[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
TRADE IN SERVICES AND E-COMMERCE: THE SIGNIFICANCE OF THE SINGAPORE AND
CHILE FREE TRADE AGREEMENTS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
COMMERCE, TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 8, 2003
__________
Serial No. 108-19
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U. S. GOVERNMENT PRINTING OFFICE
85-485 WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas Ranking Member
FRED UPTON, Michigan HENRY A. WAXMAN, California
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania RICK BOUCHER, Virginia
CHRISTOPHER COX, California EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina SHERROD BROWN, Ohio
Vice Chairman BART GORDON, Tennessee
ED WHITFIELD, Kentucky PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois BART STUPAK, Michigan
HEATHER WILSON, New Mexico ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING, GENE GREEN, Texas
Mississippi KAREN McCARTHY, Missouri
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania TOM ALLEN, Maine
MARY BONO, California JIM DAVIS, Florida
GREG WALDEN, Oregon JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Commerce, Trade, and Consumer Protection
CLIFF STEARNS, Florida, Chairman
FRED UPTON, Michigan JAN SCHAKOWSKY, Illinois
BARBARA CUBIN, Wyoming Ranking Member
JOHN SHIMKUS, Illinois HILDA L. SOLIS, California
JOHN B. SHADEGG, Arizona EDWARD J. MARKEY, Massachusetts
Vice Chairman EDOLPHUS TOWNS, New York
GEORGE RADANOVICH, California SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire JIM DAVIS, Florida
JOSEPH R. PITTS, Pennsylvania PETER DEUTSCH, Florida
MARY BONO, California BART STUPAK, Michigan
LEE TERRY, Nebraska GENE GREEN, Texas
ERNIE FLETCHER, Kentucky KAREN McCARTHY, Missouri
MIKE FERGUSON, New Jersey TED STRICKLAND, Ohio
DARRELL E. ISSA, California DIANA DeGETTE, Colorado
C.L. ``BUTCH'' OTTER, Idaho JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana (Ex Officio)
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Bohannon, Mark, General Counsel and Senior Vice President
Public Policy, Software and Information Industry
Association................................................ 64
Holleyman, Robert W., II, President and Chief Executive
Officer, Business Software Alliance........................ 45
Ives, Ralph F., III, Assistant U.S. Trade Representative for
Asian, Pacific and APEC Affairs, Office of the United
States Trade Representative................................ 15
Kelly, Brian, Senior Vice President of Government Relations
and Communications, Electronic Industries Alliance......... 60
Lee, Thea M.,Chief International Economist, AFL-CIO.......... 70
Monford, Ronald T., President and Chief Executive Officer,
Mind Over Machines, Inc.................................... 55
O'Neill, Michelle, Deputy Assistant Secretary for Information
Technology Industry, U.S. Department of Commerce........... 26
Vargo, Franklin J., Vice President, International Economic
Affairs, National Association of Manufacturers............. 40
Vargo, Regina K., Assistant U.S. Trade Representative for
Americas, Office of the United States Trade Representative. 20
Waskow, David F., International Policy Analyst and Trade
Policy Coordinator, Friends of the Earth-U.S............... 49
Additional material submitted for the record:
Coalition of Service Industries, prepared statement of....... 85
Ives, Ralph F., III, Assistant U.S. Trade Representative for
Asian, Pacific and APEC Affairs, Office of the United
States Trade Representative, response for the record....... 84
(iii)
TRADE IN SERVICES AND E-COMMERCE: THE SIGNIFICANCE OF THE SINGAPORE AND
CHILE FREE TRADE AGREEMENTS
----------
THURSDAY, MAY 8, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Commerce, Trade
and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 1 p.m., in
room 2123 Rayburn House Office Building, Hon. Cliff Stearns
(chairman) presiding.
Members present: Representatives Stearns, Upton, Shimkus,
Shadegg, Bass, Terry, Ferguson, Otter, Schakowsky, Solis,
Markey, Brown, Davis, Green, and Strickland.
Staff present: Manisha Singh, majority counsel; Ramsen
Betfarhad, policy coordinator and counsel; Jill Latham,
legislative clerk; and Jonathan J. Cordone, minority counsel.
Mr. Stearns. Good afternoon, and I welcome all our
witnesses to this subcommittee hearing, examining the Singapore
and Chile Free Trade Agreements with particular focus on the
commitments made with respect to trade in services and e-
commerce.
I especially want to acknowledge and thank our government
witnesses, and I'm pleased that the lead negotiators for both
the Singapore and the Chile Trade Agreements from the United
States Trade Representative Offices are testifying before us
this afternoon.
Their particular insight into the substance and process of
developing the FTAs I'm sure will be helpful to all of us and
give us better understanding of the agreements.
Now, this is a significant hearing for our subcommittee
and, of course, for the full committee.
In exercising its trade jurisdiction, the committee is
particularly interested in examining trade agreements as they
relate to trade in services and e-commerce, for their impact on
our domestic service industries and e-commerce, as many of
those industries fall within the purview and jurisdiction of
the subcommittee.
Therefore, the committee has closely followed the
development of both FTAs as a participant in the Congressional
Oversight Group established by the Trade Promotional Authority
Act of 2002. Moreover, in this subcommittee we have worked
toward both highlighting and removing legal and regulatory
barriers to trade and services and e-commerce barriers that
place our Nation at a disadvantage.
To that effect, the subcommittee held a hearing in the
107th Congress on the legal and regulatory barriers impeding
trade in advanced telecommunications services and digital
products.
Today's hearing is an important continuation of the
subcommittee's efforts, as the two FTAs present, in my view, a
significant step forward in opening markets and services and,
of course, e-commerce.
The markets and services industry to the United States
economy today cannot be overstated. The U.S. economy is a
service economy where better than two-thirds of the GDP is
composed of services output. Just over three-fourths of our
employment base is provided by the service industries.
There's also little argument that many aspects of our
Nation's economic life is now, to varying degrees,
substantially dependent upon e-commerce. Recent data shows that
e-commerce growth is even outpacing the rosy prediction of the
dot.com bubble period.
In 1999, Forester Research, Incorporated, estimated that
the U.S. e-commerce between businesses would reach a staggering
$1.3 trillion by 2003. Today, Forester Research estimates that
network business to business transactions stand at $2.4
trillion. Now, that is nearly a large percentage of our GDP at
a phenomenal growth.
International trade is increasingly becoming an important
component of our domestic economy. In a recent article, I spoke
to the fact that over the past decade the trade deficit of the
United States has steadily risen. In 2002, the trade imbalance
reached an all-time high of $435 billion, a $100 billion
increase over the 2001 deficit.
Although we suffer from chronic trade imbalances, the trade
and services offers a significant bright spot. America ran a
record high surplus in services of $69.8 billion in 2001,
although that surplus shrank to $44.7 billion in 2002.
Another bright spot in our balance of trade calculus is the
steadily increasing international e-commerce, which holds
particular promise for United States companies. The Information
Technology Industry Council projected that between 1999 and
2003 the market for electronically distributed software alone
will grow from $0.5 billion to $15 billion. Thus, the services
industry and e-commerce are not only key components of our
domestic economy, but increasingly trade in services and
electronic commerce are becoming growth areas where U.S. firms
have a competitive advantage given open and non-discriminatory
access to other markets.
The FTAs under consideration today, as I noted, represent a
significant step forward toward the goal of open and non-
discriminatory international markets for services and e-
commerce. The agreements contain commitments from both
Singapore and Chile for substantial market access across nearly
all their service sectors, including banking, insurance,
telecommunications, computer and related services, energy,
direct selling, tourism, professional services and even express
delivery services.
This is a significant departure from trade agreements in
the past, as all service sectors are opened up, and the few
exceptions are memorialized in what is called a negative list.
Moreover, the market access and non-discrimination commitments
are bolstered by strong, detailed regulatory transparency
requirements, a first in trade agreements.
Regulatory transparency is very important to many service
industries, as they are subject to government regulation. Lack
of such transparency and regulatory uncertainty are non-tariff
barriers that impede trade and services.
In addition, the agreements include significant commitments
establishing that the principle of non-discrimination applies
to products delivered electronically and prohibiting the
levying of custom duties on digital products.
Furthermore, the agreements affirm that commitments made
relating to services also extend to the provisioning of such
services via electronic delivery.
As noted, the subcommittee plans on a careful examination
of both the Chile and Singapore trade agreements, as they
contain provisions that the USTR has characterized as being
``state-of-the-art'' with respect to liberalization of trade
and services, e-commerce and the protection of intellectual
property rights.
Another reason for careful examination is that Chile and
Singapore are the first countries in their respective regions
to enter into a comprehensive free trade agreement with the
United States. It is anticipated that these agreements will
serve as blueprints for future bilateral and multilateral trade
agreements, in particular, future free trade agreements with
other Southeast Asian and South American nations.
Careful review is also necessary to ascertain whether
pursuit of bilateral agreements undermine multilateral efforts.
Are the two approaches mutually exclusive or not? On one
side, many have pointed to the fact that others, such as Canada
and the European Union, have successfully leveraged bilateral
free trade agreements to their advantage. Chile is one example
cited, where from 1993 to 2001 its trade with the United States
increased 100 percent, while its trade with Canada skyrocketed
by almost 400 percent. Most of that gain was made after it
concluded a bilateral trade agreement with Chile.
On the other hand, many have spoken of the economic
distortion effects and inefficiency that ensued for bilateral
trade agreements.
And finally, my colleagues, a few basic questions must be
answered, such as when all is said and done are these Federal
trade agreements good for all Americans? If so, why? And two,
who will lose the most, and who will gain the most, as a result
of these and future similar Federal trade agreements?
Global tradeoffers an opportunity in which all nations
involved, I believe that the trade agreements should complement
America's strength, particularly in the service sector and e-
commerce, without imposing disadvantage on the other sectors of
the economy.
So, I look forward to our witnesses' testimony.
With that, the ranking member is recognized.
Ms. Schakowsky. Thank you, Mr. Chairman, for convening
today's hearing, and I want to thank all of our witnesses today
on both panels for testifying before us on this important
issue.
I strongly support U.S. participation in international
trade, not only because it can help U.S. businesses and our
economy to grow, but also because it allows us to develop and
strengthen global partnerships.
However, in my view, it is also very important that all
countries, including the United States, abide by international
human rights, labor rights and environmental standards.
I define responsible trade policy as that which both
benefits American businesses and at the same time American
workers, and protects and promotes the rights of workers and
key environmental standards.
Since President Bush took office, this country has lost 2.7
million private sector jobs. NAFTA has already cost more than 1
million American and Canadian jobs, and I for one will not
support future trade policies that threaten to put more
American workers on the unemployment roles.
U.S. trade policy should include negotiating objectives and
requirements that place equal emphasis on international labor
standards, protecting the interests of American workers, and
sound environmental stewardship, as we do on potential economic
returns.
Although the U.S.-Singapore and U.S.-Chile trade agreements
offer many opportunities, they also present some significant
problem areas, which must be addressed if they are to yield
broadly shared benefits to the United States and those
countries.
For example, the AFL-CIO has pointed out that although
Chile has ratified all eight core international labor
organization conventions, large sectors of the Chilean
workforce, including sectors producing the bulk of Chile's
exports to the United States, still are not able to fully enjoy
their rights as workers.
The Singapore agreement, I am told, may allow for
transshipment to occur. In addition, there is a potential
loophole that will allow for goods produced elsewhere,
specifically, in Indonesia where there are widespread abuses of
labor rights, to be treated as Singaporean goods, even if they
never go to Singapore. We cannot afford to overlook these
practices.
The President's trade agreements will be met with serious
congressional opposition if they include such inadequate
protections for poor workers and human rights.
The investment provisions in the Chile and Singapore
agreements replicate many of the problems in NAFTA's Chapter
11, providing greater rights to private foreign investors than
are available under U.S. law, allowing them to challenge public
interest and environmental protection, public health, Buy
America laws, workplace safety, et cetera.
With the Central American Free Trade Agreement, CAFTA,
currently in the negotiation process, the United States must be
firm on its stance on human rights, labor rights and the
environment. Many of the cuontries in that region have well
documented continuing problems with basic rights and the rule
of law. Workers are routinely denied their rights in El
Salvador, Nicaragua and Honduras, and Guatemala, they actually
risk their lives when they try to organize or improve abysmal
working conditions.
One recent example, in fact, is the fact that the verdict
in the Myrna Mack trial was overturned this week. Myrna Mack
was murdered for her efforts to end human rights abuses in
Guatemala and many of us were shocked to learn that this kind
of impunity still exists in that country.
We cannot grant enhanced trade benefits to the region until
laws that guarantee internationally recognized worker rights
are passed and enforced. If the weak labor rights provisions of
the Chile and Singapore agreements are replicated in CAFTA,
this will cause grave problems and concerns from many Members
of the Congress.
I am hoping that we can address some of these issues that I
have raised today. I am proud the subcommittee is asserting its
jurisdiction over trade issues, and I think we need to
carefully consider all facets of trade policy. I'm eager to
hear from all of our witnesses today, and I look forward to
working toward a solution that will not only spur our economy,
but will also protect the rights of workers and our
environment.
Thank you, Mr. Chairman.
Mr. Stearns. And, I thank the gentlewoman from Illinois.
The distinguished chairman of the Subcommittee on
Telecommunications and the Internet, the gentleman from
Michigan, Mr. Upton.
Mr. Upton. Thank you, Mr. Chairman.
As you know, I have a long record in support of free trade,
but I want to make the record clear that as we look at these
two agreements I will be looking very closely at the impact of
the agreements to ensure that U.S. businesses do not become at
a competitive disadvantage.
Now, I have two areas of concern as we look at these two
agreements before we get to a vote, one as the chairman of the
Subcommittee on Telecommunications and the Internet I'm
concerned about the relationship between domestic and
international communications policy. I want to make sure that
domestic telecommunications policy still has the wiggle room to
allow for a stronger trade agreement. And also, with regard to
the Chilean agreement, I want to make sure that the impact on
agriculture, and particularly the specialty crops like
asparagus, are treated fairly under the agreements, and I will
look forward to the question period and yield back the balance
of my time.
Mr. Stearns. I thank my colleague.
The gentleman, in order of arriving, Mr. Davis.
Mr. Davis. Thank you, Mr. Chairman.
I briefly wanted to say I look forward to hearing the
testimony of the witnesses. Referring to the merits of these
individual agreements, I'm familiar that both of these
agreements have considerable merit, and I think that the
ranking member has raised some worthy questions, and I'm
hopeful there will be adequate answers to those.
I also look forward to hearing what the administration's
position is on the timing on the Chile agreement. I'm
increasingly alarmed about the delay. I'd like to know whether
the delay is tied into a view within the administration related
to the Iraq issue, and if so, I'd like to hear the argument in
support of that position, and when, in fact, the delay will
come to an end.
I think these trade agreements are more important
instruments as to both foreign policy and economic policy than
ever before after the Iraqi situation, even though it still
continues, and I look forward to hearing the testimony on these
points.
Thank you, Mr. Chairman.
Mr. Stearns. Thank the gentleman.
The gentleman from Nebraska, Mr. Terry, waives.
Mr. Green.
Mr. Green. Thank you, Mr. Chairman, and the ranking member,
for holding this hearing on the Chile and Singapore Free Trade
Agreements. These agreements have implications that would reach
far beyond these two countries. For one, these are the first
significant trade agreements negotiated by the President under
the Fast Track negotiating authority. The Singapore Free Trade
Agreement is first among Southeast Asian nations, while Chile
is the United States' first free trade partner in South
America.
Additionally, the approval of these two agreements will set
certain precedents and serve as a model for future trade
agreements in these regions. While I'm encouraged that these
trade agreements increase market access to these countries for
U.S. goods, I remain skeptical about the effects of these
agreements on the U.S. labor force, and have serious concerns
regarding some of the labor provisions in these agreements,
particularly, the integrated sourcing initiative in the
Singapore agreement. This agreement would allow electronics
components produced on two Indonesian islands to be considered
Singaporean content for trade purposes. However, at the same
time these products are enjoying all the benefits of the U.S.
Free Trade Agreement with Singapore, the Indonesian production
facilities would have no obligation to comply with the
agreement's labor standards.
Also, the U.S. goods are not awarded any reciprocal market
access to Indonesia. Not only will these provisions encourage
offshore export production to the U.S., it could essentially
facilitate the proliferation of some of our problems we have
with sweat shops on islands.
Furthermore, the agreement in no way limits the extension
of this initiative to other territories, and thus sets a
dangerous precedent for future free trade agreements to follow.
I am also concerned about the immigration provisions in
these agreements that create the potential for the U.S. labor
market to be crowded by an influx of foreign workers, without
any authority from the law granting the Administration's Fast
Track trading authority. The U.S. Trade Rep created a new visa
category that would allow U.S. companies to employ foreign
workers, even without a domestic labor shortage.
Mr. Chairman, almost 9 million Americans are currently out
of work, and I find in unreasonable for the U.S. Trade
Representative to negotiate these special privileges for
foreign workers, when we already have the skilled labor right
here in the United States who need jobs. And, I know that's a
separate issue. Under HIB visas we have exceptions for high-
skilled workers, but I also understand there's going to be a
reduction in that.
Without the authority to amend Trade Agreements, our hands
in Congress are tied, and, therefore, I thank the chairman and
ranking member for the opportunity to give these two agreements
a full examination.
Mr. Stearns. I thank the gentleman.
Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman, and I would not speak
but I do want the administration to hear a couple comments
about trade.
I have always been a strong supporter of trade, and based
upon, in Illinois, on the great benefits we receive from the
agricultural sector, major companies like Motorola, or
Caterpillar, or Deere, the finance and banking industry, and
the service sector, but I'm becoming a skeptic as far as the
manufacturing sector has been involved, and I'm pleased with
what the administration did on the Section 201 filing on steel.
And, as it comes up for review, I want to encourage them to be
as vigilant as they were in the past as we relook.
You will hear both sides of the aisle talk about free and
fair trade. That is a great model to use, and I think if we, as
a Nation, push the fairness aspect we will win this debate and
everybody will benefit.
How do you get fairness? You have to rapidly lower tariffs,
rapidly lower tariffs. You have to ensure market access, and
you have to make sure there's a prohibition against illegal
subsidization. And, I think in the manufacturing arena that's
not occurring, and as long as that doesn't occur, as long as we
don't enforce that, we're going to lose a lot of this debate on
the other benefits of trade.
I'm aghast at how long the international dispute resolution
takes place, how long the process internationally takes to
resolve conflict and get to some--because what happens is,
companies fold up. By the time we get a dispute resolution
through the process, we have already lost the jobs, the
factories have already closed.
From a free trader, these should be sending some sorry
signals to the administration on how strong they need to be,
hopefully, more in a unilateral negotiation where we get
country on country agreeing, so that we can get outside the
international aspects, because I just personally think this
takes too long to resolve conflict.
So, send a message back, if you all need to come talk to
me, please come to my office. These comments you should not be
hearing from someone who is a strong supporter of trade, and I
think the manufacturing sector in this country is at great
risk, and I yield back my time.
Mr. Stearns. Thank the gentleman.
The gentleman from Massachusetts is recognized.
Mr. Markey. Thank you, Mr. Chairman, very much.
I'm just going to raise two points here in my opening
statement, and then refer back to them during the question and
answer period.
The first subject I'm going to raise is with regard to the
government of Singapore, in that the controlling owner of
Singapore Technologies is the government of Singapore, and that
Singapore Technologies has proposed purchasing 61.5 percent of
the remains of Global Crossing for $250 million. My concern is
that we may end up with a situation where U.S. companies, which
are not controlled by the government, and are having to compete
with companies by their own government, Singapore. That is not
fair trade, because the foreign competitor is both the owner
and the regulator of the same company. We don't like that in
the United States, we don't like government-owned companies,
and we don't like it when it's overseas, especially when they
purchase an American company.
So, I am going to make the point that our government has to
intervene in this Global Crossing acquisition to ensure that
the government controlled purchaser's share is not a
controlling interest, and that U.S. companies be allowed to bid
for the shares not held by Singapore Technologies or by Global
Crossing.
The second point that I'm going to make in the question and
answer period goes to China, and the precedent which it sets in
terms of how it handled the SARS crisis. In November of 2002,
what seemed to be the first cases of SARS in the Guangdong
Province of China went unreported by the State-run media
organizations. These media, although it's ready to print, but
they were stopped by Chinese officials, worried that a public
health scare would cause people to stay home instead of
spending money during the Chinese New Year, adversely affecting
its economy.
By early February this year, five people had died due to
SARS, and at least 300 people were infected. On February 21, a
doctor staying in a Hong Kong hotel spread the infection to
other guests on his floor and died of the disease on March 4.
In March, senior Chinese officials maintained that SARS was
under control and China was open to and safe for travelers. On
March 12, WHO officials issued a global alert about SARS
warning travelers to be careful, and on April 4 WHO cautioned
against non-essential travel to Hong Kong and Guangdong.
As late as April 28, China removed SARS patients from a
Beijing hospital hiding them from doctors and officials with
the World Health Organization, who were repeatedly not granted
access to hospitals and other affected areas.
Today, China has almost 5,000 cases, 18,000 people are
quarantined, and there is a 15 percent fatality rate. The world
community outside China has suffered from 3,000 SARS cases and
nearly 250 deaths now in 30 countries. Without a doubt, the
Chinese government's continued coverup has badly damaged its
own economy, the Asian economy, but also the global economy.
Travel advisories have now been issued for Hong Kong and
Guangdong Province in China, and for Toronto, Canada as well.
I'm sending a letter today, Mr. Chairman, to President
Bush, and what I'm saying to him is that I urge you to direct
the United States Trade Representative at the next World Trade
Organization Roundtable in September in Cancun, Mexico, to
raise the issue of China's dangerous departure from well-
understood public health procedures as a cause of concern among
its WTO trading partners and to urge that the WTO make
adherence to World Health Organization guidelines a condition
of continuing membership in the World Trade Organization.
We cannot have global trade without also abiding by
healthcare standards which ensure that the open trading and
travel of citizens of the globe is accompanied by a well-
understood adherence to those standards, and I'm going to be
pressing on these witnesses the importance for the President to
take that stand, and I yield back the balance of my time.
Mr. Stearns. Thank the gentleman.
The gentleman from New Hampshire is recognized.
Mr. Bass. Thank you, Mr. Chairman, and I appreciate your
efforts in making this hearing possible to discuss trade
between the U.S., Chile and Singapore. And, I'm also glad that
this subcommittee is setting or continuing to set a place in
its important role in determining trade policy and reviewing
these two agreements that will soon be before the Congress.
Since 1997, total exports to just these two countries from
my home State of New Hampshire have totaled over a third of a
billion dollars, and for the entire New England region that
total grows to more than $6 billion. Almost half of these
totals were export coded as computers and electronic products,
which is directly relative to this hearing today. In addition,
New Hampshire and New England account for an important share of
this country's software development and servicing, and we are
home to a large number of financial, medical, research,
telecommunications and other service firms that will benefit
from open trade and precedent setting e-commerce specific
provisions in these agreements.
Free people of the world prosper when goods and ideas flow
without restriction across borders and oceans, when these goods
and ideas are digitally manifested barriers have even fewer
justifications than for physical products or services. Yet,
important property protections and other international
covenants need strengthening, and I believe these FTAs are a
good first step and the Trade Representative should be
commended for his work.
I'm looking forward to hearing from these witnesses, and I
yield back my time, Mr. Chairman.
Mr. Stearns. Thank the gentleman.
Mr. Brown from Ohio is recognized.
Mr. Brown. Thank you, Chairman, very much for holding this
hearing and engaging this subcommittee on international trade
issues.
I have been known to be tough on free trade agreements. I
opposed granting the President Fast Track authority, which
because of its unpopularity was euphemistically rephrased Trade
Promotion authority, but I like the Jordan Free Trade
Agreement, and where that agreement represented a step forward
in trade policy Singapore and Chile represent a devolution to
the failed policies of the North American Free Trade Agreement.
We would need several days of hearings to describe the damage
that NAFTA has done to Canada, the United States, and to
Mexico, but today we are here to discuss Singapore and Chile.
The labor provision in both agreements are completely and
intentionally unenforceable. Violations of core labor standards
can't be taken to dispute resolution. The commitment to enforce
domestic labor laws is subject to remedies weaker than those
available for commercial disputes. This violates the
negotiating objective of Fast Track that equivalent remedies
should exist for all parts of an agreement.
The Singapore agreement also allows for the creation of
sweat shops in the Indonesian islands of Bintan and Batam
through a program called Integrated Sourcing Initiative. This
allows electronic components from these islands to be counted
as Singaporean under the agreement. Yet, the islands are not
subject to even the weak labor and environmental standards of
the agreement. That gaping loophole benefits companies surely
looking to exploit workers.
Proponents of ISI argue that it will prevent terrorism,
using 9/11 to accomplish unrelated political goals is to be
sure not new around here, but it's hard to see how running low-
wage sweat shops will secure peace for the United States.
The administration has taken that tact before, following 9/
11 the Trade Representative's office touted Fast Track, then
Trade Promotion authority, is necessary against the war on
terrorism. Liberalization of global markets and free trade
would increase U.S. security and stabilize the world, Mr.
Zoellick and others told us.
But now, the Chile agreement is being held up because their
government failed to sign up for our war in Iraq. The
Administration actually believed that global security was on
the line, shouldn't they be acting on all these agreements as
quickly as possible.
So often free trade proponents reduce the debate to a
choice between free trade and no trade, calling us luddites and
protectionists and all, and framing the debate around the
priorities adversely affected by irresponsible trade policy,
labor protections, the environment, the economy. This isn't a
debate on whether one supports trade, almost all of us up here
supported the Jordan Free Trade Agreement, it's a debate on
whether one supports responsible trade policy. Is the goal to
secure a greater prosperity for as many individuals as
possible, or is the goal to secure more wealth for those who
already have much.
As we consider Singapore, I think of a quote from Gandhi
where he said, ``Whenever you are in doubt or when the self
becomes too much for you, apply the following test: recall the
face of the poorest and the weakest man whom you may have seen
and ask yourself if this step you contemplate is going to be of
any use to him.'' Call me a skeptic, but I have a feeling that
our corporate Commander in Chief and his USTR negotiators are
recalling the faces of the wealthiest men they have seen and
contemplating how they can exploit poorer countries in ways
that will be of use mostly to themselves.
I yield back, Mr. Chairman.
Mr. Stearns. Thank the gentleman.
Mr. Shadegg.
Mr. Shadegg. I want to thank you for holding this important
hearing. I look forward to hearing the testimony of the
witnesses, and I will waive any further opening statement.
Mr. Stearns. Thank you.
The gentlelady from California.
Ms. Solis. Thank you, Mr. Chairman, and thank you for
calling this important hearing today.
The trade agreements that we will discuss are going to be
very important to, not only this country, but the messages that
we will send across the country to the world.
I also want to thank the witnesses for being here and for,
hopefully, listening to their incite that they will provide us.
I just want to make clear that I am not an opponent of free
trade. Trade with other countries can, in some instances, yield
enormous benefits for working families in the United States and
across the globe. But, in my opinion, they should be fair
trade, it should be fair trade, and our trade agreements must
include environmental, labor and consumer protections.
And, I'm very concerned that the Chile and Singapore Trade
Agreements fail in that regard, and I'm particularly concerned
that the investment rules included in the Singapore and Chile
agreements will have a chilling effect on the U.S. laws and
regulations that protect the rights of consumers and workers
and a lack thereof preservation of our environment.
And, we should also question the impact that these
agreements will have on our ever-growing trade deficit. Let's
not forget that none of the Free Trade Agreements that the U.S.
has signed to date has yielded an improved bilateral trade
balance. Proponents of NAFTA claimed that the agreement would
create prosperity in Mexico and increase access to American
consumers. Nine years later, our trade deficit with Mexico and
Canada has ballooned from $9 billion to $87 billion.
I simply make these points to urge caution as we proceed
forward with Chile and Singapore, these agreements and others,
and hope that we can become better stewards in this whole area
so that protections are provided for those individuals abroad
as well as here at home, to protect the safety of those
individuals there, but also here in our situation because of
our increasing concern with the economy here in the United
States, particularly, in a district like mine where we have had
several negative impacts, in my opinion, job loss, particularly
in manufacturing, because of previous trade agreements.
So, with that, I yield back the balance of my time, Mr.
Chairman.
Mr. Stearns. Thank the gentlelady.
Mr. Otter, the gentleman from Idaho.
Mr. Otter. Thank you, Mr. Chairman, and I thank you for the
opportunity to examine the potential impact and the necessity
of these free trade agreements.
I am both pleased and concerned with the functioning of our
current trade agreements. In the words of Patrick Henry, ``I
have but one light to guide my path into the future, and that
is by the lamp of experience.'' And so far, I think my
experience with some of the trade agreements that we have and
have not enforced has not been very good.
As a proponent of free trade, I am pleased by the continued
efforts, however, to open the markets, allowing Americans to
sell their goods and products overseas, has long been a key
principle of our foreign policy and is one that I support.
Unfortunately, while it is based on the right principles, many
of our free trade agreements have fallen short of their goals
and their promise, because they failed to promote free and fair
trade and are not fully enforced.
For example, the Hinex Corporation has been bailed out
several times in South Korea over the last few years to the
tune of well over $16 billion, and most recently as of December
of 2002. These forced debt for equity swaps, in an unprofitable
business, violate international trade rules, harm investors and
threaten the jobs of workers in competing companies, including
one Micron Technology in Boise, Idaho.
I have repeatedly raised my objections to these bailouts
with the South Korean government, with the U.S. Department of
State, the U.S. Trade Representative's office, and on the floor
of the House. Recently, the Department of Commerce issued a
preliminary finding which determined, in fact, that the
importation of Hinex dynamic ram access memory chips were
unfairly subsidized by the government of South Korea, and while
I commend the Department for their persistence in this matter I
maintain my expectation that the level of the Department's
assessment of countervailing duties in this case due in June
will reflect an adequate penalty for the violation of this free
trade agreement and, perhaps, bring back some of the well over
1,500 jobs that have already been lost in the facility that I
mentioned earlier.
We must send a stern message that the United States will
protect its citizens from unfair dumping of below market price
goods. I support free trade, but I will only support new trade
agreements if we maintain an effort to enforce the existing
ones. Only enforcement can ensure trade is fair, open and free
of injurious subsidies.
When our trading partners fail to abide by these
principles, we must be able to defend ourself, and we must
count on our government to offer that defense. Americans need
to know that the Federal Government is working for them, not
against them. You need them to ensure that the Administration
insists on full enforcement of our current trade agreements
before we expand into new agreements.
I look to the Department of Commerce to continue these
efforts, and I thank the Chairman for his leadership, and I
look forward to the remarks by the panel.
Thank you, Mr. Chairman, I yield back.
Mr. Stearns. Thank the gentleman.
The gentleman from Ohio, Mr. Strickland.
Mr. Strickland. Mr. Chairman, I'd like to reserve my time
for the questioning.
Mr. Stearns. Okay, thank you. The gentleman's time is
reserved.
Mr. Ferguson.
Mr. Ferguson. Mr. Chairman, I'd like to reserve my time for
questioning as well, but I'd ask consent that I have my opening
statement entered in the record.
Mr. Stearns. By unanimous consent so ordered, and, in fact,
anybody who wants to offer an opening statement.
I call on the ranking member, did you want to----
Ms. Schakowsky. Yes, I just wanted to make a unanimous
consent for all members to be able to put their statements in
the record.
Mr. Stearns. So ordered.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman, for holding this timely hearing.
I would also like to thank the distinguished panels of witnesses
here today. Your insight into these Free Trade Agreements will be of
considerable interest as we navigate these newly charted waters.
I am pleased to see such steadfast work on trade negotiations after
Congress worked so diligently on the Trade Act of 2002. The decision to
grant President Bush Trade Promotion Authority was one that fostered
considerable debate. An important result of that debate is the
continued involvement of Congress in trade negotiations.
The Trade Act of 2002 expanded and improved the consultation
process between the Administration and Congress before, during, and
after trade negotiations and obligates the U.S. Trade Representative to
enter into discussions with the House and Senate before it can reach
any trade agreement. The Chairman's leadership today is to be commended
as he has given us the opportunity to do just that.
While today's hearing targets trade in services and e-commerce, I
think it is noteworthy to briefly address overall aspects of trade
policy, particularly pertaining to my home state of Wyoming. The
president's ability to take steps more rapidly than ever before is
invigorating to businesses across the country; the Wyoming Business
Council's International Trade Conference, being held next week, is
evidence of this as it seeks to educate Wyoming business people about
growth opportunities as new markets are opened. While open markets can
be extremely valuable in this way, it is important to note their
potential danger for such sectors as our agriculture producers.
Wyoming has numerous, superior products like trona, wool, oil,
beef, sugar beets, coal, lamb, natural gas, timber and barley. There is
no question the quality of our products can compete head-to-head with
foreign producers anywhere in the world. That can only be done,
however, if our producers are not put at a competitive disadvantage, as
they are currently, when selling their goods abroad.
The U.S.-Singapore Free Trade Agreement paves the way for further
progress in the free trade arena. I look forward to learning more about
this and the potential Chile Free Trade Agreement and thank the
panelists for lending their expertise to the dialogue today.
Thank you, Mr. Chairman and I yield back the remainder of my time.
______
Prepared Statement of Hon. Mike Ferguson, a Representative in Congress
from the State of New Jersey
I would like to thank the Chairman for holding this important
hearing and the panelists for joining us today to discuss these
landmark trade agreements.
The Singapore and Chile Free Trade Agreements represent landmark
opportunities for the United States to broaden its trade partnerships
and strengthen our nation's economic condition.
When Congress passed Trade Promotion Authority last year, it
granted the president the ability to negotiate trade agreements that
knock down high tariffs and other trade barriers that stifle the free
movement of goods. Expanding free trade will boost our nation's economy
by giving American workers and small businesses broad access to new
markets.
International trade is critical to my home state of New Jersey's
economy and its workers. Since 1993, New Jersey's exports doubled to
$29 billion last year, ranking the state 8th in the nation in total
exports. Today, one in seven New Jersey manufacturing jobs are directly
tied to exports--and those jobs pay 13 to18 percent higher wages than
the national average.
Singapore and Chile are two important trade allies for the United
States. Currently, Singapore is the largest trading partner of the
United States in Southeast Asia with two-way trade of $32.0 billion.
Approximately 1,600 U.S. companies and 20,000 American citizens are
located in Singapore, and the country is our nation's 11th largest
export market.
Due to its political and economic stability, Chile is a prime
candidate to be the first free trade partner of the U.S. in South
America. Many U.S. businesses see Chile as fertile ground for future
trade but have pointed to high tariffs when doing business in Chile as
detriments to further involvement in trade with that nation. Many U.S.
companies also cite that they are at a competitive disadvantage when
competing in Chile with countries, such as Canada, that already have
free trade arrangements with that nation.
Congress must continue to maintain strict oversight on the
Singapore and Chile Free Trade Agreements, as well as future trade
agreements to ensure that American workers and companies receive the
strongest possible advantages. In addition, we must continue to
strictly monitor our trade partners so that they maintain vital worker
protection and environmental standards.
These agreements are going to be heavily scrutinized and will be
looked upon at as models for future trade pacts. The Singapore
agreement is will be considered the starting point for agreements with
other Southeast Asian nations, and the Chile agreement will be turned
to for bi-lateral agreements with other South American nations, as well
as the FTAA and Central American Free Trade Agreement (CAFTA).
These two trade agreements that we will discuss today will be very
important to the future economic health of our nation. Thank you again,
Mr. Chairman for your continued diligence towards these and other trade
matters. I look forward to hearing from the witnesses today.
______
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Good morning. Thank you Mr. Chairman for holding this hearing to
evaluate an area that will significantly impact our domestic economy as
well as our global outlook. International trade and free trade
agreements are currently vital tools in providing new opportunities for
our domestic companies as well as shaping our international business
and foreign policy. I believe that it is extremely important that the
Subcommittee expand the scope of international trade matters that it
evaluates. Therefore, I am very pleased that the Subcommittee is
holding this hearing today.
Securing greater market access and ease of entry into new markets
will greatly enhance the ability of our domestic industries to expand
and prosper. The pending free trade agreements with Singapore and Chile
provide substantial new opportunities for sale of goods and services to
two new consumer markets.
Last year, Congress passed Trade Promotion Authority. TPA is
important because it provides an effective means for us to consider and
evaluate free trade agreements with other nations. It established a
Congressional Oversight Group, and requires the United States Trade
Representative to consult with this group on trade agreements. As part
of the Congressional Oversight Group, the Energy and Commerce Committee
has an important role to play in the implementation of new trade
agreements. With jurisdiction over foreign commerce, the Committee will
provide oversight and guidance over a significant range of matters
contained in these agreements.
We should carefully evaluate these agreements to ensure that they
provide the best opportunities for U.S. companies looking to expand
into new markets. We should also ensure that our domestic industries
will not be injured or threatened by foreign firms entering our
markets. Another reason to carefully scrutinize these agreements is
because they are with the first country in each of their regions to
enter into a comprehensive free trade agreement with the U.S and will
very likely serve as the model for future free trade agreements with
other Southeast Asian and South American nations.
Both agreements will provide open market access for U.S. companies
in key arenas. They will also make sure that U.S. companies going into
either of these countries receive the same treatment as the domestic
firms of the country. In Singapore, the aspects of the agreement that
deal with the services sector are key, because goods currently have
relative ease of entry. The equal market access of the services sector
is therefore an important gain for us. Some of the service sectors that
will benefit are banking, insurance, financial and professional
services. The telecommunications and e-commerce sectors will also
benefit by receiving non-discriminatory access to facilities, including
submarine cable landing stations. Local firms will no longer have right
of first access, thereby providing a level playing field for both
domestic and foreign firms.
The agreements provide for transparency and non-discrimination for
U.S. providers. The result will be new market opportunities for our
companies seeking to expand abroad. Going into these new markets will
let domestic firms grow and expand their business where they might not
have the opportunity domestically.
Another factor to consider is each of these individual countries.
It is my understanding that these countries were chosen as the first in
their region due to their stable economies and willingness to cooperate
with the U.S. on establishing mutually beneficial free trade policies.
Indications are that U.S. businesses view each of these markets as
prime in which to enter right now.
After a return to a democratic government in 1990, Chile is
developing into an open, reformed and developed economy. Since its
transition from a state economy to a privatized economy, Chile has
shown its willingness to implement market-based principles in every
industry sector. In addition to providing additional growth
opportunities for our domestic companies, we should also be encouraging
free trade with countries who are committed to developing a system of
free enterprise. U.S. trade with Chile is currently not of significant
proportions. This agreement will be a step toward increasing that
trading relationship. Chile and Canada entered into a free trade
agreement in 1997, and since then, trade between the two countries has
increased at a rate almost 4 times the rate of increase between Chile
and the U.S.
Singapore is also considered to be an open economy committed to
market based principles. Prior to entry into the free trade agreement,
it has relatively low trade barriers, and has permitted access to U.S.
companies and therefore, is an economy we should assist in developing,
as it would result in a direct trading benefit to our own economy. The
key, of course, is benefit to our domestic industries. During an
economic time when U.S. companies may be exploring new markets, these
agreements will provide them with an entirely new consumer base for
their products and services.
I welcome our distinguished panel of speakers and look forward to
their testimony today, and I yield back the balance of my time.
Mr. Stearns. Now, we will move to our panel. We have Mr.
Ralph Ives, Assistant U.S. Trade Representative for Asian,
Pacific and APEC Affairs, Office of the United States Trade
Representative; Ms. Regina Vargo, Assistant U.S. Trade
Representative for Americas, Office of the United States Trade
Representative; Ms. Michelle O'Neill, Deputy Assistant
Secretary for Information Technology Industry, United States
Department of Commerce.
You have heard our opening statements, so I think you have
your work cut out for you, so we will let you start with your
opening statement.
Mr. Ives, we will start with you. We need you to turn your
mike on, by unanimous consent so ordered, and I think all of
you know we are limiting you to 5 minutes, and we have a little
bit of thing right in front of you that should light up, I
think.
STATEMENTS OF RALPH F. IVES III, ASSISTANT U.S. TRADE
REPRESENTATIVE FOR ASIAN, PACIFIC AND APEC AFFAIRS, OFFICE OF
THE UNITED STATES TRADE REPRESENTATIVE; ACCOMPANIED BY REGINA
K. VARGO, ASSISTANT U.S. TRADE REPRESENTATIVE FOR AMERICAS,
OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE; AND MICHELLE
O'NEILL, DEPUTY ASSISTANT SECRETARY FOR INFORMATION TECHNOLOGY
INDUSTRY, UNITED STATES DEPARTMENT OF COMMERCE
Mr. Ives. I'm sure I will not use the full time.
Thank you, Mr. Chairman, thank you, Congresswoman
Schakowsky and members of this subcommittee, for inviting me to
testify today on the U.S.-Singapore Free Trade Agreement, and
this subcommittee's guidance during the negotiating process.
I welcome this opportunity to review the FTA and present
the Administration's request to a favorable consideration of
legislation needed to implement this FTA later this year.
The U.S.-Singapore FTA reflects a bipartisan effort to
include a trade agreement with a substantial and important
trading partner. The FTA was launched under the Clinton
Administration in November, 2000, concluded under the Bush
Administration, and signed by President Bush and Singaporean
President Goh on May 6, 2003.
The U.S.-Singapore FTA will enhance further an already
strong and thriving commercial relationship. Singapore was our
12th largest trading partner last year, a two-way trade of
goods and services exceeding $40 billion, and U.S. investment
in Singapore of approximately $27 billion.
The comprehensive U.S.-Singapore FTA is the first free
trade agreement President Bush has signed with any country and
our first with an Asian nation. It can serve as the foundation
for other possible FTAs in Southeast Asia, as President Bush
envisaged under his enterprise, the ASEAN Initiative.
Let me summarize some of the highlights of the U.S.-
Singapore FTA, which is comprehensive in scope, covering the
full range of areas, in a substantive FTA.
Under this FTA, Singapore will provide substantial access
to all types of services, treat U.S. service suppliers as well
as it treats its own, and ensure we receive the best treatment
that other foreign suppliers receive.
The FTA uses an approach that ensures the broadest possible
trade liberalization. The U.S.-Singapore FTA also provides
important protection for U.S. investors by ensuring a secure
and predictable legal framework. The FTA's provisions on the
protection of intellectual property rights provides strong
protection for new and emerging technologies, and reflects
standards of protection similar to those in U.S. laws.
Enhanced transparency is another important feature of this
FTA, in the form of a separate chapter on transparency, and in
specific provisions in a number of other chapters.
The chapter on electronic commerce breaks new ground in its
treatment of digital products. For example, establishing for
the first time explicit guarantees that the principle of non-
discrimination applies to products delivered electronically.
Similarly, the telecommunications chapter covers the full
range of telecommunications issues, while recognizing the U.S.
and Singapore's respective right to regulate these sectors.
The FTA contains a number of provisions to ensure that the
United States and Singapore are the actual beneficiaries of the
agreement. For example, the FTA contains obligations on how
customs procedures are to be conducted to help combat illegal
transshipments.
The FTA addresses the sensitive areas of labor and the
environment in a way that is consistent with congressional
objectives as stated in the Trade Act of 2002.
Finally, the dispute settlement provisions of the FTA
encourage resolution of disputes in a cooperative manner, and
provide an effective mechanism should such an approach not be
successful.
This FTA demands widespread support in our private sector.
Thirty of the 31 advisory committees reported favorably on this
FTA.
Again, the Administration looks forward to working with
this subcommittee and the full Congress in enacting legislation
necessary to implement the agreement. We hope we can count on
your support and, Mr. Chairman, I'd be pleased to respond to
any questions.
Thank you.
[The prepared statement of Ralph F. Ives III follows:]
Prepared Statement of Ralph F. Ives, III, Assistant U.S. Trade
Representative for Asia, the Pacific and APEC
introduction
Thank you Mr. Chairman, Congresswoman Schakowsky, and Members of
this Committee, for inviting me to testify today on the U.S.-Singapore
Free Trade Agreement (FTA) and for this Subcommittee's guidance during
the negotiating process. I welcome this opportunity to review the
accomplishments of the FTA and present the Administration's request for
favorable consideration of legislation needed to implement the FTA
later this year.
The U.S.-Singapore FTA reflects a bipartisan effort to conclude a
trade agreement with a substantial and important trading partner. The
FTA was launched under the Clinton Administration in November 2000,
concluded under the Bush Administration and signed by President Bush
and Singaporean Prime Minister Goh on May 6, 2003.
The U.S.-Singapore FTA is a solid agreement. It is the first FTA
President Bush has signed with any country and our first with an Asian
nation. This Agreement provides commercial and political benefits for
both the United States and Singapore. Strengthening economic ties helps
secure strong political interests.
The U.S.-Singapore FTA will enhance further an already strong and
thriving commercial relationship. Singapore was our 12th largest
trading partner last year. Annual two-way trade of goods and services
between our nations exceeded $40 billion. Expanding this trade will
benefit workers, consumers, industry and farmers. Independent analyses
found significant economic gains will result from the FTA for the
United States and Singapore.
The FTA is comprehensive in scope and covers aspects of trade in
goods, services, investment, government procurement, protection of
intellectual property, competition policy and the relationship between
trade and labor and environment. This FTA builds upon the basic
foundation of the NAFTA and WTO agreements and improves upon them in a
number of ways. The U.S.-Singapore FTA can serve as the foundation for
other possible FTAs in Southeast Asia. President Bush envisaged this
prospect when he announced his Enterprise for ASEAN Initiative (EAI)
last year.
The Administration looks forward to working with Congress on the
legislation needed to implement this FTA. We hope to be in a position
to submit this legislation after further work with the Congress.
summary of the u.s.-singapore fta
Let me summarize some of the highlights of the U.S.-Singapore FTA.
The United States already enjoys duty-free access for almost all
products entering Singapore's market. The FTA ensures that Singapore
cannot increase its duties on any U.S. product. For Singapore products
entering the U.S. market, duties are phased-out at different stages,
with the least sensitive products entering duty-free upon entry into
force of the FTA and tariffs on the most sensitive products phased-out
over a ten-year period.
Services are a major segment of the U.S. economy. Under the FTA,
Singapore will provide substantial access for all types of services--
subject to a few exceptions--and treat U.S. services suppliers as well
as it treats its own suppliers. Singapore will also ensure that we
receive the best treatment that other foreign suppliers receive.
Singapore's services market access commitments include: financial
services, such as banking and insurance; construction and engineering;
computer and related services; telecommunications services; tourism;
professional services, such as architects, accountants and lawyers;
express delivery; and energy services. In many of these areas Singapore
agreed to bind its market access commitments at levels that provide
substantially better access than that which it currently offers to
other WTO Members. In the telecom sector, for example, Singapore's WTO
commitment includes a closed list of services and only three basic
telecom operators. Under the FTA, the scope of services, and number of
operators is unlimited. Singapore has also agreed to liberalize express
delivery services and other related services that are part of an
integrated express delivery system and will not allow its postal
services to cross-subsidize express letters.
In a move that U.S. services industries strongly support, the FTA
takes a different approach to making services commitments than the WTO
GATS Agreement. The FTA uses a ``negative list'' approach. While a
country's commitments under the GATS Agreement are limited to those
sectors listed in that country's schedule, under the FTA, unless
Singapore expressly includes a limitation on a particular service, U.S.
suppliers will be allowed to provide that service. This approach
ensures the broadest possible trade liberalization.
The U.S.-Singapore FTA also provides important protection for U.S.
investors. U.S. foreign direct investment in Singapore as of 2001 was
over $27 billion. The Agreement ensures a secure and predictable legal
framework for such investment. U.S. investors will be treated as well
as Singaporean investors or any other foreign investor. The investment
provisions draw from U.S. legal principles and practices, including due
process and transparency. These investor rights are backed by effective
and impartial procedures for dispute settlement. At the same time,
Singaporean investors are not accorded greater rights than U.S.
investors in the United States.
The FTA is innovative and state-of-the-art in a number of other
ways, including its protection of intellectual property rights (IPR)
which builds upon the WTO's Agreement on Trade-related Intellectual
Property Rights, provides strong protection for new and emerging
technologies and reflects standards of protection similar to those in
U.S. laws. For example, this FTA specifically requires that plant and
animal inventions be patentable and contains obligations which address
the growing concerns of piracy on the Internet embodied in the United
States by the provisions of the Digital Millennium Copyright Act. The
FTA also requires the Parties to extend the minimum term of copyright
protection from 50 to 70 years. In the patent area, the FTA requires
the Parties to extend the patent term for any loss of protection due to
regulatory delays and ensures that a patent can only be revoked on the
grounds that would have justified its refusal. In addition, the FTA
protects confidential test data against unfair use for five years for
pharmaceuticals and ten years for agri-chemicals. This chapter also
contains IPR enforcement provisions that are significantly stronger
than those contained in the TRIPS Agreement, thereby enhancing the
ability of U.S. IPR owners to protect their rights in Singapore.
Enhanced transparency is another important feature of this FTA. An
entire chapter is devoted to notice and comment procedures that are
modeled on the U.S. Administrative Procedures Act. In addition, many of
the other chapters contain specific provisions to ensure regulatory
transparency--e.g., in the chapters on services, financial services,
competition, government procurement, customs administration,
investment, telecom, and dispute settlement.
Improved transparency can be an effective deterrent to combat
corrupt business practices. In addition, the United States and
Singapore expressly affirm in the FTA their strong commitments to
effective measures against bribery and corruption in international
business transactions.
The chapter on electronic commerce also breaks new ground. The FTA
establishes for the first time explicit guarantees that the principle
of non-discrimination applies to digital products delivered
electronically (e.g., software, music, videos). This chapter also
creates the first binding prohibition on customs duties being levied on
digital products delivered electronically and where these products are
stored on physical media (e.g., on a CD or DVD) duties are assessed on
the value of media as opposed to the content. In addition, the chapter
memorializes the principle of avoiding barriers that impede the use of
electronic commerce.
Similarly, the telecommunications chapter achieves significant
advances over the work undertaken in the WTO. The full range of
telecommunication issues, i.e., reasonable and non-discriminatory
access to networks, transparent rule making by an independent
regulator, and adherence to the principles of deregulation and operator
choice of technology--are addressed in a way that opens Singapore's
market, while recognizing the U.S. and Singapore's respective right to
regulate these sectors.
The competition chapter of the FTA is worth noting because we were
faced with a somewhat unique situation in Singapore. Since Singapore's
independence about four decades ago, the Government has invested in the
private sector--through so-called government-linked companies (GLCs).
While Singapore has welcomed foreign investment and treated it fairly,
we wanted the FTA to contain certain protections for U.S. firms
relating to sales to, and purchases from, these companies. In
particular, we wanted to make sure that GLCs in which the Government of
Singapore could have effective influence acted in accordance with
commercial considerations; did not discriminate against U.S. goods,
services and investments; and did not engage in anti-competitive
practices. In addition, Singapore will enact laws that will proscribe
anti-competitive business conduct and establish an authority to enforce
such laws.
The U.S.-Singapore FTA addresses the sensitive areas of trade and
labor and environment in a way that achieves Congressional objectives
stated in the Trade Act of 2002. Singapore has agreed to consult on its
laws in these areas and conduct cooperative activities. The FTA also
commits both countries to enforce their respective labor and
environment laws and recognizes that it is inappropriate to weaken or
reduce such laws to encourage trade or investment.
The FTA contains a number of provisions to ensure that the United
States and Singapore are the actual beneficiaries of the Agreement.
First, the FTA uses strong but simple rules of origin designed to
ensure that it is U.S. and Singaporean goods that benefit from the FTA.
Second, the chapter on customs administration improves the exchange
of information between the United States and Singapore, which is
critical to modern risk management practices. The FTA also contains
specific, concrete obligations on how customs procedures are to be
conducted. Such procedures will help enable U.S. customs to combat
illegal transshipments of goods, including on products violating the
intellectual property rights provisions--such as pirated CDs.
Third, the textile and apparel chapter contains specific rules on
monitoring Singapore's production and extensive anti-circumvention
commitments--such as reporting, licensing, and announced factory
checks. These provisions are designed to ensure that only Singaporean
textiles and apparel receive tariff preferences.
Finally, the dispute settlement provisions of the FTA encourage
resolution of disputes in a cooperative manner and provide an effective
mechanism should such an approach not prove to be successful. If a
Party is found to be in breach of the FTA, it will be asked to bring
its offending measure into compliance. Failing that, the preferred
remedy is trade-enhancing compensation. If compensation is not
possible, the system allows the aggrieve Party to take other action
without formal approval of a dispute settlement body. Provisions
relating to payment of fines until a measure is brought into conformity
with the Agreement are a new feature of the dispute settlement system.
Other specific provisions relating to fines apply in the context of
dispute involving a Party's failure to enforce its labor or environment
laws.
fta process
The U.S.-Singapore FTA is truly a bipartisan effort--begun under
the Clinton Administration and concluded by Bush Administration. On May
6, President Bush signed this historic FTA.
The U.S.-Singapore FTA is the first agreement that will be
implemented under the trade promotion authority (TPA) procedures set
out in the Trade Act of 2002 (Trade Act). Even before receiving
Congressional guidance under the Trade Act, the process of developing
U.S. proposals and concluding the FTA was open and transparent. USTR
held public briefings, consulted frequently with Congress public sector
advisors and sought public comments on the negotiations as they
proceeded. Proposed texts were made available to members of Congress
and advisors in advance of their presentation to Singapore, and in
December, the Congress and our advisors had access to the full draft of
the FTA. At that time, USTR also posted a summary of the FTA on our
public web site. On March 6, USTR posted the entire draft of the FTA on
the USTR web site.
As with other Agreements, such as the NAFTA and the WTO Agreements,
our private sector advisors are required to submit reports to the
President, the Congress and the USTR providing their assessments of the
extent to with the FTA achieves the objectives, policies and priorities
set out in the Trade Act. Thirty of the 31 advisory committees reported
that the U.S.-Singapore FTA advanced and achieved each of the relevant
objectives, purposes, policies and priorities set out in the Trade Act.
a template for future agreements in the region
Last October, President Bush announced the Enterprise for ASEAN
Initiative (EAI) in recognition of this important region. The EAI
offers the prospect of FTAs with individual ASEAN nations, leading to a
network of FTAs in the region. The U.S.-Singapore FTA can serve as the
foundation for these other possible FTAs. The ASEAN includes the
largest Muslim country in the world--Indonesia--as well as other
countries with large Muslim populations, including Malaysia, the
Philippines and Brunei.
conclusion
The U.S.-Singapore FTA is the most comprehensive and up-to-date
trade agreement the United States has concluded. This FTA commands
widespread support in the private sector and makes progress in
achieving each of the relevant objectives, purposes, policies and
priorities that the Congress identified in the Trade Act.
The Administration looks forward with working with the Congress in
enacting the legislation necessary to implement the Agreement. We hope
we can count on your support.
Thank you, Mr. Chairman. I would be pleased to respond to
questions.
Mr. Stearns. Thank you.
Ms. Vargo.
STATEMENT OF REGINA K. VARGO
Ms. Vargo. Thank you, Mr. Chairman.
Mr. Stearns. You might just pull the mike a little closer
to you.
Ms. Vargo. Thank you.
With permission, if you could enter my remarks into the
record.
Mr. Stearns. Unanimous consent, so ordered.
Ms. Vargo. Thank you.
Mr. Chairman, Congresswoman Schakowsky, and members of the
subcommittee, I am honored to appear before you today to
discuss the benefits of the U.S.-Chile Free Trade Agreement
will offer American businesses, workers, farmers and consumers.
At the outset, I want to thank each of you and your staff
for the suggestions and support you provided during the
negotiation of this agreement.
The agreement, the result of long-term bipartisan efforts
and an open transparent negotiating process, makes sound
economic sense for the United States and Chile, and represents
a win-win, state-of-the-art agreement for a modern economy.
Over the past 15 to 20 years, Chile has established a
thriving democracy and an open economy built on trade. It is
one of the world's fastest-growing economies and its sound
economic policies are reflected in its investment grade capital
market ratings unique in South America.
Last year, our bilateral trade stood at $6.4 billion, with
$2.6 billion in U.S. exports. But, we can do better. Chile
already has free trade agreements with Mexico, Canada,
Mercosur, and since February the European Union. This has
disadvantaged U.S. exporters.
The National Association of Manufacturers, for example,
estimates the lack of an FTA with Chile is costing the United
States at least $1 billion in lost exports annually.
An FTA with Chile will ensure that we enjoy market access,
treatment, prices and protections, at least as good as our
competitors. Consumers will benefit from lower prices and more
choices.
The agreement will also spur progress in the free trade
area of the Americas, and will send a positive signal
throughout the world and, particularly, in the Western
Hemisphere, that we will work in partnership with those who are
committed to free markets.
The English version of the Chile agreement has been on the
USTR website since April 3, and we continue with our internal
work to produce an authentic Spanish language text. No decision
has yet been made on the timing or venue for signing the Chile
FTA. We were, of course, disappointed over Chile's stand at the
U.N. on Iraq, but President Bush has said, ``They are friends
of ours, we have got an important free trade agreement with
Chile that we are going to move forward with.'' That is what we
are doing, when the agreement is ready to be signed, we will
make final decisions on dates and logistics.
Let me just add that throughout the negotiations we
conducted an extensive consultative process of public hearings
and briefings and frequent consultations with congressional
staff, private sector advisors and civil society groups, to
develop positions and provide regular updates on progress in
the negotiations.
Like the Singapore FTA, 30 of our 31 official advisory
groups support the agreement.
I think the results of this process have yielded an
exemplary agreement. I'd like to highlight four features that
distinguish the U.S.-Chile FTA from the other 150 or so free
trade agreements that other countries in the EU have concluded.
First, it's comprehensive. All growth will be duty and
quota free within 12 years, with 87 percent of bilateral trade
receiving immediate duty-free access.
Second, it promotes transparency. Transparency provisions,
both in the transparency chapter and throughout the agreement,
promote open, impartial procedures and underscore Chile's
commitment to a rules-based global trading system.
Regulatory procedures require advanced notice, comment
periods and publication of all regulations, similar to our own
Administrative Procedures Act. There is an explicit provision
that requires bribery in government procurement to be treated
as a criminal offense, and dispute settlement provisions, both
State to State and investor State, provide for open hearings,
public release of submissions, and the opportunity for
interested third parties to submit views, objectives that the
United States has long sought in the WTO.
Third, the agreement is modern. Strengthen protection for
intellectual property rights and investment, the broad scope of
the services obligations, and new provisions on
telecommunications, electronic commerce, express delivery and
professional services, recognize the digital age and the
emergency of new industry.
Finally, in keeping with TPA mandates, it uses an
innovative approach that supports and promotes respect for the
environment and worker rights, with enforceable obligations in
the agreement subject to effective dispute settlement designed
to encourage compliance.
Conclusion of the Chile FTA has provided momentum to other
hemispheric and global trade liberalization efforts, by
breaking ground on new issues and demonstrating what a 21st
Century trade agreement should be.
I want to thank you for this hearing today, and I'm happy
to answer any questions you may have.
[The prepared statement of Regina K. Vargo follows:]
Prepared Statement of Regina K. Vargo, Assistant U.S. Trade
Representative for the Americas
Mr. Chairman, Congresswoman Schakowsky, and Members of the
Subcommittee: I am honored to appear before you today to testify on the
U.S.-Chile Free Trade Agreement (FTA). I also want to thank each of you
and your staffs for the suggestions and support you have provided
during the negotiations of the agreement.
sound economic sense for the united states
I welcome the opportunity to discuss the U.S.-Chile FTA and to
describe the benefits it will offer American businesses and consumers.
The agreement, the result of a long-term bipartisan effort and an open,
transparent negotiating process, makes sound economic sense for the
United States and Chile and represents a win-win, state-of-the-art
trade agreement for a modern economy.
It makes sound economic sense for the United States to have a free
trade agreement with Chile. Although Chile was only our 36th largest
trading partner in goods in 2002 (with $2.6 billion in exports and $3.8
billion in imports), Chile has one of the fastest growing economies in
the world. Its sound economic policies are reflected in its investment
grade capital market ratings, unique in South America. Over the past
15-20 years, Chile has established a thriving democracy, a thriving
economy, a free market society and an open economy built on trade. A
U.S.-Chile FTA will help Chile continue its impressive record of growth
and development. It will help spur progress in the Free Trade Area of
the Americas, and will send a positive message throughout the world,
particularly in the Western Hemisphere, that we will work in
partnership with those who are committed to free markets.
Moreover, a U.S.-Chile FTA will help U.S. manufacturers, suppliers,
farmers, workers, consumers and investors achieve a level playing
field. Chile already has FTAs with Mexico, Canada, Mercosur, and--since
February--the EU. As a result, its trade with these economies is
growing while American companies are being disadvantaged. The National
Association of Manufacturers estimates the lack of a U.S.-Chile FTA
causes U.S. companies to lose at least $1 billion in exports annually.
The United States needs an FTA with Chile to ensure that we enjoy
market access, treatment, prices and protection at least as good as our
competitors. Consumers will benefit from lower prices and more choices.
timing of signing
The Administration has not yet set a date for signing of the U.S.-
Chile FTA. It should come as no surprise that people within the
Administration and in Congress were disappointed with Chile's position
on Iraq in the U.N. Security Council. But, as Secretary Powell said in
his speech to the Council of the Americas last week, ``That's behind us
now.'' He went on to urge Chile and others to support U.S.
reconstruction plans for Iraq. Ambassador Zoellick has said, ``We feel
we have a good agreement, we feel it's good for both countries, and I
have no doubt that ultimately we'll proceed.'' At USTR, we are
continuing to move forward with our preparations for signing and
implementation. Ambassador Zoellick briefed the Congressional Oversight
Group on April 11 on both the Singapore and the Chile FTAs. Both
Ambassador Zoellick and I are consulting with others on the Hill on the
Chile FTA and would welcome your views on the timing of signing.
There also are very important practical concerns we have with Chile
that didn't exist with Singapore. The English and Spanish language
texts of the U.S.-Chile FTA will be equally authentic. Chile needs to
sign an official Spanish-language version of the text to submit to its
congress. This is not a simple undertaking. We are working closely with
our Chilean counterparts to obtain final Spanish language translations
of all chapters in the agreement to allow the State Department to
compare the Spanish and English texts, and to propose any
modifications. Once we obtain the State Department's recommendations,
we will need to agree on any changes with Chile before the Spanish
language version of the text can be finalized.
result of a long-term bipartisan effort
The U.S.-Chile FTA is truly a bipartisan effort. Negotiations were
launched under the Clinton Administration in December 2000. After
fourteen rounds, negotiations were concluded under the Bush
Administration in December 2002.
In fact, discussions about a bilateral free trade agreement have
been going on much longer. As Ambassador Zoellick stated in his
congressional notification last fall, ``the origins of an agreement
with Chile date back to the Administration of President George H.W.
Bush, when the first discussions were held regarding a possible Chile
FTA.'' In the mid-90's, the North American Free Trade Agreement (NAFTA)
countries (the United States, Canada and Mexico) invited Chile to dock
into the NAFTA. However, with the subsequent lapse of what was then
known as ``fast-track authority'', docking didn't appear feasible. The
United States and Chile instead initiated a Trade and Investment
Framework Agreement (TIFA) to facilitate bilateral trade and investment
liberalization and pave the way for a future FTA.
As a footnote, discussions about a U.S.-Chile bilateral trade
agreement have been going on much longer than a decade. Chilean
historians inform us that these discussions began in the 1800's when
Chilean Ambassador Pangea was sent as a special emissary to the United
States to propose a bilateral trade agreement to President Jackson.
Unfortunately, President Jackson was not persuaded. Ambassador Pangea
may have been a bit ahead of his time, but I think you all would agree
the FTA with Chile has been in the works for a long time--and has truly
enjoyed bipartisan support.
result of an open, transparent process
The process of developing U.S. proposals and concluding the U.S.-
Chile FTA was open and transparent. Even before Trade Promotion
Authority was granted, the Office of the U.S. Trade Representative
(USTR) held public briefings and consulted frequently with
Congressional staff, private sector advisors, and civil society groups.
We continued this process after the Trade Act of 2002 was enacted in
August, meeting with the Congressional Oversight Group, members and
staff from interested Committees, and advisory groups, to develop
positions and provide regular updates on results of negotiating rounds.
We used technology to facilitate access to texts, providing draft texts
to cleared advisors via a secure website in early January, and after
the legal review, made the text available to the public on USTR's
regular website on April 3. Open, transparent, consultative processes
throughout the negotiations resulted in a greatly improved agreement.
summary--a win-win agreement
The U.S.-Chile FTA is a win-win, state-of-the-art trade agreement
for a modern economy. USTR's website (www.ustr.gov) has a nine-page
summary of the agreement as well as the English version of the texts. I
will highlight the most salient points.
Four features distinguish the U.S.-Chile FTA from the other 150 or
so FTAs that other countries and the EU have concluded:
1) It is comprehensive.
2) It promotes transparency.
3) It is modern.
4) It uses an innovative approach that supports and promotes respect
for environmental protection and worker rights.
1. comprehensive
We challenged ourselves to be as open as possible, across the
board.
Goods. Chile currently has a six percent flat tariff on goods,
except for products subject to its price bands (wheat, wheat flour,
vegetable oil and sugar). Under the U.S.-Chile FTA, all goods will be
duty-free and quota-free at the end of the transition periods (10 years
maximum for industrial goods and 12 years for agricultural goods).
There is generous immediate, duty-free access--more than 87 percent of
bilateral trade in goods. Special phase-outs are allowed within these
timeframes for goods with sensitivities.
Our key concern was to level the playing field to ensure that U.S.
access to Chile would be as good as that of the EU or Canada, both of
which have FTAs with Chile. Chile's commitment to eliminate its
agricultural price bands, which it had retained in previous trade
agreements, was an essential component of our decision to liberalize
all trade.
Among the key features, access for beef in both countries will be
completely liberalized over four years. U.S. beef exporters will be
permitted to use U.S. grading standards when they market beef in Chile.
Chile is finalizing the administrative regulations necessary to
recognize the U.S. meat inspection system--to the benefit of U.S. beef
and pork exporters. Tariffs on U.S. and Chilean wines will first be
equalized at low U.S. rates and then eliminated. Chile also agreed to
eliminate a 50 percent surcharge on used goods (important for capital
goods exporters), to end duty drawback and duty deferral programs after
a transition and to eliminate its 85 percent ``auto luxury tax'' in
four years.
In addition to longer phase-out periods on sensitive products, the
Trade Remedies chapter provides for temporary safeguards to be imposed
when increased imports constitute a substantial cause of serious injury
or threat of serious injury to a domestic industry. Special safeguards
are also provided for certain textile and agricultural products.
Services. Today 80% of Americans work for service companies, and
about two-thirds of our GDP is in services. We improved upon the
approach used in the WTO and used a ``negative list'' approach for
negotiating market access rights so that all services are included with
very few exceptions. There are broad commitments on both sides.
Government Procurement. This is the first FTA to explicitly
recognize that build-operate-transfer contracts are government
procurement. The Government Procurement provisions cover purchases of
most Chilean government infrastructure and resource projects, including
ports and airports, as well as central government entities and more
than 350 municipalities.
2. promotes transparency
Transparency provisions both in the Transparency chapter and
throughout the agreement promote open, impartial procedures and
underscore Chile's commitment to the rules-based global trading system.
General provisions ensure open, transparent, regulatory procedures by
requiring advance notice, comment periods and publication of all
regulations.
Provisions to streamline customs procedures and simplify rules of
origin will facilitate taking advantage of the new trade openings, and
will be particularly helpful to small and medium-sized enterprises. The
U.S.-Chile FTA and the U.S.-Singapore FTA will be the first FTAs
anywhere in world to have specific, concrete obligations to enhance
transparency and efficiency of customs procedures. All customs laws,
regulations and guidelines are required to be published on the
Internet. The private sector may request binding advance rulings on
customs matters. Additional provisions allow rapid release of goods,
including expedited treatment for express delivery shipments.
The rules of origin in the agreement are straightforward and
simplified. Based on our experience with NAFTA, we were able to
minimize the use of complicated regional content value calculations.
The Services chapter provides additional procedural requirements
regarding transparency in development and application of regulations,
including the requirement to establish a mechanism for responding to
questions on regulatory issues. These advancements are particularly
crucial for the services sector since many sectors are regulated and
transparency is needed to guarantee that market access improvements can
be fully exploited.
The Government Procurement chapter requires open and transparent
qualification and tendering procedures, with only limited restrictions.
It also requires Chile to establish an impartial authority to hear
supplier complaints about the implementation of the government
procurement obligations. Importantly, it specifically requires that any
bribery in government procurement be considered a criminal offense in
U.S. and Chilean laws, furthering hemispheric anti-corruption goals.
Dispute Settlement provisions provide for open public hearings, the
opportunity for interested third paries to submit views, and public
release of submissions, objectives that the United States has long
sought in the WTO. Similar transparency provisions apply to investor-
state disputes.
3. modern
The agreement is modern in its approach to technology and business
practices, encompassing strengthened protection for intellectual
property rights and investment, and new provisions on
telecommunications, electronic commerce, express delivery and temporary
entry.
Intellectual Property Rights (IPR). The agreement provides state-of
the art protection for digital products such as U.S. software, music,
text and videos. IPR protection for patents, trademarks and trade
secrets exceeds that in prior agreements and obligates Chile to provide
protection at a level that reflects U.S. standards.
Investment. The agreement provides important protections for U.S.
investors in Chile. The agreement ensures that U.S. investors will
enjoy national treatment and MFN treatment in Chile in almost all
circumstances. The investment provisions draw from U.S. legal
principles and practices, including due process and transparency. All
forms of investment are protected under the agreement, such as
enterprises, debt, concessions, contracts and intellectual property.
Expedited procedures will help deter and eliminate frivolous claims,
and provide for efficient selection of arbitrators and prompt
resolution of claims. The agreement also contemplates the establishment
of an appellate mechanism to review awards under the Investment
Chapter, permitting the Parties to establish a bilateral appellate
mechanism or to establish a future multilateral appellate mechanism.
Standards are established for expropriation and compensation for
expropriation, and for fair and equitable treatment. Performance
requirements are prohibited, except in certain limited circumstances.
Free transfer of funds is protected. Under special dispute settlement
provisions, however, Chile shall not incur liability if Chilean
authorities exercise, for a limited period, narrow flexibility to
restrict certain capital flows that Chile considers potentially
destabilizing.
Telecommunications. The telecommunications chapter improves on
Chile's WTO obligations. It ensures non-discriminatory access to, and
use of, Chile's public telecommunications network, coupled with sound
regulatory measures to prevent abuses by the dominant incumbent service
supplier. In addition, the agreement includes a commitment from Chile
to allow market entry for basic telecommunications services. This
market access to Chile's telecommunications sector is essential for the
continued development of innovative and new service offerings.
The agreement will require a greater level of transparency in
dealing with major suppliers of public telecommunication services,
transparent regulatory processes, and strong regulatory enforcement
powers. It also provides flexibility to account for changes that may
occur through new legislation or new regulatory decisions. Foreign
companies operating in the U.S. telecommunications sector enjoy a high
degree of market access and transparency. With this agreement, U.S.
telecommunication service suppliers will enjoy similar access, openness
and transparency in Chile.
Electronic Commerce. The E-Commerce chapter is a breakthrough in
achieving certainty and predictability for market access of products
such as computer programs, video images, sound recordings and other
digitally encoded products. The commitments provide that digital
products that are imported or exported through electronic means will
not be subject to customs duties. Furthermore, each side will determine
customs valuation on the basis of the carrier medium, e.g., optical
media or tape, rather than content. Both the United States and Chile
commit to non-discriminatory treatment of digital products. Electronic
commerce is an area of trade that has been, for the most part, free of
many traditional trade barriers (duties, discrimination,
protectionism). The U.S.-Chile FTA binds the current level of openness
for trade in this area by reaching an agreement that prevents such
barriers from being imposed in the future.
Services. In addition to obtaining increased market access for U.S.
banks, insurance companies, telecommunications companies, and
securities firms, the FTA for the first time recognizes ``express
delivery'' as a distinct industry. Express delivery service commitments
are based on an expansive definition of the integrated nature of
services. Express delivery services obtain expedited customs clearance.
Special provisions will deter postal carriers from cross-subsidizing
competing services.
Temporary Entry. The Temporary Entry chapter facilitates the
movement of businesspersons engaged in the trade of goods and services,
and the conduct of investment activities. It establishes transparent
criteria and procedures for entry of businesspersons in four
categories: business visitors, intra-company transferees, traders and
investors, and professionals. The first three categories will be
implemented using our current system. Unlike the NAFTA, which includes
a list of individual professions, the FTA employs a general definition
based on educational achievement. This general definition will be able
to accommodate changes to the workforce that take place over time.
Based on Congressional consultations, we set an annual numerical limit
of 1,400 new Chilean professionals. Finally, the chapter preserves the
ability of the Congress and regulators to legislate and develop new
procedures in the area of temporary entry subsequent to the entry into
force of the agreement.
4. innovative approach to labor and environment
Both the U.S.-Chile and U.S.-Singapore FTAs took into account
Congressional guidance and built upon the Jordan Agreement by including
in the agreements mechanisms for consultation, dialogue, and public
participation. These FTAs encourage high levels of environmental and
labor protection, and obligate the signatories to enforce their
domestic labor and environmental laws. This ``effective enforcement
provision'' is subject to dispute settlement and backed by effective
remedies, including an innovative use of monetary assessments, that are
designed to encourage compliance. If a defending party fails to pay the
monetary assessment, the complaining party may take other appropriate
steps to collect the assessment, which may include suspending tariff
benefits. The Chile FTA includes special rosters of experts for
settlement of Labor, Environment, and Financial Services disputes. Our
FTAs with Chile and Singapore also provide for bilateral cooperation
programs to promote worker rights and environmental protection.
promotes growth and poverty reduction
As Ambassador Zoellick said, ``The U.S.-Chile FTA is a partnership
for growth, a partnership in creating economic opportunity for the
people of both countries.''
Chile has opened its markets and welcomed competition. As a result,
it is one of the freest economies in Latin America.
The result of Chile's openness has been the best growth record in
Latin America, averaging over 6 percent per year through the 1990's.
This growth enabled Chile to cut its poverty rate in half, from 45
percent in 1987 to 22 percent in 1998. The U.S.-Chile FTA will help
Chile sustain this growth and will send a strong signal to the
hemisphere that the United States wants to work in partnership to
promote mutual economic growth.
provides momentum for hemispheric trade liberalization
Conclusion of the Chile FTA has provided momentum to other
hemispheric and global trade liberalization efforts by breaking ground
on new issues and demonstrating what a 21st century trade agreement
should be. We continue to move forward with the centerpiece of our
hemispheric integration strategy, the Free Trade Area of the Americas
(FTAA). We maintain our strong commitment to the negotiation of a
comprehensive and robust FTAA by January of 2005. We already have
followed up on our success with Chile by launching historic
negotiations toward a free trade agreement (the so-called CAFTA)
between the United States and the nations of the Central America
economic integration system: Costa Rica, El Salvador, Guatemala,
Honduras, and Nicaragua.
The U.S.-Chile FTA and the CAFTA will serve as building blocks for
the FTAA. They will give both sides greater access to others' markets
at an earlier date than is possible under the FTAA. At the same time,
these bilateral FTAs strengthen ties and integration, demonstrating the
additional benefits available through the FTAA.
Together with other more developed countries in the hemisphere,
such as Canada, Mexico, Brazil and Chile, we continue to work on the
hemispheric cooperation program. The program will help all nations in
the hemisphere benefit from the FTAA, by providing appropriate
technical assistance and trade capacity building to FTAA nations
requiring assistance.
With Congressional guidance and support, this Administration is
pursuing an ambitious and comprehensive trade policy. We will continue
to move forward bilaterally, regionally and globally. Together, we can
show the world the power of free trade to strengthen democracy and
promote prosperity.
Mr. Stearns. Thank the gentlelady.
Ms. O'Neill.
STATEMENT OF MICHELLE O'NEILL
Ms. O'Neill. Thank you, and like my colleagues I'd also
like to ask that my statement----
Mr. Stearns. By unanimous consent so ordered.
Ms. O'Neill. Thank you.
And, thank you very much for inviting me here. My remarks
will focus on the benefit of the agreement to the high-tech
sector and to global electronic commerce.
As many have noted today, technology is a key driver making
our economy more efficient, productive, competitive and
integrated, and experts predict that this will continue in the
coming decades.
However, in order to facilitate growth in electronic
commerce, and expand sales of U.S. information and
communications technology products and services, also known as
ICTs, in the coming years it will be necessary to work
diligently on the trade front to reduce barriers to U.S.
exports and to maintain a barrier-free environment for
electronic commerce.
The U.S.-Singapore and the U.S-Chile Free Trade Agreements,
represent groundbreaking progress toward achieving these goals.
First, turning to Singapore, by opening trade in the high-tech
sector and keeping the Internet barrier free, the U.S.-
Singapore FTA will generate opportunities for U.S. companies to
benefit from Singapore's high level of engagement in the
digital economy, and their forward-looking approach to the
development and use of ICTs. Specifically, in terms of
electronic commerce, the agreement establishes explicit
guarantees that U.S. digital products will receive the same
treatment as Singaporean digital products. The agreement also
memorializes a binding commitment on the global moratorium on
customs duties on digital products, commits both countries to
assess customs duties for digital products delivered on hard
media, such as a DVD or CD, on the value of the media, not on
the value of the movie, music or software contained on the
disc, and affirms that any commitments made related to services
also extend to the delivery of such services delivered over the
Internet.
In addition, alongside the agreement, we also completed the
U.S.-Singapore Joint Statement, which includes a range of
cooperative activities in the e-commerce area.
Some of the benefits for the high-tech sector include an
immediate reduction to zero of all tariffs on U.S. ICT products
entering Singapore. There's also a full range of commitments on
telecommunication services that provide for open markets
consistent with the regulatory regimes of the U.S. and
Singapore.
And finally, the U.S.-Singapore Free Trade Agreement also
provides for a high level of intellectual property rights
protection, discipline on anti-competitive measures and
government procurement, and an innovative dispute settlement
mechanism applying to all core obligations of the agreement,
which will make it easier for high-tech companies to trade with
Singapore.
In addition, Singapore will provide substantial market
access across its entire services regime, subject to very few
exceptions.
Now, turning to the Chile agreement, the agreement, in our
view, will provide new opportunities for U.S. companies looking
to export ICTs and will encourage cross border electronic
commerce transactions, by guaranteeing a level playing field
for companies doing business in Chile.
Conversely, the U.S.-Chile Free Trade Agreement will also
make it easier for Chile to obtain ICTs from the United States
and stand out in the region as a strong supporter of digital
economy developments.
The agreement provides most of the same benefits to
industry related to electronic commerce as does the U.S.-
Singapore FTA, one exception being that the e-commerce chapter
also contains a provision for future cooperation, very similar
to that provided for in the U.S.-Singapore Joint Statement on
Electronic Commerce.
All tariffs on U.S. ICT products entering Chile will be
reduced to zero, which much like in the case of Singapore will
be beneficial to U.S. hardware and software exporters who were
previously assessed a 6 percent duty on their products.
And then in the telecom area, the key elements are similar
to those in Singapore. The completion of the chapter in the
U.S.-Chile FTA is significant because it binds two of the most
open and advanced telecommunications markets in the world to a
set of progressive rules and regulations, building on NAFTA,
the GATT's telecommunications annex, and the WTO reference
paper, to form a comprehensive provision.
And then in addition, the commitments for deregulation of
information services and reasonable access to lease lines are
stronger in the U.S.-Chile FTA and U.S. industry will benefit
additionally from a commitment to allow access to the market
for local-basic services, a commitment Chile does not currently
have under the WTO.
As you will probably hear from the next panel, the industry
in the high-tech sectors and those engaged in electronic
commerce have indicated strong support for these agreements. In
the electronic commerce space, U.S. industry has stated that
they believe these agreements will set a model for negotiating
objectives on electronic commerce in the WTO, and will
establish internationally accepted mechanisms for how their
goals in electronic commerce can be achieved at a global level.
We also understand that industry is supportive of the
telecommunications chapters in the U.S.-Singapore FTA and in
the U.S.-Chile FTA.
In conclusion, I would just like to reiterate that the
agreements in our view do represent a groundbreaking first step
toward establishing a trade rules regime for electronic
commerce that will prevent the creation of barriers to this new
type of trade. The FTAs will provide a high degree of certainty
and predictability for U.S. businesses in these markets that
will most likely make it easier for small and medium-sized
enterprises to export to Chile and Singapore.
And, with that, I will thank you and be pleased to answer
any questions you have.
[The prepared statement of Michelle O'Neill follows:]
Prepared Statement of Michelle O'Neill, Deputy Assistant Secretary for
Information Technology Industries, U.S. Department of Commerce
Mr. Chairman, Congresswoman Schakowsky, and Members of this
Subcommittee: Thank you for inviting me to testify today on the
benefits to the high-tech sector and to global electronic commerce of
the U.S.-Singapore and the U.S.-Chile Free Trade Agreements (FTAs). I
welcome the opportunity to talk with you today about how these
Agreements represent breakthroughs in the facilitation of global
electronic trade.
introduction
Despite the downturn in the high-tech sector and the burst of the
dotcom bubble, information and communications technologies (ICTs) and
electronic commerce remain important parts of our economic growth and
continue to revolutionize the way we do business, the way we govern and
the way we live.
Technology is a key driver making our economy more efficient,
productive, competitive and integrated, and experts predict that this
will continue in the coming decades. In fact, private market research
firms predict continued growth in the value of global electronic
commerce transactions over the next few years. Most project that the
value of electronic trade in goods and services will reach somewhere
between $3 and $9 trillion by 2005.
This growth has been fueled by substantial increases in the number
of people online in 2002, with the total number reaching approximately
655 million or one-tenth of the world's population. (UNCTAD E-Commerce
and Development Report 2002)
As a result of the current weakness in U.S. business and consumer
spending on ICTs, foreign markets have become even more important to
the U.S. high-tech sector. The U.S. software industry continues to
dominate both pre-packaged and custom software markets; and the U.S. IT
industry is a strong performer, highly regarded for technological
leadership, innovation, and for the product quality and reliability.
In order to facilitate growth in electronic commerce and expand
sales of U.S. ICT products and services in the coming years, it will be
necessary to work diligently on the trade front to reduce barriers to
U.S. exports of high-tech products and services, and to maintain a
barrier-free environment for electronic commerce.
The U.S.-Singapore and U.S.-Chile FTAs represent ground-breaking
progress towards reaching these goals.
snapshot of information and communication technologies and electronic
commerce in singapore
Singapore is a regional hub for electronic commerce transactions,
and has one of the most advanced information and communications
infrastructures in the world. This has been facilitated by the small
size of the country, the high national income and the government's
commitment to develop the country into a global ICT capital by 2010.
Singapore's telecommunications services market will exceed $3.8 billion
in end-user spending in 2003. Virtually every home in Singapore has a
fixed telephone line. Mobile phone penetration reached an all-time high
of 78.6 percent in January 2003.
There are more than two million Internet subscribers in Singapore,
and every school and public library is equipped with personal computers
with broadband access. U.S. telecommunications exports to Singapore
reached over $238 million in 2002.
Total electronic commerce revenues in Singapore should reach $8.3
billion in 2003, with the United States as the single largest country
source for their overseas electronic commerce revenue. Typical
electronic commerce transactions in Singapore range from business-to-
business order processing, invoicing and payment to business-to-
consumer online shopping and Internet banking and trading.
Singapore is a leader in the area of electronic government, with 44
percent of its citizens regularly using government services online.
Last year, Accenture ranked Singapore number two in terms of overall
maturity in online government services--the United States ranked number
three.
benefits of the u.s.-singapore fta for electronic commerce
Singapore and the U.S. were able to agree to provisions on
electronic commerce that reflect the issue's importance in global
trade, and the principle of avoiding barriers that impede the use of
electronic commerce, which were the principal negotiating objectives in
the area of electronic commerce set out in the Trade Act of 2002.
The Agreement establishes explicit guarantees that the principle of
non-discrimination applies to products delivered electronically
(software, music, video, text), thus providing fair treatment to U.S.
firms delivering products via the Internet. This reflects the
development of products traded electronically and the need for
predictability in how digital products are treated in terms of trade.
The U.S.-Singapore FTA also prohibits charging customs duties on
digital products delivered electronically, such as digital downloads of
music, videos, software or text. This makes permanent the moratorium on
placing duties on online transactions that is now only voluntary or
temporary in the World Trade Organization (WTO).
Another major benefit is that for digital products delivered on
hard media (such as DVD or CD), customs duties will be based on the
value of the media (e.g., the disk), not on the value of the movie,
music or software contained on the disk. This will set a useful
precedent in the global arena, even though Singapore will not impose
tariffs on either the media or content.
The electronic commerce text also makes a number of commitments
permanent and enforceable, that are now only voluntary or temporary in
the World Trade Organization (WTO), and it affirms that any commitments
made related to services in this Agreement also extend to the
electronic delivery of such services delivered over the Internet. This
sets a very good precedent for services liberalization efforts in the
WTO and in other FTAs.
The U.S.-Singapore FTA will make it easier for U.S. companies to
compete in electronic government bid processes, as well, as both the
Government Procurement and Electronic Commerce Chapters prevent
discriminatory practices related to digital products.
U.S. industry has indicated a strong support for the Electronic
Commerce Chapter in the U.S.-Singapore FTA, as they believe that it
will set a model for negotiating objectives on electronic commerce in
the WTO, and will establish internationally accepted mechanisms for how
their goals on electronic commerce can be achieved on a global level.
In particular, U.S. industry has expressed its approval that the
concept of digital products is without prejudice to the ongoing WTO
classification debate.
Alongside the negotiations on electronic commerce, we also
completed the U.S.-Singapore Joint Statement on Electronic Commerce,
which was signed by Secretary of Commerce Evans and Singapore Minister
for Trade, George Yeo on May 5, 2003 in Washington, D.C.
The Joint Statement embodies the U.S. Government's policy
priorities in the area of electronic commerce and demonstrates a clear
commitment by both Parties to abide by the stated general principles,
which includes an agreement to allow the private sector to take the
lead in establishing and developing electronic business practices.
As a corollary to this point, the Parties have made a commitment as
governments to avoid imposing unnecessary regulations and restrictions
on electronic commerce, and when it is necessary for them to take
action, they have promised that their measures will be transparent,
minimal, nondiscriminatory and predictable.
In addition, the Joint Statement provides for future interaction
between the United States and Singapore via video conference, seminars,
bilateral meetings and discussions on the sidelines of multilateral
events, with the goal of increasing cooperation on the issues laid out
in the agreement.
We consider this statement as a key tool in our efforts to
eliminate potential impediments to electronic commerce, including
cooperation on removing unnecessary regulatory barriers, securing
networks, increasing consumer trust and strengthening IPR protections.
benefits of the u.s.-singapore fta for the high-tech sector
By locking in zero tariffs on all U.S. products entering Singapore,
the U.S.-Singapore FTA will benefit U.S. exports of ICTs. The U.S.-
Singapore FTA also provides for a high-level of intellectual property
rights protection, provisions relating to anti-competitive behavior and
an innovative dispute settlement mechanism applying to all core
obligations of the Agreement, which will make it easier for high-tech
companies to conduct trade with Singapore.
In addition, a full range of commitments on telecommunications
services in the U.S.-Singapore FTA provide for open markets, consistent
with the regulatory regimes of the U.S. and Singapore. The Agreement
guarantees reasonable and non-discriminatory access to the network by
users, thus preventing local firms from having preferential or ``first
right'' of access to telecommunications networks.
Under the Agreement, U.S. phone companies obtained the right to
interconnect with networks in a timely fashion, on terms, conditions
and cost-oriented rates that are transparent and reasonable, and U.S.
firms were granted non-discriminatory access to buildings that contain
equipment necessary for interconnection and submarine cable equipment
when they seek to build a physical network.
U.S. firms also obtained the right to lease lines at reasonable
rates and on non-discriminatory terms, and to resell telecommunications
services of Singaporean suppliers in order to build a customer base.
Both Parties agreed to open rule-making procedures of
telecommunications regulatory authority, publish interconnections
agreements and service rates, and when competition emerges in a
telecommunications services area, deregulate that area.
The Agreement includes the specification that companies, not
governments, make technology choices, particularly for mobile wireless
services, thus allowing firms to compete on the basis of technology and
innovation, not on government-mandated standards.
U.S. telecommunications service suppliers will enjoy fair and non-
discriminatory treatment and the right to invest and establish a local
services presence. Regulatory authorities under the agreement must use
open and transparent administrative procedures, consult with interested
parties before issuing regulations, provide advance notice and comment
periods for proposed rules, and publish all regulations. In addition,
U.S. firms will now have the right to own equity stakes in entities
that may be created if Singapore chooses to privatize certain
government-owned services.
U.S. industry is supportive of the final Telecommunications Chapter
in the U.S.-Singapore FTA. The Industry Sector Advisory Committee 13 in
its Report to Congress on the U.S.-Singapore FTA, called the benefits
to companies in the Telecommunications Chapter ``notable'', and are
fully satisfied with its provisions.
snapshot of information and communications technologies and electronic
commerce in chile
Chile is a leader in telecommunications liberalization and
competition in Latin America. It was the first country in the region to
initiate privatization in the mid-1970s, and by 1989 all state-owned
telephone companies were sold. During the 1990s the telecommunications
sector grew at an impressive average rate of 20 percent per year. U.S.
telecommunications equipment exports to Chile exceeded $260 million in
2000. At the beginning of last year, Chile's main line and mobile phone
density outpaced its neighbors at over 25 percent and 30 percent,
respectively.
Chile is also among the leaders in the Latin American region in
terms of electronic commerce transactions. Chile has an Internet
penetration rate of 21 percent, the highest number in Latin America,
and is expected to reach 30 percent by next year. Electronic commerce
sales in Chile reached $2.5 billion in 2002, up 75 percent from 2001.
The Santiago Chamber of Commerce anticipates that electronic commerce
sales for 2003 will rise another 70 percent in 2003.
Chile has demonstrated a great interest in integrating its
government services into the digital economy. Since December 2001, all
ministries and other government organizations are required to buy
supplies over the Internet. Agencies are able to purchase goods and
services online through the government's procurement site
www.compraschile.cl, which processes about 1.4m transactions and saves
the Government of Chile approximately $200 million annually.
benefits of the u.s.-chile fta for electronic commerce
The benefits of the U.S.-Chile FTA are very similar to those
provided by the U.S.-Singapore FTA. The Chile Agreement also contains a
section on future areas of cooperation between the United States and
Chile. This text specifies that the Parties will work together to
overcome obstacles encountered by small and medium-sized businesses in
the use of electronic commerce; share information on regulations, laws
and programs in areas such as data privacy, consumer confidence and
cyber-security; maintain cross-border flows of information; encourage
the development of self-regulatory methods by the private sector; and,
actively participate in international fora to promote electronic
commerce.
We look forward to working with Chile on both a bilateral and
multilateral level, including in the WTO and in the Asia Pacific
Economic Cooperation (APEC) forum, on these issues. We are particularly
pleased with Chile's commitment to work with us on maintaining trans-
border data flows, as we consider this to be essential to the future
growth of electronic commerce.
As in the U.S.-Singapore FTA, the U.S.-Chile FTA will also make it
easier for U.S. companies to compete in electronic government bid
processes, as both the Government Procurement and Electronic Commerce
Chapters prevent discriminatory practices related to digital products.
In addition, both sides committed to future work on electronic
government issues.
U.S. industry is equally supportive of the U.S.-Chile FTA
Electronic Commerce Chapter, as the U.S.-Singapore FTA. In addition,
they believe that the cooperation language related to the cross-border
information flows is important, and that it should be included in
future FTAs.
benefits of u.s.-chile fta for the high-tech sector
Under the U.S.-Chile FTA, all tariffs on U.S. ICT products entering
Chile will be reduced to zero, which will be beneficial to U.S.
hardware and software exporters who were previously assessed a six
percent tariff on their products.
While the key elements of the Telecommunications Chapter are
similar to those in the U.S.-Singapore FTA, the completion of the
Chapter in the U.S.-Chile FTA is significant because it binds two of
the most open and advanced telecommunications markets in the world to a
set of progressive rules and regulations that build upon NAFTA Chapter
13, the GATS Telecommunications Annex, and the WTO Reference Paper to
form a comprehensive provision. In addition, the commitments for
deregulation of information services and reasonable access to leased
lines are stronger in the U.S.-Chile FTA, and U.S. industry will
benefit additionally from a commitment to allow access to the market
for local basic services--this is a commitment Chile does not currently
have under the WTO.
U.S. industry has expressed to USG officials appreciation for
concluding a WTO-plus Agreement on telecommunications that will
hopefully move forward our agenda in the WTO and in other multilateral
trade discussions. U.S. industry has, in particular, demonstrated
support for the provisions on licensing and transparency.
conclusion
The completion of the U.S.-Singapore and U.S.-Chile FTAs represents
a ground-breaking first step towards establishing a trade rules regime
for electronic commerce that will prevent the erection of barriers to
this new type of trade. The environment for electronic commerce trade
is currently free of unnecessary restrictions, and with the passage of
these Agreements, we will be one step closer to maintaining a global
commitment to continued openness in this space.
The U.S. high-tech sector has a lot to gain from these FTAs, as
well. Provisions relating to intellectual property rights protection,
anti-competitive behavior, transparency, government procurement and
dispute settlement will make the Singapore and Chile markets more
predictable for U.S. ICT and content exporters, particularly small and
medium-sized enterprises. In addition, zero tariffs will also allow
U.S. suppliers of ICTs to better compete with domestic suppliers.
Finally, telecom service providers stand to gain much through
commitments that ensure open markets, non-discriminatory network
access, timely and cost-oriented interconnection, the ability to lease
lines at reasonable rates and resell services, a transparent regulatory
environment, and industry-led standards setting.
Thank you Mr. Chairman. I would be pleased to respond to any
questions.
Mr. Stearns. All right, thank you very much.
I am going to try and ask three questions for each
individual, each one have one question, and I'm hoping you can
keep it short. I am not trying to censure you, but you know how
it is, we have got other members and so our job is to get
through this.
I think a parochial question here for the State of Florida,
the Mediterranean fruit fly, med-fly, as you know they found it
in Chile, and given that in June table grapes from Chile are
scheduled to be offloaded at Fort Canaveral, Florida. You know,
what assurance can you give the American people that the
Mediterranean fruit fly will not be in the United States, and
this is for Ms. Vargo.
Ms. Vargo. Thank you, Mr. Chairman.
The provisions that relate to sanitary and phyto-sanitary
issues such as the Mediterranean fruit fly, basically, in this
agreement what we do is we affirm the WTO provisions on that,
which go back to sound science and then let us restrict the
importation of any problem in this area that can be----
Mr. Stearns. So, you can you say 100 percent today that
there will be no Mediterranean fruit fly?
Ms. Vargo. There will be no change in what we could do
before after this agreement on that issue, because of the
agreement.
Mr. Stearns. Would a med-fly be on the grapes that come
into Fort Canaveral in June? I mean, should we be concerned?
Ms. Vargo. No.
Mr. Stearns. You feel absolutely sure, okay.
Ms. Vargo. Yes.
Mr. Stearns. Mr. Ives, I just want to follow on what Mr.
Markey from Massachusetts mentioned, one of the issues I hear
is lack of truly competitive markets due to government linked
corporations in Singapore. Can you explain to us in your
negotiations regarding the provisions, in fact, he mentioned
Singapore Technologies, but there are others, and this goes to
a larger issue. When you deal with companies that subsidize
their industries, whether it is Germany, France, wherever, when
you talk about free trade and these countries are subsidizing
their industry, and they come here and try to compete with our
private sector, how do you negotiate that out? So, just explain
how you do this to protect our free markets here in the
country.
Mr. Ives. Thank you, Chairman.
We were very concerned about that very issue when we began
the negotiations with Singapore, recognizing that the
government of Singapore, from its very beginnings almost four
decades ago, purchased quite heavily into companies.
Mr. Stearns. Purchased what?
Mr. Ives. They bought companies, they investment heavily
into private sector companies.
Mr. Stearns. And, you know those examples of those
companies?
Mr. Ives. Absolutely.
Mr. Stearns. Yes, okay.
Mr. Ives. We have a chapter, a competition chapter, that
addressed on a unilateral basis Singapore's government lien
companies, the government of Singapore committed in that
chapter that it would not influence the buying, purchasing, and
sales behavior of those companies, that it would treat U.S.
companies in a non-discriminatory manner. In other words, it
would be very transparent.
We introduced specific transparency provisions in that
chapter that would----
Mr. Stearns. Transparency is one thing, but can a company
that is 100 percent owned by Singapore government go and buy a
company in the United States?
Mr. Ives. Yes, in terms of the specific company, the Sing-
TEL issue that was raised, there we took two additional steps
in addition to the competition chapter. One, in the
telecommunications chapter we have a provision that ensures
that that company cannot interfere with the way the firm
operates, and second, we have a provision that the government
of Singapore has indicated that over time it will privatize
Sing-Tel.
Mr. Stearns. Okay.
Ms. O'Neill, the question is, these zero tariffs that you
are talking about in terms of services in e-commerce and
intellectual property rights, dealing with information
technology, what net impact on information technology-based
employment do you anticipate from these agreements? Do you have
any figures? Does that make any sense to you? In other words,
what I'm asking you is, in employment in the United States will
there be an impact on these agreements in the areas of the
information technology?
Ms. O'Neill. I hope on the positive side, in fact----
Mr. Stearns. You don't have any figures or any statistics
on it?
Ms. O'Neill. Not with me, but I would be happy to provide
those.
The ICT sector in general is highly integrated and uses the
global sourcing model, both for hardware production and
software. I am hoping what these agreements do is provide
greater certainty and transparency to those businesses that are
either already operating or taking advantage of some of the
talent and expertise provided in Singapore, but that that will
be a two-way street as well, and that, again, to provide
greater transparency and certainty for those businesses.
Mr. Stearns. Okay, my time is expired.
The gentlelady?
Ms. Schakowsky. Thank you.
Mr. Ives, you stated in your testimony, I hope I am quoting
you accurately, that 30 of the 31 advisory committees reported
favorably on the U.S.-Singapore FTA. I don't know if you have
actually read each one of those reports, but if you have then
you would know that that simply is not true.
In addition to the Labor Advisory Committee, which found
that the agreement did not promote U.S. economic interests, nor
fully meet the negotiating objectives of the Trade Act, a
number of the other committees declined to explicitly endorse
the Singapore agreement, and made negative findings or no
findings at all about the agreement's achievement of
congressional negotiating objectives.
Let me give you a couple of examples. The Chemicals
Committee was unable to gauge whether the agreement had met
negotiating objectives or whether it would serve the U.S.
economic interest, because it felt that it had not been
adequately consulted regarding the agreement. The
Intergovernmental Committee made no findings on the specific
agreement, and only remarked on the Committee's support for
trade in general, and its concerns about the impact of FTA
rules on State and local regulatory authority. The Footwear
Committee said many of its members were neutral on the
agreement and that they would oppose it if Singapore were more
significant economically. The Textiles Committee said, ``It is
unlikely that U.S. producers will experience much economic gain
from this agreement.'' The Standards Committee said it would
not recommend the Singapore FTA as a model for future FTAs, and
reports from those few industry committees that include non-
business representatives, and included dissents from those non-
business representatives, criticizing the agreement.
So, you know, I am wondering why the USTR first of all
continues to unfairly single out the Labor Advisory Committee
as the only committee failing to endorse the FTAs with Chile
and Singapore, when other committees, even purely corporate
committees, also refuse to endorse the agreements.
Mr. Ives. Thank you, Congresswoman.
I was, obviously, summarizing in aggregate term our
interpretation of the committees' reports. For example, on the
Chemical Committee, we met with them, we were somewhat
surprised at that, because we had consulted with them often,
they had some questions on the rules of origin, for example,
and we felt we satisfied those rules, so we were somewhat
surprised that that sentence was even in there. But, in
aggregate, it was our understanding that they could support the
FTA.
On Footwear, basically, we don't have much trade, in all
candor, on footwear. We understood that we had met both sides
in the footwear industry's concerns, not fully, but the fact
that there is no trade in footwear we felt that there was
really not an issue on----
Ms. Schakowsky. I know, but let me just say that having
said that they would oppose it if Singapore were more
significant economically, should hardly make that committee
included as endorsing the proposal, in my view.
Mr. Ives. Okay.
Well, I was just going to go on, but in terms of the
Standards Committee, they did indicate they would not support
Singapore to be a model in the future, but they did not have a
problem with Singapore, they just preferred the Chile model.
And, there again, we were somewhat surprised, because they had
never come to us and asked us to do anything different.
Ms. Schakowsky. Well, let me just say, the fact you were
surprised by their criticisms says to me that you were aware of
them, and that it is inaccurate to say that 30 of the 31
favorably reported on the agreement. I take issue with that.
Let me ask Ms. Vargo a quick question. You stated, as I
recall, that you built on the Jordan Agreement, or you
referenced the Jordan Agreement when talking about Chile, but
under the Jordan Agreement a violation of any of the labor
obligations can be brought to dispute settlement, but under the
Chile and Singapore Agreements only one of the labor
obligations can actually be enforced through dispute
settlement.
In addition, under the Jordan Agreement, labor disputes are
subject to the exact same enforcement procedures and remedies
as commercial disputes, but the Chile agreement fails to
provide such authority. I guess my point is that many of the
reasons that Mr. Brown raised for preferring the Jordan
Agreement to either the Chile or Singapore Agreement, it is
because they are not present in the Chile Agreement, and I am
wondering why you would take such a big step backwards from the
Jordan Agreement since you say you like it under our unilateral
trade laws in these FTAs.
Ms. Vargo. I wouldn't agree with the view that it's a step
backwards. I think that there are areas in the dispute
settlement where we built on Jordan, in the sense of there is a
clear public participation, more dialog, other aspects that we
have heard the labor and environmental constituency say that
they liked.
We guided ourselves very much by the TPA mandate in terms
of the enforceable obligation being effective enforcement of
labor laws, but I would also note that the obligations in the
other areas in Jordan that are, basically, strive to
obligations, are really quite hard to bring to a dispute
settlement panel.
With regard to the dispute settlement procedures themselves
and the remedies available, TPA called for equivalency, and we
do believe that those procedures provide for the same kind of
timeliness. There is an opportunity in the agreement for a lot
of public participation. There are remedies, the same range of
remedies are available in addressing both kinds of disputes,
commercial and labor and environment.
We use the remedy that we think is most appropriate to the
kind of violation first, but the full range of tools that are
available. So, we think we met many of the key provisions that
TPA called for.
Ms. Schakowsky. If I could, Mr. Chairman, just one
sentence. Let me just say one thing. For example, fines are
capped for the violation of labor rights, but fines are not
capped for all commercial disputes. So, parity, I think, is the
wrong word.
Mr. Stearns. The gentleman from Idaho is recognized.
Mr. Otter. Thank you, Mr. Chairman.
I would like to, I suspect all of you have been around the
USTR and the Department of Commerce and everything for quite
some time, and I would like to get your expression of whether
or not you feel that the trade agreements that we now have, and
that in one form or another have been adopted and we are
actually operating under, have been fairly and adequately
enforced. Would you say Canadian free trade has been adequately
enforced, on both sides of the border?
Ms. Vargo. I think we have been vigorous in our enforcement
of the obligations in the agreement. We typically attempt to
work out the problems with our trading partners if we can, but
I don't think that we have been reluctant to use the tools that
are available to us.
Mr. Otter. Well, maybe then, Ms. Vargo, you could respond
to this, what did we do with the money under the last Softwood
Agreement, Canadian Softwood Agreement, that we had found them
in violation, fined them substantial amounts of money, what
happened to that money?
Wait a minute, that is not fair, we gave it back to Canada,
could you tell me why we did that?
Ms. Vargo. The last Softwood Lumber Agreement that we had
with Canada was a negotiated agreement, and that particular
provision of the agreement was found to be acceptable to all of
the parties. And, in that process we had consulted extensively
with our lumber industry.
Mr. Otter. Well, maybe I should pursue that question a
little. What good is it to fine them, and I agree with my
colleague here, if we have got penalties but we don't exercise
and enforce those penalties, what good is it? I would like the
next time I get a speeding ticket, after I go down to the court
and pay the fine, whatever it is, to have them turn around and
give it back to me and sayor give it to my family, maybe not
give it back to me, but give it to my family, and that is, in
essence, what we have done, is it not?
Ms. Vargo. That was done in the context of a variety of
other constraints that were put on Canadian Softwood lumber
exports to the United States, so it was felt in the context of
that package to be an appropriate step or measure.
Mr. Otter. Ms. O'Neill, maybe you could respond relative to
agreements that we now operate under, and I was very specific
in my opening statement about South Korea. Do you think that we
have enforced our trade agreement with South Korea sufficiently
enough to have balance between the United States and South
Korea, on high-tech?
Ms. O'Neill. What I'd like to do is comment more broadly on
the question of enforcing our trade agreements and some of the
programs that we have at the Commerce Department. We have made
a concerted effort through our Trade Compliance Center to
review agreements, work closely with industry, leverage our
domestic and foreign commercial service representatives, our
industry experts, to address some of the concerns that have
been raised in the context of the trade commitments made under
trade agreements.
Specifically, with respect to Korea, you did note the Hynex
investigation, that is underway. I think the Department is
working very closely with Micron and with the government of
Korea as that case proceeds.
Mr. Otter. Right now, if I may, and we right now have, I
think it is around a 57 something, almost 58 percent
countervailing duty that we are collecting on, are we going to
give that money back to them?
Ms. O'Neill. I am sorry, I am not familiar with what
happens with the duties.
Mr. Otter. Oh, okay.
Ms. O'Neill. We can get back to you.
Mr. Otter. My apologies for interrupting you on that.
Mr. Ives, in a response to one of the Chairman's questions
relative to State-owned companies, your answer, the end of your
answer you said over a period of time Singapore will privatize
the company that they now own. Until they are privatized will
they be allowed--will they not be allowed to ship their
products into the United States, so that we are not competing
against a government-owned company?
Mr. Ives. They will be allowed to, as any Singaporean or
any of the other government linked companies can ship their
products, what we are trying to ensure in the agreement is that
there would not be discriminatory treatment, either in
purchases or sales by those companies, and that provision is in
the agreement.
Mr. Otter. I hope I have expressed myself well enough for
you to know, that why I'm suspicious about any future agreement
is the only thing I can look back at and see is that we haven't
done a good job enforcing the ones we have got.
Thank you, Mr. Chairman, I yield back my time.
Mr. Stearns. Thank the gentleman.
The gentlelady from California.
Ms. Solis. Thank you, Mr. Chairman.
Yes, I have a question for any one of the panelists
regarding access to the actual agreements. I asked earlier if
members of this committee even have access to that, I wonder if
that is available to any member of this committee.
Mr. Stearns. Just a larger question, is this on the
Internet, if the gentlelady will yield, are the agreements on
the Internet?
Mr. Stearns. They are available for members to review.
Ms. Vargo. If I might say, as soon as they were concluded
they were available to the Members of Congress and the
relevantaccording to the different committee's jurisdiction,
and they have been publicly available on the Internet, I think,
from some time in March, March 6, for Singapore and April 3 for
Chile. That is publicly available on the Internet at the USTR
website.
Ms. Solis. But, the actual point where you are discussing
the negotiations, are those transcripts made available, where
negotiations are being discussed between different parties?
Ms. Vargo. We come up and consult with the various
committees on different aspects of the jurisdiction, and in
that process we provide the text that the U.S. proposes to
table, so, yes, the committees do have access to that. We do
not make those publicly available, we do secure----
Ms. Solis. Why is that not made available?
Ms. Vargo. I think in any negotiation where absolutely all
the text that you are working with back and forth are publicly
available tend to freeze negotiations.
Ms. Solis. But, I, as a Member of Congress, can't request
that?
Ms. Vargo. No, you as a Member of Congress have access to
our proposals.
Ms. Solis. But, not to the discussions, I am trying to get
back at that.
Ms. Vargo. Yes, we come up and we consult with all of the
committees before each round, on the state of play in the
negotiations, and any new proposals that the United States
plans to table.
Ms. Solis. Okay.
Next question I have is regarding, I am a little concerned
about the immigration provisions. I understand that their
temporary entry of professionals under the H-1B system would
allow for professional workers to enter into our country.
It seems to me that this is a role that Congress should
really be overseeing and have more authority over, and could
you please explain why your proposal does not allow for any
further discussion, or say there's a change in immigration law,
how will that affect this treaty?
Ms. Vargo. Well, first of all, let me suggest that we
actually held quite extensive consultations with the relevant
committees here in the Congress, especially with the Judiciary
Committee, and I know that in the Chile area that we had 12
separate congressional briefings last fall. They identified a
number of issues that the staff in the Judiciary and
Immigration Subcommittee, three concerns that they expressed
that we made sure were provided for in the agreement, one was a
labor attestation as the H-1B program provides for, another was
a numerical limit which we set at 1,400 for Chile and 5,400 for
Singapore, and the third was that we would apply the same kind
of fee as we do with the H-1B, which those fees are used for
worker retraining and other purposes.
So, we made those suggested changes from the Congress. We
feel that we have adequate discretion within the way the text
is drafted to preserve congressional ability to change U.S. law
in this area. So, I think that we made an attempt to reflect
the concerns that were raised, and as we move forward with
future free trade agreements we are also consulting quite
closely.
Ms. Solis. Well, I have some caution there, and I am not
fully convinced that that is something that I, as a Member of
Congress, would want to give away an up or down vote on,
because things do change, immigration law is changing, in fact,
yesterday out of one of the Judiciary Committee, at the
Judiciary Committee, we were looking at actually changing some
form of immigration law, and that will be before the House.
The last question I have is for Michelle O'Neill, and this
has to do with the Digital Millennium Copyright Act, and I know
that this is a very controversial law that is currently being
litigated, and I am concerned that the U.S. Trade
Representative may have advocated for provisions that will tie
our hands as Members of Congress by preventing us from fixing a
law that is creating a lot of problems for us now.
If we do make amendments to this piece of legislation, how
will that jeopardize this treaty or agreement?
Mr. Stearns. The gentlelady's time has expired, so we'd
appreciate your just answering, because we have a vote pending.
Ms. O'Neill. Thank you very much for your question. I'm
afraid my area of expertise is not in the intellectual property
provisions. I would----
Ms. Solis. Can any of the other two answer?
Mr. Ives. Thank you.
We believe we preserved sufficient flexibility in the way
the agreement is written to allow Congress to make certain
changes in the law, and would not be inconsistent with the
agreement, but we would obviously have to see which specific
provisions you have in mind. We'd be happy to consult with you
on that basis.
Ms. Solis. Okay.
Mr. Stearns. The gentlelady's time is expired.
Mr. Davis from Florida.
Mr. Davis. Thank you, Mr. Chairman.
My questions are directed to Chile, and, perhaps, mostly to
Mr. Ives and Ms. Vargo.
Is it fair to say that ultimate approval of the Chile Trade
Agreement by Congress will strengthen the hand of the United
States as we enter into the early stages of the FTAA
negotiations with Brazil and other South American countries?
Ms. Vargo. I think it does provide momentum in that area.
This is, for one thing, these agreements show our ability, we
hope, to have bipartisan support for free trade agreements.
I think they are a clear signal to the hemisphere of the
kind of level of ambition that we have in free trade
agreements. I think they are important in the fact that for the
first time the labor and environment are included in agreements
breaking new ground, and I think they also demonstrate a
willingness to open our markets as we open other markets within
reasonable parameters, timeframes, safeguards, et cetera.
Mr. Davis. Given the vote, let me be a little curt here.
Given that we are already in early conversations on market
access and other issues with the FTAA, shouldn't we all be
agreeing that Congress should be voting on the Chile Trade
Agreement before the August recess to risk the possibility of
not having a vote this year, to avoid that risk rather?
Ms. Vargo. I think a positive congressional vote on the
Free Trade Agreement would provide a lot of wind to the FTAA
negotiations.
Mr. Davis. Is there any doubt in your mind as to whether we
are going to create disadvantages for ourselves in the FTAA
negotiations if we don't have congressional approval of the
Chile Trade Agreement this year?
Ms. Vargo. I think that there has always been a tendency
for the countries in the region to want to hide behind either
the lack of trade promotion authority or the lack of the U.S.
Congress voting on a free trade agreement positively.
Mr. Davis. So, my next question is, if given a 60-day
timeframe has been set aside, which Congress so jealously
protects as you have seen here today, aren't we creating
problems for ourselves if the Administration doesn't sign the
Chile Trade Agreement by the end of this month, so that we can
have a vote in Congress before the August recess?
Ms. Vargo. As I stated in my opening remarks, we are not at
this point done with having a Spanish language translation,
which would also be available, we need both in order to set a
signing date.
Mr. Davis. Is another reason why the agreement hasn't been
signed because there is discussion or debate within the
Administration as to whether the position of the Chile
government on Iraq should influence our decision on the timing
of signing this trade agreement?
Ms. Vargo. The President said in remarks last night that
the Chile Agreement is an important agreement, and we want to
move forward with it. So, I would expect that we will be making
decisions with regard to the location venue when we are ready.
Mr. Davis. Final question, Mr. Chairman.
So, Secretary of State Powell has said, with reference to
the issue I am raising, that that is behind us now, and you are
stating here today, in your testimony, that the USTR regards
its marching orders from the White House as being consistent
with what Secretary Powell has said, which is, we are moving
forward on the timing of signing the agreement entirely
unrelated to the position that Chile took on the Iraq
situation.
Ms. Vargo. Yes, and I think that we are, as I said, we are
moving forward in all of our preparations to be able to sign.
Mr. Davis. Thank you.
Mr. Stearns. We are going to adjourn the subcommittee and
then come back for the second panel.
Now, we have a vote, and then there is 10 minutes and then
three more votes, so what I am going to do is come back after
this vote and we are going to continue on, and we are going to
try and get members to come here back and forth so we can
continue to expedite.
This has been a very healthy discussion, I don't want you
folks to be anything but positive. The fact that all goods are
going to enter duty free into Singapore I think is a major
achievement. It locks in the zero tariff level, and doesn't
permit raising of tariffs by the WTO level. So, I want to
congratulate you, and the subcommittee will temporarily adjourn
and we will come back right after this vote.
[Brief recess.]
Mr. Stearns. Let us get started with our second panel. We
will start with Mr. Franklin Vargo, Vice President,
International Economic Affairs of the National Association of
Manufacturers.
STATEMENTS OF FRANKLIN J. VARGO, VICE PRESIDENT, INTERNATIONAL
ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS; ROBERT
W. HOLLEYMAN II, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
BUSINESS SOFTWARE ALLIANCE; DAVID F. WASKOW, INTERNATIONAL
POLICY ANALYST AND TRADE POLICY COORDINATOR, FRIENDS OF THE
EARTH-U.S.; RONALD T. MONFORD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, MIND OVER MACHINES, INC.; BRIAN KELLY, SENIOR VICE
PRESIDENT OF GOVERNMENT RELATIONS AND COMMUNICATIONS,
ELECTRONIC INDUSTRIES ALLIANCE; MARK BOHANNON, GENERAL COUNSEL
AND SENIOR VICE PRESIDENT PUBLIC POLICY, SOFTWARE AND
INFORMATION INDUSTRY ASSOCIATION; AND THEA M. LEE, CHIEF
INTERNATIONAL ECONOMIST, AFL-CIO
Mr. Vargo. Thank you, Mr. Chairman.
American manufacturing is in a crisis, losing one out of
every ten jobs in the last 2 years. Manufacturing has fared
much worse than the rest of the economy, and America's factory
workers have accounted for nearly 90 percent of the total job
loss in the overall U.S. economy. Trade is a major reason for
the crisis in manufacturing, particularly the loss of
manufactured goods exports--which last year accounted for 75
percent of the total decline in U.S. manufacturing production.
Two things must be done to restore a healthy trade position
for U.S. firms: [1] the dollar must return to a more reasonable
value--it was as much as 30 percent overvalued a year ago; and
[2] we must level the global trading field to bring foreign
trade barriers down to our own level or eliminate them
completely. Achieving the latter is why we need free trade
agreements, for we are already an open market and need to get
other markets open to us.
The Chile and Singapore free trade agreements are extremely
significant in this regard, for they eliminate most trade
barriers we now face in those markets. They also advance the
state-of-the-art in trade agreements and set a high standard
for future agreements. Singapore and Chile are the most open
countries in their respective parts of the world, and it was
wise to negotiate these trend-setting agreements with them
before moving on to other agreements.
The agreements benefit all sectors of the U.S. economy,
importantly including services and e-commerce as well as
manufacturing and farm products. The NAM urges the fastest
possible action to bring both the Chile and Singapore
agreements into effect.
Passage of the Chile agreement on a timely basis is
particularly important, as Chile's trade barriers are higher
than Singapore's, and Chile has negotiated many free trade
agreements with our competitors, most significantly with the
European Union, our major competitor. The NAM estimates that
our share losses in Chile's markets are already costing us $1
billion a year, nearly $20 million each and every week. In job
terms, the absence of an FTA with Chile is costing us about
13,000 lost job opportunities. That number will rise rapidly as
Chile's new FTA with Europe takes business away from U.S. firms
and hands it on a platter to our European competitors.
Let me conclude by asking the subcommittee to serve as a
spark plug in approving both the Chile and Singapore
agreements. Let us focus on creating U.S. jobs. Delay only
serves as an export promotion program for our competitors.
Thank you.
[The prepared statement of Franklin J. Vargo follows:]
Prepared Statement of Franklin J. Vargo, Vice President, International
Economic Affairs, National Association of Manufacturers
Mr. Chairman and Members of the Subcommittee: I am pleased to
testify today on behalf of the National Association of Manufacturers on
the significance of the recently negotiated trade agreements with Chile
and Singapore. The NAM represents 14,000 U.S. manufacturing companies,
including 10,000 small and medium-sized firms. I know the subcommittee
has particular interest in services and in E-commerce, and I will
comment on those aspects of the agreements as part of my statement.
These two areas are important not only in themselves, but also because
they support the further expansion of U.S. merchandise trade. I would,
however, like to begin with a broader overview of the significance of
the agreements to the U.S. economy.
Representing American manufacturers, I can tell you that
manufacturing feels under siege. More than 2 million American factory
jobs have been lost in a little over two years--more than one in every
ten jobs. Manufacturing lost more than 95,000 jobs last month alone.
The current economic slowdown is essentially a manufacturing
recession--a deep one. The rest of the economy, while not growing at
its usual rate, has not felt the same pain as manufacturing.
Manufacturing represents 14 percent of the American workforce, but has
accounted for nearly 90 percent of all the job losses since total U.S.
employment peaked in March 2001.
While manufacturing employment has fallen more than 10 percent
since that time, employment in the rest of the economy has fallen only
two-tenths of one percent. In other words, your odds of losing your job
have been nearly 50 times as high in manufacturing as in the rest of
the economy. No wonder 75 percent of manufacturers in a recent NAM
survey said that manufacturing is in crisis.
Trade is a key reason for this. Trade--both imports and exports--is
much more important to manufacturing than to the rest of the economy.
Trade has been a key factor in the current manufacturing recession--
particularly the decline in U.S. manufactured goods exports. These
exports fell $30 billion last year, accounting for 75 percent of the
total fall in U.S. manufacturing production in 2002. This is serious
not just for manufacturing, but for the whole economy--for manufactured
goods account for over 80 percent of all U.S. merchandise exports. Even
when services are added in, manufactured goods are two-thirds of all
U.S. exports of goods and services.
We face two key trade problems: the more recent problem is a
seriously overvalued dollar. After a decade of stability, the dollar
started rising against other currencies in 1997, and peaked at an
increase of 30 percent in February 2002--making U.S. exports 30 percent
more expensive and imports up to 30 percent cheaper. This had a
disastrous effect on our trade, which is why the NAM has led efforts to
obtain a dollar policy based on market-determined exchange rates
reflecting economic fundamentals.
The Administration began enunciating such a policy last year, and
since then the dollar has moved about half-way back to normal levels.
Major Asian countries, importantly including China and Japan, however,
still manipulate their currencies in a way that keeps them weak against
the dollar. This is not, strictly speaking, a matter for trade
negotiations--although Trade Promotion Authority encourages the
Administration to seek consultative mechanisms to examine whether
foreign governments are engaged in currency manipulation to provide a
competitive advantage in international trade.
The second problem--the long-standing asymmetry between our market
openness and the trade barriers maintained by too many of our trading
partners--is, however, very directly the goal of trade agreements. We
need trade agreements to level the playing field and bring more foreign
markets to the same degree of openness that the U.S. market offers.
Most individuals do not realize, for example, that the average U.S.
import duty is less than 2 percent, and that two-thirds of our
merchandise imports enter the United States duty-free. U.S. merchandise
exports to many countries, however, frequently face trade barriers
equal to 20-30 percent tariffs or even more. This is particularly the
case in the industrializing developing countries that account for about
half our trade deficit.
The NAM believes that trade agreements, such as the Chile and
Singapore accords under consideration today, are vital tools for
knocking down these foreign trade barriers. For this reason, we
strongly support the speedy passage of both agreements. Let me explain
the reasons for our support more fully, including discussing the
contributions the two agreements make in the areas of services and e-
commerce.
The two agreements are similar to each other, but are not
identical--reflecting the different circumstances of U.S. trade with
the two countries. My remarks attempt to avoid too much redundancy in
discussing the two agreements, and the absence of a comment on one
agreement but its inclusion in the other does not necessarily reflect a
void in the agreement--merely a desire to minimize duplication of text.
chile
Let me begin with the Chile agreement, for Chile provides a
textbook example of why we need free trade agreements as fast as they
can be negotiated--whether they be multilateral, regional, or
bilateral. Until 1998 the United States typically had a 24 percent
share of Chile's import market, meaning that Chile bought nearly one-
fourth of all its imports from the United States. Starting in 1997,
Chile began implementing a growing series of free trade or preferential
trade agreements with its trading partners, including Argentina,
Brazil, Canada, and Mexico. These agreements have put U.S. exporters at
a significant disadvantage.
As the graphs attached to my statement show, starting a year after
these agreements went into effect, the U.S. share of Chile's import
market began to fall precipitously. Since 1997, U.S. exporters have
lost nearly one-third of their share of Chile's imports. That's a lot.
Moreover, as is also shown in the graphs, the United States did not
have a comparable loss in other South American markets--meaning that
something unusual was going on in Chile. The second graph shows why:
the countries having trade agreements with Chile took the market share
that we lost.
This is not a trivial loss. In fact, the U.S. share loss in Chile
works out to roughly $1 billion of lost U.S. exports annually, worth
about 13,000 American job opportunities. In other words, 13,000
additional Americans would be employed if we could recover our share
loss. We are losing about $20 million a week--week in and week out.
That is why the NAM urges no delay in the signing and passage of this
trade agreement. We want to get the playing field leveled in Chile so
we can gain back what we have lost.
Time is not on our side, for Chile's largest and most significant
FTA just went into effect in February--a free trade agreement with the
15-member European Union (the EU). The EU is already Chile's largest
supplier, and the new agreement is the biggest blow yet to American
exporters. The NAM figures that if we don't eliminate the EU's
advantage quickly, we are going to lose another 6,000 or so jobs.
Competition is very keen between U.S. and European firms, and every
day that they have duty-free access to Chile while we don't is just one
more day when we are simply giving American business to European firms.
That is why the NAM urges that the U.S.-Chile FTA be moved forward as
quickly as possible. The Chile FTA is an excellent deal for U.S.
exporters. It not only provides market access into Chile, but also
provides state-of-the-art disciplines for the bilateral trade
relationship. We also believe the agreement is a template for the
broader regional negotiation of the Free Trade Area of the Americas.
The NAM's principal interest in the Chilean accord was in
negotiating away Chile's across-the-board tariff on U.S. industrial
exports. We are extremely pleased that the agreement does that. And it
does it right away. The moment that agreement goes into effect, tariffs
on 85 percent of our exports to Chile evaporate instantly. This is a
very significant accomplishment. It means that we will be back in the
game right away, rather than waiting several years for tariff cuts to
be phased in gradually.
In addition to tariff elimination, the FTA also provides for
improvements reducing non-tariff barriers, importantly including
standards, conformity assessment provisions, and other ``technical
barriers to trade'' These types of barriers have always been difficult
to identify and negotiate, and the Chile FTA provides an innovative
bilateral committee to work on these issues and seek their reduction or
elimination.
With respect to services, we believe the FTA provides new and broad
market access for U.S. services providers. It is also significant in
that it contains state-of-the-art provisions that raise the bar for
future agreements. The FTA applies to the cross border supply of
services as well as the ability to make investments and build a
services presence locally. This is reinforced by strengthened
disciplines on regulatory transparency. Given the breadth of services
accorded substantial market access under the agreement's ``negative
list'' approach, it appears that the agreement will provide broad
opportunities for U.S. business in the services sector.
A particularly important feature of the agreement is its provision
for greater ``transparency'' in domestic regulatory processes.
Transparency in the regulatory process is essential for services
industries because they tend to be among the most highly regulated.
While the U.S. regulatory process is a very open and transparent one,
the same is not always true in other countries. Chile committed to
transparency steps that include designating a contact point for
inquiries and problems, prompt publication of regulations, advance
publication with opportunities to comment on prospective regulations,
and independent tribunals or procedures for prompt review of
administrative actions.
The e-commerce and digital products provisions provide ground-
breaking advances that increase market access and provide increased
recognition of the importance of this issue with regard to global trade
and the principle of avoiding barriers that impede the use of e-
commerce. The FTA's guarantees of non-discrimination and its binding
prohibition against customs duties on products delivered electronically
create a favorable environment for the development of increased e-
commerce. The FTA also introduces the new concept of ``digital
products,'' providing greater predictability of treatment for this
important commercial channel.
The Chile agreement, similar to the Singapore agreement, also
contains outstanding provisions for protecting intellectual property--
and is notable for its advancement of protections against counterfeit
goods, as I discuss more fully in the Singapore section of my
statements. Also, the Chile agreement contains excellent provisions for
temporary entry of personnel and for investment guarantees. Both these
are discussed more fully in the Singapore section.
singapore
Let me turn now to the Singapore agreement. Like the agreement with
Chile, the free-trade agreement (FTA) with Singapore is a comprehensive
state-of-the-art agreement that benefits American firms and workers and
also will help lead to greater regional and multilateral trade and
investment liberalization efforts.
Singapore is already a very open market, and the agreement with
Singapore not only solidifies that openness for American exporters of
goods and services but also extends that openness in new areas.
Additionally, this agreement also will set a precedent for future FTA's
in Asia. A robust agreement with Singapore, the most free-trade-
oriented country in the region, sets a high standard for other
agreements.
Singapore is an advanced country that depends on shipping, finance,
trading, and high technology manufacturing. It is a high-income
country, with a per capita income of roughly $25,000--about the level
of Europe. It is America's 8th largest export market and 12th largest
supplier (counting the EU as a single entity). U.S. trade with
Singapore in 2002 was in surplus by $1.4 billion, making Singapore one
of the few countries with which there is a U.S. trade surplus. The FTA
will further integrate our already-close commercial relationship and
provides the basis for even faster two-way growth.
The agreement sets the foundation for the United States to preserve
its market share as Singapore continues to move toward additional free
trade agreements, including with Japan, Canada, China and Korea.
American farmers, workers and service providers would be at a distinct
commercial disadvantage without the FTA. Notably, the Singapore
agreement reduces the kinds of obstacles that particularly affect
smaller U.S. goods and services producers seeking to trade with
Singapore. It reduces physical presence and local investment
requirements significantly; it eases customs and government procurement
procedures; it facilitates electronic commerce and entry into services
trade; and it establishes procedures for the elimination of technical
barriers to trade.
Given the pre-existing openness of Singapore's markets for goods,
the most important market access gains in the FTA are those in the
services area. The commitment to substantial market access across most
services, with assurances of nondiscriminatory treatment supported by
greater regulatory transparency, provides a solid foundation for
services trade liberalization. As in the case of the Chile agreement,
Singapore committed to steps which lock in transparency, with advance
notification provisions, appeal mechanisms, and the like.
The agreement sets high standards for additional agreements to open
services trade throughout the region. Particularly notable is that
Singapore agreed to a ``negative list'' approach in which only
designated services may be excepted--all other services are open,
importantly including new service industries which may emerge in the
future. This was an important break-through in a trade agreement with
an Asian country.
In addition, the agreement's provision for temporary entry of
personnel improves the ability of U.S. services firms to provide
competitive services quickly. These provisions also improve the
competitiveness of U.S. firms by facilitating their ability to send
technicians and other personnel to Singapore to maintain equipment and
services sold there. The ability to move highly trained personnel
quickly is particularly important in commerce with a high-technology
country such as Singapore.
Furthermore, the Singapore FTA's provisions on e-commerce and
digital products provide a strong basis for the expansion of this
important technology. The establishment of non-discrimination
guarantees and a binding prohibition on customs duties on products
delivered electronically create a favorable environment for the
development of increased e-commerce. The accord also contains a
precedent-setting provision that applies all services commitments to
their electronic delivery.
The agreement also improves the investment climate and protections
for U.S. investors in Singapore. As Singapore accounts for 60 percent
of total U.S. manufacturing investment in all of Southeast Asia, the
investment provisions of the FTA are extremely important. The
provisions are also important for services industries. Foreign direct
investment is one of the key ways by which U.S. service industries can
function overseas, for many services can only be produced by having a
presence in the foreign market.
The NAM commends the FTA's high level of intellectual property
protection, including state-of-the-art protection on trademarks and
digital copyrights and expanded protection for patents and trade
secrets. These are supported by tough penalties for piracy and
counterfeiting, including seizure and destruction of products and
equipment and mandated statutory and actual damages for violations.
Singapore will sign on to global internet treaties, will extend the
term of protection for copyrighted works, and will maintain criminal
penalties for circumvention and for trade in counterfeit goods.
The NAM is extremely concerned with the rising global level of
trade in counterfeit goods. Earlier this year, our members set up a
task force to address the issue of global counterfeiting--which not
only costs U.S. production and jobs, but also affects health and safety
through deluding consumers into purchasing substandard and unsafe
products. We are therefore very pleased to note the strong provisions
to combat such trade contained in the Singapore agreement. This
includes giving effect to the trademark law treaty and joint
recommendation on protection of well-known marks, ensuring that all
trademarks can be registered in Singapore, and that licensees will no
longer have to register their trademark licenses to assert their rights
in a trademark. Singapore's agreement to ensure adequate enforcement
resources, especially closer cooperation to prevent the importation of
counterfeit goods into the United States, is also important.
With respect to the Singapore agreement, I would highlight one
final area where the NAM worked particularly hard to achieve strong
results. That is the area of competition policy. We pressed vigorously
to have the Singapore FTA set the highest standards with regards to
competition policy, so that the agreement would prohibit practices that
unfairly restrict competition or unreasonably restrain imports.
We are very pleased, therefore, that the agreement contains
provisions to protect U.S. firms against possible anti-competitive and
monopolistic behavior by committing Singapore to enact laws regulating
anti-competitive conduct, and creating a competition commission by
January 2005. Especially important is the commitment that Government-
Linked-Corporations (GLCs) will operate on a commercial,
nondiscriminatory basis. As GLCs account for roughly half of
Singapore's economic activity, this was an important accomplishment.
Incorporation of these commitments was critical--not because of past
Singaporean abuses (Singapore has maintained an open competitive
environment)--but so as to provide assurances of future openness, as
well as to build a template for agreements with other countries.
conclusion
Both the Singapore and Chile FTA's are cutting-edge agreements that
serve American commercial and foreign-policy interests toward those
nations and as examples in their respective regions.
I want to add that both agreements break new ground in dealing with
labor and environmental issues in FTA's. In our view the provisions of
both agreements contribute to ensuring that parties to the trade
agreements will enforce their labor and environmental laws so as to
avoid a trade disadvantage to the United States, and do so in ways that
will prevent these measures from becoming disguised protectionism.
The NAM believes these agreements are strongly in our trade
interest, that they serve as excellent models for more trade
agreements, and that they will benefit the economic growth and
stability of both the United States and our trading partners. The NAM
urges positive consideration of both agreements by the subcommittee and
the committee, and rapid approval by the entire Congress.
Thank you, Mr. Chairman.
Mr. Stearns. Thank you.
Mr. Holleyman.
STATEMENT OF ROBERT W. HOLLEYMAN II
Mr. Holleyman. Mr. Chairman, Ms. Schakowsky and the members
of the subcommittee, thank you for the opportunity to appear
before you today.
My name is Robert Holleyman and I am President and CEO of
the Business Software Alliance, an association of leading
developers of commercial software, hardware and e-commerce
technologies. I appreciate the opportunity to testify today on
the significance of the Singapore and Chile Free Trade
Agreements. The information technology is one of the leading
contributors to the U.S. balance of trade. IT industries
generated a trade surplus of $24.3 billion in 2002. IT also
contributed $405 billion to the U.S. economy, 2.6 million jobs,
and $342 billion in tax revenues in 2002.
Exports account for over 50 percent of revenues for most of
the leading commercial software makers in the U.S. If we are to
continue the positive contributions, U.S. trade agreements must
establish an open trading environment that promotes strong
intellectual property protection, growth in technology
services, and barrier free e-commerce.
I am pleased to express the unequivocal support of BSA and
its member companies for the Singapore and Chile Free Trade
Agreements. We urge every member of the committee and Congress
to vote in favor of these agreements. BSA is also a member of
the High Tech Coalition on FTAs, which also actively supports
both agreements. The agreements significantly advance strong
intellectual property protection and trade liberalization in
Singapore and Chile.
We commend Congress and the Administration for these
achievements. And, without the leadership provided by
Ambassador Zoellick and his team these achievements would not
have been possible.
Let me highlight some of the key provisions in the
agreements. For the software industry, strong intellectual
property protection is key in the fight against piracy, which
cost the industry $11 billion in lost revenues last year.
Indeed, piracy is the biggest trade barrier we face in many
markets. Both Singapore and Chile have piracy rates of 51
percent, costing the industry $41 million in Singapore and $59
million in Chile in 2002. Our trading partners must establish a
high level of IP protection that complies with the WTO's Trade
Related Aspects of Intellectual Property Rights and the World
Intellectual Property Organization's Copyright Treaty. The
Singapore and Chile Agreements meet this test.
In addition, both agreements require strong civil and
criminal enforcement regimes, which are critical elements in
our fight against piracy.
Let me take a moment to discuss a few of the key elements
of the provisions on Information Technology, another key
negotiating objective for the U.S. During the past decade, a
vast array of new technology services has proliferated,
including data storage, web hosting and software implementation
services. Technology users are increasingly purchasing IT
solutions as a combination of goods and services.
As a result, obtaining full liberalization in this area is
more important than ever. Both the Singapore and Chile
agreements provide full market access and national treatment on
IT services. Both agreements adopt a comprehensive approach
without any exceptions for technology. This will provide
evolving IT services with full market access today and into the
future.
We strongly commend this approach and result. Over 500
million people are using the Internet worldwide. The promotion
of barrier free, cross border e-commerce is, therefore,
critical to the technology industry. By 2005, two-thirds of all
software is expected to be distributed online. This will
provide U.S. software companies with enhanced access to markets
around the world. The e-commerce chapters in both FTAs
recognize, for the first time, the concept of ``digital
products.'' As we move to more online distribution of software,
we will not face new barriers, and we will have the same ease
of access that we had for traditional boxed software.
With the conclusion of these FTAs we believe important
precedents have been set for what the U.S. can achieve through
the WTO Doha Round of negotiations. We believe that they set
new standards that help the U.S. achieve these objectives.
In conclusion, the Singapore and Chile Agreements mark real
milestones in progress for the technology industry, new
baselines are set, this will open markets for U.S. technology
companies which will mean more jobs for American workers, more
tax revenues for the American tax base. We commend these
achievements in both agreements and strongly support their
passage in Congress.
Thank you.
[The prepared statement of Robert W. Holleyman II,
follows:]
Prepared Statement of Robert W. Holleyman II, President and CEO,
Business Software Alliance (BSA) 1
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\1\ BSA members include Adobe, Apple, Autodesk, Avid, Bentley
Syatems, Cisco Systems, CNC Software/Mastercam, Entrust, HP, IBM,
Intel, Intuit, Internet Security Syatems, Macromedia, Microsoft,
Network Associates, Novell, PeopleSoft, SeeBeyond Technology, Sybase
and Symantec.
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Mr. Chairman, Ms. Schakowsky and the Members of the Committee:
Thank you for the opportunity to appear before you today. My name is
Robert Holleyman and I am President and CEO of the Business Software
Alliance (BSA). BSA is pleased to have the opportunity to testify today
on the significance of the Singapore and Chile Free Trade Agreements.
BSA represents the world's leading developers of software, hardware
and e-commerce technologies. As one of the leading contributors to the
U.S. balance of trade, U.S. information technology (IT) and software
makers have contributed a trade surplus of $24.3 billion in 2002. As a
leading engine of global economic growth, the industry contributed a
trillion dollars to the global economy in 2002. In the U.S. alone, the
IT industry contributed $405 billion to the U.S. economy, creating 2.6
million jobs and generating $342 billion in tax revenues in 2002.
Exports account for over 50 percent of revenues for most of the
leading commercial software makers in the U.S., including the majority
of BSA members. If we are to continue the positive contributions of
this industry to the U.S. economy, it is critical that free trade
agreements (FTAs) establish the highest standards of intellectual
property protection. It is also critical that FTAs provide an open
trading environment that promotes barrier free e-commerce and growth of
the information technology services sector.
As the landscape of trade policy continues to evolve, two
relatively new issues have emerged on the international scene that
could have an impact on American software exports. A number of
countries are now contemplating enacting preferences in their software
procurement policies based on the method of software development, which
could have a severe impact on software exports, to the disadvantage of
the American software industry. In addition, a number of countries,
especially in Europe, are imposing levies (or surcharges) on hardware
and software products, which by some industry estimates could cost up
to one billion dollars per year, hurting both exports and the
profitability of the American technology industry. Both issues should
also be part of our nation's trade agenda.
Mr. Chairman, I am pleased to express the unequivocal support of
BSA and its member companies for the Singapore and Chile Free Trade
Agreements.
BSA is also a member of the High Tech Coalition on FTAs, who also
strongly support the FTAs.
These agreements significantly advance the establishment of strong
intellectual property protection and barrier free e-commerce in
Singapore and Chile, and we commend the Administration and Congress for
these achievements. Without the leadership provided by Ambassador
Zoellick and his team and Congress's thoughtful guidance these
achievements would not have been possible.
The importance of the Congressional approval of the Trade Promotion
Authority (TPA) to the American high tech industry cannot be
underestimated. The TPA legislation set the standard of strong IP
protection and trade liberalization among our trading partners in all
trade contexts including FTAs and the World Trade Organization (WTO).
With the successful conclusion of these FTAs, and continued
progress within the WTO Doha Round of negotiations, including important
talks on e-commerce and trade in services, we feel confident that the
U.S. will achieve its objectives in promoting barrier free e-commerce
and trade liberalization among our the world's trading partners.
intellectual property (ip) provisions in singapore and chile fta:
For the software industry, strong intellectual property protection
is essential in fostering continued innovation and investment as
copyright infringements and software piracy cost the industry $11
billion in lost revenues last year. In Singapore and Chile, the IT
industry has contributed significantly to their economic growth--$1.2
billion in Singapore and $340 million in Chile in 2002. However, both
countries continue to have high piracy rates of 51 percent, costing the
industry $41 million in Singapore and $59 million in Chile in lost
revenues in 2002.
To promote strong IP protection in a digital world, it is essential
that our trading partners establish the level of copyright protection
that complies with WTO Agreement on the Trade Related Aspects of
Intellectual Property Rights (TRIPS) and the World Intellectual
Property Organization (WIPO) Copyright Treaty (WCT). It is also
essential that our trading partners fully comply with and enforce these
obligations.
The mutual obligations under the U.S.-Singapore FTA mark some of
the highest standards of intellectual property rights protection and
enforcement yet achieved in a bilateral or multilateral agreement. The
U.S.-Chile FTA also makes significant progress in achieving improved
intellectual property protection and enforcement.
Both agreements recognize the importance of strong intellectual
property rights protections in a digital trade environment by building
on the obligations in the TRIPS Agreement, and ensuring that works made
available in digital form receive commensurate protection by
incorporating the obligations set out in the WIPO Copyright Treaty.
Some of the highlights in both agreements include:
The clear application of the reproduction right of a copyright
owner to permanent as well as temporary copies, including
temporary storage in electronic form. This treatment is
critical in a networked world where copyrighted materials can
be fully exploited without a user ever making a permanent copy.
The Chile and the Singapore Agreements contain slightly
different obligations. While the Singapore Agreement
establishes the much better unqualified protection for
temporary copies, the Chile Agreement contains certain
limitations. In the future, the United States should in all
cases follow the Singapore model.
Provisions to promote strong intellectual property rights
protection and foster electronic commerce by maintaining the
balance reflected in the U.S. Digital Millennium Copyright Act.
Copyright law is clarified to permit the exploitation of works
and effective enforcement of rights in the online environment,
while remedies against Internet service providers are limited
for infringements they do not control, initiate or direct.
Requirements to establish prohibitions against the
circumvention of effective technological protection measures
employed by copyright owners to protect their works against
unauthorized access or use, coupled with the ability to fashion
appropriate limitations on such prohibitions, again consistent
with those set out in the Digital Millennium Copyright Act.
Recognition that robust substantive standards for the
protection of intellectual property, to be meaningful, must be
coupled with obligations providing for the effective
enforcement of rights, in both civil and criminal contexts. In
this regard, key provisions of the agreements provide for the
establishment of statutory damages at levels appropriate to
deter further infringement, civil ex-parte measures to preserve
evidence of infringement, strong criminal penalties against the
most pervasive form of software piracy--corporate and
enterprise end user piracy; and strong border measures to
combat cross-border trade in infringing goods.
Obligating governments to lead by example by using only
legitimate and licensed software.
trade in information technology (it) services
During the past decade, a vast array of new e-commerce and
information technology services have been developed including data
storage and management, web hosting, and software implementation
services. Given the increasing trend for technology users to purchase
information technology solutions as a combination of goods and
services, full liberalization in this area is more important than ever.
It is critical that our trading partners provide full market access
and national treatment in information technology services including
those that are delivered electronically. It is also important that no
barriers are created for the new and evolving information technology
services.
In both the Singapore and Chile agreements, parties agreed to
provide full market access and national treatment on services. Both
agreements adopted a negative list approach, which means that new
services will be covered under the agreement unless specific
reservations were made in the agreement.
We commend this approach and the achievement in both agreements
where liberalization of information technology services was achieved
without any commercially significant reservations, leading to the
promotion of barrier free trade in services with our trading partners.
e-commerce in singapore and chile fta
With over 500 million people using the Internet worldwide, the
promotion of barrier free cross border e-commerce is critical in
encouraging continued e-commerce growth and development. In fact, the
trade treatment of software delivered electronically is one of the most
important issues facing the software industry and it is essential that
software delivered electronically receive the same treatment under the
trade laws as software traded on a physical medium. The e-commerce
provisions in the Singapore and Chile FTAs should be the model for what
the United States pursues in all future trade agreements.
We are quickly moving to a world where online distribution is the
predominant way software is acquired and used. According to our CEOs,
by 2005, 66 percent of all software is expected to be distributed
online. This will have enormous efficiencies as the newest, most up-to-
date software is delivered across borders at a lower cost and more
quickly than when delivered in a physical form, to the benefit of both
customers and software developers.
The E-commerce chapters in both the Singapore and Chile FTAs
recognize, for the first time, the concept of ``digital products'' in
terms of trade. The chapters also establish requirements that further
promote barrier free e-commerce, essential in promoting growth and
development of the IT industry.
In both agreements, the trading partners agreed not to impose
customs duties on digital products. This provision is
consistent with the WTO Moratorium on Customs Duties on
Electronic Transmissions. The inclusion of this provision is
critical in further promoting the growth of cross border e-
commerce.
Both agreements also introduce the concept of ``digital
products'' as the means to ensure broad national treatment and
MFN nondiscriminatory treatment for products acquired on-line.
This is critical as it recognizes, for the first time, the
evolution and development of digital products during the last
twenty years and addresses the need for predictability in how
digital products are treated by trade law.
With respect to the physical delivery of digital products, in
both agreements, the parties agreed to apply customs duties on
the basis of the value of the carrier medium. This provision is
essential as valuation on content results in highly subjective
assessments of projected revenues.
The parties also agreed to cooperate in numerous policy areas
related to e-commerce, further advancing the work on e-commerce
with our trading partners.
In conclusion, the U.S. free trade agreements with Singapore and
Chile mark milestones in progress toward the promotion of strong
intellectual property rights protection, full liberalization of trade
in information technology services and barrier free e-commerce among
our trading partners. In these agreements, new baseline have been set
that should lead to significant market opportunities for the US IT and
software industries in the years ahead. We commend the achievements
made in both agreements and we strongly support their passage in
Congress. On behalf of the members of BSA, I would like to thank the
Committee for the opportunity to testify here today.
Mr. Stearns. Thank the gentleman.
Mr. Waskow? Just pull it right up close to you and make
sure it's turned on.
STATEMENT OF DAVID F. WASKOW
Mr. Waskow. Good afternoon. Thank you for the opportunity
to testify today before the subcommittee concerning the Chile
and Singapore agreements. My name is David Waskow, and I am the
Trade Policy Coordinator with Friends of the Earth.
The Chile and Singapore agreements may be limited in
economic terms, but they are significant when it comes to the
environment. In the case of Chile, natural resources are at the
heart of the country's trade: its four largest export sectors
to the United States are fruit, mined products, forestry
products, and fish, and the country has some of the most
vulnerable and important forests in the world.
Singapore is known as a significant transportation corridor
for environmentally sensitive trade, including endangered
species and illegally logged timber.
But these agreements are significant beyond their direct
environmental implications, because they will set important and
critical parameters for future agreements, such as CAFTA and
the FTAA. Unfortunately, the precedents set in these agreements
do not provide sufficient protection for the environment and
could lead directly to the undermining of critical
environmental laws and regulations.
I will touch on three areas. First, the issue of
investment. During debate over the Trade Act of 2002, many
environmental and public interest groups and State and local
lawmakers voiced our deep concerns about the increasing number
of cases under NAFTA Chapter 11. Using those rules, foreign
investors have challenged and demanded compensation for
environmental and public interest laws and regulations. And, we
continue to stress that the investment rules of NAFTA provide
investor rights that go far beyond those provided under U.S.
law, and enable inappropriate challenges to our protections.
Congress, in response, required in the Trade Act that that
investment provisions in future agreements ``ensure that
foreign investors are not accorded greater substantive rights
than United States investors under U.S. Law.''
Unfortunately, that standard has not been met in these
agreements. There have been some limited, very limited changes,
and we would especially note the transparency requirements for
the investor suit process itself, but at the end of the day
this ``no greater right standard'' has not been achieved.
Nor does the approach address the fundamental problems that
environmental groups and others have identified with the NAFTA
model.
Supreme Court principles have been inserted completely out
of context, and the agreements also fail to include critical
standards from U.S. law such as distinctions between land and
personal property.
Other critical elements of the investment chapters,
including the definition of investment, do not comport with
U.S. law, and there's no general environmental exception, and
this is somewhat surprising given it's correct, as proponents
of investment will say, that there's no threat to environmental
laws, why not have a carve out for precisely those laws.
Second, environmental provisions, as global trade
increasingly integrates economies, we believe it is vital that
the potential environmental impacts of increased trade be fully
addressed. However, a plain reading of these agreements makes
clear that the environmental provisions do not have the same
enforcement provisions as for commercial terms, a step
backwards from the Jordan Agreement.
There is also no binding obligation on governments not to
lower their environmental standards, but above all we are
deeply disappointed that these agreements lack any independent
mechanism allowing citizens to bring complaints when
governments fail to carry out their environmental obligations
under these agreements. They don't even have the kind of
citizen submission process that the NAFTA side agreement on the
environment has, and we feel it is fundamentally imbalanced and
inappropriate to omit these provisions given that investors in
the investment chapter of the agreement have the right to bring
private suits, in other words, private foreign investors can
but environmentalists can't.
Third, services, and I will just mention briefly that we
are concerned because a number of service sectors do have
environmental consequences, transportation, energy, including
pipelines, electricity and other activities, and water. These
are not, perhaps, relevant directly for these agreements, but
will be for future agreements such as CAFTA and FTAA, and the
precedents set here are troubling.
Let me conclude by saying that the Chile and Singapore
agreements are critical as potential precedents for future
agreements. As negotiations progress on those agreements, it
will be vital not to repeat the serious flaws in the Chile and
Singapore agreements. Otherwise, we believe that the United
States will go down an unsustainable path in its trade policy.
Thank you.
[The prepared statement of David F. Waskow follows:]
Prepared Statement of David F. Waskow, International Policy Analyst and
Trade Policy Coordinator, Friends of the Earth
Thank you for the opportunity to testify before the Subcommittee
today on behalf of Friends of the Earth concerning the recently
negotiated free trade agreements with Chile and Singapore. Friends of
the Earth is a national environmental advocacy organization. We founded
and belong Friends of the Earth International, a network of groups with
more than one million members in 70 countries worldwide. Friends of the
Earth has worked to address trade and environmental issues for many
years, including serving on the U.S. government's Trade and Environment
Policy Advisory Committee and, recently, the Industry Sector Advisory
Committee on Chemicals and Allied Products.
The Chile and Singapore agreements may be limited in economic
terms, but they are significant when it comes to the environment. Trade
involving both of these countries has substantial international
environmental implications. Natural resources are at the heart of
Chile's export trade: its four largest export sectors to the United
States are edible fruits and nuts, mined products (copper), forestry
and wood products, and fish and seafood. The Chilean forestry sector in
particular is enormously important. Both in scale and in diversity of
species and ecosystems, Chilean native forests are irreplaceable on a
global level. The primary temperate forests of Chile represent one-
third of the remaining primary temperate forests in the world, and the
United States was the largest purchaser of Chilean forestry products in
2000. A 1997 World Resources Institute report showed that 45 percent of
Chile's original undisturbed forest already has been lost, while 76
percent of the remaining frontier forest is threatened.
Singapore is known as a significant transportation corridor for
environmentally sensitive trade, including trade in endangered species,
illegally logged and traded timber, and ozone depleting substances.
Most notably, Singapore is a major hub for the laundering of illegal
wildlife, particularly from Indonesia and Malaysia.-- For example,
Singapore is the major exporter of wild-caught sulphur-crested
cockatoos, even though the birds' natural range is limited to
Indonesia, a country that has prohibited their export. In addition,
authorities seized 6 tons of African elephant ivory being transshipped
to Asia through Singapore in July 2002, though trade in elephant ivory
has been banned for more than a decade. A recent report has also
indicated that, during a ten-month period in 2001-2002, Singapore
exported millions of dollars of illegal ramin, an internationally
protected tree species, to the United States without the permits
required by the Convention on International Trade in Endangered Species
(CITES).
However, the Chile and Singapore agreements are significant not
only because of their direct implications for environmental concerns.
They also serve to set critical parameters for future trade agreements,
including future bilateral agreements and broader regional agreements
such as the Central America Free Trade Agreement (CAFTA) and the Free
Trade Area of the Americas (FTAA). Unfortunately, the precedents that
the Chile and Singapore agreements set for future trade agreements do
not provide sufficient protection for the environment and could lead
directly to the undermining of critical environmental laws and
regulations. We believe these agreements set our trade policy on a
wrong course that the environment cannot sustain. I would like to focus
attention on two particular areas of concerns--investment rules and
environmental provisions--and touch briefly on two other issues--
services, which I know is of substantial interest to this committee--
and intellectual property rights.
investment
During debate over the Trade Act of 2002, many members of Congress,
including several on the Committee, raised significant concerns about
the investment rules in Chapter 11 of the North American Free Trade
Agreement (NAFTA). These rules provide private foreign investors the
right to bring complaints before international arbitral tribunals when
they believe that the investment provisions of the trade agreement have
been violated. Environmental and public interest organizations and
state and local lawmakers voiced concern about the increasing number of
investment cases in which companies sought compensation for the effects
of environmental and public interest laws and regulations. Mexico and
Canada have each lost Chapter 11 cases involving environmental
protections, and the United States has been challenged under Chapter 11
for such actions as California's phase-out of a toxic gasoline
additive, MTBE. The consumer protection mandate of this Subcommittee is
surely relevant to addressing the potential threat posed by such
challenges.
We continue to stress that that the investment rules in NAFTA
provide investor rights that go far beyond those provided in U.S. law
and enable inappropriate challenges to be brought against government
actions in the public interest. In response to heightened attention to
these issues, Congress required in the Trade Act that investment
provisions ``ensur[e] that foreign investors are not accorded greater
substantive rights with respect to investment protections than United
States investors in the United States . . .'' Section 2102(b)(3).
The approach to international investment rules embodied in the
Chile and Singapore agreements contains some incremental improvements
over NAFTA's Chapter 11. We would especially note the transparency
requirements for the investor suit process itself. We do not believe,
however, that the provisions we have reviewed comply with the direction
from Congress that new international investment rules not provide
foreign investors with ``greater substantive rights'' than domestic
investors enjoy under U.S. law. Nor does the approach address the
fundamental problems that environmental groups and others have
identified with the NAFTA model.
First, on the issue of expropriation, or takings, the inclusion of
clarifications setting out a shared understanding of the expropriation,
or takings, standard provides some incremental improvements. However,
the clarifications fail to adequately reflect U.S. law in many
respects, including the particular Supreme Court decision, Penn
Central, on which USTR intended to base much of the standard in these
agreements. The agreements focus on a limited and imbalanced set of the
critical factors used by the Supreme Court in determining takings
cases.
Simply listing some of the factors the Supreme Court discussed in
the Penn Central case, but without the essential explanations and
limitations that were set forth in that case and in subsequent rulings,
provides no assurance that foreign investors will not in fact be
granted greater rights than U.S. investors. This failure to provide
explanations and limitations for critical standards includes the use of
the ``character of government action'' as a factor in expropriation
analysis. ``Character of government action'' taken out of context is an
extraordinarily ambiguous phrase and could easily be misapplied by
tribunals that are neither trained in nor bound by U.S. precedent.
The agreements also fail to include critical standards established
in U.S. jurisprudence. For example, they do not include the critical
Supreme Court ``parcel as a whole'' principle that a governmental
action must permanently interfere with a property in its entirety in
order to meet a threshold requirement to constitute a taking. Property
rights are not defined in the agreements, nor are there any reference
to the fact that under Supreme Court cases takings claims must be based
upon compensable property interests, which are defined by background
principles of property and nuisance law. Furthermore, the agreements
fail to include the fundamental distinction between land and ``personal
property'' and the significantly different treatment that these
categories of property have been afforded under U.S. law. In addition,
the language concerning the analysis of an investor's expectations is
too vague, leaves too much to the discretion of the arbitrators, and
does not indicate the deference to governmental regulatory authority
that is found in U.S. jurisprudence.
The agreements indicate that non-discriminatory regulatory actions
to protect legitimate public welfare objectives do not constitute an
indirect expropriation, or regulatory taking, except in rare
circumstances. But while this language provides some direction for
arbitral panels, it fails to adequately convey the degree to which it
is unlikely that a regulatory action would be considered an
expropriation under U.S. law. It would take an extreme--not just a
rare--circumstance for any of the thousands of our country's laws and
regulations to be found to constitute an expropriation. It would be
more accurate to state that regulatory actions designed to protect
health, environment, or the public welfare do not constitute an
expropriation, except in instances equivalent to a permanent,
compelled, physical occupation. Yet the agreements do not say this.
Other critical elements of the investment chapters also do not
comport with standards under U.S. law. In regard to minimum, or
general, treatment, we are deeply concerned that the standard is
inherently subjective and incapable of precise definition and opens the
door to wide-ranging interpretation by tribunals. For example, the
tribunal decision in the Metalclad case under NAFTA Chapter 11
considered a local government's disagreement with the Mexican federal
government over a permitting decision for a hazardous waste treatment
facility to constitute a violation of this standard. While we welcome
the clarification that the minimum treatment standard includes
procedural due process, inclusion of one principle in a standard does
not eliminate the significant potential of a broader, unbounded
interpretation of the standard that goes far beyond U.S. law.
In addition, the definition of investment in these agreements
differs markedly from that in NAFTA and appears to be even broader in
scope. The definition is broad as to include protection of investments
such as shares, stock, and other forms of equity; bonds, debentures,
loans, and other debt instruments; and futures, options and other
derivatives. The effect of this definition is not clear, but at a
minimum it raises questions as to the types of property interests the
agreement seeks to protect and whether those notions are consistent
with the limited notion of protected property interests under the U.S.
Constitution and case law.
The lack of an appellate process under the investment rules and the
lack of any clear oversight role for U.S. courts inhibit the
development of a clear jurisprudence consistent with U.S. investor
protections. There can thus be no assurance that any of the substantive
rights in these agreements will be applied in a manner consistent with
the U.S. legal norms as required by the Trade Act.
We believe that the failure to include a general environmental
exception to the investment chapter is a further indication that
international investment rules remain a significant threat to
environmental and other policies enacted by governments to further the
public interest. If, as the supporters of strong investment protections
argue, such rules pose no threat to legitimate environmental
regulations or actions of government, then it is difficult to
understand why it would not be appropriate to ensure that result by
clearly carving out such regulations from the ambit of the rules. The
agreements do so for other portions of the agreement, but not for
investment.
We are also concerned by the transfer of funds obligations in the
investment provisions of the Chile and Singapore agreements. These
obligations, which were highly controversial and the cause of a
substantial delay in the completion of the agreements, in most cases
prohibit the use of capital controls to address financial crises.
Capital controls are strongly endorsed by pro-trade economists such as
Jagdish Bhagwati as a necessary tool to address global financial
volatility. From an environmental viewpoint, the availability of such
policy tools is important because financial instability and crises are
generally not conducive to sustainable development policies.
Finally, we see the continuation of an imbalanced approach to the
treatment of private multinational investors as opposed to citizens
generally in international economic law. Investors are given explicit
rights and enforcement mechanisms to hold governments accountable. On
the other hand, as we will discuss below, there is no citizen
enforcement mechanism included in either agreement--not even a process
analogous to the NAFTA Commission for Environmental Cooperation citizen
submission process.
environmental provisions
As global trade increasingly integrates economies--a fact beyond
the control of any of us here today--we believe it is vital that the
potential environmental impacts of increased trade be fully addressed.
We therefore believe that environmental concerns about the impacts of
trade, in sectors ranging from forestry to transportation, should be
treated jointly with the commercial issues addressed in trade
agreements. The environmental community's longstanding position is that
environmental provisions should have enforcement parity with commercial
provisions and must be robust in improving environmental standards in
the participating countries. We also believe that environmental
provisions must include an effective process for citizens to bring
complaints regarding environmental issues that are addressed in the
agreement. Unfortunately, while the US-Chile and US-Singapore, include
environmental provisions in their core text, they don't meet those
tests and also represent steps backward from earlier agreements
negotiated by the United States.
Most significantly, the agreements lack any independent citizen
petition mechanism to address failures by countries to carry out their
environmental commitments under the agreement. The failure to include
any such process, even one similar to the process provided for in the
NAFTA side agreement on the environment, the North American Agreement
on Environmental Cooperation (NAAEC), is a serious omission. The NAFTA
procedures are inadequate and lack any clear and effective follow-
through mechanism for enforcement. Yet, if nothing more, the framework
has allowed some important environmental issues to be raised. For
example, just last week, the attorneys general of New York, Connecticut
and Rhode Island, along with 48 Canadian and United States non-
governmental organizations and two towns in New York State, filed a
citizen submission asserting that Canada is failing to effectively
enforce the Canadian Environmental Protection Act and the federal
Fisheries Act against Ontario Power Generation's (OPG) coal-fired power
plants.
We believe that it is fundamentally imbalanced and inappropriate to
omit a citizen petition mechanism for environmental provisions when the
investment rules in these agreements include a private right of action
for foreign investors. Moreover, we believe this imbalance represents a
failure to fulfill the Trade Act's mandate to seek equivalent dispute
settlement mechanisms. An equivalent dispute mechanism for
environmental provisions would grant citizens the right to bring
environmental complaints with the same effectiveness as private
investors are able to exercise under investor rights rules.
In addition, the Chile and Singapore agreements do not contain
binding language to prohibit the countries involved from lowering their
environmental standards outright. The countries have agreed merely to
hortatory language that each party ``strive to ensure that it does not
waive or otherwise derogate from'' its environmental standards. Yet
even a country's failure to meet this ``non-waiver or derogation''
standard cannot be the basis for a dispute settlement proceeding under
the agreements. This inability to address a violation of the ``non-
waiver or derogation'' standard through a dispute settlement process
makes these agreements a clear step backwards from the Jordan Free
Trade Agreement, which allows for such disputes.
It is also quite clear on any plain reading of the agreements that
the dispute mechanism for violations of environmental provisions is not
equivalent in a number of respects to the dispute settlement process
for commercial provisions. The agreements thus clearly fail to provide
for parity of enforcement and thereby represent a clear step backward
from the Jordan agreement, in which the dispute settlement rules did
not distinguish among the agreement's provisions, and a departure from
the requirements of the Trade Act.
Finally, it is vital to comment on the cooperative environmental
arrangements that are tied to these agreements. These cooperative
arrangements are included in the agreement in the case of Chile and are
still being negotiated in the case of Singapore. While the aims that
these cooperative arrangements aspire to are important and very
worthwhile, it seems extremely unlikely that these commitments will be
at all effective in practice. Most important, the need for financial
resources to realize the cooperative commitments has gone completely
unaddressed by the U.S. government, nor has any consultation with
Congress concerning funding issues taken place. U.S. agencies have even
acknowledged that they lack the necessary resources to carry out the
cooperative programs agreed to in negotiations.
services
While services are not often considered to have impacts on the
environment, the environmental implications of services negotiations
are in fact quite substantial. Service sectors such as transportation,
energy (including pipelines, electricity and other activities) and
water all have important environmental ramifications. The NAFTA case
involving cross-border trucking, which was decided largely under the
agreement's services chapter, dramatically illustrates the
environmental effects of such trade provisions. The recent decision by
the 9th Circuit Court of Appeals finding that the Department of
Transportation had not carried out an adequate environmental review
process for the opening of the border to cross-border trucks made the
environmental implications quite clear.
In the Chile and Singapore agreements, the services chapters
primarily address cross-border services. In the context of these
agreements, then, the effects of the agreement for services such as
cross-border land transport, pipelines, electricity distribution, and
water distribution are limited. However, these agreements do set
parameters for the services chapters in future agreements such as the
CAFTA and FTAA where these concerns will be relevant. It is
particularly troubling that the Singapore and Chile services chapters
do not include an exception for ``measures relating to the conservation
of exhaustible natural resources,'' an exception that is found in the
General Agreement on Tariffs and Trade (GATT) and that the United
States has relied on to defend U.S. law before WTO panels.
intellectual property rights
The Singapore agreement does not include a critical exception found
in Article 27.3(b) of the WTO Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) that permits governments not to
issue patents for plants and animals. It is unclear whether the Chile
agreement implicitly incorporates this exception by reference to the
TRIPS agreement, or whether the exception is also omitted in the Chile
agreement. The lack of this exception will remove the flexibility
needed by governments to enact measures to protect biodiversity,
including plant genetic resources, and to ensure sovereignty over
genetic resources as provided for in the Convention on Biological
Diversity.
conclusion
In conclusion, the Chile and Singapore agreements are important not
only in their own right, but also as potential precedents for future
agreements. As negotiations progress on other trade agreements,
including a number of bilateral agreements and regional agreements such
as the CAFTA and FTAA, it will be vital not to repeat the serious flaws
in the Chile and Singapore agreements. The concerns that I have laid
out here concerning investment rules, environmental provisions,
services and intellectual property should all be fully addressed in
future agreements. Indeed, lessons from the Chile and Singapore
agreements and other past agreements can be built upon to construct a
trade policy that is truly inclusive of environmental concerns.
Otherwise, we believe that our country's trade policy will proceed down
an unsustainable path.
Mr. Stearns. I thank the gentleman.
Mr. Monford, we have had a roll call vote, but we are going
to see if we can get through you and, perhaps, Mr. Kelly, and
then we will take a break and then come back. It will just be a
15-minute break and then we will be able to go to the questions
and complete the other two.
So, Mr. Monford, go ahead.
STATEMENT OF RONALD T. MONFORD
Mr. Monford. Thank you very much, Chairman Stearns, Ranking
Member Schakowsky, members of the committee. My name is Ron
Monford, and I am the President and Chief Executive Officer of
Mind Over Machines, Incorporated of Baltimore, Maryland and
Austin, Texas.
I'm here today testifying on behalf of our company and the
U.S. Chamber of Commerce, the world's largest business
federation, representing more than 3 million business of every
size, sector, and region. I am grateful to the subcommittee for
the opportunity to testify at this hearing.
Mind Over Machines is a 16-year-old technology firm
specializing in the development of custom and commercial
software applications that are distributed throughout the
United States and abroad. Our custom applications for the legal
industry are used by most of the top U.S. law firms, scores of
Fortune 1000 firms and thousands of small to mid-cap companies.
Clients in Canada, the Caribbean and Europe use several of
these products on a daily basis.
We also distribute accounting related and manufacturing
software to clients in many foreign countries, including the
United Kingdom, Australia, Canada, Mexico and Jordan. The
majority of these applications are delivered electronically,
via the Internet or by compact disc.
Mind Over Machines is dedicated to growth through
increasing its business with foreign clients and partners and
is excited about the opportunities that these two Free Trade
Agreements will provide us. We want to do business in countries
where there are few trade barriers and where our software
products are protected from theft.
I have personally been involved in foreign trade since 1967
and have been responsible for establishing trade relations with
firms in Mexico, Colombia, Peru, Costa Rica, The Dominican
Republic, China, Japan, Europe, Canada and others.
I was an early participant in U.S. Customs rule 807
operations. We later benefited by NAFTA provisions in trade
with Mexico. Consequently, I have been able to witness first
hand the benefits that can accrue to small and medium
businesses from favorable international trade conditions. I
firmly believe that the establishment of Free Trade Agreements
with other countries is necessary to enable companies like ours
to grow and compete. As I understand them, the proposed Free
Trade Agreements with Singapore and Chile offer many advantages
that should facilitate trade in e-commerce and services for
companies like ours. I would now like to give a brief overview
and convey what I understand each agreement to mean for these
sectors.
Singapore is the United States' 11th largest trading
partner, with two way trade valued at $33 billion annually.
Singapore will guarantee zero tariffs immediately on all U.S.
products, and will accord substantial market access across its
entire service regime, subject to very few exceptions.
U.S. service firms will enjoy fair and non-discriminatory
treatment through strong disciplines on both cross border
supply of services and the right to invest and establish a
local services presence.
Key intellectual property components are contained in the
agreement, including the protection of copyrights, patents,
trademarks and trade secrets. Provisions also ensure government
involvement resolving disputes between trademarks and Internet
domain names.
Singapore also agreed to cooperate in preventing pirated
and counterfeit goods from entering the U.S. Copyright
provisions ensure that only authors, composers, and other
copyright owners have the right to make their work available
online. These provisions are extremely important to firms like
ours in protecting software products from theft.
Of special important for firms in our industry, Singapore
and the U.S. agreed to provisions on e-commerce that reflect
the issues importance in global trade. The landmark electronic
commerce chapter introduces the concept of digital products in
trade agreements. Provisions in this chapter guarantee non-
discrimination against these product that are delivered
electronically, such as our software. They preclude customs
duties from being applied on those products.
As well, for hard media products, such as DVD and compact
disc, custom duties will be based on the value of the disc,
rather than on the projected revenues from the sale of the
content-based products.
The United States is Chile's largest trading partner with
two way trade totaling $8.8 billion in 2001. Similar to the
Singapore Agreement, the U.S.-Chile Free Trade Agreement
contains a high level of intellectual property rights
protections that go further than previous free trade
agreements.
Chile also agreed to provisions on e-commerce that reflect
the issues importance in global trade. These identify Chile as
a leader in Latin America for the further development of
electronic commerce.
Last, the Chile Agreement contains important provisions
that will benefit the investment sector.
In conclusion, both the Singapore and Chile Free Trade
Agreements provide tremendous opportunity for small businesses
like mine to expand our markets internationally and create jobs
in this country. We think the U.S. team did a great job
negotiating strong provisions on services and e-commerce. These
provisions will ensure that we have access to new markets by
knocking down the artificial barriers that have locked us out.
Our competitors have been enjoying a free ride for too long. It
is time for America to get back in the game.
[The prepared statement of Ronald T. Monford follows:]
Prepared Statement of Ronald T. Monford, President and CEO, Mind Over
Machines, Inc.
Good morning, Chairman Stearns and Ranking Member Schakowsky and
members of the House Energy & Commerce Subcommittee on Commerce, Trade
and Consumer Protection. My name is Ron Monford, and I am the President
and Chief Executive Officer of Mind Over Machines, Inc. of Baltimore,
Maryland.
I am here testifying on behalf of my company and the U.S. Chamber
of Commerce, the world's largest business federation, representing more
than three million businesses of every size, sector, and region. I am
grateful to the Committee for the opportunity to testify at this
hearing on the significance of the Singapore and Chile Free Trade
Agreements, as they pertain to trade in services and e-commerce.
Mind Over Machines is a 16-year-old firm specializing in the
development of custom and commercial software applications that are
distributed throughout the United States and abroad. Our custom
applications for the legal and corporate services industries are used
by most of the top U.S. law firms, scores of Fortune 1000 firms and
thousands of small to mid-cap companies. Several of these products are
used by clients in Canada, the Caribbean and Europe.
We distribute accounting related and manufacturing software to
clients in many foreign countries, including the United Kingdom,
Australia, Canada, Mexico and Jordan. The majority of these
applications are delivered electronically, via the Internet or by CD.
Further, we have developed web sites for firms in Switzerland and
Japan, as well as web sites dedicated to the advance of international
trade. Since September 2002, company executives have made three trips
to China for the purpose of establishing trade relations with web
development firms there. We will, this week, hopefully complete
negotiations with a Chinese company to outsource the development of
some of our software products in China.
Mind Over Machines is dedicated to increasing its business with
foreign clients and partners and is excited about the opportunities
that these two Free Trade Agreements will provide us.
I have personally been involved in foreign trade since 1967 and
have been responsible for establishing trade relations with firms in
Mexico, Colombia, Peru, Costa Rica, The Dominican Republic, Jamaica and
others. During the period of 1990 through 1995, I was active in the
procurement of raw materials from Japan, Korea, South Africa and
Europe, as well as the sale of U.S. made products to markets in Japan,
Mexico and Canada.
I was an early participant in U.S. Customs rule 807 provisions
dealing with duties on value added and later enjoyed the benefits of
NAFTA provisions in trade with Mexico. These experiences have enabled
me to witness first hand the benefits that can accrue to small and
medium firms from favorable trade conditions. I firmly believe that the
establishment of Free Trade Agreements with other countries is
necessary to enable these firms to grow and better compete in the
national and global marketplace. The proposed Free Trade Agreements
with Singapore and Chile offer many advantages that should facilitate
trade in e-commerce and services for companies like ours. I would now
like to give a brief overview and convey what I understand each
agreement to mean for the services and e-commerce sectors.
overview
The United States' service industry accounts for over 80% of the
Gross Domestic Product and employment in the United States, and
contributes to the U.S. economy through creating jobs, improving R&D
and strengthening our global competitiveness. Both the Chile and
Singapore free trade agreements should improve market access to U.S.
firms across different service sectors.
u.s.-singapore fta
Singapore is the United States' eleventh largest trading partner,
with two way trade valued at $33 billion annually. Over 1500 companies
are operating in Singapore today, with over 300 of these having made
Singapore their regional Asia-Pacific headquarters. Singapore
guarantees zero tariffs immediately on all U.S. products and will
accord substantial market access across its entire service regime,
subject to very few exceptions. Singapore will treat U.S. services
suppliers as well as its own suppliers or other foreign suppliers. U.S.
services firms will enjoy fair and non-discriminatory treatment through
strong disciplines on both cross-border supply of services and the
right to invest and establish a local services presence. Traditional
market access to services is supplemented by strong and detailed
disciplines on regulatory transparency. Regulatory authorities must use
open and transparent administrative procedures, consult with interested
parties before issues regulations, provide advance notice and comment
periods for proposed rules, and publish all regulations. The FTA's
services chapter introduces the definition of Express Delivery Services
(EDS), a goal of the U.S. EDS service providers. It is also the first
time these services have been defined in a trade agreement. The FTA
also contains important commitments by Singapore to prohibit cross-
subsidization by postal authorities. Key intellectual property
components are contained in the agreement, including the protection of
copyrights, patents, trademarks and trade secrets, which are state of
the art, going further than previous free trade agreements. In addition
to the intellectual property components, the U.S.-Singapore Free Trade
agreement will provide new access for U.S. e-commerce companies,
telecommunications companies, securities firms, professionals, and
banks.
The Singapore FTA will provide high-level intellectual property
rights protection in the following areas: 1) trademarks (stronger
protection for well-known marks), 2) copyrights, 3) patents, and 4)
trade secrets. Provisions ensure government involvement in resolving
disputes between trademarks and Internet domain names. Additional
provisions streamline the trademark filing process by allowing
applicants to use their own national patent-trademark offices for
filing trademark applications. Singapore agreed to cooperate in
preventing pirated and counterfeit goods from entering the U.S. and to
impose criminal penalties as an enforcement mechanism. Copyright
provisions ensure that only authors, composers, and other copyright
owners have the right to make their work available online. Copyright
owners maintain rights to temporary copies of their works on computers.
Patent terms can also be extended to compensate for up-front
administrative or regulatory delays in granting the original patent,
consistent with U.S. practice. Further, the agreement mandates both
statutory and actual damages under Singaporean law for IPR violations.
In addition to key intellectual property benefits, the agreement
will provide a secure, predictable legal framework for U.S. investors
operating in Singapore. All forms of investment are protected under the
Agreement unless specifically exempted. U.S. investors are provided
treatment as favorable as local Singaporean investors or any other
foreign investor. Investor rights are backed by an effective, impartial
procedure for dispute settlement that is fully transparent.
The professional service sector stands to benefit from the
agreement as well. Under the FTA, Singapore agreed to reduce
restrictions and provide enhanced market access for U.S. professional
service firms (e.g., the agreement covers architectural and engineering
and legal services sectors). For U.S. law firms, Singapore will loosen
the requirements that firms must meet to participate in joint law
ventures with local firms. Furthermore, Singapore also agreed to
recognize law degrees granted by a limited number of American law
schools for purposes of qualifying for the Singapore bar. For U.S.
architectural and engineering firms, local ownership restrictions have
been relaxed. When fully implemented, the agreement will provide
improved market access for U.S. professional services firms and
individuals in Singapore.
Under the FTA, Singapore will be obligated to open its telecom
service market and allow for non-discriminatory access to its telecom
network. U.S. firms will be given the rights to interconnect with
Singapore's telecom networks, access telecom facilities, lease
components and resell services. Also, the Singapore telecom regulatory
authority will be required to make its rule-making transparent. For
instance, it will be required to publish its interconnection agreements
and service rates. The FTA also calls for the U.S. and Singapore to
work on an arrangement that would mutually recognize each other's
telecom equipment standards. The telecom chapter should lead to
increased market access and help strengthen U.S. competitiveness in
Singapore's telecom market.
Lastly, Singapore and the U.S. agreed to provisions on e-commerce
that reflect the issue's importance in global trade, and the principle
of avoiding barriers that impede the use of e-commerce. The landmark
Electronic Commerce chapter in the FTA introduces the concept of
``digital products'' in trade agreements. Provisions in this chapter
guarantee non-discrimination against products delivered electronically
(software, video and text) and preclude customs duties from being
applied on digital products delivered electronically (video and
software downloads). For hard media products (DVD and CD), custom
duties will be based on the value of the carrier medium (e.g., the
disc) rather than on the projected revenues from the sale of content-
based products. The e-commerce text makes binding a number of e-
commerce commitments that are now only voluntary or temporary in the
WTO.
u.s.-chile fta
The United States is Chile's largest trading partner, with two-way
trade totaling $8.8 billion in 2001. The commitments in services cover
both the cross-border supply of services and the right to invest and
establish a local services presence. Groundbreaking transparency rules
ensure that service regulators operate fairly. Regulatory authorities
must use open and transparent administrative procedures, consult with
interested parties before issuing regulations, provide advance notice
and comment periods for proposed rules, and publish all regulations.
Chile will accord substantial market access across its entire services
regime, subject to very few exceptions.
Similar to the Singapore agreement, the U.S.-Chile FTA contains a
high level of Intellectual Property rights protection. Protection of
copyrights, patents, trademarks, and trade secrets go further than
previous free trade agreements. Enforcement of such rights is also
enhanced under this agreement. Trademark provisions ensure government
involvement in resolving disputes between trademarks and Internet
domain names, which is important to prevent cyber squatting. Also, the
trademark provisions apply the principle of the first to file for a
trademark is granted the first right to use that name. Copyright
provisions ensure that only authors, cosponsors and other copyright
owners have the right to make their work available online. Copyright
owners maintain rights to temporary copies of their works on computers.
Protections further ensure that governments only use legitimate
computer software, thus setting a positive example for private users.
Lastly, patent terms may be extended to compensate for up-front
administrative or regulatory delays in granting the original patent
consistent with U.S. practice.
The telecommunications provisions in the agreement will allow for
an open and competitive market in which users of the telecom network
are guaranteed reasonable and non-discriminatory access. This prevents
local firms from having preferential access to telecom networks. U.S.
phone companies will also obtain the right to interconnect with
networks in Chile and non-discriminatory, cost-based rates.
Additionally, U.S. firms seeking to build a physical network in Chile
granted non-discriminatory access to facilities, such as telephone
switches and submarine cable landing stations. U.S. firms will be able
to lease elements of Chilean telecom networks on non-discriminatory
terms and to re-sell telecom services to Chilean suppliers to build a
customer base.
The United States and Chile agreed to provisions on e-commerce that
reflect the issue's importance in global trade. Each country also
recognizes the importance of supplying services by electronic means as
a key part of a vibrant e-commerce environment. Chile and the U.S.
committed to non-discriminatory treatment of digital products; agreed
not to impose customs duties on such products and to cooperate in
numerous policy areas related to e-commerce. For digital products
delivered on hard media (DVDs and CDs), customs duties will be based on
the value of the media, not on the value of the movie, music or
software on disc. The e-commerce text identifies Chile as a leader in
Latin America for the further development of electronic commerce.
Lastly, the Chile agreement contains important provisions that will
benefit the investment sector. The agreement will establish a secure,
predictable legal framework for U.S. investors operating in Chile. All
forms of investment are protected under the agreement, such as
enterprises, debt, concessions, contracts and intellectual property.
U.S. investors enjoy in almost all circumstances the right to
establish, acquire and operate investments in Chile on an equal footing
with Chilean investors, and with investors of other countries, unless
specifically stated otherwise. Investor rights are backed by impartial
procedure for dispute settlement that is fully transparent.
conclusion
In conclusion, both the Singapore and Chile Free Trade Agreements
provide tremendous opportunity for small businesses like mine to expand
our markets internationally and create jobs in this country. The U.S.
team did a great job negotiating strong provisions on services and e-
commerce. These provisions will ensure that we have access to new
markets by knocking down the artificial barriers that have locked us
out. Our competitors have been enjoying a free ride for too long. It's
time for America to get back in the game.
Again, I appreciate the opportunity to testify before the Committee
on this important subject. I would be happy to answer any questions.
Mr. Stearns. I thank the gentleman.
Mr. Monford. Again, I appreciate the opportunity to
testify.
Mr. Stearns. Mr. Kelly, we have, we are going to come back
after 15 minutes. We've got about 7 minutes to vote, and we
want to give you your full 5 minutes.
Mr. Kelly. Mr. Chairman, I am going to be about 30 seconds.
Mr. Stearns. Okay.
Mr. Kelly. Because I know that you guys need to go vote.
Mr. Stearns. You know the gig around here.
Mr. Kelly. I know I don't want to see you and Ms.
Schakowsky race over there.
Mr. Stearns. So, go ahead.
STATEMENT OF BRIAN KELLY
Mr. Kelly. Thank you very much.
Three quick things. One, we want to thank the President and
Ambassador Zoellick for what they have done to get us this far.
EIA has been supportive of not only any free trade, whether
it's TPA, NAFTA, China WTO, this is critical to our industry,
and we think, whether it's Jordan, Singapore or Chile, these
are great starts to moving to that lower barriers and greater
competitiveness for U.S. companies.
The last thing I will say, there are always going to be
problems in any agreement, just as you would negotiate with
your family or as you deal with these things here, there will
be things that need to be fixed. We cannot allow the perfect to
be the enemy of the good.
So, I will leave it at that and look forward to you guys
coming back and having a discussion.
[The prepared statement of Brian Kelly follows:]
Prepared Statement of Brian Kelly, Senior Vice President, Electronic
Industries Alliance
Thank you, Mr. Chairman, Mrs. Schakowsky and Members of the
Committee for the opportunity to appear before you today and to provide
the views of the Electronic Industries Alliance (EIA) on the U.S.-Chile
and the U.S.-Singapore Free Trade Agreements (FTAs). My name is Brian
Kelly and I am EIA's Senior Vice President for Government Relations and
Communications. EIA is a partnership of electronics and high-tech trade
associations and companies that constitute more than 80 percent of the
$430 billion electronics industry.
the agreements will advance the cause of free trade
I want to begin by congratulating Ambassador Zoellick and his
skilled team of negotiators for concluding these important trade
agreements. Ambassador Zoellick is making great progress in
implementing the far-sighted strategy that the Congress and the
Administration laid out in the Trade Act of 2002.
EIA was a leader in the fight last year to obtain Trade Promotion
Authority (TPA)--the centerpiece of the 2002 Trade Act--and we are
pleased to see the Administration aggressively using this authority to
open markets and eliminate trade barriers as quickly as possible. We
hope that the Chile and Singapore FTAs are only the first of many
important market-opening agreements reached using this grant of trade
negotiating authority in order to further the cause of free trade,
which benefits EIA companies and the U.S. economy.
eia's stake in chile and singapore
U.S. high-tech goods and services exported to Chile totaled $865
million in 2001 but, overall, the U.S. share of Chile's import market
declined from 24% in 1997 to 16.6% in 2002. In part, this decline may
be the result of Chile having concluded FTAs with other countries--
notably, with the European Union (EU) and Canada. Signing the U.S.-
Chile FTA will put American manufacturers on a level playing field with
those in Europe looking for new markets in Chile and allow us to
rebuild and grow our market share in Chile.
EIA's member companies also recognize the tremendous opportunities
presented by the U.S.-Singapore FTA. This FTA will be the first the
United States has signed with an Asian nation, and it will send a
message that the United States will pursue trade opportunities in this
important region. More generally, bilateral agreements such as this one
will signal our commitment to the region to foster stable economic and
political ties. Singapore is an especially good place to start. The
Heritage Foundation ranked Singapore second in the world in its
rankings on economic freedom, and Singapore has a good track record for
pursuing open trade. Its investment laws are generally clear and fair,
and there is a strong history of protecting private property rights.
New and expanded trade opportunities are critical to the U.S.
electronics industry. According to the U.S. Commerce Department's
report, ``U.S. Jobs From Exports,'' more than a third of the jobs in
the Computers and Electronic Products Manufacturing Sector are
supported by exports--this amounted to 603,000 jobs in 1997. In light
of the challenges now faced by the high-tech sector, which have
resulted in a significant number of layoffs, securing and enhancing
access to foreign markets is a priority for our industry. The U.S.-
Chile and U.S.-Singapore FTAs can play an important role in building
jobs in the electronics sector.
the agreement will have positive effects in the affected regions
Both of these agreements will have benefits beyond the countries
involved. It is especially noteworthy the Chile FTA would mark the
first time that a major South American country has embraced the duty
reduction commitments reflected in the 1996 Information Technology
Agreement, although it has not signed the ITA. Broadening the pool of
countries that are prepared to eliminate tariffs on IT products should
be a major priority for U.S. trade negotiators. Hopefully, the Chile
agreement will pave the way for similar commitments by other countries,
especially in Latin America.
Similarly, the Singapore FTA hopefully will set the stage for
additional U.S. trade agreements involving other Asian countries.
Ambassador Frank Lavin pointed out earlier this year in a U.S.-ASEAN
Business Council interview that Asia is a vast and largely untapped
market for most U.S. companies and Singapore is an important next step
toward tapping that market. With the recent opening of the Chinese
market through the WTO, large and small enterprises alike are working
to enter the Asian market and the Singapore FTA will provide a foot in
the region's door for U.S. companies.
specific benefits of the chile and singapore ftas
There are particular aspects of both agreements that provide
benefit to the electronics industry that should be brought to the
Committee's attention.
Intellectual Property Protection. We appreciate the agreements'
strong protection for copyrighted works that would facilitate the
growth of digital technologies and products while still protecting the
legitimate rights of copyright owners, reflecting the balance struck in
the Digital Millennium Copyright Act. Moreover, strong enforcement
provisions criminalize end-user piracy and commit Chile and Singapore
to seize, forfeit and destroy counterfeit and pirated goods and the
equipment used to produce them. These protections will apply to goods-
in-transit and mandate both statutory and actual damages under Chilean
and Singaporean law for violations of intellectual property rights.
Telecommunications. The Chile and Singapore FTAs provide for open
markets and non-discriminatory access to telecommunications networks.
We strongly support affirmation of the principle of technology choice
by public telecommunications service providers. We are particularly
pleased that specific provisions in the Singapore agreement have been
included to ensure national treatment among service providers,
protection against anti-competitive behavior and transparency in
licensing procedures. These and other provisions will contribute to
open and transparent telecommunications markets for both service
providers and equipment providers.
Positive Economic Effects. When the U.S. enters into these FTAs, it
will grant Singaporean and Chilean companies better access to the U.S.
market than their neighbors enjoy. Rather than hinder trade, however,
we believe that this will lead other countries in both regions to seek
similar FTAs with the United States. This will create a competition
toward trade liberalization that will help reach our goals of zero
tariffs, more secure trade, and increased transparency.
The FTA with Singapore will put U.S. manufacturers back on a
competitive playing field in Singapore and erase the disadvantage they
currently face because Singapore already has FTAs with New Zealand,
Japan, the European Free Trade Association and Australia. Talks aimed
at new FTAs are also underway between Singapore and Mexico, Canada,
ASEAN countries, China, Korea and India. It is important that the
United States secure its place in the Singapore market.
As mentioned earlier, other countries and regions already enjoy the
benefits of free trade with Chile, including the EU, Central America,
Canada and Mexico. A U.S. FTA will allow manufacturers to compete more
effectively in the Chilean market.
Benefits to the Electronics Industry. Tariffs are less of an issue
for the electronics industry with regard to Singapore than is the case
with many other countries, since Singapore does not levy tariffs except
in four product areas unrelated to our business. And, Singapore is a
signatory to the World Trade Organization Information Technology
Agreement. However, for its part, the United States still retains
duties on some electronics products. Although generally small, these
nuisance tariffs still represent a cost to American electronics
companies and consumers. With the FTA, electronics imported from
Singapore will no longer be subject to duties, another opportunity for
the United States to even up tariff treatment in comparison with
countries that already maintain reciprocal duty-free relations with
Singapore.
Building upon Singapore's already liberal market, the FTA will
raise standards even higher in some areas, such as intellectual
property rights, e-commerce liberalization and telecom market access.
The agreement contains commitments in the e-commerce area that are more
advanced than any negotiated under the World Trade Organization. It
provides non-discriminatory treatment to products delivered
electronically, which will benefit U.S. firms that sell digital
products over the Internet. The United States and Singapore also agreed
to permanently prohibit customs duties charged on these electronically
delivered products.
Chile has been lowering its tariffs on average by 1 percent a year
since 1999 to the current rate of 6 percent, but in the U.S.-Chile FTA,
Chile has committed to eliminating tariffs immediately on 85 percent of
imports in key sectors including computers and other information
technology (IT) equipment. This development will almost certainly
expand trade and commercial relations between our countries.
areas in need of improvement
While EIA strongly supports approval of both these agreements,
there are two issues that should be brought to the Committee's
attention and that need improvement, if not in these agreements then in
future ones.
Rules of Origin. As long as tariffs remain a global reality, rules
of origin remain a key issue in FTAs. Unfortunately, the language on
rules of origin in these agreements is too complex and too similar to
that under the North America FTA. There is a general consensus among
EIA companies that the NAFTA rules of origin are highly complicated and
that rules of origin for future FTAs should be much simpler.
Complex rules of origin impose unnecessary administrative burdens
on companies and raise the cost of doing business internationally.
Accordingly, we appreciate the efforts reflected in these agreements
that outline specific, concrete and transparent ways that customs
procedures will be implemented, so that companies entitled to the
benefits will not be deterred from capitalizing on them because of
prohibitively high administrative costs. This is an important issue for
EIA. Restrictive rules of origin could work to counteract the benefits
of trade liberalization achieved elsewhere in an agreement. With
respect to the Singapore FTA, the integrated sourcing initiative for
products manufactured in third countries is especially useful for
electronics and other high tech products that often are produced in
stages in multiple countries.
We would welcome, however, a further simplification effort by
moving to a simple tariff shift-only approach and encourage thinking in
that direction for future FTAs. Under a simple tariff shift approach an
item is deemed a product eligible for FTA benefits if it is transformed
from one tariff category to another by manufacturing or processing in
an FTA country. We would note that a straight tariff shift-only
approach might include a minimum regional value content (RVC)
requirement in some cases to ensure that the benefits of an FTA are not
unfairly exploited by what amounts to transshipment. If this issue
cannot be addressed in these two FTAs, EIA strongly urges the
Administration not to follow this precedent in future FTAs.
Duty Drawback. Another concern relates to the treatment of duty
drawback by the Chile agreement. The duty drawback program,
administered by the U.S. Customs Service, is one of the last remaining
export promotion programs to help U.S. companies compete in the global
marketplace against trading partners that have significantly lower
costs of production. Duty drawback reduces production and operating
costs by allowing manufacturers and exporters to recover duties that
were paid on imported materials when the same or similar materials are
exported as finished goods or as component parts of finished goods.
The singular importance of duty drawback to exporters is reflected
in the WTO Agreement on Subsidies and Countervailing Measures, which
contains specific provisions allowing WTO members to continue to
provide drawback and making clear that drawback does not constitute an
impermissible export subsidy.
In the U.S.-Chile FTA, drawback is scheduled to be phased-out over
a 12-year period. We believe that by phasing out drawback in each FTA
that is negotiated, the elimination of this program is being
accelerated before it is clear when and if tariffs will be eliminated
on a global basis.
At the very least, the EU-Chile FTA language would be preferable as
it has an opt-out provision allowing exporters and importers to choose
between drawback and a duty preference. By eliminating drawback in the
U.S.-Chile FTA, the U.S. will be placed at a competitive disadvantage
against our EU trading partners that have more preferable drawback
language in the EU-Chile FTA. U.S. exporters need every means at their
disposal to help reduce production costs and allow them to compete
against lower-priced goods from China and other countries.
conclusion
Once again, I would like to thank the Chairman and the Committee
for the opportunity to comment on these agreements on behalf of EIA. We
hope the concerns raised can be addressed as we move towards what we
hope will be swift congressional approval of the U.S.-Chile and U.S.-
Singapore FTAs.
Mr. Stearns. I think your point is well taken, because lots
of times people say well I don't agree with you on that one
vote, and I say, my wife and I don't agree 100 percent either,
and we have been married 30 years.
Mr. Kelly. Well, I have been losing for 14 years to my
wife, so I understand that.
Mr. Stearns. Okay, so the subcommittee will adjourn and we
have three votes after this, and so we should be back roughly
in 15-16 minutes, so I appreciate it, I know how valuable your
time is, but we will be back, we've got some questions, and you
are making some good points, and I think the whole issue is
important for America.
[Brief recess.]
Mr. Stearns. The ranking member is right behind me. She
should be here momentarily. So Mr. Kelly finished up and Mr.
Bohannon you are next for your opening statement.
STATEMENT OF MARK BOHANNON
Mr. Bohannon. Thank you, Mr. Chairman. I want to thank you
for this hearing and for your patience today in continuing to
focus on this issue. On behalf of the Software and Information
Industry Association we want to make it clear that we want
these agreements implemented as soon as possible. We think that
there are tremendous benefits to our members who range from
software companies, e-businesses, information services
companies, as well as many electronic commerce companies, some
of whom are some of the largest in the business and some of the
newest. All of them depend on access to and confidence in
global markets, where they are treated in a non-discriminatory
manner and to make sure that their investment in digital
products and distribution is protected.
I also want to reiterate our involvement in the High Tech
Trade Coalition, which again strongly applauds the
Administration for its work and urges their approval by
Congress.
Mr. Chairman, I would ask that my complete statement, which
details the benefits in intellectual property and services, be
submitted for the record, because this afternoon, and with the
short amount of time we have remaining, I really want to focus
on the electronic commerce chapter which I know is very
important to this committee.
It is appropriate, because this subcommittee, with its
longstanding concern for removing and preventing barriers to
electronic commerce, has much to gain from supporting and
examining and touting the benefits of this agreement.
As indicated in my testimony, the Singapore and Chile
agreements chart a very unique approach to preventing barriers
to international digital trade, much as you have done
domestically in trying to prevent barriers to e-commerce.
As I talk in my testimony, as the effort to get Trade
Promotion Authority and the services agreements were getting
underway, a number of leaders in the high tech industry and in
other industries got together to identify key goals that we
could work together on, to promote the development of trade and
goods and services via e-commerce. Those goals are detailed in
my testimony, I will not repeat them now.
In working together in a cross sector approach, we
identified two questions, however, that we needed to drill down
on, and which I think the Singapore and Chile agreements go far
in helping us do, not only for these two relationships, but for
the future. The first is that we needed to take into account
the existing WTO agreements, the GATT, the GATS, TRIPs, all of
which we depend on currently, but often did not want to be
subject to, perhaps, differences between the various
agreements.
The second challenge that we faced in meeting our goals is
that we did not want to get trapped in a classification debate
about whether our products were goods, services or something in
between. The good news is that our cross sector of industry
groups worked with USTR's and others in the executive branch,
some of whom you saw earlier today, to make sure that the
classification issue does not act as a spoiler to achieving
meaningful trade commitments. The productive step toward this
end result has been to focus on liberalization at the highest
level, and equivalent trade commitments regardless of the mode
of delivery. These efforts have made classification a less
contentious issue.
We are very pleased that U.S. trade negotiators seized the
opportunity in their efforts with Singapore and Chile, to
translate these goals and objectives detailed in my testimony,
into concrete and meaningful results.
How did they get there? Central to the Chile and Singapore
agreements is, as we have heard today, the strategic definition
of digital products. The definition is not tied to either a
goods trade law regime, or a services trade law regime, and
does not prejudice a product's classification.
By ensuring this broad definition, both agreements ensure
non-discrimination and promote broader free trade, no matter
how a product may be classified. This approach is significant,
Mr. Chairman, and Ranking Member Schakowsky, because it
accommodates new technologies and delivery mechanisms without
calling into question the debate about whether we are a good or
a service, and this is important, because there are some
players in the international discussions which believe that
electronic commerce should be treated differently, arguing for
a third category that isolates electronic commerce for
treatment.
While this may be philosophically or academically
interesting, it is also an approach or a suggestion that is
fraught with unintended negative consequences, because some
countries could claim under this approach that existing
commitments no longer apply, which could lead to greater
uncertainty and/or calls for new and potentially counter-
productive new rounds of trade negotiations.
The substantive commitments made by Chile and Singapore are
detailed in my testimony and have been discussed earlier.
Clearly, services using electronic means fall within current
services commitments. There is no longer any doubt about that.
Chile and Singapore agree not to impede electronic
transmissions from the U.S. by applying customs duties or other
duties, or fees, or charges. And, they also agree not to
discriminate against digital products from the U.S., by giving
them no less favorable treatment than it gives to products from
their own countries or from third parties.
Mr. Chairman and Ranking Member Schakowsky, the electronic
commerce chapters of the Singapore and Chile FTAs represent one
of those rare moments in trade negotiations when improvements
in international trade law can prevent future barriers rather
than only focusing on the existing impediments. By any measure,
these chapters represent groundbreaking commitments.
As this committee is aware, we are at the beginning stages
of seeking a new round of multilateral negotiations that are
focused more broadly on services. We believe that our trade
negotiators have thought creatively and effectively about how
to remove barriers to e-commerce and we believe these are major
models for how to possibly proceed in the next rounds and in
other free trade agreements.
Thank you very much.
[The prepared statement of Mark Bohannon follows:]
Prepared Statement of Mark Bohannon, General Counsel and Senior Vice
President for Public Policy, Software & Information Industry
Association
introduction
Chairman Stearns, Ranking Member Schakowsky and members of the
Subcommittee, I appreciate the opportunity to testify before you today
on the benefits of the Singapore and Chile Free Trade Agreements. I
want to focus in particular on the Chapters on Electronic Commerce and
briefly comment on the Chapters on Intellectual Property Rights and the
Chapters on Services.
I am Mark Bohannon, General Counsel and Senior Vice President,
Public Policy for the Software & Information Industry Association. With
over 600 member companies, SIIA is the principal trade association of
the software code and information content industry. Our members are
industry leaders in the development and marketing of software and
electronic content for business, education, consumers and the Internet.
SIIA's members are software companies, ebusinesses, and information
service companies, as well as many electronic commerce companies. Our
membership consists of some of the largest and oldest technology
enterprises in the world as well as many smaller and newer companies.
All of them--from the largest to the SMEs--depend on access to and
confidence in global markets where they are treated in a non-
discriminatory manner and their investment in digital products and
distribution is protected.
Mr. Chairman, I am also here today on behalf of the High-Tech Trade
Coalition, a group of the leading high-tech trade associations
representing America's technology companies,1 to applaud the
Administration for its work. The high-tech sector is the largest
merchandise exporter in the United States and is the U.S. industry with
the most cumulative investment abroad. The HTTC strongly supports these
FTAs and urges their approval by Congress.
---------------------------------------------------------------------------
\1\ AeA, Association for Competitive Technology, Business Software
Alliance, Computer Systems Policy Project, Computing Technology
Industry Association, Electronic Industries Alliance, Information
Technology Association of America, Information Technology Industry
Council, National Electrical Manufacturers Association, Semiconductor
Industry Association, Semiconductor Equipment & Materials
International, Software & Information Industry Association, and the
Telecommunications Industry Association
---------------------------------------------------------------------------
I want to commend this Subcommittee for its continued focus on many
of the key issues that drive digital trade on the Internet. It is
appropriate that this Subcommittee, with its long-standing concern for
removing and preventing barriers to electronic commerce and promoting
confidence in transactions, is holding this hearing to examine the
potential benefits of these two Free Trade Agreements. As indicated in
my testimony, the Singapore and Chile Agreements offer many potential
benefits to the US and chart a unique approach to preventing barriers
in international digital trade. We urge implementation of these
Agreements as soon as possible and hope that the results can serve as a
model for WTO multilateral and other regional and bilateral trade
negotiations.
ecommerce goals for trade negotiations
Global eCommerce is fundamental to the success of our industry and
our members and more broadly to other sectors of our economy. It is an
increasingly dominant means of delivering software and digital content
to a wide variety of users around the world. At the same time, the
Internet has had a profound and positive impact on trade. The Internet
has altered the way goods and services are located, ordered, produced,
delivered and consumed, while increasing efficiencies, reducing time to
market, reducing costs and improving productivity. These developments
have implications for virtually all existing and future multilateral,
regional and bilateral obligations.
Taking these developments into account, a number of leaders in the
high tech community and other key industry sectors began over a year
ago to work closely to develop four core principles for trade
negotiations that should guide US trade negotiators in all
negotiations:
Promote the development of the domestic and global
infrastructure that is necessary to conduct eCommerce while
avoiding barriers that would hinder such development;
Promote full implementation of existing commitments and seek
increased liberalisation for all basic telecommunications,
value-added and computer and related services;
Promote the development of trade in goods and services via
eCommerce; and
Promote strong protection for intellectual property made
available over digital networks.
In a trade environment in which commerce is increasingly
characterized by rapid and often surprising technological advancements,
as well as evolving forms of delivery, international trade law can make
a substantial contribution to promoting these very positive
developments by providing meaningful rules and disciplines that apply
to digital trade; ensuring that trade barriers do not retard the
evolution and growth of digital trade; eliminating barriers where they
exist; and developing rules that ensure that new barriers will not be
imposed.
To achieve these stated goals, a number of complex, and at times,
competing factors are in play. There are, first and foremost, the
existing WTO agreements (GATT, GATS and TRIPs) each of which is
relevant to digital commerce transactions. In some instances, the rules
and obligations established by all of these agreements may be
implicated. In particular, the level of meaningful commitments in each
is different, with more complete commitments found in the GATT (trade
in goods) and TRIPS (intellectual property protection) than is
currently found in the GATS (relating to services).
Unfortunately, much of the discussion internationally, as well as
domestically, has focused on how to classify electronically delivered
products that have a physical counterpart. The challenge of promoting
confidence in digital trade, nevertheless, involves much more. Thus,
while the classification issue is important and relevant, it is only
one, and in some instances not the most important, of the issues that
must be examined and addressed.
A cross-sector of industry groups have been working with USTR and
others in the Executive Branch, as well as with colleagues
multilaterally, to make sure that the classification issue, important
as it is, does not act as a ``spoiler'' to achieving meaningful trade
commitments. A productive step toward this end result has been to focus
on liberalization at the highest level and equivalent trade commitments
regardless of the mode of delivery. These efforts have made
classification a less contentious issue, and highlighted the need for a
flexible and creative examination of these issues that produce
meaningful results. As described below, these FTAs are major milestones
in turning these discussions into practical policy.
Practically speaking, each negotiating group that has applicability
for digital trade is urged, as appropriate, to be guided by a number of
specific objectives: full Market access commitments across a broad
range of relevant goods and services; full national treatment and MFN
rules shall apply to all transactions; no quantitative restrictions
should be permitted; duties on all technology products should be
eliminated by taking WTO commitments at the broadest level possible,
and duties on all digitized products delivered on a physical medium
should be eliminated; no new duties shall be applied to digital trade,
either to the transmission or its content; trade formalities shall be
transparent, fully notified, shall not constitute a disguised
restriction on trade, and shall not impose requirements on how the
devices and software used to consummate the transactions are designed
or deployed; subsidies, where applied, shall be consistent with
existing disciplines; government procurement procedures and practices
shall be transparent and non-discriminatory; domestic regulations
affecting digital trade shall be transparent and non-discriminatory;
and parties shall select the least trade restrictive measure available
to address valid public policy objectives.
A more generalized statement of the solution rests on a key
assumption that whether or not the product (be it a good or service) is
delivered electronically has a physical counterpart, the following
basic objectives should be sought, in all negotiating groups: (i)
transparency; (ii) predictability; (iii) ensuring that all methods of
delivery by all technological means are available, such that the
determination of the most efficient delivery mechanism is not dictated
by trade rules; and (iv) ensuring that digital trade is treated in a
manner no less liberally than conventional trade.
The Chapters on Electronic Commerce Of the Singapore and Chile Free
Trade Agreements
We are pleased that U.S. trade negotiators seized the opportunity
in their efforts with
Singapore and Chile to translate these goals and objectives into
concrete results that recognize the importance of the removal of
barriers to electronic commerce, the applicability of WTO rules to
electronic commerce and the development of trade in goods and services
via eCommerce.
We commend USTR and the entire Administration team in working
constructively with the private sector to achieve this result, taking
into serious consideration the goals and objectives identified by a
cross section of industry, including leaders in high tech. I also note
for the Committee that the Electronic Commerce Chapters of the
Singapore and Chile FTAs are also consistent with and implement a
primary objective laid out in section 2102(b)(9) of the Trade Act of
2002 which provides the principal negotiating objectives of the United
States with respect to electronic commerce.
What are the elements of this result and what are the specific
benefits?
Central to the Singapore and Chile Agreements is a strategic
definition of ``digital product'' that is not inherently tied to either
a goods or services trade law framework and does not prejudice a
product's classification. By broadly defining ``digital product'' to
include computer programs, text, video, images, sound recordings and
other products that are digitally encoded, regardless of whether they
are fixed on a carrier medium or transmitted
electronically,2 the FTAs seek a flexible, but practical
approach to ensuring that goods and services that combine elements of
any of these items are not discriminated against. In other words, no
matter how a product may be classified, both Agreements provide for
non-discriminatory treatment and promote broader free trade in such
products.
---------------------------------------------------------------------------
\2\ This definition is found in the Singapore Agreement. In the
Chile FTA, a similar definition of digital products is found and means
computer programs, text, video, images, sound recordings, and other
products that are digitally encoded and transmitted electronically,
regardless of whether a Party treats such products as a good or a
service under its domestic law. Footnote 3 of the Chile FTA provides
that ``for greater certainty, digital products do not include digitized
representations of financial instruments, including money. The
definition of digital products is without prejudice to the on-going WTO
discussions on whether trade in digital products transmitted
electronically is a good or a service.''
---------------------------------------------------------------------------
I want to note that this construction of the definition of
``digital product'' is a significant step toward avoiding the pitfalls
of the classification debate. It accommodates new technologies and
delivery mechanisms without calling into question the applicability of
current GATT/GATS trade law regimes to these new developments. This is
important, as there are some proponents in international discussions
which believe that electronic commerce should be treated differently,
arguing for a third category that isolates electronic commerce for
treatment. While attractive conceptually to some, this approach is
fraught with unintended negative consequences; e.g., some countries
could claim under this approach that existing commitments no longer
apply leading to greater uncertainty and/or calls for new and
potentially counterproductive new rounds of trade negotiations.
As to substantive commitments, the Singapore and Chile Agreements
specifically affirm that the supply of a service using electronic means
falls within the scope of the obligations contained in current relevant
commitments.3 This is a concrete step to ensure that
electronic commerce is not discriminated against vis-a-vis traditional
delivery of goods and services under international trade law.
---------------------------------------------------------------------------
\3\ See, in the case of the Singapore Agreement, Chapters 8 (Cross
Border Trade in Services), 10 (Financial Services) and 15 (Investment),
subject to any reservations or exceptions applicable to such
obligations.
---------------------------------------------------------------------------
Among the other specific benefits found in the Agreements,
Singapore and Chile commit to:
not impede electronic transmission from the US by applying
customs duties or other duties, fees, or charges on or in
connection with the importation or exportation of digital
products, and the US commits to the same from Singapore and
Chile.
not discriminate against digital products from the US by
giving them less favorable treatment than it gives to other
like digital products from either Singapore/Chile, as the case
may be, or other countries just because (i) the products were
created, produced, published, stored, transmitted, contracted
for, commissioned, or first made available on commercial terms
outside its territory or (ii) the author, performer, producer,
developer, or distributor of such digital products is a foreign
person; and the U.S. commits to the same from Singapore and
Chile.
publish or otherwise make available to the public its laws,
regulations, and measures of general application which pertain
to electronic commerce, and the U.S. commits to the same.
determine the customs value according to the cost or value of
the carrier medium alone, without regard to the cost or value
of the digital products stored on the carrier medium,
consistent with the long-standing U.S. policy, where digital
products are still delivered on disk or other physical
medium.4
---------------------------------------------------------------------------
\4\ In the case of the Chile FTA, this commitment is found in the
provisions on market access.
---------------------------------------------------------------------------
the chapters on intellectual property of the singapore and chile free
trade agreements
While the Chapters on Intellectual Property are not the specific
focus of this Hearing, I do want to give the Committee a brief overview
of how these Chapters fit into implementing the goals set out at the
beginning my testimony. I want to make distinct comments on the
Singapore and Chile agreements.
The Singapore FTA sets out a very high standard of protection and
enforcement for copyrights and other intellectual property, perhaps the
highest yet achieved in a bilateral or multilateral agreement, treaty
or convention.5 It builds on the standards currently in
force in the WTO TRIPs Agreement and in NAFTA. Moreover, the Agreement
lays out the goal to update and clarify those standards to take into
account the experiences gained since those agreements entered into
force and the significant and rapid technological and legal
developments that have occurred since that time. For example, this FTA
incorporates the obligations set out in the WIPO Copyright Treaty (WCT)
and the WIPO Performances and Phonograms Treaty (WPPT) and requires
that Singapore ratify and fully implement these obligations within one
year from ``entry into force'' of the FTA.6 The full
implementation of the WCT and WPPT both in Singapore and on a global
basis at the earliest possible date is a critical goal of our
Association and others who depend on effective global intellectual
property protection. These treaties are essential for developers of
software code and digital content in their efforts to safeguard the
transmission of valuable copyrighted works over the Internet and by
providing higher standards of protection for digital products
generally. We are also pleased that the Singapore FTA provides two
provisions regarding domain names, including requiring each Party to
implement (1) the Uniform Domain Name Dispute Resolution procedures for
each Party's country-code top level domain (ccTLDs) and (2) public
access to a ``reliable and accurate'' Whois database of domain name
registrants that is an important tool to combat the problems related to
copyright and trademark piracy.
---------------------------------------------------------------------------
\5\ ``The U.S.-Singapore Free Trade Agreement (FTA), The
Intellectual Property Provisions'', Report of the Industry Functional
Advisory Committee on Intellectual Property Rights for Trade Policy
Matters (IFAC-3), February 28, 2003.
\6\ Effectively, this means that Singapore must act within one year
after both governments have completed their respective formal approval
mechanisms
---------------------------------------------------------------------------
The Chile Agreement also represents progress in building on the
standards already in force in TRIPS and NAFTA. Among its important
achievements, as found in the Singapore FTA, the Chile FTA incorporates
the obligations set out in the WCT and the WPPT and provides the
important provisions regarding domain names. While the Chile FTA
establishes some key precedents to be included in other FTAs now being
negotiated, including the Central America FTA and the Free Trade
Agreement of the Americans, there are elements of the Agreement that
could have been stronger. For example, the transition period before
requiring adherence to the WCT and WPPT, as well as other treaties, is
far too long.
the chapters on cross border trade in services of the singapore and
chile free trade agreements
Consistent with the other Chapters discussed above, the Chapters on
Cross Border Trade in Services found in the Singapore and Chile FTAs
establish important precedents by adopting the so-called ``negative
list'' approach where exceptions to liberalization must be specified.
This is an approach that is strategically positive and forwarding
looking for the future. It will be more liberalizing and promote
greater free trade than an approach where countries must specify their
commitments as is currently done in the WTO. The FTAs expand market
access commitments in Computer and Related Services and ensure that
establishment in either country is explicitly not required for the
provision of services. The FTAs also explicitly include access to
distribution, transport, and telecom services.7
---------------------------------------------------------------------------
\7\ The Chile and Singapore FTAs' telecommunications services
chapters include several key provisions to open those markets to U.S.
businesses. Non-discriminatory access to and use of public telecom
networks and services are ensured. Additional obligations are placed on
major suppliers of public telecom services--including providing
treatment no less favorable than they accord themselves in terms of
availability, provisioning, rates and quality of service--ensuring that
market entrants may truly compete. Cost-based access to leased lines,
key to network and Internet services providers, is guaranteed. The FTAs
also ensure high levels of transparency in telecom services, and they
include non-binding language calling for technology neutrality in the
mobile telecommunications sector, which provides a useful starting
point, though should be strengthened in future agreements.
---------------------------------------------------------------------------
conclusion
The Electronic Commerce Chapters of the Singapore and Chile FTAs
represent one of those rare moments in trade negotiations when
improvements in international trade law can prevent future barriers
rather than only focus on removal of existing impediments. By any
measure, these Chapters represent groundbreaking commitments to non-
discriminatory treatment of digital products and promoting confidence
in the global digital trade of such products.
We also support the results achieved by USTR in the Chapters on
Intellectual Property which represent significant improvement in the
level of protection provided in both countries and will serve as an
important baseline to build on in future negotiations. We also support
the results in the Chapters on Cross Border Trade in Services that
establish important precedents by adopting the so-called ``negative
list'' approach where exceptions to liberalization must be specified.
This is an approach that is strategically positive and forwarding
looking for the future.
As this Committee is aware, we are at the beginning stages of
seeking a new round of multilateral negotiations that are focused more
broadly on services. We commend, in many respects, the offer put
forward by USTR at the end of March that reflects a strong negotiation
position in continuing to achieve the broader goals outlined at the
start of my testimony. There is little doubt that the issues that will
have to be addressed in order to achieve real and meaningful
commitments in services will be complex and difficult.
The efforts by our trade negotiators to think creatively about how
to remove barriers to electronic commerce, however, are an important
milestone in developing a global consensus about how to possibly
proceed in other bilateral, regional and multilateral negotiations. For
all of these reasons, we urge implementation of both the Singapore and
Chile Free Trade Agreements as soon as possible.
Mr. Stearns. Thank the gentleman.
Ms. Lee, thank you for your patience and we look forward to
your opening statement.
STATEMENT OF THEA M. LEE
Ms. Lee. Thank you very much, Mr. Chairman, Congresswoman
Schakowsky. I appreciate the opportunity to testify today on
behalf of the 13 million working men and women of the AFL-CIO
on this extremely important topic.
The free trade agreements of Chile and Singapore are
important in their own right, both in terms of direct economic
impact and policy relevance, but their real significance to
American workers goes beyond Chile and Singapore. As we have
talked about much today, they will be templates or blueprints
for future agreements being negotiated by this Administration,
and as such both their economic importance and their policy
significance are magnified many times.
And, therefore, it's extremely important that Congress take
the time now to really scrutinize these agreements, to make
sure that if there are any flaws or problems they are
identified and rectified now, before they are included in
future negotiations which are ongoing.
So, we thank you very much for calling this hearing at this
time.
The AFL-CIO does believe that increased international trade
and investment can yield broad and substantial benefits, both
to American working families and to our brothers and sisters
around the world, if done right. Just as the business community
has very specific objectives they hope to achieve in any FTA,
so, too, does labor.
It is not a question of being for or against trade, being
for or against globalization, it is a question of getting the
policy right, and understanding the diverse impacts that trade
agreements can have on different groups within a country.
And, to maybe paraphrase James Bond, trade agreements are
forever, in the sense that once we put in place these
agreements it's extremely difficult, if not impossible, to
change the provisions. They limit, in many ways, the kinds of
policies that the U.S. Congress can put in place in the future,
as well as the policies that our trading partners can take, and
we have to remember, one of the things I think is important to
remember in terms of particularly labor provisions, is that
when we write a trade agreement it applies to this government
and to future governments that are not now in place. So, even
in countries like Chile and Singapore, where we have democratic
governments and fairly friendly regimes, we don't know which
regimes will be in place five or 10 years from now, and so just
to say that the Chile and Singapore governments have decent
labor policies doesn't mean that the future governments will as
well, and we need to have provisions that are durable, that can
last forever.
The key issues for us, as you know, are having enforceable
protections for core workers rights, preserving our ability to
use our domestic trade laws effectively, protecting our
government's ability to regulate in a public interest, to use
procurement dollars to promote economic development and other
legitimate social goals, and to provide high quality public
services.
We think it is very important that the process negotiating
these trade agreements be open and accountable to unions and
other civil society groups.
Unfortunately, we believe the Singapore and Chile FTAs fall
short of this standard, and we urge Congress to reject these
agreements and to ask the U.S. Trade Representative's office
not to use them as a template for future FTAs.
I have included with my testimony a detailed report
evaluating these agreements prepared by the Labor Advisory
Committee on Trade Negotiations and Trade Policy, and the full
report is also on our web site for anybody who is interested in
reading that.
Let me just summarize our concerns in those areas so we can
go straight to the questions. In the service sector, we are
concerned about whether the carve out on public services is
sufficient to protect essential public services like healthcare
and education, water and other utilities. We believe that a
broad and explicit carve out is necessary in the public service
area.
We are very troubled by the temporary entry provisions that
are included in this agreement. We believe that they
unnecessarily limit the Congress' ability to make immigration
policy in this area. The H-1B program is an important program
that Congress has a responsibility for, the provisions in these
two agreements, essentially, undermine and rewrite the H-1B
program. We hope to make improvement, we hope to have a full
debate with Congress in the coming years about the renewal of
the H-1B program, both from the levels of entry, but also the
particular pieces on how the labor attestation is done, how the
labor condition applications are written, and we don't believe
it is appropriate or useful to have the free trade agreements
constraining Congress' ability to improve and strengthen these
programs as we go forward.
We are concerned in the area of e-commerce, the subject
today of when and how products sold via electronic commerce
will be taxed is a contentious one, which is not finally
resolved domestically, either in the legislative or the legal
arena. Therefore, it doesn't make sense to make commitments in
this area in a legally binding international agreement while
this issue is still unresolved domestically.
We share the concerns about NAFTA Chapter 11 that were
raised by David Waskow and have been mentioned here, and also
the limitations on capital controls. We believe capital
controls can be a legitimate and effective policy tool, and
that it isn't the place of a trade agreement to limit a
government's ability to use those capital controls. The
government of Chile, in particular, has used capital controls
in the past very effectively, and it doesn't seem appropriate
for a free trade agreement to bind the length of time for which
they can use them or how they can use them.
Workers rights, of course, is a most important issue that
we see in this agreement, and we are disappointed that the
provisions in this agreement are unacceptably weak, that they
represent a huge step backwards from the provisions in the
Jordan Agreement, also existing trade law in the U.S. GSP
program, which currently does require countries with whom we
give a unilateral trade benefit to, like Chile, to at least
live up to some internationally recognized workers rights, to
ensure that their laws meet those standards.
And so, we are very disappointed that this agreement moves
backwards from the high standard that was set.
And, the integrated sourcing initiative has also been
mentioned, allowing goods from the two Indonesian Islands to
enter the U.S. as Singaporean of origin. These provisions are
simply indefensible, from the point of view of U.S. jobs. When
we asked Ambassador Zoellick at the Labor Advisory Committee
meeting what the U.S. job benefit was in allowing these goods
to come in from the Indonesian Islands, his answer was that
this was to create Indonesian jobs. My response is, we should
let the Indonesian Trade Minister worry about creating
Indonesian jobs, and also to the extent that labor rights of
the workers on those Indonesian Islands aren't protected, I am
not sure we are doing a big favor to the Indonesian workers
either.
So, in conclusion, let me just say I look forward to your
questions and we are very troubled by the whole model, the free
trade agreement model, that we don't believe has lived up
either to the promises of opening markets in other countries,
the past free trade agreements we've done with NAFTA, but also
including Israel and Jordan, and in terms of market opening,
but also haven't lived up to the development promises that are
made on their behalf, that these have not turned out to be
tremendously beneficial for the workers in our trading
partners.
Thank you very much for you patience.
[The prepared statement of Thea M. Lee follows:]
Prepared Statement of Thea M. Lee, Chief International Economist,
American Federation of Labor and Congress of Industrial Organizations
Mr. Chairman, Congresswoman Schakowsky, Members of the
Subcommittee, I thank you for the opportunity to testify today on
behalf of the thirteen million working men and women of the AFL-CIO on
this important topic.
The recently negotiated U.S. free trade agreements with Chile and
Singapore will have an important economic impact on working people in
all three countries. The immediate impact will be the reduction of
tariff and non-tariff barriers on the movement of goods and services
between the signatories, but far-reaching rules in other areas such as
investment, intellectual property rights, government procurement, e-
commerce, and the movement of natural persons will also affect the
regulatory scope of participating governments, binding their ability to
legislate in certain areas for the foreseeable future.
Perhaps even more important, however, is the precedent set by these
agreements. As the first agreements negotiated by this Administration
under the 2002 Trade Promotion Authority legislation, these agreements
are likely to serve as templates for future bilateral and regional
FTAs. Since FTA negotiations are currently under way with the five
Central American countries, the Southern African Customs Union,
Morocco, and Australia, in addition to a hemispheric agreement
scheduled to reach completion in 2005 (the proposed Free Trade Area of
the Americas or FTAA), the economic importance and policy significance
of these agreements is magnified many times.
Therefore, it is crucially important that Congress take the time
now to scrutinize these agreements carefully, so that any flaws or
problems can be identified and rectified before being included in
future agreements. We congratulate and thank this subcommittee for
holding this hearing at this time and encourage other Congressional
committees to do the same.
overall assessment
The AFL-CIO believes that increased international trade and
investment can yield broad and substantial benefits, both to American
working families, and to our brothers and sisters around the world--if
done right. Trade agreements must include enforceable protections for
core workers' rights and must preserve our ability to use our domestic
trade laws effectively. They must protect our government's ability to
regulate in the public interest, to use procurement dollars to promote
economic development and other legitimate social goals, and to provide
high quality public services. Finally, it is essential that workers,
their unions, and other civil society organizations be able to
participate meaningfully in our government's trade policy process, on
an equal footing with corporate interests.
Unfortunately, we believe the Singapore and Chile FTAs fall short
of this standard, and we urge Congress to reject these agreements and
to ask the U.S. Trade Representative's office not to use them as a
``template'' for future FTAs.
I have attached to my testimony a detailed report prepared by the
Labor Advisory Committee on Trade Negotiations and Trade Policy (LAC).
The LAC is the official labor advisory committee to the United States
Trade Representative and the Labor Department. It includes national and
local union representatives from nearly every sector of the U.S.
economy, including manufacturing, high technology, services, and the
public sector, together representing more than 13 million American
working men and women.
The LAC report details our concerns over the agreements' inadequate
and backsliding protections for workers' rights and the environment, as
well as problems in the areas of investment rules, temporary
immigration provisions, trade in services, government procurement, and
intellectual property rights.
services provisions
We have two key concerns with the service sector provisions of the
Chile and Singapore agreements. First, we believe it is essential for
trade agreements to explicitly ``carve out'' important public services,
such as health care and education, making it clear that trade
agreements can not be used as a backdoor route to deregulation or
privatization of these services. The Chile and Singapore agreements
fail to contain this carve-out for those public services which are
provided on a commercial basis or in competition with private
providers. These vulnerable services include water, health care, and
education, which are subject to the rules on trade in services in the
Singapore and Chile FTAs. Deregulation or privatization of these
services could raise the costs and reduce the quality of these
services.
Second, the Chile and Singapore agreements contain far-reaching and
troubling provisions on the ``temporary entry'' of professional
workers. The Singapore and Chile FTAs create entire new visa categories
for the temporary entry of professionals. These visa programs are in
addition to our existing H-1B system, and will constitute a permanent
new part of our immigration law if the agreements are implemented by
Congress.
These new professional visas will give U.S. employers substantial
new freedom to employ temporary guest workers with little oversight
from the Department of Labor and with few real guarantees for workers.
This is to the detriment not only of the temporary workers themselves,
but of the domestic labor market and American workers now facing a
lagging economy and high unemployment in many sectors.
Immigration policy is properly the domain of Congress, not of
executive agencies negotiating trade agreements that will be subject to
a ``fast-tracked'' up or down vote. The Singapore and Chile FTAs
require permanent changes to our immigration policies, and USTR has
indicated that future free trade agreements will routinely include the
same kinds of new visa categories created in these FTAs. This strategy
is entirely unacceptable to the AFL-CIO.
Congress may in the future wish to strengthen, improve, or
otherwise change our immigration policies. It makes no sense to bind
these policies in free trade agreements, which makes it essentially
impossible (or very costly) to change them without actually exiting the
entire agreements. For these reasons, we believe trade agreements
should refrain from including immigration provisions (beyond those
necessary to conduct the trade and investment which are the subject of
the agreement), and we urge Congress to convey this view to the
Administration.
e-commerce
The U.S. Trade Representative's office has lauded the e-commerce
provisions of the Chile and Singapore agreements as a ``breakthrough.''
The agreements provide, among other things, that digital products that
are imported or exported through electronic means will not be subject
to customs duties.
We would urge caution in this area, noting that the subject of when
and how products sold via electronic commerce will be taxed is a
contentious one, not finally resolved domestically either in the
legislative or legal arena. It does not make sense to make commitments
in this area in a legally binding international agreement while this
issue remains unresolved domestically. It would be a shame to cut off
any of our domestic options without a full and open debate.
investment
We are concerned that the Chile and Singapore FTAs contain many of
the controversial investment provisions contained in NAFTA, including
the right for individual investors to sue governments when they believe
that domestic regulation has violated their rights under the agreement.
This provision, known as ``investor-to-state'' dispute resolution, has
proved very problematic under NAFTA, giving investors greatly enhanced
powers to challenge legitimate government regulations on public health,
the environment, or even ``Buy American'' rules. Workers and
environmental advocates have no similar individual right of action
under these agreements.
The Chile and Singapore agreements also constrain the ability of
governments to employ capital controls to protect their economies from
the destabilizing impact of speculative capital flows and financial
crises. Capital controls have been used quite effectively by many
governments, including the Chilean government. Even the IMF has
conceded that these tools can be legitimate and beneficial.
It therefore does not make sense for the Chile and Singapore FTAs
to constrain the use of capital controls. Decisions over whether, how,
and for how long to use capital controls should be made by
democratically elected domestic policy makers, not bound by trade
agreements.
workers' rights
The workers' rights provisions in the Chile and Singapore FTAs are
unacceptably weak. While they will be problematic in the context of
Chile and Singapore, they will be disastrous if applied to future FTAs
with countries and regions where labor laws are much weaker to begin
with and where abuse of workers' rights has been egregiously bad.
USTR has characterized the workers' rights provisions of these
agreements as ``innovative.'' In fact, these provisions represent a
giant step backwards from provisions in current law. They are
substantially weaker than those included in the Jordan FTA, which
passed the U.S. Congress on a unanimous voice vote in 2001. Perhaps
even more noteworthy, the Chile and Singapore workers' rights
provisions also represent a step backward from current U.S. trade
policy that applies to Chile (and most other developing countries)--the
Generalized System of Preferences. GSP is a unilateral preference
program offering trade benefits to developing countries that meet
certain criteria, including adherence to internationally recognized
workers' rights.
Both the Jordan FTA and GSP require compliance with internationally
recognized core workers' rights. A GSP beneficiary can lose all or some
of its trade benefits if it is not at least ``taking steps'' to observe
internationally recognized workers' rights. This includes enforcing its
own laws in these areas, as well as ensuring that its labor laws
provide internationally acceptable protections for core workers'
rights.
Under the Jordan FTA, both parties reiterate their ILO commitments
to ``respect, promote, and realize'' the core workers' rights under the
International Labor Organization (ILO)'s Declaration on Fundamental
Principles and Rights at Work (these include freedom of association and
the right to bargain collectively, and prohibitions on child labor,
forced labor, and discrimination in employment). The Jordan FTA also
commits both parties to effective enforcement of domestic labor laws
and non-derogation from labor laws in order to increase trade. All of
these provisions are fully covered by the same dispute settlement
provisions as the commercial elements of the agreement.
In contrast, the Chile and Singapore agreements contain only one
enforceable provision on workers' rights, that is, an agreement to
enforce domestic labor laws. While the labor chapter also contains a
commitment to uphold the ILO core workers' rights and not to weaken
labor laws, these provisions are explicitly excluded from coverage
under the dispute settlement chapter, rendering them essentially
useless from a practical standpoint.
In other words, while the Chile and Singapore agreements commit the
signatories to enforce their domestic labor laws, they don't actually
commit the signatories to have labor laws in place, or to ensure that
their labor laws meet any international standard or floor. Under these
agreements, a country could ban unions, set the minimum age for
employment at ten years old, and reinstate slave labor. The country's
only enforceable commitment at that point would be to continue to
enforce those new ``laws.''
Of course, this is entirely unacceptable, both with respect to
these agreements and as it might play out in future trade agreements,
particularly in Central America, where labor laws are both weak and
poorly enforced. These weak provisions will also be problematic in any
trade agreement negotiated with the Southern African Customs Union
(SACU) or Morocco.
In addition, unlike the Jordan agreement, the Chile and Singapore
agreements include a separate dispute resolution process for labor and
environment, distinct from that available for the commercial provisions
of the agreement. This new and separate dispute resolution process, in
our view, does not meet a key objective of the Trade Promotion
Authority legislation, to ensure that trade agreements shall ``treat
United States principal negotiating objectives equally with respect to
(i) the ability to resort to dispute settlement under the applicable
agreement; (ii) the availability of equivalent dispute settlement
procedures; and (iii) the availability of equivalent remedies.''
Unlike the commercial dispute resolution process, the first binding
step in resolving labor and environment disputes is a ``monetary
assessment,'' a fine which is essentially paid back to the offending
government. It is not clear that this will constitute a meaningful
deterrent in the case of determined or egregious violations.
integrated sourcing initiative
The Singapore FTA includes provisions that grant the benefits of
the agreement to certain products made on two Indonesian islands. We
are very troubled by the inclusion of the ISI provisions in this
agreement.
None of the workers' rights or environmental provisions of the
Singapore FTA will apply to products made on these islands, nor will
there be any reciprocal market access for U.S. goods. The U.S.
ambassador to Singapore was quoted in Inside US Trade as saying that
the main point of this provision was to allow American companies to
take advantage of low-wage production on these islands and export the
products to the U.S. duty free. It also appears that these provisions
can be expanded to additional products and regions in the future.
This provision will cost American jobs while failing to protect
Indonesian workers' rights. Furthermore, it undermines the weak
workers' rights provisions contained in the agreement itself.
conclusion
In general, the experience of our unions and our members with past
trade agreements has led us to question critically the extravagant
claims often made on their behalf. While these agreements are
inevitably touted as market-opening agreements that will significantly
expand U.S. export opportunities (and therefore create export-related
U.S. jobs), the impact has more often been to facilitate the shift of
U.S. investment offshore. (As these agreements contain far-reaching
protections for foreign investors, it is clear that facilitating the
shift of investment is an integral goal of these ``trade'' agreements.)
Much, although not all, of this investment has gone into production for
export back to the United States, boosting U.S. imports and displacing
rather than creating U.S. jobs.
The net impact has been a negative swing in our trade balance with
every single country with which we have negotiated a free trade
agreement to date. While we understand that many other factors
influence bilateral trade balances (including most notably growth
trends and exchange rate movements), it is nonetheless striking that
none of the FTAs we have signed to date has yielded an improved
bilateral trade balance (including Israel, Canada, Mexico, and Jordan).
The case of the North American Free Trade Agreement (NAFTA) is both
the most prominent and the most striking. Advocates of NAFTA promised
better access to 90 million consumers on our southern border and
prosperity for Mexico, yielding a ``win-win'' outcome. Yet in nine
years of NAFTA, our combined trade deficit with Mexico and Canada has
ballooned from $9 billion to $87 billion. The Labor Department has
certified that more than half a million U.S. workers have lost their
jobs due to NAFTA, while the Economic Policy Institute puts the trade-
related job losses at over 700,000. Meanwhile, in Mexico real wages are
actually lower than before NAFTA was put in place, and the number of
people in poverty has grown.
We believe it is essential for Congress to question how these new
FTAs will yield a different and better result for working families in
the United States, Chile, and Singapore--especially as the new
agreements appear to be modeled to a large extent on NAFTA.
If the goal of these bilateral trade agreements is truly to open
foreign markets to American exports (and not to reward and encourage
companies that shift more jobs overseas), it is pretty clear the
strategy is not working. Before Congress approves new bilateral free
trade agreements based on an outdated model, it is imperative that we
take some time to figure out how and why the current policy has failed.
In the meantime, we urge you to reject the Chile and Singapore FTAs and
send our negotiators back to the drawing board.
Mr. Stearns. I thank you.
I am going to start with a question for you and then go to
Mr. Kelly.
Under the Clinton Administration, we negotiated GATT and
the Jordan Agreement, and now we have these agreements under
Bush, too. Does the AFL-CIO have any agreement that has been
passed that they like?
Ms. Lee. We were very supportive of the Jordan Free Trade
Agreement, enthusiastically supportive, because we did believe
that the workers rights provisions and environmental provisions
were a major step forward, and we were proud to work with our
Jordanian counterparts, the unions, and actually the business
community in Jordan were also supportive.
Mr. Stearns. So, the Jordan agreement is the only one, the
GATT, NAFTA, and these, the only one out of all of them that
you thought that you could support.
Ms. Lee. That met our standards, that's right.
Mr. Stearns. That met your standards.
And, you were against the NAFTA agreement from the
beginning, from the get go, the AFL-CIO?
Ms. Lee. Well, actually no. With NAFTA, what we've always
said was that it was certainly possible to negotiate a trade
agreement with Mexico and Canada, but it could have been
beneficial to workers in all three countries, but the agreement
that was done didn't contain the enforceable workers rights
provisions and environmental standards. We were troubled by the
investment provisions.
Mr. Stearns. And, you think with Jordan the enforceable,
they enforce the laws there?
Ms. Lee. Yes.
Mr. Stearns. Okay.
Mr. Kelly, you talked about rules in your opening statement
that we have, your testimony, talks about rules of origin
provisions in these agreements. You indicate they are in need
of improvement, and I guess my question is, maybe you could
just give us briefly how you think these rules of origin, you
might describe what they are, and then how they can be improved
specifically for future agreements that the Administration
negotiates.
Mr. Kelly. Thank you, Mr. Chairman.
Let me just start off by saying, the consensus of the EIA
members are that these agreements are good, and again, these
two specific issues that you brought up, rules of origin and
the drawbacks, are issues that need to be addressed.
On the rules of origin, as it has been stated by others, a
lot of times when a product is created the components come from
different places, because it is cheaper to manufacture them in,
say, like the Philippines, it could be made in Malaysia, or in
Canada versus Mexico, so all over. What we are looking for is
an ease in the ability to categorize what those rules are,
because the paperwork is often so burdensome into detailing
those items that if we had a simple way to clarify what those
items are it erases that burden upon the companies to cut that
cost. So, that's what we are looking for.
Under NAFTA, if you had to label every single item, if we
were to reduce that it would be easier just to say this item,
where it is shipped from, the final product, would make life a
lot easier for us.
Mr. Stearns. You also mentioned that the duty drawback
provisions of the Chile agreement put the United States at a
competitive disadvantage internationally, and specifically you
mentioned with the European Union, so my question is, what
provisions are you talking about?
Mr. Kelly. Well, for instance, if a speaker is made in
Chile with a U.S. manufacturer, and a microphone is added to
that speaker, the manufacturer has to pay for that microphone
as an addition to that speaker being made. If you are a
European company, and that microphone is added, they don't pay
that additional fee, because they have negotiated that out of
the agreement.
So, what we are looking for is to have the equal treatment,
just the same as the EU does, because they have those
agreements around the country, and I can give you a detailed
description of how that actually works.
Mr. Stearns. So, should we tell our trade promotional
people that that should be incorporated?
Mr. Kelly. It should be, but again----
Mr. Stearns. But, they didn't.
Mr. Kelly. they didn't, but again I'd go back to kind of
where I closed with earlier, this is still a good agreement,
there are going to be items that we are not going to like, but
we know that overall this is a good agreement.
Mr. Stearns. Yes.
Mr. Monford, I think you talked in your testimony
concerning the Singapore agreement, you talked about the
service sector will benefit significantly. Can you give me
specific examples of how the service sector will benefit,
domestic service center sectors that will immediately benefit
specifically?
Mr. Monford. Yes, sir, thank you for the question.
Many of the professional service firms, such as architects,
engineers, U.S. law firms, will have an easier opportunity to
establish a presence in these countries. They will be treated
fairly in the same way as Singaporean companies, as well as
companies from other countries.
Some of the legal restrictions on the establishment of law
joint ventures have been relaxed substantially by this
agreement as well.
Mr. Stearns. Mr. Bohannon, the question is, you indicated
in your testimony the term digital product is defined, that the
way the term digital product is defined is significant, and can
you highlight for us why that is, because that is extremely
controversial and I am having trouble with that, even in
dealing with understanding of it. So, how is it defined----
Mr. Bohannon. The irony, Mr. Chairman, is that the
definition that has been come up is probably the least
controversial of all of them, so I appreciate the context in
which you ask your question.
The benefit of this definition, which by the way has taken
a great deal of time to talk about across various sectors,
those who depend heavily on intellectual property as their core
business unit, those that deliver services, those who are in
the transmission of all of that, working together, to come up
with a definition that did not prejudice the benefits of
greater free trade.
As I indicated in my testimony, there are two issues that
we confront. One is that we now have sector-specific trade
agreements, whether it be in the WTO, the GATT, which focuses
on goods, the GATS, which focuses on services, TRIPs, which is
very important to our industry which focuses on intellectual
property norms.
We wanted to make sure that as we moved forward, for the
multilateral and bilateral discussions, that we not get bogged
down that we had to work just inside one of those agreements,
because many times our goods and services require commitments
in all of those areas, and we did not want to have to get
bogged down in saying that, perhaps, the services agreement
does not have good MFN treatment, those kinds of issues we
wanted to avoid.
The second is, and it's a leftover from the physical world,
is that we wanted to avoid having to get bogged down in the
classification debate. I mean, is there a difference between
software delivered on a diskette versus what you download, and
we wanted to make sure that we did not get bogged down in those
technicalities as we moved forward in making sure that market
access, non-discrimination and effective protections were put
in place through the various trade negotiations.
So, the digital products is a way to say, look, we depend
on all of these agreements, and we want to make sure that we
are raising the common denominator of protection as we move
forward across the board. So, it is a way to keep the focus on
e-commerce in all for these areas, not just in one or the
other.
Mr. Stearns. I'm just going to close here with this
question. We will take a little more time since it is just the
gentlelady and I.
Some of you have talked about we have to get going with
Chile, particularly, because Canada has already done it and
we're losing, they are taking our lunch so to speak. So, the
question I guess, Mr. Vargo, I would ask you, if we get this
agreement passed, ratified by Congress with Singapore and
Chile, what other countries are we, you know, losing a lot of
trade because we are not negotiating, where should we go next,
and would these agreements that we passed allow us the
opportunity to compete, I mean, with Canada? Is this a better
agreement for Canada? So, there's two questions. One, where
should we go next if we have the same problem? And two, is this
agreement strong enough that we will be able to compete with
Canada's entry, who has got way ahead of us?
Mr. Vargo. Mr. Chairman, if I could answer those in reverse
order, yes, this will level the playing field for us in Chile.
For example, right now Chile has a flat across-the-board 6
percent import duty, and we used to export frozen french fries
from the U.S., they come from Canada, we used to export a lot
of wheat from the U.S., that comes from Argentina, we used to
export about $70 million of paper products that we have lost
that have gone to Canada and Argentina, et cetera, because the
duty makes a difference. So, yes, this puts us back on a level
playing field, and we think we will get most of our business
back.
Now, our biggest competitor is the European Union. Their
agreement just went into effect this February, so it's just
starting right now, and as I said, you ain't seen nothing yet,
which is why we are in a hurry. We'd really like this agreement
to go through.
Other agreements we would like, I can't think of any
countries that put us in the same position as Chile right now,
where they have a lot of free trade agreements with others but
not with us, but I can think of a lot of countries where they
have much higher duties and trade barriers on us than we do on
them.
Two principal areas of the world are South America and
Southeast Asia, and that is where the NAM would like to see
future trade agreements. We'd love to see the free trade area
of the Americas, you know, the Latin American products pay 2
percent or so average duty in the U.S., and the duties we have
to hop over are 20 percent or more, same is true in Southeast
Asia. We have a huge trade deficit there. So, that's the place
we would like to go.
Ideally, we would rather do this worldwide in the WTO, if
we could be optimistic that everybody would feel the same way
we do and get it done that way.
Mr. Stearns. The fact that you want to do a trade agreement
with countries that are having serious debt problems, like
Argentina, or even Venezuela, does that have any impact, the
fact that we would have a trade agreement with these countries
that can't pay their debt?
Mr. Vargo. I think it certainly behooves companies to be
careful about sort of credit arrangements they make, but, no,
we still want to have access to their markets. They are not
better off by keeping our products out or charging a higher
duty on them.
Mr. Stearns. So, the instability of a country has no
bearing upon our need to have a trade agreement?
Mr. Vargo. I think the trade agreement probably would
contribute to the future stability of the country. Benjamin
Franklin said, ``No country was ever ruined by trade,'' and we
still believe in that.
Mr. Stearns. Okay, my time has expired.
The gentlelady.
Ms. Schakowsky. Mr. Vargo, is it a family affair today at
the subcommittee?
Mr. Vargo. It is.
Ms. Schakowsky. Okay, it is?
Mr. Vargo. Is, Congresswoman, yes.
Ms. Schakowsky. Very good.
Mr. Vargo. First time that has happened.
Ms. Schakowsky. You know, I sensed a real impatience in
your early testimony, and almost an annoyance that we aren't
moving forward. So, I hope you will forgive me for bringing up
the pesky issue of sweat shops, and I hope you are familiar
with the integrated sourcing initiative for the Singapore
agreement, which allows production on two Indonesian islands to
be treated as Singaporean content for duty free export to the
United States. What possible benefit to U.S. manufacturing jobs
and the U.S. economy would there be to do this, especially when
it's exempt them from any workers rights requirement?
Mr. Vargo. My understanding is that those products would
have come into the U.S. duty free anyway, because we don't
charge duties on those products under the Information
Technology Agreement, so I don't see much of a negative impact.
Frankly, none of our members raised that as an issue with
us on either side, and we have not focused that much on it.
Ms. Schakowsky. Which I see as a problem, Mr. Kelly, you
know, though you mentioned some improvements that you want,
but, you know, we aren't going to get a perfect bill so we have
to move along. But, it seems to me that, particularly since
these may be a template for others, that it is a serious
disservice to other interests that are involved in this bill,
like the workers in our country and the other country, and for
all of us, the issues of the environment. And, this, you know,
kind of move along, it's unconscionable to be, and that is a
word I am using, no one used it today, but we need to move
forward. I agree, but I think we have to do it right.
Mr. Kelly. Ms. Schakowsky, you arewe agree with you that
there are certain items that need to be fixed. We, as the
manufacturers for high tech goods, will always take the view
that trade is good for everyone, whether you are a worker on an
island in Malaysia, or Indonesia, or you are a worker in the
United States, that there are issues that deal with the rules
of origin, and like Mr. Vargo our membership never raised those
as a concern.
What I will say is, is that because of the nature of
building and manufacturing components today, it is impossible
not to have to go to multiple places to put those items
together, just by the nature of the cost. And, those are some
of the laws of unintended consequences, do they need to be
addressed? Absolutely.
Ms. Schakowsky. Okay, I hear you.
I will just take real exception to this notion that trade,
just period, trade period, is good for everyone, and actually
would like Ms. Lee to comment on that.
Ms. Lee. I think trade, in and of itself, has benefits and
I has drawbacks, and we certainly have seen that our experience
with past trade agreements, they have all been so, as Frank
Vargo said, it is all about opening markets, it is all about
selling goods to other countries. NAFTA was sold that way, and
yet when it comes right down it, we have signed these trade
agreements and we have experienced these massive deterioration
in our trade balance, which has really hurt American workers.
Now, for companies that can move around, companies that
want to source goods all over the world, I can understand the
benefits to you, but I think when you are talking about the
American worker, who doesn't have the ability to move to an
island in Indonesia, or to go somewhere else, we have to really
think about what the impact has been on the domestic
manufacturing sector.
I think Ms. Schakowsky talked about the 2.7 million jobs
that have been lost in the last couple of years, since 1998,
and Frank Vargo knows the numbers in manufacturing, we have
lost over 2 million manufacturing jobs.
And, NAFTA, let me just give you one number, I'm not going
to bore you, but our trade deficit with Mexico and Canada was
$9 billion in 1993, we are told this is going to be a great
deal, they are going to allow us to sell a lot of goods to
Mexico, 9 years later our trade deficit with Mexico and Canada
is $87 billion. It's gone up almost tenfold. And, in fact,
every single trade agreement we've signed we have seen a
deterioration in our trade balance.
And, I know, and you know, that there are a lot of other
factors that affect the trade balance, like different growth
rates, and exchange rates, and so on, those are all important,
but I do think it's rather striking that we haven't been able
to really sell our goods to other markets, and I guess my
argument would be that that hasn't been the goal of these trade
agreements, to open markets in other countries, it is been to
facilitate U.S. companies moving production around and often
taking advantage of workers in other countries who lack the
right to organize unions, whose basic human rights aren't
defended, take advantage sometimes of environmental conditions
that aren't ideal, and that is why it is so important that we
write the trade agreements to protect the workers in this
country and the workers in those countries as well, and not
just take it as a standard of faith that trade is good. I think
that hasn't been proved by experience.
Mr. Vargo. Congresswoman, could I make a brief comment on
that, because the biggest thing that has affected our trade,
truthfully, since 1997, has been the extremely high value of
the dollar.
Our largest increase in our trade deficit has been with the
European Union, which went from a deficit of $15 billion to
over $80 billion. We have had increase in deficits globally.
These have not been caused by our trade agreements, because we
were already open, we'd been open for a long time, and these
trade agreements are an effort to get others to open up to us.
So, sometimes trade agreements get a bum rap.
Ms. Schakowsky. Okay.
But, let me get to an environmental issue. Much has been
said now about Canada getting ahead of us in terms of the
Canada-Chile agreement, but I just wanted to point out that in
their agreement there are provisions which allow citizens and
non-governmental organizations of the two countries to make
submissions alleging a party's failure to effectively enforce
its environmental laws, and also contains provisions for
dispute resolution when persistent patterns of non-enforcement
occur.
Mr. Waskow, I wondered if you would just comment on your
evaluation of some of the language that ought to be a U.S.-
Chile agreement.
Mr. Waskow. Well, in fact, NAFTA also has a process for
citizen submissions, whereby individuals and organizations can
bring complaints to an independent body, asserting that there
has been a violation of the environmental provisions of the
agreement.
There is no such process, as I said earlier, in either the
U.S.-Chile or the U.S.-Singapore agreements, and we feel that
is a fundamental omission, and as I also pointed out, it's
really an imbalance because the investment rules in these
agreements provide for an investor's right to bring complaints
and actual monetary demands against governments, while we don't
have any such thing.
And, I would just say, the NAFTA process has been imperfect
and could be improved, but it has given an opportunity to
really raise important issues, for example, just last week the
Attorneys General of three States, including New York, and 45
non-governmental organizations, brought a complaint against
Canada because it has not been effectively enforcing its
environmental laws having to do with a company that has coal-
fired power plants there. And so, we see that it is a quite
valuable tool, and not having it, and having this imbalance in
the agreements, is a serious issue.
Ms. Schakowsky. I wanted to talk a little bit about the
process, ask a couple of questions of both environment and
labor interests. The USTR witnesses today mentioned ``frequent
consultations'' with private sector advisors and civil society
groups. Does the Labor Advisory Committee have the same access
to briefings and consultations as the Business Committee did?
Ms. Lee. No, we did not, and it was a very frustrating
period for us, that first of all the Labor Advisory Committee,
the charter expired right after the Bush Administration came
into office, 8 months went by before the committee was even
rechartered. So, we didn't meet at all for 8 months.
We had one meeting, another 9 months went by where we
didn't have another meeting, and despite, I would say, probably
weekly phone calls from myself demanding such meetings, asking
for meetings to be scheduled, meanwhile the Business Committee,
the Industry Sector Advisory Committees, were meeting on a
regular basis with some exceptions. I know the Chemicals
Committee had problems, because they didn't have an appropriate
environmental representative, but it has been an extremely
frustrating process where the Business Advisory Committees have
been in the loop, Labor Advisory Committee has barely been
allowed to meet, let alone have the kind of frequent--we used
to, under previous administrations, both Republican and
Democratic, we met every month or every other month, and
certainly when lots of negotiations are going on, new free
trade agreements are being initiated, at the same time the
three labor members who had served on the advisory committee on
trade policy negotiations werewell, the entire committee was
replaced, but all the labor members, the environment, the
consumer members, were asked to step down and replaced with
corporate members.
We had to sue. The AFL-CIO had to sue the Administration to
ensure that they actually met the congressional statutory
requirements that labor, environment and consumer
representatives be included in all advisory committees.
Ms. Schakowsky. And, just briefly, if I could ask Mr.
Waskow has public and outside organizations had access or have
access to negotiating text for the Chile and Singapore
agreements.
Mr. Waskow. Well, in fact, the broad public did not have
access and many non-governmental organizations did not have
access to those negotiating texts during the negotiating
process.
Because of that, we joined with some other organizations to
bring a Freedom of Information Act request to USTR to be able
to see those documents. We feel it's quite reasonable to see
those, without our ability to see them it's as though a bill
went through Congress and nobody saw it until after the vote
took place.
That FOIA request was denied by USTR, and we and others had
to go to court to get that FOIA request enforced by the court.
Unfortunately, it only had tothe request only covered some
early documents in the negotiations, and so we haven't even
seen the negotiating texts that came at the end of the day, and
this is undoubtedly a process that will still be used by USTR
going forward, we won't have access, and they've even said
recently they are going to apply a national security
classification to many texts so that they can't be seen by the
public.
Mr. Stearns. Well, I think we are going to conclude our
hearing. I would say to Ms. Lee that I think it's been pointed
out that we have trade surpluses in our service industry and e-
commerce, and while we might not have trade surpluses in other
areas, generally, I think the sense is that global tradeoffers
an opportunity to involve all nations and it doesn't benefit
you completely in one area, but it benefits you in another, and
that is the tradeoff. And, I know it is difficult, but I think
overall the hearing has pointed out that certainly in certain
areas it is very, very beneficial for the United States, and I
think the hearing has been good because this is the first
opportunity to hear both sides, and I think it's been a healthy
discussion. People all over Congress and probably over the
Beltway will read all this testimony and understand it better,
and I think it's good for our membership. The colleagues are
probably watching some of it on the screen, so it gets the
ideas out there, and I think all of you made a very articulate
argument on your behalf, so I think you have done good service.
So, I appreciate your patience here while we went back and
forth to vote, and with that the subcommittee is adjourned.
[Whereupon, at 4:08 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Response for the Record of Ralph Ives, Assistant U.S. Trade
Representative
question from representative markey
Question: As I understand it, the Government of Singapore is the
controlling owner of Singapore Technologies, and that Singapore
Technologies has proposed purchasing 61.5 percent of the remains of
Global Crossing for 250 million dollars.
My concern is that we may end up with a situation where U.S.
companies which are not controlled by the government have to compete
with companies that are owned by a government. This is not fair trade,
because the foreign competitor is both the owner and the regulator of
the same company.
What does the Administration propose to do to ensure that the
acquisition of Global Crossing does not result in purchase of a
controlling interest by a government-controlled entity? Does the
Administration support allowing U.S. companies to bid for the shares
that were initially sought by Hutchison Whampoa but are now being
sought by Singapore Technologies?
In that way, we could preserve fair trade.
Response: The situation you describe--that of government-owned
company competing against a U.S. firm--would exist with or without a
U.S.-Singapore FTA. That is, the FTA is not the vehicle that permits
such activity to occur.
In fact, the FTA addresses this situation in several ways. First,
the chapter on telecommunications requires a Party with national
government ownership in a telecommunications company to notify the
other Party of its intention to eliminate such interests. The Singapore
government has informed us of its intention to eliminate its ownership
interests in both SingTel and ST Telemedia. Second, the FTA includes a
binding provision that requires Singapore to ensure that regulatory
decisions are not influenced by the government's financial holdings in
any telecom firm. Third, the FTA includes binding provisions that
proscribe anti-competitive behavior by Singapore's government owned
companies and prevent the Government of Singapore from taking any
action to influence its government owned companies.
Regarding regulatory oversight, both SingTel and ST Telemedia are
subject to oversight by the Info-communications Development Authority
(IDA) that ensures these companies do not engage in anti-competitive
behavior. This agency is separate the entity (Finance) that holds
shares in SingTel and ST Telemedia.
USTR would get involved in this type of transaction only if it were
to come before the Committee on Foreign Investment in the United States
(CFIUS), a process subject to confidentiality constraints. As a general
matter, we support foreign investment in telecommunications companies,
consistent with our trade obligations, just as we support U.S.
companies investing in this sector abroad. That said, we will examine
closely the concerns you raised regarding possible government influence
of Singapore Technologies.
question from representative markey linking wto membership to adherence
to who guidelines
Question: The recent Severe Acute Respiratory Syndrome (SARS)
epidemic in Asia has caused tremendous global health risks and upended
international trade and travel. China, a new member of the World Trade
Organization (WTO), was able to cover up a disease outbreak for nearly
five months, under the initial intent of protecting its economy during
the Chinese New Year celebrations. Let me just go through a quick
timeline for you:
In November 2002, what seemed to be the first cases of SARS in the
Guangdong Province of China went unreported by the state-run media
organizations. These media outlets were ready to print, but were
stopped by Chinese officials warned that a public health scare would
cause people to stay home instead of spending money during the Chinese
New Year celebrations, adversely affecting its economy. By early
February 2003m five people had died due to SARS, and at least 300
people were infected. On February 21, a doctor staying in a Hong Kong
hotel spread the infection to other guests of his floor and died of the
disease on March 4. In March 2003, senior Chinese officials maintained
that the SARS virus was under control and China was open to and safe
for travelers. On March 12, World Health Organization (WHO) officials
issued a global alert about SARS, warning travelers to be careful, and
on April 4, WHO removed SARS patients from a Beijing hospital, hiding
them from doctors and officials with the World Health Organization who
were repeatedly not granted access to hospitals and other affected
areas. Today, China has almost 5,000 SARS cases, 18,000 people
quarantined, and a 15% fatality rate. The world community, outside
China, has suffered from 3,000 SARS cases and nearly 250 deaths so far
in 30 countries.
Without a doubt, the Chinese government's continued cover up has
badly damaged its own economy, the Asian economy, but also the global
economy. Travel advisories have been issued for Hong Kong and Guangdong
Province in China, and for Toronto, Canada as well.
Today, I am sending a letter to the President asking him to use the
influence of the United States to ensure that in the future, a
country's good standing in the WTO would be linked to its adherence to
basic World Health Organization guidelines for fighting infectious
disease.
Do you support linking membership in the World Trade Organization
to a country's adherence to international recommendations and
guidelines on how to contain infectious disease? If not, why not.
Response:
The example that you provide in the statement of your question
is China's actions with regard to the recent Severe Acute
Respiratory Syndrome (SARS) outbreak. As you note, China is a
member of the World Trade Organization (WTO). Thus, the
proposed ``linkage'' between membership in the WTO and a
country's adherence to international recommendations and
guidelines on how to contain infectious disease could involve
loss of membership in the WTO or some action with similar
effect.
While we share your concern regarding a number of aspects of
China's management of the SARS outbreak, the principle of
conditioning WTO membership on adherence to other international
agreements or recommendations and guidelines could be abused.
Such a provision could be used in a manner that could call into
question a WTO Member's sovereign right to determine those
international obligations that it will assume and how it will
implement those obligations.
The United States has consistently worked to ensure its
freedom of action in this respect and would have strong
concerns about creating a precedent for this type of linkage.
______
Prepared Statement of Coalition of Service Industries
Introduction
Thank you for this opportunity to submit this statement on behalf
of the Coalition of Service Industries (CSI) on the US Free Trade
Agreement with Chile. CSI is comprised of US service companies and
trade associations seeking to achieve expanded market access in all
modes of supply in all negotiating forums. This statement emphasizes
the importance of services to the US balance of trade, describes the US
global comparative advantage in services, and identifies important
aspects of services trade. The testimony then discusses the provisions
of the FTA that advance the growth of services trade between the US and
Chile.
Service Sector Impact on the US Trade Account
US trade in services is an important element of the US trade
account. In 2002, US services exports accounted for 29.8% of the total
dollar value of US exports. In 2002, the US trade surplus in services
of $48.8 billion in part offset the merchandise trade deficit of $484.4
billion.\1\ The US led the world in commercial services exports in
2002, which on a global basis rose by 5% to a market size of $1,522
billion. The service sector's contribution to US exports makes it
imperative that the United States continue to open services markets
abroad through agreements such as the US-Chile FTA, which should be
signed and implemented as soon as possible.
---------------------------------------------------------------------------
\1\ It is also important to recognize that sales to foreigners by
affiliates of US services companies operating abroad are an important
element of our services trade. In 2000, the most recent year for which
statistics are available, services delivered through nonbank majority
owned affiliates exceeded those delivered through cross-border trade.
Delivery through affiliates was a larger channel for both US sales and
US purchases of private services. In 2000, sales of services to foreign
customers by nonbank, majority owned foreign affiliates of US companies
were $392.8 billion. Paybacks to US firms from foreign affiliates
dramatically increase US shareholder value and the financial strength
of the US firm.
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US Global Comparative Advantage in Services
US services firms are uniquely positioned vis-a-vis their
competitors abroad. The large and dynamic US market provides a very
good breeding ground for services firms. The intensity and vigor of the
US market gives rise to high quality companies prepared to meet
stringent services demands at home and enabled to compete abroad. An
important measure of competitiveness of US services firms is labor
productivity. US labor productivity exceeds that of our trading
partners in many service sectors in Germany, France, the UK, and
Japan.\2\ The US should therefore leverage the US global comparative
advantage in services by opening services markets abroad through
bilateral FTA's like the US-Chile Agreement and in multilateral
negotiations in the WTO.
---------------------------------------------------------------------------
\2\ Mann, Catherine L. 1999. Is the US Trade Deficit Sustainable?
Washington: Institute for International Economics.
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Important Aspects of Services Trade
Services are income elastic. As incomes increase, consumers spend a
larger portion of their salaries on services and demand higher quality
services. As economies develop, the demand for services also rises.\3\
The combination of Chile's expected economic growth and the market
opportunities created through the US-Chile FTA will therefore benefit
US and Chilean services firms.
---------------------------------------------------------------------------
\3\ Mann, Catherine L. 1999. Is the US Trade Deficit Sustainable?
Washington: Institute for International Economics.
---------------------------------------------------------------------------
Chile has for some time undertaken significant unilateral reform.
This reform has reduced country risk, provided economic growth, and
strengthened domestic institutions. Past services liberalization has
benefited Chile by permitting businesses and consumers access to high
quality, efficient, low-cost services and improved their ability to
trade. Since 1991, services as a percentage of Chilean GDP has grown
from 50% to 56.9%. Per capita GDP is expected to grow 2.5% from 2001 to
2005. Thus due to the income elasticity of services, Chile's
consumption of services will increase.\4\ Given the US comparative
advantage in services, US services trade is expected to increase
accordingly.
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\4\ Since 1992, US exports to Chile of private services as a whole
has more than doubled from $620 million dollars to $1,312 billion in
2001. In the same time period, US imports from Chile of private
services has almost tripled from $332 million to $840 million in 2001.
Leading US services exports were business, professional, and technical
services at $164 million and film and television rentals at $33
million. In addition, sales by foreign affiliates of US companies
totaled $96 million (BEA October 2002 US International Services).
---------------------------------------------------------------------------
Movement of Key Business Personnel
Proximity to the customer is very important to the delivery of
services and a defining characteristic of services trade. If you
imagine your own purchase of legal, education, and even health
services, it would be difficult to eliminate the human interaction
necessary for such transactions. Moving professional people in and out
of foreign countries therefore, is a critical aspect of services trade.
The Chile Agreement has useful commitments to freedom of movement
of key business personnel consistent with US law. The Agreement
provides for multiple entries of business visitors, traders and
investors, intracompany transferees, and professionals. The Agreement
will allow US firms to quickly move services professionals into the
Chilean market on a temporary basis to service their clients.
Rights of Establishment
Many services must be sold from establishments in foreign markets,
or they will not be sold at all. Some forms of financial services can't
be sold from an office in the United States. For example, life
insurance policies require significant exchanges of information with
the client. This is best managed on the ground in the foreign market.
Threfore to deliver such services requires direct investment in
operations abroad.
The US-Chile Agreement has specific provisions on establishment
which will facilitate trade. The Agreement provides rights to establish
service operations in Chile in whatever form best suits business
objectives, whether as a branch or subsidiary, whether wholly owned or
majority owned. US firms will therefore be able to operate in the
market in a form best suited to their needs.
Transparency
The Agreement embraces strong commitments to transparency in
regulation. Opaque regulations provide significant barriers to US
services firms in foreign markets. The transparency provisions of the
Agreement guarantee a high standard of transparency in administrative,
licensing, and adjudicatory proceedings. They are laid out in four
parts of the Agreement, an initial transparency chapter applicable to
all trade under the Agreement, and distinct provisions in the services,
financial services, and investment chapters. They are an outstanding
achievement and will help US firms to operate competitively in the
Chilean market.
E-commerce Chapter
The US-Chile Free Trade Agreement contains a groundbreaking
electronic commerce chapter, which introduces the concept of ``digital
products'' in terms of trade. This language reflects digital product
development in the last two decades and the need for predictability in
how digital products are treated in trade agreements. The United States
is unparalleled in its production of digital products. Although such
products make up a small percentage of international trade today, they
will certainly become a larger percentage of US exports over the next
decade.
We believe the Chile Agreement will provide equity and reciprocity
for US e-commerce firms and that Chile's demand for digital products
will grow based on the country's present levels of connectivity. Today,
Chile has seven Internet service providers, 3.1 million Internet users
or 4.9% of the population, and a growing Internet infrastructure. As
evidence of Chile's comfort with this medium, the Chilean government is
quite adept at communicating policy positions over the Web. These
factors combined with a modern financial, distribution, and a more
liberal telecom environment will increase transactions in digital
products between the US and Chile and result in greater demand for US
produced digital products.
Telecommunications
The Telecommunications Chapter covers access to and use of the
public telecommunications network for the provision of services. It
covers all providers of public telecommunications service providers,
with a focus on the major supplier of those services. The Agreement
also has groundbreaking provisions with respect to flat-rate, cost-
based, nondiscriminatory access for leased lines, which are critical
for e-commerce service suppliers. Thus, it combines elements of NAFTA
Chapter 13, the GATS Telecommunications Annex, and the WTO Reference
Paper to form a comprehensive access to and use of provision.
The elements of the Telecommunications Chapter are consistent with
each market's regulatory construct. The Chapter built in significant
flexibility to account for changes that may occur through new
legislation or new regulatory decisions. These disciplines are the
hallmark for successful innovation and development of the
telecommunications networks; something that is lacking in many markets
around the world. In 2001, US exports of unaffiliated telecom services
totaled $32 million--with the Agreement, we expect this number to grow.
Financial Services
With respect to financial services, the Agreement locks in Chile's
commitments to liberal trade in banking, securities, asset management,
and insurance, and provides for freedom of transfers of financial
information. Chile commits to allow a wide range of cross border
services in banking, securities, and insurance. In 2001, US sales of
unaffiliated financial services to Chile amounted to $69 million, we
expect these exports to grow with the Agreement.
Asset Management
The Chile Agreement gives US firms the right by March 1, 2005, to
compete equally with Chilean firms in managing the voluntary portion of
Chile's national pension system. Also, US firms will be provided access
to manage the mandatory portion of Chile's pension system without
arbitrary differences in the treatment of US and domestic providers.
The Agreement also allows US mutual funds established in Chile to
provide offshore portfolio management services to Chilean mutual funds
on a cross border basis. With the Agreement, we expect US firms to
capture a larger percentage of the Asset Management market.
Insurance
The Chile Agreement assures cross border trade in certain insurance
products and allows branching within four years of entry into force.
Chile also commits to ``recognize the importance of developing
regulatory procedures to expedite the offering of insurance services by
licensed suppliers.'' The Agreement contains a presumption that Chilean
regulators will use the flexibility allowed under their laws to permit
the supply of new financial services in Chile, provided they are
already offered in the US. These provisions will help propel the growth
of US firms in the market. In 2001, US exports of unaffiliated
insurance services to Chile amounted to $39 million, we expect this
figure to grow with the Agreement.
Advertising
The Agreement should advance the interests of US firms supplying
advertising services. Chile guarantees liberal access under the
Agreement. In addition, chapters such as e-commerce will further
complement such access.
Education Services
One of the largest markets for US education services is South
America. The Agreement provides commitments in higher education
services and specifically the provision of degree courses delivered
across borders and mobility of academic staff. In 2001, US exports of
unaffiliated education services amounted to $32 million. With the
Agreement and in conjunction with Chile's relatively young population,
0-14 years 26.9%, 15-64 years 65.6%, and a historically high literacy
rate of 95.2%, we expect consumption of education services to grow.
Express Delivery Services
The Agreement provides very substantial advantages and important
provisions for the sector including an appropriate definition of
express delivery services, which is a milestone in and of itself. The
Agreement will facilitate customs clearance critical to efficient
operation of express carriers.
Healthcare Services
The Agreement on the whole advances a more open, equitable trading
environment in health services. The e-commerce chapter will advance
applications of distance learning in health care, development of
continuing medical education programming, Internet medical training
programs, and telemedicine and second opinions.
The inclusion of language to encourage relevant bodies to establish
mutually recognized standards and criteria for temporary and
certification holds promise for all professional services. Development
of the temporary licensing standard can aid in the development of
visiting physician programs, joint research and training programs.
Conclusion
CSI members wholeheartedly believe that the Agreement provides
substantial, meaningful new commercial opportunities that will provide
economic benefits to the United States. The Agreement will consolidate
a regime of open finance, national treatment, and non-discrimination of
foreign investment and strengthen the juridical certainty for foreign
and domestic investment. The Agreement will also benefit the Chilean
services sector in the long-term by locking-in domestic regulatory
reforms in transparency, procedures for government procurement, and
maintenance of a competition law that prohibits anticompetitive
business conduct. Furthermore, it will encourage other Latin American
economies to consider Chile's commercial strategy of ``open
regionalism'' founded on unilateral reform and engagement in the WTO,
and the FTAA. The United States has much to gain from this Free Trade
Agreement through expanded services trade and as a precedent in the
region and in the WTO.
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