[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                  THE OPERATION, IMPACT AND FUTURE OF 
                      THE U.S. PREFERENCE PROGRAMS 

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

                                HEARING

                               before the

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

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 17, 2009

                               __________

                           Serial No. 111-36

                               __________

         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       DAVE CAMP, Michigan
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            SAM JOHNSON, Texas
JOHN LEWIS, Georgia                  KEVIN BRADY, Texas
RICHARD E. NEAL, Massachusetts       PAUL RYAN, Wisconsin
JOHN S. TANNER, Tennessee            ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
LLOYD DOGGETT, Texas                 DEVIN NUNES, California
EARL POMEROY, North Dakota           PATRICK J. TIBERI, Ohio
MIKE THOMPSON, California            GINNY BROWN-WAITE, Florida
JOHN B. LARSON, Connecticut          GEOFF DAVIS, Kentucky
EARL BLUMENAUER, Oregon              DAVID G. REICHERT, Washington
RON KIND, Wisconsin                  CHARLES W. BOUSTANY, JR., 
BILL PASCRELL, JR., New Jersey       Louisiana
SHELLEY BERKLEY, Nevada              DEAN HELLER, Nevada
JOSEPH CROWLEY, New York             PETER J. ROSKAM, Illinois
CHRIS VAN HOLLEN, Maryland
KENDRICK B. MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky

             Janice Mays, Chief Counsel and Staff Director

                   Jon Traub, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON TRADE

                  SANDER M. LEVIN, Michigan, Chairman

JOHN S. TANNER, Tennessee            KEVIN BRADY, Texas, Ranking Member
CHRIS VAN HOLLEN, Maryland           GEOFF DAVIS, Kentucky
JIM MCDERMOTT, Washington            DAVID G. REICHERT, Washington
RICHARD E. NEAL, Massachusetts       WALLY HERGER, California
LLOYD DOGGETT, Texas                 DEVIN NUNES, California
EARL POMEROY, North Dakota
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California

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




                            C O N T E N T S

                               __________
                                                                   Page

Advisory as of November 10, 2009 announcing the hearing..........     2

                               WITNESSES

The Honorable Jim McDermott, Representative of the State of 
  Washington, U.S. House of Representatives......................     9
The Honorable Linda Sanchez, Representative of the State of 
  Washington, U.S. House of Representatives......................    11
The Honorable Elliot Engel, Representative of the State of 
  Washington, U.S. House of Representatives......................    15

                                 ______

Tim Reif, General Counsel, Office of the U.S. Trade 
  Representative.................................................    21
Sandra Polaski, Deputy Undersecretary, U.S. Department of Labor, 
  Bureau of International Labor Affairs..........................    29
Mary Ott, Ph.D., Deputy Assistant Administrator, U.S. Agency for 
  International Development (USAID), Bureau of Economic Growth, 
  Agriculture and Trade..........................................    35
Burnham (Bud) Philbrook, Deputy Under Secretary, U.S. Department 
  of Agriculture (USDA), Farm and Foreign Agricultural Services..    41

                                 ______

Stephen Karangizi, Assistant Secretary General, the Common Market 
  for Eastern and Southern Africa (COMESA).......................    67
His Excellency Cham Prasidh, Senior Minister and Minister of 
  Commerce, Kingdom of Cambodia..................................    78
W. David Hastings, President and Chief Executive Officer, Mount 
  Vernon Mills, Inc., Mauldin, South Carolina....................   103
Paul O'Brien, Vice President of Policy and Advocacy, Oxfam 
  America........................................................   118
The Honorable F. Tomas Duenas, Former Ambassador of Costa Rica to 
  the United States; Chief Executive Officer, ESCO InterAmerica..   127

                                 ______

David Love, Senior Vice President and Chief Supply Chain Officer, 
  Levi Strauss & Co., San Francisco, California..................   137
Jeff Vogt, Global Economic Policy Specialist, American Federation 
  of Labor & Congress of Industrial Organizations (AFL-CIO)......   142
William A. Reinsch, President, National Foreign Trade Council 
  (NFTC).........................................................   153
Meredith Broadbent, Trade Advisor, The Global Business Dialogue..   160
Margrete Strand Rangnes, Director, Labor, Workers' Rights & Trade 
  Program, Sierra Club...........................................   165
Loren Yager, Ph.D., Director, U.S. Government Accountability 
  Office (GAO), International Affairs and Trade..................   172

                       SUBMISSIONS FOR THE RECORD

VF Corporation...................................................   201
US Preference Reform Working Group...............................   202
African Cotton and Textiles Industries Federation................   211
Albaugh, Inc.....................................................   215
United Scientific Supplies, Inc..................................   218
American Apparel & Footwear Association..........................   219
American Fiber Manufacturers Association.........................   221
U.S. Chamber of Commerce.........................................  223,
                                                                    227
American Sugar Alliance..........................................   229
Association of Colombian Flower Exporters........................   231
U.S. Association of Importers of Textiles and Apparel............   234
Republic of Mauritius............................................   239
Bangladesh Garment Manufacturers and Exporters Association.......   240
Bangladesh Knitwear Manufacturers & Exporters Association........   245
Centre for Policy Dialogue.......................................   248
International Sugar Trade Coalition..............................   249
Bangladesh Secretariat...........................................   253
Chevron Corporation..............................................   255
African Coalition for Trade, Inc.................................   257
Coalition for GSP................................................   260
Sugar Alliance of the Philippines................................   263
Ecuadorian-American Chamber of Commerce..........................   264
Embassy of the Kingdom of Lesotho................................   269
Emergency Committee for American Trade...........................   272
Center for Global Development....................................   274
Government of Trinidad and Tobago................................   276
Jamaica Chamber of Commerce......................................   282
International Sugar Trade Coalition..............................   284
National Association of Manufacturers............................   287
Lesotho Textile Exporters Association............................   289
Campbell Soup Company............................................   291
Government of Thailand...........................................   293
    Embassy of the Republic of the Fiji Islands..................   294
    Federation of Industries of the State of Sao Paulo...........   294
    God's Pantry Food Bank.......................................   296
    Michael Smiddy...............................................   297
    National Milk Producers Federation...........................   297
    National Retail Federation...................................   299
    Nien Hsing Textile Co., Ltd..................................   302
    Picard Bangladesh Limited....................................   304
    Office of International Trade Negotiations Ministry of Trade 
      and Industries of the Republic of Panama...................   305
    Retail Industry Leaders Association..........................   306
    U.S.-India Business Council..................................   308
Embassy of the United Republic of Tanzania.......................   311
California Cut Flower Commission.................................   313
Sandra Polaski, Harnessing Global Forces to Create Decent Work in 
  Cambodia.......................................................   320
One..............................................................   350
David J. Steinberg...............................................   354


    THE OPERATION, IMPACT AND FUTURE OF THE U.S. PREFERENCE PROGRAMS

                              ----------                              


                       TUESDAY, NOVEMBER 17, 2009

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:08 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Sander Levin [chairman of the subcommittee] presiding.
    [The advisory announcing the hearing follows:]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

              Trade Subcommittee Chairman Levin Announces

 a Hearing on the Operation, Impact, and Future of the U.S. Preference 
                                Programs

November 10, 2009

By (202) 225-6649

    Ways and Means Trade Subcommittee Chairman Sander M. Levin today 
announced the Trade Subcommittee will hold a hearing to evaluate the 
operation and impact of the U.S. preference programs to date, as well 
as opportunities for improvement moving forward. The hearing will take 
place on Tuesday, November 17, 2009 in the main Committee hearing room, 
1100 Longworth House Office Building, beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the invited witness only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.

      

FOCUS OF THE HEARING:

      
    Preference programs provide unilateral market access to developing 
countries and are seen as central to U.S. trade and development policy, 
as well as an important foreign policy tool. Over the years, Congress 
has maintained active oversight of these programs, repeatedly revising 
and expanding them to better meet the goal of spurring economic growth 
and development. With two key preference programs nearing expiration in 
December, this hearing provides a timely opportunity to continue this 
critical oversight.
      
    Specifically, the hearing will focus on evaluating the operation 
and impact of the U.S. preference programs to date, to understand the 
lessons learned from the circumstances where the preference programs 
have been successful and to identify opportunities for improvement in 
areas where challenges remain.
      

BACKGROUND:

      
    Since the 1970s, the United States and other major developed 
countries have viewed preference programs as an important policy tool 
to spur economic growth and counter poverty. The United States 
developed the Generalized System of Preferences (GSP) on this basis, as 
well as later regional programs for the Caribbean Basin (Caribbean 
Basin Economic Recovery Act, Caribbean Basin Trade Partnership Act, 
Haitian Hemispheric Opportunity through Partnership Encouragement, 
CBERA/CBTPA/HOPE), sub-Saharan Africa (AGOA), and Andean (ATPA/ATPDEA) 
countries.
      
    In the decades since their inception, the U.S. trade preference 
programs have made significant strides. Currently, over 130 developing 
countries can benefit from one or more of the U.S. programs. And the 
programs have provided critical benefits in some of the world's poorest 
and most vulnerable countries (including the so-called ``least-
developed countries''). For example, trade preferences for Haiti (known 
as HOPE), contributed to an increase in Haitian apparel exports to the 
United States of 30 percent in 2009, contributing to critical job 
creation in a country with nearly 70 percent unemployment.
      
    The United States Trade Representative (USTR) has reported that 
imports from sub-Saharan African countries under AGOA/GSP have 
increased six-fold from 2001, the first full year of AGOA, to 2007 (to 
$51.1 billion). Non-oil exports from sub-Saharan Africa have doubled 
over the same period. Imports under the Andean preference program also 
grew significantly, from approximately $97 million in 1992, the first 
full year after enactment of ATPA, to more than $17 billion in 2008.
      
    The preference programs have been important for U.S. businesses and 
workers as well. For example, the Andean trade preference arrangement 
has helped to develop an important export market for U.S. textiles. 
Similarly, U.S. companies rely heavily on GSP to obtain raw materials, 
parts, and equipment necessary for their manufacturing operations in 
the United States.
      
    At the same time, many important stakeholders believe that 
challenges remain and the preference framework can be improved. One 
concern that has been raised is that relatively few countries and 
relatively few products dominate the preference programs, in particular 
the regional preference programs. Stakeholders have argued that 
Congress should take a hard look at such factors as the product 
coverage of the preference programs, the rules of origin regimes, the 
frequency of expiration of the programs, and the linkages between the 
programs and trade capacity-building assistance to see whether 
improvements can be made to improve utilization and diversification.
      
    Other stakeholders have argued that the U.S. preference programs--
in particular, the more generous market provisions of the regional 
programs--should be extended to all of the world's poorest countries. 
At present, least-developed, low-income countries like Bangladesh, 
Cambodia, Laos and others do not have such access.
      
    Still others have urged Congress to review the extent to which the 
preference programs establish other incentives for development. For 
example, each of the preference programs has eligibility criteria 
designed to promote development (e.g., on respecting internationally-
recognized labor rights, promoting rule of law, protection of 
intellectual property, etc.). Important questions have been raised 
about the extent to which these criteria have been effective and 
whether (and how) they might be improved.
      
    This hearing provides an opportunity to explore these important 
questions and arguments. In announcing the hearing, Chairman Levin 
said, ``The preference programs have been an important part of the 
effort to expand and shape trade so that its benefits can be more 
broadly spread. We need to make sure that the framework of these 
programs plays a role in promoting economic growth and development.''
      

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 
``Committee Hearings''. 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, complete all informational forms and click ``submit'' on 
the final page. ATTACH your submission as a Word or WordPerfect 
document, in compliance with the formatting requirements listed below, 
by close of business Tuesday, December 1, 2009. 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 LEVIN. If everyone will be seated then we will 
start.
    We tried to organize this hearing, as you all know if you 
have seen the agenda, there are four panels, and there is also 
a Democratic caucus at noon, so Mr. Brady and I and are staffs 
have talked about how we will organize this important hearing.
    [Interruption to proceedings.]
    Chairman LEVIN. One way we will organize is by turning off 
all cell phones. ``We are in the hearing, I will call you 
later.'' If it is the President----
    [Laughter.]
    Chairman LEVIN. Family. And if everybody else would like to 
do the same, it would help.
    So there are four panels, and we thought we would proceed 
this way, with the panel of our three colleagues first, and 
they, I think, have been informed and I think they are pleased 
about this, that we will very much look forward and hear their 
testimony, but since we see all of you on the floor later on, 
we will withhold our questions and bombard you on the floor 
during quiet moments there.
    So that should, in a half an hour or so, allow us to go on 
to the second panel of government people from the 
administration. And we would have the testimony and try to 
finish that, if we could, by noon or shortly thereafter, and 
then take a 45 to 50 minute break so some could go to the 
caucus and everybody could grab a bite to eat.
    And then we would start the third panel at around--say 
between 1:00 and 1:15, at the latest, and we are notifying 
everybody on the third and fourth panels that they will come 
here after lunch, unless they would like to be here before 
that.
    So let's start, and Mr. Brady and I will give our brief 
opening statements. But before we do that, I would like very 
much if Mr. Brady joins me in welcoming--not welcoming, but 
glad with your schedule, Mr. Chairman, that you could be here 
for this important hearing, and ask for you to kick this off.
    Chairman RANGEL. Well thank you Chairman Levin, and 
Congressman Brady. I am just overlooking--looking over, rather, 
my opening prepared remarks, and I think I would like to set it 
aside, because when we first got a chance to have the 
leadership, former Congressman McCreary and I tried to find 
out, judging the political atmosphere that exists, whether this 
committee could work towards a bipartisanship since our subject 
matters seemed, at that time, less partisan than some of the 
other committees.
    And even though it looks as though the political situation 
will not lend itself to much bipartisanship, to my deep 
regret--and I'm certain that most all of the Members of the 
Committee feel that strongly--still, there comes a time when 
our country has to come together, and basically it has to be 
what is for our country and the world, and basically the 
conditions of poverty and the fiscal crisis will dictate our 
agenda.
    Having someone like you, Mr. Levin, who has dedicated such 
a large part of your life in trying to make our country more 
prosperous and stronger and at the same time increasing the 
standards of people all over the world and recognizing this is 
one of the major roles that we have think in terms of traveling 
to avert war. Especially at a time when nuclear power seems to 
be so common with so many countries, and so many poor countries 
that should be more concerned with how to feed themselves and 
trade rather than how to prepare for war.
    And I had a wonderful educational time and traveling with 
Mr. Brady, with you, and learning so much from him and from the 
trip in general, which allows me to believe that even 
partisanship can't take away from facts that we have inherited 
from our communities, our country, and from the world. And I am 
so optimistic to have somebody like Jim McDermott whose ideas 
came ``What about Africa?'' and as a result of that and putting 
together our minds, we realized what a fortunate country we are 
and continue to be, but also how much more there is to be done.
    And we are blessed that we have an opportunity to help the 
poorer countries, especially in our hemisphere, and Haiti has 
proven to be the height of the challenge here that we face, but 
there is so much more that can and should be done.
    Lastly, I would think and would hope that everyone comes to 
Congress wanting America to be perceived, and in reality, be 
the hope that they would want to achieve. It is hard to think 
of any challenge that we have that is more spiritual in nature, 
that involves the patriotic will to protect our country, but at 
the same time to help other countries.
    So I know that you are sorry that you asked me to say 
anything, but you asked for it and you got it. I yield back, 
Mr. Chairman.
    Chairman LEVIN. Never sorry. With all of your deep 
involvement in these issues going back many, many years, and 
some of these programs, Mr. Rangel, would not be in place if it 
weren't for you.
    Chairman RANGEL. Thank you.
    Chairman LEVIN. So let me just briefly summarize. I have an 
opening statement, and I think there are copies if anybody 
would like to take a look at it.
    This is indeed an important hearing, and the Senate Finance 
Committee is holding a hearing on this, on preference programs, 
on Thursday. Not as extensive hearings as we are having, but of 
course you would expect that from the House, that we would have 
more extensive hearings.
    These issues really reflect--relate to the overall trade 
challenge that we face in this new century, and that is how to 
craft sound trade policies that reflect both the need for 
expanding trade, and also to shape its course, to do both, in 
order to maximize its benefits and to address adverse 
consequences. So within that general framework of a modern 
trade policy in favor of its expansion, but on terms that 
spread its benefits, we turn today to the preference programs 
that focus in on developing nation's in our relations with them 
in trade.
    This committee and Subcommittee, under your leadership and 
your predecessors on both sides of the aisle, have been really 
devoted to this issue. It has crossed party lines with your 
leadership, Mr. Chairman, Phil Crane's leadership--we should 
remember that--and the leadership of many others, including our 
colleague, Jim McDermott.
    So out of this has developed these programs of preferences, 
they are called, additional access to our markets for the 
Caribbean under CBI, the Andean nations, of course, under ATPA, 
AGOA for sub-Saharan Africa, and the HOPE program for Haiti. 
And these programs have achieved real results. I won't go into 
a lot of detail this morning. It is in my opening statement, 
and our witnesses are going to comment on this. But, for 
example, under AGOA there has been a substantial increase in 
non-oil exports since its inception. CBI has seen, since the 
early years, '84, a very major growth, from 576 million at 
first to almost 5 billion. And the same with ATPA, the Andean 
Trade Preference Act and recently with the HOPE program.
    And it is also important to understand that these programs 
support U.S. economic interests, and our exports to these 
various countries have been growing rather substantially. And 
also what is sometimes forgotten, and that is a substantial 
portion of the imports from GSP countries help to sustain U.S. 
manufacturing raw materials, parts, components, and machinery 
and equipment.
    It is also--and we are going to be discussing this today--
it is important to remember that there has been an increasing 
effort to shape the terms of trade based on the principal that 
I very much believe is true, that it is not enough to expand 
trade. You have to expand it in ways that are mutually 
beneficial. Trade isn't an end in and of itself, after all, it 
is a means to the end to help people come out of poverty and 
help people move up the ladder. And so as a result, we have 
placed criteria in preference programs, and they include 
respective rule of law, respect for fundamental labor rights, 
and others, including rules against corruption.
    Increasingly, we have put into place provisions regarding 
labor rights, and not because they are social issues. They are 
indeed economic issues, and the notion is that in order for the 
benefits of expanded trade to be spread and to work, one of the 
elements is that workers need to have their basic international 
rights. And indeed to help workers in developing countries join 
the middle class, and that is mutually beneficial for those 
countries and for us, for those countries, as they develop the 
strength to come from middle class growth, and for us having 
middle classes in other countries to buy our goods.
    So today we will be discussing those issues, and I finish 
with this, and I think Mr. Brady you agree, that preference 
programs are an important part of the constellation of our 
trade agenda. But no one says they are perfect. There is room 
for improvement, and indeed there are, as would be expected 
from expanded trade, some issues that need to be addressed. So 
what we are doing today is looking at the past, looking at the 
present, and also looking at the future. And we are going to 
hear a variety of points of view on the past record, the 
present situation, and also some issues relating to changes or 
improvements in our programs.
    As we sit here, I am not sure of the result of this. I feel 
strongly--the administration does, I think it is true in the 
Senate--that the programs that have deadlines at the end of the 
year, that there need to be extensions. The purpose of this 
hearing is to give us the information so that we can make some 
decisions regarding extensions and improvements and changes, 
and how they mesh.
    So, Mr. Brady, if you will take over, and then we will turn 
to our three distinguished colleagues.
    Mr. BRADY. Well thank you Mr. Chairman, and Chairman 
Rangel.
    International trade is a powerful engine for economic 
growth and job creation, as our experience here at home 
demonstrates. One out of every five American jobs depends on 
trade, and as our U.S. trade representative Ambassador Kirk 
notes, jobs supported by exports pay higher wages than other 
jobs, and for that reason I commend you for holding this 
hearing. This global economic downturn has hurt workers all 
over the world. International trade will be a vital tool for 
promoting economic recovery and creating jobs everywhere.
    The indisputable benefits of trade liberalization are why I 
strongly support open markets both here in the United States 
and abroad. The trade preference programs we are discussing 
today can be a key tool to help developing countries break into 
the international market.
    As you and Chairman Rangel have noted, Congress has worked 
on a bipartisan basis to develop preference programs that 
provide a vital economic boost to many developing countries. 
Congress has also demonstrated its willingness to regularly 
revisit our programs to make them more effective. Congress has 
amended the African Growth and Opportunity Act several times to 
spurt the creation of thousands of jobs in Africa without 
creating adverse affects on U.S. workers here at home. The 
benefits have provided U.S. consumers with better prices and 
more choices.
    Effective trade preferences are one stop on a country's 
journey to becoming a full player in the international market, 
but trade preferences cannot be an end unto themselves. In 
fact, a truly successful trade preference program is one that 
makes itself ultimately obsolete. For example, Malaysia and 
South Korea successfully used GSP as a tool for economic 
development, exceeding the need for continued benefits and 
thriving once those benefits were removed. Chile, Singapore, 
the CAFTA countries, and Peru all graduated from trade 
preferences into permanent bilateral trade agreement 
relationships, showing that trade preferences are a stepping 
stone to full engagement in the international market.
    These trade agreements offer advantages for both parties 
over a trade preference relationship. Partner countries achieve 
full, permanent, duty-free access to the U.S. market, a 
significant benefit over the partial, temporary access provided 
by preferences. This relationship also sends a strong signal to 
track investment and capital. The capacity building and 
enforceable labor commitments help improve standards 
significantly. For the United States, the benefits are obvious. 
American workers and businesses finally enjoy a level playing 
field because these markets are open to our exports, supporting 
more American jobs.
    When Chile, the CAFTA countries, and Peru went from a one 
way preference relationship to a two way free trade 
relationship, the United States went from a trade deficit to a 
trade surplus with these countries. In the case of CAFTA, we 
saw our deficit of over $1.2 billion shift to a trade surplus 
of over $6 billion, and American workers have benefitted. These 
examples demonstrate the importance of having developing 
countries become full partners in the international market. We 
can quickly realize similar benefits by implementing the free 
trade agreements with Colombia and Panama, two countries 
anxious to move from a one way relationship to a permanent, 
mature relationship, leveling the playing field for U.S. 
workers.
    There are many countries that aren't yet ready to move from 
preferences to a free trade relationship. For these countries, 
effective trade preference programs are the right policy. To 
that end, we must design our preference programs to ensure that 
developing countries can take full advantage of them, assuming 
they meet certain key conditions. That means having eligibility 
criteria that challenge countries to improve their laws, but at 
the same time encourage investment. After all, a developing 
country can have the best labor laws in the world, but that 
won't make any difference if there aren't any jobs.
    The eligibility criteria currently enshrined in our 
preference programs provide the right balance and incentives. 
As the GAO has noted, we have successfully used these criteria 
to prompt improvements. And even for the least developed 
countries, our preference programs must not become a 
disincentive to take that next critical step to becoming full 
members in the international market through enthusiastic 
participation in the Doha Round. The ultimate goal of duty-
free, quota-free access to the U.S. market for the least 
developed through the Round will provide incentives for those 
countries to push the emerging developing countries to make the 
concessions we need to bring the Round to a successful close.
    And I will close with this. Engagement in the international 
market is a key development tool. Many countries have 
benefitted from this engagement, and U.S. trade preference 
programs can help countries take advantage of opportunities to 
export their goods, create jobs, and eventually join the global 
market.
    With that, Mr. Chairman, I yield back and look forward to 
hearing from our witnesses.
    Chairman LEVIN. Well thank you very much, and I think your 
reference to Doha is very apt, because it is supposed to be a 
development round, and here are we are having some discussion 
this morning about our relations with the developing countries.
    So that is a good segue to our distinguished panel, two 
members of our committee and an important member of the 
Committee on Foreign Affairs. Jim McDermott--I don't know. I 
don't think I have to laud you all too much. Your credentials 
speak for yourselves. Jim, your interest in this area goes back 
many, many years, and Linda, as a newer member here, you have 
been dedicated to digging into these issues, really 
particularly effectively. And Elliot has used his position in 
foreign affairs matters to be interested not only in kind of 
the first glances of foreign affairs, but digging beneath the 
surface. So we look forward to your testimony.
    Jim, are you going to go first? Representative McDermott 
and then Representative Sanchez, and then Representative Engel.

 STATEMENT OF THE HONORABLE JIM McDERMOTT, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF WASHINGTON

    Mr. MCDERMOTT. Mr. Chairman, thank you, and the Committee 
for inviting me to testify on my views for this preference 
review. The excellent group of witnesses you have called today 
to work with us will cover very important issues that confront 
our trade policy, and I look forward to crafting a policy with 
the Committee.
    In difficult economic times like these, developed countries 
sometimes pull back. They pull back from international 
engagement, and pull back from thinking long term, and that is 
quite understandable. But I think that in these times and in 
this globalized economy, now is the time to push forward on 
improving trade with the poorer countries of the world.
    Our preference programs have important issues that need 
addressing, but while we think about all the things we need to 
fix, we should also keep in mind that our preference programs 
have done enormous good for the poor of the world and for 
America. They provided jobs that have fed and clothed millions 
of the poor, and been a boon to the American businesses. We 
shouldn't forget that.
    I think it is also important to keep in mind that our work 
is far from over. As Congressman Brady mentioned, when we 
passed AGOA in 2000 it was not perfect, and it was a big step 
forward, but we have amended it sequentially since then. In the 
9 years, the Africans have made huge progress in growing trade. 
But we know that for development to really accelerate, we need 
to get more countries involved in trading more products.
    We know that the trade capacity building is as important as 
extending more preferences. It is not simply enough to open the 
door. We know that with sustained, long term help we can make a 
difference. I don't think we are close to the finish line on 
that, I think we are just beginning. The Members of the 
Committee have worked hard on encouraging development through 
trade, and I think we should focus on a few things in 
particular.
    While there are details to work out, I think there is broad 
agreement that our trade programs need to be stable, they need 
to be simplified, they need to be more effective, and they need 
to help more people. First, I think we need to agree that the 
stability of our programs is essential to them being effective. 
Our largest program, GSP, is weeks away from expiring. Other 
agreements partially expire in 2012, and others in 2015. When 
we extend our programs, sometimes we do it for only a few 
months or for a year. No one who has ever run a business would 
want to invest in a climate that is so unstable. Our programs 
need to be long term.
    Second, our programs are too complicated and too hard to 
use. Our rules of origin prevent common sense business from 
happening. We impose regulations that poor countries cannot 
meet without our help. We need to fix this. Simplifying our 
programs and doing more to help partners meet the important 
standards we set are keys to the success.
    Third, we need to address the capacity building program. We 
all know the wisdom of trade, not aid. But I think we need to 
make aid for trade an equally large part of our programs.
    Different countries face different challenges with trading 
with us. They need functioning ports, better roads, permission 
to fly directly to the United States, help with energy and more 
technology. They need training. Now we can do this in a 
targeted way. Preferences have helped our trading partners 
quite a bit, but without thoughtful capacity building, we can 
only help so much. With over 24 federal agencies giving out 
foreign aid, we don't always coordinate our efforts. We need to 
pull these efforts together to help poor countries grow, and to 
give American business more customers.
    Finally, we need to find a way to strengthen the programs 
we have while at the same time helping more people. Trade is 
not a zero sum game. We can strengthen our current programs 
while also helping other desperately poor countries who right 
now get no benefits. We can help different countries like 
Lesotho, the Philippines, and Cambodia at the same time.
    As we all know, the Andean Trade Preference Act and the GSP 
are expiring next month. We need to extend these programs 
immediately, in this coming year and in the Congress, and push 
forward, not pull back. It is the moral thing to do for the 
poor of the world. It is good for American business and 
consumers, and we know it is good for America's security.
    I want to thank you for your time.
    [The prepared statement of Mr. McDermott follows:]
 Prepared Statement of The Honorable Jim McDermott, Representative of 
         the State of Washington, U.S. House of Representatives
    Mr. Chairman I want to thank you and the Committee for inviting me 
to testify here today and to offer my views on Preference Reform. The 
excellent group of witnesses you have called to work with us today will 
cover very important issues that confront our trade policy. I look 
forward to helping with this effort.
    In difficult economic times like these developed countries 
sometimes pull back. They pull back from their international engagement 
and pull back from thinking long term. It's understandable. But I think 
that in these times and in this globalized economy now is the time to 
push forward on improving trade with the poorer countries of the world.
    Our Preference programs have important issues that need addressing. 
But while we think about all of the things we need to fix, we should 
also keep in mind that our preference programs have done enormous good 
for the poor of the world and for America. They have fed and clothed 
millions of the poor and been a boon to American businesses. We can't 
forget that.
    I think it is also important to keep in mind that our work is far 
from over. When we passed AGOA in 2000 it was a big step forward. In 
only 9 years the Africans have made huge progress in growing trade. But 
we know that for development to really accelerate we need to get more 
countries involved in trading more products.
    We know that trade capacity building is as important as extending 
more preferences. And we know that with sustained long-term help we can 
make a big difference. I don't think we're close to the finish line--I 
think we're only just beginning.
    The Members of the Committee have worked hard on encouraging 
development through trade and I think we should focus on a few things 
in particular. While there are details to work out, I think there is 
broad agreement that our trade programs need to be stable, they need to 
be simplified, they need to be more effective, and they need to help 
more people.
    First I think we agree that the stability of our programs is 
essential to them being effective. Our largest program, GSP, is weeks 
away from expiring. Other agreements partially expire in 2012 and 
others expire in 2015. When we extend our programs sometimes we do it 
for only a few months or a year. No one who has ever run a business 
would want to invest in a climate that is so unstable. Our programs 
need to be long-term.
    Second, our programs are too complicated and too hard to use. Our 
rules of origin prevent common sense business from happening; we impose 
regulations that poor countries cannot meet without our help. We need 
to fix this. Simplifying our programs and doing more to help our 
partners meet the important standards we set are keys to their success.
    Third, we need to address the capacity building problem. We all 
know the wisdom of ``trade not aid''. Well, I think we need to need to 
make ``aid for trade'' an equally large part of our programs. Different 
countries face different challenges when trading with us. They need 
functioning ports, better roads, permission to fly directly to the 
United States, help with energy, and more technology. They need 
training.
    Now, we can do this in a targeted way. Preferences help our trading 
partners quite a bit, but without thoughtful capacity building we can 
only help them so much. With over 24 federal agencies giving out 
foreign aid we don't always coordinate our efforts. We need to pull 
these efforts together to help poor countries grow and to give American 
business more customers.
    Finally, we need to find a way to strengthen the programs we have 
while at the same time helping more people. Trade is not a zero-sum 
game. We can strengthen our current programs while also helping other 
desperately poor countries who right now get no benefits. We can help 
different countries like Lesotho, the Philippines, and Cambodia at the 
same time.
    As we all know the Andean Trade Preference Act and GSP are expiring 
next month. We need to extend these programs and in this coming year, 
in this Congress, push forward, not pull back. It's the moral thing to 
do for the poor of the world, it is good for American business and 
consumers, and we all know it's good for America's security.
    Thank you for time and your efforts.

                                 

    Chairman LEVIN. Thank you.
    Ms. Sanchez, welcome.

 STATEMENT OF THE HONORABLE LINDA SANCHEZ, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. SANCHEZ. Thank you Chairman Levin and ranking member 
Brady for allowing me the opportunity to testify today 
regarding our trade preferences policies, and their effect on 
working families. The hearing today, I think, is an important 
opportunity to examine what works about our trade preferences 
policies, as well as what really doesn't.
    As many of you may know, I have been a long time advocate 
for a new trade model, because I feel that too often our 
approach fails working families both here and abroad.
    Our preferences programs have a very laudable goal, to 
assist developing countries in their efforts to build up 
domestic industry, increase exports, and alleviate poverty. 
And, in some cases the preferences appear to have been wildly 
successful. As Mr. Brady mentioned, some countries, including 
South Korea, Singapore, Bahrain, and Slovenia have graduated 
from the GSP program and no longer qualify for preferences.
    In other cases, however, the preferences have been less 
successful, at least from the point of view of working 
families. A case in point is the Republic of Philippines, a 
beneficiary of the General System of Preferences. According to 
a petition filed with the United States Trade Representative, 
the government of the Republic of Philippines has engaged in 
policies that deny workers the freedom of association, as 
guaranteed under International Labor Organization ILO 
Convention 87, and has undermined the ability of workers to 
form and join unions, in violation of ILO Convention 98. The 
petition also accuses the Philippine government of involvement 
in extra-judicial killings and abductions of union leaders, 
members, organizers, and supporters through elements of the 
armed forces of the Philippines, the Philippine national 
police, local police forces, and private security forces.
    Given these reports, which are not limited to the 
Philippines, I strongly believe that it is appropriate and 
necessary to re-examine our approach to preference system 
creation and renewal. Encouraging and rewarding such abhorrent 
human rights policies with trade benefits is contrary to what 
America stands for, and not only harms families abroad, but 
also those struggling to make a living here at home.
    Ecuador is another nation in which our trade policies may 
be leaving working families behind. Chevron may have approached 
some of you before this hearing to ask that you consider 
limiting or eliminating altogether benefits for Ecuador under 
the Andean Trade Promotion and Drug Eradication Act. This 
effort arises from a private lawsuit between thousands of 
indigenous Ecuadorian peasants and Chevron. The plaintiffs, 
some of whom suffer from cancer, physical deformities, and 
multiple miscarriages, allege that Chevron is responsible for 
illegally dumping billions of gallons of toxic oil waste into 
rivers and streams, causing extraordinary environmental and 
human damage.
    Texaco, now Chevron, began its oil operations roughly 40 
years ago in a once pristine region of the Amazon. Today, this 
region, which is roughly the size of Rhode Island, struggles to 
deal with an environmental and humanitarian crisis. More than 
1,400 residents have died from cancer, birth defects are 
prevalent, and the region still suffers from water 
contamination, rain forest deforestation, and ecosystem 
degradation. The inhabitants of the region still drink and 
bathe in the polluted water. There are innumerable stories that 
I could share from the 230,000 people who live along the oil 
fields in northern Ecuador.
    Thick pools of oil dot the landscape where Chevron dumped 
oil waste into unlined or improperly lined pits. Water tests of 
one local farmer's land revealed oil contamination at 20,000 
percent above safe water consumption levels. Too many children 
have cancer, and as a result, too many parents have to 
experience the ultimate heartbreak, which is the death of a 
child.
    Instead of allowing this case to come to a conclusion in a 
court of law, embarking on cleanup efforts, or even seeking 
mediation, Chevron has engaged in a lobbying effort that looks 
a little bit more like extortion. Apparently because it can't 
get the outcome that it wants in the Ecuadorian court system, 
Chevron wants to use the U.S. government to deny trade benefits 
until Ecuador cries ``uncle.'' This turns the goal of trade 
preferences on its head.
    Trade preferences should be used as a hand up to provide 
needed help to families of developing nations, not a paddle to 
punish governments who refuse to succumb to the demands of 
multi-billion dollar corporations. As a private entity, Chevron 
certainly has the right to take action to advance its own 
interests. However, it is Congress' job to take a wider view. 
It is well past time to reform our trade policies so that they 
will work for working families.
    As we re-examine our trade preference system, I urge the 
Committee to explore options for holding nations accountable 
for protecting the rights of working families. I hope we also 
consider whether to add environmental standards, and to reform 
investor protection provisions, and examine which criteria, 
like private lawsuits, we should avoid.
    We must examine our trade preferences with a focus on 
shared prosperity. We should encourage development with 
dignity. We should shape preferences programs to promote labor 
rights and a clean environment without dictating the outcome of 
cases pending in the civil justice systems of developing 
nations.
    Finally, I think we have to abandon the naive view that 
free trade alone is the only economic development strategy that 
we should pursue. As we have seen with other nations with whom 
we have completed trade accords, like Jordan, lowering tariffs 
is simply not enough to improve the working lives of 
impoverished families. We must staunchly defend the right to 
work with dignity, to freely associate and, to organize for 
safer working conditions, better wages, and a secure 
retirement. Trade preferences can be combined with other forms 
of assistance that will help countries sustain themselves and 
develop the infrastructure and capacity they need to fully take 
advantage of trade preference programs the U.S. offers, as well 
as, the world market at large.
    I thank you for your patience in hearing my alternate 
perspective, but I really think now is the time that we should 
be looking at what works and what doesn't with trade 
preferences in crafting a long-term trade strategy. Thank you 
so much.
    [The prepared statement of Ms. Sanchez follows:]
 Prepared Statement of The Honorable Linda Sanchez, Representative of 
         the State of California, U.S. House of Representatives
    Chairman Levin and Ranking Member Brady, thank you so much for 
allowing me the opportunity to testify today regarding our trade 
preferences policy and its effect on working families.
    The hearing today is an important opportunity to examine what works 
about our trade preferences policy as well as what doesn't. As many of 
you know, I have been a long time advocate for a new trade model. Our 
current approach too often fails working families, both here and 
abroad.
    Our preferences programs have a laudable goal: to assist developing 
countries in their efforts to build up domestic industries, increase 
exports, and alleviate poverty.
    In some cases, the preferences appear to have been wildly 
successful. Some countries, including South Korea, Singapore, Bahrain, 
and Slovenia have graduated from the GSP program and no longer qualify 
for preferences.
    In other cases, the preferences have been less successful--at least 
from the point of view of working families.
    A case in point is the Republic of the Philippines, a beneficiary 
of the General System of Preferences.
    According to a petition filed with the United States Trade 
Representative, the government of the Republic of the Philippines has 
engaged in policies that deny workers freedom of association as 
guaranteed under International Labor Organization (ILO) Convention 87, 
and has undermined the ability of workers to form and join unions in 
violation of ILO Convention 98.
    The petition also accuses the Philippine government of involvement 
in extra-judicial killings and abductions of union leaders, members, 
organizers, and supporters through elements of the Armed Forces of the 
Philippines, the Philippine National Police, local police forces, and 
private security forces.
    Given such reports, which are not limited to the Philippines, I 
strongly believe that it is appropriate to re-examine our approach to 
preference system creation and renewal.
    Encouraging and rewarding such abhorrent human rights policies with 
trade benefits is contrary to what America stands for, and not only 
harms families abroad, but also those struggling to make a living here 
at home.
    Ecuador is another nation in which our trade policies may be 
leaving working families behind.
    Chevron may have approached some of you before this hearing to ask 
that you consider limiting or eliminating benefits for Ecuador under 
the Andean Trade Promotion and Drug Eradication Act.
    This effort arises from a private lawsuit between thousands of 
indigenous Ecuadorian peasants and Chevron. The plaintiffs, some of 
whom suffer from cancer, physical deformities, and multiple 
miscarriages, allege that Chevron is responsible for illegally dumping 
billions of gallons of toxic oil waste into rivers and streams, causing 
extraordinary environmental and human damage.
    Texaco, now Chevron, began its oil operations roughly 40 years ago 
in a once pristine region of the Amazon rainforest.
    Today, this region, the size of Rhode Island, struggles to deal 
with an environmental and humanitarian crisis. More than 1,400 
residents have died from cancer, birth defects are prevalent, and the 
region suffers from water contamination, rainforest deforestation, and 
ecosystem degradation. The inhabitants of the region still drink and 
bathe in polluted water.
    There are innumerable stories I could share from the 230,000 people 
who live along the oil fields in northern Ecuador. Pools of thick oil 
dot the landscape where Chevron dumped oil wastes into unlined or 
improperly lined pits.
    Water tests of one local farmer's land revealed oil contamination 
at 20,000 percent above safe water consumption levels. Too many 
children have cancer and, as a result, too many parents have to 
experience the ultimate heartbreak--the death of a child.
    A group of Ecuadorians originally filed suit in the U.S., but the 
case was dismissed when Chevron successfully argued that Ecuador was a 
better forum.
    The case was refiled in Ecuador seeking damages, and experts have 
estimated that damages in this case could be as high as $27 billion.
    Instead of settling with the plaintiffs, embarking on clean-up 
efforts, or even seeking mediation, Chevron has engaged in a lobbying 
effort that looks like little more than extortion. Apparently, if it 
can't get the outcome it wants from the Ecuadorian court system, 
Chevron will use the U.S. government to deny trade benefits until 
Ecuador cries uncle.
    This turns the goal of trade preferences on its head! Trade 
preferences should be used as a hand up to provide needed help to the 
families of developing nations, not a paddle to punish governments who 
refuse to succumb to the demands of multi-billion dollar corporations.
    As a private entity, Chevron certainly has the right to take action 
to advance its interests. However, it is our job to take a wider view.
    It's well past time to reform our trade policies so that they work 
for working families.
    As we re-examine our preference systems, I urge the Committee to 
explore options for holding nations accountable for protecting the 
rights of working families.
    I hope that we also consider whether to add environmental standards 
and to reform investor protection provisions and examine which 
criteria, like private lawsuits, we should avoid.
    We must examine our trade preferences with a focus on shared 
prosperity. We should encourage development with dignity. We should 
shape preferences programs to promote labor rights and a clean 
environment without dictating the outcome of cases proceeding through 
the civil justice systems of developing nations.
    Finally, we must recognize that trade alone is not a development 
policy. Trade preferences must be combined with other forms of 
assistance that will help countries to sustain themselves and develop 
the infrastructure and capacity they need to fully take advantage of 
the trade preferences programs the U.S. offers.
    Thank you for allowing me to testify.

                                 

    Chairman LEVIN. Thank you very, very much. You raise issues 
that clearly have been part of the dialogue on preferences in 
TSP, and I am confident will continue to be.
    So after that excellent testimony, the Honorable Eliot 
Engel will take over. Eliot, welcome. You have been to this 
room before. We are glad to see you again.

  STATEMENT OF THE HONORABLE ELIOT ENGEL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. ENGEL. Well thank you Mr. Chairman, Chairman Levin, 
ranking member Brady, Chairman Rangel, and other distinguished 
members of the Trade Subcommittee. Thank you for the 
opportunity to testify at today's hearing on U.S. trade 
preference programs.
    Through Democratic and Republican administrations and 
Congresses, the Andean Trade Promotion and Drug Eradication 
Act, or ATPDEA, has been one of the cornerstones of U.S. policy 
toward Latin America, providing the United States with the 
opportunity to make a real difference in the politically and 
economically fragile Andean region.
    As chairman of the Western Hemisphere Subcommittee of the 
House Foreign Affairs Committee, I have seen firsthand the 
benefits of ATPDEA. In Ecuador, for example, I met with 
producers of flowers, broccoli, coffee, and cacao. Without the 
Andean free trade preferences, workers in these sectors would 
undoubtedly lose their jobs, leaving them with little outside 
option other than the illegal drug trade or illegal immigration 
to the United States.
    Unfortunately, too often ATPDEA has been extended for only 
short time periods, creating uncertainty and an unstable 
investment climate in the beneficiary countries. To make a real 
impact, I believe we must immediately extend ATPDEA for at 
least two years.
    As this subcommittee considers the renewal of the Andean 
trade preferences and future trade preference reforms, I also 
urge you to add Paraguay as an ATPDEA beneficiary country. In 
April I introduced H.R. 1837, the U.S.-Paraguay Partnership Act 
of 2009, which would do just that. My bipartisan bill would be 
a catalyst for economic development in Paraguay while also 
supporting essential U.S. geopolitical goals.
    Paraguay is the second poorest country in South America. 30 
percent of Paraguayans live in poverty, and according to the 
2008 world development indicators, 14 percent of Paraguayans 
live on less than $1 per day. Paraguay's inclusion as an Andean 
trade preference beneficiary country would be fundamental in 
helping to reduce these poverty levels.
    But the U.S.-Paraguay Partnership Act of 2009 is about much 
more than poverty reduction. My bill will also strengthen the 
already robust relationship between our two countries. I 
visited Paraguay and president Fernando Lugo in Asuncion last 
November, and he expressed to me his interest in a strong 
relationship with the United States.
    Paraguay is a small, landlocked country that is often left 
out of discussions of U.S. policy toward Latin America, but it 
is a critical partner in so many areas. According to the State 
Department's February 2009 international narcotics control 
strategy report, in 2008 Paraguay's national anti-drug 
secretariat seized a record 172 metric tons of marijuana. 
Paraguay also works closely with the U.S. and its neighbors, 
Argentina and Brazil, in the three plus one process to curb 
illicit activities in the so-called tri-border area where the 
borders of Paraguay, Argentina, and Brazil meet. And by the 
way, that is also, we believe, a source of terrorism funding as 
well, so it is an important place.
    The U.S.-Paraguay Partnership Act of 2009, as I said which 
I have introduced as a bipartisan bill, which I introduced with 
my good friend Congressman Dan Burton of Indiana. There is also 
a bipartisan companion bill in the Senate, S780, introduced by 
Senator Nelson of Florida and Senator Cornyn of Texas, and my 
bill is supported by an extremely wide ranging number of 
organizations, including Oxfam, the National Foreign Trade 
Council, the Washington Office on Latin America, and the 
American Apparel and Footwear Association.
    Mr. Brady mentioned before in this opening statement that 
international trade is an engine of economic growth and job 
creation. I agree. I also want to add that it enhances good 
feeling and good relationships with the U.S., so it is good 
policy for us, and good politics as well.
    In April, I led the official Congressional delegation to 
the Summit of the Americas in Trinidad and Tobago. At the 
summit, President Obama pledged ``a new chapter of engagement 
that will be sustained throughout my administration.'' That is 
a quote. In less than a year, the President has made impressive 
strides in enhancing hemispheric relations.
    As chairman of the Western Hemisphere Subcommittee, I 
believe it is crucial for Members of Congress to support the 
President in re-engaging the hemisphere. This hemisphere is so 
important to us. It is right in our backyard. The U.S.- 
Paraguay Partnership Act of 2009 will do just that and will be 
extremely positive for both of our countries. Again, it is good 
policy and it is good politics. It helps these countries to 
become closer to us, and that is the way we win back the 
hemisphere from Chavez and the others that would go in a 
different direction.
    I would thank you again for the opportunity to testify 
today.
    [The prepared statement of Mr. Engel follows:]
Prepared Statement of The Honorable Elliot Engel, Representative of the 
            State of New York, U.S. House of Representatives
    Chairman Levin, Ranking Member Brady and distinguished Members of 
the Trade Subcommittee, thank you for the opportunity to testify at 
today's hearing on U.S. trade preference programs.
    Through Democratic and Republican Administrations and Congresses, 
the Andean Trade Promotion and Drug Eradication Act (ATPDEA) has been 
one of the cornerstones of U.S. policy toward Latin America, providing 
the United States with an opportunity to make a real difference in the 
politically and economically fragile Andean region.
    As Chairman of the Western Hemisphere Subcommittee, I have seen 
first hand the benefits of ATPDEA. In Ecuador, for example, I visited 
with producers of flowers, broccoli, coffee, and cacao. Without the 
Andean trade preferences, workers in these sectors would undoubtedly 
lose their jobs, leaving them with little option outside of the illegal 
drug trade or illegal immigration to the United States.
    Unfortunately, too often, ATPDEA has been extended for short time 
periods, creating uncertainty and an unstable investment climate in the 
beneficiary countries. To make a real impact, we must immediately 
extend ATPDEA for at least two years.
    As this Subcommittee considers the renewal of the Andean trade 
preferences and future trade preference reforms, I also urge you to add 
Paraguay as an ATPDEA beneficiary country. In April, I introduced H.R. 
1837--the U.S. Paraguay Partnership Act of 2009--which would do just 
that. My bipartisan bill would be a catalyst for economic development 
in Paraguay, while also supporting essential U.S. geopolitical goals.
    Paraguay is the second poorest country in South America. 30% of 
Paraguayans live in poverty. And, according to the 2008 World 
Development Indicators, 14% of Paraguayans live on less than $1 per 
day. Paraguay's inclusion as an Andean trade preference beneficiary 
country would be fundamental in helping to reduce these poverty levels.
    But, the U.S.-Paraguay Partnership Act of 2009 is about much more 
than poverty reduction. My bill will also strengthen the already robust 
relationship between our two countries. I visited Paraguayan President 
Fernando Lugo in Asuncion last November, and he expressed to me his 
interest in a strong relationship with the United States. President 
Lugo is the first Paraguayan president to be elected not from the 
country's Colorado party in 60 years, and he is already a good friend 
and important ally of the United States.
    Paraguay is a small, landlocked country that is often left out of 
discussions of U.S. policy toward Latin America. But, it is a critical 
partner in so many areas. According to the State Department's February 
2009 International Narcotics Control Strategy Report, in 2008, 
Paraguay's National Anti-drug Secretariat (SENAD) seized a record 172 
metric tons of marijuana. Paraguay also works closely with the United 
States and its neighbors Argentina and Brazil in the ``3+1 process'' to 
curb illicit activities in the so-called tri-border area where the 
borders of Paraguay, Argentina and Brazil meet.
    The U.S.-Paraguay Partnership Act of 2009 is a bipartisan bill 
which I introduced with my good friend, Congressman Dan Burton (R-IN). 
There is also a bipartisan companion bill in the Senate--S. 780--
introduced by Senators Bill Nelson (D-FL) and John Cornyn (R-TX). And, 
my bill is supported by an extremely wide-ranging number of 
organizations, including Oxfam, the National Foreign Trade Council 
(NFTC), the Washington Office on Latin America (WOLA), and the American 
Apparel and Footwear Association (AAFA).
    In April, I led the official Congressional Delegation to the Summit 
of the Americas in Trinidad and Tobago. At the Summit, President Obama 
pledged a ``new chapter of engagement that will be sustained throughout 
my administration.'' In less than a year, the President has made 
impressive strides in enhancing hemispheric relations. As Chairman of 
the Western Hemisphere Subcommittee, I believe it is crucial for 
Members of Congress to support the President in re-engaging the 
hemisphere. The US-Paraguay Partnership Act of 2009 will do just that, 
and will be a win-win for both of our countries.
    Thank you again for the opportunity to testify today.

                                 

    Chairman LEVIN. Thank you very much. And as stated at the 
beginning, we will be in close touch with all of you with a lot 
of back and forth. We won't do it today, but we will do it on 
the floor, and as we work on decisions as to extension and as 
to reforms.
    I know I speak on behalf of all of us here to thank you for 
your critical involvement in these issues. So thanks again, and 
if any of you want to come up here, feel free to do that.
    And we will now go on to the second panel, and we will ask 
the four witnesses to come forth.
    Let me add, as they are joining us, we also have a written 
statement for the record from the Department of State. It 
hasn't arrived yet, but I guess I should ask, without 
objection, we will enter it into the record--any objection?--
once it arrives. And of course it will be distributed.
    [The statement follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman LEVIN. We welcome all of you, a distinguished 
panel. Some of you have been very much here before. I think 
your involvement here does symbolize how with this 
administration there is a determination that there be the 
fullest back and forth between the executive and Members of 
Congress, and that's going to be true as to all trade policy 
issues, so your presence really is important.
    Let me go from left to right and introduce, and then you'll 
take over. Tim Reif is now General Counsel of USTR, and as all 
of you know served here with total distinction as chief of the 
trade staff for the now majority, and earlier for the minority.
    Sandra Polaski has a long career in government, is now 
Deputy Under Secretary in the U.S. Department of Labor, the 
Bureau of International Labor Affairs, and as I said brings 
years of background on work with developing nations, was with 
Carnegie before she agreed to join the administration as she 
has been in previous administrations, so Ms. Sandra, welcome to 
you.
    And Mary Ott, Dr. Ott, is a Deputy Assistant Administrator 
for USAID, the Bureau of Economic Growth, Agriculture and 
Trade. When I was in AID years ago there was no such bureau. It 
was differently constructed, and now we have the nomination of 
a new administrator of AID, and will welcome the forward 
movement of AID, and look forward to your testimony.
    And then finally, Burnham (Bud) Philbrook, who is Deputy 
Under Secretary for the Department of Agriculture, the Farm and 
Foreign Agriculture Services, and I think we all know the 
absolutely indispensable role that Agriculture plays in work 
with developing nations. This goes back 50, 60 years, anyway.
    So each of you has five minutes. I think you know the 
rules, which we would like to adhere to if possible, that you 
enter your statement in the record, and then do as you wish. If 
you wish to follow your statement, do so, if you would like to 
summarize, if you would like to pick out key issues that you 
know will be of interest. As you can see there's a lot of 
interest here among the members in moving ahead in delving into 
these issues.
    So Tim, we'll call you Tim. Mr. Reif, the General Counsel 
Reif--Reif, I should say. Tim, take over.

  STATEMENT OF TIM REIF, GENERAL COUNSEL, OFFICE OF THE U.S. 
                      TRADE REPRESENTATIVE

    Mr. REIF. Thank you, Mr. Chairman. Congressman Brady, 
Chairman Rangel, good morning. I would like at the outset to 
express on behalf of my agency and Ambassador Ron Kirk our 
great appreciation to you for convening this important hearing 
on this vital subject.
    U.S. trade preference programs are a critical component of 
both U.S. trade and development policy. U.S. trade preference 
programs have helped to spur economic growth and provide 
benefits to countries that need them the most. Each of you 
joined by your colleagues and predecessors on the subcommittee 
and the committee has played a central role in maintaining and 
enhancing the strength of these programs to the lasting benefit 
of both developing and least developed countries around the 
world, and to American workers, farmers, ranchers and 
businesses.
    In addition, on a personal note, this is a subject on which 
I was privileged to spend many enjoyable, challenging and 
productive hours working with your majority and minority chief 
counsels over the last decade. I had the good fortune to learn 
a great deal from both of them, and I am not telling you 
anything you don't know to say that you are very fortunate to 
have them at your side as you examine ways to improve these 
programs even further in the coming months.
    My statement for the record addresses 10 subjects. I would 
like to briefly address 5 points. First, the conduct and 
expansion of U.S. trade preference programs over the last 35 
years, and particularly over the last decade has been a 
bipartisan, bicameral Congressional executive collaboration 
success story. As the chart before you shows, in the last 10 
years alone, Congress has passed and the executive has signed 
into law on 23 separate occasions improvements, expansions and 
extensions to the 5 pillar U.S. trade preference programs.
    This track record is remarkable and reflects the strong and 
sustained commitment of this committee, the House, the Congress 
and the executive to expanding economic opportunity for 
developing countries and least developed countries, and in the 
United States through these programs.
    As we face the challenging issues ahead, we can take 
particular confidence that we will meet them successfully based 
on this strong track record.
    Second, U.S. trade preference programs have achieved and 
continue to achieve important successes to expand trade, boost 
economic growth and reduce income inequality, thereby providing 
people living in developing and least developed countries with 
greater hope and confidence for their economic futures.
    My testimony contains a number of examples, from Afghan 
exports of dried plums and prunes and figs and gold jewelry, to 
Tunisian exports of sauces and condiments and electrical 
switching apparatus, to Georgian exports of jams and jellies. 
I'm getting hungry.
    At the same time--not for the electric switching apparatus. 
At the same time, these programs are a major source of imports 
and products for U.S. business, and in particular small and 
medium-sized companies, and provide important partnership 
opportunities between U.S. workers and businesses, and workers 
and businesses in developing countries.
    Third, the administration strongly supports the immediate 
renewal of the GSP program, set to expire just six weeks from 
now on December 31st. The administration is, of course, aware 
of the range of issues that is under discussion and the voices 
for reform, a number of whom you will be hearing from later in 
the hearing. We stand ready to work with the members of this 
committee, others in Congress and interested stake holders to 
address these issues. For now, we urge the speedy renewal of 
GSP and stand ready to work with you.
    Fourth, the second preference program that expires at the 
end of the year is the Andean Trade preference program, as you 
know. This program has continued to achieve a key goal 
established at its creation in 1990 by President Bush, provide 
sustainable economic alternatives to drug crop production and 
form a key element in U.S. counter narcotic strategy. The 
administration supports an extension of this program and looks 
forward to continuing to work with you on how best to use the 
program and to respond to the specific circumstances presented 
by each of the Andean countries.
    My statement also addresses the critical role that AGOA, 
CBI and HOPE are playing for those critical regions and 
countries to promote development and economic growth. I won't 
dwell on that now, but would be happy to answer any questions 
you may have.
    In closing, for more than 30 years, Republican and 
Democratic administrations and Republican and Democratic 
Congresses have worked shoulder to shoulder and tirelessly to 
craft and implement preference programs that will promote 
development and economic growth in developing countries, in 
turn providing a stronger multi-lateral trading system by 
expanding opportunities for American workers, farmers, ranchers 
and business. Your collective efforts have resulted in a strong 
and steady growth in trade with our developing country trading 
partners, in good measure thanks to these preference programs. 
This growth in turn has benefitted those countries and their 
workers, as well as U.S. business and families. While much work 
remains to be done, much has already been accomplished.
    Thank you again for convening this important hearing and 
for inviting USTR and the administration to testify before you.
    [The prepared statement of Mr. Reif follows:]
            Prepared Statement of Tim Reif, General Counsel,
                Office of the U.S. Trade Representative
    Good morning, Chairman Levin and Congressman Brady. I would like at 
the outset to express, on behalf of my agency and Ambassador Kirk, 
great appreciation to you for convening this hearing on this vital 
subject. The optimal design and functioning of U.S. trade preference 
programs is a critical component of both U.S. trade policy and U.S. 
development policy.
    U.S. trade preference programs have helped to spur economic growth 
and provide benefits to countries that need them the most. Each of you, 
joined by your colleagues and predecessors on the Subcommittee and 
Committee, have played a central role in maintaining and enhancing the 
strength of these programs over the last decade--to the lasting benefit 
of both American workers, farmers, ranchers and businesses, and 
developing and least-developed countries around the world.
    This morning, I would like to address 10 subjects.
1. Bipartisan, Bicameral, Congressional-Executive Collaboration Success 
        Story
    First, the conduct and expansion of U.S. trade preference programs 
over the last 35 years, and particularly over the last decade, is a 
bipartisan, bicameral, congressional-executive collaboration success 
story. In the last 10 years alone, Congress has passed, and the 
Executive has signed into law on 23 separate occasions, improvements, 
expansions and extensions to the five pillar U.S. preference programs: 
the U.S. Generalized System of Preferences (GSP); the Caribbean Basin 
Initiative (CBI); the African Growth and Opportunity Act (AGOA); the 
Andean Trade Preference Act (ATPA); and the Haitian Hemispheric 
Opportunity Through Partnership Encouragement Act (HOPE). See chart.
    This track record is remarkable and reflects the strong and 
sustained commitment of this Committee, the House of Representatives, 
the Congress and the Executive, to expanding economic opportunity in 
the United States and developing countries through these important 
programs. These efforts have never been easy; little that is worthwhile 
is. However, as we face the challenging issues ahead, we can take 
particular confidence that we will meet them head-on and successfully 
based on this strong track record.
2. Economic Development in Developing and Least-Developed Countries
    Expanded trade with the world's developing countries is critical to 
boosting their growth, reducing income inequality, and providing people 
living in these countries with greater hope and confidence for their 
economic future. Our preference programs have achieved important 
successes in helping to improve lives and generate greater 
opportunities and to advance these indicia of economic development.
    In 2008, the total value of U.S. imports under our preference 
programs was $110 billion, up 21 percent from 2007. Imports under our 
preference programs in 2008 held a 5.3 percent share of total U.S. 
goods imported for consumption, up from 4.7 percent in 2007. The 21 
percent growth rate in imports under these programs compares to a 7.6 
percent increase for total U.S. imports from the world over the same 
period.
    There are many individual success stories behind these larger 
numbers. For example, Afghanistan's agricultural and artisanal exports 
to the United States have increased substantially since we strengthened 
outreach on the duty-free export opportunities available to the 
country's producers. In 2007, only dried apricots and a small amount of 
dried berries were exported to the United States under GSP. In the 
first nine months of 2009, however, gold jewelry and six additional 
types of agricultural products, including dried plums, prunes, figs, 
dried peas, and dried fruit mixtures, have begun to enter under GSP.
    In October 2008, USTR worked with the Departments of State and 
Commerce to provide a series of GSP educational seminars and industry 
meetings in three Tunisian cities. Since that time, imports of many of 
the products discussed have increased, notwithstanding that total 
imports from Tunisia have dropped. These products include sauces, 
condiments, and other food preparations (which have increased by 268 
percent); electrical switching apparatus (which have increased by 76 
percent); and dates (which have increased by 39 percent). Small and 
medium-sized enterprises benefit from these increases.
    Similarly, in September 2008, USTR sponsored a joint outreach 
effort to Georgian producers and exporters. In the intervening year, 
exports from Georgia's agricultural and processed food sectors--which 
were emphasized during the USTR outreach seminars because of their 
benefit to rural Georgians--have increased substantially, even as its 
overall exports to the United States under GSP have decreased. For 
example, imports of jams and jellies have increased by 600 percent, 
imports of sweetened mineral waters have increased by 126 percent, and 
imports of prepared or preserved vegetables have increased by 100 
percent.
    The GSP program provides duty-free access for many items produced 
by small- and medium-sized businesses, including in rural areas, such 
as wooden jewelry boxes, rattan basketwork, string instruments, and 
certain national flags. Exports of these flags by least-developed 
countries Cambodia and Haiti in 2009 have grown by over 4000 and 9000 
percent, respectively, compared to the same time period in 2008.
3. Generating New Economic Opportunities in the United States
    As noted earlier, our preference programs help not only beneficiary 
developing countries, but also U.S. businesses and families. These 
programs are a major source of imports and products for U.S. 
businesses, including small- and medium-sized companies, and include 
important partnership opportunities between U.S. workers and 
businesses, and workers and businesses in beneficiary developing 
countries.
    Imports under these programs lower costs for U.S. consumers and 
producers. For example, in 2008, duty-free treatment under GSP resulted 
in a total savings of approximately $850 million.
    In 2005, according to the U.S. Chamber of Commerce, 75 percent of 
U.S. imports entering duty-free under GSP were raw materials, 
components or equipment used by U.S. companies to manufacture goods 
either for domestic consumption or export. The Chamber also found that 
GSP is particularly important to U.S. small businesses, many of which 
rely on the program's duty savings to compete with much larger 
companies. Maintaining lower costs for our small- and medium-sized 
enterprises is particularly important as companies struggle to recover 
from the economic downturn.
4. Eligibility Criteria
    From the outset, eligibility criteria have been a critical 
component in Congress' design of U.S. preference programs, and in their 
operation, to ensure that they are achieving their stated goals and are 
functioning as Congress and the Administration intended. In this 
regard, three points are key.
    First, the criteria were intended to and have achieved four core 
goals: (1) strengthened the rule of law in beneficiary countries; (2) 
provided incentives for sensible policies and policy reforms; (3) 
promoted development; and(4) improved the operating environment for 
U.S. exporters in the beneficiary countries. There are numerous 
examples:

          In response to a GSP review, Swaziland ratified a new 
        constitution and amended its Industrial Relations Act to 
        strengthen labor rights.
          In response to GSP and AGOA reviews, Uganda enacted 
        comprehensive labor reform, established a new industrial court 
        to address labor issues, and has undertaken to assign labor 
        inspectors in every district in the country.
          To have GSP reinstated in 2006, Liberia repealed a 
        decree that prohibited strikes and invited the International 
        Labor Organization (ILO) to assist in bringing its laws and 
        practices into conformity with international standards.
          The April 2009 Special 301 report announced among 
        other things that USTR would review the IPR practices of 
        beneficiaries, including The Bahamas, as part of its biennial 
        review of the operation of the Caribbean Basin Economic 
        Recovery Act. Following a meeting with U.S. officials and 
        industry representatives in August 2009, the government of The 
        Bahamas announced that it would implement changes to its 
        Copyright Act to restore copyright protection for U.S. pay 
        television content. Those changes went into effect last month.
          Similarly, increased protection and enforcement of 
        intellectual property rights have occurred in Ukraine and 
        India. Following the suspension of its GSP benefits, in July 
        2005, Ukraine passed legislation that strengthened its 
        licensing regime and enforcement efforts to stem the illegal 
        production and trade of CDs and DVDs, and its GSP benefits were 
        restored. Also in 2005, India's GSP benefits were restored 
        after it adopted legislation that strengthened its patent 
        protection of pharmaceutical and agricultural chemical 
        products.

    Second, the Administration by statute and practice engages in two 
types of reviews to ensure that the statutory criteria are being met. 
In the first type of review, by statute, USTR is required to conduct 
annual reviews of the AGOA and ATPA programs, and biennial reviews of 
the CBI program. We solicit information from stakeholders in each of 
these reviews and publish reports as required by Congress. An 
interagency team is currently conducting the regular reviews under 
AGOA, ATPA and CBI.
    The second type of review, established by regulation for the GSP 
program, is petition-driven. Under this approach, every year the 
interagency team requests petitions from stakeholders regarding the 
eligibility of beneficiary countries and regarding possible 
modifications to the list of products eligible for duty-free treatment. 
Our reviews of beneficiary eligibility focus on issues that interested 
parties, including unions, NGOs, and industry groups, raise in 
petitions. Our interagency team, led by USTR, responds to these 
petitions by examining the issues, raising concerns with the foreign 
governments, and encouraging reforms. We also conduct in-country visits 
where appropriate.
    Between 2001 and 2009, the interagency group evaluated 61 petitions 
concerning thirty-four beneficiaries under the GSP program. Progress is 
frequently achieved in these cases without limiting or revoking 
benefits. We were able to close fifty-one of these cases without 
modifying benefits. One case during this time period (Ukraine) resulted 
in a complete suspension of benefits. However, we were subsequently 
able to restore Ukraine's eligibility, as well as the eligibility of 
three countries (Liberia, India, and Pakistan) whose benefits had been 
revoked prior to 2001.
    Third, we are aware that both the criteria and the ways in which 
they are applied and made effective are subjects that the Committee and 
others in Congress are interested to discuss moving forward. We stand 
prepared to answer questions about the operation of the criteria and 
reviews currently and to date, offer technical advice and engage with 
you on policy issues as you advance in your deliberations.
5. Renewal of the Generalized System of Preferences
    GSP is the oldest and most broadly based of the U.S. preference 
programs, first enacted by Congress in the Trade Act of 1974. Today, 
131 developing countries are beneficiaries, with forty-four countries 
receiving additional benefits as least-developed beneficiaries. All GSP 
beneficiaries receive duty-free treatment for nearly 3500 tariff lines, 
and least-developed countries receive duty-free treatment for an 
additional 1400 tariff lines.
    In 2008, U.S. imports under the GSP program were valued at $31.7 
billion, an increase of 2.6 percent over 2007. To put this in 
perspective, in 2008, the GSP program provided duty-free treatment to 
significant percentages of U.S. imports from individual beneficiary 
countries. For example, 76 percent of all U.S. imports from Paraguay, 
nearly 60 percent of U.S. imports from Georgia, and over 40 percent of 
U.S. imports from Fiji, Lebanon, and Macedonia received duty-free 
treatment under the GSP program. Total U.S. imports under GSP through 
September 2009 have amounted to $14.7 billion.
    The GSP program has been a substantial success. For example, 
between 2002 and 2006, there was an average 17 percent annual increase 
in imports under GSP. GSP imports from least-developed countries grew 
by an annual rate of 26 percent. In addition, individual countries such 
as Afghanistan, as noted above, have been able to diversify their 
exports under GSP.
    We are, of course, aware of the range of issues that have been 
under discussion in recent years and the voices for reform of the 
program within Congress and in the private sector, from all 
perspectives.
    There are a number of important questions that deserve careful 
deliberation and analysis in considering possible modifications to GSP 
and the other programs. Among other issues, questions have been raised 
related to country graduation, harmonization of U.S. preference 
programs and rules of origin, and possible modifications to eligibility 
criteria. In view of the very short time remaining before the program 
expires on December 31, 2009, we would propose to continue to work with 
all interested Members, and private sector stakeholders, to address 
these and any other concerns. However, for now, the Administration 
urges speedy renewal and stands ready to work with Congress to achieve 
this as quickly as possible.
    In regard to the length of an extension, the recent past indicates 
that Congress provided a one-year extension in 2008, a two-year 
extension in 2006, and a five-year extension in 2002. The 
Administration is aware that there may be differences of view now as 
there were at the time of these earlier renewals on the most 
appropriate length of a possible extension. The Administration is also 
aware of--and welcomes and looks forward to participating in--efforts 
to reform this and other trade preference programs. The Administration 
favors an extension at this time that is consistent with the sound, 
efficient and predictable operation of the program. Recognizing that 
discussions are ongoing in Congress on both immediate extension and 
reform, we stand prepared to work with you and with all those 
interested to secure an extension of the program as quickly as 
possible.
6. Renewal of the Andean Trade Preference Program
    The second preference program that expires at the end of the year, 
as you know, is the Andean trade preference program. This program was 
proposed by President Bush in 1990, and enacted into law as part of the 
Andean Trade Preference Act (ATPA) of 1991, and amended and expanded in 
2002 through the Andean Trade Promotion and Drug Eradication Act 
(ATPDEA). A major goal of the ATPA/ATPDEA is to help defeat the scourge 
of drug trafficking in the Andean region by providing sustainable 
economic alternatives to drug-crop production, forming a part of our 
overall counternarcotics strategy.
    As demonstrated in a report USTR submitted to Congress in April of 
this year, the ATPA/ATPDEA program has continued to achieve this goal. 
For instance, it has created employment for displaced persons in the 
flower farms and textiles factories of Colombia and has provided jobs 
for female heads of household in Ecuador's tuna factories.
    Approximately 90 percent of U.S. imports from ATPA/ATPDEA countries 
enter the United States duty-free under ATPA/ATPDEA, GSP or most 
favored nation. Significantly, all twenty leading imports from the 
region were eligible for duty-free treatment in 2008. Over the past 
five years, U.S. imports from the region increased 144 percent, and 
U.S. exports grew even faster, increasing by 203 percent.
    In fact, the United States is the leading source of imports and the 
leading export market for the ATPA/ATPDEA beneficiary countries. The 
current ATPA/ATPDEA beneficiary countries collectively represented a 
market of about $21.1 billion for U.S. exports in 2008, and were home 
to about $13 billion in U.S. foreign direct investment in 2007. Thus, 
the ATPA/ATPDEA has benefitted both the Andean region and the United 
States. The Administration encourages Congress to extend the program 
when it expires at the end of this year.
    In recent years, as the circumstances of the original ATPA/ATPDEA 
beneficiary countries have changed, we have been working to implement 
the program in a way that addresses these changes. For example, as a 
result of the President determining that he was not able to certify by 
June 30 of this year that Bolivia was meeting the program's eligibility 
criteria, Bolivia is no longer eligible for ATPA/ATPDEA benefits. In 
the same report to Congress, the President flagged concerns regarding 
Ecuador, particularly its investment policies, and said that he would 
monitor all of the concerns. Meanwhile, we need to work with you and 
review the implications of the February 1, 2009, entry into force of 
the United States-Peru free trade agreement for Peru's status as an 
ATPA/ATPDEA beneficiary country. Colombia has negotiated an FTA, but 
the Administration is still working with Colombia to address labor-
related issues. As Congress considers an extension of the ATPA/ATPDEA, 
we look forward to continuing to work with you on how best to use the 
program to respond to the specific circumstances presented by each of 
these countries.
7. The African Growth and Opportunity Act
    The African Growth and Opportunity Act (AGOA) is another important 
U.S. trade preference program. Enacted in May 2000, AGOA was designed 
to expand U.S.-sub-Saharan African trade and investment, stimulate 
economic growth, promote a high-level dialogue on trade and investment-
related issues, encourage economic integration, and facilitate sub-
Saharan Africa's integration into the global economy. AGOA builds on 
GSP by eliminating duties on an additional 1800 products for 
beneficiary sub-Saharan African countries, of which there are currently 
40. Beneficiary countries must meet eligibility criteria based on 
``best practices'' policies, thereby supporting African efforts to 
liberalize trade, implement economic reforms, establish the rule of 
law, reduce poverty, and strengthen labor and human rights.
    Congress passed significant enhancements to AGOA in 2002, 2004, 
2006, and 2008. AGOA's current authorization ends in 2015, and its 
special third-country fabric provision is scheduled to end in September 
2012.
    Over the last nine years, AGOA has helped to increase both the 
volume and diversity of U.S. trade with sub-Saharan Africa. U.S. 
imports under AGOA totaled $66.3 billion in 2008, more than eight times 
the amount of AGOA imports in 2001, the first full year of the program. 
While much of this increase is attributable to oil, non-oil AGOA 
imports more than tripled during this period, reaching $5.1 billion in 
2008. Thanks in part to AGOA, in recent years more than 98 percent of 
African exports to the United States entered duty-free, either under 
AGOA, GSP or zero-rate MFN duties.
    Most of those familiar with AGOA are aware of the success stories 
involving African apparel exports to the United States--such as the 
great strides that small, landlocked Lesotho, a least-developed 
country, has made in becoming the leading African exporter of AGOA 
apparel. Less well known is that AGOA has also helped to spark 
significant increases in African exports of transportation equipment, 
footwear, cut flowers, and a wide range of farm and food products, 
including processed agricultural goods.
    The Annual U.S.-Sub-Saharan Africa Trade and Economic Cooperation 
Forum--better known as ``the AGOA Forum''--provides an opportunity for 
high-level dialogue between officials of the United States and AGOA 
beneficiary countries, as well as the American and African private 
sectors and civil society. Most recently, Ambassador Kirk, Secretary 
Clinton, and Secretary Vilsack led the U.S. delegation to the 2009 AGOA 
Forum in Nairobi, Kenya in August.
    After several years of growth, trade between the United States and 
sub-Saharan Africa has slowed considerably in 2009, largely as a result 
of the global economic crisis and declining oil and commodity prices. 
During the first eight months of 2009, total imports under AGOA 
declined by 61 percent over the same period in 2008. This is obviously 
of concern to us and only underscores the importance of helping African 
countries to continue to build their trade capacity.
    One of the biggest challenges we face with respect to AGOA is how 
best to help African countries to make the most of the program. Many 
AGOA beneficiary countries have yet to export any significant amount of 
products under the program as a result of poor or insufficient 
infrastructure and limited productive capacity. Continued trade 
capacity building assistance will be crucial to helping African 
countries to take advantage of AGOA trade opportunities.
8. The Caribbean Basin Initiative and HOPE
    The U.S. trade preference programs for the Central American and 
Caribbean region, known collectively as the Caribbean Basin Initiative 
(CBI), continue to generate important benefits for beneficiary 
countries. Expansion of CBI benefits through enactment of the Caribbean 
Basin Trade Partnership Act (CBTPA) in 2000, and the provisions 
included in the Trade Act of 2002, the HOPE Act of 2006 and the HOPE II 
Act of 2008, represents an important affirmation of the ongoing U.S. 
commitment to economic development in the Caribbean Basin, by expanding 
duty-free access to the U.S. market for CBI goods.
    The CBTPA provisions are being extensively used by CBI exporters 
and U.S. importers. The total value of U.S. imports from CBI countries 
in 2008 was $19.6 billion, an increase of $56 million from 2007.
    U.S. exporters have also benefitted from the trade expansion 
fostered by the CBI program. Total U.S. exports to the CBI region, 
having reached $25.1 billion in 2008, made the CBI region the 14th 
largest market for U.S. exports.
    The HOPE program allows duty-free access to the U.S. market for 
certain Haitian-made apparel and other articles, with the goals of 
fostering stability and economic development in Haiti. As I am sure you 
are aware, Haiti is the poorest country in the Western Hemisphere, with 
80 percent of the population living in poverty and 54 percent in abject 
poverty. The economy has recovered in recent years, but four tropical 
storms in 2008 caused nearly $1 billion in damages, killed over 800 
people, and severely hurt the transportation infrastructure and 
agricultural sector.
    U.S. economic engagement under the HOPE program has boosted apparel 
exports and investment in Haiti. HOPE II has further improved the 
environment for the apparel sector by extending preferences to 2018. 
The first international buyers' forum in Haiti took place in October, 
with senior USTR officials in attendance. USTR continues to work with 
various agencies to help Haitian and U.S. businesses take full 
advantage of the benefits under HOPE and HOPE II. We remain hopeful 
that the HOPE program can help to improve conditions across Haiti.
9. Trade-Related Development Assistance
    Expanded trade under the right framework of rules is a necessary 
condition for sustainable economic development. At the same time, trade 
alone cannot be expected to be the solution to issues of economic 
development. Expanded trade must be accompanied by the right mix of 
policy efforts on the part of the host country and various effective 
forms of technical and development assistance. Trade expansion is 
essential for the smallest and poorest developing countries to access 
markets of sufficient size and with sufficient demand to support rapid 
expansion of production, employment and incomes.
    The Obama Administration has an aid strategy integrated within our 
overall development assistance framework. U.S. trade-related assistance 
helps developing countries to achieve sustained and broad-based 
economic growth through three program approaches: (1) development of 
well-functioning markets; (2) enhanced access to productive activities; 
and (3) strengthening the international framework of policies, 
institutions and public goods, which provide benefits for many. 
Expanded rules-based trade is a key component of each of these 
elements.
    Second, the most effective form of trade-related development 
assistance in a given instance is likely to vary widely. For example, 
providing to African countries more staff qualified in U.S. sanitary 
and phytosanitary standards (SPS) can help those countries' governments 
and businesses to understand better U.S. SPS legal requirements and 
procedures. In this way, exporters in those countries have a greater 
opportunity to satisfy U.S. legal requirements and to export products 
that American consumers can enjoy. Similarly, improving infrastructure 
and modernizing customs administration can better enable beneficiary 
countries to access more fully the benefits of trade. One size does not 
fit all.
    Third, the goal of the Administration is to work with Congress, 
countries and the private sector to improve the aid dimension. Our goal 
is to provide the most effective assistance to maximize the benefits 
provided and the synergies between that assistance and fully enabling 
beneficiary countries to take advantage of the opportunities afforded 
by the world trading system. For this reason, U.S. trade-related 
assistance focuses on country-based bilateral and regional programs, 
thereby ensuring that programs are flexible and can respond in a timely 
way to local needs and opportunities.
    Another example of trade-related assistance is our Millennium 
Challenge Corporation (MCC) programs. These programs enhance economic 
growth in a way that delivers tangible benefits to the poor. MCC 
partner countries have prioritized Aid for Trade in their proposals. 
More than half of all the funds MCC has obligated from 2005-2008 fall 
within Aid for Trade. From 2005 to 2008, total U.S. trade-related 
assistance was almost $6.4 billion. In fiscal year 2008 alone, the 
total annual trade related assistance was $2.24 billion, 60 percent 
higher than in 2007.
10. Challenges Ahead
    For more than thirty years, Republican and Democratic 
Administrations and Republican and Democratic Congresses have worked 
closely together and tirelessly to craft and implement preference 
programs that will promote development and economic growth in 
developing countries, in turn providing a stronger multilateral trading 
system by expanding opportunities for American workers, farmers, 
ranchers and businesses. Our collective efforts have resulted in a 
strong and steady growth in trade with our developing country trading 
partners, in good measure thanks to these preference programs. This 
growth in turn has benefitted those countries and their workers, as 
well as U.S. businesses and families.
    The success of our preference programs provides a strong foundation 
on which to build and ensure that U.S. trade policy toward developing 
countries and U.S. preference programs leads to even more effective 
economic integration with developing and least-developed countries as 
well as new opportunities for American workers, farmers, ranchers and 
businesses. We recognize the importance of the continued success of 
these programs. We know that more work lies ahead and are fully 
committed to and prepared to engage in this effort.
    Here at home, there are questions about the best ways to ensure 
that we maintain the most effective framework and structure for these 
programs and achieve the broadest possible utilization of them by all 
countries. Much has been achieved, but much remains to be done. We look 
forward to working with you as we work to address the many and 
important challenges ahead.
    Thank you again for convening this important hearing and for 
inviting USTR and the Administration to testify this morning.

                                 

    Chairman LEVIN. Thank you. It's a special welcome to see 
you, Tim.
    Sandra Polaski is next. We look forward to your testimony.

   STATEMENT OF SANDRA POLASKI, DEPUTY UNDER SECRETARY, U.S. 
   DEPARTMENT OF LABOR, BUREAU OF INTERNATIONAL LABOR AFFAIRS

    Ms. POLASKI. Chairman Levin, Ranking Member Brady, Chairman 
Rangel, distinguished Members of the Subcommittee. On behalf of 
the Secretary of Labor, Hilda Solis and the Bureau of 
International Labor Affairs at the Department of Labor, I thank 
you for the opportunity to testify here today. As you, the 
leaders of the subcommittee have already said, and Chairman 
Rangel as well, the trade preference programs were created by 
Congress in order to contribute to economic growth and 
development by providing new trade opportunities for developing 
countries.
    At the Department of Labor we focus on helping to ensure 
that this additional access to the U.S. market created by the 
preference programs should translate into broad opportunities 
for the workforces of those countries, so that the benefits of 
trade are broadly shared and gradually contribute to poverty 
alleviation and the growth of a middle class. This is one of 
the key channels through which preference programs can achieve 
the broad goal of development for which Congress created them.
    In addition to benefitting development, the effort to 
broadly distribute the benefits of trade is also one of the 
most promising paths to expand markets for U.S. exports. My 
testimony goes into detail on those issues, but I would like to 
focus here on the labor criteria of the preference programs, 
which constitute one of the key mechanisms through which the 
increased market access can lead to this broad based 
distribution of opportunities that arise from trade.
    Those criteria are meant to ensure that children are kept 
in schools, rather than toiling on plantations or in factories, 
that the labor that goes into export products is free of 
coercion, such as debt bondage or prison labor, that workers 
can choose freely to join unions and engage in collective 
bargaining, and that the conditions of work in export sectors 
are acceptable and don't offend human decency. These criteria 
contribute both directly and indirectly to the broader 
distribution of the benefits and opportunities of trade. They 
help to put the recipient countries on a virtuous ``cycle'' of 
sustainable development.
    It is important that our preference programs include these 
criteria because labor markets in many developing countries are 
characterized by numerous shortcomings or market failures. For 
example, economic power is often highly consolidated with large 
segments of the population and workforce excluded. The 
institutions that would allow workers to claim their rights 
under law are often very weak. This may include weak labor 
inspectorates or weak or nonexistent protections for the rights 
of workers to take action on their own behalf, for example, 
through collective bargaining. In some countries these problems 
are compounded by pervasive corruption. Under such conditions 
the likelihood that trade preferences alone will translate into 
significant and sustained benefits for workers and their 
families is unfortunately low, therefore the labor criteria 
that Congress has created can provided a needed balancing 
force.
    As I mentioned earlier, the effect is also good for U.S. 
workers and firms, because the broader distribution of gains 
through the economies of our trading partners spurs their 
domestic consumption and global aggregate demand. In addition, 
by helping to build a more level playing field in the global 
economy the programs shore up support for free trade both at 
home and in the recipient countries.
    We have numerous examples of success in achieving progress 
on labor rights through our application of the labor 
eligibility criterion. For example, the U.S. accepted for 
review a petition from the public to remove Uganda's 
eligibility for GSP benefits based on alleged serious 
shortcomings of Ugandan labor law and enforcement. Following 
high level U.S. government engagement on the issues, Uganda 
committed to expedite passage of a long overdue labor law to 
improve the situation and with their legislature followed 
through.
    In this and many other cases we were able to make progress 
on labor rights through the review process and engagement with 
the relevant governments without interrupting benefits. Indeed, 
the goal of a country labor eligibility reviews is not to 
remove benefits, but rather to encourage compliance, analogous 
to labor inspections in our own country. That is why where 
engagement did not produce positive involvement we did 
occasionally remove eligibility.
    For incentives in our preference programs to be effective, 
they must be credible, just as our own domestic law enforcement 
must be credible. Over the years we have suspended eligibility 
12 times due to failures by beneficiary countries to address 
abuses of worker rights. Trade preferences have also been used 
to provide additional incentives to countries to make 
improvements in worker rights. This approach has great 
potential because it can closely align the incentives that face 
the private export sector with the public goal of improving 
worker rights and living standards.
    An excellent example of this is the 1999 Textile Agreement 
with Cambodia that offered additional textile quoted to 
Cambodia on an annual basis in response to improvement in 
worker rights and working conditions. More details of the 
success of that program are in my testimony and I would be 
happy to answer questions on it. The program was so successful 
that the Cambodian government and garment sector decided to 
continue it even after the expiration of the multi-fiber 
agreement. We are now implementing similar programs in Haiti 
and we are launching a similar program in Lesotho.
    Thank you again for inviting me to participate in this 
hearing, Chairman Levin, Ranking Member Brady and distinguished 
Members of the Subcommittee. At the Department of Labor we 
share your goal of making preference programs more effective 
tools for development and poverty alleviation, and we stand 
ready to provide any assistance that we can offer. Thank you.
    [The prepared statement of Ms. Polaski follows:]
      Prepared Statement of Sandra Polaski, Deputy Undersecretary,
    U.S. Department of Labor, Bureau of International Labor Affairs
    Chairman Levin, Ranking Member Brady and distinguished Members of 
the Subcommittee on Trade: on behalf of the Department of Labor, thank 
you for the opportunity to discuss how to ensure that U.S. trade 
preference programs are achieving their goals.
    As you know, U.S. trade preferences were created in order to spread 
economic growth and development through new trade opportunities for 
developing countries. Secretary Solis and I support this goal. The 
Secretary has made the overarching goal for the Department of Labor, 
``Good Jobs for Everyone.'' In the Department's Bureau of International 
Labor Affairs (ILAB), which I lead, we support this goal by working to 
ensure that workers and their households are able to share in the 
benefits of trade--both in developing countries and here at home. This 
goal is also an essential component of the President's broader vision 
for international growth and development that broadly benefits the 
people of the world.
    Today I would like to focus on one essential aspect of preference 
programs--the labor component. I will discuss the role that labor 
provisions play in preference programs, and why they are indispensible 
in achieving the development objectives of preference programs. I will 
also share some observations on the functioning of the preference 
programs, particularly areas where Congress may want to consider 
whether the programs could be improved.
Trade, Labor and Economic Development
    When Congress authorized the first U.S. trade preference program--
the Generalized System of Preferences (GSP)--through the 1974 Trade 
Act, the goal was to provide greater access to the U.S. market for 
developing countries. The purpose was to create additional export 
opportunities which would attract investment, develop new industries, 
create jobs, and thereby foster growth and development. Since then, 
Congress has expanded U.S. trade preferences roughly each decade, 
through the Caribbean Basin Initiative (CBI) in 1983, the Andean Trade 
Preference Act (ATPA) in 1991, the African Growth and Opportunity Act 
(AGOA) in 2000, and the Haitian Hemispheric Opportunity through 
Partnership Encouragement (HOPE) Act in 2006 and 2008. Each of these 
new programs modified the original GSP model to incorporate the 
knowledge and experience gained about how best to stimulate development 
using market access incentives.
    One of the key ways in which the preference programs evolved over 
these last 35 years was through the program eligibility criteria that 
beneficiary countries must meet in order to receive unilateral duty 
exemptions. Congress gradually included eligibility criteria in the 
programs--covering matters as diverse as treatment of investors and 
treatment of workers--that reflected the understanding that without a 
positive policy framework, greater access to the U.S. market alone 
would not lead to broad-based and sustained development.
    The labor requirements of preference programs first emerged in 
1984, when Congress and then-President Reagan negotiated the addition 
of internationally recognized worker rights to the GSP eligibility 
criteria. This innovation reflected the understanding that fundamental 
labor rights were an essential component of broad-based economic 
development in low and middle income countries, just as they were an 
essential component in our own economic development. Labor markets in 
many developing countries are characterized by numerous short comings. 
Economic power is often highly consolidated and the institutions that 
would allow workers to claim their rights under law are often very 
weak. In some countries these problems are compounded by pervasive 
corruption. Under these conditions, the likelihood is low that trade 
preferences alone will easily translate into significant and sustained 
benefits for workers and their families. However, if workers share in 
the benefits of trade and have effective means of addressing their 
exclusion, then the economic growth that comes from expanding trade may 
help address existing inequalities. It should increase the incentives 
for employers and workers to upgrade productivity and skills, rather 
than encouraging cost-cutting through disregard of national labor laws 
and international labor standards. When labor is free from coercion, 
when children are kept in schools rather than factories, and when 
workers are able to freely organize and bargain for their interests, 
the economic opportunities that come through trade are more likely to 
create widespread prosperity and put the beneficiary country on a 
virtuous upward cycle.
    By protecting the most basic human and workers' rights and ensuring 
a broader distribution of gains throughout an economy the labor 
provisions of trade preference programs also spur global aggregate 
demand, which is good for U.S. workers and firms. And by helping to 
build a more level playing field in the global economy, they shore up 
support for free trade both at home and in recipient countries.
Improvements in Worker Rights
    By adding the labor eligibility provisions on internationally 
recognized worker rights to the U.S. preference programs, Congress 
created both a requirement and an opportunity for developing countries 
to improve their labor standards. As we have utilized these provisions 
in the past, they have led to positive changes in workers' lives.
    For example, in August 2005 the U.S. government accepted for review 
an AFL-CIO petition to remove Uganda's eligibility for GSP benefits. 
The petition alleged serious shortcomings in Ugandan labor law and 
enforcement, including a requirement that a minimum of 1,000 workers 
were needed to form a union. Following high-level U.S. government 
demarches on the issues raised in the petition, Uganda committed to 
expedite passage of long-overdue labor legislation to improve the 
situation. The legislation, which the International Labor Organization 
(ILO) reviewed, addressed each of the main problems cited in the 
petition and was ultimately passed and enacted in May 2006. The 
government also undertook measures to fund and begin operations of a 
new industrial court for labor issues and posted labor inspectors in 
each district of the country.
    On occasion, benefits have actually been withdrawn when countries 
did not make progress addressing worker rights and other eligibility 
criteria. For example, Liberia's benefits were suspended in 1990 
because of worker rights concerns. However, following two decades of 
war, Liberia's new President, Ellen Johnson Sirleaf, made improving 
worker rights a high priority. This included repealing a decree that 
prohibited strikes and inviting the ILO to assist Liberia in bringing 
its laws and practices into conformity with its ILO obligations. In 
2006, Liberia's GSP eligibility was reinstated.
    Trade preferences have also been used to provide additional 
incentives for countries to make concerted improvements in worker 
rights. In 1999, the U.S. negotiated a textile agreement with Cambodia 
that offered additional textile quota annually to Cambodia when worker 
rights criteria were met based on factory-level monitoring reports. I 
was closely involved in the creation and implementation of that 
agreement and believe that certain lessons from that experience 
continue to be instructive today.
    First, the agreement aligned the market incentives facing the 
government, investors, international buyers, employers, and workers. 
Since improvements in working conditions were tied to a positive 
incentive--increased textile quota--both the private sector and the 
government benefitted when workers benefitted. Because the quota 
determinations were made annually, there was a close temporal 
relationship between improvements on the factory floor and greater 
market access. The result of the program was significant growth in 
trade, employment, and incomes for apparel workers in one of the 
world's poorest countries. From 80,000 apparel jobs in 1998,\1\ before 
the agreement took effect, employment increased to over 350,000 jobs by 
the end of 2008.\2\ As the industry and employment were growing, the 
labor rights of Cambodian workers and their working conditions also 
improved. It is important to note that even after the Multi-Fiber 
Agreement ended at the end of 2004--and with it the quota incentives 
that were used at the beginning of the program--the country continued 
its efforts to improve worker rights.
---------------------------------------------------------------------------
    \1\ Independent Final Evaluation Report (covering the period 
February 2003-December 2005), Ensuring that Working Conditions in the 
Textile and Apparel Sector in Cambodia Comply with Internationally-
Recognized Core Labour Standards and the Cambodian Labour Law, Luis 
Reguera & Christopher Land-Kazlauskas, P.7, Oct. 2007.
    \2\ Twenty-Second Synthesis Report on Working Conditions in 
Cambodia's Garment Sector, Better Factories Cambodia, International 
Labor Organization, April 30, 2009, p.5 (graph 3).
---------------------------------------------------------------------------
    A second element of the Cambodia program that deserves close 
attention is the way the factory conditions were monitored and the 
information was transmitted. The program introduced an innovative 
design that combined transparency and integrity to overcome limited 
market information and lower costs for producers. The ILO was asked by 
the U.S. and Cambodian governments to carry out a monitoring program, 
known as the Better Factories project that monitored factories and made 
the results public. This provided transparency about the conditions in 
all the export firms to international buyers, consumers and other 
factories, as well as to the governments and the labor force. This 
information helped buyers make better sourcing decisions and rewarded 
the factories that were improving, while channeling business away from 
factories with a record of labor abuses. Since the monitoring was 
conducted by a credible outside entity, buyers were able to reduce or 
eliminate their own inspections of their supplier factories. Since 
factories pay for these buyer-required inspections, the program reduced 
factory costs and eliminated redundant monitoring. Estimates show the 
Cambodia monitoring program cost factories about $3 per worker per 
year, compared to third-party monitoring costs of up to $50 per worker 
per year.
    A third element in the success of the program was the decision by 
the Cambodian government that all firms benefitting from the market 
access should participate in the Better Factories project. This ensured 
that factories that complied with the national labor laws and 
internationally recognized worker rights were not at a disadvantage 
compared to factories not in the program. This sector-wide 
participation avoided creating perverse incentives in which factories 
joining the program would be subject to greater transparency than 
factories outside the program, which would free ride on the reputation 
of the industry and program benefits. It also avoided the risk that the 
reputation of Cambodia and its apparel industry could be damaged by 
media exposes of poor labor practices by non-compliant factories 
outside the program.
    In sum, preference programs can be effective tools to both promote 
economic development and improve labor standards, so that economic 
development is broad based and sustainable. Our preference programs 
work best when economic incentives are aligned in a way that produce 
optimal results for overall growth of exports, employment generation, 
and improved respect for workers' rights. That is when we are most 
likely to see broad distribution of the benefits from preferential 
access to our market.
Observations on Existing Preference Programs
    Since the original inclusion of internationally recognized worker 
rights in the GSP statute, the United States has included labor 
provisions in every subsequent preference program and virtually every 
free trade agreement. However, Congress created the preference programs 
over time and our current system is made up of varying levels of 
benefits, eligibility criteria, and eligibility reviews. These 
variations provide insight into how the incentives created by the 
programs work in practice.
Incentives
    Congress has authorized the preference programs to provide benefits 
to countries that meet the eligibility criteria and to remove benefits 
when these criteria are not being met. The objective of the labor 
provisions of the programs is to align the incentives facing 
government, employers, and workers. When we have been able to 
effectively operationalize this alignment, we have been able to make 
significant and lasting progress.
    Regarding the incentives, I want to make an important point. The 
goal of reviewing a country's eligibility is not to remove benefits, 
but rather to encourage compliance. It may be helpful to think of the 
analogy to enforcement of U.S. labor laws. The goal of enforcement is 
not to impose penalties, but rather to create effective deterrents in 
order to elicit voluntary compliance. For the incentives in our 
preference programs to be effective, they must be credible, just as our 
domestic enforcement must be credible.
    The purpose of eligibility reviews--whether for worker rights or 
other program criteria--is to examine whether a country is failing to 
meet the criteria, engage with them to help them come into compliance, 
and--failing that--determine whether eligibility should be revoked. 
Eligibility for U.S. preference programs has been removed in the past 
at least 12 times due to failure to address abuses of worker rights, 
but nearly all of the actions were taken in late 1980s and 1990s. There 
have been several occasions when countries responded to U.S. 
engagement, through the petition and review process, to make positive 
changes to come into compliance with eligibility criteria. When this 
happens, this is a win-win situation: improvements are made and 
benefits are retained.
    There has also been one worker rights case under the GSP program, 
involving Pakistan, in which benefits were withdrawn for some, but not 
all, eligible tariff lines. Under the HOPE Act, benefits can be 
withdrawn for particular firms that fail to meet the programs' 
requirements, but benefits are maintained for rest of the country. As 
currently authorized, preference programs provide duty-free access for 
eligible goods; but if eligibility is revoked, then rates revert to the 
normal trade relations duty rate.
Transparency
    Transparency helps provide better information to all stakeholders 
and can lead to desirable outcomes with efficiency and speed. President 
Obama has called on the Federal Government to improve the transparency 
of decision making. In administering the preference programs, the 
interagency representatives regularly meet with petitioners, government 
officials, and other stakeholders to discuss the process and specific 
allegations when they are raised in a petition. Public hearings are 
also held to gather information. At the conclusion of the review 
process, a decision is made public on whether to close the review, 
continue the review, or remove benefits. However, additional 
consideration could be given to how the process can be made further 
transparent.
Standards
    Over time, our definition of labor rights has evolved. The 
definition of internationally recognized worker rights found in the GSP 
statute in 1984 preceded the development of the ILO's 1998 Declaration 
on Fundamental Principles and Rights at Work, a consensus definition 
which the U.S. supports. U.S. preference programs include the following 
labor rights:

          freedom of association and the right to organize and 
        bargain collectively;
          a minimum age with respect to children;
          the elimination of the worst forms of child labor,
          freedom from compulsory labor, and
          ``acceptable conditions of work'' with respect to 
        minimum wages, hours of work and occupational safety and 
        health.

    The ILO's 1998 Declaration includes these labor rights except for 
acceptable conditions of work. The Declaration also includes freedom 
from discrimination in the workplace as an additional right, which is 
not included in U.S. preference programs. The most recent U.S. free 
trade agreements combined the Declaration labor rights with acceptable 
conditions of work.
Petitions versus Systematic Reviews
    Another area where preference programs vary is on the trigger for 
eligibility reviews of beneficiary countries. For example, the GSP and 
ATPA programs have a petition-driven process, while AGOA has an annual 
self-initiated review. It should be noted that both systems have 
advantages and are not mutually exclusive. Petitions can serve to 
highlight, in a timely way, where significant labor abuses are 
occurring. These petitions are usually filed by stakeholders and 
organizations ``on the ground'' that have real-time knowledge and also 
may bring the capacity to collaborate on solutions to the problems 
identified.
    However, there are also cases in which third party petitions are 
not received simply because such stakeholder groups do not exist or 
because information is strictly controlled by the government and 
organizations that typically would file petitions are constrained from 
doing so. In these cases, regular, systematic reviews by the U.S. may 
better identify countries that are failing to meet the eligibility 
criteria of the preference programs. For example, the AGOA annual 
eligibility review examines every beneficiary country against each 
criterion every year and makes a recommendation to the President on 
eligibility. This has the benefit of applying the criteria universally 
and regularly each year. The review is completed at a certain date and 
decisions on individual countries are rarely extended. In contrast, 
some GSP petition reviews remain open for several years. While this 
allows for greater discretion and engagement with the beneficiary 
country to address the concerns raised in the petition, it may also 
lesson the incentive for countries to act expeditiously. As a practical 
matter, though, I should mention that the GSP program has approximately 
140 eligible countries and a full annual review process would be 
resource intensive. It may be preferable to effectively target 
resources at the most significant or strategic cases.
Conclusion
    Thank you again for inviting me to participate in this hearing, 
Chairman Levin, Ranking Member Brady, and distinguished Members of the 
Subcommittee. I believe we share the common goal of making preference 
programs more effective tools for development and poverty alleviation. 
Secretary Solis and I believe that the labor provisions of the 
preference programs are an essential component in meeting these goals. 
The Bureau of International Labor Affairs and the Department of Labor 
stand ready to provide any assistance or support to you and your staff 
as you continue in your deliberations.
                                 

    Chairman LEVIN. Well, and a special thanks.
    So Dr. Ott, take over, if you would.

 STATEMENT OF MARY OTT, PH.D., DEPUTY ASSISTANT ADMINISTRATOR, 
 U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT (USAID), BUREAU OF 
             ECONOMIC GROWTH, AGRICULTURE AND TRADE

    Ms. OTT. Chairman Levin, Ranking Member Brady, Chairman 
Rangel, and distinguished Members of the Subcommittee on trade, 
on behalf of the U.S. Agency for International Development, I 
thank you for the opportunity to present our experience in 
implementing trade capacity building programs. I ask that my 
written statement be included into the record and will take 
this time to highlight some of the key points of my statement 
as to how effective trade capacity building assistance 
activities can advance both the objectives of our trade 
preference programs and the long term developments needs of our 
developing country partners.
    Although the levels of trade and investment have increased 
rapidly over the past 20 years, global economic integration 
remains incomplete. The world's least developed countries hold 
12 percent of the world's population, but account for less than 
1 percent of global trade. Expanding trade with and among 
developing countries is a critical driver of economic growth 
and poverty reduction, and can work to encourage 
entrepreneurship, human resource development, technology 
transfer, technological innovation and good governance.
    We see the relationship between trade and development all 
the more clearly today, as reduced trade flows due to the 
global economic downturn have contributed not only to less jobs 
in the United States, but also to rising poverty in developing 
countries. Trade capacity building assistance is a priority of 
USAID's work to promote rapid, sustained and broad based growth 
in developing countries.
    Since 2001 USAID has provided more than $3.9 billion in 
assistance for trade capacity building programs. This 
assistance has been focused on helping more than 110 developing 
countries to implement trade commitments, reduce both the time 
and cost of exporting and importing goods and to improve 
business and commercial practices. USAID's on the ground 
presence in developing countries is an essential component of 
our trade capacity building support. TCB programs help to 
promote other USG development objectives, including 
agricultural development and food security, and even improved 
health. USAID currently provides TCB assistance to countries in 
all regions of the world. We support implementation of free 
trade agreements, trade and investment framework agreements, 
trade preference programs such as AGOA and HOPE, and regional 
economic integration and trade.
    I would now like to provide some brief examples of USAID 
trade capacity building programs supporting trade preference 
programs in Latin America and Africa. In Africa, the African 
Growth and Opportunity Act trade preferences have been an 
important stimulus to development of viable export enterprises 
across Africa. Trade preferences alone, however, cannot achieve 
their maximum benefit due to the many physical, procedural and 
administrative barriers affecting African trade with the United 
States. USAID has worked hard to help countries take full 
advantage of the AGOA trade preferences. Support for the AGOA 
preference program largely has been provided through activities 
carried out by four USAID funded regional hubs based in 
Botswana, Kenya, Ghana and Senegal, complemented by activities 
implemented by USAID's bilateral missions.
    For example, USAID worked with government partners along 
the Trans-Kalahari transport corridor in southern Africa to 
implement a single administrative document which allows transit 
consignments to pass through all border posts using one customs 
document. Transport through the corridor is now faster, more 
efficient and cheaper.
    In the western hemisphere, regional preference programs and 
related USAID trade capacity building activities date back to 
the establishment of the Caribbean Basin Initiative in 1983. In 
Haiti, USAID is helping local producers and workers take 
advantage of the opportunities presented by HOPE by improving 
the quality of the apparel industry's sourcing production and 
marketing. For example, USAID is providing financial and 
technical assistance for an apparel industry training center in 
Port-au-Prince in collaboration with the government of Haiti 
and the textile industry.
    USAID has gained significant experience and knowledge of 
best practices for trade capacity building. First, TCB projects 
should seek large and systemic impacts. Implementing programs 
directed toward enabling just a few firms to export to the U.S. 
is not sufficient to achieve the objectives of our preference 
programs.
    Second, TCB efforts produce better results in reform-minded 
partner countries. Support for trade policy improvements 
requires partnerships with reform-minded governments willing to 
tackle corruption that benefits from the status quo.
    Third, there is no single model for effective delivery of 
trade capacity building. USAID provides effective TCB 
activities on a bilateral basis through regional trade hubs, 
through regional associations and through multi-lateral fora. 
The particular technical assistance model selected will vary 
according to country capacities and needs.
    Fourth, successful TCB requires close inter-agency 
coordination. USAID programs are coordinated closely with our 
colleagues at USTR where USAID has established a detail 
position. Specialized technical advice is also coordinated with 
our colleagues at the Departments of Agriculture, Labor and 
Commerce and many other departments and agencies.
    Thank you again for inviting me to participate in this 
hearing Chairman Levin, Ranking Member Brady, Chairman Rangel, 
and distinguished Members of the Subcommittee. USAID stands 
ready to provide any assistance or support to you and your 
staff as you continue in your deliberations.
    [The prepared statement of Ms. Ott follows:]
Prepared Statement of Mary Ott, Ph.D., Deputy Assistant Administrator, 
      U.S. Agency for International Development (USAID), Bureau of
                 Economic Growth, Agriculture and Trade
    Chairman Levin, Ranking Member Brady and distinguished Members of 
the Subcommittee on Trade: on behalf of the U.S. Agency for 
International Development (USAID), I thank you for the opportunity to 
present our experience in implementing trade capacity building (TCB) 
programs. I hope to provide the Committee insight into how effective 
TCB assistance activities can advance both the objectives of our trade 
preference programs and the long-term development needs of our 
developing country partners.
    Although the levels of trade and investment have increased rapidly 
over the past twenty years, global economic integration remains 
incomplete. The world's least developed countries hold 12 percent of 
the world's population, but account for less than one percent of global 
trade. Expanding trade with and among developing countries is a 
critical driver of economic growth and poverty reduction and can work 
to encourage entrepreneurship, human resource development, technology 
transfer, technological innovation and good governance. We see the 
relationship between trade and development all the more clearly today, 
as reduced trade flows due to the global economic downturn have 
contributed not only to lost jobs in the United States, but also to 
rising poverty in the developing countries.
    TCB assistance is a priority of USAID's work to promote rapid, 
sustained, and broad-based growth in developing countries. TCB 
activities represent a significant portion (approximately 12%) of 
USAID' total economic growth assistance, which was approximately $3.3 
billion in FY08. Since 2001, USAID has provided more than $3.9 billion 
in assistance for TCB programs. This assistance has been focused on 
helping more than 110 developing countries to implement trade 
commitments, reduce both the time and cost of exporting goods, and 
improve business and commercial practices. In FY08, USAID funding for 
TCB totaled $385 million across 75 countries. These programs included 
$118 million for trade facilitation (speeding the movement of goods 
across borders), $62 million for trade-related agriculture, $36 million 
for financial sector development and good governance, $32 million for 
environmental issues, $27 million for physical infrastructure 
development, and $25 million for human resources and labor standards.
    USAID's on-the-ground presence in developing countries is an 
essential component of our TCB support, as is our decades-long 
experience in implementing these programs across a wide variety of 
countries and regions. TCB programs also promote other USG development 
objectives, including agricultural development and food security, 
access to microfinance and even improved health.
    USAID currently provides TCB assistance to countries in all regions 
of the world in support of a variety of shared USG and developing 
country trade objectives. USAID supports implementation of Free Trade 
Agreements (e.g., DR-CAFTA, Jordan, Peru, Morocco), trade and 
investment framework agreements and bilateral investment treaties, 
trade preference programs (such as AGOA and HOPE), and regional 
economic integration and trade. We also provide TCB support through 
organizations such as ASEAN and APEC. In addition, USAID's TCB helps 
developing countries to effectively integrate into the global 
multilateral trading community. For example, USAID has assisted more 
than 25 countries in the WTO accession process over the last 10 years.
USAID TCB Initiatives in Africa in support of AGOA
    The United States' trade policy demonstrates our nation's strong 
interest in assisting African countries to advance economically and 
improve living standards for their citizens. The African Growth and 
Opportunity Act trade preferences have been an important stimulus to 
development of viable export enterprises across Africa. Trade 
preferences alone, however, cannot achieve their maximum benefit due to 
the many physical, procedural and administrative barriers affecting 
African trade with the U.S. USAID has worked hard to help African 
countries take full advantage of the AGOA trade preferences.
    Support for the AGOA preference program largely has been provided 
through activities carried out by four USAID-funded Regional Hubs--
based in Botswana, Kenya, Ghana, and Senegal--complemented by 
activities implemented by USAID bilateral missions. The sub Saharan 
African region is unique in being subdivided into 48 independent 
countries, the overwhelming majority of which are small economies. 
Therefore, USAID decided to pursue a regional Trade Hub model to 
concentrate resources and technical expertise in regional centers of 
excellence, to support the ongoing efforts at regional integration, and 
to recognize the reality that a large number of land-locked countries 
are dependent on regional trade corridors to participate in 
international trade. The Trade Hubs have helped African countries to 
expand and diversify their exports to the United States, as well as 
increase the value of intra-regional trade for targeted commodities.
    An example will illustrate how USAID TCB supports AGOA trade 
preferences. USAID's Southern African Trade Hub assisted a chili 
production company with a new farming investment in Mozambique. With 
our support, the company is increasing its production of chili mash for 
Tabasco, an internationally known brand distributed both in the United 
States and globally. In addition, the new production in Mozambique will 
be used as raw ingredients into South African processed food products, 
providing another regional outlet for a high-value agricultural crop. 
The new investment in Mozambique will provide much needed employment to 
farmers in the area, and expand both regional and AGOA-related trade 
from Mozambique.
    In this way, the Trade Hubs have worked extensively to promote 
exports under AGOA, via direct firm and sector-level assistance, buyer/
seller linkages, and participation in trade fairs. They have 
successfully generated tens of millions of dollars in exports to the 
U.S. (more than $50 million in FY08). As in the case just described, an 
important lesson from our TCB programs has been that when our 
assistance is focused on increasing overall export competitiveness and 
awareness, significant results are also reflected in exports to other 
important markets beyond the United States.
    Along with company, industry, and sector-level assistance, the 
Trade Hubs also support regional economic communities in their 
integration efforts, and trade facilitation efforts designed to reduce 
the time/cost to move goods along transit corridors and through customs 
and ports. For example, USAID has worked with government partners along 
the Trans-Kalahari transport corridor to implement a single 
administrative document which allows transit consignments to pass 
through all border posts using one custom document. Transport through 
the corridor is now faster, more efficient and cheaper. Implementing 
this type of reform in Africa and elsewhere is increasingly important 
because reducing the internal costs of conducting business in countries 
with difficult business environments and pervasive corruption can be 
accomplished unilaterally by the countries themselves and can foster 
greater benefits than what tariff reductions alone can provide. TCB 
programs in Africa will be particularly useful in supporting food 
security objectives.
USAID TCB Programs in Latin America
    Regional preference programs in the Western Hemisphere date back to 
the establishment of the Caribbean Basin Initiative (CBI) in 1983. Much 
has changed since then. The U.S. Government recognizes the vital link 
between our trade policy agenda and trade capacity building programs.
HOPE
    Implementation of the HOPE II legislation illustrates much of the 
policy evolution that has taken place since the Generalized System of 
Preferences (GSP) and CBI were first put in place. Building on the AGOA 
model, and tailoring our assistance to the Haiti context, USAID is 
helping Haiti take advantage of the opportunities presented by HOPE. 
With USAID support, Haiti is adapting to HOPE II opportunities by 
improving the quality of the apparel industry's sourcing, production 
and marketing. For example, USAID's program with a leading garment 
manufacturer showed results in the first seven months of 2009. The firm 
attracted three new clients, created 375 skilled, semi-skilled, and 
administrative jobs, and saved an additional 200 jobs that otherwise 
may have been filled in one of the highly competitive Asian countries. 
Workforce development programs have trained young adults in basic 
industrial sewing, with 50 trainees finding long term factory jobs, and 
60 more currently enrolled. USAID is also providing financial and 
technical assistance for an apparel industry training center in Port-
au-Prince, in collaboration with the Government of Haiti and the 
textile industry. Additional USAID support to the export sector 
consists of providing technical assistance for the development of a 
garment sector strategic plan to enable firms to take advantage of 
trade preferences; and supporting the Investment Facilitation Center 
(CFI).
Caribbean Basin Initiative
    Prior to HOPE, USAID experience with regional trade preference 
programs included CBI, which laid the foundation for several 
beneficiary countries in the region to prepare for, and successfully 
negotiate, a free trade agreement with the United States. Now USAID and 
USTR lead the interagency process to coordinate TCB provision to the 
CAFTA-DR countries and Peru, and other potential FTA countries (Panama 
and Colombia).
    The CAFTA-DR agreement elevated TCB into a standing committee of 
the bilateral agreement--a similar model has been followed for Peru and 
is proposed for Colombia and Panama, while preserving the need to be 
flexible within the country context. The committee serves as a forum 
for trade partners to present their TCB needs and report on country 
progress, with donor support, in meeting those needs.
    USAID's support for the USG trade agenda played a critical role in 
the negotiation of these FTAs and was instrumental in preparing the 
countries to negotiate, informing the public on the opportunities of 
trade, identifying and targeting areas to help implement specific 
aspects of the trade agreement, and transitioning these developing 
economies to expand the benefits of the agreement through longer-term 
development efforts in rural diversification and small business growth. 
Our work gave the Central American countries greater confidence and 
fostered their ability to negotiate, implement the terms of the 
agreement, and target policy reforms, investments, and capacity 
building to expand the benefits of trade to a larger segment of the 
population. Complementing the negotiation of a FTA with the provision 
of TCB assistance demonstrated the importance of linking aid to trade.
    Elsewhere in the Caribbean region, assistance under the Bridgetown 
Accords (1997) and subsequent negotiation of a multilateral agreement 
(the Free Trade Area of the Americas, which was never completed) helped 
countries to address several trade-related issues ranging from sanitary 
and phytosanitary (SPS) measures, customs reforms, and competition 
policy. Currently, in the Eastern Caribbean, USAID activities aim to 
help the region meet its requirement to participate in open trade 
regimes, reduce business constraints, and leverage market 
opportunities. USAID works through a public-private alliance that 
leverages private sector resources to train selected farmers and 
exporters to use sound market intelligence, agronomic and production 
technology packages, and integrated pest management systems for 
selected specialty crops for export to North America and regional 
markets.
Principles for Effective TCB Assistance to Support U.S. Trade 
        Preference Programs
    Producers and investors need a long-term planning horizon. USAID's 
TCB activities support a wide range of U.S. trade policy objectives 
from trade preference programs to implementation of fully-fledged free 
trade agreements. One constant concern articulated by investors relates 
to the stability and predictability of some of these programs. 
Participants have noted that preference programs' utility is affected 
if they are subject to frequent changes or expiration dates.
    Both bilateral and regional programs are needed to achieve USG 
goals for TCB. An important lesson from the LAC region is the need to 
recognize when TCB should be delivered bilaterally instead of 
regionally. For example, in the CAFTA-DR countries and in the Andean 
Region, USAID regional programs provided support to meet obligations in 
such areas as SPS measures, customs reform and trade facilitation, and 
intellectual property rights. Bilateral programs focused their 
attention on agricultural diversification, small business development, 
improving the ``doing business'' environment and fostering 
competitiveness.
    TCB projects should seek large and systemic impacts. Implementing 
programs directed toward enabling a few firms to export to the U.S. is 
not sufficient to achieve the objectives of our preference programs. 
Finite resources and large TCB needs demand prioritization of 
activities based on a targeted aid-for-trade agenda that emphasizes TCB 
investments with the highest returns--specifically those reforms 
associated with trade policy and regulation. For example, the Trade Hub 
model has evolved to focus on regional trade facilitation issues and to 
expand its scope beyond AGOA exports to a broader concept of trade 
competitiveness, including through developing the capacity of African 
producers to export regionally and to other markets such as the 
European Union and Middle East.
    TCB efforts produce better results in reform-minded partner 
countries. There is strong evidence that improving trade facilitation--
for example better port and information infrastructure, more rapid 
customs clearance times, and regulatory reform to remove duplicative 
technical requirements on imports--has a positive impact on trade 
performance. The opportunities presented by U.S. trade preference 
programs can be a powerful catalyst for motivating these reforms. 
Nevertheless, support for trade policy improvements requires 
partnerships with reform-minded governments willing to tackle 
corruption and the vested interests that benefit from the status quo. 
This would suggest greater returns by focusing assistance on countries 
prepared to undertake reforms.
    It is important to note that as average import tariffs worldwide 
have dropped significantly over the past 50 years, other trade barriers 
such as onerous border procedures have become the primary obstacles to 
trade for developing countries. USAID has funded research to calculate 
the tariff equivalents of time lost to export delays and found that 
they significantly exceed tariffs faced by exporters in all developing 
country regions with the exception of East Asia and the Pacific. Reform 
steps to reduce such delays will go far to assist developing countries 
to expand their trade; indeed, trade facilitation may represent the 
greatest potential return on investment for USG TCB activities. Trade 
facilitation is an area in which USAID TCB programs have shown 
significant success. For example, successful programs over the last 
four years in Georgia, Macedonia, Afghanistan, Egypt, Guatemala, and 
Ghana, have cut the average time to ship, process, and deliver 
shipments from buyers to sellers by an average of 31 days. (Reduction 
of a single day can reduce costs by one percent or more depending on 
the type of good).
    TCB investments need not be large to have significant impacts. The 
median bilateral TCB program implemented by USAID during FY 08 was 
approximately $1.75 million. Modest resources can be translated into 
highly significant results when focused on key policy issues in 
countries whose governments are committed to implementing reforms. For 
example, USAID provided extensive technical assistance for the U.S.-
Vietnam Bilateral Trade Agreement (BTA), and later for Vietnam's full 
accession into the World Trade Organization (WTO). With its effective 
implementation, investment and bilateral trade have surged. This 
relatively small activity supported trade-facilitating laws related to 
the labor code, credit institutions, standards, arbitration, consumer 
protection and regulations affecting imports, investment, and exports, 
including intellectual property rights. USAID assistance also supported 
the Prime Minister's sweeping initiative to reduce, simplify, or 
eliminate the costly and risky burdens on business/trade caused by tens 
of thousands of outdated administrative procedures and cumbersome 
regulations.
    There is no single model for effective delivery of TCB. USAID 
provides effective TCB activities on a bilateral basis, through 
regional Trade Hubs, through regional associations, and through 
multilateral forums. The particular technical assistance model selected 
will vary according to country capacities and needs, the extent of 
regional integration efforts, and the technical capacity of our 
bilateral Missions to deliver assistance. For example, while a Trade 
Hub approach may be appropriate to Africa, the same approach would not 
be as effective for the Andean region where countries have significant 
variations in their level of development and where regional economic 
integration is not advancing with the same level of political 
commitment.
    Over time, TCB has become more closely integrated with trade 
preference programs. Recent experiences with both AGOA and HOPE when 
compared with earlier programs such as GSP and CBI, demonstrate how TCB 
activities have evolved to become increasingly connected with the 
implementation of U.S. trade preference programs. Coordination between 
U.S. trade and development objectives has improved; moreover, our 
developing country partners themselves now find integration into global 
markets as essential to their economic and social aspirations. USAID 
prioritizes strategic investments in TCB in support of these 
initiatives without the need for legislation requiring or mandating TCB 
assistance. Mandating specific levels of TCB assistance for 
beneficiaries of preferential tariff programs could prove counter-
productive in cases where developing countries' leadership does not 
place a priority on undertaking the needed trade policy reforms.
    TCB objectives may be different across regions. Measuring success 
is not a straightforward exercise. TCB activities are not uniform and 
different metrics are needed to evaluate different programs due to 
their varied goals. For example, TCB in Latin America has focused more 
intently on issues related to ensuring compliance and enforcement of 
the free trade agreements, particularly in relation to labor, 
environment, and protection of intellectual property rights. Such 
activities are not designed to cause direct increases in exports to the 
United States and should not be measured by that metric. TCB activities 
will also differ depending on the relative emphasis between the 
objective of supporting greater trade with the U.S., and other 
worthwhile objectives such as facilitating more inclusive trade with a 
greater focus on poverty reduction. If the objective is inclusive 
trade, TCB programs will target small and micro firms.
    Successful TCB requires close coordination with USTR and other USG 
agencies. Successful implementation of TCB efforts reflects a ``whole 
of government'' approach. USAID programs are coordinated closely with 
our colleagues at USTR--where USAID has established a detail position 
to improve coordination and collaboration. Specialized technical advice 
is closely coordinated with our colleagues at the Departments of 
Agriculture, Labor, and Commerce, Customs and Border Protection, the 
Federal Trade Commission, the Security and Exchange Commission, and 
many other departments and agencies.
    Thank you again for inviting me to participate in this hearing, 
Chairman Levin, Ranking Member Brady, and distinguished Members of the 
Subcommittee. USAID stands ready to provide any assistance or support 
to you and your staff as you continue in your deliberations.
                                 

    Chairman LEVIN. Well, thank you and we look forward to your 
involvement with the naming of a new--I'm not sure the title 
these days.
    Ms. OTT. Administrator.
    Chairman LEVIN. Administrator. It's still the way it was 
when I was there. We look forward to intensified work with you. 
How long have you been there?
    Ms. OTT. In USAID? Since 1984.
    Chairman LEVIN. Have you?
    All right, Mr. Philbrook, take over. We're anxious to hear 
about your work.

 STATEMENT OF BURNHAM (BUD) PHILBROOK, DEPUTY UNDER SECRETARY, 
 U.S. DEPARTMENT OF AGRICULTURE (USDA), FARM AND AGRICULTURAL 
                            SERVICES

    Mr. PHILBROOK. Thank you, Mr. Chairman and Ranking Member 
Brady, Chairman Rangel and Members of the Committee. I'm 
pleased to appear before you today to discuss U.S. trade 
preference programs. In particular, I'll focus on the United 
States Department of Agriculture's perspective on the African 
Growth and Opportunity Act.
    Trade preferences support the administration's goal for 
improved food security in Sub-Saharan Africa. USDA, both in 
Washington and abroad, plays an important role in accomplishing 
AGOA's objectives of expanding U.S. Sub-Saharan African trade 
investment, stimulating economic growth and facilitating Sub-
Saharan Africa's integration into the global economy. USDA is 
committed to providing capacity building, technical assistance 
and training and research programs that will enhance Africa's 
ability to trade in agricultural products.
    Since AGOA's implementation in 2001 this assistance has 
contributed to a $100 million increase in U.S. imports of 
agricultural products from Sub-Saharan African countries. 
Products imported include fruits, nuts, coffee, wines, fruit 
juices, cocoa products, prepared vegetables, cut flowers and 
prepared seafood. However, before we can permit the import of 
agricultural products into the U.S. from any country, USDA's 
Animal and Plant Health Inspection Service must complete an 
extensive analysis of the pest and disease risks associated 
with those products.
    To expedite the import approval process APHIS published a 
final rule in 2007 that has been used to allow the import of 
products such as baby carrots and baby corn from Kenya, 
currants and gooseberries from South Africa and peppers, 
eggplant and okra from Ghana. With that said, it's important to 
note that even if APHIS determines that the pest and disease 
risks associated with the import of these products can be 
appropriately mitigated, this does not mean that export of 
these products to the United States will begin immediately.
    Recognizing these challenges, USDA, working in concert with 
the U.S. Agency for International Development, continues to 
assist African host countries in strengthening their sanitary 
and phyto-sanitary safeguarding capacity. Together USAID and 
USDA have positioned SPS advisors at three USAID funded Africa 
trade hubs. These advisors work with their African counterparts 
to implement SPS improvement activities that are critical to 
building the institutional regulatory capacity necessary to 
facilitate trade.
    Since AGOA was enacted USDA has conducted training on 
phyto-sanitary issues for more than 35 Sub-Saharan countries. 
USDA has several flagship programs that provide technical 
training and research opportunities for policy makers, 
scientists, private sector representatives, university 
professors and other agricultural professionals. These programs 
include the Cochran fellowship program, the Borlaug 
International Agricultural Science and Technology fellowship 
program, the faculty exchange program and the scientific 
cooperation research program.
    Successes include a Cochran fellow who doubled milk 
production on his small Kenyan farm, and also implemented 
marketing strategies that improved the prices he gets for milk.
    A successful Borlaug initiative is our public private 
partnership with the World Cocoa Foundation. This partnership 
helps cocoa producing countries learn state of the art modern 
production and processing techniques to improve overall quality 
and increase exports of high quality cocoa and cocoa products 
worldwide.
    Agriculture is not only a basis for achieving AGOA's 
objectives, it is the heart of the administration's food 
security strategy. Our food security strategy employs a whole 
of government approach under the leadership of the State 
Department and in cooperation with USAID, and this strategy 
will link all pertinent U.S. government agencies together as 
well as partners in the private sector, non-governmental, 
private voluntary and international organizations, civil 
society and small holder farmers.
    The administration is committed to assisting Sub-Saharan 
African and food insecure countries globally to achieve food 
security. USDA is striving to assist countries to develop the 
capacity to capitalize on the beneficial terms provided by 
AGOA, and I look forward, Mr. Chairman, to your comments and 
questions, and thank you very much.
    [The prepared statement of Mr. Philbrook follows:]
         Prepared Statement of Burnham (Bud) Philbrook, Deputy
        Under Secretary, U.S. Department of Agriculture (USDA),
                 Farm and Foreign Agricultural Services
    Mr. Chairman, Members of the Committee, I am pleased to appear 
before you today to discuss U.S. trade preference programs. In 
particular, I will focus on the U.S. Department of Agriculture's 
perspective on the African Growth and Opportunity Act (AGOA).
Introduction
    U.S. trade preferences, such as AGOA, support the Administration's 
goal for improved food security in Sub-Saharan Africa. USDA, both in 
Washington and overseas, plays an important role in accomplishing 
AGOA's objectives of expanding U.S.-sub-Saharan African trade and 
investment, stimulating economic growth, and facilitating sub-Saharan 
Africa's integration into the global economy. Nearly 20 USDA personnel 
are located at American embassies and trade hubs on the sub-Saharan 
African continent. Since agriculture accounts for one-third of sub-
Saharan Africa's gross national product and employs two-thirds of its 
workers, it forms the basis on which the continent can reach its full 
potential.
AGOA Successes
    USDA is committed to providing capacity building, technical 
assistance and training, and research programs that will enhance 
Africa's ability to trade in agricultural products. This assistance has 
contributed to a $100-million increase in exports of agricultural 
products--including non-traditional and value-added products--from Sub-
Saharan countries to the United States since 2001, AGOA's first full 
year of implementation. Products imported include fruits and nuts, 
coffee and tea extracts, wines, fruit juices, cocoa products, prepared 
vegetables, cut flowers, and prepared seafood.
    Before we can permit the import of agricultural products into the 
United States from any country, our Animal and Plant Health Inspection 
Service (APHIS) must complete an extensive analysis of the pest and 
disease risks associated with those products and determine if and how 
those risks can be mitigated to allow for safe importation. Under the 
AGOA initiative, APHIS has completed several pest risk analyses from 
potential trading partners in sub-Saharan Africa. To simplify and 
expedite the regulatory process for approving new fruit and vegetable 
imports and pest-free areas, APHIS published a final rule in July 2007 
that has been used to expedite the imports of several types of 
agricultural products including those from Africa, while still 
providing pest risk assessments for public comment. This new process 
has been used to allow the import of products such as baby carrots and 
baby corn from Kenya; currants and gooseberries from South Africa; and 
peppers, eggplant, and okra from Ghana. We have also permitted the 
import of certain commodities under our traditional approval system, 
including blueberries from South Africa; and baby squash from Zambia.
    However, it is important to note that, even if APHIS determines 
that the pest and disease risk associated with the import of these 
products can be appropriately mitigated, this does not mean that export 
of these products to the United States will begin immediately. USDA 
efforts at analyzing risk and granting import approvals are more 
effective if infrastructure is in place to take advantage of exporting 
opportunities. A country or industry may not have the ability to take 
the steps needed to mitigate the pest and disease risk associated with 
its products, or may not have the transportation or marketing 
infrastructure in place. For example, APHIS approved the import of 
peppers and eggplant from Ghana; however, the country's irradiator is 
not currently functional. Ghana needs to overcome this technological 
hurdle to treat fruits and vegetables to mitigate pest and disease 
risk.
    Recognizing these challenges, USDA, working in concert with the 
U.S. Agency for International Development (USAID), continues to assist 
African host countries in strengthening their sanitary and 
phytosanitary (SPS) safeguarding capacity. Together, USAID and USDA 
have positioned SPS advisors at three USAID-funded Africa Trade hubs. 
These advisors work with their African counterparts to implement SPS 
improvement activities that are critical to building the institutional 
regulatory capacity necessary to facilitate trade. In Swaziland, USDA 
supported the initiation of a honeybee pest surveillance program to 
meet requirements for regional trade. In Mozambique, USDA and the 
Ministry of Agriculture collaborated to design and implement a national 
fruit fly surveillance program that is required to maintain market 
access for Mozambican fresh horticultural exports.
    Since AGOA was enacted, USDA has conducted training on 
phytosanitary issues for more than 35 sub-Saharan countries. USDA has 
several flagship programs that provide technical training and research 
opportunities for policymakers, scientists, private sector 
representatives, university professors, and other agricultural 
professionals. These programs include the Cochran Fellowship Program, 
the Borlaug International Agricultural Science and Technology 
Fellowship Program, the Faculty Exchange program, and the Scientific 
Cooperation Research Program.
    Successes include a Cochran fellow who has doubled milk production 
on his small Kenyan dairy farm and implemented marketing strategies 
that improved the prices he gets for milk, while also helping hundreds 
of fellow farmers by conducting on-farm training and contributing to a 
farm radio talk show. A woman Cochran graduate from South Africa now 
owns her own company and is leading industry efforts to improve product 
quality and expand the range of soy food products throughout Southern 
Africa.
    A successful Borlaug initiative is our public-private partnership 
with the World Cocoa Foundation. This partnership helps cocoa producing 
countries learn state-of-the-art modern production and processing 
techniques to improve overall quality and increase exports of high 
quality cocoa and cocoa products worldwide. Currently, nine Borlaug 
fellows from six African countries are receiving training in organic 
production and marketing management in the United States that will 
facilitate collaboration between the U.S. organics industry and African 
producers, leading to increased incomes and improved food security for 
small-scale sub-Saharan African farmers. Recognizing the important role 
that women play in agricultural production in Africa, USDA is hosting 
three African Borlaug Women in Science fellows who are currently 
receiving water resource and livestock disease management training at 
the University of Florida. This training will also help increase 
incomes and promote food security.
    In addition, USDA's two food assistance programs--the Food for 
Progress (FFPr) and the McGovern-Dole International Food for Education 
and Child Nutrition (McGovern-Dole) Programs--contain unique, long-term 
developmental aspects. Our FFPr program is benefitting 72,000 
smallholder livestock owners in Ethiopia by developing the animal feed 
industry through activities that strengthen feed distribution channels 
and improve feed formulation and manufacturing and feedlot management 
and forage production. In Tanzania, the FFPr is empowering rural women 
entrepreneurs by developing their leadership skills and providing 
micro-credit loans that help them increase their incomes, allowing them 
to obtain better medical services, food and education. The McGovern-
Dole program in Senegal has extended health services to more than 58 
maternal and child health sites in vulnerable communities so that 
mothers, pregnant women, and children benefit from health services in 
their villages.
Administration's Food Security Strategy
    Agriculture is not only a basis for achieving AGOA's objectives, it 
is the heart of the Administration's food security strategy. Achieving 
a food-secure Africa is a major goal of this Administration.
    The U.S. food security strategy is based on the principles laid out 
in the July 2009 G8 Joint Statement on Global Food Security. USG 
efforts must be long-term. As part of a whole of government approach 
under the leadership of State and USAID, we are focusing on the entire 
spectrum of food security beginning with helping countries develop 
strategies to increase crop output by adopting the latest seed 
technology and land management techniques, appropriately applying 
fertilizer, linking small producers to markets and strengthening post-
harvest infrastructure, as well as national and regional trade and 
transportation corridors.
    Our food security strategy employs a whole-of-government approach 
that links all pertinent U.S. Government agencies together and 
increasingly partners in the private sector, non-governmental, private-
voluntary, and international organizations, civil society, and the poor 
themselves.
    USDA will use its resources to work with the U.S. Department of 
State and USAID to focus on three key principles of food security: 
availability, accessibility, and utilization. USDA is tapping into its 
network of U.S. land-grant universities, research institutions, 
extension experts, trade associations, private voluntary and non-
governmental organizations, and other non-profit organizations and 
private companies across the country to provide capacity building, 
technical assistance and training, and research and food assistance 
programs.
Conclusion
    The Administration is committed to assisting sub-Saharan Africa, 
and food insecure countries globally, to achieve food security. Full 
utilization of AGOA trade preferences is a critical piece of the 
puzzle. USDA is striving to assist countries to develop the capacity to 
capitalize on the beneficial terms provided by AGOA. I look forward to 
your comments and questions. Thank you.

                                 

    Chairman LEVIN. Well, thank you. All right, let's go. Oh, 
just take a couple minutes and then we're going to go down the 
line. So let me just ask you as we shape this hearing to--the 
four of you help us list what some of the outstanding issues 
are as we proceed. And these will come up with future--with the 
further panels, but I think you can help us from the point of 
view of your agencies, illuminate what the present issues are 
as we expand, extend and expand perhaps and reform the 
preference programs.
    From the point of view of USTR, I know you're not in a 
position yet to necessarily comment on these issues, but Tim, 
if you would start, just list what you think the key issues 
that the committee and the administration face as we proceed, 
in addition to keeping the programs alive while we're 
reforming, expanding, et cetera. You want to help us? We'll go 
down the row in a few minutes.
    Mr. REIF. Sure. Thank you, Mr. Chairman. So I think the--
among the key issues would be are the programs serving the 
goals of development amongst developing countries and 
particularly in the least--amongst the least developed 
countries, are the criteria that are established in the 
programs functioning well and smoothly, and in particular 
serving the objectives that Congress established in regard to 
those criteria over the last 30 years?
    Chairman LEVIN. Those criteria include----
    Mr. REIF. These are the eight or twelve criteria related to 
investment, intellectual property rights, labor standards and 
the other elements that relate to both country eligibility and 
products. How does the functioning of the trade preferences 
today fit with other elements of U.S. trade and development 
policy? So those would be a few of the issues I might flag as 
you go forward.
    Chairman LEVIN. And you'll participate in the discussion of 
which countries will be subject to renewal, right? USTR will 
participate in that, the issues relating to Bolivia, Ecuador--
--
    Mr. REIF. We will participate very actively. We have been 
in discussions with the committee and with others and we will 
continue to be, very much so.
    Chairman LEVIN. And discussion of perhaps the expansion of 
the preferences and how that expansion would interact with for 
example, the present preferences for AGOA and for Haiti, in 
other words the dynamics as you talk about expanding some 
preferences, how they impact the present status of preferences 
for certain countries?
    Mr. REIF. Yes sir, very much so. The proposals, including 
Mr. McDermott's proposal, past and I understand future relating 
to those issues, and the question of how they interact with our 
existing programs, their impact on workers and businesses in 
the United States. Those will very much be a part of our 
discussions with you.
    Chairman LEVIN. Okay. Sandra Polaski, do you want to add 
from your perspective, just so we have the challenge in front 
of us?
    Ms. POLASKI. I do, Chairman Levin, thank you. I think first 
of all, we would pose the question of whether we are utilizing 
the full potential of the preference programs to achieve this 
broadening of the opportunities of trade that I talked about in 
my testimony, and I think there are things that we're looking 
at in the Department of Labor about ways that we can improve 
this and obviously we'll be engaging in the inter-agency 
process, but we will be very open to be in a dialogue with your 
committee, with your subcommittee, to discuss ways of utilizing 
the full potential, particularly in our case of the labor 
conditionalities to achieve real development, really broad 
based growth in the beneficiary countries.
    And the second area that I think I would point to is that 
we have a sort of natural experiment among the different 
preference programs. Each of the preference programs has some 
of its own characteristics. The conditionalities are somewhat 
different in the different programs, the level of benefits, the 
particular shape of the programs. Can we look at this natural 
experiment of different approaches and draw out the lessons 
that have been the most effective, that have created the most 
growth, the most development, the most broad distribution of 
opportunities, the most employment creation and use that to 
inform whatever the committee, the House and the Senate decided 
to do in preferences going forward? Thank you.
    Chairman LEVIN. And you have before you a petition on 
Guatemala, and also there have been discussions about 
conditions in Jordan implementing the Jordan Free Trade 
Agreement and worker conditions there, right? So there are also 
specific petitions or issues in front of you.
    Ms. POLASKI. That's correct, Chairman Levin, and it's an 
issue that we are devoting very significant attention to, to be 
sure that we get it right, so to speak, that we look at the 
problems and that we find, working with those governments to 
the maximum extent possible, ways to go forward so that we 
actually provide this protection for worker rights, that we 
actually do improve living conditions and living standards in 
those countries.
    Chairman LEVIN. Thank you. Dr. Ott, briefly.
    Ms. OTT. Thank you, Chairman Levin. USAID also shares the 
concern regarding countries' ability to reach the full 
potential implicit in the preference programs. Namely, are we 
supporting beneficiary countries' efforts to take advantage of 
the preferences, which can be quite a complex undertaking? It 
involves perhaps policy change, certainly building government 
capacity, building capacity within the private sector, and 
helping producers to have the information and the services they 
need to expand their exports. This implies a role for trade 
capacity building programs to support the preference programs 
and ensure that countries take full advantage. Certainly we 
want to be sure that trade is part of a broadly based growth 
strategy in the countries that we are extending preferences to. 
We like to see not just the three largest companies in the 
capital city--take advantage of the preference programs, but to 
see farmers and small and medium business benefit from the 
trade opportunities they represent. Thank you.
    Chairman LEVIN. Thank you.
    Mr. Philbrook.
    Mr. PHILBROOK. Yes. Mr. Chairman, in addition to the other 
issues that have been raised, I think the question is how do 
trade preferences fit into overall rural development in 
developing countries? 85 percent of all the farms in the world 
are less than 5 acres, and half are an acre or less. 70 percent 
of all the farmed labor is generated by women, oftentimes the 
least educated among the rural population. So a question is how 
do trade preferences work with or facilitate human and economic 
development at the village level, knowing that that requires a 
comprehensive approach to be successful. That's what I would 
pose.
    Chairman LEVIN. All right, thank you very much.
    Mr. Brady.
    Mr. BRADY. Thank you, Mr. Chairman. Mr. Philbrook, I would 
note Doctor Norman Borlaug is a hero of mine. Had the 
opportunity to become friends and work with him while 
representing Texas A&M University and while, with his recent 
death, he'll be missed, his research and ideas will live I 
think ultimately forever in a very good way.
    Mr. Reif, first let me congratulate the President on the 
announcement this week in Singapore on moving forward with 
talks with the Trans-Pacific partnership. It's a move that has 
broad bipartisan support here in the House and the Senate. 
Depending on its composition, finally it could be, I think, a 
major access to new customers in that region, signals our 
engagement over there in a region that's literally blowing and 
going economically, and look forward to the talks as USTR 
proceeds.
    Also, I think it's critical too that we prepare a South 
Korea trade agreement for consideration for Congress, and I'm 
anxious in regards to this hearing for Colombia and Panama to 
complete their transition from a one way preference program to 
two way full trade relationship, to level the playing field for 
our workers as we try to sell goods and services into that 
region.
    In panels after this we'll probably look more closely at 
specific preference programs, but could you, because of your 
knowledge and position at USTR, can you sort of look at the 
bigger picture for us? Obviously completion of a successful 
Doha Round is critical for the world and for us, but as U.S.--
we want to provide preference programs to these developing 
countries to help them move forward into the global 
marketplace. At the same time giving away our preferences for 
free also reduces the incentive for them to participate fully 
in Doha and to help craft ultimately a successful round.
    From your perspective, how do we find that balance as we go 
forward?
    Mr. REIF. Well, thank you, Mr. Brady, and it's an important 
question. As you know, the United States is engaged as we speak 
in important negotiations leading up to an end of the month 
summit relating to the Doha negotiations. Those are enormously 
important for our country, they're enormously important for 
developing countries and hold the potential to be the largest 
source of economic growth out of trading agreements. And so 
that is an important priority in the area of trade and 
development, for us and for others.
    There are also fitting in with those, part of my answer to 
Chairman Levin's question was that as we look forward, look in 
the future towards the development of our preference programs 
and fitting into our overall policies is an important component 
of that. So how preference programs fit into our ongoing 
negotiations over Doha where we are continuing to press 
particularly more advanced developing countries with respect to 
market access issues, in the NAMA area and the agricultural 
area, certainly also in services. And at the same time the 
preference programs have had a particular purpose for all 
developing countries and in particular the least developed, to 
help them climb onto the escalator that enables them to move 
ahead in the context of multi-lateral trade, as well as you 
note in bilateral trade contexts.
    Mr. BRADY. Do our trading partners, preference partners 
understand that this is not a free pass, that we expect, you 
know, full participation, we want their input and commitment 
through the Doha Round?
    Mr. REIF. I think our trading partners understand very 
clearly and have for some time that the United States is 
seeking important market access throughout particularly the 
more advanced developing countries in the developed world. And 
those negotiations have been ongoing for some time and I think 
they are intensifying at the current time.
    Mr. BRADY. Do you think--I'm just watching Europe change 
its strategy. They're moving away from preference programs and 
more to economic partnership agreements, our equivalent of 
trade agreements. How does that impact our U.S. interests?
    Mr. REIF. Well, the economic partnership agreements are 
still a work in progress for the European Union and their 
partner countries. They are in different stages of acceptance 
and different stages of development, as I understand it. But 
they have several approaches, as do we, with respect to our 
trading regime. We have the multi-lateral, we have our 
bilateral agreements and then we have our other programs, and 
they are roughly in parallel, albeit with some distinctions.
    Mr. BRADY. Great. Thank you, Mr. Reif, appreciate it. 
Thanks, panel.
    Chairman LEVIN. Thank you.
    Mr. MCDERMOTT. He was just here.
    Mr. Rangel.
    Chairman RANGEL. All of you have some general idea about 
the outstanding trade agreements that we have with Panama, 
Korea and Colombia. I'm trying to get a--some kind of a status 
report as to where they are with the new Administration.
    Mr. Reif.
    Mr. REIF. Yes, sir. Thank you, Mr. Chairman. With respect 
to Panama, there are ongoing conversations with respect to two 
outstanding issues, one in the labor area and one in the tax 
area, to--hope to resolve those as quickly as possible, and 
there have been some recent conversations with the government 
of Panama about that.
    With respect to Colombia, the President has indicated his 
strong support for the Colombia FTA and the need to continue to 
work on the labor rights issues in that context. There were 
bilateral meetings three times this summer, I believe in May 
and June. In July and August USTR sent down a fact finding 
mission to Colombia to work further on those issues, so our 
contact with the government of Colombia as well as with the 
Congress and with stakeholders is very active and ongoing.
    Also, with respect to Colombia the USTR solicited public 
comment in September and received a large range of views with 
respect to that.
    With respect to the Korean agreement, the public comment 
also was completed in September and we are continuing to review 
and to work on the outstanding issues there that include access 
to the manufacture sector and in the automobile sector, also 
some issues in agriculture.
    Chairman RANGEL. Now what kind of group did you send to, 
say, Colombia in order to take a look at what progress was 
being made in providing safety to the workers and to the union 
of workers? Who would be sent from where?
    Mr. REIF. In the fact finding group it was a broad based 
administration trip. USTR participated, and I believe there 
were representatives of other agencies, the Department of 
Labor, State and others, to both establish facts and understand 
better what the situation is on the ground, as well as to begin 
to understand better how to move forward and achieve particular 
goals collectively.
    Chairman RANGEL. Well, you're right with these countries, 
so how would you judge their performance has been in the last 
four years as it relates to these issues of safety, worker 
safety? I'm trying to get a feel about what--could you tell me, 
what does a group look for and basically what do they come back 
and say? Because it's been the same problem that I've heard for 
years, and I don't know what the reports are or if there's any 
solution.
    Mr. REIF. Well, the efforts both domestic with the 
Congress, as well as with interested private sector groups, and 
with the government of Colombia have focused on the different 
ways that the issue of--the issues of prosecution and impunity, 
and the questions of addressing the violence issue going 
forward as well as the labor standards issue within Colombia 
have attempted to address different parameters, where it would 
be possible to understand better whether there was a sufficient 
framework in place or an ability to measure where things stand 
and where they were going.
    Chairman RANGEL. Their criminal justice system, can it be 
compared to ours so that we know what we're trying to find out 
there?
    Mr. REIF. Well, there are--with respect to the criminal 
justice system, a number of things have been done, and a lot of 
it has related to fact gathering. There are as----
    Chairman RANGEL. To what?
    Mr. REIF [continuing]. In our own federal system divisions 
of labor.
    Chairman RANGEL. What's it related to?
    Mr. REIF. Pardon me?
    Chairman LEVIN. It's related to--you said that the system 
is related to--Mr. Rangel didn't hear. The gathering, you said?
    Mr. REIF. Oh. A lot of work in respect to the criminal 
justice system in Colombia has related to fact gathering.
    Chairman RANGEL. Okay.
    Mr. REIF. And to understanding the way their system--there 
are divisions of labor and responsibility in terms of the issue 
of prosecution, for example, between centrally and federal 
conducted work and work that's done outside of the federal 
purview. So there has been an effort to understand how that 
division of labor functions and what is exactly being 
accomplished, and how it may be accomplished in the future.
    Chairman RANGEL. Do you think that we can find some way of 
removing this problem ever, since it's so subjective under--
using our standards, with their standards and the different 
cultures? Is this something that you think professionally can 
be resolved as to what the issue is, so that we can determine 
with some degree of accuracy whether they are cooperative or 
whether they are part of the problem, that is, the government?
    Mr. REIF. Sir, I can tell you that from all perspectives, 
from the perspective of the administration, from the 
perspective of those here that we work with in the Congress, 
from the perspective of the government of Colombia, there is a 
hard effort. It is a good faith effort, and--to understand 
exactly what the parameters of the problem are and ways that it 
could be addressed successfully.
    Chairman RANGEL. Well, you said there's a good faith 
effort, but I asked you do you think that we will be able to 
resolve the problem?
    Mr. REIF. Sir, I am an optimistic person by nature and I'm 
hopeful that we're--we will be able to do so. The President has 
indicated that he is supportive of this FTA and that if we can 
resolve these issues, he would like to move forward on it.
    Chairman RANGEL. It's that bad, huh? Thank you.
    Chairman LEVIN. Let's see. I guess next will be Mr. Davis.
    Mr. DAVIS. Thank you, Mr. Chairman. Mr. Reif, has USTR been 
able to use the eligibility criteria and U.S. preference 
programs to prompt countries to improve their labor IPR 
investment policies, and can you elaborate on some examples of 
the success. And in particular I'd like you to comment if you 
think Colombia's progress in the last 20 years has been rated--
you would rate that as a success.
    Mr. REIF. Well, sir, we have been able use the criteria and 
the preference programs on a number of different occasions. 
With respect to both labor and IPR are the two that are most 
active. Under AGOA, for example, most recently Uganda, 
Swaziland; these are countries where we were able to utilize 
the criteria there to seek improvements in those countries' 
regimes.
    During the 1990s and the 1980s, a number of different 
examples in both the IPR and the labor standards area in 
Central America, where countries were able to take additional 
steps in these particular areas. And in the case of Colombia, 
there have also been steps taken under both of those elements.
    Mr. DAVIS. The reason I'm kind of curious is the Colombians 
have made massive progress. I have first-hand experience in 
this area since the late 1980s, early 1990s, and I did find it 
somewhat ironic that the Colombian labor organizations came up 
here to lobby on behalf of the passage of the Colombia FTA 
eventually. And I know that we're not talking about FTAs, but 
as a bridge, I think there's been a tremendous good faith 
effort. And in particular the context of a lot of these 
questions we deal with labor standards in particular. I think 
there's a common goal to move in this area. But anytime we seek 
to impose standards, I think it's important that we keep it in 
context of progress that's being made and walking in the 
correct pattern versus achieving perfection overnight. And I 
think when, you know, I think it's been something like a 90 
percent drop in violence.
    And I keep hearing the word ``violence'' come up in reports 
from the administration or other organizations, but in fact the 
Colombians have a somewhat different perspective in the very 
organizations that are allegedly being protected. I receive a 
huge amount of feedback in the national security arena of other 
countries being very fearful that this FTA being stalled for 
American domestic politics principally is potentially going to 
lead to conflict in Latin America that may end up dragging us 
in because we're unwilling to do that, considering the 
extremely aggressive moves of Chavez and others. And I think 
economic growth is key to that.
    This does have implications in the direction that we go. I 
guess--Ms. Polaski, in your testimony, you note that the 
purpose of labor eligibility criteria is not to remove 
benefits, and you provide quite a number of good examples in 
which the United States was able to remove--or to improve labor 
rights without revoking benefits. Do you agree that it's more 
effective to engage in a collaborative, in a consultative 
process with the beneficiary country to improve their policies 
instead of revoking their benefits outright?
    Ms. POLASKI. Yes sir, I absolutely agree with that point. 
And in fact, it's our normal modus operandi. So if we initiate 
ourselves a review of a country because of reports or 
information we become aware of that suggests a problem or if we 
receive a submission from the public, a petition to review 
eligibility, our first step after we investigate and learn the 
facts will be to engage with that government and to try to find 
the ways that we can move forward to engage them on many 
levels. And most often, the overwhelming number of cases, we 
make progress through that engagement process.
    I did flag the fact that sometimes we have gone on, perhaps 
even for several years, trying to make progress and simply not 
finding the political will in the partner country to address 
the issues. And in those limited cases, we revoke the benefits 
in order to preserve the credibility of our programs and their 
conditionality.
    But overwhelmingly, we engage with the governments. We 
usually go to the country. I mean, I will go myself. My senior 
staff will go. We'll look for every avenue to try to solve the 
problems. We'll bring in the International Labor Organization, 
we'll bring in the business community, the unions, et cetera, 
because the purpose really is not to revoke the benefits. The 
purpose is to solve the problems.
    Mr. DAVIS. I appreciate your answer. I just think the one 
thing that I would throw out here as a point of thought as we 
discuss this, I think we agree that these preference programs 
work in collaboration but we can't impose an unreachable, or 
unreachable short-term standard on these nations. And one of 
the things that concerns me in this growing global economy is 
we stand a potential right now as a nation to wall ourselves 
out of many, many markets by setting unreasonably high 
standards.
    And looking particularly with what the EU and China 
especially has done in taking a generational approach to 
investment and developing markets basically so it can consume 
their products in the long term, I'm concerned that if we set 
these standards too high, we're going to find ourselves in 
second or third place behind either the European Union or East 
Asia coming in, whereas in fact Colombia being a perfect 
example of an FTA gone awry. The GSP worked tremendously well 
over time. And in fact, we've let it languish now for two years 
and have a potential to have significant setbacks in that 
region.
    So with that, Mr. Chairman, I yield back the balance of my 
time.
    Chairman LEVIN. Let me just say as we keep the focus of 
this hearing, the standards that we're talking about are the 
basic international standards that the countries have agreed 
to. They're not American standards. They're the basic ILO 
standards. And that's what we're applying. And these aren't 
local political issues. They're the question of whether as we 
proceed with trade agreements we're going to build in standards 
that are basically international standards, and whether it 
isn't mutually beneficial for us to do so.
    Mr. BRADY. Mr. Chairman, if I may, I think the point being 
made is that our goal, shared goal, is to reach those 
international core labor standards. How we achieve it, 
incrementally or in other ways, is the question. I think again, 
the great reason why this preference hearing is being held is 
to explore some of those issues.
    Chairman LEVIN. Exactly. Exactly. And we've been working 
these. There are State Department reports and other reports 
relating to each of these. And for a number of years under GSP, 
there was a relaxation of efforts to try to implement the 
standards that we built into GSP. And the recent discussions 
we've had with Jordan, there we have an FTA, and the evidence 
came out very clearly that there was a major default in their 
implementation of what they agreed to. And it wasn't an 
American standard. It was the international standard that they 
agreed to.
    Mr. BRADY. I think perhaps the point is because we have an 
agreement with them, we can address these issues as partners 
with equal stakes and a good outcome for it, so those are good 
tools.
    Chairman LEVIN. That's the purpose. That's the purpose. 
Okay. Mr. Doggett.
    Mr. DOGGETT. Mr. Chairman, thank you, and I certainly want 
to subscribe to the view you just mentioned that it is 
important in this area of trade preferences as well as our 
other trade agreements that we operate competitively but on a 
level playing field and we don't see unfair competition such as 
with the use of child labor. And I think that's the kind of 
standard that you're focused on here and in our other trade 
agreements.
    Let me ask you, Mr. Reif, I gather from your written 
testimony that you feel our preference system as it works today 
has had a very positive effect on labor laws, working condition 
laws. I believe you cite Swaziland, Uganda and Liberia, and on 
intellectual property protection in Ukraine and India. Do I 
read your testimony correctly?
    Mr. REIF. Yes sir.
    Mr. DOGGETT. And that in fact, but for our GSP provisions, 
probably some of these laws might not have been changed in 
these other countries. The positive impact appears to be 
directly related to what we've done through GSP.
    Mr. REIF. That's correct.
    Mr. DOGGETT. With reference to the petition process, are 
there any petitions pending at USTR at present that deal with 
working conditions or labor conditions?
    Mr. REIF. There are some petitions pending at this time in 
those areas, yes sir.
    Mr. DOGGETT. And do you have--I know you have been making 
improvements to your website. Do you post on your website when 
a petition comes in, what it's concerned with and when you 
resolve it?
    Mr. REIF. I don't know if that's on our website at this 
current time. I'm happy to figure that out and get back to you, 
sir.
    Mr. DOGGETT. Great. Because I know one of the concerns, and 
you've only been there of course a few months, is that some of 
these petitions seem to languish as long as some decisions do 
at the courthouse. Haven't there been some petitions that have 
been filed there that have lingered there for a couple years?
    Mr. REIF. Well, sometimes petitions do what we call, we 
hold them over from one year to the next. There are a variety 
of reasons, sir, as you probably know. We're working on it. We 
receive incremental progress. We're not ready to close the 
file, so we maintain it open. There are different reasons that 
the USTR keeps these petition files open on occasions.
    Mr. DOGGETT. Well, and in some cases they just don't get 
resolved very promptly, do they, when you look back over prior 
years of petitions at USTR?
    Mr. REIF. In some cases they move more slowly than we would 
like, that's true.
    Mr. DOGGETT. I think it would be helpful to be able to see 
since so much of our understanding of the way government 
operates here in Congress and in the executive agencies is over 
the web to see when a petition comes in, what it concerns, and 
when USTR disposes of it or decides to carry it forward, as you 
said.
    Given the success you feel you've had in the labor standard 
area, and given the many times that President Obama has said 
that our trade policy going forward needs to be concerned with 
both labor and environmental standards, I don't see anything in 
your testimony about environmental standards. Is there any 
reason that as we renew GSP we consider that legislation? That 
we shouldn't, at a minimum, include the kind of requirements 
that were in the Peruvian free trade agreement concerning 
adherence to multilateral environmental agreements of a global 
nature, such as the trade in endangered species, and requiring 
our trading partners who get these preferences to enforce their 
own environmental laws and not denigrate them?
    Mr. REIF. Yes sir. That's a very important question. And it 
goes to--my testimony addressed in part the question of reform 
efforts, different kinds of proposals that are being made now, 
including proposals like that with respect to modifying the 
criteria of our preference programs. And we are--we stand ready 
to engage with you and with the committee and others, to 
discuss that proposal and others with respect to the criteria 
that govern our trade preference programs.
    Mr. DOGGETT. Well, there have been--since it's about time 
to renew these, I think at the end of the year, are you--do you 
expect in connection with this renewal to have recommendations 
for us to follow the approach that was taken in the Peruvian 
free trade agreement?
    Mr. REIF. I don't expect to have recommendations in the 
short--the six-week timeframe that we have with respect to 
renewal of GSP and ATPA. However, with respect to those broader 
questions, we are anxious to engage with this committee and 
with others in the Congress that are looking at broader 
questions of reform. I suspect, you know, that the issue you're 
raising will be a part of that discussion as will a number of 
other issues that are in play.
    Mr. DOGGETT. Well, this is very important legislation to 
renew, and it would seem that there's no better time than the 
present to implement these provisions if they work well in the 
working condition area, as you've indicated, they ought to be 
included, and we--though some of us might question the adequacy 
of the model, we have a model that even the Bush administration 
agreed to--you were actively involved in those negotiations--to 
say at a minimum, global multilateral environmental agreements 
and enforcement and nondenigration of your own laws.
    Let me just say in closing on an unrelated matter, I want 
to be sure--you've seen the communication I forwarded to you 
concerning the very troubling report that USTR was involved in 
trying to weaken the ban on foreign--on federal contracts for 
corporations that have reincorporated overseas in order to 
dodge their tax responsibilities. That would seem to be totally 
inconsistent with what President Obama has said on the issue of 
corporate tax avoidance, and I hope you will review that and 
cease any effort in the Senate since the House did not take any 
action on this in the financial services area, cease any action 
that would undermine the existing statute and will respond 
promptly to my inquiries to you about that. Thank you.
    Chairman RANGEL. Will the gentleman yield?
    Mr. REIF. Yes sir.
    Chairman RANGEL. Would you cc me when you respond on that 
issue?
    Mr. REIF. Yes sir, absolutely, of course.
    Mr. DOGGETT. Thank you.
    Chairman LEVIN. Okay. Mr. Reichert.
    Mr. REICHERT. Thank you, Mr. Chairman. Appreciate you 
holding this hearing today and the opportunity to talk about 
our, as you said in your opening statement, the constellation 
of our trade program extensions, improvements and graduation 
from preferences.
    Mr. Reif, I'm very pleased to hear you talk about 
bipartisanship and your ability to work with both sides and 
both staffs, both sides of the aisle, as we look at shaping our 
U.S. preference program policy. However, I tell you that I am 
disappointed that the administration has yet to present a 
robust trade agenda. We're still waiting for that.
    I had an opportunity to meet with Ambassador Kirk just a 
couple of weeks ago and ask how the FTA process was moving 
forward as those who have graduated from the preference 
programs, Korea, for example. And he said that the holdup was 
that the nation is so divided on this issue that it's difficult 
to bring forward. I find that as a pretty weak excuse. The 
nation is divided on health care, yet we don't have a problem 
bringing that forward. The nation is divided on cap and trade, 
yet we don't have a problem bringing that forward.
    I think it's time that we hear from the President about a 
robust trade agenda. I want to focus on and I want to associate 
myself with the comments made by Mr. McDermott. It's time to 
push forward, not pull back. I associate myself with comments 
made by Ms. Sanchez that this really--trade is very key not 
only to jobs but to security, the environment, labor rights, 
shared responsibilities and liabilities and all those things, 
the cultural exchanges, all those things that trade agreements 
bring.
    So my question to you is, looking at--Mr. Rangel focused on 
Colombia. My question is more toward, since being from 
Washington State, Korea is our fourth largest trading partner 
and it's absolutely essential that we have an agreement with 
Korea for Washington State job growth, when will that come to 
the floor for an agreement? When will Korea be graduated from--
and we've graduated from this preference agreement to a full 
trading partner with the United States of America? When will 
that come to the floor for a vote?
    Mr. REIF. Thank you, sir. You, if I might start, you 
mentioned with respect to generally the administration's trade 
policy. And as you know, the President just announced a few 
days ago the movement towards working on the Trans-Pacific 
partnership.
    Mr. REICHERT. I'm aware of that and give him props for 
that, I guess is what they say in today's world. But when will 
the Korean agreement come to the floor for a vote?
    Mr. REIF. And there's been extensive work also on all the 
three FTAs. With respect to the KORUS and the KORUS FTA, 
extensive work is ongoing.
    Mr. REICHERT. Do you have an estimated date maybe when that 
might come to the floor?
    Mr. REIF. I can't offer you a date. I can offer you what 
has been going on since the administration took office. 
Ambassador Kirk has said that the----
    Mr. REICHERT. What's the holdup with the Korean agreement?
    Mr. REIF. Well, the agreement was not--there was not a 
basis for presenting the agreement successfully to the Congress 
when the administration took office, and we have been working 
on that to see if we can achieve that kind of both substantive, 
addressing the----
    Mr. REICHERT. Can we look forward to next year? I know it's 
not going to happen this year, even though we'll be here till 
almost Christmas, but.
    Mr. REIF. I can assure you that we are working hard with 
respect to the outstanding issues to see if there is a basis 
for an agreement.
    Mr. REICHERT. Is it your hope that it come to the floor 
next year?
    Mr. REIF. Pardon me, sir?
    Mr. REICHERT. Is it your hope that it comes to the floor 
next year?
    Mr. REIF. I would rather not focus on a particular date, 
but rather on the work that we are doing, we're doing with the 
Congress, with our private sector, to see if we can resolve 
these issues so that the agreement can move forward 
successfully and on a bipartisan basis.
    Mr. REICHERT. Well, Mr. Reif, I'm just going to say I'm 
very disappointed in your answer and that you're not able to 
answer the question. Mr. Chairman, I yield back.
    Chairman RANGEL. Could I ask the gentleman to yield?
    Chairman LEVIN. Yes. I mean, I would just recognize you.
    Chairman RANGEL. Thank you. Don't we have some idea that 
the problem with the Korean agreement concerns the trade in 
automobiles?
    Mr. REIF. That is a core problem, the largest problem, yes.
    Chairman RANGEL. Okay. And what is the difference in trade 
of automobiles? How many automobiles do we import annually from 
Korea?
    Mr. REIF. It varies between 600 and 700 thousand.
    Chairman RANGEL. And how many do we export to Korea?
    Mr. REIF. That is about 5 or 10 thousand.
    Chairman RANGEL. That's the problem.
    Mr. REICHERT. Will the gentleman yield?
    Chairman RANGEL. Yes.
    Mr. REICHERT. I have a question too. How long has Korea 
been graduated from the preference program? How long have we 
known about the automobile trade imbalance, and how long does 
it take to address an issue like that?
    Chairman LEVIN. Let me answer that. You've raised it. I'll 
answer it.
    Mr. REICHERT. Yes sir. Thank you.
    Chairman LEVIN. And I will send you the material. It goes 
back three years, sir, in our discussions with the 
administration. Korea has essentially kept out American 
manufacturing products throughout its modern economic history, 
in its automobiles, its refrigerators. Whirlpool can't sell 
their major refrigerator in Korea. They can sell their 
refrigerator into any place in this country. They can export 
their cars here without any--any hesitation from us.
    Essentially, we've had one-way trade. And we told the 
previous administration that these issues had to be addressed 
in the Korean free trade agreement. They did not address the 
beef issue, and they did not address the manufacturing issue. 
And as a result, and they were pre-warned if they did not do 
so, there would not be support within this institution for 
proceeding, despite the fact that there were major improvements 
in other areas. They went ahead and signed the agreement anyway 
without effectively addressing the tax restrictions, the 
regulation restrictions, and the failure to have a dispute 
settlement system while we gave up the tariffs that we had on 
their cars, and also phasing out the tariff on trucks.
    President Obama when he was a candidate made clear he had 
problems regarding the Korea free trade agreement. This was 
already clear. Since then, this new administration has been 
talking to the Koreans. Mr. Rangel and I have met with the 
trade minister, with the ambassador, and suggested to them that 
there needs to be some serious discussion about revisions in 
the Korea free trade agreement--I use the word revision--we 
don't have to worry about the technical term--to meet their 
having essentially a history of one-way trade when it comes to 
manufacturing that means jobs in America.
    Mr. REICHERT. Mr. Chairman, if I----
    Chairman LEVIN. So I'll be glad to send you the history of 
this.
    Mr. BRADY. Well, I'd like to get in on this debate as well 
if we've got time. Because I disagree with some of those 
characterizations.
    Chairman LEVIN. Okay. We'll do that some other time.
    Mr. BRADY. That's a deal.
    Chairman LEVIN. This is a hearing on preferences. You 
raised, and I urged you at the beginning to have a hearing on 
preferences.
    Mr. REICHERT. Mr. Chairman, if I could respond. I mean, I 
see the two, as you mentioned in your opening statement, this 
is a constellation of trade--of program, which includes 
preferences and graduating to a full trade agreement. I don't 
know how you can hold a hearing on preferences and not connect 
trade agreements to it. They're interconnected. And so when you 
talk about Korea and the fact that Korea has graduated to this 
preference status, the only natural follow-up question then, 
sir, is when will it finally become a full trade agreement?
    Chairman LEVIN. I'll tell you. The answer is when the 
Korean government agrees to sit down with the United States and 
address the issues that are outstanding----
    Mr. REICHERT. So, sir, if I may, would you yield?
    Chairman LEVIN. And then we will proceed with the 
agreement.
    Mr. REICHERT. Well, it's taken three years so far.
    Chairman LEVIN. I know, because they for three years have 
refused to sit down and discuss revisions in the agreement.
    Mr. BRADY. Well, that's not exactly true.
    Chairman LEVIN. Okay.
    Mr. BRADY. Mr. Chairman, I know we have Mr. Etheridge and 
Mr. Herger who do want to question the administration.
    Chairman LEVIN. Okay. Look, we can take this up. Mr. Rangel 
and I had a meeting just a month ago with the Koreans on this 
very subject, and it's been publicized by them, an 
unwillingness to sit down and discuss. They say the agreement 
is the agreement. They're not willing to change it. That's not 
an acceptable position. We want to proceed. There are positive 
elements in the free trade agreement. We all acknowledged that 
in services, in other areas. Now in agriculture, at least 
temporarily. We need to resolve the outstanding issues on a 
mutual basis.
    Chairman RANGEL. Will the gentleman yield? Maybe you two 
can help us, because at the last meeting we had with the 
minister of trade, he made it abundantly clear that as far as 
he was concerned, his government had signed off on an 
agreement. And we cannot argue with what position he takes. We 
also take the position just because we change presidents 
doesn't mean that we change policies. But he was really 
offended when the chairman brought up the question of can we 
look over these areas that are holding the agreement up with 
our USTR?
    So I know, Mr. Brady, that you're saying that you differ 
with the facts. If you differ with the fact as it relates to 
the Korean government considering that agreement completed and 
not going to be reopened, you can help our country by meeting 
with them and telling them that it has to be reopened.
    Mr. BRADY. Chairman, I would be glad to sit down with you. 
I know I visited with them in Singapore and, you know, their 
position is a contract is a contract and they've moved forward. 
But I do think there's room for discussion on autos and beef 
that could prepare this agreement for consideration by 
Congress. I think that's the goal.
    Chairman LEVIN. Okay. Let's leave it at that, because I met 
with the gentleman in Korea in Singapore. Let's leave it at 
that. If there's a willingness to sit down and discuss these 
issues, we can move forward.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Chairman LEVIN. Until now there has not been. Mr. Etheridge 
is next.
    Mr. ETHERIDGE. Thank you, Mr. Chairman, and let me thank 
you for holding this hearing on trade preferences. I think it's 
important. But that being said, Mr. Reif, let me ask you a 
question because there's some other things swirling. I'm one 
who really believes in fair trade and that we need to enforce 
the agreements we make. And I've supported an awful lot of 
them, but I get more and more concerned that we don't enforce 
them once we make them, and we fail to go back and find out 
what we didn't do right or some others didn't.
    But my question is a little more pointed, because there are 
rumors and pushes for Bangladesh and Cambodia. My question is, 
if they're granted free quota access to the U.S. market, and 
I'm particularly concerned about the hearing we're having today 
about textile products that will impact not only my state but 
the whole Southeast where many plays unemployment is now at 15 
percent or higher.
    What effect do you believe that trade diversion from the 
African region in CAFTA will result? And secondly, do you think 
this will have a negative impact on the stability of these 
markets? Because that's certainly what we are talking about 
today.
    Mr. REIF. Yes sir. Thank you, Mr. Etheridge. The question 
of whether and how to expand our preference programs, including 
in Southeast Asia, it is very closely related to an assessment 
of how it would impact existing preference programs as well as 
our own domestic industry.
    Secondly, as these programs have been crafted over the last 
decade or so, great attention has been paid to potential 
synergies between our own industry, particularly in the 
textiles area, and the apparel industries in Africa and 
particularly obviously the CAFTA countries and in the 
Caribbean. So those will continue to be important 
considerations for us to ensure that we have partnerships in 
ways that both Americans and our developing country partners 
can benefit from these programs.
    And lastly, we have issues of enforcement where we are 
seeking to make sure that the issues of transshipment, the 
provisions, the particular rules of origin that are built into 
these agreements that are there to ensure that they operate the 
way that the Congress intended and the way the executive 
intends, are being taken care of.
    That is not a perfect track record, sir. There are areas 
where we still have a lot of work to do, but I can tell you 
that we are focused on those and seeking to do better in these 
areas.
    Mr. ETHERIDGE. See if I understand your first answer. It 
was that you're evaluating it, but there's no answer?
    Mr. REIF. That's with respect to these new proposals?
    Mr. ETHERIDGE. Yes sir.
    Mr. REIF. Yes sir, those are under consideration.
    Mr. ETHERIDGE. I would be interested in that because 
obviously they are closer to one of the major markets of China 
that would be able to trend--than they are now. And I'd be 
interested in those numbers, because it seems to me you would 
wind up moving all these markets to another marketplace.
    Next question in that same area, assuming we were to give 
new duty-free benefits to Bangladesh and Cambodia, what impact 
would that have on U.S. negotiating leverage power I guess or 
the leverage we're trying to get, during the upcoming Doha 
negotiations? How would that impact that negotiations? Or those 
negotiations.
    Mr. REIF. Yes sir. The question of expanding the preference 
programs is something I suspect this committee and others in 
the Congress will engage in a robust dialogue with, and 
together with the administration in the coming months, and I'm 
certain that both Members of Congress and the administration 
will be mindful of the impact in a number of different 
directions, including the impact on the Doha negotiations.
    Mr. ETHERIDGE. That means we haven't reached a position on 
it yet?
    Mr. REIF. Well, we haven't reached a position on the 
specific proposals, and as I understand it, new proposals are 
coming out every day, including tomorrow, that we will have to 
take and understand the specifics of. But with respect to the 
broader question of preference reform, we are engaged with the 
Congress on that, and one consideration as we engage with you 
on that will be the impact on other parts of our trade, trade 
policy, including the Doha negotiations.
    Mr. ETHERIDGE. Mr. Chairman, thank you, and I look forward 
to that dialogue, because that is I think very important to 
what we're talking about today in terms of years we do have 
preference and what an expansion would do in a very negative 
impact not only on that but on jobs that are now here in the 
United States tied to those areas that have been built up over 
the last number of years.
    Thank you, Mr. Chairman. I yield back.
    Chairman LEVIN. I just want to assure you that that will be 
done. Trade issues aren't simple. They interact, and the notion 
of expanding preferences for some can affect the preferences of 
others. And the discussion that we've had about Korea is an 
illustration of how you need to do trade policy, understanding 
the interactions and the need to look at them in a complete way 
and not just take one piece.
    So you can be assured, I think, the administration and I 
hope on a bipartisan basis, as we look at the expansion 
potentially of preference programs, we will consider what it 
means if we expand to some countries the impact on those with 
whom there are now preference agreements, and the impact on 
businesses and workers in the United States of America.
    Mr. ETHERIDGE. Thank you, Mr. Chairman. I look forward to 
it. Thank you, sir.
    Chairman LEVIN. Mr. Herger, you're next.
    Mr. HERGER. Mr. Chairman, I want to thank you. Chairman 
Rangel, Chairman Levin, for having this hearing. These hearings 
are so important on trade, and they're so important to our 
districts, they're so important to jobs, particularly at this 
time when our economy is down. I would urge the chairmen that 
we might continue with these hearings and have more of them, 
that we can work through the disagreements or the 
misunderstandings that we have.
    Because while we here in the United States, at least 
currently are not moving forward with these agreements, the 
rest of the world--nations are, as we know. And we just can't 
afford to be losing these jobs and losing these trade 
opportunities to other countries. So again, I want to thank 
you, want to specifically thank you.
    It's great to have you with us, Mr. Reif, and as you've 
mentioned, trade has historically been bipartisan. And we need 
to do whatever we can to make sure it continues to be that way, 
whatever that is, because there's too much at stake for it not 
to be.
    But I'd like to follow up on the questioning that Mr. 
Etheridge had, and while we're not asking the least developed 
countries to make any market access commitments at the Doha 
round because of their special status, I think we all agree 
that the market access being offered by the more advanced 
developed countries is insufficient.
    And, Mr. Reif, I'd like you to discuss your thoughts on 
whether the United States should implement duty-free, quota-
free access for the least developed countries before the 
conclusion of the Doha round negotiations in terms of how it 
will affect the positions of the more advanced developed 
countries.
    And could providing these duty-free, quota-free access 
reduce the incentives that the least developed countries now 
have that push the more advanced developed countries like 
China, India, Brazil, to make more concessions so we can have a 
more ambitious Doha outcome? And isn't this similar to the 
USTR's rationale in opposing the long-term extension of 
unilateral tariff benefits through the miscellaneous tariff 
bill because it could complicate the Doha round negotiations?
    Mr. REIF. Good morning, Mr. Herger, it's good to see you 
again, sir. With respect to duty-free, quota-free, it is 
envisioned, it was envisioned at the Hong Kong Ministerial to 
be concluded together with the completion of the overall Doha 
negotiations, and that's currently where we stand with respect 
to that.
    With respect to the more advanced developing countries, as 
well as others, our negotiators are pressing for these market 
access issues in Agriculture, NAMA as well as in services, so 
those are being hard pressed. I'm not sure I understood the 
question on the miscellaneous tariff bill, sir.
    Mr. HERGER. Well, again, if we grant these--if we grant 
this to, in the miscellaneous tariff bill, to these countries 
in advance, aren't we taking away the pressure that they might 
be applying to the rest of the countries, like Brazil and 
China, to give concessions that they might not have given 
otherwise?
    Mr. REIF. Yes sir. Typically, the provisions of the 
miscellaneous tariff bill are ones that are developed in a 
noncontroversial basis. The administration reviews them at a 
policy level on a case-by-case basis to ascertain whether they 
would meet the criteria that we have for the bill. And so if 
there were issues with any particular proposal with respect to 
the MTB, the administration would have the opportunity to 
discuss that with you as you are putting together the bill.
    Mr. HERGER. Well, I thank you. And again, I just want to 
emphasize, because it's so important to all of our friends, I 
think this is something, whether it be the labor movement or 
whoever it is it's in, and we obviously have some disagreements 
in certain areas. We have some areas that we need to work out, 
but I think it's so important for everyone, for labor, for 
those employees, for those individuals that are out of work, 
wherever they might be, that we work together. We have to move 
forward. We just absolutely--I think it's imperative for the 
betterment of our nation.
    So, Mr. Chairman, again, I thank you.
    Chairman LEVIN. Ms. Sanchez. And then in this order, Mr. 
Pomeroy and Mr. Crowley.
    Ms. SANCHEZ. Thank you, Mr. Levin. I want to start with Dr. 
Ott. And I want to preface my question with the statement that 
I frequently make, which is that there seems to be sort of this 
naive belief that--in my opinion--in terms of trade policy that 
all trade is good and that if we just trade with developing 
countries or impoverished countries, that somehow that's 
magically going to alleviate the disparities between those who 
have and those who don't in those countries, and that somehow 
magically that's going to pull them out of poverty and make 
them an industrialized development nation.
    And I don't dispute the fact that trade can be a part of 
that. But I do dispute the notion that simply passing 
preferences or trade agreements is going to magically have that 
happen. And I wanted to ask you a question about your written 
testimony. You noted that the median bilateral trade capacity 
building program implemented in 2008 was $175 million. Is that 
correct?
    Ms. OTT. $1.75 million.
    Ms. SANCHEZ. Right. Do you think that that kind of an 
investment really can help a nation build a reliable road 
system or a modern port or customs facility or other 
infrastructures which might be necessary to compete with more 
developed nations? Does that sound like it's commensurate with 
the need in some of these countries?
    Ms. OTT. I thank you for posing such an interesting 
question. Having worked in development for quite some time, I 
would observe that there are no magic bullets. And you're quite 
correct in questioning whether trade is a magic bullet to 
development and to lifting standards of living.
    Trade is, however, an important component of that effort, 
and trade liberalization and greater access to trade, greater 
involvement of the private economy and trade bring many 
benefits to developing countries, some more apparent than 
others. Certainly trade helps create income opportunities, 
whether for small farmers, whether for micro-entrepreneurs, or 
for workers.
    Ms. SANCHEZ. I understand, but----
    Ms. OTT. Trade also brings often more transparency, better 
governance----
    Ms. SANCHEZ. I don't dispute that, but my point being that 
if you have small farmers that suddenly can export to the 
United States but they have no road to get their products to 
the port to export to the United States, are they really 
reaping the benefits of these trade preferences programs? And 
my point simply being, and again, I don't dispute that trade 
can be one part of that, but in and of itself, I believe 
liberalizing trade in and of itself solely is not an economic 
development strategy necessarily for these countries, and that 
perhaps when paired with other types of assistance, it might be 
even more effective in doing all of the lovely things that 
you're talking about that trade can potentially do in these 
countries. Would you agree with that?
    Ms. OTT. I do agree with that. Certainly in many of the 
countries where we implement trade capacity programs there are 
infrastructure issues, there are power issues, and our programs 
and programs of other U.S. government agencies that support 
trade and programs of other donors address, whether it's road 
construction, road repair and other needs to get products to 
markets and facilitate the reaping of the benefits from trade.
    Ms. SANCHEZ. Thank you. Mr. Reif, is the USTR making any 
effort to sort of more broadly incorporate other development 
objectives like infrastructure development and education and 
skill trainings into our preferences program, or USTR is just 
concerned with liberalizing trade and not really the whole 
picture?
    Mr. REIF. No. We have an office specifically of trade and 
development that works closely with Dr. Ott's agency and with 
others to try to promote these other objectives.
    I think it's the administration's position very strongly 
that trade is a critical part of--a component of development, 
but that these others--excuse me--these other issues, including 
infrastructure development, whether it's making cell phones 
available to small farmers or making a road available to a 
small farmer, improving a port so that individual can export 
their products is a critical component of the successful 
functioning of the preference program.
    Ms. SANCHEZ. So there is a recognition that trade in and of 
itself is not going to be the magic bullet, so to speak?
    Mr. REIF. There is a recognition and also----
    Ms. SANCHEZ. Thank you.
    Mr. REIF [continuing]. Recognition of the other components.
    Ms. SANCHEZ. Ms. Polaski, you said that in these 
preferences that there are some labor standards in these 
preferences and if I heard your testimony correctly, that you 
think that those need to be maintained?
    Ms. POLASKI. Yes, Ms. Sanchez. All of the preference 
programs do have labor standard requirements so that the 
developing countries that benefit from the preference programs 
must be taking steps to implement the internationally 
recognized core labor standards and to maintain acceptable 
conditions of work in the sectors that are affect. So that's in 
all of the programs.
    Ms. SANCHEZ. Okay. Are there any environmental standards in 
the preferences programs?
    Ms. POLASKI. I don't believe in any of the preference 
programs. I'll defer to my colleagues.
    Ms. SANCHEZ. Mr. Reif, are there any environmental 
standards in the preference programs?
    Mr. REIF. No ma'am, there are no environmental standards.
    Ms. SANCHEZ. And with respect to the labor standards, does 
the USTR conduct any onsite inspections, or is it pretty much 
petition-driven process for review of some of the standards 
that are going on?
    Mr. REIF. There's both. There is onsite verification.
    Ms. SANCHEZ. How often does that occur?
    Mr. REIF. Well, it varies from country to country.
    Ms. SANCHEZ. Can you give me a rough idea, a rough 
estimate?
    Mr. REIF. I could look into it. I don't--not off the top of 
my head I'm afraid.
    Ms. SANCHEZ. Okay. Because my understanding is that it's 
basically petition-driven, and if workers don't have the rights 
to free association or to collectively bargain for better 
wages, and in some countries, like, for instance, Colombia, 
where there is threats, harassment and intimidation, it might 
actually discourage workers from filing petitions when they 
have working conditions that are substandard or less than those 
that meet the requirements of the preferences.
    And I'll just close by saying this. That I would seriously 
consider or ask you to consider thinking about perhaps a GSP-
plus tier, which would be certain preferences, enhanced 
preferences for countries who guarantee certain labor rights in 
their countries because as we've seen with Jordan and the 
Philippines and other countries, I know that you guys are 
really keen about talking about the successes and how you move 
people towards better labor standards, but I would still allege 
that there are plenty of failures that need to be addressed. 
And with that, I will yield back my time and thank the chairman 
for his indulgence.
    Chairman LEVIN. Mr. Pomeroy.
    Mr. POMEROY. I second the questions asked by my colleague 
Sanchez, particularly relative to trade capacity building, 
which I do not believe has had sufficient focus and attention 
by our country as we have hoped for. I believe more development 
and more progress in the lives of people in the preferenced 
areas than has occurred, just with the preferences, themselves.
    Mr. Philbrook, USDA, has got a part of this and I thought 
your testimony was very interesting. I was very encouraged in 
visiting with Dr. Shah, the Undersecretary at USDA, prior to, 
now I understand he's, new direction, coming over to USAID. I 
actually think this could be a very exciting new period in both 
agencies' lives as we look at devoting ourselves more to 
production building and hopefully the production building in 
these places will also have an eye on making optimal use of 
their trade opportunities.
    Mr. Philbrook, would you talk about that, and Dr. Ott, I'd 
like your comments on that.
    Mr. PHILBROOK. Well, Mr. Chairman and Mr. Pomeroy, let me 
just say, I am absolutely delighted that Dr. Shah is going to 
USAID. I'm deeply disappointed that he's leaving USDA. He and I 
have had the opportunity to work together over these last few 
months and enjoy a deep friendship. He brings to this job an 
enormous understanding of issues that relate to agriculture and 
food security and it's my view that he will be able to assist, 
as USAID and USDA try to work more together, that he will be 
able to assist that remarkably well.
    Mr. POMEROY. You know, I'm on the agriculture committee, 
I've been very involved in the farm bill legislation, but I 
believe it's a fair statement that USDA's central thrust in 
responding to a hungry world has been looking at commodity 
support we might provide to them. I'm for that. But, in the 
end, in the honor of Dr. Bullock, we want to continue to raise 
production capacity in these places. And I believe maybe we've 
taken our eye off the ball in that regard.
    Dr. Ott, there's some very disturbing statistics relative 
to the diminishing number of personnel in USAID with expertise 
in food production. Can you speak to that?
    Ms. OTT. Thank you. Thankfully, the distressing number 
regarding our expertise in agriculture and other areas is being 
turned around through the development leadership initiative. 
And we have made it a priority to expand our staff of 
agriculture experts who will be deployed in the field so that 
we have a robust capacity to address food security efforts and 
other efforts related to agricultural development. We are 
recruiting and hiring skilled agricultural officers for our 
foreign service as fast as we can.
    Mr. POMEROY. I'm delighted to hear that. My visit with Dr. 
Shah involved cross leveraging other production experts in our 
country, including the land grant universities. And I hope that 
as he comes from USDA over to USAID, we'll be able to really 
have a level of collaboration not seen before in these 
agencies, in this area. We really took our eye off the ball. 
People eat every day. You've got to produce food every season. 
And yet, to have the dwindle, it is a fraction of the sheer 
number of employees that we had dedicated in this area. We need 
to reverse that. Dr. Ott, I'm glad to hear you saying that we 
are reversing it.
    Final question to Mr. Philbrook. The foreign ag service, 
USDA officials in these embassies across the world, is there 
capacity there to assist and perhaps, in a more robust way, 
work with USAID at expanding food production capacity and 
commensurate trade building capacity as a result?
    Mr. PHILBROOK. Well, we certainly hope so, Mr. Pomeroy. 
Many of the agricultural attaches' background is in 
agricultural economics, not agricultural development. Although, 
we do have some. The gentleman, our attache in Peru, for 
example, in Lima, has a development background, having served 
both in USAID and others. And there's a handful around the 
world. We're trying to encourage them, I suppose is the word, 
to work in countries in Sub-Sahara Africa. We've expanded the 
number of ag attaches in sub-Sahara and Africa.
    But I don't think it's reasonable to expect that if they 
have a macro-agricultural economic background that they're 
going to be able to immediately do the kind of work that's 
necessary at rural village development. But, we're working 
toward that. And we're actually thinking of creating a, I don't 
know what the term is, I haven't been in government long enough 
to know what all these terms are, but to create a cadre of 
attaches that have development backgrounds and to hire people 
to fulfill that role.
    Mr. POMEROY. I'm excited to hear that. Thank you.
    Chairman LEVIN. Mr. Pomeroy, Mr. Crowley's next. Mr. 
Pomeroy, do pursue this issue. When I had the privilege of 
being the assistant administrator of Ag, in our bureau we had a 
rural development entity and we did the kinds of things that 
you mentioned. And there's been a dismantling of that capacity 
within AID and I hope there can be a rejuvenation. Mr. Crowley?
    Mr. CROWLEY. Thank you, Mr. Chairman. Thank you to you, Mr. 
Chairman and the Chairman of the full committee as also ranking 
member for allowing me to participate.
    Chairman LEVIN. No, no, you're fully, you just come at the 
end, but we're so glad you're here.
    Mr. CROWLEY. Glad to be here, so thank you. I just have a 
quick question, a couple of quick questions as it relates to 
the LDCs again. I know Mr. Herger had mentioned, made some 
reference to it, as well. And in particular, a country that I 
have a particular concern about, and that is Bangladesh. 
Currently, Bangladesh ranks 146th out of 182 countries in the 
UN Human Development Index, the HDI, with almost half of its 
population living on a $1.25 or less per day.
    I've traveled to Bangladesh on several occasions and I've 
seen for myself the dire poverty of the Bangladeshi people. 
Even though Bangladesh is already a participant in the GSP 
program, I believe it could and should benefit from the same 
types of programs authorized by regional preference programs. 
Bangladesh has the capacity to take advantage of preferences if 
we only give them that chance and the opportunity.
    How can we move forward on including the least developed 
countries, which are not beneficiaries of regional benefits, 
into a position where they can take advantage of preference 
programs? If there is not room for full participation, are 
there other measures that we could take to make them more fully 
participatory?
    Mr. REIF. Thank you, Mr. Crowley. And as you know, I think 
you know, the basic talking points on this issue. So, maybe 
I'll try to go beyond those. It's not a simple question. As you 
state, Bangladesh is very far down in terms of least developed 
countries. It's also our third largest supplier of textiles and 
apparel. It competes up the chain to our first and second 
largest suppliers of textiles and apparel and it also competes 
down the chain towards the others. Those are all considerations 
that will factor into our discussions with you and with others 
and the Congress about how to move forward in this particular 
area.
    There are issues of, there are problems there that would 
probably manifest themselves in terms of meeting the criteria 
of any new program that Bangladesh might participate in. In the 
worker rights area and other things. So, it's not a simple 
equation, sir, but it is one that I think, happily, will be 
given very careful and thoughtful attention in the coming 
months as this committee and others begin to work on this 
subject.
    Mr. CROWLEY. I appreciate that response. Let me just point 
out, just for the record that, particularly for women in 
Bangladesh, their advancement has been linked intrinsically to 
their advancement on trade, particularly in the garment sector. 
And I think that's something we all ought to, if we don't, 
support.
    Let me just go back to what Ms. Sanchez in her line of 
questions to Dr. Ott, which I thought was important. And I 
agree with her that not enough is done in trade building 
capacity. Going back to Bangladesh though, in particular, they 
have invested a great deal of resources per capita in improving 
the infrastructure of their country in order to make them a 
more effective exporter.
    Yet this committee staff, ways and means committee staff, 
appointed, and this is an interesting statistic, that 
Bangladesh currently pays $570 million in duties on $3.7 
billion of exports to the United States. By contrast, our ally, 
Great Britain, the United Kingdom, only pays $400 million on 
$58 billion in exports. That seems strikingly out of balance 
and a steep penalty for a country that lives in dire poverty. 
Is there any reason that the Bangladeshis and other poor 
countries should have to pay such steep prices for market 
access here? Is it Dr. Ott or Tim? Either one can? Dr. Ott, you 
can take it first.
    Ms. OTT. On the trade policy aspect of your question, I 
would defer to my colleague from USTR.
    Mr. CROWLEY. But, the question to you, in terms of the 
investment that country's making itself in infrastructure 
improvements, a good deal of that money that's being spent 
right now, could come from monies that they're paying to the 
U.S. on duties. Would you agree with that? Does a country like 
Great Britain have the same issues that Bangladesh has in terms 
of capacity?
    Ms. OTT. Well, certainly to the extent there's more 
economic activity in Bangladesh and it's taxed and there would 
be the opportunity for additional investments in infrastructure 
or other areas.
    Mr. CROWLEY. Mr. Reif.
    Mr. REIF. Sir, just a point of clarification. The duties 
are actually paid by the businesses that are exporting to us, 
so that it's not actually money coming out of the government's 
pockets. But the point is----
    Mr. CROWLEY. No, what it does do, it would create more 
opportunity for business to be done here and that money derived 
from that can be spent on infrastructure back in their country.
    Mr. REIF [continuing]. Well, and what it points out, 
certainly, is that there is clustering of reasonably high 
tariff levels in some particular product categories that 
Bangladesh and some other countries specialize in. Similarly, 
back on this end of the equation that there are individuals 
working and there are businesses working in those areas. That's 
another difficult piece to the equation that we're going to 
have to work on if we're going to look in this area.
    Mr. CROWLEY. Thank you. Thank you, Mr. Chairman.
    Chairman LEVIN. We'll finish it. Mr. Crowley, it's so 
important that you be here and as we go forth with this, we 
hope all will participate. I think your last question does show 
the complexity, but the need to tackle these complexities. I 
think the basic answer is that the product that have come in 
from the country that you mentioned are not as complementary, 
if you want to put it with an e, not an i, as the products that 
come from Great Britain. And it's a reason for the higher 
tariffs. But, as we look at this issue, and it also relates to 
Doha, we need to look at expanded trade and its impact on jobs 
in the United States.
    Another reason we want to try for developing nations to 
develop middle classes so they can buy our products. It's all, 
I think, interrelated and that's why, as we go forth with this 
issue of preferences, we'll try to look at all of the aspects, 
including trade capacity. Sandra Polaski is an expert on this. 
They're working on this issue. And so, we're glad all of you 
are here; we say good luck to AID and Ag, as there's new 
leadership there, and to you, Ms. Polaski, for coming, and to 
you, Tim Reif, we are exceptionally glad you are where you are, 
although we miss you.
    With that, we will stand adjourned until 1:30. Then the 
third and fourth panels will go right into it.
    [Recess.]
    Chairman LEVIN. I think we'll start, I'm sorry, we're a few 
minutes late. Just waiting for Mr. Brady. Mr. McDermott's here. 
Okay. Thank you, very much. And Mr. Brady and Mr. McDermott and 
I very much appreciate your patience. I think others will be 
joining us. There are now other areas of business in this 
place, but many will try to be back. So, this third panel, 
again, is a very distinguished one. Going from left to right, 
is Mr. Karangizi, who is the Assistant Secretary General of the 
Common Market for Eastern and Southern Africa. Welcome, sir.
    And His Excellency, Cham Prasidh, who is the Senior 
Minister and Minister of Commerce for the Kingdom of Cambodia. 
Welcome, Your Excellency. Glad you could make it.
    And also, David Hastings, who's the President and Chief 
Executive Officer of Mt. Vernon Mills from Mauldin, South 
Carolina? Where's Mauldin? Okay.
    And Paul O'Brien, who is Vice President of Policy and 
Advocacy for Oxfam.
    So each of you, if you would take five minutes. Your 
statements will be fully reviewed in the record.
    Oh, hi. That's right. I was told you weren't feeling well, 
but we're especially pleased that you're here, Ambassador Tomas 
Duenas. Can you hear us?
    Mr. DUENAS. Yes. I can hear you.
    Chairman LEVIN. Modern technology, which isn't perfect, but 
I think it will be good enough. And you're the former 
Ambassador of Costa Rica to the U.S. and you're Chief Executive 
Officer of ESCO.
    I think all of you might agree, Mr. Duenas, are you able to 
stay with us for the next half an hour or so? Is that okay?
    Mr. DUENAS. Yes, I will, of course.
    Chairman LEVIN. All right, then, why don't we do this, 
we'll start, we'll go down the line and then you'll go last Mr. 
Duenas, but then we'll see if there are any questions of you, 
so you could take them right away, okay?
    Mr. DUENAS. Yes.
    Chairman LEVIN. Thank you very, very much.
    Mr. DUENAS. You're welcome.
    Chairman LEVIN. So, Mr. Karangizi, why don't you take your 
five minutes? And again, we welcome all of you.

 STATEMENT OF STEPHEN KARANGIZI, ASSISTANT SECRETARY GENERAL, 
   THE COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA)

    Mr. KARANGIZI. Thank you, Chairman Levin, ranking member 
Brady, and distinguished members of the sub-committee. It gives 
me great pleasure to express our appreciation, as COMESA, for 
the invitation from your sub-committee to participate in 
hearings to assist the performance of U.S. preference programs 
and potential opportunities for improvement. It is fitting to 
be here today to discuss AGOA's future, as well.
    I remember that this is the committee where proposals for 
AGOA were conceived and without the dedicated work of Chairman 
Charles Rangel, and other long serving members, Sandy Levin, 
Jim McDermott and Ed Royce, we would never have had AGOA. In 
the case of COMESA, fourteen out of nineteen member states of 
COMESA, are currently full beneficiaries of AGOA and I'll focus 
my comments on this preference program.
    Suffice to note that, this comes at an appropriate time, 
when in the case of our region, efforts are being undertaken to 
expand integration with the proposal to have a larger free area 
covering three regional organizations of 26 countries, 
otherwise known as the Tripartite arrangement.
    In addition, other efforts have been undertaken to deepen 
the participation of the private sector with the establishment 
of an African cotton textiles industries federation and other 
private sector organizations in spearheading the role of the 
private sector in increasing the opportunities in AGOA.
    I will turn to the main issues regarding the future of the 
trade preferences in relation to our region. Over the past few 
years, following the end of the multi-five agreement, we've 
seen a decline in the exports from our region and AGOA. We 
believe that this decline is likely to continue especially, 
considering that our region faces more challenges. Despite the 
availability of the AGOA regime, there are still challenges in 
relation to capacity for the private sector to supply imports 
for garments in the textile sector and its difficulty in 
attracting investment in that area, and of course, the cost of 
doing business.
    This particular year, we've also had the opportunity of 
having another AGOA forum, the 8th AGOA forum in Nairobi, 
Kenya, where Ambassador Kirk extended the interests of the U.S. 
government to continue with AGOA and to seek ways in which it 
can be enhanced.
    Our overriding proposal, of course, is that AGOA could 
become permanent and its specific provisions, including the 
right to incorporate third country fabrics in garment exports, 
are made permanent.
    Other more specific trade policy proposals, which we 
believe would be beneficial in strengthening AGOA, include 
agriculture, and the elimination of tariff reduction quotas on 
all agriculture products with the exception of sugar, which 
would generate agriculture trade. For a number of countries, 
the trade generated could exceed their current trade levels.
    Secondly, another major impediment to new exports of 
agricultural products from the region is sanitary and phyto-
sanitary measures, particularly, pest risk assessments. At the 
moment, they are expensive, require lengthy time periods to 
conduct and often aren't successful. We believe that this is an 
area where particular attention could be harnessed if 
addressed.
    In line with the AGOA forum recommendations, we also 
believe increased U.S. assistance in enhancing and 
strengthening of institutional capacity to meet those SPS 
measures through training of national competencies in Sub-
Saharan countries would go a long way in addressing this. And 
of course, the need for fast-tracking the pest risk analysis 
process for approval of Sub-Saharan exports to the U.S. would 
assist.
    Thirdly, we also believe that there is a need to provide 
substantial resources for capacity building in the agricultural 
sector, particularly in the areas of research, training and 
agriculture infrastructure. With respect to infrastructure, 
generally, we also feel that paying greater attention to 
infrastructure in our region and supporting the outcomes of the 
current WTO aid for trade excise in Geneva would greatly 
support the enhanced capacity of our private sector to increase 
their access to the AGOA market.
    With respect to the eligibility criteria, we remain 
concerned, of course, that while we appreciate the 
establishment of conditions for eligibility, some of our member 
states have not been able to move away from their non-
eligibility criteria, hence the difficulty in their access to 
the market.
    We have a number of ideas for improving country eligibility 
requirements which we think would go a long way in enhancing 
AGOA. These include the U.S. should take into account the 
results of African peer reviews, which are ongoing. Secondly, 
the need to provide U.S. decision makers more flexibility by 
allowing non-trade sanctions for violations of eligibility 
conditions.
    U.S. laws include measures targeting the perpetrators of 
anti-democratic actions such as denying visas and access to 
overseas financial assets, which we believe would be more 
favorable than trade sanctions.
    Thirdly, we believe the designation of regional groups 
would be more beneficial and rather than one country falling 
out of conformity with the requirements, which affects regional 
integration, the groups can monitor each of its members if 
eligible, and maintain regional designation.
    With respect to trade policy, one of the most appealing 
aspects of AGOA is that of allowing designation of all African 
countries, irrespective of classification. We believe this is 
an area which could be strengthened, particularly giving 
consideration under WTO to generalizing the waiver to all such 
donor preferences.
    Secondly, in terms of trade policy, we believe under the 
Doha round of negotiations, it would be more favorable if 
concessions are not necessarily sought from the non-LCD 
countries, as this would affect in the long term, the 
establishment and strengthening of customs union in our region.
    And of course, we join all our members in terms of urging a 
prompt, balanced, and ambitious outcome of the round which has 
been articulated. With respect to textiles, it is obvious that 
Sub-Saharan textiles have difficulty in competing with 
manufacturers, particularly from the far east, as they have 
less competitive edge in terms of their production costs and so 
on.
    AGOA has a unique origin rule for garments, which has 
allowed it to maintain a small but significant share of the 
market. As signaled above, we've heard of the proposals for 
extending the MFA to other countries, particularly Bangladesh, 
although Bangladesh is the second largest exporter to the U.S. 
and has seen its imports increase while Sub-Saharan imports 
have declined. Thus, we argue that duty free treatment cannot 
be accorded to Bangladesh apparel exports if one hopes to 
maintain the most significant success story of AGOA, the growth 
of the garment industry in Sub-Saharan Africa.
    We have alternative proposals, for instance, the U.S. could 
consider a proposal for an end import allowance program, which 
has been used in some other forms as enumerated in my 
testimony. We also plea that the U.S. extend the AGOA third 
country fabric beyond 2012 as I have expressed in the testimony 
with more details.
    With respect to origin rules, donor countries have a very 
wide variety of origin rules which makes it difficult for 
African producers to export and for African authorities to 
administer the program. We would hope that the WTO would be 
tough with developing common standard origin rules for all 
donor countries. One area where a special rule could be 
developed is canned tuna, due to the uniqueness of this rule, 
it is almost impossible at the moment for fish caught in 
African waters to meet origin criteria.
    Finally, we also think that the market access alone is not 
sufficient. While we have had some successes, there are 
opportunities in the non-trade area to improve AGOA. These were 
clearly highlighted at the AGOA forum and I have attached a 
summary of them as stipulated by the chairman of the Africa 
group at that forum, which include issues relating to 
development and investment. I have highlighted some of them in 
my testimony including: incentives for U.S. investment in the 
region, flexibility of and providing original mandate for the 
Millennium Challenge Corporation, the OPEC, U.S. export/import 
bank, assistance in the infrastructure projects, particularly 
with reference to the Aid for Trade agenda under WTO, support 
to industries where the region has competitive advantages, and 
of course, a clear option of time, trade and investment 
policies.
    We believe that addressing all these would greatly enhance 
the capacity of Sub-Saharan countries to be able to benefit 
fully from the AGOA provisions extended to them.
    We thank you, Mr. Chairman, and the other distinguished 
members for inviting us once again. Thank you.
    [The prepared statement of Mr. Karangizi follows:]

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    Chairman LEVIN. Thank you for coming.
    Mr. Minister, you're next.

 STATEMENT OF HIS EXCELLENCY CHAM PRASIDH, SENIOR MINISTER AND 
           MINISTER OF COMMERCE, KINGDOM OF CAMBODIA

    Mr. PRASIDH. Chairman Levin, ranking member Brady, Members 
of the Subcommittee, on behalf of the Royal Government of 
Cambodia, I appreciate the opportunity to appear before you to 
discuss reforms of the U.S. trade preference system. Let me 
begin by expressing my gratitude for the Committee's 
cooperation and work with Cambodia on trade policy over the 
past 15 years which resulted in restoring normalized trade 
relations in 1995, and in helping to shape the textile 
agreement in force from 1999 to 2004, and in our WTO session 
agreement in 2004 and implementation since then.
    As I trust you will appreciate, that I come to this hearing 
with a single message. The Cambodian apparel industry is facing 
an unprecedented crisis and the action we request in response 
from this committee and the Congress is, to give our apparel 
sector duty free and quota free access.
    Mr. Chairman, we recognize that this crisis is not the 
responsibility of the Congress of the United States. Indeed, it 
is the U.S. apparel market that has given us the chance to 
transform our industrial economy and we deeply appreciate that 
opportunity and partnership.
    While you are listening to me, I would like you to bear in 
mind the context we are living and the past tragic history of 
Cambodia. People of my age who have always resided in Cambodia 
have saluted six different national flags of Cambodia. That's a 
record in the world. So, please bear that in mind when you are 
listening to our plea.
    Mr. Chairman, while we are rebuilding our country, we found 
our way together and we put in place through the International 
Labor Organization a reporting mechanism for our apparel 
factories that assured accountability for compliance with 
Cambodian labor law and fundamental international workers' 
rights. The better factories Cambodia project has been so far 
branded the most innovative mechanism to promote corporate 
social responsibility. We took, also, accompanying measures to 
make the policy work.
    Cambodia's reputation was transformed from a country known 
for tragedy, for the killing fields, to that of a country that 
was a pioneer in international trade policy. We made Cambodia a 
safe haven for all the major brands who source apparel from 
Cambodia free from sweat shops. The Cambodia model was born and 
it is now followed by a growing number of other countries but 
risks of its failing, are looming in the horizon.
    I have attached some slides for you to see how we have been 
able to perform and the current crisis that we are facing is 
that we are going to see a drop of 24 percent to 36 percent of 
our government export, not just through the U.S.A., but also 
through the world. And what we have seen as well is, that we 
are also very vulnerable to external shocks. Our government 
sector export represents 87.87 percent of our total exports in 
2008. This is affecting the government export mean as well as, 
the whole community of Cambodia.
    Over the past year, we have seen 60 factories, garment 
factories, close down. 52,000 jobs lost. And what will happen 
to these 52,000 workers, mostly female, after being laid off is 
a very big question mark. The Cambodian government does not 
have money to provide social securities as in developed 
countries.
    Over two million people, who have seen recent improved 
living conditions in Cambodia, could suddenly see it wipe out 
like a tsunami.
    We have tried to take all the necessary reforms to make our 
garment sector competitive. How have we been able? We have been 
successful, or not, in securing a market share in the U.S., you 
look to the chart that we have provided, you would see that 
from 2004 to 2008, our market share from 2.1 percent grew to 
3.9 percent. But from this year, it is only 2.4 percent.
    Comparing us with AGOA, AGOA also started with 2.1 percent, 
almost the same level. And nowadays with 1.2 percent. Quite the 
drop. But this drop is not because of Cambodia. If you look to 
the chart, you would see that China has come from 16.01 percent 
to 34.74 percent of the market share.
    For the U.S. buyers, corporate social responsibility is 
just one factor. Other factors such as competitive price, 
speedy delivery of goods, and credit facilities continue to 
prevail in their decision to source products. These are all 
related to competitiveness.
    Since the world financial crisis started in 2008, 
industrial tensions in Cambodia are flaring up. Factories are 
closing doors and, workers are laid off. We have taken steps to 
improve our apparel sector competitiveness. We are working on 
programs to boost productivity, assist laid off workers and 
provide further tax incentive for the industry. But we are have 
a limited budget. But from the U.S. side, there are also steps 
that the Ways and Means Committee can take to provide us a 
bridge to manage the transition in our economy and extend the 
life of our apparel sector. Duty free access under the U.S. 
trade preference program.
    I have provided also slides to show you that Cambodia is 
now bleeding white. You look to the chart, you would see that 
Cambodia is paying more and more duties to the U.S. while 
countries also LDCs like the Sub-Saharan countries, see less 
and less duties to be paid to the U.S. So, for example, in the 
last year, 2008, Cambodia paid $407 million as duties to the 
U.S. while all the 41 countries in AGOA only paid $14 million.
    Does including LDCs on the same footing as the LDCs of AGOA 
affect AGOA's economy? I would say, no. I would dare to say, 
no. The end of the quota system in 2005 has started to erode 
our competitive advantage. The trade preferences the United 
States can give to Cambodia will help us develop our 
competitiveness vis-a-vis bigger countries with long and well-
established apparel sector, especially our neighbors in Asia.
    If you can carve just one or two percent of the U.S. market 
share for our products, out of China's 34.7 percent share for 
example, it would change dramatically the economy of Cambodia. 
It will not affect China's economy at all. This one or two 
percent slice is certainly not carved from AGOA countries. It's 
not carving from AGOA's share in the U.S. market. The AGOA 
countries can use Cambodia as a model for building their 
competitiveness. Cambodia is not their imagined competitor. We 
are as poor as them. We cannot be condemned in our market 
access because we are performing better. Let us not forget that 
performing better requires painful reforms and strong political 
will to change for the better.
    Performing better is not through protecting infirm or 
ailing industries, but developing your competitive advantage. I 
believe African countries can shape a brighter future for 
themselves, too. The issue of the rules of origin, specifically 
when a product is ordered from LDCs, should also be addressed 
by the U.S. Congress in a manner that they can be effectively 
utilized.
    We also should not be viewed as taking jobs from American 
workers in the textile and apparel sector, as we are not 
producing the same type of categories of apparel that they are 
doing.
    The last chart that I would like to share with you, 
excellencies and other Members of the Subcommittee, shows the 
GDP growth of Cambodia. At this time, there is still a quota 
and a policy of linking trade which we understand. We have been 
able to secure additional quota and our GDP growth went up as 
did our export of garments to the U.S. But at the end of the 
quota system in 2005, you look toward our GDP growth, we start 
to fall from 13.3 percent to 10.8 percent in 2007, to 10.2 
percent in 2007, to 6.7 percent in last year. And this year, to 
-2.75 percent. This is why I said it is a crisis because 87 
percent of our world export relies on garments. And if nothing 
is done for our apparel sector, we are going to go deeper than 
what you are seeing here.
    This means that quota free and free competition, has just 
offered the opportunity for the onslaught of our products by 
cheaper Chinese and Indian products and that there is a real 
free fall of Cambodian export and at the same time, a free fall 
of Cambodia GDP gross.
    What will the U.S. do with its GSP scheme? I am here to 
make a plea from a war devastated country, a plea from the 
killing fields. At this moment of crisis, I hope the committee 
will take the modest steps that can preserve Cambodia garment 
industry as a success story in development, of labor rights, 
and of poverty reduction. It is all about opportunities. It is 
all about competitiveness. It is all about fairness. It is all 
about strong political will to change, to make a positive 
change that will impact positively the least developed 
countries.
    The 41 Sub-Saharan LDCs enjoy preferential market access to 
the U.S. market on the duty free, quota free basis under the 
AGOA while Asian LDCs, including Cambodia, and Pacific LDCs do 
not. Cambodia is as poor as any of the AGOA countries. Why 
can't they receive similar treatment? If Cambodia fails, the 
AGOA countries are not going to benefit from it, either. What 
will be the Doha development agenda? Ultimate results for LDCs. 
Making them poorer or better off? What are the millennium 
development goals aiming at?
    Please, give Cambodia opportunities to export duty free, 
quota free to the U.S. market, build a stronger private sector 
and gets its people out of poverty. Our people have suffered 
long enough. And should not be left out in the cold.
    Thank you.
    [The prepared statement of Mr. Prasidh follows:]

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    Chairman LEVIN. Mr. Hastings, you're next.

 STATEMENT OF W. DAVID HASTINGS, PRESIDENT AND CHIEF EXECUTIVE 
               OFFICER, MOUNT VERNON MILLS, INC.

    Mr. HASTINGS. Chairman Levin and ranking member Brady, 
thank you for the opportunity to testify on trade preference 
reform. My name is David Hastings and I am the CEO of Mt. 
Vernon Mills and the vice chairman of the National Council of 
Textile organizations.
    The overall U.S. textile sector employs over 600,000 
workers and exports more than $12 billion a year. My company, 
Mt. Vernon Mills employs 2,657 textile workers and 17 
facilities located in mostly rural areas of the Southeast. Our 
largest plant in Trion, Georgia, employs 1,142 workers and has 
been a mainstay in the Trion community since 1845.
    Most of what we make at Trion is exported to the NAFTA and 
CAFTA regions and returns as garments to the United States. On 
November 7th, Mt. Vernon announced that we had several job 
openings at the Trion plant. People began lining up outside the 
plant at four a.m. to apply. By noon we had taken 270 
applications from people looking for work. That is how 
difficult life is in the rural communities today.
    I understand that the committee is considering a proposal 
to extend duty free status to apparel imports for Bangladesh 
and Cambodia, or to make other changes to the textile and 
apparel trade rules. 45 textile and apparel groups from 29 
countries in Africa and the Western Hemisphere asked me to 
present a letter today stressing their strong opposition to 
such efforts. This list includes nine least developed 
countries, including Haiti. As this committee considers this 
proposal I appeal to you to keep in mind the workers at our 
Trion facility and at textile facilities across the country.
    Their livelihoods literally rest in your hands. If this 
committee grants duty free status to large competitive 
countries, Mt. Vernon's Trion facility as well as many other 
textile mills across the country will be forced to close. And 
in the case of Trion, the U.S. military will lose one of the 
country's largest producers of combat fabric for our soldiers. 
The reason is simple economics. Bangladesh already pays its 
workers the lowest wages of any apparel producer in the world. 
The minimum wage for apparel workers in Bangladesh is 11 cents 
an hour.
    On top of that, Bangladesh has a long history of worker 
abuse. Over the last six months tens of thousands of garment 
workers have rioted on multiple occasions with numerous deaths. 
I grew up in Greenwood, South Carolina, and my father and 
mother worked their entire careers at Greenwood Mills. Their 
hard work paid off to the point that I was able to become the 
CEO of Mt. Vernon Mills. That story of opportunity and promise 
has been replayed in some of the poorer sections of this 
country for many generations.
    That story has also been replayed around the world. The 
United States has extended special access in textiles and 
apparel to 55 countries. Through these programs two-way trade 
worth nearly $30 billion has been created. Nearly two million 
workers have escaped from poverty; however, these gains are 
threatened by the proposals to extend new preferences to 
Bangladesh and Cambodia. With the removal of quotas over the 
last five years, countries that have heavily subsidized their 
textile export sectors, practice currency manipulation, or pay 
only the very lowest of wages have seen importers flock to 
their shores.
    Since 2004 China has gained $14 billion in new apparel 
exports. Exports for Bangladesh and Cambodia have increased by 
63 percent, over $2 billion. Exports from Bangladesh and 
Cambodia have increased by 63 percent, over $2 billion. 
However, apparel imports from the CAFTA countries have fallen 
32 percent while the AGOA countries are down another 40 
percent. The U.S. textile industry, in turn, has lost over 
150,000 jobs.
    Mr. Chairman, I do not think our country believes we should 
do anything that could jeopardize any additional jobs at home. 
In particular, we should not be abandoning manufacturing jobs 
when economists and the president tell us we must produce more 
and export more to return to economic health. I also do not 
think we should abandon our preference partners in order to 
reward countries that barely pay their workers or engage in 
predatory and illegal subsidy schemes. Instead, I believe that 
we should be focused in our efforts on ensuring a prosperous 
future for United States workers as well as for the millions of 
workers in the preference and free trade areas.
    As an immediate issue I urge the committee to move quickly 
to extend trade preferences that are expiring in the Andean 
region. Thank you, and I will be pleased to answer your 
questions.
    [The prepared statement of Mr. Hastings follows:]

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    Chairman LEVIN. Thank you very much.
    Mr. O'Brien.

    STATEMENT OF PAUL O'BRIEN, VICE PRESIDENT OF POLICY AND 
                    ADVOCACY, OXFAM AMERICA

    Mr. O'BRIEN. Thank you Chairman Levin, Representative 
Brady, Members of the Subcommittee.
    I am Paul O'Brien. I am the vice president for policy and 
advocacy at Oxfam America. I want to say we're very grateful 
for these hearings and for the depth of the discussion.
    We in particular agree with the recommendations of 
Representative McDermott and thank you very much for them this 
morning. Oxfam America: we have 14 affiliates around the world 
working in a hundred countries. We're an aid organization, but 
we don't think that the answer to global poverty problems is 
aid. We think trade is far more important. If you increased 
global trade by one percent it would be more than two and a 
half times the global aid budget. It's far more significant.
    What we really need to see is bringing aid and trade 
together in a coherent global development strategy from the 
United States, which is always going to be the leader on this 
front, but could do far more to fulfill its potential. It 
doesn't make sense that we give Cambodia one dollar in aid for 
every seven dollars we charge them in trade. It doesn't make 
sense that we are charging Bangladesh $500 million in 2008 on 
$3.3 billion of exports, while at the same time we're charging 
less to the United Kingdom on over $50 billion of exports.
    We have got to bring some greater coherence to our global 
development strategies. We are going to make three 
recommendations to you, which hopefully will be consistent with 
other things you've heard this morning. One, expand program and 
product coverage. Two, establish a single, unified program. 
Make it simpler. Make it more predictable. Three, bring our 
trade and aid policies together, particularly in trade capacity 
building under a global development strategy.
    Let me say a few more words about each of those. We need to 
expand our program and product coverage. Why? Because we have 
still a billion people living in poverty, and a global 
financial crisis that put a hundred million more of them into 
poverty. LDCs make up less than one percent of global trade; 
and imports from LDCs in total are half a percent of U.S. non-
oil imports to the United States. That's why we need duty free, 
quota free access for all LDCs.
    On products, when we exclude the key exports that help 
these countries lift themselves out of poverty, we are 
undermining our global efforts at sustainable development. If 
we take textiles and apparel out of duty-free, quota-free 
access, and they are the key industries in places like 
Cambodia, as you heard from the minister, we are undermining 
our longer term development goals there. The same with peanuts, 
sugar and dairy products under the AGOA agreement.
    Our second recommendation is to create a single, unified 
program with simpler rules and predictability. If we really 
want trade to drive sustainable growth overseas and we see 
sustainable growth as the key to long-term development, we have 
to think about the customers that we have on the ground. 
Instead of one unified program now, we have ad hoc solutions to 
specific problems, developed at different times for different 
reasons. We don't have a simple set of rules, and from the 
customer's perspective, it's just too confusing to work with.
    Because our programs aren't as predictable as they could 
be, businesses, the people we want to make use of these, can't 
plan around them. They're not sure if they're going to be there 
in time. We need, in our legislation, to make a home for 
preferences in our trade policies. Until we get that 
legislation, and we believe this committee is going to be key 
to that, we need to make sure that the GSP and the Andean 
programs which are going to be coming up next month are renewed 
for a predictable period of time. We recommend five years at 
Oxfam.
    Third, we need to link trade and aid. I spent the last 
couple of years working on U.S. aid policy. We are by far the 
global leader in aid. We spend one in every four dollars 
globally, but we are underperforming in terms of what we could 
do to help lift people out of poverty, and that's why we're a 
part of the modernizing foreign assistance network to try and 
make our aid more effective for global development. But we face 
many of the same challenges in the trade world.
    There are 15 different agencies that are doing trade 
capacity building. That's just not an efficient use of 
resources. People are trying to coordinate. There are 
interagency discussions, but nobody is really in charge; and it 
isn't part of an overall global development strategy. If we 
don't do this, we are not going to be able to help the 
countries that need the help most. It's a problem that 12 of 
the 38 countries in AGOA aren't using this program.
    Why? Because they lack the physical and administrative 
infrastructure to avail of trade preference opportunities. So 
we urge this committee to work with the appropriations 
committee and the foreign affairs authorization committee to 
give us, the United States, a global development strategy that 
brings these things together. As I was listening to the 
minister from Cambodia I was struck by how stark this reality 
is. As he mentioned, their garment sector is in crisis. They've 
lost 63,000 jobs.
    Many of those jobs are for women. Many of them come from 
rural areas. We estimate it's around 90 percent. The fear is 
that many of them are going to go into the sex industry. At the 
same time that that's happening, one-third of our aid dollars 
to Cambodia are going to protect HIV AIDS. So we can either 
address the symptom through our aid work, or we can get at the 
underlying cause by keeping those women in the jobs that we 
tried to help them with, with our preference programs.
    Whatever we do, we should have a coherent plan. We 
shouldn't be creating one problem with one of our policies and 
trying to solve it with another one. We need to bring these 
together. Thank you for the opportunity to share these three 
sets of recommendations with you to expand program and product 
coverage, to make sure we have a simpler program with more 
predictability; and, ultimately, to bring our trade and aid 
policies together.
    We look forward to working with you as we hope you try to 
address these problems going forward.
    [The prepared statement of Mr. O'Brien follows:]
   Prepared Statement of Paul O'Brien, Vice President of Policy and 
                        Advocacy, Oxfam America
    Good morning Mr. Chairman, Representative Brady and Members of the 
Subcommittee. I am Paul O'Brien, Vice President of Policy and Advocacy 
for Oxfam America. Thank you for the opportunity to testify today on 
the important matter of trade preference programs and international 
development. Oxfam appreciates the subcommittee's initiative to take a 
comprehensive review of existing programs and to consider how they have 
been working and how they can be improved.
    Oxfam America is an international development and humanitarian 
relief agency working for lasting solutions to poverty, hunger and 
social injustice. We are part of a confederation of 14 Oxfam 
organizations working together in nearly 100 countries around the 
globe.
    Oxfam believes that trade can be an engine for development and 
poverty reduction as long as the rules of trade work to benefit poor 
people and developing countries. Well-functioning trade has the 
potential to lift millions of people out of poverty. To ensure that 
trade does work for development, U.S. trade policy should hold 
sustainable economic development as a core objective in order to help 
improve livelihoods and reduce poverty in developing countries. 
Likewise, U.S. trade and development policies should be harmonized so 
that they may bolster each other and build synergies rather than 
compete against one another. U.S. trade preference programs are an 
important part of our trade agenda that can help achieve these 
outcomes.
    I would like to talk briefly about why trade preference programs 
are important, provide a few examples of the strengths and weaknesses 
of existing programs, and suggest how these programs can be improved to 
better foster development. Oxfam believes that U.S. preference programs 
should be improved by:

        1.  Expanding program coverage to benefit all the world's 
        poorest countries, at a minimum those defined as least-
        developed countries (LDCs) by the United Nations (UN);
        2.  Establishing a single, unified program with simplified 
        rules in order to facilitate greater utilization amongst 
        countries and products; and
        3.  Linking preference programs with foreign assistance in 
        order to help these countries to better take advantage of trade 
        opportunities.

I. Trade, preference programs, and development
    Poverty, hunger, disease and lack of economic opportunity in 
developing countries are a human tragedy that is now magnified by the 
global economic crisis. Even as the global economy begins to recover, 
developing countries continue to face increased hardships with mounting 
food insecurity and soaring unemployment. Improving U.S. preference 
programs to be more inclusive, accessible, reliable and easy to use can 
aid in their recovery and growth.
    Globally, between 73 and 103 million more people will remain poor 
or fall into extreme poverty (defined as living on less than $1.25 per 
day) in 2009.\1\ The majority of this hardship will be felt in East and 
South Asia, with between 56 and 80 million people likely to be 
affected. The crisis is estimated to push into poverty as many as 16 
million more people in Africa and another 4 million in Latin America 
and the Caribbean this year.\2\ The World Bank predicts that by the end 
of 2010, the crisis will push an additional 90 million people into 
extreme poverty,\3\ and another 120 million will fall below the poverty 
line of $2 per day.\4\
---------------------------------------------------------------------------
    \1\ United Nations, World Economic Situation and Prospects 2009, 
Update as of mid-2009, January 2009.
    \2\ Ibid.
    \3\ World Bank. ``Financial Crisis Facts and Figures,'' http://
www.worldbank.org/financialcrisis/bankinitiatives.htm.
    \4\ Shaohua Chen and Martin Ravallion, ``The Impact of the Global 
Financial Crisis on the World's Poorest,'' 30 April 2009, accessible 
at: http://www.voxeu.org/index.php?q=node/3520.
---------------------------------------------------------------------------
    At the same time, dramatic shortfalls in developing country 
financing are reported in core areas for development such as education, 
health, infrastructure, and social protection. Further, global export 
market demand for low-income countries has declined 5 to 10 percent in 
volume terms this year alone, and merchandise exports from these 
countries are anticipated to drop by 14.4 percent in 2009, compared 
with a 22.2 percent rise in 2008.\5\ Total U.S. imports from LDCs have 
fallen by 45 percent, with non-oil imports falling 12 percent.\6\ 
Private capital flows \7\ and remittances \8\ to developing countries 
are projected to continue to decline as well.
---------------------------------------------------------------------------
    \5\ ``Protecting Progress: The Challenge Facing Low-Income 
Countries in the Global Recession,'' Background paper prepared by World 
Bank Group staff for the G-20 Leaders' Meeting, Pittsburgh, USA, 
September 24-25, 2009.
    \6\ USITC, 2009, accessible at: www.usitc.gov.
    \7\ Massimiliano Cali, Isabella Massa and Dirk Willem te Velde, 
``The Global Financial Crisis: Financial Flows to Developing Countries 
Set to Fall by One Quarter,'' Overseas Development Institute, November 
2008.
    \8\ ``Remittance Flows to Developing Countries to Decline by 7.3% 
in 2009, Predicts World Bank,'' Updated estimates released at July 13-
14 International Diaspora and Development Conference, Press Release No. 
2010/024/DEC, July 13, 2009.
---------------------------------------------------------------------------
    Yet LDCs like Cambodia and Nepal, which have already been hit very 
hard by the crisis, face the added burden of higher tariffs in the 
United States. They do not benefit from existing preference programs 
because most of the products they export are excluded. Consider the 
situation of Cambodia, for example. Over the last year, U.S. demand for 
clothing has dropped and Cambodia's exports to the United States have 
fallen 23.6 percent from January to mid June this year alone.\9\ This 
has led to the loss of an estimated 70,000 garment factory jobs in the 
country,\10\ primarily affecting women from poor rural areas, since the 
onset of the global financial crisis in 2008. Anecdotal evidence shows 
these job losses in the garment industry have heightened the 
precariousness of job security and wages in the industry and reduced 
internal remittances to poor families in rural areas, hindering 
Cambodia's poverty reduction efforts.\11\
---------------------------------------------------------------------------
    \9\ Xinhua News Service, June 16, 2009.
    \10\ Phnom Penh Post, ``Recession Threatens Families,'' 8/26/09.
    \11\ Public Forum on the Impact of the Global Economic Downturn and 
Need for Policy Responses, Cambodia-Japan Cooperation Center, Phnom 
Penh, Cambodia, July 14, 2009.
---------------------------------------------------------------------------
    Expanding U.S. market access for exports from the world's poorest 
countries, including Cambodia, Bangladesh and Nepal, can help mitigate 
the impacts of the global economic crisis, spur broad-based economic 
growth and make progress towards poverty reduction in urban and rural 
areas. For more than three decades, U.S. trade preference programs have 
been one important way that U.S. trade policy has helped to promote 
development through export expansion and product diversification. While 
some changes to programs have been made over the years, limitations 
remain that keep them underutilized, particularly by some of the 
poorest countries.
II. Strengths and weaknesses of existing preference programs
    A GAO review of U.S. trade preference programs in 2007-8 provided 
some important insights into the effectiveness of these programs. 
Oxfam's experience concurs with much of the GAO findings. I would like 
to highlight a few aspects we consider most important regarding the 
success of increased market access, but likewise the poor performance 
in the areas of utilization, accessibility, and assistance for trade 
capacity building.
Market Access
    U.S. preference programs have provided increased market access for 
developing countries, which has stimulated economic growth in 
manufacturing and agriculture sectors and increased employment 
opportunities where there are few alternatives, particularly for women. 
U.S. imports under preference programs represent about 5 percent of 
total U.S. imports of goods. While our overall imports from developing 
countries have been steadily increasing in value, particularly since 
2000, imports through preference programs have been expanding at a 
faster rate. In general, we can affirm that U.S. preference programs 
have been effective in expanding developing country exports.
Utilization
    Missing their full potential, the benefits of U.S. preference 
programs to developing countries have been underutilized, especially 
among LDCs. The reasons are multi-faceted, but essentially, programs do 
not cover the main products LDCs export and can be difficult to use. 
The rules are complex, difficult to comply with and can be subject to 
interpretation or change. Most trade preference programs are temporary 
and are granted ever shorter duration periods, requiring Congressional 
renewal frequently. In recent years, expiring trade preference programs 
have been extended for very short periods--two years or less. This 
creates uncertainty and undermines the ability of businesses and 
governments to plan and make investments.
    Imports through preference programs are still concentrated 
disproportionately among middle-income countries, as existing programs 
have not accelerated exports from many LDCs, particularly in economic 
sectors that generate employment for people living in poverty. Of the 
46 countries designated as LDCs, 34 barely used U.S. preferences in 
2006. Ten countries account for 75 percent of all preference imports 
and over 50 percent of these are fuel imports concentrated in a few 
countries. In 2006, LDCs represented only 17 percent of imports under 
trade preferences, and of these, a large portion was concentrated in 
three oil-exporting countries: Angola, Chad, and Equatorial Guinea. It 
is a major shortcoming of existing trade preference programs that they 
exclude key exports from poor countries. Further, poor countries face 
supply-side constraints that programs cannot address unless a clear 
mechanism is established to provide trade capacity building support.
Rules
    Complex and disparate rules within and across programs have 
generated significant challenges hindering some countries from 
utilizing preference programs. Rules of origin are often hard to 
understand and costly to administer; both exporters and importers often 
require technical expertise to use them correctly. In some cases the 
costs to both exporters and importers for meeting and administering the 
rules outweigh the benefits from the tariff preference. In addition, 
other rules can create obstacles. For example, artificial ceilings on 
product exports (competitive need limitations) could divert investment 
away from sectors that successfully generate employment through 
exports. While the intent of these rules may be to try to ensure a 
better distribution of benefits from preferences among countries, the 
increasing complexity of the rules is more of an obstacle than an 
advantage for poor countries.
Program duration
    Currently, U.S. preference programs are subject to frequent 
renewals, under different terms for different programs. Instead of the 
10-year or similar terms under which programs were originally 
established, the Generalized System of Preferences (GSP) and some 
regional programs are now extended for only one or two years or even 
less. Programs are generally renewed just days before they expire, or 
sometimes retroactively after expiry. The uncertainty created by such 
unstable and short-term program durations is a strong disincentive for 
developing country exporters as well as U.S. importers, who tend to 
plan their sourcing six months to a year in advance. Lack of certainty 
for investors and importers leads to job instability and hinders 
incentives for diversification in developing countries. Moreover, the 
unpredictability created by short-term and haphazard extensions 
discourages long-term investment and undermines the potential 
effectiveness of preference programs for sustainable development.
Product coverage
    Many of the products poor countries export are ineligible or face 
restrictions from U.S. preference programs. Greater benefits are 
realized from preferences when there is broader product coverage. The 
most effective program would offer market access for the poorest 
countries that is 100 percent duty-free and quota-free (DFQF) with less 
restrictive rules of origin.
    Most of the gains and growth in imports under preference programs 
are tied to regional programs precisely because there are fewer 
constraints on imports. In 2008, African countries under AGOA \12\ 
represented 51.5 percent of U.S. preference imports, Andean countries 
under ATPA \13\ 15.7 percent, and Caribbean basin countries under CBI 
\14\ 2.7 percent and CBTPA \15\ 1.5 percent, while GSP represented 28.5 
percent of imports under preference programs. During the same year, 
AGOA and ATPA saw the strongest growth, while GSP saw the smallest 
growth at 4 percent. Overall, growth of imports under U.S. preference 
programs has accelerated since 2000, mostly due to the expansion of 
product coverage and easing of rules of origin associated with regional 
programs as well as the creation of special GSP benefits for LDCs. 
AGOA, which has less stringent rules of origin requirements and the 
greatest product coverage, has demonstrated the greatest success of all 
U.S. preference programs. These lessons should be carried forward as 
Congress reviews and improves U.S. preference programs in these and 
other areas.
---------------------------------------------------------------------------
    \12\ African Growth and Opportunity Act.
    \13\ Andean Trade Preference Act.
    \14\ Caribbean Basin Initiative.
    \15\ Caribbean Basin Trade Partnership Act.
---------------------------------------------------------------------------
    However, many LDC exports remain excluded from preference programs. 
For 15 Asian LDCs, preferential market access is provided on only 83 
percent of tariff lines, and continues to exclude key sectors like 
textiles and apparel and important agricultural products. These are 
crucial economic sectors for the economies of some Asian LDCs. Even 
though AGOA provides duty-free access on 98 percent of tariff lines for 
26 African LDCs that meet the program's eligibility criteria, quotas 
remain on key agricultural products.\16\ Sugar and dairy products, for 
example, face severe restrictions on exports to the United States due 
to the quota system. These are precisely the sectors which have the 
highest preference margins and are of the greatest export potential for 
many developing countries, particularly LDCs. Only 0.2 percent of U.S. 
imports from Cambodia and 0.6 percent from Bangladesh currently receive 
preferential market access. Excluding important manufacturing and 
agricultural products means that countries like Bangladesh and 
Cambodia, two of the leading LDC exporters to the United States, gain 
very little from preference programs.
---------------------------------------------------------------------------
    \16\ Elliot, Kimberly, ``Global Trade Preference Reform: Background 
Paper for Working Group Discussion Paper,'' Center for Global 
Development, April 2009.
---------------------------------------------------------------------------
Trade Capacity Building
    Many poorer countries have inadequate physical and administrative 
infrastructure to take advantage of the trade opportunities offered by 
preference programs. Producers and businesses face a range of 
challenges in getting products to market, and often lack adequate 
information and capacity to meet product standards. Moreover, many 
developing countries still lack the capacity to diversify their 
economies and to become more stable and resilient, particularly in the 
wake of economic crises.
    More is needed to help poor countries use preference programs to 
benefit from trade and further their development. Trade capacity-
building assistance can help overcome these constraints, providing 
economic aid that enables countries to more effectively take advantage 
of preference programs and boost overall capacity to engage in trade. 
However, AGOA is the only existing preference program to provide a link 
to capacity-building efforts, albeit absent of any funding.
    In order for preference programs to promote long-term economic 
development that helps to broadly distribute the benefits of trade and 
reduce poverty, it is critical that they be linked with aid and 
capacity-building programs. Binding trade capacity building assistance 
to preference programs will enable developing country producers and 
businesses to take advantage of trade opportunities and will also help 
countries meet program eligibility criteria. In this vein, it is 
particularly important that aid benefit small-scale producers, 
especially women and other vulnerable groups, who often lack the 
information and tools necessary to access markets.
    Currently, over 15 U.S. government agencies are engaged in 
providing some form of trade capacity building assistance, with little 
effective coordination among them or with trade preference programs. 
Trade capacity building funds should be closely coordinated, 
particularly with our foreign aid programs, and should be designed to 
meet development needs as determined by recipient countries' national 
development strategies.
III. Coherence between trade and aid policies to support sustainable 
        development
    Stepping back from the intricacies of the preference programs, we 
must recognize that their weaknesses reflect underlying inconsistencies 
in U.S. trade and development policies. These programs are meant to 
facilitate access to the U.S. market for developing countries. Yet, 
some of the world's poorest countries pay the highest tariffs on their 
exports to the United States. We must, therefore, align our trade and 
development policies to build synergies and catalysts for economic 
growth and sustainable development, rather than unintentionally 
thwarting progress.
    The average tariff rate on imports into the United States is 1.7 
percent. In comparison, Cambodia, a country which ranks 137 on the 
Human Development Index, faces an average tariff of almost 17 percent 
on its exports to the United States. Similarly, Bangladesh must pay an 
average rate of more than 15 percent and Pakistan nearly 10 percent. 
Meanwhile, France, the UK, and Saudi Arabia pay average tariffs of less 
than one percent. Thus, in absolute terms, Cambodian and Bangladeshi 
exporters pay the United States much more in tariffs than do France or 
the UK. In fact, Bangladeshi exporters pay more than twice as much in 
tariffs to the United States than the UK, even though the value of 
Bangladeshi exports is only one-tenth the value of UK exports.
    Something is wrong when the poorest countries are paying more than 
the richest countries to do business with the United States.
    This reality is made more perverse when considering the investments 
we make through U.S. foreign aid programs. The incoherence of our aid 
and trade policies is underlined by the fact that we collect more in 
tariffs than we provide in aid to some developing countries. Nearly all 
the tariff revenue we collect from LDCs comes from only two countries--
Cambodia and Bangladesh--which in 2008 accounted for about 40 percent 
and 58 percent, respectively, of U.S. tariffs collected from LDCs. 
Similarly for these LDCs and other poor countries, the tariffs paid for 
exports were many times more than they received in aid. Cambodian 
exporters paid $407 million in tariffs to the U.S. and received $58 
million in aid, while Bangladeshi exporters paid $573 million in 
tariffs and received $151 million in aid. Sri Lanka paints an identical 
picture: $238 million in tariffs and just $28 million in aid. 
Indonesian exporters pay the U.S. more than five times as much in 
tariffs ($856 million) than the country receives in foreign assistance 
($187 million).
    Figure 1: Tariff Revenues vs. Foreign Assistance, 2008


    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Source: USITC and CBJ Foreign Operations 2010

    This is not an effective development strategy. We could do much 
more to enable economic growth in these countries by eliminating these 
tariffs and encouraging greater investment through improved trade 
preference programs. Moreover, freeing up these dollars would enable 
these countries greater flexibility in investing in underfunded sectors 
such as agricultural development, health and education. In order to be 
most effective in combating global poverty--which is in our economic 
and national security interest--more needs to be done to ensure full 
policy coherence and make sure all elements of our national and 
international policies and goals work together effectively.
IV. U.S. preference programs should be expanded and improved
    Existing trade preference programs demonstrate a clear benefit to 
those countries that are able to take advantage of these market 
opportunities. However, not all developing countries are able. In order 
to assure that developing countries--LDCs, in particular--can utilize 
these programs to the fullest extent, U.S. trade preference programs 
must be expanded and improved. Oxfam recommends that Congress adopt the 
following measures:

        1.  Provide 100 percent duty-free and quota-free market access 
        for all products from all the world's poorest countries--at 
        minimum all LDCs as defined by the UN;
        2.  Create a single, comprehensive and permanent preference 
        program with simplified rules to encompass existing programs 
        and enhance their effectiveness; and
        3.  Effectively link aid with preference programs to improve 
        the capacity of poor countries to take advantage of the 
        opportunities offered through U.S. preference programs.

    Until new legislation to improve preference programs can take 
effect, it is critical that Congress act immediately to renew expiring 
trade preference programs. Both the GSP and ATPA are set to expire in 
just over a month. Already, developing country exporters and U.S. 
importers have had their business planning interrupted because they do 
not know whether the preferences will continue or whether the rules 
will change. Oxfam urges quick passage of a minimum five-year extension 
of both of these important programs. These and other existing trade 
preference programs should not again be allowed to expire, and future 
last-minute extensions should be avoided.
Provide 100 percent DFQF market access for all poor countries
    Oxfam recommends that U.S. preference programs expand their 
coverage to provide duty-free and quota-free (DFQF) market access for 
all products from all poor countries, which at a minimum should include 
all LDCs as defined by the UN. These countries currently account for 
less than one percent of world exports, excluding energy, and a mere 
0.5 percent of U.S. non-oil imports.
    The bi-partisan HELP Commission report released two years ago on 
improving the effectiveness of U.S. foreign assistance recommended that 
the United States provide DFQF market access to poor countries, which 
they defined as those with less than $2,000 GDP per capita as well as 
those eligible for a Millennium Challenge Corporation compact or 
threshold program. The Millennium Development Goals, agreed upon by the 
United States and other developed countries, call for DFQF market 
access to developed country markets for all LDCs. In addition, together 
with other developed countries, the United States has already made a 
similar commitment at the World Trade Organization in the context of 
the Doha Development Round.
Create a single, permanent preference program with simplified rules
    Oxfam believes that the aims of the various U.S. trade preference 
programs could be better achieved if they were replaced with a single, 
comprehensive trade preference program. Such a program would increase 
opportunities for all developing countries to benefit as much as 
possible from global trade while, at the same time, creating certainty 
for exporters, importers and investors.
    To this end, Oxfam recommends that this Committee consider the 
establishment of a new, unified trade preference program that 
encompasses and enhances existing programs. In addition to expanding 
product coverage to provide 100 percent DFQF for all LDCs and ensuring 
adequate trade capacity building assistance, this new program would 
simplify rules and establish greater certainty for investors.
    Simplicity: Harmonization and simplification of the rules will make 
programs easier to use for developing country producers and exporters, 
as well as sourcing companies and U.S. importers. There should be one, 
simple rule of origin common to all products. Complex rules of origin 
that differ across programs have made programs difficult to use because 
the rules may be hard to satisfy, subject to differing interpretations, 
make it costly to demonstrate compliance, and create unnecessary 
complexity for sourcing companies to develop supply chains and 
consistent business relationships.
    There should also be a common set of eligibility criteria and 
procedures for administering, reviewing and suspending or terminating 
country and product eligibility. These procedures must be fully 
transparent, predictable, and enforceable and include an effective 
mechanism for public comment. Oxfam also supports strengthening labor 
eligibility criteria and including environmental criteria in a 
comprehensive preference program as a means of promoting sustainable 
development and ensuring broad distribution of the benefits of trade. 
To this end, it is very important that a new preference program ensure 
the provision of the necessary technical assistance and aid that 
countries may need to help them to meet established criteria.
    Predictability: Only long-term trade preference programs with 
timely renewal well in advance of their expiration dates will serve the 
aim of promoting economic growth and poverty reduction in developing 
countries. The same predictability helps U.S. businesses be more 
competitive and lower prices for U.S. consumers. For this reason, Oxfam 
believes that trade preference programs should be made permanent, with 
countries graduating from eligibility when they reach a sufficient 
level of economic development.
    Making U.S. trade preference programs permanent would eliminate the 
``whip-saw'' effect of expirations, short extensions, and uncertainty 
that undermines economic growth in developing countries as well as U.S. 
businesses who rely on imports. Short-term programs and last-minute 
renewals undermine the primary purpose of trade preferences and make 
them far less useful to their intended beneficiaries.
Link aid with preference programs to help countries take advantage of 
        trade opportunities
    Oxfam recommends that Congress act to ensure that trade capacity 
building assistance is provided together with preference programs, by 
statute, in order to help poorer countries to better utilize trade 
opportunities. A mechanism is needed to provide necessary funds and 
ensure effective coordination of trade capacity building assistance 
across U.S. government agencies as well as with other aid efforts.
    Assistance for trade capacity building can include enhancing worker 
skills, providing tools and training to meet product standards, 
modernizing customs systems, building roads and ports and other 
infrastructure needs, improving agricultural productivity and promoting 
export diversification. It should particularly address the needs of 
small-scale producers and women. Assistance should also be provided to 
help countries meet labor and environmental eligibility criteria.
    This trade capacity building assistance should be recipient-driven, 
additional to existing development aid, free of economic conditions and 
adequate to address identified needs. It should also be reliably 
delivered once committed and provided in a manner that is transparent, 
well-coordinated, and consistent with recipient countries' development 
strategies.
Conclusion
    Trade can be an engine for development when the rules of trade are 
fair and strive to help poor countries take advantage of the 
opportunities created by access to the U.S. market. Oxfam firmly 
believes that U.S. trade preference programs emulate the relationship 
between trade and development, but must be expanded and improved in 
order to realize their full potential.
    Oxfam urges this Committee to make it a priority to pass 
legislation in the 111th Congress to expand and enhance U.S. trade 
preference programs. We recommend that Congress take a new direction in 
using trade preference programs to spur development and poverty 
reduction in poor countries by:

        1.  Providing 100 percent duty-free and quota-free market 
        access for all products from all the world's poorest countries;
        2.  Create a single, comprehensive and permanent preference 
        program with simplified rules to encompass existing programs 
        and enhance their effectiveness; and
        3.  Establishing an effective mechanism with binding 
        commitments to provide aid and technical assistance to 
        beneficiary countries, particularly LDCs, to enhance their 
        ability to take advantage of trade opportunities and to meet 
        program eligibility criteria.

    Until new, comprehensive legislation to improve preference programs 
can take effect, Oxfam urges this Committee to work for timely and 
longer-term renewals of all existing trade preference programs in order 
to ensure that benefits are not interrupted. This would send a clear 
message to developing countries of the U.S. commitment to a trade 
policy that promotes sustainable development and poverty reduction.
    Thank you.
                                 

    Chairman LEVIN. Well, thank you very much. Thank you.
    Ambassador, you have been patient, so let's see how modern 
technology works. We are all ears.

 STATEMENT OF THE HONORABLE F. TOMAS DUENAS, FORMER AMBASSADOR 
 OF COSTA RICA TO THE UNITED STATES; CHIEF EXECUTIVE OFFICER, 
                       ESCO INTERAMERICA

    Mr. DUENAS. Good afternoon, Chairman Levin, ranking member 
Rangel, and distinguished members of the panel and the 
subcommittee. Thank you very much for bearing with me for Costa 
Rica in which that I was there personally.
    I think it is a great honor to be here before you. For all 
countries in the path of development, there is no other option 
but to deepen our integration with the global economy. 
Increased trade provides options and opportunities for the 
people, allows countries to modernize and learn new practices 
and improve their competitiveness.
    Today, I will talk about Costa Rica's experience as 
beneficiary of trade preferences granted by the United States 
through unilateral trade programs and later on, and I will say 
quite successfully, in its more stable relationship through a 
bilateral trade agreement. Since the 1980s Costa Rica and the 
rest of Central America and the Caribbean had the opportunity 
to increase trade with the United States. Thanks to the 
bipartisan policy of the Caribbean Basin Initiative (CBI) and 
its subsequent expansions, the trade preferences granted by the 
CBI were major incentives to attract investors from the United 
States and other countries to our region and created a 
substantial flow of investment and trade growth to the basin.
    In the implementation of the initiative, it was clear that 
in order to enjoy preferential trade access to the United 
States market countries needed to put in place the necessary 
legal framework to create an environment of predictability and 
respect of the rule of law. In addition to foster investment 
and development it was essential to have the necessary 
infrastructure, education and healthcare, as well as the 
adequate security conditions.
    In that sense it was clear that non-reciprocal benefits 
were a great opportunity for developing countries like ours to 
partially solve the lack of investment and jumpstart the 
creation of sources of employment and economic activity. 
However, they were not enough to promote sustainable 
developments in the long run.
    Costa Rica was able to take advantage of the preferences 
promoting trade diversification, moving from exporting a few 
commodities to creating a diversified wide base of agricultural 
products, attracting a more sophisticated manufacturing, and 
finally inserting services with more added values. Across the 
line the region as a whole benefitted of the preferences, 
increasing its exports to the United States. Thanks to that 
Central America showed rapid growth, macro economic stability 
and a certain level of social prosperity.
    CBI showed good results, partly because its simplicity, its 
predictability and its coverage. The system under which 
products entered the U.S. was simple and easy to administer and 
the benefits were granted across the board to a good range of 
products. CBI was expanded in the Caribbean Basin Trade and 
Partnership Act (CBTPA) with the caveat that it required 
periodical reauthorization by Congress.
    Unilateral trade preferences were a great opportunity, but 
clearly were not enough to lead countries towards freer trade 
and more sustainable economic growth. The region was prepared 
to move towards a more mature and permanent relationship with 
the United States; and, as a matter of fact, one of the most 
significant aspects of the CBTPA is that the U.S. Congress 
specifically defined it as a previous step to a Free Trade 
Agreement with the region.
    Because the U.S. and the region's economies complement each 
other and because the CBTPA is a unilateral, temporary and 
discretional, preferential scheme, a free trade agreement, 
based on reciprocity, was seen as a natural and positive step 
for the CBI countries, be it bilateral or as part of the FTAA 
negotiations. As the FTAA negotiations stalled, and other 
countries around the world and in the Hemisphere were 
negotiating numerous bilateral trade agreements, the U.S. 
decided to embark in bilateral negotiations with Central 
America and Dominican Republic.
    The main goal of the United States through CAFTA was to 
expand opportunities for U.S. trade and investment, while 
promoting economic development and democratic governance.
    May I remind you that over 50 percent of our region's 
exports go to the United States. More than 50 percent of our 
region's imports come from the United States. An average of 63 
percent of total foreign directed investment is of the United 
States.
    Central American countries realized that negotiating with 
the United States was both necessary and convenient. First, the 
U.S. is the most important trading partner for the region and 
one of the most significant investors in the area, and trade is 
very important for those countries for which integration into 
the world economy is the only means towards growth and 
development. Second, though CBI had been quite beneficial, the 
region was looking for a reciprocal, stable relationship based 
on a scheme of rights and obligations rather than on unilateral 
concessions.
    In the outset of the negotiations the U.S. recognized the 
importance of trade capacity building (TCB) to assist Central 
American countries in an adequate transition to free trade, 
implementation of the agreement and adjustment to liberalized 
trade. Therefore, for the first time an FTA included a section 
on trade capacity building.
    CAFTA is also the first trade agreement entered into by the 
United States, which contains explicit provisions on 
cooperation through capacity building to improve labor 
conditions.
    Our countries also agreed to develop concrete and ambitious 
projects to promote environmental protection.
    CAFTA is certainly far more than a trade accord, and it was 
conceived as the foundation of a more stable, mature 
relationship between the United States and these important 
neighbors to the South.
    In my opinion, it is vital for the success of hemispheric 
relations that the United States will once more forge a new 
bipartisan alliance to support a productive engagement with the 
countries of the Western Hemisphere.
    The best medicine against extremisms and populism in the 
region is to show that those countries that follow the path of 
open markets, good governance and economic freedom are the ones 
that are growing and developing. These free trade agreements 
are a great step in that direction, whereas preferences are 
only a small step.
    Today, despite the adverse economic climate that we are 
confronting now, I am pleased to share with you some good 
results of the agreement in terms of growth and investment:
    CAFTA-DR has helped the region weather the recent economic 
crisis. While the region's exports to the United States have 
declined in 2009, they have declined by much less than the 
overall decrease in U.S. imports from the world.
    In 2006 Central America experienced its highest economic 
growth rate since 1993. Overall trade in goods between the 
United States and the CAFTA-DR countries grew from $35.0 
billion in 2005 to $44.7 in 2008, an increase of 28 percent.
    From 2006 to 2007 foreign direct investment flows into the 
region increased considerably. El Salvador saw the largest 
increase in FDI (597 percent) of any country in Latin America. 
FDI inflows into Guatemala increased by 51 percent, Honduras by 
21 percent, and Nicaragua by 19 percent. In each case these are 
larger increases in foreign direct investment than in the four 
to five years pre-CAFTA.
    Intra regional trade among the CAFTA-DR countries has 
increased significantly with trade among the Central American 
countries expanding by approximately 18 percent in 2008.
    In conclusion, sirs, despite the benefits created by the 
preference programs, it is necessary to have tools created by 
free trade agreements that allow us to further promote trade 
facilitation, continue with the removal of remaining barriers, 
and promote and attract more investment to our countries and 
our hemisphere. It is vital to keep the funding for trade 
capacity building, especially on the labor and environmental 
fronts. I thank you very much, once more.
    [The prepared statement of Mr. Duenas follows:]
          Prepared Statement of The Honorable F. Tomas Duenas,
         Former Ambassador of Costa Rica to the United States;
               Chief Executive Officer, ESCO InterAmerica
    For all countries in the path of development there is no other 
option but to deepen our integration with the global economy. In times 
of globalization the dilemma that developing nations face is as harsh 
as it is simple: if we cannot export more and more goods, we will wind 
up exporting more and more people as they seek new opportunities 
elsewhere. Only if we open ourselves to the world we will be able to 
create enough jobs, and jobs of high enough quality, for our youth.
    Increased trade provides jobs and opportunities for the people, 
allows countries to modernize and learn new practices and improve their 
competitiveness.
    Today, I will talk about Costa Rica's experience as beneficiary of 
trade preferences granted by the United States through unilateral trade 
programs and later on, in its more stable relationship through a 
bilateral trade agreement.
    Since the 1980s, Costa Rica and the rest of Central America and the 
Caribbean had the opportunity to increase trade with the United States 
thanks to the bipartisan policy of the Caribbean Basin Initiative (CBI) 
and its subsequent expansions. Through this scheme the region was able 
to provide more jobs and opportunities to our people, and foster 
economic diversification, growth and development.
    The trade preferences granted by the CBI were major incentives to 
attract investors from the United States and other countries to our 
region, and created a substantial flow of investment and trade growth 
to the basin.
    In my opinion, we can correlate the benefits of a more vigorous 
trade between Central American and the United States with the 
consolidation of peace and democracy in the region at the beginning of 
the 1990s after several decades of political upheaval and civil unrest. 
People dislocated by war or violence were able to find decent jobs and 
slowly incorporate into civil life.
    Some countries extracted more benefits than others from this 
program. In the implementation of the initiative, it was clear that in 
order to enjoy preferential trade access to the United States market 
countries needed to put in place the necessary legal framework to 
create an environment of predictability and respect of the rule of law.
    In addition, to foster investment and development, it was essential 
to have the necessary infrastructure, education and health care as well 
as the adequate security conditions.
    In that sense, it was clear that non-reciprocal benefits were a 
great opportunity for developing countries like ours to partially solve 
the lack of investment and jumpstart the creation of sources of 
employment and economic activity. However, they were not enough to 
promote sustainable development in the long run.
    Costa Rica was able to take advantage of the preferences, promoting 
trade diversification, moving from exporting a few commodities to 
creating a diversified wide base of agricultural products, attracting a 
more sophisticated manufacturing and finally inserting services with 
more added values.
    At the same time Costa Rica continued investing in education and 
health care and improving its legal and tax frameworks for investors to 
operate in our country. These policies derived good results, putting 
the country as one of the leading per capita exporters in the region.
    Other countries, like the Dominican Republic, showed impressive 
results, thanks in great part to creating the right investment climate 
for certain types of investments, especially in the textile and apparel 
sector.
    Across the line the region as a whole benefited of the preferences, 
increasing its exports to the United States. Thanks to that Central 
America showed rapid growth, macro economic stability and certain level 
of social prosperity.
    CBI showed good results partly because of its simplicity, its 
predictability and its coverage. About 80% of Central American products 
enjoyed duty-free access in the United States. The system under which 
they entered the U.S. was simple and easy to administer and the 
benefits were granted across the board, to a good range of products. 
CBI was expanded in the Caribbean Basin Trade and Partnership Act 
(CBTPA) with the caveat that it required periodical reauthorization by 
Congress.
    Later on, normalization of relations between the United States and 
China also had a direct impact in the region, mostly in the textile 
industry.
    Unilateral trade preferences were a great opportunity but clearly 
were not enough to lead countries towards freer trade and more 
sustainable economic growth. The region was prepared to move towards a 
more mature and permanent relation with the United States. As a matter 
of fact, one of the most significant aspects of the CBTPA is that the 
U.S. Congress specifically defined it as a previous step to a Free 
Trade Agreement with the region. In Section 215, it mandates the 
President of the U.S. to convene a series of meetings between the trade 
ministers of the region and the U.S. Trade Representative with the 
purpose of ``. . . reach[ing] agreement between the United States and 
CBTPA beneficiary countries on the likely timing and procedures for 
initiating negotiations for CBTPA beneficiary countries to enter into 
mutually advantageous free trade agreements with the United States that 
contain provisions comparable to those in the NAFTA . . .''
    Because the U.S. and the region's economies complement each other, 
and because the CBTPA is a unilateral, temporary and discretional 
preferential scheme, a free trade agreement, based on reciprocity, was 
seen as a natural and positive step for the CBI countries, be it 
bilateral or as part of the FTAA negotiations. As the FTAA negotiations 
stalled, and other countries around the world and in the Hemisphere 
were negotiating numerous bilateral trade agreements, the U.S. decided 
to embark in bilateral negotiations with Central America.
    The main goal of the United States through CAFTA was to expand 
opportunities for U.S. trade and investment, while promoting economic 
development and democratic governance. It aimed to level the playing 
field among this major trading bloc by permanently granting benefits 
that the Central American countries and the Dominican Republic have 
enjoyed for years as part of the successful Caribbean Basin Initiative 
(CBI).
    The Central American countries looked to consolidate and expand the 
market access benefits of the CBI in exchange of a commitment with the 
United States, which is the region's main trade partner and main source 
of foreign investment to further modernize their political systems, 
strengthen the rule of law, democratic institutions, and to lock-in 
reforms that the region was able to achieve in the last two decades.
    Let me remind you that:

          Over 50% of our region exports go to the U.S.
          Over 50% of our region imports come from the U.S.
          An average of 63% of total FDI during the last 7 
        years is U.S. investment.

    Central American countries realized that negotiating with the U.S. 
was both necessary and convenient. First, the U.S. is the most 
important trading partner for the region and one of the most 
significant investors in the area, and trade is very important for 
these countries, for which integration into the world economy is the 
only means towards growth and development. Second, though CBI had been 
quite beneficial, the region was looking for a reciprocal, stable 
relationship, based on a scheme of rights and obligations rather than 
on unilateral concessions.
    Furthermore, in the outset of the negotiations the U.S. recognized 
the importance of trade capacity building (TCB) to assist Central 
American countries in an adequate transition to free trade, 
implementation of the agreement and adjustment to liberalized trade. 
Therefore, for the first time an FTA included a section on Trade 
Capacity Building (Section B, Chapter 19). The DR-CAFTA governments 
also agreed to establish a Committee on Trade Capacity Building, whose 
work is concentrated in the prioritization of trade capacity building 
projects; promoting international organizations, private sector 
entities and non-governmental organization participation in the process 
and in monitoring and assessing progress in implementing the 
strategies.
    CAFTA is also the first trade agreement entered into by the United 
States which contains explicit provisions on cooperation through 
``capacity building'' to improve labor conditions by: (1) ensuring 
effective enforcement of existing labor laws; (2) working with the ILO 
to improve existing labor laws and enforcement; and (3) building local 
capacity to improve workers rights.
    Our countries also agreed to develop concrete and ambitious 
projects to promote environmental protection.
    CAFTA is certainly far more than a trade accord. It was conceived 
as the foundation of a more stable, mature relationship between the 
United States and these important neighbors to the South.
    In my opinion, it is vital for the success of hemispheric relations 
that the United States will once more forge a new bipartisan alliance 
to support a productive engagement with the countries of the Western 
Hemisphere. The best medicine against extremisms and populism in the 
region is to show that those countries that follow the path of open 
markets, good governance and economic freedom are the ones that are 
growing and developing. These free trade agreements are a great step in 
that direction, whereas preferences are only a small step. Washington's 
engagement through a productive multilateral relationship could be a 
decisive factor to improve the economic, social and political 
conditions of the hemisphere for the benefit of both the United States 
and Latin America.
    Some feared that CAFTA could ruin many of the five and a half 
million small farmers who make their living from traditional 
agriculture in Central America. However, there are some amazing 
statistics regarding trade on agriculture products upon implementation 
of CAFTA. For example farm and agribusiness exports from El Salvador to 
the United States had an 85% increase from 2005.
    It is noteworthy that external conditions have hit the region hard, 
first with the increase in prices of food and fuel in 2007 and 2008 and 
then, of course, with the economic crisis that is having a negative 
impact in terms of employment, investment, production and trade. Part 
of the benefits of CAFTA-DR will probably take some time to materialize 
in a scenario like this.
    Despite the adverse economic climate that we are confronting now, I 
am pleased to share with you some good results of the agreement in 
terms of growth and investment:

          CAFTA-DR has helped the region weather the recent 
        economic crisis. While the region's exports to the United 
        States have declined in 2009, they have declined by much less 
        than the overall decrease in U.S. imports from the world. In 
        fact, out of the top 20 suppliers to the United States, only 
        one country, Ireland, had a smaller decline in exports to the 
        U.S. than CAFTA-DR. The region's performance this year has been 
        strengthened by continued expansion of electronic components 
        shipments from Costa Rica as well as steady shipments of 
        bananas, pineapples, and melons and medical supplies, and 
        expansion of precious metals.
          In 2006 Central America experienced its highest 
        economic growth rate since 1993.
          Overall trade in goods between the United States and 
        the CAFTA-DR countries grew from $35.0 billion in 2005 o $44.7 
        billion in 2008, an increase of 28.0 percent.
          From 2006 to 2007, FDI flows into the region 
        increased considerably. El Salvador saw the largest increase in 
        FDI (597%) of any country in Latin America. FDI inflows into 
        Guatemala increased by 51%, Honduras by 21%, and Nicaragua by 
        19%. In each case these are larger increases in FDI than in the 
        four to five years pre-CAFTA.
          Intra-regional trade among the CAFTA-DR countries has 
        increased significantly with trade among the Central American 
        countries expanding by approximately 18 percent in 2008, 
        following a gain of about 17 percent in 2007.

    Despite the benefits created by the preference programs, it is 
necessary to have tools created by free trade agreements that allow us 
to further promote trade facilitation, continue with the removal of 
remaining barriers, and promote and attract more investment to our 
countries and our hemisphere. Furthermore, it is vital to keep the 
funding for trade capacity building, especially on the labor and 
environmental fronts.
                                 

    Chairman LEVIN. Thank you very much. Fortunately, because 
modern technology isn't quite up to what we hope, it wasn't a 
very good connection. But you had submitted your testimony in 
advance, so we were also able to follow it reading it as you 
presented it.
    So let me suggest because it isn't a very ample connection 
that we will. I just checked with Mr. Brady and he has agreed 
that we will submit some questions to you in writing; and, if 
you would then give us answers in writing. Okay? And we know 
how to reach you. I'll ask the staff.
    We do. We know how to reach you so that we will send you 
questions, not by television, but we will send you questions by 
the Internet or maybe even by old fashioned mail. Okay? And 
then if you could give us your answers and we will place them 
in the record, is that okay?
    Mr. DUENAS. Thank you.
    Chairman LEVIN. Thank you very, very much, and good luck to 
you. We are honored that you could join us.
    Mr. DUENAS. Thank you very much for the opportunity, sir.
    Chairman LEVIN. Okay. Can you see me wave?
    [Laughter.]
    Chairman LEVIN. Thank you very much, Ambassador.
    All right. So we will have some questions. We've been told 
that there are going to be votes, so why don't we just start 
coming this way, if that's okay, and we will start with 
Congresswoman Sanchez.
    Ms. SANCHEZ. Thank you, Mr. Chairman.
    I have a very brief set of questions for this panel, but 
again, I'm going to sort of preference my questions with a 
little bit of commentary as is often the practice of Members of 
Congress.
    We can't resist an opportunity to make comments on specific 
issues. But all along, sort of my basic premise has been that 
liberalizing trade in and of itself is not going to be the 
silver bullet for economic development of impoverished or 
developing countries, and ideally what I would like to see is 
an overhauled trade model for trade agreements in preferences 
in which we are looking at other investments that can be made 
in conjunction with trade to help some of these countries 
develop.
    And to the premise of liberalizing trade is that if we can 
help other countries develop, and develop a middle class, that 
there will then be consumers for many of the goods the United 
States produces, so it will be a benefit to U.S. workers as 
well. And one of the things that I'm keenly interested is in 
trying to help other countries succeed that we also don't 
neglect our own workers here at home and put them at a 
disadvantage. So the questions that I have, I'm going to start 
with Mr. Hastings.
    What is the average wage and benefits package that you 
offer your full-time employees?
    Mr. HASTINGS. Our average wages range from including 
benefits, probably from around $26,000 a year to around $60,000 
a year.
    Ms. SANCHEZ. Okay. And does that include also like 
healthcare benefits?
    Mr. HASTINGS. Yes, it does.
    Ms. SANCHEZ. In your opinion do you think that paying those 
kinds of wages and benefits allows Mt. Vernon Mills to compete 
globally?
    Mr. HASTINGS. I would say 10 years ago it did. Over the 
last 10 years there's been a significant decline in our 
industry and I think of all manufacturing. I guess that decline 
would be attributed to the trade policies that our country has 
followed during the last 10 years. Our industry has seen a 
significant decline during that time and also over the last two 
years. We've lost within the last year 60,000 textile jobs and 
over a million manufacturing jobs. I think there's been two 
million manufacturing jobs lost since the recession began, so 
it's making it more difficult for our industry and I think all 
manufacturing industries to retain the market share that they 
have.
    Ms. SANCHEZ. Okay. And in your own words, could you tell 
me, Mr. Hastings, what in your opinion it would take for Mt. 
Vernon to compete with, say, Bangladesh or Cambodia, or even 
China? What kinds of changes would you have to do to your 
company in order for them to be able to compete?
    Mr. HASTINGS. Well, I mean, I think over all, the country, 
we need to see a major shift in our trade policy. I mean it's 
not set up where it's a level playing field, and especially 
against China. I mean I think it is well documented of the 
illegal subsidies that China has, the currency manipulation, 
it's very hard for us to compete. And it's proven out in the 
numbers.
    Over the last five years, China has gone from less than 20 
percent of the U.S. textile or U.S. garment or import market to 
45 percent. There's been an increase of $17 billion, so it's 
pretty tough, obviously, for us to compete in that kind of 
environment; and, you know, during that same timeframe, we have 
had a decrease of 150,000 jobs, so.
    Ms. SANCHEZ. So what kind of legislative proposals do you 
think that this committee should be considering in order to try 
to level that playing field so that U.S. manufacturers are not 
necessarily a participant?
    Mr. HASTINGS. I think the major one would be currency 
manipulation. If you look at the currency issue, currency 
manipulation gives Chinese exporters such a significant 
advantage over U.S. manufacturers and U.S. textile companies. 
And I think there have been some countervailing duties against 
the illegal subsidies that they offer but nothing against 
currency manipulation. I think it is documented that the 
Chinese government offers everything from free land to 
subsidized rent and subsidized energy. Somehow we need to level 
that playing field.
    Ms. SANCHEZ. So some kind of oversight to make sure that 
people are adhering to the same set of rules so that there is a 
level playing field for competition?
    Mr. HASTINGS. That is correct.
    Ms. SANCHEZ. Thank you. I have no more questions. I yield 
back.
    Chairman LEVIN. Mr. Brady.
    Mr. BRADY. Thank you, Mr. Chairman. Thank you Secretary 
General, Mr. Minister. I appreciate Ambassador Duenas being 
here today, and my question was directed toward him about why 
he needed to move from a preferenced relationship to a full, 
pretrade agreement relationship; and I think he answered that. 
But, let me ask this. I really appreciate Ms. McDermott's 
efforts to try to extend references broadly as he testified 
today to simplify and creates consistency with it.
    One of our problems is that as we make more products 
eligible, while it is very helpful to the preference countries 
in welcome by our U.S. importers creates a great deal of 
heartburn for Mr. Hastings and other businesses that compete 
against them. Same goes for rules of origin as we try to deal 
with that issue, now tailored to each region, but changes if 
you go to a broader standard. Clearly, preferences have been 
historically a bipartisan effort as we try to move them 
forward.
    So, my question is to the panel what advice, criteria or 
counsel would you give this committee as we look at broader 
reforms within this area. How do we deal with those issues, 
some of which conflict as Minister Prasidh made the point that 
adding new countries doesn't necessarily take away market 
share. We lose it to China instead, but other preference 
countries feel strongly that that's not the case or they fear 
losing that market access.
    Any advice? And I'll start with Mr. O'Brien. Any advice or 
guidance you would give the committee as we look at those 
issues?
    Mr. O'BRIEN. Well, we think they're difficult issues. I 
mean Oxfam is working on poverty issues in the United States 
too, but when we go overseas and we go to a place like Cambodia 
where you've got 30 percent of the population living on less 
than a dollar a day, it brings home the reality that what we 
need is some kind of fairness in the trade system. And what we 
mean by fairness isn't just equal opportunity. It's giving 
these countries the chance, the opportunity to enter the global 
marketplace.
    Mr. BRADY. Good. Thank you.
    Chairman LEVIN. Mr. Hastings.
    Mr. HASTINGS. Yes. I think when you look within the last 
few years the overall decline in AGOA, the overall decline in 
trade with CAFTA--I think I've indicated Cambodia is down, 
which is probably tied to the recession--that's not the case in 
China. That's not the case in Bangladesh. China has increased 
its market share, as I stated earlier, from less than 20 
percent to 45 percent. That's a lot, and I think their actual 
textile and apparel exports are now up to $45 billion.
    That's a big piece of the pie. If you could take some of 
that and share that with some of the other countries I think 
that would fix a lot of the issues that come up.
    Chairman LEVIN. Thanks, Mr. Hastings. Minister Prasidh?
    Mr. PRASIDH. Thank you. I think that I join also Mr. 
O'Brien that normally when you like to address the world trade 
preferences you have also the thing of linking it with 
technical assistance to support infrastructure, to deal with 
supply capacity of those people who are recipient of your 
preferences. If not, they would not be able to maximize the 
advantages that you have provided.
    They look to the case of AGOA. You have provided that group 
eight times, but they can do more if you provide more things to 
support the infrastructure and build up their trade capacity. 
For the case of Cambodia we see the same thing, but what is 
important to stress here is that the decline in our government 
export is not because of the current recession. It is because 
we are no more competitive because we are facing competition 
from China, who can produce everything, very fast, and at the 
same time even can give credits to the buyers, the retailers in 
the U.S. Why we cannot do the same thing.
    Mr. BRADY. Thank you, Minister.
    Secretary General.
    Mr. KARANGIZI. Thank you.
    I think there are various issues, First of all, I think 
it's quite obvious that the trade preferences alone do not 
assist particularly our countries enhancing access to the 
markets, so definitely investment in infrastructure, support 
capacity building to the private sector and other related 
issues. But, we also think other incentives, therefore, private 
sector investment that would result in increased production to 
access the market would greatly support our region. But, other 
than that, I mention some other points.
    We think you should look at alternative ways for the other 
RDCs that would not erode the market that sub-Saharan countries 
have. And I've mentioned them, including things like an import 
allowance program, which I have mentioned. Those are the kind 
of reforms I could think of.
    Mr. BRADY. Thank you, Mr. Secretary. Thank you, Chairman.
    Chairman LEVIN. Mr. Etheridge, do you want to try to rehash 
in several minutes?
    Mr. ETHERIDGE. I'll be very brief, Mr. Chairman, so you get 
time in.
    Let me thank each of you for being here. And, Chairman, it 
seems to me that last round of questioning, one of the big 
issues is the playing field is far from level. It is a great 
deal of unfairness that relates to that and as you look at 
market share and marketplaces, you know, we are sort of like 
the fellow that just said ``I gave at the office. Now I've got 
to give again.'' And when you are opening markets, there is one 
thing to open the markets and another thing to monitor and make 
sure that fairness is being done. And if you can't get 
transparency, you've got real problems. And we are dealing in 
an untransparent situation.
    So with that, Mr. Hastings, let me ask you just one 
question. Now, we've got several. Mr. Chairman, I'll submit 
those for the record for the Ambassador from Costa Rica. 
Because I come at it a little different. I'm looking at the 
state and unemployments and double digits and holding strong 
and climbing. And we have already given at the office. We are 
giving at home, and it looks like we are going to be giving 
again, not only in textile jobs, but others. And it's across 
the board, part of it.
    So as we look at these preferences, my question to you, Mr. 
Hastings--you touched on it a while ago--let's assume we opened 
up more preferences. Tell me what happens, not just to your 
business, but to all those suppliers that you deal with, plus 
all of those families that depend on your business for salaries 
in those communities that take care of Boys and Girls Clubs and 
all those other things that happen in our communities.
    Mr. HASTINGS. Well, like I stated earlier, over the last 10 
years we've had a significant decline in our company. We used 
to be over 6,000 employees. We are down to 2,700 now. We've 
closed large factories. But our whole industry, not just Mount 
Vernon, is at a critical juncture. We have downsized and 
downsized, but to maintain our businesses and be competitive we 
all need to run a certain amount of volume. And once you get to 
that critical juncture if you lose, just a little bit more 
volume, then your competitiveness as business just starts 
spiraling out of control.
    If you get to where you're not competitive from a cost 
standpoint, as I think we are now approaching in our industry, 
then you are at the point that you really can't lose any more 
orders or jobs and still be competitive. And that point would 
be a death knell to our industry.
    Mr. ETHERIDGE. Let me follow it up. I promise I'll ask just 
one other one. It deals with your raw materials and the farmers 
behind that.
    Mr. HASTINGS. We consume 17,000 bales of cotton a month. So 
the vendors of cotton would be impacted. Take a community like 
Trion, where we've got 1,200 employees. It's a rural community 
with no industry. If Trion had to close, the impact on the 
local vendors and the schools from the loss of user fees, and 
the property taxes, would be devastating.
    Mr. ETHERIDGE. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Chairman LEVIN. All right. I think we have three minutes 
and we all agreed that we appreciate your presence, and we'll 
be for a while. So why don't you go about your other busy 
business, and then we will take the fourth panel.
    Mr. O'Brien, as you know, we work with Oxfam a lot. I'd 
like you, if you would, to ask the economists of Oxfam if we 
took your first provision a hundred percent duty free and quota 
free market access for all products from all the world's first 
countries; and, you know, we are in favor of opening up our 
trade to developing countries. It's part of the Doha Round. But 
what would be the impact on job loss in the United States if we 
followed what you suggest? All right, with that, and send it to 
us in writing, not by modern technology.
    Thank you so much and we will recess and then hear the 
fourth panel. And thanks again to the four of you for excellent 
testimony to especially our friends from other places who have 
come a long ways. Thank you very much.
    So we are in recess.
    [Recess.]
    Chairman LEVIN. We will reconvene.
    As we were discussing informally, we very much appreciate 
your patience. This very gifted panel, people who come from 
different walks of life, in a sense, and different viewpoints, 
all with a lot of expertise.
    David Love is senior vice president and chief supply chain 
officer--not quite sure what that means--at Levi Strauss & Co. 
Jeff Vogt, who is a specialist on global economic policy from 
the AFL-CIO. William ``Bill'' Reinsch, who is president of the 
National Foreign Trade Council. Meredith Broadbent, a trade 
advisor and a veteran of these wars here. Margrete Strand 
Rangnes, who is the director for Labor, Worker Rights, and 
Trade Program for the Sierra Club, and Dr. Loren Yager, who is 
director of international affairs and trade for the GAO.
    So, if you would, each of you take five minutes. I think 
that would be helpful if you could try to limit it to that so 
that those of us who have been able to come back could have a 
few minutes to have some real back and forth, and we might even 
get some of you arguing with each other, if it isn't 
interesting enough. Because we like that back and forth, and 
these panels aren't very well set up for that.
    So, Mr. Love, why don't you start and then we will just go 
down?
    Thank you very much.

STATEMENT OF DAVID LOVE, SENIOR VICE PRESIDENT AND CHIEF SUPPLY 
  CHAIN OFFICER, LEVI STRAUSS & CO., SAN FRANCISCO, CALIFORNIA

    Mr. LOVE. Thank you, Mr. Chairman, and Members of the 
Subcommittee for the opportunity to provide this testimony 
today regarding the operation of U.S. trade preference 
programs. I am the chief supply chain officer for Levi Strauss 
& Co., which means I source the product. I am the key buyer for 
Levi Strauss & Co.
    As you may know, Levi Strauss & Co. is based in San 
Francisco, California, a global corporation with roughly 11,000 
employees. More than 3,000 of them are employed in the United 
States. We are one of the world's leading branded apparel 
companies. We design apparel and related accessories for men, 
women, and children under the Levi's, Dockers, and Signature by 
Levi Strauss & Co. brands, and we market our products in more 
than 100 countries--actually 110 countries worldwide.
    As a truly global company, Levi Strauss sources our jeans 
and other apparel products from roughly 50 countries around the 
world. The supply chain my team and I manage is quite complex, 
particularly when you look at the way in which we source for 
the important U.S. market. Over the years we have adapted our 
sourcing strategies to take advantage of the various U.S. trade 
preference programs that have been available to us and our 
apparel products. These programs have not been the sole reason 
for our decision to source from a particular country, but they 
have been a key consideration in those decisions, both to enter 
a country and to migrate out of it. I will get to that latter 
point a little later in my testimony.
    Some of the trade preference programs that we have utilized 
have worked better than others over time, and I would like to 
take a moment to describe what, in our view, are the critical 
factors that make a program workable from a business 
perspective. First, the program must be stable and predictable. 
We need to know that it will be in operation over the long 
term. Short term program durations and the need for often 
shorter term extensions are not good for business and do not 
encourage long term investment.
    Second, the rules of trade under the preference program 
must be as simple and liberal as possible. We as businesses 
need maximum trade flexibility to structure our operations in 
developing countries, which often present other challenges in 
areas of infrastructure and capacity. Third, the rules of trade 
for the program should be stable. Once we have set up 
operations to take advantage of a particular program and it is 
working, changing the rules of the road can have an inadvertent 
effect of stifling business.
    I would like to take a moment to elaborate a little bit 
more on these issues with some real world examples. Take the 
issue of duration and predictability. When ATPA took effect in 
1991, our suppliers began to take advantage of the program to 
dramatically increase production in Colombia. Using U.S. 
fabric, our partner operations in Colombia were a win-win for 
everyone. We had a stable base of quality supply for our 
products, U.S. textile producers benefitted, as did Colombian 
workers and the broader Colombian economy. At our peak, we were 
sourcing 60 million units annually from Colombia and the 
business may even have grown more.
    However, then the ATPA was set to expire in 2006 and the 
uncertainty started. We did not know if Congress was going to 
renew the program, and that caused us to doubt our sourcing 
plans for Colombia. In the end, Congress did renew the program, 
but only for a short duration, and these short term renewals 
have continued since. We cannot make commercial decisions based 
on such three to six month timeframes, especially when orders 
are placed at least one year in advance.
    As a side note, I would like to urge you to renew the ATPA 
as soon as possible for at least as long as it takes to 
implement the U.S. Colombia Free Trade Agreement. I say this 
because our sourcing from the country of Colombia has dropped 
from 60 million units to between 1 and 2 million units due to 
this uncertainty. And I think this is a real world example of 
why workable trade preference programs must have long and 
predictable durations.
    To my second criteria, simple and liberal rules of trade, 
here too the rules of origin and other aspects of trade 
preference programs can really make or break them from a 
business perspective. We have had great success working with 
programs like AGOA that allow for raw material imports to be 
sourced from wherever we can secure the best and most reliable 
supply. Simple and liberal rules of origin for products traded 
under a preference program are critical, and programs that are 
based on them are definitely the most workable. When things get 
complicated, these programs can be very difficult to use.
    For example, when the first iteration of HOPE Act for Haiti 
was enacted, its complicated rules of origin made it extremely 
difficult for companies like Levi Strauss & Co. to use. Over 
time, Congress has modified the program, and now it is one of 
the most liberal and easy to use. However, we face other 
challenges in Haiti that restrict our trade with the country.
    Political and social security issues, labor concerns, port 
infrastructure deficiencies, water shortages, and other 
capacity issues make Haiti a difficult country in which to do 
business, and I would urge Congress and the U.S. government to 
work with Haitian officials to address these lingering concerns 
to help make the HOPE program work better for all stakeholders.
    And that brings me to my third point. You can't change the 
rules of the road on trade preference programs if they are 
working. If you do, they could very well stop working quickly. 
The AGOA program that I mentioned earlier provides a prime 
example of this fact. We began taking advantage of AGOA soon 
after the program was created. We steadily increased our 
production in Southern Africa.
    The program was working well for us and we had future plans 
to grow, but then Congress enacted new legislation in 2006 
which added a so-called abundant supply element to the program. 
We had no idea how these provisions would work in practice, 
particularly since denim fabric, our lifeblood, was arbitrarily 
listed as being in abundant supply in Africa, even though we 
knew that it really was not for our needs.
    As soon as we saw these provisions had actually been 
enacted, we basically put the brakes on our U.S. sourcing 
operations for Africa, put it on hold, and began a fight to 
remove the provisions. Fortunately, Congress eventually moved 
to eliminate the abundant supply provisions, but not for 
several years, and that delay certainly stunted our operations 
in Africa, and definitely not something I think was intended.
    So the key for success for a preference program from a 
business perspective, and something I urge you to keep in mind 
as this committee and the House of Representatives work to move 
forward broader preference program reform, is to keep the 
programs simple, predictable, and with liberal rules of origin 
that provide businesses the greatest opportunity to take 
advantage of them.
    I would also note that we need to keep in mind that these 
programs are designed to promote economic development and help 
raise the quality of life for citizens in many of the poorest 
countries of the world, and in our view, as a socially 
responsible company, upholding labor standards is a key aspect 
of these preference programs. We need to make sure that we 
provide trade preferences to those least developing countries 
that not only need a leg up but are committed to improving 
respect for worker rights.
    In that regard, I would like to associate myself with the 
Minister of Commerce from Cambodia, Dr. Prasidh, who spoke on 
the previous panel. Those LDCs that support international labor 
standards should be able to benefit from trade preferences for 
all products, including the apparel products of primary concern 
for Levi Strauss & Co.
    Fortunately, we have proof that preferential trade 
arrangements really can achieve the developmental objectives 
for LDCs and other developing countries that we hope they can 
achieve if structured correctly. Egypt, I think, provides an 
excellent example. While not technically a trade preference 
program, the QIZ program under the U.S.-Israel free trade 
agreement has been very successful. When it was extended to 
Egypt in 2004, Egypt's apparel industry was minuscule. But now 
apparel exports to the United States have reached nearly $800 
million in 2008, and the expanding trade has helped create new 
jobs for thousands of Egyptians. Not surprisingly, the QIZ has 
one of the simplest rules of origin, and has been one of the 
programs easiest for us to use from a trade and business 
perspective.
    So in short, preference programs can achieve their 
objectives if they are structured correctly. And when I say 
correctly, again, I mean that they must be predictable, with 
long duration. They must cover all products, including apparel 
products that are the primary exports and capabilities of 
developing countries. They must also have liberal rules of 
origin that get away from the highly restrictive ``yarn 
forward'' rule of origin in favor of more flexible rules that 
can actually work for developing countries and help U.S. 
companies innovate and compete in a very competitive 
marketplace.
    And finally, any preference reform must include all LDCs 
that respect international labor standards. Economically 
disadvantaged populations need our help, and those countries 
that support labor standards should be rewarded. Our 
developmental trade policy should reflect this need. So as you 
and your colleagues continue to work toward broader preference 
program modifications, I urge you to keep these tenets in mind 
as a recipe for success for future U.S. trade preference 
programs.
    Thank you, again, Mr. Chairman, for the opportunity to 
present this testimony today.
    [The prepared statement of Mr. Love follows:]
   Prepared Statement of David Love, Senior Vice President and Chief 
  Supply Chain Officer, Levi Strauss & Co., San Francisco, California
    Thank you Mr. Chairman and Members of the Subcommittee for the 
opportunity to provide this testimony today regarding the operation of 
U.S. trade preference programs.
    As you may know, Levi Strauss & Co. (LS&Co.) is based in San 
Francisco, California and is a global corporation with roughly 11,000 
employees, more than 3,000 of whom are employed in the United States. 
LS&Co. is one of the world's leading branded apparel companies. We 
design apparel and related accessories for men, women, and children 
under the Levi's', Dockers', and Signature by 
Levi Strauss & Co.' brands. We market our products in more 
than 100 countries.
    As a truly global company, Levi Strauss sources our jeans and other 
apparel products from roughly 50 countries around the world. The supply 
chain my team and I manage is quite complex, particularly when you look 
at the way in which we source for the important U.S. market.
    Over the years, LS&Co. has adapted our sourcing to take advantage 
of the various U.S. trade preference programs that have been available 
to us and our apparel products. These programs have not been the sole 
reason for our decision to source from a particular country, but they 
have been a key consideration in those decisions--both to enter a 
country and to migrate out of it. I will get to that latter point a 
little later in my testimony.
    Some of the trade preference programs that we have utilized have 
worked better than others over time and I would like to take a moment 
to describe what, in our view, are the critical factors that make a 
program workable from a business perspective.
    First, the program must be stable and predictable. We need to know 
that it will be in operation over a long term. Short term program 
durations and the need for often shorter-term extensions are not good 
for business.
    Second, the rules of trade under the preference program must be as 
simple and liberal as possible. We as businesses need maximum trade 
flexibility to structure our operations in developing countries, which 
often present other challenges in areas of infrastructure and capacity.
    Third, the rules of trade for the program should be stable--once we 
have set up operations to take advantage of a particular program and it 
is working, changing the ``rules of the road'' can have the inadvertent 
effect of stifling business.
    I would like to take a moment to elaborate a little bit more on 
these issues with some real world examples.
    Take the issue of duration and predictability. When the Andean 
Trade Preference Act (ATPA) took effect in 1991, our suppliers began to 
take advantage of the program to dramatically increase production in 
Colombia. Using U.S. fabric, our partner operations in Colombia were a 
win-win for everyone. LS&Co. had a stable base of quality supply for 
our products, U.S. textile producers benefited as did Colombian workers 
and the broader Colombian economy.
    At our peak, we were sourcing 60 million units from Colombia and 
the business may have even grown more. However, then the ATPA was set 
to expire in 2006 and the uncertainty started. We didn't know if 
Congress was going to renew the program and that caused us to doubt our 
sourcing plans for Colombia. In the end, Congress did renew the program 
but only for a short duration and those short-term renewals have 
continued since. We cannot make commercial decision based on such 3 to 
6 months timeframes, especially when orders are placed at least one 
year in advance.
    As a side note, since I have the opportunity, I would like to urge 
you to renew the ATPA as soon as possible and for as long as possible. 
I say this because our sourcing from the country has dropped from 60 
million units to one to two million units due to uncertainty regarding 
the program's status. This is a real world example of why workable 
trade preference programs must have long and predictable durations.
    To my second criteria--simple and liberal rules of trade--here too 
the rules of origin and other aspects of trade preference programs can 
really make or break them from a business perspective. We have had 
great success working with programs like the African Growth and 
Opportunity Act (AGOA) that allow for raw material imports to be 
sourced from wherever we can secure the best and most reliable supply.
    Simple and liberal rules of origin for products traded under 
preference programs are critical and programs that are based on them 
are definitely the most workable--when things get complicated these 
programs can be very difficult to use. For example, when the first 
iteration of the Hemispheric Opportunity through Partnership 
Encouragement Act (HOPE Act) for Haiti was enacted, its complicated 
rules of origin made it extremely difficult for companies like LS&Co. 
to use. Over time, Congress has modified the program and now it is one 
of the most liberal and easy to use.
    However, we are facing other challenges in Haiti that restrict our 
trade with the country. Political and social security issues, labor 
concerns, port infrastructure deficiencies, water shortages and other 
capacity issues make Haiti a difficult country in which to do business. 
I would urge Congress and the U.S. Government to work with Haitian 
officials to address these lingering concerns to help make the HOPE 
program work better for all stakeholders.
    And that brings me to my third point--you can't change the rules of 
the road on trade preference programs if they are working. If you do, 
they could very well stop working quickly. The AGOA program that I 
mentioned earlier provides a prime example of this fact.
    LS&Co. began taking advantage of AGOA soon after the program was 
created. We steadily increased our production in southern Africa and 
the program was working for us. But then Congress enacted new 
legislation in 2006 which added a so-called ``abundant supply'' element 
to the program.
    We had no idea how these provisions would work in practice, 
particularly since denim fabric, our life blood, was arbitrarily listed 
as being in abundant supply in Africa even though we knew that it 
really wasn't for our needs. As soon as we saw that these provisions 
had actually been enacted, we put our U.S. sourcing operations from 
Africa on hold and began a fight to remove the provisions. Fortunately, 
Congress eventually moved to eliminate the abundant supply provisions, 
but not for several years and that delay certainly stunted our 
operations in Africa--definitely not something I think was intended.
    So, the key for success for a preference program from a business 
perspective and something I urge you to keep in mind as this Committee 
and the House of Representatives work to move forward broader 
preference program reform is to keep the programs simple, predictable 
and with liberal rules of origin that provide business the greatest 
opportunity to take advantage of them. I would also note that we need 
to keep in mind that these programs are designed to promote economic 
development and help raise the quality of life for citizens in many of 
the poorest countries in the world.
    And in our view, as a socially responsible company, upholding labor 
standards is a key aspect of these preference programs. We need to make 
sure that we provide trade preferences to those least developing 
countries that not only need a leg up but are committed to improving 
respect for worker rights. In that regard, I would like to associate 
myself with the Minister of Commerce of Cambodia, Dr. Cham Prasidh who 
spoke on the previous panel. Those LDCs that support international 
labor standards should be able to benefit from trade preferences for 
all products, including the apparel products of primary concern for 
LS&Co.
    Fortunately, we have proof that preferential trade arrangements can 
really achieve the developmental objectives for LDCs and other 
developing countries that we hope they can achieve if structured 
correctly. Egypt provides an excellent example. While not technically a 
trade preference program, the Qualified Industrial Zone (QIZ) program 
under the U.S.-Israel Free Trade Agreement has been successful. When it 
was extended to Egypt in 2004, Egypt's apparel industry was miniscule. 
But now, apparel exports to the United States have reached nearly $800 
million in 2008 and the expanding trade has helped create new jobs for 
hundreds of Egyptians. Not surprisingly, the QIZ has one of the 
simplest rules of origin and has been one of the programs easiest for 
us to use from a trade perspective.
    In short, preference programs can achieve their objectives if they 
are structured correctly. And when I say ``correctly,'' I mean that 
they must be predictable with long durations. They must cover all 
products including apparel products that are the primary exports of 
developing countries. They must also have liberal rules of origin that 
get away from the highly restrictive ``yarn forward'' rule of origin in 
favor of more flexible rules that can actually work for developing 
countries and help U.S. companies innovate and compete in a very 
competitive market. And finally, any preference reform must include all 
LDCs that respect international labor standards. Economically 
disadvantaged populations need our help and those countries that 
support labor standards should be rewarded. Our developmental trade 
policy should reflect this need.
    As you and your colleagues continue to work toward broader 
preference program modifications, I urge you to keep these tenets in 
mind as a recipe for success for future U.S. trade preference programs.
    Thank you again Mr. Chairman for the opportunity to present this 
testimony today.
                                 

    Chairman LEVIN. Thank you very much.
    Mr. Vogt.

  STATEMENT OF JEFF VOGT, GLOBAL ECONOMIC POLICY SPECIALIST, 
     AMERICAN FEDERATION OF LABOR & CONGRESS OF INDUSTRIAL 
                    ORGANIZATIONS (AFL-CIO)

    Mr. VOGT. Chairman Levin and Members of the Subcommittee, 
on behalf of the over 11 million members of the AFL-CIO, I 
thank you for the opportunity to review the operation of the 
U.S. trade preference programs. While the AFL-CIO is interested 
in multiple aspects of U.S. trade preference programs, I have 
been asked to focus today on labor eligibility criteria of the 
GSP and related preference programs.
    I have submitted for the hearing record written testimony 
that both examines in detail the problems with the current 
system as well as articulates a reasonable, straightforward 
proposal for reform based on universal eligibility criteria and 
a more rational, transparent, and consistent process to review 
violations of that criteria. I would be happy to answer any 
questions you have with regard to that testimony.
    The labor criteria of our trade preference programs are of 
critical importance to the global labor movement. The AFL-CIO, 
together with partner unions and workers in numerous developing 
countries in Latin America, Africa, and Asia, has used this 
important tool over the last 25 years. In the best cases it has 
brought about modest improvements in labor laws or resolutions 
to long pending cases. Indeed, our most recent experience with 
Bangladesh shows that the GSP program can be used to create 
needed political space for positive change.
    Today, the vast majority of workers in the export 
processing zones of Bangladesh now have some form of worker 
representation on the job because of the hard work of local 
labor organizations that have made use of the political space 
generated by the continuing GSP review. Those workers can now 
begin the process of bargaining for their fair share of the 
gains of international trade. This is not to say there is not a 
very long way to go in Bangladesh, but it is--this is an 
example that when used and used properly, the GSP process 
provides leverage, that can bring about meaningful reform.
    However, the application of labor rights criteria in trade 
preference programs has been highly inconsistent over the 
years. Often unrelated geopolitical and foreign policy 
interests or sensitivity to the economic interest of 
multinational corporations has meant that clear cases of 
egregious labor rights violations are never accepted for 
review, or that cases, once accepted, are dropped without 
evidence of any meaningful improvement in the areas outlined in 
the complaint.
    The lack of clear criteria for the acceptance of petitions, 
of any fixed timelines by when the government must rule on the 
acceptability of a petition, or on the merits, and of any 
obligation that the government ever provide a written, public 
rationale for its actions has allowed the USTR in the past, 
over several administrations, to exercise almost unfettered 
discretion to apply the law. Even now, USTR has failed to 
accept for review two detailed petitions by the AFL-CIO filed 
well over a year ago.
    The lack of consistency of the application of the labor 
criteria over the last 25 years has substantially undermined 
the legitimacy of the program. A new set of procedures that put 
a premium on transparent, consistently applied criteria with 
reasonable timelines and an agency decision making based on the 
merits of the complaint would go a long way to improve the 
functioning of the labor provisions. I propose a new set of 
procedures in the written testimony I have submitted.
    I think we also need to take a fresh look at the 
eligibility criteria themselves. Trade preference programs 
still refer to internationally recognized worker rights. There 
is an important difference between these rights and the ILO 
core labor rights, which are the universal set of minimum labor 
standards as articulated by the ILO in 1998. For example, 
internationally recognized worker rights do not include the 
prohibition on discrimination in respect of employment and 
occupation. In addition, the preference programs currently 
refer to a minimum age for the employment of children which is 
weaker than the ILO formulation of the effective abolition of 
child labor.
    Further, the labor criteria only requires that a country 
take steps to afford internationally recognized worker rights. 
The current preference program simply requires a country to 
improve labor standards over time, but not requires a country 
to have achieved any basic level of compliance to be eligible. 
Thus, a country may have horrendous labor laws and practices, 
so long as it temporarily and marginally improves them after a 
petition is filed.
    We also need to look at additional eligibility criteria 
outside of labor. We are supportive, obviously, of the addition 
of environmental criteria, human rights, and good governance 
criteria, which we find in other trade preference programs, 
such as AGOA.
    I do want to make clear--and this has come up earlier 
today--that we do not view the goal of filing labor petitions 
to be the suspension of preferences, and it never has. Rather, 
we file petitions with the aim of bringing about demonstrable 
improvements in the administration of labor justice, and thus 
improvement in the lives of workers and the economies of 
beneficiary countries.
    Thus, the approach taken to labor violations should be 
cooperative, at least initially, and that is why we propose 
that petitions lead first to the adoption of remediation plans 
with clear benchmarks developed by the U.S. government with 
input and continued participation of petitioners, workers, 
employers, and governments to address and resolve systemic 
violation of labor rights. If countries are making real 
progress but have not yet met those benchmarks at the end of an 
initial review, they should be given more time. Of course, the 
threat of suspension or withdrawal of benefits must be retained 
and wielded if governments fail to abide by the legal 
obligations under the preference programs.
    Finally, I would like to add that we support, obviously, 
trade capacity building. This is critical, as many witnesses 
have already testified today, to making preference programs 
work. A subset of that, I believe we need to develop better 
programs with regard to worker rights, programs that better 
help workers, unions, to better understand and better advocate 
for themselves, for the fulfillment of their basic labor rights 
on the job.
    So I will leave it there, and I will be happy to answer any 
questions you may have with regard to my written testimony or 
any of the statements I have made today. Thank you.
    [The prepared statement of Mr. Vogt follows:]
        Prepared Statement of Jeff Vogt, Global Economic Policy
   Specialist, American Federation of Labor & Congress of Industrial 
                        Organizations (AFL-CIO)
    Chairman Levin and Members of the Subcommittee, on behalf of the 
over 11 million members of the American Federation of Labor and 
Congress of Industrial Organizations (AFL-CIO), I thank you for the 
opportunity to address the future of U.S. preference programs. While 
the AFL-CIO is interested in the reform of multiple aspects of the 
preference program system, I will focus today on the labor eligibility 
criteria.
Introduction
    In 1984, labor advocates succeeded in passing legislation 
conditioning a country's eligibility under the Generalized System of 
Preferences (GSP) on ``taking steps to afford internationally 
recognized worker rights.'' \1\ These rights include: 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.\2\ The rationale for linking trade and labor rights 
was two-fold: i) workers who are able to exercise these fundamental 
rights will be able to bargain collectively for better wages and 
working conditions, ensuring that the benefits of trade accrue not only 
to capital but also to labor; and ii) while developing countries should 
be able to attract investment based on a comparative wage advantage, it 
should not benefit from wages that are artificially low due to labor 
repression.
---------------------------------------------------------------------------
    \1\ 19 USC 2462(b)(2)(G).
    \2\ In 2000, countries were further required to implement their 
commitments ``to eliminate the worst forms of child labor'' to remain 
eligible. See 19 USC 2462(b)(2)(H).
---------------------------------------------------------------------------
    Economic research has also demonstrated that the adoption and 
enforcement of these core labor rights is essential to broad-based 
economic development. As the Organization for Economic Cooperation and 
Development (OECD) pointed out in a 2000 report, International Trade 
and Core Labor Standards, ``countries which strengthen their core labor 
standards can increase efficiency by raising skill levels in the 
workforce and by creating an environment which encourages innovation 
and higher productivity.'' \3\ The OECD also found in a 1996 report, 
entitled Trade, Employment and Labor Standards, that ``any fear on the 
part of developing countries that better core standards would 
negatively affect either their economic performance or their 
competitive position in world markets has no economic rationale.'' \4\
---------------------------------------------------------------------------
    \3\ OECD, International Trade and Core Labour Standards (Oct. 
2000), available online at http://www.oecd.org/dataoecd/2/36/
1917944.pdf.
    \4\ See also, Aidt, Toke & Zafiris Tzannatos, Unions and Collective 
Bargaining, Economic Effects in a Global Environment, World Bank 
(2002), available online at http://www-wds.worldbank.org/external/
default/WDSContentServer/WDSP/IB/2002/09/13/000094946_020831
04140023/Rendered/PDF/multiopage.pdf.
---------------------------------------------------------------------------
    Today, U.S. general or regional trade preference programs all 
contain either the GSP labor clause or a minor variation thereof.\5\ 
However, there are significant substantive and procedural problems with 
the current labor provisions.
---------------------------------------------------------------------------
    \5\ See, e.g. African Growth and Opportunities Act (AGOA), 
substituting ``making continual progress toward establishing'' in place 
of the ``taking steps to afford'' approach in GSP. The Haitian 
Hemispheric Opportunity through Partnership Encouragement Act (HHOPE) 
also contains a substantial labor monitoring program based on the ILO 
Cambodia labor monitoring project.
---------------------------------------------------------------------------
A. SUMMARY OF PROBLEMS WITH CURRENT GSP LABOR STANDARD AND PROCEDURES
1.  Outdated Standard
    In 1998, the member states of the International Labor Organization 
(ILO) agreed on a set of universal, core labor rights applicable to all 
members regardless of level of development. These core labor rights 
were enshrined in the ILO Declaration on Fundamental Principles and 
Rights at Work, which commits all members to respect, promote and 
realize four categories of labor rights: freedom of association and the 
effective recognition of the right to collective bargaining, the 
elimination of forced or compulsory labor, the abolition of child labor 
and the elimination of discrimination in respect of employment and 
occupation. Importantly, all members are obliged to respect, promote 
and realize these principles and rights regardless as to whether they 
have ratified the relevant, underlying conventions. This touchstone has 
now been incorporated into all bilateral free trade agreements pending 
as of May 10, 2007.
    Despite the adoption of these principles and rights over ten years 
ago, trade preference programs still refer to ``internationally 
recognized worker rights'' (IRWR). There are important differences 
between IRWR and the core labor rights. For example, IRWR do not 
include the prohibition on discrimination in respect of employment and 
occupation contained to the ILO Declaration. In addition, the 
preference programs currently refer to ``a minimum age for the 
employment of children,'' which is weaker than the ILO formulation, 
``the effective abolition of child labor.'' It has also been argued 
that the rights collectively defined as IRWR do not refer to any 
external source of law and thus may be invested with any meaning given 
to them by the USTR, rather than the meaning conferred upon those 
rights by the international community through the ILO.\6\
---------------------------------------------------------------------------
    \6\ An infamous example of this is the so-called ``Clatanoff 
Rule,'' articulated by former Assistant USTR for Labor, William ``Bud'' 
Clatanoff. At a 2003 conference at the National Academy of Sciences 
regarding the monitoring of international labor standards, he stated 
with regard to freedom of association: ``If someone tries to form a 
union, they can't get shot, fired or jailed. I'm sorry. I know there 
are thousands of pages of ILO jurisprudence I am not going to read, but 
that's my criteria--shot, fired or jailed, you're not given freedom of 
association.''
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2.  No Minimum Level of Compliance
    The current preference programs simply require a country to improve 
labor standards over time, but do not require a country to have 
achieved any basic level of compliance to be eligible. A country may 
therefore have horrendous labor laws and practices (2 on a scale of 
10), so long as it temporarily and marginally improves them after a 
petition is filed (3 of 10).
3.  Limited Petition Filing Window
    Preference programs, with the exception of the CBI and AGOA, allow 
for third parties to submit petitions alleging the violation of any 
eligibility criteria. The regulations implementing each program limit 
petitions to only once a year, though the statute imposes no such 
limitation. If a major labor rights violation occurs a month after the 
petition window closes, a potential petitioner will have to wait nearly 
an entire year to raise the matter through a petition process. Further, 
the petition windows for the various programs are not coordinated, nor 
are they fixed (in practice), meaning that the petition window can (and 
does) change from year to year.\7\ In 2003, the petition window was 
never opened. The U.S. government has also failed to regularly review 
the compliance of beneficiary countries and self-initiate appropriate 
action.
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    \7\ 15 CFR 2007.3 does provide that petition shall be conducted at 
least once a year according to the schedule set forth in therein. The 
deadline for petitions established in the regulations is June 1, unless 
otherwise specified by notice in the Federal Register. The petitions 
are rarely, if ever, due on that date. In 2009, petitions were actually 
due on June 24th. In 2004, petitions were due on December 14th.
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4.  No New Information Rule
    A determination that a country does not merit review should not bar 
subsequent petitions on the same or similar issues, as it has in the 
past. The so-called ``no new information'' rule, 15 CFR 2007.0(b)(5) 
and 2007.1(a)(4), has no statutory foundation and should be 
abolished.\8\ In general, the rule prohibits the filing of a petition 
on any matter that has been raised in a previous petition against the 
same country. Thus, a country could take minimal steps towards 
compliance just to avoid review and then backslide into noncompliance 
once suspension of benefits is no longer threatened. If a petitioner 
were to file a complaint on the same subject matter, the petition could 
be rejected if the new information were not deemed sufficiently 
substantial.
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    \8\ 15 CFR 2007.0(b). During the annual reviews and general reviews 
conducted pursuant to the schedule set out in Sec. 2007.3 any person 
may file a request to have the GSP status of any eligible beneficiary 
developing country reviewed with respect to any of the designation 
criteria listed in section 502(b) or 502(c) (19 U.S.C. 2642(b) and 
(c)). Such requests must: (5) supply any other relevant information as 
requested by the GSP Subcommittee. If the subject matter of the request 
has been reviewed pursuant to a previous request, the request must 
include substantial new information warranting further consideration of 
the issue.
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5.  Exercise of Excessive Executive Discretion
a.  Meritorious Petition Not Accepted for Review and No Reason Given
    The only reason to reject a country practice petition for review 
that finds any support in the statute or regulations is that the 
petition fails to set forth facts that, if substantiated, would 
demonstrate that the beneficiary country in question has not taken 
steps to afford workers internationally recognized worker rights.\9\ 
However, numerous well-supported petitions detailing widespread and/or 
serious violations of worker rights have been rejected in the past 
without any official explanation. The government should accept for 
review a petition if the statements contained therein, if 
substantiated, would constitute a failure of the beneficiary country to 
comply with its obligations or commitments under the labor clause. If a 
petition is rejected, the government should provide in writing the 
reasons for that decision. If a defect in the submission could be 
remedied, the government should instruct the petitioner what is needed 
to make the petition acceptable for review. Further, the criteria that 
the GSP subcommittee of the Trade Policy Staff Committee (TPSC) employs 
to determine whether to accept or reject a GSP petition for review 
should be public.
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    \9\ See, 15 CFR 2007.0(b). During the annual reviews and general 
reviews conducted pursuant to the schedule set out in Sec. 2007.3 any 
person may file a request to have the GSP status of any eligible 
beneficiary developing country reviewed with respect to any of the 
designation criteria listed in section 502(b) or 502(c) (19 U.S.C. 
2642(b) and (c)). Such requests must (1) specify the name of the person 
or the group requesting the review; (2) identify the beneficiary 
country that would be subject to the review; (3) indicate the specific 
section 502(b) or 502(c) criteria which the requestor believes warrants 
review; (4) provide a statement of reasons why the beneficiary 
country's status should be reviewed along with all available supporting 
information; (5) supply any other relevant information as requested by 
the GSP Subcommittee.
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b.  Abuse of Continuing Review
    USTR has often put countries under a ``continuing review,'' a 
probationary period during which the government waits to see whether a 
country is making sufficient progress necessary to retain its 
eligibility. Using a ``continuing review'' as a means to provoke the 
improvements necessary to avoid suspension is legitimate. However, some 
reviews have continued for several years while violations of workers' 
rights continued unabated. Thailand, for example, was under review for 
nine consecutive years while it maintained GSP eligibility. Reviews 
should rarely, if ever, last for more than two petition cycles without 
a final determination of eligibility. No country will undertake needed 
reforms if it believes that there is no real chance that market access 
could be limited, suspended or withdrawn.
c.  Executive Branch Fails to Limit, Suspend or Withdraw Preferences, 
        even in Clear Cases
    GSP does provide the President some discretion to continue to 
extend preferences even if the country fails to meet the worker rights 
eligibility criteria. Section 2462(b)(2)(G) of the GSP provides that 
``The President shall not designate any country a beneficiary 
developing country under this subchapter if any of the following 
applies: such country has not taken steps to afford internationally 
recognized worker rights to workers in the country (including any 
designated zone in that country.'' Section 2462(b)(2) does provide, 
however, that subparagraphs (G) and (H)(to the extent that the work 
``by its nature or the circumstances in which it is carried out, is 
likely to harm the health, safety, or morals of children'') ``shall not 
prevent the designation of any country as a beneficiary country under 
this subchapter if the president determines that such designation will 
be in the national economic interest of the United States and reports 
such determination to the congress with the reasons therefore.'' 
(emphasis added).
    Despite this limited grant of discretion, several country practice 
reviews over the last 25 years have been closed with no action taken 
(limitation, suspension or withdrawal) and with no apparent steps taken 
by the foreign government to afford IRWR. Given the complete lack of 
transparency, it is impossible to ascertain the basis for inaction and 
determine whether it is rooted in the clear statutory language 
outlining the scope of presidential discretion or whether other extra-
statutory factors are considered by subordinate committees such as the 
TPSC when making a recommendation to the President.\10\ The discretion 
exercised by the TPSC in practice and afforded the President under the 
statute is so broad that it could form the basis for inaction on almost 
every petition.
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    \10\ 15 CFR 2007.2(g) and (h) regulate the process by which 
recommendations are made to the President. Nowhere do the regulations 
provide the TPSC (and superior committees) discretion to weigh 
considerations unrelated to the program's eligibility criteria.
    (g) The TPSC shall review the work of the GSP Subcommittee and 
shall conduct, as necessary, further reviews of requests submitted and 
accepted under this part. Unless subject to additional review, the TPSC 
shall prepare recommendations for the President on any modifications to 
the GSP under this part. The Chairman of the TPSC shall report the 
results of the TPSC's review to the U.S. Trade Representative who may 
convene the Trade Policy Review Group (TPRG) or the Trade Policy 
Committee (TPC) for further review of recommendations and other 
decisions as necessary. The U.S. Trade Representative, after receiving 
the advice of the TPSC, TPRG or TPC, shall make recommendations to the 
President on any modifications to the GSP under this part, including 
recommendations that no modifications be made.
    (h) In considering whether to recommend: (1) That additional 
articles be designated as eligible for the GSP; (2) that the duty-free 
treatment accorded to eligible articles under the GSP be withdrawn, 
suspended or limited; (3) that product coverage be otherwise modified; 
or (4) that changes be made with respect to the GSP status of eligible 
beneficiary countries, the GSP Subcommittee on behalf of the TPSC, 
TPRG, or TPC shall review the relevant information submitted in 
connection with or concerning a request under this part together with 
any other information which may be available relevant to the statutory 
prerequisites for Presidential action contained in Title V of the Trade 
Act of 1974, as amended (19 U.S.C. 2461-2465).
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6.  Country v. Industry-Level Enforcement
    Nothing currently prevents USTR from suspending trade preferences 
with regard to a specific industry or industries where rampant 
violations occur (rather than suspending or withdrawing preferences at 
the country level). With very rare exceptions, such as Pakistan, where 
USTR suspended preferences in the 1990s for carpets, surgical 
instruments and soccer balls, USTR has not exercised this flexibility 
and has instead limited itself to a determination as to whether to 
suspend or withdraw trade preferences for an entire country. The 
targeted limitation of preferences should be used more frequently.
B. A BETTER WAY
    Below is a comprehensive set of proposals to reform both the labor 
eligibility criteria as well as the process for reviewing complaints, 
remediating violations and making determinations as to whether to 
suspend preferences in whole or in part.\11\ These recommendations 
could be applied to reform of any or all of the extant preference 
programs, or lay the foundation for a new, unified preference program.
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    \11\ Note: We believe that beneficiary countries must also meet 
eligibility criteria with regard to human rights, rule of law and good 
governance and the environment. Those criteria are not spelled out 
here.
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1. Eligibility Standard(s)
    Establishing new eligibility criteria for a broadly revamped 
preferences scheme requires several related choices. For example, tiers 
of development and levels of market access could be uniform or layered. 
For purposes of this testimony, we assume three baskets of trade 
preferences based on a combination of level of development and market 
access. However, should the program evolve and take another shape, 
these suggestions would need to be adapted.
    Also, note that only labor eligibility criteria are discussed here. 
One would expect that other criteria would be required, including those 
related to good governance, human rights, the environment and others.
a. Basic Preference for Developing Countries
    Assuming levels of market access similar to the current GSP program 
for developing countries, the following criteria should be met to be or 
remain eligible.
Standard
          The country must make continual progress towards 
        adopting laws consistent with core labor rights and must have 
        adopted laws consistent with the ILO core labor rights within 
        3-5 years of the program entering into force to remain 
        eligible.
          Though the obligation is to make progress during the 
        transition period, the country cannot have laws that prohibit 
        (de jure or de facto) the exercise of a core labor right (e.g., 
        bar on the formation of unions or a minimum requirement of 100 
        members to form a union) or fail to have laws governing 
        acceptable conditions of work with respect to minimum wage, 
        hours, and health and safety.

Level of Enforcement
          During the transition period, the country must make 
        continual progress towards effectively enforcing its laws 
        related to the core labor rights and acceptable conditions of 
        work; once the transition period ends, the country must 
        effectively enforce those laws.
          Though the obligation is to make continual progress 
        during the transition period towards effective enforcement, the 
        country, at a minimum, must have tribunals for the enforcement 
        of such labor rights and acceptable conditions of work, which 
        shall be fair, equitable, and transparent; provide for the 
        possibility of remedies such as fines, penalties, or temporary 
        work closures; and allow for the appeal or review, as 
        appropriate, of decisions to impartial and independent 
        tribunals.
          Though a country retains the right to the reasonable 
        exercise of discretion and to bona fide decisions with regard 
        to the allocation of its resources, the country must, at a 
        minimum, not reduce the percentage of its annual budget for 
        labor enforcement and should increase the budget for labor 
        enforcement proportionately as the economy expands.
          The country cannot be on Tier 3 of U.S. State Dept 
        Trafficking Report (those countries whose governments do not 
        fully comply with the Trafficking Victims Protection Act's 
        (TVPA) minimum standards and are not making significant efforts 
        to do so).\12\
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    \12\ In 2009, this list included: Burma, Iran, North Korea, Syria, 
Chad, Kuwait, Papua New Guinea, Zimbabwe, Cuba, Malaysia, Saudi Arabia, 
Eritrea, Mauritania, Sudan, Fiji, Niger and Swaziland.

b. GSP-Plus
    Currently, the U.S. has no incentive based program that ties 
greater levels of market access to certain vulnerable developing 
countries to compliance with a higher set of eligibility criteria. The 
European Union currently has such a program--GSP Plus. If the U.S. were 
to incorporate such an approach, a developing country could be eligible 
to export more goods at a preferential tariff rate than possible under 
the basic GSP. If correctly designed and implemented, an incentive 
based program that rewarded better labor practices could result in 
better labor laws and practices. If such a program were to be 
established, the following eligibility criteria would be appropriate. 
Such countries should also be subject to more rigorous oversight on 
compliance with the eligibility criteria.
    To be eligible, the country must:

          have adopted laws and regulations consistent with the 
        core labor rights
          must effectively enforce those laws and all other 
        national laws governing worker rights and social protection
          maintain a functioning tripartite body that meets 
        regularly to discuss labor laws, labor relations and social and 
        economic policy generally, if such a structure exists, or 
        otherwise ensure regular and meaningful social dialogue on 
        these issues.
          ensure that no workers are excluded de facto or de 
        jure from, and that all workers are protected equally by, 
        national labor laws, regulations, and policies, including 
        subcontracted workers, temporary workers, migrant workers, 
        seasonal workers, part-time workers, project-based workers, 
        informal sector workers, etc. Nothing in this criterion shall 
        be construed as prohibiting positive affirmative measures to 
        protect the rights of more vulnerable workers.

c. Duty-Free/Quota Free for Least Developed Countries
    It has been proposed that Least Developed Countries (LDCs) should 
now receive duty free/quota free preferential tariff treatment. LDCs 
should also be required to meet the basic GSP criteria described 
herein; however, they should be given a somewhat longer transition 
period and more resources from a variety of sources should be marshaled 
to help LDCs meet these and other eligibility criteria. This 
arrangement would strike a balance between the lower level of 
development on one hand and the substantially greater market access 
afforded on the other.
2. A New Process
a.  Institutions
    Currently, worker rights country practice petitions are filed with 
the USTR and reviewed initially by the GSP Subcommittee of the TPSC, an 
inter-agency committee that includes USTR, Treasury, Agriculture, 
State, USAID, Commerce and Labor. The full TPSC includes, in addition, 
the Council of Economic Advisors, Council on Environmental Quality, 
Department of Defense, Department of Energy, Department of Health and 
Human Services, Department of Homeland Security, Department of the 
Interior, Department of Justice, Department of Transportation, 
Environmental Protection Agency, National Economic Council, National 
Security Council, Office of Management and Budget and the U.S. 
International Trade Commission (non-voting member).
    It is understandable that a wide range of agencies may have an 
interest in a decision regarding country eligibility to receive trade 
preferences. However, as to whether the petition (1) on its face 
alleges a violation of the worker rights criteria and should therefore 
be accepted and (2) whether, following an investigation, those claims 
have been substantiated by the evidence, it appears that those 
decisions are wholly within the competence of DOL, and specifically 
ILAB. Thus, as to the first two aforementioned questions, ILAB's 
findings and conclusions should be given substantial deference, if not 
be determinative. The ultimate issue, whether a country's benefits 
should therefore be suspended because of those violations, or what the 
scope of the suspension should be, could be a determination that 
requires input from a broader inter-agency committee--though the scope 
of their review should be circumscribed.
b.  Procedures
1.  Public Petitions
    The USG should provide for the receipt of public petitions from any 
person at any time on labor rights matters under a new trade preference 
scheme. This could be accomplished either by establishing an open 
petition process or by maintaining a fixed annual review process, at 
which time petitions would be encouraged, but with the possibility of 
filing a petition out-of-cycle. Elements of a basic petition should 
include: name and contact information of petitioner (which should 
remain confidential if requested), a summary of the relevant facts, if 
possible the specific domestic laws or international labor rights 
alleged to have been violated and the relief sought. No additional 
information should be required at the initial stage.
    The petition shall be accepted for review if the statements 
contained in the petition, if substantiated, would constitute a failure 
of the country to comply with the obligations or commitments under the 
preference program. ILAB should announce its determination within 30 
days of the receipt of the petition. If the information provided is 
insufficient to make an initial determination, ILAB should notify the 
petitioner within 30 days of the receipt of the petition and request 
any information needed to make a determination. The petitioner should 
have 60 days from receipt of the notification to supply the requested 
additional information. ILAB shall have 30 days from the date the 
petitioner resubmits the petition in order to make its determination. 
If the petitioner does not supply the requested additional information 
within 60 days, or if the information is still insufficient, then the 
petition may be rejected.
    If accepted, a notice should be published in the Federal Register 
within 5 days that a petition to review the eligibility of a 
beneficiary country has been accepted for review. Specific notice 
should be given to the foreign government and petitioner(s). The FR 
notice will start a process not to exceed 120 days. ILAB shall invite 
the public to submit supplemental written testimony in support of or in 
opposition to the petition within 30 days. Thereafter, ILAB and any 
other relevant agencies should conduct an investigation, including 
interviews with petitioners, government officials, employers or 
employer associations specifically named or in an industry identified 
in the complaint, as well as NGOs and other relevant stakeholders. As 
part of its investigatory process, a public hearing should also be 
held. The investigatory phase should close within 120 days from the 
filing of the petition.
    Within 60 days from the close of the investigation, a written 
determination as to whether a violation or violations of the labor 
clause occurred, and the facts and evidence supporting that 
determination.\13\
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    \13\ The USG should develop a methodology setting forth clear and 
consistent procedures for the conduct of investigations, the criteria 
used to determine whether a violation of the labor clause has occurred, 
how such factors are weighed, and how a final determination is made. 
The methodology should also set forth procedures for drafting and 
implementing a remedial work plan, if applicable, and oversight of the 
implementation of such a plan. This proposed methodology should be 
published in the Federal Register for public comment.
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2.  Levels of Review
    Unlike the existing petition process (in practice), petitioners 
should be able to request action taken at the country and/or industry 
level. Indeed, almost all past petitions have raised concerns at both 
levels, but the only remedy available in practice has been a complete 
suspension of preferences to an entire country. The availability of 
targeted remedies may provide the USG the flexibility to address the 
most critical problems directly.
    For example, a situation could arise in which a petitioner alleges: 
(1) that the government has failed to enact laws consistent with the 
country's preference program obligations, has failed to maintain those 
laws, and/or in a systematic way has failed to enforce them; (2) 
alleges rampant violations in a specific industry, with illustrative 
cases with regard to specific firms that represent the worst actors 
within that industry. A petitioner should be able to request (and the 
U.S. government provide) action be taken at one or both levels. In 
cases where laws and regulations fall short of core labor standards, 
where there is a widespread failure in the administration of labor 
justice (ministry, inspectorate, courts), and/or where the government 
as employer is violating worker rights, the U.S. government should 
consider application of country-level remedies. Where worker rights 
violations are especially concentrated in a particular industry, the 
U.S. government should consider remedies that target the products of 
that industry.\14\
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    \14\ If the industry does not benefit from preferences, violations 
would have to be viewed in the context of a broader, country practice 
petition. However, this does not preclude the USG from developing a 
remediation plan that addresses concerns in that industry. The 
limitation would be in that benefits would have to be withdrawn for the 
entire country, rather than the specific industry.
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3.  Remediation & Suspension
a.  Country Level
    The primary purpose of enforceable labor rights criteria is to 
improve working conditions, not to suspend tariff preferences for the 
sake of it. Thus, the approach taken to labor violations should be 
cooperative, at least initially. If ILAB were to determine based upon a 
petition or a biennial review (see below) that the beneficiary country 
is not in compliance with the labor eligibility criteria, then it 
should enter into consultations with the beneficiary country (with the 
participation of worker and employer representatives) to develop a work 
plan with clear benchmarks that, if met, would bring the country into 
compliance with the eligibility criteria. Such a work plan should 
usually be no longer than one year in duration, with a mid-point 
review.
    If, after such consultations, a work plan cannot be developed, 
eligibility should be terminated. If such a plan is not fully 
implemented after the year, ILAB shall consider what progress has been 
made toward fulfilling the work plan. If the country has demonstrated 
sufficient political will and has taken substantial steps towards 
implementing that plan, the USG should extend the period for an 
additional period not to exceed one year. If, however, the country has 
not demonstrated the requisite will or has made insufficient progress, 
the preferences shall be limited, suspended or withdrawn.
    As noted above, the TPSC is responsible for making a recommendation 
to the President to limit, suspend or withdraw preferences. Although 
the statute gives the President the discretion to factor in other 
considerations, i.e. the national economic interest, it is clear that 
members of the TPSC are factoring in additional non-labor 
considerations at the time the recommendation is being formulated. 
Further, the TPSC does not now appear to be constrained by any 
timelines whatsoever in making their decision.
    The TPSC should be constrained to make its recommendation to the 
President within 60 days from ILAB's recommendation. Further, TPSC may 
reject ILAB's determination and recommend no action be taken only on 
the basis of an affirmative, consensus opinion based on evidence that 
suspending the preferences would either cause serious harm to the U.S. 
economy or jeopardizes the national security of the United States. If 
the TPSC recommends limitation, suspension or withdrawal of 
preferences, the President should notify Congress of his (or her) 
intent to limit or suspend the country's eligibility for preferential 
trade treatment within 30 days (unless the president independently 
determines that suspending preferences would cause serious harm to the 
economy or jeopardizes the national security of the United States). The 
final decision, either in the affirmative or negative, must be in 
writing with a full explanation for the reasons supporting that 
decision.
b.  Industry Level
    If a petition targets a particular industry or industries, or ILAB 
otherwise determines that violations described in a country practice 
petition are concentrated in a specific industry or in industries, it 
should develop a special work plan (or sub plan) with specific 
recommendations to address violations in the identified industry or 
industries. Of course, persistent worker rights violations in any 
industry are the responsibility of both the employers (who violate the 
law) and the government (which fails to enforce the law), so a sectoral 
approach will necessarily have to set forth specific benchmarks in a 
work plan that are directed to both the government and to the 
employers. As with the country-level work plan, government, employers 
and workers should all be engaged in developing that plan.
    If the country and employers have demonstrated the will and have 
taken substantial steps towards implementing that plan, the president 
should extend the review period for an additional period not to exceed 
one year. If, however, the country has not demonstrated the requisite 
will or has made insufficient progress, and the violations are 
especially concentrated in an industry or industries, the president 
shall notify congress of intent to terminate the preferential treatment 
for the products in the identified industries.\15\
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    \15\ In many cases, a firm or group of firms may be responsible for 
giving the entire sector a bad reputation. If an entire sector were 
under review, it would be advantageous for the better actors to put 
pressure on the bad actors to avoid having the relevant product losing 
preferential treatment. However, if a firm within an industry continues 
to commit serious violations of worker rights, the USG should seek 
ways, where possible, to deny benefits to that firm or firms.
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4.  Reinstatement of Eligibility
    The President may reinstate the eligibility for preferential 
treatment of a country (or sector) whose eligibility has been 
terminated if it is determined that the qualified beneficiary country 
has fully implemented the work plan.
    Countries seeking reinstatement should file a written request with 
USTR. Notice of the request shall be published in the Federal Register. 
Any interested party shall have 60 days to provide information in 
response to the notice as to whether the country has implemented its 
work plan and/or any new additional information post-suspension with 
regard to the country's compliance with the labor clause generally. A 
public hearing should be held within 30 days after comments are due. 
ILAB shall review the evidence and conduct such investigations as 
necessary and make a determination within 90 days whether the 
beneficiary country has complied with the work plan. The preferences 
shall remain limited or suspended unless ILAB makes a finding that the 
beneficiary has fully complied with the work plan (and has not engaged 
in subsequent violations that justify the continuation of the 
suspension). If so, it would make a recommendation of reinstatement to 
the TPSC. If not, preferences shall remain suspended until such time 
that the beneficiary country can demonstrate full compliance through 
the process described above.
    There may be some cases where a country seeks reinstatement of 
eligibility after several years out of the program, at which point the 
work plan would no longer be relevant. In such cases, a new assessment 
would need to be undertaken to ascertain whether the country meets the 
relevant eligibility criteria.
5.  Regular Biennial Monitoring
    In conjunction with civil society partners with demonstrated 
expertise in labor rights matters and together with other relevant 
international organizations, USTR, DOL and State shall work together to 
assess compliance by beneficiary countries with core labor rights and 
acceptable conditions of work, in law and practice. Such assessments 
shall be based on information available from the annual IRWR reports 
required under 19 USC Sec. 2464,\16\ the International Labor 
Organization, other interested parties, country and worksite visits 
that include confidential worker and worker representative interviews, 
meetings with management, visits to workplaces, collection and review 
of relevant documents. The U.S. government would not be required to 
develop yet another report but rather to survey information already in 
hand or readily available, and any additional information provided by 
civil society organizations and collected in the course of ongoing 
information gathering from the labor attaches and labor reporting 
officers.
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    \16\ This section would of course need to be amended to refer to 
the core labor rights assuming our recommendations herein are adopted.
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    In recognition of the limited resources, the U.S. government should 
be allowed to exercise discretion and self-initiate reviews of those 
countries that present the worst cases of non-compliance.
C. Capacity Building
    Substantial funding will be required to make this program reach its 
desired goal. We will need to be creative in pursuing a consistent 
stream of funding. It is important, too, that we undertake a serious 
assessment of the efficacy of past labor capacity building programs. 
While some were well tailored to address properly diagnosed problems, 
others were not designed to address the most critical problems. 
Coordination among the several agencies at times seemed poor, with 
multiple projects receiving funds to do largely the same work. In other 
cases, organizations that received funding to carry out labor capacity 
building programs have had little expertise in labor relations and/or 
are unfamiliar with the region. In some cases the local partners 
designated by US-based organizations are unknown to or do not have the 
complete trust of labor organizations. Finally, there appears to be 
little accountability, particularly with regard to government 
institutions that continue to receive funds for workshops, training and 
equipment year after year despite showing little will to actually 
improve the quality of their work.

                                 
    Chairman LEVIN. Thank you very much.
    Mr. Reinsch, please.

 STATEMENT OF WILLIAM A. REINSCH, PRESIDENT, NATIONAL FOREIGN 
                      TRADE COUNCIL (NFTC)

    Mr. REINSCH. Thank you, Mr. Chairman and Members of the 
Subcommittee. Thank you for the opportunity to appear. I am 
Bill Reinsch, I am president of the National Foreign Trade 
Council, a trade association of some 300 U.S. companies that 
are engaged in international trade and investment.
    We support trade preference programs that eliminate tariffs 
in order to provide cost effective inputs to U.S. 
manufacturing, thereby enhancing U.S. jobs and competitiveness. 
Studies by the GAO and private sector think tanks show that 
preference programs have a small effect on the overall U.S. 
economy, and the tariff relief they provide benefits small and 
medium sized companies as much as it does large corporations. 
This tariff elimination also reduces costs to the U.S. 
consumer.
    In the historic economic downturn we are experiencing, 
these multiple domestic benefits can be significant. Let me 
mention a few examples. The U.S. appliance makers imported $70 
million worth of air conditioning machinery parts duty free 
last year that were used in making appliances here in the 
United States. Those same parts not covered under GSP would 
have a 1.4 percent tariff, so these manufacturers realized a $1 
million savings on these components, which came mostly from 
Thailand. $430 million worth of ferrosilicon was imported last 
year under GSP, mostly from South Africa and Georgia, at a $17 
million savings, increasing the competitiveness of domestic 
steel exports and reducing the cost of U.S.-made steel that was 
sold here.
    The U.S. imported $80 million worth of marble sawn into 
slabs for the construction industry, mainly from Turkey, India, 
and Egypt, where GSP removed a 5 percent tariff, resulting in a 
$4 million benefit to this industry. About $10 billion worth of 
oil, mainly from Iraq, enters the U.S. under GSP. AGOA, in 
turn, waived tariffs on about $50 billion of oil from Nigeria, 
Angola, and Equatorial Guinea, and $13 billion worth of 
Colombian oil enters the U.S. under ATPA.
    These are very low tariff products that Americans would buy 
anyway, but on each barrel there are 5 cent or 10 cent duties. 
All together, the savings comes to about $40 million.
    Beyond this domestic benefit, we believe in the value of a 
stable system of trade preferences as a tool to provide broad 
and deep benefits to some of the world's poorest countries. 
This is not only a moral obligation, but also in our national, 
economic, and security self-interest.
    The eligibility criteria inherent in all U.S. preference 
programs have led to economic and legal reforms which have made 
a real difference in building and strengthening a home grown 
entrepreneurial class, which allows economies to diversify and 
move beyond dependence on preference programs for growth. For 
example, the NFTC strongly believes that a strong IPR regime in 
developing countries is a key component in creating an 
indigenous class of entrepreneurs and innovators. Many cite the 
eligibility criteria in GSP as contributing to Brazil moving 
forward to increase its IPR protections, and that is paying off 
for domestic innovation.
    However, when beneficiary countries move away from the rule 
of law, such as Ecuador's withdrawal from the International 
Center for Settlement of Investment Disputes, and diminishing 
the independence of the judiciary, it is important that the 
eligibility criteria provide leverage for an appropriate 
response. Instituting across the board eligibility criteria 
mandating a strong rule of law and respect for an independent 
judiciary combined with adequate capacity building assistance 
will serve to separate countries who are moving forward from 
those like Ecuador who are moving away from international 
norms.
    In April of this year the NFTC joined a diverse group of 29 
organizations in sending a letter to Ambassador Kirk and to 
Congress outlining our consensus agreement on what improvements 
to the preference programs would be most beneficial. This group 
consists of broad based trade associations and bilateral 
business councils and NGOs focusing on international economic 
development, poverty, and hunger eradication and other 
international aid issues.
    Since then, facilitated by the Trade Aid and Security 
Coalition of the Global Works Foundation and the trade 
partnership, we have continued to meet, including other faith-
based, labor, and food security NGOs, and major corporations 
and other experts to find common ground on the details while 
communicating regularly with Congressional staff, including the 
staff of this committee.
    We are united in the belief that Congress should make 
tangible improvements to the preference programs. A progress 
report on our work will be forthcoming soon, but our experience 
has shown that the main things Congress should do are, first, 
move toward a unified set of preferences, harmonizing the 
elements of GSP and regional programs over a short timeframe. 
Crafting a program that is certain, reliable, predictable, and 
long term is the most powerful thing Congress can do to ensure 
that preferences work for those they are intended to help.
    Second, provide permanent, 100 percent duty free and quota 
free benefits for eligible least developed countries. This bold 
move provides the commitment and leadership that will serve as 
the foundation for all of the other work needed to make sure 
that the poorest nations begin to integrate preferential access 
to the U.S. market into their broader development plans.
    Third, end the short and uncertain renewals. Waiting until 
a month or days or even after the expiration of a program to 
renew it makes it difficult to use the programs. For importers, 
stability is probably the most important issue. Investing in 
developing countries and building strong sourcing relationships 
requires time and money. Companies are reluctant to spend these 
resources if the preferences constantly start and stop, or if 
it seems like a product might lose GSP benefits, just as the 
investment begins to pay for itself.
    Fourth, simplify the rules. Integrating the multiplicity of 
rules of origin, eligibility requirements, and product 
graduation requirements will increase use of the program.
    Finally, tie renewal eligibility and graduation more 
completely to capacity building. While preferences can serve as 
a potent catalyst for economic, regulatory, legal, and 
political reform, the capacity to build the infrastructure and 
the understanding of what is needed to utilize the programs and 
what is expected to maintain this privilege are all crucial to 
success.
    In conclusion, I want to make clear that we understand that 
preferential access to the U.S. market is a privilege, not an 
entitlement, and along with it go responsibilities. Countries 
who receive these preferences must demonstrate the vision to 
undertake other efforts to improve their citizens' livelihood. 
Preferences are only one tool to spread economic opportunity 
globally.
    We believe that U.S. leadership is finding a way forward to 
conclude the Doha Round is of paramount importance. Clearly 
articulating and implementing a comprehensive forward looking 
national trade policy that opens markets for U.S. business, 
workers, farmers, and ranchers must go hand and hand with the 
important effort to update and modernize the system of U.S. 
trade preference programs, and we look forward to working with 
Congress and the Administration in this effort.
    Thank you Mr. Chairman.
    [The prepared statement of Mr. Reinsch follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman LEVIN. Thank you very, very much.
    Ms. Broadbent.

  STATEMENT OF MEREDITH BROADBENT, TRADE ADVISOR, THE GLOBAL 
                       BUSINESS DIALOGUE

    Ms. BROADBENT. I appreciate the opportunity to discuss U.S. 
trade preference programs. I am a trade advisor to the Global 
Business Dialogue, an association that focuses on international 
trade an investment matters. In that GBD does not lobby and our 
members have not considered this issue as a group, the views 
expressed here today are my own. They are based on my practical 
experience administering the GSP program at USTR from 2003 to 
2008.
    Although several key changes are needed, I would caution 
against a wholesale rewrite or consolidation of the separate 
U.S. trade preference programs. Rather, I am very positive 
about the track record of Congress for revising and improving 
these programs in a more iterative manner, as necessary, to 
reflect current foreign policy realities, the interests of U.S. 
industry, and current U.S. objectives in multilateral trade 
negotiations, and development priorities.
    Under the single lens of any one of these concerns, U.S. 
trade preference programs are far from ideal. But taking into 
account the whole set of objectives, the current structure of 
the preference programs gives USTR the flexibility to 
effectively tailor U.S. trade policy toward 131 different 
developing countries, a group that spans a very wide spectrum 
in terms of per capita income and capacity to implement trade 
reforms.
    Because of the wide differences in the capacities of 
beneficiary countries to comply, trade preference eligibility 
criteria in the statute should not be one size fits all. USTR 
has been successful in bringing about positive changes in 
beneficiary countries based on the existing conditionality 
criteria. Historically, the goal of gradually integrating 
advanced developing countries into a reciprocal trade 
relationship with the United States under the disciplines of 
the WTO or in the context of a free trade agreement has been 
important for Congress and for both Republican and Democratic 
administrations.
    Over the past 30 years, the United States has enacted five 
preference programs targeting specific regions of the world for 
deeper, more generous benefits. Each of these regional programs 
has its own history, national security, and foreign policy 
context. Aimed at providing economic alternatives to drug crop 
production, the Andean trade preference program lent itself 
well in the case of Colombia and Peru to encouraging a 
transition from unilateral trade preferences to a willingness 
and ability to undertake the reciprocal and binding obligations 
of free trade agreements. Recently, Ecuador has been reviewed 
under ATPA for breaches of rule of law that have affected U.S. 
investors, raising the question of whether unilateral trade 
preferences in this case are serving U.S. interests, but it is 
my view that the statute has been working.
    There are leaders in Congress who have championed and 
fought for expanding trade ties with separate regions, which I 
believe has had a tremendously positive impact on U.S. trade 
relations with these areas of the world. Chairmen Rangel and 
Archer and Levin and Congressmen McDermott and Crane worked 
tirelessly to establish the AGOA program. I believe AGOA led to 
a sea change improvement in U.S. trade relations with Africa, 
and was responsible for creating government mechanisms for 
coordinating with the continent on common objectives for the 
Doha negotiations in the WTO.
    The flexibility in the current preference structure makes 
GSP an effective tool for USTR. USTR is in a better position to 
encourage beneficiary countries to eliminate market access 
barriers for U.S. exports and respect worker rights, for 
example, because U.S. trade negotiators can engage the target 
developing country both under GSP and under the regional 
program. Proposals to streamline and consolidate programs 
should be considered, but not at the expense of reducing the 
status of regional groupings that the countries themselves view 
as important, and which provide a framework and incentives for 
USTR to promote regional economic integration, an important 
development objective in and of itself.
    There are improvements in these programs that Congress 
should consider. U.S. importers and potential investors in many 
developing countries have legitimate concerns about the 
complications and costs associated with the exceedingly arcane 
rules of origin that apparel products must meet in order to 
receive duty free treatment. The effectiveness of U.S. 
preference programs is undermined by detailed and complicated 
restrictions related to requirements to use U.S. fabric, yarn, 
and finishing processes. No other sector of trade is so tightly 
controlled and micromanaged. I urge the Subcommittee to look at 
these rules of origin in a fresh light to see what can be done 
to simplify and eliminate burdensome complications that have 
the effect of undermining the value of the duty savings to the 
developing countries that the United States is trying to help.
    I'm sorry to say that in terms of the Doha Round trade 
agenda, the Committee will also have to wrestle with 
reconciling the goal of helping developing countries and the 
perverse and damaging incentive trade preferences create for 
countries to oppose multilateral trade liberalization in the 
WTO. Once developing countries become vested in their 
preferences, they often fight multilateral reductions and 
tariffs, creating a difficult negotiating dynamic for the 
United States in Geneva. For example, many preference receiving 
developing countries continue to pose cuts in developed country 
apparel tariffs.
    This inclination by some preference beneficiaries to oppose 
any trade liberalizing proposal that could be characterized as 
causing ``preference erosion'' is having serious deleterious 
effects on the Doha negotiations. This is not the most 
important obstacle to reaching an agreement, but it is an issue 
that WTO countries will have to face when larger issues in the 
Doha Round are solved.
    In conclusion, Mr. Chairman, preferences are a flexible and 
effective mechanism for furthering the U.S. trade policy 
agenda. They establish market-based incentives for developing 
countries to open their markets. These programs will be 
enhanced by amendments that help make the programs simpler and 
more user friendly, but which also preserve USTR's ability to 
tailor its approach to the different circumstances facing 
developing countries.
    Thank you.
    [The prepared statement of Ms. Broadbent follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman LEVIN. Thank you very, very much.
    Ms. Rangnes.

STATEMENT OF MARGRETE STRAND RANGNES, DIRECTOR, LABOR, WORKERS' 
              RIGHTS & TRADE PROGRAM, SIERRA CLUB

    Ms. RANGNES. Thank you. Thank you Chairman Levin, ranking 
member Brady, and Members of the Subcommittee. On behalf of the 
Sierra Club's 1.3 million members and supporters, I want to 
thank you for the opportunity to address this issue. I am here 
primary as a representative of the Sierra Club, but I am also 
speaking on behalf of a broad array of organizations, including 
the Center for Biological Diversity, the Center for 
International Environmental Law, Defenders of Wildlife, Demos, 
Environmental Investigation Agency, and Friends of the Earth.
    The United States has long granted trade preferences to 
developing countries that meet various criteria. These have 
changed with time, reflecting U.S. economic and foreign policy 
priorities. However, the GSP does not currently include 
environmental criteria. Now is the time to correct that 
omission, and the environmental community looks forward to 
working with this committee and Congress to include meaningful 
environmental language to our GSP system.
    This hearing could not be more well timed. In just a few 
weeks, world leaders will gather in Copenhagen to address the 
critical issues of climate change. A quick snapshot of the 
state of the global environment tells a sobering story. We are 
facing a collision of crises ranging from alarming rates of 
biodiversity loss, deforestation, vanishing fresh water 
supplies, and pervasive chemical pollution. Sadly, it is in the 
developing world that is at risk for suffering the greatest 
harm for these environmental threats.
    Climate change is also an economic development issue since 
it is projected to reduce gross domestic product by up to 10 
percent in the developing world. Conversely, sound 
environmental policies can lead to sound economic growth. A 
prime example of this can be seen in Africa, where an agreement 
to reduce or end commercial trade in elephants allowed 
populations that were crashing towards disappearance to rebound 
to healthy levels.
    This action cut off huge amounts of corrupt payment that 
weakened governments throughout sub-Saharan Africa, helped to 
simplify and improve enforcement activities, protected the 
broader ecosystems, and paved the way for massive increases in 
tourism, revenue, and assisted local employment. Tanzania's 
2008 tourism income, for example, was over $1 billion, and is 
centered on the wildlife in its national parts.
    As detailed in my written testimony, we believe that there 
are two central components that must be addressed in a revised 
GSP. The first is the inclusion of meaningful environmental 
standards. The second focuses on the process and implementation 
of these.
    On the substantive end, it is important to make clear that 
there is no environmental equivalent to the core labor 
standards found in the ILO. Thus, ratification and 
implementation of critical multilateral environmental 
agreements, also known as MEAs, can be used as a benchmark. 
MEAs aim to protect the very fabric of the planet's ecology and 
address different dimensions of the environmental challenges we 
face, ranging from climate change and protection of the ozone 
layer to protecting endangered species.
    While some are regional in scope, many are global 
agreements that are signed by a majority of countries, 
including our GSP partners, and a revised GSP should 
demonstrate the expectation that countries live up to their MEA 
obligations as well as effectively enforce their domestic 
environmental laws and regulations. However, even the best 
intended provisions will have little impact if there is not 
also a clear process around implementation.
    We believe a number of improvements can be made to the 
current petition system, making it more accessible and 
transparent. Specifically these include allowing for more 
frequent opportunities for the submission of petitions, 
establishing clear timelines for the review and investigation 
process, and accepting both country and sector-based petitions.
    Including environmental criteria in the GSP is not intended 
to lead to the exclusion of beneficiary countries, but rather 
improve environmental conditions while still helping to expand 
trade. A phase-in period should be established during which 
countries bring their actions into accordance with the 
environmental standards. This transition phase should include 
capacity building, technical support, and financial assistance. 
Least developed countries should be allowed more time to come 
into compliance.
    On the question of resources needed to enable countries to 
meet these obligations, we believe it is important to look at a 
variety of possibilities in addition to any direct assistance 
from the United States. A number of the major MEAs, for 
example, do offer financial mechanisms as well as technical 
assistance and capacity building. In the American Clean Energy 
and Security Act, there are funds set aside for developing 
countries to adapt and mitigate the impacts of climate change, 
and working with other countries with GSP programs, such as 
those found in Europe, also offers opportunities to more 
effectively coordinate on the multilateral level.
    It is time to revisit our policies to create an avenue for 
increasing environmental protection, and thus, sustainable 
development. We look forward to working with this committee and 
Congress to include meaningful environmental criteria in the 
GSP.
    Thank you.
    [The prepared statement of Ms. Rangnes follows:]
    Prepared Statement of Margrete Strand Rangnes, Director, Labor, 
              Workers' Rights & Trade Program, Sierra Club
    Chairman Levin and Members of the Subcommittee, on behalf of the 
Sierra Club's 1.3 million members and supporters, I want to thank you 
for this opportunity to address the critical issue of environment, 
development and trade in the context of the review of U.S. trade 
preference policy.
    My name is Margrete Strand Rangnes, and I direct the Sierra Club's 
Responsible Trade Program. I am here primarily as a representative of 
the Sierra Club, but I am also speaking on behalf of a broad array of 
organizations, including the Center for Biological Diversity, the 
Center for International Environmental Law, Defenders of Wildlife, 
Demos, Environmental Investigation Agency and Friends of the Earth.
    The United States has long granted trade preferences to developing 
countries that meet various criteria. These criteria, which are 
stipulated by the Generalized System of Preferences (GSP), have changed 
with time--reflecting U.S. economic and foreign policy priorities. 
While the criteria include non-support for terrorism, enforcement of 
intellectual property rights, and respect for internationally 
recognized worker rights, the GSP does not include environmental 
criteria. With the current U.S. GSP program set to expire at the end of 
December and environmental issues taking on growing urgency, now is the 
time to correct that omission.
    Trade policy is one means by which the United States expresses its 
values and advances both foreign and domestic policy goals. The 
evolution of the GSP criteria has reflected this and revising the GSP 
to include environmental criteria would be consistent with the law's 
history and intent. The stated purpose of the GSP is to promote 
economic growth in the developing world. Environmental sustainability 
underlies economic growth and development. As we discuss U.S. trade 
preference policy, the world faces the interwoven challenges of 
alleviating extreme poverty and protecting our natural environment. 
Achieving these goals in unison is the only way to improve human 
development while ensuring the continued prosperity of future 
generations.
    This hearing could not be more well-timed; in just a few weeks, 
world leaders will gather in Copenhagen, Denmark, to address the 
critical issue of global climate change. The science is clear. Climate 
change is happening, and those hit hardest are those who are least 
responsible for causing it--the developing world. The question now is 
whether we can avoid planetary tipping points that once crossed, will 
lead to catastrophic impacts for all nations. While there is no silver 
bullet that offers a simple and immediate fix to these challenges, 
amending the GSP to include environmental criteria is one of the tools 
we have available. Preserving the planet's ecosystem is becoming a 
primary domestic and global priority for the United States. Trade 
policies must be updated to reflect this goal.
    Positive changes are already under way. Recent bilateral U.S. trade 
agreements have included progressively stronger environmental 
provisions, and I want to thank Chairman Levin and members of this 
committee for their leadership on this front. The intent of these 
provisions is not simply to strengthen environmental protections by 
U.S. trading partners, but also to reassure American citizens and 
workers that these partners are not cutting ecological corners as they 
compete with the United States. Moreover, such provisions provide 
important leverage for environmentalists in developing countries as 
they fight entrenched interests. However, since bilateral trade 
agreements cover only a limited number of countries, including 
environmental criteria in the GSP would greatly reinforce the ways that 
trade policy supports the U.S.'s environmental goals.
A Backdrop of Environmental Crises
    A quick snapshot of the state of the global environment tells a 
rather grim story of which climate change is only one aspect. We are 
facing a collision of environmental crises ranging from alarming rates 
of biodiversity loss, to vanishing fresh water supplies, to pervasive 
chemical pollution. The combination of these crises has led scientists 
to warn of planetary boundaries that, if passed, will cause irrevocable 
harm to both the developing and developed world. Sadly, today it is the 
developing world that is at risk for suffering the greatest harm.
    The world water crisis is one of the largest public health issues 
of our time. According to the World Health Organization, nearly 1.1 
billion people (roughly 20 percent of the world's population) lack 
access to safe drinking water, which in turn is estimated to kill 
almost 4,500 children per day. In fact, the World Health Organization 
reports that out of the 2.2 million unsafe drinking water deaths in 
2004, 90 percent were children under the age of five, nearly all in the 
developing world. The current rate of species extinction is hundreds of 
times higher than the natural rate of extinction.\1\ If climate change 
continues unchecked, the Intergovernmental Panel on Climate Change 
predicts we are likely to lose another 30 percent of remaining species, 
primarily in tropical countries in the developing world. Finally, the 
World Resources Institute estimates that more than 80 percent of the 
Earth's natural forests have already been destroyed, a natural resource 
upon which the developing world is heavily dependent.
---------------------------------------------------------------------------
    \1\ United Nations Environmental Program, UNEP (2007): Geo-4. 
Global Environmental Outlook. Environment for Development.
---------------------------------------------------------------------------
    Climate change is also an economic development issue since it is 
projected to reduce gross domestic product by up to 10 percent in the 
developing world, greatly reducing the ability of countries to respond 
to these monumental challenges.\2\ In order to minimize the worst 
impacts of climate change, we must take action now. We must use all 
tools available to us, including the access to our markets we grant 
through preference programs and trade agreements.
---------------------------------------------------------------------------
    \2\ Nicholas Stern et al, Stern Review on the Economics of Climate 
Change: Summary for Policymakers (London: HM treasury, 2006), 9.
---------------------------------------------------------------------------
    A country example of how climate change and resulting environmental 
threats can impact development, can be found in the Niger Delta, which 
spans more than 20,000 square kilometers and is home to approximately 
25 percent of Nigeria's population, diverse plant and animal species, 
and natural resources.\3\ Niger Delta inhabitants rely heavily on 
economic activities closely tied to the vitality of their environment, 
such as fishing, farming and trading.\4\ These resources and economic 
activities are threatened by a myriad of impacts caused by rising sea 
levels brought on by climate change. It is projected that nearly 15,000 
square kilometers of land in the Niger Delta could be lost over the 
course of the next century if there is a one meter rise in sea 
level.\5\ Rising sea levels are already causing coastal flooding and 
erosion, damage to coastal vegetation such as mangroves, and saltwater 
intrusion of freshwater water supplies, all of which could lead to the 
forceful relocation of nearly 80 percent of the Niger Delta 
population.\6\
---------------------------------------------------------------------------
    \3\ Etiosa Uyigue, ``Climate Change in the Niger Delta,'' Community 
Research and Development Center, 1.
    \4\ Ibid.
    \5\ Ibid.
    \6\ Ibid.
---------------------------------------------------------------------------
    Uganda provides another example of the impacts of climate change 
and development. Uganda relies heavily on the water resources of Lake 
Victoria's basin; however, lake levels have decreased due to high 
evaporation rates.\7\ Of particular concern is the impact of low water 
levels on hydroelectric power in Uganda, which is ``central to the 
economic prosperity'' of the country.\8\ Uganda recently invested over 
$260 million in the Nalubale/Owen Falls and Kiira Dams to produce 
upwards of 380 MW of electricity; however, low water levels have led to 
power generation far short of predicted numbers--a mere 120 MW.\9\ Such 
low levels of power generation have resulted in a situation where the 
dams cannot provide enough electricity for domestic and industrial 
needs, leading to increased electricity costs for a population of 
people where more than 37 percent live below the poverty line.\10\ 
These higher costs have ``restrict[ed] access'' and ``affect[ed] the 
well being and economic activities'' of the Ugandan people.\11\
---------------------------------------------------------------------------
    \7\ Dickens Kamugisha, ``Lake Victoria Extinction and Human 
Vulnerability in Uganda,'' Africa Institute for Energy.
    \8\ Ibid., 1.
    \9\ Ibid., 2.
    \10\ Ibid., 3-4.
    \11\ Ibid., 4.
---------------------------------------------------------------------------
The Proposal for Including Environmental Provisions in GSP
Substantive Provisions
    In the absence of a set of internationally agreed upon 
environmental standards (akin to the internationally recognized worker 
rights standards currently included as a criterion in the U.S. GSP 
program), ratification and implementation of Multilateral Environmental 
Agreements (MEA) that the United States has also ratified and 
implemented can be used as a bench mark. While some MEAs are regional 
in scope, a number of global MEAs are signed by a majority of 
countries, including our GSP partners. MEAs aim to protect the very 
fabric of the planet's ecology and address different dimensions of our 
urgent environmental challenges; they deal with issues ranging from 
climate change and protection of the ozone layer to protection of 
endangered species.
    An example of a critical MEA can be seen in the Convention on 
International Trade in Endangered Species of Wild Fauna and Flora 
(CITES), which aims to ensure that international trade in specimens of 
wild animals and plants does not threaten their survival.
    Wildlife trade is a booming global activity which generates 
significant income for numerous local, regional, national and 
international communities. Illegal wildlife poaching and resultant 
international trade is also a massive and destructive activity, ranking 
behind only drug and human trafficking and ahead of arms in annual 
value.\12\ Recognition that the extinction of valuable plant and animal 
species from the wild would represent both a natural tragedy and an 
economic travesty--both for resource-dependent communities and 
commercial traders--led to the ratification of CITES. The Convention 
requires countries to base decisions about commercial trade in such 
species on rational, scientific criteria, and creates mechanisms so 
that countries struggling to reduce trafficking and poaching crimes 
receive support from their trading partners. Implementation of CITES 
requirements on a national level requires strengthened natural resource 
and enforcement institutions.
---------------------------------------------------------------------------
    \12\ Neme, Laurel. 2009. Animal Investigators. Scribner.
---------------------------------------------------------------------------
    A prime example of CITES' positive impact on development in poor 
nations can be seen in Africa, where the international community's 
agreement through CITES to reduce or end commercial trade in elephants 
(1989) allowed populations that were crashing towards disappearance 
from over-hunting for ivory to rebound to healthy levels today. This 
action, within a short time, cut off huge amounts of corrupt payment 
that weakened governments throughout sub-Saharan Africa; helped to 
simplify and improve enforcement activities; protected the broader 
ecosystems around elephant populations, and paved the way for massive 
increases in tourism revenue and associated local employment. 
Tanzania's 2008 tourism income, for example, was over $1 billion 
dollars, and is centered on the wildlife in its national parks.\13\
---------------------------------------------------------------------------
    \13\ ``Tanzania tourism revenue to hit $1,35 billion next year.'' 
Reuters, 22 June 2008.
---------------------------------------------------------------------------
    Many countries ratify MEAs but do not successfully implement them. 
The Convention on International Trade in Endangered Species of Wild 
Fauna and Flora (CITES), which includes 175 countries and which aims to 
ensure that international trade in specimens of wild animals and plants 
does not threaten their survival, provides one example. The CITES 
``National Legislation Project'' shows that 51 of the countries 
currently in the GSP program are within Category 1 or 2, lacking or 
with inadequate national implementation. Including compliance with MEAs 
as an environmental criterion in the GSP will provide increased 
incentive for countries to implement MEAs. Furthermore, the United 
States should provide adequate technical and capacity building 
assistance as well as financial assistance for countries that are 
currently unable to bring themselves into compliance. This support can 
be effectively channeled through the institutional structures 
established in the MEAs, as well as through the capacity-building 
initiatives of the UN Environment Programme.
    Countries may have national laws that accomplish similar levels of 
protection as the MEAs. Essentially, beneficiary countries should 
either be a party to MEAs or have enacted domestic legislation that 
provides similar protections of the same form.
    Furthermore, the revised GSP statute should also require countries 
to effectively enforce their domestic environmental laws.
Process and Implementation
    The eligibility criteria of the GSP, such as in the area of labor 
standards, are currently enforced through a petition system. That is, 
any person can petition the United States government to remove the 
trade preferences granted to a Beneficiary Developing Country (BDC) 
based on its violation of GSP criteria. Every year, eligibility issues 
are reviewed by the Trade Policy Staff Committee (TPSC) during the 
Annual GSP Product and Country Eligibility Review. The TPSC is made up 
of trade practices experts from 19 different government agencies, 
including departments related to environmental standards (i.e. the 
Council on Environmental Quality, Department of Agriculture, Department 
of Energy, and Environmental Protection Agency). The inclusion of these 
departments as members of the TPSC means that it is in a good position 
to judge the relevance of potential environmental petitions, and 
adequately assess the eligibility of countries in this area.
    A number of improvements can further enhance the petition process, 
making it more accessible and transparent. There should be more 
frequent opportunities for the submission of petitions, rather than in 
limited filing windows as is currently the case. Furthermore, clear 
timelines should be established for the review and investigation 
processes. Another important reform is the acceptance of both country 
and sector-based petitions. That is, environmental standards that are 
being broken in one sector should not necessarily mean that the entire 
country loses its GSP privileges. Limitation or suspension of GSP 
privileges should be applicable by sector as well as by country. 
Finally, countries found in violation of environmental criteria should 
have the opportunity to develop a National Plan of Action rather than 
suffer the loss of preferences. All final decisions should be in 
writing and be made public.
    Including environmental standards in the GSP Program, and thus 
bringing MEAs into the petition system will help to promote and enforce 
compliance with those agreements by empowering a range of actors to 
draw attention to compliance failures. This is especially helpful for 
countries that may need additional outside assistance in enforcing 
their environmental laws. Often, there is desire to comply with these 
agreements, but limited capacity to do so. The United States should 
work with countries that are named in petitions to establish National 
Plans of Action and help bring them into compliance with the GSP 
criteria.
What will happen to countries that are currently granted GSP 
        preferences but do not meet the new environmental standards?
    The objective of preference programs is to expand trade and enhance 
development. Thus, including environmental criteria in the GSP is not 
intended to lead to the exclusion of beneficiary countries from 
preferential treatment. Rather, eligibility criteria are meant as a way 
to help ensure that expanded trade can actually promote sustainable 
development, instead of provoking a race to the bottom through weak and 
unenforced labor and environmental standards. The ultimate aim of these 
new standards is to help improve environmental conditions in developing 
countries while still helping them to expand trade.
    A phase-in period should be established during which countries that 
received GSP benefits prior to the revised environmental criteria going 
into effect would be allowed a set period of time during which they 
must bring their actions into accordance with those standards. This 
transition phase should include capacity building, technical support 
and financial assistance.
    Least developed countries should be allowed more time to come into 
compliance with the new standards. Failure to comply with the 
environmental criteria will be examined on a case by case basis. The 
United States (through the TPSC) should work with these countries to 
develop National Plans of Action, and provide financial assistance if 
necessary to assist in reaching environmental standards. LDCs that work 
with the United States to develop these National Plans of Action and 
then work to implement them should continue to be granted GSP 
preferences.
How will developing countries meet the costs associated with compliance 
        with environmental standards?
    The initial phase-in period should be accompanied by adequate 
technical and capacity building assistance, as well as financial 
assistance for countries that are unable to bring themselves into 
compliance with the new environmental criteria.
    Furthermore, a number of the major multilateral environmental 
agreements are supported by financial mechanisms through the agreement 
themselves. That is, developing countries are afforded financial 
assistance to meet compliance standards when they sign/ratify the 
treaty itself. For example, as part of the Montreal Protocol, a 
Multilateral Fund was set up to assist developing countries whose 
annual per capita consumption and production of ozone depleting 
substances (ODS) is less than 0.3 kg to comply with the control 
measures of the Protocol. Currently, 146 of the 194 Parties to the 
Montreal Protocol meet these criteria. The fund is financed by 49 
industrialized countries (including some countries with economies in 
transition).\14\ The Global Environmental Facility (GEF) provides 
funding for developing nations to meet their obligations under the 
Stockholm Convention, Convention and Biological Diversity, Cartagena 
Protocol on Biosafety and the UN Framework on Climate Change 
Convention.\15\ CITES largely relies on funding from governments, 
international agencies and the private sector, but generally does not 
provide substantial assistance for developing nations.
---------------------------------------------------------------------------
    \14\ Multilateral Fund for the Implementation of the Montreal 
Protocol.
    \15\ Multilateral Fund for the Implementation of the Montreal 
Protocol.
---------------------------------------------------------------------------
    Countries that make reasonable strides towards compliance but 
cannot realistically be expected to meet the environmental standards 
without additional financial assistance (beyond that which is provided 
through the individual agreement), should be provided a grace period 
during which they will be given provisional preferential treatment.
Coordination with Other GSP Granting Nations
    The United States should not be alone in requiring environmental 
standards to be met as a condition for GSP eligibility. A multilateral 
effort would not only be much more effective, but it would also send a 
strong message that maintaining the integrity of the environment is a 
vital component of development and needs to be more adequately 
addressed. There are currently 13 national GSP schemes in place 
according to the UNCTAD secretariat. The following countries grant GSP 
preferences: Australia, Belarus, Bulgaria, Canada, Estonia, the 
European Union, Japan, New Zealand, Norway, the Russian Federation, 
Switzerland, Turkey and the United States of America. Only the European 
Union's GSP + program currently include environmental criteria.
Conclusion
    The U.S. GSP is set to expire on December 31, 2009. This means that 
unless Congress passes legislation to renew it, the U.S. Customs and 
Border Protection will begin to collect duties on imports from GSP 
countries on January 1, 2010. Ideally, Congress would renew the GSP 
program with these additional environmental standards before the 
legislation expires at the end of this year. However, more often than 
not the GSP has been allowed to expire and then is later renewed 
retroactively. This places developing countries at a huge financial 
disadvantage, especially in light of the current economic downturn. If 
the GSP is allowed to expire, BDCs will be forced to pay customs duties 
on exports to the United States starting January 1, 2010. Although 
these funds would be returned retroactively when the program is 
ultimately renewed, this places a large financial burden on firms in 
these poor countries. Uncertainty about the renewal of GSP can have the 
effect of discouraging its use because it makes sourcing plans 
uncertain and potentially costly. Furthermore, while exporters may be 
reimbursed for the duties accrued, American consumers are not 
reimbursed for the higher costs of imported goods.
    It is time to revisit U.S. trade preference policy to create an 
avenue for increasing environmental protection and thus sustainable 
development. The climate change crisis has highlighted the need for the 
international community to work together on environmental issues; this 
coordination must extend into the trade arena. This moment of crisis 
provides an opportunity to rethink patterns of growth, ways of 
measuring progress, and the means to build more resilient systems. 
Environmental sustainability underpins economic growth and development. 
If development is to be sustainable, economy, society and the 
environment must be interconnected in ways which are mutually 
reinforcing.
    We look forward to working with this Committee and the U.S. 
Congress to include meaningful and binding environmental criteria in 
U.S. trade preference policy.

                                 

    Chairman LEVIN. Thank you very much.
    Mr. Yager.

      STATEMENT OF LOREN YAGER, DIRECTOR, U.S. GOVERNMENT 
  ACCOUNTABILITY OFFICE (GAO), INTERNATIONAL AFFAIRS AND TRADE

    Mr. YAGER. Mr. Chairman, ranking member Brady, and Members 
of the Subcommittee, I am pleased to appear in front of the 
subcommittee again, this time to report on our work on U.S. 
trade preference programs.
    GAO has completed three in-depth studies of U.S. preference 
programs for the Committee on Ways and Means and the Finance 
Committee and we are involved in an additional study at this 
time. The Committee has already heard testimony from many 
experts today, so let me summarize just a few key points from 
my written statement.
    Mr. Chairman, the opening statements for the hearing, the 
testimony from members sponsoring legislation, the government 
and private sector officials all demonstrate that the design of 
preference programs is a difficult balancing act.
    If you make the programs more generous for some groups, you 
often make them more difficult for others. We outlined a couple 
of these key tradeoffs in our earlier report. And let me go 
through these very briefly. One example is that the programs 
are designed to offer duty-free access to the U.S. market, but 
only to the extent that they do not harm U.S. industries. As a 
result, the programs exclude certain products from duty-free 
status, including some that preference countries are capable of 
producing and exporting successfully.
    A second trade-off involves deciding which developing 
countries can enjoy preferential benefits. For example, 
legislation has been proposed to provide Bangladesh and 
Cambodia access to preferential benefits for their apparel 
exports to the United States. On the other hand, as we've heard 
today, the African private sector spokesman and other experts 
on the AGOA program caution that giving preferential access to 
Bangladesh and Cambodia for apparel might endanger the apparel 
export industry that has grown up under that program.
    This same trade-off involves decisions regarding the 
graduation of countries or products from the program. Although 
the intent of country and product graduation is to provide 
greater benefits to poor countries, we repeatedly heard 
concerns that China, rather than less developed nations, would 
be most likely to gain U.S. imports, as a result of a 
beneficiary's loss of preferences.
    Policy makers face a third trade-off in setting the 
duration of preferential benefits and authorizing legislation. 
Preference beneficiaries and U.S. businesses that import from 
them agree that longer and more predictable periods for program 
benefits are desirable, while others point out that periodic 
program expirations can be useful as leverage.
    Members of Congress have recognized this trade-off with 
respect to Africa. Congress renewed AGOA's general provisions 
until 2015 to provide an incentive for long-term investment. 
While in ATPA, where there are concerns about responses from 
Ecuador, Congress has shortened the renewal period to six 
months to maintain and retain that leverage.
    Mr. Chairman, I have also outlined a number of 
recommendations to improve preference programs, both in my 
written statement and in GAO's earlier reports. I would be 
happy to summarize those in the question and answer period, but 
at this time let me conclude my oral statement and allow the 
subcommittee to engage in questions and answers. Thank you, Mr. 
Chairman.
    [The statement of Mr. Yager follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman LEVIN. Well, thank you. Dr. Yager, I think maybe 
it was well that you went last, in this sense: I do think you 
lay out the various facets that have to be considered as we 
look at this issue. And I do think today's hearing has had a 
basically constructive atmosphere to it, and a recognition 
that, as we endeavor to expand trade, there really is a need to 
consider various ingredients, and to really try to shape its 
course. And you can't simply let it proceed, willy nilly.
    So, let me just encourage, for example, Ms. Rangnes, I know 
that you have begun to work on environmental issues. And your 
statement acknowledges that there isn't a standard like the ILO 
labor standard, which lays out five or four, depending on how 
you define it, criteria that have some historical development 
to them.
    And what you suggest really somewhat reflects the way the 
environmental issues were confronted in the U.S.-Peru free 
trade agreement where, in the end, the standard was MEAs plus 
something else. And, as we know, in the issue of reforestation 
or deforestation, there are some very additional and strong 
provisions. And so, I think coming especially with this last 
panel, is a recognition that we all have to very actively dig 
in and have a lot of discussion and dialogue as we make 
decisions.
    Those factors include, for example, length. And if we are 
not going to reform these provisions in the next six weeks, I 
think we will have to face issues, for example, of length of 
continuation of benefits. So, some of the factors mentioned 
relate not only to a longer term reform, if we cannot do it in 
the short term, but also as to what we do in the short term.
    And I would like to, Mr. Brady, encourage us to have--as I 
think the staff has commenced--a lot of discussion about how we 
proceed. And, if possible, to have these discussions go on 
between the House and the Senate. Because, otherwise, we could 
be faced with passing legislation here which could get hung up 
in the Senate. And I think the preferable course, since we face 
some deadlines here, some important deadlines, if we could, 
find some common basis for action involving both the majority 
and minority in the House, and the majority in the Senate and 
the White House.
    Now, I acknowledge that's a tall order on anything. But I 
think it's worth a try. I think it's worth a try. So, let me 
leave it at that, and ask Mr. Brady if he would like to 
inquire.
    Mr. BRADY. Chairman, again, thank you for holding this 
hearing. These have been very informative panels on a number of 
issues. Thank you. You all brought something different to the 
table. Let me just ask some quick questions.
    Mr. Love, the reason you--the sourcing from Colombia 
plummeted from 60 million units to 1 or 2 was what?
    Mr. LOVE. Really, the unpredictability of what lay ahead. 
We try to engage with strategic players over the long term, and 
that--we were not able to continue those relationships in 
Colombia because of the economic impact due to that 
uncertainty. So we revisited our sourcing strategy on that 
basis.
    Mr. BRADY. Got it. So stability, predictability is the key 
factor.
    Mr. LOVE. Yes. You know, cost is a big factor in supply 
chain sourcing. But predictability and reliability are the key 
factors, you know. Your product doesn't show up on time, it has 
a pretty significant economic impact.
    Mr. BRADY. Thanks, Mr. Love. Dr. Yager, I agree with your 
recommendation that we ought to have systemic regular oversight 
over the preference programs. But is--are you recommending that 
we collapse these preference programs into a unified approach?
    Mr. YAGER. Ranking Member Mr. Brady, it's not necessarily 
the case that you have to combine the programs in order to have 
a well-aligned review process. And I think one of the options 
would be to ensure that all of the countries within the five 
different preference programs do get reviewed on a fairly 
regular basis.
    The situation that exists right now is that, within certain 
regional programs like the AGOA program, there is a very 
regular review process on an annual basis. On the other hand, 
within the GSP program--which admittedly has a much larger 
number of participants--; about 131--the review process is not 
regular. And, in fact, there was a 17-year period between 
overall GSP reviews.
    So, I think one of the recommendations that we made had to 
do with the frequency and the regularity of the review process, 
moving closer to a situation where there is a guaranteed review 
for all countries. And I think that could be combined with, or 
it could be separate from the petition-driven process, which 
has also been an issue today.
    Mr. BRADY. Thank you. Mr. Reinsch, you made a number of 
points about unifying and simplifying. Have you taken a 
position, has the council taken a position on Mr. McDermott's 
bill at this point? Or are you still looking at it?
    Mr. REINSCH. I understand that he is on the verge of 
introducing----
    Mr. BRADY. I am sorry, yes, but----
    Mr. REINSCH [continuing]. A version. I believe they are 
giving us material on it this afternoon. So I can't answer your 
question now, but I probably can answer it tomorrow morning.
    Mr. BRADY. Great, thanks. Ms. Broadbent, welcome back. Glad 
you have you here.
    Obviously, preference programs, for many of us, are a 
starting point, you know, and a way to start that process of 
transition ultimately to a full partnered free trade agreement. 
A legitimate question is, during the preference program, what 
is America receiving for our market access?
    And when it comes to eligibility criteria, can you cite 
examples where that has prompted policy changes within that 
host country?
    Ms. BROADBENT. In general, it is my view that the 
eligibility criteria in GSP acts to incentivize better policies 
in developing countries. To pick out a few examples:--improved 
labor rights in Swaziland, Liberia, and Uganda, and 
intellectual property rights improvements in Brazil, Ukraine, 
Kazakhstan, and Pakistan.
    There are really good success stories and not many cases 
where petitioners are frustrated with USTR. I think that USTR 
is viewed as responsive to problems raised by petitioners, and 
has been able to move the ball forward in several of these 
countries, based on the leverage of the conditions in GSP.
    Liberia, for example, is a big success that sticks in my 
mind. In 2006, President Ellen Sirleaf was able to make enough 
progress in coming into compliance with GSP conditions that GSP 
was restored to Liberia after many years of not having GSP. She 
received GSP benefits based on a willingness to invite the ILO 
in to work with them to figure out how Liberia could establish 
an environment in which unions could organize.
    Mr. BRADY. Great, thank you. I really mean it, this is a 
very informative panel, all across the board. Thank you, Mr. 
Chairman.
    Chairman LEVIN. Mr. Doggett.
    Mr. DOGGETT. Thank you, Mr. Chairman. Mr. Vogt, what type 
of problems have you experienced in filing petitions at USTR?
    Mr. VOGT. Actually, I've written a law review article on 
this, so I can send that along to your office.
    Mr. DOGGETT. I would appreciate getting that.
    Mr. VOGT. It's looking at--that period as a 20-year review 
as a use of the GSP petition process.
    Part of the problem is that if you file a complaint with 
the USTR, there is no criteria articulated as to what they use 
to determine whether to accept a complaint or not. When 
decisions are made, there is no written rationale, so you have 
no idea why that particular petition has been accepted or 
rejected.
    Mr. DOGGETT. So you could go months without even knowing 
whether the petition you filed was being reviewed?
    Mr. VOGT. Years, in some cases. So, I mean, that's part of 
it.
    Sometimes petitions are actually accepted. There could be 
informal conversations between the U.S. government and the 
foreign government. No real kind of dialogue with the 
petitioners. That, too, can drag on for years without any 
demonstration of meaningful progress on the issues that have 
been raised in the complaint.
    Mr. DOGGETT. Let me ask you specifically about the Uzbek 
child labor case. I find it difficult to justify why we would 
grant any preference to one of the most thuggish governments in 
the entire world. But since we do, what happened with that 
case?
    Mr. VOGT. Right--about two years ago, the International 
Labor Rights Forum filed a petition with regard to Uzbek 
cotton. That's the case in which the government, as a state 
policy, is forcing children to leave school for months at a 
time to pick cotton, some of which is exported to the United 
States. That petition was accepted, but it has been under 
review for a couple of years now.
    I know there is a vigorous interagency discussion on this 
petition. But on the merits, on the labor merits, I mean there 
is no question. And I don't think anybody is questioning 
whether the allegations in the complaint are true or not. In 
fact, you know, the Uzbek Government, in a couple of 
opportunities, refused to even show up at the hearings on----
    Mr. DOGGETT. So when USTR had a hearing, the Uzbeks didn't 
even show up to offer any rationale at all for their use of 
child labor?
    Mr. VOGT. Right, right.
    Mr. DOGGETT. And how long has that case been pending over 
there?
    Mr. VOGT. I think at least a couple of years.
    Mr. DOGGETT. Thank you. I will look forward to reading your 
law review article.
    And I would like to ask Ms. Rangnes a couple of questions. 
This morning you heard Mr. Reif respond to me that he felt that 
the GSP requirements on labor standards had led to changes in 
the laws in several African countries, and the provisions on 
intellectual property had led to changes in the law in several 
Asian countries.
    What are we losing out on? What is the effect of totally 
disregarding the need to do the same thing for environmental 
protection, as you have advocated?
    Ms. RANGNES. Well, I think an example here could be seen in 
the connection between trade and illegally harvested timber and 
wood products. That is--deforestation contributes 20 percent of 
global greenhouse gas emissions. There is very little 
regulatory framework to stem the import of illegally harvested 
wood.
    Under GSP programs we are importing a fair amount of wood 
and timber products from countries like Brazil, from Indonesia, 
very high rates of deforestation. Much of that suspected also 
to be illegally harvested. It's hard to put an exact number on 
the illegal logging.
    And so, if you had any criteria in the GSP to enforce 
forestry laws, enforce compliance with MEAs, for example, you 
could use it as a way to then petition and make sure that those 
laws are upheld. We often find that there are good laws on the 
books that are not being enforced. We know it's a develop 
issue. The World Bank estimates that developing countries are 
losing some $15 billion annually in revenue because of illegal 
logging.
    So I think that's a really concrete example. We try to 
address that as a term and noted in the Peru FTA, looking very 
specifically at a trade-related issue. So, that would be one 
example of how we could see those provisions being used.
    Mr. DOGGETT. And I know you mentioned the very critical 
matter of climate change. And I share your commitment to 
addressing global warming. But just to be clear with reference 
to any renewal of the GSP regime, climate change is really not 
directly a factor there, because we don't really have a 
multilateral environmental agreement dealing with that. Maybe 
some day before the planet burns up.
    But to look at modest change that might be made without 
slowing down the renewal of GSP, what about just the modest 
step of requiring countries to do what they have already 
committed to do, with reference to the enforcement of their 
environmental laws, as we did in Peru, and perhaps enumerating 
some of the major environmental multi-lateral agreements that 
they have either signed on to, or the majority of the world 
has, like the trade and endangered species, which is a real 
serious problem in a number of the African and Asian countries 
that benefit from GSP.
    Ms. RANGNES. Absolutely. And when I listed the group of 
organizations that are working on these kinds of proposals, 
that is the type of thing that we would like to be able to come 
back to this committee with, and work out some language that 
would incorporate both a reference to the MEAs, and to 
obligations that countries have already signed on to.
    One hundred and seventy-five countries around the world 
have signed the Convention on International Trade in Endangered 
Species, for example. And so having an expectation that those 
obligations are being met, as well as enforcing domestic and 
environmental law, that is what this broader coalition of 
environmental groups are working on to develop for this 
process.
    Mr. DOGGETT. And then, finally, mention was made this 
morning, ``Well, if you add too many requirements here, we will 
get way behind our trading competitors.'' I believe you note in 
your written testimony that, actually, the European Union 
already has some environmental criteria for its own GSP 
program.
    Ms. RANGNES. They have included in what they call as a GSP 
Plus, in terms of giving--for countries going above and beyond 
their basic program, which is another way of looking at these 
questions, as well, and, you know, rewarding sustainability 
policies, as well.
    You could do that, for example, under--in logging, and look 
at certified timber, and giving that preference, for example. 
There is many different options that I think you should--that 
this committee and that--we want to be working with this 
committee in thinking through and developing.
    Mr. DOGGETT. Thank you very much. Thank you, Mr. Chairman.
    Chairman LEVIN. Mr. Doggett, we can look to the Europeans 
on that. I wish they would look to us on some other things. Mr. 
Davis?
    Mr. DAVIS. Thank you. Since Mr. Doggett decided to give the 
introduction for my remarks, for my comments this morning, I 
will just pick right up on that point.
    I would probably disagree with the European statements of 
their principles versus what they actually do. You can walk 
through the francophone countries in western Africa and watch 
EU policies in perfect harmony there, as they steal contracts 
from--or have contracts stolen from other lower-priced bidders.
    There is an interesting commerce that takes place. The 
United States actually upholds a vastly higher standard in 
terms of Foreign and Corrupt Practices Act, and things like 
that, that make many of the discussions on standards that we're 
having here seem rather mute. I've seen that firsthand.
    And I think that we play ourselves again right back into 
that question of creating double standards by having too many. 
It's no different than dealing with a federal bureaucracy for 
somebody who is running a manufacturing business. You can end 
up complying with one bureaucracy's regulations and then 
automatically place yourself in violation of another standard.
    And this is not to say that this discussion is not very 
important, that we don't want to be good stewards. But I am 
very concerned about the left and right hand not knowing what 
the other is doing. And we're seeing the potential for that in 
this discussion.
    You know, my case in point, when Mr. Reinsch made the 
comment that Ecuador is moving away from this standard right 
here, you know, I might suggest, you know, language the panel 
wouldn't use, but perhaps we're seeing sort of this retrograde 
Socialist movement take place that--obviously, people have a 
right in a sovereign nation to do what they want to do. They 
can make that choice. But we don't have to underwrite that.
    But at the same time, I come back to my comments on 
Colombia this morning, who I personally witnessed, in a 
generation, go through dramatic and remarkable changes, moving 
hugely in the right direction. Are there labor concerns there? 
Perhaps there are, depending on the standard we want to apply. 
We could say that here, in the United States. We could say that 
in many countries in the world.
    But at what point do we say, ``Okay, we're not going to 
move you to the next step in the preference program,'' assuming 
that's to lift us up. And the whole aspect of this is to move 
us towards a place of harmonizing our economies so that we can 
work effectively together.
    My question is, don't we actually create a situation where 
we create a default double standard? We punish those, 
potentially, who might be--it might be politically helpful for 
us to do, like Colombia, who is at vastly greater risk than 
simply a question of labor preferences, frankly, when they've 
made these huge strides in the right direction.
    We have a legitimate and very real national security threat 
in the northern half of South America right now that is 
progressively growing. And, as this spreads, if we abandon 
those who have shown good intent, who have moved in the right 
direction, tell me how we're not going to be creating that 
double standard and punishing the folks who want to be allied 
with us?
    I had the chiefs of staff of a number of South American 
countries personally tell me--not Colombia's, I might add--that 
their biggest strategic concern, from an economic policy, was 
not understanding why the U.S. wouldn't approve the Colombia 
Free Trade Agreement, because of their concern of what all of 
that means, in terms of second and third order effects. And I 
don't think that's a Democrat or Republican issue. But I think 
looking at it beyond our individual silos of interest, you 
know, I have some concern.
    And I would throw it open to anybody on the panel to answer 
that question. I mean, it creates a legitimate moral dilemma, I 
believe. What Ecuador is doing is unconscionable. They are 
violating all possible contracts for investment, and I don't 
think it's a good place to invest, based on what we're seeing. 
Colombia has moved in the right way. Their own labor 
organizations, in fact, have asked us for passage of this 
agreement, but we're not moving on.
    I know it's not--Chairman, I understand that we're talking 
about preferences. But I really want to frame this in that 
bigger picture, that we don't over-complicate this at the next 
step.
    Mr. VOGT. I will take a shot at that. I mean, we can have 
perhaps a debate on the Colombia Free Trade Agreement and the 
labor standards. I don't want to go into that at the moment.
    But I do think it is not overburdening the preference 
programs to have meaningful labor rights standards included. 
Because, from our point of view, having labor standards, the 
ILO core minimum standards, is essential if these programs are 
to have a development effect. I mean, just opening up 
preferences could mean that there is a flow of----
    Mr. DAVIS. Let me--I know I'm running out of time here. I 
just need to ask you a question.
    Mr. VOGT. Yes, yes.
    Mr. DAVIS. Would you agree with me that the European--in 
terms of the European Union aspects of standards in Africa with 
labor standards, and the agreements that both of us know that 
they have----
    Mr. VOGT. Right.
    Mr. DAVIS [continuing]. With many countries there, do they 
hold as high a standard as the United States does in actual 
operation? Are you actually seeing the operation of their 
businesses over there to see that?
    Mr. VOGT. I don't have experience----
    Mr. DAVIS. I can tell you they don't. And that's my big 
concern here, is there is a double standard between--we can't 
lift the Europeans up--and I agree with you. We should have a 
legitimate aspect of social justice. I think it's something 
that's missed in many of the messages that we convey. But I'm 
concerned that we can hurt the people that we say that we're 
trying to help by creating a situation where it's not tenable 
to do business in the long run.
    Chairman LEVIN. Well, your time is up. If somebody wants to 
answer Mr. Davis, I didn't take five minutes, and I would like 
us to end with a sense of common purpose.
    I don't think it's a double standard to say that because 
another country has a lower standard than we do, that we have a 
double standard. There are lots of double standards in the 
world. And the question is what standard we should build into 
our trade agreements. And what's built into the trade 
agreements that we have in recent times enacted are the basic 
ILO standards. And if one reads the State Department documents 
themselves, they indicate some of the ways in which Colombia 
falls short in terms of labor standards.
    We will discuss Colombia some other time. I think we need 
to be careful. The only issue is not violence. But we don't 
kill labor leaders and workers in this country.
    Mr. DAVIS. Mr. Chairman, could I clarify my remarks 
briefly? Not so much on Colombia.
    Chairman LEVIN. Okay.
    Mr. DAVIS. Let me put this in a context of not dealing with 
violence. We know that it's dropped dramatically, and that's a 
good thing. It may not--we may have different standards to what 
that is. It's never right, if a person has a crime committed 
against him.
    I want to put this more in a regulatory context, from the 
perspective of economic entities and countries and businesses 
that are investing with each other. And one would hope that, 
eventually, we would be able to invest both ways, and be even 
more effectively integrated.
    Just in America, if we go from state to state--and I think 
Mr. Love could probably confirm this--OSHA is not the best 
loved organization that's out there in the manufacturing world. 
And I'm not talking about safety standards. Over half of the 
regulations in OSHA that can be used to shut down a business 
have nothing to do with safety whatsoever, but their paperwork 
compliance measures.
    And my biggest concern is, as we address this, I think the 
preferences are very important. I think that any time we can 
revisit and scrub regulations to make them more relevant, more 
proactive, I'm all there on that, and will work with you on any 
way possible. It's simply that I don't think that we add value 
necessarily if we take it so far that it gets very complicated, 
and then suddenly it becomes a matter of political preference, 
as opposed to clear and simple objective criteria.
    Chairman LEVIN. All right. Mr. Blumenauer is here. I don't 
think the issues relating to Colombia are basically issues of 
political preference. They are issues of standards, not 
political preference. What has motivated people on this 
committee is not political preference. And there can be 
legitimate differences of opinion about the implementation of 
standards, but I think we won't make much progress if we simply 
write off the other person's point of view as political 
preference. I don't claim that your positions are basically 
positions of political preference. I don't think Mr. Brady has 
ever heard me say that.
    Mr. Blumenauer has been very patient. You want to join in? 
It's your--no, Ms. Sanchez. That is right, it is your turn. I'm 
sorry.
    Mr. BLUMENAUER. I will be a little more patient.
    Chairman LEVIN. No, no. We started the other way around the 
last time, and so I skipped over. But Ms. Sanchez?
    Ms. SANCHEZ. And before I even launch into questions, just 
preference with I have certainly a perspective to add on the 
Colombian debate, having visited down there and met with labor 
union leaders down there that tends to contradict some of what 
the other opinions on this dais are. And--but I will reserve 
that debate for another day.
    I want to start with Mr. Vogt. In your written testimony 
you provided some really great detail about the limited filing 
period with which to file petitions with USTR, noting 
specifically that the petition windows for the various programs 
are not coordinated, nor are they fixed, meaning that the 
petition window can and does often change from year to year, 
and that, in 2003, the petition window was never, in fact, even 
opened. Is that----
    Mr. VOGT. Right, right.
    Ms. SANCHEZ. Having sort of an arbitrary window of filing--
in some cases, one that's not even open from time to time--has 
your experience confirmed that that sort of is a big deterrent 
towards even trying to file petitions?
    Mr. VOGT. It's--it can be a problem. I mean, I think we 
don't have--where it can become an issue is that you may have a 
petition window opening up in June of one year. You have about 
a month to file a petition. You could have a major labor rights 
violation happen in October. Then there is nothing formal you 
can do about it until you loop around to June of the following 
year.
    Ms. SANCHEZ. The following year.
    Mr. VOGT. But obviously, we would raise it with the State 
Department, with the Department of Labor, and try to address it 
in informal means.
    But, you know, there are examples where countries have, you 
know, wholesale suspended labor rights for some crisis or 
another, a major strike is put down, you know, some egregious 
violation, and there is simply no meaningful way to address it, 
using the preference lever until, sometimes, months after the 
fact.
    Ms. SANCHEZ. When petitions are rejected, are reasons 
generally given for the rejection of those petitions? Or can 
they be rejected and then you never even really know why?
    Mr. VOGT. Yes, there is a--you get an email from USTR with 
a list of petitions that have been accepted for that cycle. 
That's it. So, you--if you call up and talk to the labor office 
at USTR you sometimes may get some rationale. But it's nothing 
systematized.
    Or sometimes you will get a rationale that makes absolutely 
no sense. You know, a few years back a petition was filed 
against both El Salvador and Guatemala around 2003, 2004, 
during the CAFTA debates. And I was told, ``Well, you know, we 
just can't take two petitions from Central America, so we're 
going to just--we're not going to take El Salvador this year.'' 
I mean, there is nothing in the petition that was----
    Ms. SANCHEZ. Was deficient?
    Mr. VOGT. Yes.
    Ms. SANCHEZ. They are just----
    Mr. VOGT. Right. It's like, ``Well, we are going to do just 
one Central American one this year.''
    Ms. SANCHEZ. Right. So, I mean, would you say that sort of 
the crazy time lines for even--well, the fact that most of the 
review is petition-driven, to some extent I think probably 
limits the number of violations that are actually dealt with, 
not to mention the fact that there is not really any 
transparency, in terms of rejection of petitions.
    I mean, do you get the sense that because the rules are so 
restrictive and there is no transparency that there were 
probably hundreds, if not thousands of violations that occur 
that the USTR doesn't know about, or doesn't even want to know 
about?
    Mr. VOGT. I mean, I--obviously, we can wait that period of 
time and get a referral back to violations over the previous 
year or previous years, and that often happens.
    I think the real problem is that, with the absence of 
transparency, that it creates an environment where you have 
total discretion to decide whether you're going to accept a 
complaint. If you accept it, what you're going to do. And, 
without communication with the petitioners, with workers in the 
relevant countries on a regular basis, you really have no idea 
what's going on until you get to the email from USTR saying, 
``We accepted your petition,'' or, ``We've accepted it, we've 
had a hearing, and we've decided not to take any action this 
year.''
    Ms. SANCHEZ. Okay. Ms. Broadbent--and this is sort of in 
another direction, but much has been mentioned about Ecuador. 
But in determining the factors that Congress should consider 
when we consider whether or not to extend trade preferences, do 
you think that a country's refusal to dismiss a private lawsuit 
that is currently pending in civil court should be one of the 
factors that we look at in determining whether or not a country 
is worthy of extension of trade preferences?
    Ms. BROADBENT. I'm not sure that I can address that, per 
se. I was responding in my testimony to the President's review 
of what was going on in Ecuador, and just my sense of a pretty 
long list of investment disputes that are going on there with 
the Government--of Ecuador.
    Ms. SANCHEZ. I understand there are investment disputes.
    Ms. BROADBENT. Yes.
    Ms. SANCHEZ. But I am asking a very specific----
    Ms. BROADBENT. Yes.
    Ms. SANCHEZ [continuing]. Question about private lawsuits 
pending in civil courts, and whether or not those should be a 
factor in determining whether or not trade preferences should 
be extended for a particular country.
    Ms. BROADBENT. Your question is? Could you just say it--I'm 
sorry, I'm not----
    Ms. SANCHEZ. Sure. Should a particular government, their 
refusal to dismiss or quash a private lawsuit that's currently 
pending in civil court, should that be a factor to determine 
whether or not that country's trade preferences should be 
extended? Should Congress consider that? Is that relevant 
information for Congress?
    Ms. BROADBENT. I think it depends on the specific case. 
And, you know, all information ought to be looked at that is 
relevant to the dispute.
    Ms. SANCHEZ. But a private civil case that the government 
is not involved in?
    Ms. BROADBENT. Yes, I just don't really want to go much 
farther than that. I don't really----
    Ms. SANCHEZ. Have an opinion on it?
    Ms. BROADBENT [continuing]. Have a view at this point, yes.
    Ms. SANCHEZ. Okay. Sorry to hear that, because it strikes 
me as innately absurd that we would try to punish a government 
for a civil lawsuit that is currently pending in court, where 
there has not been an outcome, and try to leverage trade 
preferences as a way to try to make that case go away. Call me 
crazy. I'm an attorney by training, and I think that the rule 
of law should exist, and that political efforts should not be 
made to undermine that.
    Very last question, again to Mr. Vogt. In your written 
testimony, you mentioned the possibility of adopting any U-
style GSP Plus policy. Could you describe how that system would 
help protect working families against unfair competition by 
countries that actively repress labor movements, while helping 
build up the least developed countries?
    Mr. VOGT. It is--I put the GSP Plus language in there as--I 
mean, it is--at this point we have no idea which country--I 
mean, how we're going to shape any future preference program, 
whether it will be a unified program, whether it will be duty 
free, which countries are in which category. But I think it is 
something that is worth considering, depending on which 
countries we're talking about, the level of market access, and 
whether that makes sense to create some sort of incentive 
benefit scheme like the European system.
    So, I'm not saying that it's a critical element of a 
preference program. But depending on how the market access and 
the constellation of countries line up, it could be something 
that could be considered.
    Obviously, I think with the EU program, they condition 
greater market access on having even more rigorous standards, 
ratification of all the core conventions, and effectively 
enforcing those. We include some ideas as to what could be kind 
of a high bar program for those countries that really want to 
go the extra mile, and really do right by workers----
    Ms. SANCHEZ. So, in essence, sort of a carrot to 
incentivize behavior----
    Mr. VOGT. Right.
    Ms. SANCHEZ. Versus a stick which, on an earlier panel, 
they said, ``Trade really shouldn't be used as a stick, we 
should try to provide incentives for the right kind of 
behavioral changes.''
    Mr. VOGT. Right. For those who have exemplary, you know, 
practices and laws on a range of issues, labor being one of 
those.
    Ms. SANCHEZ. Thank you. Thank you, Mr. Chairman.
    Chairman LEVIN. Mr. Blumenauer has the last word.
    Mr. BLUMENAUER. I hope not the last word, Mr. Chairman.
    Chairman LEVIN. Oh, you do.
    Mr. BLUMENAUER. I appreciate----
    Chairman LEVIN. It's most fitting.
    Mr. BLUMENAUER. I appreciate the opportunity to eavesdrop 
here a little bit towards the end. I apologize for having other 
responsibilities that took me away. I've got lots of 
interesting material to try and digest here.
    I would like to just go back to where--a point our friend, 
Mr. Doggett, mentioned in terms of the role that environmental, 
and particularly climate change, is going to play, going 
forward.
    I feel good about the time and energy we spent on the annex 
with the Peru Free Trade Agreement. I think it made a 
difference for that country. I also think that it broadened the 
support for the legislation, made it a better agreement, made 
it easier to move forward.
    Having spent a fair amount of time in recent years dealing 
with illegal logging, we finally got those provisions tucked 
into the farm bill. But it was interesting, watching as people 
dove into it, that it actually made a big difference, not just 
for the protection of indigenous people, protecting scarce 
environmental resources, but it did make a difference in terms 
of the rule of law, fighting corruption, and it made a big 
difference to American producers, who didn't have to have a 
depressed price and extended supply.
    I am curious about ideas going forward. And this is at the 
end of a long day, and you have been very patient. But I would 
posit for the committee members any offer for thoughts that 
they might want to supply to us at their leisure about ways 
that we can make a difference, moving forward.
    We have had some progress on a bilateral basis, what 
happens in a multi-lateral context. I am interested in the GSP 
Plus, in terms of how it relates specifically to environmental 
provisions. If any of you have a brief comment here, I would 
welcome it. But I would be very interested in your reflections 
at a later date about things that we should look at to be able 
to move forward.
    I appreciate--we don't want to make this hopelessly 
complex. I appreciate we want to be surgical. But it seems to 
me that this is an area that we have not given appropriate 
attention in the past. It has great potential for the 
challenges that we face.
    Some of these poor countries are at risk because of the 
exploitation of their environmental resources. One's heart just 
breaks about what's going on now in Madagascar, for instance.
    But getting a sense from you, going forward, I would be 
very interested in thoughts or observations you have. And, 
since my time has not yet expired, if there are any brief 
comments that any of you would wish to offer, as long as the 
chairman is willing to be patient, I would----
    Mr. YAGER. Yes, Mr. Blumenauer, I can make a couple of 
comments.
    One of the things we've found from the work that we have 
performed, both on preference programs and on FTAs, is that 
it's not just what's written into the program, but it's the 
level of involvement by U.S. agencies in following up on those 
programs. And I think that when we took a look at the 
preference programs, we did find some issues where there were 
significantly different programs, review structures, and 
transparency between one program and another.
    And I think one way to ensure that both the Congress and 
the public have a better chance to participate and be aware of 
the decisions that are being made is to take a look at the 
reporting process and the review process that's built into the 
different preference programs, and make the selections on how 
frequently those programs in individual countries need to be 
reviewed, what are the graduation rules, the components, 
whether there are rules of origin, and finally, a number of the 
review features having to do with determination for inclusion, 
whether it's a petition-based or a government review, and a 
large number of other, let's say, design features that should 
be considered in the more systematic review that I know will be 
going forward over the next years.
    Mr. BLUMENAUER. Ms. Rangnes.
    Ms. RANGNES. Yes. You know, on behalf of the environmental 
community, we do want to say thank you, because there is hardly 
a champion in Congress as you have been, in looking at the 
illegal logging issue, for example, the Lacey Act, and so 
forth.
    You know, what's clear is that there is no silver bullet 
for any of these problems that we're facing. This is one tool. 
We are trying to explore other ones. I think for us, you know, 
we want to make sure that we lift standards generally, in 
finding some language that does that. And I think then also 
looking at other ways than rewarding additional policies or 
initiatives, but look at the span of countries that enjoy GSP 
access, you're talking about such a high difference of 
development levels, as well.
    And so, we need to be mindful of that, and that's where 
perhaps a GSP Plus, or some sort of model, whether it is for 
certified timber products coming in, whether it's more access 
for clean energy products, you know, these kinds of things that 
we can think about that helps both foster development on the 
ground, as well as rewarding those practices.
    That being said, finding some baseline that applies for 
all, as we're trying to lift the standards, also makes sense. 
And that is, I think, the challenge that we're facing as we're 
trying to address some of these questions now.
    Mr. BLUMENAUER. Thank you. Thank you, Mr. Chairman. I would 
invite, at some point, if any of our other panelists have some 
thoughts, I would welcome just brief notes. I would appreciate 
it.
    Chairman LEVIN. Well, we are going to do, Mr. Blumenauer, 
exactly that. So I think your comments are really a fitting 
place to end this, I think, exceptional day.
    It is interesting how, when it comes to preference 
programs, there is a basic, I think, agreement that there need 
to be standards built into these preference agreements. There 
may be differences as to what they are, as to their extent, et 
cetera. But we start from that rather common place, which isn't 
always true in trade issues.
    So now, the challenge is for us to tackle how we proceed 
with these preference programs. And the environmental issue is 
a relatively new one that we very much are working on, and the 
staffs are talking about. And so, I would encourage all of you, 
regardless of your particular perspective, to join in on that 
and every other issue that we have talked about today.
    Because without--it's not for me to state anything 
definitively, this is going to be up to discussion on a 
bipartisan basis in the next days. We will face this issue of 
the deadline on two of these sets of preferences. And we are 
going to--I think there is agreement--have to do something.
    And so, we are going to face this question as to the 
timeline for extension and the timeline for reforms. And I 
think we will want more input on every issue that we have 
talked about today.
    So, we urge you to send us materials. They don't even have 
to be short.
    [Laughter.]
    Chairman LEVIN. And if you don't want them on the record, 
they won't be on the record.
    So, thank you so much for your patience. I think for you, 
Mr. Brady, and for me, you have been an exceptional panel, even 
more brilliant than you've been patient.
    So, thank you very much for coming. We are now adjourned.
    [Whereupon, at 4:48 p.m., the subcommittee was adjourned.]
    [Questions for the Record from Mr. Brady follow:]

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    [Submissions for the Record follow:]
                      Statement of VF Corporation
    VF Corporation appreciates this opportunity to submit comments for 
the record in conjunction with the November 17, 2009, Trade 
Subcommittee hearing on the Operation, Impact, and Future of the U.S. 
Preference Programs. As the Committee deliberates the many complex 
facets of reforming U.S. trade preference programs, we ask that in the 
immediate future the Committee support the renewal of the Andean Trade 
Preference Act (ATPA), which is set to expire on December 31. VF, like 
other U.S. companies that import products under the ATPA, cannot afford 
a lapse in benefits as we approach 2010. Specifically, we request that 
the Congress extend the program for eligible countries for at least two 
years. In particular, we hope that the Congress will not remove Peru 
from the ATPA program.
    VF Corporation is a global leader in lifestyle apparel with a 
diverse portfolio of jeanswear, outdoor, imagewear, sportswear and 
contemporary apparel brands. Our principal brands include 
Wrangler', Lee', Riders', The North 
Face', Vans', Reef', Eagle 
Creek', Eastpak', JanSport', 
Napapijri', Nautica', Kipling', John 
Varvatos', 7 For All Mankind', lucy', 
Splendid', Ella Moss', Majestic' and 
Red Kap'.
    We have also developed a special relationship with Colombia and the 
Andean Region since the beginning of ATPA. ATPA has been a successful 
economic partnership, not only for our company but for U.S. businesses 
in general and the people of the Andean region. The Andean region has 
become a steadily growing market for U.S. exports and almost 2 million 
jobs there depend on ATPA preferences. In fact, U.S. exports to the 
region have more than tripled since ATPA was expanded in 2002, and last 
year exports to the region totaled $31.6 billion.
    Our economic success has also translated into better quality jobs 
for workers abroad. All VF authorized factories are required to follow 
our Global Compliance Principles (GCP), whether they are operated by us 
directly or by our suppliers and vendors. Established in 1997 and 
consistent with internationally recognized labor standards, GCP 
requirements insure that work environments are safe and responsibly 
managed. In addition, we require that our owned facilities be certified 
by Worldwide Responsible Accredited Production (WRAP), an independent, 
non-profit organization dedicated to ethical manufacturing throughout 
the world.
    A long-term extension of at least two years for ATPA is absolutely 
necessary to ensure its continued success. Short-term extensions create 
a frustrating environment of extreme unpredictability for us and many 
other U.S. companies invested in the region or companies planning to 
start new operations. The current economic downturn, together with the 
uncertainty of trade preference extensions, has already brought down 
all trade indicators between the U.S. and the Andean region to 
worrisome levels. Faced with the uncertainty of continued trade 
benefits, some apparel production has shifted to Asia, and we expect 
this trend to increase significantly if ATPA is not renewed. As a 
result, U.S. cotton growers and U.S. textile workers are being deprived 
of valued customers for their products and much-needed jobs in the 
region are being lost.
    ATPA continues to be critical to our successful partnership with 
the Andean region; however, this preference program is only temporary 
and excludes some products and services. Further, unilateral 
preferences do not grant any benefits to U.S. products exported to 
beneficiary countries. The pending free trade agreement with Colombia, 
however, would provide permanent, reciprocal treatment for products 
traded between the United States and Colombia. We look forward to the 
eventual implementation of that agreement but will depend on ATPA to 
continue our trade flow within the Hemisphere before the FTA is in 
place.
    Due to the delay in the implementation of the Colombia FTA, we also 
request the U.S. Congress to continue including Peru as part of the 
ATPA program. Our company makes knitted products in Peru with non-
originating elastics, which are eligible for duty free under ATPA but 
not under the Peru FTA. Moreover, we need the ATPA accumulation 
provisions because we input Colombian yarn and fabrics for our products 
made in Peru. This same concern is shared by other U.S. companies doing 
business with the Andean region. In fact, almost 75 percent of Peru's 
apparel exports to the United States in the first eight months of this 
year entered duty-free under the regional yarn provision under ATPA. 
This trade may disappear if the program is allowed to lapse. Peru's 
inclusion in ATPA is needed until the Colombia FTA is passed.
Conclusion
    ATPA continues to be an important source of economic growth for the 
U.S. and the Andean region. Benefits of this program can only be 
maximized if businesses have stable and predictable rules of 
engagement. Implementing the Colombia FTA will be one way to ensure 
this. In the meantime, renewal and extension of ATPA for two more 
years, and the continuation of Peru as a member country, will help us 
maintain our successful business partnership with the Andean region.

            Sincerely,

                                                   Candace Cummings
  Vice President--Administration and General Counsel VF Corporation

                                 
           Statement of U.S. Preference Reform Working Group

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     Statement of African Cotton and Textiles Industries Federation
    The African Cotton and Textiles Industries Federation (ACTIF) 
appreciate the opportunity to submit the following comments to the 
House of Representatives Committee on Ways and Means Trade Subcommittee 
in connection with its November 17, 2009 hearing on U.S. trade 
preference programs, dealing in particular with the impact on the 
African Growth and Opportunity Act (AGOA).
    The world of textiles has changed dramatically with the expiry of 
the Multi Fiber Arrangement (MFA) and post safeguard measures and as 
such, re-alignment of the industry is inevitable. ACTIF members have 
been impacted negatively as can be observed in export sales decline of 
over 30% to-date and this decline continues to be envisaged. In 
consideration, ACTIF members feel the AGOA trade preference program 
needs to be reinforced to respond to these new trade realities.
Africa and AGOA
      AGOA's greatest success story has been the blossoming of 
African exports of apparel to the United States. Subsequent 
modifications to this trade arrangement, contained in the recently 
passed Africa Investment Incentive Act of 2006, together with future 
improvements, will maintain critical mass in the apparel industry, and 
encourage greater vertical integration, which is essential to the long-
term competitiveness of the African fibre-textile-apparel value chain 
in the post-MFA environment.
      AGOA significantly enhances and liberalizes U.S. market 
access for Sub-Saharan African countries; it offers tangible incentives 
for Sub-Saharan African countries to continue their efforts to open 
their economies and build free markets. It is designed to promote 
prosperity, develop economies, and ultimately create new markets for 
U.S. goods and services. It recognises that trade is an engine of 
economic growth, and through AGOA, it is helping to provide new 
opportunities for the people of Africa, and is helping to eliminate 
poverty.
      However, in light of the dramatic market changes since 
the end of the MFA, it is imperative that measures must be taken to 
avoid a setback to the objectives of AGOA, and a reversal of the 
positive economic transformations that have arisen so far out of the 
passage of AGOA. Equally important, it is critical that any changes to 
U.S. trade preferences for other countries and regions do not undermine 
AGOA further.

SSA Potential
    We also notice in the USTIC report (ITC-PUB 4078) that SSA has 
tremendous potential to develop cotton and cotton yarn, which could 
produce denim and mid- to-heavier weight fabric and circular knitted 
fabrics for woven/knitted apparels. These fabrics can be utilised by 
the SSA garment industry, for local, regional, or international export 
orders for denim, twill or poplin pants, work wear, industrial wear, 
and corporate wear, in 100% cotton or blended fabrics, or in knitted 
fabrics. The report has detailed the potential of each country, and 
challenges that have made it difficult to exploit this potential.
Challenges
    The biggest challenge for the SSA apparel and textile industry was 
post MFA. As the quotas were removed on the apparels from established 
and subsidized markets, which have similar or lower wages in most of 
the African countries, the competitiveness of SAA diminished by over 
22%. The initial impact of this was that many of the garment companies 
had been attracted to SSA by AGOA's DFQF, opted to move their 
production to Asian countries that provided lower production costs and 
subsidies for development of the textiles and garment sector.
    Over the last 4 years, the textiles and garment industries in SSA 
have been trying hard to survive. The exciting growth rate experienced 
in 2000-2004 has diminished in terms of export to U.S. markets
    The second biggest challenge, if enacted, is the DFQF U.S. market 
access provision to Asian LDCs; this would put the last nail in the 
coffin for the textile and garment industry in SSA. These Asian 
countries have had a developed and mostly integrated industry and 
sector over the last several decades. Unlike Sub Saharan Africa, 
Bangladesh and Cambodia do not need trade preferences to be 
competitive. Their apparel exports to the U.S. have grown significantly 
since the end of the MFA, whereas SSA's are declining sharply as shown 
in the table above. This decline would be amplified if the proposed 
DFQF were extended to Asian LDCs, leading to the total demise of the 
textile and garment industry in Africa, with the consequence being 
insurmountable negative economic and social impact. Bangladesh, for 
example, exported apparel worth US$10.1 billion in 2007 accounting for 
2.9% of the world's apparel exports, while Africa as a whole exported 
US$4.8 Billion accounting for 1.4% of the world's exports.
    The apparel industry today requires shorter lead times, and buyers 
are looking for those markets, which can deliver ``Just- in- time'' 
supply sources. The factories dependent on third country fabrics can 
only do replenishment orders or programming orders, which today are 
offered to the lowest bidders. Buyers are sourcing these apparels from 
the cheapest region like China, Vietnam, Cambodia, and Bangladesh, and 
SSA is hard pressed to compete on price. SSA needs to have its own 
supply sources of fabric and trims within the region, if not in the 
country, to overcome this handicap. In addition, the cost of the raw 
materials has to be competitive and quality should be of an 
international standard. This may not be possible in the near future, 
unless we have a booming apparel industry to create enough demand for 
investors to upgrade present textile and spinning facilities, and 
establish new ones, in order to provide the raw material at competitive 
prices and quality acceptable to international standards.
The present provision under AGOA
    a.  Third country fabric provision until September 2012.
    b.  AGOA valid until September 2013.

Proposed Modifications
    To rejuvenate and provide stimulus to the sector and to have a 
level playing field the Sub-Saharan Africa textile to apparel value 
chain requires:
1. Single Rule of Origin
    One single rule of origin for all AGOA eligible countries, to 
promote the development of regional value chain, integration, and 
sourcing; i.e. elimination of the distinction between LDCs and non-LDCs 
under AGOA.
2. AGOA on permanent relationship basis
    AGOA needs to be a more permanent relationship. This would create 
confidence for the investor to develop the depleted cotton and textile 
sector and at the same time, this will ensure certainty in the mind of 
the U.S. buyer.
3. Inclusion of Mill Fabrics
    The inclusion of textile mill products under AGOA to provide the 
much needed access to an extensive and much wider market, which in turn 
will encourage the development and expansion of the textile sector to 
reduce dependent on the third country fabric.
4. Third country fabric provision extension indefinitely
    Third country fabric provision needs to be extended indefinitely, 
but to encourage domestic/regional vertical integration, a new credit 
system be defined as mentioned hereunder item 5b--At present, the 
availability of fabrics and textiles for use within the SSA region is 
exceptionally limited, with only a few countries having limited 
backward linkages. The SSA region has actually seen a decrease in the 
number of textile operations/factories and a subsequent decrease in the 
availability of supply as the cost is not competitive with the supply 
source from Asia; and therefore garment manufacturers use third country 
fabric in order to meet the price demands of the Buyer. It has 
therefore been very difficult for the industry to develop its local or 
regional source. The provision of third country fabrics is necessary to 
keep the existing industry operational until such time that the local 
and regional supply source is developed to produce various types of 
fabrics for export with an acceptable quality at internationally 
competitive prices.
5. Increase Buyer Interest
    Buyer interest in sourcing apparel from the AGOA countries has 
decreased continuously since the expiry of the MFA, and even more 
sharply in recent times due to the world economic crisis. In order for 
AGOA to continue to be a success, instilling buyer interest in sourcing 
from AGOA is imperative. ACTIF supports amending AGOA so that those 
U.S. buyers who source from AGOA are rewarded with the opportunity to 
import apparel from other non-AGOA LDC countries duty free. We suggest 
as follows:

        a)  Fashioned after the ``Earned Import Allowance Programs'' 
        (EIAP), already in effect under CAFTA-DR and the Hope Act for 
        Haiti, the proposed EIAP for AGOA allows qualified U.S. 
        importers/buyers to earn duty credit by authorising duty-free 
        importation of a square metre equivalent (SME) of apparel from 
        non-AGOA LDCs for every importation of apparel from AGOA made 
        with third country fabric.
        b)  Furthermore, in order to encourage vertical integration of 
        the textile/apparel industry on the African continent, 
        qualified U.S. importers/buyers would double their earned 
        credit by importing apparel from AGOA using AGOA-origin fabric.

6. Encourage U.S. Investors
    ACTIF proposes that encouragement should be given to U.S. investors 
in J.V or Technical/Market Access partnerships, if they come to develop 
the existing cotton, textile, and apparel sector, which has tremendous 
potential in SSA. Interest in the CTA sector is not instilled due to 
limitation of finance and market access. Therefore, local investors are 
not investing unless they have some commitment for market access and 
assistance in technical and/or financial needs.
7. Trade remedies for unfair practices of competitors
    ACTIF further suggests that the U.S. should employ trade remedies 
to address unfair practices of competitors that may indirectly affect 
the competitiveness of SSA textile and apparel production, and prompt 
relevant discussions at the WTO. Options considered under this were to:

          Expand monitoring and enforcement actions regarding 
        export subsidies and other unfair trade practices related to 
        textile and apparel imports
          Apply pressure to deter Chinese and other Asian 
        countries, intellectual property violations related to African 
        ethnic textile designs

8. Exclude all other textile and apparel products from the DFQF 
        initiative
    ACTIF recommends that textile and apparel products should be 
excluded from the preference reform initiative in order to avoid 
undermining the infant textile and apparel industry in Africa, which 
has been developed in response to AGOA.
U.S. Government strategy for SSA
    Under the new Millennium Challenge Co-operation (MCC), U.S. 
Government has developed a strategy for SSA regional integration, which 
follows U.S. government suggestions and options considered under this 
issue area:

          Support regional economic communities to help enhance 
        the vertical integration and competitiveness of Cotton Textile 
        Apparel (CTA) Sector regional chains.
          Place a higher priority on support of regional 
        economic programmes in U.S. development programmes
          Place a higher priority on regional efforts under 
        U.S. development programmes, such as the African Global 
        Competitiveness Initiative and to encourage economic 
        integration
          Create incentives for countries to participate in 
        regional economic communities
          Support a general capital increase for the African 
        Development Bank
          Options to support regional integration stem from 
        recognition that each SSA country is unlikely, by itself, to 
        achieve full vertically integrated production with linkages 
        throughout the supply chain
          SSA countries must be able to work together to 
        develop an efficient, competitive textile and apparel industry

In Conclusion
    It is the considered opinion of ACTIF that:

          These modifications and proposed changes:

                  Are consistent with the original aims and 
                objectives of AGOA, and will enhance the continuing 
                benefits of trade that the U.S. currently has with 
                Africa
                  Will promote economic diversification and 
                sustainable development as an engine for poverty 
                alleviation
                  Will have a consequential positive impact on 
                the standards of living for many thousands of 
                households and for women in particular
                  Should maintain the critical mass necessary 
                in the apparel industry and provide an environment to 
                encourage and induce textile development
                  By including textile mill products under 
                AGOA, it will provide much needed access to an 
                extensive and much wider market, which in turn will 
                encourage the development and expansion of the textile 
                sector

        Failure to reinforce these provisions:

                  will call into question all of the goals of 
                AGOA, including the desire to alleviate poverty, create 
                employment and improve living standards
                  will inadvertently remove any possibilities 
                for industry growth
                  will doom any attempt to develop new 
                industries since such development must rely on 
                infrastructure and external economies created by these 
                activities, induced by AGOA
                  will discourage potential new investors from 
                risking funding, particularly in the capital intensive 
                textile sector, not to mention the unemployment, 
                discontent and unrest that will be created in the wake 
                of any failure

    Finally, we would like once again to thank U.S. Government for 
giving the Sub-Saharan Africa AGOA, it recognises that trade is an 
engine of economic growth and through AGOA; it is helping to provide 
new opportunities for the people of Africa and is helping to eliminate 
poverty.

Jaswinder (Jas) Bedi
Chairperson
                                 
                       Statement of Albaugh, Inc.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

              Letter from United Scientific Supplies, Inc.
December 1, 2009

The Honorable Sander M. Levin, Chairman House Ways and Means Committee
Subcommittee on Trade
1102 Longworth House Office Building
Washington, D.C. 20515

Re: Comments in Support of Continuation of U.S. Generalized System of 
    Preferences Program

Dear Chairman Levin,

    In accordance with the November 10, 2009 press release of the House 
Ways and Means Committee, we are submitting the following comments in 
support of extension of the Generalized System of Preferences (GSP) 
program for consideration by the Committee. We understand that on 
November 17, 2009, the Committee held a hearing to evaluate the 
operation and impact of the United States' preference program, as well 
as opportunities for improvement moving forward. As you are aware, the 
GSP program is currently scheduled to expire on December 31, 2009. We 
assert that if the GSP program were allowed to lapse as scheduled, it 
would place United Scientific Supplies, Inc., (``United Scientific'') 
and other U.S. manufacturers at a competitive disadvantage, increase 
costs of scientific equipment to schools and students, and undermine 
development efforts of foreign industries.
    Our company, United Scientific, started in 1984 as a family owned 
and operated business involved in the wholesaling of imported science 
education equipment to dealers who sell to primary, secondary, and 
higher education institutions throughout the United States. United 
Scientific has been in business about 20 years, and currently employs 
about 15 people. There are approximately 10 large, and more than 150 
smaller, U.S. dealers of scientific education supplies, with total 
industry sales of $300-400 million per year. Sales of supplies and 
equipment vary from year to year, depending on new science curricula 
adopted by states and budgetary constraints for public and private 
educational institutions.
    The founder of United Scientific began production of science 
education materials in India in the 1950s, and exporting to the United 
States and other markets in the 1970s. Import sourcing of science 
education products started at least 25 years ago and currently accounts 
for the vast majority of the products sold. This has enabled U.S. 
dealers to control product costs and assure that public schools can 
maintain access to replacement and updated science education equipment. 
Such articles include microscopes, balances, biology and chemistry 
products, physics apparatus, laboratory supplies such as beakers, 
cylinders, goggles, safety apparatus, thermometers, magnets, scales, 
stoppers, porcelain ware, bench meters, glassware, magnifiers, and 
other general lab supplies. The majority of the imported supplies are 
sourced from producing countries which benefit from GSP status.
    In addition to the developmental and trade policy reasons for the 
program, we note that expiration of the GSP program would impose 
significant new costs on science education programs and schools at all 
levels. Apart from the financial harm it might do to small, family-
owned companies like ours, the loss of GSP status would effectively 
impose significant new taxes on science studies across the country at a 
time of serious budget cuts, reductions-in-force, and elimination of 
even basic science programs. The country's school districts can ill-
afford such new burdens as states and counties struggle to maintain 
science studies and families struggle to pay for their children's 
education. The expiration of GSP would be tragically inconsistent with 
the legislation under consideration by Congress designed to promote 
education.
    For the above reasons, we strongly urge the Committee to introduce 
and pass legislation which would allow for continuation of the GSP 
program. Should you have any questions or require additional 
information, please contact the undersigned.

            Sincerely,

                                                     Brian F. Walsh

                                                 Matthew T. McGrath

Counsel to:

United Scientific Supplies, Inc.
                                 
          Statement of American Apparel & Footwear Association
    Thank you for providing this opportunity to submit a brief 
statement in connection with the Subcommittee's hearing on trade 
preference programs.
    By way of background, the American Apparel & Footwear Association 
(AAFA) is the national trade association of the U.S. apparel and 
footwear industries, and their suppliers. Our members make and market 
apparel and footwear around the world, including in many developing 
countries.
    The AAFA favors a long-term approach to expanding global trade like 
that envisioned in the current multilateral trade round (DOHA) of 
negotiations whereby all countries would lower their remaining tariff 
levels on manufactured goods. However, as an interim approach, we wish 
to stress our very strong support for maintaining, reforming, and 
expanding U.S. trade preference programs.
    U.S. companies, including many of our members, have, over the 
years, made sizeable investments and built key relationships centered 
on the intended rules and regulations envisioned in respective trade 
programs. The underpinning of those investments and partnerships are 
supported by the advantage of the duty free market access provided by 
these programs to produce products in the preference countries and sell 
them in the United States and throughout the world.\1\ In so doing, 
these companies have created thousands of jobs in developing countries 
and in the United States, assisted in poverty alleviation, stimulated 
economic growth in the United States and abroad, fostered political 
stability in many developing countries, and supported key U.S. 
bilateral partnerships.
---------------------------------------------------------------------------
    \1\ Similar programs of other developed countries provide 
comparable access to those developed country markets.
---------------------------------------------------------------------------
    As you know, our association has been intimately involved in the 
design, development and implementation of most U.S. trade preference 
programs in operation today. We have worked with the legislative and 
executive branch to help craft programs, and then worked with the 
implementing agencies, such as Customs and Border Protection (CBP) or 
the U.S. Commerce Department, to ensure companies understood how best 
to utilize and comply with the programs.
    Notwithstanding our support for U.S. trade preference programs, we 
believe a Congressional review and reform of these programs is long 
overdue. While the current system attempts to recognize unique market 
and manufacturing capabilities that can help drive U.S. exports and 
partnerships in respective regions, the result is a patchwork of 
programs that expire at different times, feature diverse and sometimes 
complex rules of origin, contain inconsistent product and country 
coverage, and rely upon inconsistent conditionality requirements. As a 
result, even though U.S. trade preference programs have been greatly 
expanded during the past 10 years, the utilization of these programs 
has dropped as the amount of apparel imported from countries that 
benefit from these programs has actually declined during that period. 
In turn, U.S. yarn and fabric exports--a requirement for the rule of 
origin for several of these preference programs--have also dropped in 
recent years to key markets in Central America, the Caribbean Basin, 
and the Andean region. For footwear, the situation is even worse 
because the trade preference programs that cover footwear do not even 
apply to many of those countries that produce shoes. Currently, less 
than 20 percent of all apparel and less than 2 percent of all footwear 
is imported into the United States from countries that have duty free 
status.\2\
---------------------------------------------------------------------------
    \2\ These numbers also include countries with which the U.S. has a 
Free Trade Agreement (FTA). Excluding FTAs, the percent is far smaller.
---------------------------------------------------------------------------
    This underutilization means missed opportunities for U.S. companies 
and their partners in the developing world.
    We look forward to working with this Committee and other 
stakeholders in Congress, the Executive Branch, the non-governmental 
organization (NGO) community, the private sector, and the developing 
world to craft a fresh approach to ensure greater use of these programs 
in the coming years. With that in mind, we would like to offer several 
suggestions.
    First, the duration of preference programs should be sufficiently 
long enough to provide predictability for the users to encourage long 
term trade and investment. Current programs are often authorized for a 
few months or a year or two. This time period is inadequate for the 
programs to generate long term sustained interest, especially because 
it takes so long for the implementation procedures (implementing 
regulations, entry procedures, etc) to be promulgated. These short 
durations negatively affect the ability of U.S. companies to export to, 
import from, or invest in preference beneficiary countries. If the 
programs are authorized for at least 10 years with predictable 
continuity at the conclusion of that 10 year period (we note the 
original Caribbean Basin Initiative (CBI) is permanent), companies are 
able to make long term investment and trade plans with knowledge of how 
the programs work, and without fear that these plans may be suddenly 
disrupted.\3\
---------------------------------------------------------------------------
    \3\ Moreover, preference programs with longer durations also make 
the conditionality aspects of the program more effective, significant, 
predictable, and practical to implement.
---------------------------------------------------------------------------
    Second, it is imperative that programs are implemented in a manner 
that encourages trade and investment to take place. Excessive paperwork 
and documentation, combined with complicated and restrictive rules of 
origin or burdensome conditionality requirements, often act as 
disincentives for the wide use of these programs. Delayed and 
inconsistent application of the regulations by CBP, even when Congress 
has articulated that the programs should be implemented in a trade 
conducive manner, has further eroded the use of these programs. We 
favor an approach that simplifies and harmonizes (where possible) these 
rules and ensures that complicated, subjective, and costly compliance 
schemes not undermine these programs. U.S. trade programs, including 
the system of preferences, should be designed to work together, rather 
than as separate programs.\4\ In concert with this reform, we would 
urge that CBP shift to an account approach, instead of a shipment-by-
shipment approach, to foster sustained development of and use of these 
programs.
---------------------------------------------------------------------------
    \4\ Under current rules, for example, inputs from one preference 
beneficiary or free trade agreement (FTA) partner country often end up 
disqualifying the finished products of another beneficiary or FTA 
partner country.
---------------------------------------------------------------------------
    Third, we urge that country and product coverage be expanded to 
create more opportunities than those that currently exist. Such an 
expansion would also ensure a more consistent application of preference 
programs, and would cover more of the developing world,\5\ in a manner 
comparable to what is provided by other developed countries. Such an 
expansion would also help ensure that U.S. companies are able to 
strengthen existing investments and take advantage of South-South trade 
flows, which are accounting for an increasing share of global trade. It 
would also ensure that developing countries are included for the 
products that are their chief exports. For example, even though 
Bangladesh and Cambodia have access to the U.S. market under the 
Generalized System of Preferences (GSP), neither of these countries 
have duty free access to the U.S. market for textiles or apparel. This 
is because the programs that provide duty free access for clothing are 
all based on regions--Africa, Central America and the Caribbean Basin 
and Andean region. Because Bangladesh and Cambodia, and about a dozen 
other countries, lie outside those regions, their apparel exports are 
excluded from preferential treatment even though apparel is among their 
top exports.
---------------------------------------------------------------------------
    \5\ Of course, we would strongly object to the inclusion of any 
preferences for countries, such as Burma, with whom we have an import 
ban.
---------------------------------------------------------------------------
    Fourth, we believe the Committee should explore how the preference 
programs interact with the system of Free Trade Agreements (FTAs)--
particularly those with developing countries--that the United States 
has negotiated. While a traditional view holds that countries graduate 
from trade preference programs once an FTA takes effect, we would urge 
the Committee to explore whether certain preferences can be left in 
place, at least as a transitional measure, with respect to those FTA 
partner countries. For some countries, such as Jordan, Mexico, and the 
Dominican Republic, preference programs and FTAs exist side by side. 
The Committee should also examine whether it makes sense to ensure that 
FTA partner countries have interim access to the U.S. market that is as 
preferable to that which is accorded to preference beneficiary 
countries. This would ensure that FTA partners, who negotiated 
permanent and reciprocal agreements with the United States, do not see 
their access eroded by countries that did not engage in such 
negotiations.
    Finally, preference reform should be accompanied by significant 
reforms in the areas of trade finance and capacity building. It is 
deeply problematic that U.S. trade and investment credit agencies--such 
as the ExIm Bank, the Overseas Private Investment Corporation (OPIC), 
and the Trade and Development Agency (TDA)--are not better aligned with 
U.S. trade preference or FTA policies. It is almost ten years since 
Congress approved duty free access for garments imported from Central 
America, yet these export credit agencies still find themselves 
restricted from offering their financial products and services in that 
region. Similarly, sustained economic development in sub-Saharan 
Africa, and many other parts of the developing world, will only gain 
momentum once the proper infrastructure and economic policies are in 
place. Proper funding for trade capacity building--whether in the form 
of capital improvements or training--is critical for this to occur.
    Over the past few years, AAFA has also been working with a 
coalition of business groups, non-governmental organizations, and other 
stakeholders to address preference reform issues. The product of those 
discussions so far, a white paper entitled, ``Consensus Recommendations 
for U.S. Preference Program Improvements,'' has also been submitted to 
the Committee. We look forward to working with this Committee and 
others in Congress, the Executive Branch, the non-governmental 
organization (NGO) community, the private sector, and the developing 
world to draw upon these recommendations and work toward greater use of 
these programs in the coming years.
                                 
         Statement of American Fiber Manufacturers Association
    Mr. Chairman, Members of the Subcommittee,
    These comments on the pending renewal of the Andean Trade 
Preference & Drug Eradication Act (ATPDEA) are submitted by the 
American Fiber Manufacturers Association (AFMA). AFMA is the U.S. 
national trade association representing the interests of domestic fiber 
manufacturers. We have strongly supported all free trade agreements and 
preferential trade arrangements deployed in the Americas, stretching 
back to the U.S.-Canada Free Trade Agreement, through NAFTA, all 
unilateral regional arrangements, and the recent FTAs with CAFTA-DR, 
Peru, Panama, and Colombia. We are convinced FTA expansion is the most 
effective U.S. trade policy available to maintain regional 
competitiveness.
    We reaffirm our commitment to this goal as ATPDEA stands for 
renewal. In particular, as noted below, we believe its renewal presents 
a significant opportunity to advance a consistent vision for 
hemispheric trade policies, as important to U.S. trade policy as it 
would be for American elastomeric fiber producers, their workers, and 
the communities where they operate.
    In our Association's member base this includes significant 
elastomeric manufacturing facilities in North Carolina (RadiciSpandex 
Corp.), Alabama (RadiciSpandex Corp.), and South Carolina (Asahi Kasei 
Spandex America). An additional major producer, INVISTA, subsidiary of 
privately owned Koch Industries of Wichita, Kansas, operates a major 
spandex plant in Waynesboro, Virginia.
    With that as background, AFMA offers the following comments for the 
Subcommittee's consideration:
1. The Andean Trade Preference Arrangement (ATPDEA) Should Be Renewed 
        As Soon As Possible To Avoid Disrupting Established Trade 
        Relationships
    This position is not just ours--- it has extraordinary support 
among U.S. textile sector producers and customers. Important trading 
patterns established and expanded in recent years are at risk if the 
needed renewal flounders.
    For the U.S. manufactured fiber industry, the Andean region holds 
growing commercial significance. Prompt renewal of the long-standing 
unilateral duty-free treatment that ATPDEA provides is a significant 
economic incentive for our customer base. Early enactment will help 
U.S. manufactured fiber producers sustain and strengthen market share 
in the region.
2. ATPDEA's De Minimis Rule for Textile Product Fiber Content Should Be 
        Made Consistent With Recently Negotiated U.S. Regional FTAs
    The expiring ATPDEA contains an outdated de minimis fiber content 
standard that conflicts with all recent regional FTAs negotiated by 
USTR. These include nine trading partners: the 6-country CAFTA-DR, 
Peru, Panama, and Colombia.
    Each of these negotiations took note of the fact that the de 
minimis approach employed in the earliest accords (notably NAFTA) was 
flawed regarding application of its 7% ``non-originating'' fiber 
exemption to elastomerics. For products employing them, elastomerics 
are their highest value, most innovative components, generally 
imparting their significant benefits at low content percentages. Thus, 
a 7% exemption excludes most elastomeric applications from the yarn-
forward origin rules that constitute the core textile sector equity in 
FTAs and other trade arrangements.
    All recent U.S. regional FTAs correct this by placing elastomeric 
fiber beyond the reach of their de minimis content exemptions. In 
tandem, the modified de minimis exemption is adjusted up to 10%. 
Accordingly, ATPDEA is a regional content rule outlier. Perpetuating 
its outdated de minimis structure and standard in its renewal stands in 
the way of consistent region-wide trade policy and administration.
    Use in ATPA's extension of an origin rule fully consistent with 
Peru's FTA would be a positive anticipation of an implemented U.S.-
Colombian FTA, since that pact also places elastomerics outside the de 
minimis authority. The pending U.S.-Colombia FTA and the U.S.-Peru FTA 
now in force have identical elastomeric fiber origination provisions*--
a version, as noted above, consistent with all recent regional U.S. 
FTAs.
3. Two-Country ATPDEA/Peru Trade Should Be Accommodated By Upgrading 
        ATPDEA to the Current Hemisphere De Minimis Standard_Not By 
        Revision of a Fully Implemented U.S./Peru FTA.
    Several business organizations have recommended including Peru 
within the authorities of a renewed ATPDEA to accommodate continuation 
of existing two-country trade. The shape of this trade needs 
verification to fully understand the challenge to be met. To the extent 
it exists for elastomeric products, AFMA recommends it be addressed by 
bringing ATPDEA's origin rules to the regional standard, and not by 
breaking open the integrity of an enacted, implemented free trade 
agreement to fit temporal renewal of a unilateral arrangement.

           ``9. Notwithstanding paragraph 8, a good containing 
        elastomeric yarns in the component of the good that determines 
        the tariff classification of the good shall be originating only 
        if such yarns are wholly formed in the territory of a Party.''

    AFMA believes bringing ATPDEA's de minimis alongside the other FTA 
accords in the region is the most rational and consistent trade policy. 
It directly would contribute to desirable regional trade rule unity 
while avoiding unnecessary damage to U.S. elastomeric fiber producers' 
established business activity in the area.
    Thank you for your attention to this important issue. We would be 
pleased to provide any additional information you desire.

Paul T. O'Day
President & Counsel
                                 
               Statement of the U.S. Chamber of Commerce
Tuesday, November 17, 2009

    The U.S. Chamber of Commerce welcomes the opportunity to present 
written testimony on the future of U.S. preference programs, including 
the Generalized System of Preferences, the Andean Trade Preference Act, 
and other current and possible programs. The Chamber is the world's 
largest business federation, representing more than three million 
businesses and organizations of every size, sector, and region.
Generalized System of Preferences
    The U.S. Generalized System of Preferences (GSP) program is a trade 
preference program that extends duty-free treatment to selected goods 
imported from more than 130 specified developing countries. Its purpose 
is to promote economic development in developing countries by expanding 
their trade with the United States. Congress established GSP in 1974, 
and legislation authorizing the program has been renewed on many 
occasions since then. The current program expires on December 31, 2009. 
In recent years, U.S. imports under GSP have regularly surpassed $30 
billion annually.
    In November 2006, the U.S. Chamber released a study entitled 
Estimated Impacts of the U.S. Generalized System of Preferences to U.S. 
Industry and Consumers. According to the study, GSP boosts the 
competitiveness of American manufacturers and lowers the cost of 
consumer goods for American families. The study found that GSP has 
become an important component of the competitiveness of American 
manufacturers and an integral part of sourcing for firms selling a 
range of consumer goods to American families.
    The study found that GSP helps keep U.S. manufacturers and their 
suppliers competitive. Approximately three-quarters of U.S. imports 
using GSP are raw materials, parts and components, or machinery and 
equipment used by U.S. companies to manufacture goods in the United 
States for domestic consumption or for export. Electrical equipment and 
parts and transportation vehicle parts are significant imports under 
GSP. The products coming in under GSP generally do not compete with 
U.S.-made goods in any significant way.
    The Chamber study also presented these findings:

        Sec.   American families also benefit from GSP. Finished 
        consumer goods sold by U.S. retailers account for about 25 
        percent of GSP imports. Relatively inexpensive jewelry was the 
        most significant item.
        Sec.   GSP is particularly important to U.S. small businesses, 
        many of which rely on the program's duty savings to compete 
        with much larger companies.
        Sec.   In addition, GSP imports support U.S. jobs. Moving GSP 
        imports from the docks to the retail shelves supported nearly 
        82,000 U.S. jobs in 2005, according to the Chamber's report.

Andean Trade Preference Act
    Since its enactment in 1991, the Andean Trade Preference Act (ATPA) 
has been an effective tool to generate trade, growth, and jobs among 
the beneficiary countries. Data from the U.S. International Trade 
Commission show that U.S. imports from the beneficiary countries have 
quadrupled from $5 billion in 1991 to $28.5 billion in 2008. 
Additionally, according to estimates issued by the governments of the 
four beneficiary countries--Colombia, Peru, Ecuador and Bolivia--ATPA 
and the industries it supports have led directly to the creation of 
approximately two million jobs in the region, with more than 75 percent 
of these jobs in Colombia and Peru.
    As a result, ATPA has been a singularly effective alternative 
development program in the Andean region. ATPA-related jobs tend to pay 
above-average wages and often serve as a gateway for workers to enter 
the formal sector, where they pay taxes and receive health care 
benefits. The benefits for society are considerable. ATPA provides 
local citizens with long-term alternatives to narcotics trafficking and 
illegal immigration.
    While much discussion of ATPA centers on the Andean countries, the 
program also benefits U.S. businesses by allowing them to import 
components and materials as well as labor-intensive consumer goods on a 
duty-free basis, enhancing their competitiveness and their ability to 
create jobs. For example, the cut flower industry in Colombia employs 
approximately 100,000 workers directly and an additional 90,000 
Colombians indirectly. However, an additional 225,000 U.S. jobs depend 
on imports of Colombian flowers, largely in the transportation, 
distribution, and retail industries. This is a good example of how ATPA 
provides American consumers with more choices at better prices for an 
array of products. Goods imported under the program generally do not 
compete directly with U.S. products.
    Since Congress first approved ATPA in 1991, the statute has 
included a number of eligibility criteria relating to fair treatment of 
U.S. companies and other priorities. For instance, the statute 
indicates that a country may not qualify as a beneficiary if its 
government expropriates property belonging to a U.S. citizen or 
corporation or if it takes steps to repudiate or nullify any existing 
contract or agreement with a U.S. citizen or corporation. The Chamber 
considers adherence to the rule of law, respect for private property 
and investment, and the sanctity of contract to be cornerstones of U.S. 
international commercial policy, and these conditions are entirely 
appropriate in the context of the ATPA program.
Colombia
    The Chamber offers unreserved and enthusiastic support for the 
extension of ATPA for Colombia pending entry-into-force of the 
critically needed U.S.-Colombia Trade Promotion Agreement. Colombia has 
consistently met eligibility criteria while benefiting from 
participation in ATPA.
    In the case of Colombia, the Chamber believes that ATPA has played 
a useful role in U.S. efforts to promote sustainable economic growth 
through trade expansion. ATPA-related job creation has helped the 
Colombian government isolate violent extremist groups, restore economic 
growth, and increase investment in education, health, and 
infrastructure.
    In a letter sent on October 27, 2009, to Senate Finance Committee 
Chairman Max Baucus (D-MT), Ranking Member Senator Charles Grassley (R-
IA), Ways and Means Committee Chairman Charles Rangel (D-NY) and 
Ranking Member Congressman Dave Camp (R-MI), dozens of U.S. textile and 
apparel companies and associations called for approval of the U.S.-
Colombia Trade Promotion Agreement as a way to end the uncertainty 
created through short-term extensions of ATPA. The letter noted that 
``imports of textile and apparel products from the Andean region 
dropped by more than 10 percent from 2007-2008 and have dipped another 
30 percent in the first eight months of this year.'' The letter goes on 
to add that ``U.S. textile exports to the region in 2008 were down over 
10 percent from 2006 and have fallen another 35 percent in just the 
first eight months of this year alone.''
    This decline reflects the commercial partnership between the U.S. 
textile and apparel industries, which supply fabric and other inputs, 
and businesses in Colombia. It suggests difficulties for America's 
500,000 textile and apparel workers as a critical foreign market ceases 
to purchase their products. Many analysts believe U.S. companies are 
likely to phase out their investments in Colombia and shift operations 
to Asia, undermining the gains the program has achieved over the years.
    The Chamber agrees emphatically that a more robust trade framework 
is needed to unleash the full benefits of trade and investment between 
the United States and Colombia. In particular, the pending U.S.-
Colombia Trade Promotion Agreement will provide far more extensive 
benefits to workers, farmers, consumers, and companies in both the 
United States and Colombia. However, it is imperative that Congress 
move swiftly to extend ATPA beyond December 31, 2009, to help avoid 
trade disruption and job losses pending congressional consideration of 
the agreement with Colombia. The Chamber urges Congress to continue 
this important program as it applies to Colombia.
Peru
    The U.S.-Peru Trade Promotion Agreement entered into force in early 
2009, leading most observers to conclude that Peru no longer needs ATPA 
benefits. However, due to shared production of some apparel products by 
Colombia and Peru, it is also important that ATPA be extended to Peru 
as such products would otherwise face steep U.S. tariffs, despite 
entry-into-force of the U.S.-Peru Trade Promotion Agreement. In fact, 
75 percent of all U.S. apparel imports from Peru in the first nine 
months of this year entered under the regional fabric provisions under 
the preference program, not the U.S.-Peru Trade Promotion Agreement.
Bolivia
    While successive administrations in Colombia and Peru significantly 
improved their compliance with the statute's eligibility criteria over 
the past decade, Bolivia has recently moved in the opposite direction. 
As a result, the U.S. administration ceased to provide these trade 
preference benefits to Bolivia.
    During the past three years, more than half a dozen of the largest 
business enterprises in Bolivia have been expropriated. Most of these 
firms are in the oil and gas sector, but the largest telecommunications 
company in the country was also expropriated. While U.S. companies and 
citizens were not involved in all of these cases, they were in some. 
With international companies' technical know-how and capital now 
largely absent, Bolivia's oil and gas production has fallen to the 
point that the country can no longer fulfill its contract to sell 
natural gas to Argentina. Indeed, production is barely sufficient for 
domestic consumption.
    In a referendum held January 25, 2009, Bolivian voters approved a 
new constitution. The new constitution may allow the government to 
assert greater state control over the economy, with articles that 
appear to forbid foreign companies from repatriating profits or 
resorting to international arbitration to resolve nationalization 
disputes (as permitted in the U.S.-Bolivia bilateral investment 
treaty).
Ecuador
    In recent years, questions have also been raised about Ecuador's 
compliance with the ATPA's eligibility criteria relating to the fair 
treatment of U.S. companies and counter-narcotics efforts. Respect for 
property and concession rights is at times absent, particularly in the 
oil and gas sectors. Notably, Ecuador's government in 2004 terminated a 
19-year-old contract with Ecuador's largest foreign investor, 
Occidental Petroleum Corporation, and expropriated the firm's assets in 
the country. Now being considered under international arbitration, this 
was one of the largest expropriations in the world in a generation.
    This is part of a pattern in which Ecuador's judicial system has 
failed to provide adequate protection from unlawful expropriations or 
provide investors and lenders with prompt, adequate, and effective 
compensation for expropriated property. In addition, U.S. citizens have 
had their assets seized because of judgments against their Ecuadorian 
partner in cases having no connection with the U.S. investor.
    An additional important problem facing U.S. companies operating in 
Ecuador is systemic weakness and susceptibility to political or 
economic pressures in the rule of law. The Ecuadorian judicial system 
is plagued by processing delays, unpredictable judgments in civil and 
commercial cases, inconsistent rulings, and limited access to the 
courts. Criminal complaints and arrest warrants against foreign company 
officials have been used to pressure companies involved in commercial 
disputes. There have been cases in which foreign company officials have 
been prevented by the court from leaving Ecuador due to pending claims 
against the company. Ecuadorians involved in business disputes can 
sometimes arrange for their opponents, including foreigners, to be 
jailed pending resolution of the dispute. The executive branch has used 
the media to insert itself in judicial disputes and has dissolved or 
reorganized judicial bodies to advance its goals, depriving judicial 
proceedings of transparency and integrity.
    Ecuador's actions have brought investment in the vital energy 
sector to a halt, and state-owned Petroecuador's production continues 
to decline. With oil and gas prices at historically high levels as late 
as the summer of 2008, Ecuador was nonetheless unable to increase 
investment in the hydrocarbon sector, in part because of legal 
uncertainties, highly unfavorable tax policies, environmental liability 
concerns, and lack of a coherent energy policy. Today, with prices much 
lower, the policy environment has not improved and has arguably 
deteriorated further.
Future of U.S. Preference Programs
    The Chamber applauds this Committee for taking a closer look at how 
our preference programs are working as well as ways to improve their 
effectiveness. Expanding coverage--in terms of product coverage, 
geography, and duration of benefits--is worth considering.
    In the case of GSP, the Chamber supports renewal preferably for a 
period measured in years rather than months. To their detriment, 
Chamber members have found that short-term renewals tend to disrupt 
existing commercial relationships and make the establishment of new 
ones more difficult.
    In addition, it is notable that most of the benefits described in 
the previously cited Chamber study on the economic impact of GSP arise 
from trade relationships with relatively advanced developing countries 
such as Brazil and India; consequently, the Chamber views their 
continued eligibility as particularly important to U.S. manufacturers 
and consumers. Enhancing trade preference benefits for the world's 
least developed countries should not come at the expense of American 
jobs, industrial competitiveness, or consumer welfare. The Chamber 
urges Congress to preserve these existing trade ties and extend the GSP 
program without eliminating the participation of the advanced 
developing countries.
    Beyond these longstanding issues, the Chamber has worked in recent 
months with leading business and non-governmental organizations in an 
effort to build a consensus on a unified, coherent trade preference 
program that can enhance their effectiveness as a development tool and 
build on their benefits for the United States. Such reforms would aim 
to ensure that these programs more effectively meet the development 
challenges of countries facing extreme poverty in ways that are 
consistent with U.S. economic needs, including the needs of our 
companies and workers.
    The Chamber looks forward to working with the various Members of 
Congress who have introduced legislation that would expand existing 
preference programs. For example, Congressmen Eliot Engel (D-NY) and 
Dan Burton (R-IN) have introduced H.R. 1837, the U.S.-Paraguay 
Partnership Act of 2009, which would add Paraguay to the list of ATPA 
beneficiary countries. The Chamber supports H.R. 1837, and its Senate 
companion bill S. 780, because it would further promote ATPA objectives 
of fostering economic development and promoting legitimate alternatives 
to narcotics production in South America.
    The Chamber is also supportive of efforts to create Reconstruction 
Opportunity Zones (ROZs) in Afghanistan and some areas of Pakistan. 
However, we are deeply concerned with the labor provisions included in 
H.R. 1886, the Pakistan Enduring Assistance and Cooperation Enhancement 
Act of 2009 (PEACE Act of 2009), which the House approved on June 11, 
2009. H.R. 1886 rejects longstanding eligibility provisions on labor 
rights employed in the GSP program, substituting instead the 
requirement that the countries comply with ``core labor standards'' and 
set up an International Labor Organization (ILO) monitoring program to 
ensure that producers comply with ``core labor standards.''
    Adopting such new and restrictive eligibility criteria in this 
legislation would be particularly harmful, as it would seriously 
complicate the ability of the ROZ program to attract investment in this 
region and thus generate new sources of employment. Particularly given 
the unique security issues in this region, this approach would 
undermine the primary goals of the legislation.
    The approach taken by S. 496, sponsored by Senator Maria Cantwell 
(D-WA), is by far a better solution for the inclusion of labor criteria 
in a preference program. It incorporates the criteria for determining 
eligibility, including with respect to the countries' commitments to 
internationally recognized labor rights, consistent with GSP and other 
preference programs that have been repeatedly reviewed and approved by 
Congress on a bipartisan basis. These criteria have been successfully 
employed by successive administrations to promote labor rights in 
numerous developing countries.
    As the Chamber and seven other business organizations explained in 
a June 22 letter to the Senate Finance Committee (appended), a 
successful ROZ program would also need to extend broader product 
coverage and extend to additional geographic areas in Pakistan than 
granted under these bills. Legislation that fails to do so, and that 
includes onerous and untested labor conditions, would be a hollow 
gesture that would do little or nothing to foster economic development 
in Afghanistan and Pakistan.
    Additionally, the Chamber supports the African Growth and 
Opportunity Act (AGOA), which expires in 2015. We urge the Committee to 
consider ways to improve AGOA, for example, by creating new incentives 
for U.S. importers to source apparel from Africa, by allowing them to 
receive a duty credit which can then be applied to products purchased 
from qualified non-African LDCs, and by expanding product coverage to 
include critical African agricultural products such as sugar, peanuts, 
cotton, and processed cocoa products. To help address Africa's capacity 
constraints, the Chamber supports efforts to build trade capacity in 
Africa with a focus on infrastructure development, elimination of non-
tariff barriers, and support for small and medium-sized enterprises. 
Trade capacity building should be pursued on a regional basis, 
encouraging deeper and faster regional integration--a stated goal of 
African nations and the United States.
    Finally, as noted in our discussion of Colombia's ATPA benefits, 
the American public has made clear its preference for fair trade based 
on reciprocal market openings. Bilateral and regional trade agreements 
can unleash growth and development in ways that unilateral trade 
preferences cannot. But while the United States pursues reciprocal 
trade accords, we should continue to secure the benefits of these 
longstanding preference programs.
Conclusion
    While a broader reform may have to wait, Congress must act swiftly 
to extend preference programs expiring on December 31. The Chamber 
supports extension of GSP, which has been an effective trade tool 
bolstering domestic manufacturing, expanding consumer choice, and 
promoting economic growth in developing countries. Allowing GSP to 
expire could lead to months of significant trade disruption. Not only 
will GSP beneficiary countries suffer losses of important export 
orders, but American companies that rely on lower-cost preference 
program inputs will see their costs escalate and their competitiveness 
decline.
    The Chamber offers unreserved and enthusiastic support for the 
extension of ATPA for Colombia pending entry-into-force of the 
critically needed U.S.-Colombia Trade Promotion Agreement. Due to 
shared production of some apparel products by Colombia and Peru, it is 
also important that ATPA be extended to Peru as such products would 
otherwise face steep U.S. tariffs, despite entry-into-force earlier 
this year of the U.S.-Peru Trade Promotion Agreement.
    Although citizens and companies in both the United States and 
beneficiary countries derive benefits from participation in ATPA, there 
are serious concerns about the continued deterioration in the basic 
rule of law occurring in Ecuador and Bolivia. The President's June 30, 
2009, report to Congress on Ecuador's and Bolivia's ATPA eligibility 
noted several issues of serious concern, as does the U.S. Department of 
State's 2009 Investment Climate Statements with respect to Ecuador and 
Bolivia. Other international reports continue to highlight similar 
problems.
    We urge Congress and the administration not to reward Bolivia and 
Ecuador through renewal of the ATPA. If Congress does extend the ATPA 
with respect to these countries, it should be a short, six-month 
extension and should provide ATPA benefits only to products from non-
state dominated sectors.
    Finally, we look forward to working with Congress in the months 
ahead to pursue measures to improve our preference programs. Doing so 
will not only benefit developing countries, but will also help U.S. 
companies and workers to remain competitive in the global economy.

Thank you.

American Apparel & Footwear Association (AAFA)

Fashion Accessories Shippers Association (FASA)

National Foreign Trade Council (NFTC)

National Retail Federation (NRF)

Retail Industry Leaders Association (RILA)

Travel Goods Association (TGA)

U.S. Association of Importers of Textiles and Apparel (USA-ITA)

                                 
                   United States Chamber of Commerce
June 22, 2009

Dear MEMBERS OF THE SENATE FINANCE COMMITTEE:

    We write to express our strong support for meaningful trade 
preferences for Afghanistan and Pakistan. However, we are deeply 
disappointed with H.R. 1886, the Pakistan Enduring Assistance and 
Cooperation Enhancement Act of 2009 (PEACE Act of 2009), which the 
House passed on June 11th to create Reconstruction Opportunity Zones 
(ROZ) along the Pakistan-Afghanistan border. When the Senate takes up 
this legislation, we strongly urge that the Senate start with S. 496, 
introduced by Senator Maria Cantwell, and expand and revise it in 
several areas to ensure that the ROZ program is not a hollow gesture to 
the people of Afghanistan and Pakistan.
    The ROZ program represents a critical opportunity for the United 
States to foster economic development and social stability in the 
region and to make good on the promise of a closer economic 
relationship with Pakistan and Afghanistan. As currently drafted in 
both the House and the Senate, however, the ROZ program represents only 
symbolic assistance for Pakistan and Afghanistan.
    Much has changed both politically and economically since the ROZ 
program was first crafted by the Bush Administration more than two 
years ago. Yet the pending legislation is essentially unchanged, 
gerrymandering coverage to match a China quota agreement that no longer 
exists, and blocking benefits for those products that Pakistan is best 
positioned to produce. The Congress should update the proposal to 
reflect the world today, where there are no quotas, Asian suppliers are 
in fierce competition for sales to the U.S. market and security 
conditions in the region have grown worse.
    For the ROZ initiative to be effective, duty-free treatment must be 
extended to all textile and apparel products, and especially to cotton 
trousers and shorts and cotton knit tops. These products are most 
likely to generate employment opportunities. Cotton knit shirts and 
cotton trousers are vitally important to Pakistan, yet these products 
face U.S. duties that average around 17 percent. Configuring the ROZ 
program to include these items will give Pakistan a fighting chance in 
this competitive industry. Moreover, U.S. producers are not at risk 
from apparel exports from Pakistan; it is the other Asian producers who 
compete with Pakistan. Cotton knit shirts and cotton trousers from 
Pakistan represent a mere 3.6 percent of total U.S. imports of these 
products.
    We also urge Congress to revisit the limited areas in Pakistan that 
are eligible to use the ROZ program. Limiting ROZs to extremely remote 
areas that are experiencing intense conflict and are not yet mature for 
industrial growth would only delay job creation. Therefore, we 
encourage you to consider expanding the geographic areas in Pakistan to 
include areas that are currently capable of production. All of 
Pakistan, not just the tribal areas on the Northwest Frontier, is being 
targeted by extremists.
    Another area of concern in S. 496 is the disclosure requirements. 
We agree that transshipment is a legitimate concern, and we support the 
effective and time-proven anti-transshipment provisions that exist in 
other trade preference programs like the African Growth and Opportunity 
Act (AGOA). However, S. 496 goes way beyond those provisions and 
requires extensive disclosure of sensitive and proprietary information. 
For example, the legislation requires the disclosure of the names of 
all owners, directors, officers, suppliers, and U.S. customers of ROZ 
entities. This raises significant proprietary information concerns 
because companies do not want to reveal their sourcing strategies to 
competitors.
    S. 496 also requires Pakistan and Afghanistan to compile a list of 
names and addresses of all participating entities. Such a list would 
surely become a target list for America's enemies in the region. S. 496 
incorporates key criteria for determining eligibility, including 
countries' commitments to internationally-recognized labor rights, 
consistent with the Generalized System of Preference (GSP) and other 
preference programs repeatedly reviewed and approved by Congress. 
Unlike S. 496, however, the House bill seeks to impose highly onerous 
labor criteria that would undermine the ability of this program to 
produce the much-needed economic growth in this region. The labor 
provisions in the House bill go far beyond the GSP program, are 
unworkable, particularly given the unique security considerations that 
will be encountered in the region, and will only serve as a further 
disincentive for companies to use this program. Therefore, we strongly 
urge that S. 496 be the model for any labor provisions included in the 
final legislation.
    Moreover, the pay-for mechanism in the House-passed bill would 
actually increase the cost of doing business in non-ROZ areas of 
Pakistan. This is contrary to the goal of bringing greater job creation 
to this critically important region, and would raise questions about 
possible conflict with World Trade Organization rules regarding most-
favored-nation treatment for those areas of Pakistan that are not 
eligible for ROZ investment. Penalizing one part of Pakistan to benefit 
another is a terrible precedent in a trade preference program.
    The United States has an important opportunity to send a tangible 
message to the people of Afghanistan and Pakistan with this initiative. 
We have a chance to create real employment that counters the 
recruitment efforts of extremist groups in both countries. But that is 
possible only if the product scope, geographic coverage, disclosure, 
labor, and pay-for provisions of the ROZ program reflect the realities 
in the region. We encourage you to make these important revisions so we 
can translate the U.S. vision into real economic development to support 
U.S. and regional stability.
    Thank you for your time and consideration in this matter.

            Sincerely,

                     American Apparel & Footwear Association (AAFA)

                    Fashion Accessories Shippers Association (FASA)

                              National Foreign Trade Council (NFTC)

                                   National Retail Federation (NRF)

                         Retail Industry Leaders Association (RILA)

                                     Travel Goods Association (TGA)

    U.S. Association of Importers of Textiles and Apparel (USA-ITA)

                                  United States Chamber of Commerce

                                 
                  Statement of American Sugar Alliance
    The American Sugar Alliance (ASA) appreciates the opportunity to 
submit these comments for the record of the House Ways and Means Trade 
Subcommittee Committee's November 17, 2009, hearing on U.S. trade 
preference programs, specifically on proposals to extend duty-free, 
quota-free treatment (DFQF) of all imports, including sugar, from Least 
Developed Countries (LDCs) and certain other developing countries. The 
ASA is the national coalition of American sugarbeet and sugarcane 
growers, processors, and refiners.
    The ASA opposes any proposal to extend DFQF treatment to sugar. 
Such action would threaten the viability of U.S. sugar policy and of 
the U.S. industry.
    The United States is the world's fifth largest producer and 
consumer of sugar and the second largest importer. The U.S. sugar-
producing industry generates 141,000 American jobs in 19 states and $10 
billion in annual economic activity. Sugar is a basic food ingredient 
found in approximately 70 percent of food products.
    For the food security of our nation, it is critical to maintain a 
strong and healthy domestic sugar industry to ensure customer needs are 
met for a broad array of high quality products. Maintaining a domestic 
sugar policy is essential to sustaining a viable industry that faces 
unfair production and predatory trading practices by virtually every 
sugar exporter. In order to operate the current sugar policy at no cost 
to the taxpayer, as the Congress intended, supply and demand must be 
delicately balanced. DFQF treatment for sugar would pose a direct 
threat to the U.S. sugar policy and industry and would ultimately harm 
taxpayers and consumers.
    As the result of commitments made in the WTO, NAFTA, and other Free 
Trade Agreements (FTAs), imports already account for a large share of 
U.S. sugar use. Over the past five years, this share has averaged 25 
percent; in the just completed 2008/09 crop year the import share 
reached just under 30%. The 38 developing countries which currently 
enjoy access to the U.S. market under these agreements benefit from 
access to the U.S. market because prices here reflect the cost of 
producing sugar. Their alternative is to sell to the grossly distorted 
and depressed world market, where prices have tended to be well below 
the costs of production of nearly all developing countries.
    Sugar (along with a number of other agricultural products) has been 
excluded from the various preference programs operated by the U.S. for 
the benefit of developing countries because the inclusion of sugar in 
these programs is incompatible with the sound operation of the domestic 
sugar program. As a result of the existing trade commitments referred 
to above, the U.S. market is likely to be oversupplied in most years, 
rendering operation increasingly difficult.
    The potential oversupply situation is exacerbated by the complete 
opening of the U.S. market to Mexico as of January 2008 and the large 
degree of uncertainty that exists with respect to Mexican export 
capabilities and intentions. In the 2008/09 crop year, USDA first 
forecast imports of sugar from Mexico at 500,000 metric tons but the 
eventual total for the year was two-and-one-half times that amount--
over 1.27 million metric tons.
    Proposals to extend DFQF to sugar, which find their most concrete 
form in H.R. 4101 introduced by Congressman McDermott on November 18, 
2009, would damage the U.S. sugar industry, result in increased and 
unnecessary government expenditures, and could, ultimately, jeopardize 
the viability of both the domestic sugar program and the U.S. sugar 
industry. Such an outcome, by erasing the value of the U.S. market to 
the many developing countries now supplying it, would also cause these 
countries substantial financial loss and imperil economic development 
in the many countries highly dependent on their sugar industries and on 
access to the U.S. market.
Damage to U.S. Sugar Industry
    The countries officially designated as LDCs by the United Nations 
produce in total about 3.5 million metric tons of sugar and export over 
a million tons of sugar. H.R. 4101 would provide DFQF to most of these 
LDCs. As indicated in the attached table, these proposed beneficiary 
LDCs produce nearly 2.5 million tons of sugar and export over 700,000 
tons. But the McDermott bill would also extend DFQF for sugar to non-
LDC African countries, including such major sugar producers as South 
Africa, Mauritius, Swaziland, and Kenya. Thus, in total, the bill would 
extend DFQF to countries producing nearly 7 million tons of sugar and 
exporting nearly 3 million tons.
    Even these figures do not fully indicate the magnitude of the 
potential threat to the U.S. sugar program. Beneficiary countries could 
use subsidized imported sugar to meet their own domestic consumption 
needs and, thus, free up their domestic production (meeting the rules 
of origin) for export to the United States; there is nothing in H.R. 
4101 to prevent such substitution. Mexico is already doing so under a 
NAFTA substitution loophole.
    Worse yet, transshipment of subsidized sugar from non-beneficiary 
countries through the long list of countries covered by the McDermott 
bill could occur. Unlike substitution, the bill does not allow 
transshipment, but such illicit trade activity would be difficult to 
monitor.
    Both of these practices significantly inflate the volume of 
potential exports to the United States, and the potential danger.
    Granting of DFQF for sugar would, therefore, likely result in the 
flooding of the U.S. market--a market, as noted above, already 
oversupplied in many years as a result of existing trade commitments. 
It would magnify the already high degree of uncertainty that USDA 
administrators of the domestic program face as a result of the 
unfettered access of Mexico to the U.S. market.
    The result of the excessive oversupply generated by DFQF for sugar 
would be depressed U.S. sugar prices and large government expenditures 
for the conversion of surplus sugar into ethanol (as required by the 
2008 Farm Bill). Ultimately, the granting of DFQF on top of existing 
trade commitments (and those contemplated in the Doha Round) could make 
operation of the domestic sugar program unmanageable and jeopardize the 
viability of the U.S. sugar industry.
DFQF for sugar would also damage developing countries
    As noted earlier, some 38 developing countries already benefit 
greatly from their existing access to the U.S. market through the TRQs 
established under the WTO or the access granted through NAFTA or other 
FTAs. Most of these suppliers recognize the adverse effects on their 
own interests that the oversupply generated by DFQF would cause.
    In separate submissions in March 2007, two large groups of 
developing countries, 29 countries in all, expressed to the U.S. 
government their opposition to including sugar in a DFQF program:

          The CBI Sugar Group: Barbados, Belize, the Dominican 
        Republic, Guyana, Haiti, Jamaica, Saint Kitts and Nevis, 
        Trinidad and Tobago; plus Mauritius and the Philippines.
          Comesa (Common Market for Eastern and Southern 
        Africa): Burundi, Comoros, D.R. Congo, Djibouti, Eritrea, 
        Egypt, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, 
        Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe.

    Comesa reiterated its opposition to inclusion of sugar in any DFQF 
scheme at the November 17, 2009, hearing on preference reform. We 
understand that other developing-country sugar producers have submitted 
comments in opposition to sugar's inclusion:

          The International Sugar Trade Coalition, a large 
        group of developing-country sugar producers that also have 
        shares of the U.S. sugar import quota. The ISTC includes 
        Barbados, Belize, the Dominican Republic, Fiji, Guyana, Haiti, 
        Jamaica, Malawi, Mauritius, Panama, the Philippines, Saint 
        Kitts and Nevis, Swaziland, Trinidad and Tobago, and Zimbabwe.
          The Sugar Alliance of the Philippines, a national 
        collation of sugarcane planters, millers, refiners, and 
        traders.

Other Concerns with H.R. 4101
    The bill would establish common rules of origin, in many cases 
differing from those established in existing agreements and programs, 
for countries benefiting from the various U.S. preference programs and 
introduce a new procedure for the designation of articles as eligible 
for preferential treatment.
    We believe the existing, long-standing rules of origin and 
procedures used for the Generalized System of Preferences (GSP) and 
other preferential programs are quite adequate and that new rules of 
origin and procedures are unnecessary. Furthermore, it is critical that 
the primary consideration in making any changes to rules of origin or 
procedures for designations should continue to be whether additional 
imports would cause, or threaten to cause, material harm to domestic 
producers.
Doha Round Considerations
    At the 2005 WTO Ministerial in Hong Kong, the U.S. committed to the 
granting of DFQF treatment to LDCs for 97% of tariff lines. This 
limited commitment clearly reflected, among other concerns, U.S. 
negotiators' recognition of the adverse impact such access could have 
on the U.S. sugar program and market--as attested in numerous 
statements by then-USTR Rob Portman and then-Agriculture Secretary Mike 
Johanns to private sector advisors, Congressional staff, and the press.
    Moreover, the 2005 limited commitment was only to be put into 
effect as part of the successful completion on the Doha Round. Congress 
needs to consider carefully the effects of the unilateral granting of 
DFQF, and the expansion of its application beyond LDC's (to countries 
such as South Africa), on the willingness of DFQF beneficiary countries 
to negotiate constructively in subsequent Doha negotiations.

                                 
       Statement of the Association of Colombian Flower Exporters
    ASOCOLFLORES is a non-profit trade association established in 1973 
to represent and support the Colombian flower grower-exporter industry 
in its efforts to achieve sustainable and competitive development. 
ASOCOLFLORES currently represents 272 companies who account for 75 
percent of the total volume of all Colombian cut flower exports. In 
2007, Colombia exported $1.1 billion worth of flowers, 82 percent ($933 
million) of which were sold in the United States. ASOCOLFLORES member 
companies sustain 98,000 direct jobs and support nearly 83,500 indirect 
jobs. It is estimated that Colombian flower imports support nearly 
225,000 jobs in the United States.
    The Association's objective is to promote international exports of 
Colombian flowers and to ensure the flowers are produced in an 
environmentally sustainable manner and with social responsibility 
towards its significant workforce. ASOCOLFLORES supports 
Florverde', one of the most advanced, comprehensive 
environmental programs in Latin America to sustain renewable 
agricultural resources. The Colombian flower industry is the most 
highly unionized of any Colombian private sector, and much higher than 
the U.S. floral industry.
    To ensure the well being of its workforce, ASOCOLFLORES members 
invest some $28 million per year on numerous social programs for the 
direct benefit of its workforce and their families. In particular, the 
employment by the flower sector of large numbers of women workers 
(nearly 60 percent of the total workforce) have helped to spur the 
industry to create major social programs for workers and their 
families--progressive services such as housing, nursing, day care, 
subsidized schooling, subsidized food and nutrition programs--that help 
set a model for the private sector throughout the Latin American 
region.
ASOCOLFLORES Supports the ATPA and Enactment of U.S.-Colombia Trade 
        Promotion Agreement
    Since 1991, U.S. trade policy toward Colombia--particularly the 
ATPDEA and its precursor, the Andean Trade Preference Act (``ATPA'')--
has focused on efforts to spur legitimate employment in Colombia 
through U.S. investments in Colombia's economy. By that measure, the 
Colombian flower industry represents one of the great success stories 
of U.S. trade policy toward Colombia.
    The fact that the Colombian flower industry has grown from some 
20,000 direct employees in 1991 to 181,500 today demonstrates that 
ATPA/ATPDEA are clear examples of the success--on national security, 
economic, and social grounds--of an enlightened and responsible program 
of U.S. trade benefits that have made a real difference on the ground 
in Colombia. The U.S.-Colombian TPA will solidify the major progress 
made under ATPDEA and lay the groundwork for growth of other sectors.
Many Thousands of U.S. Jobs Depend on Duty Free Flowers from the Andean 
        Region
    It is estimated that 225,000 U.S. jobs depend on the free flow of 
Colombian floral imports. These jobs are in sectors such as 
transportation, import brokerage, wholesale operations, retail florist 
shops, internet providers, supermarkets and convenience stores. Major 
U.S. retailers such as Wal-Mart, K-Mart, Costco, and major supermarket 
chains, and their workers and customers across the United States, 
depend on Colombia to supply their flower and floriculture needs.
The U.S. Floral Industry Depends on Duty-Free Flowers From the Andean 
        Region
    The tariff preferences for Colombian flowers provided by the United 
States are vital to the U.S. floral industry because it depends on 
flowers from Colombia. It is estimated that over 4.2 billion flowers 
are imported into the United States on an annual basis with 60 percent 
of them coming from Colombia. The global flowers industry is an 
intensely competitive business that keeps margins very thin--the 
estimated operating profit for most businesses is only 2-3 percent. 
Thus, the imposition of import duties on flowers from Colombia, even 
modest ones, can have a devastating impact on the entire industry.
    Recent history demonstrates the point. In 2002, the U.S. flower 
industry incurred 6-7 percent duties (on average) on all flower imports 
from Colombia due to an eight-month lapse in ATPA tariff preferences. 
Due to the large volume of imports during that period, which covered 
Valentine's Day, Easter and Mother's Day, U.S. importers paid an 
estimated $2.5 million per month on flower imports from Colombia and 
Ecuador during this period. Given the small operating margins of the 
industry, even that modest level of duties had a disruptive, harmful 
impact on the industry--both in the United States and in Colombia. This 
difficult period for the flower industry demonstrates the necessity of 
locking in duty free flower imports from Colombia under the U.S.-
Colombia TPA.
    In the alternative, ASOCOLFLORES would urge a longer and more 
predictable time frame for ATPA, which has been extended numerous 
times, though often for very short periods of time. In addition, 
Congress has typically extended ATPA ``at the last minute.'' The 
unpredictability and volatility surrounding ATPA renewal is a cause for 
major concern, not just by ASOCOLFLORES, but by the many U.S. and 
Colombian economic sectors that provide the bulk of employment 
opportunities generated by ATPA.
The Colombian Flower Industry is a Leader in Promoting Environmental 
        and Socially Responsible Economic Growth in Colombia; it is a 
        Model Trading Partner of the United States
    The Colombian flower industry is on the leading edge of 
environmental protection. In 1991, the industry was the first to 
undertake an environmental impact study at sector level in Colombia. As 
a result of the study, the flower industry created 
Florverde', a program to promote respect for and 
conservation of Colombia's natural resources. Nowadays, Florverde 
constitutes one of the strictest and most comprehensive Certification 
systems for agriculture, including environmental as well as social 
matters. A majority of the flower producing farms, representing nearly 
72 percent of total flower growing companies, participate in this 
project. At least 40 percent of them are currently certified. These 
actions ensure the sustainability of the industry and surrounding 
environment for years to come. To date, the industry has spent more 
than $2 million on the Florverde program, which was designed and 
implemented at the industry's own initiative.
    The industry has also taken a courageous stand against violence in 
Colombia and worked toward building peace in the nation by designing 
and instituting a conflict resolution program for all of its workers to 
better teach them how to ``Cultivate Peace in the Family.'' Given the 
dramatic success of this groundbreaking program, which may be 
replicated in other Colombian industries, USAID directly supported the 
program with a $1 million grant, from 2005 until 2007. As of 2008, the 
program is supported by GTZ from Germany.
    In addition, the Colombian flower industry has created the program 
School of Floriculture in order to give social and economic stability 
to families displaced by violence in Colombia's rural areas. To date, 
the school has trained several thousand displaced persons, who have 
become permanent employees, thus providing them with the opportunity to 
begin a new, peaceful life in the flower growing business.
    Recognizing the severe problem of a lack of affordable housing in 
Colombia, the flower industry has created and implemented the ``Flowers 
are Home'' housing program, which seeks to provide subsidies for 20,000 
workers in three main areas: acquisition of new housing; improvement of 
existing housing; and support in land title issues. So far, 
ASOCOLFLORES members have contributed some $7 million toward helping 
its workforce to meet their housing needs.
The Colombian Flower Industry Provides Job Security, Good Pay and 
        Benefits
    100% of ASOCOLFLORES member company workers are hired with legal 
contracts. 86% of these workers have labor contracts, while the 
remaining 14% are hired under other types of contracts. The average 
employment period of a worker in a flower farm is five years (75% of 
workers have been in the same company for up to ten years, and 15% over 
10 years) and 75% of ASOCOLFLORES member companies pay salaries up to 
28% above the minimum wage. All of them meet other legal requirements 
such as social security payments (health, pension, and bonuses) and the 
provision of working uniforms. In addition, workers also receive other 
forms of assistance from their employers, including the provision of 
transportation and meals; wedding, maternity and death allowances; and 
an education subsidy for their children.
Colombian Flower Workers Are Protected by Colombian Law and Benefit 
        From Strong Union/Collective Bargaining Agreement 
        Representation
    Women that work on ASOCOLFLORES' member farms do not perform duties 
related to pesticide storekeeping and application because Colombian 
labor law explicitly bans women from carrying out this type of 
activity. In line with Florverde' standards, it is expressly 
prohibited to run a pregnancy test during the hiring process, as well 
as exhibit any form of discrimination against pregnant women or any 
worker for any cause, under any type of employment. Forced child labor 
is explicitly prohibited and no minor under the age of 18 is permitted 
to work. The average work shift on farms under the auspices of 
Florverde' is 46.5 hours per week, less than the legal limit 
of 48 hours.
    Union membership in ASOCOLFLORES' member companies is approximately 
16%, which compares favorably with the national average of 5% among 
total workers. Importantly, floriculture has the highest level of 
unionization in Colombia's private sector, and has a higher 
unionization level compared to the flower industries of Holland 
(approximately 8%) and the United States (approximately 3%). 
Approximately 45% of workers in ASOCOLFLORES' member companies who are 
not union members are covered by collective bargaining agreements, 
which are negotiated between workers and employers to establish 
compensation during an agreed time period (generally three years). None 
of ASOCOLFLORES member companies hire workers under 18 years old, even 
though Colombian law allows 16 year-olds to work with parental 
permission.
The Colombian Flower Industry Is A Strong Ally of the United States
    The Colombian flower industry has played a key role in furthering 
U.S. national security interests in the Andean region by utilizing U.S. 
trade benefits to provide a major, stabilizing force in Colombia's 
economy, particularly in critical area surrounding the capitol of 
Bogota. In addition, at considerable human and economic cost, the 
Colombian flower industry has been a courageous partner with U.S. law 
enforcement to fight the illegal narcotics trade.
    The Colombian flower industry has been recognized by the U.S. 
Government--including the Department of State, Drug Enforcement 
Administration, and the Customs and Border Protection Bureau--as an 
important ally in efforts to combat the illegal drug trade.
    The industry has worked closely with U.S. law enforcement to 
establish extensive anti-smuggling programs by spearheading design and 
implementation of a state-of-the-art security system that the Colombian 
growers are developing and financing to protect their shipments from 
contamination by narcotics traffickers. The industry's close 
cooperation with these law enforcement agencies has been recognized by 
those agencies as a model for other industries.
Colombian Flower Imports Benefit U.S. Consumers
    As with the ATPDEA, the U.S.-Colombia TPA should continue to 
benefit U.S. consumers. The mature and highly integrated relationship 
between Colombian flower producers and U.S. end-users have provided 
benefits to U.S. consumers, including greatly increased availability of 
a wide variety of better quality flowers. This has been achieved in 
large part through the duty free treatment of Colombian flowers since 
1991. As the International Trade Commission noted in its Eleventh 
Report (2004) on ``The Impact of the Andean Trade Preference Act, 
``Previous analyses in this series have shown that since ATPA went into 
effect, U.S. consumers have benefited from lower prices and higher 
consumption . . . '' As a representative example, in the Commission's 
1999 report, the ITC determined that ATPA preferences saved U.S. 
consumers nearly $12 million on fresh cut roses and $8.5 million on 
other popular flowers in 1998 alone.
Key Elements of the U.S. Floral Industry Support ATPA and the TPA; the 
        Colombian and U.S. Floral Industries are Highly Integrated
    The U.S. and Colombian floral industries have consolidated and 
become highly integrated over the past few years. This explains why 
important U.S. floral industry players, including the Association of 
Floral Importers of Florida (AFIF), support the U.S.-Colombia TPA and 
continued duty free treatment of Colombian flowers. This support 
demonstrates the cooperative and increasingly integrated relationship 
between Colombian suppliers and the U.S. flower retail industry. This 
relationship has evolved from one of adversity to cooperation and joint 
promotional efforts to increase flower consumption in the United 
States. In fact, in 2004, U.S. and Colombian flower producers renewed a 
ground breaking agreement--the Flower Promotion Organization (FPO)--
that seeks to broadly promote increased flower consumption by U.S. 
consumers.
Conclusion
    The Association of Colombian Flower Exporters strongly supports the 
Andean Trade Preference Act and the U.S.-Colombia Trade Promotion 
Agreement. ASOCOLFLORES urges Congress to enact a predictable ATPA 
program that provides a bridge to the Trade Promotion Act to allow the 
industry to continue to build on its successful track record of 
protecting Colombia's environment, supporting its significant workforce 
through a broad range of progressive programs, and support the peace 
process in Colombia.
                                 
 Statement of the U.S. Association of Importers of Textiles and Apparel
Laura E. Jones
Executive Director

Julia K. Hughes
Senior Vice President
On the Operation, Impact and Future of U.S. Preference Programs
Before the House Committee on Ways and Means
Subcommittee on Trade

Tuesday, November 17, 2009

    The U.S. Association of Importers of Textiles and Apparel, USA-ITA, 
appreciates this opportunity to present its views and recommendations 
on reform of the U.S. unilateral preference programs.
    USA-ITA's member companies include manufacturers, distributors, 
retailers, importers of apparel and textile home furnishing products 
and related service providers, such as shipping lines and customs 
brokers. Like other industries involved in consumer goods, U.S. 
importers and retailers of textile and apparel products have been 
significantly and negatively impacted by the global economic crisis. 
With all the attention paid to manufacturing, the reality is that there 
has been a disproportionate impact on one of the few industries that 
has not asked for a bailout--retailing, and apparel retailing in 
particular. According to the Bureau of Labor Statistics (BLS), as of 
September 2009, overall retailing has lost 809,000 jobs since September 
2007, a direct result of the downturn in the economy and steep decline 
in consumer spending, especially on discretionary items like clothing. 
Of those lost retail sector jobs, 152,000 of them were in clothing, 
accessory and department stores alone.
    U.S. apparel importing and retailing is a vital component of the 
U.S. labor force. According to the Bureau of Labor Statistics, as of 
September 2009:

          Total retail trade employment was estimated at 
        14,699,000 workers--about 11 percent of the American work force 
        (138.9 million).
          Ten percent of these retail-related workers were 
        associated with clothing and clothing accessory stores, 
        1,408,700 workers.
          Department stores accounted for another 10 percent, 
        1,525,900 people. Together, these two portions of the U.S. 
        retail sector accounted for 2.9 million workers.
          In addition to these retail related jobs, there are 
        transportation, warehousing and longshoreman jobs that account 
        for significant additional employment in the U.S.

    As of the third quarter of 2009, there were 247,700 textile workers 
and 163,900 apparel workers in the U.S.--411,600 all together. 
Unfortunately, the BLS data does not identify how many of those apparel 
workers are serving the commercial market versus the procurement 
market.
    U.S. preference programs offer an opportunity for U.S. importers 
and retailers of consumer goods to save duties and therefore pass along 
savings to U.S. consumers, a particularly important benefit when 
consumers are feeling uncertain about their futures and closely 
watching their spending. The reality, however, is far more complicated. 
USA-ITA's member companies have substantial experience with the many 
unilateral preference programs that apply to imported consumer goods. 
Based upon that experience, including the application of regional 
preference programs for apparel that began in 2000, with the enactment 
of the Caribbean Basin Trade Partnership Act and the African Growth and 
Opportunity Act, USA-ITA has concluded that U.S. preference programs 
are too limited, too complicated, and insufficient to act as a primary 
motivator for the placement of business. Substantial reforms are 
necessary to ensure that U.S. preference programs serve their 
development objectives.
    Since at least 2005, when USA-ITA's then Chairman of the Board 
testified before the Trade Policy Staff Committee's subcommittee on the 
Generalized System of Preferences (GSP), USA-ITA has been urging the 
Administration and the Congress to rationalize the many individual U.S. 
preference programs into a single preference program. Our 
recommendation is to follow four criteria:

        1)  base the preference program upon the GSP program,
        2)  expand the product coverage to include apparel and home 
        furnishings,
        3)  apply to all covered products the rule of origin 
        established under the GSP program; and
        4)  substantially expand funding for capacity building to 
        address deficiencies in productivity and infrastructure.

    We discuss each of these points in detail below.
Establish One Unified Preference Program
    If providing a basis for the developing countries to attract 
investment, produce competitive goods, and evolve into more 
sophisticated economies is truly the objective, the answer is to 
establish a single uniform program that is more user- and business-
friendly.
    USA-ITA envisions a single GSP program that includes apparel and 
textile home furnishings in place of the diverse regional preference 
programs that currently provide duty-free treatment. These various 
regional programs, which include CBTPA, AGOA, the Andean Trade 
Preferences Act, as currently amended by the Andean Trade Promotion and 
Drug Eradication Act (ATPDEA), and the Haitian Hemispheric Opportunity 
through Partnership Encouragement Act (HOPE), apply varying rules and 
are scheduled to be in effect for varying periods of time. All of that 
undermines the ability of both less sophisticated and highly 
experienced companies to ensure that they are complying with the rules 
and preparing the proper documents, and to do so efficiently.
    The current regional and product segregated approach also means 
that each regional grouping of countries and their potential customers 
expends considerable energy and funds lobbying the U.S. Congress for 
amendments and extensions and competing with one another for 
Congressional attention and approval for programs aimed only at 
narrowly defined regions. That is counter-productive. A single 
consolidated U.S. preferences program is more manageable and sensible 
would more efficiently and effectively serve trade development 
objectives.
Expand Product Coverage To Include All Consumer Goods, Including 
        Apparel
    A single unified preference program must include all of the 
products that the beneficiary developing countries are best able to 
produce. The manufacture of apparel products, as well as home 
furnishings, are among those products that have served as the first 
rung on the ladder of development, yet they have been expressly 
excluded from consideration for benefits under the U.S. GSP program 
since its inception in 1975. As originally drafted, the U.S. GSP law 
barred benefits for products ``subject to textile agreements.'' In 
1996, with the international quota program scheduled to expire at the 
end of 2004 and the reference to ``textile agreements'' therefore about 
to be rendered meaningless, the Congress amended the exception for 
textiles and apparel to say that the President may not designate any 
textile or apparel article as an eligible article if it was not 
eligible on January 1, 1994, the year before the quota phase out 
process began. The result is that even though textile and apparel 
products are now truly inside the World Trade Organization and no 
longer the awkward exception to WTO rules, the most important program 
the United States has to help developing countries further their 
economic development remains out of reach. Instead, these products are 
subject to far more limited and complicated preference programs, as 
discussed in greater detail below.
    There is no longer any justification for excluding apparel and home 
furnishing products from a single U.S. preference program like the GSP 
program. Currently, 16 industrial countries have GSP programs. Other 
major developed countries, particularly the European Union, but also 
Japan, include textile and apparel products in their GSP programs.
    Some in the U.S. textile industry have been quoted as saying they 
want to help the developing world maintain their share of the 
international production of textile and apparel products. The simplest 
and most effective way is to support an expansion of a single 
preference program to include apparel and home furnishings. Indeed, 
including apparel and home furnishing manufactures as eligible articles 
under an expanded GSP program represents the positive approach to 
supporting the ability of developing countries compete following the 
end of the international quota program, as opposed to the protectionist 
approach.
    Importantly, the assumption that the reduction or elimination of 
apparel tariffs for all beneficiary developing countries will erode the 
preference currently provided to less and least developed countries who 
benefit from programs such as the AGOA is also misplaced. In the 
absence of quota restrictions that tightly limited access for suppliers 
with the capability to provide the quality, efficiency and value 
demanded by the U.S. market, preference programs like AGOA alone are 
insufficient to induce U.S. buyers to do business in countries that are 
beneficiaries under those programs. To the contrary, the generally more 
onerous origin rules that apply under U.S. preference (and to some 
extent, some free trade agreements) programs, including the increased 
risk of non-compliance, have offset some, if not most, of the supposed 
duty benefit in any event.
A User-Friendly Rule of Origin Is Key
    Simply consolidating U.S. preference programs into a single unified 
program that includes apparel and home furnishings is not enough, 
however. Reform also must address the confusingly complex array of 
origin rules that have evolved in each of the various preference 
programs established for apparel. USA-ITA firmly believes that the GSP 
origin rules are appropriate for apparel and textile home furnishings 
and should be applied in place of far more complex and confusing rules 
that have been developed to date. Under the GSP origin rules, there 
must be a substantial transformation, 35 percent value added within the 
beneficiary country or countries, including up to 15 percent value 
added from United States components, and direct shipment to the United 
States.
    In the context of apparel, this origin rule would likely mean that 
a ``double substantial transformation'' must occur, if fabric is 
sourced from other than a GSP eligible beneficiary supplier. Fabric 
invariably accounts for the overwhelming value of an apparel product--
typically the fabric accounts for as much as 60 percent of the cost of 
a garment. Under existing rulings issued by U.S. Customs and Border 
Protection, to meet the GSP origin rules, fabric must be cut in a 
beneficiary developing country, which would constitute one substantial 
transformation, making that cut component a product of that beneficiary 
developing country. However, a second substantial transformation, in 
the form of sewing/assembly manufacturing operations, also must occur. 
These are significant manufacturing processes and clearly should be 
recognized as origin conferring for purposes of a preference program.
    U.S. officials often talk about our preference programs as 
providing trade liberalization, but the reality is that the United 
States often negates that supposed expanded market access with complex 
and business-inhibiting origin rules that substantially restrict that 
access. This is particularly true in the apparel sector. It is time to 
stop giving on the one hand and taking away on the other.
    The variances in the rules of origin among the various preference 
programs that apply to apparel under the regional programs are 
daunting, for all parties: for manufacturers in beneficiary developing 
countries, for input suppliers--which include U.S. manufacturers, for 
U.S. importers, and even for U.S. government officials responsible for 
implementing these programs. The result is that these programs create 
significant risks for participating companies, who have to be sure that 
they are in compliance, and that means additional costs.
    For example, U.S. buyers considering sourcing product under 
preference programs must take into account:

          whether there are higher costs for the qualifying 
        inputs,
          the initial (and continued) training involved to 
        identify the relevant rules and processes,
          the additional paperwork necessary to demonstrate 
        compliance,
          the additional staff required to oversee and handle 
        the compliance issues, and
          the legal fees associated with ensuring and 
        confirming compliance.

    The plethora of different rules of origin under the different 
unilateral apparel preference programs (as well as those under the 
negotiated free trade agreements) only multiples these costs and often 
compels companies to limit the number of programs in which they 
participate. They must do so in part as a risk management measure, to 
reduce the potential for error (which can carry significant 
consequences in terms of a company's overall compliance record with 
U.S. Customs and Border Protection).
    USA-ITA believes that these issues have actually discouraged 
participation in the preference programs, undermining their potential. 
What this means, ironically, is that because of the difficulty of these 
rules, including their limited flexibility, U.S. producers of fibers, 
yarns and fabrics are actually losing business. With a more flexible 
rule, such as the GSP rule of origin, U.S. manufacturers would win more 
business--including business they are steadily losing today.
    U.S. preference programs need to match business realities rather 
than try to manipulate or steer business to particular manufacturers. A 
review of the data for the existing apparel preference programs makes 
clear that with each passing year, the case for reform along these 
lines has only grown stronger.
    October 1st of each year marks the beginning of new quota periods 
for the Tariff Preference Levels (TPL) created in the four U.S. trade 
preference programs: AGOA, ATPDEA, CBTPA, and HOPE. While the first 
regional preference programs for apparel began in 2000, four additional 
TPLs have been created as recently as October 2008. Following are the 
original start dates for each of these preference program TPLs:

          AGOA Regional Fabric and Third Country Fabric Quota--
        October 1, 2000
          AGOA Third Country Fabric Quota--October 1, 2000 
        [breakout created in 2002]
          ATPDEA Regional Fabric Cap--October 1, 2002
          CBTPA Knit Apparel Regional Fabric Cap--October 1, 
        2000
          CBTPA T-Shirt Regional Fabric Cap--October 1, 2000
          HOPE Apparel--December 20, 2006
          HOPE Woven Apparel--December 20, 2006
          HOPE Knit Apparel--October 1, 2008

    Analyzing trade data since these preference programs began, U.S. 
apparel imports from each originally grew with the introduction of 
duty-free benefits. In the early years, many of the limits filled by 
fifty percent or more. The CBTPA T-Shirt Regional Fabric Cap was 
completely used in 2002, 2004, and 2005. But there is a steady decline 
in recent years. The 2009 quota period ended with none of the limits 
even close to filling.
    The only exception to the downward trend in TPL usage is Haiti, 
which has the newest preference program. The utilization of the HOPE 
Woven Apparel TPL has risen steadily since its creation in 2006. This 
TPL provides duty-free access to the U.S. market for woven apparel 
assembled in Haiti from fabric of any origin, a flexible and user-
friendly rule of origin. There are no restrictions on the origin of the 
yarn or fabric, or on cutting or finishing. This TPL expires on 
September 30, 2018.

                                                               Year-by-Year Utilization Rates for U.S. Apparel Preference Programs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                         September 30,     September 30,    September 30,    September 30,    September 30,    September 30,    September 30,    September 30,    September 30,
             Percent Fill                     2009             2008              2007             2006             2005             2004             2003             2002             2001
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AGOA Regional Fabric and Third Country        15.75%           16.37%            21.03%           23.06            34.28%           37.96%           38.38%           58.39%           17.05%
 Fabric Quota
----------------------------------------------------------------------------------------------------------------------------------------------------------------                 Third Country
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ATPDEA Regional Fabric Cap                     7.37%           11.40%            14.44%           18.01%           26.69%           33.14%           28.14%          N/A              N/A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CBTPA Knit Apparel Regional Fabric Cap        14.81%           14.43%            14.98%           43.17%           63.58%           46.11%           51.73%           51.78%           28.95%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CBTPA  T-Shirt Regional Fabric Cap            63.34%           56.84%            71.60%           99.67%          100.07%          100.05%           84.82%          100.00%           74.34%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
HOPE Apparel                                   4.09**%          4.95**%           3.68*%         N/A              N/A              N/A              N/A              N/A              N/A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
HOPE Woven Apparel                            22.81%           14.37***%          4.30*%         N/A              N/A              N/A              N/A              N/A              N/A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
HOPE Knit Apparel                              2.07%          N/A               N/A              N/A              N/A              N/A              N/A              N/A              N/A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Quota period from 3/20/2007-12/19/2007. **Quota period from 12/20/2007 & 2008-12/19/2008 & 2009. ***Original quota period of 12/20/2007-12/19/2008 changed effective  10/1/2008. Previous quota
  data period of 12/20/2007-10/1/2008 ended with the limit 14.37% filled. New quota period is October 1, 2008-September 30, 2009.

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