[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]








                           U.S. TRADE AGENDA

=======================================================================

                                HEARING

                               before the

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

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION
                               __________

                           FEBRUARY 14, 2007
                               __________

                            Serial No. 110-8
                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director
                  Brett Loper, Minority Staff Director

















                            C O N T E N T S

                               __________
                                                                   Page

Advisory of February 7, announcing the hearing...................     2

                                WITNESS

The Honorable Susan C. Schwab, U.S. Trade Representative, Office 
  of the U.S. Trade Representative...............................     7

                       SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, statement...............    94
Baughman, Laura M., Coalition for GSP, letter....................    99
Center for Policy Analysis, statement............................   102
Coats, Stephen, U.S./Labor Education in the Americas Project, 
  statement......................................................   103
EXPORAMERICA, statement..........................................   106
Haiti Democracy Project and Manchester Trade, joint statement....   113
Lake, Charles D., American Chamber of Commerce in Japan, 
  statement......................................................   117
Lawson, Eugene K., U.S.-Russia Business Council, letter..........   124
Offenheiser, Raymond C., Oxfam America, statement................   126
Peruvian Asparagus Importers Association, Philadelphia, PA, 
  statement......................................................   132
Retail Industry Leaders Association, statement...................   138
Spieldoch, Alexandra, Institute for Agriculture and Trade Policy, 
  statement......................................................   140
The Honorable Marcy Kaptur, a Representative in Congress from the 
  State of Ohio, statement.......................................   146

                        QUESTIONS FOR THE RECORD

Joseph Crowley...................................................    58
Chris Van Hollen.................................................    67
Ron Kind.........................................................    69
Devin Nunes......................................................    71
Earl Blumenauer..................................................    74
Sam Johnson......................................................    79
Kendrick Meek....................................................    81
Kevin Brady......................................................    83
Lloyd Doggett....................................................    85
John Lewis.......................................................    90
 
                           U.S. TRADE AGENDA

                              ----------                              


                      WEDNESDAY, FEBRUARY 14, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:00 a.m., in 
room 1100, Longworth House Office Building, Hon. Chairman 
Rangel (Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 07, 2007
FC-9

           Rangel Announces Hearing on the U.S. Trade Agenda

    House Ways and Means Committee Chairman Charles B. Rangel (D-NY) 
today announced that the Committee will hold a hearing on the direction 
and content of U.S. trade policy. The hearing will take place on 
Wednesday, February 14, 2007, in the main Committee hearing room, 1100 
Longworth Building, beginning at 10:00 a.m.
    In light of the limited time, the sole witness at this hearing will 
be the United States Trade Representative, Ambassador Susan C. Schwab. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for inclusion in the printed 
record of the hearing.
      

BACKGROUND:

      
    Congress and President Bush face a number of significant challenges 
in formulating a trade policy that maximizes the opportunities and 
manages the downsides of globalization. Specific challenges include: 
addressing the persistent failure of a number of major U.S. trading 
partners, including Japan and China, to live up to their international 
trade obligations, in order to ensure that U.S. workers, farmers and 
businesses are competing on a level playing field; finding ways to 
conclude successfully the long-stalled multilateral trade negotiations 
at the World Trade Organization (WTO), known as the Doha Round; 
completing pending U.S. free trade agreements (FTAs), including with 
South Korea and other agreements, in ways that create meaningful market 
access opportunities for U.S. workers, businesses, and farmers; 
addressing remaining issues in completed and pending FTAs in ways that 
will ensure the benefits of the agreements are broadly shared in the 
United States and abroad, including addressing labor standards in the 
FTAs; better integrating the poorest countries into the global economy; 
addressing trade relations with Cuba; and developing a bipartisan 
framework to extend presidential trade negotiating authority.
    In announcing the hearing, Chairman Rangel stated that: Congress 
must be an active partner with the Administration in setting a new 
course for U.S. trade policy. We must ensure that U.S. policies and 
agreements promote the interests of the American people, and reflect 
our shared values. We need a pro-active trade policy that shapes the 
rules of competition to create new economic opportunities for all 
Americans, maximizes the benefits of globalization and minimizes the 
downside, and spreads the benefits broadly in the U.S. and around the 
world.
      

FOCUS OF THE HEARING:

      
    The hearing will examine the direction and content of U.S. trade 
policy, including:

        (1)  the status of the WTO Doha Round negotiations and the role 
        U.S. positions on agriculture, services, and industrial market 
        access (including non-tariff barriers) have played in the 
        talks; (2) the status of signed and yet-to-be-completed U.S. 
        FTAs, including a review of open issues; (3) the U.S. policy 
        responses to the U.S. trade deficit and debt, including efforts 
        to combat unfair trading practices such as violations of 
        intellectual property rights, currency manipulation, and 
        subsidization; (4) the operation of the WTO Dispute Settlement 
        Body, including a review of recent Appellate Body decisions 
        against the United States; (5) the status of Russia's, and 
        other countries' accession to the WTO; (6) whether U.S. 
        preference programs are effective in promoting growth and 
        economic development, particularly in low-income and least 
        developed countries, including Haiti; (7) issues related to 
        extension of presidential trade negotiating authority; and (7) 
        other issues.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
110th Congress from the menu entitled, Committee Hearings (http://
waysandmeans.house.gov/Hearings.asp?congress=18). 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 Wednesday, 
February 28, 2007. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman RANGEL. Good morning, Ambassador Schwab. We are 
very pleased that you've been able to overcome the storm and to 
share your views with us about tax policy.
    Mr. McCrery sends his deepest regrets, but the snow 
prevented him from attending this hearing, but as you know, 
we've been working very closely with you on a variety of 
issues, and Mr. Herger will be opening on behalf of the 
minority this morning.
    I have a prepared statement, but as you might suspect, I 
will be deviating from it because it is my desire to be your 
new best friend in terms of trying to share with the American 
people and especially the Congress how important trade is to 
the United States of America and most recently the impact that 
it has on democracy throughout the world.
    Unfortunately, the thinking about trade has been polarized. 
It has been my limited experience that the Chamber of Commerce 
has never seen a trade agreement that they didn't like and 
Labor has never seen one that they did, but a lot of the 
reasons why trade gets such a negative feeling is because it's 
perceived that the negotiations only concern the 
multinationals--but those who are the victims of globalization 
don't get the attention that they should get, one, to avoid the 
loss of jobs and industry, but two, they think that their 
Government, maybe not your Department, but their Government 
will be there to be of some assistance to them.
    So, it seems to me that when this Committee takes a bill 
out on the floor, we don't have people saying, ``I got my job 
through the North American Free Trade Agreement (NAFTA), please 
support the Central American Free Trade Agreement (CAFTA).'' We 
hear the people who say, ``I lost my job as a result of the 
trade agreement.''
    So, I am very pleased how the Administration and especially 
you have provided leadership in how we can prove to the 
American people that yes, there is pain with progress, but our 
country is not just concerned with agreements for business. 
We're concerned for businesses that are already in the United 
States, and we want to help them.
    Of course, we're working on language that would not do 
damage to American trade agreements, but would show that this 
great country is concerned about at least minimum standards 
that protect minors and women in having some type of labor laws 
which, of course, most of the country is agreed to but we have 
a problem with.
    I'd just like to say that while we're not there yet, Mr. 
Levin and I are very pleased with the willingness of your 
office and others in the White House to work with Mr. McCrery 
and me so that we'll be able not to bring problems to the full 
Committee but to indicate that we've moved as many impediments 
as we can in order to make certain that agreements that befall 
us will be considered in a very bipartisan way.
    So, I thank you for that, and I would want, before I go to 
Mr. Herger to yield to the Subcommittee Chair, Mr. Levin, who 
has devoted so much of his time in trying to get these 
agreements acceptable to both parties.
    Mr. Levin.
    Mr. LEVIN. Thank you, Mr. Chairman and Mr. Herger and 
Ambassador. Let me, if I might, read a statement that I wrote. 
It's direct. I hope it will be felt constructive, as is 
intended.
    Trade policy is at a new crossroads in our Nation. 
Ambassador, we appreciate that since November you have 
increased dialogue with the Democratic majority in the House 
and with the Republican minority. What is needed now is a clear 
agreement on changes of approach to vital trade issues.
    As you know, Democrats in the House have long held a deep 
concern about the direction of U.S. trade policy. The 
Administration's approach has been far too passive in shaping 
trade agreements and establishing rules in ways that raise 
standards of living in the U.S. and around the globe, in 
enforcing trade agreements and in breaking down unfair barriers 
to U.S. products.
    You said on Monday, and I quote, ``The equation is quite 
simple. Trade agreements mean more exports and more exports 
mean better jobs.'' We believe the equation is not nearly that 
simple. Imports matter as well as exports. More is not 
automatically better. We strongly favor expanded trade, and I 
think votes have shown that, not as an end in and of itself but 
as a tool shaping the rules of competition to maximize the 
benefits and minimize the down sides of globalization.
    It is time to craft a new trade policy for this new era of 
globalization, an activist international trade policy that 
expands and shapes trade. To do so requires real collaboration, 
moving beyond too often perfunctory consultation. We believe 
the pending FTAs represent an excellent opportunity if the 
Administration is truly willing to change its approach.
    As to the Latin American FTAs, our position has been clear 
and consistent. The text of the agreement must include the 
five, core International Labor Organization (ILO) standards 
with a reasonable transition period enforceable like other 
provisions in the agreement.
    As to the pending Korea FTA, our position is firmly held. 
Among other key outstanding issues, the agreement must knock 
down the economic iron curtain to American industrial goods 
including automotive in a measurable way.
    As we have discussed, Ambassador, time is of the essence on 
these and several other issues in the FTAs. The deadline for 
submitting or resubmitting revised agreements under the current 
Trade Promotion Authority (TPA) is March 31. Democrats being 
ready to work to meet this deadline we need to receive concrete 
proposals on these issues from the Administration, setting 
standards for international competition and knocking down rigid 
barriers like those in Korea are the oppositive of 
``perfectionism'' or ``isolationism,'' misguided terms 
sometimes used to avoid real issues.
    A real partnership, and I emphasize this as I close, 
between this Administration and the new majority and the 
minority to rebuild the bipartisan foundation for trade is also 
necessary to address key issues in the World Trade Organization 
(WTO) round that has faltered. Whether agriculture, industrial 
policies and non-tariff barriers, services or rules, we 
Democrats stand ready to proceed with that kind of true 
partnership, changing policies where necessary for the benefit 
of U.S. businesses, workers and farmers in the global 
marketplace.
    Mr. Herger, if you would, now present your opening 
statement.
    Mr. HERGER. I thank the gentleman from Michigan, Mr. Levin, 
and I welcome the Ambassador with us today. Ambassador Schwab, 
I do want to thank you for joining us today. I think it's 
crucially important that the Administration continues to 
discuss the benefits of trade to the American people and our 
economy and the important progress you are making to bring down 
barriers to trade for our many U.S. products.
    I'd like to focus on the DOHA Round negotiations at the 
WTO. We have ambitious expectations for how the United States 
will benefit from these multilateral negotiations not only in 
agriculture but also for goods and services liberalization. We 
should move in a direction that will eventually bring the DOHA 
Round to a successful conclusion with an agreement that is good 
for all Americans.
    Many are pegging the future of the President's trade 
promotion authority on the level of success we see over the 
next few months. I believe we should extend trade promotion 
authority, and beyond a mere extension only for DOHA. Exports 
to our FTA partners--our 13 FTA partners, account for an 
amazing 42 percent of our total annual exports even though 
these countries only make up 7.3 percent of world Gross 
Domestic Product (GDP).
    TPA is important for future bilateral trade agreements, but 
also because we know that other countries are aggressively 
pursuing expanded trade, such as the European Union (EU) and 
China. If we allow TPA to expire, we would be foregoing a 
competitive edge as these countries expand their trade 
relationships and leave U.S. producers and consumers behind.
    As we continue to discuss the WTO with respect to 
agriculture, I think the central issue will continue to be 
market access. We have to insure that the concessions we made 
to reduce our trade-distorting domestic subsidies are 
reciprocated through meaningful new market access in places 
like Europe, Japan and Brazil by eliminating tariff and non-
tariff barriers.
    Beef and rice offer a good example. The EU market has been 
closed to U.S. beef because of a non-science-based ban which 
the WTO has deemed illegal. We also have a push for renewed 
beef exports to countries like Japan, China and Korea, which 
restrict our access in violation of international standards.
    The EU also restricts our rice exports, blocking shipments 
through import restrictions and other non-tariff measures due 
to unfounded fears.
    In other countries like Japan our access is severely 
restricted. The U.S. product that makes it into the country 
sits unused in warehouses, never present in the consumer market 
or people's dinner tables. These are just a few concerns that I 
think must be addressed through our continued negotiations at 
the multilateral and bilateral trade level.
    Overall, I've been extremely pleased with the bilateral 
trade opportunities we've created since TPA was granted in 
2002. I think we need to continue our aggressive stance to 
conclude successful agreements with South Korea and Malaysia 
and see that American producers and consumers alike would 
benefit.
    I believe this is a mission that we can accomplish on the 
very tight time frame we have, and I assure you, you have my 
full support as you continue to promote U.S. interests in these 
negotiations.
    I would like to conclude with a couple of thoughts. First, 
we must make sure that our trading partners live up to their 
already negotiated obligations. Accordingly, I applaud the 
Administration's recent announcement that it is bringing a case 
against China on export subsidies.
    Second, as Congress looks for a way forward on TPA, an 
application of our trade remedy laws, we need to keep in mind a 
balance that recognizes the interest of all elements of our 
diverse economy.
    Thank you, Mr. Chairman.
    Chairman RANGEL. Thank you. Madam Ambassador, welcome to 
the Committee, and we really look forward to working with you 
in a bipartisan way, and we're anxious to hear your testimony.

    STATEMENT OF THE HONORABLE SUSAN C. SCHWAB, U.S. TRADE 
    REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE

    Ambassador SCHWAB. Thank you, Mr. Chairman. I'm delighted 
to be here today. In keeping with the spirit of the day, I will 
say I will be your new best friend if you'll be my valentine.
    I'm going to move through my written testimony fairly 
quickly, efficiently, and make sure that we have plenty of time 
for questions and answers. The first two slides that I'm going 
to go through really lay out the context for President Bush's 
trade agenda for 2007.
    The economy is very strong. The economy grew last year at 
3.4 percent. We've averaged over 3 percent for the last several 
years. Two million jobs were created in the last 12 months, 7.4 
million since August of 2003. Real compensation is up. Real 
manufacturing output is up.
    That said, we recognize that there are real concerns about 
trade and those concerns are in spite of the very compelling 
evidence, statistics and data to the contrary. That has to do 
with the changing nature of the workforce and adjustment, 
structural adjustment that takes place in the economy.
    Now we all recognize that productivity increases, 
technological change, and global competition have an impact on 
this. We must be understanding, and we must seek solutions to 
address and help the narrow but very real group of individuals, 
of companies, of communities that have been negatively impacted 
by trade. We need to do so in a way that does not jeopardize 
the benefits of trade that accrue to the vast majority of 
Americans, American workers, American producers, ranchers, 
service providers and so on.
    Yesterday the 2006 trade statistics came out, and they 
offer a very interesting and in many ways upbeat insight into 
the trade picture. Export driven growth last year was 
tremendous, nominal U.S. goods and services exports grew by 
double digits, nearly 13 percent. Imports also grew 10.5 
percent, but if you look at the composition of the increase in 
our trade deficit last year, it turns out 90 percent of that 
was from increased oil prices.
    On an inflation adjusted basis, you see different 
statistics, but what is compelling when you look behind the 
statistics, exports accounted for over a quarter of real GDP 
growth in the United States last year. In the fourth quarter, 
U.S. trade accounted for almost half of our GDP growth.
    Actually, if you look on a trade-adjusted basis, the U.S. 
trade imbalance was largely unchanged last year. In fact, it 
was down slightly, one-and-a-half billion dollars, and that is 
mainly because of strong export growth.
    We note here the impact that exports had, trade had, in 
helping to offset the impact on the economy of the housing 
downturn. I would note, again, that export pay--export-related 
jobs pay an estimated 13 to 18 percent more than jobs 
nationwide. As we know, the vast majority of Americans benefit 
from trade, recognizing that not all Americans benefit from 
trade.
    So, it's in this context that I want to talk about our 
trade agenda today and to talk about the DOHA Round of 
multilateral trade negotiations, trade promotion authority, 
trade agreements, including our FTAs and enforcement, 
compliance and dispute resolution.
    First, the benefits of the DOHA Round deal, a potential 
DOHA Round deal: This is an opportunity for the United States 
to improve our access to exports to the 95 percent of consumers 
in this world who do not live within our borders. The DOHA 
Round also has incredible potential, very important development 
potential in terms of alleviating poverty in the poorest 
countries of the world. By one estimate by the World Bank, 
elimination of global trade barriers could lift 66 million of 
the world's poor out of poverty.
    If Africa, for example, Africa's share of world trade could 
increase from two percent to three percent, that would be the 
equivalent of over $70 billion a year in income for Africa, 
well in excess of foreign aid that goes to Africa, but 
ultimately, we will need trade promotion authority to implement 
any DOHA Round agreement.
    On page 6, I have a quick summary of where we are in the 
DOHA Round negotiations. We have talked about, and I suspect 
we'll talk about more the element of trust in trade promotion 
authority, the nature of the contract between the executive and 
legislative branches that is represented by trade promotion 
authority.
    A reflection of that trust included our ability, my 
ability, to walk away last July from a bad deal, knowing that 
that would mean that the current allocation of trade promotion 
authority would expire before we had a DOHA Round agreement.
    What we're doing to try to save the DOHA Round is to drill 
down below the headline numbers, the finger pointing, and look 
really specifically at our priority exports, our redline 
sensitivities, those priorities and sensitivities of our 
trading partners, and then to backward integrate, reverse 
engineer, into top-line numbers.
    The key, at the end of the day, is going to be market 
access, whether it's in agriculture, whether it is in 
manufacturing or whether it is in services.
    On page 7, we've got information about why the DOHA Round 
is important. I'm not going to dwell on this. I'll be happy to 
answer any questions about it, but again, the key, market 
access. If you want a single solitary contribution that the 
DOHA Round can make to U.S. economic growth and to global 
economic growth, development and the alleviation of policy, it 
is the elimination or the reduction of trade barriers, tariff 
and non-tariff barriers that generate meaningful new trade 
flows, particularly in agriculture.
    There, the real problem has to do with the exceptions or 
sensitivities or loopholes that countries are looking to shield 
their barriers. Export subsidies here is one very bright 
picture to date in terms of the DOHA Round negotiations. There 
is already a commitment if the DOHA Round is ultimately 
implemented for the elimination of export subsidies in 
agriculture.
    Then of course there is the issue of U.S. trade distorting 
agricultural domestic support where we are obviously under 
significant pressure to reduce and discipline that.
    When it comes to manufacturing, again tariff and non-tariff 
barriers are critical, and we're also looking to have enhanced 
access in certain key sectors, chemicals, electronics, 
electrical products, healthcare products, environmental 
products and forest products.
    In the case of services that account for eight in ten U.S. 
jobs where we have a trade surplus, again, we are focusing on 
critical sectors, financial services, telecommunications, 
computers, express delivery, energy distribution and 
environmental services. Then there are other important issues 
under negotiation, including rules, environmental related 
issues having to do with fishing, trade facilitation and 
development.
    Trade promotion authority, as I said, is going to be a 
prerequisite to getting a DOHA Round agreement enacted into 
law. All presidents since 1974 have used trade promotion 
authority to open markets and create opportunities for American 
workers, farmers, ranchers, service providers.
    Very few countries are willing to negotiate seriously with 
the United States without knowing that trade promotion 
authority will enable the United States to deliver on a trade 
agreement without it being picked apart during the implementing 
process. The Administration has used trade promotion authority 
to increase our exports, and if we do not have trade promotion 
authority, whether it is for the DOHA Round or regional 
agreements or bilateral agreements or plurilateral agreements, 
that is the equivalent of walking off the field. If you're not 
moving forward in this business, you're probably moving 
backwards.
    If you look at recent free trade agreements that we've 
negotiated in the 10 agreements that have been negotiated in 
the last several years, I would note that U.S. exports to those 
countries have grown twice as fast as U.S. exports to the 
world. Countries with which the Administration has concluded or 
is negotiating free trade agreements account for $157 billion 
in U.S. export markets, the equivalent of the second largest 
market in the world for U.S. exports.
    Even though the 13 FTA countries with which we currently 
have agreements in force account for only 7.2 percent of global 
GDP, excluding the United States, they account for 42 percent 
of U.S. exports to the world. Those numbers are broken down in 
the subsequent slide.
    As you mentioned, Mr. Chairman, we are negotiating free 
trade agreements, currently under active negotiation with 
Korea. That negotiation is going on this week with Malaysia. We 
recognize that under the current allocation of trade promotion 
authority, any agreements must be signed by June 30th and we 
need to notify Congress of our intent to sign before the first 
of April.
    Again, content over calendar. Content will take precedence 
over calendar, the substance of the negotiations, but 
ultimately access to trade promotion authority is critical.
    We have in front of the Congress two free trade agreements, 
Peru and Colombia. Those are extremely good examples of how we 
use trade promotion authority to level the playing field.
    One of my predecessors, Carla Hills, was quoted in the last 
two weeks about the Colombia and Peru FTAs as saying, ``Well, 
they get unilateral, one-way, free market access to the United 
States through a preference program. Under the FTAs, they have 
agreed to open their markets entirely to U.S. exports. If that 
isn't leveling the playing field, nothing is.'' She called it a 
no-brainer to see Peru and Colombia enacted into law.
    We have a free trade agreement that we are very close to 
closing with Panama, as you know.
    Enforcement, last but certainly not least. The last two 
slides--I'm going to talk very briefly about the record of 
success that we have had in enforcement. This is a very results 
oriented approach that we take with results to show for it. The 
Administration has been willing, has shown it is capable of 
using all the tools in our arsenal from jawboning at one end to 
retaliation at the other to get results when there are cases of 
countries that are not living up to their commitments in terms 
of our bilateral or global agreements.
    Litigation is, in some ways, almost a last resort because 
if you want to settle a deal, if you want to work out a deal 
and get results, you'd just assume do it now if you can than go 
to litigation. That said, we have gone into litigation, for 
example, with the EU over the Airbus case, the largest case 
ever filed, and more recently with China over auto parts, and 
just last week with China over prohibited subsidies.
    We have won, I'm happy to say, 88 percent of the WTO cases 
that had been brought since 1995 when the WTO was created, and 
we've won over half, 55 percent of all cases, offensive and 
defensive.
    My last slide, Mr. Chairman, just offers some illustrative 
examples of where we have accomplished compliance enforcement 
objectives using bilateral consultations, using negotiations, 
market liberalizing negotiations through free trade area 
agreements, the WTO, by threatening or actually bringing WTO 
cases, and by reaching conclusion in WTO cases that have been 
successfully prosecuted.
    Let me stop there and let me invite you to ask questions. I 
can go into detail on any of these and other details that you 
care to discuss.
    [The prepared statement of Ambassador Schwab follows:]
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    

    Chairman RANGEL. Thank you, Madam Ambassador.
    If Ambassador Carla Hills believes that Peru is a no-
brainer, why doesn't she come down and share with us why we 
haven't got it on the floor and voting on it?
    Ambassador SCHWAB. Mr. Chairman, I can't speak for 
Ambassador Hills, but I suspect----
    Chairman RANGEL, but you already have.
    Ambassador SCHWAB. Well, I was quoting her. I suspect she'd 
be very happy to come down here and work with this Committee.
    Chairman RANGEL. Well, please tell her we welcome her 
input. Having said that, as you know, Mr. McCrery and I are 
working very hard to remove any partisan impediments to any 
agreement, and you do a heck of a job for negotiating what is 
best for the United States.
    Do you believe since the Congress created your office, that 
there's any room for the executive and legislative branch to 
agree on basic standards how we treat--how countries that we 
work with treat child labor and discrimination issues?
    Ambassador SCHWAB. Mr. Chairman, I believe that the 
record--the United States' record both in this Administration 
and the previous Administrations on free trade agreements, as 
affects child labor, worst forms of child labor, forced labor 
and so on, I think that record is very good. I think it's very 
clear that in every case in every one of these free trade 
agreements, after the free trade agreement has gone into 
effect, the situation on the ground for workers in those 
countries is vastly improved over what it would have been if we 
hadn't had the FTA. So, these are obviously important 
standards----
    Chairman RANGEL. But as relates to getting votes for these 
bills and approval from the Congress, can you share with us 
what you think has been the biggest impediment to getting 
bipartisan support on these agreements based on your 
experience?
    Ambassador SCHWAB. Mr. Chairman, you are asking the $64,000 
question. These agreements, by almost any measure, are of 
dramatic net benefit to the United States economy, to workers, 
to ranchers, to small business, medium businesses, large 
businesses.
    Chairman RANGEL. I agree with you, but I'm asking what 
would you think based on your experience in bringing these 
agreements to the Congress has been the one greatest impediment 
to bipartisanship. We all know you're doing a great job. I said 
that. You all know that most everyone in the House and this 
Committee believes that it's necessary for us to participate 
because globalization is a state of fact.
    Now we want this. All I'm asking, since we're working on 
it, and I'm only trying to get it on the record, what do you 
think has been the greatest impediment so that Republicans and 
Democrats can hold hands and support these things?
    Ambassador SCHWAB. I will answer your question. I think 
there are two significant impediments. One has been an 
increasing misperception within the United States among the 
electorate, your constituents, as to the real benefits of trade 
to the U.S. economy.
    That has, in turn, telescoped into a dialogue in the 
Congress about worker rights and how the protection of worker 
rights should not fit into these trade agreements.
    Chairman RANGEL. Do you believe that the executive branch 
and more specifically your office can make suggestions that can 
remove these impediments?
    Ambassador SCHWAB. You have my commitment to make that 
effort.
    Chairman RANGEL. Do you believe that the Congress should 
have any input as to what the President's authority should be 
as relates to trade promotion authority?
    Ambassador SCHWAB. I believe very strongly that trade 
promotion authority, whether you look at the original 
allocation of trade negotiating authority in 1934 or trade 
promotion authority starting in 1974, that is ultimately a 
contract between the Congress and the President, the 
legislative and executive branches of Government, some of which 
is written down, some of which has to be based on trust and a 
mutual understanding about how the authority can and should be 
used.
    Chairman RANGEL. Well, I asked those things because, again, 
I want to thank you for you willingness to negotiate these 
things.
    Jim McCrery is here, and I don't think I'm talking out of 
school in sharing with the audience that he has been working 
with me and you and Secretary Paulson and the Secretary of 
Commerce. So, I'd just like to see how long we can have this 
atmosphere of cooperation working and to indicate publicly that 
you have done more than your share to get this started and on 
the right track.
    While we have not reached any conclusions yet, I want to 
thank you for your efforts. Soon I hope to be able to bring 
your recommendations to the full Committee so that we can let 
the House know that we're anxious to move forward and give it 
present authority and get these agreements agreed to.
    I'd like to once again publicly thank Mr. McCrery for the 
cooperation that he's given, not for Democrats and Republicans 
but for this Committee, the Congress and the country. I yield 
to Mr. McCrery.
    Ambassador SCHWAB. Thank you, Mr. Chairman.
    Mr. MCCRERY. Thank you, Mr. Chairman. I apologize for being 
late. For the first time in years, my four-wheel drive vehicle 
couldn't get up my driveway this morning, so I had to make 
other arrangements to get here.
    I want to add to what Chairman Rangel said in terms of our 
willingness to work together to find a way to move the trade 
agenda forward for the United States and for the world. 
Certainly Ambassador Schwab has been more than willing to meet 
with us and work with us, and her staff as well in searching 
for a way to create a robust trade coalition here in the 
Congress that would enable us to move forward with the trade 
agenda.
    I don't think there's much question anymore as to the value 
of opening markets around the world. The value of breaking down 
barriers to American goods and services having access to the 95 
percent of the world's consumers who live outside of the United 
States. So, given that, I'm confident that we will find a way 
to forge ahead with opening markets and tearing down barriers 
to trade around the world.
    Obviously, the best way to do that is with the leadership 
of the biggest market in the world, the United States. 
Obviously the United States cannot lead that effort if the 
executive branch of our Government is shackled with not being 
able to negotiate freely as every other country in the world 
is.
    Given our unique form of government, it is necessary for 
the legislative branch to not delegate but make sure that the 
executive branch has the--in perimeter of the Government of the 
United States, and the authority of the Government of the 
United States not just the executive branch but the entire 
Government of the United States to negotiate, to knock down 
these barriers, to open markets, and to bring the value free or 
trade to people all over the world, not the least of whom would 
be our consumers here in this country.
    So, I'm glad that we're talking. I'm glad that we are 
seeking solutions and not just trying to obfuscate differences 
and block the progress of trade in the world. So, I commend the 
Chairman, Mr. Levin, Ambassador Schwab, and frankly my 
colleagues on the Republican side for working so hard to find a 
way to advance our trade agenda.
    Mr. Chairman, I have a more complete statement that I would 
submit for the record with your permission.
    Chairman RANGEL. Without objection. What we will do, fellow 
Members, is have the first round at three minutes and then we 
will go back around for those people who want a second round. 
Do you have questions, Mr. Levin, at this time?
    Mr. LEVIN. Thank you, Mr. Chairman. Let me just--let's talk 
about your presentation. Trade issues are so polarized, and Mr. 
Rangel mentioned that.
    Mr. Rangel, you mentioned how polarized trade issues are. 
That makes it all the more important that we have balance in 
our presentations. I said the same thing to Mr. Portman.
    Your presentation kind of shows half of the picture. It 
talks about exports, and they are vital. They don't talk about 
imports and the impact of imports, and I guess I don't have 
time. Chart one, if it's quick, shows what our trade deficit 
is.
    Okay. It's not ready. It went up to $763 billion. Our 
deficit with China, $232 billion.
    Imports matter. They have an impact, and that was--your 
pages aren't numbered--trade spurring economic growth. There's 
no references here except percentages as to imports; the base 
is so much larger.
    Then skipping to the pages where you talk U.S. FTA's 
expanded exports, I guess that's page 10; they are numbered. 
So, much of that is with Mexico and Canada. You need to bring 
imports in there. We have huge deficits with Mexico and Canada. 
There's also no reference to Japan.
    We've had a discussion here about currency. We talked to 
the Secretary of the Treasury about not siding with the 
Japanese when he went over to the G7 meeting when Europe raised 
issues about the weak yen.
    Again, it's so imbalanced to not talk about imports and how 
they impact jobs in this country. You talk about the level of 
manufacturing. There's no reference to the three million 
manufacturing jobs that have been lost in the United States. 
The import of cars in one year--from '05 to '06--these are the 
imports, went up by 30 percent.
    So, again, I just urge, if we're going to have a 
constructive discussion, and we must, and I want to be very 
much a part of it, we need to look at all sides of this. I want 
to pick up what Carla Hills said about no-brainer.
    Look, when we debated issues in the Clinton Administration 
and they said that an issue, a trade agreement was a no-
brainer, I said, ``Never use that.'' There are differences of 
opinion, so when you quote Carla Hills when we have some basic 
issues regarding the Peru and Colombia Agreement and say it's a 
no-brainer, what are you transmitting, Ambassador?
    Look, we want to work out these agreements. The record on 
this side is clear in the past and is clear about the future. 
We've got some serious issues. They aren't no-brainer issues. I 
just urge, the next time you come and join our discussions, 
let's talk about the imports. Let's talk about the impact of 
the imports on places in the United States. Let's talk about 
manufacturing. Let's talk about currency issues that aren't 
really in your domain. Let's talk about breaking down barriers 
like Korea that don't let any of our cars except a few hundred, 
a few thousand, come in when they ship 500,000 to 600,000 and 
we've said to you, ``Let's sit down seriously and talk about 
how we tear down the Korean economic walls.''
    That's the kind of balanced presentation that will be the 
predicate for the kind of full length, bipartisan and executive 
Congressional discussions about where we go here. I close--
we've got only six weeks on Colombia, Peru and Panama, six 
weeks on Korea if you want the FTA under this present fast 
track.
    We've got DOHA. My view is let's get the policies straight 
and then talk seriously about the extension of fast track or 
its renewal. We've got some very different views on policies. 
Let's work to straighten them out as well as our language.
    Mr. Rangel is no isolationist; he's no protectionist. I 
hope this Administration will stop using those terms about this 
Democratic congress. It's not true.
    Chairman RANGEL. The Chair accepts the Ambassador's 
agreement to meet with the Committee in a less formal setting 
so that we can share with you some of the biased feelings that 
are created as relates to free trade, which we all agree with.
    As soon as possible, since the clock is running out, we 
will be meeting in an informal way with you and the staffs and 
clear up some of the things that can be cleared up.
    Recognize Mr. Herger.
    Mr. HERGER. I thank the Chairman, and I think it's a point 
well taken by the gentleman from Michigan. Somehow no-brainer 
doesn't have a good sound to it, but the fact that we're 
looking at in our country today a 4.6 unemployment rate, the 
greatest prosperity that we've ever had, we see exports that 
are up. We see with just the 13 countries that we do have trade 
agreements with, that some 43 percent of our total trade is 
going to those countries we can see. The fact that we're living 
in a dynamic economy, worldwide economy, whether we like it or 
not, is very important.
    So, no-brainer perhaps isn't the right term, but the fact 
that how dynamic it is, how positive it is for Americans, also 
the fact that we can import and import goods that our 
consumers, the America can buy at a lower rate to be able to 
keep our inflation rate down. The fact that so many of our 
industries are dependent on these good quality, low rate 
products they import that they use themselves to put into their 
goods the export, I think, is incredibly positive.
    Again, I agree. No-brainer isn't the right term, but some 
positive term that describes what I've just said perhaps is.
    Madame Ambassador, I am very concerned about the renewal of 
TPA and consider it to be vital to our economic policy. I'm 
pleased that we have an open dialogue on renewal of this 
important piece of legislation. Perhaps you can help us by 
describing the future use of trade promotion authority and its 
benefits from your advantage, and if TPA is renewed, how would 
you use it; which negotiations besides the DOHA Round and our 
already ongoing negotiation do you envision?
    Ambassador SCHWAB. Thank you, Congressman. If I may respond 
to your question and also to Congressman Levin's comments. We 
can set aside--let us coin our own phrase, which is, a 
'brainer' as distinct from a no-brainer, and let's proceed and 
talk about substance here.
    The TPA renewal, is critical as I mentioned for a DOHA 
Round agreement. It is critical for any free trade agreements, 
regional, bilateral, that we care to negotiate. It is critical 
if we choose to negotiate plurilateral agreements, for example, 
sectoral agreements related to environmental goods and services 
if, for example, the DOHA Round does not succeed.
    There are opportunities to negotiate on intellectual 
property rights and so on. While the United States--if we have 
a gap in trade promotion authority, don't think that during 
that period of time, the world is going to stand still in terms 
of trade agreements and trade negotiations. There are hundreds 
of trade agreements, bilateral free trade agreements, regional 
trade agreements being negotiated by our trading partners with 
each other.
    You can bet that if we have walked off the field those 
negotiations will continue, and they will continue and those 
agreements will be to the detriment of U.S. exporters and U.S. 
producers and U.S. farmers, and ranchers and workers. So, that 
is the kind of thing that we could use the next allocation of 
trade promotion authority to do.
    I would look forward to working with this Committee, Mr. 
Chairman, with Members on both sides of the aisle, both sides 
of the Capitol, in identifying the negotiating objectives and 
the approach that we would take and the priorities that we 
would be looking at.
    If I may, Mr. Chairman, respond briefly to some of the 
points that Congressman Levin made, he is absolutely right. 
You're absolutely right, Congressman. Trade issues are much too 
polarized in the United States, and I'm happy to talk about 
imports.
    Imports do matter. They matter significantly to consumers. 
They matter to people who went out and bought roses today for 
their sweethearts for Valentine's Day where they were able to 
buy inexpensive flowers at Safeway or at Costco, where maybe a 
few years ago it would have been much more expensive to buy 
long stem roses.
    That's trade. That is comparative advantage. That is trade. 
That is open market.
    Mr. PASCRELL. Chairman, a point of order.
    Chairman RANGEL. For what purpose does the gentleman from 
New Jersey raise the point of order?
    Mr. PASCRELL. Well, I would like to respond to what was 
just said on Valentine's Day. Those very flowers come from 
countries that have child labor and forced labor, and that's 
why the prices are cheaper. If we don't concern ourselves about 
that, then we are not the Nation we pretend to be.
    Ambassador SCHWAB. The principal sources of U.S. imports of 
such flowers include Colombia, include Ecuador, include Israel 
and a variety of other countries. I would say whether we're 
talking about the ultimate consumer or when we're talking about 
imports, intermediate users, manufacturers who are more 
globally competitive because the import parts, imports do 
matter.
    Imports also matter in some cases to individuals, to firms 
and to communities when they are trade distorting and when they 
are trade damaging. I think that's the point that you were 
making. I would note though that the way you address these 
issues has to be where the cure isn't worse than the disease.
    The last time we had a trade surplus was 1975. We were in a 
recession. There are ways of addressing trade imbalances. 
Increasing exports and tearing down foreign barriers to trade 
really is the way to go, and that is the way to go in terms of 
our workers, in terms of our constituencies.
    Where individuals are hurt I would note that the President 
has specifically asked for the extension of trade adjustment 
assistance, and I would be happy in conjunction with the 
Department of Labor and others to work with you in terms of 
renewal of trade adjustment assistance.
    Let me stop there, Mr. Chairman, for other questions.
    Chairman RANGEL. All now to recognize Mr. McDermott for 
three minutes.
    Mr. MCDERMOTT. Mr. Chairman, I'd like to focus on the DOHA 
Round. There is an assumption that because countries are poor 
that they are dumb or that they can't count. There are more 
Less-Developed Countries (LDCs) in the world than there are 
developed countries, and you are not going to get a change in 
that round until you change some of the policies.
    Now, in the 1970s, they accounted for 1.5 percent of the 
trade in the world. Today they are at .8 percent. That's why we 
said this is going to be a development round.
    When we sit down with them, we say things like, we're going 
to stick with our agriculture. Agriculture is two percent of 
the employment in this country. Eighty percent is in 
manufacturing and services.
    Now when you focus on opening up and forcing these 
countries to give up their agricultural exports by opening the 
markets, you are simply saying to them, we don't care about 
you. They can count, and they say, we're not going along. Then 
we have a Chairman in the last session who beat up on them by 
denying benefits to them under GSP and saying that India--and 
we've somehow, we've got to break them.
    Now when you--let me just give you one specific question. 
When you talk at the DOHA Round about a duty free, quota free 
initiative, you say we're going to open up our markets, duty 
free, quota free, to poor countries, except for three percent 
that we figure we have to hold on for flexibility.
    The least developed countries immediately said, that's the 
part that will kill us the most. Now I'd like to hear your 
answer to them about why you want to say to them, we're going 
to give with one hand but take back with the other, to think 
that they can't see through that, because cotton, for instance, 
is made--some of the best cotton in the world comes from 
Africa, and there should be duty free, quota free, right?
    Your moment.
    Ambassador SCHWAB. Congressman, thank you. You are 
absolutely right that the focus of the DOHA Round, which is 
formally named the DOHA development round agenda, as you know, 
is international economic development and the alleviation of 
poverty in developing countries. If you look at any study that 
is out there, World Bank study, Organisation for Economic Co-
operation and Development study, International Monetary Fund 
(IMF) study, the single most important thing that we can do to 
enhance development in developing countries is barrier 
elimination, not just in developed countries, but also in 
developing countries.
    It turns out, for example, that 70 percent of tariffs paid 
by developing countries are paid to other developing countries, 
not to the developed world. So, the DOHA Round, to be 
successful, needs to enhance North-South trade. It also needs 
to enhance South-South trade.
    The Round framework is designed so the developing countries 
do less than developed countries in terms of opening their 
markets. The least developed countries, which are the ones 
you're talking about, need to do nothing at all. Although I 
would argue in areas such as services, they would--one of the 
best development plans that developing countries could 
undertake is opening their markets to services, transportation, 
communications, computers services, express package delivery, 
build their own infrastructure for their own entrepreneurs to 
export and to gain access to the markets.
    The United States, as you know, has been very generous in 
terms of preference programs that we offer to the developing 
countries through GSP, through African Growth and Opportunity 
Act (AGOA) (P.L. 106-200), through Andean preferences to the 
new Haitian preference program. When it comes to duty free, 
quota free, in the DOHA Round negotiation, the agreement--and 
by the way, this was an agreement among multiple countries not 
just the United States to have duty free, quota free applied at 
97 percent of trade is significant because it turns out that 
there are some countries among the ``least developed'' that in 
certain sectors, such as textiles and apparel, are powerhouse 
exporters that really don't need duty free, quota free. If they 
have duty free, quota free, they will knock out the exports of 
all the other least developing countries and some other lesser 
developing countries.
    So, there's a balance to be struck. We have a Federal 
Register notice that we just issued recently asking for 
comments on how we should allocate that three percent and if 
there are specifics that you or anyone else here on the 
Committee would like to offer and comment, we would welcome 
them.
    Chairman RANGEL. Chair recognizes Mr. Camp for three 
minutes.
    Mr. CAMP. Well, thank you, Mr. Chairman. Thank you, 
Ambassador.
    There are clear benefits to trade as you outlined in your 
testimony. Our exports have increased and they're growing 
faster than imports, and they're growing faster with countries 
we have trade agreements with. Jobs related to export pay more 
than jobs that aren't.
    I'm also concerned about some of the adverse consequences 
as well. Our trading partners in some cases fail to stop 
counterfeiters. They impose non-tariff barriers.
    I applaud your filing of the trade cases against China on 
auto parts. Korea, as has been pointed out, largely remains a 
closed market. We don't have any agreement with Korea, but 
we're working on that. It's largely closed to our auto market. 
Do you think greater enforcement of our existing trade laws is 
as important as negotiating new trade agreements? Can you 
outline some of your enforcement efforts in this regard?
    Ambassador SCHWAB. Congressman Camp, thank you very much. I 
think it's a both-and answer, which is, in some cases active 
enforcement of existing agreements, whether they're bilateral 
agreements, WTO accession agreements, WTO multilateral 
agreements on the one hand--in some cases enforcement--ensuring 
compliance is the best way to go. In other cases, the only way 
you're going to get the trade barriers down is through new 
negotiations, whether it's through a free trade agreement or 
whether it's through a multilateral trade agreement like the 
DOHA Round.
    It depends on the barrier. In some cases, there are 
barriers that are out there that are fully legit, legal under 
international trading rules, and the only way you get those 
down is to negotiate them.
    In the case of--let me talk briefly about Korea and then 
about China. You mentioned Korean autos. In the case of Korean 
autos, Korea has, for example, an eight percent tariff on its 
automobiles. That is perfectly legal under the WTO. They only 
way we will ever level the playing field with Korea on autos is 
to get Korea to eliminate that eight percent tariff in contrast 
to a tariff we had that's less than three percent and to get 
Korea to eliminate the non-tariff barriers that are very 
serious, a very, very serious market access problem having to 
do with regulatory standards, having to do with tax provisions, 
and so on.
    That has to be done through a bilateral negotiation. That's 
what we're trying to do in the context of the FTA negotiations 
with Korea. You won't be surprised to learn it's hard slogging, 
but we haven't given up yet.
    In terms of China, there are a variety of tools and issues. 
Last year the U.S. trade representative's office issued a top 
to bottom review on what our policy vis-a-vis China should be, 
and that was a comprehensive blueprint that we have been 
following, and it includes discussion, negotiations through the 
Joint Committee on Commerce and Trade, for example, where we've 
addressed intellectual property rights issues.
    It includes activities now through the strategic economic 
dialogue, Secretary Paulson's initiative to address longer term 
strategic underlying issues, including macro-economic issues. 
As I note, in cases where we believe China is not in compliance 
with its WTO obligations, such as in auto parts, such as in 
Kraft Linerboard, where we almost filed a case last year and 
didn't need to because when they heard we were filing a case 
they fixed the problem.
    Most recently, these prohibited subsidies. Where we cannot 
get a resolution, cannot get the problem solved and trade 
moving on a fair basis through negotiation, we will opt for 
litigation through the WTO.
    Mr. CAMP. All right. Thank you. Thank you, Mr. Chairman.
    Chairman RANGEL. Chair recognizes Mr. Neal for three 
minutes.
    Mr. NEAL. Thank you very much, Mr. Chairman. Madame 
Ambassador, this is a line of questioning that I've raised with 
the trade representative's office in the past.
    I'm aware of the postal privatization going on in Japan, 
and I'm hearing that there is a growing concern that the 
Japanese government will permit financial giants of Japan Post 
to begin selling insurance products of the private sector 
before the new entities have demonstrated they fully comply 
with all the rules and come under the same supervision that 
applies to private companies.
    Wouldn't that situation amount to a violation of Japan's 
General Agreement on Trade in Services (GATS) commitment to 
provide national treatment? If the answer is yes, what is the 
United States doing to enforce GATS in this situation, and do 
we have a commitment from Japan that this concern is unfounded?
    Ambassador SCHWAB. Thank you for that question, Congressman 
Neal. This is an issue that we are tracking very closely. It's 
an issue we have a great deal of concern about. Privatization 
of their postal program is fine in theory unless it turns out 
that they are creating an unfair advantage, an un-level playing 
field when it comes to package delivery and some of the other 
issues that--some of the other commercial matters that the 
Japanese Postal Service has responsibility for.
    We are monitoring it very closely as we are going through 
these changes. I have personally raised it with the last two 
trade ministers, Japanese trade ministers. We will continue to 
raise it and we will make sure that either they are ideally 
going to do it in such a way that they're not creating new 
barriers to trade that would be in violation in contravention 
of their WTO commitments, their GATS commitments. Or we will, 
if necessary, seek litigation.
    Mr. NEAL. Thank you. It's very important to me, because I 
have been consistent in terms of raising this question with you 
in the past.
    Lastly, DOHA. For somebody like me who follows the trade 
issues every day in daily publications, one of the things I'm 
struck by with DOHA is it's almost like trying to determine 
what the score of a baseball game is. One day the game has been 
rain delayed. The next day the game has been canceled. The 
third day, there's a double header. It's really tough to 
follow.
    I know some of you are counterparts from other positions 
they have held in governance during the past, but some 
clarification would be very helpful, not only to Members of 
this Committee but to the American people as well.
    Ambassador SCHWAB. Oh my, the nine lives of the DOHA Round. 
The DOHA Round, as you know, was launched in 2001 in the wake 
of September 11, 2001, in an effort primarily to focus on 
global economic growth, particularly in developing countries.
    It has sputtered and started and sputtered and started ever 
since then. There was a framework agreement. There was a 
declaration. Then last July we got down to the wire, and a 
group known as the G6--and that's the United States, the EU, 
Brazil, Japan and Australia sat down in a room to see if we 
could come up with a proxy for what an outcome, what a 
breakthrough would look like.
    Those talks failed. They failed largely over market access 
issues and market access issues in agriculture and 
manufacturing versus how much discipline should be put on trade 
distorting agricultural subsidies. We then walked away from 
what would have been a bad deal that we could not--that I could 
not in good conscience recommend to the President of the United 
States and that we could not in good conscience as an 
Administration have recommended to you even knowing that Fast 
Track was going to expire, the nature of trade promotion 
authority and the trust inherent in that.
    Since then we have had to step back from the name calling, 
the finger pointing, all the numbers that you read about in the 
paper that you alluded to in your comments, and said, ``Let's 
look at real trade flows. Let's look at real trade flows and 
the potential for real trade flows rather than these sort of 
macroeconomic numbers'' because it turned out where we broke 
down the framework has this really interesting, progressive, 
tariff-cutting formula both for agriculture and industry, 
meaning the highest tariffs that are out there get cut the 
most, which is really a benefit to the United States because we 
have much lower tariffs in agriculture and industry than 
anybody else in the world or virtually anyone else in the 
world, excepting a country like Singapore or a few others.
    So, for us that tariff-cutting progressivity is very useful 
because other countries have shielded their most sensitive 
products using high tariffs. Well, it turned out that there 
were flexibilities built into this framework, loopholes that 
countries could use to avoid taking these dramatic tariff cuts. 
Not surprisingly, everybody assumed that they would have to cut 
their most sensitive tariffs a great deal and that the other 
country would be shielding your priority exports, our priority 
exports, using these flexibilities, using these loopholes.
    So, what we've done since last July is sit down very 
quietly in terms of serial bilaterals, bilaterals going on with 
a number of countries, not just between the U.S. and other 
countries but between other countries and each other, saying, 
``What are your real sensitivities, your real red lines and 
what are your real priorities, and are there ways that we can 
ensure new trade flows in the priorities in spite of the 
sensitivities without throwing these top line numbers at each 
other that really didn't make a whole lot of sense?''
    That's the approach we're on now. I am cautiously 
optimistic that that ultimately will generate a breakthrough 
that is ambitious, that is robust, and that is a balanced 
outcome for the United States.
    Chairman RANGEL. Chair recognizes Mr. English for three 
minutes.
    Mr. ENGLISH. Thank you, Madame, Mr. Chairman. Ambassador 
Schwab, in my view, the United States Trade Representative 
(USTR) is very much to be applauded for finally bringing a WTO 
complaint against China, for providing what are clearly WTO, 
illegal, export and import substitution subsidies.
    We recognize of course that these subsidies only account 
for a small fraction of the support that the Chinese government 
provides Chinese exporters. If you could, speak briefly to the 
prospects of this case. Could you also comment on whether USTR 
intends to further pursue China's other massive domestic 
subsidies such as loans at preferential rates from state-owned 
banks and the conversion of debt to equity by state-owned asset 
management companies.
    Ambassador SCHWAB. Thank you, Congressman English, and 
thank you for your remarks about the subsidy case. We have, as 
you know, in the last week, requested formal consultations 
through the WTO with China.
    We have identified nine subsidies. Six, we believe, are 
prohibited illegal export subsidies. Three of them are, we 
believe, prohibited import substitution subsidies. We know that 
these subsidies go to foreign invested enterprises, Chinese 
firms. The key there is that those subsidies can impact U.S. 
workers, manufacturers, particularly small and medium sized 
firms that haven't invested in China and can affect U.S. 
economic interests that try to compete in the Chinese market, 
that compete with Chinese products here in the U.S. market and 
that try to compete with Chinese products in third country 
markets whether in Europe or Japan or developing countries.
    So, that is the fundamental. We know that foreign invested 
enterprises account for 58 percent of China's exports, so this 
could be a fairly significant case as it moves forward.
    Our ideal in terms of this case is to resolve it, is to get 
the subsidies eliminated. If we need to litigate, we will 
litigate. That decision will be made within the next 60 days, 
and then we will work--the process would work its way through 
the WTO process.
    In terms of other subsidies, we are always on the lookout 
for other subsidies and other potential cases. We work very 
closely with American companies that have an interest or that 
can identify such subsidies.
    In some areas, such as intellectual property rights, we're 
now going to the provincial level to look at IP issues. Some 
subsidies are at the provincial level. They're hard to identify 
in many cases, but if there are specific subsidies that are 
identified, we'd be happy to hear about them.
    Mr. ENGLISH. Thank you, Ambassador. In my view, the whole 
question of fair trade with China is what is going to dominate 
the public perception of the trade agenda for the next couple 
of years and is central to any efforts we may make to lower our 
trade deficit.
    So, I ask you to focus on it, focus on it like a laser 
beam, and certainly work with your counterparts in Treasury on 
the overarching concerns that we have about China currency. I 
thank you, Mr. Chairman.
    Chairman RANGEL. The Chair recognizes Mr. Tanner for three 
minutes.
    Mr. TANNER. Mr. Chairman, thank you. Welcome, Ambassador.
    I have always thought there are two Committees in the house 
that should be nonpartisan. One is Armed Services; we have only 
one defense. Ways and Means; we have only one economy.
    We've had some rough times around here. We've had a take it 
or leave it attitude, and because I believe so strongly that 
engagement is better than nonengagement, a lot of times I was 
on the receiving end of a take it or leave it attitude.
    I think this Congress has a unique opportunity, the 110th, 
to rediscover a true bipartisan consensus on trade. I think 
it's going to be absolutely critical that we do so, because 
otherwise we're going to have a very, very hard time explaining 
to the American people the non-harmful aspects of trade deficit 
that is reaching historic levels.
    The perception is a lot of trade is going overseas, that 
trade is responsible for a lot of our jobs going overseas. True 
or false, it's a perception. So, it's my view that we've got to 
develop a new framework here in the 110th Congress, in this 
Committee, in order for us to move ahead in a manner that I 
think our country needs to.
    I think this new framework ought to continue to try to 
remove barriers from foreign markets to the extent we can. It 
should also--we should also have a very aggressive enforcement 
of the agreements that we already have. Third, and perhaps this 
is where we can work together sooner rather than later, a 
sensitivity of addressing the perception of the negative 
consequences of trade.
    We have not done a very good job--nobody, but you have, and 
the Administration has, I think, a better microphone than 
perhaps we do.
    This new framework, and I look forward to what the Chairman 
said earlier about us meeting again informally to talk about 
this, but I want to commend the Chairman and Mr. McCrery for--I 
think--I hope I put into words what they feel about it in terms 
of moving ahead on trade.
    Could you just respond generally to that? I know I only 
have three minutes, but I really feel strongly about this.
    Ambassador SCHWAB. Congressman Tanner, I feel equally 
strongly about the importance of bringing bipartisanship back 
to U.S. trade policy. I commend your leadership in this.
    The Chairman has said that we should be looking for not a 
Republican trade policy or a Democratic trade policy; we should 
be looking for an American trade policy. I think that is 
absolutely right.
    The President believes that as well. In my confirmation 
hearing last year, it was the top priority that I articulated 
in terms of why I was so grateful to have been asked to take on 
this task. I spent some time as a Senate staffer in the 1980s 
when trade was much more bipartisan and there was much less 
rancor.
    It is--you have my commitment, and I have given my 
commitment to the Chairman, to Congressman McCrery to work with 
this Committee to see that trade does, in fact, return to more 
of a bipartisan basis.
    Thank you.
    Mr. TANNER. All right. I'm instructed to recognize Mr. 
Doggett next. Thank you.
    Mr. DOGGETT. Let's get this all in order.
    Ambassador, I really believe that more than a few Americans 
will be surprised to hear that your reaction to the headlines 
in this morning's paper, that the United States has a record 
trade deficit in 2006 for the fifth consecutive year, that your 
reaction to that is ``upbeat'' and that as with so many other 
policies that I view as misguided of this Administration, that 
you believe we just need to stay the course.
    Yesterday's ``Financial Times'' reported that you now agree 
that ``international labor standards should be added to the 
pending trade deals.'' Was that accurate?
    Ambassador SCHWAB. Congressman, to respond to both of your 
points, one, in terms of the trade deficit, I think it is 
important to look behind the number, but----
    Mr. DOGGETT. You had said that, and given my three minutes, 
let me just ask you if you agree that the Financial Times 
article was accurate or it's inaccurate. I just want to know 
one way or the other.
    Ambassador SCHWAB. Congressman, I have made a commitment to 
Chairman Rangel, to Congressman McCrery, to work with this 
Committee on a bipartisan basis to try to bridge the 
differences on labor rights in trade agreements, yes.
    Mr. DOGGETT. Does that mean the story was accurate?
    Ambassador SCHWAB. I'm afraid I didn't read the story, so I 
think I----
    Mr. DOGGETT. The story said that international labor 
standards should be added to the pending trade deals.
    Ambassador SCHWAB. Congressman, the approach that I would 
take is let's see if we can get a substantive agreement between 
the Administration and the Congress on what the nature of those 
labor rights commitments should be in trade agreements, and 
then let's have a conversation subsequent to that about the 
form that it should take.
    We don't believe that it should be necessary to reopen 
existing trade agreements, but the first thing to do is see if 
we can bridge the substantive gap, and then we can talk about 
how it's----
    Mr. DOGGETT. So, you don't favor reopening any of the 
pending trade agreements?
    Ambassador SCHWAB. We don't believe that that is necessary, 
but I think that before we have that conversation, I think it's 
important to keep the conversation----
    Mr. DOGGETT. One other area of concern. As you know, 
sometime after 9 o'clock last night some of the 11 Members of 
this Committee who wrote you a month ago about our desire for a 
bipartisan policy that addressed our concerns about the 
environment, received a fax response from your office.
    I don't believe it addressed any of our specifics. In the 
seconds that remain, let me just ask you if you agree or 
disagree with our observation in that letter that it is vital 
that our trade agreements require countries to fully implement 
and enforce obligations made through multilateral environmental 
agreements.
    Ambassador SCHWAB. Congressman, I would be happy to visit 
with you separately when we have more time to talk specifically 
about the issue of multilateral environmental agreements. The 
key I think that we all agree upon is the importance.
    Mr. DOGGETT. I appreciate that, and I'd be delighted to 
visit with you. I just want to know if you agree or disagree 
with the question that we raised to you a month ago that I 
don't believe your letter last night responded to.
    Ambassador SCHWAB. I believe our letter responded to the 
letter that we received.
    Mr. DOGGETT. Do you agree or disagree that in our trade 
agreements we should require enforcement of multilateral 
environmental agreements to which the partners have agreed?
    Ambassador SCHWAB. Congressman, I think the issue is, as 
with many trade issues, much more complicated than a yes or no 
answer. If the Chairman would allow me the time, I'm happy to 
answer in some detail. Otherwise, as I said, I'd be happy to 
visit with you separately and go through the issues.
    There are some multilateral environmental agreements 
(MEAs)--there are many MEAs out there as you know. The U.S. is 
a signatory to some. Other companies are signatory to others. I 
think there is clearly a consensus that we need to use our free 
trade agreements to further environmental objectives. Sometimes 
we do that within FTAs, sometimes we do that separately.
    For example, I just recently signed an MOU with Indonesia 
on illegal logging.
    Chairman RANGEL. Maybe we can make arrangements for you to 
send your response in writing or you can get in touch with that 
office. I'm very anxious that everyone has an opportunity to 
inquire.
    Mr. Weller, for three minutes.
    Mr. WELLER. Thank you, Mr. Chairman, First let me commend 
you and Mr. McCrery for the commitment you have made to advance 
our trade agenda and to work in a bipartisan way. I consider 
that real progress and I want to support you in your leadership 
in this effort to move forward on our trade agenda.
    Ambassador, it's good to see you. Welcome. Time is limited 
so I'll get right to the point.
    My colleague from Texas raised an issue that I want to 
raise. First I want to congratulate you on the progress you've 
made on Peru and Colombia and soon to complete on Panama. Latin 
America is suffering from the unfortunate march of populist 
authoritarianism in different parts of Latin America and 
strengthening our relationship with our friends and allies, the 
democracies, particularly of Colombia, Peru and Panama, I 
believe is extremely important on all fronts.
    The issue of labor of course is coming up. Since these 
agreements have been reached, I have friends that want to do 
more on labor. Looking back on the Dominican Republic Central 
American Free Trade Agreement (DR-CAFTA), I'm interested in 
knowing from you, as based on the DR-CAFTA model and the 
commitments that were made, have there been significant 
accomplishments from the standpoint of enforcing greater 
protections for workers, greater enforcement of existing laws 
and expanding opportunities for workers in the DR-CAFTA 
countries as a result of the DR-CAFTA agreement, the 
ratification by this Congress?
    Ambassador SCHWAB. Thank you, Congressman Weller. Yes, as 
you know, we have DR-CAFTA entry into force with four of the 
six DR-CAFTA agreement signatories. Those have been during the 
last year--entry into force took place. In each one of those 
cases, we can articulate commitments and improvements that each 
of those countries made.
    Mr. WELLER. Now the leadership of each of these countries 
issued the white paper, which is part of that commitment. Can 
you give some specific examples of what, from a bipartisan 
viewpoint, would be considered progress on enforcement as well 
as giving new rights to workers in these countries?
    Ambassador SCHWAB. No, the white paper was very, very 
significant. In particular it set in motion a process involving 
the international labor organization and capacity building that 
we were able to provide so that on an individual basis, whether 
it is the right to organize, whether it is addressing child 
labor, whether it is addressing others of the internationally 
recognized standards, there have been tangible improvements in 
those countries.
    I would be happy, if you would like a more specific 
assessment, happy to bring that back to you, but in each of the 
countries involved, each of the four countries where we've had 
entry into force, the white paper has been taken very, very 
seriously. Simply to engage on these issues in a way that they 
would not have engaged absent a free trade agreement, absent 
CAFTA DR I think is significant.
    Mr. WELLER. Madame Ambassador, three minutes goes by very 
quickly, but if you could provide for the Committee a list of 
examples of what all of us would consider to be progress both 
in enforcement and in expanded rights for workers based on this 
white paper and other agreements as part of the DR-CAFTA 
process, I know I would appreciate it and I believe my 
colleagues would.
    Ambassador SCHWAB. I would be happy to do that.
    Mr. WELLER. Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair is pleased to recognize Ms. 
Tubbs Jones for three minutes.
    Ms. TUBBS JONES. Thank you very much. Madame Ambassador, 
nice to see you again. How are you?
    I'm particularly concerned when we have this whole 
discussion about unemployment rate of 4.6 percent and how great 
it is. In Ohio, the unemployment rate isn't 4.6. In fact, in 
the city, my congressional district is 13.7 percent. We've lost 
a significant number of jobs in Ohio, and I keep repeating 
those numbers over and over again at these hearings.
    I want to focus on trade adjustment assistance, which you 
talked about momentarily. What--even though it's administered 
by the Department of Labor, it is through your work and your 
effort that we are able to bring workers--because in Ohio 
workers, fact or fiction, believe that their jobs are gone 
because of the trade policies of our Government and the failure 
of our Government to use all of the tools that they have to 
enforce trade relations.
    Tell me what I can tell my people in Ohio that the 
Ambassador is going to do to ease the unemployment rate and 
their worry.
    Ambassador SCHWAB. Congresswoman, thank you very much for 
that question. You're absolutely right. There is a serious 
perception problem that trade somehow is the cause of 
significant unemployment in the United States, when in fact 
unemployment is at 4.6 percent, when we're creating more than 2 
million jobs a year more than we're losing.
    You mentioned trade adjustment assistance. Trade adjustment 
assistance is available for workers who have lost their jobs 
because of trade. I think a better answer to your question--and 
as I noted earlier, the President is fully committed to 
extending trade adjustment assistance to working with this 
Committee and with the Congress to do so, but I think the real 
answer to your question is opening more barriers, removing 
barriers abroad so that we can enhance our exports.
    We know that U.S. jobs that are related to exports pay 13 
to 18 percent more than average jobs in the United States.
    Ms. TUBBS JONES. The dilemma I have with your response, and 
I'm almost out of time, is the fact is that the workers who are 
unemployed as a result of loss of manufacturing jobs are not 
getting jobs that they are capable of taking care of their 
families at a level. So, my position is that we collectively, 
in a bipartisan fashion have to fix it, and it's not solely 
perception that trade has lost us jobs. It's a reality that 
they've lost us jobs. It may not be as many as people believe, 
but there is a reality to the fact that people are not doing 
work in the United States as a result of work being done all 
over the country [sic.]
    I guess my time is about up, so I'm just looking forward to 
the opportunity to fight for the workers of Ohio and not fight 
with you but fight for them to have jobs. Mr. Chairman, I thank 
you for the time.
    Chairman RANGEL. Well, let me share with the gentlelady 
from Ohio that the trade representative--fully appreciate, as 
does the ranking Member that there are many people that are 
looking for jobs that are not included in the number of 
unemployed. We can't give them numbers and say how good the 
economy is. We can't talk about the historic 4.5.
    Once we realize, statistics notwithstanding that we have to 
do something, it makes our job selling free trade a lot easier. 
I tell the gentlelady that we are working in a bipartisan way 
to make certain that we avoid the pain when we can, and if we 
cannot, we'll make adjustments to help the people who 
unfortunately went away of progress.
    Ms. TUBBS JONES. Thank you, Mr. Chairman.
    Ambassador SCHWAB. Congresswoman, I look forward to working 
with you to see that that happens. Thank you.
    Chairman RANGEL. The Chair recognizes Mr. Brady.
    Mr. BRADY. Thank you, Chairman. I want to add my voice to 
those. Encouraged by the discussions, Ambassador, you're having 
with our Ways and Means leadership, Chairman Rangel and others, 
to try to find some common ground. We really do need to speak 
with one voice around this world when we're talking about a 
level playing field for our companies and our workers.
    I'm convinced, after working on DR-CAFTA that the goal on 
improving workers rights and improving the environment are much 
more the same than people imagine. It's how we get there that's 
the debate. I think the discussions you're having are very 
healthy.
    I also think in this debate on trade we ought to be a 
little more intellectually honest about this trade deficit. It 
is not caused by our trade agreements, just the opposite. 
Eighty percent of our trade deficit comes from countries we 
don't have trade agreements with. The trade agreements we do 
have are producing real sales and real jobs for American 
companies and the truth is America is a great country to invest 
in, which drives up our trade deficit.
    We spend so much and save so little. We're such a huge 
consuming country. The fact of the matter is we need to spend a 
little less, save a lot more, and we need, through your 
negotiations, to open up new markets and produce--turn 
countries into spending more themselves for our products.
    Here is the question I have for you. Last week, in a very 
good hearing, Gene Spurling recommended to the Committee that 
we pursue a limited extension of trade promotion authority 
focused on the DOHA Round. My concern is that with our 
bilateral agreements producing so many more sales for American 
companies and the DOHA Round being very important, but as we 
all know--Uruguay Round took eight years, far less complex.
    Today the issues are far more complex. We have more 
countries in WTO, making that much more difficult to reach a 
consensus. Yet, I'm convinced we stay at DOHA and use the rain 
dance approach, which is--the key to a successful rain dance is 
you keep dancing until it rains. The key to a successful DOHA 
Round is we stay engaged until it's the right agreement for 
America in the global system.
    What are your thoughts on a balanced TPA that gives us the 
bilateral negotiations and also keeps us at the table with 
DOHA?
    Ambassador SCHWAB. Thank you very much.--You will notice 
that when the President of the United States called for a 
renewal of trade promotion authority, there were no specifics 
in terms of how broad and how long. That was not an accident, 
and it is not an accident the Administration has not submitted 
a specific proposal. The nature of trade promotion authority is 
one that is going to ultimately be worked out between the 
executive and legislative branches. Trade promotion authority 
is a contract between the two branches of Government.
    I would say this. Every president needs and should want 
trade promotion authority, and not just for a Doha round. Not 
just for a multilateral trade round. For multilateral trade 
agreements, for the bilateral free trade agreements, for 
regional agreements, whether it is Western Hemisphere or Middle 
East, for pluralateral agreements, for agreements that are 
sectoral in nature that cut across regions, for example, in 
intellectual property rights in areas where we have interest.
    So, I would say the broader, the better, the longer term, 
the better. I look forward to working with you, with this 
Committee, Mr. Chairman, with Mr. McCrery and all Members of 
this Committee to try to forge that contract, forge that 
consensus.
    Mr. BRADY. Thank you, Ambassador. Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair recognizes Mr. Thompson for 
three minutes.
    Mr. THOMPSON. Thank you, Mr. Chairman. Ma'am, every time 
that we've had an opportunity to meet with someone from your 
shop, I have asked this or a similar question regarding what 
you are doing to deal with--it's kind of an intellectual 
property issue, but in China, they make bad wine in China and 
they label it with the Napa Valley. It seems to me that that's 
something that you guys ought to be able to have some leverage 
on. They call it Na Pa He Gu, which means Napa Valley. It's 
clearly an infringement in regards to geographical designation, 
and it's something that's hurting a business in my district 
that's important not only to California but to the country.
    Could I get an answer as to what you guys are doing? It's 
been three years I've been asking the question, and 
everybody's, yes, we'll look at it. What are you doing?
    Ambassador SCHWAB. Congressman, thank you. This is an issue 
that we have raised with the Chinese. This is an issue that 
fits in with a broader set of intellectual property rights 
concerns and geographic indications concerns that we have.
    In particular, when it comes to China, as you know, we've 
got a variety of intellectual property rights issues that we're 
trying to address, whether it has to do with falsified 
labeling, whether it has to do with copyright protection, 
whether it has to do with----
    Mr. THOMPSON. Could you--because my time is limited, could 
you send me a letter explaining what it is you're doing and 
when we can expect some resolve on this?
    Ambassador SCHWAB. Congressman, I'd be happy to do that.
    Mr. THOMPSON. Can I expect a letter sometime soon? The 
three-year window is I think a little long.
    Ambassador SCHWAB. Yes, sir.
    Mr. THOMPSON. Thank you. The other issue----
    Chairman RANGEL. We don't have time. No, no. Go ahead.
    Mr. THOMPSON. The other issue I want to talk to you about, 
and Mr. Doggett brought it up, and that's the international 
labor standards. There are lot of us on this Committee who 
really wanted to vote for some of the past trade bills, but 
because of the environmental neglect and the labor neglect, we 
just--we couldn't do it. Is it my understanding from your 
answer to Mr. Doggett that we can expect--and these are 
countries that said, yes, put the ILO standards in. We're fine 
with that. Then I don't know if it was the Committee or the 
majority on the Committee or the Administration that stopped 
that from happening.
    Is there any harm that can come to anybody if we have 
strict labor standards and strict environmental standards?
    Ambassador SCHWAB. Congressman, you have my commitment to 
work with this Committee, with the Chairman, with Congressman 
McCrery, with other Members of the Committee to bridge the gap 
if at all possible on the labor standards issue and on the 
environment issues.
    Mr. THOMPSON. Do you see any harm that can come to anyone 
if we have strict labor and strict environmental standards in 
these trade bills?
    Ambassador SCHWAB. I am committed to seeing that we bridge 
the gap that existed last year, and to see if we can do so in a 
way that contributes to rather than detracts from U.S. economic 
interests.
    Mr. THOMPSON. Thank you.
    Chairman RANGEL. The Chair would like to recognize Mr. 
Porter for three minutes.
    Mr. PORTER. Thank you, Mr. Chairman, appreciate you being 
here today. I guess a global question, and it may have happened 
before I was here, because of a prior appointment, I couldn't 
be here. As we look at Europe and kind of the trading roles 
between Europe and the U.S. and then compare that to the 
emerging markets in South America, it seems to me that that's 
the next frontier as far as trade, economic development, and 
with this globalization.
    China seems to have also the focus on South America and the 
expanding markets. Just kind of give me an overview on your 
perspective of where we need to be short term, long term in our 
trade South America, as it's now the next frontier for economic 
development.
    Ambassador SCHWAB. Congressman Porter, thank you. One of 
the advantages of a multilateral trade round is that you are 
able to negotiate with a wide swath of countries and regions, 
whether it is Europe, Japan, Asia. Bilateral trade agreements, 
regional trade agreements, such as the ones with the Western 
Hemisphere, though, enable us to be much more targeted in our 
approach, and this Administration has been utterly committed to 
enhancing economic growth through trade, democratization, 
through trade through greater commercial interaction in this 
hemisphere.
    If we, whether you're looking at the Peru Free Trade 
Agreement (FTA), which we hope will come before this Committee 
shortly, the Colombia FTA, which we hope will come before this 
Committee shortly, the Panama FTA that we're just closing out, 
these are of fundamental importance. If you look at a map of 
the hemisphere, with enactment of those three free trade 
agreements into law, you will see a line of trade agreements 
going from the tippy top of Canada right down through the Horn.
    Chile was one of our first FTA partners after Mexico, 
Canada, obviously, and that has been tremendously successful. 
We believe that these kinds of trade agreements are fundamental 
not just for commercial regions but also for geopolitical 
reasons. In the Andean region, also in terms of our anti-
narcotics objectives.
    Mr. PORTER. With the Central America piece, I think that 
from a--Homeland Security may have looked the other way for a 
few years, and now is that a major corridor? I appreciate your 
perspective.
    Ambassador SCHWAB. The Central America piece, DR-CAFTA, is 
a fundamental part of that equation, yes, absolutely.
    Mr. PORTER. Thank you.
    Ambassador SCHWAB. Thank you.
    Chairman RANGEL. Mr. Larson is recognized for three 
minutes.
    Mr. LARSON. Thank you, Mr. Chairman. Thank you, Madam, for 
your testimony and service to the country. There was a story 
printed earlier today in the Post, I believe. At the end of the 
story, there was a quote from a Peter Schiff, who is the 
president of Euro-Pacific Capital, a brokerage firm in Darien, 
Connecticut. His comment was that instead of producing 
products, we are just printing money. How do you respond--and 
that we are--the country is in serious trouble. How do you 
respond to that?
    The corollary question to that is one that you touched on 
in your remarks about the benefits of globalization, and that 
certainly Americans have benefitted. It's been my experience in 
my district that while some Americans may be benefitting, not 
all Americans are benefitting from quote/unquote 
``globalization.''
    With respect to the comment that was made by Mr. Schiff 
with respect to that, do you think the United States takes full 
advantage of the global transactions that happen all over the 
world? Is our current Tax Code, the way we look at trade, 
antiquated in response of need for us to provide for those who 
may be left out of this economy the opportunity to be 
retrained, to be reeducated and foster other future economic 
development?
    Ambassador SCHWAB. Congressman, I will not pretend to be a 
tax expert. I think the fundamental questions you are raising, 
though, are absolutely the right questions to be asking.
    In the case of manufacturing, U.S. manufacturing output has 
gone up dramatically, has gone up in the last ten years over 38 
percent. This is our manufacturing. Capacity utilization in 
manufacturing----
    Mr. LARSON. I don't mean to interrupt you, but I'm from a 
State where we're losing over 40,000 manufacturing jobs on a 
regular basis, and we're a high tech, aerospace, defense-
oriented, pharmaceutical State, and yet we still continue to 
shed manufacturing jobs.
    Ambassador SCHWAB. There, Congressman, you are talking 
about questions of causality. If in fact, as is the case, 
manufacturing output in the United States is up, and capacity 
utilization, is at a 33-year high, then the question is, where 
we are shedding manufacturing jobs to what we can--what can we 
attribute that to.
    Labor productivity is part of that issue. Part of it has to 
do with when you look imbalance in our import/export 
composition, part of it has to do with different rates of 
economic growth, the fact that we save less than a lot of other 
countries. Other countries, developed countries are growing 
less fast than we are.
    You alluded to questions about education. We've talked 
about trade adjustment assistance. Enabling individuals to be 
able to tackle today's economy, the global economy. If look at 
the difference in earning power of someone with a college 
degree as opposed to someone without a college degree, that is 
a huge gap, and it has gone up dramatically. That gap has grown 
dramatically in the last several decades.
    So, I think there are multiple causes here. We need to look 
for solutions that don't jeopardize the successes that we do 
have in terms of manufacturing and exports.
    Mr. LARSON. I'll get back to you in writing on the printing 
of money as opposed to productivity, because it's----
    Chairman RANGEL. I'd like to share with the gentleman of 
Connecticut that the U.S. Trade Representative fully realizes 
that people who are working think better about trade whether 
they're involved or not. Even though it's not in her direct 
portfolio, she shares with me and the Ranking Member that her 
title is the U.S. Trade Representative.
    So, therefore, the Administration has agreed to have other 
people perhaps sitting at the table to deal with the negative 
impact sometimes that progressive trade policy brings about. 
So, we are working very hard to find the language to make trade 
a popular thing.
    The Chair recognizes the gentleman, Mr. Ryan, from 
Wisconsin.
    Mr. RYAN. I thank the Chair for yielding. I've been 
enjoying this conversation, and I'll just try and add my little 
contribution to it, and then just quickly follow up with a 
request more than a question.
    It seems to me we have pretty good road map on how we can 
accomplish TPA moving forward by looking at some of the recent 
successes we had. Two agreements that I was very involved in, 
Bahrain and Oman, involved side agreements with respect to 
labor and core ILO standards. It was--it took a lot of time and 
effort and work to get these side agreements, probably more 
than was necessary, but nevertheless, they occurred.
    We just got this letter from the finance minister dated 6 
February, from the finance minister of Oman, stipulating that 
they basically implemented all those labor laws we asked them 
to implement. If I recall here, they implemented not only the 
core ILO labor standards, but also the United Nations (UN) 
protocols and some additional agreements.
    So, in Oman we basically achieved what we all want to 
achieve, what we're hearing here, we did it outside of it. So, 
now how do we come up with a model that put this within TPA so 
that we sort of standardize this process so it works a lot more 
efficiently and so that we can address these key critical 
issues?
    That's what we need to work together on. At the same time I 
want to put out just one little word of caution. As I 
understand it, there's a possibility that a new labor regime, 
if not properly crafted, may possibly leave us subject to 
dispute settlement and possible trade sanctions because our 
superior labor laws are questioned. So, the devil's in the 
details. That would be a bad situation that would undermine the 
reason we enter into these trade agreements in the first place, 
to help American workers and businesses.
    In addition, I simply think we need to be mindful that we 
don't want to adopt a model that would dissuade potential trade 
partners from negotiating with us in the first place. If we 
demand too much, we end up with nothing, not even the 
improvements in labor like we have been using with the current 
standards, like we got with Oman and Bahrain. All these new 
labor laws in those countries would never had occurred if it 
were not for our trade negotiations.
    So, I also worry that if we make it too difficult for 
partners to partner with us and get these agreements, then 
these other would-be trading partners will simply go to the EU, 
they'll go to China, and they'll cut easier, better deals with 
them and freeze us out.
    So, we are in a competitive atmosphere here. So, we have to 
find that sweet spot. We have to find that right area where 
countries want trade agreements with us, where we do advance 
these very common sense labor causes. In my opinion these are 
common sense things. We've got to do it in such a way that we 
don't set up our own laws for more litigation, for sanctions 
and dispute settlement. So, that's where the devil in the 
details exists. If you could just kind of elaborate for me how 
to get that done. I know--I guess we're on three minutes and my 
time's kind of out--perhaps in writing. That would be very 
helpful.
    I think we can do this. I think we should do this. If we 
don't do this, all these other countries are going to trade and 
get better deals with our competitors, and we will lose because 
of that, and we will not advance this labor cause.
    So, we've got to get this done. Thank you.
    Chairman RANGEL. Mr. Ryan, no one understands that better 
than our trade representative, and we if she didn't find it--if 
it wasn't difficult, we would have done it a long time ago. So, 
I look forward for your input in helping us to reach that point 
where it's in the best interests of the United States and we 
get broad-based support for the trade agreements. I thank you 
for the cooperation that you--and the input that you've had in 
the past, and hope that you continue to work with us. Thank 
you.
    Mr. Blumenauer is recognized for three minutes.
    Mr. BLUMENAUER. Thank you, Mr. Chairman. I would state from 
the outset that I am one Member who is very interested in 
watching the development of the Administration's agricultural 
policies and perhaps giving you greater latitude for the United 
States to be more forthcoming in the agriculture arena, 
particularly for poor and developing countries.
    I would hope that maybe some of that same spirit about the 
special and differential treatment that we're talking about 
maybe in Doha also finds its way into some of the FTAs with 
some of these countries themselves that are developing. I must 
say that I find a little of that wanting when we're looking at 
the agreements with Peru and Colombia.
    I am gratified by the leadership that is being exhibited by 
our Committee, by Chairman Rangel and Ranking Member McCrery.
    It was in that sort of spirit of trying to move and 
reestablish the bipartisan trade consensus that we're going to 
need that you did receive the letter from us dated January 
17th. Some of us got faxed late last night a response. I want 
to add my voice as saying, with all due respect, that response 
I hope was just dashed off by some staff member who wanted to 
have something in our hands before this hearing, because it 
doesn't go very far towards developing a sense of momentum 
dealing with these environmental issues as far as I'm 
concerned. In talking to my fellow signatories, they feel the 
same.
    May I ask respectfully for maybe another shot at it? Let me 
offer just a few very brief comments, maybe get something back 
in writing to see if there's somewhere in USTR we can do a 
better job. Has the United States ever brought a complaint 
pursuant to the provision of our trade agreements requiring 
domestic environmental laws be effectively enforced? Under what 
conditions would USTR consider bringing such a complaint?
    An example. Where it's document that there are illegal 
logging in the Rio Planto Bioreserve in Honduras, which is on 
the list of endangered world heritage sites, would that be an 
appropriate case to bring under the environmental chapter of 
DR-CAFTA? We've got the Singapore FTA where we've got massive 
transshipments of illegal log timber through the ports of 
Singapore.
    I sat on the plane coming out from the Northwest this last 
week with a lumber executive that I've been having embarrassing 
comments with in the past. We've got a trade in illegally 
harvested timber that is posing a threat to his companies and 
others around the country, losses I've heard of a billion 
dollars a year in revenue because of these imports.
    Now since it's clearly, it would seem, a trade issue which 
impacts both conditions abroad and in the United States, could 
we have addressed this issue of illegal harvested timber in a 
more forthright fashion, negotiating the trade agreement with 
Peru?
    I'd like--I don't want to trap you, but I would like maybe 
a more detailed response in writing that speaks to what we've 
done, can we do it in the case of these illegal logging, the 
illegal transshipment, and putting teeth into these agreements 
that we have coming before us now that give some of us pause?
    Chairman RANGEL. The Chair would like to recognize Mr. 
Nunes for three minutes.
    Mr. NUNES. Thank you, Mr. Chairman. Ambassador, I want to 
be very quick with this. On the Korean FTA, it's come to my 
attention that some of the agricultural products are not being 
zeroed out in terms of zero duty. Specifically, this troubles 
me for crops that are not even grown in Korea.
    So, I hope we will send a very clear message to the Koreans 
that they won't have my support if they're going to try to put 
duties on products that they don't even grow in their own 
country. So, that's, of course, parochial to me, but of 
concern.
    I want to get to a question in regards to perishable 
agricultural products. Given the short timeframe here, I will 
be very brief, but you know of the seriousness that we have 
with trying to get agricultural products into foreign markets, 
specifically dealing with the FIDO sanitary barriers to trade 
that they put up.
    What I'd like to get from you is what do you think of an 
establishment of a perishable commodity export indemnification 
program perhaps operated by the USTR? Are there any 
indemnification programs for any U.S. exports today? In other 
words, getting more people on the ground to try to get this 
handled more quickly than it happens now.
    Ambassador SCHWAB. Congressman, in terms of Korea, I think 
you just sent a very effective message. I would say--I would 
note that we have this round of the Korea-U.S. Trade Agreement 
negotiations going on this week here in Washington.
    As far as the United States' position, the United States' 
position is very, very clear that these have to be 
comprehensive agreements that nothing is off the table, 
regardless. Nothing is off the table. That's the position we 
take. That is the set of commitments that we've made in terms 
of market access, even though sometimes that's difficult for 
us.
    In terms of Sanitary and Phytosanitary Standards (SPS) 
issues, sanitary, FIDO sanitary issues, they are a constant 
source of problems in trade that we have, particularly in terms 
of our exports, but also other countries would argue that we 
have a system that is less efficient than it should be. Other 
countries would argue that.
    I have worked with Secretary Johanns, and will continue to 
work with Secretary Johanns to see what kind of facilitative 
measures we can take. In terms of SPS barriers being used 
against U.S. exports, we are very active in terms of getting 
those eliminated, making sure that other countries also adhere 
to globally recognized standards.
    Mr. NUNES. I think we have an opportunity with this farm 
bill coming up to try to help with some of these long 
outstanding issues. It seems like these never go away. I don't 
know if it's that the USTR is understaffed or if the staffing 
levels aren't appropriate at the foreign level in the other 
countries, but anyway, we're optimistic that we can try to get 
something done this year with this farm bill that would be 
beneficial for market access.
    Ambassador SCHWAB. I will look forward to working with 
Secretary Johanns and with the agriculture Committees on this.
    Mr. NUNES. Thank you, Ambassador. Thank you, Mr. Chairman.
    Chairman RANGEL. Thank you. The Chair will now go back to 
those Members that were here when the gavel fell, which is Mr. 
Becerra, Mr. Kind, Mr. Pascrell, Ms. Berkley, Mr. Crowley, Mr. 
Meek, Ms. Schwartz, and then we'll go to Mr. Pomeroy and Mr. 
Van Hollen.
    The Chair recognizes Mr. Becerra for three minutes.
    Mr. BECERRA. Thank you, Mr. Chairman. Ambassador, again, 
thank you very much for being here. I'm actually very delighted 
at some of the questions and conversation that's taken place, 
because it seems like this year we're seeing conversation about 
worker rights, worker protections occurring on both sides of 
the aisle in this discussion, and I think that's great.
    However difficult we have found it to promote our 
protections and our interests in things like our commodities, 
beef, crops, or our goods, heavy equipment, or even things you 
can't touch like intellectual property, we've always done the 
best job we can to protect our interests, to promote them as 
well abroad.
    So, when we have provisions in our trade agreements which 
say that if we find a country is violating our intellectual 
property rights on movies or CDs, not only can we enforce 
actions against that country's crops or other products 
unrelated to CDs or movies, but we can actually require them to 
change their domestic laws to make sure that they are 
criminally sanctioning people who pirate our intellectual 
property. I think that is absolutely essential for us to be 
able to promote our interests abroad.
    I'm wondering if you could tell me if you think it's 
difficult for the United States to promote and protect our 
interests of our workers in America and workers, of course, in 
those countries, trading partner countries as well, as we go 
about fashioning a trade agreement that not only talks about 
worker protections but also includes it within the body of the 
agreement to be able to enforce protections and interests of 
American workers and interests of those--the worker interests 
in those trading partners as well.
    Ambassador SCHWAB. Congressman, thank you for raising the 
question. As I have indicated and will reiterate, the 
Administration and I am fully committed to working with this 
Committee to see if it is possible to bridge the gap in terms 
of how we address worker rights. Congressman Blumenauer was 
talking about environment issues. We have----
    Mr. BECERRA. My question was more focused on whether or not 
you as our ambassador believe that--I think it was Mr. Ryan who 
said it's difficult--it can be difficult to get these trade 
agreements signed if we go too far on some of these rights for 
workers. I don't think we spared any negotiating tool when it 
came to protecting our rights to our intellectual property, our 
rights to make sure our farmers can sell their crops for a 
decent price abroad, our rights to make sure that our heavy 
equipment that we send to other countries gets a fair price.
    I'm just wondering if you could tell me if you believe that 
it's too difficult to negotiate an agreement that includes 
protections that will make sure that, for example, in China 
where in their industrial heartland, that industrial worker 
will make about 64 cents an hour compared to in America where 
an industrial worker probably will on average make about $22 an 
hour, or in Mexico where the minimum wage is less than $5 in a 
day compared to our deplorable $5.15 an hour minimum wage.
    How do we make sure that as we go about making these 
agreements that we're protecting the interests of workers not 
just in our country but in those trading partner countries as 
well to make sure that, just as we protect product, 
intellectual property, commodities, we'll protect workers as 
well?
    Chairman RANGEL. You may respond.
    Ambassador SCHWAB. Thank you. Let me echo Congressman 
Ryan's comment that if this were easy, we would have done it a 
long time ago. We spend an inordinate amount of time and energy 
trying to make sure that we have solid and productive 
components, labor rights components, and environmental 
components, I might add, in our free trade agreements.
    I believe that our free trade agreements are the single 
best vehicle that we have to improve the situation in terms of 
labor rights in other countries, and we have pursued that as 
actively and as avidly as we have pursued intellectual property 
rights and other services investment and so on.
    We do need to--if it were easy, we would have done it some 
time ago. Let us recall that when we put together these free 
trade agreements, they're very complicated. They have to be 
comprehensive, and there are tradeoffs for everything. I have 
made the commitment to work with this Committee to see if we 
can bridge the gap on the labor rights issues.
    Mr. BECERRA. Thank you. Thank you, Mr. Chairman.
    Chairman RANGEL. I want to be as positive as I can about 
what the gentleman referred to. It means that we would like to 
see that with the same enforcement as the other areas, as 
difficult as it may be, because we know it's a question of 
trade policy, and we know that what you come up with is going 
to be in your opinion in the best interests of the United 
States of America. That doesn't mean that the legislative 
branch may differ with the executive branch as to what's in the 
best interest of the United States, especially when we're 
giving that authority to the President of the United States.
    So, to some extent--and we'll have to have experts to 
support it--we may have a different opinion as to what's in the 
best interests of the people of the United States of America. 
So, I know you say that you've tried hard, but I'm more 
confident that we'll be trying harder to work together, because 
it makes the difference as to whether or not we're going to 
have a bipartisan trade policy.
    I know you believe that, but the gentleman from California 
was not privy to the many, many meetings we have had, and we 
hope to please you as well as the majority Members of this 
Committee.
    Let's see now.
    Mr. BECERRA. Mr. Chairman, I'm hoping to be pleased as 
well.
    Chairman RANGEL. Okay. Mr. Kind will be recognized for 
three minutes.
    Mr. KIND. Thank you, Mr. Chairman. Thank you, Ambassador 
Schwab. This actually has been a very helpful discussion that 
we've been having throughout the morning. You've been very 
patient, and we appreciate it.
    I'm going to eventually ask you about the Doha round, our 
ag bill coming up, but also the Canadian WTO challenge, ag 
challenge that's recently been filed against us, but before I 
do, this is tough stuff. I think the comments you've heard her 
reinforces that. You've got one of the toughest jobs in 
Washington today in helping us try to form a new bipartisan 
consensus and how we can move forward on a trade policy that 
makes sense for our country. I think it's worthwhile in doing, 
because I think trade is incredibly important for our country, 
for future growth prospects for our constituents. I believe 
it's important to our national security, because I believe when 
goods and products cross borders, armies don't. I believe it's 
an important tool in our diplomatic arsenal and in how we 
engage the rest of the world, but especially the developing 
world at this crucial time.
    I also believe it's an opportunity of trying to elevate 
standards globally, both at home and abroad. To me, trade is 
all about the harmonization of rules and how we're going to 
engage one another on an economic basis. The real question is, 
and what's in the minds of our constituents back home, are we 
going to work hard to try to harmonize upwards, or are we going 
to encourage a race to the bottom, where we have no worker 
rights, no labor enforceable standards, no environmental 
protections, no level playing field for our constituents in 
which to compete, too? That's really the great challenge that 
we're trying to get at.
    I, along with a few of my colleagues, spent a week in 
Geneva after Thanksgiving to get more insight on the Doha 
round, and there's nothing more dangerous than Members of 
Congress going and spending a week on an issue and coming home 
and being experts, but it's clear that all eyes are on us in 
regards to what we do with TPA, and especially on what we do 
with our egg bill coming up this year, but somehow we've 
managed to position ourselves as being the scapegoat or the bad 
actor in all this in Geneva right now. So, there's a lot riding 
on this.
    I was hoping to be more encouraged with the 
Administration's farm bill that was sent up recently, 
especially with the Title I commodity program, so-called 
``Amber Box'' payments. I think we need to go further, and I 
know it's just a starting point for negotiations with the egg 
bill, but obviously there was a round of criticism of both 
Europe and in the developing world on what the Administration 
was proposing under Title I. That's a concern.
    Now I hope you might have an egg expert on staff that can 
come up and brief me on where things like in Doha and what we 
need to accomplish with the egg bill. I would hope maybe it's 
the same person that can give me an update on the Canadian 
challenge. We already had our hands handed to us with the 
cotton challenge, and we face a very serious challenge now with 
what the Canadians are arguing. Maybe if we can get something 
written from your office as well, that would be much 
appreciated.
    If you could just comment on the importance of making sure 
we produce the right agriculture bill and what that means in 
the multilateral round.
    Ambassador SCHWAB. Thank you, Congressman. We welcome 
Members of Congress going to Geneva, talking to WTO members and 
getting up to speed on a lot of these issues, because some of 
them are very arcane, they're very complicated, and we very 
much appreciate it when you take the time to do that.
    Just a couple of very quick observations. One, obviously, I 
would be happy to come up and see you, or our chief 
agricultural negotiator or a team to come up and talk about the 
relationship between the farm bill and what's going on in Doha 
in agriculture.
    Let me make one very emphatic comment, though, which is the 
farm bill, the Administration's farm bill, is not our Doha 
round agriculture offer.
    Mr. KIND. Right.
    Ambassador SCHWAB. What the United States is prepared to do 
in terms of cutting our trade distorting domestic support, 
whether it's Amber Box or Blue Box or other, or aggregate, has 
everything to do with how much agricultural market access, how 
much market access there is in this agreement. Those were--it 
was that tension that brought the talks down last July. So, we 
are pushing very hard to have a more ambitious market access 
outcome so that we can have a more ambitious conversation about 
trade distorting domestic support.
    You mentioned the corn case. Mr. Chairman, this really 
bears some thought. In the absence of a successful Doha round 
negotiation, I think it's very clear we're going to see more 
litigation, and that includes more litigation like the corn 
case. We believe our programs are consistent with the WTO. We 
believe the new farm bill would be consistent with the WTO. 
Other countries don't necessarily feel that way, and litigation 
is what happens when you aren't able to resolve things through 
negotiation.
    Mr. KIND. Thank you.
    Chairman RANGEL. The gentleman from New Jersey, Mr. 
Pascrell, is recognized for three minutes.
    Mr. PASCRELL. Thank you, Mr. Chairman. Thank you, Madam 
Ambassador. Madam Ambassador, I hope someday that trade will 
someday be a tool for economic security within our country and 
other countries as well, as well as national security, which I 
think it can serve a vital, vital part of that. There's not 
enough time to get into that today. I want to take some 
exceptions to what you've said, if you'll permit me to do that.
    Your answer to the Chairman on his question about why do so 
many people believe that trade is really the bottom line, it's 
not good for the rest of the--many workers in this country, and 
you said, you responded to him because of misconceptions.
    That is why I--I hope I was not out of order, but that is 
why I responded to you before when you brought up the subject 
of Valentine's Day for flowers. I know where those flowers come 
from. You know where those flowers come from. Cocoa, which goes 
into chocolate, a lot of chocolate going out today to bevel off 
the edges with many relationships, chocolate does it, but many 
times that cocoa comes from places where you can't organize, 
and they use child labor.
    So, I want to ask you a question, if I may, about a subject 
that I didn't bring it up, the gentleman from Wisconsin brought 
up, on Oman and Bahrain. I proudly voted against both of those 
trade agreements. In those agreements, it was promised--they 
promised, both of those countries, to strengthen their laws in 
order to secure passage of their respective FTAs.
    Bahrain recently issued a decree banning strikes in 
numerous public and private sectors, and Oman has not adopted 
laws necessary to implement what they promised. It appears that 
it is enough for the USTR to obtain promises regardless of 
whether the promises are kept. I'd like to know in 15 or 30 
seconds, what are you going to do that the promises are being 
kept? We can't accept promises that are not being kept by most 
of the countries that we trade with. What are you going to do 
about it?
    Ambassador SCHWAB. Let me begin by respectfully disagreeing 
with your underlying premise.
    Mr. PASCRELL. Which is?
    Ambassador SCHWAB. First that the agreements are not being 
kept. In the case of Oman, Oman has fully complied with the 
commitments that it made in terms of changing its trade laws, 
royal decrees, in terms of regulations. They are now in place. 
The trade agreement has not yet even entered into force, so.
    Mr. PASCRELL [continuing]. Know that.
    Ambassador SCHWAB. Those are in place. In the case of 
Bahrain, Bahrain made significant commitments. Bahrain is, to 
my understanding, acting in a manner consistent with those 
commitments. I just heard of the claim that you described, and 
our office is looking into that to make sure that they are 
addressed.
    Let me note the obvious, though, which is absent free trade 
agreements with Oman and Bahrain, there would be nothing 
whatsoever that the United States could have done to improve 
labor rights in either of those countries. None of those laws, 
none of those regulations would have gone through, and we would 
have no mechanism to enforce them.
    So, I'm happy to say that we have those agreements in place 
and we have the dispute resolution mechanisms available to us.
    One last point, Congressman. That is, in my written 
presentation, I specifically noted that of the long-term 
unemployed, there are approximately 3 percent of those whose 
jobs have been lost directly attributable to trade. We 
understand there is a problem. It is not--it is not a huge 
problem statistically. It's a huge problem for those 
individuals in those communities.
    Mr. PASCRELL. Yes. We're talking about human beings. We're 
not talking about----
    Ambassador SCHWAB. That's exactly right, and we're 
committed to helping them.
    Mr. PASCRELL. We're not talking about widgets. The previous 
President did not have fast track, and yet he had very specific 
trade deals with the WTO, with the Permanent Normal Trade 
Relations (PNTR) in China. Why do we need to have fast track? 
Why do we need to be kept out of things in order to come to 
these agreements?
    Chairman RANGEL. The Chair would like to recognize----
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Chairman RANGEL [continuing]. Ms. Berkley for three 
minutes.
    Ms. BERKLEY. Thank you, Mr. Chairman, and a belated 
welcome, Ambassador. I'm going to change topics a bit. I think 
we can agree that our participation in international trade 
through the framework of the WTO is advantageous for a number 
of reasons.
    So, I'm wondering if you can help me. What happens when the 
United States finds itself in a situation where we're judged by 
the international community to be in violation of WTO 
principles which we have agreed to follow? I'm specifically 
referring to the case that Antigua and Barbuda have brought 
before the WTO alleging that the United States is in violation 
due to our confusing and may I say hypocritical stance on 
Internet gaming. According to the Justice Department, any 
gaming conducted over the Internet is illegal.
    This Congress in its infinite wisdom included a ban on 
Internet gaming in the port security bill that was passed right 
before we adjourned for the election. I have never been able to 
figure out how banning Internet gaming had any connection 
whatsoever with this Nation's port security, but included in 
that ban was an exception for horse racing. So, I have to think 
poker bad, horse racing good.
    As a result, our Government has prevented operators based 
in Antigua and elsewhere from offering online gaming within our 
Nation's boundaries, citing our Nation's moral objection to 
Internet gaming at the same time we are allowing online betting 
for horse racing.
    The WTO of course has disagreed with our Justice 
Department's position and will shortly issue a ruling that 
confirms we are in violation and that Antigua may and can 
retaliate. What are we going to do about this contradictory 
policy? What do you recommend that Congress does? Ought we not 
study the problem or the issue of Internet gaming before we ban 
it, in violation of WTO?
    Ambassador SCHWAB. Congresswoman, you have been very 
patient waiting to ask this question.
    Ms. BERKLEY. You have no idea.
    Ambassador SCHWAB. This is quite a question. Let me offer 
the following. One, because this is a matter still under 
litigation in the WTO, I would just as soon not get into any 
specifics. What I would appreciate is if you have the time, if 
I can come in with some of our compliance attorneys who are 
working on this case. The United States takes the position we 
believe that our laws are consistent with our WTO obligations, 
but if you would permit, I'd like to be able to come in with 
some of our attorneys to get into more details and respond more 
fully to your question.
    Ms. BERKLEY. I would appreciate that, but the idea that 
we're going to spend a fortune litigating an issue that I think 
could be easily taken care of in Congress with a simple vote 
seems a waste of taxpayers' money, but I would welcome sitting 
down with your attorneys and talking to them about this issue.
    Ambassador SCHWAB. Thank you, Congresswoman.
    Chairman RANGEL. The Chair will now recognize my colleague 
from New York, Chairman of the Queens County Democratic 
Organization for what international input he would like to 
place in this issue before us. Mr. Crowley.
    Mr. CROWLEY. I need a moment, Mr. Chairman.
    [Laughter.]
    Mr. CROWLEY. Let me just--get back to where I'm at. Thank 
you, Mr. Chairman, as always. Ambassador, thank you for being 
here. It's great to see you again.
    I just want to follow up very quickly on the question Mr. 
McDermott asked earlier, and that is pertaining to the LDCs, 
Least Developed Countries. As you know, I have an interest in--
primarily, in a number of those countries, in particular, 
Bangladesh, Sri Lanka, just to name a few of them, and an 
interest to see them advance in terms of their society and the 
need to have more free access to our markets.
    During the Doha development agenda, WTO members would move 
to adopt the initiative which promotes duty free, quota free 
market access for the LDCs. By 2008, this initiative would be 
applicable to all products originating from LDCs, with the aim 
to move towards greater equity in international trading 
opportunities for those countries.
    When Mr. McDermott asked you the question in regard to 100 
percent duty free and quota free access, you raised the issue 
of the African nations' objection to that. Recent economic 
studies, including the International Food Policy Institute, 
which is a conservative institute, show that 100 percent duty 
free, quota free access would not adversely affect apparel 
exports from Africa, and in fact--and moreover, the Africa 
countries have expressed support for 100 percent duty free, 
quota free access for all LDCs.
    One, I'm going to ask you to respond to that. Before I ask 
you to respond to that, if you could, just another note, 
because time is of the essence here, I mentioned to you briefly 
in private the issue of Oracle and their difficulties in India, 
specifically, they face difficulty working through the Indian 
bureaucracy. India's Securities and Exchange Commission and Fed 
leaked the sale within India that increased the stock price 
there. They changed the filing fee during the process from 
$1,058 to $6.6 million. It's a software company dealing with 
banking software.
    Oracle is in the process again of purchasing that within 
India. It would be the largest forward directed investment in 
the history of India, over $2 billion. They were told that they 
could have 100 percent ownership within India. They've only 
been able to secure 84 percent ownership. So, a lot of double 
dealing is the sense that Oracle has gotten in their dealings 
with India.
    Can you comment on that and tell me what it is you are 
doing as Trade Representative and what our ambassador, Mulford, 
has been doing or saying to the Indians in India? Thank you.
    Ambassador SCHWAB. On your second question, the issue of 
Oracle's acquisition in India, this is one that we are 
following, very familiar with, and between Ambassador Mulford 
and our office, has been raised with Indian authorities. I will 
continue to raise that in context of the India-U.S. Trade 
Policy Forum, which was created last year, and that will be 
meeting again in the next several months.
    In terms of duty free, quota free, the duty free, quota 
free decision--and this was an agreement reached in December--
of the Doha--in the Doha agreement of the WTO members, was for 
97 percent of products to be duty free, quota free. Countries 
that want to do more can do more.
    Ninety-seven percent was a position that a lot of countries 
agreed on. We have currently a Federal Register notice out 
asking for input, asking for comments on what should or should 
not be included, because we do--we are fully committed to 
making the duty free, quota free provisions as useful to the 
least developed countries as possible.
    There are preference erosion issues that need to be 
considered not just in terms of African countries, although I 
hear a lot of concerns from African countries, AGOA members in 
particular, but also other preference holders, other countries 
that already have extensive preferences in our market.
    We will be using this request for information, request for 
input process, public input, to get a sense of where this would 
fall out. It is our expectation and our desire to make sure 
that the maximum possible benefits to developing countries are 
derived from this 97 percent.
    Mr. CROWLEY. Well, I look forward to working with you on 
this in the future, Ambassador. Thank you very much.
    Ambassador SCHWAB. Thank you, Congressman.
    Mr. CROWLEY. Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair would like to recognize Mr. Meek 
of Florida for three minutes.
    Mr. MEEK. Thank you, Mr. Chairman, Madam Secretary, thank 
you for coming before us. I know that many of the questions 
that many of us on the bottom row had for you have already been 
answered, but as you know, I'm from Miami, Florida, and I'm the 
only Member on this Committee that represents Florida, and 
trade is something that, like the pork industry says, we're the 
new white meat as it relates to trade, because some of the 
issues or some of the issues that are facing Americans, loss of 
jobs, what have you, that's being blamed on trade, did not 
affect Florida like it affected Ohio and some of the other 
States and South Carolina.
    As you know, we had the Free Trade of Americas that we 
attempted to try to promote, and we know the status of that 
now. Also, CAFTA, DR-CAFTA, which I understand there's still 
some discussions that still need to take place for that to be 
in full effect. Now we have the Hope legislation that was 
passed in the closing of the last Congress. I represent more 
Haitian Americans than any other Member of Congress, and we 
know the situation in Haiti, the poorest country in the Western 
Hemisphere. I know that the Administration has really been 
looking to do a lot, not only in South America, but in our own 
hemisphere to promote trade.
    I also would like to hopefully give some questions to your 
staff for the record so that you can give me some feeling of 
where we're headed as it relates to Haiti. A very difficult, 
very technical international community is there trying to do 
the best they can. I just want to make sure that we're putting 
our best foot forward. I voted against DR-CAFTA for the main 
reason that we had the Hope legislation or Hero or what have 
you before us, and it wasn't getting the attention that it 
deserved from the Administration. It did not come up for a 
vote, and when it was coming up for a vote, thanks to the 
Chairman, it was so watered down under the previous Chairman, 
it wasn't even worth bringing it up, but I'm glad that our 
present Chairman and the previous Chairman worked to get the 
Hope legislation up.
    I want to just ask you very quickly as it relates to Haiti, 
what kind of forward lean does your office have as it relates 
to getting the implementation of the Hope legislation moving 
fast? Faster than it's doing now. I understand that we may be 
in a DR-CAFTA experience, and it's just one country.
    Ambassador SCHWAB. Congressman Meek, thank you for asking 
the question. We have committed our office, and we're working 
with the Customs and Border Patrol for their side of it. We 
have committed to have expeditious implementation of the Hope 
legislation. That is within a timeframe ideally within 90 days 
of enactment. That takes us into March. We're moving very 
quickly, and I am optimistic that we will be able to meet that 
timeline.
    You are absolutely correct that Florida is an incredible 
beneficiary of an open trading system, particular Western 
Hemisphere trade, and the Hope preference program I hope will 
be of significant benefit. We believe very strongly that DR-
CAFTA, when it's fully implemented, again, has fundamentally 
important implications for Florida and the Peru and Colombia 
and Panama free trade agreements when those come before this 
Committee, when they are enacted will also be very, very 
significant in terms of Florida and other countries in the 
region, including Haiti, gaining the benefits that are possible 
from international trade.
    Mr. MEEK. Thank you very much, and I look forward to 
following up with you and your staff on the issue. Thank you.
    Ambassador SCHWAB. Yes. I forgot to mention, if you've got 
specific questions, we will be very happy to receive them and 
respond to them promptly. Thank you.
    Chairman RANGEL. I'd like to make your job easier, because 
when we have these--the Ranking Member and I agree that when we 
have these informal meetings, some of the questions that people 
have of their own district other Members would be interested in 
getting these answers so that you'll have a Committee that's 
more in line with our full trade policy rather than just what 
hits our district.
    We would be better informed, and I want to thank you again 
for your willingness to have these informal meetings.
    Ms. Schwartz is recognized for three minutes.
    Ms. SCHWARTZ. Thank you, Mr. Chairman, and thank you for 
your patience, too, in hearing all of our questions. I wanted 
to really ask about--more about the issue of enforcement. I 
mentioned it to you before the hearing, but one of the 
concerns, and the Chairman expressed it in the beginning, that 
there is skepticism about these trade agreements really being 
helpful to either American businesses or to the workers of 
course they employ. So, what that means is that we work hard to 
get language in legislation in these trade agreements, but then 
the issue of enforcement is clearly a major one.
    So, specifically, Congress did insist in the China WTO 
accession agreement and the China PNTR that the legislation 
include the special anti-surge agreement that would allow the 
United States to act against unfairly traded Chinese imports. 
The anti-surge mechanism known as--you referred to it as the 
421 provision--is a major reason that the China PNTR was 
passed.
    Since the law went into effect, a number of U.S. industries 
have sought to use the anti-surge mechanism and to seek relief 
under this law. In four out of six of the cases, the 
independent U.S. International Trade Commission found that the 
U.S. firms did in fact need relief, but in every one of those 
cases, this Administration rejected those petitions, often 
reaching beyond the parameters of the Congress's intention, and 
looked for justifications for the rejection.
    I have a business in my district. I wrote to you about 
this. I'll represent it's a standard pipe manufacturer located 
in the city of Philadelphia, in the northeast section. I can 
tell you just--this is an example. The standard pipe imports 
from China increased from 10,000 tons in 2002 to 663,000 tons 
in 2006. That's not a small increase. It's a staggering figure. 
As a result, this particular company has had to cut back and 
has laid off workers' hours.
    This is true for standard pipe companies across the Nation. 
While you might say, and I hope you do, that you would speak to 
the specific concerns I have about this company, I am really 
asking more as we go forward, I'm asking more the question as 
we go forward, as we seek to build in language that will in 
fact offer this kind of potential relief as we go through--
sometimes it's a transition, sometimes it's actually really 
sort of an anti-dumping provisions as well--can we count on the 
Administration to find only reasons to reject the opportunity 
for relief for American industry and companies?
    Or in fact will we see some enforcement from the 
Administration, from you and from the President? It's an 
assurance I think that we need going forward to make sure that 
as we want to promote trade policies in this country that work 
for American business and American workers, we need to have 
that assurance going forward.
    I would like to have you speak again to the specific or to 
the general notion of enforcement. Thank you.
    Ambassador SCHWAB. Congresswoman, thank you. Let me speak 
both to the specific and to the general. General first. We are 
absolutely committed as an Administration, as the U.S. Trade 
Representative's Office where we have jurisdiction, and the 
Commerce Department in anti-dumping countervailing duty areas 
where they have jurisdiction, we are absolutely committed to 
effective enforcement of trade agreements.
    It is not a good use of anyone's time for us to go out and 
negotiate trade agreements and discuss them here and debate 
them and enact them into law and put them into effect if we are 
not actively enforcing those agreements. If, for example, you 
look at the--you mentioned the case of China.
    If you look at cases that we have brought related to auto 
parts, the most recent subsidies case, prohibited subsidies 
case, involving export subsidies, involving import substitution 
subsidies, some of the issues that we're debating over 
intellectual property rights and so on, we are showing that we 
will be rigorous in our enforcement of trade agreements.
    Ms. SCHWARTZ, but not in the anti-surge.
    Ambassador SCHWAB. In terms of anti-dumping and 
countervailing duty, the anti-surge mechanism 421 that you 
reference, that is a provision of law that we respect, that we 
implement in good faith.
    In the case of the Standard Pipe decision, that decision 
and the previous decisions, the President needs to make a 
determination, we make a determination as to whether it is in 
the national interest to impose these special safeguards.
    In that particular case, we found that there were more than 
40 other producers of this product, countries exporting that 
product to the United States, and that a safeguard put on one 
imports from China, would not have done any--provided any real 
benefit to U.S. producers. In fact, it would have harmed U.S. 
users.
    You have our commitment, and Carlos Gutierrez, Secretary 
Gutierrez, I'm sure would say the same thing if he were here, 
that this is a provision of law that we will faithfully 
implement.
    Chairman RANGEL. The Chair would like to recognize Mr. 
Pomeroy for three minutes.
    Mr. POMEROY. Thank you, Mr. Chairman. Madam Ambassador, is 
sugar secure as a sensitive product in your negotiations with, 
among others, least developed countries?
    Ambassador SCHWAB. Congressman, it would have been lovely 
if you had been able to ask that question about the same time 
that the two congressmen were here asking me why duty free, 
quota free----
    Mr. POMEROY. You're on my time. Question, please.
    Ambassador SCHWAB. The answer is, we have committed that 97 
percent of imports would come in duty free, quota free from the 
least developing countries in the world if there is a Doha 
round agreement. We have not made any commitments as to what 
would be contained in that 3 percent. We have a Federal 
Register notice that we have recently issued to get comments on 
that very subject. I am assuming that any----
    Mr. POMEROY. Sugar is insecure relative to be in sensitive 
product exclusion at the present time. Is that right?
    Ambassador SCHWAB. We have not made any determination as to 
what will be----
    Mr. POMEROY. All right.
    Ambassador SCHWAB.--within that allocation.
    Mr. POMEROY. Watching the Doha round, it reminds me of a 
one-bidder auction with recalcitrance, intransigence by our 
trading partners, the United States just tossing more and more 
on the table. I believe that in light of restricted market 
access that is very different from the open market we allow, 
the extraordinary European subsidies, which are very different 
than what we have in our own farm programs, this approach is 
ill advised.
    Not only have we been wimpy in negotiating, we are wimpy in 
trade enforcement, and this is where I would direct the rest of 
my time. Two issues. Transshipment of sugar through Canada 
under NAFTA--I'm sorry, through Mexico under NAFTA, as we have 
the NAFTA 2008 date arriving with unlimited amounts of sugar 
allowed in from Mexico, what resources are allowed--are you 
allocating to make sure there's no transshipment, which is 
clearly prohibited under the terms of the signed agreement?
    Second and very different issue, but I think it reflects 
upon the array of areas where trade enforcement has been 
lacking, is the privatization of Japan post exposing a $50 
billion a year life insurance presence in Japan, what resources 
do you have dedicated to the privatization of Japan post? Have 
you had discussions with Japan relative to national treatment 
of Japan post as they're in this transition toward 
privatization?
    I thank you and yield--and look forward to your answer.
    Ambassador SCHWAB. Congressman, you raised two questions 
and accused us--accused me of being a wimpy negotiator, and I 
must----
    Mr. POMEROY. Our trade policy generally, Madam Ambassador.
    Ambassador SCHWAB. Well, let me suggest, Congressman, that 
Exhibit One for our determination to make sure that any Doha 
round outcome is clearly in the national interest of the United 
States was walking away from the table in July. There was a bad 
deal on the table. It had insufficient market access in 
agriculture, in manufacturing, and in services. We walked away 
from the table even knowing that that was our last chance to 
use trade promotion authority. That is because we are 
determined when we negotiate free trade agreements, when we 
negotiate multilateral trade agreements like the Doha round, 
that there has to be market access. In terms of what we are or 
are not prepared to do, in terms of our trade distorting 
domestic support in agriculture, that has everything to do with 
how much market access is on the table.
    So, first, foremost, most important. In terms of sugar, in 
terms of sugar and NAFTA, as you know, and as you implied in 
your answer, the market ultimately becomes fully open between 
the United States and Mexico next year in terms of sugar and a 
number of other products that are very sensitive to, for 
example, the Mexican government and sensitive to Mexico, 
sensitive to the United States. We will need to make sure that 
transshipments do not occur, because it is important that if 
there is going to be trade within this NAFTA agreement it is 
fair trade and it is trade that was anticipated by the 
agreement, not trade with third countries.
    Finally, on Japan post, it is an issue that we are 
concerned about. We need to make sure that with this transition 
in Japan there is a level playing field at the end of the day 
and that U.S. rights under the WTO that Japan has allocated are 
not eroded by this change, we will continue to work with the 
Japanese to make sure that happens.
    Mr. POMEROY. Thank you.
    Chairman RANGEL. The Chair recognizes Mr. Davis for three 
minutes.
    Mr. DAVIS. Thank you, Mr. Chairman, Ambassador Schwab. I 
apologize for getting here and delaying your departure. I had 
some weather issues today.
    Let me go back to Ms. Schwartz's questions about 
countervailing duties. As you're probably aware, Mr. English 
and I have had a bill in the last Congress that we'll be 
introducing soon, which unambiguously--which gives unambiguous 
authority to U.S. Commerce Department to apply countervailing 
duties in the event of subsidies by the Chinese. The reason 
it's difficult to do that now, as I understand it, is because 
of the determination of the term ``nonmarket economy.''
    Two questions. Is there any good economic reason or any 
good substantive reason why the United States should be 
reluctant to treat China as a country for whom these provisions 
are applicable? Is there a reason that the Administration has 
been resistant to interpreting the current law in such a way 
that allows countervailing duties to be applied? Is there a 
good reason why this legislation shouldn't be implemented by 
the Congress? Give me a brief answer to that.
    Ambassador SCHWAB. Congressman, thank you. On the issue of 
Chinese subsidies and countervailing duties, as you know, there 
is currently under review, under consideration, a specific case 
before the Commerce Department related to coated paper that I 
can't comment on where the Commerce Department has decided to 
review whether or not and how applicable countervailing duty 
laws are and whether they should be applied in this case. That 
is obviously at a sensitive stage, and I won't comment on that 
specific case.
    In terms of addressing Chinese subsidies, this is an area 
where we have a great deal of concern, and where it is very 
clear that China has subsidies that are illegal or clearly 
inconsistent with their WTO obligations, we are acting. Most 
recently, we announced that we are seeking formal consultations 
under the WTO----
    Mr. DAVIS. Let me stop you simply because my time is about 
to run out. The concern that some of us have, Ambassador, is I 
understand there's a current case in controversy that you don't 
want to wade into. It's not your job to wade into that here 
today, but the concern that some of us have is this. There is a 
lingering concern in the American economy, on both the employer 
level and the labor side, that we have not been zealous in 
enforcing the trade provisions that currently exist with 
respect to China.
    If we were to provide unambiguous authority to the Commerce 
Department to make this determination, some of us think that 
that would strengthen our hand with the Chinese. I hear the 
argument that's advanced that, well, we don't want to 
needlessly upset the apple cart with China. I certainly 
understand the arguments about the need for constructive 
engagement.
    I would just end with this point. China has as much 
incentive as we do to constructively engage if we're willing to 
show some sticks as well as carrots. I don't think that we're 
somehow going to push the Chinese off the international market 
if we get more aggressive with enforcement actions. Certainly 
if we add this tool that's available for all kinds of economies 
around the world, if we add that to our arsenal of sticks, I 
don't think it's going to push the Chinese away. I think it 
will be a demonstration of seriousness on our part.
    Finally, this has to go both ways if we're looking to build 
the kind of political support that we need. As the Chairman has 
made clear to you, as other Members have made clear to you, we 
have to serve constituents who empower us every two years to 
come back, and they have to hear something from us more than 
the long-term benefits of trade or the 15-year benefits of 
trade. They have to hear some sense of current reciprocity, and 
they have to hear that we take seriously the laws we have in 
place. I'll end on that observation.
    Ambassador SCHWAB. Thank you, Congressman.
    Chairman RANGEL. The Chair would like to recognize Mr. 
Ramstad for three minutes.
    Mr. RAMSTAD. Thank you, Mr. Chairman. Ambassador Schwab, 
nice to see you again. I'll be brief. I just want to commend 
you for the progress you've made with respect to the Doha round 
negotiations. I realize much work is left to achieve a 
breakthrough, but you have done a yeoperson's job in leadership 
in terms of progress with respect to Doha.
    I also want to commend you for your leadership on trade 
promotion authority, and I certainly hope that a majority of 
Congress understands how absolutely critical it is. We need 
trade promotion authority obviously to implement Doha, and to 
negotiate regional and bilateral agreements to open those new 
markets which are critical certainly to my State of Minnesota, 
a State that has a great high tech industry, a lot of 
agriculture as well as financial services and others. So, thank 
you for your work there as well.
    Also I commend you for the progress that's been made on the 
various trade agreements. I think you probably have the second 
or third toughest job in this town, but I appreciate the work 
that you've done, and there has been real progress on those 
pending enactment as well as ongoing negotiations.
    Finally, I want to commend you for your impressive record 
of success with respect to enforcement and dispute resolution. 
So, I just wanted to say thank you and keep up the good work, 
Madam Ambassador.
    Ambassador SCHWAB. Congressman Ramstad, thank you very 
much.
    Chairman RANGEL. The Chair recognizes Mr. Herger.
    Mr. HERGER. Thank you. Ambassador Schwab, I'm eager to see 
the U.S.-Korea free trade agreement because I believe that 
Korea would be an immense market for our goods and services.
    I also want to make sure that any agreement meets our usual 
high standards by being comprehensive and aggressive. In 
addition, I believe the agreement should include a robust 
investor state dispute settlement mechanism, and I'm alarmed by 
reports that Korea wants to limit this mechanism severely. This 
mechanism is essential to preserving the rights of U.S. 
investors abroad.
    Do I have your commitment to principles on investor state 
issues that we've used in our prior agreements?
    Ambassador SCHWAB. Congressman, as you know, the eighth 
round of the Korea-U.S. free trade negotiations are going on 
this week. It is a tough negotiation. This is our seventh 
largest trading partner. We are trying to move this agreement 
in as fast a manner as we can in the hopes that if we can get a 
mutually acceptable deal, we can do it before this allocation 
of trade promotion authority runs out.
    You do have my commitment that when it comes to investment 
issues, investor state issues, we will be as tough and seek the 
same degree of comprehensive inclusion when it comes to 
investment issues with Korea as we have in other FTAs, yes. 
Thank you.
    Mr. HERGER. Thank you.
    Chairman RANGEL. Thank you again, Madam Ambassador, and as 
much as I appreciate your willingness to meet with individual 
Members that need some answers, because of your generosity with 
your time, the Ranking Member and I are prepared to call the 
full Committee, at least those who want to participate, in the 
library or some other place so that it will save you time and 
we could be better informed. Is there anything that you could 
suggest that I and the Ranking Member do to improve our ability 
to support the trade policies of our country?
    Ambassador SCHWAB. Mr. Chairman, thank you. Thank you for 
your offer to hold executive sessions where we can get into 
more specifics, and in some cases, I can be more candid than I 
can be in an open session. I think the most important thing you 
can do, you're doing right now, which is to make sure that 
there is an active and bipartisan dialogue about U.S. trade 
policy, whether it is trade negotiations, whether it is 
enforcement and compliance, whether it is trade agreements. You 
have my commitment, this Administration's commitment to work 
with you, to work with Congressman McCrery, Congressman Herger 
and whatever we need to do to be part of that partnership.
    U.S. trade policymaking is a difficult and complicated 
exercise for governance, in governance in the United States, 
and anything that we can do to work with you, we're prepared to 
do.
    Thank you.
    Chairman RANGEL. Thank you for your time. You can see that 
the participation of the full Committee shows the interest that 
this Committee has.
    Thank you so much for your time.
    Ambassador SCHWAB. Indeed, thank you.
    [Whereupon, at 12:53 p.m., the hearing was adjourned.]

    [Questions submitted by the Members to the witness follow:]
    
    
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    [Submissions for the record follow:]

          Statement of Advanced Medical Technology Association

    We thank the Committee for holding this important Hearing today on 
the U.S. Trade Agenda. As you may know, AdvaMed represents over 1,300 
of the world's leading medical technology innovators and manufacturers 
of medical devices, diagnostic products and medical information 
systems. Our members are devoted to the development of new technologies 
that allow patients to lead longer, healthier, and more productive 
lives. Together, our members manufacture nearly 90 percent of the $86 
billion in life-enhancing health care technology products purchased 
annually in the United States, and nearly 50 percent of the $220 
billion in medical technology products purchased globally. Exports in 
medical devices and diagnostics totaled $25.5 billion in 2005, and 
imports were $23.7 billion. The medical technology industry directly 
employs about 350,000 workers in the U.S.
    The medical technology industry is fueled by intensive competition 
and the innovative energy of small companies--firms that drive very 
rapid innovation cycles among products, in many cases leading new 
product iterations every 18 months. Accordingly, our U.S. industry 
succeeds most in fair, transparent global markets where products can be 
adopted on their merits. We strongly support the Administration's 
effort to expand market access for U.S. products abroad through the 
World Trade Organization (WTO negotiations and new free trade 
agreements (FTAs), as well as oversight of market access barriers in 
countries with which we have strong trade relationships.

    Global Challenges

    Innovative medical technologies offer an important solution for 
industrialized nations, including Japan and European Union members that 
face serious health care budget constraints and the demands of aging 
populations. Medical technologies also provide a way for emerging 
market countries, like China, India, and Korea, to improve healthcare 
to their people, who are increasingly expecting substantially better 
healthcare to accompany rapid economic development. Advanced medical 
technology can not only save and enhance patients' lives, but also 
lower health care costs, improve the efficiency of the health care 
delivery system, and increase productivity by allowing people to return 
to work sooner.
    To deliver this value to patients, our industry invests heavily in 
research and development (R&D). Today, our industry leads global 
medical technology R&D, both in terms of innovation as well as 
investment. The level of R&D spending in the medical devices and 
diagnostic industry, as a percent of sales, more than doubled during 
the 1990s--increasing from 5.4% in 1990 to 8.4% in 1995 and over 11% 
last year. In absolute terms, R&D spending has increased 20% on a 
cumulative annual basis since 1990. Our industry's level of spending on 
R&D is more than three times the overall U.S. average.
    Despite the great advances the medical technology industry has made 
in improving patient quality of life and delivering considerable value 
for its innovations, patient access to critical medical technology 
advances can be hindered by onerous government policies. Patients and 
health care systems experience much less benefit from our industry's 
R&D investment when regulatory procedures are complex, non-transparent, 
or overly burdensome--all of which can significantly delay patient 
access and drive up costs. In the future, patients will be further 
disadvantaged if reimbursement systems fail to provide appropriate 
payments for innovative products--which will subsequently affect the 
availability of R&D funds and the stream of new technologies.
    The medical technology industry is facing these challenges around 
the world as governments enact more regulations. While we support those 
regulations that ensure product safety and efficacy, many others are 
being imposed without scientific justification, and in non-transparent 
processes, which only adds to costs and delays without improving 
patient outcomes.
    As governments prioritize difficult budget decisions, they 
sometimes look to short-term decreases in health care expenditures 
without accurately assessing the long-term implications. In most cases, 
governments do not effectively measure the contributions medical 
technology makes in enhancing patient outcomes and productivity as well 
as expanding economic growth, which would more than offset the costs of 
providing these products. Instead, governments often inappropriately 
include reduced reimbursement rates as part of overall budget cuts.
    In some cases, governments seek to reduce prices of medical 
technologies in their country by comparing and referencing prices in 
other countries. By fixing ceiling prices based on the prices found in 
other countries, governments are imposing price controls on medical 
technologies that do not appropriately account for different market 
conditions and contract terms. Our industry is witnessing a spread of 
these reference pricing schemes. In the longer-term, patients in these 
countries and around the world will experience less access to 
innovative medical technologies, as research and development funds 
decrease.
    AdvaMed applauds continued progress on international trade 
initiatives, including bilateral, regional and global trade 
negotiations, such as newly concluded free trade agreements (FTAs) in 
Latin America, and the Doha Development Agenda in the World Trade 
Organization (WTO). We support new efforts with our other trading 
partners to provide U.S. exports of medical devices duty-free 
treatment. We are hopeful that future bilateral agreements, including 
the U.S.-Korea FTA and the U.S.-Malaysia FTA, can also include 
directives to knock down tariff and non-tariff barriers for medical 
technologies. In addition, the President and U.S. Trade Representative 
(USTR) should continue to pursue trade liberalization in the medical 
technology sector with our major trading partners.
    AdvaMed believes the USTR, Department of Commerce (DOC) and 
Congress should monitor regulatory, technology assessment and 
reimbursement policies in foreign health care systems and push for the 
creation or maintenance of transparent assessment processes and the 
opportunity for industry participation in decision making. We look to 
the Administration and Congress to actively oppose excessive 
regulation, government price controls, foreign reference pricing 
schemes, and arbitrary, across-the-board reimbursement cuts imposed on 
foreign medical devices and diagnostics.

    Continued U.S. Leadership Needed to Fight Trade Barriers in Japan

    The Administration's efforts with Japan under the U.S.-Japan 
Partnership for Economic Growth are critical for the medical technology 
industry to maintain access to the Japanese health market.
    After the U.S., Japan is the largest global market for medical 
technologies at $25 billion. Yet the situation facing the medical 
technology industry in Japan is getting more difficult every year. 
Japan's system for approving use of new medical technologies is the 
slowest and most costly in the developed world. Although Japan is one 
of the wealthiest countries in the world--the second largest economy in 
the world--its spending on health care is among the lowest of major 
developed countries. On a per capita basis, Japan's spending of about 
8.0% of GDP is lower than 18 other Organization of Economic Cooperation 
and Development (OECD) member countries.
    In April 2005, Japan compounded the problem by imposing even more 
burdensome and costlier regulations, thereby penalizing the U.S. 
medical technology industry. Japan's latest regulations are expected to 
cost our industry over $1.5 billion just to achieve compliance to 2010.
    Even after creating a new agency in 2004 to process applications 
for medical technology products, Japan has a huge backlog of 
unprocessed applications. A problem for this new agency is the number 
of staff reviewing applications for approval of medical technology 
products--about 40 officials, compared to over 700 in the U.S. Due to 
the long approval process, the medical technologies patients receive in 
Japan are often several generations behind the products in the U.S., 
Europe, and even developing countries like China, India and Thailand. 
Lengthy approvals also translate to higher costs for the U.S. medical 
technology industry, which must maintain out-of-date product lines just 
for Japan.
    At the same time, Japan has made significant reimbursement 
reductions for medical technologies that impact the medical device 
industry in many ways, including limiting the availability of funds 
that could be devoted to R&D of new and innovative products. Inventing 
products that save and enhance lives requires large investments. Deep 
cuts for medical technologies in Japan have put downward pressure on 
companies' ability to invest in R&D.
    The Japanese government sets the maximum reimbursement rates, which 
usually act as ceiling prices for all medical technology products. 
These prices are reviewed and usually reduced every two years. For the 
period April 2002 to March 2006, the total revenue loss from these 
reimbursement reductions was about $3 billion--a significant share of 
which would have gone toward R&D. On top of this, Japan imposed 
additional cuts of several hundred million dollars in April 2006.
    Before 2002, Japan adjusted prices according to a process it called 
``reasonable-zone'' or ``R-zone.'' In brief, MHLW surveys its hospitals 
for prices paid to distributors, and allows for a reasonable margin (or 
``zone'') for discounts off of the government's reimbursement rate. 
While there are some difficulties with this system--as identified in 
bilateral Market-Oriented, Sector Specific (MOSS) negotiations between 
the U.S. and Japanese governments--our industry recognizes that it is 
at least based on factors in the Japanese market.
    In 2002, however, Japan also adopted a system called Foreign 
Average Pricing (FAP). This system calls for the establishment and 
revision of reimbursement rates on the basis of prices paid for medical 
technology products in the U.S., France, Germany, and the United 
Kingdom (U.K). The prices of medical technology products in Japan are 
designed to be based not on that market's requirements, but on 
completely unrelated conditions in foreign markets.
    The U.S. medical technology industry has strong objections to this 
system for calculating reimbursement rates. As a methodology for 
setting reimbursement rates, it is not economically sound to compare 
prices in foreign markets that operate under vastly different 
conditions. Japan is a far costlier market for our industry to operate 
in compared to other countries. Additionally, Japan's FAP system is an 
attempt to compare prices for products that are not the same in Japan 
as they are in other countries. Due to Japan's regulatory delays, U.S. 
manufacturers must incur the cost of maintaining older or outmoded 
production lines for sale in Japan.
    Going forward, industry seeks U.S. Government and Congressional 
support to help ensure an open dialogue with Japan that would seek to 
identify alternatives to the current reimbursement system and 
improvements in Japan's regulatory practices. The goal would be to 
ensure that Japan's regulatory and reimbursement policies promote the 
timely introduction of innovative medical technologies and do not 
negatively and unfairly impact U.S. medical technology manufacturers.

    Regulatory and Reimbursement Obstacles Impede Market Access in 
Asia-Pacific

    AdvaMed looks to the U.S. government to pursue trade liberalization 
throughout the Asia-Pacific region, including in China, India, Taiwan 
and Korea. AdvaMed and its member companies have identified a number of 
real and potential barriers to doing business in these countries. While 
most of the barriers pertain to unnecessary or redundant regulatory 
requirements, there are increasing concerns in the areas of 
reimbursement and intellectual property.
    China has quickly become an important market for the U.S. medical 
technology sector. The American Chamber of Commerce in China estimates 
that the Chinese market for medical technology exceeds $8 billion and 
is growing rapidly. It is on pace to surpass some of the key European 
markets for medical technology in a few years. As global leaders, U.S. 
medical technology firms already account for a significant portion of 
sales in China and the position of these firms underscores the 
importance of ongoing efforts with the U.S. government to open the 
Chinese market further.
    AdvaMed looks forward to working with Congress and the 
Administration to address the following barriers:

      A Lengthy and Costly Product Registration Process
      Redundancy in the Registration Process
      Lack of Transparency in Decision-Making
      Inappropriate Price Controls
      Counterfeiting and piracy of Medical Technology

    For the medical technology industry, the Bush Administration's 
efforts with China under the U.S.-China Joint Commission on Commerce 
and Trade, as well as in less formal meetings, are critical for 
allowing U.S. medical technology firms broader access to the burgeoning 
Chinese health care market. The recently-launched U.S.-China Health 
Care Forum initiative, led by the U.S. Department of Commerce and 
supported by AdvaMed and other health care partners, holds great 
promise as another vehicle for addressing many of the trade-related and 
health policy-related barriers confronting U.S. medical technology 
firms in China. We also endorse including healthcare under the 
Strategic Economic Dialogue.
    Korea is another important market for U.S. medical technology 
exporters. Last year, U.S. manufacturers exported more than $500 
million worth of medical technology products to Korea, an increase of 
24 percent over the previous year. However, access to this market 
remains marred by antiquated product-testing requirements; 
inappropriate requirements to re-register products following a change 
in manufacturing location; and pricing and reimbursement policies that 
discriminate against foreign manufacturers. Korea was not a party to 
the Uruguay Round zero-for-zero tariff agreement on medical technology, 
and maintains import tariffs on a range of medical technology products. 
AdvaMed recommends the fastest possible elimination of tariffs and non-
tariff measures applied to medical technology products by Korea. 
AdvaMed is also concerned that Korea's current reimbursement policies 
create incentives to re-use medical devices designated for a single-use 
in multiple procedures within several different patients, with the 
attendant risks of cross contamination and degradation of product 
quality. AdvaMed looks forward to working with Congress and the 
Administration through the U.S.-Korea Free Trade Agreement negotiations 
to address these issues.
    India, with its rapid economic growth and large population, will be 
an important market in the future. India is in the process of 
developing its regulatory system for medical technologies. The 
Department of Commerce has provided AdvaMed invaluable assistance in 
working with the Government of India on its approach to regulations.

    Europe: Seek Appropriate Policies That Improve Patient Access to 
Innovative Medical Technologies

    Efforts to oversee foreign policies impacting the export and sale 
of U.S. medical technologies abroad should also focus on the European 
Union (EU). U.S. manufacturers of medical devices export nearly $8.8 
billion annually to the EU. Within the EU, Germany ($20 billion) and 
France ($8 billion) are the largest markets for medical devices.
    Despite opposition from Congress and the Administration, in 2005, 
the European Commission approved a directive to up-classify all 
shoulder, hip and knee joint implants from Class IIB to Class III. 
Industry now is focused on fair and transparent implementation of the 
directive, so as to minimize disruption of this important market.
    In addition, the EU continues efforts towards over-regulation of 
industry through the implementation of burdensome regulatory measures 
such as the Medical Device Directive revision, the REACH chemicals 
initiative, the WEEE/ROHS, and a possible ban on the use of DEHP in 
medical devices. Industry also remains concerned about the potential 
termination of an EU exception that allows U.S. exporters to include 
both metric and non-metric labeling on their products. Elimination of 
the exception would require U.S. manufacturers exporting to the EU to 
develop metric-only labeling for the EU.
    Finally, as new methods of reimbursement and health technology 
assessment (HTA) spread throughout Europe, EU Member States should be 
encouraged to adopt policies for product reimbursement and health 
technology assessment systems that are transparent, timely, and 
adequately account for the benefits of innovative technology. 
Breakthrough products available in the United States to a majority of 
patients are still available to only a small fraction of eligible 
patients in the major European markets. Industry should be allowed to 
participate in the HTA process.
    Specific recent issues of concern include onerous new national 
tendering policies in the United Kingdom and Italy, where product 
prices will be unilaterally reduced without sufficient regard to 
quality or innovation. Because U.S. manufacturers are benchmark leaders 
in the most innovative, high technology products, these policies have a 
disproportionate impact on our U.S. companies and threaten to drive 
innovation out of the marketplace. Because it further becomes less 
attractive to invest in these markets and conduct research, it 
increasingly means that the burden for R &D is shifted more to American 
markets.

    Product Reimbursement in Brazil

    In December 2006, the Brazilian product registration authority, 
ANVISA, issued Technical Regulations that require the most sweeping and 
complex submissions of foreign reference pricing data of any market in 
the world. Consistent with U.S. policy for other foreign markets, we 
encourage Congress and the Administration to oppose this policy, as it 
will seek to artificially fix prices in the Brazilian market, stifle 
innovation and deny Brazilian patients the benefits of U.S. medical 
technologies.

    Utilize Multilateral, Regional, and Bilateral Forums to Eliminate 
Tariff and Nontariff Barriers to Trade that Unnecessarily Increase the 
Cost of Health Care

    We encourage Congressional and Administration efforts to eliminate 
significant tariff and nontariff barriers to trade for medical 
technology maintained by many countries, particularly developing 
countries. Such barriers represent a self-imposed and unnecessary tax 
that substantially increases the cost of health care to their own 
citizens and delays the introduction of new, cost-effective, medically 
beneficial treatments. For example, the medical technology sector 
continues to face tariffs of 15-20% in Mercosur countries, 9-12% in 
Chile, Peru, and Colombia, and 6-15% in China.
    The Doha Development Agenda offers an important opportunity for the 
United States to ensure global access to medical technology by securing 
global commitments on lowering tariff and nontariff barriers for the 
medical technology sector while expanding upon the access to medicines 
goal at the heart of the Doha declaration. We support resumption of 
negotiations on this important multilateral trade round. We encourage 
the U.S. government to build upon the zero-for-zero tariff agreement on 
medical technology achieved in the Uruguay round by expanding the 
product coverage and adding countries throughout Latin America and Asia 
as well. AdvaMed has proposed a sectoral initiative that would achieve 
this objective to the Administration. Moreover, elimination of 
nontariff barriers such as burdensome import licensing regulations and 
non-transparent government procurement policies will help developing 
countries ensure patient access to lifesaving medical technologies.

    Utilize Multilateral Opportunities to Establish Basic Regulatory 
and Reimbursement Principles to Expand Global Trade and Patient Access 
to New Technologies

    We commend the WTO's recent efforts to ensure global access to 
medicines and medical products. While all economies seek to provide 
high quality, cost effective healthcare products and services to their 
citizens, they should also ensure timely access to state-of-the-art, 
life-saving equipment and implement compliance procedures that are 
efficient and effective. To further expand patient access to safe and 
effective medical devices and ensure cost effective regulatory 
compliance, USTR should seek to ensure that economies around the world 
make their policies and practices conform to the relevant and 
appropriate international trading rules established by the WTO.
    Member economies should agree to make their medical device 
regulatory regimes conform to these guiding principles:

      Acceptance of International Standards;
      Transparency and National Treatment;
      Use of Harmonized Quality or Good Manufacturing Practice 
Inspections;
      Recognition of Others Product Approvals (or the Data Used for 
Those Approvals); Development of Harmonized Auditing and Vigilance 
Reporting Rules;
      Use of Non-Governmental Accredited Expert Third Parties Bodies 
for Inspections and Approvals, where possible.

    Similarly, many economies require purchases of medical technologies 
to take place through centralized and/or government-administered 
insurance reimbursement systems. To ensure timely patient access to 
advanced medical technologies supplied by foreign as well as domestic 
sources, member economies should agree to adopt these guiding 
principles regarding the reimbursement of medical technologies.

          Establish clear and transparent rules for decision-
        making.
          Develop reasonable time frames for decision-making.
          Data requirements should be sensitive to the medical 
        innovation process.
          Reimbursement rates should be based on conditions in 
        each country.
          Ensure balanced opportunity for the primary suppliers 
        and developers of technology to participate in decision-making, 
        e.g., national treatment.
          Establish meaningful appeals processes.

    The medical technology industry is committed to working with 
Congress and the Administration on upcoming trade policies and 
agreements to ensure patients throughout the world have access to 
medical products.

    Conclusion

    AdvaMed appreciates the shared commitment by Congress and the 
President to expand international trade opportunities and encourage 
global trade liberalization. We look to the U.S. Government to 
aggressively combat barriers to trade throughout the globe, especially 
in Japan. AdvaMed is fully prepared to work with Congress to monitor, 
enforce and advance multilateral, regional and bilateral trade 
agreements, particularly with our key trading partners.



                                 

             Baughman, Laura M., Coalition for GSP, letter
                                                  Coalition for GSP
                                                  February 28, 2007

The Honorable Charles Rangel
Chairman
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth HOB
Washington, DC 20515

Dear Chairman Rangel:

    The Coalition for GSP is pleased to have the opportunity to provide 
the following views in response to the request by the Ways and Means 
Committee on the direction and content of U.S. trade policy. In 
particular, we intend to focus our comments on whether U.S. preference 
programs are effective in promoting growth and economic development, 
particularly in low-income and least developed countries. The Coalition 
for GSP is an ad hoc group of U.S. companies and trade associations 
that use the Generalized System of Preferences (GSP) program to improve 
their competitiveness, both as farmers and manufacturers, and as 
suppliers of consumer goods to American families. Over the years, GSP 
has become an integral part of our businesses. Our members import a 
wide range of goods under GSP, from jewelry to plywood to batteries to 
spices.
    The Coalition appreciates the Committee's particular interest in 
ensuring that the benefits of GSP effectively promote economic 
development, particularly in least-developed countries (LDCs). Over our 
many years of using the program, which has been in effect since 1974, 
we believe we can explain some of the dynamics of international 
sourcing that influence the extent to which we purchase goods under GSP 
from LDCs or from other GSP beneficiaries. We offer three key factors 
that are critical in the sourcing decision:

      Local trade capacity;
      The length of GSP renewal; and
      China.

    Local Trade Capacity

    Committee members are well aware of the abysmal infrastructure that 
pervades so many LDCs: poor or even non-existent roads, unpredictable 
power supply, inadequate communications, untrained manpower (including 
an understanding of what it takes to meet preference program rules of 
origin), even corruption at ports and in the customs departments. Trade 
capacity must be improved before trade can flow. The World Trade 
Organization, the World Bank and other international organizations have 
embraced these projects, and even the Doha Development Agenda talks 
recognizes the need for the developed countries to assist the LDCs with 
trade capacity improvements if they are to reap the benefits of trade 
liberalization.
    Until these significant hurdles are addressed, it matters little if 
the United States extends a trade preference program only to LDCs. U.S. 
duty savings under GSP generally do not offset the costs associated 
with importing from them under these infrastructure conditions. If the 
Committee wishes to encourage increased sourcing under GSP from LDCs, 
it should focus its attention on targeting U.S. foreign assistance to 
infrastructure projects. In addition, the Committee should ensure that 
the rules of origin and other requirements for taking advantage of 
preference programs are as simple and straightforward as possible. 
Complicated rules drive up compliance costs, which can also negate the 
benefits of the duty savings under GSP.

    Length of GSP Renewal

    Our ability to use the duty-free benefits available under the 
program is most effective when we know those benefits will be available 
by the time we need to import the product or products of interest to 
us. While the time from design to order to importation varies for each 
of us, for some companies it can be quite long. For example, some 
products take as long as one year from design to importation. For 
others, the products are advertised in catalogues with a shelf life of 
at least six months. In all cases, we need to know what the duty-status 
will be for the imported product at the very beginning of that process. 
If we can count on receiving duty savings under GSP, we can incorporate 
those important cost savings into our pricing. But if the program 
expires mid-stream in the order-to-delivery process, we can be caught 
with a serious financial burden. We cannot always adjust our prices to 
our customers to pass on the unexpected duties, especially if those 
prices are advertised in catalogues. So we have to evaluate the risk of 
losing GSP mid-stream against the benefits of the duty savings. If the 
program is likely to expire, we often cannot incorporate the duty 
savings into our sourcing plans, and our prices to our customers will 
need to be higher to offset the risk.
    With those planning constraints in mind, you can see how short-term 
renewals of GSP in the 1990s, compared to the long-term period from 
2001-2006, have affected our use of the program. From July 1993 through 
September 2001, Congress renewed GSP in fits and starts (largely due to 
the need to meet ``pay-go'' constraints). Planning our sourcing using 
GSP was difficult if not impossible. Over this period, from 1994 to 
2001, U.S. imports under GSP actually declined an average 2.2 percent 
annually. But in 2001 Congress renewed GSP for six years, and as a 
result, imports from GSP beneficiary countries to the United States 
have increased an average 13.2 percent annually.
    A long-term renewal of the program is important in encouraging 
sourcing from countries that do not yet have the infrastructure or 
production capability to be competitive suppliers of GSP-eligible 
products. You can see from the Chart below how the long-term renewal of 
GSP has increased interest in sourcing from poorer beneficiary 
countries. To the extent that some of our members are interested in 
investing in new overseas production relationships, we need time to 
grow these suppliers. Short-term renewals of the program do not 
encourage this, and keep us focused on more traditional GSP-eligible 
countries.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Thus, the Committee can increase interest in sourcing from LDCs 
under GSP by ensuring that the program is renewed for at least five 
years, preferably longer. The current renewal term expires December 31, 
2008, just two years after the last expiration.

    China

    The Coalition urges the Committee to proceed with caution when it 
examines whether certain beneficiary countries like India or Brazil are 
competitive and no longer need GSP benefits. Those who promote a 
``Robin Hood'' approach of removing benefits from ``rich'' GSP 
countries in order to divert them to ``truly poor'' beneficiaries 
wrongly assume that if GSP products could not be imported from, say, 
Brazil or India, U.S. companies would shift sourcing to Lesotho or 
Nepal, instead. The choice for U.S. importers is not India vs. Nepal, 
or Brazil vs. Lesotho, it is India vs. China, and Brazil vs. China. If 
a country were to lose GSP benefits, U.S. companies and importers will 
look globally for the best supplier at the lowest cost--suppliers that 
may not necessarily be other GSP beneficiaries. Indeed, in today's 
highly competitive markets, China is likely to be the chief winner from 
such graduations.
    Least developed GSP countries need to have not only the capability 
to produce the products no longer available under GSP from Brazil or 
India, for example, but as noted above the infrastructure and manpower 
as well. In most cases, they do not (and China does), and most U.S. 
importers do not have the time or resources to bring producers in other 
GSP beneficiary countries up to speed. Not when China looms as a much 
easier low cost alternative, and GSP tends to expire frequently.
    Finally, it is wrong to assume that because a country is 
competitive in a few sectors that it no longer needs the benefits 
provided by GSP. As the table shows, supposedly ``well off'' GSP 
beneficiaries are still quite poor, by any standard. The Administration 
should instead use current GSP ``rules'' that already include a way to 
deal with the situation of a GSP beneficiary that is a major supplier 
of a specific product and is competitive in the U.S. market. The 
competitive needs limitation component of the program can ``graduate'' 
certain products from an LDC that is a competitive producer of those 
products. At the same time the GSP program continues to encourage 
development in that country by allowing it to continue to receive duty-
free benefits on other products where it is not a competitive producer.

    Per-Capita Income Levels of Top Ten GSP Beneficiaries, 2005

    Country Gross National
    Income Per Capita
    Angola 1,350
    India 720
    Thailand 2,750
    Brazil 3,460
    Indonesia 1,280
    Equatorial Guinea 710*
    Philippines 1,300
    Turkey4,710
    South Africa 4,960
    Venezuela 4,810

    ``High Income'' (GSP Graduation Threshold) $10,726

    United States GDP/Capita 43,740

    *Most recent data available (2001)

    Countries ranked by total exports to the United States under GSP in 
2006.

    Source: World Bank, World Development Report 2007 and U.S. Bureau 
of the Census.

    The Committee will not force more sourcing into LDCs by removing 
the leading users of the GSP program from eligibility. Such removal 
will merely shift most of the trade with those very poor countries to 
China.

    Conclusion

    GSP is a preference program that works. It works for very poor 
countries and it works for American farmers, manufacturers and 
consumers. There are changes the Committee could enact to make it work 
better for LDCs, like simplifying the rules and renewing the program 
for an extended period. There are other changes the Committee should 
refrain from making such as ending the eligibility of those developing 
countries that tend to use the program the most because such a change 
would not have a positive impact on LDCs.

            Sincerely,

                                                  Laura M. Baughman
                                                 Executive Director


                                 


                Statement of Center for Policy Analysis

    Public Health and Global Trade: Findings

    Global and bilateral trade negotiations present important 
opportunities to promote a healthy, safe and just global community. 
However, current U.S. trade policies have contributed to social and 
economic inequality, both within the U.S. and among our trading 
partners, factors strongly associated with poor health outcomes. Trade 
agreements provide a basis for altering domestic U.S. laws and policies 
that protect the public's health and access to health care and 
medicines.
    Federal legislation mandates that the United States Trade 
Representative receive domestic input into trade negotiations from 
interested parties outside the Federal Government. There have been 
limited opportunities for public health advice in reviewing trade 
policies, and as a result trade negotiations do not reflect a public 
health perspective.
    Federal law also mandates Congressional oversight of U.S. global 
trade negotiations. Presidential Trade Promotion Authority undermines 
Congressional oversight and has limited Congress' ability to ensure 
that trade agreements promote social and economic equity.
    We urge Congress and the U.S. Trade Representative (USTR) to adopt 
the following enforceable Public Health Objectives, as a basis for 
amending pending trade agreements and to guide any future agreements, 
and to initiate a review of bilateral, regional and multilateral 
agreements for their adherence to public health principles.

    Public Health Objectives for Global Trade

        1.  To assure democratic participation by public health and 
        transparency in trade policy by:
        a.  Appointing to all relevant trade advisory committees 
        representatives of organizations that work to assure equitable 
        access to affordable health-related services and products, and 
        promote the health of individuals, communities and populations,
        b.  Opening all proceedings and documents of trade advisory 
        committees to the public, and
        c.  Requiring USTR's consultation with all relevant committees 
        of the House and Senate in the development, implementation, and 
        administration of U.S. trade policy, without renewing 
        presidential trade promotion authority.
        2.  To develop mutually beneficial trade relationships that 
        create sustainable economic development for the U.S. and our 
        trade partners in an increasingly interdependent world.
        3.  To recognize the legitimate exercise of national, regional 
        and local government sovereignty to protect population health, 
        and to ensure that countries do not weaken or reduce, as an 
        encouragement for trade, sound policies that contribute to 
        health and well being, including laws on public health, the 
        environment and labor.
        4.  To exclude tariff and nontariff provisions in trade 
        agreements that address vital human services such as health 
        care, water supply and sanitation, food safety and supply, and 
        education, including licensing and cross-border movement of 
        personnel in these fields.
        5.  To exclude tobacco and tobacco products, which are lethal, 
        and for which the public health goal is to reduce consumption, 
        from tariff and nontariff provisions of trade agreements, 
        including advertising, labeling, product regulation and 
        distribution.
        6.  To exclude alcohol products, which present serious hazards 
        to public health. Policies designed to reduce the harm caused 
        by alcohol products should not be subject to compromise in 
        exchange for other trade benefits.
        7.  To eliminate intellectual property provisions related to 
        pharmaceuticals from bilateral and regional negotiations, as 
        these are more appropriately addressed in multilateral fora, 
        and promote trade provisions which enable countries to exercise 
        all flexibilities provided by the Doha Declaration on Public 
        Health, including issuing compulsory licenses for patented 
        pharmaceuticals, parallel importation, and other measures that 
        address high prices and promote access to affordable medicines.

                                 
   Statement of Stephen Coats, U.S./Labor Education in the Americas 
                                Project

    The U.S./Labor Education in the Americas Project (US/LEAP) is a 
twenty year-old independent non-profit organization that supports the 
basic rights of workers in Latin America. The greatest source of US/
LEAP's financial support comes from individuals. We also receive 
support from foundations, unions, and the U.S. religious community.
    US/LEAP supports global trade, but believes that without trade 
rules that protect the rights of workers, trade agreements and trade 
programs will not spread the benefits of trade to workers abroad and 
will accelerate the race to the bottom for workers in this country.

    US/LEAP Experience on Trade and Worker Rights

    US/LEAP has been actively engaged in linking U.S. policy on trade 
and worker rights since 1992 when it filed a Generalized System of 
Preferences (GSP) worker rights petition on Guatemala with the Office 
of the U.S. Trade Representative (USTR). Since then, US/LEAP has had 
extensive experience in using the worker rights conditions of both the 
GSP and the Andean Trade Preferences Act (ATPA) preferential trade 
programs. As Members of the Committee know, these and other U.S. 
preferential trade programs condition U.S. trade benefits on the 
beneficiary country taking steps to improve workers' internationally-
recognized worker rights.
    Worker Rights Conditions Can Work. US/LEAP has seen that effective 
enforcement of worker rights conditions in U.S. trade programs can 
improve labor rights and help level the playing field in global trade. 
For example, the GSP worker rights petition process was used by USTR 
with Guatemala in the 1990s to secure labor law reform, an increase in 
the minimum wage, new labor courts, improved enforcement mechanisms, 
and even a break-through in the wall of impunity, resulting in the 
first conviction of criminals for violence against trade unionists in 
decades.
    But They Need to Be Strengthened. It is also clear that worker 
rights conditions need to be strengthened and much more effectively 
enforced. They should be, as part of a fundamental strengthening of 
U.S. trade policy on ensuring respect for basic worker rights. Global 
trade must be built on a solid foundation of a level playing field for 
workers here and abroad. Instead of a strengthening, we have seen the 
reverse approach over the past ten years, a weakening of U.S. 
commitment to worker rights as part of U.S. trade policy. In Latin 
America, protections for worker rights provided for by the Central 
America Free Trade Agreement (CAFTA), and pending agreements elsewhere, 
represent a huge step backwards from those contained under the GSP and 
ATPA programs. CAFTA and the pending trade agreements both lower 
standards (to national law rather than international standards) and 
weaken enforcement mechanisms (replacing trade sanctions with modest 
fines paid back to the offending government). The Bush Administration's 
trade-worker rights policy is going exactly in the wrong direction, 
with negative consequences for workers here and abroad.
    Upsurge of Violence in Guatemala Since Passage of CAFTA. The level 
of violence against trade unionists in Guatemala has increased since 
the passage of CAFTA. As many trade unionists have been murdered in 
Guatemala in the past two months than in the three years before CAFTA 
was passed. Those who are opposed to the exercise of basic rights in 
Guatemala know full well that the leverage of the U.S. government and 
of organizations like US/LEAP that seek to apply that leverage has been 
drastically reduced with the passage of CAFTA and the replacement of 
GSP worker rights conditionality with the labor chapter of CAFTA.

    II. COLOMBIA

    This submission pertains primarily to the pending Free Trade 
Agreement with Colombia.
    US/LEAP is a leading U.S. non-governmental organization working on 
Colombia worker rights. In the past year, US/LEAP authored ``Justice 
for All: The Struggle for Worker Rights in Colombia,'' the most 
comprehensive study of worker rights in Colombia in recent years whose 
release by the AFL-CIO Solidarity Center generated wide-spread press 
coverage including by The New York Times, The Washington Post, and 
Voice of America. US/LEAP also leads delegations to Colombia each year 
while staff travel to Colombia on a regular basis to meet with 
Colombian and U.S. government officials as well as trade unions and 
NGOs.

    A. Violence

    Colombia is by far the most dangerous country in the world for a 
trade unionist. Not only are more trade unionists murdered each year in 
Colombia than in any other country, more trade unionists are murdered 
in Colombia than in all other countries combined. This was true last 
year, the year before, and every year since the Uribe Administration 
has been in power.
    The Uribe Administration is a year into its second term. Since it 
took office, over 400 trade unionists have been murdered, raising the 
total of trade unionists murdered since 1991 to over 2,200.
    Preliminary and unofficial figures show that more trade unionists 
were killed in 2006 (75) than in 2005 (70).
    According to the respected Escuela Nacional Sindical (ENS, the 
National Labor College, an independent NGO whose analysis and 
statistics are cited by the U.S. government):

            Public sector unions, especially teachers, have 
        been particularly hard hit. In 2005, 44 out of the 70 trade 
        unionists killed were teachers. In addition to teachers, 
        municipal workers, judicial workers, and health workers 
        continue to be the principal targets.
            Most of the violence against trade unionists is a 
        result of engagement in normal union activities. ENS estimates 
        that over 75% of the anti-union violence that took place in 
        Colombia in 2005 (including murders, attempted murders, 
        kidnaps, threats, etc.) was the result of the victims' normal 
        union activities.
            Violence against Colombian women trade unionists 
        has increased dramatically in recent years. Since 2002, human 
        rights violations against women trade unionists have increased 
        nearly 500%. Violations against women trade unionists accounted 
        for nearly 35% of all violations against trade unionists in 
        2005.

    B. Impunity Rate of over 99%

    The second and perhaps even more relevant fact for this committee's 
consideration of the Colombia FTA is the shocking level of impunity 
demonstrating the inability or unwillingness of the Colombian 
government to prosecute those responsible for the horrific violence 
against trade unionists. By the Colombian government's own figures, the 
rate of impunity with respect to these murders is over 99%. That is, 
less than 1% of murderers of trade unionists have been put behind bars.
    Government can't even keep track of the few cases prosecuted. The 
Uribe government has had a difficult time demonstrating any progress on 
impunity. In an April 2006 meeting with US/LEAP, Vice President Santos 
stated that there had been 19 successful prosecutions since President 
had taken office, out of a case load of over 2,200 murdered trade 
unionists in the past 16 years. While a ridiculously small number given 
the large number of cases from which to choose, the number of 
successful prosecutions cited by the Vice President in April 2006 was, 
incomprehensibly, no higher than the number cited in documents provided 
by the Vice President to members of Congress in October 2004, a year-
and-a-half earlier. (To compound the confusion, in May 2006, the 
Ministry of Social Protection provided US/LEAP with a report 
documenting only 15 successful prosecutions.)
    The inability of the Colombian government to provide internally 
consistent reports on prosecutions of murderers of trade unionists is 
itself a damning critique of the priority to which the government gives 
this issue.
    ILO Chastises Colombia. An ILO report released in November 2006 
takes Colombia to task for failing to address violence and impunity. In 
its November 2006 report, the ILO's Committee of Freedom of 
Association, `` . . . once again urges the Government [of Colombia], in 
the strongest possible terms, to take the necessary steps to pursue the 
investigations that have been initiated and to put an end to the 
intolerable impunity that currently exists.''

    C. Non-Violent Attacks on Worker Rights

    Workers in Colombia face not only violence but also non-violent 
attacks on the exercise of their basic rights. These include the 
failure of the government to enforce labor law, inordinate delays in 
the approval of union recognitions, and a weakening of labor law 
protections in the early 1990s that, among other things, permit the 
extensive use of temporary workers to block the exercise of freedom of 
association.
    Case study: Worker Rights in the Flower Sector. The denial of 
worker rights in the Colombian flower sector is widespread, as revealed 
in a recent report cited on National Public Radio on Valentine's Day. 
Indeed, the most important flower grower in the country and the largest 
exporter of flowers from Latin America (Dole Fresh Flowers) is 
currently in the process of closing its largest flower plantation in 
the face of the most important union-organizing effort in the Colombian 
flower sector in the past five years. The flower sector should be of 
particular interest to U.S. trade policy makers, since nearly every 
flower from Colombia enters the U.S. duty-free under the ATPA program 
and Colombia provides about 60% of all flowers sold in the U.S.
    For an extensive documentation on the attack on worker rights in 
Colombia, see the June 2006 report, Justice for All: The Struggle for 
Worker Rights in Colombia.
    The combined violent and non-violent assault on worker rights in 
Colombia has been successful, with a sharp reduction in the number of 
workers covered by collective bargaining agreements. Less than 5% of 
the Colombian work force is now unionized, a third of its previous 
level.

    Conclusion

    The pending FTA with Colombia should never have been negotiated, 
given the level of violence and impunity with respect to murders of 
trade unionists. As stated in testimony before USTR in March 2004, US/
LEAP's position is that the Bush Administration should have conditioned 
the initiation of negotiations with Colombia on an end to impunity with 
respect to murderers of Colombian trade unionists and a real reduction 
in the level of murders.
    What has subsequently been negotiated is completely unacceptable, 
representing a huge step back in current U.S. trade policy commitments 
to worker rights. Any FTA, with Colombia or any other country, must 
include at its core enforceable protections for acceptable conditions 
of work and for core ILO conventions, accompanied by effective measures 
to ensure full compliance.
    But Colombia is a special case. Even if an FTA is renegotiated to 
include acceptable provisions on worker rights, no FTA with Colombia 
should be approved until the government demonstrates the political will 
to end impunity.
    One could list a host of worker rights violations in Colombia as 
reasons why stronger worker rights conditions are needed in a FTA with 
Colombia and why the current FTA should be opposed.
    But there are really only three facts that members of Congress need 
to know for why the current FTA should be rejected:

        1.  More trade unionists are killed each year in Colombia than 
        in all other countries combined.
        2.  The rate of impunity for murderers of trade unionists in 
        Colombia is over 99%.
        3.  The first two facts have not changed under the government 
        of President Alvaro Uribe.

    Rejecting the pending FTA with Colombia provides the clearest 
opportunity for Congress to reverse the destructive free trade policy 
of the Bush Administration. Conversely, approval would make a mockery 
of any expressed U.S. commitment to constructing a global trading 
system built on a level playing field that ensures respect for worker 
rights. And approval would give a green light to those who wish to deny 
workers abroad their basic rights and accelerate the race to the bottom 
for workers at home.




                                 
                       Statement of EXPORAMERICA

    This statement is submitted on behalf or EXPORAMERICA, an 
association of Peruvian apparel companies whose objective is to promote 
increased trade between Peru and the U.S. Fostering the development of 
the Peruvian textile and apparel industry has been a true success of 
U.S. trade policy, and one that has maximized the benefits of 
globalization both to Peru and to manufacturers, workers and consumers 
in the United States, while minimizing its costs. The successes 
generated by this policy to date can be extended through the passage of 
the Peru Trade Promotion Agreement (PTPA), which has already been 
ratified by the Peruvian Congress and whose approval by the U.S. 
Congress is pending. Similarly, if the opportunity to pass the PTPA is 
lost and existing trade preferences expire, both the U.S. and Peruvian 
economies will suffer significant negative effects.

    I. U.S. ``Peru Trade in Fibers, Yarns, and Apparel'' A Mutually 
Beneficial Relationship

    Since the implementation of the Andean Trade and Drug Eradication 
Act (ATPDEA) in 2002, trade in textiles and apparel between the U.S. 
and Peru has grown considerably.\1\ In Peru's case, apparel exports 
have nearly doubled since 2001 and Peru has surpassed Colombia to 
become the leading Andean exporter of textiles and apparel to the U.S. 
Although Peru supplied only 1% of total U.S. apparel imports in 2005, 
it was the fifth largest source of knit cotton shirts and blouses, with 
shipments of $644 million (equal to 78% of U.S. textile and apparel 
imports from Peru) and a 5% marketshare.\2\
---------------------------------------------------------------------------
    \1\ 
    \2\ 
---------------------------------------------------------------------------
    Peru's growth has also led to significant benefits for the U.S. as 
demand in Peru for raw materials has outstripped supplies. As noted by 
the U.S. International Trade Commission (ITC), U.S. cotton for use in 
the textile and apparel industry is a major export product to Peru,\3\ 
and the provisions of the PTPA are likely to have a significant 
positive effect on U.S. cotton exports to Peru.\4\ In addition, 
according to the ITC, tariff liberalization under the PTPA will likely 
result in a large percentage increase in U.S. exports of textiles and 
apparel to Peru. These exports consist mostly of yarns, fabrics, and 
garment parts.\5\
---------------------------------------------------------------------------
    \3\  United States International Trade Commission, ``The Impact of 
the Andean Trade Preference Act''--Eleventh Report 2004, USITC 
Publication 3803, September 2005, p. 2-38.
    \4\   
    \5\  Ibid p. 3-22.
---------------------------------------------------------------------------
    Reflecting the mutually beneficial nature of the U.S. and Peru 
industries' relationship, the Peruvian Textile and Apparel Industry 
Association, the National Council of Textile Organizations (NCTO) and 
the National Cotton Council (NCC) have expressed support for the PTPA, 
and have urged prompt consideration and approval of the PTPA by the 
U.S. Congress.
    The PTPA builds upon the benefits of the ATPDEA (which, without 
further extension, will expire in mid-2007), and its predecessor the 
Andean Trade Preference Act (ATPA) of 1991. A direct outgrowth of the 
ATPDEA is the increasing interconnectedness of the U.S. and Peruvian 
textile and apparel industries, a mutually beneficial trade 
relationship that will permit industries in both countries to face the 
stiff competition coming from China and other Asian producers, which 
largely do not use U.S. inputs in their textile and apparel production. 
Moreover, Chinese and Asian producers, in many instances depend on 
subsidies; artificially low exchange rates to promote exports; and 
labor that in many cases does not conform with minimum, 
internationally-recognized labor standards, none of which occurs in 
Peru, a country that scrupulously observes the 71 International Labor 
Organization (ILO) agreements to which it has subscribed. The PTPA will 
permit the already thriving U.S.-Peruvian relationship to grow, and 
thereby help the two industries face new competitive challenges 
together.

    II. Benefits to the U.S. Economy:

    A. Cotton

    As is shown in the chart below, the U.S. is Peru's primary trade 
partner and the destination for nearly one third of the country's 
exports. As indicated earlier, Peru's growing exports also benefit the 
U.S. In the case of apparel, 95% of Peru's exports are manufactured 
from cotton fiber. Given that there is a shortfall of cotton production 
in Peru for use in export garments, the country must import cotton to 
meet the demand of its textile and apparel sector. According to the 
ITC, Peru imported an average of 39625 MT of cotton annually from 2000-
2005, of which 27,155 MT,
      
or more than two-thirds, were imported from the United States.\6\ This 
growing consumption of U.S. cotton has been spurred by the ATPDEA and 
will be further encouraged by approval of the PTPA.
---------------------------------------------------------------------------
    \6\  ITC May 2006 report, p. 3-8.
---------------------------------------------------------------------------
    It should be noted that, at present, U.S. cotton exports to Peru 
are currently subject to a 12% import duty on the CIF value. Upon 
implementation of the PTPA, this import duty will be eliminated 
immediately. This will further encourage U.S. cotton exports to Peru 
and in turn make Peruvian apparel more competitive price-wise in the 
U.S. market. Moreover, Peruvian imports of a variety of synthetic 
fibers, demand for which has grown on a daily basis, are also likely to 
increase significantly. However, allowing the ATPDEA to lapse without 
the PTPA in place would immediately threaten this thriving relationship 
and hurt Peruvian apparel producers and their U.S. cotton suppliers.

    Source: SUNAT (Peruvian Tax Authority)

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
    

    Recognizing the benefits to the U.S. cotton industry of increasing 
exports of U.S. cotton to the ATPDEA countries, as referenced above, 
the Memphis, TN-based, National Cotton Council (NCC) passed a 
resolution supporting the adoption of the PTPA and its strong rule of 
origin requirements, and informed the USTR that the NCC had determined 
that the agreement will be beneficial for U.S. cotton producers and for 
U.S. textile and apparel manufacturers.\7\ The chart below shows the 
growth in U.S. cotton exports to Peru over the last five years.
---------------------------------------------------------------------------
    \7\  ``Cotton's Week'' (NCC Newsletter), February 17, 2006, 
referring to letter from John Maguire, NCC senior vice president, 
Washington Operations to Ambassador Portman.

                        U.S. Cotton Exports to Peru (including U.S. Pima and U.S. Upland)
----------------------------------------------------------------------------------------------------------------
      YEAR         VOLUME M.T. FIBER     CIF VALUE IN U.S. $         TOTAL IMPORTS %
----------------------------------------------------------------------------------------
    2001          22,141.82                        30,461,312                     60.33
----------------------------------------------------------------------------------------------------------------
    2002          32,910.34                        38,909,099                     77.00
----------------------------------------------------------------------------------------------------------------
    2003          34,374.10                        50,018,140                     86.03
----------------------------------------------------------------------------------------------------------------
    2004          23,774.70                        43,311,251                     66.87
----------------------------------------------------------------------------------------------------------------
    2005          34,672.84                        48,484,849                     74.57
----------------------------------------------------------------------------------------------------------------


    B. Yarns and Fabrics

    The rules of origin agreed to under ATPDEA, and the PTPA, are 
designed to foster the use of inputs produced in member countries (the 
use of yarn or fabrics from third parties) as is the case in some of 
the countries that participate in the CAFTA- is not allowed in PTPA 
except in specific cases). Once the PTPA is in place Peru is expected 
to increasingly meet its unsatisfied demand for yarn and fabrics with 
products manufactured in the U.S., because this is the only way in 
which apparel will qualify for duty free treatment in the U.S. under 
the rules of origin.
    As the ITC notes, U.S. textile firms generally support the rules of 
origin for textiles and apparel under the PTPA because the rules ensure 
that the agreement benefits both parties and will further regional 
integration goals.\8\ Under the agreement, yarns and fabrics produced 
in the U.S. will enter Peru duty free immediately upon implementation. 
This will boost imports from the U.S., which will have an advantage 
vis-a-vis yarn and fabric suppliers that pay a 25% customs tariff to 
enter Peru. Again, expiration of the ATPDEA, without the PTPA in place, 
will interrupt this flow and will threaten the growth in trade between 
both countries that would otherwise be expected from a smoother 
transition from the ATPDEA to the PTPA.\9\
---------------------------------------------------------------------------
    \8\  United States International Trade Comission, ``U.S.-Peru Trade 
Promotion Agreement: Potential Economy-wide and Selected Sectoral 
Effects''--USITC Publication 3855, May 2006, p. 3-23.
    \9\  The National Council of Textile Organizations (NCTO), another 
major U.S. association based in Gastonia, NC, which represents numerous 
yarn and fabric producers throughout the U.S., but who are mostly 
concentrated in North Carolina, South Carolina, and Georgia, is also 
pleased that the PTPA addresses all the major negotiating objectives, 
which significantly enhances the hemispheric supply chain and makes 
these improvements permanent. The structure and rules of the PTPA will 
benefit textile and apparel producers in both countries.

---------------------------------------------------------------------------
    C. The Apparel Value Chain in the U.S. and Other Considerations

    In addition to the direct benefits to the U.S. cotton and textile 
industries noted above, growing apparel imports from Peru under the 
ATPDEA have generated benefits to the U.S. economy across the entire 
transportation, distribution, and retail chain. In this regard, if for 
example a clothing garment has a FOB Callao-Peru value of US$6.00, the 
price at which the same garment is sold in the U.S. generally ranges 
from US$40 to 50. This price differential indicates that a greater 
portion of the value chain involved in Peruvian apparel exports remains 
in U.S. hands. These considerable benefits are distributed among U.S. 
sea, air, and land transporters; couriers; ports; warehouses and 
distribution facilities; and finally retailers. It is also safe to say 
that the Peruvian apparel industry supports thousands of U.S. jobs 
along the value chain associated with this trade.  Finally, the last 
link of this value chain is, of course, the U.S. consumer who as a 
result of the ATPDEA has had access at more competitive prices to high-
quality apparel containing in many instances cotton and animal fibers 
unique to Peru.
    In this regard, it is important to mention that Peruvian apparel 
exports include those manufactured with wools from species in the 
camelid family such as the alpaca, llama, and vicuna. This uniquely 
Peruvian production has grown rapidly in recent years, does not compete 
with U.S.-produced apparel, and has resulted in concrete conservation 
and environmental benefits in Peru.\10\
---------------------------------------------------------------------------
    \10\  Once endangered wild vicuna herds, which have some of the 
finest fibers in the animal kingdom, are making a comeback in the 
impoverished Andean highlands thanks to export markets created in the 
last 15 years for apparel made with their wool..
---------------------------------------------------------------------------
    Under both the ATPA, and its successor the ATPDEA, Peru's growing 
apparel industry, its capacity to generate employment, and its need for 
imported and domestically grown cotton and other inputs, has also 
contributed to Peru's success in reducing illegal coca-leaf cultivation 
and providing alternative, legal employment for tens of thousands of 
Peruvians. This is an important U.S. strategic objective in the war on 
drugs, the struggle against narcotics trafficking towards the U.S., and 
keeping illegal drugs out of U.S. communities and neighborhoods. This 
is also a key reason for approval of the PTPA.
    Figures from the ITC noted that net coca cultivation decreased 
dramatically from 115,300 hectares in 1995 to 27,500 hectares in 
2004.\11\ Although coca cultivation has risen slightly in Peru in the 
last two years, it is important to note that since 2000, coca 
cultivation in the Andean region as a whole has declined by nearly 30% 
to 158,000 hectares, according to the United Nations Office on Drugs 
and Crime (UNODC).\12\ Given that the ATPDEA has been in place since 
1991, it is clear that this program has been an invaluable tool in 
reducing coca cultivation by spurring the growth of the apparel and 
other export-driven industries in Peru.
---------------------------------------------------------------------------
    \11\  4-14
    \12\  UN Office on Drugs and Crime, ``Coca Cultivation in the 
Andean Region: A Survey of Bolivia, Colombia and Peru,'' June 2006, 
Preface.
---------------------------------------------------------------------------
    In observing the overall picture, it is also important to note that 
Andean apparel exports to the U.S. do not even reach 1.1% of total U.S. 
imports. Therefore, there is no risk of displacement or damage to the 
U.S. from Peruvian apparel imports.
  
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    

    Source: U.S. International Trade Commission (USITC)

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    It should be considered that, as shown in the chart below, Peruvian 
and U.S. economies are complementary in many aspects and barely compete 
against each other, and therefore, a bilateral agreement generates a 
win-win situation for both countries.
    In this regard, it is estimated that for every dollar exported by 
the ATPDEA beneficiary countries to the U.S., 94 cents worth of U.S. 
goods are in turn imported by the ATPDEA countries, whereas by way of 
comparison the Asian countries only buy 14 cents out of every dollar 
exported to the U.S.\13\
---------------------------------------------------------------------------
    \13\  The ATPDEA beneficiary countries are Bolivia, Colombia, 
Ecuador and Peru.

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---------------------------------------------------------------------------
    Peru: U.S. imports for 2004

    Millions of US$CIF

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    III. Importance of the Textile and Apparel Industry to Peru's 
Economy

    The textile and apparel manufacturing industry represents around 
10% of Peru's total exports. It is one of Peru's leading industries and 
an estimated source of direct and indirect employment for over 500,000 
Peruvians. As such, it accounts for nearly 20% of the country's 
manufacturing jobs and almost 10% (considering an average family size 
of 5) of Peru's population of 28 million depends on this industry for 
its livelihood.
    It is also one of Peru's fastest growing export industries. In 
2006, Peru exported approximately US$1.4 billion worth of textiles and 
apparels, compared to US$664 million in 2001. These exports increased 
by nearly 13 percent from 2005 to 2006. Approximately 79.2% of Peru's 
exports were destined to the U.S. market. This industry has become 
successful in large part thanks to the ATPDEA.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The qualitative importance of apparel exports to Peru becomes 
evident when considering that 70% of Peru's exports correspond to 
minerals (gold, copper, lead, silver, zinc, etc.) and fish meal, all of 
which represent commodities and have little or no value-added. In this 
regard, it is estimated that an article of clothing multiplies the 
value of the fiber approximately 12 times. Peru's apparel industry 
allows for substantial value added because, unlike neighboring Colombia 
or the Central American nations which are overwhelmingly maquila (cut & 
sew) oriented, its industry is vertically integrated throughout the 
productive chain and its niche market is the ``full package'' product. 
Approximately 80% of Peru's textile and apparel exports are represented 
by cotton garments and fabrics. Of this amount, about 80% are knit 
fabrics.

    IV. Peru TPA and Labor

    The growth of globalized, export-based industries in Peru has been 
such that in parts of the country such as Ica and La Libertad there is 
full-employment year round and extreme poverty has been reduced by an 
astounding 36% comparable to levels experienced nationwide by countries 
such as Chile. The cotton, textile and apparel industries located in 
these regions have helped to contribute to these successes. Moreover, 
workers in these industries earn good wages by Peruvian standards which 
is helping to reduce Peru's extreme poverty levels. For example, former 
Peruvian Prime Minister Pedro Pablo Kuczynski annouced that extreme 
poverty dropped from 24% to 18% between 2001 and 2005.
    In terms of its commitment to global labor standards, Peru has 
ratified 71 ILO conventions, including the eight ``core conventions.'' 
It has been praised multiple times by the ILO for its progress in 
improving labor laws. In addition to all of the ILO's Core Labor Rights 
Conventions, the PTPA's labor standards exceed those of five other 
previously-ratified trade agreements: Jordan, Chile/Singapore, CAFTA, 
Bahrain and even the ATPDEA, which does not make ILO or national 
standards mandatory.
    The PTPA goes beyond many other free trade agreements in the 
enforcement of worker rights and dispute resolution. The PTPA-created 
Labor Affairs Council develops public participation in reporting and 
funding to ensure implementation of the agreement and improved 
cooperation and capacity-building mechanisms. Additionally, the PTPA 
holds member countries accountable to effectively enforce existing 
labor laws, under penalty of fines, which are used by the PTPA 
commission to fund projects improving labor right protections. 
Noncompliance results in the formation of an arbitral panel, which may 
fine violating parties up to $15 million per year and suspend tariff 
benefits to the party complained against if necessary to cover the 
assessment.\14\
---------------------------------------------------------------------------
    \14\  Peru Trade Promotion Agreement, Chapter Twenty-One: Dispute 
Settlement

---------------------------------------------------------------------------
    V. Investment and Dispute Resolution

    The PTPA's Investment Chapter will facilitate transactions for U.S. 
industries and banks, as well as commercial and service companies, 
among others, that have investments or are interested in investing in 
Peru. U.S. investors will be treated equally as local institutions. 
Moreover, they will have full freedom to remit investments and profits. 
Therefore, it is possible that U.S. textile companies will install 
industrial plants and trading companies in Peru, which will use 
supplies produced in the United States, such as state-of-the-art 
fibers, yarns and fabrics.
    It should also be pointed out that the PTPA contemplates a dispute 
settlement mechanism, designed to provide security to U.S. investors in 
Peru given that any controversy will be resolved on a fair and 
equitable basis, without the intervention of political or other 
considerations in the settlement of disputes.

    VI. Concluding Remarks

    The Peruvian economy, as shown in the chart below, is very small in 
comparison to the U.S. economy. However, as a direct result of the 
duty-free access afforded to Peru in the ATPA and ATPDEA, a strategic 
alliance has developed between the U.S. cotton industry, U.S. yarn and 
fabrics manufacturers, and participants in the U.S. apparel value chain 
on one hand, and the Peruvian textile and apparel industry on the 
other. As discussed in these comments, this alliance has brought 
significant and widely dispersed benefits to both the U.S. and Peruvian 
economies, and it will continue to thrive under the PTPA. The PTPA is 
an excellent opportunity to ensure the continued prosperity of these 
U.S. and Peruvian industries, and by extension raise overall living 
standards in Peru, and ensure the continuation of the benefits enjoyed 
by U.S. industries, workers and consumers.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Source: Brigham Young U.
                                                In terms of GDP

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     Statement of the Haiti Democracy Project and Manchester Trade

    In December 2006, Congress passed an important humanitarian measure 
in support of the poorest country in the hemisphere. The HOPE act, 
while limited, has the potential to restart the motor of job creation 
in one of Haiti's few remaining viable industries. In a country where 
those few who have work make an average of a dollar a day, and where 
the number of textile manufacturers has dropped from ninety in the late 
1990s to fifteen today, the HOPE concession is crucial to Haiti's 
recovery. The HOPE act sets forth eligibility requirements under 
Section 5002(d). Criteria include progress in creating a market-based 
economy, rule of law, elimination of trade barriers, anti-poverty and -
corruption policies, and respect for workers' rights and for 
internationally-respected human rights. By mid-March President Bush can 
certify that Haiti has met these requirements and make HOPE 
operational.
    The Haiti Democracy Project and Manchester Trade believe that Haiti 
either meets these conditions or is making continual progress toward 
them. ``Haiti'' in this case must be understood not as merely the 
government of Haiti, for the functioning of government in Haiti has 
been seriously impaired for more than two decades; this is indeed the 
definition of the problem of Haiti. Despite the recent progress 
evidenced by fair and accepted elections, the resultant government has 
not yet consolidated and is only beginning to function effectively.
    Rather ``Haiti'' is here better understood as the complex of 
government, civil society, private sector, the supportive international 
community, and the concerned Haitian diaspora that make up what Haiti 
has in terms of functioning institutions. The question is whether these 
components working together meet Haiti's eligibility requirements. Let 
us review the requirements and also some of the serious objections that 
have been raised to Haiti's eligibility.
    Section 5002(d)

    Haiti shall be eligible for preferential treatment under this 
section if the President determines and certifies to Congress that 
Haiti

    (A) has established, or is making continual progress toward 
establishing

        (i)  a market-based economy that protects private property 
        rights, incorporates an open rules-based trading system, and 
        minimizes government interference in the economy through 
        measures such as price controls, subsidies, and government 
        ownership of economic assets.

    Haiti indeed has a market-based economy based on private property 
and has considerably less government involvement in the economy than 
most U.S. free-trade partners.

        (ii)  the rule of law, political pluralism, and the right to 
        due process, a fair trial, and equal protection under the law;

    Political pluralism is flourishing in Haiti and legal rights are 
enshrined in the constitution and are actively promoted by civil 
society and the population. One cannot state that the rule of law 
exists throughout Haiti. Due to Haiti's tragic history over the past 
quarter century, 82 percent of Haiti's trained professionals live 
abroad. There are a great number of poorly educated and poorly paid 
civil servants prone to corruption.
    However, substantial progress is being made to spread the rule of 
law through the island. The government has focused on creating a 
capable judiciary system a crucial component in assuring there is rule 
of law. We have been very impressed with the quality of the new 
appointments. The Haitian police force supported by the U.N. forces on 
the island has become proactive in pursuit of the kidnapping rings that 
have sown terror in Haiti. The police and U.N. have recently launched 
an offensive against the gangs' strongholds in Cite Soleil and other 
areas, scattering the leadership of the gangs and establishing 
government presence in these areas for the first time in years. The 
international force is assisting in training and establishing 
internationally accepted standards for all elements of law enforcement 
and the judiciary.

        (iii)  the elimination of barriers to United States trade and 
        investment, including by C (I) the provision of national 
        treatment and measures to create an environment conducive to 
        domestic and foreign investment; (II) the protection of 
        intellectual property; and (III) the resolution of bilateral 
        trade and investment disputes;

    The government and society of Haiti welcome U.S. investment, and 
the improvement of the investment climate was one reason why Haiti 
strongly backed the HOPE initiative. It is no deliberate policy but 
sheer lack of infrastructure, security, and legal capacity that is the 
main impediment to investment, both domestic and foreign. The HOPE act, 
by reviving a crucial Haitian industry, begins to address this crucial 
constraint. Unlike other countries including some FTA partners, Haiti 
has always welcomed foreign investment and treated it as favorably as 
it treated local investment.

        (iv)  economic policies to reduce poverty, increase the 
        availability of health care and educational opportunities, 
        expand physical infrastructure, promote the development of 
        private enterprise, and encourage the formation of capital 
        markets through microcredit or other programs;

    The present government launched a ``social-appeasement'' policy 
aimed at countering the lure of the gangs, and Haiti's international 
partners have pledged, and begun to disburse, billions of dollars to 
address basic human needs. The Haitian-American diaspora also pours in 
more than $1 billion a year in family remittances. If security can be 
reestablished and investment resumed, we believe these policies and 
concrete actions will begin to show success in reducing mass poverty 
and improving health and education.

        (v)  a system to combat corruption and bribery, such as signing 
        and implementing the Convention on Combating Bribery of Foreign 
        Public Officials in International Business Transactions

    Corruption and bribery have unfortunately become ingrained in 
Haiti's government and folkways, as is the case in many other 
developing countries, and constitute a fundamental obstacle to 
progress. However, progress has been made recently. The previous 
government that of the interim prime minister Gerard Latortue did Haiti 
credit by establishing two investigatory commissions in Haiti that 
found serious embezzlement by the previous president, Jean-Bertrand 
Aristide. The Latortue government also launched a lawsuit in U.S. 
federal court seeking recovery of these stolen assets. The U.S. 
government is helping by trying and convicting a number of highly-
placed drug traffickers who had operated with impunity in Haiti for 
many years. Together these investigations and convictions are 
effectively countering the long tradition of impunity enjoyed by 
corruptionists in Haiti.
    These efforts are aided by Haitian civil society, the diaspora, and 
the international presence. Haiti has a chapter of Transparency 
International. A senatorial committee is looking into the corruption 
among its ranks, and the proceedings are followed by the media and 
civil society. A government-appointed prosecutor has expressed the will 
to root out all of the major corruption among the ``untouchables'' of 
Haiti, frequently powerful officials of previous governments. The 
administrator of the electoral commission was able to intercept fraud 
and hold three fair and accurately-counted elections in 2006.
    A U.S. trade association representing U.S. protectionist textile 
interests and having no experience in Haiti, in a statement to the U.S. 
trade representative on February 13, 2007, has cited Haiti's corruption 
as the main reason why President Bush should delay any decision to find 
Haiti eligible for the benefits of HOPE. The National Council of 
Textile Organizations claimed that Haiti would not produce textiles at 
all but would merely smuggle in Chinese finished products using its 
HOPE quota, and that it would be shielded in doing so by its endemic 
corruption, beyond the effective purview of U.S. customs enforcement.
    This is simply not correct. Haiti is benefiting from special 
textile provisions under the CBI and has never been cited for 
violations involving transhipments. The fact is that the Haitian 
companies themselves realize the danger of such violations.
    The law requires Haiti to present U.S. customs an acceptable visa 
system of control. It is at that time that the U.S. government will 
decide whether Haiti has a system capable of preventing transhipment. 
If it has such a system, it will be certified for HOPE benefits. The 
U.S. trade association's arguments are premature and prejudge a system 
that is currently being created and will be judged by U.S. authorities 
in the future.
    We also note that the trade association has dramatically shifted 
its argument since last September. Then, it claimed that Haiti's low-
cost production would seriously harm U.S. textile manufacturing. Now it 
is claiming just the opposite: that Haiti would not produce at all but 
would sneak in others' goods.
    The common point in the organization's stance has remained 
opposition to HOPE, under which Haiti's now-minuscule market share 
could rise to 1 percent of the U.S. garment market now and 2 percent in 
five years.
    While ceding the point of Haiti's ingrained corruption, we strongly 
question the claim that Haiti would not produce but merely smuggle. 
Haiti has the capacity and desire to produce.
    In recent years, Haiti's instability has grown and disrupted 
Haitian manufacturers' ability to win and keep overseas customers. Many 
were forced to close, as noted, but many also sought to keep their 
plants open or intact, pay their workers something even when there were 
no orders, and keep going somehow. This testifies to their desire to 
produce. This idle capacity and employer-worker bond remains and will 
be quickly reactivated with the economic incentive provided by HOPE.
    During recent decades, Haiti's workers and employers displayed 
impressive prowess in low-cost garment production. They do not need to 
smuggle out Chinese finished goods. They can make much more money by 
weaving Chinese and other yarn and assembling the products in Haiti. 
They know how to weave and sew. They have the experience, the capacity, 
and the willing and dexterous workers. There is a Haitian 
manufacturers' association, there are trade unions, and the self-
interest of these sectors will insure that no one be allowed to 
endanger Haiti's access under HOPE by smuggling finished goods.

        (vi)  protection of internationally recognized worker rights, 
        including the right of association, the right to organize and 
        bargain collectively, a prohibition on the use of any form of 
        forced or compulsory labor, a minimum age for the employment of 
        children, and acceptable conditions of work with respect to 
        minimum wages, hours of work, and occupational safety and 
        health; (B) does not engage in activities that undermine United 
        States national security or foreign policy interests; and (C) 
        does not engage in gross violations of internationally 
        recognized human rights or provide support for acts of 
        international terrorism and cooperates in international efforts 
        to eliminate human rights violations and terrorist activities.

    In the 1980s and 1990s, as U.S. activists rightly expressed 
concerns about overseas ``sweatshops,'' Haitian manufacturers got the 
message and took the steps to make sure that their market access would 
not be affected by this issue. It was relatively easy for them to do so 
because they could easily exceed Haiti's low minimum wage and remain 
competitive. Also, the cost to them of assuring adequate lighting, 
ventilation, and work hours was low. The Haiti Democracy Project has 
visited factories in Haiti and found conditions to be decent.
    Haiti has freedom for union-organizing and even militant and 
largely-political unions have appeared in the textile sector.
    Haiti's government does not engage in human-rights violations. 
Politically, there is a threat to certain individuals' rights from 
armed remnants of the Aristide government (two regimes ago), but it is 
not widespread nor countenanced by the present government.
    Altogether, then, the Haiti Democracy Project and Manchester Trade 
consider that Haiti meets the criteria of the HOPE act. The scenario 
put forward by the U.S. textile association, that Haiti would hide 
behind its corruption to ship finished Chinese products, appears to us 
to be completely unrealistic in the Haitian scene. Knowing many of 
Haiti's manufacturers personally, and with abundant experience with 
young, able Haitians who desperately seek remunerative work, we find it 
inconceivable that they would stand by idly and watch someone deprive 
them of their livelihood in this manner. On the contrary, Haitians can 
be very assertive in demanding their rights. They most definitely would 
be so if they saw the opportunity afforded by the HOPE act being 
threatened.
    As progressive organizations the Haiti Democracy Project and 
Manchester Trade are also extremely sensitive to the claim of the 
American textile interests that workers in the rural South would lose 
their jobs. We simply find, however, that Haiti's market impact, well 
below 1 percent now and allowable to a maximum of 2 percent in five 
years, is too minuscule to have the claimed effect. Furthermore, if 
there is competition with anyone, it is with China, not the United 
States. The textile association itself acknowledged this when it 
claimed that Haiti would ship finished Chinese goods rather than 
produce. By producing, Haiti would then displace Chinese goods, not 
American.
    Since the expiry of quotas on January 1, 2005, it is China that has 
been the nine-hundred-pound gorilla in the world textile market with 
its low-cost labor and strong fabric industries. ``Haiti's production 
is so small that it's not going to have any effect on the United 
States,'' said apparel specialist Don Truluck of High Point, N.C., 
noting some factories in China produce more than all Haiti combined.
    The jobs in question long ago left America. The United States now 
exports far more to Haiti than it imports. With the United States being 
the largest exporter to Haiti, the business generated by development in 
Haiti, as stimulated by the HOPE act, will go to U.S. exporters above 
all.
    The humanitarian and policy reasons for the prompt execution of 
HOPE are also compelling. Even if it came at the expense of U.S. 
economic interests, which it does not, HOPE would be eminently 
defendable on humanitarian grounds alone simply because of Haiti's 
intense poverty. From a policy point of view, it makes no sense 
whatever to maintain a U.N. mission in Haiti at the cost of a half 
billion dollars a year, and not to stimulate the Haitian economy so as 
to hasten the day of the mission's departure.
    Thus the Haiti Democracy Project and Manchester Trade present this 
testimony to the Ways and Means Committee, certainly as a supporter of 
Haiti and the cause of Haiti's unfairly deprived and desperately poor 
masses, but not in a blindly partisan sense. We remain highly aware of 
the ills of Haiti, yet strongly believe that the government assisted by 
the private sector, civil society, the international community, and the 
Diaspora is making continual progress. Designation under HOPE will 
accelerate this progress and even help Haiti become ready to 
negotiation an FTA with the United States.
    We would point out that in a number of areas Haiti is ahead of U.S. 
free-trade partners. In other areas, it is making continual progress in 
meeting HOPE criteria. It is our expectation that by the time certain 
HOPE provisions providing special access expire in about three years, 
Haiti will fully satisfy these conditions and could be ready to enter 
into a free-trade agreement with the United States. The possibility of 
such a step would galvanize the whole island to meet these conditions 
since HOPE only covers garment production and Haiti has the possibility 
of being competitive in many other sectors.
    Not only would such exports help alleviate poverty and create jobs 
in Haiti, they would remove the discrimination that Haiti is currently 
experiencing vis-a-vis its neighbors who are members of FTAs. They 
would also displace imports from the Far East. Haitian imports would 
contain a significant amount of U.S. components, thus benefitting U.S. 
workers. The Asian imports it would replace contain hardly any U.S. 
components. The reciprocal elements of an FTA would also assure more 
exports to Haiti that will create jobs in the United States.






                                 

 Statement of Charles D. Lake II, American Chamber of Commerce in Japan

    I. Introduction

    Given the size of its economy and its close relationship with the 
United States, Japan must be carefully considered when formulating U.S. 
trade policy. U.S.-Japan economic ties are strong, but there remain a 
number of areas across Japan's economy where U.S. trade policy can be 
instrumental in ensuring businesses meaningful market access and a 
level playing field to the benefit of U.S. companies, workers, and 
farmers alike.
    With Japan increasingly shifting its trade, investment, and foreign 
policy focus toward Asia and away from the United States, the time has 
come to reexamine the effectiveness of the current framework for 
addressing trade and investment issues with Japan and in Asia to ensure 
that the U.S.-Japan economic relationship remains strong and leveraged 
strategically by both nations to further contribute to prosperity and 
stability in the region.
    Accordingly, the American Chamber of Commerce in Japan (ACCJ) 
recommends that the United States and Japan articulate a clear vision 
for the future of this critically important bilateral economic 
relationship. Both nations should commit to promoting further U.S.-
Japan economic integration as the necessary foundation for continued 
sustainable growth in the Asia-Pacific region and initiate talks on 
laying the groundwork for concluding an Economic Integration Agreement 
(EIA).

    II. Economic Focus Shifting to Asia

    The U.S.-Japan relationship began over 150 years ago with the 
arrival in Uraga of Commodore Matthew Perry, which led to the signing 
of the U.S.-Japan Treaty of Peace and Amity in 1854, ending more than 
200 years of Japanese isolation. Six years later, the relationship took 
off when Japan sent its first official mission to the United States. 
Since then, despite the devastating experience of World War II, the two 
countries have overcome tremendous challenges to forge a strong and 
wide-ranging bilateral relationship based on common interests and 
values.
    Clearly, both the United States and Japan benefit from the close 
win-win relationship, but over the past five years, bilateral trade has 
remained relatively flat, as both countries have been lured by the 
attractive opportunities in other parts of East Asia. Indeed, trade 
between the United States and Asia is growing at a rapid pace, in 2005 
amounting to $817 billion and far outstripping U.S. trade with the 
European Union, which stood at $492 billion.\1\ Although Japan accounts 
for around a quarter of the United States' trade with Asia, the United 
States has been deepening its trade ties with other countries in the 
region at a faster pace.
---------------------------------------------------------------------------
    \1\ U.S. Department of Commerce, International Trade 
Administration, Office of Trade and Industry information (OTII), 
TradeStats Express 2005.
---------------------------------------------------------------------------
    From the Japan side, its international trade and investment, which 
have traditionally been focused on the United States, are increasing 
with East Asian countries as well, especially China. From 2001-2005, 
for example, Japan's total trade with Asia\*\ increased from $312 
billion to $473 billion, with China's share of that total nearly 
doubling from $93 billion to $179 billion.\2\ During the same period, 
Japan's total trade with the United States declined from $193 billion 
to $189 billion.\3\ Japan's outgoing investment has also taken a 
similar shift. While Japanese investment into the United States fell 
from $14.1 billion to $12.1 billion from 2000-2006 (reaching a low of 
$7.0 billion in 2001), its investment into Asia\**\ rose sharply from 
$2.1 billion to $16.2 billion, with China's share of that total 
increasing from $0.9 billion to $6.6 billion.\4\
---------------------------------------------------------------------------
    \*\ China, Hong Kong, South Korea, Singapore, Taiwan, Indonesia, 
Malaysia, the Philippines, and Thailand.
    \2\ Japan External Trade Organization (JETRO), from Ministry of 
Finance data. Figures converted to dollars from yen using U.S. Federal 
Reserve Board annual exchange rate averages.
    \3\ Ibid.
    \**\  China, India, Hong Kong, South Korea, Singapore, Taiwan, 
Indonesia, Malaysia, the Philippines, and Thailand.
    \4\ Japan External Trade Organization (JETRO), from Ministry of 
Finance data.
---------------------------------------------------------------------------
    Indeed, the Government of Japan has made increased integration with 
Asia one of its key economic growth policies, often to the exclusion of 
the United States. Its initiatives in this area include an aggressive 
program of negotiating bilateral free trade agreements with Asian 
nations, increased joint business/government diplomacy in Asia; and an 
agreement to negotiate a trilateral investment treaty with China and 
South Korea and conduct joint research on a trilateral FTA. Most 
notable, however, is Japan's proposal for an East Asian free trade 
agreement, to be composed exclusively of ASEAN plus Six\+\ members. The 
Government of Japan proposed this initiative in 2006 and continues to 
expend considerable effort to push it forward, with some senior 
government officials favoring this Asia-only approach over the United 
States' more inclusive Free Trade Area of the Asia-Pacific (FTAAP).
---------------------------------------------------------------------------
    \+\  ASEAN nations are Brunei, Burma, Cambodia, Indonesia, Laos, 
Malaysia, Philippines, Singapore, Thailand, and Vietnam; ``plus Six'' 
nations are Australia, China, India, Japan, New Zealand, and South 
Korea.
---------------------------------------------------------------------------
    In sum, despite the widely reported political tensions between 
Japan and its Asian neighbors such as China and South Korea, the macro- 
and micro-economic data as well as substantial progress in government 
to government initiatives make it clear that Japan's integration into 
the Asian economy continues rapidly, and that this trend will continue. 
These developments raise serious strategic implications for the United 
States, not only with regard to economic and trade policy, but also in 
terms of our national security interests.

    III. A New Vision Needed for U.S.-Japan Economic Ties

    With this backdrop, the ACCJ urges the United States to redouble 
its efforts to ensure that the U.S.-Japan economic relationship remains 
strong and continues to play a key role in maintaining prosperity and 
stability in each nation and in the Asia-Pacific region. The United 
States and Japan enjoy common values, including a commitment to 
representative democracy, freedom of speech, and the rule of law. Each 
nation considers the alliance a core aspect of its security and 
diplomatic relations globally and in Asia.
    Conditions for greater bilateral economic integration between the 
United States and Japan are better than ever. Both the overall health 
of bilateral relations and Japan's economy are their strongest in 
decades. For U.S. companies, the Japanese market is more open, with 
more opportunity than ever before, thanks to structural reforms. 
Despite recent slowing trends, Japanese companies continue to invest in 
the United States, with U.S. production for some Japanese companies 
exceeding 50 percent of total output.
    The two countries have a demonstrated ability to work together to 
resolve issues in a mutually beneficial manner that extends across many 
decades. The Economic Partnership for Growth, a bilateral mechanism 
established in 2001, for example, provides a government-to-government 
forum to discuss and work through such economic-related issues as 
macroeconomic policies, structural and regulatory reform, financial and 
corporate restructuring, foreign direct investment, and open markets.
    Challenges for further U.S.-Japan economic integration do remain, 
however.

    IV. Challenges for Further U.S.-Japan Economic Integration

    A. Japan's Domestic Challenges and Prime Minister Abe's Vision
    Domestically, Japan faces an array of difficult issues, including a 
declining population and an aging workforce; an unprecedented level of 
public debt; difficult monetary and tax policy environments; and low 
research and development (R&D) productivity. Continued commitment by 
the Government of Japan to implement market-based reform will be 
necessary to overcome these potential impediments to continued growth. 
The Government of Japan must stay firm in its resolve to further 
reforming Japan's economy to make it more efficient and better able to 
compete in increasingly globalizing markets. Dealing with these 
challenges will be key to achieving enhanced economic integration 
between the two countries.
    Prime Minister Abe has recognized these challenges in policy 
speeches and has laid out a vision for addressing them. The Prime 
Minister's vision includes a goal of attaining ``sustained and stable 
economic growth'' by promoting foreign direct investment (FDI); 
aggressively pursuing Economic Partnership Agreements in Asia; and 
promoting initiatives such as his ``Asian Gateway Vision,'' which aims 
to position Japan as a conduit for the flow of people, goods, money, 
culture, and information between Asia and the rest of the world and 
``Innovation 25,'' which is designed to foster innovation through a 
range of programs in medicine, engineering, and information technology.
    The Prime Minister has also pledged to continue the structural 
reforms started by his predecessor. These include major efforts to 
enhance efficiency by continuing to devolve authority to local 
governments and by reducing government involvement in the market 
through the sale of government assets; following through with postal 
privatization; consolidating other public financial institutions; and 
opening certain public services to competition from the private sector.
    Finally, the Government of Japan has set a goal to turn Tokyo into 
a global financial center on par with New York and London. A 2006 
survey by the Corporation of London found that Tokyo, while an 
important regional financial center, does not meet two important 
standards for global financial centers.\5\ Tokyo is not yet a city 
where ``business is conducted between organizations from all over the 
world using financial instruments from all over the world'' nor is it 
one that has ``an intense concentration of a wide variety of 
international financial businesses and transactions in one location.'' 
In fact, according to another 2006 study, Tokyo is not even the most 
competitive financial center in Asia, ranking well behind Hong Kong and 
Singapore in several key categories, including availability of skilled 
personnel and access to suppliers of professional services, regulatory 
environment and government responsiveness, and access to international 
financial markets.\6\
---------------------------------------------------------------------------
    \5\  Corporation of London, ``The Competitive Position of London as 
a Global Financial Centre,'' November 2005.
    \6\  Hong Kong Securities and Futures Commission, ``Hong Kong as a 
Leading Financial Center in Asia,'' August 2006.
---------------------------------------------------------------------------
    The Government of Japan is taking action to achieve further reform 
in this area. Three government-sponsored panels are currently studying 
ways to reform Japan's financial system to encourage the development of 
Tokyo into a true global financial center, with the government expected 
to incorporate their findings into a strategy by the summer of 2007.

    B. Sector-Specific Challenges and Recommendations

    In its recent Business White Paper: ``Working Together, Winning 
Together,'' the ACCJ provides a snapshot of the state of the Japanese 
economy after the implementation of key economic structural reform 
measures and an assessment of progress made in the last five years. The 
ACCJ Business White Paper also identifies immediate and longer-term 
measures that the ACCJ believes are key for the United States and Japan 
in partnering for success in a globalizing economy. Respective chapters 
address different areas of Japan's economy, but they contain common 
themes such as transparency, stakeholder participation in decision-
making, like rules for like competitors, independent and accountable 
regulators, global standards, innovation and improving efficiency for 
growth, and sound regulation to promote healthy competition.
    As part of its trade policy agenda, the U.S. Government is urged to 
engage Japan on a wide range of outstanding issues, including the 
following_drawn from the ACCJ Business White Paper_ which represent 
challenges for U.S.-Japan economic relations. These challenges could be 
the subject of consultations under existing bilateral mechanisms and, 
in the medium- to long-term, be included in negotiations ultimately 
resulting in the successful conclusion of an Economic Integration 
Agreement. For a full discussion of the ACCJ's vision for increased 
economic integration between the United States and Japan, please refer 
to the full ACCJ Business White Paper (the ACCJ stands ready to provide 
additional copies as necessary).

    Financial System

    Tremendous progress has been made in restructuring Japan's 
financial system to make it more competitive since the government 
introduced financial reforms in the mid-1990s. Two examples are the 
government's shift to the Financial Service Agency's (FSA) more 
transparent, rules-based regulatory approach and the successful 
reduction of major banks' non-performing loans, which has allowed Japan 
to shift its focus from ``financial system stability'' to ``financial 
system vitality.'' Despite this progress, however, more is required to 
achieve the government's stated goal to transform Tokyo into a true 
global financial center to rival New York and London.

    Recommendations

    Continue improving the transparency of Japan's financial rulemaking 
process (including its practice of consulting outside advisory groups) 
and ensure that it is fair for all stakeholders, including foreign 
companies.
    Ensure that Japan's regulatory reform process promotes innovation, 
particularly through reform of Japan's capital markets.
    Ensure that Japan fulfills its international treaty obligations by 
ensuring like regulation for like service providers. Japan Post's 
financial institutions, for example, are financial service providers 
with significant portions of Japan's banking and insurance markets that 
enjoy special treatment inconsistent with Japan's World Trade 
Organization (WTO) obligations under the General Agreement on Trade in 
Services (GATS) and are not subject to full oversight and supervision 
by the FSA.
    Ensure that Japan Post's financial institutions are prohibited from 
expanding their businesses until a level regulatory playing field 
between Japan Post and its private sector competitors is established.
    Healthcare System

    The Government of Japan should focus on reforms that bring about a 
healthcare system that facilitates speedy patient access to the best 
medical technologies, pharmaceuticals, and services the world has to 
offer.

    Recommendations

    Ensure that reform of Japan's healthcare system addresses several 
fundamental issues: inefficiencies in the healthcare system; the slow 
and cumbersome approval process for new medical technology; and the 
system for establishing reimbursement rates.
    In the area of pharmaceuticals in Japan, create an efficient, 
science-based regulatory approval for new technologies, fundamentally 
revise the current drug pricing rules, recognize and reward innovation 
in the pharmaceutical industry, fully protect intellectual property 
rights, support R&D and improvements in the reimbursement system for 
medical treatments, increase its commitment of fiscal resources, and 
improve patient access to information.
    In the area of healthcare services in Japan, permit medical 
institutions to operate as commercial corporations to expand the 
choices available to healthcare providers as well as patients.

    Physical Infrastructure

    Physical infrastructure has taken on heightened importance as 
globalizing markets have increased demand for the rapid movement of 
people and goods across borders. Japan's economic prominence depends on 
a vast physical infrastructure to support its regional and global 
commerce. Japan, however, pays an unnecessarily high price through 
over-regulation, high operating costs, and inadequate or redundant 
infrastructure, in part due to low external competitive pressure. This 
has hindered Japan's international competitiveness and threatens to 
reduce its role as a nexus for trade in Asia and globally.

    Recommendations

          Ensure that the Government of Japan provides all 
        stakeholders with a fair process for engaging in dialogue on 
        issues related to airports, aviation, customs, and the 
        privatization of Japan Post.
          Increase the transparency with which Japan conducts 
        oversight and planning of its national air transport system, 
        including commercial, business, and cargo aviation.
          Ensure that Japan Post is subject to identical 
        regulations as its private sector competitors, including 
        customs clearance, transportation, and security regulations, 
        with no cross-subsidies among the postal products or operating 
        companies.
          Information Technology and Communications
          The Government of Japan's IT strategy identifies 
        information technology as critical to achieving the structural 
        reforms necessary to meet Japan's needs in a broad range of 
        areas, setting as a national goal the creation by 2010 of a 
        ``ubiquitous network society.'' This is an admirable goal, and 
        one that will require a sustained and cooperative effort to 
        achieve.
          Recommendations
          Refrain from micro-managing the development of IT and 
        applications.

    Governments contribute to innovation by sustaining an environment 
that allows companies and individuals to compete in the marketplace to 
bring new ideas and technologies to the consumer. Attempts by 
governments to ``pick winners'' or to favor one technology over others, 
distort the competitive discipline of the market and ultimately slow 
innovation. The Government of Japan should consider these points as it 
weighs its role in information security and privacy, IT procurement, 
telecom policy, and the protection of intellectual property rights.

    Consumer Products and Food

    Consumer products and food markets annually generate 35 percent of 
all retail business in Japan, providing a solid base for creating a 
more balanced economy driven by domestic demand. However, although 
Japanese producers of manufactured goods have often been at the 
forefront of extending the benefits of consumer products to consumers 
around the world, Japan's own consumers lack full access to the world's 
most innovative products in several key areas.
    Recommendations

    Create simple, fair, and transparent regulations consistent with 
global best practices. Allowing all stakeholders meaningful 
opportunities to comment on proposed rules would be an important step 
in the right direction.
    Streamline the approval process for specific additives commonly 
used in the United States and Europe and use a single standard for both 
imported products and those already approved in Japan.

    Legal System

    Although different kinds of legal systems can facilitate the 
development of large market economies, no one doubts the importance of 
having one that meets the needs of the domestic economy and is 
compatible with global practices. A solid legal infrastructure is 
conducive to providing efficient international legal services to 
domestic and foreign companies and individuals, which will contribute 
significantly to the health of Japan's economy.

    Recommendations

    Extend the public comment period to a full 60 days and to include 
government-drafted legislation submitted through the administrative 
process, implement measures to further strengthen corporate governance 
in Japan, remove remaining limitations on foreign lawyers and law firms 
operating in Japan, and develop clearer and more consistent privacy 
rules.
    Communicate to ministries and agencies full support of the No 
Action Letter system, educate them on how to most effectively implement 
the system, and have them proactively encourage the submission of 
requests for No Action Letters to those with questions regarding 
regulatory interpretation.

    Human Resources

    In an increasingly integrated global economy, national and 
corporate competitiveness are closely linked to the availability and 
flexibility of human resources. Although Japan has been justifiably 
proud of its economic accomplishments, changing economic realities, 
increased competition for foreign direct investment, and its rapidly 
aging population are just a few of the forces at work that require it 
to re-evaluate its post-war approach to human resources.

    Recommendations

    Consider a wide array of reforms, including: improving the teaching 
of English at all levels of the educational system; encouraging more 
competition and differentiation among Japanese universities; providing 
recognized Foreign University, Japan Campuses with the same tax status 
as recognized Japanese universities; revising the current Labor 
Standards Law to more clearly define its abusive dismissal doctrine; 
establishing clear statutory rules concerning changes in working 
conditions; and implementing, in a comprehensive and proactive way, 
policies and procedures that will facilitate the entry and integration 
of foreigners and their families.

    Government Reform, Procurement, and Privatization

    Efficient, predictable, and transparent government administration 
is key to achieving sustained growth in any economy. The Government of 
Japan has taken a range of measures in recent years designed to 
streamline and improve its core functions, including strengthening 
competitive bidding procedures and passing legislation to privatize 
state-owned enterprises (SOE). However, more work must be done in 
government procurement and privatization of SOEs, two areas where 
actions by the government have tremendous impact on the marketplace.

    Recommendations

    Reform Japan's IT procurement policies to further promote openness 
and transparency. The Government of Japan's policies should also be 
neutral with respect to competing technologies, ensure equal 
opportunity for all companies, eliminate unnecessary layers, and 
utilize a ``lifecycle'' approach to cost assessment.
    Implement changes to increase Japan's defense procurement 
efficiency while enhancing defense industry competitiveness and 
national security. Adoption of multiple-year equipment purchases, more 
flexible licensed production programs, more practical payment 
schedules, and increased incentives for efficiency are just a few of 
many needed reforms.

    V. Economic Integration Agreement

    The ACCJ believes that it is vitally important that the governments 
of the United States and Japan make every effort to complete the WTO 
Doha Round negotiations. Both Japan and the United States would reap 
substantial benefits from a successful Doha Round. The Government of 
Japan estimates an economic impact of approximately $401.8 billion, 
while the U.S. Government anticipates a boost in U.S. household income 
by $500 billion, or $4,500 per household.
    If multilateral negotiations are the most effective means to open 
markets, why is the ACCJ now urging the governments of Japan and the 
United States to start work on concluding a bilateral EIA? There are 
many factors that have led the ACCJ to this conclusion.
    First, major economic issues between the United States and Japan 
are currently less about market access and more about the need for 
improvements in our overall respective business environments. Many of 
the issues that make doing business in Japan complicated and expensive 
would not be addressed at the WTO level, but could be addressed in a 
comprehensive EIA.
    Since most traditional trade barriers, such as tariffs, have 
largely been reduced, an EIA between the United States and Japan would 
have to embody a broad and forward-looking vision, and promote 
institutional cooperation in areas such as standards and certification, 
IT security, intellectual property rights, as well as security and 
trade. Such an agreement could serve as a model for agreements with 
other countries, establishing best practices for the next generation of 
trade agreements. Indeed, a comprehensive EIA would have to encompass 
and build on all aspects of bilateral economic activity, while 
maintaining all the measures contained in existing bilateral trade 
agreements and building upon them. Such a high-level bilateral 
agreement would have to meet WTO standards on Free Trade Agreements 
(FTA) for goods and services coverage, including agriculture, and 
extend to non-tariff measures that inhibit trade and investment. In 
other words, an EIA would be an ambitious ``FTA-Plus'' agreement.
    In addition, such an agreement would complement and strengthen, not 
replace, multilateral efforts at the WTO. It could even give a strong 
push to other countries to move the Doha Round to a successful 
conclusion. Given the sheer size of the two economies, an EIA between 
Japan and the United States would create a sense of urgency among other 
major trading nations, spurring progress at the WTO level much as the 
conclusion of the North American Free Trade Agreement did in the 
Uruguay Round of negotiations more than a decade ago.

    VI. New Mechanism for Bilateral Economic Dialogue

    Finally, the ACCJ urges the governments of the United States and 
Japan to restructure and reinvigorate the Economic Partnership for 
Growth.

    A. U.S.-Japan Ministerial Economic Forum

    Over the past decades, the United States and Japan have benefited 
greatly from a deep relationship between the two nations built upon 
shared principles of political and economic freedom, democracy, the 
rule of law, and respect for human rights. Leveraging this 
relationship, the new bilateral economic initiative should include a 
U.S.-Japan Ministerial Economic Forum (Ministerial Forum). Under the 
Ministerial Forum, Cabinet-level leaders could meet to discuss key 
strategic bilateral, regional, and global issues facing the two 
economies and possible areas for cooperation. The Ministerial Forum 
would be an essential complement to existing Ministerial-level 
mechanisms with other key trading partners in East Asia, including 
China and South Korea.
    The Ministerial Forum would remain informal and flexible, providing 
the Cabinet-level leaders a setting to address both immediate as well 
as long-term strategic matters as appropriate. The Cabinet-level 
leaders would also report progress to the prime minister and president 
as necessary. Likely themes include building political and economic 
stability in the Asia Pacific Region; assisting the developing world 
achieve economic growth and stability; cooperating in multilateral and 
regional bodies; and taking common approaches to global regional 
economic issues.

    B. U.S.-Japan Economic Cooperation Working Groups

    While the Ministerial Forum would provide direction, context, 
support, and momentum for the overall bilateral economic initiative, 
the new bilateral economic initiative should also include several 
working groups, which would be tasked with submitting semi-annual or 
annual reports to the prime minister and president through the 
Ministerial Forum. These reports would address any immediate issues 
relating to trade and investment and identify areas where material 
mutual benefit could be gained through further bilateral economic 
cooperation.

    VII. Role of the Private Sector

    The private sector can play a critical role by supporting 
analytical studies of the impact of a U.S.-Japan EIA, identifying 
specific impediments, and helping build political and public support. 
Indeed, a comprehensive EIA between the United States and Japan would 
bring tremendous benefits to U.S. and Japanese companies and consumers 
alike, stimulating economic growth, generating high-productivity 
employment, and increasing U.S. and Japanese competitiveness in the 
global economy.
    The United States and Japan share many common values. The two 
nations also face many common challenges_including rapid globalization 
and aging populations. A U.S.-Japan EIA will provide an essential 
foundation for continued sustainable growth in the Asia-Pacific region 
and can become a key tool enabling both countries to work together to 
become more competitive in the new global environment.

    VIII. Conclusion

    The ACCJ wishes to express its sincere gratitude for the 
opportunity to submit these comments and stands ready to work with the 
executive branch and our leaders in Congress to promote further U.S.-
Japan economic integration, which is the necessary foundation for 
sustainable growth in the Asia-Pacific region.









                                 

        Lawson, Eugene K., U.S.-Russia Business Council, letter
                                       U.S.-Russia Business Council
                                                  February 26, 2007

The Honorable Charles Rangel
Chairman, Committee on Ways & Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Rangel:

    The U.S.-Russia Business Council (USRBC) is pleased to present this 
statement to the Committee on Ways and Means in connection with the 
hearing on February 14, 2007, on the direction and content of U.S. 
trade policy.
    USRBC is a Washington-based trade association that represents the 
interests of approximately 300 member companies operating in the 
Russian market. The Council's mission is to expand and enhance the 
U.S.-Russian commercial relationship through advocacy efforts and by 
promoting dialogue between the private sector and U.S. and Russian 
decision makers. The Council strongly supports Russia's integration 
into the global economy and the rules-based system of the World Trade 
Organization (WTO).

    Securing a Commercially Strong Agreement on Russia's WTO Accession

    After more than a decade of negotiations on Russia's WTO accession, 
the U.S. business community applauded the signing of the historic 
bilateral accession agreement between the U.S. and Russia on November 
19, 2006. It is a strong agreement and it benefits U.S. interests. In 
combination with Russia's side letter commitments, it represents an 
important step forward in solidifying economic opportunities for U.S. 
firms and farmers, which can have a positive effect on jobs here in the 
United States.
    We congratulate the Bush Administration, and the Office of the U.S. 
Trade Representative in particular, on their stellar work in addressing 
the concerns of the U.S. business community in the bilateral 
negotiations with Russia to ensure that the agreement was commercially 
meaningful. We appreciated the efforts of the leadership of the 
Committee and your staff who, in a bipartisan fashion together with 
your colleagues on the Senate Finance Committee, provided helpful input 
to the Administration to help ensure this effective result.
    The bilateral agreement is not the endgame, however. We look 
forward to building upon the good communication we have established 
with the Committee to encourage the proper implementation of Russia's 
side letter commitments and move forward the multilateral negotiations. 
The U.S. business community understands that before Congress can move 
forward with action on Russia's graduation from Jackson-Vanik and the 
extension of Permanent Normal Trade Relations (PNTR), significant 
progress must be achieved in the multilateral negotiations and in 
connection with bilateral commitments Russia has made to the United 
States. However, when the negotiations near their end point, it is 
critical for the U.S. business community that the Congress be prepared 
to act promptly on Jackson-Vanik and PNTR. The competitiveness of U.S. 
companies engaged in trade with Russia is at stake.
    Once negotiations are completed, Russia will be eligible to join 
WTO, with or without PNTR. Because our own WTO commitments require us 
to provide unconditional most-favored-nation trade status to any WTO 
member, only when the U.S. graduates Russia from Jackson-Vanik and 
extends Russia PNTR status will U.S. firms and farmers be able to share 
in the tariff reductions and other liberalizations that form Russia's 
WTO commitments. Passage of PNTR vote therefore will be critical for 
U.S. companies and farmers to stay competitive with other foreign 
competitors.
    Additionally, there are benefits of Russia's accession to the U.S. 
business community that are difficult to quantify, but, over the longer 
term, are even more important than tariff concessions to U.S. firms. 
For example:

          Russia's WTO accession will require Russia to comply 
        with transparency and notification requirements and provide a 
        stronger basis for U.S. companies to assert their commercial 
        rights in the Russian market.
          As a WTO member, Russia will need to bind its tariff 
        levels, preventing unilateral increases for purely 
        protectionist reasons. For example, WTO rules would have 
        prevented Russia from tripling its tariffs on U.S. combine 
        harvesters as it did late in 2005.
          Having Russia in the WTO will allow the U.S. to seek 
        redress with Russia through the WTO's dispute settlement 
        procedures if Russia steps outside the boundaries of accepted 
        WTO norms. Without PNTR, the U.S. will be ineligible to use 
        these mechanisms of the WTO vis-a-vis Russia.
          A basic tenet of the WTO is national treatment 
        requiring that foreigners are subject to the same rules and 
        enforcement practices as domestic parties (with exceptions for 
        national security and balance of payment requirements). As a 
        WTO member, Russia will need to honor its commitments placing 
        foreign companies on a level playing field with their domestic 
        competitors.

    Requiring U.S. companies to pay higher tariffs than their 
competitors and denying them the other advantages of Russia's WTO 
concessions would be tantamount to ceding to our competitors one of the 
world's fastest growing and attractive markets. Russia is a key 
emerging market for U.S. manufacturers, service providers and farmers. 
It is currently the 10th largest economy in the world, and, with 
current growth trends expected to continue (Russia has had average 
annual GDP of 7% over the last eight years), it may be the 5th largest 
within another decade. Its highly-educated population and vibrant 
consumer sector make it an attractive export market for U.S. value-
added goods and services. U.S. exports to Russia grew 20% in 2006, 
after growing more than 30% in 2005. And while Russia currently does 
not rank among the top U.S. trade partners, companies from high 
technology to services to natural resources to manufacturing see Russia 
as an important part of their global competitiveness strategy.
    For more than a decade, the U.S. has found Russia to be in 
compliance with its Jackson-Vanik commitments regarding freedom of 
emigration. Accordingly, the U.S., by an annual Presidential waiver, 
has extended normal trade relations to Russia on an annual basis. As 
Russia moves closer to full WTO membership, it should be clearer than 
ever that Jackson-Vanik, an outdated measure with no relevance to 
today's Russia, does not advance U.S. interests or its agenda with 
Russia. On the other hand, graduating Russia from Jackson-Vanik and 
granting PNTR to Russia will represent a Congressional vote of 
confidence in U.S. firms, farmers and workers; it will give the U.S. 
business and agricultural communities the green light to compete on an 
equal footing with their European and Asian counterparts in the Russian 
market.
    Finally, USRBC strongly supports Russia's accession to WTO not only 
because of the important market liberalizations that offer 
opportunities to U.S. firms, but also because we understand that the 
U.S. and the global trading system itself can only benefit when one of 
the world's largest economies abides by the rules of the world trading 
system. Adherence to WTO rules will bring more certainty to an often 
uncertain environment which will have ramifications well beyond the 
Russian market.
    Building on the bipartisan spirit you and Ranking Member McCrery 
have demonstrated as this Congress begins, we look forward to engaging 
this Committee in a bipartisan fashion at the appropriate time to 
ensure that the U.S. business community is on a level playing field 
with foreign competitors as Russia accedes to the WTO.
    We thank the Committee once again for this opportunity to share our 
views regarding this important commercial issue, and we look forward to 
working with you.

            Sincerely,

                                                   Eugene K. Lawson
                                                          President



                                 

           Statement of Raymond C. Offenheiser, Oxfam America

    Oxfam believes that trade can be an important engine for 
development and poverty reduction. Well-managed trade has the potential 
to lift millions of people out of poverty. We believe it is important 
that trade agreements, which set the rules for ongoing trade relations, 
work to improve livelihoods and reduce poverty in developing countries.

        1.  Introduction

    The U.S. trade agenda shapes the welfare of people in this country 
as well as across the globe. Conditions of poverty, ill health and lack 
of economic opportunity in developing countries are a human tragedy. 
But they also have implications for America's long-term security and 
prosperity. While U.S. foreign policy seeks to address such problems, 
U.S. trade policy often exacerbates them by imposing hardships on 
developing country farmers, making access to affordable medicines more 
difficult, and constraining the kinds of policies developing country 
governments enact to protect their own citizens. U.S. trade policy can 
and should do much better. Trade rules that serve to strengthen 
developing country economies ultimately help to generate economic 
growth abroad, which will, in turn, increase demand for U.S.-produced 
goods and services and ease the social and political tensions that 
result from economic exclusion.
    U.S. trade policy should therefore have development as a core 
objective and should seek to ensure that trade rules will help reduce 
poverty and inequality. U.S. trade policy in recent years has failed to 
do this in practice, and instead has run at cross-purposes with U.S. 
foreign policy on international development and drug eradication. 
Moreover, non-conformity with certain international trade rules 
generates animosity among our trading partners, as illustrated by the 
Brazilian WTO case that successfully challenged U.S. cotton subsidies, 
and the more recent Canada case challenging U.S. corn subsidies.
    Trade can be an engine for economic growth and poverty reduction, 
but only if the rules actually benefit poor people and developing 
countries. Despite many scholarly attempts to demonstrate a direct 
association between trade liberalization and economic growth, a growing 
consensus is emerging that trade liberalization in and of itself does 
not lead to economic growth. Countries that have benefited from trade 
in their process of industrialization did so with unique combinations 
of policy interventions, macroeconomic stability, investments in human 
capital, and land reform. In most cases, including the United States, 
countries benefited from the combination of selective liberalization 
along with government support.
    Today, however, international trade rules increasingly limit the 
kinds of trade and industrial policies that developing countries can 
implement to promote their own industrialization, while facing 
unprecedented pressures from the United States and other industrialized 
countries to liberalize their own markets. In recent years, the U.S. 
trade agenda has contributed to these burdens in at least three ways.
    First, the U.S. has not complied with certain global trade rules 
while using the WTO's Doha Development Round of negotiations to 
continue pressuring for additional market access from developing 
countries.
    Second, U.S. trade policy in recent years has been designed to spur 
a competition for liberalization, predominantly by engaging small 
developing countries in bilateral or regional trade deals that limit 
their ability to use trade and investment policies to promote 
development. These Free Trade Agreements (FTAs) not only force full and 
radical market openings on developing economies, they also impose far-
reaching rules in areas such as intellectual property and investment 
that give corporations free reign, while limiting the very policies 
developing countries need to fight poverty.
    Third, while pressuring developing countries to open their markets 
to U.S. goods, the United States restricts entry for many key products 
produced by developing countries--particularly agricultural products 
and labor-intensive apparel and textiles. To make matters worse, the 
U.S. continues subsidizing the production of agricultural commodities 
for export that compete directly with those produced by developing 
countries.

        2.  World Trade Organization (WTO) and the Doha Development 
        Round

    In 2001, in the wake of September 11th, the countries of the world 
agreed to launch a new round of trade negotiations under the auspices 
of the World Trade Organization. The round was launched in Doha and 
took the title of the ``Doha Development Agenda'' in recognition of the 
importance of focusing the outcome of this negotiation on the needs of 
developing countries, which have been seeking redress of problems they 
face in trade rules.
    More than five years later, the negotiations are at a standstill 
or, according to latest media reports, possibly reviving, though they 
clearly have a long way to go before conclusion.
    Oxfam's analysis is that the United States and other developed 
countries bear most of the blame for the failure of the Doha Round to 
make progress. To date, the key elements of importance to developing 
countries have yet to be resolved. And developing countries have grown 
understandably skeptical, leading to the emergence of several important 
blocs of countries to promote developing country interests: the G-20, 
the G-33, and the NAMA 11, among others.
    Currently, developed countries capture about 70% of world trade 
flows worth $20.6 trillion, while poor and developing countries 
representing 81% of the world's people_many of them living in extreme 
poverty_get 30%. While the share of developing countries overall has 
been growing, for many of the poorest countries the share of global 
trade flows has actually been shrinking. Africa, in particular, has 
seen its share of trade fall to just 2.6%, while the share of all LDCs 
is below one percent.
    While there are many factors contributing to the increasing 
economic marginalization of poor countries, unfair trade rules play a 
significant role. For example, tariff levels on the products that poor 
countries export_like apparel and agricultural commodities_are higher 
than tariffs on the products that dominate developed economies' 
exports. Trade rules also permit developed countries to use grossly 
unfair agriculture subsidies that distort trade and result in dumping 
of agricultural products on developing countries' markets.
    The Doha Round offers the opportunity to address these concerns, 
although it has not yet done so sufficiently. The current state-of-play 
demonstrates:

          Little to no progress on agricultural dumping, except 
        for the proposed elimination of export subsidies, which are now 
        a marginal part of the total subsidy arsenal of developed 
        countries.
          Bigger demands on developing countries to open up 
        their markets than during the previous round, with strong 
        adverse implications on vulnerable livelihoods in most 
        developing countries in the agricultural and industrial 
        sectors.
          Little improvement in market access for developing 
        countries in agriculture and industry due to proposed 
        exemptions, and little progress on non-tariff barriers.

    Oxfam strongly believes that multilateral negotiations are the best 
forum to address these concerns. Most economic analysis shows that the 
benefits for all players are much higher from producing global 
agreements than from regional or bilateral agreements.
    But the U.S. negotiating posture has been highly mercantilist, 
failing to recognize our longer-term interest in robust economic growth 
in developing countries. The evidence is strong that U.S. exporters 
benefit from strong growth in developing countries, which need 
flexibility to determine for themselves how and when they open up their 
markets. However, U.S. demands for greater market access risk 
increasing poverty and wreaking damage to many developing countries 
with high levels of poverty and inequality. The U.S. should stop 
treating development issues as concessions rather than as critical 
components of a development-friendly agreement.

        3.  Free Trade Agreements (FTAs)

    The FTAs negotiated under the current Trade Promotion Authority 
(TPA) require accelerated trade liberalization with little regard to a 
country's level of development or economic vulnerability. In addition, 
these FTAs require extensive intellectual property and investment 
protections that limit the policy options developing countries need to 
effectively govern their economies. In many cases, our trading partners 
have agreed to FTAs because they feared losing access to U.S. markets 
that had been provided as part of long-standing regional trade 
programs. The negotiating pressure of withdrawing market access for 
Central American and Andean countries induced them to agree to measures 
in the FTAs that are contrary to their interests in development and 
poverty reduction.

    3.1 Agricultural trade

    Under FTA rules on agriculture, developing countries are granted no 
special treatment to address their development needs. Yet since the 
founding of the GATT over 50 years ago, it has been a principle of the 
multilateral trading system that developing countries need not grant 
reciprocal commitments to reduce or remove tariffs and non-tariff 
barriers to trade. This basic principle was enshrined in the WTO under 
the rubric of Special and Differential Treatment, which recognizes 
important existing asymmetries between developed and developing 
countries and permits the latter to forgo making concessions similar to 
those expected from the former.
    Yet consider the situations that Peru and Colombia will face as a 
result of their FTAs, which allow extensive U.S. domestic agricultural 
supports and subsidies that enable U.S. products to be exported below 
their cost of production. These countries will be forced to eliminate 
their price-band system, which stabilizes prices of sensitive products 
and protects them from the trade-distorting effects of U.S. subsidies. 
Furthermore, the agricultural safeguard mechanism included in the FTAs 
is weak and temporary and can only be used for a limited number of 
goods, rendering it ineffective to protect vulnerable farmers.
    Furthermore, Peru and Colombia were not able to exclude any 
products from tariff elimination, yet the U.S. excluded 47 tariff lines 
for sugar, sugar substitutes and products with high sugar content. The 
U.S. was also granted a special mechanism for sugar compensation, 
allowing greater policy flexibility to avoid imports causing damage to 
our domestic producers. Such policy flexibility is not at all available 
to Peru and Colombia. In addition, although longer tariff elimination 
periods were granted for some of their products, duty-free quotas 
beginning immediately will offset advantages that such delays in tariff 
reductions might provide to cushion impacts on their farmers.
    Thus, these FTAs dismantle mechanisms for the protection of 
agricultural products vital for food security and the livelihoods of 
small farmers who produce for their domestic markets, leaving them with 
few options for preserving their income. In Peru and Colombia, where 
half the population lives in poverty, the majority in rural areas, the 
lack of employment alternatives, limited access to credit, lack of 
basic services, adverse climatic conditions and geographic isolation 
further compound the problems facing displaced farmers. Farmers in 
these countries are in a vulnerable position and could face pressure to 
turn to the cultivation of coca in a region that provides more than 98 
per cent of world supply, thereby undermining U.S. drug policy and 
billions of taxpayer dollars invested to reduce the supply of cocaine.

    3.2 Intellectual property rules and access to medicines

    U.S. trade policy also hurts development abroad by raising the cost 
of essential medicines to populations already facing hardships. In TPA 
Sec. 2102(b)(4)(C), the U.S. Congress instructed USTR to ``ensure that 
future trade agreements respect the Declaration on the TRIPS [Trade 
Related Aspects on Intellectual Property Rights] Agreement and Public 
Health,'' adopted by the WTO at its Fourth Ministerial Conference on 
November 14, 2001. This Declaration affirmed the primacy of public 
health over intellectual property rules and was motivated by profound 
concerns that such rules could limit access to medicines in developing 
countries.
    Yet new intellectual property rules in FTAs extend the monopoly 
rights of the international pharmaceutical industry, restricting or 
delaying generic competition and reducing access to affordable new 
medicines in developing countries. In most developing countries, 
national health-care budgets are deficient and the majority of people 
lack insurance and must pay for medicines out-of-pocket. In particular, 
U.S. FTAs include the following rules, which exceed commitments 
established in the TRIPS Agreement and will lead to price increases for 
newer medicines in developing countries:
    Extension of the patent terms: Provisions extend patent protection 
beyond the 20 years established in the TRIPS Agreement to compensate 
for delays in granting the patent and in granting marketing approval. 
These measures exceed even U.S. law, which includes limitations to 
ensure that the product is a truly novel medicine and which put a 
ceiling on the extension period.
    Exclusive use of test data: Provisions create a new system of 
monopoly power, separate from patents, by blocking the marketing 
approval of generic medicines for five or more years, even when no 
patent exists. Drug regulatory authorities are prevented from using the 
clinical trial data of the patented medicine to approve the marketing 
of a generic drug that has already been shown to be equivalent to the 
original one, thereby delaying or preventing generic competition. The 
TRIPS Agreement protects only ``undisclosed data'' to prevent ``unfair 
commercial use'' it does not confer either exclusive rights or a period 
of marketing monopoly.
    Linkage between marketing approval and patent status: Drug 
regulatory authorities are prohibited from registering generic versions 
of medicines until after the patent has expired, with no exceptions. 
Thus, these public agencies charged with verifying a medicine's safety 
and efficacy would have to become a sort of ``patent police'' with the 
burden of enforcing private property rights, instead of leaving the 
patent owner with the responsibility of using the judicial system to 
that end. Unlike U.S. law, the FTAs do not include any measures to 
ensure timely resolution of patent disputes when generics producers 
challenge such patents, resulting in de facto patent extension.

    3.3 Investment rules

    The investment chapters in FTAs prevent developing country 
governments from regulating foreign investment once it enters the 
country and ban the use of all ``performance requirements.'' These 
rules prevent governments from screening foreign investment to ensure 
it contributes to the development needs of their economies. Investment 
provisions in FTAs also prohibit governments from requiring foreign 
companies to transfer technology, train local workers, or source inputs 
locally. Additionally, they restrict the ability of governments to 
regulate capital flows, thereby exposing fragile developing country 
economies to undue financial risks. Under such conditions, as seen with 
NAFTA for example, investment fails to support the domestic economy to 
the fullest extent possible by creating jobs that provide decent 
employment conditions and wages. These goals are critical to ensuring 
that the livelihoods of the poor are improved in countries that enter 
into an FTA with the United States.
    Investment rules in FTAs also allow foreign investors to sue 
governments for passing laws that investors believe could restrict 
their ability to profit from their investment. This has the potential 
to restrict governments from upholding their responsibility to enact 
and enforce regulations that ensure the well-being of their citizens, 
such as measures to protect health, safety, the environment, and 
workers' rights. Through the investor-state dispute settlement system, 
private investors can challenge the legality of such laws and, in so 
doing, undermine the ability of developing countries to balance private 
interests and public rights. The impact of U.S. efforts to foster 
development is vastly diluted by the enactment of these provisions, 
which are harmful not only to development and poverty-reduction, but 
also to democracy.

    3.4 Recommendations: Pro-development rules are needed

    U.S. trade agreements with countries that have high levels of 
poverty must allow for special and differential treatment in 
agricultural market access in order to enable developing country 
governments to enact policies that ensure food and livelihood security 
and promote rural development. For example, developing countries should 
be allowed to exclude sensitive products from tariff elimination and 
establish more gradual market openings. Until the U.S. fully eliminates 
trade-distorting domestic supports and subsidies, trade agreements must 
allow developing countries to use a price-band system or other tariff 
mechanism that will serve to compensate for the effects of these 
subsidies. Furthermore, there should be an agricultural safeguard 
mechanism that can be triggered by changes in price, can be applied to 
all sensitive products even after tariffs are fully phased out--as is 
being negotiated as part of the WTO Doha Round, and does not prohibit 
use of the WTO safeguard mechanism.
    Intellectual property rules in trade agreements should eliminate 
those patent and related provisions that restrict or delay generic 
competition and exceed the rules established in the TRIPS Agreement. 
Trade agreements must respect the Doha Declaration on the TRIPS 
Agreement and Public Health and enable developing countries to make 
full use of safeguards to ensure the primacy of public health over 
patent rights. Outside of FTAs, the USTR should not exert pressure on 
developing countries that enact and use public health safeguards to 
reduce the price of medicines, and should stop employing the Special 
301 Review Process to force developing countries to implement 
intellectual property standards that exceed their obligations under 
TRIPS. Furthermore, the U.S. should not use other trade negotiation 
venues, including the WTO Accessions Process and the TRIPS Council, to 
impose stricter intellectual property rules on some of the world's 
poorest countries.
    Investment rules in trade agreements should not restrict the right 
of governments to impose capital controls on foreign investment and 
performance requirements that encourage joint ventures, technology 
transfer, and local sourcing. Furthermore, dispute settlement 
mechanisms should not give greater rights to foreign investors than the 
rights conferred to national investors. International arbitration 
should only be available to foreign investors after exhausting all 
options for resolution through national judicial systems, and only for 
compensation for ``direct expropriation'' by a government.

        4.  Trade Preference Programs

    U.S. trade preference programs have for decades provided important 
duty-free market access to developing countries, which have used these 
benefits to build businesses, create jobs, and gain export earnings. 
Indisputably, these programs have contributed to improving the 
livelihoods of many people through the jobs they have created. At the 
same time, however, U.S. preference programs could be further improved 
to have an even greater impact on reducing poverty and improving 
livelihoods in developing countries.
    First, U.S. preferences should be made permanent. Since U.S. 
preference programs are temporary in nature, their potential revocation 
means that investors, local businesses, governments, and workers cannot 
be positive that duty-free benefits will continue into the future. This 
level of uncertainty can have a chilling effect in terms of attracting 
new investment into developing countries. By making its preference 
programs permanent, the U.S. would send a strong signal that it is 
committed to increasing the share of developing countries in world 
trade. The programs should maintain their conditionality requirements, 
as well as the petition process to challenge a country's eligibility if 
it fails to comply with these conditions. However, making preference 
programs permanent would increase their potential to contribute to 
economic growth and poverty reduction in developing countries.
    Second, the eligibility criteria that countries must meet in order 
to receive duty-free benefits should be strengthened, so that these 
programs contribute more to improving workers' rights as well as 
transparency and governance in developing countries. Countries should 
be required to comply with core International Labor Organization 
conventions, including employment and occupation discrimination, which 
is presently omitted from current eligibility criteria. Moreover, 
eligibility criteria pertaining to good governance, anti-corruption 
efforts and respect for human rights need to be strictly and 
consistently applied. Special attention should be paid to the issues of 
corruption and mismanagement that are all too prevalent in countries 
rich in natural resources (e.g., oil, gold, diamonds, other precious 
minerals and timber). In these cases, eligibility criteria should 
include the existence of systems designed to transparently publish 
revenues received from these natural resources, as well as key terms of 
contracts between private companies and the state for the development 
of such resources. Such transparency measures, in line with U.S. 
support for the Extractive Industries Transparency Initiative, would 
increase the ability of citizens to monitor the use of government 
revenues derived from extractive industries.
    Third, the list of products covered by U.S. preferences should be 
expanded so that developing countries can better utilize the programs, 
particularly in agriculture. Because several important products are 
excluded from eligibility, countries that produce these goods are 
unable to benefit from U.S. preferences.
    Finally, many poor countries face capacity problems that prevent 
them from being able to benefit from trade. Trade capacity building 
assistance can help overcome these constraints, providing economic aid 
that enables countries to use trade as an engine for growth. Trade 
capacity building can include enhancing worker skills, modernizing 
customs systems, building roads and ports, improving agricultural 
productivity and export diversification. However, such assistance 
should be recipient-driven, additional to existing development aid, 
free of economic conditions, adequate, predictable, and complementary 
to_and not a substitute for_better and fairer trade rules. While trade 
capacity building is important, particularly for the poorest countries, 
it does not equal development, and it cannot compensate for the adverse 
effects of bad trade deals on a country's national development and 
poverty eradication efforts. The U.S. should do a better job of 
providing trade capacity building in a manner that is transparent, 
well-coordinated, and consistent with recipient countries' development 
strategies.

        5.  Presidential Trade Negotiating Authority

    Oxfam believes that strengthening multilateralism is central to 
global governance, as international cooperation is necessary to address 
the challenges of poverty, inequality, unemployment and environmental 
destruction in an increasingly more interdependent world. While the WTO 
needs reform, multilateral cooperation remains fundamental to ensure 
that trade can reach its potential as an engine for development and 
poverty reduction.
    In order to complete the WTO's Doha Development Round of 
negotiations, Congress will need to grant new negotiating authority to 
the President. Yet progress on substance must come first. An extension 
of presidential negotiating authority will not lead to conclusion of 
the Doha Round if there is not the political will to do what is 
necessary to reach agreement. To that end, G7 countries, including the 
United States, must put significant new offers on the table before 
negotiations can be successfully concluded so that developing countries 
are able to realize the gains from trade they have long been promised 
in the multilateral trading system.
    In any case, trade negotiating authority should not be extended to 
continue with a policy of ``competition for liberalization'' as has 
been done during the last five years. For developing countries, 
particularly the poorest countries, U.S. trade objectives should 
incorporate broad-based economic growth, poverty reduction, and 
stability, rather than a blind focus on market access and U.S. market 
share.
    Oxfam believes that a new framework of objectives and priorities is 
needed for Congress to grant presidential trade negotiating authority, 
ensuring that trade policy is not a tool strictly for advancing U.S. 
business interests, but for shared prosperity, increased integration, 
and cooperation. Trade should be a means to further broad-based growth, 
development and poverty reduction, and is not an end in and of itself. 
U.S. trade can and will continue to grow without renewal of 
presidential trade negotiating authority.
    Congress must now ensure that U.S. trade policy is strategically 
focused on spreading the benefits of trade as broadly as possible, in 
the developing world as well as in the United States, instead of simply 
seeking to expand the volume of U.S. trade. In this context, any future 
presidential trade negotiating authority should:

          Give priority to the multilateral, rules-based 
        trading system that addresses the development needs of poor 
        countries;
          Make all negotiations transparent and open to the 
        public, ensuring a more balanced representation by public 
        interest groups on USTR advisory boards as a counterweight to 
        special business interests;
          Ensure that all trade agreements are accompanied by 
        adequate mechanisms and resources to address the problems of 
        those adversely affected by trade, both in the U.S. and in our 
        trading partners;
          Take into account the asymmetric conditions between 
        the U.S. and our developing country trading partners and ensure 
        that any burdens resulting from new trade agreements are 
        lighter for countries with higher poverty rates and lower 
        levels of development;
          Ensure that all trading partners recognize and 
        enforce international labor and environmental conventions;
          Retain a role for Congress in decision-making over 
        which trading partners to engage and over the parameters of the 
        content of negotiations;
          Exclude from trade agreements any further expansion 
        of intellectual property protections for pharmaceuticals beyond 
        the rules established by TRIPS and re-affirmed in the Doha 
        Declaration on the TRIPS Agreement and Public Health;
          Guarantee that investment rules do not grant greater 
        rights to foreign investors than to domestic investors, 
        undermine national judicial systems, or curtail the ability of 
        governments to make effective policy decisions to protect the 
        public interest and promote national development.

    U.S. trade policy should promote a new set of rules that recognize 
that the welfare of people in the United States is inextricably linked 
with the well-being of people across the globe. Such rules should seek 
to ensure that the benefits from trade are more broadly shared and to 
reverse the trend of increasing inequality that has led to greater 
exclusion in the global economy.




                                 

 Statement of Peruvian Asparagus Importers Association, Philadelphia, 
                              Pennsylvania

    This statement is submitted on behalf of the Peruvian Asparagus 
Importers Association (PAIA). PAIA is a not-for-profit association of 
25 U.S. companies that earn a living by importing fresh asparagus from 
Peru.\1\ Fostering the development of the Peruvian asparagus industry 
has been a true success of U.S. trade policy, and one that has 
maximized the benefits of globalization to both Peru and to workers and 
consumers in the United States, while minimizing--though not 
eliminating--its costs. The successes generated by this policy to date 
can be extended through the passage of the Peru Trade Promotion 
Agreement (PTPA), which has already been ratified by the Peruvian 
Congress and whose approval by the U.S. Congress is pending. Similarly, 
if the opportunity to pass the PTPA is lost and existing trade 
preferences expire, both the U.S. and Peruvian economies will suffer 
significant negative effects.
---------------------------------------------------------------------------
    \1\ The member-companies of PAIA are: Altar Produce Inc.; Alpine 
Fresh; AYCO Farms Inc.; Chestnut Hill Farms; CarbAmericas Inc.; Central 
American Produce Inc.; Contel Fresh Inc.; Crystal Valley Foods; Dole 
Fresh Vegetables Inc.; Fru-Veg Marketing Inc.; Globalex Inc.; Gourmet 
Trading Company; Jacobs Malcolm & Burtt; Mission Produce Inc.; North 
Bay Produce; Pro-Act LLC; Rosemont Farms Corporation; Southern 
Specialties; Team Produce International; Triton International; Yes 
Fresh, LLC; AL-FLEX Exterminators; Customized Brokers; Hellmann 
Perishable Logistics ; and The Perishable Specialist, Inc.
---------------------------------------------------------------------------
    The fact that the U.S. market is already largely open to imports 
from Peru means that the PTPA would essentially make permanent the 
existing Andean trade preferences, an important step for the economies 
of the United States and Peru, as detailed herein. On the other hand, 
the most significant change in the current trading relationship between 
the United States and Peru resulting from the PTPA would be the opening 
of the Peruvian market to exports from the United States. This is an 
important factor to consider when evaluating the likely effects of the 
PTPA on the U.S. economy, and argues for the PTPA to be considered on 
its own merits. A range of U.S industries would benefit. For example, 
according to the USTR, more than two-thirds of current U.S. 
agricultural exports to Peru will immediately become duty free as they 
enter the Peruvian market. In addition to eliminating often significant 
rates of duty, the PTPA would remedy a range of non-tariff barriers 
that have hindered exports from the United States to date.
    The overall effect on U.S. exports could be similar to that 
experienced as a result of the U.S.-Chile Free Trade Agreement (FTA). 
According to the USTR, U.S. exports to Chile increased by 90 percent 
due to this agreement, from $2.7 billion in 2003 to $5.2 billion in 
2005. Significant increases in exports were noted in sophisticated 
machinery, vehicles, and parts. We understand that exports to Chile 
from one U.S. firm, Caterpillar, doubled after the implementation of 
the U.S.-Chile FTA. Anticipating benefits of this nature, many U.S. 
industry groups have voiced their support for the PTPA, including the 
National Pork Producers Council, the American Electronics Association, 
the Distilled Spirits Council of the United States, the Grocery 
Manufacturers Association, the National Council of Textile 
Organizations and the National Cotton Council.

    I. U.S. trade policy on imports of asparagus from Peru has 
benefited both the United States and Peru

    PAIA's particular area of interest in the larger context of U.S. 
trade policy is the trade between the United States and Peru in fresh 
asparagus. Under the Andean Trade Preference Act (ATPA) and its 
successor, the Andean Trade Promotion and Drug Eradication Act 
(ATPDEA), imports of fresh asparagus from Peru have been accorded duty-
free treatment since 1992.\2\ For the future, PAIA strongly supports 
the actions of U.S. and Peruvian negotiators to maintain this duty-free 
treatment for imports of fresh asparagus under the terms of the Peru 
Trade Promotion Agreement (PTPA), and urges the Congress to implement 
this agreement as soon as possible.
---------------------------------------------------------------------------
    \2\ The ATPDEA was scheduled to expire as of December 31, 2006, but 
this program has been extended for at least another six months. We note 
that imports of fresh or chilled asparagus from Peru are not currently 
subject to duty-free treatment under the Generalized System of 
Preferences.
---------------------------------------------------------------------------
    The U.S. policy of providing duty-free treatment to imports of 
fresh asparagus from Peru, which has been in effect since 1992, has 
resulted in pronounced economic benefits in the United States as well 
as Peru. As we discuss further in these comments, U.S. consumers, U.S. 
importing companies, U.S. distributors, U.S. transportation companies, 
and the many other companies in the domestic commercial chain have 
benefited as the Peruvian industry has matured and U.S. imports of 
fresh asparagus have grown. In addition to the growers and exporters in 
Peru, the Peruvian economy and the thousands of people in Peru whose 
livelihood is dependent on trade with the United States receive a 
benefit from this trade policy.
    Unless this policy is continued by implementing the PTPA, millions 
of dollars in U.S.-Peru trade in asparagus and other crops, as well as 
thousands of jobs in Peru, could be lost. Such losses would be 
devastating for Peru, a country that has: witnessed remarkable market-
led growth in recent years, and has been a strong regional ally of the 
United States against populist leaders such as Hugo Chavez as well as a 
solid partner of the U.S. in the war on drugs. Reversal of the current 
trade policy with Peru by failure to implement the free trade agreement 
would put all of these gains in jeopardy.

    II. Economic Benefits to U.S. Workers, Businesses, and Communities 
of the U.S.-Peru Trade in Asparagus

    Peru is the world's largest exporter of asparagus,\3\ and that crop 
stands squarely at the heart of a dynamic agroexport sector in Peru.\4\ 
As the U.S. International Trade Commission (ITC) has noted in its 
reports on the ATPA, asparagus is a perennial crop that requires 
substantial long-term investment. Peru's exceptional climate 
conditions, its favorable geographic location, and the advances made by 
Peru in its management of water supply for irrigation, has enabled the 
country to achieve the highest asparagus crop yields in the world.\5\ 
In turn, the asparagus-growing industry in Peru is estimated to employ 
nearly 60,000 people,\6\ and has enabled regions of the country--such 
as Ica and La Libertad--to become models of economic development and 
engines of job creation. Of these sixty thousand jobs, roughly half are 
held by women, the primary breadwinners in many Peruvian households. 
The trickle down effects of this industry on tens of thousands of 
Peruvians and their families are helping to reduce poverty and raise 
living standards. The Asociacion de Gremios Productores y 
Agroexportadores del Peru (AGAP)--Peruvian Coalition of Agro export 
Associations--estimates that the Peruvian agro export chain as a whole 
has generated 600,000 jobs, three times more than were generated in 
traditional agriculture sectors.\7\
---------------------------------------------------------------------------
    \3\ World Horticultural Trade & U.S. Export Opportunities: World 
Asparagus Situation & Outlook, Foreign Agricultural Service, U.S. 
Department of Agriculture (August 2005) at 1 (data provided for 2004). 
The United States ``is Peru's top market, accounting for 75 percent of 
Peru's fresh asparagus exports in 2004.'' Id. at 3
    \4\  World Horticultural Trade & U.S. Export Opportunities: World 
Asparagus Situation & Outlook, Foreign Agricultural Service, U.S. 
Department of Agriculture (July 2004) at 2 (``In 2003, asparagus became 
Peru's leading agricultural export, valued at a record $206 million, 
bumping coffee to second place.'').
    \5\  The Impact of the Andean Trade Preference Act: Eleventh Report 
2004, Inv. No. 332-352, USITC Pub. 3803 (September 2005) at 2-20.
    \6\  Id. at 3-14.
    \7\  See Improving Competitiveness and Market Access for 
Agricultural Exports Through the Development and Application of Food 
Safety and Quality Standards: The Example of Peruvian Asparagus, A 
Report by the Agricultural Health and Food Safety Program of the Inter-
American Institute for Cooperation on Agriculture (IICA), Tim M. 
O'Brien and Alejandra Diaz Rodriguez (July 2004) at 4-5.
       AGAP discussed this finding in a report that it presented 
earlier this year to the Technical orking Group for the PTPA from the 
Congressional Agricultural Commission in Peru. AGAP's president, Felipe 
Llona Malaga, explained that the high level of employment generated in 
the agroexport sector is concentrated in crops including asparagus, 
artichokes, paprika, onions, grapes, and garlic, particularly in the 
provinces of Lima, Ica, Piura, La Libertad, and others.
---------------------------------------------------------------------------
    While the Peruvian asparagus industry has created tangible economic 
benefits in that country, the U.S. has also derived a significant 
economic benefit from this trade. The vast majority of the value chain 
generated by sales of Peruvian asparagus in this market remains in this 
country. For example, PAIA estimates that the value chain for fresh 
Peruvian asparagus imports is worth between $260 million and $285 
million. Of that total, approximately 70 percent remained in U.S. 
hands, including air, sea and land carriers, importers, ports, storage 
facilities, distributors, wholesalers and retailers. In other words, 
for every dollar spent by a U.S. consumer on fresh asparagus imported 
from Peru, 70 cents remains in the U.S. In addition, imports of fresh 
asparagus from Peru fuel job creation in the United States. PAIA 
estimates that aside from the several hundred persons employed or 
indirectly involved in the process of importing fresh asparagus imports 
from Peru, these imports result directly or indirectly in the creation 
of at least 5,000 U.S. jobs in companies throughout the commercial 
chain.
    Furthermore, of the roughly 30 percent of the value chain in fresh 
and processed asparagus that do remain in Peruvian hands, a large 
portion is invested in U.S. inputs including: (1) asparagus seeds 
purchased from U.S. suppliers such as California Asparagus Seeds; Stacy 
Seeds; and Jacobs Malcolm and Burtt; (2) glass jars used in canned 
asparagus by a local branch of Ohio-based Owens Illinois; (3) and 
fertilizers (Peruvian agriculture used approximately $40 million worth 
of U.S. fertilizers) and pesticides.\8\
---------------------------------------------------------------------------
    \8\  Transcript of hearing before the United States International 
Trade Commission: In the Matter of: U.S.-Peru Trade Promotion 
Agreement: Potential Economywide and Selected Sectoral Effects, 
Investigation No. TA-2104-20 (March 15, 2006) at 33-35.
       For example, in 2003 (the last full year for which the complete 
set of following data are available), the fob value of Peruvian fresh 
asparagus exports to the U.S. was approximately $78.5 million. The 
comparable cif value was $132.7 million. The value that accrued to 
importers was approximately $20 million, while the value that accrued 
to wholesalers and retailers was approximately $90 million. In 
addition, other value-added in the U.S. (e.g., for storage, fumigation, 
etc.) totaled approximately $15 million. These sub-totals sum to $258 
million, which represents the approximate retail value of fresh 
asparagus imports from Peru sold off the U.S. supermarket shelves. In 
other words, approximately 30 percent of that end-value ($78.5 million 
out of $258 million) remains in Peruvian hands, while the remainder 
($179.5 million out of $258 million) remains here in the United States.
       Sources: Aduanas (National Customs Superintendancy of Peru); 
U.S. International Trade Commission Trade DataWeb; estimates by APOYO 
Consultoria, and the Instituto Peruano del Esparrago y Hortalizas 
(IPEH).
---------------------------------------------------------------------------
    While labor costs in Peru are lower than in the United States, 
Peruvian asparagus must contend with high freight costs (ex: the air 
freight cost for an 11 lb. box of fresh asparagus represents between 40 
to 45% of the overall cost of production). As of 2005, these costs 
increased from the traditional $0.85 per kilogram to $1.25/kg. 
Additionally, exporters bear costs associated with U.S. customs brokers 
ensuring compliance with the Bioterrorism Act and pre-notice 
requirements (about $10 to $15 per shipment). Conservative calculations 
of total freight costs paid annually for asparagus exports from Peru to 
the U.S., using mostly U.S. airlines and shipping companies, were $71 
million in 2005.
    Finally, while Peru's U.S. exports have increased, the availability 
of asparagus at competitive prices in Peru and the development of U.S.-
Peruvian joint ventures in Peru have also helped U.S. vegetable 
companies such as General Mills (Green Giant) and Del Monte to survive 
in a competitive global market.

    III. Peruvian Asparagus Imports are Counterseasonal to U.S. 
Asparagus Production, which Reduces Direct Competition between U.S. 
Farmers and Peruvian Exporters

    Imports of fresh asparagus from Peru also serve a U.S. market 
demand that cannot be met by domestic growers alone. The most important 
factor here is that imports of fresh asparagus from Peru are largely 
counter-seasonal to the U.S. crop. As the ITC has noted, historically, 
the season for U.S. production has differed somewhat from that of most 
imports from ATPA countries, with the bulk of fresh asparagus imports 
from ATPA countries entered during July through the following January 
when overall U.S. production is low.\9\
---------------------------------------------------------------------------
    \9\  The Impact of the Andean Trade Preference Act: Eleventh Report 
2004, USITC Pub. 3803 at 3-12.
---------------------------------------------------------------------------
    According to official U.S. import statistics for 2005, 85 percent 
of total fresh asparagus imports from Peru entered the United States 
during the months of July through January; only 15 percent entered 
during the remainder of the year (February through June). In contrast, 
the peak production period for U.S.-grown fresh asparagus is February 
through June; therefore, all or nearly all U.S. production occurs 
during a period when the level of imports from Peru is minimal.
    This is not to say that there are no imports of fresh asparagus 
from Peru present in the U.S. market during the peak production period 
for the U.S. crop; as referenced above, imports of Peru during the 
February-June period represent 15 percent of total annual imports from 
that country, or approximately 9,794 net tons (2005 data). However, 
even in this period, imports from Peru largely complement, rather than 
supplant, the U.S. crop. The vast majority of fresh asparagus imports 
from Peru enter the United States through the Port of Miami,\10\ and 
are sold primarily in East Coast markets. Because of the distances 
involved and the high costs for transportation, most of the fresh 
asparagus produced in California and Washington is sold in West Coast 
and Southwest markets.
---------------------------------------------------------------------------
    \10\  In 2005, 89 percent of imports of fresh asparagus from Peru 
entered the U.S. through the Port of Miami. Source: U.S. International 
Trade Commission Trade DataWeb (subheadings 0709.20.1000 and 
0709.20.9000, HTSUS), by quantity.
---------------------------------------------------------------------------
    Therefore, even to the extent that there is some degree of overlap 
between the U.S. production period and imports from Peru, direct 
competition between these sources is reduced. Most of the imports from 
Peru that enter the United States during the February through June 
period are marketed in the East Coast and southeast United States 
regions. Indeed, the advent of year-round availability of fresh 
asparagus thanks to imports from Peru has allowed U.S. consumers in 
large geographic portions of the country to gain access to this product 
at times when supply would simply not exist from U.S. growers, such as 
Thanksgiving and the year-end holidays. This is one reason why per 
capita consumption of asparagus in the United States has doubled in the 
last decade alone, exceeding the rate of growth exhibited by nearly all 
other fruits and vegetables. As the ITC recently stated, the impact of 
ATPA on U.S. consumers has been significant in that imports of Peruvian 
fresh-market asparagus, together with Mexican exports and U.S. 
production, have resulted in greater availability of fresh asparagus 
throughout the year. This extended availability of fresh-market 
asparagus, together with the overall consumer awareness of, and 
preference for, healthy foods, may be partly responsible for higher per 
capita annual consumption of fresh asparagus in recent years.\11\
---------------------------------------------------------------------------
    \11\  The Impact of the Andean Trade Preference Act: Eleventh 
Report 2004, USITC Pub. 3803 at 3-12-14.
---------------------------------------------------------------------------
    Notwithstanding the seasonality and regionality aspects of supply 
and consumption discussed above, the fundamental fact is that since at 
least 1998, U.S. consumption of fresh asparagus has outpaced U.S. 
supply.\12\ Imports are necessary to meet demand in the United States. 
In the absence of import sources--meaning, specifically, imports from 
Peru and Mexico--domestic production would be woefully inadequate to 
meet U.S. consumer demand. This would inevitably lead to a jump in 
prices, to the detriment of U.S. consumers, and eventually a drop in 
consumption, to the detriment of U.S. producers. While domestic 
production of fresh asparagus may have declined in recent years,\13\ 
the decline would surely accelerate in coming years in the absence of 
reliable import supply.
---------------------------------------------------------------------------
    \12\  Total imports accounted for approximately 60 percent of the 
U.S. market for fresh asparagus in 2004. U.S. imports from Peru 
accounted for approximately 60 percent of total imports in 2004, as 
well. See also U.S. Department of Agriculture FATUS data (http://
www.fas.usda.gov/ustrade/). Consequently, Peru's share of the U.S. 
market was about 36 percent (compared to about 40 percent accounted for 
by domestic production).
       Indeed, the quantity of domestic production in 2004 was 
approximately 87,000 net tons, which exceeded the volume of imports 
from Peru that year (61,123 net tons) by 42 percent. About one-fourth 
of domestic production, or approximately 22,000 net tons, was exported.
    \13\  According to the Commission's most recent report on the 
impact of the ATPA, domestic production of fresh asparagus declined 4 
percent from 2003 to 2004, from 119.4 million pounds to 115 million 
pounds. However, the value of domestic production increased by 10 
percent over that period, from $136.7 million to 150.4 million. The 
Impact of the Andean Trade Preference Act: Eleventh Report 2004, USITC 
Pub. 3803 at 3-12.

    IV. Asparagus and Other Agroexports as a Weapon Against 
---------------------------------------------------------------------------
Narcoterrorism

    The intention of the ATPA was to spur the development of 
alternative industries to assist Peru and other Andean countries in the 
War Against Drugs; and the struggle against guerrillas and terrorist 
organizations dependent on the illegal coca trade for funding. In this 
regard, U.S. trade policy has succeeded. Thanks to the ATPA and the 
vision of U.S. policymakers, the Peruvian asparagus and a number of 
other industries were able to blossom starting in the early 1990's. 
These industries have helped Peru to sustain some of the highest growth 
rates in Latin America, have provided employment for hundreds of 
thousands of Peruvians, and have helped reduce poverty levels. Just 
recently, for example, the former Peruvian Prime Minister, Pedro Pablo 
Kuczynski announced that extreme poverty has been reduced from 24% to 
18% between 2001 and 2005. It is estimated that nearly 1 million jobs 
in Peru are dependent on trade with the United States, most of which is 
covered by the ATPA program.
    As stated earlier the Peruvian agro-export chain has generated 
approximately 600,000 jobs. 10%, or 60,000 of these jobs are held by 
workers in Peru's asparagus industry. The Peruvian Asparagus and 
Vegetables Institute (IPEH) estimates that nearly 40% of the workers in 
the asparagus industry come from areas that formerly supplied workers 
to illegal coca cultivation. Asparagus has been a model for other 
agroexport industries and their growth is having a multiplier effect in 
terms of their impact on trade, job creation in both countries, reduced 
illegal coca cultivation, and reduction of poverty in Peru. Peru's 
paprika industry, for example, has enjoyed export growth of 88% from 
2004 to 2005, making Peru now the top world exporter of paprika, an 
industry which employs 15,000 Peruvians. Another successful example is 
the Peruvian artichoke industry, which has increased exports by 100% 
from 2004 to 2005, and also employs about 15,000 workers.
    It is clear, therefore, that the ATPA-spurred industries such as 
asparagus have had a positive impact in the war against drugs in Peru. 
Coinciding with the rise in asparagus production, from 1995 to 2004, 
the ITC reported that coca cultivation decreased dramatically, from 
115,300 hectares to 27,500 hectares in 2004. While this figure 
increased to 38,000 hectares in 2005, the overall decrease remains 
dramatic, and government coca-eradication efforts remain in effect. The 
decrease in coca production in Peru helps to reduce the presence of 
drugs in U.S. communities. These successful eradication efforts have 
also helped Peru to combat the terrorist guerrillas such as Shining 
Path that are financed by proceeds from drug trafficking. The PTPA will 
help consolidate these gains against the scourge that the illegal drug 
trade has represented for both countries.

    V. Peru TPA and Labor Standards

    In addition to Peru's compliance with ILO's core labor standards 
and the labor rights provided by the country's constitution, the 
asparagus and vegetables industry has implemented best labor practice 
programs (Buenas Practicas Laborales--BPL) to ensure that the industry 
is engaged in the creation of a healthy and safe work environment. The 
Peruvian asparagus and vegetables industry is also committed to help 
build schools and health facilities that will contribute to improved 
living standards for their workers, their families, and the rural 
communities where they live.
    The growth of agroexports in Peru has been such that in parts of 
Peru such as Ica and La Libertad there is full employment year round 
and extreme poverty has been reduced by an astounding 36% comparable to 
levels experienced nationwide by countries such as Chile. Workers in 
these industries make wages of between $5 and $7 per day which is 
considered a good salary by Peruvian standards.
    Peru has ratified 71 ILO conventions, including the eight ``core 
conventions.'' It has been praised multiple times by the ILO for its 
progress in improving labor laws. In addition to all of the ILO's Core 
Labor Rights Conventions, the PTPA's labor standards exceed those of 
five other previously ratified trade agreements: Jordan, Chile/
Singapore, CAFTA, Bahrain and even the ATPDEA, which does not make ILO 
or national standards mandatory.
    The PTPA goes beyond many other free trade agreements in the 
enforcement of worker rights and dispute resolution. The PTPA-created 
Labor Affairs Council develops public participation in reporting and 
funding to ensure implementation of the agreement and improved 
cooperation and capacity-building mechanisms. Additionally, the PTPA 
holds member countries accountable to effectively enforce existing 
labor laws, under penalty of fines, which are used by the PTPA 
commission to fund projects improving labor right protections. 
Noncompliance results in the formation of an arbitral panel, which may 
fine violating parties up to $15 million per year, and suspend tariff 
benefits to the party complained against if necessary to cover the 
assessment.\14\
---------------------------------------------------------------------------
    \14\  Peru Trade Promotion Agreement, Chapter Twenty-One: Dispute 
Settlement

---------------------------------------------------------------------------
    VI. Peruvian Asparagus and Environmental Concerns

    Since asparagus cultivation is undertaken almost entirely on 
irrigated desert lands along Peru's coast, the environmental impacts of 
this industry on existing habitats is negligible. In fact, by 
contributing to the successful reduction of coca leaf production in 
biologically sensitive rain forest habitats, the growth of the 
asparagus industry along Peru's arid coast has had, in an indirect 
manner, highly beneficial environmental impacts.
    The growth of the asparagus industry has created a business that is 
a global player and as a result has adopted rigorous international 
standards on environmental management practices and labor standards to 
comply with import requirements in the U.S., the European Union, and 
elsewhere. The Peruvian asparagus industry complies with very exacting 
practices of EUREPGAP and GAP (Good Agricultural Practices) to maintain 
consumer confidence in the quality and safety of its product.

    VII. Conclusion

    U.S. trade policy beginning in 1992 made imports of fresh asparagus 
from Peru eligible for duty-free treatment. This policy has served a 
wide range of economic interests both in the United States and in Peru. 
In the United States, a steady, year-round demand supply of asparagus 
enters the U.S. and satisfies the increased demand for asparagus in the 
U.S that domestic production cannot meet. Asparagus also accounts for 
about 5,000 U.S. jobs in transportation and distribution.
    In Peru, the asparagus industry, thanks to the duty-free access to 
the U.S. market, has been able to fight extreme poverty by employing at 
higher wages than other Peruvian jobs. Asparagus in Peru has also 
indirectly fought coca production and narcoterrorism by providing an 
alternative source of well-paying employment.
    These great changes could not have been possible without the duty-
free access afforded to Peru in the ATPA and ATPDEA. The PTPA is now an 
excellent opportunity to ensure the continued prosperity of these 
industries, and by extension raise living standards in Peru, and ensure 
the continuation of the benefits enjoyed by U.S. consumers and workers 
employed in the asparagus supply chain.











                                 

            Statement of Retail Industry Leaders Association

    The Retail Industry Leaders Association (RILA) appreciates the 
opportunity to submit written comments for today's hearing with United 
States Trade Representative (USTR) Susan Schwab on the direction and 
content of U.S. trade policy. RILA promotes consumer choice and 
economic freedom through public policy and industry operational 
excellence. Our members include the largest and fastest growing 
companies in the retail industry_retailers, product manufacturers, and 
service suppliers_which together account for more than $1.5 trillion in 
annual sales. RILA members provide millions of jobs and operate more 
than 100,000 stores, manufacturing facilities and distribution centers 
domestically and abroad.

    The Successful Completion of the WTO Doha Round Is Essential to 
American Consumers and Businesses

    Continued growth and expansion into new markets is key to America's 
success in the global economy. First and foremost, RILA believes the 
United States should continue to place a priority on the successful 
conclusion of the Doha Round of WTO negotiations, with a particular 
focus on the dual goals of eliminating or reducing tariffs and non-
tariff barriers. As the Committee knows, high tariffs and non-tariff 
barriers prevent U.S. manufacturing, retail, service, and financial 
sectors from expanding into other markets. In addition, these barriers 
place burdens on the U.S. import community which translates into added 
costs for consumers.
    Trade can be a powerful economic force to help people improve their 
standard of living. Trade liberalization raises productivity and real 
wages while expanding consumer choice and purchasing power. The Doha 
Round provides a tremendous opportunity to reduce global tariffs. As 
the Committee seeks to find ways to spread the benefits of trade to all 
segments of society, RILA suggests the elimination of 
disproportionately high tariffs on low-cost items such as footwear and 
clothing.
    Today, U.S. tariffs on consumer goods are regressive; the lowest 
earners pay the highest rates, in percentage terms. Tariffs on some 
products are in the double digits, such as on certain clothing, 
footwear, luggage, dinnerware, and food such as butter and cheese. Some 
of the highest tariffs apply to the types of goods that people of 
modest means tend to buy, and lower duties are imposed on similar 
products that are more often purchased by upper-income individuals. For 
example, tariffs on low-end sneakers range between 48 and 67 percent, 
but tariffs on higher-end sneakers are only 20 percent, and for leather 
dress shoes, the tariff is 8.5 percent. This trade policy forces 
consumers with limited means to pay a greater percentage of their 
disposable income on life's necessities. RILA recommends reducing the 
disproportionately high tariffs on everyday consumer products, and 
recognizes that the Doha Round represents the best opportunity to 
achieve those reductions around the globe, and particularly in key 
markets.
    In addition to reducing tariffs, RILA believes it is equally 
important to also eliminate or reduce non-tariff barriers. As the Doha 
negotiations continue, RILA urges negotiators to (1) protect retail 
brand names by making it easier for retailers to safeguard their brand 
names in other countries; (2) establish transparent customs 
administrations that facilitate rather than hinder the movement of 
goods and services across national boundaries, which are essential to a 
modern distribution economy; and (3) prioritize market access 
improvements in distribution services (broadly defined as retailing and 
wholesaling as well as ancillary services such as express delivery, 
telecommunications and financial services). More specifically, RILA 
supports the elimination of local equity requirements that cap foreign 
retail investment at 49 percent, the elimination of competitive need 
limits or investment screening tests, the easing of restrictions on the 
repatriation of profits, liberalization of telecommunications and 
transportation sectors, and the removal of unwarranted restrictions on 
store size and operating hours.

    Congress Should Renew Trade Promotion Authority (TPA)

    RILA and its members recognize that Trade Promotion Authority (TPA) 
provides a practical and positive mechanism to facilitate trade, an 
area in which Congress and the President have shared responsibility. By 
establishing parameters for consideration of trade agreement 
implementing legislation by Congress on trade negotiations, requiring 
continuous consultations and exchanges between the Administration and 
the Congress, and providing congressional guidance on the contents of 
U.S. trade agreements, TPA allows the United States to negotiate and 
conclude economically meaningful, comprehensive trade agreements that 
benefit the U.S. economy. Since the enactment of TPA in 2002, the 
United States has negotiated a number of new free trade agreements 
(FTAs) and is pursuing negotiations with countries that hold 
significant new market opportunities such as South Korea and Malaysia.
    Global integration is a reality, and the question for U.S. 
lawmakers is not whether to participate in the global economy, but how 
to create the best opportunities for U.S. businesses to compete and 
win. TPA provides the necessary tools to promote and shape trade policy 
in a way that can benefit all Americans.
    RILA and its members are champions for trade expansion and 
recognize that trade is essential to providing U.S. consumers with the 
quality and variety of products they expect at prices they can afford, 
and to creating opportunities for U.S. retailers to offer goods and 
services to customers around the world. New trade agreements simply 
will not be possible without TPA, and the United States cannot afford 
to let that happen.
    Countries around the globe increasingly recognize the benefits of 
open trade. Regional FTAs are proliferating between countries in Asia, 
Europe and South America. The rise of such agreements highlights the 
competition for global market share that is key to growth and 
prosperity in the 21st century. Some have proposed a ``strategic 
pause'' or moratorium on trade negotiations. While on its face this 
might seem like a legitimate proposal, doing so would only come at the 
peril of U.S. businesses, consumers and employees. The United States 
can ill-afford to halt the expansion of U.S. FTAs when doing so means 
other countries continue to expand services and operations globally 
without America.

    Congress Should Pass All Currently Negotiated FTAs While 
Aggressively Pursuing New Opportunities

    U.S. trade with Columbia, Panama and Peru has nearly doubled over 
the past seven years, and the United States has an opportunity to 
expand our trading relationships as well as strengthen diplomatic ties 
by approving the FTAs that have been negotiated with those countries. 
These agreements provide meaningful opportunities for U.S. businesses 
to export and import products. For example, under these agreements, 
eighty percent of U.S. consumer and industrial products, and a majority 
of the most competitive U.S. farm exports, will enter these Latin 
American markets duty-free immediately upon enactment.
    Negotiations with South Korea and Malaysia have the potential to be 
the largest and most economically meaningful FTAs since the enactment 
of the North American Free Trade Agreement (NAFTA). With a population 
approaching 50 million people, U.S. businesses are eager to gain a 
foothold in South Korea's market. Meanwhile, Malaysia is the United 
States' tenth largest trading partner, with $44 billion in two-way 
trade in 2005, and an FTA would significantly increase opportunities 
for more bilateral trade and investment. Beyond the economic benefits, 
FTAs with South Korea and Malaysia provide opportunities for enhanced 
diplomatic relationships with strategic allies in a volatile region. 
The Committee should encourage USTR to continue to aggressively pursue 
the successful conclusion of those agreements.

    Conclusion

    RILA and its member companies are grateful for the opportunity to 
provide comments to the Committee on the U.S. trade agenda. RILA 
believes it is critical that the United States continue to pursue an 
aggressive trade agenda. Expanding export and investment opportunities 
overseas increases the purchasing power of American consumers while 
providing important jobs domestically. In today's economy, global 
integration is both a challenge and an opportunity for U.S. policy 
makers. The key to America's continued prosperity is to seize the 
opportunities and mitigate the challenges. RILA respectfully urges the 
Committee to consider these comments, and we stand prepared to work 
lock-step with you to help all Americans feel the benefits of open 
trade. If you have any questions on this statement or require any 
assistance, please contact Lori Denham, Executive Vice President, 
Public Affairs, or Andrew Szente, Director, Government Affairs.


                                 

 Statement of Alexandra Spieldoch, Institute for Agriculture and Trade 
                                 Policy

    On behalf of the Institute for Agriculture and Trade Policy, I 
would like to thank the Ways and Means Committee for the opportunity to 
provide written testimony on the Hearing on the U.S. Trade Agenda. The 
Institute is based in Minneapolis, MN, and also has offices in Geneva 
and Vienna. Our mission is to promote resilient family farms, rural 
communities and ecosystems around the world through research and 
education, science and technology.
             U.S. AGRICULTURE & TRADE POLICY AT A CROSSROAD
    U.S. farm policy has come under extensive scrutiny from both at 
home and abroad in recent years. Trade negotiators point to distortions 
in world markets created by the Farm Bill. They identify billions of 
dollars in farm subsidies, along with the U.S. policy of pressuring 
other countries to lower their tariffs, as the primary cause of export 
dumping. Weak enforcement of U.S. antitrust law against oligopolistic 
multinational agribusinesses headquartered in the U.S. has accelerated 
concentration in global agriculture markets, often to the detriment of 
farmers. Health experts and environmentalists criticize the export of 
U.S. food habits and the food system those habits depend on.
    In 2007, the World Trade Organization is scheduled to complete the 
Doha Round of negotiations while the U.S. will write a new Farm Bill. 
These two events were supposed to converge and complement each other. 
But with the collapse of the Doha talks and an electoral party change 
in Congress, the Farm Bill will likely be written more to reflect 
budget constraints and a domestic political calculus. Congressional 
leaders have said they will not try to ``anticipate'' the results of a 
Doha deal on agriculture. House Agriculture Chair Colin Peterson, D-
Minn., has gone so far as to say, ``I want to write a Farm Bill that's 
good for agriculture. If somebody wants to sue us [at the WTO], we've 
got a lot of lawyers in Washington.'' \1\
---------------------------------------------------------------------------
    \1\ Quaid, Libby. ``Lawmakers, White House Set to Battle on Farm 
Bill.'' Associated Press. January 16, 2007. 
---------------------------------------------------------------------------
    As the Farm Bill debate begins in earnest, we have an opportunity 
to reflect on ways to improve U.S. farm policy in support of small 
farmers, rural development and livelihoods around the world. 
Specifically, we will look at how the Farm Bill directly affects trade, 
subsidies, dumping, food aid, market concentration and public health.

    Dancing with the WTO

    Criticism of U.S. farm policy at the WTO has been substantial. 
Among WTO members, the U.S. government is perhaps the loudest advocate 
of market liberalization alongside Australia and New Zealand. 
Repeatedly, the Bush administration has denied poor countries the 
flexibility to protect certain crops critical to their food security 
and rural development by insisting that development depends on open 
markets. Yet the billions of dollars the U.S. government spends on 
agricultural programs contradicts the ``free market'' rhetoric and 
makes trading partners both skeptical and cynical about U.S. 
intentions.
    The U.S. has also taken steps to undermine the WTO's ability to 
implement rules for domestic subsidies. For example, the U.S. has not 
reported and categorized its domestic support payments to the WTO since 
2001--the year before the last Farm Bill was passed. By not reporting 
how the payments fit within WTO rules, the U.S. makes it difficult to 
know whether the Farm Bill is complying with WTO rules.
    In addition, the U.S. has been slow to comply with WTO dispute 
panel rulings.\2\ In 2004, the dispute panel ruled that U.S. cotton 
subsidies were causing harm to Brazil's industry by suppressing prices 
in the world market. The U.S. had until July 1, 2005 to comply with the 
ruling, but has yet to fully comply. Brazil has now formally requested 
a new WTO dispute panel to force the U.S. into full compliance.\3\
---------------------------------------------------------------------------
    \2\ Morrison, Nneka. Strengthening Compliance at the WTO. Institute 
for Agriculture and Trade Policy. September 2006. 
    \3\ Inside U.S. Trade. ``U.S. Blocks Brazilian Request for Cotton 
Compliance Panel.'' September 8, 2006.

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    Empty Proposals

    The Bush administration's October 2005 proposal on agriculture has 
also hurt its credibility at the WTO. When announcing the proposal, the 
U.S. trade representative (USTR) characterized it as ``bold,'' 
``ambitious'' and ``substantial.'' \4\ But the proposal largely 
involved the re-categorizing of subsidy payments from the restricted 
Amber Box to the less restricted Blue Box, and would leave actual 
spending virtually unchanged.\5\ In addition, the proposal required 
other WTO members to drastically cut their tariffs in agriculture and 
requested an extension of the Peace Clause, which would exempt Farm 
Bill subsidy programs from legal challenge at the WTO. In 2006, the 
European Union and nine other WTO members asked for an economic 
simulation of the various agriculture proposals at the WTO. The 
simulation found that under the U.S. proposal, U.S. agriculture 
spending could legally increase.\6\
---------------------------------------------------------------------------
    \4\ U.S. Trade Representative. ``U.S. Offers Bold Plan on 
Agriculture to Jumpstart Doha Round.'' October 10, 2005.
    \5\ Murphy, Sophia. The U.S. WTO Agriculture Proposal of October 
10, 2005. Institute for Agriculture and Trade Policy. October 25, 2005. 

    \6\ WTO Committee on Agriculture. ``Agriculture Domestic Support 
Simulations.'' May 22, 2006. 

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    Domestic Markets Favored

    U.S. farmers have less and less interest in exports, especially 
after two decades of promised prosperity through exports have not 
materialized. In fact, U.S. farm exports have remained relatively flat 
over the past few decades.\7\
---------------------------------------------------------------------------
    \7\ Muller, Mark. Where are Future Markets for Midwest Agriculture? 
Institute for Agriculture and Trade Policy. March 2006. 
---------------------------------------------------------------------------
    Instead, the dramatic growth in demand for most U.S. commodities 
over the past year has come from the emerging biofuels market. For 
example, if only a quarter of the ethanol plants currently proposed in 
the Midwest do come on-line and if the corn needed to supply these 
plants and the plants currently under construction were to be diverted 
from exports, Midwest corn exports could be cut in half by 2008.\8\ 
``Meeting the domestic demand for biofuel and animal-feed markets is 
the primary concern of U.S. producers. And it's also a primary concern 
of Congress in the next Farm Bill. ``We can and I believe we must, 
formulate and pass a Farm Bill that accelerates the rural production of 
energy for the whole nation,'' Senate Agriculture Chair Tom Harkin, D-
Iowa, said as he opened Farm Bill hearings in January.\9\ The growing 
importance of biofuels in the U.S. has changed the context of the Farm 
Bill debate and may ultimately affect the agriculture negotiations at 
the WTO. It is unclear what impact demand for biofuels in the U.S. will 
have on other countries, but there are already concerns that developed 
countries will ``dump their energy demand'' on the South with potential 
disastrous consequences--for example, expansion of palm oil plantations 
into the rain forests of Indonesia.
---------------------------------------------------------------------------
    \8\ Schoonover, Heather and Mark Muller. Staying Home: How Ethanol 
Will Change U.S. Corn Exports. Institute for Agriculture and Trade 
Policy. December 2006. 
    \9\ Brownfield  Ag  News.  ``U.S.  Senator  Harkin  Picks  
Renewable  Fuels  for  First  Hearing.''      January   11,   2007     
http://www.thepoultrysite.com/poultrynews/10740/    us-senator-harkin-
picks-renewable-fuels-for-first-hearing>

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    Setting Subsidies, Not Prices

    Through a variety of programs, the Farm Bill sets the various types 
of subsidy programs, how much money will be spent and which crops will 
be supported. U.S. commodity programs written in the Farm Bill cover 20 
different crops but the vast majority of money and resources go to 
corn, soybean, wheat, cotton and rice. Fruits and vegetables are not 
part of the commodity programs because when the programs were first 
established in the 1930s they were only for crops that could be stored 
for long periods of time.
    The U.S. is heavily criticized for its subsidy programs, which have 
been associated with commodity dumping that depresses world prices. But 
the focus on U.S. subsidies often misses its mark. U.S. farm subsidies, 
as categorized by the WTO, have risen over the past 10 years from just 
over $7 billion in 1995 to a high of $23 billion in 2000.\10\ The wild 
fluctuations in subsidies each year occur because several forms of 
subsidies depend on the market price. If the market price for corn is 
higher, subsidy levels drop. If the price is lower, subsidies increase. 
This explains why U.S. farm subsidies ultimately do not dictate price 
fluctuations; rather, the market price dictates overall subsidy levels. 
And subsidies play only a marginal role in the cropping decisions of 
U.S. farmers. Instead, the significant increase in U.S. subsidies over 
the past ten years is tied almost directly to the removal of supply 
management tools in the 1996 Farm Bill, i.e., agricultural market 
``deregulation,'' which had required farmers to set aside a percentage 
of their acreage to qualify for government payments. Without those 
tools, U.S. farmers overproduced at such levels that the market price 
for most major crops dipped well below the cost of production. 
According to the Agriculture Policy Analysis Center at the University 
of Tennessee, simply eliminating U.S. farm subsidies would do little to 
slow U.S. crop production. Rather, it would likely shift production to 
different commodity crops''but the fundamental problems of oversupply 
and low prices would persist.\11\
---------------------------------------------------------------------------
    \10\ Environmental Working Group. Farm Subsidy Database. 
    \11\ Ray, Daryll, Daniel De La Torre Ugarte and Kelly Tiller. 
Rethinking U.S. Agricultural Policy. Agricultural Policy Analysis 
Center, University of Tennessee. September 3, 2003. 
---------------------------------------------------------------------------
    Ironically, the 1996 Farm Bill, written to comply with WTO rules, 
required most farm subsidies to be phased out by 2001 through a 
mechanism called ``decoupling,'' which removed the historical tie 
between farm payments and the crops produced. But when farmers were 
allowed to produce as much as they could, prices collapsed and the 
subsidies were restored in the form of ``emergency payments.'' In 2002, 
Congress transformed those ``emergency'' payments into a permanent part 
of the Farm Bill, calling them different names: ``countercyclical'', 
``decoupled'' and ``marketing loan'' payments.
    In 2006, the growth of the ethanol market sent corn prices higher 
than they had been in a decade and has had a ripple effect on other 
crops, particularly other animal-feed crops like wheat and soybeans. 
Ethanol's growth and rising prices had an immediate impact on farm 
subsidies, which went down from $24.3 billion in 2005 to an estimated 
$16.5 billion in 2006.\12\ The U.S. Department of Agriculture projects 
prices to continue to rise in 2007 and subsidies to again decline. It 
is unclear whether the price increases due to ethanol are a brief bump, 
as the U.S. experienced in 1995 prior to the writing of the 1996 Farm 
Bill, or part of a longer-term systemic shift in U.S. agriculture 
prices. However, if efforts by the Bush Administration succeed in 
removing the existing 54-cent per gallon tariff on imported ethanol, 
corn prices could collapse along with ethanol prices, dragging down 
prices of other crops as well.
---------------------------------------------------------------------------
    \12\ U.S. Department of Agriculture Economic Research Service. 
Briefing Room for Farm Income and Costs. 

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    The Devastation of Dumping

    Over the past decade, the Farm Bill has intentionally driven prices 
down with a focus on expanding export markets. In many cases, crops 
from the U.S. were actually exported at prices below the cost of 
production (known as dumping). Agricultural dumping creates an unfair 
trading advantage for U.S. agribusiness firms because they depress 
international prices and narrow or even eliminate market opportunities 
for producers in other countries.\13\ This structural price depression 
can have two major effects on developing countries whose farmers 
produce competing products. First, without substantial governmental 
support, developing-country farmers are driven out of their local 
markets by the below-cost imports. Second, farmers who sell their 
products to exporters find their market share undermined by the lower-
cost competition.
---------------------------------------------------------------------------
    \13\ Houck, James P. Elements of Agricultural Trade Policies. 
Prospect Heights, Ill.: Waveland Press, Inc. 1996.
---------------------------------------------------------------------------
    The full effects of dumped exports have to be considered in light 
of the push over the past 20 years at the World Bank and International 
Monetary Fund to reduce tariffs in developing countries as a condition 
for access to international financing.
    Agricultural development in less-developed countries is a catalyst 
for broad-based economic growth and development.\14\ Research shows 
that domestic food productivity is more effective in stabilizing 
developing-country food security than the reliance on inexpensive 
(i.e., dumped) food imports.\15\ A fair price for the farmer's 
production will also help stabilize demand for wage labor in the local 
economy.\16\
---------------------------------------------------------------------------
    \14\ E.g.: Peters, G.H. and Joachim Von Braun, editors. 1999. Food 
Security Diversification and Resource Management: Refocusing the Role 
of Agriculture? Proceedings of the Twenty-third International 
Conference of Agricultural Economics held at Sacramento, California, 
August 1997. The International Association of Agricultural Economists.
    \15\ Barrett, Christopher B. ``Does Food Aid Stabilize Food 
Availability?'' Staff paper, Department of Agriculture, Resource and 
Managerial Economics, Cornell University. January 1999.
    \16\ Timmer, C. Peter. Getting Prices Right: The Scope and Limits 
of Agricultural Price Policy. Cornell University Press: Ithaca, N.Y. 
1986.
---------------------------------------------------------------------------
    Multinational agribusiness firms based in the U.S. and European 
Union have been the most involved in agricultural dumping. The 
Institute for Agriculture and Trade Policy has documented the high 
dumping levels of U.S.-based firms since 1990.\17\
---------------------------------------------------------------------------
    \17\ Murphy, Sophia, Ben Lilliston and Mary Beth Lake. WTO 
Agreement on Agriculture: A Decade of Dumping. Institute for 
Agriculture and Trade Policy. February 2005. 

---------------------------------------------------------------------------
    Farm Bills Driving Dumping

    The last two U.S. Farm Bills, which encouraged over-production and 
low priced commodity crops, have played a major role in agricultural 
dumping by U.S.-based multinational firms. Each of the five major 
export commodities saw a significant jump in export dumping when 
comparing the seven years prior to the 1996 Farm Bill (1990-1996) to 
the subsequent seven years (1997-2003): \18\
---------------------------------------------------------------------------
    \18\ Ibid.

          Wheat dumping levels increased from an average of 27 
        percent per year pre-1996 Farm Bill to 37 percent per year 
        post-1996 Farm Bill.
          Soybean dumping levels increased from an average of 2 
        percent per year pre-1996 Farm Bill to 11.8 percent post-1996 
        Farm Bill.
          Maize dumping levels increased from an average of 6.8 
        percent per year pre-1996 Farm Bill to 19.2 percent post-1996 
        Farm Bill.
          Cotton dumping levels increased from an average of 
        29.4 percent pre-1996 Farm Bill to an average of 48.4 percent 
        post-1996 Farm Bill.
          Rice dumping levels increased from an average of 13.5 
        percent pre-1996 Farm Bill to an average of 19.2 percent post-
        1996 Farm Bill.

    Food Aid: Time to Get It Right

    The U.S. Food Aid program is included in Title III of the Farm 
Bill. The Farm Bill decides how much and what type of food aid will be 
allocated. Food aid is often held up as an example of the good that the 
U.S. agricultural bounty affords. Yet U.S. programs are the most 
controversial of all bilateral food aid programs, attracting criticism 
from international trade and aid officials alike. One criticism is that 
almost all the aid is in the form of food produced, bagged, fortified 
and shipped in the U.S. by U.S.-based firms, rather than as cash to buy 
food wherever it can be sourced most effectively_at a good price, as 
close to the final destination as practical and with a view to 
supporting long-term agricultural capacity in the area suffering food 
shortages. This makes U.S. food aid both slower and more expensive than 
it should be_up to twice as expensive as prevailing commercial 
prices.\19\ Local purchases ought to be the first recourse for food aid 
to minimize the risk for future dependency and to provide an injection 
of cash into the local economy.
---------------------------------------------------------------------------
    \19\ Murphy, Sophia and Kathleen McAfee. U.S. Food Aid: Time to Get 
It Right. Institute for Agriculture and Trade Policy. July 2005. 

---------------------------------------------------------------------------
    Most food aid donors have shifted their policy to give money 
instead of food. Canada and the U.S. are the only significant food aid 
donors that do not use a cash-based system to give food aid.
    In 2005, the Bush administration proposed designating an additional 
$300 million for food aid purchased from local or regional sources, but 
Congress rejected the proposal. An unlikely alliance of interests 
persuaded Congress to maintain the status quo. The alliance is composed 
of U.S. shipping firms guaranteed all food aid business; U.S. 
agribusinesses that provide the food; and U.S. nongovernmental 
organizations (NGOs) that often deliver food aid, particularly project 
aid for development purposes and humanitarian aid in emergencies. The 
NGOs sell a portion of their food aid in recipient countries to 
generate funds for their development work, a process known as 
monetization. The costs of monetization are considerable, but it 
represents resources that the U.S. government would be unlikely to 
replace with cash for development.

    Food Aid and the WTO

    U.S. food aid has been the subject of negotiation at the WTO, 
particularly during the recent Doha negotiations, under the heading of 
export competition. U.S. food aid poses two main problems for rival 
exporters. First, the government's use of export credits to sell 
program food aid effectively prices commercial exporters out of the 
market. Second, increasing monetization of food aid. The U.S. has 
resisted any meaningful new discussions on food aid, particularly on 
monetization.\20\ Rather than risk new trade rules that could reduce 
total food aid by reforming delivery, recipient governments have been 
inclined to support the U.S.
---------------------------------------------------------------------------
    \20\ Murphy, Sophia. Food Aid: What Role for the WTO? Institute for 
Agriculture and Trade Policy. November 17, 2005. 
---------------------------------------------------------------------------
    With the Doha talks now suspended, it is not clear whether U.S. 
food aid will change in the new Farm Bill. President Bush's Farm Bill 
proposal including more money for the purchase of food aid by recipient 
countries. And a number of the largest U.S. NGOs involved in providing 
food aid are moving away from their support for monetization. However, 
a few vocal NGOs still remain committed to the existing system.

    Market concentration hurting competition

    There is pressure from farm groups and some members of Congress to 
include a Farm Bill title that addresses market concentration in 
agriculture. Market concentration describes how many different 
companies control a specific market. Increased market concentration and 
market power of agricultural input, production and processing companies 
has dramatically affected the agricultural market in the U.S. Market 
power is defined as the ability to affect price (setting buyer prices 
above and/or supplier prices below open market levels) and to reduce 
competition. U.S. farmers have fewer companies from whom to purchase 
inputs and fewer companies to which they can sell. The result has been 
a squeeze from both sides of the supply chain resulting in a steady 
decline in farm income.
    Currently, only four beef packers control 83 percent of the U.S. 
market, four pork packers control 64 percent of the market, four flour 
milling companies control 63 percent of the market, and three soybean-
crushing companies control 71 percent of the market. Many of these 
sectors are not only horizontally integrated, where a few companies 
dominate a given sector, but also vertically integrated, where 
companies are dominant across several sectors in the supply chain. For 
example, Cargill is one of the top beef packers, turkey producers, 
animal-feed suppliers, flour millers and soybean crushers.\21\ Vertical 
integration allows companies such as Cargill to internalize a number of 
costs and realize significant competitive advantages over their 
competition.
---------------------------------------------------------------------------
    \21\ Hendrickson, Mary and William Heffernan. Concentration of 
Agricultural Markets. Department of Rural Sociology, University of 
Missouri. February 2005. 
---------------------------------------------------------------------------
    Technological innovations in the areas of transport and 
communications have revolutionized food production, processing and 
distribution. We now live in a truly globalized food economy, and many 
U.S.-based agribusinesses including Cargill, Archer Daniels Midland, 
Monsanto, Tyson Foods, Smithfield Foods and ConAgra have operations in 
multiple countries around the world.
    U.S. Based Agribusiness' Global Reach
    Cargill--63 countries \22\
---------------------------------------------------------------------------
    \22\ Cargill Web site. 
---------------------------------------------------------------------------
    Archer Daniels Midland--U.S., Canada, Latin America, Europe, Asia 
and Pacific Rim and Africa \23\
---------------------------------------------------------------------------
    \23\ Archer Daniels Midland Web site. 
---------------------------------------------------------------------------
    Monsanto--61 countries \24\
---------------------------------------------------------------------------
    \24\ Monsant Web site. 
---------------------------------------------------------------------------
    Tyson Foods--80 countries \25\
---------------------------------------------------------------------------
    \25\ Tyson Foods Web site. 
---------------------------------------------------------------------------
    Smithfield Foods--8 countries \26\
---------------------------------------------------------------------------
    \26\ Smithfield Foods Web site. 
---------------------------------------------------------------------------
    Wal-Mart--15 countries \27\
---------------------------------------------------------------------------
    \27\ Wal-Mart Web site. 
---------------------------------------------------------------------------
    The steady downward pressure on tariffs advocated by the U.S. at 
the WTO and World Bank has opened up markets and aided U.S.-based food 
companies doing business on a global scale.\28\
---------------------------------------------------------------------------
    \28\ Murphy, Sophia. Concentrated Market Power and Agricultural 
Trade. Ecofair Dialoge. August 2006. 

---------------------------------------------------------------------------
    Challenging market power

    Inside the U.S., weak antitrust enforcement by the Federal 
Government has increased the market power of U.S.-based food 
companies.\29\ ``As Congress heads toward a new Farm Bill in 2007, 
there is a growing recognition inside and outside Congress that reform 
is needed. Vertical integration leaves the independent producer with 
even fewer choices of who to buy from and sell to. And, it hurts the 
ability of farmers to get a fair price for their products,'' said 
Senator Charles Grassley, R-Iowa.\30\
---------------------------------------------------------------------------
    \29\ U.S. Department of Agriculture Office of the Inspector 
General. Audit Report: ``Grain Inspection, Packer and Stockyard 
Administration's Management and Oversight of the Packers and Stockyards 
Programs,'' Report No. 30601-01-Hy (January 2006). 
    \30\ Grassley,  Charles . ``Grassle y Works  to  Ban Packer  
Ownership of Livestock.'' Janu- ary  16,  2007.  
---------------------------------------------------------------------------
    In January, more than 200 U.S. organizations sent a letter to 
Congress calling for a competition title to be included in the Farm 
Bill. Such a title aims to restore fair markets, including an expansion 
in U.S. Department of Agriculture's role in the pre-merger review 
process and the establishment of an Office of Special Counsel on 
Competition within the USDA; \31\ fairness and transparency in 
agricultural contracts between companies and farmers; improved 
enforcement of the Packers and Stockyard Act, the main legislation for 
antitrust enforcement in agriculture; and mandatory price reporting.
---------------------------------------------------------------------------
    \31\ National Farmers Union  Competition and Concentration.  

---------------------------------------------------------------------------
    The 2007 Farm Bill stands a better chance of passing competition-
related provisions than in the past, and if successful these efforts 
would likely impact the operations of many U.S.-based companies around 
the world.

    Opportunities for a Fair Agriculture & Trade Policy

    The U.S. Farm Bill has had a dramatic impact on agricultural 
economies across the globe. U.S. farm programs are targeted at the WTO 
for violating trade rules. Agricultural dumping from U.S.-based 
agribusiness firms undercut farmers in poor countries. Food aid is 
criticized for hindering farming economies of countries facing hunger. 
A few U.S.-based agribusiness companies are part of a global market 
that is becoming more concentrated, squeezing farmers in the U.S. and 
around the world. And the Farm Bill's promotion of artificially cheap 
raw commodities is adversely affecting health in the U.S. and abroad.
    Farm Bill programs that have been so harmful to many in the 
international community have been extremely beneficial to U.S.-based 
food companies. These companies are some of the most powerful in 
Washington. The following recommendations would help move the United 
States to a more balanced food, agriculture and trade policy for 
farmers, consumers and rural communities both in the United States and 
around the world.

    Recommendations

    A fair agriculture and trade policy would include the following:

          Acknowledgement of the right of all countries to 
        formulate their own food and farm policies to secure a safe and 
        health food system for their own people, as long as those 
        policies do not result in the dumping of commodities onto world 
        markets at below the cost of production.
          Commodity programs that ensure a fair market price 
        for farmers and eliminate export dumping.
          Placing a high priority on negotiating a viable 
        worldwide formula for fairly calculating the cost of production 
        for agricultural crops in a manner that takes into 
        consideration relevant economic differences among countries. 
        Such an international agreement on a cost of production 
        calculation would represent an important first and necessary 
        step towards ending dumping worldwide.
          Support for policies that encourage farmers to shift 
        existing crop acreage devoted to industrial monoculture exports 
        into native perennial plants grown in compliance with 
        sustainability standards to provide feedstocks for bioenergy 
        production facilities that are locally owned and tailored to 
        meet local energy demand first. Such a shift of crop acreage to 
        locally oriented sustainable biomass--Kespecially among major 
        exporting countries--could help curtail unsustainable 
        overproduction and dumping.
          Stronger antitrust enforcement and improved price 
        transparency in the food and agriculture industry could help 
        competition in the global market.
          Support for local food economies, smaller farmers and 
        greater food security would help diversify cropping systems and 
        reduce agriculture exports.
          A transition to untied, cash-based food aid and a 
        phase out of sales of food aid (monetization).

    Thank you again for this opportunity to testify.

                                 

 Statement of the Honorable Marcy Kaptur, a Representative in Congress 
                         from the State of Ohio

    Mr. Chairman, I would like to thank you for this opportunity to 
share my thoughts on the U.S. trade agenda before the House Committee 
on Ways and Means. Under your skillful leadership, this committee is 
faced with the challenge and this chance to reform American trade 
policy and better the lives of millions worldwide.
    Even though Article I, Section 8 of the Constitution guarantees the 
legislative branch ``the power to regulate commerce with foreign 
nations,'' members of this body will soon consider giving up their own 
rights to allow President Bush to have almost exclusive privileges to 
sell to the highest bidder the future of America's trade, our jobs, and 
our economy.
    Even with our 2006 deficit reaching $763.6 billion, the Bush 
Administration still feels that Trade Promotion Authority, 
euphemistically referred to as ``Fast Track,'' is in the best interest 
for our country.
    I have never understood why we in the Congress do this to ourselves 
or to the people who elect us to represent them, much less do such a 
disservice to the wisdom and vision of the founders.
    Let us never forget that ``fast track'' was the legerdemain by 
which the Administration rammed the Central American Free Trade 
Agreement (CAFTA) through the House. President Bush expected to bring 
this agreement to the floor for a simple up or down vote under fast 
track. Is that really the way to develop international trade policy? 
Without discussion, negotiation, or input from those affected?
    Free trade ought to occur among free people, and America ought to 
stand for internationally recognized labor rights, the right to own and 
farm your land, the right to a clean environment and the right to 
economic security. We need integration on democratic terms through 
transparent, democratic processes.
    Instead, these free trade agreements passed under fast track 
represent American as a country that stands for declining real wages, 
displaced farmers and rural dwellers, environmental travesties, and all 
the other devastative effects of the ``race to the bottom.'' And they 
are passed through opaque, secretive negotiations by our executive 
branch, without even the counsel of Congress.
    Even with all its faults, NAFTA was the result of seven years of 
negotiation. When Congress gives up its rights to participate in 
negotiations and to amend trade agreements, we turn a blind eye to our 
constituents and the millions of people world wide affected by our 
trade policy.
    Moreover, Congress has learned the hard way how this President 
handles extraordinary grants of authority. For evidence, we obviously 
need to look no farther than the debacle in Iraq. President Bush takes 
extraordinary grants of authority and then cavalierly transforms them 
into abuses of power. It would be nothing less than irresponsible for 
this Congress, knowing what it knows now about how President Bush views 
the separation of powers, to grant him fast track authority. In short, 
President Bush has proven that he cannot be trusted with such 
extraordinary power.
    What will be left of our democracy here at home after more trade 
agreements like CAFTA? What kind of model are we exporting, where 
freedom is shortchanged, where profits are given the green light? We 
should only have free trade among free people. We should use trade as a 
lever to raise living standards, and we should place freedom first. It 
is truly a joy to be with my colleagues here this evening and to try to 
fight in freedom's cause.

                                 [all]