[WPRT 106-3]
[From the U.S. Government Publishing Office]


106th Congress                                                    WMCP:
1st Session                 COMMITTEE PRINT                       106-3
_______________________________________________________________________

                                     


                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                               __________

                                 REPORT

                                   ON

 
    TRADE AND ECONOMIC GROWTH MISSION TO VENEZUELA, CHILE AND BRAZIL


                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
                             MARCH 31, 1999

 Prepared for the use of Members of the Committee on Ways and Means by 
members of its staff. This document has not been officially approved by 
       the Committee and may not reflect the views of its Members



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel


                         LETTER OF TRANSMITTAL

                              ----------                              


                 U.S. House of Representatives,    
                       Committee on Ways and Means,
                                      Subcommittee on Trade
                                    Washington, DC, March 31, 1999.

Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.

    Dear Chairman Archer:  I am pleased to transmit to you the 
enclosed delegation report on the recent Subcommittee on Trade 
mission to Venezuela, Chile, and Brazil. The report contains an 
overview of the mission, summaries of meetings with top trade 
officials and American embassy officials, and copies of several 
documents pertinent to our mission. The primary purposes of the 
trip were to meet with government and business officials in 
each of the three countries to explore multilateral, regional, 
and bilateral trade opportunities.
    The report describes the issues surrounding the World Trade 
Organization (WTO) negotiations set to begin in 1999, 
particularly agriculture, services, dispute settlement, and 
intellectual property in an effort to find areas of common 
ground as well as to share views on how those issues should be 
handled. The delegation also discussed issues in the ongoing 
negotiation of the Free Trade Area of the Americas (FTAA) and 
other regional arrangements, including Mercosur (the Southern 
Common Market).
    I hope that this information will be useful to you.
            Sincerely,
                                             Angela Ellard,
                             Staff Director, Subcommittee on Trade.

Enclosure.
                       MEMBERS OF THE DELEGATION

                Members of the House of Representatives

HON. BILL ARCHER, Chairman           HON. WILLIAM JEFFERSON
HON. E. CLAY SHAW                    HON. KAREN THURMAN
HON. LARRY COMBEST
HON. JAY DICKEY
HON. WES WATKINS
HON. PHIL ENGLISH

                                 Staff

ANGELA ELLARD                        TIM REIF
DON CARLSON
TOM SELL
KAREN HUMBEL


                            C O N T E N T S

                               __________

                                                                   Page

Letter of Transmittal............................................   iii
Members of the Delegation........................................     v
Overview of the Mission..........................................     1
    Venezuela....................................................     5
    Chile........................................................    17
    Brazil.......................................................    41
Attachments......................................................    64

                        OVERVIEW OF THE MISSION

    From January 7 through 16, 1999, a bipartisan delegation of 
the Committee on Ways and Means led by Chairman Bill Archer 
visited Venezuela, Chile, and Brazil to conduct a factfinding 
mission on trade and economic issues. The primary purposes of 
the trip were to meet with government and business officials in 
each of the three countries to explore multilateral, regional, 
and bilateral trade opportunities.
    Specifically, the delegation discussed issues surrounding 
the World Trade Organization (WTO) negotiations set to begin in 
1999, particularly agriculture, services, dispute settlement, 
and intellectual property, in an effort to find areas of common 
ground as well as to share views on how those issues should be 
handled. The delegation also discussed issues in the ongoing 
negotiation of the Free Trade Area of the Americas (FTAA) and 
other regional arrangements, including Mercosur (the Southern 
Common Market). The delegation exchanged views concerning 
bilateral trade disputes between the United States and each of 
the three countries, particularly in the areas of agriculture 
and intellectual property. The impact of the financial crisis 
on trade liberalization was also a primary focus of the 
mission, particularly in Brazil. In addition, the delegation 
discussed the likely trade and economic policies of the new 
Venezuelan Government. The delegation also discussed the 
prospects for the U.S. administration to obtain trade 
negotiating authority and whether trade negotiations could 
proceed without having such authority in place. In Chile, the 
delegation discussed a possible free trade agreement between 
the United States and Chile. Finally, the delegation explored 
the manner in which the three countries have dealt with social 
security and pension reform. Attachment A contains a press 
release announcing the delegation's visit.
Caracas, Venezuela
    On January 8, the delegation received a briefing from U.S. 
Ambassador John Maisto and his staff, focusing on political, 
economic, and trade issues, particularly in light of the new 
Chavez government set to take office on February 2. The 
delegation next met with the Venezuelan American Chamber of 
Commerce to discuss the perceptions of the U.S. business 
community toward doing business in Venezuela. The group 
stressed the need to conclude a tax treaty and a bilateral 
investment treaty with Venezuela. In addition, the group asked 
the delegation to expedite a visit between President Clinton 
and President-elect Chavez.
    The delegation next had a very cordial meeting with 
President-elect Chavez. The President-elect emphasized that he 
is a believer in democracy, and he promised to look into 
concluding the bilateral investment treaty and the tax treaty 
currently under negotiation with the United States. Chairman 
Archer and Congressman Jefferson promised to do everything 
possible to encourage President Clinton to invite Chavez to 
Washington. After the meeting, each of the members of the 
delegation signed a letter to President Clinton asking that he 
receive Chavez. President Clinton then agreed, and Chavez 
traveled to Washington later in January. (See attachment B.)
    In a meeting with the Jose Ignacio Moreno Leon, one of the 
economic advisors to President-elect Chavez, the delegation 
discussed improving government efficiency. Moreno Leon noted 
that the tax treaty was currently under review and that there 
were no substantive problems remaining. Since that meeting, 
U.S. Ambassador Maisto informed the delegation that the treaty 
was signed by both parties. (See attachment C.)
    The delegation met with the Vice Minister for Agriculture 
and Livestock, Arnaldo Badillo, and discussed cooperation 
between the United States and Venezuela in the agriculture area 
and Venezuelan restrictions on U.S. poultry. With respect to 
the ban on U.S. citrus, the Vice Minister said that the ban was 
quite old and was being reviewed.
    The delegation then attended a luncheon hosted by the 
Council of Venezuelan-U.S. Businessmen (CEVEU) and discussed 
U.S.-Venezuelan issues and the Venezuelan economic and 
political situation.
    After lunch, the delegation met with the Minister of 
Industry and Commerce, Francisco Astudillo. The discussion 
touched on the bilateral investment treaty, U.S. preference 
systems, U.S. trade negotiating authority (fast track), and the 
Free Trade Area of the Americas (FTAA) negotiations. Chairman 
Archer also raised the issue of the trademark of Sysco, a 
Houston company whose trademark had been stolen in Venezuela. 
The Minister promised to resolve the issue quickly and appeared 
optimistic of a good result for the company.
    President Caldera then met with the delegation and 
discussed the key accomplishments of his administration and his 
optimism for Venezuela under the leadership of President-elect 
Chavez.
    In the last event of the day, the delegation was hosted for 
dinner by the Minister of Energy and Mines and Petroleos de 
Venezuela S.A. (PDVSA), the state oil company. The group 
discussed depressed world energy prices, the need for new 
technologies to enhance production, increased opportunities for 
U.S. companies to participate, Venezuela's dependence on oil 
revenues, and the impact of the new Chavez administration.
Santiago, Chile
    The Codel then traveled to Santiago. On January 11, the 
delegation received a briefing from U.S. Ambassador O'Leary and 
his staff on the political and economic situation in Chile, 
trade issues between the United States and Chile, recent 
developments in the Pinochet case, Embassy security, and trade 
development issues.
    The delegation then met with the Chilean Minister of 
Agriculture, Carlos Mladic, discussing prospects for fast track 
and further trade liberalization through the FTAA process and 
the WTO. The Chilean Minister of Finance, Eduardo Aninat, met 
with the delegation next, again discussing fast track and 
related trade issues. The Minister noted that negotiating a 
free trade agreement without fast track would be difficult. He 
further stated that Chilean standards on labor and the 
environment are world class and that Chile would support a 
trade agreement in which Chile was held to its existing 
standards. Chile would oppose, he emphasized, being forced to 
put in place even higher standards through trade negotiations.
    On Monday, January 11, Congresswoman Thurman addressed in 
the Conference on Women's Political Participation at the End of 
the Century, at Valparaiso, Chile. The text of her speech is 
included as attachment D.
    On Tuesday, January 12, the delegation met with the 
American Chamber of Commerce in Chile, discussing fast track 
and trade negotiating opportunities. The Amcham participants 
emphasized that the United States was losing out on 
opportunities in Chile to its competitors because of the lack 
of a trade agreement. The Amcham presented the delegation with 
a report providing some examples of lost opportunities. (See 
attachment E.)
    The delegation met with Dr. Jose Pinera, the designer of 
the Chilean pension system. He provided an interesting 
background on how Chile reformed its pension system as well as 
advice for U.S. legislators. Chairman Archer invited Dr. Pinera 
to testify before the Committee on Ways and Means.
    The delegation then met with the Foreign Relations 
Minister, Jose Miguel Insulza. Issues such as fast track 
authority, trade with Mercosur (the Southern Common Market), 
existing strong Chilean protections on labor and the 
environment, and the FTAA negotiations were discussed. The 
Minister later hosted a luncheon for the delegation.
    President Frei then received the delegation. He described 
Chile's recent unilateral tariff reduction, social security 
reform, Chile's labor and environmental protections, and 
privatization. Next, in a meeting with German Molina, the 
Chilean Labor Minister, the Members discussed Chile's approach 
to fixing the pension system. In addition, Minister Molina 
described Chile's child labor and minimum wage laws. Finally, 
the delegation met with Juan Gabriel Valdes, Chile's Director 
General of International Economic Relations, to discuss the 
FTAA, fast track, and other trade issues. In response to a 
question from Chairman Archer, Ambassador Valdes agreed to help 
the United States in seeking EU implementation of the banana 
and beef hormone decisions. With respect to labor and the 
environment, Ambassador Valdes reiterated the point made by 
other Chilean officials that Chile would not want to make 
changes to its standards in order to qualify for a trade 
agreement. This view, he noted, is shared by other Latin 
American countries. The Ambassador and Chairman Archer 
discussed the possibility of negotiating an agreement between 
the United States and Chile without having fast track in place, 
agreeing that such a strategy would pose risks.
Brasilia, Brazil
    In Brasilia, the delegation met on January 13 with the U.S. 
Embassy staff for a country team briefing. The Members 
discussed with the staff that day's policy change by the 
Brazilian Government to allow the Brazilian currency to float 
in a wider band. In addition, they addressed the prospects for 
Brazil to carry out the reforms required by the IMF.
    The delegation then met with Brazilian President Henrique 
Cardoso. The delegation strongly encouraged the President to 
continue the reforms to which Brazil had committed. The 
President reassured the delegation that the reforms were on 
track, any setbacks were temporary, and that reform was 
complicated by the fact that Brazil is a democracy and not an 
autocracy. After the meeting, Chairman Archer issued a press 
release expressing his confidence in Brazil. (See attachment 
F.)
    On January 14, the delegation continued its meetings, first 
with Ambassador Jose Botafogo, the Executive Secretary of the 
Brazilian Foreign Trade Board. In this meeting, the 
participants engaged in an extended dialog about trade issues 
between the United States and Brazil, including protection of 
intellectual property rights, antidumping and subsidy 
allegations concerning steel, and trade in orange juice and 
other agricultural products.
    In a meeting with Foreign Minister Luiz Lampreia, the 
delegation again encouraged Brazil to continue its reforms. The 
discussion turned to the issue of trade negotiating authority. 
The Minister emphasized the danger of mixing trade and labor 
issues, arguing that it could lead to a resurgence in 
protectionism. The Minister also discussed the FTAA 
negotiations, noting that it is difficult for Brazil to make 
further concessions in the current financial environment.
    The delegation also met with leaders from the legislative 
branch of government. First, the delegation had a meeting with 
Senate President Antonio Carlos Magalhaes, in which the 
President guaranteed that the Congress will approve the tax 
increases to which it has committed. In a meeting with leaders 
from the Chamber of Deputies, the Members discussed a host of 
trade issues, including steel, orange juice, and sugar. The 
delegation was hosted for lunch by a group of Members of the 
Senate and the Chamber of Deputies.
    After lunch, the delegation met with Finance Minister Pedro 
Malan, who emphasized the progress toward reform that the 
Cardoso government has made. He explained that recent setbacks, 
such as the failure to pass a government proposal on social 
security reform, would be overcome. In addition, he noted that 
the declaration by one governor that his state would not 
service its debt to the federal government may have been 
politically motivated. With respect to the decision of the day 
before to devalue the currency, the Minister reassured the 
Members that the move was sound and that world financial 
leaders had been made generally aware of the issue in the past 
weeks, although not right before the decision because of 
confidentiality concerns.
    In its last meeting in Brasilia, the delegation spoke to 
Ambassador Celso Lafer, the Minister of Development, Industry 
and Commerce, about the WTO negotiations, Brazilian protection 
of intellectual property rights, and agriculture.
    The delegation then traveled to Sao Paulo, Brazil.
Sao Paolo, Brazil
    On Friday, January 15, the delegation was briefed by the 
U.S. Consulate General about a variety of trade, economic, 
political, and security issues. The delegation then met with a 
panel of bankers to discuss the Brazilian financial situation. 
The delegation then was hosted for lunch by the American 
Chamber of Commerce in Sao Paulo to discuss trade and 
investment issues. Finally, the delegation met with the 
Industrial Association of the State of Sao Paulo (FIESP), an 
organization of Brazilian businessmen about the economic and 
investment climate in Brazil.

                               VENEZUELA

Country Team Briefing by Ambassador John Maisto and U.S. Embassy Staff
Caracas, Venezuela; Thursday, January 7, 1999
    Ambassador John Maisto began by introducing his country 
team. On the bus ride to Caracas from the airport, he had 
described the current political situation in Venezuela, noting 
that President-elect Chavez had been elected in December by a 
57-percent vote and a 67-percent voter turnout in the presence 
of U.S. observers. A former military official, Chavez led the 
coup against the government in 1992. After he was jailed, he 
entered politics and ran for President. It is unclear, however, 
what policies he will espouse as President.
    In the briefing, Ambassador Maisto concentrated on specific 
issues relevant to U.S.-Venezuela bilateral relations. He spoke 
of drug trafficking and transshipment, bilateral investments, 
and intellectual property rights as issues that the Codel 
should address. From a broader perspective on trade, he 
mentioned that President-elect Chavez sees himself as a 
successor to Bolivar, which could mean that his administration 
will be even more regionally biased than the Caldera 
administration. Regardless of all these problems and the 
overarching uncertainties surrounding the new administration, 
Ambassador Maisto believed there is a positive story to tell in 
Venezuela. As he stated it, ``money can be made'' in Venezuela, 
and the country team is eager to help American businesses and 
entrepreneurs to tap into the possibilities.
    Economic Counselor Perry Ball gave a brief presentation on 
the relatively weak state of Venezuela's economy. He blamed the 
current problem on the low price of oil, and the fact that the 
Venezuelan economy is almost totally dependent on this one 
natural resource. He also mentioned a systemic problem, 
referred to as ``Dutch Disease,'' which caused an extreme 
overvaluation of the Venezuelan currency, in turn creating 
unrealistic exchange rates and making things difficult for 
businesses trading internationally. He explained that this 
situation will inevitably force the government to devalue its 
currency, which he claimed needed to be done now. However, he 
said that President-elect Chavez would most likely not devalue 
the currency because it would most hurt those who support him, 
and he could not afford to lose any political support when he 
is pushing for constitutional reform.
    Commercial Counselor Eric Sletten gave an overview of U.S.-
Venezuelan trade. He started out by giving some fact and 
figures: The United States is the largest importer of 
Venezuelan products and the largest exporter to Venezuela; 
Venezuela is the twenty-third largest export market for the 
United States; 49 percent of its imports come from the United 
States and 30 percent of those come from the port of Houston; 
it imports approximately 2 billion dollars' worth of goods per 
year from Texas and is the second largest export market for 
agricultural products from Texas; 62 percent of U.S. exports to 
Venezuela are manufactured goods, the largest class of exports 
being oil industry related (28 percent), the second largest 
being telecommunications equipment. He mentioned that the 
overvalued currency actually helps U.S. exports, and once the 
currency is devalued one could expect to see a drop in exports 
back to 1996 levels. Last, he mentioned three items that would 
help U.S. exports: (1) signing a bilateral investment treaty, 
(2) signing a tax treaty, and (3) increasing the number of 
flights by U.S. airlines between Caracas and points in the 
United States.
    With respect to the bilateral investment treaty, the 
Ambassador pointed to a number of outstanding problems. The 
first problem is the insistence by Venezuela on a preference 
for the Andean community. The second problem is the Venezuelan 
technology transfer requirements.
Breakfast meeting with the Venezuelan American Chamber of Commerce 
        (VENAMCHAM)
Caracas, Venezuela; Friday, January 8, 1999
    VENAMCHAM President Jorge Redmond welcomed members of the 
Archer Codel to Venezuela and quickly touched on the many 
questions confronting the Venezuelan business community today. 
Referring to the recent Presidential election and transition to 
the new administration of Hugo Chavez, Mr. Redmond spoke of a 
``new era in Venezuelan Government.'' Mr. Redmond stressed that 
the U.S. Government's actions toward this new government were 
of great importance in terms of the tone that is set. In this 
light, Mr. Redmond stated that the United States could send two 
very positive signals by (1) expediting an official visit by 
President-elect Chavez to the United States, and (2) sending a 
high-level government official to President-elect Chavez's 
February 2 inauguration. Mr. Redmond also stressed his hope 
that the United States would maintain pressure on the 
Venezuelan Government to expedite both a tax treaty and an 
investment treaty between the two countries.
    Chairman Archer responded by first offering a ``prospero 
ano nuevo'' and introducing the other members of the Codel. He 
expressed that the United States has often taken for granted 
its good relations with Venezuela in the past--and that now we 
must all work to foster those good relations in the future. 
Chairman Archer mentioned that the Codel would be meeting with 
the President-elect later in the day. He also stated his view 
that the new that the President of the United States should 
meet with President-elect Chavez as soon as possible and 
promised to convey that message to the Clinton administration.
Meeting with President-elect Chavez
Participants: President-elect Chavez, Minister of Interior-designate 
        Luis Miquilena, Foreign Minister-designate Jose Vicente Rangel, 
        and recently appointed Deputy Foreign Minister Jorge Valero 
        Briceno
Caracas, Venezuela; Friday, January 8, 1999
    The delegation met for 90 minutes with President-elect 
Chavez. Chairman Archer began the meeting by congratulating the 
President-elect on his election and saying that he is looking 
forward to continuing a strong relationship with Venezuela. The 
President-elect welcomed the delegation and the opportunity 
that it presented to deepen the bond between the United States 
and Venezuela. Chavez noted that he is a ``Jeffersonian 
democrat,'' who deeply believes in democracy. The Venezuelan 
people, he stated, have clearly and overwhelmingly proven their 
strong will for democracy, not only in the electoral process 
but with respect to ethical, moral, and social issues. He 
promised to respect human rights, freedom of speech, and the 
rights of minorities. He remarked that there has been much 
reported in the press that he would set up a dictatorship or 
violate human rights. However, he is not a dictator, he said, 
and he does not intend to revoke democracy, as observers will 
soon see for themselves. He pointed to his two cabinet 
ministers-designate as an example of his openness, saying that 
they are neither ``yes-men'' nor ``subordinates.''
    The President-elect then began to discuss some of the 
difficulties that Venezuela faces. The fair and equitable 
dispensation of justice is one of the most critical elements of 
a democracy, but the current system is nonfunctional. There are 
many in jail, especially the poor, who have been denied due 
process, he said, and even burned alive without anyone being 
held responsible. He also pointed to the banking crisis, noting 
that he is left with a $7 billion loss, representing 9 percent 
of GDP, for which no one is responsible. The government, he 
concluded, has been corrupt. He continued that the judiciary is 
infiltrated by drug traffickers, who rule with tremendous 
immunity. One of his priorities is to transform the judiciary 
``deep down'' to recover the legitimacy of the system. Even the 
executive branch is unaccountable and governorships corrupt, he 
said, and many elected leaders are legal, but not legitimate. 
``We must make our mandates legal,'' he said, so that we ``give 
the people the democratic power to recall their mandate.'' The 
legislative branch, he added, must be legitimized so that the 
people have true representatives. He pointed to the election 
for the Latin American parliament, noting that the slate system 
meant that the people did not know for whom they were voting. 
Democracy, he said, has been ``asphyxiated'' here, creating a 
dangerous social pressure in a country with an 80-percent 
poverty rate and millions unemployed. There has been a 
``peaceful and democratic revolution here,'' he concluded, and 
he asked for U.S. help.
    Chairman Archer said that he, too, hoped to see a 
strengthening of the bonds between the United States and 
Venezuela. He remarked that he was pleased with the President-
elect's comments, noting that he was not surprised to hear that 
Chavez was such a strong believer in democracy because he is 
the ``product of one of the most open elections Venezuela has 
ever had.'' He pointed to the 57-percent margin of victory as 
being a strong endorsement of the President-elect and of 
democracy. ``You'll carry the torch well,'' he said 
confidently. The beauty of democracy, he added, is the prospect 
for peaceful revolution, which means that no country can remain 
isolated. He emphasized that it is important to keep the 
channels of communication open.
    Chairman Archer then turned to the pending bilateral 
investment treaty and the tax treaty, asking the President-
elect to consider them carefully and quickly, if the current 
government does not act first. The Chairman noted that Chavez 
has said that he welcomes investment, and these treaties would 
``give a high degree of comfort'' to investors to come in and 
build, creating jobs and a higher standard of living. He added 
that it is the shared view of the delegation that Chavez should 
come to Washington after the inauguration, and he promised to 
encourage President Clinton to invite Chavez.
    Congressman Jefferson noted that he and Chavez have two 
things in common: they are both Jeffersonian democrats as well 
as lovers of baseball. He then echoed the Chairman's comments, 
saying that he is encouraged by the President-elect's remarks. 
Louisiana, he said, has a strong agriculture base and a natural 
interest in trade. It is important to both Louisiana and 
Venezuela to see the price of oil increase. He added that he 
agreed that President Clinton should meet with Chavez, pledging 
to request such a meeting--as long as Chavez promised to pitch 
for the Democrats during the yearly Capitol Hill baseball game.
    President-elect Chavez responded that he is ready to go to 
Washington and recognizes the need to go, pointing to requests 
from a number of industry sectors. He has talked to a number of 
investors, he said, and has an ``ambitious program'' for 
economic development that he wants to air. Venezuela is in a 
difficult economic situation, he emphasized, with a deficit 
representing 10 percent of GDP and a high foreign debt 
representing 40 percent of the budget. The price of oil, he 
added, is threatening to go below $7, but the budget was based 
on a $12 price, meaning that the deficit may worsen. For the 
first quarter of 1999, he needs $1 billion just to make the 
payroll. Furthermore, a strike by oil workers could paralyze 
that industry.
    Chavez said that he has received invitations from the heads 
of state of Spain, France, Germany, Italy, and Canada. It would 
have been good to visit Washington, he said, but ``we will have 
to wait.'' In his meetings, he intends to focus on both 
political issues, especially his commitment to democracy, and 
economic issues. He said that he will pledge to pay the 
Venezuelan debt, but because the ``present profile is too 
burdensome,'' he hopes to reschedule and seek a different 
formula.
    As to the pending bilateral investment treaty and tax 
treaty, Chavez said that he has already begun to study the 
agreements. He promised to ``energize'' the process, to 
identify the delicate points and reactivate the negotiations. 
He said that he will look to resolving problems and signing the 
agreements. He also said that he has a bill almost ready on 
foreign investment to be submitted to Congress in order to 
``give safety'' to investors. He also expressed enthusiasm 
about U.S.-Venezuelan cooperation in the areas of anti-
corruption, counternarcotics, and extradition.
    After the meeting, Chairman Archer held a brief press 
conference. When asked whether the issue of the constituent 
assembly was addressed during the meeting, Chairman Archer 
replied that it was not and that the issue is strictly an 
internal one for Venezuela that he does not seek to influence. 
He also said that the delegation would recommend to President 
Clinton that he receive President-elect Chavez as soon as 
possible after Chavez' inauguration on February 2.
Meeting with Jose Ignacio Moreno Leon, Economic Advisor to President-
        Elect Chavez and Rector of the Metropolitan University
Participants: Jose Ignacio Moreno Leon and Carlos Tinoco (businessman)
Caracas, Venezuela; Monday, January 8, 1999
    Mr. Moreno Leon, the founder and former superintendent of 
SENIAT, the Venezuelan Tax Authority, commented that the focus 
of the Chavez government will be to reduce government 
expenditures. He indicated that the Chavez government is 
planning to take several steps to achieve this objective, 
including by improving government efficiency and reducing the 
number of ministers in the President's Cabinet. For example, he 
stated that the Interior Minister would likely also serve as 
the Minister of Justice.
    Chairman Archer urged quick approval of the bilateral tax 
treaty as soon as the new government takes office and asked 
what problems remained to acceptance and ratification by 
Venezuela. Mr. Moreno Leon responded that it was his 
understanding that the final text was being reviewed by the 
Foreign Ministry and that there were no outstanding substantive 
problems remaining. He indicated that one reason for the delay 
in approval might be Venezuela's lack of familiarity with tax 
treaties, which has caused the ministries involved to undertake 
a more lengthy review process than might otherwise be the case. 
Mr. Moreno Leon also indicated that the foreign ministry had 
already approached key Members of the Senate, which will be 
charged with preparing implementing legislation for the treaty, 
to explain its provisions and sound out any questions or 
concerns. He indicated that there was no reason at this time to 
expect difficulty in Senate ratification and asked whether any 
problems were expected in the U.S. Senate with respect to 
ratification. Chairman Archer indicated that he was not aware 
of any.
    Chairman Archer then turned to the subject of the bilateral 
investment treaty (BIT) and urged quick approval of that 
agreement. Mr. Moreno Leon explained that Venezuela has raised 
new concerns as a result of questions posed by Venezuela's 
Ambassador to the World Trade Organization (WTO). In 
particular, Mr. Moreno Leon noted the two points about 
preserving a preference for Andean Pact country investors and 
being able to require technology transfer as a condition for 
making an investment. With respect to the regional preference, 
Chairman Combest stated that the United States regarded all of 
South America as important trading partners and was concerned 
with subregional arrangements that granted exclusive 
preferences to members. Mr. Moreno Leon took note of the points 
raised by Chairmen Archer and Combest.
    Mr. Moreno Leon mentioned that one potential element of the 
incoming government's plan for fiscal reform was the 
institution of a value-added tax. Mr. Moreno Leon explained 
that the incoming government was considering replacing the 
existing wholesale/luxury tax of 16.5 percent with a value-
added tax that did not include as many exemptions and applied 
to retailers as well as wholesalers and manufacturers. Mr. 
Moreno Leon indicated that, given the broader base of the tax, 
it might be possible to set a lower rate, for example 12 
percent. Congressman Shaw questioned whether it wouldn't be 
simpler to institute a reformed sales tax. Mr. Moreno Leon 
indicated that one of the objectives of the revised approach 
was to increase tax revenues to the federal government, which 
has been downsizing over the last several years even as state 
governments have been increasing in size. A sales tax might 
just feed the growth in state governments, he concluded.
Meeting with Vice Minister for Agriculture and Livestock, Arnoldo 
        Badillo
Participants: Vice Minister Badillo; SASA head Dr. Rudolfo Marcano
Caracas, Venezuela; Friday, January 8, 1999
    Vice Minister Badillo began the meeting by wishing all 
attendees a happy new year, and then introduced various 
representatives of the Ministry of Agriculture attending the 
meeting including the General Director for Livestock, the 
Director of Farm Planning, the Director of Farm Extension, the 
Director of Research, Director of Farm Statistics, and the 
Director of Marketing.
    Chairman Archer thanked the Vice Minister, introduced 
members of the Codel, and yielded to Chairman Combest.
    The Vice Minister spoke of the importance of the Binational 
Commission for Agriculture made up of representatives of the 
U.S. Department of Agriculture and the Venezuelan Ministry of 
Agriculture (MAC) which had originally been established in 
1983, and was recently renewed in January of 1998. He noted 
several agreements that had been produced in the most recent 
meeting of the Binational Commission in May 1998. In the area 
of farming statistics, USDA's National Agricultural Statistics 
Service (NASS) is facilitating the development of a permanent 
counting system and is funding a scholarship which brings young 
statisticians to Venezuela to provide hands-on guidance. Also, 
USDA's Economic Research Service (ERS) has set up a computer 
model to measure the economic and social impacts of 
agriculture. Regarding issues of sanitation and control, USDA's 
Animal Plant Health Inspection Service (APHIS) is providing 
needed technical expertise. Mr. Badillo mentioned this 
cooperative effort had proved crucial to the eradication of 
foot and mouth disease in cattle in some states, as well as in 
the eradication of a certain fruit fly from the Paraguana 
Peninsula, enabling the export of melons grown on this 
peninsula to the United States. He also mentioned cooperative 
efforts in agricultural extension and marketing programs. Mr. 
Badillo concluded by saying that the Binational Commission also 
acts as a productive informal channel for working out disputes 
and concerns more efficiently, suggesting that it should be 
even more active in the future.
    Chairman Combest stated the Codel's interests--to further 
cooperation and good relations between the two countries. He 
then raised some problems between the United States and 
Venezuela. Chairman Combest focused on the fact that health and 
food safety concerns are often raised as trade barriers in 
disguise. He pointed out as an example Venezuela's questionable 
import restrictions on U.S. poultry and stated it is for 
problems such as this that cooperation and communication 
between USDA and the MAC is so important. (According to the 
USDA, the United States meets conditions set by Venezuela and 
other Andean Pact countries for poultry because the United 
States is free of highly pathogenic Avian Influenza and Exotic 
Newcastle Disease.) He noted how such cooperation had benefited 
Venezuela in the fruit fly-free designation on the Paraguana 
Peninsula. Chairman Combest said he understands the political 
need to protect one's own producers, but that this goal should 
not compete with the goal of free and fair trade, which can be 
mutually beneficial for producers and consumers. Chairman 
Combest concluded in saying that he would like to return to 
Venezuela with a group from the House Agriculture Committee so 
as to focus on these issues more and to offer help in 
facilitating better cooperative work in the future.
    Mr. Badillo responded by saying that Venezuela is one of 
the most open markets in South America and that it had 
generally been liberalizing its trade laws since 1989. He also 
pointed out that this is a difficult and sensitive reality from 
the farmers' perspective, to which Chairman Combest noted 
``farmers are the same everywhere.'' He said that while he and 
other government officials believed it in the farmers' best 
interests to advance multinational trade agreements, the 
farmers were very contrary and had actually staged several 
protests in recent years. However, he mentioned the last year 
had been almost conflict free, and the Chavez administration 
would be inheriting a relatively peaceful farming sector.
    At this point, Vice Minister Badillo called upon his 
colleague, Rudolfo Marcano, head of Venezuela's equivalent to 
APHIS, to address health-related trade problems. Mr. Marcano 
stated that pest and health issues are of great importance for 
international trade. Although there are some very difficult 
challenges which sometimes are no more than simple questions of 
interpretation, Venezuela is working very hard to promote 
reasonable actions and response to these difficulties. He noted 
a great success in Venezuela's continuing to import U.S. wheat 
throughout the karnal bunt scare after the completion of a 
quick risk analysis. Regarding U.S. poultry, he noted that the 
nonpathogenic strain of Avian Influenza that U.S. flocks carry 
could become pathogenic and so it was still considered an 
unacceptable risk. He explained, ``We know of the U.S. interest 
(in exporting poultry to Venezuela), but we have to protect our 
own people.'' He also noted that Venezuela is working closely 
with APHIS on this matter. Regarding Florida citrus, he noted 
that it is a very old and outdated law that prohibits Florida 
oranges from import. He mentioned that Venezuela is currently 
working to update the law and that he hoped this matter could 
come to a mutually beneficial end in the near future.
Luncheon Hosted by the Council of Venezuelan-U.S. Businessmen (CEVEU)
Participants: Gustavo Marturet, President, Banco Mercantil; Alejandro 
        Reyes Sabal, Vice President, Venepal; Gustavo Vollmer Acedo, 
        President, Corpalmar; Pedro Carmona, President, Quimica Venoco; 
        Octavio Azpurua, Director, Corpbanca; Imelda Cisneros, Partner, 
        Arthur D. Little; Hernando De Castro, Partner, De Castro, 
        Degwitz, Lasry; Oscar Augusto Machado, Director, Sivensa; Luis 
        Hinestrosa, President, Rualca; Rafael Strauss, President, 
        Pequiven; Carlos H. Blohm, President, H. Blohm S.A.; Jose 
        Rafael Bermudez, Partner, D'Empaire, Reyna; Ana Teresa Wallis, 
        Executive Director, CEVEU
Caracas, Venezuela; Friday, January 8, 1999
    The luncheon began at 12:30 p.m. at the Caracas Country 
Club. It was hosted by Gustavo Marturet, Executive Director of 
CEVEU, which is a 10-year-old nonprofit organization whose 
purpose is to strengthen relations between Venezuela and the 
United States. The group was divided among four tables, each of 
which was hosted by a member of the Board of CEVEU.
    Mr. Marturet delivered a welcome to the Delegation and 
addressed both U.S.-Venezuelan relations and domestic 
Venezuelan economic and political issues. He strongly 
emphasized his belief and that of CEVEU that the relationship 
between the United States and Venezuela is taken for granted by 
both countries. However, his main point was that the private 
sector in Venezuela (as represented by CEVEU) is important to 
the economy but small in comparison to the public sector and 
the many public sector industries. The private sector, though 
small, reflects needed diversification in the economy away from 
its petroleum base and enhances an open and democratic society.
    CEVEU is committed to Venezuela being a part of the 
international community. As such, Mr. Maturet listed the main 
goals of their organization: (1) promotion of trade in general 
and particularly a preferential relationship with the United 
States; (2) completion and implementation of both the pending 
U.S.-Venezuelan bilateral investment treaty (BIT) and the 
pending U.S.-Venezuelan Tax Treaty; and (3) enhancing the role 
of the private sector in Venezuelan society.
    U.S. Ambassador John Maisto reiterated the U.S. position in 
support for both treaties as well as the hope that they might 
be concluded and signed at an early date. In response to a 
comment by one of the CEVEU members that President-elect Chavez 
has promoted a law that guarantees the sanctity of foreign 
investments in Venezuela, the Ambassador pointed out that such 
a law did not take the place of the BIT.
    A discussion followed, led primarily by Pedro Carmona, with 
regard to the domestic political environment in Venezuela, Mr. 
Carmona was a candidate for one of the state assemblies in 
voting that occurred in late 1998. He lost his election by 600 
votes out of 26,000 cast. The President-elect has promoted the 
idea of a new constituent assembly to replace the current 
Congress. The CEVEU favors reform of the current Congress 
rather than the replacement favored by the President-elect. If 
the Congress is a vehicle for enacting changes in the 
Venezuelan Government, each of the 26 states must ratify those 
changes. President-elect Chavez says that ratification will not 
happen if the states must ratify all changes. The current 
constitution was written in 1961 by the two major political 
parties in closed door sessions. Venezuela has had 23 
constitutions in its history, including 4 this century. Until 2 
years ago, when changes were enacted, the President appointed 
every governmental official, including mayors and governors. 
The Congress did, however, appoint the Supreme Court.
    In commenting on the initial appointment of the Chavez 
government, Mr. Carmona made the observation that most of the 
new Chavez team is only now discovering the world that exists 
beyond Venezuela, highlighting their almost exclusively 
domestic political focus. He said that the new President's 
Chief of Staff, in particular, was a surprise. President Chavez 
appointed a prominent newspaperman to this job, which is 
ministerial level. The new Chief of Staff was described as a 
cross between Larry King and John McLaughlin and someone who 
had not always agreed with Chavez in the past and certainly not 
during the campaign. Mr. Carmona said that the new President is 
tentatively reaching out to the business community but that 
community remains wary given the President-elect's ties to Cuba 
and the fact that he went to Cuba after his release from jail 
for leading an abortive coup against the government.
    A discussion ensued with regard to business conditions in 
Venezuela. Oscar Machado, another CEVEU board member, commented 
that bank loans now carried a 49-percent interest rate. In 
addition, under Venezuelan law, 70 percent of bank deposits 
must stay in the Venezuelan Central Bank and that fact severely 
limits funds available for loans. In particular, he noted that 
there is no market for small business loans, which hampers 
promotion and expansion of the private sector. Again, with 
regard to the private sector, he strongly stressed the 
importance of continued preferences for Venezuela under the 
Generalized System of Preferences.
Meeting with Gerencial Maldonado, Minister of Industry and Commerce
Participants: Minister Maldonado and Dr. Astudillo, Director, 
        Venezuelan Trademark Agency (SAPI)
Caracas, Venezuela; Friday, January 8, 1999
    The delegation met with Industry and Commerce Minister 
Maldonado and Dr. Astudillo, the head of the Venezuelan 
Trademark Agency. The Minister began the meeting by noting that 
Venezuela is in a time of transition but the change would be 
peaceful. Although the incoming government has new plans, he 
expects continuity. The Minister then raised the bilateral 
investment treaty being negotiated between the United States 
and Venezuela. He said that the ``fundamentals'' are done, but 
there have been difficulties in concluding the agreement. He 
hopes that concluding the negotiation will be a point of 
continuity with the new government. The particular difficulties 
that he pointed to include Venezuelan requirements for 
technology transfer as a condition for foreign investment. In 
addition, Venezuela seeks certain exceptions that the United 
States disagrees with, including an exception for certain 
``economic integration schemes'' to which Venezuela belongs 
(such as Andean Community members). The Minister also pointed 
to the issue of compensation for foreign firms in the event 
that their assets are destroyed by the Venezuelan armed forces 
during civil unrest, noting that this issue is less difficult 
to solve. It is in the national interest to conclude an 
agreement, and all parties must search for flexibility, he 
said. The ``perfect should not be the enemy of the good,'' he 
concluded.
    The Minister then turned to the issue of U.S. preference 
systems, such as the Generalized System of Preferences (GSP) 
and the Andean Trade Preferences Act (ATPA). The Minister noted 
that half of Venezuela's trade with the United States is 
through the GSP program. This is an important program, the 
Minister said, because it allows the development of 
nontraditional exports. GSP renewal should be ``more stable,'' 
he said, because the current system creates uncertainty for 
exporters. As to the ATPA, Venezuela is the only country of the 
five Andean countries that does not receive preferences under 
this program. The other Andean countries, he said, support 
Venezuela's inclusion in the program. The program would be 
helpful, he said, because Venezuela, a transit country for 
drugs, must spend resources combating drugs. In addition, not 
receiving the preference creates disparities in the region as 
companies relocate in order to take advantage of the benefits.
    The discussion next moved to the issue of fast track and 
the Free Trade Area of the Americas Agreement (FTAA). 
Congressman Shaw expressed the hope that fast track is 
concluded quickly, but he noted that it is controversial. 
Chairman Archer explained the constitutional reasons for the 
fast track process and noted that there is support in the Ways 
and Means Committee and in the full House under the right 
circumstances, but the President ``put out no effort'' last 
year and the bill failed. The ``overwhelming majority'' of 
Republicans favor free trade, he said, and he promised to ``do 
everything possible'' to get fast track passed, hopefully by 
March. In the meantime, he hopes to enter into bilateral 
agreements.
    Chairman Archer then addressed the unresolved BIT 
negotiations. With respect to the carve-out for the Andean 
Community, the Chairman noted that Venezuela would probably 
object if the United States sought to carve out its own 
preferential relationships, thus illustrating that 
``preferences are not acceptable.'' Nevertheless, he said, he 
hopes to resolve the negotiations soon. With respect to the GSP 
program, he said there is strong support in the United States 
and that he wished the program could be made permanent. U.S. 
budget rules, however, ``score'' the bill as spending money. As 
a result, GSP extension competes with other groups seeking a 
tax reduction, and an extension only for a limited period of 
time is all that is possible. As to the ATPA, the Chairman said 
that he could not fully address the issue at the meeting. He 
noted, however, that the United States does not ``get credit'' 
for all that it does unilaterally in extending benefits without 
asking for anything in return. He promised further discussion 
on the issue.
    The meeting turned to the issue of the trademark of Sysco, 
a Houston company that had its trademark stolen by a former 
Venezuelan distributor, Erasmo Morales de Paz. Sysco's attempts 
to recuperate its trademark have resulted in a long-running 
legal case. The Chairman thanked the Minister for his efforts 
concerning Sysco, noting that although it is only one case, it 
stands out to the United States and the world as an example of 
whether Venezuela protects intellectual property rights. Dr. 
Astudillo reviewed the current status of the case, explaining 
that SAPI had nullified the Venezuelan pirate's trademark in 
November, but Morales de Paz appealed the decision. As a 
result, SAPI cannot issue Sysco the exclusive use of the 
trademark. SAPI must now respond to the appeal, and he 
anticipates that SAPI will stand by its initial decision. 
However, that decision can then be appealed to the Ministry. If 
that appeal is rejected, then Morales de Paz can appeal 
directly to the Venezuelan Supreme Court, which could take 6 to 
9 months. Dr. Astudillo noted that SAPI cannot grant Sysco 
exclusive use of its trademark until the entire appeals process 
is completed. He also noted that Sysco did not challenge the 
use of the trademark in the time required by law. The United 
States, however, has claimed that the patent was ``well 
known.''
    Chairman Archer asked how quickly a decision could be 
rendered. Dr. Astudillo said that he hoped for a decision 
during February. Chairman Archer expressed concern that the 
current leadership in the Ministry could not commit the new 
government and asked for a decision before the new government 
took office. Dr. Astudillo responded that the current 
leadership can make clear that the Sysco trademark was well 
known, but a decision was not possible until the next Gazette 
is published in mid-February. The Ambassador expressed 
frustration with the appeals procedures, observing that the 
lengthy process gives the pirate more rights than the aggrieved 
party. The Minister and Dr. Astudillo replied that Supreme 
Court action would probably be rapid and that the court 
historically has respected Andean Decision 344, the statute 
that governs this case. They were optimistic that the case 
would be resolved quickly in a manner favorable to Sysco.
Meeting with President Caldera
Caracas, Venezuela; Friday, January 8, 1999
    U.S. Ambassador Maisto opened the meeting by thanking 
President Caldera for taking the time to meet with the Codel. 
Chairman Archer then introduced each member of the Codel and 
explained that the purpose of the trip was to reaffirm the 
strong bonds of friendship between the United States and 
Venezuela. Chairman Archer also explained that the Ways and 
Means Committee was the oldest committee in the U.S. House of 
Representatives and that it was responsible for all tax, trade, 
social security, medicare, welfare, and customs legislation.
    President Caldera welcomed the delegation and stated that 
he considered himself to be a longstanding friend and admirer 
of the United States. He expressed appreciation for the work of 
the Codel and the U.S. Congress in strengthening the bonds of 
friendship between Venezuela and the United States. He said 
that he understood the congressional perspective since he had 
been a member of the lower chamber in Venezuela and then a 
senator, in addition to serving twice as President.
    President Caldera stated that as President, he has had his 
own difficulties persuading his powerful Finance Committee, 
whose jurisdiction was comparable to that of Ways and Means, to 
support government proposals. More generally, he stated that he 
was pleased to say that his government has been able to govern 
effectively over the last 5 years while holding only 20 percent 
of the parliament. Governing was not always easy, he said. 
However, President Caldera stated that the government, by 
engaging in a dialog has been able to make progress in key 
areas such as keeping peace with labor unions and advancing 
more productive labor-management relations, even modifying the 
social security law through a Tripartite Commission of labor, 
business, and government interests. One of his key 
accomplishments was to bring the banking system back to 
stability, where 5 years before more than 50 percent of the 
banks were insolvent.
    Turning to the just-concluded presidential and 
congressional elections, President Caldera stated that his role 
was to ensure freedom and democracy, not to take a role or 
endorse a particular candidate. He stated that conversations to 
date between President-elect Chavez and the United States have 
been very positive and that U.S. Ambassador Maisto was playing 
an important and constructive role. He stated that he was 
optimistic for the future of his country and for continued 
strong Venezuelan-U.S. relations. In this context, he said that 
completion of the Free Trade Area of the Americas by 2005, as 
currently planned, would be an important step.
Dinner Hosted by Minister of Energy and Mines Erwin Arrieta
Participants: Minister Arrieta, PDVSA President Luis Giusti, Ambassador 
        and Mrs. Maisto, American Embassy Officials, and more than 20 
        top officials of Petroleos de Venezuela S.A. (PDVSA)
Caracas, Venezuela; Friday, January 8, 1999
    The dinner began at 7:30 p.m. at Hacienda La Estancia in 
Caracas. The Hacienda is a colonial era home in central Caracas 
owned by PDVSA. The Hacienda and its grounds are located 
adjacent to the former headquarters of the foreign oil 
companies which developed Venezuela's oil industry, prior to 
its nationalization. In addition to the Delegation, the guests 
included Ambassador and Mrs. Maisto, American Embassy 
officials, and more than 20 top officials of PDVSA. The dinner 
was hosted by Energy and Mines Minister Erwin Arrieta. The 
dinner was held outside on the Hacienda's patio. In addition to 
a large head table, the Delegation was divided among six 
additional tables, each hosted by a senior PDVSA executive. 
Following the dinner, a tour of the Hacienda was conducted by 
the Hacienda's staff.
    The discussions at dinner were numerous and varied, 
although primarily concentrated on several points: (1) 
depressed world energy prices and its impact on Venezuela; (2) 
the continued need for new technologies (primarily U.S.) to 
enhance production; (3) increased opportunities for U.S. 
companies to participate in the Venezuelan oil industry in 
production, refining and chemicals; (4) the dependence of 
Venezuela on oil revenues; and (5) the impact of the new Chavez 
administration on oil policy and relations with the United 
States and U.S. energy companies.
    President Giusti's time as the head of PDVSA has been 
highlighted by the opening of the Venezuelan oil industry to 
foreign investment, which has allowed many U.S. companies to 
bid on and receive interests in the development/redevelopment 
of many oil fields. The Venezuelan Government has allowed 
foreign investments in a number of older fields that need 
extensive new production technology to retain and expand 
production as well as several new exploratory areas.
    President Giusti was at one time rumored to be considering 
entering the now completed Presidential race. It was widely 
assumed that President-elect Chavez would seek his replacement 
as PDVSA's President. However, before Chavez took any action, 
President Giusti announced that he would not remain as 
President of PDVSA. It was the feeling of most PDVSA officials 
at the dinner that, while Mr. Giusti is extremely well-
regarded, overall policies at PDVSA will not change as the 
result of the executive turnover. In fact, most expect that his 
successor would be appointed from the top executive ranks at 
PDVSA.
    Brief welcoming remarks were delivered by Minister Arrieta 
following dinner, and Chairman Archer responded on behalf of 
the Delegation. In addition to thanking PDVSA for hosting the 
dinner, Chairman Archer commented not only on the historic 
relationship between Venezuela and the United States in the 
energy field but also on the specific long-term relationship 
between his home city of Houston, Texas and Venezuela. Most of 
Venezuela's oil exports enter the United States through the 
Port of Houston, and, since Venezuela is one of the top 
suppliers of U.S. imported oil, he expressed the strong need 
for a vibrant and expanding U.S.-Venezuelan economic 
partnership.

                                 CHILE

Country Team Briefing by Ambassador John O'Leary and U.S. Embassy Staff
Santiago, Chile; Monday, January 11, 1999
    The meeting was opened at 9 a.m. at the U.S. Embassy by 
Ambassador John O'Leary. The Ambassador assumed his post in 
Chile in the summer of 1998.
    Ambassador O'Leary's opening remarks for the briefing 
concentrated on three points: (1) the United States-Chile 
bilateral relationship; (2) the Pinochet case; and (3) the 
Crowe Committee Report on Embassy Security.
    The Ambassador expressed that at no time have ties between 
the United States and Chile been stronger. It is a superb 
bilateral relationship that was solidified by President Frei's 
visit to the United States in 1997 and President Clinton's 
visit to Chile in 1998. He outlined the highlights of that 
relationship occurring since he assumed his current post: (1) 
accompanying the Defense Minister to Washington, DC in 
September 1997; (2) the formation of a new Joint Consultative 
Commission on Defense issues; (3) formation of the second Joint 
Commission on Trade and Investment, which has the goal of 
defining where further progress on trade issues can be made; 
(4) the Consultative Commission on Agriculture, which has its 
second Ministerial meeting in Washington DC in September; (5) 
the signing of the bilateral agreement on labor issues; (6) the 
beginning of formal talks in Baltimore on January 25 on a 
Social Security agreement; (7) the inclusion of Santiago in the 
Department of Energy's Clean Cities program (In winter, 
Santiago is one of the most polluted cities in the world); and 
(8) cooperation with the Interior Department's public lands 
management team (30 percent of Chile is public lands).
    With regard to the Pinochet case, the Ambassador believes 
that Chile appreciates the U.S. position. The United States, 
while taking no position on the case itself, has stated that it 
is a matter of extradition between the United Kingdom and 
Chile. The Ambassador commented that every democracy must 
reconcile demands for justice with the need for reconciliation 
and the United States is reviewing its documents with specific 
references to human rights abuses in Chile under Pinochet and 
will declassify where appropriate, although most records from 
1963 to 1973 are already publicly available. The Ambassador 
reported that he has unfettered access to Chileans from across 
the political spectrum, and he believes that, even among the 
many individuals in the government now who were strongly 
opposed to the Pinochet government, most Chileans still oppose 
the proceedings against Pinochet in the United Kingdom by the 
Spanish Court.
    With regard to Embassy security, the Ambassador reflected 
that the Embassy attacks in Africa were during his first week 
in Santiago. While 88 percent of State Department overseas 
facilities do not meet the minimum setback requirements set in 
1985, the new Embassy facility in Chile does.
    Congressman Jefferson raised the issue of the Chilean 
reaction to the failure to pass fast track legislation in the 
United States. The Ambassador stated that the United States has 
paid an economic price in missed opportunities since the Summit 
of the Americas in 1995 and that most Latin American nations 
will not negotiate seriously with the United States without 
fast track. The Chileans were disappointed by the House vote 
last fall but still want progress on trade liberalization. They 
are over their initial disappointment and are ready to move 
ahead. They have decided that the future of Chile lies in a 
larger world and would herald the passage of fast track.
    Chairman Archer raised the issue of Mercosur and Chile's 
role. The Ambassador stated the Chile and Bolivia are associate 
members of Mercosur. Chile continues to talk with Mercosur 
about expanding its involvement and will explore options as 
they develop, but Chile is clearly more interested in the long-
term with a more global trade opening.
    Congressman Watkins raised the issue of current trade/WTO 
issues with Chile. The Ambassador responded that two issues 
were currently pending: (1) distilled spirits related to 
preferential treatment in Chile for the domestic pisco liquor 
versus U.S. imports; and (2) salmon, where there is talk that 
Chile may seek WTO dispute resolution over antidumping 
penalties levied by the United States since there is a feeling 
among Chileans that the U.S. antidumping regime is 
protectionist.
    Chairman Archer raised the question as to whether Chileans 
feel that they are being singled out by the United States in 
trade disputes. The Ambassador replied that, in the popular 
press, that attitude is prevalent but not among educated 
Chileans. He cited examples and facts related to several trade 
cases: (1) the mushroom case is actually against a 100-percent 
U.S.-owned subsidiary in Chile; (2) in the tempered wood 
products case, Chile is only one of many countries involved; 
and (3) Chile is defending the U.S. position on environmental 
impact statements. The Ambassador added that two issues of 
current bilateral interest to the United States in Chile were 
intellectual property rights on pharmaceuticals and the need 
for lower tariffs on U.S. luxury automobiles.
    Congressman Shaw spoke with regard to the dangerous 
precedents that could grow out of the Pinochet case, and the 
Ambassador agreed that the unprecedented case could present 
risk to the United States in the future.
    The briefing was then turned over to the Acting Chief of 
Mission (ACM), who briefed the Delegation on the political 
situation. The current Government of Chile is a center left 
coalition, and elections are scheduled for December 1999. The 
leader of the Socialists (Lagos) was considered the frontrunner 
until the Pinochet case but the situation has now changed. He 
believes that there is a lack of other dynamic candidates 
within the government coalition. Among the opposition, the two 
leading candidates were not ``clicking'' with the electorate, 
and one dropped out on Friday.
    In response to a question from Chairman Archer about what 
issues divide the major opposing political coalitions, the ACM 
pointed to three primary issues: (1) the size and role of 
government; (2) appropriate the tax base; and (3) the role of 
the private sector versus maintaining the social safety net. He 
added that there were three areas of broad agreement 
politically: (1) public safety; (2) public education; and (3) 
infrastructure. He also added that drug policy was not a 
divisive issue. In response to Congressman Shaw's question 
about controlling the export of precursor chemicals for drug 
production, the ACM replied that, while the Chileans were aware 
of it, there had not been a lot of progress in that area. 
Chairman Combest asked if the Chileans follow up on 
intelligence information that is shared with them by the United 
States with regard to precursor chemicals. The ACM said that 
there was not much intelligence information to follow up on. 
Some precursors originate in the United States, and Brazil is a 
primary source for Bolivian drug production while Chile is a 
secondary source.
    Congressman Dickey asked the foreign service careerists on 
the Embassy staff to describe their goals. The ACM replied that 
his goal was to see Washington decisionmaking become more based 
on the facts they gather and trying to improve receptivity 
overseas to U.S. ideas and products. Congressman Watkins 
commented on the positive work that the Embassy was playing in 
improving U.S. exports to Chile.
    The Economic Counselor then made a slide presentation on 
Chile, noting Chile had 8-percent annualized growth in this 
decade and that while growth was down, it would continue. He 
cited the primary reason for Chile's growth as the focus on 
exports, which now constitute 20 percent of GDP, including 
services. In addition, 50 percent of Chile's economy is somehow 
connected to exports. Chile sees North America and the Europe 
as providing the greatest opportunities for growth, and 
currently the United States has a $2 billion trade surplus with 
Chile. Chile has free trade agreements (FTAs) with every 
country in the hemisphere, except Central America and the 
United States. While the growth rate in U.S. exports to Chile 
has been declining since 1995, Canada's exports are up 50 
percent in the first full year (1997) of its FTA with Chile. 
According to the Economic Counselor, U.S. competitors are 
growing faster than U.S. companies in Chile, and he cited the 
recent telephone contract awarded to a Canadian company over a 
U.S. company as a big part of the growth in Canada's exports to 
Chile.
    Don Carlson asked about specific cases of lost U.S. sales 
in Chile. The Economic Counselor said such information was 
difficult to quantify and cited cases in which McDonald's is 
now sourcing french fry machines from Mexico and another 
company is sourcing Caterpillar equipment from Caterpillar's 
Brazilian subsidiary.
    The Commercial Attache explained the role which he and his 
staff play in assisting U.S. business in Chile. He cited: (1) 
the opening in Chile of Home Depot's first international 
location, where company officials saw more traffic in the first 
2 weeks that any other store opening; (2) the $350,000 sale of 
trout eggs from Washington State; (3) Motorola's success in 
winning a police communications contract over a French bid; (4) 
1,596 counseling sessions last year for American businesses; 
(5) helping U.S. businesses collect bills owed by Chileans; and 
(6) a commitment to concentrate on helping small U.S. 
businesses which have a greater need for Embassy services. He 
described several characteristics of the Chilean market that 
impact on U.S. sales: (1) young but aging population; (2) 
generally well-educated consumers; (3) poverty levels that have 
decreased from 45 percent in 1987 to 23 percent in 1996; and 
(4) a concentration 40 percent of the population in Santiago. 
He also cited the fact that there are more ADRs (stocks) from 
Chile traded on the New York Stock Exchange (26 issues) than 
there are Mexican ADRs.
    The Agriculture Attache cited the United States as a 
growing market for Chilean products, noting that 1999 will see 
some substantial growth in U.S. agricultural exports, 
particularly feed given the drought in Chile. Areas of big 
growth for Chile in the United States include seafood, seeds, 
wine, and forest products. He also cited case studies that 
point out particular problems for the United States in the 
Chilean market: (1) U.S. potato exports, which are down 27 
percent despite 7-percent market growth; (2) pet food, where 
the United States is up only 20 percent versus 469 percent for 
Argentina and 338 percent for Canada and where Ralston Purina 
is now producing its products in Argentina for Chile; and (3) 
beer, where the United States is down 30 percent versus 16-
percent market growth and where Budweiser is now produced in 
Argentina for the Chilean market. He further cited the impact 
of duties and Mercosur in these and other similar cases.
    The Defense Attache cited recent developments in military 
sales to Chile. The Chilean Air Force is now considering the 
replacement of 30-year-old A-37 fighters with the choice of: 
(1) the F16 or F18A from the United States; (2) the Mirage from 
France; or (3) the Grippen from Sweden. The initial sale will 
be in the range of $600 million for 20 planes, with a potential 
total of 60 planes.
    Congressman English raised the issues of the labor and 
environmental regimes as they exist today in Chile. The Embassy 
staff replied that the recent Chile-Canada FTA contained a side 
letter to the agreement to maintain the maximum parallel to 
similar side provisions in NAFTA. The level of environmental 
protection in Chile was cited as similar to that of the United 
States. It was described as ``not bad'' overall but not at 
current U.S. levels. With regard to labor, no industrywide 
unions/negotiations are allowed under Chilean law. The labor 
regime was described as fundamentally satisfactory with labor 
unions not being a significant force.
Meeting with Chile Minister of Agriculture Carlos Mladnic
Santiago, Chile; Monday, January 11, 1999
    Chairman Archer expressed thanks for arranging the meeting 
and yielded to Chairman Combest for his comments.
    Chairman Combest also expressed his gratitude, commented 
that he sees Chile as very similar to the United States in 
terms of its advanced agricultural industry and focus on free 
trade, and stated that the United States regards Chile as a 
leader among South American countries. He congratulated the 
Minister for his agency's good and progressive bilateral work 
with the USDA on agricultural issues and offered the services 
of the House Agriculture Committee to foster these cooperative 
relationships in the future. Last, he mentioned that some of 
the difficult issues involved in the international trade of 
agricultural goods should be addressed in such a cooperative 
way. Specifically, food safety and phytosanitary problems 
should be addressed for the common benefit, with the common 
goals of ensuring a safe food supply and a viable domestic 
agricultural industry.
    Minister Mladnic began his remarks by giving a brief 
summary of Chilean trade policy. He explained that agriculture 
is generally treated the same as other industries, with the 
exceptions of special price bands for sugar and wheat, which 
are in place to protect the domestic industry from an erratic 
and ``improperly influenced'' world market. He was proud of the 
fact that Chile has negotiated many regional trade agreements 
and was considering more, and that it has achieved an overall 
average tariff of 7 percent. He explained that Chile had begun 
its work to reduce tariffs in the 1970s, when its own tariffs 
were as much as 100 percent. ``Now,'' he said, ``everyone in 
the South American region seems to be oriented toward reducing 
tariffs.'' Chile was hurt last year by the change in export 
markets (30 percent of Chile's exports go to Asia), but 
remained true to its free trade beliefs, which he characterized 
as seeing, ``tariffs as a tax on exporters rather than 
importers.'' He described Mercosur as a natural and important 
political and economic relationship. For several years in the 
early 1990s, he explained, Chile put off other nations while 
holding out for a free trade agreement with the United States. 
However, after 1994, after seeing no promising signs from the 
United States about working toward an agreement, Chile ``quit 
holding out.'' ``For the last 5 years,'' Minister Mladnic 
explained, ``the world has seen the United States only talking 
about free trade.'' As a contrast, during this time, the Latin 
American region has been progressing. He stated the signs from 
the United States are confusing and asked the delegates to 
describe the U.S. position on fast track and the FTAA.
    Chairman Combest responded that ``it is confusing for us as 
well'' and explained the difficult politics behind the fast 
track issue particularly. He stated that the delegation will be 
working to convince a majority of their colleagues in the U.S. 
Congress of the necessity of fast track and that he trusted a 
vote would be taken on the issue within the first 4 months of 
the 106th Congress. Chairman Combest also expressed hope that 
discussions on striking a free trade agreement with Chile could 
take place even in the absence of fast track.
    Minister Mladnic said that he understood the political 
difficulties of a free trade philosophy, but he explained that 
in South American countries, even the farmers see free trade as 
an opportunity rather than a liability. He went on to say that 
there are those in Chile who would leave the United Sates 
behind and concentrate on Mercosur instead. He said he 
personally believed that the FTAA represented the best 
interests of Chile for the future, but he was frustrated by the 
lack of leadership by the United States.
    Congressman Watkins asked the Minister if he knew of any 
particular losses caused by the lack of an agreement; Minister 
Mladnic responded that Chile loses U.S. markets to Canada and 
Mexico, while the United States loses Chilean markets to others 
with whom Chile has agreements. The people in both countries 
lose, he said, because they are not getting the best possible 
product at the lowest possible price. The Minister's aide made 
a particular point about the irony that while the United States 
has talked of ``extending NAFTA to Chile,'' Chile has struck 
trade agreements with Mexico and Canada, thus accomplishing its 
own NAFTA without the United States.
    The conversation then shifted to environmental and labor 
policies as they relate to trade. Minister Mladnic pointed to 
Chile's relatively high standards. Even so, he said, these 
politics should not burden trade agreements. Chile might be 
willing to address the issues in side agreements, as they did 
with Canada, but the WTO is the more appropriate place to 
discuss these issues, he concluded.
    Congressman Shaw generally agreed with this assessment and 
explained that the fast track legislation which had been agreed 
upon by the Clinton administration and considered in the last 
Congress did not contain such labor and environmental 
standards.
    Chairman Archer affirmed that he would try to pass fast 
track early this year. He explained the reasons for its failure 
last year, attributing the loss to the powerful lobbying of 
organized labor and President Clinton's lack of leadership on 
the issue. With that, he called upon Congressman Jefferson to 
give some further insight from the Democratic perspective.
    Congressman Jefferson stated the last vote was ``tainted by 
the election,'' and now that a new Congress has begun, the 
United States can pass fast track. He said the President, 
regardless of his ongoing personal problems, will continue to 
go about his business and will provide necessary leadership on 
this issue. Regarding labor and environmental issues, he 
requested that the Chileans ``be willing to be flexible'' and 
allow these issues to be addressed in the body of a free trade 
agreement. He said such willingness would help many Democrats 
in Congress as fast track is debated in the future.
    As time was running short, Chairman Archer again thanked 
the Minister, who ended the meeting by again making a plea for 
the United States to clarify its trade policy and stating his 
hope that an agreement could be struck in the near future.
Meeting with Minister of Finance, Eduardo Aninat, Santiago, Chile
Santiago, Chile; Monday, January 11, 1999
    The delegation met with Chile's Minister of Finance, 
Eduardo Aninat. Minister Aninat began the meeting by 
congratulating the United States on the surprise turnaround of 
the fiscal deficit. He noted that Chile has had 12 years of 
continuous surplus.
    The discussion then turned to trade issues. Chairman Archer 
asked about Chile's plans with respect to Mercosur, the 
Southern Common Market. Brazil, Argentina, Paraguay and Uruguay 
are members, and Chile and Bolivia are associate members. The 
Minister replied that Chile follows the core principles of free 
trade and openness but without being tied in to any one bloc 
because all blocs should eventually converge. Accordingly, 
Chile is an active participant in Mercosur, the Asia-Pacific 
Economic Cooperation Forum (APEC), 26 bilateral agreements, and 
a host of bilateral investment treaties (BITs). In addition, 
Chile has unilaterally reduced its tariff by 1 percentage point 
per year, beginning in 1999, to reach 6 percent in 2005. The 
United States, he noted, is the only major country in the 
western hemisphere that does not have a trade agreement with 
Chile.
    Chairman Archer stated that he intends to move fast track 
as a priority item but the votes in the House are uncertain. He 
noted his intent to bring the bill to the House floor in March 
or April, and he said that he hopes for the help of the 
administration to get it passed. Once the administration is 
committed to ``go all out,'' he added, the bill could go 
through the Committee quickly. There is only a narrow window of 
opportunity, he said, because the fall, the eve of the 
election, would be a more difficult time. If the bill passes 
the House, it would then be much easier to achieve passage in 
the Senate. Chairman Combest described the background of the 
consideration of the fast track bill, mentioning that the bill 
was ready in November 1997 but that fast track supporters were 
short by a ``handful'' of votes. The business and agriculture 
communities, he said, are strongly supportive. Characterizing 
his outlook as ``optimistic,'' he expressed his hope that 
coordination with the administration will be better this year. 
Congressman Shaw added that the ``unqualified support'' of the 
President is necessary to the success of fast track. 
Congressman Jefferson also noted that he ``fully supports'' 
fast track.
    Congressman Jefferson then asked the Minister whether he 
views having fast track as a requirement for concluding a free 
trade agreement between the United States and Chile. The 
Minister replied that the issue is a political one. Having fast 
track is one ``key input,'' he said. Chile ``won't not 
consider'' negotiations without fast track, he added, but 
negotiating without fast track could produce ``lots of side 
noise'' in the Chile-United States relationship. There would be 
considerable lobbying on a variety of issues which, at the end, 
could ``menace the incentive to produce'' an agreement. The 
worst scenario, he said, would be a ``stalemate,'' so 
proceeding without fast track would be only the third or fourth 
best approach. The agenda for the negotiation is 
``straightforward'' and not complex, and Chile has signed side 
agreements on labor and environment with Canada which are 
similar to the NAFTA side agreements.
    Congressman English then followed up on the issue of the 
side agreements, saying that he had heard that Chile opposes 
putting labor and environmental issues in the agreement itself 
and prefers side agreements instead. Minister Aninat said that 
Chile is more prepared with its own standards than Mexico was, 
that Chile has a higher percentage of collective bargaining 
agreements than the United States, and that Chile has a strong 
environmental law. Chile does not have ``complexes'' on these 
issues, and it does not matter whether labor and environmental 
issues are included in the text of the agreement or in the side 
agreements as long as Chile is held only to its existing 
standards, he said. Chile, the Minister added, would ``oppose 
having higher standards placed on us, a small developing 
country.'' Chile is not in a position to push up wages while 
opening trade at the same time. The Canadian Parliament, he 
noted, did not object to an agreement in which Chile does no 
more than maintain its existing standards. Enforcement, he 
stated, is very important, and Chile is among the few countries 
that enforces its standards. The United States ``cannot be 
threatened by Chile's size,'' he said, because Chile has high 
standards and represents an ``easy case.''
    Chairman Archer stated his agreement with the Minister. It 
is not appropriate, he said, to authorize negotiating authority 
to ``beat up'' on small developing countries by forcing them to 
establish standards beyond their reach. Rather, higher 
standards come with the development that is created by trade. 
Chile is a ``magnificent example'' that every country which 
opens its borders increases its standard of living. Yet, 
protectionism keeps its allure, he noted. Protectionism, he 
concluded, ``never dies but only slumbers.'' Minister Aninat 
noted his concern that there may be a temptation in Asia to 
enact protectionist measures as a response to the financial 
crisis. Such actions, he said, would be ``horrible.'' Because 
of the danger of returning to protectionism, U.S. leadership is 
critical and urgently needed. He pointed to APEC as such an 
example, and there may be fallback in other areas as well.
    Chairman Archer then told the Minister that concluding a 
tax treaty between the United States and Chile would be a 
positive development. The Minister replied that there have been 
preliminary discussions on this issue. In 1998, Chile passed a 
framework allowing for the negotiation of tax treaties similar 
to the model of the Organization for Economic Cooperation and 
Development (OECD). Negotiations have been completed with 
Canada and Mexico, but the agreements have not been passed yet 
by the Chilean Congress. Chile has a tax treaty with Argentina, 
but it is not very thorough. Minister Aninat pointed to the 
1999 Chilean elections, stating that there is only a small 
window to negotiate such a treaty with the United States. 
Furthermore, Chile has been balancing negotiations between 
developed and developing partners. Chile will negotiate two or 
three tax treaties this year, and the agenda is too full to add 
another negotiation, such as one with the United States. There 
are not many Chilean multinational corporations in the United 
States, while there are many in Latin America, he noted. 
Negotiating resources, in addition, are limited. He concluded 
that a tax treaty negotiation with the United States would be 
appropriate in the longer term, but not this year.
    Congressman English then inquired about the Chilean import 
ban on used autos. He asked whether Chile would be amenable to 
modifying the ban because used autos are such a natural export 
from the United States. Minister Aninat promised to study the 
issue. He noted that Chile has consistently lowered tariffs on 
autos, and Chile imports many U.S. cars and car parts. Hardly 
any cars are produced Chile, he noted. Chile, however, has a 
``terrible congestion problem,'' and Chileans perceive that the 
number of cars per capita is already high. As a result, 
removing the ban is probably not a high priority.
    Chairman Archer then asked the Minister whether he would 
have the responsibility for negotiating an agreement with the 
United States should there be an opportunity. The Minister 
replied that before 1995, he would have been the negotiator. 
However, because ``nothing happened,'' he lost credibility. 
Therefore, Aninat said, Minister Insulza (the Foreign Minister) 
would ``set up'' the negotiations in the future, but the 
Finance Ministry would engage in the practical negotiations. He 
concluded by saying that if the United States has fast track, 
then the negations could begin in late May and be concluded in 
approximately 4 months.
Conference on Women's Political Participation at the End of the Century
Panel Participants: Senator Cristina Munoz of Paraguay, Representative 
        Rosario Machese of Canada, Deputy Ligia Castro of Costa Rica, 
        Ms. Maria Jose Lubertino of Argentina, and Ms. Helena 
        Reutersward of the Swedish Embassy in Santiago
Valparaiso, Chile; Monday, January 11, 1999
    On January 11, Congresswoman Thurman addressed the 
Conference on Women's Political Participation at the End of the 
Century in Valparaiso, Chile. The conference was organized by 
the Congressional Family Commission and the National Women's 
Service. The purpose of the conference was to commemorate 50 
years since Chilean women won the right to vote and to be 
elected as citizen's representatives in Chile's Congress as 
well as to explore the experience of women in Chilean politics 
and compare it to the experience of women in the political 
systems of other countries in the Western Hemisphere and 
elsewhere.
    Congresswoman Thurman participated in a panel of women 
legislators and political commentators from different 
countries, primarily in the Western Hemisphere. The other 
speakers were: Senator Cristina Munoz of Paraguay, 
Representative Rosario Machese of Canada, Deputy Ligia Castro 
of Costa Rica, Ms. Maria Jose Lubertino of Argentina, and Ms. 
Helena Reutersward of the Swedish Embassy in Santiago.
    Maria Jose Lubertino of Argentina opened the panel by 
recalling that 1987 marked the 50th anniversary of women 
obtaining the vote in Argentina. She noted that the decision to 
grant women the right to vote in 1937 was supported by a 
majority of all the major parties in Argentina at the time.
    Ms. Lubertino stated that she would focus her remarks on 
the period 1985 to 1999, following the restoration of democracy 
to Argentina. She stated that during this time, supporters of 
women's rights were able to develop strategies that crossed 
party lines and got more women involved both inside the 
Parliament and outside it. As a result of this mobilization, 
they were able to achieve passage of an important women's 
rights law in 1988, although it took 5 years to develop 
enforcement.
    In 1994, Ms. Lubertino continued, 30 percent of Argentina's 
Constituent Assembly were women. Elections in 2001 are likely 
to provide additional opportunities for women candidates. 
Issues that many women have supported have included cleaning up 
government and providing greater transparency in government. In 
addition, women bring a different approach to issues of 
governance than men. Without the full participation of women in 
the voting and governing process, democracies lose 50 percent 
of their potential.
    Senator Cristina Munoz of Paraguay followed next, 
explaining that the key challenge for the first election where 
women could run for office in Paraguay was to have women run 
for local offices. In this regard, Senator Munoz remarked that 
decentralization of power assisted in promoting changes in the 
power structure.
    In the early 1990s, Paraguay established a Commission for 
women and passed a landmark law that ensured equal rights, 
prohibited discrimination against women, guaranteed that 
protective measures for women would not be considered 
inconsistent with the Constitution and established a 20-percent 
quota for women to hold elected office. Senator Munoz commented 
that she believed that these quotas were necessary to ensure 
that women could get sufficient financing for political 
campaigns. In addition, in the 1998 Presidential election in 
Paraguay, four women's groups organized and sponsored debates 
among the candidates.
    Finally, Senator Munoz observed that studies demonstrate a 
clear correlation between alleviating discrimination against 
women and promoting economic development of societies. She 
noted, for example, a correlation between domestic violence 
against women and lower productivity rates in the workplace.
    The third speaker was Deputy Ligia Castro of Costa Rica. 
Deputy Castro noted that 11 out of 57 Parliamentarians in Costa 
Rica are women, that the Vice President of Costa Rica is also a 
woman, and that approximately 40 percent of the elected office 
holders of her political party, the Christian Democrats, are 
women. She noted further that women are required by law to be 
represented in local assemblies, but that more women in Costa 
Rica than Argentina or Paraguay have been. At the same time, 
Costa Rica has not yet passed laws that protected women against 
discrimination and domestic violence.
    Representative Rosario Machese of Canada spoke next, 
commenting that Canada has removed a number of the barriers 
that had kept women from participating fully in the political 
system, but that there are still some areas for progress. He 
noted that women obtained the right to vote in Canada in the 
1920s, and that the first woman in Canada's Parliament was 
elected in 1929. Representative Machese expressed the view that 
international treaties and conferences have helped to advance 
the cause of women's rights in various countries, noting the 
importance of all forms of public education in advancing 
women's rights.
    Helena Reutersward of the Swedish Embassy in Santiago was 
the fifth speaker, noting that women were accorded the right to 
vote in Sweden in 1921. She further remarked that the first 
five women Parliamentarians were elected the following year, 
and that in 1983, women won the right to serve in Sweden's 
armed forces.
    In 1992 and 1994, Ms. Reutersward noted, Sweden passed 
equal rights laws. These laws promoted women's rights by 
advancing the principle of equal rights and responsibilities 
for women and men, including opportunities in the workplace, 
shared responsibilities in the home, and freedom from domestic 
violence. She commented that even these important legal 
advances have not equalized the distribution in power in 
government or families. Nonetheless, legal targets requiring 
the equal participation of women in all councils of government 
by 1998 have been met. However, women occupied only 43 percent 
of the senior positions of authority in government, and only 20 
percent of senior positions in the business sector.
    Congresswoman Thurman opened by stating that the victory 
being acknowledged at the conference, women's suffrage in Chile 
50 years ago, has had implications for every aspect of life: in 
the home, on the job, in communities, and in government. She 
added that the women who achieved the right to vote in Chile 
irrevocably transformed the country of Chile and the world 
because the effect of women's increased presence in the 
political process can be seen on all levels--economic, 
political, social, and legal.
    Congresswoman Thurman commented that Chile could be proud 
of the legacy of the women's rights movement, a legacy that 
includes a record number of women in the Chilean Parliament. 
That is true in the 106th Congress of the United States as 
well, where a record 58 women are serving in the U.S. House of 
Representatives and there are 9 women senators. Apart from 
numbers, Chile and the United States share many other 
similarities in the fight of women to win suffrage and other 
political gains. Women's movements, both in Chile and in the 
United States, emerged at a time when women were fighting for 
equality in education, employment, government, and basic human 
rights.
    Congresswoman Thurman commented that these gains are 
reflected in the campaigns of Chilean women today for peace, 
defense of the family, and human rights. For example, creation 
of the National Women's Service has struck a blow for reducing 
poverty, particularly for women, eliminating all forms of 
violence against women, and reducing the pay gap between men 
and women.
    On these points and others, Congresswoman Thurman stated 
that she honored Chilean women not as members of a women's 
movement, but as ``women in movement.'' She noted that 
recently, the United States celebrated the 75th anniversary of 
women's suffrage, but that event took place 150 years after the 
signing of the U.S. Declaration of Independence. It took years 
of organized struggle on the part of many courageous women and 
men, and there was much work left to be done.
    In that regard, Congresswoman Thurman stated that she has 
learned from the American suffrage movement and her service in 
the U.S. House of Representatives that the best way to get 
things done politically on issues of importance to women is by 
coming together, regardless of party identity. An example of 
such an effort is the Congressional Caucus for Women's Issues, 
which recently celebrated its 20th anniversary. In the Caucus, 
which is comprised of women Members of the House of 
Representatives, legislators put their partisan differences 
aside to advance issues of particular importance to American 
women and families, such as education, health care, teen 
pregnancy, domestic violence, retirement security, and economic 
equity.
    Further, as the number of Congresswomen has grown, so too 
has their influence, as they move up the ranks of leadership in 
both the Democratic and Republican parties. For example, in 
1990, when the Caucus launched an investigation into the 
exclusion of women from clinical trials by the National 
Institutes of Health, there were no women Members on the 
Appropriations Subcommittee that oversees NIH's funding. In the 
past Congress, there were four women on that subcommittee. 
Similarly, there are now three women on the influential Ways 
and Means Committee, which is responsible for nearly two-thirds 
of the federal budget. In fact, women serve on every committee 
in the House, and they are making a difference, she said.
    In addition to championing specific legislative goals, the 
Caucus has also served as an inspiration and a model for women 
parliamentarians the world over. In fact, what many governments 
are learning is that if women are full and equal partners in 
society, their countries will flourish.
    In closing, Congresswoman Thurman borrowed a comment from 
U.S. Supreme Court Justice Ruth Bader Ginsburg, who is only the 
second female to be appointed to the Supreme Court and known by 
many as ``the legal architect of the modern women's movement.'' 
Upon learning the history of women's rights movements, Justice 
Ginsburg stated, ``I think about how much we owe to the women 
who went before us--legions of women, some known but many 
unknown. I applaud the bravery and resilience of those who 
helped all of us--you and me--to be here today.''
    Following Congresswoman Thurman's remarks, the panel 
session was closed by two Chilean legislators, who offered 
their observations on the panel's comments. The first, 
Antonella Sciaraffia, a Member of Chile's House of Deputies, 
stated that equality of participation was important because it 
would ensure that women's perspective on issues would be 
reflected in legislative proposals and debate. In addition, the 
qualities that women bring to decision-making would be fully 
reflected. She stated that, while she understood the desire of 
some speakers to use quotas to advance the participation of 
women in the political process, she believed participation by 
women should continue to grow based on merit.
    The second commentator, Adriana Munoz, observed that there 
were only 19 women in Chile's Parliament and that if the growth 
of women's presence in the Parliament grew apace, it would take 
500 years to reach equality with men. Due to cultural 
resistance in Chile to fuller participation by women in the 
electoral process, quotas are necessary as a tool. 
Participation by women would tend to humanize the political 
agenda, bringing a human element to issues like the budget, she 
concluded.
Breakfast Meeting with AMCHAM Representatives
Participants: AMCHAM President Alex Fernandez and approximately 25 
        business executives
Santiago, Chile; Tuesday, January 12, 1999
    The group of approximately 25 business executives was led 
by current AMCHAM President Alex Fernandez. He began the 
breakfast by introducing all present AMCHAM members and staff. 
AMCHAM represents 525 companies doing business in Chile, which 
collectively account for approximately 18 percent of the 
Chilean GNP. Of the companies represented, 25 percent are U.S. 
companies, 25 percent are Chilean, and 50 percent are joint 
ventures between United States and Chilean businesses.
    AMCHAM's chief mission is to foster trade between the 
United States and Chile. Second, it seeks to foster U.S. 
investment in Chile (the United States is the top foreign 
investor in Chile). Third, it provides consultative help to its 
members on complicated international business matters and 
matters of global political interest such as labor and the 
environment. AMCHAM also publishes a monthly business journal, 
which is the only Chilean publication in English.
    Mr. Fernandez made the statement that it was 7 years since 
then-President George Bush gave Chile what it considered to be 
a strong signal that it would be the fourth partner of NAFTA. 
Now, U.S. companies are losing business in Chile because the 
United States has not followed through. He cited the fact that 
U.S. companies such as Burger King no longer buy U.S.-grown and 
processed french-fried potatoes, which are assessed Chile's 
standard 10 perent duty, but rather purchase Canadian potatoes 
which have tariff-free access. He also noted that the United 
States is not only losing out on product exports, but service 
exports as well, citing a Canadian engineering firm that 
recently won a large project bid in Chile. Mr. Fernandez summed 
up by saying that ``for U.S. business' sake, the United States 
needs fast track and the United States and Chile need a 
bilateral trade treaty.'' One AMCHAM participant reiterated 
this point, saying the current duty on U.S. goods simply 
``makes them uncompetitive.''
    Chairman Archer responded by explaining the political 
outlook for fast track, promising to do everything possible to 
pass fast track early on in the 106th Congress. Chairman 
Combest added that the business community must help in the 
effort to pass fast track by energizing the grass roots, 
particularly its own employees, who directly benefit from free 
trade. Mr. Fernandez agreed that the business community can and 
should do a better job. As another example of how the current 
situation was hurting U.S. workers, he cited Caterpillar, a 
U.S. company based in Peoria, Illinois, which now has a plant 
in Brazil. He stated that Chileans would have a natural 
preference for Caterpillar's U.S.-made tractors, but the 10-
percent price advantage on the Brazil-made tractor will win out 
every time. Congressman Shaw reiterated the point that, because 
of the political dynamics of the fast track issue, Members of 
Congress must hear from their constituents rather than just the 
business executives, and noted that Chairman Archer's 
commitment to work toward passage of fast track in the early 
part of 1999 should energize the business community to energize 
its grass roots network now.
    Congressman Dickey asked why Chile would be so concerned 
about striking a bilateral free trade agreement with the United 
States when it already has access to the U.S. market. In 
response, Mr. Fernandez explained that Chile believes in free 
trade as a worthy global idea. From a domestic view, he noted 
that competitive imports make Chilean businesses more 
competitive and ultimately benefit the consumer.
    A General Electric executive in the group rose to note that 
GE depends upon exporting its products from the United States; 
in 1997, the company exported approximately 11 billion dollars' 
worth of products. Due to the fact that export markets are 
growing more than twice as fast as the U.S. market, the 
importance of free trade agreements for the United States will 
only increase. He also noted that GE had lost about 1 billion 
dollars' worth of business in Chile to Siemens due to the 10-
percent tariff advantage. In response, Congressman Watkins 
again noted that the United States has ``some serious educating 
to do'' on the importance of free trade to everyday Oklahomans 
and the like. He noted that ``96 percent of the world's markets 
live outside the United States; do we want to be a part of the 
global market or forfeit it?''
    Congresswoman Thurman gave the Democratic perspective on 
the fast track and free trade issues, noting that organized 
labor is not the only opposition and that environmental issues 
are very important as well. She also noted, from a Florida 
perspective, that there are significant agricultural interests 
that must be addressed. She insisted that labor and 
environmental issues could not be separated from trade and that 
other problems such as nontariff trade barriers and the lack of 
enforcement of trade agreements present difficult political 
realities that must be handled.
    At this point, one participant asked about the prospect of 
passing a special targeted fast track for Chile. Chairman 
Archer responded that he would not want to set such a precedent 
by which a separate fast track would have to be passed for 
every agreement. He noted that the United States has a great 
product to sell in free trade because it historically benefits 
all while protectionism ``cannibalizes.'' Free traders must 
sell this concept by becoming energized, by being honest in 
recognizing that with free trade there will be job 
displacements and change, and by being prepared to cite 
examples and explain specifics. With that, he thanked members 
of AMCHAM on behalf of the Codel, and the meeting was 
concluded.
    Attachment E contains ``Missing Business Opportunities,'' a 
report prepared by AMCHAM Chile which notes U.S. losses 
attributable to the lack of bilateral trade agreement.
Meeting with Dr. Jose Pinera, Designer of the Chilean Pension System
Santiago, Chile; Tuesday, January 12, 1999
    The delegation met with Dr. Pinera, who is President of the 
International Center for Pension Reform and Cochairman of the 
CATO Institute's Project on Social Security Privatization. In 
addition, Dr. Pinera served as Minister of Labor and Social 
Security in Chile from 1978 to 1980. At the suggestion of 
Chairman Archer, Dr. Pinera spoke in detail about the creation 
of Chile's private social security system, of which he was the 
primary architect during his tenure as Labor/Social Security 
Minister. A summary of his remarks is as follows:
          Chile adopted a Social Security system, similar to 
        that of the United States, in 1925. It was a pay-as-
        you-go system (PAY-GO), the idea for which had started 
        much earlier in Prussia under Otto van Bismark. It 
        provided for an age 65 retirement, while live 
        expectancy was only 48. It is a prime example of the 
        law of unintended consequences and was imitated all 
        over the statist nations of Europe.
          According to Dr. Pinera, a pay-as-you-go system is 
        basically flawed. In the United States, there were 40 
        workers for every single retiree at the beginning, and 
        the system was in demographic balance. Two factors, 
        however, changed its future: (1) decline in fertility 
        rates; and (2) extension of life. A PAY-GO system is 
        structurally flawed and doomed. You can prolong the 
        agony of the current system by raising taxes (which is 
        unfair) or cutting benefits (because Bismark was wrong) 
        or increasing national debt.
          Dr. Pinera became Minister of Labor and Social 
        Security at age 30, motivated by a concern about the 
        poor and particularly the poverty of the elderly. He 
        concluded that the system was wrong and came to the 
        simple idea (but a powerful one) that all workers 
        should invest in an individual retirement arrangement 
        (IRA) during their working lives. The key element of an 
        IRA is compounding where the growth is exponential, not 
        linear. In the United States, 60 percent of the 
        population does not have the access or the money to 
        save. In Chile, the revolution in retirement planning 
        allows people to divert social security payments from 
        the government to a system of private accounts in a 
        conservative and diversified portfolio of bonds and 
        stocks (with property rights guaranteed by the Chilean 
        Constitution). Dr. Pinera believes in the market but I 
        am not naive. I firmly believe that prudent rules are 
        needed.
          Giving people the power and control is at the center 
        of this new system in Chile. Every worker in Chile owns 
        wealth and is a capitalist. The Communists claim that 
        ``Pinera has destroyed the revolutionary fervor of the 
        workers.'' The hidden secret of PAY-GO is that it 
        discriminates against the poor (that is, lower income 
        workers) and minorities, who start work earlier and who 
        die earlier.
          The United States should start with at least 5 or 6 
        percent of FICA taxes diverted to private accounts in 
        conservative portfolios. The current year is the best 
        test of the system in Chile. Pension funds are down 1 
        percent during the worst year since the system was 
        created due to the Asian crisis. This, however, 
        compares to a 25-percent decline in the Chilean stock 
        market and proves the point that diversification is the 
        key. In Chile, the Congress has determined that no more 
        than 20 to 40 percent of any account may be in stocks. 
        The Central Bank sets the exact percentages within 
        these boundaries. The system is managed by the private 
        sector through a board, the Superintendents of Pension 
        Funds. The rationale for the new system, 19 years ago, 
        was based on a 4 percent return. The real rate of 
        return for 17 years has been 11 percent per year above 
        inflation, even with the 1 percent decline in 1998.
          Transition is a major issue to be dealt with in the 
        implementation of any new retirement system. Pinera 
        proposed are three basic rules:
          (1) ``Do not steal your grandmother's check.'' You 
        must guarantee benefits to the elderly and make it 
        clear (with no ambiguity) that the elderly will not be 
        harmed. In reality, there is no guarantee in the United 
        States today. The Supreme Court's decision in 1960 in 
        the case of Fleming v. Nestor held that there are no 
        property rights to Social Security benefits. It further 
        held that Social Security is not an insurance system 
        and taxes are not premiums and the government needs to 
        be able to adjust to changing conditions.
          (2) Every worker must have the option to stay in the 
        current government system or to opt out. In Chile, 
        there was no age limit on opting out, and 93 percent of 
        Chileans opted out.
          (3) New entrants into the labor system must go into 
        the new system. This is essential to closing the door 
        to unlimited unfunded liabilities in the future. In 
        Chile, in 10 or 15 years, the last person to opt out of 
        the new system will reach retirement and, with everyone 
        else under PAY-GO, then government will see a decline 
        in expenditures.
          In closing, Dr. Pinera proposed eliminating income 
        taxes in Chile and using a VAT, once the decline in the 
        old retirement system's expenditures begins. Doing so 
        will increase and create wealth and will restore 
        privacy, the emerging threat of the 21st century. He 
        believed that in the United States, new budget 
        surpluses should not be used to prolong the agony of 
        the current system but to begin the movement to a new 
        system of private individual accounts.
Meeting with Jose Miguel Insulza, Foreign Relations Minister
Santiago, Chile; Tuesday, January 12, 1999
    The delegation next met with Foreign Minister Insulza. 
Chairman Archer began the meeting by stating that fast track is 
a top priority and that he intends to begin work immediately so 
that it can be passed by April at the latest. Minister Insulza 
mentioned that he is negotiating a trade pact with Bolivia. In 
addition, Chile is working on a trade agreement with Europe, 
although it was ``not easy.'' Chile is also active in APEC and 
Mercosur, as well as with the Andean countries. With respect to 
Mercosur, the Minister said that Chile is interested in further 
negotiations with Mercosur for strategic reasons, and 
negotiations have sped up after the failure of fast track. U.S. 
leadership, he noted, is important, and only the United States 
can keep trade negotiations worldwide moving forward. Chile is 
in an awkward position, he added, because the United States is 
its largest trading partner, but Chile has an agreement with 
every major economy in the Western Hemisphere except for the 
United States. Latin America is a growing market for the United 
States. It is becoming as big a market for goods as Europe, and 
it is already larger than China and Japan. In fact, he said, 
Brazil buys more U.S. products than China.
    Chile is ``very flexible,'' he said, about the form of an 
agreement with the United States. There have been discussions 
in Chile concerning whether an agreement would involve joining 
NAFTA or negotiating a bilateral agreement. The agreements that 
Chile has with Canada and Mexico are similar to the NAFTA, so 
the form of an agreement with the United States is not as 
important as before. He would prefer NAFTA accession to a 
bilateral agreement, but Chile would not reject a bilateral 
agreement, he promised. He added that Chile is also open to 
hemispheric trade through the FTAA, but he expressed concern 
that countries may ``opt out'' of such a pact, particularly 
smaller economies, making such an agreement difficult to 
accomplish. With respect to labor and environment issues, he 
mentioned that Chile has a good environmental agreement with 
Canada. He again expressed his eagerness to negotiate with the 
United States, noting that discussions about an agreement began 
with President Bush.
    Chairman Archer responded by agreeing with the Minister's 
support for a trade agreement between the United States and 
Chile. He said that delegation's visit to is a recognition that 
South America is a natural market for the United States. He 
expressed no preference for a NAFTA accession or a separate 
bilateral agreement, saying that what is important is to ``keep 
the ball moving.'' He noted that U.S. Ambassador Derham is 
willing to work with the White House to get it done.
    Congresswoman Thurman noted that there is considerable 
bipartisan support for trade in the United States. She also 
discussed briefly the international conference on women's 
issues that she had attended the day before in Valparaiso.
    Minister Insulza noted that Chile is in transition. More 
developed than many developing countries, it was invaded by 
Asian exports but still lowered its tariffs unilaterally. Its 
views on labor issues are moderate, and while Chile has been 
reluctant to include certain issues, such as labor, in trade 
negotiations, Chile did not rush to support India and Brazil 
when they opposed raising labor issues. Chile, in short, 
believes that there should be some regulation on labor issues 
at some point.
    Congressman Shaw told Minister Insulza that he is gratified 
by the Chilean support that he has seen and expressed his 
support for fast track. He is happy to see the decrease in 
skepticism and the increase in attention in the Chilean press 
concerning fast track.
    Minister Insulza described that 1994 and 1995 were years of 
high expectations within Chile for an agreement with the United 
States. Chile is still eager, he added, but there will not be 
much discussion in Chile until fast track authority is granted 
to the President. Chileans are cautious, he noted. However, it 
is necessary to move quickly because Chile wants to negotiate 
with the United States before increasing its role within 
Mercosur. The Minister said that Chile is not in a position to 
join the Mercosur common market, and Mercosur, not an 
integrated process or union, does not cover issues such as 
services and investment. Chile is not interested, he said, in 
joining a common market for goods only. However, although 
Mercosur is far from forming a union now, it may be in the 
future, and Chile would rather conclude an agreement with the 
United States first.
Meeting with President Eduardo Frei
Santiago, Chile; Tuesday, January 12, 1999
    Chairman Archer began the meeting with President Frei by 
commending Chile as a marvelous example to the world in having 
unilaterally decreased its tariffs. ``We are in 100-percent 
agreement'' on trade issues, he said.
    President Frei responded by saying that despite the Asian 
crisis, Chile sought an opportunity to liberalize trade. 
Congress passed legislation allowing a 5 point total reduction 
in tariffs, from 11 percent to 6 percent, he explained. The 
average tariff rate paid is approximately 8 percent, and that 
average will drop to 4 percent by the end of the tariff 
reduction period. Free trade within Chile, he said, has been 
very positive and has had a good impact on the economy, 
particularly in creating more jobs. Although Chile is a small 
country, 50 percent of the GDP is related to trade, he noted. 
Accordingly, trade is an important pillar of the Chilean 
economy, and Chile aggressively is seeking new trade 
agreements. For the first time, he noted, Chilean firms are 
becoming internationalized and going abroad to invest, having 
invested $14 billion, although mostly in Latin America. Chile 
has invested $7 billion in Argentina alone. There is extensive 
U.S. investment in Chilean services. The U.S.-Chilean 
relationship, he stated, is important for the medium to long 
term. Accordingly, Chile is very interested in agreements 
beyond Mercosur and seeks an agreement with the United States.
    Congresswoman Thurman thanked the President for his 
hospitality and spoke briefly about the international 
conference on women's issues that she had attended the day 
before.
    Chairman Combest then told President Frei that he knows 
that the United States has been sending mixed and confusing 
signals concerning trade. This message is primarily political, 
he emphasized, and is not an indicator of the true U.S. trade 
policy. The agriculture community is very supportive of moving 
forward on trade agreements with Chile and other Latin American 
countries. President Frei responded by pointing to U.S.-Chilean 
working committees, especially in the area of agriculture, as a 
positive development, creating a close relationship. Chairman 
Combest agreed and urged the continuation of these committees.
    Congressman Shaw noted to the President that Chile has 
fixed social security before the United States, and he is in 
Chile to learn from the Chilean example. Such reform, he noted, 
has contributed to social growth and the development of a world 
class capitalist economy. He asked the President whether the 
success of trade has been a political benefit and how trade 
factors into the 1999 elections. President Frei responded that 
Chile made a choice of openness, and, at this point, it is 
difficult to go back because Chile is so dependent on trade. 
Candidates for political office have, in general, expressed the 
desire to expand trade and seek further agreements because they 
view trade as a pillar leading to economic progress. Trade, 
like the privatization of the pension system, has influenced 
Chilean development. Before the pension reform, the investment 
rate was 14 to 18 percent of GDP, while last year the rate 
climbed to 30 percent. Congress is now debating a second 
pension fund, he explained. With $3 billion in pension funds, 
more funds must be invested abroad--only 5 percent is invested 
abroad today. By 2005, the President noted, the pension fund 
will match the size of the economy. The pension system changed 
overnight 17 years ago, and many people could not join the new 
system if they had been working too long. The cost to finance 
the transition amounted to 14 percent of the Chilean budget, 
which meant more taxes, but a positive outcome overall, 
President Frei stated.
    The President then brought up the subject of labor and 
environmental protection. He had just signed a law making Chile 
the first Latin American country to ratify seven agreements of 
the International Labor Organization. Chile, he said, maintains 
an international standard. In addition, a number of bills are 
pending in Congress to improve labor laws, and he recently sent 
a bill to Congress concerning unemployment assistance. In 
addition, the President said that he has signed legislation to 
create a basic environmental law. That law, he stated, is in 
full operation and requires every project to provide an 
environmental impact assessment. Canada reviewed Chile's 
environmental standard, President Frei said, and agreed that 
Chile has world class regulations. Small developing countries 
must first solve the problem of poverty, he said, but Chile has 
made progress in the labor and environmental areas. 
Accordingly, Chile is ready to sign additional agreements as it 
did with Canada and Mexico.
    Congressman English expressed the strong sense that the 
United States and Chile must strengthen their trade 
relationship and create more opportunities. Congressman Watkins 
stated that he has a strong, positive impression of President 
Frei's leadership. Congressman Dickey cited Chile's commitment 
to capitalism and asked President Frei to be patient with the 
United States. President Frei responded by noting that the 
Chilean economy has been hit by the Asian financial crisis, 
reducing income to the state by $2 billion, or 8 to 9 percent 
of the treasury. Chile, however, has been able to adjust, and 
President Frei noted that there has been no deficit while he 
has been President. He pointed to Chile's lowest level of 
inflation ever and a high savings rate. Chilean reserves exceed 
1 full year of imports, and practically all foreign debt has 
been paid, leaving only $4 billion. Chile, he said, has been 
able to weather the Asia storm. In fact, the economy grew 4 
percent last year. He also pointed to the decline in the 
Chilean poverty rate, from 45 percent to 20 percent in a 
decade. President Frei stated that he hopes to end poverty in 
the beginning of the next century. Chile has only 15 million 
people, he said, but has expended tremendous efforts to reach 
development. Education, stated the President, is the top 
priority and is a pillar for development. His government has 
made profound reforms in education, doubling investment. He 
pointed to the fact that 70 percent of schools will have 
extensive telecommunications capability.
    He then spoke about the extensive privatization in Chile, 
noting that deep-rooted change has occurred in infrastructure 
and transportation. New social programs in housing, which 
include the private sector, have been implemented. A full 72 
percent of the budget is dedicated to social programs, he said. 
The President also pointed to judicial reform, noting that 
Chile is changing to oral public trials in criminal cases. 
``Internally,'' he said, ``we are progressing and 
surmounting.''
    President Frei concluded by saying that it is important to 
have a good relationship with the United States, its neighbor. 
A trade agreement between the United States and Chile would be 
a ``powerful signal'' to Latin America. Chairman Archer 
responded enthusiastically, committing his efforts to pass fast 
track so that the United States and Chile will have an 
agreement in place before President Frei leaves office.
Luncheon Meeting with Foreign Minister Insulza
Santiago, Chile; Tuesday, January 12, 1999
    Foreign Minister Insulza hosted Chairman Archer and the 
other members of the delegation at a lunch at the Foreign 
Ministry. Foreign Minister Insulza again welcomed the Archer 
delegation and indicated the importance of the delegation's 
visit from the point of view of reinforcing strong and positive 
ties between the United States and Chile. Chairman Archer 
indicated that the meetings that the delegation's meetings in 
Santiago, including the session with President Frei, had been 
very positive and that there were many areas of common interest 
and agreement--in fact, far more areas of agreement, especially 
with respect to trade, than points of disagreement.
    Chairman Archer asked Minister Insulza what he considered 
to be the major problems before Chile at the current time. 
Foreign Minister Insulza mentioned that the question of how the 
matter of General Pinochet should be handled was the most 
prominent issue in Chile currently. He said that more than 70 
percent of the Chilean people wanted the matter resolved 
through a trial, but that the overwhelming percentage of those 
wanted that trial to occur within Chile. There was broad 
agreement that Chile should handle this matter itself. Minister 
Insulza indicated gratitude for the support that the United 
States had provided to date in seeking to bring the matter to a 
successful and early resolution. He indicated that the key 
point for Chile was preserving the sanctity of its sovereignty. 
He also stated that the episode had strained relations with 
Spain, more so than with the United Kingdom.
    Foreign Minister Insulza continued that there were a number 
of border matters that Chile was attempting to resolve with its 
neighbors. These included matters with regard to Argentina, 
Bolivia, Peru, and Venezuela. However, for the most part, 
Minister Insulza said, President Frei had completed the foreign 
policy agenda he had set for himself upon being elected, with 
only one major exception--completion of a free trade agreement 
with the United States. Chairman Archer responded that he hoped 
to be able to work in the United States to promote that 
objective, which he indicated he and many others share.
Meeting with German Molina, Labor Minister
Participants: German Molina, Chile Minister of Labor; Vice Minister 
        Patricio Tombolini
Santiago, Chile; Tuesday, January 12, 1999
    Minister Molina commented at the outset that Chile had been 
waiting a long time for the U.S. Congress to renew so-called 
``fast track'' trade negotiating authority so that Chile could 
negotiate accession to NAFTA. He welcomed the Codel's visit as 
a sign of the commitment of its members to work on the passage 
of this important legislation, even though he understood that 
they could not guarantee swift passage. He commented that in 
his view, Chile's labor standards are already adequate to 
withstand U.S. scrutiny in the context of a NAFTA agreement and 
that the bilateral agreement with Canada, modeled on NAFTA, is 
working well. On a separate subject, Minister Molina commented 
that the Vice Minister would be visiting the United States in 
the coming months in order to explore concluding a bilateral 
Social Security Treaty. Chairman Archer expressed support for 
concluding such an agreement.
    Congressman Shaw expressed interest in a dialog over 
Chile's approach to fixing its social security system in light 
of the steps the United States will have to take in the coming 
years to shore up the U.S. system. Minister Molina indicated 
that the Vice Minister could help the Codel understand the 
strengths of Chile's system as well as ways that the government 
was addressing its weaknesses.
    Vice Minister Tombolini stated that the key transitional 
issue was finding an acceptable mechanism during the process of 
replacing the pay-as-you-go system with the individual 
capitalization system. In Chile, he explained, the government 
required tight controls over the investment of funds provided 
by individual workers. Minister Molina added that currently, 
the system contains $31 billion, approximately one-quarter of 
Chile's GNP. These dollars are working for the country and 
luring additional foreign investment. The two key problems the 
system has faced have been: (1) absence of universal coverage, 
because some workers are not included in the system; and (2) 
situations in which workers' salaries are too low and their 
retirement savings require supplementation by the government. 
On the whole, however, the system is working well.
    Chairman Archer asked what other problems the system has 
encountered--for example, the cost of transition.
    Minister Molina replied that the cost of administering the 
system is somewhat higher than it should be, namely that the 
average administrative expenses are higher than comparable 
private funds. He noted that eight firms compete for the right 
to manage the funds of each employee: that is, each employee 
can choose from eight different plans. Congressman Shaw asked 
whether the higher administrative costs are because the 
individual accounts, some of them very small, perhaps only 
$5,000 or so, are too small to manage economically. Minister 
Molina noted that this is not a particular problem because the 
funds are pooled, albeit accounted for individually.
    Vice Minister Tombolini explained that at retirement, an 
employee has three options for how the proceeds of his or her 
retirement fund would be paid: (1) annuity; (2) ``planned 
withdrawal''; or (3) planned withdrawal with an annuity. He 
stated that the system has solved the problem of declining 
birth rates with rising life expectancy rates. However, he 
added that the system lacks adequate transparency.
    Chairman Combest asked whether the employer contributes to 
the individual retirement accounts. Vice Minister Tombolini 
stated that under the old system, the employer, employee and 
the government each contributed to the system. However, he 
added, under the current system, only the employee contributes, 
with two exceptions: (1) where an employee's contributions fall 
below a certain level, the government makes a contribution; and 
(2) in certain ``very heavy jobs'' or in the case of jobs with 
occupational accidents, employers pay a premium as well to 
cover accidents and earlier retirement. In this case, the 
contribution level of the employer depends on the risk of 
injury of the activity in which the employee is engaged.
    Mr. English inquired whether Chile has a child labor law. 
Minister Molina responded that Chile does and that it was the 
first country in South America to have signed all of the basic 
seven ILO covenants. Chile's child labor provisions provide 
that: (1) in general, children under the age of 18 cannot work; 
(2) children between the ages of 15 and 18 may work with the 
written permission of their parents; and (3) children between 
the ages of 14 and 15 may work only in some special activities 
related to the work of the family, such as on a family farm.
    Mr. English also inquired whether Chile has a minimum wage 
law. Minister Molina responded that it does of approximately 
87,000 pesos (approximately $210) per month, with a 48 hour 
work week.
Meeting with Juan Gabriel Valdes, Director General of International 
        Economic Relations
Santiago, Chile; Tuesday, January 12, 1999
    Ambassador Valdes began by thanking members of the Archer 
Codel. He noted that he had just come from Valparaiso, where he 
had been working on a trade pact with Bolivia. His division, 
which was organized just a few years ago, is in charge of 
negotiating, administering and enforcing all trade agreements. 
In addition to continuing work toward a Free Trade Area of the 
Americas (FTAA), he mentioned they are currently working on a 
bilateral agreement with the EU, that they would be traveling 
to South Korea in March to discuss a potential free trade 
arrangement, and that they would be closely following the 
coming WTO round negotiations on agriculture.
    Regarding United States and Chilean interests, Ambassador 
Valdez noted three points of work that had been established by 
the Joint Commission on Trade when it last met in October of 
1998. They are: (1) to work on business facilitation measures; 
(2) to strike a mutual recognition agreement on standards and 
technical norms; and (3) to exercise transparency on issues 
related to labor and the environment, which he termed ``the two 
most controversial issues in the Western Hemisphere.'' With 
respect to labor and environmental standards, he plainly stated 
Chile does not support the use of trade sanctions to enforce 
international standards but will respect its own laws. He went 
on to explain that it was in its own interest to have 
relatively high standards.
    Ambassador Valdes concluded his statement by saying that 
the FTAA was not progressing as Chile had wished. He noted his 
concern over the failure by the United States to pass fast 
track trade negotiating authority and stated that Chile, with 
clear signals from the United States, was ready to provide 
needed leadership among the South American nations.
    Chairman Archer thanked Ambassador Valdes for his thoughts 
and for agreeing to meet. He expressed understanding of Chilean 
frustrations, explained the importance of fast track authority 
in the U.S. Government, and expressed his hope that fast track 
would be passed and that the United States would have a free 
trade agreement with Chile by the end of the current 
administration.
    Regarding the WTO, he cited the EU banana and beef hormone 
cases and stated that we must ``give it teeth.'' He explained 
that if problems such as the EU's failure to implement were 
simply allowed to persist, then support for the WTO in the U.S. 
Congress would likely wane. Ambassador Valdes contended that 
the WTO is a sound international body and is especially 
important for smaller countries like Chile, but agreed that it 
needed to be strong. He told Chairman Archer that he can depend 
on his help.
    Ambassador Valdes then sought to clarify his point (3) from 
above. The free trade agreement with Canada, he said, makes no 
reference to or establishes any preconditions for so-called 
international environmental and labor standards. Chile did not, 
and in no case would it want to make legislative changes to its 
existing laws and standards in order to ``qualify'' for a trade 
agreement. He noted that they are important issues, but they 
should not burden trade negotiations. Also, he mentioned that 
he does not favor arbitrary trade sanctions based on compliance 
with environmental or labor standards established in an 
agreement. He added that the Latin American countries are 
fearful and mistrustful of U.S. ``objectives'' for increasing 
these standards.
    Mr. Shaw asked the Ambassador how long it would take, 
beginning today, to negotiate a free trade agreement between 
the United States and Chile, and if negotiations could begin 
working to get some issues out of the way. He also asked if 
Chile would be willing to begin negotiating if President 
Clinton showed a serious interest.
    Ambassador Valdes responded saying there are some very 
difficult issues that will need to be worked out particularly 
in the areas of agriculture, financial services and 
antidumping. With respect to anti dumping issues, he mentioned 
the Chilean agreement with Canada allows no antidumping suits 
once tariffs go to zero, a position Chile would presumably seek 
in any negotiations with the United States. He mentioned that 
Chile took 9 months to negotiate with Canada and stated his 
opinion that 6 months would be sufficient with the United 
States. Regarding the possibility of beginning negotiations, he 
said, ``Chile has been very straightforward about its desire to 
craft a free trade agreement and has actually committed many 
resources to begin thinking about a proper negotiations 
framework.'' He mentioned that Chile has even looked at the 
possibility of negotiating with the United States in the 
absence of fast track. He asked if and how it would be possible 
for the United States to negotiate without fast track. Chairman 
Archer responded ``anything is possible,'' and asked if Chile 
would truly be willing. Ambassador Valdes said ``officially 
no,'' but if it was a possibility, Chile might be ``open to the 
idea.''
    Chairman Archer explained that this scenario would pose 
many risks. While he, as Chairman of the House Ways and Means 
Committee, which has jurisdiction over such matters, could 
probably shepherd a clean agreement through the House, the 
Senate has different rules, which would allow any of the 100 
Senators to seek to amend the agreement. He mentioned that 
lobbyists from every different interest group would each have 
something special needed in the agreement so that 
implementation would not be impossible, but extremely risky.
    Regarding fast track, Chairman Archer discussed the 
political difficulty of passing the authorizing legislation 
through Congress. He explained that the major difficulty 
centered around the labor and environmental issues. He then 
affirmed that he would not preside over a bill which makes 
labor and environmental standards a part of the agreement and 
therefore subject to sanctions. Ambassador Valdes responded, 
adding that ``Chile would not negotiate such an agreement.''
    Congresswoman Thurman next brought up the issue of sanitary 
and phytosanitary standards, saying that any agreement would 
need clear and enforceable standards. Ambassador Valdes agreed 
and mentioned that Chile is working with USTR and USDA/APHIS on 
these issues. He also mentioned the work being done by USDA and 
the Chilean Ministry of Agriculture through the Consultative 
Committee on Agriculture. Congresswoman Thurman then stated 
that these agreements need to be established early, to which 
Ambassador Valdes quipped, ``we wouldn't want to solve all the 
problems too early--we would forfeit our ability to bargain.'' 
The meeting then came to a close.

                                 BRAZIL

Country Team Briefing James M. Derham, Charge d'Affairs, and U.S. 
        Embassy Staff
Brasilia, Brazil; Wednesday, January 13, 1999
    The meeting was opened at 4:15 p.m. at the Kubitscheck 
Plaza Hotel by James M. Derham, Charge d'Affaires at the U.S. 
Embassy in Brasilia. The Charge's opening remarks reflected on 
the fact that this would normally be a very quiet time in 
Brasilia. Following a Presidential election like the one that 
just occurred with the re-election of President Cardoso to a 
second term, personnel changes would be minimal and new 
legislation would normally await the installation of both the 
returning President and a new Congress. However, the financial 
crisis with today's decline in the value of the Brazilian real, 
the fact that Brazil is losing its foreign exchange reserves, 
and the sharp decline in the stock market bring an aura of 
crisis. The big questions, according to the Charge, are what 
will be the new economic plan and what will be the central 
government's role and responsibility. Since the United States 
took the lead in putting together the IMF response to earlier 
economic problems in Brazil, this new crisis requires the 
attention of the U.S. Government. The importance and potential 
of Brazil are key factors for the United States to consider as 
it formulates its response.
    The Economic Counselor then took over the briefing. In his 
opinion, Brazil is still recovering from 25 years of 
protectionism characterized by heavy reliance on state 
enterprises and state control of the economy. There was 1,500-
percent inflation per year for the 5 years leading up to 1994, 
when then-Finance Minister and now President, Enrique Cardoso, 
implemented the Real plan. Since then, tariffs are down from 34 
percent to 14 percent and there have been $81 billion in 
privatizations with $25 to $35 billion in further 
privatizations to go. The current economic problems began in 
late 1997 with the Asian meltdown and the September 1998 
Russian default. Interest rates have doubled to a 42-percent 
overnight rate, with the resulting huge increase in the funds 
needed for debt service.
    President Cardoso's Economic Stabilization Plan, under IMF 
auspices, includes several key features: (1) $9 billion 
reduction in central government spending; (2) increasing taxes 
by $15 billion; and (3) the establishment by the IMF of a $41 
billion line of credit for Brazil. To accomplish the domestic 
Brazilian component of this plan requires significant action by 
the lame duck Congress, which has been called back into session 
in Brasilia.
    The Economic Counselor reported that Brazil made a 
significant change in monetary policy the night before. The new 
policy provided for a 9-percent devaluation of the real with up 
to 12\1/2\ percent over the coming year. The actual market 
experience during the day amounted to an 8.7 percent 1 day 
devaluation. The current crisis was, in part, precipitated by 
the declaration by the Governor of Minas Gerais State of a 
moratorium on the repayment of debts owed by his State. In 
order to address the problem of state debts, the central 
government has renegotiated the debt of 24 of the 27 Brazilian 
states.
    The Embassy staff then provided a short description of the 
current political situation. As a result of the recent 
election, the government coalition will have 378 out of 513 
seats in the new Chamber of Deputies and 60 out of 81 seats in 
the new Senate. Similar numbers exist in the lame duck 
Congress, which is currently sitting. In addition, 20 out of 27 
state governors are at least nominally associated with the 
government coalition. The staff characterized the political 
landscape in Brazil as unpredictable.
    The meeting was then adjourned in order for the Delegation 
to go to the Presidential offices to meet with President 
Cardoso.
Meeting with President Henrique Cardoso
Brasilia, Brazil; Wednesday, January 13, 1999
    The delegation met with Brazil's President Cardoso. Earlier 
in the day, Brazil made the surprise announcement that it would 
permit the Brazilian currency, the real, to float in a wider 
band than had been previously permitted.
    Chairman Archer began the meeting by congratulating 
President Cardoso on beginning to implement the reforms Brazil 
had pledged in its agreement with the International Monetary 
Fund. ``The world is watching,'' Chairman Archer said, because 
what Brazil does during this crisis will have a ``ripple effect 
all the way to the United States.'' He strongly encouraged 
President Cardoso to continue implementing the reforms.
    President Cardoso responded by saying that he intends to 
continue with the basic reforms in an effort to reduce 
monopolies, increase competition, reorganize the government, 
and open the economy. He pointed to the $25 billion in foreign 
capital in Brazil as a sign of confidence. The next reforms to 
be implemented, he noted, are more difficult, and many require 
amendments to the constitution. There have only been 14 
amendments to the constitution in the last 4 years, and they 
are difficult to do, he noted, requiring a three-fifths 
majority in each House. However, initial reforms have been 
approved, he said, and several important bills will be 
considered shortly. Congress has already approved basic social 
security reform, giving the executive more freedom to make 
complementary changes. With respect to fiscal adjustment, the 
President said that 70 percent of what was required has already 
been done.
    What is missing, he said, is only one tax (on check 
transactions), which is very difficult to do. The Senate has 
approved this tax by a 61-12 vote, but the Senate must vote 
again on this proposal on January 16, and then the House must 
act. The President noted that he sent additional executive 
orders to Congress at the end of December, and he expects that 
the last ones will be approved by Congress the day of the 
delegation meeting, to raise $4 billion, which makes up for the 
delay in the implementation of the check tax. Brazil is making 
progress, he said, and all that still needs to be done besides 
the check tax is legislation Congress will take up in February 
concerning taxes on retirees.
    The President said that he spoke to the head of the IMF, 
who said that Brazil ``must be tougher.'' This is so difficult, 
the President said, because Brazil is a democracy and Congress 
``likes to be independent.'' He has the cooperation of the 
Congress, the President added, but change takes time. In 
September, the government made a decision to achieve a $5 
billion surplus, and Brazil has been able to achieve this goal. 
Now, the President said, he must convince the market ``to be 
informed about social and political realities.''
    With regard to the change in the band for currency 
fluctuation, the President said that the change was 
``reasonable'' and not a surprise, and Brazil has ample foreign 
reserves. He said that he is optimistic because Brazil has the 
instruments and the determination to succeed. He added that the 
United States has been very helpful throughout the crisis, even 
when the change in the currency band was announced.
    The discussion then turned to other matters. Congressman 
Shaw noted that social security is in a global crisis. The U.S. 
system is ``solid'' until 2013, he said, so the United States 
is in a better position than the rest of the world. President 
Cardoso noted that it is always difficult to cut privileges.
    Congresswoman Thurman then asked how the United States can 
be of assistance. The President responded that it is important 
to explain that Brazil is acting in good faith. Congressman 
Watkins added that he appreciated the President's positive 
attitude, but he also noted that Brazil is key to preventing 
Latin America from becoming another Asia. He said that he hoped 
that Brazil can successfully implement the IMF reforms because 
it is unclear whether the world economy can stand another Asia. 
President Cardoso noted in response that the reforms are 
Brazilian, not IMF reforms, and Brazil itself made the 
determination to make the necessary changes.
    Congressman Dickey then asked how Brazil has been able to 
cut expenses. The President replied that Brazil has expanded 
its tax collection from $120 billion to $200 billion, creating 
a surplus of $5 billion last year. However, he pointed to 
social security and debt interest as being very real problems. 
Debt interest alone, he said, amounts to 7 percent of GNP (with 
6 points being interest and only 1 point capital). He said that 
Brazil pays retirees $20 billion, while it only collects $2 
billion. The bill that he sent to Congress would make 
additional cuts of $8.7 billion, and it is impossible, he 
stated, to cut any more. He pointed to the flowers in the 
office, noting that he pays for them personally. Education, 
health, roads are all impossible to cut. The World Bank, he 
said, has told him that social programs must be cut, but he 
does not know how such cuts can be achieved.
    Congressman English noted his strong sense that the United 
States has a great stake in Brazil's success. He expressed his 
hope that the United States and Brazil can partner together, 
and he wished the President luck. The President responded that 
relations with the United States have never been better, and he 
wishes to continue such an strong and important relationship.
Breakfast Meeting with Ambassador Jose Botafogo Goncalves, Executive 
        Secretary of the Brazilian Foreign Trade Board
Participants: Ambassador Botafogo and five members of his staff
Brasilia, Brazil; Thursday, January 14, 1999
    The breakfast meeting with Ambassador Botafogo and five 
members of his staff began at 8:30 a.m. at the Kubitscheck 
Plaza Hotel in Brasilia. The Ambassador is a career diplomat 
and is the trade advisor to President Cardoso. The Ambassador 
began the meeting by commenting on the fact that the Codel had 
visited with President-elect Chavez in Caracas and asking for 
the Members' impressions. Chairman Combest responded with a 
detailed account of that meeting with particular emphasis on 
how personable the new President was and how open-minded he 
appeared on many of the issues that he must confront in 
Venezuela, as compared to how he has been quoted and described 
in the U.S. press. Congressman English commented that many of 
the problems that President-elect Chavez faced were structural 
in nature and would require substantial governmental changes to 
effect. He speculated that how he deals with the oil industry 
and, particularly, how he deals with succession at PDVSA should 
indicate how pragmatic he will be. The Ambassador responded 
that it is common in Latin America for the new ``caudillo'' or 
leader to have his rhetoric and actions tempered by the 
business community.
    Shifting back to Brazil, the Ambassador commented on the 
continued stability of the Constitutional processes. The 1988 
Constitution allowed for 5-year revisions but there have been 
no major revisions since it was implemented. He commented that 
time is needed to consolidate real change.
    Chairman Archer extended the thanks of the delegation for 
the Ambassador's willingness to meet and entered into an 
extended dialog with the Ambassador about specific trade 
concerns between the United States and Brazil. He first 
commented, however, that he was glad to come to a country where 
the United States had so few major trade complaints. He noted 
that enforcement of intellectual property rights (IPR) was a 
continuing major concern. While the law is Brazil is good, its 
enforcement is the issue. The Ambassador replied that it is 
primarily an issue for Brazilian enforcement authorities and 
that failure to enforce IPR also hurts Brazilian companies. The 
Chairman stated that it is the U.S. position that it loses $125 
million per year in Brazil due to IPR violations. Both the 
Chairman and the Ambassador agreed that it is a serious problem 
and also results in a significant loss of tax revenues to 
Brazil. The Brazilian IRS has had several operations on the 
border with Paraguay to attack counterfeit goods entering from 
that country, and Brazil believes that piracy is taking place 
both within and outside Brazil. The Ambassador cited Asia as 
the main external source of pirated goods in Brazil but also 
noted the need to renegotiate the pact with Paraguay which 
gives them inspection-free access of a Brazilian port (Managua) 
since Paraguay is a landlocked country. He agrees that 
improvements in IPR protection/enforcement are needed. The 
Chairman asked if there has been any prosecution of violators, 
and the Ambassador responded that there probably have been but 
that he was not positive. He did note that seizures at the 
borders were on the increase.
    Ambassador Botafogo then moved the discussion to other 
trade issues, such as steel antidumping. It was his contention 
that the way the United States calculates antidumping margins 
is wrong. In the case of Brazil, where the government has 
privatized the steel industry over the last 10 years, the 
antidumping regime looks back farther to calculate margins. 
Since 1990, he said Brazil has unilaterally dropped its tariffs 
and other import controls. He cited the Brazilian belief that 
talks with the USTR have been disappointing and that the lack 
of fast track negotiating authority for the Clinton 
administration is hindering Brazil's interest in negotiating 
the FTAA with the United States. Furthermore, Brazil still 
faces high tariffs on key potential exports to the United 
States, such as textiles, orange juice, and sugar.
    Congressman English responded with regard to steel, citing 
that Brazilian exports of steel to the United States increased 
50 percent in 1 year while Japan's export increased 100 percent 
in that same year. He said he believed that Brazil is less of a 
focus of U.S. concern than Japan, Russia, and Korea. The U.S. 
steel industry needs time to adjust to new world market 
realities in steel, citing the potential risk of the loss of 
100,000 of the 160,000 U.S. steel jobs. The Ambassador 
responded that Brazil has only 2 percent of the U.S. steel 
market and that industries in both countries should meet to 
resolve their mutual problems.
    Returning to antidumping issues, Chairman Archer said that 
the U.S. Congress sets the standard with respect to 
antidumping, permitting suits to address whether any product 
has been sold at a price less than that in its domestic market. 
He said it would be difficult as a practical matter to believe 
that the United States will ever rid itself of antidumping 
laws. The Chairman said that he will the moratorium on imports 
sought by U.S. steel producers. He also stated that he 
``hates'' quotas (for example, sugar or textiles) but the 
reality is that WTO rules permit it. Continuing on with regard 
to fast track, Chairman Archer said that he would make a very 
strong push to secure it. The Ways and Means Committee has 
negotiated language with the administration and he pointed out 
that Ways and Means Trade Counsel, Angela Ellard, who 
accompanied the delegation, was the Committee negotiator with 
the administration. An FTA, unfortunately, only remains talk 
without fast track negotiating authority, in the Chairman's 
opinion.
    Ambassador Botafogo declared that there is a strong level 
of common interest between the United States and Brazil, and 
that the two nations should talk more. He is of the opinion 
that there is not enough knowledge in the United States about 
the progress that is being made in Brazil on both its economy 
and trade. He then indicated that Brazil has problems with the 
language already negotiated on fast track and would like to see 
changes before it is enacted. At the Chairman's request, he 
promised to communicate those concerns in writing.
    Congressman Shaw responded to earlier comments with regard 
to orange juice. He said that weather and supply issues are 
powerful political realities, and he acknowledged that flexible 
tariffs are indeed protectionism. He indicated his agreement 
with the Ambassador's statements on sugar quotas.
    In closing, the Ambassador spoke briefly about the lost 
opportunity for Brazilian alcohol fuels in Florida and 
expressed his belief that there is a possible market for such 
products in California as that state seeks to meet its new air 
pollution rules.
Meeting with Foreign Minister Luiz Felipe Palmeira Lampreia
Brasilia, Brazil; Thursday, January 14, 1999
    The delegation next met with Foreign Minister Lampreia. 
Chairman Archer began the meeting by noting that the relations 
between the United States and Brazil are ``incredible'' and 
that any frictions are inevitable. He encouraged the Minister 
to continue Brazil's reforms, stating that what Brazil does has 
an impact on the world. Minister Lampreia responded by pointing 
to the level of mutual respect and understanding between the 
United States and Brazil. The relationship, he added, is full 
and balanced. During the financial crisis, he said, Brazil has 
seen the capacity of the United States to lead. The ``bitter 
medicine'' of the fiscal package has created some resistance; 
it is difficult to make cuts because the needs are so pressing. 
Brazil had been postponing fiscal adjustment for some time, but 
now the ``hour of truth has arrived.'' The President, he said, 
has been able to pass 14 constitutional measures and other 
measures to open the economy, but these reforms take time 
because the President has to put together a Congressional 
majority for each vote. But there is a sense of urgency now, he 
said. Congress approved two measures the day before and will 
approve the tax increase promised.
    Congressman English said that many in Pennsylvania are 
interested in the Brazilian market. Steel, he said ``may divide 
us for a time,'' but the United States has a stake in Brazil's 
success. Trade, he added, improves the relationship. In 
response, the Minister pointed to the $100 billion in foreign 
investment in Brazil, with half of that coming in the last 6 
years. Mercosur, he said, has become an important center for 
trade--for example, FIAT now produces more cars in Brazil than 
in Italy. He also noted that he understands how sensitive the 
steel issue is in Washington. However, Brazil believes that it 
is being ``targeted without justification'' because it is ``not 
in the same league as Russia and Japan,'' whose imports have 
surged while Brazil's have remained small. The International 
Trade Commission, he added, has found ``no injury.'' (It is 
possible that the Minister meant that the Commerce Department 
has not made a ``critical circumstances'' finding with respect 
to Brazil, because the ITC has indeed preliminarily found 
injury or threat of injury by Brazilian imports.) Brazil fears, 
he said, an increase in protectionist policies in the United 
States.
    Congressman Watkins added that he knows Brazil must make 
difficult decisions now, but he said that the United States 
``is counting on you'' because ``we cannot afford another 
Asia.'' The United States has had to make difficult decisions 
in the past, he noted, and he hopes that Brazil can also make 
the difficult decisions to ``shore up'' the reforms. The 
Minister responded that some states feel that the ``medicine is 
too bitter'' and try to challenge the federal government. 
However, Brazil does not have much choice, and the government 
will impose strict discipline. When one state did not 
cooperate, the federal government responded by threatening to 
withhold tax benefits to that state.
    Congressman Dickey noted that his Appropriations 
subcommittee had to make painful cuts in social security 
programs, but Congress was somehow able to make the point to 
Americans that such cuts were the best for the United States. 
He hopes that Brazil can bring the necessary discipline to 
bear. The Minister agreed. He noted that inflation has masked 
Brazil's debt in the past, but the social cost of inflation is 
``terrible.''
    Chairman Combest then asked the Minister his impression of 
Venezuela's President-elect Chavez. He responded that he is 
``well-meaning'' and has a ``strong sense of duty.'' His ideas 
have been general, and it is unclear how policy will be 
affected, the Minister said. His personal view is that Chavez 
could easily become either a very important leader (like 
Argentine President Menhem) or entirely the opposite. 
Venezuela, he noted, is plagued by low oil prices, a weak 
political system, and economic troubles.
    Congresswoman Thurman mentioned that she was encouraged by 
the delegation's meeting with President Cardoso, noting that he 
had told the Brazilian people of the reforms he intended to 
implement before the election so that it would not come as a 
surprise. The Minister agreed, stating that he is among the 
first politicians to announce in advance of the election that 
he intends to increase taxes but to win nevertheless. 
Congresswoman Thurman continued that the United States has 
increased taxes on the elderly and has made other difficult 
reforms, and as a result the United States now has a surplus. 
``Pain,'' she said, ``gives us gain.'' She pledged to continue 
giving Brazil support.
    Congressman Dickey asked whether Brazil would devalue again 
if ``the world lets you do this (devaluation) smoothly.'' The 
Minister responded that there is ``no reason'' to devalue 
again. The currency, he said, has been overvalued but should 
now be adequate.
    The delegation and the Minister then began to discuss trade 
issues because the Minister has responsibility for running 
trade negotiations. Chairman Archer asked the Minister his view 
on the relationship between labor and environment issues and 
fast track, particularly the use of trade sanctions in this 
context. With respect to labor issues, the Minister responded 
that ``we all favor core standards.'' However, Brazil ``has 
problems'' with the use of trade sanctions to enforce these 
standards. It is ``difficult and dangerous,'' he said, ``to mix 
trade and these concepts.'' An ``intrusive policy,'' he noted 
``runs the risk of a resurgence of protectionism in the guise 
of protecting such standards.'' He raised the issue of 
differences in wages across countries, asking rhetorically 
whether a country should be penalized for having lower wages. 
Linking trade and labor issues ``introduces confusion'' and 
could lead to ``misuse and distortion.'' With respect to the 
environment, the Minister said that it is ``hard to see'' how 
Brazil and other countries can have the same environmental 
standards as the United States. Brazil has environmental 
concerns, he added, and there are areas in which countries can 
make progress on a multilateral basis. Environmental issues, 
therefore, are different from labor issues, which can create 
``distortions.''
    Chairman Archer noted that he is committed to bringing fast 
track out of the Ways and Means Committee as soon as possible, 
but there are not now sufficient votes in the full House. He 
pledged to work with the administration to pass fast track 
early this year, noting that he hopes to have the bill on the 
floor no later than April. The Minister mentioned that he is 
concerned about the FTAA process. It is ``hard to see how we 
can liberalize further in the midst of this storm,'' he said, 
but the United States should have the ability to lead the trade 
debate, particularly in agriculture. Brazil and the United 
States, he concluded have much in common with respect to 
agriculture and must work together in the face of Europe.
Meeting with the President of the Senate, Senator Antonio Carlos 
        Magalhaes
Brasilia, Brazil; Thursday, January 14, 1999
    The delegation next met with the President of the Senate. 
Chairman Archer began the meeting by saying that the delegation 
came to Brazil because of Brazil's importance to the world. He 
complimented the Senator on what Brazil has done with respect 
to structural reform and fiscal adjustments. He encouraged the 
Senator to keep to the package Brazil agreed to with the IMF 
because the ``world is watching.'' The Senator responded that 
he was grateful for the interest of the delegation, noting that 
the United States and Brazil share an interest in ending the 
crisis. He pointed to the deep economic and cultural ties 
between the two countries. He recognized the support that the 
United States has given, stating that he knows that the United 
States ``sometimes looks with doubt'' on Presidential and 
legislative actions, but there has been an ``unmistakable 
demonstration of Brazil's commitment to all that it has 
promised.'' Brazil, he said, is on the ``right path.'' He 
pointed to the fact that the day before, two-thirds of the 
Senate passed an essential measure and promised to be finished 
with legislative action on all reforms by March. No one, he 
said, likes to help those that do not do their part, but ``we 
will do our part.'' He also mentioned that the United States 
and Brazil should increase cooperation between its Congresses.
    Congresswoman Thurman stated that she was very encouraged 
by the action that the Brazilian Congress has taken. She noted 
that the United States has taken difficult measures to make the 
economy sound and to end the deficit. The Senator pledged to 
continue his efforts to reach a fiscal balance with social 
justice.
    Chairman Combest noted that U.S. support for the IMF is 
easier when it is obvious that governments are serious in 
making sure that promised reforms are imposed. He commended the 
Senator for the actions already taken and encouraged 
expeditious consideration of actions that are left to be 
undertaken. The Senator responded by thanking the delegation 
for U.S. support, which has been important to Brazil. 
Congressman Shaw mentioned that he was impressed that the 
President said that he was going to increase taxes. He asked 
the Senator whether the President had the necessary votes in 
Congress. The Senator responded by ``guarantee(ing) that the 
Congress will approve'' these tax increases. The only defeat, 
he noted, has been regarding one social security measure, but 
this measure will pass during January or February because the 
current social security system is not acceptable. He stated 
strongly that ``I guarantee that it will pass.'' Brazil, he 
said, is on its way to collapse otherwise, and ``we can't let 
this happen.'' Congressman Shaw said that the United States is 
reforming as well, although it is not in a crisis yet. The 
Senator said that Brazil has ``eliminated the excesses of the 
retirement system for Congressmen,'' so Congress has led by 
example. He concluded by saying that he hopes in April to say 
that Brazil has fulfilled its commitments.
Meeting with President of the Chamber of Deputies, Deputy Michel Turner
Brasilia, Brazil; Thursday, January 14, 1999
    Approximately 20 members of the Chamber of Deputies were in 
attendance, including the Chairmen of the Foreign Relations, 
Economic, and Agriculture Committees.
    Deputy Turner gave a warm welcome to members of the Codel, 
stressing the good relations that the two countries have. He 
boasted that the legislative body of Brazil was modeled, both 
structurally and idealistically, after the legislative branch 
of the U.S. republic. He said the greatest battles of the 
Brazilian Republic occurred in the efforts to reproduce the 
federative system of the United States. He said the writings of 
Madison had been very influential, ``like the Bible,'' and 
again expressed his great satisfaction in hosting the 
delegation.
    Chairman Archer responded that the United States is still 
but a young democratic experiment, and made the additional key 
point that ``the House of Representatives is by far the most 
important body in this experiment,'' to which there was 
unanimous agreement in the room. Chairman Archer proceeded to 
introduce the members of his delegation, and then began to 
address the economic situation in Brazil. He congratulated the 
group on the courage they had shown in making some strong 
reforms and encouraged them to work to complete the reforms 
called for under the IMF package. He expressed hope that they 
would resist any pressures to slide back to ``economic 
protectionism'' during these times of difficulty and pledged to 
continue his fight to reduce barriers to trade from his 
position in Washington.
    To respond, Mr. Turner yielded to the Chairman of the 
Foreign Relations Committee, who noted that there are a number 
of ``sensitive'' subjects that needed to be addressed. He 
explained that he had received complaints from many sectors of 
Brazilian industry about protectionist measures espoused by the 
U.S. Government. He complained that these send a very confusing 
message. Specifically, he mentioned that only 48 hours before, 
President Clinton had expressed what they considered to be 
protectionist ideas regarding steel imports. He compared this 
to the barriers that are prevalent in agricultural trade.
    Chairman Archer responded that we may never be rid of all 
the protectionist measures, but that the United States is the 
most free market in the world today. He touched on the 
political difficulties of the steel issue and yielded to 
Congressman English, who represents an area of heavy steel 
production.
    Congressman English stressed the difficult nature of this 
issue, saying the United States stands to lose over 100,000 
jobs in its basic steel industry. He mentioned that the U.S. 
industry had filed an antidumping petition, and that while 
President Clinton has resisted becoming very involved, he had 
addressed some of the most pressing issues particularly with 
respect to Japan. With Brazilian imports having increased by 50 
percent, Brazil should also be aware of these political 
sensitivities and respect the U.S. industry, he said. ``We 
should all be playing on a level, subsidy-free, playingfield,'' 
he concluded. The Foreign Relations Committee Chairman 
responded he does not have an interest in dumping but does have 
an interest in establishing new and fair markets.
    Congressman Shaw interjected his view that while there are 
industries worth protecting (such as steel from a national 
security interest), others, like sugar, are less defendable. 
However, he contended, the U.S. tariffs are generally low, 
about 2.5 percent across the board, whereas Brazil's are high, 
approximately 17 percent. We must work together to lower these 
tariffs, he said, but we must also respect each other's 
interests.
    Chairman Archer stated that the United States, as the 
world's leading economy, must set an example for other 
countries. He then contended that the United States is doing so 
by adhering to the rules of the WTO. In sugar, steel, or any 
other commodity where one might argue that the United States is 
being protectionist, the United States is at least being 
consistent and abiding by the agreements which have been made. 
Chairman Archer said he too does not like quotas or other 
protectionist measures and he hoped that one day the world 
would be rid of them. Until then, he said, the United States 
will continue to lead by honoring the agreements it makes and 
understanding and respecting the interests of others. He 
mentioned that there will be significant political pressures in 
the United States to close U.S. borders to steel imports, but 
he pledged to fight these pressures.
    Congresswoman Thurman specifically addressed agriculture, 
saying that United States and Brazilian farmers could both 
agree to work to expand into areas that neither country 
currently has access to. She mentioned that if farmers from 
both countries see and experience progress in this regard, then 
the whole concept of free trade is easier to sell. A Member of 
the Chamber's Committee on Agriculture took the opportunity to 
speak and sharply criticized the U.S. tariff rate on frozen 
concentrated orange juice, which he considered to be far too 
high.
Lunch with Members of Senate and Chamber of Deputies
Participants: Deps. Werner Wanderer, Roberto Balestra, Abelardo Lupiao, 
        Rubens Medina, Lael Varela, and Paulo Delgado
Brasilia, Brazil; Thursday, January 14, 1999
    Deputado Werner Wanderer, who hosted the luncheon, 
commented that the eyes of the world are on Brazil to see 
whether Congress will do its job to address the key problems 
Brazil faces. He stated that he was confident that Congress--
the Senate and Chamber of Deputies--would do its job. He stated 
that Brazil asked the United States for help in putting 
together an aid package because the United States is Brazil's 
largest partner. Representatives from the Congress were 
scheduled to travel to the United States shortly and they want 
to be able to say that they have taken the necessary steps. 
Brazil understands the seriousness of the commitments it has 
made and will do its part. In addition, Brazil is anxious to 
work out the few areas of trade friction with the United 
States.
    Chairman Archer responded that the bonds between Brazil and 
the United States have never been stronger, but that they could 
be made stronger still. He indicated that he believed that the 
problems can be solved by people of good faith with an honest 
dialog. Chairman Archer complimented Deputado Wanderer on the 
progress to date in addressing the important problems. Chairman 
Archer quoted Congresswoman Thurman as saying that the Members 
of the U.S. Congress understand the problems that Brazil's 
Congress faces in addressing problems with government spending. 
It is not easy to make the tough decisions, he said. However, 
Chairman Archer concluded, it is true that the eyes of the 
world are on Brazil, and, he is confident that Brazil would 
respond appropriately.
Meeting with Finance Minister Pedro Malan
Brasilia, Brazil; Thursday, January 14, 1999
    Chairman Archer opened the meeting by saying that a key 
purpose of the Codel's visit was to emphasize the importance of 
U.S. relations with the countries of South America. Chairman 
Archer added that he wanted to compliment the tough measures 
that Brazil had already taken and those for which it was in the 
process of seeking approval from the Congress. He stated that 
he was encouraged to hear that the expanded currency band for 
the real, which had resulted in a devaluation of approximately 
9 percent over the previous day and a half, had focused 
attention on pressing problems in Brazil and mobilized 
governors to urge legislators to support the government's 
package of reform measures. He asked Minister Malan to address 
the particular concern expressed by some senior U.S. Government 
officials that Brazil had taken the step suddenly and without 
prior consultation.
    Minister Malan opened by stating that this was the sixth 
year that some in President Cardoso's Cabinet had been working 
with him. When Malan joined Cardoso in 1993, when Cardoso was 
Finance Minister, inflation was running at 30 percent per 
month. Already at that time, they were aware that keeping a lid 
on inflation on a sustained basis would require an ongoing 
program of reforms. In a democratic society, that means having 
to work with Congress to get those reforms enacted into law.
    Minister Malan stated that the reform program has made 
substantial progress. In 1997, inflation was 2 percent, and the 
economy was 25 percent larger than it had been in 1993--the 
fifth largest economy in the world. Brazil is attracting 
substantial amounts of foreign private investment, in part due 
to Mercosur (the customs union comprising Argentina, Brazil, 
Uruguay and Paraguay), which constitutes a market for goods and 
services of approximately $1.3 trillion.
    Minister Malan stated that Russia's crisis in the summer of 
1997 has catalyzed the Cardoso government's reform program. In 
the 1998 election, Cardoso's platform included unpopular 
provisions such as raising domestic interest rates and 
announcing 3 more years of fiscal austerity reforms. Malan 
stated that the data will show that the government met its 
fiscal targets for December 31, 1998, and will do so in 1999 as 
well. Just today in the Congress, he stated, agreement had been 
reached on increasing the contributions of retired and active 
government employees to social security and pension programs, 
and he promised that the agreement will be voted on early next 
week.
    In addition, Malan added, there were several reasons why 
the press had a more negative perception of the government's 
reform program. For one thing, the press has tended to focus on 
a vote in the Chamber of Deputies in December 1998 defeating a 
government proposal on social security. However, this vote was 
not put into context of other measures that were passed and the 
possibility, now seemingly a likelihood, that this element of 
the program would be passed this month, he said.
    In addition, the declaration by the Governor of Minas 
Gerais that the state would not continue to service its debt to 
the central government was given greater credibility abroad 
than in Brazil. In Brazil, Malan explained, the move was seen 
as largely political in nature by a former president who may 
well be a candidate again in 2002. By contrast, Malan pointed 
out, the press has not reported that the federal government has 
negotiated binding contracts with 24 of the 27 states in Brazil 
concerning debt repayment to the central government, or that 18 
of the 26 states have expressed strong support for the Cardoso 
government's reform program and that the remaining 6 are not 
sharply divided on the question.
    Turning to the international dimension of Brazil's approach 
to the current crisis, Minister Malan stated that in the fall, 
he had met in Washington with the nine largest Central and 
South American countries together with World Bank, 
International Monetary Fund and U.S. Treasury leadership to 
discuss the response of Brazil and South America to the Russian 
crisis and the best approaches to it. He had suggested that the 
U.S. Federal Reserve Bank should lower interest rates and the 
IMF should develop preventive measures. For Brazil, the IMF 
package of preventive measures amounted to $41 billion from 
various sources, including key IMF members such as the United 
States, the World Bank, and the Interamerican Development Bank. 
Brazil has received $9 billion to date of that amount, and 
Malan stated that it was his intention and hope that Brazil 
would not actually have to use the capital. At the same time, 
Malan stated, new foreign direct investment in Brazil in 1998 
totaled $25 billion--and this is not volatile foreign capital.
    Finally, Minister Malan directly addressed the Cardoso 
government's decision the previous day to allow the currency to 
devalue by 9 percent. Malan stated that the move was prompted 
by the view within the government that the real was overvalued 
and in need of correction. He rejected some public estimates 
that the currency was overvalued by 20 to 25 percent and saw 
the overvaluation being in the single digits. For example, in 
1998, the real devalued 8 percent against all other currencies; 
similarly in the period 1997 to 1998, the currency devalued 
approximately 12 percent against the U.S. dollar.
    Responding to Chairman Archer's expressed concern that the 
Cardoso government's action was not predictable, Malan asserted 
that the shift of the band from a ratio of 1.12 : 1.21 real/
dollar to a ratio of 1.20 : 1.32 real/dollar, was foreseeable. 
On the question of specific prior consultation and notice to 
the U.S. Government, Malan stated that he had discussed the 
move conceptually with various officials, including U.S. 
Treasury Secretary Rubin, Deputy Secretary Summers, and Stanley 
Fisher (Deputy Director of the IMF) over the previous months. 
However, more specific consultation would have been difficult 
and not necessarily advisable. He explained that in the day or 
so prior to the devaluation, rumors began circulating about the 
possible move, in turn roiling currency markets. So, more 
specific consultations were not possible in the days leading up 
to the decision, and delay might have made the situation worse. 
However, Malan assured the Codel that there was no intentional 
surprise in the move and, in fact, President Cardoso had spoken 
the day before with Secretary Rubin and that day with Deputy 
Director of the IMF Fisher.
    Finance Minister Malan closed with a related point, on 
which he asked the Codel for their assistance. The point 
related to Brazil's transparency on the amount of the public 
debt in the country. Unlike many other countries, Malan 
explained, the figure for Brazil's public debt includes not 
just central government debt, but also the debt of the 27 
states and 550,000 local governments. Malan expressed his view 
that Brazil is often penalized in comparisons of the size of 
public debt in different countries because its debt figure 
includes many more items than other countries and, therefore, 
is not a fair basis for comparison.
    Congressman English asked Malan whether, in view of the 
financial crisis that had affected so many countries in Asia, 
Russia and other countries, the international financial system 
needed to restore a restructured Bretton Woods system. Malan 
replied that he agreed that more structure was needed in light 
of the Asian and Russian examples. He noted that a process was 
underway in the Bank for International Settlements (BIS) to 
address problems such as regulation of leveraged funds. In 
addition, a proposal for a lender of last resort should also be 
considered. Such a lender could be the IMF or BIS or another 
entity. With respect to exchange rates, Malan foresaw the 
development in the longer term of three essential currency 
blocs, one each built around the yen, dollar, and euro.
    Congresswoman Thurman asked Malan about the composition of 
the new Congress that would be seated in February 1999--whether 
it would make the government's job harder in getting its reform 
plan enacted into law. Malan responded that approximately 200 
of the 513 legislators in the new Congress would be new, but 
that this would not present ``a major discontinuity.'' 
Moreover, the Cardoso government was seeking institution of a 
procedure that would speed up voting in the Chamber of 
Deputies, thereby facilitating passage of the program.
Meeting with Minister of Development, Industry and Commerce, Ambassador 
        Celso Lafer
Brasilia, Brazil; Thursday, January 14, 1999
    Ambassador Lafer welcomed the delegation and thanked them 
for positive statements made to the press with regard to 
Brazil's recent currency devaluation. He expressed the 
Ministry's interest in issues of international trade and 
mentioned his personal involvement in recent WTO meetings in 
Geneva. He stated that while an interagency council of the 
Brazilian Government will ultimately make the decisions in 
future WTO rounds, his ministry will be heavily involved in the 
negotiations.
    Chairman Archer returned the thanks, and stated that while 
the United States supports the WTO, there are certain aspects 
that must be improved. He added that the current framework 
needs more teeth and that it currently allows countries to 
delay compliance with their agreements by questionable means. 
As an example, he cited the European Union's actions with 
respect to imports of beef and bananas. He stated that the U.S. 
Congress will have to reaffirm the WTO in Congress next year 
and that he fears support is eroding. Last, Chairman Archer 
mentioned that any help Brazil could provide to persuade the 
WTO to take strong stands on such compliance cases would be 
good for everyone's sake.
    Ambassador Lafer responded that he had served on a WTO 
dispute resolution panel in the past. He described these 
particular cases as ``sensitive'' but stated that he too 
believed it important to resolve such issues for the 
credibility of the organization. In essence, he agreed that the 
WTO needs more teeth but defended the process and structure, 
stating ``we are better served with it than without it.''
    Shifting issues, Chairman Archer congratulated Ambassador 
Lafer on Brazil's passing a stronger intellectual property 
rights (IPR) law but stated it needs greater enforcement. He 
cited an estimated $125 million in U.S. products being pirated 
each year. To this, Ambassador Lafer responded that the 
Brazilian patent office is within his ministry and that he 
would investigate the issue of implementation.
    Ambassador Lafer then asked the group what the outlook of 
the United States would be for the WTO negotiations on 
agriculture. Chairman Combest expressed the priority of trade 
issues to the agricultural industry in the United States adding 
that strengthening dispute settlement and enforcement 
authorities would be high on the list of topics for 
negotiating. Congresswoman Thurman asked Ambassador Lafer what 
potential problems he saw in the agricultural negotiations. He 
responded ``many,'' citing problems with the EU because it 
cannot maintain its Common Agricultural Policy (CAP) at its 
current rate of subsidization; Japan and Korea have a similar 
problem in their rice and sugar programs; India has its food 
security issue; and Egypt will hold fast to its export 
promotion programs. The Ambassador concluded, however, that 
``with cooperation, there is room for much progress.'' 
Congresswoman Thurman pressed him on phytosanitary issues, to 
which he answered the science is complicated, but often the 
complaints are nothing more than trade issues. He went on to 
say that the Cairns Group (of which Brazil is a member) of 
developed and underdeveloped nations will push for and give 
much legitimacy to trade liberalization.
    Chairman Archer asked Ambassador Lafer if the development 
of Mercosur helped or hindered an FTAA. The Minister answered 
that ``it helps,'' explaining they are complementary efforts of 
a different nature.
    Congressman Shaw brought up the issues of drug trafficking 
and trade in precursor chemicals. He noted that Brazil has a 
close proximity to some heavy drug producing regions and asked 
if there was anything the U.S. Congress could do to help Brazil 
in its efforts to stem these problems. There was too little 
time left to get into a complete discussion of these problems, 
and so Ambassador Lafer simply noted that it is a difficult and 
complex problem for Brazil, that compounded by the length of 
the inland border. Chairman Archer commented that ``one area 
where the United States does not support free trade is in 
drugs,'' and the meeting came to a close.
    The delegation then traveled to Sao Paulo, Brazil.
Consular Briefing by the U.S. Consul General Gwen Clare and Staff
Sao Paulo, Brazil; Friday, January 15, 1999
    The meeting was opened at 9:30 a.m. at the U.S. Consulate 
in Sao Paulo, Brazil by Consul General Gwen Clare. In her 
opening remarks, she stated that it was difficult not to be 
impressed by the commitment and talent represented by the 
Brazilian Government team in addressing Brazil's economic 
problems and the current crisis sparked by the devaluation of 
the real. In her opinion, the real question is how the private 
sector reacts. She further commented that there was ongoing 
international criticism of the lack of international 
consultation leading up to the most recent devaluation and that 
the government's credibility as well as international 
confidence were critical (along with the reaction of American 
bankers) to a solution. She also noted that the Consulate's 
commercial office is the third largest in the world.
    The Security Officer for the Consulate provided a 
confidential briefing on terrorism and terrorist threats in the 
region.
    Congressman Watkins stressed his belief that the United 
States needs to encourage investment in Brazil, and the Consul 
General responded that Brazil was a huge market but not a cheap 
one in which to operate. Furthermore, she cited the 
government's continuing focus on public works projects.
    The Labor Officer at the Consulate briefly commented on the 
unemployment rate, which he believes is understated. The lowest 
rate cited by government statistics is 8 percent, and that 
figure applies only to urban areas. Labor costs are 100 percent 
of wages compared to 40 percent in the United States.
    Congressman English expressed his concern about the 
assistance that is available to small and medium size U.S 
businesses that are seeking to break into the Brazilian market. 
The Commercial Officer of the Consulate said that the level of 
services was good and said that 7,000 U.S. firms do business in 
Brazil. He has further been emphasizing distribution of 
information on the Y2K problem and has implemented a computer 
system to track all commercial cases or inquiries that the 
Consulate is handling.
    The Agricultural Officer cited Brazil as both a supplier 
and competitor to U.S. companies and as a huge market for U.S. 
products. He said that Brazil supplies the United States with 
large quantities of coffee, citrus, and oilseeds. As an export 
market, Brazil is the top U.S. market for soybeans (raw). Many 
U.S. companies are now producing in Brazil versus 1990, and 
those companies, as well as the Consulate staff, are 
continually looking at new products and niche markets that can 
be opened to U.S. companies.
    The U.S. Information Agency officer commented further on 
the Y2K issue. He made the observation that business in Brazil 
is far more concerned with addressing potential Y2K problems 
than is the Brazilian Government.
    Congressman Shaw observed that, since arriving in Brazil, 
the delegation has heard that everything is being done right 
but it is clear that the economic problems and economic 
hysteria is shaking current confidence. It was the opinion of 
the Consular staff that Brazil is at a crossroads. It is 
spending too much and the federal deficit is growing. Thus far, 
it has been unsuccessful in its efforts to cut spending. It is 
concentrating on raising taxes which, in turn, is anathema to 
business. The consensus furthermore was that the next week in 
the Congress was critical. While the Congress has suspended a 
60-percent increase in their own pay, the staff was skeptical 
of success in the effort to pass government pension reform.
Meeting with Panel of Bankers
Participants: P.J. Garrido, Senior Vice President, Bank America of 
        Brazil; Geraldo Jose Carbone, President for Brazil and Northern 
        Latin America of Bank Boston; Gustavo Marin, Global Corporate 
        Bank Business Manager for Brazil of Banco Citibank; Alfredo 
        Gutierrez, Managing Director for Brazil and Mercosur of J.P. 
        Morgan; and Bernardo Parnes, Managing Director and President, 
        Brazil of Banco Merrill Lynch.
Sao Paulo, Brazil; Friday, January 15, 1999
    The Codel's questions and ensuing discussion focused on: 
(1) the impact of the Cardoso government's decision 2 days 
earlier (Wednesday, January 13) to replace the existing 
exchange rate band for Brazil's currency (the real) with a 
broader band that effectively allowed the real to devalue by 
approximately 9 percent in 1 day; (2) prospects for addressing 
the consequences of the devaluation, including a 23-percent 
decline in the stock market on Thursday, January 14; (3) 
possible next steps by the government and private sector in 
reaction to the unfolding situation; and (4) overall views by 
the banks represented of Brazil's economy and the likely 
effectiveness of the Cardoso government's efforts to reform and 
curtail government's involvement in the economy. Shortly after 
the meeting adjourned, the bankers and Codel learned of the 
Cardoso government's decision announced just that morning that 
the Central Bank would not intervene to purchase reais at the 
1.32 real/dollar rate, thereby effectively allowing the real to 
float freely against other currencies, including the dollar. 
Following that decision, the stock market increased more than 
30 percent that day. In the days and weeks that have followed, 
Brazil's stock market, exchange rate markets and other aspects 
of its economy have continued to experience sharp fluctuations 
in reaction to the developing economic situation and political 
efforts by the Cardoso government and the Congress to address 
Brazil's problems.
    Chairman Archer opened the meeting by asking the panel what 
it anticipated for Brazil's stock market that day and beyond. 
Garrido responded that the market had fallen to an index level 
of 4600 earlier in the year in reaction to the Russian crisis 
and reached 5000 the day before (January 14), so it remained 
above its low for the year. Parnes said that he thought it 
could go as low as 3600.
    Chairman Archer explained that the Codel had strongly 
emphasized in meetings with Brazilian Government officials the 
previous day the urgent need to continue implementing the 
Cardoso government's Real Plan. Now, it seems that more is 
needed. Gutierrez responded that the issue now is how quickly 
measures can be taken in a credible way to convince the markets 
that the government measures will be effective. Basically, he 
continued, the government has run out of time. The government's 
efforts over the last several months have disappointed the 
market, and the Cardoso government's decision this week to 
allow the currency to devalue has only played into the market's 
reaction. Garrido added that even if the Congress passes 
additional Real Plan measures this month, the new laws will 
have to be approved by the new Congress, which would mean 
waiting until June or July. Congressman Shaw interjected that 
the President of the Senate had told the Codel that all the 
measures would be in place by April. Garrido conceded that 
could happen. But, Marin commented that April could be too 
late. There was a $1.8 billion capital outflow yesterday, and a 
further outflow of $2.0 to $2.2 billion is expected today. That 
is not sustainable.
    Chairman Archer asked the panel's view of the degree to 
which the real is overvalued. Parnes responded that valuation 
is not the key. The key is Brazil's ability to be front line to 
prevent spread of Asian financial/economic crisis. Carbone 
commented that one of two things will have to happen: controls 
imposed by the government on outflow of capital or a free float 
of the currency. Marin agreed that those were the only 
alternatives and added that the degree of devaluation is 
irrelevant. Gutierrez warned that neither step would be a 
panacea and each would bring its own set of problems. Carbone 
said that rumors were circulating that morning that the 
government was not intervening to sustain the new currency 
band, suggesting that it might allow a broader band or a float. 
The estimated value of the currency as of that morning was 
approximately 1.45 real/dollar (exceeding the 1.32 real/dollar 
upper limit of the band established 2 days earlier).
    Chairman Archer commented that the political reality is 
that Brazil is a democracy not a dictatorship and that all the 
changes were not going to happen in the next 10 to 60 days. He 
asked, given that reality, how the private sector sees the 
situation unfolding and options for the government to manage 
the economic situation effectively. Marin said that the 
government had to take some steps immediately to begin to 
restore confidence.
    Chairman Archer followed up to ask what would happen to 
interest rates if the currency were allowed to float freely. 
Gutierrez responded that interest rates would rise sharply, 
serving both as a tourniquet on the outflow of capital and a 
tourniquet on the lifeblood of the economy. Gutierrez added 
that, in his estimation, the government had committed a major, 
major mistake with its January 13 devaluation. Parnes responded 
that in Mexico's case, capital flowed back within 9 to 18 
months. Chairman Archer commented that Mexico had NAFTA, 
whereas Brazil does not. Carbone interjected that Brazil, like 
Mexico, has a solid and major industrial base. The two 
challenges for Brazil will be to avoid returning to the indexed 
inflation of the early 1990s, which led to soaring rates of 
inflation, and to continue reforms. He said there was a very 
high probability in his view that the government would allow 
the real to float freely.
    Garrido said that her principal concern was indexation. 
Under that system, everything in the economy--prices, salaries, 
interest rates--all were indexed to inflation. This system hurt 
Brazil's poor the most, since others could put their money in 
bank accounts, which would earn interest also indexed to the 
rate of inflation. This system created a vicious inflationary 
cycle. But, while the country suffered as a whole and the poor 
in particular, rich and middle-income individuals were 
effectively protected, so there was little pressure to reform. 
Gutierrez agreed and added that the government now has to do 
more than it announced in November in order to restore 
confidence because expectations have grown.
    Chairman Archer said that some U.S. policymakers have 
raised the possibility that if the devaluation had been 
greater, then interest rates could have actually gone lower. He 
asked for the panel's reactions. Gutierrez agreed. The broader 
currency band is the worst of both worlds since it creates 
uncertainty over the ultimate value of the currency. Once the 
real finds a new level in the market, then interest rates can 
begin to adjust and fall. Until then, rates will need to remain 
high in order to continue to attract capital. Marin added that, 
with respect to inflation, there are two ways the situation 
could evolve: (1) indexation; or (2) the Argentine model--
essentially, allowing a recession to occur.
    Congressman English asked whether the new President of the 
Central Bank was a good appointment--whether he enjoyed the 
respect of the business community and others. Gutierrez 
responded that he was a solid man but added that in the current 
crisis, that would not be a major factor in helping to calm and 
resolve the situation.
    Congressman Shaw asked the participants what they thought 
the impact of the Brazil situation would be on the rest of 
South America. Garrido said that the key players are Argentina, 
which holds a presidential election in 2000, and Mexico. Marin 
commented that Argentina is doing well--with good liquidity, 
little movement in the Argentine peso against the U.S. dollar, 
and stable interest rates. He said that overall Argentina is in 
good shape to weather the current situation, much better shape 
certainly than in 1995, because it had sustained a recession 
and economic transformation. He expected a market contraction 
over the next year of approximately 1 to 2 percent, but that 
the government's mind set is to retrench and defend the 
currency, not inflate the economy.
    Carbone interjected that some assume the devaluation of the 
real would be the end of the world, but he disagreed. He sees 
Brazil as undergoing a 10-year process of transforming its 
economy. If the current situation is handled well (that is, not 
return to the inflationary indexation system), Brazil will be 
in much better shape a year from now. The problem, he said, is 
that the week's devaluation occurred in the middle of a 
difficult situation--the government's ongoing attempt to make 
painful adjustment. Gutierrez commented that the problem in his 
view is that the government put the cart before the horse. The 
government helped to create a panic because it attempted to 
lower interest rates at a time when rates should remain high, 
since the government has not taken the steps necessary to put 
its fiscal house in order.
    Chairman Archer asked if there is anything he, the Codel, 
or the U.S. Congress back home could do to help bring the 
current situation to a sound and positive conclusion. Marin 
stated that the situation has to be resolved by Brazil. Garrido 
said that the world, including Brazil, believes that the only 
country that can really affect change is the United States and 
that the U.S. Congress and President are distracted with the 
impeachment debate. Chairman Archer commented that on the trip 
the only issues that the Codel discussed were issues of trade 
and economic relations and that the Ways and Means Committee 
will continue to focus on those issues and other issues within 
its jurisdiction.
    Congresswoman Thurman asked whether there are particular 
messages the members of the Codel and Members of Congress 
should send to businesses and foreign government officials in 
meetings in the United States and elsewhere, in addition to the 
points the Codel has already been raising. Gutierrez commented 
that he and his clients are focused on Brazil's strong 
potential over 10 years, not focused as much on the current 
situation. Garrido commented that, although she often sounds a 
cautious note, she would point out that she came to Brazil as a 
skeptic but believes that Brazil has privatized to the extent 
no other country has done so.
    Chairman Archer asked what, if anything, is different in 
Brazil's market fundamentals today as compared with a year ago 
that would precipitate the current economic problems. Garrido 
responded that there is nothing in Brazil's fundamentals; 
rather, it was the international situation that had changed and 
helped to precipitate the current situation. Carbone added that 
Brazil is exposed to the global financial/economic problems 
because it is a net borrower. Marin added that international 
investors' appetite for risk has changed dramatically because 
of the Asian crisis.
Luncheon Hosted by the American Chamber of Commerce
Sao Paulo, Brazil; Friday, January 15, 1999
    The luncheon began at 12:30 p.m. at the new headquarters 
building of the Sao Paolo-American Chamber of Commerce. The 
Amcham have recently relocated to its own building in which it 
offers space for American businesses to operate, in addition to 
Chamber activities.
    Chairman Archer was introduced by the President of the 
Amcham. In his remarks, the Chairman stressed that impeachment 
is not going to dominate the agenda of the new Congress. He 
stressed his belief that the Amcham and its member companies 
should always remember that their success in operating overseas 
was America's success. Export jobs in the United States are far 
better jobs and pay more than jobs for the U.S. domestic 
market. Unfortunately, in his opinion, there is a disconnect 
between Americans and international business. He stressed his 
commitment to replacing the U.S. income tax system with a 
consumption tax in order to give America a fair advantage in 
international markets, rather than the disadvantage U.S. tax 
laws currently place on all American business activity 
overseas. He detailed the interrelationship between tax policy 
and success in international business.
    Congressman Dickey raised the issue as to whether Brazil 
will face up to the need to cut its spending. The Amcham 
President responded that, for the first time, the government is 
debating new issues of critical economic importance. It is a 
democracy, but a young democracy. There is no voting by 
individual voting districts but rather through slates of 
candidates by city or state. He explained that the country is 
being run by professors who are not responsive to the Congress 
but that the Congress is learning and Brazil is more democratic 
than the world gives it credit for being. At this time, the 
populace is more concerned about fiscal stability, which is 
what it voted for in the recent election. Tax revenues are now 
going to support a bloated bureaucracy. Further, there is no 
institutionalized system for business to influence government 
or seek redress of its grievances. The Brazilian business 
community is very concerned as to what will be the reaction of 
the United States to the latest devaluation of the real. 
Chairman Archer relayed that the U.S. State Department was 
shocked at not receiving advance notice of the devaluation 
given the IMF package. Congressman Watkins added in response to 
earlier comments that companies need to get involved at the 
grassroots to have an impact on Brazilian Government policies.
    Roger Blacker, an economist, commented that Brazil did not 
know that it was going to have to devalue and the situation had 
gotten out of hand. A protest by Ford Motor workers and the 
Minas Gerais debt suspension added to the uncertainty, along 
with a substantial capital outflow. The real fear, he believes, 
is hyperinflation if the new exchange rate fails. He noted that 
Brazil is the only nation that declares all debt (federal, 
state, and municipal) as part of the national debt.
    Mr. Marcello commented that the profitability of U.S. 
companies in Brazil has been outstanding. At this moment, 
Brazil's national position is vulnerable and it needs U.S. 
support politically. In addition, Brazil's private sector needs 
U.S. support.
    P.J. Garrido, Managing Director and Country Manager for 
Bank of America, commented that the IMF is crucial because 
there is no substitute for its role. She declared that the 
United States must stand by democracies and that Brazil's 
democracy works best when it is under pressure. She believed 
that Brazil will pass the necessary reforms and that pain is 
being felt here. Observers should look for layoffs in state 
jobs and whether the Congress makes the government workers pay 
into the social security system as indicators of the commitment 
to reform.
    John McCarter of GE Latin America insisted that, in his 
opinion, Brazil is indeed making the changes it needs but the 
Constitutional process is difficult. He made the point that the 
Congress is feeling the pressure to act for the first time in a 
long time. He reflected that the government that privatized has 
been re-elected, is an important sign of change. In addition, 
he pointed out that a large part of the public debt is 
attributable to the former public sector that has now been 
privatized.
    Congresswoman Thurman added that Americans are supportive 
and that the delegation's meetings in Brasilia and Sao Paolo 
have been positive. Furthermore, she cited Chairman Archer's 
press release on the delegation's positive impressions.
    Chris Lund, an American who has been in Brazil since 1962, 
related his own history and how he had seriously considered 
giving up his U.S. citizenship over tax issues but decided, in 
the end, that no price could be placed on American citizenship. 
He felt that in looking at Brazil, the delegation's personal 
observations will be critical. The dimensions and problems of 
Brazil's democracy are tremendous but he will always be biased 
for democracy and for Brazil. He believes that there is a 
danger in grouping Brazil with every other country. He declared 
that Brazil is not Russia or Indonesia; No longer do private 
interests control Brasilia. There has been a profound cultural 
change in Brazil. Ten years ago, the reaction would have been 
``IMF go home.'' Now the reaction is ``IMF Welcome.'' 
Furthermore, Brazil's banking system is not like Thailand and 
is now sound without a property or asset bubble.
    Congressman English asked if the IMF prescriptions or 
solutions are right for Brazil. A clear majority of the Amcham 
members present said yes, noting that the reality is that 
Brazil wrote its own plan after learning the lessons of earlier 
IMF bailouts.
Meeting with the Industrial Association of the State of Sao Paulo 
        (FIESP)
Participants: Carlos Roberto Libone, First Vice President; Roberto 
        Faldini; Luiz Fernando Furlan, Second Vice President and 
        Director of International Relations
Sao Paulo, Brazil; Friday, January 15, 1999
    The delegation then met with FIESP, an organization of 
Brazilian businessmen. Mr. Liboni began the meeting by pointing 
to the ``wrong actions'' that the Brazilian Government has 
taken in the past, recognizing that the Brazilian currency has 
been overvalued. The recent exchange rate devaluation, he said, 
allows the market to determine the true value of the currency. 
Brazil, having devalued, is now in a better position. He stated 
that he looks to the future with optimism. Mr. Furlan pointed 
to some common misconceptions about the Brazilian economy. The 
first is that something must be wrong because prices are so 
high. Mr. Furlan stated that the problem has been the 
overvalued currency, which caused Brazil to lose market share. 
He said that the Brazilian stock market has responded favorably 
to the devaluation and that exporting companies will benefit 
from the change. Industries that depend on credit have suffered 
because of high interest rates, amounting to 9 percent per 
month. He pointed to a segmentation phenomenon within Brazil in 
which several industries are doing well despite the crisis but 
on average Brazil is not growing. However, he concluded that 
Brazil will be able to implement its fiscal adjustment.
    Mr. Faldini stated that he believes the press coverage of 
the crisis has been unbalanced. Brazil has actually opened its 
economy considerably to world markets and has abolished 
uncompetitive policies. Tariffs have been reduced from 32 
percent to 17 percent, and industrial production has grown 7.5 
percent per year for the last 8 years. Privatization has raised 
$16 billion and has been successful in the areas of steel, 
petrochemicals, telecommunications, rail, and electricity. 
Subsidies are disappearing. The banking system has been 
``cleaned up'' so that weaker banks have been bought and state 
banks are no longer used for ``pet projects.'' Inflation has 
decreased from 50 percent per month in mid-1994 to below 2 
percent in 1998. Brazil, he said, is in a period of stability. 
President Cardoso will be in office for 8 years, and his 
economic team has an international reputation of competence, 
quality, integrity, and experience. There are still problems, 
he said, but the trend is upward. Brazil has been in transition 
to democracy, and democracy ``makes it harder to get things 
done.'' It is important to have U.S. support, he concluded.
    Chairman Archer responded that the delegation came to South 
America because of its importance and not because of the 
crisis. Too long, he said, the United States has been 
complacent about South America. He promised to report back that 
he is confident that Brazil will keep its commitment to the IMF 
package and that all structural reforms will be put in place as 
rapidly as possible given that Brazil is a democracy. He stated 
that he realizes the process will be slow. He also said that 
often change is not made until real pressure is brought to 
bear. Perhaps the recent devaluation, he stated, might help to 
spur Congressional action. He asked the participants whether 
they believed that the IMF reforms would be enough, saying that 
they may need to be increased, but he felt confident that 
Brazil would do its part. He also emphasized that Brazil must 
resist the temptation to slide into protectionism. He then 
spoke about fast track, promising to put fast track before the 
U.S. Congress shortly. He noted that he could not guarantee the 
outcome of the House consideration, but he noted that fast 
track is important to U.S. negotiators in eliminating foreign 
barriers, particularly in agriculture. The United States, he 
said, is afraid to ``unilaterally disarm'' in the area of 
agriculture and needs trade negotiations to bring about such 
reform. He concluded by pointing to the opportunity that trade 
negotiations present, adding that when one ``starts with South 
America,'' one must ``start with Brazil.'' Chairman Archer 
noted that agriculture is always the most sensitive issue. The 
key to reducing barriers, he said, is Europe. If the United 
States obtains fast track and begins negotiations to reduce 
agriculture barriers, particularly with Europe, then the United 
States will systematically reduce its barriers, benefiting 
Brazil.
    Congresswoman Thurman agreed, noting that Europe is not the 
only country with barriers. She pointed to the need to remove 
nontariff barriers to trade all over the world, particularly in 
the area of sanitary and phytosanitary barriers. She pointed to 
citrus trade as an example where the United States thought that 
it could open markets in Mexico but has sold no oranges and 
where Japan refuses U.S. grapefruit. The United States, she 
added, opened its market to foreign tomatoes and lost $850 
million.
    Chairman Archer noted that he does not like quotas, but the 
United States does resort to them, such as in sugar and 
textiles. As a result, U.S. consumers suffer. Although such 
quotas are WTO-legal, the United States must lead in changing 
the rules of the WTO and implementing the new rules, leading to 
a much more open market.
    A FIESP member asked whether fast track would be broad or 
limited to specific negotiations. Chairman Archer responded 
that fast track could take any form. He then explained the 
constitutional reasons for fast track, noting that the 
President cannot negotiate trade agreements without authority 
from Congress. As a result, he said, only trade issues should 
circumvent the normal legislative process, and in his fast 
track bill he has limited fast track to those issues directly 
related to trade. He expressed his fear that the administration 
will disregard to economic costs of linking nontrade issues to 
trade agreements. The Democrats, he said, are insisting on 
broadening fast track to include such issues, but to do so 
would lose Republican votes. Congressman Dickey added that 
Congress is not giving up its legislative responsibility 
because it must still vote on the agreement after it is 
negotiated. Organized labor, he added, does not support fast 
track because it does not want to open the U.S. market. More 
support from business, he said, is necessary for fast track to 
be successful. When asked about timing on fast track, Chairman 
Archer said that he hoped to report fast track out of the Ways 
and Means Committee within 2 to 3 weeks, but that full House 
consideration was less certain. 
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