world: The United States will reward good 
performers. Chile, for example, has been at the forefront of Latin 
American nations in liberalizing trade, while setting an example to the 
world of a free people reclaiming their democracy and making the 
transition to a mature, developed economy.
    Leaders from many other nations in this hemisphere have now told us 
they want to pursue free trade agreements with the United States. We 
will consider each of these offers seriously, while focusing on the 
FTAA.
    We are also pleased to have made progress on a number of trade 
disputes. Last month, we settled the U.S.-EU banana conflict, an issue 
that had interfered with our economic relations for nearly a decade. We 
have resolved a number of disputes by working through the World Trade 
Organization and the North American Free Trade Agreement. For example, 
Greece has moved to counter the piracy of U.S. films and television 
programs, Mexico has agreed to allow dry beans from the United States 
to be imported in a more timely and predictable manner, and India has 
lifted restrictions on U.S. agricultural, textile, and industrial 
products.

The Legislative Agenda
    Frequent and substantive communication lies at the heart of the 
Executive-Congressional partnership on trade, and I intend to keep our 
lines of communication open as we move on our free trade agenda.
    The Bush Administration's top trade priority is for the Congress to 
enact U.S. Trade Promotion Authority by the end of the year. Under this 
authority, the executive branch would be bound by law to consult 
regularly and in detail with members of Congress as trade agreements 
are being negotiated. But once that long and exhaustive process of 
consultations is completed, and the painstaking negotiations have ended 
in an agreement, our trading partners have the right to know that 
Congress will vote on the agreement up or down. Indeed, in the absence 
of Trade Promotion Authority, which expired in 1994, other countries 
have been reluctant to close out complex and politically sensitive 
trade agreements with the United States.
    We would like to launch a new round of global trade negotiations in 
the WTO, emphasizing a key role for agriculture. We will seek to 
negotiate regional and bilateral agreements to open markets around the 
world. Further reforms in the Middle East and Africa need our 
encouragement, and we are committed to working with the Congress to 
enact legislation for a free trade agreement with Jordan. I compliment 
the Committee for its important work with Africa and the Caribbean last 
year and we look forward to working with the Congress to improve the 
implementation of the African Growth and Opportunity Act and the 
Caribbean enhancement provisions. We would also welcome your ideas on 
additional legislative authority to promote trade, economic growth, 
openness, the rule of law, and democracy in Africa.
    We also hope to see the Andean Trade Preferences Act, which expires 
in December, renewed and expanded. President Pastrana of Colombia has 
said that renewing the act would be one way to counter the drug 
traffickers in his country, as it would stimulate job creation in the 
real economy and diminish the appeal of the drug trade. The Central 
American countries have expressed interest in a free trade agreement 
with the United States, and we will seek your ideas and preferences as 
we consider that possibility.
    There are opportunities in the Asia Pacific and, I hope, with APEC. 
We will start with a free trade agreement with Singapore and will work 
with you to pass the basic trade agreement with Vietnam negotiated by 
the Clinton administration. We are encouraged by the renewed emphasis 
on structural and regulatory reform by the Koizumi administration, and 
we look forward to working with Japan as it pursues this agenda, which 
is long overdue.
    To help developing nations appreciate that globalization and open 
markets can assist their own efforts to reform and grow, we will need 
to extend the legislation authorizing the Generalized System of 
Preferences program.
    Of vital importance, we will seek to work closely with the European 
Union and its candidate members in Central and Eastern Europe, both to 
fulfill the promise of a trans-Atlantic marketplace already being 
created by business investment and trade, as well as to reinvigorate, 
improve, and strengthen the WTO processes.
    Now that there is a fragile peace in the Balkans, we must secure it 
by pointing people toward economic hope and regional integration. 
Therefore, we would like to work with the Congress to follow through on 
the prior administration's proposal to offer trade preferences to 
countries in Southeast Europe.

Protecting Labor Standards and the Environment
    As we pursue this agenda, we would like to work with you to 
consider a range of ideas for improving the labor and environmental 
conditions of our trading partners, as long as these proposals are not 
protectionist. We might use incentives, not just disincentives, to 
encourage better environmental protection and labor standards. For 
example, incentives can be related to aid programs, financing through 
multilateral development banks, and preferential trade. We can also 
strengthen the role of complementary specialized institutions, such as 
the International Labor Organization.
    USTR has announced recently that it will conduct written 
environmental reviews of major trade agreements, including the FTAA and 
the negotiations on agriculture and services underway in the World 
Trade Organization. These reviews provide negotiators with timely 
information on the environmental implications of trade accords and give 
us guidance on how trade and economic growth can strengthen 
environmental performance. In addition to the current environmental 
advisors, the Bush Administration agreed to add an environmental 
representative to the chemical advisory committee, in response to 
requests by environmental groups for participation on that committee. I 
have already benefited from both individual and group meetings with 
representatives of many environmental groups from the United States and 
other countries.
    At the Summit of the Americas, President Bush stated, ``Our 
commitment to open trade must be matched by a strong commitment to 
protecting our environment and improving labor standards. As the 
Congress and the executive branch explore how to demonstrate that trade 
supports labor and environmental standards, we should look first to 
economic growth. As the President has said, ``When there's more trade, 
there's more commerce and there's more prosperity. . . . And a 
prosperous society is one more likely to have good environmental 
standards and be able to enforce those standards.''
    The Environmental Protection Agency and others can provide the kind 
of technical assistance that will improve the ability of our trading 
partners to improve both the adequacy of their environmental protection 
regimes and their ability to enforce their environmental laws and 
regulations.
    We should enable advocacy groups to plant local roots. If labor 
standards and environmental protection come to be seen by developing 
nations as a price, imposed by wealthy countries, these causes will not 
gain widespread appeal.
    When we think about the connection among trade, economic growth, 
labor, and the environment, we should see them as being mutually 
supportive, not in conflict with each other. I look forward to working 
with the Congress, and interested parties in the private sector, to 
discuss these issues further and to seek to find common ground.

Conclusion
    The Bush administration has an ambitious trade agenda, reflecting 
the importance President Bush assigns to free trade. We should seize 
the opportunity before us to reassert America's leadership in setting 
trade policy and to build a post-Cold War world on the cornerstones of 
freedom, opportunity, democracy, security, free markets, and free 
trade. By doing so, we can set a course for peace and prosperity for 
the Americas and the global system, not just for a year or two, but for 
decades to come.

                                


    Chairman Crane. Thank you, Mr. Ambassador.
    Let me take advantage of this opportunity to congratulate 
you on the outstanding work you did with the EU in resolving 
the banana dispute with them.
    Mr. Zoellick. Thank you.
    Chairman Crane. And we want to see you continue down that 
outstanding path.
    Mr. Zoellick. Thank you.
    Chairman Crane. Since U.S. trade with non-NAFTA, Western 
hemispheric nations is relatively small compared to levels of 
trade with NAFTA countries, why should the United States be 
interested in an FTAA, and in what sectors is the United States 
most likely to benefit from a completed FTAA?
    Mr. Zoellick. Well, Mr. Chairman, there is a combination of 
reasons. First, as a number of you mentioned, this would create 
the largest free trade agreement in the world, covering some 
800 million people. And some of the numbers that I cited about 
the boom in trade, including U.S. exports with Canada and 
Mexico, give a sense of some of the potential that we would 
have with the rest of the countries of Latin America. And, 
indeed, even without that agreement, we have had increased 
growth of our exports to Latin America in excess of the growth 
that we have had in the rest of the world.
    But, in addition to that direct trade purpose, I think 
there is a broader economic purpose. The countries of this 
region are still undergoing serious economic reforms. They are 
doing so with relatively fragile democracies, many of them 
created over the past 10 or 15 years. And, frankly, that reform 
process is under stress and some of the democracies are under 
strain. So one of the best ways that we can help support 
lasting economic reform by democratic partners is to create a 
framework for cooperation and economic growth.
    Indeed, if you look back at this hemisphere, Mr. Chairman, 
it wasn't so long ago that some of the major countries, 
including Brazil and Argentina, were trying to develop nuclear 
programs. Indeed, Argentina was developing a missile being 
funded by Iraq. But in the process of opening those economies 
and moving to democracies, both Brazil and Argentina created 
full-scope nuclear safeguards, and Argentina not only gave up 
its missile program, but it destroyed that missile that had 
been funded by Iraq.
    So the stakes of this run to trade, they run to economic 
growth and stability, and they also run to democracy and 
security, including, as a number of speakers have pointed out 
here, in the Andean region. So, frankly, the stakes are high, 
and one way that the President has spoken about this is that we 
spent much of the last 50 years trying to overcome an East-West 
divide. We still face a North-South divide. And our own work in 
this hemisphere, with freedom, with economic openness, with 
democracy, with a peaceful set of security relations, could 
give us the opportunity to create a bridge between North and 
South that will be a model for the rest of the world.
    And so the stakes, in my view, Mr. Chairman, are strategic, 
as well as economic.
    Chairman Crane. I think it is important that the 
Subcommittee work closely with you to craft an Andean bill 
which offers concrete economic opportunities to the Andean 
countries and which is, if at all possible, simpler to 
administer than the recently passed CBI legislation.
    Have the countries given you an idea of what they think 
will work to help them create additional employment 
opportunities?
    Mr. Zoellick. Well, I should obviously let some of the 
officials from those countries emphasize their key points. I 
think the starting point, Mr. Chairman, is that, as Congressman 
Moran and Congresswoman Tauscher emphasized, they are looking 
for ways to not only promote growth, but to promote export 
diversification. So, while many of the topics focus on a 
sensitive sector like textile and apparel, I think we should be 
open and look for possibilities beyond that area.
    So I think the task, Mr. Chairman, is to look at ways we 
could both extend the ATPA and to broaden it. On extending it, 
at least it is our proposal, that this be targeted to December 
2005 so that it is a bridge to the FTAA, since that is our date 
for trying to complete it and bring it into force.
    In terms of broadening it, at a minimum, I think we would 
want to try to create parity with the Caribbean and the African 
bills that the Congress passed last year, and I think, where 
possible, we should look to go beyond that. I have talked with 
some of you in the apparel area about how some regional 
arrangements might help both U.S. firms, as well as firms in 
the region, as we look toward the end of the Multi-Fiber 
Agreement in a couple of years and create a more integrated 
market.
    But having said this, Mr. Chairman, I think the thing we 
have to keep in mind is we have to get this done by December 4, 
and we all know that there are some very sensitive issues here, 
and that it is not going to be an easy process to work through. 
So I think my suggestion for a starting point would be to 
achieve parity and see where we can go beyond, but not let the 
perfect be the enemy of the good.
    Chairman Crane. Thank you, Mr. Ambassador. Mr. Levin?
    Mr. Levin. Thank you, and welcome.
    Let me focus in on the two specific subject matters before 
us. I have already, in my opening statement, as you know, Mr. 
Ambassador, expressed my views on the larger issues, and I have 
tried to do so clearly in that opening statement regarding 
Jordan, and Vietnam, and other issues and fast track the Trade 
Promotion Authority.
    As I understand it, the administration may be issuing a 
Statement of Principles later this week or sometime hereafter, 
and I will welcome the opportunity for further discussion, and 
I think you can expect that I will speak as clearly as I can on 
them, as I did this morning or this afternoon on these issues, 
these broader issues, and will continue to talk, both privately 
and publicly, about these issues. I think it is the only way to 
move forward.
    I think it is interesting, in your statement, that you talk 
about a matter that was brought at Quebec, and that is what 
happens when a country interrupts its democratic path and 
essentially the disqualification from further participation in 
the summit. I think that helps to illustrate what I think is a 
basic notion, and that is that we should be careful not to 
equate free trade as automatically leading to democracy, that, 
to some extent, we should be working towards democratic 
processes as part of the trade equation. I mention that just 
because I think that that discussion in Quebec illustrated and 
underlined the need for us to look upon trade not as an end, in 
and of itself, but as a tool.
    So let me just say one other thing and then ask you a few 
specific questions. On Page 6, there is a reference in 
relationship to labor standards and environmental standards, a 
reference to the danger of it appearing that we are imposing on 
other countries. It says here, ``imposed by wealthy countries 
as a price.'' Just a couple of comments on that.
    You know, to some extent, this whole struggle for free 
markets, for free trade and what goes into it, could be 
characterized as an imposition of free market principles on 
other countries. I think we need to be careful when we describe 
it in terms of imposition. We have a model in mind, and it is 
based--it is what the WTO is based on, and it is really what 
the FTAA is based on, I think, and that is the notion that free 
markets, and I mean that in a broad sense, that free markets 
will be beneficial. And we have particular ingredients as to 
what we mean by it. When intellectual property was proposed, as 
you know, 10/15 years ago, it was argued by some that we were 
trying to impose industrialized nation standards on those of 
other countries.
    And so I just want to kind of send up a warning flag that 
we are not really doing that here. In terms of labor standards, 
for example, the vast majority of these countries have agreed, 
in various ways, to abide by core labor standards of the ILO, 
and the question is not our imposition of them, but their 
abiding by them and the implementation of those within the 
trade ambit.
    But let me then just ask you, specifically, because I think 
that might be most helpful in this hearing, to tackle one or 
two of the issues. The textile issue and Andean has been 
raised. Also, let me raise an issue in the FTAA, one of the 
most thorny issues, to help us begin to sink our teeth into 
this, and that is agriculture, where there is a clear interplay 
between what we might discuss within the FTAA and what we might 
be discussing in the WTO.
    Could you just give us, perhaps preliminarily, your 
thoughts about how we are going to handle one of the most 
thorny of issues within the FTAA and how that interacts with 
what we might be doing in discussions in Geneva, and Brussels, 
and elsewhere.
    Mr. Zoellick. Certainly. Let me just make three points 
here:
    First, as you noted, Congressman Levin, the President said 
yesterday that he would be sending up some principles later 
this week. And the reason I want to highlight that, 
particularly for this Committee, given its jurisdiction, is 
that we have consciously taken an approach of stressing 
consultation first, without things on paper, and the next step 
is to come up with an outline of ideas, but still short of a 
bill. And I know that from my earliest meetings here there was 
some concern the administration might move very quickly, 
present bills, and create a more difficult environment, and 
this was a conscious effort by us to now, after 3 months, put 
words on paper, but to still create an opportunity for a full 
exchange about transforming that into a bill.
    The second point, since you mentioned the environment and 
labor local roots. Let me emphasize the point I was seeking to 
make because I do think it is also critical in the dialog that 
we have started here.
    As you know, I have dealt with international issues for 
some 20 years, and I have seen them pursued in different ways 
around the world. And my key point is that, as someone who has 
actually promoted environmental movements, in particular, in 
many parts around the world, including developing countries, 
what I have seen is that those NGOs and those countries that 
build on local constituencies and help create an environment 
for free exchange, freedom of assembly, democracy, and the 
prosperity that allows those groups to build their own case 
within those countries, are much more successful in planting 
local roots for those causes, and I believe the same is true 
for labor organizations and labor unions.
    What I have certainly seen before, and I have certainly 
seen in the 3 months I have been on this job, is there is a 
very strong fear out there in the developing world that we 
cannot ignore, that the developed countries, including the 
United States, want to use some of these labor and 
environmental standards as a new form or protectionism. Now you 
may not like the term, but it is something they feel very 
strongly. And as you and I have discussed, I think some members 
do want to use it for protectionism.
    And so I think it is critical, as we go forward with this 
debate, that we do so in a way that creates the win-win 
environment that I think both of us would like to develop in 
these countries. And that is why I think a richer set of tools 
and a set of incentives can help these countries develop their 
own interest in the environment and labor, and I, frankly, 
agree with you, one best way to do this is to build on their 
own commitments and their own laws; for example, core labor 
standards. But I think this is a key point worth emphasizing.
    On agriculture, the approach that we have taken in the FTAA 
is that the larger issues of dealing with subsidies, 
particularly domestic subsidies, have to be dealt with 
globally. We, as a country, cannot agree to concessions in a 
hemispheric context that would, frankly, put us in a more 
difficult position, in terms of dealing with those in a global 
round. That has been our position.
    Now there are other things that we can try to do. For 
example, we can open access to markets. We can actually try to 
gain cooperation with a number of the countries of Latin 
America, and others in the CAIRNES [ph] group, to try to cut 
export subsidies, which has continued to be a plague that the 
rest of the world has encountered from the European Union. And 
an increasingly important area is the question of sanitary and 
phytosanitary standards. In fact, if there is one issue that I 
have seen the increased seance of, in the time between when I 
last was in government and now, it is the danger that these 
standards, for either health or safety reasons, can be misused 
or used for protectionist purposes, which emphasizes the need 
for, on the one hand, science and reasoned analysis, as people 
put them in place, some common set of standards, which we have 
been working, for example, in something called the CODEX on 
recently and had some very successful meetings, but also to 
help these countries be able to have the capability to develop 
the appropriate systems. Part of this is trade capacity 
building.
    We have talked, in this context, a little bit about the 
Africa bill, and this is another critical area that we need to 
do work with the African countries, in terms of their ability 
to take part in the agriculture market of the United States and 
vice versa.
    So that at least gives you, I think, a general sense.
    Mr. Levin. Thank you. I just want to emphasize that the 
impetus on labor and environmental standards, the impetus is 
not a new kind of protectionism. This is an issue that we need 
to address and work on, and for most of us it is an essential 
ingredient of expanded trade, not diminished trade. Thank you, 
Mr. Chairman.
    Chairman Crane. Mr. Jefferson.
    Mr. Jefferson. Thank you, Mr. Chairman.
    Mr. Ambassador, it is a pleasure to have a chance to meet 
with you on the global wide range of issues with you.
    I want to narrow, if I can, just to the question of African 
Growth and Opportunity Act, AGOA-II, which we optimistically 
speak of around here, at least some of us do. I want to talk 
about the specific provisions that such a piece of legislation 
might have and to see how you feel about that, whether that is 
your vision as well.
    First, last year we ran into last-minute issues about caps, 
as you know, on the use of regional fabric. It was not an issue 
when it left the House, but it became an issue late in the 
process and came out with caps that are somewhat restrictive in 
reaching the goals that we had for the bill starting out. So I 
would like you, first, to comment on that if you could, about 
how you feel about the prospect of that being in AGOA-II and 
how important it is as a provision.
    The second is some technical issues that we talked about 
that will allow textiles from the region to be imported into 
the country and additional funds finally for technical 
assistance for subsidized African countries and U.S. companies 
to take advantage of the bill. A lot of these countries don't 
have enough money and enough technical expertise to figure out 
how to make this thing as fully as it should, and we talked 
about this whole question of providing some opportunities for 
them to have more of a chance there.
    And, lastly, we talked about allowing for duty-free imports 
of other special fabric categories of apparel and textile 
products that we don't produce in the U.S., that is the idea, 
ones we don't produce, so they aren't in competition with our 
products, but to permit them to come in from African countries.
    Could you tell me whether or not you think those four items 
will be, in your mind, ones to be included in AGOA-II.
    Mr. Zoellick. Certainly, and let me just start with a more 
general point, if I could, Congressman.
    I have had a chance to meet the AGOA coalition that helped 
enact this bill, and it was one of the best meetings that I had 
because it covered everything from civil rights groups to 
business groups. And the degree of enthusiasm and interest that 
this had generated for the continent, as well as for trade, was 
really an amazing thing, and it is something that I followed up 
on by inviting the African ambassadorial community to come in 
and brief me on their sense on how we are doing with the 
implementation.
    So, in general, when I think about this area, I am 
thinking, first, about the implementation of what we have got 
and what Congress passed. And, second, I would very much 
welcome a dialog about what we could do to add on to it because 
I think the potential is quite tremendous here, and I would 
like it to be a key of what we do, and I know Secretary Powell 
is also very interested in this.
    Second, I want to look closely at some of the non-apparel 
issues, as well. Because as I talk to some of the ambassadors, 
I know many of the political fights are on the apparel topics, 
but as we are going to help some of these countries move to 
other stages of value added, including some basic 
manufacturing, this is an area that I think we need to 
highlight.
    Third, on some of the particular issues that you mentioned, 
we are trying to work with Customs on the knit-to-shape issue, 
and I hope that is moving closer to resolution; similar on the 
accumulation of inputs issue. My own view on that is that we 
should interpret those as broadly as possible to promote trade. 
And if we can't get that done in the regulatory process, for 
whatever reason, then I would certainly be pleased to come back 
and work with you in the legislative process.
    As you also know, and as you suggested, part of this we can 
accomplish in the accumulation area with the visa systems, and 
we are trying to move quickly to approve the countries. We have 
now approved, I think, five countries, we have got two more on 
the way, to be able to take full advantage of this. But as you 
also mentioned, in terms of the Sanitary/Phytosanitary, SPS, 
system with agriculture, this is an area where we are working 
to get some technical assistance funding to be able to try to 
help countries take part and also to be able to impart our 
goods.
    We recently received some additional support from AID on 
this, in terms of putting together some of the briefings in 
regional areas and centers in Africa. We just had one for the 
African countries in Geneva, for their WTO delegations. And I 
am meeting the AID-designate director, Mr. Nascio [ph], from 
Massachusetts, in part, to emphasize this interest, and I 
understand he has a very strong interest in it as well.
    So I think, in terms of working with AID, but also I have 
mentioned this to President Wolfensohn of the World Bank, in 
terms of developing the trade capacity, so I think the full set 
that you mentioned, the one cautionary point that I will make, 
and you know very well, is that, as we move this forward, you 
mentioned the caps issue, the Committee encountered what 
happened with caps last year around, and I would like to try to 
get more done in this area, and I would be pleased to try to 
work with you to carry through as much as we can.
    We know there are some obstacles and points in our own 
political system, and I think we also need to be open, in terms 
of trying to figure out other ways we can help these countries. 
And I would add to that, frankly, the whole HIV/AIDS issue, 
which we also talked about because this is a clear issue that 
is critical to their economies. I mean, it is a health issue, 
but it is pretty hard to have a healthy economy if your people 
are suffering like that.
    So I tend to see this in a comprehensive fashion and would 
be pleased to work on both the implementation and follow-up 
legislation.
    Mr. Jefferson. Thank you, Mr. Chairman.
    Mr. Houghton. Mr. Zoellick, good to see you here. Thanks 
very much for what you are doing for all of us. As you know, I 
am a big free trader. I agree in this. And yet, I do not think 
there is any inconsistency between doing what is right for the 
people who are working in this country and also opening up 
markets overseas. And I just--I have always found it difficult 
to find that we cannot break this thing open, make it possible, 
whether it is trade promotion authority or the Free Trade of 
the Americas or what it is, we just seem to come upon little 
roadblocks, and we just don't seem to get over them.
    Let me ask you a few questions. I do not think this will 
take long to answer. You talked about there are certain 
countries that have been reluctant to close trade agreements 
with us. What are those countries?
    Mr. Zoellick. I am sorry. The countries reluctant to close 
trade agreements?
    Mr. Houghton. Yes. You said in your testimony there are 
certain countries that have been reluctant to close on trade 
agreements with us absent a fast-track authority.
    Mr. Zoellick. Oh. Well, the best example would be when we 
were having the discussions on the Free Trade Area of the 
Americas in Buenos Aires. There were many countries--Brazil has 
been one of the most publicly outspoken about this--that feel 
that if we do not have the overall negotiating authority, then 
there is no need for them to move forward.
    Mr. Houghton. Can I ask you a question? In your heart of 
hearts do you really feel that is the reason Brazil said what 
it did? I have a feeling that Brazil wants to keep us out of 
Mercosur, and is basically an enemy in this area, and they will 
use any excuse to justify their position.
    Mr. Zoellick. I honestly think it is more complicated than 
that. Brazil is certainly a country that has had a very insular 
economic policy, in many ways like the United States did, 
because it was a continental-sized economy. And there are, no 
doubt, very strong industrial interests that are quite happy 
with the way it is, but I do think that President Cardoso and 
the current trade and foreign minister, Minister Lafer, deserve 
a lot of credit for trying to move Brazil into a global 
economic system, and they are taking on some of these 
interests, and they face their political constraints as well, 
including the presidential election in 2002.
    I think in the case of Mercosur, there are some that look 
upon Mercosur as a separate area from the rest of the world, 
but I think that is going to be increasingly hard to sustain. 
Mercosur has had its own strains. I mean, as Brazil had a 
devaluation of its currency, and Argentina's currency was 
linked to the dollar, you could see the strains within the 
Mercosur system. This led Uruguay to say that it would like to 
have a free trade agreement with the United States. Some in 
Argentina have explored additional arrangements with the United 
States, and indeed, part of the Argentine economic solution was 
to pose tariffs on other parties that were different from the 
customs union. So I think Mercosur itself is under some degree 
of strain.
    But I think that the current Brazilian leadership does 
indeed want to bring the country into the international 
economic system. It is 170, 180 million people. We trade more 
with Brazil than we do with China. They have got great 
possibilities for that country. But they do face some sensitive 
sectors, and frankly, so do we, and some of the questions that 
they are raising are legitimate questions about our points of 
sensitivity. And so they do want to know if they are going to 
face their difficult political challenges, and cross those 
bridges and make agreements that their elected leaders can be 
criticized for, they do not want the rug pulled out from them 
at the end of the day on our side, and that is a reasonable 
point.
    Mr. Houghton. I understand that. Are there any other 
countries similar to them?
    Mr. Zoellick. Well, I think as we approach the overall 
global round, some of the other major developing countries, for 
example, India, are concerned about our ability to follow 
through. Now, as you know, the United States launched the 
Uruguay Round in 1986 and we did not have the overall authority 
until 1988. So I am not saying that it is impossible to launch 
a round. I do believe that, for better or for worse, the world 
is watching the U.S. Congress on this issue right now because 
circumstances have changed since the 1980s. There was not such 
a question about this in the 1980s, but now there is a question 
because Congress has failed to pass it since 1994. So East Asia 
is another region where countries believe that the United 
States, frankly, is moving to a greater protectionist course.
    So I have mentioned some of the big players, but it is true 
for some of the smaller countries as well, and again, the truth 
is in some of the facts. President Clinton stood with Prime 
Minister of Canada, Prime Minister Chretien, and President 
Zedillo, in 1994, and said to the Chileans, ``We are going to 
go ahead and do a free trade agreement.'' The Canadians did. 
The Mexicans did. And we all of a sudden announced in December 
of last year that we would start. And that was simply based on 
the fact of political paralysis up here. So I take Mr. Levin's 
point, that there has been progress made, including by this 
Committee, but I can point to a lot of examples around the 
world where we have been frozen, and you can talk to other 
people around the world and get a sense of the things we have 
not engaged in, whether they be bilateral agreements, regional 
or global, so it is costing us.
    Mr. Houghton. My time is up. Thanks very much.
    Chairman Crane. Ms. Dunn.
    Ms. Dunn. Thank you very much, Mr. Chairman, and welcome, 
Ambassador. It is good to have you back, and congratulations on 
the great job you did up north on our behalf.
    I wanted to ask you a question about the protection of 
intellectual property. We both share that goal of protecting 
intellectual property. Can you give us some of your insights on 
some of your discussions that occurred in Quebec City on 
protecting and enforcing intellectual property rights among the 
countries involved in the FTAA?
    Mr. Zoellick. Well, it is a critical issue that covers 
everything from pharmaceuticals, where you know the sensitive 
discussion that was prompted by the HIV/AIDS issue, to a 
question of enforcement of copyrights issues, to a question of 
its connection to the high-tech world, which we have discussed 
in other contexts. It is a great area of comparative advantage 
for the United States, and so economically, it is important to 
us, but I also find that in discussing this with other 
countries, that most recognize that it serves their interest as 
well, because intellectual property is often going to be a key 
to investment and developing new businesses.
    And to give you an example from another part of the world, 
I had this discussion with President Kim of Korea, where he 
understood the problems that Korea was having in terms of 
enforcement, and he in part supported our efforts because he 
believed that it would hurt Korea's economy and its own 
development to fail to move forward.
    So I think increasingly, Congresswoman, the issue is not 
just one of rules, it is one of enforcement. And as we look at 
the optical disks area, for example, we recently initiated some 
action against Ukraine, which has a terrible problem in terms 
of basically pirating intellectual property through disks. So I 
believe that increasingly this will be an issue of how this 
relates to high-tech, e-commerce and how we deal with the 
enforcement topics.
    Ms. Dunn. Thank you. Let's move then to the Japanese 
market. Many sectors of the United States' economy are very 
worried about the barriers in the Japanese market, especially 
from my neck of the woods, in the medical technology sector. In 
the next few months you are going to have an opportunity to 
meet with the Japanese negotiators. What actions have you 
thought about proposing on behalf of this administration to 
encourage greater market access in Japan?
    Mr. Zoellick. Well, I will speak both specifically to 
medical technology and a little more generally. As you know, 
and in part you have been very deeply involved with, the United 
States is the world leader in terms of advanced medical 
technology. And my predecessors had worked on this issue in 
Japan through the broader framework of deregulation that they 
created. Japan is about a $24 billion market. It is the largest 
export market for the United States. And some of the 
deregulation at issue that provided advances in areas like 
accepting foreign clinical data for the approval of materials, 
and frankly, moving to a pricing system that would accelerate 
the reimbursement pattern. Because of that the United States 
now has about 25 percent of that market, if my recollection is 
correct, but it is one that, in working with the industry, we 
think we can also enhance.
    So what we would like to do in the medical services area is 
very similar to what we would like to do more broadly, which is 
to try to promote deregulation, structure reform, more 
competition in Japan, which we believe will open the market for 
the United States and foreign competitors, but also will be 
vital for Japan's own revival, which is going to be important 
for buying all sorts of goods from the United States and around 
the world. Japan has poured countless billions, trillions of 
yen into various fiscal expansion programs, and they have 
gotten to the point where they have put cement on almost every 
stream in Japan. But it is not working, and I think one 
possibility for the Koizumi government is to move toward this 
greater form of competition through deregulation. We are 
proposing some ideas to the Japanese on this. I met one of the 
new cabinet ministers last week, who just flew in for 24 hours, 
a gentleman I had known before, an economics professor. And so 
I think this is an area where it has the best chance of success 
because it is a win-win proposition. It is good for Japan and 
it is good for us. And the medical technology is a good example 
of where I think this can be a win-win sub-sector.
    Ms. Dunn. Good. I am very happy to hear about that. So will 
some of my constituents be happy.
    Touching on a third area in my last minutes, I am 
interested in the United States and Vietnam Bilateral, because 
it will be of very direct benefit to some of the companies that 
I represent in Washington State, companies, for example, that 
produce aircraft, agricultural products and software. Can you 
give us an update on where that agreement stands? What is the 
timing, for example, that is in the back of your mind for the 
administration to send this agreement to Congress?
    Mr. Zoellick. Well, we are very interested in moving this 
agreement forward. We also believe it is an important 
agreement. As you know, it has a slightly more complicated 
procedure because it has got a privileged motion. So once it is 
submitted, it moves on a clock through the Congress. And so we 
have been, frankly, looking to work with the Congress to see 
how we can move Jordan, which some of you talked about, the 
Andean trade preferences, the Vietnam agreement, the Balkans 
agreement, the GSP and the Trade Promotion Authority.
    I know that the communist government in Vietnam would like 
us to do this overnight. I know that Mr. Crane had a chance to 
talk to them. A communist government does not have to worry 
about floor time. We do.
    A second problem is, that we ought to at least recognize, 
is having spoken to the officials in the Clinton administration 
that handled this, that communist government in Vietnam sat on 
this agreement for about a year, when they were urged, time and 
time and time again, to move it forward. So basically from 1999 
to 2000 there was nothing done on the Vietnamese side.
    So I think it is important to move forward. I think it 
could support those in the government in Vietnam that are 
moving forward with economic reforms. But even here, I would 
emphasize that we are not standing in the way of economic 
reforms. There is lots of countries in the world that figure 
out how to reform their economy without necessarily having us 
be looking over their shoulder. So, frankly, that excuse does 
not cut much with me.
    And I will also point out that in the consultations that I 
have done with some of your colleagues about this, there are 
some items that I will be asking the US Embassy to follow up 
on. For example, the US Commission on International Religious 
Freedom had a recent hearing where they had some troubling 
incidents in terms of the Christians and the Buddhist 
community. There has also been some real repression about some 
of the ethnic people in the highlands. We had some issues 
raised by some of your colleagues about textiles and about 
catfish, and so I do not want these to get in the way, but I 
think if we are going to move quickly, then we are also going 
to need to be able to get some response from the Vietnamese 
government on things that some of your colleagues would like to 
see.
    So I would be pleased with you to work with it quickly, but 
I think, frankly, it is going to depend a little bit on the 
congressional reaction to the other items that we are sending 
up this week.
    Ms. Dunn. Good. Thank you very much. Thanks, Mr. Chairman.
    Chairman Crane. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman.
    Ambassador, thank you for being with us, and thank you for 
your comments on the Free Trade with the Americas Agreement.
    Let me ask a couple of questions with regard to your 
statement, and I do not know if you mentioned it in your 
summary, your verbal statement, but in your written statement, 
on page 6, where you talk about labor and the environment, you 
mention that we might want to consider using incentives, not 
just disincentives, to encourage better environmental 
protection on labor standards, and you mention also that we 
might want to strengthen the role of complementary specialized 
institutions, such as the International Labor Organization. I 
am wondering if you could give us a little bit more detail 
about what you mean about strengthening the role of the ILO and 
if you might comment on your position, or the administration's 
position, with regard to providing some kind of enforcement 
mechanism within the ILO for purposes of labor standards.
    Mr. Zoellick. Yes. And I just interrupt your time for a 
minute because of one thing I forgot to answer with 
Congresswoman Dunn's question is, I discovered we also had an 
agreement with Laos that we have not acted on since 1997, and 
frankly, we ought to try to deal with that at the same time. It 
is a similar sort of agreement without privileged purpose.
    I am glad you highlighted that point, Congressman, because 
part of the larger message that I have been trying to make is 
that, as Congressman Levin has mentioned, I do think we need to 
integrate environment and labor into this broader agenda, but I 
think that there is a wide spectrum of possibilities between 
what can develop through growth on its own and rushing to some 
negative form of sanctions. And some of these I have talked 
about with the heads of some of the development banks about how 
they can try to create some financial support for programs that 
would support correlator standards or support the integration 
of environmental objectives with larger lending.
    Now, in the case of the ILO in particular, I met with the 
head of the ILO actually before I assumed office, and I think 
it is an organization that offers some interesting 
possibilities in terms of some basic standards that all of us 
can stand by, the recognition that many countries have agreed 
to those standards, going back to Mr. Levin's point about 
building on other areas that people have agreed on, and then 
trying to work with them to support either their local 
legislation and the enforcer of that legislation.
    I mean, just to give you an example, I spoke to a 
Guatemalan official about a week or two about labor legislation 
they were passing, because I thought it was important that we 
try to support the effort for a society that has known much 
violence, to be able to implement laws that followed their own 
obligations. We can do this with their AID funding.
    But particularly in the ILO area, in the past year or two, 
you know, the ILO, which has been seen as not really having an 
effective enforcement arm, has started to explore whether it 
might suggest enforcement actions for its member States. And 
the key first test to this relates to Burma, and I have taken a 
particular interest in this because I think it is important for 
Burma as well as the principle of where we would like the ILO 
to go. Now, the issue with Burma related to forced labor, and 
as you may know, we have had various sanctions on Burma related 
to investment and other provisions dating back to the last time 
that I was in government. I was willing, frankly, to explore 
the use of additional trade sanctions and discussed this with 
my EU colleague, because I do not think it is wise for us to do 
this just on our own. The problem in this case is that I 
learned that Aung San Suu Kyi, the Nobel prize winner, has 
engaged in a dialog now with the military government, and does 
not believe that sanctions at this time would be constructive. 
So I can do a lot of things. I cannot jump in the shoes of a 
Nobel Peace prize winner on that issue. And so I am trying to 
follow that one, because I think, frankly, if things do not 
improve, I would like to look at that as another time to see 
whether we might move forward.
    Mr. Becerra. I am not sure if you are telling me though 
whether or not you would be in favor of providing the ILO with 
teeth, some enforcement teeth, in order to help bring about 
some higher standards on labor and environment.
    Mr. Zoellick. Well, what I am saying is, is the way the ILO 
would do that, is it would make a recommendation for its Member 
States, and I am saying this is a real-life example as opposed 
to a concept, and I am certainly willing to look at it.
    Mr. Becerra. Sounds like some kind of reporting mechanism, 
where we can use the reports by the ILO on the activities of a 
country to guide us on whether or not there could be any 
enforcement or attempts to try to get the country to better 
enforce its own labor standards or perhaps improve their labor 
standards.
    Mr. Zoellick. Exactly. And let me give you one other 
example, and that is, you know, Congressman Levin has been 
involved with this in the case of Cambodia and the textiles 
arrangement, and there has been sort of a mixed record about 
that, but one of the things that I think will improve it, is 
the ILO is now sending a team to try to help with the 
implementation of that agreement, and I think that is a very 
constructive step. So it is a good example of how the ILO can 
set standards, it can help us in terms of the technical 
assistance, and we can direct some of our funding and multi-
development banks with funding, but, frankly, I am also open to 
the idea of enforcement efforts done by national governments 
related to those core standards.
    Mr. Becerra. Thank you very much.
    Mr. Houghton. [Presiding.] Mr. English.
    Mr. English. Thank you, Mr. Chairman.
    Ambassador Zoellick, I also want to congratulate you on 
your inspired advocacy of America's economic interests in 
Quebec City, for what I think was your active role in making 
sure that that summit was perhaps the most transparent we have 
ever had in response to some of the criticisms from the street. 
Clearly this was a much more open process than has happened in 
the past. And also I want to congratulate you and the 
administration on grappling with some very difficult issues 
about the scope of the negotiation.
    Now, having been out in Seattle, I understand how important 
this is in launching a negotiation. I went out to Seattle 
hoping to have a chance to meet with some of my counterparts, 
to talk about why I thought that anti-dumping and 
countervailing duties laws should not be on the agenda. I know 
that you faced basically the same issue in Quebec City. And at 
the same time, the administration, as I understood it, came out 
against including anti-dumping and countervailing duties on the 
agenda you were advocating, keeping open the option of labor 
and environmental issues. And as I understand it, the 
compromise that was struck, was that you were able to leave the 
agenda open so that any Member nation would be able to include 
things on the agenda as the FTAA went forward. I think that is 
a good solution. I would like you to comment a little bit about 
it, and if I might, I would also like to express the fact that 
I do not believe that an FTAA negotiation is an appropriate or 
feasible way of making significant changes in our anti-dumping 
and countervailing duty laws. Your comments, sir?
    Mr. Zoellick. Well, as you suggested, the way these 
negotiations work is that people are allowed to put forward 
their own text, and in the environment and labor area, we 
fought long and hard for the freedom to be able to put forward 
some language that basically said that countries should not 
adjust their environmental labor standards to draw up an 
investment, and some language very similar to what we already 
have in the NAFTA provision. And at the end of the day, people 
agreed with our right to put forward that language. It partly 
relates to some of the other questions I have, that it does 
reveal the degree of sensitivity in the developing world about 
what I think is a very modest set of proposals, but how people 
are worried that they are going to be used for protectionist 
purposes, whether people here like that term or not. They do.
    The second point is, is that in the anti-dumping area, as 
you said, there are many people that would like to change our 
anti-dumping laws. Our position is that we do not want to 
change them, and so that is our stated role. There are issues 
that people have looked at more generally in terms of the 
transparency in the procedures, and in sort of how the 
procedures work, which, frankly, I am open to more because I am 
concerned about how these laws will be used against US 
companies elsewhere in the world. There are some striking 
charts about how other countries are now using these anti-
dumping and countervailing duty laws without the rules and 
transparency that the United States has. But, you know, I share 
the belief that I know you do, that I think that to be able to 
sustain free trade in this country, we are going to have to be 
able to have strong laws to deal with unfair trade practices.
    And if I might add, I feel this on the safeguards as well, 
on the whole issue of the 201. You know, this is a subject I 
have talked about with a lot of my colleagues, and I have 
raised overseas. I think in a world where, you know, 
information can move at the speed of light, and financial 
transactions at a similar speed, and trade is moving at a close 
to similar speed, it is just a reality that some industries in 
some communities are not going to move as quickly. And I do not 
believe our solution should be to protect them and not let them 
adjust, but I do believe we have to create some mechanisms to 
allow them to adjust in time so as to be able to maintain 
support for trade. And this is true in some agricultural areas, 
and it is true in some manufacturing categories. I think for us 
to be able to do this effectively, however, we are going to 
have to be stringent, because, as you know, all the pressures 
will be on, you know, holding back change which cannot be held 
back. So I am a strong believer in trying to see how this 
administration can use 201 provisions effectively, but without 
letting them slip into a new form of protectionism.
    Mr. English. Mr. Chairman, with your indulgence, I wanted 
to ask a quick follow-up question.
    Since you, Ambassador, raise the issue of 201, and you are 
aware of my interest in the steel issue, I was wondering if you 
could quickly update us on the administration's current 
thinking on the possible use of a section 201 action to remedy 
the steel industry's dilemma?
    Mr. Zoellick. The main point I should make, Congressman, is 
that since you do such a good job of monitoring this closely, 
there is very little I can add from the last time that you 
asked me, which was probably last week.
    But in essence, this is a topic that Secretary O'Neill, 
Secretary Evans, Secretary Chao and myself have all been deeply 
engaged in. There is an interagency group that is chaired out 
of the White House. Secretary O'Neill I think has taken a 
particular interest in some potential international solutions 
based on his experience with the aluminum industry.
    And so we have also, as you know, discussed this with the 
wide range of industry members, and as you know, there are some 
different views on this because some of the industry feels that 
they are more efficient, and they would be able to operate 
better if some capacity was not in place, and others, it 
depends on the nature of their business operations and whether 
they are a fully integrated operation, or it depends somewhat 
on their strategy. And in similarly, obviously, some of the 
local unions that are related to specific plants, have a 
different perspective from the general steel workers who may be 
recognizing an overall need for restructuring.
    So my sense is, Congressman, that this is an issue that we 
believe is going to have to be resolved in a matter of weeks to 
month. I cannot say for sure. There is no decision. You know my 
own preference, but that is not--I do not mean to suggest that 
is going to by any means be the result, but I do think that it 
is important for those interested in the issue to be actively 
engaged, because we are.
    Mr. English. Thank you for sharing our sense of urgency, 
and thank you for you testimony today.
    Mr. Houghton. Mr. Brady.
    Mr. Brady. Thank you, Mr. Chairman.
    Mr. Ambassador, you made the point very early on that we 
have a lot of time and a lot of effort to catch up on, and 
these trade jobs are the ones that our kids are going to use to 
be able to raise a family on, and it is embarrassing to know 
that Chile has free trade agreements with every nation in this 
hemisphere except the United States and Cuba. It is 
embarrassing to know that out of the investment treaties we 
have--which basically when America invests in a country, we 
sell to that country--we are 26th in the world there, just 
behind those free-enterprise bastions of Cuba and Morocco, but 
we have edged out Tunisia, I think, in those investment 
treaties. We need to be back on the field so that, again, our 
children will have the kinds of jobs they can raise their 
family on. I know in Texas, we have seen as a result of NAFTA, 
just in 5 short years, in the area we were most likely to have 
jobs competitive, manufacturing, the one that Ross Perot said 
we would hear to giant sucking sound in, just in 5 years we 
have created enough new manufacturing jobs, just in our State, 
to fill every seat of the Astrodome twice over, just in 5 
years, new manufacturing jobs.
    Along the border between Mexico and Texas, which is a 
terrible environmental area, just since NAFTA we now have--the 
last time I checked--$2 billion of environmental projects to 
clean the air and to clean the water better than it ever has 
before, and we still have a long way to go, but that would have 
never occurred without the free trade agreement. And from 
labor's standpoint, not only are standards rising in Mexico, 
but you would be hard pressed to argue that the new plants 
opening there pay less or have less benefits than those that 
existed before. It is a win-win situation.
    I appreciate the effort you are making to focus on 
enforcement. Anyone who read the report out of your office from 
last week would have to be impressed with the aggressiveness of 
America and this administration to aggressively enforce these 
trade laws and agreements. There is no question too, that as in 
any agreement, whether it is between two businesses or two 
nations or more, there will be disputes. Some can be handled 
through the administration. Some have to go through a court and 
an appeals process, and can be very frustrating. But I think 
you are right on track to enforce the trade agreements, to have 
written analysis of the impact on the environment, to invite 
the labor community into these assessments, to make sure that 
we, indeed, as you said, are rising, not just free trade, but 
freedom, environmental progress, labor progress, all at the 
same time. They really are compatible and really do go 
together, and I appreciate again the effort you are making to 
enforce and to raise them. Thank you, Mr. Chairman.
    Mr. Houghton. Thanks, Mr. Brady.
    Mr. Zoellick. Can I just make a brief comment?
    Mr. Houghton. Yes, sure.
    Mr. Zoellick. Is that because the Congressman and I have 
talked about this for a long time. In fact, we had the pleasure 
of starting to dig into this, I think, before the first Seattle 
meeting, and I know you have a strong interest in this.
    And the point I just want to make on enforcement is that to 
be fair, this is really an effort that has crossed 
administrations. A number of the things in the report that you 
pointed out were things that were done by my predecessors in 
the Clinton administration, and it is also very much related to 
this Congress, because you have given us additional 25 people. 
Many people do not realize that we only have about 203 people 
at USTR trying to cover the world. So that extra 25 people 
makes a big difference to us. We are in the process of staffing 
them up right now, so, frankly, it is the support of the 
Congress on this that enables us to do a better job, and that 
report that you read was a combination of my predecessors as 
well as the current team.
    Mr. Brady. Another example that free trade is a bipartisan 
issue. Thank you, Mr. Chairman.
    Mr. Houghton. Any other comments? Thanks very much, Mr. 
Ambassador. Certainly appreciate your testimony.
    Mr. Zoellick. Thank you.
    [Questions submitted from Mr. Shaw, and Ambassador 
Zoellick's response are as follow:]

    Question 1: Is it possible and are you inclined to treat such 
import sensitive commodities differently in the FTAA and WTO 
negotiations, and maintain tariff protection as the primary means of 
offsetting years of artificial foreign advantages? What other methods 
exit?
    Response 1: Although the U.S. objective in both the FTAA and WTO is 
to open markets for agricultural products, the tariff negotiations in 
the two fora will differ in many respects. The results of the FTAA 
negotiations must comply with WTO rules and disciplines for free trade 
agreements, including the requirement to progressively eliminate 
tariffs on substantially all trade within ten years. In the WTO 
agriculture negotiations, we generally seek tariff reductions rather 
than tariff elimination, although we do not preclude the possibility of 
zero-for-zero negotiations for certain agricultural commodities. Given 
these differences in the underlying scope of the negotiations, it is 
highly unlikely that import sensitive commodities would receive the 
same treatment in the FTAA and WTO negotiations. We recognize the need 
to work with Congress and interested representatives of our 
agricultural sector to develop the most appropriate methods to address 
the concerns of import sensitive industries in each of the ongoing 
negotiations.

    Question 2: Do you foresee a situation where you will be forced to 
make choices between competing interests, trading some import sensitive 
commodities against export focused commodities or other industrial 
products, for the sake of reaching an agreement?
    Response 2: Most negotiations require some difficult decisions. 
This will no doubt be true for the FTAA and WTO negotiations. These 
decisions will likely involve how to best accommodate the particular 
interests of all segments of the U.S. industry, including import 
sensitivities and export interests. Our objective is to get the best 
deal possible for U.S. agricultural producers, processors and consumers 
in both negotiations, as part of the overall package of results in each 
negotiation.

    Question 3: Maintaining the strength of U.S. trade remedy laws, 
such as antidumping and countervailing duty procedures, is critical to 
survival for many American farmers. Will you notify Congress in advance 
if you foresee that negotiations require modification in the 
application of the U.S. antidumping laws to dumped agricultural 
imports, prior to the ratification process?
    Response 3: The Administration agrees that maintaining the strength 
and effectiveness of our trade remedy laws is of critical importance. 
The Administration will continue to consult closely with Congress on 
all aspects of the FTAA negotiations, particularly with respect to 
important issues such as trade remedies.

    Question 4: Since NAFTA took effect, Florida's fruit and vegetable 
growers have repeatedly expressed concern about lost domestic sales to 
Mexican tomatoes, bell peppers, cucumbers and other crops. They cite 
any number of reasons for those lost sales--from lower U.S. tariffs, to 
increased investments in Mexico, to the peso's devaluation after NAFTA 
took effect, to inadequate U.S. safeguard mechanisms for import-
sensitive fruits and vegetables. How would the FTAA be more responsive 
to these various concerns?
    Response 4: The Administration wants to work with Congress and 
Florida fruit and vegetable growers to find the most appropriate way to 
address the growers' concerns regarding the FTAA. Safeguard mechanisms 
are certainly one possibility that we are exploring. We would be very 
interested in receiving advice from interested Members concerning the 
way safeguards or other mechanisms could be structured to address the 
concerns of Florida fruit and vegetable growers.

    Question 5: What concrete steps do you intend to take in this trade 
initiative to prevent the most import-sensitive U.S. products, 
including Florida fruits and vegetables, from being harmed?
    Response 5: The Administration recognizes that many Florida fruit 
and vegetable growers are concerned about the potential effects of the 
FTAA. Currently, FTAA negotiators are focusing on the general framework 
(so-called ``modalities'' that will be used as the basis for the tariff 
negotiations, as well as developing texts on specific issues such as 
safeguards. Detailed product-by-product tariff negotiations are 
scheduled to begin by May 15, 2002. During this year, the 
administration is seeking specific advice from Congress and our private 
sector concerning the types of general approaches to tariffs and other 
issues, including safeguards, that might address the concerns of import 
sensitive sectors.

                                


    Mr. Houghton. Now we will call the next panel. Loren Yager, 
Director of the International Affairs and Trade, United States 
General Accounting Office; the Honorable Richard Fisher, former 
Deputy United States Trade Representative; the Honorable John 
Sweeney, President of the American Federation of Labor and 
Congress of Industrial Organizations; Franklin Vargo, Vice 
President of the International Economic Affairs, National 
Association of Manufacturers; Daniel Price, Partner, Powell 
Goldstein, Frazer and Murphy, on behalf of the United States 
Council for International Business; and William Gambrel, 
President of the Bank of Boston, Colombia, and Vice President 
of the Association of American Chambers of Commerce in Latin 
America.
    Chairman Crane. [Presiding.] We will proceed in the order 
you were presented to the Committee, and I would ask that you 
try and keep oral testimony to roughly 5 minutes, and any 
printed testimony will be a part of the permanent record. And 
with that, we shall commence with Mr. Yager.

 STATEMENT OF LOREN YAGER, DIRECTOR, INTERNATIONAL AFFAIRS AND 
             TRADE, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Yager. Thank you, Mr. Chairman. Mr. Chairman and 
Members of the Subcommittee, I am pleased to have the 
opportunity today to discuss our observations on the two recent 
meetings affecting the negotiations for a Free Trade Area of 
the Americas, the Trade Ministerial in Buenos Aires, Argentina, 
and the Presidential Level Summit in Quebec City, Canada.
    We reported in March 2001 that the negotiations are at a 
critical juncture, and that these two meetings offered an 
opportunity to provide momentum and set an ambitious pace for 
the next more difficult phase of the negotiations. In that 
report we cited a number of goals that needed to be 
accomplished for the meetings to be successful. The primary 
message of my testimony this afternoon is that the April 
meetings accomplished those goals and set the stage for the 
phase of the negotiations where the hard bargaining will begin.
    Specifically today, I will discuss what the Western 
Hemisphere nations did on three issues. They addressed 
controversial topics. They set objectives and deadlines for the 
next phase, and they provided momentum for the negotiations. 
Finally, I will conclude with some long-term challenges that we 
discussed in our March report.
    First, the ministers reached accommodations on a number of 
controversial issues that had slowed progress on other topics. 
These agreements, on subjects such as labor and the 
environment, anti-dumping and smaller economies, enabled 
countries to set forth basic principles while keeping topics on 
the table for future resolution. For example, as Ambassador 
Zoellick stated earlier, on labor and the environment, the 
ministers defused the conflict over whether to include US text 
by stating that any delegation has the right to present 
proposals it deems relevant, though others may place these 
proposals in brackets to indicate their disagreement. However, 
the adjacent sentence in the ministerial declaration states 
that most of the ministers believe non-compliance with 
environment and labor rights should not result in trade 
restrictions or trade sanctions. While the ministers and 
leaders did not resolve these questions, the agreements did 
allow them to move on and accomplish the rest of the agenda for 
the meetings.
    The second accomplishment was the direction provided for 
refining the draft text and beginning negotiations on market 
access, which reflect the hard bargaining of the negotiations. 
To move toward consensus on the draft text, ministers directed 
negotiating groups to refine as much as possible of the 200 
plus pages of overlapping and competing text before the 
Ministerial. To prepare for the beginning of market access 
negotiations, the ministers instructed specific negotiating 
groups to develop recommendations by April 1, 2002 on the basic 
ground rules for negotiation. Ministers also established the 
deadline of May 15th, 2002 for negotiating groups to initiate 
the market access negotiations on tariffs and other topics.
    The third accomplishment was that the trade ministers and 
leaders added momentum to the process in two ways. One was the 
decision, again mentioned earlier, made at the April meetings, 
to publicly release the draft text of the non-negotiating 
groups. In response to public pressure and recommendations by 
the business community, the ministers determined that releasing 
the text would help increase the transparency of the 
negotiating process and build public understanding of the FTAA. 
The leaders also set a firm deadline for completion of the 
agreement in January 2005, accelerating the pace of the 
negotiations.
    Facing a critical juncture in the FTAA process, the FTAA 
countries accomplished an ambitious agenda designed to start 
the hard bargaining phase of the negotiations on a sound 
footing. Still, as we had previously reported, the FTAA 
negotiations face other long-term challenges, including 
managing the scope and complexity of work required to finalize 
draft rules, resolving contentious issues, and summoning the 
political will in the United States and other countries to 
conclude an agreement.
    Mr. Chairman, this concludes my testimony. I would be happy 
to answer any questions that you or other Members of the 
Subcommittee have.
    [The prepared statement of Mr. Yager follows:]

 Statement of Loren Yager, Director, International Affairs and Trade, 
                     U.S. General Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    I am pleased to have the opportunity today to discuss our 
observations on two recent meetings affecting the negotiations for a 
Free Trade Area of the Americas agreement: a trade ministerial in 
Buenos Aires, Argentina, on April 7, 2001, and the presidential-level 
Summit of the Americas in Quebec City, Canada, on April 20-22. The Free 
Trade Area of the Americas agreement, if completed, would eliminate 
tariffs and create common trade and investment rules within the 34 
democratic nations of the Western Hemisphere. As you know, these 
negotiations are among the most significant ongoing multilateral trade 
negotiations for the United States. President Bush has stated 
repeatedly that establishing the Free Trade Area of the Americas is one 
of his top trade priorities. We reported in March 2001 \1\ that the 
negotiations are at a critical juncture and these two meetings offered 
an opportunity to inject momentum and set an ambitious pace for the 
next, more difficult phase of the negotiations. We also reported that, 
going into the meetings, the ministers faced an ambitious agenda of 
decisions designed to start the next phase of the negotiations on a 
sound footing. At your request, we reviewed the results of the 
meetings. Specifically, today I will discuss what Western Hemisphere 
countries did to (1) address controversial issues, (2) set objectives 
and deadlines for the next phase of the negotiations, (3) build public 
support, and (4) adding needed momentum into the negotiations. My 
observations are based on our past and ongoing work on the Free Trade 
Area of the Americas process, including in Buenos Aires, Argentina. 
Before I get into the specifics of these topics, let me provide a brief 
summary.
---------------------------------------------------------------------------
    \1\ See Free Trade Area of the Americas: Negotiations at Key 
Juncture on Eve of April Meetings (GAO-01-552, Mar. 30, 2001).
---------------------------------------------------------------------------
SUMMARY
    As we stated in our March report, the trade ministers for the Free 
Trade Area of the Americas (FTAA) countries faced an ambitious agenda 
in the April meetings. This was because a number of controversial and 
complex issues had slowed progress on the objectives and deadlines that 
had to be concluded in the April meetings. However, accommodations 
reached by the ministers on topics such as labor and the environment, 
antidumping, and nations with smaller economies allowed countries to 
set forth basic principles while keeping topics on the table for future 
resolution. For example, on labor and the environment, the ministers 
stated that any delegation has the right to present negotiating 
proposals it deems relevant. However, the ministers went on to announce 
that most ministers believe noncompliance with environment and labor 
rights should not result in trade restrictions or sanctions.
    As a result of the movement on these controversial issues, the 
trade ministers were able to set out clear objectives and deadlines to 
promote progress during the next 18 months of the negotiations. These 
negotiations will culminate at the next trade ministerial to be held in 
Ecuador, in October 2002. So far, the FTAA negotiations have produced a 
draft text agreement, covering nine major issue areas. The next 
negotiating phase will involve hard bargaining to refine the draft text 
and begin negotiations on market access concessions. To move toward 
consensus on the draft text, ministers directed negotiating groups to 
eliminate material that is in dispute to the maximum extent possible. 
To prepare for the beginning of the market access negotiations, 
ministers instructed specific negotiating groups to develop 
recommendations by April 1, 2002, on the methods and modalities (basic 
ground rules) for negotiation. The ministers also asked the groups to 
develop, where appropriate, inventories of tariffs, nontariff barriers, 
subsidies, and other practices that distort trade. Ministers directed 
negotiating groups to initiate these market access negotiations no 
later than May 15, 2002.
    The FTAA trade ministers took several notable actions to build 
public support for the FTAA process. The biggest surprise decision made 
at the April meetings was the agreement to publicly release the draft 
text of the nine negotiating groups. In response to public pressure for 
greater openness and recommendations by the business community, the 
ministers determined that releasing the text would help ensure the 
transparency of the negotiating process and build broad public 
understanding of and support for the FTAA. The text, which is several 
hundred pages long, will be made public after its translation into the 
four official languages \2\ of the negotiations. The trade ministers 
also took action to enhance the role of civil society--meaning 
nongovernmental groups representing business, labor, environment, and 
other interests--in the FTAA process.
---------------------------------------------------------------------------
    \2\ English, French, Portuguese, and Spanish.
---------------------------------------------------------------------------
    The April meetings appear to have been successful in providing 
high-level political leadership across the hemisphere and fresh 
momentum to the FTAA negotiations. At their summit in Quebec City, 
President Bush and other leaders signaled their commitment to the FTAA 
and their desire to work together to attain the common goals of 
expanding trade, improving economic opportunities, strengthening 
democracy, and redressing social and economic inequities. The meeting 
also set new deadlines for completing and implementing the agreement, 
partly accomplishing the feat of setting an accelerated pace for 
negotiations. Business and congressional leaders attended, underlining 
interest by key U.S. stakeholders, even as protests graphically 
demonstrated the opposition mobilizing against an FTAA. The outcomes at 
Buenos Aires and Quebec allow the next phase of technical negotiations 
to start on a sound footing. However, boosting U.S. congressional and 
public support, dealing with a large and complex agenda of issues, and 
accommodating the diverse needs and positions of participants are among 
the challenges facing FTAA negotiators in the hard bargaining ahead.

BACKGROUND
    In December 1994, the heads of state of the 34 democratic countries 
in the Western Hemisphere agreed at the first Summit of the Americas in 
Miami, Florida, to conclude negotiations on a Free Trade Area of the 
Americas no later than 2005. The FTAA would cover a combined population 
of about 800 million people, more than $11 trillion in production, and 
$3.4 trillion in world trade. It would involve a diverse set of 
countries, from some of the wealthiest (the United States and Canada) 
to some of the poorest (Haiti) and from some of the largest (Brazil) to 
some of the smallest in the world (Saint Kitts and Nevis). Proponents 
of the FTAA contend that a successful negotiation could produce 
important economic benefits for the United States. Business groups say 
that if relatively high tariffs and other market access barriers are 
removed, U.S. trade with the region could expand further. While an FTAA 
may provide benefits for the United States, it may also adversely 
impact certain import-competing sectors. Other groups, such as certain 
unions and environmental groups, have also strongly voiced concerns 
about the FTAA's impact on U.S. workers and on the U.S. government's 
capacity to act in the public interest.
    From a technical standpoint, ministers agreed in 1998 at the San 
Jose Ministerial meeting that the FTAA would be a single undertaking, 
meaning that the agreement would be completed and implemented as one 
whole unit instead of in parts. They also agreed that the FTAA 
agreement will be consistent with the rules and disciplines (practices) 
of the World Trade Organization, and that the FTAA could coexist with 
other subregional agreements, like the Common Market of the South 
(Mercosur) and the North American Free Trade Agreement (NAFTA), to the 
extent that the rights and obligations go beyond or are not covered by 
the FTAA. An eventual FTAA agreement would contain three basic 
components: (1) chapters on general issues and the overall architecture 
of the FTAA and its institutions, (2) schedules for reducing tariff and 
nontariff barriers, and (3) chapters on specific topics. The 
chairmanship of the negotiations changes every 18 months, with 
Argentina serving as chair through the April 2001 meetings, succeeded 
by Ecuador for the next round of negotiations. Brazil and the United 
States are set to co-chair the final round from November 2002 to 
December 2004. Ministers set out the workplans for the negotiating 
process and select new chairs for the negotiating groups in 18-month 
increments.
    The FTAA negotiations have so far met the goals and deadlines that 
the trade ministers set. Since beginning the process in 1994, the 34 
participating countries have succeeded in building a technical 
foundation for the negotiations. As shown in figure 1, from December 
1994 to March 1998, the participants developed the overall structure, 
scope, and objectives for the negotiations. The participating countries 
then formally initiated the negotiations at the San Jose Ministerial 
and the Santiago Summit of the Americas in 1998. The negotiating 
groups, illustrated in figure 2, recently produced a first draft of 
chapters for specific issues, such as market access, investment, and 
agriculture. According to U.S. and foreign negotiators, however, the 
draft text is heavily bracketed,\3\ indicating that agreement on 
specific language has not been reached. In addition, negotiations on 
market access have yet to begin. Nevertheless, participants described 
this draft text as an important accomplishment and stated that it will 
form the basis for future negotiations. The negotiations have also 
produced several business facilitation measures and improved 
coordination between participating countries on trade matters.
---------------------------------------------------------------------------
    \3\ The term ``bracketed'' refers to the punctuation placed around 
language in the draft chapters for which agreement has not yet been 
reached. For example, if two countries submitted different proposals 
for language in a chapter, brackets would be placed around each 
proposal until a consensus is reached on the differences between the 
two.

[GRAPHIC] [TIFF OMITTED] T4222A.012

            Figure 2: Organization of the FTAA Negotiations
[GRAPHIC] [TIFF OMITTED] T4222A.013


Legend:

SPS=Sanitary and phytosanitary measures (These measures are taken to 
protect human, animal, or plant life or health)

Note 1: Current chairs of the various FTAA entities are listed in 
parentheses. The objectives of each negotiating group and the Trade 
Negotiations Committee appear in italics.

Note 2: The Tripartite Committee provides technical assistance to the 
negotiations and is composed of the Organization of American States, 
the Inter-American Development Bank, and the United Nations Economic 
Commission for Latin America and the Caribbean.

Note 3: The FTAA ministers and negotiating groups are serviced by an 
Administrative Secretariat.

Note 4: The venue for the actual negotiations was initially located in 
Miami and will rotate to Panama City and Mexico City.

Source: GAO.

MINISTERS DEFUSE CONTROVERSIAL ISSUES
    FTAA ministers took measures in Buenos Aires to prevent several 
controversial or complex topics from blocking the progress of the 
negotiations. In our March report, we noted that the trade ministers 
faced an ambitious agenda in the April meetings because the 
controversies had consumed considerable time in the preparatory 
process. One such issue involved the right of countries to put forward 
text in the negotiating groups, specifically on labor and the 
environment. The United States had sought to include proposals in the 
investment negotiating group obligating parties to strive to ensure 
that their environmental and labor laws would not be relaxed to attract 
investment. Other FTAA countries objected to this proposal, stating 
that labor and the environment were outside the mandate of the 
negotiating group and did not belong in an FTAA. The ministers resolved 
this conflict by stating that the negotiating groups should work under 
the principle that any delegation has the right to present proposals it 
deems relevant, though others may place these proposals in brackets if 
they do not agree. However, most ministers went on to announce their 
opposition to the use of sanctions for enforcing labor and environment 
provisions.\4\
---------------------------------------------------------------------------
    \4\ The text of the ministerial declaration states, ``Most 
Ministers recognize that the issues on environment and labour should 
not be utilized as conditionalities nor subject to disciplines, the 
non-compliance of which can be subject to trade restrictions or 
sanctions.''
---------------------------------------------------------------------------
    Another challenging issue addressed by ministers to keep the 
process on track involved considering the needs of smaller economies. 
As we reported, countries with smaller economies are concerned with 
both technical and resource constraints that make the negotiating 
process a challenge and with preventing their economies from being 
overwhelmed by the larger ones once the agreement is implemented. 
According to FTAA experts, their concerns about resource constraints 
were met in part by assurances from the U.S. Trade Representative and 
the President of the Inter-American Development Bank that they would 
attempt to identify additional technical assistance. In addition, their 
concerns about implementation were addressed in the ministerial 
declaration, wherein the ministers in Buenos Aires reiterated their 
commitment to take into account the differences in levels of 
development and size of the economies among the FTAA participants. The 
ministers further directed the Trade Negotiations Committee to 
formulate by November 2001 some guidelines for applying treatment for 
dealing with the differences in the size of the economies.
    A third area in which controversy was forestalled involved 
antidumping. Prior to the ministerial, a U.S. alternative proposal in 
the negotiating group on antidumping created a controversy among the 
FTAA participants. The Office of the U.S. Trade Representative has 
stated that the FTAA agreement should ensure the right of each country 
to maintain and apply trade remedies within the FTAA. According to one 
of the foreign lead negotiators, the U.S. alternative proposal angered 
many other participants because it was viewed as an effort on the part 
of the United States to take the antidumping issue off the negotiating 
table. While U.S. officials have denied that this was their intent, the 
issue threatened to distract the ministers at Buenos Aires, according 
to observers. The issue was defused, however, by several ministerial 
directives. Specifically, the ministers placed language in the 
ministerial declaration repeating their initial charge from the San 
Jose Ministerial for the negotiating group on subsidies, antidumping, 
and countervailing duties to intensify its efforts to reach a common 
understanding and improve the rules and procedures for operation and 
enforcement of trade remedy laws. The ministers further directed the 
negotiating group to submit recommendations on the methodology to 
achieve this objective by April 2002. In effect, the ministerial action 
reminds all participants that they have previously agreed to seek 
improvements in trade remedy regimes, while providing a deadline for 
action toward that end.
MINISTERS PROVIDE DIRECTION FOR NEXT PHASE OF NEGOTIATIONS
    As we noted in our March report, an important task for the April 
meetings was setting the pace, goals, and structure for the remainder 
of the FTAA process. At the Buenos Aires Ministerial, FTAA trade 
ministers took a series of steps to set out the objectives and 
timeframes for the next 18 months of the negotiations, which will 
culminate in the next trade ministerial to be held in Ecuador in 
October 2002. These steps are illustrated in figure 3.

[GRAPHIC] [TIFF OMITTED] T4222A.014

    One of the important tasks of the April meetings was to prepare for 
the beginning of market access negotiations. Before countries can begin 
to negotiate on market access concessions, they must agree on the basic 
ground rules of the negotiations, such as the type of tariff rate to 
use as the starting point. Negotiators refer to these ground rules as 
the ``modalities.'' \5\ Several of the specific directions ministers 
provided to the negotiating groups are listed below (applicable 
negotiating groups are listed in parentheses):
---------------------------------------------------------------------------
    \5\ Other modality decisions include, for example, the period of 
time in which the tariff reductions will occur.
---------------------------------------------------------------------------
     Recommend methods and modalities for upcoming negotiations 
on tariffs, nontariff barriers, rules of origin, subsidies, investment, 
government procurement, services, and other practices that distort 
trade in agricultural products (market access; agriculture; investment; 
subsidies, antidumping, and countervailing duties; services; and 
government procurement).
     Create a preliminary inventory of nontariff measures 
(market access, agriculture).
     Recommend what types of other practices that distort 
agricultural trade should be addressed (agriculture).
     A related step ministers took to advance the FTAA process 
was to set a date for beginning market access negotiations. As we 
reported in March 2001, the FTAA participants had not set out a date to 
begin the market access negotiations, where countries start to offer 
tariff and nontariff concessions. In Buenos Aires, ministers directed 
specific negotiating groups to begin these negotiations no later than 
May 15, 2002. This pertains to tariff liberalization in the market 
access and agricultural groups, and rules of origin in the market 
access group. The deadline also pertains to investment, services, and 
government procurement groups for market access negotiations in their 
respective groups.
     The ministers also instructed negotiating groups to take 
steps to reach consensus on the draft text. As we reported, the draft 
text generally represents a consolidation of all proposals submitted by 
FTAA countries so far. FTAA participants state that the draft reflects 
wide differences between the countries over substance and philosophical 
approaches to key issues. The ministers specifically directed the nine 
negotiating groups to intensify efforts to resolve existing differences 
and reach consensus, with a view to eliminating brackets and 
consolidating text to the maximum extent possible. Ministers also set 
August 2002 as a deadline for negotiating groups to submit their 
revised draft chapters to ministers.
    In addition to setting specific objectives for the negotiating 
groups, the ministers formed a new Technical Committee on Institutional 
Issues to begin discussions on the FTAA's overall institutions, like 
the location of a permanent secretariat and the type of mechanism that 
will be used for dispute settlement. U.S. officials also expect that 
this committee will act as a mechanism to deal with issues that pertain 
to all negotiating groups or do not fall within a specific group. U.S. 
and other officials participating in the process stated that this new 
committee is comparable to the negotiating groups in that it will have 
a different chair than the chair of the negotiations and will be 
supervised by the Trade Negotiations Committee.

MINISTERS ATTEMPT TO BUILD PUBLIC SUPPORT FOR FTAA
    In March, we noted that the April meetings represented an 
opportunity to build public support for the FTAA and address concerns 
about openness. The FTAA trade ministers took several notable actions 
in an effort to do so. The biggest surprise of the April meetings was 
the decision to publicly release the bracketed text of the nine 
negotiating groups. As we previously reported, Canada, more than 50 
Members of Congress, and various U.S. nongovernmental groups had called 
for the release of the bracketed text, because publicly available 
information on the FTAA negotiations has been limited. In addition, 
recent public protests added to the groundswell of support for 
releasing the text. However, given the ongoing and confidential nature 
of FTAA deliberations, this proposal was expected to be controversial 
at the meetings. Nevertheless, in response to public pressure and the 
recommendation of the business community, the FTAA leaders determined 
that releasing the text would help improve the transparency of the 
negotiating process and would increase public understanding of and 
support for the FTAA. The text, which is several hundred pages long, 
will be made public after its translation into the four official 
languages of the negotiations.
    The trade ministers also took action to enhance the role of civil 
society in the FTAA process. The Committee of Government 
Representatives on the Participation of Civil Society \6\ has been 
contentious since its creation. For example, one country had 
consistently blocked the committee from preparing recommendations based 
on the public input received. In part because of the disagreement over 
the role of the committee, many civil society representatives we 
interviewed told us they were disappointed with the committee because 
there was little evidence that their input was being given serious 
consideration in the negotiations. At Buenos Aires, however, the 
ministers took action to strengthen and extend the role of the 
committee. For example, they instructed the committee to:
---------------------------------------------------------------------------
    \6\ The committee was created at the urging of the United States to 
provide a vehicle for public input on business concerns, environment 
and labor rights, and other issues.
---------------------------------------------------------------------------
     develop a list of options by the next Trade Negotiations 
Committee meeting on how to foster a process of increasing and 
sustained communication with civil society,
     analyze the possibility of incorporating more information 
on the FTAA's web page,\7\ and
---------------------------------------------------------------------------
    \7\ The English-version FTAA web page is located at www.ftaa-
alca.org/alca__e.asp.
---------------------------------------------------------------------------
     forward the public input by civil society to the 
appropriate negotiating groups.
    Whether or not these steps will be deemed sufficient by outside 
observers remains to be seen. Nevertheless, the steps, taken in 
combination with the release of the bracketed text, will make the FTAA 
process more open to public scrutiny and comment than it has been so 
far.

LEADERS TAKE STEPS TO PROVIDE POLITICAL MOMENTUM TO THE FTAA PROCESS
    As we noted in our March report, one of the most important aspects 
of the April meetings was the opportunity by hemispheric leaders to 
inject needed momentum into the negotiations at a key juncture, since 
the phase of negotiations in which countries set out initial positions 
has ended, and the coming phase is expected to narrow the many 
substantive differences that remain. The leaders addressed the issue of 
momentum in two ways. First, they set precise deadlines for concluding 
and implementing an FTAA. Second, they provided political-level support 
and direction to the process as it enters a more ambitious and 
difficult phase.
    In April, hemispheric leaders endorsed a more precise formulation 
of the dates for the conclusion of negotiations and the entry into 
force of the agreement that should accelerate technical-level progress. 
As we reported, at the 1994 Miami Summit leaders set 2005 as the 
original target date to conclude the negotiations but did not specify 
precisely what this meant. Chile put forward a proposal last year to 
move up the target date to December 31, 2003, with a final agreement 
entering into effect on January 1, 2005. However, some FTAA 
participants, most notably Brazil, publicly stated that these dates 
were unrealistic. As a compromise, FTAA leaders approved a ministerial 
recommendation at the Quebec City Summit to establish January 2005 as 
the deadline for concluding FTAA negotiations and December 2005 as the 
deadline for the agreement's entry into force. The U.S. Trade 
Representative called this step a key development to add momentum to 
the process and later noted that the United States is prepared to try 
to help beat these deadlines.
    On the political level, the April Summit engaged President Bush and 
other heads of state in the FTAA process and provided an opportunity 
for leaders to renew their countries' political commitment to the FTAA. 
For the U.S.'s part, President Bush underlined the importance he 
attaches to achieving progress in liberalizing trade and to solidifying 
and improving relations within the Western Hemisphere as a means to 
increase and spread prosperity and foster freedom and democracy. At the 
same time, he said, ``Our commitment to open trade must be matched by a 
strong commitment to protecting our environment and improving labor 
standards.'' Calling the vision of ``a fully democratic hemisphere 
bound by goodwill and free trade'' both a ``tall order'' and a ``chance 
of a lifetime,'' the U.S. President pledged to seek and secure from the 
Congress ``fast track'' or trade promotion authority \8\ by the end of 
2001. Other FTAA participants see this authority as a litmus test of 
U.S. commitment to an FTAA and view it as necessary for concluding and 
passing an eventual agreement. Demonstrating commitment to continued 
trade liberalization in the hemisphere, President Bush also said he 
would seek to renew and expand the Andean Trade Preferences Act, which 
accords unilateral U.S. tariff preferences to nations of the Andean 
region, and to conclude a bilateral free trade agreement with Chile by 
yearend 2001.
---------------------------------------------------------------------------
    \8\ In the past, the Congress has enacted trade promotion authority 
(also known as ``fast track'') to implement trade agreements with other 
countries. This authority provided for a congressional vote within a 
limited period of time to accept or reject the implementing legislation 
for a negotiated agreement without making any changes.
---------------------------------------------------------------------------
    Statements of other key regional players also underlined their 
political commitment to an FTAA. For example, speaking on behalf of the 
Caribbean, Barbados Prime Minister Owen Arthur expressed satisfaction 
that ``arrangements for economic integration have now been so 
deliberately designed to truly accommodate the special concerns of the 
smallest and most vulnerable entities in our hemisphere.'' Reluctance 
by Caribbean participants about accelerating the pace of negotiations 
was a major factor at Buenos Aires in discussions on setting FTAA 
deadlines, according to participants. Brazilian President Fernando 
Henrique Cardoso urged fellow leaders to aim for a ``Community of the 
Americas,'' including an FTAA that progressively eliminates barriers to 
trade, opens up opportunities for growth, and does away with 
inequalities. At the same time, he warned that an FTAA that failed to 
provide access to more dynamic markets would be ``irrelevant or, worse, 
undesirable.'' The only country taking a new stance in the Quebec City 
summit declaration from the Buenos Aires Ministerial was Venezuela, 
which reserved its position on the final deadline for concluding and 
implementing an FTAA due to concerns about its technical ability to 
meet the implementation deadline.
    Generating interest in and support of the FTAA within the U.S. 
Congress, the U.S. business community, and the U.S. public remains a 
challenge. As we reported, many FTAA participants believe this support 
will be crucial if the United States is to provide the leadership they 
believe is necessary for concluding a deal. It is also required for 
ultimate approval of an FTAA in the Congress and in the U.S. ``court of 
public opinion.'' However, some FTAA participants believe the United 
States has been distracted from pursuing trade liberalization because 
it is without a domestic consensus on the benefits of trade and the way 
in which to handle the overlap between trade and labor rights and the 
environment. Moreover, U.S. policies on key aspects of FTAA rules, such 
as investment, have yet to be announced. Support by the Congress and 
the business community for the FTAA has been limited until recently, 
though a sizeable number of U.S. trade associations and firms 
participated in the Americas Business Forum at Buenos Aires, and a 
bipartisan congressional delegation accompanied President Bush to 
Quebec City. Meanwhile, the opposition by key interest groups, who 
demonstrated in the streets of Buenos Aires and Quebec City, is 
actively mobilizing. For example, the American Federation of Labor-
Congress of Industrial Organizations, Public Citizen, and the Sierra 
Club have launched campaigns against the FTAA as it currently stands.

Longer-term Challenges
    Facing a critical juncture in the FTAA process, the FTAA countries 
generally accomplished that part of an ambitious agenda designed to 
start the next phase of the negotiations on a sound footing. Still, as 
we have previously reported, significant challenges will need to be 
overcome to successfully conclude an agreement. Hard bargaining will be 
required to turn the accumulation of proposals currently on the table 
into a mutually agreed-upon, binding document. In addition, the FTAA 
negotiations face other longer-term challenges, including
     managing the sheer scope and complexity of work required 
to finalize draft rules,
     negotiating market access concessions,
     devising an institutional structure for the implementation 
of the agreement,
     recognizing the diverse negotiating objectives and 
economic conditions of the FTAA participants,
     achieving consensus on the negotiated outcomes,
     dealing with changing political and economic conditions as 
the negotiations unfold, and
     summoning the political will to conclude an agreement.
    A number of participants told us that the FTAA can be successfully 
concluded if the key Western Hemisphere leaders demonstrate that they 
have the political will to conclude the agreement. The April meetings 
provided a major step in this direction, as well as clear guidance and 
milestones for technical-level progress. But the ultimate success or 
failure of the FTAA will rest on the continued demonstration of 
political commitment to the negotiation's conclusion.
    Mr. Chairman and Members of the Subcommittee, this concludes my 
prepared statement. I will be happy to answer any questions you or 
other Members may have.

CONTACTS AND ACKNOWLEDGMENTS
    For future contacts regarding this testimony, please call Loren 
Yager or Kim Frankena at (202) 512-4128. Individuals making key 
contributions to this testimony included Anthony Moran, Jody Woods, and 
Tim Wedding.

                                


    Chairman Crane. Thank you, Mr. Yager. Mr. Fisher.

 STATEMENT OF THE HON. RICHARD W. FISHER, WASHINGTON, DC, AND 
        FORMER DEPUTY UNITED STATES TRADE REPRESENTATIVE

    Mr. Fisher. Mr. Chairman, thank you for inviting me back. I 
am honored to be here. As I said in my written testimony, 
remember, I am a free man. I do not have to say nice things. 
But I am genuinely thrilled to be here with so many wonderful 
representatives and people that do the good work of discussing 
the trade issues which are so vital to our economy. So I am 
honored to be back. I thank you. I thank Mr. Levin and all the 
Members for inviting me here.
    If you just get to the bottom line here, first, trade is a 
vital part of our economy. If you take imports and you add 
exports to it, and divide it by GDP, you come up with 27 
percent of our GDP. The way that we distribute this around the 
world is heavily emphasized in our own hemisphere, and that is 
why we are here today. If you look at the numbers, about 46 to 
47 percent of what we sell is within our hemisphere, and 40 
percent of what we buy is from within our hemisphere (which is, 
by the way, the same proportion that we buy from countries 
across the Pacific).
    I want to touch briefly on what I call the buy side, given 
my securities background, and then I want to talk about the 
sell side, which is so vital.
    On the buy side, as a country, we import $1.4 trillion in 
goods and services every year. Imports are good. They are not 
bad. They help keep down the cost of living in this country, 
and if you shop at Dollar General or Wal-Mart or Kmart or 
Target or any of these stores, this is how you put clothing on 
the backs of your families and how you feed your families. When 
we increase our imports, we enhance consumer choice. When we 
cut tariffs, essentially what we do is we cut tariffs at the 
border.
    Let me put that in perspective, or give you numbers to put 
in perspective. In the Uruguay Round we cut tariffs from 5.8 to 
2.8 percent. Without the benefit of that tax cut, those tariff 
cuts, our consumers would have paid last year $25.2 billion 
more for their imports from countries outside of NAFTA than 
they did otherwise with those cuts. When you add Canada and 
Mexico to the mix, given the cuts that we negotiated through 
the NAFTA, we add another $18.2 billion in tax cuts at the 
border for our consumers from what they otherwise would have 
paid last year. 25.2 plus 18.2 is $43.4 billion that our 
consumers and our businesses saved by virtue of the tax cuts we 
negotiated in NAFTA and the Uruguay Round.
    Keep that in mind when you think about the potential on the 
import or buy side within our hemisphere, because, again, as I 
said earlier, 40 percent of what we import comes from within 
the hemisphere.
    Of course, you cannot sustain a political mandate for the 
buy side unless you emphasize the sell side. And as I said 
earlier, almost 50 percent of what we sell to the rest of the 
world is right here in our hemisphere, versus 22 percent across 
the Atlantic and 27 percent across the Pacific. It's important 
to bear in mind that that market share is focused on two 
countries. Twenty-five percent of everything we sell goes to 
Canada. My favorite old saw, that Canada used to be called 
``the vichyssoise of nations'' because it was cold and half-
French and difficult to stir, no longer applies. Now it is an 
exciting market for us, it is the ``salsa'' of our markets. It 
is an important market. We sell more to Canada than we sell to 
the entire European Union.
    Fifteen percent of what we sell goes to Mexico. If we 
continue to grow the rate of growth of what we sell to Mexico, 
(before NAFTA it was $48\1/2\ billion, last year it was $111.7 
billion), in another 3 years we will sell more to Mexico than 
we sell to the entire EU-15. This is a startling statistic, and 
it shows that, indeed, we can find a good market even in a 
country which is poorer than we are. And it is not just for 
things we send to sell and then send back into the United 
States. In a typical month last year we sold to Mexico $48 
million in surgical equipment, Congresswoman Dunn, 250,000 tons 
of soybeans, 28,000 cars, $700 million in semiconductors, and 
my favorite statistic, 200,000 golf balls and 3,200 sets of 
golf clubs. They are lousy golfers. But they are great 
customers. This is the kind of business that we want to have in 
the rest of the world.
    And very importantly, along with economic success, Mexicans 
now are greater advocates of democracy and of human rights. I 
speak from experience. I grew up in Mexico. The old protected 
autarchic Mexican economy was riddled with corruption, was a 
shield for one-party control, led to suppression of individual 
liberty. It is no coincidence to me that a businessman, Vicente 
Fox, has been elected 7 years into NAFTA, and it shows us that, 
indeed, trade does have a political effect and a democratizing 
effect if we conduct the right kind of negotiation. That is the 
good news.
    The bad news is that south of the Yucatan, we sell less 
than 8 percent of what we sell the world, and we bring in less 
than 6 percent.
    Congressman Crane, you asked a very good question. I know 
you know the answer to the question. Which is why should we be 
interested in the rest of the hemisphere if we presently sell 
so little to that part of the hemisphere? I once had an 
employee that worked for me, who we wanted to send to Europe to 
operate an office there--and he said, ``Why should I go to 
Europe? I have never been there before.'' He did not last very 
long in our firm. The point is that that is precisely why we 
should be talking about what they call the ALCA or what we call 
the FTAA, north of the border here. And that is that there are 
403 million people that we are not penetrating and selling to. 
173 million of those people live in one country, in Brazil, and 
if we can sell as much as we sell to Mexico with 100 million 
people, we can certainly sell a great deal more than we 
currently sell to the 403 million people that live south of the 
Yucatan Peninsula.
    I usually like to quote Henry James, who said in a 
wonderful novella that ``courtship is poetry and marriage is 
hard prose.'' I was lucky. In the last administration I got to 
do the courtship part. Now Ambassador Zoellick and you all have 
to do the hard prose. And I want to just focus on three areas 
that I think you are going to have to work on very, very hard, 
draw them to your attention, and then conclude my discussion.
    Congressman Levin, you asked a very critical question of 
Ambassador Zoellick, and that is, how do we deal with 
agriculture? With regard to agriculture last week Brazil's 
Agricultural Minister put the issue right up front. He said: if 
the US does not lift the protectionist barriers and open its 
market to Brazilian products, we are not interested in an FTAA. 
And he went on to define barriers to include not just high 
import tariffs, but also government subsidies to US farmers, 
and as Ambassador Zoellick said, food safety measures. Some of 
this bluster is certainly for negotiating purposes or for 
domestic consumption, but the Argentines and the Chileans and 
the Colombians and others are also eager to access our 
agricultural markets. The ``easiest'' part of that is going to 
be the tariff structure, which averages 12 percent on ag. 
imports, but goes up to 116.4 percent on sugar, 26.4 percent on 
beef and so on.
    The tough part is how you all are going to square the 
corner on both sides of the aisle on this matter of how we deal 
with the support systems, and there we face a conundrum that 
Ambassador Zoellick referred to earlier. How do we deal with 
our support payment programs solely in the context of the 
Americas without handcuffing our ability to deal with the EU, 
who is the single biggest violator of agricultural export 
subsidies? And yet, if we cannot come to grips with this 
problem in our own hemisphere, then how can we expect the 
Europeans to take us seriously? If we cannot come to grips in 
our biggest trading area, the most important market of the 
United States, how can we expect the Japanese, the Koreans and 
the Europeans to take us seriously when we go to negotiate with 
them on agriculture?
    The second problem area in anti-dumping. Again, that came 
up just now in the discussion. It is a critical area. A week 
ago Chile's lead FTAA negotiator pointed out that in what they 
have proposed for the FTAA, that anti-dumping has to be on the 
table. She said, ``We know this is a sensitive issue, but many 
countries are concerned by what we see as, quote, `arbitrary 
use of anti-dumping measures in the United States.' ''
    Congressman English, this is an important subject, and I 
agree with Ambassador Zoellick, that we should not be shy about 
exploring how our Latin brethren implement their anti-dumping 
regimes. I like to remind people that in the year to June 2000, 
which is the last measurement we have, Brazil and Argentina 
combined filed 40 anti-dumping actions. We filed 17. The 
question is: how do we cope with the causes of dumping, the 
surpluses in steel, (which is about 80 percent of our anti-
dumping cases), in chemicals, in pharmaceuticals and 
agricultural products and so on? And by the way, again, we face 
this issue: if we cannot deal with this issue in our own 
hemisphere, how do we deal with the all-time champions of anti-
dumping measures, which are the Europeans who most actively use 
that tool?
    I mention these aspects of ag. and anti-dumping to politely 
suggest that both the Congress and the executive branch have 
some soul searching to do on these critical issues, even before 
we get to the very tough issue of labor and environment, 
because this negotiation is not about reducing US tariffs. We 
are already down to 2.8 percent tariffs, and actually less than 
that in our hemisphere. What it is about is providing market 
access to the United States in return for getting access to the 
goods and service markets and dismantling non-tariff barrier to 
our products in the rest of the hemisphere.
    As to labor and environment, I think we have to be very 
frank about this. It takes two to tango. It takes two to 
negotiate. Trade sanctions are out. Our Latin colleagues will 
not put this on the table. And in fact, we are going to have to 
struggle mightily to structure any discussion of these issues, 
as Ambassador Zoellick referred to earlier, so as not to appear 
protectionist. I think it is possible to construct an 
architecture of limited monetary assessments applied to the 
failure to enforce existing laws in the signatory countries, 
but only where their alleged enforcement failure has a 
demonstrable trade effect. I doubt you are going to get much 
more than that, based on my experience in negotiating the 
courtship phase of this effort within the hemisphere.
    Let me just conclude by saying that, first of all, we know 
that as far as the economy is concerned, we can benefit by 
structuring a proper agreement. We also know that democracy is 
sputtering in several countries, in Venezuela, in Ecuador, in 
Nicaragua, Guatemala. We know the problems of Colombia as 
discussed earlier, and in Peru. We know that Argentina is under 
economic duress. And we know that Brazil and the entire 
hemisphere is worried about the status of the financial 
markets. I have a question, which is: how can denying these 
countries greater access to our markets, coupled with the 
disciplines that we would negotiate--the rules and efficiencies 
and so on, that we would insist be embodied in FTAA along with 
a pledge that we limit its benefits to democracies--help them 
overcome their problems if we deny them access to our country? 
And if we are not willing to think on that plane, thinking 
purely selfishly, this is a big market and expanding it is good 
for us. We know again from NAFTA that we can conduct freer 
trade with a poor country and expand jobs on both sides of the 
border.
    There is one other aspect that I think is very critical 
that I rarely hear people talk about in trade discussions, 
which is the financial dimension. Our stock and bond markets 
are under severe duress. The debt markets in the world are 
under severe duress. This is not a Wall Street issue, by the 
way. 88 million Americans and 50 million households now own 
mutual funds, and in fact, all told households now have over 
$12 trillion invested directly in corporate securities. So do 
the trustees of corporate pension funds and of Taft-Hartley 
moneys. And it strikes me that we send an absolutely negative 
signal to the financial markets if we tell the world that we 
are unable to muster the wherewithal within this country to 
press the envelope on trade. In fact, we should use government 
for what is useful here, and that is to engineer a constructive 
international agreement to pry open new markets. If we do not 
have new markets, we cannot have more sales. If we do not have 
more sales, we cannot have more workers, we cannot have greater 
profits, we cannot secure the retirement system that so many 
millions of our citizens now individually oversee.
    So I thank you very much for having me here. I am happy to 
answer any questions. I submitted a longer text for the written 
record. I am honored to be here. Thank you very much.
    [The prepared statement of Mr. Fisher follows:]

  Statement of the Hon. Richard W. Fisher, Washington, DC, and Former 
               Deputy United States Trade Representative

    Chairman Crane, Congressman Levin, members of the Committee, it is 
a pleasure and an honor for me to be invited back into this Committee 
Room today.
    There are some things that one does not miss about serving as 
Deputy USTR. There are others that one treasures. I actually miss 
working with the Trade Subcommittee. Mr. Chairman, you and I worked 
very closely together on so many issues in the last Administration and 
almost always saw eye-to-eye, despite being from different parties. And 
Congressman Levin, you have been a faithful and constant reminder for 
all of us that it is important to view trade as a means to an end--
that, as the preamble to the GATT says, the purpose of trade 
liberalization is to ``raise standards of living, ensure full 
employment, and develop the full use of resources of the world.'' 
Gentlemen, remember I am a free man. Which means I don't have to say 
nice things about you as a matter of course. So when I say it, I mean 
it: the members of this Committee do great service to our country with 
your leadership roles in trade and, as an ordinary citizen, I thank you 
for it.

                          AN FTAA MAKES SENSE

    Let me get to the point about Quebec and the Summit of the 
Americas: the United States needs to press the envelope of trade 
liberalization in this hemisphere.
    On the sell side, our hemisphere is already the largest market for 
our exports, yet we are far from realizing our potential sales to our 
Latin and Caribbean neighbors.
    On the buy side, we can do more to provide market access to 
countries to the south and east of the Yucatan Peninsula.
    Increased two-way trade flows and the enhanced investment in the 
region that will surely follow will bolster those economies and 
undergird democracy, reduce poverty and enhance the rule of law, 
improve human rights and encourage greater respect for the hemisphere's 
ecosystem. We would be fools to let pass the opportunity for a Free 
Trade Area of the Americas. It is both in our economic and our 
strategic interest to make this happen.
    It is also in the interest of our Latin and Caribbean neighbors. 
For all of them conduct the majority of their trade within the 
hemisphere. And each covets access to our market, the Big Enchilada 
Economy, just as we covet access to the 400 million people that live in 
their markets. Colombia, for example, which sells 50% of its exports to 
the United States, has an obvious interest in lowering the cost of 
doing business here. Brazil, on the other hand, sells just 19% of her 
exports to the U.S.; she has a natural interest in expanding her market 
share here.
    The idea of a barrier free market for the entire hemisphere was 
originally a Latin conception: Simon Bolivar, the Great Liberator, was 
the first to champion the cause. Mexico's first native-born leader, 
Benito Juarez, proposed a similar initiative in the 1860's. Here in the 
North, Secretary of State James Blaine tried to promote the concept in 
1906, Franklin Roosevelt spoke about it in the first days of his 
presidency in 1933, and it has since been praised in concept by leaders 
of both parties from Jack Kennedy to the first President Bush.
    But until recently it was never taken beyond the world of oratory 
and conceptual discussion.
    President Clinton formally initiated the process of turning this 
from an academic vision into reality at the 1994 Summit of the Americas 
in Miami. The Clinton Administration further advanced the ball at a 
subsequent summit in Santiago in 1998. But, truth be told, in the 
second half of the Clinton Administration, I was the highest-level 
voice actively campaigning for a Free Trade Area of the Americas, from 
my lowly perch as Deputy U.S. Trade Representative.
    Now, we once again have a President as advocate-in-chief. In 
Quebec, Mr. Bush picked up the FTAA baton with impressive vigor. He 
declared point blank ``the time has come to achieve a Free Trade Area 
of the Americas.'' He pledged to ``put forward a set of principles that 
will be the framework for more intensive consultations with Congress,'' 
some of which is already taking place. And he added that he was 
``committed to attaining trade promotion authority before the end of 
the year,'' in order to make concluding an FTAA possible.
    This is good news. As the former managing partner of the Texas 
Rangers baseball team might say, the FTAA has moved up from the minor 
leagues to the ``bigs.'' Question is: can we channel this new found 
enthusiasm to hit the ball out of the park, or will we strike out at 
the plate?
    I am an unabashed fan of the FTAA. I urge you to aggressively 
pursue those ``intensive consultations'' with the Administration and 
get on with it. Let me tell you why.

                     TRADE IS VITAL TO OUR ECONOMY

    Trade is a driving force for our economy. In fact, the United 
States is more internationally exposed than any other major economy or 
trading bloc. External trade in goods and services accounts for 27% of 
our GDP. That's greater than Japan at 19% and it's slightly more than 
the external trade of the EU 15's collective GDP. We depend on it for 
an affordable cost of living, for job creation, for the corporate 
profits that secure the value of retirement investments, for our 
economic vitality.

                              THE BUY SIDE

    On the buy side, U.S. businesses who seek cheaper material inputs 
and people who shop for bargains at Target, Wal-Mart, Dollar General, 
K-Mart and other such vendors have benefited from trade liberalization, 
just as foreign consumers have benefited from having better access to 
U.S. made goods and services. We use $1.4 trillion in yearly imports to 
lower the cost of living for our people and to increase choice and 
purchasing power for consumers and employers.
    When we increase others' market access to our economy, we enhance 
consumer choice. When we cut tariffs on imports, we effectively cut 
taxes on consumption. A tariff cut is a tax cut at the border. In the 
Uruguay Round, for example, we dropped the average tariff on imports 
into the U.S. from 5.8% to 2.8%. Last year we imported $840 billion 
from countries other than our NAFTA partners. Without the Uruguay round 
tariff cuts, our consumers would have paid $25.2 billion more for those 
imports than they ended up paying. When you add Canada and Mexico to 
the mix, we added another $18.2 billion in tax cuts at the border for 
our consumers from what they would otherwise have paid last year had we 
not negotiated the tariff cuts of NAFTA. Twenty five point two billion 
plus 18.2 billion equals $43.4 billion in tax cuts at the border last 
year alone. This is real money, even in a $10 trillion economy. The 
point is: by broadening choice and reducing the tax we impose on our 
citizen's consumption of imported goods, we lower the cost of living 
and raise the living standards of the American people.
    Forty percent of what we import comes from the Americas, about the 
same volume as we import from Asia. So further liberalization of 
tariffs and non-tariff barriers to imports from Latin America will 
accrue great benefits to the American consumer and businesses.

                      THE SELL SIDE: LOOK AT NAFTA

    On the sell side, almost 50% of what we export to the world is sold 
within our hemisphere. We sell more to Canada than we sell to the 
entire European Union. At the rate of expansion we have experienced in 
the six years since NAFTA was completed, our exports to Mexico will 
surpass those to Europe in another three years. In fact, we sell almost 
as much to just Canada and Mexico alone--almost $300 billion a year--as 
Japan sells to the entire world.
    From our experience with the NAFTA, we know that free-trade 
agreements work to our advantage. NAFTA has been a home run for U.S. 
exporters. Since that agreement was inaugurated, our exports of goods 
to the world outside of our NAFTA partners have increased 52%, which 
isn't too shabby. But our exports to Canada have increased by 78% and 
our sales to Mexico are up 169%. Before NAFTA, we sold $41.6 billion to 
Mexico; last year we sold Mexico $112 billion in U.S. made goods. And 
this is not just stuff that they sew with cheap Mexican labor and send 
back across the border. In a typical month last year we sold Mexicans 
$48 million in surgical equipment, 28,000 cars and trucks, $700 million 
in semi-conductors, 250,000 tons of soybeans, and, my favorite 
statistic, 200,000 golf balls and 3,200 sets of clubs. They may be 
lousy golfers, but they are great customers, thanks to NAFTA.

                      IMPORTANT ANCILLARY EFFECTS

    Importantly, with their economic success, Mexicans now are greater 
advocates of democracy and human rights. I grew up in Mexico. The old, 
protected, autarchic Mexican economy was a shield for one-party 
control, for massive corruption, dramatic concentration of wealth, and 
the suppression of individual liberty. It is no coincidence to me that 
Vicente Fox, a businessman, became the first truly democratically-
elected president in Mexican history seven years after NAFTA. To be 
sure, Mexico is far from being a perfect place. But it is a lot further 
along the spectrum of raising standards of living, ensuring full 
employment, and developing the full use of its resources and the human 
potential of its people because of the expanded production and exchange 
of goods on both sides of the border.

                   NOW, FOR THE REST OF THE AMERICAS

    That's the good news. The bad news is that while we have done 
brilliantly in NAFTA, we have under-performed in the rest of the 
hemisphere. We sell less than 8% of our exports south of the Yucatan, 
Mexico's southern border. We have under-penetrated the vast Latin 
American and Caribbean markets, home to 403 million people. And we buy 
less than 6% of our imports from those very same countries.
    Therein lies the raw economics of a trade deal. We have the 
potential to sell more to them, and they to us. And generating more 
trade within the hemisphere will help improve the rule of law and 
strengthen the potential of representative democracy in an area where, 
in too many countries, these core values are at risk.
    We now need to replicate Mexico's success in the rest of the 
Americas. This is what Quebec and the FTAA are all about.

                       HARD PROSE IN THREE AREAS

    In one of his charming novellas, the great writer Henry James wrote 
that, ``courtship is poetry, and marriage is hard prose.'' The FTAA 
team I headed in the last administration advanced the courtship phase 
all the way to the drafting of a prenuptial agreement, which was 
completed just weeks ago in Buenos Aires and will soon be released to 
the public. In Quebec, President Bush reaffirmed the marriage proposal. 
He will get down the aisle and to the altar of a free trade agreement 
only if his counterparts in the Hemisphere and here at home in this 
Congress are willing to say, ``I do.''
    It won't be easy for them or for you to do so. There are three 
areas that will be hard to crack, where the prose will be very hard, 
indeed. The first is agriculture. The second involves trade remedies 
and anti-dumping. The third is the vexing question of whether it is 
appropriate to include provisions of one form or another to protect 
workers rights or enhance environmental protection.

                              AGRICULTURE

    With regard to agriculture, last week Brazil's Agriculture Minister 
put the issue right up front. He said, ``If the U.S. doesn't lift its 
protectionist barriers and open its market to Brazilian products, we 
aren't interested'' in the FTAA. He went on to define ``barriers'' to 
include not just high import tariffs, but also government subsidies to 
U.S. farmers and food safety measures. Some of Brazil's bluster here is 
undoubtedly for domestic consumption and for negotiating purposes. But 
the Argentines, Chileans and Columbians are also eager to access our 
agriculture markets and to somehow overcome our powerful farm support 
systems, which means to accomplish an FTAA, we will have to be prepared 
to put agriculture on the table.
    The ``easiest'' part will be negotiating reductions in agricultural 
tariffs, which currently range up to 116.4% for sugar and 26.4% for 
beef, with an average 12% overall. Grappling with our support payments 
will be more difficult. Here we face a conundrum: how can we deal with 
our support payment programs solely in the context of the Americas 
without handcuffing our ability to compete with the EU? And yet, if we 
can't come to grips with this problem in our own hemisphere, and thus 
cannot accomplish a true free trade agreement in our biggest market 
trading area--in our very own back yard--how can the rest of the world 
expect us to deliver what's necessary to launch a global round which 
includes agriculture? Congress is going to have to work mighty hard to 
get over this agricultural obstacle.

                              ANTI-DUMPING

    On the trade remedy front, our anti-dumping regime is under 
constant attack from our Latin colleagues. A week ago, Chile's lead 
FTAA negotiator pointed out that in Chile's free trade agreement with 
Canada, the parties renounced the application of anti-dumping measures. 
``That,'' she said, ``is what we [Chile] have proposed for the FTAA . . 
. We know this is a sensitive issue, but many countries are concerned 
by what we see as arbitrary use of anti-dumping mechanisms in the 
U.S.''
    In the last Administration, we forbade our negotiators from even 
discussing anti-dumping. Our line was that we and our trading partners 
were just perfecting the implementation of the new anti-dumping regime 
agreed to in the Uruguay Round and that until we had that in place and 
had tested its efficacy, we shouldn't delve into the subject. I don't 
think that will work here.
    Indeed, I think we should consider taking advantage of this 
opportunity to put this topic front and center and explore just how our 
Latin brethren implement their anti-dumping regimes. How transparent 
and/or ``arbitrary'' are they? How do they really work? Why is it that 
in 1999, Brazil and Argentina together filed 40 anti-dumping actions 
while we filed only 17? What is the real cause for concern here: is it 
within the hemisphere or across the Pacific Ocean? How might we cope 
with the causes of dumping--the surpluses in steel, chemicals, 
pharmaceuticals, and certain agricultural products--as partners with a 
common cause, rather than as adversaries?
    It is important to remember that in Seattle, we were told by the EU 
that if we were not willing to put our anti-dumping regime on the 
table, there could be no global trade round. This was despite the fact 
that the Europeans are the all-time champions of anti-dumping. (In the 
year to June of 2000, the EU led the world with 49 new anti-dumping 
investigations). Again, I ask: if we can't deal with this 
constructively within our own hemisphere and form a common front within 
our biggest trading area, how can we expect to deal with the Europeans, 
the Japanese, the Chinese and the rest of the world on anti-dumping?
    I mention these aspects of the FTAA to politely suggest that the 
Congress and the Executive branch has some soul searching to do even 
before debating the merits of so-called ``labor and environment'' 
issues.
    This negotiation is not about reducing U.S. tariffs, though we have 
some chips to play with in our agriculture tariff structure. When you 
factor in various trade preferences we extend, the average U.S. applied 
tariff on imports from the region is well south of 2.8%. On the other 
hand, the tariff applied to our exports to Peru is 20%. Brazil slaps on 
a 17% tariff; Colombia, 12%; and Chile, 8%, and Argentina is flopping 
all over the map as it undergoes Minister Cavallo's exorcism of 
economic demons. The trade-off here--the gist of an FTAA--calls for 
these countries to remove both these high tariffs and non-tariff 
barriers to our exports of goods and services, in return for our 
removing our non-tariff barriers and providing better market access to 
their goods. Boiled down to its essence, that is the deal in the minds 
of the Latins. If we are not able to muster a consensus here for 
providing greater market access to our friends in the hemisphere, then 
there will be no deal.

                         LABOR AND ENVIRONMENT

    As to ``labor and environment,'' let's be blunt. It takes two to 
tango, as it does to do a trade deal, and we cannot get our Latin 
partners on to the dance floor if we lead with two left feet (or, for 
that matter, with two right feet). Trade sanctions are out. In fact, we 
will have to struggle mightily to structure any discussion of these 
issues so as not to appear protectionist. I know that Ambassador 
Zoellick and others are working hard to find a workable formulation on 
these issues and I wish them luck. It may be possible to construct an 
architecture of limited monetary assessments applied only to the 
failure to enforce existing laws in the signatory countries and only 
where the alleged enforcement failure has a demonstrable trade effect. 
I doubt you will get much more than that.
    You will have to decide if this is sufficient. Once more I ask you 
to bear in mind the message we are sending here to the rest of world: 
if we cannot resolve this issue in our own neighborhood, how do we 
expect to resolve this with the rest of the world, who are equally, if 
not more vehemently, convinced that these are merely protectionist 
foils?

                               CONCLUSION

    Latin America is at a tender juncture in history. So is our 
economy, as are the global financial markets. I view expanded trade in 
the hemisphere as a vehicle for reducing risks on all three fronts.
    Democracy is sputtering in Venezuela, Colombia, Peru, Paraguay, 
Ecuador, Haiti, Nicaragua, and Guatemala. Argentina is under economic 
duress that threatens the financial markets not only of its neighbor, 
Brazil, but the entire hemisphere, including the U.S. and global debt 
markets.
    Question: how would denying these countries greater access to the 
U.S. market (coupled with the discipline of the rules and efficiencies 
we would insist be embodied in an FTAA, including limiting its benefits 
to democracies), help them overcome their problems? Why would we want 
to add to those problems rather than provide some measure of relief and 
incentive and hope?
    If our neighbors' problems are insufficient motivation for an FTAA, 
then we should examine the selfish arguments for the home team. On our 
side of the border, we know that exports plus imports divided by GDP is 
27%. In the USA, trade exerts a big influence on consumption, 
employment and profits. Our long economic expansion is running out of 
wind. Unemployment is rising. We know that exports mean more jobs. We 
know that cheaper imports hold down the cost of living. We know from 
NAFTA that we can conduct freer trade with a poorer country and both 
come out winners with job creation on both sides of the border. We know 
we exchange too little trade with countries to the south and east of 
Mexico and would profit from more.
    The financial dimension is less clear, but none-the-less important. 
Our stock and bond markets are under severe pressure. The financial 
markets are no longer the exclusive purview of Wall Street; they are 
the preoccupation of Main Street. Eighty-eight million Americans in 50 
million households--let me repeat that--88 million Americans in 50 
million households--own mutual funds for retirement and investment 
purposes. All told, households have over $12 trillion invested, either 
through mutual funds or directly, in corporate securities. They are 
feeling a little insecure right now. So are the trustees of corporate 
pension funds and of Taft-Hartley monies. Underpinning the value of the 
securities that represent our citizens' retirement monies and financial 
well-being is the health of the companies that issue those securities. 
Those companies can't grow profits for shareholders or meet interest 
payments or hire more workers unless they increase sales. They can't 
grow their sales unless they grow their markets. And it is a heck of a 
lot easier for them to grow their markets if we can engineer 
constructive international agreements that pry open new ones for them.
    I am interested in engineering an FTAA that will pry open a market 
of 400 plus million people in our own backyard. This is the dream we 
started working on seven years ago at the Miami Summit. It is the 
promise of what came out of Quebec.
    Thank you for the opportunity to offer my two cents. I am happy to 
answer any questions.

                                


    Chairman Crane. Thank you, Mr. Fisher. Mr. Sweeney.

STATEMENT OF JOHN J. SWEENEY, PRESIDENT, AMERICA FEDERATION OF 
         LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

    Mr. Sweeney. Thank you very much, Mr. Chairman, members of 
the Committee. I am happy to have the opportunity to speak to 
you today on behalf of the 13 million working men and women of 
the AFL-CIO about the prospects for new trade agreements in the 
Western Hemisphere, particularly the proposed Free Trade Area 
of the Americas and the possible extension of the Andean Trade 
Preference Act.
    The FTAA has been under negotiation since 1998. During that 
time business leaders have met annually with the trade 
negotiators to present their views and make recommendations. 
Business input has shaped both the negotiation process and the 
content of the agreement so far. Labor and environmental 
leaders from all over the hemisphere, as well as 
representatives of family farm, human rights, women's and 
development organizations have also met regularly with each 
other during this period, to exchange views, discuss 
alternative models for social and economic integration, and 
communicate with the FTAA negotiators.
    Unlike the business advocates, however, the views of 
broadly representative civil society organizations appear to 
have had no impact whatsoever on the course of FTAA 
negotiations. Labor and environmental concerns are completely 
absent from negotiations so far, and the investment and 
services provisions appear to be based on the flawed NAFTA 
model. Finally, the draft text has still not been made public 
despite requests from hundreds of civil society organizations 
in Latin America, the Caribbean and North America.
    And yet the FTAA, if implemented, will have a profound 
impact on the lives of everyone in this region and beyond. A 
Free Trade Area of the Americas will affect the terms of 
competition between businesses, but also between governments 
angling to attract foreign investment or localities struggling 
to keep jobs in their communities. And it will, of course, 
affect the daily lives of workers and farmers struggling to 
earn a living, often under very harsh conditions, all over the 
hemisphere.
    In short, if it continues along its current path, the 
proposed FTAA will dramatically shift the balance of bargaining 
power in this hemisphere, further protecting and strengthening 
corporate rights, while leaving workers, environmental 
advocates, human rights champions, and national governments, 
with less leverage and less clout. Like NAFTA, this particular 
model of regional economic integration will lead to growing 
income inequality, environmental degradation and erosion of 
workers' rights.
    That is why workers and trade unions throughout the western 
hemisphere are united in rejecting the current FTAA. At its 
recent Congress in Washington, D.C., the Inter-American 
Organization of Workers, known as ORIT, called for any 
hemispheric agreement to include a social dimension, including 
enforceable core workers' right, protections for the rights of 
migrant workers, debt relief, guarantees that public health 
concerns will take precedence over trade rules, and a truly 
transparent, inclusive and democratic process, both for the 
negotiation of the FTAA and for the implementation of any 
regional agreement.
    The failure to negotiate meaningful and enforceable 
workers' rights protections in the FTAA would represent a giant 
step backward for workers in the hemisphere. Currently some 
workers' rights protections are included in US trade laws that 
affect the hemisphere, including GSP, the Caribbean Basin Trade 
Partnership Act, and the Andean Trade Preference Act. While we 
believe these provisions should be strengthened and improved, 
they have nonetheless provided some avenues for improving labor 
laws and enforcement in the hemisphere. This minimum degree of 
economic leverage will be lost if the FTAA moves forward 
without any protections for workers' rights at all.
    Workers rights are under attack in many countries in our 
hemisphere, including our own. We need to use the leverage of 
new trade agreements to strengthen and improve workers' rights 
protections, not gut them, as the architects of the FTAA 
propose.
    The success or failure of the FTAA or an extension of the 
ATPA will hinge on governments' willingness and ability to 
develop an agreement that appropriately addresses all of the 
social, economic and political dimensions of trade and 
investment, not just those of concern to corporations. Failure 
to address these concerns will produce an agreement that is 
resoundingly rejected by the people and parliaments of this 
hemisphere, and that produces disastrous economic results for 
working people from Alaska to Argentina.
    I look forward to your questions and working with you on 
these important issues.
    [The prepared statement of Mr. Sweeney follows:]

 Statement of John J. Sweeny, President, American Federation of Labor 
                and Congress of Industrial Organizations

    Mr. Chairman, members of the Committee, I thank you for the 
opportunity to speak to you today on behalf of the thirteen 
million working men and women of the AFL-CIO about the 
prospects for new trade agreements in the western hemisphere, 
particularly the proposed Free Trade Area of the Americas 
(FTAA) and the possible extension of the Andean Trade 
Preference Act (ATPA).
    The FTAA has been under discussion since 1994, with formal 
negotiations beginning in 1998. During that time, business 
leaders have met annually with the trade negotiators to present 
their views and make recommendations on the content of the 
agreement. Business input has shaped both the negotiation 
process and the content of the agreement so far.
    Labor and environmental leaders from all over the 
hemisphere, as well as representatives of family farm, 
indigenous, human rights, women's and development 
organizations, have also met regularly with each other during 
this period to exchange views, discuss alternative models for 
social and economic integration, and communicate with the FTAA 
negotiators.
    Unlike the business advocates, however, the views of 
broadly representative civil society organizations appear to 
have had no impact whatsoever on the course of FTAA 
negotiations. None of the nine FTAA negotiating groups is 
charged with negotiating labor and environmental protections, 
and none of the groups has even agreed to discuss how to 
incorporate workers' rights or environmental standards into the 
FTAA. The modest U.S. proposal for a study group on workers' 
rights was rejected by the other governments last year. The 
investment and services provisions of the FTAA appear to be 
modeled on the North American Free Trade Agreement (NAFTA), 
which has utterly failed to deliver the promised benefits to 
working people in the three North American countries. And, 
finally, the draft text has still not been made public, despite 
requests from hundreds of civil society organizations in Latin 
America, the Caribbean, and North America.
    And yet the FTAA, if implemented, will have a profound 
impact on the lives of everyone in this region, and beyond. A 
Free Trade Area of the Americas will affect the terms of 
competition between businesses, but also between governments 
angling to attract foreign investment, or localities struggling 
to keep jobs in their communities. It will affect the criteria 
national governments may or may not set to determine who is 
eligible to bid for government contracts, and it will affect 
the balance between public provision of essential services and 
private-sector competition in these areas. And it will, of 
course, affect the daily lives of workers and farmers 
struggling to earn a living, often under very harsh conditions, 
all over the hemisphere.
    In short, if it continues along its current path, the 
proposed FTAA will dramatically shift the balance of bargaining 
power in this hemisphere, further protecting and strengthening 
corporate rights, while leaving workers, environmental 
advocates, human rights champions, and national governments 
with less leverage and less clout. Like NAFTA, this particular 
model of regional economic integration will lead to growing 
income inequality, environmental degradation, and erosion of 
workers' rights.
    That is why workers and trade unions throughout the western 
hemisphere are united in calling the current FTAA a failed 
model of trade and development policy. At its recent Congress 
in Washington, D.C., in April, the Inter-American Organization 
of Workers (known by its Spanish acronym, ORIT) unanimously 
rejected the current FTAA. ORIT, which includes the AFL-CIO, 
along with unions representing more than 45 million workers in 
the western hemisphere, called for any hemispheric agreement to 
include a social dimension, including the following elements:
     Enforceable protection of the core workers' rights 
identified by the International Labor Organization's 1998 
Declaration on Fundamental Principles and Rights at Work: 
freedom of association, the right to organize and bargain 
collectively, and the right to be free from child labor, forced 
labor, and discrimination in employment;
     Protection under national law and international 
treaty obligations for the rights of migrant workers throughout 
the hemisphere, regardless of their legal status;
     Measures to ensure that countries retain the 
ability to regulate the flow of speculative capital;
     Debt relief;
     Compliance with World Health Organization 
guidelines, which say that public health should be paramount in 
trade disputes;
     Equitable and transparent market access rules that 
allow for effective protection against import surges; and
     A truly transparent, inclusive, and democratic 
process, both for the negotiation of the FTAA and for the 
implementation of any regional agreement.
    In addition, if there are to be hemispheric negotiations on 
investment, services, government procurement, and intellectual 
property rights, ORIT and the AFL-CIO are united in insisting 
that any agreement must not undermine the ability of 
governments to enact and enforce legitimate regulations in the 
public interest:
     Investment rules should not discipline so-called 
indirect expropriations, should rely on government-to-
government rather than investor-to-state dispute resolution, 
and should preserve the ability of governments to regulate 
corporate behavior to protect the economic, social, and health 
and safety interests of their citizens;
     Services rules must be negotiated sector by sector 
and must not undercut government provision or regulation of 
services in the public interest;
     Government procurement rules must give governments 
scope to serve important public policy aims such as 
environmental protection, economic development and social 
justice, and respect for human and workers' rights; and
     Intellectual property provisions must allow 
governments to limit patent protection in order to protect 
public health and safety, especially patents on life-saving 
medicines and life forms.
    The failure to negotiate meaningful and enforceable 
workers' rights protections in the FTAA would represent a giant 
step backwards for workers in this hemisphere. Currently, some 
workers' rights protections are included in U.S. trade laws 
that affect the hemisphere: the Generalized System of 
Preferences (GSP), which grants additional trade benefits to 
developing countries, the Caribbean Basin Trade Preference Act 
(CBTPA), which grants some NAFTA benefits to the Caribbean and 
Central American countries; and the Andean Trade Preference Act 
(ATPA), which grants benefits to Colombia, Peru, Bolivia, and 
Ecuador. While the precise formulation varies, all of these 
agreements provide for the withdrawal of trade benefits from 
countries that are not at least ``taking steps'' to afford 
internationally recognized workers' rights.
    The AFL-CIO has called for the strengthening of these 
provisions and for more consistent and transparent enforcement. 
Despite the room for improvement, however, these trade-related 
workers' rights protections have been responsible for improving 
labor laws in some countries and for enhancing enforcement in 
others. In many cases, the threat of withdrawing benefits has 
been sufficient to motivate compliance, and no trade sanctions 
were actually applied.
    The Dominican Republic, for example, reformed its labor 
code to meet ILO standards in 1992 in response to a workers' 
rights petition filed by Human Rights Watch. After the filing 
of an additional petition in 1993 by the AFL-CIO (when the 
government had failed to enforce the new code), the government 
took concrete action against an apparel company accused of 
numerous illegal anti-union actions. As a result of the 
improved labor code and improved enforcement efforts, workers 
were eventually able to win their first collective bargaining 
contract in the history of Dominican free trade zones. After 
this breakthrough, three other collective bargaining agreements 
were signed in the zones before the end of the year, according 
to USTR GSP documents and a Labor Department report. Because of 
these GSP petitions, there are now independent unions in the 
Dominican free trade zones where there were none before.
    The threat of losing GSP privileges has also motivated 
labor law improvements in El Salvador. After the AFL-CIO filed 
several GSP workers' rights petitions in the early 1990s, El 
Salvador accepted ILO assistance to draft a labor code that 
conforms more closely to international standards on freedom of 
association and the right to organize and bargain collectively.
    This minimum degree of economic leverage will be lost if 
the FTAA moves forward without any protections for workers' 
rights at all. Workers' rights are under attack in many 
countries in our hemisphere, including our own.
    Over 1,500 union members and leaders have been murdered in 
Colombia since 1991--35 more this year alone--with no effective 
action by the government to identify and hold responsible the 
perpetrators. An ILO investigative mission, which visited 
Colombia in February 2000, reported that: ``Cases where the 
instigators and perpetrators of the murders of trade union 
leaders are identified are practically nonexistent, as is the 
handing down of guilty verdicts.''
    This very grave situation in Colombia clearly deserves both 
attention and resources. We do not believe that simply 
extending the ATPA will eliminate these egregious abuses. We 
believe any new ATPA legislation must ensure effective 
prosecution of persons responsible for physical attacks and 
other illegal acts perpetrated against trade unionists and 
others seeking to exercise their rights to freedom of 
association and assembly. We support appropriations for 
technical assistance through the International Labor 
Organization (ILO), to bring labor laws and enforcement into 
compliance with ILO standards, especially in the areas of 
freedom of association and collective bargaining. And any 
extension of ATPA must provide for regular reporting to 
Congress on progress in these areas, with the elimination of 
benefits for cases of persistent and serious non-compliance.
    We need to use the leverage of new trade agreements to 
strengthen and improve workers' rights protections, not gut 
them, as the architects of the FTAA propose.
    Some people have expressed concerns that such workers' 
rights provisions would constitute disguised protectionism and 
become an excuse for closing markets and denying the benefits 
of trade to poorer countries. Nothing could be more wrong.
    First, the record shows that the AFL-CIO has consistently 
used existing workers' rights provisions (in GSP and other 
trade laws) to support the struggles of workers in developing 
countries and not to protect American jobs.
    Second, the trade unions of the hemisphere are united in 
insisting that enforceable workers' rights be included in any 
hemispheric trade agreement. The absence of such protections, 
Latin American trade unionists have found, allows--and even 
encourages--governments to compete for scarce foreign 
investment by overtly or implicitly agreeing to keep wages 
artificially low by repressing independent trade unions. This 
repression may start with union organizers, but inevitably 
spreads to include repression of free speech and assembly.
    Respecting freedom of association is absolutely essential 
to building a vibrant democracy, and allowing workers to 
bargain fairly with employers and to raise their voices 
effectively in the political process is absolutely essential to 
building a strong middle class.
    The charge of protectionism is invariably applied to labor and 
environmental standards, but not to corporate concerns like market 
access or intellectual property rights. The plain fact is that 
withdrawing trade benefits is the most effective way of enforcing 
provisions of a trade agreement. This is the method now used under 
NAFTA, the World Trade Organization (WTO), and other U.S. trade laws. 
So the charge that protecting labor standards through trade measures is 
somehow uniquely protectionist rings false.
    An acceptable hemispheric agreement must not simply replicate the 
failed trade policies of the past, but must incorporate what we have 
learned about the problems and weaknesses of the current rules. The 
success or failure of any hemispheric trade and investment agreement 
will hinge on governments' willingness and ability to develop an 
integration agreement that appropriately addresses all of the social, 
economic, and political dimensions of trade and investment, not just 
those of concern to corporations.
    Failure to address these concerns will produce an agreement that is 
resoundingly rejected by the people and parliaments of this hemisphere 
and that produces disastrous economic results for working people from 
Alaska to Argentina.
    Any discussion about granting fast track negotiating authority must 
first address these important issues. Before we send our negotiators 
into four more years of negotiations toward the FTAA, we should have an 
open domestic debate about how best to protect the interests of workers 
and the environment in the context of new trade agreements.
    We believe that any fast track legislation must require the 
inclusion of enforceable workers' rights and environmental standards in 
the core of all new trade agreements. New trade agreements must ensure 
that all workers can freely exercise their fundamental rights and 
require governments to respect and promote the core labor standards 
laid out by the ILO. Workers' rights and environmental standards must 
be covered by the same dispute resolution and enforcement provisions as 
the rest of the agreement, and these provisions must provide 
economically meaningful remedies for violations. An agreement that does 
not meet these principles must not be considered under Fast Track 
procedures. Monetary fines modeled on the NAFTA labor side agreement or 
the Canada-Chile agreement are inadequate and have proven an 
ineffective means of enforcement.
    It is not sufficient simply to revise the list of negotiating 
objectives to include workers' rights and environmental protections. 
Workers' rights have been among our negotiating objectives for more 
than 25 years, with very little progress being made.
    Congress must also ensure that ordinary citizens have access to 
negotiating texts on a timely basis, and that negotiators are 
accountable to both Congress and the public as to whether mandatory 
negotiating targets are being met.
    Trade agreements must not undermine public services or public 
health, nor allow individual investors to challenge state laws in 
secret. Trade authority must delineate responsibilities for investors, 
not just rights, and must not require privatization and deregulation as 
a condition of market access.
    Trade negotiating authority must also instruct U.S. negotiators 
that a top priority is to defend and strengthen U.S. trade laws. Fast-
tracked trade agreements must not prevent governments from implementing 
national policies to promote a strong manufacturing sector.
    I look forward to your questions and to working with you on these 
important issues in the months to come.

                                


    Chairman Crane. Thank you, Mr. Sweeney. Mr. Vargo.

 STATEMENT OF FRANKLIN J. VARGO, VICE PRESIDENT, INTERNATIONAL 
    ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS

    Mr. Vargo. Thank you very much, Mr. Chairman, and let me 
say it is a great honor to be on the same panel with and to 
follow Mr. John Sweeney, who is truly a great American.
    The National Association of Manufacturers has the Free 
Trade Area of the Americas as its very top trade priority. It 
is extremely important to American manufacturing and to 
American manufacturing workers that the FTAA proceed forward. 
It is also important to raising living standards throughout the 
hemisphere, and contributing toward democracy.
    Now, Latin America is one of two areas of the world that 
still has the highest trade barriers, the other being Southeast 
Asia. Despite this, we already export 60 billion a year to 
Central and South America. That is four times what we export to 
China. But with the removal of trade barriers in the 
hemisphere, our projection is that that 60 billion of exports 
today, within the decade will more than triple, to $200 
billion. It will be subject to the NAFTA effect, and if you 
look at what has happened to our exports to NAFTA, for example, 
Exhibit 3 in my prepared statement has a graph showing that our 
exports to Mexico and our exports to Central and South America, 
up until 1994, moved very closely together. They were almost 
identical. But in the years since NAFTA started, we now export 
twice as much to Mexico, twice as much as we do to all of 
Central and South America. We want that same effect to apply 
throughout the hemisphere.
    Now, the United States is already a very open market. 
Perhaps, though the Committee is very well informed, you may 
not be aware of just how open we are. Last year, average US 
tariffs were 1.6 percent. 1.6 percent is not a trade barrier, 
it is a speed bump. Two-thirds of all of our imports came in 
absolutely duty free. Now, in Central and South America, 
American exporters face duties that average in major markets 14 
percent or more, and it is not uncommon for American 
manufacturers to face duties of 20 to 30 percent, and on top of 
that, we have standards barriers and other barriers. These have 
to come down.
    Now, the matter is urgent because we are not the only ones 
who are talking about negotiating or actually negotiating with 
Central and South America. So are the Europeans. And if the 
Europeans manage to get duty-free access to these markets while 
we still have to pay those 20 and 30 percent duties, that is 
going to shut a lot of exports out and put a lot of our present 
$60 billion at risk.
    Now, NAM had a delegation in South America, in Chile, and 
we went to Buenos Aires to talk with other business communities 
and the American Business Forum. And we believe the FTAA is 
very feasible to negotiate. We also believe it is feasible to 
negotiate quickly a trade agreement with Chile, and we say why 
should we wait until 2005 if Chile is ready to open up its 
market now?
    But another thing was very clear, Mr. Chairman, and that is 
that both the Latin American business communities and the 
governments, without trade promotion authority, these 
negotiations are not going to go forward, no TPA, no 
negotiations, and we will be stuck with the status quo, and we 
will lose under the status quo. The time has come to stop 
negotiating with ourselves and start negotiating with our 
trading partners, because the cost of inaction is about to get 
very high. It would be very ironic if we were to continue to 
debate labor rights in other countries, while thousands of 
American workers lost their jobs if our foreign competitors 
were able to cut trade deals with Central and South America 
while we were not, and we lost those exports.
    Now, we are prepared to view labor and environmental 
concerns in a very flexible manner. We support good labor and 
environmental practices. We oppose trade sanctions. But if the 
objective is genuine concern for labor and environmental 
standards, we believe there are positive steps that reasonable 
people could agree on and move forward on, and we are ready to 
look at alternatives, and we are ready to look for creative 
solutions.
    But if we do not negotiate the FTAA, and if we keep the 
status quo, we lose. You know, keeping our 1.6 percent duties 
and allowing them to keep their 20 to 30 percent duties, and 
letting the EU into South America duty free, is not a winning 
solution for American manufacturers or for America's factory 
workers.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Vargo follows:]

Statement of Franklin J. Vargo, Vice President, International Economic 
             Affairs, National Association of Manufacturers

    Mr. Chairman and Members of the Committee:
    I am pleased to be here this afternoon on behalf of the National 
Association of Manufacturers in this important discussion of the 
outcome of the Quebec Summit of the Americas and the prospects for free 
trade in the hemisphere. The National Association of Manufacturers 
represents 14,000 American firms producing about 80 percent of all U.S. 
manufacturing output. Manufacturing comprises approximately one-fifth 
of all the goods and services produced by the U.S. economy, and 
directly supports 56 million Americans--the 18 million American men and 
women who make things in America and their families.
    Trade is of great importance to the NAM, for almost nine out of 
every ten dollars of U.S. merchandise exports are manufactured goods. 
Last year, U.S. exports of manufactured goods were $690 billion, 88 
percent of total U.S. merchandise exports. The $52 billion of 
agricultural goods exported last year accounted for 7 percent of U.S. 
merchandise exports, and mining and all other industries accounted for 
the remaining 5 percent. Similarly, manufactured goods dominate our 
imports, where last year they accounted for 83 percent of the total.
    About one-sixth of our total manufacturing output is exported, and 
for many important industries the ratio is much higher. For example, 
exports account for 54 percent of U.S. aircraft production, 49 percent 
of machine tools, 46 percent of turbine and generator output, 45 
percent of printing machinery, and the list goes on.
FTAA--NAM'S TOP TRADE PRIORITY
    Earlier this year, the NAM identified and prioritized its top trade 
objectives. This process, which included final review at this spring's 
NAM Board meeting, concluded that the NAM's top trade priority is the 
creation of the Free Trade Area of the Americas (the FTAA). The reason 
for this is that the FTAA would strongly affect the bottom line for 
American industry. It is of major significance to U.S. manufacturing 
production and employment, it is achievable in a near-term time frame, 
and it is of urgent importance.
    There are two areas of the world where barriers are still high 
South America and Southeast Asia. The FTAA would eliminate barriers 
throughout the Western Hemisphere, creating the world's largest free 
trade area--a market of 34 countries and 800 million people. The 
Western Hemisphere already accounts for nearly one out of every two 
dollars of all our exports. Most of this goes to Canada and Mexico, for 
the North American Free Trade Area (NAFTA) has generated a huge trade 
boom. We believe the FTAA will do the same for trade with Central and 
South America.
    Last year U.S. firms exported $60 billion to Central and South 
America, an amount four times as much as we exported to China. But the 
market is only a fraction of what it could be. Trade barriers have been 
holding back both our exports and the region's economic growth. This 
does not just affect large firms. In fact, of the 46 thousand U.S. 
companies that export to Central or South America, 42 thousand--91 
percent of the total--are small and medium-sized firms.
    Based on our experience with NAFTA, the NAM predicts that with the 
successful negotiation and implementation of the FTAA, our present $60 
billion of annual merchandise exports to Central and South America 
would more than triple within a decade to nearly $200 billion. That 
would represent a very considerable increase in U.S. industrial 
production generating more high-paying jobs in America's factories. 
America's agricultural and services exports would also grow 
proportionately.
    U.S. imports would grow as well probably by close to the same 
amount. The U.S. economy needs imports as well as exports. We benefit 
both by creating more high-paying export-related jobs and by being able 
to purchase imported goods more cheaply. America's living standard has 
benefited very strongly.
    It is important to recognize that the industries that trade the 
most pay the highest wages. In fact, as seen in Exhibit 1, while trade-
intensive industries paid an average annual compensation last year of 
$60 thousand per worker, industries that are moderately engaged in 
trade paid $48 thousand, and those that are not trade-engaged paid $44 
thousand.
The Need for the FTAA
    America is already a very open market. The FTAA would open markets 
for U.S. products in the rest of the hemisphere. Last year, the average 
import duty paid on all imports into the United States was only 1.6 
percent. That is not a trade barrier; it is barely a speed bump. 
Moreover, two thirds of all our merchandise imports from the world last 
year paid no duty at all. They entered the United States totally duty-
free.
    American exporters to South America, unfortunately, face a 
different situation. There, duties in major markets average 14 percent 
or more, and it is not uncommon for U.S. manufactured goods to face 
duties of 20-30 percent or higher. For example, as one of our members, 
the 3M company recently testified, Colombia assesses a 20 percent duty 
on their U.S.-made electrical tape. Ecuador charges their filter 
products a 30 percent duty. And so it goes. Those are serious barriers. 
Exhibit 2 depicts average tariffs in the United States and South 
America.
    Moreover, a recent World Trade Organization (WTO) report shows that 
Latin America has the highest bound duty rates in the world averaging 
35 percent. Southeast Asia comes in second, with a 28 percent average 
bound duty. These are "bound" duties, the legal duty limits that 
countries are not allowed to exceed. While bound rates tend to be much 
higher than the rates countries actually charge, they are important 
because they are the basis for WTO negotiations and because countries 
are permitted to raise duties up to their bound levels if they choose.
    Tariff barriers, furthermore, are augmented by costly customs 
clearance procedures, standards that can be used as entry barriers, 
expensive and redundant testing and certification procedures, and other 
obstacles to trade. Eliminating these tariff and non-tariff barriers 
would lower the cost of U.S. products in Central and South America and 
would significantly increase U.S. exports. Faster economic growth in 
Central and South America would occur as well, for their economic 
growth has been held back by their trade barriers. Removing trade 
barriers will enable production within these countries to become more 
efficient, allowing producers to focus on the goods and services they 
can produce most effectively, and lowering the costs of what they buy.
    The best example is Chile, a country that for a decade has 
determined it can only increase its living standard by reducing trade 
barriers, focusing its production on what it does best, and importing 
the rest. The result? Chile's economic growth over the past decade has 
been the fastest in South America--and has been double the average for 
all of South America. In fact, over the past decade Chile has been the 
third fastest-growing economy in the world.
    There is a real urgency to negotiating the FTAA, for the European 
Union (EU) is also negotiating free trade agreements with key South 
American countries. This is no trivial matter, for the European Union 
currently sells about as much to South America as we do. The 
consequences for U.S. exports would be severe if the EU were to obtain 
duty-free access to these markets while U.S. exports continued to face 
duties that could be 20 or 30 percent. A huge shift away from U.S. 
products to European products would result. The latest development is 
that Japan is now exploring the possibility of free trade agreements 
with South American countries.
Opposition to the FTAA
    Some very vocal groups are opposed to the FTAA. They would rather 
keep the status quo. Looking at the status quo--1.6 percent duties in 
the United States vs. duties ranging up to 20-30 percent in South 
America--it is difficult to understand why anyone would believe we are 
better off by not reducing our duties and their duties down to zero. 
Under the status quo, especially if the EU obtains preferential access 
to South America, U.S. factories and the American workforce would be 
the big losers.
    Much of the opposition to an FTAA is due to a belief that the North 
American Free Trade Area (NAFTA) has not been beneficial to the United 
States, and that the FTAA would compound this. Individuals taking this 
position have simply not looked at the facts. Far from being 
disadvantageous to the United States, NAFTA has been an enormous 
success.
    For starters, NAFTA has resulted in an astonishing U.S. export 
boom. U.S. exports to Mexico have more than doubled since the 
initiation of NAFTA. The $111 billion we exported to Mexico last year 
exceeded our exports to Japan, Germany, and France combined--the three 
largest economies in the world outside the United States. Last year 
Mexico accounted for close to one-third of all U.S. export growth 
worldwide. That is quite an achievement.
    To see how strong an effect NAFTA has had on our export growth, 
consider the fact that U.S. exports to Mexico have historically tended 
to be about the same size as our exports to Central and South America, 
about $30 billion to each in 1994, for example. But since NAFTA, U.S. 
exports to Mexico have soared to nearly twice the level of our exports 
to Central and South America. This is dramatically visible in Exhibit 
3. The FTAA will have the same effect on our exports to Central and 
South America as NAFTA did for our exports to Mexico.
    But what about the import side? It is certainly true that our 
imports from Mexico rose even faster than our exports, and what was a 
U.S. trade surplus in 1993 has become a large deficit. This is a key 
reason why many view NAFTA as a failure for the United States. In fact, 
one organization claims this trade deficit has cost the United States 
700,000 manufacturing jobs. The reasoning is that if exports create 
jobs, imports must destroy them.
    There are two problems with this logic. The first is conceptual, 
for many imports simply don't compete with U.S.-made products or they 
fill gaps where the U.S. just can't produce enough to meet demand. For 
example, one-third of our deficit with Mexico stems from oil imports 
necessary to meet our energy needs. Additionally, the exceptional 
growth of the U.S. economy pulled in imports from Mexico along with 
imports from the rest of the world.
    The second problem is that the facts just don't support an argument 
that the trade deficit with Mexico has cost manufacturing jobs. A close 
examination of the data shows that indeed there is a $17 billion 
deficit in our manufactures trade with Mexico. But one industry 
predominates: motor vehicles. In fact, we have a $24 billion deficit in 
our automotive trade with Mexico.
    Note that the deficit in automotive trade with Mexico exceeds our 
total manufactures goods deficit with Mexico. What that means is that 
our trade with Mexico in all other manufactures is in surplus by $7 
billion. Let me stress that point: U.S. non-automotive manufactures 
trade with Mexico had a $7 billion surplus last year. Moreover, that 
surplus has been growing in recent years--an almost unique phenomenon 
in our trade with the world. Thus, in the logic of those who equate 
deficits with job losses--since there is no deficit here, there is no 
net job loss.
    If there has been a NAFTA job loss, it must have been in autos, 
where the trade deficit grew $20 billion since the initiation of NAFTA. 
However, this is not borne out by the facts either. In fact, employment 
in the U.S. auto industry, even after the recent decline in the U.S. 
economy, stands at over 100 thousand jobs higher than before NAFTA 
began. While total manufacturing jobs in the United States grew 2 
percent from 1993 to 2000, auto sector jobs grew 20 percent ten times 
as fast. There has been no net job loss in the auto sector, and the 
reason is that the integrated North American auto industry really 
works, and it works for all three countries.
    So where is the job loss? In the non-automotive manufactured goods 
trade surplus we have with Mexico? Or in the auto industry that has 
gained more than 100,000 jobs since NAFTA? The answer is that the facts 
simply do not support claims that NAFTA has led to a significant net 
loss in manufacturing jobs.
    What about the ``sucking sound'' of a wholesale movement of U.S. 
factories closing their doors and moving to Mexico? Certainly some 
factories have moved to Mexico, but there has not been the flood that 
many seem to take for granted. Furthermore, many more U.S. factories 
have stayed right where they are and have expanded their payrolls to 
produce that $111 billion we are now exporting to Mexico.
    U.S. balance of payments data show that there has been only a 
modest increase in U.S. investment in Mexico. Prior to NAFTA, U.S. 
companies invested $3 billion in Mexico (3 percent of global U.S. 
foreign direct investment). In 1999 (latest year available), they 
invested $5 billion (4 percent of global U.S. foreign direct 
investment).
    Moreover, most of this investment increase has been in finance, 
wholesaling, retailing, etc.--not in manufacturing. U.S. manufactured 
goods investment in Mexico has been fairly steady at about $2.5 billion 
per year since NAFTA began. This is only a fraction of the $35 billion 
invested last year by U.S. manufacturers abroad, mainly in high-wage 
developed countries. Three- fourths of U.S. manufacturing investment 
goes to the industrial countries. And in 1999, 40 percent of the 
manufacturing investment to the developing world went to one country--
not Mexico and not China but high-wage Singapore.
    Thus it is clear that when one looks at what has really been 
happening, NAFTA is actually a great success. Rather than trying to 
avoid another NAFTA, we should seek to emulate it and expand free trade 
to the rest of the hemisphere, particularly in Central and South 
America.

THE PROSPECTS FOR HEMISPHERIC FREE TRADE
    Let me now turn to the prospects for actually being able to obtain 
free trade in the hemisphere. An NAM business delegation visited Chile 
and Argentina last month to discuss the FTAA and the bilateral 
negotiations with Chile. After consultations with business executives 
and government officials we concluded that the chances for successful 
negotiation of both agreements are excellent. We found a lot of 
agreement on the negotiating agenda and an ample amount of common 
ground.
    This is not to say the negotiations will be easy. We have high 
expectations and major goals to be achieved in the negotiations, and we 
will continue to press U.S. negotiators to obtain the best possible 
package of trade liberalization. Other business communities left no 
doubt that they will do the same. The negotiations will have to be 
balanced, with all parties seeing benefits. This is why everything must 
be put on the table for negotiation.
    Considerable groundwork has already been done. Nine negotiating 
groups have worked over the past couple of years to lay out the 
framework for the negotiations. Notably, the trade ministers of the 34 
nations met their goal of producing an initial bracketed text at the 
last month's FTAA ministerial meeting in Buenos Aires, Argentina. The 
U.S. leadership, Ambassador Zoellick and Secretary Evans, did an 
excellent job of defusing questions of timing, and obtaining agreement 
that actual negotiations would start next May.
    Importantly, the Summit of the Americas in Quebec last month 
provided the final necessary ingredient--the political agreement and 
commitment to move ahead. President Bush did what we had hoped. He laid 
out the FTAA as a key trade priority and stressed the U.S. would devote 
all necessary resources to the negotiations. The other ministers agreed 
and charged their trade officials to move ahead. The significance of 
the Quebec Summit is that it marked the end of phase one--the planning 
and the groundwork, and the beginning of the next phase--the actual 
negotiations.
    Business not only strongly supports these negotiations, but is also 
helping pull them forward. Representatives of the U.S. business 
community and the 33 other business communities participated in the 
Americas Business Forum in Buenos Aires immediately prior to the FTAA 
Ministerial meeting. The purpose of the forum was to exchange views, 
find common ground, and make recommendations to governments. Clearly 
evident at the business forum was that business communities throughout 
the hemisphere want to move ahead. They recognize that Latin America's 
economic future can only be assured through the removal of trade 
barriers and the creation of a free trade area.
    Also true, however, is that most Latin business communities are 
concerned about their ability to compete and survive in an open market. 
They are cautious, particularly about the period of time over which 
tariffs would be eliminated. The U.S. business community would like to 
eliminate as many tariffs as possible as soon as implementation of the 
FTAA begins. Few Latin business communities agree at this point. They 
argue that some sensitive industries will require more time to adjust. 
This will be an important part of the negotiations.
    The NAM will continue to work with Latin American industries to 
maintain forward movement. For example, last week the NAM signed a 
memorandum of understanding with the Venezuelan industry association, 
CONINDUSTRIA, to begin a process of communication and cooperation--
particularly with respect to the FTAA. In signing that document, the 
Venezuelan industry leadership stated its strong support for 
implementing the FTAA by the end of 2005--or even earlier if that is 
feasible.

Bilateral Negotiations
    In addition to the FTAA, the U.S. is currently negotiating a 
bilateral trade agreement with Chile. The NAM applauds this negotiation 
and wants to see it concluded by the end of this year. We seek a 
robust, world-class agreement that would quickly eliminate trade 
barriers and would provide full investment coverage. Based on our 
meetings in Chile last month with government leaders, key legislators, 
and business executives, we are convinced this is feasible.
    There are two reasons for our strong support of this bilateral 
negotiation. First, the agreement will help expand bilateral trade with 
Chile. Chile is the most free trade-oriented country in South America, 
and is ready now to enter into free trade with the United States. Why 
should we wait until 2005 to begin obtaining improved market access 
through the FTAA if we can begin obtaining this access next year 
through a bilateral agreement? Of course, compatibility with the FTAA 
must be ensured.
    The second reason is that conclusion of the agreement with Chile 
will reinforce the FTAA negotiations and serve to set high standards. 
Having an agreement with Chile will maintain the momentum of the FTAA 
negotiations. In fact, the NAM has urged USTR to commence bilateral FTA 
negotiations with other countries in South America. We understand that 
the Central American countries (accounting for over $12 billion of U.S. 
exports, four times as much as to Chile) have indicated their interest, 
as have other countries including Uruguay and Argentina. So long as the 
U.S. government has the capacity to engage in these negotiations, they 
should proceed as soon as possible. Like the Chile negotiations, 
additional bilateral negotiations will help ensure success for the 
larger FTAA negotiations.

NEEDED: TRADE PROMOTION AUTHORITY
    In concluding my statement, I want to stress there is one 
absolutely essential prerequisite to these negotiations B providing the 
President with Trade Promotion Authority (TPA). Our trading partners 
insist on having the assurance that what they negotiate with the United 
States will be voted on as a single package. They will not negotiate 
under circumstances in which the final deal turns out not to be final, 
but is one which Congress modifies.
    It must be stated bluntly: without Trade Promotion Authority, the 
FTAA negotiations simply will not move forward. I believe the same can 
be said for prospective negotiations on a new round in the WTO. The 
Latin business communities and government officials with whom we have 
met were all unanimous on that point: no TPA . . . no negotiations.
    Regrettably, some would applaud if there were to be no 
negotiations; but, as I stated earlier in my testimony, maintenance of 
the status quo means that we lose. Allowing Latin nations to keep their 
duties of 20-30 percent on major U.S. exports while we keep our 1.6 
percent tariff speed bump against theirs is not a winning solution for 
the United States.
    The time has come to stop negotiating with ourselves and to start 
negotiating with our trading partners. In particular, the issue of how 
to handle labor and environmental concerns has stalled us for too long. 
We must find a way to move forward, for the cost of continued inaction 
is about to get very expensive. How ironic it would be if we continued 
to debate labor rights in other countries while thousands of American 
workers began to lose their jobs as our foreign competitors completed 
trade deals with Latin America and took our export business away.
    Business has already stated that it is prepared to view labor and 
environmental concerns in a flexible manner. Business is not opposed to 
good labor and environmental practices. U.S. business standards are the 
highest in the world, and we tend to carry them with us through our 
investments in foreign countries--as is illustrated in a joint 
Manufacturers Alliance--NAM study of U.S. company practices in 
developing countries that will be released shortly.
    We believe that if the objective genuinely is to advance labor and 
environmental standards in the world, then there are positive steps 
that can be taken. We remain opposed to trade sanctions, but we are 
ready to discuss alternatives and to look for creative solutions.
    Neither business, nor workers, nor environmentalists would benefit 
from continuing the status quo in our trade relations with Central and 
South America. We will all do better with the FTAA. I believe it was 
Jean Monnet, one of the founders of the European Community, who said, 
``Let us all put ourselves on one side of the table, and the problem on 
the other side. Working together, we can move ahead.''
    Thank you, Mr. Chairman.

    [GRAPHIC] [TIFF OMITTED] T4222A.015
    
    [GRAPHIC] [TIFF OMITTED] T4222A.016
    
    [GRAPHIC] [TIFF OMITTED] T4222A.017
    
    Chairman Crane. Thank you, Mr. Vargo. Mr. Price.

                                


STATEMENT OF DANIEL M. PRICE, MEMBER, UNITED STATES COUNCIL FOR 
                     INTERNATIONAL BUSINESS

    Mr. Price. Thank you, Mr. Chairman and members of the 
Committee. I am pleased to be here on behalf of the US Council 
for International Business. And I would like to focus on the 
issue of investment in the FTAA.
    Time permitting, I would like to address three points. 
First, the importance of investment flows, inbound and outbound 
to the US economy; second, the importance of including an 
investment chapter in the FTAA and what that chapter should 
address; and finally, I would like to respond to some of the 
concerns that have been raised about the investor-State dispute 
settlement mechanism that appears both in NAFTA and in US 
bilateral investment treaties.
    First, it is important we recognize that the world economy 
is no longer characterized by companies that simply sit within 
national borders and either export or sell locally. Companies 
are investing abroad in increasing numbers. They do so to get 
closer to their markets, acquire new technologies, form 
strategic alliances, or otherwise enhance their 
competitiveness, including by integrating production and 
distribution.
    Now, the United States has been a principal beneficiary of 
this dramatic increase in investment flows. On the inbound 
side, the United States is host to the largest amount of 
foreign investment. Foreign investment in the year 2000 reached 
almost $317 billion. As of 1998, foreign companies in total had 
invested $3.5 trillion in the United States. Foreign companies 
employ 5.6 million people in the United States, and pay average 
annual salaries of over $46,000 per year, which is well above 
the average salary for US workers as a whole. Likewise, US 
subsidiaries of non-US companies accounted for 13\1/2\ percent 
of all US manufacturing jobs. Finally, as of 1998, foreign 
company affiliates in the United States accounted for 
approximately 22 percent of US exports.
    On the outbound side the picture is equally bright. As of 
1998, US companies had invested over $4 trillion abroad. In 
terms of sales, foreign affiliates of US companies had sales of 
approximately $2.4 trillion. That is nearly 2\1/2\ times the 
amount of US exports. And exports by United States companies 
that have affiliates abroad were $438 billion in 1998. That 
amount equals some two-thirds of all US exports. And of those 
exports, 50 percent went to US affiliates abroad. As 
Congressman Brady noted in his earlier statement, investment 
pulls exports. It is a fact.
    Now, some have suggested that investment liberalization 
leads to a race to the bottom. I suggest the evidence is to the 
contrary. If lax environmental standards, low wages, and the 
absence of worker rights were the principal determinants of 
investment flows, one would expect the least developed 
countries to be the host to the majority of foreign investment. 
Yet the reverse is true. More investment flows between 
developed countries. More than 75 percent of all foreign direct 
investment is in the developed world. The United States itself 
is host to more than 30 percent. China, by contrast, received 
$40 billion in FDI in 1999. That is less than 5 percent of 
global flows.
    The wage picture is equally compelling. The average 
compensation paid to workers at majority-owned US companies 
throughout the world in 1998 was $33,100. In Canada and Europe, 
which received two-thirds of all US outbound investment, the 
average compensation at US majority owned affiliates was 
$41,200. This is hardly a race to the bottom.
    I suggest that the critics of investment flows are 
confusing cause and cure. The problems of environmental 
protection and labor standards are problems of economic 
development. Inadequate standards do not attract and are not 
the result of increased investment flows. Rather, they are in 
part the consequences of the absence of investment capital 
necessary to alleviate poverty and raise living standards.
    Now let me say a word about what goes in these agreements. 
And I think you will find that in addition to securing economic 
benefits, these agreements achieve broader US policy goals. 
Investment agreements negotiated by the United States typically 
incorporate US constitutional protections against the taking of 
property without just compensation, and against arbitrary and 
discriminatory government action. Just as they have done in the 
United States, these principles foster the development of the 
rule of law, respect for private property, and a market-based 
free enterprise system that are the essential hallmarks of a 
democratic society.
    But what are these elements? I will address them very 
briefly. The first point I would like to make is that these 
elements are not new. The principal protections found in NAFTA 
and that ought to be included in an FTAA, have been in US 
investment agreements since at least World War II. All of these 
protections are traditional protections of US investment 
policy. The one innovation in 1980, when the US started 
negotiating bilateral investment treaties, was the inclusion of 
investor-State dispute settlement.
    Well, what are these protections? First, national treatment 
and most favored nation treatment. That is, the creation of a 
non-discriminatory environment within which US investors can 
compete. Second, international law protections that the United 
States has long fought for, including fair and equitable 
treatment and full protection and security, and otherwise 
treatment in accordance with international law. The fair and 
equitable treatment standard is particularly important and a 
safeguard against arbitrary, unreasonable or other 
unjustifiable government actions. The third element has to do 
with financial transfers, and it safeguards the free movement 
of capital associated with an investment. The fourth element is 
the prohibition of so-called performance requirements, export 
requirements, local content requirements, trade balancing 
requirements, similar to those the United States succeeded in 
prohibiting in the negotiation of the WTO Agreement on Trade-
Related Investment Measures. The final element of these 
investment treaties and of an investment chapter, is the 
investor-State dispute settlement mechanism. That is the right 
of the investor to seek money damages from a host government 
that causes economic injury when it violates a provision of the 
agreement.
    Let me say just a few things about investor-State. First, 
an investor-State tribunal, under NAFTA, is empowered to award 
only money damages. Tribunals do not have the authority to 
order a party to change its laws or to nullify a party's laws 
as some have suggested. Second, it is US investors that have 
the most capital at risk abroad, and thus, have the most to 
gain from an effective dispute settlement mechanism. I would 
note that if one reviews the actual decisions of NAFTA 
tribunals and not the hype about the bringing of the cases, one 
will find that these tribunals have acted with great care, and 
there is no evidence to suggest that these tribunals have or 
will jeopardize public welfare to uphold economic interest. The 
track record to date demonstrates that these tribunals have 
been quite judicious.
    Now, critics have raised concerns about cases that have yet 
to be decided. Critics have raised a concern about the mere 
fact that cases have been brought against the United States. I 
suggest to you that part of the price of living in an 
international system governed by the rule of law is that cases 
will be brought against the United States. If those cases are 
not meritorious, they will not prevail. If they are meritorious 
and the United States is required to pay damages, that is part 
of the price of being in the system. I would note that the 
United States has enjoyed enormous benefits from these 
provisions. Of the 16 claims that have been brought under 
NAFTA, 11 have been brought by US investors.
    This is not to say that the system cannot be improved. I 
think one should take a serious look at transparency provisions 
for investor-State, for making the filings available to the 
public, and making the proceedings open to the public. One 
might also consider an amicus or friend-of-the-court procedure.
    Finally, I think consideration should be given to 
developing an appellate mechanism. Right now the only available 
review is through national courts, and we have recently seen 
that in Canada. As we consider an agreement with 34 countries, 
it may be useful to think about a self-contained appeal 
mechanism that would address concerns of consistency and would 
also address the concern of some critics about the possibility 
of wild or aberrant decision.
    Let me conclude by saying that the US has the most at stake 
in hemispheric integration, and that a comprehensive and strong 
investment chapter will be a crucial part of that agreement. 
Thank you very much.
    [The prepared statement of Mr. Price follows:]

  Statement of Daniel M. Price,\1\ Member, United States Council for 
                       International Business \2\
---------------------------------------------------------------------------
    \1\ Mr. Price is a partner at Powell, Goldstein, Frazer & Murphy 
LLP in Washington, DC where he advises clients on international trade 
investment matters. While Deputy General Counsel in the Office of the 
U.S. Trade Representative he served as a negotiator of Chapter 11 of 
NAFTA and numerous bilateral investment treaties. He was also U.S. 
Deputy Agent to the Iran-U.S. Claims Tribunal in The Hague. He received 
his B.A. from Haverford College, a Diploma in Legal Studies from 
Cambridge University, and J.D. from Harvard Law School.
    \2\ The United States Council for International Business is a trade 
association of some 300 companies active in the global marketplace. 
Founded in 1945, the Council is dedicated to promoting an open system 
of world trade, investment, and finance. The Council advances the 
global interests of American business both a home and abroad. It is he 
American affiliate of the International Chamber of Commerce (ICC), the 
Business and Industry Advisory Committee (BIAC) to the OECD, and the 
International Organization of Employers (IOE). As such, it officially 
represents U.S. business positions both in the main intergovernmental 
bodies and vis-a-vis foreign business communities and their 
governments.
---------------------------------------------------------------------------

I. Introduction
    Thank you for inviting me here today to present the views of the 
United States Council for International Business on the importance of 
including investment protections in the agreement establishing the Free 
Trade Area of the Americas (FTAA).
    Trade and investment are interdependent. To achieve the benefits of 
economic liberalization, investment barriers must be addressed as 
comprehensively as trade barriers. And the rules protecting U.S. 
investment abroad must be both rigorous and enforceable.
    Taken together, the expansion of trade and investment flows has 
spurred economic growth, created jobs for millions of people in the 
United States and abroad, raised global living standards, and has 
helped forge bonds of mutual interest and economic opportunity among 
countries around the world.
    International investment flows are rapidly becoming as important as 
trade in goods and services. The world economy is no longer 
characterized by companies that remain parked within national borders 
and that simply export or sell locally. Companies are investing abroad 
in ever-increasing numbers. They do so to get closer to their markets, 
acquire new technologies, form strategic alliances and enhance 
competitiveness by integrating production and distribution. The 
activities of their affiliates are impressive and make an enormous 
contribution to economic welfare worldwide. According to the United 
Nations World Investment Report 2000, sales by foreign affiliates of 
corporations totaled $14 trillion in 1999, over four times the figure 
for 1980 and twice the value of global exports. Foreign affiliates 
accounted for over $3 trillion in exports in 1999. The production of 
foreign affiliates now accounts for approximately 10% of global GDP, 
and foreign affiliates now employ over 40 million people.

II. Responding to Criticisms of Investment Protection and 
        Liberalization
    In spite of the economic significance of investment flows, some 
critics have suggested that promoting stable investment regimes abroad 
will lead to an export of American jobs. Some have also argued that 
investment liberalization will lead to a ``race to the bottom'' with 
investment flowing principally to countries with minimal or no 
protections for the environment or worker rights. The facts do not 
support these claims.

A. International Investment Flows--Inbound and Outbound--Contribute to 
        the Economic Prosperity of the United States
    The United States has been, perhaps, the greatest beneficiary of 
the explosion in international investment over the past decade. The 
United States receives more than 30% of worldwide investment. According 
to the U.S. Bureau of Economic Analysis (BEA), foreign investment in 
the United States grew seven-fold between 1994 and 2000, reaching 
almost $317 billion last year. As of 1998, foreign companies had 
invested over $3.5 trillion in the United States. They employed 5.6 
million people and paid average annual salaries of over $46,000, well 
above the average salary for U.S. workers as a whole. U.S. subsidiaries 
of non-U.S. companies accounted for 13.5% of all U.S. manufacturing 
jobs. In 1998, foreign companies' affiliates in the United States 
accounted for approximately 22% of total U.S. exports. Inbound 
investment is critical to the health of the U.S. economy.
    Outbound investment is equally important. According to the BEA, 
between 1994 and 2000, U.S. outbound investment doubled from $73 
billion to $148 billion. As of 1998, the assets of non-bank foreign 
affiliates of U.S. companies exceeded $4 trillion. In 1998, non-bank 
foreign affiliates of U.S. companies had over $2.4 trillion in sales--
that is nearly two and one-half times the amount of U.S. exports of 
goods and services. According to the Survey of Current Business, 
exports by U.S. multinationals were $438 billion in 1998, an amount 
equal to some two-thirds of all U.S. exports. Approximately 50% of 
these exports were to the majority-owned affiliates of those U.S. 
companies. Thus, agreements promoting stable investment regimes abroad 
do not export jobs, but rather lead to increased exports of goods and 
services and contribute broadly to the economic well-being of the 
United States.

B. Investment Liberalization does not Lead to a Race to the Bottom
    If lax environmental standards, low wages and the absence of worker 
rights were the principal determinants of investment flows, one would 
expect the least developed countries to be the host of the vast 
majority of foreign investment. Yet the reverse is true.
    More than 75% of all foreign direct investment is in the developed 
world. As noted, the United States itself is host to more than 30% of 
all such investment. The United Kingdom runs a distant second with a 
little more than one-fourth the total of the United States or $82 
billion as of 1999. China, by contrast, received $40 billion in 1999, 
less than 5% of global flows. Thus, investment has, in fact, raced to 
the top, flowing in overwhelming proportion to stable democracies that 
are characterized by high living standards, well-developed regulatory 
regimes and transparent legal systems.
    The wage statistics are equally telling. In 1998, the average 
compensation paid to workers at majority-owned U.S. affiliates 
throughout the world was $33,100. In Canada and Europe, which receive 
two-thirds of all U.S. outbound investment, the average compensation at 
U.S. majority-owned affiliates was $41,200. Investment has not 
``raced'' to the lowest wage levels.
    The critics confuse the cause and the cure: problems of 
environmental protection and labor standards are preeminently problems 
of economic development. Inadequate environmental standards and worker 
rights do not attract, and are not the result of, increased investment 
flows; rather they are in part the consequences of the absence of 
investment capital necessary to alleviate poverty and raise living 
standards--the root cause of the problem.

III. The Importance of an Investment Chapter in the FTAA
    Our Latin American and Caribbean partners in the FTAA have 
experienced a dramatic surge in foreign investment over the past 
decade. The enormous opportunities that have opened up in the region--
in large part as a result of massive privatization efforts--have made 
Latin American and Caribbean countries a primary destination for 
foreign investment among the developing countries of the world. The 
region now accounts for approximately 10% of global FDI inflows. 
According to the United Nations, FDI in the top 10 recipient countries 
in the region grew almost 23% between 1998 and 1999 alone, and as of 
1999 stood at $27 billion in 1999.
    While the U.S. is the largest investor in the region, it has not 
kept pace with growth of investment opportunities there. According to 
the BEA, U.S. companies invested $17.71 billion in Latin America and 
the Caribbean in 1994. U.S. investment in the region in 2000 was 
virtually the same, at approximately $17.8 billion. The United States 
is clearly not taking advantage of the investment boom in the region. 
In fact, most of the investment flows are between countries within the 
region, as they have already begun the process of economic integration 
without us. In addition, our major competitors, particularly from 
Europe, have stepped in to fill the vacuum.
    An FTAA that both opens borders to trade and provides strong 
investment protections would create enormous commercial opportunities 
for U.S. industry and would unleash synergies in production and 
distribution operations. Trade liberalization without investment 
liberalization will prevent companies from achieving these synergies 
and rationalizing their supplier networks. Conversely, investment 
liberalization without trade liberalization will lead to the creation 
of duplicative production operations as producers are forced to build 
manufacturing facilities behind the ``tariff walls'' protecting each 
market. Investment protection and liberalization is thus a crucial part 
of a free trade agreement.
    In addition to these economic benefits, an investment chapter would 
promote broader U.S. policy goals. Investment agreements negotiated by 
the United States essentially incorporate U.S. constitutional 
protections against the taking of property without just compensation 
and against arbitrary or discriminatory government actions. As they 
have done in the United States, these principles foster development of 
the rule of law, respect for private property and a market-based free 
enterprise system that are essential hallmarks of a democratic society.
    Recognizing these important dynamics, some thirty leading U.S. 
companies and trade associations wrote to Ambassador Zoellick on April 
19 affirming their support for inclusion of an investment chapter in 
the FTAA modeled on the strong and comprehensive provisions found in 
NAFTA (letter attached).

IV. The Need for Strong Legal Protection of Foreign Investment: Core 
        Elements of an Investment Chapter
    The explosive growth in cross-border investment is attributable to 
several factors, not the least of which is the development of strong, 
stable legal regimes to protect property rights. Over the past decade, 
we have witnessed a sea change in the way countries--particularly 
developing countries--have treated foreign investment. Whereas before 
they pursued economic growth through state control of the private 
sector and import substitution policies, they have come to realize that 
growth is best promoted through free trade and liberal investment 
regimes. Countries in Latin America in particular have undertaken vast 
privatization efforts and have revamped their legal systems to attract 
foreign investment.
    According to the United Nations, of 1,035 changes worldwide in laws 
governing foreign direct investment between 1991 and 1999, 94% were 
more favorable to foreign investment. The number of bilateral 
investment treaties (BITs) has risen from 181 at the end of 1980 to 
1,856 at the end of 1999. Countries in Latin America and the Caribbean 
have signed approximately 300 BITs, virtually all of which were 
negotiated in the 1980s and 1990s. As of December 31, 1996, the 
countries of Latin America and the Caribbean had negotiated 37 BITs 
among themselves, all in the 1990s. It is no coincidence that these 
changes to the legal landscape have occurred at the same time as cross-
border investment has expanded over the past decade.
    It should be noted, however, that the United States has signed 
investment agreements with only three of the top 10 Latin American 
recipient countries of foreign investment. The FTAA would include six 
of the remaining seven markets.
    Including an investment chapter in the FTAA would help lock in 
these advances in creating a regulatory environment hospitable to 
international investment. While strong investment laws are not 
themselves sufficient to attract foreign investment, they are a 
necessary prerequisite for such investment. A recent study by 
economists at the Inter-American Development Bank found that strong 
investment laws, particularly laws protecting foreign investors from 
expropriation and preserving contract rights, play central roles in 
attracting FDI. It also found that free trade agreements significantly 
increase investment among the members of the free trade area.
    In order to establish a strong investment regime throughout the 
Hemisphere, the FTAA should include all of the fundamental protections 
that have been codified in United States bilateral investment treaties 
and in Chapter 11 of the NAFTA. The United States has sought the 
inclusion of these principal protections in bilateral and multilateral 
investment agreements since World War II when it began negotiating a 
series of modern treaties of friendship, commerce and navigation (FCN). 
The investor-state dispute settlement mechanism was included in the 
first U.S. bilateral investment treaty (on which all subsequent U.S. 
BITs have been based) in 1980.
    What are these fundamental protections?
    First, the investment chapter should guarantee foreign investors 
the better of national treatment or MFN treatment, both with respect to 
the establishment of investments and treatment thereafter. This will 
ensure nondiscriminatory treatment and the removal of barriers to 
entry.
    Second, the FTAA should protect investors against expropriation 
without payment of compensation. This protection should extend both to 
direct expropriation--for example, the physical taking or 
nationalization of property--and to indirect expropriation such as may 
occur through regulation or other forms of so-called creeping 
expropriation. The inclusion of indirect expropriation is crucial. 
Government action may impair or destroy the value of an investment even 
if there is no physical seizure or destruction of the property.
    Third, the investment chapter should guarantee investment fair and 
equitable treatment, full protection and security, and protection in 
accordance with international law. These provisions have long been 
included by the United States in bilateral and multilateral investment 
instruments. The fair and equitable treatment standard, in particular, 
protects against lawless, arbitrary, unreasonable, bad faith or other 
unjustifiable government actions. These protections help promote the 
rule of law and are meant to safeguard the interests of U.S. investors 
where government action or inaction, while not rising to the level of 
expropriation per se or outright discrimination on nationality grounds, 
nonetheless subjects the investor to adverse and injurious treatment.
    Fourth, the investment chapter should guarantee the free movement 
of capital associated with the investment, including the repatriation 
of profits. Without this protection, investors will not commit the 
resources necessary to undertake large-scale investments.
    Fifth, the investment chapter should prohibit performance 
requirements such as local content and export requirements, and other 
trade-related investment measures. Such measures distort trade flows 
and create economic inefficiencies, thereby offsetting the benefits of 
the agreement.
    Finally, the investment chapter should include a mechanism to allow 
investors to arbitrate investment disputes with host governments and 
obtain monetary compensation for damages resulting from violations of 
the agreement. Access to an arbitration procedure of this sort is the 
only effective way to guarantee enforcement and obtain appropriate 
redress. Limiting investment dispute settlement to a state-to-state 
procedure will politicize disputes, leaving investors, particularly 
small- and medium-sized enterprises, with little recourse save what 
their government cares to give them after weighing the diplomatic pros 
and cons of bringing any particular claim. Furthermore, a state-to-
state dispute settlement procedure based on the WTO model, which 
provides only prospective relief, will not remedy most violations of 
the agreement. If, for example, a government expropriates an investor's 
property, prospective relief without providing compensation to the 
investor will not redress the injury done to the investor.

V. Responding to Criticism of NAFTA's Investor-State Dispute Settlement 
        Mechanism
    The investor-state dispute settlement mechanism has been perhaps 
the most controversial aspect of the investment chapter of the NAFTA. 
Critics have alleged that it undermines a nation's sovereign right to 
regulate. The evidence simply does not support these claims.
    At the outset, two facts should be recognized. First, under NAFTA 
an investor-state arbitral tribunal can only award the payment of 
compensatory money damages to an injured investor; tribunals have no 
authority to order a party to change its laws. Second, it is U.S. 
investors that have more capital at risk than investors from any other 
country, and thus have the most to gain from an effective mechanism for 
enforcing investor protections.
    In any case, there is no evidence that arbitration tribunals will 
jeopardize public welfare to uphold the economic interests of foreign 
investors. A careful examination of the NAFTA arbitration decisions to 
date reveals that the tribunals have acted with great care. In two 
cases where an arbitration tribunal ruled in favor of a U.S. foreign 
investor--SD Myers and Metalclad--the tribunal found that the 
government authorities were acting arbitrarily or targeting a specific 
foreign investor with unfair or discriminatory measures. It should be 
noted that Mexico brought suit in a Canadian court to set aside the 
Metalclad award, and the court recently upheld the tribunal's decision 
that the U.S. investor's property had been expropriated. In two other 
cases--Azinian and Waste Management--the U.S. investor lost outright, 
one on the merits, the other on jurisdiction.
    In the recently released decision in Pope & Talbot, the tribunal 
rejected all but one of the U.S. investor's claims. The one claim that 
was upheld was based on a finding that the Canadian authorities had 
acted unfairly in imposing extremely burdensome, and arguably illegal, 
administrative requirements on the investor. While the tribunal was 
careful to avoid questioning the motives of the Canadian Government in 
that case, it appeared from the facts that the Government's actions 
were motivated by a desire to punish the investor for bringing the 
NAFTA claim.
    In Ethyl--which is often cited by critics as an example of a case 
where a foreign investor forced a government to withdraw a bona fide 
environmental measure--Canada settled a NAFTA case brought by a U.S. 
investor. However, the settlement was spurred by a holding by a 
Canadian panel, not the NAFTA arbitration tribunal, that the particular 
measures imposed by Canada violated an internal Canadian arrangement 
called the Agreement on Internal Trade.
    This track record hardly demonstrates that arbitration tribunals 
have overstepped their bounds in protecting the rights of investors. To 
the contrary, the evidence to date shows that tribunals have taken a 
reasonable, balanced and judicious approach in interpreting and 
applying the NAFTA investment provisions.
    Nevertheless, critics of the NAFTA investment chapter point to 
cases against the United States that have not yet been decided--such as 
the Methanex or Loewen cases--and have speculated about how tribunals 
in those cases might rule. Indeed, those critics find troubling the 
very initiation of these claims. I do not express a view on the merits 
of these pending cases. However, the mere fact that cases have been 
brought against the United States in no way undermines the legitimacy 
or integrity of the dispute settlement process. Indeed even frivolous 
cases may be brought before a NAFTA panel just as they are brought in 
United States courts every day, but this does not mean that either the 
court system or the arbitration mechanism is flawed. If claims are 
found to be frivolous, then they will be rejected. If claims are 
justified, then the respondent, including the United States as the case 
may be, should pay compensation. This is the price of living in an 
international system governed by the rule of law.
    The United States has long been the champion of international 
investment rules. It has fought hard for recognition of the 
international rule of law and for respect for international dispute 
resolution bodies. The United States has enjoyed enormous benefits from 
invoking dispute settlement provisions to break down trade barriers or 
redress injuries to investors. Indeed, of the approximately 30 claims 
under BITs that have come before the International Centre for 
Settlement of Investment Disputes (``ICSID''), about one-third have 
been brought by U.S. investors. And of the 16 claims that have been 
brought under NAFTA's investment provisions, 11 have been brought by 
U.S. investors. It would be ironic if the United States, long the 
advocate for subjecting sovereign actions to scrutiny under 
international law, were now to retreat from the very international 
principles it worked so hard to enshrine.
    Concerns about investor-state arbitration--and agitation over its 
compatibility with sovereignty--are without foundation. Fears about 
overreaching arbitral panels are likewise unfounded given the record of 
decisions.
    None of this should be taken to imply that the system could not be 
improved. The process would benefit from two important changes. First, 
the FTAA parties should consider increasing the transparency of the 
process by ensuring that the briefs and arbitration proceedings are 
open to public view, subject to reasonable protections for confidential 
business information. An amicus, or ``friend of the court,'' procedure 
might also be developed whereby interested members of the public could 
express their views on the issues before the tribunals.
    Second, the parties to the FTAA might consider the desirability of 
creating an appellate body that would review arbitral awards for errors 
of law. Such an appellate mechanism would accomplish three salutary 
goals: (1) it would address the risk of an aberrant or wildly erroneous 
decision that seems to have captured the imagination of critics; (2) it 
would contribute to the development of a coherent body of jurisprudence 
on the interpretation of the FTAA; and (3) it would eliminate the 
possibility of having the court systems in each of the 34 FTAA parties 
become involved in the review of FTAA awards and hence the 
interpretation of FTAA, a possibility left open by NAFTA.
    The Hemisphere stands at the threshold of comprehensive free trade 
agreement talks in which investment rules should figure prominently. 
Investor-state dispute settlement will be essential to ensuring the 
effectiveness of those rules. Now is not the time to depart from 
longstanding United States investment policy and time-tested methods 
for the resolution of investment disputes.
    As the largest economy in the region, the United States has the 
most at stake in hemispheric integration. By leading the negotiation of 
an agreement that removes trade and investment barriers and promotes 
democratic values, the United States can secure for itself and its 
neighbors the benefits of economic growth and prosperity. An investment 
chapter is an essential component of any agreement seeking to achieve 
these goals.

    [The attachment is being retained in the Committee files.]

                                


    Chairman Crane. Thank you, Mr. Price.
    Mr. Gambrel.

 STATEMENT OF WILLIAM GAMBREL, PRESIDENT, BANKBOSTON COLOMBIA, 
    AND VICE PRESIDENT, ASSOCIATION OF AMERICAN CHAMBERS OF 
COMMERCE IN LATIN AMERICA, BOGOTA, COLOMBIA, ON BEHALF OF U.S. 
                      CHAMBER OF COMMERCE

    Mr. Gambrel. Mr. Chairman and Members of the Committee, 
thank you for inviting me to appear before this distinguished 
panel today. I am pleased to represent the Association of 
American Chambers of Commerce in Latin America, known as 
AACCLA.
    The AACCLA is a leading advocate of increased trade and 
investment between the United States and Latin America. The 
association's 20,000 member companies manage over 80 percent of 
all U.S. investigation in Latin America through 23 American 
Chambers of Commerce in 21 countries.
    I am also pleased to represent the U.S. Chamber of 
Commerce, which is the largest business federation in the 
world.
    I could easily spend my allotted time today describing the 
boom in trade and investment between the democratic nations of 
the Americas in the past decade. In this sense, the business 
community has taken the lead in pushing for an integrated 
hemispheric marketplace. Nonetheless, we in the business sector 
are very pleased to see the hemispheric governments working to 
bring down barriers to trade and investment.
    I applaud the commitment announced in Quebec City to 
complete the Free Trade Agreement of the Americas by January 
2005. Also in Quebec, President Bush declared that he is 
committed to obtaining trade promotion authority before the end 
of this year. This is absolutely critical, and we in the 
business community are prepared to help the President make the 
case for trade promotion authority.
    There are many reasons why trade expansion is such a 
priority today, but I would like to focus on just one. With the 
exception of the United States, nations around the world spent 
the nineties weaving a spider web of free trade agreements. 
Over 133 regional trade agreements are currently in force 
worldwide. The European Union has signed 27 free trade 
agreements, and Mexico alone has signed 32. However, the United 
States is a party to just two trade agreements: NAFTA and the 
Free Trade Agreement with Israel. This pattern of diminished 
U.S. participation in trade expansion must not continue.
    The spider web of free trade agreements that we have seen 
emerging threatens to put U.S. companies at a competitive 
disadvantage. How? Chile is a perfect example. Today, companies 
from Canada, Mexico, and a number of other countries enjoy 
duty-free access to the Chilean market. But U.S. exporters 
still pay Chile's highest duty of 8 percent. The result is that 
American companies are losing millions of dollars in potential 
sales every year.
    I would like to flag one potential obstacle to the FTAA: 
the ongoing dispute over efforts to link trade agreements to 
labor and environmental rules. We have heard some about that in 
this distinguished panel today.
    AACCLA and the U.S. Chamber strongly support efforts to 
protect the environment and to improve working conditions for 
all employees. But these concerns we think should be dealt with 
separately. Our hemispheric partners have made it very clear 
that they will oppose a final FTAA agreement if it makes market 
access contingent upon labor and environmental rules. AACCLA 
and the U.S. Chamber share this view.
    Before concluding, I would like to urge the Congress to 
renew and enhance the Andean Trade Preference Act. Since the 
Andean Trade Preference Act was passed in 1991, a wide range of 
export-oriented businesses have been established in the Andean 
countries, generating jobs, boosting tax revenues, and 
strengthening civil society. During my 6 years that I have 
lived in Colombia, I have witnessed firsthand how these trade 
benefits foster social stability and provide a legitimate 
alternative to the illegal drug business. Failure to renew the 
ATPA would undermine the new business ventures that have 
prospered through legitimate trade with the United States.
    In addition to the renewal of ATPA, I urge Congress to 
expand the list of Andean goods that qualify for duty-free 
access to the U.S. market.
    Finally, Congress should also consider making Venezuela a 
beneficiary of the ATPA. We have seen that efforts to oppose 
the narcotics trade in one country are undermined if production 
can be easily shifted to somewhere else. By granting these 
simple trade benefits to all the Andean countries, we can 
support the thousands of small--and medium-sized businesses 
that are the bedrock of democracy and peace in the Andean 
region.
    Trade expansion is an essential ingredient in any recipe 
for economic success in the 21st century. Chairman Crane, I 
would like to thank you and your colleagues on the Subcommittee 
for your leadership on trade. AACCLA and the U.S. Chamber of 
Commerce stand prepared to support your efforts on trade 
expansion in any way that we can.
    Thank you very much.
    [The prepared statement of Mr. Gambrel follows:]
Statement of William Gambrel, President, BankBoston Columbia, and Vice 
   President, Association of American Chambers of Commerce in Latin 
    America, Bogota, Colombia, on behalf of U.S. Chamber of Commerce
    Mr. Chairman, thank you for inviting me to appear before this panel 
today. I am Bill Gambrel, President of BankBoston Colombia, and Vice 
President of the Association of American Chambers of Commerce in Latin 
America, known as AACCLA.
    AACCLA is a leading advocate of increased trade and investment 
between the United States and Latin America. Representing 23 American 
Chambers of Commerce in 21 Latin American and Caribbean nations, the 
association's 20,000 member companies manage over 80 percent of all 
U.S. investment in the region.
    I am also pleased to submit this testimony on behalf of the U.S. 
Chamber of Commerce, which is the largest business federation in the 
world. Representing nearly three million companies of every size, 
sector, and region, the Chamber has supported the business community in 
the United States for more than 80 years.
    I appreciate this opportunity to testify on the outcome of the 
Third Summit of the Americas in Quebec City last month and on the 
prospects for free trade in the hemisphere. I will also comment briefly 
on the need to renew and enhance the Andean Trade Preference Act.
Commerce in the Americas
    As background, it is worth noting that the commercial relationship 
between the United States, Canada, and Latin America has progressed 
admirably in recent years. The flow of trade and investment throughout 
the hemisphere has never been greater. The day is not far distant when 
the United States will trade more with our neighbors here in the 
Western Hemisphere than with Asia and Europe--combined.
    The numbers tell quite a story. The United States trades more with 
Canada than with the entire European Union. This is true even though 
the European Union has a population ten times that of Canada. Mexico is 
our second largest trading partner, and two-way trade surpassed $250 
billion last year.
    Brazil has received more direct investment from the United States 
than any other emerging market in the world. The total stock of U.S. 
investment in Brazil--roughly $35 billion--is four times the amount 
American companies have invested in China. The Caribbean Basin is 
emerging as a vital trading partner to the United States. In 1999, the 
24 countries in the Caribbean and Central America purchased more U.S. 
goods and services than China, India, and Russia--combined.
Business Sets the Pace
    The business community has been moving toward an integrated 
hemispheric market for decades, and now our governments are 
running to catch up. At the First Summit of the Americas in 
1994, the leaders of 34 Western Hemisphere nations set the goal 
of free trade in the Americas. Now, as we evaluate the outcome 
of the Third Summit of the Americas, it's clear that we have 
moved closer to this objective than we might have thought 
possible.
    The Summit and the Buenos Aires Trade Ministerial held 
three weeks earlier produced tangible progress on a number of 
fronts. In Argentina, the hemisphere's trade ministers endorsed 
a draft, bracketed text for the Free Trade Area of the Americas 
(FTAA) agreement. They also agreed to start negotiations on 
market access in May 2002, and they set a deadline to complete 
the text of the FTAA by January 1, 2005. The ministers also 
surprised observers by agreeing ``to release the current draft 
consolidated text to the public soon after the conclusion of 
the Third Summit of the Americas in Quebec City.''
    In perhaps the most important announcement made in Quebec, 
President Bush declared to the assembled heads of state and 
government that he is ``committed to attaining Trade Promotion 
Authority before the end of the year.'' This is absolutely 
critical, and we in the business community stand prepared to 
support the effort to win Congressional approval of 
Presidential Trade Promotion Authority in any way we can.
Rationale for the FTAA
    I believe we are seeing this progress because the basic 
rationale for the FTAA is stronger than ever. Hemispheric free 
trade will boost economic growth and reduce poverty throughout 
the hemisphere. The FTAA will also provide an opportunity to 
re-energize economic reform throughout the Americas. It will 
confirm a shared commitment to the market-opening policies that 
create the conditions for growth.
    The FTAA will encompass 34 nations with over 800 million 
citizens. Its collective GDP will exceed $13 trillion. The FTAA 
will:
     Eliminate existing tariff and non-tariff barriers 
and bar the creation of new ones;
     Remove other restrictions on trade in goods and 
services as well as 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.
The Case for Renewed U.S. Leadership on Trade
    However, the FTAA is not simply going to fall into our 
laps. Without renewed U.S. leadership on trade, this ambitious 
and complex trade agreement simply will not happen.
    As you know, special interests in the United States spent a 
great deal of time in the 1990s arguing about trade. While this 
was going on, other nations around the world have been busy 
weaving a spiderweb of free trade agreements. Over 130 regional 
trade agreements are currently in force worldwide. The European 
Union has signed 27 free trade agreements, and Mexico alone has 
signed over 30. However, the United States is a party to just 
two free trade agreements: the North American Free Trade 
Agreement (NAFTA), and the U.S.-Israel free trade agreement.
    This pattern of diminished U.S. participation in trade 
liberalization must not continue. The spiderweb of free trade 
agreements that we've seen emerging in the Americas and 
elsewhere threatens to put U.S. companies at a competitive 
disadvantage. Basically, other nations are negotiating trade 
agreements that provide preferences for their firms over our 
own.
    Chile is a perfect example. Today, companies from Canada, 
Mexico, and a number of other countries enjoy duty-free access 
to the Chilean market. But because U.S. exporters still pay 
Chile's highest duty of eight percent, American companies are 
losing hundreds of millions of dollars in potential sales every 
year. As many people have observed, this is like starting a 
basketball game eight points behind.
Benefits of the FTAA
    The NAFTA offers an excellent preview of the benefits 
promised by the FTAA. Since the NAFTA came into force, trade 
between the United States and Mexico has tripled, surpassing 
$250 billion last year. Trade between the United States and 
Canada reached $400 billion in 2000--a figure double the pre-
NAFTA level. This explosion in trade has allowed companies in 
all three NAFTA countries to generate millions of new jobs. The 
NAFTA is one of the main reasons why some 12 million U.S. jobs 
rely on exports.
    While enhanced competition in the marketplace has led to 
job losses in some industries, the new, trade-related jobs that 
have been created tend to provide better pay than the jobs that 
were lost. Studies show that export-related jobs pay 13 to 18 
percent more than other jobs.
    As Ambassador Zoellick has pointed out, the combined 
effects of the NAFTA and the Uruguay Round trade agreement that 
created the World Trade Organization (WTO) have increased U.S. 
national income by $40 billion to $60 billion a year. Thanks to 
the lower prices that these agreements have generated for such 
imported items as clothing, the average American family of four 
has gained between $1,000 to $1,300 from these two pacts.
    The NAFTA has proven to be a foreign policy masterpiece, 
transforming Mexico's economic prospects and arguably paving 
the way for the democratic breakthrough witnessed in last 
year's elections. From a national security perspective, the 
possibility of reproducing these results on a hemispheric scale 
is enticing.
Potential Obstacles to Hemispheric Free Trade
    Some believe that protectionism in the United States is the 
biggest obstacle to hemispheric free trade. They point out that 
Congress voted down ``fast-track'' trade negotiating authority 
in 1998, and President Clinton never saw it renewed.
    However, the American people continue to embrace free 
trade. The highly respected Pew Center for the People and the 
Press found recently that over 60 percent of Americans support 
free trade and reject protectionism.
    More recently, Congress has shown that it will support 
trade liberalization when business makes the case for it. The 
approval of permanent normal trade relations for China and the 
Trade and Development Act of 2000 give eloquent testimony to 
the fact that Congress will pass major trade legislation by 
solid majorities when the business community pushes the 
argument for expanded trade.
    A more serious obstacle to the FTAA is the ongoing dispute 
over efforts to link trade agreements to labor and 
environmental standards. When the Clinton Administration pushed 
for trade-linked rules to enforce labor and environmental 
standards at the Seattle WTO meeting in December 1999, the vast 
majority of countries were strongly opposed.
    AACCLA and the U.S. Chamber strongly support efforts to 
protect the environment and ensure improvement in the quality 
and conditions of workers, but these concerns should be 
addressed separately. There are other avenues for the United 
States to discuss labor and environmental issues with other 
nations. For instance, President Bush already has the authority 
to address labor issues through the International Labor 
Organization.
    In the final declaration issued at their April meeting, the 
hemisphere's 34 trade ministers indicated that most ministers 
are firmly opposed to the use of trade sanctions in connection 
with rules on labor or the environment. Our hemispheric 
partners have made very clear that they will oppose a final 
FTAA agreement if it makes market access contingent upon labor 
and environmental standards. AACCLA and the U.S. Chamber share 
this view, and we will oppose any trade agreement that includes 
labor and environmental provisions and accompanying sanctions 
in the agreement.
    We need to remember that trade is part of the solution--not 
the problem--when it comes to protecting the environment and 
improving working conditions.

The Andean Trade Preference Act
    Before concluding, I would like to urge the Congress to 
renew and enhance the Andean Trade Preference Act (ATPA). As 
you know, the ATPA grants duty-free access to the U.S. market 
for selected exports from the Andean countries, but it will 
expire in December. AACCLA, the American Chambers of Commerce 
in Bolivia, Colombia, Ecuador, and Peru, and the U.S. Chamber 
of Commerce all strongly support ATPA renewal.
    Taking advantage of the market access granted by the ATPA 
in 1991, a wide range of export-oriented businesses have been 
established in the Andean countries, generating jobs, boosting 
tax revenues, and strengthening civil society. Renewal of the 
ATPA will ensure that these economic benefits endure, thereby 
fostering social stability and deterring the illegal narcotics 
trade. By the same token, failure to renew the ATPA would 
undermine the new business ventures that have prospered through 
legitimate trade with the United States.
    In addition to renewal of the ATPA, Congress should 
consider expanding the list of Andean goods that qualify for 
duty-free access to the U.S. market. The Act's success over the 
past decade can be leveraged in the years to come by making its 
provisions more generous.
    Finally, Congress should also consider making Venezuela a 
beneficiary of the ATPA. Recent history shows that efforts to 
oppose the narcotics trade in one country are undermined if 
production can be easily shifted elsewhere. By granting these 
simple trade benefits to all the Andean countries, we can 
support the thousands of small and medium-sized businesses that 
must be the bedrock of economic progress, democracy, and peace 
in the Andean region.
Conclusion
    Trade expansion is an essential ingredient in any recipe 
for economic success in the 21st century. If U.S. companies, 
workers, and consumers are to thrive amidst rising competition, 
completing the FTAA and renewing the ATPA must be top 
priorities.
    In the end, U.S. business is quite capable of competing and 
winning against anyone in the world when markets are open and 
the playing field is level. All we are asking for is the chance 
to get in the game.
    This concludes my testimony. I will be happy to try to 
answer any questions.

                                

    Chairman Crane. Thank you.
    Mr. Vargo, you point out that South American duties average 
14 percent while U.S. duties average less than 1.6 percent and 
that the EU is currently negotiating free trade agreements with 
several Latin American countries that will significantly 
undercut American exports.
    How damaging do you think the status quo is to the health 
of the U.S. economy over the long term?
    Mr. Vargo. Well, I think over the long term, Mr. Chairman, 
that it could be quite damaging because Latin America has the 
prospects for being a rapidly growing market. A WTO analysis 
that came out a couple of weeks ago shows that South America 
has the world's highest average level of bound tariffs, and if 
we do not get those down, not only would we not share in the 
growth if the Europeans had duty-free access, but we would lose 
a lot of what we already have.
    We have, frankly, not made an estimate of just exactly what 
would happen if Europe had duty-free access while we continue 
to pay 20 and 30 percent, but it would be a substantial amount 
of that $60 billion. So this is very important. We lose under 
the status quo. Nobody gains. I am convinced that the 
environmentalists do not gain, Mr. Sweeney's members do not 
gain. We have got to find a way to move ahead. You know, by 
engaging the Latins, I think that we can help raise 
environmental standards, by raising their living standards, we 
help raise living standards. We need to move ahead.
    Chairman Crane. Mr. Sweeney, do you have Mr. Vargo's text 
in front of you?
    Mr. Sweeney. No, I do not.
    Chairman Crane. Mr. Vargo, could you show him your Exhibit 
1?
    That Exhibit 1 in Mr. Vargo's written testimony compares 
the level of wages paid by companies that are most trade-
intensive versus those that are least trade-engaged, and I was 
wondering what your commentary was on that. The figure here, if 
I am not mistaken, this is 60,000 a year for the most trade-
intensive, and for the least trade-intensive in this chart, it 
is a little over 40,000 a year. Is that correct, Mr. Vargo?
    Mr. Vargo. Yes, sir, it is.
    Mr. Sweeney. Well, I am not sure, with all due respect, 
what the source of Mr. Vargo's information is, and I would have 
to take a closer look at it.
    Chairman Crane. All right. Mr. Gambrel, Mr. Sweeney 
testified that the NAFTA has utterly failed to deliver the 
promised benefits to working people in the three North American 
countries. Would you please comment on that statement?
    Mr. Gambrel. Certainly. The figures that we are looking at 
in terms of the benefits of the NAFTA show a different story. 
We have seen and we have heard comments in terms of exports 
increasing by more than 60 percent in some cases. That has 
actually created more jobs in the United States and more jobs 
in the countries, both Canada and Mexico.
    We have seen the case of a Mexico that in the past has 
struggled with democracy, where it had a one-party system. We 
have recently seen the effects of a democratic change of power 
from one party to another, and we think that that has something 
to do with the trade benefits and the linkages with the United 
States of the market such as Mexico.
    We also saw a financial crisis in Mexico, which in the past 
has had a multiple effect on other countries in Latin America, 
last a very, very short period of time. We think that also has 
a direct relationship to its contacts with trade through NAFTA. 
So we think that there have been many more benefits of the 
NAFTA than not benefits.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. Thank you. Well, Ambassador Fisher, now that 
you are a free man, you do not have to be nice to us. 
[Laughter.]
    As a free man, could you tell us why, as we seek to do 
business with these communist nations--Red China and North 
Korea and North Vietnam--as a free man, why could we not try to 
break down the communist regime in Cuba by using the same 
tactics as we have used, using trade as a method for 
encouraging democracy?
    Mr. Fisher. Well, we have made an effort in Vietnam. As you 
know, we negotiated a bilateral commercial agreement with 
Vietnam.
    Mr. Rangel. I guess I did not make my question clear. Why 
do we exclude Cuba while we make these efforts in these other 
countries? And I ask you this as a free man.
    Mr. Fisher. As a free man, I would tell you that the 
politics of that situation are so complicated; that, as you 
know, USTR was never allowed to delve into Cuba. This is the 
nature of a political equation. Whether it is right or wrong, 
it does not seem to square the corner with what we have tried 
to do with WTO accession for China, what we are trying to do 
elsewhere in the world. But that is a political reality, and, 
Congressman Rangel, as a free man, I know you know a lot more 
about politics than I do, but that is the nature of the 
situation.
    Mr. Rangel. Well, the politics of Florida seem to be more 
important than the international politics.
    Why did you say, a man that is as genteel as you, that you 
wanted to be blunt and it takes two to tango and we cannot get 
our Latin partners to the dance floor if we talk about labor 
and environment? That seemed like really rough language for a 
diplomat.
    Mr. Fisher. My point was that I do not believe sanctions as 

a remedy--that that dog will not hunt. In other words, just to 
mix my metaphors--neither will that dog dance. The point is if 
we are going to insist on sanctions, unless we are willing to 
focus all of our effort to capture that, I do not believe that 
our Latin partners will come to the dance floor.
    Mr. Rangel. Do you feel as strongly----
    Mr. Fisher. I am not saying we abandon the effort, but I am 
just saying my point was simply on sanctions. They will not 
agree to sanctions as remedies.
    Mr. Rangel. Do you feel as strongly about sanction as it 
relates to violation of our intellectual property laws?
    Mr. Fisher. Do I personally feel about this?
    Mr. Rangel. That is all we are talking about.
    Mr. Fisher. Well, we currently have in place remedies for 
violation of our intellectual property laws. All I am saying is 
that in order to do a deal, in terms of this very vexing and 
important question of labor and environment, from the 
standpoint of what we can expect our partners to be able to 
come to the table for----
    Mr. Rangel. Well, sanctions----
    Mr. Fisher. If we make sanctions part of the deal, they are 
not going to come to the table, so we have no deal.
    Mr. Rangel. So you are saying that----
    Mr. Fisher. I am not saying it is right or wrong. That is a 
fact.
    Mr. Rangel. So they are willing to come to the table when 
we protect our pharmaceuticals by having sanctions against them 
if they violate their intellectual property rights or with 
electronic trade, and somehow they dance, they tango. And, of 
course, if our Ambassadors do not put it on the table, nobody 
wants to be put in the position that sanctions are going to be 
made against them. I think it violates a nation's pride. But we 
do not have a problem with it when it works. You do not have a 
problem with sanctions. You just have a problem with sanctions 
as it relates to labor and environment, because you do not 
believe--and you are the professional--that it reached the same 
level as intellectual property rights when it comes to trade 
negotiations.
    Mr. Fisher. I could tell you from my experiencing of 3 
years of teeing up the Free Trade Area of the Americas that 
this subject, whether we want it or not, is not the point. The 
point is that our partners--and it takes two to do a deal, two 
sides--our Latin partners will not come to the table. They have 
made that very clear, if on this subject of environmental and 
labor the remedies result in sanctions.
    Mr. Rangel. Did our Jordanian partners come to the table 
and tango with us with the treaty that was negotiated with 
them?
    Mr. Fisher. They did. They did come to the table, but I am 
simply making a point that from my experience our Latin 
partners will not. But you can ask the Ministers who are here. 
That is the reality. From the standpoint of intellectual 
property rights, again, that has already been negotiated in 
previous agreements globally. And it is a WTO area of activity, 
and we do have our disputes and differences on that front, as 
they are very clear right now with Brazil.
    But, Congressman, I am just trying to sort of define the 
parameters here on these three very difficult areas. These are 
the realities, no matter how we feel. I do not think they will 
play with us--again, unless we want to focus all of our 
attention on this area. They are attracted by the strength of 
our market--this is a $10 trillion economy. We are the biggest 
consumer in the world. That would be part of the trade. I just 
do not think they are going to accept it, and I wanted to be 
frank and point out to you that I think that is a non-starter.
    Mr. Rangel. Well, Mr. Ambassador, I do not blame them for 
not accepting it, if our former trade negotiator is saying that 
they are not going to accept it. It is really to me a question 
of what you believe is good for our country. And I know that 
you would believe that a part of the history and improvement in 
the quality of life, that the trade unions have played a true 
part in making us a more productive country. Everyone. No one 
challenges that, not even the Chamber of Commerce. And, you 
know, the extreme of not being concerned about the conditions 
of the worker could be slavery in this country, which worked 
for us. It did not work for the slaves, but it did work for us.
    And, of course, we would want other nations to know that 
you do not have to be labeled a protectionist when you are 
saying there should be some basic human labor rights that 
America--this is what we stand for. When we see super-stars 
that are investors in overseas garments that are made under 
conditions that make Americans cringe, America responds to it, 
whether it is child labor, slave labor, prison labor. And all 
we are saying to our partners is you have got to have some--you 
do not have AFL-CIO contracts. You do not reach the standards 
of an industrialized nation overnight. But you got to have 
something locked in place that is enforceable because that is 
the kind of country we are. We want you to have disposable 
income. We want you to be healthy. We want you to be productive 
so that you can be our trading partner.
    It is so American--it is so American that I wonder why 
people would refuse to tango with us.
    Mr. Fisher. Well, again, I do not disagree with your point 
of view, and, in fact, let me remind you, as Congressman Levin 
reminded me the other day in a good speech he gave at the 
Center for Strategic and International Studies, CSIS, trade is 
a means to an end. In the preamble of the GATT, it talks about 
raising living standards, about engendering full employment and 
developing the full use of the resources of any country, 
including its people. We do not dispute that. That is not the 
purpose of my statement. I do not disagree with you, 
Congressman. But I do feel that if we are not careful in this 
area, given the way that this thing has proceeded over the last 
few years, given the reality of Seattle, we have to be 
extremely careful to deal with this issue that does not send 
protectionist signals, whether it is truly protectionist or 
just being interpreted as such.
    And I simply wanted to make the statement that from the 
standpoint of this particular exercise, Free Trade Area of the 
Americas, I do not believe that the remedy of sanctions is 
workable in this case.
    Now, on the subject area in general, I did point out that I 
do believe that it is possible to figure out a way or engineer 
a system or an architecture, as I put it, that has monetary 
assessments for violations of domestic laws as long as they 
impact trade. I think that is the most we will be able to get 
in this discussion, if we can get that much. And I simply, out 
of respect for you, want to give you my opinion based on my 3 
and a half years of experience of negotiating this particular 
issue.
    This is not a personal judgment. Do not interpret it that 
way. It is simply a matter of what I think can work and what is 
a non-starter. And, by the way, I say that very respectfully, 
Congressman, as you know.
    Mr. Rangel. Oh, no, I understand that. It is just that I 
really do not think you can understand how powerful your 
statement might appear to those people that we are negotiating 
with, because if I belong to one of these countries and heard a 
former trade representative such as you say that, do not even 
think about it because it is going to be unacceptable and it is 
supported by protectionists, then I would hang up, too. It is 
almost--like Mr. Pickle once said, it is like going to a wife-
swapping party and someone does not bring their wife. 
[Laughter.]
    We do not have anything to negotiate with because our 
people already said it is not going to work.
    Mr. Fisher. Congressman, that is just one individual 
citizen's opinion.
    Mr. Rangel. Well, you are a very powerful man, and other 
people can call--you know, there was a time that you said you 
were talking about Cuba, you must be pro-Castro or pro-
communist, except when you are talking about China. And now if 
you are saying that you would like to have some rights for 
labor and human rights, you are protectionist.
    I think that if we want to move forward toward having the 
bipartisanship that we used to enjoy on this Committee and in 
the Congress, we really ought to give up the labels and to rely 
some more on dance instruction and see whether or not we can 
make this thing fit, because trade policy, like foreign policy, 
should be bipartisan. And we are trying desperately hard to 
talk with people, even those that say that it may not work. We 
are trying to make it work.
    Thank you for coming back and giving us guidance. Next 
time, whisper. [Laughter.]
    Mr. Fisher. Thank you, Congressman.
    Chairman Crane. Thank you. Mr. Houghton.
    Mr. Houghton. Thanks, Mr. Chairman.
    I would like to ask you gentlemen, but particularly Mr. 
Vargo and Mr. Price, about the Jordanian agreement. I have 
never really been sure what is negotiable and what is not. Is 
it the dispute settlement? Is it the sanctions versus the fine? 
Is it the labor standard? What is it?
    But when you take a look, as I have here, at the Jordanian 
agreement, there are some things that sort of make some sense 
here. Now, what are the things that bother you about it, or do 
you agree that this is a good concept?
    Mr. Vargo. Well, I assume you are talking about the labor 
and environmental provisions in the Jordan agreement.
    Mr. Houghton. Yes, right.
    Mr. Vargo. Well, the NAM has not taken a position on that 
yet. I have to say that we candidly do not like the fact that 
embodied within the agreement is the possibility of taking 
trade actions to enforce labor and environmental provisions. We 
have not taken a position on it, however, because we have----
    Mr. Houghton. Sanctions, you mean?
    Mr. Vargo. That is right.
    Mr. Houghton. Right.
    Mr. Vargo. We have not taken a position because, in the 
spirit Mr. Rangel mentioned, we look forward to working on a 
bipartisan basis to seeing an overall solution to the question 
of labor and environment, which, as I indicated in my 
testimony, has stalled us for too long and we cannot afford it 
anymore.
    Mr. Houghton. I do not want to put words in your mouth, but 
in taking a look at some of these articles here, in terms of 
labor laws, the right of association, to organize and bargain, 
prohibition of any form of forced labor, compulsory labor, 
minimum age for employment, things like that, if the sanctions 
were out, this would not be a problem for you?
    Mr. Vargo. It would not be a problem for us.
    Mr. Houghton. All right. So how do you feel, Mr. Price?
    Mr. Price. Congressman, I am afraid I will not be able to 
give you a very satisfactory answer as I am here on behalf of 
the USCIB on the issue of investment only and cannot really 
express the views of the association on that point. I could 
offer a personal view, but I do not know how satisfactory that 
would be.
    Mr. Houghton. Okay. Well, you know, Mr. Sweeney, it always 
seems to come down to, to me, although the environment 
obviously is very important, it is the whole conditions of the 
labor market and are we dealing with our labor force fairly 
when we are trying to encourage international trade. And I do 
not know whether this sanction issue is critical for you or 
there are other things, the dispute settlements or whatever. 
What are the things which are really critical for you here?
    Mr. Sweeney. Well, the labor movement really feels that 
labor provisions of trade agreements must be enforced through 
the same means as commercial provisions. We feel also that 
fines themselves----
    Mr. Houghton. Can I just ask, so, in other words, if----
    Mr. Sweeney. We are looking for parity.
    Mr. Houghton. If a country says that we will abide and 
enforce our labor laws, that is not good enough for you.
    Mr. Sweeney. We would have to see the details. I mean, the 
Jordanian agreement is an example of an agreement with a 
country that basically has good labor laws. The Jordanian labor 
movement and the Chamber of Commerce in Jordan support the 
agreement. Those are really some major steps for a good 
agreement. But we would have to see the details in terms of 
sanctions and fines and how enforceable they were.
    Mr. Houghton. But let me just press this thing further. 
Unless a country has an egregious set of labor laws and an 
inability to enforce them, you would think that with reasonable 
conditions in their country and enforcing those laws, similar 
to those of Jordan, that these would be acceptable for you?
    Mr. Sweeney. There would definitely have to be some 
enforceable provisions.
    Mr. Houghton. Okay. Now, Mr. Fisher, could I ask you a 
question? What are those non-negotiable issues on the part of 
our Latin American neighbors that are critical in any 
negotiation?
    Mr. Fisher. What are the non-negotiable issues? Across the 
board, or are you just talking about this area of----
    Mr. Houghton. What are the critical ones?
    Mr. Fisher. I think this comes down to, from a Latin 
standpoint, a very simple issue, again, which is market access 
in the United States, in return for which not only--again, it 
was mentioned earlier. Our applied tariff here is about 1.5 
percent, 1.6, whatever it is, as far as these trading partners 
are concerned. So the tariff issue is not the issue.
    The issues are other aspects of market access, with the 
exception of the high tariffs imposed in agriculture, but then 
the non-tariff barriers to agriculture and to other exports, 
especially goods, because the rest of the hemisphere, 
particularly south of Mexico, although they are growing their 
production of services, are not huge service producers.
    From our standpoint, of course, we want to have access to 
their markets. And, again, we talked earlier, some of the 
tariffs there are awfully high, so it is meaningful to reduce 
the tariff barriers. But then it is the non-tariff barriers, 
the procedures, the efficiencies in the economy, the rules, the 
way laws are enforced and so on, that is the trade.
    And I think, again, listening to my former counterparts and 
Mr. Zoellick's current counterparts in the hemisphere, the key 
issues come down to these very tough issues. Agriculture is a 
big production area for the southern cone in particular. To get 
Brazil to play ball here--and it is the largest country south 
of Mexico; it is 173 million people--they have said pointblank 
that we have to have agriculture on the table. Very tough for 
us to do as we are crafting a farm bill. Very tough for us to 
do to take on these very important constituencies for us, the 
farmers and ranchers of this country.
    Similarly, in terms of antidumping activity, as I mentioned 
earlier, they want that on the table. And that is what they are 
looking for.
    So are they non-negotiable? Everything is negotiable. I do 
not believe, however, again, just to go back to this point 
earlier, that certain remedies in terms of sanctions are not 
negotiable. I think that would basically throw this trade out 
the window.
    We may decide, Congressman, that we do not want to do an 
FTAA, by the way, that we cannot get it.
    One, that certain countries do not want to participate in 
this thing, that we cannot move Brazil, that we are limited in 
what we are able to spend politically. And we may decide, as 
Ambassador Zoellick said earlier, that we will just proceed 
with bilateral after bilateral or with smaller groupings. The 
purpose of my testimony was simply to point out that there are 
certain tough areas for us that we are going to have to look 
into our hearts to see if we can deal with them, and those are 
the ones I mentioned.
    Mr. Houghton. Well, thanks. My time is up. Mr. Chairman, 
thank you.
    Chairman Crane. Let's see. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman.
    Let me first thank all of the gentlemen for their testimony 
and their comments with regard to the issues that we face in 
trying to negotiate these agreements with our Latin American 
partners.
    Let me just go through a list of objectives and standards 
and ask if any of you object to or disagree with any of these.
    First would be the freedom to associate. Does anyone here 
object to or disagree with the right of people to freely 
associate in their country? And just chime in if you think no. 
What about the right to organize? Anyone disagree or object to 
that right?
    Mr. Sweeney. I am in favor.
    Mr. Becerra. Duly noted. The right to collectively bargain, 
does anyone disagree with the right or object to the right to 
collectively bargain? What about do you object to or disagree 
with the elimination of child labor? What about do the 
elimination of forced labor, slave labor? Does anyone object to 
or disagree with the elimination of discrimination in 
employment?
    Those are, for the most part--I may have missed one or two, 
but those are the core labor standards in the ILO's Declaration 
of Fundamental Principles and Rights to Work.
    If no one disagrees with them, is there any reason why 
anyone would disagree with including those within any trade 
agreement that we have with any country, whether it is Latin 
America or otherwise? Mr. Vargo?
    Mr. Vargo. Mr. Becerra, we certainly do not disagree with 
those core labor standards. We do not disagree with the idea 
that nations should do more to bring them about. We do 
disagree, though, that one can take a trade agreement and say 
the purpose of the trade agreement is to bring about compliance 
with these objectives. The purpose of a trade agreement to us 
is a simple one. It is to remove trade barriers, and that first 
and foremost is what we want.
    We do not think that this is necessarily incompatible with 
taking steps to bring about greater adherence to labor rights 
around the world, or environmental standards. We do definitely 
object to the possibility of creating a new trade barrier or an 
opportunity to restrict trade in the future from it. That is 
the only thing we are objecting to.
    Mr. Becerra. Wouldn't it be considered a trade barrier if a 
country were to use much less expensive labor to manufacture or 
produce a product that we ourselves could produce here and as a 
result create, in effect, a better bargaining position for that 
trade?
    Mr. Vargo. No, that is not a trade barrier. It affects 
trade. It may affect competitiveness. It may not be fair trade. 
But it is not a trade barrier.
    Mr. Becerra. So, Mr. Vargo, are you implying that you would 
support unfair trade?
    Mr. Vargo. No. I am saying that there are many things that 
can affect trade. Competition policy can affect trade.
    Mr. Becerra. So how are we to compete with other countries 
if we do not require in our agreements that they not engage in, 
for example, forced labor or child labor? How will our 
industries compete domestically?
    Mr. Vargo. Well, Mr. Becerra, we are competing with them 
now. The question is: Are we going to get them to lower the 
trade barriers that are now keeping out our products? To us 
that is the issue. It is not are we going to trade with them or 
not. We do trade with them. But we trade with them under 
circumstances under which, for many reasons, our trade barriers 
are very low. And that is a fact, sir. They are very low. And 
theirs are high. And we want to get them down.
    Mr. Becerra. And as a result, we are saying to them we are 
going to open up our markets completely to you if you do 
certain things. And it seems to me that we would want them to 
do the right things.
    Now, we cannot force them necessarily to have our wage 
standards because we are working on different planes. But 
certainly we would want them to at least function and operate 
under at least core labor standards, which do not ask for a 
great deal beyond what most people think are humane policies.
    Mr. Price, let me ask you a question. In response to Mr. 
Houghton, you said you really could not give him a direct 
response to the question about the issue of labor standards. 
And yet in your testimony, you talked about how investors do 
not necessarily go to the cheapest countries or the countries 
with the cheapest labor because if that were the case, you 
would see a lot of investment going into the poorest countries, 
and you mentioned that it really would be a race to the bottom. 
I think you did comment on labor standards, so I hope you could 
give us a more complete answer to Mr. Houghton's question.
    But let me ask you to comment. I agree with you. You are 
not going to see investment going to the countries that are 
poorest simply because the atmosphere there is not the best for 
investments. But I think last week's reaction by the stock 
market to the news in this country that unemployment had shot 
up dramatically and how the stock market was jubilant and went 
up is clearly a sign that investment does operate on what is a 
lower-cost market. And, therefore, I think it would be 
difficult, I think, to argue--and I would hope you are not 
arguing--that indeed investors look for the highest-cost 
markets. And to me it seems that labor is one of the components 
of the production of any particular good, and, therefore, you 
are going to as an investor take into account what a country 
has with regard to wages in its country, would you not?
    Mr. Price. Let me try and answer that. Congressman Houghton 
asked me to comment specifically----
    Mr. Becerra. You have to get closer to the microphone.
    Mr. Price. I am sorry. Let me try and answer your 
questions. Congressman Houghton asked me to comment 
specifically on the provisions of the Jordan FTA, and I said I 
was not in a position to do that on behalf of the organization 
that sent me here since I am talking about investment.
    Let me respond to your question now. I think it is true 
that investment flows--and it is demonstrable--to high-wage 
jurisdictions with a high standard of living. The point that I 
was making in my testimony is that if wages were the principal 
determinant of the location of investment, you would expect the 
majority of investment to be in low-wage jurisdictions----
    Mr. Becerra. But no one has ever argued that wages are the 
sole determinant of where investment goes. And providing wage 
or environmental standards within a trade agreement would not 
in and of themselves affect investment decisions by people 
throughout the world in a country with a core labor standard 
within a trade agreement, would it?
    Mr. Price. Well, I think we are talking about two different 
things. One is the question of whether wages or labor costs are 
a factor in investment decisions. I think that was your first 
question. And I think the answer is they are. They are among 
the factors that are taken into account. Again, it depends on 
what the purpose of the investment is, and it depends how the 
other factors are weighted.
    What I think you have just asked me now is whether 
investment decisions would be affected if labor and 
environmental provisions were included in trade agreements. And 
I think the answer to that is it would depend on what those 
provisions said and whether the provisions create new risks to 
foreign investment or not.
    Chairman Crane. The gentleman's time has expired.
    Mr. Becerra. Thank you, Mr. Chairman.
    Chairman Crane. Let me alert everybody on the Committee 
that we have only one more hour to go, and we have our Foreign 
Ministers coming up in the next panel. And so if you will all 
please adhere to the lights and remember that when the green 
light goes off and the red light goes on, your time has 
expired. And I am talking to Members of the Committee. With 
that, I recognize Mr. English.
    Mr. English. Thank you, Mr. Chairman. I will keep my 
questioning disciplined.
    Ambassador Fisher, it is a pleasure to have you here. May I 
say, I think you have an expertise that is particularly useful 
in this discussion, and commenting, as I imagine you guessed I 
would, about your testimony with regard to antidumping and 
countervailing duty issues being put on the table, I think that 
you have made a case that there is a good basis for having a 
discussion worldwide about the sorts of standards that are 
applied to 201- and 301-like processes, and encouraging other 
countries to adhere to our standards when it comes to those 
laws.
    We do, though, have a WTO antidumping code in place, and 
given that--and I presume you agree with me on this--I believe 
that having strong trade protections, strong methods of 
policing our market against unfair trade practices, is critical 
to maintaining support for free trade within our country.
    Do you think that an FTAA is really an appropriate place to 
have a negotiation? This is, after all, a negotiation for a 
regional trading pact. Would this not be better handled either 
under the WTO or would it not be better handled as a side 
agreement separate from any FTAA that might be developed? Since 
we like, some of us like side agreements, as it applies to 
labor and the environment, would not a side agreement be a more 
appropriate place to deal with an antidumping or countervailing 
duty understanding?
    Mr. Fisher. First, I am certainly not advocating changing 
our laws, Congressman.
    Mr. English. Very good.
    Mr. Fisher. Secondly, I'm not advocating abandoning our 
right to take action against people that dump into our market.
    I think I heard Ambassador Zoellick say earlier what we 
always said, that this new anti-dumping regime has just been 
put in place, and our arguments were that, until we saw how 
this worked and what its efficacy was, we did not want to put 
it back on the table. That makes a lot of sense.
    Frankly, what I'm saying is I'm tired of hearing from our 
Brazilian and other friends that we're unfair. Look at how many 
anti-dumping cases Argentina and Brazil combined filed when we 
only 17--they filed 40. Let's call their bluff on this. In 
other words, let's say, ``you say that our system is arbitrary, 
let's examine, with a fine-tooth comb, how you apply these in 
your own country,'' let's achieve a common understanding of how 
we're putting this new regime in place----
    Mr. English. Would it not be easier, though, to move 
forward--I don't mean to interrupt, but I'm under strict time 
here.
    Would it not be easier to conduct this discussion outside 
of an FTAA? Wouldn't it be easier to conduct this discussion in 
a way that doesn't increase how controversial the FTAA already 
is domestically?
    Mr. Fisher. Well, again, this is one of the--remember, we 
have nine negotiating groups within this structure, already 
carved out by common agreement amongst the 34 countries that 
this will be discussed. I'm not sure you can remove it, 
Congressman, at this stage.
    Mr. English. Your point is well-taken.
    Mr. Fisher. But we shouldn't be afraid to talk about it, 
because I think we're going to find that we might have some 
common cause here if we're careful.
    Mr. English. Mr. Sweeney, I agree with many of the things 
that you have included in your testimony, and I would encourage 
you to look at House Resolution 1446, which I have introduced, 
that would provide for a standard trade negotiating authority.
    But you say in your testimony, ``We believe that any fast 
track legislation must require--your emphasis--the inclusion of 
enforceable workers' rights and environmental standards in the 
core of all new trade agreements.''
    I guess my question in view of that is, what would be the 
appropriate core labor and environmental standards to be 
included in a specialized trade agreement, like financial 
services, competition policy, or intellectual property rights? 
Are there not some trade agreements we may want to have with 
our hemispheric partners, or our partners world-wide, that are 
so specialized they don't naturally have a labor and 
environmental component to them?
    Mr. Sweeney. We would have to say that we think the core 
labor standards and environmental concerns have to be addressed 
in all trade agreements.
    Mr. English. Okay. Mr. Gambrel, from your perspective, what 
is the appropriate core labor or environmental standards to be 
included in a financial services treaty?
    Mr. Gambrel. I can't think of any, Congressman.
    Mr. English. Ambassador Fisher.
    Mr. Fisher. The financial services is just part of a total 
trade agreement. I don't think that's what Mr. Sweeney was 
saying, in terms of specifically financial services itself. I 
believe what he was saying is that it's part of the total 
agreement, and he feels it should be part of----
    Mr. English. I'm out of time. My point is that there are 
some things that we may want to negotiate that don't include 
labor and environment, and I think my bill addresses it. Thank 
you, gentlemen. Excellent testimony.
    Chairman Crane. Mr. Levin.
    Mr. Levin. Thank you, Mr. Chairman.
    We regret that the ministers and others on the next panel 
have been delayed. But I think, though, this has been an 
especially useful panel, and I think it's good that we have all 
heard it.
    Some of you I know well, and that should not detract from 
my commenting directly.
    First of all, let me suggest, in terms of our discussion of 
core labor standards, I hope the ministers here and others not 
only listen to the former Deputy USTR and others, but those who 
are presently in the U.S. Congress.
    I think it is a mistake to have the total focus on exactly 
what remedy and to forget--for example, in the GSP, sanctions 
have been available to the U.S. for many, many years. Most of 
the Latin American countries have operated within a GSP system 
that allowed the U.S. to utilize what are called trade 
sanctions. We have done that responsibly, and there has been 
the threat--and Mr. Sweeney spells this out rather at length, 
and I think interestingly--there has been the threat they 
haven't been utilized. But GSP has moved the issue of core 
labor standards along.
    So the notion that countries will not, under any 
circumstances, negotiate, I hope isn't misread. If that had 
been the standard 15 years ago on intellectual property, we 
never would have done anything, because countries were saying 
to us ``never''. We were saying let's move ahead and let's 
discuss it, and eventually we came up with that kind of a 
structure.
    Secondly, let me say to you, Mr. Vargo, we have had a lot 
of discussion about these issues. If I might say so, I think 
the purpose of trade agreements isn't simply to remove trade 
barriers. The WTO talks about a standard of living being 
uplifted, and I think you agree with that. Anti-dumping laws 
are there not to remove trade barriers, competition policy, 
safeguard mechanisms that are permitted under WTO. It's because 
the feeling is you have to have rules of trade, terms of trade, 
and that the only issue isn't only opening up trade barriers of 
other countries. I hope we will think about that.
    Thirdly, if I might just pick up briefly on Mr. Becerra's 
point, Mr. Price, I just want to go back to this because you 
say, ``If lax environmental standards, low wages and the 
absence of worker rights were the principal determinants of 
investment flows, one would expect the least developed 
countries to be the host of the vast majority of foreign 
investment.'' You also say, ``The critics confuse the cause and 
cure: problems of environmental protection and labor standards 
are preeminently problems of economic development.''
    No one is saying that labor standards and environmental 
standards are ``the'' principal determinant of investment 
flows. Really, in your back and forth, you acknowledge the 
relevance of environmental and labor standards to decisions in 
many cases of investment. There is no single principal 
determinant of investment. I think you'll agree.
    The question is, is it part of the mix. I think the answer 
clearly is--and as evidence, I referred earlier to the 
Equadorian situation--is that it's relevant in many situations. 
For example--and I'll say this bluntly--if Brazil feels that we 
won't discuss environmental issues in the FTAA, and that will 
be part of the bargain, that's a non-starter. No agreement will 
pass this institution if there isn't a consideration of 
environmental issues. I see Mr. Fisher shaking his head, I 
think in agreement.
    Last, I just want to make clear, Mr. Sweeney, and I think 
others of you have said this, the issue of labor standards and 
environmental standards, the thrust does not come basically 
from any effort at protectionism, any form of it. It comes from 
a number of us who want expanded trade. It's an essential 
ingredient of that. Thank you.
    Chairman Crane. Thank you.
    With that, I want to express our appreciation to all of the 
members of this panel. I will excuse you after your outstanding 
presentations.
    Now it's a delight to introduce the next distinguished 
panel to discuss the renewal of the Andean Trade Preference 
Program. I especially welcome Colombian Minister of Foreign 
Trade, Marta Lucia Ramirez, and the Bolivian Vice Minister of 
Trade, Ana Maria Solares. And because the Andean Trade 
Preference Program is part of a close partnership effort 
between the United States and the Andean countries that 
strongly impacts national security interests of the United 
States, I have elected to waive normal Committee rules so that 
we may hear your testimony today.
    I want to thank both of you and the other Andean Ministers 
in the audience for taking time out of your business schedules 
to be here today.
    Due to Committee time constraints, we have included you on 
a panel with representatives from U.S. industry. I recognize 
that this is unusual and I appreciate your patience and 
understanding in graciously accommodating our time constraints.
    If you folks could take your seats, please. We have to 
conclude today's hearing at 6:00 o'clock sharp, and as a 
result, I want to remind colleagues on the Committee here to 
watch the lights with regard to their questions, and also all 
of our witnesses who will be testifying today, if you can keep 
your oral testimony to 5 minutes or less, please do so. Any 
written testimony will be made a part of the permanent record.
    With that, I now welcome Minister Ramirez to begin.

 STATEMENT OF THE HON. MARTA LUCIA RAMIREZ RINCON, MINISTER OF 
             FOREIGN TRADE, GOVERNMENT OF COLOMBIA

    Ms. Ramirez. Thank you very much, Mr. Chairman.
    Mr. Chairman and Members of the Subcommittee, thank you for 
inviting me to appear before this panel today. If you allow me, 
I am going to read the short version of my statement, but I am 
going to leave both for your records.
    I am Marta Lucia Ramirez, Minister of Foreign Trade for the 
government of Colombia. I appear here today on behalf of the 
Andean community countries not only to express our strong 
commitment for a Free Trade Area of the Americas, but also to 
ask your support for the early enactment of legislation to 
renew, expand and enhance the Andean Trade Preference Act.
    As you know, the ATPA expires in December of this year. It 
is appropriate that this Committee today looks at both the FTAA 
and the ATPA. These two important trading initiatives are 
interrelated. A hemispheric free trade area will increase 
economic growth and employment and create new opportunities for 
all of our countries. That is why we are pleased with the 
outcome of last month's summit in Quebec City. We look forward 
to advancing negotiations toward the implementation of the FTAA 
by no later than year 2005.
    More immediately, the issue of ATPA renewal, expansion and 
enhancement must be addressed by the U.S. Congress. ATPA was 
designed to promote export diversity and strengthen legal 
activities in our country through new exports and through the 
generation of new legal jobs in order to confront the 
destabilizing threats to our democracies posed by illegal 
narcotics production and trafficking.
    ATPA is also about saving lives. It's about the strength of 
our democracy, both in Andean countries and in the United 
States, because it reinforces our common goal, which is the 
fight against illegal drugs and the corruption it generates.
    USTR stated in their last report that the ATPA is 
strengthening the legitimate economies of the countries in the 
region and is an important component in the U.S. effort to 
contain the spread of the illegal drug trade.
    Moreover, both the Andean countries and the United States 
have benefited economically from the ATPA. Over the last 9 
years, the ATPA has created 140,000 new jobs in the Andean 
Region. In dollar terms, U.S. exports to ATPA countries have 
risen 75 percent between 1991 and the year 2000.
    The United States serves as the leading source of raw 
materials, capital goods and technology imports for each of the 
ATPA countries, as well as our leading export market. As a 
result, ATPA benefits have generated employment in both the 
United States as well as in the Andean Region.
    Colombian flowers are an excellent example of why ATPA is 
working, and of the social and economic benefits that ATPA 
promotes. The $439 million in cut flowers that ATPA shipped to 
the United States last year resulted in some $9 billion in 
retail sales in America, generating jobs and income for many 
Americans. But equally important, the Colombian flower industry 
is a world-recognized leader in the war on drugs, maintaining 
state-of-the-art drug interception technology and collaborating 
closely with the United States Customs Service on interdiction.
    In addition, due directly to the benefits ATPA provides, 
the Colombian flower industry initiated major labor and 
environmental programs that are models not only in Colombia but 
also in so many other countries.
    We are well aware of the suggestions that ATPA could be 
rewritten to match the benefits provided to the Caribbean and 
Central American countries last year. Indeed, Senator Graham of 
Florida has already introduced such a bill in the Senate, S. 
525. We appreciate that first step. However, the Andean Region 
and the CBI region are very different. The structure of our 
productive sector is so different. We in the Andean Region have 
more vertically integrated industries and the purposes of the 
CBI are very different from what the ATPA must accomplish. 
Therefore, we believe that the ATPA must reflect those 
differences.
    One of the sectors offering the greatest opportunities for 
the generation of new jobs in our region is textiles and 
apparel chain. The ATPA countries are currently a minor player 
in the U.S. apparel market, accounting for less than one 
percent of the total U.S. apparel imports, and that is all we 
have accounted for every year since 1992.
    By contrast, the CBI countries account for almost 23 
percent of total U.S. apparel imports. These numbers 
demonstrate that, with respect to textiles and apparel, the 
ATPA countries are more like the sub Saharan African countries 
than we are like the CBI countries. Therefore, we believe that 
an enhanced ATPA should be based more on the model established 
in the African Growth and Opportunity Act rather than the one 
in the CBI.
    The Andean countries also need to promote new foreign 
investment in key business sectors to achieve economic recovery 
and effectively fight the drug war. While the original ATPA, 
with its 10-year term, initially brought new investment into 
the region, recently new investment has declined considerably, 
mainly because of the uncertainty of the medium- and long-term 
market access conditions to the North American market.
    To generate new interest in the region, we need ATPA to be 
extended for a term sufficient to ensure that the FTAA has come 
into force before the ATPA completes another term. 
Additionally, we would like you to consider that, of the five 
Members of the Andean community who have benefited from the 
ATPA, these preferences do not cover Venezuela. Our trading 
block, as well as the United States, will benefit if ATPA were 
expanded to include all the Members of the Andean community.
    Mr. Chairman, members of the Subcommittee, the Andean 
countries greatly appreciate your support in holding this 
hearing today to discuss renewal of the ATPA. We are very 
hopeful that you will act quickly to enact a new ATPA before 
the current program expires. Time is of the essence. It is 
absolutely essential that we create jobs to assist those who 
are displaced by illegal crop eradication and to lure workers 
back to those areas where legitimate employment can be 
developed.
    In particular, we ask that this Subcommittee take up and 
pass ATPA legislation preferably before the July 4th recess, in 
order to generate momentum for this legislation. Such momentum 
is needed if a new, expanded and enhanced ATPA is to be enacted 
before the current ATPA expires in December.
    We welcome the opportunity to work with you, and with the 
Bush administration, which has been very supportive, to achieve 
both an enhanced ATPA and an FTAA as quickly as possible.
    Mr. Chairman, I thank you for this opportunity and honor to 
be here sharing with you such an important Subcommittee.
    Thank you very much.
    [The prepared statement of Ms. Rincon follows:]
 Statement of the Hon. Marta Lucia Ramirez Rincon, Minister of Foreign 
                     Trade, Government of Columbia
I. Introduction
    Mr. Chairman, members of the Subcommittee, I am Marta Lucia 
Ramirez, Minister of Foreign Trade for the Government of Colombia. I 
appear here today on behalf of the Andean Community countries to 
express our strong support for a Free Trade Area of the Americas (FTAA) 
and for early enactment of legislation to renew and enhance the Andean 
Trade Preferences Act (ATPA). As you know, the ATPA expires in December 
of this year.
    It is appropriate that this committee today looks at both the FTAA 
and the ATPA, as these two important trade initiatives are integrally 
related. A hemispheric free trade area will increase economic growth 
and employment and create new opportunities for all our countries. It 
will also provide direction for the Andean countries to establish a 
firm schedule for liberalization and to achieve consistency in the 
breadth of our liberalization schemes. In this respect, we were pleased 
with the outcome of last month's Summit in Quebec City. We look forward 
to advancing negotiations toward creation of the FTAA by no later than 
2005.
    More immediately, the issue of ATPA renewal and enhancement must be 
addressed by the U.S. Congress, and soon since the current ATPA will 
expire in December. ATPA was designed to promote export diversity and 
to create new legal employment in our countries, and thus help to 
confront the destabilizing threats to our democracies posed by illegal 
narcotics production and trafficking. But ATPA is also about saving 
lives both in Andean countries and the United States because it 
reinforces our fight against illegal drugs.
II. Renewal and Enhancement of ATPA
    The current ATPA has been meaningful for both the Andean countries 
and the United States. The report of the Office of the U.S. Trade 
Representative (USTR) on the operation of the ATPA makes clear that 
ATPA is working. The report states explicitly that the ATPA is 
strengthening the legitimate economies of the countries in the region 
and is an important component in the U.S. effort to contain the spread 
of the illegal drug trade. USTR has concluded that the ATPA has 
resulted in export diversification for our countries and that net coca 
cultivation has declined.
    The Andean countries are firmly united in their quest for prompt 
enactment of legislation to renew and enhance the ATPA. A renewed and 
enhanced ATPA will serve as a stepping stone toward completion of the 
FTAA. Moreover, expanded trade offers the most effective means for the 
Andean countries and the United States to work together to make 
progress against illegal narcotics production and trafficking.
    An unintended impact of the Caribbean Basin Trade Partnership Act 
is that the ATPA countries have lost competitiveness against the 
Caribbean and Central American nations. In Colombia alone, almost 2,000 
jobs already have been lost because U.S. importers have moved orders to 
the CBI region in order to obtain the duty savings. Many more jobs 
remain threatened. To prevent job losses, some Colombian companies have 
been forced to reduce their prices in order to keep the business, but 
obviously they cannot sustain this practice.
    Expanded trade will complement the investments we have made 
together to combat drugs. Indeed, our partnership to fight drug 
production and trafficking will not succeed without economic growth 
spurred by expanded trade between our countries. It is absolutely 
essential that Colombia and other Andean countries create jobs to 
assist those who are displaced by illegal crop eradication and to lure 
workers back to those areas where legitimate employment can develop.
    No country has had to incur more sacrifices to stop drug production 
and trafficking than Colombia. We count our dead by the thousands and 
our material losses by the billions of dollars. Currently, with 
unemployment at 20%--the worst level in our history--it is absolutely 
essential to generate more jobs. President Pastrana has implemented 
tough reforms and austerity measures to address the economic downturn 
in Colombia. These reforms have resulted in a fragile economic 
recovery.
    A renewed and enhanced ATPA will help Colombia fortify its economy 
and lay the foundation for sustainable long-term economic growth. We 
therefore believe it is imperative to renew the ATPA before it expires 
on December 4, and to enhance it to include the products currently 
excluded from the legislation.
III. ATPA Benefits the Andean Region and the United States
    Andean industries benefiting from ATPA--including cut flowers, non-
traditional fruits and vegetables, jewelry and electronic components--
have generated $3.2 billion in new output since ATPA's inception in 
1991, and $1.7 billion in new exports. Over the last nine years ATPA 
has created 140,000 new jobs in the region.

                     U.S. General Imports From ATPA, Top Ten ATPA Items for the Year of 2000
----------------------------------------------------------------------------------------------------------------
                 4-digit HTS                                     Description                    ATPA Value (US$)
----------------------------------------------------------------------------------------------------------------
7403........................................  Refined Copper And Copper Alloys (Other Than           565,169,004
                                               Master Alloys Of Heading 7405), Unwrought.
0603........................................  Cut Flowers And Buds Suitable For Bouquets Or          439,531,768
                                               Ornamental Purposes, Fresh, Dried, Dyed,
                                               Bleached, Impregnated Or Otherwise Prepared.
3212........................................  Pigments Dispersed In Nonaqueous Media, In             199,392,893
                                               Liquid Or Paste Form, For Paint Manufacture;
                                               Stamping Foils; Dyes And Other Colors Packaged
                                               For Retail Sale.
7113........................................  Articles Of Jewelry And Parts Thereof, Of              155,196,411
                                               Precious Metal Or Of Metal Clad With Precious
                                               Metal.
1604........................................  Prepared Or Preserved Fish; Caviar And Caviar           80,220,426
                                               Substitutes Prepared From Fish Eggs.
7901........................................  Zinc, Unwrought.................................        58,373,185
2843........................................  Colloidal Precious Metals; Inorganic Or Organic         50,117,850
                                               Compounds Of Precious Metals, Chemically
                                               Defined Or Not; Amalgams Of Precious Metals.
0709........................................  Vegetables Nesoi, Fresh Or Chilled..............        43,557,681
3921........................................  Plates, Sheets, Film, Foil And Strip Nesoi, Of          28,869,065
                                               Plastics.
4202........................................  Travel Goods, Vanity Cases, Binocular And Camera        26,744,716
                                               Cases, Handbags, Wallets, Cutlery Cases And
                                               Similar Containers, Of Various Specified
                                               Materials.
1701........................................  Cane Or Beet Sugar And Chemically Pure Sucrose,         22,595,104
                                               In SolidForm.
----------------------------------------------------------------------------------------------------------------


    But it is important to note that there has been a two-way benefit. 
The United States is an extremely important trading partner for the 
Andean countries, with the United States serving as the leading source 
of imports for each of the ATPA countries as well as our leading export 
market. In dollar terms, U.S. exports to ATPA countries have risen 75 
percent between 1991 and 2000, with two-way trade increasing 
dramatically from $9.2 billion in 1992 to $17.9 billion in 2000. As a 
result, ATPA benefits have generated employment in the U.S. as well as 
in the Andean region. A review of the trade data indicates that many of 
the items shipped by the United States to the Andean region are used to 
generate ATPA qualifying goods. These items include, among others, 
fertilizers, paperboard and plastics, which are used in our flower 
industry, including for the greenhouses in which these flowers are 
grown.

          U.S. Exports to ATPA Countries for the Year of 2000--Intermediate Products and Raw Materials
----------------------------------------------------------------------------------------------------------------
                 4-digit HTS                                     Description                      Export Value
----------------------------------------------------------------------------------------------------------------
4804........................................  Kraft Paper & Paperboard, Uncoat Nesoi, Rolls          156,213,581
                                               Etc.
2903........................................  Halogenated Derivatives Of Hydrocarbons.........       130,800,177
3901........................................  Polymers Of Ethylene, In Primary Forms..........       107,340,801
3100........................................  Fertilizers, Exports Only Incl Other Crude              84,282,265
                                               Mat'Ls.
7108........................................  Gold (Incl Plat Plated), Unwr, Semimfr Or Powder        74,911,310
8474........................................  Machinery For Sorting Screening Etc Minerals,           72,573,269
                                               Pts.
5201........................................  Cotton, Not Carded Or Combed....................        71,113,180
2902........................................  Cyclic Hydrocarbons.............................        62,371,090
8413........................................  Pumps For Liquids; Liquid Elevators; Parts              52,716,305
                                               Thereof.
3907........................................  Polyethers, Expoxides & Polyesters, Primary             51,615,093
                                               Forms.
2304........................................  Soybean Oilcake & Oth Solid Residue, Wh/Not             45,487,152
                                               Ground.
3808........................................  Insecticides, Rodenticides; Fungicides Etc,             36,993,530
                                               Retail.
2905........................................  Acyclic Alcohols & Halogenat, Sulfonatd Etc             33,283,418
                                               Derivs.
3920........................................  Plates, Sheets, Film Etc No Ad, Non-Cel Etc,            31,925,844
                                               Plast.
8406........................................  Steam Turbines & Other Vapor Turbines, Parts....        31,032,456
2901........................................  Acyclic Hydrocarbons............................        28,491,214
3902........................................  Polymers Of Propylene Or Other Olefins, Prim            27,926,250
                                               Forms.
4002........................................  Synth Rubber & Factice, Inc Nat-Syn Mix, Pr Fm          24,640,263
                                               Etc.
3906........................................  Acrylic Polymers In Primary Forms...............        22,977,269
2915........................................  Sat Acyclic Nonocarbox Acid & Anhyd, Halogon Etc        22,815,228
2926........................................  Nitrile-Function Compounds......................        22,387,343
5402........................................  Synthetic Filament Yarn (No Sew Thread), No             22,383,281
                                               Retail.
4810........................................  Paper & Paperboard, Coated With Kaolin Etc, Rl          20,435,308
                                               Etc.
3824........................................  Binders For Found Molds; Chemical Prod Etc Nesoi        20,103,857
2933........................................  Heterocyclic Comp, Nit Hetero-Atoms Only........        18,908,820
2836........................................  Carbonates; Peroxocarbonates; Comm Amm Carbonate        18,420,841
4703........................................  Chemical Woodpulp, Soda Or Sulfate, Not Dissoly         17,733,992
                                               Gr.
4802........................................  Paper, Uncoat, For Writing Etc, Rolls; Hndmd            17,295,361
                                               Paper.
----------------------------------------------------------------------------------------------------------------


    The Colombian flower industry is an excellent example of how trade 
between our countries is mutually beneficial. In Colombia last year, 
one percent of total household income came from the cut flower 
industry, with Colombia shipping $400 million worth of flowers to the 
U.S. Approximately two thirds of $14 billion worth of cut flowers sold 
in the U.S. last year came from Colombia. Importantly, that means that 
the $400 million in cut flowers Colombia shipped to the U.S. resulted 
in some $9 billion in retail sales in America. Clearly, we are bringing 
profit to U.S. companies.
    Colombia's flowers are not simply generating economic rewards for 
the U.S. market. They also are a prominent example of how our two 
countries' trade, national security and social policy objectives are 
intertwined. The Colombian flower industry is a world-recognized leader 
in the War on Drugs, maintaining perhaps the most state-of-the-art drug 
interception technology in our region and has long collaborated with 
the US Customs Service on interdiction. In addition, since ATPA was 
inaugurated, and due directly to the benefits ATPA provides, the 
Colombian flower industry has been able to initiate major labor and 
environmental programs that stand out as models in Colombia. Among 
other things, the Colombian flower sector has initiated anti-violence 
training programs for its 75,000 workers; established an aggressive 
anti-pesticide program for Colombia's many flower farms to help promote 
a greener Colombia; launched a new program to build better homes for 
the workers of the Colombian flower industry; and established strong 
child care and nutrition programs for the tens of thousands of working 
mothers who are critical to the flower industry.
    This is positive news, but the fact remains that last year only 
about 10 percent of all Andean exports to the United States were 
eligible for ATPA benefits, according to a Congressional Research 
Service study. ATPA must be expanded to cover all products, not just 
selected goods. Strengthening the legal economies in our countries is 
absolutely vital to stabilizing the region economically and 
politically. Only through such enhancement of the ATPA will we generate 
the level of new employment opportunities needed to help those workers 
whose jobs are eliminated as a result of crop eradication as well as 
the many skilled workers who are currently unemployed. Even USTR's 
report notes that the ATPA has just ``begun to show important 
successes.'' Beginning, after almost ten years, is not enough. To 
achieve full success, ATPA must be both extended and enhanced.
    An enhanced ATPA that provides duty-free access to the U.S. market 
for a maximum variety of labor-intensive goods would offer great 
support for democratic institutions in the region. This program would 
also attract new investment and economic development, thereby 
redirecting the unemployed and underemployed away from the coca and 
poppy fields and providing alternative employment for those displaced 
by the eradication of illegal crop production. Moreover, an enhanced 
program that undermines the economic power of insurgents and credits 
our democratic leaders with achieving that program would inevitably 
strengthen the hand of democratic institutions in the region. Key to 
such success, however, is an ATPA renewal that is sufficiently broad in 
scope, without being overly complicated, and of a duration that is 
adequate to ensure that investors believe there is sufficient time to 
reap a return.
IV. Crafting Textile and Apparel Provisions in the ATPA
    We are well aware of suggestions that ATPA could be rewritten to 
match the benefits provided to the Caribbean and Central American 
countries last year, under the Caribbean Basin Trade Preferences Act. 
Indeed, Senator Graham of Florida already has introduced such an ATPA 
renewal bill in the Senate, S. 525, and we appreciate that first step. 
However, the Andean region and the CBI region are very different and 
the purposes of the CBTPA were very different from what the ATPA must 
accomplish. Therefore, we believe that the ATPA must reflect those 
differences.
    One of the sectors offering the greatest opportunities for the 
generation of employment is textiles and apparel. The ATPA countries 
are currently a minor player in the U.S. apparel market. The ATPA 
countries account for only one percent of total apparel imports--and 
that is all we have accounted for every year since 1992. The CBI 
countries account for almost 23 percent of total U.S. apparel imports, 
and their share of the U.S. market has been growing over the past 
decade. Those numbers demonstrate that, with respect to textile and 
apparel exports to the United States, the ATPA countries are more like 
the sub-Saharan African countries than we are like the CBI countries. 
Therefore, we believe that an enhanced ATPA should be based on the 
model established in the African Growth and Opportunity Act rather than 
the one in the CBTPA.
                  Apparel Imports to the United States

[GRAPHIC] [TIFF OMITTED] T4222A.018

 CBI versus NAFTA versus Andean Region (% of total apparel imports to 
                               the U.S.)
    Unlike the CBI region, the Andean region is not dominated by so-
called 807 assembly operations. The apparel industry in the ATPA 
countries is highly vertical, meaning that we manufacture yarns, 
fabrics, and finished garments and textile goods, offering our 
customers a ``full package'' of services. To do this, we import a great 
deal of inputs from the United States. We would import even more if 
there were benefits for our textile and apparel exports to the U.S. 
under ATPA.
    The fact is that today the Andean countries already import far more 
raw cotton from the United States than the CBI countries, even though 
there are only 4 ATPA countries and there are two dozen CBI countries 
($72 million versus $58 million worth of raw cotton). The United States 
is by far Colombia's top supplier of raw cotton, accounting for 50 
percent of our imports. The ATPA countries also import a significant 
quantity of manmade fibers and manmade fiber yarns from the United 
States--a total of $57 million worth in 2000. (The U.S. exported $32 
million worth to the CBI region during the same period.) These inputs 
provide some indication of the extent to which enhanced ATPA offers 
real export opportunities for the U.S. cotton, manmade fibers and yarn 
industries.

          U.S. Exports to the ATPA Countries for the Year of 2000--Value of Wool, Cotton and MMF Inputs
----------------------------------------------------------------------------------------------------------------
                                                                                           APTA export
                 4-digit HTS                                  Description                     value      % Share
----------------------------------------------------------------------------------------------------------------
Raw Wool:
    5101.....................................  Wool, Not Carded Or Combed..............           3,895      0.1
                                               Total raw wool..........................           3,895      0.1
Wool Yarn:
    5106.....................................  Yarn Of Carded Wool, Not Put Up For                8,979      0.5
                                                Retail Sale.
    5107.....................................  Yarn Of Combed Wool, Not Put Up For              478,977      8.5
                                                Retail Sale.
    5109.....................................  Yarn Of Wool Or Fine Animal Hair, For             35,144      2.0
                                                Retail Sale.
                                               Total wool yarn.........................         523,100      5.8
Wool Fabric:
    5111.....................................  Woven Fabrics Of Carded Wool Or Fine           1,003,721      4.1
                                                Animal Hair.
    5112.....................................  Woven Fabrics Of Combed Wool Or Fine           1,114,008      2.2
                                                Animal Hair.
    5113.....................................  Woven Fabrics Of Coarse Animal Hair Or             3,645      1.0
                                                Horsehair.
    Total wool fabric........................    ......................................       2,121,374      2.8
    Total Wool Products......................    ......................................       2,648,369      3.0
Raw Cotton:
    5201.....................................  Cotton, Not Carded Or Combed............      71,113,180      3.8
    5202.....................................  Cotton Waste (Including Yarn Waste Etc.)         402,883      1.2
    5203.....................................  Cotton, Carded Or Combed................         744,673      8.1
                                               Total raw cotton........................      72,260,736      3.8
Cotton Yarn:
    5205.....................................  Cotton Yarn (Not Sewing Thread) Nu85%          1,197,918      0.5
                                                Cot No Retail.
    5206.....................................  Cotton Yarn (Not Sewing Thread) Un85%          1,626,213      6.0
                                                Cot No Retail.
    5207.....................................  Cotton Yarn (Not Sewing Thread) Retail            91,772      1.0
                                                Packed.
    Total cotton yarn........................    ......................................       2,915,903      1.0
Cotton Fabrics:
    5208.....................................  Woven Cotton Fabrics, Nu 85% Cot, Wt Nov      12,083,580      3.8
                                                200 G/M2.
    5209.....................................  Woven Cotton Fabrics, Nu 85% Cot, Wt Ov        9,217,064      1.3
                                                200 G/M2.
    5210.....................................  Woven Cotton Fabrics, Un85% Cot, Mmfmix,       3,859,125      2.6
                                                Nov200G/M2.
    5211.....................................  Woven Cotton Fabrics, Un85% Cot, Mmfmix,       1,019,031      0.9
                                                Ov200G/M2.
    5212.....................................  Woven Cotton Fabrics Nesoi..............       1,133,715      3.3
    6002.....................................  Knitted Or Crocheted Fabrics, Nesoi.....       4,037,827      0.7
    Total cotton fabrics.....................    ......................................      31,350,342      1.6
    Total Cotton Products....................    ......................................     106,526,981      2.6
Manmade Fibers:
    5501.....................................  Synthetic Filament Tow..................       9,595,901     18.6
    5502.....................................  Artificial Filament Tow.................       1,384,611      0.4
    5503.....................................  Synthetic Staple Fibers, Not Carded,          12,881,397      3.5
                                                Combed Etc.
    5504.....................................  Artificial Staple Fibers, Not Carded,            953,370      1.3
                                                Combed Etc.
    5506.....................................  Synthetic Staple Fibers, Carded, Combed          472,318      3.9
                                                Etc.
    Total manmade fibers.....................    ......................................      25,287,597      3.0
Manmade Fiber Yarns:
    5402.....................................  Synthetic Filament Yarn (No Sew Thread),      22,383,281      2.8
                                                No Retail.
    5403.....................................  Artificial Filament Yarn (No Sew                 492,416      0.7
                                                Thread), No Retail.
    5404.....................................  Syn Monofil Not Un 67 Dec, Cr-Sect             7,703,640      4.2
                                                Nov1Mm, Stno5Mm.
    5406.....................................  Manmade Filament Yarn (No Sew Thread),           346,773      3.5
                                                Retail Pack.
    5509.....................................  Yarn (No Sew Thread), Syn Staple Fib,            669,603      0.7
                                                Not Retail.
    5510.....................................  Yarn (No Sew Thread), Art Staple Fib,            548,361     20.0
                                                Not Retail.
    5511.....................................  Yarn (No Sew Thread), Manmade Staple             144,748      0.7
                                                Fiber, Retail.
    Total manmade fiber yarns................    ......................................      32,288,822      2.7
Manmade Fiber Fabrics:
    5407.....................................  Woven Fab Of Syn Fil Yn, Incl Monofil 67       4,309,513      0.4
                                                Dec Etc.
    5408.....................................  Woven Fab Of Art Fil Yn, Incl Monofil 67         765,996      0.4
                                                Dec Etc.
    5512.....................................  Wov Fabric, Synth Staple Fib Nu 85%              770,603      0.1
                                                Synth St Fiber.
    5513.....................................  Wov Fabric, Syn St Fib Un85%, Cot Mix,           560,543      0.6
                                                Nov17Og/M2.
    5514.....................................  Wov Fabric, Syn St Fib Un85%, Cot Mix,         1,172,606      1.6
                                                Ov 170 G/M2.
    5515.....................................  Woven Fabrics Of Synthetic Staple Fibers         537,033      0.6
                                                Nesoi.
    5516.....................................  Woven Fabrics Of Artificial Staple               411,983      1.0
                                                Fibers.
    Total Manmade fiber fabrics                ........................................       8,528,277      0.5
    Total Manmade Fiber Inputs                 ........................................      66,104,696      1.8
    Parts of Clothing (All fibers)             ........................................      15,529,867      3.0
                                                                                        ========================
    Total Wool, Cotton, Manmade Fiber Inputs   ........................................     190,809,913      2.3
----------------------------------------------------------------------------------------------------------------

V. Greater Incentives for the Andean Region
    It also must be acknowledged that simply providing the ATPA 
countries with the same benefits as the CBI countries will not 
necessarily induce investors or U.S. importers to do business with the 
Andean countries. We need a greater incentive to overcome the higher 
cost of labor in our countries and to overcome the security concerns of 
American business.
    We therefore sincerely hope that the U.S. Congress will craft an 
ATPA enhancement law that is simple and uncomplicated, providing 
unlimited duty-free access for all textile products made from either 
U.S. or Andean origin inputs. It is also essential to provide duty-free 
access for garments made in the region from third country inputs so 
long as the most important manufacturing operations occur in the Andean 
region. We hasten to note that the jobs generated by these benefits 
will in no way take away jobs from the United States. The duty-free 
access will instead permit the ATPA countries to compete with suppliers 
in Asia.
    The Andean countries need duty-free access for all other products 
as well. We urge Congress to eliminate all of the exclusions that are 
part of the current ATPA. In our view, just as in the African Growth & 
Opportunity Act, duty-free access should be provided to all footwear, 
leather goods, watches, canned tuna, petroleum products, and any other 
product eligible for GSP treatment, if the GSP rules of origin are met.
    For example, the labor intensive fishing industries of the ATPA 
beneficiary countries have developed significantly during the last 
years, but have been precluded from becoming competitive in the U.S. 
market because of the high duties and restrictive access rules that 
apply. Thus, ATPA countries account for only $10 million of the $600 
million worth of tuna imported into the U.S. each year. Additionally, 
90 percent of the capital goods and inputs necessary to produce canned 
tuna reflects U.S. investment in the ATPA countries. Improved access to 
the U.S. market would serve the interests of this U.S. investment in 
tuna processing plants and also provide new employment opportunities.
    Additionally, we would like the Subcommittee to consider that while 
four of the five members of the Andean Community have benefited from 
ATPA, these preferences do not cover Venezuela. Our trading bloc, as 
well as the United States, would benefit if ATPA were expanded to 
include all the members of the Andean Community.

Conclusion
    Mr. Chairman, members of the Subcommittee, the Andean countries 
greatly appreciate your support in holding this hearing today to 
discuss renewal of the ATPA. We are very hopeful that you will act 
quickly to enact a new ATPA before the current program expires. Time is 
of the essence. Colombia needs to promote new foreign investment in key 
economic sectors to achieve an economic recovery and effectively fight 
the drug war. While the original ATPA, with its 10-year term, initially 
brought new investment into the region, new investment has declined 
considerably. In order to generate new interest in the region, we need 
ATPA to be extended for a term sufficient to ensure that the FTAA has 
come into force before the ATPA completes another term. Only then will 
investors trust that they will have sufficient time to see a real 
return on that investment.
    In particular, we ask that this subcommittee take up and pass ATPA 
legislation rapidly, preferably before the July 4th recess, in order to 
generate momentum for this legislation. Such momentum is needed if a 
law to renew and enhance ATPA is to be enacted before the current ATPA 
expires in December.
    We welcome the opportunity to work with you, and with the Bush 
Administration, which has been very supportive, to achieve both an 
enhanced ATPA and a FTAA as quickly as possible. Thank you.

                                


    Chairman Crane. Thank you, Minister Ramirez. Minister 
Solares.

STATEMENT OF THE HON. ANA MARIA SOLARES, VICE-MINISTER OF TRADE 
AND ECONOMICS, MINISTRY OF FOREIGN AFFAIRS, REPUBLIC OF BOLIVIA

    [The following testimony was interpreted from Spanish:]
    Ms. Solares. Thank you, Mr. Chairman. First of all, I would 
like to thank you very much for taking the initiative to invite 
us to participate in this panel to deal with a subject that is 
so important for the Andean Group countries.
    Thank you, also, for your personal interest in this 
subject.
    I have provided a document in writing explaining in detail 
my presentation, and I'm aware that I have a short amount of 
time right now.
    I will be going directly to the point on the subjects that 
I want to mention to you, but I hope you will give me a little 
bit of consideration with regard to time because I need 
interpreting.
    Chairman Crane. If you will yield, we will, indeed. All of 
the written testimony will be a part of the permanent record as 
well.
    Ms. Solares. Thank you.
    First of all, I would like to indicate that the countries 
of the Andean Region are here in this room and in this country 
to encourage a reaffirmation and breathing new life to the 
terms of the strategic alliance that was agreed on ten years 
ago between our countries.
    This alliance was formed because of a common problem that 
we have, and because of a common goal that we share. This 
alliance was conceived with a holistic approach that would 
create actions to confront the problem of drug trafficking and 
its levels of demand, consumption and distribution. This would 
create a type of cooperation. The goal was to have cooperation 
that in economic terms would result in trade and investment.
    This Andean Trade Preferences Act has been an expression of 
this strategic alliance, which has been as very effective means 
for encouraging trade in both directions between our countries. 
Indeed, we have seen that, as a result of this agreement of 
ATPA, there has been an increase in exports to the United 
States. There has also been a generation of imports to the 
Andean countries from the United States in machinery products 
and imports and, to be honest, this results in a greater amount 
of imports than Israel and Brazil.
    We can also see this Andean Trade Preference Act as a way 
to--as an instrument to lead to free trade, which is something 
that we all desire. Nevertheless, we must return to the 
original concept that led to the agreement. It was originally 
conceived in order to create alternative forms of work so that 
people who would be involved in illicit drug production would 
be able to have other types of work that would be legitimate 
jobs.
    Something else that we must recognize as the goals of this 
agreement is to lead to national security, the health of our 
people, and stability in the Andean countries. Mr. Chairman, we 
have made tremendous strides over the past ten years, but as 
you know, drug trafficking never sleeps. We must preserve our 
accomplishments, but also deepen our efforts.
    So what we must do at this time with regard to the Andean 
Trade Preferences Act is renew the terms, broaden them, and 
also incorporate Venezuela in the Andean Group countries of 
this Act.
    In order to do this, we would like to propose a new 
modality. We would suggest a general opening up of the U.S. 
markets, excluding some of the sensitive sectors to the United 
States. We would hope in this regard to see a priority given to 
the textile sector. We would hope that in this production we 
would be able to contribute to all aspects of the chain of 
production, using inputs from the U.S. as well as those from 
our own region.
    Mr. Chairman, please allow me to refer to my country's 
case. As you know, my country has accomplished tremendous 
progress with a lot of difficult effort. By applying the 
dignity plan, we have almost completely eradicated or removed 
our country from the vicious circle of drug trafficking.
    We have been able to withdraw from international markets 
240 tons of cocaine. Obviously, these tons would have 
multiplied tremendously on the streets of large cities 
throughout the world. Mr. Chairman, we need to preserve this 
progress. So one way to do this would be to open up alternative 
employment sources for people to be able to reduce the terrible 
effects of unemployment that we're seeing these days. The only 
way to do this is to produce more and export more, because we 
have a very small market in our country. Thus, we have a 
tremendous need to be able to participate in international 
markets and, of course, principally that of the U.S.
    We must also see textiles as a priority sector, but not in 
the form of assembly plants. If we were to stick to that 
modality, then Bolivia would not be able to take advantage of 
this opportunity. With regard to the purchases that you make in 
this sector, our purchases are very small in number.
    Mr. Chairman, we trust that, through the opening up of U.S. 
markets, you will show to our Andean community your solidarity 
in struggling against the common problem that we share.
    Thank you very much.
    [The prepared statement of Ms. Solares follows:]

  Statement of the Hon. Ana Maria Solares, Vice-Minister of Trade and 
      Economics, Ministry of Foreign Affairs, Republic of Bolivia

    Thank you very much Mr. Chairman for calling this important hearing 
on an issue so vital to the Andean countries, in such a timely matter.
    Mr. Chairman: In the last decade, the Andean countries have engaged 
in a serious effort to combat the scourge of drugs that was destroying 
the youth and the social fabric of our nations. We committed ourselves 
to fight vigorously and relentlessly in the elimination of all 
production of illegal coca plantations, to destroy drug laboratories, 
to seize drug shipments and to arrest individuals engaged in this 
illicit business. Our countries even created laws and government 
institutions to better address the problem. In no uncertain terms, Mr. 
Chairman, I would like to start my presentation by assuring you that 
the countries represented here, have invested all the human and 
economic resources available to us in this fight.
    But as you know very well, the global nature of the problem 
surpasses the capacity of individual action by any nation. The fight 
against drugs, from the beginning, has demanded a global alliance 
between producing and consuming countries, based on the principle of 
shared responsibility. With this in mind, ten years ago, the United 
States of America and the countries of the Andean region established a 
strategic partnership, developing an integral vision of the problem. We 
all committed to confront the different aspects of the illicit drug 
trade--supply, demand, and consumption--through a combination of 
programs in the interdiction, prevention, and economic development 
areas.
    The Andean Trade Preference Act (ATPA) was conceived a decade ago 
within this context. The United States and the nations of the Andean 
region would use trade as part of our mutual effort to strengthen our 
economies, which in turn, would help us in the war against drugs. Trade 
and the economic prosperity that accompanies it, we, and are seen, as 
the right way to push back against the drug cartels.
    The good news is we have had some success. In 10 years of 
existence, ATPA has become an essential tool for the commercial 
interchange between the United States and the Andean region. 
Approximately 140.000 new jobs have been created in the region. In 
addition it has created important flows of investment and has doubled 
the two way trade between the United States and the nations of the 
region. During this period, the Andean countries have also made 
important strides in the war against drugs. More than three hundred 
sixty six hectares of coca were eliminated preventing the availability 
of hundred tons of drugs in the U.S. streets; important drug cartels 
were disbanded; and hundreds of cocaine labs were destroyed.
    Our fight has been aggressive, but our social and economic costs 
have also been extremely high. There have been thousands of lives lost, 
unemployment grew to unprecedented levels, and in the process, our 
democratic institutions have been under permanent threat.
    Today, the Andean region face a very critical moment, and in 
accordance with the concept of shared responsibility that inspires our 
cooperation, we see the renewal and expansion of ATPA as critical to 
guarantee sustainability of our achievements and our ability to make 
further progress. Further, ATPA renewal and expansion is needed even 
more because of the competitiveness of the Andean nations in the U.S. 
market has been diminished due to the establishment of NAFTA and the 
preferential trade mechanisms granted to Caribbean and Sub-Saharan 
countries.
    We, the Andean countries, are fully committed to the idea of and 
the process for negotiating the Free Trade Area of the Americas. But 
until the FTAA becomes a reality, we need a robust ATPA that would 
remain in place until the FTAA becomes a reality.
THE SITUATION OF BOLIVIA
    Mr. Chairman let me address for a minute the specific situation of 
my country, Bolivia.
    As you know, in 1997, President Hugo Banzer made the historic 
commitment to eliminate all production of illegal coca/cocaine in our 
territory in only 5 years. When his plan was presented, many, including 
people in the United States were skeptical. At the time, Bolivia was 
the second major producer of coca/cocaine in the world. We had 45.800 
hectares of coca plants in our territory. We were the second poorest 
nation in the Hemisphere after Haiti.
    In three years, my government has eliminated 100% of coca 
production in the Chapare region, the largest area of coca cultivation 
for illicit purposes, with only 2000 hectares of illegal plantations 
remaining in the Yungas area. We have conducted more than 16.900 drug 
interdiction operations, have destroyed more than 4.000 labs of 
cocaine, have arrested more than 14.400 people implicated in 
narcotrafficking, have seized more that 50.000 kilos of cocaine, but 
most importantly, our anti-drug strategy has resulted in preventing the 
availability of some 240 tons of cocaine in the U.S. streets.
    The social, economic and political cost of this fight, Mr. 
Chairman, has been extremely high in my country. We have lost in this 
process thousands of jobs, elevating the unemployment and 
underemployment levels to more than 24%. The coca/cocaine sub-economy 
in Bolivia, albeit illegal, went much beyond generating important 
levels of direct employment, it also fostered related economic 
activities in transportation, trade and industry. It is calculated that 
in the last 3 years, since the implementation of our anti-drug Dignity 
Plan, Bolivia lost $370 million dollars due to the reduction of the 
gross value of the coca, and $230 million dollars due to the concept of 
value added given to it. This means a loss of $600 million U.S. 
dollars, which comparatively amounts to 60% of our total exports.
    This deep deactivation of our economy has also been aggravated by 
the impact of other necessary economic reforms taken by the Government 
of Bolivia. For example, Bolivian Customs reform, designed to eliminate 
corruption fueled by money laundering, and discourage informal trade, 
has also taken away another $300 million dollars, which contributed to 
increased unemployment levels. In addition, the strict compliance of 
Bolivia in abiding agreements in the area of intellectual property, and 
the fight against piracy, has meant another negative impact. In could 
go on mentioning other examples, but the bottom line is that all those 
factors have helped to create an economic downturn and very serious 
social unrest.
    Because of all this, we face an urgent need to further develop our 
economy and to generate new sources of income. Our traditional exports 
have been agricultural commodities. If we are to use trade as an engine 
of growth for the Bolivian economy, we must diversify our export base. 
We believe that the textile and garment industry offers great potential 
for additional export income, which in turn, will also generate much 
needed new jobs.
    Currently, the manufacturing sector in Bolivia represents 15% of 
our total exports, which last year grew to 1 billion dollars. The 
textile and garment industry represents 4% of that amount. Our 
objective for the coming years would be to foster the growth of the 
textile and garment industry to 20%, equivalent to $200 million 
dollars. Even if we manage to grow to that level, the total exports of 
textiles and garments from Bolivia to the United States will represent 
a mere 0.3% of the total U.S. imports of textile and garment from 
abroad.
    Within this context, Bolivia, united with all the Andean countries 
beneficiaries of ATPA, would like to see a renewal and expansion of the 
law that would be as wide and as simple as possible. Listing, only if 
needed, the products that would not be included for the preferential 
treatment. Bolivia would not be benefited if in the new law, regional 
inputs in the whole chain of production are conditioned or limited. The 
practice of ``maquila'' can be highly beneficial to other countries, 
but not to ours given its great distance form the U.S. market, its land 
locked condition and the high costs of transportation. Bolivia also 
hopes that in granting trade preferences to the Andean countries, the 
United States will consider the particular needs of Bolivia and the 
other nations of the region with regard regards to the raw material and 
the finished products made from llama, alpaca, and vicuna.
    In conclusion, Mr. Chairman, I would like to thank you for the 
interest you have put in this very important matter to the Andean 
region, and request that the cooperation of the United States be 
expressed, fundamentally, in opportunities of market access to as wide 
range of products as possible.
    Thank you very much, and I am prepared to answer any questions you 
might have on this topic.

                                


    Chairman Crane. Thank you. Mr. Moore.

 STATEMENT OF CARLOS MOORE, EXECUTIVE VICE PRESIDENT, AMERICAN 
                TEXTILE MANUFACTURERS INSTITUTE

    Mr. Moore. Mr. Chairman and Members of the Committee, my 
name is Carlos Moore. I am Executive Vice President of the 
American Textile Manufacturers Institute, the national trade 
association of the U.S. textile industry. Our member companies 
operate in more than 30 States and process approximately two-
thirds of all textile fibers consumed by mills in the U.S.
    With respect to the subject of a Free Trade Agreement of 
the Americas, ATMI believes that the details will prove 
critical as to whether an FTAA will help the U.S. textile 
industry establish beneficial trading partnerships in this 
hemisphere. We believe the goal of an FTAA, from a textile 
perspective, must be to establish measures that will benefit 
our industry. We believe the same to be the case of an Andean 
Trade Preference Act.
    This has become even more crucial in the past year. The 
U.S. textile industry is being seriously injured by low-priced 
imports, primarily from Asia, and also by the economic slowdown 
in our economy. In 1999, our industry earned $690 million from 
total shipments of $78.6 billion. Last year, our industry lost 
$529 million, on sales of $76 billion. Employment dropped by 
25,000 over the past calendar year, and many thousand more jobs 
have been lost already this year.
    As imports continue to take away domestic business from our 
members, we are working hard to find markets outside the U.S. 
However, many markets, primarily those in Asia and especially 
India, are closed to imports. That is why NAFTA has become 
increasingly important to us and why we believe that an 
effectively implemented Caribbean Basin law can contribute to 
our industry's growth.
    Let me address a few key concerns about the FTAA. As ATMI 
stated in its March 7th statement to this Subcommittee, it is 
important that the FTAA governments create a sub-group within 
the market access negotiating group that is dedicated to 
textile and apparel access issues. These market access issues 
include safeguards, customs enforcement, verification, and 
negotiation of over 1,500 tariff lines, and they are technical 
and detailed. To date, no such sub-group has been established.
    We also believe that an FTAA, like NAFTA, should include a 
basic yarn-forward rule of origin, but without the large tariff 
preference levels included in NAFTA that granted benefits to 
countries outside the agreement.
    On the matter of renewal and expansion of the ATPA, we have 
serious concerns regarding the inclusion of textiles and 
apparel, particularly coming so close on the heels of last 
year's Trade and Development Act of 2000. This law, which went 
into effect only seven months ago, has not been given the 
opportunity to achieve its desired results. Moreover, there are 
still a number of outstanding issues which must be resolved 
before the new Caribbean Basin trade partnership's potential 
benefits and impact can be properly determined and evaluated.
    While ATMI endorsed and supported the CBI portion of the 
law, we are still concerned about U.S. Customs' interpretation 
of key provisions of the Act, especially with respect to 
texturing of U.S. yarn and the dyeing and finishing of U.S. 
fabrics which we believe should be carried out only within the 
United States.
    The sub Saharan Africa portion is also troubling to our 
members, including our concerns about a surge mechanism, the 
size, structure, and growth rate of quotas on apparel made of 
non-U.S. components, and generally its weak anti-transshipment 
measures.
    Senator Bob Graham, who was helpful in securing enactment 
of the CBI law, has introduced legislation in the Senate to 
renew the ATPA and to extend it to textile products, provided 
the final product is made of U.S. fabric, of U.S. yarn.
    Let me state very clearly that ATMI would strongly oppose 
any efforts to weaken this fabric and yarn requirement. If the 
U.S. is to grant Andean countries greater access to our markets 
on a unilateral basis, the principles of fairness and 
reciprocity require that U.S. textile components be used.
    We also note that Senator Graham's bill would permit duty-
free entry for knit-to-shape apparel articles assembled in the 
Andean Region, and it also provides benefits to Andean knit-to-
shape apparel from components formed in the U.S., regardless of 
where the yarns were made. They could be U.S., Andean, or 
Asian. It doesn't matter. These are significant differences 
from the precedent set in last year's Caribbean legislation and 
are in opposition to the intent of the legislation which is to 
promote increased trade in goods sourced from the region.
    We further note that Senator Graham's bill provides for an 
additional 70 million square meters of imported apparel made of 
regional knit fabric of U.S. yarn, which would be allowed to 
increase over the next 3 years. While ATMI represents yarn 
spinners who could benefit from this provision, we also 
represent knitters who could be harmed by its inclusion.
    Finally, as we stated earlier regarding the CBI law, we 
believe that texturing of yarns and dyeing and finishing of 
fabrics should be done only in the U.S., and U.S. Customs has 
yet to issue a final ruling on these issues. Because these 
issues are still unresolved, that adds greatly to our concerns 
with respect to the expansion of the ATPA to include textiles 
and apparel.
    In light of our concerns cited above, and particularly in 
light of reports that this body might seek an even further 
weakening of the Graham bill to the detriment of our Members, 
we are opposed to expanding the ATPA to include textiles and 
apparel.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Moore follows:]

 Statement of Carlos Moore, Executive Vice President, American Textile 
                        Manufacturers Institute

    My name is Carlos Moore. I am Executive Vice President of the 
American Textile Manufacturers Institute (ATMI), which is the national 
trade association for the U.S. textile industry. Our member companies 
operate in more than 30 states and process approximately two thirds of 
all textile fibers consumed by plants in the United States.
    ATMI welcomes this opportunity to discuss the outcome of the recent 
Summit of the Americas held in Quebec City, particularly with respect 
to how that meeting has set the stage for negotiations on a Free Trade 
Agreement of the Americas (FTAA). We will also discuss renewal of the 
Andean Trade Preference Act (ATPA) and its possible expansion to 
include textiles.
    As we stated in a submission to the committee earlier this year, we 
are an industry that is simultaneously both a major exporter and one 
that is deeply impacted by foreign imports. Accordingly, since we do 
endeavor to compete in this global trading environment, the domestic 
textile industry believes that United States trade policy should be 
motivated by principles of fairness and equity. I would refer you to my 
statement of March 7 for a detailed account of this overall issue, as 
well as how our industry has fared in recent years, largely as a result 
of the financial problems in Asia and despite our efforts to constantly 
modernize and seek new export markets.
    To preface my remarks, which will make several references to NAFTA, 
I would like to remind the Committee that ATMI initially took no firm 
position for or against the North American Free Trade Agreement. 
Rather, our Board of Directors instructed ATMI's officers at the time, 
and ATMI staff, to work with our government to seek a yarn-forward rule 
of origin and effective Customs enforcement provisions. When the first 
Bush Administration incorporated this as its negotiating position, and 
was subsequently successful in getting such provisions into the final 
agreement, ATMI's Board then adopted a position in strong support of 
NAFTA, and we forcefully lobbied the Congress to urge NAFTA's adoption. 
The textile portion of the NAFTA is an outstanding case where a trade 
agreement is both fair and equitable to the textile sectors of all 
three NAFTA partners.
    This is evidenced by the billions of dollars of two-way trade in 
textile and apparel exports that have been created since NAFTA was 
implemented. Indeed, during the past seven years, Mexico has overcome 
China to become by far the largest supplier of apparel to the United 
States. It was a deal that embodied the fairness and equity we would 
urge in an FTAA, although customs fraud has become an increasingly 
serious problem, as I will discuss later.
    With respect to the subject of today's hearing, ATMI recognizes 
that the leaders of the 34 nations at the recent Summit of the Americas 
clearly support the goal of completing negotiations for an FTAA by 
January 2005. But as with all trade agreements, the details are 
critical as to whether an FTAA will help the U.S. textile industry 
establish beneficial trading partnerships with customers in these 
nations, as has been the case under NAFTA and in the Caribbean Basin. 
We believe that the goal of an FTAA from a textile perspective must be 
to establish measures that will benefit our industry.
    As we stated in our March 7 testimony, it is important that the 
governments create a subgroup within the market access negotiating 
group dedicated to textile and apparel access issues. This would mirror 
the process that has been used in every major negotiation--including 
the Uruguay Round, NAFTA and the U.S.-Canada FTA--that has involved 
textiles and apparel to date. The issues involved in textile and 
apparel market access, which include safeguards, customs enforcement 
and verification and the negotiation of over 1,500 tariff lines, are 
technical and detailed. A dedicated sub-group on textile market access 
is absolutely necessary for a successful outcome. To date, no such sub-
group has been established.
    As was the case with NAFTA at this stage of the negotiations, 
ATMI's Board of Directors has not yet taken a formal position on an 
FTAA. However, in general terms we believe the agreement should, like 
NAFTA, have a basic yarn-forward rule of origin, but without: (a) the 
large tariff preference levels (TPLs) included in NAFTA that granted 
benefits to countries outside the free trade agreement; or (b) the 
special preferences given to 807A goods under NAFTA that did not 
require U.S. yarn. We also believe that customs enforcement provisions 
in the FTAA should include not only the provisions in NAFTA, but should 
be expanded to take into account the difficulty in policing an entire 
hemisphere. New customs programs should include those in the recently 
enacted Trade and Development Act of 2000. Other enforcement measures 
should also be included and ATMI will be ready to advise U.S. 
negotiators about them.
    Specifically, the FTAA must be fair and beneficial to U.S. 
textiles; it must have enforceable rules and governments must commit to 
enforcing those rules. To use NAFTA as a point of reference, the 
textile and apparel rules must exclude granting benefits to non-
participating countries through TPLs, have strict origin requirements, 
allow for cross-country customs verification and have reciprocal tariff 
phase-outs. Enforcement is key; each time that free trade is expanded, 
the opportunity for goods from outside the free trade region to enter 
illegally through transshipment or smuggling is expanded, to the 
detriment of all of the participating countries.
    Indeed, seven years into the NAFTA agreement it has become clear 
that large-scale smuggling of textile and apparel goods into Mexico and 
the United States to avoid quotas and tariffs is now a problem of the 
first magnitude. These goods, which falsely declare NAFTA origin and 
which deprive the U.S. and Mexican Treasuries of many millions of 
dollars in duties, cause great harm to U.S. and Mexican producers of 
textiles and apparel and their workers. Despite the authorization of 
funds and of dedicated agency personnel to NAFTA textile enforcement in 
the NAFTA legislation, U.S. Customs has yet to crack down on this 
illegal trade.
    To summarize, ATMI believes that the FTAA can provide benefits to 
the industries of all the participating countries, including U.S. 
textile producers, but only if a separate negotiating subgroup succeeds 
with a final package that includes textile and apparel provisions based 
on NAFTA, with the improvements we describe above.
    On the matter of renewal of expansion of the ATPA, which expires in 
December, our industry is aware that the leaders of the four Andean 
Pact nations--Bolivia, Colombia, Ecuador and Peru--met with President 
Bush in Quebec City on the need to include textiles in a new agreement. 
We have serious concerns regarding this issue, particularly coming so 
close on the heels of last year's Trade and Development Act of 2000. 
This law, which went into effect only seven months ago, has not been 
given the opportunity to achieve its desired results. We should be 
careful about doing anything which might diminish the benefits which 
the new law is intended to provide to the apparel producing countries 
of the Caribbean and to their yarn and fabric suppliers in the United 
States.
    Moreover, there are still a number of outstanding issues which must 
be resolved before the new Caribbean Basin Trade Partnership Act's 
potential benefits and impact can be properly determined and evaluated. 
While ATMI endorsed and supported the CBI portion of that law, ATMI is 
still concerned about U.S. Customs' interpretation of key provisions of 
the Act, especially with respect to texturing of U.S. yarn and dyeing 
and finishing of U.S. fabrics.
    ATMI's position is not unreasonable. Our position supports post-
assembly apparel dyeing and finishing in the Caribbean. Our position 
also supports dyeing and finishing in the Caribbean for U.S.-formed 
yarn and thread required for use in qualifying apparel, as well as for 
regional knit fabric. Our position for U.S.-only dyeing and finishing 
would apply only with respect to U.S. fabric in garments not qualifying 
for the regional knit apparel or T-shirt allowance and to fabric used 
in textile luggage. Our position with respect to textured yarn--that 
is, that such yarn must be both extruded and textured in the U.S.--
reflects the commercial reality of the most efficient and cost-
effective way of producing textured yarn.
    Also, the Sub-Saharan Africa portion of the Trade and Development 
Act of 2000 Act contained sections that were very troubling to our 
members. These included the lack of a workable surge mechanism, the 
size, structure and growth rate of the quota for garments made of non-
U.S. components and generally weak anti-transshipment measures. These 
concerns will be taken into account in our evaluation of any Andean 
Pact renewal proposal that might include textiles.
    Senator Bob Graham, who was so helpful in securing enactment of the 
CBI law, has introduced legislation in the Senate, S. 525, to renew the 
ATPA and to extend it to textile products provided the final product is 
made of U.S. fabric of U.S. yarn. Let me state very clearly that ATMI 
would strongly oppose any efforts to weaken this U.S. fabric and yarn 
requirement. If the U.S. is to grant the Andean countries greater 
access to our markets on a unilateral basis, the principles of fairness 
and reciprocity demand that only U.S. textile components be used.
    We also note that Senator Graham's bill would permit duty-free 
entry for knit to shape apparel articles assembled in the Andean region 
from components knit to shape in the U.S. and/or a beneficiary country 
of U.S. yarn. It also provides such benefits to Andean knit to shape 
apparel from components formed in the U.S. regardless of the source of 
these yarns--they could be U.S., Andean, Asian--it doesn't matter. 
These are significant differences from the precedent set in last year's 
Caribbean Basin legislation, and are in opposition to the intent of the 
legislation, which is to promote increased trade of goods sourced from 
the region.
    We further note that Senator Graham's bill provides for an 
additional 70 million square meters equivalent (sme) worth of imported 
apparel made of regional knit fabric of U.S. yarn, which would be 
allowed to increase by 16 percent annually over the next three years. 
While ATMI represents yarn spinners who could benefit from this 
provision, we also represent knitters who could be harmed by its 
inclusion.
    Finally, we would like to reiterate our support for a ruling by 
Customs, as stated above, regarding texturing of yarns and dyeing and 
finishing of fabrics under last year's CBI law, and we are still 
waiting for that favorable determination. Because that issue is still 
unresolved, that is another uncertainty that adds to our concerns with 
respect to the expansion of the ATPA.
    In light of all the concerns cited above, and particularly in light 
of reports that this body might seek an even further weakening of the 
Graham bill to the detriment of our members, we are opposed to 
expanding the ATPA to include textiles.
    In closing, Mr. Chairman, ATMI is not opposed to fair and equitable 
trade agreements which establish mutually beneficial trading 
arrangements and thus create a true economic partnership between U.S. 
textile companies and our customers in other regions. That is why we 
supported NAFTA and the Caribbean provisions of last year's trade bill. 
Let's establish a true economic partnership within this hemisphere that 
benefits apparel makers throughout the FTAA region and U.S. textile 
producers.
    Thank you.

                                

    Chairman Crane. Thank you, Mr. Moore. Mr. Lamar.

  STATEMENT OF STEPHEN LAMAR, DIRECTOR, GOVERNMENT RELATIONS, 
 AMERICAN APPAREL AND FOOTWEAR ASSOCIATION, ARLINGTON, VIRGINIA

    Mr. Lamar. Thank you. My name is Steve Lamar and I'm 
Director of government Relations for the American Apparel and 
Footwear Association, the national trade association of the 
apparel and footwear industries.
    Just to give you a sense of where we fit in, our Members 
purchase fabric from companies like those in Mr. Moore's group, 
or we make our own fabric. We then go and make clothing either 
in the United States or abroad, and then we sell the clothing 
ourselves or through companies like those in Mr. Autor's group.
    Thank you for providing our Association the opportunity to 
appear before you today. I would like to focus my comments this 
afternoon on the need for a robust renewal and expansion of the 
ATPA as it relates to the apparel industry.
    The American Apparel and Footwear Association supports 
enhancement of the ATPA to provide additional benefits for 
apparel produced in the Andean Region. Expansion of the current 
ATPA to provide such benefits, to the extent they provide an 
effective incentive to sourcing and production in the region, 
is a natural extension of our policies to promote hemispheric 
integration and to eliminate the economic conditions that 
permit drug trafficking in the Andean Region. Expansion of the 
ATPA is also a key stepping stone to negotiation of a well-
balanced and commercially viable Free Trade Area of the 
Americas, a goal we also support.
    In general, we believe any expansion of the ATPA benefits 
to cover apparel products should incorporate the following 
principles:
    First, the program should be simple to use. As this 
Subcommittee knows all too well, a similar extension of 
benefits to the Caribbean Basin and African countries is mired 
in disputes over arcane and complex rules of origin. Although 
these programs provided important new incentives for apparel 
production and, consequently, U.S. textile and yarn exports--by 
the way, I congratulate the Subcommittee for the leadership 
they exhibited last year in getting this legislation passed--it 
has been difficult to realize fully these incentives because of 
problems in delays and interpreting the law and in promulgating 
rules and regulations.
    Second, the program should be unique to the trading 
relationships with and within the Andean Region. One of the 
goals of the program is to provide legitimate job creation 
opportunities in the region. Such goals are thwarted, however, 
if existing Andean exports to other Andean markets are 
diminished by an overly restrictive rule of origin. Similarly, 
an overly restrictive rule of origin will make it difficult for 
new investments and production--which may depend on Andean, 
Asian or European fabrics--to stimulate job creation.
    Third, the program should promote flexible sourcing of 
apparel and their inputs within a given rule of origin. For 
example, the rule of origin should reflect a negative list of 
goods that cannot qualify for preference, rather than a 
positive list of goods that can. This would ensure maximum 
opportunities to navigate within a particular rule of origin 
and eliminate some of the interpretation problems we have seen 
with regard to the Caribbean Basin and Africa legislation.
    Fourth, the legislation should be of sufficient duration to 
provide meaningful incentives for investment and trade. This is 
especially important if the preferences are subject to 
significant labor, anti-narcotics, and trade conditionality. If 
the countries are going to be required to make long-standing 
commitments to gain better access to the U.S. market, fairness 
dictates that the access be given an equally longstanding 
nature.
    Finally, this legislation should provide a bridge to the 
Free Trade Area of the Americas for the ATPA region. It should 
help prepare countries for their FTAA commitments while 
promoting the kind of trade linkages that will develop and 
strengthen under the FTAA.
    In my written statement I have provided some statistics and 
graphs that highlight features of the ATPA apparel trade 
environment. These statistics show significant differences 
between the ATPA and the CBI regions, suggesting that the CBI 
trade partnership model, per se, may not be the most 
appropriate and effective model for the Andean region. The data 
also show that there are well-developed patterns of input 
sourcing that rely upon other Andean sources, as well as 
sources outside the region.
    Finally, the data emphasize that, although this region is 
not an important sourcing center for the United States, this 
region depends greatly on access to the U.S. market for its 
apparel products.
    In conclusion, I would like to emphasize that the AAFA 
strongly supports expansion of the ATPA to include apparel. A 
number of our members are manufacturing in those countries and 
others have signaled their interest in sourcing from those 
countries in the future if a flexible and easy-to-use program 
is created.
    An ATPA program that is simple, flexible, and accommodates 
and maximizes the natural advantages of the region, will offer 
the best opportunities and incentives for our members to 
commence and expand their trade partnerships with these 
countries. But one that is overly restrictive, or which 
effectively negates the duty savings by imposing additional 
costs, will be largely ignored by our industry.
    Thank you for providing us this opportunity to be here 
today, and I'm available for any questions.
    [The prepared statement of Mr. Lamar follows:]
 Statement of Stephen Lamar, Director, Government Relations, American 
         Apparel and Footwear Association, Arlington, Virginia
    Thank you for providing us the opportunity to discuss the need for 
a ``robust'' renewal and expansion of the Andean Trade Preference Act 
(ATPA) as it relates to the apparel industry.
    The American Apparel and Footwear Association (AAFA)--the national 
trade association of the apparel and footwear industries--supports the 
enhancement of the ATPA to provide additional benefits for apparel 
produced in the Andean region. Expansion of the current ATPA to provide 
such benefits, to the extent that they provide an effective incentive 
to sourcing and production in the region, is a natural extension of our 
policies to promote hemispheric integration and to eliminate the 
economic conditions that permit drug trafficking in the Andean region. 
It is also a key stepping stone to negotiation of a well-balanced and 
commercially viable Free Trade Area of the Americas (FTAA), a goal we 
also support.
    In general, we believe any expansion of the ATPA benefits to cover 
apparel products should incorporate the following principles.
    First, the program should be simple to use. As this Subcommittee 
knows all too well, a similar extension of benefits to the Caribbean 
Basin and African countries is mired in disputes over arcane and 
complex rules of origin. Although those programs provided important new 
incentives for apparel production (and consequently U.S. textile and 
yarn exports), it has been difficult to realize fully these benefits 
created by those incentives because of problems and delays in 
interpreting the law and in promulgating rules and regulations.
    Second, the program should be unique to the trading relationships 
with and within the Andean region. One of the goals of the program is 
to provide legitimate job creation opportunities in the region. Such 
goals are thwarted, however, if Andean exports to other Andean markets 
are diminished by an overly restrictive rule of origin. Similarly, an 
overly restrictive rule of origin will make it difficult for new 
investments and production--which may depend upon Andean, Asian, or EU 
fabrics--to stimulate job creation.
    Third, the program should promote flexible sourcing of apparel and 
their inputs within a given rule of origin. For example, the rule of 
origin should reflect a ``negative list'' of goods that cannot qualify 
for preference rather than a ``positive list'' of goods that can. This 
would ensure maximum opportunities to navigate within a particular rule 
of origin and eliminate some of the narrow interpretation problems we 
have seen with regard to the Caribbean Basin and Africa legislation.
    Fourth, the legislation should be of sufficient duration to provide 
meaningful incentives for investment and trade. This is especially 
important if the preferences are subject to significant labor, anti-
narcotics, and trade conditionality. If the countries are going to be 
required to make long-standing commitments to gain better access to the 
U.S. market, fairness dictates that the access be of an equally long-
standing nature.
    Finally, this legislation should provide a bridge to the Free Trade 
Area of the Americas for the ATPA region. It should help prepare 
countries for their FTAA commitments while promoting the kind of trade 
linkages that will develop and strengthen under the FTAA.
    With these five goals in mind, I would like to provide some 
observations on the textile and apparel industry trade with and in the 
Andean region.
          Apparel trade from the ATPA region is fairly small both in 
        absolute terms and compared with other U.S. imports. In 2000, 
        the United States imported 159.9 million Square Meter 
        Equivalents (SMEs) of apparel from the ATPA region. This 
        represents less than one percent of the total U.S. apparel 
        imports and less than 5 percent of imports when compared 
        against those from the Caribbean Basin Initiative (CBI) 
        countries. At the same time, the U.S. represents a significant 
        market for apparel exports from the ATPA countries. (Figure 1A 
        and 1B).
          ATPA apparel trade is not based on the same production-
        sharing module that is the basis for the CBI countries. In 
        2000, about 35 percent of all apparel imported from the ATPA 
        region was entered under the 807 program (meaning components 
        were cut in the United States). Because there is no special 
        access program in place with the ATPA countries, no apparel was 
        entered under an 807A-style program (which requires the use of 
        U.S. fabric). In contrast, in 2000, at least 82 percent of 
        apparel imported from the CBI was entered under a program that 
        requires U.S. components, with a large portion of that 
        requiring U.S. fabric. (Figure 2).
          When examining the make up of the ATPA's production sharing 
        trade, it becomes clear that Colombia, the largest source of 
        overall apparel imports from the Andean region, is the dominant 
        player. More than 91 percent of all ATPA production sharing 
        trade with the United States takes place with Colombia. 
        Although once a dominant part of Colombia's trade with the 
        United States, 807 trade has diminished in recent years as 
        Colombia has repositioned itself away from the production 
        sharing trade. From 1997 to 2000, the percentage of Colombia's 
        production sharing trade with the United States dropped from 80 
        percent to less than 55 percent of all apparel exports to 
        Colombia. (Figure 3).
          Apparel imported from the Andean countries is generally more 
        expensive than that imported from the CBI countries. ATPA woven 
        apparel is approximately 25 percent more expensive (when 
        examining $/Kg for Chapter 62 imports) than similar goods from 
        the CBI region. ATPA knit apparel is approximately 75 percent 
        more expensive than similar goods imported from the CBI region. 
        Conversations with manufacturers in the region attribute a 
        variety of factors to this cost increase, including security 
        expenses, transportation costs, higher labor costs, and higher 
        prices commanded by certain apparel products made with 
        specialty fabrics (Figures 4A and 4B).
          In general, the Andean countries import fabrics from a 
        variety of sources. During 1997, the last year that such 
        figures are available from the OAS, the U.S. was a leading 
        supplier of fabric, yarns, and fibers to the Andean region. 
        However, Andean countries imported significant quantities of 
        fabrics, yarns, and fibers from within the Andean region and 
        from countries in Asia and Europe, depending upon individual 
        fabric requirements. For example, fine woolen fabrics for 
        tailored clothing are sourced in Europe because of diminished 
        sources of U.S. woolen fabrics and because the Andean woolen 
        fabrics are not of sufficient quality for those particular 
        garments. Cotton fabrics are sourced in the Andean region 
        (primarily Peru and Colombia) and the United States, which has 
        an established presence in all markets. Man made fiber fabrics 
        are sourced in various regions, including the United States and 
        Asia (Figures 5A, 5B and 5C).
          Looking at it another way, Andean countries represent a 
        significant export market for fabrics from other Andean 
        countries. Bolivia, for example, relies upon other Andean 
        countries to consume about a third of its wool fabric exports. 
        Similarly, Colombia and Peru have significant export markets in 
        the region for cotton and some man made fibers. These figures, 
        of course, do not include fabrics produced and consumed 
        entirely within a single Andean country.(Figure 6).
    Together, these statistics show significant differences between the 
ATPA region and the CBI region, suggesting that the CBI trade 
partnership model per se may not be the most appropriate and effective 
model for the Andean region. The data also show that there are well-
developed patterns of input sourcing that rely upon other Andean 
sources as well as sources outside the region. Finally, the data 
emphasize that, although this region is not an important sourcing 
center for the United States, this region depends greatly on access to 
the U.S. market for its apparel products.
    In conclusion, I would like to emphasize that the AAFA strongly 
supports expansion of the ATPA to include apparel. A number of our 
members are manufacturing in those countries and others have signaled 
their interest in sourcing from those countries in the future if a 
flexible and easy to use program is created. An ATPA program that is 
simple, flexible, and accommodates and maximizes the natural advantages 
of the region will offer the best opportunities and incentives for our 
members to commence and expand their trade partnerships with these 
countries. But one that is overly restrictive, or which effectively 
negates the duty savings by imposing additional components, compliance 
and logistical costs, will be largely ignored by our industry.
    Thank you for providing us this opportunity. I am available to 
answer any questions.

[GRAPHIC] [TIFF OMITTED] T4222A.019

[GRAPHIC] [TIFF OMITTED] T4222A.020

[GRAPHIC] [TIFF OMITTED] T4222A.021

[GRAPHIC] [TIFF OMITTED] T4222A.022

[GRAPHIC] [TIFF OMITTED] T4222A.023

[GRAPHIC] [TIFF OMITTED] T4222A.024

[GRAPHIC] [TIFF OMITTED] T4222A.025

[GRAPHIC] [TIFF OMITTED] T4222A.027

[GRAPHIC] [TIFF OMITTED] T4222A.028

                                


    Chairman Crane. Thank you, Mr. Lamar. Mr. Autor.

STATEMENT OF ERIK AUTOR, VICE PRESIDENT AND INTERNATIONAL TRADE 
              COUNSEL, NATIONAL RETAIL FEDERATION

    Mr. Autor. Thank you, Mr. Chairman.
    My name is Erik Autor. I am Vice President and 
International Trade Counsel with the National Retail 
Federation. The National Retail Federation appreciates the 
opportunity to present the views of the U.S. retail industry on 
an enhanced Andean initiative and on the Free Trade Area of the 
Americas.
    NRF is the Nation's largest trade association representing 
the retail industry. NRF Member companies cover the entire 
spectrum of retailing, including department, specialty, 
discount, catalogue, Internet and independent retailers. U.S. 
retailers employ 23 million Americans, about one in five 
workers in this country, and registered sales in 2000 of over 
$3 trillion.
    First of all, I would like to associate myself with Mr. 
Lamar's comments. We discuss the retail industry's views on the 
FTAA in our written statement, and, in the interest of time, I 
shall focus my remarks on the Andean initiative, which we view 
as a building block to the FTAA.
    An Andean initiative should advance the larger U.S. policy 
goals for the Andean region: stopping narcotics production and 
trafficking, and promoting political and economic stability. To 
reflect those larger goals, we believe this initiative should 
be called the Andean Regional Stabilization and Development 
Act. It is doubtful, however, that these goals can be achieved 
without a trade program that provides economic options and 
opportunities for the people of the region.
    Currently, workers and farmers in the Andean countries have 
few decent employment opportunities in legitimate industries. 
An Andean initiative that includes trade preferences for 
apparel could quickly provide thousands of jobs for these 
people, particularly women. These jobs would not threaten U.S. 
production or jobs. The Andean countries are small suppliers to 
the United States market, at less than 1 percent of imports, 
and are likely to remain so for the foreseeable future.
    By providing needed business and investment, U.S. retailers 
can play an important role in helping to develop an integrated 
textile and apparel industry in the region. U.S. retailers are 
interested in new apparel sourcing opportunities in the Andean 
region, but that new business will be created if, and only if, 
the right incentives are in place.
    In structuring a trade preferences program for apparel, the 
Caribbean Basin Trade Initiative that Congress passed last year 
is not an appropriate model for the Andean region. Looking at 
their competitiveness, the cost of doing business, the 
structure of their textile and apparel industries, the size and 
patterns of trade, the Andean countries have more in common 
with sub-Saharan Africa than the Caribbean Basin region.
    In our view, a viable textile and apparel trade program for 
the Andean countries must be simple to use and structured to 
recognize the unique problems and needs of the Andean region. 
It must avoid complex rules of origin and eligibility 
restrictions that become disincentives for using the program. I 
have in mind here restrictions that require the use of only 
U.S. inputs, such as yarn and fabric, or require that certain 
production operations occur only in the United States, such as 
dyeing and finishing of yarn and fabric.
    A viable textile and apparel trade program must also 
provide sufficient incentives for retailers and other U.S. 
businesses to use the program. Under a viable trade program, we 
believe that trade preferences should apply to any apparel 
assembled or knit-to-shape in one or more Andean countries from 
inputs produced in the United States and/or one or more Andean 
countries that provide the essential characteristics to that 
apparel; from yarn or fabric, regardless of origin, determined 
to be in short supply, and yarn and fabric produced outside the 
United States and the Andean region subject to reasonable 
limitations, to encourage the development of an integrated 
textile and apparel industry in the region.
    U.S. retailers want to see trade with the Andean region 
grow, and by increasing their business in the region, are 
prepared to play a role in furthering the larger U.S. policy 
goals for the region. However, retailers have other sourcing 
options in places where, quite frankly, it is easier to do 
business--Asia, Mexico, and the Caribbean Basin. Without 
adequate incentives in place, retailers will go elsewhere and 
there will be no new business in the Andean region.
    If the incentives are insufficient to attract U.S. 
retailers, who sell clothing, to do more business in the 
region, the result will be lost business opportunities for U.S. 
cotton growers, yarn spinners, fabric producers and apparel 
manufacturers, who make clothing and the inputs for producing 
clothing, as well as producers and workers in the region.
    More importantly, the likelihood of achieving our country's 
larger foreign economic and drug policy goals for the region 
would be diminished.
    Thank you for the opportunity to speak before the 
Subcommittee.
    [The prepared statement of Mr. Autor follows:]

    Statement of Erik Autor, Vice President and International Trade 
                  Counsel, National Retail Federation

I. Introduction
    My name is Erik Autor. I am a Vice President and International 
Trade Counsel for the National Retail Federation (NRF). NRF is the 
nation's largest trade association representing the U.S. retail 
industry. NRF members cover the entire spectrum of retailing--
department, specialty, discount, catalog, Internet, and independent 
stores--and also include 32 national retail associations and all 50 
state retail associations. NRF speaks for an industry that encompasses 
over 1.4 million retail establishments, employs more than 23 million 
people--about 1 in 5 American workers, and registered sales of over $3 
trillion in 2000.
    NRF and the U.S. retail industry strongly support the negotiation 
of a Free Trade Agreement of the Americas (FTAA), and expanding the 
current trade program through the Andean Trade Preferences Act (ATPA) 
as an important stepping-stone towards creation of the FTAA. Initially, 
we would make the following general points on these initiatives:
     With respect to the Andean program, a ``robust'' trade 
initiative is critical to achieving the larger U.S. foreign, economic, 
and drug policy goals for the region.
     An essential component of a ``robust'' Andean trade 
initiative is to provide trade benefits for apparel products produced 
in the Andean region with strong incentives to encourage U.S. 
investment and business in the region and create jobs in legitimate 
industries.
     With respect to the FTAA, NRF strongly believes that the 
Administration should not exclude any issue, including the U.S. trade 
laws, from the negotiating agenda.

II. The Andean Regional Initiative
    It should first be emphasized that the United States has critical 
foreign policy interests in the Andean Region. This region is the most 
politically and economically unstable area in the hemisphere and is a 
major production point for illegal narcotics smuggled into this 
country. Economic and political instability has also resulted in an 
increase in illegal aliens coming into the United States from countries 
in the region. It is, therefore, in the interests of the United States 
to implement policies that will effectively address these problems--
curtail the production and trafficking of illegal narcotics, encourage 
political and economic stability in the Andean countries, help build 
democratic institutions, foster market-based economic reforms, generate 
economic growth, and create decent employment opportunities in 
legitimate industries.
    With these larger goals in mind, we do not believe that an expanded 
Andean initiative should be seen primarily as a unilateral trade 
preferences program and certainly not mainly as a textile and apparel 
trade initiative. Bigger issues are at stake. Indeed, we might even 
suggest that the Congress consider a new name for this initiative--The 
Andean Regional Stabilization and Development Act (ARSDA).
    That being said, we believe it will be difficult, if not impossible 
to achieve these larger policy goals without a trade component that 
will actually work to encourage U.S. investment and trade with the 
region. Only U.S. trade and investment can provide the capital 
necessary to reverse the massive unemployment in the Andean countries 
and create economic and employment opportunities in legitimate 
industries as an alternative to coca production and narcotics 
trafficking.
    On this point, U.S. retailers can play an important role. Many 
retailers are interested in new apparel sourcing opportunities in the 
Andean region. The countries of the Andean region--Colombia, Peru, 
Ecuador, and Bolivia--have integrated textile and apparel industries 
that, while comparatively small, produce high-quality cotton knit 
shirts and trousers, baby garments, and specialty items, such as 
swimwear. However, to increase sourcing of apparel in the region, 
retailers need the right incentives in place. The obstacles to doing 
business in much of the Andean region are daunting. Crime, corruption 
fed by the insidious influence of narco-traffickers, political 
instability, and lack of adequate infrastructure present huge 
disincentives for American companies doing business in the region when 
other alternatives in Asia, Mexico, and the Caribbean Basin are 
available. However, the picture is not all bleak. As the example of the 
development of a thriving cut flower industry in Colombia and other 
Andean countries demonstrates, when the right incentives are in place, 
legitimate industries can grow and prosper in the region.
    Other than a handful of industries, like cut flowers, workers in 
the Andean countries currently have few decent employment 
opportunities. Many peasants in the Andean highlands have few economic 
alternatives to growing coca. However, the members of the drug cartels 
take the lion's share of the profits from drug trafficking, not the 
peasant growers, most of whom survive at a bare subsistence level. The 
region also has large unemployed and underemployed urban populations. 
Moreover, jobs in the region's existing apparel industry are threatened 
as companies have begun moving production to Mexico and countries in 
the Caribbean Basin, which are more competitive than the Andean region, 
have closer proximity to the U.S. market, and can take advantage of 
existing trade preferences under the NAFTA, the U.S.-Caribbean Basin 
Trade Partnership Act (CBTPA) and the Caribbean Basin Initiative (CBI).
    Increased trade with the United States would lead to the building 
of new textile and particularly apparel factories that would quickly 
provide jobs to thousands of rural peasants and urban workers. 
Following the current pattern in developing countries, jobs in these 
factories would pay wages at higher levels than the national average 
wage. They would also provide employment opportunities, particularly 
for women. The pattern of economic development in every country, 
including the United States and Japan, has shown that the establishment 
of a viable textile and apparel industry has always been the first rung 
on the ladder to creating a modern, industrial economy. The pattern has 
also shown, that giving women employment opportunities and control over 
their family's finances is the best way to provide people in developing 
countries the economic resources to move up the economic ladder and 
obtain marketable education and training.
    It is important that we take quick action to stop the flight of 
apparel production from Colombia to Mexico and the Caribbean Basin and 
make the textile and apparel industries in the Andean region more 
competitive. Like the sub-Saharan African countries, the small textile 
and apparel producers in the Andean region are likely to be big losers 
to the more efficient producers in Asia once textile and apparel quotas 
are eliminated at the end of 2004. Just as AGOA has given the sub-
Saharan African countries a fighting chance to get into the game, we 
need an Andean initiative that will allow the textile and apparel 
producers in the region to become more competitive and attractive to 
U.S. business in preparation for a quota-free world in 2005. This goal 
cannot be achieved without a sensible, incentive based textile and 
apparel program.
    It should be emphasized that an increase in textile and apparel 
jobs and production in the Andean region does not threaten U.S. jobs. 
In 2000, American consumers spent about $300 billion on apparel. U.S. 
textile and apparel imports from the ATPA region totaled just $831 
million (before markup) or about 0.5 percent of the U.S. market. This 
level of trade is comparable to that of the sub-Saharan region. In 
contrast, Mexico and the Caribbean Basin region account for 27 percent 
of total U.S. textile and apparel imports. Therefore, for the 
foreseeable future, it is evident that, the Andean region is likely to 
be a comparatively small, niche player in supplying apparel to the 
United States and that any sourcing shifts created as a result of 
increased trade with the Andean countries will come at the expense of 
other foreign producers, most likely in Asia.
    The question arises--what incentives would U.S. retailers need to 
increase sourcing and investment in the Andean region? The experience 
of the CBTPA over the last year provides us some useful lessons. 
Unfortunately, with the CBTPA we have faced a host of implementation 
problems, in which the Customs Service has interpreted most ambiguities 
in the language in the most trade restrictive way. Moreover, the 
complex rules of origin, exclusions of certain categories of apparel 
made from regional fabric, quantitative limitations on categories of 
eligible apparel products made from regional fabric, and weak short-
supply procedures, have proven to be disincentives for retailers in 
using the program. As a result, U.S. retailers, apparel manufacturers, 
textile and apparel importers, yarn spinners, cotton growers, and 
fabric manufacturers, as well as the Caribbean Basin countries have 
been so far disappointed that the program has failed to generate as 
much trade as hoped.
    The potential problems that could arise in constructing the Andean 
initiative are of even greater concern. With their competitive 
handicaps vis-a-vis the Caribbean Basin countries, it is clear that if 
Congress merely provides the Andean countries the same trade benefits 
as under the CBTPA, there will be no new trade and investment. In order 
to avoid the problems in the CBTPA legislation and create a viable 
program that would be more than window dressing, the trade preferences 
for apparel must be simple, easy to use, and provide more generous 
level of incentives than are available under the CBTPA. Specifically, 
we would advocate that the Andean program provide trade preferences to 
any apparel assembled or knit-to-shape in one or more Andean countries 
from:
     Inputs (yarn and fabric) produced in the United States 
and/or one or more Andean countries.
     Yarn or fabric regardless of origin that is determined to 
be in short supply.
     Yarn and fabric produced outside the United States and the 
Andean region subject to reasonable limitations.
    Without such incentives, U.S. retailers will not increase sourcing 
and investment in the Andean countries and will continue to source 
largely from Asia, Mexico, and the Caribbean Basin. If the incentives 
in the program are insufficient to attract U.S. retailers, it will also 
mean lost business opportunities for U.S. cotton growers, yarn 
spinners, and fabric producers, and apparel manufacturers. If the 
companies that sell apparel at retail in the U.S. are not doing 
business in the region, then the U.S. suppliers of inputs to make that 
apparel will not have any new business in the region. But, more 
disturbingly, without the business of U.S. retailers in the Andean 
countries, the likelihood of achieving our country's larger foreign, 
economic, and drug policy goals for the region is also diminished.

II. The Free Trade Area of the Americas
    It is our view that regional trade initiatives such as the CBTPA 
and the Andean initiative can serve as important building blocks for 
negotiation of the Free Trade Area of the Americas (FTAA). NRF has been 
a strong supporter of the FTAA since its inception, under the Clinton 
Administration, and its predecessor, the Enterprise for the Americas 
Initiative, under the first Bush Administration.
    In the FTAA and other trade negotiations, some domestic industries 
have pressured U.S. negotiators to take certain issues, such as the 
U.S. trade laws, off the table. It is widely held that, in trying to 
develop a negotiating agenda for the next round at the World Trade 
Organization (WTO), use of this tactic played a key role in the failure 
of the WTO Ministerial in Seattle. Therefore, as a negotiating 
strategy, we strongly urge the Bush Administration not to tie their 
hands by excluding any issue, and especially trade remedies laws, from 
the FTAA negotiating agenda.
    As a substantive matter, application of the antidumping law is 
frequently defended on the basis that foreign producers are using 
protected "sanctuary" home markets as a way to subsidize their foreign 
exports at dumped prices. Since a free trade agreement would eliminate 
the ability of a producer to create a sanctuary home market, we believe 
that the application of the antidumping laws is an appropriate topic of 
discussion in negotiations on free trade agreements.
    We are also of the opinion that, with the elimination of the global 
textile and apparel quotas in less than four years, the inclusion of 
any special protections for the textile and apparel sector in the FTAA 
negotiations is unwarranted. We are particularly concerned about an 
unduly long phase out of textile and apparel duties, burdensome textile 
and apparel rules of origin (often in the guise of addressing illegal 
transshipment) that inhibit rather than encourage trade, and special 
safeguards that apply only to textiles and apparel. If we are serious 
about eliminating trade barriers and liberalizing trade across the 
board in free trade agreements, then we need to seriously address the 
remaining trade barriers on textiles and apparel, including U.S. duties 
that average 16 percent on these products.

                                


    Chairman Crane. Thank you, Mr. Autor.
    Before we get to questions, let me remind colleagues on the 
Committee here that tomorrow our Andean Trade Ministers have 
agreed to meet with us, with the full Committee on Ways and 
Means, and we're looking forward to that meeting. So we will 
reserve questions for you folks until we sit with you tomorrow. 
Anyone who has any questions for our other witnesses, since we 
have to be out of here in approximately eight minutes, I will 
start with Mr. Rangel.
    Mr. Rangel. I will yield, Mr. Chairman.
    Chairman Crane. Mr. Rangel yields back his time. Mr. Levin.
    Mr. Levin. Thank you very much.
    Let me just ask one question, because, as mentioned, we are 
going to have the opportunity to meet with the Trade Ministers 
tomorrow. If I might then focus a question on those of you who 
won't be here tomorrow. Again, thank you for your testimony. I 
think you have helped to focus this discussion very well, all 
of you. You clearly have somewhat different interests in mind, 
and that is what this is all about, seeing how we can talk 
about apparel and fabrics and piece them together.
    Mr. Moore, let me ask you, so that I'm clear, and my 
colleagues are clear, in your testimony--and we won't have time 
to go into a lot of detail, but let's just spend a minute or 
two probing this. You say at the bottom of the third page, ``If 
the U.S. is to grant the Andean countries greater access to our 
markets on a unilateral basis--'' and any Andean agreement, I 
suppose, would be unilateral, though eventually part of a 
multilateral agreement ``--the principles of fairness and 
reciprocity demand that only U.S., textile components be 
used.'' Then you go on to conclude that, in light of the 
concerns that you've laid out, particularly in light of reports 
that this body might seek an even further weakening of the 
Graham bill, to the detriment of your Members, you are opposed 
to expanding the ATPA to include textiles. Let me, if I might, 
just ask you a question or two about that.
    As I understand it, there is, within the Andean countries, 
some considerable use of materials, or fabric, that doesn't 
compete with that produced in the United States. There is some 
of that, isn't there?
    Mr. Moore. Certainly there is some, and we never suggested 
there was no textile production in the Andean countries.
    Mr. Levin. But there is some production there of fabric 
that isn't made in the United States--in other words, it's not 
competitive with American production of materials or fabric? Or 
am I wrong?
    Mr. Moore. There may be. There may be some exotic fibers 
that we don't process here. But I'm not aware of a lot of 
fabrics that are made in the Andean countries that we do not 
make.
    Mr. Levin. So you're saying there isn't any substantial 
material, fabric, that is made in the Andean region which is 
not also made in the United States?
    Mr. Moore. There may be some, I said, but----
    Mr. Levin. But you think it's small?
    Mr. Moore. As I said, maybe some exotic fibers, but in both 
the NAFTA and CBI law, there were provisions to exclude fabrics 
that were not made at all in the United States. So we would not 
be opposed to----
    Mr. Levin. You wouldn't be opposed to that kind of 
provision?
    Mr. Moore. No. It was other provisions we were concerned 
about.
    Mr. Levin. Mr. Chairman, our time is running out. We have 
just started on this today and I know we'll work on it further. 
Thank you. It has been an excellent panel, and thank you for 
your patience.
    Chairman Crane. I think Minister Ramirez wanted to respond 
to your question.
    Mr. Levin. Okay. I didn't want to take up the time of my 
other colleagues for questions. Please.
    Ms. Ramirez. Mr. Chairman, thank you, and thank you, 
Congressman Levin.
    I just want to add something to Mr. Moore's comments. This 
is not only a question about exotic fibers. This is also a 
question about some specific fibers and jobs that we are doing 
with some American raw materials. In the case of cotton, for 
example, we are importing into the Andean region something 
close to $80 million of cotton from the United States. We are 
using this cotton in order to produce jobs and textiles. So 
these textiles can be used for a Colombian or Peruvian or 
Equadorian or Bolivian apparel that we are expecting to export 
to the United States. So that's why I like very much the 
association of retailers proposal, in order to have a regional 
content that permits us to use Colombian fibers or regional 
fibers made with some of the American raw materials, which 
gives the United States also the benefit of including some of 
your goods in the apparel that we are going to export to you 
with preferential access. So this is not only exotic fibers. 
These are regular fibers that we are expecting to use also. 
Thank you.
    Chairman Crane. Thank you.
    Mr. Levin. Mr. Moore, do you want to briefly comment?
    Mr. Moore. Well, that was my point. As I mentioned, our 
industry is really being clobbered right now with several major 
developments that have occurred in the last year--the slowdown 
of the economy and the imports that continue from countries 
that keep their own markets closed. We are facing bankruptcies, 
two this week, and one mill was closed by creditors. We lost 
over 25,000 jobs last year, and thousands this year.
    Now, the ATPA is a true unilateral grant of access to the 
U.S. market. We're not talking about this in the FTAA context. 
We recognize in the FTAA context that that's a two-way deal, 
like NAFTA is. But in a unilateral grant, we do not want to 
endanger our workers and our production any further. We think 
there can be gains for both under the CBI model, gains in U.S. 
textile production and in U.S. textile employment, and gains in 
apparel production and employment in the Andean region.
    So that is the position that we are taking. We are being 
hammered right now, very badly, and when you look at job losses 
of thousands and thousands in one year, and the first loss on 
sales that our industry has ever sustained in modern times--a 
$500 million loss in 2000--we believe that you need to 
structure an agreement so that you can provide some incentive 
for growth and survival for our industry.
    Mr. Levin. Thank you.
    Chairman Crane. Let me thank all of our panelists. 
Unfortunately, we are going into session and it's my 
understanding we will have a recorded vote on the floor very 
soon, if not immediately. But I want to express appreciation to 
all of you for participating as panelists today. We are sorry 
for the program running as long as it did, and for our 
Ministers here from the Andean countries, we look forward to 
seeing you tomorrow.
    Thank you all. The Subcommittee standards adjourned.
    [Whereupon, at 6:02 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

            Statement of the American Farm Bureau Federation

    The American Farm Bureau Federation is the nation's largest 
agricultural organization with over five million member families. Our 
members produce every crop raised in America and depend on exports for 
over one-third of their total production.
    Negotiations now underway in the Free Trade Area of the Americas 
are important to our members from both an import and export 
perspective. This agreement will create an open market of 34 countries. 
Several of these nations produce many of the same commodities that we 
grow in America. According to a recent U.S. Department of Agricultural 
report, the commodities that are expected to benefit from an FTAA 
include wheat, soybeans, cotton and corn. Conversely, increased 
competition in the U.S. market could substantially affect U.S. sugar, 
peanut and orange juice producers. Producers from these countries 
already enjoy significant access to our market and also compete with us 
in the international marketplace. It is imperative that U.S. producers 
begin to enjoy access to the FTAA markets on equal terms.
    We also view the FTAA as an opportunity to apply the trade lessons 
we learned from the North American Free Trade Agreement. On average, 
NAFTA has significantly benefited the U.S. agricultural sector. When 
you take a closer look at specific commodities, however, there have 
been some winners and losers. While we cannot expect significant gains 
for all commodities in all trade agreements, we can, and must, ensure 
that the rules that are adopted as part of the FTAA result in fair 
trading opportunities. To this end, we have requested that special 
safeguards be implemented in the FTAA for perishable commodities that 
account for seasonality and regionality.
    Recognizing the importance of achieving such an agreement, the Farm 
Bureau believes very effort must be made to develop negotiating 
consensus in the Western Hemisphere that underscores the objectives the 
United States seeks to achieve in the WTO negotiations. Although 
important gains can be made in the FTAA including eliminating export 
subsidies, disciplining state trading enterprises and ensuring market 
access for bioengineered commodities, the real gains from trade are 
more likely to be achieved in the WTO negotiations on agriculture.
    Most importantly, any agreement reached in the FTAA must recognize 
the existing rights and obligations of the General Agreement on Tariffs 
and Trade (GATT) 1994 as provided in the Marrakesh Declaration, which 
established the WTO. Agreements reached as a result of the FTAA 
negotiations should in no way subordinate or prejudice member parties' 
WTO commitments.
    The Farm Bureau supports adoption of the following general 
objectives for the FTAA negotiations:
     Require compliance with existing WTO commitments of all 
WTO-member trading partners in the FTAA.
     Stipulate that no signatory should be permitted to protect 
or exclude any sector, or commodity within that sector, from meeting 
the terms of the agreement.
     Provide for the continued and regular use of private 
commodity and trade policy advisory group input into the FTAA 
negotiation process.
General Market Access:
Customs Procedures:
     Develop equivalent customs procedures to facilitate the 
flow of traded products and minimize market disrupting commercial 
disputes.
Rules of Origin:
     Establish standardized rules of origin.
Agricultural Market Access:
     Allow for adoption of zero-for-zero sectoral initiatives 
where commodity specific support for such an approach exists.
     Improve the administration of tariff-rate quotas to 
increase the transparency and predictability of market access 
opportunities.
     Eliminate nontariff barriers to trade in agricultural 
products, including, but not limited to: domestic absorption 
requirements (barring market access until the domestic supply of a 
commodity is exhausted); price pooling of domestically supplied and 
exported products; discriminatory licensing procedures, reference price 
calculations that overstate the value of imports, product certification 
and labeling procedures that discriminate against approved exports and 
sanitary and phytosanitary measures that are not science-based.
Export Subsidies:
     FTAA member countries should eliminate export subsidies as 
called for in the San Jose Ministerial Declaration by FTAA Ministers.
     FTAA signatories should call for the elimination of export 
subsidies in the WTO negotiations on agriculture.
Domestic Support:
     Domestic support negotiations should take place in the WTO 
and not in the FTAA.
Additional Agricultural Objectives:
     Develop principles for the immediate, unrestricted, 
science-based trade of agricultural products produced with genetically 
modified organisms.
     Obligate signatory countries to adhere to science-based 
sanitary and phytosanitary measures in accordance with the WTO 
Agreement on Sanitary and Phytosanitary Measures and require all FTAA 
countries to come into full compliance with its provisions.
     Eliminate state trading enterprises or adopt disciplines 
that require full transparency of STEs that operate in the region.
     Institute special safeguard provisions that remedy price 
depressing import surges of perishable commodities in a quick and 
efficient manner and establish disciplines that address seasonal and 
regional import surges for agricultural products.
     FTAA countries should support the harmonization of 
labeling requirements and product certification procedures (including 
harmonization of pesticide registration requirements) in regional and 
international standard setting bodies.
     Promote the development of science-based international 
standards in recognized regional and international standard setting 
bodies.

Dispute Resolution:
     Develop expedited dispute resolution procedures and 
processes for perishable commodities.
     FTAA dispute settlement procedures should provide strong 
provisions for compliance with dispute settlement rulings and should 
facilitate trade.

Environment and Labor:
     Environment and labor issues that restrict trade should 
not be included in the agreement.
    The United States, in negotiating the FTAA, should insist on strict 
implementation of international trading rules to prevent unfair 
practices by countries in the hemisphere and to ensure unrestricted 
access to these important markets. This agreement, as with all others, 
should be continually evaluated with emphasis on fair trade as well as 
free trade.

Andean Trade Preferences Act (ATPA)
    Farm Bureau will not support renewal of the ATPA unless certain 
import sensitive products such as asparagus are excluded. The act 
should only be renewed if this exclusion is granted and a competitive 
trigger similar to that of the Generalized System of Preferences (GSP) 
is implemented that eliminates the tariff preference once a country 
becomes internationally competitive in a specific commodity and the 
safeguard mechanism for perishable products is improved.
    While the objectives of the ATPA are laudable, U.S. producers 
should not be put out of business as a result of the Act. Considerable 
injury to U.S. producers resulted from the duty-free importation of cut 
flowers under the ATPA and the same scenario is beginning to unfold for 
our asparagus producers.
    Providing duty-free treatment for imports from Andean countries--
Bolivia, Colombia, Ecuador and Peru--has measurably affected trade in 
certain horticultural products and has had a significant impact on 
domestic production of those commodities. For example, the duty-free 
treatment provided to asparagus growers in Peru has further enhanced an 
already competitive industry that existed in Peru prior to enactment of 
the ATPA. Once a small industry in the early 1980's, Peru has become 
the world's largest producer and exporter of asparagus. Asparagus is 
Peru's second largest agricultural export item with about $130 million 
in annual export earnings.
    Asparagus imports from Peru have grown more than ten-fold since 
1990. Imports of Peruvian asparagus, predominantly for the fresh 
market, have more than doubled in the last three years. Steady 
increases in Peruvian asparagus imports are expected for the next 
several years. The U.S. market absorbs up to 80 percent of the Peruvian 
fresh asparagus crop. In addition, a sizeable asparagus processing 
industry exists in Peru. Although most of the processed product is 
white asparagus destined for European markets, significant quantities 
of green asparagus are now being diverted to frozen utilization.
    U.S. industry sources indicate that five to 10 million pounds of 
Peruvian frozen asparagus have been made available to the U.S. market 
in the past year. Imports of this magnitude are significant because the 
total U.S. market for frozen asparagus is only 10 million pounds 
annually. Duty free access for Peruvian frozen asparagus has 
exacerbated the situation. Peruvian imports are displacing U.S. frozen 
asparagus production at an alarming rate.
    Peru produces asparagus for two distinct markets: green asparagus 
(primarily fresh, with an increasing portion dedicated to frozen/
processed product) for the U.S. market and processed white asparagus 
for the European market. Peruvian cultivation of asparagus occurs year 
round with very high yields per acre experienced by its growers.
    The extent to which the ATPA has advanced narcotics eradication in 
Peru is highly questionable largely because cultivation of asparagus in 
Peru occurs in the desert region along Peru's coastline, not in the 
foothills and mountains where Peruvian drug cultivation is known to 
exist.
    Farm Bureau believes that duty-free treatment should not be 
accorded under the ATPA for specific commodities wherein a country is 
deemed economically competitive. The determination of economic 
competitiveness should follow the criteria now used in the Generalized 
System of Preferences program requirements.
    The GSP competitive need limitation revokes duty-free treatment for 
certain goods once that article/commodity accounts for 50 percent or 
more of the total value of imports of that commodity or exceeds a pre-
established dollar value (in 1996 the value was set at $75 million). 
Once GSP treatment is revoked for a commodity, the tariff for that 
product reverts to the MFN level.
    Instituting this change would support the objective of the ATPA of 
providing economic alternatives to narcotics production, but would not 
allow foreign imports to put U.S. producers out of business in the 
process.
    Second, a safeguard mechanism should be instituted to address 
import surges of perishable agricultural commodities. Import surges can 
be extremely disruptive to U.S. agricultural markets, especially 
considering seasonality concerns and the price variability of 
perishable agricultural products. Criteria now exist in the NAFTA and 
the WTO agreement on agriculture that enable safeguard actions to be 
taken under specified conditions. Certain trade remedies, such as the 
U.S. 201 law, allow the administration to take action to mitigate 
import surges when they are determined to be causing or threatening 
injury to U.S. producers. However, imports from ATPA and other 
countries are exempt from consideration in the investigation of 201 
cases.
    In order to address the often irreparable damage caused to U.S. 
producers of perishable products due to import surges, we request that 
any extension or renewal of the ATPA include an automatic, transparent, 
and temporary safeguard mechanism. The safeguard mechanism would 
provide much needed import relief to U.S. producers being injured by an 
import surge and would still provide market access for ATPA beneficiary 
countries during the remedy phase.
    Farm Bureau appreciates this opportunity to comment on the Free 
Trade Area of the Americas and the Andean Trade Preferences Act.

                                


    [By permission of the Chairman.]

  Statement of Asociacion De Exportadores De Prendas De Vestir A Los 
                 Estados Unidos De America, Lima, Peru

    Mr. Chairman, the Association of Apparel Exporters to the United 
States (EXPORAMERICA) is a non-profit association compromised of 
private Peruvian companies that export apparel to the United States. 
Our members create jobs in the clothing sector that are instrumental in 
battling illegal drug production and trafficking. We are pleased that 
an extension and expansion of the Andean Trade Preferences Act (ATPA) 
is on the Committee's agenda. We look forward to working with the 
Committee on an ATPA that benefits all four Andean nations in order to 
reduce the drug trade by strengthening the local legal economies.
    The ATPA was enacted on December 4, 1991 to authorize preferential 
trade benefits for the Andean nations. The purpose of the ATPA is to 
expand economic incentives to assist Bolivia, Ecuador, Colombia, and 
Peru to generate an alternative to employment in the drug production 
and trade. The goal is to increase legal employment through exports to 
the United States market. The beneficiary countries have to meet 
criteria for cooperating in the drug war. Duty-free treatment only 
applies to certain products. The product list does not include textiles 
and apparel. Yet, these products create many farming and manufacturing 
jobs that provide alternatives to work in the coca fields. The ATPA 
expires on December 4, 2001. It is essential that the ATPA be extended 
and expanded promptly.
    The ATPA has had only a moderate impact in generating new 
employment opportunities in Peru because textiles and apparel are 
excluded from duty free treatment. Textiles and apparel are the 
principal industrialized exports to the U.S.A. Peruvian products that 
currently benefit from the ATPA are mostly minerals that do not involve 
an intensive labor process and have very low import duties. By 
contrast, we have a fully integrated and highly efficient apparel 
industry that creates many jobs vital to the fight against drugs. Most 
apparel from Peru and Bolivia is made from high quality, locally grown 
cotton or from llama or alpaca that is native to the region. The use of 
cotton grown in Peru and Bolivia is an essential part of our industry. 
Cotton is an important alternative crop to the coca and provides an 
important source of lawful employment for both our agricultural and 
factory workers.
    Recently, the Trade Ministers of the Andean community at a meeting 
in Lima stated their joint position on the inclusion of textile 
apparels in the ATPA in a document called ``Position of the Andean 
Community to the Andean Trade Preference Act.'' The Trade Ministers 
believe that textiles and apparel should be included in the ATPA and 
more specifically, ``the expansion of the coverage of the ATPA should 
not be conditioned to regulations regarding the origin of raw materials 
that restrict the access of our textiles and apparel.''
    Hundreds of thousand of jobs are at stake. The Trade and 
Development Act of 2000 now provides the Caribbean Countries with 
preferential tariff treatment for certain textile and apparel products. 
This expansion of benefits to CBI countries places Andean farmers and 
manufacturers at a competitive disadvantage and threatens to undermine 
the drug war. Peru's textiles sector supports 32 percent of the 
population employed in the manufacturing industry, which amounts to 
approximately 180,500 jobs. Another 200,000 jobs are in the agriculture 
industry. Workers who would otherwise have lawful jobs will be left 
without an alternative to coca production, if our industry continues to 
be at a competitive disadvantage due to high tariff barriers in the 
United States.
    Expanding the ATPA to include textiles and apparel would not have a 
substantial negative impact on the U.S. economy. In 1999, textile/
apparel exports from Andean countries represented only 1.1 percent of 
the total textile/apparel exports to the United States and 0.46 percent 
of this is exported from Peru. The ATPA countries export far less 
textiles/apparel than the CBI region. In addition, Peruvian apparel 
exporters are interested in importing additional cotton from the United 
States to supplement the Peruvian cotton production. Thus, to the 
extent, we can sell more apparel to the United States, the more cotton 
we will import from the United States, providing export markets and 
jobs to your country as well.
    We look forward to working with you to expand your initiative to 
provide a solution that benefits all the Andean nations. The drug war 
cannot be won without improving the economies in the entire Andean 
region. The data on the drug trade clearly shows that the coca economy 
is regional, and that actions adopted in one country affect the drug 
combat efforts in neighboring countries. The success in Peru's drug 
fight, for instance, has corresponded with an increase in Colombia's 
coca-growing activity. Any bill that does not help the entire region 
will only move the drug problems from one country to the next, which 
does not help you or us.
    An expansion of the ATPA to include textiles and apparel would 
provide the necessary economic incentives to eliminate the lure of 
illicit jobs and build a stronger more stable hemisphere.

                                


              Statement of the Coalition for Sugar Reform

    We appreciate the opportunity to present testimony before the 
subcommittee to discuss the implications of the proposed Free Trade 
Area of the Americas to American sugar consumers. The Coalition for 
Sugar Reform is an umbrella organization representing some 20 U.S. 
trade associations, consumer and environmental groups, businesses and 
taxpayer advocates united in their belief that the U.S. sugar program 
should be fundamentally reformed. The Coalition commends the 
subcommittee for holding this hearing. We cannot emphasize strongly 
enough the vital importance of increased U.S. market access for sugar 
to the Administration's overall goal of lowering trade barriers and 
increasing the level of trade in goods and services in the Western 
Hemisphere.
    Simply stated, maintaining the archaic U.S. sugar program in 
anything like its present form will undercut our ability to open 
foreign markets for a whole range of U.S. products and services, 
particularly agricultural commodities and value-added products. This 
isn't simply about the price of a five-pound bag of sugar, or even the 
$2 billion extra that consumers spend annually because of our sugar 
program. It's actually about our ability to deliver on the promise to 
open markets more fully around the world for our farmers, ranchers, 
food processors and everyone else who is part of America's food 
industry. The sugar program is the Achilles heel of U.S. trade policy.
    Through the Free Trade Area of the Americas, we have a unique 
opportunity to continue the extraordinary period of trade expansion 
that began with the completion of NAFTA and the Uruguay Round in 1993 
and has continued through last summer's approval of Permanent Normal 
Trade Relations. By any measure, markets around the world are far more 
open than they were a decade ago, thanks to U.S. leadership. Under the 
new Bush Administration, we are poised to continue that record of trade 
expansion through the conclusion of a successful FTAA. However, the 
inconsistency in the U.S. position created by our domestic sugar 
program has the potential to jeopardize these future negotiations and 
will certainly not engender good will from our Latin American 
neighbors.
    The special importance of trade to U.S. agriculture has long been 
clear; our farmers and ranchers were many years ahead of the rest of 
the economy in recognizing the vital importance of access to foreign 
markets. As Agriculture Secretary Ann Veneman stated last month,

          Expanding trade is the President's top priority for U.S. 
        agriculture. With 96 percent of the world's population living 
        outside the United States, the work market is essential to the 
        future of the American food chain. Nearly one-half of our 
        annual production of wheat and rice, one-third of our soybeans, 
        one-fifth of our corn and two-fifths of our cotton are sold 
        overseas. In addition, we are exporting growing quantities of 
        grains and oilseeds through meat exports, and an increasing 
        volume of other high-value products. Agricultural trade 
        barriers and production-distorting subsidies continue to 
        inflict heavy costs on consumers, producers, and exporters 
        around the world. Recent analysis by USDA's Economic Research 
        Service shows the average global tariff on agricultural 
        products is over 60 percent, compared to about 12 percent for 
        products coming into the United States. Clearly, the U.S. has 
        much to gain from further reform. As trade barriers continue to 
        fall, exports to our NAFTA partners are growing faster than 
        those to other regions of the world. That's why we will 
        continue to work toward regional trade agreements, such as the 
        FTAA.

    Trade is also vital to the growth of value-added and processed 
foods and feedstuffs. Global trade in processed food is growing twice 
as fast as bulk commodity trade, and consumer products now account for 
a greater percentage of U.S. agricultural exports than raw commodities.
    The progress in opening markets around the world has undeniably 
benefitted U.S. agriculture and the food sector. The Uruguay Round was 
a landmark accomplishment, which finally began to bring agricultural 
trade under fair and internationally accepted rules. The Uruguay Round 
Agreement on Agriculture abolished quotas, ensuring that countries 
would use only tariffs to restrict imports; and went on to reduce and 
bind those tariffs. It subjected export subsidies and trade-distorting 
domestic support measures to specific limits, reducing them as well. 
Through the Agreement on Sanitary and Phytosanitary Measures, WTO 
members agreed to use science-based sanitary and phytosanitary 
standards to protect human, animal and plant life and health, taking 
away, at least in principle, one of foreign governments' most powerful 
protectionist tools. NAFTA gave our farmers and ranchers preferential 
access to Mexico as well as to Canada; our agricultural exports to 
those countries have grown by nearly $4 billion since 1993, and now 
represents more than one-fourth of our agricultural exports. We have 
successfully negotiated numerous bilateral agreements opening up new 
opportunities in a large range of commodities: tomatoes and apples in 
Japan; citrus and other fruits in Brazil, Chile, Mexico and other 
countries; beef in Korea, cattle, hogs, wheat and barely into Canada. 
China's WTO accession agreement is an historic achievement in many 
respects ,but certainly in terms of dramatic new opportunities for U.S. 
agriculture. USDA predicts more than $1 billion annual increase in 
processed food exports as a result of this agreement.
    Despite these achievements, all over the world agriculture remains 
the most sensitive area--economically, politically and culturally--of 
international trade. While many barriers have come down, agricultural 
products, TRQs have created some access for imports, but continue to 
maintain restrictive conditions. The European Union continues to employ 
90 percent of the world's export subsidies, damaging the interests of 
our farmers and ranchers, and harming many of the nations of the 
developing world. Countries still routinely invoke sanitary and 
phytosanitary barriers to block imports, in the absence of sound 
science. State trading enterprises still play far too large a role in 
agricultural trade. The economic health of our agricultural sector 
depends on getting strong rules, and breaking down these barriers, to 
ensure greater access to markets around the world.
    For these reasons, in recent years every U.S. official has made it 
crystal clear that a primary goal for the United States in any future 
trade negotiation was agriculture trade liberalization. Our ambitious 
objectives are set forth clearly in the ``Proposal for Comprehensive 
Long Term Agricultural Trade Reform'' submitted in Geneva last year. 
That proposal ``entails reforms across all measures that distort 
agricultural trade and that once adopted, will reduce levels of 
protection, close loopholes that allow for trade-distorting practices, 
clarify and strengthen rules governing implementation of commitments, 
foster growth and promote global food security and sustainable 
development.'' The proposal notes that ``the United States believes 
there are compelling arguments for further reform. Too often and in too 
many countries, the production and marketing decisions farmers make are 
still driven by government programs and protections from market access 
barriers, rather than market conditions. As a result, competitive 
farmers, ranchers and processors are denied sufficient access to 
markets and face subsidized products and the trade-distorting policies 
of foreign governments, leaving the world with an agricultural market 
still far from the WTO objective of a fair and market oriented 
system.''
    There is no doubting the commitment of Congress and this 
Administration to continue world agricultural markets. The real 
question is how we will accomplish that vital objective. Because 
agricultural trade barriers still proliferate around the world, the 
U.S. comes to any negotiation with an ambitious list of liberalization 
objectives. Because the playing field is not currently level, the 
United States will press other nations to undertake more changes and 
more market opening than we are prepared to do. Because we are already 
so open, we have relatively little to use as leverage in exchange for 
the market opening that we seek.
    Against this backdrop, it is quite clear that the U.S. sugar 
program stands as one of the principal impediments to our hopes for 
continuing agricultural trade liberalization. First, the program makes 
our calls for ``a fair and market oriented system'' sound hollow and 
hypocritical. If we saw this program in another country, we would 
regard it as a major and unacceptable distortion of trade. In fact, 
OECD estimates distributed by USDA show that this is one commodity 
where, during 1996-98, U.S. subsidies were actually somewhat higher 
than European Union subsidies, when expressed as a share of production 
value.
    The 1996 Farm Bill ended government controls and phased out 
payments to farmers of corn, wheat, cotton and other crops. The sugar 
program is glaring exception to this progress. USDA continues to 
tightly control the marketplace through the TRQ, and high price support 
levels remain in effect. The lower duty applicable to in-quota imports 
is unchanged, while the over-quota duty rate actually rose initially 
and has remained at levels that are still prohibitive to imports. Thus, 
the Uruguay Round Agreement--despite its introduction of important 
principles for agricultural trade--made almost no progress in altering 
the basic features of the sugar program. While defenders of the sugar 
program point out that the United States imports approximately 15 
percent of its sugar, this contrasts sharply with the 40 percent market 
share that foreign sugar had in the U.S. market before the current 
sugar program was put in place in 1981.
    The U.S. sugar industry argues that the European Union's subsidy 
program is worse than that of the United States; thus, if the U.S. 
scraps its own sugar program, subsidized EU sugar will pour into the 
United States and drive U.S. sugar growers out of business. The 
European Union's sugar subsidy does, in fact, distort markets in ways 
the U.S. sugar program does not, because it depends on export 
subsidies. However, even without the U.S. sugar program, dumped and 
subsidized European sugar would be unable to enter the country due to 
the anti-dumping duties that have been in place for some time against 
European sugar producers (Belgium, France, Germany) and the 
countervailing duties applied to European Union sugar. In addition, the 
U.S. has deliberately chosen not to follow the European model in other 
agricultural products in the past, instead attempting to compete in 
world markets and tear down the trade barriers of other countries.
    The sugar industry continues to argue that the decline of the world 
price of sugar in recent years is the result of dumping and is a sure 
sign of things to come if the sugar program is eliminated. In fact, 
both world and domestic sugar prices have declined recently due to 
unprecedented oversupply, stimulated by favorable weather conditions, 
increases in acreage due to lower prices for other commodities, and 
contracting markets in Russia and Asia. To the extent that a lower 
price may be reflective of dumping, however, U.S. antidumping laws 
provide an effectively remedy to a domestic industry that is being 
injured by less-than-fair-value imports. There is no reason why the 
antidumping laws and the countervailing duty laws, which protect other 
industries from unfairly traded products, will not afford similar 
protection to the sugar industry, assuming that dumping or subsidizing 
is occurring and resulting in injury.
    There are few issues, if any, that matter to more developing 
nations--many included in the Free Trade Area of the Americas--than 
increased sugar access to the markets of the developed world. This 
issue stands close to the top of the agenda of two of the leading 
developing nations, Brazil and Chile. But, it is the highest priority 
for some of the smallest, struggling economies in our hemisphere: 
Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and 
Panama. These developing nations tend to maintain the highest tariffs 
against our agricultural products. They are potentially among the 
fastest growing markets for our farmers and ranchers if those barriers 
can be reduced. We know from Seattle, and the discussions since, that 
many developing nations believe that they have been shortchanged by the 
international trading system. Many believe that they made significant 
market opening commitments in the Uruguay Round and have received too 
little benefit in terms of reciprocal access to the markets of the 
developed world. The inequities of the U.S. sugar program compel the 
conclusion that the grievances of the developing countries are well 
justified, not just deeply felt.
    Our own citizens will benefit from reform of the sugar program, 
including liberalized imports. According to the General Accounting 
Office, users and consumers of sugar paid nearly $2 billion more in 
1998 for products containing sugar than if there had been no sugar 
program. In order to claim that consumers will see no benefit from 
sugar liberalization, one has to assert that there is no competition in 
the food industry. We submit that no one who shops for groceries will 
take this claim seriously. Our food manufacturers and grocers are 
intensely competitive, as anyone who compares prices and uses coupons 
can tell you.
    The Coalition for Sugar Reform hopes this hearing marks the 
beginning of a serious discussion of the myriad costs of the archaic 
U.S. sugar program in the context of future international trade 
negotiations. Every nation has its sensitive commodities, and sugar is 
plainly one of ours. But when one sensitive commodity--produced by 
relatively few growers--is vitally important to the economic well-being 
of so many other nations in our own hemisphere, it can cause a major 
imbalance in the international trading system. Reform of the U.S. sugar 
program would provide a vital boost to the economies of many poor and 
developing nations in the Western Hemisphere. At the same time, such 
reform would clearly be a major catalyst in expanding export 
opportunities for American producers of grains, oilseeds, cotton, meat, 
processed foods and value-added agricultural products.

    [The attachment is being retained in the Committee files.]

                                


     Distilled Spirits Council of the United States
                                  Washington, DC 20005-3998
                                                       May 22, 2001
Ms. Allison Giles
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House office Building
Washington, DC 20515

Re: Comments on the Summit of the Americas and the Free Trade Area of 
        the Americas

Dear Ms. Giles:

On behalf of the Distilled Spirits Council of the United States, Inc. 
(DISCUS), I am writing to provide a statement for the printed record of 
the hearing of the Subcommittee on Trade of Tuesday, May 8, regarding 
the Summit of the Americas and the Free Trade Area of the Americas 
(FTAA), DISCUS is the national trade association representing U.S. 
producers, marketers, and exporters of distilled spirits products. 
DISCUS member companies export to more than 120 countries, including 
the parties of the FTAA. In 2000, U.S. producers exported approximately 
$63 million in spirits products to the countries of the western 
hemisphere, accounting for about 20 percent of global U.S. spirits 
exports. DISCUS strongly supports the efforts of the U.S. government to 
negotiate a comprehensive free trade agreement with the governments of 
the western hemisphere, and we welcome this opportunity to provide a 
written statement.
    DISCUS has been a vocal supporter of the FTAA since the Miami 
Summit, and we applaud the progress made thus far toward completion of 
the agreement. We are encouraged by the recent progress made at the 
Quebec City Summit of the Americas. Although we supported the Chilean 
proposal for an accelerated time frame for completion of the agreement, 
we nonetheless welcome the Declaration of Quebec City instructing the 
negotiators to complete their work by January 2005 so that the 
agreement may enter into force no later than December 2005. We further 
applaud the decision to release to the public the preliminary draft 
negotiating documents, confirming the leaders' commitment to 
transparency during the negotiating process. DISCUS was also pleased 
that the Buenos Aires Ministerial Declaration directed that the actual 
market access negotiations begin no later than May 15, 2002.
    High tariffs continue to present a significant market access 
barrier to U.S. spirits exports, particularly in our most important 
emerging markets. The distilled spirits industry benefitted from the 
``zero-for-zero'' negotiations that began during the Uruguay Round. As 
a result of the Round and over the course of subsequent negotiations, 
the ``Quad'' countries--the United States, European Union, Canada, and 
Japan--agreed to eliminate tariffs on most categories of distilled 
spirits. As a consequence, the United States has eliminated all tariffs 
under Harmonized Tariff Schedule (HTS) Subheading 2208, with the 
exception of certain categories of rum. We view the FTAA as an 
excellent opportunity to expand the scope of the zero-for-zero 
initiative. Accordingly, we seek the immediate, hemisphere-wide 
elimination of tariffs on all spirits products, thus securing tariff 
treatment for U.S. spirits throughout the hemisphere that is equal to 
the treatment that the U.S. currently accords imported spirits.
    Further, the FTAA presents an opportunity to eliminate non-tariff 
measures which continue to present major market access obstacles to 
U.S. spirits exports. DISCUS urges the U.S. government to use the 
opporunity of the FTAA as a mechanism to enhance hemispheric 
disciplines regarding:
     The use of discriminatory internal tax systems that place 
a disproportionate tax burden on imported products vis-a-vis like, 
substitutable, or directly-competitive domestic goods, or that serve to 
protect the domestic industry;
     Non-competitive practices by state monopolies concerning 
the production or sale of goods;
     The use of export restraints, export and import price 
requirements, and import licensing conditioned on the fulfillment of a 
performance requirement;
     Trade-distorting sanitary measures that are not based on 
sound science; and,
     Non-transparent notification procedures that provide 
inadequate time periods for public comment on, implementation of, and 
compliance with any new rules, laws, or regulations that may affect 
trade.
    As part of the FTAA process, DISCUS also believes that participants 
should fully implement their obligations under the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS), including the 
establishment of mechanisms to ensure and enforce the protection of 
geographical indications associated with distinctive distilled spirits. 
DISCUS and its member companies view the FTAA as a critical vehicle to 
secure from FTAA participants explicit protection for Bourbon and 
Tennessee Whiskey (which is a straight whisky authorized to be produced 
only in the State of Tennessee) as distinctive products of the United 
States, using language similar to that found in NAFTA Annex 313 
(``Distinctive Products''). Accordingly, the FTAA participants should 
agree not to permit the sale of any product as Bourbon or Tennessee 
Whiskey unless it has been produced in the United States in accordance 
with the laws and regulations of the United States, nor permit the use 
of these designations for any product which is not Bourbon or Tennessee 
Whiskey.
    Our trading partners are moving forward with numerous bilateral and 
multilateral agreements that favor competing spirits suppliers and 
place U.S. exports at a competitive disadvantage. Within the 
hemisphere, Canada currently has free trade agreements in place with 
Chile and Costa Rica, and is negotiating an agreement with El Salvador, 
Guatemala, Honduras and Nicaragua. Mexico currently has agreements with 
31 nations, including Bolivia, Chile, Costa Rica, Colombia, El 
Salvador, the European Union, Guatemala, Honduras, Nicaragua, Uruguay, 
and Venezuela. The Andean Community and Mercosur impose significant 
common external tariffs that impede U.S. exports to these markets. Our 
major competitors, including the countries of the European Union and 
the European Free Trade Association, have in place or are currently 
negotiating agreements with Chile and Mercosur. As these preferential 
trade agreements proliferate, U.S. spirits exporters are systematically 
locked out of critical markets. It is essential that the United States 
engage actively and constructively with the countries of the western 
hemisphere to bring the FTAA to fruition and maintain U.S. 
competitiveness in these markets.
    As we enter this critical stage of the FTAA process, it is vital 
that U.S. negotiators be empowered to secure tangible benefits in the 
negotiations. Providing the President with Trade Promotion Authority 
(TPA) is essential to ensure that the U.S. government has the authority 
to negotiate the minute and painstaking details of comprehensive trade 
agreements, including the FTAA and the bilateral free trade agreements 
with Chile and Singapore. It also seems clear that prospects for 
securing TPA will be a key consideration of our trading partners in 
deciding whether to launch a much-needed new WTO round in Doha in 
November. Without TPA, U.S. negotiators will lack the tools they 
require to negotiate the best possible deal for the United States. 
DISCUSS stands ready to support efforts to secure prompt passage of TPA 
legislation this year.
    Thank you again for the opportunity to offer our views on the FTAA 
negotiations.
            Sincerely,
                                            Deborah A. Lamb
                                                     Vice President
                                     International Issues and Trade

                                


        Florida Farmers & Suppliers Coalition, Inc.
                             Lake Worth, Florida 33454-0623
                                                     April 12, 2001
Hon. E. Clay Shaw, Jr.
U.S. House of Representatives
Washington, DC 20515

Dear Congressman Shaw:

We are writing to make known our position on Trade Promotion Authority 
(TPA), formerly known as Fast Track. On April 3, 2001 the industry 
leadership, by unanimous consent, agreed to oppose this legislation. In 
the past we have twice opposed Fast Track and most of the Florida 
Congressional Delegation has remained committed to vote against such 
legislation.
    Since enactment of NAFTA, over 300 winter vegetable farmers have 
gone out of business in Florida alone. We are now learning that 
hundreds of smaller producers in southern States also suffered similar 
fate. We are further disappointed by the billions of dollars that have 
been paid to producers from apples to cranberries during the last two 
years. Florida has not received one cent of the supplemental 
appropriations to compensate our farmers for losses suffered by these 
unfair foreign competition practices.
    Last year alone (1999-2000), our tomato growers in Florida lost 
$112 million. Our farmers employ over 100,000 workers, but no one seems 
to care about them either. We simply cannot compete with third world 
countries paying $4.00 per day in wages. Our industry cannot survive 
unless it is protected as a sensitive and strategic food industry.
    We wish that in the spirit of free trade and better foreign 
relations, we could support such initiative, however, realistically we 
know we cannot survive under the present scenario. We urge you to vote 
no for Trade Promotion Authority.
            Sincerely,
                                                       Paul DiMare,
                                                           Chairman

                                


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

    The Florida Fruit & Vegetable Association (FFVA) submits the 
following comments to be included in the record of the May 8, 2001, 
hearing held by the House Committee on Ways and Means regarding the 
outcome of the Summit of the Americans, and the prospects and timing 
for achieving the Free Trade Area of the Americas (FTAA). The following 
comments address specific FTAA objectives for the agriculture and 
market access negotiating groups to help ensure fair treatment for 
Florida's import-sensitive fruit and vegetable sectors.
    FFVA is an organization comprised of growers of vegetables, citrus, 
sugarcane, tropical fruit and other agricultural commodities in 
Florida. Florida's unique geographical location in the United States 
affords growers an opportunity to provide American consumers and export 
markets with fruits, vegetables and seasonal crops during the months of 
the year when other domestic producers cannot grow and harvest these 
crops. Historically, competition for Florida's fruit and vegetable 
industry in the U.S. marketplace has come from Mexico, other areas that 
have farmland suitable for winter production in the northern 
hemisphere, and from Latin America. In export markets, Florida crops 
compete against low-cost, often subsidized producers from Latin 
America, Europe, and elsewhere.

I. General Views
    FFVA's principal concern with the proposed FTAA is that it could 
lead to further reduction in import-sensitive U.S. tariffs in favor of 
competitive exporters in Chile, Brazil, Argentina and other western 
hemispheric countries, creating greater competition in the U.S. market 
for Florida's fruit and vegetable growers. Accordingly, FFVA's priority 
objective in the negotiations is to ensure that the tariff methodology 
adopted to eliminate agricultural tariffs allows for exceptions from 
tariff elimination for Florida's most import-sensitive fruit and 
vegetable products. FFVA is on record with the U.S. government in 
support of similar objectives for the U.S.-Chile Free Trade Agreement.
    Florida's growers are skeptical about a FTAA in part because both 
the North America Free Trade Agreement (NAFTA) and the Uruguay Round 
Agreement in the World Trade Organization (WTO) have failed to protect 
Florida's import-sensitive products from increased competition in the 
U.S. market.
    Sine the NAFTA Agreement took effect, Florida fruit and vegetable 
growers have lost significant domestic sales to Mexico of tomatoes, 
bell peppers, cucumbers and other crops. NAFTA encouraged this 
increased competition in two ways: first, by reducing U.S. tariffs, 
making already low-priced Mexican products more competitive; and, 
second, by encouraging investment in Mexico's agricultural industries 
from non-traditional sources. The increased investment has 
substantially advanced Mexico's technology, increased Mexico's 
production in competitive crops, and reduced per-unit costs of those 
commodities. These advantages, along with the cost savings derived from 
the devaluation of the peso shortly after the NAFTA took effect, have 
significantly increased Mexico's export competitiveness relative to 
Florida.
    Likewise, the Uruguay Round ``reforms,'' which reduced U.S. tariffs 
across the board, including tariffs on import-senstitive products, have 
left Florida's fruit and vegetable sectors more vulnerable to imports. 
While the Uruguay Round has contributed to limited progress in opening 
foreign markets for Florida tomato and citrus products, losses in the 
U.S. market have on balance outpaced gains inexport markets. Florida's 
fruit and vegetable exports continue today to face tariff quotas and 
unjustified phytosanitary restrictions.
    With competition in the U.S. market increasing, many of Florida's 
producers have been forced to curtail their operations. Others have 
closed down altogether. Even import relief acions have not stopped the 
harm.
    A hemispheric-wide free trade agreement will compound this 
adversity. Chile, Brazil and Argentina are competitive producers and 
exporters of fruit and vegetables that are also grown in Florida. 
Imports of these products at duty-free or preferential duty rates pose 
an immediate threat for Florida's growers.
    FFVA therefore requests that high priority be given to the 
following comments respecting FTAA tariff elimination, tariff-rate 
quotas, safeguard measures, currency devaluation, and santitary and 
phytosanitary disciplines.

II. In the Area of Tariff Phase-Outs, FFVA is Seeking Special 
        Exemptions For Flordia's Most Import-Sensitive Products
    In NAFTA, despite the extreme import sensitivity of Florida's fruit 
and vegetable products, only frozen concentrated orange juice (FCOJ) 
and, for part of the year, cucumbers received the meximum tariff phase-
out period of 15 years provided for under the NAFTA agreement. In many 
sectors like tomatoes, peppers, and cucumbers, ten-year phase-out 
periods have proven insufficient to protect against increased imports 
from Mexico. Consequently, U.S. growers have been forced to spend 
precious industry dollars to fight back unfair competition from Mexico 
through antidumping procedures and other trade remedy laws.
    The FTAA is a regional trade agreement covering many more countries 
than NAFTA--including Brazil, Argentina and Chile, all countries that 
are highly competitive with Florida's fruit and vegetable sector. These 
countries currently export melons, lettuce, onions, tangerines/
mandarins, and frozen concentrated orange juice to the U.S. market, 
products that compete directly with Florida production. To ensure that 
the FTAA negotiations do not lead to increased U.S. imports from these 
countries of principal fruit and vegetable products, FFVA is asking 
that a request-offer approach be pursued that explicitly authorities 
exemption from tariff phase-out for FFVA's most highly import-sensitive 
fruit and vegetable products. Although exemptions from tariff phase-out 
were not granted under NAFTA, there is no WTO requirement that this be 
the standard for an FTAA, nor is there a policy justification for such 
an approach, given the greater competitive threat presented by the 
larger trade agreement. Moveover, FTAA countries like Chile, Argentina, 
and others are themselves interested in product exemptions for import-
sensitivie agricultural sectors.
    A complete list is attached of FFVA's most important fruit and 
vegetable products for which special tariff exemptions are requested. 
Even where Generalized System of Preferences (GSP) benefits are 
currently being conferred on these products, FFVA considers the GSP 
exemption to be temporary and the Latin American countries competitive 
producer of many of these products. Accordingly, Florida's growers and 
processors oppose granting permanent duty-free access for these 
products under the FTAA.

III. Past Safeguard Measures Specific to Agriculture Have Been 
        Ineffective
    A major problem with both the NAFTA and Uruguay Round Agreement for 
Florida's import-sensitive fruit and vegetable products is the 
inadequate safeguard mechanisms included in those agreements. These 
measures have been ineffective in curbing increased imports resulting 
from the preferential tariff access.
    NAFTA contains a special agricultural safeguard that is a volume-
based TRQ mechanism that restores the pre-NAFTA tariff on a limited 
number of products if certain volume targets are met. There safeguards 
have been ineffective for two reasons. First, they are limited to only 
a few commodities, leaving many of Florida's import-sensitive products 
uncovered. Second, the volume ceiling that triggers the safeguard 
measure is met only at the very end of the season when the extra 
volumes in the markets have already depressed prices and injured U.S. 
growers. Although the Uruguay Round contains a priced-based mechanism, 
the safeguard does not apply to Florida's fruit and vegetable crops, 
since none of these were subject to non-tariff barrier measures prior 
to the Uruguay Round negotiations.
    Because an FTAA will stimulate imports of perishable, senstivite 
agricultural producrs even if they are exempted from tariff reduction, 
any agreement should include a special safeguard mechanism for 
agriculture that is (1) broader in product coverage than the NAFTA 
mechanism (i.e., one that covers all import-sensitive agricultural 
products); and (2) triggered automatically based on price, not year-end 
volumes of imports. A price-based mechanism is preferred, since it 
reacts to import volumes throughout the season whenever they increase 
because of unfairly low prices, and before irreparable injury has 
occurred to the U.S. industry. The duration of the safeguard should 
also be sufficiently long to allow the U.S. industry to adjust to the 
import surges and the injury caused by the increased imports. Finally, 
the safeguard mechanism should be structured to include effective 
relief once the trigger price or volume is reached. Under NAFTA, the 
relief was to ``snap back'' to the bound or applied pre-NAFTA tariff 
rate. A more effective mechanism might be to allow, at least indefined 
circumstances, a breach of binding to a higher tariff level if 
necessary to product the injured U.S. industry.
    The U.S. proposal for the FTAA Group on Agriculture does not 
include a special agricultural safeguard measure. Under the general 
market access text, the U.S. proposes a hemispheric safeguard measure 
that would allow tariff increases, but no TRQs. The text reserves the 
right ``to propose at a later date provisions on dispute settlement 
panel review specific to hemispheric safeguard measures, and sector-
specific safeguard regimes.'' Under this reservation, FFVA urges the 
U.S. government to explore the inclusion of a special agricultural 
safeguard to protect import-sensitive U.S. agricultural sectors. Given 
the great number of countries involved in the FTAA, the competitiveness 
of many of these countries in the fruit and vegetable sectors, and the 
attractiveness of the U.S. market, adequate safeguard measures are 
imperative to protect import-sensitive U.S. fruit and vegetable 
products.

IV. The FTAA Should Include A Mechanm to Guard Against the Unexpected 
        Effects of Currency Devaluation
    NAFTA did not include provisions to address currency devaluation. 
As a result, when Mexico's peso dramatically devalued shortly after the 
NAFTA agreement took effect, Mexico's exports to the U.S. market 
instantly became much cheaper and increased significantly, while U.S. 
exports to Mexico became more expensive and declined. Many of Florida's 
fruit and vegetable industries experienced this rapid shift in import/
export flows and incurred significant losses.
    Several of the Latin American currencies not currently pegged to 
the U.S. dollar also are susceptible to rapid devaluation. To protect 
against the negative effects on trade, U.S. negotiators should consider 
ways in which FTAA ``protections'' could be structured to incorporate 
appropriate safeguards that would counter increased exports that occur 
when a country's currency unexpectedly devalues.

V. The FTAA Should Seek to Strengthen the Sanitary and Phytosanitary 
        Disciplines Contained in the NAFTA And Uruguay Round Agreement
    Despite the disciplines included in the WTO Agreement on Sanitary 
and Phytosanitary Measures, access for Florida's fruit and vegetable 
crops in many export markets continues to be limited by sanitary and 
phytosanitary restrictions and regulations. Chile and Argentina are two 
Latin American countries that have limited and delayed access for 
Florida citrus under the guise of sanitary and phytosanitary concerns.
    The U.S. is proposing that FTAA countries collaborate in the WTO to 
strengthen international standards and to
coordinate on data exchange, research and technical assistance. FFVA 
supports that proposal, but further urges the U.S. government to 
include disciplines in the FTAA itself that will better ensure that 
FTAA countries do not use unjustified plan quarantine issues to 
prohibit or stall access for U.S. agricultural products. Another area 
of cooperation that should be explored in the FTAA is harmonization of 
pesticide regulations among the FTAA countries.

VI. Conclusion
    The above objectives, especially those addressing tariffs and 
safeguard measures, are necessary to ensure that U.S. import-sensitive 
agricultural products from Florida and other U.S. states are not put at 
risk by a FTAA. FFVA looks forward to working with the Ways and Means 
Committee and Congress generally to ensure that these goals are 
achieved.

                         Florida Fruit & Vegetable Association Import-Sensitive Products
----------------------------------------------------------------------------------------------------------------
                                                                             2001 U.S. Tariff Rates
                                                               -------------------------------------------------
             H.S. Number                 Product Description                                GSP Rate (does not
                                                                        MFN Rate          include GSP for LDDCs)
----------------------------------------------------------------------------------------------------------------
0702.00.20...........................  Tomatoes, fresh/chilled  3.9/kg.................  .......................
                                        (3/1-7/14 or 9/1-11/
                                        14).
0702.00.40...........................  (7/15-81)..............  2.8/kg.................  .......................
0702.00.60...........................  (11/15 to end of next    2.8/kg.................  Free
                                        Feb.).
0703.10.20...........................  Onion sets.............  0.83/kg................  Free (Chile excluded)
0703.10.30...........................  Pearl onions  16 mm.     0.96/kg................  Free
                                        diameter.
0703.10.40...........................  Other..................  3.1/kg.................  Free
0704.10.20...........................  Cauliflower and          2.5%...................  Free
                                        broccoli (6/15-10/15).
0704.10.40...........................  Other (not reduced in    10%....................  Free
                                        size).
0704.10.60...........................  Cut/sliced.............  14%....................  Free
0704.20.00...........................  Brussels sprouts.......  12.5%..................  Free
0704.90.40...........................  Kohlrabi, kale.........  20%....................  .......................
0705.11.20...........................  Head lettuce (6/1-10/    0.4/kg.................  Free
                                        31).
0705.11.40...........................  Other..................  3.7/kg.................  Free
0705.19.20...........................  Other than Head Lettuce  0.4/kg.................  Free
                                        (6/1-10/31).
0705.19.40...........................  Other..................  3.7/kg.................  Free
0707.00.20...........................  Cucumbers (12/1 to end   4.2/kg.................  Free
                                        of Feb.).
0707.00.40...........................  (3/1-4/30).............  5.6/kg.................  Free
0707.00.50...........................  (5/1-6/30; 9/1-11/30)..  5.6/kg.................  .......................
0707.00.60...........................  (7/1-8/31).............  1.5/kg.................  Free
0708.20.10...........................  Lima beans (11/1-5/31).  2.3/kg.................  Free
0708.20.20...........................  Cowpeas................  Free...................  .......................
0708.20.90...........................  Other..................  4.9/kg.................  .......................
0709.30.20...........................  Eggplants (4/1-11/30)..  2.6/kg.................  Free
0709.30.40...........................  Other..................  1.9/kg.................  Free
0709.40.20...........................  Celery (reduced in       14.9/kg................  .......................
                                        size).
0709.40.40...........................  Other (4/15-7/31)......  0.25/kg................  Free
0709.40.60...........................  Other..................  1.9/kg.................  .......................
0709.51..............................  Mushrooms..............  8.8/kg. + 20%..........  .......................
0709.60.20...........................  Chili peppers..........  4.4/kg.................  Free
0709.60.40...........................  Other..................  4.7/kg.................  Free
0709.90.20...........................  Squash.................  1.5/kg.................  Free
0709.90.90...........................  Other vegetables.......  20%....................  .......................
0804.50..............................  Guavas, mangoes,         6.6/kg.................  Free
                                        mangosteens (fresh).
0804.50.80...........................  Dried..................  1.5/kg.................  Free
0805.10..............................  Oranges................  1.9/kg.................  .......................
0805.20..............................  Mandarins, clementines   1.9/kg.................  .......................
                                        (fresh or dried).
0805.30.20...........................  Lemons (fresh or dried)  2.2/kg.................  .......................
0805.30.40...........................  Limes (fresh or dried).  1.8/kg.................  Free
0805.40..............................  Grapefruit (fresh or     1.9/kg.................  .......................
                                        dried) (8/1-9/30).
0805.40.60...........................  During October.........  1.5/kg.................  .......................
0805.40.80...........................  Any other time.........  2.5/kg.................  .......................
0807.11.30...........................  Watermelons (12/1-3/31)  9%.....................  Free
0807.11.40...........................  Any other time.........  17%....................  .......................
0807.19.10...........................  Cantaloupes (fresh) (8/  12.8%..................  .......................
                                        1-9/15).
0807.19.20...........................  Any other time.........  29.8%..................  Free
0807.19.70...........................  Other melons nesi        5.4%...................  Free
                                        (fresh) (12/1-5/31).
0807.19.80...........................  Any other time.........  28%....................  .......................
0807.20..............................  Papayas (papaws)         5.4%...................  Free
                                        (fresh).
1701.12.50...........................  Beet sugar.............  35.74/kg...............  .......................
1701.11.50...........................  Cane sugar.............  33.87/kg...............  .......................
1701.91.05...........................  Cane/beet sugar subject  3.6606/kg. less          Free (Brazil excluded)
                                        to general note 15.      0.020668/kg. for each
                                                                 degree and fractions
                                                                 of a degree in
                                                                 proportion but not
                                                                 less than 3.143854/kg.
1701.91.10...........................  Cane/beet sugar          3.6606/kg. less          Free
                                        pursuant to U.S. note    0.020668/kg. for each
                                        5 of this chapter.       degree under 100
                                                                 degrees and fractions
                                                                 of a degree in
                                                                 proportion but not
                                                                 less than 3.143854/kg.
1701.91.30...........................  Other..................  35.74/kg...............  .......................
2008.30.35...........................  Orange pulp, otherwise   11.2%..................  .......................
                                        prepared/preserved.
2009.11..............................  Orange juice, frozen,    7.85/liter.............  .......................
                                        unfermented.
2009.19.25...........................  Orange juice, not        4.5/liter..............  .......................
                                        concentrated.
2009.19.45...........................  Orange juice, other....  7.85/liter.............  .......................
2009.20.20...........................  Grapefruit juice, not    4.5/liter..............  .......................
                                        concentrated.
2009.20.40.20........................  Other/frozen...........  7.9/liter..............  .......................
2009.30.10...........................  Lime, unfit for          1.8/liter..............  Free (Honduras
                                        beverage, concentrate/                            excluded)
                                        non-concentrate
                                        (2009.30.10.20 and
                                        2009.10,40).
2009.30.20...........................  Lime, other............  1.7/liter..............  Free
2009.30.40.00........................  Other single citrus      3.4/liter..............  .......................
                                        fruits, not
                                        concentrate.
2009.30.60...........................  Single citrus juice/     7.9/liter..............  .......................
                                        other, concentrate.
2009.90.40...........................  Mixture of juices,       7.4/liter..............  .......................
                                        other.
2106.90.46...........................  Syrups from cane/beet    35.74/kg...............  .......................
                                        sugar, other.
2106.90.48...........................  Orange juice, fortified  7.85/liter.............  .......................
2106.90.52...........................  Juice of any single      The rate applicable to   Free (El Salvador
                                        fruit or vegetable       the natural juice        excluded)
                                        (other than orange       heading in 2009.
                                        juice), fortified.
2202.90.30...........................  Orange juice,            4.5/liter..............  .......................
                                        fortified, not made
                                        from a juice having a
                                        degree of concentrate
                                        of 1.5 or more.
2202.90.35...........................  Other..................  7.85/liter.............  .......................
2202.90.36...........................  Single fruit or          The rate applicable to   Free (Dominican
                                        vegetable juice (other   the natural juice        Republic excluded)
                                        than orange juice)       heading in 2009.
                                        fortified, not
                                        concentrated.
2202.90.37...........................  Mixed fruit or           The rate applicable to   Free (A*)
                                        vegetable juice (other   the natural juice
                                        than orange juice)       heading in 2009.
                                        fortified, not
                                        concentrated.
----------------------------------------------------------------------------------------------------------------

                                


             Statement of Grocery Manufacturers of America

    The Grocery Manufactures of America (GMA) welcomes this opportunity 
to present our views on the Free Trade Area of the Americas (FTAA) 
negotiations. GMA supports the FTAA negotiations and has actively 
participated in the both the Toronto and Buenos Aires Americas Business 
Forums.
    GMA is the world's largest association of food, beverage and 
consumer product companies. With US sales of more than $460 billion. 
GMA members employ more than 2.5 million workers in all 50 states. The 
organization applies legal, scientific, and political expertise from 
its member companies to vital food, nutrition and public policy issues 
affecting the industry. Led by a board of 42 Chief Executive Officers, 
GMA speaks for food and consumer product manufacturers at the state, 
federal and international levels on legislative and regulatory issues. 
The association also leads efforts to increase productivity, efficiency 
and growth in the food, beverage and consumer products industry.
    GMA views the FTAA negotiations as an important opportunity to 
build upon the success of the North American Free Trade Agreement 
(NAFTA), and enhance economic integration throughout the Western 
Hemisphere. In FY-2001, US exports of processed food products to the 
hemisphere reached their highest level since 1970. In fact, at roughly 
$9.44 billion, processed food exports alone represent 39 percent of all 
US agricultural exports to the region.
    Economic factors, such as population and income growth indicate 
that there is room for significant expansion of trade in processed food 
products throughout the region. While the US and Canada have largely 
stable and aging populations, Latin America has a growing and 
relatively young population.\1\ As a result, more food is demanded on a 
per capita basis in Latin America because of a younger population with 
higher caloric requirements and a propensity for purchasing non-
traditional food.\2\ In addition, rising incomes throughout the region 
should lead to increasing expenditures on processed food.
---------------------------------------------------------------------------
    \1\ For example, roughly 30-35 percent of the population is under 
the age of 15 in Argentina, Brazil and Chile compared with 21 percent 
in the United States and Canada.
    \2\ U.S. Foreign Direct Investment in the Western Hemisphere 
Processed Food Industry, ERS/USDA, March 98.
---------------------------------------------------------------------------
    Yet, despite this optimistic outlook, food manufacturers have been 
unable to realize the full potential of the market due to trade 
barriers in the region. GMA believes the FTAA process is an appropriate 
vehicle through which to address these impediments. The following are 
GMA's specific comments with respect to negotiating modalities for the 
FTAA, and in particular, those of the Agriculture Negotiating Group. In 
addition, we also offer comments on the prospects for success of the 
negotiations.

Recommendations for the Agriculture Negotiating Group
Market Access
    Barriers to processed food and beverages in the FTAA countries 
remain significantly higher than those for many other products. And, 
although the WTO Agreement on Agriculture delivered some benefits, the 
reductions in tariff for processed foods and beverages were mostly at 
the lower end of the allowable range. Because the rules allowed 
countries to average their tariff cuts, countries naturally chose to 
make high percentage reductions on already low tariffs and lower 
percentage reductions on higher tariffs. Consequently, tariffs on 
processed food product exports to the region range between 20 to 40 
percent and, in some cases, exceed 100 percent.
    To address these barriers, GMA recommends tariff elimination based 
on a formula approach that will accelerate the elimination of tariff 
peaks (asymmetrically high tariffs) and address the problem of tariff 
escalation, where tariffs increase with the level of processing. This 
approach should, in essence, reduce the higher tariffs faster than the 
lower ones to create meaningful market access for processed food 
products in a reasonable time frame. GMA also suggests that 
negotiations should also result in elimination of non-tariff barriers 
to processed food products. In addition, we recommend that this 
liberalization in tariff and non-tariff barriers be completed in less 
than the ten-year period negotiated in the NAFTA.
    GMA also believes that there should be no product or policy 
exceptions in the FTAA negotiations. For the benefits of the FTAA to be 
truly realized by the food processing industry, it is imperative that 
sugar, peanuts an dairy be subject to meaningful reform and 
liberalization throughout the hemisphere. Tariff-rate quotas (TRQ), 
which are often utilized to provide access for sensitive commodities, 
must be employed judiciously and administered in a market-oriented and 
pro-competitive manner. Finally, we recommend that the negotiations on 
tariff reductions begin from applied rather than bound rates to ensure 
commercially meaningful reductions in a reasonable timeframe.

Export Competition
    GMA supports the Ministerial objective of a hemisphere-wide 
``subsidy free zone.'' Export subsidies artificially distort world 
market prices and steal market share from efficient producers. 
Elimination and prohibition of future subsidies in the FTAA is an 
import fist step toward multilateral commitments in the same area.

Domestic Support
    GMA believes the most effective means for achieving a reduction in 
domestic support for agricultural commodities will come through 
increased market access and an elimination of export subsidies. We 
recommends however, that any continued domestic support be decoupled 
from production so that it is the least trade distorting as possible, 
consistent with provisions in WTO Agreement on Agriculture.

SPS Issues
    We urge negotiators to ensure that any FTAA sanitary and 
phytosanitary regulations are fully consistent with the WTO Agreement 
on Sanitary and Phytosanitary Measures (SPS) and based soundly on 
science. Sound science should necessarily be at the core of any 
agreement in order to ensure that national health and safety regulation 
are not used as disguised barriers to trade. In addition, we support 
increased cooperation and consultation on SPS-related trade barriers in 
the region. We recommend that the US consider a NAFTA-like SPS 
committee to work on harmonization of science-based regulations and 
standards throughout the region.

Prospects for the FTAA Negotiations
    GMA firmly believes that the success of the FTAA is necessarily 
liked to the launch of a new round of negotiations in the WTO and the 
passage of Trade Promotion Authority.

Importance of WTO Round
    Agriculture has emerged as one of the most contentious sectors in 
the FTAA negotiations. For example, at the April Trade Ministerial in 
Buenos Aires, many countries argued for a direct linkage between 
reductions in domestic support and reductions in tariffs. In addition, 
although countries have committed to the elimination of export 
subsidies in the region, they are conflicted as to how to deal with 
subsidized exports from third country markets. Unfortunately, these 
issues cannot realistically be solved in the FTAA context. Rather, they 
must be addressed in a multilateral context to achieve meaningful 
commitments from all trading partners. It makes no sense for the US to 
``unilaterally disarm'' and lose leverage against our most significant 
and reluctant trading partners, the EU and Japan. Put simply, it is 
unlikely there will be an FTAA agreement without agriculture and 
extremely difficult to achieve any results in agriculture negotiations 
in the FTAA without comprehensive round of negotiations in the WTO.

Trade Promotion Authority
    Trade Promotion Authority (TPA) is an essential and necessary tool 
for progress in the FTAA. TPA establishes a partnership between the 
Administration and the Congress that protects trade agreements 
negotiated by the Administration from amendment during congressional 
consideration. With TPA, the Administration can ensure trading partners 
that commitments made during negotiations will be honored when Congress 
considers these trade agreements. Without TPA, it is unlikely that 
trading partners will put forth meaningful offers for fear concessions 
will be withdrawn later. GMA is committed to the passage of Trade 
Promotion Authority by the end of this year.

Conclusion

    Thank you for this opportunity to share our views on the Free Trade 
Area of the Americas. GMA firmly believes that it is of critical 
importance to farmers and producers alike to continue to expand market 
access, reduce tariffs and dismantle barriers to food and agricultural 
products. Achieving the objectives discussed above will benefit 
consumers throughout the hemisphere with a more reliable, diverse, safe 
and affordable food supply. We look forward to working with you and the 
Administration to achieve these goals.

                                

                                              Kal Kan Foods
                                         Vernon, California
                                                       May 22, 2001
Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
    I respectfully submit comments for the Committee's consideration on 
behalf of Kal Kan Foods concerning renewal of the Andean Trade 
Preference Act (ATPA). While Kal Kan Foods firmly supports assistance 
to the Andean Community to promote trade and economic development, the 
Committee's attention is also requested to the need to secure more fair 
and reasonable treatment by Andean Pact members for US exports.
    Kal Kan Foods manufactures food for pet dogs and cats at factories 
in California, South Carolina, Ohio, Texas, Illinois, and Nevada for 
domestic consumption and for export worldwide including to Colombia and 
the Andean Pact countries.

I. Issue Summaries

    Colombia is a member of the Andean Community and is participating 
in the Community's ``price-band'' tariff system which was implemented 
in 1995.\1\ Pet food (HS 2309.10) is the only multiple ingredient 
processed finished product that is ``linked'' to the price band system. 
In this case the linkage is to yellow corn whether or not the pet food 
contains corn.
---------------------------------------------------------------------------
    \1\ Decision 371 of the Cartagena Agreement Commission.
---------------------------------------------------------------------------
    Since April, 1995 Colombia's 20% basic tariff on pet food has been 
increased 40 times with the increases averaging 44%. Since early 1999 
the duty has varied from 53% to 88% and by the end of the year was 
100%.\2\ A 7% IVA tax was imposed on pet food mid year but was not 
imposed on yellow corn.
---------------------------------------------------------------------------
    \2\ Colombia has not yet exceeded its WTO bound rates for pet food. 
Colombia's 2000 bound rate for pet food is 106.6% ad valorem and the 
final bound rate is 97% in 2004.
---------------------------------------------------------------------------
    The duty rate for the period June 1-15 will be 54%. Both the level 
of the tariff and the substantial, frequent fluctuations are major 
impediments to trade because they force retail prices beyond acceptable 
consumer levels (more than a 100% premium over local brands) and make 
it impossible for importers to predict costs and price products 
accordingly. As a direct result of Colombia's high tariffs on pet food, 
US pet food manufacturers, including Kal Kan, who make the world's 
leading brands are being forced out of the Colombia market.
    Early last year, as part of negotiations at the WTO in Geneva 
regarding Colombia's request for a delay in implementing the WTO 
Agreement on Customs Valuation, the US Government secured an agreement 
from Colombia to de-link wet pet food from the price-band system. 
However, the Government of Colombia has thus far failed to act on this 
commitment to the United States.

II. Background

    The stated purpose of the Andean price band system is to stabilize 
import costs for 13 agricultural commodities whose international prices 
are considered by the Pact countries to be volatile or ``distorted.'' 
The commodities included are rice, malting barley, yellow and white 
corn, soybeans, wheat, crude palm oil, crude soybean oil, raw and 
refined sugar, powdered milk, poultry meat, and pork meat. This 
protection is achieved by increasing import tariffs when prices are low 
and lowering them when prices are high. The price band also links 147 
additional commodities and one finished product (pet food) that are 
considered derivatives or substitutes for the 13 ``marker'' 
commodities. For example, derivative and substitute products linked to 
yellow corn are poultry mean, sorghum, starches, glucose syrup, bran, 
and food for pet animals and livestock.
    The operation of the band is based on an Andean Community Board 
determination of a ceiling price, a floor price, and a reference price 
which are then used to calculate a duty surcharge or discount to be 
assessed on imports of marker and linked products. The floor and 
ceiling prices are derived from the international fob prices and are 
valid for one year. The reference price is the 15-day average price of 
the market product adjusted by so-called ``international market 
information.'' None of these price relate to import transaction values. 
If the reference price is within the price band i.e. between the floor 
and ceiling prices, then the common external tariff (CET) will be 
applied to imports of the marker product. If the reference price is 
above or below the price band than a surcharge or discount will be 
calculated. The example below shows the most common situation--an 
import surcharge.
---------------------------------------------------------------------------
    \3\ Article 12 provides that If the CET for the linked product is 
greater than the CET for the marker product, then the additional 
variable duty of the linked product will be the greater of the 
following two values: (a) Additional variable duty of the market 
product, multiplied by the ``quotient'' between the CET of the marker 
product and that of the linked product; (b) the additional variable 
duty of the marker product, less the difference between the CET of the 
linked product and the CET of the marker product.


                                EXAMPLE OF A VARIABLE DUTY SURCHARGE CALCULATION
----------------------------------------------------------------------------------------------------------------
                                                                     Reference      Floor Price    Ceiling Price
            Marker or Linked Product                    CET        Price US$/mt       US$/mt          US$/mt
----------------------------------------------------------------------------------------------------------------
Yellow Corn.....................................             15%             117             161             192

----------------------------------------------------------------------------------------------------------------
 Step 1: The difference between reference price and floor price or 161-117=44
 Step 2: Calculate duty on the amount of difference, and add difference or 44+[4415%]=$50.60
 Step 3: Convert this specific duty to advalorem or $50.60+117=43%. This is the variable surcharge component of
  the total duty.
 Step 4: Calculate total duty by adding the CET to the variable surcharge or 15%+43%=58%.
 Step 5: This duty rate of 58% is applied against the reference price.
 As of January 2000 the duty on yellow corn cannot exceed 44%.12
 Pet food (linked)--20%.
 Because pet food is linked to yellow corn the import duty on pet food is the CET plus the variable duty
  surcharge. However, because the CET on pet food is higher than the CET on corn Article 12 \3\ of Decision 371
  applies which adjusts the variable duty surcharge to reflect the difference between the CET on yellow corn
  (15%) and the CET on pet food (20%). In this case rule (b) applies and the calculation is 43%-5%=48%. The
  total duty on pet food is 20%+38%=58%*
 This duty rate of 58% is applied against the declared value of the imported pet food.
 There is no ceiling on the pet food duty.

    Among the objections to the price band system are the lack of 
process transparency and arbitrary nature of reference price inputs. 
Also, the system's use of reference prices introduces volatility to the 
cost of importing and makes it impossible for importers to predict 
costs and build markets. The arbitrary nature of the system was 
evidenced in 1999 when Colombia, bowing to pressure from domestic 
poultry producers, reduced the duty on 100,000 mt of yellow corn to 
35%. However, the tariffs on pet food and other products linked to 
yellow corn were not reduced. Similarly, early in 2000 the government 
decreed the duty on yellow corn could not exceed 44% but no such 
maximum duties were set for linked products.
    Not all members of the Pact impose the additional duties on yellow 
corn and linked products. Bolivia and Peru do not participate in the 
price band system and their tariffs on pet food are 10% and 12% 
respectively which provides fair market access for imported products.

III. The Linkage of Pet Food to Yellow Corn Is Unjustified

    The Andean price band system sets two criteria for products to be 
included as ``linked'': (1) the product includes the marker commodity 
as a raw material; (2) the product can be substituted for a marker 
commodity or a related product in industrial use. Pet food does not 
meet either of these two criteria.
    Pet food is a highly processed product that is made to meet 
national and international standards for food for pet dogs and cats. 
Regulatory authorities \4\ have determined the nutrition requirements 
for pet animals at each stage of life, for example, from puppies to 
mature dogs. Pet food recipes are designed to utilize ingredients that 
deliver complete nutrition in a digestible form that meets national 
standards. Corn may be included among the many ingredients used in pet 
food but could not be used alone if the regulatory standards for energy 
and nutrition content are to be met. In the case of wet pet food which 
has a high water content and is packed in cans, pouches or trays, the 
corn content ranges from 0 to 1%.
---------------------------------------------------------------------------
    \4\ For example, the American Association of Feed Control Officials 
(AAFCO) has set out nutrient profiles for pet dogs and cats at each 
stage of life that prepared pet foods must deliver. The nutrients 
include crude protein, crude fat, crude fiber, Ash, Calcium, and 
Phosphorus.
---------------------------------------------------------------------------
    Further, it cannot be said that pet food is in any way derived from 
corn or that corn is an essential ingredient in pet foods for which 
there is no substitute. Additionally, it has been shown that there is 
no correlation between the price of yellow corn and the price of pet 
food.
    Pet food cannot readily be substituted for corn. Pet food is made 
to meet specific energy and nutrient targets for pet animals and is 
more costly to produce than the yellow corn feed meal that would be 
used for livestock. The cost of feeding prepared pet food to livestock 
would be prohibitive.
    Of the 147 products linked to the 13 marker commodities, including 
the 27 products linked to yellow corn, pet food is the only highly 
processed multiple ingredient product. This singling out of pet food 
among all processed products for linkage is discriminatory and reveals 
a misunderstanding of how pet food is formulated and the international 
nutrition standards that influence ingredient selection.
    It is for the reasons stated above that a petition was filed with 
the Colombian Ministry of Agriculture to remove pet food from the price 
band and apply only the 20% CET to imported pet food.
    Kal Kan Foods supports efforts by the Administration and Congress 
to advance trade liberalization among all countries of the Americas. 
The Andean Trade Preferences Act can be viewed as one component of this 
larger vision. With this in mind, it is important to build support 
among all US business sectors and the American public by ensuring that 
US exporters also have a fair opportunity to participate in all the 
markets of the Americas.
            Sincerely,
                                         Marietta E. Bernot
                                                          President

                                


        Statement of the Michigan Farm Bureau, Lansing, Michigan

    Michigan Farm Bureau appreciates the opportunity to present this 
written testimony on the impact the Andean Trade Preference Act (ATPA) 
has had on our domestic asparagus industry. Michigan Farm Bureau is the 
state's largest general farm organization, representing more than 
45,000 farmer member families.
    The ATPA provides the four Andean countries of Bolivia, Columbia, 
Ecuador and Peru with duty free and reduced duty access to our market. 
ATPA was enacted to assist those countries in their fight against 
narcotics trafficking. The extent to which the ATPA has advanced 
narcotics eradication in Peru, however, is highly questionable largely 
because cultivation of asparagus and other crops in Peru occurs in the 
desert region along Peru's coastline, not in the foothills and 
mountains where Peruvian drug cultivation is known to exist.
    Providing this duty free and reduced duty treatment to imports from 
these countries has measurably affected trade in certain horticultural 
products and has had a significant impact on domestic production of 
these commodities.
    The duty free treatment provided to asparagus growers in Peru has 
further enhanced an already competitive industry that existed in Peru 
prior to enactment of the ATPA. Once a small industry in the early 
1980's, Peru has become the world's largest producer and exporter of 
asparagus. Asparagus is Peru's second largest agricultural export item 
with about $150 million in annual export earnings. Export production is 
for two different markets: green asparagus (primarily fresh) for export 
to the United States, and processed white asparagus for the European 
market. Peruvian cultivation of asparagus occurs year round with very 
high yields per acre experienced by its growers.
    The U.S. market consumes 75% of the fresh asparagus produced in 
Peru. Peru's fresh exports to the U.S. market have increased by 10-fold 
in the last decade, doubling in just the last two years. Peru ranks 
second to Mexico in fresh asparagus sales to the U.S.
    As the Peruvian industry has matured they have also begun to ship 
larger quantities of processed asparagus to the U.S. In 2000, Peru 
shipped 813 metric tons of canned asparagus and 1,560 metric tons of 
frozen asparagus to the United States. Processed asparagus imports from 
Peru in 2000 were almost eight times greater than the amount shipped in 
1994. Peru is the largest offshore source of processed asparagus with a 
total volume exceeding the amounts imported from all other sources 
combined.
    U.S. industry sources indicate that five to ten million pounds of 
Peruvian frozen asparagus have been made available to the U.S. market 
in the past year. Imports of this magnitude are significant because the 
total U.S. market for frozen asparagus is only ten million pounds 
annually. Duty free access for Peruvian frozen asparagus has 
exacerbated the situation. Peruvian imports are displacing U.S. 
asparagus production at an alarming rate.

      U.S. Asparagus Production and Imports from Peru--Metric Tons
------------------------------------------------------------------------
                                                               Peru as a
                                         U.S.       Imports   Percent of
                                      Production   from Peru     U.S.
                                                              Production
------------------------------------------------------------------------
1994................................      99,656       8,593        8.6%
1995................................      91,808      10,032       10.9%
1996................................      90,220      11,574       12.8%
1997................................      91,899      13,368       14.5%
1998................................      92,806      15,151       16.3%
1999................................      99,383      23,424       23.6%
2000................................     103,572      32,196       31.1%
------------------------------------------------------------------------

    Asparagus production in the U.S. is centered in California, 
Washington and Michigan. These three states make up over 95% of annual 
production. Minor production is found in New Jersey, Illinois, Indiana, 
Maryland, Minnesota and Oregon. Over the past decade U.S. asparagus 
acreage had declined by 17%, while production has deceased 7%. Per 
capita consumption of asparagus in the U.S. has increased slightly in 
recent years.
    In recent reports to Congress, the U.S. International Trade 
Commission \1\ and the U.S. General Accounting office \2\ concluded the 
following about ATPA and the asparagus industry:
---------------------------------------------------------------------------
    \1\ Andean Trade Preference Act, Impact on U.S. Industries and 
Consumers and on Drug Crop Eradication and Crop Substitution. USITC 
Publication 3358, September 2000. Seventh Report 1999, Investigation 
No. 332-352.
    \2\ Agricultural Trade; Impacts of the Andean Trade Preference Act 
on Asparagus Producers and Consumers. Government Accounting Office, 
March 2001.
---------------------------------------------------------------------------
   The ATPA has encouraged the production of nontraditional 
        agricultural commodities, such as asparagus, in Peru (ITC).
   The Peruvian asparagus industry has dramatically increased 
        production in the past decade and is projected to increase as 
        much as 40% from 1999 to 2000 (ITC).
   Peru's substantial increase in asparagus production has 
        allowed them to become a major exporter of frozen product, 
        complementing their already strong position in canned and fresh 
        asparagus (GAO).
   As U.S. imports of asparagus have increased, demand for 
        domestic processed asparagus has declined (GAO).
   Imports of ATPA-exclusive products were estimated to have 
        had a potentially significant effect on a number of domestic 
        industries, including asparagus (ITC).
   Asparagus production in the U.S., particularly processed 
        production, has been displaced by duty-free imports from Peru 
        under ATPA, and reauthorization of ATPA will result in 
        continued displacement of domestic producers (GAOP).
   A portion of this displacement will continue even without 
        reauthorization of ATPA, due to Peru's climate and cost 
        advantage (GAO).
   Asparagus is not listed as one of the crops that provide an 
        alternative to the production of coca in Peru's major drug 
        producing areas. However, asparagus production was found in 
        areas adjacent to coca producing regions (ITC).
   Farmers and pro-coca local officials in Peru's coca areas 
        have actively resisted coca eradication efforts and have 
        shunned the development of alternative crops (ITC).
    For the reasons noted above, Michigan Farm Bureau requests that 
significant modifications be made to the ATPA should it be renewed at 
all. First, we request that duty free treatment not be accorded for 
specific commodities wherein a country is deemed economically 
competitive. The determination of economic competitiveness should 
follow the criteria now used in the Generalized System of Preferences 
(GSP) program requirements. Once a country has reached the established 
level of economic competitiveness, it would no longer be eligible for 
duty-free access to the U.S. market for that commodity. Instead, the 
tariff for that product would revert to the MFN level.
    Instituting this change would support the objective of the ATPA of 
providing economic alternatives to narcotics production, but would not 
allow foreign imports to put U.S. producers out of business in the 
process. We do not oppose competition with foreign imports, but we do 
oppose providing trade preferences to countries to the extent that such 
preferences result in the elimination of otherwise competitive U.S. 
production.
    Second, a safeguard mechanism should be instituted to address 
import surges of perishable agricultural commodities. Import surges can 
be extremely disruptive to U.S. agricultural markets, especially 
considering seasonality concerns and the price variability of 
perishable agricultural products. Criteria now exist in the NAFTA and 
the WTO agreement on agriculture that enable safeguard actions to be 
taken under specified conditions. Certain trade remedies, such as the 
U.S. 201 law, allow the administration to take action to mitigate 
import surges when they are determined to be causing or threatening 
injury to U.S. producers. However, imports from ATPA and other 
countries are exempt from consideration in the investigation of 201 
cases.
    In order to address the often-irreparable damage caused to U.S. 
producers of perishable products due to import surges, we request that 
any extension or renewal of the ATPA include an automatic, transparent, 
and temporary safeguard mechanism. The safeguard mechanism would 
provide much needed import relief to U.S. producers being injured by an 
import surge and would still provide market access for ATPA beneficiary 
countries during the remedy phase.

                                


     Statement of Malcolm O'Hagan, President, National Electrical 
              Manufacturers Association, Rosslyn, Virginia

    Mr. Chairman, Members of the Committee. Thank you for this 
opportunity to discuss NEMA's experiences in the Americas and our 
perspective on the proposed Free Trade Area of the Americas (FTAA).
    The National Electrical Manufacturers Association (NEMA) is the 
largest trade association representing the interests of U.S. electrical 
industry manufacturers. Our more than 450 member companies manufacture 
products used in the generation, transmission, distribution, control 
and end-use of electricity. Annual shipments exceed $100 billion in 
value.
    NEMA brings a unique perspective to your hearing as a result of the 
successful outreach efforts that we have been conducting throughout the 
Hemisphere in recent years. Supported partly by a Commerce Department 
Market Development Cooperator Program grant, we have opened Sao Paulo 
and Mexico City offices that have not only helped our members do 
business in the Americas, but have proven invaluable with regards to 
addressing standards-related and other non-tariff barriers to trade. 
Moreover, we have also been engaging counterpart industry groups, in 
particular conducting a mini ``Summit of the Americas'' for our 
industry in Costa Rica last November, as well as taking the initiative 
to begin signing numerous memoranda of understanding with a variety of 
Latin trade associations. Finally, we have also attended several of the 
Americas Business Forums and last month were part of a U.S. business 
delegation that went to Santiago to meet with leaders there to show our 
strong support for the proposed US-Chile FTA.
    In short, NEMA has found that there are plenty of groups and 
individuals throughout the Hemisphere who share our view that the FTAA 
is a ``win-win'' goal.
    While NEMA applauds the limited progress made in the recent Buenos 
Aires and Quebec.
    City meetings, our view is that participating governments need to 
catch up with the latent desires of their populations to further 
develop and integrate economically. Substantive FTAA negotiations are 
long overdue in starting, with many capitals still not seriously 
engaged in the process. In our view, the 34 governments should have 
moved up the deadline for the completion of negotiations from 2005 to 
2003 so as to help the people of the Americas enjoy the benefits of 
trade liberalization as soon as possible.
    Specifically, NEMA strongly encourages FTAA negotiators to attain 
the following as soon as possible as soon as possible as soon as 
possible:
   Tariff Elimination
   Openness and Transparency in Government Procurement
   No Mutual Recognition Agreements (MRAs) For Non-Federally-
        Regulated Products
   Energy Services Liberalization
   Protection of Intellectual Property Rights
   Compliance with all World Trade Organization (WTO) Technical 
        Barriers to Trade (TBT) Requirements
   Inclusive Definition of ``International Standards''
   Voluntary, Market-Driven Standards and Conformity Assessment
   As Many Market Opening Measures As Possible
   Effective Monitoring and Enforcement Mechanisms
   Free Trade Benefits Not Encumbered By Labor Or Environmental 
        Provisions
    Thank you for your consideration of these remarks.

                                


 Statement of Myles Frechette, North American Peruvian Business Council

    Mr. Chairman, I commend you for the timeliness of this hearing on 
prospects for free trade in the Hemisphere. I am Myles Frechette, 
Executive Director of the North American Peruvian Business Council 
(NAPBC) whose fundamental mission is to facilitate investment and 
promote trade between Peru and North America. The Founding members of 
the NAPBC are Newmont Mining Corporation, Barrick Gold Corporation, 
Caterpillar Inc., Continental Airlines, J.P. Morgan, Compania De Minas 
Buenaventura S.A., and Forza S.A. Other members of the NAPBC are Exxon-
Mobil Corporation, Patton Boggs LLP, Riggs Bank N.A., Texaco Inc., 
Ferreyros S.A., Hunt Oil Company, and Schmeltzer, Aptaker & Sheppard, 
P.C. The NAPBC was incorporated in August 2000 as a non-profit 
organization and includes U.S., Canadian and Peruvian companies.
    The NAPBC would like to work with Congress to promote and increase 
trade opportunities in the Hemisphere. The 1991 Andean Trade Preference 
Act (ATPA) grants Colombia, Bolivia, Ecuador, and Peru tariff 
preference on certain goods for ten years in an effort to help those 
countries fight narcotics trafficking. The ATPA has proven to be a 
valuable weapon in the war against drugs by creating economic 
incentives to encourage the Andean countries to avoid the illegitimate 
industry of narcotics, especially coca, and increase the production of 
legitimate products.
    In January, the Office of the United States Trade Representative 
released its third report to Congress on the operation of the ATPA. the 
report indicates that the ATPA has generated significant job 
opportunities in a variety of sectors, including cut flowers, non-
traditional fruits and vegetables, jewelry and certain electronic 
inputs. Between 1991 and 1999, total two-way trade between the U.S. and 
the ATPA beneficiary countries nearly doubled. The ATPA has been 
essential to strengthening the legitimate economies in the Andean 
countries.
    I was Ambassador to Colombia from July 1994 to November 1997. 
During my service there, I saw at first hand the benefits of the ATPA 
and the potential of an extended and ``robust'' ATPA. The ATPA created 
thousand of jobs in Colombia, helped Colombia's economy and government 
offset the high cost of countering narcotics trafficking and turned the 
private sector into staunch and vocal supporters of anti-narcotics 
cooperation.
    The ATPA did not include several import sensitive products such as 
apparel and textiles. Congress is now faced with the unique opportunity 
of expanding and extending the ATPA before it expires on December 4, 
2001. Congress should not squander this opportunity to provide the ATPA 
countries with an effective tool for combating the war on drugs.
    Even though in 1999 Bolivia, Colombia, and Peru achieved record 
levels of coca eradication, these cooperative efforts to combat the 
scourge of drugs are ongoing and should be strengthened.
    The ATPA should be expanded to include textiles and apparel. The 
ATPA was based on the Caribbean Basin Initiative (CBI) which did not 
originally provide tariff relief for apparel and textiles. Recently, 
the Andean countries' competitors for textile and apparel have received 
beneficial trade treatment from the United States due to the recently 
enacted ``Trade and Development Act of 2000.'' CBI beneficiaries now 
receive preferential tariff treatment for regional products made with 
American fabric and yarn. This expansion of CBI already compounds 
disadvantages to the Andean textile and apparel industries created by 
the North American Free Trade Agreement.
    By including textiles and apparel, the ATPA would become a valuable 
weapon in the war against drugs in the Andean region. The data on the 
drug trade clearly shows that the coca economy is regional, and that 
actions adopted in one country affect anti-drug efforts in neighboring 
countries. The success in Peru's drug fight corresponds with an 
increase in drug production in Colombia which clearly indicates the 
interconnected relationship between drug protection and trafficking in 
Peru, Colombia and Bolivia.
    We commend Senator Graham (D-FL) for taking the lead on expanding 
the ATPA and for including textiles and apparel. However, we are 
concerned about the limitations of the textile and apparel provisions 
included in S. 525, the Andean Trade Performance Expansion Act. The 
textile provisions included in S. 525 are based on the textile and 
apparel provisions included in the expansion of the CBI as passe in the 
Trade and Development Act of 2000. An approach based on the use of 
fabric and yarn does not help the Andean countries.
    The use of cotton grown in Peru and Bolivia is an essential part of 
their industry. The cotton industry provides an important alternative 
crop to the coca industry and additional lawful employment for both 
agricultural and factory workers. These jobs are vital to Peru's 
efforts in the war against drugs. Peruvian products that currently 
benefit from the ATPA are mostly minerals but mining is not as labor 
intensive as the textile and apparel industries.
    Recently, the Trade Ministers of the Andean community at a meeting 
in Lima stated their joint position on the inclusion of textiles and 
apparel in the ATPA in a document called ``Position of the Andean 
Community to the Andean Trade Preference Act.'' The Trade Ministers 
believe that textiles and apparel should be included in the ATPA and 
more specifically, ``the expansion of the coverage of the ATPA should 
not be considered to regulations regarding the origin of raw materials 
that restrict the access of our textiles and apparel.''
    Tens of thousands of jobs are at stake. Most apparel from Peru and 
Bolivia are made from high quality, locally grown cotton or are made 
from llama or alpaca that is native to the region. In Peru alone, the 
textile sector supports 32 percent of the population employed in the 
manufacturing industry, which amounts to approximately 180,500 jobs. 
Workers who would otherwise have lawful jobs will be left without an 
alternative to coca production.
    Expanding ATPA benefits to include apparel made with regional 
fabric will not have an adverse impact on the domestic U.S. industry. 
In 1999, textile and apparel exports from Andean countries represented 
only 1.1 percent of the total textile and apparel exports to the United 
States. The ATPA countries export far less textiles and apparel to the 
United States than the CBI region does.
    An expansion of the ATPA to include textiles and apparel would 
provide economic and political stability to the Andean countries. 
Increasing the number of legitimate employment opportunities would 
provide a needed boost to the struggling economies of the Andean 
countries. The NAPBC looks forward to working with Congress to extend 
benefits under the ATPA in order to provide the necessary economic 
incentives to eliminate the lure of illicit drugs and strengthen 
democracy in the region.

                                


 Statement of the Hon. E. Clay Shaw, Jr., a Representative in Congress 
                       from the State of Florida

    Mr. Chairman I am a avid supporter of free trade and the expansion 
of markets with open lines of movement of goods and services between 
our country and our trading partners, I have supported ``Fast Track'' 
and now support ``Trade Promotion Authority,'' as well as voting in 
favor of the various trade agreements that now define our larger 
commercial relationship with the world, particularly the Uruguay Round 
agreements that formed the WTO and our partnerships with Canada and 
Mexico, which are embodied in NAFTA and other bilateral agreements in 
this hemisphere.
    I support free trade because I understand how it benefits both the 
consumers and the producers in our own economy to modernize and advance 
our ability to make the most of our own comparative advantages and our 
trading partners' competencies. In addition, many of us are fully aware 
of the strategic role expanded trade plays in building diplomatic 
bridges and common purpose and other nations, sometimes more 
effectively than direct foreign aid or technical assistance. Even as 
some countries resent yet strive to emulate U.S. success, recent events 
underscore how some of the most thorny international security and 
internal political challenges can be subordinated to the desire for 
stronger economic commercial ties, when cooler heads prevail.
    I have also heard the legitimate grumblings of parties in this 
country who do not feel that they got the best deal possible in recent 
agreements. Even worse, some have rightly observed that not all the 
commitments they received for their concessions have been squarely met. 
Some in these industries have communicated to me that they have 
reasonably concluded that further expansion of free trade in our 
hemisphere is not in their own best interest.
    Today, rather than argue apples and oranges, I want to give voice 
to citrus and tomatoes. I remain committed to free trade, but I 
acknowledge that unless we forthrightly address the issues that hold 
back some individuals and certain industries from wholeheartedly 
supporting expanded trade in our hemisphere, we miss an important 
opportunity to assure that we are doing right by own citizens in all 
four corners of the U.S. If now is the time for debate, then let us 
meet the debate head-on with facts, understanding various parties' 
positions and prepared to continue improving in the future how we do 
business in international trade negotiations. This way, the people we 
represent can have confidence we are doing, for them, the best job 
possible of protecting their interests.
    In particular, many fruit and vegetable growers in Florida have 
expressed frustration to me in recent years. At previous hearings and 
in personal discussions with many in this room, including Ambassador 
Zoellick, I have mentioned ``seasonality'' as an important element of 
assuring fairness to certain farmers in competing with Latin American 
during certain limited growing seasons. I raise it again today, asking 
for some specifies, so that we may move the debate forward.
    A number of U.S. agricultural commodities, including fresh and 
processed citrus, have been found import-sensitive in the past, and 
been required to compete with unfairly traded or subsidized imports 
both in domestic and foreign markets. In addition, foreign advantages 
gained through looser antitrust laws and differing environmental 
standards and labor conditions, have permitted many foreign producers 
of horticultural products to overcome superior U.S. product quality. 
Trade relief laws alone have not fully satisfied these industries in 
offsetting the very advantages that have launched and nurtured some of 
these foreign competitors.
    Thank you for your attentiveness to these issues. I look forward to 
discussing them with you in more detail as we move forward on TPA and 
in negotiations with our trading partners.

                                


 Statement of Jay Mazur, President, Union of Needletrades, Industrial 
               and Textile Employees, New York, New York

    I appreciate having this opportunity to comment on last month's 
Summit of the Americas in Quebec City, Canada, on progress to date in 
negotiating a Free Trade Area of the Americas (FTAA) and on renewal and 
possible expansion of the Andean Trade Preference Act (ATPA). I speak 
for 250,000 members of the Union of Needletrades, Industrial and 
Textile Employees (UNITE) in the United States and Canada, many of whom 
were in Quebec City during the Summit. I also speak for an equal number 
of retired members of our union, many of whose lives were made more 
difficult because of United States trade policy.
    In addition to the impact of trade on our members in Canada and the 
U.S. UNITE works with garment worker unions and union federations 
throughout Latin America. We are aware of the prolonged and profound 
economic hardships suffered by working people of the region, so we 
wholeheartedly support any policy of the United States that would raise 
the living standards of workers in the region.
    The negotiations on FTAA and the expiration of ATPA provide a 
critical opportunity for the government of the United States to re-
think how it can best help promote development in Latin America. There 
is no evidence that nearly 20 years of trade under various versions of 
the Caribbean Basin Initiative (CBI), 10 years of trade under the ATPA 
or 7 years of trade under the North American Free Trade Agreement 
(NAFTA) have advanced the most pressing development needs of the 
peoples of those respective regions. Furthermore, there is considerable 
evidence that the special U.S. apparel market access programs for 
Mexico and the Caribbean Basin countries, the model on which the 
proposed ``enhancement'' of ATPA is based, may actually retard 
development.
    Any strategy for development must strengthen democratic 
institutions that move developing societies toward the rule of law and 
a more equitable distributions of wealth. A legitimate FTAA and a 
genuine enhancement of ATPA would place them in the context of such 
strategy, one adapted to the most pressing needs of the Western 
Hemisphere today.
    The demonstrations in Quebec City, like those before them in 
Seattle, Washington, D.C., Buenos Aires, Prague and countless other 
cities in this Hemisphere and around the world, cannot be dismissed as 
the actions of a handful of radicals or a political version of spring 
break. They are reflections of serious concerns about the rules of 
trade that have been established since the creation of the World Trade 
Organization in 1994. Polling consistently shows that the uneasiness 
expressed by the demonstrators reflects the view of the vast majority 
of the American public.\1\
---------------------------------------------------------------------------
    \1\ See, e.g., Scheve, Kenneth and Slaughter, Matthew, 
Globalization and the Perceptions of American Workers, Institute for 
International Economics, March 2001.
---------------------------------------------------------------------------
    For all of its virtues, trade in the 90s has left multitudes of the 
world's citizens behind. While globalilzation has created spectacular 
wealth for the few, whatever has trickled down to the many must not be 
confused with social development or even economic growth. Workers in 
both developed and developing nations have seen their real incomes 
stagnate or decline over the past decade. Nearly 2 billion people are 
living on less than one dollar a day; 2.6 billion lack even basic 
sanitation. Hundreds of millions of people are malnourished. 
Globalization has increased income and social disparities within 
nations and between nations. I has left many people behind.
    The sheer size and, with it, the power of multinational 
corporations is overwhelming nations. Of the 100 largest economies in 
the world, 51 are corporations--only 49 are countries.
    Those who are negotiating trade agreements today and hereinafter 
ignore these facts at their peril. We do not believe Congress should or 
will continue to pass trade legislation or approve trade agreements 
that protect the interests of multinational corporations and investors 
and ignore the interests of working families.
    As Dani Rodrik, Professor of International Political Economy at 
Harvard University, put it:

        The new agenda of global integration is built on shaky 
        empirical ground and it seriously distorting policy makers' 
        priorities. Making compliance with it the first order of 
        business diverts human resources, administrative capabilities, 
        and political capital away from more urgent development 
        priorities such as education, public health, industrial 
        capacity, and social cohesion.\2\
---------------------------------------------------------------------------
    \2\ Rodrik, ``Trading in Illusions,'' ``Foreign Policy, March/April 
2001, p. 55.

    It is UNITE's position that steps must be taken to bring the 
Western Hemisphere countries into compliance with internationally 
recognized core labor standards, or the result will be increased 
inequality and the stagnation of living standards.
       Trade policy liberalization is not a development strategy
    ``Development'' and economic growth are not synonymous. According 
to a principal architect \3\ of the United Nations Development 
Program's influential annual Human Development Report, development 
hinges on four elements:
---------------------------------------------------------------------------
    \3\ Mahbub ul-Haq, Reflections on Human Development. Oxford: Oxford 
University Press, 1999.
---------------------------------------------------------------------------
   productivity growth:
   empowerment of people;
   equity; and
   sustainability.
    The U.S. government has not evaluated whether current trade 
policies have promoted measurable progress on the above four dimensions 
in the Western Hemisphere. Exports of products to the United States 
have grown, according to the U.S. International Trade Commission. 
Officials from some transnational corporations say that they feel less 
inhibited about doing business in various parts of the region. No 
thorough study has been done by the U.S. Government, however, of the 
impact of NAFTA, CBI in its various forms and the ATPA on the working 
people who actually produce articles covered under the trade acts.
    Evidence is available, however, about the impact of special apparel 
market access programs on the working people of Mexico and Central 
America. Both the CBI and NAFTA programs were promoted as development 
strategies for Mexico and the Caribbean Basin. The evidence from these 
countries suggests, however, that simple extension of special U.S. 
Market access to apparel and textiles (and by extension, other 
products) will fail to promote or consolidate any of the cornerstone 
elements of the development in the Hemisphere.

                      Trade boom, development bust

    Apparel exports to the United States from Mexico and a few 
Caribbean Basin countries boomed during the 1990s. Employment in 
Mexico's apparel industry increased some 60 percent between 1993 and 
1998. The CBI and Mexico apparel booms, however, have not driven 
forward development in those countries:

Productivity and living standards:

   Mexican apparel industry labor productivity declined more 
        than 15 percent between 1993 and 1998.
   Real (inflation-adjusted) hourly compensation for Mexican 
        apparel workers dropped almost 25 percent over the same 
        period.\4\
---------------------------------------------------------------------------
    \4\ UNITE analysis of official Mexican data on consumer price 
indices, total compensation, and hours worked. Data available via the 
internet at http://www.inegi.gob.mix.
---------------------------------------------------------------------------
   Apparel industry labor productivity in major Caribbean Basin 
        apparel-exporting countries dropped significantly after 1986 
        (when the first CBI special access program for apparel was 
        launched).\5\
---------------------------------------------------------------------------
    \5\ UNITE analysis of official Mexican data on consumer price 
indices, total compensation, and hours worked. Data available via the 
internet at www.inegi.gob.mix.
---------------------------------------------------------------------------
   The wages of the majority of workers employed in the apparel 
        maquiladoras and ``export processing zones'' of Mexico and the 
        Caribbean Basin are insufficient to purchase nationally defined 
        ``basic baskets'' of goods and services that satisfy physical 
        needs.\6\
---------------------------------------------------------------------------
    \6\ See Equipo Tecnico Multidisciplinario Para Centroamerica, Cuba, 
Haiti, Mexico, Panama, y Republica Dominicana, Fuerza Laboral, Ingresos 
y Poder Adquisitivo de los Salarios en Centroamerica, Panama y 
Republica Dominicana, San Jose, Costa Rica: Oficina Internacional del 
Trabajo, 1998. This report contains data on the cost of basic food 
baskets for the larger countries of the Caribbean Basin. A simple rule 
of thumb to estimate the cost of a more complete basket is to double 
the cost of the food basket.
---------------------------------------------------------------------------

Empowerment

    The rights of workers have long been defined by the International 
Labor Organization (ILO), and were made binding on all member-nations 
in 1998. The countries in the FTAA are all members of the ILO. They 
are, therefore, bound to ``promote and realize'' the basic rights of 
their workers: freedom of association, the right to organize and 
bargain collectively; and the right to be free from forced labor, child 
labor and discrimination in employment. There is no evidence that 
special access to the U.S. market encourages the exercise of workers' 
rights. Again the experience of export-oriented apparel promotion in 
Mexico and CBI provides a dismal record:
   Only a few dozen collective bargaining agreement exist in 
        the CBI region, where approximately half a million workers in 
        CBI countries employed at hundreds of companies produce apparel 
        for export to the United States. Employers, in collusion with 
        government authorities, systematically crush workers' 
        organizing efforts. Employees are left defenseless against the 
        arbitrary and abusive practices of their employers.
   Numerous studies exist that describe in detail the pervasive 
        and systematic restriction of freedom of association and the 
        right to organize in Mexico.\7\ The university-founded Workers' 
        Rights Consortium recently examined industrial relations at a 
        supposedly ``model'' apparel factory in the Mexican state of 
        Puebla and uncovered gross violations of workers' fundamental 
        rights.\8\
   Human rights activists in Mexico and the CBI countries have 
        documented patterns of attacks on women's rights and freedoms 
        within export-oriented apparel firms.\9\ Some abuses, such as 
        pregnancy testing, appear to be motivated by an interest in 
        avoiding the economic cost of legally mandated pregnancy and 
        maternity benefits. Other abuses, such as occupational 
        discrimination and tolerance of sexual harassment (and, less 
        frequently, sexual assault), appear to be employed by managers 
        as tools of control over the workforce.
---------------------------------------------------------------------------
    \7\ See various reports submitted to and issued by the U.S. 
National Administrative Office for the North American Agreement on 
Labor Cooperation.
    \8\ See the preliminary WRC report on systematic abuse of workers' 
rights at the Kukdong apparel factor via the internet at http://
www.workersrights.org. Also see http://mikebiz.com for a less thorough 
report.
    \9\ See, for example, Human Rights Watch, Mexico: A job or your 
rights (New York: HRW, December 1998). Available via the internet at 
http://www.hrw.org/hrw/reports98/women2/.
---------------------------------------------------------------------------
   Export-oriented apparel firms have been found to employ 
        children who fall below the legal age threshold and to 
        discourage working youths from attending school. Countries and 
        companies that have been subjected to international media 
        attention focused on this issue appear to have taken some steps 
        to eliminate these practices.

Equity:

    What fruits there have been from the apparel export boom in Mexico 
and the CBI countries have been distributed inequitably. The principal 
beneficiaries of the market access programs have been U.S.-based 
apparel companies, retailers and importers, elites in Mexico and the 
CBI countries, and some Asian companies that have set up apparel and 
textile factories in Mexico and the Caribbean to export to the U.S. 
market. Workers in Mexico and the CBI countries are not getting their 
fair share.
    The increasing integration of Mexican and Caribbean Basin 
production workers into the U.S. apparel supply chain has meant that 
the income gap between those at the top of the transnational industry 
pyramid and those at the bottom has grown. Without even taking stock 
options into account, CEOs of U.S. companies in the apparel industry 
frequently make over 500 times as much money in a year as the average 
Mexican apparel worker producing goods for their companies.\10\
---------------------------------------------------------------------------
    \10\ The annual earnings of top executives of large U.S. apparel 
retail and manufacturing corporations that source production in Mexico 
and the Caribbean Basin frequently exceed $1 million (see http://
www.ecomponline.com/). The annual average wage of Mexico apparel 
production workers is about $2,000 (see official Mexican government 
statistics, available via the internet at http://www.inegi.gob.mx). 
Average annual earnings data are not available for the CBI countries.
---------------------------------------------------------------------------

Sustainability:

    The United Nations' Economic Commission for Latin America and the 
Caribbean (ECLAC) study of Mexican and Central American maquiladoras 
has aptly summarized a fundamental flaw with the maquiladora-led growth 
strategy:

        The contribution made by [Mexican and Central American maquila 
        factories] to economic growth is more modest than that which 
        one could suppose upon seeing the volume of their activity. 
        Should the maquila factories multiply in their current form, 
        the countries would be specializing in supplying cheap labor, 
        and [the sector's] growth would depend on the continual 
        cheapening of this factor. This is not compatible with a long-
        range strategy of growth with social equity.\11\
---------------------------------------------------------------------------
    \11\ Comision Economica para America latina y el Caribe. Maquila y 
transformacion productiva en Mexico y centroamerica. LC/MEX/R.630. 28 
de octubre de 1997. Translated by UNITE from the original Spanish. 
Emphasis added.

    The data contained in Table 1 below support the ELCAC's assertion. 
Growth in apparel imports from CBI countries has tended to increase 
most rapidly where hourly labor costs have increased the least. Where 
labor costs increased significantly, growth in apparel exports to the 
USA slowed.\12\ Apparel manufacturer and retailer executives are 
seeking out the lowest cost labor they can find. Is this not a race to 
the bottom? And will not those countries that are unwilling to pursue 
the race to bottom to its logical conclusion discover that reliance on 
apparel export-led employment growth leads to a dead end?
---------------------------------------------------------------------------
    \12\ Countries where wages have fallen the most are also the 
countries that have the worst record of abusing worker rights. For an 
interesting argument along these lines see: Dani Rodrik, Democracies 
Pay Higher Wages, NBER Working Paper 6364, revised October 1998, 
published in the Quarterly Journal of Economics.
---------------------------------------------------------------------------
Table 1

------------------------------------------------------------------------
                                                              Growth of
                                                 Growth of     reported
               Apparel Industry                     U.S.     avg. hourly
                                                  imports    labor costs
                                                                (USS)
------------------------------------------------------------------------
                                                    1989-98      1985-96
------------------------------------------------------------------------
Honduras......................................        2523%          10%
El Salvador...................................        2512%         -27%
Guatemala.....................................         466%           8%
Dominican Rep.................................         256%          56%
Costa Rica....................................         206%         186%
Jamaica.......................................          74%          71%
------------------------------------------------------------------------

   Sources: (imports) U.S. Department of Commerce, Major 
        Shippers Reports, various years; (wages) Bobbin Consulting 
        Group (1987), and Werner International Management Consultants 
        (1998); (wages*) UNIDO available via the internet at http://
        www.unido.org.

    Apparel executives see tariff preferences as a useful tool by which 
to pressure supplier companies to lower prices. The apparel industry 
magazine Bobbin recently related the expectations of the president of 
Sportif, a U.S. branded sportswear company, about the role of ``NAFTA 
parity'' for CBI countries. In the executive's view, Bobbin reported,

        ``It's possible that Caribbean competition will create supply-
        and-demand dynamics that could cause Mexico's labor rates or 
        currency value to fall.''\13\
---------------------------------------------------------------------------
    \13\ Bobbin, ``Exploring the HOT Topics of 2000: Sourcing and 
electronic commerce.'' Dec. 2000.

    This might seem to apparel industry executives to be a positive 
development. However, for the working people of North, Central and 
South America whose livelihoods are tied to the transnational apparel 
industry, intensification of the deregulated scramble for market share 
is cause for grave concern. The same is equally true of workers making 
other manufactured goods and even those providing soon-to-be integrated 
services.
    Any policy that rests its hopes for development primarily on 
apparel industry export promotion is flawed. Any such policy that fails 
to promote and protect nationally and internationally recognized worker 
rights is fatally flawed. Such a policy makes the United States 
complicit in the perpetuation of worker abuse.

Systematic violation of workers' rights in Andean countries

    For millions who live and work in the four Andean countries covered 
by the ATPA, freedom, as it relates to work is an illusion. Year after 
year, investigators from inter-governmental and non-governmental 
organizations document unconscionable violations of the most 
fundamental rights of trade union leaders and rank-and-file 
members.\14\ It is alarming, but not surprising, that one-third of all 
complaints in the world filed with the Committee on Freedom of 
Association of the International Labor Organization (ILO) originate in 
the Andean region.
---------------------------------------------------------------------------
    \14\ See The Second Report of the Special Representative of the 
Director-General for Cooperation with Colombia (Geneva: ILO, 2001); 
Report of the United Nations High Commissioner for Human Rights on the 
human rights situation in Colombia; International Confederation of Free 
Trade Unions (various publications); and U.S. State Department, Country 
Reports on Human Rights Practices (various years).
---------------------------------------------------------------------------
    Despite condemnation from unions and the ILO, new labor laws in 
Colombia, Peru, Ecuador and Bolivia have undermined the right of 
collective bargaining in those countries. In Peru, according to the 
State Department's Human Rights Report for 2000, ``the ILO specifically 
criticized a provision that permits businesses to employ youth workers 
between the ages of 16 to 25 as up to 30 percent of the workforce; 
workers in this age bracket are precluded from union membership and 
participation'' (emphasis added).
    As a result of these practices, the number of collective bargaining 
agreements in the region has dropped precipitously. A recent ILO study 
reports that the number of agreements in Peru dropped from 1,762 in 
1990 to 623 in 1996, and in Ecuador from 315 in 1987 to 206 in 1996, 
while in Bolivia only two new agreements were signed in the decade from 
1990 to 1999.
    Additional weakening of labor laws in export processing zones 
(EPZs) serves to further impede union organization. According to the 
State Department, in Peru: ``Special regulations aimed at giving 
employers in export processing and duty free zones a freer hand in the 
application of the law provide for the use of temporary labor as 
needed, for greater flexibility in labor contracts, and for setting 
wage rates based on supply and demand.'' In Colombia, there are no 
unions in the EPZs, while in Ecuador employers have used short-term 
contracts to prevent organization in the zones.
    Colombia is the leading Andean exporter of apparel to the United 
States. Colombia also is the most dangerous country in the world in 
which to be a trade unionist. Killings of labor leaders and unionized 
workers remain a ``regular'' occurrence in Colombia, according to an 
ILO special Direct Contacts Mission, which visited the country in 
February 2000. ``Cases where the instigators and perpetrators of the 
murders of trade union leaders are identified are practically 
nonexistent, as is the handing down of guilty verdicts,'' according to 
the ILO investigative team.\15\
---------------------------------------------------------------------------
    \15\ Report of the Direct Contacts Mission to Colombia, 7-16 
February 2000. Emphasis added.
---------------------------------------------------------------------------
    The Medellin-based National Labor School reports that approximately 
1,500 union members have been murdered since 1991, when the ATPA first 
took effect.

   Over 100 union members were killed during 2000, according to 
        a tripartite Colombian commission;
   Thirty-five additional killings of trade unionists have 
        already been reported in 2001.
    The U.N. High Commissioner for Human Rights, in her 2001 report on 
Colombia, lay a portion of the responsibility for the persistence of 
human rights abuses at the feet of the government:

          ``. . . [P]rotection of human rights and compliance with 
        international recommendations were neither accorded the 
        importance nor pursued with the persistence or effectiveness 
        that the serious situation in Colombia requires. This was 
        reflected in the Government's limited follow-up, continuity and 
        vigor regarding relevant mechanisms and standards. It was also 
        reflected in the absence of adequate resources for programs and 
        institutions that have a vital role to play in the human rights 
        area and could contribute towards the resolution of the 
        country's human rights crisis. The High Commissioner expresses 
        her concern at the fact that the authorities have failed 
        properly to follow up the majority of the international 
        recommendations.
          ``The Office was able to confirm that the principal problem 
        as regards human rights is not an absence of laws, programs, 
        mechanisms or institutions, but a failure to use them and thus 
        an absence of tangible decisions, action and results.'' \16\
---------------------------------------------------------------------------
    \16\ Report of the United Nations High Commissioner for Human 
Rights on the human rights situation in Colombia. Emphasis added.

    In addition to the extra-judicial violence perpetrated with 
impunity in Colombia, the latest Annual Survey of Violations of Trade 
Union Rights issued by the International Confederation of Free Trade 
Unions reports that authorities in the Andean countries utilize various 
tools to repress strikes. For example, in Colombia 149 people were 
injured and 418 arrested when security forces clashed with workers in 
1999.

The Inadequacy of the Workers' Rights Provisions in Existing Trade Law

    Under the Generalized System of Preferences (GSP), the U.S. extend 
trade preferences to a country only if it ``has taken or is taking 
steps to afford to workers in that country . . . internationally 
recognized workers' rights.'' The U.S. trade union movement and other 
labor rights activists have tried on numerous occasions to utilize the 
workers' rights provision in response to gross and persistent 
violations of those rights in Western Hemisphere countries that benefit 
from U.S. trade preferences. The labor movement has found the 
enforcement mechanism flawed. One major problem is the snail's pace of 
investigations; another is the fact that the U.S. Government has too 
much discretion over whether or not to take action.
    Take the example of Guatemala. Labor rights advocates in the United 
States first petitioned the U.S. Government to investigate gross 
violations of internationally recognized workers' rights in Guatemala 
in 1986. Petitions also were filed in 1987, 1989, and 1990, 1991 and 
1992. The U.S. Government refused to act on the petitions until 1992. 
The Government engaged in a ``review'' of the state of workers' rights 
in Guatemala through 1993. In 1994 the GSP statue lapsed and the review 
process ended. The AFL-CIO submitted new allegations of violations of 
workers' rights in 1995--again, the U.S. Government chose not to 
suspend benefits, but to ``review'' Guatemalan law and practice. The 
U.S. terminated this review in 1997, having concluded that the 
government of Guatemala was, indeed, ``taking steps'' to afford 
Guatemalan workers their internationally recognized rights. The AFL-CIO 
filed a new petition in 1998. The U.S. Government rejected the new 
petition, then reversed itself and self-initiated an investigation in 
the wake of brutal physical attacks on Guatemalan banana workers' union 
leaders. Since the decision to investigate was made, the U.S. 
Government has made a good faith effort to promote respect for workers' 
rights in Guatemala. But while the U.S. Government investigated, the 
Guatemalan courts rendered judgments against the banana union leaders' 
assailants that amounted to a slap on the wrist and made a mockery of 
justice. The union leaders were forced to flee for their lives, and 
came to the United States in March of 2001.
    The leaders of the Guatamalan banana workers' union join many other 
labor leaders and workers' rights advocates from throughout the 
Hemisphere likewise forced into exile. The absence of those activists 
and leaders represents a real setback for development in the Americas.
    The workers' rights clause in the ATPA and the related enforcement 
mechanism established by the U.S. Trade Representative are simply 
inadequate to deal with the level and intensity of exploitation that 
takes place on a routine basis in many of the Andean countries. Both 
the law and the enforcement mechanisms are especially inadequate for 
dealing with countries here paramilitary forces, government 
authorities, and employers mount assaults on trade union rights on a 
daily basis.
    The FTAA will not even include the weak labor provisions in the 
ATPA, the GSP or the CBI NAFTA Parity program adopted in 2000. It does 
not include the weak and mostly unenforceable labor side agreements 
that are in NAFTA. The ongoing negotiations for the FTAA have 
studiously avoided serious consideration of labor rights and the 
critical connection between labor rights and economic development. The 
nine negotiating groups for the FTAA do not include a group on labor 
issues, nor are labor issues being negotiated by any of the groups. The 
United States has not insisted that labor rights be included in the 
FTAA, nor has any other country.

Conclusion

    Half a million U.S. apparel and textile workers have lost their 
jobs over the past ten years as U.S. apparel retailers and brand 
marketers have shifted production and sourcing to Mexico, the Caribbean 
Basin and, to a lesser degree, the Andean countries. These production 
and sourcing shifts have failed to contribute in any measurable way to 
development in those countries and have driven down standards for 
apparel workers in the United States, many of them immigrants from 
Latin America. members of UNITE, therefore, find it hard to understand 
why U.S. policy makers expect that expanding the NAFTA model of trade 
to the rest of the Hemisphere will improve working conditions, lift 
standards of living, and enhance people's freedom in the region.
    Negotiations for expanded trade in the Western Hemisphere must 
include as a core commitment a concerted effort to strengthen 
institutions--both within individual nations and a the international 
level--that will (1) ensure substantial compliance with existing laws 
that promote and protect workers' rights and (2) promote movement by 
governments and employers in the region toward full respect of 
internationally recognized workers' rights.
    Without such action, the FTAA and a renewed and expanded ATPA will 
simply accelerate the race to the bottom for millions of workers. That 
is not acceptable.

                                


     Statement of West Indies Rum and Spirits Producers Association

    The West Indies Rum and Spirits Producers Association (``WIRSPA''), 
representing the major producers of rum and spirits in the Caribbean 
region, appreciates this opportunity to express its views on both (i) 
the proposed extension of the Andean Trade Preferences Act (``ATPA'') 
and (ii) the proposed Free Trade Area of the Americas (``FTAA''). In 
both of these initiatives, special attention must be given to rum in 
order to avoid causing irreparable damage to the struggling economies 
of the Caribbean Basin.

Rum's Special Role in the Caribbean

    Rum is a product of special significance to the Caribbean Basin, 
where it has been produced for centuries, contributing to local 
economies and enhancing the culture and folklore of the Caribbean 
region. U.S. trade policy has long reflected an appreciation for rum's 
unique role in Caribbean history--for example, establishing a tax 
``cover-over'' mechanism to support rum production in the U.S. 
Caribbean territories (1983), by rejecting petitions for duty-free 
entry of non-Caribbean rum under the Generalized System of Preferences 
(1987 and 1990), and by excluding rum from the ATPA (1991).

Andean Trade Preferences Act

    The ATPA provides special duty-free benefits to Bolivia, Colombia, 
Ecuador, and Peru. Some have advocated that this expiring program 
should be not only renewed, but expanded to include formerly excluded 
products such as rum. Adding rum to the ATPA would trigger sharp 
dislocations in the Caribbean Basin. Legislative history explains that 
rum was excluded from the original ATPA ``in order to preserve the 
benefits that the Congress has provided to Puerto Rico, the Virgin 
Islands, and the Caribbean Basin countries ....Andean rum producers 
have significant natural resources and cost advantages over their 
Caribbean and U.S. Territorial counterparts as well as large excess 
production capacity.'' H.R. Rep. No.102-337 at 15 (1991). That 
description is as accurate as ever.
    The only meaningful change in circumstances since those words were 
written in 1991 occurred as a result of the 1997 U.S.-EU tariff 
agreement on distilled spirits. As of 2003, most rums (and all branded 
rums) will be able to enter the United States duty free from anywhere 
in the world. Thus, much of what the Andean countries would get from 
bringing rum into the ATPA has already been accomplished by other 
means. However, the EU and U.S. negotiators in 1997 were careful to 
preserve their tariffs (and thus the Caribbean suppliers' duty 
preference) on low valued rums, upon which Caribbean suppliers depend 
to remain in business. This carefully negotiated solution appropriately 
balanced the interests of global spirits companies with the unique 
needs of the fragile Caribbean economics. Expanding the coverage of 
ATPA duty-free benefits to include rum would threaten that balance.
    Exports from the ATPA countries, particularly Colombia, could 
quickly overwhelm and displace Caribbean suppliers. Approximately 2.3 
million cases of rum per year are produced in Colombia, by government 
entities under a legal monopoly. Colombia also has substantial rum 
exports, and even with the remaining tariff on low-valued rums, U.S. 
imports from Colombia doubled in 2000 as Colombia took advantage of 
duty reductions already implemented since 1997. This increase includes 
Colombia's emergence, for the first time in 2000, as an exporter to the 
United States of bulk rum--an ominous indicator of what Colombia could 
accomplish if the remaining import duty on low-valued bulk rum were 
lifted. Colombia's competitive advantages include: (1) substantial 
surplus sugar production, so that molasses is readily available to rum 
producers at very low cost; and (2) large petroleum deposits that 
enable rum producers to secure inexpensive fuel oil, whereas Caribbean 
producers in the USVI, Puerto Rico, and most CBI countries must depend 
on more expensive imported fuel oil. Moreover, lower costs of labor and 
environmental compliance strongly suggest that overhead expenses--the 
only other significant cost category--are also lower in Colombia and 
the other Andean countries than in the Caribbean Basin countries. 
Therefore, displacement of Caribbean rum would be substantial, and the 
consequences, in a region whose fragile economies can ill-afford them, 
would include lost sales, closed distilleries, and lost jobs.

Free Trade Area of the Americas

    For the same reasons that duty free access for low-valued rums 
should not be granted to the four Andean countries under the ATPA, it 
would be devastating to the Caribbean rum suppliers to grant duty free 
access to the entire hemisphere under the FTAA. Duty free access for 
countries like Brazil and Venezuela would quickly wipe out the hard-
earned position of Caribbean suppliers of rum in the U.S. market. The 
resulting damage to Caribbean economies, including those of the U.S. 
territories, would be unbearable. The tariff on low-valued rums was 
left in place for a reason, and that reason is every bit as valid today 
as it was in 1997.
    We note that our positions on these issues are precisely aligned 
with the positions that the U.S. territories in the Caribbean are 
advocating through their representatives in Washington.
          * * * * *
    The Committee on Ways & Means has long been a staunch defender of 
the Caribbean region. We urge you to maintain that role as you design 
these upcoming trade initiatives.

                                
