- IMPLEMENTATION OF THE UNITED STATES-AUSTRALIA FREE TRADE AGREEMENT

[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]

IMPLEMENTATION OF THE UNITED STATES-AUSTRALIA FREE TRADE AGREEMENT

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

HEARING

before the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

__________

JUNE 16, 2004

__________

Serial No. 108-42

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Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York 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

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

Advisories announcing the hearing................................ 2

WITNESSES

Office of the U.S. Trade Representative, Hon. Josette Sheeran
Shiner, Deputy U.S. Trade Representative....................... 9
Office of the U.S. Trade Representative, Hon. Allen Johnson,
Chief Agricultural Negotiator.................................. 15

______

American-Australian Free Trade Agreement Coalition, Entertainment
Industry Coalition for Free Trade, and Time Warner, Inc., Hugh
Stephens....................................................... 43
Distilled Spirits Council of the United States, Inc., and Jim
Beam Brands, Co., David Wagner................................. 46
Grocery Manufacturers of America, and Kellogg Company, George
Franklin....................................................... 52
National Association of Manufacturers, and High Voltage
Engineering Corporation, Russell Shade......................... 41
U.S. Chamber of Commerce, and DSI Fluids, David Sundin........... 38

SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, statement............... 62
Automotive Trade Policy Council, Inc., Stephen J. Collins,
statement...................................................... 63
Brenner, Joseph E., Center for Policy Analysis on Trade and
Health, San Francisco, CA, statement........................... 66
California Chamber of Commerce, Sacramento, CA, Allan Zaremberg,
letter......................................................... 65
Center for Policy Analysis on Trade and Health, San Francisco,
CA, Joseph E. Brenner and Ellen R. Shaffer, statement.......... 66
ChevronTexaco Corporation, San Ramon, CA, statement.............. 73
Collins, Stephen J., Automotive Trade Policy Council, Inc.,
statement...................................................... 63
DaimlerChrysler Corporation, Auburn Hills, MI, Timothy J.
McBride, statement............................................. 75
Dakota Rural Action, Brookings, SD, Margaret Nachtigall,
statement...................................................... 75
Entertainment Industry Coalition for Free Trade, Elizabeth
Frazee, statement and attachment............................... 77
General Motors Corporation, Detroit, MI, statement............... 78
Generic Pharmaceutical Association, Arlington, VA, Kathleen
Jaeger, statement.............................................. 79
Hawaii Macadamia Nut Association, Keaau, HI, David G. Rietow,
statement...................................................... 82
Jaeger, Kathleen, Generic Pharmaceutical Association, Arlington,
VA, statement.................................................. 79
Knuppe, Ken, South Dakota Stockgrowers Association, Rapid City,
SD, letter..................................................... 95
Lincoln, John, New York Farm Bureau, Glenmont, NY, statement..... 85
McBride, Timothy J., DaimlerChrysler Corporation, Auburn Hills,
MI, statement.................................................. 75
McDonnell, Leo, Ranchers-Cattlemen Action Legal Fund--United
Stockgrowers of America, statement............................. 88
Nachtigall, Margaret, Dakota Rural Action, Brookings, SD,
statement...................................................... 75
National Council of Textile Organizations, statement............. 83
National Electrical Manufacturers Association, Arlington, VA,
statement and attachment....................................... 84
New York Farm Bureau, Glenmont, NY, John Lincoln, statement...... 85
Outterson, Kevin, Morgantown, WV, statement...................... 86
Ranchers-Cattlemen Action Legal Fund--United Stockgrowers of
America, Leo McDonnell, statement.............................. 88
Rietow, David G., Hawaii Macadamia Nut Association, Keaau, HI,
statement...................................................... 82
Shaffer, Ellen R., Center for Policy Analysis on Trade and
Health, San Francisco, CA, statement........................... 66
South Dakota Stockgrowers Association, Rapid City, SD, Ken
Knuppe, letter................................................. 95
Zaremberg, Allan, California Chamber of Commerce, Sacramento, CA,
letter......................................................... 65

IMPLEMENTATION OF THE UNITED STATES-AUSTRALIA FREE TRADE AGREEMENT

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WEDNESDAY, JUNE 16, 2004

U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.

The Committee met, pursuant to notice, at 10:14 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Committee) presiding.
[The advisory and revised advisory and revised advisory #2
announcing the hearing follow:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 03, 2004
FC-19

Thomas Announces Hearing on

Implementation of the United States-Australia

Free Trade Agreement

Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
Implementation of the United States-Australia Free Trade Agreement. The
hearing will take place on Wednesday, June 16, 2004, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning
at 10:30 a.m.

In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include Ambassador Josette Shiner, Deputy United States
Trade Representative. However, any individual or organization not
scheduled for an oral appearance may submit a written statement for
consideration by the Committee and for inclusion in the printed record
of the hearing.

BACKGROUND:

Australia is the United States' 19th-largest trading partner with
$19.6 billion in two-way trade in 2002, and a U.S. trade surplus of
$6.6 billion. On November 13, 2002, the President formally notified
Congress that he would pursue a free trade agreement (FTA) with
Australia. Negotiations for the United States-Australia FTA were
concluded on February 8, 2004, and the agreement was signed on May 18,
2004 by Ambassador Zoellick and Australian Trade Minister Mark Vaile.

The agreement provides significant benefits for U.S. businesses and
their employees as well as U.S. consumers. More than 99 percent of
industrial goods in both the United States and Australia will become
duty-free immediately upon implementation. Manufactured goods currently
account for 93 percent of total U.S. goods exports to Australia. The
agreement includes a negative list for services with very few
reservations. On agriculture, all U.S. agricultural exports to
Australia will receive immediate duty-free access.

In announcing the hearing, Chairman Thomas stated, ``Australia is
one of the United States' strongest allies, and this agreement
solidifies the economic component of that relationship. The agreement
will expand trade opportunities for U.S. goods and services
immediately. While I had hoped for an even more expansive agreement, I
believe the overall outcome is enormously positive. I expect the FTA to
receive quick and favorable congressional consideration.''

FOCUS OF THE HEARING:

The hearing will focus on congressional consideration of the United
States-Australia FTA and the benefits that the agreement will bring to
American businesses, farmers, workers, consumers, and the U.S. economy.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please Note: Any person(s) and/or organization(s) wishing to submit
for the hearing record must follow the appropriate link on the hearing
page of the Committee website and complete the informational forms.
From the Committee homepage, http://waysandmeans.house.gov, select
``108th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=16). Select the hearing
for which you would like to submit, and click on the link entitled,
``Click here to provide a submission for the record.'' Once you have
followed the online instructions, completing all informational forms
and clicking ``submit'' on the final page, an email will be sent to the
address which you supply confirming your interest in providing a
submission for the record. You MUST REPLY to the email and ATTACH your
submission as a Word or WordPerfect document, in compliance with the
formatting requirements listed below, by close of business Tuesday,
June 22, 2004. Finally, please note that due to the change in House
mail policy, the U.S. Capitol Police will refuse sealed-package
deliveries to all House Office Buildings. For questions, or if you
encounter technical problems, please call (202) 225-1721.

FORMATTING REQUIREMENTS:

The Committee relies on electronic submissions for printing the
official hearing record. As always, submissions will be included in the
record according to the discretion of the Committee. The Committee will
not alter the content of your submission, but we reserve the right to
format it according to our guidelines. Any submission provided to the
Committee by a witness, any supplementary materials submitted for the
printed record, and any written comments in response to a request for
written comments must conform to the guidelines listed below. Any
submission or supplementary item not in compliance with these
guidelines will not be printed, but will be maintained in the Committee
files for review and use by the Committee.

1. All submissions and supplementary materials must be provided in
Word or WordPerfect format and MUST NOT exceed a total of 10 pages,
including attachments. Witnesses and submitters are advised that the
Committee relies 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. All submissions must include a list of all clients, persons,
and/or organizations on whose behalf the witness appears. A
supplemental sheet must accompany each submission 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.

* * * CHANGE ALLOWING FOR PUBLIC WITNESSES * * *

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 04, 2004
FC-19-Revised

Change Allowing for Public Witnesses for

Hearing on Implementation of the

United States-Australia Free Trade Agreement

Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the hearing on Implementation of the
United States-Australia Free Trade Agreement, to be held Wednesday,
June 16, 2004, in the main Committee hearing room, 1100 Longworth House
Office Building, beginning at 10:30 a.m., will now accept requests to
testify from public witnesses.

All other details for the hearing remain the same. (See full
Committee Advisory No. FC-19, dated June 3, 2004.)

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

Requests to be heard at the hearing must be made by telephone to
Kevin Herms or Michael Morrow at (202) 225-1721 no later than 12:00
p.m. on Tuesday, June 8, 2004. 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 noon on Monday, June 14,
2004, 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: Any person(s) and/or organization(s) wishing to submit
for the hearing record must follow the appropriate link on the hearing
page of the Committee website and complete the informational forms.
From the Committee homepage, http://waysandmeans.house.gov, select
``108th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=16). Select the hearing
for which you would like to submit, and click on the link entitled,
``Click here to provide a submission for the record.'' Once you have
followed the online instructions, completing all informational forms
and clicking ``submit'' on the final page, an email will be sent to the
address which you supply confirming your interest in providing a
submission for the record. You MUST REPLY to the email and ATTACH your
submission as a Word or WordPerfect document, in compliance with the
formatting requirements listed below, by close of business Tuesday,
June 22, 2004. Finally, please note that due to the change in House
mail policy, the U.S. Capitol Police will refuse sealed-package
deliveries to all House Office Buildings. Those filing written
statements who wish to have their statements distributed to the press
and interested public at the hearing can follow the same procedure
listed above for those who are testifying and making an oral
presentation. For questions, or if you encounter technical problems,
please call (202) 225-1721.

FORMATTING REQUIREMENTS:

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

* * * NOTICE--CHANGE IN TIME * * *

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 14, 2004
FC-19-Revised #2

Change in Time for Hearing on

Implementation of the United States-Australia

Free Trade Agreement

All other details for the hearing remain the same. (See Full
Committee Advisory No. FC-19, dated June 3, 2004 and Full Committee
Advisory No. FC-19-Revised dated June 4, 2004).

Chairman THOMAS. If our guests will find seats, please.
First of all, welcome. The purpose of this hearing is to focus
on the recently completed United States-Australia Free Trade
Agreement (FTA) and the benefits this agreement will bring to
American businesses, farmers, workers, consumers, and, in fact,
the entire U.S. economy. The Australia FTA has been called the
manufacturing FTA. We have had a number of FTAs with economies
that tended to be a bit more on the agricultural side, and
we're pleased to see that this particular FTA will cover nearly
all duties on industrial goods, because the U.S. goods exported
to Australia have about a 90 percent content of industrial
goods, and they will be duty-free immediately. United States
manufacturers estimate that the elimination of duties could
result in as much as $2 billion per year in increased U.S.
exports to Australia. Despite the fact that our two countries
are literally a world apart, the history of European settlement
and development show that Australia and the United States have
common values and interests stemming from the same roots of
free societies and democratic principles. Our two countries
have cooperated for more than 50 years on security, and
especially in the Pacific Theater of World War II, and
literally every major conflict in the 20th and now into the
21st century--including both World Wars, Korea, Vietnam, the
1990 Gulf War, and the War on Terrorism in Afghanistan and
Iraq.
Australia has been beside us in every concern. It is about
time that we created a far closer economic link. Even in world
trade relationships on an ad hoc, informal basis, we have
worked to maintain free markets, pushing toward free markets in
agricultural goods. So, this agreement is a concrete
solidification of the relationship. The United States is the
largest foreign investor in Australia, and Australian direct
investment in the United States has increased over 50 percent
in the past decade. Australian companies have direct
investments of nearly $70 billion, and employ over 80,000
workers in the United States. The FTA provides excellent market
access on services, most goods, and most agricultural products.
It sets high standards on e-commerce and intellectual property
rights. However, to have an accurate accounting, there are a
few significant negatives, I believe, in this deal, and they
ought to be pointed out with the hope that they ought not to be
repeated. Sugar is entirely excluded from this agreement; dairy
is partially excluded; the textiles chapter is, for want of a
better term, very unambitious. There is no investor State
dispute settlement mechanism. My hope is that these exclusions
will not be reflected in future FTAs brought before this
Committee. So, while I had hoped for an even more expansive
agreement, I do believe, as I indicated, this is a win-win for
both countries. I do expect the Australia FTA to be quickly
approved. Broad bipartisan support has already been indicated
by a number of my colleagues in this Committee and on the
floor. I would like to recognize the Subcommittee on Trade
Chair for a brief remark prior to recognizing my colleague, the
Ranking Member.
Mr. CRANE. I thank the Chairman for yielding, and I am
quite pleased that after more than 1 year of negotiations, the
United States and Australia have concluded a long overdue
bilateral FTA. This is an important agreement. Two-way trade in
goods and services between our countries is approaching $30
billion. Australia is our ninth-largest goods export market,
and the United States enjoys a $9 billion trade surplus with
Australia. This agreement represents the greatest reduction of
industrial tariffs ever achieved in a U.S. FTA and is
particularly beneficial to our manufacturers. Over 99 percent
of U.S. exports of industrial goods to Australia will become
duty free immediately. In this regard, the U.S.-Australia FTA
sets the gold standard, and I would like to emphasize my strong
support for this agreement and my appreciation to the
Administration for its efforts in completing it. I applaud the
efforts of the U.S. Trade Representative (USTR) in negotiating
an agreement that opens markets for U.S. exports by eliminating
tariffs, reducing nontariff barriers, opening services markets,
and strengthening intellectual property protections. This will
provide a significant benefit to the U.S. economy. To put the
economic significance of this agreement in perspective,
Australia's gross domestic product (GDP) is $525 billion,
nearly double that of Chile and Singapore combined. United
States agricultural exports to Australia, while only a small
fraction of overall exports down under, were nearly $700
million last year. This is many times greater than U.S.
agricultural exports to Chile and Singapore combined.
Despite my unwavering support for this agreement, though, I
must say that I share the concerns that the Chairman did about
the exclusion of sugar and investor State provisions from the
agreement, and I hope that both will be included in future
trade agreements negotiated by the Administration. I would also
like to welcome Ambassadors Josette Shiner and Allen Johnson
from the Office of the USTR, as well as our second panel of
representatives from the business community. I am most
appreciative that you are here. Australia is one of our
greatest allies, and I look forward to working with Chairman
Thomas and our colleagues, Mr. Rangel and Trade Ranking Member
Sandy Levin to ensure prompt passage of this important
agreement. I would also like to thank our colleague, Ms. Dunn,
whose tireless efforts as head of the Australia Caucus are
critical to this process. With that, I yield back the balance
of my time and yield----
Mr. RANGEL. I will recognize myself.
Chairman THOMAS. Oh, all right. To the Ranking Member of
the Committee.
Mr. RANGEL. Let me take advantage of this bipartisan spirit
and this agreement, and before I yield to Mr. Levin, I would
like to point out that at some point in time, I hope that the
USTR, other than at a hearing, might share with us in more
detail why they resist so much using the language of the
International Labor Organization (ILO) and language that we
have suggested in enforcing these basic standards. The reason
why we do not find opposition on our side to this bill is
because when you use the language that you use as boilerplate
language in all of these trade agreements, enforce your own
laws, we have a major problem with countries that do not have
their own laws or do not enforce their own laws. We have met
with the trade representatives and heads of State that allow us
to believe that they have been willing to accept the language
of the ILO, but that it has been the USTR that has resisted it.
So, where we have some type of accord, I just want to take
advantage of the bipartisan spirit and ask the USTR to arrange
to meet with us in an informal way so that we can encourage
more agreements like this with language that you would find
acceptable, but in knowing that this enforce your own laws--one
size does not fit all countries. I would like to yield to the
Ranking Member of the Subcommittee on Trade, Mr. Levin.
Mr. LEVIN. Thank you, Mr. Rangel, Chairman Thomas, and Mr.
Crane. I support this agreement. I do think we need to look at
it in its specific context, as we should all other trade
agreements. This agreement, by itself, is not going to have a
very major impact on the U.S. economy. As the International
Trade Commission (ITC) report indicates, the impact of the
tariff elimination, for example, will be no more than one-tenth
of 1 percent, the impact on GDP. As the ITC indicated, it would
have, in quotes, ``little or no impact on U.S. consumers.'' It
is important for us to proceed here, and also, as I said, to
look at the specific context as we should. I very much do not
agree that trade issues should be approached, as one of my
colleagues put it blindly--that you simply turn on the spigot
of trade on both sides and all sides, and it does not matter
what is in the flow or how much it flows one way or the other.
I have some real concerns about the overall approach to trade
by this Administration, but despite that, I think that this
agreement is certainly worthy of congressional support, and Mr.
Rangel and I and others have so indicated earlier. Our two
economies have a lot of similarities. We are dealing here with
two developed economies, and in some respects, that makes it
easier; in other respects, it may make it more difficult. In
some sectors, for example, automobile and auto parts, where
there are somewhat comparable competitive conditions, clearly,
this is going to be beneficial to us.
Mr. Rangel has talked about the references in the agreement
to core labor standards and environmental standards. Enforce
your own laws, Mr. Rangel has indicated, may work where those
provisions reflect strong conditions within a country. The
opposite effect would be where they are applied to where the
conditions are far from comparable, as is true in the United
States-Central American FTA (CAFTA), and in other countries
that would be covered by a Free Trade Area of the Americas
(FTAA). Also, let me mention that because Australia and the
United States have similar legal traditions and strong
independent judicial systems, that it was appropriate here not
to include an investor State provision. Likewise, if I might
say so, on the capital controls provisions, we have raised a
number of questions about these provisions in other contexts.
Here, it would work, but if applied elsewhere, it would not. I
want to say just a couple of words about what eventually was
left out, because I think it is an important note. I had
concerns, and they were shared with a lot of my colleagues,
about USTR's efforts to use the Australia FTA to undermine
Australia's universal pharmaceutical benefits structure for its
citizens, and indirectly through this FTA to make new policy in
the United States on various pharmaceutical-related issues.
The most egregious example of this was a provision that I
think appeared in the FTA on the day negotiations were
completed, which indirectly were directed at the reimportation
debate in the United States, I think quite correctly. Under
some pressure, USTR decided to strike this provision, but I
want to make sure it is understood it was a major mistake to
try to put it there in the first place. I do believe under the
specific circumstances of our relationship, of the economic
nature of the two countries, that this is an agreement that is
worthy of support. I am glad we are having this hearing. I am
also glad, Mr. Chairman, that we will probe into some of the
issues that were raised here. Again, no one should think that
you just turn on the spigot, and everything is win-win. There
are some interesting exclusions in this agreement, and there
are some interesting modifications without going the full way.
That is true in many of the agricultural sectors. I yield back.
Mr. CRANE. [Presiding.] Now, I would like to yield to our
two distinguished panelists. First, Ms. Shiner.

STATEMENT OF THE HONORABLE JOSETTE SHEERAN SHINER, DEPUTY U.S.
TRADE REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE

Ms. SHINER. Mr. Chairman, Congressman Rangel, Members of
the Committee, I welcome this opportunity to present the U.S.-
Australia FTA and to hear the Committee's views on this
agreement. I appreciate your leadership of this Committee, and
I am grateful to the Members of the Committee and your staffs
for the guidance and advice you provided to Ambassador
Zoellick, to me, to our chief negotiator, Ralph Ives and to our
chief agriculture negotiator, Ambassador Johnson, during the
process of these negotiations. You are forceful advocates for
America's workers, ranchers, and farmers, and our close
cooperation helps ensure that the deals we strike are strong
win-win agreements for the American people. As has been pointed
out, the United States and Australia have a special
partnership. Our nations' sons and daughters stood side-by-side
against tyranny in the last century, and they do so again
today. With this FTA, as Congresswoman Jennifer Dunn pointed
out at the recent signing, quote, ``we begin a new chapter
entwining the tapestry of our mutual history by building on our
security alliance of the past with an economic alliance of the
future.''
This FTA is only the third FTA ever negotiated between two
developed countries--the first between Australia and New
Zealand, and the second, 16 years ago, between the United
States and Canada. It will eliminate virtually all duties, more
than 99 percent, as has been pointed out, on goods that the
U.S. exports to Australia on day one. This is the most
significant, immediate reduction in industrial tariffs ever
achieved in a FTA and will immediately make our manufacturers,
from household goods to chemicals and machine tools, better
able to compete in Australia against products from European,
Japanese, Korean, and Chinese traders. The ITC estimates that
the tariff cuts alone will increase U.S. exports to Australia
by about $1.5 billion. In fact, as has been pointed out, the
United States enjoys a hefty trade surplus with Australia. We
currently export twice as much to Australia as we import from
Australia. Our trade surplus on industrial goods alone totaled
$6 billion in 2003. American businesses, farmers, ranchers, and
workers see exciting new opportunities in this agreement. When
I travel around the world, I see Caterpillar's bright yellow
tractors and road graders dotting the world's landscapes.
Australia is already this American icon's second largest export
market, but with the immediate elimination of duties from this
FTA, Caterpillar expects its annual sales to Australia to
increase to $1 billion annually in the next decade.
It is not just large companies that expect to benefit. You
will hear testimony today about small business and how they
expect to benefit. I have one example of a small company in
Iowa called Vermeer Manufacturing, that makes drills like this
drill that lays cable lines, and currently, they export their
machinery to Australia. They expect sales to soar by 10 percent
upon enactment of this agreement, and it is very critical to
them and their 1,700 workers. In addition to the benefits from
the manufacturing sector, duties on all U.S. farm exports to
Australia, literally from soup to nuts, will be eliminated on
the first day of the agreement. Ambassador Allen Johnson will
address the provisions that he oversaw the negotiations of
after I am finished with these remarks. Just a brief overview
of some other features of this agreement: in the services area,
Australia will provide substantial new market access in the
telecommunications, computer services, tourism, energy,
construction, education, and other sectors. The agreement
ensures improved market access for the U.S. entertainment
industry, including films and television, and provides new
rights for life insurance and express delivery providers.
Australia and the United States invest deeply in each other's
economies, as has been pointed out, and the agreement fosters
this partnership by virtually exempting most U.S. investments
from screening by the Australian government.
This FTA is also the first to include non-tariff market
access provisions to address the pharmaceutical sector, in
which the United States is the leading innovator in the world.
This is an agreement for the digital era, with innovative
electronic commerce provisions and state-of-the-art
intellectual property for protection of trademarks, copyrighted
works, digital works, and patented products. It strengthens
penalties for piracy and counterfeiting, providing strong
deterrents against these activities, and in the area of
government procurement, one of the biggest gains that the
National Association of Manufacturers (NAM) is looking toward,
U.S. suppliers will be a step ahead of most other countries by
obtaining through this FTA nondiscriminatory rights to bid on
contracts from 80 Australian central government industries. In
this agreement, once again, the United States has been able to
include the world's highest standards of enforceable labor and
environmental provisions in any trade agreements. We are the
leaders in the nexus between trade, workers' rights, and care
for the environment, and this agreement is no exception.
This is an agreement forged in close partnership with
Congress and this Committee, and we are grateful for your
leadership in this area. Finally, in enforcement, our FTAs are
our single most effective tool in setting the world's highest
standards for a level playing field in trade. Our FTAs
typically contain hundreds of pages of enforceable obligations
that are the bedrock of building a fair, level, and enforceable
playing field in the trade between nations. The U.S.-Australia
FTA is no exception to this tradition of excellence. The nearly
1,500 pages of rules and commitments that comprise this FTA
will form the basis of our enforcement program. In addition to
these specific benefits, it is important to keep in mind that
Australia has been one of our closest and most reliable
partners in pursuing global trade liberalization. Both of our
countries are deeply committed to the Doha development agenda,
and our alliance on this FTA will further fortify our World
Trade Organization (WTO) work together. We have the success of
the Doha development agenda at the top of our respective trade
agendas, and will continue to pursue that. I look forward to
working with you further on this agreement, and to answering
any questions you may have. Thank you.
[The prepared statement of Ms. Shiner follows:]

Statement of The Honorable Josette Sheeran Shiner, Deputy United States
Trade Representative

INTRODUCTION

Mr. Chairman, Congressman Rangel, and Members of the Committee:
Thank you for the opportunity to testify today and for the guidance
and advice you have provided us. We appreciate your leadership, Mr.
Chairman, and are grateful to Congressman Rangel, Congresswoman Dunn,
and Members of this Committee and their staffs for the close
cooperation we have enjoyed on the United States-Australia FTA and many
other trade issues over the past three years.
Working together, we have reenergized the U.S. trade policy agenda
and reestablished America's leadership on trade. Passage of the Trade
Act of 2002, including Trade Promotion Authority (TPA) was a pivotal
step in this effort. In TPA, the partnership between Congress and the
Executive branch is manifest, and this partnership has given us the
ability to negotiate agreements that will bring real economic benefits
to Americans and our trading partners.
Today, I have the honor and privilege of featuring the significant
accomplishments of the United States-Australia FTA and hearing the
Committee's views on legislation required to implement this Agreement.
This FTA is an historic trade agreement with one of the United
States' closest friends and allies. As Ambassador Zoellick stated at
the FTA signing ceremony last month, conclusion of this Agreement ``is
especially fitting for our two countries, which have prized individual
liberty and demonstrated the achievements that are possible when
governments see their role as freeing people to strive to make their
own dreams.''
The United States and Australia have long had a special
partnership. We have common histories and, as President Bush has put
it, a ``closeness based on a shared belief in the power of freedom and
democracy to change lives.'' Our countries have common values and an
unwavering belief in freedom, democracy and the rule of law. We both
have offered opportunities to immigrants from around the world,
thriving immensely from this diversity. Both of our countries have been
willing to stand side by side to fight for what we believe in. We have
done so in Europe, in the Asia-Pacific, and now in Afghanistan and
Iraq, united in the fight against global terrorism.
The U.S.-Australia FTA represents an opportunity to build upon this
enduring relationship and deepen our ``essential partnership,'' as
Australian Prime Minister Howard has called it. Fifty years ago, the
United States and Australia signed the ANZUS Treaty, an alliance based
on our mutual security needs. The FTA will further expand the alliance
between our two countries, putting our trade and investment
relationship on the same plane as our longstanding political and
security relationship and bringing our societies and our people even
closer together.
Congresswoman Jennifer Dunn expressed the Agreement's significance
this way: ``Today, we sign an historic trade agreement to strengthen
our economic ties. We begin a new chapter entwining the tapestry of our
mutual history by building on our security alliance of the past with an
economic alliance of the future.''

SUMMARY OF THE AGREEMENT

There is no doubt that the U.S.-Australia FTA is a landmark
agreement and one that is befitting the special partnership between our
two countries and our shared commitment to free trade principles. The
Agreement, which some have dubbed the ``Manufacturing FTA'' will
eliminate more than 99 percent of the tariff lines covering U.S.
manufactured goods exports to Australia on the first day the Agreement
goes into effect. This is the most significant immediate reduction in
industrial tariffs ever achieved in a free trade agreement.
Australia already is a major trading partner of the United States.
Two-way goods and services trade is nearly $29 billion. Australia
purchases more goods from the United States than from any other
country, and the United States enjoys a bilateral goods trade surplus
of nearly $7 billion. The thousands of American jobs supported by these
goods exports pay an estimated 13 to 18 percent more than the national
pay average. With the further reduction in trade barriers, we expect
new opportunities for America's manufacturers, farmers, and workers.
The International Trade Commission estimates that the tariff cuts alone
would increase U.S. exports to Australia by about $1.5 billion yearly.
In addition to the benefits the FTA will bring to the manufacturing
sector, duties on all U.S. farm exports to Australia--nearly $700
million in 2003--will be eliminated on the first day that the Agreement
goes into force. For this achievement, I must pay tribute to Secretary
Veneman and our Chief Agriculture Negotiator, Al Johnson, who has
joined me today, for working with Members of Congress and our
agriculture constituencies to successfully address these particularly
challenging issues. Among those agricultural interests that will
benefit from these tariff cuts are those producing processed foods,
fruits and vegetables, corn oil, and soybean oil and other agricultural
industries. As part of the Agreement, the United States and Australia
also will establish a special committee to address sanitary and
phytosanitary (SPS) issues, a longstanding trade concern highlighted by
Members of Congress when we announced our intention to launch these FTA
negotiations in November 2002. Through close cooperation and focus on
these issues over the last two years, we have seen progress on a range
of SPS issues. For example, U.S. table grapes entered the Australian
market in 2002 and U.S. exporters are expected to sell pork to
Australia very soon.
Access for U.S. services industries will be opened as well. As in
goods trade, the United States already has a significant surplus--$2.3
billion--in services trade and more than $6 billion if the surplus in
sales of services by majority-owned affiliates is included. The FTA
will create new opportunities that U.S. service industries, among the
most competitive in the world, are well positioned to take advantage
of. The Agreement ensures improved market access for the U.S.
entertainment industry, including films and television; and provides
new rights for life insurance and express delivery providers. Australia
also made commitments in the telecommunications, computer services,
tourism, energy, construction, education, and other services sectors.
Small and medium sized enterprises (SMEs) should particularly
benefit from this FTA. The common language and perspective of our
peoples combined with the new opportunities provided for by this
Agreement should make Australia an especially attractive market for
SMEs taking the first steps to join the global market.
Integration between the U.S. and Australian economies and the
extraordinary benefits that have flowed from this integration has been
fostered not only by goods and services trade but by the flourishing
investment between our countries. Australia is the eighth largest
foreign investor in this country, and its investments support U.S. jobs
in many sectors, including manufacturing, real estate and finance. The
FTA will further this linkage by providing a predictable framework for
U.S. investors in Australia, exempting investment in new businesses
from screening requirements and substantially raising the thresholds
for screening of acquisitions in nearly all sectors. These changes
would have exempted from screening the vast majority of U.S. investment
transactions over the past three years.
The U.S.-Australia FTA is the first to include non-tariff market
access provisions to address issues in the pharmaceutical sector.
Recognizing the sensitivity of this issue, we drew on studies prepared
by the Australian government to propose changes that would improve
transparency and the regulatory procedures for listing new drugs in
Australia. Under the FTA, the United States and Australia agreed to
common principles on facilitating high quality health care and
continued improvements in public health, including through government
support for research and development in the pharmaceutical industry. We
also agreed to establish a Medicines Working Group to discuss emerging
health policy issues. Australia committed to specific steps to improve
the transparency, accountability and promptness of the listing process,
including establishment of an independent review of listing decisions.
The FTA provides for state-of-the-art intellectual property
protection for U.S. trademarks, copyrighted works, including for
digital works, and patented products. It also strengthens penalties for
piracy and counterfeiting, providing strong deterrence against these
illegal activities. With IPR piracy and counterfeiting a serious
problem in many countries in the Asia-Pacific region, these provisions
will serve to reflect the importance of robust intellectual property
protection to the development and growth of solid, long-term trade and
investment relations.
In addition, the FTA includes innovative electronic commerce
provisions, reflecting both countries recognition of the importance of
e-commerce in global trade. In addition to commitments to ensure that
digital products will receive non-discriminatory treatment, the
Agreement facilitates the ability of businesses to authenticate a
business transaction in both markets and establishes a program for
cooperation on other e-commerce issues.
The FTA opens up the Australia's government procurement market,
which is especially significant because Australia is one of the few
developed countries that is not a Party to the WTO Government
Procurement Agreement. The Agreement requires the use of procedures
that are transparent, predictable, and non-discriminatory. U.S. and
Australian companies will be able to bid on procurements from each
other's central government entities and their states that have agreed
to participate. Of particular significance, Australia has agreed to
remove industry development requirements that have long been part of
its procurement regime.
The United States has been able to include the world's highest
standard of enforceable labor and environment provisions in its recent
FTAs and this Agreement is no exception. The Agreement includes labor
and environment provisions, which commit each country to effectively
enforce its law and environmental laws and these obligations are
enforceable through the FTA's dispute settlement procedures. Under the
Agreement, each government commits to promote high levels of labor and
environmental laws and to not weaken or reduce labor or environmental
laws to attract trade and investment. The Agreement also establishes
processes for further cooperation on labor and environmental issues,
supporting our long history of cooperation and coordination in these
areas.
Finally, the Agreement includes strong enforcement provisions. Our
FTAs raise the bar and provide the best basis for our global work of
ensuring a fair and level playing field for our workers, farmers and
businessmen. The nearly 1,500 pages of rules and commitments that
comprise this FTA will form the basis of our enforcement program. The
Agreement creates a Joint Committee to supervise implementation of
these rules and commitments and assist in resolving disputes. As with
each of our trade agreements, we will rely wherever possible on
bilateral cooperation and consultations to resolve issues and ensure
strict enforcement of trade obligations. The U.S. Government team
monitors carefully the implementation of our trade agreements, meeting
regularly with our foreign counterparts to review implementation of the
range of commitments. We also consult closely with U.S. business and
other stakeholders to ensure that we are fully apprised of any
developing concerns. Our record shows that such consultations have been
remarkably successful in ensuring that our trading partners follow
through on their commitments and address emerging problems in a
expeditious manner. While we frequently rely on the range of other
tools available to us, in this FTA as in our other agreements, we of
course have ultimate recourse to formal dispute settlement to resolve
trade disputes and ensure full and faithful implementation of our
agreements.

BROADER BENEFITS OF THE AGREEMENT

In addition to the specific benefits that will flow from the
commitments the United States and Australia have undertaken in this
FTA, there are other benefits as well that I would ask you to
contemplate as you consider this Agreement. Australia has been one of
our closest and most reliable partners in pursuing trade liberalization
around the world. Both of our countries are strongly committed to
advancing the Doha Development Agenda and our alliance in the WTO has
been further fortified through the FTA negotiations, which will more
closely unite our trade and economic interests. This alliance will
improve the prospects for a successful outcome to these global
negotiations, still the highest priority on both countries' trade
agendas.
The FTA also will help advance our goals in the Asia-Pacific
region. Australia has been a strong partner in APEC and Australia and
the United States have a mutual stake in seeing the fruits of the free
market expand in this strategic region. This Agreement, which sets high
standards for other free trade agreements, will certainly help to do
this.

GLOBAL TRADE AGENDA

In addition to the success we have achieved in concluding the
Australia FTA, the Administration has acted on the opportunity you
presented us with passage of TPA to launch a number of other major new
trade initiatives designed to open markets around the world for U.S.
products and services. With your support, we have been pressing
energetically to secure the benefits of a world trading system that is
dramatically more free and open, advancing our goals globally,
regionally, and bilaterally.
To reinvigorate the new round of global trade negotiations that was
launched in Doha, Qatar in November 2001, the Administration presented
bold new proposals to the World Trade Organization (WTO) that embody
the U.S. commitment to open markets and spur growth and development.
Earlier this year, Ambassador Zoellick traveled around the globe,
offering creative and far-reaching plans to remove all tariffs on
manufactured goods, open agriculture and services markets and deal with
the special needs of developing countries. The U.S. leadership has been
critical to keeping WTO members focused on the core issues of market
access and optimistic that forward momentum can be maintained.
While pressing ahead on the global trade agenda, the Administration
has worked with Congress to successfully conclude FTAs with Chile and
Singapore, complete negotiations with Morocco, Bahrain, CAFTA and the
Dominican Republic. In addition, we have launched negotiations with the
five members of the Southern African Customs Union, Panama, and three
Andean countries. Later this month, we will be holding the first round
of FTA negotiations with Thailand. At the same time, we have worked to
continue negotiations on the Free Trade Area of the Americas, and to
lay the groundwork for future market-opening initiatives through the
Enterprise for ASEAN Initiative and a Middle East Free Trade Area
initiative, as well as through Trade and Investment Framework
Agreements with selected countries from all regions, both developed and
developing.

CONCLUSION

I have highlighted some of the most significant benefits of the
Agreement for the United States. A more detailed summary of the main
provisions of this Agreement is attached to this testimony.
While we can describe the benefits we anticipate from this FTA for
our trade and economic partnership with Australia, the support this
Agreement commands from stakeholders is perhaps a more persuasive
indication of its potential benefits. U.S. and Australian businesses,
both large and small, recognize the vast potential of this Agreement in
terms of economic growth, jobs, and living standards and are actively
promoting it. Businesses, farmers and workers understand that while we
have a long-established and well-developed trading relationship, the
framework of the FTA will allow them to use their drive, ingenuity, and
vision to create even greater opportunities for themselves and their
countries in the future.
Before concluding, I want to take a moment to note that there are
many essential ingredients that go into negotiating an FTA of this high
caliber. These include, of course, the relentless patience, hard work
and negotiating skills of the large teams on both sides and especially
of the lead negotiators, Ralph Ives and Steve Deady. Tribute also must
be paid to the creativity, stamina and leadership of Minister Vaile and
Ambassador Thawley and, of course, Ambassador Zoellick.
Conclusion of this FTA also is the result of the hard work and
dedication of many leaders from the private sector, including Anne
Wexler, R.D. Folsom, and the co-chairs and nearly 300 members of the
U.S.-Australia Business Coalition, representing a broad spectrum of the
U.S. economy.
Finally, as was intended in the Trade Act of 2002, the quality of
this FTA and its successful conclusion are due to the guidance and
unflinching support of many Members. We are extremely grateful for the
support of Chairman Thomas, Chairman Crane, Congressman Rangel, and
Congressman Levin, and the tremendous assistance of their staffs. We
also are indebted to Congresswoman Dunn and Congressman Dooley for
their leadership in chairing the congressional caucus in support of the
U.S.-Australia FTA.
With continued congressional guidance and support, this
Administration will continue to pursue an ambitious and multifaceted
trade policy. Together, we can demonstrate the power of free trade to
spur economic growth, build prosperity, and promote democracy.
The Administration looks forward to working with this Committee and
the full Congress in enacting the legislation necessary to implement
this Agreement. Thank you Mr. Chairman, Congressman Rangel, and Members
of the Committee. I would be pleased to respond to questions.

Mr. CRANE. Thank you, Ms. Shiner. Mr. Johnson?

STATEMENT OF THE HONORABLE ALLEN JOHNSON, CHIEF AGRICULTURAL
NEGOTIATOR, OFFICE OF THE U.S. TRADE REPRESENTATIVE

Mr. JOHNSON. Yes, thank you, Chairman Thomas, Congressman
Rangel, Chairman Crane, and Congressman Levin--Members of the
Committee. While the focus of this FTA obviously deals a lot on
the industrial side, I think it is safe to say that agriculture
was critical to the successful conclusion of this agreement.
The challenge with any agreement is striking the best balance
possible between U.S. agricultural export interests and import
sensitivities. In meeting with many of you, your staffs, and
the agriculture community personally over the last several
months, it was essential that we work through these issues in
addressing the most important issues. I think we have found the
balance possible in these agreements, providing for fair and
equitable treatment while at the same time creating new
opportunities for our farmers, ranchers, and agricultural
industries. Briefly, let me just go through some of the
highlights of these agreements. First, let me point out that of
course, creating good opportunities for other sectors outside
of agriculture is also important to agriculture. A strong
economy at home is important in maintaining and growing our
domestic demand for our agricultural products, and the
Australia FTA clearly does that. It also creates new export
opportunities. Duties on all farm exports, nearly $700 million
in 2003, will be eliminated on the first day of this agreement.
An interesting fact is that on a per capita basis,
Australia's consumers purchase $4.50 of U.S. products for every
dollar that we spend on their products in the United States.
The United States is already the second-largest supplier to
Australia's $56 billion food market, and our position will
continue to improve--we will enjoy a preferential treatment in
this market due to this agreement. Australia's tariffs can be
between 5 percent--as high as 30 percent in some cases, and
those, again, will be going to 0 on the first day. The
beneficiaries of this additional access include oil, seeds,
fresh and processed fruits such as cherries, grapes, raisins,
frozen strawberries, dried plums, tomatoes, fruit juices,
vegetables, and nuts such as almonds, walnuts, olives, dried
onions, potatoes, sweet corn, distilled spirits, soups, and the
list goes on. Of course, sanitary and phytosanitary (SPS)
issues have been an important concern to many in our
agricultural community, and to Members of Congress. We have
been working closely on these issues over the last 2 years in a
whole range of areas, and the agreement itself establishes a
bilateral committee on SPS matters, as well as a technical
working group. Some examples of success have been the table
grape market, opening for the first time in 2002, reaching $3.2
million in exports in 2003. Recently, we have seen processed
pork, pork products and pork for processing SPS issues
addressed, which will result in an estimated market between $30
million and $60 million.
Of course, we still need more work in areas like poultry,
citrus, stone fruit, and apples. At the same time, many things
have been achieved that get less notice, such as beef, sweet
corn, seed, and some others. Admittedly, import sensitivities
are high with Australia. Beef, as I told some Montana ranchers
last week in Lewiston, Montana, was an issue that we spent a
lot of time discussing with our Australian counterparts. What
was a reasonable approach? We believe that the long transition
of 18 years, and during that period allowing manufactured beef
products that are largely complementary to our high-quality
products, addresses that concern. In addition, the agreement
provides 2 years for our beef industry to get back on its feet
after the Bovine Spongiform Encephalopathy problems of this
year, or until 2003 exports are resumed. The grace period of 9
years, and then backloading the tariff reductions and
safeguards during the transition, as well as after the
transition, we believe addresses a concern. Expanding tariff
rate quotas that start at 0.17 percent of U.S. production, and
after 18 years are still only up to 0.8 percent of U.S.
production in 2003, we think largely addresses the
sensitivities around the beef industry.
The top priority for our dairy industry was maintaining the
out-of-quota tariffs, which we did in this agreement. Again, we
offered expanding tariff rate quotas, but at a manageable rate.
In the first year, the tariff rate quotas are equal to 0.2
percent of the annual value of U.S. production. These will
allow us to make our dairy programs operationally effective.
The growth rate on the more sensitive tariff rate quota dairy
products have slower growth rates than those that were less
sensitive, including some that are not produced in large
quantities in this country. Finally, as was pointed out by a
few Members of the Committee already, we did not change the
access above the WTO-allowed access for Australia as it relates
to sugar. This agreement makes still closer the relationship
that we have with Australia in pursuing our global objectives
in the WTO. We share many common objectives, whether it is
export subsidy elimination, substantially reducing domestic
support, or increasing market access. Let me just conclude by
saying that this agreement is solid. It achieves the
agricultural objectives defined in Congress and the trade
promotion authority. More importantly, it creates new
opportunities for U.S. farmers and ranchers while sensibly
dealing with our sensitive products. It adds to the message
that the United States is moving forward in agricultural trade
and strengthens an old partnership in our global agenda. With 6
billion people outside of our country, 96 percent of the global
population, it is important that we meet this challenge and
take advantage of this opportunity--send this message and
advance our overall trade agenda. Thank you.
Mr. CRANE. Thank you. Ms. Shiner, the Australia FTA allows
the Administration to provide provisional relief in a textiles
and apparel safeguard if there are critical circumstances. I
understand this was added at the insistence of the Australians,
and it is an unfortunate provision that I hope will not be
included in future agreements. Do you consider the inclusion of
this provision to be a precedent for future agreements?
Ms. SHINER. Sir, the particular provision that you are
referring to would allow, as you said, this safeguard to be in
place in critical circumstances before an investigation.
Typically, we are the more aggressive in negotiating safeguards
for our industry to ensure that we can act if there are
critical circumstances. We do not see this as a precedent.
Again, while we have a model of what we attempt to do in these
agreements, sometimes, we need to customize given the
circumstances, and this is one area where there was that
customization.
Mr. CRANE. Mr. Johnson, some sectors of the agriculture
community are indifferent to this agreement at best. At worst,
it is argued that the agreement will harm U.S. dairy and beef
industries. How do you respond to that criticism?
Mr. JOHNSON. Well, again, I should point out that in both
dairy and beef, we have a very close working relationship with
the industry, not just as it relates to Australia, but in all
of our other FTA and other negotiations--including the WTO. I
think, in general, it sends the right message that we are
moving forward in our agenda, which both of those industries
have an interest in sending--in trying to move other FTAs and
the WTO forward. I think, particularly, in this particular
agreement, we dealt with their issues very sensitively. As I
pointed out in my opening statement, the starting tariff rate
quota for beef is 0.17 percent of U.S. beef production, and
even after 18 years, it is still only about 0.8 percent of U.S.
beef production. To give you some idea of the value, that is an
additional value of about $167 million in an industry that is
worth about $25 billion. On the dairy side, similarly, our
access starts at about 0.2 percent of the value of U.S. dairy
production. The growth rates for each of the commodities is
moderate; showing that we are sensitive to them. Again, on a
tonnage basis, that is equal to about 0.03 percent of total
milk production in the United States. So, we think that we have
dealt with the sensitivities while moving the agendas forward
for both of these commodities.
Mr. CRANE. Thank you, Mr. Johnson. Mr. Levin?
Mr. LEVIN. You know, I smile a bit at your language, how
you describe your approach in agriculture, you talk about
sensitivity. You talk about customizing. I wish there was
similar sensitivity in other areas. I think it does show that
these trade issues have some complexity to them, and that the
model that simply--as I said earlier, turn on the spigot,
really does not work. I support the agreement. I think the
impact on dairy will be minimal. You mentioned another area,
$167 million out of $20 billion, plus. It would be nice if when
we looked at other areas, we would take into account impact and
not simply say trade is win-win. I think we also should
acknowledge where we are proceeding cautiously, like on SPS.
You essentially have a working group using WTO language, or a
committee, whatever you want to say. There is no guarantee of
results; there is no guarantee. This is an area where we are
very much shortchanged, I think, in Australia and in Europe,
and it has been difficult to move ahead, or at least we have
not moved very far ahead with Europe, and I think it should be
acknowledged that in this agreement, we do not move ahead very
clearly. On apparel and textile, where you use the word
customize, Ambassador, I support this provision. I do not care
who raised it, and it is not the first such provision. We were
able to insert in the China agreement a safeguard provision for
apparel and textile and for other areas, and without it, I
think it would have been impossible, and should have been
impossible, to pass China's Permanent Normal Trade Relations.
So, I do think it is useful to listen closely to the terms
that you use and to acknowledge the advantages but also the
limitations in this agreement, and as you say, the need to look
at particular circumstances. So, I do not really have any
questions. I just want to say a word about the core labor
standards. I do not think we will deter you or Ambassador
Zoellick from continuing to use this language about the world's
highest standard and about American leadership in terms of core
labor standards. For many of us, that does not hold true. There
are real differences within this Committee and within this
Congress in terms of the standard that you use. Enforce your
own laws may be a high standard where there are high laws and
enforcement, but where there are not such standards or laws and
enforcement, it is not the highest standard. It is the lowest
standard, and essentially, it encourages a race to lower and
lower standards--and by the way, you worded this somewhat
carefully, but the standard enforce your own law is weaker than
our generalized system of preferences (GSP) laws, and the
enforcement provisions are far weaker than under GSP. So, for
the Administration to continue to say that they have a high
standard in enforceable labor and environmental provisions is
really untrue. The Jordan Agreement, because Jordan has them in
their laws and enforces them, and that was the clear reference
in that agreement, this agreement does not really meet that
standard, as I see it. Anyway, we will talk about these issues
some other day, but I think it is important to consider them
because we are going to be taking other agreements up which
involve very, very different circumstances than Australia. I am
hopeful that we pass Australia because of the specific content
of it, despite its limitations, and I hope, by the way, that it
will stand on its own, and there will not be an effort to
combine this with any other agreement. Thank you.
Mr. CRANE. Thank you. Mrs. Johnson?
Mrs. JOHNSON. Thank you and welcome to both of you.
Ambassador Shiner, could you describe the, quote, ``advances in
this agreement in regard to pharmaceuticals,'' in more detail?
I would like to get a better understanding of what access it
provides to advanced U.S. pharmaceuticals that will not agree
to a government price being attached to them, and what advances
it makes in compelling the Australian government to include
greater recognition of the costs of research and development in
the reference price.
Ms. SHINER. Thank you. Australia has a system of
pharmaceutical purchasing that is fairly similar to a system
used throughout Europe and other areas of the world, including
Japan and other countries in Asia, and we have made an effort
in recognition of the fact that the United States is now the
leading innovator in developing life-saving medicines. We have
the leading firms in America. They employ many Americans. This
is one of our leading exports to the world, one we are very
proud of, because it is important to the quality of life and
the benefits that it brings to countries throughout the world.
In that recognition, our pharmaceuticals really are the
backbone of many of these health care systems around the world.
What happens is when you have a government setting a price for
these pharmaceuticals, typically, it may represent 90 percent
of the market, as it does in Australia, and frankly, what we
were looking for is to ensure that in setting those prices, the
cost of innovation, not just the cost of producing the
medicines, is recognized in that process, or at least that
representations could be made to that. It is only our goal to
be able to have the opportunity to make our case. Governments
have the right, and will develop health care systems that will
allow low-cost access to medicines and health care for their
citizens. This is a goal, we know, of all governments--to
ensure that. We want the chance to be able to ensure that the
system is transparent; that we understand how the prices are
being set; and we understand when we can make a case to list
our new medicines. We had a situation in China recently, for
example, where they had not updated their formularies since
1998. There have been no new medicines listed there for years,
and there have been a number of new developments. I think in
this agreement, we were able as nations to affirm our support
for, and agreement, on the importance of innovation. We were
able----
Mrs. JOHNSON. Excuse me; explicitly, if one of our
medicines is not listed on their--as available under their
government system with a reference price, under this agreement,
will we have the right to sell it in their market?
Ms. SHINER. We currently have the right to sell it in their
market, and we can sell any medicines there. The key is to get
government reimbursement, because it helps citizens get access
to the medicines; that is a key part of being able to market
the medicines. Currently, we have the right on the private
market there, or through private health care. It is just not a
very developed private market.
Mrs. JOHNSON. There was no willingness on their part to
allow whatever they would reimburse for a comparable medicine
to be applied toward a different medicine, with the consumer
paying the difference between what the government would pay and
what the pharmaceutical of their choice would charge?
Ms. SHINER. Congresswoman, it is not so different than our
private health care system, where our managed care programs
will decide priority medicines or make some decisions. The
challenge we face is when there is just one system that
represents all the market, it becomes difficult if a medicine
is not----
Mrs. JOHNSON. Even in our managed care systems, we are
really pressing them hard to say that this is their medicine of
choice, and they will cover 100 percent----
Ms. SHINER. Right.
Mrs. JOHNSON. That they will let you use that same amount
of money toward another medicine not on their formulary, but
for the same purpose.
Ms. SHINER. Right.
Mrs. JOHNSON. I think the only hope of making much progress
in these countries is to move in that direction. I am very
disappointed that we have not made greater progress. I think it
is wrong for Europe, Australia, and Asia, not to be willing to
shoulder some of the costs of advancement from which their
people benefit. Thank you. My time has expired.
Ms. SHINER. Thank you.
Mr. CRANE. Thank you. Ms. Tubbs Jones?
Ms. TUBBS JONES. Thank you, Mr. Chairman. I did not realize
I was coming up so soon. Good morning, Honorable Shiner,
Honorable Johnson. I come from the great State of Ohio, a great
manufacturing State, though we are catching hell right now as a
result of the losses we have. Domestic manufacturing is
important to Ohio, and I am generally happy that immediately
after the Australian FTA is signed, 99 percent of all
Australian tariffs on U.S.-manufactured products will be
eliminated. However, at the same time, 97 percent of all U.S.
tariffs on Australian-manufactured products will also be
eliminated. Are there any concerns that U.S. consumers will now
buy Australian-manufactured goods instead of U.S.-manufactured
goods, since almost all tariffs will be eliminated? The second
follow-up is, are there any studies that have been done on this
issue?
Ms. SHINER. In fact, we have an ITC study that is excellent
and comprehensive and looks at the impact of this agreement,
which we can get to you. It further details and looks
specifically at the impact of the agreement on industries of
concern to your district.
Ms. TUBBS JONES. Would you, please?
Ms. SHINER. I will say this--we have seen through recent
history, Australians like American products; they buy American
products. That is why we have such a trade surplus in goods.
Really, the competition is, in that marketplace, between
Japanese manufactured goods, Korean, Chinese, and us. So, this
will really help us get a competitive edge up on this.
Australia is one of the biggest investors in the United States.
It is the eighth-largest investor here. Australian firms in the
United States already employ more than 80,000 Americans, and
our exports to Australia support about 150,000 jobs here. So,
we expect that to increase. I will get back to you on whether
we have specific offensive or defensive concerns, and we can
discuss those further if that suits you.
Ms. TUBBS JONES. Honorable Mr. Johnson, my question with
regard to the exclusion of sugar from the Australian FTA--you
might have answered this already--I was kind of going back and
forth. Mr. Franklin, on behalf of the Grocery Manufacturers of
America, the exclusion of sugar from the FTA may have
compromised the overall benefits of the agreement to the
processed food sector. However, it also concerns me that the
exclusion of sugar may set a bad precedent that could weaken
the objective of achieving comprehensive trade agreements in
the future. Could you speak to that issue? If you have done it
already, I apologize for the repetition, but maybe somebody
else did not hear what you said.
Mr. JOHNSON. First of all, not to worry--I have not
answered that question.
Ms. TUBBS JONES. Great.
Mr. JOHNSON. Let me just answer it in two parts. First of
all, when it comes to our agricultural exports, again, they are
all duty free on the first day to Australia, so that includes
our processed foods. Needless to say, in this negotiation, from
an agricultural perspective, this was a very sensitive
negotiation. Our agricultural imports from Australia are about
$2.1 billion; our exports are nearly $700 million. We had
several concerns raised by the sugar industry, by the dairy
industry, by the beef industries in particular, some of the
horticultural industries--and we tried to deal sensitively with
each one of them in their own way, in order to make sure that
we were getting a high quality agreement that Ambassador Shiner
had described. So, in that sense, I think that we have
accomplished that objective. Now, from the precedent question
that you asked, each one of these negotiations will have their
own dynamics. I think it is safe to say that the dynamics that
exist in Australia are somewhat unique. It is a developed
country. It is one where we do not have as much agricultural
export interest as we do import sensitivities in many sectors.
As we look forward at these other agreements, it is clear that
there is a lot of agricultural export interest, and in order to
maintain an ambitious result, we are going to have everything
on the table. When it comes to the WTO in a broader sense, the
global agreement that we are all negotiating, the sugar
industry has been supportive of trying to get a comprehensive
global agreement to address the trade-distorting practices in
the world. So, I think our agriculture community is largely
united in that objective, including the sugar industry.
Ms. TUBBS JONES. I am smiling because I am telling him I am
almost out of time. I just want to associate myself with the
comments of my colleagues with regard to labor standards. It is
such an important issue. I hope that as we go forward with
these various trade agreements, we will pay attention to that.
Our country is supposed to be the country that sets the
standards, and we do not allow them to go under--that we stay
at a high level in the process, and language becomes important.
Mr. Chairman, I probably have 15 seconds left, and I am going
to yield them back to you.
Mr. CRANE. Thank you. Our next questioner is Mr. Houghton.
Mr. HOUGHTON. Thanks very much. I would like to follow up
on Mrs. Johnson's comment about pharmaceuticals. Are you saying
that, in effect, the only restrictions you have or the only
discipline you have in the cost of innovation being reflected
in the price is wording? There is no arithmetic, there are no
guidelines, there is no nothing? Because without that you can
do almost anything. Having been in the research business, I
know how important this thing is.
Ms. SHINER. Sir, I now spend a tremendous amount of my time
looking at how we can ensure that American innovation really
has its place in the world. One of the areas that we have done
a tremendous amount of work in is the life-saving medicines.
So, I really agree with you. How you price that, how you
communicate what goes into the next medicine that saves lives
is very critical--and how we ensure that we can continue to
develop that innovation. I just took a trip up to Rahway, New
Jersey to meet with some of the developers and scientists at
the Merck company, and it is amazing when you hear about the
next generation of medicines that are being produced there. You
look at the investment that has to go into that, and so,
whether it is, frankly, our films, our music, or our
medicines--where the cost of producing the compact disc, the
digital video disc, or the actual chemical compound is not
where----
Mr. HOUGHTON. Madam Ambassador, I understand that, and you
have done a wonderful job on this. Specifically, if you have a
State-controlled pricing system, and you do not have any sort
of discipline in terms of the country that is exporting, this
thing is just a matter of words. It is a concept. We ought to
reflect it, but we do not know how to do it. So, I am just
trying to tie it down a little bit.
Ms. SHINER. No, sir, I appreciate that, and that is why
Congress has instructed us to study the pricing systems and the
listing systems of all of the Organization for Economic Co-
operation and Development countries, the ones that have the
biggest programs, and to really develop a strategy for
approaching this issue so that we can ensure that innovation is
assured. So, as you know, we have appointed our first Assistant
USTR for Pharmaceutical Policy. This is the first team in the
world that will develop the expertise about these systems to
ensure that we can make the case for innovation with our
trading partners. We already are, and we plan to do so even
more.
Mr. HOUGHTON. How do we get back at this? I mean, we will
approve this thing; we will move along, and everybody will feel
pretty good about it. How do we get back at this, because this
is an absolutely quintessential issue.
Ms. SHINER. Sir, we have established a working group with
Australia which we also are seeking and have done, for example,
with Japan. It allows us to communicate and make some progress
on some of the core issues like the ability to make our case
and to be heard. So, I think that our pharmaceutical companies
feel that we have been able to achieve some significant
improvements here in the system, and together with you, we will
continue to look at how to approach this issue so that we can
ensure that innovation will be protected and that the rest of
the world is contributing to that critical part of this
industry.
Mr. HOUGHTON. Well, so far, innovation has not been
protected, and we all know that. So, the question is how to put
some sort of a bond on this thing. Let me just ask you one
other question in terms of the agricultural tariffs. These are
reciprocal, I assume. When 67 percent of U.S. tariffs on
agricultural products are immediately reduced--I assume it is
the same way the other way, is that right?
Mr. JOHNSON. Well, in fact, it is 100 percent--100 percent
of our agricultural products entering Australia will have zero
tariffs on the first day.
Mr. HOUGHTON. Well, what are the key areas that you say
will take 4, 10, or 18 years to resolve?
Mr. JOHNSON. You are talking about agricultural----
Mr. HOUGHTON. Yes.
Mr. JOHNSON. Productions? Well, in terms of products coming
in our direction, as we were describing earlier, there are some
high sensitivities as it relates to dairy, beef, and sugar. In
addition to that, there are several horticultural products that
we were sensitive on, and those, again, have taken longer.
Mr. HOUGHTON. As far as sugar is concerned, which is the
big issue, would that be in one of those yearly classifications
for 10 or 18 years? I mean----
Mr. JOHNSON. No, in terms of sugar, what we basically did
was maintain their current access at the WTO-allowed level that
they currently have, and have not expanded that.
Mr. HOUGHTON. Okay; thanks, Mr. Chairman. Thank you very
much.
Chairman THOMAS. Mr. Lewis? No questions? Mr. McCrery?
Mr. MCCRERY. Thank you, Mr. Chairman. I will be brief. I
just want to commend the USTR for including the question of
pharmaceutical pricing in your talks with Australia. I know it
is not a subject that USTR is accustomed to dealing with, and
it is not something that is traditionally in the trade arena,
but unfortunately, those of us who have studied health care and
pharmaceuticals for some time have reached the conclusion that
it is necessary for us to include this question in our trade
talks, not only with Australia, but with the entire
industrialized world. If we do not find some way to change the
thinking of governments of industrialized countries on this
question, I am afraid it will not be very long until consumers
in this country demand, and perhaps rightly so, that our
government take similar action with regard to pricing, and in
my view, that would be a terrible development for innovation
and for continuation of the development of life-saving and
life-extending drugs. So, I commend you for broaching this
subject, and I encourage you to continue those efforts with
other nations. I want to get back for just a moment to the
question of manufacturing and outsourcing of jobs. Ms. Tubbs
Jones broached that question, which is somewhat sensitive these
days politically. Do you think this agreement will cause more
outsourcing of jobs to Australia?
Ms. SHINER. Thank you, and first, if I could thank you for
your leadership on the issue of affordable access to medicines,
protecting innovation; we really appreciate very much the
consultations you have had and your leadership on this issue.
It is very much appreciated, because we are all facing this
challenge together. We pledge to work together with this
Committee to ensure that we are able to address this issue in a
way that benefits the American people, and an industry that we
are very proud of in the world. On the issue of outsourcing,
the dynamic of this agreement is one that I think is a real win
for the American worker. Australia is one of the biggest
investors into the United States, and Australian-investment
businesses in the United States employ almost 100,000 U.S.
workers right now. We expect that with a closer partnership,
that will increase. I will look further into the issue of
whether or not there is a real dynamic of outsourcing there. It
has not been a character, really, of the relationship, and
again, it is just one where Australians have loved American
products. This is going to provide us a more competitive edge
there, and will allow, with customs facilitation, our goods to
get in there quicker. It is worth taking a look at, and I work
closely with the Congresswoman on other questions she has had
on this, so we will look further to see if there are any
concerns that we should be particularly aware of in that area.
Mr. MCCRERY. Well, you have mentioned a couple of times
Australian investment in the United States, and that this
agreement should encourage additional investment in the United
States--that is really the reverse of outsourcing, is it not?
It is insourcing. What happens when other countries insource to
this country? We create jobs here. So, I am glad that you are
mentioning that as a benefit of this agreement. Another
benefit, would it not be, that American companies that purchase
inputs for their manufacturing from Australia will see their
costs of doing business reduced, because those input costs will
be reduced when the tariffs on this country are released.
Ms. SHINER. Yes, sir, and I have been impressed. The ITC
report, which are always excellent--we really have an excellent
component to our trade agreements with the ITC and the reports
they have done, and we have put a tremendous burden on them.
Just reading through on this agreement, it is remarkable the
areas of complementarity and the benefits that I believe will
come in a critical area that has been a major concern for all
of you, which is our manufacturing sector. We are the most
innovative country in the world in manufactured goods. When
they are given a level playing field, our small and medium
manufacturers are able to compete. This is an agreement that
they have strongly supported because they see that the nature
of the relationship is one that is a win. In addition,
Australia and the United States share a common cause in being
able to compete in the Asia-Pacific region. So, being able to
form a common alliance on the economic front where we can find
mutual benefits in the Association of Southeast Asian Nations
region and Northeast Asia is one that I think is another
benefit that we will begin to see of this.
Mr. MCCRERY. Thank you.
Mr. CRANE. [Presiding.] Now, I would like to yield 5
minutes to our distinguished Chair of the Aussie Caucus, Ms.
Dunn.
Ms. DUNN. Thank you very much, Mr. Chairman. I am sorry I
was missing for my question period. Just so you all appreciate,
there are problems that crop up when a Member of Congress is
about 3,000 miles away from her home, and a pipe bursts
underneath her garage floor, and the whole thing has to be torn
up. So, I am back, and I appreciate, and I want to congratulate
you for the excellent work you have done in negotiating this
agreement, moving it along briskly. I also want to pay
compliments to our colleague, Cal Dooley, who has been my Co-
Chair of the Australian Caucus and has consistently been there
with good, correct information, and conversations with Members
of Congress who need to know just a little bit more about some
area; and also he has given us a particularly important view
into the sense of support that exists on this agreement from
both sides in the U.S. Congress. He has been invaluable. It is
an important agreement from my perspective because our State of
Washington is the number one trader with Australia. We sell
Boeing aircraft; we sell software. Boeing aircraft comprise 95
percent of the Qantas Airline fleet, for example, and with the
reduction of the tariff, we certainly look for increased value
being available there. This agreement does, I think, in
contrast to what one of your earlier questioners was saying,
create a lot of benefits for the United States, certainly
starting with the immediate $2 billion of greater sales to the
manufacturing sector, and many of us are concerned about that.
It is a fact of free and global trade that manufacturing
goes to the area that can produce it most efficiently, and so,
we are seeing some--not as great as some people would like to
think in hyperbolic statements of movement of manufacturing
overseas, but certainly, this allows our manufacturing sector
to benefit hugely to the tune of $2 billion. I think what
should be said on behalf of Australia in addition is that this
economic agreement continues our friendship and brings it in
line with the security partnership that we have had and shared
for many, many years with the nation of Australia. Their people
were on the shores in Normandy, too, and their Prime Minister
was there celebrating. Many of you saw him and heard his
speeches on television. They have consistently been with us in
security arrangements through the decades. They are our very
good friend and ally, and we do share a common culture, a
common rule of law, and a common, in many cases, approach to
how we do business. I am interested in one sector, and I know
that you can answer my question that was brought up by
Congressman Levin on SPS--you did not get a chance to answer
that. I would like you to bring us up to date on how we are
resolving the issues that are so critical to our farmers,
particularly those who are in the eastern side of my State who
raise stone fruit and also apples. Can you tell us where that
issue stands now, please?
Mr. JOHNSON. Sure, let me just go back, because I think it
will make you more comfortable with the answer if I describe
the process, which is, we have been working for over 2 years
with Australia in trying to strengthen our relationship and
dialogue on SPS issues. The government of Australia has
improved the transparency of its regulatory process, and we
have a better understanding of how they are addressing these
issues. We have worked with them in identifying the different
list of products, where they are in the regulatory process. We
have some encouragement with what we have already seen happen
with grapes; we have already seen happen with pork; we have
already seen happen with beef; we have already seen progress on
Florida citrus. When it comes to stone fruit in particular,
Australia has agreed to initiate an import risk assessment
process in July, next month, and we are focusing on getting an
expedited risk assessment for apples when Australia completes
an apple import risk assessment, final risk assessment on New
Zealand, which we will be commenting on ourselves. The idea is
that as Australia opens that market for New Zealand apples, we
are going to be able to take advantage of what they are already
doing for New Zealand, and try to expedite that process for
ourselves. I think the one point I would make to Congressman
Levin was that he made the comment that there are no assured
results. Well, our regulatory agencies feel similarly, as do
Australian regulatory agencies, which is, decisions need to be
based on science. They are not going to prejudge the outcome,
but they are committed to a science-based decision process.
Sometimes, we think they are too conservative in their
approach, admittedly, but we now have a working group and
technical groups for working through these issues as they come
up, and we have some evidence of success.
Ms. DUNN. Thank you, Mr. Chairman.
Chairman THOMAS. Mr. Becerra?
Mr. BECERRA. Thank you, Mr. Chairman, and Ambassadors,
thank you very much for being here. Let me see if I can get
through about three questions. Let me start with a technical
one, which perhaps you can answer in writing later on. It has
to do with the copyright section of the FTA with Australia. By
the way, first, congratulations on the work. It was done in a
way that was surprisingly rapid, and sometimes, these things
can get bogged down, so congratulations to you and to our
Australian counterparts for being willing to negotiate in a
rapid fashion. In the copyright section of the FTA, there is a
section providing for the transfer of economic rights in
section 17.4, and specifically paragraph 6, and you do not need
to look at it right now. What I would like to do is see if you
can, and maybe you already off the top of your head know this,
but I would like to know if you can give me a sense of how that
particular provision has been applied or interpreted by USTR.
It is a provision that exists in the North American Free Trade
Agreement. It was in the Chile and Singapore FTAs, and it deals
again with this whole issue of transfer of economic rights. The
question I would have for you is, do we have any history now
that we can use based on the previous FTAs that include this,
or is there a particular interpretation that USTR has with
regard to this section and to the question of whether it
includes the transfer of equitable remuneration, which is
another way of saying royalties. That is a question which has
arisen. I have been asked about it, and I would love to know
what your response is--if there is a history now to it from the
previous FTAs, or if you can give us an interpretation. So,
Ambassador Shiner, I will leave it at that unless you have
something you can say on it. If you have something you can say
on it, great; otherwise, I will move on.
[The information follows:]

Washington, DC 20515
July 7, 2004

Honorable Robert B. Zoellick
U.S. Trade Representative
600 17th Street N.W.
Washington, D.C. 20508

Dear Mr. Ambassador:

We write to you with a concern related to a copyright provision in
the Australia-U.S. Free Trade Agreement (``FTA''). We support strong
copyright protections and measures to combat piracy; at the same time,
we also believe that trade agreements support the ability of audio and
audio-visual performers to retain their intellectual property rights.
In that regard, we are concerned that one provision of the
Australia-U.S. FTA could be used to undermine such rights. Accordingly,
we would like to urge that USTR indicate its opposition to using the
provision in that manner and that the provision not be included in
future agreements. Further, we ask that USTR affirm that it does not
interpret the provision to apply to the moral rights or equitable
remuneration rights of performers.
The provision at issue is paragraph 6, of section 17.4 of the FTA.
This provision appears to obligate both Parties to the FTA to respect
transfers of rights under contracts of employment in either Party. In
the United States, such contracts could result in some works being
considered as ``works for hire.'' If the language of this provision is
misused to obligate the government of Australia to recognize and
approve ``work for hire'' rules, legitimate claims by U.S. performers
to royalties and other funds that may be established for their benefit
in Australia would be subverted.
Such an expansion--and extraterritorial application--of the U.S.
``work for hire'' doctrine does not appear essential or integral to
valid U.S. trade policy objectives, which include simplifying rules
regarding transfers of copyright ownership in order to protect U.S.
copyrights. In fact, such ``work for hire'' rules do not appear to have
any counterpart in international copyright agreements to which the
United States is a party.
Finally, we would note that the provision at issue is also
contained in the recent FTAs with Singapore and Chile, as well as other
recently negotiated FTAs. This fact makes the points noted above even
more essential.
We look forward to your response to this issue that is so vital to
U.S. performers and other copyright holders.

Sincerely,
Charles B. Rangel
M.O.C.

John Conyers, Jr.
M.O.C.

Robert T. Matsui
M.O.C.

Sander Levin
M.O.C.

Xavier Becerra
M.O.C.

Ms. SHINER. Well, I first want to thank you, because we
have worked very closely in ensuring that we get increased
market access for films, and you are a real advocate in that. I
do want to assure you that we have worked very closely with the
Motion Picture Association of America and others to be sure
that we have a gold-plated intellectual property section here.
We will get back to you on the details of that, but also, we
were able to achieve some increased market access for our films
in Australia that is significant, and especially dealing with
some of the cultural restrictions that had been problematic.
So, we look forward to getting back to you on that and ensuring
that we are taking care of any concerns you might have.
Mr. BECERRA. Thank you, Ambassador. Let me ask you, on
intellectual property rights, and again, I think that USTR has
done a tremendous job of ensuring that what we produce here,
the intellectual minds that have created so many different
things, that those rights are protected, and we want to thank
you for that work and making sure that piracy is something that
we fight tooth and nail. In the provisions of the FTA with
Australia, we negotiated some pretty tight provisions,
extremely strong enforcement provisions; there are
requirements, not permissive terms, in the agreement, and I
think that is all well and good. I am wondering: Australia is
not one of those countries that we list on that list of
countries that is a huge violator of our intellectual property
laws. It is not one of the major pirates in the world that is
abusing our--whether it is our software or movies or music. We
went ahead, and we have an agreement here that would be as good
if not better than previous FTAs. I am wondering if you can
give me a comparison: Australia also has a great record when it
comes to labor issues. Its workplace protections, the fact that
its minimum wage is higher than the U.S. minimum wage. Yet, our
provisions in this FTA continue with the old song of enforce
your own laws. Well, perhaps with Australia, that is okay, but
if we take a look at what we have done with Australia and
compare it to what the USTR did with regard to Central America,
where we know that there is not enforcement of many of their
labor laws, and some of their labor laws, we know, are not
good, there was nothing different done when it came to labor.
When it came to intellectual property, we fought tooth and nail
to get those same very vigorous protections. So, can you
explain why we are not treating the various issues in similar
ways, fighting hard, as we should, for intellectual property,
but seemingly not fighting hard for our working men and women
here to make sure that there is not a comparative advantage in
these other countries based on unfair labor standards?
Ms. SHINER. Sir, thank you. Let me make an attempt at
addressing those. First of all, I do believe that fighting for
intellectual property protections around the world is fighting
for our workers, because innovation is really at the heart and
soul of what America does now.
Mr. BECERRA. I agree with you. I agree with you.
Ms. SHINER. I think just to really recognize what our
country has done when, in the nineties, we were able to get
global rules protecting intellectual property, and the United
States was strongly supporting those in the WTO. Australia has
been an important partner in that. We have similar values when
it comes to this, and there is no disagreement on these issues.
Now that these laws exist, the real trick is effective
deterrence: how do we ensure that we can enforce those rules in
a way that puts the counterfeiters and the pirates out of
business around the world? So, I think that you will see that
the United States and Australia have been strong partners in
this. We use these FTAs as a way to upgrade and update
intellectual property rules to fit the digital era. So, for
example, as we know, we have a major problem, the world has a
major problem with our songs and films being downloaded, and
there not being in place laws from the nineties, because this
did not exist as a problem from before. So, it is not so much
people pirating disks, although that remains a huge problem--
but we are going to move more and more to a place where,
through technical means, people can get access to our
innovations and not pay for them. That is not right. So, in a
way, our FTAs are our way of being able to upgrade laws around
the world to make the case for digital protections, and to
bring, hopefully, our FTAs into compliance with our own
millennium digital copyright rules. So, we feel it is
important. With Australia, we are both facing similar
challenges, which is more computer downloads and others; it is
more the new era of counterfeiting and piracy rather than the
traditional means that we are seeing and fighting so much in
China, and that we have worked very closely with this Committee
to address.
Mr. BECERRA. I agree with everything you have said in terms
of trying to upgrade the laws. I just think that we missed the
boat in not trying to upgrade the labor laws in places like
Central America.
Ms. SHINER. Well, I will just say that Australia is a
leader in labor laws and standards and conditions around the
world, and what we really found ourselves sharing about is how
we could work together in the region to upgrade the laws of
those in the region, how we could be partners in this cause
together, because it was not our assessment that we needed them
to change our labor laws, or we needed to change theirs--just
as we would not want them telling us precisely how to do
business in this area. It is not a permission that the Congress
has given us as trade negotiators to change our laws. They also
felt the same way. They have very high standards. I think we
have formed a partnership that will be important in looking at
labor protections, and labor safety in the region. There is a
lot of work to be done, and I think we have a new partnership
in that area.
Mr. CRANE. [Presiding.] Mr. Shaw?
Mr. SHAW. Thank you, Mr. Chairman. First of all, I would
like to--as many other Members have pointed out, I think the
United States does not have any better friend in the world than
Australia, and I think that has been proven time and time
again, confrontation after confrontation. I would guess that if
you were to do a poll of Americans, and I think if your
favorable/unfavorable rating were of Australia, that they would
be number one in the world among Americans. We like the way
they think; we like their friendliness; we like the way they
talk. This is business, and we have got to get down to
business; it is very important that we be sure that we take
care of the industries that we represent. I want to address for
just a moment the phytosanitary issues regarding fresh fruit
and vegetables, and most specifically citrus. Ambassador
Johnson hit upon, briefly, the question; he mentioned the word
citrus in responding to Jennifer Dunn's question regarding
other types of fruit.
The Indian River Citrus League in Florida has raised
concern that they think because of the phytosanitary issues,
they are being discriminated against as to the exportation of
the fruit itself. As I understand it, I think that everything
is all right as far as the juice is concerned. I am not
positive of that, but I do not think there is any problem
there; but as far as the actual exportation of the fruit
itself, there is a problem. Now, phytosanitary is just
regarding safety issues as to whether or not the fruit would be
safe for consumption, and I have never heard of any issue being
raised anywhere with regard to the safety of Florida citrus, as
far as consumption is concerned. How does this trade agreement
face that question? Does it give our citrus people some relief?
Will there be--can they look for a better day with this
agreement than they have under the restrictions under which
they act now? I would address that to either one of you. I
think, Ambassador Johnson, it is probably more in his line than
anybody else.
Mr. JOHNSON. First of all, I have to chuckle. I agree with
your assessment of U.S. citizens' opinions of Australia, and
Australia's opinions of the United States. I think it is safe
to say for both of us, there were several weeks where we did
not like a lot of what they thought, and they did not like a
lot of what we thought; but it shows how we can work together
as partners through very difficult issues and come up with an
agreement that is very good for both of us and reaffirms the
relationship and how close it is. As it relates to Florida
citrus in general, the agreement itself is not designed to
decide sanitary and phytosanitary issues, but it does decide
that we have duty free access into Australia. What we did do
was to use the focus of the agreement to focus on several SPS
issues that have been outstanding, some of which for a long,
long time, in order to get them decided and determined on a
science-based basis. Florida citrus, actually, we think is
going to be one of those success stories in that process. We
are expecting an import risk assessment that is going to allow
for the importation of Florida citrus. We are expecting that
soon.
Mr. SHAW. So, the answer to my question is that you think
that the citrus people will be benefited by this agreement
under the questions of what is, and is not, a sanitary issue.
Mr. JOHNSON. Yes, again, we have to be very careful about
this, because our regulators are very jealous about that. We do
not negotiate the sanitary and phytosanitary barriers. I think
our focus from this negotiation has gotten them to focus and
realize some of the things you just said, which is that this
import risk assessment will determine and allow for the
exportation of our Florida citrus--we are expecting that
sometime soon.
Mr. SHAW. We will keep an eye on it. Thank you very much.
Mr. JOHNSON. Yes, so will we.
Mr. SHAW. I yield back, Mr. Chairman.
Mr. CRANE. Thank you. Mr. Foley?
Mr. FOLEY. Thank you very much, Mr. Chairman, and I, too,
would like to extend my thanks and appreciation for the
provisions on intellectual property in music, movies, and
pharmaceuticals. I also would like to ask the question relative
to homeland security, since as we embark on additional trade
missions, we will see a greater influx of containers. During
the negotiations, what specifically do we ask of partner
nations about monitoring the things that are going in cargo
holds, the security that they are providing? Are those issues
as firmly negotiated as some of these other aspects of trade?
Ms. SHINER. Sir, as you know, monitoring the contents of
containers is an issue that has recently come to our national
focus and attention, and which we are addressing through the
container security initiative. I have personally had the
opportunity to meet with customs officials in the nations that
we trade with to look at how this process works, because
obviously, it affects, ultimately, our commercial trade also,
and how easily that can be facilitated. This has not been
previously a major focus of trade agreements. We launched the
FTA with Thailand, and we have had a model program going with a
port in Thailand for the container security initiative. We are
looking at whether or not there would be a way in these
agreements to help facilitate that aspect of trade, and whether
there would be a way to help address our mutual concerns and
interests. So, I look forward to getting your thoughts on this,
because I think it might be one area that we could find a
really good blend between our national interest and our
commercial interest, and how we ensure that our ports not only
move our goods quickly, but also safely--and how we create a
safer world for the United States and our partners.
Mr. FOLEY. We just returned from a weekend in Guatemala and
Colombia, meeting with the presidents of both countries, and
trade, obviously, was a key part of the discussion--CAFTA
specifically. When we broached the subject of the security
piece, that seems to be given short shrift, like we cannot
afford it; we do not have enough people. So, that is why I want
to dramatically emphasize, because the United States has done a
good job of securing airports: passengers boarding, frisk-
searched; you almost need a robe when you get on to get through
taking your shoes off, belts. When it comes to the trains and
the ports, I sense there is a vulnerability. So, I hope that
this becomes one of the key provisions of--if we are going to
embark on this trading relationship more aggressively, we
absolutely must put in place a mutual effort; our people, their
people working together at ports on both ends to assure safety,
contraband from drugs, human smuggling, and regrettably, a
potential for dirty bombs and things of that nature.
Ms. SHINER. Sir, I completely agree with you. Again, I
think this would be an interesting conversation for us to
continue. One thing we have found, to our surprise, is as we
increase security, which requires a technological overhaul of
our container movement around the world, we thought it would
flummox trade. When we really get these systems in place, it
speeds it up, because we are able to weed out the bad actors
and the bad players in a much more efficient manner, and are
able to inspect. So, for example, at the port in Hong Kong,
which I spent a couple of days going through, they now have the
technical means to scan these containers much more quickly.
When we can upgrade the ports--and obviously, countries like
Guatemala are going to face the biggest challenges, because
they do not have the resources--but as we do it at the
countries that can afford this, we are setting a model, I
think, where security does not have to flummox trade but
actually can facilitate it if we approach it right. So, I have
worked closely with the U.S. Department of Homeland Security,
with Customs, and with the U.S. Department of State on this. I
know it is a key concern for Secretary Ridge, Secretary Powell,
Ambassador Zoellick, and Secretary Evans.
Mr. FOLEY. Thank you.
Ms. SHINER. So, we look forward to your thoughts on it
more.
Mr. FOLEY. Mr. Johnson, relative to sugar, I obviously want
to thank you for excluding it in this negotiation. I would like
to know your thoughts, though, at what is the determinant when
you decide to leave something like that off an agreement?
Because we are discussing CAFTA, sensitive to my district,
Florida sugar, oranges, Brazil--you know my issues. At what
point do you make the decision it is in or it is out? How do
you reconcile those?
Mr. JOHNSON. Well, I think it is safe to say that--we were
talking about this just a little earlier--in the Australian
agreement, from a U.S. agricultural perspective, there is some
offensive interest, but there is far more defensive interest.
So, in many ways, in order to create a balance that encouraged
us to get the market access that we needed for our agricultural
products, we were able to achieve that without having sugar as
part of that package. I think in the other negotiation that you
mentioned, and other negotiations we will face, our
agricultural export interests are broad and deep. We are very
sensitive about not having other countries taking products off
the table, in which case, then, we included sugar as part of
these other negotiations. Even then, as you know, because we
have talked about this, we try to deal with this very
sensitively in terms of the out of quota tariff reductions; in
terms of the quantities that are allowed in; in terms of how we
deal with substitution and other issues that are more technical
in nature. It is not just an issue, in other words, of
including it or not including it. It is also an issue of how
you deal with it when it is included, and I think we have got a
record of trying to deal with it very sensitively even when it
is included.
Mr. FOLEY. Thank you, Mr. Chairman.
Mr. CRANE. Thank you. Mr. English?
Mr. ENGLISH. Thank you, Mr. Chairman. Ambassador Shiner, I
wanted to clarify some things, because I honestly have been
rather confused by some of the points being made by a number of
the Members of the Committee on the whole issue of core labor
standards. My understanding is that the wage scales in
Australia are actually higher than those in most parts of the
United States; is that not true?
Ms. SHINER. Sir, I do not know the specifics of that. I do
know that they certainly lead the world in labor issues and
that may be one of them.
Mr. ENGLISH. So, you are not sure, but your impression is
that when it comes to the strength of their labor laws, the
right to strike, the basic rights that we accord workers and
the cost of doing so, Australia is at least on a par with the
United States?
Ms. SHINER. Yes, sir.
Mr. ENGLISH. I wonder if the Office of the USTR could
submit to the Committee for our use a specific side-by-side
comparison, if you have one, of those points. I think it would
be enormously useful. One of the things that I have had the
difficulty understanding is the abstract argument used by some
in Congress that we must have a cookie cutter approach to core
labor standards that requires us to negotiate the same thing
with every trade agreement that we seek. In the case of
Australia, I do not understand why anyone would argue,
depending on what you bring forward for us, why we would be
required to have, as a part of this trade agreement, core labor
standards. I certainly--to me, it smacks of a unilateralism
which is not particularly useful in reaching out to other
countries, but beyond that, it seems to be a distraction from
some of the real objectives that we have in this agreement.
Now, I want to move over and specifically talk about
manufacturing. Do you have any studies that would allow us to
interpret how manufacturing is likely to benefit in aggregate
terms by access to the Australian market? Are there any
economic projections of what the net effect would be for our
manufacturing sector of this FTA?
[The information is being retained in the Committee files.]
Ms. SHINER. Sir, the ITC study deals with it sector-by-
sector, and in aggregate, and does predict real benefits for
our manufacturing sector, and we could certainly pull out the
highlights of that for you. There are a couple of elements of
that benefit. One is the immediate reduction in tariffs; which,
for example, for our chemical manufacturers will mean a $41
million immediate benefit. Our auto parts and auto
manufacturers will see an estimated $130 million immediate
benefit. We export, as you know, four times as much in autos
and auto parts to Australia as they export to us. So, that is
also a real win for us. In machinery, the ITC expects a $135
million immediate benefit from the reduction of tariffs. Access
to government procurement contracts is also going to be key for
that sector. So, the ITC has looked at all of these factors and
made an assessment of that, and it predicts real dollar
benefits for Americans--and we can get you the details of that.
Mr. ENGLISH. That would be most helpful. Can you tell us,
based on the most current figures, what the current balance of
trade is between the United States and Australia?
[The information is being retained in the Committee files.]
Ms. SHINER. Sir, as of last year, we had a $9 billion
surplus about, estimate, with Australia; $6 billion of that was
in our manufactured goods, which represent 95 percent of our
trade with Australia--our exports.
Mr. ENGLISH. So, in terms of an overall candidate for an
FTA, and particularly a candidate for an FTA in which
manufacturing would be particularly benefited, it is hard to
imagine a stronger candidate than Australia; is that fair to
say?
Ms. SHINER. It is fair to say, sir, and it is why the NAM
had dubbed this early on the manufacturing FTA, and why many of
you have advocated very much for this very FTA, because it
brings such clear benefits to a sector in America that we all
want to give a real boost to--which are manufacturers. So, you
have been a lead in focusing our attention on that. Sir, if I
could just also thank you for your focusing our attention on
China's discriminatory taxation of our semiconductor industry--
--
Mr. ENGLISH. Yes.
Ms. SHINER. As you know, we brought the first WTO case
against China on that issue with your urging, and these kinds
of wins and efforts for our manufacturing community are ones
that you continually focus our attention on. We appreciate it.
This agreement is a real plus for them.
Mr. ENGLISH. Well, thank you, Ambassador, and thank you,
Mr. Chairman, for allowing me the time to complete this line of
questioning. I think the Administration deserves credit not
only for negotiating this FTA in a manner, I think, very
sensitive to the concerns of manufacturing, but also being
willing to take on China trade in a very aggressive way; and I
thank you, Ambassador, for all of your efforts, particularly in
that regard. Thank you, Mr. Chairman.
Mr. CRANE. Yes. Mr. Herger?
Mr. HERGER. Thank you, Mr. Chairman. I want to join in
welcoming our Ambassadors, Shiner and Johnson, here to our
Committee, and really the outstanding work that you are doing.
I do not think anything is more important to the prosperity of
our economy than that of trade, and certainly, that is
represented in the district that I have the honor of
representing in Northern California, which has heavy
agriculture in it, which is so dependent on our ability to be
able to trade and trade in an equitable way. So, thank you for
the work you have done here on this Australian FTA, and others.
I do want to emphasize, Ambassador Shiner, another point that
has been made by several who have questioned before me, and
that is on pharmaceuticals. One of the greatest issues we see,
one of the biggest issues in our district is how our drug
costs--our miracle drugs are so expensive, and to see the
American consumer so paying the vast majority of the research
and development costs of these miracle drugs that we have, and
our trading partners paying a much lesser degree, cannot be
emphasized enough how important it is on these trade agreements
to ensure that the rest of the world is paying their fair share
of our Americans developing these great drugs. Another area--it
is clear that the Chile and Singapore agreements were used as
models for this fair trade agreement, but at the same time,
there are some significant differences. Are there any new
provisions in the FTA which are not in the Chile and Singapore,
but which you feel are beneficial and should be carried over
into the future FTAs?
Ms. SHINER. Well, sir, there is an approach we try to take
in the FTAs where we keep a very high standard across all
sectors, and that certainly holds true here, and held true in
Chile and Singapore. You do need to customize based on what the
economy that you are negotiating with represents, and also,
obviously, based on their interests. So, one of the areas that
is key, I think, is in the area of pharmaceuticals, where we
had a number of issues regarding transparency, and where we
wanted to really set some common principles. So, that is one
area where you will see a different approach because the
systems are different than we had in those previous agreements.
Another area we had was access for U.S. films and other
entertainment products. We have a very close relationship with
Australia culturally. We benefit from their actors and their
products, and they benefit from ours, and this was an area that
was not so major in our other agreements, but was really
critical in this one. So, I know it is a major industry in
California, and it is one that we worked very closely with to
ensure that this was customized in this product to bring real
benefits to that industry.
Mr. HERGER. Thank you very much, Ambassador Johnson, again,
for your diligent work working with our agricultural community.
We are looking forward to having you come and visit with us in
the middle of August, so again, thank you for all of your work.
Mr. JOHNSON. Thank you.
Mr. HERGER. I yield back my time.
Mr. CRANE. Mr. Pomeroy?
Mr. POMEROY. I thank the Chair. I want to express at the
outset my high regard for the work each of you has done as part
of an extraordinary trade team of the Administration. I just
really marvel at your broad grasp of so many issues. Now, to
the Australian Wheat Board. There are some disturbing reports
of the Australian Wheat Board selling to Saddam Hussein's
Iraq--wheat price double what ours was available for. I do not
know if there has been a definitive determination of whether
there were any kickbacks involved in any of these arrangements,
but it really brings to the fore the whole range of issues of
how do you trade against an entity that is so completely
without transparency, and so unilaterally can control the
dimensions of the entire wheat market for Australia. Now, I
note that while the Australia Wheat Board is left intact in
this agreement, there is some kind of commitment extracted that
they will work within the WTO to develop export competition
disciplines that eliminate restrictions on right of entities to
export. Will you please tell me what that means and what kind
of cooperation we can expect from Australia as we really try to
deal with the unfair international competitive advantages of
State trading enterprises. I know that Ambassador Zoellick
feels strongly about this, so this will be something that you
will have spent some time on. I just do not understand it at
this point.
Mr. JOHNSON. Well, first of all, I appreciate your
comments. As you might recall, when I went to North Dakota
after a positive 301 determination a few years ago, we outlined
a four-prong strategy for trying to deal with export State
trading enterprises--basically, monopolies. In that, what we
identified in the case of Canada was a negotiation which we
tried to pursue, a WTO case, which we have pursued one part; we
have appealed the other parts. We pursued anti-dumping and
countervailing duty actions, which are currently existing with
the industry. Then, the last part is this negotiation in the
WTO. We put forward the exact same points you just did, which
is, we want to see transparency; we want to see an end to
monopoly control; and we do not want to see government
underwriting of these State trading enterprises. As we went
into the negotiations in Geneva, consistently what we had was
us on one side with a few other countries, and on the other
side, you had Australia, Canada, and a few others. As a part of
this FTA negotiation, of course, we wanted to see disciplines
on the Australian Wheat Board; they wanted to see disciplines
on our subsidies and other practices; and we both understood
that what we really need is an aggressive, comprehensive
agreement in the WTO. Australia has agreed as part of a
comprehensive agreement that it will address these concerns
that you and I share, and that is very important, because it
then basically creates a situation where Canada is more
isolated, as you and I have talked about, and it increases our
probability of success. Even in the last few weeks and months,
we have had a very constructive working relationship with
Australia in trying to move forward a comprehensive agreement
in the WTO that includes disciplines on State trading
enterprises.
Mr. POMEROY. Thank you. Thank you, Mr. Chairman. Yield
back.
Mr. CRANE. Thank you. Mr. Weller?
Mr. WELLER. Thank you, Mr. Chairman, and let me begin by
commending the Bush Administration, Ambassador Zoellick,
Ambassador Shiner, and Ambassador Johnson, on the result of
your good work on the U.S.-Australian FTA. You know, this is
just one more example of what I believe is a positive effort as
we work to compete in the world economy. I look at the work in
the Special Trade Representative's office on the CAFTA, on the
Dominican trade agreement, Morocco, our efforts in Panama, as
well as the startup we have now with our friends in the Andean
countries. We have to recognize, of course, we are a Nation of
about 200 million people, 290 million people, but there are 5.5
billion people around the globe. It is pretty obvious where the
customers are and where the opportunity to grow our economy is.
So, I salute you and commend you on your efforts to break down
trade barriers. You know, Illinois is a manufacturing State,
and Mr. English really focused on many of the questions I
wanted to ask--but I always like to point out that my own
family has faced some of the challenges that the manufacturing
sector has experienced. Illinois is a State which has lost
manufacturing jobs. My own brother, a manufacturing worker,
lost his job with a manufacturer as a result of too much
litigation. A frustrated employer just said the heck with it,
shut down the plant, and he and several hundred other workers
lost their jobs because of too much--too many lawsuits.
He became employed again and obtained a new job as a result
of an export contract--another manufacturer who obtained an
export contract, an opportunity to sell products abroad and
have put Illinois workers to work. Unfortunately, our State
Legislature and Governor have just imposed some new taxes on
top of business, so it makes it even harder to employ people in
my State of Illinois. I really want to note that from a
manufacturing perspective, I want to congratulate you. You
know, when more than 99 percent of U.S. manufacturing exports
to Australia become duty free immediately upon entry into force
of this agreement, this clearly is the most significant
reduction in industrial tariffs ever achieved in a FTA. So, I
want to salute you for that, and economic analysis suggests
that means $2 billion in new demand for U.S. manufactured
goods. So, I salute you for that. Mr. Chairman, I look forward
to working with you for ratification of this trade agreement
before the Congress. My hope is that we will move quickly in
that direction, and I want to thank you for your work, and
thank you for appearing before the Committee today.
Mr. CRANE. Let me express appreciation to both of you, Ms.
Shiner and Mr. Johnson, for your participation today. With
that, I would like to now call our second panel.
Mr. RYAN. Phil?
Mr. CRANE. Oh, wait, excuse me. I am sorry. Mr. Ryan? Hold
on.
Mr. RYAN. Just one minute. Mr. Chairman, sorry. Real
quickly, like Pennsylvania and Illinois, I come from Wisconsin,
which is a very, very large manufacturing State. We have the
second most manufacturing jobs per capita in the country. So,
this is a perfect agreement for manufacturing. This is a
wonderful agreement for our manufacturers. We, too, however,
though, are the dairy State, and we call ourselves America's
dairyland. So, Mr. Johnson, I wanted to just go over quickly
with you--it is my opinion from looking at this agreement that
the concerns of the dairy industry were very much taken care of
and accounted for in this. That story has not been told well
enough to many in the dairy industry, especially the producers.
Now, what I would like to ask you is, if you could just quickly
and briefly go through how the dairy industry was accommodated
in this agreement and why those in the dairy industry who had
concerns prior to the finalizing of this agreement, those
concerns have been allayed. That is a story that we need to
tell. Other legislators are going to be voting on this in the
dairy parts of our country.
Mr. JOHNSON. I personally feel a very strong working
relationship with our dairy industry, and not just in this
agreement but in all the other agreements that we have been
working together on. So, right before the negotiations started,
Ambassador Zoellick and I had a meeting with the leaders of the
dairy industry, and they identified to us their important
issues and priorities. The first one to us was maintaining the
out of quota tariff. They did not want to see that reduced. We
were able to achieve that. It was a difficult negotiation,
frankly, but we were able to achieve their top priority. The
second concern was that the amount of product being let in
under the tariff rate quota would be manageable and not
disruptive. So, again, as I have pointed out earlier, the
amount of product being let in in the first year is equal to
0.2 percent of the value of U.S. dairy production. Then, we
looked at the growth rates on these numbers to make sure that
the more sensitive items grew at a slower rate. So, I think,
again, that addresses it. As we look to the program itself, we
wanted to make sure that we maintained its operational
effectiveness, which we were able to do as well.
Mr. RYAN. Is it true that milk protein concentrates are not
subsidized in Australia?
Mr. JOHNSON. No, I do not believe they are. At any rate,
the gist of it is, even on a tonnage basis, when you look at
the milk equivalent, the amount of tonnage being let in is
equal to about 0.03 percent of the U.S. production of milk, so
we think we are very sensitive to it. That is not to say that
our dairy friends do not have some concerns about it. We
addressed those as best we could, and we are going to continue
to work with them hard in other agreements, including the
global negotiations.
Mr. RYAN. All right; thank you very much. Thank you, Mr.
Chairman.
Mr. CRANE. Thank you. With that, I will now excuse you
folks and thank you for your participation today. I would like
to now call before us the second panel: David Sundin, President
and Chief Executive Officer of Dielectric Systems, Inc. (DSI)
Fluids, on behalf of the U.S. Chamber of Commerce; Russell
Shade, Chief Executive Officer, High Voltage Engineering (HVE)
Corporation, on behalf of NAM; Hugh Stephens, on behalf of the
American-Australian FTA Coalition; David Wagner, Vice President
of Jim Beam's Brands Companies, on behalf of Distilled Spirits
Council of the United States; and George Franklin, Vice
President for Worldwide Government Relations with the Kellogg
Company, on behalf of the Grocery Manufacturers of America. I
would like to ask you, panelists, if you will, follow the light
and try and keep your presentations to 2 minutes or less, and
any additional statements will be made a part of the permanent
record. I apologize for this, but we have votes that will be
coming up, and as I understand it, there are some of you who
have 1:30 p.m. flights to get out of town. So, with that, we
will start with the order in which I presented you. Mr. Sundin?

STATEMENT OF DAVID SUNDIN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, DIELECTRIC SYSTEMS, INC. FLUIDS, TYLER, TEXAS, ON
BEHALF OF THE U.S. CHAMBER OF COMMERCE

Mr. SUNDIN. Thank you very much, Mr. Chairman. I thank you
for the opportunity for me to come and make this presentation
today on behalf of the U.S. Chamber of Commerce and of DSI
Fluids, my company, on the benefits of the Australia FTA. As a
U.S. Chamber member, I am proud to have my company featured in
a recent publication called, ``Faces of Trade with Australia,''
that I am sure the U.S. Chamber will be happy to distribute to
you. My company, DSI Fluids, is a family-owned company in
Tyler, Texas. We manufacture heat transfer fluids, electrical
insulating fluids, and synthetic lubricants. We export about 50
percent of what we manufacture around the world, and about 5
percent of our manufacturing capacity goes straight to
Australia. In the interests of brevity, I am going to talk
about something that is very near to my heart, which is how
this FTA will impact DSI Fluids. Our highly biodegradable
products help our customers minimize their environmental
impact. Our synthetic lubricants have been shown to maximize
fuel economy and energy savings. We also sell fire-resistant
transformer oils which raise the fire safety of electrical
distribution networks worldwide.
In 2004, we expect that about $100,000 of our company's
gross sales, or about 5 percent, will be due to exports with
Australia. We compete in an international market with a handful
of very specialized lubricant manufacturers. Lower tariffs will
allow us to be more competitive in the Australian market. When
the United States enters into a trade agreement that reduces
trade barriers, it lowers the costs that our customers have to
pay for our products. That money comes straight to Tyler,
Texas, and pays for our employees' salaries and our raw
materials. The money ripples through the economy of East Texas
five times, I have been told by economists that it turns over,
and it helps buy our groceries, our houses, our clothes, and
our all terrain vehicles. East Texas' economy then enjoys an
injection of capital that otherwise would have gone to an Asian
or a European competitor. Our American technology is world
class. We employ lean manufacturing methods. We have wrung the
fat and the overhead out of our processes. Often, the
difference in price between our products and those of our
competitors is in the tariffs that are negotiated between
different countries. What we are asking for is for Congress to
help all of us to be as successful and as competitive as
possible by lowering these trade tariffs. Thank you, and I am
pleased to take questions.
[The prepared statement of Mr. Sundin follows:]

Statement of David Sundin, President and Chief Executive Officer, DSI
Fluids, Tyler, Texas, on behalf of the U.S. Chamber of Commerce

Chairman Thomas, I would like to thank you for the opportunity to
testify today on behalf of the U.S. Chamber of Commerce on the benefits
of the U.S.-Australia free trade agreement. I am David Sundin,
President and CEO of DSI Fluids, a family-owned business headquartered
in Tyler, Texas, that manufactures and sells the highest-quality
synthetic lubricants and electrical insulating fluids, including
biodegradable turbine, gear, hydraulic, compressor, and engine oils.
Manufacturers around the world use DSI's synthetic lubricants to extend
the life of the equipment and to lower maintenance costs. As a U.S.
Chamber member, I was proud to have my company featured in the
Chamber's recent publication called Faces of Trade: Small Business
Success Stories with Australia.
The U.S. Chamber of Commerce is the world's largest business
federation, representing more than three million businesses of every
size and in every business sector. Its members have considerable
interest in the development of U.S.-Australia commercial ties and
efforts to further open markets in the Asia-Pacific region. I have been
active with the Chamber for a number of years as the head of a company
with just 11 employees. I participated as a delegate and spokesperson
on a U.S. Chamber business development mission to China and was part of
the Chamber's advocacy efforts in support of the U.S.-Chile and U.S.-
Singapore Free Trade Agreements. It is my great pleasure to be before
you this morning to discuss why the Chamber, and my company in
particular, hope to see the Congress pass the U.S.-Australia FTA at the
earliest possible opportunity.
The U.S. Chamber vigorously supports the U.S.-Australia FTA, which
will slash trade barriers for U.S. exports, enhance protections for
U.S. investment in Australia, and enhance the competitiveness of
American companies in the global economy. We see this agreement as a
significant step toward advancing trade and economic prosperity with
one of America's most important allies in Asia. The Chamber is a
steering member of the American-Australian FTA Business Coalition, and
has been working to inform Congress about the merits of the accord and
build bipartisan support for its approval.
Australia and the United States have a strong economic relationship
that includes $26 billion of U.S. investment to Australia and $24
billion of Australian investment into the United States. Bilateral
trade between the United States and Australia reached over $28 billion
last year. Australia is the 13th largest export market for U.S. goods.
The United States enjoys a $6 billion trade surplus in goods and
services with Australia, the largest surplus that the United States has
with any country in the world. U.S. manufactured goods exports to
Australia support more than 160,000 jobs in America.
Australia shares many of America's views on global trade
liberalization. The U.S.-Australia FTA will contribute to our shared
global and regional trade liberalization objectives and serve as a
barometer for other countries in Asia that are interested in completing
an FTA with the United States.
The FTA with Australia will further anchor U.S. competitiveness in
the Asia-Pacific region, where Australia is already actively engaged in
negotiating trade agreements. Australia has implemented a free trade
agreement with Singapore and New Zealand and is negotiating with
Thailand. Both the U.S. and Australia are active members of the Asia-
Pacific Economic Cooperation (APEC), an organization of 21 economies
that is pursuing trade and investment liberalization in the Asia-
Pacific region.
In short, once implemented, the FTA with Australia will bring
tangible commercial benefits to American companies, workers and
consumers. It will offer American companies greater access to
Australia's market and increase our competitive position in the region.
Below are some details of the specific benefits for U.S. companies as a
result of the U.S.-Australia FTA.

Benefits to DSI Fluids

My company, DSI Fluids, has exported our specialty industrial oils
to Australia for over six years. DSI's highly biodegradable products
help our customers minimize their environmental impact. Synthetic
lubricants have been proven to maximize fuel economy and energy
savings. Our fire resistant transformer oils raise the safety level of
Australian electrical distribution networks. Each year, we at DSI
export about 50% of our production. In 2004, we expect that
approximately 5% of our company's gross sales will be due to exports
with Australia, and we believe that percentage will grow if existing
tariffs are reduced or eliminated.
DSI competes in an international market with a handful of
specialized lubricant manufacturers. Lower tariffs will allow us to be
more competitive in the Australian market. When the United States
enters into agreements that reduce trade barriers, it lowers our
customers' costs for our products, meaning greater sales for DSI. That
money comes straight to Tyler, Texas, and pays for our employees'
salaries and our materials. This money ripples through Tyler's economy,
buying our groceries and clothes, our cars and ATVs. East Texas'
economy enjoys an injection of capital that otherwise would have gone
to our European or Asian competitors.
American technology is world class. We employ lean manufacturing
practices. Often the difference in price between our products and those
of our competitors comes down to the rates of duties and tariffs
negotiated between different countries. I'm asking Congress to help us
to be as competitive as we can be by negotiating a reduction in tariffs
with Australia.

Broad Benefits of the FTA to U.S. Companies

Throughout the negotiation process, the U.S. Chamber remained in
close communication with the Administration and it is pleased that many
of its priorities have been addressed in the final FTA package. Below I
summarize on behalf of the Chamber how the final FTA package compared
with the Chamber's negotiating objectives.
I. General Provisions
Trade in Goods. The FTA will immediately eliminate
tariffs on over 99 percent of U.S. exports of consumer and industrial
goods to Australia. This is a significant achievement as manufactured
goods, like those produced by my company, comprise over 90 percent of
U.S. merchandise exports to Australia. The U.S. Chamber is pleased that
the provisions on trade in goods are consistent with its objectives and
the Trade Promotion Authority Act (TPA). Once the agreement goes into
effect, tariff elimination will bring tangible benefits to U.S.
exporters.
Investment. The provisions in the Investment Chapter
include high standard protections for U.S. investment in Australia.
Once the FTA is implemented, Australia will be required to provide
increased protection for all forms of investment under the ``negative
list'' approach (full market access for all service providers unless
specified in the negative list). The U.S. Chamber is also pleased that
Australia agreed to raise the threshold for screening acquisitions by
U.S. investors to A$800 million. We note the absence of the investor-
state dispute settlement provisions. In the view of the Chamber, the
investment provisions are important to U.S. companies. The Chamber
urges that future FTAs have even stronger protection and benefits for
U.S. investors.
Government Procurement. Under the agreement, Australia
agreed to allow U.S. firms to bid for Australian central government
contracts. As Australia is not a signatory to the WTO Government
Procurement Agreement, this will give U.S. firms a significant
advantage over competitors who are not afforded similar treatments.
Australia also agreed to no longer subject U.S. firms to local
manufacturing and local content requirements. The Chamber looks upon
these steps as favorable as they should lead to more business
opportunities for U.S. companies.
Customs Procedures and Rules of Origin. The FTA contains
specific obligations on transparent and fair procedures in customs
administration, and sets forth commitments for Australia to improve its
customs clearance process for express delivery shipments. The Chamber
sought these commitments and endorses these provisions as a means to
help eliminate cumbersome customs procedures and expedite the entry of
U.S. products into Australia.
Intellectual Property Rights (IPR). The IPR chapter in
the FTA represents an improvement on the already state-of-the-art
Singapore FTA, by including, for example, stronger protection for
registered trademarks. It should serve as a benchmark for future FTAs
with other countries in the Asia-Pacific region. Once put into
practice, the FTA will require a higher degree of protection of
patents, trademarks, copyrights, and Internet domain names. The U.S.
Chamber endorses the IPR chapter as a significant step forward in
protecting U.S. IPR rights in Australia.
II. Trade in Services
According to the U.S. Bureau of Labor Statistics, the U.S.
services industry accounts for over 80% of Gross Domestic Product (GDP)
and employment in the United States, and contributes significantly to
the U.S. economy. The U.S. Chamber is generally satisfied with the
negotiated provisions of the chapters pertaining to services (Chapter
10 on Cross Border Trade in Services, Chapter 12 on Telecommunications,
Chapter 13 on Financial Services and Chapter 16 on Electronic Commerce)
as they advance the market access goals of U.S. services industries
under the ``negative list'' approach. Services sectors that will
benefit from the FTA with Australia include advertising, architecture,
asset management services, audiovisual services, computer and related
services, education services, electronic commerce, express delivery
services, financial services and vessel repair.

The U.S. Chamber and DSI Fluids hope the Congress will not delay in
passing this important agreement. We oppose efforts to combine
congressional consideration of the U.S.-Australia FTA with other FTAs
in ways that would slow down this agreement's passage and delay the
benefits that companies like mine are counting on to further our
business in Australia.
Thank you and I am pleased to take your questions.

Mr. CRANE. Mr. Shade?

STATEMENT OF RUSSELL SHADE, CHIEF EXECUTIVE OFFICER, HIGH
VOLTAGE ENGINEERING CORPORATION, WAKEFIELD, MASSACHUSETTS, ON
BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS

Mr. SHADE. Thank you, Mr. Chairman, Members of the
Committee. Good morning. My name is Russ Shade. I am the Chief
Executive Officer of the HVE Corporation, and I also currently
serve as the chairman of the Technology Policy Committee for
NAM. My company, HVE, sells its high tech goods and services to
a broad range of foreign and domestic original equipment
manufacturers and end users. These include industries and
process automation, steel and water, water, wastewater
treatment, petrochemical, pulp and paper, marine cable, oil and
gas extraction, and transportation. We are headquartered in
Wakefield, Massachusetts. We employ over 1,800 people, and our
major operating and manufacturing facilities are in California,
Massachusetts, Minnesota, Pennsylvania, Italy, the Netherlands,
the United Kingdom, and elsewhere. Over the past 10 years, HVE
has been able to carve out a small but important portion of the
Australian market for industrial power controls, water pumps,
cement plants, mining, pulp and paper, and conveyors and the
like. For the past 6 years, our sales to Australia have
averaged about $2 million a year. Our business activity over
the years has closely tracked capital investments, and has been
very sensitive to the overall state of the Australian economy.
Australia is a great market for small and medium-sized U.S.
firms, and this trade agreement is only going to make it
better.
The NAM, which represents some 14,000 U.S. manufacturers,
includes about 10,000 small and medium manufacturing companies
like mine, and we have taken to calling this, as you know, the
manufacturers' agreement for Australia. Most of HVE's exports
already enter Australia duty free under the WTO's information
technology agreement, which Australia has signed. More
important for us will be the agreement's government procurement
provisions, which allow us to compete more actively and
directly for new business with Australia's various government
entities. In this key area, the FTA provides U.S. firms
competitive entry into the Australian central government
entities, as well as its states and territories. In HVE's
industry, competition is extremely intense with European and
Japanese suppliers, and this accord will tilt the government
procurement playing field toward our direction. Another reason
this agreement is so commercially meaningful for American
manufacturing is the fact that it builds on an extremely solid
trade base that we have already discussed this morning. The
agreement contains provisions for reinforcing the WTO Technical
Barriers to Trade Agreement, and for promoting improvements in
bilateral implementation. Manufacturers in the United States
have a strong interest in ensuring that technical standards and
regulations governing manufacturing products do not constitute
barriers to market access. Bilateral trade will also be greatly
facilitated by the agreement's customs chapter. The specificity
of obligations with regard to customs procedures, coupled with
the commitments to information sharing to combat illegal
transshipment of goods and facilitate express shipment maintain
a high standard. Steps to ensure transparency and efficiency
are also included. Thank you very much.
[The prepared statement of Mr. Shade follows:]

Statement of Russell Shade, Chief Executive Officer, High Voltage
Engineering, Wakefield, Massachusetts, on behalf of the National
Association of Manufacturers

Mr. Chairman and Members of the Committee:
Good morning. My name is Russell Shade. I am the Chief Executive
Officer of the High Voltage Engineering Corporation, or HVE. I also
currently serve as the Chairman of the Technology Policy Committee of
the National Association of Manufacturers (NAM). I am pleased to be
here to testify on behalf of my company and the NAM about the benefits
of the U.S.-Australia Free Trade Agreement (FTA) for American
manufacturers.
My company, HVE, sells its high-tech goods and services to a broad
range of domestic and foreign original equipment manufacturers and end-
users in a variety of industries. These include the process automation,
metal and steel, water and wastewater treatment, petrochemical, pulp
and paper, marine and cable, power generation, oil and gas extraction
and transportation, semiconductor fabrication, chemical, and
construction industries, and for scientific and educational research.
We are headquartered in Wakefield, Massachusetts, and employ over 1,800
people in our major operating and manufacturing facilities in
California, Massachusetts, Minnesota, Pennsylvania, Italy, The
Netherlands, the United Kingdom and elsewhere.
HVE is one of the more than 19,000 U.S. companies that already
export to Australia today. With the passage of the U.S.-Australia FTA,
that number can be expected to increase substantially, and those of us
already in the market can expect our business to pick up, bolstering
our bottom lines and our ability to employ American workers in high-
skill, good quality jobs.
Over the past ten years, HVE has been able to carve out a small but
important portion of the Australian market for industrial power
controls applied to water pumps, kiln fans and drives, SAG mills,
pulpers, conveyors, and the like. For the past six years, our sales to
Australia have averaged $2 million a year, ranging from a low of
$160,000 to a high of $5.6 million in annual sales. Our business
activity over the years has closely tracked capital investment flows,
and has been very sensitive to the overall state of the Australian
economy. To the extent that the FTA helps facilitate the expansion of
Australia's economy, we expect our sales will similarly expand.
Moreover, as the agreement increases demand in Australia for the goods
and services of our U.S.-based customers, such as OEM's, engineering
contractors, and large multinationals, our sales to those entities
should also multiply.
Australia is already a great market for small and medium-sized U.S.
firms, and this trade agreement is only going to make it better. The
NAM, which represents 14,000 U.S. manufacturers, including four
thousand large firms and 10,000 small and medium-sized companies like
ours, has taken to calling the deal with Australia ``The Manufacturers
Agreement.''
The U.S.-Australia FTA deserves that label because 95 percent of
all U.S. exports to Australia are manufactured goods, and over 99
percent of Australia's duties on U.S. manufactured goods will be
eliminated the moment the agreement goes into effect. That is an
unparalleled achievement. In previous trade agreements, many industrial
tariffs were phased out over five or ten years, delaying the benefits
available to competitive American companies like mine. But the
Australia agreement is unprecedented in the extent to which it provides
immediate, cost-saving benefits to U.S. manufacturers. With Australia's
average industrial tariff hovering around five percent, compared to the
average U.S. industrial tariff of two percent, the NAM estimates the
accord could result in an additional $1.8 billion in annual sales of
U.S. manufactured exports to Australia.
Most of HVE's exports already enter Australia duty free under the
World Trade Organization's Information Technology Agreement (ITA),
which Australia has signed. More important for us will be the
agreement's government procurement provisions, which will allow us to
compete more actively and directly for new business with Australia's
various government entities. In this key area, the FTA provides U.S.
firms competitive entry to Australia central government entities, as
well as all of its states and territories. Australia is not a signatory
to the WTO Government Procurement Agreement, meaning these advantages
are not available to competitors in the Australian market.
In our business, for instance, competition is extremely intense
with European and Japanese suppliers, and this accord will tilt the
government-procurement playing field in our favor. Importantly,
Australia will no longer apply to U.S. firms provisions for local
manufacturing or local content requirements. Australia will also
restrict its use of selective tendering provisions, which will improve
U.S. suppliers' ability to compete fairly for government contracts.
This will allow American companies to sell U.S.-made products to
Australian government entities which previously were virtually off-
limits to them.
Another reason this agreement is so commercially meaningful for
American manufacturing is the fact that it builds on an extremely solid
trade and investment relationship that is already in place. The United
States sold more than $12 billion in manufactured products to the
Aussies last year, and we had our largest bilateral industrial trade
surplus in the world--nearly $7 billion in the U.S. favor--with
Australia. Building from this strong foundation, the FTA should allow
us to further integrate the two economies and expand the U.S. share of
the Australian market.

Non-Tariff Barriers

In addition, the agreement contains provisions for reinforcing the
World Trade Organization (WTO) Technical Barriers to Trade (TBT)
agreement and for promoting improvements in bilateral implementation of
the TBT agreement. U.S. manufacturers have a strong interest in
ensuring that technical standards and regulations governing
manufactured products do not constitute barriers to market access.
Products with U.S., European and international standards are widely
used in Australia.
The Agreement provides the opportunity to go beyond the basic WTO
requirements and to find ways to streamline the use of standards
conformity assessment requirements in a manner that would lower the
cost of bilateral trade and would facilitate trade expansion. This is
yet to be built on, but the agreement contains a mechanism that could
allow for very important reductions in the effect that standards and
conformity assessment can have as trade barriers.

Customs Procedures and Rules of Origin

Bilateral trade will also be greatly facilitated by the agreement's
customs chapter. The specificity of obligations with regard to customs
procedures, coupled with the commitments to information sharing to
combat illegal trans-shipment of goods and facilitate express shipment,
maintain a high standard. Steps to ensure transparency and efficiency
are also included. The agreement also provides that the release of
goods should be accomplished quickly--and within 48 hours to the extent
possible. This is of particular importance for express delivery
services that increasingly handle the transport of products exported by
smaller and medium-sized U.S. companies.

Conclusion

In conclusion, I'd like to thank you, Mr. Chairman, and the Members
of the Committee, for listening to the views of HVE and the National
Association of Manufacturers on this important agreement. We strongly
urge that your Committee and the Congress approve the agreement as soon
as you can, so that the benefits can begin to flow.
I am pleased to try to answer any questions you might have.

Mr. CRANE. Thank you. Mr. Stephens?

STATEMENT OF HUGH STEPHENS, SENIOR VICE PRESIDENT FOR PUBLIC
POLICY, ASIA-PACIFIC, TIME WARNER, INC., HONG KONG, CHINA, ON
BEHALF OF THE ENTERTAINMENT INDUSTRY COALITION FOR FREE TRADE,
AND THE AMERICAN-AUSTRALIAN FREE TRADE AGREEMENT COALITION

Mr. STEPHENS. Thank you, Mr. Chairman, and Members of the
Committee. My name is Hugh Stephens. I am Senior Vice President
for public policy in Asia-Pacific for Time Warner, and thus,
Australia is one of the countries over which I have policy
responsibilities for my company. I am appearing before you
today in Time Warner's capacity as a Co-Chair of the American-
Australian Free Trade Coalition (AFTAC), and as a member of the
Entertainment Industry Coalition for Free Trade. The AFTAC is a
coalition of 272 companies and organizations representing every
sector of the U.S. economy. As a member of AFTAC, the
Entertainment Industry Coalition represents the men and women
who produce, distribute, and exhibit films, videos, TV
programming, music, and video games. The Entertainment Industry
Coalition members are multichannel programmers and cinema
owners, producers and distributors, guilds and unions, trade
associations and individual companies. Both AFTAC and the
Entertainment Industry Coalition strongly support the U.S.-
Australia FTA and urge Congress to act quickly to ratify it. We
have already spoken this morning of the importance of
manufacturing and tariff reduction for this agreement. From the
perspective of Time Warner and the entertainment industry,
eliminating the tariffs on film projectors, state-of-the-art
seating for cinemas, and the promotional materials and
equipment used in the production of films and music, just to
name a few, means lower costs for our businesses and better
prices for consumers.
We have also noted that services are important in this
agreement, and I would note that this agreement marks the first
ever commitments by Australia in the area of audiovisual
services. Most important for our industry are the intellectual
property rights provisions. The agreement's high standard of
protection for intellectual property rights is a very important
benefit for every U.S. company that depends on the protection
of patents, trademarks, and copyrights for its business--such
as Time Warner and other companies in the media and
entertainment business. With respect to copyright in
particular, the agreement achieves a number of important
objectives. It includes provisions that go beyond the trade-
related aspects of intellectual property rights (TRIPS)
provisions in the WTO by providing world-class intellectual
property protections for the digital age. It ensures that
copyright owners have the exclusive right to make their works
available online, and it provides an expeditious process for
copyright owners to get Internet service providers to deal with
infringing material. It establishes anticircumvention
provisions to prohibit tampering with technologies that are
designed to prevent piracy and unauthorized Internet
distribution. It protects copyrighted works for extended terms,
in line with emerging international trends that allow companies
like ours to reinvest in the United States to restore older
works and to take significant risks in creating new ones.
Finally, it strengthens intellectual property enforcement. In
sum, this is an outstanding agreement for almost every sector
of the U.S. economy. Its intellectual property rights
provisions are particularly exemplary. That is why Time Warner,
the entertainment industry, and the entire AFTAC coalition
gives such strong support to the U.S.-Australia FTA and urges
Congress to act quickly to approve it. Thank you, Mr. Chairman.
[The prepared statement of Mr. Stephens follows:]

Statement of Hugh Stephens, Senior Vice President for Public Policy,
Asia-Pacific, Time Warner, Hong Kong, China, on behalf of the American-
Australian Free Trade Agreement Coalition

Mr. Chairman and Congressman Rangel, thank you for the opportunity
to appear before you today to discuss the U.S.-Australia Free Trade
Agreement. My name is Hugh Stephens and I am Senior Vice President of
Public Policy in Asia for Time Warner; Australia is one of the
countries over which I have policy responsibility in Asia. I am
appearing before you today in Time Warner's capacity as a co-chair of
the American-Australian Free Trade Coalition (AAFTAC) and as a member
of the Entertainment Industry Coalition for Free Trade (EIC). The
AAFTAC is a coalition of 272 companies and organizations representing
every sector of the U.S. economy, including agriculture, food,
beverage, banking, insurance, services (including express delivery
services), automotive, oil, chemicals, mining, transportation,
computer/high tech, telecommunications, fashion, retail,
pharmaceuticals, aerospace, defense and manufacturing. As a member of
AAFTAC, the EIC represents the 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. Both AAFTAC and
the EIC strongly support the U.S.-Australia Free Trade Agreement and
urge Congress to act quickly on the agreement.
Australia and the United States have a strong economic
relationship. American companies have over $100 billion invested in
total assets in Australia and Australians have nearly $60 billion
invested in total assets in the U.S. Two-way trade between our two
countries is over $28 billion and growing. With the FTA in force, this
economic relationship will only grow stronger. The U.S. has a trade
surplus with Australia of approximately $6 billion. U.S. exports to
Australia include agriculture, services, aviation, audiovisual
products, automotive, telecommunications, computers/high tech,
manufactured goods and defense products. Projections are that a free
trade agreement between the U.S. and Australia could yield up to a $2.1
billion increase in the GDP by 2006.
In addition to the economic benefits that the FTA will have for
both the U.S. and the Australian economies, it is important that we
remember the long-standing relationship between our two countries as
allies in the world. Some have said that the FTA stands as the most
significant development in U.S.-Australian relations since the signing
of the ANZUS Treaty in 1951, which joined our nations in a defense pact
for the Pacific Region. The United States and Australia have remained
close allies and friends over many years. Given that our two nations
already enjoy a strong economic relationship, the U.S.-Australia FTA
will provide the means for further developing this close alliance.
U.S. exporters currently face much higher tariffs in Australia than
Australian exporters face in the United States. These tariffs result in
Americans paying 10 times as much in total annual import tariffs to
Australia as the U.S. collects from Australian importers. The FTA
addresses this issue directly to the benefit of the U.S. manufacturing
sector--which is why so many of us in the coalition call this agreement
``The Manufacturing Agreement.'' Immediately upon enactment, more than
99 percent of U.S. exports of manufacturing goods will enter Australia
duty free. Currently, manufactured goods account for 93 percent of all
exports to Australia. Key manufacturing sectors will realize these
benefits immediately, including: autos and auto parts; chemicals,
plastics and soda ash; construction equipment; electrical equipment and
appliances; fabricated metal products; furniture and fixtures;
information technology products; medical and scientific equipment; non-
electrical machinery; paper and wood products. From Time Warner and the
entertainment industry, eliminating the tariffs on sound and projection
equipment and state of the art seating for cinemas, and the promotional
materials and the equipment used in the production of films and music
means lower costs for our business and better prices for consumers.
In agriculture, all exports will receive immediate duty free
treatment under the agreement. The U.S. currently exports more than
$400 million in agricultural products to Australia. Australia and the
United States have also been working cooperatively on a range of
sanitary and phytosanitary barriers and progress has been made in
several key areas. This work will continue and resolution of these
issues will lead to an increase in U.S. agricultural exports in several
commodities including pork, apples and stone fruit. This agreement also
recognizes the sensitive nature of some agricultural products and
provides for tariff-rate quotas and safeguard provisions for sensitive
crops in the United States. Tariffs on other agricultural products will
be eliminated under the agreement as well.
The U.S. currently exports over $5 billion worth of services to
Australia. In addition to the tariff reductions that are included in
the agreement, the FTA includes important provisions to provide access
to Australia's services markets across all sectors, including
telecommunications, financial services, express delivery and
professional service providers. Especially important to my company, the
agreement has first time ever commitments by Australia in the area of
audiovisual services. This is particularly significant because around
the world few countries have made commitments that cover trade in our
products and services under the guise of cultural protection.
With this free trade agreement, though, the United States and
Australia demonstrated that Australia's long-standing commitment to
promoting local cultural expression could be balanced with U.S.
industry's desire to secure predictable and continued access to the
important Australian market. Australia now will provide improved access
for U.S. films and television programs over a variety of media
including cable, satellite and the Internet. In addition, the agreement
includes provisions to strengthen intellectual property rights laws and
enforcement of these laws ensuring the highest level of protection for
U.S. products. And finally, the agreement also includes new commitments
on e-commerce providing non-discriminatory treatment for digital
products. All of these provisions will allow U.S. service providers to
continue to build on their successful export programs and further
develop this important market.
The agreement also includes a host of other provisions that will
create a more favorable market for U.S. exporters. Specifically,
Australia will accord national treatment for U.S. investors and exempt
most screening for U.S. investments in new businesses under Australia's
Foreign Investment Promotion Board. The agreement also includes
provisions aimed at increasing access to the Australia pharmaceutical
market and creating a more transparent system. Provisions on government
procurement will allow U.S. access to approximately 80% of government
contracts in Australia.
In sum, this is an outstanding agreement for almost every sector in
the U.S. economy which is why Time Warner and the entire AAFTAC
coalition give such strong support to the U.S.-Australia Free Trade
Agreement. The agreement is an opportunity to expand our already robust
economic relationship, as well as further our long-standing friendship
and cooperative partnership in the world. We urge Congress to act
quickly to approve this agreement.
Thank you for the opportunity to appear before you today. I am
happy to answer any of your questions.

Mr. CRANE. Thank you, Mr. Stephens. Mr. Wagner?

STATEMENT OF DAVID WAGNER, VICE PRESIDENT, EXTERNAL AFFAIRS,
JIM BEAM BRANDS COMPANY, DEERFIELD, ILLINOIS, ON BEHALF OF THE
DISTILLED SPIRITS COUNCIL OF THE UNITED STATES, INC.

Mr. WAGNER. Thank you, Mr. Chairman, Members of the
Committee. My name is David Wagner, and I am Vice President,
External Affairs, for Jim Beam Brands Company. I am pleased to
be here with you today on behalf of Jim Beam Brands and the
Distilled Spirits Council of the United States, our national
trade association, to discuss the importance of the FTA to our
industry. Distillers such as Jim Beam are significant
purchasers of agricultural raw materials. Last year, Jim Beam
Brands alone bought more than 3.4 million bushels of corn and
over 650,000 bushels of rye and malt. Beam's raw material
purchases sourced here in the United States total more than
$130 million each year and include Florida oranges, California
grapes, grain from the Midwest, sweeteners, and bulk spirits,
glass, plastic, and aluminum containers, flavors and blending
ingredients, labels, closures, folding cartons, corrugated
shipping containers, and much more. To put this into some
perspective, we calculate that the economic impact of even our
smallest facility in Cincinnati exceeds $20 million for the
State of Ohio alone. My personal experience with the Australian
market dates back to 1991, when I was sent to Australia to
start up Beam's sales and marketing company there. I can tell
you that Australia is an extremely important market for the
U.S. spirits industry. While worldwide exports of U.S.
distilled spirits totaled $587 million in 2003, U.S. exports to
Australia alone were valued at $60 million, ranking Australia
as America's fourth-largest export market.
For Jim Beam Brands, Australia is our largest and most
important export market. In fact, it accounted for 13 percent
of our total profits last year. We sold nearly 600,000 cases of
Jim Beam bourbon, and more than 4.6 million cases of premixed
Jim Beam and cola and similar products. The U.S. spirits
industry strongly supports prompt congressional approval of the
FTA because it will bring about significant and immediate
benefits for U.S. exporters to Australia. Under the FTA,
Australia has agreed to eliminate its 5 percent ad valorem
import duty, and this will make U.S. spirits even more
competitive in the Australian market. The elimination of
Australia's spirits tariff will also level the playing field,
and U.S. domestic producers will not face added competition in
the U.S. market as a result of this agreement, since U.S.
tariffs on nearly all imported spirits categories are already
zero. The agreement also includes certain protections for the
use of the terms ``bourbon'' and ``Tennessee whiskey,'' which
will ensure both U.S. producers and Australian consumers that
only spirits produced in the United States in accordance with
our laws and regulations may be sold in Australia as bourbon or
Tennessee whiskey. These distinctive products are, by far, the
United States' leading spirits exports. In summary, the U.S.
spirits industry enthusiastically supports the FTA.
[The prepared statement of Mr. Wagner follows:]

Statement of David Wagner, Vice President, External Affairs, Jim Beam
Brands Company, Deerfield, Illinois, on behalf of the Distilled Spirits
Council of the United States

My name is David Wagner, Vice President, External Affairs, Jim Beam
Brands Co. I am very pleased to be with you here today on behalf of Jim
Beam Brands and the Distilled Spirits Council of the United States,
Inc., (Distilled Spirits Council) to discuss the importance of the
U.S.-Australia Free Trade Agreement (FTA) to our company in particular,
as well as to the U.S. distilled spirits industry as a whole. Jim Beam
Brands is an active member of the Distilled Spirits Council, a national
trade association representing U.S. producers, marketers and exporters
of distilled spirits products. Jim Beam's corporate headquarters are
located in Deerfield, Illinois. We own and operate distilleries in
Clermont, Kentucky, where we produce our famous Jim Beam Bourbon. We
also have manufacturing and bottling facilities in Frankfort, Kentucky,
and Cincinnati, Ohio, and wineries in California. We manufacture and
market more than 80 brands in 160 countries. In addition to Jim Beam
Bourbon, the #1 selling Bourbon worldwide and the #1 selling spirit of
any kind in Australia, we also produce Knob Creek Bourbon, the Small
Batch Bourbon Collection, DeKuyper cordials, the #1 selling cordial
line in the U.S., and Geyser Peak and Canyon Road wines.
Distilled spirits are highly processed agricultural products, which
are classified under Harmonized Tariff System headings 2208 and
2207.10.30. Distilled spirits are produced exclusively from
agricultural raw materials and water. Distilled spirits producers are
significant consumers of corn, wheat, molasses, rye, barley, and other
agricultural raw materials. In 2003, for example, Jim Beam Brands alone
consumed more than 3.4 million bushels of corn (valued at approximately
$10.3 million), and more than 650,000 bushels each of rye and malt
valued at more than $6 million. My company's U.S.-sourced raw materials
total more than $130 million each year and include Florida oranges,
California grapes, grain from the Midwest, sweeteners and bulk spirits,
glass, plastic and aluminum containers, flavors and blending
ingredients, labels, closures, folding cartons, corrugated shipping
containers and much more. As my testimony will show, the U.S.-Australia
FTA will expand U.S. distilled spirits exports to Australia, which
will, in turn, increase the demand for U.S. agricultural raw materials,
packaging materials and numerous other products.
Australia is an extremely important market for the U.S. distilled
spirits industry. U.S. distilled exports to Australia alone were valued
at almost $60 million, representing over 10 percent of global U.S.
spirits exports and ranking Australia as the fourth largest export
market for U.S. spirits products in 2003. Bourbon accounted for almost
83 percent, by value, of total U.S. spirits exports to Australia in
2003. According to data from the U.S. International Trade Commission,
Australia ranked as the third largest market in the world for U.S.
direct exports of Bourbon, the quintessential and totally unique
American spirit, produced exclusively in the United States.
For Jim Beam Brands in particular, Australia is our largest and
most important export market. In 2003, for example, sales of Jim Beam
Bourbon in Australia accounted for $50 million or 13 percent of our
company's total brand contribution. We sold nearly 600,000 cases of Jim
Beam Bourbon and more than 4.6 million cases of pre-mixed Jim Beam &
Cola or similar products. Our earnings in Australia have been growing
at a rate of 8 percent per year, and volume has doubled in just the
past five years.
The U.S. spirits industry strongly supports swift congressional
approval of the U.S.-Australia FTA because it will secure immediate
duty-free access to one of the most important export markets for U.S.
spirits products. Australia has agreed to eliminate its import duty
(five percent ad valorem) on spirits products imported from the United
States immediately upon the agreement's entry-into-force. The
elimination of this duty is estimated to save U.S. spirits companies
approximately $3 million annually (based on 2003 data) in duties paid
and, as a result, will make U.S. spirits products more competitive in
the Australian market. A five percentage point advantage is significant
in the Australian market across the full range of spirits categories.
However, it will have a particularly pronounced effect in the category
of pre-mixed spirits products, also called ready-to-drink products or
RTDs, such as whisky-and-cola, where Jim Beam is the category leader.
The RTD category is a product segment that competes principally on
price and accounts for a significant volume of U.S. whisky exports to
Australia, reflecting the tremendous--and growing--popularity of these
products. In 1991, for example, total Australian consumption of RTDs
was 3.3 million 9-liter cases. In 2003, estimated total consumption of
RTDs was 30 million 9-liter cases, of which approximately 60% were
imported.
Attached to my testimony is our quantitative analysis of the impact
that the elimination of Australia's tariff will have on U.S. spirits
exports. As our data show, we believe that the immediate elimination of
Australia's tariff on U.S.-origin spirits would lead to an immediate
4.76% reduction in the price of U.S. spirits exports, which will lead
to a 3.76% increase in volumes shipped, assuming (as is reasonable)
that the price elasticity of demand in the Australian market is similar
to that in the U.S. market. The incremental impact will be an increase
in U.S. exports of 1.8 million proof liters--a growth that will
continue over time. Over the 10-year period 2005-2014, we project that
the elimination of Australia's spirits tariff will increase U.S.
spirits exports to Australia by a cumulative total of almost $56
million.
The elimination of Australia's spirits tariff also will level the
playing field, since the United States has already eliminated its
tariffs on nearly all distilled spirits products from all sources,
including Australia. As a consequence, U.S. domestic producers will not
face added competition in the U.S. market as a result of the agreement,
since U.S. tariffs on nearly all spirits categories are already zero.
In addition to eliminating Australia's tariffs, the Agreement
includes certain protections for the use of the terms Bourbon and
Tennessee Whiskey. This recognition will ensure U.S. producers of
genuine Bourbon and Tennessee Whiskey, as well as Australian consumers,
that only spirits produced in the United States, in accordance with the
laws and regulations of the United States, may be sold in Australia as
Bourbon or Tennessee Whiskey. These are, by far, the United States'
leading spirits exports.
In summary, Jim Beam Brands Co. and the entire U.S. distilled
spirits industry enthusiastically support the U.S.-Australia FTA
because it will secure immediate duty-free access to one of the most
important export markets for U.S. spirits products. Exports will
continue to fuel this industry's growth: since 1990, U.S. direct
exports of distilled spirits worldwide have more than doubled. Total
exports of U.S. spirits in 2003, in dollar terms, were 6.7% higher than
in 2002. Between 1991 and 2003, U.S. spirits exports to Australia have
grown by approximately 161 percent.
Jim Beam Brands and the Distilled Spirits Council appreciate this
opportunity to testify. We hope the Congress will approve the Agreement
at the earliest possible date.

ATTACHMENT
U.S. Distilled Spirits Exports to Australia: Impact of Tariff
Elimination

The elimination of Australia's five percent ad valorem tariff on
spirits products imported from the United States, which will occur
immediately upon the agreement's entry-into-force, will undoubtedly
make U.S.-produced spirits more competitive in the Australian market. A
five percentage point advantage is significant in the Australian market
across the full range of spirits categories, and is expected to have a
significant positive impact on U.S. spirits exports to Australia. U.S.-
produced spirits compete head-to-head with spirits imported into
Australia from other major spirits exporters, including, but not
limited to, the United Kingdom, France, Italy, Canada, and Mexico,
among others. U.S. spirits exports worldwide are dominated by Bourbon
whiskey and Tennessee Whiskey, which compete directly with Scotch
whisky and Irish whiskey, as well as with all other spirits categories.
Indeed, market research conducted in the United States has shown that,
for example, nearly half (48%) of all Scotch Whisky drinkers also drink
Bourbon; 35% of all Cognac drinkers also drink Bourbon; and 30% of all
vodka drinkers also drink Bourbon, demonstrating a high degree of
substitutability (Simmons Market Research, Spring 2003).
a) Australian Export Market for U.S. Distilled Spirits
U.S exports to Australia of distilled spirits products have been
increasing steadily in recent years, growing to nearly $60 million in
2003.\1\ In fact, the compound annual growth rate (CAGR) between 1996
and 2003, based on export value, was 6.5%. The more recent 2000-2003
period has shown an even more impressive 7.9% CAGR.
---------------------------------------------------------------------------
\1\ All export figures were taken from U.S. Customs Service data
prepared by the Census Bureau.
---------------------------------------------------------------------------
Table 1

[GRAPHIC] [TIFF OMITTED] T5742A.001

Distilled spirits exports are dominated by Bourbon, which accounts
for nearly 83% of total spirits exports to Australia by value, or
approximately $49.4 million. In recent years, liqueurs and cordials
have also grown in importance.
In volume terms, the U.S. exported 23.5 million proof liters \2\ of
distilled spirits products to Australia in 2003, 20.3 million of which
was Bourbon.
---------------------------------------------------------------------------
\2\ A proof liter is defined as 1 liter containing 50% by volume of
ethyl alcohol.
---------------------------------------------------------------------------
Table 2

[GRAPHIC] [TIFF OMITTED] T5742A.002

b) 2004 Projections
According to Distilled Spirits Council projections, total U.S.
spirits exports to Australia are projected to grow to 25.5 million
proof liters in 2004 (see Table 3). The Bourbon projections were made
by assuming the CAGR over the 1996-2003 period, as shown in Table 2,
would continue in 2004. The respective growth rates for both bulk
Bourbon and bottled Bourbon (11.0% and 5.2%) appear reasonable when
compared to the higher growth rates experienced over the more recent
2000-2003 period (13.6% and 7.7%).
Exports of liqueurs and cordials and ``other spirits'' to
Australia, however, have been much more volatile. Given this
volatility, we assumed no change in export volume for liqueurs and
cordials and the ``other spirits'' category.

Table 3

[GRAPHIC] [TIFF OMITTED] T5742A.003

For 2004, then, bulk Bourbon exports are projected at 17.9 million
proof liters, bottled Bourbon 4.4 million proof liters and total
spirits exports to Australia at 25.5 million proof liters.
c) Value of Exports per Liter
After several years of decline, the value per liter of both bulk
and bottled Bourbon exports increased in 2003, with bulk exports rising
to $1.75/proof liter and bottled Bourbon to $5.11. The value of
liqueurs and cordials continued to increase.

Table 4

[GRAPHIC] [TIFF OMITTED] T5742A.004

d) Incremental Impact of Tariff Elimination
Eliminating the Australian import tariff would lead to an immediate
4.76% reduction in the price of U.S. spirits exports to Australia.
Assuming that the price elasticity of demand in the Australian market
is similar to the U.S. market, the 4.76% reduction in price will lead
to a 3.76% increase in volume.\3\
---------------------------------------------------------------------------
\3\ The U.S. Joint Committee on Taxation uses a price elasticity of
-0.79. We believe that this is a conservative figure. A more recent
analysis by HSBC Securities estimated the figure at -1.24. See ``U.S.
Alcohol Taxes: Gone But Not Forgotten,'' HSBC, June 1, 2003.
---------------------------------------------------------------------------
Table 5

[GRAPHIC] [TIFF OMITTED] T5742A.005

Applying the 3.76% volume increase to the projected 2004 export
volumes shows that the incremental impact on U.S. spirits exports to
Australia will be nearly 1.8 million proof liters.
To estimate the value of these incremental exports, the 2003 value
per proof liter was multiplied by the incremental volume. The
incremental value of the exports is projected to be nearly $4.5 million
in 2005.
Table 6

[GRAPHIC] [TIFF OMITTED] T5742A.006

Naturally, tariff elimination will impact U.S. exports on an on-
going basis. Since volume is expected to continue to grow, Table 6
shows the projected impact of tariff elimination over the next 10
years.\4\ Over the 10 year period 2005-2014, tariff elimination is
projected to increase U.S. spirits exports to Australia by a cumulative
total of nearly $56 million. Some of this gain will be reflected as an
increase in market share for distilled spirits vis-a-vis beer, a trend
that began in 2000 when Australia began to harmonize the excise tax for
ready-to-drink products (RTDs) and certain categories of beer.
Currently, the excise tax for RTDs is the same as the rate that is
assessed on packaged beer in excess of 3% alcohol by volume.
---------------------------------------------------------------------------
\4\ A conservative growth rate of 5% was used for both value and
volume.
---------------------------------------------------------------------------
e) Ready-to-Drink Products
The category of pre-mixed spirits, also called ready-to-drink
products (RTDs), is a major and rapidly growing segment of the
Australian distilled spirits market. According to the Liquor Merchants
of Australia (LMA), for the period February 2003 through February 2004,
the RTD category totaled over 28.9 million 9-liter cases, representing
approximately 82.3%, in volume terms, of the total spirits market in
Australia.
As stated above, the RTD category is a category that competes
principally on price and accounts for a significant volume of U.S.
distilled spirits exports to Australia. By volume, U.S. exports of bulk
Bourbon in 2003 totaled 16.2 million proof liters, accounting for 69%
by volume of total U.S. distilled spirits exports to Australia, and
nearly 80% of total exports in the Bourbon and Tennessee Whiskey
category. Some of the bulk Bourbon is bottled in Australia and sold as
Bourbon. But the majority is used to produce RTDs. According to LMA,
Bourbon-based RTDs accounted for approximately 43.6% (12.6 million 9-
liter cases) of the total RTD market in Australia, representing, by
far, the largest segment within the RTD category. The elimination of
the five percent tariff will help ensure that Bourbon-based RTDs will
retain a strong and growing position in this important market segment.

Mr. CRANE. Thank you, Mr. Wagner. Mr. Franklin?

STATEMENT OF GEORGE FRANKLIN, VICE PRESIDENT FOR WORLDWIDE
GOVERNMENT RELATIONS, KELLOGG COMPANY, BATTLE CREEK, MICHIGAN,
ON BEHALF OF THE GROCERY MANUFACTURERS OF AMERICA

Mr. FRANKLIN. Thank you, Mr. Chairman. My name is George
Franklin. I am Vice President of Kellogg Company, and I am here
on behalf of the Grocery Manufacturers of America. Pursuant to
your instructions, I am going to make this short and sweet. I
wish to clarify at the outset that we are not opposed to the
U.S.-Australia FTA. We believe that the agreement can generate
increased sales for the processed food industry and will
strengthen bilateral relations with an important economic and
political ally. We were deeply disappointed, however, by the
exclusion of sugar from the agreement. We believe that this
exclusion not only compromised the overall benefits of the
agreement to the processed food sector, but set a terrible
precedent that could diminish the level of ambition of any
future trade agreements. For this reason, we are not actively
supporting this agreement. Kellogg Company has a long history
in Australia. We have been there for over 80 years. You would
think, given that relationship, that the Grocery Manufacturers
of America and the Kellogg Company would be natural choices to
lead the charge for swift passage of the agreement.
Unfortunately, we are not actively supporting the agreement
because of the glaring exclusion of sugar. We did not arrive at
this position lightly. For U.S. food manufacturers,
particularly confectionery manufacturers, access to high
quality sugar at a fair market value is a key factor for
continued growth in the United States. United States food
companies pay two to three times the world price of sugar,
including hundreds of millions of dollars of extra costs each
year.
The industry has lost thousands of domestic jobs as
companies are forced to leave the United States to manufacture
sugar-containing products in countries where there is access to
low price sugar. Chicago has been particularly hard hit, losing
almost 8,000 to 9,000 jobs over the past few decades. A recent
study by Promar International indicates that in the last 6
years, up to 10,000 confectionery jobs have been lost in the
United States because of the high price of sugar. The exclusion
of sugar in the U.S.-Australia agreement could also have
extremely damaging consequences for future trade agreements. As
Chairman Thomas correctly noted in his January 28 letter of
2004 to President Bush, quote, ``any exclusions at all
jeopardize our ability to conclude and implement agreements
which will benefit U.S. employers, workers, farmers, and
consumers. If we exclude one industry, we will be under
enormous pressure to exclude others. We will be paralyzed by
our own sensitivities because we will have no consistent
rationale to resist the demands of any sector,'' unquote. Once
again, Mr. Chairman, we appreciate the opportunity to appear
before the Committee, and look forward to answering any
questions you might have.
[The prepared statement of Mr. Franklin follows:]

Statement of George Franklin, Vice President for Worldwide Government
Relations, Kellogg Company, Battle Creek, Michigan, on behalf of the
Grocery Manufacturers of America

Good morning, Mr. Chairman and Members of the Committee. My name is
George Franklin and I am the Vice President for Worldwide Government
Relations at the Kellogg Company. It is a pleasure to be here today on
behalf of the Grocery Manufacturers of America (GMA) to offer our views
on the U.S.-Australia Free Trade Agreement (FTA).
With projected annual sales of more than $9 billion, Kellogg is the
world's leading producer of cereal and a leading producer of
convenience foods, including cookies, crackers, toaster pastries,
cereal bars, frozen waffles, meat alternatives, pie crusts and cones.
The company's brands include Kellogg's, Keebler, Pop-Tarts, Eggo,
Cheez-It, Nutri-Grain, Rice Krispies, Murray, Austin, Morningstar
Farms, Famous Amos, Carr's, Plantation, Ready Crust, and Kashi. Kellogg
products are manufactured in 17 countries and marketed in more than 180
countries around the world.
Kellogg is a leading member of GMA, which is the world's largest
association of food, beverage and consumer product companies. With U.S.
sales of more than $500 billion, GMA members employ more than 2.5
million workers in all 50 States. I serve as the Chair of GMA's
International Affairs Group and it is in that capacity that I address
you today.

GMA and Kellogg Views on the U.S.-Australia FTA
I wish to clarify that my company and GMA are not opposed to the
U.S.-Australia FTA. We believe that the agreement could generate
increased sales for the processed food industry and will strengthen
bilateral relations with an important economic and political ally. We
were deeply disappointed, however, by the exclusion of sugar from the
agreement. We believe that this exclusion not only compromised the
overall benefits of the agreement to the processed food sector, but set
a terrible precedent that could diminish the level of ambition of
future trade agreements. For these reasons, we are not actively
supporting this agreement. Let me elaborate on these points.

Benefits of the U.S.-Australia FTA
The Kellogg Company has a long history in Australia. In fact, our
Australian operation was the first Kellogg facility to be established
outside of North America. We have now been operating in Australia for
nearly eighty years and our facility in Botany continues to expand.
Kellogg Australia is the largest single purchaser of rice in Australia
for food manufacturing. In addition, the facility purchases more than
30,000 tons of whole corn and 20,000 tons of wheat materials each year.
Given our deep historical ties to Australia, we are pleased that
the new free trade agreement will strengthen the existing economic and
political relationship between the two countries. Perhaps the most
significant benefit for our industry will be the enhanced investment
climate in Australia as a result of new commitments on the
liberalization of investment rules. We also expect to see tangible
benefits from immediate duty free treatment for all processed food
exports to Australia. According to the U.S. International Trade
Commission, the exports of processed food products will increase by 62
percent as a result of the agreement.
We also believe that the free trade agreement will lead to enhanced
cooperation in the WTO, where the U.S. and Australia share many similar
goals. For example, the U.S. and Australia are unified in their call
for the elimination of export subsidies, meaningful reductions in trade
distorting domestic support and substantial increases in market access
in the WTO agriculture negotiations. Some have argued that access to
the U.S. market will undermine Australia's enthusiasm for the WTO
negotiations. We disagree, since it is widely recognized that the most
significant tariff barriers for agricultural products lie outside the
United States, and that the WTO is the only forum where export
subsidies and domestic supports can realistically be addressed. A FTA
with Australia will further solidify the synergies between the U.S. and
Australia and could act as a catalyst for reform.
Our industry also benefits from the close collaboration between the
U.S. and Australia on the issue of geographical indications or GIs. GIs
are intellectual property protections that are based on unique
characteristics of products derived from a region or place. In the WTO
and elsewhere, the European Union (EU) is engaged in a vigorous
campaign to promote a system whereby GIs may trump trademarks and where
European producers will gain exclusive rights to many generic product
names such as parmesan, feta, chablis etc. The U.S. and Australia have
been closely allied in the WTO in the fight against this initiative.
The U.S.-Australia FTA includes language on GIs that clarifies the
principle of ``first in time-first in right'' or exclusivity of
trademarks. This new language could be used as a model for other
agreements and would be an integral part of any WTO strategy. Success
in the area of GIs could prevent significant losses due to repackaging
and marketing should the EU regime prevail.

The Sugar Exclusion
For all these reasons, GMA and the Kellogg Company would have been
natural choices to lead the charge for swift passage of the U.S.-
Australia FTA. Unfortunately, we are not actively supporting the
agreement because of the glaring exclusion of sugar. We did not arrive
at this position lightly, especially since we have worked so hard for
the passage of trade promotion authority and every other free trade
agreement in the past. Our decision is also not one of simply adhering
to ``lofty principles,'' but is one based on the impact of this
exclusion on American manufacturing competitiveness and on the shape of
future trade agreements.

Sugar and U.S. Manufacturing
Those who seek to minimize the exclusion of sugar claim that it is
inappropriate to discount the broader significance of the agreement
because of a product that today accounts for less than one percent of
two-way trade. This small amount, however, only captures existing sugar
trade and not the potential benefits for Australian producers and U.S.
manufacturers under the agreement. For example, economic analysis prior
to the conclusion of the negotiations had predicted a nearly $4 billion
annual gain to the Australian economy as a result of full
liberalization of all commodities. Yet, nearly one quarter of this gain
would have come from increased sugar access. Clearly, the exclusion of
sugar is a major flaw in an otherwise good agreement.
For U.S. food manufacturers, particularly confectionary
manufacturers, access to high quality sugar at a fair market value is a
key factor for continued growth in the United States. The food industry
pays two to three times the world price for sugar, incurring hundreds
of millions of dollars in additional costs each year. The industry has
lost thousands of domestic jobs as companies are forced to leave the
United States to manufacture sugar containing products in countries
where there is access to lower priced sugar. Chicago has been
particularly hard hit. In 1970, employment by the city's candy
manufacturers was 15,000. Today it is under 8,000 and falling. A recent
study by Promar International suggest that in just the last six years
up to 10,000 confectionary jobs have been lost in the United States
because of the high price of sugar. In effect, manufacturers are left
with few options but to move abroad, since other countries can export
lower-cost finished confectionery products to the U.S. at zero or a
minimal duty.
The sugar program is truly one of the worst forms of protectionism
and is unlike any of our other farm programs. In the simplest terms,
the U.S. sugar program operates by shorting the market to keep prices
high. The U.S. Government restricts imports through a series of tariff
quotas and also restricts the amount of sugar allowed in the domestic
market through production controls, called marketing allotments. On top
of these restrictions, sugar producers are offered a guaranteed loan of
18 cents per pound for raw cane sugar and 22 cents for refined beet
sugar. As of the last farm bill, these loans are non-recourse, meaning
if the price falls below these targets, the growers can forfeit the
sugar to the government as a form of repayment.
It is clear that a domestic program that operates to guarantee
inflated prices to producers by shorting the market is sorely out of
step with a global economy and will always be in conflict with
international trade commitments. As noted above, the sugar program is
also the only U.S. farm program that functions in this manner. It is
the structure of the program, not trade agreements, which must be
changed in the future.

The Sugar Exclusion and Future Trade Agreements
The exclusion of sugar in the U.S.-Australia agreement could have
extremely damaging consequences for future trade agreements. As
Chairman Thomas correctly noted in his January 28, 2004 letter to
President Bush, ``. . . any exclusions at all jeopardize our ability to
conclude and implement agreements which will benefit U.S. employers,
workers, farmers and consumers. If we exclude one industry, we will be
under enormous pressure to exclude others. We will become paralyzed by
our own sensitivities because we will have no consistent rationale to
resist the demands by any sector.''
In addition, by insisting on the exclusion of one product in the
U.S.-Australia FTA, U.S. negotiators risk that our trading partners
will demand similar concessions in future negotiations. U.S. export
oriented agriculture such as rice, beef, corn, pork and dairy are
sensitive to many of our prospective trading partners. If countries
like Panama, Colombia and Thailand decide to exclude their sensitive
products, U.S. agriculture will be effectively shut out of these
agreements. This is why nearly every food and agriculture association,
including the American Farm Bureau Federation, supports the concept of
``no exclusions'' in trade agreements.
Finally, since many of our future trading partners, especially
Brazil, have clearly identified increased sugar access as a primary
goal, the exclusion of sugar could seriously undermine the overall
ambition of negotiations like the Free Trade Area of the Americas
(FTAA). Excluding a key commodity like sugar from the FTAA will
undoubtedly result in reduced commitments for U.S. industries in the
areas of intellectual property protections and market access for goods
and services. In short, the exclusion of sugar benefits a very few but
hurts nearly every U.S. export industry.

Conclusion
For all the aforementioned reasons, we sincerely hope that the
exclusion of sugar in the U.S.-Australia FTA is the exception and not
the rule in future trade negotiations. The agreement as it stands is a
good agreement, but it could have been a perfect, platinum standard
agreement, were sugar to have been included. I look forward to working
with the Committee and U.S. negotiators to secure comprehensive, high-
standard agreements in the future. I would be happy to answer any
questions you may have.

Mr. CRANE. Thank you, Mr. Franklin. That was short but not
as sweet as I thought it might be. I guess it is the sugar
component. I would like to now yield to Ms. Tubbs Jones.
Ms. TUBBS JONES. Mr. Chairman, like you, I also have a
luncheon, so I am going to try and keep my comments very brief.
I want to go back to Mr. Franklin, because I am interested, not
to the exclusion of the rest of you guys, but I have to keep
mine short, too. What would you have wanted the agreement to
say with regard to sugar, Mr. Franklin?
Mr. FRANKLIN. We would have liked to have the Australian
sugar industry have greater access to the U.S. sugar market. We
support the U.S. sugar market. We want it to be competitive; we
want it to be vibrant. However, we also have to be realistic
about the competitive food processing world, and I think if I
could, Congresswoman, I brought an article from the Chicago
Tribune, and I brought an article from the Detroit News. The
headline from the Chicago Tribune says, ``Chicago Candy Makers
are Bitter on High Cost of Sugar.'' It talks about Mayor Daley
strenuously opposing the existing U.S. sugar program. The other
thing, just an hour from where I live in Western Michigan, the
Life Saver plant announced they were closing about a year and a
half ago. The 600 high-paid jobs went to Canada. They did not
go to some other country where you would think you would be
looking for low-cost labor. They went to Canada because of the
high cost of sugar. It is just a situation that just cannot
continue. I heard a lot of Members here talking about
manufacturing. Well, food processing, we are manufacturers.
This has a significant impact on our ability to compete.
Ms. TUBBS JONES. Thank you, Mr. Franklin. Mr. Chairman, I
would seek unanimous consent to have the two articles that Mr.
Franklin--Jorge, will you get those articles for me?
Mr. CRANE. Without objection, so ordered.
Ms. TUBBS JONES. Submitted into the record.
[The information follows:]
Copyright 2002 Chicago Tribune Company
Chicago Tribune
January 30, 2002 Wednesday
Life Savers takes business to Canada over sugar costs
By Tim Jones, Tribune staff reporter

HOLLAND, Mich.

Showtime begins at sundown when the giant metal roll of Life Savers
lights up. Then, atop the sole plant producing Life Savers in the
United States, the 25-foot revolving replica of the popular hard candy
flashes the fluorescent colors of its fruit flavors. This goes on all
night, every night.
But not much longer. Kraft Foods is shutting the 35-year-old
factory in this prosperous western Michigan city and shifting
production of the American candy icon to Canada. Kraft rejected a last-
ditch $38 million incentive package from Michigan last week and said
its decision ``is based on factors over which the State has no
control.'' This is death by sugar. Although Kraft officials cited
several reasons for the decision to shutter the 600-employee plant, the
high cost of sugar that has led to the closure of candy producers in
Chicago in the last several years was a major factor.
The exit of Life Savers could loom larger as an issue as the U.S.
Senate revisits the farm bill, the jealously guarded larder of
agriculture tariffs and subsidies that, in the case of sugar, are
directly responsible for sugar costing roughly twice as much in the
U.S. as it does in Canada and Mexico. Through import quotas, the $1.8
billion sugar program is designed to shield sugar growers from lower-
priced imports, but the economic law of unintended consequences and the
complicated politics of sugar are driving some American candy
manufacturers out of business or out of the country.
``If we believe it is in America's national interest to have a
sugar industry, there are better ways to help it than this,'' said Rep.
Peter Hoekstra (R-Mich.), who lives in Holland. ``This sugar program is
tampering with the market.''
The mathematics of candy production--a Life Saver is about 99
percent sugar--provides no comfort to those who worry about the future.
Candy, wafer and cereal makers are heavy consumers of sugar. Chicago-
based Brach's candy company is in the process of closing its West Side
factory. Kraft shut down one of the candy lines last week at the
Holland plant and will close the facility and move the production
equipment to Quebec by summer 2003. ``I think this is just the tip of
the iceberg,'' said Holland's Mayor, Albert McGeehan, who is far more
accustomed to welcoming new businesses than saying goodbye to a plant
that last year produced 70 million pounds of the colorful little candy.
``We're just one of the early casualties.''
``We've been on the receiving end of companies for 35 years, and
little thought did we give to the impact it would have on the
communities where these plants came from. I guess it proves that what
goes around comes around,'' McGeehan said, shrugging.
City's 3rd-largest taxpayer, Holland, near the scenic eastern shore
of Lake Michigan, is an unlikely victim. A national hub of the office
furniture business, this well-tended city of 35,000 people has thrived
in the last 30 years as a diversified home of manufacturing, food
processing and tourism, anchored by its annual tulip festival. Life
Savers, created in 1912 in Cleveland, moved its operation to Holland in
1967 and became the city's third-largest taxpayer. Life Savers became a
vanity plate for Holland, home of ``the candy with a hole in it.''
``It was kind of like a reference point for the city,'' said John
Drueke, president of the Retail, Wholesale and Department Store Union
Local 822, which represents Life Saver employees. When Kraft broke the
news of the plant's closing early this month, Drueke said his ``heart
just dropped.''
James Donaldson, vice president of business development for the
Michigan Economic Development Corp., patched together the incentive
package that Kraft rejected. He is concerned about the future of other
heavy sugar users in Michigan, such as the Post and Kellogg cereal
operations in Battle Creek.
``Both of them have expressed their concerns about sugar price
supports, but neither has said anything about leaving,'' Donaldson
said. ``I'm not going to forecast their demise, but this kind of issue
is one that has long-term consequences that no one can foresee. We
don't know where they will grow. ''
For people like Donaldson, that could mean that economic
development is just a holding action, with the growth going to other
countries where the cost of production is substantially lower.
Congress has repeatedly rejected efforts to kill the Sugar Program,
as recently as last month. The Sugar Program is one of the more
contentious parts of the farm bill, which has ballooned to $172 billion
from the current level of $98.5 billion, with payments going to support
corn, wheat, cotton, rice and soybeans. Luther Markwart, executive vice
president of the American Sugarbeet Growers Association, argues that
American sugar growers need to be protected against lower-priced
imports. Michigan has about 180,000 acres devoted to the production of
sugar beets.
Sugar prices change often. The price of sugar constantly changes,
but in recent years the U.S. price has been about double, and sometimes
triple, the world price. The lower cost of labor also contributes to
the price advantage of imported sugar.
``There has to be a level playing field and right now there's
not,'' Markwart said. ``That's the reality of the world we live in and
it's an ugly one.''
It's also an old one. U.S. sugar support programs date back to the
1930s and have long been the object of political manipulation. The
practical effect of U.S. sugar policy has been to protect sugar
farmers, drive up the value of sugar-producing farms and force many
food manufacturers to turn to sugar substitutes, like fructose corn
syrup.
Hoekstra said the danger for companies that buy large amounts of
sugar is that they will be forced to move their operations across the
border or overseas. ``People are no longer looking to save nickels and
quarters. In a global market they are looking for pennies, and their
shareholders are demanding it,'' the lawmaker said.
Despite the public embrace of free trade politics, the politics of
agriculture argues against any reversal of the historic trend of strong
government support of subsidies and, in the case of sugar, tariff
protection. And the message to many sugar buyers is don't expect any
relief.
``Congress won't do anything. They're spinning their wheels,'' said
Salvatore Ferrara, president of the Ferrara Pan Candy Co., based in
west suburban Forest Park.
The Ferrara company's growth is outside the United States. It has
opened one plant in Mexico and two in Canada, the most recent two
months ago. ``This is going to continue. There comes a point where you
can't fight city hall. You just pick up and move on,'' Ferrara said.
``I wouldn't think of opening anything up on this side of the
border,'' he added. Hoekstra said he's not hopeful that Washington will
provide relief. ``I can't think of a subsidy that Congress has ever
eliminated,'' he said.

GRAPHIC: PHOTOS 2 GRAPHIC PHOTO (color): Kraft Foods is shutting its
35-year-old Life Savers plant in Holland, Mich., and shifting
production to Quebec by summer 2003. Officials cited high sugar prices
as the major factor for their decision. Tribune photo by John Kringas.
PHOTO (color): Union official John Drueke said his ``heart just
dropped'' after learning about the closing of Life Savers' Holland,
Mich., plant. Tribune photo by John Kringas. GRAPHIC (color): Life
Savers closing last U.S. plant. High sugar prices in the U.S. are being
cited by Kraft Foods as a reason to move its Life Savers plant in
Holland, Mich., to Canada. Source: U.S. Department of Agriculture.

______

Daley Wants Sugar Subsidy Reform
DAVE CARPENTER
CHICAGO

The candy capital of the world is sour about high U.S. sugar
prices.
Concerned that local candy manufacturers are cutting back and
taking jobs abroad, Mayor Richard M. Daley showed up at North America's
largest candy trade show Tuesday with some not-so-sweet words for
Congress about the need for sugar subsidy reform.
Firing the latest salvo of a fast-intensifying lobbying campaign,
he and executives of Chicago's candy industry said Federal price
supports are dealing a serious blow to businesses that are heavily
dependent on sugar.
The Chicago area, which accounts for roughly 15 percent of the
country's candy work force, has seen its candy-related jobs decline to
about 9,000 from 17,000 a decade ago, with Brach's Confections recently
announcing the loss of 1,100 local jobs. While sugar growers dispute
the reasons, the Mayor largely blames a price-support program that has
made American sugar twice as expensive as world prices.
``We need to remove these obstacles as soon as possible and allow
our companies to compete on a level playing field,'' Daley said at the
opening of the All Candy Expo, flanked by about 20 candy officials at
the McCormick Place convention center.
The Chicago group urged the passage of legislation being introduced
Wednesday by Rep. Dan Miller, R-Fla., that would phase out sugar price
supports by the end of 2004, imposing import quotas on foreign sugar
until then.
``They should be able to pass this,'' Daley said. ``This is a no-
brainer.''
Opponents, who also are gearing up for a sugar showdown as part of
Congress' review of farm laws, say Daley is misinformed.
The American Sugar Alliance contends that sugar accounts for only a
small percentage of the cost of most candy products and that candy
makers are fudging their facts.
The industry group, comprised of sugar growers, accuses the
manufacturers of using the subsidies issue to deflect attention from
the real reasons for their moves out of the United States: to find
cheaper labor and lower environmental costs.
``Their effort to try to knock prices down further is an unabashed
effort to improve their profits,'' said Jack Roney, director of
economics and policy analysis for the growers' group.
Salvatore Ferrara II, president of Chicago-based Ferrara Pan Candy
Co. and chairman of the National Confectioners Association, which
sponsors the candy show, disputed that notion.
While his company has opened factories in Canada and Mexico,
reducing its Chicago work force to 450 from 800, he said: ``It's not
something we wanted to do. It's something we were forced to do. . . .
It's just not fair that our sugar prices are two to three times what
our competitors pay.''
How consumers are affected depends who's talking.
The candy makers say the price supports cost taxpayers $495 million
last year and added another $2 billion a year to the price they pay for
sugar and sweetened foods.
The sugar growers say candy companies haven't passed their savings
on to consumers even when the producer price for refined sugar fell 29
percent from 1996-2000. No sugar subsidies, they say, would doom
troubled beet sugar factories and the many local economies where they
are located.
``U.S. sugar policy is crucial to maintaining reliable supplies of
sugar to food manufacturers'' and for keeping consumer prices
``reasonable, fair and competitive,'' the American Sugarbeet Growers
Association wrote in a letter to Daley this week. ``Comparing U.S.
sugar prices with foreign subsidized surplus sugar dumped on a
distressed world market is not a legitimate comparison.''

Ms. TUBBS JONES. Very briefly, I want to go back to Mr.
Sundin.
Mr. SUNDIN. Sundin.
Ms. TUBBS JONES. Sundin.
Mr. SUNDIN. Sundin, actually.
Ms. TUBBS JONES. Okay.
Mr. SUNDIN. I will come to anything----
Ms. TUBBS JONES. I apologize, Mr. Sundin. I am curious
about NAM and your position. You support this Australian FTA.
Would your support be as strong if Australia was not as
advanced a community with labor standards, or would it be
different?
Mr. SUNDIN. Actually, I am here on behalf of the U.S.
Chamber of Commerce.
Ms. TUBBS JONES. You are the wrong one; okay. Go ahead, but
anyway, go ahead.
Mr. SUNDIN. Well, the answer to your question is yes,
because we export about half of what we make--well, the other
45 percent--the majority goes into China. In China, we are
doing a lot of educational programs to help people there
understand the benefits----
Ms. TUBBS JONES. How many jobs have you lost since you
started doing all this work in China?
Mr. SUNDIN. How many jobs have we lost?
Ms. TUBBS JONES. Yes.
Mr. SUNDIN. No, none.
Ms. TUBBS JONES. None at all?
Mr. SUNDIN. We have picked about 5 or 6 up, out of our 11
total.
Ms. TUBBS JONES. Five or six?
Mr. SUNDIN. Out of our 11 total.
Ms. TUBBS JONES. Okay.
Mr. SUNDIN. Which means a significant benefit to me.
Ms. TUBBS JONES. Mr. Shade, on behalf of the association--
my last question, Mr. Chairman, I promise.
Mr. SHADE. The same question?
Ms. TUBBS JONES. Yes.
Mr. SHADE. I would support this agreement even if Australia
were not as advanced a country. The products that we build and
make in America, which are high-tech products, and which are
exported into countries like Australia, will continue to be
built in the United States.
Ms. TUBBS JONES. You represent on behalf of NAM many more
organizations that do not have high tech jobs. Is that a fair
statement?
Mr. SHADE. That is correct.
Ms. TUBBS JONES. For those folks, it could, in fact,
signify a loss of jobs for their companies, fair? Yes or no?
Mr. SHADE. The analysis that we have done in NAM suggests
that most of what we call outsourcing is, in fact, not movement
of U.S. manufacturing jobs to other countries, but, in fact,
the creation of domestic facilities in those foreign countries
to serve those local markets. So, in the case of many of my
colleagues in NAM and our Technology Policy Committee, we have
not lost manufacturing jobs through outsourcing. We have, in
fact, started local companies and subsidiaries in order to
improve the export situation from----
Ms. TUBBS JONES. I am not going to get an answer to this
question, but the fact of the matter is that in the State of
Ohio, we have lost close to 200,000 manufacturing jobs, and
nationally, we have lost them. So, that is my concern. Mr.
Chairman, thank you very much.
Chairman THOMAS. [Presiding.] Thank you. Mr. Levin?
Mr. LEVIN. Mr. Chairman, I do not have any questions. I
came back; I had to go to a meeting. I had no choice. I just
wanted to indicate I will read with interest your testimony,
and the staff will tell me about the questions that were thrown
at you and your brilliant answers. So, thank you, Mr. Chairman.
Chairman THOMAS. Thank you. Mr. Lewis, do you have a
question?
Mr. LEWIS OF KENTUCKY. I do not have a question but I would
just like, after the fact, to welcome one of our guests today,
if that would be all right.
Chairman THOMAS. Oh, yes.
Mr. LEWIS OF KENTUCKY. Of course, I would like to welcome
David Wagner of Jim Beam. Jim Beam is an important part of
Kentucky, and it has its roots in Kentucky over the last 200
years. In 1795, a farmer and grain operator named Jacob Beam
sold his first barrel of sour mash. His son and grandson
continued to carry on that tradition, and I have been told Jim
Beam produces some of the finest spirits products in the world.
Is that true? That is my question.
[Laughter.]
Under the leadership of their late master distiller, Booker
Noe, the Jim Beam Company launched the small batch bourbon
trend through their brands: Booker's, Baker's, Knob Creek, and
Basil Hayden's. These superpremium products have reignited
worldwide interest in the cultural heritage and traditions of
bourbon whiskey distilling in the great Commonwealth of
Kentucky, and Jim Beam employs 550 Kentuckians statewide,
including 356 within my Congressional District. So, after the
fact, I welcome you, and we certainly are privileged and proud
that you have your great company in the Second District of
Kentucky.
Mr. LEVIN. Mr. Chairman?
Mr. CRANE. [Presiding.] Yes?
Mr. LEVIN. Kellogg's does not go back in Michigan to 1795,
but it goes back a long ways, and Mr. Franklin and I have known
each other a number of years, so I already earlier welcomed
him. How far back does Kellogg go in Michigan?
Mr. FRANKLIN. We will be 100 in 2006.
Mr. LEVIN. That is a good number of years, so a special
welcome.
Mr. FRANKLIN. Thank you.
Mr. CRANE. Well, let me express appreciation to all of you
for your participation. I am sorry for the time constraints
that we got under here, and I trust everyone will still be able
to make his flight, and we will make our votes. Thank you all,
and with that, the hearing stands adjourned.
[Whereupon, at 12:17 p.m., the hearing was adjourned.]
[Questions submitted from Representative Hulshof to
Ambassador Johnson, and his responses follow:]

Question: Because of the capital intensive nature of the commodity, the
dairy industry remains extremely sensitive to fluctuations in price and
supply. What steps is USTR taking to safeguard American producers from
extreme market shocks in the Australia FTA, as well as in other pending
FTA's?

Answer: In any of the Free Trade Agreements (FTA) negotiated, the
United States uses a number of tools to address the import
sensitivities of a variety of products, including dairy. By using
extended tariff phase outs, tariff rate quotas (TRQs) and other
mechanisms, we are able to minimize and moderate the impact of any
tariff phase outs.
In the case of dairy in the Australia FTA, the Administration
worked closely with the U.S. dairy industry achieving the industry's
priority negotiating objective by retaining the over-quota tariff. In
addition, the amount of Australian dairy products that enter duty free
under the tariff rate quota will increase only marginally further
limiting imports. The additional quantities provided for under the TRQs
amount to 0.2 percent of the value of U.S. dairy production in 2003 and
about 2.3 percent of the nearly $2 billion in total U.S. dairy imports.
On a tonnage basis, the additional access is about 0.03 percent of
total milk production in 2003.
Other countries with which we have or are negotiating FTAs are not
major exporters of dairy products. Nevertheless, FTA provisions for
dairy utilize various tools to address its import sensitivity. For
example, in the Central American FTA, the United States would establish
TRQs for dairy products and would eliminate tariffs in a back-loaded
manner over a 20 year period, with a quantity-based safeguard to
protect from import surges during the transition period. In the Morocco
FTA, the United States will create preferential TRQs with limited quota
amounts. The within-quota quantities will grow by only 4 percent a
year. Over-quota tariffs will be phased-out over 15 years in equal
annual installments.
In any of these FTAS, the United States also has export interests
in dairy products. As part of the FTA, Australia will be eliminating
its tariffs on U.S. dairy products, which reached $11 million in 2003.
Central American countries are establishing tariff rate quotas for
nearly 5,000 mt of U.S. dairy products as part of the Central American
FTA. Morocco will immediately eliminate its tariffs on pizza cheese and
whey products, and tariffs on cheese will be eliminated in 5 to 10
years, on butter in 8 years, and on milk powders in 15 years.

Question: What impact would this agreement have on milk prices
nationwide, as well as on the CCC's dairy price support program?

Answer: The U.S. Department of Agriculture projects that farm milk
prices will probably reach record levels in 2004, up by as much as $4
per hundredweight (cwt) from levels in 2003. Current estimates predict
that the all milk price will exceed $16 per cwt; in 2003, the price was
$12.52 per cwt. Irrespective of the Australia FTA, dairy prices are
expected to moderate in 2005. Current estimates are for milk prices in
2005 to average $13-$14 per cwt. USDA has not done a separate analysis
on the impact of the Australia FTA on milk prices.
The U.S. International Trade Commission concludes that the FTA will
likely have a small effect on U.S. milk production and employment in
the dairy industry. The ITC cites testimony by the National Milk
Producers Federation that by the 10th year of the FTA, dairy income
loss from the FTA will be ``about 0.25 percent of cumulated farm
receipts from sales of milk over a 10-year period based on annual
receipts of $23 billion.'' (Source: U.S.-Australia Free Trade
Agreement: Potential Economywide and Selected Sectoral Effects. USITC
Publication 3697; May 2004).
According to the U.S. Department of Agriculture, due to the
carefully crafted provisions on TRQ dairy products, the Australia FTA
will not affect the operation of the Commodity Credit Corporations's
dairy support program.

Question: The tariff treatment of Milk Protein Concentrates (MPC) and
caseinates remains a highly contentious issue among many dairy
producers in my district.
a. While many varieties of MPC and caseinates are excluded from
current dairy TRQ's, they are being used with increasing frequency in
food production. Does this agreement take any steps to resolve the
inconsistent tariff treatment of MPC versus other dairy products,
including cheeses and butters?
b. How would Congressional approval of a measure such as H.R.
1160, the Milk Import Tariff Equity Act, impact our trade relationship
with Australia, as well as with the rest of the world?

Answer: The FTA does not address what some view as different tariff
treatment of MPCs versus other dairy products, because U.S. tariffs on
MPCs are bound commitments under the Uruguay Round Agreements and apply
to all trading partners, not just Australia.
Official U.S. trade statistics show that imports of milk protein
concentrates (MPCs) reached a high in 2000 at 64,598 metric tons. Since
then, imports dropped to 35,383 metric tons in 2001, and then increased
to 48,538 metric tons in 2003. U.S. bound tariffs on milk protein
concentrates are nominal, at 0.37 cents per kilogram, equating to an ad
valorem equivalent of 0.1 percent. New Zealand is the largest supplier
of MPCs with approximately 65 percent of the U.S. import market share.
The European Union is the second largest supplier of MPCs with 17
percent of the U.S. import market share, and Australia is the third
largest supplier with 11 percent of the U.S. import market share. New
Zealand and Australia do not provide subsidies or commodity-specific
domestic support for the production of MPCs or any other dairy product.
At the request of Congress, the U.S. International Trade Commission
recently completed a study on MPC reports. The report suggests that MPC
imports have not yet caused significant economic injury to U.S. dairy
producers because any displaced dairy production was largely absorbed
by USDA's sustained purchases of surplus skim milk powder. The report
also states that domestic dairy price support programs have been a
disincentive to the manufacture of MPCs in the United States because it
is more profitable to produce skim milk powder for sale into a market
supported by USDA's commodity purchasing program.
The Administration has not taken a position on H.R. 1160, which
would create tariff rate quotas on certain milk protein concentrates
(MPCs) and casein. Imposing tariff rate quotas on these products would
mean having to negotiate with our trading partners to cut U.S. tariffs
on other products to provide compensation to our trading partners as
required by the WTO. Countries that export MPCs and casein products to
us would want to see cuts in dairy product tariffs.
In addition, we would be concerned about the possible negative
impact such legislation could have on the Doha negotiations, in which
the U.S. is a leading force supporting trade liberalization. Reforming
world dairy markets and eliminating export subsidies through WTO
negotiations, as supported by the U.S. dairy industry, is a preferred
outcome to benefit all of U.S. agriculture.

[Submissions for the record follow:]
Statement of Advanced Medical Technology Association
AdvaMed represents over 1,100 of the world's leading medical
technology innovators and manufacturers of medical devices, diagnostic
products and medical information systems. Our members are devoted to
the development of new technologies that allow patients to lead longer,
healthier, and more productive lives. Together, our members manufacture
nearly 90 percent of the $75 billion in life-enhancing health care
technology products purchased annually in the United States, and nearly
50 percent of the $175 billion in medical technology products purchased
globally. Exports in medical devices and diagnostics totaled $22.4
billion in 2003, but imports have increased to $22 billion--indicating
a new trend towards a negative trade balance for the first time in over
15 years.
The medical technology industry is fueled by intensive competition
and the innovative energy of small companies--firms that drive very
rapid innovation cycles among products, in many cases leading new
product iterations every 18 months. Accordingly, our U.S. industry
succeeds most in fair, transparent global markets where products can be
adopted on their merits.

Global Challenges
Innovative medical technologies offer an important solution for
industrialized nations, including Australia, Japan and European Union
members that face serious health care budget constraints and the
demands of aging populations. Advanced medical technology can not only
save and improve patients' lives, but also lower health care costs,
improve the efficiency of the health care delivery system, and improve
productivity by allowing people to return to work sooner.
To deliver this value to patients, our industry invests heavily in
research and development (R&D), and U.S. industry is a global leader in
medical technology R&D. The level of R&D spending in the medical device
and diagnostics industry, as a percentage of its sales, more than
doubled during the 1990s, increasing from 5.4% in 1990, to 8.4% in
1995, to 12.9% in 1998. In absolute terms, R&D spending has increased
20% on a cumulative annual basis since 1990. This level of spending is
on par with spending by the pharmaceutical industry and more than three
times the overall U.S. average.
However, patients benefit little from this R&D investment when
regulatory policies and payment systems for medical technology are
complex, non-transparent, or overly burdensome, causing significantly
delays in patient access. They can also serve as non-tariff barriers,
preventing U.S. products from reaching patients in need of innovative
health care treatments.
AdvaMed applauds continued progress on international trade
initiatives, including bilateral, regional and global trade
negotiations, such as the Free Trade Area of the Americas (FTAA) and
the Doha Development Agenda in the World Trade Organization (WTO). We
support new efforts like the Central American Free Trade Agreement
(CAFTA), under which the Central American partners to the agreement
will grant U.S. exports of medical devices duty-free treatment. We are
hopeful that future bilateral agreements can also include directives to
knock down tariff and non-tariff barriers for medical technologies. In
addition, the President and U.S. Trade Representative (USTR) should
continue to pursue trade liberalization in the medical technology
sector with our major trading partners.
AdvaMed believes the USTR, Department of Commerce (DOC) and
Congress should monitor regulatory, technology assessment and
reimbursement policies in foreign health care systems and push for the
creation or maintenance of transparent assessment processes and the
opportunity for industry participation in decision making. We look to
the Administration and Congress to actively oppose excessive
regulation, government price controls and arbitrary, across-the-board
reimbursement cuts imposed on foreign medical devices and diagnostics.

U.S.-Australia Free Trade Agreement
As you know, the United States and Australia signed the U.S.-
Australia Free Trade Agreement (FTA) on May 18, 2004--the first FTA the
U.S. has negotiated with a developed country since the U.S.-Canada FTA
in 1988. Australia is a major trade and investment partner for the U.S.
medical technology industry, which exported $661 million in medical
devices and IVDs to Australia in 2003, and maintains a trade balance
with Australia of $470 million.
The FTA will bring significant benefits to the medical technology
industry. Most importantly, it will eliminate tariffs on medical
devices immediately upon the agreement's entry into force, which could
save the industry over $30 million a year. Australia made significant
reductions on medical device tariffs during the Uruguay trade round,
but was not a full participant in the medical device zero-for-zero
agreement. The FTA will eliminate all remaining import tariffs on
medical technology exported to Australia, with the potential to
increase U.S. exports of medical devices to Australia, and in turn lead
to greater U.S. medical device manufacturing output and the creation of
new jobs.
In addition, the FTA reaffirms both countries' rights and
obligations under the Technical Barriers to Trade (TBT) agreement,
encourages the use of international standards as a basis for technical
regulations, recognizes conformity assessment mechanisms for accepting
conformity assessment results, and authorizes transparency in the
development of standards, technical regulations and conformity
assessment procedures through the opportunity to provide meaningful
comment in the decision-making process. These requirements will help to
ensure global regulatory consistency for medical devices, encourage the
use of conformity assessment procedures, and ensure industry has input
in the regulatory decision-making process.
The FTA also will make trade with Australia more predictable and
transparent for U.S. medical technology manufacturers through key
provisions on investor protections, government procurement, patent
protections, anti-counterfeiting protections, customs and rules of
origin, workers rights, the environment, and dispute settlement
procedures.
Finally, the FTA includes for the first time a separate chapter on
pharmaceuticals which provides transparency for pharmaceutical pricing
with an independent review process, establishes a medicines working
group to promote discussion and mutual understanding of pharmaceutical
issues, and includes a side letter establishing consultations on the
selecting, listing and pricing of pharmaceuticals under the Australian
Pharmaceutical Benefit Scheme (PBS). We are encouraged by the open
dialogue on pharmaceuticals formalized in the FTA and we look to USTR
for continued leadership in their efforts to ensure liberalized trade
for all health care products, including medical devices.

Conclusion
AdvaMed appreciates all the hard work that has been done by the
Administration in crafting the U.S.-Australia Free Trade Agreement and
support its endorsement by Congress. We look to the President and
Congress to continue to aggressively combat barriers to trade
throughout the globe, especially in Japan. AdvaMed is fully prepared to
work with the President, USTR Ambassador Zoellick, the Department of
Commerce, and the Congress to monitor, enforce and advance
multilateral, regional and bilateral trade agreements, particularly
with our key trading partners.

Statement of Stephen J. Collins, Automotive Trade Policy Council, Inc.

The Automotive Trade Policy Council (ATPC) strongly supports prompt
approval by the House and Senate of the recently signed U.S.-Australia
Free Trade Agreement (FTA). The Agreement will provide concrete market-
opening benefits for U.S. automotive manufacturers and boost momentum
for further progress in other bilateral, regional and multilateral
trade negotiations. ATPC is a Washington D.C.-based non-profit
organization that represents the common international economic, trade
and investment interests of its member companies: DaimlerChrysler
Corporation, Ford Motor Company and General Motors Corporation. ATPC is
the only industry association in Washington that is devoted exclusively
to the promotion of U.S. international trade and economic policy
issues.
General Motors, Ford, and DaimlerChrysler are the first, second and
fifth-largest automotive companies in the world. Together they directly
employ nearly 400,000 workers in their U.S. automotive operations,
nearly 90 percent of all Americans employed by vehicle manufacturers.
ATPC member companies spent over $11 billion last year providing
pension and other retirement benefits to over 800,000 retired workers
and dependent spouses in the United States. In addition, the three
companies provide health care benefits to over 1.8 million current and
retired employees and their dependents at a cost of over $8.5 billion
in 2003.
The overall average domestic content of the cars and trucks sold in
the United States by ATPC member companies is 80 percent, far higher
than our Japanese (31 percent average), Korean (2.1 percent average)
and other competitors. Last year, ATPC's member companies purchased
$160 billion worth of automotive parts and components from tens of
thousands of automotive suppliers in the United States. These companies
employ millions of additional U.S. workers. Total direct and indirect
employment in the U.S. automotive sector is more than 7 million
American workers. Materials used in the manufacturing of motor vehicles
come from nearly every sector of the U.S. economy, including raw
materials (steel, iron, aluminum, lead, rubber), manufactured goods
(textiles, glass, plastics) and high-tech components (semiconductors,
computers, advanced systems, engineering products).
ATPC member companies produced nearly 9 million vehicles in the
U.S. last year in 53 assembly plants located in 21 States--over 75% of
total passenger vehicle production in the United States. Since 1980,
DaimlerChrysler, Ford and General Motors have spent over $176 billion
in direct investment in U.S. facilities and operations, compared with
only $27 billion by our competitors from around the world. ATPC member
companies also maintain manufacturing facilities in over 50 countries
and sell vehicles in over 150 countries around the world. Collectively,
ATPC member companies annually produce over 11.5 million vehicles in
the NAFTA region and nearly 20 million vehicles worldwide, accounting
for 35% of total global vehicle production and sales.

The Impact of the U.S.-Australia FTA on the U.S. Automotive Sector

ATPC companies strongly support the proposed U.S.-Australia Free
Trade Agreement. A U.S.-Australia FTA will strengthen an already close
relationship between the two countries and will serve to increase
economic growth in both markets. The agreement will allow greater trade
opportunities in automotive products between our two countries and
facilitate further integration of our companies' manufacturing,
distribution, financing, service, and related automotive operations.
Over the past 15 years, Australia's motor vehicle market has
gradually become more open and globally competitive. Australia has
committed itself over the past decade to removing high tariffs on motor
vehicles and has made progress in removing other impediments to free
trade in the automotive sector as well. As a result, Australia is an
important export market for the U.S. automotive industry. U.S.
automotive exports to Australia totaled over $1 billion in 2003.
Automotive imports from Australia came to $336 million last year,
resulting in an automotive trade surplus of over $650 million. Overall,
U.S. auto sector exports to Australia represent almost 10% of total
U.S. merchandise exports to Australia.
The three ATPC companies compete in the Australian market and Ford
and General Motors, with their local manufacturing operations, produce
70% of the vehicles produced there. ATPC member companies produce over
70% of all passenger vehicles made in Australia, and sold nearly half
of the cars and light trucks in the Australian market last year.
To appreciate the size and importance of this market and the impact
of a U.S.-Australia FTA, consider that Australia's total annual new
passenger vehicle sales of 700,000 is greater than all vehicles sold in
every single country that the United States has signed, negotiated and
proposed bilateral free trade agreements with since NAFTA was enacted.
Total U.S.-Australia trade in automotive goods mirrors that of global
automotive trade, which comprises ten percent of total global trade
annually, more than the total of agriculture (9.3 percent).

Tariffs

One of the primary benefits of a U.S.-Australia FTA to the U.S.
automotive industry would be elimination or substantial reduction of
tariffs on motor vehicles and associated components. Australia
currently maintains a tariff of 15% on imported motor vehicles. Motor
vehicle imports from some developing nations enjoy a preferential
tariff of 10%, and as a result of being members of the Commonwealth
Market imports from Canada have an applied tariff of 7.5%. Australia
also maintains a 15% tariff on motor vehicle components and a 5% tariff
on commercial vehicles. Upon ratification of the U.S.-Australia FTA,
tariffs go to zero on all vehicles, parts, and components in both
countries with the exception of Australia's tariff on U.S. car imports,
which will drop from 15% to 5% on implementation and phase down on a
linear basis to 0% by 2010.

Conclusion

General Motors, Ford, and DaimlerChrysler are enthusiastic in their
support of congressional approval of the U.S.-Australia Free Trade
Agreement this year. Passage of this agreement will be a solid
accomplishment for the U.S. Government, with substantial benefits for
the U.S. manufacturing sector. The U.S.-Australia agreement also adds
momentum to the renewed efforts to expand global trade through the Doha
Round of the World Trade Organization, which we strongly support.

California Chamber of Commerce
Sacramento, California 95812
June 8, 2004

The Honorable Bill Thomas
Chairman
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Thomas:

I am writing on behalf of the California Chamber of Commerce in
support of the recently negotiated U.S.-Australia Free Trade Agreement.
As you are aware, the United States and Australia have concluded a
comprehensive Free Trade Agreement (FTA) that will give a strong boost
to the substantial trade and investment links between California and
Australia.
Australia is the 13th largest market for California goods, with
total exports valued at almost $2 billion in 2003. California exports
high-value products to Australia such as aircraft parts, computers and
computer parts, pharmaceuticals and printed media. If the FTA had been
in place in 2003, almost 99 percent of California's exports would have
entered Australia duty-free. Australia is also a strong customer in
California's services sector--most notably in tourism and film/TV. It
is the eighth largest market worldwide for the United States motion
picture industry.
California's exports to Australia directly support approximately
9,000 jobs. Additionally, there are 50 Australian-owned companies in
California employing 13,600 people, with 4,700 of these positions in
manufacturing. Trade with Australia supports numerous other high-paying
jobs in areas such as transportation, finance and advertising.
Further, Australian investment in California is valued around $4
billion, placing Australia as the eighth largest foreign investor in
the State.
The California Chamber of Commerce, in keeping with long-standing
policy, enthusiastically supports free trade worldwide, expansion of
international trade and investment, fair and equitable market access
for California products abroad and elimination of disincentives that
impede the international competitiveness of California business. New
multilateral, sectoral and regional trade agreements ensure that the
United States may continue to gain access to world markets, resulting
in an improved economy and additional employment of Americans.
The California Chamber of Commerce urges your support of the U.S.-
Australian Free Trade Agreement. A U.S.-Australia Free Trade Agreement
will create a seamless business environment between the two economies,
thereby bringing measurable business benefits in all sectors. Further,
a FTA will strengthen the linkages between the United States and
Australia, the United States' oldest and closest ally in the strategic
Asia-Pacific region.
Thank you for your consideration of this important issue.

Sincerely,
Allan Zaremberg

Statement of Joseph E. Brenner and Ellen R. Shaffer, Center for Policy
Analysis on Trade and Health, San Francisco, California
EXECUTIVE SUMMARY
Provisions of the U.S.-Australia Free Trade Agreement (FTA) could
result in higher prescription drug prices for U.S. and Australian
consumers. The Agreement could block legislation authorizing
reimportation of less expensive drugs into the U.S. New requirements
for independent review of Federal agency decisions about listing and
pricing for drugs could lead to higher drug prices for the Medicaid
program and for Veterans Administration health services, and
necessitate changes to U.S. law and current practices. The vagueness of
key provisions places these important programs at risk. These concerns
should be addressed, and Congress should ensure that U.S. consumers,
including veterans and Medicaid beneficiaries, are adequately
protected, in these areas:

1. The Agreement could block reimportation of less expensive drugs
from other countries, including future legislation that would authorize
such ``parallel importation,'' preempting congressional debate.
2. Vulnerable populations served by Medicaid and Medicare could
face higher drug prices. These programs would have to establish an
undefined ``independent review process'' for any recommendations or
determinations regarding ``listing new pharmaceuticals or indications
for reimbursement purposes, or for setting the amount of reimbursement
for pharmaceuticals.'' This could delay or alter decisions about
providing drugs and establishing affordable prices. It could require
changes to current U.S. law. It is unclear how this requirement would
apply to private companies that administer the new Medicare Part D.
3. Veterans could face higher drug prices. Federal programs such
as the Veterans Administration, and possibly State programs, would also
have to provide new review processes for drug listing and pricing
decisions. Technical standards that guide drug purchasing decisions
could not be ``unnecessary obstacles to trade,'' but these terms are
not defined. These provisions are different from current practice. They
can delay procurement decisions, and allow companies to pressure
agencies for higher prices.
4. The many vague provisions of the Agreement will be interpreted
and enforced by international dispute panels, which are not guided by
or subject to U.S. law. Government agencies that appeal the many
unclear provisions of the Agreement after it is enacted have no
guarantee of prevailing. Trade panels can impose financial sanctions to
achieve compliance.
5. Many Australian health professional associations oppose the
FTA, and have stated that it will raise drug prices in Australia, which
are currently closely controlled. The U.S. pharmaceutical industry
claims that it is necessary to raise drug prices in Australia and other
developed countries, to fund innovation in research, and eventually
lower drug prices in the U.S. Public funding for research and
development in the U.S. reflects concern for innovation, and patent
laws that protect products from competition for 20 years permit drug
companies to recoup their investments. But the 15% of revenues the
industry spends on research increasingly focuses on copycat drugs that
present little if any additional therapeutic value, while treatments
for important health conditions are not explored. Prices are
unaffordable for many. Companies are obliged to respond to shareholder
expectations for the highest possible profits, and the industry's
return on revenue is already among the highest in the U.S. It is
unclear how higher profit levels could lead the industry to offer more
affordable prices. The crisis in the industry's complex business model
will not be successfully resolved by undermining price controls abroad.

U.S.-AUSTRALIA FREE TRADE AGREEMENT: IMPLICATIONS FOR PRESCRIPTION DRUG
PRICES IN THE U.S. AND AUSTRALIA

Provisions Related To Setting Prices For Drugs
Paragraph 17.9.4 of the Agreement could block reimportation of less
expensive medicines from other countries, termed ``parallel
importation.'' Additional rules that extend the terms of patents are
included in Chapter 17 on Intellectual Property. The Agreement grants
additional rights to drug patent holders that are likely to delay the
entry into market of competitive generic drugs, and delay the resulting
reduction in drug prices. These include ``data exclusivity,'' the right
not to release drug trial data to generic companies.
Annex 2-C, Pharmaceuticals, establishes rules for transparency and
for independent review of decisions for government agencies that create
lists of drugs and set prices for drugs, but do not directly procure
them, such as Medicaid and Medicare.
Agencies that procure drugs directly, including the Veterans
Administration, the Department of Defense, and the Indian Health
Service, are covered by Chapter 15, Government Procurement.

1. The Agreement would block reimportation of less expensive drugs from
other countries.
Chapter 17.9.4 on parallel importation could be used to block
reimportation of lower priced drugs into the U.S from any country.
Reportedly other language in the Agreement prohibiting reimportation
was removed earlier. However, this provision in the current the version
of the Agreement posted on the U.S. Trade Representative website would
have the same effect:

Each Party shall provide that the exclusive right of the
patent owner to prevent importation of a patented product, or a
product that results from a patented process, without the
consent of the patent owner shall not be limited by the sale or
distribution of that product outside its territory, at least
where the patentee has placed restrictions on importation by
contract or other means.

Many Members of Congress and the public have expressed interest in
reimportation; this Agreement would preempt a debate on the subject.
There is no provision that allows future laws passed by the U.S.
Congress to supersede this Agreement. Under Chapter 13, each country is
allowed to identify current laws that do not conform with the Agreement
and will remain exempt, and also areas where future domestic
legislation can differ from the Agreement. There is no reference in
this chapter or its related schedules and annexes to parallel
importation of drugs, or to pharmaceuticals.

2. Transparency and independent review requirements for Medicare,
Medicaid, and perhaps others.
Annex 2-C, Pharmaceuticals, applies transparency requirements to
``Federal healthcare authorities [that] operate or maintain procedures
for listing new pharmaceuticals or indications for reimbursement
purposes, or for setting the amount of reimbursement for
pharmaceuticals, under its Federal healthcare programs.'' In the case
of the U.S. this would apply to Medicare and Medicaid, which are both
Federal programs. (A claim that Medicaid is not a Federal program
because it is administered by States would likely be referred to an
international trade dispute panel if challenged.) It would also apply
to Australia's Pharmaceutical Benefits Scheme, which determines the
list of available drugs and negotiates prices.
The independent review process is not defined. It suggests a
decision-making process ``independent'' of government authorities, that
will allow the industry (referred to as ``applicants'') to go beyond
current adequate negotiation processes, and appeal for higher prices
for more products.
The requirements are stated in Paragraph 2(a)-(f), Transparency,
listed below.

a. ensure that consideration of all formal proposals for listing
are completed within a specified time;
b. disclose procedural rules, methodologies, principles, and
guidelines used to assess a proposal;
c. afford applicants timely opportunities to provide comments at
relevant points in the process;
d. provide applicants with detailed written information regarding
the basis for recommendations or determinations regarding the listing
of new pharmaceuticals or for setting the amount of reimbursement by
Federal healthcare authorities;
e. provide written information to the public regarding its
recommendations or determinations, while protecting information
considered to be confidential under the Party's law; and
f. make available an independent review process that may be
invoked at the request of an applicant directly affected by a
recommendation or determination.
Questions:
Since international trade law and trade panels govern
this Agreement, and since the independent review process is not clearly
defined, how can agencies assure that they will retain the final
authority to assure appropriate lists and affordable prices for their
vulnerable populations?
For U.S. Federal health care authorities that do not
currently comply with paragraphs (a)-(f) above, what legislative or
regulatory change would be required for compliance?
Since international trade law and trade panels govern
this Agreement, how can agencies be certain regarding whether they are
covered by this provision?

3. Technical specifications and independent review requirements for
Federal and State health care agencies that establish
formularies and engage in procurement of pharmaceuticals: VA,
DoD, IHS
Government programs that directly procure drugs, including the
Veterans Administration and Department of Defense, are covered by
requirements to establish technical standards and independent review
for drug purchases in Chapter 15 on Government Procurement.
Specifically, Article 15.6 states that technical specifications cannot
have the ``purpose or effect of creating unnecessary obstacles to
trade.'' (See relevant provisions in Attachment #1.)
Article 15.11 describes the two levels of independent review that
government procurement bodies must make available in the case of
challenges to their decisions. This goes beyond the requirements of the
World Trade Organization's Government Procurement Agreement, to which
the U.S. is a party. The differences are detailed in Attachment #2
below.
A footnote in Annex 2-C states: ``Pharmaceutical formulary
development and management shall be considered to be an aspect of
government procurement of pharmaceutical products for Federal
healthcare agencies that engage in government procurement. Government
procurement of pharmaceutical products shall be governed by Chapter 15
(Government Procurement) and not the provisions of this Annex.''
The second sentence of the footnote refers broadly to ``Government
procurement of pharmaceutical products,'' and does not limit the
application merely to Federal agency activity. This suggests that State
drug formulary programs could be subject to the Agreement.

Question 3a. Since international trade law and trade panels govern
this Agreement, how can the VA and other agencies be assured that
technical standards for setting formularies and prices will be
considered acceptable, and do not constitute unnecessary obstacles to
trade?
Question 3b. How can the VA and other agencies assure that they
will retain the final authority to determine lists and prices of drugs,
in the interest of assuring appropriate lists and affordable prices,
and that ``independent'' review panels will not assume this authority?
Question 3c. What is the complete list of Federal and State health
care agencies in the U.S. that engage in pharmaceutical formulary
development and management?
Question 3d. Of these government health care agencies, to what
degree do current procurement methods differ from the provisions of
Chapter 15 of the U.S.-Australia FTA? (See Attachment #1.) What
legislative and/or regulatory change(s) would be required to ensure
compliance with the provisions of Chapter 15?

4. Trade agreements are interpreted by international panels which are
not guided by or subject to U.S. law.
Several provisions of the Agreement are ambiguous, including the
definitions of the kinds of agencies covered, technical specifications,
and independent review. The Government Procurement section (see above),
for example, requires countries to prove that technical specifications
on which they base their decisions do not have the ``purpose or effect
of creating unnecessary obstacles to trade.'' Countries involved in
trade disputes have frequently been surprised at the types of technical
standards that trade dispute panels find acceptable. Government
agencies that appeal these provisions in the event of a challenge,
including by asserting that they are exempt, have no guarantee of
prevailing.

5. The FTA is intended to lead to higher drug prices in Australia. It
is not clear that this will be likely to lower drug prices in
the U.S.
The Agreement applies the same requirements for transparency and
independent review, described above, to Australia's Pharmaceutical
Benefits Scheme, including consulting with applicants (which would
include pharmaceutical companies), and providing independent avenues
for appealing decisions about listing and pricing drugs. It also
establishes a Medicines Working Group, intended to ``promote discussion
and mutual understanding of issues relating to this Annex (except those
issues covered in paragraph 4, including the importance of
pharmaceutical research and development to continued improvement of
healthcare outcomes,)'' consisting of ``officials of Federal Government
agencies responsible for Federal healthcare programs and other
appropriate Federal Government officials.''
Several U.S. policymakers have stated that it is the explicit
intention for this Agreement to raise drug prices in Australia. A
recent submission to the Australian Senate Select Committee on the
U.S.-Australia Free Trade Agreement presented concerns that these
provisions will indeed raise drug prices there. Relevant sections of
this report are reproduced below in Attachment #3.
Assuring the development of beneficial new drugs, and making them
available at an affordable price, are essential concerns. In the U.S.,
these concerns have led to substantial public contributions, in funding
and other resources, for research and development, and to patent laws
that protect products from competition for 20 years to allow drug
companies to recoup their investments. Nevertheless, innovation
increasingly focuses on copycat drugs of uncertain therapeutic value,
while treatments for important health conditions are not explored.
Prices are unaffordable for many. It is among the most profitable
industries in the U.S., earning a 19% return on revenue, or $72.6
billion in profits in 2002. It is unclear how higher profit levels
could lead the industry to offer more affordable prices in the U.S. The
industry has no track record of voluntarily reducing prices, without
competition following expiration of patents, and is obliged to respond
to shareholder expectations for the highest possible profits. The
current complex business model for the U.S. pharmaceutical industry
appears to be at a crossroads, one that will not likely be successfully
navigated or credibly addressed by undermining price control systems
abroad.

SUMMARY
The U.S.-Australia Free Trade Agreement contains a number of
provisions related to pharmaceutical products that are likely to
interfere with current efforts to achieve or maintain affordable
prescription drug prices in the U.S. and in Australia. The Agreement
preempts important rights of governments. Resolving international
concerns about drug prices and availability will involve careful
consideration of complex issues by a range of stakeholders. To the
extent that these issues can be usefully addressed in trade agreements,
multilateral settings are likely to be more productive than bilateral
agreements. The provisions noted should be reconsidered, and should not
serve as a precedent for future agreements.

______

ATTACHMENT #1: PROVISIONS ON TECHNICAL SPECIFICATIONS AND INDEPENDENT
REVIEW FOR GOVERNMENT PROCUREMENT

ARTICLE 15.6: INFORMATION ON INTENDED PROCUREMENTS
Technical Specifications
A procuring entity may not prepare, adopt, or apply any technical
specification or prescribe any conformity assessment procedure with the
purpose or the effect of creating unnecessary obstacles to trade
between the Parties.

3. In prescribing the technical specifications for the good or
service being procured, a procuring entity shall:
4. (a) specify the technical specifications, wherever appropriate,
in terms of performance and functional requirements, rather than design
or descriptive characteristics; and
(b) base the technical specifications on international
standards, where such exist and are applicable to the procuring entity,
except where the use of an international standard would fail to meet
the procuring entity's program requirements or would impose greater
burdens than the use of a recognized national standard.
5. A procuring entity may not prescribe technical specifications
that require or refer to a particular trademark or trade name, patent,
copyright, design or type, specific origin, producer, or supplier,
unless there is no other sufficiently precise or intelligible way of
describing the procurement requirements and provided that, in such
cases, words such as ``or equivalent'' are included in the tender
documentation.
6. A procuring entity may not seek or accept, in a manner that
would have the effect of precluding competition, advice that may be
used in the preparation or adoption of any technical specification for
a specific procurement from a person that may have a commercial
interest in the procurement.
7. Notwithstanding paragraph 6, a procuring entity may:
(a) conduct market research in developing specifications for a
particular procurement; or
(b) allow a supplier that has been engaged to provide design or
consulting services to participate in procurements related to such
services, provided it would not give the supplier an unfair advantage
over other suppliers.
ARTICLE 15.11: DOMESTIC REVIEW OF SUPPLIER CHALLENGES
1. In the event of a complaint by a supplier of a Party that there
has been a breach of the other Party's measures implementing this
Chapter in the context of a covered procurement in which the supplier
has or had an interest, the Party of the procuring entity shall
encourage the supplier to seek resolution of its complaint in
consultation with the procuring entity. In such instances the procuring
entity shall accord timely and impartial consideration to any such
complaint.
2. Each Party shall maintain at least one impartial administrative
or judicial authority that is independent of its procuring entities to
receive and review challenges that suppliers submit, in accordance with
the Party's law, relating to a covered procurement. Each Party shall
ensure that any such challenge not prejudice the supplier's
participation in ongoing or future procurement activities.
3. Where a body other than an authority referred to in paragraph 2
initially reviews a challenge, the Party shall ensure that the supplier
may appeal the initial decision to an impartial administrative or
judicial authority that is independent of the procuring entity that is
the subject of the challenge.
4. Each Party shall ensure that the authorities referred to in
paragraph 2 have the power to take prompt interim measures, pending the
resolution of a challenge, to preserve the supplier's opportunity to
participate in the procurement and to ensure that the procuring
entities of the Party comply with its measures implementing this
Chapter. Such interim measures may include, where appropriate,
suspending the contract award or the performance of a contract that has
already been awarded.
5. Each Party shall ensure that its review procedures are
conducted in accordance with the following:
(a) a supplier shall be allowed sufficient time to prepare and
submit a written challenge, which in no case shall be less than ten
days from the time when the basis of the complaint became known or
reasonably should have become known to the supplier;
(b) a procuring entity shall respond in writing to a supplier's
complaint and provide all relevant documents to the review authority;
(c) a supplier that initiates a complaint shall be provided an
opportunity to reply to the procuring entity's response before the
review authority takes a decision on the complaint; and
(d) the review authority shall provide its decision on a
supplier's challenge in a timely fashion, in writing, with an
explanation of the basis for the decision.

______

ATTACHMENT #2: DIFFERENCES BETWEEN WTO GOVERNMENT PROCUREMENT AGREEMENT
AND U.S.-AUSTRALIA FTA ON INDEPENDENT REVIEW

----------------------------------------------------------------------------------------------------------------
WTO Government Procurement U.S.-Australia Free Trade
Issue Agreement Agreement Difference
----------------------------------------------------------------------------------------------------------------
Levels of Article XX ARTICLE 15.11:WTO requires
review. DOMESTIC REVIEW impartial review
Challenge Procedures OF SUPPLIER by the procuring
entity.

1. In the event of a 1. In the event of a Australia requires
complaint by a supplier complaint by a supplier of a second level of
that there has been a a Party that there has review, and
breach of this Agreement been a breach of the other empowers an
in the context of a Party's measures independent
procurement, each Party implementing this Chapter authority to review
shall encourage the in the context of a the procuring
supplier to seek covered procurement in entity's decision.
resolution of its which the supplier has or This provides
complaint in consultation had an interest, the Party opportunities to
with the procuring entity. of the procuring entity delay procurement
In such instances the shall encourage the decisions.
procuring entity shall supplier to seek
accord impartial and resolution of its
timely consideration to complaint in consultation
any such complaint, in a with the procuring entity.
manner that is not In such instances the
prejudicial to obtaining procuring entity shall
corrective measures under accord timely and
the challenge system. impartial consideration to
any such complaint.
2. Each Party shall
maintain at least one
impartial administrative
or judicial authority that
is independent of its
procuring entities to
receive and review
challenges that suppliers
submit, in accordance with
the Party's law, relating
to a covered procurement.
----------------------------------------------------------------------------------------------------------------
Challenge of 7. Challenge procedures 4. Each Party shall 1. The WTO
procurement shall provide for: ensure that the requires only that
decision. authorities referred to in interim corrective
(a) rapid interim measures paragraph 2 have the power measures preserve
to correct breaches of the to take prompt interim commercial
Agreement and to preserve measures, pending the opportunities
action may result in resolution of a challenge, generally; U.S.-
suspension of the to preserve the supplier's Australia gives
procurement process. opportunity to participate specific rights to
However, procedures may in the procurement and to the complaining
provide that overriding ensure that the procuring supplier for
adverse interim measures.
consequences for the entities of the Party 2. The WTO calls
interests concerned, comply with its measures for procedures that
including the public implementing this Chapter. can provide for
interest, may be taken Such interim measures may interim measures
into account in deciding include, where (such as delaying a
whether such measures appropriate, suspending procurement
should be applied. In such the contract award or the decision). U.S.-
circumstances, just cause performance of a contract Australia gives
for not acting shall be that has already been that power to the
provided in writing; awarded. independent review
authority, which is
separate
(b) an assessment and a from the procuring
possibility for a decision entity.
on the justification of
the
challenge; 3. The WTO has an
exception for
(c) correction of the the public
breach of the Agreement or interest; U.S.-
compensation for the loss Australia has no
or damages suffered, which such exception.
may be limited to costs
for tender preparation or
protest.
----------------------------------------------------------------------------------------------------------------

______

ATTACHMENT #3: AUSTRALIAN SUBMISSION ON THE FTA AND DRUG PRICES

The FTA and the PBS

A Submission to the Australia Senate Select Committee on the U.S.-
Australia Free Trade Agreement

Professor Peter Drahos, Professor of Law, Australian National
University, [email protected].

Dr. Thomas Faunce, Senior Lecturer, Medical School, Lecturer, Law
Faculty, Australian National University, [email protected].

Martyn Goddard, Former consumer member, Pharmaceutical Benefits
Advisory Committee (PBAC), [email protected].

Professor David Henry, Professor of Clinical Pharmacology,
University of Newcastle, Former member, PBAC, Former chair, PBAC
Economic Sub-Committee, [email protected].

THE PBAC APPEALS PROCEDURE
Under the FTA, Australia has undertaken to ``make available an
independent review process'' by which a manufacturer can challenge PBS
listing decisions made by the key committee, the Pharmaceutical
Benefits Pricing Authority.
The government has repeatedly promised that this would not be able
to set aside or overturn PBAC decisions. However, the realities of the
FTA are that Australia is likely to face very large sanctions under the
dispute resolution and enforcement sections of the FTA if it does not
provide an appeals process that the U.S. and its drug makers find
acceptable. Any process that does not have the power to reverse
decisions, and which merely returns a submission to the committee for
further consideration, will not represent any advance for the American
side or the U.S. companies. According to several statements from the
industry and the American side, an appeals process without power is not
what they think they have secured.
Such a process will seriously compromise the negotiating position
of the PBAC. At present, the committee commissions sophisticated
economic evaluations of each new drug and decides whether the price
requested by the company represents fair value in terms of the health
benefits the drug is likely to provide. If the answer is no, companies
must reduce their price or find new data to justify the price they
want. Often, the price comes down.
If, rather than re-submitting to the PBAC, sponsor companies could
go to an alternative forum to have the PBAC's decision overturned or
changed, the committee would find it far more difficult to enforce
price discipline on major drug makers.

DISPUTE RESOLUTION AND ENFORCEMENT
Often, when trade negotiators cannot finalise contentious points of
detail, they produce a text that is deliberately unclear on these
matters and that can be sorted out later. These ``constructive
ambiguities'' abound in those elements of the FTA that affect the
pharmaceutical market and the PBS. These ambiguous clauses allow each
side to claim a ``win'' and to secure endorsement from each nation's
legislatures. But further consultation and dispute resolution processes
will be put in place to sort these matters out later, outside of public
and parliamentary scrutiny.
Two such processes are included in this FTA: a consultative
Medicines Working Group, and the overall disputes resolution processes.
The Medicines Working Group will comprise Federal officials from
each country. Decisions will effectively be binding on Australia unless
the draconian provisions of the FTA's enforcement processes are to be
risked. The Australian parliament is being asked to endorse an
agreement that does not specify what will happen to key elements of one
of its central national health programs, the PBS; and that gives
immense power to a non-Australian group meeting behind closed doors,
with no published agenda and no accountability to the Australian
people, parliament or press.
Matters likely to be discussed by the Medicines Working Group
include the PBAC appeals procedure, crucial technical aspects of PBAC
economic evaluations, involvement of companies in PBAC decision-making,
whether the Australian government will still be able to remove drugs
from the PBS and demands about speed of listing. Most of these matters
would potentially diminish the negotiating position of the PBS in
dealing with overseas drug companies and would lead to higher drug
prices.
If Australia does not comply with U.S. demands, or does not change
its laws, regulations and processes to put into effect the FTA and the
judgments of the Medicines Working Group, the disputes resolution and
enforcement processes will come into force. These involve the
establishment of committees and working groups that ``seek the advice
of non-governmental persons or groups''--a measure that brings the
industry and its lobbyists directly into the processes of administering
and enforcing the FTA.
If Australia is found to be in breach, a fine can be set of up to
50 percent of the value of the benefit Australia is calculated to have
gained by its breach. As some single drugs cost the PBS more than $100
million a year, these fines are likely to be very large indeed. Ongoing
penalties of up to $US15 million may also be imposed for each instance
of each breach.
And ``benefits under the agreement'' may be suspended. This means
the U.S. could deny Australia any or all of the access achieved under
the FTA to its market for any Australian product, including primary
products such as beef and lamb.

PRESSURES ON THE PBAC
As discussed above, the PBS listing process is a combination of
valuation followed by negotiation, built on objective economic and
clinical evaluation of their products. The PBS does not attempt to gain
the lowest possible price: rather, it attempts to pay what it believes,
based on the evidence of clinical safety and efficacy, is fair and
consistent with what is paid for other medicines. It is a sophisticated
and very successful program that has been copied by other countries.
The PBS has provided Australia with very competitive drug prices. Local
branch offices of global drug companies are under immense power from
their overseas head offices to achieve prices closer to those ruling in
the U.S.; therefore, anything that weakens the power of the PBAC to
reject unsatisfactory prices, and to hold out for better value, will
inevitably cause costs to rise and add to the long-term problems of
financial sustainability facing the PBS.
Australia's ban on direct-to-consumer advertising of prescription
medicines will become easier for companies to circumvent. This will add
to the pressure on the PBAC to make new drugs available whatever the
cost. It will also increase total cost as patients are induced to
switch to new, expensive drugs from older, cheaper ones or from no drug
at all.
Company representatives will become involved in the actual meetings
of the PBAC and its technical sub-committees, and will be able to make
personal sales pitches to the meetings deciding on the value of their
products. The FTA will reinforce companies' ability to seek higher
prices for already-listed drugs, but there will be no capacity for the
PBS to review prices downwards if (as often happens) drugs perform less
well in the ``real world'' of actual clinical use than they did in the
original clinical trials.
The combined pressures of all these measures on the PBAC and its
members will be enormous and extraordinarily difficult to resist. The
committee will effectively be under siege: the number of interests
attacking any negative decision will have multiplied both in number and
in strength. Despite its present powers under the National Health Act,
it is difficult to see how the committee will be able to continue
serving the public's interest properly under such conditions.

Statement of ChevronTexaco, San Ramon, California

ChevronTexaco Corp. ranks among the world's largest and most
competitive global energy companies. Headquartered in San Ramon,
California, it is engaged in every aspect of the oil and gas industry,
including exploration and production; refining, marketing and
transportation; chemicals manufacturing and sales; and power
generation. With businesses in 180 countries, ChevronTexaco is the
second largest U.S. company in the petroleum sector.
ChevronTexaco has had a long history in the Australian market. Its
Australian downstream activities began in New South Wales shortly after
World War I. Presently ChevronTexaco, through its subsidiary, owns 50%
of Caltex Australia Ltd., an Australian publicly listed company. Most
of the other 28,000 shareholders are Australians. Caltex Australia is
among the country's leading oil refining and marketing companies and is
involved in the refining, distribution and marketing of fuels and
lubricants including petrol, jet and diesel fuel, liquefied petroleum
gas, and industrial and aviation lubricants.
Today, Caltex Australia maintains wholesale, commercial and retail
operations in all states and territories in Australia. In addition, the
company owns and operates two fuel refineries with a capacity of
220,000 barrels per day.
Upstream activities began for both Chevron and Texaco in 1951 when
the companies (under the Caltex banner) joined Australian company Ampol
to explore leases in Western Australia. These companies were part of a
venture that made Australian history through its discovery of the
country's first flowing oil at Rough Range in 1953. More successes for
Chevron and Texaco followed, including the 1981 discovery of the Gorgon
gas field and the joint venture to begin liquefied natural gas (LNG)
production in 1989 from the North West Shelf Venture (NWSV).
Today, ChevronTexaco continues to produce oil from Barrow Island
(over 300 million barrels produced since commercial discovery in 1964)
and nearby oil fields safely, effectively and economically. The NWSV
produces about 1.5 billion cubic feet of gas per day. The gas is sold
as LNG for export and also provides the bulk of gas supply for Western
Australia's domestic market. The project facilities include two of the
world's largest gas production platforms. The NWSV has established, for
Australia, a reputation as a safe, reliable and secure supplier of LNG.
ChevronTexaco is operator of the Gorgon development, and is leading
the marketing and development of the Gorgon area gas fields. Gorgon is
a world class resource being developed to supply natural gas to markets
in Asia-Pacific, including China and North America, and the Australian
domestic market.
With this long-standing and successful history, ChevronTexaco is
well-placed to comment on the impact of the recently concluded Free
Trade Agreement between the United States and Australia from the
perspective of a U.S. company with strong, enduring and expanding
interests in Australia. This FTA is a commercially meaningful agreement
that will provide significant new opportunities for farmers, companies
and workers in both countries.
Trade liberalization is a critical factor to promoting economic
growth and we anticipate that this agreement will facilitate such
growth in our two countries and globally.
And from the energy sector perspective, we know that energy
consumption tracks economic development both as a fuel to growing
businesses and to households as the general standard of living
increases. With this, yet another benefit of free trade to
ChevronTexaco is the opportunity created to produce and sell more
energy to fuel the resultant growing economy and its beneficiaries.
Further to this end, we are more closely recognizing energy as a
catalyst to, and not just a beneficiary of, the opportunity created by
free and open trade.
In addition, other FTA provisions such as those related to domestic
regulation, transparency, local presence, and procurement reinforce
existing practices and are all positive for energy services providers.
It is important to note, for ChevronTexaco and other companies
involved in energy security, one of the most critical elements of the
United States' international trade agenda is to promote strong
investment disciplines. Clear, consistent protection of U.S. private
investment is especially critical in the area of energy security.
ChevronTexaco operates in over 180 countries worldwide, with over 60%
of its total assets overseas. These overseas assets total over 50
billion dollars, including investments in physical assets totaling over
27 billion. Nearly 70% of its production and exploration assets are
overseas, and protection of these non-domestic sources of oil and gas
has never been more vital to our country.
Studies have demonstrated that U.S. foreign investment actually
spurs productivity at home by promoting research and development,
investment in physical capital, and new technology. This results in
higher-paying jobs and a commensurate rise in the standard of living.
There are also longer-term benefits to the national interests of the
U.S. including a stable energy supply, promoting the rule of law
regionally and multinationally, and developing stronger financial
systems around the world.
We believe that the U.S. Government can and must continue to play a
leading role in establishing high standards of protection for all U.S.
private investments abroad. Specifically, the government should work to
promote investment agreements worldwide that create consistent
standards for existing and future contracts; advance fair and equitable
treatment in resolving disputes; contain strong safeguards against
regulatory takings; and provide for international arbitration for
investor-state disputes. These high standards will not only spur growth
globally and here at home, but will ensure a more level playing field
for U.S investors vis-a-vis international competitors.
Experience has demonstrated that trade liberalization can create
both additional wealth and opportunity for all participating economies.
Those gains transfer to political, economic, and general security, and
in this case serve to further cement an already strong alliance between
our two nations.

Statement of Timothy J. McBride, DaimlerChrysler Corporation, Auburn
Hills, Michigan

DaimlerChrysler Corporation is pleased to present this statement in
support of the U.S.-Australia Free Trade Agreement. DaimlerChrysler
business units and affiliates of DaimlerChrysler Corporation (a.k.a.
the Chrysler Group), Mercedes-Benz, Freightliner and Detroit Diesel
employ more than 100,000 Americans and supports an additional 160,000
retirees and dependents. DaimlerChrysler has facilities in fifteen
States, and as a leading motor vehicle exporter from the U.S., the
Chrysler Group, Freightliner and Mercedes-Benz will directly benefit
from the U.S.-Australia Free Trade Agreement.
The recently published U.S. International Trade Commission
(``USITC'') report on the impact of the U.S.-Australia Free Trade
Agreement on the U.S. economy highlights the fact that the U.S. runs a
trade surplus with Australia in the motor vehicle sector. According to
the USITC report, in 2003, the U.S. exported $387 million to Australia
while importing $140 million from Australia in the motor vehicle goods
sector. The report noted that GM and Ford were the largest producers in
both markets, and that both companies should benefit from the
agreement.
What the ITC report neglected to mention was that DaimlerChrysler
produced a significant portion of the U.S. exports to Australia in the
motor vehicle category in 2003. DaimlerChrysler entities exported $200
million, or over half of total motor vehicle exports to Australia in
2003. This included the following:

2,479 Jeep vehicles produced in Toledo, Ohio valued at
$40.6 million;
3,250 M-Class Mercedes vehicles produced in Alabama
valued at $58.7 million;
674 Freightliner trucks produced in North Carolina valued
at $55.7 million; and,
480 Western Star trucks produced in Portland, Oregon
valued at $44.9 million. Both of the latter volumes and revenues will
be higher this year.

DaimlerChrysler will see immediate benefits from the free trade
agreement with Australia. Australia was the Chrysler Group's 5th
largest export destination outside of NAFTA and Freightliner's top
export destination outside of NAFTA in 2003. The current 5% duty on
commercial and all-wheel drive vehicles will be eliminated immediately
upon implementation. This will produce a cost saving of $10 million in
duties for DaimlerChrysler based on 2003 figures, or an average of $800
per Jeep and M-Class vehicle and $4,000 per Freightliner or Western
Star truck.
The U.S.-Australia Free Trade Agreement will make DaimlerChrysler
U.S. exports more competitive in Australia, benefiting the company, its
workers and the U.S. economy. We urge Congress to act expeditiously and
vote favorably on this beneficial agreement.

Dakota Rural Action
Brookings, SD 57767
June 16, 2004

Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

On behalf of Dakota Rural Action (DRA), we are submitting comments to
the House Ways and Means Committee regarding the U.S.-Australia Free
Trade Agreement.

DRA is a non-profit, grassroots, family agriculture organization
that builds leadership and takes action to preserve our rural quality
of life. DRA is an affiliate of WORC--the Western Organization of
Resource Councils. WORC is a regional network of seven grassroots
community organizations. Those groups include 8,750 members and 49
local chapters.
There are at least three serious flaws in the Australia trade
agreement. First, this agreement threatens family agriculture,
businesses dependent on agriculture, and rural communities. Next, it
gives too much economic power to multi-national corporations. Finally,
the negotiation and ratification process is unfair and undemocratic. If
passed, this agreement will have disastrous consequences for many
farmers, ranchers, small businesses, and rural communities.
This trade agreement would immediately end or phase out tariffs for
many agricultural products, including beef, lamb, sheep, wool, wheat,
and dairy products. This would clear the way for Australia to flood
U.S. markets with these products, undercutting the viability of U.S.
farmers and ranchers. Australia is already accelerating agricultural
trade with the U.S. and currently exports beef, lamb and sheep at rates
above its quota, despite tariffs. Reducing and dropping tariffs through
a trade agreement with Australia is not necessary to ensure trade
between the two countries.
In the case of beef, the 18-year phase out of beef and cattle
tariffs will steadily increase imports of beef to the detriment of the
U.S. cattle production industry. Under the agreement, Australian beef
imported below the Tariff Rate Quotas (TRQ) would not be tariffed, and
that TRQ will increase steadily for 18 years. Beef exceeding the TRQ
would continue to be tariffed until year 18 when all tariffs and quotas
will expire. The result will be the slow demise of the U.S. cattle
producer.
Australia has continued to build its beef herds and is a net
exporter of beef. Because Australia now produces more beef than it
consumes, there is no opportunity for U.S. producers to develop an
export market to Australia. The loss of U.S. domestic markets due to
increased beef imports will result in lost jobs for ranchers. This
trade agreement in short will outsource ranchers to Australia,
eliminating jobs for others who rely on the American rancher for their
livelihoods.
Other sectors of rural economies will also be hurt under this
agreement. Most lamb and sheep meat tariffs will end immediately. The
remaining lamb and sheep meat tariffs will phase out over four years.
This creates even easier access for an Australian product, which has
already devastated the U.S. sheep rancher.
Although there will be no changes in the tariff on Australian dairy
products that are above the TRQ, there will be an increase in the quota
allowed into the U.S. The agreement allows access to dairy products
previously excluded from the U.S. market, such as certain cheese,
butter, milk, cream, and ice cream products. Furthermore, tariffs on
wheat and cereal flour mixes will end. Although not currently a large
wheat exporter to the U.S., Australia is developing its durum market.
In addition, all Australian wheat is bought, sold, and controlled
through the Australian Wheat Board. This structure does not allow for
an open, competitive and transparent market system.
This agreement would also intensify the existing problems of
concentration within both American and Australian multi-national food
suppliers. Many multi-national agri-conglomerates have investments in
both countries. For example, Swift and Co. owns Australia's largest
meat processor, Australian Meat Holdings. Swift and Co. is also the
second largest meat packer and procurer of beef in the U.S.
Negotiating trade agreements, like the U.S.-Australia Trade
Agreement, largely happens behind closed doors. Very few people
participate, but the chosen few essentially lock in entire business
sectors. The very people these agreements impact the most, for all
practical purposes, have no voice in this process.
In addition, Congress gave away, through the Trade Promotion
Authority Act (Fast Track), its constitutional responsibility to advise
and consent on all treaties with foreign governments. The result is
that our organizations and members have very limited opportunities to
influence this harmful treaty and its impacts on our livelihoods and
communities.
We believe that American trade policy should strengthen, not
weaken, the public health, environment, food sovereignty, working
conditions, labor rights, and transparent, competitive market
principles of this country and all countries. This trade agreement
violates these principles. Furthermore, this trade agreement with
Australia will result in lost jobs for Americans. Imports of Australian
agricultural products will drive family farmers and ranchers out of
business, forcing them to look for jobs outside of agriculture. The
rural communities that rely on these farmers and ranchers for their
economy will also lose the jobs that are maintained by agriculture.
For all of these reasons, we respectfully request that you reject
the Australian Free Trade Agreement.

Sincerely,
Margaret Nachtigall

Statement of Elizabeth Frazee, Entertainment Industry Coalition for
Free Trade

The Entertainment Industry Coalition for Free Trade is pleased to
offer written testimony about the benefits of the U.S.-Australia Free
Trade Agreement to America's entertainment industries. The
Entertainment Industry Coalition for Free Trade represents the
interests of Americans who create, produce, distribute and exhibit
creative expressions, including theatrical motion pictures, television
programming, home video entertainment, recorded music, and video games.
Our members include multi-channel programmers and cinema owners,
producers and distributors, entertainment guilds and unions, trade
associations and individual companies: AFMA; BMG Music; Directors Guild
of America; Discovery Communications, 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; Time Warner; 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.''
International markets are vital to our companies and our creative
talent. Exports are an essential component of all our industries,
accounting for forty to sixty percent of recorded music and motion
picture revenues. This strong export base helps sustain American jobs.
Australia is a particularly significant market for our industries. For
example, Australia is the eighth-largest market for the filmed
entertainment industry.
America's creative industries, the men and women who work in those
industries, as well as the cinemas and cable and satellite channels
that exhibit and help distribute our entertainment products are all
under attack from those who would steal our creative output. The impact
of piracy has grown in recent years with the advance of digital
technology. Organized criminal organizations control much of the
international trade in pirated optical discs containing recorded music,
films and games, as well as game cartridges. While the Internet offers
great opportunities for reaching new generations, it also provides an
opportunity for the free, unauthorized downloading of protected works
through Internet peer-to-peer systems.
Creative industries in Australia, like those in the United States,
face serious threats from both hard goods and Internet piracy. Piracy
rates in Australia are relatively low, only about 8% for home video
entertainment, but are clearly on the increase. Australia's proximity
to large illegal manufacturers and exports of pirate CDs, DVDs, and
video games has made it vulnerable to illegal imports of pirated works
from major producers and exporters of pirated works, such as Malaysia.
Local replication through the unauthorized commercial copying of
content onto recordable optical discs has also been growing in
Australia. Internet piracy is also a large and growing threat to the
creative industries.
These U.S.-Australia FTA includes commitments vital to our
Coalition, including strong standards of copyright protections that
address some shortcomings in Australia's current legal regime for
enforcing intellectual property in the digital age. Australia is also
an influential player in global copyright policy fora. Its intellectual
property laws and policies are often regarded as models by other
countries, especially in its region. This Free Trade Agreement creates
a positive model that embodies world-class levels of protection of
copyright and concrete commitments regarding enforcement. Finally, this
agreement provides commitments on market access for the goods and
services we produce and distribute that both provide increased
predictability while also respecting legitimate cultural concerns for
ensuring that local voices will be heard and local stories told long
into the future.
The agreements create clear and binding rules for the protection of
intellectual property in the digital economy. The agreement extends the
term of protection for copyrighted works in Australia in line with
international trends. Australia had not ratified the 1996 WIPO Internet
Treaties, but is doing so now as a result of the FTA commitments. The
FTA will require Australia to revise and strengthen its prohibitions
against the provision of goods and services that circumvent
technological measures used to protect copyrighted works from
unauthorized access and copying, a critical issue for our industries
not currently addressed by Australian law. Australia will adopt new
protections against the theft of encrypted satellite signals, including
the manufacture and trafficking in tools to steal those signals.
The Coalition regrets that the Agreement failed to change certain
existing practices in Australia that permit radio stations and analog
broadcasters to deny payment to U.S. performers and record producers.
In an era in which the communication of signals is quickly developing
as one of the principal means of delivering content to consumers, this
lack of protection and permitted discriminatory treatment of U.S.
nationals is indeed regrettable and ill-advised.
Strong enforcement provisions are essential to intellectual
property protection. The new agreement makes important advances in
addressing some impediments that the entertainment industries had
experienced in Australia. For example, the FTA will ease the costly and
cumbersome procedural burdens of proving ownership and subsistence of
copyright in criminal cases by strengthening applicable resumptions. It
will ensure that adequate legal incentives are in place to encourage
cooperation by Internet Service Providers in dealing with online
piracy. To ensure criminal remedies against Internet piracy, the
Agreement requires that infringing acts without a profit motive or
commercial purpose but which case damage ``on a commercial scale'' are
subject to criminal penalties.
Second, the FTA balances Australia's long-standing commitment to
promoting local cultural expression with the U.S. industry's desire to
secure predictable and continued access to the important Australian
market. Australia will maintain its current cultural promotion
measures, including a local content quotas on broadcast television and
an investment requirement on subscription television, measures which
are not unduly burdensome to U.S. companies. Australia also presumed
some flexibility to adopt new measures to assure that Australian
content continues to be available to Australian consumers as technology
changes, but Australia will also have to take U.S. trade interests into
consideration in designing such new measures.
Third, the agreement requires non-discriminatory treatment of
digital products, and prohibits the imposition of customs duties on
such products.
Fourth, the agreements require that valuation for content-based
products like films, videos or music CDs be based on the value of the
carrier media--not on an artificial projection of revenues.
Finally, we sought and the Agreement achieves tariff reductions on
the physical products created by our industry and zero duties for the
inputs used by industries. These range from sound and projection
equipment and state of the art seating for cinemas, to promotional
materials and the equipment used in the production of films and music.
We praise the work of Ambassador Zoellick and his staff in
concluding this historic Agreement.
The Entertainment Industry Coalition calls for congressional
approval of the U.S.-Australia Free Trade Agreement. Congressional
approval of this Agreement would help promote one of our economy's most
vital sectors.

Statement of General Motors Corporation, Detroit, Michigan
Implementation of the U.S.-Australia Free Trade Agreement

The General Motors Corporation strongly supports the U.S.-Australia
Free Trade Agreement and urges the U.S. Congress to approve the
implementing language that will enable this agreement to become a
reality. As one of the largest American companies exporting goods to
Australia as well as one of the largest investors in Australia, GM will
enjoy immediate benefits from this agreement, which will encourage a
closer economic relationship between the two countries.
Australia, a passenger vehicle market of 910,000 units in 2003, is
an important export market for U.S. automotive products. U.S.
automotive sector exports to Australia totaled over $1 billion in 2003,
representing about 8% of total U.S. automotive exports. The United
States, the largest passenger vehicle market in the world with sales of
17 million units in 2003, imported only $336 million in automotive
products from Australia last year, resulting in an automotive trade
sector surplus of over $650 million. In GM's case, a substantial amount
of components and other automotive parts exported from the United
States support our vehicle and engine production in Australia.
General Motors has substantial business interests in the Australian
automotive market. Holden Ltd., GM's wholly owned subsidiary in
Australia, manufactures, sells, and exports passenger vehicles, light
commercial vehicles, recreational vehicles, and engines. In 2003,
Holden sold 175,412 vehicles in the Australian market, of which 112,155
were domestically manufactured. Also last year, Holden produced 249,854
four and six-cylinder engines. Holden's Engineering Services division
also provides engineering support to GM product programs throughout the
Asia Pacific region and in Europe.
As negotiated, the U.S.-Australia FTA will remove duties on most
automotive products upon accession, with the remaining tariff on
passenger cars imported into Australia phasing out by 2010. This will
benefit General Motors not only because the cost of vehicles and their
associated components traded between the two countries will be reduced,
but also because the trade agreement creates new opportunities for
closer integration of our U.S. and Australian operations. Some of the
benefits of the FTA are described below:

Stimulate Demand for Automotive Products
Experience indicates that market liberalization and the removal of
trade barriers stimulates economic growth, which increases demand for
motor vehicles. Given the large differences in size between the U.S.
and Australian markets, we expect that these impacts will be relatively
larger in Australia than in the United States. However, given the
significant degree of U.S. content in the products produced at Holden,
we expect U.S. suppliers to share in the benefits of a larger
Australian automotive market.

Impact of Duty Reductions on Component Trade
General Motors currently exports significant volumes of automotive
components, primarily engines and transmission, from the U.S. to
Australia and the level of our exports continues to increase. Given the
current Australian duty rate of 15% on these parts, eliminating the
duty will make U.S.-sourced components more competitive and will
provide significant savings to GM.

Impact of Duty Reductions on Passenger Vehicle Trade
The agreement eliminates the current 2.5% duty on passenger cars
imported into the United States. GM will benefit immediately as the
duty would be eliminated on the Pontiac GTO, which is currently
produced in Australia for sale in the United States. This FTA also
provides for a phase out by 2010 of the 10% duty on passenger car
imports to Australia. These duty reductions will provide GM greater
flexibility in managing our product portfolios in future years.

Opportunities to Integrate GM Operations
Key to GM's success in an increasingly competitive automotive
industry is executing a coordinated, global approach. Accordingly, we
support policies and practices that make it easier for GM to share
resources, products, and technologies among our operations around the
world. We believe this FTA will enhance our ability to effectively
deploy our corporate resources.
In conclusion, General Motors believes that the U.S.-Australia FTA
offers significant benefits to our operations in the United States and
to our American supplier base. We urge the U.S. Congress to expedite
its approval of this important agreement.

Statement of Kathleen Jaeger, Generic Pharmaceutical Association,
Arlington, Virginia

The Generic Pharmaceutical Association (GPhA) appreciates the
opportunity to comment on the U.S.-Australia Free Trade Agreement
before the Committee on Ways and Means of the U.S. House of
Representatives. GPhA represents manufacturers and distributors of
finished generic pharmaceutical products, manufacturers and
distributors of bulk active pharmaceutical chemicals, and suppliers of
other goods and services to the generic pharmaceutical industry. More
than half of all prescriptions dispensed in the United States last year
were filled with generics, yet generic drugs represent less than 8
percent of total pharmaceutical expenditures. No other industry has
made, nor continues to make, a greater contribution to affordable
health care in this country than the generic pharmaceutical industry.

U.S.-Australia Free Trade Agreement
Introduction
GPhA is committed to a balance between innovation and access. To
that end, we also are committed to innovation in medicines and the
preservation of intellectual property protections both in the United
States and abroad. With this fragile balance as our main concern, we
believe it is essential that new trade agreements maintain parity
between existing U.S. standards and requirements, and those included in
new trade agreements. Selecting certain provisions, while ignoring
others, could destroy the balance between access and innovation, which
could adversely impact American consumers' access to affordable
pharmaceuticals.
The generic pharmaceutical sector is uniquely impacted by the
harmonization of agreements on intellectual property protections for
pharmaceuticals--particularly insofar as they increase market
exclusivity periods or remove necessary access provisions (e.g., the
Declaratory Judgment actions). New trade agreements could potentially
affect American consumers' access to affordable drugs as well as the
business interests of the U.S. generic pharmaceutical industry. The
important role that generic drugs play in providing American consumers
with affordable medicines can be expanded into other nations, but only
if parity exists to maintain the integrity of U.S. standards and
requirements.
Unfortunately, we find that the recently concluded U.S.-Australia
Free Trade Agreement, fails to achieve this parity because it:

Fails to require the Bolar provision--which ensures that
generic medicines enter the market immediately after patent expiry to
improve access and encourage competition; and
Provides for market exclusivity that extends slightly
beyond the U.S. provisions of 5 years of market exclusivity for new
chemical moieties and 3 years of market exclusivity for new products.
(See Article 17.10(1)(c) ``at least five years'').

At a minimum, GPhA believes that the concept of five-year market
exclusivity within trade agreements be accompanied by the Bolar
Provision, without accruing any additional market exclusivity or patent
extension benefits. GPhA accordingly supports a balanced trade
approach. One that includes the following key access issues:

1. Market Exclusivity
U.S. law establishes that a generic applicant cannot submit an
abbreviated new drug application for a product that contains the same
active moiety as in the new chemical entity for a period of 5 years
from the date of the approval of the first approved new drug
application. Art. 39.3 of TRIPS establishes that ``Members, when
requiring, as a condition of approving the marketing of pharmaceutical
or of agricultural chemical products, which utilize new chemical
entities, the submission of undisclosed test or other data, the
origination of which involves considerable effort, shall protect such
data against unfair commercial use.'' However, it does not establish
any specific period for such market exclusivity.
Access to such data is necessary for generic companies to be able
to submit early applications for the marketing approval of much needed
generic drugs. Market exclusivity extensions could result in
unnecessary delays of the application for marketing approval of generic
companies. Such delays result in increased pharmaceutical costs for
consumers.
GPhA strongly opposes any extension to market exclusivity concepts
beyond what it is currently in the U.S. law. Last November, we also
expressed our opposition to the language that was proposed in the draft
of the Free Trade Area of the Americas (FTAA) (Section 10, Article
[1.2], [1.4], to establish ``at least'' five years of data protection).
We have seen with great concern that the text of the U.S.-Australia FTA
states ``at least 5 years.'' GPhA strongly opposes inclusion of similar
language for all future agreements as such language can potentially
delay consumer access to more affordable medicines both in the United
States as well as in its trading partners. It is essential that
consumers have access to affordable drugs immediately after the
expiration of a patent.

2. Bolar Provision
The ``Bolar'' provision is a critical U.S. provision that allows
for the development, testing and experimental work required for the
registration of a generic medicine during the patent period of the
original product. The purpose of this provision is to ensure that
generic medicines enter the market immediately after patent expiry to
improve access and encourage competition. This provision has been
upheld by the World Trade Organization (WTO) in a dispute ruling as
conforming to the Agreement on Trade Related Aspects of Intellectual
Property Rights Agreement (TRIPS). In its report adopted on April 7,
2000, a WTO dispute settlement panel said Canadian law conforms to the
TRIPS Agreement in allowing manufacturers to develop the necessary
registration information and test data. (The case was titled ``Canada--
Patent Protection for Pharmaceutical Products'').
As noted above, the U.S.-Australia FTA does not specifically state
that the Bolar Provision should be included in the legislation or
regulations of the Parties, but only includes a weak reference stating
that ``if a Party permits the use by a third party of the subject
matter of a subsisting patent to generate information necessary to
support an application for marketing approval of a pharmaceutical
product, that Party shall provide that any product produced under such
authority shall not be made, used or sold in the territory of that
Party other than for purposes related to generating information to meet
requirements for marketing approval for the product, and if the Party
permits exportation, the product shall only be exported outside the
territory of that Party for purposes of meeting marketing approval
requirements of that Party.''
Clearly, the omission of the specific requirement of the Bolar
Provision is of grave concern to GPhA. This provision is essential to
ensure that consumers have access to more affordable drugs as soon as a
patent expires and has proven to be an effective measure in the United
States that could also be of benefit to other nations. We believe that
it is essential that future trade agreements include specific language
to ensure its inclusion in the laws of the Parties.

3. Patent Harmonization Efforts
We are concerned with Art. 17.9.14, which establishes that ``[. .
.] each Party shall endeavor to participate in international patent
harmonization efforts, including the WIPO fora dealing with reform and
development of the international patent system.''
As stated above, we believe it is essential that new trade
agreements maintain parity between existing U.S. standards and
requirements, and those included in new trade agreements. Language
regarding ``international patent harmonization'' may include provisions
that may restrict access to affordable medicines in the United States.
The approval of the TRIPS Agreement provides an example of this. Until
then the U.S. had 17 years of patent protection from the date of
granting of a patent, but then had to change it to 20 years from the
date of filing of a patent in order to be in conformity with the new
international treaty. A study conducted by University of Minnesota
Professor Stephen Schondelmeyer concluded that the cost of this
extension would ``exceed six billion over the next two decades.'' The
report also predicted that ``[t]he annual generic savings lost by
American consumers due to delayed generic entry will range from $200
million in some years to over $500 million in other years.'' \1\
---------------------------------------------------------------------------
\1\ S. Schondelmeyer, ``Economic Impact of GATT Patent Extension on
Currently Marketed Drugs,'' PRIME Institute, University of Minnesota,
March 1995.
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Furthermore, such type of language may not fully respect the
mandate given by the U.S. Congress to USTR negotiators in the Trade
Promotion Authority section of the Trade Act of 2002 which specifically
includes the following among its trade negotiating objectives-
intellectual property section:

4. INTELLECTUAL PROPERTY--The principal negotiating objectives of
the United States regarding trade-related intellectual property are--

A. to further promote adequate and effective protection of
intellectual property rights, including through--

I. . . .
II. ensuring that the provisions of any multilateral or
bilateral trade agreement governing intellectual property rights that
is entered into by the United States reflect a standard of protection
similar to that found in United States law;

Therefore, we oppose such language for the U.S.-Australian FTA and
for future trade agreements and we hope that the U.S. Congress
addresses this issue with USTR trade negotiators.
Conclusion
As the trade association representing a major industry in a key
industrial sector, GPhA supports efforts to negotiate trade agreements
with other nations that help to encourage innovation and access to
affordable medicines. Nevertheless, we are concerned about the lack of
specific language in the U.S.-Australia FTA to support important
provisions for consumers and for the generic industry such as the
implementation of the Bolar Provision that may unfairly delay generic
competition.
GPhA thanks the Committee for considering its comments, and we are
committed to continuing to work with Congress and the Committee with
respect to the U.S.-Australia Free Trade Agreement.

Statement of David G. Rietow, Hawaii Macadamia Nut Association, Keaau,
Hawaii

The impact of the U.S.-Australia Free Trade Agreement on Hawaii's
Macadamia Nut Industry is viewed by the Industry as severely negative.
The removal of all of the tariffs on the importation of macadamia and
macadamia products from Australia is expected to lower the average
macadamia kernel price in the U.S. This will result in a reduced price
paid to Hawaii's growers. The long-term impact could be the economic
failure of many growers and some of the smaller processors and
manufacturers in Hawaii.
Hawaii's economic base is tourist driven. The State depends upon
the growth of the agricultural sector to help balance its economy.
Agriculture also provides the open space and agro-tourism opportunities
that a growing number of younger visitors are looking for. It is,
therefore, crucial to the economy of Hawaii to maintain the viability
of its agricultural sector. Hawaii's Macadamia Industry believes that
the removal of the import tariffs imposed on Australia will severely
weaken the industry and its economic contribution to the State.
The Hawaii Macadamia Industry is comprised of 650 growers farming
approximately 18,000 acres, producing 57 million pounds (in-shell
basis), with a farm gate value of $30 million. This does not take into
account the value of the industry at the manufacturing and retail sales
level estimated to be in excess of $150 million annually. Macadamia
ranks fourth in agricultural commodities in Hawaii. Most of Hawaii's
macadamia acreage is mature, thus future production is not expected to
increase significantly. Hawaii's primary markets are the U.S. and the
local Hawaii market aimed at the tourist trade. Secondary markets are
Europe and Asia.
Australia exceeds Hawaii in annual production with a significant
amount of its planted acreage in the pre-bearing stage. Planting of new
acreage continues. Australia's high margin markets are Europe and Asia.
The U.S. market is viewed as a high volume market with sales generally
to larger importers at lower prices. The Australian Industry is
primarily a marketer of bulk kernel. Retail products are sold within
the country, but are not the primary mode of export. As Australia's
producing acreage continues to grow, the production resulting from this
growth is expected to be channeled into the U.S. market, primarily to
the low-end retail business.
Hawaii's macadamia producers and manufacturers have spent millions
of dollars to develop the U.S. market and spend in excess of $20
million annually to provide the continued market development that is
crucial to health and welfare of the industry in Hawaii. The industry
has also been responsible for research on the health aspects of
macadamia nuts that have had a positive influence on the consuming
public, thus increasing the demand. The influx of Australian macadamia
kernel and manufactured products will increase the pressure on Hawaii's
producers and manufactures to increase their market development efforts
at an increase in the average cost of production for Hawaiian kernel
and retail products.
The import tariffs on Australian kernel and manufactured products
increases the sales price of the imports thus providing somewhat of a
balance in the cost of kernel and manufactured products offered into
the U.S. market by both Hawaii and Australia. The elimination of the
import tariffs will provide Australia with an unfair economic advantage
in the U.S. market.
The Hawaii Macadamia Nut Association (HMNA) requests that the House
of Representatives' Committee on Ways and Means consider the severe
negative impact of this trade agreement on Hawaii's Macadamia Industry
and the HMNA would hope the Committee takes a position against the
approval of the U.S.-Australia Free Trade Agreement.
The HMNA, representing Hawaii's Macadamia Industry, appreciates the
opportunity to present this testimony before the Committee.

Statement of National Council of Textile Organizations

The National Council of Textile Organizations (NCTO) appreciates
this opportunity to share our views regarding the free trade agreement
(FTA) that has been negotiated between the United States and Australia.
NCTO was recently established to represent the entire unified
spectrum of the U.S. textile sector, from fibers to finished products,
including yarn, fabric, man-made fibers, cotton, textile machinery and
chemicals and others concerned with the prosperity and survival of the
U.S. textile industry. NCTO is more broadly based than any previous
domestic textile organization and we are very interested in the details
of all potential and proposed FTAs, including the one recently
negotiated between the U.S. and Australia.
The United States textile industry has experienced a wave of plant
closings and job losses in recent years unlike any comparable period of
time in our history. In the last six years--a mere seventy-two months--
we have lost nearly 230,000 U.S. textile jobs, over 35 percent of our
entire workforce. These job losses have accelerated in the past three
years, with 50,000 jobs having disappeared in 2003 alone. It is against
this backdrop of plant closings and mass layoffs, due mainly to an
unrelenting wave of unfairly traded imports from China and other Asian
countries, that we have viewed each new proposed FTA with a critical
eye.
Our industry has vigorously sought to develop trading partnerships
with apparel producers in Caribbean and other nations with which we
have a preferential trading arrangement. Such arrangements which
promote the use of U.S. yarn and fabric present tremendous export
opportunities for U.S. textile manufacturers. For example, as a result
of the Caribbean Basin Trade Partnership Act (CBTPA), which grants
duty-free treatment to garments made in the region of U.S. yarns and
fabrics, our industry has been able to significantly expand our exports
to CBTPA countries.
But such export opportunities can only materialize in an FTA if a
strict, yarn-forward rule of origin without any exceptions is included.
The United States textile industry has strongly and consistently urged
the United States Government to insist that the benefits of any free
trade agreement must be limited to the participating countries, and
that textile manufacturers in China, India and other third party
countries should not be allowed to reap the benefits of the agreement
at the expense of U.S. textile producers.
Further, last fall, over 170 Members of Congress wrote to the
President urging him to maintain the yarn-forward position that the
U.S. had taken earlier that year in the Central America Free Trade
Agreement (CAFTA) negotiations, with no tariff preference levels (TPLs)
or other exceptions. Regrettably, this position was not maintained, and
massive loopholes to the rule of origin were included in the final
agreement. The same is true with respect to the recently negotiated
FTAs with Morocco and Bahrain, both of which contain enormous and
unwarranted exceptions to the rule of origin. As a result, NCTO will be
opposing all three of these agreements and urging their rejection by
Congress.
However, we were pleased to see that the final U.S.-Australia FTA
includes a strict yarn-forward rule of origin with no (zero)
exceptions. No tariff preference levels, no cumulation provisions, no
loopholes of any kind to the yarn-forward rule of origin. We further
applaud the U.S. negotiators for rejecting Australia's original effort
to include a rule of origin that would have required only 55 percent of
the declared value of an export to be accomplished in the exporting
country. This would have created huge opportunities for ``free
riders''--i.e., textile producers in China, Vietnam, India and other
non-participating, third party countries--to ship fabric to Australia
at the expense of fabric and yarn manufacturers in the United States
and Australia.
The U.S.-Australia FTA is the first such agreement to contain a
strict, yarn-forward rule of origin with no exceptions, carve-outs or
loopholes of any kind. Accordingly, NCTO supports the agreement and
urges Congress to adopt legislation to implement the agreement so long
as such language of the legislation adheres to the provisions
negotiated between the two countries.
Further, NCTO urges that the U.S.-Australia FTA serve as a template
for any future free trade agreements that the United States might
negotiate, including any agreements currently being negotiated. If
future FTAs do not adhere to this strict yarn-forward rule of origin
requirement, NCTO and very likely many of our allies in the textile and
fiber sector will be forced to oppose such agreements, and we will urge
their defeat in Congress.

Statement of National Electrical Manufacturers Association, Arlington,
Virginia

Thank you for the opportunity to submit the attached statement for
the record of your hearing on the implementation of the United States-
Australia Free Trade Agreement. The National Electrical Manufacturers
Association (NEMA) strongly supports the Agreement and urges Congress
to approve implementing legislation as soon as possible.
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. Our more than 400 member
companies manufacture products used in the generation, transmission,
distribution, control, and use of electricity. These products are used
in utility, industrial, commercial, institutional and residential
installations. The Association's Medical Products Division represents
manufacturers of medical diagnostic imaging equipment including MRI,
CT, x-ray, ultrasound and nuclear products.
______

NEMA Calls for Ratification of the U.S.-Australia Free Trade Agreement

A great deal that makes an excellent trade relationship even better
Electrical Goods Tariff Elimination: Australia will immediately
eliminate all its tariffs, saving our industry approximately $15
million in duties annually. (Current tariffs average 5%.) Our sector
already enjoys a large trade surplus with Australia (see graph).

[GRAPHIC] [TIFF OMITTED] T5742A.007

Government Procurement: U.S. suppliers will now be able
to compete for a broad range of Australian public contracts.
Technical Barriers to Trade: The FTA reaffirms the
notice, comment and transparency provisions of the WTO TBT Agreement.
Intellectual Property Rights Protection: The Agreement
sets out high standards for the protection and enforcement of
intellectual property, including trademarks, patents and industrial
designs. It also ensures judicial authority to seize and destroy
pirated and counterfeit products.
Energy Services Liberalization: While U.S. energy
services providers encounter no significant barriers to Australian
markets, the FTA establishes an important precedent by adopting a
comprehensive ``negative list'' approach (where exceptions to
liberalization must be specified).
Market Driven Standards and Conformity Assessment: The
FTA recognizes ``that a broad range of mechanisms exists to facilitate
the acceptance of conformity assessment results'' and permits U.S.
entities to participate in the development of standards, technical
regulations, and conformity assessment procedures.

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. Our more than 400 member
companies manufacture products used in the generation, transmission,
distribution, control, and use of electricity. These products are used
in utility, industrial, commercial, institutional and residential
installations. The Association's Medical Products Division represents
manufacturers of medical diagnostic imaging equipment including MRI,
CT, x-ray, ultrasound and nuclear products.

Statement of John Lincoln, New York Farm Bureau, Glenmont, New York

New York Farm Bureau submits the following letter to the House Ways
and Means Committee for consideration regarding the United States-
Australia Free Trade Agreement.
I am commenting as president of New York Farm Bureau and
representing our more than 35,000 members to provide information
regarding New York Farm Bureau's position on agricultural provisions of
the proposed Australia-United States Free Trade Agreement (AUSFTA). New
York farmers and producers have a vested interest in Federal trade
agreements because of the effect of such negotiations and agreements on
NY's agricultural economic viability. NY farms produce a wide variety
of agriculture products, and maintaining a profitable and viable
agriculture industry is a key not only to the health of the States
rural economy but also to each individual farmers ability to remain in
agriculture production.
The importance of agriculture in New York can be demonstrated by
data regarding the States prominence nationwide in many agricultural
products. New York's dairy industry (2003 data) produced 12.0 billion
pounds of milk, with a value of $1.56 billion, ranking 3rd in the
nation in milk production. Other New York produce ranking in the top
five of States nationally include apple production (2nd), tart
cherries, pears, grapes, cabbage, cauliflower, as well other fruits and
vegetables.
A number of these agriculture products will be affected negatively
by the proposed AUSFTA. In addition, NY farmers and producers do not
see opportunities for potential market access for their products in the
proposed AUSFTA.
New York's dairy industry--our largest agriculture sector--will see
only negative results from the proposed AUSFTA. Although TRQ's remain
on certain dairy products, quotas for Australian imports of other key
dairy items including butter, certain cheeses, and other dairy products
are increased throughout the phase-in period of the agreement.
Nationally, the dairy industry will loose initially approximately $40
million, which increases to $80 million per year by the end of the
implementation period (2022). Although Australia received less than
their negotiators had worked for, the end result remains a negative for
New York dairy producers.
An additional area of concern is the potential harm to New York's
wine and grape industries. Increased imports from Australia's low cost
wine and grape industry may cause harm to our almost 200 wineries, and
over 1,000 NY grape growers. This industry has developed significantly
recently, and does not need an increase in low cost Australian products
without any opportunities to offset these imports with increased market
access elsewhere. We fail to see market access potential in Australia
for other NY non-processed fruits and vegetables.
We are also extremely concerned that Australia's lack of settlement
of certain Sanitary and Phytosanitary (SPS) issues will continue to
limit market access for our producers in the Australian marketplace.
For instance, Australian SPS regulations on apple fire-blight blocks
entry of New York apples to their market even though our apples are
fire-blight free. Other SPS areas needing resolution include stone
fruits, poultry, and citrus products. New York Farm Bureau cannot even
consider support of the agreement while these SPS issues remain
unresolved. With only limited access to the Australian market, these
SPS issues effectively block out any potential gains for our
agriculture producers. Resolution of the SPS issues by Australia is
necessary before any benefit to our farmers and producers potentially
can occur, but even with SPS resolution, the AUSFTA will not benefit
our dairy producers and other agriculture commodity producers.
New York Farm Bureau appreciates the opportunity provided to submit
written comments to the House Committee on Ways and Means regarding the
implementation of the Australia-United States Free Trade Agreement. I
encourage the Committee to carefully evaluate our concerns on behalf of
New York's farmers and producers. New York farmers are concerned that
agriculture is being used as a bargaining tool in securing favorable
trading opportunities for United States manufacturing and service
industries in Australia. New York Farm Bureau withholds support of the
Australia-United States Free Trade Agreement, and remains committed to
furthering WTO negotiations which offer needed market access for our
wide variety of agricultural produce.
Thank you for your consideration of these comments, and please feel
free to contact me should you have questions.

Statement of Kevin Outterson*, Morgantown, West Virginia

The U.S.-Australia Free Trade Agreement's Unfortunate Attack on Good
Healthcare Policy

1. The Australian Pharmaceutical Benefits Scheme
Americans are increasingly looking to ``pay for value'' in health
care. The Australian experience with the economic evaluation of drugs
in the Pharmaceutical Benefits Scheme (PBS) is the gold standard of
such programs worldwide. The PBS is not government price controls, but
allows pharmaceutical companies to request higher reimbursement levels
if data establishes the greater cost-effectiveness of the drug. It does
not appear that Australia is ``free riding'' on American-funded
innovation, since companies are given ample opportunity to seek higher
reimbursement for truly innovative drugs.
---------------------------------------------------------------------------
* Associate Professor of Law, West Virginia University College of
Law, [email protected].
---------------------------------------------------------------------------
The PBS has generated unwelcome attention from PhRMA and its
Australian counterpart, Medicines Australia. This is unsurprising,
since the PBS economic evaluations have resulted in some of the lowest
patented drug prices in the OECD, much lower than even Canadian
prices.\1\ After years of unsuccessful domestic attempts to derail PBAC
in Australia, PhRMA and Medicines Australia turned to international
trade law, namely the Australian-U.S. Free Trade Agreement (FTA). The
primary talking point on this issue is to increase transparency in the
PBS (see section 5 below), but the actual goal is to increase
Australian drug prices.
---------------------------------------------------------------------------
\1\ The data on lower prices in Australia was collected by the
Productivity Commission, International Pharmaceutical Price Differences
(July 2001). The Productivity Commission did not reach a definitive
conclusion on causation.
---------------------------------------------------------------------------
2. The FTA is Likely To Raise Australian Drug Prices
A debate is underway in Australia as to whether the FTA will force
significant changes in PBS.\2\ While scaled back from early proposals,
the FTA nonetheless requires subtle modifications to the PBS which will
lead to higher prices in Australia, as detailed by a recent editorial
in the British Medical Journal \3\ and recent testimony in the
Australian Parliament.\4\
---------------------------------------------------------------------------
\2\ Over the past year, hundreds of articles on the FTA's impact on
the PBS have appeared in the Australian press. In the U.S., the issue
barely rates a whisper. Most U.S. coverage of the FTA concerns
agriculture such as sugar and beef. Prior to May 2004, very few serious
discussions of the PBS issue have appeared in the U.S. national press.
But see E. Becker, Overseas Drug Prices Targeted By Industry; U.S.
Officials Pressure Australia On Controls, N.Y. Times A1 (Nov. 27,
2003); M.W. Serafini, Drug Prices: A New Tack, 36:16 National Journal
(Apr. 17, 2004); M.W. Serafini, The Other Drug War, 36:12 National
Journal (Mar. 20, 2004).
\3\ P. Drahos & D. Henry [Editorial] The free trade agreement
between Australia and the United States: Undermines Australian public
health and protects U.S. interests in pharmaceuticals. BMJ 2004;
328:1271-1272 (29 May), http://bmj.bmjjournals.com/cgi/content/full/
328/7451/1271?etoc.
\4\ See the submissions by the Generic Medicines Industry
Association Pty Ltd., the Doctors Reform Society, the Public Health
Association of Australia, Inc., the Australian Nursing Federation,
Catholic Health Australia, the National Center for Epidemiology and
Population Health, the Australian Consumers' Association, and Dr. Ken
Harvey, all available at: http://www.aph.gov.au/Senate/committee/
freetrade_ctte/index.htm.
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Against this evidence, the Australian government claims that the
FTA provisions won't raise drug prices at all in Australia.\5\ If that
is so, then why did PhRMA and Medicines Australia fight for the
provision? If there is truly no impact on drug prices, then it should
be removed immediately by a side letter.
---------------------------------------------------------------------------
\5\ L. Tingle, New Analysis Backs Benefits of Trade Deal,
Australian Financial Review 7 (May 1, 2004) (``The report says there
will be no material impact on the price of drugs from a clause in the
pact which gives U.S. drug companies the right to challenge decisions
of the Pharmaceutical Benefits Advisory Committee.'').
---------------------------------------------------------------------------
A similar non-sequitur arose under the ``non-interference''
provision PhRMA added to the Medicare Modernization Act of 2003.\6\
This law commits the U.S. Federal Government to purchase U.S.$600
billion in pharmaceuticals over the next decade,\7\ but prohibits the
government from using its purchasing power to negotiate better prices.
The Bush Administration insists that this provision won't affect the
price at all.\8\
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\6\ Medicare Prescription Drug Improvement and Modernization Act of
2003, Pub. L. No. 108-173, Sec. 301 (codified at Sec. 1808(c)(1)(C) of
the Social Security Act).
\7\ CBO, Estimate on H.R. 1 (Congressional Budget Office, Nov. 20,
2003). R. Foster, Office of the Actuary, CMS, Rough Estimates of
Increase in Net Medicare and Other Federal Costs Under Selected Draft
Senate Finance Proposals (June 11, 2003); see also D. Rogers, ``Fever
Is Rising in Drug-Bill Imbroglio,'' Wall Street Journal (May 4, 2004):
A2; S.G. Stolberg & R. Pear, ``Mysterious Fax Adds to Intrigue Over the
Medicare Bill's Cost,'' New York Times (Mar. 18, 2004).
\8\ On January 23, 2004, the Congressional Budget Office wrote to
the Senate Majority Leader Frist to say that removing the
``noninterference'' provision would ``have a negligible effect on
Federal spending.'' D. Holtz-Eakin, Director of the Congressional
Budget Office, Letter to the Honorable Ron Wyden (Mar. 3, 2004).
---------------------------------------------------------------------------
The U.S. negotiated the FTA under the assumption that drug prices
in Australia are too low and must be increased.\9\ Other observers
might reach the opposite conclusion: that Australian prices are
economically efficient and the appropriate targets of reform are
excessive U.S. prices.
---------------------------------------------------------------------------
\9\ M.B. McClellan, Speech Before the First International
Colloquium on Generic Medicine (Sept. 25, 2003) www.fda.gov/oc/
speeches/2003/genericdrug0925.html. The speech was widely reported.
See, e.g., C. Bowe & G. Dyer, Americans Lured By Lower Prices,
Financial Times 17 (May 5, 2004) (``The rhetoric intensified in
September when Mark McClellan, then head of the FDA, attacked European
drug price controls and said other rich nations should pay more of the
development cost for drugs.''). See also M.W. Serafini, Drug Prices: A
New Tack, 36:16 National Journal (Apr. 17, 2004) (``So [House Speaker]
Hastert and [Senator] Kyl championed the novel idea that the key to
lowering U.S. prescription drug prices is to persuade foreign
governments to raise their prices. . . . The idea of trying to level
the international playing field on prescription drug pricing originated
with the U.S. pharmaceutical industry. But Hastert and Kyl played
significant roles last fall in persuading the Bush Administration to
embrace this strategy. . . . The result was the United States' first
free-trade agreement that included modest concessions on pharmaceutical
price controls.'').
---------------------------------------------------------------------------
3. This FTA Will Be Used As A Model To Increase Drug Prices Worldwide
Ralph Ives was the chief U.S. negotiator of the FTA. After his
success in Australia, he was promoted in April 2004 to the newly-
created post of Assistant United States Trade Representative for
Pharmaceutical Policy. In his new post, he will attempt to raise
patented drug prices throughout the OECD through trade agreements,\10\
even though it is not clear that higher prices are necessary to
pharmaceutical innovation.\11\
---------------------------------------------------------------------------
\10\ A clear outline of the Bush Administration's pharmaceutical
trade agenda can be found in the testimony of Grant D. Aldonas, Under
Secretary of Commerce for International Trade, to the U.S. Senate
Finance Committee on April 27, 2004.
\11\ K. Outterson, Pharmaceutical Arbitrage, 6 Yale Journal of
Health Policy, Law & Ethics (pending, Dec. 2004) (discussing the
concept of globally optimal patent rents in the context of
pharmaceutical innovation).
---------------------------------------------------------------------------
4. U.S. Consumers Will Not Benefit From Higher Australian Drug Prices
and Blocked Drug Exports

There is no guarantee that U.S. consumers will benefit from higher
drug prices in Australia. Drug companies are under no obligation to
lower U.S. prices as Australian prices increase.
Press reports indicate that under the FTA, Australian negotiators
``gave assurances'' that low-cost drug exports to the U.S. would be
blocked, despite legislation in Congress to specifically permit
importation from Australia.\12\ The FTA is being used to block
Congressional attempts to give Americans access to low-cost drugs.
---------------------------------------------------------------------------
\12\ Bill Condie, Glaxo Dismisses Free Trade Concerns, Evening
Standard (London), June 14, 2004 (``Australian negotiators have also
given assurances that re-importation of drugs to the U.S. would be
banned.'').
---------------------------------------------------------------------------
5. Transparency
We are told that the FTA is needed to promote ``transparency'' in
the PBS process.\13\
---------------------------------------------------------------------------
\13\ Office of the United States Trade Representative, Free Trade
``Down Under'': Summary of the U.S.-Australia Free Trade Agreement
(Feb. 8, 2004): 3 (``In implementing these principles, Australia will
make a number of improvements in its Pharmaceuticals Benefits Scheme
(PBS) procedures--including establishment of an independent process to
review determinations of product listings--that will enhance
transparency and accountability in the operation of the PBS.'').
---------------------------------------------------------------------------
If transparency is the goal, let me suggest the first place to
start: publicly release all of the submissions to the relevant PBS
committee, the PBAC. Policymakers worldwide would benefit from seeing
all of the data previously collected. If drug companies think they've
been unfairly treated, then the debate can proceed publicly. Today,
PBAC data is secret (``commercial in-confidence'') because the drug
companies demand secrecy. Release the data publicly and allow the world
to see the economic evaluations. Let the world see all of the clinical
data on which drugs are truly innovative, and which ones offer modest
or no improvements.
Second, transparency should require drug companies to disclose all
financial relationships with researchers and policymakers. The U.S.
National Institutes of Health is currently embroiled in a major
controversy as we are just beginning to understand how profoundly PhRMA
influences research.\14\ We need to see if the researchers touting
drugs are truly independent. All of this is absent from the FTA.
---------------------------------------------------------------------------
\14\ National Institutes of Health, Report of the National
Institutes of Health Blue Ribbon Panel on Conflict of Interest Policies
(Draft, May 5, 2004): 1-5.
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Third, if transparency is needed, then why were health care NGOs
excluded from the Advisory Committees to the FTA? The key committee on
this issue, ISAC-3, included representatives of the pharmaceutical
industry, but not groups critical of extending TRIPS Plus rules to
drugs. On this issue, Australian and American representatives of drug
companies negotiated with themselves, while NGOs were shut out.
Fourth, will transparency apply to the new Medicines Working Group
under the FTA? Who will be appointed? Will those meetings be open to
the public? Will NGOs be permitted to participate? Will past and
present conflicts of interest be disclosed?
Fifth, the very concept of ``transparency'' is laughable in a Free
Trade Agreement exceeding a thousand pages in length. This is a
frightfully complex agreement, with minutely negotiated provisions that
are very difficult for even trade lawyers to understand.
For example, when the U.S. stood against the world to attack
unlicensed generic anti-retroviral drugs for AIDS, it was the ``public
health'' language of the WTO TRIPS agreement which rallied the world
against the U.S. and eventually led to the concessions at Doha and
Cancun.\15\ In the FTA, the ``public health'' language is missing,
replaced by other language supporting ``pharmaceutical innovation.'' In
the future, when the U.S. invokes the FTA dispute resolution mechanism,
a panel of highly specialized trade experts will decide whether
Australia's efforts to reform the PBS satisfy the FTA. To these experts
(several of whom may have participated in the negotiations), the
absence of the TRIPS public health language and the additional
provision on pharmaceutical innovation will be viewed as very
significant. Australia could well lose a panel decision on such a
basis, allowing a government to plead years from now that its hands are
tied by the FTA. I suspect that the FTA includes many other subtleties.
It will take some time to find them all.
---------------------------------------------------------------------------
\15\ See, e.g., Ellen T. Hoen, TRIPS, Pharmaceutical Patents, and
Access to Essential Medicines: A Long Way from Seattle to Doha, 3
Chicago Journal of International Law 27 (2002).
---------------------------------------------------------------------------
Finally, a call for transparency should be received with a little
skepticism from an industry with incredibly complex and opaque pricing
and business practices, including the practice of blocking publication
of clinical studies which demonstrate problems with their products.\16\
---------------------------------------------------------------------------
\16\ See, e.g., Barry Meier, A.M.A. Urges Disclosure on Drug
Trials, New York Times, June 16, 2004. Two days later, Merck announced
plans to voluntarily disclose data. Barry Meier, Merck Backs U.S.
Database to Track Drug Trials, New York Times, June 18, 2004.
---------------------------------------------------------------------------
* * * * * *
In my home State of West Virginia, we are exploring a drug
reimbursement system which includes economic evaluation. We will ask
the drug companies for copies of the work already completed for the
PBAC. Other States are exploring similar programs. If Australia can
maintain the PBS for a few more years, it will be hailed as a model in
the United States. This is both my hope and PhRMA's fear. Undermining
Australia's PBS is an inappropriate topic for a free trade agreement.

Statement of Leo McDonnell, Ranchers-Cattlemen Action Legal Fund--
United Stockgrowers of America

Mr. Chairman, Congressman Rangel, and Members of the Committee:
The Ranchers-Cattlemen Action Legal Fund--United Stockgrowers of
America (R-CALF USA) is pleased to have the opportunity to submit
posthearing comments to this Committee regarding the U.S.-Australia
Free Trade Agreement.
R-CALF USA is a non-profit association that represents tens of
thousands of U.S. cattle producers on issues concerning national and
international trade and marketing. R-CALF USA's membership consists
primarily of cow-calf operators, cattle backgrounders, and feedlot
owners. Its members are located in 46 States, and the organization has
over 50 local and State cattle association affiliates. Various main
street businesses are also associate members of R-CALF USA. R-CALF USA
is dedicated to ensuring the continued profitability and viability of
the U.S. cattle industry, and it is from that perspective that we
provide these comments.

I. Global Trading Environment

R-CALF USA believes that many of this Administration's trade
policies with respect to agriculture are sound. First, we could not
agree more with the Administration that the United States' number 1
trade priority should be to restart and successfully conclude the Doha
Round of WTO negotiations.\1\ R-CALF USA has long advocated, and
continues to support, efforts to open up U.S. cattle and beef export
markets by reducing global tariffs to U.S. levels. The U.S. Department
of Agriculture (USDA) reports that the average allowed tariff on beef
around the world is 85%, while the U.S. in-quota tariff rate is near 0%
and out-of-quota tariff rate is 26.4%. This wide disparity in tariff
treatment must be addressed because it severely limits market access
for U.S. beef abroad.\2\ R-CALF USA supports the recently concluded
U.S.-Morocco Agreement as an effort to open up a potential beef
consuming market to additional U.S. beef exports.
---------------------------------------------------------------------------
\1\ Statement of Amb. Zoellick, the USTR, Before the House
Committee on Agriculture, Washington, D.C., April 28, 2004.
\2\ The disparity in tariff treatment is further exacerbated by the
failure of countries outside of North America to sign and implement
free trade agreements that comply with the terms of Article XXIV of the
GATT.
---------------------------------------------------------------------------
Second, R-CALF USA supports the attempts of USTR to reform
agricultural subsidies around the world that artificially distort
market conditions, especially since U.S. producers receive no support
outside of disaster assistance. For example, the world's third largest
beef producer \3\--the European Union--provides both export and
domestic subsidies to their producers. The European Union provided
their beef producers export subsidies worth approximately $376 million
on approximately 360,000 MT in 2004, or an export subsidy of $.56 per
pound of EU beef.\4\ Domestic subsidies to the cattle/beef sector in
the EU are projected in excess of $9.5 billion in FY2005 for
approximately 105 million head of cattle.\5\ Brazil, projected to have
170 million head of cattle and be the world's largest exporter in
2004,\6\ also provides significant subsidies to its producers. The 2004
Commerce Department and USTR Subsidy study found that Brazil is
providing hundreds of millions of dollars in funding to programs that
boost cattle and beef production, as well as export sales.\7\
---------------------------------------------------------------------------
\3\ USDA, Foreign Agriculture Service, World Beef Trade Overview,
Livestock and Poultry: World Markets and Trade, March 2004.
\4\ Preliminary Draft General Budget of the Commission, SEC (2004)
456, at 18-19 (April 28, 2004); USDA, FAS, EU--Livestock and Poultry
SemiAnnual, GAIN Report E24018 (Feb. 2004).
\5\ Preliminary Draft General Budget of the Commission, SEC (2004)
456, at 18-19 (April 28, 2004); USDA, FAS, EU--Livestock and Poultry
Annual, GAIN #E24018 (Feb. 2004).
\6\ USDA, FAS, Brazil--Livestock and Poultry SemiAnnual, GAIN
#BR4605 (Feb. 2004).
\7\ Joint Report of the USTR and Dept. of Commerce, Subsidies
Enforcement Annual Report to Congress, Feb. 2004.
---------------------------------------------------------------------------
Third, while the United States imposes scientifically supported
measures to ensure the safety of the food supply, many other nations
use sanitary and phytosanitary measures in the cattle and beef sector
to unjustifiably restrict trade. The United States' National Trade
Estimates report has identified a number of countries that use non-
tariff trade barriers to limit or prevent U.S. beef exports. Most
notably, of course, is the EU's longstanding non-tariff trade barrier
against U.S. beef related to the use of beef hormones.\8\ This ban
effectively cuts U.S. beef exports off from one of the largest
potential markets in the world. Recent reports from U.S. embassies
around the world indicate that use of these non-tariff trade barriers
has spread to an ever-increasing number of countries. As an example,
USDA counselors in Thailand report that officials there have begun to
place more stringent standards on imported products than domestic
products.\9\ Further, beginning in December of last year, U.S. beef has
been banned in a number of countries on the basis of BSE without
adequate scientific justification or WTO notification. Such restrictive
actions have significantly hampered the export market opportunities for
U.S. beef. R-CALF USA supports and urges the Administration in its
efforts to aggressively remove these barriers to trade.
---------------------------------------------------------------------------
\8\ USTR, Dispute Settlement Update, March 9, 2004 at 1.
\9\ USDA, FAS, Thailand: Trade Policy Monitoring 2004, GAIN Report
TH4033 at 8 (3/16/2004).
---------------------------------------------------------------------------
While the above distortions are not the result of any FTA, it is
important to note that they create the operating background against
which the effects of U.S. bilateral trade agreements must be examined
to understand the consequences of bilateral liberalization where there
is limited or no export opportunities for an import sensitive sector
like cattle and beef. R-CALF USA believes that the WTO is the only
forum in which all of these issues can be effectively addressed.
Unfortunately, as Ambassador Zoellick himself noted in April, the Doha
Round of trade negotiations have broken down and talks are only slowly
restarting.\10\ R-CALF USA believes that before the United States
enters into bilateral or regional FTAs with major agricultural
producing countries with small internal markets, the major global
distortions caused by tariffs, non-tariff barriers and subsidies must
be eliminated. Furthermore, any FTA must address and eliminate internal
distortions within the proposed trading partner that impede trade in
cattle and beef.
---------------------------------------------------------------------------
\10\ Statement of Amb. Zoellick, the USTR, Before the House
Committee on Agriculture, Washington, D.C., April 28, 2004.
---------------------------------------------------------------------------
The liberalization of agricultural markets on a bilateral basis is
a delicate balance. If USTR liberalizes markets where the U.S. cattle
industry is likely going to fare poorly and it is unable to
simultaneously open the major consuming markets where the U.S. cattle
industry will do reasonably well, then USTR will put the U.S. cattle
industry in the position to lose market share globally, not because we
are uncompetitive, but because we expand market access in the U.S. far
ahead of equitable access abroad. FTAs that do not address these
distortions will result in worsened long- and short-term outcomes for
U.S. cattle producers. Rather than unilaterally removing existing
restrictions, the United States should be exploring ways in which to
best address the problems of perishable and cyclical agricultural
producers. If we cannot achieve agreement on special measures to
address perishable and cyclical agricultural products, then USTR should
seek parity of tariffs among our trading partners and ourselves on
beef, eliminate all subsidy and non-tariff barrier distortions to trade
in beef between ourselves and our trading partners, and, in the
interim, maintain current existing TRQs and Special Safeguards on beef
imports.
Despite significant efforts by the Administration, such a situation
does not exist with the U.S.-Australia FTA as it does not address
internal distortions within Australia that artificially lower
production costs for beef in that country. As described below, the
Australian Wheat Board (AWB) provides Australian producers artificial
production advantages. In conjunction with the massive distortions
generated by actions of other major trading partners and the lack of
market access in other overseas markets, the U.S.-Australia FTA will
exacerbate an existing unacceptable market situation for U.S. cattle
producers and, thus, R-CALF USA can not support the U.S.-Australia FTA.

II. State of the U.S. Industry

Cattle and beef production comprises the single largest sector of
U.S. agriculture. Cattle are raised in all fifty States. Half of all
U.S. farms have beef cattle as part of their operations.\11\ These
businesses form the backbone of rural America and are vital in
maintaining and supporting local schools, hospitals, nursing homes, and
communities. Collectively, these businesses are one of the most
significant segments of the U.S. gross national product.
---------------------------------------------------------------------------
\11\ U.S. Department of Agriculture, Where's the Beef? Small Farms
Produce Majority of Cattle, Agricultural Outlook, December 2002, at 21.
---------------------------------------------------------------------------
U.S. cattle producers, and by extension America's rural
communities, are experiencing a historically difficult period. The USDA
reported that the U.S. cattle herd underwent its eighth consecutive
year of contraction in 2003,\12\ and the U.S. cattle population is now
at historically low levels.\13\ Unsustainable prices over the last
fifteen years have resulted in ranching families going bankrupt by the
thousands and being forced off their land. In 1993, there were nearly
900,000 beef operations in the United States. By 2003, this number
declined to 792,100 operations.\14\
---------------------------------------------------------------------------
\12\ U.S. Department of Agriculture, U.S. Cattle Inventory, at 3
(Jan. 2003), available at http://usda.mannlib.cornell.edu/reports/
nassr/livestock/pct-bb/catl0103.pdfretrieved January 23, 2004.
\13\ Id. at 2.
\14\ USDA--National Agricultural Statistics Service, Number of All
and Beef Cow Operations, 1988-2003 found at http://www.usda.gov/nass/
aggraphs/acbc_ops.htm.
---------------------------------------------------------------------------
The average returns to U.S. cow/calf producers during the 1992-2001
decade had fallen to an alarming level. Returns for cow/calf producers
were actually a negative $30.40 per bred cow per year during 1992-
2001.\15\ While the partial closure of the Canadian border in 2003
because of the BSE outbreak in that country has provided a temporary
respite for U.S. producers in terms of pricing levels, only correction
of the global distortions can restore pricing equilibrium. Further, the
cattle industry faces another significant challenge as virtually all
export markets have been closed to U.S. beef exports due to the
discovery of BSE in an imported Holstein cow in Washington State. Thus
far, consumer confidence in the safety of the beef supply coupled with
the historically low cattle inventories detailed above have kept
domestic prices for cattle and beef high relative to the USDA baseline
average, although not as high as they were before the closure of U.S.
export markets.\16\
---------------------------------------------------------------------------
\15\ U.S. Cow-Calf Production Cash Costs and Returns, 1990-95;
1996-99; 2000-2001, Economic Research Service/USDA, available at http:/
/www.ers.usda.gov/data/farmincome/CAR/DATA/Appendix/Cowcalf/US9095.xls;
http://www.ers.usda.gov/data/farmincome/CAR/DATA/History/CowCalf/
US9699.xls; and http://www.ers.usda.gov/data/CostsAndReturns/data/
current/C-Cowc.xls, retrieved from the Internet on October 18, 2002.
\16\ Economic Research Service, USDA, Livestock, Dairy, & Poultry
Outlook/LDP-M-119/May 18, 2004, at 8, available at www.ers.usda.gov.
---------------------------------------------------------------------------
These facts illustrate that the U.S. cattle and beef industry is in
a vulnerable and tenuous position. As such, R-CALF USA believes it is
even more important for multilateral reform to be undertaken before
engaging in bilateral liberalization with major beef producing
countries.

III. U.S.-Australia FTA in Detail

A. Analysis of the Agreement
R-CALF USA recognizes that the eighteen-year phase-out of tariffs
on cattle and beef and expansion of the TRQ on beef included in the
U.S.-Australia Agreement reflect the import sensitivity of the sector.
However, in light of the crisis in our sector as reflected by the
depressed prices to cattle producers over most of the last twelve
years, even small changes in volumes of product available in the U.S.
market can have significant adverse effects. Because of the massive
distortions that exist around the world, including in Australia, that
have not been addressed to date under the bilateral FTA or within the
WTO, R-CALF USA believes that the U.S.-Australia agreement will
inevitably lead to a further erosion of profitability in the domestic
cattle industry. For the following reasons, the Agreement effectively
mortgages the future of the American cattle industry and makes the
prospects bleak for our children and young farmers and ranchers to
continue to produce the best cattle and beef in the world.

1. Australian Government Subsidies That Distort Trade Flows
In examining the economic effects of an U.S.-Australia FTA, the
Committee and Congress as a whole should keep in mind the economic
effects of removing tariffs combined with the artificial advantages
provided to Australian cattle producers. In any proposed FTA between
the United States and one of its trading partners, the simple removal
of U.S. tariffs could be expected to lead to increased imports into the
United States. In the case of the U.S.-Australia FTA, the removal of
tariffs--compounded with artificial advantages provided to Australian
producers--could be expected to lead to higher imports than would be
the case for FTAs with countries that provide less support, direct or
indirect, to their producers.

A. State Trading Enterprises
1. Australian Wheat Board
a. Wheat, Including Wheat as Feed
The Australian Wheat Board (AWB) is one of the world's only two
known single-desk marketers of wheat, the other being the Canadian
Wheat Board.\17\ AWB (International) Ltd. is the only entity in
Australia permitted to export Australia's bulk wheat,\18\ and the AWB
describes itself as ``a government backed export monopoly.''\19\
Australia's domestic wheat market was deregulated in 1989.\20\ So while
the AWB sells grains in the domestic market, it does not have the
ability to set prices for sales within Australia, and it competes with
other traders in the domestic market.\21\
---------------------------------------------------------------------------
\17\ Australian Wheat Board Ltd., Industry Overview, 2003,
available at http://www.awb.com.au/AWB/user/about/
about_industry_overview.asp, retrieved on January 13, 2003.
\18\ Australian Wheat Board Ltd., AWB Ltd Investor Fact Book 2002
at 37, available at http://www.awb.com.au/AWB/user/investor/docs/
AWB%20Investor%20Fact%20Book.pdf, retrieved on January 13, 2003.
\19\ Id. at 32.
\20\ Id. at 13.
\21\ Australian Wheat Board Ltd., AWB confident that domestic grain
demand can be met (press release), October 18, 2002, available at
http://www.awb.com.au/AWB/user/news/news_item.asp?NewsID=211, retrieved
on January 13, 2003.
---------------------------------------------------------------------------
Australia's feedlot sector has expanded markedly in recent years,
and this growth is predicted to continue.\22\ Rations for Australian
grain-fed cattle include wheat.\23\ In fact, of the approximately 5.5
million tons of wheat that enters the Australian market annually,
approximately half (2-3 million tons) is used as stockfeed.\24\
Australian feed wheat is noted for its high protein and gluten
content.\25\
---------------------------------------------------------------------------
\22\ Mr. Peter Milne, President, Cattle Council of Australia,
Opening Remarks of Cattle Council of Australia at Five Nations Beef
Conference 2000, available at http://www.farmwide.com.au/cca/images/
FNBC/FNBC%202000%20-%20Country%20Overview%20-%20Australia.pdf,
retrieved on January 13, 2003; see also Response to Hillman Question
#1.
\23\ Meat and Livestock Australia, Feedlots, available at http://
www.mla.com.au/content.cfm?sid=103, retrieved on January 14, 2003. See
also Australian Agricultural Company, Goonoo Feedlot, 2002, available
at http://www.aaco.com.au/html/goonoofeedlot.htm, retrieved on January
13, 2003.
\24\ Australian Wheat Board Ltd., AWB Ltd Investor Fact Book 2002
at 36, available at http://www.awb.com.au/AWB/user/investor/docs/
AWB%20Investor%20Fact%20Book.pdf, retrieved on January 13, 2003.
\25\ Australian Wheat Board Ltd., AWB Wheat, available at http://
www.awb.com.au/AWB/user/grainProducts/wheat_products.asp, retrieved on
January 14, 2003.
---------------------------------------------------------------------------
b. Other Feedgrains
The AWB also trades and manages non-wheat grains, including barley
and sorghum.\26\ These grains compete with wheat in the production of
compound feeds in Australia.\27\ Domestic consumption of barley and
sorghum has grown in recent years due to the expansion of Australia's
intensive livestock sector.\28\ Due to its scale and risk management
abilities, the AWB's Trading Division has the largest market share of
any entity in the Australian grain market, including the market share
of non-wheat grains.\29\
---------------------------------------------------------------------------
\26\ Australian Wheat Board, Summary, available at http://
www.awb.com.au/AWB/user/about/about_summary.asp, retrieved on January
13, 2003.
\27\ Australian Wheat Board Ltd., Industry Overview, available at
http://www.awb.com.au/AWB/user/about/about_industry_overview.asp,
retrieved on January 14, 2003.
\28\ Id.
\29\ Australian Wheat Board Ltd., AWB Ltd Investor Fact Book 2002
at 14, available at http://www.awb.com.au/AWB/user/investor/docs/
AWB%20Investor%20Fact%20Book.pdf, retrieved on January 13, 2003.
---------------------------------------------------------------------------
2. State-Based Barley and Sorghum STEs
While the AWB does not have a monopoly on the export of barley and
sorghum, STEs operated by Australian states do. The Grain Pool of
Western Australia is the single desk exporter of that state's
barley.\30\ Barley produced in South Australia is exported through the
single desk operation of ABB Grain Ltd.\31\ GrainCo Australia is the
single desk exporter of sorghum and barley for New South Wales.\32\
---------------------------------------------------------------------------
\30\ Id. at 41.
\31\ Id.
\32\ Id.
---------------------------------------------------------------------------
3. STEs Provide Australian Producers with Unfair Market Advantages
All in all, due to the AWB and state STEs, some 80 to 90 percent of
all grains exported from Australia are regulated through single desk
exporters or equivalent arrangements.\33\ By controlling the export of
grains used as feeds--wheat, barley, and sorghum--these entities are
able to influence the domestic prices of feed and, thus, benefit
Australian cattle producers. In fact, it appears that the AWB takes
specific decisions with regard to exports with the intent of lowering
prices for Australian users of feedgrains. For example, in October
2002, in response to concerns expressed by livestock producers about
the high costs of feedgrains due to low supplies caused by drought, the
AWB stated that ``the AWB National Pool is currently tailoring its
current wheat export program in order to preserve vital grain stocks in
drought-affected regions of Australia.'' \34\ While the AWB has ``no
legislated market power'' to set grain prices in the domestic
market,\35\ such action as described above would lead to lower feed
prices in the Australian market, thus benefiting cattle producers
there.
---------------------------------------------------------------------------
\33\ Australian Wheat Board Ltd., AWB Ltd Investor Fact Book 2002
at 37, available at http://www.awb.com.au/AWB/user/investor/docs/
AWB%20Investor%20Fact%20Book.pdf, retrieved on January 13, 2003.
\34\ Australian Wheat Board Ltd., AWB confident that domestic grain
demand can be met (press release), October 18, 2002, available at
http://www.awb.com.au/AWB/user/news/news_item.asp?NewsID=211, retrieved
on January 15, 2003.
\35\ Id.
---------------------------------------------------------------------------
It should be noted too that the AWB actively discourages the
importation of grain by Australian livestock producers and warns that
``AWB is cautious of consumers importing grain, as it can be a costly
exercise fraught with quality issues.'' \36\ This view is likely shared
by Australia's state-based barley and sorghum STEs. By ensuring low
cost feedgrains in the Australian market, and thus obviating the need
for imports, Australian STEs can protect their primary constituencies
of grain producers from foreign competition. At the same time, these
STEs provide artificial cost advantages for Australian cattle
producers. This is made possible by the ability of the AWB, the Grain
Pool of Western Australia, GrainCo Australia, and ABB Grain Ltd. to
control exports of feedgrains from Australia.
---------------------------------------------------------------------------
\36\ Id.
---------------------------------------------------------------------------
Moreover, the AWB plays an active role in setting rail freight
charges in Australia.\37\ While R-CALF USA is unaware as to whether
such rail charges apply only to grains for export or also to grains
sold in the domestic market, the ability of a monopoly exporter to
establish freight charges gives it the power to influence, at least
indirectly, prices in the domestic market.
---------------------------------------------------------------------------
\37\ Australian Wheat Board Ltd., Changes to WA rail freight
calculations (press release), November 11, 2002, available at http://
www.awb.com.au/AWB/user/news/news_item.asp?NewsID=231, retrieved on
January 15, 2003.
---------------------------------------------------------------------------
None of the aforementioned distortions in the Australian market
were addressed in the FTA, yet all of them encourage more production of
cattle and beef in Australia than would otherwise occur and hence
artificially expand the volume of cattle and beef available for export.

2. Direct Subsidies Provided to Australian Producers
In addition to receiving support from the AWB, Australian cattle
producers appear to receive a number of subsidies that put them at an
unfair advantage in the international market. Australian cattle
producers are also able to benefit from numerous subsidies provided by
state and federal governments. In 2002 alone, Australia's budget
included roughly US$152 million in funding for seven subsidy programs
benefiting the beef and cattle industry. Especially problematic are the
Australian government grants or cash reimbursements for the purpose of
increasing Australian beef exports that are prohibited export subsidies
under the WTO Agriculture and Subsidies Agreements. The Commerce
Department reports that the state programs include the Business
Incentive Scheme of the Australian Capital Territory, the Regional
Business Development Scheme of New South Wales, the Industry and
Business Assistance Scheme of the Northern Territory, and Queensland's
Industry Incentives Scheme and Industry Development Scheme.\38\
---------------------------------------------------------------------------
\38\ U.S. Department of Commerce and U.S. Trade Representative,
Subsidies Enforcement Annual Report to the Congress, February 2002, at
24. U.S. Department of Commerce and U.S. Trade Representative,
Subsidies Enforcement Annual Report to the Congress, February 2001, at
36.
---------------------------------------------------------------------------
3. Direct Impact of Increased Australian Trade Flows
Evidence indicates that even small increases in import volume can
have significant adverse effects on the prices received by ranchers at
the farm gate. According to Chuck Lambert, formerly chief economist for
the National Cattlemen's Beef Association (NCBA) and currently Deputy
Under Secretary for USDA's Marketing and Regulatory Programs, ``[t]he
rule of thumb is that a 10% increase in beef supply results in a 15% to
20% decrease in price.'' \39\ Even small increases in supply--as little
as 2 to 3 percent--can have significant downward effects on price.\40\
This basic conclusion is affirmed by economic analysis described by the
International Trade Commission.\41\ Further, empirical evidence from
the market last year indicates that changes in supply can have dramatic
impact on prices. After the Canadian border was closed due to the
identification of a native born case of BSE, U.S. imports of Canadian
beef and cattle were prohibited. In 2002 the United States produced
over 27 billion pounds of beef and imported over 3 billion pounds.
Canadian beef imports accounted for more than 1 billion pounds of those
imports. After deducting U.S. exports and converting Canadian live
cattle into beef equivalents, Canadian beef accounted for roughly 8% of
apparent domestic beef consumption in 2002.\42\ As noted above, the
closing of the border resulted in a substantial restoration of U.S.
live cattle prices--from levels in the low $70s/100 lbs. to the low
$90s/100 lbs.
---------------------------------------------------------------------------
\39\ Chuck Lambert, Chief Economist, NCBA, Beef Today, (Sept.
1997).
\40\ See Sparks Companies Inc., ``Potential Impacts of the Proposed
Ban on Packer Ownership and Feeding of Livestock,'' A Special Study,
(March 18, 2002) at 37 (``In general, prices decrease 1% for each 0.6%
increase in beef production (consumption = production for beef)).''
\41\ U.S.-AUSTRALIA FREE TRADE AGREEMENT: POTENTIAL ECONOMYWIDE AND
SELECTED SECTORAL EFFECTS (Publication 3697; May 2004) at 44.
\42\ Economic Research Service, Livestock, Dairy and Poultry
Outlook, July 17, 2003 at 10 and 19. Live cattle converted to carcass
weight equivalent (avg. yield around 700 lbs. per slaughter animal).
---------------------------------------------------------------------------
It is expected that much of the expanded imports from Australia
into the U.S. will be concentrated in a subset of the U.S. market.
Specifically, the primary end-use for its 86-88% lean Australian beef
is as a ground product for hamburger.\43\ Approximately 47% of the beef
consumed in the U.S. today is ground product. The source of the raw
product is cull cows and bulls which compose 15% to 20% of ranch
family's income. The Australian agreement therefore will likely see
most increased imports focused on the ground product segment that will
magnify its effect on a significant portion of U.S. animals with
limited alternative use.
---------------------------------------------------------------------------
\43\ Agricultural Technical Advisory Committee Report to the
President, the Congress, and the United States Trade Representative on
the U.S.-Australia Free Trade Agreement, page 5 (March 12, 2004).
---------------------------------------------------------------------------
4. Discussion of the Safeguards Within the Agreement
Chapter Three of the Agreement establishes the right to resort to
an agricultural safeguard for beef.\44\ R-CALF USA strongly supports
the use of agricultural safeguards in free trade agreements that deal
with perishable, seasonal and cyclical products. Indeed, under the
Trade Act of 2002, Congress mandated that the special needs of
perishable and cyclical agriculture be taken into account and that
special rules be negotiated.\45\ Hence, we are appreciative of USTR's
efforts to include a beef safeguard in this agreement. R-CALF USA
believes however that any safeguard measure must be imposed
automatically and not be subject to discretion on whether safeguard
relief will be available.
---------------------------------------------------------------------------
\44\ See Article 3.4.
\45\ 19 U.S.C. Sec. Sec. 3802(10)(A)(ix), (x), 3802(10)(B)(i).
---------------------------------------------------------------------------
Discretionary action suffers from both uncertainty over whether
relief will be provided and how long it will take to determine that
relief is appropriate. As Congress has recognized that there are
special needs for perishable agricultural products, including cattle
and beef,\46\ an effective safeguard provision must be automatic and
prompt.\47\ Indeed, as every cattle producer knows, live cattle when
ready for slaughter have a very limited period to be sold for slaughter
to receive the maximum value. Relief that takes months to obtain will
fail to stop the hemorrhaging when prices fall and may result in action
being taken when conditions have restabilized.
---------------------------------------------------------------------------
\46\ See 19 U.S.C. Sec. Sec. 3802(10)(A)(ix), (x), 3802(10)(B)(i);
148 Cong. Rec. S4800 (daily ed. May 23, 2002).
\47\ Para. B4, Annex 3 of the U.S.-Australia FTA (allows the
President discretion not to impose a safeguard); Para. C5, Annex 3
(allows the President discretion not to impose a safeguard).
---------------------------------------------------------------------------
As currently written, the beef safeguard provisions within the
agreement are discretionary,\48\ not automatic. While the U.S.-
Australia FTA allows this safeguard to be implemented on a
discretionary basis, we would ask that the Committee tighten the
implementing legislation for the U.S.-Australia agreement to reflect
the needs of our industry and ensure that the beef safeguard provisions
be automatic in fact. R-CALF USA believes that the implementing
legislation can be written in such a way to make these discretionary
safeguards automatic in operation.
---------------------------------------------------------------------------
\48\ Para. B4, Annex 3 (allows the President discretion not to
impose a safeguard); Para. C5, Annex 3 (allows the President discretion
not to impose a safeguard).

---------------------------------------------------------------------------
IV. Conclusion

In conclusion, the United States currently faces a large and
growing trade deficit in terms of our total imports of beef/veal and
cattle versus our total exports of beef/veal and cattle. Before the
discovery of BSE in 2003, the United States had been running a trade
deficit in cattle and beef:
---------------------------------------------------------------------------
\49\ Data Source: Department of Commerce, U.S. Census Bureau,
Foreign Trade Statistics, HS 0102 (cattle), 0201 (fresh beef), and 0202
(frozen beef).

United States Beef and Cattle Trade Flows, 1999-2003
($000) \49\
----------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
Cattle Imports 1,006,991 1,157,494 1,464,000 1,448,205 867,155
----------------------------------------------------------------------------------------------------------------
Cattle Exports 174,008 271,607 270,134 131,433 64,271
----------------------------------------------------------------------------------------------------------------
Total, Cattle -832,983 -885,887 -1,193,866 -1,316,772 -802,884
----------------------------------------------------------------------------------------------------------------
Beef, Imports 1,904,273 2,204,828 2,514,360 2,513,065 2,363,667
----------------------------------------------------------------------------------------------------------------
Beef, Exports 2,655,105 2,908,633 2,548,499 2,488,583 3,036,104
----------------------------------------------------------------------------------------------------------------
Total, Beef 750,832 703,805 34,139 -24,482 672,437
----------------------------------------------------------------------------------------------------------------
Total, Cattle
and Beef Trade -82,151 -182,082 -1,159,727 -1,341,254 -130,447
----------------------------------------------------------------------------------------------------------------

We believe that this deficit illustrates the need to develop
comprehensive solutions to the problems faced by the cattle industry
that can only be accomplished at the WTO, and in the Doha Round.
In absence of such comprehensive solutions, we believe the United
States should not agree to a series of FTAs with major agricultural
producing countries with small internal markets that will result in the
erosion of the American cattle industry with no appreciable benefits.
We urge this Committee, and all of Congress, to see that, as a general
matter, liberalization does not occur in a lopsided fashion going
forward where the U.S. agrees to free trade agreements that will hurt
the cattle industry via increased liberalization while we are unable to
open large consuming markets abroad. To that end, R-CALF USA supported
the U.S.-Chile and U.S.-Singapore FTAs last year as opportunities to
expand U.S. exports into consuming countries, and we support for the
same reasons the U.S.-Morocco FTA this year.
Further, if we must enter into an FTA with a major beef producing
country, then it must address and eliminate any internal distortions
within the proposed trading partner that impede trade in cattle and
beef while also recognizing the special needs of perishable producers.
The 800,000 ranching and farming families across the United States have
been the backbone of rural America and have been suffering depressed
pricing levels for more than a decade with more than 100,000 ranching
families having lost the struggle in the last decade by selling their
ranches and homes. Coupled with the massive distortions generated by
actions of other major trading partners and the lack of equivalence of
market access in other markets, the U.S.-Australia FTA will only
exacerbate an existing unacceptable market situation for U.S. cattle
producers, while not addressing major internal distortions within
Australia. R-CALF USA opposes the agreement and urges the Members of
the Committee and all of Congress to likewise oppose it.

South Dakota Stockgrowers Association
Rapid City, South Dakota 57701
June 10, 2004

Chairman Bill Thomas
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Honorable Thomas:
Background
The South Dakota Stockgrowers Association appreciates the
opportunity to provide meaningful input regarding the proposed United
States-Australia Free Trade Agreement.
The South Dakota Stockgrowers Association is an organization of
1,486 members, primarily cow-calf producers operating family ranches.
The South Dakota Stockgrowers Association is committed to
representing the needs of individual cattle producers in regard to
property rights, animal health, trade, marketing and environmental
issues. Our focus is profitability for the individual rancher.
Comments
The South Dakota Stockgrowers Association adamantly opposes the
proposed United States-Australia Free Trade Agreement.
Currently, U.S. cattle producers operate under much more stringent
rules and regulations than do Australian cattle producers. The cost of
production for Australian cattle producers is about half the cost of
production for U.S. cattle producers. This immediately places U.S.
producers at a severe economic disadvantage when competing with
Australian producers.
Until Australia's animal health, food safety, pesticide,
fertilizer, and labor policies match those that we abide by in the
United States, we will never compete fairly with Australian producers.
The largest customer of U.S. raised cattle is U.S. consumers. The
United States is the most sought-after market for beef in the entire
world. Australian producers currently produce more beef than their
consumers purchase, putting them at an export advantage over the United
States cattle industry, which is not export-dependent, but domestically
dependent. Multi-national corporations will benefit by selling lower
quality, cheaper Australian beef to U.S. consumers, while forcing U.S.
ranchers out of business.
In addition, without mandatory Country of Origin Labeling, the
multi-national processing companies who benefit from importing beef
from Australia are not required to inform consumers of the country from
whence it came causing U.S. consumers to assume they are buying a U.S.
product because it is marked ``USDA inspected.'' This inadequacy
magnifies the discrepancies between U.S. and Australian currency
exchange, cost of production and domestic regulations.
In just 18 short years, according to the proposed agreements, all
tariffs and quotas on beef will expire. Some might call this the slow
demise of the U.S. cattle producer. The South Dakota Stockgrowers
Association considers it a relatively quick death. In 18 years, we hope
for our sons and daughters to have the opportunity to contribute to
their communities economically and socially by operating family
ranches. If they are forced to compete on a cost basis with Australian
ranchers, they will more than likely lose their margin of profit and be
forced out of business.
Losing cattle producers here in the U.S. does not just affect the
2% of the United States population involved in agriculture. It affects
our entire economy. Small towns will not survive without the producers
who support them. Larger towns will feel the economic strain as well.
Additionally, in a time of such uncertainty in the world, massive
exporting of our ag production is unwise. It is prudent to maintain our
ability here in the United States to feed ourselves. Food is the most
basic of human needs, and to become dependent on another country for
food is a terrifying thought.
The Australian agreement would concentrate more economic power
within both the American and Australian multi-national food suppliers.
This will give those ag businesses market power over consumers,
producers, and our elected officials to the detriment of both
countries. The agreement would amplify the ability of these multi-
national companies to drive down prices to producers in both countries.
Beef was recognized as a ``perishable and cyclical'' product, which
makes it eligible for special rules in international trade agreements.
This designation has been improperly ignored by the authors of this
treaty, and must be addressed.
Because of the Trade Promotion Authority that Congress granted the
President, individuals and organizations have limited opportunity to
provide input on free trade agreements. It is imperative that this
Committee consider the voices of producers and grassroots organizations
as you review this agreement. Keep in mind that, while the multi-
national food suppliers will call this agreement ``good for
agriculture,'' it is good for only a small segment of agriculture--the
processer/retailer. It will be detrimental to many in agriculture
including producers, not to mention the final consumer.
The South Dakota Stockgrowers Association asks you to reflect on
NAFTA. Although some ag producers supported NAFTA at its inception,
believing that it would open up positive opportunities for trade, we
can now see the devastating effects of the treaty. Just looking at beef
alone, U.S. producers are at an obvious disadvantage because both
Canadian and Mexican ranchers can produce cattle far below our cost of
production. The playing field is unfair, and while multi-national
corporations benefit by importing beef at relatively ``low'' cost,
consumers pay the price when they purchase beef that was raised and
processed under far less stringent rules than U.S. beef. When U.S.
producers become disadvantaged, we lose our opportunity to make a
profit, which risks the entire economic structure of the State of South
Dakota, and the nation. NAFTA has punished U.S. producers who, under
U.S. rules and regulations raise the safest, healthiest beef product in
the world. NAFTA has rewarded multi-national conglomerate food
companies who purchase the cheapest food, often ignoring safety and
health standards as well as labor laws. The Australian Agreement looks
to be structured as unfairly as NAFTA for U.S. beef producers.
The South Dakota Stockgrowers Association urges you to oppose the
Australian Free Trade Agreement unless beef and cattle are removed from
the negotiations.

Sincerely,
Ken Knuppe
President