[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
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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
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90-466 WASHINGTON : 2003
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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
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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
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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
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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.
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\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.
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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.
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\4\ World Development Indicators database, World Bank, April 2003.
\5\ UNICE, Benchmarking Report ``The Renewed Economy: Business for
a dynamic Europe'', 2001.
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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\
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\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\
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\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.
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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.]