[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

                               __________

         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

                              ----------                              


                        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:

      
    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.

                                 

                   * * * 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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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

                                 
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