[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

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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.
---------------------------------------------------------------------------
    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.
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                               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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \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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