[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
IMPLEMENTATION OF U.S. BILATERAL FREE TRADE
AGREEMENTS WITH CHILE AND SINGAPORE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 10, 2003
__________
Serial No. 108-24
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
91-677 WASHINGTON : 2004
_______________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800,
DC area (202) 512-1800 Fax: (202) 512-2250 Mail: stop SSOP, Washington,
DC 20402-0001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana JIM MCDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
JERRY WELLER, Illinois MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
E. CLAY SHAW, JR., Florida SANDER M. LEVIN, Michigan
AMO HOUGHTON, New York CHARLES B. RANGEL, New York
DAVE CAMP, Michigan RICHARD E. NEAL, Massachusetts
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
----------
Page
Advisory of June 3, 2003, announcing the hearing................. 2
WITNESSES
Office of the U.S. Trade Representative, Hon. Peter F. Allgeier,
Deputy U.S. Trade Representative............................... 19
______
Air Courier Conference of America, and Federal Express
Corporation, David W. Spence................................... 79
American Federation of Labor and Congress of Industrial
Organizations, Thea M. Lee..................................... 87
Biggert, Hon. Judy, a Representative in Congress from the State
of Illinois.................................................... 16
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 10
Business Software Alliance, and Borland Software Corporation,
Keith Gottfried................................................ 60
Carnegie Endowment for International Peace, John Audley.......... 95
Entertainment Industry Coalition for Free Trade, and Recording
Industry Association of America, Joseph Papovich............... 74
Oxfam America, Gawain Kripke..................................... 83
Qualcomm, Incorporated, Jeff Jacobs.............................. 55
Sessions, Hon. Pete, a Representative in Congress from the State
of Texas....................................................... 13
U.S. Chamber of Commerce, and Tramco, Inc., E. Leon Trammell..... 51
U.S.-Singapore Free Trade Agreement Business Coalition, and Exxon
Mobil Corporation, Bob Haines.................................. 65
SUBMISSIONS FOR THE RECORD
Adler, Prudence S., Association of Research Libraries, joint
letter (see listing under American Association of Law
Libraries)..................................................... 105
American Association of Law Libraries, Robert L. Oakley; American
Library Association, Miriam M. Nisbet; Association of Research
Libraries, Prudence S. Adler; Medical Library Association, Mary
M. Langman; Special Libraries Association, Douglas Newcomb; and
Digital Future Coalition, Peter Jaszi; joint letter............ 105
American Chamber of Commerce in Singapore, Singapore, Kristin E.
Paulson, statement............................................. 107
American Library Association, Miriam M. Nisbet, joint letter (see
listing under American Association of Law Libraries)........... 105
Association of Food Industries, Inc., Jeffrey S. Levin, statement 109
Association of Research Libraries, Prudence S. Adler, joint
letter (see listing under American Association of Law
Libraries)..................................................... 105
Automotive Trade Policy Council, statement....................... 112
Bismarck, Alexander von, Environmental Investigation Agency,
statement...................................................... 130
Bohannon, Mark, Software & Information Industry Association,
letter......................................................... 137
Chilean-American Chamber of Commerce, Las Condes, Santiago,
Chile, statement............................................... 113
Cressy, Peter H., Distilled Spirits Council of the United States,
Inc., statement................................................ 115
Damond, Joe, Pharmaceutical Research and Manufacturers of
America, statement............................................. 133
Digital Future Coalition, Peter Jaszi, joint letter (see listing
under American Association of Law Libraries)................... 105
Distilled Spirits Council of the United States, Inc., Peter H.
Cressy, statement.............................................. 115
Electronic Industries Alliance, Arlington, VA, statement and
attachment..................................................... 116
Environmental Investigation Agency, Alexander von Bismarck,
statement...................................................... 120
Federation for American Immigration Reform, Dan Stein, statement. 126
Haidet, Michael K., Timken Company, Canton, OH, letter........... 141
High-Tech Trade Coalition, statement............................. 128
Jackson, Selina E., UPS, statement............................... 147
Jaszi, Peter, Digital Future Coalition, joint letter (see listing
under American Association of Law Libraries)................... 105
Langman, Mary M., Medical Library Association, joint letter (see
listing under American Association of Law Libraries)........... 105
Levin, Jeffrey S., Association of Food Industries, Inc.,
statement...................................................... 109
Medical Library Association, Mary M. Langman, joint letter (see
listing under American Association of Law Libraries)........... 105
National Association of Manufacturers, statement................. 130
National Electrical Manufacturers Association, Rosslyn, VA,
statement and attachment....................................... 132
Newcomb, Douglas, Special Libraries Association, joint letter
(see listing under American Association of Law Libraries)...... 105
Nisbet, Miriam M., American Library Association, joint letter
(see listing under American Association of Law Libraries)...... 105
Oakley, Robert L., American Association of Law Libraries, joint
letter (see listing under American Association of Law
Libraries)..................................................... 105
Paulson, Kristin E., American Chamber of Commerce in Singapore,
Singapore, statement........................................... 107
Pharmaceutical Research and Manufacturers of America, Joe Damond,
statement...................................................... 133
Software & Information Industry Association, Mark Bohannon,
letter......................................................... 137
Special Libraries Association, Douglas Newcomb, joint letter (see
listing under American Association of Law Libraries)........... 105
Stein, Dan, Federation for American Immigration Reform, statement 126
Thomas, Randi Parks, United States Tuna Foundation, statement.... 144
Timken Company, Canton, OH, Michael K. Haidet, letter............ 141
United States Tuna Foundation, Randi Parks Thomas, statement..... 144
UPS, Selina E. Jackson, statement................................ 147
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, statement................................. 148
IMPLEMENTATION OF U.S. BILATERAL FREE TRADE AGREEMENTS WITH CHILE AND
SINGAPORE
----------
TUESDAY, JUNE 10, 2003
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:00 p.m., in
room 1100, Longworth House Office Building, Hon. Philip M.
Crane (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
June 3, 2003
No. TR-3
Crane Announces Hearing on
Implementation of U.S. Bilateral Free Trade
Agreements with Chile and Singapore
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on implementation of the United States
bilateral free trade agreements (FTAs) with Chile and Singapore. The
hearing will take place on Tuesday, June 10, 2003, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning
at 1:00 p.m.
Oral testimony at this hearing will be from both invited and public
witnesses. Invited witnesses will include Ambassador Peter Allgeier,
Deputy United States Trade Representative. Also, any individual or
organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee or for inclusion in the
printed record of the hearing.
BACKGROUND:
The Chile and Singapore FTAs will be the first trade agreements
considered by the Congress under the fast track procedures outlined in
Trade Promotion Authority (TPA). TPA was approved by the 107th Congress
and signed into law in August 2002 (P.L. 107-210).
The United States and Singapore began FTA negotiations in December
2000, and the talks were officially concluded in January 2003. On
January 30, 2003, President Bush notified Congress of his intent to
enter into the Singapore FTA. The text of the Singapore FTA was
released to the public on March 7, 2003. Under TPA procedures,
President Bush was able to sign the FTA 90 calendar days after his
notification, or at any time after May 1, 2003. The FTA was signed on
May 6 at the White House by President Bush and Singaporean Prime
Minister Goh Chok Tong.
The concept of an FTA with Chile has been proposed for many years.
In December 1994, the three leaders of the United States, Canada and
Mexico announced their intention to negotiate Chile's accession to the
North American Free Trade Agreement (NAFTA), and those talks formally
began in June 1995. However, fast track authority had lapsed and the
talks stalled. Since that time, both Mexico and Canada have concluded
bilateral FTAs with Chile, and U.S. exporters have been losing business
in Chile to competitors from both countries. On December 11, 2002, the
Administration announced that an FTA had been reached in principle with
Chile, and on January 30, 2003, President Bush notified Congress of his
intent to enter into the Chile FTA. The text of the Chile FTA was
released to the public on April 3, 2003. United States Trade
Representative Robert Zoellick and Chilean Foreign Minister Soledad
Alvear are scheduled to sign the FTA on June 6 in Miami, Florida.
In announcing the hearing, Chairman Crane stated, ``Since the
landmark passage of Trade Promotion Authority last year, U.S. trade
negotiators have concluded bilateral free trade agreements with Chile
and Singapore. These agreements show how, after a lapse of 8 years, TPA
has enabled the United States to finally pursue new trade opportunities
for U.S. businesses, farmers, and workers. The Chile and Singapore free
trade agreements are both comprehensive, state-of-the-art agreements,
and I look forward to Congressional approval as quickly as possible.''
FOCUS OF THE HEARING:
The hearing will focus on Congressional consideration of the Chile
and Singapore FTAs and the benefits that both agreements will bring to
American businesses, farmers, workers, and to the U.S. economy.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Bill Covey at (202) 225-1721 no later than the close of
business on Wednesday, June 4, 2003. The telephone request should be
followed by a formal written request faxed to Allison Giles, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515, at (202) 225-
2610. The staff of the Subcommittee on Trade will notify by telephone
those scheduled to appear as soon as possible after the filing
deadline. Any questions concerning a scheduled appearance should be
directed to the Subcommittee on Trade staff at (202) 225-6649.
In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether they are scheduled
for oral testimony or not, will be notified as soon as possible after
the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Committee are required to submit 200 copies, along with an
IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, of
their prepared statement for review by Members prior to the hearing.
Testimony should arrive at the Subcommittee on Trade office, room 1104
Longworth House Office Building, no later than close of business on
Friday, June 6, 2003, in an open and searchable package. The U.S.
Capitol Police will refuse sealed-packaged deliveries to all House
Office Buildings. Failure to do so may result in the witness being
denied the opportunity to testify in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business on Tuesday, June 24, 2003.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Trade in room 1104
Longworth House Office Building, in an open and searchable package 48
hours before the hearing. The U.S. Capitol Police will refuse sealed-
packaged deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
(202) 225-2610, in WordPerfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman CRANE. Will everyone please take their seats.
Welcome to this hearing of the Subcommittee on Trade of the
Committee on Ways and Means, to focus on the recently completed
Chile and Singapore Free Trade Agreements (FTAs) and the
benefits that both agreements will bring to American
businesses, farmers, workers, and to the U.S. economy.
The Chile and Singapore FTAs are the first trade agreements
to be considered by the Congress under the procedures in the
landmark Trade Promotion Authority (TPA) (Trade Act of 2002,
P.L. 107-210) legislation passed last year. The conclusion of
these two agreements represents a watershed in U.S. trade
policy. They are the biggest U.S. free trade deals since the
North American Free Trade Agreement (NAFTA) was signed over 10
years ago. Both agreements promote U.S. economic interests and
substantially achieve the negotiating objectives set out in
TPA. These state-of-the-art, comprehensive agreements establish
high standards in market access for goods, services, e-
commerce, intellectual property rights investment, and
competition. On market access, all tariffs and quotas on all
goods will be eliminated, no exceptions.
Singapore's origins are based on trade. In 1819, Sir
Stanford Raffles recognized Singapore's prime location as a
trans-shipment port, and he established it as a trading station
for the British East India Company. Singapore has since become
one of the world's most prosperous countries with strong
international trading links and one of the world's busiest
ports.
Since Singapore already has 99 percent free trade and
goods, U.S. negotiators focused on removing Singaporean
restrictions on a wide range of services. Singapore agreed to a
negative list approach, meaning all sectors are subject to
liberalization unless a party excludes them. This negative list
approach is a good precedent to set, and I hope we can continue
to make that approach part of all of our trade agreements.
Chile also has a market-oriented economy based upon open
trade. The country is a model of how open trade and/or sound
economic policies can lead a country toward development and
democracy. Under the Chilean agreement, 85 percent of bilateral
trade and consumer and industrial products become duty-free
immediately upon entry into force, with most remaining tariffs
eliminated within 4 years.
The investment sections in both agreements provide strong
protections for U.S. investors, while also making improvements
to the NAFTA chapter 11 model called for in TPA by providing
more transparency, public input in the dispute, and mechanisms
to improve the investor state process by eliminating frivolous
claims.
On intellectual property rights and enforcement, Singapore
and Chile both agreed to many provisions that go beyond the
disciplines in the World Trade Organization (WTO) agreement on
Trade-Related aspects of Intellectual Property rights (TRIPS),
particularly on high-tech digital issues. The agreements set a
high standard of protection for trademarks, copyrights,
patents, and trade secrets, and established a tough enforcement
regime for piracy and counterfeiting. Unfortunately, I still
have concerns with Singapore related to chewing gum with direct
impact on a well-known Chicago-based company. I had hoped that
this issue would be resolved by now, and I strongly encourage
Singapore to comply with the spirit of the FTA text by allowing
therapeutic chewing gum to be sold in Singapore without a
prescription.
Other than that issue, I strongly support both FTAs, and I
look forward to their House passage before the August recess. I
believe these trade agreements mark win-win deals for the
United States and two important allies, and I expect they will
both be approved by the Congress with strong bipartisan
support. Now I yield to our distinguished Ranking Member on the
Subcommittee, Mr. Levin.
[The opening statement of Chairman Crane follows:]
Opening Statement of the Honorable Philip M. Crane, Chairman, and a
Representative in Congress from the State of Illinois
Welcome to this hearing of the Ways and Means Trade Subcommittee to
focus on the recently completed Chile and Singapore free trade
agreements, and the benefits that both agreements will bring to
American businesses, farmers, workers, and to the U.S. economy. The
Chile and Singapore FTAs are the first trade agreements to be
considered by the Congress under the procedures in the landmark Trade
Promotion Authority legislation passed last year.
The conclusion of these two agreements represents a watershed in
U.S. trade policy. They are the biggest U.S. free trade deals since the
North American Free Trade Agreement was signed over 10 years ago. Both
agreements promote U.S. economic interests and substantially achieve
the negotiating objectives set out in TPA. These state-of-the-art,
comprehensive agreements establish high standards in market access for
goods, services, e-commerce, intellectual property rights, investment,
and competition. On market access, all tariffs and quotas on all goods
will be eliminated--no exceptions.
Singapore's origins are based on trade. In 1819, Sir Stamford
Raffles recognized Singapore's prime location as a transhipment port,
and he established it as a trading station for the British East India
Company. Singapore has since become one of the world's most prosperous
countries with strong international trading links and one of the
world's busiest ports. Because Singapore already has 99% free trade in
goods, U.S. negotiators focused on removing Singaporean restrictions on
a wide range of services. Singapore agreed to a ``negative list''
approach--meaning all sectors are subject to liberalization unless a
Party excludes them. This negative list approach is a good precedent to
set, and I hope we can continue to make that approach part of all of
our trade agreements.
Chile also has a market-oriented economy based upon open trade. The
country is a model of how open trade and sound economic policies can
lead a country toward development and democracy. Under the Chilean
agreement, 85% of bilateral trade in consumer and industrial products
becomes duty-free immediately upon entry into force, with most
remaining tariffs eliminated within 4 years.
The investment sections in both agreements provide strong
protections for U.S. investors while also making improvements to the
NAFTA chapter 11 model called for in TPA by providing more
transparency, public input in the dispute, and mechanisms to improve
the investor-state process by eliminating frivolous claims.
On intellectual property rights and enforcement, Singapore and
Chile both agreed to many provisions that go beyond the disciplines in
the WTO Agreement on Trade Related Aspects of Intellectual Property
Rights, particularly on high-tech digital issues. The agreements set a
high standard of protection for trademarks, copyrights, patents, and
trade secrets, and establish a tough enforcement regime for piracy and
counterfeiting.
Unfortunately, I still have concerns with Singapore related to
chewing gum with direct impact on a well-known Chicago-based company. I
had hoped that this issue would be resolved by now and I strongly
encourage Singapore to comply with the spirit of the FTA text by
allowing therapeutic chewing gum to be sold in Singapore without a
prescription.
Other than that issue, I strongly support both FTAs and I look
forward to their House passage before the August recess. I believe
these trade agreements mark win-win deals for the United States and two
important allies, and I expect they will both be approved by the
Congress with strong bipartisan support.
Mr. LEVIN. Thank you, Mr. Chairman. I am glad we are here
today to examine the Chile and Singapore FTAs. These will be
the first FTAs, as we know, brought back under the fast track
legislation passed last year. Also, the Administration has
talked about and has begun using these agreements as a
template, a model, for other negotiations. So, I think these
two are deserving of very close and careful attention.
It is important, as we begin, to note significant positive
provisions in both agreements. Both agreements include strong
and comprehensive commitments by Chile and Singapore to open
their goods, agriculture, and services markets to U.S.
producers. Both agreements include commitments that will
increase regulatory transparency and add to the benefit of U.S.
investors, intellectual property holders, businesses, and
consumers.
While some of the provisions in the Chile and Singapore
FTAs can serve as templates for other agreements, a number of
provisions clearly cannot. In some instances this is because
the provision, while workable in the Chile or Singapore
context, is not appropriate for FTAs with other countries where
very different circumstances prevail. In other cases it is
because the policy being pursued by the Administration is just
plain wrong. In fact, one of the biggest threats to smooth
passage of the Chile and Singapore FTAs is the concern that the
Administration is beginning to use some of their provisions as
models for other FTAs, for example, the U.S.-Central America
Free Trade Agreement (CAFTA), where the conditions make it
inappropriate to do so.
I will mention a number of the issues of concern briefly.
First, the Singapore FTA includes the so-called Integrated
Sourcing Initiative (ISI). If the Administration's and the
Singapore government's stated purpose of the ISI was to help
Indonesia--a policy, I think, that has merit--then we should
find a more targeted way of doing so. Although the
Administration likes to talk about this special rule of origin
as if it applies only to two Indonesian islands, in fact any
country in the world can take advantage of it.
Also, to date the Administration has never publicly
discussed one of the two features of the ISI that raises the
most concerns: The fact that ISI components from any country
may be treated as Singapore content for purposes of helping
other goods benefit from the FTA. I think we need a better
understanding of the ISI, and the Administration should give
assurances that the ISI list will not be expanded without
congressional approval--and how such a system would work.
Clearly enough questions have been raised about the wisdom
of the ISI, that this should be rejected as a precedent for
other FTAs. The H-1B-type provisions in the Chile and Singapore
agreements also have raised concern. The basic problem, as I
see it, is that the Administration has created a program that
allows an immigrant to stay in this country permanently under
the guise of a temporary visa program. I have supported and do
support immigration, and have supported increases to the H-1B
cap in the past. However, before we start creating hybrids of
the temporary H-1B program and the existing permanent
employment-based visa programs, we should understand why we are
pursuing this policy, how these provisions will work when fully
enacted into U.S. law, how they will impact U.S. immigration
patterns, and how they would impact U.S. workers.
The labor and environmental provisions in the Chile and
Singapore FTAs are of significant concern. There are separate
dispute settlement rules to place arbitrary caps on the
enforceability of these provisions. I believe this is a
mistaken approach--this dual dispute settlement approach--the
difficulties of which would only be magnified if used as a
precedent for future FTAs involving very different
circumstances.
This is doubly true of any attempt to use in future FTAs
the ``enforce your own law'' standard used in Chile and
Singapore. The context in Chile and Singapore today is
important, as it was in the case of Jordan. The laws of Chile
and Singapore today essentially reflect core internationally
recognized labor rights. How they are applied does vary in the
two countries, reflecting the different general characteristics
of Chile and Singapore. At the same time, there is little
practical concern that these countries would backtrack.
These situations, in any event, are very different from
many other FTA negotiating partners, including most Central
American countries and many others that would be a part of a
Free Trade Area of the Americas (FTAA). Use of the ``enforce
your own law'' standard is invalid as a precedent, indeed as a
contradiction to the purpose of promoting enforceable core
labor standards when a country's laws clearly do not reflect
international standards, and when there is a history not only
of nonenforcement, but of a hostile environment towards the
rights of workers to organize and bargain collectively.
I recently went to Central America to experience the
situation there firsthand. The Administration's tabling in the
CAFTA negotiations of the ``enforce your own law'' standard is
counterproductive in those countries. It would reward countries
with the worst standards and will miss an opportunity to allow
workers to participate actively in their workplace in these
countries which historically--these efforts, these
opportunities for workers, which historically in every Nation,
including our own, has been necessary for the development of a
broad middle class.
There are several other issues that have been raised, and
about which we need a response from the Office of the U.S.
Trade Representative as well, and I will name just a few of
them: Whether the intellectual property provisions lacking in
the current state of U.S. law--making it much more difficult
for Congress to change those rules in the future--are
appropriate; whether the U.S. Trade Representative adequately
ensured that foreign investors will not have greater rights
than provided under U.S. law; whether the U.S. Trade
Representative and the U.S. Department of the Treasury's
efforts to eliminate a country's flexibility to impose, on an
emergency basis, temporary capital controls--which was modified
after criticism from a number of economists and several of us
in the Congress--is sound policy and should be pursued in
future FTAs; whether more can be done by Singapore to stop the
trans-shipment of illegally harvested timber.
So, I hope the testimony today will discuss the significant
benefits of Chile and Singapore FTAs as well as respond to
these important issues and questions.
Finally, we need to consider whether and how outstanding
questions can be addressed through the implementation language.
I worked actively with many others on the legislation
implementing the Uruguay Round agreements. The congressional
efforts and input into that legislation were important for its
ultimate passage. They were achieved by use of the long-
standing precedent of a mock markup, the legislation to be
considered under fast track rules before it is introduced. I
hope that this approach will be used for the Singapore and
Chile FTAs. I look forward to discussions regarding this aspect
as this Subcommittee and the full Committee move forward on the
Singapore and Chile FTAs. Thank you, Mr. Chairman.
[The opening statement of Mr. Levin follows:]
Opening Statement of the Honorable Sander M. Levin, a Representative in
Congress from the State of Michigan
Thank you, Mr. Chairman. I am glad that we are here today to
examine the Chile and Singapore Free Trade Agreements. These will be
the first FTAs brought back under the fast track legislation passed
last year. Also, the Administration has talked about and has begun
using these agreements as a template for other negotiations. So I think
they are deserving of very close and careful attention.
It is important to note significant positive provisions in both
agreements. Both agreements include strong and comprehensive
commitments by Chile and Singapore to open their goods, agricultural,
and services markets to U.S. producers. Both agreements include
commitments that will increase regulatory transparency and act to the
benefit of U.S. investors, intellectual property holders, businesses,
and consumers.
While some of the provisions in the Chile and Singapore FTAs could
serve as templates for other agreements, a number of provisions clearly
cannot be. In some instances, this is because the provision, while
workable in the Chile and Singapore contexts, is not appropriate for
FTAs with other countries, where very different circumstances prevail.
In other cases, it is because the policy being pursued by the
Administration is just plain wrong.
In fact, one of the biggest threats to smooth passage of the Chile
and Singapore FTAs is a concern that the Administration is beginning to
use some of their provisions as models for other FTAs, for example the
CAFTA, where the conditions make it inappropriate to do so.
I will mention a number of the issues of concern briefly. The
Singapore FTA includes the so-called Integrated Sourcing Initiative
(ISI). If the Administration and the Government of Singapore's stated
purpose of the ISI was to help Indonesia--a policy I think that has
merit--then we should find a more targeted way of doing so. Although
the Administration likes to talk about this special rule of origin as
if it applies only to two Indonesian islands, in fact any country in
the world can take advantage of it.
Also, to date, the Administration has never publicly discussed one
of the two features of the ISI that raises the most concerns--the fact
that ISI components from any country may be treated as Singapore-
content for purposes of helping other goods benefit from the FTA. I
think we need a better understanding of the ISI. And the Administration
should give assurances that the ISI list will not be expanded without
congressional approval, and how that would work. Clearly, enough
questions have been raised about the wisdom of the ISI that it should
be rejected as a precedent for other FTAs.
The H-1B-type provisions in Chile and Singapore also have raised
concerns. The basic problem, as I see it, is that the Administration
has created a program that allows an immigrant to stay in this country
permanently under the guise of a temporary visa program. I support
immigration, and have supported increases to the H1-B cap in the past.
However, before we start creating hybrids of the temporary H1-B program
and the existing permanent employment-based visa programs, we should
understand why we are pursuing this policy, how these provisions will
work when fully enacted into U.S. law, how they will impact U.S.
immigration patterns, and how they will impact U.S. workers.
The labor and environmental provisions in the Chile and Singapore
FTAs are of significant concern. There are separate dispute settlement
rules that place arbitrary caps on the enforceability of these
provisions. I believe this is a mistaken approach, the difficulties of
which would only be magnified if used as a precedent for future FTAs
involving very different circumstances.
That is doubly true of any attempt to use in such future FTAs the
``enforce your own law'' standard used in Chile and Singapore. The
context in Chile and Singapore here is important, as it was in the case
of Jordan. The laws of Chile and Singapore essentially reflect core
internationally recognized labor rights. How they are applied does vary
in the two countries, reflecting the different general characteristics
of the two nations. At the same time, there is little practical concern
that these countries will back track.
These situations in any event are very different from many other
FTA negotiating partners, including certainly most Central American
countries and many others that would be a part of an FTAA. Use of the
``enforce your own law'' standard is invalid as a precedent--indeed is
a contradiction to the purpose of promoting enforceable core labor
standards--when a country's laws clearly do not reflect international
standards and when there is a history, not only of non-enforcement, but
of a hostile environment towards the rights of workers to organize and
bargain collectively.
I recently went to Central America to experience the situation
there first hand. The Administration's tabling in the CAFTA
negotiations of the ``enforce your own law'' standard is
counterproductive in those countries. It would reward countries with
the worst standards and will miss an opportunity to allow workers to
participate actively in their workplace in these countries, which
historically in every nation, including our own, has been necessary for
the development of a broad middle class.
There are several other issues that have been raised and about
which we need a response from USTR, as well.
1. LWhether the intellectual property provisions--locking in the
current state of U.S. law, making it much more difficult for Congress
to change those rules in the future--are appropriate;
2. LWhether the USTR adequately ensured that foreign investors will
not have greater rights than provided under U.S. law;
3. LWhether USTR's and Treasury's effort to eliminate a country's
flexibility to impose on an emergency basis temporary capital controls,
which was modified after criticism from a number of economists and
several of us in the Congress, is sound policy and should be pursued in
future FTAs;
4. LWhether more can be done by Singapore to stop the trans-
shipment of illegally harvested timber.
So, I hope the testimony today will discuss the significant
benefits of the Chile and Singapore FTAs as well as respond to the
important issues and questions that have been raised.
We need to consider whether and how outstanding questions can be
addressed through the implementing legislation. I worked actively with
many others on the legislation implementing the Uruguay Round
Agreements. The congressional efforts and input into that legislation
were important for its ultimate passage. They were achieved by use of
the longstanding precedent of a mock markup of legislation to be
considered under fast track rules before it is introduced. I hope that
this approach will be used for the Singapore and Chile FTAs and look
forward to discussions regarding this aspect, as this Subcommittee and
the full Committee move forward on the Singapore and Chile FTAs.
Chairman CRANE. Gentlemen, watch the little light in front
of you. When you see it turn, try and wrap up your remarks if
you can. With that, let me introduce our first witness, the
Honorable Earl Blumenauer from Oregon. Thank you, Mr. Levin.
STATEMENT OF THE HONORABLE EARL BLUMENAUER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. BLUMENAUER. Thank you, Mr. Chairman, Ranking Member
Levin. We appreciate your continued leadership and insight in
these important issues of our trade agreements. I think the FTA
with Chile is an opportunity to illustrate the benefits of free
trade, to take it out of the textbooks and put it into
practice, while at the same time reinforcing and rewarding the
behaviors and practices which are important to the U.S.
objectives--particularly in the Western Hemisphere. Latin
America, literally in our back yard, has been an area of major
U.S. concern since the promulgation of the Monroe Doctrine
almost 200 years ago. A Chilean agreement would send a positive
message that the United States places a high regard on efforts
to improve institutional frameworks that support democracy,
environmental protection, improved labor standards, and market
reform. Chile is making progress on all of those areas, and the
agreement, in fact, encourages them to do more.
In Chile, however, we are losing market share because they
have entered into FTAs with other countries, including both of
our North American partners, Canada and Mexico. The experience
I have seen in my own State illustrates the problem. Since
Canada has a special relationship, and the United States
doesn't, a State like mine that is involved with forest
products, lumber, and paper products is at a disadvantage. A 6-
percent Chilean tariff makes a difference in the Northwest,
where I am from.
Likewise, in my community we have high-value manufactured
goods such as those produced by Boeing and Freightliner, which
use American unionized employees, and high-skill and high-
paying jobs. Freightliner, which manufactures trucks in my
district, has for years been trying to enter the Chilean market
with their Argosy trucks. They have not been able to compete
with trucks from the European Union that do not face the same
tariff problems. They have had to transfer Oregon jobs to
Mexico, which does have an FTA, to be able to enter the market.
This FTA will help eliminate that problem.
Already most of the agricultural products imported from
Chile are not subject to major barriers. Since we are on a
different growing cycle than Chile, located in the Southern
Hemisphere, their agricultural products do not necessarily
compete directly with ours. In fact, we can provide more
choices for our consumers at lowest costs.
Technology remains a mainstay in the Pacific West. In my
State it is the leading industry. Much of it destined for
export. The agreement with Chile represents an opportunity to
improve markets at a time of great economic stress in that
industry.
These are textbook examples of comparative advantage if we
remove the barriers that currently restrict our goods. Products
in our community are going to be more competitive. The
alternative has been, and will continue to be, to lose the
market to other countries in Latin America, Canada, or the
European Union.
Mr. Chairman, one thing that I do want to put on the table,
though, is that there are going to be winners and losers. Given
the dramatic difference in size, we are not going to be
dramatically impacted, but at a time of economic upheaval,
there will be dislocations, and we need to be sensitive to it.
I hope in the course of your deliberations we can continue to
be sensitive to the concerns of our constituents--that we deal
with issues like trade adjustment assistance and make sure that
it is real. During the recent discussions that we had about
TPA, there were major concerns that we all heard from our
constituents to make sure that trade agreements don't undercut
labor and environmental regulations in a race to the bottom. In
a continent beset by environmental problems, Chile has been a
leader in the environmental arena. In fact, it has in its
constitution a goal of a pollution-free environment
constitutionally enshrined.
In the area of labor standards, Chile has also been a pace-
setter in Latin America. It has ratified all eight of the
International Labor Organization (ILO) conventions. Mr.
Chairman, I am hopeful that we can also appreciate, in terms of
dislocation, that the United States needs to use this as a
mirror to look up to us. We are concerned--and you have been a
champion, both you and Mr. Levin--in terms of being able to use
the power of trade to be transformational. We continue to have
our own barriers in areas like textiles and agriculture that
restrict access to our markets--which, ironically, if we were
able to relax, would have twice the benefit to these developing
countries as all the aid that is provided. Of course, we are
not alone in this regard. We are certainly joined by Japan and
the European Union. I am hopeful that this discussion, this
debate, the work of this Subcommittee, can help us look again
at what we need to do in order to be consistent and thoughtful
in our approach.
Mr. Chairman, in a sea of Latin American instability, a
Chilean agreement is an important step forward, and signals how
we can keep our commitments and trade agreements while
protecting core American values. I appreciate your leadership
and your action.
[The prepared statement of Mr. Blumenauer follows:]
Statement of the Honorable Earl Blumenauer, a Representative in
Congress from the State of Oregon
The free trade agreement (FTA) with Chile is an opportunity to
illustrate the benefits of free trade--take it out of the textbooks and
put it into practice--while at the same time, rewarding and reinforcing
behaviors and practices which are important to United States
objectives, particularly in the Western Hemisphere. Latin America,
literally in our backyard, has been an area of major U.S. concern since
the promulgation of the Monroe Doctrine, almost 200 years ago. A
Chilean agreement would send a positive message that the U.S. places a
high regard on efforts to improve institutional frameworks that support
democracy, environmental protection, improved labor standards, and
market reform. Chile is making progress in all of these areas. In a sea
of Latin American instability, a Chilean agreement is an important step
forward and signals how we can keep our commitment in trade agreements
while protecting core American values.
In a country like Chile, we are losing market share because they
have entered into FTAs with other countries, including both of our
North American partners, Canada and Mexico. The experience of Oregon
illustrates the problem. Since Canada now has a special relationship
and the U.S. doesn't, a State like mine is at a disadvantage with
lumber products. The 6 percent Chilean tariff on U.S. paper products
makes a difference to the Pacific Northwest.
We also have many high-value manufactured goods, such as those
produced by Boeing and Freightliner, which use American unionized
employees--high-skill and high-paying jobs. Freightliner, which
manufacturers trucks in my district, has been trying to enter the
Chilean market for years with their Argosy trucks. They have not been
able to compete with EU trucks that do not face the same tariffs as
U.S. products. Freightliner had to transfer Oregon jobs to Mexico,
which does have a trade agreement with Chile, so they could compete in
the Chilean market. A U.S.-Chile free trade agreement would give
Freightliner the direct ability to compete in the Chilean marketplace
without sacrificing U.S. jobs.
Already, most of the agricultural products imported from Chile are
not subject to major tariff barriers. We have an opportunity, going the
other way, to be able to open new markets for the Pacific Northwest, as
well as other regions. Because America is on a different growing cycle
than Chile, located in the Southern Hemisphere, their agricultural
products do not necessarily compete directly with our own. In fact, we
can provide more choices to our consumers at lower costs.
Technology remains a mainstay of West Coast economies. In Oregon,
the leading industry is high-tech, much of it destined for export. The
agreement with Chile represents an opportunity to improve markets at a
time of great economic stress.
These are textbook examples of comparative advantage if we remove
the barriers that currently restrict our goods. Products in our
community are going to be more competitive under a free trade
agreement. The alternative has been and will be to lose the market to
other countries in Latin America, Canada, or Europe.
An important part of this equation is how we encourage innovation,
stability, and environmental protection in a continent where it appears
that such attributes are in short supply. It is no secret that
economies all over Latin America are suffering. There is political
instability and there are serious environmental problems that threaten
vast ecosystems. One of the major concerns of our constituents is to
assure our trade agreements don't undercut labor and environmental
regulations in a ``race to the bottom.'' On a continent beset by
environmental problems Chile has been a leader in trying to proactively
address these challenges. Indeed, the goal of a pollution free
environment is written into the constitution.
In the area of labor standards, Chile is also a pace-setter. Chile
has ratified all eight of the International Labor Organization
conventions, while the U.S. has ratified only two. For us to reward the
progress in these two key areas with the first free trade agreement
south of Mexico is an important signal.
Another important area of consideration with the future of trade
relationships is protectionism on the part of the world's richest
countries. We, along with the European Union and Japan, have been
highly protective of our own domestic agricultural markets by heavily
subsidizing our products and establishing trade barriers. The irony is
that rich countries giving access to their markets in the areas of
agriculture and textiles would provide twice the economic benefit to
these developing countries than what we give them in direct aid.
There may be some modest disruption to our producers with the free
trade agreement, but there are remedies to these occasions. Again,
using my State as an example, raspberry producers were injured when
frozen raspberries from Chile entered the U.S. at below-market prices.
There was a finding in the last Congress that they had been involved in
dumping frozen raspberries into the U.S. market to the detriment of our
domestic growers. We were able to work with the U.S. International
Trade Commission to prevent frozen raspberries from being sold at less
than fair value. There are protections in the system that work to
prevent illegal practices, while we reap the benefits of open and fair
trade.
There will also be modest disruptions simply because Chile will
have a comparative advantage in the production of certain goods.
However, in a depressed economy even small losses are significant. It
is important, therefore, for us to be serious about Trade Adjustment
Assistance, to make sure that we do provide the necessary benefits to
affected workers and we continue to modify the program to improve its
effectiveness for those who are harmed by the opening of trade. We also
cannot turn our back on middle- and lower-income working families that
will be most at risk. We can help them by making sure our economic
policies--whether it's spending money on further tax cuts or funding
education and healthcare programs--deal with the needs of these
families first rather than those who are the most well off in society.
I am convinced this agreement helps pull together what we are
trying to accomplish within our own markets as well as encouraging
other countries to respond in a positive fashion. As I look at its
impacts on my region, I am confident that it holds benefits for Oregon
and the country as a whole, and sends the signals we want to be sending
to the rest of the world.
Chairman CRANE. Thank you. The time of the gentleman has
expired. Our next witness, the Honorable Pete Sessions from
Texas.
STATEMENT OF THE HONORABLE PETE SESSIONS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. SESSIONS. Thank you, Mr. Chairman and Ranking Member
Levin, and also the Members of the Subcommittee on Trade who
are present today. Mr. Chairman, I would like to thank this
Committee for the opportunity to come and provide testimony
concerning the Singapore FTA. I would also like to ask
unanimous consent that my full statement be included in the
record.
Chairman CRANE. Without objection, so ordered.
Mr. SESSIONS. Thank you, Mr. Chairman. I would also like to
note, Mr. Chairman, that today we have in the crowd, joining us
today, Franklin Lavin, who is the Ambassador of the United
States to the Republic of Singapore. Mr. Lavin is here in
Washington to be a part of not only this hearing, but also to
aid in the passage of this important FTA.
As you know, Mr. Chairman, the President signed this
agreement with Singapore. The United States and Singapore are
two nations that share a mutual respect for the rule of law and
wish to establish a procedure that creates an open, fair,
transparent, and responsive process for the trade between our
great nations. This is a comprehensive, forward-looking
agreement with a large, modern, and significant trading partner
and ally.
The United States already exports a large amount of
electronics, high-tech manufacturing products, industrial
machinery, and equipment to Singapore. American companies also
export a great deal of services to Singapore, including
financial services, computer telecommunications, professional,
and express delivery services, all of which are extremely
important to this country and to Singapore.
Singapore has also been an active partner in prosecuting
the war on terror by cracking down on terrorist activities and
money-laundering in their country, and their own domestic
financial institutions. Singapore is also a strong ally of the
United States, with our two countries participating in joint
military training exercises and sharing Singaporean military
bases since 1992.
This agreement gives increased market access to a number of
American industries, and establishes an orderly process for
ensuring regulatory transparency and investor protections for
American companies and individuals doing business in Singapore.
The agreement also updates Singapore's intellectual
property law. As Thomas Lipscomb noted in today's Wall Street
Journal op/ed page, and I quote, ``entertainment content is now
America's largest export, and information is the basis of more
than half of our gross domestic product.'' This agreement also
updates Singapore's copyright and patent law to ensure that the
creators of new intellectual property reap the rewards of their
innovation. It updates that country's trademark regime to
reflect new market realities, and this is all enforced by a
robust enforcement regime designed to criminalize the willful
infringement of copyrights, and impose tough punishments on
intellectual property pirates.
The agreement accomplishes the laudable goals of providing
regulatory transparency in Singapore and increasing market
access to this country for American products, while providing
first-class environmental and labor protections. I would like
to congratulate not only the U.S. Department of State, but also
the U.S. Trade Representative on their successful completion of
negotiations with their Singaporean colleagues, and for their
hard work in producing such a comprehensive and forward-looking
agreement.
Last, I appreciate being given the opportunity to have my
views heard before this Committee, and urge all my colleagues
on both sides to not only focus upon this agreement as an
important agreement, but also one that might be used on a
continuing basis as a way for us to judge FTAs. I thank the
Chairman for allowing me to be here, and I will be available
for questions.
[The prepared statement of Mr. Sessions follows:]
Statement of the Honorable Pete Sessions, a Representative in Congress
from the State of Texas
Thank you, Mr. Chairman, for this opportunity to provide my
comments on the U.S.-Singapore Free Trade Agreement (USSFTA), which is
being considered today by the Committee on Ways and Means. I appreciate
being invited here to testify before the Committee on the important
issue of expanding free trade, and to voice my support for the USSFTA,
for the proposed U.S.-Chile agreement, and for free trade generally.
I am enthusiastic about the USSFTA, and I believe that there is a
good reason that President George W. Bush and Prime Minister Goh Chok
Tong signed this agreement on May 6, 2003. The USSFTA establishes
standards for United States-Singapore trade that provide legal
protections that are the same or are similar to existing U.S. law, and
which reflect the respect for the rule of law that our two countries
hold in common. The USSFTA sets a great precedent for enacting future
free trade agreements with countries and regions that share our values
and wish to engage in lawful and robust commerce with America through
an open, fair, responsive and transparent process.
The USSFTA is a broad, comprehensive and substantive agreement
between the United States and its largest trading partner in Southeast
Asia. In fact, as America's 11th largest trading partner in 2001,
American bilateral trade with Singapore amounted to over $32 billion--
with Singapore serving as a large export market for American
electronics, high-tech manufacturing, industrial machinery and
equipment manufacturers. Singapore also serves as a large market for
many of America's service industries, including financial, computer,
telecommunications, professional and express delivery services, all of
which are extremely important to our economy.
Another important component of our bilateral trade with Singapore
that should not be overlooked is our mutual trade in agricultural
products, which represents a net trade surplus for the United States.
In 2002, American farmers exported around $259 million worth of food
products to Singapore--including fruits, nuts, vegetables and poultry
meat. By removing and binding all of its tariffs--including its
agricultural tariffs--at zero, Singapore will open its markets to
American agricultural products and create new opportunities for
American farmers to sell their produce to a nation whose small size
(255 square miles) prevents it from being able to grow for itself the
amount of food its citizens consume.
In addition to being an economically significant and modern trading
partner with similar values, Singapore is also an excellent candidate
to end the 8-year Trade Promotion Authority (TPA) lapse because of
Singapore's close relationship with the United States and its eager
participation in the War on Terror. In September 2001, Singapore
demonstrated its resolve to combat terrorism by establishing an Inter-
Agency Task Force on Anti-Terrorism to review and to improve its
existing anti-terror laws. It has also aggressively targeted the
terrorism-related activities of clandestine groups within its borders
and increased vigilance of money-laundering in its domestic financial
institutions.
Singapore and the United States also enjoy close military ties,
including ongoing participation in joint training exercises between the
respective Armed Forces of both countries. Singapore has allowed U.S.
military aircraft and naval vessels to use its military facilities
since 1992, served as an active Member of the Coalition of the Willing
in Operation Iraqi Freedom, and allowed U.S. military ships and
aircraft to call at Singapore and to use its military bases and air
space. Singapore also offered to provide the successful Coalition in
Iraq with a medical team from the Singapore Armed Forces for deployment
in Iraq or Kuwait if their expertise and service became necessary. The
USSFTA is simply another way for America to demonstrate its interest in
building even closer ties with a nation that has long been a solid
friend and an ally.
Of course, in addition to increasing strategic relations with a
long-time ally, the economic merits of the U.S.-Singapore Free Trade
Agreement stand firmly on their own. The agreement will give American
firms increased market access across the entire Singaporean services
sector, ensuring that American firms are treated as fairly and
equitably as domestic firms. To ensure a level playing field for
American companies, the agreement establishes strong and detailed
disciplines on regulatory transparency through open and transparent
administrative procedures designed to recognize interested parties'
concerns before regulations are issued. American investors will also
receive rights under this agreement, including due process protections
and the right to receive a fair market value for any expropriated
property. An impartial and transparent public dispute settlement panel
will then enforce these protections on behalf of American investors.
The agreement offers substantial benefits for American financial
institutions by removing the license quota on the number of U.S. banks
with Qualifying Full Bank (QFB) privileges, with Wholesale Bank (WB)
privileges, and by removing the limit on the number of branches that an
American bank may operate. It will also permit the cross-border supply
of trade in reinsurance by brokerage, in corporate finance advisory
services to corporations and investors, and allow for the expedited
availability of insurance services. These new and expanded powers will
help American financial institutions and financial services providers
to compete on a level playing field for Singaporean deposits and
investments while strengthening the level of engagement between the
U.S. and Singapore in the financial services arena.
The USSFTA is also a modern, forward-looking agreement that updates
Singapore's intellectual property law and brings it in line with
American standards. It updates Singapore's copyright and patent law to
prevent circumvention and to ensure that the creators of new
technologies and inventions reap the rewards of their innovation. It
updates the country's trademark regime to reflect the new market
realities of branding and product identity-building, while enhancing
protection for well-known trademarks. All of these enhanced protections
will be complimented by a robust enforcement regime that criminalizes
the willful infringement of copyrights and imposes tough punishments on
piracy.
This agreement accomplishes the laudable goals of providing
regulatory transparency in Singapore and increasing market access to
this country for American companies while providing first-class
environmental and labor protections. I would like to congratulate the
United States Trade Representative on the successful completion of
negotiations with their Singaporean colleagues and for their hard work
in producing such a comprehensive and forward-looking agreement. I
appreciate being given the opportunity to have my views heard before
this Committee today, and I urge all of my colleagues on both sides of
the aisle to support this important agreement. Thank you, Mr. Chairman,
for your time and for the leadership on trade that you have
demonstrated by holding this important hearing.
Chairman CRANE. Thank you very much, Mr. Sessions. We also
want to pay tribute to Frank Lavin for his participation, our
Ambassador to Singapore. With that, I----
Mr. LEVIN. Mr. Chairman, I think, also, the Ambassador from
Singapore to the U.S., Ambassador Chan, is here.
Chairman CRANE. Oh, very good. Very good. With that, now, I
would like to ask our next witness to testify, the Honorable
Judy Biggert from my home State of Illinois, and a neighbor.
Judy.
STATEMENT OF THE HONORABLE JUDY BIGGERT, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Ms. BIGGERT. Thank you very much, Chairman Crane and
Ranking Member Levin, Members of the Committee. Thank you for
allowing me and my colleagues to testify today in favor of
these two outstanding trade agreements. While I strongly
support both the Singapore and Chile agreements, I would like
to specifically address my comments today to the particular
merits of the agreement with Chile. Perhaps most importantly, I
would like to comment on some of the disinformation and myths
that have been circulating about this agreement.
First of all, I would like to congratulate President Bush,
Ambassadors Zoellick and Allgeier, and all the hard-working
members of our negotiating teams at the Office of the U.S.
Trade Representative and the U.S. Department of Agriculture,
and other agencies. What they have written, along with their
Chilean counterparts, is a comprehensive, well-balanced, state-
of-the-art agreement that will benefit both nations.
Second, I would like to point out that this is not a
partisan agreement. My friend and colleague Mr. Blumenauer is
one of many Members from the other side of the aisle who are
strong proponents of this agreement. I am happy to point out
that former Presidents Bill Clinton and George Bush both shared
our current President's vision of an FTA of the Americas with
Chile as an early partner.
Third, this is a good agreement that covers a particularly
wide range of products and services. Not only does it address
the liberalization of merchandise trade, it also includes
groundbreaking areas such as e-commerce, express delivery
services, strong copyright and trademark protections, and an
across-the-board liberalization of trade and services. In
short, there is something for everyone to like in this
agreement.
That is the good news. The bad news is that not all of the
Members have yet focused their attention on this agreement, and
so there remain some troublesome myths and bits of
misinformation out there that we are working to dispel. For
instance, some Members who are unfamiliar with Chile and its
labor laws question whether the labor provisions in the
agreement are strong enough. The fact that Chile has rewritten
and strengthened its labor laws, reaffirmed its obligations as
a member of the ILO, and committed in this agreement to a key
binding obligation not to fail to effectively enforce its labor
laws through a sustained or recurring course of action or
inaction. Labor protections within Chile and within this
agreement are strong and sound.
Since it is an FTA, other Members instinctively question
whether it preserves environmental protections. This FTA
includes provisions requiring parties to establish high levels
of environmental protection and not to weaken or reduce
environmental laws to attract trade or investment. It provides
for dispute settlement, and for environmental cooperation
between the parties.
Last, some Members have said that Chile doesn't deserve
this agreement. They say if Chile really wanted free trade with
the United States, she should have cast her votes with us back
when the United Nations Security Council took up the U.S.-
sponsored resolutions regarding Iraq. Those who would make this
argument are missing the point. It is not a question of whether
Chile deserves this agreement. The point is that the United
States deserves this agreement.
The FTAs are not gifts that we dispense to favored allies
in exchange for their vote in international bodies. The FTAs
are mutually beneficial arrangements that serve the national
economic interests of both parties, Chile and the United
States. Without free trade with Chile, U.S. producers and
service providers will continue to lose business to our foreign
competitors. Chile already has in place FTAs with Mexico,
Canada, Mercosur, and the European Union. That means that while
our exporters are paying tariffs on all products, firms
exporting from those countries that have FTAs with Chile enjoy
free trading partnership treatment.
The damage to our trading position has been obvious.
Between 1997 and 2002, when exporters from those countries
enjoyed preferential access to the Chilean market, U.S. exports
to Chile dropped 41 percent from $4.3 billion to $2.6 billion.
According to the U.S. Chamber of Commerce, companies ranging
from Coca Cola to Xerox, McDonald's to Owens Corning, and 3M to
Sara Lee, have lost hundreds of millions of dollars to firms
based in countries that have FTAs with Chile. There is no doubt
in my mind that with an FTA in place, we will reverse this
trend and begin to regain our former share of Chile's market. I
certainly plan to vote for this agreement and work to encourage
my colleagues to support it with their votes. Thank you very
much.
[The prepared statement of Ms. Biggert follows:]
Statement of the Honorable Judy Biggert, a Representative in Congress
from the State of Illinois
Chairman Crane, Ranking Member Levin, Members of the Committee,
thank you for allowing me and my colleagues to testify today in favor
of these two outstanding trade agreements. While I strongly support
both the Singapore and Chile agreements, I would like specifically to
address my comments today to the particular merits of the agreement
with Chile. Perhaps more importantly, I would like to comment on some
of the disinformation and myths that have been circulating about this
agreement.
First, I want to congratulate President Bush, Ambassadors Zoellick
and Allgeier, and all of the hard-working members of our negotiating
teams at USTR, USDA, and other agencies for their achievements. I know
how many days, nights, weekends, hours and miles they had to spend away
from their families, and I want them to know how much we appreciate
their extraordinary efforts. What they have written, along with their
Chilean counterparts, is a comprehensive, well balanced, state-of-the-
art agreement that will benefit both nations.
Second, I want to point out that this is not a partisan agreement.
As evidenced by the presence here of my friend and colleague from
across the aisle, Earl Blumenauer, there are many Members of both
parties who are strong proponents of this agreement. And I am happy to
point out that former Presidents Bill Clinton and George Bush both
shared our current President's vision of a free trade agreement of the
Americas, with Chile as an early partner.
Third, this is a good agreement that covers a particularly wide
range of products and services. Not only does it address the
liberalization of merchandise trade, it also includes ground-breaking
areas such as e-commerce, express delivery services, strong copyright
and trademark protections, and an across-the-board liberalization of
trade in services.
In short, there is something for everyone to like in this
agreement.
That's the good news. The bad news is that not all Members have yet
focused their attention on this agreement, and so there remain some
troublesome myths and bits of misinformation out there that we are
working to dispel.
For instance, some Members who are unfamiliar with Chile and its
labor laws question whether the labor provisions in the agreement are
strong enough. The facts are that Chile has recently rewritten most of
its Pinochet-era labor laws, reaffirmed its obligations as a member of
the International Labor Organization (ILO), and committed in this
agreement to a key, binding obligation not to fail to effectively
enforce its labor laws through a sustained or recurring course of
action or inaction. Labor protections within Chile and within this
agreement are strong and sound.
And because it is a free trade agreement, other Members
instinctively question whether it preserves environmental protections.
But this free trade agreement includes provisions requiring parties to
establish high levels of environmental protection, and to not weaken or
reduce environmental laws to attract trade or investment. It provides
for dispute settlement and for environmental cooperation between the
parties.
And last, some Members have said that Chile doesn't deserve this
agreement. They say that if Chile really wanted free trade with the
United States, she would have cast her votes with us back when the
United Nations Security Council took up the U.S.-sponsored resolutions
regarding Iraq.
But those who would make this argument are missing the point. It is
not a question of whether Chile deserves this agreement. The point is
that the United States deserves this agreement.
Free trade agreements are not ``gifts'' that we dispense to favored
allies in exchange for their votes in international bodies. Free trade
agreements are mutually beneficial arrangements that serve the national
economic interests of both parties--Chile and the United States.
Without free trade with Chile, United States producers and service
providers will continue to lose business to our foreign competitors.
And once we lose business to competitors, those competitors become
stronger in other markets.
Chile already has in place free trade agreements with Mexico,
Canada, Mercosur, and the European Union. That means that while our
exporters are paying tariffs on all products, firms exporting from
those countries that have FTAs with Chile enjoy free-trading partner
treatment.
The damage to our trading position has been obvious. Between 1987
and 1997, U.S. exports to Chile soared from $770 million to over $4.3
billion dollars, increasing at an average annual rate of 19 percent.
In contrast, between 1997 and 2002, when exporters from those
countries enjoyed preferential access to the Chilean market, U.S.
exports to Chile contracted 41 percent to $2.6 billion dollars.
According to the U.S. Chamber of Commerce, companies ranging from Coca
Cola to Xerox, McDonald's to Owens Corning and 3M to Sara Lee have lost
hundreds of millions of dollars to firms based in countries that have
free trade agreements with Chile.
And since the entry into force of Chile's FTA with the European
Union just 4 months ago, U.S. companies have been losing contracts,
business, and opportunities to even tougher competitors in Chile.
There is no doubt in my mind that with a Chile Free Trade Agreement
in place, we will reverse this trend and begin to regain our former
share of Chile's market. I plan to vote for the agreement and to work
to encourage my colleagues to support it with their votes.
Thank you.
Chairman CRANE. Thank you very much. Now, I will yield to
anyone on our side who may have a question or a comment. Anyone
with questions on our side? Mr. Levin, on your side?
Mr. LEVIN. I guess not. Thank you very much for your
testimony, helping to kick this off. We will have ample time to
discuss and further probe your comments. Thank you.
Chairman CRANE. Thank you all. Appreciate that. With that,
we will call our next witness, the Honorable Peter Allgeier,
Deputy U.S. Trade Representative. You may proceed when ready,
Mr. Allgeier.
STATEMENT OF THE HONORABLE PETER F. ALLGEIER, DEPUTY U.S. TRADE
REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE
Mr. ALLGEIER. Thank you very much, Mr. Chairman. First of
all, Mr. Chairman and Mr. Levin, Members of the Subcommittee--
--
Chairman CRANE. Do you have your microphone turned on?
Mr. ALLGEIER. The light is on.
Chairman CRANE. Can somebody----
Mr. ALLGEIER. Does that work?
Chairman CRANE. Yes.
Mr. ALLGEIER. Okay. Just need it closer. Chairman Crane,
Mr. Levin, Members of the Subcommittee, thank you very much for
the opportunity to testify today and for your continued
guidance and support as we seek to open additional markets for
U.S. manufacturers, service providers, farmers, ranchers, and
workers. We appreciate your leadership, Mr. Chairman, and
greatly value the close cooperation that we have experienced on
trade issues with the Congress.
I would also like to thank the previous panel,
Representatives Blumenauer, Biggert, and Sessions, for their
support of these two agreements. I have a longer statement that
I would ask become part of the record.
Chairman CRANE. Without objection, so ordered.
Mr. ALLGEIER. Thank you. During the past 2 years, we have
worked together to reenergize the U.S. trade agenda. Passage of
the bipartisan Trade Act of 2002, with its TPA, of course, was
a major turning point in this effort. This will lead to
economic benefits for all Americans, and many others around the
world.
I welcome this opportunity to review the accomplishments of
the first agreements that will be submitted under TPA, the FTAs
with Chile and Singapore, and to present the Administration's
requests for favorable consideration of legislation needed to
implement these FTAs.
These two agreements reflect that bipartisan effort to
conclude trade agreements with two important trading partners.
Both agreements were launched under the Clinton Administration,
and concluded under the Bush Administration. President Bush and
Prime Minister Goh signed the U.S.-Singapore FTA on May 6.
Ambassador Zoellick and Minister Alvear signed the Singapore
one last Friday.
These two agreements share two distinctions. First, they
are the first FTAs concluded by the Administration of President
Bush, and they are the first agreements concluded by the United
States in Asia and in the Southern Hemisphere. Both provide
commercial and political benefits for the United States and our
new FTA partners.
I would like to highlight two key messages that flow from
these agreements. The first is that the Chile and Singapore
agreements set examples for comprehensive state-of-the-art
FTAs; examples in the sense that they are responsive to the
technological advances that we have seen in our economy over
the last decade, responsive in the sense that they position us
for greater competitiveness in a world of global sourcing, in a
world in which knowledge is the key factor of production.
The second key message is that these agreements are
attentive to the full range of U.S. interests: agriculture,
industry, services, consumers, small business people, labor,
environment, and those who are concerned with due process and
good governance.
The U.S.-Singapore FTA will enhance, further, an already
strong and thriving commercial relationship with Singapore. It
is comprehensive in scope, covers aspects of trade in goods,
services investment, government procurement, protection of
intellectual property, competition policy, and the relationship
between trade, labor, and the environment. This builds upon the
basic foundation of NAFTA and the WTO, but it moves beyond them
and improves them in a number of ways. It can serve as a
foundation for other possible free trade areas in Southeast
Asia, as envisaged in President Bush's Enterprise for the
Association of Southeast Asian Nations (ASEAN) Initiative.
The Chilean agreement is equally comprehensive and state-
of-the-art. As the previous speakers mentioned, it will level
the playing field where U.S. providers of goods and services
have been at a competitive disadvantage because of the FTAs
that Chile already has with a number of trading partners,
including the European Union. The National Association of
Manufacturers estimates that the lack of a U.S.-Chile FTA
causes U.S. companies to lose at least a billion dollars
annually in exports to that country. With the FTA we can ensure
that we enjoy market access, treatment, and prices and
protection at least as good as our competitors.
I would like to say a word about the FTA process. These are
the first agreements to be implemented under the TPA procedures
set out in the bipartisan Trade Act of 2002. The U.S. Trade
Representative has worked--the Administration has worked to
ensure that the process of developing U.S. proposals and
concluding the FTA has been open and transparent. We have held
public briefings. We have consulted at least 240 times with
Members of Congress and staff. We have held more than 100
meetings with our public sector advisors, of which there are
more than 700. We have sought public comments in the
negotiations as they have proceeded. Proposed texts were made
available to Members of Congress, staff, and our public sector
advisors prior to giving them to our negotiating partners. In
December 2002, we made available to Congress and our statutory
advisors the draft text. At that time we also put up summaries
on our public website. Then, when we finished the legal scrub,
of course, we provided the full text of the agreement to the
public, posting those on our public website as well.
Both the Singapore and Chile agreements will act as
catalysts for our efforts to expand trade in Asia and in the
Southern Hemisphere. As I said, they are examples. We will not
necessarily use each and every article as a photocopy that will
be simply put before a country and have it insert its own name.
We have to take into account the different circumstances in
other negotiations, but they do set an example of the kind of
level of ambition and comprehensiveness and thorough treatment
that we would envision in future FTAs.
We look forward to working with the Congress not only in
the implementation of these agreements, but also as we move
forward with the other negotiations on our agenda--and indeed
as we move forward to implement those agreements. Mr. Chairman,
thank you very much for allowing me this opportunity to
testify. I look forward to responding to the comments and
questions of you and the other Members. Thank you.
[The prepared statement of Mr. Allgeier follows:]
Statement of the Honorable Peter F. Allgeier, Deputy U.S. Trade
Representative, Office of the U.S. Trade Representative
INTRODUCTION
Mr. Chairman, Mr. Levin, and Members of the Subcommittee, thank you
for the opportunity to testify today and for your continued guidance
and support. We appreciate your leadership, Mr. Chairman, and greatly
value the close cooperation we have experienced on trade issues with
the Congress.
Without the help of the Members of this Subcommittee and excellent
staff, I would not have the privilege of testifying here today on the
U.S.-Singapore and U.S.-Chile Free Trade Agreements (FTAs). During the
past 2 years, we have worked together to reenergize the U.S. trade
agenda. Passage of the Trade Act of 2002 (Trade Act), including Trade
Promotion Authority (TPA), was a major turning point in that effort,
which will lead to economic benefits for all Americans and many others
around the world.
The Administration has used TPA to launch major new trade
initiatives designed to expand trade and open markets globally,
regionally and bilaterally. We initiated new WTO negotiations in Doha
and have since presented bold proposals in agriculture, industrial
products and services. We have FTA negotiations underway with
Australia, Central America (CAFTA), Morocco, and the South African
Customs Union (SACU). We have announced our intent to begin
negotiations on an FTA with Bahrain early next year. We have also
launched the President's Enterprise for ASEAN Initiative and a Middle
East trade initiative. We will not stop there.
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. Attached to my
testimony are summaries of the main provisions of each agreement.
The U.S.-Singapore and U.S.-Chile FTAs reflect a bipartisan effort
to conclude trade agreements with two important trading partners. Both
agreements were launched under the Clinton Administration--with
Singapore in November 2000 and with Chile in December 2000--and
concluded under the Bush Administration. President Bush and Singaporean
Prime Minister Goh signed the U.S.-Singapore FTA on May 6, 2003, at the
White House. Ambassador Zoellick and Chilean Foreign Minister Alvear
signed the U.S.-Chile FTA on June 6, 2003, at the Vizcaya Mansion in
Miami.
U.S.-SINGAPORE FTA
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.
U.S.-CHILE FTA
The U.S.-Chile Free Trade Agreement is a state-of-the-art
agreement, setting the stage for further trade integration in the
hemisphere.
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 vigorous democracy, a thriving and
open economy built on trade, and a free market society. A U.S.-Chile
FTA will help Chile continue its impressive record of growth,
development and poverty alleviation. 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, service providers, 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. Indeed, the U.S. share of Chilean imports has dropped
from 23% in 1998 to 16% in 2002. 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.
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 nineties.
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.
FTA PROCESS
The U.S.-Singapore and U.S.-Chile FTAs are the first agreements
that will be implemented under the TPA procedures set out in the 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 and private 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 our negotiating partners. The Congress and our
statutory advisors had access to the full drafts of the Singapore and
Chile FTAs in December 2002. USTR also posted summaries of the FTAs on
our public web site. The full texts of each agreement were posted on
the USTR public website as soon as the preliminary legal review of each
agreement was completed, which was March 6, 2003, for the agreement
with Singapore and April 3, 2003, for the agreement with Chile.
As with other agreements, such as 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 which the FTA achieves the objectives, policies and
priorities set out in the Trade Act. For the Singapore and Chile FTAs,
only one of the thirty-one advisory committees opposed the agreements.
SUPPORTING OUR EFFORTS TO EXPAND TRADE WORLDWIDE
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.
The President is committed to making progress under the EAI as a
framework for deepening our trade and investment relationship with
ASEAN. The United States expects a potential FTA partner to be a member
of the WTO and to have a Trade and Investment Framework Agreement
(TIFA) with the United States. Since announcement of this initiative,
the United States has signed TIFAs with Thailand and Brunei. The trade
ministers of these countries, as well as Philippines and Indonesia,
with which the United States already has TIFAs, have met regularly to
address specific bilateral issues and coordinate on regional and
multilateral issues.
Likewise, the conclusion and signing 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 broad and robust FTAA by January of 2005.
The U.S.-Chile FTA and the Central American Free Trade Agreement
(CAFTA) will serve as building blocks for the FTAA. They will give both
sides greater access to each other's 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.
CONCLUSION
The U.S.-Singapore and U.S.-Chile FTAs are the most comprehensive
and up-to-date trade agreements the United States has concluded. These
FTAs command 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.
With continued 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.
The Administration looks forward to working with this Subcommittee
and the full Congress in enacting the legislation necessary to
implement these Agreements. Thank you, Mr. Chairman. I would be pleased
to respond to questions.
SUMMARY OF THE U.S.-SINGAPORE FTA
Market Access for Services
Singapore is one of the world's most sophisticated services
economies, and a services hub for the fast-growing Southeast Asian
region. The U.S.-Singapore FTA will accord substantial market access to
U.S. firms across the entire spectrum of services, subject to very few
exceptions. The FTA uses a so-called ``negative list'' approach, in
which all service sectors are liberalized unless a specific reservation
is taken in the Agreement. This technique, which we successfully used
in the NAFTA, provides for maximum liberalization of services markets.
Singapore will treat U.S. services suppliers as well as its own
suppliers or other foreign suppliers, and U.S. services firms will
enjoy fair and nondiscriminatory treatment. Such nondiscrimination will
be achieved through strong disciplines on both cross-border supply of
services (such as those delivered electronically, or through the travel
of services professionals across borders) as well as the right to
invest and establish a local services presence.
Importantly, services market access is supplemented in this FTA by
strong and detailed disciplines on regulatory transparency. U.S.
services suppliers have found that market access commitments may be
less meaningful without parallel commitments by trading partners to
regulatory transparency. Under the FTA, Singaporean services regulators
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.
New market access commitments apply across a broad range of
sectors, including, but not limited to, banking, insurance, securities
and related services; computer and related services; direct selling;
telecommunications services; audiovisual services; construction and
engineering; tourism; advertising; express delivery; professional
services (architects, engineers, accountants, etc.); distribution
services, such as wholesaling, retailing and franchising; adult
education and training services; environmental services; and energy
services. U.S. firms also have the ability to own equity stakes in
entities that may be created if Singapore chooses to privatize certain
government-owned services.
Some achievements of the FTA in certain services sectors are
highlighted below.
L Banking: The financial services chapter includes core
obligations of nondiscrimination, most-favored nation treatment, and
additional market access obligations. Singapore's current ban on new
licenses for full-service banks will be lifted within 18 months, and
lifted within three years for ``wholesale'' banks that serve only large
transactions. Licensed full-service banks will be able to offer all
their services in Singapore at up to 30 locations in the first year
that the agreement is in effect, and at an unlimited number of
locations within two years. Locally incorporated subsidiaries of U.S.
banks can apply for access to the local Automated Teller Machine (ATM)
network within two-and-a-half years, and branches of U.S. banks get
access to the ATM network in 4 years.
L Insurance: Under the FTA, U.S. insurance firms will be able to
establish subsidiaries, branches or joint ventures. Singapore is
expanding the cross-border insurance services it allows, and U.S. firms
will be able to sell marine, aviation and transport (MAT) insurance,
reinsurance, to provide insurance brokerage of reinsurance and MAT
insurance, and to provide insurance auxiliary services. A new principle
of expedited availability of insurance services in the FTA means that
prior regulatory product approval will not be required for all
insurance products other than life insurance, Central Provident Fund
related products, and investment-linked products sold to the business
community. Expedited procedures will be available in other cases when
prior product approval is necessary. The FTA specifies that U.S.
financial institutions may offer financial services to citizens
participating in Singapore's privatized social security system under
more liberal requirements.
L Securities and Related Financial Services: The FTA specifies
that U.S. firms may provide asset/portfolio management and securities
services in Singapore through the establishment of a local office, or
by acquisition of local firms. In addition, U.S. firms may supply
pension services under Singapore's privatized social security system,
with liberalized requirements regarding the number of portfolio
managers that must be located in Singapore. And U.S.-based firms may
sell portfolio management services via a related institution in
Singapore. Under the FTA, Singapore will treat U.S. firms the same as
local firms for the cross-border supply of financial information,
advisory and data processing services.
L Express Delivery Services: The FTA contains important provisions
relating to express delivery services. It provides for liberalization
of express delivery services and other related services (that are part
of an integrated express delivery system) that will allow a more
efficient and expedited express delivery business in Singapore.
Singapore also commits that it will not allow its postal service to
cross-subsidize express letters in an anti-competitive manner with
revenues from its monopoly services.
L Professional Services: The FTA specifies that Singapore will
ease restrictions on U.S. firms creating joint law ventures to practice
in Singapore, and will recognize degrees earned from certain U.S. law
schools for admission to the Singapore bar. Singapore will reduce
onerous requirements on the make-up of boards of directors for
architectural and engineering firms. And capital ownership requirements
for land surveying services will be eliminated. In addition, the FTA
liberalizes the requirements for registration and certification of
patent agents. Provisions of the FTA also call for cooperation in
developing standards and criteria for licensing and certification of
other professional services providers.
L Telecommunications: The FTA contains a full range of market
access commitments on telecommunications services, consistent with the
regulatory regimes of the U.S. and Singapore. For example, users of the
public telecommunications network are guaranteed reasonable and
nondiscriminatory access to the network. This prevents local firms from
having preferential or ``first right'' of access to telecommunications
networks. The FTA also provides U.S. phone companies with the right to
interconnect with networks in Singapore in a timely fashion, on terms,
conditions, and cost-oriented rates that are transparent and
reasonable. And the FTA grants U.S. firms seeking to build a physical
network in Singapore nondiscriminatory access to buildings that contain
telephone switches and submarine cable heads. U.S. firms will be able
to lease lines on nondiscriminatory terms and to re-sell telecom
services of Singaporean suppliers to build a customer base.
Importantly, the FTA includes transparency requirements for the
rulemaking procedures of Singapore's telecom regulatory authority, and
requires publication of inter-connections agreements and service rates.
Singapore commits that when competition emerges in a telecom sector,
that area will be deregulated. The agreement also specifies that
companies, not governments, will 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.
Trade in Goods and Agriculture: Tariffs Eliminated
U.S. tariffs on 92% of Singapore's exports of goods will be
eliminated immediately upon entry into force of the Agreement, with
remaining tariffs phased out over 4-10 years. Singapore guarantees zero
tariffs immediately on all U.S. products.
Textiles and apparel will be duty-free immediately if they meet the
Agreement's ``yarn-forward'' rule of origin, which will promote new
opportunities for U.S. and Singaporean fiber, yarn, fabric and apparel
manufacturing industries. A limited yearly amount of textiles and
apparel containing non-U.S. or non-Singaporean yarns, fibers or fabrics
may also qualify for duty-free treatment.
Extensive monitoring and anti-circumvention commitments--such as
reporting, licensing, and unannounced factory checks--will ensure that
only Singaporean textiles and apparel receive tariff preferences under
the Agreement.
Electronic Commerce: Free Trade in the Digital Age
No previous U.S. free trade agreement contains such cutting-edge
provisions on digital trade as the proposed FTA with Singapore. The
United States and Singapore agreed 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.
For example, the Agreement establishes explicit guarantees that the
principle of nondiscrimination applies to digital products delivered
electronically, such as software, music, images, videos, or text. This
will provide fair treatment and protection to U.S. firms that deliver
such digital products via the Internet. The FTA also establishes a
binding prohibition on customs duties charged on digital products
delivered electronically. For digital products delivered on hard media
(such as a DVD or a CD-ROM), customs duties will be based on the value
of the media (e.g., the disc), not on the value of the movie, music or
software contained on the disc.
The FTA also affirms that any commitments made related to services
also extend to the electronic delivery of such services, such as
financial services delivered over the Internet. This sets a very good
precedent for U.S. services liberalization efforts in the WTO and in
other FTAs.
Investment: Important Protections for U.S. Investors
The Agreement will improve the bilateral investment climate and
provide important protections for investors, and is also consistent
with the objectives regarding investor-state dispute settlement in the
Trade Act. Given the large stock of U.S. investment in Singapore, the
protections of the FTA are extremely important and provide assurances
for the future growth of two-way investment. The FTA will provide a
secure, predictable legal framework for U.S. investors operating in
Singapore. All forms of investment are protected under the Agreement.
The Agreement guarantees U.S. investors treatment no less favorable
than Singaporean investors or any other foreign investor, except in
certain sectors that are specifically exempted. This so-called
``negative list'' approach is the most comprehensive way to protect the
interests of U.S. investors in Singapore. Among the rights afforded to
U.S. investors under the Agreement are the right to make international
transfers related to an investment, protections related to
expropriation and due process that are consistent with U.S. law, and
freedom from certain performance-related restrictions and requirements.
The investor protections are backed by an effective, impartial
procedure for dispute settlement that is fully transparent. Submissions
to arbitral panels and arbitral hearings will be open to the public,
and interested parties will have the opportunity to submit their views.
Intellectual Property Rights (IPR): Setting New High Standards
The U.S.-Singapore FTA provides for a very high level of IPR
protection, including state-of-the-art protections for trademarks and
digital copyrights, as well as expanded protection for patents and
undisclosed information. These are supported by tough penalties for
piracy and counterfeiting, including procedures for seizure and
destruction of counterfeit products, the equipment used to produce
counterfeit products, and the establishment of statutory and actual
damages for violations. Singapore will accede to international Internet
treaties, extend the term of protection for copyrighted works, and
maintain criminal penalties for circumvention of technology protection
measures and for trade in counterfeit goods.
The rising global level of trade in counterfeit goods calls for
strong provisions to combat such illegal trade. The FTA gives effect to
the trademark law treaty and the 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. More specific
information on the Agreement's IPR provisions is below.
L Trademarks: The FTA ensures government involvement in resolving
disputes between trademarks and Internet domain names, which is
important to prevent ``cyber-squatting'' of trademarked domain names.
It applies the important principle of ``first-in-time, first-in-right''
to trademarks and geographical indicators (place-names) applied to
products. This means that the first to file for a trademark is granted
the first right to use that name, phrase or geographical place-name.
Furthermore, the FTA streamlines the trademark filing process by
allowing applicants to use their own national patent/trademark offices
for filing trademark applications.
L Copyrights: The FTA contains provisions designed to ensure that
only authors and other copyright owners have the right the make their
works available online. Copyright owners maintain rights to temporary
copies of their works on computers, which is important in protecting
music, videos, software and text from widespread unauthorized sharing
via the Internet. The FTA provides that copyrighted works and
phonograms are protected for extended terms, consistent with U.S.
standards and international trends. And strong anti-circumvention
provisions will help to limit tampering with technologies (like
embedded codes on discs) that are designed to prevent piracy and
unauthorized distribution over the Internet.
L The FTA requires that governments only use legitimate computer
software, thus setting a positive example for private users. Singapore
agrees to prohibit the production of optical discs (CDs, DVDs or
software) without a source identification code, unless the copyright
holder authorizes (in writing) such production. And the agreement
provides for protection for encrypted program-carrying satellite
signals as well as the programming, thus preventing piracy of satellite
television programming. The FTA provides for limited liability for
Internet Service Providers (ISPs), reflecting the balance struck in the
U.S. Digital Millennium Copyright Act between legitimate ISP activity
and the infringement of copyrights.
L Patents and Undisclosed Information: Under the provisions of the
FTA, a patent term can be extended to compensate for up-front
administrative or regulatory delays in granting the original patent,
consistent with U.S. practice. The grounds for revoking a patent in
Singapore are limited to the same grounds required to originally refuse
a patent, thus protecting against arbitrary revocation. The FTA
provides new protections for patents covering biotech plants and
animals, and it protects against imports of pharmaceutical products
without patent-holder's consent by allowing lawsuits when contracts are
breached. Test data and other information submitted to a government for
the purpose of product approval will be protected against disclosure or
unfair commercial use for a period of 5 years for pharmaceuticals and
10 years for agricultural chemicals. Finally, the FTA contains
provisions designed to ensure that government marketing-approval
agencies will not grant approval to products that infringe patents.
L IPR Enforcement: Singapore has agreed to establish criminal
penalties for companies that make pirated copies from legitimate
products, and the Singaporean government guarantees in the FTA that it
has authority to seize, forfeit and destroy counterfeit and pirated
goods and the equipment used to produce them. Under the FTA, IPR laws
will be enforced against traded goods, including trans-shipments, to
deter violators from using U.S. or Singaporean ports or free-trade
zones to traffic in pirated products. Enforcement officials may act on
their own authority in border and criminal IPR cases without waiting
for the filing of a formal complaint, thus providing more effective
enforcement.
L The agreement mandates both statutory and actual damages under
Singaporean law for IPR violations. This serves as a deterrent against
piracy, and provides that monetary damages can be awarded even if
actual economic harm (retail value, profits made by violators) cannot
be determined.
Competition Policy: Protection Against Anticompetitive Business
Conduct, Designated Monopolies and Government Enterprises
The FTA contains provisions to protect U.S. firms against possible
anti-competitive behavior. Singapore commits to enact laws proscribing
anti-competitive conduct and to create a competition authority
commission by January 2005.
Especially important in the case of Singapore is the commitment
that Government-Linked-Corporations (GLC's) will operate on a
commercial and nondiscriminatory basis. As GLC's account for a
significant percentage of Singapore's economic activity, it was
important for the U.S. to secure this nondiscrimination commitment, and
to back it up through dispute settlement provisions. Singapore also
agrees to provide annual information on government enterprises with
substantial revenues or assets.
Government Procurement: Strong Disciplines
Both Singapore and the United States are members of the WTO
Agreement on Government Procurement, but the U.S.-Singapore FTA goes
beyond existing WTO obligations. For example, the FTA lowers the
monetary thresholds for coverage under government procurement
commitments, thereby increasing the number of contracts on which U.S.
firms may bid in a manner that is covered by transparent procurement
disciplines. In addition, under the FTA Singapore broadens its
commitments to nondiscrimination in government services procurement and
reinforces its WTO commitments to strong and transparent disciplines on
procurement procedures.
As in the services and investment provisions of the Agreement, the
government procurement chapter uses a ``negative list'' approach in
which U.S. firms gain nondiscriminatory access unless a sector is
specifically excluded in the Agreement.
Customs Procedures and Rules of Origin: Ground-Breaking Provisions
The U.S.-Singapore FTA is one of the first U.S. trade agreements
with specific, concrete obligations on how customs procedures are to be
applied. Specifically, the Agreement requires transparency and
efficiency in customs administration, with commitments on publishing
laws and regulations on the Internet, and ensuring procedural certainty
and fairness. The Agreement also seeks to facilitate the clearance of
express delivery shipments through customs.
Under the FTA, both parties agree to share information to combat
illegal trans-shipment of goods. In addition, the Agreement contains
specific language designed to facilitate the clearance through customs
of express delivery shipments. Strong but simple rules of origin will
ensure that only U.S. and Singaporean goods benefit from the Agreement.
Temporary Entry of Personnel
The Agreement contains provisions for the temporary entry of
business visitors, including intra-company transferees and
professionals. The Administration believes that the temporary entry
provisions strike a careful balance between the needs of the U.S.
service industry to provide competitive services while preserving the
right of Congress to legislate on immigration policy. Under these
provisions, a professional visa category would be established.
Environmental Provisions: Cooperation to Protect the Environment
The FTA fully meets the environmental objectives set out by
Congress in TPA. Significantly, environmental obligations are part of
the core text of the trade agreement. Both parties commit to ensure
that their domestic environmental laws provide for high levels of
environmental protection and shall strive to continue to improve such
laws. The Agreement's text makes clear that it is inappropriate to
weaken or reduce domestic environmental protections to encourage trade
or investment. A related agreement on environmental cooperation will
enhance demand for environmental goods and services.
Reflecting the bipartisan compromise struck in the Trade Act, the
FTA requires that parties shall effectively enforce their own domestic
environmental laws, and this obligation is enforceable through the
Agreement's dispute settlement procedures.
Labor Provisions: Promotion of Worker Rights
Significantly, labor obligations are part of the core text of the
trade agreement. Both parties reaffirm their obligations as members of
the International Labor Organization (ILO), and shall strive to ensure
that their domestic laws provide for labor standards that are
consistent with internationally recognized labor principles. The
Agreement makes clear that it is inappropriate to weaken or reduce
domestic labor protections to encourage trade or investment.
Reflecting the bipartisan compromise struck in the Trade Act, the
Agreement requires that parties shall effectively enforce their own
domestic labor laws, and this obligation is enforceable through the
Agreement's dispute settlement procedures.
Dispute Settlement: Innovative New Tools
All core obligations of the Agreement, including labor and
environmental provisions, are subject to the dispute settlement
provisions of the Agreement. The procedures for dispute panel
procedures set new and higher standards of openness and transparency,
reflecting the guidance from the Congress in the Trade Act. For
example, the Agreement envisions that dispute settlement proceedings
will be open to the public, that legal submissions by parties to a
dispute will be released to the public, and that interested third
parties will have the ability to submit their views to dispute
settlement panels.
Dispute settlement procedures in the FTA promote compliance through
consultation and trade-enhancing remedies, rather than relying solely
on trade sanctions. The FTA dispute settlement procedures also provide
for ``equivalent'' remedies for commercial and labor/environmental
disputes. The FTA does this through an innovative new enforcement
mechanism that involves the use of monetary assessments to enforce
commercial, labor, and environmental obligations of the trade
agreement. Suspension of preferential tariff benefits under the
Agreement is also available for all disputes, but the mechanism is
designed in all cases to seek remedies that will enhance compliance
with the obligations of the Agreement, rather than restricting trade
and harming ``innocent bystanders.''
SUMMARY OF THE U.S.-CHILE FTA
Market Access for Goods
More than 87% of U.S.-Chilean bilateral trade in consumer and
industrial products would become duty-free immediately upon entry into
force of the Agreement, with most remaining tariffs eliminated within 4
years. Key U.S. export sectors would gain immediate duty-free access to
Chile, such as agricultural and construction equipment, autos and auto
parts, computers and other information technology products, medical
equipment, and paper products. Chile's ``luxury tax'' on automobiles
will be phased out over 4 years. In the meantime, the number of
vehicles to which this tax applies will be sharply reduced as soon as
the Agreement takes effect.
Textiles and apparel will be duty-free immediately if they meet the
Agreement's rule of origin, promoting new opportunities for U.S. and
Chilean fiber, yarn, fabric and apparel manufacturing industries. A
limited yearly amount of textiles and apparel containing non-U.S. or
non-Chilean yarns, fibers or fabrics may also qualify for duty-free
treatment.
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. Immediately following the ratification of
the EU-Chile FTA, the EU saw a 27% increase in trade with Chile.
Through the U.S.-Chile agreement we ensure that U.S. firms will not be
left behind.
Expanded Markets for U.S. Farmers and Ranchers
More than three-quarters of U.S. farm goods will enter Chile duty-
free within 4 years, and all duties on U.S. products will be phased out
over 12 years. Key U.S. farm products will benefit from improved market
access, including pork and pork products, beef and beef products,
soybeans and soybean meal, durum wheat, feed grains, potatoes, and
processed food products such as pasta, distilled spirits, and breakfast
cereals. Tariffs on U.S. and Chilean wines will first be equalized at
low U.S. rates and then eliminated.
U.S. farmers will have access to Chile that is as good as or better
than the European Union or Canada, both of which already have FTAs with
Chile. Chilean price bands, under which import duties on the same
product may vary according to price level, will be phased out. During
the phase out, producers of these products will be treated as good as
or better than their competitors with other countries. Elimination of
price bands was not part of the EU or Canada FTAs with Chile. The
Agreement eliminates the use of export subsidies on U.S.-Chilean farm
trade, but preserves the right to respond if third countries use export
subsidies to displace U.S. products in the Chilean market. An
agricultural safeguard provision will help protect U.S. farmers and
ranchers from sudden surges in imports from Chile.
Both parties to the Agreement renew their commitment to continue
the work on resolving important sanitary and phytosanitary issues, such
as meat and dairy inspection and meat grading, that are inhibiting
access to consumers in both markets.
Access to a Fast-Growing Chilean Services Market
The commitments of the Agreement in services cover both cross-
border supply of services (such as services supplied through electronic
means, or through the travel of nationals) as well as 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 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, a so-called ``negative
list'' approach. This establishes market access commitments across a
wide range of sectors of interest to the United States, including but
not limited to: Computer and related services; telecommunications
services; audiovisual services; construction and engineering; tourism;
advertising; express delivery; professional services (architects,
engineers, accountants, etc.); distribution services (wholesaling,
retailing and franchising); adult education and training services; and
environmental services. The express delivery commitment includes an
important and expansive definition of the integrated nature of express
services, and affirms existing competitive opportunities.
Some of the key services commitments are spelled out in more detail
below:
L Financial Services: This chapter includes core obligations of
nondiscrimination, most-favored nation treatment, and additional market
access obligations. U.S. insurance firms would gain full rights to
establish subsidiaries or joint ventures for all insurance sectors
(life, nonlife, reinsurance, brokerage) with limited exceptions. Chile
has committed to phase in insurance branching rights. Chile further has
committed to modify its legislation to allow cross-border supply of key
insurance sectors such as marine, aviation and transport (MAT)
insurance, insurance brokerage of reinsurance and MAT insurance, and
has confirmed existing rights for reinsurance. A new principle of
expedited availability of insurance services means that the parties
recognize the importance of developing and maintaining regulatory
procedures to expedite the offering of insurance services by licensed
suppliers.
L U.S. banks and securities firms may establish branches and
subsidiaries and may invest in local firms without restriction, except
in very limited circumstances, and U.S. financial institutions may
offer financial services to citizens participating in Chile's highly
successful privatized voluntary savings plans. U.S. firms also gain
some increased ability to offer such products through Chile's mandatory
social security system. Chile also will allow U.S.-based firms to offer
services cross-border to Chileans in areas such as financial
information and data processing, and financial advisory services with a
limited exception. Chilean mutual funds may use foreign-based portfolio
managers.
L Telecommunications: Under the Agreement, users of the public
telecommunications network are guaranteed reasonable and
nondiscriminatory access to the network. This prevents local firms from
having preferential or ``first right'' of access to telecommunications
networks. The FTA also provides U.S. phone companies with the right to
interconnect with networks in Chile at nondiscriminatory, cost-based
rates. U.S. firms seeking to build a physical network in Chile are also
granted nondiscriminatory access to facilities, such as telephone
switches and submarine cable landing stations. And U.S. firms will be
able to lease lines on Chilean telecom networks on nondiscriminatory
terms, and to re-sell telecom services of Chilean suppliers to build a
customer base.
Electronic Commerce: Free Trade in the Digital Age
The Electronic Commerce text in the FTA identifies Chile as a
leader in Latin America for the further development of digital trade,
as both countries agreed to provisions on electronic commerce that
reflect the issue's importance in global trade. In the FTA, Chile and
the United States committed to nondiscriminatory treatment of digital
products, agreed not to impose customs duties on such products, and
affirmed that commitments made related to services also extend to the
electronic delivery of such services. For digital products delivered on
hard media (e.g., a DVD or CD), customs duties will be based on the
value of the media (e.g., the disc), not on the value of the movie,
music or software contained on the disc. Finally, both countries agreed
to cooperate in numerous policy areas related to electronic commerce,
including on the maintenance of cross-border flows of information.
Investment: Important Protections for U.S. Investors
The Agreement will establish a secure, predictable legal framework
for U.S. investors operating in Chile, and is consistent with the
objectives regarding investor-state dispute settlement contained in the
Trade Act of 2002. All forms of U.S. investment in Chile are protected
under the Agreement, including 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. The Agreement prohibits and removes certain
restrictions on U.S. investors, such as requirements to buy Chilean
rather than U.S. inputs.
Pursuant to U.S. Trade Promotion Authority, the Agreement draws
from U.S. legal principles and practices, to provide U.S. investors a
basic set of substantive protections that Chilean investors currently
enjoy under the U.S. legal system. Among the rights afforded to U.S.
investors (consistent with those found in U.S. law) are due process
protections and the right to receive a fair market value for property
in the event of expropriation. These investor rights are backed by an
effective, impartial procedure for dispute settlement that is fully
transparent. Submissions to dispute panels and panel hearings will be
open to the public, and interested parties will have the opportunity to
submit their views.
Intellectual Property Rights (IPR): Expanded Protections and
Enforcement
Protection of copyrights, patents, trademarks, and undisclosed
trade information in the U.S.-Chile FTA is state-of-the-art, with
protections that go beyond previous U.S. free-trade agreements.
Enforcement of intellectual property rights is also enhanced under the
Agreement. Some specific aspects of the Agreement's protections for IPR
are listed below.
L Trademarks: The Agreement contains language to ensure that there
is government involvement in resolving disputes between trademarks and
Internet domain names, which is important to prevent ``cyber-
squatting'' of trademarked domain names. The trademark section of the
Agreement also applies the principle of ``first-in-time, first-in-
right'' to trademarks and geographical indicators (place-names) applied
to products. This means that the first to file for a trademark is
granted the first right to use that name, phrase, or geographical
place-name.
L Copyrights: The Agreement's copyright language will ensure that
only authors and other copyright owners have the right to make their
works available online. Copyright owners maintain all rights to even
temporary copies of their works on computers, which is important in
protecting music, videos, software, and text from widespread
unauthorized sharing via the Internet. Under the Agreement, copyrighted
works and phonograms are protected for extended terms, consistent with
U.S. standards and international trends. Strong anti-circumvention
provisions prohibit tampering with technologies (like embedded codes on
discs) that are designed to prevent piracy and unauthorized
distribution over the Internet. The FTA also provides that governments
will only use legitimate computer software, thus setting a positive
example for private users.
L Patents and Trade Information: The Agreement provides that a
patent term can be extended to compensate for up-front administrative
or regulatory delays in granting the original patent, consistent with
U.S. practice. The FTA specifies that grounds for revoking a patent are
limited to the same grounds required to originally refuse a patent,
which helps to protect against arbitrary revocation. And test data and
other information submitted to a government for the purpose of product
approval will be protected against disclosure or unfair commercial use
for a period of 5 years for pharmaceuticals and 10 years for
agricultural chemicals. Finally, the IPR provisions ensure that
government marketing-approval agencies will not grant approval to
products that infringe patents.
L IPR Enforcement: The FTA contains commitments that party
governments will criminalize end user piracy, thus providing a strong
deterrence against piracy and counterfeiting. The Chilean government
guarantees that it has authority to seize, forfeit, and destroy
counterfeit and pirated goods and the equipment used to produce them.
The Agreement specifies that IPR laws will be enforced against goods-
in-transit, to deter violators from using U.S. or Chilean ports or
free-trade zones to traffic in pirated products. Enforcement officials
may act on their own authority in border and criminal IPR cases without
waiting for the filing of a formal complaint, thus providing more
effective enforcement. Finally, the Agreement mandates both statutory
and actual damages under Chilean law for IPR violations. This will
serve as a deterrent against piracy, and provide that monetary damages
can be awarded even if actual economic harm (retail value, profits made
by violators) cannot be determined.
Competition Policy: Protections Against Monopolistic Behavior
The U.S.-Chile FTA commits Chile to maintain competition laws that
prohibit anti-competitive business conduct, and a competition agency to
enforce those laws. The Chilean laws already promote economic
efficiency and consumer welfare, making clear the appropriate objective
of competition laws.
The Agreement also requires that Chile control state enterprises
and officially designated monopolies so that such firms do not abuse
their official status to harm the interests of U.S. companies or
discriminate in the sale of goods or services.
Government Procurement: Setting a Precedent for the Hemisphere
The FTA requires that covered Chilean ministries, as well as
regional and municipal governments, not discriminate against U.S.
firms, or in favor of Chilean firms, when making government purchases
in excess of agreed monetary thresholds. It furthermore imposes strong
and transparent disciplines on government procurement procedures, such
as requiring advance public notice of purchases, as well as timely and
effective bid review procedures.
The FTA covers the purchases of most Chilean central government
agencies, and covers 13 regional governments, 10 ports and all airports
that are property of the state or dependents of the Direccion de
Aeronautica Civil, and more than 350 municipalities in Chile.
Importantly, the FTA ensures that bribery in government procurement
is specified as a criminal offense under Chilean and U.S. laws. This
furthers the anti-corruption goals set out by hemispheric leaders at
the Summit of the Americas in Quebec City in 2001.
Ground-Breaking Customs Procedures
The U.S.-Chile FTA is one of the first U.S. trade agreements with
specific, concrete obligations on how customs procedures are to be
applied. The Agreement requires transparency and efficiency in customs
administration, with commitments on publishing laws and regulations on
the Internet, and ensuring procedural certainty and fairness. Both
parties agree to share information to combat illegal trans-shipment of
goods. In addition, the Agreement contains specific language designed
to facilitate the clearance through customs of express delivery
shipments.
Strong but simple rules of origin will ensure that only U.S. and
Chilean goods benefit from the Agreement. The rules are specific to
individual products, but are designed to be easier to administer than
NAFTA rules of origin.
Temporary Entry of Personnel
The Agreement contains provisions for the temporary entry of
business visitors, including intra-company transferees and
professionals. The Administration believes that the temporary entry
provisions strike a careful balance between the needs of the U.S.
service industry to provide competitive services while preserving the
right of Congress to legislate on immigration policy. Under these
provisions, a professional visa category would be established.
Environmental Provisions: Cooperation to Protect the Environment
The FTA fully meets the environmental objectives set out by
Congress in the Trade Act of 2002. Significantly, environmental
obligations are part of the core text of the Trade Agreement. Both
parties commit to ensure that their domestic environmental laws provide
for high levels of environmental protection and shall strive to
continue to improve such laws. The Agreement's text makes clear that it
is inappropriate to weaken or reduce domestic environmental protections
to encourage trade or investment.
Reflecting the bipartisan compromise struck in the Trade Act, the
FTA requires that parties shall effectively enforce their own domestic
environmental laws, and this obligation is enforceable through the
Agreement's dispute settlement procedures.
In addition, the Agreement contains an annex identifying a number
of important cooperative projects that will promote environmental
protection. Projects include:
LBuilding capacity for wildlife protection and resource
management in Latin America through collaboration with wildlife
managers, universities, and local communities.
LA project to develop and implement effective alternatives
to methyl bromide, a chemical that Chile and the United States have
committed to phase out under international environmental agreements.
LDevelopment of a Pollutant Release and Transfer Register
(PRTR) in Chile, similar to the successful Toxic Release Inventory in
the United States. The PRTR is a publicly available database of
chemicals that have been released by industrial facilities into the
environment.
Labor Provisions: Promotion of Worker Rights
Significantly, labor obligations are part of the core text of the
Trade Agreement. Both parties reaffirm their obligations as members of
the International Labor Organization (ILO), and shall strive to ensure
that their domestic laws provide for labor standards that are
consistent with internationally recognized labor principles. The
Agreement makes clear that it is inappropriate to weaken or reduce
domestic labor protections to encourage trade or investment.
Reflecting the bipartisan compromise struck in the Trade Act, the
Agreement requires that Parties shall effectively enforce their own
domestic labor laws, and this obligation is enforceable through the
Agreement's dispute settlement procedures.
The Agreement also contains a cooperative labor mechanism to
promote respect for the principles embodied in the ILO Declaration on
Fundamental Principles and Rights at Work, and compliance with ILO
Convention 182 on the Worst Forms of Child Labor. Cooperative
activities may include:
LDiscussions of legislation, practice, and implementation
of the core elements of the ILO Declaration on Fundamental Principles
and Rights at Work.
LImproving systems for the administration and enforcement
of labor laws.
Dispute Settlement: Innovative New Tools
All core obligations of the Agreement, including labor and
environmental provisions, are subject to the dispute settlement
provisions of the Agreement. The procedures for dispute panel
procedures set new and higher standards of openness and transparency,
reflecting the guidance from Congress in the Trade Act. For example,
the Agreement provides that dispute settlement proceedings will be open
to the public, that legal submissions by parties to a dispute will be
released to the public, and that interested third parties will have an
opportunity to submit their views to dispute settlement panels.
Dispute settlement procedures in the FTA promote compliance through
consultation and trade-enhancing remedies, rather than relying solely
on trade sanctions. The FTA dispute settlement procedures also provide
for ``equivalent'' remedies for commercial and labor/environmental
disputes. The FTA achieves this through an innovative new enforcement
mechanism that involves the use of monetary assessments to enforce
commercial, labor, and environmental obligations of the Trade
Agreement. Suspension of preferential tariff benefits under the
Agreement is also available for all disputes, but the mechanism is
designed in all cases to seek remedies that will enhance compliance
with the obligations of the Agreement, rather than restricting trade
and harming ``innocent bystanders.''
Chairman CRANE. No, thank you. We appreciate you being
here, Mr. Allgeier. I have heard many complaints from
businesses that they have been placed at an unfair disadvantage
vis-a-vis their foreign competitors located in countries with
which Chile already has FTAs. Will this agreement immediately
put our exporters on a level playing field with their
international competitors?
Mr. ALLGEIER. Yes, sir, it will. First of all, all the
agriculture will immediately be on a par or better--our access,
that is, in agriculture will be on par or better with foreign
competitors. On the industrial side, all those areas in which
an industry or a sector has identified itself as being at a
disadvantage will be in the immediate basket as well. Similarly
for services. All of those new obligations will come into force
upon entry of the agreement.
Chairman CRANE. I am still hearing that Singapore's
implementation of its commitment on chewing gum has not yet
been resolved. Is the U.S. Trade Representative continuing to
support Wrigley in its effort to conclude with Singapore an
acceptable means of implementation that will allow some chewing
gum to be sold in Singapore without a prescription?
Mr. ALLGEIER. Yes, Mr. Chairman. We are continuing to work
with Wrigley and with the Singaporean authorities to provide
the maximum possible flexibility for Wrigley and other gum
manufacturers to sell their product in Singapore. In that
regard, I think you are aware that Minister Yeo of Singapore
actually met with people from Wrigley when he was here for the
signing ceremony, and I think that is a positive sign from
Singapore that they are prepared to work with us on this issue
as well.
Chairman CRANE. Very good. Thank you so much. Mr. Levin.
Mr. LEVIN. Welcome. You have laid out some of the clear
advantages and advances in the agreements, and I think it is
clear there are some. Let me, therefore, focus on some of the
issues.
I want to talk about ISI, but let me first discuss briefly,
leaving time for ISI, the core labor standards and
environmental issues. Let's say that the Chilean government saw
a change in its majority. This is theoretical. There was a
return to power of those who had written the labor laws some
decades ago, and as a result there was a change so that there
were clear restrictions on the ability of employees to organize
and bargain collectively in violation of ILO core labor
standards. What would be the remedy that could be pursued by
the United States if there were that change of circumstances?
Mr. ALLGEIER. Well, if----
Mr. LEVIN. They were enforcing those laws as were written.
Under this agreement, what would be our available remedy?
Mr. ALLGEIER. Okay. We would certainly look at the totality
of the labor provisions, which means that countries are not to
derogate from their labor laws or waive them in order to gain
trade or investment advantage. As you said, they are to enforce
their laws, and the implication of your question is they change
their laws and then they enforce lax laws.
Mr. LEVIN. Let's say they do that. What is the available
remedy under this agreement?
Mr. ALLGEIER. Under this agreement I think that we would
certainly look to argue that there had been--that they had not
lived up to the spirit of the agreement in the sense that they
are to strive for high levels of labor protection.
Mr. LEVIN. What would be our remedy?
Mr. ALLGEIER. We would go through the dispute settlement
mechanism.
Mr. LEVIN. What is subject to the dispute--the strive to
achieve core labor standards isn't subject to the dispute
settlement system, right?
Mr. ALLGEIER. Okay. Right.
Mr. LEVIN. So, what would be--if they were enforcing their
own laws, and they were, in our judgment, in clear violation of
core ILO labor standards, the five standards, what would be the
available remedy?
Mr. ALLGEIER. I think that one would look at what the
expectations are at the time one signs an agreement. We have,
in respect to any part of a trade agreement, that when one
looks at implementing the laws of Chile, one is looking at it
from the perspective of the laws that are in effect now. Now--
--
Mr. LEVIN. I want to ask you about ISI. The answer is that
the way the agreement is written, this strive to implement core
labor standards is not subject to the dispute settlement
system, right?
Mr. ALLGEIER. That is correct.
Mr. LEVIN. Therefore, if they were enforcing their own
laws, though they--and the nonderogation provision is not
subject to the dispute settlement system either, right?
Mr. ALLGEIER. That is correct.
Mr. LEVIN. All right. So, therefore, if they revert, we
have no utilization available under the dispute settlement
system.
Mr. ALLGEIER. Well, in all trade agreements there is this
notion of what are reasonable expectations.
Mr. LEVIN. I know, but----
Mr. ALLGEIER. So, that----
Mr. LEVIN. It is what is written into the agreement. So,
the answer is that there isn't an available remedy. I think you
should say that, and I don't think--I am not saying it is
likely that Chile would revert. I would hope not. Clearly, it
shows that to utilize that model, that standard, that example,
as you say, for countries that do not have the core labor
standards in their agreement, in their laws, and don't practice
them, it is a very unfortunate and, I think, illogical and
contradictory utilization. That is what has been positioned in
the CAFTA negotiation.
So, I want to ask you about ISI. Right now, machine tool
components are subject to--machine tools have a local content
provision. There is a lot of worry about the ISI provision. It
is available for any country. So, let's say that Singapore, in
order to put together their machine tools, bring in components
from, say, Japan or China. Right now the way the agreement is
written, those components could count as Singapore value-added
or Singapore content in terms of meeting the local content
requirement, right?
Mr. ALLGEIER. If we are talking about ISI, there is a
specific list of information technology (IT) products.
Mr. LEVIN. Machine tools are listed under 8466. Machine
tools are included. So, I am asking you, let's say the
components come from China or Japan, and the imports--those
exports have been increasing components of machine tools.
Singapore could count those components essentially as Singapore
content to meet the--I think it is the 35 percent content
requirements, right?
Mr. ALLGEIER. Not if they are coming from Japan or some
country other than those processing zones in Indonesia that are
part of the ISI.
Mr. LEVIN. Ambassador, I think that is not correct. The red
light is on. I don't think that is correct, and what I would
like you to do--and I am not suggesting that this is a flaw
that necessarily militates one way or another in terms of final
judgment, but it surely sets a dangerous precedent. Also, it is
of concern, and we need a straight answer from you because it
is possible in the implementation legislation to take care of
this problem. I think I asked you this point blank. If a
component for a machine tool under 8466 comes into Singapore
incorporated, does that count as Singapore content in order for
them to ship under the reduced tariffs to the United States? I
want a straight yes or no.
Mr. ALLGEIER. I will get you the correct answer to that,
the accurate answer to that.
Mr. LEVIN. Thank you.
[The information follows:]
February 9, 2004
The Honorable Sander M. Levin
Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515
Dear Congressman Levin,
No. The ISI provides that a product listed in Annex 3B of the
Singapore FTA, already MFN duty-free, is an `originating good' for
purposes of FTA tariff preference, but only if that product itself is
shipped from one FTA party to the other. Thus, if such a product is
shipped to Singapore from a non-FTA party (e.g., Japan or China) and
used in Singapore as an input for a downstream product, that ISI good
could not count as FTA-originating toward a required regional value
content criterion that may be applicable to a final product assembled
in Singapore.
The only way that an ISI product could possibly be treated as an
originating input for purposes of a regional value content applicable
to a downstream product would be if the ISI product from a non-FTA
party were first shipped to the United States, then held without
undergoing any processing that would affect its treatment under Chapter
3 of the FTA, then shipped to Singapore, and then manufactured in
Singapore into a non-ISI good without undergoing any intermediate
production steps that would affect treatment of the product under
Chapter 3. It is difficult to conceive that this type of transaction
would be economically rational for any of the products on the ISI list
or any of the products to which a regional value content requirement
may be applicable.
Sincerely,
Peter F. Allgeier
Chairman CRANE. The time of the gentleman has expired. Mr.
English.
Mr. ENGLISH. Thank you, Mr. Chairman. Ambassador Allgeier,
I, first of all, want to thank you for everything that your
office has done to cooperate with us, and specifically with my
office, on some of our concerns with these two agreements. I
would like to focus, for the most part of my questioning, on
the Singapore agreement.
As you know, I represent a manufacturing district. Among
the sectors that have been particularly hard hit in my district
are the domestic tool and die industry. I wonder, have you
analyzed the potential impact of this agreement on the tool and
die industry? I wonder specifically, would you anticipate that
there would be a significant increase in competition to small
U.S. manufacturers resulting from the Singapore FTA?
Mr. ALLGEIER. We would not expect a significant negative
impact. However, I want to assure you that we would work--we
will continue to work closely with that industry. We know that
they have some concerns about possible trans-shipment, and we
certainly do not want other countries beyond Singapore to
benefit from this agreement.
Mr. ENGLISH. In other words, you would characterize the
domestic producers in Singapore of these sorts of products as
not particularly export-oriented. So, the principal challenge
would be with trans-shipment?
Mr. ALLGEIER. Our principal concern would be with trans-
shipment, and that is something that we would--we have
highlighted in terms of the customs cooperation with Singapore,
and particularly the emphasis on detecting and protecting
against trans-shipment from others who are not part of this
agreement.
Mr. ENGLISH. Could you please describe the provisions in
the FTA which protect U.S. manufacturers, for example, from
products from China entering the United States at tariff rates
set forth in the Singapore FTA?
Mr. ALLGEIER. Well, the basic protection against that is
the rule of origin, that there does have to be a transformation
within Singapore itself. It cannot simply serve as a conduit
for products from other areas. Frankly, given the region in
which Singapore is located and the very competitive industry,
not just in tool and die and others like that, but across the
board, we have paid particular attention to this question of
protecting against or avoiding trans-shipment both in things
like tool and die, but also in areas such as textiles and
intellectual property areas.
Mr. ENGLISH. Also, could you please indicate if you think a
greater level of protection against transshipped products will
exist if an FTA with Singapore is approved as opposed to the
current relationship and why?
Mr. ALLGEIER. I think that it will improve, primarily
because of this enhanced customs cooperation that will be part
of this agreement. Also, frankly, the discussions that we had
in the course of negotiations I think has heightened all of our
attentiveness to this, and particularly the authorities in
Singapore. They know that they can't afford to have this
agreement turn out to be a conduit for goods from other
countries, and they are very conscientious about avoiding that.
Mr. ENGLISH. Moving beyond the trans-shipment point, what
manufacturing sectors could anticipate competition from
Singapore specifically as a result of this FTA?
Mr. ALLGEIER. Well, to be perfectly honest, our duties at
this point are so low that this agreement does not enormously
enhance Singapore's access to our market in industrial
products.
Mr. ENGLISH. Well, I think that is very useful. Could you
apply the same analysis to Chile? Do you anticipate that there
are going to be sectors of our manufacturing economy that are
going to face increased competition as a result of a Chilean
FTA?
Mr. ALLGEIER. I think in the case of Chile it is even less
a threat, because Chile, unlike Singapore, is a beneficiary of
the generalized system of preferences, and so, for a large
array of products, they already get them duty free under that
program.
Mr. ENGLISH. Thank you, Ambassador, and thank you, Mr.
Chairman, for giving me an opportunity to pose these questions.
Chairman CRANE. Mr. Neal. Is Mr. Neal here?
Mr. LEVIN. No. He will be back.
Chairman CRANE. Mr. Herger.
Mr. HERGER. Thank you, Mr. Chairman, and, Mr. Ambassador, I
want to thank you again for appearing before our Subcommittee.
I want to commend the U.S. Trade Representative for the
outstanding job he has done in negotiating both the Singapore
and Chile FTAs. These agreements will bring down barriers to
trade and encourage job creation and economic growth both at
home and abroad.
I am especially pleased that the Chile agreement is
sensitive to the very real concerns of many of our California
agricultural producers, particularly those in the horticultural
sector. I hope that these strong agreements will serve as a
model for future trade agreements. Speaking of future trade
agreements, Congress has consistently stressed the need for
provisions in our trade agreements that provide for the
protection and enforcement of American intellectual property
rights that are up to date with the latest technological
developments.
The Singapore and Chile FTAs achieve this result. However,
we have recently seen reports that Brazil is advocating weaker
intellectual property rights standards or even none at all with
respect to the provisions on intellectual property protection
and enforcement as part of the FTAA. It would be very troubling
if the Administration accepted such an outcome. I would
appreciate your views on this important issue, including
whether you might consider such an outcome.
Mr. ALLGEIER. As I said in my presentation, one of the
things that we are most proud of about these agreements is that
they reflect the real-world situation, and particularly with
respect to two things; one, the advancement of technology in
our own economy, and the degree to which we are dependent on
that, and second, the related one, which is that knowledge is
an important factor of production and competitiveness. So, a
prime objective of ours is to ensure that Americans exercise
those skills and those attributes for their economic welfare.
That specifically means very strong protection for intellectual
property--very up to date for intellectual property. Wherever
we are negotiating bilaterally, regionally or globally, high
standards of protection for intellectual property is our
primary objective, and we continue to seek that in all our
negotiations, including the FTAA.
Mr. HERGER. I thank you very much, Mr. Ambassador. Again,
thank you for appearing before us.
Mr. ALLGEIER. Thank you.
Chairman CRANE. Mr. Ramstad.
Mr. RAMSTAD. Thank you, Mr. Chairman. Mr. Ambassador, I
would like to begin by commending you and your colleagues at
the Office of the U.S. Trade Representative for the successful
negotiations on these important trade agreements with Chile and
Singapore. Now that these FTAs are near completion, I would
like to hear your thoughts on other potential negotiating
partners.
As you may know--and as the U.S. Trade Representative
knows--I have long advocated negotiating trade agreements with
Taiwan and Colombia, because I believe they would strengthen
diplomatic ties and key U.S. interests, as well as provide
economic benefits to all three countries. So, now that the
Chile and Singapore agreements are nearing completion, let me
ask you this: How do you decide where to look next? That is my
first question. How do you decide where to look next? Do you
see Taiwan and Colombia as negotiating partners of the future?
Mr. ALLGEIER. Okay. Thank you. First of all, of course we
do--we don't have an empty dance card with respect to
negotiations at the moment just because we have completed Chile
and Singapore. We are in the midst of negotiations with the
five Central American countries, with Morocco, with Australia,
and with the five Members of the South African Customs Union.
So, on the so-called bilateral and subregional side, that is
our next set of negotiations.
There are a number of countries and economies that have
approached us about free trade negotiations, including the two
examples that you gave. What we are doing is we are working
with those countries that are interested in free trade to
promote free trade wherever possible, even short of doing a
free trade negotiation at this point. For example, within the
WTO, both Taiwan and Colombia are Members of the WTO. We work
with them there. We also use bilateral mechanisms such as we
have with Colombia or other Andean countries to point them in
the direction of the kinds of policies that would be compatible
with an FTA with the United States if we get to that point.
In terms of criteria that we use, it is a variety of
criteria. We look, certainly, at commercial benefit, and the
commercial benefit can be either immediate in dollars-and-cents
sort of balance sheet terms, or it can be a benefit in terms of
setting a good example in a region or in a particular area that
others can emulate. Obviously, we look at the commitment of the
other potential partner not just by what they say they are
interested in, but their behavior within the WTO or in regional
negotiations such as the FTAA, to see if they really are
advocating more open trade policies in those forums. We look,
obviously, at how it may benefit the reform efforts in those
countries, whether those reforms are reformed in privatization
of state enterprise, or in social reforms, having to do with
protection of environment or labor or transparency in
government procurement. Countries that are making reforms, and
in which international obligations would help to make those
reforms irreversible, also are good candidates. So, it is a
variety of criteria.
Mr. RAMSTAD. So, based on your description of the criteria
for negotiating partners, is it fair to conclude that either or
both Taiwan and Colombia are prospective negotiating partners?
Mr. ALLGEIER. Well, I don't want to speculate on the
situation of specific countries here today because that will
just generate headlines that there is another country on the
list. Let me just say that we are working constructively with
all countries that indicate that they want to move to freer
trade with the United States. The two examples that you gave
are two that we are working with in the WTO and elsewhere.
Mr. RAMSTAD. So, they meet your criteria.
Mr. ALLGEIER. Well, there have been no decisions made on
either those countries or any other countries beyond the ones I
mentioned.
Mr. RAMSTAD. You just explained your criteria, and then you
said and these two countries--I can't remember your exact
words, but I think it is a fair restatement to say that these
two countries meet those criteria that you outlined.
Mr. ALLGEIER. Well, the criteria are looked at, frankly, by
an interagency group, not just by the U.S. Trade
Representative. So, I am not in a position today to speak on
behalf of the interagency group that there has been a decision
that these two countries or any other two have met the criteria
at this point.
Mr. RAMSTAD. Well, far be it for me to pin you down, but I
just appreciate your explanation. I think it is an important
subject matter, and I hope, Mr. Ambassador--and my time has
just expired--but I hope that both Taiwan and Colombia are
prospective negotiating partners as well as many other
countries. Thank you very much for your good work.
Mr. ALLGEIER. We would be very happy to sit with you and to
talk in more detail about our relations with these two trading
partners and how they stack up in terms of criteria.
Mr. RAMSTAD. I know my colleague on the other side of the
aisle here, Mr. Jefferson who was here just briefly--he is a
cosponsor of H. Con. Res. 98 expressing the sense of Congress
that the United States should launch negotiations on an FTA
with Taiwan--I know he would like to be in that meeting as
well. We look forward to it. Thank you very much.
Mr. ALLGEIER. Sure.
Chairman CRANE. Thank you. Mr. Tanner.
Mr. TANNER. Mr. Becerra was here first, Mr. Chairman.
Chairman CRANE. Well, I have got you in order of your
appearance.
Mr. TANNER. I pass.
Chairman CRANE. Yes. All right. Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman, and thank you, Mr.
Tanner. Ambassador, good to see you again. Thank you for being
with us. Always appreciate your testimony. A couple of
questions. I know that there are a lot of accolades that are
being expressed with regard to some of the provisions that were
reached in the two accords with Chile and Singapore. My
understanding is that there has been some concern expressed
that the accord with Chile differs with--compared to that one
with Singapore--when it comes to the issue of intellectual
property, in some degrees. I was wondering if you could tell me
why there is a difference in the treatment between the two
agreements with regards to intellectual property.
Mr. ALLGEIER. I don't think that there is any fundamental
difference in terms of the level of protection or the
comprehensiveness of protection. In the intellectual property
chapter, as in all the chapters, the situations of individual
countries are different, and so for example, certain aspects of
the issue need to be emphasized in one agreement rather than
another.
For example, in Chile, one of the concerns--the concern
with patent treatment is greater than the concern with patent
treatment in Singapore. So, therefore, there needed to be more
detail in things like patent treatment and enforcement in the
Chile agreement than in Singapore. What we did strive to do in
these cases is to have the same very high level of intellectual
property protection and comprehensiveness.
Mr. BECERRA. Now I understand that the transitional period
for implementation under the Chile accord is longer than it is
under the Singapore accord. Is that because of what you have
just indicated, the circumstances differ by country?
Mr. ALLGEIER. You are just talking specifically with
respect to intellectual property?
Mr. BECERRA. Intellectual property, correct.
Mr. ALLGEIER. Yes. You see that also in the other parts of
the agreement, in the merchandise trade part.
Mr. BECERRA. So, if you had to venture an estimation here,
which accord do you think we would follow in future trade
negotiations with other countries when it comes to intellectual
property, the provisions that we found in the Chile accord or
the provisions we found in the Singapore accord?
Mr. ALLGEIER. Well, that would depend on the situation of
the country that we were negotiating with. For example, if we
were negotiating with a country that had a very weak protection
or enforcement and copyright, we would emphasize that, but the
aim is to get the protection up to the level for everybody.
Mr. BECERRA. So, we have to take the circumstances as they
come to us for each country.
Mr. ALLGEIER. Exactly.
Mr. BECERRA. Now you mentioned a little earlier when you
were reading your written statement that you thought that the
Chile and Singapore agreement set examples for the future
course of our trade accords with other countries. With regard
to the issues of labor and environment, and specifically here
with labor, the agreements with Chile and Singapore speak only
to the effective enforcement of domestic laws--existing
domestic laws.
Now, if that is to be used as a template into the future,
then it doesn't help us take into account the circumstances of
the particular country or countries we may be negotiating with.
So, the question I would pose to you is Chile and Singapore--we
understand both have much better laws in place and much better
enforcement of those laws than do other countries. I think
every country in Central America would agree with us right now
that their enforcement and their existing laws that they have
in place do not match what Chile and Singapore have. So, when
you say you want to take the Chile and Singapore agreements as
models, does that mean we take them as rigid models, or do we
have to bend them toward the circumstances of the particular
countries we are negotiating with as you did with regard to
intellectual properties for Chile and Singapore?
Mr. ALLGEIER. No. I think throughout these agreements,
whether it is in access for merchandise, services, intellectual
property, or labor and the environment, these agreements are
models in the, shall I say, the macro sense; that they set a
level of ambition, they set an approach, a direction----
Mr. BECERRA. Would this approach be sufficient for the
Central America negotiations?
Mr. ALLGEIER. Well, specifically labor and environment. Let
me address that. So, by that I mean these would be examples in
the following sense. There are three elements, broad elements,
in our approach to labor and environment here. One is, of
course, the elements of the--whatever obligations we have in
the trade agreement. The other is through the dialog that we
have with countries during the negotiations.
Mr. BECERRA. Ambassador, let me stop you on that one point.
With regard to the provisions in the agreement, are either the
provisions in the Singapore or Chile agreements with regard to
labor sufficient for your negotiations with Central America,
when you speak directly about a provision dealing with
enforcement of existing domestic laws?
Mr. ALLGEIER. Well, that will be part of our ongoing dialog
with them, and it depends in part on what changes in their laws
they make during the negotiating process.
Mr. BECERRA. Does the U.S. Trade Representative or does the
Administration currently believe that the existing laws and
enforcement by Central American countries is sufficient to
allow them to have similar language to what we have in Chile
and Singapore on labor?
Mr. ALLGEIER. We are not finished with our dialog with
them, so I can't draw a conclusion until we see what they are
prepared to do. If I just mention the last element is the
cooperation to increase the institutional capability of these
countries to carry out laws and to enforce the labor standards
that are in the agreement. So, we do look to the specific
circumstances within the broad context of the kinds of
agreements that we have negotiated with Chile and Singapore.
Mr. BECERRA. Ambassador, thank you. Mr. Chairman, my time
has expired. I thank the Ambassador for being here, and I hope
you will consider what we are saying with regard to our
concerns about using the agreements as templates, when, in
fact, we do have to look at the particular circumstances of the
countries; and with regard to labor, since it is treated in a
subordinate fashion to other areas of interest, intellectual
property and others, that we take a very close look at how we
will make sure that we don't subordinate the interests of our
working men and women in this country with regard to these
trade agreements.
Chairman CRANE. Ms. Dunn.
Mr. ALLGEIER. We are very happy to work with you further as
we get a refined appreciation of what the situation is and can
be in these countries.
Mr. BECERRA. Thank you, Ambassador. Thank you, Mr.
Chairman.
Ms. DUNN. Thank you, Mr. Chairman. Welcome, Ambassador. The
Chile and Singapore FTAs include a yarn forward rule of origin
for apparel trade, which requires that the yarn and the fabric
that are used to make clothing must originate in the FTA zone.
I have heard views expressed by U.S. apparel manufacturers and
by retailers and also by importers that this rule of origin is
too restrictive to generate new trade and may even act to
discourage apparel sourcing from these two countries. What is
the Administration's position with respect to the yarn forward
rule of origin for textile and apparels? Do you believe there
is a better way to deal with this issue that provides greater
flexibility to our manufacturers and our retailers?
Mr. ALLGEIER. Our position is that we are trying to strike
an appropriate balance among the different interests, meaning,
obviously, our domestic industry, our retailers, our consumers,
and also the interests of the trading partner. We think that
the proper balance is the combination of the yarn forward rule
of origin, with some provision for tariff preference levels
which allow these countries to use fabric from outside either
the United States or their countries. That is the best way to
get the balance that this--trade practices and licensing also
helps the flexibility that the retailers are seeking.
Ms. DUNN. You will pursue this combination.
Mr. ALLGEIER. This is the approach that we have taken in
NAFTA, which, of course, has been very successful in this
regard, and the approach that we take in the Chile and
Singapore agreements. I would expect we would take some similar
approach with respect to Central America.
Ms. DUNN. Great. Thank you. I am also concerned about the
enforcement of the intellectual property rights in these
agreements. In the most recent special 2003 report, the U.S.
Trade Representative listed Chile on the watch list. In fact,
the U.S. Trade Representative reported that Chile's laws are
not yet fully TRIPS consistent. The U.S. Trade Representative
also expressed concerns with Chile's large backlog of pending
patent applications.
I have heard from people I represent regarding the lack of
enforcement of intellectual property rights in Chile. For
example, delays in consideration of intellectual property cases
dealing with counterfeiting in the Chilean judicial system have
resulted in legal expenses for the legitimate owners, while
those who have actually violated intellectual property laws
have not been penalized. I understand that in this agreement
there are strong intellectual property rights provisions
including enforcement--in fact, in both agreements. At the same
time, if countries fail to comply or enforce TRIPS, it will be
very, very tough for them to also comply or enforce the
provisions in these FTAs.
I would like to know what will happen if countries that
enter into FTAs with the United States fail to meet their
intellectual property rights obligations. Is there anything in
the FTAs that will require our trading partners to make changes
in their laws and their regulations to ensure compliance and
enforcement? What is the U.S. Trade Representative doing to
help developing countries improve their intellectual property
rights standards?
Mr. ALLGEIER. Okay. First of all, the problems that you
cited with respect to Chile and vis-a-vis the TRIPS--and
particularly in the patent area and the backlog of patent
applications--is a serious problem that we have highlighted,
and it needs to be fixed as part of their implementation of the
FTAA. If a country does not abide by the obligations, the
intellectual property obligations, in an FTA, we have recourse
to dispute settlement under that agreement. If it is also a
violation, a noncompliance with their WTO obligations, we have
recourse to dispute settlement.
In the case of Chile, our judgment is at the point that
they are taking this seriously enough that we do not favor
taking a dispute settlement case under the WTO. If we do not
see prompt compliance with the WTO and full compliance with the
FTA, we would then make a decision about dispute settlement in
one of those two fora.
With respect to developing countries generally, this is an
area in which capacity building and institutional strengthening
is very important. Having a well-functioning patent office and
copyright system are base obligations, and really essential to
attract investment--therefore, we include this as part of our
work with these countries.
Ms. DUNN. Thank you, Ambassador. I do have constituents
touched by this unfortunate situation, costing them many
hundreds and thousands of--sometimes millions of dollars, and
so, we will be watching with great interest. Thank you. Thank
you, Mr. Chairman.
Chairman CRANE. Thank you. Mr. Shaw.
Mr. SHAW. Thank you, Mr. Chairman. I wanted to follow up on
what Ms. Dunn was talking about with regard to the yarn forward
rule of origin for the textile and apparel industry. I have
filed a bill along with Chairman Crane and Congressman Rangel
which would apply provisions to Haiti with regard to the
country of origin. Specifically, it would provide that these
yarns would not only be eligible coming from the United States,
but coming from other countries for which we have FTAs,
basically. There is a percentage cap which is very low on their
production.
I doubt that you have had an opportunity to review that
bill, but, if you would, I would very much appreciate your
comments with regard to it. We have got very desperate
situations down in Haiti. We are every day finding more and
more people trying to escape the life of poverty and come to
the United States illegally, and many of them are being
returned, and it is a very sad situation. It is one that I
think we can go a long way toward helping if we can help create
jobs in Haiti. I think the poverty level down there is 80
percent. The unemployment rate is 70 percent, and it is a very
desperate situation. Hundreds of thousands of kids living on
the streets, the HIV/AIDS (Human Immunodeficiency Virus/
Acquired Immune Deficiency Syndrome) problem is just horrible,
and there just seems to be no hope for these people unless they
can escape that island. If you would care to comment, I would
welcome your comments.
Mr. ALLGEIER. First of all, we are very aware of the
situation in Haiti, and through the work in the FTAA. With
respect to the specific legislative proposal that you referred
to, I would have to get back to you with a response to that,
and I will be happy to do that.
[The information follows:]
January 30, 2004
The Honorable E. Clay Shaw, Jr.
Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515
Dear Congressman Shaw,
Thank you, Mr. Shaw, for your question and for your interest in the
economic and political development of Haiti. As you know, Haiti is an
original beneficiary of the U.S. unilateral trade preference program,
the Caribbean Basin Initiative (CBI). Under CBI, U.S. imports from
Haiti have grown to approximately $255 million, mainly in apparel. CBI
has clearly made a positive contribution to supporting an important
economic sector in Haiti. Further, the economies of Haiti and the
Dominican Republic are linked, in particular through apparel factories
close to the border. We are currently working to bring the Dominican
Republic into the recently concluded Central American Free Trade
Agreement (CAFTA). Economic growth in the Dominican Republic should
have a positive effect on Haiti. We will be working with the Congress
to ensure that the integration of the Dominican Republic into the CAFTA
takes into account Haiti's current situation.
While the Administration has not yet established a position on the
bill you've introduced, which is intended to augment the benefits Haiti
currently receives under CBI, we understand Haitian business leaders
believe it could spur investment in the apparel sector and create new
jobs in the apparel sector in Haiti. You have also made the case that
such new benefits could serve as a strong motivator for improved
political and economic governance by the Government of Haiti in
response to the bill's conditionality in those areas. These are
important institutional goals that the Administration shares with you.
USTR is always eager to work with Congress to develop strategies to
help this troubled country.
Sincerely,
Peter F. Allgeier
Mr. SHAW. I appreciate that. One other thing, Mr.
Ambassador, that I would like to call to your attention, that I
know that you are somewhat familiar with it, is to extend to
you my strong recommendation for the Administration to openly
support the selection of Miami, Florida, as a permanent home of
the FTAA Secretariat. Miami is a center of trade throughout the
Americas, and I believe placing the Secretariat on our shores
is tremendously important in promoting free trade throughout
the Americas.
Also, as anyone knows who has traveled to Miami/Dade County
in the last 15 or 20 years, it is a bilingual city. It is one
in which we have got great transportation in and out by air,
and I think it is also one that I think our foreign visitors
would be very comfortable spending time in with the permanent
home of the Secretariat situated there. If we continue to go
ahead with more than one city vying for that position, I think
that would certainly make us less competitive in the market of
having the Secretariat permanent home on our shores.
Mr. ALLGEIER. Thank you, Mr. Shaw. Certainly we want to be
fair to all cities in the United States. I will simply say that
we greatly appreciate the fact that Miami volunteered to serve
as the first phase of the administrative Secretariat of the
FTAA when we were getting those negotiations started. We are
looking forward to a very successful ministerial in November in
Miami, and I know that Ambassador Zoellick felt that the
signing of the Chile agreement last week in Miami was a very
successful event as well. So, we are very appreciative of the
hospitality and the effectiveness of the Miami community.
Mr. SHAW. In closing, the Congress, the U.S. House of
Representatives, did pass a resolution in the last Congress
calling on the Secretary to support Miami's application for the
Secretariat. Thank you.
Chairman CRANE. Thank you. Mr. Camp.
Mr. CAMP. Thank you, Mr. Chairman. First, Mr. Ambassador,
on a related topic, I want to thank you for the Office of the
U.S. Trade Representative's efforts and persistence in
resolving the issue at the Mexican border involving dried
beans. As you well know, the holdup of those dried beans is
costing farm families tens of millions of dollars, and I want
to thank you for your efforts there.
I have some questions regarding the automobile industry.
Obviously, as you know, that is a major sector in our economy,
representing about 10 percent of U.S. exports--and that is
whether we are talking about U.S.-Chile or U.S.-Singapore FTAs,
or the many others that are active in discussion. I appreciate
your dedication in keeping that industry really at the
forefront of some of the topics; but I had a couple of
questions.
Does the U.S.-Chile FTAA provide the U.S. automotive
industry with a commercially beneficial automotive rule of
origin? It is often overlooked due to the industry's
complexities and the capital-intensive nature of it, but it is
one of the most important elements of any U.S. FTA. I think it
is an effective automotive-specific rule of origin. Could you
respond, please, sir?
Mr. ALLGEIER. I must say, I am not an expert in each of the
rules of origin in the Chile agreement. What I would prefer to
do, with your permission, is to get you a detailed answer to
that in writing and spell that out that way, if that is okay
with you.
[The information follows:]
January 30, 2004
The Honorable Dave Camp
Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515
Dear Congressman Camp,
With respect to automotive products, we achieved the balance
necessary whereby the FTA rule of origin ensures that benefits accrue
to the Parties to the agreement while at the same time ensuring that
the rule of origin is also trade facilitative.
In general terms, automotive products are subject to a product-
specific rule of origin that presents two Regional Value Content (RVC)
percentage criteria alternatives, combined with an applicable requisite
change-in-tariff classification met through processing or assembling of
parts into a final product. Under the agreement, either RVC criterion
may be established to show applicability of FTA preferential treatment.
LThe first alternative is requirement of 30 percent RVC in
what is referred to as the ``build-up'' formula. The ``build-up''
formula is a calculation that involves the amount of originating
material inputs used on the overall production of the good.
LThe second alternative is a 50 percent RVC in what is
referred to as the ``build-down'' formula. This ``build-down'' formula
is a calculation that involves the amount of non-originating material
inputs used in the overall production of a good.
The availability of alternative formulas to establish application
of the tariff preferences, as well as the simplified nature of the
formulas and other elements of the Agreement's origin regime, will
result in the rule of origin being commercially beneficial for U.S.
exporters.
Sincerely,
Peter F. Allgeier
Mr. CAMP. It is also my understanding that Chile maintains
an 85-percent tax on imported motor vehicles. That act is a de
facto tariff on U.S.-built motor vehicles. Were you successful
in negotiations to eliminate this barrier to free automotive
trade with Chile?
Mr. ALLGEIER. My recollection is there is a phaseout of
that which works two ways. There is a reduction in the excise
tax, and then there is also an increase in the threshold at
which that auto tax kicks in so that we are phasing that out,
but I will give you the exact details of that phaseout.
Mr. CAMP. I apologize for coming in a little bit late, but
I wonder if you could tell me a little bit about the provisions
for the protection and enforcement of American intellectual
property rights in the agreement, if they are really similar to
the kinds of things that we have seen, particularly in the
Trade Act of 2002. Can you discuss that a little bit?
Mr. ALLGEIER. Yes. I think that, actually, the protection
of intellectual property rights in both agreements is something
that we are especially proud of because we have worked very
closely with the whole range of intellectual property rights
interests. For example, in the copyright area, the software
industry, the entertainment industry--and particularly to deal
with those issues that have arisen because of the Internet, and
how to provide protection to copyright holders, for example, so
that their works are not pirated and then disseminated through
the Internet without their permission. So, we have looked very
closely at legislation in the United States, the Digital
Millennium Copyright Act of 1998 (DMCA) (P.L. 105-304), at the
Internet conventions in the World Intellectual Property
Organization (WIPO), and we have incorporated all of those in
our agreements with Chile and with Singapore.
Mr. CAMP. Thank you very much. Thank you, Mr. Chairman.
Chairman CRANE. Mr. Collins.
Mr. COLLINS. Thank you, Mr. Chairman, for allowing me to
participate in this Subcommittee, though I am not on the
Subcommittee itself. Mr. Ambassador, I want to begin with--you
used the terminology ``FTA.'' I prefer what the Secretary of
Commerce has often called a ``fair trade agreement,'' and that
is the reason why we have a lot of the provisions within the
agreement, within the TPA that we passed. I caution you, as you
go through these agreements--particularly one that was recently
published about Vietnam dealing with certain products--that we
actually confirm that they are able to produce the number of
products that we are given a quota for, particularly in the
area of textiles. Since, if they cannot produce, oftentimes it
opens the gate for trans-shipments, and we don't need a trans-
shipment problem.
The rules of origin are very helpful. They were part of the
TPA that was negotiated with those of us who represent textile
territories or textile States. We appreciate that, and we very
much want you to continue to work in that direction. It is the
only way we can come back with some fairness to the trade
provisions.
My question to you is in the area of currency. In the TPA,
we had provisions that required the discussion up front as we
began our trade agreement negotiations about the possibility of
devaluations of currency, or changes in values of currency that
can often have a negative impact on our product. In your trade
agreement, do you have any documentation of the discussion of
currency values with these potential trade partners within
these agreements?
Mr. ALLGEIER. We certainly do not discuss with our trading
partners specific values for their currency. First of all, the
whole question of exchange rates is one that is the
responsibility of the Department of Treasury. What we do in
these trade agreements, however, is to try to provide the
maximum amount of openness for investors and also the maximum
amount of openness in financial services and transparency in
the regulation of financial services. We feel that this is the
contribution that the trade negotiations can make to an
international identifiable system which is not subject to
manipulation by countries to gain unfair advantage.
Mr. COLLINS. We are very much aware that the negotiations
of the currency issues is that of the Department of Treasury,
but the TPA called for just a discussion and documentation of
that discussion in opening negotiations to make both parties
aware that any potential change in currency can have a negative
effect on the other trading partner. That was all that we were
concerned about, and we would like to have seen some type of
documentation in that regard when Ambassador Zoellick was here
the other day, maybe a month or so ago.
I brought this issue up to him at that point and requested
that you all not be timid in talking about currency values, not
that we are going to try to set any currency values, but--no
one is going to set our currency value but us, but it is
important as a trading partner with another nation that we feel
we understand up front that this is something that could be a
problem, not an aftereffect after a lot of it happens and we
have been hurt by the lack of that type of documentation or
that type of discussion.
Mr. ALLGEIER. I understand that there is a reporting
requirement on this and that the Department of Treasury is
actually in the process of writing that so that we will be able
to provide that information to you.
Mr. COLLINS. You aren't aware of any discussion from the
U.S. Trade Representative's office about this up front? It
should be a documentation of your comments and your
discussions, too.
Mr. ALLGEIER. This will be an interagency submission. It is
to be authored by the Department of Treasury, but we will
certainly review it, and we will review the TPA language on
this to be sure we are exercising appropriate responsibility
and conscientiousness about that particular provision.
Mr. COLLINS. Well, it is important to those of us who have
a vote when it comes to the approval of agreements in
negotiations as to how you are following the TPA--the
provisions that we worked very hard to make sure we end the
Trade Act of 2002 itself.
Mr. ALLGEIER. We want to be scrupulous in our
implementation of the TPA. We are very aware of the effort that
Congress put into passing that, and we are very grateful for
it. We are working with you to use it responsibly.
Chairman CRANE. Thank you. Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman. Mr. Ambassador, many of
us hope that Chile and Singapore, in their agreements, would
improve upon the minimum standards for labor and environmental
provisions. However, these new agreements merely require that
each country enforce its own existing standards. If this
becomes the model for all agreements, it could have severe
impacts for workers' rights, particularly in the upcoming CAFTA
agreement.
Consider that the ILO has cited Costa Rica and Honduras for
their failure to protect against anti-union bias. The U.S.
Department of State has criticized El Salvador, Guatemala, and
Nicaragua for the same problem. The ILO has even expressed a
concern that Guatemalan workers participating in a lawful
strike may be subject to criminal penalties. Do you think that
the CAFTA agreement should merely require that these countries,
quote, ``enforce their existing law''?
Mr. ALLGEIER. We certainly are aware of the importance of
this issue in the Central American countries and, frankly, the
different circumstances that exist in those countries and among
those countries compared to, for example, Chile and Singapore.
I would say also that we have made very clear to their
negotiators and their leaders that this will be something that
will be looked at very closely by the Congress. So, part of our
negotiation is not simply negotiating the obligations, for
example, that we have in Singapore and Chile, but having a very
detailed and concrete dialog with these countries about the
kinds of changes that they would need to make in their labor
laws, either in association with this agreement or prior to it;
and we have seen some effort in that regard recently on the
part of El Salvador in increasing its budget for enforcement,
and also some labor form proposals put forward by Guatemala. I
am not saying that either of those is sufficient in those
cases, but it is part of the ongoing process of negotiation. We
need to get those labor standards and the enforcements of labor
rights up to a certain level before we would find acceptable a
commitment to enforce those laws.
Mr. NEAL. Accepting that, as you have stated, that in some
instances labor standards and environmental standards are not
sufficient, what would you propose doing to ensure they become
sufficient?
Mr. ALLGEIER. We would do two things: one, continue to have
the kinds of discussions we are having with these countries to
move them in a direction so that they put forward changes in
their law or they make the institutional changes they need to
strengthen the enforcement; and related to that is the second
element, the trade capacity building.
In the case of Central America, as the different
negotiating groups are working on the trade agreement, we have
a separate working group that is identifying where there needs
to be strengthening of their capabilities, including
institutional strengthening to carry out the kinds of
agreements that we anticipate; and we are working very closely
with the U.S. Agency for International Development in that. The
U.S. Department of Labor is very involved with respect to the
labor issues, and our other environmental related agencies such
as the Environmental Protection Agency, the U.S. Department of
the Interior, and the Department of State, are involved in the
environmental side of capacity building. So, the negotiations
really only come to a conclusion once we are satisfied that the
standards--whether it is in intellectual property or in labor
or in customs procedures--are up to the level that we are
satisfied with and then that the country makes the kind of
commitment to implement that.
Mr. NEAL. Thank you. Acknowledging that, while the question
was precise, the next question is going to be very precise.
``Enthusiasm'' for enforcement, as you know, is a very
imprecise term; so we rely heavily upon people like you to
ensure that enthusiasm becomes more precise.
Mr. ALLGEIER. Effectiveness of enforcement. That is the
standard that we will be looking at to see whether countries
are carrying out their obligations.
Mr. NEAL. The second precise question, Mr. Ambassador--
recently, The Economist magazine editorialized against your
quest for complete capital account liberalization, stating
that, quote, ``bitter experience suggests that such demands are
a mistake,'' end of quote. Further, an International Monetary
Fund (IMF) official wrote in the wake of the 1997 Asian
financial crisis that, quote, ``absolute unfettered global
capital mobility is not necessarily the best long-term
outcome.'' I understand that this became a Department of
Treasury priority in the Chile agreement even though no
business I have heard from has complained about Chile's
controls. Can you answer whether complete elimination of
capital controls has been tabled in the CAFTA approach, and
does the IMF support your approach?
Mr. ALLGEIER. Our approach is--this comes up in the context
of the investment chapter of these agreements. We think it is
extremely important to foster investment--that investors be
confident that they are going to be able to transfer their
proceeds and other assets back and forth without impediment.
In the case of Chile and in Singapore, they had some
concerns about so-called hot money and whether there could be
instances they didn't anticipate. There could be instances in
which they would need some period of time to have some degree
of control over so-called hot money. So, what was agreed upon
was a procedure which enables them a temporary period without
fundamentally impeding transfer rights of investors, and we
feel that the kind of balance we struck in those agreements is
a reasonable one. It is not an ideological one, but it also
puts great emphasis on what all our investors say, which is,
they want the right to transfer. I would expect that we would
use roughly that model in other instances, but, as in the other
areas, we have to look precisely at the circumstances.
Mr. NEAL. That was fairly precise. Thank you, Mr.
Ambassador. Thank you, Mr. Chairman.
Chairman CRANE. Now we have a wrap-up question from Mr.
Levin.
Mr. LEVIN. On the capital control, I just hope that, as we
look at other agreements, we will look at the experience with
Chile and Singapore. Mr. Neal, we had to pressure the U.S.
Trade Representative to back off of what was a rigid
ideological position; and you backed off. It is an example that
I hope will be looked at. Let me just say, Mr. Chairman, this
discussion we have had today about core labor standards and how
it applies to environmental standards and other circumstances
and application to CAFTA--I hope we can negotiate a CAFTA
agreement.
Ambassador, you are not making the decisions. You are part
of the decisionmaking process. To say that you are going to, in
the discussions with Central American countries, make sure they
take actions so that you are satisfied they are up to
standards--no one believes that by the time you can negotiate a
CAFTA agreement there would be a history of their containing in
their laws the core labor standards, and their enforcing them.
That is not realistic unless you are going to take 5 or 10
years to negotiate a CAFTA.
By the way, with other issues, whether it is subsidies or
intellectual property, you don't simply say you are satisfied
that at the point of negotiation they are up to standards. You
have an enforcement procedure to make sure they are carried
out. The tabling of enforcing your own laws in CAFTA is totally
contradictory to the circumstances that differ from Chile and
Singapore, and we are going to continue to pressure you to live
up to your words that you look at circumstances, since you did
not do that when you tabled a proposal for CAFTA.
This is not just a matter, in quotes, of ``worker rights.''
It is a matter of these countries--that workers be able to
partake, to participate and move up the ladder like they have
in every other country where a middle class evolved. I think if
we will take some leadership, the United States, Central
American countries will respond.
I want to just say a word again about the ISI and your
response, because I think we need clarification so this does
not get kicked around and is either underestimated or
overstated. I referred to 8466, which is part of the
regulations on local content that relates to machine tool
parts. This is the question that needs to be answered--I want
it to be very clear.
In meeting the local content requirement, can shipments
from other countries--it could be Japan, China, et cetera--that
make these parts be counted as Singapore content? I know that
it is a big, complicated question, because of tariff shift
rules and whether one or another would make it easier for them
to take components from other places that are not covered by an
FTA and have them count as part of Singapore local content, but
you need to answer this.
By the way, part of the rules regarding local content also
relate to auto parts. So, your answer to machine tools, 8466,
will apply to other products, other parts that are covered by
local content. Your response that it only applied to two
Indonesian territories, that is not, I think, if I might say so
respectfully, correct. I think it has been acknowledged that
the provision in the ISI is open-ended, and so you need to help
yourself and all of us understand the meaning of ISI.
I think it is very clear we should not do this. It is not a
precedent. It is not an example for other FTAs. It is also
important to understand what its possible implications are for
our judgment of Singapore--that agreement. Otherwise, you are
likely to have opposition that isn't based on the reality, if
you don't point out the reality. Don't be afraid to point them
out.
Mr. ALLGEIER. The general approach on the rules of origin,
of course, is to define those products specifically so that you
don't have abuse of content from other countries counting as
part of the product from the free-trading partner.
However, on the two specific issues, the one that you
raised about machine tools and the one that Congressman Camp
raised about auto parts, I will get you a very specific and
concrete response, and also relate that back to the ISI so that
we do avoid the kind of concerns that you expressed where
people misunderstand one way or another what is involved here.
Mr. LEVIN. We have been trying to secure this from you for
a long time, so give it to us straight and soon.
Mr. ALLGEIER. Will do.
Chairman CRANE. Thank you. Thank you, Mr. Allgeier. We
appreciate your testimony, and we look forward to working with
you as we complete our agreements with Singapore and Chile.
With that, we will bring our next panel before the Committee.
Our next panel includes Leon Trammell, Founder and Chief
Executive Officer of Tramco, Inc., Wichita, Kansas, on behalf
of the U.S. Chamber of Commerce; Jeff Jacobs, President of
Global Business Development, Qualcomm, San Diego, California;
Keith Gottfried, Senior Vice President of Law and Corporate
Affairs and General Counsel, Borland Software, Palo Alto,
California; and Robert Haines, Manager of International
Relations, ExxonMobil Corporation, and Co-Chairman of U.S.-
Singapore FTA Business Coalition.
If you gentlemen will please take your seats, we will begin
your testimony in the order in which I introduced you. Keep
your eye on the little light in front of you. Don't cross the
intersection when the red light is on. We will start. Folks,
can we have order in the Committee room, and those of you who
are here, please take seats. We will commence then with our
first witness, Leon Trammell.
STATEMENT OF E. LEON TRAMMELL, CHIEF EXECUTIVE OFFICER, TRAMCO,
INC., WICHITA, KANSAS, AND CHAIRMAN, BOARD OF DIRECTORS'
INTERNATIONAL POLICY COMMITTEE, U.S. CHAMBER OF COMMERCE
Mr. TRAMMELL. Mr. Chairman, thank you for inviting me to
appear before this panel today. I am Leon Trammell, Chief
Executive Officer of Tramco, Incorporated, in Wichita, Kansas;
and I am also a member of the Board of Directors of the U.S.
Chamber of Commerce as well as acting Chairman of the Board's
International Policy Committee. It is on the U.S. Chamber of
Commerce's behalf that I am testifying today.
I am pleased to testify in support of the recent signing of
the U.S. trade agreement with Chile and Singapore. The U.S.
Chamber of Commerce represents nearly 3 million companies of
every size, sector, and region. The U.S. Chamber of Commerce
has aggressively represented companies like mine for nearly a
century.
Tramco manufactures and sells environmentally friendly
conveyors primarily for the cereal food grain processors. Our
annual sales are roughly $20 million. Today's exports make up
60 percent of our total sales. All is manufactured in Wichita,
Kansas, and shipped by truck and rail to a port to be loaded or
shipped, to be transported to the ports of destination.
Tramco has exported to 45 countries around the world,
including Chile and Singapore. In Chile, we are active in the
copper mining industry, which is state owned, and about 10
percent of our annual sales are in Chile. In Singapore, Tramco
is active in the oil seed industry, companies that extract oil
from the palm and other oil seeds for cooking purposes. The
Singapore market accounts for only 2 or 3 percent of our annual
export sales.
The Chile and Singapore FTAs will do much for companies
like mine to slash barriers to our exports. They will also
improve protection for U.S. investments in these two countries,
and they will strengthen our position and make us more
competitive in the global economy.
It is the last point that deserves special mention. Most of
the 45 countries I sell to are already committed to some
business-friendly practices. Otherwise, I would not have sold
my products there. The main point of a trade agreement is to
make even better whatever situations might exist today. This
includes lower tariffs, fewer trade restrictions, stronger
protection of property rights, expanding trade of services and
electronic commerce, and a greater flexibility of movement of
professional personnel.
The Chile and Singapore agreement includes a number of
provisions that will benefit companies like mine. These
benefits are summarized in my written statement. By
implementing these agreements, Congress will send an important
message that goes far beyond Chile and Singapore. It will say
to the world that we are back in business and committed to
reach fair trade agreements that benefit U.S. workers and
businesses.
I started my company in 1967 with next to nothing. Today, I
have over 120 employees that hold their jobs to our ability to
access markets here and abroad. It has been pointed out that 96
percent of the world's customers live outside our borders.
Conditions in many countries make it harder for companies like
mine to sell to those consumers and therefore meet our payroll.
The Chile and Singapore agreements are important steps in
our continuing journey toward increased trade jobs and
prosperity, and these serve as an important example for other
countries and regions with which we share these goals. They
will also enable our trade negotiators to hang tough with other
countries as we push them to open up their markets.
Perhaps my great, great grandparents as they traveled the
Trail of Tears would not agree with my position today. They
probably thought we made a mistake in letting Columbus land and
should have stopped further intruders. I admit some days, when
things are really, really bad, living in a teepee along some
gentle-flowing streams seems very inviting. However, we know
being an isolationist does not work. Remember the iron and
bamboo curtains?
Give the U.S. manufacturer a level playing field with zero
tariffs, and we can compete. We must be a fair free trader. I
urge the Congress to approve legislation to implement these
agreements as soon as possible.
[The prepared statement of Mr. Trammell follows:]
Statement of E. Leon Trammell, Chief Executive Officer, Tramco, Inc.,
Wichita, Kansas, and Chairman, Board of Directors' International Policy
Committee, U.S. Chamber of Commerce
Mr. Chairman, thank you for inviting me to appear before this panel
today. I am Leon Trammell, Chief Executive Officer of Tramco, Inc. in
Wichita, Kansas. I am also a member of the Board of Directors of the
United States Chamber of Commerce, as well as acting Chairman of the
Board's International Policy Committee.
In addition to Tramco, I am pleased to testify on the recently
signed U.S. free trade agreements with Chile and Singapore on behalf of
the U.S. Chamber of Commerce, which is the largest business federation
in the world. Representing nearly three million companies of every
size, sector, and region, the Chamber has supported the business
community in the United States for nearly a century.
Tramco manufactures and sells high-production conveyer product
lines. Our annual sales are roughly $20 million. In fact, exports make
up about 60% of our sales. Tramco exports to 45 countries around the
world, including Chile and Singapore. In Chile, we are active in the
copper mining industry, and about 10% of our annual sales are in Chile.
In Singapore, Tramco is active in the oilseed industry. The Singaporean
market accounts for between 2-3% of our annual sales.
I personally support these two landmark agreements, and the U.S.
Chamber of Commerce offers a strong endorsement as well. These accords
will slash trade barriers for U.S. exports, enhance protections for
U.S. investment in these two countries, and enhance the competitiveness
of American companies in the global economy.
The Bracing Tonic of TPA
America's international trade in goods and services accounts for
nearly a quarter of our country's GDP. As such, it is difficult to
exaggerate the importance of the victory obtained last summer when the
Congress renewed Presidential Trade Promotion Authority (TPA). When
President George W. Bush signed the Trade Act of 2002 into law on
August 6, it was a watershed for international commerce. As we
predicted, this action by the Congress has helped reinvigorate the
international trade agenda and has given a much-needed shot in the arm
to American businesses, workers, and consumers struggling in a
worldwide economic slowdown.
When TPA lapsed in 1994, the U.S. was compelled to sit on the
sidelines while other countries negotiated numerous preferential trade
agreements that put American companies at a competitive disadvantage.
Last year, during our aggressive advocacy campaign for approval of TPA,
I believe many Members of Congress grew tired of hearing that the U.S.
is party to just three of the roughly 150 free trade agreements in
force today.
The passage of TPA allowed the United States finally to complete
negotiations for bilateral free trade agreements with Chile and
Singapore, in December and January, respectively. These are the first
significant free trade agreements negotiated by the United States since
the NAFTA.
They are excellent agreements. Giving the lie to foreign critics of
alleged U.S. protectionism, no products were excluded from the market
access commitments included in the two agreements.
These agreements raise the bar for rules and disciplines covering a
host of economic sectors from services and government procurement to e-
commerce and intellectual property. They also raise the bar for future
trade agreements, including the Free Trade Area of the Americas (FTAA)
and discussions for trade liberalization in the context of the Asia-
Pacific Economic Cooperation (APEC) forum.
Maintaining Competitiveness
The two agreements have much in common, but each has its particular
advantages. One factor adding urgency to our request for quick
Congressional action on the agreement with Chile is the heightened
competition U.S. companies face in the Chilean marketplace. In this
sense, Chile is an example of how the world refuses to stand still--and
how American business will lose its competitiveness without an
ambitious program of trade expansion.
Let me illustrate. Many of you know that Chile's free trade
agreement with the European Union came into force on February 1. On
that day, tariffs on nearly 92% of Chilean imports from the EU were
eliminated. Consequently, it is not surprising to note that Chilean
imports from the EU expanded by 30% in the year ending in February
2003, whereas Chilean imports from the United States grew by less than
6%. Chilean imports from Germany grew by 47% and those from France grew
by 41% in the same period.
The reason is simple: While U.S. exporters wait for a free trade
agreement, our exports to Chile continue to face tariffs that begin at
6% and, for some products, range much higher. The upshot is that
European companies are seeing their sales in Chile rise five times as
quickly as those of U.S. firms.
In a similar fashion, the free trade agreement with Singapore will
further anchor U.S. competitiveness in the Asia-Pacific region, where
Singapore is already actively engaged in negotiating trade agreements.
Singapore has implemented free trade agreements with Australia, Japan,
New Zealand, and the European Free Trade Area and is negotiating with
Canada, Chile, and Mexico. It is also a participant in the framework
agreement between ASEAN and China aimed at reducing tariffs and non-
tariff trade barriers.
The comprehensive nature of the free trade agreement with Singapore
is a testament that Singapore shares many of our country's views on
global trade liberalization. As such, the agreement will contribute to
our global and regional trade liberalization objectives and will serve
as a barometer for other countries in Asia that are interested in
completing a free trade agreement with the United States.
Gauging the Benefits
How might these two agreements benefit the United States? There is
a strong economic argument to be made for free trade agreements. As
U.S. Trade Representative Robert Zoellick has pointed out, the combined
effects of the North American Free Trade Agreement (NAFTA) and the
Uruguay Round trade agreement that created the World Trade Organization
(WTO) have increased U.S. national income by $40 billion to $60 billion
a year. Thanks to the lower prices that these agreements have generated
for such imported items as clothing, the average American family of
four has gained between $1,000 to $1,300 from these two pacts--an
impressive tax cut, indeed.
From a business perspective, the following are a few examples of
specific market-opening measures in the two free trade agreements,
provided here to give some insight on how U.S. companies stand to
benefit:
Tariff Elimination. In the case of Singapore, the free trade
agreement will immediately eliminate all Singaporean customs duties on
all U.S. products upon entry-into-force, unequivocally meeting one of
the principal negotiating objectives set forth in the Trade Act of
2002. The agreement will also remove a number of significant non-tariff
barriers, such as Singapore's excise taxes on imported automotive
vehicles. The agreement with Chile will eliminate tariffs on more than
90% of all U.S. goods immediately, with the remainder to be phased out
in a fairly rapid fashion. Today, most U.S. exports to Chile face a
tariff of 6%, which can constitute a significant barrier indeed, but
tariffs are substantially higher on some sectors. For instance, Chile
continues to impose a luxury tax of 85% on vehicles imported from the
United States valued at more than $15,000--a significant barrier to
U.S. exports that the free trade agreement will eliminate.
Services. Services accounts for over 80% of GDP and employment in
the United States. The services chapters of both agreements provide
enhanced market access for U.S. firms across different service sectors
using a ``negative list'' approach (full market access for all service
providers except those in sectors specifically named). U.S. service
suppliers will also be assured fair and nondiscriminatory treatment in
both countries. Banks, insurers, and express delivery providers are
among the sectors that will benefit from new opportunities in both
markets if the two agreements are approved and implemented.
Electronic Commerce. The landmark E-Commerce chapters of the U.S.-
Chile and U.S.-Singapore agreements will help ensure the free flow of
electronic commerce, champion the applicability of WTO rules to
electronic commerce, and promote the development of trade in goods and
services by electronic means. Provisions in this chapter guarantee
nondiscrimination against products delivered electronically 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.
Intellectual Property Rights. The agreements with Chile and
Singapore provide important new protections for copyrights, patents,
trademarks and trade secrets, going well beyond protections offered in
earlier free trade agreements. Once again, the two agreements serve as
a useful benchmark for future agreements with other countries. Both
agreements have important new enforcement provisions. In the case of
Chile, the agreement criminalizes end-user piracy and provides strong
deterrence against piracy and counterfeiting. The agreement also
mandates both statutory and actual damages under Chilean law for
violations of established norms for the protection of intellectual
property.
Movement of Personnel. Under the two agreements, U.S. professionals
will be granted special temporary entry visas into Singapore and Chile
for a period of 90 days. The special visa would be based on proof of
nationality, purpose of the entry and evidence of professional
credentials. The visas would provide for multiple entries and would be
renewable. The Chamber welcomes this provision in the free trade
agreements, as it will make it easier for U.S. companies to deploy
personnel for short assignments or transfers to company facilities in
Chile and Singapore.
Provisions on Labor and the Environment. The longstanding policy of
the U.S. Chamber is that trade agreements should not hold out trade
sanctions as a remedy in response to labor and environmental disputes.
Our interpretation of the enforcement mechanism of the labor and
environmental provisions of the Chile and Singapore free trade
agreements is that monetary compensation is the remedy of first choice
and that trade sanctions would be employed only as a last resort.
What the Chamber is Doing
The U.S. Chamber is helping to lead the charge in the effort to win
approval of these two agreements. In concert with our partners in the
U.S.-Chile and U.S.-Singapore Free Trade Coalitions, the Chamber has
met face-to-face with over 120 Members of Congress since January to
make the case for approval of the two agreements. We have also met with
Members of Congress in their districts throughout the country as part
of our ongoing ``TradeRoots'' program to educate businesspeople and
workers about the benefits of open trade. We have found extremely broad
support for the agreements both in the Congress and in the business
community.
As part of this ``TradeRoots'' effort, the Chamber has published
two ``Faces of Trade'' books to highlight small businesses in the
United States that are already benefiting from trade with Chile and
Singapore--and that stand to benefit even more from free trade with
these two markets. I invite you to review these success stories and see
the face of American trade today. It isn't just about multinationals,
which can usually find a way to access foreign markets, even where
tariffs are high. It's about hundreds of thousands of small companies
that are accessing international markets--and that are meeting their
payroll, generating jobs, and growing the American economy.
We've generated a wealth of information about the potential
benefits of these agreements and our efforts to make them a reality. In
the interest of brevity, I would simply urge you to contact the Chamber
if you need more information. A good place to start is our website:
www.uschamber.com.
Conclusion
Trade expansion is an essential ingredient in any recipe for
economic success in the 21st century. If U.S. companies, workers, and
consumers are to thrive amidst rising competition, new trade agreements
such as these two will be critical. In the end, U.S. business is quite
capable of competing and winning against anyone in the world when
markets are open and the playing field is level. All we are asking for
is the chance to get in the game.
Mr. Chairman, we appreciate your leadership in reviving the U.S.
international trade agenda, and we ask you to move expeditiously to
bring these agreements to a vote in the Congress.
Thank you.
Chairman CRANE. Thank you, Mr. Trammell. Our next witness
is Jeff Jacobs.
STATEMENT OF JEFF JACOBS, PRESIDENT, GLOBAL DEVELOPMENT,
QUALCOMM, INCORPORATED, SAN DIEGO, CALIFORNIA
Mr. JACOBS. Thank you, Mr. Chairman. I am Jeff Jacobs,
President of Global Business Development at Qualcomm,
Incorporated. I am responsible for developing Qualcomm's global
business strategies and directing its international activities.
I am honored to testify today about the importance of
implementing the bilateral FTAs with Singapore and with Chile.
My comments will focus on the benefits of these precedent-
setting agreements and on the implications for future trade
negotiations. I would first like to provide a brief
introduction of Qualcomm's international trade interests.
Headquartered in San Diego, California, Qualcomm is a
leader in developing innovative communications technologies.
With more than 5,800 employees at offices in 21 countries,
Qualcomm offers a range of technology products, wireless voice,
and data communications.
Qualcomm is best known as the pioneer of Code Division
Multiple Access (CDMA), wireless communications technology,
which is the leading standard in the United States and the
fastest-growing wireless technology globally. Nearly 155
million people in 52 countries use CDMA, which enables high-
quality, high-speed voice, and data services.
Qualcomm supplies the majority of the CDMA chipsets that
are integrated into CDMA mobile phones and devices around the
world. With more than 2,600 U.S. patents on our core CDMA
intellectual property, Qualcomm also licenses CDMA to handset
and equipment manufacturers around the world.
Based on this brief overview of our global business, it is
no wonder that Qualcomm and the U.S. tech sector strongly
support the U.S.-Singapore and U.S.-Chile FTAs.
Last year, Qualcomm worked hard to generate Congressional
support for enactment of TPA; and we thank this Committee for
its leadership on this critical issue. Accordingly, we support
the Singapore and Chile FTAs and look forward to the
introduction of legislation so that we can examine it and
intensify discussion with Members.
Open markets and strong trade rules are critical to
Qualcomm. More than half of our revenues are generated outside
of North America. Singapore and Chile's implementation of the
bilateral FTAs with the United States will help level the
playing field and put the U.S. high-tech sector on equal
footing with domestic and third country competitors. For
example, Singapore and Chile already have trade agreements with
other governments such as Canada, Japan, and the European
Union, which give companies from these countries preferential
access and competitive advantages over U.S. firms.
Qualcomm also supports these FTAs because of its state-of-
the-art commitment, which established some of the most advanced
trade rules yet to be achieved in any international trade
agreement. My written statement elaborates on some of the most
important provisions for the high-tech sector, which includes
market access for technology products, electronic commerce,
investment, and intellectual property rights. In the area of
trade and services, both agreements use the comprehensive
``negative list'' approach, which means that all those service
sectors are open to American companies unless specifically
reserved.
On telecommunications services, both agreements enhance
transparency and pro-competetive regulation. Both also include
nonbinding provisions calling on governments to ensure that
telecom operators have the flexibility to use the technology of
their choice. The last issue of ``technology neutrality,'' or
``operator choice of technology,'' is very important to
Qualcomm. We commend the Administration for introducing this
critical concept into international trade negotiations, and
believe that the Singapore and Chile FTAs are a constructive
start.
However, language that is non binding does not help U.S.
technology exporters when confronted with foreign regulations
of services that restrict market access for technology. Since
the Singapore and Chile FTAs were negotiated, we understand
that the Administration is pursuing binding rules on this
concept in the WTO, the FTAA, and the FTA negotiations with
Australia, Morocco, and Central America. We strongly support
this and are committed to working with the Administration and
Congress to obtain positive results.
Our goal is simple. United States technologies should
receive the same treatment in foreign markets that foreign
technology providers enjoy in the United States. For this
reason, we want technology neutrality to become a standard U.S.
negotiating objective.
There are also strategic reasons to support these
precedent-setting FTAs. They can serve as a basis for other
agreements and provide critical momentum to other trade
negotiations. United States engagement in international trade
negotiations also reinforces American leadership in the global
arena and counterbalances the commercial agendas of other
governments. Simultaneous trade negotiations with multiple
countries also enhance the chances of obtaining strong results.
Should negotiations with one trade partner or group stagnate,
then the United States can reprioritize its effort in a
different negotiation.
For example, we understand that the United States, in its
FTA negotiations with Central America, has encountered some
strong opposition to the inclusion of any commitments on
telecom services. Given the importance of this sector, it seems
unlikely that an agreement that did not include telecom
services would receive necessary support within the Congress
and business community. This is an example of how the United
States can leverage simultaneous negotiations to obtain good
results.
For these reasons, Qualcomm believes that both the U.S.-
Singapore and the U.S.-Chile FTAs provide significant benefits
to U.S. high-tech products and services suppliers. We support
the implementation of these ground-breaking agreements.
Qualcomm looks forward to working with the Congress to ensure a
broad bipartisan consensus in support of these and future trade
agreements. Thank you very much.
[The prepared statement of Mr. Jacobs follows:]
Statement of Jeff Jacobs, President, Global Development, QUALCOMM,
Incorporated, San Diego, California
I am honored to have the opportunity to testify today about the
importance of implementing the recently signed bilateral free trade
agreements (FTAs) with Singapore and with Chile.
My comments will focus on the benefits of these precedent-setting
agreements for QUALCOMM and other American high-tech companies, and on
the implications for future trade negotiations. Before addressing these
matters, I would first like to provide a brief introduction of QUALCOMM
and our international trade interests.
Introduction to QUALCOMM
Headquartered in San Diego, California, QUALCOMM is a leader in
developing innovative communications technologies. With more than 5,800
employees at offices in 21 countries, QUALCOMM offers a range of
technology products, which enable: wireless voice and data
communications; e-mail, wireless Internet and related applications;
``GPS'' satellite position location; and transportation communications
and vehicle tracking. We have also developed a digital cinema
technology that allows studios to do away with celluloid film and
minimize piracy by distributing first-run films in an encrypted,
digital format.
QUALCOMM is best known as the pioneer of Code Division Multiple
Access (CDMA) wireless communications technology. CDMA is the leading
standard in the United States and the fastest growing wireless
technology globally, with some 155 million people using CDMA in 52
countries on six continents. CDMA enables high-quality, high-speed,
spectrally efficient voice and data services over the same device. Our
CDMA2000 technology is the first so-called ``3G'' or third-generation
standard to be made commercially available to wireless services
providers and consumers.
QUALCOMM supplies the majority of the CDMA chipsets that are
integrated into CDMA mobile phones and devices around the world. With
more than 2,600 U.S. patents on our core CDMA intellectual property,
QUALCOMM also licenses CDMA to more than 120 U.S. and foreign handset
and equipment manufacturers around the world. QUALCOMM also makes
strategic investments in key countries to help develop new markets and
drive demand for CDMA and other technologies.
Why High-Tech Supports These Free Trade Agreements
Based on this brief overview of our global business, it is no
wonder that QUALCOMM strongly supports free trade, and the results of
the U.S.-Singapore and U.S.-Chile free trade negotiations. Open markets
and strong trade rules are critical to QUALCOMM. More than half of
QUALCOMM's revenues are generated outside of North America, with most
of our growth resulting from demand in Latin America, East Asia
(especially China, Japan and Korea) and India. These trends are not
unique to QUALCOMM; the American high-tech sector collectively is the
largest source of U.S. merchandise exports, as well as the largest
cumulative source of U.S. direct investment overseas.
During 2001-2002, QUALCOMM worked hard to generate Congressional
support for enactment of Trade Promotion Authority (TPA) legislation,
and we thank this Committee for its leadership on this critical issue.
As an exporter and employer, we educated Members on the benefits of
free trade and the need to remove foreign barriers to our products and
services. Accordingly, we support the Singapore and Chile FTAs, and
look forward to the introduction of implementing legislation so that we
can examine it and give our unqualified support. Legislative approval
and implementation of the Singapore and Chile FTAs are important to
QUALCOMM and other high-tech companies for several reasons, some of
which are commercial and some are strategic in nature.
Commercial Significance
It has been noted that both Singapore and Chile are already
relatively small and open markets, and that the respective FTAs will do
little to spur new export or investment opportunities for U.S.
businesses. Last year, Singapore was the United States' eleventh
largest export market and Chile ranked thirty-fourth. While I cannot
speak to other sectors, high-tech companies believe that both markets
are commercially significant, notwithstanding their relatively small
populations. In the case of Chile, for example, the United States
enjoyed a $716 million trade surplus in technology exports last year.
This statistic will probably grow as Chile progressively eliminates
duties on most high-tech goods. Faced with a highly competitive global
technology market and turbulent domestic economic trends in the United
States, increasingly more American technology companies are forced to
look overseas for new opportunities.
Level Playing Field
The Singapore and Chile FTAs are also important because they will
help to level the currently unfair playing field and let U.S. companies
compete with domestic and third-country competitors in these countries.
For example, Singapore and Chile already have trade agreements with
other governments, such as Canada, Japan and the European Union (EU),
which give companies from these countries preferential access and
competitive advantages over U.S. firms. Singapore and Chile's
implementation of the bilateral FTAs with the United States will help
put the U.S. high-tech sector on an equal footing to compete fairly in
those markets.
State-of-the-Art Trade Agreements
QUALCOMM and the high-tech community also support these FTAs
because of the substantive rules embodied in the agreements, which are
considered the most modern, state-of-the-art trade accords in
existence. Many provisions in these FTAs are superior to the norms
created by the NAFTA and WTO, and establish some of the most advanced
commitments yet to be achieved in any international trade initiative.
Some of the most important provisions for the high-tech sector include
the following:
LMarket Access for Goods: By virtue of its WTO
commitments, Singapore has already eliminated duties on high-tech
products. In contrast, in implementing the FTA, Chile will eliminate
the existing 6 percent duty on most high-tech products within 4 years
of the agreement's entry into force;
LElectronic Commerce: Both agreements establish new rules
on ``digital products'' transmitted electronically, and ensure duty-
free treatment for such exports;
LInvestment: Both agreements grant U.S. citizens and
companies broad rights to invest and own property, and provides for
recourse and remedies in the event of disputes;
LIntellectual Property Rights: Both agreements build upon
existing disciplines--namely, the WTO, NAFTA and WIPO treaties--to
establish new, innovative rules on IPR protection and enforcement;
LServices (generally): Both agreements utilize the
comprehensive ``negative list'' approach to establish commitments,
which means that all services sectors are covered and open to American
companies unless specifically reserved; and
LTelecommunication Services: Both agreements enhance
transparency, nondiscrimination, and pro-competitive regulation of
communications services. Both also include nonbinding provisions
calling on governments to ensure that telecom operators (notably in the
mobile sector) have the flexibility to use the technology of their
choosing to provide services.
This last issue of ``technology neutrality'' or ``operator choice
of technology'' is key and warrants elaboration. This concept is well
established in the U.S. telecommunications policy and regulatory
vocabulary, and is evident in the practices and decisions of the
Federal Communications Commission (FCC) and other agencies in the
United States. We commend the Administration for introducing this
critical concept into international trade negotiations.
We believe that the relevant provisions of the Singapore Agreement
(Article 9.13) and Chile Agreement (Article 13.14) are a constructive
starting point. However, language that is nonbinding or is subject to
broad interpretation by foreign governments does not help U.S.
technology exporters, like QUALCOMM, when confronted with foreign
regulations of services that restrict market access for technology
products.
We understand that the Administration has subsequently tabled
binding language on this issue in the WTO, FTAA and in FTA negotiations
with Australia, Morocco, and Central America. We appreciate this
cooperation, and are committed to working with the Administration and
Congress to obtain positive results in these negotiations.
Our goal is simple: U.S. technologies should receive the same
treatment in foreign markets that foreign technology providers enjoy in
the United States. For this reason, we want the establishment of
binding commitments that ensure that service providers can choose
technologies without governmental interference to become a standard
U.S. negotiating objective--whether for bilateral and regional FTAs,
hemispheric or multilateral negotiations, or WTO accessions.
Strategic Implications
Yet another reason to support these agreements is that they provide
critical momentum to other trade negotiations, principally the WTO and
FTAA. The precedent-setting provisions of the Singapore and Chile FTAs
can serve as a basis for subsequent negotiations. U.S. engagement in
international trade negotiations also reinforces American leadership in
the global arena. Active American participation in trade initiatives
helps to counterbalance other governments whose agendas and advocacy
may not be consistent with U.S. commercial interests.
Sustaining simultaneous trade negotiations in multiple fora also
enhances the chances of obtaining maximum market-opening and high
quality trade disciplines. Should negotiations under one forum or with
one trading partner stagnate, then the United States can re-prioritize
its efforts in a different negotiation that may be more promising. For
example, we understand that the United States has encountered strong
opposition to the inclusion of any commitments on telecommunications
services in the proposed U.S.-Central America FTA. Given the importance
of this sector, it seems unlikely that an agreement that did not
include telecom services would garner necessary support within the
Congress and U.S. business community. This is an excellent example of
how the United States can leverage simultaneous, parallel negotiations
with key trading partners to obtain necessary liberalization.
CONCLUSION
For these reasons, QUALCOMM believes that both the U.S.-Singapore
and U.S.-Chile FTAs provide significant benefits to U.S. high-tech
products and services suppliers. We support the adoption and
implementation of these ground-breaking agreements. We also look
forward to working with the Congress to ensure a broad, bipartisan
consensus in support of these and future trade agreements.
Chairman CRANE. Thank you, Mr. Jacobs. Mr. Gottfried.
STATEMENT OF KEITH GOTTFRIED, SENIOR VICE PRESIDENT AND GENERAL
COUNSEL, BORLAND SOFTWARE CORPORATION, SCOTTS VALLEY,
CALIFORNIA, ON BEHALF OF THE BUSINESS SOFTWARE ALLIANCE
Mr. GOTTFRIED. Mr. Chairman, Mr. Levin, and Members of the
Subcommittee, thank you for the opportunity to appear before
you today. My name is Keith Gottfried, Senior Vice President/
General Counsel of Borland Software Corporation. We are a
publicly held software company located in Scotts Valley,
California. I am pleased to testify today on behalf of Borland
and the Business Software Alliance (BSA), 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 FTAs.
The IT industry is one of the leading contributors for the
U.S. balance of trade. In 2002, we generated a trade surplus of
$24 billion. We are a leading engine of global economic growth,
and in 2002, we contributed to the global economy in the amount
of a trillion dollars. In the United States alone, the IT
industry has contributed $400 billion to the U.S. economy,
generating 2.6 million jobs and $342 billion in tax revenues.
We are extremely proud of that record.
Exports account for over 50 percent of revenues for most of
the leading commercial software makers in the United States,
including my own company, Borland. If we are to continue these
positive contributions, FTAs must establish open trading
environments that promote strong intellectual property
protection, growth of IT services and barrier-free e-commerce.
They also must recognize the emergence of new technologies such
as digitally developed and distributed products.
There is also another reason to support free trade. Over
the past 2 years we have witnessed how a lack of opportunity
and hope can cause desperate people to do awful and evil things
such as waging a war against freedom, democracy, and the
inherent goodness of mankind. We strongly believe that barrier-
free trade, or free trade, can be an engine that takes people
away from the despair of poverty and toward peace and
prosperity; and we believe that trade, particularly as it
affects our sector, can be a catalyst for that.
Mr. Chairman, I am pleased to express the unequivocal
support of Borland and the members of the BSA for the Singapore
and Chile FTAs. We urge every Member of this Subcommittee and
Congress to vote in favor of these Agreements.
The BSA is also a member of the High Tech Trade Coalition,
which also actively supports both FTAs. These agreements
significantly advance the establishment of strong intellectual
property protection and trade liberalization in Singapore and
Chile. We commend the Administration, the U.S. Trade
Representative, and Congress for these achievements. Without
the leadership provided by the Administration and Congress'
thoughtful guidance, these achievements would not have been
possible. Mr. Chairman, I would like to highlight for you some
of the key provisions in the agreements and submit my written
statement for the record.
Chairman CRANE. Without objection, so ordered.
Mr. GOTTFRIED. For the software industry, strong
intellectual property protection is key in the fight against
piracy. Piracy cost the industry $13 billion in lost revenues
last year. That translates into hundreds of millions of dollars
in lost taxes to the Federal Government, and State and local
governments--if not billions. Indeed, high rates of software
piracy are often the biggest trade barrier we face in many
markets. In 2002, the piracy rate in Singapore was 48 percent,
and 51 percent in Chile, costing the industry $32 million in
Singapore, and $45 million in Chile.
To promote strong intellectual property protection in a
digital world, the U.S. negotiating objective is clear: Our
trading partners must establish a high level of intellectual
property protection that complies with the WTO's TRIPS
agreement and the WIPO copyright treaty. The Singapore and
Chile agreements meet this test. We get the combined effect of
the standards in TRIPS and the WIPO copyright treaty which is
an important result. 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 key elements of
provisions of trade in IT services, another negotiating
objective for the United States. During the past decade, a vast
array of new IT services has proliferated, including data
storage and management, 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 the area of IT
services is more important than ever.
Both Singapore and Chile agreements provide full-market
access and national treatment on IT services. Both agreements
adopt a comprehensive approach without exception for
technology. This will provide evolving IT services 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 IT 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 of both FTAs recognize, for the first time,
the concept of digital products. Specifically, physical copies
of software and electronically delivered software are both
entitled to exactly the same benefits under these trade laws.
This safeguard ensures that software delivered online will not
face new barriers and will have the same ease of access as
traditional box software.
With the successful conclusion of these FTAs, we believe
precedents have been set for continued progress within the FTAA
and the WTO Doha round of negotiations. Indeed, we are
confident that these agreements set new standards that help the
United States achieve its objectives.
In conclusion, the U.S. FTAs with Singapore and Chile mark
real milestones in progress. New baselines have been set which
should open markets for the U.S. technology industry in the
years to come. Borland and the members of the BSA commend the
achievements made in both agreements, and we strongly support
their passage in Congress.
[The prepared statement of Mr. Gottfried follows:]
Statement of Keith Gottfried, Senior Vice President and General
Counsel, Borland Software Corporation, Scotts Valley, California, on
behalf of the Business Software Alliance
Mr. Chairman, Mr. Levin and the Members of the Committee:
Thank you for the opportunity to appear before you today. My name
is Keith Gottfried, Senior Vice President and General Counsel of the
Borland Software Corporation. I am pleased to testify today on behalf
of Borland and the Business Software Alliance (``BSA''),\1\ an
association of leading developers of software, hardware and e-commerce
technologies worldwide.
---------------------------------------------------------------------------
\1\ The Business Software Alliance (www.bsa.org) is the foremost
organization dedicated to promoting a safe and legal digital world. The
BSA is the voice of the world's software and Internet industry before
governments and with consumers in the international marketplace. Its
members represent the fastest growing industry in the world. BSA
educates computer users on software copyrights and cyber security;
advocates public policy that fosters innovation and expands trade
opportunities; and fights software piracy. BSA members include Adobe,
Apple, Autodesk, Avid, Bentley Systems, Borland, Cisco Systems, CNC
Software/Mastercam, Entrust, HP, IBM, Intel, Intuit, Internet Security
Systems, Macromedia, Microsoft, Network Associates, Novell, PeopleSoft,
SeeBeyond Technology, Sybase, and Symantec.
---------------------------------------------------------------------------
Let me begin by thanking the Members of this Subcommittee for
holding this important hearing about the significance of fully
implementing the Singapore and Chile Free Trade Agreements (FTA).
Borland and BSA as well as each of its member companies commend you for
recognizing the importance of promoting free trade among our trading
partners.
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
$400 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 Borland and
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, a relatively
new issue has emerged on the international scene that could have an
impact on American software exports. 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. This issue should also be part of our
Nation's trade agenda.
Mr. Chairman, I am pleased to express the unequivocal support of
Borland and BSA and its member companies for the Singapore and Chile
Free Trade Agreements.
BSA is also a member of the High Tech Trade Coalition, which also
strongly support the adoption and implementation of the FTAs. The U.S.
High-Tech Trade Coalition is a group of leading high-tech trade
associations representing America's technology companies. The high-tech
sector is the largest merchandise exporter in the United States and is
the U.S. industry with the most cumulative investments abroad.\2\
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\2\ High Tech Trade Coalition Include: AeA-Association For
Competitive Technology; Business Software Alliance; Computer &
Communications Industry Association--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; Telecommunications Industry Association.
---------------------------------------------------------------------------
The Singapore and Chile FTAs 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 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 $13
billion in lost revenues in 2002. 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--48% in Singapore and 51
percent in Chile, costing the industry $31.9 million in Singapore and
$44.9 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.
LProvisions 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.
LRequirements 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.
LRecognition 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.
LObligating 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 online. 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.
Information Technology: Tariff Measures
The Uruguay Round agreements on tariff reduction, and the
subsequent Information Technology Agreement within the WTO, have made
significant contributions by addressing the issue of barriers to trade
created by high tariffs. Tariffs on information technology products are
still very high in many countries, creating a substantial impediment to
trade.
In order to foster a barrier free trade environment, it is critical
that our trading partners sign and implement the Information Technology
Agreement (ITA) or its equivalent. It is essential that our trading
partners eliminate or phase out existing tariffs applied to information
technology products since tariff acts as a counterproductive burden
that raises the cost of the very technology needed to be competitive in
the digital economy.
In both FTAs, Singapore and Chile have agreed to liberalize tariff
barriers. Singapore is already a signatory to ITA. Chile, who is not a
signatory to the ITA, has agreed to eliminate tariffs on high-
technology products within the next 4 years. The tariff reduction
measure in the Chile agreement also sets an important precedent for the
Free Trade Area of the Americas (FTAA), significantly increasing the
high tech industry's ability to export its products to Brazil, one of
the largest markets for technology products in Latin America.
In conclusion, the U.S. free trade agreements with Singapore and
Chile sets new benchmarks in progress toward the promotion of strong
intellectual property rights protection, full liberalization of trade
in information technology services and barrier free e-commerce as well
as tariff elimination among our trading partners. In these agreements,
new baseline have been set that should lead to significant market
opportunities for the U.S. 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 Borland and
the members of BSA, I would like to thank the Committee for the
opportunity to testify here today.
Chairman CRANE. Thank you, Mr. Gottfried. Let me reassure
all of our witnesses that your printed statements will be made
a part of the permanent record. Mr. Haines.
STATEMENT OF BOB HAINES, MANAGER, INTERNATIONAL AFFAIRS, EXXON
MOBIL CORPORATION, IRVING, TEXAS, AND CO-CHAIR, U.S.-SINGAPORE
FREE TRADE AGREEMENT BUSINESS COALITION
Mr. HAINES. Thank you, Mr. Chairman, Members of the
Subcommittee. I am Bob Haines, Manager of International Affairs
of Exxon Mobil Corporation, and also a Co-Chair of the U.S.-
Singapore FTA Business Coalition. On behalf of the Coalition, I
would like to thank the Subcommittee for the opportunity to
discuss the economic impact of this agreement, and to convey
our enthusiastic endorsement of the U.S.-Singapore FTA.
I would like to acknowledge today Ms. Kristin Paulson, who
is the Chair of the U.S. Chamber of Commerce in Singapore, who
is here today representing U.S. companies in Singapore, as well
as Ambassador Chan and Ambassador Lavin, who worked so hard on
the bilateral relationship between the two countries.
The Coalition, which consists of companies and business
organizations from across America, is actively working to
support the passage of U.S.-Singapore FTA. The Coalition is
chaired by the Boeing Company, the United Postal Service, and
Exxon Mobil Corporation. Exxon Mobil is the largest single
investor in Singapore, with over $6.5 billion invested. We have
a large refining and petrochemical complex, as well as an
extensive marketing complex. We have found Singapore to be an
excellent place for U.S. companies to do business.
The membership of the Coalition includes the U.S.-ASEAN
Business Council, the U.S. Chamber of Commerce, the National
Association of Manufacturers, the Business Roundtable, the
Emergency Committee for American Trade, AmCham Singapore, and
the Coalition of Service Industries, as well as many others.
The Coalition represents the bulk of the more than 1,300
American companies that have a presence in Singapore.
The Coalition views this FTA negotiated with Singapore to
be significant for many reasons. Economically, we believe this
is a landmark pact, which will open new sectors in Singapore to
U.S. companies, spur economic growth in both countries, create
higher-paying jobs for American workers, and increase
investments, trade volumes, and economic integration. Since it
will be the first FTA in Asia, this agreement will have
historic ramifications. It will send a strong message that the
United States will remain heavily engaged in Asia, and is
committed to binding the business and economic affairs of the
region with those of America.
Singapore is a stalwart friend of United States and Asia,
and an attractive place for American business. Therefore, it is
a worthy candidate for an FTA, and one that will serve as a
strong model for future FTAs in the Asia-Pacific region.
Already it has stimulated interest for other countries in the
region to work toward their own FTAs with the United States.
For American companies, the agreement represents new
investment opportunities, potential increased bilateral trade
flows, and hopefully more profitable business activities.
Although Singaporean companies now have a relatively limited
presence in the United States, the FTA is expected to stimulate
interest in the United States as a potential investment
destination. The United States currently has a $7 billion trade
surplus with Singapore, and there are no indications that this
trend will change in the near future.
The top State exporters to Singapore include California,
Texas, New York, New Jersey, and Missouri; and I think we are
going to work on Illinois as well, Mr. Chairman. Arguably, some
of the biggest gains made in this FTA are in the area of
services. The agreement achieves new and expanded trading
opportunities for specific service areas including financial
services--such as banking, securities, and asset management--
insurance, express delivery, healthcare, telecommunications,
IT, transportation, travel, and tourism.
In the banking sector, the FTA will result in the
establishment of more branch operations in Singapore, and will
allow American banks to provide more services to a broader
clientele base by enhancing customer service capabilities
through access to the local Automatic Teller Machine network.
The investment chapter of the agreement clarifies the terms
and conditions for the free flow of capital, which we believe
will serve to enhance investor confidence. With regard to
intellectual property rights protection, the U.S.-Singapore FTA
breaks new ground and shores up standards that the American
high technology industry deems essential for marketing its
products abroad.
Under the agreement, American biotech, chemical,
pharmaceutical, entertainment, and multimedia companies will
enjoy rights and privileges, including nondiscriminatory
treatment, government involvement in the intervention and
prosecution of violators, as well as the active application of
anti-circumvention rules. These protections will allow American
manufacturers and service providers to be more competitive by
offering superior technology and services without the threat of
trade secrets being stolen or copyrights violated. The FTA also
contains an e-commerce chapter that is truly pioneering. Its
inclusion addresses the realities of the information age.
As you can see from this brief overview, there are many
reasons for the U.S.-Singapore FTA Business Coalition to
support this agreement, and we urge Congress to do so as well.
Thank you.
[The prepared statement of Mr. Haines follows:]
Statement of Bob Haines, Manager, International Affairs, Exxon Mobil
Corporation, Irving, Texas, and Co-Chair, U.S.-Singapore Free Trade
Agreement Business Coalition
I am Bob Haines, Manager of International Affairs, Exxon Mobil
Corporation and Co-Chair of the U.S.-Singapore Free Trade Agreement
Business Coalition. On behalf of the Coalition, I would like to thank
the Subcommittee for the opportunity to discuss the economic impact of
this Agreement, and to convey our enthusiastic endorsement of the U.S.-
Singapore FTA. In sum, because it is a detailed, comprehensive, and
substantive Agreement, we believe the U.S.-Singapore FTA is clearly
good for American workers, American business, and American consumers.
The Coalition, which consists of companies and business
organizations from across America, is actively working to support the
passage of the U.S.-Singapore FTA. The Coalition is co-chaired by The
Boeing Company, UPS and Exxon Mobil Corporation. Exxon Mobil is the
largest single foreign investor in Singapore, with over $6.5 billion
invested. We have a large refining and petrochemical complex, as well
as extensive marketing operations. We have found Singapore to be an
excellent place for a U.S. company to do business.
The membership of the Coalition includes the U.S.-ASEAN Business
Council, the U.S. Chamber of Commerce, the National Association of
Manufacturers, the Business Roundtable, the Emergency Committee for
American Trade, AmCham Singapore, and the Coalition of Service
Industries, and many others. The most recent list of Coalition members
accompanies this written submission. The Coalition represents the bulk
of the more than 1,300 American companies having a presence in
Singapore.
The Coalition views the FTA negotiated with Singapore to be
significant for many reasons. Economically, we believe this landmark
pact will: (1) open new sectors in Singapore to American companies; (2)
spur economic growth in both countries; (3) create higher paying jobs
for American workers; and (4) increase investments, trade volumes and
economic integration. Because it will be the first FTA in Asia, this
agreement will have historic ramifications. It will send a strong
message that the U.S. will remain heavily engaged in Asia and is
committed to binding the business and economic affairs of the region
with those of America.
Notably, the U.S.-Singapore FTA, along with the U.S.-Chile FTA,
will be the first Free Trade Agreements approved by Congress under the
expedited fast track procedures. It is the Coalition's hope that these
FTAs, symbolized by the U.S.-Singapore FTA, will continue the trend
toward greater market liberalization. The U.S.-Singapore FTA comprises
deep and broad commitments that break new ground in a number of
industry sectors such as financial services, telecommunications,
intellectual property rights and e-commerce. It maximizes
liberalization in goods and services, and should serve as a model for
future bilateral, regional and multilateral negotiations.
In recent years, the United States has fallen behind the rest of
the world, which has experienced a proliferation of free trade
agreements and bilateral investment treaties. There are now an
estimated 130 FTAs in force, of which the United States is only a
signatory to four. Singapore is a stalwart friend of the U.S. in Asia
and an attractive place for American business. Therefore, it is a
worthy candidate for a FTA and one that will serve as a strong model
for future FTAs in the Asia Pacific. Already, it has stimulated
interest from other countries in the region to work toward their own
free trade agreements with the U.S. Under the Bush Administration's
Enterprise for ASEAN Initiative, a far reaching program designed as a
first step toward bilateral FTAs with ASEAN countries that are
committed to economic reforms and openness, there have been trade and
investment framework agreements signed with Thailand, the Philippines,
and Indonesia. These efforts will enhance competitiveness and lead to
more and higher paying jobs, benefiting American companies and the U.S.
economy as a whole.
For American companies, the Agreement represents new investment
opportunities; potential increased bilateral trade flows, and hopefully
more profitable business activities. Although Singaporean companies now
have a relatively limited presence in the U.S., the FTA is expected to
stimulate interest in the U.S. as a potential investment destination.
The United States currently has a $7 billion trade surplus with
Singapore and there are no indications that this trend will change in
the near term. The top State exporters to Singapore include California,
Texas, New York, New Jersey and Missouri. Currently, the intra-MNC
trade volume accounts for approximately 62 percent of U.S.-Singapore
trade. With the Agreement's emphasis on bilateral customs cooperation,
expedited customs clearances and tariff elimination, trade volume
levels are expected to increase across the board.
Next, I would like to focus on the benefits to specific sectors of
the U.S. economy. Arguably, some of the biggest gains made in this FTA
are in the area of services. The Agreement achieves new and expanded
trading opportunities for specific service sectors, including financial
services (such as banking, securities and asset management), insurance,
express delivery, healthcare, telecommunications, information
technology, transportation, travel and tourism. It also provides for
transparency in formulating domestic regulations, including licensing
decisions, which is an essential investment tool to the services
industry.
In the banking sector, the FTA will result in the establishment of
more branch operations in Singapore, and it will allow American banks
to provide more services to a broader clientele base by enhancing
customer service capabilities through access to the local ATM network.
This feature will make U.S. banks more competitive in Singapore and the
region.
The investment chapter of the Agreement clarifies the terms and
conditions for the free flow of capital, which we believe, will serve
to enhance investor confidence.
With regard to intellectual property rights protection, the U.S.-
Singapore FTA breaks new ground and shores up standards that the
American high technology industry deems essential for marketing its
products abroad. Adequate and effective protection of intellectual
property rights remains a foundation for continued U.S. leadership in
many industry sectors. Therefore, the precedent that this Agreement
sets for future bilateral and multilateral trade agreements in IPR
protection warrants our staunch support for the FTA. Under the
Agreement, American biotech, chemical, pharmaceutical, entertainment,
and multimedia companies will enjoy rights and privileges, including
nondiscriminatory treatment, governmental involvement in the
intervention and prosecution of violators, as well as the active
application of anti-circumvention rules. These protections will allow
American manufacturers and service providers to be more competitive by
offering superior technology and services without the threat of trade
secrets being stolen or copyrights violated.
The FTA also contains an e-commerce chapter that is truly
pioneering. Its inclusion addresses the realities of the information
age and supports an industry in which the U.S. enjoys a strong
competitive advantage. The Agreement commits Singapore to the
nondiscriminatory treatment of digital products and lowers the barriers
on the use and development of e-commerce. Singapore has also committed
to not apply fees or tariffs on the electronic transmission of digital
products and services delivered via the Internet.
As you can see from this brief overview, there are many reasons for
the U.S.-Singapore FTA Business Coalition to support this Agreement. We
urge Congress to support it as well. Thank you.
Chairman CRANE. Thank you, Mr. Haines. Some of you
highlighted the importance of the strong intellectual property
protections found in both of these agreements. Could you
explain how these agreements achieve this, and what the
economic impact will be to the United States and among our
trading partners--any one of you?
Mr. GOTTFRIED. Mr. Chairman, both of these agreements
recognize and parallel the provisions in the DMCA, which
provides strong anti-circumvention provisions. It also provides
strong enforcement standards including civil, ex-parte
statutory damages, criminalization of end user piracy, and
requires legal software use by the governments. It also
provides Internet service provider liability which is
consistent with what the DMCA provides. As I mentioned before,
strong intellectual property will promote economic growth and
tax revenues as well.
Chairman CRANE. Anyone else have any observation beyond
that?
Mr. HAINES. I believe the agreement covers four areas:
trademarks, copyrights, patents, and trade secrets; and in all
of these areas there are additional protections for these
intellectual property rights.
Chairman CRANE. It was mentioned that this is the first
time that digital products were recognized in terms of trade.
Can you explain the significance of this to the high-tech
industry? Yes, again, Mr. Gottfried.
Mr. GOTTFRIED. Mr. Chairman, in our industry we are
evolving in the way we distribute our products. Traditionally,
we have distributed our products in diskette form, and then in
Compact Disk (CD) Rom form, but we are now evolving with the
Internet, and with high-speed data transmission available, to
transmitting our products in digital format so that the
customer is able to get the product electronically without
having to go to a store to actually physically buy the product.
It also makes for quicker upgrades dealing with things like
error corrections even made in the software, and it was very
important that these FTAs recognize that medium.
Chairman CRANE. Finally, what unique provisions in this
agreement do you find most beneficial, and what would you like
to see in any new agreements that United States will sign in
the future? Anyone have a comment?
Mr. TRAMMELL. Low tariffs is the thing that hinders
companies, small manufacturing, even though Chile's is rather
low by many countries' standards. It is 6 percent. It can go as
high as 30 percent. India, 50 percent. It is the tariffs in
companies, small companies like Tramco, that suffer from not
having trade agreements. We look forward to more. Thank you.
Mr. JACOBS. I would also like to add that technology
neutrality is extremely important, and the nonbinding
provisions in these agreements are very good start for
Qualcomm. However, what we are looking for is a binding rule
that enables us to offer our products in markets and be able to
compete without any hindrances and in fair and open
competition. I think these agreements are an extremely good
start in this area.
Chairman CRANE. Anyone else? Yes, Mr. Gottfried.
Mr. GOTTFRIED. Two things that we like that are in both of
those agreements: one is the national treatment and
nondiscriminatory provisions on digital products. Also, we
support the negative list approach on services.
Chairman CRANE. Mr. Haines.
Mr. HAINES. Our Coalition covers a broad range of
companies, so what we enjoy about this agreement is that it is
comprehensive, covers many new areas, and gives very good
protection. We think that is one of the reasons why it can
serve as a model, because it is comprehensive and provides a
comprehensive list of protections.
Chairman CRANE. Thank you. Mr. English.
Mr. ENGLISH. Thank you, Mr. Chairman. I would like to thank
the panelists for agreeing to participate today. For each of
the panelists, since 9/11, there has been an increased focus on
the need to provide security for goods imported into the United
States. Do you see these trade agreements--do you see them
working, the balanced, facilitated trade and security concerns?
Mr. Trammell.
Mr. TRAMMELL. It doesn't affect my business at all. We
don't do any import. Everything we do is export. So, it is not
affecting us at this point. However, the stuff that we
manufacture is not high tech. So, at this point it has not been
a problem; and I am not sure if I am answering you, giving
you----
Mr. ENGLISH. Mr. Trammell, if I might, let me turn to the
other panelists. Would anyone care to focus on this?
Mr. JACOBS. I would just add that we are also focused on
exports and doing very little importing ourselves, so it does
not affect Qualcomm much.
Mr. ENGLISH. Would anyone like to comment? Very good. Both
provisions include provisions allowing businesses to send
service providers, professionals, owners, and officers to the
other country. This is potentially a controversial component in
both trade agreements. How important is this to your respective
businesses?
Mr. HAINES. The agreement addresses the problems that U.S.
service providers face in obtaining work permits and visas for
personnel, but it is on short-term assignments. In some cases
now, it may take months for necessary authorization. Thus, that
seriously impairs the ability of U.S. companies to compete.
Under this agreement, the U.S.-Singapore agreement, the
U.S. and Singapore professionals will be granted temporary
visas, but only for a period of 90 days. This is based on some
criteria like proof of nationality and so forth, and it is also
limited, I believe, to 5,400 people. We think this is a very
good accommodation that will allow American businesses as well
as Singaporean businesspeople what they need in certain times.
Mr. ENGLISH. Any other comments? Then, in that case, Mr.
Jacobs, you spoke about the importance of using trade
negotiations to secure binding rules on technology neutrality
to ensure that telecom services companies can use the
technology of their choice to provide services without
governmental interference. Where has this been a problem for
your company?
Mr. JACOBS. I have got a few examples, but in general, it
happens with technology standards and in the allocation and
licensing of radio frequencies. For example, in Europe, when
Qualcomm tried to get CDMA deployed into Europe, we were denied
access to the most important cellular frequency bands. As a
result, our technology has not been allowed in, but a competing
technology is allowed. The European Union has now taken that
same approach in large, potential markets like China. They are
trying to do the same thing there by requesting that specific
technology be utilized in a certain frequency band, thus
denying the competitive neutrality that we are searching for.
I think the most obvious one for us lately has been in
Korea, where there is a standard, less on the air interface
standard like CDMA, but more on applications platform, where
Korea got very nervous that it was getting dependent on foreign
technology. Korea wanted to create its own homegrown industry,
and so it developed and funded an applications platform called
the Wireless Internet Platform for Interoperability (WIPI).
Ultimately, they are trying to mandate that upon all the
cellular operators, and obviously that is anticompetitive.
There are many competing solutions out there, and when a
government mandates something, it obviously is very difficult
to compete against it.
Mr. ENGLISH. Finally, and I know my time is short, Mr.
Jacobs, we frequently hear from companies operating abroad who
complain that the first time they learn about some new
government regulation is when the law enforcement authorities
are knocking on their door. How do you rate the various
transparency provisions in these two agreements, and how will
they make a difference for your business?
Mr. JACOBS. I am not an expert in that subject, so I think
I will hold off.
Mr. ENGLISH. Very good. Thank you, Mr. Jacobs.
Chairman CRANE. Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman. Thank you, gentlemen,
for your testimony. Let me see if I can focus in on a question
for perhaps Mr. Jacobs and Mr. Gottfried, but, please, anyone
on the panel if you are interested. It relates to the employer
visa program, or employee visa program, that we find in the two
FTAs. The H-1B program, as you are very well aware, was a very
delicately crafted compromise trying to ensure that the real-
time needs of most companies--especially in the high-tech
community--were addressed, while at the same time recognizing
our obligation to put American workers first in line for any
jobs that are here in America. We also had a $1,000 fee that
each company would pay to recognize that, in the future, we
don't want to have to seek workers from abroad. We should be
hiring them from here, especially with high-tech jobs that are
very well paid. The FTAs both include language that provides
for, in essence, H-1B workers to come in on top of the limits
that we have for existing H-1B programs. It also seems to allow
for a generation of those annual caps without regard to how
many people leave under the existing cap for the particular
country. So, if you have a 1,400 cap in Chile, for example, if
1,400 people come in in 2003, next year, if none of the 1,400
are left, you still can bring in another 1,400 from Chile, and
so forth. In Singapore it is 5,400, so there is never a limit.
Question for you: one, should we require companies to pay
the $1,000 fee that is, in essence, a recognition that we have
to do more to home-grow our own workforce? Two, should we allow
there to be no cap to the global limits on workers that are
coming in from the two countries, so that the 5,400 from
Singapore and the 1,400 from Chile, 6,800 total, could annually
come in regardless of how many of those existing 6,800 in any
year go back to their home countries?
Mr. JACOBS. Sir, I am not an expert on this question
either, or the spokesman for Qualcomm on this particular issue,
but I think it is Qualcomm's goal to hire Americans. We have
hired 5,800 employees in the United States, so I think we are
hiring a high amount of U.S. citizens, but in this very
competitive world market, we certainly want to have access to
the best and brightest people. So, the more access we can get
to the people, the better. Whether $1,000 is the right amount
or not is not driving whether Qualcomm will pursue aggressively
U.S. citizens or not. We also are doing many things to help
U.S. institutions, college institutions, to continue to put out
very strong future employees. So, that has been our path.
Mr. BECERRA. Thank you. I think everyone recognized that.
San Diego obviously has benefited tremendously by what Qualcomm
has done, and we hope you continue to do so. No one wants to
deny a company, especially a company that has produced so much,
or any industry that has produced so much, the opportunity to
just continue to advance. It is our fault in our country if we
are not producing enough of those engineers and computer
scientists and other folks of technological bent in order to
meet the needs of our companies. No one wants to stifle
progress. So, I am just wondering, though, if there comes a
point where we want to be careful, because there is another
provision in the FTAs that seems to remove the requirement that
an employer certifies that it has sought out American workers
for those particular positions that are open, which to me, if
that gets out, that could become a blemish on the FTAs even if
it doesn't happen that way. I don't believe that the countries
of Chile and Singapore are trying to somehow circumvent the
process. I think there is probably some genuine role to be
played here. It just seems that we may be going beyond what we
need to.
Since my time is getting short, maybe I can get to one
other question very quickly. Please tell me, anyone on the
panel, if you have a particular disagreement with what I say.
Child labor should not be permitted. Slave labor should not be
permitted. The right to associate by any employee should not be
forbidden. The right to collectively bargain--you must allow
people to unionize. The right to associate to collectively
bargain should not be forbidden. Also, the right against forced
labor--the obligations to forbid discrimination.
Is there any problem with any of those five issues?
Outlawing child labor, outlawing discrimination, outlawing
slave labor, forced labor, permitting right of association,
permitting collective bargaining; does anybody have any
problems with those? No? Would you object to having something
like that that says you can't allow child labor; you can't
allow slave labor, forced labor; you can't permit
discrimination; you can't stop someone from associating; you
can't stop someone from at least trying to collectively
bargain? Would that--would you be opposed to an agreement if it
said those things?
Mr. TRAMMELL. Well, Congressman, that is a pretty broad
brush. What is child labor? At what age do you consider it
child labor? You have got a lot of blocks there, too, in my
opinion, that could very well impede agreement. I think we all
want to do what is fair.
Mr. BECERRA. What if you used an international standard for
child labor; say, if the international community thought that
it shouldn't be 18 or 17.
Mr. TRAMMELL. Please, I am not a defender of child labor,
but I am just saying that that is a pretty broad brush. I live
out on a ranch, and so, 16-year-old kids can work for me under
my supervision. I would certainly hate to think that I am
abusing the child labor law by having my grandkids help me haul
hay or plow or something. So, the term ``child labor,'' of
course, is very chilling in just the term ``child labor.'' I
think you should be more definite about what you are talking
about.
Mr. BECERRA. If you were--and, Mr. Chairman, I know my time
has expired, but if I can pursue this for just a second more
because I think Mr. Trammell brings up a good point. If we were
to give definition to those five areas, child labor--if we used
an international standard that made it very clear what we
meant, and we used standards that were internationally
recognized, versus by the United States or by some other
country, but internationally recognized, would any of you have
objections to seeing any of those provisions ingrained,
embedded in an FTA?
Okay. I thank you. I assume that that means there is no
vocal opposition to that. I only raise that point because I
think a lot of us are just saying we could have some great
trade agreements, and address some of the concerns that some of
us have, and be able to move forward with some of these trade
agreements without a problem if we just put in some floor
standards there that would help a lot of us have confidence
that every agreement, regardless what the good faith of the
country and the negotiators was--we would know that there is
something there, and it would allow us to move forward and let
you all aggressively market your products and do as well as you
can for the American people and your companies. Thank you, Mr.
Chairman, for the extra time.
Chairman CRANE. Well, I thank you. I thank our
distinguished witnesses here. On the child labor question,
though, let me tell you that as a kid, when we were 12, we
worked on the farm to help load hay and get it in the barn. We
milked the cows at 5:30 in the morning and never thought
anything about it. We only made 10 cents an hour. We were
blessed, we felt, because we could work a 10-hour day and make
a dollar.
Mr. BECERRA. Mr. Chairman, I think you are right. Sometimes
it seems like we have reversed it, and some of our kids don't
feel like they need to work until they become adult age.
Chairman CRANE. Absolutely. Sad to say.
Mr. BECERRA. We do have requirements. We do require you to
register, and there are some regulations that require anyone
under 18 to work under permits, unless, of course, it is
family, which is different. We do provide a regime so that we
can ensure that there is no abuse of those individuals. I don't
think anyone would challenge that or contest that, because what
we have done is, in essence, given a child the chance to become
educated, to become the folks who take those jobs that Qualcomm
produces, versus have to work for 10 cents an hour on a farm;
which farm work is dignified labor, but I think all of us want
to make more than 10 cents an hour.
Chairman CRANE. That was back in the forties. That would
be, probably, $20 an hour today.
Mr. BECERRA. Mr. Chairman, I would love to find some of
those farms, because I know a lot of folks who are working for
a lot less than minimum wage on our farms.
Chairman CRANE. Well, I want to thank our panel for their
testimony and for their involvement, and I would like to ask
you all to please stay involved, especially in terms of
communication, with our colleagues so that as we get closer to
voting on this on the floor, they have the information that you
have provided us here on the Committee. With that, this panel
stands adjourned.
We will invite our next panel to come testify, and that
includes Joseph Papovich, Senior Vice President International,
Recording Industry Association of America, on behalf of the
Entertainment Industry Coalition for Free Trade; David Spence,
Managing Director, FedEx Corporation; Gawain Kripke, Policy
Director, Oxfam America; Thea Lee, Chief International
Economist, AFL-CIO; and finally, John Audley, Senior Associate
and Director, Project on Trade Equity and Development of the
Carnegie Endowment for International Peace.
If our witnesses will all please take their seats, we will
proceed in the order in which I introduced all of you. Please
try and keep your testimony confined to the 5 minutes, and the
little lights in front of you there--when the red light goes
on, don't cross the intersection. With that, we will start out
with Mr. Papovich.
STATEMENT OF JOSEPH PAPOVICH, SENIOR VICE PRESIDENT
INTERNATIONAL, RECORDING INDUSTRY ASSOCIATION OF AMERICA, ON
BEHALF OF THE ENTERTAINMENT INDUSTRY COALITION FOR FREE TRADE
Mr. PAPOVICH. Thank you, Mr. Chairman. On behalf of the
Entertainment Industry Coalition for Free Trade, I appreciate
the opportunity to testify about the benefits of these two FTAs
for America's entertainment industry. Our coalition represents
Americans who create, produce, distribute, and exhibit
theatrical motion pictures, television programming, home video
entertainment, recorded music, and video games. Our members are
multichannel programmers and cinema owners, producers and
distributors, entertainment guilds and unions, trade
associations, and individual companies.
International markets are vital to our companies and our
creative talent. Foreign sales account for 40 to 60 percent of
the revenues of the record and motion picture industries. This
strong export base sustains American jobs. However, America's
creative industries are under attack. The impact of piracy has
grown in recent years with the advance of digital technology.
Market access barriers plague our industries. These two
agreements include commitments vital to our coalition,
including strong protection of intellectual property and market
access for the goods and services we produce and distribute,
whether in physical form or over digital networks.
Mr. Chairman, you asked the last panel for some specific
examples in the intellectual property rights area that make
these agreements good, and I have some I am going to list off
for you right now. First, these agreements will help us better
protect our intellectual property in Chile and Singapore, while
setting important precedents for future FTAs, including the
FTAA. The agreements create clear and binding rules for the
protection of intellectual property in the digital economy.
They ensure that copyright owners have the exclusive right to
make their works available online. This is very important. The
agreements build upon and improve existing copyright
agreements, including the WTO TRIPS agreement. The agreements
implement the obligations of the 1996 WIPO Internet Treaties.
This includes prohibition against the provision of goods and
services that circumvent technological measures used to protect
copyrighted works from unauthorized access and copying. The
agreements expand the term of protection for copyrighted works
in line with international trends.
Strong enforcement is essential to intellectual property
protection, and the new agreements contain important advances.
They mandate statutory and actual damages against infringements
based on the value of the legitimate goods. Enforcement
authorities will be able to seize and destroy pirated goods and
the equipment used to produce such goods. Singapore, a major
trans-shipment port, will enforce these laws against goods and
transit, making it more difficult for pirates to use Singapore
as a conduit for pirated goods produced in other Asian
countries. Singapore also accepted a special provision to
control optical disk production, like CDs, CD ROMs, Digital
Video Disks (DVDs), which is a major problem in their region.
Second, the FTAs ensure that U.S. audiovisual services will
enjoy the Most Favored Nation principle and national treatment
with only limited reservations. Singapore and Chile's
commitments are excellent where U.S. audiovisual interests are
strongest. For example, Singapore is a regional hub for the
uplinking and delivery of channels of television content via
satellite to cable services and directly to consumers.
Singapore has taken full commitments on these services, as has
Chile. Recorded music, cinema exhibition, and television and
cable transmission services will enjoy full market access and
national treatment under these agreements. Home video rental
and leasing, and the on-demand delivery of all forms of
entertainment content are fully covered.
Third, the agreements offer groundbreaking provisions
regarding the treatment of digital products. Among other
things, Singapore and Chile committed to nondiscriminatory
treatment of digital products and agreed not to impose Customs
duties on such products. The agreements require that the
valuation for content-based products like films, videos and
music CDs will be based on value of the carrier media like the
disk, not the value of the content, which would obviously be
much higher.
Finally, the agreements eliminate the duties on the
physical products created by our industry and for the inputs we
use. Therefore, Mr. Chairman, on behalf of the industry,
Entertainment Industry Coalition, we call for congressional
approval of these two fine trade agreements. We praise the work
of Ambassador Zoellick and his staff in concluding these
agreements. Congressional approval of these agreements will
promote one of our economy's most vital sectors. Thank you very
much.
[The prepared statement of Mr. Papovich follows:]
Statement of Joseph Papovich, Senior Vice President International,
Recording Industry Association of America, on behalf of the
Entertainment Industry Coalition for Free Trade
Mr. Chairman and Members of the Subcommittee, on behalf of the
Entertainment Industry Coalition for Free Trade (EIC), I appreciate the
opportunity to testify about the economic benefits that the U.S.-
Singapore and U.S.-Chile Free Trade Agreement will provide for
America's entertainment industries, including the men and women who
work in our industries. The Entertainment Industry Coalition represents
the interests of those men and women who produce, distribute and
exhibit many forms of creative expression, including theatrical motion
pictures, television programming, home video entertainment, recorded
music, and video games. Our members are multi-channel programmers and
cinema owners, producers and distributors, guilds and unions, trade
associations and individual companies.
Our members include AFMA; AOL Time Warner; BMG Music; Directors
Guild of America; EMI Recorded Music; Interactive Digital Software
Association; The International Alliance of Theatrical Stage Employees,
Moving Picture Technicians, Artists and Allied Crafts of the United
States, Its Territories and Canada, AFL-CIO, CLC (IATSE); Metro-
Goldwyn-Mayer Studios Inc.; Motion Picture Association of America;
National Association of Theatre Owners; New Line Cinema; the News
Corporation Limited; Paramount Pictures; Producers Guild of America;
Recording Industry Association of America; Sony Music Entertainment
Inc.; Sony Pictures Entertainment Inc.; Television Association of
Programmers (TAP) Latin America; Twentieth Century Fox Film
Corporation; Universal Music Group; Viacom; Universal Studios; the Walt
Disney Company; Warner Bros.; and Warner Music Group; and The Writers
Guild of America, west (WGAw). Additional information regarding our
Membership can be found in the attached document: ``The Entertainment
Industry Coalition for Free Trade: WHO WE ARE.''
The goal of the EIC is to educate policymakers about the importance
of free trade for the U.S. economy, the positive economic impact of
international trade on the entertainment community, and the role of
international trade negotiations in ensuring strong intellectual
property protections and improved market access for our products and
services.
International markets are vital to our companies and workers. For
the record and motion picture industries, for example, exports account
for forty to sixty percent of revenues. This strong export base has
been significant for sustaining countless U.S. jobs for America's
creative talent and workers.
Unfortunately, America's creative industries are under attack.
Piracy of copyrighted materials has had a devastating impact. The
impact has grown in recent years with the advance of digital
technology. While the digital revolution has created new ways for all
of us to reach consumers with compelling content, and for consumers in
turn to access it from almost anywhere, this same technology has also
facilitated the work of those who profit from stealing the innovation
and creativity of others. Market access barriers also plague segments
of the entertainment industries.
All of this increases the importance of international trade
agreements. In addition to updating traditional copyright protections,
our industry needs new agreements that keep pace with changes in
technology.
The EIC, therefore, is committed to the passage of the U.S.-
Singapore and U.S.-Chile Trade Agreements. These agreements include
numerous commitments that are vital to the members of the Coalition
such as: (1) providing strong protection of intellectual property in
the digital age; (2) strengthening copyright enforcement; (3) securing
market access for the goods and services produced and distributed by
our members whether in physical form or over digital networks; and (4)
demonstrating that trade agreements can incorporate commitments that
open services markets while simultaneously addressing countries'
specific socio-cultural concerns. The Coalition firmly believes that
these FTAs, once implemented, will promote our economic interests and
contribute to a strengthened U.S. economy.
The FTAs Raise Intellectual Property Standards
The entertainment industries, and the men and women who work in
these industries, are dependent for their success, indeed for their
survival, on defending their rights to the intellectual content they
have created. Achieving enhanced global standards of copyright
protection and enforcement, ensuring meaningful market access, and
developing trade disciplines that keep pace with technological
development are all central to the Coalition Members' ability to remain
competitive and to continue to ensure good jobs for America's creative
community.
Growing levels of physical piracy, online piracy and inadequate
enforcement of copyright laws internationally are challenging the
competitiveness of our industries worldwide. These two FTAs succeed in
addressing these challenges in ways that bode well for high levels of
protection in Singapore and Chile and for setting critical, essential
precedents for future Free Trade Agreements. These agreements provide
high standards of copyright protection for the modern digital age, and
ensure that protection is meaningful in practice through strong
enforcement. Piracy of our works represents the single largest trade
barrier we face in markets outside the United States. Let me quickly
highlight a few key areas.
These agreements create clear and binding rules for the protection
of intellectual property to the digital economy. They ensure that
copyright holders have the exclusive right to make their works
available online. As you know, this has been a critical problem in the
music industry. These agreements build upon and improve in significant
ways the existing copyright agreements, including the provisions in the
WTO TRIPS Agreement. The agreements implement the obligations of the
1996 WIPO Internet Treaties, including ensuring that copyright owners,
including record companies, have the exclusive right to make their
works available online. The agreements include strong prohibitions
against the provision of goods and services that circumvent
technological measures that protect copyrighted works from unauthorized
access and copying. In addition, the agreements expand the term of
protection for copyrighted works in line with emerging international
trends.
Enforcement is essential to intellectual property protection, and
the new Agreements contain important new enforcement provisions. They
provide strong deterrence against piracy and counterfeiting. They also
mandate both statutory and actual damages--based on the value of the
legitimate goods--for IPR violations under Singaporean and Chilean law.
The Governments of Singapore and Chile guaranteed that they have
the authority to seize, forfeit, and destroy both pirated goods and the
equipment used to produce such goods. Singapore--as a major trans-
shipment port in Asia--will also enforce these tough laws against
goods-in-transit, meaning that Singapore will not serve as a conduit
for pirated goods produced in other Asian countries.
It is critical that these issues continue to be addressed in each
free trade agreement negotiated by the United States.
Creating Market Opportunities for the Entertainment Industry
Services: The U.S. entertainment industry will also benefit from
the provisions relating to cross-border trade in services. The FTAs
ensure that all U.S. audiovisual services will enjoy national treatment
and MFN status, with limited reservations. Chile and Singapore each
took a reservation (Singapore's broader than Chile's) that limits their
obligations for television content broadcast, but their obligations in
all other forms of audiovisual services, where U.S. commercial
interests are strongest, are excellent. Specifically, Singapore is a
regional hub for the uplinking and delivery of channels of television
content via satellite to cable services and directly to customers.
Singapore has taken full commitments on these services, as has Chile.
Chile also agreed to grant national treatment to U.S. providers for any
cultural cooperation agreements it enters with third countries.
Both agreements represent good examples of trade agreements that
are able to accommodate cultural concerns, while providing solid market
opening commitments. They are a model for future agreements, proving
that cultural interests can be promoted without significant
restrictions on international trade. Recorded music, cinema exhibition,
even television and cable transmission services enjoy full market
access and national treatment under these agreements. Home video rental
and leasing, and the on-demand delivery of all forms of entertainment
content are also fully covered. The agreements ensure continued
openness in sectors including advertising, distribution, and computer
related services which are all critical for both traditional and as
well as digital commerce.
Digital Products: The agreements offer groundbreaking provisions
with respect to the treatment of digital products. The Entertainment
Industry Coalition is committed to bringing compelling content to
consumers both online and through digital downloads; we are pleased,
therefore, with the agreements' e-commerce provisions. Singapore and
Chile have committed to nondiscriminatory treatment of digital
products, and have also agreed not to impose customs duties on such
products.
Customs Valuation: The agreements also establish very valuable
rules for customs valuation. Specifically, they require that valuation
for content-based products (e.g., films or videos or music CDs) be
based on the value of the carrier media--not on an artificial
projection of revenues. Because Singapore and Chile will eliminate
their tariffs, the true significance of this provision will be as a
precedent for future negotiations with other trading partners in other
bilateral and regional negotiations.
Goods: EIC members are interested in reduction of tariffs on the
physical products created by this industry and on zero duties for
inputs to our various industries, from sound and projection equipment
and state-of-the-art seating for cinemas to promotional materials, to
the equipment used in the production of films and music. Even before
completion of this Agreement, EIC Members had already benefited from
Singapore's commitment to zero duties. Singapore's zero duties, of
course, are enshrined in this Agreement. Chile to now as part of its
commitment will have zero duties on the products essential to our
industry.
Singapore and Chile are not major exporters of entertainment
products to the United States. Moreover, the United States already has
zero import duties on most entertainment products; elimination of the
few remaining low U.S. tariffs on entertainment products are not
expected to affect the volume of imports of entertainment products from
Singapore or Chile or cause any harm to any U.S. industries.
Call for Support
On behalf of the Entertainment Industry Coalition, I want to praise
the work of Ambassador Zoellick and his staff in concluding these FTAs.
Congressional support for these agreements will help promote one of our
economy's most vital sectors.
More broadly, we strongly support the Administration's continuing
efforts to pursue simultaneous liberalization through bilateral,
regional, and multilateral trade negotiations. Each of these avenues
offers significant prospects.
In addition, we urge Members to join the newly forming
Congressional Anti-piracy caucus. Congressmen Goodlatte and Schiff co-
chair the House Caucus. Senators Biden and Smith co-chair the Senate
Caucus. This caucus will help to reinforce the critical importance of
IP protection globally.
For decades, the expansion of trade and the protection of
intellectual property have been cornerstones of a bipartisan economic
policy. The ability of our country to lead--and the ability of our
companies to lead--will depend upon our continued success through
passage of the Chile and Singapore FTA's and beyond.
__________
Entertainment Industry Coalition for Free Trade (EIC)
WHO WE ARE
AFMA
AFMA is the worldwide trade association of the independent film and
television industry. Our members represent all facets of the
independent film and television industry including sales, production,
distribution and financing. AFMA also hosts the American Film Market,
the world's largest film market, where more than $500 million dollars
in film license transactions are concluded annually. International
exports of film, television and video/DVD rights are a major aspect of
the business of AFMA members and constitute about $2.6 billion dollars
in annual sales.
DGA
The Directors Guild of America (DGA) represents 12,500 directors
and members of the directorial team who work in feature film, filmed/
taped/and live television, commercials, documentaries, and news. DGA
members include Film and Television Directors, Unit Production
Managers, Assistant Directors, Associate Directors, Technical
Coordinators, Stage Managers and Production Associates. DGA seeks to
both protect and advance directors' economic and artistic rights and
preserve their creative freedom.
IATSE
The International Alliance of Theatrical Stage Employees, Moving
Picture Technicians, Artists and Allied Crafts of the United States,
Its Territories and Canada, AFL-CIO, CLC (IATSE) is an International
Union that represents over 100,000 members employed in the stage craft,
motion picture and television production, and trade show industries
throughout the United States, its Territories and Canada.
IDSA
The Interactive Digital Software Association is the U.S.
association exclusively dedicated to serving the business and public
affairs needs of companies that publish video and computer games for
video game consoles, personal computers, handheld devices and the
Internet. IDSA members collectively account for more than 90 percent of
the $6.9 billion in entertainment software sales in the United States
in 2002, and billions more in export sales of American-made
entertainment software.
MPAA
The Motion Picture Association (MPAA) is a trade association
representing seven of the largest producers and distributors of
theatrical motion pictures, home video entertainment and television
programming: Walt Disney Company; Metro-Goldwyn-Mayer Studios Inc.;
Paramount Pictures; Sony Pictures Entertainment Inc.; Twentieth Century
Fox Corporation; Universal Studios; and Warner Bros.
NATO
The National Association of Theatre Owners (NATO) is the largest
trade association in the world for the owners and operators of motion
picture theatres. NATO represents over 500 movie cinema companies
located in the United States and in 40 countries around the world.
These companies range from large national and international circuits
with thousands of movie screens, to hundreds of small business
operators with only a few movie screens. NATO maintains its main office
in North Hollywood, California, and a second office in the Washington,
D.C. area.
PGA
The Producers Guild of America represents nearly 2,000 producers
and members of the producing team in film, television and new media.
Under the leadership of Kathleen Kennedy, the PGA strives to provide
employment opportunities for its members, combat credit proliferation
within film and television, and represent the interests of the entire
producing team. The producing team consists of all those whose
interdependency and support are necessary for the creation of motion
pictures and television programs. The producing team includes
Producers, Executive Producers, Co-Executive Producers, Supervising
Producers, Co-Producers, Associate Producers, Segment Producers,
Production Managers, Post-Production Supervisors and Production & Post-
Production Coordinators.
RIAA
The Recording Industry Association of America is the trade group
that represents the U.S. recording industry. Its mission is to foster a
business and legal climate that supports and promotes our members'
creative and financial vitality. Its members are the record companies
that comprise the most vibrant national music industry in the world.
RIAA members create, manufacture and/or distribute approximately 90%
of all legitimate sound recordings produced and sold in the United
States. In support of this mission, the RIAA works to protect
intellectual property rights worldwide and the First Amendment rights
of artists; conduct consumer industry and technical research; and
monitor and review--State and Federal laws, regulations and policies.
The RIAA also certifies Gold, Platinum, Multi-Platinum, and Diamond
sales awards, Los Premios De Oro y Platino, and award celebrating
Latin music sales.
TAP
The Television Association of Programmers (TAP) Latin America is a
trade association comprising 35 pan-regional subscription programming
suppliers serving Latin America and the Caribbean. The Association,
founded in 1995, provides a voice in the region for its members and
facilitates the exchange of ideas and information on issues affecting
the Latin American marketplace. TAP's headquarters are in Miami, and it
maintains a network of legal counsel and industry representatives
throughout the region.
WGAw
The Writers Guild of America, west (WGAw) is a labor union that
represents writers in the motion picture, broadcast, cable and new
technologies industries. Our 8,500 members of the write for news,
entertainment, animation, informational, documentary, interactive
online services, CD-ROM and other new media technologies. We represent
writers in a variety of arenas in addition to traditional bargaining.
With representatives in Washington D.C.--as well as other countries--
the WGAw furthers the interest of writers through legislation,
international agreements and public relations efforts.
Chairman CRANE. Thank you. Mr. Spence.
STATEMENT OF DAVID W. SPENCE, MANAGING DIRECTOR, REGULATORY AND
INDUSTRY AFFAIRS, FEDERAL EXPRESS CORPORATION, AND CHAIRMAN,
TRADE COMMITTEE, AIR COURIER CONFERENCE OF AMERICA
Mr. SPENCE. Thank you, Mr. Chairman. This testimony is
submitted on behalf of Federal Express (FedEx) and the Air
Courier Conference of America (ACCA). I give this testimony
today as managing director in the legal department of FedEx
responsible for trade security and customs policy and as Trade
Committee Chairman for ACCA.
FedEx and ACCA support the Singapore FTA and believe it
will benefit the U.S. express industry, particularly by leading
to an increased volume of trade between the two countries.
Express operators expect to transport a significant portion of
that increased trade. Due to my limited time, I am focusing on
the Singapore FTA, but we would be happy to answer questions
about the Chile FTA as it also brings many benefits to our
industry.
The express industry which ACCA represents specializes in
fast, reliable transportation services for documents, packages,
and freight. Members of ACCA include large firms of global
delivery networks such as Airborne, DHL, FedEx, TNT U.S.A., and
United Parcel Service (UPS), as well as smaller businesses with
strong regional delivery networks. Together ACCA members employ
more than 510,000 American workers. Worldwide, ACCA members
have operations in over 1,200 countries, move more than 20
million packages each day, employ more than 800,000 people,
operate 1,200 aircraft, and earn revenues of approximately $60
billion annually.
FedEx and ACCA strongly support free trade. The express
industry's success depends on its ability to transport
documents and parcels quickly without undue delay or cost. Laws
and regulations in a wide range of areas, such as intermodal
transportation, distribution, warehousing, customs, insurance,
and freight forwarding can significantly affect the ability of
ACCA members to compete effectively in foreign markets. Such
laws have the potential to restrict trade when they are
discriminatory or burdensome.
As noted above, the express industry expects that the
Singapore FTA will open new markets for American exporters and
therefore enhance business opportunities for providers of
express delivery services. Singapore and the other nations of
the ASEAN region represent an important and growing market for
the express industry. According to the U.S.-ASEAN Business
Council, in 1999, express shipments accounted for approximately
20 percent or $13.6 billion of the $68 billion in trade
transported via air between the United States and the ASEAN
nations. The counsel estimated that express delivery in the
ASEAN region would grow at an annual rate of approximately 20
percent per year. With the implementation of the Singapore FTA,
this rate of growth should increase.
In addition, the Singapore FTA is expected to enhance
business opportunities for the U.S. express industry by
reducing trade barriers that have the potential to directly
affect the express industry's operations in Singapore. Of
particular note are the agreement's trade facilitation
provision specific to the express industry which should allow
express operators to provide the fast, reliable service that
businesses and consumers in both countries need. We are pleased
that the agreement includes trade facilitation provisions as we
believe that trade facilitation is an absolutely essential
ingredient of trade negotiations. Trade facilitation provisions
should focus on the simplification and harmonization of customs
procedures and practices and should also require parties to
maintain appropriate measures to ensure efficient and fair
customs facilitation of goods that are imported and/or exported
by express suppliers. The Singapore FTA's provisions do that.
However, we are disappointed with the agreements included and
of a 6-hour target for release of express shipments. We believe
that target should be substantially reduced.
The Singapore FTA is one of the first U.S. trade agreements
to recognize express delivery as a unique service sector and to
clarify that commitments regarding express--the express sector
are applicable to all suppliers of the service. This is an
important precedent for our industry because our principal
competition often comes from national postal administrations.
Even though express services provided by private and public
operators are identical, they are classified differently under
the U.N. Central Product Classification (CPC) System, the
classification scheme that has often served as the basis for
prior service classifications.
The CPC has several flaws from the perspective of the
express industry. First, it does not provide for express
delivery services. Instead we are covered under the
classifications ``postal services'' and ``courier services.''
Furthermore, the definition of postal services and courier
services in the CPC are distinctly counterproductive to express
delivery service liberalization efforts. They inappropriately
focus on the nature of the service procedure rather than the
service itself. Under the CPC, express delivery services
provided by a private operator are classified as courier
services, but when the same services are provided by a public
postal administration, they are classified as postal services.
This creates a serious problem. Sir, I understand my time is
up, so I would be happy to answer any questions.
[The prepared statement of Mr. Spence follows:]
Statement of David W. Spence, Managing Director, Regulatory and
Industry Affairs, Federal Express Corporation, and Chairman, Trade
Committee, Air Courier Conference of America
Mr. Chairman, this testimony is submitted on behalf of Federal
Express Corporation (FedEx) and the Air Courier Conference of America
(ACCA). I give this testimony today as Managing Director of Regulatory
and Industry Affairs in the Legal Department of FedEx, responsible for
trade, security, and customs policy, and as Trade Committee Chairman
for ACCA. FedEx and ACCA support the U.S.-Singapore FTA and believe it
will benefit the U.S. express delivery services (EDS) industry,
particularly by leading to an increased volume of trade between the two
countries. EDS operators expect to transport a significant portion of
that increased trade.
The express delivery service industry, which ACCA represents,
specializes in fast, reliable transportation services for documents,
packages and freight. ACCA members include large firms with global
delivery networks, such as Airborne Express, DHL Worldwide Express,
FedEx, TNT U.S.A. Inc. and United Parcel Service, as well as smaller
businesses with strong regional delivery networks. Together, ACCA
members employ more than 510,000 American workers. Worldwide, ACCA
members have operations in over 200 countries, move more than 20
million packages each day, employ more than 800,000 people, operate
1,200 aircraft and earn revenues of approximately $60 billion annually.
FedEx and ACCA strongly support free trade. The EDS industry's
success depends on its ability to transport documents and parcels
quickly, without undue delay or costs. Laws and regulations in a wide
range of areas, such as intermodal transportation, distribution,
warehousing, customs, telecommunications, insurance and freight
forwarding, can significantly affect the ability of ACCA members to
compete effectively in foreign markets. Such laws have the potential to
restrict trade when they are discriminatory or burdensome.
As noted above, the EDS industry expects that the U.S.-Singapore
FTA will open new markets for American exporters and therefore enhance
business opportunities for providers of express delivery services.
Singapore and the other nations of the ASEAN region represent an
important and growing market for the EDS industry. According to the
U.S.-ASEAN Business Council, in 1999 express delivery shipments
accounted for approximately 20 percent, or $13.6 billion, of the $68
billion in trade transported via air between the United States and the
ASEAN nations. The Council estimated that express delivery services in
the ASEAN region would grow at an annual rate of approximately 20
percent per year. (``The Integrated Express Industry in the ASEAN
Region: Delivering Business into the 21st Century'' (September 2000)).
With the implementation of the U.S.-Singapore FTA, this rate of growth
should increase. In addition, the U.S.-Singapore FTA is expected to
enhance business opportunities for the U.S. express industry by
reducing trade barriers that have the potential to directly affect the
EDS industry's operations in Singapore. Of particular note are the
agreement's trade facilitation provisions specific to the express
industry, which should allow EDS operators to provide the fast,
reliable service that businesses and consumers in both countries need.
We are pleased that the agreement includes trade facilitation
provisions, as we believe that trade facilitation is an absolutely
essential ingredient of trade negotiations. Trade facilitation
provisions should focus on the simplification and harmonization of
Customs procedures and practices and should also require parties to
maintain appropriate measures to ensure efficient and fair Customs
facilitation of goods that are imported and/or exported by EDS
suppliers. The U.S.-Singapore FTA's provisions do that. However, we are
disappointed with the agreement's inclusion of a 6-hour target for
release of express shipments; we believe that target should be
substantially reduced.
The U.S.-Singapore FTA is one of the first U.S. trade agreements to
recognize express delivery services as a unique service sector, and to
clarify that commitments regarding the EDS sector are applicable to all
suppliers of the service. This is an important precedent for our
industry because our principal competition often comes from national
postal administrations. Even though EDS services provided by private
and public operators are identical, they are classified differently
under the U.N. Central Product Classification (``CPC'') system, the
classification scheme that has often served as the basis for prior
service classifications (such as in several sectors covered by the
GATS). The CPC has several flaws from the perspective of the EDS
industry. First, it does not provide for express delivery services--
instead, we are covered under the classifications ``postal services''
and ``courier services.'' Furthermore, the definitions of ``postal
services'' and ``courier services'' in the CPC are distinctly
counterproductive to express delivery service liberalization efforts--
they inappropriately focus on the nature of the service provider rather
than the service itself. Under the CPC, express delivery services
provided by a private operator are classified as ``courier services,''
but when the same services are provided by a public postal
administration, they are classified as ``postal services.'' This
creates a serious problem. Countries are likely to argue that because
the provision of ``courier services'' under the CPC is a different
service than provision of the same express services business activities
by the postal authority. National treatment violations would be nearly
impossible to prove, as a strong argument could be made under the CPC
that express delivery services provided by private operators are not
``like,'' or offered under ``like circumstances'' as those same express
services provided by public postal administrations. Thus, without a
specific definition for express delivery services, general FTA
provisions on national treatment and most-favored-nation treatment
would offer little, if any, help for express delivery service providers
that seek competitive equality. FedEx and the EDS industry as a whole
therefore applaud the inclusion in the U.S.-Singapore FTA of an
appropriate definition of EDS.
The U.S.-Singapore FTA also includes commitments limiting cross
subsidization by Singapore Post to benefit its express letter service.
While the EDS industry is pleased with this commitment, as it is a
first step in addressing a longstanding competitive disadvantage faced
by our members in many markets, we strongly believe that cross-
subsidization provisions in future trade agreements should be
considerably more rigorous than those in the U.S.-Singapore FTA. We
believe future trade agreements should embrace the precept that all
entities, including postal administrations, providing express delivery
services to their customers should be governed by the same rules and
market economics. This would preclude postal administrations from using
profits they derive from government-granted monopoly operations to
cross subsidize their express delivery service operations.
Mr. Chairman, in conclusion, FedEx thanks the Trade Subcommittee
for the opportunity to present this statement, and would be happy to
respond to any inquiries on the part of Members.
Chairman CRANE. Thank you, Mr. Spence. Let me reassure all
of you folks, too, that your printed statements will be made a
part of the permanent record. With that, our next witness is
Mr. Kripke.
STATEMENT OF GAWAIN KRIPKE, SENIOR POLICY ADVISOR, OXFAM
AMERICA
Mr. KRIPKE. Thank you. Thank you, Mr. Chairman, Congressman
Levin and Members of the Subcommittee. Thanks for giving me the
opportunity to testify today, and thanks also for hanging out
to listen to us stray cats here at the end. Oxfam America is an
international development and relief agency committed to
developing lasting solutions to poverty, hunger, and social
justice. We are part of a confederation of 12 Oxfam
organizations working together in more than 100 countries
around the world, and we have an annual budget of more than
$400 million.
Oxfam believes that trade can be an important engine for
development and poverty reduction, and that well managed trade
has the potential to lift millions of people out of poverty,
and for this reason Oxfam is focused on the global trade rules
and trade agreements as an integral part of our work to improve
the livelihoods of poor people and to reduce poverty in
developing countries. Since trade agreements set the rules for
ongoing trade relationships, they present opportunities for
developing countries, but they also present risks, and that's
why we think it is important to look at these trade agreements
very carefully to understand their full implications, and
especially so since the Administration has made it clear that
these trade agreements will serve as models for future
agreements that are currently being negotiated.
Today I want to focus on two areas of great concern to
Oxfam and our partners in developing countries: intellectual
property and investment. Both Singapore and Chile are parties
to the existing WTO TRIPS agreement, but both the FTAs include
measures that strengthen patent rights and enforcement around
pharmaceutical products. Both agreements go beyond existing WTO
TRIPS agreement and impose new requirements on our trading
partners, implementing so-called TRIPS-plus provisions.
Many public health and intellectual property experts have
warned that TRIPS-plus may undermine public health in poor
countries. This concern has become a major issue at the WTO and
instigated a great deal of controversy, which was resolved in
2001 with the Doha Declaration where all parties affirmed the
primacy of public health, and in 2002 Congress also endorsed
this as part of the TPA by instructing the U.S. Trade
Representative to respect the Doha Declaration.
Unfortunately, Oxfam feels that this commitment to public
health is not being upheld by the U.S. Trade Representative,
and we are concerned about the TRIPS-plus provisions included
in the Chile and Singapore FTAs. At the root of intellectual
property rights is a balance between the interests of the
patent holders who hold a monopoly and the public interest in
disseminating the technologies and the pharmaceuticals.
Provisions of these FTAs tipped the balance inappropriately in
favor of rights holders, and as a consequence may limit the
access to affordable medicines.
Most of the provisions in these FTAs around the
pharmaceuticals are aimed at delaying the introduction of
generic competition and thereby prolonging the patent holder's
monopoly. Generic competition is crucial in bringing down
prices to affordable levels, and anything that delays it can
have a great impact on access to affordable medicines.
President Bush himself made this point in the State of the
Union when he called for a major new commitment of funds to
combat AIDS and other diseases. He referenced the fact that
antiretroviral drugs to treat AIDS have dropped in price from
$12,000 per patient per year to around $300. This dramatic
difference makes possible treating millions of people with
diseases that otherwise wouldn't be able to be--to find
treatment.
I will spare you a list of the TRIPS-plus agreements in
both the FTAs. Suffice it to say the Singapore agreement has
many more, but both of them move forward in that direction, and
we find this a very troubling event, and more so looking
forward to future trade agreements. Some of the provisions in
Singapore and Chile are aimed toward bringing patent law in
these countries up to American legal standards. However, some
of them appear to go beyond U.S. law in protecting patents and
restricting generic competition.
On intellectual property rights, an additional concern
comes around the restrictions on the flexibility of these
countries to determine the scope of patentability under their
national laws. For instance, both the Chile and Singapore
agreements require the patenting of plants, which is very
controversial among environmentalists and among indigenous
communities. Under WTO Agreement, the TRIPS agreement, that is
not required, and each country should be free to decide how
this issue should be regulated.
So, in summary, imposing more TRIPS-plus standards in trade
agreements is troubling from a public health and development
point of view, and we believe that patenting of plants should
not be part of our trade agenda and should be resolved in the
context of a variety of development and environmental
considerations.
The rest of my testimony focuses on the investment
provisions which we have concerns with also; less so around
Chile and Singapore, but more so how they might be applied in
other trade agreements, particularly CAFTA, the FTAA, and the
negotiations around the agreement with the Southern African
Customs Union. So, I will leave that to the written testimony,
but be happy to answer questions.
[The prepared statement of Mr. Kripke follows:]
Statement of Gawain Kripke, Senior Policy Advisor, Oxfam America
Mr. Chairman, Congressman Rangel, and Members of the Subcommittee,
thank you for the opportunity to present the views of Oxfam America at
this hearing today. We appreciate the invitation and your interest in
gathering a variety of perspectives on the important issue raised by
the Chile and Singapore Free Trade Agreements.
Oxfam America believes that trade can be an important engine for
development and poverty reduction. Well-managed trade has the potential
to lift millions of people out of poverty. For this reason, Oxfam has
focused on global trade rules and trade agreements as an integral part
of our work to improve livelihoods and reduce poverty in developing
countries.
Trade agreements set the rules for ongoing trade relationships.
They present opportunities, but also risks for developing countries.
That's why we believe that it is very important to get the rules right;
and why Congress should look carefully at these FTAs to understand
their implications.
Intellectual Property
An important area of concern for Oxfam are the intellectual
property sections of the Chile and Singapore FTAs. Both FTAs include
measures that strengthen patent rights and enforcement around
pharmaceutical products. Both agreements go beyond the existing TRIPs
agreement and impose new requirements on our trading partners,
implementing so-called ``TRIPS-plus'' provisions.
Many public health and intellectual property experts have warned
that ``TRIPS-plus'' may undermine public health in poor countries. This
concern has become a major issue at the WTO, and, in 2001, the primacy
of public health over patent rights was affirmed in the Doha
Declaration by all WTO members, including the United States. In 2002,
Congress endorsed this commitment as part of Trade Promotion Authority
by instructing the USTR to respect the Declaration in trade
negotiations.
Unfortunately, Oxfam feels this commitment to public health is not
being upheld by the USTR. We are concerned about several ``TRIPS-plus''
provisions included in the Chile and Singapore FTAs. At the root of
intellectual property rights systems is a balance between the interests
of patent holders and the public interest. The provisions of these FTAs
tip this balance inappropriately in favor of rights holders and, as a
consequence, may limit access to affordable medicines.
Most of these are aimed at delaying the introduction of generic
competition, thereby prolonging the patent holder's monopoly. Generic
competition is crucial in bringing prices down to affordable levels,
and anything that delays the entry of generic products can have a grave
impact on access to affordable medicines.
Both the Chile and Singapore agreements contain ``TRIPS-plus''
provisions. However, there are more of them, and they are more
extensive in the Singapore agreement. The U.S.-Singapore Free Trade
Agreement includes provisions that:
Llimit the use of ``compulsory licensing,'' an important
mechanism for governments to obtain affordable medicines. Compulsory
licenses provide an important safeguard to governments to
counterbalance the monopoly rights granted to patent holders.
Compulsory licenses enable governments to deal with public health
problems or instances of abuse of patent rights. The U.S.-Singapore FTA
will make it more difficult for Singapore to issue compulsory licenses
in the public interest. The compulsory licensing provisions of the FTA
go beyond TRIPS, restricting the circumstances under which this
procedure can be used and expanding the rights of patent holders at the
expense of the government and the public interest;
Ldelay or impede the introduction of generic competition
by (a) linking marketing approval to patent status, thereby preventing
the immediate introduction of generic competition upon patent expiry,
(b) mandating the protection of test data for 5 years, again delaying
the development of and marketing approval for bioequivalent generic
drugs, and (c) mandating the disclosure of applicants for generic
marketing approval;
Lextend the term of patent protection to compensate for
delays in regulatory approval. This would also delay the introduction
of generic competition. Twenty years of patent protection is an
adequate monopoly for patent holders to recover investments and
generate profit. Extending this monopoly unfairly favors patent holders
to the detriment of the public interest in accessing affordable
medicines;
Lrestrict parallel importation of medicines placed on a
foreign market at a lower price than in the home market. ``Parallel
importation'' is a key means of obtaining affordable drugs and is not
limited under the WTO Agreement on intellectual property (TRIPS). This
provision may make Singapore responsible for policing patent violations
abroad, by requiring Singapore to restrict parallel importation of
certain drugs based on the terms of licensing contracts in other
countries. The WTO TRIPS agreement leaves it to countries to decide
whether or not to provide for international exhaustion in their
national IPR regimes, so language in the Singapore FTA which limits
parallel importation in any way is ``TRIPS-plus.''
In addition to the intellectual property concerns around access to
medicines, patent provisions of the Singapore-U.S. Free Trade Agreement
restrict the flexibility accorded to governments under TRIPS to decide
the scope of what may be patented under their national laws. For
instance, both the Chile and Singapore FTAs require the patenting of
plants, which is a controversial issue among environmentalists and
indigenous communities. Under the WTO TRIPS Agreement (Article 27.3
(b)) each country is free to decide how this issue will be regulated in
national laws.
Oxfam is particularly concerned that the IPR provisions of the
Chile and Singapore FTAs may serve as models for other trade
agreements. The pharmaceutical industry has lauded the recent Singapore
FTA, noting that ``it establishes key precedential provisions to be
included in other FTAs now being negotiated, including the FTAA'' (p.
1, IFAC report).
Experts have concluded that stringent IPR standards (a) do not lead
to increased innovation in developing countries, (b) may harm public
health, and (c) are not appropriate to countries of lower levels of
economic development. Using the Singapore and Chile FTAs as a template
for future trade agreements is dangerous and inappropriate. The FTAA,
for example, includes a number of poor countries facing health crises,
all of which are already subject to IPR protections provided under the
WTO TRIPS Agreement. Holding them to ``TRIPS-plus'' standards of IPR
protection could undermine public health and the ability to deal with
crises such as AIDS. In addition, requiring the patenting of plants
should not be a priority for the USTR because it is a sensitive issue
that should be resolved in the context of a variety of development and
environmental considerations.
Investment
Oxfam is concerned that the investment rules in the Chile and
Singapore agreements serve as a poor template for future trade
agreements, and could undermine the ability of developing country
governments to assure that foreign investment contributes to
development goals. While the investment provisions in the Chile and
Singapore agreements are problematic on their own, Oxfam is primarily
concerned about the example they set for future agreements with
countries that desperately need investment, but also need tools to make
that investment serve human and economic development.
Foreign direct investment (FDI) has the potential to stimulate
economic activity and create jobs in a manner that is consistent with
local and regional development strategies. However, for developing
countries, the quality of investment probably matters more than the
overall quantity. And the investment rules in the Chile and Singapore
agreements restrict the ability of governments to guarantee the quality
of investment in their countries. The Chile and Singapore agreements
restrict the use of performance requirements, an important tool to
assure that investments promote economic and social development.
Through foreign investment, developing countries hope to spur economic
linkages up and down the production chain. They often hope for
technology transfer to allow countries to develop their own production
capacities and increase the value added in country. But restrictions on
performance requirements--such requiring use of local materials and
technology transfers--means that productive investments can be isolated
from the rest of the economy, offering little indirect benefit. In
fact, the model often used in developing countries often ensures that
investments are confined to enclave zones, with few, if any, backward
linkages to the domestic economy. The case of Mexico under NAFTA is
instructive. FDI flows to Mexico between January 1994 and September
2002 reached an astonishing $116 billion. However, nearly half of this
has gone to manufacturing low value-added goods in maquiladoras along
the U.S.-Mexico border.
Oxfam is troubled by the investor-to-state mechanism by which
foreign investors may bring complaints before international arbitral
tribunals when their business interests have been impaired by
government actions taken in the public interest. The potential use of
this mechanism to challenge regulations that are designed to protect
public health, safety, and the environment represents a serious threat
to governments' ability to provide for the basic human rights of its
citizens. Moreover, Oxfam and many others are concerned that this
investor-state dispute settlement mechanism bypasses domestic judicial
systems and does not have an appellate process.
The experience of such mechanisms under NAFTA is not encouraging.
Since NAFTA came into force in 1994, corporations in all three member-
countries have used the investor-state mechanism to file cases
challenging domestic law that were designed to protect health, safety,
and environment. One of the most noteworthy cases brought under the
NAFTA Chapter 11 investor provisions is a 1997 complaint filed by the
U.S.-based waste disposal company Metalclad against the Mexican
government. Metalclad claimed that the Mexican state of San Luis Potosi
had violated its NAFTA rights when it prevented the company from
opening a waste disposal plant after the company had taken over a
facility with a history of contaminating local groundwater. The local
government denied Metalclad a permit to reopen the facility and later
declared the site part of a 600,000-acre ecological zone. Mexico was
ultimately forced to pay Metalclad over $15 million in compensation due
to these decisions.
Congress was clear when providing the authority to negotiate new
trade agreements that the investment provisions of new trade agreements
should not provide substantive rights to foreign investors beyond those
provided domestic investors. However, it is our judgment that the Chile
and Singapore agreements do not comply with this mandate. The
provisions in the Chile and Singapore agreements go beyond the set of
guidelines for regulatory takings and due process that have been
established in U.S. jurisprudence by the U.S. Supreme Court. This
failure to appropriately constrain the investment rules not only risks
the authority of foreign governments to protect the public health and
environment, but also the United States. For example, by failing to
appropriately and clearly limit the way in which the rules apply to
different types of property and by failing to include the critical
`parcel as a whole' principle, the investment rules could limit the
ability of developing country governments--or the U.S.--to establish
development moratoriums on projects that are socially or
environmentally harmful.
We are also concerned that the Chile and Singapore agreements limit
the use of important policy tools that developing countries need to
reduce their financial instability in times of crisis. The Chile and
Singapore agreements restrict any measure that would impede the free
flow of capital, even in cases of emergency balance of payments
problems. Economists and policy analysts from range of perspectives
agree that this is a very poor idea. Recently, Jagdish Bhagwati and
Daniel Tarullo have argued that the ban on capital controls constitutes
``bad financial policy, bad trade policy, and bad foreign policy and
constitute a bad tradeoff for increased trade and investment flows
(Financial Times, March 17, 2003). On April 1, 2003, Bhagwati, Joseph
Stiglitz, and Nancy Birdsall testified before the House Financial
Services Committee on the capital control provisions of the Chile and
Singapore agreements, noting that the restrictions on their use
constitute a major source of concern. Even The Economist (May 3, 2003)
has made the case for maintaining capital controls as a viable policy
alternative to prevent financial instability.
In summary, the investment provisions in the Chile and Singapore
agreements are important to consider in their own right. But as a model
for future trade agreements, particularly for less developed countries,
they are terrible. In many of the poorest countries where Oxfam is
active, in Latin America and Southern Africa, our partners are
extremely concerned about ensuring that their governments will continue
to play their legitimate role of regulating investment in order that it
contribute to, not undermine, sustainable development.
Finally, the investment provisions in the Chile and Singapore
agreements also fail to provide sufficient protections for
internationally recognized worker rights and environmental standards.
The agreements lay out weak language that each party ``strive to ensure
that it does not waive or otherwise derogate from'' its existing labor
and environmental standards. However, this does not commit countries to
harmonize upward, to ensure that their laws comply with core labor
standards as defined by the International Labor Organization, or
international environmental standards.
Conclusion
Oxfam America appreciates the opportunity to testify today and to
share our concerns about the Chile and Singapore FTAs. From our
perspective as a development and humanitarian organization, it is hard
to identify how these agreements will promote the goals of sustainable
development and poverty reduction. On the other hand, neither Chile nor
Singapore are examples of countries that suffer the extremes of poverty
and vulnerability. In that sense, they are more truly trading partners,
with relatively robust and diversified economies. Our primary message
today is that the IPR and investment provisions of these FTAs would be
unacceptable for countries that have fewer options and have populations
at greater risk. As you know, the USTR is currently engaged in
negotiations for trade agreements with countries where we believe a
different standard should be set. In particular, we hope for a much
improved outcome to the negotiations around a Central America Free
Trade Agreement, the Free Trade Area of the Americas, and the FTA with
the Southern African Customs Union.
Thank you again for this chance to share Oxfam's perspective.
Chairman CRANE. Thank you, Mr. Kripke. Ms. Lee.
STATEMENT OF THEA M. LEE, CHIEF INTERNATIONAL ECONOMIST,
AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL
ORGANIZATIONS
Ms. LEE. Thank you very much, Mr. Chairman, Congressman
Levin, Members of the Subcommittee. I appreciate the
opportunity to come and testify today on behalf of the 13
million working men and women of the American Federation of
Labor/Congress of Industrial Organizations (AFL-CIO) on this
very, very important topic. These recently signed FTAs with
Chile and Singapore are important in their own right, lowering
trade barriers on the movement of goods and services between
the signatories, and also laying out far-reaching rules in many
other areas. The significance and economic impact of these
agreements is magnified many times because, as the
Administration has made clear, these will serve as templates
for future bilateral and regional trade agreements that are now
being negotiated. I want to talk both about the agreements
themselves and also about the danger of using them as
templates.
The AFL-CIO believes that increased international trade and
investment can yield broad benefits to American working
families and to our brothers and sisters around the world, but
we also believe it is essential that we get the rules right,
that it isn't enough to call an agreement free trade and to
wash our hands of it. We need to really look at the details.
For example, we have often said that trade agreements must
include enforceable protections for core workers' rights, and
must preserve our ability to use our domestic trade laws
effectively. They must not undermine the 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.
Unfortunately we believe the Singapore and Chile FTAs fall
short of this standard on several important counts, and we urge
Congress to reject these agreements and to ask the U.S. Trade
Representative not to use them as a template for future FTAs. I
want to focus my oral comments today on two important concerns
that we have: workers' rights and the ISI. As you all know, the
labor movement has for a long time placed a lot of emphasis on
the importance of core workers' rights in all trade agreements
that we sign, and the reason is that we don't believe any
country or company should gain a competitive advantage in
global trade by violating the fundamental human rights of its
own workers. We are very disappointed by the weak and back-
sliding workers' rights provisions included in the Chile and
Singapore agreements.
While the labor chapter is 8 pages long, in fact there is
only one paragraph of that chapter which is subject to dispute
settlement. As has been discussed earlier today, that paragraph
requires that each company enforce its domestic labor laws. It
doesn't actually require a country to have labor laws. It just
says that whatever laws they have on the books need to be
enforced. That is completely inadequate. It is weaker than what
we have today in the Generalized System of Preferences program
with respect to Chile. It is weaker than what was negotiated in
the Jordan FTA, which the AFL-CIO was glad to support.
I was interested to see Ambassador Allgeier earlier today
at this hearing answer Congressman Levin's question that he is
going to rely on the spirit of the agreement, on continued
discussions, and on capacity-building as opposed to any
negotiated provisions of the agreement if, in fact, there are
problems with a country weakening its labor laws in the very
important areas of freedom of association, right to bargain
collectively, child labor, forced labor, or discrimination in
employment. This is totally inadequate. Of course, while these
provisions are problematic in the context of Chile and
Singapore, totally unacceptable for any agreement, they would
be disastrous in the context of the Central American FTA or the
Southern Africa Customs Union where they are being
contemplated. In fact, in the case of CAFTA, these weak
provisions have been put on the table by U.S. Trade
Representative as the initial negotiating position.
We are also very troubled by the ISI provision, a new
provision that has been put into the Singapore FTA. This is an
open-ended provision that allows certain goods made outside of
Singapore to be treated as of Singaporean origin for the
purposes of the agreement. We believe there is no justification
for the inclusion of this provision in the agreement, and that
it alone constitutes sufficient reason to reject the agreement.
We are concerned that U.S. Trade Representative has not been
clear about what the provision is, and I was very concerned to
hear Ambassador Allgeier say earlier today that this relates to
the two Indonesian islands of Bintan and Batam. There is no
mention of the islands of Bintan and Batam in the Singapore
FTA. In fact, this is a provision which would apply to goods
made in any country. It could be China, could be Burma, could
be any country with an egregiously bad workers' rights and
human rights records.
At the moment, the ISI provisions apply only to a specified
list of goods which are detailed in Annex 3B. As U.S. Trade
Representative has said, these goods already enter the United
States duty-free under the IT agreement. However, Article 3.2,
paragraph 2 clearly states that the product coverage of these
provisions can be expanded within 6 months after the agreement
enters into force after consultation between the parties. There
is no limitation listed in the language as to whether the
additional goods would also be duty-free goods, or what
countries they would come from, and there is no mention
whatsoever of consultation with Congress prior to expanding
product coverage.
In our view, this provision defeats the entire purpose of
negotiating an FTA, as it extends the benefit of the agreement
without ensuring any reciprocal market access benefits for U.S.
products, or preserving any of the negotiated conditions of the
FTA itself, including the worker rights provision. I look
forward to your questions, and I thank you for your time.
[The prepared statement of Ms. Lee follows:]
Statement of Thea M. Lee, Chief International Economist, American
Federation of Labor and Congress of Industrial Organizations
Mr. Chairman, Congressman Levin, 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 the recently
signed free trade agreements with Chile and Singapore.
These agreements 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 with Chile and Singapore is magnified many times.
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 on several important counts, 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 the summary of 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. The full report can be downloaded from
the AFL-CIO website, at www.aflcio.org/mediacenter/prsptm/
pr02282003.cfm.
I would also like to point out that, contrary to several recent
Administration statements and testimonies, the LAC was not the only
advisory committee to raise significant concerns about the Chile and
Singapore FTAs. Ralph Ives testified on May 8th, that ``thirty of the
thirty-one 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.''
In fact, several other Advisory Committees declined to explicitly
endorse the Chile and Singapore agreements and made negative findings
or no findings at all about the agreements' achievement of
congressional negotiating objectives. The chemicals committee was
unable to gauge whether the agreement had met negotiating objectives or
whether it would serve U.S. economic interests because it felt it had
not been adequately consulted regarding the agreement. The fruits and
vegetables committee was ``greatly disappointed'' in the failure of the
Chile FTA to resolve sanitary and phytosanitary issues that present
market impediments and concluded that the agreement was ``far better
for the Chilean specialty crop industry than it is for the U.S. fruit
and vegetable industry.'' 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
Singapore FTA, and they would oppose it if Singapore were more
significant economically. The footwear committee doubted that the Chile
FTA would ``significantly promote U.S. economic interests.'' The
apparel and textiles committee was split and said ``it is unlikely that
U.S. producers will experience much economic gain'' from the Chile and
Singapore FTAs, with the apparel sector ``largely express[ing]
disappointment.'' The standards committee said it would not recommend
the Singapore FTA as a model for future FTAs.
Reports from those few industry committees that include non-
business representatives--ACTPN, the trade and environment committee,
the paper committee and the lumber committee--included dissents from
those non-business representatives criticizing the agreement.
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 the Chile
and Singapore agreements as ``innovative.'' In fact, these provisions
represent a giant step backward 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.
Employers in many of the Central American and Southern African
countries covered by ongoing FTA negotiations intimidate, harass, fire
and blacklist workers for attempting to exercise their right to join an
independent union, especially in sectors and export processing zones
producing goods for the U.S. market. Labor laws fall far short of ILO
standards, and those labor laws that exist are violated frequently and
freely, with few negative consequences for the violators. The AFL-CIO
has petitioned for the removal of four of these countries--Costa Rica,
El Salvador, Guatemala, and Swaziland--from GSP eligibility for their
repeated failure to meet international labor standards. Unions in all
four countries are supporting these petitions.
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, with the vague direction that it be used for ``appropriate
labor or environmental initiatives.'' Also unlike the commercial
dispute resolution process, the monetary fine for labor and environment
disputes is capped at a fairly low level--$15 million. It is unlikely
that these low fines, paid back to the offending government, will
constitute a meaningful deterrent in the case of determined or
egregious violations.
It is crucial to bear in mind that these free trade agreements are
being put in place, not with respect only to the current governments,
but for all future governments and labor law regimes. Therefore, the
adequacy of current labor laws in Chile or Singapore is not the only
factor to consider in evaluating the adequacy of the workers' rights
provisions included in these agreements. Failing to ensure that labor
laws meet international standards is an enormous flaw in these
agreements.
Integrated Sourcing Initiative
The Singapore FTA includes an open-ended provision, called the
Integrated Sourcing Initiative (ISI), that allows certain goods made
outside of Singapore to be treated as of Singaporean origin for the
purposes of the agreement. We believe there is no justification for the
inclusion of this provision in this agreement, and that it alone
constitutes sufficient reason to reject the agreement.
None of the workers' rights or environmental provisions of the
Singapore FTA will apply to products entering under the ISI provision,
nor will there be any reciprocal market access for U.S. goods. The U.S.
ambassador to Singapore told Inside U.S. Trade that the main point of
this provision was to allow American companies to take advantage of
low-wage production on two neighboring Indonesian islands and export
the products to the U.S. duty free. However, nowhere in the agreement
are these provisions actually limited to the Indonesian islands, so
apparently goods from anywhere in the world will be eligible to enter
the United States via Singapore under the ISI provision.
At present the ISI provision applies only to a specified list of
goods (detailed in Annex 3B) that enter the United States duty-free
under the Information Technology Agreement, as well as a few other
products, so the immediate economic impact of the provision will simply
be to waive customs duties for these products.
However, Article 3.2, paragraph 2, clearly states that the product
coverage of these provisions can be expanded within 6 months after the
Agreement enters into force, after consultation between the Parties.
The ISI provision lists no limitations on the products that might be
added to the product coverage list and makes no mention whatsoever of
consultation with Congress prior to expanding product coverage.
This provision defeats the entire purpose of negotiating a free
trade agreement, as it extends the benefits of the agreement without
ensuring any reciprocal market access benefits for U.S. products or
preserving any of the negotiated conditions of the FTA itself. It
undermines Congress's role, by allowing USTR to add trade-sensitive
products, from anywhere in the world, to the list of goods eligible to
enter the U.S. under the Singapore FTA. Without any workers' rights
protections, the development benefits of such a provision are likely to
be minimal, while the U.S. job costs could be quite significant. This
provision has no place in the Singapore FTA and should certainly not be
included in any future FTAs.
Temporary Entry
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.
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 policymakers, not bound by trade
agreements.
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 9 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.
Addendum:
Labor Advisory Committee for Trade Negotiations and Trade Policy Report
to the President, the Congress and the U.S. Trade Representative on the
U.S.-Chile and U.S.-Singapore Free Trade Agreements
February 28, 2003
I. Purpose of the Committee Report
Section 2104(e) of the Trade Act of 2002 (TPA) requires that
Advisory Committees provide the President, the U.S. Trade
Representative (USTR), and Congress with reports required under section
135(e)(1) of the Trade Act of 1974, as amended, not later than 30 days
after the President notifies Congress of his intent to enter into an
agreement.
Under Section 135(e) of the Trade Act of 1974, as amended, the
report of the Advisory Committee for Trade Policy and Negotiations and
each appropriate policy advisory committee must include an advisory
opinion as to whether and to what extent the agreement promotes the
economic interests of the United States and achieves the applicable
overall and principle negotiating objectives set forth in the Trade Act
of 2002.
The Committee report must also include an advisory opinion as to
whether the agreement provides for equity and reciprocity within the
relevant sectoral or functional area of the Committee.
Pursuant to these requirements, the Labor Advisory Committee for
Trade Negotiations and Trade Policy (LAC) hereby submits the following
report.
II. Executive Summary of the Committee Report
This report reviews the mandate and priorities of the Labor
Advisory Committee for Trade Negotiations and Trade Policy (LAC), and
presents the advisory opinion of the Committee regarding the U.S.-Chile
and U.S.-Singapore Free Trade Agreements (FTAs). It is the opinion of
the LAC that the Singapore and Chile FTAs neither fully meet the
negotiating objectives laid out by Congress in TPA, nor promote the
economic interest of the United States. The agreements clearly fail to
meet some Congressional negotiating objectives, barely comply with
others, and include certain provisions that are not based on any
Congressional negotiating objectives at all. These agreements repeat
the same mistakes of the North American Free Trade Agreement (NAFTA),
and are likely to lead to the same deteriorating trade balances, lost
jobs, trampled rights, and inadequate economic development that NAFTA
has created.
The labor provisions of the Chile and Singapore FTAs will not
protect the core rights of workers in any of the countries involved,
and represent a big step backward from the Jordan FTA and our
unilateral trade preference programs. The agreements' enforcement
procedures completely exclude obligations for governments to meet
international standards on workers' rights. The FTAs' provisions on the
temporary entry of professionals erode basic protections for guest
workers and the domestic labor market. Provisions on investment,
procurement, and services constrain our ability to regulate in the
public interest, pursue responsible procurement policies, and provide
public services. Intellectual property rules reduce the flexibility
available under WTO rules for governments to address public health
crises. Rules of origin and safeguards provisions invite producers to
circumvent the intended beneficiaries of the trade agreements and fail
to protect workers from the import surges that may result.
III. Brief Description of the Mandate of the Labor Advisory Committee
The LAC charter lays out broad objectives and scope for the
Committee's activity. It states that the mandate of the LAC is:
L To provide information and advice with respect to negotiating
objectives and bargaining positions before the U.S. enters into a trade
agreement with a foreign country or countries, with respect to the
operation of any trade agreement once entered into, and with respect to
other matters arising in connection with the development,
implementation, and administration of the trade policy of the United
States.
The LAC is one of the most representative committees established by
Congress to advise the Administration on U.S. trade policy. Only three
of the 33 Trade Advisory Committees include any labor representatives,
and the LAC is the only Advisory Committee with more than one labor
representative as a member. The LAC includes unions from nearly every
sector of the U.S. economy, including manufacturing, high technology,
services, and the public sector. It includes representatives from
unions at the local and national level, together representing more than
13 million American working men and women.
IV. Negotiating Objectives and Priorities of the Labor Advisory
Committee
As workers' representatives, the members of the LAC judge U.S.
trade policy based on its real-life outcomes for working people in
America.
Our trade policy must be formulated to improve economic growth,
create jobs, raise wages and benefits, and allow all workers to
exercise their rights in the workplace. Too many trade agreements have
had exactly the opposite effect. Since NAFTA went into effect, for
example, our combined trade deficit with Canada and Mexico has grown
from $9 billion to $87 billion, leading to the loss of hundreds of
thousands of jobs in the United States. Under NAFTA, U.S. employers
took advantage of their new mobility and the lack of protections for
workers' rights in Mexico to shift production, hold down domestic wages
and benefits, and successfully intimidate workers trying to organize
unions in the U.S. with threats to move to Mexico.
In order to create rather than destroy jobs, trade agreements must
be designed to reduce our historic trade deficit by providing fair and
transparent market access, preserving our ability to use domestic trade
laws, and addressing the negative impacts of currency manipulation,
non-tariff trade barriers, financial instability, and high debt burdens
on our trade relationships. In order to protect workers' rights, trade
agreements must include enforceable obligations to respect the
International Labor Organization's core labor standards--freedom of
association, the right to organize and bargain collectively, and
prohibitions on child labor, forced labor, and discrimination--in their
core text and on parity with other provisions in the agreement.
The LAC is also concerned with the impact that U.S. trade policy
has on other matters of interest to our members. Under NAFTA, private
investors have challenged a variety of domestic laws in all three NAFTA
countries protecting public services, the environment, public health
and safety, consumers and workers. Trade policy 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, we believe that American workers must be able to participate
meaningfully in the decisions our government makes on trade, based on a
process that is open, democratic, and fair.
Chairman CRANE. Thank you, Ms. Lee. Our final witness is
Mr. Audley.
STATEMENT OF JOHN AUDLEY, SENIOR ASSOCIATE AND DIRECTOR,
PROJECT ON TRADE, EQUITY, AND DEVELOPMENT, CARNEGIE ENDOWMENT
FOR INTERNATIONAL PEACE
Mr. AUDLEY. Thank you, Mr. Chairman, Members of the
Subcommittee. My name is John Audley. I am with the Carnegie
Endowment for International Peace, an independent research
institution here in Washington, D.C. Among my other
experiences, I was a longtime advocate in the environmental
community, as well as a former member of the U.S. interagency
process that developed and negotiated trade agreements. I am
here today to convey my overall support for the environmental
provisions of the U.S.-Singapore and U.S.-Chile FTAs and to
caution against using these agreements' environmental
provisions as a model for all trade agreements, especially when
dealing with U.S. trading partners with little capacity to
protect the environment or promote public health.
Among other reasons, the Singapore and Chile FTAs are
important because they are the first agreements to be
considered by Congress under the Trade Act of 2002. With some
important exceptions, Ambassador Zoellick's team followed TPA's
environmental instructions to the letter, in many instances
incorporating TPA language directly into the agreements
themselves.
The Chile FTA is an especially good example of two
countries actively negotiating environment into the trade
agreement, and we can thank Chile for a number of important
innovations, including the special roster of panel members to
hear trade-related environmental disputes and the creation of
an environmental affairs council. Chile also argued for the use
of fines instead of punitive trade measures, dedicating the
fines to efforts that improve environmental protection. In my
opinion, one of our best hopes for effective inclusion of
environment in the FTAA negotiations is to encourage Chile to
continue its efforts to work with other Latin American
governments to develop their own agendas for environment and
trade.
There are a number of shortcomings. My colleagues have
talked about problems with TRIPS and with capital controls, so
I will set those issues aside. It is clear from the input
offered by many U.S. Trade Representative advisors that the
balance between the rights of investors and regulatory
authority hasn't been found yet. Advisors to U.S. Trade
Representative point out the lack of clarity regarding a number
of legal phrases, and State and local governments continue to
worry that trade disciplines will weaken their ability to
govern. Negotiators have not yet created an appellate body as
instructed by Congress. Instead, in both agreements the parties
agree to review this question at a later date. By not
establishing an opportunity for affected citizens to formally
question the enforcement environmental laws to attract trade,
the United States missed a great opportunity to deliver on its
commitment to promote good governance. This outcome is
particularly unfortunate because I understand the interagency
process developed a position to propose to Chile, which was
removed by the White House before we tabled it.
Second, the Singapore and Chile FTAs relied upon a new
approach to addressing environmental issues that runs parallel
to the trade negotiations. Under the authority of the
Department of State, the United States now negotiates memoranda
of intention or understanding that create opportunities for
governments and their citizens to discuss environmental issues
of common interest. While the Singapore Memorandum of Intent
has not yet been made public, to my knowledge, the U.S.-Chile
side of the accord references important subjects like
developing a pollutant release and transfer register, reducing
mining pollution and improving agricultural practices. Congress
should follow these parallel negotiations more closely and
ensure that initiatives agreed to by the parties are properly
funded. This parallel approach also creates a new opportunity
to demystify trade negotiations by making those portions more
transparent and available to the public.
Third, U.S. trade negotiations have made providing
technical assistance and capacity-building to our trading
partner a very high priority. While recent decisions to promote
trade-related technical assistance by the United States
represent important steps forward in this regard, U.S.
officials must work hard to coordinate this trade-led technical
assistance and capacity-building efforts with technical
assistance already under way. It is especially important to
ensure that all technical assistance capacity-building efforts
not be captured solely by the interests of promoting trade.
Congress could use the environmental review of trade agreement
process to stay more fully informed of both the parallel
negotiations and technical assistance needs, and it could
expand the Congressional oversight to ensure the committees
with jurisdiction over these matters are properly represented.
Finally, the Chile and Singapore FTA should not be used as
a model for other negotiations particularly when governments
lack the capacity to protect their own environment without
proper incentives that require governments not to fail to
effectively enforce or ensure that its laws provide for high
levels of environmental protection. These are empty promises.
Nowhere, as we have discussed today, is this more important
than our negotiations with Central America. Thank you.
[The prepared statement of Mr. Audley follows:]
Statement of John Audley, Senior Associate and Director, Project on
Trade, Equity, and Development, Carnegie Endowment for International
Peace
My name is John Audley, and I am a Senior Associate and Trade,
Equity, and Development Project Director at the Carnegie Endowment for
International Peace. Founded in 1910 by Andrew Carnegie, the Endowment
is a private, nonpartisan, nonprofit organization dedicated to
advancing cooperation between nations and promoting active
international engagement by the United States. The Trade, Equity, and
Development Project seeks innovative, workable solutions to the
tensions between trade liberalization, and environment, development,
and labor policies.
In signing the U.S.-Singapore and the U.S.-Chile Free Trade
Agreements, President Bush presents Congress with the first trade
agreements subject to review under the terms of U.S. Trade Promotion
Authority (TPA).\1\ For the first time in U.S. trade history, Congress
will judge trade agreements in which the environment was a principal
subject of negotiation.\2\ The way in which Congress evaluates these
agreements and enacts implementation legislation using TPA's
environment provisions will establish a standard for future trade
agreements. I focus my remarks on this opportunity.
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\1\ The draft Consolidated Texts of the U.S.-Singapore Free Trade
Agreement is available online at: .
\2\ On August 6, 2002, President George W. Bush received the
benefits of TPA when he signed into law the Trade Act of 2002, Public
Law 107-210; the full text is available through GPO Access at: . For a comprehensive discussion of
TPA's environmental provisions, see John Audley, ``Environment's New
Role in U.S. Trade Policy,'' Trade, Equity, and Development Series, no.
3 (Washington, DC: Carnegie Endowment for International Peace, Sept.
2002). Available at: .
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Due to time and travel constraints, my written testimony focuses
only on the environmental provisions of the U.S.-Singapore agreement.
In my oral testimony, I will speak to issues common to both agreements.
If the Committee would like a similar written analysis of Chile, I will
submit it shortly.
Background
Although TPA had not yet been passed when formal negotiations of
the U.S.-Singapore FTA began in November 2000, U.S. President Bill
Clinton and Singaporean Prime Minister Goh Chok Tong agreed to include
labor and environment as part of the negotiating agenda. Taking this
step was politically dangerous for both leaders. As a leader among
developing nations, Singapore's decision to include labor and
environment in the negotiations represented a break from developing
countries' steadfast opposition to the trade and environment linkage.
Similarly, President Clinton included environment over the opposition
of leading Republican Congressional leaders as well as some members of
the business community. His decision to do so was later upheld by U.S
President George W. Bush, when U.S. Trade Representative Robert
Zoellick resumed negotiations in May 2001 without changing the
agenda.\3\ Yet opposition to environment in trade negotiations still
compelled the Office of the U.S. Trade Representative (USTR) to
postpone offering any language on the environment until after TPA
provided Congressional guidance--nearly 2 years after negotiations
began.
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\3\ When the Clinton Administration initiated talks with Singapore,
both sides agreed to use the U.S.-Jordan FTA as a model, which allows
for trade sanctions against one of the signatories if it persistently
violates its own labor or environmental laws. After President Bush took
office, Singapore signaled its willingness to take the new
Administration's lead on trade-related environment and labor issues.
Throughout bilateral negotiations, however, Singapore remained opposed
to the inclusion of environment and labor in the multilateral arena.
See Inside U.S. Trade, March 16, p. 11.
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Bilateral negotiations on the U.S.-Singapore FTA were concluded in
December 2002. On February 27, 2003, the Trade and Environment Policy
Advisory Committee (TEPAC), a ``tier two'' private Advisory Committee
to the USTR, submitted its report on the FTA to the President and
Congress. A majority of TEPAC members concluded that the FTA meets
Congress's negotiating objectives as they relate to the environment.
However, a sizeable TEPAC minority disagreed with that conclusion,
focusing most of its criticism on the TPA's investment chapter and
dispute settlement procedures.\4\ The Intergovernmental Policy Advisory
Committee (IGPAC), which represents the views of State and local
governments, echoed similar concerns regarding the investment
language.\5\ The differences of opinion among Advisory Committee
members are well documented in the TEPAC and IGPAC reports and will not
be reproduced here.
---------------------------------------------------------------------------
\4\ ``The U.S.-Singapore Free Trade Agreement,'' Report of the
Trade and Environment Policy Advisory Committee (TEPAC), Feb. 27, 2003.
Available: .
\5\ ``The U.S.-Singapore Free Trade Agreement,'' Report of the
Intergovernmental Policy Advisory Committee (IGPAC), Feb. 28, 2003.
Available: .
---------------------------------------------------------------------------
If TPA instructions regarding the environment are to have the
impact on U.S. trade policy envisioned by its Congressional supporters,
then it is important to evaluate the U.S.-Singapore FTA's adherence to
these directives, especially as this is the first trade agreement to be
considered by Congress under the new TPA rules. For example, the level
of disagreement regarding investment rules expressed by TEPAC and IGPAC
members should signal Congress to remain diligent in this area of trade
policy. The FTA also raises a number of environmental issues, many of
which the TEPAC report did not cover in any detail.\6\ This brief
examines these issues more fully.
---------------------------------------------------------------------------
\6\ Advisory Committee rules only allow 30 days for cleared
advisors to review an FTA. President Bush appointed his TEPAC members
just prior to submitting the agreement to his Advisory Committees. That
meant that 17 of the 29 advisors had not attended the regular meetings
with USTR held during the negotiations and could not rely on
information obtained during those meetings for their review. In their
report, TEPAC members complained that the limited time for review,
combined with the document's confidential status, made it difficult for
them to render a full opinion on time.
---------------------------------------------------------------------------
Upholding Domestic Environmental Protection Policy
TPA Section 2102(a)(7) states that negotiators will ``ensure that
domestic environmental protection policies are not weakened or reduced
to encourage trade,'' which raises two important issues: rules of
origin and ambiguous language.
Rules of Origin
In a related Trade, Equity, and Development Issue Brief, Sandra
Polaski identifies a serious loophole in the FTA's rules of origin's
chapter that, if left as negotiated, enables Singapore to export
products made in the Indonesian islands of Bintan and Batam into U.S.
markets without adherence to the FTA's instructions regarding
environmental protections, labor laws, and other provisions of the
trade agreement requiring effective law enforcement.\7\ No other U.S.
trade agreement provides similar preferential market access to a
nonsignatory.
---------------------------------------------------------------------------
\7\ See Sandra Polaski, ``Serious Flaw in U.S.-Singapore Trade
Agreement Must Be Addressed,'' Issue Brief (Washington, DC: Carnegie
Endowment for International Peace, April 2003). Available at: . The specific focus of Polaski's paper concentrates
on the ``Integrated Sourcing Initiative'' established in the U.S.-
Singapore FTA, Chapter 3: Rules of Origin, Article 3.2: Treatment of
Certain Products, and Annex II.
---------------------------------------------------------------------------
While perhaps logical on trade grounds, including two Indonesian
islands as beneficiaries of the trade agreement creates two problems in
terms of the environment. First, the government of Indonesia is not a
party to the FTA and is not bound by its environmental obligations.\8\
Second, trade-related environmental problems arising from production
practices on the islands would most likely involve process and
production methods (PPMs)--one of the most contentious trade and
environment issues.
---------------------------------------------------------------------------
\8\ Taken together, Articles 18.1, 2, and 4(1) state that a party
to the agreement has the right to establish its own levels of domestic
environmental protection, that it will enforce its own laws so as not
to create trade or investment advantages, and that it will ensure that
its laws provide for high levels of environmental protection. These
commitments do not extend to the government of Indonesia.
---------------------------------------------------------------------------
In theory, the FTA's Joint Committee, established in Chapter 20,
was designed to consider implementation issues such as these. Moreover,
at its first meeting the Joint Committee will be tasked with
considering each party's environmental review of the FTA and then
providing the public an opportunity to offer views on the agreement's
environmental effects.\9\ Under the terms of the environment chapter's
public participation provisions, it is also possible for both U.S. and
Singaporean citizens to voice, on an ongoing basis, their concerns over
possible environmental harm caused by manufacturing or other export-
related economic activity.\10\ However, while the Joint Committee may
invite Indonesia to join them in a discussion or even engage Indonesia
in consultations regarding the text, it ultimately has no authority
over Indonesia. Furthermore, public petitions regarding production
practices likely would not result in PPM-based trade restrictions,
given the historically controversial nature of such measures.\11\ In
fact, neither the United States nor Singapore is likely to use General
Agreement on Tariffs and Trade (GATT) Article XX to restrict product
trade on environmental grounds, even though it is referenced in Article
21.1(1).\12\
---------------------------------------------------------------------------
\9\ U.S.-Singapore FTA Articles 20.1(3), 18.1, and 18.2(1).
\10\ U.S.-Singapore FTA Article 18.5 requires each party to develop
and maintain procedures for dialog with its respective public
concerning the environment provisions of the agreement.
\11\ Articulating a common fear, Magda Shahin argues that
legitimizing ``unincorporated PPMs'' would ``upset the entire
multilateral trading system and would have devastating effects, in
particular on developing country exports.'' See Magda Shahin, ``Trade
and Environment: How Real Is the Debate,'' in Gary P. Sampson and W.
Bradnee Chambers, eds., Trade, Environment and the Millennium, 2nd
edition (New York: United Nations University Press, 2002), p. 66.
\12\ Subject to the terms of the agreement, GATT Articles XX(b) and
XX(g) allow countries to restrict trade to protect human, animal, or
plant life or health, or when related to the conservation of
exhaustible natural resources.
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Agreeing to allow a third party to enjoy the benefits of an FTA
without accepting its obligations is a troublesome precedent.
Theoretically speaking, this preferential market access could be
awarded to any manufacturing facility in the world owned or operated by
Singapore-based companies.\13\ If the labor and environment chapters
are to have meaning, their obligations must extend to all the
beneficiaries of any FTA.
---------------------------------------------------------------------------
\13\ Article 3.2(2) indicates that the parties will regularly
review the products listed under Annex II to consider the addition of
goods. Singaporean Trade Minister George Yeo said that the agreement
could be extended to other countries as well as to other sectors; see
``Yeo Lays Out FTA Rules of Origin,'' Inside U.S. Trade, March 22,
2002.
---------------------------------------------------------------------------
Ambiguous Language
Article 18.10 defines the terms statutes or regulations as ``an act
of the U.S. Congress or regulations promulgated pursuant to an act of
the U.S. Congress that is enforceable, in the first instance, by action
of the Federal Government (emphasis added),'' a definition borrowed
from the U.S.-Jordan FTA.\14\ This definition was not repeated in the
U.S.-Chile Free Trade Agreement.\15\
---------------------------------------------------------------------------
\14\ U.S.-Jordan Free Trade Agreement, Article 18.2(b). Available
at: .
\15\ The U.S.-Chile Free Trade Agreement defines the term as ``an
act of Congress or regulation promulgated pursuant to an act of
Congress that is enforceable by action of the Federal Government''
(Chapter 19, definitions). The complete draft FTA is available at:
.
---------------------------------------------------------------------------
Although the meaning of the phrase in the first instance was not
defined by the negotiators, based on conversations with U.S. legal
scholars it seems to refer to tensions among Federal, State, and local
governments over whether or not a Federal Government can insist that a
subnational authority enforce its own laws.\16\ Tensions between trade
disciplines and State and local regulatory authority have been debated
in the United States for a number of years; clarifying the relationship
between disciplines and subfederal authority in an FTA is one way to
set the record straight regarding the effect that international trade
rules exert on subnational regulatory authority.\17\
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\16\ The Tenth Amendment to the U.S. Constitution reserves the
powers not delegated to the United States by the Constitution, nor
prohibited by it to the States, to the States respectively, or to the
people.
\17\ See Mark C. Gordon, Democracy's New Challenge: Globalization,
Governance, and the Future of American Federalism (New York: Demos,
2001).
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Creating a Positive Agenda for Trade and Environment
TPA Article 2101(b)(11)(D) instructs negotiators to pursue
``strengthening the capacity of U.S. trading partners to protect the
environment.'' FTA Article 18.6(1) indicates that the parties ``shall,
as appropriate, pursue cooperative environmental activities, including
those pertinent to trade and investment and to strengthening
environmental performance, such as information reporting, enforcement
capacity, and environmental management systems, under a Memorandum of
Intent on Cooperation in Environmental Matters to be entered into
between the government of Singapore and the United States and in other
fora.''
In March 2003, U.S. and Singaporean negotiators began working on
the parallel agreement to address the environment.\18\ While
negotiations remain secret, Singapore-U.S. trade and environment
interests are--in contrast to U.S. negotiations with Central or North
America--likely to reflect more global interests, and Singapore's
desire to expand its technological capacities to promote green
production. Despite the secrecy surrounding negotiations, it is
possible to surmise the probable subjects of negotiation from a number
of documents, including the draft U.S. and Singapore environmental
reviews of the proposed FTA.\19\ Such issues might include:
---------------------------------------------------------------------------
\18\ Executive Order No. 13277, Delegation of Certain Authorities
and Assignment of Certain Functions Under the Trade Act of 2002, and
Department of State Delegation of Authority 250, Further Assignment of
Functions Under the Trade Act of 2002 (Federal Register/Vol. 67, No.
243, December 18, 2002). In accordance with this order, the President
assigned the joint authority to establishing consultative mechanisms to
the Department of State, the Department of Labor, and the USTR. The
Department of State's Office of Environmental Policy (OEI) works
jointly with USTR's Office of Environment and Natural Resources on
environmental matters.
\19\ Documents consulted include the draft environmental reviews
prepared by both parties, and U.S. public submissions regarding the
U.S. environmental review. See United States Trade Representative,
``Draft Environmental Review of the U.S.-Singapore Free Trade
Agreement'' (Washington, DC: USTR, 2002). Available at: .
LTrade in endangered species
LInvasive species
LOrnamental fish/coral reef protection
LBuilding Singapore's capacity to act as a regional
``green'' technology hub.
Addressing environmental issues arising from trade negotiations
through parallel policy instruments has become an important part of the
U.S. trade policy tapestry, dating back to the parallel agreements in
the North American Free Trade Agreement (NAFTA) on U.S.-Mexico border
infrastructure and North American environmental cooperation.\20\
---------------------------------------------------------------------------
\20\ See NAFTA's Commission for Environmental Cooperation, Border
Environmental Cooperation Commission, and North American Development
Bank at: .
---------------------------------------------------------------------------
However, there are two main problems with the negotiation approach
on environmental cooperation being employed in the U.S.-Singapore FTA.
First, as yet there is no discussion of the resources required to
realize any of the collaborative commitments reached. Congress has not
been fully informed of the content of negotiations, and there is no
evidence that U.S. Federal agencies with jurisdiction over relevant
policy areas are amending their own budgets to support this agenda.
Furthermore, with the exception of the U.S.-Asia Environmental
Partnership, there are no reliable existing funding sources to support
collaborative trade and environment work.\21\ In its report, TEPAC
members expressed concern over funding: ``. . . the Group has concerns
about the future of capacity building projects and the achievement of
the Congressional mandate in this area.'' \22\ Second, negotiations
over such subjects do not require secrecy; there are no trade secrets
under negotiation. The failure of both parties to include the
interested public jeopardizes public support for the final negotiated
agenda, perhaps even robbing the countries of important technical and
financial support from nongovernmental organizations and the private
sector.
---------------------------------------------------------------------------
\21\ The U.S.-Asia Environmental Partnership (AEP) was founded in
1994 and has projects in India, Indonesia, the Philippines, Sri Lanka,
Thailand, and Vietnam. Singapore does not receive direct support but
instead acts as a center for work training for the U.S.-AEP countries.
See: .
\22\ TEPAC Report, page 2.
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Trade and Multilateral Environmental Agreements
TPA Section 2102(c)(10) outlines an important goal for U.S. trade
policy: ``Promote consideration of multilateral environmental
agreements (MEAs), in negotiations on the relationship between MEAs and
trade rules, especially as they relate to GATT Article XX exceptions
for the protection of human health and natural resource conservation.''
FTA Article 18.8 references the World Trade Organization (WTO)
negotiations on the relationship between WTO rules and specific trade
obligations set out in MEAs, instructing the parties to ``consult on
the extent to which the outcome of those negotiations applies to this
Agreement.'' In Article 21.1(1), the United States and Singapore
reinforce the legitimacy of GATT Articles XX(b) and XX(g) to protect
human, animal, or plant life or health. Recognizing the role played by
GATT Article XX in conservation efforts is important, especially given
Singapore's longstanding reluctance to accept this interpretation.
However, the weak reference to ongoing WTO consultations and GATT
Article XX fails to ensure that both parties will use this opportunity
to provide better guidance regarding the relationship between WTO rules
and the use of trade measures in MEAs.
Bilateral negotiations can create unique opportunities to forge
allies at the WTO on subjects of particular importance to the United
States. For example, the U.S.-Jordan FTA was used to strengthen the
U.S. efforts to make WTO dispute proceedings more transparent.\23\ The
United States could use these current negotiations to accomplish a
similar objective with regard to the MEA/WTO relationship by signing a
Memorandum of Understanding with Singapore stating that WTO rules and
MEA obligations are not in conflict.\24\
---------------------------------------------------------------------------
\23\ In the ``Memorandum of Understanding on Transparency in
Dispute Settlement Under the Agreement Between the United States and
Jordan on the Establishment of a Free Trade Area,'' the United States
and Jordan agree to adhere to the same dispute settlement transparency
goals outlined in TPA in any dispute to which they are a party.
Available at: .
\24\ The U.S. Declaration of Principles on Trade and the
Environment outlines the overall U.S. position on trade and environment
policy. Regarding the MEA/WTO relationship, it states, ``Trade measures
in MEAs are broadly accommodated by the WTO.'' Available at: , p. 7.
---------------------------------------------------------------------------
``Court of Appeals'' in Investor-to-State Disputes
TPA Section 2102(b)(3)(G)(iv) instructs negotiators to ``[seek] to
improve mechanisms used to resolve disputes between an investor and a
government through . . . [the] establishment of a single appellate body
to review decisions in investor-to-government disputes and thereby
provide coherence to the interpretations of investment provisions in
trade agreements.''
In a side letter signed by both parties, the United States and
Singapore agree that ``within 3 years after the date of entry into
force of this Agreement, the parties shall consider whether to
establish a bilateral appellate body or similar mechanism to review
awards rendered under Article 15.25 in arbitrations commenced after
they establish the appellate body or similar mechanism.'' \25\
---------------------------------------------------------------------------
\25\ The joint letter is attached to the end of the U.S.-Singapore
FTA investment chapter.
---------------------------------------------------------------------------
TPA instructions stipulate that the United States should encourage
the establishment of a single appellate body for investor-to-state
disputes.\26\ That said, because investor-to-state disputes are not
part of WTO rules, the WTO would not be the appropriate place to
establish this body. If the United States decides not to make changes
in dispute settlement procedures in each of its bilateral and
multilateral negotiations, then it should make a concentrated effort to
make changes in the arbitration rules followed by the UN Commission on
International Trade Law (UNCITRAL) and the Convention on the Settlement
of Investment Disputes between States and Nationals of other States
(ICSID)--the two bodies most often used to settle disputes. Without
changing the arrangement at ICSID and UNCITRAL, agreeing to consider
whether or not to establish an appellate body falls short of TPA
instructions to establish an appellate body to provide coherence to the
interpretations of trade disputes.
---------------------------------------------------------------------------
\26\ TPA section 2102(b)(3)(G)(iv) instructs the USTR to
``[establish] a single body to review decisions in investor-to-
government disputes.''
---------------------------------------------------------------------------
Trade-Related Intellectual Property Rights and Public Health
TPA Section 2102(b)(4)(C) instructs negotiators to ``respect the
Declaration on the TRIPS [trade-related aspects of intellectual
property rights] Agreement on Public Health, adopted by the World Trade
Organization at the Fourth Ministerial Conference at Doha, Qatar on
November 14th, 2001.'' In its Advisory Report to the President, the
Industry Functional Advisory Committee (IFAC) praised the intellectual
property rights chapter because it clarifies and improves on the
standards for patent protection contained in the WTO Agreement on
TRIPS.\27\ Some industry representatives may view this as an important
victory, but limiting a country's ability to issue compulsory licenses
that would enable them to manufacture life-saving medicines for use in
poor countries is inconsistent with the spirit of the WTO TRIPS
declaration. In December 2002, the United States was the lone defector
from an otherwise unanimous decision among WTO members regarding new
rules that would allow countries to source the manufacture of generic
copies of patented drugs abroad.\28\
---------------------------------------------------------------------------
\27\ Document available at: .
\28\ ``U.S. Sticks to Hard Line on TRIPS, as Supachai Tries to
Broker Deal,'' Inside U.S. Trade, Vol. 20, No. 51, December 20, 2002.
---------------------------------------------------------------------------
Next Steps for Congress
Most experts expect that the U.S.-Singapore FTA will meet with
little opposition in Congress. Singapore is the eleventh largest U.S.
export market worldwide. According to the U.S.-Association of South
East Asian Nations (ASEAN) Business Council, two-way trade between the
United States and Singapore last year totaled $33 billion, and
Singapore enjoys $27 billion in U.S. direct investment, with more than
1,300 American companies with some presence in Singapore.\29\ At the
launch of the U.S.-Singapore FTA Congressional Caucus, Co-Chairman U.S.
Representative Solomon Ortiz (D-TX) stressed the important role
Singapore plays in U.S. counterterrorism efforts. And negotiating an
FTA with Singapore marks an important improvement in U.S. trade
negotiations in the region, since efforts to stimulate trade under the
Asia Pacific Economic Cooperation framework have not proved concrete.
With advisory reports that side with the Administration's final product
but also with important TPA instructions still clearly not addressed,
what should Congress consider as it deliberates the agreement?
---------------------------------------------------------------------------
\29\ ``U.S. Business Says Capitol Hill Singapore Caucus Is a Good
Idea,'' U.S.-ASEAN Business Council Press Release, Oct. 7, 2002.
Available at: .
---------------------------------------------------------------------------
First, Congress can address some of these issues in the
implementation legislation and statement of administrative action. Once
the agreement is submitted, the White House will work with the House
Ways and Means Committee and the Congressional Oversight Group to craft
these two documents that make the terms of the U.S.-Singapore FTA part
of U.S. law and set out the U.S. interpretation of the agreement. In
particular, Congress could clarify the ambiguities surrounding the
relationship between Federal action and enforcement of State and local
laws. It could also underscore the U.S. position regarding the
compatibility of MEA and WTO rules and the U.S. desire to ensure that
poor citizens worldwide have access to life-saving drugs.
But while this approach helps clarify the U.S. understanding of the
FTA, it has no legal impact on the government of Singapore. Therefore,
the second thing that Congress should do is to advise the
Administration to fix the rules of origin loophole in collaboration
with Singapore.
Third, Congress should fund the positive environment agenda
outlined in the environment cooperation agreement. If the implementing
legislation requires action by the Appropriations Committees, then
Congress could stipulate funding at that time. Another approach would
be to instruct the Department of State, Department of Interior,
Environmental Protection Agency, and U.S. Agency for International
Development to fund and staff these projects.
Fourth, as mentioned earlier, Congress should instruct the USTR and
the Department of State to lead an effort to negotiate changes to ISCID
and UNCITRAL arbitration rules. It is wise to avoid creating a series
of appellate bodies; therefore, the United States should correct the
errors with regard to public participation in dispute settlements and
the use of an appellate procedure to ensure legally sound outcomes.
Fifth, during hearings to review the agreement, Congress should be
prepared to ask the Administration to explain why it did not adhere
more closely to some of TPA's environment instructions. Perhaps U.S.
negotiators tried to convince Singapore to take a stronger position
with regard to MEAs and WTO rules, or perhaps they tried to negotiate a
stronger reference to GATT Article XX. The Administration's responses
to questions such as these should be a matter of public record, and
Congressional Members should use these responses to judge the overall
merits of the agreement itself.
More generally, Congress should reconsider the degree to which it
allows the USTR to negotiate trade agreements in relative secrecy.
Inconsistencies between TPA guidelines and the provisions found in a
trade agreement can often be traced back to the secretive nature of
these negotiations; for example, had State and local governments been
better involved in negotiations, perhaps the ambiguities with regard to
the definition of an environmental regulation would have been caught
and corrected before the agreement was concluded. In addition, Congress
should take a close look at the membership of the advisory bodies used
by the USTR and other Federal agencies to ensure that all relevant
views are represented on the Committees. Finally, Congress could
improve oversight of environment and trade policies by expanding the
Membership of the Congressional Oversight Group to include
representatives from Committees with jurisdiction over national and
international environmental policy.
Chairman CRANE. Thank you, Mr. Audley. I have a question
for you, Mr. Papovich, since in your former life you were
Assistant U.S. Trade Representative, and you were responsible
in the intellectual property arena--you were the chief
negotiator, as I understand it, of intellectual property rights
with Chile and Singapore; is that correct?
Mr. PAPOVICH. No, actually it is not correct. I did
supervise the people who were the chief negotiators----
Chairman CRANE. Okay.
Mr. PAPOVICH. To be precise.
Chairman CRANE. Well, on protection of intellectual
property, Singapore has been reluctant to take on much
responsibility, relying instead on businesses to police
themselves. How do you expect this to change with the Singapore
FTA? Are you optimistic that Singapore authorities will use the
many new tools to fight against piracy?
Mr. PAPOVICH. Actually, I am. It is my understanding that--
unless I am not remembering this correctly--that Singapore
agreed to change that provision as part of the FTAs. Whether my
memory is accurate on that score or not, the provisions of the
agreement require them to take on new obligations that will
enable American right holders to get criminal prosecutions of
those who violate the rights of our members.
Chairman CRANE. Very good. Mr. Levin.
Mr. LEVIN. Thank you very much. Thanks to each and every
one of you for your testimony. I regret that we all can't be
here, but I hope all the officers, not only on the
Subcommittee, but elsewhere, will read the testimony of each
and every one of you. We have touched on some of the subjects
earlier today--the ISI subject--and we will look forward to
receiving more information from the U.S. Trade Representative.
As I believe was made clear, there is a shortage of information
and understanding about what this all could mean, and we look
forward to receiving that.
As to core labor standards, I had to leave for a memorial
service for a few minutes. I understand Mr. Becerra asked the
previous panel about that as we followed up on this discussion,
and I hope that everybody will take this discussion seriously.
There has been less discussion about the intellectual property
rights standards, and I do think it is important, Mr. Kripke,
that you help us understand what is in them.
Also, in your testimony on page 5, you say using the
Singapore and Chile FTAs as a template for future trade
agreements--this relates to intellectual property rights--is
dangerous and inappropriate, and I think it is important that
you spell that out. Mr. Papovich, there was some discussion,
and it went on earlier, about fines versus sanctions. I am not
sure it has been widely noted that the provisions in Singapore
and Chile, as I understand them, allowed a country to pay a
fine, 50 percent of the trade impact. This is across the board,
as I understand it, with a special limitation in the case of
environmental and labor violations. So, tell me, in terms of a
template, are we about to embark, for example, as to
intellectual property, on a standard that allows a country that
violates its obligations to pay a fine of 50 percent of the
impact on trade? I guess you supervised it. Is that where we
are going? Is that defensible?
Mr. PAPOVICH. You are requiring me to search back into my
memory a little bit here. First, the agreement requires that
countries have under their laws, penalties adequate to deter
further piracy, and that has nothing to do with your reference
to 50-percent fines. If a country, as you said, fails to comply
with any of the provisions of the agreement, then the question
is what sanctions should there be. In an FTA, the only sanction
under normal instances, this would certainly be the case with
NAFTA, is that the other country would be free to reimpose
tariffs equal to the damage that has been done, but only up to
the MFN rate, the rate that would prevail in the absence of the
FTA. So, my ability to take you much further with this is now
coming to an end, but it seems to me that the existing sanction
is already somewhat modest, and so a fine equal to half the
damage, if that is the right amount, might be comparable. Yet--
--
Mr. LEVIN. It may not be.
Mr. PAPOVICH. It might not be. That is right. It might not
be. It seems to me there is an option.
Mr. LEVIN. So, wrestling with core labor and environmental
standards in the resistance to the use of sanctions at the end
of the game, at the end of the process--it was never suggested
to be at the beginning--has this led the U.S. Trade
Representative to accept a standard across the board that is
less than necessary to enforce our trade agreements?
Mr. PAPOVICH. I don't know the answer to the question. I
don't have an answer to give you on that.
Chairman CRANE. Well, as you folks know, the bells have
gone off, and we have recorded votes coming up on the floor. I
want to express appreciation to you also for your testimony
today, and if there are Members here who have further
questions, you can submit them in writing.
Mr. BECERRA. Mr. Chairman, the first bell only rang, so
that means we still have more than 10 minutes. Is it possible
to just try to get in about 2 minutes' worth of questioning,
and I will be very brief?
Chairman CRANE. Well, Mr. English is first.
Mr. BECERRA. I will yield. I would hate to lose my
opportunity--I did sit through most of the hearing. I would
love to ask the panelists--and I understand we have to catch
our votes.
Chairman CRANE. Okay. As soon as the bells go off, though,
we are going to adjourn. So, Mr. English.
Mr. ENGLISH. Thank you, Mr. Chairman. Much of the criticism
I have heard from this panel with these two agreements has to
do with these agreements as templates. Yet individual trade
agreements are crafted specifically to the countries with which
we are engaged. Obviously, I would like to explore this
further, but I am going to have to pass--but I would like to
follow up with you individually. Thank you for your testimony.
Mr. BECERRA. Mr. Chairman, I will ask just one question, if
that is possible.
Chairman CRANE. Go ahead.
Mr. BECERRA. Thank you, Mr. Chairman. I appreciate the
indulgence. I asked the question with the previous panel, and
if you could just chime in with a yes, if you can do so. Do any
of you oppose the right of employees to associate? Do any of
you oppose the right of employees to collectively bargain? Do
any of you oppose the right--or excuse me, do any of you oppose
a prohibition against child labor? Do any of you oppose a
prohibition against discrimination? Do any of you oppose a
prohibition against forced labor?
Okay. I take it by your silence that no, none of you oppose
it, and I appreciate that. I also want to, Mr. Chairman, just
acknowledge that both Ambassador Bianchi and Ambassador Chan
have been very gracious sitting through this entire hearing,
and I want to thank them for all of their efforts because they
have been very diligent in talking to all of us about the
importance for their country of these FTAs. I want to thank
them for all the work that they have done on behalf of this
trade agreement. Thank you.
Chairman CRANE. Yes, indeed. Thank you all. I want to thank
all of the witnesses, and we are sorry for this interruption.
[Whereupon, at 4:00 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
American Association of Law Libraries
Washington, DC 20001
June 19, 2003
The Honorable Philip M. Crane
Chair, Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Crane and Ranking Member Levin,
On behalf of the American Association of Law Libraries, the
American Library Association, the Association of Research Libraries,
the Medical Library Association, the Special Libraries Association and
the Digital Future Coalition, we appreciate the opportunity to comment
on the U.S.-Chile and U.S.-Singapore Free Trade Agreements (hereafter
the FTAs), which soon will be considered by Congress under provisions
of the fast track trade negotiation authority revived last year by
passage of the Bipartisan Trade Promotion Authority Act. We ask that
you please include these comments in the official record of the
Subcommittee's hearing of June 10, 2003.
The American Association of Law Libraries (AALL) is a nonprofit
educational organization with over 5,000 members nationwide who respond
to the legal information needs of legislators, judges, and other public
officials, corporations and small businesses, law professors and
students, attorneys, and members of the general public. AALL's mission
is to promote and enhance the value of law libraries, to foster law
librarianship and to provide leadership and advocacy in the field of
legal information and information policy. The American Library
Association (ALA) is a nonprofit educational organization of over
65,000 librarians, library educators, information specialists, library
trustees, and friends of libraries representing public, school,
academic, State, and specialized libraries. ALA is dedicated to the
improvement of library and information services, to the public's right
to a free and open information society--intellectual participation--and
to the idea of intellectual freedom. The Association of Research
Libraries (ARL) is a not-for-profit organization representing 124
research libraries in the United States and Canada. Its mission is to
identify and influence forces affecting the future of research
libraries in the process of scholarly communication. ARL programs and
services promote equitable access to, and effective use of, recorded
knowledge in support of teaching, research, scholarship, and community
service. The Medical Library Association (MLA) is a nonprofit,
educational organization of more than 900 institutions and 3,800
individual members in the health sciences information field, committed
to educating health information professionals, supporting health
information research, promoting access to the world's health sciences
information, and working to ensure that the best health information is
available to all. The Special Libraries Association (SLA) is an
international professional association serving more than 13,000 members
of the information profession, including special librarians,
information managers, brokers, and consultants. The Digital Future
Coalition (DFC) is a unique collaboration of many of the Nation's
leading non-profit educational, scholarly, library, and consumer
groups, together with major commercial trade associations representing
leaders in the consumer electronics, telecommunications, computer, and
network access industries. Since its inception in 1995, the DFC has
played a major role in the ongoing debate regarding the appropriate
application of intellectual property law to the emerging digital
network environment.
Our organizations have worked closely with other educational,
research, and consumer-oriented groups to oppose copyright policies
that threaten to unduly limit access to information or to upset the
traditional balance that has existed in copyright law between the
rights of the content community and the rights of consumers, libraries,
and the educational community. We believe that such a balance is
essential to the free flow of information. With that in mind, we want
to bring to your attention several aspects of the FTAs that are
problematic for the library community. While this is not by any means
an exhaustive list, the most important issues that we believe require
serious examination by Congress are listed below.
The Copyright Provisions
The copyright sections of these agreements contain several
provisions that require our strong opposition. Both the Chile and
Singapore agreements require:
Lthat the duration of the copyright term reflect the U.S.
rule of life plus 70 years instead of the international standard of
life plus 50 years;
Lthat anti-circumvention rules be adopted which reflect
the expansive provisions of Section 1201 of the Digital Millennium
Copyright Act, including strong device prohibitions; and
Lthat the reproduction right expressly include temporary
copies. Under current standards, temporary copies in RAM do not
necessarily implicate the reproduction right.
The inclusion of the life +70 copyright term and the detailed anti-
circumvention rules also carry the deleterious effect of locking-in
current provisions of law that Congress may want to revisit. The
extension of the reproduction right to temporary copies raises an even
greater problem, as these provisions go well beyond the protections
provided under the Copyright Act. It would have profound and far-
reaching negative implications for reading and browsing, and has
consistently been strongly opposed by consumers and the library and
education communities. During the negotiation of the WIPO Copyright
Treaty, a similar provision was proposed and ultimately rejected by the
Diplomatic Conference.
We believe that a bilateral free trade agreement is a particularly
poor vehicle to use to extend the scope of U.S. copyright law in such a
drastic manner. By extending the scope of copyright protection well
beyond what exists, even under current U.S. law, the agreements exceed
the scope of legitimate trade policy beyond even the most liberal
interpretation. Congress should send a clear message to the USTR that
the traditional balance and concern for the interests of all
stakeholders that has historically informed Congressional deliberations
in the area of copyright policy is crucial when negotiating trade
agreements.
Fast-Track Authority
Although fast-track authority has been touted as essential to free
trade agreements, the cost is very high. The many benefits of
Congressional oversight are lost when the President and his designees
are essentially given carte blanche to make agreements quickly to
benefit the U.S. position among its trading partners. Because there is
no ability to amend the trade agreements negotiated by the USTR under
fast-track authority, Congress has a minimal role to play while the
Executive Branch makes new law in many peripheral areas simply by
including the provisions in an FTA.
Lack of Transparency
In addition to the power bestowed by fast-track authority, the USTR
negotiates the FTAs in secret; it is not an open process. Interested
parties are discouraged from commenting because there is very little
publicity about the provisions themselves and because the comments sent
to USTR are not readily available to anyone outside the agency. One
must visit the USTR Reading Room to view comments, which are available
only on certain days by appointment. While we appreciate the
opportunity to comment eventually on these agreements, we would have
preferred to do so at a much earlier stage in the process. Because the
full text of the agreements is not made publicly available until the
end of the negotiation process, the public has been effectively
precluded from ongoing participation in these crucial deliberations.
Because Congress must adopt or reject the entire agreement with
limited debate and no possibility of amendment, we must oppose
ratification and implementation of these two FTAs. We hope that
Congress will see the wisdom of removing intellectual property matters
from fast track authority at the earliest possible opportunity. It is
not appropriate or in the public interest to permit far-reaching
intellectual property law to be made without the benefit of public
debate and Congressional oversight.
Finally, we submit that the provisions of the WTO-TRIPS agreement
as well as the various treaties and conventions administered by WIPO
provide an adequate institutional framework for the international
harmonization of international intellectual property protection.
Institutional duplication within bilateral trade agreements is both
unnecessary and inappropriate. We believe that Congress should
encourage the Office of the USTR to pursue the changes in international
intellectual property standards within the established frameworks of
WTO-TRIPS or WIPO.
Respectfully submitted,
Robert L. Oakley
Washington Affairs Representative
American Association of Law Libraries
Miriam M. Nisbet
Legislative Counsel
American Library Association
Prudence S. Adler
Associate Executive Editor
Association of Research Libraries
Mary M. Langman
Coordinator, Information Issues and Policy
Medical Library Association
Douglas Newcomb
Director, Public Policy
Special Libraries Association
Peter Jaszi
President
Digital Future Coalition
[BY PERMISSION OF THE CHAIRMAN:]
Statement of Kristin E. Paulson, American Chamber of Commerce in
Singapore
Introduction
The American Chamber of Commerce in Singapore, hereafter referred
to as ``AmCham'' or ``AmCham Singapore,'' represents the interests of
the 1,500 U.S. companies operating in the country, and more than 18,000
Americans living and working in Singapore. AmCham strongly supports the
U.S.-Singapore Free Trade Agreement (USSFTA), and the roles which the
current U.S. Administration and Congress will play in signing the
Agreement and implementing related legislation. We also wish to
congratulate the Singaporean and United States governments for
negotiating a very comprehensive agreement that will further both
nations' trade objectives, while contributing to their respective,
future economic growth.
Singapore is an important economic and strategic partner for the
United States in Southeast Asia. As the gateway to more than 500
million consumers, Singapore is well positioned to provide open markets
and better opportunities for American companies and workers. Featuring
a world-class infrastructure, well-educated workforce, and a pro-
business environment, Singapore is the United States' 12th largest
trading partner and export market. Total commerce between the two
nations in 2002 was close to $31 billion, with the U.S. having a trade
surplus of $1.4 billion.
Singapore has also been one of America's key partners in Asia,
providing access and logistical support for the U.S. Navy and U.S. Air
Force. The nation and its government have played a vital role in the
war against terrorism, and have actively worked to ensure the security
of American interests and of U.S. citizens and their families living in
Singapore.
The USSFTA presents an opportunity for the United States and
Singapore to further cement the friendship and strategic partnership
which exists between the two nations. It is an historic step, one that
will be the first free trade agreement (FTA) that the United States has
signed with any Asian nation. This FTA will offer American companies
significant benefits, including: increased access to the Singapore
market, landmark intellectual property (IP) protection, removal of
barriers in the financial services sector, and reduced restrictions on
professional services.
Additionally, the Agreement will give U.S. businesses a gateway
from which they can expand into the larger ASEAN and North Asia
markets. The USSFTA will also serve as a model for other nations who
are considering establishing future free trade agreements with the
United States. In short, this opportunity will represent significant
short- and long-term benefits for American companies, as it will enable
them to open new markets in Asia, and to create higher consumer demand
for U.S. products. This will translate into higher U.S. exports and
greater employment opportunities for American workers.
USSFTA Analysis and Comments
AmCham Singapore and our members strongly support passage of the
U.S.-Singapore Free Trade Agreement. We would like to highlight several
key areas of the FTA and how these will affect U.S. businesses and
their respective sectors.
LExports: Singapore guarantees zero tariffs immediately on
all American products. The FTA will also eliminate or reduce certain
significant non-tariff barriers. For example, it will result in a
change in the way Singapore calculates excise taxes on imported
automotive vehicles. The Agreement's rules of origin will create new
opportunities for American exporters of fiber, yarn, and fabric.
Additionally, regulations will be relaxed in other areas.
LCompetition: The Agreement includes provisions (Chapter
12) that address potential anti-competitive business practices by
state-owned enterprises in Singapore and call for the creation of a
competition law in Singapore by 2005. We believe that a competition law
will best serve the interests of both nations and their respective
business communities. AmCham believes that the Agreement will help
ensure that U.S. companies can compete fairly for the procurement of
government contracts (Chapter 13), and for the buying and selling of
goods and services.
LExpress Delivery Services: The FTA's provisions
concerning express delivery services (EDS) provide American EDS
companies with greater access to the Singapore marketplace. We are
pleased that the Agreement contains a commitment precluding the cross-
subsidization of EDS operations by Singaporean postal authorities, the
first time such a commitment has been contained in a trade agreement.
LFinancial Services and Insurance: The FTA will level the
playing field for U.S. financial service providers in Singapore's
banking and securities sectors. American banks will have access to the
Singapore Automated Teller Machine (ATM) network. Restrictions will
also be lifted on the number of qualifying full banks permitted to
engage in retail business. Additionally, restrictions will also be
eased on the number of branches which U.S. banks already licensed in
Singapore can operate. With respect to asset management, it will now be
easier for U.S. asset managers to qualify to provide approved products
under the Central Provident Fund (CPF), Singapore's multi-billion
dollar retirement savings/investment program.
L In the area of insurance and insurance-related services,
AmCham lauds the improved access to Singapore's insurance industry,
which was gained through these negotiations.
LIntellectual Property Rights (IPR): The FTA will provide
substantial enhancements to IPR protection in four main areas: (1)
trademarks (and stronger protection for well-established trademarks);
(2) copyrights (new protection for digital works, measures to prevent
circumvention of copying prevention measures, measures to monitor the
production of optical discs); (3) patents (measures that will help
pharmaceutical companies address the problem of parallel imports); and
(4) trade secrets. Singapore also agreed to cooperate in preventing
pirated and counterfeit goods from entering the United States.
L The IPR provisions of this Agreement are one of the most
significant aspects of the USSFTA, and something which AmCham believes
is an important model on which future FTAs with other nations should be
based. The Agreement will protect the work of U.S. companies and
individuals in Singapore, thereby fostering greater trade and
investment opportunities in the future.
LProfessional Services: American professional services
firms, specifically in the areas of legal, architectural, engineering,
and land surveying services, will have improved market access to
Singapore. For U.S. law firms, Singapore will make it easier for them
to enter into joint-law ventures with local companies. It will also
recognize law degrees granted by a limited number of American law
schools, for purposes of qualifying for the Singapore bar.
L With respect to U.S. architectural and engineering firms, the
FTA has relaxed local-ownership restrictions. AmCham supports these
provisions and believes that the additional discussions (outside of the
FTA context) pertaining to mutual-recognition of U.S. and Singaporean
architectural and engineering professional qualifications will only
further serve the best interest of both nations, affording increased
opportunities for Americans and Singaporeans to work in each other's
countries. This could indirectly encourage more Americans to consider
getting their professional degrees in Singapore, which would allow them
to practice architecture and engineering in both countries.
LTelecommunications: Chapter 9 of the FTA will ensure
greater transparency and non-discriminatory access to the telecom
network, leased lines, and related areas. The Agreement also contains
important clauses which will prevent anti-competitive practices,
thereby ensuring that American firms will be able to compete more
effectively with local companies. AmCham Singapore welcomes the
progress that has been made to enable U.S. telecom companies to
interconnect with Singapore's networks and to have increased
opportunities for doing business in the country.
Summary
AmCham Singapore strongly supports approval of legislation to
implement the U.S.-Singapore Free Trade Agreement by the Congress. Our
members have benefited from a very pro-business environment, supported
through an active partnership with the Singaporean government. As
outlined above, we believe that this Agreement helps to further cement
that relationship with a key strategic partner and will serve as a
model for pending negotiations with other ASEAN member countries. This
in turn will serve to foster increased business and employment
opportunities for American companies and U.S. citizens both at home and
throughout the Asia Pacific region.
Statement of Jeffrey S. Levin, Esq., Association of Food Industries,
Inc.
This statement is submitted on behalf of the Association of Food
Industries, Inc. (AFI). AFI is a U.S. trade association serving the
food import trade, with approximately 200 member-companies located in
the United States. The member-companies trade in a vast range of
imported food products, including processed foods, nuts and other
agricultural products, and honey.
At the outset, AFI notes that the U.S. food importing industry is
composed of American companies. Its workers are employed here in the
United States, and these companies make a vital contribution to the tax
base of our national, state and local economies.
AFI strongly supports the liberalization of trade through the
reduction of tariffs and the elimination of non-tariff barriers in the
course of bilateral, and multilateral, negotiations. AFI respectfully
submits that this intrinsic negotiating objective must be advanced for
products across the board, including those products which are
considered ``import sensitive agricultural products,'' as that term is
defined in section 2104(b) of the Trade Act of 2002.\1\
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\1\ Under this provision, ``import sensitive agricultural
products'' are considered to be those products which are subject to
tariff-rate quotas, and those products subject to tariff reductions by
the United States as a result of the Uruguay Round Agreements, for
which the rate of duty was reduced on January 1, 1995, to a rate which
was not less than 97.5 percent of the rate of duty that applied to such
article on December 31, 1994.
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AFI brings to this proceeding the perspective not just of U.S. food
importers but also of U.S. consumers. These are fundamentally important
constituencies that are too often overlooked in the course of trade
deliberations, particularly in the area of negotiating objectives.
Indeed, in reviewing the principle negotiating objectives of the United
States with respect to agriculture as defined in section 2102(b)(10) of
the Trade Act of 2002, the emphasis on enhancement of export
opportunities and the development of overseas markets for U.S.
producers of agricultural commodities is manifest. Yet, to a critical
extent, the sweeping benefits gained from the import side of the trade
equation is overlooked. This is unfortunate, because imported food
products have played a vital role in the development of this Nation's
economy, and will continue to do so for the foreseeable future. Food
imports still account for a relatively small share of the total U.S.
diet. However, that share has grown considerably in recent years.
Economists at the USDA estimate that imports' share of the total
quantity of food consumed domestically increased from an average of 7.5
percent for the period 1979-1994 to 9.1 percent in the late 1990's.\2\
Import supplies greatly increase the variety of foods available to the
American consumer in line with expanding market demands, temper
increases in food prices caused by adverse weather conditions and other
market disruptions, and stabilize year-round supplies of fruits and
vegetables. In other words, imported foods support adequate supplies of
both dietary staples and specialty items especially important to an
increasingly diverse population, and do so at a counter-inflationary
cost to consumers.
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\2\ Putnam and Allshouse, Imports' Share of U.S. Diet Rises In Late
1990s, Global Food Trade (September-December 2001) at 15.
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Indeed, U.S. Trade Representative Robert Zoellick estimates that
the North American Free Trade Agreement and Uruguay Round Agreements
resulted in an annual benefit of between $1,300 and $2,000 for the
average American family of four.\3\ Much of this benefit can be
attributed to increasingly open trade in food products. In the absence
of due attention to import concerns, much of this benefit could
disappear.
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\3\ Zoellick, Falling Behind On Free Trade, N.Y. Times, April 14,
2002, section 4 at 13, col. 1.
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Furthermore, attention to the concerns of U.S. importers of food
products fundamentally serves the negotiating objectives enunciated in
the Trade Act. Enhanced access to markets abroad cannot be achieved in
the absence of reasonable market opening measures on the part of this
country. Of course, the more our trading partners are able to sell
their products to U.S. consumers, the better equipped they are to
purchase U.S. products shipped abroad.
AFI applauds the initial decision to enter into a free trade
agreement (FTA) with Chile, which we view as a particularly
complementary trading partner. We strongly believe that this agreement
will have a significant beneficial impact on both the U.S. and Chilean
economies, and on the U.S. consumer.
However, like many other companies, associations and public
officials in the United States, AFI has a pronounced concern regarding
the apparent delay in the submission of implementing legislation by the
Administration to the Congress. The U.S.-Chile FTA has been a top
negotiating priority for an extended period, spanning at least two
Administrations, and the successful conclusion of negotiations should
be treated and viewed as an important milestone for U.S. trade policy.
It must not be held hostage to temporal, and unrelated, geopolitical
vagaries. Indeed, we agree with the notion expressed last month by a
number of ``pro-trade'' Senators and Representatives that it would be a
``tremendous mistake'' if the Administration delayed presentation of
the implementing legislation to Congress. As noted by these
legislators, ``(t)o delay signing the agreement because of other
foreign policy disagreements, no matter how important, would send
terribly counterproductive messages--that liberalized trade is neither
a desirable end in itself nor a more effective means to strengthen our
international alliances.'' We implore those policymakers in a position
to effect movement on this issue to take those actions necessary to
sign, submit and seal this important agreement.
AFI submits that as the Subcommittee on Trade reviews the proposed
U.S.-Chile FTA and as it reviews other potential bilateral and
multilateral trade agreements, two issues must remain in the
foreground. First, apart from the technical definitional parameters
established by the Trade Act, relevant policymakers--including those
officials charged with negotiation of this and other trade agreements,
and lawmakers charged with reviewing the legislation necessary to
implement the results of the negotiations--must determine not only
whether a particular food product is indeed ``import sensitive,'' but
also whether that sensitivity is an interest demanding tariff
protection when placed in the wider context of national objectives. It
is axiomatic that trade negotiations should not be designed to protect
the parochial concerns of a limited set of market participants, but
rather should serve to promote the widest possible set of interests so
as to bring the greatest potential benefit across the board. For
example, it is one thing if the 14.9 percent tariff on prepared or
preserved artichokes--or the tariff rate quota established for this
product under the terms of the U.S.-Chile FTA--serves to protect a
significant employment base in this country or furthers some other
compelling national interest such as the competitive viability of an
important U.S. production sector. It is quite another thing if the
tariff exists primarily to hinder the access of U.S. importers and
consumers to an expanded supply base in order to salvage limited and
economically regressive domestic concerns.
The negotiating stature of this country should operate under the
presumption of trade liberalization, not protectionism. The burden
should fall upon those interests that seek to stifle further tariff
reductions for ``import sensitive'' products to affirmatively
demonstrate the specific bases for their claims.
Second, the Subcommittee must evaluate the merits of a potential
trade agreement on the basis of its potential effects on the U.S.
economy as a whole. Further tariff reductions on ``import sensitive''
agricultural products should be advanced if, on balance, such action
would bring greater economic benefit to the range of interests in this
country--including the interests of the consuming population--than
would the status quo.
The rubric of ``import sensitivity'' should not constitute a
formulaic bar to trade liberalization.
In this context, AFI also applauds the fact that duties on all
imported food products from Chile will be eventually eliminated under
the terms of the agreement. In particular, AFI strongly supports the
agreement provisions that immediately remove the duties on a range of
food products and that retain current duty-free treatment for a range
of food products.\4\ However, we are concerned that a significant
number of imported food products will be subject to the lengthiest
staging category encompassed by the duty elimination provisions (i.e.,
12 years), while a significant number of so-called ``import sensitive''
food products will be subject to special provisions such as tariff-rate
quotas or ``competitive need limitation'' type provisions.\5\ In
addition, a number of imported food products will be subject to
``agricultural safeguard'' provisions, which are in most cases framed
by a ``trigger price'' mechanism.\6\
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\4\ AFI has reviewed the tariff treatment for products encompassed
by specific Harmonized Tariff Schedule chapters of interest to its
member-companies. For example of the 155 tariff schedule items (at the
8-digit level) encompassed by Chapter 7 (edible vegetables), 111 items
will be subject to immediate duty elimination or will have current
duty-free status retained. Of the 90 tariff schedule items encompassed
by Chapter 16 (preparations of meat and fish), 83 items will be subject
to immediate duty elimination or will have current duty-free status
retained. Of the 170 tariff schedule items encompassed by Chapter 20
(preparations of vegetables, fruits and nuts), 101 items will be
subject to immediate duty elimination or will have current duty-free
status retained. Of the 88 tariff schedule items encompassed by Chapter
21 (miscellaneous edible preparations), 63 items will be subject to
immediate duty elimination or will have current duty-free status
retained.
Specific products of interest to AFI member-companies that will be
subject to the immediate elimination of duties as of the date that the
agreement enters into force are prepared or preserved mackerel
(subheading 1604.15.00, HTS), and boiled clams in immediate airtight
containers (subheading 1605.90.10, HTS). Specific products of interest
that will retain their current duty-free status on a permanent basis
include anchovies, whole or in pieces (subheading 1604.16.10, HTS) and
frozen blueberries (subheading 0811.90.20, HTS).
\5\ A specific example of a product of interest to AFI member-
companies that falls within this category is frozen blackberries,
mulberries and white or red currants (subheading 0811.20.40, HTS).
Pursuant to Annex 1, Note 17 of the agreement, imports from Chile of
this product, and other similarly situated food products, will be
subject to a zero percent duty as of the date that the agreement enters
into force, unless imports from Chile exceed 50 percent of total U.S.
imports of the product, or if the value of imports from Chile exceeds
$110 million. If either condition is met, the duty on the product will
revert to the appropriate level established under Annex 3.3, Note 1(b)
of the agreement (providing for the elimination of duties in four equal
annual stages).
\6\ A specific example of a product of interest to AFI member-
companies that falls within this category is prepared or preserved
artichokes (subheading 2005.90.80, HTS). Pursuant to Annex 3.18 of the
agreement, the trigger price for this product is established as $1.29
per kilogram. Pursuant to Article 3.18 of the agreement, the U.S. may
impose a safeguard measure on imports of the product if the unit price
of such imports falls below this trigger price.
AFI notes that pursuant to Article 3.18(2)(b) of the agreement,
``(t)he parties may mutually agree to periodically evaluate and update
the trigger prices.'' AFI submits that this is a particularly important
provision considering the historical volatility in the prices of
imported food products, and that the relevant trigger prices for
products subject to these safeguard provisions must be vigilantly
reviewed on a regular basis to ensure that they reflect conditions in
the market.
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AFI is very much aware that the text of the U.S.-Chile FTA, and the
tariff treatment of specific products under the provisions of the
agreement, may well serve as a ``template'' for ongoing and future FTA
negotiations, such as the proposed FTA with Morocco and the Central
American Economic Integration System, and the proposed Free Trade Area
of the Americas. For this reason, AFI has a particular concern for, and
interest in, the basis for the duty elimination provisions regarding
food products as set forth in the U.S.-Chile FTA. As we note above,
duties on imported food products should be subject to immediate
elimination, or, at the least, an expeditious staging category, unless
those domestic interests claiming otherwise affirmatively demonstrate
the need for more ``protectionist'' treatment. In other words, a simple
claim of ``import sensitivity'' should not suffice; an affirmative
demonstration of the need for more ``protectionist'' treatment, rooted
in direct evidence regarding the marketplace and conditions of
competition, should be required.
The concerns of AFI in this regard are well-founded. In particular,
AFI notes the report of the Agricultural Technical Advisory Committee
on Trade In Fruits and Vegetables with respect to the U.S.-Chile Free
Trade Agreement. The report states as follows:
LOther members who represent highly sensitive products (e.g.,
canned fruit) had sought particular exemptions and were disappointed
that a twelve-year phase-out (with safeguards in some instances) was
the best protection provided. Since the Chilean FTA has been described
as a template for the Free Trade Area of the Americas (FTAA), Members
of the Committee who represent highly sensitive crops believe that
these crops should have received a 15-year phase-out as was provided in
the North American Free Trade Agreement (NAFTA). This more lengthy time
period would help some of the more sensitive industries adjust to
changing trade conditions. The Committee Members representing sensitive
interests are seeking tariff exemptions in subsequent FTAs.\7\
\7\ The U.S.-Chile Free Trade Agreement: Report of the Agricultural
Technical Advisory Committee on Trade In Fruits and Vegetables
(February 26, 2003) at 3-4 (emphasis added).
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This sentiment expressed in this statement is a clear signal that
certain well-entrenched interests in the United States will mount
intensive and continuing efforts in ongoing and future FTA negotiations
to ensure that trade liberalization is derailed, or at least delayed.
While these interests surely retain their right to exert such efforts,
legislators must ensure that the claims of such interests are rooted in
fact and need before they become a basis for this country's negotiating
posture.
On a related issue, AFI is pleased that the U.S.-Chile FTA contains
a provision whereby requests for accelerated tariff elimination will be
considered by the signatory-parties. We anticipate that member-
companies of AFI will evaluate the potential for requests under this
provision in appropriate circumstances, and hopes that U.S.
policymakers, and their Chilean counterparts, will view such requests
favorably.
In sum, AFI strongly supports the ideal of trade liberalization
embodied by the U.S.-Chile FTA, and fervently hopes that the agreement
will be put into effect at the soonest possible date. While AFI also
strongly supports the fact that many imported food products will be
accorded immediate duty elimination or will retain their current duty-
free treatment, it is concerned that a significant number of products
of interest to AFI member-companies will not be treated in as favorable
a manner. This is detrimental not only to the interests of those U.S.
companies that form the U.S. food importing industry, but to the
interests of the U.S. consumer as well. AFI respectfully submits that
the tariff treatment of imported food products in ongoing and future
FTA negotiations be viewed with a predisposition towards the ideal of
trade liberalization.
On behalf of AFI and its member-companies, we greatly appreciate
the opportunity to submit these comments.
Statement of Automotive Trade Policy Council
The Automotive Trade Policy Council and its member companies--
DaimlerChrysler, Ford and General Motors--strongly support passage of
the U.S.-Chile Free Trade Agreement and the U.S.-Singapore Free Trade
Agreement. Passage of both agreements will signal to our other trade
partners in the Western Hemisphere and Asia, as well as in the ongoing
Doha Development Round of the World Trade Organization, that the U.S.
is committed to promoting free trade around the world.
U.S.-Chile Free Trade Agreement
Total automotive trade between the United States and Chile has
increased significantly since 1995, surpassing $180 million in 2002. In
fact, over 6% of all U.S. exports to Chile are automotive products
(vehicles and parts). Today, Chile is the United States' fifth largest
automotive-sector export market in the Western Hemisphere, with annual
sales of just over 100,000 new vehicles. At the same time, Chile does
not export any significant automotive-sector products to the United
States, assembling less than 20,000 new motor vehicles annually.
U.S. automakers will benefit from the U.S.-Chile trade agreement by
assuring that U.S. access is equal to that which our European and
Korean competitors already have. Both the EU and South Korea signed
free trade agreements with Chile before the United States, and both are
major exporters of motor vehicles and parts. Until Congress agrees on
implementing language for the U.S.-Chile agreement, automakers from
Europe and Korea will continue to receive significant commercial
advantages on both tariffs and taxes, as well as from business
facilitation measures.
U.S. automakers will directly gain in four key areas from
provisions in the U.S.-Chile free trade agreement. Chile's high luxury
tax on automobiles, which disproportionately harms U.S. automakers,
will be phased out over four years. This will remove a significant
market access barrier for U.S. vehicles. Upon implementation of the
agreement, motor vehicles exported from the United States will receive
immediate elimination of tariffs--achieving instant parity with the
Korean and European automakers. The U.S.-Chile FTA also allows Chile to
maintain the flexibility to limit imports of used vehicles, the sale of
which can undermine sales of new motor vehicles.
Passage of the U.S.-Chile Agreement will also strongly promote the
realization of two other important U.S. trade initiatives--the U.S.-
Central America FTA and the Free Trade Area of the Americas. By passing
the U.S.-Chile agreement, our trading partners in Brazil, Argentina,
Central America, and across the entire Western Hemisphere will see
clear evidence that the United States strongly supports the economic
benefits of free trade and is willing to work with those nations that
follow the same course.
U.S.-Singapore Free Trade Agreement
While the United States and Singapore engage in significant two-way
trade in the automotive sector--$261 million in 2002 (in a market of
70,000 new vehicles annually)--the more important nature of U.S.-
Singapore automotive trade is in the regional component, as Singapore
serves as a trade hub to the entire Southeast Asian region. This makes
Singapore an important trading partner to the U.S. automotive sector,
as the ASEAN region is one of the fastest growing and promising new
vehicle markets in the world.
For the automotive sector, the U.S.-Singapore FTA addresses a
longstanding problem with how the Singapore Customs authorities value
imported motor vehicles. The U.S.-Singapore FTA clarifies and makes
transparent the process by which Singapore Customs authorities value
imported vehicles to comply with the World Trade Organization's Customs
Valuation Agreement. As such, the agreement not only facilitates
imports of U.S. vehicles into Singapore by reducing the transaction
cost, but it provides a model for trade agreements with other countries
that have similar customs valuation practices.
Passage of the U.S.-Singapore Free Trade Agreement will also
provide an important signal of the strong commitment by the United
States to market liberalization and expansion of free trade across
Asia, as well as a dedication to free and open political and economic
systems generally.
The Automotive Trade Policy Council, Inc. is a Washington D.C.-
based non-profit organization representing the common international
economic, trade and investment interests of its member companies. The
members of ATPC are DaimlerChrysler Corporation, Ford Motor Company and
General Motors Corporation.
[BY PERMISSION OF THE CHAIRMAN:]
Statement of Chilean-American Chamber of Commerce, Las Condes,
Santiago, Chile
The United States is Chile's principal trading partner (16.3% of
foreign trade) and foreign investor (31% of 1974-2002 FDI). However,
due to the Chilean government's successful policy of unilateral trade
liberalization, the United States' relative position on the trade front
has deteriorated from 25% in 1995 to 16.3% in 2002. Key factors are:
LCompetition from countries with which Chile has signed
trade agreements, especially Canada, Mexico and the Mercosur countries
(Argentina, Brazil, Paraguay and Uruguay) has taken opportunities away
from U.S. firms, who do not enjoy the same commercial advantages.
LThe free trade agreement between Chile and the European
Union came into effect on February 1, 2003, putting U.S. companies at
an even greater disadvantage.
Lost Market Share:
LIn 1995--before Chile's trade agreements with Canada,
Mexico, and the Mercosur countries came into force--25% of all Chilean
imports came from the United States. For 2002, this figure had fallen
to 16.3%, while countries enjoying free trade with Chile saw their
market share soar. Chilean imports from the U.S. reached $3.8 billion
in 1995, but fell to $2.5 billion in 2002, decreasing by 34% over this
period. In contrast, imports from Mercosur over the same period grew by
80%.
LIf the United States had maintained its 1995 market
share, it would have received an additional $1.4 billion in earnings
from exports to Chile in 2002 alone.
LThe accumulated value of these ``lost exports'' since
1995 is estimated at $4.9 billion--almost two years' worth of exports.
LDuring February 2003, the first month in which the FTA
with the European Union became effective, Chilean imports from the U.S.
grew at 5.6% compared to February 2002. In contrast, total imports from
the EU expanded by 30.4%.
Lost business opportunities:
LA study of 13 U.S. companies shows lost business
opportunities exceeding $300 million each year due to the lack of a
free trade agreement. For instance, an important U.S. fast food chain
with presence in Chile buys its potatoes from Canada, not the United
States, to take advantage of reduced tariff levels. Other sectors which
have lost are heavy machinery producers, financial services firms,
engineering services, and telecommunications equipment, to name a few.
LServices purchased from U.S. firms in Chile are subject
to a 20% tax, and Canadian companies have capitalized on this clear
advantage.
LWithout an FTA, U.S. products will pay a 6% tariff in
2003, which is significant compared with other nations' duty-free
access.
Regional opportunities:
LChile's influence in South American markets is larger
than its GDP suggests.
LIn many sectors (i.e. power generation, financial
services, telecommunications, as well as passenger and cargo air
transport), the Chilean market is a ``testing ground'' for regional
operations. Projects that succeed in Chile usually do so in the rest of
Latin America; projects that do not succeed in Chile have little future
in the region.
LChile is a regional mining and engineering center.
LDetailed engineering performed by a U.S. firm in Chile
influenced equipment acquisition for plants in Colombia (a $350 million
expansion) and Peru (an $80 million expansion).
Consumers:
LCompetition resulting from a bilateral trade agreement
would force companies to continually improve their products and
services in order to maintain market share.
LConsumers reap these benefits through lower prices,
products that meet their needs more effectively, and a wider selection.
LChilean products, which are of high quality and compete
favorably in world markets, have already attracted United States
consumers.
LAmerican consumers will have increased access to fresh
fruit and vegetables which they would not have in the winter season due
to Chile's complementary seasonality.
Jobs:
LThe sales of Chilean fruit and seafood to the United
States require the intensive use of American labor in its ports; a
bilateral agreement would create more traffic, meaning new jobs.
LThe Port of Wilmington handles more than 14 million
boxes of Chilean fruit during the months of December through May
representing over 60% of Wilmington's volume in the winter season.
LChile's growing seasons are the reverse of those in the
United States, so Chile's agricultural exports do not compete directly
with United States farmers.
LThe National Association of Manufacturers estimates that
the FTA will provide an additional 12,500 jobs annually.
LEvery State in the United States exports to Chile, and
over a 6-year period, 14 states increased their exports by more than
100%, producing jobs at home.
What else does Chile have to offer?
LChile has undergone far-reaching economic transformation
over the past two decades.
LMoved from a heavily regulated import-substitution-
oriented economy to a development strategy based on the expansion of
Chile's markets through exports, private investment incentives, and the
balancing of the principal macroeconomic variables.
LUnilaterally opened up its economy more than any other
Latin American country, and it made its commitment to a free markets
and free trade long before any other country in Latin America.
LChile is also the oldest democracy in the region, and its
economy is one of the most advanced and stable. It is internationally
recognized as the Latin American country with the highest rankings for
investment security.
LChile has institutional stability and a transparent
system.
LAlthough Chile is a small country, the United States
exports more to Chile than to Russia, New Zealand, or several European
countries including Austria and Norway.
LIn 2002, Chile was the 37th most important market for
United States exports, and the 36th largest exporting country to the
United States.
LChile will play a very important role in the FTAA
negotiations. The approval of the FTA between Chile and the United
States will emphasize U.S. commitiment to free trade in the region and
will serve as an example for other countries to actively pursue FTAA
negotiations.
* * *
AmCham Chile strongly believes that the U.S.-Chile free trade
agreement must be approved in order for U.S. businesses, consumers and
workers to benefit. Approval is especially urgent as U.S. goods are
currently at a 6% disadvantage with over 90% of European goods entering
Chile as of February 1, 2003 with no duties. In the absence of price
differentials, Chilean companies and consumers prefer U.S. products and
services.
Statement of Peter H. Cressy, Distilled Spirits Council of the United
States, Inc.
The following statement is submitted on behalf of the Distilled
Spirits Council of the United States, Inc. (Distilled Spirits Council)
for inclusion in the printed record of the Subcommittee's hearing on
the implementation of U.S. bilateral free trade agreements (FTAs) with
Chile and Singapore. The Distilled Spirits Council is a national trade
association representing U.S. producers, marketers and exporters of
distilled spirits products. Its member companies export spirits
products to more than 130 countries worldwide, including to Chile and
Singapore.
I. OVERVIEW
The Distilled Spirits Council and its member companies
enthusiastically support Congressional approval and prompt entry-into-
force of the free trade agreements with Chile and Singapore, which will
bring about significant and measurable benefits for U.S. spirits
exporters. Over the past decade, the export market for U.S. distilled
spirits products has become increasingly more important to the U.S.
distilled spirits industry. In fact, since 1990, U.S. exports of
distilled spirits worldwide have doubled, growing to over $550 million
in 2002. While the Uruguay Round negotiations produced significant
benefits for U.S. distilled spirits exporters, including substantial
reductions in import tariffs and non-tariff barriers, numerous barriers
still remain. The U.S. distilled spirits industry actively supports the
U.S. government's efforts to seek the elimination or reduction of these
remaining barriers within the context of the ongoing World Trade
Organization negotiations, and in other multilateral and bilateral
negotiations.
The recently-concluded Chile and Singapore agreements eliminate
several of the barriers that U.S. spirits exporters currently face in
these markets. Prompt Congressional approval and implementation of the
FTAs will permit U.S. spirits exporters to benefit from improved market
access to Chile and Singapore, thus ensuring the continued growth of
the U.S. distilled spirits industry.
II. BENEFITS OF THE U.S.-CHILE AGREEMENT TO U.S. DISTILLED SPIRITS
EXPORTERS
The U.S.-Chile Free Trade Agreement (FTA) will provide three
significant benefits for the U.S. distilled spirits industry. First,
the U.S.-Chile FTA will ensure that U.S. spirits entering Chile are
accorded the same tariff treatment as Chilean spirits entering the
United States. As a result of the ``zero-for-zero'' initiative, which
began in the Uruguay Round, the United States has eliminated almost all
tariffs on imported spirits products, including pisco, Chile's most
important spirits export. In contrast, U.S. spirits currently face a
tariff of six percent ad valorem in Chile. Under the terms of the U.S.-
Chile FTA, Chile will eliminate its tariff on all spirits (with the
exception of brandy and gin) imported from the United States two years
after entry-into-force of the agreement. The tariff on brandy will be
eliminated immediately upon the agreement's entry-into-force, and the
tariff on gin will be reduced in twelve equal annual stages until the
tariff is zero.
Second, the U.S.-Chile FTA will place U.S. spirits exports on a
level playing field with our competitors. Chile currently has free
trade agreements with Canada, Mexico and the European Union. In both
the Canada-Chile and Mexico-Chile agreements, Chile agreed to eliminate
immediately its tariffs on all spirits products, including tequila and
Canadian Whisky. In the EU-Chile agreement, Chile agreed to a ten-year
phase-out of the tariffs on Cognac, Armagnac, Grappa, and Brandy de
Jerez and a five-year phase-out of the tariffs on all other EU-origin
spirits. The U.S.-Chile FTA ensures, therefore, that U.S. spirits
ultimately will be able to compete on an equal footing with spirits
from Mexico, Canada and the European Union.
Finally, the U.S.-Chile FTA provides essential protections for
Bourbon and Tennessee Whiskey, two distinctly American spirits. Under
the U.S.-Chile FTA, Chile has agreed to provide explicit protection in
the Chilean market for Bourbon and Tennessee Whiskey as distinctive
products of the United States. Such recognition ensures that only
spirits produced in the United States, in accordance with the laws and
regulations of the United States, may be marketed in Chile as Bourbon
and Tennessee Whiskey.
III. BENEFITS OF THE U.S.-SINGAPORE AGREEMENT TO U.S. DISTILLED SPIRITS
EXPORTERS
Similarly, the U.S. spirits industry stands to gain significantly
as a result of the U.S.-Singapore FTA. First, Singapore will eliminate
its discriminatory excise tax policy on distilled spirits. Currently,
Singapore assesses significantly lower excise taxes on domestically-
produced spirits (samsoo, arrack and pineapple spirits) than on other
types of distilled spirits in violation of the General Agreement on
Tariffs and Trade (GATT) 1999 Article III, paragraph 2. This
discriminatory excise tax policy has placed U.S. distilled spirits at a
competitive disadvantage vis-a-vis domestically-produced spirits. Under
the terms of the U.S.-Singapore FTA, Singapore will eliminate this
discriminatory practice by harmonizing its excise taxes on imported and
domestically-produced distilled spirits.
The U.S.-Singapore FTA also guarantees that Singapore will not be
able, at a future date, to impose tariffs on distilled spirits imported
from the United States. Singapore does not currently assess tariffs on
most imported distilled spirits products. However, Singapore's WTO
bound tariff rates are high and, consistent with its Uruguay Round
commitments, Singapore may impose at any time tariffs ranging from S$30
per liter to S$70 per liter of alcohol on most categories of distilled
spirits. Under the U.S.-Singapore FTA, Singapore has committed to bind
all tariffs at zero immediately upon entry-into-force of the agreement,
thereby ensuring that U.S. spirits exports will continue to enter the
Singapore market duty-free.
Finally, provisions in both the U.S.-Singapore FTA and the U.S.-
Chile FTA include commitments that those countries will not adopt or
maintain a merchandise processing fee for originating goods. This
provision will ensure that U.S. spirits exporters will not be subject
to additional administrative costs in Singapore and Chile.
IV. CONCLUSION
In summary, the U.S.-Chile and U.S.-Singapore free trade agreements
successfully address the principal trade barriers currently impeding
U.S. exports of distilled spirits to Chile and Singapore. The Distilled
Spirits Council, therefore, strongly supports these agreements, which,
once implemented, will provide considerable benefits to U.S. spirits
exporters. We stand ready to work closely with the Congress in seeking
the swift approval of these agreements, so that U.S. spirits exporters
may begin soon to enjoy improved access to the Chilean and Singapore
markets.
Thank you very much for your consideration.
Statement of Electronic Industries Alliance, Arlington, Virginia
The Electronic Industries Alliance (EIA)--a partnership of
electronic and high-tech trade associations representing 2,500
companies and more than 80% of the $430 billion electronics industry--
appreciates this opportunity to present its views to the Trade
Subcommittee of the House Committee on Ways and Means on the U.S.-Chile
and U.S. Singapore Free Trade Agreements (FTAs).
The Agreements Will Advance the Cause of Free Trade
In concluding these important trade agreements, Ambassador Zoellick
and his skilled team of negotiators have made 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 Agreements 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 these two FTAs. 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
Thank you for the opportunity to provide our views on both the
U.S.-Chile and U.S.-Singapore FTAs. We look forward to these important
agreements being approved by Congress.
__________
Below is a summary of the major points presented in the following
comments:
The Agreements Will Advance the Cause of Free Trade: EIA was a leader
in the fight last year to obtain Trade Promotion Authority (TPA) and
supports the Chile and Singapore FTAs. EIA hopes 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 American economy.
EIA's Stake in Chile and Singapore: EIA member companies have
particular interest in the U.S.-Chile and U.S.-Singapore FTAs. 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 the electronics industry.
More than one-third of the jobs in the high-tech manufacturing sector
are supported by exports, and EIA believes the U.S.-Chile and U.S.-
Singapore FTAs can play an important role in building jobs in the
electronics industry.
The Agreements Will Have Positive Effects in the Affected Regions: Both
of these agreements will have benefits beyond the countries involved.
It is EIA's hope that the Chile and Singapore agreements will pave the
way for similar commitments by other countries, especially in Latin
America and Asia.
Specific Benefits of the Chile and Singapore FTAs: EIA appreciates and
recognizes the agreements' strong intellectual property rights
protection provisions. EIA also supports the provisions in the
agreement establishing open markets and non-discriminatory access to
telecommunications networks. 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. The FTA with Chile will also eliminate tariffs immediately
on 85% of exports, including on key items such as computers and other
high-tech equipment.
Areas in Need of Improvement: While EIA strongly supports approval of
these agreements, EIA believes that the rules of origin for both
agreements and the duty drawback provisions in the U.S.-Chile FTA are
deserving of the Committee's attention and require revision, if not in
these agreements then in future ones. There is a general consensus
among EIA companies that the rules of origin for future FTAs should be
much simpler than those negotiated in NAFTA, on which these are based.
With respect to drawback, EIA strongly objects to the current U.S.
negotiating objective of restricting or eliminating duty drawback in
the Chile FTA and in each new free trade agreement while it is still
unknown when and if tariffs will be eliminated on a global basis.
Statement of Alexander von Bismarck, Environmental Investigation Agency
1. SUMMARY AND RECOMMENDATIONS
Mr. Chairman and Members of the Subcommittee, the Environmental
Investigation Agency (EIA) is grateful for this opportunity to present
recent findings relating to the U.S.-Singapore Free Trade Agreement.
EIA has investigated international trade and its environmental
consequences for 19 years, and is globally recognized for its expertise
in the problems of illegal logging and trade in illegal timber,
wildlife, and ozone depleting substances. EIA has conducted a number of
recent investigations that describe Singapore's role in these matters,
and has recently published the report ``Singapore's Illegal Timber
Trade and The U.S.-Singapore Free Trade Agreement.''
Timber Smuggling
EIA fears that the U.S.-Singapore FTA, as it stands, will trigger a
significant increase in Singaporean controlled exports of illegally
produced timber products into the U.S. The Office of the U.S. Trade
Representative, which led the U.S. negotiations, points out that
``international trade can play a role in stimulating, enabling or
rewarding illegal activities in a number of Asia-Pacific countries
where illegal logging (is) a significant cause of deforestation.'' \1\
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\1\ Office of the USTR. Draft Environmental Review. (p. 23).
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Our information suggests that this concern is currently
dramatically underestimated. While a FTA could offer excellent
opportunities to cooperate and address problems of illegal trade,
particularly amidst current concerns over port security, such
opportunities have so far remained unexploited. The FTA will reduce
tariffs, which for some wood products are significant, and defines the
customs policies that are currently allowing Singaporean companies to
export a variety of illegal shipments into the U.S. in a dangerously
efficient way.
Undercover investigations by EIA and Telapak, our Indonesian
partner organization, in April 2003 confirmed Singapore to be a central
hub for laundering illegal shipments of Ramin, a highly valuable and
endangered tree species found only in Indonesia and Malaysia.
Singaporean companies play the key role in paying bribes and falsifying
paperwork to allow illegal shipments of wood to enter the world market,
including the U.S. Further analysis of trade data reveals that over US$
3 million of Ramin was imported illegally into the U.S.--without the
required permits--from or through Singapore between September 2001 and
July 2002. Fifty-two percent of all Ramin shipments into the U.S.
during these ten months passed through or originated in Singapore.
Wildlife, Chemicals and Security Concerns
Singapore has also maintained a well deserved reputation as a major
center of illegal international trade in endangered wildlife, including
poached elephant ivory, tiger bone, parrots and other species. An EIA
report published last year documented the current resurgence in
elephant ivory smuggling. In June 2002, a foreign tip-off led to the
seizure of six tons of ivory in Singapore--the largest seizure since
the international ivory trade ban went into effect in 1989.
Singapore is also central to the regional Asian black market trade
in chlorofluorocarbons (CFCs), with much of this material transiting
through the city-state. EIA investigations reveal that Singapore
shipped large amounts of CFCs to Nepal, itself a staging post for CFC
smuggling into India. International trade in CFCs is strictly limited
by the Montreal Protocol on Ozone Depleting Substances to which both
the U.S. and Singapore are signatories.
A variety of factors make Singapore a haven for smugglers and
unscrupulous international trade. First, Singapore's loose and porous
customs system offers unique opportunities to by-pass inspectors,
manipulate cargo and paperwork. Secondly, Singapore systematically
withholds trade data to shelter evidence that could quantify the scope
of illegal activities occurring in and throughout its territory.
Finally, Singapore's commitment to multilateral environmental
agreements is superficial and its enforcement passive at best.
Remedies
Singapore has been particularly hostile to recent U.S.-led
international efforts to take action against illegal logging. President
Bush has recognized the global security threat posed by illegal logging
and has committed $50 million in new funding over the next five years.
The State Department has played a key role in launching the most
promising international framework to combat illegal logging, the Forest
Law Enforcement and Governance initiative (FLEG). In September 2001,
ten East Asian nations with the U.S. and the UK issued the Bali
Ministerial Declaration, a historic agreement in which producing and
consuming nations agreed to take far reaching actions to suppress
illegal logging. Singapore has been noticeably absent from all FLEG
negotiations.
Concerns over Singapore's trade in illicit goods and the impact of
this FTA must be addressed now. The U.S.-S FTA has been heralded as a
template for future agreements and thus must benefit from a thorough
and sober analysis of its implications. Singapore's role as a hub for
Asian trade is set to expand as free trade agreements between Singapore
and other Asian nations, including China and Japan, are under
negotiation. Japan and China are the second and third largest timber
importers respectively.
The U.S.-Singapore FTA offers an opportunity to enter into serious
bilateral discussions with Singapore to tackle the problem of illegal
trade of timber, wildlife, and dangerous chemicals. Implementing
legislation should be considered as a means to support regional,
bilateral and domestic enforcement initiatives.
Singapore's example as a gateway of illegal timber into the U.S.
must also focus our attention on desperately needed legislation to stop
the import of illegally sourced timber. In April the `Clean Diamond
Trade Act' was passed to stop the conflict diamond trade. The trade in
illegal and conflict timber is equally destructive to the global
security and the environment and must be tackled next.
RECOMMENDATIONS
1. LThe U.S. should enter into a bilateral agreement with Singapore
as an annex to the Free Trade Agreement to establish a licensing system
for legally produced timber and to eliminate trade in illegally
produced timber and timber products.
2. LThe U.S. should establish an enforcement task force to work in
close cooperation with a new parallel Singapore government enforcement
body to share information, promote coordination and proactively target
environmental crimes involving trade in illegal timber, wildlife
products and ozone depleting chemicals linked with import, export and
transshipment through Singaporean territory.
3. LThe U.S. should facilitate the establishment of a regional
enforcement body with Singapore and other important timber producing,
consuming and processing countries in the Asia Pacific region to target
trade in illegally produced timber and offer to provide technical and
training assistance to the member states of the new body.
4. LThe U.S. should use the provisions of the U.S.-Singapore Free
Trade Agreement to ensure that Singapore upgrades its Customs laws and
regulations to close loopholes that allow easy movement of goods into
Customs ports, warehouses and airports without proper scrutiny and to
prohibit the repackaging and processing of goods in transshipment or
under Customs control in Singapore. The U.S. should ensure that
citizens also have the ability to bring complaints to the dispute
resolution mechanism.
5. LThe U.S. should encourage Singapore to:
Lformally endorse the Bali Ministerial Declaration of
the Forest Law Enforcement and Governance (FLEG) and an action plan to
adhere to FLEG commitments.
Ladopt a policy of transparency concerning its trade in
environmentally sensitive goods and ensure transparent access to key
data concerning trade with Indonesia, timber trade, wildlife products
and data concerning companies authorized to trade in ozone depleting
chemicals.
6. LThe U.S. should ban all trade in Ramin and encourage all other
consuming countries to suspend trade in Ramin indefinitely. The U.S.
should actively prosecute the companies, especially the repeat
offenders, that have been documented to be importing Ramin into the
U.S. without proper permits.
7. LFinally, the United States must develop new legislation to stop
the import, export, trans-shipment, purchase, or sale of illegally
produced timber. Ongoing initiatives, such as those in the EU, offer
templates. The U.S. should commission a study on the implementation of
such legislation in the U.S.
2. BACKGROUND AND EVIDENCE
The U.S. and the Global Illegal Logging Problem
Illegal logging takes place when timber is harvested, transported,
bought or sold in violation of national laws and is widespread in most
of the major timber producing and exporting countries of the world. In
some cases illegal logging represents more than half of production, and
large quantities of illegally sourced wood find their way to the major
markets of the U.S., Europe, Japan and China in the form of timber,
furniture or other products.
Illegal logging has major economic implications. It is estimated
that illegal logging on public lands worldwide causes annual losses in
revenues and assets in excess of $10 billion.\2\ All too often money
which should be going to fund schools, hospitals and clean drinking
water in developing countries is instead finding its way into the
pockets of illegal timber barons, corrupt enforcement personnel and
politicians. The wood furniture, blinds, or flooring made from illegal
tropical logs can then be sold in the U.S. at a discount price,
undercutting the U.S. timber industry.
---------------------------------------------------------------------------
\2\ Ibid.
---------------------------------------------------------------------------
Overall, the U.S. has demonstrated a major commitment to promoting
international measures to counter illegal logging. Despite the variety
of positive initiatives by the U.S. Administration to address illegal
logging, no policies or programs have emerged that will close or even
restrict its massive domestic market to imports of illegally produced
timber.
The U.S. has not concluded any bilateral or multiparty agreements
with any of the major timber producers in Asia, while the UK and China
have reached separate bilateral agreements with Indonesia to facilitate
action programs against illegal logging and trade in illegally cut
timber. Japan is also currently negotiating a similar agreement with
Indonesia.
The U.S. is the world's largest importer and consumer of timber and
wood products.\3\ In 2001, the U.S. imported wood and wood products
valued at around $25 billion a year.
---------------------------------------------------------------------------
\3\ FAO, State of the World's Forests, 2001.
---------------------------------------------------------------------------
Case Study: Ramin
Many tropical forests in East Asia are under threat from human
induced causes, but certain high value species are specifically
targeted for the international timber trade. One such species is Ramin
(Gonystylus spp.), imported to the U.S. for picture and futon frames,
moldings, pool cues and other products.
In 2001, the Indonesian government identified Ramin as being so
threatened by the illegal practices of powerful timber barons that it
turned to the international community for help and banned all export of
the species through the Convention on International Trade in Endangered
Species (CITES) effective on August 6th, 2001. Selective illegal
logging of high value export species like Ramin is often the first step
leading to forest clearance, as the tracks and roads built to access
and remove the timber become entryways for further illegal cutting,
hunting and burning.
Other than for a small amount of wood originating with a company in
Sumatra which has been certified as sustainable, no Ramin has been
granted an export permit by the Indonesian government since December
31, 2001. Ramin is also found in lesser amounts in Malaysia, but all
shipments of Ramin entering the U.S. now require CITES permits and
Certificates of Origin.
In January 2002, more than five months after Indonesia banned the
export of Ramin, Singapore added Ramin to Schedule II of its Endangered
Species (Import and Export) Act, which implements CITES commitments in
Singapore. The extent of continued smuggling in the species shows that
Singapore has failed to enforce its own environmental legislation, as
required by the U.S.-Singapore Free Trade Agreement, allowing
Singaporean companies to reap significant profits in the process.
Singapore's $3 Million of Illegal Ramin Exports to the U.S.
EIA compared data on U.S. Ramin imports obtained from the U.S.
Department of Commerce commercial ``Port Import Export Reporting
Service'' (PIERS) and CITES permits for Ramin obtained under the U.S.
Freedom of Information Act on U.S. for a ten month period between
September 2001 and July 2002.\4\
---------------------------------------------------------------------------
\4\ PIERS imports data and FOIAed CITES permits from USMA.
---------------------------------------------------------------------------
The data revealed that the U.S. imported at least 324 shipments
containing products made of Ramin between September 2001-July 2002 with
a total declared value of approximately $11,388,746.\5\ This can be
expected to be a fraction of total Ramin imports to the U.S. since it
only includes shipments labeled as `Ramin,' while many are labeled only
by their product name.
---------------------------------------------------------------------------
\5\ Ibid.
---------------------------------------------------------------------------
167 of these 324 shipments (51.5 percent of the total), either
originated in Singapore, or used Singapore as a trans-shipment point.
Of the 167 Singaporean shipments, 80 percent (or 134 shipments) valued
at just over $3 million did not have any CITES permits or
documentation.
PIERS data records over 600 cubic meters of Ramin products arriving
in U.S. ports that originated in Singapore between August 2001 to June
2002.\6\ U.S. Customs, however, did not have a single Singaporean CITES
permit on file for Ramin imports occurring between September 2001 and
July 2002.\7\ PIERS data further recorded 30 Ramin shipments from
Indonesia worth US$ 700,000, that entered the U.S. after passing
through Singapore--all without CITES permits.
---------------------------------------------------------------------------
\6\ Ibid.
\7\ Ibid.
---------------------------------------------------------------------------
The Role of Singaporean Timber Companies in Illegal Trade
EIA and Telapak have undertaken numerous investigations in
Singapore, Malaysia and Indonesia over the past five years and have
gathered extensive information which demonstrates the central role
Singapore plays in the illegal timber trade throughout Southeast Asia
and globally. The most recent investigation in April 2003 detailed some
of the particular smuggling mechanisms.
Timber processors, traders and agents located in Singapore act as
the key enablers of the region's illegal timber trade. More than 150
companies are registered on the Singapore Yellow pages as timber
importers and/or exporters. The majority are based in Kranji and the
industrial estate of Sungei Kadut in the north of the island.
In April 2003, EIA undercover investigators conducted telephone
surveys and visited import/export companies in the Sungei Kadut area.
During a visit to one such company, two managers explained their
smuggling methods on hidden camera. They called themselves `mafia' and
`smugglers' and one proclaimed that `drug smuggling (is) no good, but
timber (is) okay.' He was counting upwards of US$ 10,000 in cash at the
time. They explained the following smuggling strategies:
L`Illegal payments' (in their words) are made to obtain
permits that are accepted by Singaporean Customs.
LPermits for 100 tons are used to smuggle in up to 500
tons of Ramin per shipment into Singapore.
LThe Ramin is moved out of Free Trade Zones and kept in
storage in containers.
LHe exports three to five containers per month to China
under a false species name, where it is processed and about one-third
shipped to the United States.
Singapore's Porous Free Trade Zones
EIA and Telapak have identified the most common entry points of
smuggled Ramin to be small landing sites within Singapore's Free Trade
Zones (FTZs). Traditional vessels, mostly from Indonesia, dock at
certain locations amidst supertankers and industrial cargo ships, and
unload their cargo onto trucks using mobile cranes. It is then driven
out of the Free Trade Zone to mills or agents who then arrange to ship
it to the world market.\8\
---------------------------------------------------------------------------
\8\ EIA and Telapak Internal Reports. 2002, 2003.
---------------------------------------------------------------------------
The intent of the five FTZs in Singapore is to allow for trade with
a minimum of regulation. The rationale is that they are secure and
distinct from Singapore proper and therefore can be excused from
national regulations without negative consequences. Evidence, however,
suggests otherwise.
In October 2002, a tip-off alerted Singaporean CITES Management
Authority that a large shipment of Ramin had been collected in a
warehouse on the same street as the company described above.
Authorities found 120 tons of Ramin without CITES permits, the result
of six separate shipments, each having avoided Customs on different
occasions. The known entry point of these shipments is in Jurong Port,
one of Singapore's 5 Free Trade Zones. Somehow the six illegal
shipments, each of approximately 20 tons, avoided Customs in this area
and reached the heart of the sawmill district in the North of the
Island. This seizure is the only Ramin seizure made to date by
Singaporean authorities.
EIA and Telapak visited this site in April 2003 and immediately
encountered a shipment of approximately 20 tons of sawn Ramin timber
being unloaded from a wooden ship flying an Indonesian flag and manned
by Indonesian sailors. When Singaporean CITES officials present asked
for a permit, the captain produced a document that purported to show
the timber was from Malaysia, and the shipment was allowed to continue.
The Indonesian flag and crew and the low quality of wood, however, are
strong indicators that this was also an illegal shipment from
Indonesia.
The U.S. requires CITES listed species or products in transshipment
to be accompanied by CITES permits. In contrast, Singapore Customs
policy does not require any Customs permit for goods which are
``discharged along wharves directly into a Free Trade Zones (sic).''
\9\ Recent EIA investigations have shown such FTZs to be porous at
best. Lax transshipment regulations and insecure FTZs allow protected
species like Ramin, African elephant ivory, tiger bone, and endangered
parrots to be shipped through Singapore without regulation, control or
enforcement by the Singaporean authorities and questions
---------------------------------------------------------------------------
\9\ Customs PM 001.74.08. Circular No. 4/98. Issued February 28,
1998. Available online at: www.gov.sg/customs. (See also: ``Singapore
Customs Policy Overview'' available online at: www.gov.sg/customs.)
---------------------------------------------------------------------------
Batam and Bintan
The Integrated Sourcing Initiative (ISI) of the U.S.-Singapore Free
Trade Agreement allows another country to benefit from what should be a
bilateral agreement. In the case of the U.S.-S FTA, some 100 items of
information technology products produced on the Indonesian islands of
Batam and Bintam will be allowed to benefit from the provisions of the
FTA. Products produced on these Indonesian islands will be considered
as originating in Singapore.
Other countries have already seen the potential advantages that the
FTA confers upon products produced on Bintam and Batam. Chairman of the
Batam Industrial Development Authority (BIDA), Ismeth Abdullah, has
stated that following the U.S.-S FTA signing on May 6th, companies from
other countries like South Korea, Japan, and Taiwan had also expressed
interest in investing in Batam and Bintam.\10\
---------------------------------------------------------------------------
\10\ ``U.S.-Singapore Trade Pact Good News for Indonesia.'' The
Jakarta Post. May 12, 2003.
---------------------------------------------------------------------------
Currently the FTA leaves open the possibility of other products and
countries being included under ISI provisions. This comes at a time
when customs enforcement capacity is overwhelmed by smugglers
obfuscating the origin of their products, and ships have been seized
leaving Batam with large shipments of illegal wood (see timeline
below).
Transparency
Singapore distinguishes itself regionally by refusing to release
data that may point to the questionable trading practices of
Singaporean companies. Singapore recently drew the ire of Indonesia
when it refused to fully release trade statistics between the two
nations. Although Indonesia is estimated to be the sixth largest
trading partner with Singapore, it is omitted from the list of 149
trade partners in the Singapore Trade Statistics. The trade data that
had previously been released point to a great discrepancy between
Indonesian and Singaporean records. Singaporean statistics estimated
non-oil imports from Indonesia to be $7.41 billion, while Indonesian
numbers put the value at $4.6 billion.\11\
---------------------------------------------------------------------------
\11\ ``Discrepancies in RI-Singapore Trade Figures Seen as a Result
of Smuggling.'' The Jakarta Post. June 12, 2003.
---------------------------------------------------------------------------
Analysts in the Indonesian press have said that the Singaporean
government is purposely keeping the real trade data a secret to protect
``certain vested interest groups'' that have continued contraband trade
with the country, including Indonesian military figures.\12\
---------------------------------------------------------------------------
\12\ Ibid.
---------------------------------------------------------------------------
``Conflict Timber''
The province of Aceh, Indonesia has been beset by violent and
bloody conflict for the last twenty some years. An Aceh independence/
separatist movement led by the Free Aceh Movement (GAM) has tangled
with the Indonesian military (TNI) in increasingly bloody battles, the
most recent during the military state imposed by President Megawati a
little over a month ago. Both GAM and TNI have, in the past, funded
their efforts against each other through illegal logging, drug running
and prostitution.\13\
---------------------------------------------------------------------------
\13\ ``Black Economy Threatens Aceh Peace.'' The Jakarta Post.
March 25, 2003.
---------------------------------------------------------------------------
Past EIA investigations have documented the damage caused by
illegal logging in the Leuser ecosystem and National Park, in Aceh and
parts of Northern Sumatra. Indications are that trade of illegal timber
may be continuing despite the current battles raging in Aceh, as the
Jakarta Post reported that ships going to and from Singapore and
Malaysia (just over the Straits) are allowed to continue their
lucrative trade with Aceh.\14\ Ships carrying illegal logs from the
Leuser ecosystem have already been intercepted several times after
leaving Acehnese ports (see timeline below).
---------------------------------------------------------------------------
\14\ ``Sea Traffic Unaffected by Closure of Aceh Waters.'' The
Jakarta Post. June 5, 2003.
---------------------------------------------------------------------------
Currently, Singapore offers excellent conditions for `cleansing'
such timber of its origins and shipping it to the U.S. A free trade
agreement without provisions to address illegal and conflict timber
will make these conditions even more enticing.
Recent Examples of Singaporean Involvement in Illegal Timber Trade
The following are some recent examples of Singapore's role in the
international smuggling of illegally cut timber. This is only a partial
list of available information in the public domain from a vast array of
published sources.
LApril 2003: Singaporean company offers EIA and Telapak
undercover investigators smuggled Ramin from Indonesia and explains how
illegally obtained permits for small amounts of the wood are used as
cover to smuggle in as much as five times the amount. The wood is then
shipped to China under false names, where it is processed and a portion
is shipped to the U.S.\15\
---------------------------------------------------------------------------
\15\ EIA and Telapak Internal Reports. 2002, 2003.
---------------------------------------------------------------------------
LFebruary 2003: Singapore flagged and owned vessel Qing
Ann was detained off Aceh carrying 4,500m3 of illegal logs.\16\
---------------------------------------------------------------------------
\16\ Ministry of Forestry official, pers.comm., 2003.
---------------------------------------------------------------------------
LEarly 2003: Singapore flagged and owned vessel, Asean
Premier, detained near Sorong, West Papua, with illegal merbau logs.
Still under detention.\17\
---------------------------------------------------------------------------
\17\ Ministry of Forestry, 2003.
---------------------------------------------------------------------------
LDecember 2002: Indonesian navy seizes 44 containers of
illegal wood from a barge in the waters off Belakang Padang in Batam
island, Riau province--twenty kilometers across the water from
Singapore.\18\
---------------------------------------------------------------------------
\18\ Antara, 14th Dec 2002.
---------------------------------------------------------------------------
LDecember 2002: Indonesian armed forces seize three ships
in waters off Karimun island in Riau carrying 225 tons of illegal
processed wood including Kempas. The ships, the KM Sinar Belaras, KM
Fendi Indah, and KM Kayu Lestari II, had come from the Sumatran
mainland and were carrying the wood to Singapore. A fourth ship evaded
capture and escaped to Singapore.\19\
---------------------------------------------------------------------------
\19\ Riau Post, 31st Dec 2002.
---------------------------------------------------------------------------
LOctober 2002: Indonesian Navy seizes tugboats carrying 85
containers of illegal processed bengkirai timber in Riau. The wood was
estimated to be worth more than U.S. $9 million. The ships were on
their way to Singapore.\20\
---------------------------------------------------------------------------
\20\ Jakarta Post, October 2002.
---------------------------------------------------------------------------
LOctober 2002: Singaporean authorities seize 120 tons of
Ramin from a Singaporean timber importer which had been imported
without CITES permits.\21\
---------------------------------------------------------------------------
\21\ Pers.Comm.--AVA CITES Management Authority, Singapore, April,
2003.
---------------------------------------------------------------------------
LOctober 2002: Two Singaporean timber companies openly
admit to smuggling Ramin from Indonesia to Singapore and re-exporting
it to the U.S. and Europe without CITES permits.\22\
---------------------------------------------------------------------------
\22\ EIA internal investigation.
---------------------------------------------------------------------------
LJune 2002: Customs agents in Batam, an Indonesian island
to be included in the FTA under the ISI, seize two more ships carrying
illegal sawn Ramin and destined for Singapore. The two ships were
carrying a total of 105m3 of sawn Ramin.\23\
---------------------------------------------------------------------------
\23\ Ibid.
---------------------------------------------------------------------------
LJune 2002: 75 tons of Ramin and 130 tons of other wood is
seized by the Indonesian navy from three ships in waters off Batam
island, near Singapore.\24\
---------------------------------------------------------------------------
\24\ Ibid.
---------------------------------------------------------------------------
LJanuary 2002: The Singapore owned vessel Ever Wise
escaped detention off Sorong, Indonesia and was subsequently arrested
in China. Fake documents were found for illegal shipment of Ramin.\25\
---------------------------------------------------------------------------
\25\ Indonesian Ministry of Forestry, 2002.
---------------------------------------------------------------------------
LJanuary 2002: The Singapore owned vessel Sukaria was
detained off Sorong carrying a shipment of merbau. It was subsequently
released without explanation.\26\
---------------------------------------------------------------------------
\26\ Indonesian Ministry of Forestry, 2002.
---------------------------------------------------------------------------
LDecember 2001: A Kompas news article quotes Djoko
(Chairman of East Kalimantan MPI--a timber industry association) saying
that ``the wood industry in Jakarta is importing Ramin from Singapore
which has no Ramin forest.'' He states illegal Indonesian Ramin is
being smuggled to Singapore, legalized and shipped back to wood product
factories in Indonesia.\27\
---------------------------------------------------------------------------
\27\ Kompas, December 2001.
---------------------------------------------------------------------------
LNovember 2001: Singapore flagged and owned vessel
Mandarin Sea was detained off Central Kalimantan, carrying 12,000m3 of
illegal logs. Linked to Tanja Lingga, implicated in illegal logging in
Tanjung Puting National Park.\28\
---------------------------------------------------------------------------
\28\ ``Above the Law.'' EIA Report 2002.
---------------------------------------------------------------------------
LMarch 2001: 100 tons of processed illegal Ramin intended
for Singapore was seized by Riau police aboard two boats. Two boat
captains were arrested. One of the captains states 45 boats go back and
forth to Singapore each day carrying processed timber, which would
suggest traffic of 100,000 cubic meters a month.\29\
---------------------------------------------------------------------------
\29\ Gamma, May 1, 2002; Riau Pos 31st Dec 2002.
---------------------------------------------------------------------------
LAugust 2000: A cargo ship was stopped by Indonesian
authorities off the coast of Riau province in Indonesia, on its way to
Singapore, with illegally sourced Meranti.\30\
---------------------------------------------------------------------------
\30\ Jakarta Post, August 19, 2000.
---------------------------------------------------------------------------
LAugust 2000: An NGO investigation discovered barges being
loaded with illegal Ramin in Kuala Gaung in Riau province, where there
were no legal concessions. The barges bear the logo of a Singaporean
company.\31\
---------------------------------------------------------------------------
\31\ Pers. comm. Hakiki, February 2001; KEA website.
---------------------------------------------------------------------------
LMay 2000: Indonesian port officials forced by local
activists to order a cargo ship bound for Singapore back to Pontianak,
Indonesia. Only seven out of the 42 containers of timber onboard had
proper documentation.\32\
---------------------------------------------------------------------------
\32\ Jakarta Post, May 23, 2000.
Statement of Dan Stein, Federation for American Immigration Reform
Summary
The Singapore and Chile Free Trade Agreements (FTAs), if they enter
into force, contain provisions that will preclude the adoption of
needed legislative changes in the operation of intra-company transfers
(L-1 visas) program. The issue at stake is the FTA's restrictions on
correcting abuses in the L-1 visa program. At present, this visa
category is being used to sacrifice U.S. jobs to foreign workers. The
abuse has been growing, and it has contributed to a record level of
unemployment for U.S. high-tech workers. FAIR considers that this
provision of the FTAs is so harmful that Congress should reject the
Singapore and any other FTA with similar provisions and require the
Administration to renegotiate them to retain flexibility for Congress
to amend the law to protect U.S. jobs from this abuse.
Background on the L-1 Visa Program
The intra-company transfer provision of the immigration law is a
longstanding visa category designed to allow transnational firms,
whether U.S. or foreign, with operations both in the United States and
abroad to exchange personnel on a temporary basis. The primary impetus
for the program was to allow for the mobility of management personnel,
but the program also provides for personnel with ``specialized
knowledge'' of the company's operations. Visas issued under this
category are valid for seven years for management and supervisory
personnel and for five years for technical staff.
The number of these L-1 visas issued has been steeply rising in
recent years. During the late 1980s and early 1990s, the number of
visas was between 60-70,000 per year. Then during the 1990s, the number
of visas began to surge: 1992--75,315; 1994--98,189; 1996--140,457;
1998--203,255; 2000--294,658. In 2001, the last year for which the INS
(now DHS) has released statistics, the number of L-1 visas issued was
328,480. This meteoric rise in L-1 visa issuance highlights the fact
that at present there is no limit on the number of these visas that can
be issued in a given year.
Increasingly, according to news accounts, (see ``Special Visa's Use
for Tech Workers is Challenged,'' New York Times, May 29, 2003) the
intra-company transfer L-1 visa is being used to bring high-tech
workers to do U.S. jobs similar to the temporary worker H-1B visa
program that currently is capped at 195,000 visas per year. However,
unlike the H-1B visa, the L-1 visa does not require that the employer
pay the worker in the U.S. the prevailing wage for the type of work
being performed. That means that a subsidiary of a company
headquartered in India, for example, can transfer its employees who are
computer programmers to a subsidiary incorporated in the United States
and continue to pay the workers Indian wage rates while they may be
doing subcontract work for a U.S. company, such as Intel. Thus the
Indian subcontractor can underbid a competitor paying prevailing wages,
and Intel can lay off higher paid U.S. computer programmers.
Another difference between the H-1B visa program and the L-1 visa
program is that reforms adopted in 2000 provided that companies that
are ``H-1B dependent,'' i.e., that have a significant share of their
total workforce composed of these foreign temporary workers, must make
attestations that they have attempted to hire U.S. workers and that
they had not and would not lay off any American workers in the near
term to replace them with foreign workers. This provision was estimated
to apply to only about 50 employers in the country. Even this minimal
protection for U.S. workers is absent from the L-1 visa program.
Because of the growing size of the L-1 visa program and the growing
use of it to take the jobs of U.S. workers, who often have been
required by their employers to train their foreign replacements, and
because of the fraud in the program noted by the General Accounting
Office three years ago, Rep. John Mica has introduced legislation (H.R.
2154) to reform the L-1 visa program. Other Members, such as Rep. Peter
DeFazio, have also publicly expressed their concern with regard to the
operation of the visa program.
Effect of the Singapore and Chile Free Trade Agreements
On May 6, 2003, President Bush signed the Singapore FTA as an
Executive Agreement. As it is not a treaty, it does not require Senate
ratification and will go into effect unless Congress initiates action
disapproving the agreement.
The Singapore FTA currently before this body for its consideration
contains provisions that relate to both the H-1B temporary worker visa
program and the L-1 intra-company transfer visa program. We have been
told that the Chile FTA which has been negotiated and is due to be
signed this month, includes similar provisions. Annex 11A, Section III
(2) of the Singapore FTA (dealing with Intra-Company Transferees)
states as follows:
A Party shall not:
a. Las a condition for temporary entry under paragraph 1, require
labor certification tests or other procedures of similar effect; or
b. Limpose or maintain any numerical restriction relating to
temporary entry under paragraph 1.
This section has the effect of diminishing the ability of Congress
to abolish or significantly restrict the program, if it should decide
to do so because the L-1 visa program creates unfair competition for
U.S. workers. Specifically, the agreement language precludes the
adoption of a labor market test as to whether U.S. workers with similar
qualifications are available to fill the job, and it bans the adoption
of any numerical limit on the program, such as the one for the H-1B
visa program. A provision similar to the restriction on amending the L-
1 program is contained in Annex 1603 of the NAFTA agreement. It seems
clear that unless Congress acts to oppose this restriction on its
ability to amend these programs to protect U.S. jobs, U.S. trade
negotiators will agree to an unending stream of similar restrictions on
Congressional legislative action.
Although the FTA applies only to operations between Singapore and
the United States, the existence of this permanent freezing of the
current harmful provisions of the L-1 visa represents a major obstacle
to efforts to reform the visa program. Foreign companies could easily
establish a subsidiary in Singapore--or in Chile, or in Central
America, where current negotiations may result in similar agreements--
to make use of the provision even if Congress were to decide to change
the visa program by, for example, establishing a numerical limit, or
including a labor certification test to assure that the program not be
used to replace U.S. workers.
In contrast to the effect of the FTA in locking into place the
current no-holds-barred provisions for the L-1 visa program, the
Administration carefully provided for the ability of Congress to
tighten protections for U.S. workers from the operation of the H-1B
visa program. By an exchange of letters dated May 6, 2003, the U.S.
notified Singapore that, ``The United States intends to require all
business persons seeking entry as professionals to the United States
under the terms of the Agreement to present an attestation of
compliance with certain labor and immigration laws from an employer in
the United States.''
FAIR's Position
FAIR strongly believes that the L-1 visa program needs to be
significantly amended along lines that are specifically proscribed by
the Singapore FTA--and the Chile FTA, as we understand it. It,
therefore, would constitute a hindrance to that reform effort for the
Congress to accede to the Singapore FTA as it is currently written.
Accordingly, FAIR requests that this Committee act to deny accession to
the Singapore FTA and to instruct the Administration to renegotiate the
portion of the agreement concerning intra-company transfers or simply
to delete that section.
Statement of High-Tech Trade Coalition
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 more than a trillion dollars
to the global economy in 2002, according to a recent study conducted by
IDC for the BSA. In fact, in the U.S. alone, the IT industry
contributed 2.6 million jobs and more than $400 billion to the U.S.
economy, generating $342 billion in tax revenues in 2002.
Over 50 percent of revenues for most of the leading U.S. high
technology companies are generated outside the U.S. 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
tariff-free high-tech products, facilitates barrier-free e-commerce and
growth of the information technology services sector.
The Singapore and Chile FTAs significantly advance the
establishment of strong intellectual property protection, tariff-free
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 to the American high-tech industry of Congressional
approval of the Trade Promotion Authority (TPA) cannot be
overestimated. The TPA legislation set the standard of strong IP
protection and trade liberalization among our trading partners in all
trade contexts including FTAs, FTAA 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 trading partners.
Intellectual Property (IP) Provisions in Singapore and Chile FTA:
For the high-tech industry, strong intellectual property protection
is essential to foster continued innovation and investment. This is
particularly important as copyright infringements and software piracy
cost the industry $13 billion in lost revenues in 2002.
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--48 percent in Singapore and 51 percent in Chile,
costing the industry $32 million in Singapore and $45 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 and Chile FTAs
generally set out among the highest standards of protection and
enforcement for copyrights and other intellectual property yet achieved
in a bilateral or multilateral agreement, treaty or convention.
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:
LProvisions 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.
LRequirements 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.
LThe application of the reproduction right of a copyright
owner to permanent as well as temporary copies.
LRecognition 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.
LObligating governments to lead by example by using only
legitimate and licensed software.
As the landscape of international copyright policy continues to
evolve, a relatively new issue has emerged on the international scene
that could have an impact on American high-tech exports. 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. We hope that the use
of levies will not be encouraged through future trade agreements.
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 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.
We are quickly moving to a world where online distribution is the
predominant way software is acquired and used. According to a BSA CEO
study, by 2005, 66 percent of all software is expected to be
distributed online. This will create 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.
LIn 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.
LBoth 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.
LWith 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.
LThe parties also agreed to cooperate in numerous policy
areas related to e-commerce, further advancing the work on e-commerce
with our trading partners.
Information Technology: Tariff Measures
The Uruguay Round agreements on tariff reduction, and the
subsequent Information Technology Agreement (ITA) within the WTO, has
made significant contributions by addressing the issue of barriers to
trade created by high tariffs. Tariffs on information technology
products are still very high in some countries, creating a substantial
impediment to trade.
In order to foster a barrier free trade environment, it is critical
that our trading partners sign and implement the ITA or its equivalent.
It is essential that our trading partners eliminate or phase out
existing tariffs applied to information technology products since
tariffs act as a counterproductive burden that raises the cost of the
very technology needed to be competitive in the digital economy.
In both FTAs, Singapore and Chile have agreed to liberalize tariff
barriers. Singapore is already a signatory to the ITA. Chile, which is
not a signatory to the ITA, has agreed to eliminate tariffs on most
high-technology products within the next 4 years. The tariff reduction
measure in the Chile agreement also sets an important precedent for the
Free Trade Area of the Americas (FTAA), which would significantly
increase the high-tech industry's ability to export its products to
Brazil, one of the largest markets for technology products in Latin
America.
Finally, both agreements have made important commitments in the
areas of customs administration, technical barriers to trade and
transparency as well as in the area of telecommunication services. All
of these provisions will help facilitate the cross-border flow of high-
tech products and services, making our companies more competitive.
In conclusion, the U.S. free trade agreements with Singapore and
Chile set new benchmarks in progress toward the promotion of strong
intellectual property rights protection, full liberalization of trade
in information technology services and barrier free e-commerce as well
as tariff elimination among our trading partners. In these agreements,
new baselines have been set that should lead to significant market
opportunities for the U.S. high-tech industries in the years ahead. We
commend the achievements made in both agreements and we strongly
support their passage in Congress.
Statement of National Association of Manufacturers
The National Association of Manufacturers (NAM) strongly supports
rapid approval by the House and Senate of the recently signed free
trade agreements (FTAs) with Chile and Singapore. Both agreements
provide concrete market-opening benefits for U.S. manufacturers,
establish world-class precedents for promoting U.S. investment,
intellectual property rights and other key disciplines, and boost
momentum for further progress in other bilateral, regional and
multilateral trade negotiations.
The NAM represents 14,000 U.S.-based manufacturing companies,
including 10,000 small and medium enterprises. The NAM views the
pursuit of trade-liberalizing agreements under Trade Promotion
Authority to be in the national interest of the United States and in
the economic interest of its members. Given the general openness of the
U.S. market, trade negotiations should be pursued aggressively to level
the playing field by knocking down tariffs and other non-tariff
barriers that help keep U.S. manufactured exports out of foreign
markets.
The U.S.-Singapore FTA
Singapore's applied tariffs on the vast majority of industrial
goods are already at zero. However, Singapore's legally bound WTO
tariff rates for some sectors are greater than zero. The FTA binds
Singapore's bound rates at zero, a measure that the NAM views as highly
desirable because it ensures that Singapore's tariffs on U.S. exports
cannot be raised in the future.
Most U.S.-Singapore trade is in high technology sectors, and almost
two-thirds of the trade is intra-company trade. U.S. companies have
over $24 billion invested in Singapore, and U.S. firms in Singapore
account for 60 percent of total U.S. manufacturing investment in all of
Southeast Asia. Furthermore, U.S. investors purchase over 40 percent of
all U.S. exports to Singapore. The heavy presence and critical role of
U.S. manufacturing investment in Singapore are two significant reasons
why the U.S.-Singapore Free Trade Agreement, with its strong investment
protections, merits approval.
Another reason is that the Singapore agreement will be seen by all
as a precedent for future FTAs in Asia. As Singapore is the most free-
trade-oriented country in the region, the agreement's provisions are
excellent, and provide a robust template for future agreements in the
region. This includes the investment chapter, which can be put forward
as a template in future negotiations with other Asian countries that
demonstrate much less respect for investors' rights in their laws and
practice than does Singapore.
The NAM also applauds the very high standards the Singapore FTA
sets with regards to competition policy. Singapore is committed to
enact laws regulating anti-competitive conduct and to create a
competition commission by January 2005. Because Government-Linked-
Corporations (GLCs) carry out about half of Singapore's economic
activities, the incorporation of an enforceable requirement ensuring
that the GLCs will operate on a commercial, nondiscriminatory basis
represents a tremendous advance. This is so, not because Singapore GLCs
have abused their authority in the past, but because of the need to
ensure openness into the future and to set a strong precedent for FTAs
with other countries.
The U.S.-Chile FTA
Unlike Singapore, Chile currently maintains a six-percent across-
the-board uniform tariff on imports. A principal reason the NAM
strongly backs the Chile FTA is that it will remove that tariff on 85
percent of U.S. industrial and consumer goods upon the first day of the
agreement's implementation. Other tariffs on industrial goods are
removed within four years.
The NAM views the front-loading of industrial tariff cuts as
critical to restoring a level playing field in the competition for the
Chilean import market. This is because we strongly believe that U.S.
exports are currently being displaced in Chile, as Chilean buyers
switch away from U.S.-made products and increasingly buy goods from
suppliers in countries with which Chile has free trade agreements. The
proposed U.S. free trade agreement with Chile could reverse this
troubling trend.
The United States has lost more than seven percentage points of the
Chilean import market since 1997--nearly one-third of America's share
of the Chilean market. Until 1997, U.S. products were highly
competitive in Chile and captured a growing share of Chile's import
market. After 1997, though, the U.S. share of Chile's imports went into
a sudden and sharp decline--dropping from 24 percent of the market to
less than 17 percent in 2002. The United States did not suffer a
similar loss in the rest of South America.
This drop resulted in the loss of over one billion dollars in
exports to Chile in 2002, at an annual rate. Countries entering into or
implementing trade agreements with Chile in 1997 showed a sharp nine-
plus percentage point gain in market share that more than offset the
U.S. loss. In the case of Chile, its agreements with countries such as
Argentina, Brazil, Canada, and Mexico have diverted major purchases
away from U.S. producers.
Using methodology developed by the U.S. Department of Commerce for
determining the labor content of U.S. exports, the more than one
billion dollar decline in U.S. annual sales to Chile represents the
loss of over 12,500 American job opportunities. With the Chile-European
Union free trade agreement's entry into effect on Feb. 1, 2003, both
the figures mentioned above are sure to rise dramatically--unless the
U.S. Congress quickly approves the U.S.-Chile free trade pact.
Positive Aspects of Both Accords
In addition to the areas highlighted above, both the Chile and
Singapore FTAs contain cutting-edge, 21st century disciplines with
respect to customs facilitation, government procurement, intellectual
property, electronic commerce, transparency and dispute settlement
procedures. The NAM endorses the way these provisions comport with the
congressionally mandated TPA negotiating objectives.
The message is clear: America needs to accelerate greatly its
efforts to enter into and successfully conclude trade agreements that
will reduce barriers to U.S. exports and level the playing field for
American firms. The prospective gains in this win-win situation are
huge all around, and the first step in the right direction is
congressional approval of the U.S.-Singapore and U.S.-Chile free trade
agreements.
Statement of National Electrical Manufacturers Association, Rosslyn,
Virginia
The National Electrical Manufacturers Association (NEMA) is a firm
supporter of the U.S.-Chile and U.S.-Singapore Free Trade Agreements
(FTAs). Now that both Agreements have been signed, the U.S. electrical
industry strongly urges the U.S. Congress to use its fast-track trade
promotion authority procedures to quickly ratify them.
NEMA very much welcomes FTAs such as these that serve to expand the
benefits of trade liberalization to all parties, and we hope that these
FTAs set the course for the completion of many more market opening
accords, be they bilateral, regional, or multilateral.
The U.S.-Chile FTA
Chile may not be one of NEMA members' largest export markets, but
it is an important one nonetheless. Moreover, we have seen indications
that opportunities for U.S. electrical manufacturers to sell there have
been lost to other countries with whom Santiago has already concluded
FTAs.
This is why our industry is especially pleased with Chile's swift
elimination of its tariffs for most items in the NEMA product scope.
NEMA has testified before the International Trade Commission on behalf
of the Agreement and met on numerous occasions with representatives of
both governments. NEMA also took part in a business delegation that
traveled to Chile to meet with government and commercial leaders.
The U.S.-Singapore FTA
While trade between our two countries is already significant,
having an agreement in place will make an excellent commercial
relationship even better. In particular, while the Republic of
Singapore was already committed to tariff elimination, NEMA welcomes
the example the new agreement sets for immediate and guaranteed tariff
elimination for U.S. exports. The Agreement also contains useful
service provisions that will help our members chip away at the market
advantages enjoyed by the Republic's semi-public corporations.
Further, the FTA directs the U.S. and Singapore to seek to enhance
their cooperation on technical regulations, standards, and conformity
assessment procedures. In this respect, NEMA is also quite pleased that
U.S. negotiators heeded our request to not include an electrical
products mutual recognition agreement (MRA) in the larger FTA package.
Our industry supports MRAs for regulated electrical products such as
medical devices, but we oppose them for the majority of NEMA goods,
which are unregulated. MRAs are not the answer to conformity assessment
needs in non-regulated areas; if anything, they serve to encourage the
creation of unnecessary product-related regulation. (Ever since the
ill-fated electrical safety MRA with the European Union was concluded a
few years ago, the U.S. government has either excluded electrical
products from subsequently negotiated MRAs, or refused to sign on to
any such accords that include them.)
This is the first FTA between the world's largest economy and an
Asian country. With two-way trade totaling $32 billion in 2002,
Singapore is America's 11th largest trading partner. In 2002, U.S.
exports to Singapore of products within the NEMA scope of electrical
and medical imaging products exceeded $600 million. With the Agreement
scoring well on the NEMA Principles for FTAs (see above), we look
forward to further improvement in these marks.
About NEMA
NEMA is the largest trade association representing the interests of
U.S. electrical industry manufacturers, whose worldwide annual sales of
electrical products exceed $120 billion. Its mission is to improve the
competitiveness of member companies by providing high quality services
that impact positively on standards, government regulation and market
economics. Our 400 member companies manufacture products used in the
generation, transmission, distribution, control, and use of
electricity. These products, by and large unregulated, are used in
utility, industrial, commercial, institutional and residential
installations. The Association's Medical Products Division represents
manufacturers of medical diagnostic imaging equipment including MRT, C-
T, X-ray, ultrasound and nuclear products.
__________
NEMA Principles for FTAs
LImmediate tariff elimination
LNo mutual recognition agreements (MRAs) for non-
federally-regulated products
LEnergy services liberalization
LOpenness and transparency in government procurement
LProtection of intellectual property rights
LReduction in technical barriers to trade (TBTs) and
compliance with all world trade organization (WTO) TBT agreement
requirements
LInclusive definition of ``international standards''
LVoluntary, market-driven standards and conformity
assessment
LEffective monitoring and enforcement mechanisms
LFree trade benefits not encumbered by labor or
environmental provisions
LAs many other market opening measures as possible
Statement of Joe Damond, Pharmaceutical Research and Manufacturers of
America
PhRMA applauds the historic completion of two new bilateral free
trade agreements that break down trade barriers for competitive,
innovative American goods and services. These are the U.S.-Singapore
Free Trade Agreement (FTA) and the U.S.-Chile FTA. Both agreements
represent important milestones for their respective regions, and PhRMA
member companies are pleased to support them both.
PhRMA is the trade association representing America's leading
research-based pharmaceutical and biotechnology companies. Our members
are devoted to discovering and developing innovative medicines that
allow patients around the world to live longer, healthier and more
productive lives.
In the 20th century, breakthroughs in medical and pharmaceutical
science, such as antibiotics and vaccines, contributed to major
advances in human life expectancy, helping conquer diseases such as
polio, pneumonia and smallpox. Today, we are on the verge of a new era
in life sciences discovery, driven by unprecedented advances in
biotechnology, genomics and biomedical science. These discoveries hold
out the promise of effective new treatments for diseases, such as
cancer, arthritis, diabetes and AIDS, and new hope for millions of
patients around the world. The U.S. is a leader in global life sciences
innovation. In 2001, our industry invested more than $30 billion in
2001 in discovering and developing new medicines. As a result, PhRMA
companies are leading the way in the search for new cures for age-old
diseases, such as cancer, and effective treatments for new medical
challenges such as SARS.
The U.S.-Singapore Free Trade Agreement (FTA)
Singapore is a leader in Asian biomedical research and development;
maintains one of the most open trade and investment regimes in the
world; and is a strong proponent of science-based regulation of
pharmaceutical products. As a result, U.S. research-based
pharmaceutical companies have invested over $5 billion in Singapore. In
the last decade, Singapore has emerged as a key Asia-Pacific
manufacturing center for U.S. life sciences companies, the regional
corporate headquarters for many U.S. firms and an increasingly
important location for leading U.S. pharmaceutical companies to conduct
advanced biomedical research and global clinical trials.
PhRMA supports the U.S.-Singapore FTA because: (1) stronger
commercial ties between the United States and Singapore are in the
general interest of the private sector of both countries, (2) Singapore
has promoted positive, market-oriented and science-based policies in
support of this critical sector, and (3) the FTA advances further
Singapore's recognition of innovation in our sector, as well as a
transparent, science-based regulatory regime and strong intellectual
property protections, and is thus not only a good agreement, but it can
also serve as a model for other trade agreements in the Asia-Pacific
region.
Singapore's Positive Approach to the Life Sciences Sector
In Asia, Singapore has long been a visionary proponent of policies
to promote life sciences research, development and manufacturing. Years
ago, Singapore recognized the potential implications of the global
biotechnology revolution and took targeted steps to support the
emergence of a key knowledge-based technology. As a result, Singapore
is a leader in the Asian life sciences innovation, and it has attracted
substantial investments from leading U.S. and European research
pharmaceutical companies. These policies work to the benefit of
Singapore's economy, life sciences companies doing business in
Singapore and, even more importantly, Singaporean patients.
Recognition of Innovation
In contrast to some other Asian economies, Singapore has adopted a
generally market-oriented approach to health care pricing and
reimbursement. Indeed, Singapore has helped pioneer innovative health
care finance methods in the Asia-Pacific, including the use of medical
savings accounts. Singapore's policies with respect to the pricing of
pharmaceuticals recognize the value of innovation, and the Singapore
government has strongly supported advanced life sciences discovery as
part of its long-term economic strategy of developing knowledge-based
21st century technologies. Accordingly, market access barriers, such
abusive price controls, reference pricing, monopsonistic purchasing
practices, state-trading monopolies, unreasonable restrictions on
listings in government-established formularies, toleration of illegal
discounts and/or discounting practices that represent WTO-illegal
subsidies to local manufacturers, which were identified in Section
2108(b)(8) of the Trade Act of 2002 as key negotiating objectives, are
not an issue in Singapore. More importantly, Singapore's policies have
worked to ensure that Singaporean patients have access to high quality,
effective health care.
Science-based Regulatory Processes
PhRMA welcomes Singapore's strong commitment to biomedical
innovation and support for advanced biotechnology research.
Singapore's strong commitment to science-based drug regulatory
procedures, advanced life sciences research and adherence to the rule
of law is reflected in the HSA's policies and regulations.
1. LDrug Regulatory Procedures. Singapore's regulatory procedures
for the approval of new medicines are timely, transparent, non-
discriminatory, and based on generally accepted international
scientific standards.
2. LScience-Based Drug Regulatory Requirements. In general, the
Singapore HSA's regulatory requirements are consistent with global
scientific standards, such as the International Conference on
Harmonization (ICH). Decisions regarding product approvals are based
only on the HSA's assessment of quality, safety and efficacy.
3. LTransparency of Drug Approval Regulations. In general,
Singapore's pharmaceutical laws and regulations are transparent and are
formulated through procedures that provide: (1) for notice and comment
by interested U.S. stakeholders, (2) timely and effective opportunity
for U.S. stakeholders to submit comments, positions and views for due
consideration by the relevant authorities; and (3) timely and effective
opportunity for U.S. stakeholders to consult meaningfully with the HSA
and other relevant authorities and study groups regarding the
formulation of health care regulations and laws.
In short, the U.S.-Singapore FTA offers a new and enduring
foundation for implementing our shared vision for future health care
innovation in the Asia-Pacific. Singapore is an Asia-Pacific leader in
supporting advanced biomedical research, science-based regulation,
strong intellectual property rights protection and market-based
approaches to health care.
Improvements in the FTA
PhRMA is pleased that the FTA builds on Singapore's strong record
of support for our sector. In particular, we would like to draw
attention to two areas: Intellectual Property Rights (IPR) and
regulatory policy.
Intellectual Property Rights
At the outset, in commenting on the FTA in December 2000, PhRMA
noted that Singapore has strong intellectual property systems and has
implemented key obligations from the Uruguay Round Agreement on Trade-
Related Aspects of Intellectual Property Rights. We are pleased that
Singapore has taken additional steps in the FTA to improve recognition
of intellectual property rights, including data exclusivity and patent-
term restoration. We also welcome the new FTA provisions regarding
parallel importation, including provisions to respect the contractual
rights of patent holders and public health safeguards to ensure that
such parallel imports are subject to proper handling and a secure chain
of custody. Like many public health authorities in Asia and around the
world, we are concerned that rampant counterfeiting could lead to the
introduction of counterfeit drug products which pose serious public
health risks. The Singaporean public health safeguards, which are
modeled on those used by the FDA, would help to reduce this risk.
Life Sciences Working Group
The Medical Products Annex to the U.S.-Singapore FTA represents an
important breakthrough, which will formalize the already existing,
strategic partnership between the U.S. Food and Drug Administration
(FDA) and Singapore's Health Sciences Administration (HSA). The new
FDA-HSA Working Group on Medical Products will seek to ensure that
regulatory procedures for new drug approvals are: (1) expeditious,
transparent, without conflict of interest and non-discriminatory, (2)
based on the International Conference on Harmonization (ICH) and (3)
based only on product quality, safety and efficacy. It also seeks to
ensure that regulatory measures and policies continue to be developed
through a transparent process that provides for notice and comment by
interested parties and meaningful opportunities for consultation with
the HSA. PhRMA is pleased the Medical Products Annex recognizes HSA's
leadership role as the ``gold standard'' of science-based regulatory
policies in the Asia-Pacific region. It can serve as a model for other
Asian economies seeking to participate in the advanced life sciences
discoveries of the 21st century. We are pleased that the FTA recognizes
the important role of the ICH in establishing harmonized, science-based
regulatory procedures, which will facilitate global drug development
and accelerate the approval of new life-saving medicines around the
world. This is the first time that the FDA's strategic relationship
with a foreign regulatory authority has been incorporated in an U.S.
FTA, and it offers an unprecedented opportunity to strengthen a dynamic
FDA-HSA partnership that builds toward our shared vision of ICH and
transparent, science-based regulation.
The SARS epidemic underscores the importance of continuing to
invest in advanced biomedical research and development in Asia. SARS
also illustrates the challenges posed by new forms of life-threatening
diseases and the capability of many well-known human and animal viruses
to mutate suddenly into devastating threats to public health. The
development of a new cure is a protracted and costly process, which can
require nearly a decade of research and development, clinical testing
and regulatory approvals, and can cost over $900 million. Singapore's
regulatory and intellectual property regimes and longstanding support
for biomedical innovation are a vital pillar which can help support
innovative medical discovery in the Asia-Pacific.
The U.S.-Chile Free Trade Agreement (FTA)
PhRMA also strongly supports passage of the recently signed U.S.-
Chile FTA. The Chile Agreement represents an important breakthrough in
U.S. trade with our Latin American neighbors and trading partners. In
the 1980s, Chile helped pioneer free market reforms and open trade
policies in Latin America. Chile's performance has been impressive in
nearly every economic and social area. Today, it represents a worthy
partner for America's first free trade agreement in the region. It will
be particularly valuable in ensuring that Chile, a long-time leader in
economic reform, meets or exceeds minimum international standards for
protection of intellectual property rights. Protection of intellectual
property is a necessary precondition for sustainable economic
development and growth.
Overall, the Chile FTA is a strong agreement, providing several
important benefits for the research-based pharmaceutical industry,
particularly in the area of intellectual property rights. The new FTA
obligations build on TRIPS by strengthening patent, trademark,
copyright, test data protection and adherence to intellectual property-
related treaties.
Data Protection Provisions
The data protection obligations strengthen existing WTO data
protection for products that require the submission of undisclosed
safety and efficacy information to regulatory authorities. The FTA
builds on TRIPS Article 39.3 by clarifying that data protection bars
unfair commercial use of test data (i.e., by refusing to grant drug
approvals on the basis of the pioneer approval for at least five years,
consistent with U.S. law and practice).
Patent Protections
The intellectual property chapter also clarifies protections for
patented pharmaceutical products, with important provisions including:
1. LThat the parties may not approve any third party request for
marketing approval for a pharmaceutical product that is subject to a
patent (``linkage'').
2. LThat the parties must make available an extension of the patent
term to compensate the patent owner for unreasonable curtailment of the
patent term as a result of the marketing approval process, consistent
with the U.S. Hatch-Waxman Amendment.
3. LThat Chile must introduce legislation to make patents available
for plant inventions within four years of the date of implementation of
the Agreement.
Trademark Provisions
The Agreement includes a new provision that specifically prohibits
a party from imposing special restrictions on the use of a trademark
relative to the generic name of a product to which the trademark
pertains. The language significantly strengthens the general obligation
in TRIPS that prevents Members from adopting legislation or practices
that interfere with the legitimate use of trademark rights.
Other Provisions
Under the terms of the Agreement, Chile must implement the 1991 Act
of the UPOV Convention (concerning protection of new plant varieties)
by January 1, 2009 and the Patent Cooperation Treaty by January 1,
2007. These accession obligations have a deadline that is distinct from
the general two year implementation period provided for most of the new
obligations. We welcome Chile's commitments to strengthen intellectual
property rights for pharmaceuticals and for other American knowledge-
based products.
Conclusion
PhRMA views both Singapore and Chile as important trading partners,
strongly committed to open trade and investment policies, and leaders
in multilateral and regional trade liberalization. With the completion
of these historic agreements, we are pleased that the final U.S.-
Singapore FTA and U.S.-Chile FTA both incorporate high commercial
standards and sets an appropriately high benchmark for future U.S. free
trade agreements in their respective regions. We are hopeful this
agreement can serve as a precedent for future improvements in
recognition of biomedical innovation, transparency, protection of
intellectual property rights and science-based regulation of medical
products, including pharmaceuticals, in FTAs with Australia, Central
America, Morocco and other key U.S. trading partners. The U.S.-Jordan
FTA has already created additional growth overall and in the local
pharmaceutical sector with growth of exports of approximately 30%, and
it provides compelling new data for the positive development impact of
strong intellectual property standards for developing countries (See
Appendix 1). As in Jordan, these and future FTAs will expand trade in
biomedical products, but even more importantly, they will improve
access by all patients to advanced life-saving medicines, support
worldwide advances in medical treatment and lead to the discovery and
development of innovative new cures for age-old diseases, such as
Alzheimers, diabetes, cancer, cardiovascular, HIV/AIDS, and for
devastating new epidemics, such as SARS.
Software & Information Industry Association
Washington, DC 20005
June 20, 2003
The Honorable Philip M. Crane
Chair, Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Crane and Ranking Member Levin,
On behalf of the members of the Software & Information Industry
Association (SIIA), I am writing to express our strong support for the
Singapore and Chile Free Trade Agreements.
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--software companies, ebusinesses, and
information service companies, as well as many electronic commerce
companies--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.
SIIA is also an active member of the High-Tech Trade Coalition, a
group of the leading high-tech trade associations representing
America's technology companies.\1\ We applaud the Administration for
its work in reaching these Agreements. 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.
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\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.
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As detailed below, the Singapore and Chile Agreements offer many
potential benefits to the U.S. and chart a unique approach to
preventing barriers in international digital trade. We urge
implementation of these Agreements as soon as possible, and we 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 U.S. trade negotiators in all
negotiations:
LPromote the development of a domestic and global
infrastructure that is necessary to conduct eCommerce while avoiding
barriers that would hinder such development;
LPromote full implementation of existing commitments and
seek increased liberalisation for all basic telecommunications, value-
added and computer and related services;
LPromote the development of trade in goods and services
via eCommerce; and
LPromote 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 to 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.
The cross-sector industry effort, working with USTR and others in
the Executive Branch, as well as with colleagues multilaterally, has
sought 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 rests on a key
assumption that whether or not the product (be it a good or service)
that 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.\2\
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\2\ 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.
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As described below, these FTAs are major milestones in turning
these discussions into practical policy.
The Chapters on Electronic Commerce
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 call to your attention that the Electronic Commerce Chapters
of the Singapore and Chile FTAs are 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,\3\ 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.
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\3\ 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.''
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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
who 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.\4\ 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.
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\4\ 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:
Lnot impede electronic transmission from the U.S. by
applying customs duties or other duties, fees, or charges on or in
connection with the importation or exportation of digital products, and
the U.S. commits to the same from Singapore and Chile.
Lnot discriminate against digital products from the U.S.
by giving them less favorable treatment than it gives to other similar
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.
Lpublish 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.
Ldetermine 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 longstanding U.S. policy, where digital products are still
delivered on disk or other physical medium.\5\
---------------------------------------------------------------------------
\5\ In the case of the Chile FTA, this commitment is found in the
provisions on market access.
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The Chapters on Intellectual Property
The Singapore and Chile FTAs recognize that our trading partners
must adhere to the effective level of copyright protection that is
found in the WTO Agreement on the Trade Related Aspects of Intellectual
Property Rights (TRIPS) and the World Intellectual Property
Organization (WIPO) Copyright Treaty (WCT). The full implementation of
the WCT and WPPT in Singapore, Chile and on a global basis at the
earliest possible date is a critical goal of our members 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.
The Agreements also recognize that effective enforcement of
national laws is essential to the implementation of strong global
trading rules. Thus, we are pleased to see that these FTAs include key
provisions establishing statutory damages that are important tools to
deter further infringement; strong criminal penalties targeted toward
corporate and enterprise end user piracy; civil ex-parte procedures to
preserve evidence of infringement; and strong border measures to combat
cross-border trade in infringing goods.
The Singapore FTA, in particular, 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.\6\ Thus, it is an
especially important model for future negotiations. 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 technological and
legal developments that have occurred since that time. For example,
this FTA incorporates the obligations set out in the WCT and the WPPT
and requires that Singapore ratify and fully implement these
obligations within one year from ``entry into force'' of the FTA.\7\ 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.
---------------------------------------------------------------------------
\6\ See ``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.
\7\ Effectively, this means that Singapore must act within one year
after both governments have completed their respective formal approval
mechanisms.
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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 Americas, 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
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.\8\
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\8\ 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 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 merely focus on removal of existing
impediments.
By any measure, the Chapters on Electronic Commerce represent
groundbreaking commitments to non-discriminatory treatment of digital
products that promote confidence in the global digital trade of such
products.
We also support the results achieved by USTR in the Chapters on
Intellectual Property that 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 you know, 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.
Sincerely,
Mark Bohannon
Senior Vice President, Public Policy
Timken Company
Canton, Ohio 44706
June 24, 2003
The Honorable Philip M. Crane
Chairman, Subcommittee on Trade
Of the Committee on Ways and Means
U.S. House of Representatives
1104 Longworth House Office Building
Washington, D.C. 20515
Dear Mr. Chairman,
The Subcommittee on Trade in its advisory release of June 10, 2003,
provided for the submission of written comments on the subject free
trade agreements (``FTAs''). The Timken Company is providing its
comments herein for consideration by the Subcommittee. The Timken
Company is a leading international manufacturer of highly engineered
bearings, alloy and specialty steels and components, and a provider of
related products and services. With headquarters in Canton, Ohio,
Timken employs 28,000 people in operations in 29 countries. In 2002,
the combined Timken and Torrington companies had sales of approximately
$3.8 billion.
Timken has manufacturing plants in the U.S. and abroad and sells
its products all over the world. Thus, the company has a strong
interest in a fair and efficient international trading system. It
supports the reduction and removal of barriers to trade along with the
continuance and enforcement of rules that operate to prevent the trade
distortions that are created by dumping and government subsidies.
Based on our review of the agreements, The Timken Company has
identified a number of topics that it would like to provide its insight
on for consideration by the Subcommittee. The company applauds the
efforts of U.S. negotiators. Comments are presented by topic below.
Rules of Origin
Foreign producers have sold bearings into the United States at less
than fair value for over 27 years. The Timken Company has sought and
obtained relief under U.S. trade laws from these dumped imports.
Antidumping duty orders were imposed on tapered roller bearings from
Japan from 1976-1999.\1\ Antidumping duty orders have been imposed on
ball and other types of bearings from Japan, Europe, and other
countries, including Singapore, since 1989. In efforts to evade the
coverage of the orders, different global bearing producers have at
various times established facilities in third countries for the purpose
of assembling bearing components into complete bearings for export to
the U.S. as the products of the third countries.\2\ Because
manufactured bearing components can be assembled into complete bearings
with little effort, such facilities have become the means for evasion
of the antidumping duty orders.
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\1\ The orders were revoked as the result of sunset reviews at the
U.S. International Trade Commission effective December 31, 1999.
\2\ See, e.g., Customs Classification Ruling HQ 083455 (9/6/89)
(tapered roller bearings assembled from a cup and cone from Romania,
rollers from the US, and a cage from either Mexico or the U.S.
considered to be products of Romania).
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In response, the United States has followed a strategy of adopting
rules of origin the purpose of which is, inter alia, the preclusion of
such evasion. As part of the North American Free Trade Agreement
(NAFTA), the Parties adopted a tariff-switching approach to rules of
origin.\3\ For bearings, they adopted a special rule that does not
allow tariff-switches from bearing components to bearings to qualify as
such for rules of origin purposes unless the resulting product has 60%
NAFTA content (as measured by a transaction method) or 50% (as measured
by a net cost method).
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\3\ See Harmonized Tariff Schedule of the United States, GN 12(t)/
84-241 (2003) (Rev. 2).
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It appears that in the U.S.-Singapore FTA, the Parties agreed to an
equivalent rule, allowing tariff-switching from bearing components to
bearings to qualify originating products only if there is 50% regional
content as measured by the ``builddown'' method.\4\ In the U.S.-Chile
FTA, the same rule was adopted, except that the regional content
requirement was lowered to 40%.\5\
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\4\ Singapore Free Trade Agreement, Annex 3A at 3A-219-220
(hereinafter ``US-Singapore''). This appears to be approximately
equivalent to the NAFTA net cost method.
\5\ United States-Chile Free Trade Agreement, Annex 4.1 at 65
(hereinafter ``US-Chile'').
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Timken is pleased that U.S. negotiators have preserved rules of
origin that are responsive to the particular circumstances of such
products as bearings. The company urges U.S. negotiators to continue to
be sensitive to the particular circumstances of individual domestic
industries.
Antidumping and Countervailing Duties
It is important that in exchange for the opening of its markets to
freer trade that the United States ensure that there are domestic
remedies for any attempts by foreign producers to take unfair advantage
of increased market access. As Timken has noted above, it has been
forced to rely on, and continues to rely on, antidumping orders to
combat unfairly-priced imports of bearings. Given the continued
existence of significant excess capacity in bearings, it is important
for the company that the United States continues to provide viable
trade remedies for domestic industries harmed by unfairly-traded
imports. Thus, Timken strongly supports the fact that neither of the
FTAs contains any provisions that reduce or otherwise interfere with
the ability of the U.S. to provide trade remedies that are consistent
with its WTO obligations.
The U.S.-Singapore FTA does not mention antidumping or
countervailing duty trade remedies except indirectly.\6\ The U.S.-Chile
FTA includes specific provisions in Chapter Eight (``Trade Remedies'')
which specify that: (1) each Party retains its rights and obligations
under the WTO Agreement with regard to the application of antidumping
and countervailing duties, and (2) no provisions of the FTA shall be
construed as imposing any rights or obligations on the parties with
respect to antidumping or countervailing duty measures.
---------------------------------------------------------------------------
\6\ The U.S.-Singapore FTA begins with a statement reaffirming the
rights and obligations of the Parties under existing bilateral and
multilateral agreements including the WTO Agreement. U.S.-Singapore at
3.
---------------------------------------------------------------------------
Timken believes that the approach taken in the Chile FTA is
suitable for an agreement where there has been discussion of AD and CVD
trade remedies during negotiations while the Singapore approach is
suitable as the result of negotiations which did not focus
significantly on the remedies.
Also important is the fact that neither agreement establishes a
binational panel mechanism for addressing any disputes over AD or CVD
actions. Chapter 19 of the North American Free Trade Agreement (NAFTA)
established such a tribunal and the results have been controversial.
Government Procurement
The United States ensures that it has a domestic supply of bearings
for military purposes. Through the Defense Acquisition Regulations
(DFAR) it requires that the Department of Defense purchase its bearings
from a domestic producer for certain uses and applications.\7\ It
appears that in both FTAs, the government procurement chapter preserves
the right of the U.S. to limit acquisitions of certain bearings to
domestic sources.\8\
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\7\ 10 U.S.C. Sec. 2534(a)(5).
\8\ See U.S.-Chile at 9-17; US-Singapore at 149.
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By maintaining requirements for purchasing certain products from
domestic sources, the U.S. has recognized that it has a national
security interest in being able to respond quickly to changing
circumstances around the globe. We should not foreclose supply sources
through trade negotiations. Thus, Timken is pleased to see that U.S.
negotiators have preserved the U.S. right to limit procurements that
are critical to military readiness to domestic producers.
Exchange Rates
Article IV of the International Monetary Fund (IMF) Agreement
specifies that members should ``avoid manipulating exchange rates . . .
in order . . . to gain an unfair competitive advantage over other
members.'' If a country maintains an artificially weak currency
relative to the dollar, it obtains an advantage for its goods relative
to U.S.-produced goods. The goal of bilateral free trade agreements is
to expand trade between the U.S. and other countries. Timken recommends
that U.S. negotiators and the Congress consider including a requirement
similar to the IMF Agreement provision in all future FTAs. This would
help to stop countries that are developing into significant trading
partners from weakening their currency artificially relative to the
U.S. dollar.
Tariff Rates
In general, tariff reduction or elimination is likely to reduce
sales, market share, and profits for the domestic bearing industry,
particularly in times of an economic slowdown. Capacity utilization is
particularly important for capital-intensive industries like the
bearing industry. Because bearings typically represent only a small
portion of the cost of producing manufactured goods, the maintenance of
tariffs does not significantly affect the downstream domestic economy.
The United States has committed to reducing tariffs on bearing
imports from Singapore to zero within the next four years. Singapore
has committed to reducing tariffs on all imports to zero upon entry
into force of the FTA. U.S. Government and private bodies have long
recognized that the bearing industry is import sensitive. In 1988 for
example, in a study regarding the effects of bearing imports on
national security, the Department of Commerce found that the effects of
such imports on the domestic industry were negative.\9\ Thus, it was
reasonable for U.S. negotiators to phase out bearing tariffs over time
for a country that is a significant bearing producer.
---------------------------------------------------------------------------
\9\ US Department of Commerce, The Effect of Imports of
Antifriction Bearings on the National Security, at IV-4 (1998).
---------------------------------------------------------------------------
Tariff rates on the trade in bearings between Chile and the United
States are being eliminated in tandem. There have been virtually no
bearing exports from Chile to the U.S. in the past four years. At the
same time, there are a small amount of bearing exports from the U.S. to
Chile. Thus, the lockstep reduction was a reasonable step to take for
our negotiators.
These issues highlight the need for U.S. negotiators to continue to
pursue the goal of tariff parity so that the amount of tariff reduction
and the schedule of reductions for all participants are equivalent. A
zero-for-zero approach is the simplest and most immediately beneficial.
If this goal is impractical, the negotiators should still strive to
ensure that tariff rates for the same products are equivalent.
Investment
Timken supports fair investment rules for foreign investors. Both
the U.S.-Chile and U.S.-Singapore FTAs contain chapters on
investment.\10\ They both contain protections for inter-country
investors in the form of procedures for the arbitration of claims of
violation of the investment agreements. Such provisions will enhance
the ability and willingness of individuals and businesses to invest
across borders.
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\10\ See U.S.-Chile at Chapter 10, US-Singapore at Chapter 15.
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Intellectual Property
The Timken Company has major intellectual property assets. It
supports strong intellectual property regimes that provide efficient
protection for such rights. The Chile and Singapore FTAs both contain
elaborate provisions on intellectual property.\11\ The Chile IP chapter
begins with the statement that nothing in its provisions is to derogate
from the obligations and rights of each party with respect to the other
as the result of the WTO TRIPS Agreement. The IP chapters in both
agreements contain references to the TRIPS Agreement for clarification
purposes. However, neither Agreement provides any additional
description or explanation of the relationships between them and the
TRIPS Agreement.
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\11\ See U.S.-Chile at Chapter 17, US-Singapore at Chapter 16.
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These provisions of the FTAs provide another instance where
reconciliation with existing WTO provisions would have been helpful.
The TRIPS Agreement should be incorporated by reference and there
should be clear identification of the enhancements agreed to as part of
the FTAs. This would reduce confusion and complexity.
Other Trade-Enhancing Provisions
Both FTAs contain a number of additional provisions designed to
enhance the ease of trade between the parties. These include chapters
on: Customs Administration, Technical Barriers to Trade, Temporary
Entry of Business Persons, and Transparency. Timken strongly supports
agreement to provisions in these areas that simplify procedures, reduce
costs, and otherwise make it easier to import into, export from, and do
business in the Parties' countries.
Infrastructure Provisions
The two FTAs contain provisions on telecommunications, financial
services, and electronic commerce. Agreement in these areas will likely
enhance infrastructures among the parties; this will reduce the cost of
doing business. Timken also strongly supports liberalization in these
areas.
Sincerely,
Michael K. Haidet
Senior Government Affairs, Specialist-Trade
Statement of Randi Parks Thomas, United States Tuna Foundation
The U.S. Tuna Foundation (USTF) requests the following statement be
included in the record of the hearing held June 10, 2003, on the
implementation of the U.S. bilateral Free Trade Agreements with Chile
and Singapore:
The U.S. Tuna Foundation is a trade association representing the
interests of the U.S. canned tuna industry, including all U.S. canned
tuna processors--Bumble Bee Seafoods, LLC, StarKist Seafood Company
(Del Monte Foods), and Chicken of the Sea International (Thai Union)--
as well as all U.S. purse seine vessels that harvest tuna for the
canned tuna market.
The U.S. Congress and the U.S. International Trade Commission have
deemed canned tuna to be an ``import sensitive'' product. Within the
ITC, Section 201 (1984) and Section 332 (1986, 1990 and 1992)
investigations reiterated that canned tuna is import sensitive. The
facts that made canned tuna an import sensitive product then still
apply today. For this and several other reasons, canned tuna should not
be included in the list of products deemed eligible for duty-free
treatment (either phased or immediate) in any upcoming Free Trade
Agreement.
Furthermore, the United States and the European Union comprise the
two largest canned tuna markets in the world. The European Union has
long maintained a much higher duty on canned tuna products than the
United States (24% to 12%). For this reason, duties on canned tuna
should not be the subject of bilateral trade negotiations but should
only be considered in the context of the World Trade Organization
efforts to address trade concessions on a product-by-product basis.
Background on Industry:
LCanned tuna is consumed by 96 percent of U.S households.
(Source: A.C. Nielsen Homescan data).
LCanned tuna represents the number three item in U.S.
grocery stores (behind only sugar and coffee) based on dollar sales per
linear foot of shelf space. (Source: A.C. Nielsen and industry
analysis).
LThe U.S. represents the largest single country market for
canned tuna in the world. It is estimated that the U.S. canned tuna
market represents 28 percent of global consumption. (Source: U.S.
Department of Commerce--National Marine Fisheries Service, Eurostat,
Foodnews, industry analysis).
LThree U.S. brands, Bumble Bee, StarKist and Chicken of
the Sea represent more than 85 percent of U.S. tuna consumption.
(Source: A.C. Nielsen).
LCanned tuna represents a tremendous value versus other
sources of canned protein. In May of 2000, lightmeat tuna retail prices
were $0.10/ounce while albacore tuna retail prices were $0.23/ounce.
Competitive proteins were significantly more expensive (canned
chicken--$0.40/ounce, canned turkey--$0.40/ounce, SPAM--$0.33/ounce,
corned beef--$0.20/ounce). (Source: Industry market basket survey, May
2001).
LDomestically, canned tuna is currently processed in
California, American Samoa, and Puerto Rico.
LU.S. Pack of Canned Tuna:
------------------------------------------------------------------------
1,000 Pounds *
------------------------------------------------------------------------
1992 608,981
1993 618,743
1994 609,514
1995 666,581
1996 675,816
1997 627,032
1998 680,860
1999 693,816
2000 671,330
2001 507,417
------------------------------------------------------------------------
* Canned weight.
LSource: Fisheries of the United States, 2001, Department of
Commerce, National Marine Fisheries Service.
LThe quantity of canned tuna imports between 1990 and 2000
increased by 10.0 percent while imports of frozen tuna loins increased
by 67.3 percent. (Source: U.S. Department of Commerce--National Marine
Fisheries Service).
LDuring the same ten-year period, U.S. tuna processors
moved towards heavier utilization of imported tuna loins (which carry a
negligible import duty) taking advantage of low cost labor in Southeast
Asia and Andean Pact countries. This led to reduced employment in U.S.
factories.
LOver the last twenty years, the U.S. tuna processing
industry has shrunk from 14 factories and employment of more than
26,000 to four factories with employment of slightly more than 6,000.
LDuring the ten-year period between 1990 and 2000, one of
the two remaining tuna processing facilities in California closed and
four of the five tuna processing facilities in Puerto Rico closed. The
two U.S. factories in American Samoa continue to operate, as they are
not obligated to pay the U.S. minimum wage rate.
LWith the advent of canned tuna imports from low wage rate
countries, retail pricing of canned tuna, when adjusted for inflation,
has decreased by 53 percent between 1980 and 2000. (Source: Federal
Trade Commission and industry data and analysis).
2003 Canned/Pouched Tuna Tariffs:
------------------------------------------------------------------------
General Special
------------------------------------------------------------------------
1604.14.10 (canned/pouched tuna in 35% FREE (A+,CA,D,IL,J+)
oil)
11.6% (MX,R)
24.5% (JO)
1604.14.22 (canned/pouched tuna not 6% FREE (A+,CA,D,IL,J+)
in oil,
below quota*) 2% (MX,R)
1.5% (JO)
1604.14.30 (canned/pouched tuna not 12.5% FREE (A+,CA,D,IL,J+)
in oil,
above quota*) 4.1% (MX,R)
5% (JO)
------------------------------------------------------------------------
* The tariff rate quota for tuna in airtight containers not in oil
(water pack) is based on 4.8 percent of apparent U.S. consumption of
tuna in airtight containers during the preceding year.
A+ = GSP least-developed beneficiary countries
CA = NAFTA--Canada
D = Africa Growth and Opportunity Act
IL = Israel
J+ = Andean Trade Promotion and Drug Eradication Act. Only pouched tuna
is granted duty-free status. The tuna from which the pouched tuna is
prepared must be caught by U.S.-flagged or ATPDEA-flagged vessels.
JO = Jordan
MX = NAFTA--Mexico
R = Caribbean Basin Trade Partnership Act
Canned/Pouched Tuna Tariff Impact:
The current import tariff provides critical and necessary benefits
to what is left of the U.S. tuna processing and fishing industry:
LSupport for more than 6,000 U.S. tuna processing jobs in
California, Puerto Rico and American Samoa, which jobs would be in
jeopardy if the tariff were to be significantly reduced or eliminated.
LSupport for the American Samoa economy where 88 percent
of private sector employment is provided by the U.S. canned tuna
industry.
LSupport for the U.S. tuna fishing fleet of approximately
27 vessels that operate out of American Samoa and supply the U.S. tuna
processors located there. These vessels enable the United States to
have a strong voice in fishery conservation and regulation activities
in the Pacific Ocean, the largest tuna fishery in the world.
LThe United States and the European Union comprise the two
largest canned tuna markets in the world. The European Union has long
maintained a much higher duty on canned tuna products than the United
States. The EU tariff rate is 24 percent on all canned tuna.
LThe U.S. canned tuna industry has maintained for years
that there should be international parity regarding tariff rates. We
understand the desire of the United States to work toward the
elimination of tariffs in the future. However, it makes no sense to us
to unilaterally reduce tariffs when this causes an even greater
disparity between the major world markets for a product like canned
tuna that has repeatedly been found by the ITC to be import sensitive.
International:
LAn import tariff of 12.5 percent is well below import
duties on canned tuna imposed by other major canned tuna markets. The
European Union, the largest canned tuna market in the world, maintains
a tariff of 24 percent on all canned tuna products and on all imports
of tuna in any other form; Mexico, our NAFTA trading partner, imposes a
tariff of 20 percent on canned tuna; and most other Latin American
markets maintain tariffs on canned tuna at 20 percent or more. These
tariffs obviously provide an unfair trade advantage against U.S. tuna
processors.
LThe U.S. trade deficit in fishery products has reached an
all time high. The U.S. canned tuna market, once the most dominant
canned tuna market in the world, has recently declined in volume.
LAs importantly, it is estimated that there is currently a
50 percent over-capacity in the international tuna processing sector.
Encouraging new processing capacity without cutting the existing over-
capacity situation makes absolutely no sense.
LDue to the intense competitive environment caused by low
cost foreign imports, retail prices of canned tuna in the United States
are the lowest among all developed nations of the world. Comparison
includes Australia, Canada, France, Germany, Italy, Spain and the
United Kingdom. (Source: Industry analysis).
LU.S. canned tuna processors face significant wage
disparities when compared with major tuna exporters. Average hourly
wage rates in U.S. processing facilities in California, Puerto Rico and
American Samoa are approximately $11.00, $6.50 and $3.75, respectively.
The average hourly labor rate in the key exporting country of Thailand
is approximately $0.60.
LMost canned tuna processors in foreign nations are not
required to abide by the same health, welfare, safety, regulatory,
conservation or environmental standards imposed on U.S. processors. In
addition, they often receive government and other financial subsidies
that provide an unfair economic advantage.
LU.S. tuna vessel owners are similarly disadvantaged as
they are required to abide by strict regulatory, environmental and
conservation standards that are rigorously enforced by the U.S.
Department of Commerce--National Marine Fisheries Service and the U.S.
Coast Guard. Many of these standards are not observed by foreign flag
vessels and are not enforced by their respective governments.
For all of the above reasons and several others, duties on canned
tuna should not be the subject of bilateral trade negotiations but
should only be considered in the context of the World Trade
Organization efforts to address trade concessions on a product-by-
product basis.
Statement of Selina E. Jackson, UPS
UPS respectfully submits this statement in response to the request
by the Ways and Means Subcommittee on Trade for comments regarding the
implementation of the United States bilateral Free Trade Agreements
(``FTAs'') with Singapore and Chile. UPS expects the U.S.-Singapore and
U.S.-Chile FTAs to contribute to the growth of the U.S. express
delivery services (``EDS'') industry.
UPS is the world's largest package delivery company and a leading
global provider of specialized transportation and logistics services.
UPS employs 320,000 workers in the United States and delivers more than
13.3 million packages and documents each day in more than 200 countries
and territories worldwide.
UPS strongly supports free trade. The success of UPS depends on its
ability to transport documents and parcels quickly, without undue delay
or costs. Laws and regulations in a wide range of areas, such as
intermodal transportation, air auxiliary services, distribution,
warehousing, customs, telecommunications, insurance and freight
forwarding, can significantly affect the ability of UPS to compete
effectively in foreign markets. It is important to remember that UPS
ships documents and parcels for other businesses, including U.S.
exporters, many of which rely on just-in-time systems of inventory
control and customer delivery. For this reason, such laws have the
potential to restrict trade when they are discriminatory and/or
unnecessarily burdensome. As such, UPS strongly supports the
implementation of international agreements that alleviate restrictions
on trade.
Both the U.S.-Singapore and the U.S.-Chile FTAs are expected to
contribute to the growth of our company and the EDS industry by
increasing the volume of trade between the United States, Singapore and
Chile and by reducing some current and potential trade barriers that
affect providers of express delivery services. Both Singapore and Chile
represent important and growing markets for the express delivery
services industry.
The U.S.-Singapore Market
According to industry data, the EDS industry has the potential
opportunity to transport approximately $11 billion of goods between the
United States and Singapore in 2003. This opportunity is expected to
grow significantly over the next five years, with the EDS-related trade
opportunity reaching at least $17 billion in 2008.
Singapore also is a critical market for companies like UPS that
provide express delivery services in the broader ASEAN region because
the country serves as a commercial hub. Over 40 percent of goods
imported into Singapore are re-exported to other nations. In 1999,
express delivery shipments accounted for approximately 20 percent, or
$13.6 billion, of the $68 billion in imports and exports transported
via air between the United States and the ASEAN nations.\1\ In 2000, it
was estimated that express delivery services in the ASEAN region would
grow at an annual rate of approximately 20 percent per year.\2\ Given
the liberalization of trade between the United States and Singapore
expected as a result of the U.S.-Singapore FTA, UPS expects the growth
of express delivery services in the region to continue.
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\1\ See U.S.-ASEAN Business Council, Inc., ``The Integrated Express
Industry in the ASEAN Region: Delivering Business into the 21st
Century'' (Sept. 2000), at 21-22.
\2\ See id. at 22.
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The U.S.-Chile Market
Chile also represents an important market for UPS and the express
delivery services industry. The United States is Chile's largest
trading partner, and trade between the two nations has been increasing
rapidly. In the seven years prior to 2001, trade in goods between the
United States and Chile grew by 44 percent, and trade in services grew
by 37 percent.\3\ In 2001, the value of goods and services traded
between the two countries reached $8.8 billion.\4\ UPS expects that as
the U.S.-Chile FTA is implemented, the flow of goods between the two
nations will continue to increase. Because UPS transports many of these
goods, UPS expects that its business opportunities will increase as a
result of the U.S.-Chile FTA.
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\3\ See Office of the United States Trade Representative, ``U.S.
and Chile Conclude Historic Free Trade Agreement,'' (visited May 5,
2003) http://ustr.gov/releases/2002/12/02-114.htm, at 2.
\4\ See id.
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Reducing Trade Barriers
In addition to expanding business opportunities for the EDS
industry by increasing trade volumes, UPS expects that the U.S.-
Singapore and U.S.-Chile FTAs will help enhance the industry's business
opportunities by reducing some trade barriers that could otherwise
impede the industry's operations in both countries. For example, both
the U.S.-Singapore and U.S.-Chile FTAs break new ground by specifically
recognizing express delivery services as a distinct service sector and
by establishing that commitments under the Agreements regarding the EDS
sector should apply to all suppliers of the service. As such, many of
the Agreements' provisions restricting practices that limit or distort
trade apply both to private and public providers of express delivery
services. The U.S.-Singapore and U.S.-Chile FTAs also include specific
commitments on customs procedures, requiring both transparency and
efficiency in customs administration. While these provisions are not
perfect in either agreement, they are expected to facilitate the
customs process and to enhance the ability of express delivery service
providers to quickly and reliably meet the needs of current and future
customers.
Improving Future Agreements
While UPS supports the implementation of the U.S.-Singapore and
U.S.-Chile FTAs and believes these Agreements represent important steps
forward in promoting freer trade, it is also important to note that the
provisions included in these Agreements regarding cross-subsidization
warrant significant improvement in future trade agreements. Effectively
addressing cross subsidization of express delivery services by those
with government-granted special or exclusive rights is a fundamental
objective of the EDS industry, as this is a crucial market access issue
for our industry. When any entity, including a postal administration,
chooses to provide express delivery services to their customers, they
should be governed by the same rules and market economics as other
providers of express delivery services. Cross-subsidization constitutes
an unfair competitive advantage that directly limits the market access
of otherwise competitive private express delivery service providers.
Statement of the Honorable Henry A. Waxman, a Representative in
Congress from the State of California
I appreciate the opportunity to share with the Ways and Means
Committee my serious concerns about including Hatch-Waxman style patent
protections in international trade agreements.
Let me start by saying that I am very proud of the Drug Price
Competition and Patent Term Restoration Act of 1984 and what it has
accomplished. When Senator Hatch and I proposed this legislation, we
were addressing a serious health care problem in the United States. On
one hand, we needed to bring down prescription drug prices in this
country. Because Federal law did not permit approval of generic
versions, competition was stifled in the pharmaceutical marketplace and
many Americans could not afford their medication. At the same time, we
had to be careful that our response would not discourage the
pharmaceutical companies from investing in research to develop new
drugs that would save a great many lives.
Hatch-Waxman was a very good, balanced, and tailored solution to
that dilemma. The law streamlined the approval of generic drugs, while
protecting patent rights and creating other incentives for
pharmaceutical manufacturers to remain innovative. The policy ushered
in a wave of competition and scientific advances that greatly lowered
the price that millions of Americans paid for a wide range of
medicines, while maintaining high levels of innovation in emerging new
drugs.
Like most good legislation, the Hatch-Waxman compromise was
carefully designed for a specific situation, in a specific regulatory
system. But our success here does not mean it is appropriate for other
countries. That is why I am greatly alarmed by its inclusion in Free
Trade Agreements like Chile and Singapore, which are being touted as
the cookie cutter model of U.S. demands for future trade negotiations.
Many of our trading partners face vastly different challenges and
circumstances than we do here in the U.S.
As we are all painfully aware, devastating epidemics in the
developing world, including AIDS, TB, and malaria are killing millions
of people and crippling whole societies. Even in middle-income
countries, leading killers like heart disease, diabetes, cancer and
other conditions are going untreated because essential medications are
unaffordable in these countries, costing many times the average
citizen's annual income. While the pharmaceutical industry's approach
is to cure this problem with a dose of Hatch-Waxman, this would have
the lethal effect of keeping drug prices in these countries
unaffordable for many years longer than is the case now.
I think it goes without saying that the U.S. faced nothing like
these kinds of problems when Hatch-Waxman was enacted here. We did not
face a situation where only a tiny percentage of the population was
receiving the medicines that they needed to survive. We did not face a
situation where a very large percentage of the young people in our
society had already contracted diseases that would swiftly and almost
certainly kill them if they did not receive such medicines.
If we had, the solution would certainly not have looked like Hatch-
Waxman, which delays market entry of low-cost generic drugs for years
after a life-saving drug becomes available. That system works in this
country because most people in the U.S. have health insurance that pays
for essential drugs and because we have a health care safety net to
assure that the poorest in our society are not left without medical
care and treatment. But to impose such a system on a country without a
safety net, depriving millions of people of life-saving drugs, is
irresponsible and even unethical. In developing countries, we must do
everything in our power to make affordable drugs for life-threatening
diseases available now.
Let me make clear that I am not talking about increasing the
availability of Viagra or drugs for hair-loss, I am talking about
preserving the flexibility that governments need to build and maintain
a functioning health system. It would be reckless to impose a Hatch-
Waxman without close examination of its impact on a case-by-case basis.
As you review these agreements, I hope you will keep in mind that
Hatch-Waxman is not a ``one size fits all'' prescription. I believe
that the USTR should be obligated to provide a comprehensive review of
the potential impact on the health system of any countries where it
plans to table Hatch-Waxman requirements. Whether in Central America,
Latin America, Morocco, or Southern Africa, there is a long slate of
USTR negotiations where the Hatch-Waxman could have devastating
results.