[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
PRESIDENT BUSH'S TRADE AGENDA
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 11, 2004
__________
Serial No. 108-43
__________
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
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C O N T E N T S
__________
Page
Advisory of March 3, 2004, announcing the hearing................ 2
WITNESS
U.S. Trade Representative, Hon. Robert B. Zoellick, Ambassador... 10
SUBMISSIONS FOR THE RECORD
Advanced Medical Technology Association, statement............... 70
Africa Growth and Opportunity Act Civil Society Network, letter.. 74
American Cancer Society, American Heart Association, American
Lung Association, Action on Smoking and Health, Campaign for
Tobacco-Free Kids, and Essential Action, joint statement....... 75
Doctors Without Borders, New York, NY, Nicolas de Torrente,
letter......................................................... 78
Johnson, Diane, Tyler, TX, statement............................. 82
National Electrical Manufacturers Association, Arlington, VA,
statement...................................................... 82
Student Global AIDS Campaign, statement.......................... 89
Tadros, Paul, Montreal, Quebec, letter........................... 92
PRESIDENT BUSH'S TRADE AGENDA
----------
THURSDAY, MARCH 11, 2004
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
March 03, 2004
FC-16
Thomas Announces Hearing on
President Bush's Trade Agenda
Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
President Bush's trade agenda. The hearing will take place on Thursday,
March 11, 2004, in the main Committee hearing room, 1100 Longworth
House Office Building, beginning at 10:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. The sole
witness will be United States Trade Representative Robert B. Zoellick.
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:
Using the Trade Promotion Authority (TPA) granted to him by
Congress in 2002, the President is pursuing multilateral negotiations
in the World Trade Organization (WTO) to expand U.S. trade
opportunities in agriculture, industrial goods, and services.
Ambassador Zoellick has sought to revive these negotiations to show
progress in 2004.
The President has also recently notified Congress of his intent to
enter into free trade agreements (FTA) with Australia and the Central
American countries of Costa Rica, El Salvador, Guatemala, Honduras, and
Nicaragua. Negotiations with Morocco have just concluded, and there
also are ongoing FTA negotiations with the Dominican Republic, the
Southern African Customs Union (Botswana, Lesotho, Namibia, South
Africa, and Swaziland), and Bahrain. The President has notified
Congress of his intent to begin FTA negotiations with Thailand, Panama,
and the Andean countries of Bolivia, Colombia, Ecuador, and Peru. In
addition, he is continuing negotiations to establish the Free Trade
Area of the Americas.
At the same time, Congress also plans to consider enhancing and
extending the African Growth and Opportunity Act (AGOA) because certain
provisions are set to expire in the fall. AGOA is a trade preference
program directed at sub-Saharan African countries and provides
extensive duty-free access for countries that meet the eligibility
criteria.
In announcing the hearing, Chairman Thomas stated, ``Expanded trade
means more business for America's farmers, manufacturers, and service
providers, better buys for American consumers, higher living standards
for American families, and good jobs for America's workers. I am
committed to ensuring the Administration's adherence to the rigorous
consultations and detailed negotiating objectives established in TPA.
This hearing will give Ambassador Zoellick the opportunity to outline
the President's trade priorities and is an important component of the
Committee's oversight responsibilities.''
FOCUS OF THE HEARING:
The hearing is expected to examine current trade issues such as:
(1) the recently concluded FTAs with Australia, the Central American
countries, and Morocco; (2) other free trade agreements currently being
negotiated or which have been notified by the President; (3) prospect
for trade expansion in agriculture, industrial goods, and services
through multilateral negotiations in the WTO; (4) compliance with WTO
dispute settlement decisions; (5) potential extension and enhancement
of AGOA; and (6) other trade issues.
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noted above.
Chairman THOMAS. Good morning. Today's hearing is about the
U.S. trade agenda for 2004. Ambassador Zoellick, it is a
pleasure to have you with us here again to discuss your
efforts, especially some very positive recent efforts to expand
international trade, and create job opportunities for American
workers, farmers, and businesses.
Since the President signed into the law the Trade Promotion
Authority (TPA) (P.L. 107-210) 2 years ago now, the United
States has been engaged in multiple trade negotiations. Most
importantly, the President and the U.S. Trade Representative
(USTR) is pursuing multilateral negotiations in the World Trade
Organization (WTO) to expand U.S. export opportunities in
agriculture, industrial goods, services, while protecting
international property rights. Recent efforts, which we will
focus on, especially a letter sent by the USTR to a broad
number of folk at the beginning of this year to attempt to
build some momentum on the reinvigoration of the Doha Round, I
am anxious to hear whether or not that has borne the kind of
fruit that we hoped for. Basically, I think it entails everyone
reassessing pre-Cancun versus post-Cancun and whether or not
positions that produced post-Cancun should be reviewed and
moved forward.
At the same time, the United States is engaging its trading
partners on a bilateral and a regional basis. These agreements,
when negotiated in a comprehensive and ambitious manner, create
an environment of competitive liberalization and lead momentum
to successful WTO negotiations, in my opinion. For example,
last summer Congress employed TPA and the Administration moved
free trade agreements (FTAs) with Chile and Singapore. They set
very high standards in goods, services, intellectual property
rights, investment, labor, and the environment.
The Administration has recently concluded FTAs with
Australia, Morocco, and five Central American countries. These
agreements made remarkable strides in opening markets to our
goods and services. However, not every FTA can achieve the
highest marks. Sometimes you have to settle for what you are
able to achieve and there were some sectors that were excluded
from coverage and our concern is that these not become
precedent-setting.
In any event, the Committee is currently examining these
agreements to determine the best timing for congressional
consideration. Also, the USTR's office, notwithstanding the
fact that we focus primarily on the big-picture trade
agreements, has been actively involved in aggressively
enforcing U.S. positions. They have successfully defended
against challenges from Canada on lumber, India on textile
rules of origin, Japan on sunset reviews, and obviously we need
to have that very close nexus between opening up trade and
defending and pursuing our rights in trade. Ambassador, I look
forward to your comments. Prior to that I will recognize the
Chairman of the Subcommittee on Trade, the gentleman from
Illinois, Mr. Crane.
[The opening statement of Chairman Thomas follows:]
Opening Statement of The Honorable Bill Thomas, Chairman, and a
Representative in Congress from the State of California
Good Morning. Today's hearing is about the U.S. trade agenda for
2004. Ambassador Zoellick, it is a pleasure to have you here to discuss
your efforts to expand international trade and create jobs and
opportunities for American workers, farmers, and businesses.
Since the President signed Trade Promotion Authority (TPA) into law
in 2002, the United States has been engaged in multiple trade
negotiations. Most importantly, the President is pursuing multilateral
negotiations in the WTO to expand U.S. export opportunities in
agriculture, industrial goods, and services. Thanks to Ambassador
Zoellick's efforts, I see momentum building to reinvigorate the Doha
Round, and I hope we will achieve substantial progress this year. Such
progress depends on the willingness of all WTO members to move off pre-
Cancun positions.
At the same time, the United States is engaging its trading
partners on a bilateral and regional basis. These agreements, when
negotiated in a comprehensive and ambitious manner, create an
environment of competitive liberalization and lend momentum to
successful WTO negotiations. Last summer, Congress employed TPA to
approve FTAs with Chile and Singapore that set high standards in goods,
services, intellectual property rights, investment, and labor and
environment. The Administration has recently concluded FTAs with
Australia, Morocco, and five Central American countries. These
agreements make remarkable strides in opening markets to our goods and
services. However, I am disappointed that we have begun to exclude
sectors from coverage and that an investor-state dispute settlement
mechanism is not included in the Australia agreement. In any event, the
Committee is currently examining these agreements to determine the best
timing for congressional consideration.
While opening new markets for U.S. exports is a key priority, it is
equally essential that we ensure that our trading partners abide by
existing trade agreements. USTR's track record in WTO dispute
settlement in the past 18 months has been impressive. The United States
has successfully challenged Canada on dairy and wheat, Japan on apples,
and Mexico on telecommunications. The United States has successfully
defended against challenges from Canada on lumber, India on textile
rules of origin, and Japan on sunset reviews. We must continue to
aggressively pursue our rights. We must also make sure that we are in
compliance with our own WTO obligations.
Ambassador Zoellick, I look forward to hearing your comments. I now
recognize the Chairman of the Trade Subcommittee, Mr. Crane.
Mr. CRANE. Thank you, Mr. Chairman. I join in welcoming
Ambassador Zoellick here today. Ambassador, I applaud your
efforts and those of all the hardworking individuals at USTR
who continue to press every day for new export opportunities
for U.S. businesses and workers, more choices for U.S.
consumers, and better adherence by our trading partners to
existing trade commitments.
Despite my unwavering support for free trade and your
tireless efforts on its behalf, I do have a significant concern
with one aspect of recent U.S. trade policy, and that is for
sugar. United States sugar policy was bad enough before but
recently sugar appears to be immune from negotiations. Some of
my constituents, from candymakers to corn refiners, are
particularly hard hit by this policy, which represents the
indulgence of the few at the expense of the many. There are or
were several candymakers in the Chicago area, as I know you are
aware.
According to industry estimates, almost 10,000 jobs have
been lost in the U.S. confectionery industry due to the U.S.
sugar program's import restrictions. To make matters worse,
sugar has recently received special treatment. It has been
completely excluded in the Australia agreement and the Central
American FTA (CAFTA) contains extremely limited quota
concessions with no reduction in out-of-quota tariffs. In CAFTA
the centrals responded to the paltry concession on sugar by
granting very long duty elimination on U.S. candy exports.
Thus, the confectionery industry got a double blow because on
the import side it cannot get access to reasonably priced sugar
and on the export side the centrals provided in most cases 10-
to 15-year phase-outs on sugar, candy, and chocolate
confections. Fifteen years is a long time to wait for a
benefit.
Another constituent victim of U.S. sugar policy is the corn
refining industry, which is a hostage in a tit-for-tat battle
with Mexico over sugar and high-fructose corn syrup. The North
American Free Trade Agreement (NAFTA) provides that the United
States can export high-fructose corn syrup into Mexico without
duty and in return, Mexico can sell its surplus sugar in the
United States. In the face of U.S. insistence on limiting
Mexican sugar imports, Mexico has retaliated in several ways,
most recently by imposing a discriminatory tax on products
containing high-fructose corn syrup. This issue has been
festering for years now and I urge you, Mr. Ambassador, not to
allow the U.S. sugar industry to block resolution of this
dispute.
As I said at the beginning, I applaud the overall efforts
of you and your colleagues in your office in opening markets
for U.S. exports by eliminating tariffs, also known as
protection taxes, reducing nontariff barriers, streamlining
standards, opening services markets and strengthening
intellectual property protections. These efforts provide a
significant benefit to the U.S. economy. It is time we include
sugar in this agenda and get comprehensive free trade back on
track. I yield back the balance of my time.
[The opening statement of Mr. Crane follows:]
Opening Statement of The Honorable Philip M. Crane, a Representative in
Congress from the State of Illinois
Thank you, Mr. Chairman. I join in welcoming Ambassador Zoellick
here today. Ambassador, I applaud your efforts and those of all the
hardworking individuals at USTR who continue to press every day for new
export opportunities for U.S. businesses and workers, more choices for
U.S. consumers, and better adherence by our trading partners to
existing trade commitments. Despite my unwavering support for free
trade and the tireless efforts of USTR on its behalf, I do have a
significant concern with one aspect of recent U.S. trade policy, and
that's for sugar. U.S. sugar policy was bad enough before, but recently
sugar appears to be immune from negotiation. Some of my constituents,
from candymakers to corn refiners, are particularly hard hit by this
policy, which represents the indulgence of the few at the expense of
the many.
There are--or were--several candymakers in the Chicago area.
According to industry estimates, almost 10,000 jobs have been lost in
the U.S. confectionery industry due to the U.S. sugar program's import
restrictions. To make matters worse, sugar has recently received
special treatment: it has been completely excluded in the Australia
agreement, and CAFTA contains extremely limited quota concessions with
no reduction in out-of-quota tariffs. In CAFTA, the Centrals responded
to the paltry concession on sugar by granting very long duty
elimination on U.S. candy exports. Thus, the confectionery industry got
a double blow because on the import side it can't get access to
reasonably priced sugar and on the export side the Centrals provided in
most cases 10- to 15-year phase-outs on sugar candy and chocolate
confections. Fifteen years is a long time to wait for a benefit.
Another constituent victim of U.S. sugar policy is the corn
refining industry, which is a ``hostage'' in a tit-for-tat trade battle
with Mexico over sugar and high-fructose corn syrup (or HFCS). NAFTA
provides that the United States can export HFCS into Mexico without
duty and, in return, Mexico can sell its surplus sugar in the United
States. In the face of U.S. insistence on limiting Mexican sugar
exports, Mexico has retaliated in several ways, most recently by
imposing a discriminatory tax on products containing HFCS. This issue
has been festering for years now and I urge you, Mr. Ambassador, not to
allow the U.S. sugar industry to block resolution of this dispute.
As I said in the beginning, I applaud the overall efforts of USTR
in opening markets for U.S. exports by eliminating tariffs--also known
as protection taxes--reducing nontariff barriers, streamlining
standards, opening services markets, and strengthening intellectual
property protections. These efforts provide a significant benefit to
the U.S. economy. It's time we include sugar in this agenda and get
comprehensive free trade back on track.
Chairman THOMAS. I thank the gentleman. The Chair would
recognize the Ranking Member, the gentleman from New York, Mr.
Rangel, for any comments he may wish to make.
Mr. RANGEL. Thank you, Mr. Chairman. Mr. Ambassador, first
let me join my colleagues in congratulating you for the work
that you do for our great Nation and your patience in the most
difficult situations that you face. I am particularly pleased
to see your willingness to pick up the pieces in Cancun and to
reach out to the developing nations. It is true that unless you
help these countries, democracies cannot prevail, as we have
seen in Haiti.
I also want to point out that most of us in the Congress
believe that these matters of international concern should not
be moved forward with party labels, and increasingly Democrats
are labeled as being against free trade, notwithstanding the
fact that with China, the Africa Growth and Opportunity Act
(AGOA) (P.L. 106-200), and the Caribbean Basin Initiative (CBI)
(P.L. 98-67), we have worked together in a bipartisan way. I
wish desperately hard that we could continue to do that, to
give you the type of support that you need when you represent
not Republicans but the United States of America.
I am very pleased to share with you that the Chairman and
Mr. Crane are working with the Democrats to improve AGOA, to
make certain that investments will continue to flow, that they
have an opportunity to fulfill the goals that we wanted for
them, but just as importantly for the United States of America.
Soon we expect that we will be dealing with the European Union.
I would not want to be dealing with them as a Democrat. I would
want to be dealing with them as an American and a Member of
Congress. I do not know whether these are hurdles that we can
overcome. Maybe the Senate would have to provide the
leadership, since we do not expect to get it from the
President. When we come to other agreements that we would like
to participate in, it seems like there is a hurdle that we
cannot overcome and that is establishing some standards, some
labor standards, some environment standards so that it does not
appear that there is a race to the bottom in terms of just
getting the lowest paid workers throughout the world.
I hope, in conclusion, that there could be some sensitivity
to the questions of America that pays the price for progress. I
come from a city where 50 percent of the African-American males
are out of work and it is difficult to tell them the value of
free trade and what is going to happen down the line, that the
more that we have jobs abroad, that jobs are going to be
created here. It is not your job to invest in education and
high tech, to make certain all Americans feel that they are
going to be the beneficiaries of this free trade, but you have
to have a domestic policy that supplements it so people are not
frightened to death that these agreements are going to take
Americans' jobs and just transfer them abroad and that we do
not have a tax policy that encourages people to have these jobs
abroad. That is not your job but it is your team's job and I
would like to be a part of that team. With the Chairman's
permission I would like to yield to the Ranking Member of the
Subcommittee on Trade, Mr. Levin.
Mr. LEVIN. Thank you, Mr. Rangel and Mr. Chairman and
welcome, Mr. Ambassador. Your prepared comments lead off with
this statement: ``Isolating America from the world is not the
answer.'' Yesterday the President took the same tack, stating,
and I quote, ``There are economic isolationists in our country
who believe we should separate ourselves from the rest of the
world.''
Whether we should isolate America from the world is not the
question. It is not the question asked by this Committee, where
Democrats have taken leadership roles in trade-expanding
efforts--CBI, AGOA, China, Jordan. It is not the question asked
by most in Congress and it is not the question asked by the
American people, who have seen during the Bush Administration
the loss of 2.8 million manufacturing jobs, record trade
deficits--$43 billion now reported for the last month--budget
deficits, major increases in outsourcing and services, and
continued foreign barriers to our products.
I hope we can avoid the rhetoric today about isolationism,
protectionism that mischaracterizes, polarizes and demonizes
and ask instead the real questions, and let me mention two of
them. Question one: should we use every tool at our disposal to
shape the terms of international trade and competition or
simply let it flow and assume problems will work themselves out
in the wash of free trade? In my judgment, the Administration's
answer to question one is still too often more trade is always
better, no matter its terms and contents. It is manifested in
the Administration's failure to use the tools at its disposal
to respond effectively to shape the rules of competition.
When it comes to China, for example, your testimony states,
and I quote, ``We are committed to using special safeguards,
applying fair trade laws and taking action under international
trade rules.'' President Bush has denied relief in all three
special China safeguard cases. Despite findings by the
independent International Trade Commission (ITC), and despite
the impact of the undervalued Chinese currency on American
jobs, the Administration still does not have an effective
strategy. Despite a growing culture of noncompliance with WTO
commitments in China, the Administration has failed to bring a
single case in the WTO against China.
The Bush Administration has also failed to use FTAs to
address other critical terms of competition. Your prepared
statement talks in several places about, and I quote, ``A world
that trades in freedom.'' How about the freedom for workers to
associate and bargain collectively, as you have steadfastly
refused--this Administration has--to include enforceable core
labor standards in trade agreements.
A second real question: Are the Administration's actions
consistent with its rhetoric? When the Administration states,
as you do in your statement, the need to help people manage
change, particularly when it concerns jobs, the answer here is
a huge credibility gap. Not a finger lifted, and this happened
again last week when Secretary Chao sat in the chair you are
in--not a single finger lifted to extend the Federal
unemployment insurance program, despite 760,000 unemployed
workers running out of benefits without finding work.
You talk about the tripling of Trade Adjustment Assistance
(TAA) but Senator Baucus recently stated that ``The
Administration fought tooth and nail against every penny and
every provision to expand TAA.'' You talk about the President
proposing $500 million in new money for worker training and
education but the Congressional Research Service (CRS)
indicates the President's budget would cut worker training
programs by $500 million from 2002 levels.
So, I conclude. I look forward to the views you express on
these real questions, not the straw man of isolationism. The
American public does not want to build walls. They do want to
know that someone is on their side, fighting to advance their
interests, to open markets for U.S. goods and services, and to
set rules of competition that create a more level playing field
between nations, and to rebuild a strong bipartisan coalition
in this Congress, which this Administration has failed to do,
to bring about expanded trade with economic growth and jobs for
the American people. Thank you, Mr. Chairman.
[The opening statement of Mr. Levin follows:]
Opening Statement of The Honorable Sander M. Levin, a Representative in
Congress from the State of Michigan
Thank you, Mr. Chairman.
Ambassador Zoellick, your prepared comments lead off by stating
``isolating America from the world is not the answer.'' Yesterday, the
President took the same tack, stating that ``[t]here are economic
isolationists in our country who believe we should separate ourselves
from the rest of the world.''
But whether we should ``isolate America from the world'' is not the
question.
It is not the question asked by this Committee--a Committee where
Democrats have undertaken leadership roles in trade-expanding efforts,
for example on CBI, AGOA, China, and Jordan--it is not the question
asked by most in this Congress, and it is not the question asked by the
American people, who have seen during the Bush Administration:
2.8 million manufacturing jobs lost.
Record trade and budget deficits, so large that the IMF
has warned that they could destabilize the global economy.
Switching from a trade surplus in Advanced Technology
Products to a large trade deficit, which just grew 78% between 2002 and
2003.
Major increases in outsourcing in the services sector.
And continued major barriers to American products in
foreign markets, with little prospect for progress given the stalled
WTO talks.
I hope we can avoid rhetoric today about ``isolationism'' and
``protectionism'' that mischaracterizes, polarizes, and demonizes, and
instead ask and answer the real questions American workers and
businesses have regarding this Administration's trade policy. I mention
two of these below.
Question #1. Should we use every tool at our disposal to shape
the terms of international trade and competition or simply let
it flow, and assume problems will work themselves out in the
wash of free trade?
Ambassador Zoellick, the New York Times indicated that you
``learned a lesson'' from the firestorm generated by Mr. Mankiw's
comments in your handling of the issue before the Senate Finance
Committee. The lesson should not be ``choose your words more
carefully,'' but that the Administration needs to change its approach
to U.S. trade policy.
In my judgment the Administration's answer to Question 1 is still
``more trade is always better, no matter its terms and contents.'' It
is manifested in the Administration's failure to use the tools at its
disposal to respond effectively to problems that arise and to shape the
rules of competition.
When it comes to China, your testimony claims that ``We
are committed to using special safeguards, applying fair trade laws,
such as the antidumping provisions, and taking action under
international trade rules if China falls short in its trade
commitments.'' But the facts speak otherwise:
President Bush has denied relief in all three cases under
the special China safeguard despite findings by the independent ITC
that U.S. manufacturers had been injured by import surges from China.
Despite the impact of the undervalued Chinese currency on
American jobs, the semi-annual Treasury report on currency manipulation
gave a free pass to China and the Administration does not have an
effective strategy to deal with the issue.
Despite a growing culture of noncompliance with WTO
commitments in China, the Administration has failed to bring a single
case in the WTO against China and has allowed the annual review of
China's WTO compliance to become a mechanical exercise rather than a
meaningful review.
The Bush Administration has failed to use tools to open
other foreign markets, as well. The Clinton Administration brought on
average 10 cases per year in the WTO against foreign market access
barriers; the Bush Administration has brought less than three cases per
year.
For the first time since the creation of the WTO, the EU
is imposing trade sanctions against U.S. manufacturers and farmers, yet
the Administration has failed to take a leadership position to forge a
solution. Meanwhile, the U.S. trade deficit with the EU has
skyrocketed, growing 70% since President Bush took office and now
standing at $94 billion.
The Bush Administration has failed to use free trade
agreements to address critical terms of competition. Amb. Zoellick,
your prepared statement talks in several places about a ``world that
trades in freedom.'' How about the freedom for workers to associate and
bargain collectively, as you have steadfastly refused to include
enforceable core labor standards in trade agreements?
Question #2. Are the Administration's actions consistent with
its rhetoric when the Administration states, as your statement
does, that we need to ``help people manage change, particularly
when it concerns jobs'' and to ``help someone who loses a job
get back on his or her feet?''
The answer here is a huge credibility gap. The Administration has
not lifted a finger to extend the Federal unemployment insurance
program despite the fact that since the program expired, 760,000
unemployed workers have run out of unemployment insurance benefits
without finding work.
Your written statement touts the tripling of the TAA program in
2002, yet Senator Baucus recently stated that ``the Administration
fought tooth and nail against every penny, and against every
provision'' related to TAA in that bill.
Your written statement claims that the President has proposed $500
million in ``new'' money for worker training and education, yet an
analysis by the Congressional Research Service indicates that President
Bush's FY'05 budget would result in a net cut to worker training
programs of $500 million from FY'02 levels.
I look forward to your views on the real questions, not the straw
man of isolationism and protectionism. The American public doesn't want
to build walls, Ambassador Zoellick, they want to know that someone is
on their side, fighting to advance their interests, to open markets for
U.S. goods and services and to set rules of competition that create a
more level playing field between nations, and to rebuild a strong
bipartisan coalition in the Congress, which this Administration has
failed to do, to bring about expanded international trade with economic
growth and jobs for the American people.
Chairman THOMAS. I thank the gentleman. The Ambassador is
recognized. His written statement will be made a part of the
record, and you can address us as you see fit in the time that
you have.
STATEMENT OF THE HONORABLE ROBERT B. ZOELLICK, AMBASSADOR, U.S.
TRADE REPRESENTATIVE
Mr. ZOELLICK. Thank you, Chairman and Mr. Rangel. I want to
thank all the Committee for the advice and support not only
over the last year but over the past 3 years. I think we have
accomplished a great deal together and for those that are still
doubtful in their bipartisan spirit, we will be happy to engage
with them on the case.
I certainly recognize, as I know all of you do, that the
benefits of trade are a contentious subject. We certainly heard
a lot about that over the past couple of months as people were
competing to see how far they could add to an economic
isolationist agenda for this country. My written testimony
covers a number of the topics that were raised but this morning
I will just review the PowerPoint that I hope you all have in
front of you. The strategy that we have been pursuing is one of
trying to expand trade for growth, for opportunity, for
development, and fairness through a series of initiatives.
First on the negotiating front, we are trying to work on
multiple fronts at once--globally, regionally and bilaterally--
because we feel this is the best way to give America the most
leverage.
In addition, as all of you mentioned in one form or
another, it is vitally important we have full enforcement of
the laws and agreements but also to help workers adjust to the
loss of jobs. The Trade Act of 2002 (P.L. 107-210), which I
actively supported, including the trade adjustment provisions,
produced $6 billion of added TAA over the course of 5 years,
$1.3 billion last year. That means about 200,000 workers are
eligible for that. It also included an alternative TAA pilot
that could be an important example for the future.
The President in his State of the Union address emphasized
the importance of developing jobs for the 21st century and
proposed a $500 million program to deal with linking community
colleges with local job needs. Now by moving on multiple
fronts, we can help all of the American economy--consumers,
workers, exporters. Frankly, the United States already starts
with relatively low trade barriers. Our average trade-weighted
tariff is a little bit under 2 percent. So, when we create
these FTAs, we are bringing others a lot down further in an
open and level playing field for our producers.
Also with an economic recovery--and I hesitate to differ
with some of you--I think this would be a absolute worst time
to move to economic isolationism--ideas like repealing NAFTA,
which came up on some voices, ideas of adding barriers, adding
costs, adding price increases. I do not think that is the way
to go when you have 4 to 5 percent growth and you are reducing
unemployment. Now the Trade Act of 2002, which I know many of
you put a lot of effort in to get through after its failure to
pass three times in the 1990s, is something we have tried to
put to good use and here I want to particularly thank the
Chairman. I know he put a lot of effort in with a lot of
priorities to help us get this done.
As all of you know, we completed and, with your help,
passed the Singapore FTA (P.L. 108-78) and Chile FTA (P.L. 108-
77) and we were pleased with the bipartisan support we got for
those. We have now launched and completed an Australia FTA
(P.L. 108-286). We have launched and completed an agreement
with five Central American countries and just this week we are
trying to add the Dominican Republic. We have launched and
completed a FTA with Morocco (P.L. 108-302).
We have launched FTAs with five countries in Southern
Africa and Bahrain. We have announced our intent to try to
proceed in the spring of this year with some of the countries
in the Andean region of Latin America, Panama, and Thailand. In
doing so, we have also tried to set out a strategy for
countries to move toward free trade, with the enterprise for
the Association of Southeast Asian Nations (ASEAN) Initiative
in Southeast Asia. We have launched a Middle East Free Trade
Initiative to try to help countries in the moderate Arab world
to move toward tolerance and openness.
In Miami, where I had a chance to be with Mr. Shaw, we
created a framework for the Free Trade Area of the Americas
(FTAA) and tried to move it toward concrete results. As the
Chairman mentioned, Doha is vitally important for our overall
WTO global negotiations and while Cancun was a missed
opportunity, I really believe that 2004 need not be a lost
year. Now let me talk about some of these in a little bit
greater depth and start with the global trade negotiations,
where obviously there is the biggest benefit. The challenge is
to try to bring 148 economies, from small island economies in
the Caribbean to the United States of America, to an agreement
on boosting markets for agriculture, for goods and for
services.
On the way to Cancun we resolved something that I think is
very important in building the credibility of the system was
the last issue related to what is called the Trade Related
Intellectual Property Rights (TRIPs) and medicines issue to
make sure that developing countries could compulsory license
when they needed to deal with problems like Advanced Immune
Deficiency Syndrome (AIDS) and other pandemic diseases. At
Cancun, and a number of you were there to help us, I think you
saw that a number of countries wanted to posture and pocket
proposals without opening their own markets. There was also the
problem of the so-called Singapore issues--competition,
investment, transparency in government procurement and trade
facilitation--which, while a couple of them are important, in
our view were not the core agenda. The core agenda is opening
agriculture, goods and services markets, and, although these
issues were pushed by the European Union, Japan and Korea, they
really ran into a block with Africa and some of the Asian
countries. An important message coming out of Cancun is the
need to have agriculture reform for both developed and
developing countries together.
Nevertheless, it is my sense that there was some good work
done at Cancun. People developed some draft frameworks for work
in the future. It was our sense that in the months after
Cancun, and this goes to one of the points you made, Chairman,
I think there was a reassessment by countries about the missed
opportunity. So, in January of this year I wrote a letter to my
147 colleagues to try to set forth a common sense assessment of
what we could do to move forward, and, in February, I traveled
some 32,000 miles all around the world and saw some 40
ministers of different countries, to try to move this forward.
In brief, here is where I think we are.
I think agriculture is absolutely fundamental and it will
be important to get the last key player--this is really the
European Union--to eliminate export subsidies--I think there is
a chance of doing that--and also to get substantial harmonizing
cuts in subsidies, trade-distorting subsidies, which the United
States is willing to make if we can get Europe and Japan to
move forward, but also to combine that with significant market
openings. In manufactured goods we are trying a combination of
formula cuts because our tariffs again are relatively low
compared to others--a formula would help cut others--sectoral
initiatives and nontariff barriers. In services we need to get
more and better offers from a group of countries.
On the Singapore issues the key for us is not to let them
be a distraction, so we suggest focusing on trade facilitation
alone. I think, Mr. Chairman, there is actually a new energy
and sense of possibility here. My hope is that by this summer
we might be able to achieve the frameworks that we failed to
achieve in Cancun. I want to hesitate to add, as all of you
know who have dealt with this, this is not an easy task.
Bringing around 148 economies together on a consensus requires
a particular challenge. I think the key will be whether the
European Union can move on this export subsidy issue and some
of the trade facilitation issues and whether we can get some of
the major developing countries to also recognize they are going
to have to contribute. Here I am not talking about the
Caribbean countries or sub-Saharan African countries but some
of the major players in Latin America and Southeast Asia are
also going to have to agree to open their markets.
On the FTAA, what we tried to do at the Miami meeting was
to set forward a way that we could move forward with 34 very
different countries. We suggested developing a common set of
rights and obligations for all 34 countries--this would focus
on market access barriers and would be very important for the
United States--but then to agree to try to create a higher
level of commitments for those willing to go further. That
would provide the opportunity to integrate with a lot of our
current FTA partners.
We also outlined an alternative path and it makes the point
about why this competitive liberalization strategy is
important. We already are in process of either having FTAs or
negotiating FTAs with two-thirds of the hemisphere's gross
domestic product (GDP), not counting the United States. So,
there is a clear message, which is we would like to try to do
this hemisphere-wide but if we cannot, we are going to work
with those who do. As I think the Chairman would agree in his
opening statement, these are very gold-standard agreements in
terms of what we get in Intellectual Property Rights (IPR) and
services and agriculture.
In terms of the other regional agenda, I think both the
Chairman and Mr. Rangel mentioned the importance of AGOA's
extension. There were $14.1 billion of African exports under
AGOA to the United States last year. That is about a 55-percent
increase. While a lot of those are oil-based, if you look at
the non oil-based numbers, they are also up very considerably.
So, we believe AGOA has been an outstanding success and I
know that the Chair and Mr. Rangel have frankly taken it upon
themselves to try to see what extension can be done and we
certainly want to work with you as we try to do that. I know
Mr. Thomas and I were in Mauritius together where we learned
about this fine balance about how, in dealing with the fabric
provisions, we do not want to undermine the fabric creation in
Africa because for their long-term ability to compete with
China, they are going to need to be able to be fabric-producers
as well as apparel-producers. So, I know that will be a
challenge one has to try to deal with here.
In terms of the Middle East Free Trade Area, we now have
FTAs with Israel and Jordan, one with Morocco that we look
forward to taking up with the Congress, and one we are making
good progress with Bahrain. This is part of a strategy that
recognizes you have major development challenges all across the
Arab world but we want to try to create models of success. If
you look at these agreements, having Jordan and Israel in the
heart of the Middle East, Morocco in the Magreb, Bahrain in the
Gulf, these are becoming models for countries. They are
starting to draw people toward a series of reforms.
Now some countries, like Saudi Arabia, are not even members
of the WTO yet, so the challenge is to get them part of the
WTO. Then the next stage we use is these trade investment
framework agreements (TIFAs), which we use to kind of build
countries' trading relationship with us, solve problems,
whether they be customs or IPR. We now have these with Algeria,
Egypt, Saudi Arabia, Tunisia, Yemen, Kuwait, and in the next
couple of weeks we expect to sign them with Qatar and United
Arab Emirates.
Similarly, we have tried to put out a map for moving toward
more open markets with Southeast Asia, the Enterprise for ASEAN
Initiative. We now have a FTA with Singapore. We will be
beginning one with Thailand, a very important market, and we
have now had TIFAs with Indonesia, Philippines, Brunei,
Malaysia is interested in signing, and these will be the way in
which we can create the foundation toward possible FTAs.
Now on the bilateral side we are very pleased with the
support for the Singapore and Chile FTAs. We hope these will be
models but recognize that each agreement has to be customized.
The Australia FTA we launched in March of last year, completed
in February of this year. The Central American FTA with Costa
Rica, El Salvador, Guatemala, Honduras, Nicaragua, completed
that in January. As I mentioned, we are moving ahead with the
Dominican Republic negotiations, and here I want to thank
Congressman Weller, who made a special effort to come with me
to the Dominican Republic, trying to move this forward. It was
very helpful there to have a Member of Congress talk about the
context of what we need to do to be successful.
Morocco, we were again pleased that we completed that
agreement. Southern African Customs Union, this is one I know
that both Mr. Portman and Mr. Rangel have worked with us on, we
launched in January. This will take a little longer. It is very
complex, with these five countries, but I think it will be very
important to have a FTA in Africa.
For Bahrain, Mr. Ryan was at an event with me last week
where we announced the business coalition to help move this FTA
forward. Also, then the Andeans, Panama, and Thailand, which we
hope to launch in April or May of this year. Now, a lot of
people ask me questions about these and say, well, these are
individual countries, but what do they add up to? Let me offer
you a sense. These FTAs together amount to America's third-
largest export market, and that would be the sixth-largest
economy in the world.
Now, people often say well, what about others, and they
compare different numbers. To do an accounting of this, you
start with NAFTA because NAFTA covers about 35 percent of our
exports. Now the next biggest players are the European Union,
which does not want to do a FTA, Japan and Korea, which I would
love to have a shot at a FTA with but they are not going to
open their agriculture markets and we do not do trade
agreements if we cannot open up agriculture. Then, of course,
we have China, which I think we need to have some
implementation issues ahead of moving toward anything in that
nature.
So, if you take those countries out, of the remaining part
of the world economy, not counting our current free trade
partners with NAFTA or these economies, of the remaining set,
the ones that we are working on cover 35 percent of U.S.
exports. If you add in the full FTAA, it is 50 percent. So, you
can see these numbers do have a way of adding up.
Now, let me just touch briefly on the particular
agreements. The Australia FTA, and I want to thank Mrs. Dunn,
who has been helpful in a leadership role on this, is our first
FTA with a developed country since Canada. The National
Association of Manufacturers, the U.S. Chamber of Commerce and
others have dubbed this a manufacturing FTA because it creates
immediate duty-free treatment on 99 percent of U.S.
manufactured exports. That is 150,000 jobs already supported
with our trade with Australia and the manufacturing community
estimates this would create an extra $2 billion of exports, an
extra $2 billion of income for the United States. It also
expands markets for U.S. service providers and farmers. All
U.S. farm exports are duty-free from day one.
The main problem we have had with Australia and one the
Chairman has had a keen interest in, given particularly some of
the California products, is dealing with the sanitary and
phytosanitary standards. So, we have worked simultaneously to
try to make sure we deal with those in a scientific way,
dealing with grapes and pork and stone fruit and citrus. At the
same time, we have tried to deal with U.S. agricultural
products with some sensitivity. Mr. Herger has talked to us
because he has been very supportive of our trade agenda, but we
had some sensitive items to deal with. I was very pleased, as I
mentioned to some of you, that yesterday the Farm Bureau came
out and said they would support this agreement if there is
follow-through on the sanitary and phytosanitary standards.
On the pharmaceutical benefits scheme improvement, this is,
I know, a very sensitive area but a very important area for a
key part of the U.S. economy, and we think we handled this in a
way that deals with transparency and benefits of innovation and
research and development. Mr. McCrery and Ms. Dunn and I talked
about this and I think we managed to get some very significant
improvements there. Even though this was a developed economy,
we have environmental and labor provisions in this accord, as
we do in all our FTAs, and I must emphasize for those who
raised questions about this, we are the only country that has
enforceable environmental and labor provisions in our FTAs, so
we have played a leadership role.
On CAFTA, I see Mr. Brady in front of me and I want to
thank him because he has been very helpful in organizing
support for this. Mr. Jefferson also had me in New Orleans and
was kind enough to focus on the benefit of the Port of New
Orleans in this. Here is an important part about some of these
FTAs. If you look at the CBI arrangements, the preferential
arrangements, tariffs on Central American goods are already
low. Seventy-seven percent of regional imports enter the United
States duty-free, but we do not get any reciprocal trade
access. With CAFTA, more than 80 percent of U.S. manufactured
goods would be duty-free immediately and more than half of the
current U.S. farm exports are duty-free immediately. That means
beef, cotton, wheat, soybeans, fresh vegetables, processed
foods, wine, and we get some very important gains on pork and
poultry, rice, corn, dairy, dried beans, vegetable oil. Again
yesterday the Farm Bureau came out in support of this
agreement.
Now, the sensitive topic, as a number of you mentioned,
with sugar. This is a subject where there is very strong
feelings, given the sugar program that is in place for the
United States. What we did is not touch the tariff on sugar but
we did increase the quota, but the increase of the quota
amounts to 1.2-percent of U.S. production. After 15 years that
rises itself to the huge number of 1.7-percent. That 1.2-
percent is one day's worth of production and this was an
important balance. So, I appreciate your comments, Mr. Crane.
We have some others here who are a little bit more sensitive on
the sugar topic and at the end of the day I have to try to
bring you agreements that I think we can get passed, with the
support that we can get. So, I think we got very good success
in terms of America's agricultural interests and we dealt with
this most sensitive product very sensitively.
There is also important textile and apparel provisions here
and I want to just take a moment to stress something. We
included some cumulation provisions that will encourage
integration of the North and Central American market and the
reason why I think these are absolutely critical is that quotas
on textile and apparel that were put in place by the Congress
and President Clinton in 1994, are coming off at the end of
this year. So, the real challenge would be how do you compete
with China? These provisions really try to create an integrated
market by drawing some of the fiber and textile production from
the United States but also the apparel production in the
region. We included only for Nicaragua what we call Trade
Preference Levels (TPLs), some ability to bring in third-party
fabrics. We really tried to design this as a comprehensive
system. I am pleased that some of the people that have moved
into this industry, like Wilbur Ross, have been very supportive
of this agreement because I think they see this is the best way
that we will be able to be more competitive in a global
context.
We have very good IPR standards and protections, openings
all across the service sectors, including telecommunications
and insurance, very strong transparency, anti-corruption, good
governance rules, and labor and environmental protections that
go beyond Chile and Singapore. Mr. Levin mentioned Senator
Baucus. We were very pleased to work with Senator Baucus on
upgrading the environmental provisions in this. We included
some special citizen petitions, some benchmarks and monitoring
for our environmental agreement, appellate agreement for
investor state, so we were delighted to work with him in a
bipartisan fashion to come up with environmental provisions we
can all be proud of.
I want to make one other point about these countries. In
the 1980s I worked with Secretary Baker at the U.S. Department
of State and I remember coming into office actually in 1989 and
dealing with one of the toughest legislative issues that we
ever encountered. It was dealing with Contra funding. At that
time I remember the challenge with this Congress was not people
trading across borders but people killing across borders. You
had problems in these countries of whether they would be run by
communist dictatorships, whether they would be run by para-
militaries or whether they would be run by democracies.
You now have five democracies in these countries. Some of
them, to be frank with you, are fragile. It is not an easy
task. What they see this FTA about is reaching out to the
United States to try to have a chance to sell here, to build
growth, to create market openings. I have to say when I look at
the history of the United States and Central America, we follow
a very sad pattern. We get drawn into a problem, we get our
hands burnt, we somehow figure out how to deal with it, and
then we ignore it. I hope this is a way that economically we
can support very important political and human rights
developments in that region.
In Morocco, again I see Phil English here, who has been
very helpful with us, with Chris John and John Tanner. This is
the best ever package we have had with a developing country in
terms of goods. Ninety-five percent of the goods are duty-free
on day one. It expands export opportunities for U.S.
agriculture, very broad support of the services markets, new
protections for U.S. investors, strong IPR and anti-corruption
rules. They are already changing some of their labor and
environmental laws in a beneficial fashion, working with the
International Labor Organization (ILO).
The other point again I want to emphasize here is trade is
part of our economic interests but it is part of America's face
with the world. When you read the papers and you see what
happens in the Muslim world and you see those that are trying
to fight toward openness, this is a country that is moving
toward an open parliamentary system, better treatment of women,
openness, and I think this allows us to frankly pursue our
economic and political interests together.
Trade with China is, I know, a very, very sensitive topic,
one I have gone over with many of you as to particular items. I
just want to set the context. The agreement that Mr. Levin
mentioned that many of you fought to pass created the rules. We
now have U.S. exports to China growing 75 percent over the past
3 years at a time that American exports to the rest of the
world have fallen. So, there is opportunity in this market. It
is our sixth-largest export market. I know we all agree that
their implementation cannot slacken. The message that we drive
home is that if we are going to keep America's market open to
China, we are going to need to be able to have them follow
through on your obligations, whether it be agriculture, whether
it be intellectual property, whether it be standards issues, or
others.
Now, China has responded to some of these problems. For
example, we worked very closely on agriculture issues because
that was a very important market for us. We have record gains
in soybeans. We had $2.9 billion sales of soybeans this year.
Cotton exports are up almost 500 percent, about $800 million.
In addition to those sales, they have now worked through their
biotech approval process for soybeans, cotton, corn, and others
who are on the way. They are opening up financial services
market, motor vehicle financing. They have added various
purchasing missions.
I know I have worked with Nancy Johnson on a lot of this. I
was pleased to see also Mr. Houghton out there. I'm not sure if
General Electric and Pratt & Whitney are exactly in your
districts, but I think they are very close. These are some of
the beneficiaries of these.
The message, however, that we emphasized to the Chinese is
one-off purchases are not enough. We have to have a systemic
opening of the system. In April I will be meeting, with Don
Evans, with the Vice Premier Wu Yi of China to try to elevate
the dialogue to work on these issues and would be pleased to
respond to some questions on this, and the use of safeguards
for textiles. On the particular Section 421 provisions, Mr.
Levin, we can go through some of the specifics. We are open to
those but we have to look at the overall net gain and loss on
some of those; and I will take you through each one if you
would like, on where there is net gain and loss and why some of
these companies--frankly the real problem would be the
competition they face from elsewhere or some of their own
practices, but I would be happy to go through them one by one
if you would like.
Monitoring and enforcement. As we have mentioned, while we
focus a lot on trade agreements in this Committee, our day-to-
day is frankly trying to make sure that we deal with the
problems of keeping markets open. So, I just listed some of the
examples here--with agriculture, a case against dairy with
Canada, pork with Mexico, apples with Japan, IPR patents
Argentina, autos, the Philippines.
Some pending cases, you see one listed there with
telecommunications in Mexico. That is estimated to be worth
$500 million to our telecommunications people. I worked with a
number of you with our cases we have against the European Union
on biotech and geographic indicators. We also wanted to
emphasize for the textile industry, that I know has had a
difficult adjustment, that others have to play fair, too. So,
we took a case against Egypt that I believe they are actually
going to settle with us because they know they are out of
compliance.
I see Mr. Pomeroy here. You know about our actions with
Canada on wheat. What I also want to emphasize is that this is
just one piece of the effort. For example, as I mentioned to
some of you, I was very delighted that Secretary Veneman and I
last week were able to reopen the beef market in Mexico, a $589
million market dealing with the Bovine Spongiform
Encephalopathy problem. Frankly, Mr. Tanner is not here now but
in their run-up to the Colombia FTA, we just got a commitment
by the Colombians to follow through on an investment dispute,
about $800 million with Nortel. Mr. Camp and I worked on dried
beans with Mexico.
There is a whole host of these. Many of you know about them
in particular, but I think a lot of people that listen do not
realize the day-to-day work that goes on on these. The other
side of the coin is the United States also has to be in
compliance and I compliment the Chairman and others for trying
to help finally solve this Foreign Sales Corporation (FSC)
problem. As many of you know, we are now facing retaliation.
That retaliation is going to get higher. It covers $3 billion
of U.S. exports. As Mr. Rangel mentioned, there is a bill
moving in the Senate. One way or another we have to be able to
get this legislation through so that we can end this
retaliation against American exports.
There are others coming down the road. There is something
called the Byrd Amendment that was put on an appropriations
bill that we tried to resist but frankly, we have lost the WTO
case. Right now we are fighting the retaliation amount, but
this could be $150 to $200 million of different retaliation.
Some of the ones here that are smaller may not get your
attention but I will tell you this. When we go around the world
and try to tell other people they should follow the rules, when
the United States is a scofflaw it makes it a little harder,
and we need your help on these because they require
congressional action.
Looking ahead, I think at least our perspective is the
critical point is not to frighten Americans about change. We
know there is anxiety out there. It is to help them deal with
change and recognize that some of this is due to technology,
some of it is due to competition around the country, some of it
is due to global competition. That means economic isolationism
will not work, so ideas to try to kill jobs, shut off
opportunities, we tried that in the 1930s and it did not work
and I do not think we want to go back on that path.
Americans can be big beneficiaries of openness in trade.
Americans compete with anybody in the world, if given a fair
shot. Right now we are in a position where the United States
economy is growing. You had 8.2-percent growth in the third
quarter, 4.1-percent growth in the fourth quarter. Private
estimates are 4- to 5-percent growth. Yes, we have not added as
many jobs as we would like but we have added 364,000. One thing
I know is if we turn at this point to start to block our
markets, it is the absolute worst thing that we could do for
America's return to creating good-paying jobs.
Indeed, as I mentioned, U.S. trade barriers are already
relatively low. If we get others to lower their barriers it is
a win-win proposition. As I have also discussed with you and
for a larger message here, the U.S. business community is going
to also have to stand up to this a little bit more. I talk to a
lot of chief executive officers (CEOs) and they say, ``Yeah, we
hear a lot about all these terrible issues and we are not sure
we should speak up for them.'' I talked with Mr. Weller when we
were down in the Dominican Republic. American business
executives have got to defend those who defend openness and
free trade. They have to come and show some plants and show the
benefits for workers that are creating jobs because of trade,
and there are a lot of jobs out there, about 20 million jobs.
It is about 6.5 million jobs created because of foreign
investment. Businesses have to help you and me to keep the
market open.
It has to be combined with monitoring and enforcement of
agreements, whether it be targeted use of safeguards, as we did
in steel or we did with textiles, reliance on unfair trade
laws, and, of course, following the rules to help ourselves but
also helping Americans adjust to change. This is partly a
question of education. If American students cannot read and
write and do arithmetic, they are not going to be able to deal
with the 21st-century economy, so that is where the President's
program to set standards, while some people do not like the
follow-through on standards, you have to have high standards if
you are going to have people be able to compete.
The same with worker training. I mentioned to Mr. Cardin
before we began that I really appreciate the leadership that he
and Mr. Portman have shown dealing with issues like portable
pensions, because frankly, we are going to need that
flexibility for a modern economy. Then also to help people be
able to keep and save some of their own hard-earned dollars,
because that helps people be able to adjust to change, as well.
In addition to our side, I also want to make a point about
the larger global community in which we live. Over the past
decade, trade has lifted some 140 million people around the
world out of poverty. I probably travel the world more than any
other Cabinet officer, even more than Secretary Powell, and one
thing that I am absolutely convinced of is, the United States
will not prosper in a world where lives of destitution lead to
societies without hope. So, this can be a win-win proposition
and we appreciate the help of this Committee in helping us move
this agenda ahead, Mr. Chairman.
[The prepared statement of Mr. Zoellick follows:]
Statement of The Honorable Robert B. Zoellick, United States Trade
Representative
Chairman Thomas, Congressman Rangel, Members of the Ways and Means
Committee:
Introduction: The Challenge Ahead of Us
It is a pleasure to be with you again. I want to start by thanking
all of you--from both parties--for the support and advice you have
provided us, not only over the last year, but for the past three years.
Together we are accomplishing some important results for America.
Yet I know the benefits of trade are a subject of debate.
Consider this statement:
``With America's high standard of living, we cannot successfully
compete against foreign producers because of lower foreign wages and a
lower cost of production.'' Perhaps this pessimism sounds familiar. It
could very well have come from one of today's opponents of trade,
arguing against a modern-day free trade agreement. But in fact these
words were written by President Herbert Hoover in 1929, as he
successfully urged Congress to pass the disastrous Smoot-Hawley Tariff
Act that raised trade barriers, destroyed jobs, and deepened the Great
Depression.
Today, as in the 1930s, trade can be a contentious subject. But as
we learned 75 years ago, isolating America from the world is not the
answer. We need to open markets for American companies to compete in
the world economy, so we can create new jobs and build economic
strength at home. When we work with the world effectively, America is
economically stronger. Ninety-five percent of the world's customers
live outside our borders, and we need to open those markets for our
manufacturers, our farmers and ranchers, and our service companies.
Americans can compete with anybody--and succeed--when we have a fair
chance to compete. Our goal is to open new markets and enforce existing
agreements so that businesses, workers, and farmers can sell their
goods and services around the world and consumers have good choices at
lower prices.
Opening foreign markets to U.S. products and services is vital to
economic growth, and an expanding economy is the key to better-paying
jobs. U.S. exports accounted for about 25 percent of U.S. economic
growth during the last decade and supported an estimated 12 million
American jobs.
When the world's consumers fly in an airplane, boot up a computer
or watch a movie, they are helping to employ Americans. And 6.4 million
Americans have jobs working for foreign companies, building cars in
Ohio, Kentucky, Tennessee, Alabama and South Carolina--or processing
mortgages in Minnesota or engineering software in California.
Although we have opened many markets, too many foreign countries
still will not let us compete on an equal footing. They keep our
products out, they illegally copy our technology, and they block us
from providing services. We want to make sure our products and services
get a fair chance to compete, and to be vigilant and active in
enforcing our trade agreements so that American workers have a level
playing field.
Recent U.S. trade agreements have cut hidden import taxes and saved
every working family in America as much as $2,000 a year, and our
newest agreements could add more to these savings. Arguing for trade
barriers is like arguing for a tax on single working moms, because
that's who pays the most in import taxes as a percentage of household
income. Our goal is to cut those hidden import taxes--while other
countries cut theirs too--to give working families a boost.
At the same time, we need to help people manage change--
particularly when it concerns jobs. Jobs not only provide for our
families, they give us hope for a better tomorrow. Losing a job is
hard, whether it is because of a recession, changing technology, or
competition from another State or overseas. No matter the cause, it is
important to help someone who loses a job to get back on his or her
feet.
That's why Congress and the President tripled Trade Adjustment
Assistance in the Trade Act of 2002. In 2003, this program provided
some $1.3 billion in support and retraining, with nearly 200,000
workers eligible for assistance.
That's why the President is focused on helping workers to learn new
skills for the jobs of the future. His Jobs for the 21st Century
initiative provides over $500 million in new funding for education and
job training, including $250 for community colleges to provide workers
job training and skill development.
And that's why the private sector has an important role too: Today
American companies spend $70 billion a year on worker education and
training, and they will need to expand this investment in people for
the future.
Some of today's opponents of trade, like those of yesteryear, want
to retreat, to cut America off from the world. But we need to remember
that what goes around, comes around: If we close America's markets,
others will close their markets to America. And the price of closing
markets is larger than economic isolationists recognize. Over the last
decade, trade helped to raise 140 million people out of poverty,
spreading prosperity and peace to parts of the world that have seen too
little of both. Americans will not prosper in a world where lives of
destitution lead to societies without hope.
That's why President Bush's vision is of ``a world that trades in
freedom.''
Strategic Overview
Three years ago, to support economic growth, an innovative America,
development, and fair and open engagement with the world, the Bush
Administration outlined a trade strategy for America. At the heart of
our effort has been a plan to pursue reinforcing trade initiatives
globally, regionally, and bilaterally. Through an ambitious trade
agenda, the United States is working to secure the benefits of open
markets for American families, farmers, workers, consumers and
businesses. By pursuing multiple free trade initiatives, we are
creating a ``competition for liberalization'' that provides leverage
for openness in all negotiations, establishes models of success that
can be used on many fronts, and develops a fresh dynamic that puts
America in a leadership role.
This strategy is producing results.
With the leadership of Chairman Thomas and other Members of this
Committee of both parties, the President secured congressional approval
of the Trade Act of 2002.
The United States was instrumental in defining and launching a new
round of global trade talks at the World Trade Organization (WTO) at
Doha in late 2001. That same year we completed the unfinished business
of China and Taiwan's entry into the WTO, working from the bilateral
trade terms established by President Clinton, so as to establish a
legal framework for expanding U.S. exports and integrating China's
economy into a system of global rules. Also in 2001, the Administration
worked with Congress to pass a Free Trade Agreement (FTA) with Jordan
and a basic trade accord with Vietnam. After the 2000 election,
President Clinton had announced an interest in FTAs with Singapore and
Chile, and this Administration negotiated state-of-the-art accords in
2001-02 and gained congressional approval in 2003.
A critical aspect of the Trade Act of 2002 was the renewal of the
President's trade negotiating authority. In 2003 and early 2004, the
Administration put that authority to good use, promoting global
negotiations in the WTO, working toward a Free Trade Area of the
Americas (FTAA), completing and winning congressional approval of free
trade agreements with Chile and Singapore, launching bilateral free
trade negotiations with 14 more nations (concluding talks with seven of
them), announcing its intention to begin free trade negotiations with
six additional countries, and putting forward regional trade strategies
to deepen U.S. trade and economic relationships in Southeast Asia and
the Middle East.
The Trade Act of 2002 also renewed and improved trade preferences
covering an estimated $20 billion of business with developing countries
in Africa, Latin America, and Asia through the renewal and improvement
of the Andean Trade Preference Act, the African Growth and Opportunity
Act, and the renewal of benefits under the U.S. Generalized System of
Preferences. In addition, the Trade Act of 2002 tripled the level of
trade adjustment assistance available to U.S. workers to nearly $6
billion over five years.
USTR, working closely with other Federal agencies, works to make
sure that our trading partners live up to their commitments. A
significant amount of the day-to-day work of USTR is spent pressing
foreign officials to abide by their trade obligations.
Just to give an example, successes over just the past few months
include pushing China to certify biotech imports of U.S. soybeans,
cotton, corn, and other products, getting China to open up its car
financing market, urging the Philippines to permit direct access for
U.S. telephone calls, pressing investment disputes with the Andean
countries close to resolution, and reopening the Mexican market to U.S.
beef.
We resolve most problems without resorting to formal dispute
proceedings, which take additional time and involve uncertain outcomes.
Most U.S. companies suggest formal dispute proceedings only as a last
resort. When we determine it will be the most effective way to settle
disputes, we pursue cases under the WTO, NAFTA, or our new FTAs.
In particular, we are devoting more enforcement resources to China.
While U.S. exports to China support more jobs for American workers, we
face a number of persistent problems that must be resolved. I spend a
significant amount of my time addressing matters such as Chinese tax
policies that disadvantage American exports of products as diverse as
semiconductors and fertilizer; rampant piracy of intellectual property
rights; technical commercial standards that are drafted to exclude
foreign economic participation--such as on wireless encryption; among
other concerns. Ensuring that these trade barriers do not stand is
important to achieving the long-term benefits of China's WTO accession
package: greater openness, adherence to the rule of law, and the
institutionalization of market principles.
We recognize that enforcement of China's commitments requires
sticks as well as carrots, and we are certainly willing to utilize the
tools Congress has made available to us. These include the careful use
of the China textile safeguard (which the Administration invoked for
three product categories last December); anti-dumping laws; the
product-specific safeguards; and WTO dispute settlement, an option that
we may need to deploy very soon.
Pressing Forward in the WTO
At key points, the United States has offered crucial leadership to
launch, prod, advance and reenergize the Doha Development Agenda, the
global trade negotiations at the WTO. At the same time, we have
emphasized that in a negotiation with 148 economies seeking consensus,
others must also work constructively with us.
After the Doha launch, the United States proposed the elimination
of all global tariffs on consumer and industrial goods by 2015,
substantial cuts in farm tariffs and trade-distorting subsidies, and
broad opening of services markets. We are the only major country to put
forward ambitious proposals in all three core areas. These proposals
reflect extensive consultations with Congress and the private sector.
In addition to laying the groundwork for bold market opening, the
United States took the lead in resolving the contentious access-to-
medicines issue in August 2003.
At the Cancun WTO meeting in September, however, some wanted to
pocket our offers on agriculture, goods and services without opening
their own markets, a position we will not accept. Since Cancun, I
believe many countries have concluded the breakdown was a missed
opportunity that serves none of our interests. That recognition is a
useful starting point for getting the negotiations on track.
Only a few weeks after Cancun, more than twenty diverse APEC
economies--encouraged by the United States and joined by some of our
free trade partners--called for a resumption of WTO negotiations, using
the draft Cancun text as a point of departure. In December, the WTO
General Council completed its work for the year with an important
report by its Chairman on the key issues that need to be addressed if
the Doha Development Agenda is to move forward.
By late December, we sensed many WTO members were interested in
getting back to the table, probably working from the draft text
developed at Cancun. So in January I wrote a letter to all my WTO
colleagues putting forward a number of ``common sense'' suggestions to
move the Doha negotiations forward in 2004. I emphasized that the
United States did not want 2004 to be a lost year. The letter suggested
that progress this year will depend on the willingness of members to
focus on the core agenda of market access for agriculture, manufactured
goods, and services.
In agriculture, we believe that WTO members need to agree to
eliminate agricultural export subsidies by a date certain,
substantially decrease and harmonize levels of trade-distorting
domestic support, and seek a substantial increase in real market access
opportunities both in developed and major developing economies. The
United States continues to stand by its 2002 proposal to set a goal of
total elimination of trade-distorting agricultural subsidies and
barriers to market access.
For manufactured goods, we are proposing that WTO members pursue an
ambitious tariff-cutting formula that includes sufficient flexibility
so that the methodology will work for all economies. In addition to the
tariff-cutting formula, sectoral zero-tariff initiatives need to be an
integral part of the negotiations, perhaps using a ``critical mass''
approach to define participation--as in the successful Information
Technology Agreement. We also underscored the need to develop specific
plans to address nontariff trade barriers effectively in the Doha
negotiations.
In the important area of services, the United States suggested that
Ministers press for meaningful services offers from a majority of WTO
members, as well as make available technical assistance to help
developing countries present offers. The services sector is an
increasingly important part of economic development. More open services
markets help provide the infrastructure for development. The sector
also offers increasing opportunities for developed and developing
countries to work together for mutual benefit.
Finally, we are asking that countries not permit the so-called
``Singapore Issues'' to be a distraction from our critical work on
market access. We need to clear the decks. Based on extensive
consultations in Africa and Asia, I believe we can move forward
together on trade facilitation, which cuts needless delays and
bureaucracy at borders and ports. I have urged my colleagues to drop
the other topics.
The initial response to this initiative has been encouraging both
from overseas and among domestic constituencies. To follow up the
January letter, in February I traveled some 32,000 miles--around and up
and down the world--to meet with representatives of over 40 countries
to hear their ideas and encourage their commitment.
I believe we are regaining some momentum, although the road ahead
is marked by risks. Our ability to make notable progress by this summer
depends principally, in my view, on two steps: one, reconciling the
conundrum of the ``Singapore Issues'' by agreeing to focus solely on
trade facilitation; and two, by concentrating on the draft agriculture
text to see if we can agree on specific frameworks for reform. To
secure movement on agriculture, all countries will need to agree to
eliminate export subsidies, including the subsidy element of credit, to
end State Trading Enterprise monopolies, and discipline food aid in a
way that still permits countries to meet vital humanitarian needs.
Advancing Negotiations in the Free Trade Area of the Americas
Since taking office, the Administration has been working to
transform years of general talks about a Free Trade Area of the
Americas (FTAA) into a real initiative to open markets in the
hemisphere, with a focus on first removing the barriers that most
affect trade. The FTAA would be the largest free trade zone in the
world, covering 800 million people with a combined gross domestic
product of over $13 trillion. It would expand U.S. access to Western
Hemisphere markets, where tariff barriers are currently much higher
than the trade-weighted U.S. average of 2 percent, and where nontariff
barriers are abundant. Studies report that an average family of four
would see an income gain, through greater purchasing power and higher
income, of more than $800 per year from goods and services
liberalization in the FTAA.
At the Summit of the Americas in Quebec City in 2001, the United
States started to lead the FTAA into a period of concrete market access
negotiations. In February 2003, the Administration put forward--on
schedule--its comprehensive and significant market access offers to
FTAA partners in the areas of agriculture, industrial goods, services,
investment, and government procurement. But others hesitated.
Therefore, in November 2003, at the FTAA Ministerial in Miami co-
chaired by the United States and Brazil, we developed a pragmatic
approach to match the different circumstances of the 34 nations of the
hemisphere--ranging from small Caribbean island states to the United
States. We agreed to establish a common set of rights and obligations
covering all nine areas under negotiation and that benefits would be
commensurate with obligations undertaken. In addition, we agreed that
nations that are prepared to go further could do so through
plurilateral arrangements in some areas. This higher level of
commitment--and benefit--creates incentives for countries to do more,
without leaving others behind. The countries most likely to be
ambitious are the ones that work with us on our gold-standard bilateral
FTAs.
The FTAA will not be an easy negotiation, as this Committee knows.
Yet we are committed to working creatively and flexibly with our
hemispheric partners to achieve a long-held dream: the free flow of
commerce throughout the Americas.
Spanning the Globe With Bilateral Free Trade Agreements
Miami also provided the venue for the announcement of several new
U.S. bilateral free trade initiatives, demonstrating how our movement
on multiple fronts can support our larger trade goals.
In 2003, the United States signed free trade agreements with Chile
and Singapore, and those agreements won strong bipartisan majorities in
Congress. These comprehensive, state-of-the-art FTAs set modern rules
for 21st century commerce and broke new ground in areas such as
services, e-commerce, intellectual property protection, transparency
and anti-corruption measures, and enforcement of environmental and
labor laws to help ensure a level playing field for American workers.
They also built on the experience of prior free trade agreements and
will serve as useful models to advance other U.S. bilateral free trade
initiatives in 2004.
In Latin America, for example, the long-sought FTA with Chile took
effect on the tenth anniversary of NAFTA, and only two weeks after the
Administration concluded a U.S.-Central America Free Trade Agreement
(CAFTA) with El Salvador, Guatemala, Honduras, and Nicaragua. In
January, we finalized CAFTA by resolving a few remaining issues with
Costa Rica, and on February 20, the President notified Congress of his
intent to enter into that agreement. Meanwhile, we continue to work to
integrate the Dominican Republic into CAFTA, and indeed this week we
are conducting the third and, we hope, final round of negotiations with
the Dominicans. CAFTA plus the Dominican Republic would create the
second-largest U.S. export market in Latin America, behind only Mexico.
This spring the United States intends to launch new FTA
negotiations with Panama, Colombia, and possibly Peru and Ecuador,
while continuing preparatory work with Bolivia. Added together, the
United States is on track to gain the benefits of free trade with more
than two-thirds of the Western Hemisphere through state-of-the-art,
comprehensive sub-regional and bilateral FTAs.
Just last month, we concluded a landmark free trade agreement
between the United States and Australia. On February 13, President Bush
notified Congress of his intent to enter into this ``Manufacturing
FTA.'' Our terms with Australia will eliminate tariffs on more than 99
percent of U.S. manufactured goods exports to Australia on day one.
Those exports account for 93 percent of total U.S. sales to Australia's
large market, and support 150,000 good-paying American jobs. In
creating new export opportunities for America's manufacturers, this
deal will help a recovering sector of our economy while also expanding
markets for America's services firms, creative artists, and farmers.
With virtually all U.S. manufactured exports going duty-free
immediately under this agreement, America's manufacturers estimate they
could sell $2 billion more per year to Australia. They predict that
U.S. national income would grow by nearly that much as well. Markets
for services such as life insurance and express delivery will be
opened, too; intellectual property will be better protected; U.S.
investments will be facilitated; and American firms will be allowed to
compete for Australia's government purchases on a nondiscriminatory
basis for the first time. All U.S. farm exports--more than $400 million
per year--will go duty-free to Australia, benefiting many sectors such
as processed foods, fruits and vegetables, corn oil, and soybean oil.
In Southeast Asia and the Middle East, the President has announced
initiatives to offer countries a step-by-step pathway to deeper trade
and economic relationships with the United States. The Enterprise for
ASEAN Initiative (EAI) and the blueprint for a Middle East Free Trade
Area (MEFTA) both start by helping non-member countries to join the
WTO, strengthening the global rules-based system. For some countries
further along the path toward an open economy, the United States will
negotiate Trade and Investment Framework Agreements (TIFAs) and
Bilateral Investment Treaties (BITs). These customized arrangements can
be employed to resolve trade and investment issues, to improve
performance in areas such as intellectual property rights and customs
enforcement, and to lay the groundwork for a possible FTA.
President Bush announced the Enterprise for ASEAN Initiative in
October 2002. Significant progress was made in 2003, and the stage has
been set for further achievements in 2004. With the newly enacted
Singapore FTA to serve as a guidepost for free trade with ASEAN
nations, the President announced that he would begin negotiations for a
comprehensive free trade agreement with Thailand in the second quarter
of 2004, and on February 12th, we formally notified Congress of our
intent to launch FTA negotiations with Thailand. At the Cancun WTO
Ministerial last September, Cambodia was offered accession to the World
Trade Organization, so it could take another step toward active
participation in the global rules-based economy. Spurred by the
progress of its neighbors, Vietnam is also working toward WTO
membership, building on the foundation of a basic bilateral trade
agreement with the United States that was enacted by Congress in 2001.
The United States signed a bilateral trade agreement with Laos in 2003,
and the Administration continues to support granting Normal Trade
Relations (NTR) to Laos. The United States is using TIFAs with the
Philippines, Indonesia, and Brunei to solve practical trade problems,
build closer bilateral trade ties, and work toward possible FTAs.
The Middle East Free Trade Area initiative, announced by the
President in May 2003, offers a similar pathway for the Maghreb, the
Gulf states, and the Levant. In addition to helping reforming countries
become WTO members, the initiative will build on the FTAs with Jordan,
Israel, and now Morocco; provide assistance to build trade capacity and
expand trade so countries can benefit from integration into the global
trading system; and will launch, in consultation with Congress, new
bilateral free trade agreements with governments committed to high
standards and comprehensive trade liberalization.
The U.S.-Jordan FTA entered into force in December 2001 after close
bipartisan cooperation between the Administration and Congress. As a
result, trade between the United States and Jordan has nearly tripled
in only three years.
In 2003, the Administration launched free trade negotiations with
Morocco, which we are pleased we completed just last week. Immediately
upon the agreements entry into force, 95 percent of bilateral trade in
industrial and consumer goods will become duty free, the best day-one
tariff elimination in a U.S. free trade agreement with a developing
country. Our terms with Morocco provide immediate cuts in Moroccan
trade barriers to wheat, corn and soybeans, and new access for U.S.
beef and poultry; openings for service providers like audiovisual,
telecommunications, distribution, and engineering firms; and new
opportunities for manufacturers of construction equipment, chemicals
and information technology.
In January 2004, the United States began free trade negotiations
with Bahrain. Last week Representatives Paul Ryan, a Member of this
Committee, and Jim Turner launched a Congressional Bahrain Caucus
backed by more than 20 other Members of the House and Senate. The
caucus will work with a Bahrain FTA business coalition representing
firms ranging from heavy manufacturers and leading-edge technology
companies to small businesses.
Morocco and Bahrain have been leaders in reforming their economies
and political systems. Our market opening efforts with these two Arab
states are part of the opening act in President Bush's Middle East
Initiative, which is aimed at fostering prosperity, encouraging
openness, and deepening economic and political reforms throughout the
region.
In 2004, the United States will continue its efforts to bring Saudi
Arabia into the WTO and will expand its network of TIFAs and BITs
throughout the region. The United States now has ten TIFAs in the
region, most recently signing agreements with Saudi Arabia, Kuwait, and
Yemen. We plan to sign TIFAs with Qatar and the United Arab Emirates
soon. As additional countries in the Middle East pursue free trade
initiatives with the United States, the Administration will work to
integrate these arrangements with the goal of creating a region-wide
free trade area by 2013.
In Africa, the African Growth and Opportunity Act (AGOA)--enacted
in 2000 and expanded in 2002--has created tangible incentives for
commercial and economic reform by providing enhanced access to the U.S.
market for products from 37 eligible sub-Saharan nations. Enhancements
made in 2002 to the African Growth and Opportunity Act improved access
for imports from beneficiary sub-Saharan African countries. We look
forward to working with Congress on legislation on AGOA that will
accelerate its gains, including by extending provisions and enabling
countries to take full advantage of AGOA through enhanced technical
assistance.
To build on this success, as called for in the AGOA legislation,
the United States launched FTA negotiations with the five countries of
the Southern African Customs Union (SACU): Botswana, Lesotho, Namibia,
South Africa, and Swaziland. The U.S.-SACU FTA will be a first-of-its-
kind agreement with sub-Saharan Africa, building U.S. ties with the
region even as it strengthens regional integration among the SACU
nations.
The bilateral FTAs we have concluded or are pursuing constitute
significant markets for the United States. U.S. goods exports to these
countries were $66.6 billion in 2003. This would have made them the
third-largest U.S. export market behind only Canada and Mexico, and
ahead of Japan. The economies of these countries totaled $2.5 trillion
in 2002 at purchasing power parity exchange rates, which would rank
them as the world's sixth-largest economy. And most are developing
countries that offer significant growth opportunities in years to come.
We are laying free trade foundations for win-win economic ties between
America and these partners.
Ensuring a Level Playing Field with China
Since China joined the WTO, it has become America's sixth-largest
export market. U.S. exports to China grew 75 percent over the last
three years, even as U.S. exports to the rest of the world declined
because of slow global growth. China has become a major consumer of
U.S. manufactured exports, such as electrical machinery, transportation
and telecommunications equipment, numerous components, and chemicals.
The market share of U.S. service providers in China has also been
increasing rapidly in many sectors. Meanwhile, growth in exports to
China of agricultural products has been robust; for example, U.S.
exports of soybeans reached an all-time high in 2003 of $2.9 billion
and cotton exports were $733 million, up 431 percent over 2002.
In 2003, senior Administration officials met frequently with
Chinese counterparts to address shortcomings in China's WTO compliance.
We delivered a clear message: China must increase the openness of its
market and treat U.S. goods and services fairly if support in the
United States for an open market with China is to be sustained.
As a result, China has taken steps to correct systemic problems in
its administration of the tariff-rate quota (TRQ) system for bulk
agricultural commodities, and relaxed certain market constraints in
soybeans and cotton trade, enabling U.S. exporters to achieve record
prices and sales. Recent approval of biotech soybeans, cotton and
corn--and promised additional approvals--has created greater certainty
for U.S. exporters. China has also reduced capitalization requirements
for financial services, including opening the motor vehicle financing
sector.
China's large installment purchases of billions of dollars of U.S.
products--including Boeing 777s and 747s, GE and Pratt & Whitney
aircraft engines, Ford and General Motors cars, as well as agricultural
products--during recent purchasing missions bode well for 2004.
However, we continue to stress the need for structural change that
ensures ongoing, open, and fair access--not reliance on one-off sales.
In 2004, the Administration will concentrate on ensuring that:
American intellectual property rights are protected; U.S. firms are not
subject to discriminatory taxation; market access commitments in areas
such as agriculture and financial services are fully met; standards are
not used--whether for technology or farm products--to unfairly impede
U.S. exports; China's trading regime operates transparently; and
promises to grant trading and distribution rights are implemented fully
and on time. The Administration will consult closely with Congress and
interested U.S. stakeholders in continuing to press China for full WTO
compliance, and will not hesitate to take action to enforce trade
rules.
China's lax enforcement of intellectual property rights, including
counterfeiting, is a fundamental issue. Piracy of movies, music and
software is so rampant in China that the practices could subvert the
development of knowledge industries and stifle innovation around the
world. The scope and magnitude of the problem does not just threaten
outsiders, but China's own citizens as well. Counterfeit automobile
brakes, electrical switches, medicines and processed foods with
pilfered brand names and poor quality control present health and safety
risks throughout China. Premier Wen Jiabao has spoken of the importance
of IPR and has assigned Vice Premier Wu Yi, a former trade minister who
helped defuse the SARS crisis, to chair a working group on IPR
enforcement. She will meet with Secretary Evans and me next month as
part of our Joint Commission on Commerce and Trade.
In addition, China has adopted discriminatory tax policies--most
blatantly on semiconductors--and new wireless encryption standards
intended to block U.S. market access. We are pressing China to resolve
these disputes promptly.
At the end of this year China and the United States face another
challenge. Our Uruguay Round commitments, ratified by Congress,
required us to begin phasing out our textile and apparel quotas in
1995. That process will be completed at year's end. We have urged the
Chinese to recognize concerns raised by this important transition. We
are committed to using special safeguards, applying unfair trade laws,
such as the anti-dumping provisions, and taking action under
international trade rules if China falls short in its trade
commitments.
Promoting a Cleaner Environment and Better Working Conditions
No country is doing more than the United States to push for strong
labor and environmental provisions in international trade agreements.
While some other countries talk about labor and the environment in the
context of trade, only the United States is actually doing something to
integrate these topics as an active part of its trade agenda.
Following the negotiating objectives set forth by Congress in TPA,
we are focused on combining effective enforcement with practical
cooperation to improve labor and environmental conditions overseas. Our
strategy varies depending on the countries we are negotiating with,
because conditions vary and one size does not fit all. But in general,
we have a ground-breaking, three-part approach:
First, we often find that the issue with working or
environmental conditions is not the laws on the books in developing
countries, it is with the enforcement of those laws. So our FTAs
require that countries effectively enforce their own labor and
environmental laws, backed up by enforceable dispute settlement
procedures.
Second, we need to understand and address the reasons
that laws are not being enforced. Often in poor countries, it is a
resource question. Labor Ministries are often poorly funded, and there
is a lack of money devoted to enforcement, inspections, and awareness
of worker rights. To address this issue, we are pursuing a cooperative
approach, working with USAID, the Department of Labor, EPA, the State
Department and others to focus on real-world problems, such as a lack
of trained inspectors at Labor Ministries, the lack of awareness of
employees of their rights under existing laws, and the need for
education about child labor. We seek the help of American companies and
NGOs, too. We work with the Multinational Development Banks to
coordinate projects with them. The provisions in our trade agreements
also encourage the development of local civil society, through public
participation and transparency so that reforms can be sustained by
homegrown efforts.
Third, we want to cooperate with countries to improve
their laws where there are gaps. Chile, for example, repealed its
Pinochet-era labor laws during the course of negotiating the FTA with
the United States because we took a firm but cooperative approach. Just
recently, one of my staff returned from Guatemala with news that the
government is working hard to reduce its backlog of worker-rights cases
in its courts, because they know CAFTA is coming and they want to
improve the climate for investment and trade. El Salvador has
significantly expanded funding for its Labor Ministry, with monies
targeted especially on inspection and enforcement. Morocco enacted a
new Labor code that will take effect this year. These are just a few of
the many examples where our combination of enforcement standards and
cooperation is helping reform these societies.
Of course, free trade also helps developing countries grow,
generating the resources for greater protection of workers' rights and
the environment. Growing developing countries build a middle class that
calls for better environmental and working conditions. Poor people also
want better lives for their families. We will not improve their working
conditions or environment by making it harder for them to sell the
fruit of their labor.
We are putting this multi-faceted approach to trade and development
into practice. The Chile and Singapore FTAs create the basis for
cooperative projects to promote respect for international core labor
standards and to support environmental protection and sound management
of natural resources. Both agreements also require that parties
effectively enforce their own environmental and labor laws.
The dispute settlement procedures of the new FTAs apply to all
obligations of the agreements and set high standards for openness and
transparency, such as open public hearings, public release of legal
submissions by parties, and the opportunity for interested third
parties to submit views. In all cases, the emphasis is on promoting
compliance through consultation, joint action plans, and trade-
enhancing remedies.
The FTAs with the Central American countries, Morocco, and
Australia adopt similar approaches to labor and environmental
provisions, but are each tailored to fit individual circumstances. In
Central America, for example, the Administration has emphasized trade
capacity building projects to enhance the awareness and enforcement of
labor laws. We encouraged countries to work with the International
Labor Organization (ILO) to identify areas for improvement in labor
laws and enforcement. The ILO study found that while the labor laws on
the books were generally good, there were some gaps that needed to be
addressed, and enforcement needed to be improved. The CAFTA partners
are already responding to a number of these recommendations. We are
assisting with trade-capacity building and cooperation to help. The
fragile democracies of Central America are now looking to the Congress
to see whether you will back their drive for self-improvement and
reform.
Building New Bridges: Trade Capacity Building
The United States is the largest single-country donor of trade-
related technical assistance in the world, reflecting its commitment to
fostering developing countries full participation in the global trading
system. As much as capacity building helps developing countries, it
directly advances U.S. interests as well. Capacity building assistance
both improves the quality of trade agreements, increases the ability of
our trade partners to fulfill their commitments, and creates the
conditions for expanding trade and development.
The U.S. resources from USAID and a dozen other agencies totaled
more than $2.5 billion in funding for trade capacity building
activities (FY2000 through FY2003). The United States provided $752
million in trade capacity building activities in FY2003, up 18 percent
from FY2002.
In the CAFTA, FTAA, Morocco and SACU FTA negotiations, the United
States has established separate cooperative groups on trade capacity
building to define and identify priority needs for trade-related
development assistance. The United States also seeks to give eligible
countries the capacity to take advantage of preference programs such as
AGOA. For example, U.S. technical assistance linked to AGOA assists
eligible countries to develop AGOA export strategies, establish
linkages with American businesses, and meet U.S. food safety and other
standards.
Looking ahead, the Administration will continue to assist the
developing world in integrating trade into development strategies. This
will include working with multilateral institutions and private sector
donors to promote initiatives such as the FTAA's Hemispheric
Cooperation Program, and the WTO Technical Assistance Plan and the
Integrated Framework. In our efforts in this hemisphere, the Inter-
American Development Bank has done excellent work helping us to break
new ground meshing trade and development policy by creating new
mechanisms to meet the needs of developing countries. We hope to
encourage the World Bank to demonstrate similar flexibility and
responsiveness.
Helping developing countries understand the importance of trade in
services is another role for capacity building. International Monetary
Fund and World Bank reports show that efficiency in the production of
services is a force multiplier in helping developing economies grow.
Studies demonstrate that openness in financial services and
telecommunications alone has boosted economic growth rates in
developing countries by 1.5 percent. Additional services like
transportation, distribution, education, and health are of critical
importance in developing countries, both for the emergence of a
competitive businesses and, more broadly, for social development and
poverty reduction. When developing countries open their services
markets, the United States benefits, too.
As bilateral trade negotiations are concluded, the United States
will continue to assist trading partners in implementing their
commitments and managing their transition to free trade. The
Administration will also continue to work with countries to maximize
the benefits of preference programs such as AGOA, the Andean Trade
Preference Act, the Caribbean Basin Partnership Act, and the
Generalized System of Preferences.
In addition, the Bush Administration is emphasizing the important
contributions that small businesses make to the U.S. and global
economies. Small businesses are a powerful source of jobs and
innovation at home and an engine of economic development abroad. By
helping to build bridges between American small businesses and
potential new trading partners, these enterprises can become an
integral part of our larger trade capacity building strategy. In our
continuing work with the U.S. Small Business Administration, our Office
of Small Business Affairs at the Office of the United States Trade
Representative has: increased small business representation in its
advisory committee system; included previously excluded small business
industry sectors in new trade agreements, such as the inclusion of
recycled clothing in CAFTA; and focused on issues of special concern to
small businesses, such as trade facilitation, e-commerce, and
intellectual property rights protection. Ensuring that American small
business concerns are addressed in our trade policy results in stronger
agreements that help to create jobs at home and abroad.
Monitoring and Enforcing Trade Agreements
We take pride in the progress we are making to negotiate new
commitments to open markets for American products and workers, but the
bulk of the work done day-in and day-out at USTR is to ensure that
countries live up to their current commitments or to solve problems for
American businesses and workers.
Congress created USTR to assure that trade policy--including
enforcement--was centrally located within the Executive Branch. We take
USTR's enforcement mandate seriously.
The scope of enforcement extends well beyond the number of cases
brought before WTO or NAFTA tribunals. On any given day, there is a
steady stream of U.S. companies in the Winder Building working with us
to figure out how best to press foreign governments to live up to their
commitments to open up their markets to U.S. goods and services.
The vast majority of enforcement efforts by USTR are brought to
successful resolution without the need to resort to formal litigation.
Most U.S. companies urge us to do everything that we can to resolve a
problem without bringing a WTO or NAFTA case, given the amount of time
such cases take.
In recent years, informal means of resolving trade issues have
enabled biotech farm exports and key U.S. financial services to expand
their access to the Chinese market. Japan has agreed to lower customs
fees by 50 percent as well as increase intellectual property
protections. Mexico has implemented rules for pharmaceuticals that
respect U.S. patents, and Canada has dropped copyright legislation
opposed by U.S. firms that use the Internet. We solved pork, poultry,
dry bean, and beef issues with Mexico. We increased access for poultry,
pork, and beef in Russia. We addressed rice and motorcycle export
problems and are improving IPR protection in Taiwan. We headed off
Korea's attempt to close the market to Dodge Dakotas based on
questionable tax classifications. We encouraged Hong Kong to clean up
illegal production of optical discs. The list goes on and on.
But sometimes enforcement can only be achieved through litigation,
and we stand prepared to bring WTO and NAFTA cases to secure
compliance.
Some of our recent WTO victories include:
An important case against Mexico on telecommunications
worth $500 million, according to industry. Under current law, Mexico
allows its dominant company, Telmex, the exclusive authority to
negotiate, on behalf of all carriers, the rate that U.S. telecom
companies must pay to complete their calls in Mexico. These exorbitant
rates penalize American and Mexican families seeking to maintain cross-
border ties, raise the price of doing business across the border, and
burden U.S. telecom firms with unnecessary costs.
In December 2003, the United States won a major case
before the WTO holding that Japan's import restrictions on U.S. apples
are a violation of Japan's WTO obligations. Japan had argued that the
restrictions were needed to protect Japanese plants from disease, but
U.S. scientific evidence showed the apples could not transmit the
disease. This is a valuable precedent against others that might use
Sanitary/Phytosanitary Standards (SPS) to block farm products unfairly.
The United States won an important victory in June 2003
when the WTO rejected India's challenge to U.S. laws on determining the
country of origin of textile and apparel products.
We have pending cases against: the European Union's ban on new
imports of genetically-modified foods and against the EU's over-
reaching on Geographic Indicators; Mexico's questionable anti-dumping
duties on beef and rice; Canada's discriminatory practices affecting
wheat; and against Egypt's textile tariffs.
As noted earlier in my testimony, we are focusing more of our
enforcement resources on China. While some of China's compliance
problems were initially viewed as growing pains as it brought laws and
regulations into line with new WTO obligations, China must do more to
ensure that it is living up to obligations. Without more progress on
matters we have been pressing with China, we will certainly need to
avail ourselves of our rights under the WTO.
Of course, our ability to demand that others follow the trade rules
is strengthened when we address cases we lose. We very much appreciate
the Committee's efforts to repeal the FSC law to end retaliation
against U.S. exporters. We also look to work with Congress to remedy
other U.S. violations, including the Continued Dumping and Subsidy
Offset Act of 2000, the 1916 Act (reflecting early antitrust practice),
Section 211 of the Omnibus Appropriations Act of 1998 concerning
conditions that permit the banning of trademark enforcement, and the
ruling on hot-rolled steel. America should not be a scofflaw of
international trade rules.
Conclusion
I want to close by again thanking the Committee for its support and
guidance.
During 2004, we hope to continue to push forward step-by-step
toward the vision set out by President Bush of ``a world that trades in
freedom.'' It is a vision of a world in which a working family can save
money on everyday household items because trade agreements have cut
hidden import taxes. It is a vision of a world in which a Central
Valley farmer, a New York financial planner, a Michigan auto worker, a
New Orleans longshoreman, an Illinois manufacturer of excavators, or an
Iowa pork producer can sell his or her products or services in Costa
Rica or Australia or Thailand or Morocco as well as across America. It
is a vision of a world in which free trade opens minds as it opens
markets, supporting democracy and encouraging tolerance. And it is a
vision of a world in which hundreds of millions of people are lifted
from poverty through economic growth fueled by trade.
__________
The U.S. Trade Agenda
Overview
Expanding trade for growth, opportunity, development, and
fairness through multiple initiatives:
Global
Regional
Bilateral
Enforcement of laws and agreements
Worker adjustment and education for the future
Moving on multiple fronts empowers the United States to:
Support U.S. workers, exporters, consumers
Exert leverage for openness and a level playing
field
Strengthens America's hand today and for the
future
Putting TPA to Good Use
Highlights of 2003-2004 to date
Completed and passed Singapore and Chile FTAs
Launched and completed Australia FTA
Launched and completed CAFTA; working on DR
Launched and completed Morocco FTA
Launched Southern Africa & Bahrain FTAs
Announced intent for Andeans, Panama, & Thailand FTAs
Advanced Enterprise for ASEAN Initiative (EAI)
Launched Middle East Free Trade Initiative (MEFTA)
Miami framework to move FTAA toward concrete results,
creating incentives for progress
Doha WTO: Cancun was a missed opportunity, but 2004 need not
be a lost year
WTO
Global Trade Opportunities
Need to bring 148 economies to an agreement on opening
markets for agriculture, goods, and services--to boost growth &
development--in stages
Cancun:
Solved ``TRIPs & Access to Medicines'' for
developing countries
Some wanted to posture, others to pocket U.S.
proposals without opening their own markets
``Singapore Issues'' distracted from core agenda
Need agriculture reforms for developed and
developing countries
Nevertheless, draft frameworks create basis for
work
WTO in 2004
Global Trade Opportunities
Proposals for progress in 2004:
Agriculture: eliminate export subsidies;
substantial, harmonizing cuts in trade-distorting domestic subsidies;
significant market opening
Manufactured goods: combination of formula cuts,
sectoral initiatives, and non-tariff barriers
Services: get more (and better) offers from
others on the table
Focus on trade facilitation, not other
``Singapore Issues''
U.S. leadership: January letter and February
strategic dialogue with over 40 countries
FTAA
Regional Initiatives
At Miami, U.S. laid out paths for trade opening, development,
and hope in Latin America
A common set of rights and obligations for all 34
FTAA countries. Significant market access benefits.
A higher level of commitments among those willing
to go further. Provides opportunity to integrate U.S. FTA partners.
Gold-standard U.S. bilateral FTAs to cover \2/3\
of Hemisphere's population and non-U.S. GDP.
Benefits commensurate with obligations
Creates incentives for countries to do more, without
completely leaving behind those who can't or won't move
Building Trade Areas
Regional Initiatives
AGOA Extension
AGOA has been an outstanding success
Work with Congress to pass legislation to extend
AGOA
Middle East Free Trade Area (MEFTA)
Build on our FTAs with Israel, Jordan, Morocco,
and, in the future, Bahrain
Offer graduated steps to encourage reforms
Tailor steps to different levels of development
Now have Trade and Investment Framework
Agreements (TIFAs) with Algeria, Egypt, Saudi Arabia, Tunisia, Yemen,
and Kuwait
Enterprise for ASEAN Initiative (EAI)
Network of FTAs in ASEAN: first Singapore, now
Thailand
TIFAs with Indonesia, Philippines, and Brunei;
Malaysia interested in signing
Free Trade Agreements
Bilateral Initiatives
Singapore & Chile FTAs
Models for more to come--each customized
Australia FTA
Launched March 2003; completed February 2004
Central America FTA (CAFTA)
Costa Rica, El Salvador, Guatemala, Honduras, &
Nicaragua
Launched January 2003; completed January 2004
Dominican Republic negotiations proceeding
Morocco FTA
Launched January 2003; completed March 2004
Southern Africa FTA (Southern African Customs Union)
Botswana, Lesotho, Namibia, South Africa, &
Swaziland
Launched January 2003
Bahrain FTA
Launched January 2004
Andeans, Panama, Thailand
To launch in 2004
Australia FTA
Highlights
``A Manufacturing FTA'': Immediate duty-free on 99% of U.S.
manufactured exports
Expands markets for services and farmers
All U.S. farm exports duty-free from day one
Sensitive U.S. agriculture handled with care
Pharmaceutical Benefits Scheme improvements
Environment/Labor protections
CAFTA
Highlights
Today, under the CBI, U.S. tariffs on Central American goods
are low. 77% of regional imports enter the U.S. duty-free . . . without
reciprocal U.S. access
With CAFTA, more than 80% of U.S. manufactured goods duty-
free immediately
More than half of current U.S. farm exports duty-free
immediately
Sugar: Increased access = 1.2% of U.S. production; no change
in above-quota tariffs
Textiles and apparel: Important ``cumulation'' provisions
will encourage integration of market to prepare for competition from
China
Strong IPR standards and protections
Openings across all services sectors, including
telecommunications and insurance
Strong transparency, anti-corruption, and good governance
rules
Labor and environment protections that go beyond Chile and
Singapore
Morocco FTA
Highlights
Over 95% of goods duty-free on day one--best market access
package ever with a developing country
Expands export opportunities for U.S. agriculture
Broad opening of services markets complemented by strong
transparency provisions
New protections for U.S. investors
Strong IPR and anti-corruption rules
Commitment to enforce labor and environment laws, working
with ILO
Key step in building MEFTA
Trade with China
U.S. exports to China grew 75% as exports to rest of world
declined from 2000 to 2003
Now America's sixth-largest export market
China's WTO implementation cannot slacken
Clear message:
China must open its market if U.S. support for
trade with China is to be maintained
Must comply with WTO obligations
Ag, IPR, taxes, standards, others
China's response: some systemic problems addressed
Record gains in soybean, cotton exports; biotech
approvals
More open financial services, motor vehicle
financing
Purchasing missions useful, but not enough
JCCT: Elevated dialogue to ensure level playing field
Will use safeguards to ease U.S. transition and enforcement
rules to insist on compliance
Monitoring and Enforcement
Successfully used dispute settlement to benefit American
exporters, consumers and producers:
Agriculture: Dairy (Canada), pork (Mexico),
apples (Japan)
IPR/patents (Argentina)
Goods: Autos (Philippines)
Pending U.S. cases:
Rice, telecom (Mexico)
Biotech, GI (EU)
Textiles (Egypt)
Wheat (Canada)
U.S. compliance issues:
FSC, Byrd Amendment, 1916 Act, Section 211, Hot-
rolled steel
Looking Ahead
Americans' need to manage global economic and technological
changes
Economic isolationism won't work: will kill jobs and
opportunities
Americans can be big beneficiaries of trade, openness, global
growth, development: more choices, lower prices, higher-paying jobs
Use WTO negotiations, FTAs, and other trade initiatives to
lower barriers abroad, level the playing field, spur growth and
development: win-win opportunities
U.S. trade barriers already relatively low
U.S. businesses need to discuss with employees
Combine with monitoring and enforcement of agreements,
targeted use of safeguards, reliance on unfair trade laws--and
following the rules ourselves
Help Americans to adjust to change (education, worker
training, portable pensions, ability to keep and save own hard-earned
dollars)
World where poor people around the world lose opportunity to
improve lives for themselves and their children is not good for
America's future
Chairman THOMAS. Thank you, Mr. Ambassador. As usual, a
very comprehensive review of activities around the world. It
seems that although trade is important and growing, we
sometimes fail to look in the mirror and toward the latter part
of your presentation you talked about our responsibilities
toward the world trading order. One of the things I think we
fail to do often is realize how much we get out of the world
trading order, especially the improved but can still be more
improved dispute resolution mechanisms. We win far more than we
lose but if we do not, where we have lost, accept the
responsibility to change, we put at risk the structure that we
have, especially when the contest is between the world's two
largest trading blocs. I am very concerned about our
unwillingness or inability to resolve what in my memory I think
is the largest formal retaliation structure that we have been
confronted with.
What happens--I hate to say crystal ball because I hope the
future changes significantly very quickly--if in the month of
March alone it is more than $16 million and by the time we go
through this ease-up process, which the Europeans have been
very kind to put us in a tub of cold water and then gradually
increase the temperature rather than dumping us into boiling
water where we might react, at the end of the year close to
$500 million worth of lost opportunity through retaliation and
the potential for getting into a desire not to change our laws
but to strike back because of the pain created by our
unwillingness or inability to make change over the FSC income
question. I would like a brief response in that area.
Then second, there is some legislation that suggests we
partially reinvent our administrative trade structure; i.e.,
take some portions of the current USTR activities and place
them in the U.S Department of Commerce. You mentioned in your
presentation how although we focus primarily on the larger big-
picture trade questions, enforcement of the law is probably on
a day-to-day basis as important and perhaps sometimes more
important in laying the groundwork for an understanding that
through the FTAs we can remove some of the tension that is
present by virtue of the grinding enforcement activities.
In your opinion, does this help diminish, significantly
negatively affect the operation of the USTR, understanding you
have obviously a very direct interest in USTR. Frankly, I think
most of us are less concerned about the particular structure
that our government might take toward dealing with trade
internationally than what would be most effective in getting
the job done. Those are two areas I wish you would talk about
for just a minute.
Mr. ZOELLICK. Well, on the first one dealing with the FSC,
I certainly recognize that this has been an extremely difficult
and contentious issue up here and as I have before, Chairman, I
want to compliment you for your leadership. You were the first
or certainly one of the first, I think the first to try to
start to move this process forward.
I know it has caught up into a lot of debates here about
the appropriateness of different types of tax policies and my
key message is that I just hope that the House and Senate can
pass bills and reconcile and get them done as soon as possible
because right now the European Union has the authority to
retaliate on about $3 billion of U.S. exports. It started at 5
percent. It could have started at 100 percent but it started at
5 percent and each month that increases by another percent.
So, for those of you that are worried about added costs for
American exports, that is a 5 percent added tax for about $3
billion of our products covering a wide range of activities in
a number of different States. I have looked here at some of the
States, particularly New York, New Jersey, Utah, California,
Texas, Ohio, Wisconsin, Minnesota, Georgia, Pennsylvania,
Louisiana--it goes on and on here, so your constituents are the
ones being hurt. So, I know that there are different views of
this. I saw, Chairman, I read that you now have a revenue-
neutral bill, which I hope will bring more support as we go
forward. So, as the President sent a note up on this, I believe
recently, there are different ways that one can do this. We are
not going to tell the Congress that there is one way or the
only way. At this point we just urge it to get done.
On your second question, Chairman, as I think many on the
Committee know, the Congress created the USTR office in 1961
with a particular point in mind, and that is to try to
centralize coordination of all these activities in the
Executive Office of the President. What it really does is it
allows us to draw on the resources of many offices. So, the
bill you mentioned that Mr. Wolf has put forward would shift
the enforcement responsibility to Commerce but frankly, as I
mentioned here, we deal with agricultural issues as well as
industrial issues. We deal with financial issues. So, what
would be lost under that is the need to be able to draw
together the best resources across the government, whatever the
topic.
Equally important, as even our earlier discussion here
suggested, in some ways the enforcement action is kind of the
artillery that is part of a larger effort that involves
reconnaissance, it involves intelligence efforts. So,
enforcement is not separate from persuasion, explanation,
trying to--sometimes the problems arise--we have a problem now
with India with almonds and it involves the Agriculture
Ministry; the Commerce Ministry was frankly unaware of it.
Sometimes we use disincentives. Sometimes we use the incentives
of moving toward our FTAs. So, there is a continuum of actions
here and even after you have an enforcement action, you do not
just want to block trade; you want to move forward. So, as we
resolved the bananas issue, that involved negotiation based on
litigation; dairy with Canada. So, I am afraid what it would
start to do is balkanize the overall operations.
There is one other key point. Trade agreements are not
separate from the enforcement agreements. The knowledge you
have in terms of what you learn in litigation is critical to
your ability to what you put in the next agreement and vice
versa. Obviously I have some bias in this but I think the
lawyers and the technical people we have are the best in the
government and here I can say with some fairness. As many of
you know, I worked at the Department of State, U.S. Department
of the Treasury, the White House, U.S. Department of Justice. I
have a pretty good sense of comparison and it is a top-flight
group of people. So, I think it would be a mistake to start to
dismember these functions.
Chairman THOMAS. Thank you, Mr. Ambassador. Gentleman from
New York wish to inquire?
Mr. RANGEL. Mr. Ambassador, you are good at what you do but
I do not think that free trade is win-win. When you make these
types of adjustments; when certain jobs no longer make sense to
our businessmen and it makes more sense for them to go abroad;
when you have 9 million people that are out of work; when you
find 3 million people have lost manufacturing jobs; when you
find that you have a tax policy where we just do not have the
revenues to support Federal programs and that we are asking the
States to assume more and more of the education and training
responsibilities; when you find people that have been out of
work and they do not have unemployment benefits and they have
given up on jobs and their families are broken; and when you
find out of these groups where the military looks like a fairer
option in terms of economic opportunity and you take a look at
those people that are being sacrificed in Iraq and find out
that they come mainly from families in rural areas, inner
cities where unemployment is extremely high--it is really not
win-win.
If we did have a program that understood that yes, progress
is going to cause displacements and we are going to be there
and not be insensitive, but you are not the Secretary of Labor;
you are not the Secretary of Education; you are not the
Treasury Secretary, so you do what you have to do but when the
pain has to be felt, it does not fall on the affluent. It does
not fall on those that clip coupons. It falls on those that
have the very, very least. That is why if you had to find out
one thing that separates the parties philosophically is that we
say that when you do have trade agreements you should have
minimum standards, world labor standards that are included in
these agreements and that they be enforceable.
You, in negotiating these agreements, even if some of these
standards make sense, you have to look at the committees in the
Congress to see where you are going to get the votes from.
Well, with some of these things we need some leadership to find
out whether you can bring the parties together so that you can
share with us why Republicans think that it is wrong to have
basic labor standards in international trade agreements that
protect the workers over there so that we are not dealing with
those people that abuse the human rights and the labor rights
of the people that are there.
You mentioned and I have mentioned that now the European
Union has seen fit to provide sanctions against our exporters.
They are not doing it against Democrats or Republicans; they
are doing it against the United States of America. Certainly in
my State of New York where we have agricultural products and
other products, they are going to escalate the tariffs. I guess
we are going to reciprocate against them and then it is going
to be a lose/lose.
What makes the Administration so unreceptive of trying to
provide some leadership so that we can look like we are a
country of citizens and not of parties? You have Mr. Thomas's
bill. He has taken a $4 billion trade initiative and made a
$128 billion problem out of it with a big deficit. You have the
Crane-Rangel bill that does not cost anything and, at the same
time, does not put all the money overseas to attract
investment. You have the Grassley bill over there that seems to
be a compromise of all of these bills.
If you are just waiting for Republicans and Democrats--and
we do not even talk to each other here. So, does it not appear
to you as an American that the President of the United States
should be able to say hey, we are all Americans; let us get on
with it; let us solve this problem? There is enough to fight
about but this should not be one of the issues and yet the very
issues, the labor and environment issues in trade, how you
treat the unemployed, how the lack of sensitivity to those who
are displaced, these are American issues and yet I do not hear
anything from the Administration. I am not saying that you
should be dealing with it but it is not win-win when factories
close and people are unemployed and the dignity of having a job
is lost, including health insurance. It is mean, it is painful,
and it is costly.
Mr. ZOELLICK. Well, I am glad you start out by saying that
I do my job well. Well, Mr. Rangel, you have a tall order
there.
Chairman THOMAS. The gentleman's time has expired but if
you can provide a succinct comment, and perhaps some of it
could be responded to in writing.
Mr. ZOELLICK. Well, with your indulgence, Mr. Chairman, I
will just touch on a couple of points.
Chairman THOMAS. Certainly.
Mr. ZOELLICK. One, as you focused on the FSC bill, Mr.
Rangel, the President has done exactly what you said. He said
whether it be Democrat or Republican, House or Senate, come
together and pass a bill. So, there are different bills, as you
and I discussed, and frankly there are different approaches to
try to deal with this problem and it is the prerogative of the
Congress under the Constitution to determine that and we would
be pleased if Congress can move on those items. I know the
Chairman has pushed this. I know you have pushed this. I know
both of your intentions are to try to get it done and that is
what the President has asked, is would the Congress please get
this done so we do not have the retaliation against American
exports.
Now, on environment and labor issues, again we may in the
hearing be able to go through this in greater detail but
actually, this Administration built off the Jordan agreement
negotiated by the Clinton Administration, in view added to it
and we now have environment and labor provisions in trade
agreements. Other countries do not enforce them and we do.
Now, the core aspect of those agreements is to require
countries to enforce their own environmental and labor laws and
then, along with that, we work with countries to try to make
sure, whether it be environment or labor, that they have good
laws. So, if you look at most of the countries that we have
dealt with, Chile, for example, the agreement that I know both
of you supported, in the process of doing the FTA they totally
overhauled the Pinochet-era labor code. In the case of some of
the countries we are dealing with right now, Morocco added a
whole new set of labor laws that will go into effect in June.
El Salvador recognizes that it is not just a question of labor
laws and this will be the big challenge; it is a question of
getting resources devoted. So, they have added 20 percent to
their enforcement resources and they have cut down the time in
terms of hearing a complaint to 1 or 2 weeks.
There is a new government in Guatemala. The President has a
very strong human rights background. He has appointed people to
the key positions that have already threatened that countries
in the economic processing zones that do not allow workers to
organize will not be able to have their licenses. So, now for
the first time they are bringing forward collective bargaining
agreements. In Morocco what we tried to do is to supplement it
with support by the U.S. Department of Labor of about $5
million to try to deal with child labor and enforcement and
also with the ILO about another $3 million.
In CAFTA, I was down in Costa Rica when we announced a
grant of almost $7 million to try to deal--to help people
understand the labor laws better, help with better enforcement,
develop systems like mediation. I have gone over to other
places, like the Inter-American Development Bank and the World
Bank, to see what financial support we can get from them. We
have about a $25 million effort, public and private, to deal
with child labor issues in Central America.
So, these are frankly far better than the situation that we
inherited, Mr. Rangel, and I hope that they would give those
who I know would like to support trade but want to be able to
show the improvements in terms of labor and environment a very
strong case to make because at the end of the day it really is
going to require three things, Mr. Rangel. It is going to
require good laws in these countries; it is going to require
enforceable obligations, which we have in our agreements; and
it is going to require the resources to move forward. You and I
both know because we worked with both the Caribbean and sub-
Saharan Africa and others, that at the end of the day it is
best if it is a cooperative effort. You have to develop the
sense in these countries themselves to develop the civil
society and to have an ongoing effort. So, the one thing I can
assure you, Mr. Rangel, as we go forward, and I think you know
this, is that we are committed to trying to use the trade
agenda to not only open markets but open societies and do it in
a way that improves environment and labor conditions and deals
with anti-corruption and a whole series of other issues. I
think we have a good record. I would be pleased to, as you
know, talk about it with you at greater length.
Chairman THOMAS. I thank the gentleman. The Chair is more
than willing to allow for an expansive response to the Ranking
Member but the Chair would appreciate it if Members would show
a degree of self-discipline, operating under the 5-minute rule.
The Chair recognizes the gentleman from Illinois if he wishes
to inquire.
Mr. CRANE. Thank you, Mr. Chairman. Our colleague, Mr.
Levin, raised the point that since President Bush took office
we have lost about 2.3 million jobs in manufacturing here and
since President Hu Jintao took office in China they have lost
about 3 times that many manufacturing jobs. The loss of
manufacturing jobs in countries around the world has been
overwhelming, and what is the explanation behind all that loss
of manufacturing jobs worldwide?
Mr. ZOELLICK. Well, it really goes to the point, Mr. Crane,
that in all countries as you increase the productivity, you
need fewer workers to create the overall product that you used
to do. So, let me just give you a context. In the 1991 to 2000
period our manufacturing trade deficit rose from $48 billion to
$328 billion. That is before we took office. At the same time,
manufacturing output rose 64 percent and actually the jobs
increased by a little bit, not by much but a little bit.
Now, why is that? It really goes to the point Mr. Rangel
and I were talking about about win-win. The real challenge here
is if we can open everyone's markets--and our markets are
relatively open--and we get others to grow, they are going to
buy more. So, the fallacy of some of the win/loss notions of
trade is the idea that if the other person opens their markets
or we open our markets, that you do not both benefit. If you
look at the history of the world economy, particularly after
the 1930s where people tried the other approach of blocking
trade, what you can see is the world can grow together.
Now, there are serious problems, as Mr. Rangel mentioned.
We have legitimate differences about how to try to deal with
these, whether it be taxes or education or worker adjustment
and training. I think we probably all agree, though, that the
challenge is if we are going to open markets, we need to help
people adjust. We may have a different view of how to do that
in terms of educational policy, we may have a different view in
terms of tax policy, but we all want to try to help people be
able to make that adjustment. That is why I have always been a
strong supporter of TAA and trying to think of new ways to try
to use that because I think if you are going to have an open
trading system, whether it be manufacturing or services or
others, you have to help people get back on their feet.
Mr. CRANE. As I am sure you are aware as a former history
student, historically the Republican Party was the party of
protectionism and isolationism. I grew up before World War II
and listening to the debates amongst relatives in those days
and my family were all Republicans from the beginning; I think
they would all be voting Democratic today based on their views
on trade.
It was something that caused the Republicans controlling
Congress to pass in 1890 the McKinley Tariff Act, which was the
most protectionist tariff measure in our history up to that
point. Grover Cleveland, Democrat, had been in for 4 years, out
for 4 years, when that act was passed. Then he got reelected
again and he worked to dismantle it and restore the economy
because it caused an economic downturn that was very
substantial and hurt everybody. Grover Cleveland made the
observation at the time when you put those walls around your
country, you impose the greatest injury on that man who earns
his daily bread with the sweat of his brow, to which I say
amen. It took Republicans until after World War II to finally
become free-traders and unfortunately, many of our colleagues
on the other side shifted gears and went the other way. Let us
hope that we still have the opportunity to get the case out
there and present it in a way that will guarantee that we will
make the kind of progress we need.
One last quickie question with you. Few industries are as
dependent on intellectual property protection, specifically
patent protection, as the pharmaceutical industry and will you
include in this year's review and report market access barriers
faced by U.S. pharmaceutical manufacturers in foreign markets?
Mr. ZOELLICK. I am sorry; I did not hear the last part, Mr.
Crane. You said will we include----
Mr. CRANE. Tariff barriers, market access barriers faced by
U.S. pharmaceutical manufacturers in foreign markets.
Mr. ZOELLICK. I believe we are required to do that already
but I will double-check to make sure.
Mr. CRANE. Thank you very much.
Chairman THOMAS. I thank the gentleman. Does the gentleman
from Michigan, Ranking Member on the Subcommittee on Trade,
wish to inquire?
Mr. LEVIN. Thank you. I do. I do not want to talk about 50
to 60 years ago. I just want to say, Mr. Ambassador, you can
continue to say that those who raise these issues are proposing
economic isolationism but those of us on this Committee who
raise these issues and those in the Senate, including Senator
Kerry, who raise these issues, if you try to pin the label of
economic isolationism on us and on them it just will not work.
It is a dog that will not hunt. You can keep on saying it but I
think the trouble with it is it masks the issues and it tends
to diminish a discussion of the key issues.
Let me just say about FSC, you say it is the prerogative of
this Congress, but so is tax policy and other policies and I
just want to give you my view as someone who sponsored, with
Mr. Crane and Mr. Rangel and Mr. Manzullo a bill many, many
months ago. If the Administration does not do more than simply
say Congress should get it done, I do not think it is likely it
will get done. The Administration must take a leadership
position and say what it wants. It does not mean we will give
it exactly what it wants but on other issues the Administration
has taken a distinct position. We do not know what your
position is on any of these FSC replacement bills.
On CAFTA, enforce your own laws? You do not say that about
intellectual property or about subsidies or about other things.
Tariffs? You say change your laws. While enforcement of your
own laws may work with Singapore and Chile and I voted for it
because they have the five standards in their laws and they
enforce them, that is not true in the Central American setting.
You talk about the need to open up societies. One good way to
help do that in Central America is for them to give their
workers the freedom of association and it will also help us
sell products to them.
I want to just ask you quickly, though, about China. I
know, as always, you are prepared and sometimes we work
together, as we did on that medicine issue at Doha and I
congratulate you on the breakthrough there. Look, we worked
hard to get a special safeguard provision, a specific one, in
China Permanent Normal Trade Relations (PNTR), and it was
worded differently than others, as you know. In essence, there
is a presumption in favor of providing relief, an effort to
somewhat restrict the discretion of the President. So, we wrote
in there that the adverse impact on the U.S. economy must be
clearly greater than the benefits of such action.
So far there have been, as you know, three petitions filed.
The ITC in every case suggested action. In every case--and the
last one--I forget the first two, the exact votes--the last one
was unanimous and the others, I think, were close to that. Yet
the President decided to do nothing. So, I would like to know
and there may not be time here, I would like to have a specific
indication from you as to what was the rationale, because I
know you were involved in this, for a decision to turn down
this third in a row safeguard action. As far as I am concerned,
the feeling is three strikes and you are out in terms of
stepping up to the plate and using a critical part of PNTR. I
see the yellow light. I read the President's decision. It did
not spell out how he met the standard and I would appreciate it
if in the next few days or whatever is reasonably convenient
but expeditious if you could spell out the exact reasoning in
each of these three cases.
Mr. ZOELLICK. I am going to seek the Chairman's indulgence
because I think those are two important points. It is frankly
very important for the Committee to hear as a whole. On the
CAFTA issue, let me just note what the ILO, the----
Mr. LEVIN. Mr. Zoellick, let me just interject.
Mr. ZOELLICK. May I answer the question?
Mr. LEVIN. I then want a chance to respond if you are going
to go into----
Mr. ZOELLICK. I am sorry. Do I get a chance?
Chairman THOMAS. The Chair understands that the question
was asked by the gentleman from Michigan with then a
stipulation that he wanted you to answer him in writing. You
wanted to offer some answer to the question for the full
Committee. The gentleman wants to respond to whatever it is
that you are going to say, assuming he is not going to agree
with whatever you are going to say.
Mr. LEVIN. This was on CAFTA.
Chairman THOMAS. So, the Chair is willing again to allow
for an exchange based upon the way the question was asked and
the desire to respond. My assumption is that notwithstanding
your verbal response, the gentleman from Michigan's request for
a written response would still be in order.
Mr. LEVIN. On the China----
Chairman THOMAS. The three-segment question. So, the Chair
is more than willing to go forward as long as the questions are
asked and the responses that are provided are illuminative of
the concerns that the Committee has.
Mr. ZOELLICK. Well, I will try to illuminate. You made a
point about the ILO standards and I just want to take a moment
to tell you what the ILO has said about the six Central
American countries, including the Dominican Republic. First,
the right of workers to freely exercise their right to form
trade unions is recognized by the respective constitutions of
these countries. So, you have an interest in the ability to
freely exercise the right to form trade unions. Two, national
legislation recognizes the right to voluntary collective
bargaining. Three, the right to strike is recognized under
national legislation. These are the ILO's words, not mine.
Four, the principle of equality and the prohibition against
discrimination are enshrined in the constitutions of all the
countries covered by this survey. Five, the constitutions of
the five countries include special provisions concerning the
employment of minors. Six, constitutional law in these
countries recognizes the right of any citizen to choose his or
her work freely, to obtain decent employment, recognizes that
it is the right of workers to terminate their contracts of
employment at any time.
The laws are pretty good. Where I hope we can work
together, Mr. Levin, is on the enforcement of those laws and
the resources. That is where we really need to make the effort.
Now as for your second question----
Mr. LEVIN. Let me just respond and then go on, just so the
issue is joined here. I urge everybody to read the ILO report.
It indicates 20 or more significant problems in the CAFTA
countries with the right to associate and the right to bargain
collectively and others. I urge anyone to go down to Central
America. It is not just that the laws are okay, they are not
enforced. There are deep holes in the law of these countries.
Workers who try to associate can be fired and simply paid
severance.
Your failure, your insistence on using ``enforce your own
laws,'' no matter how they are, is one of the reasons why CAFTA
cannot pass this Congress, Mr. Zoellick.
Mr. ZOELLICK. The reason that CAFTA has trouble is because
we have a bunch of economic isolationists using labor as an
excuse----
Mr. LEVIN. No.
Mr. ZOELLICK. If I could answer your second question----
Mr. LEVIN. Mr. Zoellick, if you want to call Mr. Rangel and
me an economic isolationist----
Mr. ZOELLICK. I will be happy to talk about it.
Mr. LEVIN. You can do it. I just want to tell you to sit
here and to call Mr. Rangel, myself, Mr. Cardin, as I go down
the line, and Senators on the other side who have disagreement
with you on this economic isolationists----
Mr. ZOELLICK. I did not say that.
Mr. LEVIN. Yes, you did.
Mr. ZOELLICK. Find it in the record.
Mr. LEVIN. I did. I will.
Mr. ZOELLICK. There was certainly a lot of debate over the
past couple of months in this country----
Mr. LEVIN. I am talking about us and the Senate.
Mr. ZOELLICK. I am trying to work with you, Mr. Levin.
Chairman THOMAS. The Chair is willing to allow for
continued questions beyond the 5-minute rule, now 4 minutes
beyond the 5 minutes, if there are questions asked and answers
provided. If we continue exchanges in which there is a give and
take over points that turn it into a debating society, the
Chair will stringently enforce the 5-minute rule. Was there one
additional response to the questions asked by the gentleman
from Michigan?
Mr. ZOELLICK. Yes, Mr. Chairman. I think this is one where
Mr. Levin and I can come closer. What I want to assure you, Mr.
Levin, is that----
Chairman THOMAS. There is plenty of room for that.
Mr. ZOELLICK. Is that we welcome effective Section 421
provisions and the key here, I think you alluded to. There is
language that says that after the ITC does a market disruption
standard, which is why you get the votes that you do--it is a
relatively modest standard--then it is the job of the President
to make an assessment of national interest, including the
adverse impact of the U.S. economy being clearly greater than
the benefit.
So, you asked about the most recent case. The ITC itself
found that the costs of this action, of any protective action,
would be greater than the benefit, and they gave numbers. In
addition, what they pointed out is that they expected that if
we put up any sort of barriers, that actually the benefits
would just go to other countries abroad, so the United States
would not get a benefit. Now in this case, this particular
country, and this is some of the challenge we have when we look
at these, part of its problem is it has had 400 environmental
violations and Occupational Safety and Health Organization
(OSHA) violations in recent years.
Mr. LEVIN. That is not mentioned in the decision.
Mr. ZOELLICK. The decision did not have to be based on that
because of the economic interests, but I am explaining the
context that we have to deal with. They have had felony
violations for both labor and environmental, and a misdemeanor
on the labor one. They have had fines. They are now under
public indictment for trying to stop their workers from talking
about these violations. My point, Mr. Levin, is just this
company has other problems than China. Now, I would be happy to
go through the other ones and talk through each one. We will
give it to you in writing.
Mr. LEVIN. Good.
Mr. ZOELLICK. The key point where I hope we can get some
point here is we are not averse to using the Section 421. We
used it in terms of the textile safeguards, as you know, but we
have to make an evaluation of does it hurt the Americans that
would use the product more than it would help that beneficiary
and, if we create a barrier would the business just go
somewhere else in the world? So, I would be happy to go through
the logic with you.
Mr. LEVIN. Thank you.
[The information follows:]
Executive Office of the President
The United States Trade Representative
Washington, D.C. 20508
April 2, 2004
The Honorable Sander M. Levin
U.S. House of Representatives
Washington, D.C. 20515
Dear Congressman Levin:
The President has asked me to reply to your letter regarding the
China-specific safeguard mechanism set forth in Section 421 of the
Trade Act of 1974, as amended, and the recent investigation of imports
of certain ductile iron waterworks fittings from China. I would also
like to take the opportunity to respond to your question at the March
11 Ways and Means Committee hearing regarding the President's decision
in the two earlier Section 421 cases involving pedestal actuators and
wire hangers.
First, in all three cases the President has accepted the U.S.
International Trade Commission's (ITC) factual determination that the
domestic industry had suffered market disruption. However, the
President's role under Section 421 is to consider the broader question
of how import restrictions would affect the national economic interest
and, specifically, whether the adverse impact on the U.S. economy would
be clearly greater than the benefits. In these three cases, the
President determined that import restrictions would have an adverse
impact on the U.S. economy clearly greater than the benefits of such
action based on the particular circumstances of each.
In the pedestal actuators case, the proposed import restrictions--
quotas--were unlikely to provide any benefit to the one U.S. producer
of pedestal actuators. Indeed, the U.S. producer's major U.S. customer
testified that it had been sourcing pedestal actuators from a Chinese
company because of dissatisfaction with the U.S. producer. It testified
that, if quotas were imposed, it would source its over-quota pedestal
actuator needs from another foreign company, most likely one from
Taiwan. At the same time, higher input costs due to the import
restrictions would likely have harmed the downstream U.S. industry that
incorporates pedestal actuators into mobility scooters, particularly
with regard to its ability to compete with foreign producers of
imported mobility scooters. Furthermore, the increased costs resulting
from the import restrictions had the potential to harm the aged and
disabled consumers of mobility scooters. This set of circumstances,
combined with the fact that the import restrictions also would have
hurt some of the many U.S. workers employed by the U.S. consuming
industry, meant that the import 85 percent of the U.S. wire hanger
market. In the President's view, with this dominant share of the
market, domestic producers had the opportunity to adjust to competition
from Chinese imports without import relief. At the same time, the
President noted the strong possibility that import relief would
actually provide little or no benefit to any of the domestic producers,
given evidence indicating that wire hanger production would simply
shift from China to third countries not subject to Section 421's China-
specific restrictions. The President also cited other considerations in
support of his decision, including the uneven impact of import relief
on domestic distributors of wire hangers as well as the additional
costs that would be incurred by downstream consumers of wire hangers,
and in particular dry cleaning companies, which are in many cases
small, family-owned businesses.
In the fittings case, the President's decision was based on two
fundamental considerations. First, he found that imposing the import
relief available under Section 421 would be ineffective because imports
from third countries would likely replace curtailed Chinese imports. He
noted that the switch to third country imports could occur quickly
because the major U.S. importers already import substantial quantities
from countries such as India, Brazil, Korea and Mexico. He also noted
that any lag time in switching from China to alternative import sources
would not likely lead to significant additional demand for domestically
produced fittings, given that importers' current inventory supplies can
last 6-12 months. Second, as confirmed by data analysis conducted by
the ITC, the President found that import relief would cost U.S.
consumers substantially more than the increased income that could be
realized by domestic producers. These costs would be borne largely by
local governments (and taxpayers) seeking to build, expand or upgrade
municipal water systems.
While not necessary to the President's decision, the public record
makes clear that other serious factors have contributed to petitioner's
problems. The public record reveals that, since 1995, the petitioner
has been cited for over 400 workplace safety violations and 450
environmental violations. The public record also shows that petitioner
has a State misdemeanor conviction for willfully violating workplace
safety rules and causing a worker's death, as well as a State felony
conviction for an environmental violation. In addition, in December
2003, five, current or former managers of one of petitioner's
subsidiaries were the subject of a 35 count Federal criminal indictment
alleging they conspired for years to violate workplace safety and
environmental laws and obstructed repeated Federal Government inquiries
by lying, intimidating workers into silence imports. In fact, in 2003,
more than 50 percent of the anti-dumping orders put in place by the
Commerce Department involved Chinese imports, up significantly from the
historical average of just under 20 percent.
At the same time, the Administration is actively working to open
markets for U.S. manufactured and other goods in China, and these
efforts have met with some success. U.S. exports to China increased by
28 percent in 2003. Indeed, over the last 3 years, while U.S. exports
to the rest of the world have decreased by 9 percent, U.S. exports to
China have increased by 76 percent. China has become a major consumer
of U.S. manufactured and agricultural exports, while U.S. service
providers' share of China's market has also been increasing rapidly in
many sectors. Nevertheless, as you are aware, our firms continue to
face significant trade barriers that China should have eliminated or
reduced when it joined the World Trade Organization. As you can see
from our 2003 Report to Congress on China's WTO Compliance, issued in
December, we are working hard, and will continue to work hard, to
address these matters on a number of fronts.
In addition, we just filed the first case against China at the WTO
on March 18. We are challenging China's discriminatory tax rebate
policy for integrated circuits, which adversely affects more than $2
billion of U.S. exports annually.
Thank you for bringing your concerns to my attention, and please do
not hesitate to contact one should you or your staff have further
questions.
Sincerely,
Robert B. Zoellick
Chairman THOMAS. The gentleman's time has expired and in
both the Ranking Member of the full Committee and the Ranking
Member of the Subcommittee on Trade's position's stature, the
Chair was willing to more than double the 5 minutes. The Chair
is constrained to say that in looking over both sides of the
dais he sees no one else that meets that same standard of
indulgence, so the 5-minute rule will be more rigorously
enforced. Does the gentleman from Florida wish to inquire?
Mr. SHAW. Yes, Mr. Chairman, and I will abide by the 5-
minute rule and not in any way test your patience this morning.
Mr. Ambassador, you and I have talked at length about the
Secretariat of the Americas and the placement of it and the
importance of having it in this country. There is no question
in my mind but that Miami, Florida would be the best location
because of air transportation, because of the diversity of
language, and I think also that they have made a very
substantial bid for this. I have a full statement regarding
that that I would like to ask unanimous consent to be placed
into the record.
Chairman THOMAS. Without objection.
[The opening statement of Mr. Shaw follows:]
Opening Statement of The Honorable E. Clay Shaw, a Representative in
Congress from the State of Florida
Mr. Ambassador, welcome back.
I have a few areas of the Administration's trade agenda to discuss
this morning.
I would like to begin with an issue that is tremendously important
to the State of Florida. As you well know, the United States is in the
process of ongoing negotiations of the Free Trade Area of the Americas.
When completed, this agreement will include 34 democracies in this
hemisphere and will be the largest free trade area in the world.
An important component of the FTAA negotiations is the issue of
housing the FTAA permanent Secretariat.
Earlier this month, Miami officially submitted its proposal to be
the permanent home of the Secretariat. Included in their proposal was a
rationale detailing the numerous reasons why Miami is the ideal choice
for the permanent Secretariat. I would like to highlight some of these
attributes to you now.
To begin with, Florida is the largest trading partner with most all
Latin American and Caribbean nations. With respect to Miami, it is the
undisputed leader in international business for the Western Hemisphere,
housing 300 regional and world headquarters of Fortune 500 companies,
more than 100 foreign consular offices and foreign business
organizations and more than 100 international banking institutions.
Miami also has the largest number of custom brokers and freight
forwarders in the United States and because of it's geographical
location and IT infrastructure, it has become the high-tech link
between the United States, Central and South America, the Caribbean and
Europe.
Of certain concern to FTAA Secretariat consideration is the flow of
travel in and out of the future headquarters. Miami answers that call
with the Miami International Airport, the top U.S. airport for
international travelers to and from Latin America, offering more direct
flights to Latin America and the Caribbean than any other airport in
the world. But if you prefer to arrive by sea, Miami is well equipped
to handle that request as the undisputed ``cruise capital of the
world,'' not to mention that the Port of Miami is also one of Florida's
top container ports. And finally, let us not discount the natural
beauty of this city by the sea with beautiful year round temperatures
and cultural and entertainment options to satisfy most any taste. For
all these reasons and more, I urge your and the Administration's
support of Miami as the permanent home for the FTAA Secretariat.
Now let me turn to another area of international concern, the
ongoing situation in Haiti, an island nation less than 700 miles off
the coast of the United States. What we have seen in the last few weeks
is the culmination of years of frustration and struggle on the part of
the Haitian people, eager to provide for a better life for themselves
and their families. As I have said in the past, I believe strongly that
there can be no democracy until there is an economy. The people of
Haiti have suffered too long, remaining to this day, the least
developed nation in the Western Hemisphere. Haiti is a country drowning
in over 70% unemployment and over 80% poverty rate for it's population
of 7 million. One out of 12 Haitians suffer from HIV/AIDS, and an
estimated 250,000 Haitian children are orphaned.
As we sit here today, our trade policy with Haiti is at a critical
juncture and the United States stands poised to make a substantial
contribution to this struggling nation. While I applaud the
Administration and our international partners for the handling of this
crisis, we can not drop the ball and allow Haiti to slip back into
lawlessness and despair. Our economic policy will largely determine how
the scale will tip in regards to Haiti and I encourage the
Administration to embrace a policy that encourages economic stability
and growth; as well as improved quality of life in Haiti.
One such measure is a bill I introduced along with my friend
Senator Mike DeWine and others on this Committee, The Haitian Economic
Recovery Opportunity Act, H.R. 1031. Specifically, our bill amends the
``Trade and Development Act of 2000'' by granting duty-free status on
Haitian apparel articles assembled from fabrics and yarns from
countries in which the U.S. has a free trade agreement. This bill, in
my view, is an economic lifeline Haiti desperately needs.
The time is now to assist Haiti. As our trade agenda moves forward,
it's vitally important we remember the Haitian people.
Mr. Ambassador, I thank you for your work in this area and your
efforts to improve trade relations between our two counties. As we work
together to make economic, social and political stability in Haiti a
reality, we will mark our progress not only in jobs created, but in
families who no longer have to say goodbye on one shore in search of a
better life on another.
If you would please comment on these two areas.
Mr. SHAW. I also want to comment or associate myself with
the comments of Mr. Crane with regard to the sugar industry. We
are losing a lot of jobs. There is no reason for the candy
industry to stay here in the United States when the main
ingredient into the product on the world market is
substantially lower. I think the concessions that are given to
sugar are a mistake and I would hope that in further
negotiations, particularly as we go into Central America, that
we open up our sugar market to the world trade. That is not a
question. That is just expressing my opinion with regard to
that.
There is a bill that is out there--I know Mr. Crane is a
cosponsor and I think Mr. Rangel may be a cosponsor, too, and
that I am certainly supporting as a sponsor of, and that is the
setting up of knit-to-fit shops down in Haiti, the sewing
shops, and making it free of tariffs on imports coming to the
United States, provided the textiles used come from a country
with which we do have a FTA with regard to those textiles.
These people down in Haiti are desperate. We are wasting our
time trying to grow a democracy where there is no economy. We
have to go along a parallel course and grow the economy at the
same time. Without that, any advances that we make with placing
a democratically elected government in Haiti that can sustain
itself and take care of the people and be popular to the people
would be lost.
My question to you is has the Administration or you taken a
position with regard to the bill? I think you are probably
familiar with it. Or is there anything else you would like to
tell us about how we might be able to energize the economy in
Haiti?
Mr. ZOELLICK. I am not familiar with that particular bill,
Mr. Shaw, but I will check into it. I do not know if this is
similar to the one that Senator DeWine has talked about on the
Senate side?
Mr. SHAW. Yes, it is.
Mr. ZOELLICK. What I also mentioned to Mr. Rangel is I
think we all share an interest in helping Haiti and frankly,
the best thing that I can think of in the near term is to try
to complete this FTA with the Dominican Republic and get that
through the Congress because when I was down there recently I
learned there are about a million Haitians working in the
Dominican Republic. Someone mentioned to me this morning there
may be now 2 million. There are some coproduction-sharing
operations that were developed under the CBI that was passed by
the Congress and we are trying to be very careful in this FTA
that we actually do something that might encourage those and
certainly not do anything to discourage those.
So, I wish I had a better idea to deal with Haiti's economy
but I think the best thing right now I could think of to do is
to make sure that the economy of its neighbor is growing and
dynamic. As many of you know, the Dominican Republic has had
its own financial problems this year, so it is even more
important to try to move that forward.
I will say again, when I was down there with Mr. Weller, we
also met with the lead opposition candidates, and I think they
have been supportive of this effort, too. So, even though
President Mejia's term is coming to an end, he is running for
reelection, we want to try to make sure that there is broad
support in the Dominican Republic to make this go forward, but
I will be pleased, Mr. Shaw, to look at the other bill, too.
Mr. SHAW. Thank you and I yield back, Mr. Chairman.
Chairman THOMAS. I thank the gentleman. The Chair, in an
attempt to even up the sides in terms of inquiries, would now
wonder if the gentlewoman from Connecticut wishes to inquire.
Mrs. JOHNSON. Thank you, Mr. Chairman. Welcome, Mr.
Zoellick. First of all, I want to congratulate you on building
labor and environmental provisions into all of our trade
agreements, and I did not know that we were the only country to
do this and to try to do it in a way that those provisions will
be enforceable and result in other countries making some real
progress on the quality of their domestic labor and
environmental laws.
I also want to congratulate you on the impact on
manufacturing of so many of the agreements that you have worked
out and are working on, and I am going to eliminate all the
preambles to my questions and just lay out my three questions.
If you prefer to answer any of them in writing, you may do so.
I would also like a copy of the letter you are going to do for
Mr. Levin on those three cases that were brought in regard to
China.
So, first of all, I would like an update on how the USTR's
office is increasing pressure on the Chinese to prevent
counterfeiting. It is just a huge problem, all kinds of
evidence of their marketing other people's goods, and I want to
know what you are doing to increase enforcement of the
intellectual property provisions of the agreement to which they
are a signatory.
I also want to know what you are doing to reduce direct
state subsidies that Europe provides to its big multinational
companies. I know over the years we have made some progress on
all of that, but there is much more progress to be made and as
we are faced with repeal of the Extraterritorial Income (ETI),
I would like to know what progress we are making in regard to
backing down the direct subsidies that Europe provides to its
multinationals.
Last, I hope as you review the ETI proposals with us that
you, with all your experience in the global economy, can assure
that we do give our businesses a more competitive position in
the global economy than they will enjoy if we simply repeal the
one thing that has been really helpful to at least our
multinationals. So, it is not just repeal. We have to replace
with something of quality that assures that we will not lose
jobs in America because of this change in our tax law. So, I
look to you for help on that. Those are the three things I
would like your attention to.
Mr. ZOELLICK. Well, let me deal with the third one last
because I can be briefest on it. That is I am not a tax expert
but I, of course, would always be pleased to work with Members
of the Committee, both sides of the aisle, and give whatever
advice I could and I know that the Treasury team that is tax
experts I know is also willing to do the same. I have been in a
number of meetings where they have offered their suggestions
and ideas.
On the China IPR issue, you are exactly right, Mrs.
Johnson. This is a huge issue and I am glad you focused on the
counterfeiting part because there are problems with basic
intellectual property but the counterfeiting is one that also
runs real dangers for the people of China and the world because
it is a question, for example, of producing windshields that
might not meet the shatterproof standards but yet that may be
sort of mislabeled in terms of the brands. It is a question of
pharmaceuticals that do not work. It is a question of foods
that may not be safe for people.
We have tried to work on this on a couple of different
fronts. One is we are trying to get forces within China to
recognize the danger of this and this goes to the point that
some of the best ways to get these things done is to recognize
the dangers for the Chinese, including trying to get some in
China who now respect the role of brands and who are starting
to build brands to recognize the benefit of protecting them.
Second, we emphasize--the President has emphasized this,
Secretary Evans and I--the Chinese put Madam Wu Yi in charge of
intellectual property. She is the Vice Premier, so it is above
the trade minister. Just to give you a sense of the seriousness
with which I hope they are looking at this, she is the woman
they put in charge of the Severe Acute Respiratory Syndrome
(SARS) crisis when it broke out. She has started, with our
encouragement, to hold some sessions with the American business
community, the Chinese business community, the government in
China, and she will be here in April and this will be one of
the key items on our agenda.
Third, in the counterfeiting area, one idea that I would
like to look at more with the Customs Department, and I will
share this because it is something that we may need
congressional help on, is there is authority now for the
Customs people to stop people from bringing in products. It is
the Section 337 authority that has misused trademarks, but I do
not know the full broad reach of that authority and frankly, if
the Chinese do not start to solve this problem I would suggest
that Customs has the authority that says if a Chinese company
is counterfeiting and causing huge problems in terms of whether
it is the goods that are coming in or not, maybe we should
block those goods to try to get some pressure on it. So, that
is an idea that I would like to try to work on further.
On the state subsidies in Europe, our best shot at trying
to deal with that, Mrs. Johnson, is that in the WTO
negotiations there is a section dealing with subsidies codes,
so the Doha negotiations the Chairman talked about is where we
are putting forward proposals on that. I will hesitate to
mention that is the rules negotiation that many Members also
get very sensitive about because of anti-dumping and
countervailing duty, but our view has been if people want to
discuss those laws that we use to prevent subsidies, then it is
fair game to try to work at some of those subsidies, as well.
Chairman THOMAS. I thank the gentlewoman. Does the
gentleman from Maryland, Mr. Cardin, wish to inquire?
Mr. CARDIN. Thank you very much, Mr. Chairman. Mr.
Zoellick, it is always a pleasure to have you before the
Committee. I want to weigh in on the sugar issue if I might
because I disagree with Congressman Crane. I agree with your
assessment that this is an issue that has to be handled
carefully in any type of a regional or bilateral agreement but
let me just raise the issue.
You obviously have not satisfied the individuals who would
like to have a more open amount of sugar coming into the United
States. My concern is why you have any provision in this
agreement, in CAFTA, regarding sugar. When you try to deal with
it from a regional point of view or deal with it bilaterally,
it really raises the issue whether it can be done in that
regard, whether it should not be done on a global issue. The
sugar policy, you might be surprised to learn that in Maryland
and Baltimore we have more than steel; we have a sugar
refinery.
Mr. ZOELLICK. I know.
Mr. CARDIN. Domino. It is the last remaining one on the
East Coast of the United States and the sugar policies of this
country have had a mixed impact on the growth and success of
sugar refinery in the United States. So, I am not here
promoting that everything is right in our sugar policy but I am
here to say that I think it needs to be dealt with on a global
basis rather than on regional or bilateral agreements. There is
the issue of whether there should be some differential between
raw sugar cane and refined sugar coming into the United States.
So, I just wanted to raise that issue because I know you are
getting it from both sides in regard to the CAFTA agreement and
I, for one, would have preferred to see nothing in this
agreement, rather than the way that it proceeded.
I do have one specific question on CAFTA and that is there
may be different views here as to whether we should have been
more aggressive in regard to labor enforcement and labor
standards but I have a concern as to whether the CAFTA
agreement affects current rights within the countries that are
involved in regards to the CBI or in regards to the Generalized
System of Preferences (GSP) or other agreements that may impact
labor enforcement. Have they been impacted at all by what is in
CAFTA?
Mr. ZOELLICK. Let me start briefly with your sugar one and
then try to get onto the second one. On the sugar one you had
asked why we had to include it at all. Each of these agreements
are case by case. You obviously have to customize. There are a
lot of sensitive agricultural commodities that the Central
Americans had that we wanted to open up for American
agriculture and the only way that we could get those benefits
for beef, poultry, dairy, a whole bunch of others was by saying
we are willing to try to open up, too.
So, then what we tried to do is within the limitations of
the sugar program that Congress has created, we tried to make
sure that we could create some modest opening but not undermine
the sugar program. So, the key, for those of you that do have
sugar interests, is to recognize that the way the sugar program
works, it limits the overall amount coming into the country so
as to maintain the price at a certain level. There are
basically about 300,000 tons that could still come in beyond
the current quotas that have been granted.
The Central American agreement only allowed in about
100,000 tons--99, actually--and it grows to about 140,000 over
15 years, and that is why it is well within those overall
limits. We did not touch the tariff, which is the real concern
about sugar coming in over that amount. So, it is a sensitive
balance but it is one of the reasons why again yesterday the
American Farm Bureau, including the sugar industry, said they
manage the sugar industry very carefully but they expanded the
market for a whole bunch of other things that America wants to
try to sell. Frankly, in Australia it is a developed country,
as opposed to a developing country. While sugar is important,
it was not as important, it was not as important as a lot of
the other benefits and it was my hope that we could be able to
keep it out and still get the things we needed and that is what
we did.
On the question about the GSP, the GSP and the CBI, first
off, does not have any environmental requirements. So, one very
important aspect about CAFTA is that we now have the
enforcement of the environmental laws, as well as trying to
promote the standards and higher standards of environmental
laws.
The preferential agreements, whether CBI or GSP, have
various standards that we have used with these countries along
the way. What we are now doing in place of that is to have the
requirement about enforcing their own laws, and this is where
Mr. Levin and I have a disagreement, I think, is that we
believe that the quality of the laws is pretty good and where
there are gaps, we are working with those countries to upgrade
it. The real challenge is getting the resources to enforce
those laws and that is partly something we can do, it is partly
something we are getting the private sector to do. I am getting
non-governmental organizations (NGOs) to try to help in this
process. So, we look at this as a three-part: enforce your
laws, increase the quality of the laws, provide the resources.
Mr. CARDIN. Thank you.
Chairman THOMAS. I thank the gentleman. Does the gentleman
from New York, Mr. Houghton, wish to inquire?
Mr. HOUGHTON. Yes. Thank you very much, Mr. Chairman. Mr.
Zoellick, great to see you again and I appreciate your being
here. The President gave a speech yesterday in Cleveland and he
talked about many things and he talked about the completion of
the negotiations with Australia and he talked about
manufactured products and also touched on the agricultural
products. Can you break that down a little bit? What does it
mean for the United States completing this agreement?
Mr. ZOELLICK. Well, as I mentioned, this is our first FTA
with a developed country since Canada and our manufacturing
sector is extremely excited about it because we eliminate 99
percent of the tariffs on day one, so we often have phase-ins
of sensitive items.
We currently have about $28 billion of trade with
Australia, including services and goods. We actually have
about, I think, an $8 or 9 billion surplus. It is one of the
few countries we have a surplus with, so there are good
opportunities. The manufacturing community has estimated that
on the manufacturing side alone you could boost exports by
about $2 billion a year and they estimate that would increase
national income by about $2 billion.
On the agriculture side I think we export about $400
million to Australia and one of the analyses that the Farm
Bureau made yesterday was that net-net, they think this will be
about a wash. In other words, we will be exporting more and
they will be also exporting more to us in certain areas.
Where we had sensitive items, and they were primarily sugar
and beef and dairy, we tried to deal with those effectively.
Another thing that is often hard to calculate, Mr. Houghton, is
the services business. This is now 80 percent of the employees
in America and 66 percent and we have expanded the services
provisions, as well as frankly upgraded a whole series of
intellectual property issues. So, one of the things that is
always hard to calculate about these agreements is the dynamic
effect as they start to add more economic opportunity for both
sides, but we are very proud of this agreement and under the
TPA rules, the earliest that the President could sign it is
about early May, but we hope actually, although the calendar is
not long, that we could get that agreement through the Congress
this year.
Mr. HOUGHTON. Thanks very much.
Chairman THOMAS. Does the gentleman from California, Mr.
Herger, wish to inquire?
Mr. HERGER. Thank you very much. Ambassador Zoellick, I
want to thank you for your very strong efforts in bringing down
the overwhelmingly high tariffs that so many of our other
countries, our trading partners, have that would allow us,
particularly the agricultural products that are grown in my
Northern California district, of which we export approaching 50
percent of, allowing us to open up those markets. As you know,
there has been interest from the agricultural community in
negotiating trade deals with nations that are viewed as large
export markets. Some have mentioned South Korea, Taiwan, for
example.
Could you tell me what countries come to mind as promising
export markets for our agricultural products and particularly
some of the specialty crops that are grown in my area--rice,
peaches, walnuts, almonds, to name a few? Is the U.S.
considering trade talks with any of these nations?
Mr. ZOELLICK. Well, I want to start by thanking you, Mr.
Herger. I think when I made my opening statement I was not sure
if you were here. I know we have worked with some sensitive
items for you and I appreciate your support for openness with
those sensitivities. With the Chairman's leadership, we have
obviously put some real attention on some of the crops in
California that do not get subsidized, do not have any
particular benefits, and I am pleased there are some benefits
for walnuts and nuts in the Australia agreement, too. It is
sort of a soup-to-nuts agreement because we have processed
soups there, as well.
I think the two biggest ones on the agenda that have good
potential are Colombia and Thailand, where there is strong
interest in the agricultural community. Their barriers are
relatively high. Thailand has been buying a lot of agricultural
products but we think we can improve that a lot. With Korea,
the challenge is I do not think they are willing to negotiate a
FTA with us. Part of our problem, as people mentioned, some
economies that I would love to have a shot at--Japan, Korea--
they will not open up their ag markets and frankly we do not
feel it is appropriate to just do an agreement that does
manufacturing or services and does not include agriculture. In
Taiwan we have been trying to work with them on their WTO
implementation, and this is another item I know we have worked
together because we have had some problems on some of the rice
issues, as well as telecommunications and IPR issues. So, we
want to frankly get them to follow through on their WTO
obligations before considering a set of additional steps.
What I want to emphasize again is that if you look across
some of these potential markets in Latin America and Asia, you
are also talking about rising incomes. So, some of these, I
think particularly for some of the crops from your district,
offer some good opportunities but we not only have to open the
markets; we have to deal with the sanitary and phytosanitary
issues that sometimes arise, too.
Mr. HERGER. Thank you. While in India recently you
expressed your concern to the Indian government regarding new
regulations requiring that California almond exports to India
be fumigated with methylbromide, a chemical being phased out in
California. I want to thank you for taking this necessary step.
As you know, more than 60 percent of California almonds are
exported and India is a major market. What is the status of
this issue and are you optimistic that the Indian government
will change these misguided regulations?
Mr. ZOELLICK. I want to start by making a point that you
hear a lot of complaints from India these days about actions in
the United States. The point that I have tried to emphasize to
the Indians is that if they want to be able to keep our markets
open, for example, in some of the services connections, they
cannot play these sorts of games on almonds.
I learned about this right before I was in India. I was
there as part of the WTO negotiations and as I mentioned I
think a little earlier, I think the Agriculture Ministry took
this action without even informing the Commerce Ministry. They
are supposed to notify people because we believe, as you know,
that there are alternative methods to be able to deal with
fumigation and we now have a United States Department of
Agriculture (USDA) team that is on the way to India to try to
see if we can resolve this issue.
I also made a point before leaving. We have a new
ambassador, David Mulford, who has been in the economic and
treasury world and emphasized that how together, we need to
keep following up on this issue because almonds are our second
largest agricultural export to India, about $70 million a year.
Now that tells me two things, Mr. Herger. One is they should be
opening up a lot of other agricultural products and then in
addition, they should not be playing games with one of the few
things they are buying.
Mr. HERGER. Thank you very much, Mr. Chairman.
Chairman THOMAS. I thank the gentleman. Does the gentleman
from Washington, Mr. McDermott, wish to inquire?
Mr. MCDERMOTT. Thank you, Mr. Chairman. Mr. Ambassador, I
eagerly grabbed your new President's Trade Policy Agenda to
read through what you had in mind for Africa. As you may know,
there are a number of African ambassadors sitting out in the
audience today and we welcome them to come and hear this
meeting and would love to hear what you have to say.
I find nothing in here about an extension of AGOA. Now I do
not know why that is except I have the sneaky feeling that
maybe South African Customs Union (SACU) is what you are really
moving toward, rather than extending AGOA to the entire
continent. You are really looking at those countries in
Southern Africa where, in fact, there has been quite a bit of
investment--Lesotho, Namibia, South Africa, and so forth--but I
do not see anything that would suppose to be directed at the
whole continent. It is not a continent-wide thing you are
talking about. You are really talking about SACU on page 5.
I was in Mauritius with you and I heard all the comments
about how we were going to extend AGOA, and so forth, but I
have also heard and seen that a lot of these countries are not
yet self-sufficient and the ITC report that you requested says
75 percent of AGOA apparel imports in 2002 were made from
third-country fabric. This reflects the limited availability
and relatively high cost of sub-Saharan African yarns and
fabrics. So, it is pretty clear that they still need some help
if we are going to deal with them.
Now I heard you talk about the fragility of certain
Caribbean groups, that we had to be careful because they were
very fragile. I think the same is true in Africa and I would
like to hear you talk about what kind of an extension you want
for AGOA. Is a year a reasonable extension or do you need 2
years? I mean if you are a clothing buyer you are planning
right now for what you are going to sell at Christmas time.
That is almost a year out. No African country can give a
guarantee at this point of what they can deliver in December
because AGOA may be done on the first of October. Certainly if
they are going to plan for the spring, they are not going to
give African companies a contract because they just cannot give
them a guaranteed price, and so forth. So, knowing the business
cycle and all, how long do you think the extension for Africa
should be and do you think it should be continent-wide or just
for SACU?
Chairman THOMAS. If the Ambassador would suspend, I know we
talk in acronyms around here but because we do have cameras
here, there may be people who have no idea what SACU is. It is
the SACU and I just thought we should put that on the record so
that someone who does not follow this to the level of acronyms
would have some understanding of the discussion.
Mr. MCDERMOTT. I think, Mr. Chairman, I mentioned Lesotho
and Namibia and South Africa but I left out Swaziland and
Botswana. Those are the five countries in SACU.
Chairman THOMAS. That covers the SACU.
Mr. MCDERMOTT. Yes, thank you for that clarification.
Everyone on the dias would know what it was but since this is
for television, I guess you are right.
Chairman THOMAS. I will tell the gentleman that this is for
all Americans, not just the people on the dias and it is hard
to follow sometimes the discussions in this Committee because
we are all very knowledgeable and we get down to the level of
short-handing----
Mr. MCDERMOTT. You are using my time, Mr. Chairman.
Chairman THOMAS. No, I tell the gentleman this is not
coming out of his time.
Mr. MCDERMOTT. Ah, thank you.
Mr. ZOELLICK. This is actually a polite reminder for me,
Mr. McDermott. I often use these terms and he is trying to let
me know to speak English.
Mr. MCDERMOTT. It is so nice of you to take the brunt of
it.
Mr. ZOELLICK. I bet I could find it for you in our trade
report but on page 10 of my testimony, third full paragraph, I
spared you from reading all this but let me just read you the
essence of it. ``In Africa, the African Growth and Opportunity
Act, AGOA, enacted in 2000 . . . has created tangible
incentives for commercial and economic reform by providing
enhanced access to 37 eligible sub-Saharan nations.
Enhancements made in 2002 to the African Growth and Opportunity
Act improved access for imports from beneficiary sub-Saharan
countries. We look forward to working with Congress on
legislation on AGOA that will accelerate its gains, including
by extending provisions and enabling countries to take full
advantage of AGOA through enhanced technical assistance.''
Now let me get slightly more specific. The AGOA itself, as
you probably know, actually expires in 2008 but the President
called for a longer extension of that. The provisions that I
think we talked about together in Mauritius, and I know the
Chairman has been focused on and so has Mr. Rangel, is the
third-party fabric provisions.
Mr. MCDERMOTT. Those go out in 2004.
Mr. ZOELLICK. September, and that is one reason why as I
have talked about it, my real concern about this one is the
window. This year it is going to be hard to get things done, so
what we have tried to pledge, as I mentioned in the opening
point, I know that the Chairman and Mr. Rangel and others are
talking about kind of the solution to this--it includes some
technical assistance things, by the way, to make sure that
countries can use these provisions.
On the third-party fabric, here is the balance that you may
recall we discussed in Mauritius. All the quotas, all our
quotas for textile imports come off in 2004. That means that in
particular the competition from China, India, a couple of other
countries is going to be very vigorous. What the report, the
ITC report showed us and my other discussions is that for
Africa to really be competitive, it is going to need not only
to have the apparel, the sewing; it is going to need to have
the fabric investment, and you are starting to see that fabric
investment in places like Lesotho, South Africa, and Kenya.
You are correct, Mr. McDermott. It is not fully there yet.
So, the question is how long do you extend it? Might you want
to try to use a phase-down? For example, the minister from
Lesotho, and Lesotho has done an excellent job of creating a
large number of jobs from this and sort of moving the
international trade economy, had suggested that if we do not
use a phase-down, it might signal to people that this will just
continue to be extended. So, he kind of encouraged a phase-
down. Now people have talked about 2 years. People have talked
about 3 years. To be honest, I do not think this is----
Mr. MCDERMOTT. Is 1 year enough?
Mr. ZOELLICK. I would be reluctant, I think, on that
personally, and for the reasons you said. You need some
business planning on this. So, this is something where I think
you will get slightly different views from different African
countries because the ones that are now getting the fabric
production would like it to end earlier so they could create
the integrated market. They are really right because, for
example, there is a denim plant I think now being put in
Lesotho and for them really to be able to compete with China,
they need to be able to do the fabric through the sewing. So,
the sooner they get that, the better, but they are not quite
ready now. So, that is the issues that the Chairman and Mr.
Rangel and I and others have been trying to talk about but the
key thing, and I want to endorse your words, the worst thing to
have happen would be to let this not get done.
Mr. MCDERMOTT. Thank you. I hope that we can actually get
this done. It would be a real shame to go into an election year
having done nothing and leaving Africa hanging out there. After
all we have talked about putting in AIDS and we are going to
put in all this money for treatment of AIDS but not give them
the economic development tools----
Mr. ZOELLICK. Just a word on the SACU because I want to
make it 100 percent clear. We see these, the FTAs, as
complements to AGOA and indeed, the original AGOA bill
encourages us to do this. Our progress with these five
countries in Southern Africa has already generated interest in
other countries in terms of trying to open markets more and
build in a reciprocal relationship. So, frankly, we see it as a
stepping stone process, Mr. McDermott, but I assure you our
interest in negotiating with the SACU is not to the exclusion
of AGOA. We want both.
Chairman THOMAS. I will tell the gentleman just very
briefly that I think AGOA would fall far short if what we
really wound up doing was strengthening and increasing just the
concept of cut and sew in Southern Africa, that an integrated
textile industry in the long run makes them most competitive.
If that is our shared goal, how we get there, there may be some
slight disagreement over it but surely our goal would be to
provide them an integrated structure with which to compete,
rather than simply utilize the lower-cost labor on a cut-and-
sew operation with fabric coming from outside the area. That is
what we need to work on.
Mr. MCDERMOTT. May I just respond briefly?
Chairman THOMAS. Certainly.
Mr. MCDERMOTT. It is textiles that bring--or it is the
apparel industry that brings the demand that develops the
textile industry, and that is why I do not want to lose any of
the impetus of the apparel industry. I understand the whole
integration question and all the rest but if you take away the
demand that the apparel industry has right now, then you stop
everything that is coming behind it, that we hope will come
behind it. It is really why I want there to be some apparel
protection for at least some period of time.
Chairman THOMAS. I tell the gentleman I think we are in
complete agreement. The response of the Ambassador of one year,
that it was probably too short, I think is entirely accurate.
When you go into multiple years you then begin to emphasize
more the low-cost labor than the integrated textile industry
and that is an area that I believe we need to resolve very
quickly so that no one thinks that AGOA, as a concept and as a
particular trade instrument, would be jeopardized by the
political season.
I appreciate the gentleman's initial positions on moving
into Southern Africa aggressively. We have worked together on
this and the Chair looks forward to continuing to work together
with the gentleman from Washington. Does the gentleman from
Louisiana wish to inquire?
Mr. MCCRERY. Briefly, Mr. Chairman. My voice is just about
gone. Mr. Ambassador, when you hear people say American jobs
are moving to Mexico because of NAFTA and American jobs are
moving overseas because of fast track authority, does that just
drive you nuts?
Mr. ZOELLICK. Well honestly, yes.
Mr. MCCRERY. Why?
Mr. ZOELLICK. Because what you actually see are people that
are taking advantage of the economic anxiety that is associated
with an economic cycle and with change and they are leading
people in the wrong direction because building walls will not
create jobs. Helping people with education so they can compete,
helping them with trade adjustment assistance so they can get
back on their feet, and opening markets around the world is
what helps us proceed.
Look, I was part of the effort to negotiate NAFTA.
President Clinton, with a Republican Congress, helped get it
through. There were a lot of forecasts about all the
devastating effects. Well, in the years that followed we
created 20 million jobs in this country. Manufacturing expanded
on a real basis by about 45 percent.
Now there is no doubt, and looking at Mr. Camp, I know he
faces this challenge, that there will be companies that move
and this creates anxiety for communities, but I will tell you
the other side of it. I checked the numbers in Michigan because
I know this is a topic that he has had to deal with recently.
There are about 250,000 people employed in Michigan because of
foreign investment. So, the other side of it is that by having
an open and competitive economy, we draw people. The formula
that has helped this economy grow is not by adding to prices or
adding to barriers but helping people compete.
The other side of it, Mr. McCrery, that is always lost is
the benefits of lower taxes by cutting import taxes. The work
that came out of the Clinton Administration showed that the
benefits of NAFTA and the Uruguay Round together for the
average American family of four is $1,300 to $2,000 a year, and
who do you think gets helped the most on that? The people that
frankly spend a higher portion of their paycheck for clothes or
food or other things. So, as I noted, I think, in my testimony,
it is the single family or working mother that gets hurt most
by trade barriers.
So, people often do not know the benefits of that because
when they just have lower prices, they do not know what it is
caused by. So, what we need to try to do, whether it be NAFTA
or Australia or CAFTA or others, is make sure we deal
sensitively with the adjustments that we need, try to deal with
the environment and labor issues as we have talked about in a
way that is not the United States trying to sort of be heavy-
handed with developing countries but do try to encourage them
and try to help support their process, and that is the way that
I think is going to become a win-win venture for the United
States going forward. When you last think about it, Mr.
McCrery, some people look at markets like Japan and think that
this is the model. Well, it does not look like the model to me.
They have been having a hard time growing for 10 years.
I do not underestimate the challenge of adjustment and you
have to help people with that because whether you lose your job
to new technology or you lose it to trade and competition, that
is a very difficult time for people. You have to help them. The
solution is not to try to create added barriers and costs and
try what people tried in the 1930s. I remind people often we
had a trade surplus in the 1930s; it did not really work.
Mr. MCCRERY. Thank you.
Chairman THOMAS. Does the gentleman from Michigan, Mr.
Camp, wish to inquire?
Mr. CAMP. I do. Thank you, Mr. Chairman. Mr. Ambassador, I
want to thank you for your effort on the dry bean issue, which
you mentioned earlier. It did take several years to resolve but
I do not think it would have been resolved without your
personal involvement and commitment there, and that has opened
up a new market for our agricultural producers. Just recently
for the first time Michigan has been able to get an agreement
to export apples to Mexico, which is going to be an important
thing for us and our agricultural exports to Mexico since NAFTA
have grown significantly from just under a million to 15
million now in 2003.
With regard to the sugar commodity, I would agree with the
comments some others have made in that a WTO solution is one
that would be better for us and I agree with the comments of
others who question why it was even included in the CAFTA
agreement for that reason and want to say, for one, I want to
thank you for your efforts in terms of the Australian
agreement. As we look at these bilateral agreements, it makes
it much more difficult to track all of these complex impacts
throughout our society and make sure that we have a fair trade
agreement with the countries that we are dealing with. So, I
just want to make that comment.
I do have legislation that would create a special Section
301 procedure at USTR for agriculture much like what we already
have existing for intellectual property and it has bipartisan
support and I know Congressman Pomeroy of this Committee and
both the Chairman and Ranking Members of the Senate Finance
Committee have introduced similar legislation in the Senate.
This legislation would designate priority countries whose
barriers to U.S. agricultural exports because enforcing these
agreements--getting them is one thing; enforcing them is
another--would designate those countries that are not living up
to international trade agreements and I would appreciate your
support in moving this bill forward and just want to ask if you
have any comment particularly on that bill.
Mr. ZOELLICK. I will be pleased to examine the bill, Mr.
Camp. I think the key thing is that starting from the beginning
of when the President interviewed me for this job, he asked me
to emphasize American agriculture and trade, and so we have
tried to do that and I am delighted that I think our
agricultural exports may be close to a record level now, about
$59 billion. So, we frankly put a strong list of priorities on
opening these markets anyway, so I will be pleased to look at
your bill.
Just a word on Michigan in terms of agriculture, and I know
the sensitivity with some of the sugar products. The balance we
had to strike, Mr. Camp, with Central America is could we get
open goods for other products if we are going to open up sugar
just a little bit? It is interesting. You look at the State of
Michigan and the numbers I have, there are about 46,000 farms
in Michigan. There are about 1,100 that produce sugar, 2.6
percent. Of the total cash receipts for agriculture in
Michigan--people do not realize what a big agricultural State
it is; it is about $3.4 billion and there is $100 million in
sugar. So, when we are able to sell corn and cattle and
soybeans and wheat and some of the other products and beans,
people in Michigan benefit from it. So, what we try to do, and
this is always the balance, is to try to deal sensitively with
a product like sugar, but make sure the rest of American
agriculture gets an opportunity.
Mr. CAMP. Actually, the impact on the State, when you look
at the refinery side, as well, the ripple effect is more like
$300 million to the State. So, it is a much bigger commodity,
but I appreciate that.
The other thing is we just passed the 10-year anniversary
of NAFTA and I look at Michigan and our unemployment rate in
our State is about the same as it was when NAFTA was passed,
after having had 10 years of historically low unemployment in
our State. My question to you is what are your thoughts on the
overall impact of NAFTA on the U.S. economy and particularly
how many jobs have been created in the United States? I am not
sure you have specific State data there but in Michigan
particularly. Who are the big winners and losers in the NAFTA
agreement?
Mr. ZOELLICK. Part of the challenge that you have now in
Michigan and around the country is we are coming out of a tough
part of an economic cycle, and this is something that is
important for people to recognize. I am not putting blame on it
but you had a pretty big bubble in terms of high-tech and in
terms of the stock market. You ended up having a recession
start about the year 2000 and you have frankly 9/11. A lot of
people forget we are a country at war. We are fighting a
campaign in Afghanistan and Iraq. So, again I hope that as you
start to see this growth, which we are having some pretty good
numbers but not enough yet on the job side, that that creates
additional opportunities in Michigan and elsewhere.
Now in the case of NAFTA, I could try to get some of the
statistics more for the State. My overall statistics, our
exports have increased about 88 percent to both Canada and
Mexico, about $267 billion. One of the other benefits of this
that again people often do not look at is you get some lower-
cost production because you also get some of the inputs being
lower that help our manufacturers be more competitive and it is
important then for people to keep in mind we are competing
globally. So, part of this is how we compete as North America
against a global market.
As I mentioned to Mr. McCrery, in the years that followed
you had 20 million extra jobs. The manufacturing output
increased 44 percent. Going to this point about more efficient
production, manufacturing wages actually increased about 14.4
percent in the 10 years since NAFTA on a real hourly basis and
that is more than double in the prior 10 years. So, that is
part of the challenge, is how do we become more competitive,
better paying jobs, but keep adding them with frankly a low
tax, low interest rate, low inflation economy, as we have now.
Mr. CAMP. Thank you. I see my time has expired. Thank you,
Mr. Chairman.
Chairman THOMAS. I thank the gentleman. Does the gentleman
from Massachusetts, Mr. Neal, wish to inquire?
Mr. NEAL. Thank you very much, Mr. Chairman. Mr.
Ambassador, I think the inference has been drawn a couple of
times during the question and answer period that somehow there
is an effort being made to take advantage of the dislocations
that have occurred because of trade policies and anxiety is a
very powerful current, as you know, in public life and speaking
to those issues is one of the obligations that House Members
have. So, I guess I would reject the idea that we ought not to
ask these questions in an effort to education the citizenry as
to the pros and cons of free trade.
I think you can say with some certainty that one of the
difficulties with the free trade debate, Mr. Ambassador, is
that when the debate ends and the agreements are signed that
the trade lawyers have their jobs, college professors have
their jobs, and the editorial writers have their jobs, but
there are an awful lot of fine people who do not have their
jobs anymore and speaking to that anxiety is a very, very
important consideration.
Now specifically let me ask you what are the barriers and
why are they so significant in terms of us penetrating the
Indian middle class and Indian markets? What is the difficulty
with that issue as you see it?
Mr. ZOELLICK. First, Mr. Neal, I just want you to know I do
not disagree with that. I mean it is an anxiety that we have to
be able to debate and argue about. I think some of your
colleagues took my comments that related to a more general
debate, which certainly we all know is being done over the past
couple of months, for their positions, and it is not the same.
Mr. NEAL. Right.
Mr. ZOELLICK. In the case of India, the problem here, Mr.
Neal, is that India was one of the charter members in the
General Agreement on Tariffs and Trade (GATT), which is now the
WTO. In over 50 years, frankly, most of the cuts were made by
developed countries, not by developing countries. So, India
more than almost any other developing country I know has what
they call very high bound tariffs. So, in other words, their
agriculture tariff could be up to 110 percent. It is not; it is
lower than that, but they could go up to that level. Similarly
in the manufacturing area. So, their manufacturing tariff--our
average is about 3 percent; theirs is about 30 percent. It has
been traditionally a very closed economy.
Starting in 1991 after a balance of payments crisis they
started to change and there has been a reform process going on
in India and as we all know, there are some parts of India--in
the high-tech and software sector--that are globally
competitive. There are other parts, frankly, that they have 650
million subsistence farmers that they are very worried about
its effect on their democracy. So, it is an economy that is at
the point of change and frankly, what I think we have to try to
do, in part through the WTO negotiations, in part bilaterally,
is try to get them to recognize there are benefits, there are
win-win benefits from doing business with us, but they are also
going to have to be open to our products along the way. Whether
it be sanitary and phytosanitary standards, like dealing with
almonds, or whether it be tariffs, we need to get those
lowered.
Now the Indians themselves have often found it easier to
lower their tariffs unilaterally. They do it through their
budget and they have been bringing down tariffs in some goods
categories. One of the things that when I took this job that I
thought this was going to be a very important market, I created
an assistant U.S. Trade Representative for South Asia because I
felt this was going to be an area we are going to have to try
to work with more.
One of the things we need to do, Mr. Neal, is kind of
actually not only deal with the government but the business
community. Next week I am going to be meeting with a member of
the Confederation of Indian Business because they see the
larger interest. Try to build political support in their
country to try to support liberalization because they have some
of the same challenges we have in anxiety and with a billion-
person democracy, you can see the sensitivities. So, I do not
mean to be letting anybody off the hook but if we are going to
try to open this up, we need to get forces within India to help
us support liberalization and change and frankly, tell them,
like I told them in India a couple of weeks ago, look, I want
to keep our markets open but it is going to be darn hard to do
so if they do not open theirs.
Mr. NEAL. Specifically I have been on the Subcommittee on
Trade, as you know, for a long period of time and from the day
that I went on that Subcommittee, the issue of intellectual
property rights in India was very divisive. Could you speak to
the changes or the proposed changes that you are suggesting?
Mr. ZOELLICK. It is actually getting better and it is
getting better for the reasons that I mentioned. The Indians
are starting to recognize the importance of protecting
intellectual property as they start to develop a knowledge
industry. The current commerce minister, my counterpart,
actually was an intellectual property rights lawyer. So, their
laws are starting to get better and their enforcement of the
laws is starting to get better. Now there is still a long way
to go but this is one area where frankly, the challenge is more
with China than it is with India, not to underestimate it with
India, but they are seeing the benefits in this area and that
is the type of thing I would like to build more broadly.
The other point frankly, and here I want to compliment both
our ambassador, the prior ambassador, Bob Blackwell, who came
back to Washington, and David Mulford are people that have
really spoken out about the importance of the economic change
and reform. As you know, it is good to have somebody on the
scene constantly hitting the point.
Mr. NEAL. Thank you very much. Thanks, Mr. Chairman.
Chairman THOMAS. Does the gentleman from Minnesota wish to
inquire?
Mr. RAMSTAD. Thank you, Mr. Chairman. Thank you, Mr.
Ambassador, for your strong and effective leadership as our
USTR. It is good to see you again. As you said in your prepared
statement, Mr. Ambassador, the WTO recently ruled that the
Continued Dumping and Subsidy Offset Act, commonly known as the
Byrd Amendment, was found inconsistent with WTO obligations
because it provides remedies for dumping and subsidies beyond
those permitted by the agreements; in other words, found it to
be an illegal subsidy.
In addition, the Congressional Budget Office just recently
released a report--in fact, just last week--that was highly
critical of the Byrd Amendment not only for its WTO
noncompliance but also because it creates inefficiencies in our
economy. For these two reasons, Mr. Ambassador, just yesterday
I introduced legislation, along with my good friend and our
Subcommittee on Trade Chairman Mr. Crane, to repeal the Byrd
Amendment. Now the President's budget for the past 2 years has
called for outright repeal of the Byrd Amendment. However, the
Omnibus Appropriations Bill (P.L. 107-38), as you know, last
year included a provision that the USTR, that you should
negotiate an allowance for the Byrd Amendment within the WTO;
in other words, negotiate a carve-out. So, my question is this.
Today does the Administration still support outright repeal of
the Byrd Amendment?
Mr. ZOELLICK. The answer is yes, Mr. Ramstad. As I
mentioned, I am glad you are drawing this to people's attention
because there is going to be a hearing to arbitrate the amount
that will be completed by about June and shortly after that
about nine countries will be able to start to retaliate against
American exports. I do not want to say the precise sum because
we are trying to debate it and have a lower sum, but the
numbers they are seeking would be about $150 million now, plus
there could be an additional $90 million.
I would say one other thing, Mr. Ramstad, that may also
help you and Mr. Crane and others on this. Mrs. Snowe on the
Senate side also talked about perhaps having the revenue go to
some of the issues related to worker issues and that is an
issue that if the Congress find it easier to pass, that if that
is something that we could work with you on, I would certainly
be willing to try to talk to my colleagues about that, as well.
Mr. RAMSTAD. Thank you, Mr. Ambassador. I am familiar with
Senator Snowe's work and have discussed it with her, and I look
forward to working with you to that end.
I certainly--in looking at the Byrd Amendment, how anybody
could argue that it is anything but a waste of time, effort and
capital, it is time, effort and capital that we are spending
chasing court cases rather than growing our economy and
creating jobs, so I certainly appreciate your position, the
Administration's position in supporting the legislation that I
have introduced for outright repeal and would yield back the
remainder of my time. Thank you again, Mr. Ambassador.
Chairman THOMAS. I thank the gentleman. Does the gentleman
from Georgia, Mr. Collins, wish to inquire?
Mr. COLLINS. Yes, sir, Mr. Chairman. Mr. Ambassador, in
your opening statement you have a quote here that relates back
to 1929. ``With America's high standard of living we cannot
successfully compete against foreign producers because of lower
foreign wages and the lower cost of production.'' One thing for
sure we do not want to do is lower our standard of living here
in this country. Our workers work hard and our businesses do
their best to compete. I think you could actually say that
American workers/businesses are having a difficult time
competing against foreign producers because of lower foreign
wages and lower costs of production, could you not?
Mr. ZOELLICK. Actually, Mr. Collins, wages do not determine
where people invest. I often point out if wages were the
determinant of investment, Haiti would be the manufacturing
capital of the universe.
Now why is that not the case? It is because people's wages
reflect what they produce, their productivity. That is a
combination of their education. It is a combination of the
capital that has been invested. It is a combination of the
infrastructure of the country. It is a combination of the tax
policies, the financial system.
So, the heart of keeping America competitive is integrating
those policies effectively so that our productivity remains
very high and it is, I might add, higher than it is in Germany
or Japan or others, so that workers get paid more. That is one
of the reasons why workers that are in export industries get
paid, on average, 13 to 18 percent higher, because they are
competitive globally. So, I do not believe that it is driven by
wage rates alone. I think, on the other hand, as we have talked
about on both sides of the aisle, people have a sense that they
want to use trade to try to increase the enforcement of----
Mr. COLLINS. I do not want to cut you off, Bob, but I just
ask you simply is it not true that that does create an unlevel
playing field with competition if they are able to pay and have
cheaper wages and lower production costs? That is just a yes or
no without going all through Haiti and all those other
countries.
Mr. ZOELLICK. If you want an answer yes or no, the answer
is no, it is not alone. It depends on the productivity.
Mr. COLLINS. Well, that is your opinion.
Mr. ZOELLICK. It is going to be the opinion of a lot of
people who study commerce and business, which I used to be in,
Mr. Collins.
Mr. COLLINS. I will be respectful. I had a CEO in my
office--it was not too long ago--and we were talking about a
particular trade agreement and I asked him why he did certain
parts production in Georgia and finished the production in
Central America. After asking that twice, he said because of
cheap labor. Now if it is not true that we are not having
difficulty competing, explain the largest trade deficit in
history and an increase in retail sales.
Mr. ZOELLICK. Well first, Mr. Collins, if you look at
Georgia today, one of the reasons why it draws so much foreign
investment, and there is about 225,000 jobs created in Georgia
because of foreign investment, is because it is a good place to
do business.
I want to be careful, Mr. Collins, that I not be
misunderstood on this. Wages are related to productivity, so it
is the combination of the two that you need to have. So, wages
are certainly a determinant but it has to be related to overall
productivity. The trade deficit of this country is determined
by relative growth in various countries and it is also
determined by exchange rates in various countries. So, for
example, one of the things that you see is that when this
Administration came into office the trade deficit was about
$378 billion. It has gone up by an extra hundred billion
dollars. I went back and looked to try to get the derivation,
just as the most recent monthly numbers showed, and you see
that 82 percent of that in the manufacturing area is because we
are not selling as much, not because we are importing more. Now
why are we not selling as much? We are not selling as much
because other people are not growing as much.
So, the heart of this policy has got to be to get other
people to grow and--this is a key point, Mr. Collins, I think
we can probably agree on, is that you have to lower barriers at
the same time because our barriers are relatively higher. So,
if we get them to grow and we lower their barriers, that is the
best chance we have to be able to compete globally.
Mr. COLLINS. I just marked my 42nd year in small business
and labor and other costs always enter into the equation of
production or performance. You can try to convince others and I
think that is what is wrong, Bob. People understand much more
about what is going on in the marketplace and the job market
and the trade deficit than we really sometimes give them credit
for, and we are trying to debate them on the issues. You do not
do that. You respond.
The response is yes, it costs more to produce in this
country than it does in others where you have cheap labor,
different regulatory costs, different taxation structure than
what we have, different tort reforms, different tort
initiatives. Yes, it does cost more here oftentimes than it
does in many other parts of the world, and people understand
that. To continue to try to debate them on that issue, you will
come up a loser every time.
Mr. ZOELLICK. Well, I agree with you about those points but
if you add costs, whether you add costs because you do it in
terms of additional tariffs or if you do it in terms of
litigation costs or you do it in terms of taxes, it makes you
less competitive.
Mr. COLLINS. You do not do it with additional tariffs.
Chairman THOMAS. The gentleman's time has expired.
Mr. COLLINS. You do not do it by isolation and you do not
do it by protectionism. You look at costs and if you are a part
of the cost, which the government is, then you address your
part of the cost.
Mr. ZOELLICK. You and I agree, Mr. Collins.
Chairman THOMAS. The gentleman's time has expired. Does the
gentleman from Georgia, Mr. Lewis, wish to inquire?
Mr. LEWIS. Thank you very much, Mr. Chairman. Mr.
Ambassador, welcome. I want you to know that this Member from
Georgia, from the other side of the aisle, is going to be a
little more friendly to you and you are welcome to come to
Georgia any time. You can fly into the Atlanta airport and you
will be right in my district.
I read your testimony; I read it well. I noticed we have a
lot of concerns, a lot of problems, a lot of issues about
China. I noticed yourself from time to time, you must use both
the sticks and the carrots. What are you using with China right
now? Are you using both sticks and carrots? Are you very
hopeful and optimistic that we are going to solve and resolve
some of these problems we have with China?
Mr. ZOELLICK. We are making progress, Mr. Lewis, but there
is a lot more work to be done. Our agricultural exports were up
124 percent last year to China and it goes to the point I am
making about growth. In some areas, like soybeans and cotton,
you had tremendous increases. Cotton was almost a 500-percent
increase last year. To combine those two, one of the reasons we
were able to get those increases is that we were having some
problems with soybeans and cotton and others related to the
tariff rate quotas that they put in. So, we hope we have been
able to remedy those problems, and also in the biotech area so
we can use biotech cotton, biotech soybeans, biotech corn, but
after that we then need to turn to the next areas.
I talked a little bit about intellectual property before
but one of the areas that is most troublesome to me, Mr. Lewis,
is that the Chinese have some tax policies that we consider
discriminatory, just as we are trying to deal with the FSC
issue in ours. One of them deals with semiconductors in
particular. I think it is more important than just the
semiconductors, although that is important, because I think it
is important to show the Chinese that they cannot use those
discriminatory policies, whether it be for fertilizer or for
semiconductors or for others.
To use your point about the stick, if the Chinese do not
resolve this very shortly, we could very well be the first
country that brings a WTO case against them. I would like to
try to get others to be part of it and that is one of the
things that we have been trying to work on. We do have
manufacturing interests--Mr. Collins and I, I am sure, agree
very much on this in terms of trying to move things forward--
and we have had some success at that. Last year we sold almost
$5 billion of electrical machinery covering things from
integrated circuits to telecom parts and equipment.
I talked to the CEO of General Motors (GM) because, you
know, GM has been doing a lot of business there. I said what
can you tell me that helps explain how this helps American
producers and workers? He pointed out in the last few years
they actually have been selling about $1.4 billion worth of
machinery, products, components as part of their development in
China. Now at the Lansing River plant 15 percent of the
production actually goes to either Cadillacs or Buick Regal
kits. So, this kind of shows some of the interconnection.
The situation with China is such that we cannot let them
slow down in terms of the implementation of these issues, so
whether it be taxes, whether it be standards for agriculture or
others, IPR. The most important one, Mr. Lewis, that I am
looking down toward is that by the end of the year the Chinese
have an obligation to open up what they call the trading and
distribution rights system, which means that today if you
wanted to sell into China you would have to work through
somebody. Well, one of their obligations by the end of 2004 is
to open that up, so you can go directly to put American goods
on Chinese store shelves. So, we are putting a lot of pressure
on the Chinese to make sure that they follow through on that
element.
Mr. LEWIS. Well, thank you very much, Mr. Ambassador. Mr.
Chairman, I yield back the balance of my time.
Chairman THOMAS. I thank the gentleman. Does the gentleman
from Missouri, Mr. Hulshof, wish to inquire?
Mr. HULSHOF. Thank you, Mr. Chairman. May I have permission
to revise and extend my remarks?
Chairman THOMAS. Certainly, without objection.
Mr. HULSHOF. Thank you. Mr. Ambassador, welcome. Last week
a former colleague, former Member of this Committee, Mr.
Watkins of Oklahoma, came back, so we had a chance to talk and
it was great to see Wes. He and I introduced the measure a
couple of years back to actually create the position of a
permanent ag ambassador within your office and I wanted to
commend--I know Mr. Johnson was here earlier--how impressed
that I am with the job that Ambassador Johnson has done on a
myriad number of issues, really tough issues affecting
agriculture and I wanted to put that in the record.
What I would like to do in the short time that I have is to
raise an issue regarding, as I term it, soybean piracy in South
America. As you know, both Argentina and Brazil are expanding
their acreage that they are putting into production
agriculture, specifically soybeans, and what is compounding a
problem is that they are not abiding by provisions that they
have agreed on on protecting our American intellectual property
as it relates to genetically enhanced varieties of soybeans,
specifically as we have come to know it, Monsanto's Roundup-
Ready soybeans.
The USDA's Foreign Agriculture Service (FAS) says that it
is probably going to be about 5 years or less when Brazil is
going to exceed American agriculture. What is more, FAS
estimates that genetically enhanced soybean varieties
constitutes between 10 and 20 percent of Brazil's 2003 crop,
even though these varieties are not available for sale. In
fact, at Cancun when Members of this Committee met with the
trade representative, Mr. Ameran from Brazil, the fact is that
their government did not even acknowledge that Brazilian
farmers were using Roundup-Ready technology.
So, my question is actually twofold on this specific issue.
How can American farmers and U.S. farms, just like the one our
family operates back in Missouri, how can we remain competitive
with this other production in other countries when our chief
advantage, access to improved technology, is constantly being
eroded by countries that ignore American IPRs and I would say
even commitments under existing trade agreements? That is
question number one.
Question number two is what action is your office or that
you or Ambassador Johnson is taking to combat patent
infringements of agricultural products in South America and
across the globe?
Mr. ZOELLICK. Well first, let me thank you, Mr. Hulshof,
for your compliments for Al Johnson and his team. They do
excellent work and they are a small group but they spend a lot
of time talking to the community to make sure we know their
priorities and we try to deliver for them. So, I will relay
that; thank you.
I think the two questions in my mind are integrated in that
there is a lot we can do on soybeans separately. As I mentioned
before, we have now boosted our soybean sales to China, for
example, to $2.9 billion and, as you and I know, that is one of
the reasons soybean prices have been relatively healthy.
In the case of the intellectual property, we have a high
priority in terms of all American intellectual property rights.
It turns out that the global international property agreement,
the TRIP Accord, the Trade and Intellectual Property, has some
limits and one of the things is it does not require countries
to have patents available for plants. So, that is one of the
reasons--it is a good example of how our FTAs complement what
we try to do in the WTO by setting higher models. We push for
this. So, for example, we have that in our Chile agreement; we
have it in CAFTA. We will seek it with the Andean countries in
Latin America.
Now as you point out, Brazil is a particularly difficult
case because, as you know, on the one hand they have not
officially approved biotech soybeans, even though everyone
knows they are growing them. Now that has been working its way
through the Brazilian court process but we have been working
with Monsanto and others. As you know, there is an interim
measure; there is a technical fee that I think is about two-
thirds of the fee that our farmers pay, and that fee, in
reality, what I learned is that Monsanto actually does not have
a patent on the plant. They have it on the gene, so that is
another slight complication in this issue. What we try to do
through the individual agreements and working with companies is
to make sure that their intellectual property is protected as
best we can and they get paid for it. It obviously creates a
level playing field for your soybean farmers.
Mr. HULSHOF. I appreciate that and I know my time has
expired. May I submit another question to you in writing?
Mr. ZOELLICK. Certainly.
Mr. HULSHOF. As far as sanitary and phytosanitary concerns.
Thank you.
Mr. ZOELLICK. I would be pleased.
Mr. HULSHOF. Thank you, Chairman.
Chairman THOMAS. The Chair would wish to indicate that we
have not yet had second bills on a series of at least three
votes and possibly four votes that will take more than one-half
hour to resolve. So, unless there is strenuous objection, the
Chair would indicate that the gentleman from Texas has won the
lottery based upon arrival in the Committee because we have
room for one more questioner if the full 5 minutes is used. If
that is not the case, we may be able to work another one in.
Does the gentleman from Texas wish to inquire?
Mr. SANDLIN. Yes, Mr. Chairman. I will try to be brief.
Thank you, Mr. Ambassador, for being with us today and I wanted
to ask you a few questions about China, specifically as it
affects my district. Now as I understand it, the ITC under the
law, and not the Administration, initially is charged with
investigating market disruptions from China. Is that correct?
Mr. ZOELLICK. Under the Section 421 petition.
Mr. SANDLIN. The ITC unanimously determined in December
that import relief should be granted in the U.S. ductile iron
waterworks fitting industry. Do you remember that?
Mr. ZOELLICK. I do.
Mr. SANDLIN. Now in spite of that unanimous decision by the
ITC, the President rejected that relief and he said this.
``Providing import relief for the U.S. pipefittings industry is
not in the national economic interest of the United States.''
Is that right?
Mr. ZOELLICK. That is correct.
Mr. SANDLIN. Now the law passed by Congress, the Section
421 you are referring to, specifically says that there is a
presumption in favor of relief when the ITC makes an
affirmative determination, correct?
Mr. ZOELLICK. I am not 100 percent sure but I will take
your word for it.
Mr. SANDLIN. Okay. That legal standard can only be overcome
by the President finding that the adverse effect on the U.S.
economy clearly is greater than the benefits. Is that correct?
Mr. ZOELLICK. That is correct.
Mr. SANDLIN. Clearly is a fairly high legal standard. Now
the Administration does not conduct its own hearings and take
evidence and testimony and things like that, correct?
Mr. ZOELLICK. I think we do have a hearing process, as
well.
Mr. SANDLIN. Do you? That is initially the obligation of
the ITC; is that right?
Mr. ZOELLICK. The ITC's obligation, Mr. Sandlin, is to
determine the market disruption standard, a relatively low
standard, not the final standard in terms of national interest
and the balance of economic----
Mr. SANDLIN. Did you know, though, that even though the ITC
unanimously decided there should be protection and the
President rejected that, that by denying that relief, Tyler
Pipe in Tyler, Texas is going to lose 500 jobs?
Mr. ZOELLICK. I did not know that but here is what I know
about the case. What I know about the case----
Mr. SANDLIN. Well, I want you to explain but we are going
to lose 500 jobs and then Alabama and Ohio are going to lose
600 to 700 jobs. So, it seems to me it is clearly difficult to
say that it is good for the U.S. economy because clearly it is
not good for the Tyler, Texas economy, is it?
Mr. ZOELLICK. Well, I do not think Tyler, Texas would be
the sole definition of the U.S. economy.
Mr. SANDLIN. That is a very good point. Of course, the ITC
took all that into consideration and they said, ``Because U.S.
producers currently have a substantially larger market share
than nonsubject imports, the relief we propose will primarily
benefit U.S. producers.'' Another commissioner said, ``While it
is true that imports from nonsubject countries would likely
increase in the event of a remedy, the increase would be far
from one-on-one replacement.'' So, not only does it benefit the
U.S. economy as a whole to get the relief that the ITC
recommended; it benefits Tyler, Texas in not losing 500 jobs
and Alabama and Ohio in not losing 600 to 700 jobs. Is that
correct?
Mr. ZOELLICK. Would you like me to talk about this case
more?
Mr. SANDLIN. Yes, sir, if you would like to. I would just
like for you to explain how it is better for the U.S. economy
to ship jobs from Texas and Alabama and Ohio and create jobs in
China. It seems like the Chinese have a position of we are
going to comply when it is convenient for us and then our
policy of just working with them is allowing them to take
advantage of us.
Mr. ZOELLICK. First, the ITC data also showed that the cost
to consumers would be higher than the benefit to producers by a
significant amount.
Mr. SANDLIN. So, are you saying----
Mr. ZOELLICK. Could I----
Mr. SANDLIN. I am just asking you to clear up----
Mr. ZOELLICK. No, I would like to just answer.
Mr. SANDLIN. I know you would like that but I want to ask
you----
Mr. ZOELLICK. I would like to answer the question.
Mr. SANDLIN. I have another question for you.
Mr. ZOELLICK. Would you like me to answer your question?
Mr. SANDLIN. No, sir. I would like you to answer the
questions I ask you. You have an opportunity to talk. I ask the
questions; you answer them. That is kind of the way it works. I
am asking you if this goes in the flow of what the President's
chief economic adviser said when he said well, it is better to
ship jobs overseas. Are you telling me it is better to ship the
jobs overseas to make a cheaper product so that American
workers who do not even have a job cannot afford to buy them?
Mr. ZOELLICK. No.
Mr. SANDLIN. Okay, what are you saying?
Mr. ZOELLICK. What I am saying is that the ITC first
determined that the cost of this to the American consumer would
exceed the benefits to the producer by a significant amount.
Second, what their research showed and others showed is that if
we put in the safeguard, the beneficiary would primarily be
Taiwan.
Now separate from the decision, as I pointed out to Mr.
Levin, there is some evidence that this company may have some--
--
Mr. SANDLIN. Let me interrupt you.
Mr. ZOELLICK. For example, the company now has----
Mr. SANDLIN. Mr. Chairman, I would ask that he be directed
to answer my question.
Mr. ZOELLICK. Did you say that I could answer your
question? I would like to finish answering the question.
Mr. SANDLIN. I have a question for you.
Mr. ZOELLICK. I am going to answer your question.
Mr. SANDLIN. I know you want to argue.
Mr. ZOELLICK. This company has 400 OSHA violations.
Chairman THOMAS. The gentleman's time has expired. There
are less than 5 minutes left on a series of votes on the floor.
The Chair wishes to thank the Ambassador. I apologize to
those Members who have waited patiently for their turn but it
does seem unreasonable to ask the Ambassador to wait for one-
half hour to 40 minutes, besides the fact that he is always
very generous with his time and comes to Capitol Hill probably
more frequently than any other Member of the Cabinet to engage
with Members. The Chair does feel a little chagrin that this
hearing, which has been excellent for the virtually 3 hours
that we have engaged in it, ends on this note.
The Committee stands adjourned.
[Whereupon, at 12:50 p.m., the hearing was adjourned.]
[Questions submitted from Representatives Hulshof and
Doggett to Mr. Zoellick, and his responses follow:]
Questions Submitted by Representative Hulshof
Question: Beef-Sanitary and Phytosanitary Issues
First and foremost, while several of your commodity groups are
still slightly skeptical of the benefits of a FTA with Australia, all
of these are extremely impressed with the ability of Ambassador Allen
Johnson to negotiate such a tough agreement. In many cases, groups that
were preparing to oppose the measure are now, at the least, holding
their fire through a congressional vote. The ``Ag Ambassador'' deserves
some credit from you on the Australia FTA.
That said, Australia might soon join the growing list of countries
that use artificial sanitary and phytosanitary (SPS) rules to protect
their domestic industries from increased imports of American beef,
pork, poultry, citrus, stone fruits and apples. While these trade
agreements carefully negotiate market access provisions, many believe
that not enough attention is given to the harmonization of national
food safety standards to truly allow American beef access to our
trading partners. The agreement clearly calls for ``working groups'' to
be established to clear these issues, and, to some, it would appear
that the U.S. is making some of the same mistakes all over again.
As many know, the U.S. and Canada are still struggling to reach
agreement on harmonization some 12 years after the dispute began. Now
that Canadian beef has access to the American market (almost 800,000
cattle annually), there is little incentive for them to move quickly on
harmonization. As a result, only 250,000 American cattle move to
Canada, when industry estimates that some 750,000 could move.
The same issues are likely to arise with CAFTA and Australia,
especially in the wake of an isolated discovery of BSE in Washington.
This is an emerging concern with your cattlemen back in the district,
especially with 43 export markets closed, and 10% of all beef harvested
headed for overseas markets (worth $2.7 billion annually).
What is USTR doing to incorporate air-tight harmonization regimes
into the actual agreements being currently negotiated?
Answer: Many of our trade concerns develop from the sanitary and
phytosanitary (SPS) measures of other parties, which are often based on
non-scientific factors (e.g., political concerns, protectionism). WTO
members have the right to maintain and establish their own specific SPS
measures as long as these measures are consistent with WTO trade rules.
The U.S. negotiating objective for SPS measures in FTAs is to ensure
that SPS measures are consistent with WTO disciplines, are based on
scientific evidence, and are supported by science-based risk
assessment.
Question: What is the current status of U.S. efforts to harmonize
SPS issues with the Australia, the CAFTA countries and others?
Answer: Harmonizing SPS measures with other countries is not
necessarily in our interest. Negotiation of harmonized regimes may
result in the lowering of existing U.S. SPS measures. Rather, our
approach during FTA negotiations has been to identify specific access
problems and work with the countries to resolve the issues using
science. We do seek to harmonize related SPS measures where we can get
others to accept U.S. measures (e.g., meat inspection and beef grading
in Chile).
Question: How can Congress help these negotiations along--is there
some improvement to the U.S. food safety regime needed to move these
negotiations along? Is there a button we can push?
Answer: Harmonization of SPS regimes is not necessarily in the
interest of the United States, since U.S. regulators need to maintain
their authority to make decisions to ensure the safety of the American
public and American agriculture.
Using this approach, we have been successful in resolving several
issues with our FTA partners, e.g., meat inspection issues with CAFTA
countries; apple and pear phytosanitary issues with Chile; and beef,
grape, and pork SPS issues with Australia.
The United States has one of the best food safety systems in the
world. Members of Congress can help U.S. negotiating objectives by
highlighting in meetings with our trading partners the importance of
resolving SPS issues utilizing science and with a view to facilitating
trade.
__________
Questions Submitted by Representative Doggett
Question: The Federal Government frequently excludes specific
products from trade agreements for economic reasons. By extension, the
Federal Government should also exclude products like tobacco for health
and humanitarian reasons. Tobacco kills more people than AIDS, legal
drugs, illegal drugs, road accidents, murder, and suicide combined. No
nation that cares about the health of its people would actually want to
increase tobacco consumption, yet the inclusion of tobacco in FTAs
appears to do just that.
Please explain why the Federal Government has taken actions that
promote the use of this toxic, addictive product.
Question: As you know, there is an Executive Order in place that
requires your office to consult with U.S. health officials before
taking any action related to trade in tobacco products. The purpose of
this requirement is to make sure that our trade policy does not
exacerbate the global epidemic of tobacco use, which already is
expected to claim the lives of 500 million people alive in the world
today.
1. On the basis of this Executive Order, is there a joint
responsibility and obligation on the part of the United States Trade
Representative (USTR) and Health and Human Services (HHS) to make sure
the Administration has complete health information before it acts?
2. For the inclusion of tobacco products in U.S.-Central American
FTA, would you please describe the specific steps your office took
i) to ensure that HHS had an adequate opportunity to provide
advice in a timely fashion; and
ii) to ensure that HHS actually provided the health information
necessary for the USTR to make an informed decision.
3. Your office has included tobacco products in the trade
agreements you have negotiated despite studies that suggest that such
inclusion is likely to raise smoking rates and seriously damage public
health internationally.
A. Has your office performed any assessments regarding the
likely impact on public health of this Administration's tobacco trade
policy decisions?
B. If these assessments are not being done, can you please
explain why not?
C. If these assessments are being done, will you share them with
Congress and the public?
4. I would like more information on how tobacco products came to
be included in the U.S.-Chile FTA. Several legislators and public
health groups were tracking this issue, and tobacco products were
excluded until the last minute. This eleventh hour change gives the
appearance that sound health policy was overcome by tobacco industry
influence.
A. Would you detail the steps the tobacco industry took to
ensure the inclusion of tobacco in the agreement?
B. If it was not this lobbying effort that made the difference,
please explain what caused the change in policy.
Answer: I am responding to your questions for Ambassador Zoellick
regarding tobacco trade policy. First, as a general matter, our trade
agreements respect the non-discriminatory health policy decisions of
other countries toward tobacco or tobacco products. Where a country
permits the production, sale, or consumption of these products, we
generally seek improved access to that market so as not to disadvantage
American farmers, workers, and business whose jobs depend on exports.
We do this as part of a broader effort to conclude comprehensive trade
agreements that cover substantially all trade in goods and services
between the United States and our trading partners.
To that end, we work closely with other agencies, including the
Department of Health and Human Services (HHS), to ensure that U.S.
trade policy is conducted in a manner consistent with the Executive
Order concerning Federal Leadership on Global Tobacco Control and
Prevention.
With regard to your questions concerning the U.S.-Chile FTA, please
refer to my June 2, 2003 letter in which I respond to earlier, similar
questions on this topic.
[Submissions for the record follow:]
Statement of Advanced Medical Technology
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 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 decisionmaking. 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.
Continued U.S. Leadership Needed to Fight Trade Barriers in Japan
For the medical technology industry, the Bush Administration's
efforts with Japan under the U.S.-Japan Partnership for Economic Growth
are critical for maintaining access to the Japanese health care market.
After the U.S., Japan is the largest global market for medical
technologies at $25 billion. U.S. manufacturers annually export over
$2.5 billion to Japan. These statistics are good indicators of our
industry's global competitiveness in the field of medical technology
and it strongly underscores the importance of critical ongoing efforts
with the U.S. Government to open the Japanese market further to cost-
saving and life-enhancing medical technologies.
In 1986, U.S. Government leadership began to help open Japan's
marketplace for medical devices under the Market Oriented Sector
Specific (MOSS) trade agreements. These efforts have helped to grow and
sustain a favorable U.S. trade balance for medical devices in the range
of $1.1 billion in recent years.
In late 2001, however, the Japanese Ministry of Health, Labor and
Welfare (MHLW) took steps that constituted a significant setback in the
progress that had been made over the last 15 years in the medical
device sector by adopting a new pricing policy that includes ``foreign
average pricing'' (FAP). The U.S. Government and Congress have long
opposed FAP schemes, which discriminate against the U.S. industry and
fail to recognize the significantly higher costs of doing business in
Japan. Combined with very slow processes for the introduction of new
product reimbursement prices, industry supports the following targeted
proposals for reform of Japan's reimbursement system:
Transparent, public processes and predictable rules in
setting product reimbursement levels and related adjustments;
When FAP is applied, the use of reasonable comparator
U.S. list prices;
Measures to expedite the coverage, payment and access to
brand-new-to-Japan medical technologies (category C2), as per earlier
trade agreement commitments; and
Creation of payment categories that better reflect the
differences in technologies.
In addition to these reimbursement concerns, industry also has
pressing issues in the realm of regulatory product approvals, as Japan
works to implement the 2002 Pharmaceutical Affairs Law by April 2005. A
number of provisions of this law are essential to medical device
products, as industry seeks to achieve a streamlined and transparent
product approval process. Key issues in the PAL and other areas include
(but are not limited to):
Improved ``pre-consultations'' process and use of a
standardized ``checklist'' of submission contents to clearly identify
requirements prior to application submission, as well as better
documentation practices within MHLW on discussions with industry (to
avoid misunderstandings and to create binding decisions);
Clearly defined review performance goals as part of the
newly established user fee program. Performance goals should represent
improvement over current performance and provide predictability in the
review process with clearly defined procedures for stopping and
restarting the review clock;
Establishment of an appeals mechanism to resolve
scientific disputes in a timely and efficient manner; and
Better harmonization with international standards and
with Global Harmonization Task Force recommendations in areas such as
``adverse event reporting'' and ``quality systems programs'' where
Japan is implementing unique and burdensome requirements on
manufacturers.
Going forward, industry seeks U.S. Government and congressional
support to help ensure open dialogue with Japan. We also seek
assistance in securing and enforcing Japanese commitments so that
restrictions in both the regulatory and reimbursement areas do not
disproportionately and unfairly impact U.S. medical technology
manufacturers.
In addition, the Bush Administration's efforts with Japan under the
U.S.-Japan Partnership for Economic Growth are critical for achieving
further market-opening measures in Japan's health care market.
Regulatory and Reimbursement Obstacles Impede Market Access in Asia-
Pacific
AdvaMed looks to the U.S. Government to pursue trade liberalization
throughout the Asia-Pacific region, including in China, Taiwan and
Korea. AdvaMed and its member companies have identified a number of
real and potential barriers to doing business in these countries. While
most of the barriers pertain to unnecessary or redundant regulatory
requirements, there are increasing concerns in the areas of
reimbursement and intellectual property. AdvaMed looks forward to
working with Congress and the Administration to address the following
barriers:
A Lengthy and Costly Product Registration Process
Redundancy in the Registration Process
Antiquated Type-Testing Requirements
Lack of Transparency in Decision-Making
Inappropriate Price Controls
Counterfeiting of Medical Technology
Parallel Trade of Medical Technology
For the medical technology industry, the Bush Administration's
efforts with China under the U.S.-China Joint Commission on Commerce
and Trade are critical for allowing U.S. medical technology firms
broader access to the burgeoning Chinese health care market. The
nascent U.S.-China Health Care Forum initiative, led by the U.S.
Department of Commerce and supported by AdvaMed and other health care
partners, holds great promise as another vehicle for addressing many of
the trade-related and health policy-related barriers confronting U.S.
medical technology firms in China.
China has quickly become an important market for the U.S. medical
technology sector. While solid statistics are not widely available yet,
AdvaMed estimates that the Chinese market for medical technology is $3
billion and growing rapidly. It is on pace to surpass some of the key
European markets for medical technology in a few short years. As global
leaders, U.S. medical technology firms already account for a
significant portion of sales in China and the position of these firms
underscores the importance of ongoing efforts with the U.S. Government
to open the Chinese market further.
Europe: Seek Appropriate Policies That Improve Patient Access to
Innovative Medical Technologies
Efforts to oversee foreign policies impacting the export and sale
of U.S. medical technologies abroad should also focus on the European
Union (EU). U.S. manufacturers of medical devices export nearly $8.8
billion annually to the EU and maintain a $1.2 billion trade surplus
with the EU. Within the EU, Germany ($20 billion) and France ($8
billion) are the largest markets for medical devices. The industry will
monitor the accession of ten new member states on May 1, 2004 to
determine the impact on exports of medical devices to the European
Union.
We appreciate congressional and Administration efforts on behalf of
the industry in opposition to a European Commission draft directive
that would up-classify all shoulder, hip and knee joint implants from
Class IIB to Class III. This directive, which is guided by 1980s data
and application of the precautionary principle, could affect thousands
of devices, many of which are made by U.S. manufacturers, and would
cost the average orthopedic company approximately 500,000= in fees
alone for the Notified Body reviews necessary to comply with the
directive. Importantly, the decisionmaking process on this issue has
been opaque, and has offered little opportunity for stakeholder input.
In addition, the industry looks forward to the implementation of
the medical device annex of the U.S.-EU Mutual Recognition Agreement
(MRA). Bringing health care products to the market faster is an
important priority consistent with the protection of public health and
the reduction of regulatory costs and redundancy. The medical device
industry was disappointed that the MRA transition was not completed by
the original December 2001 deadline, but we anticipate that the
European Commission and the FDA will complete transition activities in
the near future. We ask Congress to push for the full implementation of
the medical device annex of the MRA.
Finally, as the health technology assessment (HTA) trend spreads
throughout Europe, EU member states should be encouraged to adopt
policies for their health technology assessment systems that are
transparent, timely, and adequately account for the benefits of
innovative technology. Industry should be allowed to participate in the
HTA process.
Utilize Multilateral, Regional, and Bilateral Forums to Eliminate
Tariff and Nontariff Barriers to Trade that Unnecessarily
Increase the Cost of Health Care
We encourage congressional and Administration efforts to eliminate
significant tariff and nontariff barriers to trade for medical
technology maintained by many countries, particularly developing
countries. Such barriers represent a self-imposed and unnecessary tax
that substantially increases the cost of health care to their own
citizens and delays the introduction of new, cost-effective, medically
beneficial treatments. For example, the medical technology sector
continues to face tariffs of 15-20% in Mercosur countries, 9-12% in
Chile, Peru, and Colombia, and 6-15% in China.
The Doha Development Agenda offers an important opportunity for the
United States to ensure global access to medical technology by securing
global commitments on lowering tariff and nontariff barriers for the
medical technology sector. We encourage the U.S. Government to build
upon the zero-for-zero tariff agreement on medical technology achieved
in the Uruguay round by expanding the product coverage and adding
countries throughout Latin America and Asia as well. Moreover,
elimination of nontariff barriers such as burdensome import licensing
regulations and non-transparent government procurement policies will
help developing countries ensure patient access to lifesaving medical
technologies.
Utilize Multilateral Opportunities to Establish Basic Regulatory and
Reimbursement Principles to Expand Global Trade and Patient
Access to New Technologies
We commend the WTO's recent efforts to ensure global access to
medicines and medical products. While all economies seek to provide
high quality, cost effective health care products and services to their
citizens, they should also ensure timely access to state-of-the-art,
life-saving equipment and implement compliance procedures that are
efficient and effective. To further expand patient access to safe and
effective medical devices and ensure cost effective regulatory
compliance, USTR should seek to ensure that economies around the world
make their policies and practices conform to the relevant and
appropriate international trading rules established by the World Trade
Organization (WTO).
Toward that end, member economies should agree to make their
medical device regulatory regimes conform to these guiding principles:
Acceptance of International Standards;
Transparency and National Treatment;
Use of Harmonized Quality or Good Manufacturing Practice
Inspections;
Recognition of Others Product Approvals (or the Data Used
for Those Approvals);
Development of Harmonized Auditing and Vigilance
Reporting Rules;
Use of Non-Governmental Accredited Expert Third Parties
Bodies for Inspections and Approvals, where possible.
Similarly, many economies require purchases of medical technologies
to take place through centralized and/or government-administered
insurance reimbursement systems. To ensure timely patient access to
advanced medical technologies supplied by foreign as well as domestic
sources, member economies should agree to adopt these guiding
principles regarding the reimbursement of medical technologies:
Establish clear and transparent rules for decisionmaking;
Develop reasonable time frames for decisionmaking;
Data requirements should be sensitive to the medical
innovation process;
Ensure balanced opportunity for the primary suppliers and
developers of technology to participate in decisionmaking, e.g.,
national treatment;
Establish meaningful appeals processes.
The medical technology industry is committed to working with
Congress and the Administration on upcoming trade policies and
agreements to ensure patients throughout the world have access to
medical products.
Conclusion
AdvaMed appreciates the shared commitment by the President and the
Congress to expand international trade opportunities and encourage
global trade liberalization. We look to the President and his
Administration 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.
Africa Growth and Opportunity Act Civil Society Network
Washington, D.C. 20006
August 12, 2004
Honorable William Thomas
Chairman, Ways and Means Committee
U.S. House of Representatives
Washington, D.C. 20515
Dear Chairman Thomas,
The AGOA Civil Society Network--a nonpartisan collective of civil
society groups including NGOs, trade unions and private sector
representatives from the U.S. and Africa, would like to extend our full
support of the AGOA III bills (S. 1900 and H.R. 3572) currently under
review in the House and Senate. Many amendments in the bill will afford
Africa with an opportunity to participate in fruitful trade initiatives
with the U.S. and is a healthy counterpart to effectively sustaining
human rights initiatives that are guided by the U.S. and other friends
of Africa.
We believe that both versions of the bill under review in Congress
include a number of key amendments that are to the benefit of African
and U.S. businesses wishing to participate in free and transparent
trade. As we will describe below, there are also a number of amendments
that the AGOA Civil Society Network believes should be included in
future formulations of the bill.
As the bills currently under review in the House indicate, the
extension of third country fabric provisions is crucial to the
sustenance of AGOA. To allow this provision to expire or to leave the
decision of whether it will expire or not waning a suspended amount of
time is poisonous to the lifeblood of the successful investments that
have been made on the ground in Africa. Many investors are ready to
pack up and leave the thousands of Africans that have been able to
secure jobs, and an extension is vital to helping them keep those jobs
so that African economies are able to compete with other world
economies successfully.
We also believe that mechanisms should be put in place under the
bill to ensure market access and competitiveness of AGOA-eligible
countries beyond the phasing out of the country quota under the World
Trade Organization agreement on textiles and apparel. The United
States, EU and Japan should also collectively eliminate subsidies,
quotas and all forms of trade protection, and allow the laws of
comparative advantage in a free market system to create a level playing
field that can allow for African participation.
AGOA should also be expanded to encourage African countries to
diversify and look beyond petroleum and other goods that dominate AGOA
export. There is a need for expansion particularly in the areas of
agriculture, light industry, information technology, tourism, the
service and technology sectors and logistics. Any expertise and
technological skills that might enable AGOA-eligible countries (as well
as other African countries with an interest in AGOA) to meet value-
added requirements for agricultural products should be provided.
Along with the removal of restrictions on the Overseas Private
Invesment Corporation (OPIC) and EXIM Bank on funding textile/apparel
and agricultural projects in Africa that is present in both versions of
the AGOA bill, the AGOA Civil Society Network believes that SME
development should be addressed and encouraged. AGOA must address the
lack of access to credit suffered by supporting institutions that
create internationally recognized banking and crediting opportunities
to small- and medium-sized enterprises in sub-Saharan Africa and the
U.S. Such a focus would not only encourage business development and
capacity building efforts on the ground, but would allow for a greater
amount of tangible impact.
Though many of us are not U.S. voters, we would like you to keep us
in mind in your formulation of the bill and during the deliberations on
AGOA III that take place in Congress at both the Committee level and in
the House Chambers with your fellow congressmen. AGOA III's
encouragement of diverse private sector activity on the continent will
greatly influence the creation of an environment that is conducive to
free, transparent global trade with Africa. A successful AGOA will not
only help to include Africa into the global economy, but will help to
increase the standard of living of millions of Africans throughout the
continent.
Sincerely,
The AGOA Civil Society Network
Statement of American Cancer Society, American Heart Association,
American Lung Association, Action on Smoking and Health, Campaign for
Tobacco-Free Kids, and Essential Action
This statement represents the views of the American Cancer Society,
American Lung Association, Action on Smoking and Health, Campaign for
Tobacco-Free Kids and Essential Action. We will focus our comments on
the important relationship between U.S. tobacco trade policy and global
public health.
For reasons detailed in these comments, we are deeply troubled by
this Administration's policy of including tobacco products within the
scope of free trade agreements despite strong evidence that this policy
threatens sound tobacco control policies in the U.S. and abroad,
stimulates higher smoking rates in low and middle income nations, and
contributes to a major cause of preventable death in the world today.
We believe there is an important oversight role for Congress to play to
ensure that public health concerns take precedence over commercial
interests in setting tobacco trade policy, and in ensuring that public
health input is provided into the policymaking process through the
Department of Health and Human Services and the public health
community.
Tobacco Products Are Uniquely Addictive and Lethal
Tobacco use causes an estimated 4.9 million deaths per year
worldwide.\1\ While most preventable causes of death are expected to
decline over time, tobacco-caused mortality is projected to double to
10 million deaths per year by 2025.\2\ In all, tobacco is expected to
claim about one billion lives during this century, a ten-fold increase
over the last century.\3\ This will constitute the largest avoidable
loss of life in recorded history. The surging death toll is due to the
powerfully addictive nature of tobacco products combined with the rapid
and virtually unchecked spread of tobacco use to those nations least
able to bear the staggering health care costs and lost productivity. By
the 2020s, 70 percent of all deaths caused by tobacco will occur in
developing nations.\4\
---------------------------------------------------------------------------
\1\ Ezzati M, Lopez AD. Estimates of global mortality attributable
to smoking in 2000. Lancet, 2003, 362:847-852.
\2\ World Health Organization, Tobacco Free Initiative, ``Why is
tobacco a public health priority?'' http://www.who.int/entity/tobacco/
resources/publications.
\3\ Peto R, Lopez A. The Future Worldwide Effects of Current
Smoking Patterns, Imperial Cancer Research Fund, 2000, http://
www.ctsu.ox.ac.uk/pressreleases/50thAnniv/article.cfm.
\4\ World Health Organization, World Health Report 1999 (Geneva:
WHO, 1999).
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The Role of International Trade Policy in the Global Epidemic of
Tobacco Use
Lower prices and increased availability and consumption of
beneficial products--``goods'' in a literal sense--are major goals of
free trade and provide important justifications for free trade
policies. The problem with tobacco products is that they are far from
beneficial. Each additional increment of consumption causes additional
suffering and death, as well as a net economic loss to the economy of
the nation in which it is consumed and to the global economy.\5\ This
distinction between a beneficial product and a harmful one essentially
turns the traditional presumption in favor of trade liberalization on
its head with respect to tobacco products. Logically the presumption
should be against actions that stimulate consumption of harmful
products.\6\
---------------------------------------------------------------------------
\5\ Barnum, H. ``The Economic Burden of the Global Trade in
Tobacco,'' Tobacco Control, 1994, 3:358-361.
\6\ The practical effect of reversing the presumption in favor of
free trade in tobacco products would not be to condone unjustified
discrimination in tobacco product trade, but to make clear that, with
respect to trade in tobacco products, protecting public health is of
paramount importance. Nations would remain free to attack
discriminatory tobacco trade practices provided that they could
demonstrate that doing so would not stimulate higher rates of tobacco
use.
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Tobacco products are no exception to fundamental economic
principles. Liberalization of trade in tobacco products does, in fact,
stimulate higher levels of tobacco use in most nations. Econometric
studies show that liberalization of trade in tobacco products has a
significant stimulative effect on tobacco use in low income nations, a
modest effect in middle income economies, and little effect in high
income nations.\7\ In large populations, even a modest impact of trade
policies on smoking prevalence rates translates into entirely avoidable
suffering and death on a massive scale. Given the projection that
tobacco use will kill approximately one billion people over the course
of this century, it is easy to see that any policies that raise global
smoking prevalence rates by even a fraction of a percent will translate
over time into millions of additional preventable deaths.
---------------------------------------------------------------------------
\7\ See, e.g., Taylor A, Chaloupka FJ, Guindon E, Corbett M. ``The
impact of trade liberalization on tobacco consumption,'' Chapter 14 in:
Jha P, Chaloupka FJ, editors. Tobacco Control in Developing Countries.
Oxford: Oxford University Press, 2000; Chaloupka FJ, Laixuthai A.
``U.S. Trade Policy and Cigarette Smoking in Asia.'' National Bureau of
Economic Research Working Paper No. 5543, 1996; Hsieh, CR, Hu, TW, Lin,
CFJ. ``The Demand for Cigarettes in Taiwan: Domestic Versus Imported
Cigarettes,'' Contemporary Economic Policy, 1999, 17(2):223-234;
Bettcher, DW et al., ``Confronting the Tobacco Epidemic in an Era of
Trade Liberalization,'' World Health Organization 2001, WHO/NMH/TFI/
01.4, pp. 48-53. Review; Bettcher, DW, Yach, D, Guindon, E. ``Global
trade and health: key linkages and future challenges.'' Bulletin of the
World Health Organ. 2000, 78(4):521-34. Review.
---------------------------------------------------------------------------
In addition to the impact of tariff reductions, which stimulate
marketing and price competition and transform tobacco markets in other
ways associated with higher smoking rates, the decision to include
tobacco products in free trade agreements can result in unreasonable
constraints on sound tobacco control policies. We are especially
concerned about three areas:
Intellectual property provisions. U.S. tobacco companies have
invoked intellectual property protections in trade agreements to oppose
bans on the use of the misleading terms ``mild'' and ``light,'' in
Europe and Canada, alleging that such prohibitions interfere with
trademark-protected names that include such terms. They have also used
trade agreements to challenge proposed health warning labels and
ingredient disclosure laws in Thailand.
Technical barriers to trade. Tobacco companies have invoked
technical barriers to trade provisions in trade agreements to protest
bans on the use of the terms ``mild'' and ``light,'' arguing that they
are not the least trade restrictive means to pursue the objective of
ensuring that consumers are not misled into believing there is a health
benefit to ``mild'' or ``light'' cigarettes. Technical barriers to
trade provisions also could be used to challenge tobacco product
content regulations and other tobacco control measures.
Foreign investment protections. Investment protections of the type
included in the proposed Central America Free Trade Agreement (CAFTA)
would give companies such as Philip Morris, BAT and Japan Tobacco
standing to challenge directly national laws that they claim would
result in an ``indirect'' expropriation of their property. Under
similar provisions of NAFTA, Philip Morris already has suggested that a
Canadian ban on ``light'' and ``mild'' would amount to an expropriation
of its trademark on products such as Benson & Hedges Lights and
Rothmans Extra Light. We believe it would be disastrous to provide
tobacco companies with the ability to directly challenge national or
subnational tobacco control laws in an investment agreement.
U.S. Law Recognizes Unique Health Concerns Raised by Tobacco Trade
Policies
As the conflict between the goals of promoting trade in tobacco
products and reducing tobacco use has become clear, consensus has grown
that concern for human health should take precedence over commercial
interests in policy decisions. This is reflected in the Doggett
Amendment, an amendment to the Appropriations Act for the Departments
of Commerce, State and Justice, the Judiciary and Related Agencies,
originally passed in 1997 and renewed in similar form annually since
then. The Doggett Amendment forbids the use of appropriated funds ``to
promote the sale or export of tobacco or tobacco products, or to seek
the reduction or removal by any foreign country of restrictions on the
marketing of tobacco or tobacco products, except for restrictions which
are not applied equally to all tobacco or tobacco products of the same
type.'' \8\
---------------------------------------------------------------------------
\8\ Pub. L. 105-119, Section 618.
---------------------------------------------------------------------------
The policy embodied in the Doggett Amendment was adopted and
expanded upon by an Executive Order that applies to all government
agencies. Significantly, the Executive Order also requires that the
Department of Health and Human Services ``advise the USTR, and other
interested Federal agencies, of the potential public health impact of
any tobacco-related trade action that is under consideration.'' \9\
---------------------------------------------------------------------------
\9\ ``Federal Leadership on Global Tobacco Control and
Prevention,'' Executive Order, The White House, January 18, 2001.
---------------------------------------------------------------------------
Recent Tobacco Trade Policy Decisions Do Not Reflect Public Health
Input
Despite the Executive Order requiring advice by HHS regarding the
potential health impact of any tobacco trade-related policy decisions,
tobacco products have been routinely included in free trade agreements
negotiated by this Administration. There has been no public discussion
or disclosure of the public health implications of this policy. It is
not clear what advice, if any, HHS has provided to USTR, or whether HHS
has been provided with a meaningful opportunity to provide public
health input into the policymaking process. We are not aware of any
assessments or reviews by HHS of the potential health impact of recent
tobacco trade policy decisions. Such assessments would be an essential
step in providing meaningful input to the policymaking process.
Recommendations
1. The U.S. Government should adopt the position that tobacco
products should be excluded from the scope of tariff and nontariff
provisions of free trade agreements in order to protect public health.
This position will protect U.S. and global public health, since trade
agreements could be used to undermine U.S. tobacco control policies as
well as policies in other nations. The United States regularly excludes
products from the scope of trade agreements for economic policy
reasons. The case for excluding tobacco products for health and
humanitarian reasons is much more compelling and would be readily
agreed to by most trading partners.
2. Due to the vital public health issues involved, tobacco trade
policy decisions should be made transparently and with full involvement
by HHS and the public health community. No action in this area should
be taken without thorough assessment and consideration of the potential
public health impact.
3. Congressional involvement and oversight in this area is
critically important. We urge the Committee and others in Congress to
exercise careful oversight to ensure that global health concerns are
given priority over commercial interests in U.S. tobacco trade policy.
Conclusion
At the May 2003 World Health Assembly the United States joined all
other member nations in supporting adoption of the Framework Convention
on Tobacco Control, which recognizes ``that the spread of the tobacco
epidemic is a global problem with serious consequences for public
health that calls for the widest possible international cooperation and
the participation of all countries in an effective, appropriate and
comprehensive international response.'' We believe that future trade
policy should be crafted consistent with the letter and spirit of the
FCTC and should ensure that trade agreements do not undermine life-
saving tobacco control measures.
We would like to thank the Committee for holding this hearing and
for the opportunity to present the views of the public health community
on this important topic.
Doctors Without Borders
333 Seventh Avenue, 2nd Floor
New York, New York 10001-5004
March 24, 2004
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Members of the House Committee on Ways and Means,
I am pleased to submit these comments to the Senate Finance
Committee on behalf of Doctors Without Borders/Medecins Sans Frontieres
(MSF) in response to the Committee's hearing regarding the
Administration's trade agenda held on March 9, 2004. These comments
focus entirely on the potential negative consequences of the
Administration's trade agenda on access to essential medicines. MSF is
deeply concerned that provision sought by the Office of the United
States Trade Representative (USTR) will undermine the historic World
Trade Organization (WTO) Ministerial Declaration on the TRIPS Agreement
and Public Health, resulting in devastating consequences in terms of
access to medicines for millions of people in the Andean region with
HIV/AIDS and other communicable diseases throughout the developing
world.
We call upon USTR to abandon immediately ``TRIPS-plus'' negotiating
objectives and negotiate regional and bilateral free trade agreements
in keeping with the spirit and letter of the Doha Declaration, which
the U.S. adopted along with all other WTO members in November 2001. In
order to ensure that countries, including the U.S., uphold that
commitment in good faith, we must recommend that intellectual property
provisions be excluded from these agreements altogether.
Background: MSF
MSF is an independent, international medical humanitarian
organization that delivers emergency aid to victims of armed conflict,
epidemics, natural and man-made disasters, and to others who lack
health care due to social or geographic marginalization. We operate
over 400 medical relief projects in over 75 countries throughout the
world. The organization was awarded the 1999 Nobel Peace Prize. MSF
currently has a field presence in numerous countries included in
regional or bilateral agreements with the U.S., including Bolivia,
Brazil, Colombia, Ecuador, El Salvador, Guatemala, Haiti, Honduras,
Morocco, Nicaragua, Peru, South Africa, and Thailand. Teams provide
medical care for people with HIV/AIDS, malaria, tuberculosis, Chagas'
diseases, and other diseases, as well as primary care, maternal/child
health care, and other services for displaced, homeless, and vulnerable
people.
Patents, Prices and Patients: The Example of HIV/AIDS
According to UNAIDS, there are currently over 40 million people
living with HIV/AIDS in the world; six million of whom clinically
require antiretroviral therapy now.\1\ The AIDS epidemic is having
major consequences for infectious diseases in the region, such as
tuberculosis. It is estimated that 95% of the people who require
immediate treatment for HIV/AIDS do not have access to antiretroviral
therapy--which, in wealthy countries such as the U.S., has dramatically
extended and improved the lives of people living with HIV/AIDS,
reducing AIDS-related deaths by over 70%\2\--simply because they, and
the health systems that serve them, cannot afford it.
---------------------------------------------------------------------------
\1\ http://www.unaids.org/wad/2003/Epiupdate2003_en/
Epi03_07_en.htm#P180_52121--Accessed March 18, 2004
\2\ According to the U.S. National Institute of Allergies and
Infectious Diseases (at the National Institutes of Health) and the
Centers for Disease Control and Prevention, the estimated annual number
of AIDS-related deaths in the United States fell approximately 70
percent from 1995 to 1999, from 51,117 deaths in 1995 to 15,245 deaths
in 2000. This drop is attributed primarily to the introduction of
highly active antiretroviral therapy (HAART). Centers for Disease
Control and Prevention (CDC). HIV/AIDS Surveillance Report 2001; 13
(no. 1):1-41.
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Just three years ago, the average cost of a triple combination of
antiretrovirals was between $10,000-$15,000 per patient per year, and
today it is available for as little as $140 per patient per year under
certain circumstances. These price reductions were the direct result of
international public pressure and generic competition, particularly
from Indian and Brazilian manufacturers. Generic competition was
possible as a result of the lack of patent protection for
pharmaceutical products in those countries. In the coming years, with
the full implementation of the TRIPS Agreement, such competition will
not be possible due to the granting of patents on pharmaceuticals in
key developing countries with manufacturing capacity, unless flexible
conditions for granting compulsory licenses are available, as per the
Doha Declaration, and compulsory licenses are routinely issued to
address public health concerns. Compulsory licensing of pharmaceuticals
is one of the most important policy tools for ensuring generic
competition.
The case of AIDS drug prices helps illustrate what is to come when
all new pharmaceutical products will be patent protected beginning in
2005, when most WTO members with pharmaceutical capacity will implement
the TRIPS Agreement.\3\ For all these new medicines, generic
competition will be stamped out. As a consequence, prices of new
medicines will inevitably shoot up, far beyond the means of patients in
need in poor countries. The lever that has brought the price of AIDS
drugs down will be lost. If the U.S. regional and bilateral agreements
create a system that blocks use of equivalent but cheaper drugs, it
will be a catastrophe for our patients and for all people in the
region, because the difference in price can be the difference between
life and death.
---------------------------------------------------------------------------
\3\ Note that least-developed countries (LDCs) do not have to grant
or enforce patents on pharmaceutical products before 2016, as per
paragraph 7 of the WTO Declaration on the TRIPS Agreement and Public
Health, available at http://www.wto.org/english/thewto_e/minist_e/
min01_e/mindecl_trips_e.htm
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MSF Comments to USTR on TRIPS-Plus Provisions
On numerous occasions, MSF has raised concerns publicly about the
U.S. insistence on including IP provisions that far exceed requirements
set forth in the TRIPS Agreement, and directly undermine the Doha
Declaration, which clearly recognized concerns about the effects of
patents on prices and stated unambiguously that TRIPS should be
interpreted and implemented in a manner ``supportive of WTO members'
right to protect public health and, in particular, to promote access to
medicines for all.'' \4\ MSF has called repeatedly on USTR to ensure
that the Doha Declaration remains a ceiling for trade negotiations on
IP as they relate to public health technologies, and, as a logical
consequence, to exclude IP from bilateral and regional trade agreements
altogether.
---------------------------------------------------------------------------
\4\ To view the full Declaration, see http://www.wto.org/english/
thewto_e/minist_e/min01_e/mindecl_trips_e.htm
---------------------------------------------------------------------------
The U.S. objective of restricting generic competition and
undermining the Doha Declaration is evident in U.S. negotiating
objectives for the Free Trade Area of the Americas,\5\ USTR's fact
sheet on CAFTA,\6\ and the testimony submitted to the Senate Finance
Committee \7\ regarding the Administration's Trade Agenda. MSF
submitted official comments regarding the Second Draft Consolidated
Texts of the FTAA (Chapter on Intellectual Property Rights) \8\ to USTR
on February 28, 2003, in accordance with the official procedures.\9\ We
also submitted an open letter to USTR concerning the IP provisions
contained in CAFTA.\10\ Specifically, we have raised concerns about
past U.S. proposals that would:
---------------------------------------------------------------------------
\5\ http://www.ustr.gov/regions/whemisphere/intel.pdf--Accessed
March 18, 2004
\6\ http://www.ustr.gov/new/fta/Cafta/2003-12-17-factsheet.pdf--
Accessed March 18, 2004
\7\ http://finance.senate.gov/hearings/testimony/2004test/
030904rztest.pdf--Accessed on March 18, 2004
\8\ Available at http://www.ftaa-alca.org/ftaadraft/eng/ngip_e.doc
\9\ Available at http://www.accessmed-msf.org/prod/
publications.asp?scntid=4320031157162& contenttype=PARA&
\10\ http://www.cptech.org/ip/health/trade/cafta/msf10152003.html--
Accessed on March 18, 2004
1. Restrict the use of compulsory licenses to overcome barriers to
access created by patents;
2. Confer abusive powers to regulatory authorities to enforce
patents; and
3. Grant exclusive rights over pharmaceutical test data
4. Extend patent terms on pharmaceuticals beyond the 20 years
required in TRIPS;
We have elaborated below upon provisions commonly included in U.S.
free trade agreements and their potentially harmful impact on access to
essential medicines.
But first, it is important to point out that the text of many
regional and bilateral agreements pursued by the U.S., including CAFTA,
U.S.-Morocco FTA, and U.S.-Thailand FTA, were not made available
during, and sometimes after, negotiations. In the case of the FTAA,
despite numerous statements by negotiators indicating the importance of
carrying out negotiations in a transparent manner, the text of the
third draft is still almost entirely in brackets, and all footnotes
have been omitted from the draft text, making it impossible to know
which proposals are attributed to which governments. We therefore urge
USTR to make the text of U.S. regional and bilateral free trade
agreements available to the public throughout negotiations in order to
increase the level of transparency and greatly enhance efforts to
engage in an informed public debate about crucial issues in the
Agreement.
Comments on Common Intellectual Property Provisions Included in U.S.
Free Trade Agreements
1. Restrictions on the use of compulsory licenses
Compulsory licenses for pharmaceuticals are one of the most
important tools for ensuring generic competition and are commonly used
by industrialized countries such as the U.S. They will be especially
important after 2005, when all WTO countries with pharmaceutical
manufacturing capacity, except for least developed countries, will
provide patents for pharmaceutical products and processes. After this
date, generic production will be almost entirely dependant upon
compulsory licensing, meaning that flexible conditions for granting
compulsory licenses must be in place in order to ensure the continued
supply of affordable generic medicines.
A compulsory license is a public authorization, consistent with
TRIPS, to ignore a patent that is in force in a country. However, it is
of no use if the drug regulatory authority cannot register any generic
drug during the life of the patent. This is what USTR has managed to
negotiate in almost all previously signed FTAs (such with Australia,
CAFTA, Chile, Morocco and Singapore).\11\ By barring drug regulatory
authorities from registering generic versions of drugs under patent,
the U.S. is blocking the ability of countries to make use of compulsory
licenses to ensure access to medicines for their people.
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\11\ Article 15.10 CAFTA--Measures Related to Certain Regulated
Products, paragraph 3.a; Article 16.8 U.S.-Singapore FTA--Certain
Regulated Products, paragraph 4.(a)(b); Article 17.10 of U.S.-Chile
FTA--Measures Related to Certain Regulated Products, paragraph
2.(b)(c); USTR fact sheet on U.S.-Morocco FTA available at
www.ustr.gov/new/fta/Morocco/2004-03-02-factsheet.pdf; U.S.-Australia
FTA Chapter 17 available at www.ustr.gov/new/fta/Australia/text/
text17.pdf.
---------------------------------------------------------------------------
We urge USTR to refrain from including provisions that will
restrict the use of compulsory licenses in future regional and
bilateral free trade agreements, in order to preserve the full use of
this important safeguard for low- and middle-income countries.
2. Abusive powers to drug regulatory authorities (DRAs) to enforce
patents
As explained above, provisions in numerous free trade agreements
negotiated by the U.S. use drug regulatory authorities to help enforce
patents and prevent generic competition. This is clearly going beyond
the traditional role and functions of drug regulatory authorities,
which are limited to checking the safety, efficacy and quality of
medicines authorized for use in human beings. In a number of U.S. FTAs,
DRAs are requested to refuse the marketing of quality generic medicines
if the original medicine is patented in a given country.\12\ This
effectively means that drug regulatory authorities will function as
patent enforcement agencies and will potentially result in the
enforcement of ``bad quality'' patents, which would be revoked if
challenged before courts.
---------------------------------------------------------------------------
\12\ Article 15.10 CAFTA--Measures Related to Certain Regulated
Products, paragraph 3.a; Article 16.8 U.S.-Singapore FTA--Certain
Regulated Products, paragraph 4.(a)(b); Article 17.10 of U.S.-Chile
FTA--Measures Related to Certain Regulated Products, paragraph
2.(b)(c).
---------------------------------------------------------------------------
We urge USTR not to include a similar provision in other U.S. FTAs,
as it can only serve to protect invalid patent claims, since valid
claims receive adequate protection through normal judicial
processes.\13\
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\13\ See also Essential Action comments in response to USTR request
for public comment on FTAA draft text, August 22, 2001, Rob Weissman--
available at http://lists.essential.org/pipermail/pharm-policy/2001-
August/001422.html
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3. Exclusive rights over pharmaceutical test data
The TRIPS Agreement only requires WTO members to protect clinical
information that is generally required by drug regulatory authorities
to approve/register the marketing of a new medicine (``undisclosed test
or other data'') against ``unfair commercial use'' and ``disclosure''
in the framework of unfair competition law. However, many U.S. FTAs
\14\ clearly go beyond this minimum requirement and confer exclusive
rights on these pharmaceutical test data for a period of five years,
from the date of approval of the original medicine in the developing
country. Some agreements go even further by conferring data exclusivity
also in cases where the original medicine is not registered in the
developing country.\15\ Under these conditions, market exclusivity
could last for up to ten years.
---------------------------------------------------------------------------
\14\ Article 15.10 CAFTA--Measures Related to Certain Regulated
Products, paragraph 1.(a); Article 16.8 U.S.-Singapore FTA--Certain
Regulated Products, paragraph 1; Article 17.10 of U.S.-Chile FTA--
Measures Related to Certain Regulated Products, paragraph 1.
\15\ The original manufacturer is given five years, from the date
of approval in the original country, to apply for registration in the
developing country and get a new five-year period of data exclusivity,
resulting in a possible total of 10 years of data exclusivity in the
developing country. See Article 15.10 CAFTA--Measures Related to
Certain Regulated Products, paragraph 1.(b)
---------------------------------------------------------------------------
Such proposals are clearly aimed at preventing generic competition
of medicines, which are not patented in some countries as a result of
pre-TRIPS legislation, and result in a de facto market monopoly. In
cases where the original medicine is not registered in the developing
country, which may be the case for countries that do not constitute an
attractive market for the original manufacturer, the prevention of
generic competition will lead to a complete lack of access to
medicines, at any cost, for up to ten years.
We therefore urge USTR not to pursue these unacceptable provisions
that contradict the letter and spirit of the Doha Declaration.
4. Extensions of patent terms beyond the 20-year minimum in TRIPS
The TRIPS Agreement obligates WTO members to provide patent
protection on medicines for 20 years. However, the U.S. has been
pushing for patent extension to ``compensate'' for delays either in
drug registration or in patent granting. These are unjustifiable
extensions of patent terms. Extensive literature \16\ has shown that
twenty-year patents are more than enough--indeed they may be considered
excessive--to allow the pharmaceutical industry to recoup investments
made in research and development, if such investments were made.
---------------------------------------------------------------------------
\16\ MSF and Drugs for Neglected Diseases Working Group (now
Neglected Diseases Working Group), Fatal Imbalance, September 2001
available at www.accessmed-msf.org/documents/fatal_imbalance_2001.pdf
and The Report of Commission on Intellectual Property Rights, September
2002, available at http://www.iprcommission.org/papers/text/
final_report/reportweb final.htm
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Patent extensions are not required by the TRIPS Agreement and a WTO
panel expressly stated that extensions to compensate for drug
registration delays do not constitute a ``legitimate interest'' of
patent owners.\17\ From a public health perspective, it is critically
important that the terms of pharmaceutical patents not exceed what is
required in TRIPS and not allow for possible extensions. Extending
patent terms on pharmaceuticals beyond the 20 years required in TRIPS
would be detrimental to the health of people in developing countries,
including those in the Andean region, as it would unnecessarily delay
generic competition.
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\17\ Canada--Patent protection of pharmaceutical products--
Complaint by the European Communities and their member states (WT/
DS114/R).
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It is well known that patent offices worldwide, especially small
ones with limited resources, are overwhelmed with an increasing number
of patent applications. Patent extension to compensate for delays in
the granting of patents will therefore essentially penalize small
patent offices, and may result in the granting of invalid patents for
lack of necessary time and expertise for examination.
We therefore urge USTR to refrain from seeking such measures in
upcoming regional and bilateral agreements.
Conclusion
Recently negotiated trade agreements by the U.S., including CAFTA,
U.S.-Chile, and U.S. Singapore, as well as the U.S. negotiating
objectives for FTAA demonstrate its intent to strengthen intellectual
property regulations beyond what is required in TRIPS, and reduce the
extent of TRIPS safeguards to the detriment of public health. If the
free trade agreements create a system that undermines and contradicts
the Doha Declaration, blocking use of affordable generic medicines, it
will be a catastrophe for our patients and millions of others in the
developing world with HIV/AIDS and other diseases.
One hundred and forty two countries, including the U.S., negotiated
and adopted the Doha Declaration, firmly placing public health needs
above commercial interests and offering much needed clarifications
about key flexibilities in the TRIPS Agreement related to public
health. We have repeatedly stated that the Doha Declaration must remain
a ceiling for international trade negotiations on intellectual property
as they relate to public health technologies and called upon the U.S.
Government to ensure that its regional and bilateral free trade
agreements do not renege on the historic agreement reached in Doha.
The TRIPS Agreement already establishes comprehensive standards for
IP protection in WTO members, which protect sufficiently the interests
of IP holders. The promise of Doha is that the TRIPS Agreement can and
should be interpreted and implemented in a manner ``supportive of WTO
members' right to protect public health and, in particular, to promote
access to medicines for all.'' \18\ Regional and bilateral U.S. free
trade agreements threaten to make it impossible for countries to
exercise the rights re-confirmed in Doha.
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\18\ To view the full Declaration, see http://www.wto.org/english/
thewto_e/minist_e/min01_e/mindecl_trips_e.htm
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As a medical humanitarian organization, we cannot accept the
subordination of the health needs of our patients and millions of
others to U.S. trade interests. In order to ensure the protection of
public health and the promotion of access to medicines for all, we
therefore must recommend that intellectual property provisions be
excluded from U.S. regional and bilateral free trade agreements
altogether.
Sincerely,
Nicolas de Torrente
Executive Director
Statement of Diane Johnson, Tyler, Texas
The classical free trade model shows how high-wage nations and low-
wage nations can trade with each other for mutual benefit through the
principal of comparative advantage. [Voluntary trade should be mutually
beneficial because it's voluntary.] But the basic model does not
account for government policies that encourage major movements of labor
(immigration) and investment. We should never underestimate the power
of misapplied government to create a ghost town or impoverish its
people.
The question is: If hi-tech jobs, manufacturing jobs, service jobs,
and resource industry jobs are shifted abroad, what will be left for
Americans to produce so that they can purchase in the world economy and
enjoy a rising standard of living (or even maintain where they are)?
When the plans of the globalists [link] are understood, the answer is
grim. They have targeted the American middle class [link] for
extinction.
The promised help for the less fortunate throughout Latin America
is also a fraud.
The Mexicans would rather be in their country but due to the
failure of NAFTA they are pouring over the border to drain our system
of its resources of social services, medical, and law enforcement.
Do the people of this nation no longer have a voice in the trade
policies with the fact we have become the victims of a trade deficit of
over 7 trillion? With this comes the destruction of the middle class.
Statement of National Electrical Manufacturers Association, Arlington,
Virginia
Highlights
Worldwide tariff elimination for all NEMA products
Negotiate and ratify free trade agreements (bilateral, regional and
multilateral) that further open commerce in electrical goods while
upholding NEMA principles (see below right)
Help member companies benefit from the emergence of China as a WTO
member
Help member companies benefit from emerging commercial
opportunities in Iraq
Minimize European Union penalties on electrical goods stemming from
the FSC/ETI dispute and other issues
Build on 2002 U.S.-EU Principles of Regulatory Cooperation to
address various European regulatory proposals such as those relating to
Chemicals and Energy-Using-Products (``EuP'')
Ensure that prospective WTO members such as Russia and Saudi Arabia
comply with existing international agreements relating to technical
barriers
Recognize that Supplier's Declaration of Conformity and Third-Party
Certification are separate, valid solutions for market conformity
assessment needs
Ensure that all parties to the NAFTA comply with their commitments
Continue technical exchanges with APEC standards officials
Revise ``Buy America'' procurement regulations in line with
international commercial realities
Secure adequate USG resources for negotiations, monitoring,
enforcement and overseas presence
Reform economic sanctions
2003 Success Stories
Won three-year Commerce Dept. award of $387,000 to assist
establishment of NEMA presence in China
Successfully lobbied Administration and Congress for
withdrawal of foreign steel tariff program, emphasizing damage done to
the U.S. electro-industry
Worked with European industry counterparts to greatly
reduce number of NEMA member products targeted by EU penalties stemming
from the FSC dispute
Testified before the House Ways and Means Committee on
U.S.-China economic relations
Supported congressional approval of U.S.-Chile and U.S.-
Singapore FTAs, after ensuring that both involve tariff elimination for
NEMA products while not featuring Mutual Recognition Agreements (MRAs)
for unregulated electrical products
Succeeded in getting electrical and energy sector tariff
elimination to the forefront of Washington's WTO and FTAA planks
NEMA Principles for FTAs
Immediate Tariff Elimination
No Mutual Recognition Agreements (MRAs) For Non-
Federally-Regulated Products
Energy Services Liberalization
Openness and Transparency in Government Procurement
Protection of Intellectual Property Rights
Reduction in Technical Barriers to Trade (TBTs) and
Compliance with all World Trade Organization (WTO) TBT Agreement
Requirements
Inclusive Definition of ``International Standards''
Market-Driven Standards and Conformity Assessment
Effective Monitoring and Enforcement Mechanisms
Free Trade Benefits Not Unnecessarily Encumbered By Labor
Or Environmental Provisions
As Many Market Opening Measures As Possible
__________
Worldwide Tariff Elimination for All NEMA Products
Objectives: The worldwide elimination of tariffs on electrical
products is a basic NEMA goal. We are founding members of the Zero
Tariff Coalition, and earlier played active roles in pushing for the
APEC EVSL and ATL initiatives. We therefore urge the U.S. to pursue
tariff elimination for electrical products in all fora, including
through sectoral talks under the World Trade Organization ``Doha
Development Agenda'' (DDA) round of negotiations, and through regional
and bilateral negotiations. WTO members should agree to implement so-
called ``zero-for-zero'' agreements to eliminate tariffs on electrical
products as soon as possible, preferably on an early provisional basis
with immediate effect until these ``Free'' tariff rates are bound into
the DDA round's final concluding agreement.
We thank the U.S. Government for stressing electrical and energy
sector tariff elimination in the WTO negotiations and applaud WTO Non-
Agricultural Market Access negotiations Chairman Girard for making
tariff elimination in these sectors a top priority in his May 2003
negotiating draft.
NEMA also urges the U.S. to push for completion of the second phase
of the Information Technology Agreement (known as ``ITA-2''), which
would eliminate tariffs on a wide range of IT items, including some
NEMA products. NEMA also supports continued efforts by U.S. officials
to expand the membership of the existing ITA.
Benefits: While U.S. electrical exports have been generally growing
around the world over the last ten years, they have increased most
dramatically in two instances where tariffs were eliminated: (1) to
Mexico since the NAFTA agreement came into being; and (2) for medical
devices worldwide following the WTO Uruguay Round medical devices
sectoral zero-for-zero tariff elimination agreement. We would like to
see these stories emulated elsewhere; they don't just benefit our
companies, they serve to make the best, most price efficient products
available to consumers and companies in other countries.
Negotiate and Ratify Free Trade Agreements (Bilateral, Regional and
Multilateral)
that Further Open Commerce in Electrical Goods
While Upholding NEMA Principles
Free Trade Agreements: NEMA lobbied long and hard for Trade
Promotion Authority, as well as the Chile and Singapore free trade
agreements, and we now urge Congress to quickly ratify new bilateral
FTAs as they are completed.
Specifically, NEMA urges Congress to move quickly to approve the
free trade agreements with Australia, Morocco and Central America
(CAFTA) this year. The 90-day review period required under the Trade
Act of 2002 and the realities of this year's political calendar provide
a small window for Congress to act favorably on these FTAs, which
feature immediate tariff elimination for most NEMA products and other
beneficial provisions for our industry. NEMA will be an active member
of the U.S. business coalitions supporting congressional passage of
these valuable agreements.
We also encourage the Administration to pursue NEMA priorities such
as the following in the many other multilateral (as in the WTO Doha
Development Agenda), regional (as in the Free Trade Area of the
Americas), and ``bilateral'' (e.g., Southern Africa, Thailand, Bahrain,
Panama, Colombia) negotiations it is pursuing:
Tariff Elimination
No Mutual Recognition Agreements (MRAs) For Non-
Federally-Regulated Products
Energy Services Liberalization
Openness and Transparency in Government Procurement
Protection of Intellectual Property Rights
Reduction in Technical Barriers to Trade (TBTs) and
Compliance with all World Trade Organization (WTO) TBT Agreement
Requirements
Inclusive Definition of ``International Standards''
Voluntary, Market-Driven Standards and Conformity
Assessment
Effective Monitoring and Enforcement Mechanisms
Free Trade Benefits Not Unnecessarily Encumbered By Labor
Or Environmental Provisions
As Many Market Opening Measures As Possible
Free Trade Area of the Americas (FTAA) Talks, Particularly the
Negotiating Group on Market Access (NGMA): NEMA applauds the U.S.
Government for placing tariff elimination for electrical goods at the
forefront of its 2003 initial FTAA negotiating offer and looks forward
to continued leadership from the Administration and Congress. NEMA also
encourages all FTAA countries to implement customs facilitation
measures to which they have already agreed. Moreover, NEMA urges the
U.S. to convince the Hemisphere that any standards and conformity
assessment provisions included in an FTAA must mirror the WTO TBT
Agreement. NEMA will continue to be engaged in the process, and
exchange views with its industry counterpart associations throughout
the Americas.
Opposition to Mutual Recognition Agreements (MRAs): In NEMA's view,
the use of MRAs should be limited and considered only as an alternative
for conformity assessment needs when applicable to federally regulated
products such as medical devices. MRAs are not the answer to conformity
assessment needs in non-regulated areas; if anything, they serve to
encourage the creation of unnecessary product-related regulation. In
this regard, while we strongly objected to the inclusion of an
electrical safety annex in the U.S. MRA with the European Union a few
years ago, we are pleased that the Administration has either excluded
electrical products from subsequently negotiated MRAs or refused to
sign on to any such accords that include them. We look forward to a
continuation of that stance, and trust that the Administration will not
entertain intergovernmental MRAs as a part of current free trade
negotiations.
``International'' Standards: In addition, the U.S. Government must
continue working to dispel the misinterpretation that the use of the
term ``international standards'' in the WTO TBT Agreement applies only
to International Electrotechnical Commission (IEC), International
Standards Organization (ISO) and International Telecommunications Union
(ITU) standards. An interpretation should also include widely-used
norms such as some North American standards and safety installation
practices that meet TBT guidelines. Misinterpretation can be
disadvantageous to U.S. businesses' efforts to sell in global markets.
Moreover, the importance of openness and transparency are lost when
focus is placed only on those three standards bodies.
Energy Services Liberalization: NEMA supports liberalization of
trade in energy services, in order to allow more people worldwide to
enjoy high quality, affordable energy, and also to provide new
opportunities to those energy service and electricity providers who use
the equipment made and services provided by NEMA's members. Thus, NEMA
is an active member of the industry coalition campaigning for the
inclusion of commitments on energy services in the WTO's ongoing
negotiations on services under the DDA. NEMA's primary perspective is
that of the industry that provides the equipment and products used to
build and maintain electrical energy systems, but many NEMA members are
active providers of energy services as well. The liberalization that is
good for utilities is also good for our manufacturers, service
suppliers, and for the users of electricity. USTR has included energy
services in its proposals for the WTO services negotiations and we look
forward to continued efforts from the Bush Administration and support
from Congress to secure commitments from our trading partners in this
crucial area.
Transparency in Government Procurement: Around the world a lack of
transparency in awarding contracts has served to unfairly exclude U.S.
companies on countless occasions. It is time for U.S. entities to be
able to compete on equal footing with other suppliers.
While the U.S. has been a leader of efforts to achieve a WTO
agreement to make government procurement more open and transparent, WTO
negotiations on this topic continue to be put off. We look forward to
even more leadership from USTR and Congress in pursuing a WTO
agreement.
NEMA also urges the Bush Administration to increase efforts to
obtain full implementation and enforcement of all signatories to the
1999 OECD Anti-Bribery Convention and the 1997 OAS Convention on
Corruption.
Help Member Companies Benefit From the Emergence of China as a WTO
Member
In 2003, NEMA won a Commerce Department Market Development
Cooperator Program award of $387,000 in matching funds to support
NEMA's China Initiative and the establishment of a Beijing presence to
assist members and engage Chinese counterparts on matters of common
interest.
China: NEMA members continue to be intensely interested in selling
to, sourcing from and competing with China, having lobbied hard in
recent years for Beijing's entry into the WTO. China (when combined
with Hong Kong) is now our industry's 3rd largest trading partner after
Mexico and Canada, and our number 3 export market as well. Our
industry's sales to China have been growing rapidly over the last
decade, now exceeding exports to all but a handful of countries. We are
excited about future possibilities as the Middle Kingdom's economy
continues to expand impressively--though our members' products continue
to face a variety of tariff and non-tariff barriers.
In this respect, while Beijing committed upon entering the WTO to
change its conformity assessment procedures so as to accord non-Chinese
product ``national treatment,'' for many electrical products it has
also recently made erroneous moves to only accept goods built according
to either Chinese national standards or those ``international''
standards developed and published by the International Electrotechnical
Commission (IEC) and International Standards Organization (ISO). (ISO
and IEC standards still frequently do not include products built to
North America-based international requirements.) Up to now, the Chinese
have also frequently accepted ``North American'' items that are
compliant with the National Electrical Code (NEC).
Like many other sectors, the U.S. electrical industry also
continues to have fundamental, ongoing concerns about intellectual
property protection in the People's Republic. Our members continue to
be victimized by vast and repeated trademark infringement. NEMA seeks
continued strengthening of China's anti-counterfeiting measures and
enforcement.
Minimize European Union Penalties on Electrical Goods
Stemming From the FSC/ETI Dispute and Other Issues
Foreign Sales Corporation/Extraterritorial Income (FSC/ETI)
Dispute: Working with European industry counterparts, in 2003 NEMA was
able to greatly reduce the number of U.S. electrical goods that would
be subject to European Union reprisals. Now the Association strongly
encourages Congress to enact an appropriate WTO-compliant reform to the
FSC/ETI program. NEMA does not take a position on the form this
revision should take, except that the revised law should not undermine
the financial position of the U.S. electrical sector.
Suspension of the Electrical Safety Annex of the U.S.-EU MRA: NEMA
is pleased that the EU Commission has suspended implementation of the
Annex, since our feeling is that it adds no value to the existing
electrical safety systems in the U.S. and EU. The historical record of
electrical safety, based on a private-sector-promulgated standards and
conformity assessment system, is a good indicator that private-sector
approaches are successful. The U.S. Occupational Safety and Health
Administration (OSHA) NRTL (Nationally Recognized Testing Lab)
Regulations call for OSHA accreditation of conformity assessment bodies
(CABs). EU CABs can be accredited by OSHA for testing and certifying EU
products to U.S. voluntary standards for OSHA recognition in the
workplace. In 2001, OSHA granted NRTL-status to a German lab and
thereby demonstrated the integrity of its approach, in which EU
applicant CABs are given the same consideration as U.S. CABs. The Bush
Administration should continue to maintain this OSHA NRTL independence
while working with the EU to achieve better understanding of the U.S.
position.
Rehabilitation and Reconstruction of Iraq's Electrical Infrastructure
Iraq: The U.S. electrical industry is very interested in providing
products and services toward the reconstruction of Iraq in particular.
The Association is pleased that Congress appropriated $5.56 billion in
2003 for the reconstruction of electrical infrastructure and is working
to help member companies here benefit from the attendant and emerging
opportunities.
Build on 2002 U.S.-EU Principles of Regulatory Cooperation to Address
Various
European Regulatory Proposals such as Those Relating to
Chemicals and End-use-Products (EuP)
Regulatory Cooperation: NEMA applauds the Bush Administration and
the European Union for their 2002 agreement on Guidelines on Regulatory
Cooperation and Transparency. We ask that pilot projects adopted for
implementation of the Guidelines include the current EU regulatory
initiatives relating to Chemicals and Energy-Using-Products. For
reasons elaborated above, we do not think that electrical safety is an
appropriate pilot project.
As we and other industry associations noted in a June 2001 paper
for U.S. Trade Representative Robert Zoellick, and as noted in greater
detail below, the EU is increasingly establishing regulations that are
not justified by available technical evidence and by sound science and
whose cost is not proportionate to intended consumer or environmental
benefits. Typically, these regulations are developed with procedures
that are not transparent to all stakeholders, including the U.S.
electrical manufacturing industry and other trading partners. Further,
stakeholders find they have no way to hold EU authorities accountable
for the regulations produced.
Our industry is committed to working with the Administration,
through engagement with the EU on questions of governance and
regulatory disciplines, to find solutions to its systemic regulatory
problems, ensuring justification, transparency and openness in
development of directives, decisions and regulations, as well as
``national treatment'' and accountability in their application.
Proposed EU Regulations Relating to Chemicals and Energy-Using-
Products (``EuP''): The European Union will continue work on these two
proposals in 2004 despite serious opposition to the Chemicals proposal
in particular from governments such as those of Germany, France and the
United Kingdom. Despite some revisions, the Chemicals proposal as
envisioned, known as REACH, would still have wide-ranging reporting
implications for downstream users such as the electrical industry. The
Energy-Using-Products directive, an earlier version of which was known
as the Electrical and Electronic Equipment (EEE) proposal, would
mandate eco-friendly design and require manufacturers to comply with a
series of requirements throughout the life-cycle of a product. The
planned EuP and its envisioned implementing measures would feature
product energy efficiency requirements, a concept NEMA has supported in
proposed U.S. energy legislation.
We very much would like to avoid a repeat of 2002, during which the
EU completed two new directives that create difficulties for U.S.
electrical and electronics products by raising costs and allowing
differing standards and procedures among the 15 member states. The
first directive addresses take-back and recycling of Waste Electrical
and Electronic Equipment (WEEE) while the second, known as the ROHS
(Restriction on the Use of Hazardous Substances) directive, imposes
bans on the use of certain substances currently used in manufacturing
without providing sufficient basis for processes to identify any needed
substitutes.
NEMA urges the Bush Administration and Congress to clearly identify
these four measures as serious potential trade barriers and to seek an
accommodation that would emphasize rational, cooperative and science-
based measures as alternatives to broad-brush regulatory mandates.
EU Initiatives Regarding Electromagnetic Fields (EMF): In 1999, the
EU Council issued a Recommendation that set EMF exposure limits for the
general public over a range of frequencies. Although it has been
acknowledged by some supporters that the limits include an excessive
safety factor, EU member states may provide for a ``higher level of
protection'' than in the Recommendations, and thus can adopt more
strict exposure limits. Extensive U.S. Government research on extra low
frequencies (ELF) has concluded that ``the scientific evidence
suggesting that ELF/EMF exposures poses any health risk is weak.''
Similar conclusions have been reached by health risk studies in other
countries.
A series of emerging EU initiatives also lacking sufficient
justification pose additional EMF-related challenges to our industry:
the aforementioned EuP proposal, a new proposal to regulate EMF
exposure in the workplace only, and the revision of a safety directive
for low voltage equipment (known as the LVD). Each of these will draw
on the same excessive limits used in the Recommendation.
Manufacturers on both sides of the Atlantic have warned their
authorities through the TABD process that EMF could become a major
point of contention between the U.S. and Europe. NEMA has notified the
Commerce Department that EU member state implementation of the EU
Council EMF recommendations would create a substantial barrier to trade
by restricting the free movement of goods, which would severely affect
U.S. electrical manufacturing interests. In the face of political
pressures to adopt EMF regulations, NEMA believes that standards for
human exposure to ELF-EMF are only warranted if a credible scientific
basis can be established for adverse effects. On that basis, NEMA
supports the TABD position that EMF exposure standards must be
harmonized globally. The U.S. Government must continue its efforts to
work with the leaders in the EU Commission and in the member states to
avoid another trans-Atlantic trade dispute over a sensitive issue.
Ensure that Prospective and Current WTO Members Comply with
International Agreements Relating to Technical Barriers
WTO Accessions: NEMA also hopes for greater progress in bilateral
negotiations with WTO accession candidates. Particularly with regards
to Russia, NEMA hopes that standards and TBT fundamentals are not
sacrificed for the sake of geopolitical expediency. In the case of
Saudi Arabia, NEMA appreciates and urges continuing emphasis on
standards and TBT issues in the ongoing negotiations. NEMA
representatives have traveled to Riyadh and established an effective
cooperative relationship with Saudi Arabian Standards Organization
(SASO) officials. A former NEMA employee now serves in place as the
U.S. standards attache in Riyadh.
WTO Technical Barriers to Trade (TBT) Agreement: NEMA supports the
concepts outlined in the WTO TBT Agreement and believes that all
countries should implement, to the fullest extent, the obligations
outlined there. These obligations include: standards development
processes that are transparent and include participants from all
interested parties; a conformity assessment system that upholds the
principles of most-favored nation treatment (meaning equal treatment in
all countries); and national treatment (meaning equal treatment of
domestic and foreign products, as well as test laboratories conducting
conformity assessment services) in the application of testing and
certification procedures.
Recognize that Supplier's Declaration of Conformity and Third-Party
Certification
are Separate, Valid Solutions for Market Conformity Assessment Needs
Let The Market Decide: NEMA strongly believes that market
conditions should determine the appropriate means of certifying that a
product conforms to safety requirements, be it Third-Party
Certification or Supplier's Declaration of Conformity (SDOC). In this
respect, efforts to give SDOC legal standing should be resisted and
kept in perspective, since such moves could have significant
repercussions for the existing, successful U.S. electrical safety
system--the latter being largely set up along Third Party lines.
Ensure that NAFTA Parties Comply with Their Commitments
NAFTA Implementation Issues: NEMA member sales to Mexico have
boomed since the inception of the NAFTA, and most remaining Mexican
tariffs on U.S. electrical products have reached zero in 2003. Also,
with an office in Mexico City, NEMA is well positioned to work with
U.S. authorities to monitor and influence the Mexican standards
development process for electrical products, ensuring that Mexican
norms do not act as barriers to U.S. products.
In this respect, NEMA is becoming very involved in the standards
and conformity assessment processes in Mexico. The country is
developing 20 to 30 new national electrical product standards (known as
NOMs) each year and is moving in the direction of making all of its
standards mandatory. The authorities do accept and take into account
public comments on proposed standards; however, a document that has
been substantially revised based on public comments may not be
circulated for final public review prior to publication as a mandatory
standard. Moreover, a standard adopted as mandatory can incorporate by
reference another voluntary standard without any public review or
comment opportunity. NEMA would welcome the Mexican standards
authority's application of consistent and transparent procedures in the
consideration and adoption of NOM standards, which directly affect
market access for many proven commercial products.
Mexico was required under its NAFTA obligations starting January 1,
1998, to recognize conformity assessment bodies in the U.S. and Canada
under terms no less favorable than those applied to Mexican conformity
assessment bodies. However, so far no U.S. or Canadian conformity
assessment bodies have been recognized by Mexico for conducting
conformity assessment on most products that are exported from the U.S.
and Canada to Mexico. Mexico has indicated that it is willing to
conform to these obligations only when the Government of Mexico
determines that there is additional capacity needed in conformity
assessment services. This procedure does not meet the intent of
Mexico's NAFTA obligations, serving to protect their conformity
assessment bodies and Mexican manufacturers from fair competition from
U.S. and Canadian exports into Mexico.
Continue Technical Exchanges with APEC Standards Officials
APEC Standards: NEMA is actively involved in bringing a greater
understanding of conformity assessment alternative processes to the
Asia-Pacific region. We have been presenters at two meetings of APEC's
Sub-Committee on Standards and Conformity Assessment, and we have so
far collaborated with the National Institute of Standards and
Technology on two workshops for APEC member country representatives.
Revise ``Buy America'' Procurement Regulations in Line with
International Commercial Realities
``Buy America'' Procurement Regulations: U.S. Government ``Buy
America'' restrictions on non-sensitive electrical products should be
re-evaluated in the context of both the increasingly global economy and
potential savings. By restricting access to the U.S. market, these
restrictions also have the reciprocal effect of disadvantaging U.S.
companies seeking to sell into foreign markets. The United States
should consider entering into bilateral and regional agreements
providing reciprocal access to government procurement in countries that
are not members of the WTO Government Procurement Agreement.
Secure Adequate USG Resources for Negotiations, Monitoring, Enforcement
and
Overseas Presence
Monitoring, Enforcement and Overseas Presence: NEMA applauds the
Administration and Congress for their successful efforts to bring China
and Taiwan into the WTO. NEMA welcomes the opportunity to help our
member companies take advantage of the market-opening entry of China
and Taiwan into the rules-based international trading system and is
working with USTR, the Commerce Department, and Congress to monitor and
ensure compliance.
The U.S. Government needs to do more than simply reach favorable
trade accords; it also needs to be vigilant in making sure that other
countries live up to their commitments to foster openness, transparency
and competition. In this regard, our view is that the Commerce
Department's Standards Attache program should be expanded and fully
funded. Likewise, we greatly appreciate the assistance provided by
Foreign Commercial Service (FCS) offices abroad, and hope that FCS
activities will receive ample support in FY 2004 and the years ahead.
With the support of a Market Development Cooperator Program (MDCP)
grant from the Commerce Department, NEMA opened offices in Sao Paolo,
Brazil and Mexico City, Mexico in 2000. The MDCP is an innovative
public/private partnership whose grant budget should be expanded so
that more organizations can enjoy its benefits. In 2003 NEMA won a
second MDCP award in support of the Association's China initiative and
to help support the establishment of a Beijing presence. NEMA looks
forward to continuing its close cooperation with the Commerce
Department on this new project.
NEMA applauds Congress' approval of a funding and manpower increase
for the U.S. Trade Representative's Office and the International Trade
Administration for FY 2004. Similarly, the Bush Administration and
second session of the 108th Congress should maintain and enhance this
generous increase in resources for the trade agencies, allowing them to
even more effectively negotiate, monitor and enforce trade agreements.
Economic Sanctions
Reform: NEMA supports passage of legislation that would establish a
more deliberative and disciplined framework for consideration and
imposition of economic sanctions by Congress and the Executive Branch.
In addition, existing economic sanctions should be reviewed to
determine if their effectiveness justifies the costs to U.S. jobs and
industries.
About NEMA:
The National Electrical Manufacturers Association is the largest
trade association representing the interests of U.S. electrical
industry manufacturers, whose worldwide annual sales of electrical
products exceed $120 billion. Its mission is to improve the
competitiveness of member companies by providing high quality services
that impact positively on standards, government regulation and market
economics. Founded in 1926 and headquartered in Rosslyn, Virginia, its
more than 400 member companies manufacture products used in the
generation, transmission, distribution, control, and use of
electricity. These products, by and large unregulated, are used in
utility, industrial, commercial, institutional and residential
installations. Through the years, electrical products built to
standards that both have and continue to achieve international
acceptance have effectively served the U.S. electrical infrastructure
and maintained domestic electrical safety. The Association's Medical
Products Division represents manufacturers of medical diagnostic
imaging equipment including MRT, C-T, x-ray, ultrasound and nuclear
products. NEMA members' annual shipments exceed $100 billion in value.
Statement of Student Global AIDS Campaign
The Student Global AIDS Campaign (SGAC) is a national student-led
organization dedicated to ending the global AIDS pandemic. We have
chapters at over 65 colleges, high-schools and universities, across the
U.S., and individual members at over 100 other schools.
SGAC was founded on the belief that AIDS is the crisis of our
generation and that we will be judged by our response to it. We believe
that AIDS is a political crisis and that students can fight effectively
for solutions to the AIDS pandemic. Additionally, we believe that we
should stand in solidarity with young people abroad by supporting the
work they do to fight AIDS on the ground.
The Student Global AIDS Campaign believes that people living with
HIV/AIDS should not be denied treatment--especially because of
artificially high patented prices. As such we denounce the current U.S.
position of racketing up intellectual property protection in developing
nations.
There are serious doubts as to the appropriateness of high levels
of intellectual property protection for developing nations. The United
Kingdom Commission on Intellectual Property Rights, which was an
unbiased assessment of the appropriate level of intellectual property
in developing nations and included members of both civil society as
well as the pharmaceutical industry, has clearly noted negative impact
of high levels of protection.
It is important to consider the purpose behind patents. Patents are
not a god-given right, but rather an attempt to bridge the societal
trade-off between the desire for new inventions and the desire to make
these inventions available to the public. The United States realized
this during its own development. As the United States was
industrializing, it made it nearly impossible for foreign firms or
persons to obtain patents. Americans blatantly copied and sold European
inventions. This copying process certainly was not appreciated by the
European inventors, but the learning process from reverse engineering
and imitation played an important role in ensuring that America
industrialized quickly and efficiently.
Despite the argument advanced by some that patents are a necessary
precursor to development, it seems that for countries that are still
developing, a lack of IP may be more helpful to ensuring they reach the
technology frontier and can more quickly contribute to the scientific
community in the future. Therefore from such a view, IP protection does
not contribute to development but is an indicator of it. Indeed, the
United States as the most technologically advanced nation in the world
now, finds it advantageous to erect high standards of protection, but
this followed its.
It is therefore hypocritical of the United States to pressure
developing nations to adopt higher standards of IP when historically
while in the same position it blatantly disregarded such rights. In the
long run both developing nations themselves and the United States would
benefit from their development and stability. The harm of unnecessarily
high patent protections may prevent developing nations from reaching
this goal.
The introduction of the IPR chapter to trade agreements is a
relatively new innovation. It was only under heavy pharmaceutical and
movie industry lobbying that the Trade Related Aspects of Intellectual
Property Rights (TRIPS) agreement was inserted into the WTO in 1994.
Such an agreement does not belong in an organization that is dedicated
to promoting the concept of free trade. By definition patents confer a
temporary monopoly which is anti-competitive and raises prices for
consumers.
Luckily the TRIPS agreement included flexibilities for members to
protect their national health interests. TRIPS allows compulsory
licensing which grants nations the right to break a patent under
certain conditions. This is a right the United States Government has
used liberally for many things that we believe are in our national
interest. Unfortunately, even with the built in flexibilities of the
TRIPS agreement developing nations are under a lot of pressure not to
exercise these rights to treat their public health epidemics. In South
Africa's instance, just the attempt to insert language that would have
allowed for compulsory licensing brought a large amount of pressure
from the pharmaceutical companies and the U.S. Government. There are 5
million people infected with HIV in South Africa--a staggering
statistic by any standards. In order to provide treatment for all these
people the government cannot afford to pay the brand name cost of
$15,000 per person per year for ARV therapy. Generic competition is the
only reasonable option under such circumstances.
Ultimately it took activist pressure and the anthrax attacks before
the U.S. allowed developing nations to put their public health before
the rights of the IP protection granted to private pharmaceutical
corporations. When the U.S. Government threatened to compulsory license
Cipro, the treatment to anthrax, the developing nations forced her to
sign onto the Doha Declaration on the TRIPS Agreement and Public
Health. This Declaration which was unanimously agreed to by all WTO
members stated among other clauses that:
We agree that the TRIPS Agreement does not and should not
prevent members from taking measures to protect public health.
Accordingly, while reiterating our commitment to the TRIPS Agreement,
we affirm that the Agreement can and should be interpreted and
implemented in a manner supportive of WTO members' right to protect
public health and, in particular, to promote access to medicines for
all.
Furthermore, the U.S. Trade Act of 2002 directed the USTR to
negotiate trade agreements consistent with the Doha Declaration on the
TRIPS Agreement and Public Health and its mandate for countries to use
flexibilities in patent rules to ``protect public health and, in
particular, to promote access to medicines for all.''
But the intellectual property provisions of the U.S.-Central
America Free Trade Agreement (CAFTA) contravene the directive of the
Trade Act of 2002. CAFTA provisions require countries to adopt patent
and related rules far more stringent than the requirements of the World
Trade Organization's Agreement on Trade-Related Aspects of Intellectual
Property (TRIPS). These provisions will delay the start of price-
lowering generic competition in Central American countries, instead
keeping drug prices high and out of reach for large numbers in Central
America. If CAFTA is adopted, thousands of sick people will be forced
to go without essential medicines that could significantly improve
their quality of life or even save their lives.
Among the most troubling provisions of CAFTA are provisions that:
Extend pharmaceutical patents beyond the 20 years
required by the WTO (Articles 15.9.6 and 15.10.2).
Establish special 5-10 year monopoly protections for
pharmaceutical marketing approval data (Article 15.10.1). These
monopolistic rules prevent generic firms from showing that their
product is equivalent to already approved medicines and then relying on
the safety and efficacy data submitted by the product's originator.
Instead, the generic firms must either duplicate the costly and time-
consuming tests--which no generic will be willing to do for the small
Central American markets--or wait until the marketing monopoly
protections expire. The result will be delays in generic competition
for at least five years in the absence of patent barriers.
Potentially work as effective prohibitions on compulsory
licensing (Article 15.10.3). By its plain terms, CAFTA Article 15.10.3
appears to make the period of exclusivity for marketing approval co-
extensive with the life of a patent. Thus, even if a country issued a
compulsory license--authorizing generic competition for a product that
remained on patent--generic firms would effectively be barred from the
market, because they could not rely on the originator company's
marketing approval data.
Inhibit compulsory licensing through investment rules
that threaten huge penalties if compulsory licensing is carried out in
a way not compliant with CAFTA's intellectual property provisions
(Articles 10.7, 10.16 and 10.26).
The impact of these measures will be dire.
There are more than 200,000 people with HIV/AIDS living
in Central America. Four of the six countries in Latin America with the
highest HIV/AIDS prevalence rates are in Central America, according to
the World Bank.
Generic competition can help these people stay alive, by
lowering the cost of lifesaving medicines, and enabling them to get
treatment, either in the public or private sector.
But CAFTA rules will delay generic entry, for AIDS
medicines as well as drugs to treat other serious illnesses, leaving
the vast majority who are unable to afford high drug prices to suffer
or die needlessly.
CAFTA's Article 15.10.3, appears to prohibit any generic
firm from relying on the data submitted by a patent holder at any point
during the term of the patent unless the generic firm has the
permission of the patent holder.
This addresses the fact that there are two aspects to
bringing a product to market, especially in pharmaceuticals. First the
companies take out patents on their new drugs in order to prevent
others from copying and underselling them at a lower price. However,
while the patent creates a monopoly, approval by a regulatory agency
(such as the Food and Drug Administration in this nation) is needed
before the drug can be sold on the market. In order for the regulatory
agency to allow the drug to be sold on the market there must be test
data demonstrating safety and efficacy. Normally generic drugs do not
to rerun these clinical trials to demonstrate safety and efficacy but
rather show that their product is biomedically equivalent to the brand
name drug and therefore the same data applies.
The CAFTA agreement essentially prevents the use of a
compulsory license under any circumstance--even one of national
emergency through Article 15.10.3. This prohibition on this test data
during the term of the patent means that governments will be unable to
break a patent under any circumstances. This has important implications
for the United States as well as devastating impacts in the developing
world. If countries lose the flexibility of compulsory licensing, if
another anthrax threat were to occur the government would be unable to
protect its citizens by issuing mass quantities of the antidote. As we
deal with terrorism, it is essential that we do not lose some of our
most important tools in protecting our citizens by signing them away in
these free trade agreements.
For all these reasons the Student Global AIDS Campaign
urges you to remove the IPR chapter from existing bilateral and
regional trade agreements, and preclude their inclusion in future
agreements. IPR does not belong in bilateral and regional trade
agreements since the WTO has already guaranteed patent protection. The
impact of stricter patent laws on the public health of developing
countries would be enormously negative as might its impact here in the
United States as well.
[BY PERMISSION OF THE CHAIRMAN:]
Paul Tadros
2068 Sherbrooke St. West, Suite 32
Montreal, Quebec, H3H 1G5
August 12, 2004
The Honorable Bill Thomas
Chairman of the Committee on Ways and Means
U.S. House of Representatives
Washington, DC
Dear Sir:
Re: The Administration's Fiscal Year 2005 Revenue Proposals
(``Proposals'')
Thank you for the opportunity to comment on the Proposals and hope
they would be viewed in the constructive light in which they are
intended.
Introduction
The comments/observations herein will be limited to: (1) the
earnings stripping rules [section 163(j)]; (2) subpart F and, (3) ETI.
We are in difficult times with increased competition around the
globe. After reading the Proposals, I could not help but come to one
conclusion: the Proposals are regressive due to the misconceptions on
which they are based.
Section 163(j)
The reasons for change, which read in part: ``Tightening the rules
of section 163(j) is necessary to eliminate these inappropriate income-
reduction opportunities'' seem not to be based on reality. However,
when one looks at the subpart F provisions, perhaps one understands why
that ``reality'' is tainted. In order to understand the comments herein
on section 163(j), I will use certain aspects of subpart F as an
illustration. The comments in the section titled ``Subpart F'' vis-a-
vis capital export neutrality and capital import neutrality equally
apply herein.
Under subpart F, where a CFC requires funding for its operations
and such funding (in the form of debt) is received from another related
CFC, the interest (ignoring the same country exception) paid by the
borrower is treated as subpart F income in the U.S.' parent's hands.
The message this, basically, sends to the U.S.-based multinational is:
``do not utilize sound cash management principles. If your affiliate
needs funds, borrow externally so that we can reduce your
competitiveness.''
Therefore, a similar principle is being applied in the in-bound
context. If there is a job creation ``killer'' in these Proposals, this
is it. If a foreign corporation has a choice of opening a manufacturing
plant in Tennessee to employ 1,500 Americans or opening a plant in
Windsor, Ontario, with all other factors equal, to which location does
one think the investor leans? U.S.-based companies and foreign
corporations should have freedom to allocate their resources in the
most efficient manner.
Currently, Treasury and the IRS have at their disposal existing
section 163(j), a body of case law as to whether an instrument is debt
or equity and section 482. These are more than adequate.
In many cases, the economic benefits to the U.S. from job creation
are far greater than the ``tax cost'' to the Government. To date, there
is no clear compelling evidence submitted to substantiate the ``Reasons
for Change.''
Subpart F
The principles under which subpart F was created some 42 years ago
do not apply today. In other words, it still amazes many of us how
Treasury is still sticking to the concepts of capital export neutrality
(``CEN'') and capital import neutrality (``CIN''). Perhaps, when there
were ``borders'' and the gold standard was the norm, CEN and CIN were
valid concepts. We all know that is not the case anymore. In fact, with
each passing day, ``borders'' are disappearing and the gold standard
went the way of the dinosaur.
However, one cannot close this topic without extending
congratulations to you, Mr. Chairman, for the provisions proposed in
the ``Thomas'' Bill. At the same time, one has to express
disappointment in that the Proposals did not seek to address this
critical issue.
ETI
Why a logical well-thought out solution has not been formulated
seems inexplicable. Other countries, to a large extent, have been able
to find ways to assist the competitiveness of the enterprises in their
countries.
Any solution has to be tailor-made to the U.S. but, under one
condition. The Administration and Congress have to understand that
``you cannot please everyone.'' Some companies may like the solution,
some would not. The key factor, at the end of the day, is the country
better off?
As a start, I would urge you to look no further than ``your
backyard'' to the North. From discussions with the professionals in
Canada, one key element which affects the effective tax rate in the
manufacturing sector, is labor. In other words, the greater the
investment in labor, the lower the effective rate. Of course, this is
enhanced with R&D credits which are more effective than the U.S.'
system.
Mr. Chairman, I must, respectfully, say that the proposals in your
Bill or the Crane-Rangle Bill are ineffective.
Conclusion
The U.S. has been a leader and an innovator over the decades. Let
us, now, not have it fall to second grade through illogical and ill
conceived tax policies. If these policies are allowed to continue, the
results, invariably, would be continuing to make U.S. enterprises
uncompetitive and curtailing investment into the U.S. for job creation.
In summary:
1. Any proposal to make section 163(j) worse than it is currently,
should be eliminated;
2. The original proposals in H.R. 2896 vis-a-vis subpart F should
be acted upon this year. However, make the effective dates sooner, not
later. There are too many good provisions which have effective dates 3
or 4 years hence. If these proposals had been in place 5-10 years ago,
the chances of the inversions occurring would have been significantly
diminished; and,
3. The solution to ETI is simple, just do it.
From my experience, too many times countries have used tax policy
to curtail any benefits from trade agreements. If free/fair trade is
the policy, tax policy should not act as a contradiction thereto.
Unfortunately, this seems the road the U.S. is heading.
Sincerely,
Paul Tadros
CPA