[Senate Hearing 108-188]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 108-188
 
                 U.S. RELATIONS WITH A CHANGING EUROPE:
                  DIFFERING VIEWS ON TECHNOLOGY ISSUES
=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 24, 2003

                               __________

       Printed for the use of the Committee on Foreign Relations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate









                       U.S. GOVERNMENT PRINTING OFFICE
90-466                     WASHINGTON : 2003
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001










                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
MICHAEL B. ENZI, Wyoming             RUSSELL D. FEINGOLD, Wisconsin
GEORGE V. VOINOVICH, Ohio            BARBARA BOXER, California
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
NORM COLEMAN, Minnesota              JOHN D. ROCKEFELLER IV, West 
JOHN E. SUNUNU, New Hampshire            Virginia
                                     JON S. CORZINE, New Jersey

                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                 ------                                

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                    GEORGE ALLEN, Virginia, Chairman

GEORGE V. VOINOVICH, Ohio            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
JOHN E. SUNUNU, New Hampshire        CHRISTOPHER J. DODD, Connecticut
LINCOLN CHAFEE, Rhode Island         JOHN F. KERRY, Massachusetts

                                  (ii)

  














                            C O N T E N T S

                              ----------                              
                                                                   Page

Allen, Hon. George, U.S. Senator from Virginia, chairman of the 
  subcommittee...................................................
      Opening statement..........................................     1
Halloran, Jean, director, Consumer Policy Institute, Consumers 
  Union..........................................................    28
      Prepared statement.........................................    30
Litman, Gary, vice president Europe and Eurasia, United States 
  Chamber of Commerce............................................     4
      Prepared statement.........................................     6
Miller, Harris, president, Information Technology Association of 
  America........................................................    16
      Prepared statement.........................................    18
Myers, Karen, chairman, subcommittee on E-Commerce, United States 
  Council for International Business.............................    14
Yoder, Fred, President, National Corn Growers Association........    32
      Prepared statement.........................................    34

                                 (iii)

  











                 U.S. RELATIONS WITH A CHANGING EUROPE:
                  DIFFERING VIEWS ON TECHNOLOGY ISSUES

                              ----------                              


                         TUESDAY, JUNE 24, 2003

                               U.S. Senate,
                  Subcommittee on European Affairs,
                            Committee on Foreign Relations,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:35 p.m. in 
Room SD-419, Dirksen Senate Office Building, Hon. George Allen, 
chairman of the subcommittee, presiding.
    Present: Senator Allen.

   OPENING STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR FROM 
                            VIRGINIA

    Senator Allen.  The Subcommittee on European Affairs of the 
Senate Committee on Foreign Relations welcomes you all here. As 
chairman I'm glad to see you all.
    I'm calling this hearing of the European Affairs 
Subcommittee for several reasons, and before I proceed I do 
want to say how much I know that Chairman Lugar and the Ranking 
Member, Senator Biden, would like to be here. They're still 
coming back from the Middle East. Also, we have several votes 
going on right now; there will be three of them, and so we're 
going to have to suspend somewhat in between those votes. I'm 
not sure what sort of participation we will have from other 
Senators.
    I say this to all of those who are interested in this 
important subject matter of relations between the United States 
and our friends in Europe, so as we go forward with these 
technology issues, we can't just do things in a click of a 
mouse here, we actually have to move back and forth and vote in 
person. I'm hopeful then we will be able to hear from Mr. 
Litman, the vice president, Europe and Eurasia, United States 
Chamber of Commerce, then probably break and I'll try to vote, 
unless some other Senator shows up and keeps it moving.
    Today what I hope to highlight, and we hope to highlight in 
this committee, is the breadth and the depth of the United 
States' and European Union's commerce and trade relationship as 
well as touch on some issues which are having an impact and can 
have an impact on a variety of technology sectors in the 
upcoming months and years. This will be the first hearing in a 
series that we hope to hold on issues confronting our 
Transatlantic alliance and our economic relationship.
    Now, I want to say at the outset that the economic 
relationship between the United States and the European Union 
countries represents the largest and the strongest commercial 
relationship in all the world. European companies, if you want 
to look at it on a State by State basis, which is the way I 
would look at things when I was Governor of the Commonwealth of 
Virginia--I would always look at where are these companies, and 
what countries are they from.
    In 44 States of our Union, the number 1 investment from 
overseas are from European country-based companies, and the 
other four--or, excuse me, the other six States, the second are 
from European-based companies. European investment in the 
United States is estimated to be $891 billion, and U.S. 
investment in Europe is equally impressive. U.S. investment in 
Europe is valued at approximately $649 billion, comprising 77 
percent of all the foreign investment in countries that 
comprise the European Union, so from a trade perspective, the 
United States and the EU remain each other's most important 
partner.
    European exports to the U.S., for example, are 
approximately $333 billion. U.S. exports to Europe total $285 
billion, so it's obvious that jobs and the economies of the 
European Union and the United States are dependent on each 
other's open markets.
    Now, in the face of the recent diplomatic disagreements 
that we've had with some countries in the European Union, it's 
important to understand that there is great cooperation that 
exists between the United States and Europe on a day-to-day 
basis. It is in the best interests of our country and all of 
the countries to maintain this great business partnership, even 
when the views of foreign policy matters may differ.
    With many Americans and Europeans going to work each day in 
foreign-owned businesses, neither the United States nor Europe 
can afford to allow diplomatic views to negatively impact 
commerce across the Atlantic. Even with the strong economic 
relationships, though, there are areas of significant 
disagreement. On the eve of the United States-European Union 
ministerial, I would like to explore some of these issues that 
I hope will be prominently on the agenda in that meeting.
    The first issue has to do with the EU VAT tax, or value-
added tax. Many of you already know that I have vigorously 
opposed any effort in this country to discriminatorily tax the 
Internet or electronic transactions. This technology and 
business channel is still in its young stages. It's very young, 
and placing additional burdens on the process could stunt the 
growth of what will be one of the most predominant channels for 
purchasing goods and services as well as communication in the 
coming years.
    The perspective in Europe, apparently, is a different one. 
On July 1, the European Union will begin assessing a value-
added tax to electronic commerce that will negatively impact 
thousands of United States-based firms. While it's still 
unclear how this tax will reflect on the bottom line, many 
companies must decide now whether to establish an office in 
Europe to gain the most favorable VAT tax, or in other words 
the lowest VAT tax. For businesses that are unable to make that 
great expense to open a European office, the directive will 
force them to pay the VAT for wherever their customer resides.
    I have researched this sort of an issue here in the United 
States of America on the issue of Internet taxes and there are 
some analogies. When you consider, for Europe, though, you have 
15 countries that would be implementing different systems and 
different procedures for what remains for some companies a 
pretty low volume sales channel, this tax seems to be 
counterproductive, and an impediment to the growth of e-
commerce.
    Now, the administrative burden on these companies would be 
an aggravating problem. Not only will they have to track the 
location of every transaction, they will be operating in an 
environment where the very products that they sell are not 
uniformly defined. Countries within the European Union, just 
like different States in our country, tax or define services or 
different products differently. Thus, U.S. firms will now be 
tasked with understanding 15 regulatory regimes, and supposedly 
knowing what constitutes a service in Sweden versus what that 
definition might be in Germany.
    With this directive taking effect on July 1, there are many 
small businesses, I believe or fear, that are simply not aware 
of this new policy, and such a directive certainly could harm 
all sectors of business. However, small businesses I believe 
will be the hardest hit. Many of these businesses simply don't 
have the resources to establish a European operation, nor do 
they have the capabilities of charting these different 
regulations and definitions.
    So again, it is unclear what the net effect of this 
directive will be, but it's clear that doing business in Europe 
will be much more difficult for small U.S. firms that depend on 
the Internet as their sole or their main channel for sales, and 
so this EU VAT issue is one of great importance to the U.S. 
technology community, and I hope this hearing will provide 
greater insight into the problems and the possible outcome of 
what such taxes will have on the relatively new concept of e-
commerce.
    The other issue, which is really one that is going to be 
very hard to solve, and we're not going to resolve it here in 
this committee meeting but people need to be aware of it, and 
that has to do with the chasm between the United States and 
Europe on the issue of genetically modified crops. These are 
very disparate views. They've led to a moratorium on 
genetically modified crops to Europe, a trade dispute whether 
the ban on U.S. genetically modified products violates a number 
of World Trade Organization agreements.
    We contend, as the United States, that there is no 
scientific evidence that genetically modified products are 
substantially different or any less safe than traditional 
hybrids, or traditional products. By placing a de facto ban on 
such products, the EU has only precipitated the fear that 
scientifically I believe even Europeans have admitted is 
unfounded.
    Now, this ban and moratorium, to get into the labeling 
issues, and I know our witnesses will talk that even if you 
lifted it, just the labeling and tracing hardship would make it 
very difficult to market into Europe, and then we may get into 
the famine and starvation in sub-Saharan Africa and how this 
ban or prohibition has harmed people who are not being given, 
or the availability of these crops and these grains to prevent 
starvation.
    So while I disagree with the EU position, I do think it's 
very important for us to understand the root of such views. We 
need to understand what the Europeans' point of view is. Only 
by understanding their position do I believe that we can at 
least start making steps in the right direction in this area, 
and so that's the purpose of these hearings.
    I want to thank all the witnesses for appearing before the 
committee today, and look forward to your testimony.
    I am going to have to go vote, and when I get back, we will 
hear from Gary Litman and as many of the witnesses in the 
second panel as is possible. With your indulgence, this 
subcommittee will stand in recess until I get back from voting. 
Thank you.
    [Recess.]
    Senator Allen.  Thank you all for your indulgence. We will 
proceed as far as we can until the third vote is taken.
    Now, we're pleased to have Gary Litman, the vice president 
for Europe and Eurasia at the United States Chamber of Commerce 
before the committee this afternoon. Mr. Litman has extensive 
experience in both international commerce and legal matters. 
Mr. Litman holds a master's of science degree in chemical 
engineering from the Moscow Steel and Alloys Institute as well 
as a juris doctor from the National Law Center of George 
Washington University.
    Given Mr. Litman's broad experience and expertise, we 
appreciate your willingness, Mr. Litman, to provide the 
committee with an overview of the United States-Europe economic 
and trade relationships. Mr. Litman, we would be pleased to 
hear from you now.

 STATEMENT OF GARY LITMAN, VICE PRESIDENT EUROPE AND EURASIA, 
               UNITED STATES CHAMBER OF COMMERCE

    Mr. Litman.  Thank you, Mr. Chairman. It's a privilege to 
be here at this hearing, and I would ask that the written 
testimony from the U.S. Chamber be made a part of the official 
record.
    Senator Allen.  So ordered.
    Mr. Litman.  The U.S. Chamber of Commerce, representing 
more than 3 million companies from every sector and region of 
the United States, welcomes this opportunity to present its 
views on U.S. Commercial relations with the European Union.
    Tens of thousands of our members derive much of their 
business from trade with European partners, obtain their 
capital from European capital markets and creditors, and build 
their competitive edge on the basis of European supplies and 
human capital. We therefore agree with you, Mr. Chairman, that 
relations with Europe are of paramount importance to our 
members, and that's why the U.S. Chamber of Commerce's first 
overseas office was opened in Brussels over 3 years ago.
    In my remarks I would like to make three points. First, as 
you have mentioned, the U.S.-European relationship is very 
complex, but it is also different from other relationships of 
the United States, because we have created a de facto 
integrated marketplace of great value to American business.
    Second, Europe is undergoing historic change right now, and 
it is in our interests, at this very moment when new European 
institutions are being formed, to engage with them in every 
possible way so that when they are formed they have a better 
understanding of how they affect American business.
    And third, the way to achieve this is to invite Europeans 
to a serious discussion of a bilateral agreement or arrangement 
between us that goes beyond trade rules, because our 
relationship is beyond an exchange of goods and services.
    Mr. Chairman, Europe accounts for half of total global 
earnings of U.S. companies. As we step into the 21st century, 
European-owned firms employ over 4 million Americans, 50,000 
jobs in manufacturing in the Commonwealth of Virginia, none of 
them in sweatshops, I hope. It is a very important 
relationship. We can safely say that it is almost impossible to 
find a product manufactured in the United States that does not 
have some European value in it, which makes trade sanctions 
retaliation so maddeningly difficult for our trade negotiators.
    On an even more intimate level of business practice, major 
American and European companies have overlapping corporate 
boards. We employ the same accounting, legal and public 
relations firms, and we run on the same IT platforms. With the 
advent of e-commerce, we see at the Chamber more and more small 
companies increasingly comfortable in reaching over across the 
Atlantic to sell, buy, swap ideas and compare the burden of 
regulations and tax in order to decide whether the next venture 
will be in San Diego or Berlin or both.
    Mr. Chairman, we operate in a single U.S.-European 
marketplace, but it is governed by more than two sovereigns. On 
our side is the United States Government, with its confidence 
in the spirit of enterprise. On the other side, there is an 
enlarging union of sovereign States that is in the process of 
adopting a new set of checks and balances. Herein lies the 
problem for our companies, because they do business in both 
Europe and the United States.
    You are obviously familiar with the long list of our trade 
disputes. Most of them in high tech areas, as you mentioned the 
biotech dispute that is now making its way in the WTO in 
Geneva. It is important that we use all the leverage we have to 
keep trade safe from prejudice-driven impediments, so we agree 
with the way USTR advances on the GMO issue in Geneva. At the 
same time, we should recognize that these disputes are not 
classical trade conflicts. Rather, they are the result of 
different approaches to domestic regulations on both sides of 
the Atlantic.
    Whether it is deliberate or not, the regulations are passed 
for domestic reasons, but impact players in the shared market. 
By trying to resolve all of these disputes through trade 
disciplines, we are simply reducing these disputes to trade 
disputes, and they are not classical trade issues. They are 
issues of conflicting regulatory philosophies.
    Our members now recognize the European Union as a powerful 
and sophisticated regulator, and we have to deal with it 
differently than with other nations. In fact, as we speak, we 
are in the process of accrediting a new American Chamber of 
Commerce in Brussels that will deal exclusively with the 
European Union institutions.
    From our point of view, what's going on is a very 
interesting and historic process. The European institutions in 
Brussels are trying to assert their authorities in building a 
single enlarged market. Brussels does so by representing itself 
as the protector of the European consumer, and belatedly the 
promoter of European competitiveness. The underlying philosophy 
is to limit the business activities in order to avoid any 
excesses that can later be blamed on a lack of regulatory 
foresight from Brussels.
    Our friends in Europe call this the precautionary 
principle, and then there is the integrated product policy, and 
corporate social responsibility, and the sustainable 
development policy. All of these buzz words reflect political 
realities there. We cannot afford to dismiss these notions as 
ineffective or devious. Our members want the European single 
market to remain single and to prosper, because we are its 
integral part.
    Ultimately, our regulators must have a reliable mechanism 
of discussing with their European counterparts the impact of 
every major initiative that affects companies in between. We do 
it in antitrust matters, and we should be doing it across the 
board.
    The time has come, from our point of view, to start a 
discussion about a Trade Investment Enhancement Agreement. Our 
Canadian partners are certainly moving in that direction. We 
need to do it right now, before the European Union institutions 
congeal through its new constitutional process and enlargement.
    We also think the time is now because of the way the 
European precaution works, particularly in regulating high tech 
industries. The Europeans are invariably the first movers in 
regulating anything new. They are not waiting for the benefit 
of experience to begin regulating. This is particularly 
relevant in e-commerce and other areas of innovation. We have 
seen it in spades in Internet governance and in GMO's. We are 
seeing it again today with respect to the new chemicals policy 
which is now up for comments for the next 2 weeks.
    We do not want a race as to who gets to regulate first. 
Rather, we need to have the two sides following sensible, 
transparent, predictable rules. We need great confidence-
building between U.S. and European agencies, and constant 
awareness that as far as real business is concerned, we are the 
same. We will still fiercely compete with European companies, 
or to use the term coined by one of our defense companies, we 
engage in ``cooptition.''
    In fact, it is precisely because we are at the same level 
of development and sophistication that we compete. We want to 
do it on a level playing field and without wrapping ourselves 
in the flag. We want to compete on merits, not on restrictions.
    Thank you, Mr. Chairman. I'd be happy to answer questions.
    [The prepared statement of Mr. Litman follows:]

                   Prepared Statement of Gary Litman

Introduction
    I am Gary Litman, Vice President for Europe and Eurasia of the 
United States Chamber of Commerce. The U.S. Chamber is the world's 
largest business federation, representing more than three million 
businesses and professional organizations of every size, sector and 
region in the country. Tens of thousands of our member companies derive 
much of their business from trade with European partners, obtain their 
capital from European creditors and investors, and build their 
competitive edge on the basis of European supplies and human capital. 
The Chamber welcomes this opportunity to present its views on U.S. 
commercial relations with the European Union (EU) and the sometimes 
differing approaches to technology regulation and innovation.
    We believe that the European dimension of American commercial 
policy and practice will be a dominant feature in the drive to advance 
American global leadership in years to come. Europe has emerged as a 
unique political and economic construct, which must be understood on 
its own terms. Recognizing these facts and the rapid development of the 
European Union's internal structures and regulatory powers, the U.S. 
Chamber chose Brussels as the site of our first overseas office four 
years ago. We are also currently in the process of accrediting a new 
American Chamber of Commerce that will focus exclusively on the 
European Institutions.
Highly-integrated U.S.-EU Marketplace
    The U.S. commercial relationship with the European Union is unlike 
any other we have in size, complexity and degree of integration. We 
have extraordinary investments in each other's economies, our 
executives sit on each other's boards, our capital markets are highly 
integrated, our major corporate law firms, accounting firms and IT 
providers are genuinely transatlantic, and our research and development 
moves across the Atlantic with almost seamless ease. In the first 
quarter of 2003, U.S. exports of goods to Western Europe stood at $55 
billion, which is over three times more than our exports to Japan, over 
six times more than exports to China, and over ten times more than all 
of our exports to the Organization of Petroleum Exporting Countries 
(OPEC).\1\ Notwithstanding the impressive volume of trade, the starting 
point in any discussion of U.S.-Europe commercial relations is the 
recognition that they are no longer as much about trade as about 
investments. In fact, trade accounts for less than 20% of transatlantic 
commerce. The U.S. assets in Germany alone--$300 billion in 2000--were 
greater than the total U.S. assets in all of South America.\2\ U.S. 
companies' affiliates in the EU market are the primary means by which 
they deliver goods to consumers and their most important sources of 
non-domestic revenues. Over the last decade, U.S. subsidiaries of 
foreign companies spent over $30 billion on research in the United 
States and EU-owned firms, whose assets in the U.S. were worth $3.3 
trillion in 2000, spent most of this money.\3\ Two-thirds of all U.S. 
corporate research and development conducted outside the United States 
is conducted in Europe.
---------------------------------------------------------------------------
    \1\ U.S. Department of Commerce Census Bureau.
    \2\ Joseph P. Quinlan, ``Drifting Apart of Growing Together? The 
Primacy of the Transatlantic Economy,'' Center for Transatlantic 
Relations, John Hopkins University, 2003.
    \3\ Headline Fact sheet, the Organization for International 
Investment, January 2003.
---------------------------------------------------------------------------
    These numbers show that the U.S. and EU economies, with a joint GDP 
of almost $18 trillion, have forged a highly-integrated marketplace, 
which however lacks the efficiencies of a single market. The major 
problems for U.S. business are not found at the borders. They are not 
related to tariffs and quotas, which in the wake of the Uruguay Round 
play a relatively minor role in U.S.-EU relations. Since American 
companies see themselves very much as part of the European economy and 
vice versa, it is the EU and member state domestic regulations and 
public policies which concern us most of all. Internal regulations and 
practices directly affect U.S. economic interests at least as much as 
they crimp the business of European companies in the same 
jurisdictions.
The Changing U.S.-EU Regulatory Coordination
    The uniquely intertwined commercial relationship between the EU and 
the United States is changing because our partner is undergoing a 
historic change. The European Union is at the threshold of a profound 
transformation through enlargement and the Convention process. Eighteen 
months from now, the EU will have new membership, a new Constitution, a 
new legal identity, and a new President, Commission and Parliament. 
American companies learned a long time ago how to thrive in Europe. The 
American Chambers of Commerce in France and Germany are over a hundred 
years old. What is different now is that in the run up to a dramatic 
enlargement, the European Union has embarked on a feverish campaign to 
establish strong disciplines and institutions that will survive the 
expected shock of having to admit political actors who do not have the 
same historic experience of building the European Union as other 
members.
    Another important driver of the European transformation is the 
demise of smugness. By the turn of this century, the Europe of civil 
servants and the Europe of entrepreneurs both recognized that the EU 
was again falling behind the United States in the areas of innovation 
and competitiveness. In GDP per capita terms, Europe has been lagging 
behind the U.S. In 2001, GDP per capita in the U.S. was about $36,000 a 
year, and about $23,000 in the EU15. In the enlarged Europe it would 
have been only around $18,000.\4\ One factor that explains the more 
rapid growth of per capita income in the U.S. is the increasing share 
of knowledge-intensive output in total GDP. In 2001, these sectors 
constituted 44% of GDP in the U.S., compared to 33% in the EU.\5\ Our 
European counterparts in the business community recognize the need to 
boost productivity and growth. A specific reference to ``a highly 
competitive Europe'' was included in the final draft of the EU 
Convention last week as one of the EU's objectives. We welcome this 
ambition because competitiveness will lead to economic growth and 
benefit our shared transatlantic market. Our challenge is to make sure 
that in its drive for higher competitiveness and rapid restructuring, 
the European Union remains fully aware of the impact of new regulatory 
initiatives on U.S. business.
---------------------------------------------------------------------------
    \4\ World Development Indicators database, World Bank, April 2003.
    \5\ UNICE, Benchmarking Report ``The Renewed Economy: Business for 
a dynamic Europe'', 2001.
---------------------------------------------------------------------------
    As the European Union restructures itself it develops a plethora of 
new regulatory agencies and policies. Many of the regulatory 
initiatives from Brussels are based on a philosophy of regulation that 
is different from the United States. They are known under various 
euroterms as the ``sustainable development principle,'' the 
``precautionary principle,'' the ``integrated product policy,'' and 
others. The main characteristic of these principles is that the EU 
regulators believe that they should anticipate business and consumer 
behavior as much as possible and establish fairly rigid boundaries of 
this behavior from the top down. Well-known examples of this approach 
are the Data Privacy Directive that has not really improved anyone's 
privacy and the VAT taxation of digital supplies that will come into 
effect on July 1, 2003. In both cases, EU regulators attempted to 
anticipate and circumscribe e-commerce, which was still in its infancy 
when the regulations were drafted and debated. The result is that 
Europe still lags far behind in the development of IT-based sectors. 
According to the Federation of European Employers' Organizations 
(UNICE), by 1999, the value of business-to-consumer transactions per 
capita in the U.S. was ten times higher than in the European Union. 
Yet, it was the European Union that felt the urge to spend vast 
administrative resources to develop new e-commerce regulations that 
they are still not sure how to apply. The current discussions of new 
data retention laws by the European Ministers for Telecommunications 
and Justice and Home Affairs seem to be heading in the same direction 
of regulating-before-learning. Current European government plans would 
require communication service providers to bear the cost of retaining 
all communications data passing through their networks. By comparison, 
the U.S. Congress in the wake of September 11, opted for a data 
preservation policy that relies on preserving data on a suspect rather 
than on all users.
    This regulatory approach is obviously not conducive to innovation 
in science or business methods. The on-going dispute over the 
regulation of genetically modified organisms is a well-known example of 
employing metaphysical arguments about unknowable risks to keep 
consumers from making educated choices. However, its abstract nature 
makes it appealing to countries around the world and makes European 
regulations an easy sell to international organizations and developing 
countries.
    Here are some more examples. The EU is integrating environmental 
considerations with scant scientific foundation in all regulatory 
activities. Every regulation now has to be interpreted with a reference 
to the so-called ``sustainable development'' (SD) principle, which 
lumps together un-quantified social, economic and ecological 
aspirations of European regulators.
    Our members--and many European firms--are particularly concerned by 
the recent efforts of some EU politicians to shift from voluntary SD 
reporting to mandatory SD reporting, which would require transnational 
companies to publish an independently verified annual report 
integrating social, environmental and economic criteria. The so-called 
``triple bottom-line'' reporting would put a costly, unnecessary and 
subjective burden on companies. In the U.S., it might lead to spurious 
litigation.
    In addition to SD policies, the EU is currently proposing several 
regulations with an environmental overtone that are adverse to 
American-owned or indigenous business. The so-called Integrated Product 
Policy (IPP) is a new EU policy, which consists of a mix of instruments 
aimed at improving the environmental performance of products. This is a 
noble goal. However, the experience of companies in dealing with EU 
regulators has been difficult. Science and practice-based arguments are 
seldom heard. Consequently, they create unnecessary barriers to 
business, particularly to U.S. corporations and their affiliates based 
in Europe.
    A related problem of enforcement and liability arises for American 
business. According to the EU Commission, much (sometimes as much as 
40%) of EU regulatory output is never implemented by member-states. For 
American companies this creates the potential problem of selective 
enforcement and uncertain liability as they are caught between the EU 
Commission, regulations of different member states and U.S. 
regulations.
    The recently unveiled EU Chemicals Policy Directive is another 
telling example of regulation that can become a threat to many U.S. 
chemical manufacturers and to a wide array of down-stream users of 
chemicals, including for example toy, computer hardware, and furniture 
and car manufacturers. The Chemicals Directive would introduce a new 
system of registration and testing called REACH (Registration, 
Evaluation, and Authorization of Chemicals). The dangers posed by the 
Directive are such that it was discussed by the full Board of the 
United States Chamber of Commerce earlier this month. The REACH system 
would apply to both ``new'' and ``existing'' chemical substances, and 
would extend data requirements and potential liability to downstream 
users of any chemicals, e.g., manufacturers of computers, automobiles, 
textiles, detergents, toys, plastics and paper products. In addition to 
being costly (the initial price tag to industry is estimated at $4 
billion a year), this regulatory proposal would be incredibly 
disruptive and anti-competitive. Many chemicals will simply be phased 
out without replacement, which will force companies to change entire 
technological systems. Many specialty producers will not be able to 
manufacture or trade in Europe altogether. All businesses will be 
subject to a new overlay of testing and certification requirements 
enforced by European labs with questionable transparency.
    The Chamber opposes the proposed EU Chemical Policy unless 
substantially modified in accordance with the following general 
criteria:

  1. Immediate notification to the WTO Secretariat of the proposed 
        Chemical Policy and full compliance with WTO disciplines;

  2. A sound scientific basis for risk assessment and cost-benefit 
        analysis of all aspects of the chemical policy;

  3. A transparent and accessible process of registration, evaluation 
        and authorization of chemicals;

  4. A clear articulation of liability from producers to users to 
        certification agencies;

  5. Recognition of international standards and certification 
        procedures;

  6. Full consideration for the effect of proposed regulations on small 
        and medium-sized enterprises and users of chemical products; 
        and

  7. A clear process for review and appeal of any evaluation and 
        authorization decisions.

Services
    Over 70% of total U.S. foreign direct investments flows to Europe 
over the second half of the 1990s were in services as opposed to 
manufacturing. This sector faces significant obstacles in Europe, which 
should be tackled on a bilateral basis above and beyond what is 
feasible within WTO GATS negotiations.
    The recent ambitious services proposal from the EU Commission in 
the WTO Doha Round shows that any significant breakthrough will have a 
major impact beyond the border crossing. At the same time the 
Commission is making this proposal, its staff has developed a Green 
Paper on Services of General Economic Interest, which may effectively 
fence off major European utilities from any competition in the EU 
market. The services of general economic interest include everything 
from utilities to trash collection. The idea is to provide block 
exemptions for these services from many regulations imposed on private 
businesses and set them up as paragons of corporate social 
responsibility. That would distort competition, state-aid and internal 
market rules in favor of government-controlled interests. And of 
course, the underlying argument for contemplating such exclusions is 
that the private sector is environmentally irresponsible. The facts 
don't support this argument. Private companies in Europe invest heavily 
in environmental compliance while the record of state-owned entities is 
very mixed.
Conclusion
    As the EU is devising new and much strengthened regulatory agencies 
and centers of regulatory power, it is remarkable how little strategic 
coordination exists between most of the relevant U.S. and EU agencies. 
Among the many new agencies in Europe currently at different stages of 
development are the European Food Safety Agency, Cyber Security Agency, 
European Environment Agency, Office for Harmonization in the Internal 
Market, the Joint Research Centre and probably an inter-governmental 
defense procurement agency. Nothing would be more helpful to the 
interest of American business than to have certainty that regulators of 
the transatlantic marketplace coordinate their regulatory activities in 
a transparent, strategic and efficient way. Nothing could be more 
damaging to business than ad hoc regulatory forays in the new Europe 
driven by political expediency, the absence of regulatory benchmarks 
and a lack of understanding of how transatlantic business will be 
impacted.
    It would be particularly valuable to build strong linkages during 
the process of establishing new regulatory bodies in Europe. The 
existing U.S.-EU guidelines on Regulatory Cooperation of April 2002 
seem to have produced limited results and are in need of being updated. 
Priority agencies that need to develop better lateral coordination with 
emerging European counterparts include:

  1. National Institute of Standards and Technology (NIST);

  2. Food and Drug Administration (FDA);

  3. Federal Communications Commission (FCC);

  4. Environment Protection Agency (EPA);

  5. Securities and Exchange Commission (SEC);

  6. Department of Homeland Security;

  7. International Trade Commission (ITC);

  8. Federal Trade Commission (FTC);

  9. Department of Energy; and

  10. Department of Transportation (DOT & FAA).

    A vigorous and systematic dialogue between U.S. and European 
regulators similar to that in effect on anti-trust matters would allow 
us to better understand the impact of European regulations and avoid 
the surprise in Brussels when a new draft proposal suddenly becomes 
another bone of contention with the United States. We hope that a 
strategic regulatory dialogue will soon lead to negotiations and strong 
mutual commitments. In fact, the chamber believes that it is time to 
start discussing with the European Union a way to negotiate a bilateral 
trade and investment enhancement agreement that would recognize the 
unique and highly integrated nature of our common business with Europe 
and establish clear ways of resolving regulatory differences. The 
transatlantic business community does not want the two regulating 
juggernauts to impede the exciting business opportunities that 
constantly emerge in our extraordinary shared marketplace.
    That concludes my testimony.

    [Additional material submitted for the record by the U.S. 
Chamber of Commerce follows:]

                        U.S. Chamber of Commerce

 Regulatory Alert: Major European Union Public Health and Environment 
                           Policy Initiatives

                             june 11, 2003
    Powerful political and social activists who share a strong aversion 
to risk, as reflected in the ``precautionary principle'' that they 
advocate worldwide, increasingly influence the European Union (EU). As 
a direct consequence of this mounting pressure, the EU is generating 
new public health and environment policy initiatives that have broad 
repercussions on the business activities of our members. These policies 
are costly and represent a new form of sophisticated trade barriers 
that we intend to challenge vigorously, particularly when they affect a 
wide spectrum of companies.
    The most urgent cross-sector challenge is presented by the EU 
Chemicals Policy initiative. If adopted through a directive, the 
Chemical Policy will have significant negative bottom-line impact on 
many of our members based in, or trading with Europe. The EU proposes 
to adopt a new chemicals control system based on the registration, 
evaluation and authorization of chemicals, called the ``REACH'' system. 
This system would apply to both ``new'' and ``existing'' chemical 
substances, and would extend data requirements, reporting burden and 
potential liability to downstream users of any chemicals, e.g., 
manufacturers of computers, automobiles, textiles, detergents, toys, 
plastics and paper products. In addition to being costly (the initial 
price tag to industry is estimated at USD 4 billion a year), this 
regulatory proposal would be incredibly disruptive and anti-
competitive. Many chemicals will simply be phased out without 
replacement, which will force companies to change entire technological 
systems. Many specialty producers will not be able to manufacture or 
trade in Europe altogether. All business will be subject to a new 
overlay of testing and certification requirements enforced by European 
labs with questionable transparency.
    The Chamber opposes the proposed EU Chemical Policy unless 
substantially modified in accordance with the following general 
criteria:

  1. Immediate notification to WTO Secretariat of the proposed Chemical 
        Policy and full compliance with WTO disciplines;

  2. Sound scientific basis for risk assessment and cost-benefit 
        analysis of all aspects of the chemical policy;

  3. Transparent and accessible process of registration, evaluation and 
        authorizations of chemicals;

  4. Clear articulation of liability from producers to users to 
        certification agencies;

  5. Recognition of international standards and certification 
        procedures;

  6. Full consideration for the effect of proposed regulations on small 
        and medium enterprises and users of chemical products; and

  7. Clear process for review and appeal of any evaluation and 
        authorization decisions.

    Senator Allen.  Thank you very much, Mr. Litman, for your 
comments. I just met with President Cox of the European 
Parliament and shared some of these concerns, and I will just 
for the record point out that for Virginia there are many 
Virginia-based U.S. companies that are in every single country 
of Europe, whether they're in the currency there or not, but 
just in Virginia from trade missions there are companies from 
Sweden, the Netherlands, obviously Great Britain, Germany, 
France, the Swiss, Austria, Poland, Italy, Denmark--so many, 
and all of this trade does benefit the people of both 
countries, as well as the newly free, relatively newly free 
Central European countries, where there are great opportunities 
for people of Western Europe as well as enterprises from the 
United States.
    In meeting with President Cox, he was talking about, it was 
very interesting how they're creating their new constitution 
there, where the countries or the States are creating the 
Federal Government. I said, we've gone through that ourselves 
in a similar way, although everyone in this country speaks the 
same language. Regardless, it was very interesting to me, and 
it will be, for those who would like to see the formations of 
governments, very interesting on how they subscribe or 
circumscribe what the Federal Government or their national 
union can do versus the nullification or the prerogatives of 
the individual countries and their sovereignty.
    And as we were talking about that constitutional reform, 
and the process, and they're at the end of the beginning, 
before they get to the next stage, which he called the 
beginning of the end. Do you see any implications of this 
constitution on United States businesses? When you were talking 
about level playing fields--and one of the good things you 
would think of a Common Market or a European Union is they'd 
all have similar regulations, which would make it easier to do 
business, whether in France or in Italy, or the Netherlands. Do 
you see this constitutional process having an impact one way or 
the other on U.S. business?
    Mr. Litman.  Absolutely.
    Senator Allen.  How?
    Mr. Litman.  In several areas. First of all, on the 
positive side of the ledger, it is critical that the European 
Union puts its legal basis in order, that it finally gets its 
own legal identity, and finally becomes an institution that has 
some ability to present itself in international organizations, 
many of which are important in writing international trade 
rules.
    This will affect everybody. It will affect European 
participation in the OECD, in the World Health Organization, in 
Codex Alimentarius, and in every organization, so we welcome 
this initiative. In fact, American companies in Europe have 
been pushing for this for quite some time.
    At the same time, as you can imagine, when a new 
constitution is written, there are many interests at play. For 
example, we were watching with a certain degree of concern 
recently when there was a proposal to integrate in the new 
constitution a special exemption for services of general 
economic interest.
    In European parlance that means utilities, anything from 
water to trash collection, and the constitution would codify, 
if passed in the current draft, that these companies that have 
a unique State function, if you will, should be exempted from 
many rules and should be set up as paragons of social 
responsibility. It will be impossible to compete with them. It 
will be impossible to challenge their practices, and the good 
thing is that we're able right now to communicate with our 
colleagues, business organizations in Europe, and get a very, 
very good picture of what's really going on behind the scenes, 
and jointly weigh in, to the extent possible.
    A second example, if I may, up until last week the the 
draft convention did not have any reference to competitiveness. 
Now, for anyone who is trying to generate some economic growth 
in Europe, it was unthinkable, because in every European 
document over the last 5 years, competitiveness, which is a 
euphemism. Which is a euphemism in Europe for investment in R&D 
and streamlining of regulations and getting the tax burden at 
some sensible level, was their catchword, and it suddenly 
disappeared from the final draft. We discussed it again with 
European counterparts and American businesses in Europe, and it 
is back in the final draft, just to give you some flavor as to 
how it has gone on.
    And a final thing that is of paramount importance, if the 
constitution process draws to a stalemate, or the result is 
unworkable, then the single market in Europe will be in 
jeopardy, and there's nothing of greater value to American 
companies than the single European market. Again, 50 percent of 
our total global sales are there. If there is an institutional 
gridlock in Brussels, then we all have a problem, because there 
won't be any growth there.
    Senator Allen.  Let me bring up one specific one. You 
mentioned the new chemicals policy directive in your testimony. 
What's the impetus of this new regulation, and how will that 
impact domestic European companies, and are these regulations 
which are fairly stringent, let's say, based on any one--is it 
based on any one country's policies, or is it a collaboration 
of political parties? What is the origination?
    Mr. Litman.  As are many things in Europe, it's political, 
it's somewhat a good idea run awry. We all understand the need 
for certain commonality of rules in handling hazardous 
materials, and some kind of registration of chemicals, and 
every country in Europe does that. We do it in the United 
States. They do it.
    At the same time, the Green parties in Europe have seized 
upon this need as a great new opportunity to start a crusade 
against chemicals, and everything is made from chemicals. From 
the dye on your tie, to the rubber in your shoes, to the 
chemicals you use to produce the motherboard in your computer, 
everything is chemicals.
    What this draft policy directive would do if passed, is to 
combine old and new chemicals, everything under the sun into 
one comprehensive, all-encompassing database, and every 
chemical will have to be independently registered, certified, 
tested, and evaluated on every possible risk or hazard, whether 
or not human beings are ever in touch with this particular 
chemical.
    The cost burden is mind-boggling. We estimated that it's $4 
billion a year just to begin implementing the system. Our 
counterparts in the French business associations are putting 
the price tag at $30 billion 10 years from now, because of the 
enormous cost in testing, certifying, and evaluating everything 
under the sun, with no exception for plastics we deal with 
every day, or chemicals that are used in processing that never 
leave the technological chain.
    Now, we're going to comment on that. We will challenge it. 
We will work with our European counterparts to make some sense 
of it, and we hope that it comes out fine, but it is again an 
example where European regulators are trying to set the market 
rules so that business doesn't do anything that officials in 
Brussels don't completely understand and control. And if 
something wrong happens, they could always point to a piece of 
legislation and say, we told you so.
    It's a very prevalent, I must say, anti-business bias in 
some political groups in the European institutions.
    Again, on the more optimistic side, if you look at the new 
members of the European parliament, 166--they are now 
observers, they will be members, I'm sure President Cox 
mentioned this to you--only one of them signed up with the 
Green party. They understand the costs and benefits very well. 
They need growth. That is what they need in Europe.
    Senator Allen.  Thank you very much. Are you aware of any 
proposed legislation? There's a lot of legislation around here, 
but anything you can foresee that strikes you in the U.S. 
Chamber of Commerce, any legislation that might negatively 
impact our future economic policies and relations with Europe?
    Mr. Litman.  We're always concerned about economic 
sanctions, and right now it's a matter of very intense 
discussions with Europeans. The issue is always the way the 
U.S. applies sanctions, for example, on Iran, but otherwise 
we're not aware right now of any piece of legislation that 
would be very detrimental to U.S.-EU relations, but we remain 
very, very watchful.
    Senator Allen.  Very watchful, good. A final question. Are 
you aware of any instances where United States corporations may 
have suffered financially because of the recent U.S. and some 
European countries' diplomatic turmoil or impasse, or vice 
versa, any European companies affected here?
    Mr. Litman.  There are a number of anecdotal stories, and I 
was with our president and CEO in Paris just last week talking 
to French companies about this very issue. There are some 
anecdotes. There is no instance of a confirmed negative impact 
that could be directly attributed to the diplomatic tensions 
right now.
    Some consumers act out of their own frustrations, but there 
is no systematic attempt, or any kind of negative effect that 
we can trace to this. Much more important is the currency 
fluctuation, but again, there were, as you know, a few bills 
that would have punished European companies, and we appreciate 
the fact that none of them has become law, because again it's 
very difficult for our members to be sure that tomorrow they 
won't be European companies through mergers and acquisitions, 
and vice versa. Every European company looks at the U.S. and is 
saying, maybe I'll be part of that great venture tomorrow.
    Senator Allen.  Thank you, Mr. Litman. We very much 
appreciate your testimony, and I hope you'll always stay 
available to members of this committee, with your insight and 
your perspective.
    Mr. Litman.  Thank you, Mr. Chairman.
    Senator Allen.  All right, you all can stand at ease for a 
few more minutes. I have to go vote on one hopefully final 
amendment before we can hear from our second panel. Thank you 
all for your indulgence. We stand at recess for a moment.
    [Recess.]
    Senator Allen.  I'm glad you're all here for our second 
panel. On our second panel of witnesses, what I would like to 
do is to handle the VAT tax first, and then handle the 
genetically enhanced crops issue separately; so that this 
doesn't all get lost, because I think both are very important 
issues, but they are separate and distinct issues, and we will 
do it that way.
    First, I would like to address the issue of the European 
Union's plan to begin applying a value-added tax to electronic 
commerce transactions. To address this topic we have two 
witnesses, one, Karen Myers, the director of tax and trade 
policy in Electronic Data System's (EDS) Office of Global 
Government Affairs, and I thank her for appearing, and she also 
is here today in her role as chairman of the U.S. Council for 
International Business's Subcommittee on the Taxation of 
Electronic Commerce. Ms. Myers works on this issue in two 
capacities, and we look forward to her testimony.
    Also appearing before the committee to discuss this issue 
is Harris Miller, president of the Information Technology 
Association of America (ITAA). As president of ITAA, Mr. Miller 
has an extensive knowledge of issues facing the information 
technology community, and we are pleased to have you, as 
always, testify, and chivalry being still alive at least in 
this subcommittee and in principle, we will first hear from Ms. 
Myers, and then from you, Harris.
    Ms. Myers, and by the way, we have your written testimony. 
This applies to all of you all. If you could summarize the 
salient points which you wish to present to this committee, we 
would appreciate it.
    Ms. Myers.

STATEMENT OF KAREN MYERS, CHAIRMAN, SUBCOMMITTEE ON E-COMMERCE, 
        UNITED STATES COUNCIL FOR INTERNATIONAL BUSINESS

    Ms. Myers.  Yes. Good afternoon, Senator, and we very much 
appreciate the opportunity to be here. As you mentioned, I am 
appearing on behalf of both Electronic Data Systems (EDS) and 
the U.S. Council for International Business. I am here to 
express the council's concern with regard to the European 
Union's directive on the application of value-added tax to 
electronically delivered goods and services, a legislative 
measure adopted by the European Council of Ministers last May.
    For the first time, the directive enables, indeed 
obligates, EU member States to apply their VATS to electronic 
commerce transactions between non-EU firms and their EU 
consumers. The directive is effective on July 1.
    U.S. firms will be required to register with EU authorities 
and to levy, collect, and remit the tax applicable in the 
customer's place of residence on a large majority of goods and 
services available electronically in the global market. While 
non-EU vendors will be required to register in only one 
jurisdiction, they will be required to collect tax according to 
the implementation requirements in place in each State where 
they have a customer. In contrast, EU vendors are required only 
to register and collect under the rules in place in their 
respective countries of residence.
    USCIB has followed the development of EU tax policy in this 
area for many years. We understand that the Commission has been 
under strong pressure to remedy a situation whereby EU 
businesses are required to charge VAT on their EU sales, while 
non-EU businesses until now have had no such requirement.
    Members of my subcommittee and I have consulted directly 
with representatives of EU and participated in an OECD Advisory 
Group on Electronic Commerce Taxation. We are pleased that a 
number of business community recommendations were incorporated 
in the directive. Nonetheless, we strongly believe that, in 
trying to level the playing field, the European Commission has 
created a trading environment that discriminates against U.S. 
and other non-EU businesses.
    In addition to imposing heavier compliance burdens on non-
EU businesses, the directive imposes technical and 
administrative challenges that may result in unwarranted 
liabilities for non-EU businesses and hinder the growth of 
electronic commerce. For example, the council is concerned that 
the requirement for non-EU firms to collect VAT based on the 
location of their EU customers ignores the fact that for most 
firms the technical means to verify this information in a cost-
effective manner is not available.
    We are concerned that the directive is lacking important 
basic definitions, leaving member States to determine 
independently what actually constitutes electronically supplied 
services.
    Implementation of the directive will require non-EU firms 
to make costly systems upgrades. Failure to do so will place 
businesses at risk of being unable to collect and remit taxes, 
thus incurring liabilities in up to 15, soon to be 25 EU 
jurisdictions. This requirement is particularly onerous because 
the directive has been adopted inconsistently across the EU In 
some jurisdictions, implementing legislation may not be in 
place when the directive takes effect.
    Unlike their European competitors, non-EU firms will be 
obligated to subject the records of transactions to audit by 15 
different tax authorities, and retain these records for up to 
10 years. This burdensome requirement is exacerbated by the 
potential need to make these records available in more than a 
dozen official languages.
    The administrative burden of verification and data 
retention requirements alone will create significant 
competitive disadvantages for non-EU suppliers. However, since 
EU suppliers will be allowed to charge VAT on the basis of 
country of origin, and since EU member States charge different 
VAT rates ranging from 12 percent to 25 percent, the tax burden 
for non-EU suppliers will be higher in many situations than 
that of resident companies in EU jurisdictions.
    This disparate tax treatment will distort the EU market to 
such a degree that the EU's continued compliance with its 
commitments under the WTO's general agreement on trade in 
services may be in jeopardy.
    We are pleased that Members of Congress are taking an 
interest in this issue, and we would like to work with you to 
achieve an acceptable outcome for U.S. business.
    Thank you for the opportunity to present our concerns. I 
will be happy to answer your questions.
    Senator Allen.  Thank you, Ms. Myers. Now we would like to 
hear from Mr. Miller.

 STATEMENT OF HARRIS MILLER, PRESIDENT, INFORMATION TECHNOLOGY 
                     ASSOCIATION OF AMERICA

    Mr. Miller.  Thank you, Chairman Allen. I appreciate the 
opportunity to appear before you, and I want to thank you and 
Senator Biden for the invitation and commend you for holding 
these hearings. I would like to start off by really building on 
three points, one that you made, a second point that Ms. Myers 
made, and a third point that Mr. Litman made in his previous 
testimony.
    First of all, I want to say that certainly your opening 
statement was very correct, Mr. Chairman. The importance of 
Europe to the United States as a trading partner is something 
that you emphasized a great deal when you were Governor of 
Virginia, and continue to emphasize in the Senate. It's very, 
very critical, and in many ways the Europeans have been great 
partners in terms of promoting information technology, and 
promoting the Internet.
    For example, Europe has been one of the leaders in bringing 
competition to telecommunications, which is very important. 
They've worked alongside the United States in promoting the 
idea of including in the Doha round of negotiations on global 
trade trade in services as being a priority, and we appreciate 
that. Many of the leaders of the European Union, such as 
Commissioner Erkuleekenin, who was actually in Washington, D.C. 
this week as part of the meetings that you mentioned before, is 
one of the visionaries in terms of the future of information 
technology and Internet.
    But having said all of those nice things, let me lay out 
some of the concerns that we have. First is a point you made in 
your opening statement, Mr. Chairman. First, we believe there 
are strong analogies between this EU VAT issue and the issue of 
Internet taxation in the United States.
    The whole basis of the Supreme Court decisions, 
particularly the so-called Quill decision that basically says 
we cannot have discriminatory taxes here in the United States, 
was a recognition that if you're going to force small business 
people to try to understand the taxation system in remote 
locations across the United States, it would be very, very 
unfair to those small U.S. businesses, and it would make it 
very difficult for them to sell, because you would have to 
understand multiple interpretations of what is or is not 
taxable, as well as multiple rates of taxation across the 
United States.
    That decision is really what we have today and the answer, 
the Supreme Court said, is if the States can come up with a 
truly simplified sales tax system, then we could begin to have 
taxation of remote sellers, but until that is done by the 
States and localities, we will not be allowed to do that.
    Well, here we are in Europe with exactly the same problem. 
We're asking small businesses throughout the United States to 
understand different taxation rates, different taxation 
modalities in 15 different countries, as Ms. Myers said, soon 
to be 25 different countries, and hoping that they can somehow 
understand all of these complexities and play by the rules and 
do all those things right.
    Well, frankly, to us it looks like a discriminatory tax, 
pure and simple, because it is going to lead small businesses 
in particular either to be afraid of how they're doing their 
transactions in Europe, or not to move into the European 
market, the huge market that it is, altogether, and that is not 
what we want on the Internet, and that's not what we want in 
global markets generally.
    So I think the whole concept we have here today, 
particularly the application issues that Ms. Myers emphasized 
in her testimony, disparate rules in different States, the 
uncertainty about it, is really going to hurt small businesses 
in the United States, and I think that is a very important 
point to make, and you made it in your opening statement.
    The second point I would like to make is building on 
something Mr. Litman said, is unfortunately this is not a 
unique point of tension between the United States and Europe in 
information technology and the Internet.
    If you look back to 1997, which was a watershed year, that 
was the year that the previous administration, the Clinton 
administration released what was called the magazine or white 
paper on the Internet, and the basic starting principle, which 
was agreed to on a bipartisan basis, was the whole idea is that 
government regulation of the Internet and information 
technology should be kept at a minimum. We weren't going to 
treat the Internet and information technology the way we had 
done with so many other industries, thinking that government 
knows best.
    And about the same time that the White House issued that 
white paper, the Japanese Government issued a similar white 
paper, and the Canadian Government issued a similar white 
paper, and the Europeans issued a similar white paper, and they 
probably all pretty much said the same thing.
    This is a new technology, as you said, Mr. Chairman, this 
is a great opportunity to expand it, but in the 6 years 
subsequent to that, what the Europeans have done, unfortunately 
time and again, is fall back, as Mr. Litman said, into the idea 
that government knows best, whether we're talking about the 
European privacy directive, which to this day continues to be a 
serious point of contention between the United States and 
Europe, and it makes a great deal of difficulty for companies 
that operate globally to move data back and forth between 
Europe and the United States, whether we're talking about 
consumer protection laws, data retention laws--the Europeans 
are proposing data retention laws, which would be incredibly 
expensive and incredibly complicated for multinational firms as 
well as small firms, European levies on IT equipment, a new 
kind of special tax which they've added onto hardware sold in 
Europe, all of these are areas where Europe still seems to 
believe that government knows best, rather than letting the 
market work and letting competition work and global forces 
work, and only having government intervene when it's an 
absolute and clear market failure that must need to be solved 
by government.
    So I think that general trend is one we've seen, and I 
think your subcommittee, the hearing you're holding today, and 
you mentioned you will be holding other hearings, is going to 
focus on the fact that this could become a growing flash point 
between Europe and the United States over time, unless the 
Europeans realize over time that they are really harming 
themselves and harming the growth of the Internet as a global 
medium by constantly falling back on more government 
intervention, rather than less.
    The last point I'd like to make is in terms of, so what? 
You're holding this hearing. You're bringing out this issue, 
but what are the implications? Well, the ITAA members have 
looked at this issue very carefully, and we're not quite ready 
to call for the type of conflict that leads to, if we move to 
the WTO as a point of conflict.
    Senator Allen.  You are not?
    Mr. Miller.  Not yet ready, but what I can tell you, Mr. 
Chairman, our committee has decided to follow this issue very 
carefully, to monitor the issue very carefully, and if it turns 
out that this new set of levies that takes effect on July 1 
does have the kind of discriminatory impact that we're fearful 
it's going to have, for the reasons I've outlined in my written 
statement and the reasons that Ms. Myers gave in her statement, 
then we certainly will make this subcommittee aware of that; we 
will approach Ambassador Zoellick and other appropriate people 
in the Government, but right now, we have a great deal of fear 
about it, we are very concerned about it, and again, 
particularly the negative impact on small businesses.
    Thank you very much.
    [The prepared statement of Mr. Miller follows:]

                 Prepared Statement of Harris N. Miller

    Good afternoon Mr. Chairman and members of the Committee. On behalf 
of the 400 members of the Information Technology Association of America 
(ITAA), many of whom are global information technology companies 
generating 50 percent or more of their sales revenues in overseas 
markets, I am delighted to appear before you today.
    I am sure I do not need to tell you that America competes in a 
global marketplace. You may not know, however, that the leading 
economies around the world spend over $2 trillion on information and 
communications technology products and services. At over $650 billion, 
the 15 member states of the European Union represent 85 percent of the 
total U.S. market for IT products and services. As the EU adds new 
member states next year, even this small gap in market size will close. 
A larger European market means a larger, more rational target of 
opportunity for U.S. firms. While it also means more competition, trade 
in IT products and services remains one of the few categories in which 
the U.S. enjoys a global export surplus--an estimated $7.9 billion 
globally.
    The global marketplace brings many good things to the American 
people, to European, and to individuals around the globe. Lower prices 
for goods and services. Greater consumer options and choices. More new 
ideas and innovations. New business growth and employment 
opportunities. But just as the global market represents new 
opportunities for growing the U.S. economy, it also poses new 
challenges for running a truly competitive race.
Best Foot Forward: Competition and the Global Foot Race
    In global economics, as in life, not every runner is above sticking 
out an occasional foot to trip up a foreign competitor. The public 
policy of nations or groups of nations can become that foot. One might 
argue, for instance, that the extensive set of European regulatory 
hurdles that are being erected against genetically modified food fall 
into this category. U.S. biotech firms are now the unquestioned world 
leader in this space. Raising market entry barriers gives local 
competitors the opportunity to catch up.
    Other global market ``discontinuities'' may not be so much a matter 
of unfair competition but of local norms and conventions; this is 
particularly when matters are viewed from the often times 
unconventional perspective of cyberspace. ``Disruptive'' issues here 
include privacy rights, Internet governance, consumer protection laws, 
rules for the international movement of skilled workers, government 
mandates for use of particular software or hardware, and free speech 
regulation.
    In cyberspace, trade barriers can take a variety of shapes and 
forms. One of the most significant of these potential barriers is 
taxation. In this country, we confront periodic attempts to tax 
Internet access, even though the basic telecommunications service is 
already taxed. We see attempts to tax in a discriminatory manner goods 
and services sold over the Internet in widely geographically divergent 
locations, even though doing so would create substantial if not 
devastating collection and administration burdens on the part of small 
and medium Internet retail businesses. In the U.S., we hope the House 
and Senate will soon pass and send to the President a permanent 
extension of the Internet tax moratorium, including a ban on 
discriminatory taxes, in the near future, so as not to stifle small and 
medium enterprises selling over the Internet.
    Looking across the sea, several taxes issues are of concern here, 
including withholding taxes on license royalties and service fees, tax 
rule complexity, differential taxation rules for financial 
organizations that do in-house versus outsourced IT work, and the 
current movement to eliminate the Foreign Sales Corporation/ETI regime.
    I have been asked, however, to focus my remarks on the imminent 
global application of the EU VAT on ``Electronically Supplied 
Services'' by U.S. companies to European customers. This move erects a 
formidable barrier to non-EU businesses and should be the subject of 
substantial concern to anyone interested in free trade and open 
markets. Before I start, I would like to recognize the efforts of the 
Organization for Economic Cooperation and Development (OECD) and, in 
particular, the Consumption Tax Technical Advisory Group, to bring 
simplification to the VAT process.
An Even Hand Should Be the Hallmark of Any Tax Plan
    Equal treatment should be the hallmark of any tax proposal, but 
this effort is obviously directed at non-EU sellers, and particularly 
those in our industry. How so? I will be frank: the EU VAT plan 
discriminates against non-EU sellers, which, at least in the short and 
medium term will be sellers based in the U.S. The EU VAT plan requires 
such sellers to collect and remit the VAT for each EU country in which 
they have customers--currently 15 countries, soon to be 25--while an 
EU-based seller need only deal with the VAT rules and rates applicable 
to the one country in which it operates. The Directive forces non-EU 
sellers to shoulder the burden of determining customer location, the 
cyberspace equivalent of shoveling fleas with a fork. Given the wide 
disparity in VAT rates in the EU--ranging from 12 to 25%--customers 
have a clear incentive to falsify their countries of residence, and 
there is no way to know the actual country of residence of any given EU 
customer unless a physical, as opposed to digital product, is being 
delivered.
    As a result, the compliance bite on non-EU sellers is far sharper 
than that for their European counterparts. Administrative overhead will 
be higher for non-EU competitors, and therefore their costs of doing 
business will be higher. Indeed, for smaller U.S. exporters of software 
and other digital material, the compliance burden may effectively close 
off the European market to them.
    The problem seems to be getting worse, not better. In early 2002, 
after several years of considerable trans-Atlantic controversy and 
debate, the EU adopted the VAT Directive and indicated that it would 
apply to undefined Electronically Supplied Services (ESS) provided from 
outside, to within, the EU. In the early going, the ESS definition was 
thought to be limited in the IT world to digital downloads of content 
such music and books. During the period between adoption of the 
Directive and its implementation by EU member states, however, many 
countries--with guidance from the EU itself--developed rules that 
expanded its scope to include marketplace services, for instance, 
greatly expanding the potential coverage and complexity.
Devil in the Details: Ambiguity Makes a Bad Situation Worse
    With a July 1, 2003 start, the new VAT rules are almost upon us. 
But even so, substantial issues remain to be resolved. Several EU VAT 
problems stand to trip up non-EU competitors:

   Differing interpretations by member states may generate 
        disparate implementation requirements. EU member states must 
        adopt uniform electronic filing, payment, and record retention 
        standards in order to minimize the cost of compliance for 
        businesses affected by the new rules. VAT uniformity must be 
        encouraged but the extent to which this actually happens 
        remains to be seen;

   Non-compliance is a real concern. Where a vendor takes 
        advantage of the simplified registration scheme, a rule or 
        practice should be adopted whereby that vendor will be regarded 
        as satisfying its VAT obligations to all EU member states in 
        connection with electronically supplied services (ESS) if it 
        complies with the implementation requirements adopted by its 
        state of registration, regardless of where its customers 
        reside. Absent such mutual recognition, the Directive will fail 
        to achieve the administrative simplification that is intended. 
        This would impose unnecessarily high costs on compliant vendors 
        and, equally troubling, would deter voluntary compliance by 
        many smaller non-EU vendors;

   Consistency is critical in a variety of areas, including 
        effective dates, filing dates, deadlines and requirements, tax 
        periods, payment procedures, definitions of ESS subject to tax, 
        treatment of ``bundled'' goods and services, availability of 
        bad debt relief, use of commercially published exchange rates 
        to convert tax due, and despite the current wording of the 
        Directive which states that tax due should be paid in Euros, a 
        vendor should be allowed to pay the tax in the currency of the 
        sale;

   The VAT may discriminate against the Internet versus other 
        forms of delivery. Clearer ESS definitional guidelines need to 
        be issued. These guidelines should be adopted uniformly within 
        the EU. The European Commission, consistent with the 1998 OECD 
        Framework Conditions agreed to in Ottawa, considers the nature 
        of the service--not its mode of transmission--in determining 
        whether it is an ESS. The Directive should make clear that a 
        service falling outside the ESS definition is not transmuted 
        into an ESS merely because of Internet transmission. For 
        example, legal advice or advertising copy provided by e-mail 
        should not be treated as an ESS solely because the work product 
        is delivered electronically.

   Verification cannot be allowed to delay transactions. 
        Customer status and residence verification requirements must 
        take into account current technical limitations and costs, and 
        the importance of real time online transaction processing. 
        Pending technological developments in this area, companies 
        should be deemed compliant if they use the best information 
        available online in real time during the normal course of a 
        transaction. In the short run, this will prove in many cases to 
        be customer-provided information. This is particularly true for 
        low-value transactions where the costs of compliance can 
        overwhelm the gain from the transaction for both the vendor and 
        the tax authority. Despite urgings from the U.S. e-commerce 
        community to deal with the inability of U.S. sellers to know 
        with any precision where a EU customer resides (particularly in 
        cases where the item being sold is electronically downloaded by 
        the customer), we are not aware of any EU country that has 
        issued any guidance on this issue;

   Member state tax laws are not synchronized with the VAT 
        implementation start date. The Directive anticipates that 
        implementing legislation enactment will take place by July 
        2003. However, it appears that several EU member states will 
        not have legislation in place by the deadline. Companies should 
        not be expected to collect taxes on behalf of any state until 
        implementing legislation is enacted by such state, and there is 
        sufficient time for companies to become compliant with the 
        legislation;

   If non-established vendors availing themselves of the 
        simplified registration regime will be subject to the rules, 
        interpretation, and compliance regimes of the Member State of 
        identification, then this rule should be embodied within the 
        implementing legislation of each Member State. It would be 
        burdensome and discriminatory if non-EU vendors were to be 
        subject to audit by all 15 (soon to be 25) EU Member States, 
        while EU vendors were subject to audit in only one Member 
        State. As noted elsewhere, this would impose unnecessarily high 
        costs on compliant vendors and, equally troubling, would deter 
        voluntary compliance by many smaller non-EU vendors.

   All Member States, other than the Member State of 
        identification, should rely on the results of the audit 
        conducted by the Member State of identification. Such a system 
        of mutual recognition would avoid situations where a 
        transaction is considered to be taxable in more than one member 
        state or, alternatively, subject to double non-taxation. Absent 
        mutual recognition, the implementation of a system of 
        arbitration between Member States to resolve promptly any 
        conflicts that arise as a result of differences in the 
        interpretation and implementation of the Directive is needed.

   The proposed Directive is not clear regarding non-EU seller 
        obligations with respect to their transaction records. Because 
        non-registered consumers cannot recover VAT on their purchases, 
        the vendor should not be required to issue an invoice. In 
        addition, it is unclear whether these vendors are required to 
        keep records in the language of their customers. For instance, 
        if a vendor sells to a customer located in France, does the 
        vendor need to keep records regarding that transaction in 
        French? It will be burdensome and discriminatory if non-
        established vendors are required to comply with the record-
        keeping requirements of all EU Member States, especially when 
        EU vendors are only subject to the record keeping requirements 
        of one Member State. Implementing legislation in each Member 
        State should clarify that it is acceptable to maintain records 
        in English or in the national language of the Member State of 
        identification.

Final Thoughts: Discriminatory Taxes Dress the Protectionist Wolf in 
        Sheep's Clothing
    As I said earlier, an even handed approach should be the hallmark 
of taxing authorities, whether encountered on Main Street or in the 
global marketplace. When the EU VAT goes into effect on July 1, non-EU 
competitors will be asked to run an up-hill course while their EU 
counterparts enjoy a level track. The situation is, to say the least, 
unfair.
    Collect no VAT or the wrong VAT and, as a non-EU seller, you could 
be asked to make up the difference or face other legal liabilities. For 
small companies, that could be catastrophic. Be that as it may: non-EU 
companies have a statutory responsibility to comply, even though they 
must play by different rules and, as mentioned, cannot verify the 
buyer's location. Moreover, the EU and its member countries continue to 
refuse to provide any reasonable safe harbor mechanism based on 
customer residency declarations.
    The barriers are going up all over Europe and could affect the rest 
of the world. Today we are talking about 15 countries, but, with the 
accession of several Eastern European countries, the EU will grow to 25 
countries. Furthermore, the EU VAT rule may be copied in other parts of 
the world where VAT systems are prevalent. This will increase the costs 
for U.S. information technology companies, narrow profit margins, soak 
up dollars that might otherwise be reinvested in research, new product 
development, or productivity enhancement.
    European taxes and regulatory barriers that impair access to the 
marketplace for these industries are protectionism plain and simple. In 
a matter of days, non-EU based companies who have no physical presence 
in the EU will be compelled to implement complex and often ambiguous EU 
VAT rules as a part of their billing systems, as well as having to 
collect and remit the VAT to the proper EU tax authorities and to 
become subject to potentially onerous tax audits by EU tax 
administrators.
    All of these conditions will impose significant financial burdens 
on U.S. vendors, and quite likely cause many U.S. vendors--particularly 
small to medium sized companies--to forego selling to EU customers in 
order to avoid the financial risks and costs. In effect, then, these 
new EU VAT rules are protectionist. They have been designed to help EU 
vendors by severely limiting the competition from abroad.
    What can the U.S. Government do about this unfortunate situation? 
ITM and its member companies will be monitoring the issue very 
carefully and, if it turns out to be a discriminatory situation, as we 
are afraid it might be, we will talk to the U.S. Trade Representative 
about the possibility of bringing a World Trade Organization complaint. 
Claiming free trade and open borders while imposing discriminatory VAT 
is dressing up the protectionist wolf in sheep's clothing.
    Short of considering a WTO complaint, we urge U.S.-EU dialog with 
the goal of giving U.S. companies more time or flexibility to comply 
with the VAT Directive.
    We think it is highly appropriate that this Committee is now 
examining all aspects of our relations with Europe, including taxes. 
The VAT and other tax issues are not isolated technical points to be 
left to specialists. Tax issues are part and parcel of Europe'soverall 
approach to dealing with the challenge of global business, especially 
U.S. business, as its markets become more open to international 
competition.
    The Information Technology Association of America is proud to 
represent so many successful global IT companies. These companies, 
producing hundreds of thousands of jobs and multimillions of dollars 
for investors, depend on fair access to European markets. We look 
forward to working with the Committee to craft solutions to a problem 
that goes right to the heart of America's global economic leadership. 
The race is on. America can still be the winner. But only if the tax 
rules are fair and square.
    Thank you very much for this opportunity to testify.

    Senator Allen.  Thank you, Mr. Miller and Ms. Myers, again 
for your outstanding statements. Through this, it's clear that 
there are so many problems with what they are planning to do 
very shortly, and Ms. Myers pointed out how you can't even 
determine where the customer is, so that adds to the confusion.
    As I best understand it, if you actually put a physical 
presence in Europe, the place to go is Luxembourg, because they 
have the lowest taxes, as opposed to other countries, whose 
taxes are--Luxembourg I think is 15 percent. Others may be 25 
percent. Regardless, that's the point.
    Not everyone can afford to put a physical presence in 
Luxembourg, and it clearly in my view would be discriminatory, 
and maybe it's not just to the U.S., it would be discriminatory 
towards Japanese, Korean, Taiwan, and others that may not be in 
the EU, Brazilians potentially, I suppose, and one of the 
questions I was going to ask of you is, what about WTO, and 
what's the legal basis, so at this point you do not believe 
that there are legal grounds yet for a challenge to be brought 
to the WTO, is that what you're saying?
    Mr. Miller.  Yes, Mr. Chairman, the emphasis on the word 
yet. I think it is going to require careful monitoring and see 
what the impact is, and if it is as negative as we fear, on 
small and medium enterprises in the U.S., and as you correctly 
point out, any non-EU countries--you said it's not just the 
U.S., but I think the reality of the situation is, the 
companies that are going to suffer the most are going to be at 
this point in time, given where the Internet is and information 
technology, are probably going to be U.S.-based companies.
    Senator Allen.  Sure, and superimposed on the basic facts 
that I mentioned, and Mr. Litman mentioned earlier, are the 
fullness and the dominance of U.S.-European trade back and 
forth. I would think that the Europeans, insofar as the 
Internet is concerned--I look at the Internet as the modern day 
Gutenberg Press, and the Gutenberg Press was just a fantastic 
invention.
    Martin Luther never would have gotten his information that 
he nailed to the church door at Wittenberg out if it weren't 
for Gutenberg and the press. That would have been torn up, and 
no one ever would have read it, so the Internet is the modern 
day Gutenberg Press for the dissemination of ideas and 
expression and information, and you would think that they would 
be appreciative of that continuing heritage of sharing 
information.
    Are you aware, either of you all, of any other countries 
that have imposed a value-added tax on e-commerce? If so, what 
are their practices, and how does that compare to the EU 
directive, and what has been that impact? If there is another 
example, what has been the impact in that situation on United 
States firms?
    Ms. Myers.  I think it's important first to distinguish 
between value-added taxes on tangible property and on 
intangibles and things that are electronically delivered. Most 
countries do, in fact, impose their value-added tax on tangible 
products that are shipped into the country, and those taxes are 
collected generally by whomever makes the delivery. There are 
not, to my knowledge, any countries, other than those in the 
EU, who are currently imposing taxes on electronically 
delivered services, for multiple reasons, including the fact 
that it is extraordinarily difficult to do.
    I think the important point with what the EU is attempting 
to accomplish is that it has great precedential value. There 
are, in fact, more than 100 countries with value-added systems. 
If you begin with the presumption that what you need in order 
to trigger an obligation to collect tax is a customer in a 
taxing jurisdiction, then it follows that anyone who has an 
Internet site should be prepared to collect tax on behalf of 
any taxing jurisdiction in the world, and that is a very large 
presumption, so I think there is great concern that something 
that sets precedent also sets a very good precedent.
    That said, I don't think that USCIB is ready to press for 
something as dramatic as a WTO challenge. I think we have had a 
longstanding, very good relationship with Europe. Most of our 
companies, as has been said earlier, do business in Europe, and 
consider Europe a very important market. We have worked with 
the Europeans for nearly 4 years to try to get this directive 
right. They did take some of our suggestions.
    There are still things that European countries can do to be 
flexible in the application of their directive, and so I think 
we are in a situation where it is important for the EU and the 
European countries to understand that the U.S. Government and 
U.S. Congress is very mindful of the way the directive is being 
implemented, but not at a point where we want to take the most 
aggressive possible step to correct that.
    Senator Allen.  So you're saying, your testimony is that 
for the countries that have a value-added tax, and if it is a 
physical product, say their UPS or their FedEx is the one who 
collects the tax--a lot of this is a question of who collects 
and remits these taxes to 15, potentially 25 different 
countries who have different definitions of the exact same 
product.
    It sounds very similar to what we talk about here in this 
country on sales and use taxes, and is it made easier for the 
tax collector who should be responsible for collecting and 
remitting those taxes, so if it's tangible for countries that 
have the VAT tax, it is the deliverer. Would that be--whatever 
their--the UPS or--
    Ms. Myers.  The Postal Service, UPS, it varies from country 
to country, but generally speaking, whoever touches the end 
consumer.
    Senator Allen.  So it's their responsibility.
    Now, for something that is intangible, a service, first of 
all I've no idea how in the heck they're ever going to enforce 
this, unless they invade the privacy of someone's own computer 
to determine--for example, there's a difference on e-books 
versus a regular book. Say you buy Harry Potter, the book, 
well, there's a very low tax or no tax on books, but if you get 
an e-book electronically, it's a very high tax.
    Now, I have no idea how they're going to divine that Jean-
Michel has got that, or Franz, or whomever has downloaded or 
has purchased an e-book. How are they going to be able to 
determine that somebody has gotten a service, as opposed to 
something physical over the Internet?
    Mr. Miller.  The reality is, Mr. Chairman, you're right, 
it's going to be very, very hard, but on the other hand, if 
you're a small business, you run a lot of risks if you don't 
try to follow the law. Let me just give you one example, 
intellectual property you send over the Internet.
    If you decide, well, I'm going to ignore this law because 
they're never going to be able to enforce it, but then you have 
an intellectual property complaint, someone has taken your book 
that you sold over the Internet and they started to distributed 
it, and you want to go complain to somebody, and the government 
says, now, you're asking the government in Europe to help you, 
and they say, oh, by the way, did you collect the taxes on 
this?
    Or you say, gee, we've been so successful selling our 
product in Europe, we want to open a business office here in 
Europe, and the business license authorities in Europe say, by 
the way, if you know you're so successful in Europe, why 
haven't you been remitting any taxes on the products you've 
been selling into Europe? So it is a risk. That's the danger.
    You could say, they're not going to catch me, I'm a small 
business person, so I'm not going to really pay too much 
attention to this new directive, but if you're an entrepreneur 
and you expect you're going into Europe initially through the 
Internet to try to establish whether you have a valid 
marketplace, it is really hard, if you're expecting to grow and 
be successful, to say I'm going to ignore this law, because the 
peril down the road is pretty strong.
    I think you're right, the chances of a European tax 
authority actually going into some individual consumer's home 
and establishing that they failed to pay the VAT tax is 
probably pretty slim, but I think again, as a rational business 
person who is trying to grow your business, and sees Europe as 
a huge potential market, you're running a lot of risks by 
ignoring a tax law, and as you know, ignoring tax laws, people 
tend to take that pretty seriously around the world.
    Senator Allen.  How many small businesses do you think are 
unaware that this is kicking in on July 1?
    Mr. Miller.  All of them. Well, ITAA held a series of 
seminars last fall and winter in conjunction with one of our 
members, Deloitte and Touche, throughout the country, and we 
advertised it far and wide, as did Deloitte and Touche, and we 
had wonderful attendance at all of our seminars where they were 
described, and virtually every single attendee at the seminars 
was a large business who already had operations in Europe.
    It was just so far removed from the radar screen of small 
business people that even though we tried assiduously to reach 
out to that community, they just didn't show up. I'm sure 
organizations which are much more composed of small businesses 
like the U.S. Chamber have tried to educate their members. 
You'd have to ask Mr. Litman as to what he has found, but we 
found it difficult to even get people to find time to come and 
learn about this issue, let alone realize the difficulties 
they'd have in actually trying to adhere to the rules.
    Senator Allen.  So there's a potential trap for the unwary 
on July 1. What do you suppose, if you can envision the 
reaction of consumers in Europe to any of these taxes, do you 
think they could have any influence on this?
    Mr. Miller.  I don't know. I found consumers in Europe 
seemingly willing to accept a lot of things that we find more 
rebellion here in the U.S. They've paid these taxes on IT 
equipment, which to me is just a new tax.
    The ostensible reason that the Europeans levy these taxes 
on IT equipment is so they can collect this money and then give 
it to the artists who aren't otherwise being compensated, but 
there are all kinds of other mechanisms for doing that, and 
Europeans continue to buy.
    Of course, the power of the Internet is that people wake up 
in Europe and say, why am I paying this much for a pair of blue 
jeans in Europe, when I can order them off the Internet and get 
them for 30 percent less? Why am I continuing to face the 
bricks and mortar world, where they think they can mark these 
things up just because I happen to live in London or live in 
Berlin, rather than living in Boston or living in San 
Francisco?
    What we know is the real power of the Internet is, it 
empowers consumers in a way that has never been possible in the 
history of humankind before. You're not locked into your local 
merchant as your source of goods and services. You can go on 
the Internet and find others.
    And so over time I suspect the consumers in Europe will 
become more empowered, but right now they seem to be a little 
passive on these issues.
    Ms. Myers.  But I would like to follow on to what Harris 
said, because the power of the Internet has been to first 
enable businesses to be much more efficient, and second, to 
enable consumers to get goods and services at a lower cost, and 
one of the points that we have made consistently in talking 
with people in the European Union is that it's very important, 
if there is to be a tax collection obligation, that companies 
be able to do whatever they need to do based on the information 
that is available to them at the time of the sale.
    If it becomes necessary to go through a complex 
verification process that causes consumers to abandon 
transactions, or causes businesses to abandon transactions 
because they cannot get the information they need to complete 
them--
    Senator Allen.  And worried about the liability.
    Ms. Myers.  Then that basically undercuts the reason for 
using the Internet in order to make it a more efficient means 
of getting things to people better, cheaper, and faster.
    I would also like to follow up on what Harris said about 
small businesses. I never met a small business that didn't want 
to be a big business, or didn't think it was going to be a big 
business sometime soon, and very often those businesses in 
their early days will reach out to a third party to provide 
them with sort of the administrative infrastructure to enable 
them to comply with all of the laws and regulations that may be 
too burdensome for them, or to deal with financial institutions 
or remit payments.
    And so I'm sure that once they determine that they have an 
obligation, they will want to be able to go to someone to do 
that for them, and whoever it is that is doing that for them 
has to be able to assure them that they're doing it right, and 
so it is important to have a system in place that is 
comprehendible, that is understandable and consistent, so that 
small businesses who want to do things right, and be big 
businesses, will have the means of doing that.
    Mr. Miller.  Mr. Chairman, before you go to your next 
question--
    Senator Allen.  I want to know from you all, and you can 
follow up on Ms. Myers' comments, is what do you think that we 
can do in the Senate? Obviously, having this hearing is to 
bring the issue up, and it is very important for our European 
friends and allies to recognize that this is an important 
issue, one of the top, in my view top two key trade issues 
between good friends with long relationships and a lot of jobs 
at stake, but is there anything specific that either of you all 
would recommend that we do in the United States Senate, the 
Congress, or the administration, but particularly anything 
legislatively at this time?
    Mr. Miller.  The answer is yes. In response to your earlier 
question, you asked Mr. Litman, he wasn't aware of a particular 
issue. He and I discussed this at the break.
    Senator Allen.  It's a good thing we had a break. You all 
could huddle.
    Mr. Miller.  The House has recently concluded a provision 
that was altered by the Chairman of the House Armed Services 
Committee, Congressman Hunter, and it's basically in the 
defense authorization bill, a Buy America provision. In these 
days of patriotism, and some conflict with our friends in 
Europe, Buy America sounds like a good thing. Who isn't for 
Buying American?
    But if you think particularly of the IT industry, your 
average PC, you can't Buy American. There's no such thing as an 
American-made PC, where every part and component in it is made 
in America. Much of the manufacturing components, while they 
may be assembled by U.S.-based companies, many of the 
components are purchased abroad, and already I understand the 
British Government has, of course our strong ally in the Iraq 
conflict, has put forth a strong conflict. So I would urge you, 
Senator, when this issue comes to the Senate as part of the 
authorization bill for the Department of Defense, you and of 
course your colleague, Senator Warner, who is the chairman of 
the relevant committee, take a good, hard look at that 
provision.
    It sounds like a good thing to do, Buy American, who could 
be against that, but in fact it could be a very, very 
destructive kind of amendment, and I think will create and 
exacerbate a lot of tensions with Europe at a time when we have 
some issues on our side that you're appropriately covering 
today.
    Senator Allen.  I will take that into consideration.
    Ms. Myers.
    Ms. Myers.  In terms of specific recommendations, I don't 
believe there's anything legislative that we would recommendat 
this point, but what we have urged those who understand the 
dilemma to do is to communicate with their counterparts in 
Europe, either directly or by means of communicating to the 
administration.
    We have written to Secretary Snow and others urging them to 
make statements noting that the U.S. Government is aware of 
potential problems and is monitoring the situation. Monitoring 
may sound like a small thing to do, but we think that to the 
extent that our friends in Europe understand that this is a 
potential problem, they have a lot of flexibility to make 
things go more smoothly, and perhaps we can avoid taking this 
to a more intense level if we can have a little dialogue 
between the people who have responsibility.
    Senator Allen.  Well, thank you both for your testimony. I 
hope that as this kicks in on July 1 there are not too many 
people or businesses that are unwary, and whatever happens, 
maybe that will be the impetus to say let's get some 
rationality in here.
    People want to comply with the laws. Let's do it in a way 
that is number 1 reasonably facile--in other words, not 
overbearing and burdensome--and the other is nondiscriminatory. 
Those are our two principles, and I would think that the 
Europeans would agree to that, I would hope, and if not we will 
have to go further, but let's assume the best, but it's 
unfortunate it's coming up too quickly for a lot of companies, 
I think, to be in compliance.
    But again, thank you both for your leadership and your 
principled statements and advice here this afternoon. Thank you 
both.
    I also want to add, by the way, into the record--I don't 
have to say this publicly, but for everyone's information a 
statement from Mark Bohannon of the Software and Information 
Industry Association requested that I include their letter as 
part of the record.
    Insofar as the European Union value-added tax, the details 
of the letter are similar to some of the testimony, and why it 
is detrimental to U.S. businesses operating in Europe, 
consistent with the tenor and discussions here, and that letter 
was sent to me and the Ranking Member, Senator Biden, so that 
will be made a part of the record. [The information follows:]
    Senator Allen.  Now, we would like to hear from our final 
two witnesses on the issue of genetically enhanced crops. 
Obviously, this is a topic of passionate and intense discussion 
these days, and the committee looks forward to hearing your 
views and differing perspectives this afternoon. I would like 
to welcome Jean Halloran, the director of the Consumer Policy 
Institute of the Consumers Union. Ms. Halloran has long had an 
interest in the area of GMO's, and we look forward to her 
testimony.
    I would also like to thank Fred Yoder, president of the 
National Corn Growers Association, for appearing before the 
committee today. Mr. Yoder also has extensive knowledge of 
biotechnology, and the committee looks forward to hearing the 
perspectives of the U.S. agricultural community, and thank you 
both for being here.
    Now, we will first hear from Ms. Halloran, and if you have 
a statement, Ms. Halloran, we would be happy to receive it, and 
then of course hear from Mr. Yoder.
    Ms. Halloran.

     STATEMENT OF JEAN HALLORAN, DIRECTOR, CONSUMER POLICY 
                   INSTITUTE, CONSUMERS UNION

    Ms. Halloran.  Thank you. I appreciate the opportunity to 
testify. Consumers Union, which most people know as the 
publisher of Consumer Reports, has been interested keenly in 
this topic for at least a decade, and I'm also personally 
involved with the Transatlantic Consumer Dialogue, an 
organization of the major consumer organizations on both sides 
of the Atlantic, and as well I play an active role in Consumers 
International, which has 250 members in 110 countries. I'm not 
speaking for these other organizations today, but my remarks 
will reflect some of what I've learned from those people.
    Consumers Union believes that genetically engineered food 
offers both potential benefits and potential risks for 
consumers. For that reason, we have long advocated that there 
should be an approval process at the Food & Drug Administration 
similar to that for food additives, and that these foods should 
be labeled.
    We therefore think it is unfortunate and misguided that the 
United States has chosen to address a trade problem it has with 
the European Union on genetically engineered food by bringing a 
case at the World Trade Organization. We see little potential 
benefit for U.S. farmers or the biotechnology industry by 
taking this course, and we see many risks for the EU-U.S. 
relationship, and I would like to elaborate on those points a 
bit.
    The European Union regulatory framework for what they refer 
to as genetically modified organisms, or GMO's, requires a 
premarket safety approval, labeling, and traceability. We think 
this is an entirely reasonable scheme. In fact, we wish we had 
a similar framework here, and a bill has been introduced by 
Senator Boxer in previous years that would institute a large 
part of what they have there. We don't think that their scheme 
is in fact any way trade-illegal under the GATT, and as of 
2004, 35 countries, encompassing half the world's population, 
will actually have mandatory premarket safety approval systems. 
These include India and China, as well as Australia, New 
Zealand, Japan, Thailand, Indonesia, and Korea, so I think the 
U.S. needs to think about whether it may be becoming out of 
step with the rest of the world, and what that may be doing to 
our trading relationship.
    In the trade challenge which has been filed, the United 
States is not objecting to all of the EU's regulations, of 
course, but rather is most concerned about the de facto 
moratorium on new approvals which has been in effect for the 
last several years. The EU initially approved a number of 
genetically modified organisms, but then halted further 
approvals while it considered revamping its laws to implement 
full labeling and full traceability of products throughout the 
food chain.
    This process is taking several years, and the process of 
making laws in the EU, given that it is not one country, like 
we are, but 15 countries, is somewhat cumbersome, to say the 
least, but while the U.S. may be impatient and feel the process 
is going very slowly, we should really note that our Government 
can also be slow. It took us 12 years, for example, to 
implement the organic labeling program from the time the law 
was originally passed.
    The key point is that countries that belong to the World 
Trade Organization have the right to revamp their regulatory 
schemes as long as they treat domestic and imported goods the 
same, and in fact the European Union has done so. They have 
halted the sales of seeds produced by Syngenta and Aventis, 
which are European-based biotech companies, as well as Monsanto 
and Dupont. The laws are not trade-discriminatory, and the 
moratorium isn't, either.
    I think it would be also useful if the Congress devoted 
some effort to thinking through what would happen if we 
actually do win this WTO suit. What happens then? Will this be, 
in fact, good for us?
    One possibility is that the European Union could approve 
some additional types of GMO corn, but will this benefit our 
corn farmers? Let's look for a minute at the soybean industry. 
The soybean variety which is grown in the U.S. is in fact, 
already approved in the European Union. Nevertheless, sales 
have dropped almost by a half in the last 3 years, declining $1 
billion.
    Why is this? This is because European consumers don't like 
genetically engineered soy. If the consumer doesn't want your 
product, it's very hard to sell it, and the corn farmers are 
not going to be any better off if their product is legalized if 
they don't have a market for it.
    One other possibility, of course, is that the EU may refuse 
to approve any new corn varieties, in defiance of the WTO 
ruling, as it did in the beef hormones case, and that the U.S. 
will then impose retaliatory tariffs. In that case, other 
innocent bystanders will suffer.
    If you take, for example--I believe Hermes scarves were one 
of the things on which we imposed tariffs in the beef hormone 
case. This harms the French company that produces them, but it 
also harms U.S. companies who sell Hermes scarves here, and it 
harms consumers who have to pay more for the product.
    Finally, we are concerned that the U.S. may not realize 
that it could establish some precedents in this case which 
could be damaging in the future. Just a few weeks ago, we 
banned all imports of Canadian beef while we figure out how big 
a problem we may have with mad cow disease. We have excluded 
all European beef products from the U.S. for a number of years. 
What if the European Union, who believes that they have their 
problem under control, decides that we should now take their 
beef, and that we're taking too long to figure out how serious 
the problem is?
    Therefore, in terms of the European market, the WTO 
challenge is, in our view, in some sense a wasted effort, in 
that it is unlikely to increase our corn exports to any 
significant degree, and could damage other industries and 
consumers.
    I would like to touch just very briefly also on the issue 
of hunger in Africa, since President Bush and Ambassador 
Zoellick have said that the European caution in this area is 
making it difficult to fight hunger in Africa. I think it is 
important to note that the immediate crisis which loomed so 
severe last winter has passed. The drought has ended. They have 
had a good harvest in Zambia, and the mass starvation which 
loomed as a threat is no longer an immediate problem.
    The root causes of hunger in Africa do need to be 
addressed, but as an African colleague of mine said recently, 
hunger in Africa has many fathers. These include armed 
conflict, natural disasters, lack of infrastructure to ship 
foods from one place to another, unfavorable trade rules, and 
unequal distribution of wealth, to name just a few. Genetically 
engineered food is fairly low on the list among the Africans 
I've spoken to, of what they need in terms of fighting their 
hunger problems. If there is a civil war, it is hard to grow 
food no matter what the characteristics of the seed.
    In sum, Consumers Union believes that the challenge that 
the U.S. has filed against the EU will be of little benefit to 
our country, and could do damage, continued damage to the EU-
U.S. relationship. In our view, a better strategy at this point 
for U.S. farmers and industry might be to effectively segregate 
their genetically engineered and nonengineered output so that 
we can meet the demand that exists abroad. The trade 
relationship between the EU and U.S. is enormously important, 
and nurturing it will have significant benefits.
    Thank you.
    [The statement of Ms. Halloran follows:]

                  Prepared Statement of Jean Halloran

Introduction
    I appreciate the opportunity to testify on the subject of the 
European Union moratorium on genetically engineered crops. I am 
Director of the Consumer Policy Institute, a division of Consumers 
Union (publisher of Consumer Reports) which has taken a keen interest 
in genetically engineered food for over a decade.
    Consumers Union believes that genetically engineered food offers 
both potential benefits and potential risks for consumers. We have 
therefore long advocated that these foods should have to go through an 
approval process at the Food and Drug Administration, like a food 
additive, that would insure that these foods are as safe and nutritious 
as conventional foods. We also think, given the newness of this 
technology and the fact that it is different from conventional food, 
that genetically engineered food should be labeled. Polls consistently 
show that more than 80 percent of Americans think genetically 
engineered food should be labeled. Unfortunately, neither labeling nor 
mandatory safety approvals are required in the United States, although 
companies do conduct voluntary safety consultations with the FDA.
    We think it is unfortunate that the United States has chosen to 
address a trade problem it has with the European Union on genetically 
engineered food by bringing a case at the World Trade Organization 
(WTO). We see little potential benefit to U.S. farmers or the 
biotechnology industry from taking this course, and we see many risks. 
We are concerned that if the U.S. succeeds in winning this case, 
precedents could be established which could actually be detrimental to 
U.S. farmers and consumers.
EU Regulations Are Legal Under the WTO
    The EU regulatory framework for genetically modified organisms, or 
GMOs, which requires premarket safety approval, labeling and 
traceability for GMO products, is an entirely reasonable one. In the 
EU, a government agency conducts a safety assessment to insure that a 
GMO contains no dangerous toxins or allergens before it goes on the 
market. Soon, all movement of GMOs in the market will tracked, and all 
products containing GMOs will have to be labeled. We wish the US had a 
similar framework. Indeed, it is important to realize that most of the 
developed world and much of the developing world is adopting the EU 
regulatory approach. As of 2004, 35 countries, who encompass half the 
world's population, will have mandatory premarket safety approval 
systems. They include India and China, as well as the EU, Australia, 
New Zealand, Japan, Thailand, Indonesia and Korea, among others. All 
these countries except India also require mandatory labeling of 
genetically engineered food.
    The United States is not objecting to EU regulations per se, but 
rather is most concerned about the de facto moratorium on new approvals 
which has been in effect for the last several years. The EU initially 
approved a number of GMOs, but then halted further approvals while it 
considered revamping its laws to implement full labeling of all GMO 
products and full traceability, with various thresholds. This process 
is taking several years. The process of making laws in the EU, given 
that it is not one country like the United States but 15 countries, is 
somewhat cumbersome to say the least. But while the U.S. may think this 
process is going slowly, our Government can also be slow. It took us 
twelve years, for example, after passage of the National Organic 
Standards Act, for us to develop an organic labeling program we were 
satisfied with. During this entire period, it was illegal for anyone to 
call their food ``USDA Organic.''
    The key point is that countries that belong to the WTO still have 
the right to revamp their regulatory schemes as long as they treat 
domestic and imported goods the same. Thus, in our view, the countries 
of the EU are perfectly within their rights to say that after a brief 
experience with GMOs, that they want to extend their labeling and 
traceability rules, and they do not want to implement any further 
approvals until their complete regulatory scheme is in place. This 
moratorium has halted sales of seeds for Syngenta and Aventis, which 
are European-based biotech seed companies, as well as for Monsanto and 
DuPont.
Winning a Suit May Not Benefit U.S. Farmers
    But let us assume that a WTO dispute resolution panel agrees not 
with me or with the EU lawyers, but with the United States, and decides 
that the EU, by failing to allow importation and sale of products which 
a scientific committee had deemed safe, has violated WTO rules. What 
then?
    One possibility is that the EU will approve some additional types 
of GMO corn. Will this open the EU market to U.S. corn? Let us look at 
soybeans for a moment. The variety of genetically engineered soybeans 
that is grown in the United States is already approved in the EU. Yet 
sales have declined by about $1 billion a year, to almost half of what 
they were three years ago. Why is this? Because European consumers 
don't like genetically engineered soy. There is a fundamental law at 
work here, that is even more fundamental that the GATT agreement. That 
is the law of supply and demand. If the consumer doesn't want your 
product, it is very hard to sell it. In Europe, genetically engineered 
food is as popular as the Edsel.
    One other possibility is that the EU may refuse to approve any new 
corn varieties in defiance of the WTO ruling, as they did in the beef 
hormones case. What happens then? The U.S. imposes retaliatory tariffs, 
in which case innocent bystanders will suffer. These tariffs will 
penalize industries that have nothing to do with this dispute--for 
example we put tariffs on Hermes scarves, I believe, in the beef 
hormones case. This damages the French scarf maker. But it also damages 
the U.S. retailer who previously made a living selling French scarves. 
It will also harm consumers who want to purchase the scarves, who will 
have to pay a lot more for them.
    Finally, we are concerned that the U.S. may not realize that it 
could establish some precedents with this case that could come around 
and damage U.S. agriculture. The U.S. is concerned about delays in 
approvals in the EU. Just a few weeks ago, we banned all imports of 
Canadian beef while we figure out how big a problem we think we have 
with mad cow disease. Would we be happy if Canada began arguing that we 
were taking too long with restarting imports? Indeed, we currently 
exclude all European beef products from the U.S. even though the EU 
believes they have the problem under control. Suppose the EU decided we 
should take their beef?
    Therefore in terms of the EU market, the WTO challenge is in some 
sense a wasted effort that is very unlikely to increase our corn 
exports to any significant degree and could damage other industries and 
consumers, not to mention the negative effects on EU-U.S. relations as 
a time when they are already strained for other reasons.
WTO Challenge Does Not Address Hunger in Africa
    President Bush and Ambassador Zoellick, the U.S. Trade 
Representative, have said that there is another reason for filing the 
challenge, however, and that is because European caution is making it 
difficult to fight hunger in Africa. They were especially concerned 
when Zambia, a country where mass starvation seemed like a real 
possibility earlier this year, rejected U.S. GMO corn as food aid.
    Fortunately, the rains returned in southern Africa this spring, and 
there is no mass starvation. We hear from our colleagues in the 
consumer movement and in food aid work, that Zambia expects to be self-
sufficient in food this year. It is even projecting that it could be a 
net food exporter next year. Thus, there is no food emergency now in 
Africa.
    The root causes of hunger in Zambia and elsewhere should be 
addressed. But these are multifaceted and GMOs have little to do with 
most of them. As an African colleague said to me the other day, hunger 
in Africa has many fathers. They include armed conflict, natural 
disasters, lack of infrastructure to ship food from regions with 
surpluses to regions with shortages, unfavorable trade rules, and 
unequal distribution of wealth and resources, to name just a few. 
Poverty-stricken African subsistence farmers are not going to be able 
to buy patented herbicide-tolerant seeds, one of themain types of 
genetically engineered seeds produced in the United States, and the 
herbicides to go with them. Subsistence farmers rely on saved seed. 
There is certainly a theoretical possibility that someday bioengineered 
crops may be developed that can help African farmers. But civil wars 
will make it hard to grow food, no matter what the characteristics of 
the seed. Unless these root causes of hunger are addressed, Africans 
may conclude that the US is just pursuing its own trade interests with 
this WTO challenge. Africans also have significant concerns about the 
environment. African countries were the leaders in developing the 
Biosafety Protocol which was ratified by 50 countries and went into 
effect last week. Under the Protocol countries can set up systems for 
tracking shipments of live GMOs, and have the right to reject them.
    Finally, if the U.S. is pursuing this WTO case in the hopes that it 
will create an impression around the world that GM foods are safe and 
beneficial, we would urge the US to consider whether this strategy may 
backfire. What we hear from our consumer colleagues, especially in 
developing countries, is that some see this case as the U.S. ``throwing 
its weight around.'' Congress should at least consider the possibility 
that this case may heighten suspicion about safety, and heighten 
concerns that this case is part of US efforts at global economic 
dominance.
Summary
    Consumers Union believes that the challenge that the U.S. has filed 
at the WTO against the EU in regard to genetically engineered food will 
be of little benefit to U.S. farmers or industry, either in terms of 
exports to Europe, or in terms of building confidence and markets for 
our genetically engineered crops elsewhere in the world. In our view, 
the EU is within its rights under the GATT agreement with regard to its 
current policies. A better strategy at this point for U.S. farmers and 
industry might be to effectively segregate their GM and non-GM output, 
so that we can meet the demand that exists abroad. The trade 
relationship between the EU and US is enormously important, and 
nurturing it will have significant benefits.

    Senator Allen.  Thank you, Ms. Halloran.
    Mr. Yoder, thank you for your patience. I just got a 
message, we have a vote at 4:25, so Mr. Yoder, I know you've 
got a lot of rebuttal points, and that means we have actually 
another 15 plus minutes. Thank you for your perseverance. We 
want to hear from you.

   STATEMENT OF FRED YODER, PRESIDENT, NATIONAL CORN GROWERS 
                          ASSOCIATION

    Mr. Yoder.  Thank you, Mr. Chairman, members of the 
committee. My name is Fred Yoder. I'm president of the National 
Corn Growers Association, and I'm past chairman of the Biotech 
Working Group for National Corn Growers, and I'm also a corn 
grower from Plain City, Ohio. I would like to thank the 
subcommittee for giving me the opportunity to testify today and 
speak regarding the different views about biotechnology between 
the United States and Europe, and I do have a different 
perspective than Ms. Halloran.
    Today's hearing is very timely, and I commend the chairman 
and the committee for convening it. As you know, corn is the 
largest crop grown in the United States, with more than 79 
million acres planted last year, and we produced over 9 billion 
bushels of corn. Corn acreage is likely to increase this year, 
with more than one-third of that crop devoted to varieties 
derived from biotechnology.
    Despite this growth, corn growers and farmers across the 
country are facing various challenges in the international 
marketplace, and unfounded fears regarding biotechnology is one 
of the largest. This reality is no clearer than in the European 
Union. For the past 5 years, corn exports from the United 
States have been shut out of the EU due to a de facto 
moratorium on products derived from biotechnology. Prior to the 
moratorium, U.S. corn exports to Europe totalled 2.3 million 
metric tons annually. Today, we ship a mere 26,000 metric tons 
to Europe.
    Lacking confidence the Europeans would resolve this dispute 
quickly through negotiation, the administration initiated a WTO 
dispute settlement complaint last month against the EU's 
longstanding moratorium on the approval of biotech products. 
The National Corn Growers Association pushed strongly for this 
action, and we were very pleased with the administration's 
decision to move forward on it.
    We would have preferred to avoid a confrontation. We 
believe we have shown considerable patience over the last 5 
years while the moratorium has been in effect, despite the loss 
of more than $300 million per year in corn exports to the EU We 
were hopeful that the European leaders would find their way 
through this regulatory problem and come into compliance with 
their international obligations. However, we became convinced 
for a number of reasons that the time had come to act.
    First, we lost faith in the willingness of EU officials to 
resolve the problem without outside pressure. The EU commission 
has promised many, many times over the past 5 years to restart 
the approval process for new biotech products, but has always 
failed to deliver. A determined group of anti-biotech member 
States has succeeded repeatedly in moving the goalposts by 
imposing new conditions.
    Second, the EU policies are beginning to affect market 
access for biotech products around the rest of the world. Under 
pressure from consumer groups influenced by European attitudes, 
a number of governments have already adopted versions of the 
EU's current labeling regime, and some are threatening to even 
restrict imports of commodities.
    Third, EU policies are undermining WTO rules. One of the 
most important achievements of the Uruguay Round of WTO 
negotiations was the agreement on sanitary and phytosanitary 
measures, which establishes the rules that help WTO members 
distinguish between legitimate and illegitimate health and 
safety regulations. EU policies openly flaunt these rules. It 
is clear that the EU restrictions have to do with political and 
regulatory incompetence and misinformation and old-fashioned 
protectionism, rather than scientific uncertainty. If we 
refrain from asserting our WTO rights against so blatant a 
violation, we will see other countries behaving similarly and 
will find it increasingly difficult to enforce the SPS rules.
    It is ironic that many of the European activists who are 
agitating against biotechnology are citing environmental 
reasons for their opposition. On the basis of the U.S. 
experience with biotech crops, it is already clear that the 
environmental effects of biotechnology are overwhelmingly 
positive.
    We hope that this trade dispute is very short-lived. It is 
in the EU's hands. All they need to do is end the case by 
lifting the moratorium, the illegal moratorium, and start 
approving. We must note, however, that ending the moratorium 
will not be the end of our trade problems with Europe.
    As I mentioned before, the EU has made adoption of new 
legislation on labeling and traceability of biotech products a 
political precondition of restarting the product approvals, and 
there are calls for yet even more legislation in the works. 
However, the sampling, testing, and administrative costs 
required to assure compliance with the proposed European 
regulations are, we believe, well beyond the ability of the 
bulk grain handling system without massive cost increases that 
would destroy competitiveness of imported grain in Europe.
    Consumers in Europe and everywhere else should have choices 
in the food selections they make. This starts with allowing the 
marketing of safe products and not holding them in perpetual 
regulatory limbo. Congress understands the need to confront the 
European Union, and the WTO case has the overwhelming support 
of Members from both sides of the aisle, from all regions of 
the country. In fact, the Senate recently adopted a resolution 
supporting the case, and NCGA thanks you, Chairman Allen, for 
all of your support.
    Again, we thank you for addressing this important issue and 
providing NCGA the opportunity to address the committee. We 
look forward to working with your committee on other issues of 
importance in the future, and I just must say, when she 
mentioned the hunger in Africa, myself as a corn grower was 
absolutely incensed when we tried to get corn to be moved into 
southern Africa to feed the hungry, and when it was refused 
because they thought it was poisoned, or something like that, 
it really hurt deeply to me as a producer, because I think that 
I help produce some of the finest quality corn in the world, 
and when people die because they're afraid of eating my product 
it hurts. People died because they did not get a chance to eat 
that food that was at the dock, and it breaks my heart.
    I would welcome your questions. Thank you.
    [The statement of Mr. Yoder follows:]

                    Prepared Statement of Fred Voder

    Good afternoon. Chairman Allen, Ranking Member Biden and members of 
the Committee, my name is Fred Yoder. I am President of the National 
Corn Growers Association (NCGA), former Chairman of NCGA's 
Biotechnology Working Group and a corn farmer from Plain City, Ohio. I 
would like to thank the Subcommittee for giving me the opportunity to 
testify and speak today regarding differing views of biotechnology 
between the United States and Europe. Today's hearing is very timely, 
and I commend the Chairman and the Committee for convening it.
    NCGA was founded in 1957 and represents more than 32,000 dues-
paying corn growers from 48 states. The Association also represents the 
interests of more than 350,000 farmers who contribute to corn checkoff 
programs in 19 states.
    The National Corn Growers Association's mission is to create and 
increase opportunities for corn growers in a changing world and to 
enhance corn's profitability and usage across this country. 
Biotechnology and trade remain vital to the future of corn growers as 
we search for new markets and provide grain that is more abundant and 
of better quality.
    Biotechnology offers corn growers improved efficiencies and 
potential profits when managed wisely and with regulatory oversight 
based on sound science. The introduction of new varieties and their 
proliferation across the Corn Belt is redefining current systems of 
price discovery, consumer information, health regulation and trade 
management.
    NCGA believes consumer acceptance and confidence in our regulatory 
agencies is vital to the success of this technology. As producers, corn 
growers have to be mindful of our customers and ensure there is open 
communication with grain handlers, millers, processors and food 
retailers across the country. Our association works closely with our 
partners in the food chain and has an open dialogue to head off any 
problem before it occurs. We also believe consumer acceptance of 
biotechnology will increase with the dissemination of science-based 
information. Responsible and accountable management by biotechnology 
providers, producers, suppliers, and grain merchandisers is imperative.
    As you know, corn is the largest crop in the United States, with 
more than 79 million acres planted last year, producing 9 billion 
bushels of grain. Corn acreage is likely to increase this year with 
more than one-third devoted to varieties derived from biotechnology. 
While corn producers across the country already understand the benefits 
of biotechnology, farmers around the globe are beginning to realize the 
true potential of this exciting technology.
    According to a new report from the non-profit International Service 
for the Acquisition of Agri-biotech Applications (ISAAA), the amount of 
land planted worldwide with biotech crops increased by 12 percent in 
2002. This is the sixth straight year that farmers from around the 
world have adopted biotech crops at a double-digit pace. While the 
majority of the global area planted to biotech crops is in the United 
States, accounting for 66 percent of global plantings, the adoption of 
biotech crops in 2002 was more than twice as fast in developing 
countries as it was in developed countries.
    In the world market, two out of every three bushels of corn 
originate in the United States, and we account for more than 40 percent 
of the total production worldwide. Last year, we exported more than 
$4.5 billion of corn more than $1 billion of value-added processed corn 
products.
    Despite this growth, corn growers and farmers across the country 
are facing various challenges in the international marketplace. 
Unfounded fear of biotechnology is the largest challenge facing corn 
growers. This reality is no more apparent than in the European Union 
(EU).
European Union Biotechnology Moratorium
    For the past five years, corn exports from the United States have 
been shut out of the EU due to a de facto moratorium on products 
derived from biotechnology. In the three years prior to imposition of 
the moratorium, U.S. corn exports to Europe averaged 2.3 million metric 
tons annually. Today, we export only 26,000 metric tons.
    Lacking confidence the Europeans would resolve the dispute quickly 
through negotiation; the administration initiated a WTO dispute 
settlement complaint last month against the EU's long-standing 
moratorium on the approval of biotech products. The NCGA pushed 
strongly for this action, and we were pleased with the administration's 
decision.
    We would have preferred to avoid a confrontation in the WTO on this 
issue. We believe we have shown considerable patience over the five 
years while the moratorium has been in effect, despite the loss of more 
than $300 million per year in corn exports to the EU. We were hopeful 
that European leaders would find their way through their regulatory 
problems and come into compliance with their international obligations. 
However, we became convinced for a number of reasons that the time had 
come to act.
    First, we lost faith in the willingness of EU officials to resolve 
the problem without outside pressure. As the attached chronology 
illustrates, the EU Commission has promised many times over the past 
five years to restart the approval process for new biotech products--
but has always failed to deliver. A determined group of anti-biotech 
Member States has succeeded repeatedly in moving the goal posts by 
imposing new conditions.
    We have heard the same kinds of promises recently. The Commission 
now says that the moratorium will be lifted by the end of the year when 
new rules on traceability and labeling of biotech products are adopted. 
However, there is no evidence that the opposition to biotechnology in 
certain Member States has lessened. Indeed, some Member States have 
already begun to demand the development of new rules on liability and 
the co-existence of biotech and non-biotech crops before lifting their 
opposition to new product approvals. Moreover, even under the 
Commission's most optimistic scenario, the price for lifting the 
moratorium is the implementation of a WTO-inconsistent traceability and 
labeling regime that could be just as effective a barrier to access as 
the moratorium itself.
    We sincerely hope that the launching of a WTO complaint will prompt 
EU officials to reexamine their biotech policies and lift the 
moratorium. On a recent trip to Europe we saw some encouraging signs. 
Through our experience, officials in the European Commission and 
farmers throughout the Continent understand the benefits and want 
access to the technology.
    However, according to USTR, the results of last Thursday's dispute 
settlement consultations in Geneva were not encouraging. We therefore 
fully support the decision of the Administration to request 
establishment of a dispute settlement panel at the earliest 
opportunity.
    Second, EU policies are beginning to effect market access for 
biotech products around the world. Under pressure from consumer groups 
influenced by European attitudes, a number of governments have already 
adopted versions of the EU's current labeling regime, and some are 
threatening to restrict imports of commodities.
    The longer we go without asserting our WTO rights, the greater the 
tendency will be for other countries to impose EU-style policies. On 
the other hand, a clear victory in the WTO would be a powerful 
deterrent to countries that may be tempted to follow the EU.
    Third, EU policies are undermining WTO rules. One of the most 
important achievements of the Uruguay Round of WTO negotiations was the 
Agreement on Sanitary and Phytosanitary (SPS) Measures, which 
establishes rules that help WTO members distinguish between legitimate 
and illegitimate health and safety regulations. EU policies openly 
flaunt those rules.
    The SPS Agreement requires that SPS measures be based on a 
scientific assessment of risks. Every risk assessment performed by the 
official EU Scientific Committees on products submitted for approval 
has found that the product in question posed no risk to human health or 
the environment.
    Indeed, the Commission's own Directorate-General for Research 
concluded:

          Research on the GM plants and derived products so far 
        developed and marketed, following usual risk assessment 
        procedures, has not shown any new risks to human health or the 
        environment, beyond the usual uncertainties of conventional 
        plant breeding.
          Indeed, the use of more precise technology and the greater 
        regulatory scrutiny probably make them even safer than 
        conventional plants and foods. . . . On the other hand, the 
        benefits of these plants and products for human health and the 
        environment become increasingly clear. \1\
---------------------------------------------------------------------------
    \1\ D-G Research, GMOs: Are There Any Risks? Brussels, 8 October 
2001.

    Just last week, in an article in the San Francisco Chronicle, two 
of the world's leading scientists working in biotechnology addressed 
the question about the safety and testing of these products. In their 
---------------------------------------------------------------------------
article, they wrote:

          The reality is that crops developed through plant 
        biotechnology are among the most well-tested, well-
        characterized and well-regulated food and fiber products ever 
        developed. This is the overwhelming consensus of the 
        international scientific community, including the British Royal 
        Society, the U.S. National Academy of Sciences, the World 
        Health Organization, the Food and Agriculture Organization of 
        the United Nations, the European Commission, the French Academy 
        of Medicine, and the American Medical Association. \2\
---------------------------------------------------------------------------
    \2\ C S. Prakash, Martina Newell-McGloughlin, ``Listen to Sound 
Science on Agricultural Technology,'' San Francisco Chronicle, June 20, 
2003.

    Like the data generated to support it, the regulatory process 
itself is comprehensive. In the United States for example, the 
regulatory framework includes at least nine distinct opportunities 
where a regulatory decision in favor of the safety of the biotech 
product is required before the process can move forward. Five of these 
decision points include the opportunity for public comment or 
participation. Combine this with the fact that in the eight years these 
crops have been grown, there has not been a single adverse health 
effect. You then realize very quickly that the science, the oversight 
and our experience all land on one key point, these crops are safe.
    However, the EU has repeatedly refused to approve products even 
after receiving a positive risk assessment and has offered no 
scientific rationale for its actions. Indeed, it is clear that the EU 
restrictions have to do with political and regulatory incompetence, 
misinformation and old-fashioned protectionism rather than scientific 
uncertainty. If we refrain from asserting our WTO rights against so 
blatant a violation, we will see other countries behaving similarly and 
will find it increasingly difficult to enforce SPS rules.
    That would be a potentially disastrous development at a time when 
countries around the world are beginning to implement the Cartagena 
Protocol on Biosafety. Now especially is the time to assert the 
applicability of the disciplines of the SPS Agreement to trade in 
biotech products.
    Finally, EU policies are putting at risk the future of a technology 
that has already brought great benefits and that holds great promise. A 
study by the National Academy of Sciences and six other national 
science academies concluded:

          Foods can be produced through the use of GM technology that 
        are more nutritious, stable in storage . . . and health 
        promoting--bringing benefits to consumers in both 
        industrialized and developing nations . . . GM technology, 
        coupled with important developments in other areas, should be 
        used to increase the production of main food staples, improve 
        the efficiency of production, reduce the environmental impact 
        of agriculture, and provide access to food for small-scale 
        farmers.\3\
---------------------------------------------------------------------------
    \3\ Royal Society, U.S. National Academy of Sciences, Brazilian 
Academy of Sciences, Chinese Academy of Sciences, Indian National 
Science Academy, Mexican Academy of Sciences, and Third World Academy 
of Sciences, Transgenic Plants and World Agriculture (2000).

    However, because the EU is such an important trading block, its 
restrictions on biotech products have effects far beyond EU borders. 
The logjam in product approvals has affected the investment decisions 
by biotech firms and the pace of introduction of new products.
    Some U.S. corn farmers have been forced to forgo the use of the 
technology because of concerns about the marketability of corn 
byproducts in the EU. Several countries, even biotech-friendly ones 
like Argentina, have officially restricted the types of biotech 
products they will permit for similar reasons. And we saw the most 
egregious manifestation of the effects of the EU ban recently when 
several famine-stricken African countries refused U.S. food aid, in 
part because of food safety concerns stemming from European 
misinformation, and in part because of fears of losing markets in the 
EU. As Nobel Laureate Norman Borlaug wrote:

          The affluent nations can afford to adopt elitist positions 
        and pay more for food produced by the so-called natural 
        methods; the one billion chronically poor and hungry people of 
        this world cannot. New technology will be their salvation, 
        freeing them from obsolete, low yielding, and more costly 
        production technology.\4\ 
---------------------------------------------------------------------------
    \4\ Borlaug, Norman. ``Ending World Hunger: The Promise of 
Biotechnology and the Threat of Anti-science Zealotry. Plant 
Physiology, 124: 487-490.

    It is ironic that many of the European activists who are agitating 
against biotechnology are citing environmental reasons for their 
opposition. On the basis of the U.S. experience with biotech crops, it 
is already clear that the environmental effects of biotechnology are 
overwhelmingly positive. A recent study found that cultivation of 
biotech crops in the U.S. reduced pesticide use by 46 million pounds. 
The same study estimated that the adoption of 32 new products currently 
under development would result in an additional cut in pesticide use of 
117 million pounds.\5\ In Europe of all places, where per-acre chemical 
input use is much higher than in the United States, you would think 
that people who care about the environment would welcome such benefits.
---------------------------------------------------------------------------
    \5\ Leonard P. Gianessi, et al., Plant Biotechnology: Current and 
Potential Impact for Improving Pest Management in U.S. Agriculture, 
National Center for Food and Agricultural Policy. June 2002, page 1.
---------------------------------------------------------------------------
    We hope that this trade dispute is short-lived. It is in the EU's 
hands; all they need to do to end the case is lift the illegal 
moratorium. Lifting the moratorium does not just mean acting on one or 
two of the applications that have been delayed over the years, but 
demonstrating that the entire system has been re-started, and that all 
products are given timely consideration. However, if they refuse to do 
so, the U.S. should be ready to take the case to its conclusion.
Labeling & Traceability
    We must note, however, that ending the moratorium will not be the 
end of our trade problems with Europe on biotechnology. As I mentioned 
before, the EU has made adoption of new legislation on labeling and 
traceability of biotech products a political pre-condition of 
restarting product approvals, and there are calls for yet more 
legislation in the works.
    We are concerned that even with a resumption of approvals, our 
trade in bulk corn with the EU could remain disrupted because of 
provisions of the pending traceability legislation. There are numerous 
types of biotech corn in the U.S. market, tailored to attack different 
pests or increase production efficiency. These varieties are generally 
comingled after harvest and in the storage and transportation system 
since there is no difference in end-use utility or value of the 
harvested grain. The pending traceability regulation in the EU would 
require grain handlers to identify each specific biotech event that is 
present in bulk shipments that can be from 20,000 to 80,000 tons each. 
These shipments are the equivalent of the corn harvest from 5,000 to 
20,000 acres and could come from literally hundreds of farms.
    Corn growers pride themselves on their ability to provide high-
quality specialty grains to end users who seek improved performance and 
are willing to help create market-based systems that can supply these 
products. We have been very successful in serving markets for products 
like waxy corn, high oil corn, and in the limited area where users will 
pay the costs of testing and certification, non-biotech corn. However, 
the sampling, testing, and administrative costs required to assure 
compliance with the proposed European regulations are, we believe, well 
beyond the ability of the bulk grain handling system without massive 
cost increases that would destroy the competitiveness of imported grain 
in Europe.
    We are also concerned that the massive extension of the EU's 
current biotech food labeling legislation could threaten markets for 
some of the highest value food products made from our corn. U.S. 
processors use hundreds of millions of bushels of our corn to produce 
highly refined food ingredients and food additives. Some of these are 
exported directly to Europe, and some find their way to that market 
after being used in food manufacture in the U.S.
    The refining processes for these ingredients remove all traces of 
the DNA or protein introduced in the genetic modification of corn, and 
there can be no question that there is any food safety issue with these 
products. The pending EU legislation would require biotech labeling for 
any product made using modified corn, even if you cannot differentiate 
it from a conventional product by any objective standard. When the EU 
first introduced biotech labeling for the limited number of food 
ingredients where DNA or protein could be detected, the European food 
industry immediately reformulated their products to remove these 
ingredients, or source them from other countries. We believe there will 
likely be a similar response to the new rules and we risk loosing 
additional markets for U.S. food products.
    Food manufacturers in Europe will not label their products because 
of a widespread public climate of suspicion about food biotechnology. 
In large part that public attitude has been generated by unfounded 
claims by activist groups. However, by adding layer upon layer of new 
legislation, without any scientific demonstration of risk, the European 
authorities have contributed to this unfounded fear.
Conclusion
    Consumers in Europe and everywhere should have choices in the food 
selections they make. This starts with allowing the marketing of safe 
products and not holding them in perpetual regulatory limbo. It also 
means operating a regulatory system that assures consumers that only 
safe foods are permitted on the market, irrespective of their source. 
Requiring onerous tracing and labeling requirements for biotech 
products only contributes to an attitude that there must be 
extraordinary risk to these products and, in the long run, denies 
consumers the choice they deserve.
    The detractors of biotechnology want to hold onto an aesthetic of 
farming that no longer exists. With over 6 billion inhabitants, the 
Earth needs biotechnology to feed developed and developing nations 
alike. Without a doubt, the images used by Greenpeace activists are 
frightening. Even more frightening is the potential result these 
irresponsible actions will have on starving populations. If we adhered 
to the internationally politically correct standard of farming, the 
level of starvation in Sub-Saharan Africa and other parts of the world 
would be much worse.
    Congress understands the need to confront the European Union, and 
the WTO case has the overwhelming support of members from both sides of 
the aisle from all regions of the country. In fact, the Senate recently 
adopted a resolution supporting the case and NCGA thanks subcommittee 
chairman Allen and subcommittee ranking member Biden and the members of 
the subcommittee for their support.
    Without a doubt, the EU moratorium and other types of non-tariff 
protectionism are detrimental to the free movement of goods and 
services across borders. I wholeheartedly agreed with Speaker Hastert 
when he recently testified, stating, ``Non-tariff protectionism is 
detrimental to the free movement of goods and services across borders. 
We all know that free trade benefits all countries. However, free trade 
will be rendered meaningless if it is short-circuited by non-tariff 
barriers that are based on fear and conjecture--not science.''
    Thank you again for addressing this important issue and providing 
NCGA the opportunity to address the Committee. We look forward working 
with the Committee on other issues of importance in the future. I 
welcome your questions.

    [Additional material submitted by Fred Yoder follows:]

                        EU Moratorium Chronology

    ``The fact is, some members states are opposed [to biotech 
products] and will never lift their opposition.'' Commission 
Spokesperson Pia Ahrenskilde, October 18, 2001.

    1994-1998: Functioning Approval Process--EU authorizes nine crop 
products under Directive 90/220 between 1994 and 1998. Process becomes 
progressively more difficult and politicized. Direct, Ministerial-level 
U.S. intervention necessary to win approval of last two corn products 
(summer 1998).

    October 1998: Moratorium Begins--EU authorizes two biotech 
carnations in October 1998, the final approvals granted under Directive 
90/220.

           Commission officials blame cessation of approvals on 
        lack of confidence in regulatory system.

           They assure U.S. they will restart the process as 
        soon as they develop a proposal for rewriting Directive 90/220, 
        provided companies agree to abide by proposed revisions before 
        they became law.

           Proposal is published, applicants agree to voluntary 
        compliance, but moratorium continues.

    June 1999: ``Blocking Minority'' Calls for Official Moratorium--
Ministers from France, Denmark, Greece, Italy and Luxembourg call for 
suspension of approvals until implementation of the new approval 
legislation  development of rules on traceability and labeling. 
Ministers from Austria, Belgium, Finland, Germany, the Netherlands and 
Sweden declare intention to ``take a thoroughly precautionary 
approach'' to new authorizations.

    July 2000: Commission Promises Restart by End of Year--Environment 
Council supports continuing the moratorium until Commission prepares 
proposals on traceability/labeling. Commission assures U.S. proposals 
will appear before end of year and moratorium will be lifted.

    July 2001: Commission Promises Restart Within Weeks--Commission 
delays release of traceability/labeling proposals until July 2001. 
Commission assures U.S. approval process will be restarted promptly.

    October 2001: Member States Select Commission Proposal--Environment 
Council rejects Commission proposal for progressive lifting of 
moratorium. Eight Member States--France, Austria, Finland, Luxembourg, 
Denmark, Italy, the Netherlands, and Sweden--declare that T/L rules 
must to be implemented new before approvals granted.

    January 2002: Commission Promises Restart in October--Commissioners 
Lamy and Byrne indicate that approval process will restart October 17, 
2002, when Directive 2001/18 (successor to Directive 90/220) is 
implemented.

    October 2002: Environment Council Refuses to Operate New Regime--
Member State ministers make clear once again that they will block 
approvals until T/L rules are in place.

    December 2002: Restart Linked to Adoption of Liability Rules--At 
Environment Council meeting, Danish delegation (echoing previous 
statements by other Member States) declares that the moratorium should 
remain in place until EU has implemented environmental liability 
legislation for biotech products. Commissioner Wallstrom says that 
Member States might use liability as a way to ``move the goal posts'' 
again.

    January 2003: Restart Linked to Adoption of Rules on Co-existence--
At Agriculture/Food Safety Council meeting, nine Member States (Italy, 
Austria, Denmark, France, Sweden, Belgium, Luxembourg, Greece and 
Germany) demand that no biotech seeds be approved for planting until 
legislation regarding coexistence of biotech and non-biotech crops is 
in force.

    March 2003: Commission Says No Restart Before October--Commission 
Wallstrom tells the Environment Council that the regulatory committee 
charged with considering applications under Directive 2001/18 will not 
meet until October 2003 at the earliest.

    May 13, 2003: United States and Cooperating Countries File WTO 
Case--U.S. Trade Representative Robert B. Zoellick and Agriculture 
Secretary Ann M. Veneman announced the United States, Argentina, 
Canada, and Egypt will file a World Trade Organization (WTO) case 
against the European Union (EU) over its illegal five-year moratorium 
on approving agricultural biotech products.

    May 20, 2003: United States Requests Consultations on Measures 
Affecting the Approval and Marketing of Biotech Products--Complaining 
parties and respondent hold consultations prior to establishment of a 
dispute settlement panel.

    Senator Allen.  Thank you, Mr. Yoder, Ms. Halloran. I feel 
the same way. I will be straightforward with you on the 
starving people in southern Africa. While the drought may be 
over, and they had a good growing season and so forth, I don't 
know how many hundreds or thousands of people died last year 
from malnutrition, or have permanent injuries, or other 
problems--especially if they're young people--because of 
malnutrition when they're young.
    I would also like to make my own observations on the issue 
of Bovine Spongiform Encephalopathy (BSE), mad cow disease. 
Whether it's Canadian beef or beef from Great Britain, I don't 
consider potentially contaminated beef to be the same sort of 
issue as GMO crops. BSE beef clearly is a danger. There could 
be serious health problems, obviously, to both humans and other 
herds. You don't want that coming into your country.
    And maybe it is just my feeling that scientifically GMO 
crops may not be desirable; People would like to have something 
that is all natural, or just like organic foods; some may not 
want foods irradiated and so forth, but it is not really a 
question of consumer safety, and I just don't think it has been 
proven by the evidence that GMO crops, or genetically enhanced 
crops, are a danger.
    Maybe some people may not think they are as nutritious, but 
do you think that there's an actual harm from somebody eating 
corn or soybeans or any other genetically enhanced product that 
is on the market in the United States?
    Ms. Halloran.  No. I think you're misunderstanding, or 
perhaps I wasn't clear about my point on that. That was not my 
point at all, and in fact the products that are on the market 
in the United States appear to be quite safe, although we would 
prefer to have had a stronger review process. Still, there is 
no evidence that they pose any harm.
    The point I was trying to make related to setting a 
precedent at the WTO, where we are questioning an internal 
regulatory process within the European Union, and we are saying 
that their effort to establish tighter regulations is 
proceeding too slowly.
    My concern is that they could turn around to us and say, 
well, on this other issue you are acting too slowly, or we 
question your domestic regulatory decision. We're eating this 
beef, we think the beef is perfectly safe over here, you should 
open your doors to our beef, and that we would begin 
establishing precedents for the future at the WTO that could be 
turned against us.
    Senator Allen.  All right. I understand the nuances there. 
I just think the science is different on the two issues.
    Ms. Halloran.  Absolutely.
    Senator Allen.  But regardless of the veracity or 
persuasiveness of what the Europeans would do trying to make 
that argument, I take your point.
    Ms. Halloran.  It's a legal point, not a scientific one.
    Senator Allen.  Thank you.
    Let me ask you, both of you, in this country--in fact, I 
think I was a cosponsor of this measure in Virginia, where 
people do like organically grown products, or some people like 
goat milk that is not pasteurized, and some babies can't take 
anything but unpasteurized goat milk, and there are constant 
battles on these measures, but why not have and, allow 
voluntary market forces such as a company adding a label, or an 
advertising claim, as is currently done with organic labeling, 
and that be the preferred way to respond to consumer desires 
for this type of information, as opposed to this mandatory 
process, labeling and traceability regime concerning products 
produced using biotechnology, if both of you all respond to 
that comment.
    Mr. Yoder.  Well, one of the things that I think it is 
important to realize in this country--and we believe in 
voluntary labeling. We think that is the way to do that, 
because these products we have on the market today have been 
deemed by the EPA to be substantially equivalent, which means 
there is no difference in the quality, the efficacy, anything 
about the product than what the conventional part is, but we 
also have a system here with organics now, and we support 
organic farming, that if somebody wants a non-genetically 
enhanced food variety, they can always buy organic, but organic 
costs more to produce, and so that has to be borne in the cost 
of purchasing it.
    We think it is a pretty good system, and that the problem 
with the labeling and traceability regime we hear about in 
Europe that they're calling for is basically that with the 
adventitious presence of genetically modified parts, it's 0.5 
percent. It's too, everything is going to have to be labeled, 
so my question is, what benefit is this to the consumer to go 
ahead and pay for that additional labeling when they can buy 
organic?
    I mean, there's been a huge effort in the European Union--
in fact, in Germany they would like to have eventually 20 
percent of the food as organic, and that's fine if that's what 
they prefer. They have choice with that. Well, why can't we 
just go ahead and have biotechnology- enhanced foods in there, 
but there is no choice right now, and that's all we're wanting.
    You know, by lifting the moratorium and having regulatory 
approval, it doesn't mean that the Europeans have to buy this 
stuff. It just simply means that it's okayed by science. It can 
be if the consumer wants to buy it. They don't have to. So what 
we're after is choice here, so we don't have to have the extra 
cost.
    Senator Allen.  Ms. Halloran.
    Ms. Halloran.  If I could respond, there is choice in the 
European Union. There is currently a labeling law, but there's 
so little demand for products that are labeled as genetically 
engineered that the supermarkets simply don't stock them. We 
have a lot of labeling requirements in the United States that 
are mandatory. If juice comes from concentrate, it has to be 
labeled. If it is frozen, it has to be labeled. If it is 
irradiated, the ingredients have to be listed, additives have 
to be listed. People really want to know a lot of things about 
the food they eat.
    Food is really different from almost anything else. You are 
what you eat, and therefore people want to know a lot more 
about it than they want to know about other things.
    Polls have shown that, consistently shown that 80 percent 
and up of the public in both Europe and the United States wants 
labeling of genetically engineered food. It is something they 
want to know about so they can choose whether or not to eat it 
themselves.
    Mr. Yoder.  I've been to Europe 3 years in a row now on 
missions concerning biotechnology, and I've given the growers' 
perspective to various consumer groups, to members of 
Parliament, members of the European Commission; one thing that 
is obvious to me is the fact that this is not a safety issue.
    The first 2 years I went we heard about food safety. I just 
returned from Europe about 2 weeks ago, and I never heard 
anything about food safety. Now it's coexistence. It is 
something new. It's another thing. It's another block, and the 
biggest reason we want the WTO ruling is the fact that this is 
an example set to other countries.
    If nothing else, it is going to send a message to the other 
countries of the world that this is not acceptable to blatantly 
flaunt the law. We think it is going to be very beneficial to 
have this thing settled in the European Union, but it also 
sends a message to the rest of the world that you have to abide 
by the WTO laws, and that's why I think it is more important to 
make sure that we base this on science, we base this on choice, 
and we base this on what is right.
    Senator Allen.  Well, I'm going to have to get off to this 
vote, and we will conclude this hearing. The bottom line here, 
it seems like there should be a convergence or a consensus that 
whatever food is consumed, that is put on the shelves in this 
country or any other country, you would expect consumers would 
want to have a certification based on science, not on fear, but 
based on science, that that food is wholesome, it is safe. 
Safety, the bottom line is safety, then with practical labeling 
and practical methods allow consumers to make that choice.
    Do you both agree? Is that just the basic fundamental 
principles we're trying to get at here?
    Ms. Halloran.  Yes, I would agree with that.
    Mr. Yoder.  That fundamental labeling is for choice?
    Senator Allen.  No. The fundamental point is, you use 
science, the best scientific methods you can to determine that 
whatever this food is, whatever's going to be consumed--it 
could be a food, it could be a drink, it could be a beverage, 
candy, whatever it may be, that it is safe to consume, within 
reason--
    Mr. Yoder.  Absolutely.
    Senator Allen. --like everything else, within moderation, 
that if you consume this it's not going to cause you any harm.
    Obviously, there are people that are allergic to this, 
that, and the other, but you can't worry about every eggshell 
skull in the world, but nevertheless, for the vast majority of 
people, unless there's something unique, this will be safe, and 
then let the consumers make that decision, and if we could 
agree on that, and we could get the Europeans to agree on it 
and also have reasonableness as far as these certifications, it 
would seem to me that it may be that in Europe they like 
organically grown strawberries, or asparagus, or corn, and 
that's a consumer choice. Let's just have that opportunity to 
provide that product.
    Now, how that affects the rest of the world, that probably 
does have a matter--it seems to me on this issue we're almost--
and not you two, necessarily, but sometimes you were, but for 
the U.S. and our European friends we're just completely talking 
past each other, and we can't even get a basic agreement of 
what are going to be the criteria that we're going to use to 
determine how to go forward on this, and if we could get at 
least the basic criteria agreed upon, then we maybe can work 
toward something that is beneficial to consumers there, if they 
so desire, but also to our farmers in this country, and 
ultimately, as you say, Mr. Yoder, the rest of the world, many 
of whom rely on the United States, or they rely on Europe.
    And I saw, talking to the President of the European 
Parliament, they're very proud of all the efforts they make on 
world hunger as well, so in the midst of this we ought to be 
having frank discussions but realize they are with friends, and 
if we can base it again on science and trust consumers to make 
decisions on what kind of safe food they want to eat, or have 
their children eat, I think we can move forward with it.
    Well, let me thank all of you for bearing with the schedule 
on the Senate floor and a variety of votes on a medicare 
measure, and thank you for your testimony, your insight, and 
also your wonderful patience. We appreciate it.
    The hearing is adjourned.

    [Whereupon, at 4:40 p.m., the subcommittee adjourned.]

                                    

      
