[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

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

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION


                              MAY 17, 2005


                           Serial No. 109-33


         Printed for the use of the Committee on Ways and Means


26-369                 WASHINGTON : 2006
For sale by the Superintendent of Documents, U.S. Government 
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER., Illinois              XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
MELISSA A. HART, Pennsylvania
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff
                  Janice Mays, Minority Chief Counsel


                         SUBCOMMITTEE ON TRADE

                  E. CLAY SHAW, JR., Florida, Chairman

WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
PHIL ENGLISH, Pennsylvania           SANDER M. LEVIN, Michigan
JIM NUSSLE, Iowa                     WILLIAM J. JEFFERSON, Louisiana
JERRY WELLER, Illinois               JOHN S. TANNER, Tennessee
RON LEWIS, Kentucky                  JOHN B. LARSON, Connecticut
MARK FOLEY, Florida                  JIM MCDERMOTT, Washington

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S


Advisory of May 5, 2005 announcing the hearing...................     2


Office of the U.S. Trade Representative, Hon. Peter F. Allgeier, 
  Deputy U.S. Trade Representative...............................     8


American Farm Bureau Federation, and Minnesota Farm Bureau 
  Federation, Al Christopherson..................................    39
Coalition of Service Industries, and Principal International, 
  Norman Sorensen................................................    29
National Association of Manufacturers, and Power Curbers, Inc., 
  Dyke Messinger.................................................    34
United Steelworkers, William J. Klinefelter......................    42

                       SUBMISSIONS FOR THE RECORD

Aaronson, Susan and Jamie Zimmerman, Kenan Institute of Private 
  Enterprise, joint statement....................................    50
Alliance of American Consumers for Affordable Homes, Alexandria, 
  VA, statement..................................................    52
Cold Finished Steel Bar Institute, joint statement...............    53
Gold, Jonathan, Retail Industry Leaders Association, Arlington, 
  VA, statement..................................................    57
Howard, John, U.S. Chamber of Commerce, statement................    58
Irace, Mary, National Foreign Trade Council, statement...........    59
Klein, Harlan and Neal Fisher, North Dakota Wheat Commission, 
  Bismarck, ND, letter...........................................    61
Male, Elizabeth, Export, PA, statement...........................    63
Nelsen, Peter and Jennifer Lambert-O'Keefe, International Trade 
  Council, Alexandria, VA, joint statement.......................    66
Sheldon, Joe, Huntington Beach, CA, statement....................    67
Solarz, Barry, American Iron and Steel Institute, statement......    68
Stewart, Terence, Stewart and Stewart, statement.................    75
Wallach, Lori, Public Citizen's Global Trade Watch, statement....    82



                         TUESDAY, MAY 17, 2005

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

    The Subcommittee met, pursuant to notice, at 10:07 a.m., in 
room 1100, Longworth House Office Building, Hon. E. Clay Shaw, 
Jr. (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]



                         SUBCOMMITTEE ON TRADE

                                                  CONTACT: 202-225-1721
May 05, 2005
No. TR-2

  Shaw Announces Hearing on the Future of the World Trade Organization

    Congressman E. Clay Shaw, Jr. (R-FL), Chairman, Subcommittee on 
Trade of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing to review future prospects for U.S. 
participation in the World Trade Organization (WTO). The hearing will 
take place on Tuesday, May 17, 2005, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 10:00 a.m.
    Oral testimony at this hearing will be from both invited and public 
witnesses. Invited witnesses will include the Honorable Peter F. 
Allgeier, Deputy U.S. Trade Representative. Also, any individual or 
organization not scheduled for an oral appearance may submit a written 
statement for consideration by the Subcommittee or for inclusion in the 
printed record of the hearing.


    The WTO was established in the Uruguay Round, which was the eighth 
round or series of multilateral trade negotiations under the General 
Agreement on Tariffs and Trade (GATT). These negotiations to expand 
trade, which date back to the establishment of the GATT in 1948, were a 
response to the Great Depression and the political upheaval and 
conflicts of the 1930s, which deepened as a result of protectionist 
policies such as the Smoot-Hawley Tariff. Work under the GATT system 
aimed at raising living standards and promoting international economic 
growth through the opening of world markets has spanned six decades.
    The trade agreements reached at the end of 1994 during the Uruguay 
Round were noteworthy in that they greatly expanded coverage of GATT 
rules beyond manufactured goods trade to include agricultural trade, 
services trade, trade-related investment measures, intellectual 
property rights, and textiles. The most visible accomplishment of this 
multilateral trade round was to establish the WTO to administer the 
GATT agreements and to settle disputes among WTO members.
    World Trade Organization countries are currently participating in 
the ninth round of negotiations, called the Doha Development Round, 
which was launched in Doha, Qatar, in November 2001. The Doha agenda 
provides a mandate for negotiations on a range of subjects and work in 
on-going WTO committees. According to the U.S. Trade Representative, 
the main focus of the negotiations is in the following areas: 
agriculture, industrial market access, services, trade facilitation, 
WTO rules (i.e., trade remedies, regional agreements, and fish 
subsidies), and development. The goal of the Doha agenda is to reduce 
trade barriers so as to expand global economic growth, development, and 
    Sections 124-125 of the Uruguay Round Agreements Act (URAA) (P.L. 
103-465) require the President to submit a special report on U.S. 
participation in the WTO every 5 years from the date the United States 
first joined the WTO. Congress received the first of these 5-year 
reports in 2000. Congress received the second report on March 1, 2005. 
Included in the ``2005 Trade Policy Agenda and 2004 Annual Report of 
the President's Trade Agreements Program'' is the President's review of 
the WTO, including highlights, recent accomplishments, as well as 
cumulative assessments of major trade topics since the WTO was 
established such as: (1) expanded market access in goods and services, 
(2) economic benefits of trade, (3) trade related aspects of 
intellectual property rights and investment protection, (4) customs 
related matters, (5) continued operation of a sound and effective 
system to settle disputes, and (6) launch of the Doha Development Round 
in 2001.
    H.J. Res. 27, a joint resolution which would withdraw approval of 
the United States from the Agreement establishing the WTO, was 
introduced on March 2, 2005, by Rep. Bernard Sanders (I-VT) and Rep. 
Ron Paul (R-TX). Pursuant to the requirements of sections 124-125, this 
resolution is privileged, and the Committee on Ways and Means must 
consider it within 45 days or face discharge.
    In announcing the hearing, Chairman Shaw stated: ``The WTO has 
proven to be a useful forum for building trade relationships and 
working out disputes. I cannot imagine anyone seriously thinking that 
we are better off without the WTO, but it is important that Congress 
continually review and oversee how the system works. I look forward to 
hearing from government and private sector panels on their views of how 
the system has succeeded and what challenges remain.''


    The focus of the hearing will be to examine: (1) overall results of 
U.S. membership in the WTO and the GATT, (2) whether future 
participation of the United States in the WTO and the multilateral 
trading system can be expected to benefit Americans, and (3) prospects 
for increased economic opportunities for U.S. farmers, workers, and 
consumers in the Doha Round.


    Requests to be heard at the hearing must be made by telephone to 
Michael Morrow or Kevin Herms at (202) 225-1721 no later than the close 
of business Tuesday, May 10, 2005. The telephone request should be 
followed by a formal written request faxed to Allison Giles, Chief of 
Staff, the Committee on Ways and Means, U.S. House of Representatives, 
1102 Longworth House Office Building, Washington, D.C. 20515, at (202) 
225-2610. The staff of the Committee will notify by telephone those 
scheduled to appear as soon as possible after the filing deadline. Any 
questions concerning a scheduled appearance should be directed to the 
Committee staff at (202) 225-1721.
    In view of the limited time available to hear witnesses, the 
Committee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing in lieu of a personal appearance. All persons requesting to be 
heard, whether they are scheduled for oral testimony or not, will be 
notified as soon as possible after the filing deadline.
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Committee are required to submit 300 copies, along with an 
IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, of 
their prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the full Committee office, 1102 Longworth 
House Office Building, no later than close of business on Friday, May 
13, 2005. The 300 copies can be delivered to the Committee staff in one 
of two ways: (1) Government agency employees can deliver their copies 
to 1102 Longworth House Office Building in an open and searchable box, 
but must carry with them their respective government issued 
identification to show the U.S. Capitol Police, or (2) for non-
government officials, the copies must be sent to the new Congressional 
Courier Acceptance Site at the location of 2nd and D Streets, N.E., at 
least 48 hours prior to the hearing date. Please ensure that you have 
the address of the Committee, 1102 Longworth House Office Building, on 
your package, and contact the staff of the Committee at (202) 225-1721 
of its impending arrival. Due to new House mailing procedures, please 
avoid using mail couriers such as the U.S. Postal Service, UPS, and 
FedEx. When a couriered item arrives at this facility, it will be 
opened, screened, and then delivered to the Committee office, within 
one of the following two time frames: (1) expected or confirmed 
deliveries will be delivered in approximately 2 to 3 hours, and (2) 
unexpected items, or items not approved by the Committee office, will 
be delivered the morning of the next business day. The U.S. Capitol 
Police will refuse all non-governmental courier deliveries to all House 
Office Buildings.


        WTO HEARING:
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Monday, May 
23, 2005. Finally, please note that due to the change in House mail 
policy, the U.S. Capitol Police will refuse sealed-package deliveries 
to all House Office Buildings. Those filing written statements who wish 
to have their statements distributed to the press and interested public 
at the hearing can follow the same procedure listed above for those who 
are testifying and making an oral presentation. For questions, or if 
you encounter technical problems, please call (202) 225-1721.


    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.

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

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.


    Chairman SHAW. Good morning. Thank you. In today's hearing 
the Subcommittee will examine the overall U.S. membership in 
the World Trade Organization (WTO), spending, I hope, a few 
moments on the past and then turning toward the current 
negotiation and what is at stake for American firms, workers, 
farmers, and consumers. I expect the discussion today will 
include a wide array of issues, ranging from agriculture to 
intellectual property, and from textiles to banking. All too 
often we focus our attention on aspects of trade we disagree 
with. For example, it is inevitable that when we meet with 
foreign representatives we spend much of our time discussing 
very specific trade barriers and little time phrasing the broad 
range of cooperation and success we may have.
    This hearing may be no different, but Members should not go 
away thinking that judging the WTO comes down to simply 
counting how many disputes were won or lost. We should examine 
the overall structure of the WTO as an institution, and the 
various trade agreements under it. How has it met our 
expectations in bringing a rules-based trading environment? How 
has real market access developed? In some cases, how have 
unexpected barriers developed? I would like our private sector 
witnesses to describe for U.S. whether the WTO has brought them 
benefits and discuss challenges that remain.
    Regarding the current negotiations, Congress has been 
deeply involved with the Administration every step of the way, 
through the consultations and even by meeting with foreign 
officials ourselves. For example, the U.S. trade proposals are 
extensively reviewed by the Committee on Ways and Means before 
being tabled. Many Members of Congress routinely attend WTO 
ministerial meetings with foreign officials and make the case 
for an ambitious trade liberalizing agenda in tandem with our 
U.S. Trade Representative (USTR) negotiators.
    I personally very much appreciated the fact that in the 
Cancun USTR negotiations, negotiators would pause between 
negotiating sessions to sit down in front of a dozen Members of 
Congress and explain how the negotiations were developing and 
answer questions.
    Many of U.S. look forward to joining the U.S. delegation in 
Hong Kong this December. Member interest is always high because 
there is a great deal at stake in the Doha round, such that 
even very technical issues, like the various tariff cutting 
formulas and the method of converting specific tariffs into ad 
valorem tariffs capture headlines because the result could mean 
more market access for the United States' goods.
    As we discuss these critical areas, I would like a moment 
to congratulate Mr. Pascal Lamy of France on his selection as 
the new WTO Director-General. Mr. Lamy is a skilled trade 
negotiator. I am hopeful his abilities will ensure the WTO 
balance and concerns for its members. I look forward to working 
with him in the coming months.
    Finally, I would--I must mention one of the reasons for the 
timing of this hearing. As you know, when we voted to join the 
WTO, we included a provision to formally review U.S. 
participation in the WTO and a mechanism to withdraw the 
congressional approval for the WTO. This year, under the 
mechanism, there is a resolution, H.J. Res. 27, which was 
introduced on March 2nd, that calls for the withdrawal of the 
United States from the WTO, and that resolution has been 
referred to the Committee on Ways and Means for consideration. 
According to the law, which requires expedited consideration of 
this resolution, the Committee must act within 45 days, and 
that deadline is fast approaching. I expect our witnesses will 
give their views of whether Congress and this Committee in 
particular should favorably or unfavorably act on this 
resolution. It is my strong view that the United States greatly 
benefits from our continued participation in the WTO. Mr. 
    Mr. CARDIN. Thank you, Mr. Chairman, and thank you for 
holding this hearing. Mr. Ambassador, it is a pleasure to have 
you back before our Committee.
    Mr. Chairman, as you pointed out, there are really two 
reasons for today's hearing. The immediate purpose is for this 
Committee to be able to act on H.J. Res. 27, which is the 
disapproval resolution for the WTO. The second purpose for 
today's hearing is for U.S. to assess where we are on the WTO, 
particularly as it relates to the Doha round, which was 
launched almost 4 years ago, which is already more than 2 years 
behind schedule.
    First, Mr. Chairman, in regards to the disapproval 
resolution. It is interesting to point out that this 
disapproval resolution was introduced earlier in this 5-year 
cycle than it was 5 years ago. Five years ago we acted on it by 
June 21st. I hope that we can act on this disapproval 
resolution next week in Committee and we can dispose of it as 
promptly as possible, certainly before the end of June.
    I stand ready to work with you to make sure that it is 
unfavorably reported and disposed of, and we continue in the 
WTO. I agree with you. It is extremely important that we 
continue working within the WTO. We had wide margins of both 
the Democrats and Republicans for rejecting the disapproval 
resolution, and I expect that will be the case again this go 
    With regard to the broader purpose for today's hearing, 
which is the status of the WTO, it is an important time for 
U.S. to take stock of the WTO and our participation in it. 
First, the Doha Development Agenda (DDA) negotiations has 
reached a critical phase. It is generally agreed that in order 
to have a successful meeting of the ministers this December in 
Hong Kong, the members of the WTO will have to come to 
significant levels of agreement by July in each of the three 
key areas.
    First, in agriculture. I am concerned that the steps 
announced by the European Union (EU) on both domestic supports 
and market access are insufficient. I note that the 
announcement last week that the next Director-General of the 
WTO, as you pointed out, will be Pascal Lamy, the former Trade 
Commissioner of the EU, who comes from France. Obviously, Mr. 
Lamy will have a special burden to demonstrate that he can 
oversee an agricultural agreement that includes substantial 
reductions in the EU's support and that significantly narrows 
the gap between the EU's spending on farm supports and our own, 
all while bringing the EU tariff levels down.
    Second, in the area of manufactured goods, there are two 
key challenges: tariff reductions, particularly by the advanced 
developing countries, and the elimination or the reduction on 
non-tariff barriers (NTB). In both of these areas, much work 
remains to be done to accomplish these goals. I am particularly 
concerned about the negotiations of the NTB, which lag far 
behind at this time. The area is increasingly critical for U.S. 
manufacturers, particularly small manufacturers and 
particularly in large markets such as Japan, China, and Korea.
    Mr. Chairman, finally, in the area of services, there is 
now widespread agreement that the negotiations are far behind 
in the area that remains critical to the United States. I hope 
that our negotiators will be able to make up for lost time in 
the next couple of months so that the ambitious service package 
can be approved in Hong Kong.
    Last, but far from least, I would like to comment on one 
critical aspect of the WTO, and that deals with the dispute 
settlement system. No one doubts that the dispute settlement 
system of the WTO has many strong points. However, unless we 
address its weaknesses, we are going to be in serious trouble 
in support for the WTO.
    In my view, none is more glaring than the overreaching that 
has been manifested in a large number of WTO decisions. Under 
the old General Agreement on Tariffs and Trade (GATT) system, 
silence in agreement meant that the country could do what it 
deemed appropriate. Under decisions of the appellate body and 
the panels of the WTO, silence has been altered to mean that 
the appellate body and panels do what they think is 
appropriate. The WTO agreements did not give panels this 
authority. The Congress in ratifying the WTO did not intend 
that the WTO appellate bodies and panels to have such 
    In short, these overreaching decisions must be corrected, 
fully and quickly. If it is not, the risk of eroding support 
for the WTO will be real. In fact, we have already seen erosion 
in this Congress. The numbers are clear and disturbing. In 33 
cases brought against the United States since 1995, panels 
where the appellate body have overreached in 22 of them or 
fully two-thirds. Even more disturbing is the 23 cases 
involving trade remedies brought against the United States 
since 1995. There has been overreaching in 20 of these cases. 
The consequences of these overreaching are clear. In 10 years, 
the WTO, without authority, has denied every single safeguard 
measure as applied by the United States or any other country. 
In trade remedy cases involving the United States, anti-dumping 
duties, countervailing duty measures and safeguard cases, the 
WTO has upheld the United States' decisions in only 2 of 17 
    A growing number of observers is coming to recognize that 
this extraordinary loss rate is because the WTO panels and 
appellate bodies do not respect the letter of the WTO 
Agreements and are filling the gaps beyond what the U.S. 
negotiators agreed to in the Uruguay rounds. The USTR has 
recognized this problem with proposals it has made to the 
dispute settlement negotiations in the Doha round. However, 
these negotiations regarding dispute settlement mechanisms have 
now dragged on for more than 7 years past their scheduled 
completion date in 1998, with little sign of immediate end.
    As a consequence, I intend to introduce an omnibus bill 
shortly that addresses these growing problems and other 
problems with U.S. trade laws that substantially disadvantage 
American manufacturers and global competition. This legislation 
will include a number of elements including first border 
adjustability. Today, the WTO allows the European countries and 
many others to rebate companies' value-added taxes at the 
border while not allowing the United States to do the same with 
corporate income taxes. This provides a major disadvantage to 
U.S. manufacturers in global competition.
    Second, the creation of a special prosecutor for U.S. trade 
cases. I will propose the creation of a Senate confirmed 
position in the Office of the USTR to handle litigation in the 
WTO and our other trade agreements. Whatever the fault of the 
WTO panels in gap filling, a 15-to-17 loss record is simply 
unacceptable. There needs to be a higher level of 
accountability to Congress in this critical area.
    Third, the WTO Review Commission. I will revive a proposal 
first made by Senator Dole in which I have introduced on a 
bipartisan basis for the last several Congresses for the 
creation of a panel of retired judges to review the decisions 
of the WTO and advise Congress on their review. The passage of 
time has only made more clear the need for an impartial review 
of the WTO decisions.
    Fourth, I will propose various updates in the U.S. trade 
remedy laws, including the anti-dumping, countervailing duty of 
section 421 China safeguard laws.
    Some of these ideas have already been introduced by our 
colleagues on both sides of the aisle. However, I think it is 
time for U.S. to consider an omnibus bill on an urgent basis.
    Mr. Chairman, I hope that we can make it a top priority of 
the Subcommittee and Committee to mark up this critical 
legislation this summer, report it to the full House before we 
adjourn for the August recess, and enact the needed reforms 
prior to the Hong Kong ministerial meetings. Too many 
manufacturers have suffered too long for U.S. to delay any 
further. Mr. Chairman, I look forward to hearing from our panel 
of witnesses, and I look forward to working with you to 
strengthen our position as we look toward a successful 
completion of the Doha round.
    Chairman SHAW. Thank you, Mr. Cardin. Now, I welcome Peter 
Allgeier back to this Committee. He is the Deputy of the USTR, 
of the Office of the USTR. Sir, we have your full testimony. As 
you know, it will become a part of the record, and you may 
proceed any way in which you see fit.


    Mr. ALLGEIER. Thank you very much, Mr. Chairman, for 
convening this Subcommittee today. I am very pleased to be here 
to discuss with you participation in the WTO-U.S. participation 
in the WTO and the overwhelming value of continued U.S. 
participation for our economic and our strategic interests.
    First, I wish to recognize the leadership of Congress, and 
particularly, this Subcommittee and its leadership. You, 
Chairman Shaw, and Ranking Member Cardin, and the other Members 
in the establishment and operation of the global trading system 
and its contribution to the interests of the United States.
    The creation of the WTO, of course, represented the 
culmination of decades-long bipartisan U.S. commitment to lead 
the world away from economic isolationism and toward an open 
rules-based global trading system. Today, the United States 
continues to exercise our leadership in a world that faces new 
challenges to promoting global security, economic growth, and 
the alleviation of poverty. The United States is fully engaged 
in the WTO's work under the DDA, and we are aggressively using 
the existing WTO machinery to effectively enforce our rights.
    Simply put, the WTO exists as the most important vehicle to 
advance U.S. trade interests and is critical to promoting the 
prosperity of America's workers, businesses, farmers, ranchers, 
and families. The United States, of course, remains the world's 
largest exporter. During the first 10 years of the WTO, from 
1994 to 2004, U.S. exports of goods and services have risen 63 
percent, from $703 billion to $1.1 trillion. World trade during 
that same period has more than doubled, increasing from $5.5 
trillion to $11.5 trillion in 2004. This would not have 
happened without the WTO. During this 10-year period, the 
market openings and the trading rules of the WTO have 
contributed significantly to the strong economic performance of 
the United States, as evidenced by real gross domestic product 
(GDP) growth during this period of 38 percent; growth in per 
capita income--real per capita income--of 25 percent; growth in 
manufacturing production of 43 percent, and that compares with 
27 percent for the previous 10 years; and growth in 
manufacturing exports from the United States of 65 percent. 
Agricultural exports have grown 38 percent during this period; 
services exports have grown by 69 percent. We have experienced 
an average unemployment rate of 5.1 percent. There has been a 
net job expansion of 17.2 million workers in the United States.
    This impressive economic record and the competitiveness 
that underlies it could not have occurred without our active 
participation in the WTO. By playing a strong leadership role 
in the WTO, the United States has been able to shape the 
world's trading system in ways that promote a trade environment 
that is most advantageous to our producers and service 
providers, because it rests on the same commercial principles 
that we have at home--non-discrimination, open markets, 
transparency, the rule of law, and due process. In a world 
where over 95 percent of the consumers live beyond our borders, 
the WTO is an essential tool for U.S. interests.
    Falling trade barriers have helped rapidly increase the 
value of trade relative to the U.S. economy. United States 
goods and services trade, exports and imports, reached levels 
of 18 percent of the value of our GDP in 1984. When we started 
the WTO in 1994, it was 21.7 percent; now this trade represents 
more than 25 percent of our GDP or it is equivalent to more 
than 25 percent of our GDP.
    Now, to ensure equal opportunities for U.S. businesses, 
farmers, ranchers, and other exporters, the United States has 
aggressively used the dispute settlement mechanisms of the WTO. 
In fact, the United States has brought more WTO dispute 
settlement cases than any other country. Since the 
establishment of the WTO, the United States has initiated 74 
cases. Examples of these cases include dairy, apples, 
biotechnology, telecommunications, automobiles, apparel, 
customs procedures, and intellectual property rights. Of these 
74 cases, we have won 23 on the core issues in the case. We 
have settled prior to the end of litigation another 23, and we 
have lost 4. Those are the cases that we have initiated.
    Now, the WTO, of course, contributes more generally to 
development, and study after study shows that the rules-based 
system promotes openness and predictability, leading to 
increased trade and improved prospects for economic growth in 
all member countries. Economic research by the World Bank 
confirms that countries that have more open economies have 
higher growth rates than those with more closed economies. A 
number of World Bank studies in 2004 found that trade and 
integration into the world economy lead to faster growth and 
poverty reduction in poor countries.
    I would like to spend just a minute or two looking ahead at 
the advancing the DDA. Two months after the events of September 
11th, 2001, U.S. leadership played a critical role in the 
launch of a new round of multilateral trade negotiations, the 
DDA. The WTO's DDA is part of President Bush's strategy to open 
markets, reduce poverty, and expand freedom through increased 
trade among all countries in the global trading system, both 
developed and developing.
    The U.S. role in the WTO obviously is at the core of this 
strategy. The main focus of U.S. participation in the Doha 
negotiations is in the following areas: agriculture, industrial 
market access, services, trade facilitation, and development. 
The goal of the DDA is to reduce trade barriers so as to expand 
economic growth, development, and opportunity. Dismantling 
these trade barriers multilaterally holds immense potential. 
From 1994 to 2003, the world economy expanded at an average 
rate of approximately 2.5 percent, but exports expanded at more 
than twice that rate, at 5.5 percent. This could not have 
occurred without the liberalization of trade resulting from the 
Uruguay round and the subsequent establishment of the WTO.
    Our new USTR, Ambassador Rob Portman, an alumnus of the 
Committee on Ways and Means, already is doing his part to 
provide a new spark to these negotiations. Literally, within 24 
hours of the time that he was sworn in, on April 30th, he was 
on an airplane to Europe to hold meetings with his ministerial 
colleagues to promote the DDA. His message was one of continued 
U.S. commitment and determination to be a driver in those 
negotiations and to be a problem solver in the negotiations.
    Doha provides U.S. an opportunity we cannot afford to 
waste. By bringing the negotiations to a successful, ambitious 
conclusion, we can set the course for the global economy for 
the next decades and make a major contribution to development 
and to our own country's prosperity. We look forward to working 
with Members of this Committee and other Members of Congress to 
secure significant results and new opportunities for America's 
workers, farmers, ranchers, service providers, and consumers.
    In conclusion, the first 10 years of the WTO have 
demonstrated why the United States must continue its active 
participation and leadership role. A turn away from the work of 
the past six decades, to bring about a rules-based, liberalized 
global trading system, would bring certain closure of markets 
to those American workers and farmers dependent on continued 
trade liberalization and would ignite persistent trade 
conflicts that would distort the global economy. A world where 
the United States steps away from rules-based, global trading 
system would be a world where international trade would be an 
additional source of strategic conflict rather than serving as 
a force for cooperation and strengthened ties among countries.
    We know that the global trading system is not perfect and 
remains a work in progress. But through American leadership in 
the WTO and the support of Congress, the core U.S. trade agenda 
of promoting open markets and the rule of law has become the 
core agenda of the global trading system. The work toward these 
objectives is complex and often difficult, but this work is 
even more vital today than it was in those first decades after 
the catastrophic world war.
    The participation and the leadership of the United States 
in the global trading system remains a critical element for 
ensuring America's continued prosperity and for meeting the 
challenges in seeking a more stable, secure, and prosperous 
world. Thank you very much, Mr. Chairman. I would be happy to 
respond to Members' questions or comments.
    [The prepared statement of Mr. Allgeier follows:]
    Statement of The Honorable Peter F. Allgeier, Deputy U.S. Trade 
        Representative, Office of the U.S. Trade Representative
    Thank you for the opportunity to testify today. I am pleased to be 
here to discuss the World Trade Organization (WTO) and the WTO 
Agreements, the relationship to the strategic and economic interests of 
the United States, and the overwhelming value of continued U.S. 
participation in the WTO.
    First, I must recognize the historic and continuing bipartisan 
leadership of Congress, particularly this Committee and its leadership 
by Chairman Thomas and Ranking Member Rangel, in the establishment and 
operation of the global trading system, and its function in advancing 
the interests of the United States. We are grateful for the 
longstanding close working relationship with the Committee regarding 
WTO matters, and we recognize the value of the five year review of U.S. 
participation in the WTO undertaken in accordance with Section 125 of 
the Uruguay Round Agreements Act.
    My testimony today provides an opportunity to look back at the 
creation of the WTO and our participation over the last 10 years and, 
equally important, to focus on our agenda for the next several months 
leading up to the Sixth WTO Ministerial in Hong Kong this December and 
head toward a successful conclusion of the Doha Development Agenda 
negotiations in 2006.
Historical Context for the WTO
    The creation of the WTO represented the culmination of a decades-
long bipartisan U.S. commitment to lead the world away from economic 
isolationism and toward the imperative of an open, rules-based global 
trading system. The GATT had been created in 1947--drawn up in an 
unsteady post-war world that collectively was determined to strengthen 
global security and peace through economic opportunity and growth in 
living standards.
    Today, we continue to exercise our leadership in a world that faces 
new challenges to maintaining global security and stability, 
underscoring the continuing important strategic interest of the United 
States in an open global trading system governed by the rule of law.   
The United States is fully engaged in the WTO work under the Doha 
Development Agenda, and the United States aggressively uses the 
existing WTO machinery to effectively enforce our rights.
    WTO membership now stands at 148. Accession to the WTO carries more 
stringent requirements than what was used in the GATT. Key entries 
during the past decades include not only China, but also a wide array 
of other countries that each carry their own strategic and economic 
importance, such as Jordan, Cambodia, and several former Soviet 
Republics. Negotiations toward entry into the WTO are ongoing at 
various stages for more than 25 countries, ranging from Russia and 
Vietnam, to Iraq, Ukraine, Saudi Arabia, and Afghanistan. Each effort 
underscores the importance attached to membership in the WTO, and the 
importance of moving forward with a member-driven, rules-based approach 
to the global trading system.
Commercial Significance for the United States of Uruguay Round and the 
    During the five years since the last review under the Uruguay Round 
Agreements Act, unprecedented growth in trade and global economic 
integration has continued--led by continuing advances in technology, 
communications, manufacturing, and logistics. Five years ago we did not 
have ubiquitous cell phones that captured and transmitted photos miles 
away, nor was it yet routine to use the Internet to order overnight 
delivery of a product from thousands of miles away. Advances such as 
these demonstrate that the trade environment is always changing, the 
citizens of the United States--like the rest of the world--are being 
presented with new products, new services and, most important, new 
economic opportunities that did not exist in 1995, or 2000. At the same 
time, globalization also undoubtedly presents new issues, new 
competitive challenges and new economic pressures.
    Simply put, the WTO exists as the most important vehicle to advance 
U.S. trade interests, and is critical to America's workers, businesses, 
farmers, and ranchers. Many are dependent and all are affected by a 
global trading system that must operate with predictability and 
transparency, without discrimination against American products, and 
providing for actions to address unfair trade practices. The United 
States remains the world's largest exporter. During the first 10 years 
of the WTO--from 1994 to 2004--U.S. exports of goods and services have 
risen 63 percent, from $703 billion to over $1.1 trillion.
    To ensure equal opportunities for U.S. businesses, farmers, 
ranchers, and other exporters, the United States has brought more WTO 
dispute settlement cases than any other member. Since establishment of 
the WTO, the United States has initiated 74 cases. Examples of cases 
include those focusing on: dairy, apples, biotechnology; 
telecommunications, automobiles, apparel, unfair customs procedures, 
and protecting intellectual property rights. Of those, we have won 23 
on core issues, lost four, and settled 23 before decision. The 
remaining 24 are ``in process'' (in panel, in consultations, or 
monitored for progress or otherwise inactive). In the last five years, 
our record to-date in cases--both offensive and defensive--is 16 wins 
and 14 losses. From 1995 to 2000, the U.S. record was 18 wins and 15 
losses. The United States represents roughly 17 percent of world trade, 
yet has brought nearly 22 percent of the WTO disputes between January 
1, 1995 and December 31, 2004.
    This year marks the full implementation of many key Uruguay Round 
agreements, such as completion of the 10 year phased implementation of 
global tariff cuts on industrial and agricultural goods and reductions 
in trade-distorting agricultural domestic support and export subsidies; 
elimination of quotas and full integration of textile trade into the 
multilateral trading system; and improvements in patent protection in 
key markets such as India. The Uruguay Round was highlighted by the 
negotiating results being adopted in a ``single undertaking'' by all 
Members, who together rejected any notion of a two or three-tier global 
trading system.
    The WTO also provides opportunities on a day-to-day basis for 
advancing U.S. interests through the more than 20 standing WTO 
Committees--not including numerous additional Working Groups, Working 
Parties, and Negotiating Bodies--which meet regularly to administer 
agreements, for Members to exchange views, work to resolve questions of 
Members' compliance with commitments, and develop initiatives aimed to 
improve the agreements and their operation.
    The United States has advocated greater transparency and openness 
in WTO proceedings. The WTO has taken important steps to increase the 
transparency of its operation across the board, from document 
availability to public outreach. WTO Members continue to set the course 
for the organization, and the Members themselves remain responsible for 
compliance with rules.
    Responding to U.S. leadership, during the past 10 years the WTO has 
shown itself to be a dynamic organization, one where our interests are 
advanced toward achievements with concrete positive effect. We have 
seen to it that the substantive agenda has provided the path for 
significant market-opening results over the past decade, such as 
concluding the Information Technology Agreement (ITA) to eliminate 
tariffs worldwide on IT products, and bringing the Basic 
Telecommunications Agreement into effect, which opened up 95 percent of 
the world's telecommunications markets. Both are achievements that 
continue to contribute to the ability of citizens around the globe to 
take advantage of the Information Age.
    The 1997 Agreement on Trade in Financial Services has achieved 
fair, open and transparent practices across the global financial 
services industry, fostering a climate of greater global economic 
security. The agreement helps ensure that U.S. banking, securities 
insurance, and other financial services firms can compete and invest in 
overseas markets on clear and fair terms.
    In a world where over 95 percent of consumers live beyond our 
borders, the WTO is an essential tool for U.S. interests. Increasingly, 
small businesses are important players in the global economy and an 
important stake holder in advancing U.S. interests in the WTO agenda. 
Between 1992 and 2002, U.S. exports from small and medium-sized 
enterprises rose 54 percent, from $102.8 billion to $158.5 billion--a 
faster pace than the rate of growth for total U.S. exports during the 
same time.
    Falling trade barriers--many of which reflect the 10 year 
implementation of the results of the Uruguay Round--have helped rapidly 
increase the value of trade relative to the U.S. economy. U.S. goods 
and service trade (exports plus imports) reached the levels of 18 
percent of the value of U.S. GDP in 1984, 21.7 percent in 1994 and 25.2 
percent in 2004. Both U.S. manufacturing exports and U.S. agricultural 
exports have grown strongly during our 10 years in the WTO. Between 
1994 and 2004, they were up 65 percent and 38 percent, respectively. 
U.S. exports of high technology products grew by 67 percent during the 
past 10 years and accounted for one-quarter of total goods exports.
    During this time period, U.S. exports to Mexico more than doubled, 
while exports to Canada and the EU grew by 66 percent and 56 percent, 
respectively. Among major countries and regions, exports to China 
exhibited the fastest growth, nearly quadrupling over the past 10 
years. China's entry into the WTO in December 2001 locked in improved 
market access opportunities, committing to reduce its tariffs on 
industrial products, which averaged 24.6 percent, to a level that 
averages 9.4 percent. The growth in services exports between 1994 and 
2004 (69 percent) slightly exceeded that of goods (61 percent). Nearly 
all of the major services export categories have grown between 1994 and 
    The United States has been the engine of economic growth for much 
of the world economy. Strong growth of the U.S. economy and openness to 
trade assisted the recovering countries involved in the Asian financial 
crisis of the late 1990s and further helped pull the global economy 
back from the brink of severe recession in the early part of the 
current decade. The completion of the Uruguay Round and creation of the 
WTO have figured prominently in helping our nation to sustain not only 
our own domestic economic strength but also our leadership role within 
the global economy.
    The United States continues to be second to none in actively 
working with developing countries to encourage trade liberalization 
that will boost economic growth and development. Trading partners with 
strong economies make good allies and provide important consumers for 
U.S. goods and services. Study after study shows that the WTO's rules-
based system promotes openness and predictability leading to increased 
trade and improved prospects for economic growth in member countries. 
By promoting the rule of law, the WTO fosters a better business climate 
in developing country members, which helps them attract more foreign 
direct investment and helps to increase economic growth around the 
globe, while also helping to lift the least developed countries out of 
poverty. Economic literature confirms that countries that have more 
open economies engage in increased international trade and have higher 
growth rates than more closed economies.\1\ Several World Bank studies 
in 2004 \2\ found that trade and integration into the world economy 
lead to faster growth and poverty-reduction in poor countries. The 
developing countries that were most open to trade over the past two 
decades also had the fastest growing wages.\3\
    \1\ See: World Bank, 2001, Trade, Growth and Poverty; Jeffrey 
Frankel and David Romer, 1999, ``Does Trade Cause Growth?''; and 
Francisco Alcala and Antonio Ciccone, 2001, Trade and Productivity.
    \2\ See: William R. Cline, 2004, Trade Policy and Global Poverty; 
and World Bank, 2004 Global Economic Prospects 2004.
    \3\ World Bank, World Development Report, 1995, p. 55.
Looking Ahead: Advancing the Doha Development Agenda
    Two months after the events of September 11th, 2001, U.S. 
leadership played a critical role in the launch of a new round of 
multilateral trade negotiations, the first to be conducted under the 
WTO. The negotiations under the Doha Development Agenda reflect the 
dynamic complexities of today's economic world, and present new 
opportunities to make historic advancements on the idea of open markets 
and a respect for the rule of law.
    The main focus of the negotiations is in the following areas: 
agriculture; industrial market access; services; trade facilitation; 
WTO rules (i.e., trade remedies, regional agreements and fish 
subsidies); and development. In addition, the mandate gives further 
direction on the WTO's existing work program and implementation of the 
Agreement. The goal of the DDA is to reduce trade barriers so as to 
expand global economic growth, development and opportunity.
    The market access related negotiations of the DDA offer the 
greatest potential to create high-quality jobs, advance economic reform 
and development, and reduce poverty worldwide. We recognize that the 
national economic strategies of our developing country partners include 
many important issues, but at the same time we believe that the focus 
of the WTO should be concentrated on reducing trade barriers and 
providing a stable, predictable, rules-based environment for world 
    The DDA provides U.S. with historic opportunities to achieve 
agriculture reform and greatly diminish current market distortions that 
present barriers to American farmers and ranchers. We are also aiming 
to achieve significant new market access for our manufactured goods 
through broad tariff cuts while working to reduce non-tariff barriers. 
We are also pressing for ambitious global market opening for our 
services industries. The WTO negotiations on trade facilitation will 
result in less red tape and more efficiency and predictability for 
moving goods across borders. And less corruption in customs activities.
    The WTO's Doha Development Agenda is part of President Bush's 
strategy to open markets, reduce poverty, and expand freedom through 
increased trade among all countries in the global trading system, 
developed and developing. The U.S. role in the WTO is at the core of 
this strategy.
    Dismantling trade barriers multilaterally holds immense potential. 
From 1994 to 2003, the world economy expanded at an average rate of 
about 2.5 percent, but exports have grown at more than double that 
pace--about 5.5 percent, a harbinger of accelerating globalization.
    Obstacles to the free flow of commerce undermine our ability to 
maximize this potential and its benefits. We need to move toward a 
system that provides incentives for innovation and growth in the most 
competitive aspects of our productive sectors. The best way to do this 
is successfully to complete the WTO Doha Development Agenda 
    Last August, we made a crucial step forward by adopting negotiating 
frameworks. Much of our work this year has been on fleshing out the 
technical details to set the negotiating table. Looking ahead, the next 
major challenge for the WTO will be preparations for the 6th 
Ministerial Conference in Hong Kong, China, December 13-18, 2006, where 
Ministers will be providing direction and guidance as to how to bring 
the Doha negotiations to a successful conclusion. Final negotiations 
need to be underway, with offers on the table in the first quarter of 
2006. Once we agree on modalities, we have tough bargaining ahead.
    One important lesson we drew from the meetings in Seattle and 
Cancun is that such meetings only succeed if they are well prepared. 
Simply put, most of the work needs to be done before arriving at the 
Ministerial meeting. This gives all of U.S. the necessary time at home, 
and with our partners to build the needed consensus among the wider WTO 
Membership on any given issue.
    For Hong Kong, we clearly need to have an agreement on the 
modalities for negotiation in agriculture and non-agricultural market 
access, prospects in hand for a significant result in services, 
directions for how to ensure that WTO rules remain effective and in 
some cases are strengthened (e.g., by adding new disciplines to 
subsidies to deal with over fishing) and the outlines of an agreement 
on Trade Facilitation.
    If we are to secure such results in Hong Kong, we will need to be 
very far along in the process before the August recess in Geneva, and 
have an outline of the agreements to be affirmed at Hong Kong. To meet 
this timetable, we believe that there is an urgent need to reinvigorate 
the negotiations.
    Ambassador Portman already is doing his part to provide a new spark 
to the negotiations. Appointed on Friday, April 30, he departed for 
Ministerial meetings focused on Doha the following day. His message was 
one of continued U.S. commitment and determination to be a driver and 
problem solver in the negotiations. Doha provides U.S. an opportunity 
we cannot afford to waste. We can set a vision for the global economy 
for the next decades and make a major contribution to development.
    We will conclude in 2006 only if we achieve a balanced outcome with 
results that will benefit all members. That's why agriculture, non-
agricultural market access (NAMA), services, rules and development are 
the major issues for the negotiations. We have learned that while 
agriculture may be the engine for negotiations, success requires U.S. 
to secure strong results across the broad range of issues in the Round. 
Working with Members of this Committee we believe we can secure results 
that provide new opportunities for America's workers, farmers, 
ranchers, service providers, and consumers. And, at the same time 
secure a result that strengthens the rules of the global trading system 
to meet America's trade interests.
    On agriculture, we have work to do in all three pillars of 
agriculture: market access, export competition and domestic support. 
The 2004 Geneva framework envisions reforms in global agricultural 
trade: the complete elimination of export subsidies by a date to be 
negotiated; a framework for negotiating substantial reductions in 
domestic agricultural supports, including a significant down payment up 
front in the form of a 20 percent cut in the allowable level of 
domestic supports; and a commitment to making substantial improvements 
in agricultural market access.
    Until last week, the negotiations were blocked on a technical 
issue. It is clear that how deeply and broadly tariffs are cut will 
determine the level of ambition for the agriculture negotiations 
overall. The World Bank recently reported that the 92% of the welfare 
gains from liberalization in agriculture will come from improvements in 
market access, compared to 6% from reduction of domestic subsidies and 
2% from the elimination of export subsidies. So, the stakes are high, 
and highest for our partners in the developing world.
    On non-agricultural market access, the key standard of success will 
be increased market access in manufactured goods, which account for 
nearly 60 percent of all global trade. The mandate from Doha lays the 
groundwork for broad cuts in tariffs through a formula that would make 
deeper cuts in higher tariffs, and it provides the possibility of 
complete tariff elimination in key sectors.
    Negotiations now are focused on the technical details of how we get 
a big result. We need to find common ground on the centerpiece of the 
proposal--the Swiss formula--combined with appropriate forms of 
flexibility for developing countries in order to proceed. Other 
issues--work on sectoral initiatives and non-tariff barriers--must also 
be addressed. There are concerns and sensitivities--we all have them--
and we need to understand one another. We have a big opportunity to 
open markets for the future--particularly for developing countries--but 
we need to find a way to ensure that all contribute fairly to the 
    We cannot afford to be anything but ambitious and ensure that we 
are looking to markets of the future. We did so in the Uruguay Round 
with great success--we accomplished a number of sectoral initiatives 
where growth has been substantial (e.g., chemicals, medical equipment, 
pharmaceuticals). We want to look at the most aggressive ways to create 
market opportunities. As a result of the market openings in the Uruguay 
Round on the sectoral initiative on medical equipment, that sector grew 
nearly 165% in global exports (U.S. exports grew 89.2%).
    On services, in July 2004 WTO Members agreed to intensify the 
negotiations on opening markets and made clear that services are 
definitely on par with agriculture and manufacturing as a ``core'' 
market access area. Services are playing an increasing role in both 
developed and developing economies. Indeed, the World Bank recently 
reported on the force multiplier effect of open services markets: 
developing countries with open telecommunication and financial services 
markets grew 1.5 percent faster than countries where those two markets 
remained closed. Services, investment and trade go hand-in-hand, and 
liberalization in services will be a powerful engine for growth and job 
creation--especially in higher value added and therefore higher paying 
    This month, Members are expected to table revised market access 
offers, according to the timetable established for negotiations. The 
process is slower than we would like, but we are encouraged that 
governments are beginning to see the important role that services plays 
in development. For developing countries, for example, over 55% of GDP 
comes from services trade--and much of this trade is done with other 
developing countries. Working with industry, we want to build out the 
negotiations and supplement the current process to ensure that the 
degree of openness and liberalization now provided by the United States 
is matched by others.
    On rules, negotiations are underway on subsidies and antidumping. 
We have found convergence with our trading partners on a number of 
issues, notably the importance of creating greater transparency, 
certainty and predictability in the ways in which the rules are 
administered--and we have vigorously questioned any proposal that would 
undermine the effectiveness of our trade laws. We have also seen that 
there is enormous interest in building out the subsidy disciplines 
further to address new and emerging issues, including those that 
challenge the environment. The Chairman of the negotiating group, 
Ambassador Valles of Uruguay has an intensive consultative process 
underway. I recognize that this is an area of great interest to Members 
and we appreciate the continued close cooperation we have with you and 
your staff as we develop proposals and respond to issues raised by 
    WTO Members are currently negotiating clarifications and 
improvements to the WTO Dispute Settlement Understanding. The United 
States recognizes that an effective dispute settlement system 
advantages the United States not only through the ability to secure the 
benefits negotiated under the agreements, but also by encouraging the 
rule of law among nations. The DSU negotiations offer Members the 
opportunity to assess the strengths and weaknesses of the WTO dispute 
settlement system and to work together to improve the system.
    In those negotiations, the United States has taken an active role. 
The United States has tabled proposals that would provide greater 
flexibility and Member control in the dispute settlement process, 
including the ability to more effectively address errant or unhelpful 
panel reasoning. Moreover, the United States has tabled proposals to 
open up the dispute settlement process to the public--there is no 
reason the public should not be able to see the briefs filed or the 
panel and Appellate Body hearings.
    After substantial delay, in July last year we managed to have an 
agreement to launch negotiations on trade facilitation. These 
negotiations are aimed at updating and improving border procedures to 
be more transparent and fair, and to expedite the rapid release of 
goods. The goal will be to overhaul 50-year-old customs rules that no 
longer match the needs of today's economy, much less tomorrow's. This 
work on trade facilitation will round out the market access elements of 
the overall Doha negotiating agenda and present the opportunity for 
true win-win results for every WTO member--developed and developing 
country alike.
    This leads me to the question of development. It is clear that the 
biggest gains to development will be in the core areas of goods, 
services and agriculture. I am pleased to report to the Committee that 
many of our trading partners see the issue in the same way. 
Liberalizing trade among developing countries is an essential part of 
this effort. Some 70 percent of the duties collected on developing 
country trade are due to tariffs imposed by developing countries. This 
is significant.
    In addition to the negotiations, the United States will continue to 
contribute in various ways to development. On the technical assistance 
and capacity building side, I am pleased to announce that the United 
States will contribute an additional $1 million this year to the WTO's 
DDA Trust Fund. The appropriation by Congress for this purpose is 
something that we appreciate, as yet another example of our working 
together to support our overall strategic efforts. In this regard, I 
would also note that our total trade capacity building activities last 
year were close to $1billion ($903 million).
    In sum, the Doha negotiations hold the potential to made an 
important contribution to global growth and development. The Uruguay 
Round was launched in 1986, finalized in 1994, and we are just now 
seeing the final implementation of results. With care and attention, we 
can use the WTO to make a further substantial contribution to global 
growth and development. The United States is prepared to lead by 
example, but we need to ensure that we secure real gains and market 
opportunities in the decades ahead.
    The first 10 years of the WTO have demonstrated why the United 
States must continue its active participation and leadership role. A 
turn away from the work of the past six decades to bring about a rules-
based liberalized global trading system would bring certain closure of 
markets to those American workers and farmers dependent on continued 
trade liberalization and would ignite persistent trade conflicts that 
would distort the global economy beyond anything imaginable today. A 
world where the United States steps away from a rules-based global 
trading system would be a world where trade no longer would be a 
positive contribution toward solving broader international tensions; 
instead, trade issues would simply act as an additional dimension 
exacerbating larger strategic conflicts.
    We know that the global trading system is not perfect, and 
remains--and perhaps always will remain--a work in progress. But 
through American leadership within the WTO, the core U.S. trade agenda 
of promoting open markets and the rule of law remains the core agenda 
of the global trading system. The work toward these objective is 
complex and often difficult, especially in a dynamic global economy 
unfolding as never before. But this work is no less vital today than it 
was in those first decades after a catastrophic world war. The 
participation and leadership of the United States in the global trading 
system remains a critical element for ensuring America's continued 
prosperity, and for meeting the new challenges in seeking a more stable 
and secure world.


    Chairman SHAW. Thank you for your testimony. How long has 
the WTO been in existence? How long has the United States been 
part of it?
    Mr. ALLGEIER. Well, the WTO has been in existence for 10 
years, since the end of the Uruguay round. Of course, we were a 
founding member of its predecessor institution, the GATT, which 
was established in 1947.
    Chairman SHAW. The GATT is gone now; right?
    Mr. ALLGEIER. Yes. It was replaced by the WTO.
    Chairman SHAW. All right. How many countries of the world 
or what percentage of the countries in the world belong to the 
    Mr. ALLGEIER. One hundred forty eight countries belong to 
the WTO.
    Chairman SHAW. Yes, and so----
    Mr. ALLGEIER. With a number of other important countries 
negotiating their accession to the WTO.
    Chairman SHAW. That means about 40 or 50 don't----
    Mr. ALLGEIER. Pardon me?
    Chairman SHAW. That means about 40 or 50 do not I guess--
somewhere right?
    Mr. ALLGEIER. I think it is probably a little bit lower 
than that.
    Chairman SHAW. What would govern trade if we didn't--if the 
United States were not a part of the WTO?
    Mr. ALLGEIER. Well, some would say the rule of the jungle 
would govern trade. There would be no governing body, and it 
would be each country out there for itself. Pursuing its 
interests in whatever way that it felt.
    Chairman SHAW. Trade would still exist, but without the 
United States being part of it, and as a larger exporter in the 
world--over $1 trillion exports out of the United States. This 
would be almost chaotic, wouldn't it?
    Mr. ALLGEIER. Yes. It is really inconceivable to imagine 
how it could continue effectively without the United States.
    Chairman SHAW. Thank you. Mr. Cardin?
    Mr. CARDIN. Thank you, Mr. Chairman. Mr. Ambassador, I once 
again want to thank you not only for being here, but for your 
service to our country. You have been one of our true leaders 
on trade issues and we very much appreciate that.
    Mr. ALLGEIER. Thank you very much.
    Mr. CARDIN. I want to concentrate on one area in regards to 
the Doha round and that is the service area. I am very 
concerned that the process that was used to try to make 
advancements in service basically depended on the goodwill of 
an individual country's submitting their proposals, and we 
found that many countries did not submit a proposal by the due 
date or submitted inadequate proposals. I know there has been 
some recent meetings in which we are trying to establish some 
parameters of what should be included as far as progress in the 
service areas are concerned.
    I am also concerned by what I have heard that particularly 
the developing countries are demanding that we change our 
immigration laws as a tradeoff to making progress in service. 
Now, I don't normally agree with Chairman Sensenbrenner on many 
of his proposals, but I do believe that immigration laws should 
be controlled by Congress, and that that would not be the right 
area to include in trade negotiations.
    Then lastly, if we continue the current trend, we are going 
to become a net negative on service by the year 2010 if the 
current trends continue. So, I think this should be one of the 
highest priorities and yet it seems to me that we are not very 
far advanced in making progress on this round. So, I am hoping 
that your answer will reassure me that this is under close 
attention and we are doing better than what at least I have 
been led to believe.
    Mr. ALLGEIER. Thank you. First of all, there should be no 
doubt in anyone's mind that services is one of our highest 
priorities in these trade negotiations. When the WTO was 
established that was really the first time that there were 
international rules governing the trade in services. That was 
in there because the United States pushed so hard from the 
early eighties up until 1994, and we continue to be a leader in 
advocating very ambitious market access for services and fair 
rules. So, that is a top priority for U.S. in these 
    We share with you the concern that countries have not been 
as ambitious as we think they should be in the negotiations. We 
have pushed very hard to get a critical mass of services offers 
from major economies and then from those who already provided 
offers in an earlier phase to greatly improve those offers. We 
will be submitting our revised by the next deadline which is 
the end of this month, and we are pushing very hard for 
countries to do the same.
    Mr. CARDIN. Well, there were some meetings that took place 
in Europe that suggested that we were going to change the 
format for service negotiation. At least that is what I was 
under the impression. Can you just update U.S. on that? Are we 
still dependent upon the offers that are being made?
    Mr. ALLGEIER. Well, we are looking really to supplement the 
request offer approach, and we are working with a number of our 
colleagues, for example, the other countries in what is known 
as the Quad--the United States, EU, Canada, and Japan--to see 
if the request offer approach can be supplemented by others, 
for example, identifying kind of a core of critical services 
that everybody, both developed and developing countries should 
include in their offers looking to see if we can assess whether 
we are raising the entire level of services openness in the 
world economy instead of just looking at it bilaterally to say 
can everybody kind of level up toward where the United States 
is frankly in terms of the openness of our services market.
    Mr. CARDIN. Well, I think we need to supplement the request 
offer approach. I just--looking at the type of response we 
received to date, if we are going to be able to make progress 
and have a successful Doha round, it won't happen unless we are 
more aggressive than just using the current approach and I 
would urge you to do that.
    Let me just make one other observation now that Mr. Lamy is 
the head of the WTO. I must tell you he was not my first 
choice. Now, I hope that I am going to be proven wrong and that 
he will be fair and objective, but in the discussions that we 
have had with him in the past on agriculture I found to be very 
unacceptable, and I hope that we can hold him accountable to an 
approach that will narrow the disparities on subsidies on 
agricultural products and not look for equal amount of relief.
    Mr. ALLGEIER. I don't think that he is under any illusions 
as to what will be required for a satisfactory package to the 
United States on agriculture or on the other market access 
issues, such as services and the non-agricultural market 
    Mr. CARDIN. Good luck.
    Mr. ALLGEIER. Thank you.
    Chairman SHAW. Mr. Lewis?
    Mr. LEWIS OF KENTUCKY. Thank you, Mr. Chairman. Mr. 
Ambassador, welcome.
    Mr. MARTIN: Thank you.
    Mr. LEWIS OF KENTUCKY. How have free trade negotiations 
helped U.S. in the WTO process and can you give examples in 
which our free trade area trading partners have become more 
allied to the U.S. trade liberalization positions as a result 
of opening their markets through the free trade agreement 
    Mr. ALLGEIER. Yes. First of all, let me say that one of the 
criteria that we have used in determining with whom to 
negotiate free trade areas is the behavior of that country or 
countries in other negotiations, and particularly in the 
multilateral negotiations of the WTO. So, that is a starting 
    Let me just mention three areas of the negotiations. First 
of all, in the non-agricultural market access (NAMA) 
negotiations, we work very closely with a group which we call 
the Friends of Ambition. These are the countries that look for 
very ambitious outcomes on NAMA. That group includes such free 
trade area partners of ours as Canada, Australia, Chile, 
Singapore, and Costa Rica.
    Similarly, in services, we found that several that our FTA 
partners are strong, strong advocates for ambition. It is 
understandable, because when they have opened their markets for 
services through our FTAs, generally speaking they are opening 
their market broadly, not just to us. So, they have an interest 
in having other countries who are not part of an FTA open their 
services to them. So, therefore, in services, for example, we 
work very closely with Canada, Mexico, Chile, Singapore, and 
others who are our FTA partners.
    The third example is what is known as trade facilitation, 
basically getting open and fair customs procedures. There is a 
group there that has worked for several years on that, the so-
called Colorado Group and that includes Canada, Australia, 
Morocco, Chile, Colombia, Singapore, Costa Rica--all countries 
that either we have FTAs with or we are negotiating them with. 
So, we feel that there has been a very good synergy between our 
FTAs and the WTO negotiations.
    Mr. LEWIS OF KENTUCKY. Thank you.
    Chairman SHAW. Mr. Levin?
    Mr. LEVIN. Thank you, Mr. Shaw. Welcome.
    Mr. ALLGEIER. Thank you.
    Mr. LEVIN. You have surely worked hard. You mention in your 
opening statement about the historic and continuing bipartisan 
leadership of Congress. There will be a bipartisan effort on 
WTO, because the alternative, withdrawal, is not wise and is 
not feasible. It is neither. However, I don't think anybody 
should mistake that vote and think that there is the strong 
bipartisan foundation that has existed in previous decades in 
this Congress on key trade issues, because it has broken down 
in recent years and it needs to be rebuilt, and it can't be 
rebuilt on a narrow basis, trying to find a few people on one 
side to go with a majority on another. That isn't a bipartisan 
foundation. In fact, it is the opposite. It is shifting sands. 
We aren't going to be able to tackle the tough issues in the 
Doha round with the present shifting sands instead of a strong 
    I also want to say that the Congressional Oversight Group 
(COG) in my experience--and I was on it for a good number of 
years--has not been an effective instrumentality. The meetings 
have been sporadic and attendance has been minimal. The 
meetings have usually been interrupted. That isn't anybody's 
fault. So, if there is going to be a meaningful effort to 
tackle these tough issues, there is going to have to be much 
more back and forth. But, if there a strong foundation, 
bipartisan foundation, whether it is agriculture or services or 
tariffs. These are tough issues. Presently, it would be very 
difficult, I think, to put together a strong coalition that 
could tackle these tough issues from the point of view of the 
United States.
    Let me just ask you about NTB. There has been little 
progress in so many areas these years since the Doha round was 
kicked off, and NTB were brought up. I forget if you were there 
at Doha? I forget.
    Mr. ALLGEIER. Yes.
    Mr. LEVIN. I thought you were. You know we pushed that NTB 
not receive second place when it came to industrial tariffs. 
You know the evidence is that that is kind of what is going on; 
that the focus in the industrial area is on tariff reduction 
and NTB lag behind. There isn't even a clear negotiating 
mechanism set up for the NTB within the regular negotiating 
process; right?
    Mr. ALLGEIER. Well, there is within the NAMA, there is the 
NTB component.
    Mr. LEVIN. Well, it is kind of--there is some kind of a 
separate mechanism that has been set up; right?
    Mr. ALLGEIER. Well, the nature of NTB obviously is 
different than tariffs. So, whereas in the tariff approach, we 
are looking at a formula to cut the tariffs, in the NTB the 
approach we are taking is first of all to identify what are the 
problematic NTB. For example, the United States has put forward 
a proposal with respect to automobile NTB, working closely with 
our industry. Then, the question is what will be the discipline 
that should be applied to those NTB, and that is what our team 
is working on there.
    Mr. LEVIN. Well, for example, I read from a report of just 
a few months ago, the U.S. Government did not include a link 
between its willingness to tackle tariffs in the automotive 
sector and to eliminating NTB during the February 2nd meeting. 
The discussion of NTB is being done very separately with some 
kind of an informal group as I understand it rather than 
through the single mechanism of the group linking NTB with 
tariff reductions. My time is up. Well, but look for many 
sectors, the NTB are as important as if not more important than 
the tariff reductions, and there has to be--we fought this out, 
we talked about this at Doha, and we pushed and finally it was 
agreed to put them on the same plane, but there is no clear 
evidence that is what happening in these discussions.
    All right. So, why don't you send U.S. all an update on 
that. Also, if I might ask, Mr. Chairman, then I will finish. 
If you could send U.S. the Administration's description of its 
approach on the Geneva discussions on China, the review 
mechanism, because the general feeling is and it is mine that 
it has failed. We put it into China permanent normal trade 
relations (PNTR), and I think there has been a lackadaisical 
approach. So, I would appreciate, especially with a new USTR, 
if you could give U.S. a detailed description of what you have 
done to carry out that provision of PNTR. Will you do that?
    Mr. ALLGEIER. Yes, I will. I will be happy to do that.
    Mr. LEVIN. Thank you.
    Chairman SHAW. The time of the gentleman has expired. Mr. 
    Mr. BRADY. Thank you, Mr. Chairman. At the heart of free 
trade lies I think a fairly simple principle, which is if 
America builds a better mousetrap, we should have the freedom 
to sell it without discrimination throughout the world. If 
someone else builds a better mousetrap, we should have the 
freedom to buy it. The WTO plays a critical role, not in rubber 
stamping American trade policies, but in breaking down barriers 
around the world for U.S. to sell our products and a dispute 
resolution system for resolving the many disputes that 
invariably occur, just as they do in our own business climate, 
in the world business climate.
    I want to ask you two questions. One, in your view, is the 
dispute resolution system used by the WTO, is it open? Is it 
fair? Is it enforceable? The second question has to deal with 
in our efforts to break down those barriers, to advance U.S. 
interests, how damaging would the rejection of the Dominican 
Republic-Central America-United States Free Trade Agreement 
(DR-CAFTA) be to our efforts? So, first, dispute resolution 
process--fair, open, and enforceable; second, effects of DR-
    Mr. ALLGEIER. Thank you, Mr. Brady. First of all, let me 
say that whether in the WTO or anywhere else, for U.S. it is 
extremely important that any agreement we have be one that is 
enforceable. There are a number of keys to that, one of which 
is clarity in the agreement itself, but the other is an 
effective and accessible dispute settlement process. So, that 
is why during the Uruguay round, we spent so much U.S. effort 
in trying to shape this dispute settlement process. We feel 
that overall the process has proven to be an effective process. 
It is also a work in progress. It is not perfect, and we have 
identified areas where we feel there needs to be improvement, 
and one part of it is transparency. We think that it needs to 
be more open so that the public generally can understand what 
is going on there and how cases are treated.
    There are also are instances in which we believe that 
members of appellate bodies or panels overreached their 
authority in determining the outcome of those disputes, and 
that is why we have put forward proposals in the Doha 
negotiations to try to improve that so that they stick to the 
standard of review, for example, in anti-dumping; that they 
don't go off and start--pardon the expression and this is the 
House--legislating. That isn't the role of the panels. So, we 
do think that it is generally effective, but it needs 
improvement, and we are working to do that.
    With respect to DR-CAFTA, the rejection of DR-CAFTA would 
send a terrible signal worldwide about U.S. leadership in 
opening markets and using trade as a mechanism for lifting 
people out of poverty. It would be even more disastrous with 
respect to this hemisphere. If we were to reject DR-CAFTA, Hugo 
Chavez would declare a holiday in Venezuela and he would use 
the holiday to give a 24-hour speech on feckless Americans. So, 
that is something that I don't think any of U.S. want to see 
happen, and I appreciate very much, Mr. Brady, your strong, 
strong support from the very beginning of DR-CAFTA.
    Mr. BRADY. I thank you, Mr. Ambassador. Thank you, 
    Chairman SHAW. Mr. Jefferson.
    Mr. JEFFERSON. Thank you, Mr. Chairman. Mr. Levin has 
talked about the desire for bipartisanship in the trade arena, 
and I think he is dead right about that. And for many of U.S. 
who voted for the Trade Promotion Authority (TPA) (P.L. 107-
210) legislation a few years ago, our hope was that there would 
be broad multilateral agreements at the conclusion of Doha, 
Free Trade Area of the Americas (FTAA) with Brazil, and all the 
rest of the South American and Latin American countries--and 
progress on the big issues--big trade issues of the world.
    Unfortunately, we have seen a lot of small agreements here 
and there that have been useful but that have not been nearly 
as comprehensive, which I think feeds into the whole lack of an 
opportunity here in the Congress to have a bipartisan approach 
to all of these issues.
    For instance, if in Doha, we had worked out the issues on 
sugar worldwide, we would not now be talking about sugar in a 
DR-CAFTA agreement or any other one coming up subsequently. I 
think all of U.S. agree that there is no--the subsidies aren't 
good for our country; aren't good for the world. They cost U.S. 
money needlessly. The prop up inefficiencies--all the reason 
that we can find to argue for them.
    But we have got to have success there. We had a deadline 
for January 5th. I would like you to tell me if you could, 
since we all know that this legislation is perforce has got to 
pass--this is our opportunity to ask you a question about 
something else. We missed the January 5th, 2005 deadline. I 
would like to know what you think the major reasons for that 
were and one of the major obstacles in the Hong Kong 
ministerial of getting an agreement on text in four key areas: 
agriculture, NAMA, services, and trade facilitation.
    Mr. ALLGEIER. Thank you, Mr. Jefferson. Collectively, 
negotiations have missed the initial target date of January of 
2005 for completing the DDA. At this point, the consensus is 
that we should aim at completing this by the end of 2006, and 
that is why this Hong Kong ministerial is important because we 
need to be at a point at the time of the Hong Kong ministerial 
that we are confident that we can complete the negotiations, 
the very detailed negotiations in these various areas that you 
are talking about, of agriculture, non-agricultural market 
access, services, trade facilitation and so forth.
    Why did we miss the deadline? First of all, it was an 
extremely ambitious deadline and particularly when one is 
dealing with 148 countries, and there has been a large 
expansion of the membership of the WTO over its 10 years. As 
you know, decisions are made by consensus. The good thing about 
that is once you have a consensus, everybody is on board and 
you have a result that is accepted and it is strong. The 
disadvantage is getting to consensus among 148 countries that 
are so diverse in economics, in political orientation, and so 
    There are a number of issues in the negotiations. We are 
trying to focus as much as possible on the real market access 
dimensions, which we think are important to the United States, 
but also important to other countries. In that regard, I want 
to be really clear that we certainly understand that market 
access in manufactured goods requires not just reduction, 
elimination of tariffs, but the NTB. As the tariffs have come 
down, then the NTB loom even larger. So, that is an integral 
part of our approach to those negotiations.
    Mr. JEFFERSON. I have a little more time. Let me ask you a 
follow up in that same area. What do you see the Congress as 
a--because there is a lot of complaint here that the Congress 
isn't involved enough and isn't consulted enough. What do you 
see the role of the Congress in this next year to help conclude 
this round in Doha? What can Congress do to help move this 
    Mr. ALLGEIER. Well, first of all, we are extremely 
cognizant of the fact that whatever we have to--whatever we 
negotiate we have to bring back to the Congress for your 
scrutiny, and the only way to be confident of what the outcome 
of that will be is if we are in close consultation with you and 
the other interests within Congress on the negotiations as they 
    I think that certainly the fact that our new USTR spent 
more than a dozen years in Congress will be very, very helpful 
in terms of the communication that we have back and forth. I 
can just tell you from his first few weeks in office, he has 
been very clear with U.S. about the importance of communication 
with Congress, two-way communication.
    Chairman SHAW. Mr. Foley?
    Mr. FOLEY. Thank you very much, Mr. Chairman. Following 
along with the inquiry of Mr. Jefferson. Many of my sugar 
growers do ask why can't we move it to a WTO level. What is 
your thought on that?
    Mr. ALLGEIER. Sugar, of course, will be part of the picture 
of the overall agricultural negotiations in Doha. It is a part 
of that, and we feel frankly that that does provide a good 
forum for the negotiations because all of the participants in 
the sugar market are present in those negotiations. So, 
certainly we will continue to work very closely with the 
industry as we go forward in the three areas of the 
agricultural negotiations, including market access, the 
domestic supports, and export subsidies. However, let me just 
say that we are doing this with a great deal of care, and we 
work extremely closely with the U.S. Department of Agriculture 
(USDA), which understands the U.S. sugar program intimately.
    Mr. FOLEY. The Administration's decision to stop imports 
from China--cotton-type materials--it sounds like a response to 
dumping. We are concerned obviously with sugar dumping into the 
country. So, in one case, they take a proactive approach to 
limit the influx of goods in order to stabilize the market. On 
the other side, it is kind of the concern our grower groups 
have of flooding. Can you give me the rationale for the recent 
decision on China?
    Mr. ALLGEIER. Yes. First of all, the decision that was made 
on China the other day--we announced that we would be imposing 
quantity restrictions or limitation on the growth of certain 
textile products coming into the United States from China. When 
one looks at the first quarter statistics this year, compared 
to the first quarter last year, it is stunning the increase. 
Just to give you the order of magnitude, it is something on the 
order of a 1,500-percent increase; something under if I recall 
correctly a million square meter equivalent or whatever the 
denomination is to seven times that. So, that's in just a 
matter of these first 3 months. So, the--we have used the 
provisions of China's own accession to the WTO to limit the 
growth of these products into the United States that it will be 
limited to another 7-percent growth over last year, so we are 
not closing down the market.
    Now, in the case of sugar, the amount of sugar that is 
permitted potentially under the Central American agreement is 
even smaller than that growth rate in the China textile quotas 
and there are other features, of course, that we have to 
protect the sugar. So, we have I think in both cases, we have 
acted very responsibly to balance the interests of the United 
States as an exporter and as an importer and as a producer in 
products that are getting a lot of competition from outside the 
United States.
    Mr. FOLEY. Can you tell me the thought behind taking sugar 
out of Australia?
    Mr. ALLGEIER. Well, that was a very difficult negotiation, 
as you know, and in that case, we had to balance the interests, 
our--shall I say--offensive interests in what we were seeking 
from Australia with the potential harm that Australia might do, 
and we decided that this balance was best served in that 
instance by excluding sugar from the agreement. So, it is a 
case by case situation, and we try to judge the balance as best 
we can.
    Mr. FOLEY. But in order to achieve victory, you have been 
able to remove that in the past?
    Mr. ALLGEIER. We were able to do it in the case of 
Australia. That doesn't mean, of course, that we can do it 
identically in every trade negotiation.
    Mr. FOLEY. Was it because it was done pre-negotiation? Like 
DR-CAFTA right now is approved I guess by one side awaiting our 
    Mr. ALLGEIER. Several of the Central American countries 
have already ratified that agreement. The others are in their 
legislative process.
    Mr. FOLEY. Thank you, Mr. Chairman.
    Chairman SHAW. Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. I recognize your 
expertise in economics and if I understand correctly, the 
primary way in which the Chinese or any other country--they peg 
their currency to our money; is that correct?
    Mr. ALLGEIER. My understanding is that their currency is 
pegged to the U.S. dollar.
    Mr. MCDERMOTT. Since we have the biggest deficit in the 
world--and our history, actually--and the primary way that we 
are financing that is selling bonds to the Chinese, at what 
point are the Chinese--I mean, how does the USTR think this is 
going to work when you have ultimately the Chinese beginning to 
say maybe we are not going to buy any more Federal securities. 
We will just move to the Euro--Euro denominated things, because 
the dollar is dropping. That will cause the dollar to drop more 
and our own interest rates will go up, and the domestic economy 
gets better. Yet today's newspaper has this story again--this 
one from the New York Times. Who's in charge of determining 
U.S. interest rates? It may be Beijing.
    I have the feeling that this Administration doesn't have 
the domestic economy people talking to the trade people, but 
somehow they think they operate independently and that when the 
interest rates go up in this country and all those young people 
who have bought houses with adjustable-rate mortage interest 
rates are going to get clobbered and lose their houses that the 
exporters will have gained something because we will have 
forced the yuan to sort of float a little bit. There will be a 
short-term gain there, but a big term loss in the domestic 
economy. How do you explain all that to us? What is going on 
with China and are we doing the right thing by telling them the 
answer is let the yuan float?
    Mr. ALLGEIER. Okay. First of all--and I don't mean to be 
dodging the question--the USTR concentrates on the trade aspect 
of our relationship. But to get to your point about 
coordination, we are part of an interagency process that is 
coordinated in the White House that brings together all the 
economic agencies, both those with respect to--who have 
responsibility on the domestic side, including the U.S. 
Department of the Treasury, for example, the President's 
advisors--the Council of Economic Advisors--and then our 
organization, the U.S. Department of Commerce, and so forth.
    With respect to China in particular, of course, the U.S. 
Department of the Treasury has the responsibility for the 
dialog with them and other countries with respect to exchange 
rates and the foreign exchange regime that they have. 
Certainly, I think everybody is aware that the Treasury has 
been working with the Chinese to help them move from the rather 
rigid system they have now with the peg to something that would 
be more responsive to market forces. That would, of course, be 
helpful in terms of establishing a better equilibrium there.
    Mr. MCDERMOTT. But has that organization--and I would love 
to know who it is that coordinates it or who is the central 
person in that--but have they decided they are willing to 
sacrifice interest rates in the United States for the trade 
problems with China?
    Mr. ALLGEIER. I have not----
    Mr. MCDERMOTT. The deficit?
    Mr. ALLGEIER. I am certainly not aware that that is way 
that anybody is approaching it. Obviously----
    Mr. MCDERMOTT. Do they think they can have--have you sat in 
on those meetings? I don't know if you are at the proper grade 
level to sit in on those combined meetings of domestic and 
    Mr. ALLGEIER. Well, the meetings occur at various levels, 
and so some of them, yes, I have sat in.
    Mr. MCDERMOTT. Who is making the decision that we should 
keep pushing the Chinese when everybody is predicting if we do 
our interest rates are going to go up? Who is doing that?
    Mr. ALLGEIER. Well, there is a collective determination of 
recommendations to be made as to what fiscal policies are 
followed, what monetary policies are followed, what trade 
policies are followed, and so it is a network of policies and 
    Mr. MCDERMOTT. Is that the Council of Economic Advisors' 
Chairman or is it the Secretary of the Treasury or the 
Secretary of Commerce? Who's the center person here? Who says 
to the President: this is what we are doing, Mr. President?
    Mr. ALLGEIER. It is coordinated by the National Economic 
Council, but then that council is comprised of these different 
agencies and so as in any recommendation to the President, the 
President gets the advice from all of the departments and if 
the advice is different, he is informed of which agencies feel 
one way, which agencies feel another, and then he ultimately 
makes the decisions based upon the advice that he gets from his 
entire cabinet and the agencies.
    Mr. MCDERMOTT. The reason I raised it is because in this 
same pile of clips for today is a story in Seattle about people 
losing their houses, because of the interest rates, and the 
adjustable rate mortgages, and what is happening with all that. 
It seems to me that you have two forces going on that somebody 
has got to start thinking about what are willing to do to the 
American people as a part of this trade relationship with 
China. Thank you, Mr. Chairman.
    Chairman SHAW. Mr. Weller.
    Mr. WELLER. Thank you, Mr. Chairman. Mr. Ambassador, it is 
good to see you, good to have you with us. Again, I want to 
commend you for your effective efforts and your effective 
ability to speak in behalf of the President's trade agenda.
    Mr. ALLGEIER. Thank you.
    Mr. WELLER. As we open new markets. I also want to 
congratulate you on your good work.
    Mr. ALLGEIER. Thank you.
    Mr. WELLER. As a strong supporter of DR-CAFTA, I want to 
thank you for your efforts, along with Ambassador Zoellick and 
others, to make trade with Central America and the Dominican 
Republic a two-way street and right now, for Illinois 
manufacturers, Illinois farmers, and Illinois workers. Our 
products enter those markets in Central America and the 
Dominican Republic and facing tariffs.
    Mr. ALLGEIER. Right.
    Mr. WELLER. However, our policy over the last 20 years has 
been to allow their products to come in essentially duty free, 
and your efforts have produced a two-way street, and I look 
forward to working with you through the ratification process.
    The one issue that raised its head during the DR-CAFTA 
process--and it appears to be a trend as we look at 
international trade--is the issue of intellectual rights, 
intellectual property rights, which are important to 
manufacturers and workers in my home state of Illinois, and in 
particular the pharmaceutical sector, which is a major employer 
in Illinois. It appears that there is real effort to move 
forward on an assault on the intellectual property rights, 
particularly of pharmaceutical products.
    Brazil, for example--it has been brought to my attention--
that they are attempting to break patents on medicines for use 
not only in Brazil, but to have the ability to produce for 
export, essentially stealing someone else's idea and then 
making money off it. They have been attempting to justify this 
by invoking the trade-related aspects of international property 
rights (TRIPS) agreement compulsory licensing provisions.
    First I would like to hear your comment, Mr. Ambassador, on 
Brazil's attempt to break U.S. patents through TRIPS, even 
though Brazil is not a developing country, but also how 
widespread is this challenge as you work on trade agreements?
    Mr. ALLGEIER. Thank you. Well, the area of intellectual 
property, as you pointed out, is extremely important to the 
United States. It is not just on patents, but also on 
copyrights and trademarks and trade secrets. This whole--the 
innovation that we have in our economy is one of the strongest 
elements in our competitiveness. So, it is a very important 
priority for U.S. in our trade negotiations.
    That said, we also are very sensitive to the fact that all 
countries, and particularly developing countries, many 
developing countries, have enormous challenges in meeting the 
public health needs of their population, and with limited 
resources. So, that is why the United States played such an 
important role both at Doha and then subsequently to refine the 
WTO procedures and understandings on how a country can balance 
the protection of intellectual property with meeting its public 
health needs for its public. We have taken that through and 
incorporated in our FTAs including the DR-CAFTA
    Now, with respect to the specific problem that you 
identified with Brazil. Brazil, of course, has a very 
significant acquired immune deficiency syndrome (AIDS) problem, 
which they have dealt with and they have had some very 
innovative policies for doing it. Our belief, based upon 
experience to date in Brazil and elsewhere, is that that is 
best done in a cooperative mode with the pharmaceutical 
companies, and not doing it a way that is very confrontational 
and that is threatening to break patents in order as a 
negotiating ploy to reduce prices.
    I think that our companies have shown a sensitivity to 
those issues and so we have been working in this latest 
instance with the Brazilian authorities and with the companies 
urging them, the two, to get together to find out what is going 
to be in the best long-term interest of Brazil in meeting its 
public health needs. It should be based upon that, not upon 
some other kind of longer-term commercial calculation on the 
part of industrial authorities in Brazil as to where they would 
like to be 10 years from now in terms of production. They will 
be in the best position if they work to create an environment 
in which our companies work together with Brazilian companies 
to develop the industry in Brazil.
    Mr. WELLER. Is that the strategy the Administration----
    Mr. ALLGEIER. Yes.
    Mr. WELLER. When it comes in and selects a product; to 
encourage industry and the particular government of that 
particular country to work it out or do we have a strategy 
overall on protection of intellectual property rights?
    Mr. ALLGEIER. Well, we certainly have a strong objective of 
protecting intellectual property rights within the boundaries 
that have been established within the WTO, which we think has 
struck the right balance between respect for intellectual 
property rights and then also ways in which companies can work 
with countries that have severe public health needs.
    Mr. WELLER. Thank you, Mr. Chairman. I see my time has 
    Chairman SHAW. Mr. Herger?
    Mr. WELLER. Thank you, Mr. Ambassador.
    Mr. ALLGEIER. Thank you.
    Mr. HERGER. Thank you, Mr. Chairman. Mr. Ambassador, it is 
great to have you with us. I represent one of the richest 
agricultural producing areas in our nation, the northern 
Sacramento Valley of California. More than 60 percent of our 
California almonds are exported, about half of our dried plums, 
about half of our rice. For this reason, I am very interested 
in the ongoing WTO negotiation to bring down the worldwide 
agricultural tariffs and other barriers that restrict our 
northern California exports.
    My question is this--and I know you have addressed it 
somewhat--but still, as we look at forward to the sixth WTO 
Ministerial Conference this coming December, how do you now 
view our U.S. negotiating position as it relates to improving 
market access for agricultural products among other WTO member 
    Mr. ALLGEIER. First of all, I think that it is absolutely 
clear to our negotiating partners that a very strong, ambitious 
result in market access in agriculture is absolutely essential 
to a package. We have been clear. All these countries that come 
to U.S. and say well, we want to see reform in domestic 
supports or we want to see some other development aspects. We 
say a key element is strong market access in agriculture, so 
there is complete clarity in the minds of our trading partners, 
and obviously complete clarity in our minds, and we work very 
closely, as you know, with the various farm groups to make sure 
we understand the conditions that they need to compete in key 
markets overseas.
    Mr. HERGER. Well, I want to thank you for that, and just 
reemphasize how important it is that we continue in this vein. 
Obviously agriculture is one of our major exports and it's key 
to our economy and key to helping to bring in the closer line 
or imbalance of trade. So, thank you very much.
    Mr. ALLGEIER. Thank you.
    Chairman SHAW. Thank you, Mr. Allgeier. We have now a vote, 
possibly two votes, on the floor. I want to thank you for your 
insightful testimony. It is always a great privilege to have 
you before the Committee. We will now stand in recess, and we 
will reconvene in approximately 20 minutes with the panel of 
four witnesses that remain as part of our hearing today.
    Mr. ALLGEIER. Thank you, Mr. Chairman.
    Chairman SHAW. Thank you. That vote took a little longer 
than we expected. Thank you for your patience. The second panel 
is Norman Sorensen, President and Chief Executive Officer (CEO) 
of Principal International, Des Moines, Iowa, and Chairman, 
Coalition of Services Industries; Dyke Messinger, President and 
CEO, Power Curbers, Incorporated, Salisbury, North Carolina, on 
behalf of the National Association of Manufacturers (NAM); Al 
Christopherson, President of the Minnesota Farm Bureau 
Federation, Pennock, Minnesota, on behalf of the American Farm 
Bureau Federation; and William Klinefelter, Legislative and 
Political Director of the United States Steelworkers.
    We have each one of you--you can start out by correcting my 
pronunciation if I have mispronounced your names. We have your 
full testimony. We ask that you try to limit your testimony to 
5 minutes and your full testimony I can assure you will be part 
of the permanent record. Mr. Sorensen.


    Mr. SORENSEN. Well, thank you, Mr. Chairman, Ranking 
Member, Mr. Cardin. Thank you for the opportunity to testify 
today. My name is Norman Sorensen. I am the Chairman of the 
U.S. Coalition of Service Industries. I am also the President 
of Principal International, an international arm of Principal 
Financial Group, a large pension and asset management company 
based in Des Moines, Iowa, and a member of the Fortune 500.
    Mr. Chairman, the message is very basic. We believe the WTO 
is the foundation of the world trading system and that 
continued active U.S. engagement in it is essential. The WTO 
has been effective in removing trade barriers that had long 
restricted international trade. United States companies, 
workers, consumers, and families have benefited, in our 
opinion, tremendously as a result. It is the broadest form 
within which liberalization is negotiated, rules are set, and 
disputes are adjudicated.
    Without the WTO, there would be no vehicle for global trade 
liberalization. We support efforts to liberalize bilaterally 
and in that regard strongly support ratification of DR-CAFTA. 
But we believe that the WTO must now take center stage, both 
because it is the only means of achieving liberalization 
globally, and because the Doha round has reached a critical 
stage. We, therefore, hope that Congress will ensure that the 
United States remains committed to involvement and engagement 
in the WTO.
    The issue at hand today--and some of these argument have 
been expressed throughout the hearings earlier--is not whether 
to maintain a membership in the WTO, but that should be a 
given. Rather, we ask that policy makers now focus hard on 
ensuring that the Doha round concludes successfully.
    Since the adoption of the agreement establishing the WTO in 
1994, U.S. cross-border services exports have grown from $186 
billion in 1994 to $338 billion in last year. The United States 
is, by far, as has been said, the largest services exporter and 
enjoys about a $50 billion surplus in services trade.
    Potential benefits to the United States from a successful 
Doha round are tremendous, especially for services. According 
to one University of Michigan study, if all barriers to 
worldwide trade in goods, agricultural products, and services 
were dismounted and dismantled, the United States would enjoy a 
welfare benefit of an astonishing $542 billion, and the bulk of 
this, $466 billion would result from the elimination of 
services barriers. We must, therefore, in the Doha round move 
to the next phase, in which we negotiate deeper, more 
liberalizing commitments.
    However, Mr. Chairman, we are of the opinion that the 
services negotiations are at a point of crisis. They are at a 
crisis because many countries have not tabled offers, and those 
offers that have been tabled provide for little new 
liberalization. Not only are offers weak, the hard work of 
country by country, sector by sector bargaining is also not 
taking place.
    In our discussions with U.S. trade officials, WTO 
officials, and our trading partners, we have explored ways to 
get the services talks back on track. In my visits last month 
to four major capitals--New Delhi, Beijing, Brasilia, and Kuala 
Lumpur--I met with trade officials to stress these very 
arguments and encouraged them to submit revised officers to WTO 
this month, which is, as you know the first deadline on May 
    The Coalition of Service Industries proposes that all WTO 
members undertake to make commitments in all services sectors 
in the GATT. If WTO members can accept that as a starting 
point, it will improve the negotiating environment 
significantly, allowing negotiators to focus on the depth, 
scope, and quality of commitments. Those commitments should at 
least capture their current levels of liberalization.
    In further negotiations, the United States could then 
request that our trading partners bring their schedules of 
services commitments at least up to the quality of 
liberalization reflected in the schedules of countries that 
have done the most to liberalize their services sectors, like 
the United States and some of our trading partners in the 
industrialized countries.
    The importance of the Doha round services talks demand that 
the United States dedicate the resources and focused energy, as 
has been said before, to succeed in the services negotiations. 
All members of the global trading system have a stake in the 
future of the WTO and the Doha round, but it is the United 
States that stands to gain the most. We must, therefore, 
continue to participate actively and vigorously in the WTO.
    In conclusion, services are central to our economic 
interest. Worldwide liberalization of services means more 
American jobs, expanded U.S. trade, and a stronger American 
economy. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Sorensen follows:] Chairman 
SHAW. Thank you, sir. Mr. Messinger, please.
 Statement of Norman Sorensen, President and Chief Executive Officer, 
 Principal International, Des Moines, Iowa, and Chairman, Coalition of 
                          Services Industries
    Thank you, Mr. Chairman, for the opportunity to testify today on 
the future of U.S. participation in the World Trade Organization. The 
Coalition of Service Industries (CSI) is the leading business 
organization dedicated to the reduction of barriers to U.S. services 
exports. CSI was formed in 1982 to ensure that U.S. trade in services, 
once considered outside the scope of U.S. trade negotiations, would 
become a central goal of future trade liberalization initiatives.
    Today's hearing is timely, as we are entering a crucial phase in 
the Doha Round, which is the 9th Round of multilateral trade 
negotiations since the formation of the GATT, the predecessor to the 
WTO, in 1948.
    The WTO is the foundation of the world trading system. The WTO has 
been effective in removing trade barriers that had long restricted 
international trade, and U.S. companies, workers, consumers, and 
families have benefited tremendously as a result. With a membership 
that includes 148 nations and nearly all the world's significant 
economies, it is the broadest forum within which liberalization is 
negotiated, rules are set, and disputes are adjudicated. Without the 
WTO, there would be no vehicle for global services liberalization, and 
until its establishment ten years ago, there wasn't. The institution is 
crucial for maximizing the advantages from, and managing our interests 
in, the global economy. The continued focused and determined engagement 
of the United States in the WTO is critical to the interests of the 
U.S. service industry.
    We support efforts to liberalize bilaterally and in that regard 
strongly support ratification of CAFTA. But we believe the WTO must now 
take center stage, both because it is a means of achieving 
liberalization globally, and because the Doha Round has reached a 
critical stage. Unlike FTAs, which are negotiated bilaterally or with a 
small number of trading partners, WTO negotiations lead to 
liberalization by all WTO members.
    We therefore hope that Congress will ensure that the United States 
remains committed to the WTO, especially at such an important juncture 
in the Doha Round.
    Many challenges stand in the way of a successful completion of the 
Round, not least in the service sector. In our view, the issue at hand 
today is not whether to maintain our membership in the WTO. That, we 
believe, should be a given. Rather, we hope that policymakers will 
focus on ensuring that the Doha Round concludes successfully, which 
means comprehensive new liberalization across the range of service 
sectors, as well as in other areas under negotiation.
    Services are still a relatively new item on the multilateral trade 
agenda. Only during the 1980s did serious work begin to define and 
quantify services trade, and only during the Uruguay Round did services 
negotiations commence. The end of the Uruguay Round resulted in the 
adoption, by all GATT/WTO members, of the General Agreement on Trade in 
Services or GATS, which spelled out the terms under which 
liberalization of trade and investment in services would be pursued.
    Accompanying the GATS were schedules of commitments that identified 
the service sectors in which members were willing to offer market 
access and national treatment. Those schedules of commitments, combined 
with separate agreements on financial services and basic 
telecommunications, concluded in 1997, formed the basis for further 
negotiation when broad-based services negotiations were launched in 
2000 as required by the agenda built into the Uruguay Round. That 
negotiation was subsequently subsumed into the Doha Round.
    The inclusion of services in the Uruguay Round was a groundbreaking 
achievement. It opened up services markets and for the first time 
provided a means by which WTO members could make commitments to 
liberalize international trade and investment in a wide array of 
service sectors.
    The WTO has produced successes for services. The 1997 Financial 
Services Agreement and the Agreement on Basic Telecommunications are 
examples of WTO agreements which provided market access and national 
treatment, and established important disciplines in two vital service 
    The numbers illustrate the benefits even more vividly. Since the 
adoption of the agreement establishing the World Trade Organization, 
U.S. crossborder services exports have grown steadily, from $186 
billion in 1994 to $338 billion last year. The U.S. is by far the 
world's largest service exporter, and enjoys about a $50 billion 
surplus in services trade.
    Sales of services by U.S. affiliates in foreign markets is even 
larger, rising from $190 billion in 1995 to over $400 billion in 2002. 
The operations of these affiliates are vital to U.S. companies' global 
competitiveness, and thus to American jobs.
    By establishing a framework for services liberalization, the WTO 
has significantly advanced U.S. economic interests. Now is the time to 
build on that work.
    While the U.S., Europe, and a handful of other countries made good 
services commitments coming out of the Uruguay Round, most countries' 
commitments were limited, both in scope and depth. Many schedules did 
not even reflect existing levels of openness, and many excluded 
coverage of key service sectors.
    We must therefore move to the next phase, in which we negotiate 
deeper, more liberalizing commitments that provide new commercial 
opportunities across the breadth of the service sector.
    Mr. Chairman, as you and your fellow Congressmen well know, the 
service sector is vital to U.S. economic growth and vitality. To quote 
directly from a bipartisan Dear Colleague letter circulated in the 
House of Representatives a few weeks ago, ``Many of U.S. may not fully 
appreciate that services represent the overwhelming share of our 
country's employment, economic output, a large and growing share of our 
foreign trade, and are key to the future growth of the American 
economy.'' \1\
    \1\ ``The Importance of Services to the U.S. Economy.'' Dear 
Colleague letter, signed by Congressmen Ben Cardin and Jim Kolbe, March 
18, 2005.
    We could not agree more. Services account for nearly four-fifths of 
U.S. economic output, and 87 million Americans are employed in the 
service sector--80% of the private sector workforce. By Labor 
Department reckoning, 90% of all the new jobs created in the U.S. 
between now and 2012 will be in the service sector.
    Viewed against that backdrop, the importance of securing meaningful 
services liberalization in the Doha Round is self-evident.
    However, developing countries too have a big stake in services 
liberalization. Even in lower income developing countries, services 
account for an average of nearly 50% of GDP. This was a point that my 
CSI colleagues and I made during a series of business missions I led 
last month to Beijing, Brasilia, Kuala Lumpur, and New Delhi, 
specifically for the purpose of advocating greater progress in the 
services component of the Round.
    In our conversations with trade and finance ministers, central 
bank, foreign ministry, and other senior officials, as well as private 
sector leaders in all four countries, the level of interest in and 
understanding of services varied markedly. I was encouraged that all 
four countries are committed to tabling revised services offers. Some 
countries see services as an important future growth sector and are 
developing their negotiating positions accordingly. However, too many 
other countries are not.
    Mr. Chairman, we are of the opinion that the services negotiations 
are in crisis. This view is widely shared among trade officials and 
observers in Washington, in Geneva, and in many capitals, and was 
echoed during a series of meetings that CSI organized with WTO 
officials and Ambassadors in Geneva earlier this year.
    Services negotiations are complex and time-consuming. They are 
based on a request-offer process, requiring multiple intensive 
negotiating sessions in which initial offers are followed by further 
negotiations and improved offers. Effective services negotiations take, 
at a minimum, many months. They are at a crisis because too few 
services offers have been tabled, and those offers that have been 
tabled provide for little new liberalization. The real work has yet to 
    Without a decisive push by the U.S. and other key WTO members, the 
Doha Round will reach a point where, having finally achieved agreement 
on agricultural liberalization, for example, there simply will not be 
sufficient time left to adequately address services before the Round's 
    The sense of pessimism was underscored last week in a poll of trade 
policy officials and specialists in Geneva and in key capitals.\2\ The 
poll, conducted by former WTO Deputy Director General Andrew Stoler, 
revealed that 77% of respondents doubt that there will be a critical 
mass of services offers on the table by the end of this month, which is 
the deadline by which WTO members are to submit revised services 
    \2\ University of Adelaide, Institute for International Business, 
Economics & Law (IIBE&L), Global Trade Opinion Poll Survey No. 10, 
April-May 2005.
    In our discussions with U.S. trade officials, WTO officials, and 
our trading partners, we have explored several options for getting the 
services talks back on track.
    We propose that WTO Members make commitments in all services 
sectors in the GATS. If WTO members can accept that as a starting 
point, it will improve the negotiating environment significantly, 
allowing negotiators to focus on the depth, scope, and quality of 
commitments. Those commitments should at least capture current levels 
of liberalization.
    In further negotiations, the U.S. could then request that our 
trading partners bring their schedules of services commitments at least 
up to the quality of liberalization reflected in the schedules of 
countries that have done the most to liberalize their services sectors, 
like the United States.
    This approach would be helpful because the U.S. (and a handful of 
industrialized countries) has already taken on the most commitments, 
while many other countries have made relatively few commitments. 
Analyses of existing services schedules show, for example, that most 
Latin American countries, with the exceptions of Argentina and Mexico, 
have made full or partial commitments in only 20% of the possible 
service sectors.\3\ Asian countries such as Thailand and Malaysia have 
made commitments in less than 40% of the possible sectors, while the 
figure is under 30% for the Philippines and under 20% for Indonesia.\4\ 
The U.S., Canada, and others, by contrast, have made full and partial 
commitments in a significantly higher number of the possible sectors.
    \3\ International Trade Commission. General Agreement on Trade in 
Services: Examination of South American Trading Partners' Schedules of 
Commitments (Investigation 332-367) Publication 3007 Published December 
    \4\ International Trade Commission. General Agreement on Trade in 
Services: Examination of the Schedules of Commitments Submitted by 
Asia/Pacific Trading Partners Investigation No. 332-374 Publication 
3053 August 1997.
    In 2004, global services trade was only about 24% of the value of 
global goods trade.\5\ The figure is low in part because of the 
prevalence of barriers to services trade. While tariff and non-tariff 
barriers to goods and agricultural products have been reduced 
significantly over the course of successive multilateral trade Rounds, 
this process is only beginning in services. Thus, the marginal gains to 
be had from further services liberalization are much greater than in 
other sectors.
    \5\ World Trade Organization: ``World Trade 2004, Prospects for 
2005,'' April 14, 2005.
    The potential benefits to the United States (and to all our trading 
partners) from a successful Doha Round are tremendous. Moreover, a 
variety of studies have demonstrated that the greatest gains for the 
U.S. are to be had in the services sector, which is not surprising in 
light of its prominent role in our economy. According to one University 
of Michigan study, if all barriers to worldwide trade in goods, 
agricultural products, and services were dismantled, the U.S. would 
enjoy a welfare benefit of an astonishing $542 billion, and the bulk of 
this--$466 billion--would result from the elimination of services 
    \6\ Brown, Drusilla K., Kozo Kiyota, and Robert M. Stern, 
``Computational Analysis of the U.S FTA with the Southern African 
Customs Union (SACU),'' University of Michigan, July 6, 2004.
    Services are a frontier area of WTO negotiations, and it is here 
that the WTO's work overlaps most directly with American economic 
interests. Commensurate with its importance, resources and energy must 
be directed toward a successful conclusion to the services 
negotiations. All members of the global trading system have a stake in 
the future of the WTO and the Doha Round, but it is the U.S. that 
stands to gain the most, and we must therefore continue to participate 
actively and vigorously in the WTO. In this regard, it is especially 
important to help our trade negotiators bring other key countries to 
the negotiating table by engaging senior officials at the Treasury and 
State Departments in this effort.
    In conclusion, I refer again to the recent Dear Colleague letter, 
which aptly summarizes my message today: ``Services are central to our 
economic interests. Worldwide liberalization of services, as is being 
pursued in the Doha Round, means more American jobs, expanded U.S. 
trade, and stronger growth for the American economy.''
    I thank you for your time, and would be glad to answer any 
questions you might have.



    Mr. MESSINGER. Mr. Chairman, Members of the Subcommittee, 
my name is Dyke Messinger. I am President and CEO of Power 
Curbers, Incorporated, of Salisbury, North Carolina, and I am 
pleased today to testify on behalf of the (NAM).
    Power Curbers sells globally. We export to over 70 
countries around the world, including places as far away as 
Australia, China, Japan, Malaysia and places as close to home 
as Canada, Mexico, and other countries in Central America. More 
than one-fifth of our production was exported in 2004, and our 
exports have doubled in the last 3 years.
    Trade is very important to manufacturers like me. One out 
of every five manufacturing jobs in the United States is 
directly related to exports, and manufactured goods account for 
fully 87 percent of total U.S. exports of goods. Small and 
medium sized firms comprise 97 percent of all exporters. Only 3 
percent of exporters are large firms, and small and medium 
sized firms account for 30 percent of U.S. exports. That is a 
considerable amount. In many ways, smaller firms probably need 
the WTO system more than larger ones. The cost of compliance 
with discriminatory foreign standards, the difficulties of 
dealing with counterfeiting and intellectual property, the cost 
of customs clearance and delays--all these are proportionately 
larger for smaller firms.
    Mr. Chairman, I am not a trade lawyer. I am a businessman. 
However, I can tell that because of the rules-based trading 
system, barriers have been coming down over the years, and 
firms like Power Curbers have benefited, as well as my 
competitors. However, my company faces still trade barriers 
that are much too high. We could sell more to our existing 
customers if the costs of trade were cheaper, and if other 
countries did not throw up one barrier after another. We could 
find new customers and markets if those barriers came down. The 
Doha round of the WTO negotiations offers the next opportunity 
to bring these barriers down.
    Trade liberalization over the years has been a boon to the 
U.S. manufacturing base as more markets are open to U.S. than 
ever before. The global trading system has also brought about 
improving the protection of intellectual property and 
transparency in government procurement. The more the U.S. 
Government can open up foreign markets and assure that trade is 
fair, the more we are going to sell and the more people we will 
have on our payroll.
    The NAM believes strongly that the successful completion of 
the Doha round of the WTO negotiations is of critical 
importance to the U.S. and world economies. A deal that cuts 
deeply into agricultural barriers and distortions is of 
critical importance to the success of the round, but so are 
deep cuts in industrial trade barriers.
    Last month, the NAM led a global manufacturers' fly in to 
the WTO in Geneva to stress manufacturing priorities in the 
Doha round of trade negotiations. More than 30 individuals from 
manufacturing organizations around the world participated, 

Australia, Brazil, Canada, Europe, Japan, and Korea. After 
decades of multilateral negotiating rounds, industrial nation 
tariffs have fallen to very low levels for the most part, but 
developing nation tariffs have not. For example, my equipment 
faces duties of 14 percent in Brazil, 15 percent in India, and 
8 percent in China. We could sell a lot more if we could see 
these barriers eliminated or substantially reduced.
    The NAM also believes that negotiation on NTB must continue 
to be addressed in the negotiations. The NTB are a concern 
because they can become just as great an impediment to trade as 
tariffs. The NTB are a particular disadvantage for small 
companies like mine. Trade facilitation improves basically 
improvements in custom procedures are another way in which the 
Doha round can benefit U.S. companies. A number of companies 
have speculated that these costs may add as much as 5 to 8 
percent to the cost of importing into many developing 
    The WTO's procedure for resolving trade issues under the 
dispute settlement understanding is another important aspect. 
It is vital for enforcing the rules. Before the WTO, dispute 
settlement had no teeth, and cases could go on for years 
because the process was totally voluntary. Having a rules-based 
system that is enforceable is critical. The system is certainly 
not perfect, and NAM endorses efforts to make WTO dispute 
settlement process more open and transparent.
    Power Curbers has benefited directly from recent FTAs. 
Previously, we faced duties of 6 percent in Chile and 5 percent 
in Australia. As a result of our FTAs with those countries, we 
can now export to both countries duty free, while our 
competitors still have to pay these duties.
    Mr. Chairman, let me conclude by saying that the United 
States must continue to lead the WTO and that the resolution to 
withdraw from the WTO must be vigorously opposed by the 
Administration and Congress. Thank you so much.
    [The prepared statement of Mr. Messinger follows:]
  Statement of Dyke Messinger, President and Chief Executive Officer, 
   Power Curbers, Inc., Salisbury, North Carolina, on behalf of the 
                 National Association of Manufacturers
    Good morning Chairman Shaw, Ranking Member Cardin, and members of 
the Subcommittee. Thank you for giving me the opportunity to 
participate in this panel.
    My name is Dyke Messinger and I am President and CEO of 
PowerCurbers, Inc. a small manufacturer located Salisbury, North 
Carolina. We manufacture machinery for slipforming concrete curb-and-
gutter, highway safety barrier, bridge parapet, monolithic curb, gutter 
and sidewalk, irrigation ditches and roller compacted concrete dams. I 
am pleased to testify today on behalf of the National Association of 
Manufacturers (NAM) at this hearing to review future prospects for U.S. 
participation in the World Trade Organization (WTO).
    The National Association of Manufacturers is the nation's largest 
industry trade association, representing small and large manufacturers 
in every industrial sector and in all 50 states. The large majority of 
NAM members are SMMs like my company who are affected directly or 
indirectly by trade and have a keen interest in the factors affecting 
our trade and international economic relations.
    PowerCurbers, Inc. sells globally. We export to over 70 countries 
around the world including places as far away as Australia, China, 
Japan and Malaysia and places as close to home as Canada, Mexico and 
the countries in Central America. More than one-fifth of our production 
was exported in 2004 and our exports have doubled in the last three 
years. We have hired more employees over the years to keep up with the 
increased exports.
    Trade is very important to manufacturers like me. In fact, Commerce 
Department data show that one out of every five manufacturing jobs in 
the United States is directly related to exports. And manufactured 
goods are also the most important part of our overall trade, accounting 
for fully 87 percent of total U.S. exports of goods. Even when services 
are included, manufactured goods exports comprise two-thirds of total 
U.S. exports of goods and services.
    It is frequently assumed that world trade is a big company game, 
and that exporting is too difficult and costly for smaller firms. That 
is just not so. It certainly is not true for my firm; but it isn't true 
for others either.
    I think the Subcommittee will be very interested to learn that in 
fact small and medium-sized firms comprise 97 percent of all U.S. 
exporters. Only 3 percent of exporters are large firms. It is true that 
large firms account for the lion's share of exports, but small and 
medium-sized firms typically account for about 30 percent of U.S. 
exports. That is a considerable amount.
    Smaller firms benefit from the WTO rules-based trading system just 
like larger firms. In fact, in many ways smaller firms probably need 
the WTO system even more than large firms. The cost of compliance with 
discriminatory foreign standards, the difficulties of dealing with 
counterfeiting and intellectual property piracy, the cost of customs 
clearance and delays--all these are proportionately larger costs for 
smaller firms, because we have to spread these costs across fewer units 
of exports than larger firms.
    Mr. Chairman, I am not a trade lawyer. I am a businessman. I can 
tell you that because of the rules-based trading system, barriers have 
been coming down over the years and firms like PowerCurbers, Inc. have 
benefited. However, my company still faces tariffs and trade barriers 
that are much too high in too many countries. We could sell more to our 
existing customers if the costs of trade were cheaper, and if other 
countries did not throw up one barrier after another. And we could find 
new customers in more markets if barriers came down. The Doha Round of 
World Trade Organization (WTO) negotiations offers the next opportunity 
bring those barriers down.
    Since its original founding in 1948 as the General Agreement of 
Tariffs and Trade, the GATT/WTO system has seen global tariffs on 
manufactured goods fall dramatically and global trade volumes grow 
exponentially, resulting in more freedom and prosperity for hundreds of 
millions of people. Trade liberalization over the years has been a boon 
to the U.S. manufacturing base as more markets are open to U.S. than 
ever before. Access to a greater supply of raw materials at lower 
prices enables U.S. manufacturers to reduce costs and become 
competitive in markets around the world. The global trading system has 
also brought about improving the protection of intellectual property 
(IP) and transparency in government procurement.
    Ten years have elapsed since the last multilateral Round was 
completed. The more the U.S. Government can open up foreign markets and 
assure that trade is fair, the more we are going to sell--and the more 
people we will have on our payroll. The United States is the world's 
leader for trade expansion and must continue its determined, aggressive 
leadership to complete the Doha Round.
Doha Round Negotiations
    The NAM believes strongly that the successful completion of the 
Doha Round of World Trade Organization (WTO) negotiations is of 
critical importance to the U.S. and world economies. The framework 
agreement reached last summer in Geneva shows that a successful Doha 
Round is now a real possibility.
    The negotiations are called the ``Doha Development Agenda'' (DDA) 
for good reason--it is time that the developing countries, particularly 
the least developed, become more integrated into the global trading 
system and obtain more of the gains from trade.
    The NAM fully endorses this, but we want to stress that many of the 
gains to developing countries will come from reducing their trade 
barriers and opening their own markets--just as we have gained from our 
own market openness. We agree that special consideration must be made 
for the least developed nations. However, we also believe that no 
country should be a ``free rider'' in the Round.
    A deal that cuts deeply into agricultural barriers and distortions 
is of critical importance to the success of the round, but so are deep 
cuts in industrial trade barriers. American manufacturers need to see 
substantial cuts to industrial trade barriers, including substantial 
reductions in the actual tariff rates developing countries apply to 
    The NAM created a special WTO Action Group to promote, advocate and 
achieve manufacturers' ambitious trade liberalization goals as the Doha 
Round of trade negotiations continues. The NAM's Action Group is being 
chaired by Steve Biegun, Ford Motor Company's Vice President of 
International Governmental Affairs. The principal aim of this Group is 
to elevate the importance of industrial trade in the Doha Round.
    Last month, the NAM led an unprecedented Global Manufacturers Fly-
In to the WTO in Geneva, Switzerland, to make certain manufacturing 
priorities are addressed in the Doha Round of trade negotiations. More 
than 30 individuals from manufacturing organizations around the world 
participated, including Australia, Brazil, Canada, Europe, Japan and 
Korea. The principal objective of the fly-in was to demonstrate that 
manufacturing organizations from around the world are determined that 
the Doha Round should result in truly ambitious cuts in industrial 
tariff barriers. After all, manufactured goods account for over 75% of 
world merchandise trade!
Non-Agricultural Market Access (NAMA) Negotiations
    After decades of multilateral negotiating rounds, industrial nation 
tariffs have fallen to very low levels for the most part, but 
developing nation tariffs have not. Developing nations were not 
expected to make proportional cuts in their tariffs, and in many cases 
were not asked to make reductions at all.
    The resulting imbalance in tariff rates is huge: U.S. and other 
industrial country bound tariff rates on imports of manufactured goods 
now are down to an average of about 3 percent, but the average bound 
industrial duties in the developing countries is over 17 percent--
nearly six times as high. For example, my equipment faces duties of 14 
percent in Brazil, 15 percent in India and 8 percent in China. We could 
sell a lot more if we could see these barriers eliminated or reduced 
    The NAM believes the task of obtaining substantial cuts in foreign 
tariffs on U.S. manufactured goods, while difficult, is achievable by 
focusing on 23 trading partners--three industrial partners and 20 
developing partners. Together, these 23 account for 96 percent of the 
global duties assessed on U.S. exports of manufactured goods.
    We recommend selecting the EU, Japan, andNew Zealand as top 
industrial country priorities. Together they account for 99 percent of 
industrial nation duties charged on U.S. manufactured goods exports.
    Twenty developing countries account for a startling 95 percent of 
all duties assessed by developing countries on our exports. The twenty 
developing countries, in order of the estimated amount of duties U.S. 
manufacturers now pay are: China, Brazil, Korea, India, Thailand, 
Taiwan, Malaysia, Colombia, Egypt, Argentina, Venezuela, the 
Philippines, Peru, the United Arab Emirates, Pakistan, Nigeria, South 
Africa, Indonesia, Ecuador, and Panama.
Non-Tariff Barriers
    While much of my focus thus far has been on tariffs, the NAM also 
believes that negotiations on non-tariff barriers (NTBs) should 
continue to be addressed as an important feature of the non-
agricultural market access negotiations. Non-tariff barriers are a 
concern because they can become just as great an impediment to trade as 
tariffs. Moreover, non-tariff barriers tend to raise the fixed costs of 
trading. This is a particular disadvantage for small and medium-size 
enterprises (SMEs), like mine, which have to spread those fixed costs 
over fewer dollars of sales.
    NTBs have been rising in importance as trade-distorting factors, 
including such measures as discriminatory standards, conformity 
assessment requirements, pre-shipment inspections, custom valuation 
practices, regulatory requirements, port procedures, and security 
procedures. Product requirements, including environmental and other 
regulations, should be nondiscriminatory and based on sound and widely 
accepted scientific principles and available technical information. For 
example, my products face very rigorous NTBs in the European Union to 
meet safety and health requirements.
Trade Facilitation
    Trade facilitation improvements, basically in customs procedures, 
are another way in which the Doha Round can benefit U.S. companies. 
While we have seen no specific estimates of the overall costs of these 
trade complications, a number of companies have speculated that they 
may add as much as 5-8 percent to the cost of importing into many 
developing countries.
    SME's can be particularly hard-hit by border barriers, since both 
buyers and sellers in international SME transactions often operate on 
thin margins. Strong disciplines on trade facilitation offer certainty 
to businesses and investors. That certainty benefits all countries, as 
business and new ideas and technology move into the market. It benefits 
American companies, as they are more certain of international sales.
    Customs delays are one of the major trade facilitation issues 
experienced by industry. The causes of delays are many. In general, 
however, the absence of clear global guidelines on how to deal with new 
products, a lack of resources at the border, corruption, absence of 
computerization, and lack of a clear mechanism for pre-clearance or 
streamlined procedures for entry, among other issues, contribute to 
delays. A good example is the case of India. The typical ship waiting 
time across the globe is less than 6 hours. In India, the average ship 
waiting time is 3-5 days. For air freight imports, the average dwell 
time is less than 12 hours. In India, the average dwell time is 8 days.
Dispute Settlement Understanding
    The WTO's procedure for resolving trade issues under the Dispute 
Settlement Understanding (DSU) is another important aspect. It is vital 
for enforcing the rules and therefore for ensuring that trade flows 
smoothly. Before the WTO, dispute settlement had no teeth and cases 
could go on for years because the process was voluntary. It is good to 
know that we can go to a fair and impartial dispute settlement body to 
have these cases settled. Having a rules-based system that is 
enforceable is critical. However, the system is certainly not perfect 
and the NAM endorses efforts to make the WTO dispute settlement process 
more open and transparent.
    We urge that safeguards be discussed that would discourage or 
prevent WTO dispute settlement bodies from creating obligations that 
were not agreed to in negotiating the text of the various documents 
comprising countries' obligations under the WTO.
Bilateral Agreements
    The NAM strongly supports the on-going negotiations at the World 
Trade Organization, but also believes that the U.S. Government should 
continue to negotiate new bi-lateral and regional free trade agreements 
(FTAs) that would level the playing field for U.S. manufacturers.The 
expansion of comprehensive U.S. free trade agreements (FTAs) among 
countries and regions contributes substantially to the overall goal of 
opening world markets to U.S. manufactured goods. The NAM supports FTAs 
because U.S. manufacturers face much higher barriers in foreign markets 
than foreign producers face here.
    I think the Subcommittee should focus on the fact that our bi-
lateral FTAs account for 40 percent of U.S. manufactured goods exports, 
but only 10 percent of the manufactured goods trade deficit. Fully 90% 
of the U.S. trade deficit in manufactured goods is with countries with 
which the U.S. does not have FTAs.
    For example, PowerCurbers, Inc. has benefited directly from recent 
FTAs negotiated and signed by the United States. Previously, we faced 
duties of 6 percent in Chile and 5 percent in Australia. As a result of 
our FTAs with those countries, we can now export to both countries duty 
free-while our competitors still have to pay these duties.
    Mr. Chairman, I know that this hearing is about the WTO, but as 
someone who does business in Central America and the Dominican 
Republic, I would like to say something about the U.S.-Central America-
Dominican Republic Free Trade Agreement (CAFTA-DR), which is pending 
before Congress. American manufacturing strongly believes that passage 
of this agreement is in the best interest of the United States. The 
agreement will benefit a lot of companies and it will be good for the 
region. Their economies will be better off so we can sell them more of 
our products. The agreement also offers customs facilitation and state 
of the art intellectual property protection for American manufacturers.
    Finally, it is self-evident that the Doha Round of WTO negotiations 
cannot proceed without Trade Promotion Authority (TPA) or without U.S. 
membership in the WTO. Therefore, the NAM strongly recommends that TPA 
be continued, as provided for in law; and the resolution to withdraw 
from the WTO be opposed vigorously by the Administration and Congress. 
The United States is the world's leader for trade expansion and must 
continue its determined, aggressive leadership to complete the Doha 
    Thank you, Mr. Chairman.


    Chairman SHAW. Thank you, sir. Mr. Christopherson. I bet 
you were the last one in your first grade class that learned to 
write your name?
    Mr. CHRISTOPHERSON. Certainly. About eighth grade I 
mastered it.


    Mr. CHRISTOPHERSON. Thank you. Good afternoon, Mr. Chairman 
and Members of the Subcommittee on Trade. My name is Al 
Christopherson, and I am a corn and soybean and hog producer in 
Minnesota. I also serve as President of the Minnesota Farm 
Bureau. I am on the Board of Directors and the Executive 
Committee of the American Farm Bureau, and I am here 
representing the views of the American Farm Bureau Federation 
here today. I certainly appreciate the opportunity to share 
those thoughts on the future of the WTO and the importance of 
the Doha round of the multilateral trade and negotiations.
    Our organization strongly supports the membership of the 
United States in the WTO. The trade negotiation standard 
setting and dispute settlement functions of the WTO operate to 
provide a stable and predictable world trading environment for 
U.S. agriculture. With the production of one-third of our acres 
destined for foreign markets, U.S. agriculture is strongly 
export dependent. The 148-member WTO operates to provide a 
stable environment for continued growth in markets for 
America's farmers and ranchers.
    A review of the issues involved in the current round of 
agricultural trade talks highlights the vital role that the WTO 
plays in the economic development of agriculture. The framework 
agreement of July 2004 set the guidelines for future 
negotiation in the areas of market access, domestic support, 
and export competition.
    In market access, the world average tariff on agricultural 
products is 62 percent, while the U.S. average agricultural 
tariff is only 12 percent. The framework agreement supports the 
use of a formula for reducing all agricultural tariffs so that 
high tariffs would be reduced more than low tariffs. A final 
agreement on tariffs must result in significant percentage 
reductions that result in commercially meaningful access.
    Domestic support. United States agriculture is prepared to 
negotiate reductions in trade distorting domestic supports as 
part of an overall agreement that increases market access--and 
that is the key--in both developed and developing countries. 
Under the Framework Agreement, countries must commit to 
substantive reductions in domestic support levels. Countries 
support their agriculture in different ways. The United States, 
the EU, and Japan use domestic support programs. Most other 
nations use tariffs only to control or stop imports from 
competing with their own farmers. There must be improvement in 
market opportunities for U.S. farmers and ranchers through 
lowered world agricultural tariffs in order for the United 
States to be able to lower trade distorting domestic support.
    Export competition. We support the complete elimination of 
export subsidies as contained in the framework agreement. 
Export subsidies are recognized as the most trade distorting 
    We talked about dispute settlement. One of the major 
accomplishments of the Uruguay round was a strengthening of the 
dispute settlement system. A rules-base trading regime requires 
an enforcement mechanism so that nations can be assured that 
following the rules will not place them at a competitive 
disadvantage. With the reduction of trade barriers and the 
increase in trade and agricultural products, the opportunity 
for disputes are ever increasing. What farmers get out of U.S. 
membership in the WTO is a trade system based on rules that 
helps maintain stable markets for one-third of the U.S. farm 
production that is needed to be exported.
    The Farm Bureau believes that the WTO agricultural 
negotiation is the best forum in which to achieve progress on a 
wide variety of international agricultural trade concerns, and 
we believe agriculture's future continues to lie in expanding 
foreign markets and eliminating barriers to our exports. 
Continued U.S. membership will help assure that the WTO has an 
important and effective future for the United States and the 
other member nations. As long as exports are important to U.S. 
agriculture, WTO membership will be important as well. Thank 
you for the opportunity to share our views and look forward to 
continuing to work with the Ways and Means Committee on these 
and other trade issues.
    [The prepared statement of Mr. Christopherson follows:]
   Statement of Al Christopherson, President, Minnesota Farm Bureau 
 Federation, Pennock, Minnesota, on behalf of the American Farm Bureau 
    Good morning, Mr. Chairman and members of the subcommittee. I am Al 
Christopherson, President of the Minnesota Farm Bureau Federation. I am 
here today on behalf of the American Farm Bureau Federation.
    I appreciate the opportunity to testify on the future of the World 
Trade Organization and the Doha Round of multilateral trade 
    The American Farm Bureau Federation strongly supports the 
membership of the U.S. in the WTO. The trade negotiation, standard 
setting and dispute settlement functions of the WTO operate to provide 
a stable and predictable world trading environment for U.S. 
agriculture. With the production of one-third of U.S. cropland destined 
for foreign markets, U.S. agriculture is strongly export-dependent. The 
148 member World Trade Organization operates to provide a stable 
environment for continued growth in markets for America's farmers and 


    Farm Bureau policy, as adopted by the delegate body at our 86th 
annual convention, makes clear that our highest trade priority remains 
a successful conclusion to the multilateral Doha Round of the WTO trade 
    Our delegates approved a thorough and well-thought-out position to 
guide AFBF in the trade arena. Farm Bureau policy affirms that all 
commodity sectors should be on the table during trade negotiations. Our 
delegates believe U.S. agriculture's best opportunity to address 
critical trade issues, such as market access and domestic subsidies, is 
through the multilateral process.
    A review of the issues involved in the current round of 
agricultural trade talks highlights the vital role that the WTO plays 
in the economic development of agriculture. The Framework Agreement of 
July 2004 set the guidelines for further negotiations in the areas of 
market access, domestic support and export competition.
    The future of the WTO depends upon the success of the current 
negotiations as a vehicle to advance trade liberalization.
Market Access
    The world average tariff on agricultural imports is 62 percent, 
while the U.S. average agricultural tariff is 12 percent. The Framework 
Agreement supports the use of a formula for reducing all agricultural 
tariffs so that high tariffs would be reduced more than low tariffs, 
thus reducing the gap between high-tariff and low-tariff products. A 
final agreement on tariffs must result in significant percentage 
reductions that result in commercially meaningful access.
    Sensitive Products--The Framework Agreement allows all countries, 
developed and developing, to negotiate some number of ``sensitive'' 
products that will be subject to smaller tariff cuts. Our goal is to 
make sure that this number is limited so that meaningful market access 
is achievable as a result of these negotiations.
    Tariff-Rate Quotas--A method to expand market access is to have a 
nation agree to a tariff-rate quota (TRQ) for a specific product. A TRQ 
is a reduced tariff on a specified amount of imported product. The U.S. 
would gain increased exports if countries actually ``filled'' their 
TRQ's. Farm Bureau wants the negotiations to result in higher TRQs and 
improved fill rates.
    Special and Differential (S&D) Treatment--Developing countries, and 
in particular least developed countries (LDCs), have received S&D 
treatment to give them more time to adjust to competition. While the 
LDCs clearly require greater protection, some ``developing'' countries 
are actually highly developed and competitive in certain sectors. It is 
unreasonable to provide those countries special treatment for those 
commodities. Those countries must assume greater obligations.
Domestic Support
    U.S. agriculture has clearly indicated its willingness to negotiate 
reductions in trade-distorting domestic supports as part of an overall 
agreement that increases market access in both developed and developing 
countries. Under the Framework Agreement countries must commit to 
``substantive reduction'' in domestic support levels. The WTO 
categorizes domestic support into the amber, blue and green boxes.
    Amber Box--The amber box is composed of domestic support programs 
that are used to support prices or are directly related to production 
and are viewed as ``trade-distorting.'' An example is the U.S. 
marketing loan program. The Framework Agreement calls for ``substantive 
reduction'' in trade-distorting domestic support. Any reductions must 
be balanced against improvements in the area of market access in order 
to advance export prospects for our farmers and ranchers.
    Blue Box--The blue box includes agricultural support programs that 
are not related to production and are considered less trade-distorting.
    Green Box--No caps should be placed on non-trade-distorting 
support. U.S. green box programs include research, extension, 
conservation and part of the crop insurance programs.
    The negotiations over market access and domestic support must be 
directly linked for any substantive agricultural trade liberalization. 
While the U.S. is able to use domestic programs to assist producers and 
keep import tariffs at a low level (average 12 percent) most nations 
use high tariffs (average 62 percent, with many tariff lines over 100 
percent) to provide complete import protection in order to assist their 
agricultural producers. Both mechanisms of support--tariffs and 
domestic programs--need to be addressed together to achieve a 
successful negotiation.
Export Competition
    We support the complete elimination of export subsidies as 
contained in the Framework Agreement. Export subsidies are recognized 
as the most trade-distorting measure in trade. The European Union (EU) 
spends from $3 billion to $5 billion a year on export subsidies and is 
allowed to spend as much as $8 billion under the current WTO agreement. 
The EU accounts for about 88 percent of the world's export subsidies 
and uses them to market products of export interest to the United 
States. Farm Bureau also supports the phase-out and elimination of the 
trade-distorting practices of State Trading Enterprises, which is also 
included in the Framework.
    Sanitary and Phytosanitary (SPS) Agreement--We adamantly oppose any 
changes to the SPS agreement. We urge strong resistance to any attempts 
by the EU or others to allow social or economic considerations to form 
any basis for applying SPS measures in exchange for reduction in 
subsidies, tariffs or any other negotiating issue.

                     DISPUTE SETTLEMENT IN THE WTO

    One of the major accomplishments of the Uruguay Round was the 
strengthening of the dispute settlement system. A rules-based trading 
regime requires a mechanism for holding nations to their commitments so 
that following the rules will not be seen as a competitive 
disadvantage. With the reduction of trade barriers and the increase in 
trade in agricultural products, the opportunities for disputes are ever 
    The U.S. has both won and lost WTO trade cases. The U.S. has 
prevailed in cases against Japan on apple exports, Canada on grains and 
the EU on hormones in beef. The U.S. lost the case brought by Brazil on 
cotton. Current disputes involving agriculture include softwood lumber 
with Canada and rice with Mexico.
    While we disagree with the Appellate Body's ruling in the ``cotton 
case,'' we have urged the administration to comply with the ruling. 
U.S. membership in the WTO provides a trading system based on rules 
that helps maintain stable markets for our exports. A fair and 
effective dispute settlement system is an important component of the 
WTO's future leadership role in world trade.
    In conclusion, Farm Bureau believes that the completion of a 
successful WTO Doha agriculture negotiation is the best way to achieve 
progress in a wide variety of international agricultural trade 
concerns. We believe agriculture's future continues to lie in expanding 
foreign markets and eliminating barriers to our exports.
    Continued U.S. membership will help ensure that the WTO has an 
important and effective future for the United States and the other 
member nations. As long as exports are important to U.S. agriculture, 
WTO membership will be important as well.
    We look forward to continuing to work with the Ways and Means 
Committee on these and other important trade issues.


    Chairman SHAW. Thank you, sir, for your testimony. Mr. 


    Mr. KLINEFELTER. Mr. Chairman, Ranking Member, Members of 
the Committee, my name is----
    Chairman SHAW. I do not believe your microphone is on.
    Mr. KLINEFELTER. Mr. Chairman, Mr. Ranking Member, Members 
of the Committee, my name is William Klinefelter. I am the 
Legislative and Political Director of the United Steelworkers 
Union. As you may know, we just merged with the Paper, Allied-
Industrial, Chemical & Energy Workers International Union 
(PACE), which now makes U.S. the largest industrial union in 
North America, with 850,000 members. We now cover almost every 
single jurisdiction you can imagine, from pulp and paper to 
chemical to pharmaceuticals to steel to copper. You name it, 
the United Steelworkers Union has it.
    We welcome this opportunity to come today and talk about 
the future of the WTO. We believe that this operates on two 
different levels. We believe it operates on a macro level, what 
the future will be, and it also operates on a level of what we 
are doing in terms of the current negotiations that need to be 
done to reform the WTO, because the WTO is in serious need of 
reform. We have looked at what the WTO has done since its 
foundation in terms of well how it deals with American trade 
laws, and we are saying to the Committee that we must put real 
pressure on our trade negotiators as they go forward this year 
in the Doha round to make certain that our trade laws are not 
weakened in this round. They must also concentrate on going 
back and talking to our trading partners about what WTO panels 
have done when they have rendered decisions, because it is our 
belief that when they have been rendering these decisions, they 
have been changing our trade laws without negotiating about 
them. That is not, I don't believe, what the Congress of the 
United States believes the WTO should be doing. So, we ask you 
to focus on that with our negotiators at the WTO.
    A second thing that needs to be focused on is what are we 
going to do about China in this round of the WTO. Is China 
going to be allowed to sit on the sidelines and gain the 
benefits of WTO membership without adhering to what they've 
already agreed to adhere to when they got into the WTO? There 
is a process, a consultation process, which we set up when they 
got into the WTO to advise China without taking them all the 
way on what they were doing wrong and what they weren't living 
up to. Unfortunately, they have not been living up to that. 
They have been walking away from that. They say it doesn't 
apply to them. So, what we are saying is look what we should do 
in this round of the WTO: negotiate. Negotiate all the things 
that need to be negotiated in this round of the WTO.
    But for those countries who don't comply with what they 
have already agreed to comply to put any benefits that would be 
gained by this new round of the WTO to one side until those 
nations actually do comply. So, those are two major things that 
the union would like to talk about today. The other is a more 
macro setting. I think that we believe that there are a couple 
of things that the WTO future depends on.
    Number one is a consensus in the U.S. Congress over 
American trade policy. As you know, right now, there is no 
consensus in this Congress. If there had been a consensus, DR-
CAFTA would have gone through here very, very quickly and with 
no debate. There is no consensus on DR-CAFTA. There is no 
consensus on trade policy. There will not be until we deal with 
labor rights and trade agreements and until we deal with 
environmental rights and trade agreements. So, the future of 
the WTO is really dependent upon American consensus on American 
trade policy which can only be done here in the Congress.
    Number two, the WTO is dependent upon those developing 
countries in the world having the faith in what the WTO does. 
Right now, that faith has been shaken in this round of the 
negotiations, and it does continue to erode. You know it is all 
well and good to say, come up here and say that 95 percent of 
the people of the world are--95 percent of the people outside 
the world are America's customers. Well, there are 6 billion in 
the world, about a billion-and-a-half of those people make less 
than one dollar a day. Those are not very good customers. So, 
what the developing world is looking at are tremendous 
pressures in their internal workings. Right now, in Bolivia 
they are pressuring the government to nationalize the gas 
industry as a source of revenue for that country. In Brazil, 
there is a march on the capitol in Brazil because the current 
government, although he is a good steelworker, has not been 
able to make good on the promise of giving land to the 
peasants. What we are saying there are other pressures on trade 
that need to be dealt with and there are other pressures in the 
world that need to be dealt with that are outside of trade. 
Thank you very much.
    [The prepared statement of Mr. Klinefelter follows:]
    Statement of William J. Klinefelter, Legislative and Political 
                     Director, United Steelworkers
    Mr. Chairman. Members of the Committee. It is a pleasure to appear 
before you today on the question of the role of the World Trade 
Organization and the United States' participation in that body.
    My name is William J. Klinefelter and I am the Legislative and 
Political Director for the United Steelworkers Union. Today, as a 
result of the merger last month of the United Steelworkers of America 
and the Paper, Allied-Industrial, Chemical and Energy International 
Union, the Steelworkers are now the largest industrial union in North 
America. We are the most diverse union in the country, representing 
workers in manufacturing sectors ranging from steel to rubber to 
glass--to lumber and paper--to chemicals and energy; and also non-
manufacturing sectors such as health care, services and education.
    In short, we represent a substantial cross section of this country 
and the diverse interests of our nation.
    Mr. Chairman, I will outline the broad concerns of my union and 
which I believe are shared by organized labor and working people all 
across the country.
    The World Trade Organization is in serious need of reform. A broad 
and comprehensive reform agenda must be immediately implemented. 
Without this reform, the U.S. should terminate its membership in the 
    The union urges the Committee to continue a broad oversight of the 
WTO and to hold more hearings in the near future.
    It has always been the view of the Steelworkers--and I think it's 
simple common sense--that the success of a nation's trade policy should 
be judged not by the number of trade agreements that are negotiated, 
but by the results they achieve. Our nation's trade deficit is 
skyrocketing. Wages are basically stagnant. The gap between the haves 
and the have-nots continues to plague the U.S., and far too many 
nations. This, in our opinion, is not a sign of success.
    The WTO is supposed to oversee the system and ensure that rules are 
fairly negotiated and fairly applied. The Steelworkers have always 
believed that international trade must be governed by a strong rules-
based system. Yet, to the Steelworkers and most Americans, the WTO 
appears to be asleep at the switch when it comes to supporting our 
interests. In fact, they seem to constantly rule against our laws and 
skew the negotiating agenda against our interests.
    Let's be clear: the U.S. has the most open market in the world. Our 
tariffs, on a trade-weighted basis, are among the lowest of any nation. 
We simply don't have much more to give.
    But, that's exactly what other nations want U.S. to do. They attack 
our trade laws which are designed to simply ensure fair play. They 
constantly seek to impose new obligations on the U.S. which were never 
negotiated. They often block our efforts when we strive to ensure that 
the rights of working people around the world are given a higher 
    And it's especially troubling that the record on reviewing our 
unfair trade laws clearly indicates that the WTO has an agenda--and 
that is to attack and dismantle the basic framework of laws we have on 
our books that are designed to ensure that predatory trade practices 
can be confronted.
    This is a recurring problem--yet hard to understand. Injurious 
dumping, for example, is the only activity that is ``condemned'' in the 
original GATT drafted in 1947. The WTO, the successor organization to 
the GATT, seems to have turned this legal text on its head to the 
extent that measures to combat injurious dumping are continually being 
    And, the Bush Administration is not standing up for these laws: we 
have a win/loss record of 2 out of 17 cases brought against the U.S. 
Day-by-day the Administration allows our laws and our regulatory 
framework to be whittled away in a process known as ``gap filling.''
    This is a very esoteric area of law--but one that has real 
repercussions to our jobs and standard of living.
    And, all too often, the WTO stands idly by when other nations 
refuse to live up to the commitments they have made.
    China became a member of the WTO four years ago. Their record of 
compliance with their WTO commitments is seriously deficient. Time and 
time again, they have failed to fully implement the promises they made 
and, in fact, have erected new barriers to our exports.
    They've done everything they can to throw sand in the wheels of the 
Transitional Review Mechanism that they agreed to which was designed to 
foster a forum at the WTO for review and implementation of their 
    And, our Administration has failed to use the system effectively. 
It's become virtually useless.
    China deserves to be criticized. But, let's recognize an important 
fact: More than one-third of China's exports come to the U.S. while 
only about four percent of our exports go there. Wal-Mart welcomed 
roughly $18 billion of China's exports We have leverage to force their 
compliance. Yet, we refuse to use it.
    How does this Administration expect to get public support to 
continue our participation in the WTO, much less deepen it through the 
Doha Round, if it allows for our laws to be attacked without providing 
an effective and aggressive defense?
    How does it expect to gain public support when it allows China and 
other nations to welch on their promises, while we provide an open 
    How does the Administration expect to increase support for trade 
liberalization when it turns its back on efforts by the private sector 
to use the trade laws that exist--such as Section 421?
    How does the Administration expect people to believe that they are 
negotiating in America's interests when they allow China to manipulate 
its currency but the President's Secretary of the Treasury refuses to 
say they are manipulating the value of the yuan?
    How does the Administration expect U.S. to gain from trade when our 
intellectual property is being pirated and counterfeited to a point in 
excess of 90% in China, yet our former U.S. Trade Representative, Bob 
Zoellick, says we don't have enough information to bring a case?
    Mr. Chairman, a broad reform agenda must be developed and quickly 
adopted by the WTO if it is to survive, and if the U.S. is going to 
benefit from continued participation. I've outlined just some of the 
areas for reform. There are many, many more.
    One important area needs to be discussed as part of this agenda: 
the need to ensure that benefits that are negotiated are actually 
received. China has failed to implement the commitments they've made. 
Yet, they are sitting on the sidelines at the Doha Round waiting to 
reap its benefits. Apart from the other questions I have raised, we 
should recognize that an effective negotiating approach would be to 
have our negotiators do their work, but put the benefits on the shelf 
and not provide them to the Chinese unless and until they live up to 
the promises they have already made. We should be using a carrot and a 
stick with China.
    Mr. Chairman. Clearly, you hear our frustration. But, the questions 
I've asked, and the concerns I've outlined, are not just those of the 
Steelworkers. They are the concerns of a broad cross section of 
America's farmers, workers and businesses.
    I thank you for the opportunity to testify and welcome the 
opportunity to answer questions.


    Chairman SHAW. Thank you, and I thank all the witnesses for 
preserving our 5-minute rule. As I read the panel, even though, 
Mr. Klinefelter, I think you have been somewhat critical of the 
enforcement, I assume from your testimony that you want to 
continue with WTO, but you wanted stricter compliance 
requirements and you want our negotiators to work for that. Am 
I correct?
    Mr. KLINEFELTER. Mr. Chairman, the Union's position has 
always been that the WTO needs to be reformed. At some point in 
time, if those reforms are not forthcoming--and we cannot make 
the WTO reform in terms of our trade laws and reform in terms 
of transparency--then I believe that the Steelworkers Union 
would say that it is time for U.S. to get out of the WTO.
    Chairman SHAW. But you are not there yet?
    Mr. KLINEFELTER. We are not there yet.
    Chairman SHAW. Fine. Mr. Cardin?
    Mr. CARDIN. Thank you, Mr. Chairman. I am pleased that we 
had H.J. Res. 27 introduced so we could have this panel before 
us. This has been I think a very helpful panel on--and I agree 
with Mr. Klinefelter that it is time to reform the WTO. Mr. 
Sorensen, I also agree with your point that the focus needs to 
be on the WTO. We can all argue what happened with DR-CAFTA, 
but we got to keep our eye on the ball. This Doha round is just 
so important to the future of trade that that needs to be our 
priority, and I also agree with you, as you know, the request 
offer approach on services is not giving the type of results 
and I like the way that you used the current liberalization to 
be a standard to be met on the service industry, and I want to 
congratulate you on your testimony.
    Mr. Klinefelter, I want to ask you a question, though. I 
agree with your statement. When we went into the Doha round, 
many of U.S. were concerned with the inclusion of our anti-
dumping provisions on the table. We thought it shouldn't be on 
the table. Now I am thinking that maybe it is a good idea 
because we have seen such an erosion, let U.S. take the 
affirmative. I agree with you that there has been this use of 
the dispute settlement process within the WTO to erode our laws 
that we legitimately have a right to enforce. So, it seems to 
me the Doha round might give U.S. an opportunity to 
aggressively advance the rightful rights that we have in 
regards to dumping. My question to you is that we have a 
situation. In your statement, you say the Bush Administration 
is not standing up for these laws. We have a win-loss record of 
2-out-of-17 cases brought against the United States. Day-by-day 
the Administration allows laws in our regulatory framework to 
be whittled away in a process known as gap filling.
    I agree with that statement. I guess my question to you: 
what should we be trying to do in this round in regards to 
dispute settlement resolution process and the effectiveness of 
our anti-dumping laws? Is it more aggressiveness in enforcing 
our laws or is it fundamental changes we need in the dispute 
settlement process within the WTO?
    Mr. KLINEFELTER. Mr. Cardin, I would answer that in this 
way. First of all, we fought very hard not to get our trade 
laws on the table for these negotiations. The former president 
of the Union and myself were in Qatar at those negotiations 
when they kicked off this round.
    We fought very hard for Mr. Zoellick not to put them on the 
table because we believed then as we do now that once something 
is on the table for negotiation that there is no place else for 
U.S. to go but downhill; that a weakening will take place as 
the trade laws become part of the mix of a drive to get a 
complete agreement on other areas. As labor people we are very 
used to negotiations and we know how negotiations operate and 
how people trade one thing for another as they go down the 
    We believe that we actually need to strengthen these laws 
from what we've seen since 1998. As you know, being a member 
who has been involved with steel that without the trade laws of 
this country, the basic steel industry would not exist in the 
United States today. It would have been divided up piecemeal 
and it would have been devastating to these communities. 
Because we had trade laws--first the dumping laws, which gave 
U.S. a brief respite in the 1998 to 2000 period and then 
because this Administration implemented the 201 on the 
recommendation of the International Trade Commission and the 
support of this body, we were able to have a consolidation in 
basic steel.
    If anything, if we are going to support American industry, 
if we are going to support their modernization, if we are going 
to support the transition of those employees in those jobs that 
we need to do, we have to strengthen the trade laws in these 
negotiations, not weaken them.
    Mr. CARDIN. Well, I agree with you. It is--you are 
absolutely correct in your observations. Without the trade laws 
and the enforcement of the trade laws, we wouldn't have a basic 
steel industry in this country today, not because we can't be 
competitive, but because of the subsidized dump steel into the 
U.S. market, which really raises the issue of where do we go 
from where. I sent a letter also urging this not be on the 
agenda, because I am worried that it becomes an issue that gets 
tied into other matters where we are trying to make 
advancement. I would just urge U.S. all to put a spotlight on 
how important our trade laws have been and that we need to make 
progress in more effectively having a dispute settlement 
resolution that respects what we have previously negotiated and 
stop these appellate panels from legislating and weakening our 
laws. Thank you, Mr. Chairman.
    Chairman SHAW. Thank you, Mr. Cardin. Mr. Lewis.
    Mr. LEWIS OF KENTUCKY. Thank you, Mr. Chairman. Mr. 
Messinger, I am interested in your product and how you manage 
to export to so many countries. I am a former equipment 
salesman so that certainly interested me. Can you describe your 
experiences and what advice can you give to other U.S. small-
medium firms that consider exporting to be too complicated or 
something that only big firms can manage? Also, do you trade 
now in Central America and how important is the DR-CAFTA 
agreement to your particular concerns?
    Mr. MESSINGER. Well, it is always good to see a fellow 
salesman. Mr. Lewis, we have been in the international market 
for 40 years, yet we're only a small manufacturer. I think we 
got into it because we needed to grow our product base. The 
United States, while it is the largest market in the world 
today, is not a place that we can grow forever. There is a 
limited amount of equipment that we can sell. We manufacture 
road construction equipment, concrete paving equipment that 
makes roads, curb and gutter, sidewalk--that sort of thing. My 
advice to smaller companies is be creative. It is not nearly as 
difficult to open those doors as some might think. For example, 
we are going to use this summer an intern, a college student, 
who happens to be fairly fluent in Spanish to go to Central 
America to look for distributors and talk to road building 
    Mr. MESSINGER. It doesn't take--it is not going to cost 
U.S. very much. He doesn't need to be paid that much. He is 
going to get the experience of a lifetime. His Spanish will be 
improved and our market knowledge will be improved. So, we, our 
company, and the NAM support DR-CAFTA tremendously because this 
is going to do things for our business and all members that 
    Mr. LEWIS OF KENTUCKY. Yes. Thank you.
    Chairman SHAW. Mr. Brady.
    Mr. BRADY. Thank you, Mr. Chairman. First, I want to 
congratulate you on a great panel. This has been very 
interesting and it spawns about a thousand questions, and even 
with Mr. Klinefelter, while I disagree with some conclusions, 
makes a key point about aggressively pursuing enforcement of 
trade laws. It cuts across parties and areas in a big way.
    It is the message I heard you say, each of you say, is that 
the world is changing; that it is not enough to buy American 
anymore. We have to sell American. We have to sell our products 
and services around the world without discrimination and that 
to do that, like any successful business, you can't put all 
your eggs in one basket. Our trade policy has to negotiate 
nation-to-nation agreements that lower those barriers. We have 
to pursue regional agreements that lower those barriers, allow 
U.S. new customers, and through the WTO, through these rounds, 
we have to find a worldwide agreement and progress in a number 
of different areas.
    I talk about that diversification because Central America 
and the Dominican Republic is admittedly not a large market. 
But tell that to the Farm Bureau who will sell a billion-and-a-
half dollars more agricultural product each year to Central 
America at a time when more and more countries are closing off 
that market. Tell it to our manufacturers who will sell an 
estimated $1 billion of widgets to Central America and should 
we reject it, which we won't, but what we have at risk $4 
billion of widgets we would lose selling, which supports a lot 
of workers. You look at the services area, where through this 
agreement, we have opened up some areas in financial and 
insurance and telecom services that support a whole lot of 
American workers. We know, given a fair shot, that we are going 
to sell those products and services. Central America, as we all 
know, already sells almost all their products into America. 
Almost all their agricultural products, certainly. Our 
opportunity here is to create two-way trade so we get a shot at 
opening into that market.
    A critical part of why we have to have a diversified trade 
policy, which brings me to the question. Each of you raised it 
in one way or the other. People don't pay as much attention to 
it as they should. What are examples of NTB that our services 
companies, our manufacturing companies, and our farm producers 
are experiencing when we try to sell our markets overseas, and 
maybe, Mr. Christopherson, we could start with you and work our 
way down?
    Mr. CHRISTOPHERSON. Well, perhaps the issue that comes to 
mind right up front is those issues--we call them 
phytosanitary--those issues that somebody has decided that for 
perhaps political reasons and for trade reasons they do not 
meet the expectations of what they want. So, that has been 
probably our biggest frustration is those issues that deal with 
where we can't agree on quality and that type of thing.
    Mr. BRADY. You see any progress in that area?
    Mr. CHRISTOPHERSON. I guess it all depends on how you 
measure progress. It is very slow. As you are well aware, the 
beef issue with the Europeans kind of came to a resolution here 
I don't know how many years ago now, and we still haven't 
really resumed that level of activity.
    Mr. BRADY. In the absence of a world agreement, I think 
these bilateral agreements where we reach I think more saner, 
logical processes for this I think have been helpful. But you 
are right. We got a lot of progress to go. Mr. Messinger?
    Mr. MESSINGER. You know I think Europe is the biggest 
challenge for us. They have some NTB in the form of the CE Mark 
and things associated with that that make it very difficult for 
small manufacturers to comply with the boatload of regulations 
that they put out front. While I am sure some would say that 
the regulations are intended for the benefit of the citizens of 
Europe, which I don't doubt, and I think it has a secondary 
effect of limiting imports of products from other countries, 
particularly the United States.
    Mr. BRADY. Yes, I think that you share that with the 
agricultural community in Europe, where under the guise of an 
informed consumer what you are really doing is keeping products 
out of the marketplace so they can't consume them at all. Mr. 
    Mr. SORENSEN. I would say in the area of services, the most 
important ones are in Asia and Latin America--limitations on 
ownership. In India, for example, an asset management company 
cannot own more than 49 percent. It must have a partner. China, 
26 percent. In Brazil, there is a monopoly on reinsurance. The 
government is working on that within the scope of the WTO 
because reinsurance is a global market. In the area of express 
services, for example, I know for some of our members, Federal 
Express and United Parcel Service are having issues with 
setting up airport and land facilities in China as freely as 
domestic companies can. So, these are, although not necessarily 
in the framework of the WTO, they can enter and should enter, 
for example, the scope of the WTO.
    The DR-CAFTA did away or will do away, once the agreement 
is put forth and ratified by Congress, that the Costa Rican 
insurance monopoly will be dismantled, and that is a major 
entry for a market that is not large, but it is meaningful for 
American insurance companies. So, ownership restrictions I 
think are one area that needs to be worked on, both bilaterally 
and in the WTO area, as well as the monopolies that some of 
these countries have in their nationalized systems.
    Mr. BRADY. Great. Mr. Chairman, thank you. This is a great 
    Chairman SHAW. Thank you. Mr. Herger?
    Mr. HERGER. Thank you, Mr. Chairman, and this is a great 
panel, and I appreciate, Mr. Brady, your comments and your line 
of questioning. For our--we have our Farm Bureau, Mr. 
Christopherson, what new markets accessed do you expect to 
receive out of the Doha round and do you have a dollar estimate 
of the value associated with what we can gain from an ambitious 
agricultural deal?
    Mr. CHRISTOPHERSON. I don't know that we have ever assigned 
any dollar value to it, but if you look at the level of tariffs 
now with regard to on an average 62 percent as opposed to our 
12, even a slight reduction is certainly an improvement, and we 
recognize that this is a work in progress, and it is going to 
take a while. We have to understand that. But at the same time, 
we need to start. We need to get at it, and we need to 
recognize that if others are going to have access to our 
markets, we need to have access to their markets and for U.S. 
to become protectionist in this whole process that will be, 
indeed, a folly from the standpoint that the consuming public 
is not going to stand for that; much less, we are producers. We 
want to have access to all of the goods of other countries as 
well as our own.
    So, that is part of what trade is all about, and that is 
going to be the ultimate goal that we do have. We are not--as 
U.S. farmers, we are not afraid of competing with other 
countries as long as the playingfield is level, and as long as 
we deal with the same regulatory structure as they do and those 
types of things, and all of those we recognize. They are not 
going to happen overnight. Yet, that is our goal.
    Mr. HERGER. Just the fact, as you have mentioned, our 
average tariff on agricultural goods is only 12 percent. Yet 
trying to get into these other markets are 62 percent. It shows 
what we are up against as far as leveling the playingfield just 
in that area. Do you have any complaints regarding the manner 
that USTR has conducted consultations with you and the 
negotiations of the Doha Agricultural talks and are there any 
improvements you can suggest?
    Mr. CHRISTOPHERSON. I guess it is easy to reflect on past 
negotiations and we should have been more firm. We should have 
done this. We should have done that, and unless you are sitting 
at that table, I guess it is very difficult. I am not so sure 
that we have any great advice that hasn't already been given, 
but obviously, we would hope that our negotiators would first 
of all recognize that this is important to agriculture and that 
we need to recognize that for the health of our industry, of 
agriculture, as well as for our share of that portion of the 
economy which accrues to agriculture that is, indeed, in our 
best interest to continue this process of increasing the market 
access to allow further trade exports.
    Mr. HERGER. Certainly the fact that where agriculture is 
keeping the spotlight on this, keeping the pressure up, if you 
will, certainly helps our cause very much. How has the Sanitary 
and Phytosanitary Measures Agreement worked in your view? We 
have been successful in pushing countries toward eliminating 
unreasonable barriers, and we have won a few WTO cases: Japan, 
apples; and EU, beef hormones. Yet there are still many 
instances in which U.S. exporters cannot bring their 
agricultural goods to foreign markets, particularly in the 
horticulture area. What can be done to improve our market 
access and what does the Farm Bureau do to cooperate with the 
USDA and USTR in such matters?
    Mr. CHRISTOPHERSON. I guess quite simply it is the 
continuation and the further strengthening of the WTO process. 
That is, in our estimation at least--and I thought it was said 
very well this morning by the deputy who spoke here saying that 
without it, it would be the rule of the jungle. This process is 
not perfect, but it is at least, as I have got it figured out 
right now, it is the only one we have. So, we need to 
strengthen that and to continue to give it the respect that it 
needs and the try to assess the respect from the other 
countries also in this whole process, because it is that that 
is going to make this whole thing work.
    Mr. HERGER. Thank you very much, Mr. Christopherson, and 
each of our panelists, and, Mr. Chairman, thank you for this 
very important hearing.
    Chairman SHAW. Thank you very much, and I want to add my 
appreciation, along with Mr. Cardin to this panel. It has been 
very insightful. We very much appreciate your staying with U.S. 
this morning, and with that the hearing is adjourned.
    [Whereupon, at 12:35 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

  Joint Statement of Susan Ariel Aaronson and Jamie Zimmerman, Kenan 
                    Institute of Private Enterprise

    As the World Trade Organization (WTO) prepares to mark its 10th 
anniversary this year, few citizens or policymakers are breaking out 
the champagne to celebrate. The global governance institution has much 
responsibility, little authority, and few admirers. Moreover, its 
performance over the ten year period is mixed. The WTO has made great 
progress as a global governance institution, but as a vehicle for trade 
negotiations, it has been stuck in idle. WTO members have struggled 
since November 2001 to focus these talks on the needs of developing 
countries. Their failure to narrow their negotiations to development 
issues is hurting the world's poor and undermining the WTO's 
legitimacy. The Ways and Means Committee should pay close attention to 
this as it weighs the WTO's record.
    As a global governance institution, the WTO provides a venue for 
nations to handle trade disputes, monitors national trade policies and 
provides technical assistance to developing country policymakers. When 
the WTO replaced the GATT on January 1, 1995, it had 132 members, a 
staff of some 500, and a budget of approximately 100 million Swiss 
Francs. Today it has 149 members, including China, a staff of 630, and 
a budget of 169 million Swiss Francs. Its dispute settlement body has 
resolved over 300 trade disputes. Clearly, the WTO does a lot, cheaply.
    WTO decisions are made by members for members. Because it moves by 
consensus, decision making is slow and deliberate. Yet its members have 
successfully accommodated the addition of new countries with divergent 
economic, social and political cultures. Moreover, the WTO has learned 
from critics who don't want trade objectives to undermine the 
achievement of other important policy goals. Increasingly, dispute 
settlement panelists are illuminating ways that member states can 
protect the environment without distorting trade. The appellate body of 
the WTO is beginning to understand and illuminate ways that nations can 
achieve other policy objectives (such as maintaining cultural norms) 
without distorting trade. Moreover, the WTO is beginning to find ways 
to ensure that trade does not undermine human rights. For example, some 
47 nations currently ban trade in diamonds that are not certified under 
the Kimberley Process (a certification that the diamonds were not 
produced in situations where human rights were abused.) This is the 
first time the WTO (or the GATT) has allowed a trade waiver based on a 
human rights rationale.
    But the WTO staff and leadership can only lead by exhortation. 
Members hold the cards and develop the rules, and these same members 
seem unable to narrow their negotiations to complete a new round. But 
in November 2001, when members agreed to launch a new round they 
promised to focus on development. The bulk of the WTO's membership are 
developing countries. Many such countries felt their needs had been 
ignored or undermined in the previous rounds. Thus, in 2001 members 
agreed to ``commit ourselves to the objective of duty-free, quota--free 
market access for products originating from LDC's.'' Yet in the three 
and a half years since the Round was launched, these commitments have 
not been met. To get the negotiations back on track, in July 2004, WTO 
members agreed to limit the purview of the negotiations to five key 
areas--agriculture, industrial tariffs, trade facilitation, development 
issues and services. But as of today, these are talks about talks, and 
not commitments.
    Why have WTO members been unable to move beyond pretty words to 
complete the round? There is an inherent contradiction between the 
overarching objective expressed at Doha and the objectives and 
strategies of industrialized country WTO members as they negotiate. In 
general, industrialized country governments determine their negotiating 
positions at the national level through a broad debate influenced by 
parliamentarians, business, labor, and civil society interests. (The EU 
has a more indirect route. Trade policy is directed by a committee 
composed of representatives from the 25 Member States and the European 
Commission. The EU Parliament is only indirectly involved.) When 
policymakers determine negotiating priorities, they focus first on 
expanding markets for key export sectors, rather than on meeting the 
market access needs of their developing country trade partners. This is 
not to say these needs are ignored, but they are further down on the 
list of negotiating priorities.
    But the conflict between the overarching objectives of the Round 
and national negotiating objectives could be met by further limiting 
the parameters of the new round to true development concerns. WTO 
members should reduce the purview of the negotiations to two topics: 
agriculture and market access. This will not be easy to do. After all 
the key advocates of trade liberalization tend to be multinational 
corporations and many really want new negotiations on services and 
industrial tariffs. Policymakers might find it difficult to ``sell'' 
the results of such a round to national legislatures, who generally 
must pit the economic benefits of greater exports against the costs of 
greater imports. But policymakers from many WTO members recognize their 
economies will prosper only if they can tap new growing markets in the 
developing world. They understand that poverty can breed conditions 
where terrorism can grow. Thus, they should make every effort to reduce 
poverty. And as UN members, they have already made a commitment to 
halve poverty under the Millennium Development Goals.
    A key beneficiary of a successful development round would be the 
WTO. If the WTO fails at meeting the needs of developing countries to 
trade, it will also lose much of its legitimacy as a global governance 
institution. The U.S. would of course gain too.
    The American people have benefited significantly from the WTO warts 
and all. Yet the U.S. has not always been supportive of its work. The 
U.S. has not implemented many of the decisions of the WTO's dispute 
settlement body. Moreover, the U.S. has focused more of its negotiators 
efforts on bilateral and regional agreements. At a time when the U.S. 
commitment to internationalism is already suspect, this strategy tells 
our trade partners that the U.S. is more interested in cutting 
bilateral or regional deals that it can dominate than committing to the 
more difficult multilateral negotiations.
    Leadership entails making hard choices, helping and inspiring other 
countries to make hard choices, and taking risks in the broader 
interest of global stability. As the world's largest trading nation, 
and the world's biggest debtor, the U.S. must be actively involved and 
supportive of this multilateral institution. While far from perfect, 
the WTO deserves greater American support to make this institution 
successful as a venue for negotiations.
    Susan Ariel Aaronson is the Director and Jamie Zimmerman the 
Associate Director of globalization studies at the Kenan Institute, 
Washington, part of the University of North Carolina's Kenan Flagler 
Business School. This written testimony reflects their views and not 
that of the University.


   Statement of Alliance of American Consumers for Affordable Homes, 
                          Alexandria, Virginia
    On behalf of the Alliance of American Consumers for Affordable 
Homes (ACAH), we wish to thank Chairman Shaw for allowing U.S. to make 
a written submission to the May l7 hearing record on issues related to 
the World Trade Organization (WTO).
    American Consumers for Affordable Homes (``ACAH'') represents at 
least 95% of soft wood lumber consumption in the United States. About 
70% of that consumption is for building or remodeling American homes--
soft wood lumber is by far the largest physical input in a typical 
American house. Thus, buyers, home builders, and lumber dealers and 
retailers have been the primary victims of the ongoing trade wars 
involving the import of softwood lumber into the United States.
    In this connection, we wish to call the Committee's attention to a 
severe imbalance in WTO and U.S. trade remedy law.
    We as American consumers, are treated considerably worse in trade 
remedy proceedings in the United States than U.S. producers. It is 
important to note that the housing construction industry employs more 
than 6.5 million workers, 25 to one when compared with those in the 
U.S. forestry industry. In legal terms, this means that we do not have 
``standing'' in the cases, and that we can submit confidential 
information, but never see the replies of the other parties.
    The Congress could remedy this by legislation, but realistically, 
the U.S. would make no changes in its legislation unless other WTO 
members change theirs. Consequently, we request the Committee to urge 
USTR to include in the WTO Antidumping Agreement, Agreement on 
Subsidies and Countervailing Measures, and Safeguard Agreement, the 
following items:

      Equal standing for consumers (including distributors, 
retailers and end-users of the imported product, and possibly 
downstream industries as well) with at least foreign producers, and 
logically with U.S. producers. Why should the U.S. Government express a 
preference for U.S. producers over U.S. consumers, especially as 
``consumers'' are frequently themselves U.S. producers?
      An absolute rule that duties, quotas, or other measures 
taken under trade remedy laws (including antidumping and countervailing 
duties, and safeguards) never exceed the injury caused by the dumping, 
subsidies, or increase in imports. Before the imposition of any trade 
distorting measure, a determination be made that the measure, including 
its amount and duration, be found to be in the ``public interest'', 
including specifically a determination of the impact on consumers, and 
that the impact is less than the benefit to local producers.
      A requirement that no duties be charged on imports 
destined for customers whose orders for the domestic like product have 
been refused by domestic producers (for example, after the damaging 
hurricanes in Florida in 2004, rebuilding was severely hindered by 
shortages of cement and softwood lumber caused by existing antidumping 
and existing trade remedy measures, in circumstances where domestic 
producers could not supply the demand). We note that the European Union 
has such a provision in its trade remedy laws.
      In any case which is resolved through negotiation rather 
than the imposition of measures, U.S. consumers be given identical 
rights of consultation as producers and, that no settlement be made 
which does not give equal weight to the interests of local consumers 
and producers.

    We urgently request the Committee to instruct the Department of 
Commerce to undertake no settlement of the softwood lumber cases 
without first preparing and making public for public comment a neutral 
analysis by the General Accounting Office of the costs to U.S. 
consumers and benefits to U.S. producers of any proposal under 
    Finally, we urge the Committee to undertake an in-depth evaluation 
of the functioning of antidumping laws. We note that the U.S. 
Department of Commerce in the softwood lumber case found an average 
antidumping margin of 8% for a period of investigation during which the 
average price in Canada of softwood lumber was 18% lower than the 
average price of Canadian softwood lumber sold in the United States. 
The Committee should request Commerce to identify the source of this 
26% divergence.
    Please feel free to contact Susan Petniunas with any questions. 
Thank you for the opportunity to comment.
Participants of Alliance of American Consumers for Affordable Homes:
American Homeowners Grassroots Alliance
Catamount Pellet Fuel Corporation
Consumers for World Trade
Free Trade Lumber Council
Furniture Retailers of America
Home Depot
International Sleep Products Association
Manufactured Housing Association for Regulatory Reform
Manufactured Housing Institute
National Association of Home Builders
National Black Chamber of Commerce
National Lumber and Building Material Dealers Association
National Retail Federation
Retail Industry Leaders Association
United States Hispanic Contractors Association


             Statement Of Cold Finished Steel Bar Institute
    The Cold Finished Steel Bar Institute (CFSBI) appreciates the 
opportunity to provide this statement for inclusion in the written 
record and for consideration by the Subcommittee on Trade of the 
Committee on Ways and Means pursuant to the public hearing held May 17, 
2005, to review future prospects for U.S. participation in the World 
Trade Organization (WTO). In particular, the CFSBI appreciates Chairman 
E. Clay Shaw for convening this hearing and permitting the CFSBI and 
other interested parties to present their views on this important and 
timely topic.
    The CFSBI is a trade association representing approximately 60 
percent of the North American cold finished steel bar industry. The 
CFSBI's overall mission is to promote and encourage beneficial and 
useful growth and development of the cold finished steel bar industry 
and to foster, among the public, the government, and major user groups, 
an awareness and recognition of matters and conditions of importance to 
or affecting the industry.
    The focus of the Subcommittee's hearing is to examine: (1) overall 
results of U.S. membership in the WTO and the GATT, (2) whether future 
participation of the United States in the WTO and the multilateral 
trading system can be expected to benefit Americans, and (3) prospects 
for increased economic opportunities for U.S. farmers, workers, and 
consumers in the Doha Round of multilateral trade negotiations. In 
announcing the hearing, Chairman Shaw stated, in part: ``The WTO has 
proven to be a useful forum for building trade relationships and 
working out disputes. I cannot imagine anyone seriously thinking that 
we are better off without the WTO, but it is important that Congress 
continually review and oversee how the system works.''
    The CFSBI does not advocate withdrawal of the United States from 
the WTO. The CFSBI does not dispute that the WTO agreements have been 
useful for building trade relationships and opening up markets to 
certain U.S. goods and services. The WTO has also further strengthened 
the existing platform for building on positive developments in the 
    However, as the Subcommittee is aware, a primary focus of certain 
U.S. trading partners has long been to undermine U.S. trade remedy laws 
through whatever means possible. Unfortunately, from the CFSBI's 
perspective, creation of the WTO was itself a movement in that 
direction. These WTO members are continuing their efforts now by 
seeking ruinous amendments to the trade remedy provisions of the WTO 
agreements in the context of the ongoing Doha Round negotiations.
    The CFSBI urges the Subcommittee to actively monitor these 
negotiations and resist any attempt by the Administration to consider 
further weakening U.S. trade remedy laws. At the same time, the 
Subcommittee should press the Administration to clarify and improve the 
current trade remedy provisions in key respects so as to effectuate the 
intent originally underlying the agreements. A particular area of 
concern is the WTO Dispute Settlement Understanding (DSU). The DSU's 
deficiencies have become apparent over time. The plain facts 
demonstrate, and the Administration has confirmed, that WTO panels and 
the Appellate Body regularly exceed their authority and misinterpret 
the applicable agreements. Therefore, consistent with the 
Administration's stated objectives, a U.S. negotiating priority should 
be to amend the DSU and ensure that WTO panels and the Appellate Body 
respect proper limitations on their adjudicative role.
    Preserving U.S. trade remedy laws is the CFSBI's highest priority. 
The CFSBI urges the Subcommittee and Congress as a whole to adopt a 
similar view. U.S. support for the WTO, and before that the GATT, has 
always hinged on the agreements condemning unfair trade practices and 
ensuring the ability of governments to defend against unfair and 
otherwise injurious trade. This remained a strongly voiced U.S. 
priority at the time the current round of trade negotiations was 
launched in Doha in 2001.
    The Doha Ministerial declaration called for ``clarifying and 
improving'' the rules under the Antidumping Agreement and Subsidies and 
Countervailing Measures (SCM) Agreement, with the goal of ``preserving 
the basic concepts, principles and effectiveness of these Agreements.'' 
This language should not be interpreted now as signaling an intention 
to weaken the agreements or the corresponding provisions of the U.S. 
antidumping (AD) and countervailing duty (CVD) laws. Congress set out 
its view of this mandate and of U.S. negotiating objectives in the 
Trade Act of 2002:
    to preserve the ability of the United States to enforce rigorously 
its trade laws, including the antidumping, countervailing duty, and 
safeguard laws, and avoid agreements that lessen the effectiveness of 
domestic and international disciplines on unfair trade, especially 
dumping and subsidies, or that lessen the effectiveness of domestic and 
international safeguard provisions, in order to ensure that United 
States workers, agricultural producers, and firms can compete fully on 
fair terms and enjoy the benefits of reciprocal trade concessions....
    The need for strong and effective trade remedy laws is at least as 
strong today as it was in 2001. Following the steel crisis in 1997-
1998, and the much-deserved safeguard assistance provided by the 
Administration with Congress' support in 2002, the surge of low-priced 
imports temporarily receded. The U.S. steel industry, including 
manufacturers of cold finished steel bar, embarked on a dynamic 
transformation through modernization, consolidation, and restructuring. 
According to the American Iron and Steel Institute, the industry as a 
whole has invested $4 billion to date in this process, resulting in 
more consolidation in the past two years than in the previous two 
    However, imports have again begun increasing. Looking just at cold 
finished steel bar, imports in 2004 increased to 268,897 tons, 25 
percent higher than 2003. The 2004 import level exceeded that of 2001, 
the year before the Administration imposed safeguard tariffs. Imports 
during January and February 2005 were higher than in over a decade for 
either of these two months. Imports increased their percentage of 
apparent domestic consumption, as well, to 16.5 percent in 2004, from a 
little less than 14 percent in 2003. Moreover, at the current pace, 
imports in 2005 will exceed 2004 levels by over 50 percent.
    The WTO members now anticipate concluding the Doha Round 
negotiations by the end of 2006, in time to take advantage of U.S. 
trade promotion authority (TPA) procedures, which likely will expire by 
mid-2007. Therefore, much of the substance of a final negotiated 
package will presumably have to be in place by the time of the Hong 
Kong ministerial conference in December of this year.
    It is against this backdrop that certain WTO members--all perennial 
unfair traders--have made numerous negotiating proposals seeking not to 
clarify or improve the agreements, as called for by the Doha 
Ministerial, but rather to transform their substance, making unfair 
trade relief more difficult to obtain, more limited in scope, and 
shorter in duration. Even more significantly, we sense that the 
Administration may be willing to agree on behalf of the United States 
to do just that--substantially weaken the trade remedy laws in order to 
advance the negotiating process and obtain concessions in other issues 
such as agriculture and services. It is essential that Congress 
exercise its oversight authority, consistent with previous 
pronouncements, to resist such efforts and fully preserve the integrity 
of U.S. trade laws.
    The CFSBI urges Members of the Subcommittee to play an integral 
role in this regard. Please reaffirm that backtracking will not be 
tolerated on previous U.S. pledges to the steel industry and other 
vital domestic industries to maintain strong and effective trade remedy 
laws. Engage members of the steel and other caucuses to organize 
broader efforts within Congress. Voice a strong, persuasive, and 
consistent message to the Administration that any weakening of the 
trade laws is not acceptable and will not be approved by Congress. 
Raise these issues at every opportunity, including through letters to 
the President and direct representations to key Administration 
    Active participation by this Subcommittee and Congress in past 
negotiations has been instrumental to obtaining as favorable an outcome 
as possible. Thus, the Subcommittee should also coordinate the 
formation of a delegation from Congress to attend key events concerning 
the Doha negotiations. This should include, in particular, the Hong 
Kong ministerial in December. Demonstrating that weakening the trade 
laws during the present negotiations will not be approved in Congress 
is a substantial incentive for the Administration and our trading 
partners to avoid putting such changes into the WTO agreements.
    The WTO authorizes binding dispute settlement through the DSU, 
which the United States supported during the Uruguay Round negotiations 
creating the WTO. Since entering into force, however, the flaws in the 
DSU have become all too apparent. The WTO tribunals have misused their 
authority and misinterpreted the relevant agreements to rewrite the 
rules governing trade remedy investigations to a significant extent, 
thus thwarting the intent of the United States and other WTO Members in 
negotiating the relevant WTO agreements. The CFSBI urges the 
Subcommittee to ensure that the Administration makes this issue another 
U.S. trade negotiating priority.
    Specifically, WTO panels and the Appellate Body regularly (1) 
disregard specific limitations in the DSU on their exercise of 
discretion, (2) exploit ambiguities wherever possible to the benefit of 
complainants, and (3) go out of their way to interpret ``silent'' 
provisions or gaps in the relevant agreements as imposing obligations 
on, or limiting the discretion of, national investigating authorities. 
In Section 2101(b)(3) of the Trade Act of 2002, Congress recognized the 
seriousness of this issue: ``Support for continued trade expansion 
requires that dispute settlement procedures under international trade 
agreements not add to or diminish the rights and obligations provided 
in such agreements.'' However, Congress found that:
    (A) the recent pattern of decisions by dispute settlement panels of 
the WTO and the Appellate Body to impose obligations and restrictions 
on the use of antidumping, countervailing, and safeguard measures by 
WTO members under the Antidumping Agreement, the Agreement on Subsidies 
and Countervailing Measures, and the Agreement on Safeguards has raised 
concerns; and
    (B) the Congress is concerned that dispute settlement panels of the 
WTO and the Appellate Body appropriately apply the standard of review 
contained in Article 17.6 of the Antidumping Agreement, to provide 
deference to a permissible interpretation by a WTO member of provisions 
of that Agreement, and to the evaluation by a WTO member of the facts 
where that evaluation is unbiased and objective and the establishment 
of the facts is proper.
    There are many well-documented examples of this growing problem. 
Most apparent is a general tendency on the part of panels and the 
Appellate Body to ignore the appropriate standard of review in AD/CVD 
cases. The tribunals persistently impose obligations and restrictions 
on the use of trade remedies that are not found in the agreements and 
were never intended or negotiated by the WTO members. Likewise, the 
tribunals substitute their judgment improperly for that of the 
investigating authorities. In the case of the Antidumping Agreement, in 
particular, as referred to by Congress in the quote above, the United 
States demanded inclusion of a specific standard of review provision, 
Article 17.6, to ensure deference by WTO panels and the Appellate Body 
to findings of fact and law by investigating authorities. However, even 
many opponents of trade remedies agree that such deference is often 
completely lacking.
    The result of panels and the Appellate Body overreaching their 
authority is, for one, to offset the balance of rights and obligations 
that the United States negotiated in the Uruguay Round, which must be 
restored in the current negotiations. Only in this manner can Congress 
and domestic industries regain faith in the effectiveness and 
sustainability of the WTO and the U.S. commitment to the international 
trading system as it currently stands. To accomplish these goals, 
specific revisions are required in the text of the DSU.
    To begin, the CFSBI supports the joint Chile-U.S. proposal to the 
WTO to provide ``additional guidance to WTO adjudicative bodies'' 
regarding (1) the nature and scope of the task presented to them (e.g., 
when the exercise of judicial economy is most useful), and (2) rules of 
interpretation of the WTO agreements. Consistent with this proposal, 
the DSU should emphasize that the role of adjudicative bodies is only 
to clarify the existing provisions of covered agreements, which 
requires restraint in considering issues on which findings are not 
necessary to resolve the matter. Specifically, DSU Article 11 should be 
amended to eliminate the ability of panels to make ``such other 
findings as will assist the [WTO Dispute Settlement Body] in making 
recommendations or in giving the rulings provided for in the covered 
    In addition, the rules of interpretation should emphasize that 
panels and the Appellate Body are to defer to WTO Members' reasonable 
interpretations of existing agreement provisions and to refrain from 
filling any apparent gaps in the text of agreement provisions. In this 
regard, DSU Article 3.2 should be amended to clarify that (1) Members 
are presumed to have acted in conformity with their WTO obligations, 
(2) words or concepts cannot be imputed into agreements, (3) reasonable 
interpretations of covered agreements by Members should be permitted, 
and (4) gaps in the text of agreements reflect the absence of an 
agreement and must be respected as such.
    Furthermore, Article 17.6 of the AD Agreement (and a corresponding 
provision of the SCM Agreement) should be amended to clarify that the 
standard of review contained in those agreements supplants any other 
standard of review. Article 11 of the DSU should also be amended to 
refer to those provisions of the AD and SCM Agreements and to the 
inapplicability of the DSU standard of review to disputes under those 
    The CFSBI also supports including a provision in the DSU that 
adapts Articles 31 and 32 of the Vienna Convention on the Law of 
Treaties to accommodate the needs of WTO dispute settlement. Such WTO-
appropriate rules of interpretation could include, among other things, 
requiring consideration of ``any'' subsequent practice; permitting 
reliance on formal proposals and meeting minutes otherwise publicly 
available and posted on the WTO website in conjunction with the DSU and 
Doha negotiations as a contemporaneous record of the negotiations; and 
clarifying the use of external aids to inform the interpretation of any 
term with a ``special meaning'' that is otherwise defined by the 
    The CFSBI supports U.S. membership in the WTO. The CFSBI also 
embraces greater trade liberalization and recognizes the need for the 
WTO to evolve accordingly. However, increasing trade liberalization 
does not equate to sanctioning unfair or otherwise injurious trade; and 
winning concessions on other issues should not come at the expense of 
essential U.S. manufacturing industries, such as steel.
    The U.S. steel industry has made a dramatic turnaround in recent 
years--with the assistance of the Administration and Congress and the 
trade remedy laws currently in place. However, imports are already on 
the rise again, a trend that will only continue, in large measure from 
the very countries that advocate weakening the WTO trade remedy 
provisions. The United States has consistently pressed the view that 
strong and effective trade remedy laws are an essential and positive 
component of a sound trade policy, both in the short and long term. The 
CFSBI urges that the Subcommittee both demand and help organize a 
sustained Congressional effort to ensure that the United States 
maintains this position in the current WTO negotiations.
    Again, the CFSBI is grateful for this opportunity to provide its 
views and can address any questions or provide any additional 
information that might be considered helpful.
            Respectfully submitted,

                                                  Alton Steel, Inc.
                                                Banner Service Corp
         Charter Steel, A Division of Charter Manufacturing Company
          Charter Wire, A Division of Charter Manufacturing Company
                                                Corey Steel Company
                                          Ispat Inland Bar Products
                                      Kentucky Electric Steel, Inc.
                                          Krueger and Company, Inc.
                                                       Laurel Steel
                                           LMP Steel & Wire Company
                                                Nelson Steel & Wire
                                            Niagara LaSalle Company
                                        Sheffield Steel Corporation
                                        Taubensee Steel Corporation
                                     Vulcan Threaded Products, Inc.
                                             Wilton Precision Steel


 Statement of Jonathan Gold, The Retail Industry Leaders Association, 
                          Arlington, Virginia
    The Retail Industry Leaders Association (RILA) welcomes the 
opportunity to submit written comments for the record of this hearing 
on the Future of the World trade Organization. RILA strongly supports 
continued U.S. membership in the WTO and participation in WTO-based 
trade liberalization.
RILA and the Retail Sector
    The Retail Industry Leaders Association (RILA) is an alliance of 
the world's most successful and innovative retailer and supplier 
companies--the leaders of the retail industry. RILA members represent 
almost $1.4 trillion in sales annually and operate more than 100,000 
stores, manufacturing facilities and distribution centers nationwide. 
Its member retailers and suppliers have facilities in all 50 states, as 
well as internationally, and employ millions of workers domestically 
and worldwide. Through RILA, leaders in the critical disciplines of the 
retail industry work together to improve their businesses and the 
industry as a whole.
    The retail sector, along with the suppliers and customers that it 
serves, is an essential part of the U.S. economy. Retailers provide 
good jobs with good benefits, creating opportunities at every level of 
employment ranging from entry-level employment, part-time work, and 
jobs for non-skilled workers, to technology professionals, logistics 
experts and market analysts. Retailers serve the consumer goods market, 
an essential driver of the U.S. economy; they also serve the global 
market for consumer goods and bring U.S. products to the foreign 
markets where they operate.
    Virtually all of RILA's members, both retailers and suppliers, rely 
on international trade to conduct their businesses. Our members depend 
on imports of both finished consumer products and production inputs for 
merchandise that will eventually be sold at retail. They also seek 
opportunities to expand retail outlets in countries that are open to 
U.S. investment and expand market access for American products.
Importance of Continued Participation in the WTO
    A liberalized, rules-based trading system is essential to U.S. 
economic success and serves other important U.S. foreign policy 
objectives as well. The WTO agreements help sustain an open trading 
regime for goods and services, and the WTO itself provides an essential 
institutional forum for further rules-based liberalization of 
international commerce. The WTO's rules and institutional arrangements, 
which reflect intensive U.S. negotiating efforts over several decades, 
help ensure that the United States succeeds economically in the many 
areas where it has a comparative advantage.
    Participation in the WTO (and its predecessor, the General 
agreement on Tariffs and Trade) has enabled U.S. to marry 
liberalization of the U.S. trade regime--a beneficial step in its own 
right--to increased access around the world for U.S. producers, farmers 
and service suppliers. And there are many more benefits which 
participation in the WTO can yet deliver--notably including further 
opening of the retail and distribution sectors in key emerging markets 
around the world.
    RILA accordingly urges the defeat of H.J. Res. 27, introduced March 
2, 2005, which would rescind Congressional approval of the WTO 
agreements. Passage of this Resolution would harm the United States 
economically and undermine hard-won U.S. accomplishments over the last 
half-century in liberalizing trade and advancing the rule of law. 
Rather than repudiating the WTO agreements, the United States should 
rededicate itself to the success of the current negotiating round--the 
Doha Development Agenda--as the surest path toward advancing efficient 
resource allocation, consumer welfare, and market access for U.S. 
products, sustainable development, and general economic prosperity.
    RILA congratulates the Committee for its attention to and oversight 
of U.S. participation in the WTO. WTO-based trade liberalization has 
been, and remains, an essential element of America's economic success 
story. Passage of H.J. Res. 27 would impair our access to the trading 
system's benefits at a time when we need those benefits more than ever 
before. If RILA can be of any assistance in ensuring a decisive vote 
against this damaging resolution, please contact Lori Denham, Senior 
Vice President--Policy and Planning or Jonathan Gold, Vice President--
Global Supply Chain Policy.


         Statement of John E. Howard, U.S. Chamber of Commerce
    The U.S. Chamber is pleased to comment on the future of the World 
Trade Organization (WTO). Nearly sixty years ago, after the twin 
disasters of world depression and world war, the United States led the 
fight for a global rules-based trading system that would create new 
markets for U.S. businesses and new jobs for U.S. workers. We have also 
led by example by maintaining low trade and investment restrictions 
that are often not reciprocated by our trading partners.
    However, notwithstanding the GATT/WTO system's contributions to 
economic growth worldwide, the uneven distribution of that growth and 
attendant benefits continues to threaten already tenuous public support 
here and abroad for continued trade liberalization. This ambivalence is 
partly reflected in the scaling back of what was a truly ambitious Doha 
Development Agenda (DDA) work program adopted in November 2001.
    Absent a clear and unmistakable demonstration of commitment by the 
U.S. and other leading nations to the viability of the WTO--as an 
organization, a set of rules and a process for achieving more trade and 
investment liberalization--we are deeply concerned at the very real 
prospect that continued progress in international trade and investment 
liberalization may wither on the vine, to the detriment of U.S. and 
global interests.
    We recognize the benefits that ``competitive liberalization'' as 
practiced by this administration has had for U.S. businesses and 
workers. If one bilateral negotiation does not present a viable 
framework for achieving results, we should find another one. The truly 
impressive list of recently-concluded bilateral free trade agreements 
shows progress can be made. However, U.S. global economic interests 
require that, at some core level, we continue to insist on the 
application of comprehensive, modern trade rules on a multilateral 
    Therefore, the U.S. and other nations must do their best to ensure 
that the Doha Development Round yields additional progress. We envision 
a continuing core agenda for progress as necessarily including the 

      Agriculture. This trilogy of issues--market access 
restrictions, export subsidies and domestic supports--has represented 
in many ways a ``clash of the Titans'' in that so much of the world 
trading system's potential rests on an ability and willingness of the 
world economy's major players to agree to impose significant new 
discipline on these costly and contentious practices.

      ``Non-agricultural market access.'' Tariff and NTB 
reduction and elimination not only means improved access to foreign 
markets for a wide variety of U.S. exporters. But it has also been 
estimated that U.S. tariff elimination could save American families an 
estimated $18 billion a year in import taxes collected on everyday 
household items.

      Trade in Services. Service industries account for roughly 
eighty percent of U.S. employment. International trade in some services 
(for example, banking, insurance, the legal profession, accounting, and 
telecommunications) was first subject to multilateral trade 
negotiations in the 1994 Uruguay Round. However, it soon became clear 
that negotiating a comprehensive approach to trade in services would 
need to be much more ambitious and cover far more ground.

      In addition, trade facilitation initiatives provide 
significant opportunities to achieve real, nuts-and-bolts improvements 
for businesses of all sizes. Progress in such areas as port efficiency, 
customs procedures and requirements, the overall regulatory 
environment, and automation and e-business usage will prove especially 
valuable to smaller and medium-sized enterprises.

    There are many other issues--notably including the need for 
improved transparency in dispute settlement as well as resolution of 
such outstanding issues as investment, government procurement, and 
intellectual property--that must be addressed, whether in a WTO context 
or otherwise. Additionally, an emerging divergence in regulatory 
rulemaking poses potentially costly new obstacles to open commerce; 
future negotiations must strive for regulatory compatibility among the 
world's key economies. Finally, a negotiated agreement must prove 
acceptable to the U.S. public, and by extension the U.S Congress. This 
means care must be taken not to negotiate premature and unwarranted 
concessions in U.S. unfair trade laws or their enforcement.
    The U.S. Chamber intends to participate very closely in all 
relevant fora leading up to a successful conclusion of the Doha 
Development Round, and will have more to say on all of these issues in 
the weeks and months ahead. We look forward to working with this and 
other Committees as they continue to conduct their constitutionally-
mandated oversight of these and all trade negotiations.


   Statement of Mary Irace, The National Foreign Trade Council, Inc.
    The National Foreign Trade Council (NFTC) appreciates the 
opportunity to provide its views on the World Trade Organization (WTO) 
as part of the five-year congressional review of the WTO, as provided 
under Sections 124-125 of the Uruguay Round Agreements Act of 1994. The 
NFTC is an organization of 300 American companies which supports the 
advancement of open and rules-based trade. We strongly support the WTO 
for several fundamental reasons and urge Congress to resoundingly 
defeat H.J. Res. 27 which would withdraw U.S. approval of continued 
participation in the WTO.
The WTO/GATT Serve as the Bedrock Foundation of the Global Trading 
    The WTO and its predecessor the General Agreement on Tariffs and 
Trade (GATT) have served as the foundation of an open and rules-based 
multilateral trading system since the GATT's founding in 1948. Its 
original purpose of raising standards of living by eliminating barriers 
to trade and expanding peaceful trade among nations is as important 
today as it was in 1948. As the largest single trader worldwide, the 
United States has an enormous stake in ensuring that the WTO remains a 
vital institution in removing barriers to trade and ensuring that trade 
is based on the rule of law rather than the rule of the jungle.
    Since the GATT was first established, the United States has been as 
a leading voice and proponent of eight ``rounds'' of trade 
negotiations. Each negotiation has aimed to remove a wider range of 
barriers. Concluded in 1994, the last round of multilateral trade 
liberalization negotiations--the Uruguay Round--expanded market access 
and trading rules to cover major new areas of critical importance to 
American business, workers and farmers by including for the first time 
agriculture, services and intellectual property rights. It also 
formally created the WTO as a stand alone institution and established 
effective dispute settlement rules for the first time, which was a 
primary objective of the United States during the Uruguay Round. As the 
recent USTR report highlights, the benefits to the United States from 
its participation in the WTO have been wide-ranging and of enormous 
impact to the average working family, and American exporters, workers 
and farmers.
A Successful Doha Development Agenda is of Vital Importance to the 
        United States
    The United States is in the midst of another major new round of 
trade liberalization negotiations--the Doha Development Agenda (the 
``Doha Round'')--launched in November 2001. The Doha Round is perhaps 
more important than any previous round because of the active 
participation of developing countries and the proliferation of regional 
trade agreements, many of which exclude the United States. This year is 
critical to the ultimate success of the round with the upcoming Hong 
Kong Ministerial meeting in December and the general consensus that the 
round must conclude in 2006 at the latest. Time is running short.
    In early 2002, the NFTC issued a comprehensive set of bold 
proposals and recommendations for the Doha Round centered on achieving 
high levels of market access in industrial goods, services and 
agriculture, as well as new rules on trade facilitation. The NFTC and 
its members continue to believe that the only outcome worth aiming for 
in the Doha negotiations is an ambitious one. This means the active 
participation of all WTO Members, especially middle income developing 
countries, in addition to the United States, the European Union and 
other advanced industrialized countries.
    With respect to the spread of bilateral and regional trade 
agreements, the NFTC supports high quality and commercially meaningful 
Free Trade Agreements between the United States and its trading 
partners. However, an ambitious outcome to the Doha Round has the 
potential to liberalize trade among a much larger number of U.S. 
trading partners--close to 150 nations which belong to the WTO. 
Importantly, new access to major emerging and middle income markets 
such as Brazil, China, India, Malaysia, Turkey and other countries will 
likely only be achieved in the near term through the WTO. Tariff and 
non-tariff barriers remain high in many of these countries and the Doha 
Round offers a unique opportunity to reduce and eliminate them. If 
there are no substantial market access outcomes in these and other 
developing countries, it will be difficult to generate enthusiasm in 
the American business community for the final agreement.
U.S. Leadership Must Focus on Achieving A High Level of Ambition and 
        Win-Win Outcomes
    The NFTC has focused on ambitious outcomes across the range of 
issues in the Doha Round for two reasons. First is that the United 
States has major market access negotiating objectives in all major 
areas of the negotiation. Second, and just as important, is that 
achieving a high level of ambition across all areas will enable all WTO 
members to secure ``win-win'' outcomes through major new market access. 
This in turn will create positive momentum for the final agreement and 
will allow every WTO member to make the necessary tradeoffs or overcome 
politically sensitive issues. Major new multilateral trade 
liberalization and improved trade rules will grow the global economy, 
strengthen national economies, raise living standards and alleviate 
    The recent ``Mini-Ministerial'' meeting in Paris on May 4 was a 
positive indication that ministers are focusing on getting the job done 
and leading the negotiations in an ambitious direction. We strongly 
support this outcome, as highlighted in the range of positions we have 
issued. Most recently we issued a position paper on GATS Mode 4 
addressing the temporary movement of business personnel in the delivery 
of services. We believe the United States has pro-active and strategic 
interests on GATS Mode 4, and we also recognize that it is an essential 
component of an overall ambitious agreement on broader services, 
industrial goods and agriculture. We urge Congress to maintain a 
commonsense approach on this issue that focuses on enhancing U.S. 
global competitiveness.
    The United States, under the able leadership of former USTR 
Ambassador Zoellick, Ambassadors Deily and Allgeier, and the entire 
team at the USTR and other agencies such as the Commerce Department, 
have done a remarkable job in achieving solid progress in the Doha 
negotiations and leading the trade talks in a direction of ``can do'' 
rather than ``won't do''. We have full confidence that Ambassador 
Portman will continue to lead U.S. in the direction of achieving an 
ambitious and meaningful conclusion to the Doha Round.
    The stakes in this ninth round of multilateral trade negotiations 
are high. The outcome will, we believe, determine the future 
credibility and relevance of the WTO to the realities of the global 
marketplace. If not, then we miss a critical opportunity to make major 
advancements, rather than piecemeal, in the breaking down of trade 
barriers. This round is a test of political leadership and commitment 
to multilateralism as a main vehicle for stimulating trade and 
improving trade governance. A modest outcome will not in our view be 
sufficient to ensuring that multilateralism keeps pace with growing 
regionalism, which is counter to the most basic WTO principle of non-
discriminatory trade treatment.
    We urge Congress to support an ambitious outcome to the Doha Round 
and continued U.S. participation in the WTO by voting against H.J. Res. 
    The NFTC appreciates the opportunity to submit this statement.


                                      North Dakota Wheat Commission
                                       Bismarck, North Dakota 58503
                                                       May 20, 2005
The Honorable E. Clay Shaw, Jr.
Subcommittee on Trade
House Committee on Ways and Means
1104 Longworth House Office Building
Washington, D.C. 20515

Dear Mr. Chairman:

    We thank you for holding the hearing on May 17, 2005 to review the 
future prospects for U.S. participation in the World Trade Organization 
(WTO). We concur with your comments supporting U.S. membership in the 
WTO and that the organization is a useful forum for building trade 
relationships. We also agree that Congress should review and oversee 
how this multilateral trade system works. For, while the system has 
succeeded in many cases, challenges and obstacles do remain. The North 
Dakota Wheat Commission (NDWC) submits this written statement to your 
Committee and respectfully requests that it be made a part of the 
hearing record.
    The WTO provides an international means by which its Member 
countries can address critical issues facing the short and long-term 
export competitiveness of many U.S. agriculture products, including 
wheat produced in North Dakota. These issues range from freer market 
access in customer countries to disciplines on export subsidies and 
State Trading Enterprises (STEs) in competitor countries. As world 
trade expands, the NDWC believes that the United States must continue 
to play an active role in establishing the rules for international 
trade if our wheat producers hope to have a profitable and competitive 
    Addressing the unfair trade practices and subsidies of competing 
wheat exporters can be achieved to a certain degree through U.S. laws 
and bilateral trade agreements, but it is also clear that an 
international body like the WTO is needed to complement limitations in 
those national or bilateral trade regimes. One example of this is the 
ongoing trade distortions caused by the Canadian Wheat Board (CWB), a 
Government of Canada STE, which engages in unfair wheat pricing and 
unfairly competes for market share because of its vast array of 
government protections and subsidies. The CWB has a longstanding 
history of questionable practices aimed at systematically creating and 
developing a competitive advantage on a non-commercial basis in wheat 
markets around the world. It is the largest exporter of wheat in the 
world and its protected and subsidized monopoly status (which grants it 
exclusive rights, provides government financial guarantees, and 
protects its domestic market) allows it to distort world wheat trade 
and critically reduce market share and market value for competing wheat 
exports from the United States.
    Notably, progress and reform of the international wheat market was 
steady throughout the 1990s, with the exception of the CWB. In 1990, 90 
percent of all international wheat purchases were made by governments. 
That number is now closer to 40 percent and continues to fall. 
Ironically, China entered into WTO membership having agreed to more 
disciplines on its STEs, including the introduction of private-sector 
imports, than Canada--the United States major trading partner--has ever 
entertained. Clearly, with regard to the status and functioning of 
STEs, the WTO and its Agreements have failed.
    U.S. trade laws have provided some relief for North Dakota's wheat 
producers in our own domestic market, but further work is needed in 
international markets if we are to have a viable future in export 
markets for our wheat. It is critical that U.S. wheat producers have 
access to foreign markets and a fair chance to compete for the highest 
valued sales possible in the world market. Undisciplined, government-
subsidized STEs are a real threat to that future.
    The U.S. Trade Representative (USTR) has been a key supporter in 
our efforts to bring a more focused and global attention to the 
problems that STEs create in the international wheat market. At the 
urging of North Dakota wheat producers, and with support from all three 
national wheat organizations, the USTR launched a Section 301 
investigation into the wheat trading practices of Canada and the CWB in 
October 2000. As a result, the USTR found that the acts, policies and 
practices of the Government of Canada and the CWB are unreasonable and 
burden or restrict U.S. commerce. It found the CWB to have numerous 
government protections, privileges and subsidies which enabled it to 
unfairly erode both market share and market value for U.S. wheat 
producers and which infringe on and undermine the integrity of a 
competitive trading system. The investigation also concluded that the 
CWB is in all significant respects an arm of the Government of Canada. 
See USTR Affirmative Finding in Response to NDWC Section 301 Petition, 
Investigation No. 301-120, February 15, 2002; see also Wheat Trading 
Practices: Competitive Conditions Between U.S. and Canadian Wheat, U.S. 
International Trade Commission, Investigation No. 332-429, December 
    The USTR's investigation led to further action in the form of 
successful industry-brought countervailing duty and dumping 
investigations (14.15 percent duties on certain Canadian wheat imported 
into the United States), and USTR-initiated WTO Dispute Settlement 
proceedings. More significant progress needs to be made however, and 
active participation and involvement of the United States in drafting 
WTO language specific to disciplines on STE's is needed in the ongoing 
WTO agriculture negotiations.
    With regard to the USTR-initiated WTO Dispute Settlement 
proceeding, then-Ambassador Zoellick filed a WTO complaint on Canada's 
violation of its WTO obligations under Article XVII and Article III of 
the Agreement. The WTO Dispute Settlement Panel ruled in favor of the 
United States with regard to Article III, holding that Canada 
discriminates against imported wheat by discriminating against U.S.; 
and, that Canadian rail transportation provides a preference for 
domestic over U.S. wheat. See Final Report of the Panel, Canada--
Measures Relating to Exports of Wheat and treatment of Imported Grain, 
WTO, WT/DS276/R (2004).
    Unfortunately, the WTO Dispute Settlement Panel held that Canada 
was not in violation of its Article XVII obligations which requires 
that STEs make ``purchases or sales solely in accordance with 
commercial considerations.'' The panel's simplistic view of commercial 
considerations gives STEs a green light to engage in harmful market-
distorting behavior. The panel, on one hand, suggested that sales based 
on nationality, government policies, or the ``national (economic or 
political) interest of the STE'' are not in accordance with commercial 
considerations, and thus would be impermissible. On the other hand, the 
panel indicated that STEs may be used to carry out governmental 
policies that diverge from profit-maximizing commercial behavior. In a 
complete affront to the WTO's goals, the panel's report stated, ``We 
note, however, that an export STE might, for instance, want to charge a 
lower price than the market would bear in order to deter competitors 
from entering the market. In our view, such sales might be considered 
to be based on commercial considerations.''
    Such inconsistencies in the panel report on Article XVII has robbed 
this clause in the WTO Agreement of any meaning and precludes Member 
countries from having any viable manner of ensuring that STEs operate 
in a non-discriminatory manner. As a result of this ruling, then-
Ambassador Zoellick said, ``The finding regarding the Canadian Wheat 
Board demonstrates the need to strengthen rules on state trading 
enterprises in the WTO. The United States will continue through the WTO 
negotiations to aggressively pursue reform of the WTO rules in an 
effort to create an effective regime to address the unfair monopolistic 
practices of state trading enterprises like the Canadian Wheat Board.''
    In July 2004, a significant achievement was reached when WTO 
negotiations lead to a framework agreement for the ongoing agriculture 
negotiations. The current working language adopted by the WTO General 
Council last July, under Paragraph 18, specifically lists trade 
distorting practices of STEs including the elimination of export 
subsidies provided to or by them, government financing and the 
underwriting of losses. This portion of paragraph 18 is key to any 
effort to meaningfully discipline STEs, and it must remain in the text 
of any final agreement. If this language remains, it will be an 
important accomplishment for U.S. wheat producers in moving the CWB 
into a more market oriented and commercial disciplined entity.
    The text of Paragraph 18 of the July 2004 WTO framework agreement 
also indicates that the future use of monopoly powers will be subject 
to further negotiations. With regard to the overall operations of STEs, 
both monopoly and monopsony powers granted to these entities must be 
disciplined in order to restrain and check the trade distorting 
practices of STEs. As a monopsonist (single buyer) and monopolist 
(single seller), the CWB is inherently a trade distorting entity. The 
CWB's control of its domestic wheat supply allows cross-subsidization 
between domestic and foreign markets or across foreign markets. Thus, 
it can engage in price discrimination across all of its markets, and 
the subsidies and protection it receives from the Government of Canada 
enhance its ability to engage in such discriminatory activities in a 
way that no commercial entity could undertake. As a monopsonist buyer, 
the CWB can also force Canadian producers to adopt lower prices than 
might otherwise be acceptable under competitive conditions. The CWB's 
activities distort international markets for wheat by reducing the 
price and increasing the volume of Canadian exports to both U.S. and 
third-country wheat markets compared to levels that would exist in an 
undistorted market.
    At the conclusion of the USTR's Section 301 investigation, the USTR 
stated that it shared the NDWC's goal to end the CWB's monopoly status 
and enhance the transparency of this government-backed entity. See USTR 
Affirmative Finding, Investigation No. 301-120, February 15, 2002. The 
United States also agreed that in the ongoing Doha Round of 
negotiations that it would aggressively seek:

      To end exclusive export rights to ensure private sector 
competition in markets controlled by ``single desk,'' monopoly 

      To eliminate the use of government funds or guarantees to 
support or ensure the financial viability of single desk exporters; 

      To establish WTO requirements for notifying acquisition 
costs, export pricing, and other sales information for single desk 

    Mr. Chairman, despite the United State's leadership in the WTO 
negotiations, not all of these STE-related goals have been achieved, 
and there is always the possibility that Canada could attempt to alter 
provisions already settled under the July 2004 WTO framework agreement. 
The United States must continue to take a leading and active role in 
the agricultural negotiations in the current Doha Round. The challenges 
to the CWB in recent years have exposed the unfair structure and 
government-guaranteed powers of STEs, and the negative impact they have 
on other competing export countries. The United States' resolve in this 
matter has helped to solidify allies in efforts to bring discipline to 
STEs through the WTO. Canada now stands alone as the only WTO-member 
from a developed country which continues to resist changes to the 
current WTO framework language and disciplines on STEs.
    North Dakota's wheat producers need continued assistance from all 
available U.S. trade remedies in the interim; however, we most 
certainly need the United States to continue to press forward in this 
important fora to set the stage for free and fair international wheat 
trade in the future. Success in the WTO negotiations on these issues is 
a critical component in the WTO's relevance to the future of commercial 
markets for global wheat trade.
    Thank you for your attention to this important matter.
                                                       Harlan Klein
                                                        Neal Fisher


          Statement of Elizabeth A. Male, Export, Pennsylvania
    I take extreme exception to the opening statement of U.S. Trade 
Representative, The Honorable Peter F. Allgeier, wherein he said: 
``Simply put, the WTO exists as the most important vehicle to advance 
U.S. trade interests, and is critical to America's workers, businesses, 
farmers, and ranchers.'' Nonsense!
    The World Trade Organization has consistently demonstrated a bias 
AGAINST United States interests. One needs look no further than the 
recent trade dispute involving the Foreign Sales Corporation and the 
Extraterritorial Income Exclusion for an example of egregious meddling 
and frank bias against U.S. interests. The origins of the dispute are 
more than 30 years old and perhaps a brief history is in order.
A Brief History:
    In response to a growing international trade imbalance, Congress in 
1971 enacted legislation to encourage formation and operations of 
Domestic International Sales Corporations (DISCs). Three years later, 
the European Community challenged the DISC regime, alleging that it 
violated the General Agreement on Trade and Tariffs (GATT). A dispute 
panel subsequently concluded that the DISC regime did indeed violate 
GATT, and in 1981, a mere decade after its enactment, Congress repealed 
the DISC legislation. After reaching a consensus with our GATT trading 
partners in 1984 on international tax issues, the Foreign Sales 
Corporation (FSC) law was enacted to take the place of the repealed 
DISC regime.
    After a hiatus of nearly 17 years,\1\ the European Union (EU) 
challenged the validity of the FSC and, in 1999, the World Trade 
Organization (WTO) found the FSC regime to be an impermissible export 
subsidy. In response, we repealed the FSC legislation while 
simultaneously enacting the Extraterritorial Income Exclusion Act 
(ETI). The ETI exclusion provided broadly preferential treatment not 
only to income earned from exports, but also to foreign source income. 
It was thought that this broadening effort would cure the EU 
objections, thereby allowing the ETI regime to survive WTO scrutiny.
    \1\ ``I would like to spend a moment recalling how we got to where 
we are today. To be perfectly blunt, the EU's challenge to the FSC is a 
case that never should have been brought. Back in 1981, we reached an 
agreement with the European community to resolve challenges to each 
others' tax laws. That agreement provided the foundation for adoption 
of the FSC. Recognizing the validity of the FSC, the EU refrained from 
challenging it for over 15 years. Then, only after losing the Beef and 
the Bananas cases in the WTO, the EU cast aside our 1981 agreement and 
launched the FSC dispute. In short, this was a case brought by 
bureaucrats eager to even the dispute settlement score. The WTO 
appellate body has made clear that a benefit such as is provided 
through the ETI provisions that is tied to export activity is not 
permitted. Therefore, it will not be fruitful to pursue another, 
similar replacement of the ETI provisions. Rather, addressing the WTO 
decision through our tax law will require real and meaningful changes 
to our current international tax legislation.''--Senator Max Baucus, 
Opening Statement of the Senate Finance Committee hearing held July 30, 
2002. This refreshingly frank declaration makes it clear that this 
dispute is not rationally based and further efforts to duplicate the 
DISC, FSC or ETI regimes will be futile.
    However, in 2001 the EU lodged a complaint alleging that the ETI 
provisions amounted to an impermissible export subsidy. The Dispute 
Settlement Body of the WTO reviewed the complaint, held the ETI to be 
an impermissible export subsidy, and authorized the imposition of over 
$4 Billion annually in retaliatory tariffs. The tariffs were directed 
at a very broad range of products, including agriculture, textiles, 
metals, jewelry, and many others.
    When Congress failed to act or demonstrate meaningful progress, the 
tariffs took effect at a rate of 5% in March of 2004. They increased at 
a rate of 1% per month and were scheduled to reach a maximum of 17% in 
March of 2005. By October of 2004, when the tariffs were at 12%, 
Congress passed HR 4520, The American Jobs Creation Act of 2004, and 
President Bush signed the legislation into law on October 22, 2004.
    In fact, ``. . . Few things are as central to a country's 
sovereignty as how it raises revenue,'' \2\ Yet the majority of 
Americans appear content to allow the WTO to exert significant 
influence over U.S. tax policy with not so much as a whimper in 
protest. If the American people understood this dispute, and the effect 
on jobs, there would be rioting in the streets.
    \2\ Kenneth Dam, Deputy Treasury Secretary, testimony before the 
Senate Finance Committee July 30, 2002
Some Basics: The Arcane Distinction
    The difference between a direct tax and an indirect tax is a legal 
distinction with little or no economic difference, but this distinction 
is pivotal to this long-running international dispute. Per WTO 
regulations, an indirect tax such as the Value Added Tax (VAT) of 
Europe is border adjustable without consequence. In contrast, a direct 
tax such as the Corporate Net Income Tax (CNI) is not eligible for 
border adjustment. This disparate treatment of the two taxes which are 
economically indistinguishable serves to disadvantage U.S. goods in the 
global marketplace.
    Our corporate income tax and associated compliance costs are 
reflected in the price of goods produced by U.S. companies; raising the 
relative price of those goods in the world market. Because of the 
global nature of the U.S. CNI, this burden attaches to not only 
domestically produced goods, but to goods produced offshore as well. 
The DISC, FSC, and ETI regimes each sought to unburden our export 
products without violating the spirit or the letter of existing trade 
agreements. These legislative ``attempts to level the global playing 
field,'' were all seen as attempts to tilt the field in favor of the 
United States.
Incidence of a Corporate Income Tax vs. Value Added Tax
    Economists have struggled for decades to determine who actually 
bears the incidence of the corporate-level income tax. In the final 
analysis it appears that the ultimate incidence is not only impossible 
to predict or measure, but shifts over time in response to infinitely 
complex changing market conditions. The indeterminate nature of this 
tax burden supports the WTO prohibition of blanket border adjustment of 
the CNI; blanket border adjustment may result in subsidy rather than 
mere removal of an embedded tax component. Distasteful as it may be, 
this argument has merit.
    Like the CNI, initial incidence of the VAT is easily determined; it 
falls on the consumer. Although they are often thought of as powerless, 
consumers can collectively and unconsciously reallocate a VAT burden to 
the entity's investors and employees by decreasing their consumption of 
the firm's products. To the extent that a VAT reduces consumption and 
adversely impacts sales volume and profits, at least a portion of the 
total VAT burden is shifted to the investors and employees of 
manufacturing companies.
    Because the VAT is imposed at each level of production, similar to 
the CNI in a non-vertically integrated production process, market 
forces act in the same manner to allocate the burden of the VAT. This 
fundamental economic truth is often overlooked. It renders the legal 
distinction between the indirect VAT and the direct CNI functionally 
and economically meaningless. As U.S. Trade Representative, Robert 
Zoellick testified before the Senate Finance Committee: ``--the 
economic theory--says that the distinction between direct and indirect 
taxes that lead them to use a different treatment for the VAT as an 
indirect tax and allow a rebate versus a direct tax, say a corporate 
income tax suggests that the logic no longer holds, that basically over 
time all those taxes are passed through.'' \3\
    \3\ July 30, 2002
    As a regrettable result of this oversight or conscious disregard of 
economic fact, the VAT is border adjusted without penalty while the CNI 
burden is potentially fully extant on the consumer. To the extent that 
European investors and employees bear any of the VAT burden, permissive 
border adjustment rules serve to subsidize or artificially reduce the 
price of European products in the world market. This disadvantages U.S. 
businesses not only in European markets, but in the global marketplace 
as a whole; including within the borders of the United States.
Stated Objectives of the WTO:
    According to the WTO website: ``The World Trade Organization is the 
only international organization dealing with the global rules of trade 
between nations.'' Flowery platitudes continue: ``Its main function is 
to ensure that trade flows as smoothly, predictably and freely as 
possible. The result is assurance.'' \4\ ``The multilateral trading 
system is an attempt by governments to make the business environment 
stable and predictable.'' \5\ ``Non-discrimination is just one of the 
key principles of the WTO's trading system. Others include: 
transparency (clear information about policies, rules and regulations); 
increased certainty about trading conditions (commitments to lower 
trade barriers and to increase other countries' access to one's markets 
are legally binding). . . .'' \6\
    \4\ At: http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/
    \5\ Id.
    \6\ At: http://www.wto.org/english/thewto_e/whatis_e/10ben_e/
    Those are all lofty goals, but does the WTO really accomplish those 
goals? The irreverent and contrarian Andrew K. Rose, in a series of 
papers published by the National Bureau of Economic research, ``Does 
the WTO Really Increase Trade?'', ``Does the WTO Liberalize Trade?'', 
``Does the WTO Stabilize Trade?'', suggests that the answers to those 
questions are No, No, and No!
    His empirical strategy involved controlling for as many natural 
causes of trade as possible (multicollinearity), while searching for 
the effects of multilateral agreements in the residual. Once other 
factors such as common language or heritage have been taken into 
account, Rose compared trade patterns for countries in the GATT/WTO 
with those outside of the system. The key result with respect to 
whether the WTO increases trade: ``that membership in the GATT/WTO is 
associated with an economically and statistically insignificant 
increase in trade--seems robust.'' \7\ With respect to whether the WTO 
stabilizes trade: ``There is little evidence that membership in the 
GATT/WTO has a significant dampening effect on trade volatility.'' \8\ 
With respect to trade liberalization: ``Almost no measures of trade 
policy are significantly correlated with GATT/WTO membership. Trade 
liberalizations, when they occur, usually lag GATT entry by many years, 
and the GATT/WTO often admits countries that are closed and remain 
closed for years. The exception to the negative rule is that WTO 
members tend to have slightly more freedom as judged by the Heritage 
Foundation's index of economic freedom.'' \9\
    \7\ Andrew K. Rose, National Bureau of Economic Research, Working 
Paper Number 9273, Do we Really Know That the WTO Increases Trade? 
(October 2002) Available at: http://www.nber.org/papers/w9273
    \8\ Andrew K. Rose, National Bureau of Economic Research, Working 
Paper Number 10207, Does the WTO Make Trade More Stable? (January 2004) 
Available at: http://www.nber.org/papers/w10207
    \9\ Andrew K. Rose, National Bureau of Economic Research, Working 
Paper Number 9347, Do WTO Members have More Liberal Trade Policy? 
(November 2002) Available at: http://www.nber.org/papers/w9347
    Not all agree with Rose's findings. Authors Subraminian and Wei, in 
a paper written for the National Bureau of Economic Research, ``The WTO 
Promotes Trade, Strongly But Unevenly,''are somewhat critical of Rose's 
work. They argue that after refining his econometric methods, 
correcting for differences between developed and developing countries, 
and differences between countries that joined the WTO before the 
Uruguay Round (members of GATT), and those who joined after the Uruguay 
round: They claim to have found robust evidence that the WTO promoted 
world trade.\10\ However, a closer examination of their work indicates, 
by their own admission: ``The basic Rose result about the 
ineffectiveness of the WTO in increasing trade is illustrated in column 
1. Indeed, if membership in the WTO is undifferentiated, with all 
countries treated alike, our result is a more damning indictment of the 
WTO than even that in Rose (2002a). He found that membership in the WTO 
had no significant effect on trade. We find that membership has a 
significantly negative effect on trade: the average WTO member trades 
about 11 percent [exp(^0.113)^1] less than the average in the sample 
(column 1).'' \11\ Subraminian and Wei continue in their analysis, 
engaging in nothing more than pretzel logic, to conclude that the WTO 
is an effective promoter of trade. Nonsense!
    \10\ Arvind Subramanian and Shang-Jin Wei, National Bureau of 
Economic Research, Working Paper Number 10024, The WTO Promotes Trade, 
Strongly But Unevenly (October 2003) Available at:http://www.nber.org/
    \11\ Id. At 9
    Truly free and fair trade proceeds from individual rational self-
interest, and there is no need for an unelected, international 
bureaucracy to oversee or promote it. Economist Murray Rothbard said it 
best: ``You don't need a treaty to have free trade. Governments and 
quasi-government bodies like the WTO can only politicize and interfere 
with the natural flow of goods and services across borders. When we 
cede even a fraction of our sovereignty to an organization like the 
WTO, we can hardly hope to become more prosperous or more free.''
    The United States must extricate itself from the artificially 
imposed stupidity of the corporate net income tax and the ineffective 
World Trade Organization. Neither serves the interests of the United 
States. Only when we have freed ourselves from the self-imposed 
impediments will trade flow unconstrained by unelected and unresponsive 
international bureaucrats and only then will the productivity of the 
American worker shine like a beacon for the rest of the world to 
Please de-fund the World Trade Organization and remove U.S. from 
        participation therein.


 Joint Statement of Dr. Peter T. Nelson and Jennifer Lambert-O'Keefe, 
           International Trade Council, Alexandria, Virginia

    Mr. Chairman and members of the committee, thank you for the 
opportunity for the International Trade Council (ITC), and the 
International Development Institute to present testimony on the 
``Future of the World Trade Organization (WTO), as well as testimony on 
the General Agreement of Tariffs and Trade (GATT).
    I am Dr. Peter T. Nelsen, President of the ITC and Chairman of the 
IDI. We have since 1975, for 30 years represented a broad cross section 
of the U.S. producers of commodities, good and services relating to 
exports and imports. We have conducted Trade Development Seminars, 
Congressional Liaison Sessions and Overseas Trade Development Missions.
    The GATT and the WTO are the systems that have developed the ground 
rules and relating laws by which international trade has developed 
since the dismal failure of the Smoot-Hawley Tariff Act of the early 
1930's. The World living standards of the U.S. including health 
systems, education, communications and most other aspects of civilized 
life on earth have evolved and improved the quality of life 
dramatically in each country to the extent that each population has 
    The overall results of the U.S. membership on the WTO and the GATT 
are difficult to ascertain because there is no ``scientific date on a 
``controlled population'' with which to compare changes.
    The average U.S. growth of exports and imports during the last five 
decades is 7% on a cumulative basis or twice the 3% average U.S. 
domestic growths, although starting at a much lower base.
    The performance of the trading counties have greatly benefited from 
the trade laws and regulations that have been established by the WTO, 
GATT, The United Nations and by the other intergovernmental 
    The basis question--Do we need the WTO and GATT is as profound a 
question as ``Do we need the United States Constitution?'' There is no 
``substitute,'' nor alternative.
    The WTO and GATT have substantially expanded the trade categories 
they now include trade in services, i.e. banking, consulting, 
accounting and information dissemination, as a result of the DOHA 
    Further participation in the multinational trading systems is of 
essential benefit to Americans. There are numerous aspects to trade 
that have not yet been agreed upon such as:

     Intellectual Property Protection
     Tariffs used as trade Barriers
     Uniformity Standards on Property Rights

    There are substantial increased opportunities for U.S. farmers, 
workers and consumers inherent within the DOHA Round of negotiations.
    The U.S. will benefit for the increases in trade. It was 5% of the 
U.S. Gross Domestic Product in the 1940's; it was 20% by the end of the 
20th Century. The projections of the International Development 
Institute, (IDI) is that by the year 2010, U.S. Gross Domestic Product 
will be 25%, our projections further indicate that by the year 2020 the 
U.S. GDP will be 31% and by the years 2025, we project the annual U.S. 
Gross Domestic Product to be at 35%, given a 2% margin of error.
    These figures assume that Congress will eventually pass the 
bilateral and multilateral trade legislation that the previous 4 United 
States Presidents have proposed, including DR-CAFTA Trade Agreement and 
the ``Trade Agreement of the Americas,'' which would encompass all the 
countries from Canada down to Argentina.
    ITC testified in the early 1980's before both the Senate Finance 
Committee and the House Ways and Means Committee on the subject of 
negotiations of Free Trade Agreements with any country independently. 
Since it seemed very difficult to get 98 countries of the WTO, which 
was the membership number at that time, to agree in concert.
    If any country would agree, the other non participating countries 
would be obliged to follow, given that they would see other member 
counties increase their competitiveness in the world to the benefit of 
all farmers, manufacturers, service industry related workers and 
consumers from the increase of the ``Economies of Scale,'' that will 
obviously ensue.
    Market-driven globalization is a ``positive-sum'' system whereby 
all participants benefit, i.e. all company's workers and consumers by 
enlightened self-interest.
    By elimination trade barriers and tariffs, producers can produce 
products and services at a more competitive price. Thus benefiting 
consumers both hear and overseas with ``Freedom of Choice,'' in the 
world market place.
    Mr. Chairman, and Members of the Committee, I thank you for your 
attention to my testimony provided you today. It is my honor that you 
have the benefits to consider its statistical and academic merits to 
the benefit of all Americans.


       Statement of Joe E. Sheldon, Huntington Beach, California
    For the past several years as a matter of personal interest I have 
been researching and investigating different types of possible tax 
systems this country might benefit from.
    In the course of this work I have naturally encountered the Word 
Trade Organization and other non-U.S. governmental bodies purporting to 
improve and control trade between countries. As a country we seem to 
blow hot and cold with an on-again off-again love affair with such 
bodies depending, perhaps, upon the direction of the political winds at 
the particular moment.
    In looking at such involvement over time, it really appears to be 
almost unremittingly a case of shooting ourselves in both feet and 
putting organizations and individuals from our country at a great 
disadvantage with respect to such trade. It is perplexing to me as to 
why we are in such a quandary as we now exhibit by these hearings.
    I have never been able to satisfactorily answer in my own mind why 
we allow ourselves to have our trade so greatly controlled or 
influenced by these offshore bodies who after all have other interests 
at heart than our own. There seems to be some mis-guided belief that we 
must be ``Mr. Nice Guy'' and align our own trade affairs with the 
desires of others so as to not trigger all-out trade wars.
    Certainly such economic no-win situations as trade wars or trade 
retaliation are laudable goals, but this can surely be accomplished by 
noting the border-adjustability of the European Value Added Tax or VAT. 
These VAT countries enjoy a great advantage over U.S. since their 
things sold to others are freely border adjustable under the WTO 
regulations as I understand them.
    The VAT form of taxation is certainly not a good choice for a 
people as free we are. With all of its attendant problems in logistic 
and administrative complexity (which are extensive) in addition to the 
cascading of taxes despite extensive artificial attempts to do 
otherwise, any form of the VAT--simply put--works poorly and has the 
additional downside of actually encouraging truly a blizzard of evasion 
and non-compliance. In short, in the over 100 countries instituting a 
VAT (with most having the mistaken belief that it will eliminate tax 
cascading and tax consumption), the actual real life experience has 
been different--quite different. Almost all of these countries end up 
with huge numbers of exemptions and exceptions and other types of 
income taxes (personal and/or corporate) as well truly making taxes 
into a hybrid tax system--a nightmare if ever there was one.
    If one looks at the VAT experience it is not difficult to see 
swelling compliance and seemingly never ending bureaucratic levels of 
regulation and paperwork with a great amount of non-compliance and 
evasion. That is the tradeoff for the VAT countries--compliance with 
the WTO mandates to free up their foreign trade but with a nightmare 
internally. We do not need to go this route; indeed it would be foolish 
to do so.
    There is a mechanism for this country that offers the border-
adjustability of taxes--an indirect tax in WTO parlance. This system is 
presently in the form of bills before Congress--HR25/S25 which are 
originated as non-partisan efforts to solve, among other things, the 
border adjustability of taxation thereby aiding our exporters in other 
markets and taxing incoming products equally as our own when sold. 
These bills, knows as the FairTax bills, have many economic and 
internal political benefits and--being fairly small--can be easily 
digested from the Internet. There has been more economic research into 
these bills than any other tax measure in American history and they are 
worthy of serious study by the Subcommittee and full Committee 
especially from the standpoint of easing our trade deficits and 
    I shall not repeat the extensive research done on the bills but it 
is readily available on the Internet also and many private citizens 
have obviously look into the matter as can be seen from the large 
number of comments from Individuals on the 2nd Request for Comments by 
the President's Tax Reform Panel. It is clear that some of these 
looking at the FairTax recognize its benefits from the standpoint of 
easing the deleterious effects of WTO regulations on our foreign trade.
    I would urge the Subcommittee and, in turn, the full Committee to 
seriously investigate the FairTax as it relates to the WTO with an eye 
to becoming as knowledgeable as some of the citizens are becoming. The 
AFFT (Americans for Fair Taxation) organization, a non-partisan group, 
already has about 600,000 members and is growing. Please consider the 
highly-researched material offered relating to the FairTax. I believe 
it is a better solution--FAR better--than any tax system such as any 
form of VAT (or flat tax for that matter). It will greatly aid our 
overseas trade situation.


      Statement of Barry Solarz, American Iron and Steel Institute
I. Introduction
    In response to the request of the Subcommittee on Trade of the U.S. 
House of Representatives Committee on Ways and Means (the 
``Subcommittee''), the American Iron and Steel Institute (``AISI''), on 
behalf of its U.S. member companies who together account for 
approximately three-fourths of the raw steel produced annually in the 
United States, is pleased to provide the following submission regarding 
future prospects for U.S. participation in the World Trade Organization 
    The Subcommittee's solicitation of submissions relates to its May 
17, 2005 hearing on the future of the World Trade Organization, 
focusing on (1) overall results of U.S. membership in the WTO and 
General Agreement on Tariffs and Trade, (2) whether future 
participation of the United States in the WTO and the multilateral 
trading system can be expected to benefit Americans and (3) prospects 
for increased economic opportunities for U.S. farmers, workers and 
consumers in the current round of WTO negotiations, called the Doha 
Development Round (``Doha Round''). The following comments do not 
attempt to address all of the myriad potential issues presented by 
these topics, but instead focus on areas of core concern in terms of 
the operation of the WTO, as well as prospects for continued U.S. 
    In particular, and as discussed in more detail below, a number of 
very serious issues confront the WTO and the United States as it 
contemplates the future of this organization--including the fact that 
the dispute settlement system is clearly broken (and not acting in the 
best interests of the United States), critical disciplines against 
dumping, subsidies and other forms of unfair trade are under attack and 
in danger of being made ineffective (both by rogue dispute settlement 
decisions and by Doha Round negotiations) and the WTO system embodies a 
number of other basic inequities that are harming fundamentally 
American workers and businesses. These issues will need to be dealt 
with and meaningfully addressed if support for the WTO system is to be 
maintained in the United States.
II. The Manufacturing Crisis and Unsustainable Trade Deficits Demand 
        That Problems with the International System Be Rectified
    Despite concerns--particularly with regard to the effect on trade 
remedy laws and the operation of international dispute settlement 
mechanisms--American steel producers have supported past trade 
agreements and market-opening initiatives, including the Uruguay Round 
Agreements creating the WTO. Indeed, domestic steel producers have long 
believed in and promoted a strong and vibrant multilateral trading 
system. AISI believes, as it has for many years, that U.S. workers and 
businesses can thrive in a global economy that rewards innovation, hard 
work and market outcomes. Unfortunately, such outcomes are too often 
defeated by unfair trade and market distortions that rob the 
international system of its promise and deny critical benefits to 
American workers and companies. The fact is that the WTO has not been 
successful in addressing these problems and, in fact, has often 
exacerbated them through indefensible dispute settlement decisions and 
inequitable global rules.
    In 1994, the last full year before the WTO came into existence, the 
United States had a trade deficit of $150.6 billion.\1\ At the time, it 
was widely hoped that the WTO would level the playing field for U.S. 
companies, leading to a reduction in the trade deficit. This hope has 
not been fulfilled. During 2004, the U.S. trade deficit hit an all-time 
high of $650.8 billion. Indeed, the U.S. trade deficit last year with 
China alone was $162.0 billion--a figure greater than our trade deficit 
with the entire world just a decade ago. Furthermore, the data for the 
first quarter of 2005 indicate that the United States is currently on 
pace for a $730 billion trade deficit.\2\ These astronomical deficits 
are not due merely to the explosion of imports, but to relatively poor 
export performance. Indeed, U.S. exports have lagged since the creation 
of the WTO, growing only 4.7 percent in the last five years--as 
compared to a growth rate of more then 30 percent in the five years 
before the WTO was created. These enormous and unprecedented trade 
deficits represent a severe imbalance in the global economy that could 
ultimately have disastrous consequences--including undermining the 
position of the dollar, destabilizing world economies, destroying the 
U.S. manufacturing base and damaging the national economic security of 
the United States.
    \1\ U.S. trade balance data in this submission are taken from the 
U.S. Census Bureau's web page, available at http://www.census.gov/
foreign-trade/balance (last visited May 17, 2005).
    \2\ For the first three months of 2005, the United States had a 
trade deficit of $183.115 billion. On an annualized basis, this would 
be a trade deficit of $732.46 billion. (183.115 x 4 = 732.46).
    In fact, exploding trade deficits have coincided with a time of 
crisis for American manufacturing--which has seen devastating losses in 
employment and entire industries pick up and move overseas. U.S. 
manufacturing employment today is down almost 3 million jobs since the 
summer of 2000.\3\ Even as the U.S. economy has expanded in recent 
years, these lost jobs have not been replaced.\4\
    \3\ U.S. manufacturing employment fell from 17.325 million jobs in 
July 2000 to only 14.308 million jobs in April 2005. U.S. Bureau of 
Labor Statistics, Series ID CES3000000001 (Manufacturing), available at 
http://www.bls.gov (last visited May 17, 2005).
    \4\ In the last two years, the number of U.S. manufacturing jobs 
has actually declined, from 14.615 million jobs in April 2003 to 14.308 
million jobs in April 2005. Id.
    Unbelievably, at a time when the United States is running the 
largest trade deficits in the history of the world, it has also become 
the top target of litigation at the WTO.\5\ In decision after decision, 
often based on ridiculous legal reasoning and the invention of new 
requirements out of whole cloth, \6\ WTO dispute settlement panels have 
struck down U.S. laws and practices--including in areas relating to 
taxation, appropriations, agricultural support and, perhaps most 
important, trade remedy laws. So as the United States continues to soak 
up more and more of the world's exports, our trading partners have seen 
fit to exploit a blatantly unfair and inept dispute settlement system 
to extort even more concessions out of the United States--gaining 
through litigation what they could not secure through negotiation. 
Americans will not long support a system that operates this way.
    \5\ Eighty-nine disputes have been filed against the United States 
at the WTO, far more than any other member. The European Union is 
second with 53 disputes, while no other member has faced more than 17 
    \6\ Specific examples of such decisions can be found in Section 
III.A.1 of this submission.
    There can be no doubt that these developments have already 
significantly undermined U.S. support for the multilateral trading 
system. If the fundamental problems facing the system are not 
rectified, such support will quite possibly disappear altogether.
III. Fundamental Problems With the WTO System
A. The WTO Dispute Settlement System Is Broken
    Binding dispute settlement was hailed as one of the central 
accomplishments of the negotiations that led to the WTO. U.S. workers 
and businesses were promised that a binding settlement process would 
force foreign countries to fulfill their commitments to open their 
markets to U.S. goods--while respecting U.S. laws and practices in 
critical areas such as the trade remedy statutes. Unfortunately, this 
system is not working as advertised. Both dispute settlement panels and 
the WTO Appellate Body (``AB'') have issued numerous rogue decisions 
that have no basis in the WTO agreements. These bodies have also 
disregarded the proper standard of review in disputes involving trade 
laws. Finally, these problems are exacerbated by the almost complete 
lack of transparency in the dispute settlement process. Each of these 
problems is discussed in more detail below.
1. WTO Dispute Settlement Panels and the Appellate Body Have Issued 
        Numerous Rogue Decisions
    Despite having the most open market in the world and running 
staggering trade deficits, the United States has found itself the 
primary target of challenges in the WTO dispute settlement system. 
Since the beginning of 2001, the United States has been the defendant 
in 19 of the 36 cases decided by the AB--i.e., in more cases than the 
rest of the world combined.
    These challenges relate to U.S. law and practice in a vast array of 
economic and policy areas--including tax rules (as reflected in the 
Foreign Sales Corporation tax case); agriculture (as seen in the cotton 
decision); appropriations (the so-called ``Byrd Amendment'' case); 
foreign policy (as shown in the Helms-Burton/Cuba litigation); the 
environment and conservation (shrimp/turtles); and morals/decency 
(internet gambling). In case after case, panels of international 
bureaucrats have twisted the meaning of international rules, and 
invented new obligations, in the course of striking down U.S. laws and 
practices. These foreign bureaucrats apparently view it as their 
province to second guess the sovereign decisions of the U.S. Congress 
and Executive Branch, and are all too willing to go well beyond the 
text of WTO agreements to, in effect, make policy for the United 
    In no area have these decisions been more harmful to Americans--and 
in particular to our manufacturing base--than those relating to trade 
remedy laws. The one common thread in all of these cases is that the 
United States never agreed to the restrictions that have been found on 
the use of basic fair trade disciplines. Indeed, in many instances, 
Congress was specifically told (at the time it approved the WTO 
agreements) that U.S. practice was consistent with the relevant 
international agreements. These cases have already significantly 
impacted the effectiveness of U.S. trade remedy laws, and threaten far 
greater damage if this system is not reformed. Here are a few examples 
of such decisions:

      Disbursement of Antidumping(AD) and Countervailing Duties 
(CVDs). The AB found that the Continued Dumping and Subsidy Offset Act 
of 2000 (i.e., the Byrd Amendment) is a ``specific action against 
dumping and subsidization'' in violation of the Antidumping Agreement 
and the Agreement on Subsidies and Countervailing Measures (``SCM 
Agreement''). The AB reached this decision despite the fact that the 
Byrd Amendment simply governs how the United States spends the duties 
that it lawfully collects and does not provide for any action to be 
taken against dumping or subsidization or against imports that are 
dumped and subsidized.
      Zeroing. The AB has ruled against the United States use 
of ``zeroing'' in a recent AD investigation. The decades-old practice 
of ``zeroing'' merely ensures that so-called ``negative margins'' on 
fairly trade merchandise in the United States are not improperly used 
to offset a foreign producer's dumping margins on merchandise sold at 
less than fair value. To the extent fairly-traded sales were allowed to 
offset the margins on unfairly-traded merchandise, foreign producers 
could sell massive quantities of dumped products in the U.S. market to 
the extreme detriment of U.S. workers and businesses.
      Standard for Causing Injury. In several cases, WTO panels 
and the AB have created a completely new obligation in AD cases 
pursuant to which injury determinations must ``separate and 
distinguish'' the effect of dumped imports from that of every other 
possible cause of injury. This causation standard--which was simply 
invented by WTO panels and the AB--is unduly burdensome and likely 
      Facts Available. Several WTO decisions have undermined 
the ability of investigating authorities to use ``facts available'' and 
adverse inferences when foreign producers or exporters fail to 
cooperate in AD and CVD proceedings, including the five-year ``sunset'' 
reviews.\7\ These tools are essential to enable such authorities to 
obtain the information they need to make their determinations.
    \7\ See,e.g., United States--Antidumping and Countervailing 
Measures on Steel Plate from India, WT/DS206/R (June 28, 2002) (finding 
that the Commerce Department's rejection of information submitted by 
the Steel Authority of India Ltd. (``SAIL'') in an antidumping 
investigation and its reliance on facts available was improper, even 
though substantially all the information needed for the calculation of 
SAIL's dumping margin was untimely submitted and was completely 
      Safeguards. The AB has struck down every safeguard 
decision that has ever come before it, and has created such unworkable 
requirements in this area as to make the Safeguards Agreement 
essentially a dead letter. The undermining of this remedy makes it all 
the more critical that antidumping and anti-subsidy provisions see no 
more weakening whatsoever.

    These rogue decisions are without basis in the WTO agreements and 
should be overturned. Such aggressive judicial activism is causing 
untold damage to the reputation of the world body and, if unchecked, 
could entirely undermine support for the WTO in this country.
2. WTO Dispute Panels and the AB Have Disregarded the Proper Standard 
        of Review
    The repeated abuses at the WTO--and the refusal of dispute 
settlement panels and the AB to respect the discretion and authority of 
the U.S. government--are particularly outrageous given that negotiation 
of a deferential standard of review in trade remedy cases was one of 
the key U.S. objectives and achievements in the negotiations that 
created the WTO.
    Indeed, the WTO Antidumping Agreement contains specific language 
stating that when a relevant provision of the Agreement admits to more 
than one permissible interpretation, WTO dispute settlement panels and 
the AB shall uphold a member's antidumping measure if it rests upon any 
of those permissible interpretations. This common-sense provision was 
designed to ensure that international bureaucrats defer to reasonable 
agency interpretations and applications of the rules--rather than 
substituting their own judgment and creating new obligations to which 
the United States and other Members never agreed.
    Unfortunately, the dispute settlement panels and the AB have all 
but ignored this standard of review. In case after case, they have 
concluded that there is only one acceptable interpretation of the 
Antidumping Agreement--that imposed by the AB or the panel. This 
blatant attempt to undermine the ability of U.S. agencies to interpret 
and apply our laws has further eroded the WTO's credibility, and 
significantly damaged U.S. interests.
3. The WTO Dispute Settlement Process Suffers from a Lack of 
    The defects in the WTO dispute settlement system are only further 
magnified by its remarkably secretive and non-transparent method of 
resolving disputes. Among the obvious shortcomings in this system:

      Members of WTO dispute settlement panels are often 
obscure bureaucrats chosen by the WTO Secretariat--with questionable 
expertise and without sufficient guarantees of their objectivity.
      All hearings conducted by WTO dispute settlement panels 
and the AB are closed to the public, which may not even obtain 
transcripts of such hearings.
      The public has no right of access to the briefs and 
filings submitted by other countries in WTO dispute settlement 
      Private parties (including those who originally filed and 
successfully prosecuted a particular case at the national level, who 
intimately know the record, and whose interests are directly affected 
by the outcome of that case) have no right to submit briefs, appear at 
WTO hearings or participate in WTO proceedings.

    No court in America would allow even the most minor legal dispute 
to be decided by such patently flawed procedures. But the WTO uses them 
to make critical decisions affecting our sovereignty, decisions that 
can be worth billions of dollars to U.S. workers and businesses. It is 
simply unrealistic to expect that Americans--who have long recognized 
that transparency is absolutely essential to good government--could 
ever respect or support a body that operates in such a manner.
B. Global Rules and Practices under the WTO System Are Unfairly Harming 
        U.S. Workers and Businesses
    At the same time that Americans are being harmed by a broken WTO 
dispute settlement system, they are also laboring under international 
rules that are often inexplicable and patently unfair. Two areas that 
deserve priority consideration in the context of future U.S. 
participation in the WTO are (1) unfair international tax rules and (2) 
international currency manipulation.

      Border Adjustability of Taxes. WTO rules allow so-called 
``indirect'' taxes, such as the value-added tax (``VAT'') principally 
relied upon by many U.S. trading partners, to be refunded when a 
product is exported without being considered an illegal subsidy. 
However, direct taxes, such as the income taxes used in the United 
States, may not be refunded. To make matters worse, U.S. products sold 
in foreign markets are subject to the VAT, whereas foreign companies 
bear no U.S. income tax in selling in the United States. The result is 
that nations using the VAT have received an artificial and unfair 
advantage in international trade, whereas U.S. companies selling abroad 
are essentially double-taxed. There is no legitimate economic 
justification for the disparity, which serves as an enormous 
competitive handicap to U.S. businesses and manufacturers. Congress has 
for years demanded that this disparity be fixed, and has included it as 
a principal negotiating objective in legislation granting the President 
trade promotion authority. And yet nothing ever seems to be done about 
      Currency Manipulation. Another critical area in terms of 
global trading rules--and the unfairness to U.S. businesses and 
workers--relates to the blatant currency manipulation engaged in by 
China and other foreign nations. These efforts to keep the dollar 
artificially high (while depressing the value of foreign currencies) 
act to encourage imports into the United States and to discourage U.S. 
exports--directly contributing to the trade deficit and serving as a 
major impediment to U.S. manufacturing and other businesses. By playing 
the currency markets in this manner, such countries effectively 
subsidize their exports to the United States, and place a tariff on 
U.S. shipments to them. Just last week, the Secretary of the Treasury 
stated with respect to China that ``(t)he current system poses a risk 
to (its) economy, its trading partners, and global economic growth.'' 
    \8\ Press Release from the Department of Treasury Office of Public 
Affairs, ``Statement of Secretary John W. Snow on the FOREX Report (May 
17, 2005).
      Export Restrictions on Raw Materials. Foreign government 
interventions, restrictions and distortions in the coke, iron ore, 
scrap and other key raw material markets are on the rise. It is 
important not only to eliminate tariff and non-tariff barriers (NTBs) 
to imports, but also to end taxes and restrictions on exports. In the 
WTO Non-Agricultural Market Access (NAMA) negotiation, AISI supports 
vigorous U.S. government efforts to end foreign government export taxes 
and other export restrictions on raw materials.

    While attempts have been made to challenge these practices under 
WTO rules, thus far there has been no effective resolution. To the 
extent current global rules are not sufficient to discourage and remedy 
such blatantly market-distorting behavior, changes are clearly needed.
IV. Needed Reforms and Actions to Address Problems with the WTO
    For all of the reasons given above, U.S. support for the 
multilateral trading system is at risk. Unless these problems are 
addressed, the legitimacy of the entire system could be undermined and 
calls for the United States to withdraw from the body will only 
increase. Efforts to redress the problems that exist should focus 
initially on three vital tasks: (1) preserving and enhancing trade 
remedy laws in the Doha Round, (2) reforming the WTO dispute settlement 
system and (3) correcting the fundamental disparities in global rules 
that continue to distort global markets. Each of these tasks is 
discussed in more detail below.
A. Preserve and Enhance Trade Remedy Laws in the Doha Round
    U.S. trade remedy laws--particularly the AD and CVD laws--play a 
vital role in assuring U.S. workers and businesses that free trade 
constitutes fair trade. With the most open market in the world, 
American producers and workers expect and deserve that those trading in 
this market will do so in accordance with decades-old rules requiring 
fair trade. At a time of growing challenges to our manufacturing 
sector, fair trade disciplines are more important than ever--both to 
ensure the survival of core U.S. industries, and to preserve support in 
this country for open trade and the international system. Accordingly, 
it is imperative that the United States seek to overturn the WTO's 
rogue decisions regarding trade remedy laws, resist efforts to use the 
Doha Round to undermine these laws and push for changes to strengthen 
such laws.
1. Overturn the WTO's Rogue Decisions on Trade Remedy Laws
    As discussed above, WTO dispute settlement panels and the AB have 
issued numerous decisions significantly weakening U.S. trade remedy 
laws--and going well beyond the obligations to which the United States 
agreed in the Uruguay Round.\9\ The first thing that should be done in 
the new Round of trade talks is to restore the balance of rights and 
concessions that was agreed to in creating the WTO, and that means 
reversing the flawed decisions undermining fair trade disciplines. 
Among other things, U.S. negotiators must seek explicit recognition of 
the right to distribute unfair trade duties to injured industries, and 
must reverse the overreaching of WTO panels and the AB with respect to 
zeroing, the injury causation standard, the use of facts available and 
other key trade remedy provisions.
    \9\ For examples of such decisions, see Section III.A.1 of this 
2. Resist Any Weakening of Trade Remedy Laws
    A number of U.S. trading partners--including the most consistent 
and egregious offenders of international disciplines against unfair 
trade (such as Japan, Korea, and Brazil)--have made the weakening of 
U.S. trade laws their top priority for the Doha Round. U.S. negotiators 
must avoid any negotiation or agreement that would result in a 
weakening of U.S. trade laws. A weakening change would include any 
measure that would make relief more difficult or costly to obtain, 
would delay or preclude effective relief or would make relief more 
difficult to maintain over time. The proposals that have already been 
made in the negotiations by parties such as the so-called ``Friends of 
Antidumping'' clearly constitute weakening changes. These include, for 
example, proposals for:

      A so-called ``lesser duty'' rule (which would require 
inherently speculative and political judgments as to the amount of duty 
required to remedy any injury caused by unfair trade);
      A requirement that national administrators consider 
factors in addition to the existence of unfair trade (e.g., amorphous 
concepts of ``public interest'') in determining whether relief can be 
      Raising so-called de minimis levels of dumping or 
subsidization to, in effect, immunize greater amounts of unfair trade;
      Mandatory revocation of AD and CVD orders after five 

    There should be one and only one response by U.S. negotiators to 
these and other weakening proposals--each one should be flatly 
rejected. Congress should make clear that it will reject any new trade 
agreement that contains such provisions, or that would weaken U.S. 
trade remedy laws, either with respect to individual provisions or in 
their overall effect.
3. Push for Changes to Strengthen Trade Remedy Laws
    Indeed, U.S. negotiators should look beyond existing disciplines on 
unfair trade to seek ways to strengthen and close any loopholes in 
those disciplines. For example, the United States should press for 
changes such as the following:

      Establish a presumption of injury and causation in cases 
involving repeat offenders of the laws against unfair trade. (Such 
provisions would alleviate the need for domestic industries already 
injured by unfairly traded imports to endure successive, and highly 
costly, investigations against the same companies--where those 
companies simply shift their sources of supply, or the product that 
they ship to the United States, after the entry of an AD or CVD 
      Strengthen provisions to deter circumvention (e.g., 
through alteration of merchandise subject to order, transshipment 
through third countries, etc.) of existing AD and CVD orders.
      Lower de minimis thresholds in AD/CVD cases to ensure 
that such provisions do not immunize injurious unfair trade;
      Include a presumption that injury will recur in five-year 
reviews, or consider eliminating such reviews altogether;
      Allow parties with access to confidential materials under 
administrative protective order to attend verification of foreign 
producer questionnaire information.

    These and similar provisions would make critical improvements to 
ensure strong and effective enforcement of fair trade disciplines, and 
to deter market-distorting behavior.
B. Reform the WTO Dispute Settlement System
    As discussed above, the WTO dispute settlement system is broken and 
must be reformed. Several actions are critical. To begin with, Congress 
should finally act on longstanding, bipartisan proposals to establish a 
WTO Dispute Settlement Review Commission. Such a commission would be 
composed of distinguished U.S. jurists (e.g., retired federal judges) 
and charged with reviewing WTO decisions adverse to the United States 
to determine whether the relevant decision makers failed to follow the 
applicable standard of review or otherwise abused their mandate. Such a 
system would enhance confidence in the WTO system domestically (by 
ensuring that panel and AB decisions affecting this country were 
subject to rigorous review) and provide a strong incentive for WTO 
panels to hew closely to their legal mandate.

    Other actions are equally vital.

      First, the United States must make clear that it will no 
longer tolerate judicial overreaching at the WTO or the creation by 
judicial fiat of obligations to which it never agreed. Activism at the 
WTO is threatening the credibility of the entire system and must be 
dealt with through a fundamental change in the approach and culture of 
panels and the AB.
      Second, Congress must refuse to implement WTO decisions 
that are not solidly grounded in the WTO agreements. The time has come 
for the United States to demonstrate once and for all that we will not 
allow the WTO to rewrite our treaty obligations. We should start by 
refusing to implement decisions--such as the AB's decision on the Byrd 
Amendment--that clearly rest on an unjustified invention of obligations 
to which Parties never agreed. This would protect legitimate U.S. 
interests and send a message that we will not tolerate rogue WTO 
      Third, given the enormous problem with decisions in the 
trade remedy area, the United States should seek to eliminate coverage 
of trade remedy actions from the WTO dispute settlement system 
altogether. At a minimum, the United States must insist that the WTO 
Dispute Settlement Understanding be amended to make clear that the 
creation of new obligations and the re-weighing of the evidence in 
dispute settlement cases are impermissible. While the standard of 
review contained in the Antidumping Agreement \10\ should have been 
sufficient to prevent such ultra vires actions from occurring in trade 
remedy cases, it is apparent that WTO panels and the AB are simply 
ignoring that standard of review. More stringent and explicit 
restrictions must be placed on the authority of WTO panels and the AB.
    \10\ This standard of review was also supposed to be applicable to 
the WTO Agreement on Subsidies and Countervailing Measures, but has not 
been used in that context.
      Fourth, the United States must also seek to open up the 
WTO dispute settlement process to private parties with a direct and 
substantial interest in a proceeding. Such parties should be able to 
participate fully in dispute settlement proceedings through the filing 
of briefs and attending and participating in hearings before WTO panels 
and the AB. Once again, this step would enhance confidence in and 
support for the WTO system, while holding WTO panels and the AB more 
accountable. It would also ensure that the expertise and resources of 
the parties most affected by a given dispute could be fully brought to 
bear in the dispute settlement process. There simply is no valid basis 
for denying such parties access to and involvement in the process.
      Finally, the U.S. government should take the steps that 
it can under the current system to improve the way it litigates WTO 
cases. Among the changes that should be made are to (1) deputize 
private parties with a direct and substantial interest in a case (and 
whose interests are aligned with the government) to appear and 
participate in WTO proceedings; (2) devote greater resources to 
litigation at key agencies involved in WTO disputes; and (3) create a 
new Deputy at the Office of the U.S. Trade Representative to deal 
solely with litigation.

C. Correct Fundamental Inequities in the Multilateral Trading System
    As described above, there are a number of areas where international 
rules currently act to disadvantage U.S. businesses and workers, and 
where changes are warranted. For example, there is no legitimate 
economic justification for the current disparity in treatment between 
countries using VAT systems and those that rely on an income tax. 
Congress has consistently identified the elimination of this disparity 
as a principal U.S. negotiating objective. The United States should 
demand that this inequity be rectified before agreeing to any new 
multilateral trade agreement.
    Similarly, the United States should act aggressively to prevent 
countries like China from using currency manipulation as a tool for 
protectionism. The U.S. government must do more than simply ``jawbone'' 
about the effects of currency manipulation. It should demand that this 
practice be stopped, cut off market access for those who engage in it 
and aggressively pursue legal action (such as a Section 301 case) 
against market-distorting behavior in this area. To the extent stronger 
rules are needed internationally to address this problem, the United 
States should demand them in ongoing trade talks.
    In addition, the time has come to do more than just talk and 
threaten WTO action to address foreign government efforts to manipulate 
raw material markets. We need to end export taxes and other export 
restrictions on raw materials and, if current WTO rules are inadequate, 
they must be strengthened.
V. Conclusion
    A strong and vibrant international trading regime requires that the 
governing rules be equitable and that they be fairly applied and 
enforced. The current WTO system has major problems, particularly in 
the manner in which disputes are resolved--a process that has all too 
often resulted in the creation of new obligations that were never 
agreed by the United States or other WTO Members. This process has 
acted to harm and undermine fundamental U.S. policies in a wide range 
of areas, including the enforcement of our trade remedy laws. At the 
same time, Americans continue to be disadvantaged by blatantly unfair 
international rules and practices--such as inequitable tax rules and 
foreign currency manipulation.
    Resolution of these issues should be a prerequisite for future U.S. 
participation in the WTO. These issues are central to the overall 
fairness of the system and to the assurance that winners and losers 
will be determined by market outcomes--rather than government actions 
or foreign market-distorting practices. These issues are also critical 
in determining whether Americans will continue to support the WTO and 
the multilateral trading system.
    AISI appreciates the opportunity to comment on this vital topic, 
and urges the Subcommittee to examine vigorously the issues we have 


       Statement of Terence P. Stewart, Esq., Stewart and Stewart
    The United States, a leader in global trade liberalization, has 
actively promoted and supported the World Trade Organization (WTO) 
throughout the course of its ten and a half years of existence. 
Although the WTO Agreement offers unprecedented opportunities for 
companies in the U.S. to access new markets, in the U.S.' ten years of 
experience, many of those opportunities have been diminished by various 
trade-related problems that have gone unresolved since the Uruguay 
Round of Multilateral Trade Negotiations. Despite overall increases in 
U.S. trade, four major trade-related problems have caused a significant 
imbalance in global trade and have effectively reduced the benefits of 
U.S. participation in the WTO.
    First, on the issue of different treatment of tax systems, the U.S. 
is seriously disadvantaged by the application of WTO rules on taxes. 
With 136 countries applying a VAT tax and a worldwide VAT tax average 
of 15%, the U.S. faces up to a $450 billion total disadvantage to U.S. 
exports ($180 billion) and export subsidies to import competition ($270 
    Second, innovative U.S. industries are being denied the full value 
of their products due to the ``global scourge'' of counterfeiting and 
piracy. In the absence of full implementation of the TRIPs Agreement 
and adequate border enforcement, U.S industries are being denied an 
estimated $200 to 250 billion per year from counterfeiting alone.
    Third, currency manipulation or misalignment is causing serious 
market distortions because it acts as both a de facto export subsidy 
for the foreign products and a hidden import duty. Without action by 
the international institutions established to govern trade and monetary 
systems, the U.S. trade deficit is estimated to have been worsened by 
$100 billion annually.
    Finally, the U.S. is also now faced with responding to WTO dispute 
settlement decisions that impose obligations that the U.S. did not 
agree to and would not have agreed to had they been included in the 
agreements at the end of the Uruguay Round. By engaging in ``gap-
filling,'' not adhering to the appropriate standards of review, and 
applying inconsistent interpretive approaches, WTO panels and the 
Appellate Body have acted inconsistently with prior practice under the 
GATT and principles of treaty interpretation. Such ``overreaching'' is 
a significant detriment to U.S. industries.
    For the U.S. to take full advantage of the benefits offered by the 
WTO membership over the next decade, however, it must urgently address 
those trade-related problems that have effectively reduced the benefits 
of U.S. participation in the WTO.

    I. Focusing on the Future of the WTO

    The World Trade Organization (WTO), created as a result of the 
Uruguay Round of trade negotiations and launched on January 1, 1995, 
has been in existence for roughly ten and a half years. The WTO 
agreements expanded the coverage of the multilateral trading system to 
include services and trade related intellectual property rights, 
brought all goods trade under WTO rules and disciplines, established 
agreements in areas dealing with certain non-tariff measures such as 
technical barriers to trade (TBT) and sanitary and phytosanitary 
measures, called for expanded liberalization in goods and services and 
created a dispute settlement system that results in adopted decisions 
unless all parties (including the winning party) agree otherwise. 
Interest in the WTO's predecessor, the GATT, increased during the 
Uruguay Round, and other nations that were not members at the beginning 
of the organization have lined up in large number to receive the 
benefits of membership. At the present time, there are 148 members to 
the WTO, with 20 of these members (including China and Taiwan) having 
joined since the launch of the organization in 1995. Twenty-seven 
additional applicants (including the Russian Federation, Saudi Arabia, 
Vietnam and Ukraine) are in the queue awaiting membership.
    The United States has been a champion of a rules-based system for 
international trade and has been, for the past decade and most of the 
period since the original GATT, one of the leading voices for expanded 
trade. While there have been many positive developments from the 
creation of the WTO, ten years of experience have also seen an 
exploding trade deficit in the United States and developments that are 
not necessarily understandable in light of the openness of the U.S. 
market and the benefits that should flow from expanded liberalization 
    There are a number of problems with the current system that need to 
be addressed to improve the WTO and to obtain for the United States the 
benefits that should flow from a well-functioning rules based trading 
system. The issues that urgently need to be addressed range in type and 
in what type of solution is needed/possible. Some issues have existed 
for decades and not been addressed. Others may be viewed as outside the 
competence of the WTO. Others may need to be addressed in domestic law 
versus changes to the trading system. All, however, directly affect the 
competitiveness of U.S. agricultural producers, U.S. manufacturers and 
U.S. service providers.
    As the Ways and Means Committee considers progress in the WTO, I 
urge it to work with the Bush Administration to see that the following 
issues are addressed on a timely basis so that the trading system 
provides the benefits to our companies, workers and communities that 
American entrepreneurship, creativity and hard work justify.

    II. The state of the U.S. economy today

    The Uruguay Round created the WTO and introduced predictable, 
transparent and binding rules to the world trading system. In its first 
ten years of existence, the WTO has resulted in an exponential growth 
in global trade. As former U.S. Trade Representative, Mickey Kantor, 
observed at the conclusion of the Uruguay Round, expanded trade 
opportunities have a profound impact on the domestic economy, which 
consists not only of consumers, but also of producers, workers, 
employers, employees and services suppliers:
    The benefits of trade ripple through our economy. Trade benefits 
not only the company that exports, but also the company which produces 
parts incorporated in exported products, the insurance agency which 
insures exporters, and the grocery store near the exporter's factory.

                                 * * *

    U.S. workers and companies are poised to take advantage of the 
dynamics of the global economy, if they have accesss to foreign markets 
and can be ensured they are competing on fair terms with their foreign 
    \1\ Results of the Uruguay Round Trade Negotiations: Hearings 
Before the Committee on Finance, 103rd Cong. 211 (1994) (prepared 
statement of Ambassador Michael Kantor).
    Former U.S. Trade Representative Robert Zoellick likewise 
emphasized that opening new markets would benefit each segment of the 
    When we work with the world effectively, America is economically 
stronger. Ninety-five percent of the world's customers live outside our 
borders, and we need to open those markets for our manufacturers, our 
farmers and ranchers, and our service companies. Americans can compete 
with anybody--and succeed--when we have a fair chance to compete. Our 
goal is to open new markets and enforce existing agreements so that 
businesses, workers, and farmers can sell their goods and services 
around the world and consumers have good choices at lower prices.\2\
    \2\ Statement of Robert B. Zoellick, U.S. Trade Representative 
before the Committee on Finance of the U.S. Senate (March 9, 2004).
    Similarly, at his recent confirmation hearing, Ambassador Portman 
considered the most important trade negotiation underway to be the 
WTO's Doha Development Agenda because it has the ``potential to 
substantially reduce tariff and non-tariff barriers, begin to level the 
playing field for our agriculture producers, open new markets for 
services, and facilitate the more efficient movement of goods across 
borders.'' \3\
    \3\ Statement of Robert J. Portman, U.S. Trade Representative-
designate before the Committee on Finance of the U.S. Senate (April 21, 
    Since the WTO was created, the U.S. economy has expanded from $7.4 
trillion in 1995 to $11.7 trillion in 2004. U.S. GDP is larger now than 
at any time in the nation's history. U.S. exports have also increased 
significantly, growing from $812.2 billion to $1.2 trillion. Imports, 
however, have grown at an even faster pace, rising from $904 billion to 
$1.8 trillion, and the trade deficit has consequently ballooned from 
$91 billion in 1995 to more than $600 billion in 2004:
    The trade deficit as a percentage of GDP also more than quadrupled 
during the period, increasing from 1.2% of GDP to 5.2% of GDP. In 
agricultural trade, the U.S. has seen a trade surplus of $26 billion in 
1995 steadily decline to a surplus of just over $7 billion in 2004 and 
only $1 billion for the first quarter of 2005. The manufacturing sector 
has lost over 3 million jobs since 2000. There is also widespread and 
growing concern, recognized by the Administration and Congress, that 
U.S. companies can no longer afford to support traditional retirement 
systems, pensions, and health care for U.S. workers. Thus, the 
undeniable import trend over the past decade is not only a reflection 
of voracious American consumerism but an important bellwether of our 
future if the United States does not call for an improved and 
rebalanced WTO.

    III. A series of Trade-related problems reduce the benefits of U.S. 
participation in the WTO

    The WTO international trading system is an important vehicle for 
the United States and its trading partners to develop rational trade. 
The opportunities afforded by stimulating international trade through 
increased market access, however, are limited by a series of trade-
related problems which WTO Members have not addressed within that 
framework. As explained below, serious discrepancies in the application 
or coverage of current WTO rules have jeopardized U.S. economic 
interests. The following problems have resulted in an escalating U.S. 
trade imbalance that requires urgent attention if the trading system is 
to deliver the benefits promised.
A. Different Treatment of Tax Systems
    The United States is singularly prejudiced by the application of 
WTO rules to its tax system. As they currently exist, WTO rules 
discipline direct and indirect taxes differently. Under Articles VI and 
XVI of the GATT 1994, border adjustments are permitted for indirect 
taxes but not for direct taxes. Such border tax adjustments may exist 
in the form of refunds or remissions of internal taxes paid on products 
that are destined for export rather than domestic consumption. 
Typically, such refunded internal taxes are indirect taxes (e.g., sales 
taxes and value-added taxes (VAT)) and do not include direct taxes 
(e.g., income taxes paid by a company). At present, 136 countries have 
a VAT tax, and the worldwide VAT tax average is approximately 15%.\4\ 
In the EU countries alone, the VAT tax can range between 15%-25%.
    \4\ The Value Added Tax--Experiences and Issues, Background Paper 
prepared for the International Tax Dialogue Conference on the VAT, 
Rome, March 15-16, 2005, available at www.itdweb.org.
    In countries such as the U.S., that rely primarily on direct taxes, 
the price of the product reflects taxes paid to produce it, regardless 
of whether the product is destined for export or domestic sale. 
Consequently, U.S. producers and farmers that export do not receive the 
benefit of border tax adjustments that exporters from other countries 
that use an indirect tax system receive. This detrimentally affects 
U.S. exporters in two ways: (1) refunds of indirect taxes result in an 
export subsidy that causes unfair competitive advantage; and (2) in 
addition to paying direct taxes on the products in the U.S., if the 
U.S. producers and farmers export products to a VAT tax country, those 
products are also subject to VAT tax, resulting in double taxation.\5\ 
Moreover, these VAT taxes on U.S. exports are essentially a non-
negotiable duty that is never subject to reduction through rounds of 
trade negotiations. A worldwide VAT tax average of approximately 15% 
\6\ translates to U.S. exports facing $180 billion in additional 
competitive disadvantage on our exports. At the same time, the 
remission of VAT taxes could be a $270 billion export subsidy to our 
trading partners with VAT tax systems. This results in a $450 billion 
total disadvantage to U.S. exports. While the U.S. permits rebate of 
sales taxes that have been paid, as a general matter, these rebates are 
much smaller than the VAT taxes imposed by our trading partners with 
VAT tax systems.
    \5\ The discrepancies between the direct and indirect tax systems 
also undermine the benefits of tariff concessions granted by Members.
    \6\ The Value Added Tax--Experiences and Issues, Background Paper 
prepared for the International Tax Dialogue Conference on the VAT, 
Rome, March 15-16, 2005, available at www.itdweb.org.
    Congress has continuously recognized the prejudicial effect of 
disparate treatment of border taxes and has identified as a principal 
negotiating objective in the Trade Act of 2002 the task of obtaining 
``a revision of the WTO rules with respect to the treatment of border 
adjustments for internal taxes to redress the disadvantage to countries 
relying primarily on direct taxes for revenue rather than indirect 
taxes.'' \7\ In the context of the Doha Rules negotiations, the U.S. 
has only expressed general concerns regarding disparities in the 
treatment of different taxation systems and has suggested that the goal 
of negotiations ``should be to work toward greater equalization in the 
treatment of various tax systems--'' thereby addressing the prejudicial 
effect that current practices have on trade.\8\ To date, the U.S. has 
not aggressively pursued this issue by offering specific proposals to 
satisfy the negotiating mandate.
    \7\ 19 U.S.C. Sec. 3802(b)(15). A nearly identical principal 
negotiating objective was also identified in the Omnibus Trade and 
Competitiveness Act of 1988, 19 U.S.C. Sec. 2901(b)(16).
    \8\ Communication from the U.S. of March 19, 2003, TN/RL/W/78, p. 4 
(March 19, 2003).
    The problems and disadvantages caused by the differences in 
treatment of border taxes remain one of the primary obstacles to more 
balanced trade relations between the U.S. and its major trading 
partners. In order to correct these disparities and to preserve the 
nation's sovereign right of taxation, the U.S. must either submit 
further proposals in the Rules negotiations and must actively pursue 
modifications to the GATT 1994 and the SCM Agreement so as to equalize 
the treatment of direct and indirect tax systems or it must pursue 
neutralization of the disadvantage through a modification of the 
existing U.S. tax system.
B. Inadequate Intellectual Property Enforcement
    As a leading exporter of products protected by copyrights or 
patents, the United States was an advocate of strong intellectual 
property provisions in the TRIPs Agreement. Yet, full implementation of 
TRIPs obligations, particularly the enforcement provisions, has not yet 
been achieved in certain countries and has led to ``unacceptably high'' 
levels of piracy and counterfeiting of U.S. intellectual property. For 
example, just hours after the first showing of Star Wars: Episode III--
Revenge of the Sith, a pirated copy was available on the Internet.\9\ 
The World Customs Organization has estimated that global counterfeiting 
amounted to more than $500 billion in lost sales last year with the 
majority of that originating in China.\10\ Thus, despite U.S. 
innovation and competitiveness, U.S. industries are being denied the 
full value of their products, in both domestic and export markets. As a 
result, the USTR estimates that losses to U.S. industries alone from 
counterfeiting amount to between $200 to 250 billion per year.\11\
    \9\ USTR, 2005 Special 301 Report, at 2 (Executive Summary) (April 
29, 2005); Adam Pasick, Final `Star Wars' film leaked to the Internet, 
Reuters, May 20, 2005, available at http://today.reuters.co.uk.
    \10\ See Fakes!, Business Week, February 7, 2005.
    \11\ USTR, 2005 Special 301 Report, at 3 (Executive Summary) (April 
29, 2005).
    The USTR has acknowledged the rapid explosion of counterfeit and 
pirated goods around the world and identified significant concerns with 
respect to Argentina, Brazil, China, Egypt, India, Indonesia, Israel, 
Kuwait, Lebanon, Pakistan, Paraguay, the Philippines, Russia, Turkey, 
Ukraine, and Venezuela. Counterfeiting and digital piracy have 
developed into a ``global scourge'' harming companies, consumers, 
government revenue, and workers. According to USTR, stronger and more 
effective border enforcement is necessary to stop the import, export, 
and transit of pirated and counterfeit goods.\12\
    \12\ USTR, 2005 Special 301 Report, at 2-3 (Executive Summary) 
(April 29, 2005); USTR, 2004 Special 301 Report, at 2 (Executive 
Summary) (May 1, 2003).
    In granting trade promotion authority in 2002, Congress identified 
as a principal negotiating objective the promotion of adequate and 
effective protection of intellectual property rights through, inter 
alia, ensuring the accelerated and full implementation of the TRIPs 
Agreement particularly with respect to meeting enforcement obligations 
under that agreement. WTO Members should address this abuse of the 
global trading system in the Doha Round or otherwise adopt additional 
measures to ensure that intellectual property rights remain in the 
hands of innovators.
C. Foreign Currency Manipulation or Misalignment
    Currency manipulation or misalignment causes serious market 
distortions that have been identified as a problem by U.S. 
manufacturers and members of Congress.\13\ Concern in Congress has led 
to a number of proposals to address the issue, including, for example, 
a bill introduced by Senators Charles Schumer (D-NY) and Lindsey Graham 
(R-SC) that would impose a 27.5% additional duty on Chinese imports, 
and a separate bill introduced by Representatives Duncan Hunter (R-CA) 
and Tim Ryan (D-OH) that would treat currency manipulation as a 
countervailable export subsidy or a market disruption.
    \13\ See U.S. Dept. of Commerce, Manufacturing in America: A 
Comprehensive Strategy to Address the Challenges to U.S. Manufacturers 
(January 2004) at 52.
    Currency manipulation or misalignment occurs when foreign 
governments set exchange rates by pegging their currencies to the U.S. 
dollar and intervening in the currency market to maintain their 
exchange rates at that set level. This acts as a de facto export 
subsidy for the countries manipulating their currencies. It 
simultaneously acts as a hidden duty on imports, which is not reachable 
in market access negotiations. The result is a serious misallocation of 
economic resources, which creates trade distortions and undermines 
stability. Undervalued currencies, in particular, produce false market 
signals--making it appear that industries in the country with an 
undervalued currency are more competitive than they actually are, 
leading to overexpansion of production and export flooding in 
particular products. For instance, since 1994, China has pegged its 
currency exchange rate at 8.28 yuan to the dollar. As has been detailed 
by various economists and other groups, such as the Fair Currency 
Alliance and the China Currency Coalition, the yuan is currently 
significantly undervalued. As a result, Chinese goods compete 
domestically and internationally at prices that are artificially low 
hurting U.S. producers in the U.S. market, in the Chinese market and in 
third country markets.
    While, at present, China has been particularly singled out as a 
country with an undervalued currency that has had substantial negative 
effects on trade, other countries have also engaged in similar 
unwarranted interference in the value of their currencies. For example, 
Japan, South Korea and Taiwan have made frequent interventions to 
purchase U.S. dollars to maintain their exchange rates or minimize the 
appreciation of their currencies.\14\ Together, these three countries 
plus China hold $1.9 trillion of official reserves, which reflects an 
increase of more than $600 billion since 2003.\15\ They also account 
for over 40% of the U.S. trade deficit.
    \14\ See ``Monthly Currency Manipulation Monitor,'' Coalition for a 
Sound Dollar, www.sounddollar.org (accessed May 23, 2005).
    \15\ Compare Report to Congress on International Exchange Rate and 
Economic Policies (October 2003) with Report to Congress on 
International Exchange Rate and Economic Policies (May 2005).
    The effects of currency manipulation on the U.S. economy have been 
staggering. Economists have estimated that the Chinese currency is 
undervalued by as much as 40% or more and that the effect of 
undervaluation by the four countries is that the U.S. trade deficit is 
about $100 billion larger than it would otherwise be.\16\
    \16\ See Testimony of Franklin J. Vargo, National Association of 
Manufacturers, before the House Committee on International Relations, 
Hearing on U.S.-China Ties: Reassessing the Economic Relationship at 2, 
4 (October 21, 2003); Chinese Currency Manipulation and the U.S. Trade 
Deficit, Statement Before the U.S.-China Economic and Security Review 
Commission by Ernest H. Preeg, Senior Fellow in Trade and Productivity, 
Manufacturers Alliance/MAPI (September 25, 2003).
    The International Monetary Fund (IMF) has responsibility to 
``exercise firm surveillance over the exchange rate policies'' of 
member countries.\17\ However, the IMF has not acted to curb market 
distortions caused by currency manipulation or misalignment. Currency 
manipulation is not defined in the IMF Agreement and, in 2003, the IMF 
found ``no clear evidence that [China's] renminbi is substantially 
undervalued.'' In 2004, the IMF noted that ``greater exchange rate 
flexibility remains in China's best interest,'' but the Fund took no 
action to bring about such flexibility.\18\ The IMF has abandoned its 
responsibility in this area of international monetary regulation and 
the U.S. economy has suffered greatly because of this inaction.
    \17\ Articles of Agreement of the International Monetary Fund, 
Article VI, Section 3.
    \18\ ``IMF Concludes 2003 Article IV Consultation with the People's 
Republic of China,'' Public Information Notice (PIN) No. 03/136 
(November 18, 2003); ``IMF Concludes 2004 Article IV Consultation with 
the People's Republic of China,'' Public Information Notice (PIN) No. 
04/99 (August 25, 2004).
    The focus of the WTO is trade liberalization. However, the current 
rules have proven ineffective at reaching the de facto subsidies and 
hidden import duties that result from currency manipulation or 
misalignment. WTO Members are not supposed to use exchange action to 
frustrate the intent of the trade agreements and are prohibited from 
providing export subsidies on manufactured goods, but these agreed 
principles have not been enforced to address currency manipulation or 
misalignment and ensure a level playing field. The U.S. is engaged 
bilaterally with China to obtain a fair exchange rate, but this issue 
is not a subject of multilateral negotiations in the WTO Doha Round, 
and China has moved very slowly in correcting the bias they have 
created. The needs of many sectors of the U.S. economy for a 
restoration of economic rationality in the value of the Chinese 
currency cannot await the likely years of internal reforms needed for 
to achieve a real float. A substantial upward revaluation of the yuan 
(e.g., by 40%) is needed now and it is also important that the U.S. 
work with other trading partners, including Japan, Korea, and Taiwan to 
ensure a restoration of exchange rate equilibrium for their currencies 
vis-a-vis the U.S. dollar. The concern is that the international 
institutions established to govern the trade and monetary systems are 
failing or abdicating their responsibility to address this issue and 
the result is significant damage to the U.S. economy. The international 
institutions established to govern trade and monetary systems must 
address this issue to avoid significant additional damage to the U.S. 
D. WTO Dispute Settlement Decisions That Rewrite Agreements
    The United States is also now faced with responding to WTO dispute 
settlement decisions that impose obligations that the United States did 
not agree to and would not have agreed to had they been included in the 
agreements at the end of the Uruguay Round. In 1995, the Dispute 
Settlement Understanding (DSU) put into place an experimental dispute 
settlement system that allowed for automatic adoption of decisions in 
international trade disputes. Moreover, the DSU created a system of 
accountability for Members' compliance with the covered agreements. In 
the DSU, the U.S. (and other countries) conditioned its acceptance of 
binding dispute settlement on the basis of its understanding that 
obligations not otherwise agreed to would not be created by the dispute 
settlement process. Indeed, DSU Articles 3.2 and 19.2 explicitly 
prohibit panels, the Appellate Body, and the Dispute Settlement Body 
(DSB) from making findings or recommendations that ``add to or diminish 
the rights and obligations provided in the covered agreements.'' \19\ 
Instead, WTO Members have the exclusive authority to amend or adopt 
interpretations of the WTO Agreement pursuant to Article IX and X of 
the Marrakesh Agreement Establishing the WTO.
    \19\ Understanding on Rules and Procedures Governing the Settlement 
of Disputes, Apr. 15, 1994, arts. 3.2 & 19.2, in World Trade 
Organization, The Results of the Uruguay Round of Multilateral Trade 
Negotiations 354 (2001).
    While most countries are generally pleased with the functioning of 
the WTO dispute settlement system, some systemic issues have arisen 
that involve the proper functioning of the DSU. Following the Uruguay 
Round, the U.S. amended its trade remedy laws to be fully consistent 
with WTO obligations. Moreover, the U.S. believed that the Antidumping 
Agreement's ``special standard of review to be applied by WTO panels in 
resolving antidumping disputes'' would ``preclude panels from second-
guessing U.S. antidumping determinations and from rewriting the terms 
of the Antidumping Agreement under the guise of legal interpretation.'' 
\20\ Despite this understanding, over the last ten years there have 
been a host of losses in WTO dispute settlement cases in which covered 
agreements have been interpreted in a manner that, in the view of many, 
has created new obligations for the U.S. and other WTO Members.
    \20\ Statement of Administrative Action to the Uruguay Round 
Agreements Act, H. Doc. 103-316, Vol. 1, 103d Cong., 2d Sess. 807 
    The conflict regarding the creation of new rights and obligations 
flows from three systemic problems. First, WTO panels and the Appellate 
Body have adopted the approach of taking unto themselves the right to 
fill ``gaps'' or ``silences'' in agreements and to increasingly 
disregard negotiating history when language in an agreement is deemed 
ambiguous. This approach is inconsistent with practice under the GATT 
and principles of treaty interpretation and effectively encourages 
Members to seek to achieve through dispute settlement what they were 
unable to achieve in negotiation. Second, in their efforts to clarify 
covered agreements, panels and the Appellate Body, when faced with 
multiple possible definitions, will not generally approach their task 
asking whether or not the Member's choice is reasonable, possible, or 
permissible. In so doing, panels and the Appellate Body have failed to 
honor the standard of review provisions contained in the covered 
agreements (DSU Arts. 3.2 and 19.2; ADA Art. 17.6) by ignoring that 
Members are presumed to be in conformity with their WTO obligations. 
Finally, the interpretative approaches taken by panels and the 
Appellate Body are inconsistently applied from case to case and 
agreement to agreement. For example, the Appellate Body has read GATT 
Article XIX and the Safeguards Agreement provisions together, but has 
not generally read GATT Article VI and the Antidumping Agreement 
provisions together.
    As a result of these systemic problems and in conflict with the 
principles of sovereignty, the WTO Agreements are being modified in 
ways the U.S. neither accepted, nor would have accepted, during 
negotiations. It is implausible that a major user who actively 
participated in the negotiations on the Antidumping, SCM, and 
Safeguards Agreements in the Uruguay Round to ensure general conformity 
of the agreements with its existing practices would be subject to 
roughly 40% of requests for consultations citing violations of those 
agreements even though accounting for only an estimated 15% of the 
cases initiated. This disparity and the failure of panels and the 
Appellate Body to follow prior rules of construction and the special 
dispute settlement provisions in the Antidumping Agreement have 
undermined the perception of objectivity and fairness of the WTO 
dispute settlement process.
    The problem of the creation of rights or obligations, or 
``overreaching,'' by WTO dispute settlement panels and the Appellate 
Body has been recognized and criticized by the U.S. Congress and the 
Administration. In fact, the Trade Act of 2002 reflects Congress' 
concern with the ``pattern of decisions by dispute settlement panels of 
the WTO and the Appellate Body to impose obligations and restrictions'' 
on the use of trade remedies and the appropriate application of the 
standard of review contained in the Antidumping Agreement.\21\ The 
Trade Act of 2002 includes the ``overall'' negotiating objective of 
``further strengthen[ing] the system of international trading 
disciplines and procedures, including dispute settlement. . . .'' \22\ 
The Administration has also recognized that ``aspects of several recent 
reports by WTO panels and the Appellate Body have departed from'' the 
clear requirements to ``ground their analyses firmly in the agreement 
text and accept reasonable, permissible interpretations of the WTO 
agreements by the Members.'' \23\ In DSB meetings, the U.S., in 
addition to many other WTO Members, has objected to the problem of 
``overreaching'' by WTO dispute settlement bodies with respect to a 
wide range of WTO agreements. Despite these objections by WTO Members, 
the U.S. Congress and the U.S. Administration, the problem of 
``overreaching'' has continued to date.
    \21\ 19 U.S.C. Sec. 3801(b)(3)(A) & (B).
    \22\ 19 U.S.C. Sec. 3802(a)(3). Congress also identified seven 
``principal trade negotiating objectives'' regarding dispute settlement 
and the enforcement of trade agreements. 19 U.S.C. Sec. 3802(b)(12).
    \23\ Executive Branch Strategy Regarding WTO Dispute Settlement 
Panels and the Appellate Body--Report to the Congress Transmitted by 
the Secretary of Commerce, 8 (Dec. 30, 2002).
    During the course of the Doha negotiations, the U.S. has made 
proposals aimed both at reforming the DSU and modifying specific WTO 
agreements (e.g., Antidumping Agreement and Agreement on Subsidies and 
Countervailing Measures) in order to address aspects of adverse WTO 
panel or Appellate Body decisions. While the initial U.S. DSU proposals 
have raised important systemic issues, and the Rules proposals have 
addressed specific problems created by WTO panel or Appellate Body 
decisions, a comprehensive solution to this problem should be 
formulated. To many industries, achievement of the correction of this 
issue is critical to a successful outcome to the Doha negotiations.
E. Loss of U.S. Agricultural Trade Surplus
    The Uruguay Round produced the first multilateral trade agreement 
covering agriculture which was expected to reduce barriers to export 
markets and trade-distortive subsidies. As a leading exporter of 
agricultural products, the United States anticipated that the WTO 
Agreement on Agriculture would significantly expand markets for U.S. 
agricultural products.
    According to WTO trade statistics, however, the U.S. share of 
agricultural exports has dropped from over 14% of total world exports, 
by value, in 1990 to over 11% of total world exports, by value, in 2003 
while the export shares of other major agricultural exporters, such as 
Brazil, China, and Thailand, have increased.\24\ Indeed, the U.S. trade 
balance in agriculture products dwindled from a high of $26.7 billion 
in 1996 to $7.2 billion in 2004: \25\
    \24\ WTO International Trade Statistics 2004, at Table IV.9, 
available at http://www.wto.org/english/res--e/statis--e/its2004--e/
    \25\ ERS/USDA (updated February 11, 2005).
    The U.S. Department of Agriculture predicts that the U.S. 
agricultural trade balance will reach 0 in fiscal year 2005.\26\
    \26\ USDA Agricultural Baseline Projections to 2014, February 2005, 
at 67.
    The agricultural trade balance figures are disturbing and reflect a 
fundamental imbalance in global agricultural trade disadvantaging the 
U.S., as a highly competitive agriculture producer. There may be many 
potential causes of what appears to be an undeniable trend. For 
example, U.S. agricultural trade has been affected by the role of state 
trading enterprises and agricultural conglomerates and their impact on 
prices and the ability of fragmented producers to cover their costs. A 
host of restrictive sanitary and phytosanitary measures have also been 
identified as limiting agricultural trade flows.\27\ Given that U.S. 
agricultural exports are estimated to provide over 900,000 jobs to U.S. 
workers, it is critical that the United States identify those causes 
and address them in the short term. Yet, while the Doha Round 
negotiations on agriculture will address market access and subsidies, 
it should also evaluate whether special rules are needed for all or 
some parts of agricultural trade to account for the special 
characteristics of such trade (e.g., perishability) and should evaluate 
whether the SPS Agreement is achieving its objective, whether increased 
harmonization is needed or desirable and what abuses may be 
    \27\ See, e.g., National Foreign Trade Council, Inc., Looking 
Behind the Curtain: The Growth of Trade Barriers that Ignore Sound 
Science at 10 (May 2003).
    \28\ USTR, 2005 Trade Policy Agenda and 2004 Annual Report, Section 
II, at 8 (March 2005).

    IV. U.S. interests call for an improved and rebalanced wto

    Over the last ten years, the WTO has extended trade rules beyond 
GATT's coverage of goods to cover sectors such as services and trade 
related intellectual property rights and has brought certain parts of 
good trade fully under WTO rules (agriculture and textiles). The WTO 
has provided a general framework for the application of uniform 
standards and an important forum for Members to address measures that 
do or can restrict international trade. At the same time, however, 
there has been a serious erosion in the U.S. balance of trade which 
flows from many factors, including gaps in the WTO agreements, an 
imbalance in rights and obligations of the U.S. and other Members in 
the tax arena, and a systemic failure to adhere to restrictions 
protecting those rights and obligations. While the Doha Round will 
offer another opportunity for Members to improve disciplines on a host 
of issues ranging from agricultural subsidies to regional trade 
agreements, most of the issues raised in this statement are not being 
pursued in those negotiations. For the U.S. to take full advantage of 
the benefits offered by the WTO membership over the next decade, 
however, they must be addressed on a fairly urgent basis. The U.S. must 
demand more comprehensive agreements, greater institutional 
accountability in WTO dispute settlement, and a better balance for our 
national interests.


     Statement of Lori Wallach, Public Citizen's Global Trade Watch
    On behalf of Public Citizen's 200,000 members, I thank the 
Committee for the opportunity to share my organization's views on the 
record of the World Trade Organization (WTO). Public Citizen is a 
nonprofit citizen research, lobbying and litigation group based in 
Washington, D.C. with offices in Austin, TX and Oakland, CA. Public 
Citizen, founded in 1971, accepts neither government nor corporate 
funds. Global Trade Watch is the division of Public Citizen founded in 
1995 that focuses on government and corporate accountability in the 
globalization and trade arena.
    On the basis of the ten-year record of the WTO in operation, Public 
Citizen urges Congress to demand a transformation of the current global 
`trade' rules which have not only failed to achieved the economic gains 
we were promised when Congress debated the establishment of the WTO in 
1994, but have resulted in unacceptable reversals in an array of non-
trade, non-economic policies and goals which promote the public 
interest in the United States and abroad. While this hearing is focused 
on the WTO's record, I urge the committee to hold a future hearing 
about ideas for transforming the current system to one that is more 
economically and environmentally sustainable and democratically 
accountable. Unfortunately the Bush Administration's March annual trade 
report to Congress, which was also to be understood as fulfilling its 
statutorily required five-year report on the WTO, did not satisfy the 
statutory language by answering the specific questions set forth there 
which were designed to measure both the positive and negative results 
of the WTO on the United States. Rather, the March 1 report only touted 
the Administration's view of the WTO's benefits for the United States.
    We have spent the last ten years closely monitoring and documenting 
the outcomes of numerous trade agreements. Beginning in 2001, we 
compiled these findings for a book released in 2003, entitled Whose 
Trade Organization? A Comprehensive Guide to the WTO. This book is 
unique in its examination of the effect of WTO rules on economic well-
being and development, agriculture and food safety, the environment, 
public health, and democratic policy-making. This testimony summarizes 
and updates the major findings of the book, but I encourage any 
interested member of this committee to read the entire book, and we 
will gladly furnish a complementary copy to your office
    During the Uruguay Round negotiations of the General Agreement on 
Tariffs and Trade (GATT) which established the WTO and over a dozen new 
substantive agreements it would enforce, Public Citizen raised concerns 
about the implications of establishing such broad global rules on non-
trade matters in the context of an international regime whose goal was 
expanding trade. While expanded trade has the ability to bring benefits 
to consumers, workers, and farmers, setting broad non-trade rules in a 
body whose aim was trade expansion, threatened to undermine an array of 
consumer, environmental and human rights goals, the implementation of 
which, sometimes limits trade, such as in food containing banned 
pesticides. Effectively our concern was that the WTO did not mainly 
cover `trade,' but rather served to implement a much more expansive 
corporate globalization agenda that required countries to change their 
domestic policies worldwide to meet the needs and goals of the world's 
largest multinational business interests.
    We also raised deep concerns about the WTO's threat to citizen-
accountable, democratic policy-making processes--in which the people 
who would live with the results participate in making decisions and are 
able to alter policies that do not meet their needs. While some 
problems require a global approach--such as transboundary environmental 
problems or weapons proliferation--others, such as setting domestic 
food or product safety standards or developing policies to ensure a 
countries' inhabitants have access to affordable medicine or basic 
services such as healthcare, education, transportation, water or other 
utilities do not require global redress and moreover, setting global 
rules on these matters can undermine democratic policy making that 
reflects the needs and desires of different countries' inhabitants at 
different times.
    We sought to alert Congress as to what a dramatic shift WTO would 
affect in how and where non-trade policy would be set. Yet even in this 
hearing, much of the focus remains on the important, but not singular 
implications of the WTO on trade flows. While the GATT covered only 
traditional trade matters, such as tariffs and quotas, with respect 
only to trade in goods, the WTO included agreements setting terms on 
the service sector; food, environmental and product safety standards; 
patents and copyrights; investment policy; and even the terms by which 
countries could make procurement decisions regarding their domestic tax 
dollars. The operative term of the WTO requires that ``all countries 
shall ensure conformity of their domestic laws, regulations and 
administrative procedures'' to all of these broad WTO requirements. As 
well, the WTO's Dispute Settlement Understanding (DSU) provided for a 
stringent enforcement mechanism, subjecting countries who fail to 
conform their domestic policies to the WTO dictates to trade sanctions 
after a tribunal process that does not guarantee the basic due process 
protections afforded by U.S. law, such as open hearings, access to 
documents, conflict of interest rules for tribunalists, or outside 
    In 1990 when Public Citizen began working on the Uruguay Round, we 
were not particularly focused on the potential implications for poor 
country development or on U.S. wages, income inequality or jobs. 
However, over 15 years of working on the GATT and then WTO, our 
relationships with developing country economists and policy experts, as 
well as our tracking of economic trends, has expanded the scope of our 
    Now, after a decade of tracking the WTO's actual outcomes, Public 
Citizen's concerns about the WTO have grown dramatically. We have 
worked internationally with civil society and governments to promote a 
transformation of the existing global ``trade'' rules contained in the 
WTO and oppose the expansion of the scope of the WTO. Yet, even as the 
negative consequences of the current rules and the model they represent 
increase, the current Doha Round WTO negotiations fail to address he 
existing problems and instead are designed to expand the WTO's 
jurisdiction into yet greater non-trade matters.

The WTO's Controversial Dispute Settlement Procedure

    Unlike the GATT, which required consensus to bind any country to an 
obligation, the WTO is unique among international agreements in that 
its panel rulings are automatically binding and only the unanimous 
consent of all WTO nations can halt their implementation. These rulings 
are backed up by trade sanctions which remain in place until a WTO-
illegal domestic policy is changed. Among our analysis of WTO decisions 
between 1995 and 2003 are the following findings:

      U.S. Domestic policies from gambling regulations to tax 
policies have been repeatedly ruled against by run-away WTO panels. The 
recent WTO gambling case is the most recent demonstration that when 
expansive `trade' rules come up against public interest laws before WTO 
tribunals, nondiscriminatory, democratically-created domestic policies 
can be undercut. Among the WTO panel's outlandish decisions in that 
case, where the Caribbean nation of Antigua challenged various U.S. 
state and federal anti-gambling laws, were the following: The entire 
U.S. gambling sector is covered by provisions within the WTO's General 
Agreement on Trade in Services (GATS) irrespective of the intention of 
U.S. trade negotiators. As such, the ability of the U.S. government to 
regulate not only Internet but ALL forms of gambling at the federal, 
state and local level is limited by the rules of GATS. The panel also 
announced that GATS rules forbidding numerical restrictions on covered 
services means that a ban on an activity in a GATS-covered sector, even 
if applied to domestic and foreign service providers alike, is a ``zero 
quota'' and thus a violation of GATS rules--with broad implications for 
bans on an expansive range of pernicious activity. These two elements 
of the ruling mean that the U.S. is exposed to future WTO challenges in 
light of limits on gambling common in many states, as well as assorted 
exclusive supplier arrangements, such as with Indian tribes, and state 
monopoly gaming, such as the 43 U.S. states and territories which use 
lotteries to raise revenues. Thus, the WTO panel, in this case, 
interpreted that a GATS exception for ``laws necessary to protect 
public morals,'' could be applied if the U.S. eliminates discrepancies 
between the way in which it regulates domestic and foreign providers, 
including through the U.S. Interstate Horseracing Act, which waives the 
three laws challenged by Antigua for certain domestic firms. A week 
later, a WTO tribunal issued a ruling on the same necessity text within 
the GATS exceptions clause in a case having to do with the Dominican 
Republic's alcohol distribution system which explicitly contradicted 
the inclusive reading in the gambling case. At a minimum this conflict 
in rulings shows that the lenient decision in the gambling case with 
regards to the necessity test is not a settled WTO standard. Some WTO 
observers wonder if the sudden switch back to the past, narrow ruling 
on the necessary test points to the political nature of the WTO dispute 
process and an attempt to avoid an explosive WTO ruling just before the 
U.S. Congress takes up the WTO ten year review.
      With only two exceptions, every health, food safety or 
environmental law challenged at the WTO has been declared a barrier to 
trade. The exceptions have been the highly-politicized challenge to 
France's ban on asbestos and a WTO compliance panel's determination 
that after losing a WTO case on the Endangered Species Act turtle 
protection regulations, the U.S. had weakened the law to sufficiently 
comply with the WTO's orders.
      In most WTO cases, the country that launches the 
challenge wins. As a result, mere threats of WTO action now cause many 
nations to change their policies. The challenging country at least 
partially prevailed in an astonishing 102 out of 118 completed WTO 
cases--a success rate of 86.4 percent.
      Important U.S laws ruled illegal at the WTO. In 42 out of 
48 cases brought against the United States in which a WTO panel has 
made a ruling, or 85.7 percent of the time, the WTO has labeled as 
illegal policies ranging from sea turtle protections and clean air 
regulations to tax and antidumping policies. The United States also 
lost two high-profile cases that it brought against EU computer tariff 
classifications and Japan's film policies.
      U.S. trade safeguard laws have been successfully 
challenged numerous times in the WTO. One of the most politically 
sensitive aspects of Congress' 1994 consideration of the WTO was the 
degree to which U.S. trade safeguard law would have to be changed to 
conform to the related WTO agreements. Congress was promised that our 
laws would remain effective, yet, a decade later, the United States has 
not been able to successfully defend any of our safeguard laws in 14 
out of 14 completed cases brought by other countries against our 
safeguards on products ranging from steel to lamb to wool shirts. 
Furthermore, the United States has lost 11 out of 15 anti-dumping or 
countervailing duties cases. Additionally, Doha Round ``Rules'' 
negotiations are poised to translate these WTO cases against the U.S. 
into new, more expansive limits on U.S. domestic trade safeguard laws. 
Meanwhile despite promises that other U.S. trade laws, such as Section 
301, would remain operational under a WTO regime, the U.S. withdrew a 
case against Japan regarding anticompetitive practices in film trade 
after it became clear that use of Section 301 sanctions would be 
prohibited under WTO rules.
      The process is closed, narrow and unbalanced. Our 
concerns about the WTO dispute resolution process have born out. 
Complaints are typically filed at the request of business interests 
with no opportunity for input from other interested parties.The WTO 
Secretariat selects panel members from a roster formed using 
qualifications that ensure a bias towards the WTO's primacy. Panelists' 
identities are not disclosed and there is no requirement that they 
disclose conflicts of interest they might have in deciding cases. 
Tribunals meet in closed sessions and proceedings are confidential 
unless a government voluntarily makes its submissions public.Far from 
being a neutral arbiter, the singular and explicit goal of the dispute 
settlement process is to expand trade in goods and services. 
Increasingly, WTO panels have rewritten WTO provisions with their broad 
interpretations, a situation that can find no remedy as there is no 
outside appeal.
The WTO Decade and the U.S. Economy: Exploding U.S. Trade Deficits, 
        Increased Income Inequality, Stagnant Real Wages, and the Loss 
        of 1 in 6 U.S. Manufacturing Jobs
    In the early 1990s, many economists argued that the opening of 
foreign markets for U.S. exports under WTO (and NAFTA) would create 
U.S. jobs and increase income for U.S. workers and farmers. When 
Congress was preparing to vote on WTO in 1994, the President's Council 
of Economic Advisers informed Congress that approval of the package 
would increase annual U.S. GDP by $100-200 billion over the next 
decade. Others claimed that the WTO's adoption would lead to a decline 
in the U.S. trade deficit. President Clinton even went so far as to 
promise that that the average American family would gain $1,700 in 
income annually from the WTO's adoption, which would have meant that 
the U.S. real median family income would have been upwards of $65,000 
in 2005, or a nearly 35 percent increase since 1995. These growth 
projections have been shown to be wildly off the mark.

      U.S. Median Income Growth Meager: U.S. median income grew 
only 8 percent to $52,680 in 2003--the latest numbers available. There 
is little reason to think that this has improved in 2004-05, since 
median real wages have not grown since that time. In fact, the U.S. 
real median wage has scarcely risen above its 1970 level (only 9 
percent), while productivity has soared 82 percent over the same 
period, resulting in declining or stagnant standards of living for the 
nearly 70 percent of the U.S. population that does not have a college 
      Trade Deficit Soars as Imports Boom: During the WTO era, 
the U.S. trade deficit has risen to historic levels, and approaches six 
percent of national income--a figure widely agreed to be unsustainable, 
putting the U.S. economy at risk of lowered income growth in the 
future. Soaring imports during the WTO decade have contributed to the 
loss of nearly one in six U.S. manufacturing jobs.
      U.S. Has Suffered a Good--Job Export Crisis: Another 
factor contributing to this job loss is the shift in investment trends, 
with China overtaking the United States in 2003 as the leading target 
for FDI. WTO Trade Related Investment Rules, (TRIMs), limit the ability 
of countries to set conditions on how foreign investors operate in 
other countries, making it more appealing for manufacturers to seek 
lower wages by relocating. Meanwhile, WTO terms guaranteed low tariff 
access for products made in low wage countries back into wealthy 
markets while forbidding rich countries from setting labor or other 
standards such products must meet. The type and quality of jobs 
available for workers in the U.S. economy has dramatically shifted 
during the WTO decade, with workers losing to imports or offshoring 
their higher wage manufacturing jobs (which often also provided health 
care and other benefits) and finding reemployment in lower wage jobs. 
Labor Department data shows that such workers lose up to 27 percent of 
their earnings in such shifts.
      U.S. Income and Wage Inequality Have Jumped: During the 
WTO decade these trends have resulted in U.S. income and wage 
inequality increasing markedly. In 1995, the top five percent of U.S. 
households by income made 6.5 times what the poorest 20 percent of 
households made, while this gap grew by nearly 10 percent by 2003. In 
wages, the situation was comparable. In 1995, a male worker that ranked 
at the 95th percentile in wages earned 2.68 times what a worker at the 
20th percentile earned. By 2003, that gap had widened nearly 8 percent. 
Nearly all economists agree that increased trade has partially driven 
this widening inequality. One study by the non-partisan Center for 
Economic and Policy Research found that trade liberalization has cost 
U.S. workers without college degrees an amount equal to 12.2% of their 
current wages. For a worker earning $25,000 a year, this loss would be 
slightly more than $3,000 per year. William Cline, at the pro-WTO 
Institute for International Economics, estimates that about 39 percent 
of the actually observed increase in wage inequality is attributable to 
trade trends.
      Job Export Crisis Is Expanding from Manufacturing to High 
Tech and Services: While some commentators, such as Nike CEO Phil 
Knight, have famously argued that this decline in assembly-line U.S. 
manufacturing is a result of ``Americans simply not wanting to make 
shoes for a living,'' job loss and wage stagnation is increasingly 
affecting workers in those sectors where the United States is 
understood to have a comparative advantage, such as professional 
services and high technology. Studies commissioned by the U.S. 
government have shown that as many as 48,417 U.S. jobs--including many 
in high-tech sectors--were offshored to other countries in the first 
three months of 2004 alone. This trend does not appear to be slowing 
down, as 3.3 million high-end service sector jobs--including 
physicians, computer programmers, engineers, accountants and 
architects--are all forecast to be outsourced overseas in the next 
decade. Another study by the Progressive Policy Institute, a think-tank 
associated with the pro-WTO faction of the Democratic Party, found that 
12 million information-based U.S. jobs--54 percent paying better than 
the median wage--are highly susceptible to such offshoring.

    This manufacturing and high-tech job loss has had direct impact on 
workers' ability to bargain for higher real wages. Studies commissioned 
by the U.S. government show that as many as 62 percent of U.S. union 
drives face employer threats to relocate abroad, with the factory shut-
down rate following successful union certifications tripling in the 
years after WTO relative to the years before.
    In short, few of the claims made about the U.S. economic benefits 
that would flow from greater trade liberalization can be shown to have 
been close to accurate. This, however, has not stopped another round of 
WTO expansion from being launched, accompanied by a new set of 

The WTO and the Developing World: Do As We Say, Not As We Did

    The WTO's failure to deliver the promised economic gains in the 
United States has also been mirrored abroad. Despite a paucity of 
evidence, think tanks, public opinion-makers and newspapers editorials 
have continued to relentlessly promote the notion that developing 
countries are the primary beneficiaries of WTO globalization. After a 
decade of the WTO, few if any of the promised economic benefits have 
materialized for developing countries. For many, poverty and inequality 
have worsened, while nearly all countries have experienced a sharp 
slowdown in their rates of economic growth.

      Poverty on the Rise. The number and percentage of people 
living on less than $1 a day (the World Bank's definition of extreme 
poverty) in the regions with some of the worst forms of poverty--Sub-
Saharan Africa and the Middle East--have increased since the WTO went 
into effect, while the number and percentage of people living on less 
than $2 a day has gone up in the same time for these regions, as well 
as for Latin America and the Caribbean. The number of people living in 
poverty has gone up for South Asia, while the rate of reduction in 
poverty has slowed nearly worldwide--especially when one excludes 
China, where huge reductions in poverty have been accomplished, but not 
by following WTO-approved policies given China only became a WTO member 
in 2001.
      Slowdown in global growth rates under WTO model. The per-
capita income growth rates of developing regions before the period of 
structural adjustment and WTO liberalization are higher than the growth 
rates after the countries implemented the WTO--International Monetary 
Fund (IMF) model, many aspects of which are locked in through the WTO's 
services, investment, intellectual property and other agreements. For 
low and middle-income countries, per capita growth between 1980 and 
2000 fell to half of that experienced between 1960 and 1980. Latin 
America's per-capita GDP grew by 75% between 1960-1980; however, 
between 1980-2000--the period during which these countries adopted the 
package of economic policies required by the WTO and IMF--it grew by 
only six percent. Even when one takes into account the longer 1980-2005 
period, there is no single 25-year window in the history of the 
continent that was worse in terms of rate of income gains. Sub-Saharan 
Africa's per-capita GDP grew by 36% between 1960-1980 but declined by 
15% between 1980--2000. Arab states' per-capita GDP declined between 
1980-2000, after it grew 175% between 1960-1980. South Asia, South East 
Asia and the Pacific all had lower per-capita GDP growth, subsequent to 
1980 than in the previous 20 years. (Only in East Asia was this trend 
not sustained, but only because China's per-capita GDP quadrupled 
during this period prior to China joining the WTO).
      Developing countries that did not adopt the package fared 
better: In sharp contrast, nations like China, India, Malaysia and 
Vietnam, that chose their own economic mechanisms and policies through 
which to integrate into the world economy had more economic success. 
These countries had among the highest growth rates in the developing 
world over the past two decades--despite ignoring the directives of the 
WTO, IMF or World Bank.
      Gap between rich and poor widens. Instead of generating 
income convergence between rich and poor countries, as WTO proponents 
predicted, the corporate globalization era of the 1990s exacerbated the 
income inequality between industrial and developing countries, as well 
as between rich and poor within many countries. According to one United 
Nations study, ``in almost all developing countries that have 
undertaken rapid trade liberalization, wage inequality has increased, 
most often in the context of declining industrial employment of 
unskilled workers and large absolute falls in their real wages, on the 
order of 20-30% in Latin American countries.'' According to another, 
the richest 5 percent of the world's people receive 114 times the 
income of the poorest 5 percent, and the richest one percent receives 
as much as the poorest 57 percent. This trend is widening over time, 
not closing, with the 20 richest countries earning per-capita incomes 
16 times greater than non-oil producing, less developed countries in 
1960, and by 1999 the richest countries earning incomes 35 times 
higher, signifying a doubling of the income inequality.

    The track record of the IMF and WTO--condoned policies--which have 
failed to reduce poverty and inequality or increase growth--are falling 
into greater ignominy. A recent study by the Inter-American Development 
Bank found that, of a total of 66 presidential and 81 legislative 
elections in 17 Latin American countries during the 1985-2002 period, 
incumbent parties that pursued trade liberalization and privatizations 
while in office lost between 25 to 50 percent of their previous votes 
when pursuing reelection. If anything, voter discontent in Latin 
America, a region widely seen as having most fully implemented the 
standard ``neo-liberal'' policies, has increased since 2002.
    Even policy-makers who once pursued such liberalization policies, 
such as former Venezuelan economic minister Ricardo Hausmann and SAIS 
economist Riordan Roett, have now advocated a move away from the 
Washington Consensus policies, due to their utter failure to generate 
growth and rising living standards. Such a reversal is not surprising, 
given that no developed country, including the United States, England, 
or even Korea developed on the basis of ``free trade,'' without 
managing foreign investment or without government intervention in 
providing basic services and infrastructure Indeed, many commentators 
have observed that developed country's advocacy of WTO liberalization 
policies is akin to ``kicking away the ladder'' to development for the 
poor countries, once the rich countries have already climbed up.

U.S. Becomes Net Food Importer Under WTO, While Poor Countries Face 
Increased Food Insecurity

    The WTO's approach to agriculture is to treat food as if it were 
any other commodity, like steel or rubber, not something on which every 
person's life depends. WTO rules on agriculture, both under the 
Agreement on Agriculture (AoA) and the Trade Related Aspects of 
Intellectual Property (TRIPS), have led to devastating outcomes for 
developing countries, while farm income in the wealthy countries has 
declined as food trade volumes have risen. These WTO rules have forced 
the elimination of domestic policies aimed at ensuring food sovereignty 
and security in developing countries, and of policies aimed at 
balancing power between producers and grain traders and food processors 
in rich countries. These changes have greatly benefited multinational 
commodity trading and food processing companies who, in the absence of 
government price and supply management programs, have been able to 
manipulate the markets to keep prices paid to farmers low, while at the 
same time keeping the prices paid by consumers steady or rising. 
Farmers in rich and poor countries have only seen their incomes 
decline, with many losing farms and livelihoods under the decade of the 
WTO regime. In the developing world, the combination of sharply lower 
prices and the effects of WTO rules regarding the patenting of seeds 
and plants under TRIPS have led to increased hunger.

      United States to become net food importer. According to a 
U.S. Department of Agriculture (USDA) write-up of the topic, 2005 may 
be the first time since 1959 that the United States will be a net food 
importer, thanks to a flood of imports and declining export growth. 
That the report blames the increased appetite of U.S. consumers for 
foreign products for this projected deficit is nonsensical given that 
much of the flood of imports is in the products in which the United 
States was once considered the leading exporter, such as beef and 
poultry, while U.S. exports of cotton, soy, red meat have declined 
dramatically in recent years.
      Under the AoA, export prices for key U.S. crops have 
fallen to levels substantially below the cost of production, while 
consumer prices increased. Since 1996, U.S. crop prices have generally 
declined about 40 percent, while the cost of running a farm has risen 
by as much. The overall tilt of U.S. government farm policy, in line 
with the WTO's AoA, has been to remove the last vestiges of production 
management and price support, while topping off the dips in gross farm 
income through government payments. According to government data, 
however, real prices for food eaten at home in the U.S. rose by 30% 
during the WTO era (1994 and 2004), even as prices paid to farmers 
      A similar long-term trend holds in the developing world, 
where falling real prices for the agricultural commodity exports on 
which poor countries depend have fallen 50 percent relative to the 
1960s, while wild price swings of up to 25 percent off of price trends 
make planning and subsistence difficult. At the same time, many of the 
very poorest countries are increasingly reliant on grain imports to 
meet their food needs, with the share of food imports in national 
income tripling since the 1960s. This trend has been particularly felt 
in Mexico, where the consumer price of the staple food corn tortillas 
has only risen since NAFTA, despite a flood of cheap corn imports into 
Mexico that have collapsed much of Mexico's domestic small-scale corn 
      A dramatic loss of U.S. family farms accompanies sharp 
falls in income for the poorest farmers under the WTO. The United 
States lost 226,695 small and family farms between 1994 and 2003, while 
average net cash farm income for the very poorest farmers dropped to an 
astounding-$5,228.90 in 2003--a colossal 200 percent drop since the WTO 
went into effect.

      Displacement and hunger the norm in developing countries. 
Following the decade of the WTO and NAFTA, over 1.5 million Mexican 
campesino farmers were thrown from their land. The agricultural sector, 
traditionally a major source of employment in Mexico, was devastated by 
the dumping of U.S. and foreign agricultural products into their 
markets. Likewise, the Chinese government projects that as many as 500 
million of China's peasants will be made surplus, as the country 
continues the rapid acceleration of industrial development of its 
agriculture sector under WTO rules. In country after country, displaced 
farmers have had little choice but to join swelling urban workforces 
where the oversupply of labor suppresses wages and exacerbates the 
politically and socially destabilizing crisis of chronic under--and 
unemployment in the cities of the developing world.
      By dramatically expanding legal definitions of what can 
be patented under the TRIPS Agreement, the WTO has endangered food 
sovereignty and security in poor countries. In most developing 
countries, the majority of the population lives on the land and feeds 
itself by replanting saved seeds. Yet over 150 cases have already been 
documented of research institutions or businesses applying for patents 
on naturally-occurring plants, some of which have been farmed for 
generations. After the WTO TRIPS Agreement becomes fully binding for 
developing countries in 2006, governments that fail to enforce patents 
on seeds--by pulling up crops or by forcing subsistence farmers who can 
not afford to do so to pay royalties--will face trade sanctions.

    These trends and the policies underpinning them are not expected to 
be improved upon in the current WTO Doha Round negotiations. 
Increasingly, even pro-trade academics such as Jagdish Bhagwati are 
arguing that the proposed agricultural reforms will not benefit most 
poor countries, characterizing claims to the contrary as ``dangerous 
nonsense'' and a ``pernicious fallacy.'' The liberalization-led fall in 
prices has had a negative effect on producers in rich and poor 
countries alike, as a recent National Bureau of Economic Research study 
concluded when it found that middle income corn farmers in Mexico saw 
their incomes fall by more than 50 percent after NAFTA/WTO 
implementation. After a decade of failed policies, it is clear that the 
WTO's ``one size fits all'' approach to agriculture and food security 
issues has failed at delivering its promised results.
The WTO's Coming to Dinner and Food Safety is Not on the Menu
    The WTO's relentless drive toward the ``harmonization'' of food, 
animal and plant regulations based on low, industry-preferred 
international standards, endangers human health and sharply curtails 
the ability of elected governments to protect the health of their 
citizens in this critically important area. WTO-approved standards are 
generally set in private-sector bodies which do not permit consumer or 
health interests to participate and which make decisions without 
complying with domestic regulatory procedures for openness, 
participation or balance. Even if a country's domestic food safety laws 
treat domestic and foreign products identically, if the policy provides 
greater consumer protection than the WTO-named international standard, 
it is presumed to be a WTO violation and must pass a series of WTO test 
established din the Sanitary and Phytosanitary Agreement that have 
proved impossible to meet. Some of our key findings include:

      As required under WTO ``equivalency determination'' 
rules, the U.S. declared that dozens of countries ensure their meat 
inspection systems are ``equivalent'' to that of the U.S. even though 
the countries' standards and performance violated U.S. law and 
regulation. Many nations maintain their equivalency status and this 
right to ship meat to the U.S. despite documented violations of U.S. 
policy. For instance, Argentina's meat inspection system maintains its 
U.S. equivalency status despite well-documented problems that include 
contamination of meat with oil, hair and feces. Similarly, the 
Brazilian system, which allowed companies to pay meat inspectors in 
violation of U.S. law requiring independent government inspection, was 
declared ``equivalent.'' USDA labeling of imported products makes them 
indistinguishable to the consumer.
      Time and time again, WTO tribunals have refused to permit 
any regulatory action based on the ``Precautionary Principle.'' 
Governments have long relied on this principle to shield their 
populations from uncertain risks from new or emerging products. 
Previous ``precautionary'' actions by the U.S. government to ban the 
morning sickness drug Thalidomide in the 1960s and to prevent the 
outbreak of Mad Cow disease in the 1980s and 90s helped avert the 
substantial human and agricultural devastation that occurred in other 
countries due to these and other policies. Yet the U.S. has used the 
WTO to systematically attack other countries' precautionary regulations 
such as those dealing with beef hormones, genetically modified 
organisms (GMOs), invasive species and agricultural pests.
      Any domestic standard that provides more health 
protection than a WTO-approved standard, is presumed to be a trade 
barrier, unless the higher standard is supported by extensive 
scientific data and analysis that clearly shows a specific and 
significant risk associated with the lower standard. No nation has yet 
been able to demonstrate the need for higher standards, much to the 
WTO's satisfaction, despite several lengthy and costly attempts by 
developed countries to perform WTO-required risk assessments on the 
dangers posed by artificial hormones in beef, invasive species, pest 
contamination of native salmon populations, and more.

The WTO's Environmental Impact: First, Gattzilla Ate Flipper

    Public Citizen has documented a systematic pattern of WTO attacks 
on member nations' vital environmental concerns and policy priorities, 
as well as a series of biases built into WTO rules that promote 
unsustainable uses of natural resources. Over its over ten years of 
operation, the WTO's anti-environmental rhetoric has been replaced by 
more political pronouncements, even as WTO tribunals have 
systematically ruled against every domestic environmental policy 
challenge that has come before it, and eviscerated whatever GATT 
Article XX exceptions that might have been used to safeguard such laws. 
Instead of seeking to resolve conflicts between commercial and 
environmental goals, the WTO's largely ineffectual Committee on Trade 
and the Environment has become a venue mainly for identifying green 
policies that violate WTO rules. Key findings include:

      To date, all GATT/WTO dispute panel decisions on 
environmental laws have required that the challenged domestic laws and 
measures be weakened--even when the challenged policy treats domestic 
and foreign goods the same, or when it implements a country's 
obligations under a Multilateral Environmental Agreement (e.g. the U.S. 
Endangered Species Act regulations implementing the Convention on 
International Trade in Endangered Species (CITES)). When the WTO ruled 
against U.S. Endangered Species Act rules protecting CITES-listed sea 
turtles from shrimpers' nets, the U.S. complied with the WTO order by 
replacing the requirement that all countries seeking to sell shrimp in 
the United States had to ensure that their shrimpers used turtle 
exclusion devices. The new U.S. regulations were approved several years 
later, but Thailand and other shrimp exporting countries continue to 
put pressure on the United States to weaken the rule's enforceability.
      WTO rules have consistently been interpreted to mean that 
products cannot be treated differently according to how they were 
produced or harvested. This interpretation, for which there is no legal 
basis in the actual rules, requires, for example, that clear-cut 
tropical timber cannot be treated differently from sustainably-
harvested timber, that fish caught with damaging drift nets cannot be 
distinguished from sustainably-caught fish, and that products made 
using child labor or extreme cruelty toward animals must be given the 
same trade treatment as products made under more humane and ethical 
      Because WTO panels have systematically ruled against 
challenged environmental policies, now mere threats of challenges often 
suffice. For example, after years of sustained trade law challenges, 
the Bush administration decided to quietly implement a change to a 
``dolphin safe'' labeling policy which Mexico had demanded as necessary 
for implementation of a GATT ruling. (Mexico had threatened a new WTO 
case if their demands were not met). On New Years Eve 2002, when few 
U.S. citizens were focused on policy matters, the Bush administration 
announced that it would change the ``Flipper-friendly'' tuna policy and 
allow the ``dolphin-safe'' label to be used on tuna caught using deadly 
purse seine nets and dolphin encirclement. While this policy was 
eventually overturned in a challenge brought by environmentalists to 
federal court, Mexico and other countries continue to make noises about 
a possible WTO challenge. Another case involved Hong Kong's WTO 
complaint about U.S. anti-invasive species laws. In this case, U.S. 
regulatory efforts to fight the costly infestation of the Asian 
Longhorned Beetle (which is devastating maple and other trees 
throughout the United States) are being classified as violating WTO 
rules. The mere threat of a challenge in this regard has provoked the 
USDA to considering watering down regulations requiring treatment of 
raw wood packing material to comply with a weaker, WTO-sanctioned 
``international'' standard.
Warning: The WTO Can be Hazardous to Public Health
    The WTO's wide-ranging rules have consistently troubled public 
health advocates, who have found that many policies which have little 
to do with trade, are being threatened by WTO mandates. The following 
are some examples:

      Access to and safety of medicines. The creation of a 
worldwide pharmaceutical patenting system under the WTO's TRIPS 
agreement has raised pharmaceutical costs in the U.S. and further 
restricted the availability of lifesaving drugs in developing 
countries.A 1995 study on the overall impact of the TRIPS agreement on 
U.S. consumers ``conservatively estimated'' $6 billion in higher U.S. 
drug prices due to windfall patent extensions under the WTO. Why a 
business protection scheme guaranteeing monopoly markets would be 
inserted into a trade `liberalization' agreement has outraged consumer 
groups worldwide. Poor country governments and health officials note 
with fury that even though the current patent and licensing regime has 
only recently been accepted in developed countries (Switzerland for 
example, did not recognize drug patents until the 1960s), under WTO 
rules developing nations around the world are required to adopt 
monopoly patents on medicines. Concern about public health has grown 
around the world, with many Members of Congress taking a lead in 
opposing trade agreements that restrict access to essential medicines. 
Unfortunately, the U.S. government has often been on the wrong side of 
this issue, WTO--challenging Brazilian and threatening Thai and South 
African laws on compulsory licensing of pharmaceutical products and 
pushing to undermine in its new Free Trade Agreements a 2001 WTO 
Declaration reiterating countries' ability to issue compulsory licenses 
for medicines. Yet the U.S. itself used the power it seeks to deny 
other nations in WTO when it threatened a compulsory license after the 
2001 anthrax scare.
      Downward harmonization for drug testing. In order to 
fulfill its harmonization obligations under the WTO, the Food and Drug 
Administration (FDA) in 1996 proposed changes to its guidelines for 
testing the potential carcinogenicity of medicines being approved for 
U.S. use. The FDA had previously required companies to test drugs on 
two species (typically mice and rats) because tests on rats alone often 
failed to produce evidence of carcinogenicity where it was subsequently 
found in mice. The new WTO--``harmonized'' testing standard approved by 
the FDA, however, allows drug companies to drop long-term mice tests 
and substitute them with less reliable short-term second species tests.
      Threatening developing countries with WTO challenges to 
pressure them into reducing public health protections. American Gerber 
Products Company refused to comply with Guatemalan infant formula 
labeling laws that implemented the WHO/UNICEF ``Nestle's Code'' on the 
grounds that the laws violated trademark protections provided in the 
WTO's TRIPS agreement. The Guatemalan law forbid pictorial depictions 
of healthy babies aimed at inducing illiterate people to replace breast 
feeding with formula which, when mixed with unsanitary water, was 
causing an epidemic of avoidable infant deaths. Gerber refused to 
remove its trademark ``Gerber Baby'' from its labels. The law might 
have withstood the threatened WTO challenge. However, to avoid the 
prohibitive cost of mounting an uncertain defense, Guatemalan 
authorities instead exempted imported formula from this important 
public health law,whose success in saving babies' lives had led to 
Guatemala previously being held up as an example by UNICEF.
Conclusion: The WTO Must Shrink or Sink in Order for the Public 
        Interest to be Served
    The WTO, far from being a win-win proposition, has been a lose-lose 
affair for most people in the United States and abroad, threatening 
people's livelihoods, the environment, public health, and the right of 
people around the world to enjoy democratic policy-making processes 
that allow them to decide what is best for themselves.
    The recent WTO gambling ruling and other controversial rulings are 
widening the coalition of groups questioning U.S. trade policy. Groups 
such as the Association of State Supreme Court Justices, U.S. League of 
Cities, National Conference of State Legislatures, National Association 
of Counties, and National Association of Towns and Townships all have 
expressed concerns that current and proposed trade rules may undermine 
our nation's system of federalism and the integrity of our domestic 
courts. Groups typically considered bedrocks of the ``pro-trade'' 
alliance, such as the National Association of State Departments of 
Agriculture and other agricultural groups, are expressing concerns 
about depressed commodity prices, lowered farm income, and the United 
States' ``net food importer'' status. Associations of immigrant-
descended groups such as the League of United Latin American Citizens 
are expressing concerns that Hispanics and people of color are not 
sharing in the gains from trade. And high-tech workers and inventors 
are arguing that the drive to make ever-more protectionist trade law 
favoring the largest high-tech corporations like Pfizer and Microsoft 
is cheating workers whose jobs are being offshored, inventors who are 
seeing few gains for their innovations, and consumers in rich and poor 
countries alike, who face lessened access to essential medicine and 
restrictions on legitimate uses of copyrighted items.
    Opposition to the WTO's rules is increasingly coming from 
governments themselves, as the organization's ever-growing crisis of 
legitimacy bursts into public view again with the collapse of the WTO's 
Cancun Ministerial. In particular, these countries--led by Brazil, 
India, South Africa and other nations--demanded that the WTO should not 
establish one-size-fits all, anti-democratic rules over investment, 
government procurement, and competition policy, proposed rules that 
were subsequently dropped from WTO discussion. It is extremely ironic 
that while the Bush Administration argues that one of its top 
priorities is promoting democracy worldwide, the status quo WTO and 
U.S. positions regarding the WTO's future course push in the opposite 
    We no longer have to guess what might happen under the WTO: we now 
know. A decade of WTO policy has led to stagnant real national and 
family incomes around the world, increased poverty in the poorest 
regions, and undemocratic WTO attacks on national sovereignty and 
public policy. Based on this evidence, Public Citizen finds it highly 
unlikely that continuation or expansion of this model will reverse 
these failures.
    Thus, Public Citizen works with a global movement calling for 
transformation of the current WTO system. While we believe that a 
system of global trade rules is vital, the current rules are not 
serving U.S. well. We propose that certain non-trade aspects be 
eliminated from the WTO. We also propose that the trade rules that 
would remain be altered so as to better meet the goals of providing 
sustainable livelihoods to people in rich and poor countries alike, 
fighting for the elimination of poverty, ensuring sustainable use of 
natural resources and providing food sovereignty, the essential tool in 
fighting hunger. For details on these proposals, we you to review their 
summary at ``WTO--Shrink or Sink! The Turnaround Agenda International 
Civil Society Sign-On Letter,'' or for a more through review, please 
allow U.S. to provide you with a complimentary copy of Alternatives to 
Economic Globalization: A Better World is Possible, an edited anthology 
with contributions from Public Citizen.
    To maintain, much less expand, a global `trade' regime that to date 
has worsened the economic situation in rich and poor countries alike, 
threatened food sovereignty and access to essential medicines, and that 
undermined democratic governance is a recipe for growing economic, 
social and political instability. At a minimum, the real life outcomes 
of a continuation of the expansive status quo corporate globalization 
agenda as implemented by the WTO poses an enormous risk to the 
legitimacy of trade itself.
    NOTE: Sources and further information are available upon request by 
contacting Public Citizen's Global Trade Watch at 202-454-5105 and