[WPRT 106-16]
[From the U.S. Government Publishing Office]
106th Congress WMCP:
2d Session COMMITTEE PRINT 106-16
_______________________________________________________________________
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
__________
REPORT
ON
TRADE MISSION TO NEW ZEALAND AND AUSTRALIA
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
MARCH 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
__________
U.S. GOVERNMENT PRINTING OFFICE
68-478 CC WASHINGTON : 2001
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
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
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa
LETTER OF TRANSMITTAL
----------
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC, March 25, 1999.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, D.C.
Dear Mr. Chairman: I am pleased to transmit to you the
enclosed delegation report on the recent Subcommittee on Trade
mission to New Zealand and Australia. This report contains an
overview of the mission, summaries of meetings with foreign and
U.S. officials and copies of several documents pertinent to our
mission.
The report describes the bilateral economic and trade
issues which were investigated during the trip.
Sincerely,
Philip M. Crane
Chairman
Enclosure
MEMBERS OF THE DELEGATION
Members of Congress
HON. PHILIP M. CRANE, Chairman
HON. DAVID DREIER
HON. NANCY L. JOHNSON
HON. WALLY HERGER
HON. JENNIFER DUNN
HON. KAREN THURMAN
Committee Staff
ANGELA ELLARD
MEREDITH BROADBENT
CHRIS SMITH
DONNA J. THIESSEN
KAREN HUMBEL
CONTENTS
______
Letter of transmittal............................................ iii
Members of the delegation........................................ v
Overview of the Mission.......................................... 1
New Zealand.................................................. 3
Australia.................................................... 23
OVERVIEW OF THE MISSION
Between December 1-11, 1998, the Subcommittee on Trade of
the Committee on Ways and Means visited New Zealand and
Australia to conduct a fact-finding mission. The primary
purpose of the trip was to discuss bilateral and regional trade
issues with government and private sector officials in these
countries, including prospects for negotiating a free trade
agreement. The delegation exchanged views on negotiations in
the Asia Pacific Economic Cooperation (APEC) Forum and the
status of China's possible accession to the World Trade
Organization (WTO). Finally, the delegation explored the
outlook for successfully launching a new round of negotiations
under the WTO at the Ministerial meeting, which will be hosted
by the United States in Seattle from November 30 to December 3,
1999.
Chairman Philip M. Crane led the bipartisan Ways and Means
delegation, which included Congressman David Dreier, Chairman
of the Committee on Rules in the 106th Congress, and Senator
Charles Grassley, Chairman of the Subcommittee on Trade of the
Senate Committee on Finance.
New Zealand
The delegation traveled first to New Zealand, which will
host the APEC leaders meeting in November of 1999. Members
arrived on December 3, very shortly after the conclusion of the
1998 APEC Leaders meeting in Kuala Lumpur, Malaysia, which had
achieved disappointing results, particularly in the area of
tariff liberalization. Many observers were raising questions as
to the future role and effectiveness of APEC in promoting trade
liberalization, while also noting that the United States trade
agenda had slowed due to the expiration of fast track
negotiating authority.
On December 3, after receiving an extensive briefing in
Auckland from U.S. Ambassador Josiah Beeman and his staff, the
delegation went on to Christchurch, where the Members were
received warmly by Prime Minister Jenny Shipley. Although
acknowledging the barrier that lack of fast track trade
negotiating authority continues to present, the Prime Minister
expressed great interest in negotiating a free trade agreement
between the United States and interested countries in the
region. The delegation urged the Prime Minister and members of
her cabinet and the Parliament to resolve several outstanding
issues of concern to U.S. businesses operating in New Zealand,
including the pharmaceutical pricing practices of New Zealand's
health purchasing agent, Pharmac, and recent amendments to New
Zealand's copyright law removing restrictions on parallel
imports.
Another primary goal of the mission was a meeting held with
the Honorable Mike Moore, a leader of the opposition Labour
Party in New Zealand and a candidate for Director General of
the WTO. Members exchanged views with Mr. Moore on preparations
for the Seattle Ministerial and threats caused to the WTO
dispute settlement process by the European Union's failure to
implement WTO panel findings with respect to its banana import
regime and beef hormones. Members also exchanged views with Mr.
Moore on coordination between the United States and New Zealand
in order to ensure that the 1999 APEC Leaders Meeting would be
successful. It was agreed the Japan needed to do more,
particularly in the area of forest and fish products.
Australia
In Australia, whose bilateral trade relationship with the
United States is larger and at times, slightly more
contentious, the delegation held meetings with Cabinet
officials and leaders in Parliament, business, and agriculture.
Tim Fisher, Deputy Prime Minister and Minister for Trade,
agreed that the 1998 APEC Leaders meeting was a setback,
particularly the failure to reach conclusion in the Early
Voluntary Sector Liberalization negotiations. With respect to
the WTO, he believes that the 1999 Ministerial Meeting in
Seattle represents an important opportunity to make progress,
especially in the areas of agriculture and services, where the
two countries have many similar interests. Urging a broader
``millennium round,'' he cautioned against a trade round
limited to certain sectors where there was not enough on the
table to ensure a fruitful give and take. Both sides are
committed to close coordination among the Cairns group of
agriculture exporting nations as a means to create maximum
pressure on the European Union to agree to reforms and
limitations on export subsidies, restrictions to market access,
and domestic support policies.
Recent U.S. trade complaints against Australia center on
sanitary and phytosanitary trade restrictions and intellectual
property protection. Australian officials object to U.S. export
promotion programs, including the Export Enhancement Program
(EEP) and the Dairy Export Incentive Program (DEIP), and to
U.S. import restrictions on dairy and, potentially, on lamb.
These issues were raised in several meetings, including one
with the National Farmers' Federation in Canberra. Discussion
at a working lunch hosted by the Australian Industry Group
centered in the historical process of trade reform in Australia
and the effects of the Asian financial crisis.
During the meetings, Chairman Crane raised the prospect for
negotiating a free trade agreement with Australia and New
Zealand, and the delegation had a number of thoughtful
discussions on the issue.
On the topic of China's accession to the WTO, Australian
officials indicated that, unlike Japan, Australia has avoided
settling its bilateral negotiations with China and is in ``lock
step'' with the United States on insisting that China first
make a broad array of commercially significant concessions.
Many officials and business leaders, in both New Zealand
and Australia, questioned the delegation regarding the impasse
on labor and environment issues that was delaying agreement
between Congress and the Clinton Administration on fast track
legislation.
NEW ZEALAND
Country Team Briefing with Ambassador Beeman, Auckland, New Zealand
December 3, 1998
Ambassador Beeman provided the delegation with a briefing
on the political, defense, and trade relationships between the
United States and New Zealand. With respect to the political
environment, he noted that the current majority coalition,
headed by Jenny Shipley of the National Party, holds a very
tenuous majority of only one vote. The opposition is led by
Helen Clark of the Labour Party. Elections must be held by
November 1999, but the Ambassador said that the government may
fall as early as April. He described the National Party as
mainstream, although generally to the left of the U.S. House of
Representatives, as politics are typically more to the left
than in the United States on social issues. He noted that the
government has a strong commitment to privatization, national
health insurance, and public education. However, there is
little commitment to defense. The government's views on trade
are generally more to the right than in the United States.
Ambassador Beeman described a longstanding dispute between
the United States and New Zealand in the area of defense.
Specifically, New Zealand has a longstanding policy of barring
nuclear-powered and nuclear-armed warships from New Zealand
ports. As a result, the United States conducts no military
exercises with New Zealand, although the two countries have
operated together in missions in the Gulf. The New Zealand
Cabinet recently approved the purchase of F-16 aircraft,
although not a frigate which had been under discussion.
With respect to trade, the Ambassador highlighted the
tremendous interest that New Zealanders have in negotiating a
free trade agreement (FTA) with the United States. He noted
that the issue would undoubtedly come up frequently during the
delegation's meetings. He told the delegation that there were
relatively few trade disagreements between the United States
and New Zealand. He pointed to the recent, hurried removal of
the New Zealand ban on parallel imports as a source of concern
to the United States. A number of U.S. companies are anxious
that the removal of the ban may undermine their ability to sell
into New Zealand through exclusive channels of distribution and
may lead to increased piracy of intellectual property. He noted
that an out of cycle review under Special 301 is under
discussion.
With respect to pharmaceuticals, the Ambassador described
Pharmac, the company established to manage the purchasing and
funding of pharmaceuticals for the public health authorities.
Pharmac is exempt from New Zealand's competition laws. While
New Zealand does not restrict the sale of non-subsidized
pharmaceuticals in New Zealand, private medical insurance
companies will not cover unsubsidized medicines. Thus, Pharmac
effectively controls what prescription medicines will be sold
in New Zealand and, to a large extent, at what price they will
be sold.
The Ambassador described to the delegation a number of
agriculture issues between the United States and New Zealand.
He noted that U.S. salmon is now eligible for entry into New
Zealand and that New Zealand has become a burgeoning market for
California summer fruit. However, he stated that New Zealand
has halted U.S. poultry shipments due to sanitary and
phytosanitary (SPS) concerns. He noted that New Zealand is very
protective on SPS issues concerning fruit.
The delegation asked about the status of the New Zealand
Dairy Board. The Board does not have government status and is
made up of industry representatives from the four large New
Zealand dairy companies, but a Kiwi producer may not sell dairy
overseas except through the Board, which controls marketing and
price. The Ambassador noted that the United States views such
boards (including the diary and kiwi fruit boards) as state
trading enterprises and as possible barriers to an FTA. The
Ambassador described that the New Zealand government may be
retreating from the single desk status provided to the Board.
However, he said that the New Zealand government is unlikely to
terminate the Board unilaterally and would probably wait to do
so in the context of an FTA negotiation instead. He also noted
that some of the New Zealand dairy companies might actually
prefer to remove the restrictions imposed by the Board and to
price and market without controls.
The Ambassador pointed to the high level of U.S. foreign
direct investment in New Zealand, amounting to approximately $1
billion per year, in the areas of computers,
telecommunications, pharmaceuticals, and timber.
The delegation next discussed the future of the Asia
Pacific Economic Cooperation (APEC) forum. New Zealand will
host the next Leaders' Meeting, to be held in September 1999.
Prime Minister Shipley moved the meeting up from November in
order to give her government a boost before the election. The
Ambassador noted that a change in government might well affect
APEC because opposition leader Helen Clark has stated that
there might not be a Leaders' Meeting next year if her party
comes to power. Her party believes that APEC events are too big
and do not focus sufficiently on labor issues. The Ambassador
suggested to the delegation members that they ask in their
meetings about the likely stance of the Labor Party towards
APEC and trade in general.
The delegation also discussed the candidacy of Mike Moore
for World Trade Organization Director General. Mr. Moore, a
parliamentarian, is a member of the Labor Party and is
currently the shadow Foreign Minister. The Ambassador described
him as a friend of the United States, although the United
States has not declared its support for any candidate as yet.
Briefing by the Researched Medicines Industry, Auckland, New Zealand
December 4, 1998
For a discussion of market access barriers in New Zealand
faced by U.S. pharmaceutical firms, the delegation met with
representatives of the Researched Medicines Industry (RMI). The
delegation was given an overview of the situation by Terrence
Aschoff, General Manager of RMI.
Under the country's national health insurance program, New
Zealanders receive subsidies from the government for medicines
they use from the national pharmaceutical schedule. In the New
Zealand market, 99.7% of pharmaceutical sales are of products
listed on the government's schedule.
The medicines listed on the pharmaceutical schedule are
determined by the Pharmaceutical Management Agency (PHARMAC), a
wholly-owned government entity which has the authority to
decide not only what drugs are listed on the schedule, but also
at what price they are sold. PHARMAC enjoys a blanket exemption
from New Zealand's anti-competitive laws and is extremely
powerful relative to the industry. Under its pricing regime,
PHARMAC prices patented medicines based on the prices of
generic compounds and pressures companies to reduce their
prices for new drugs to equal the subsidy offered by the
government. If a company does not agree to offer to lower its
price for a particular drug to meet the government subsidy, or
offer to lower the price of another product to make up the
difference, PHARMAC does not include that drug on the
pharmaceutical schedule. As a result, RMI believes PHARMAC's
practices significantly distort the New Zealand pharmaceutical
market.
RMI believes that PHARMAC must separate the subsidies
offered by the government from the prices charged by
pharmaceutical firms. By failing to distinguish between the
price and the subsidy, the government is denying access to life
saving medicines to New Zealanders. Mr. Aschoff distributed to
the delegation copies of a recent article entitled ``Doctor's
Orders,'' which describes the impact that PHARMAC's policies
can have on patients lives.
The United States Trade Representative has cited PHARMAC's
practices in its 1998 National Trade Estimate Report on Foreign
Trade Barriers. In September 1998, Don Phillips, Assistant
United States Trade Representative, visited New Zealand and
raised the industry's concerns about PHARMAC and put forward
some procedural remedies, but the New Zealand government has
not yet responded.
Congressman Dreier asked whether patient groups exert any
kind of consumer pressure on PHARMAC and the government to make
new pharmaceuticals available to them. Mr. Aschoff responded
that New Zealanders are divided on this issue. Some patient
groups are beginning to lobby the Parliament to have access to
certain drugs; however, Members of Parliament say that they
don't want to have to look at drugs one by one.
Congresswoman. Johnson asked if the subsidy paid by the
government for pharmaceuticals covers the full price of drugs
and whether there are any drugs available that the government
does not subsidize. Mr. Aschoff said that the government
subsidy usually equals the full price negotiated by PHARMAC.
There are examples of drugs, however, that have had their
subsidy reduced after being listed on the pharmaceutical
schedule. Companies can choose to keep their prices at the same
level, but physicians will tend not to prescribe those drugs
because it will cost patients money to obtain them.
Congressman Dreier asked whether the pharmaceutical
industry's problems could be resolved if fast track negotiating
authority is renewed and if there are negotiations between the
United States and New Zealand toward a free trade agreement.
Mr. Aschoff replied that he believes that the matter can be
resolved in that context and that the New Zealand government
knows it will have to be resolved in order for any negotiations
with the United States to go forward. Because it is a small
country, however, New Zealand is trying to benefit from the
research and development done by companies in larger markets,
particularly the United States, without having to pay its share
of those costs.
Congresswoman Johnson asked whether the domestic debate in
New Zealand about health care supports lower subsidies. Mr.
Aschoff explained that the public is divided with some arguing
that free health care is a right based on the taxes they have
paid. Others realize that they may need to pay more to get
better access to new technology and innovations.
Congresswoman Thurman asked how long the cost containment
policy practiced by PHARMAC has been in place and how the
system worked before. Mr. Aschoff stated that the 1993 health
care refoms established PHARMAC and the general policy that the
price of a drug should equal the subsidy provided by the
government. Previously, the Ministry of Health determined the
safety and effectiveness of a particular drug separately from
considering whether or not to subsidize it. PHARMAC's primary
focus is on achieving the lowest possible price for a drug (see
Attachment A).
PARTICIPANTS FROM THE RESEARCHED MEDICINES INDUSTRY
Mr. Terrence Aschoff, General Manager, Researched Medicines
Industry
Mr. Stephen Udy, Pharmacia and UpJohn
Ms. Jan Trotman, Janssen-Cilag
Mr. Bill McLauchlan, Glaxo Wellcome
Mr. Greg Dove, Eli Lily
Tranz Rail Briefing on Privatization, Christchurch, New Zealand
December 5, 1998
While traveling from Christchurch to Arthur's Pass National
Park aboard a Tranz Rail Train, the Codel had the opportunity
to discuss the experience of privatization of the New Zealand
Railway with executives of Wisconsin Central, the small, mid-
western railway line, headquartered in Chicago, that purchased
and transformed the performance of Tranz Rail. The successful
restructuring of Tranz Rail is one of the most dramatic and
successful examples of the historic economic reforms initiated
by New Zealand's Labour government in 1984.
According to Wisconsin Central executives, their initial
efforts were directed toward cost-cutting and identifying new
business. So fruitful were the cost-cutting efforts that the
new owners increased productivity per employee by almost 9%,
moving Tranz Rail from a drain on the public treasury to a
taxpaying corporate citizen. Since 1985, the number of workers
is down 22,000 to 4,000, freight rates have been almost halved,
and transit time for freight reduced as much as 90% on key
routes. Based on improved transit times, efforts to seek new
business from shipping and trucking paid off handsomely. By no
means a monopoly, Tranz Rail currently carries about 20% of
freight in New Zealand. The rail system, however, makes a
significant contribution to the country's transportation
systems which, according to Tranz Rail executives, are ``twice
as efficient and expansive as Chile's.''
While in the region of Arthur's Pass, the Codel also toured
a high country sheep station. Ecologist Gerry McSweeney, owner
and operator of the Alpine Wilderness Lodge, and his staff led
the Codel on nature walk focusing on the special plants,
forests, and wildlife found in the area.
Meeting with Prime Minister Jenny Shipley, Christchurch, New Zealand
December 6, 1998
The Prime Minister warmly welcomed the delegation. She
emphasized the healthy relationship between the United States
and New Zealand and the importance of promoting free trade,
although she pointed to some issues of bilateral interest.
In response, Chairman Crane stated that his primary goal in
New Zealand was to advance trade and to explore the possibility
of a free trade agreement (FTA). He noted that he intends to
seek the renewal of fast track negotiating authority in 1999.
He also pointed to trade issues of concern, including
protection for pharmaceutical products through Pharmac and the
removal of the ban on parallel imports.
Prime Minister Shipley responded to the bilateral concerns
raised by Chairman Crane. She described that because Pharmac
acts as the single purchasing entity, it is important to assure
that the proper purchasing techniques are used. The goal, she
stated, is to discern when public funds should be used to
subsidize pharmaceutical purchases, not to thwart the
pharmaceutical industry. As a result, Pharmac is able to ``play
off'' the drug companies, to the advantage of the New Zealand
consumer. She noted that pharmaceutical prices are better in
Australia because of volume, and Pharmac uses ``proper market
principles to even the score.'' She admitted that Pharmac acted
more aggressively toward pharmaceutical companies than was
necessary at its inception, but she emphasized that it would
``take some persuading to say'' that Pharmac should not be a
single purchaser. She noted that USTR has made some ``helpful
suggestions'' concerning Pharmac, and she promised to examine
them.
Congressman Dreier noted that a number of successful drugs
have not been available for sale in New Zealand. The Prime
Minister stated that eligibility for sale in New Zealand is a
separate issue from the Pharmac issue. A drug must successfully
complete clinical trials before it is available for sale in New
Zealand. The ``rub,'' she said, is whether at that point
Pharmac will subsidize it. Even if Pharmac does not subsidize
the drug, it may still be sold in New Zealand. New Zealand
freely grants access, she stated, but is discriminating as to
when the public purse should be used. As a result, she
concluded, Pharmac has brought drug costs down.
The Prime Minister then discussed the issue of parallel
imports. She stated the New Zealand was ``happy to be tested''
on the recent lifting of its ban. She said that New Zealand has
been determined to be diligent concerning copyright abuse and
that New Zealand deals with violations swiftly and sternly. New
Zealand has an open attitude toward trade, and the ban was
lifted to give consumers greater access. There is no intention,
she emphasized, to dilute protection of intellectual property.
She would be happy to discuss the issue further and to be held
to account, she added.
Chairman Crane asked the Prime Minister about the prospects
for an FTA in the region. He noted that Australia might be
reluctant to discuss an FTA out of concern that its significant
Asian market might be adversely affected. He expressed optimism
that once New Zealand negotiates an FTA with the United States,
Australia would be quick to follow. He acknowledged that the
stumbling block to an FTA is the failure to renew fast track
authority. He noted that the fast track debate has become very
political but expressed hope that the Ways and Means Committee
could report out the fast track bill by the spring. However,
its success, he emphasized, depends on ``major cooperation''
from the President. The Chairman suggested to the Prime
Minister that she encourage President Clinton, when she meets
with him in 1999, to seek fast track authority. Senator
Grassley added that there are 65 votes in the Senate for fast
track and that the problem with enacting this legislation is in
the House.
The Prime Minister stated that New Zealand is very ``keen''
to negotiate with the United States and is ``ready to go'' but
``aware of the barrier'' of not having fast track in place. She
also pointed to the importance of fast track for the APEC and
WTO negotiations.
Congressman Dreier stated that is important for New Zealand
to begin negotiations with the United States while recognizing
the barrier that the lack of fast track imposes. He noted that
the Prime Minister's meeting with the President is highly
symbolic and suggested that she encourage the President to seek
this authority. He added that free traders must convey the
message that workers are the beneficiaries of free trade and
that imports are of benefit to the United States and New
Zealand. The Prime Minister agreed, noting that free trade has
helped New Zealand. There are more people in the labor market
now than when the government began to open the economy.
Consumers in New Zealand can purchase almost any product or
service. Together, New Zealand and the United States must
educate other Asian countries, even Japan, about this truth.
Congresswoman Dunn raised the issue of forest products
negotiations in APEC and thanked the Prime Minister for her
role in chairing this working group. She noted that Japan is
the biggest barrier to free trade in this sector. She also
stated that the world will be watching as New Zealand takes
over the chairmanship of APEC in 1999. The Prime Minister
responded that the recent APEC Leaders' Meeting avoided a rapid
return to protectionism, but she acknowledged that questions
have been raised after the APEC meeting as to the role and
effectiveness of the forum. She then asked the delegation
members whether they believed that APEC is still relevant.
Chairman Crane responded that APEC was ``absolutely relevant.''
Congressman Dreier added that FTAs also provide pressure for
free trade together with APEC.
Congresswoman Johnson then stated that APEC is vital to
linking the pace of change in the WTO to the Asian region.
However, she pointed to the removal of the restriction on
parallel imports as calling into question New Zealand's ability
to enforce its piracy laws. She added that there was a
contradiction between the removal of the ban on the one hand
and the retention of the Dairy Board and Pharmac protections on
the other hand. She noted that the Pharmac structure makes
negotiation of an FTA difficult, adding that Medicare makes
many price decisions, which are hard to make accurately and
affect access. The Prime Minister responded by saying that she
was ``very aware'' of the need to have a ``serious engagement''
concerning the Diary Board in the context of FTA negotiations.
She suggested that the monopoly could be removed in tandem with
an FTA. In fact, she stated she has told the Board that it
``should step out of this framework.'' If an FTA is
forthcoming, she promised that she would ``deal with
legislation forthwith'' concerning the agriculture boards.
However, she noted that while Pharmac was ``not an
insurmountable barrier,'' it was ``more delicate.''
Congresswoman Johnson noted that better preventive care would
be available if Pharmac did not restrict the entry of new
drugs.
Congresswoman Thurman, however, expressed a different view
concerning Pharmac. She noted that pharmaceutical companies
have taken advantage and that there was some legitimacy to
Pharmac's practices. On a more general trade policy note, she
stated the importance of opening a dialogue on trade issues,
involving agriculture, labor, and environmental groups. She
noted that she looks at trade issues from the perspective of
how important issues such as agriculture, sanitary and
phytosanitary, and risk management issues are addressed.
The Prime Minister agreed that agriculture was a difficult
issue but that progress can be made. Reasonable access to food
is her primary goal. She added that a WTO Round is necessary to
deal with agriculture issues. She then asked the delegation
members whether they were committed to a new WTO round.
Chairman Crane stated that the United States has a major
commitment to the WTO but pointed to the European Union's
``abuse of the system'' concerning implementation of adverse
panel rulings concerning bananas and beef hormones. Senator
Grassley echoed Chairman Crane's concerns.
Chairman Crane then asked the Prime Minister her opinion of
WTO Director General candidate Mike Moore. The Prime Minister
stated that he is committed and experienced and a well-informed
moderate with good consensus skills. In response to a question
by Chairman Crane as to the significance of the fact that Mike
Moore is a member of the Labour Party, she described the Labour
Party as not protectionist. Although she noted that some
elements of the party do not support free trade, she described
Moore as centrist and not bound by that view. Instead, she
stated, he is actively committed to free trade.
Senator Grassley then noted that the issue was not whether
the agriculture negotiations will occur but what they can
accomplish. He expressed concern that in the absence of fast
track, the EU will seek to fill the vacuum in leadership in the
negotiations. He encouraged the Cairns Group, including New
Zealand, to fill that vacuum instead. The Prime Minister
agreed. Senator Grassley added that APEC performs a vital
function in stimulating the WTO and countering the EU's
regionalism. The Prime Minister said that the value of APEC is
in bringing to the table 21 economies in different stages,
permitting the developed countries to facilitate, educate, and
share technical expertise with the developing countries in
order to develop more effective economies. In APEC, the Prime
Minister stated, politics should be put aside to focus on
economics. Senator Grassley then stated that the United States
has more of an obligation toward Chile with respect to an FTA
but that it would be ideal to move with respect to several
countries at once. The Prime Minister agreed, adding that
Singapore and Australia would be good candidates. Either a
``straight bilateral or group approach'' would be acceptable,
she stated.
Congresswoman Johnson then asked the Prime Minister to
describe, given her narrow majority, what she considered her
three biggest accomplishments. The Prime Minister pointed to
capitalist investment and a clearing out of the regulatory
environment for a free market; social reforms to help those who
help themselves; and an international view in which New Zealand
has taken opportunities to lead and to be a good international
citizen. She also pointed to the fact that the New Zealand
economy was beginning to rebound.
Meeting with The Honorable Ruth Richardson, Former Minister for
Finance, Christchurch, New Zealand
December 6, 1998
Mrs. Richardson began the meeting by noting the degree to
which public discussion has focused worldwide on how well
governments serve their citizens. Mrs. Richardson believes the
debate should focus on what governments should do and what
should be left to the private sector to accomplish.
In recent years, New Zealand policy setting has become
renowned worldwide in areas such as tight monetary policy,
fiscal responsibility in budgeting, deregulating labor markets,
the use of accrual rather than cash accounting in budgeting, a
move toward a performance-based civil service, and budgeting
based on outputs rather than inputs.
These policy changes came about in New Zealand as a result
of legislation sponsored by Mrs. Richardson when she served as
Minister of Finance in the early 1990s. Mrs. Richardson
distributed copies of this legislation, the Fiscal
Responsibility Act, to the delegation.
Mrs. Richardson explained that she introduced the Fiscal
Responsibility Act because she observed a perverse pressure in
politics to spend money now and send the bill to future
generations. As a results, political debates focused on budget
deficits, rather than surpluses. To change this focus, Mrs.
Richardson knew that there would have to be changes in the
institutional framework. To establish a high level of
transparency in budget, the Fiscal Responsibility Act required
budget statements to come out publicly, thereby tabling
parameters for decision-making. The Fiscal Responsibility Act
also established guidelines for a principled approach to
decision-making and required decision-makers in government to
plan long-term.
Since the enactment of the Fiscal Responsibility Act, New
Zealand has run a budget surplus every year (see Attachment B).
Mrs. Richardson believes that the U.S. Congress is hampered by
not adopting similar fiscal disciplines. She strongly
recommends the use of accrual, rather than cash, accounting.
Chairman Crane asked Mrs. Richardson where she developed
her philosophy. Mrs. Richardson said she has always had a
conservative perspective and sought to minimize government
intrusion into people's lives, which she believes interferes
with personal liberty.
Congresswoman Johnson asked what key changes in education
and social policy resulted from the enactment of the Fiscal
Responsibility Act. Mrs. Richardson noted that unlike the
United States, New Zealand education policy has always been set
at the national level. Approximately 96% of all education is
funded by the taxpayer, and the government maintains absolute
control over curriculum. The shift resulting from the Fiscal
Responsibility Act came when New Zealand eliminated the
bureaucracy and effectively made parents managers of their
children's schools. Today, parents decide which teachers to
employ and can even control the school budget. New Zealand does
allow parents to choose which public schools their children
attend, but they cannot spend the voucher on a private school
education.
On social policy, Mrs. Richardson noted that the framework
is much more demanding, requiring welfare recipients to work
for the benefits they receive although no time limits have been
imposed. The government's social security system for retirees
is not yet privatized. It still operates on a pay-as-you-go
basis and provides income for 75% of the elderly population.
Mrs. Richardson noted that the current system is not
sustainable. New Zealand has already raised the retirement age.
She believes they will have to privatize the system eventually,
but the public does not yet endorse that idea.
Congresswoman Thurman asked about spending per pupil in the
New Zealand education system. Mrs. Richardson recalled that
US$1500 is spent on average up to age 12, then US$2000
thereafter.
Congresswoman Johnson asked what percentage of the
population has a private pension and what percentage has
private health insurance. Mrs. Richardson noted that 25% of the
population has a private source of retirement income. In the
area of health care, only about 20% of expenditures are from
private sources. Mrs. Richardson said that some people have
begun to argue that New Zealand needs to develop a genuine
private sector health care market in order to benefit from true
competition in this sector.
Mrs. Richardson asked about the delegation's mission.
Chairman Crane explained that the delegation's interest in
exploring the possibility of a free trade agreement with New
Zealand and other countries in the region, but he noted that
Congress would need to renew fast track negotiating authority
in order for the negotiations to proceed.
Mrs. Richardson said that as a farmer she would very much
like to see increased export opportunities in the U.S. market.
She noted that New Zealand has unilaterally taken steps toward
free trade by eliminating subsidies and planning the
elimination of all tariffs by 2006.
Congresswoman Thurman noted that increasingly there are
barriers beyond tariffs, particularly in the agriculture sector
on sanitary and phytosanitary issues, risk assessment,
different labor costs, and different environmental standards.
Congresswoman Thurman noted that there is need to instill a
level of confidence in some U.S. farmers that they will compete
on a level playing field in any future free trade agreements.
Mrs. Richardson noted that when you boil the debate over
free trade down, domestic industries are fearful of foreign
competition and want a degree of protection retained, which
comes at the expense of efficient producers and consumers
overall.
Congresswoman Johnson noted that non-tariff barriers can
sometimes be more difficult to get around than prohibitively
high tariffs. Mrs. Richardson agreed and said that while she
believes it is appropriate for the government to set standards,
they should not be set higher for imports than for domestically
produced goods.
Congresswoman Thurman asked what percentage of New Zealand
income is spent on food. Mrs. Richardson recalled that it is
comparable to the United States. Senator Grassley said that it
is 12% in the United States.
Chairman Crane thanked Mrs. Richardson for her insights and
commended her for her record of public service. Congresswoman
Johnson noted that there are Members in Congress that are very
seriously looking at budget reform and that it would be helpful
to them to look at the New Zealand model.
Meeting with Mike Moore, Leader of the Opposition Labour Party and
Candidate for Director General of the World Trade Organization,
Christchurch, New Zealand
December 6, 1998
One of the primary goals of the trade mission was to have
the Codel meet with Mike Moore, a leader of the opposition
Labour Party in New Zealand. He is a candidate to replace
Renato Ruggerio as Director General of the World Trade
Organization. He discussed his objectives for the WTO, along
with the strategy and ideology behind his campaign for the
organization's chief position.
With respect to his WTO candidacy, he said that the
competition is boiling down to an ideological struggle, with
his two chief competitors being a Moroccan representing the
interests of lessor developed countries, and a Thai candidate,
supported by Asian countries, including Australia. European
countries, he said, are split. At this point, he believes that
the Thai has an edge because there are so many countries in
Europe ``who look at New Zealand and are only able to see a
pound of butter and a leg of lamb.'' Mr. Moore believes that
his candidacy will grow stronger as time goes on, as countries
move off of positions defined by regional solidarity toward
ones based more on merit. For his part, he does not want the
WTO to fall into a ``pattern of passing the baton from one
region to another'' in terms of the key jobs in the
organization. He said that the process of choosing a director
general tends to be an evolution of opinions rather than an
election, and that strategically it may be better for him if he
is Europe's second choice.
He expressed an earnest desire for a successful Ministerial
meeting in November of 1999, where countries can launch a new
round of multilateral trade negotiations. He sees a particular
need for stronger international rules governing trade in
services and agriculture. Although smaller governments often
see the WTO system as contrary to their interests and violative
of their sovereign rights, it is smaller countries, he said,
which need effective rules, as opposed to a system where the
largest countries can dictate outcomes in trade disputes. A
rules-based system will help ensure that the next century is
``one of persuasion instead of a century of force.''
Mr. Moore agrees with the leadership at the International
Monetary Fund that a developing country can create ``a
competitive advantage through the establishment of a
functioning democracy.'' He sees enormous opportunities under
WTO rules which prevent ``criminal elements'' from stealing
government procurement contracts. Later on in the meeting, he
said that he saw a need for internal changes in the WTO to
assist less developed countries and economies in transition
with technical training. Right now, he cautioned, there are too
many countries that can barely get to WTO meetings, let alone
negotiate meaningful results that they can live up to. These
countries, he warned, will not let ``Marakesh happen again'';
they ``won't sign up to 27,000 pages of text'' without being
allowed to participate more fully in the process.
He cautioned that globalism is ``becoming the 'ism' to
hate,'' both by the extreme-left wing and the right wing, led
by Pat Buchanan in the United States. Expanding international
trade, he said, has ``advanced our species'' by doubling the
living standard of 1.5 billion people in the last ten years.
Senator Grassley asked about the future of the WTO dispute
settlement system in light of the fact that the United States
has won major decisions against the European Union in the areas
of bananas and beef hormones, both of which the European
Commission is refusing to implement. He made the point that
while the U.S. wins 80% of the cases it takes to the WTO,
Europe's recalcitrance is nullifying the gains made by the
Uruguay Round in agriculture reform. He deplored the damage
that these ``hollow victories'' are having on the trading
system. Moore agreed, saying that WTO decisions must be binding
and that time allowed for implementation must be compressed.
Moore went on to say that no one doubts the integrity of the
panel system and that it is free of the influence of money that
plagues certain other international organizations. He pointed
to the value of allowing scientific determinations to take
control over difficult political pressures.
Congresswoman Dunn asked how the WTO should handle the
political issue of Taiwan's future accession to the WTO. Mr.
Moore believes that China and Taiwan should enter the WTO
simultaneously, and that member countries ought to look at the
APEC process, where three different Chinese economies sit at
the table, for guidance on how to proceed once China and Taiwan
become members. In his view, greater pressure needs to be
applied on China to meet ``commercially viable standards.''
Taking the view that it will be a long time before China will
be prepared to meet strict WTO standards, Congresswoman Johnson
suggested that there should be different levels of membership,
allowing China to enter based on a lower level of obligations
at the beginning. She said that it is not fair to keep Taiwan,
which has made most of the changes necessary to comply with WTO
rules, out of the WTO because of an ``imaginary theory that
there is only one China.'' While he is enthusiastic but
cautious about China's entry into the WTO, Mr. Moore said that
he believes that there are many members of the WTO, such as
Malaysia and India, who are very concerned that China will be
accorded preferences that are much more favorable than those
accorded to their economies upon entry.
Asked by the delegation what role he saw for APEC, Mr.
Moore said that this forum has provided the atmosphere of a
think tank and has created an Asian counterweight to the
protectionist tendencies of Europe. He said that APEC, along
with the WTO and the IMF, is critical to the security of the
Asian Pacific region where ``trade can turn very nasty, very
fast.'' Congresswoman Dunn inquired whether there would be a
turnaround in New Zealand's support for APEC and the 1999
Leaders Meeting scheduled to take place in Auckland if the
Labour Party took control of the New Zealand government. Moore
responded that the Labour Party would be fine, but there is
some danger that Labour could be forced into a coalition with
another New Zealand political party that might be more negative
toward APEC.
On issue of pressures in the United States to broaden fast
track trade negotiating authority to include labor and the
environment, Mr. Moore said that in a multilateral trade
negotiation, this approach is ``fraught with enormous
difficulties.'' He predicted, however, that Europe would be
more strident on these issues, now that there are only two
governments in Europe which are not controlled by Social
Democrats. He thought that the outcome on labor and environment
at the Singapore Ministerial was ``smart'' in that it ``gave
cover to those interested in these issues.'' He believes that
it is the job of the International Labor Organization (IL0) to
police labor standards, and he made the point that he is not
applying for Director General of that organization. As head of
the WTO, however, he intends to find ways to help the ILO
function more effectively.
Meeting with New Zealand Dairy Board, Wellington, New Zealand
December 6, 1998
Upon arrival in Wellington on the evening of December 6,
the Codel held a meeting with representatives of the New
Zealand Dairy Board (NZDB.) In attendance was John Storey,
Chairman of the Board, along with Nigel Mitchell and Ken Geard.
Under statutory authority, New Zealand maintains several
agricultural ``producer boards,'' which operate as monopoly
sellers or which license sellers. The United States considers
these to be state trading enterprises (STEs), trading entities
that are owned, sanctioned, or government supported, that are
subject to WTO rules, and that generally operate as ``single-
desk sellers.''
The most prominent STE is the NZDB, which controls the
export of all manufactured dairy products in New Zealand, about
$2.8 billion a year. The primary focus of the New Zealand Dairy
industry is exports. Only 5% of its production is for its
domestic market of 3.5 million people. Due in part to herd
expansion and a switch from beef and sheep production to dairy,
New Zealand dairy output has increased significantly, along
with exports.
Mr. Storey emphasized that the NZDB is a cooperative that
is not owned, financed, or managed by the New Zealand
Government. The Board exists, he said, because of the major
distortions in international dairy trade, including those
resulting from U.S. dairy programs. For example, only 130,000
tons of cheese were allowed in under the U.S. import quota last
year, in a domestic market of 3.5 million tons. U.S. export
subsidy rates under the Dairy Export Incentive Program (DEIP)
are currently around $1000 for skim milk powder. In contrast,
the NZDB and the New Zealand dairy industry are reliant solely
on commercial returns from international markets.
Chairman Crane assured the group that he thought U.S.
quotas on cheese imports were ``unconscionable'' and would work
to remove or at least enlarge the market access for imports in
this sector. He expressed the hope that bilateral trade issues
with New Zealand could be solved in the context of future free
trade agreement negotiations. Finally, he expressed his support
for close cooperation between the United States and the Cairnes
Group to ensure that the WTO addresses major international
market disruptions caused by European subsidy programs.
Meeting with Dr. Lockwood Smith, Trade Minister, Wellington, New
Zealand
December 7, 1998
The delegation next met with Lockwood Smith, New Zealand's
Trade Minister. He told the delegation that his goal is to
galvanize APEC (see Attachment C). He stated that the failure
of the Administration delays trade liberalization in many
areas, and he expressed frustration that the Administration
would be paralyzed by the impeachment proceedings and would not
concentrate on obtaining fast track authority. He said that
Ambassador Charlene Barshefsky, the United States Trade
Representative, had expressed her concern to him that
impeachment would be a distraction.
Chairman Crane stated that he intends to move fast track
quickly through the Committee so that it could be voted on by
the full House in May. As for impeachment, he said that he
doubts that there are votes in the Senate to convict the
President.
Minister Smith emphasized the importance of moving quickly
to negotiate and conclude a Free Trade Agreement (FTA) between
the United States and New Zealand. He said that if an agreement
is not concluded in 1999, it would be difficult to move even in
New Zealand because of its own elections. He suggested that the
two countries begin negotiations even before fast track is in
place, stating that negotiators could be far along in the
negotiations by September 1999, before the APEC Leaders'
Meeting. Congressman Dreier encouraged such negotiations.
Chairman Crane added that Australia can then be added to the
negotiations.
With respect to APEC, Minister Smith stated that the APEC
process had ``suffered a wee bit'' in the last meeting because
of the failure to conclude an agreement in the early voluntary
sector liberalization negotiations. Congresswoman Johnson
commented about the importance of regional integration,
pointing to South America as a region that is integrating
without the United States. Minister Smith responded that a
number of countries, especially Japan, struggle with APEC and
believe that the WTO is the appropriate entity for trade
liberalization. Accordingly, he stated, momentum is necessary
in APEC to help move the WTO negotiations forward.
Congresswoman Dunn then congratulated Minister Smith on New
Zealand's efforts on paper and wood products during the APEC
Leaders' Meeting.
Minister Smith then asked the delegation members whether
they believed an FTA would be possible without fast track.
Congressman Dreier responded that without fast track, the
Senate could destroy an implementing agreement by amending the
provisions and adding extraneous matters.
Minister Smith asked the delegation whether it was worth
encouraging Ambassador Barshefsky, with whom he has a very
close working relationship, to begin negotiating an FTA. He
emphasized that New Zealand was ready to begin, and that
Ambassador Barshefsky was ready as well, but that word from the
White House was necessary. Ambassador Beeman responded that the
Prime Minister should raise the issue with the President during
their meeting next year. Chairman Crane and Congressman Dreier
reiterated the need for strong encouragement to the White
House. Congresswoman Johnson stated that Members need concrete
examples as to how trade benefits U.S. citizens. Congressman
Dreier responded that the fast track bill that went to the
House floor earlier in the fall was a ``great bill'' that
should be supported. Although the President personally support
fast track, he added, key defenders of the President are tied
to the labor movement. Minister Smith outlined two steps to
take: first, he would encourage the Prime Minister to ask the
President to begin the negotiations quietly; and second, the
United States and New Zealand must work together to build a
constituency for trade. Minister Smith noted that New Zealand
has a constituency struggling to understand how decreasing
tariffs can create jobs. He noted that the problem is one of
transition--that is, a time lag for workers to develop new
skills. He noted that the impediments to the major reforms in
1985 were labor unions and government spending. Once reforms
are achieved, however, people do not want to go back to the old
days. Major fiscal discipline led to a decrease in interest
rates and higher growth. He expects growth for 1998 to be flat
because of the drought and the financial crisis.
Congresswoman Johnson then raised the issue of New
Zealand's recent removal of the ban on parallel imports.
Minister Smith stated that if New Zealand wants high tech
software investment, then it must make sure that it has
adequate intellectual property protection. He said that ``the
jury is still out'' as to whether New Zealand's intellectual
property protection is adequate. New Zealand, he said, has made
some moves to increase protection, but he is not sure whether
that is enough. He said that he would look to Singapore as an
example because it has robust antipiracy protection but also
does not have a ban on parallel imports. Congresswoman Dunn
mentioned that Ireland has high quality protections, and
Microsoft has recently moved there. Enforcement, she
emphasized, is the most important aspect of intellectual
property protection.
Congresswoman Johnson mentioned that she was surprised to
hear how much the U.S. government subsidizes cheese. Minister
Smith responded that trade policy involves maintaining a
balance between protecting the market and making sure that
consumers do not suffer because of higher prices and lack of
availability.
Congresswoman Johnson asked Minister Smith to describe the
biggest challenges he faced. He responded by pointing to the
need to demonstrate to the media, which has a negative view,
that New Zealand is managing itself well. The next challenge,
he said, is to convince the public.
Congresswoman Dunn asked whether the Labour Party would be
as strong on trade as the current government. Minister Moore
responded that it depends on Mike Moore. He is the strongest
and most committed to trade of the Labour Party politicians.
Labour Party leader Helen Clark, he stated, understands the
importance of trade but is not as committed. In response to a
question as to whether New Zealand would host the next APEC
Leaders' Meeting if the Labour Party is in control of the
government, he said that it would be a ``huge mistake'' not to
have such a meeting.
Congresswoman Johnson noted that it would be helpful to the
trade policy debate in the United States to make clear why
labor and environment issues should not be included in fast
track and to demonstrate where APEC and the WTO already deal
with these issues. Minister Smith pointed to the high level
environmental WTO meeting, to be held in the spring of 1999, as
such an opportunity. Congresswoman Johnson suggested that the
Congress send a delegation of Members to that meeting to show
that the WTO is capable of dealing with these issues. Minister
Smith added that labor is protected through the International
Labor Organization. Issues such as labor and the environment,
he stated, are very important, but there are other more
suitable avenues in which to pursue them. In fact, far from
trade undermining the environment, protectionism is actually
hugely damaging to the environment.
Congresswoman Dunn then asked about the used car market in
New Zealand. Minister Smith stated that used cars are tariff
free. Ambassador Beeman added that few new cars are sold in New
Zealand. Minister Smith noted that there is no limitation on
bringing in cars from the United States, as long as they are
equipped with right-handed drive.
Meeting with the Honorable John Luxton, Minister for Food, Fibre,
Biosecurity and Border Control, Wellington, New Zealand
December 7, 1998
Senator Grassley, Congressman Herger, and Congresswoman
Thurman met with Minister Luxton to discuss issues on the
bilateral trade agenda and the prospects for a free trade
agreement between the United States and New Zealand. Senator
Grassley began by noting the strength of the relationship
between the two countries. While there are some issues in the
bilateral relationship to resolve, those differences should not
overshadow the friendship between the two countries.
Senator Grassley indicated that he hopes that the Cairns
Group of nations will play a leading role in the agriculture
negotiations in the World Trade Organization. He noted that it
will be particularly important for countries in the Cairns
Group, like New Zealand, to be even more vocal in those
negotiations if the United States has not renewed fast track
negotiating authority.
Minister Luxton agreed that the United States and New
Zealand do work together very closely to open markets to trade
and noted that New Zealand is perhaps the most dependent on
exports of all developed countries. Three-fourths of New
Zealand's exports are of agriculture and forestry products. It
is vital to New Zealand that these areas be included and
treated as any other in trade negotiations.
Minister Luxton explained that he represents a dairy
constituency and believes that even if New Zealand had
unfettered access to the U.S. market, it would not have a great
impact on the U.S. domestic industry. New Zealand's total dairy
production equals only 15% of U.S. dairy consumption, and New
Zealand's producers already have markets for most of their
dairy products around the world. Only a small portion would
likely be redirected to the United States if they had
unrestricted access to the U.S. market.
New Zealand sees the renewal of fast track negotiating
authority as very valuable, and the Minister expressed the
country's interest in being considered as a candidate for a
free trade agreement with the United States once fast track
authority is renewed.
Senator Grassley indicated that a majority of Senators
support fast track renewal. Congressman Herger explained that
it has been difficult to renew fast track authority in the
House because of a disagreement with the President and
Democrats about the inclusion of labor and environmental issues
in trade agreements. Congressman Herger said that he was
encouraged by the remarks made earlier in the day by the
Minister for International Trade, Dr. Lockwood Smith, about New
Zealand's interest in developing stronger trade relations with
the United States. Congressman Herger indicated that he
supported this goal and believed that the United States should
move ahead and see what can be done in the interim pending fast
track's renewal.
Minister Luxton said that New Zealand markets are already
very open and, while the country's economy is small, a free
trade relationship with the United States would send a very
important signal to others in the region.
Congresswoman Thurman said that the fast track debate in
Congress did not focus only on tariffs, and she noted the
significance of non-tariff barriers, such as sanitary and
phytosanitary issues, as tariff levels come down. Only by
addressing these issues on a multilateral level, such as
through the WTO agriculture negotiations, can these types of
problems be addressed.
Minister Luxton agreed that countries have sought to use
non-tariff barriers in place of traditional tariffs and noted
that New Zealand has sought to insure that its measures will
stand up to a challenge in the WTO.
Congresswoman Thurman asked whether the Minister believed
risk assessment requirements, particularly on fruits and
vegetables, were a barrier to accessing the New Zealand market.
Minister Luxton responded that he did not believe they were,
noting that New Zealand now allows U.S. salmon and trout to
enter its market and that New Zealand imports many fruits and
vegetables. Poultry is an area with some restrictions, but they
largely affect the United Kingdom.
Senator Grassley stated that he believes U.S. concerns
about the use of sanitary and phytosanitary measures to
restrict trade is not really directed toward New Zealand but
really toward the European Union. Senator Grassley emphasized
U.S. frustration with the EU reluctance to comply with the WTO
panel decisions on bananas and beef hormones.
Minister Luxton agreed with Senator Grassley's observations
and said that New Zealand has faced the same problems accessing
the EU market. He hopes there is a way that New Zealand can
raise its profile with the United States so that U.S. concerns
do not diminish the possibility of negotiating a free trade
agreement. Minister Luxton noted that only 4% of New Zealand
imports are subject to tariffs and that all tariffs are
scheduled to be eliminated by 2006, along with quotas and
licensing requirements.
Congresswoman Thurman said she believed the WTO agriculture
negotiations are very important and represent an area where the
United States and New Zealand can work together. She also
expressed her belief that the President actively sought fast
track authority in 1997, but many Members of Congress were
under pressure from both agricultural sectors and environmental
interested opposed to further trade liberalization.
Minister Luxton said he believes that much of the
agriculture community's reluctance to embrace trade
liberalization comes from the sector's exclusion from the
original GATT agreement in 1948. He went on to say that he had
productive meetings with representatives from the U.S. Trade
Representative's office in September 1998 regarding parallel
imports and explained that for New Zealand, the issue comes
down to a concern about high prices paid by consumers if a ban
on parallel imports is reinstated. New Zealand sees this issue
as one of trade liberalization, not theft.
Senator Grassley asked if the New Zealand Dairy Board might
be eliminated. Minister Luxton indicated that if a free trade
agreement is negotiated with the United States, he expects that
New Zealand would eliminate the Dairy Board very quickly. The
Minister went on to identify quantitative restrictions that the
United States imposes on imports of cheese, chocolate, ice
cream, buttermilk powder, and other products that New Zealand
would like lifted in a free trade relationship.
Minister Luxton thanked the delegation for its interest in
developing closer trade relations with New Zealand and asked
that the delegation take back a message of New Zealand's
interested in a free trade agreement with the United States.
Meeting with Michael Cullen, Deputy Leader of the Opposition Labour
Party, Wellington, New Zealand
December 7, 1998
For the opposition party's perspective of economic and
trade issues facing Parliament, the Codel went to Parliament
House to meet with Michael Cullen, Deputy Leader of the New
Zealand Labour Party. Saying that ``New Zealand has very high
degree of political volatility,'' Mr. Cullen observed that
support for the National Party, which is currently in ``an
unsteady coalition'' with the New Zealand First Party, swings
between 26% and 47% in public opinion polls. Historically,
political control in New Zealand has alternated between the
Labour Party and the National Party, which was elected in 1990
and then again, much more narrowly, in November of 1993. Also
in 1993, New Zealanders changed their electoral system to a
controversial form of proportional representation designed to
give smaller parties a larger voice in Parliament. In the 1996
election, the first under the new ``mixed-member-
proportional''(MMP) system, the National Party barely edged out
Labour as the top party. Mr. Cullen predicted that the current
National Government, headed by Prime Minister Jenny Shipley,
would fall in March or April of 1999, due to eroding political
support and an ``inability to pass legislation.''
Depicting the New Zealand economy as fragile, Mr. Cullen
sees his country as ``on the road'' to becoming a ``low income
society'' characterized by a slow GDP growth rate (currently
about 1% annually) and an 8% unemployment rate which continues
to rise. In his view, the structural program of the National
Government is directly responsible for low growth rates and
wide volatility in the country's foreign exchange rate. He
pointed to a ``major current account problem'' that must be
addressed and said he favored replacing individual and ad hoc
taxes with a tax on capital gains.
On trade, Mr. Cullen indicated that there was not much
disagreement between the political parties in New Zealand.
Congresswoman Johnson asked if the Labour Party had decided
whether labor and environmental issues should be linked to
trade agreements. Traditionally, Mr. Cullen said, the Labour
Party supported a ``clear line'' separating trade agreements,
from labor and environmental agreements. New Zealanders are
always concerned that the Europeans will use labor and
environmental standards as a way to block imports of kiwi
products. He observed, however, that as a result of stronger
support for left-wing governments in Europe, there will
probably be more linkage in the future. In New Zealand, he too
feels ``pressure from the left''on these issues. Pointing to a
change in position that he saw on the Multilateral Agreement on
Investment (MAI), he said that domestic politics in New Zealand
is also beginning to force more of a linkage. He thought that
many in the Labour Party have begun to view the MAI as a
``Trojan horse'' for ``allowing a deterioration'' in labor and
environmental standards.
Chairman Crane discussed the bipartisan support that free
trade policy has historically had in the Unites States. Telling
Mr. Cullen that he would favor the negotiation of a free trade
agreement with New Zealand, he indicated his hope that
bipartisanship can be renewed in support of fast track
negotiating authority, which failed in September on a party-
line vote.
Congresswoman Dunn asked whether there are different levels
of support for APEC between the Labour and National parties.
Indicating that he could ``no longer take the left wing for
granted,'' Mr. Cullen said support for APEC would ultimately
depend on whether the Labour Party was required to seek a
coalition with the Alliance Party, which tends to be
``unenlightened on foreign and trade policy, and generally
opposed to international agreements.'' It will depend, he
continued, on whether the Labour Party is free to establish
``an open door coalition'' or whether his party is dependent on
the Alliance Party for its majority.
In response to a question from Congresswoman Thurman about
his party's support for recent legislation allowing parallel
imports, Mr. Cullen said the Labour Party would favor a two-
year moratorium on parallel importing. He is concerned that New
Zealand is ``becoming a dumping ground for a lot of strange
products,'' and he believes the government is having difficulty
enforcing against piracy and counterfeiting. However, on
another bilateral trade issue, Mr. Cullen indicated that his
party is squarely behind Pharmac pharmaceutical pricing
policies which, he believes, protects citizens from ``price-
gauging'' by multinational corporations.
Roundtable Discussion with Representatives of the Ministry of Foreign
Affairs and Trade Wellington, New Zealand
December 7, 1998
The meeting began with John Wood, former New Zealand
Ambassador to the United States, welcoming the delegation to
New Zealand and indicating his interest in discussing trade
liberalization in APEC and the possibility of a free trade
agreement with the United States. Ambassador Wood distributed a
paper to the delegation outlining New Zealand's objectives as
the 1999 Chair of APEC.
Chairman Crane said that to negotiate a free trade
agreement, the United States must renew fast track negotiating
authority. Chairman Crane stated that this objective is the
delegation's top priority, but indicated that there has not
been the degree of bipartisanship on trade that there has been
in the past. Chairman Crane indicated that he believes the
concerns expressed by labor unions in 1997 and 1998 prevented
passage of the legislation during the 105th Congress.
Ambassador Wood asked whether the Administration supported
fast track renewal in the last Congress. Congressman. Dreier
said that the Administration was very slow to come forward to
talk about renewing fast track authority in 1997. Given the
Asian financial crisis, Congressman Dreier had hoped that fast
track would have passed in the fall of 1998 even though the
President objected to considering the issue at that time.
Ambassador Wood said that New Zealand sees fast track
renewal as being critically important and noted that the United
States is hosting the next WTO ministerial meeting. Shortly
before the WTO ministerial, New Zealand will host the next APEC
summit, and Ambassador Wood believes that it can contribute
significantly to the success of the WTO ministerial.
Congresswoman Dunn agreed with Ambassador Wood's comments
and urged him to raise this when he meets with Administration
officials.
Ambassador Wood asked for the delegation's recommendations
on what Prime Minister Shipley should say to persuade President
Clinton of the importance of fast track renewal when she meets
with him in January 1999.
Chairman Crane suggested that the Prime Minister discuss
the possibility and benefits of a free trade agreement with New
Zealand and the ripple effect it could have in the region in
terms of insuring that countries continue on a course of trade
liberalization.
Congresswoman Thurman said that she believes the vote in
1998 on fast track renewal failed because of the timing of the
vote. She indicated that the Administration worked hard to
renew fast track in 1997 and argued that the United States is
losing out on export opportunities. Congresswoman Thurman
suggested that the Prime Minister raise the issue of fast track
renewal with the President and how issues like labor and the
environment should be handled. Congresswoman Thurman said that
she believes these are significant issues for New Zealand as
well and they are keeping us from moving forward on trade
liberalization.
Congresswoman Johnson noted that the issues of labor and
the environment have been raised by the Labour Party in New
Zealand as well and asked that New Zealand help the United
States find a way to address these matters so we can move
forward with trade liberalization. Ambassador Wood observed
that there is nothing to prevent the negotiation of side
agreements on labor and environmental issues.
Congressman Dreier said that he believes trade is an end in
itself for advancing labor and environmental issues and noted
that there will be diminished support among Republicans for
fast track renewal if these matters are included within trade
agreements. Ambassador Wood agreed with Congressman Dreier's
comments and cited as an example New Zealand's abolishment of
agriculture subsidies, which has lead to better land management
by farmers.
Congresswoman Dunn asked if there is concern that a
possible change in government would impact New Zealand's
approach to hosting the 1999 APEC meeting. Ambassador Wood
observed that there is a national commitment to make the APEC
meeting a success across party lines. Mr. Maarten Wevers, APEC
Senior Official at the Ministry of Foreign Affairs and Trade,
added that APEC is extremely important to New Zealand and noted
that the country has three major objectives in that forum.
Specifically, New Zealand seeks to advance trade and investment
facilitation, strengthen markets in the region, and broaden
support for APEC among its members. Mr. Wevers noted a very
strong relationship between the United States and New Zealand
APEC negotiators.
Congresswoman Johnson asked Ambassador Wood about his views
on the Asian financial crisis. The Ambassador said he believes
the decline has leveled off and that the affected countries
will begin to grow. Ambassador Wood noted that South Korea has
already improved and that there are signs that Thailand is as
well. The Ambassador also pointed out that New Zealand exports
globally are still growing, which has made up for any loss that
they incurred as a result of the financial crisis in Asia.
PARTICIPANTS FROM THE MINISTRY OF FOREIGN AFFAIRS AND TRADE
The Honorable John Wood, Deputy Secretary of the Ministry of
Foreign Affairs and Trade and Former Ambassador to the
United States from New Zealand
Mr. Maarten Wevers, APEC Senior Official
Mr. Wade Armstrong, Director, Trade Negotiations Division
Mr. David Walker, Director, APEC Division
Mr. Graeme Pirie, Acting Director, Americas Division
Mr. Charles Finny, Deputy Director, Trade Negotiations Division
Ms. Bridget Nichols, Americas Division
Ms. Suzanne Paki, Trade Negotiations Division
AUSTRALIA
Australian War Memorial
December 8, 1998
The delegation paid its respects in Canberra at the
Australian War Memorial, which included the Roll of Honour
naming Australia's war dead, the Hall of Memory, and the Tomb
of the Unknown Australian Soldier. The Memorial is evocative of
Arlington National Cemetery.
Country Briefing by The Honorable Genta Hawkins Holmes, U.S. Ambassador
to Australia, Canberra, Australia
December 8, 1998
The delegation visited the U.S. Ambassador's Residence in
Canberra, where Ambassador Holmes noted the importance of the
delegation's visit by indicating the close and enduring
relationship between the United States and Australia. The
foundation of the relationship is built on a close defense and
intelligence alliance. The Ambassador pointed out that neither
side takes the relationship for granted, and both work to
preserve and strengthen it. Trade is an area where there are
some matters under dispute, but the strength of the alliance
makes the trade issues manageable.
Ambassador Holmes described that Prime Minister Howard is a
committed supporter of the defense alliance with the United
States, but he has not been so willing to work with the United
States to resolve trade disputes. The Prime Minister's trade
philosophy was developed during the 1970s and 1980s when he was
a trade negotiator.
William M. Bellamy, Deputy Chief of Mission, gave the
delegation an overview of the Embassy's priorities. The first
priority is to maintain a high level of military cooperation
with Australia. Second, the Embassy seeks Australian support
for U.S. foreign policy internationally. For the most part,
this effort has been successful. Mr. Bellamy noted that
Australia supports U.S. efforts to contain Iraq, contributes a
disproportionally large share to the North Korean energy
agreement, was the only country to support the 1996 deployment
of U.S. carriers into the Taiwan Straits, and always emphasizes
the stabilizing force to the Chinese of a U.S. presence in the
region.
The third priority of the Embassy is to promote good
economic relations with Australia. To this end, the United
States works closely in APEC and seeks the fullest possible
access to the Australian market for U.S. goods and services.
Fourth, the U.S. Embassy seeks cooperation with Australia on a
variety of fronts, including scientific, cultural, and law
enforcement. Mr. Bellamy noted that the FBI works very closely
with local Australian officials. The fifth priority of the U.S.
Embassy is to provide a full range of consular service to U.S.
citizens and encourage Australians to travel to the United
States.
Ms. Jo Ellen Powell, Counselor for Administrative Affairs,
then gave the delegation an overview of the personnel at the
U.S. Embassy in Canberra and noted that the Embassy is well
staffed to achieve the mission priorities outlined by Mr.
Bellamy. Ms. Powell distributed information to the delegation
on the Embassy's budget, security profile, and staffing levels
(which can be seen in Attachment D). Ms. Powell noted that
there have been some reductions in positions at the Embassy to
meet demands elsewhere in the region. Presently 300 U.S. and
Australian employees staff the Embassy. The Embassy's budget
has been stable at about $6.5 to $7 million annually. Three-
fourths of this amount is used for diplomatic and consular
operations.
Security is also an important issue, and the Embassy works
closely with local officials. Ms. Powell noted that although
the compound is well-positioned to guard against security
breaches, some vehicle barriers are needed. Australian
authorities share relevant information with the Embassy that
they obtain. Vigilance is the key.
Chairman Crane asked whether the Embassy in Canberra has
ever received any threats or experienced any assaults.
Ambassador Holmes responded that there have been incidents in
the past involving car bombs related to U.S. policy toward
Turkey. Because Australia will host the 2000 Olympics, it may
make the country and the Embassy more of a target
internationally than it otherwise might be.
Congresswoman Dunn asked whether all Embassies will receive
funding for security measures. Ms. Powell said that she
expected that all legitimate Embassy requests would be funded.
Chairman Crane asked about the nature and level of crime in
Australia. Ambassador Holmes said that the streets in Canberra
are safe, but there are still problems. Heroin addiction is a
problem in Australia. Sydney experiences the types of city
crimes common in major international cities.
EXO Arnold Long, Chief of Station, gave the delegation an
overview of the military alliance between the United States and
Australia and noted that this relationship is very mature,
dating back to World War II. Colonel Richard Welker, Army
Attache, added that Prime Minister Howard's policy looks at ``a
secure Australia in a secure region'' and is very active
internationally. Australia has 50,000 people in its military,
25,000 of which serve in the Royal Australian Army. Australia
currently spends US$6.6 billion, or about 1.9% of the country's
gross domestic product, on defense annually.
Congresswoman Dunn asked to what degree the United States
is responsible for the defense of Australia. Ambassador Holmes
said that the ANZAC treaty has been suspended because of New
Zealand's nuclear policy.
Senator Grassley asked if there is domestic pressure in
Australia to cut or raise the country's defense expenditures.
Colonel Welker responded that the Prime Minister is committed
to the current levels of funding, and given the fact that the
current Labor Party leader is a former Minister for Defense, he
would expect a Labor Government to continue the current funding
levels if one should come to power.
Mr. Stephen Engelken, Counselor for Political Affairs, gave
the delegation an overview of the political environment in
Australia and indicated that Prime Minister Howard's government
is very supportive of U.S. policy. Since 1983, Australia has
implemented free market and privatization principles under both
Liberal and Labor governments. There are extremists on both the
left and right who oppose foreign investment and support
protectionism. These forces affect the main stream because the
right wing party, the One Nation Party, received the third
largest block of votes in the last election.
Congressman Dreier asked how universal is support for
privatization of Australia's social security system. Mr.
Engelken said that the support is weak at best. The Ambassador
added that there is a fundamental difference in how Australians
versus Americans view their respective governments. Australians
continue to see more government as a positive influence on
their lives, whereas Americans are seeking less government
intrusion.
Congresswoman Johnson asked how far privatization has gone
in Australia and whether people can feel the results. Mr.
Engelken responded by saying that the privatizations have been
very successful to date. The utilities in Victoria have been
privatized as have the Commonwealth Bank and Quantas airlines.
However, it is difficult to draw a direct link between these
privatizations and people's everyday lives. In fact, people are
conscious of the negatives associated with them such as bank
branches closing.
Congresswoman Thurman asked about electricity rates in
Australia. Mr. Curtis Stewart, Counselor for Economic Affairs,
responded by saying that there is a general view that rural
areas should pay the same as urban areas. Privatization does
not work as well because companies have to cross subsidize in
order to equalize the rates. Ambassador Holmes said that while
95% of Australia's population lives in urban areas, rural
regions carry similar emotional ties for Australians as they do
for Americans.
Mr. Stewart then gave the delegation an overview of the
economic situation in Australia and noted the overall positive
picture in the economy. Although unemployment remains high, it
has dropped to under 8%. Prime Minister Howard's government
takes credit for the good economic environment, but the
situation is really the result of Australia's 15-year pursuit
of policies supporting open markets, privatization, and lower
tariffs.
The Australian dollar has dropped 17% versus the U.S.
dollar in the last year. This trend partly reflects the degree
of confidence in the region, but it also reflects the fact that
prices for Australia's commodity exports are at record lows.
APEC is the only regional organization to which Australia
belongs. Approximately 60% of Australia's exports are shipped
within the Asia/Pacific region. Australia believes that it is
playing a disproportionate role in insuring the success of APEC
trade liberalization.
U.S. direct investment in Australia is about US$60 billion,
and the United States enjoys a trade surplus with Australia as
a result of U.S. aircraft, computer, and capital goods exports.
Sanitary and phytosanitary issues are of primary concern to the
United States in the bilateral relationship. Because Australia
is an island, its government tends to be extremely concerned
about the introduction of diseases. The Embassy has conveyed to
the Australian government that it risks becoming perceived like
the European Union in its approach to sanitary and
phytosanitary issues, which is in direct contradiction with its
call for free trade in agriculture. In the long run, it will
work to Australia's detriment in the WTO agriculture
negotiations to continue to maintain these policies.
Congresswoman Thurman asked about the status of pending
risk assessment evaluations by the Australian government of
U.S. agricultural products. Mr. Randy Zeitner, Counselor for
Agricultural Affairs, responded that the biggest problem has to
do with Australian concerns about the med fly and citrus
canker.
Senator Grassley asked about market access for pork and
whether it was possible to get regions in the United States
certified for export. Ambassador Holmes said that the Embassy
is pursuing this idea, but noted that Australian pig farmers
are going through difficult times as a result of low world
market prices for their products.
Congresswoman Johnson asked about parallel imports in the
Australian market. Mr. Stewart replied that the major U.S.
concern is that parallel imports will lead to an increase in
pirated products. Australia just changed its law to permit
parallel imports, but the retailers have not yet changed their
purchasing habits. They still buy from their traditional,
licensed suppliers. The United States is concerned, however,
that pirated goods will enter Australia with legal goods and
that the pirated ones will be more difficult to detect. Mr.
Stewart noted that the issue of parallel imports is the U.S.
Trade Representative's top priority with respect to Australia.
Chairman Crane asked whether the Australians tend to change
frequently personnel associated with approving agricultural
goods for import and whether this staffing policy tends to
become a market access barrier. Mr. Zeitner noted that a number
of personnel changes have taken place, but this policy can have
both good and bad points. Personnel changes can lead to new
thinking on old issues, but replacements are not familiar with
the process. Also, the replacements have tended to have more
advanced degrees and ask for greater amounts of information.
Congresswoman Dunn asked about the possibility of seeing
more high tech U.S. firms investing in Australia to take
advantage of the highly educated workforce. Mr. Bellamy said
that Australia would very much like to see this happen. It
would help them deal with their unemployment situation.
PARTICIPANTS FROM THE U.S. EMBASSY IN CANBERRA
The Honorable Genta Hawkins Holmes, U.S. Ambassador to
Australia
William M. Bellamy, Deputy Chief of Mission
Curtis M. Stewart, Counselor for Economic Affairs
Stephen Engelken, Counselor for Political Affairs
Jo Ellen Powell, Counselor for Administrative Affairs
Randy Zeitner, Counselor for Agricultural Affairs
Barry Friedman, Senior Commercial Officer
Colonel Richard Welker, Army Attache
EXO Arnold Long
Dr. Eric Hoffman, Animal and Plant Health Inspection Service
Attache
Stephen Gangstead, Acting Public Affairs Officer
Brian J. Siler, Environment, Science and Technology Officer
Lunch Meeting with the Australian Industry Group, Canberra, Australia
December 8, 1998
On December 8 the delegation met for a working lunch with a
group led by Chief Executive of the Australian Industry Group
(AIG), Robert Herbert, and several members of his staff.
Similar to the National Association of Manufacturers in the
United States, AIG is the largest industry group in Australia
with more than 11,500 member companies from all sectors of
manufacturing. Responsible for about $100 billion in output a
year, a considerable percentage of which is exported, Mr.
Herbert said he believes that AIG has considerable clout with
the Australian Government.
After discussing how the group develops policy through a
system of state councils comprised of top business leaders, Mr.
Herbert summarized the major issues on which AIG focuses its
efforts. These include: 1) maintaining and improving growth
rates; 2) addressing recessionary pressures on the Australian
economy of the ``Asian contagion''; 3) achieving lower interest
rates; 4) reminding the government about the job-creating
capabilities of industry; 4) attracting new foreign investment
to Australia (which has dropped from 3% of the world's share to
1%); 5) tax reform; 6) international trade; and 7) industrial
relations and worker retraining.
Making the point that 75% of chief executive officers in
Australia are involved in international trade, Herbert said
that AIG is now a ``very globally oriented group,'' in stark
contrast to 20 years ago when the group dedicated its efforts
to fighting trade liberalization.
Director Liegh Purnell, responsible for trade issues,
described the transformation in Australia's trade regime which
occurred during the last 20 years. Since 1984, successive
Australian governments, he said, have reduced or eliminated
tariffs, which were increasingly viewed as having restrained
growth by insulating domestic industry from foreign
competition. Also that year, the Australian dollar was floated
and allowed to fall dramatically, while corporate taxes were
significantly reduced and the economy generally liberalized and
more exposed to international competition. Macroeconomic
reforms such as privatization encouraged economic
diversification and export orientation and strengthened the
manufacturing industries. As a result, exports of ``elaborately
transformed products'' are growing, and manufactures' total
share of exports has increased.
Mr. Purnell indicated that Australian industry has survived
unilateral tariff reductions to an average rate of about 5%,
with the major tariff barriers remaining in the automotive,
textiles, clothing and footwear sectors. Discussing the
importance that Australia places on attracting foreign
investment, he said that his group is conducting a review of
Australia's tax system, with the goal of proposing tax reforms
that would encourage more local research and development.
Congresswoman Johnson asked whether AIG believed that
Australia was adequately prepared to deal with the ``Y2K''
challenge, and whether the government was looking at passing
liability protection legislation so that companies would be
more willing to share information and reveal the status of
their compliance efforts. Pointing out that there are actually
nine dates that have to be looked at, Purnell said he thought
that companies in New South Wales were generally very
compliant, but that some may not be aware of the full extent of
their embedded semi-conductor chips. He has some worries about
the effects of the problem on electricity systems.
Congresswoman Johnson urged the group not to underestimate
the value of APEC and ASEAN to push the agenda of trade
liberalization forward by creating pressure on WTO negotiations
to go further. Mr. Purnell agreed, saying that until the Asian
downturn, Australia was making real progress with its Asian
neighbors, which had been the fastest growing markets for the
country's exports. Congratulating the group on Australia's
progress in moving its economy toward the adoption free of
trade principles, Chairman Crane indicated that he intended to
propose that the United States pursue free trade agreement
negotiations with Australia, New Zealand, and other countries
in APEC, such as Singapore which have ``made the necessary
reforms.'' While reacting positively to this proposal, Mr.
Purnell urged the United States to exercise leadership in the
WTO in support of a broad multilateral trade round that would
include industrial tariffs.
Question Time in the Australian House of Representatives and Senate
December 8, 1998
The delegation was given the opportunity to observe
Question Time in both the Australian House of Representatives
and in the Senate. In the House, Members were afforded the rare
honor of sitting on the floor of the House during the
proceedings, and observed a vigorous question and answer period
regarding the Government's proposed Goods and Services Tax
(GST). In the Senate, Members were also granted the privilege
of sitting on the floor of the Senate and witnessed a wide-
ranging and spirited debate covering topics including national
health care policy and labor policy. An excerpt from the
official record of proceedings (Hansard) follows:
Australian House of Representatives
Hansard for 8th December 1998
DISTINGUISHED VISITORS
Mr SPEAKER--I inform the House that we have present in the
gallery this afternoon representatives of a congressional
delegation from the United States of America. Our guests have
been kind enough in fact to accommodate the unpredictable
sitting pattern of the House this afternoon and have returned
to the gallery. I trust they feel very welcome.
Honourable members--Hear, hear!
Australian Senate
Hansard for 8th December 1998
DISTINGUISHED VISITORS
The PRESIDENT--I draw the attention of honourable senators
to the presence in the chamber of a delegation from the United
States Congress led by the Chairman of the Subcommittee on
Trade of the House Ways and Means Committee, the Hon. Philip
Crane. On behalf of honourable senators, I welcome you to the
chamber and trust that your visit to this country will be both
informative and enjoyable.
Honourable senators--Hear, hear!
Meeting with Tim Fischer, Deputy Prime Minister and Minister for Trade,
and David Spencer, Deputy Secretary, Department of Foreign
Affairs and Trade (DFAT), Canberra, Australia
December 8, 1998
Chairman Crane began the meeting by stating that the
principal purpose of the mission was to discuss trade issues,
including their relationship to regional stability. He
expressed his interest in pursuing a Free Trade Agreement with
Australia, New Zealand and possibly Singapore, and the positive
effects that such an agreement would have on stability in the
region. He expressed his hope that the parties could soon begin
to sit down and iron out any differences.
Mr. Spencer discussed the impact of the Asian economic
crisis, and reported the Australia had been spared so far.
Australia posted a 5% increase in its GDP in the last quarter,
and he expected between 2 and 3% growth next year. Mr. Murray
Cobban, First Assistant Secretary, Americas and Europe, DFAT,
also participated in the discussion.
Minister Fischer addressed a number of contentious
bilateral, regional, and multilateral issues. He flagged
Australia's concern with such non-tariff barriers as the Jones
Act, which limits Australian access to the U.S. market for
vessels such as fast ferries. He claimed that this nontariff
measure makes it cheaper to fly fifty head of cattle to the
United States than to ship them by sea.
Minister Fischer also addressed the APEC negotiations and
the recent Leaders' Meeting, particularly the setback in not
reaching conclusion in the Early Voluntary Sector
Liberalization negotiations. As for the WTO, he said that the
1999 Ministerial Meeting to be hosted by the United States
provides an opportunity to make significant progress,
particularly in the areas of agriculture and services. He said
that whichever approach to the built-in agenda is taken, either
a ``cluster Round'' as favored by the United States or a
``millennium Round,'' there must be enough on the table to give
and take. He cautioned that the U.S. cluster approach gives the
impression that the United States is willing to negotiate only
on those issues that would benefit it. He said that he is ready
to work with the United States and is prepared to explore ways
to increase trade liberalization in order to force the European
Union to move as well. Deputy Secretary Spencer noted that it
would help the success of the 1999 WTO ministerial meeting if
the United States had fast track. He expressed concern that if
fast track were to fail in the House again, the prospect for a
new Round would be ``spoiled.'' He concluded that if fast track
were to be ``snarled up'' in Congress, perhaps it would be
better to wait to seek fast track after the 2000 election.
Congresswoman Johnson stated that it is important to
proceed with the APEC process because it shows within the
United States that U.S. companies and workers lose out which
other countries move ahead. Congresswoman Thurman said that the
consideration of fast track last fall was a ``political
embarrassment'' and asked the Minister his views on labor and
environment issues. David Spencer replied that Australia does
not support bringing labor issues into the WTO because it
``snarls things.'' Environmental issues, he said, are more
nuanced. Disciplines within the WTO are needed, but he
expressed concern about how to raise the issues without having
an environmental agreement provide an excuse not to comply with
WTO rules. Both Congresswomen Thurman and Johnson stated that
these issues must somehow be addressed to quiet fears.
Congressman Dreier, however, said that Republicans made a
significant concession in their fast track bill by assuring
that there would be no ``race to the bottom'' with respect to
labor and environment.
One the question of the next Director-General of the WTO,
the Minister stated that he hoped the issue would be resolved
by the first quarter of 1999. He said that Australia supported
Dr. Supachai of Thailand because he was best equipped and
because a candidate from a developing nation should be given a
turn. Chairman Crane responded by saying that his personal
leaning was toward Mike Moore and that in his view, Mike
Moore's qualifications and bipartisan support would be more
beneficial to the WTO than limiting oneself to candidates from
developing nations.
The Minister and the delegation next discussed the
prospects for fast track negotiating authority. Chairman Crane
expressed his hope that fast track--more specifically, the same
fast track bill as was considered last year--could be
considered by the House in early spring. He explained that
modifying the fast track bill to allow the negotiation of
issues not directly related to trade, such as labor and the
environment, would cost Republican support. Congressman Dreier
asked the Minister to encourage the U.S. Administration to
support fast track in the spring. Minister Fischer said that he
was keen to support a ``raft'' of opportunities. He said that
Australia would take a favorable look at a free trade agreement
with the United States if agriculture is included.
Chairman Crane then stated that he did not realize how
restrictive the U.S. market is to dairy products, labeling the
U.S. policy ``totally reprehensible.'' Minister Fischer said
that Australia has no quotas on agriculture products except for
one, while the United States has twelve, on very important
products such as beef and sugar. Senator Grassley responded
that sanitary and phytosanitary (SPS) barriers may have the
same effect as outright tariff measures. He cited EU
restrictions on beef hormones and bananas stating that Uruguay
Round gains would be lost if the EU does not implement dispute
settlement decisions. Congresswoman Thurman mentioned SPS
barriers on citrus, noting that she will be interested in the
Australian SPS paper, which should be out shortly. She noted
that the treatment of agriculture products sends an important
message as legislators are thinking about the next WTO
agriculture negotiations. Minister Fischer assured
Congresswoman Thurman that citrus will be dealt with
transparently and in a manner based on science. The Minister
and delegation members agreed that SPS issues must be based on
a fair scientific basis in order to be viewed as legitimate.
On the issue of trade liberalization, Minister Fischer said
that the average Australian does not support such measures as
the removal of tariffs and quotas. The Australian government,
nevertheless, has undertaken unilateral reductions because it
is the right thing to do. He provided the delegation with
copies of a brochure that the government has created in an
effort to persuade the Australian public about the benefits of
trade liberalization. Chairman Crane responded that public
attitudes toward trade liberalization in the United States are
similar and that even in his district, where several major
exporters are significant employers, public perceptions are
often negative. Congresswoman Johnson pointed to an
``information deficit'' about trade. Many companies in her
district, she said, supply components to companies that export,
but there is no chain of information to make the trade link
apparent to the supplier companies.
The delegation then discussed China policy. Deputy Minister
Spencer stated that Australia supports Chinese entry into the
WTO but only if China ``pays the fee.'' Senator Grassley,
Congressman Dreier, and others in the delegation agreed that
they opposed any special exceptions for China. Mr. Spencer
expressed concern that China would single out Australia and
apply pressure to gain support for early accession. Australia,
he said, has avoided settlement with China, unlike Japan, and
is in ``lock step'' with the United States. Chairman Crane
suggested that Australia use the strong stance taken by United
States to justify its own position. Deputy Minister Spencer
concluded that China must show political leadership. If no
progress is made in the next few months, he said, the issue
will be ``dead'' for some time. He and the delegation agreed to
stay in touch concerning this issue.
Meeting with Alexander Downer, Foreign Minister, Canberra Australia
December 8, 1998
Highlighting the importance Australia places on its
relationship with the United States, Foreign Minister Downer
characterized his country as the most reliable ally the United
States has after Great Britain. He pointed to Australia's
consistent support of U.S. efforts to solve tough international
situations, including Iraqi aggression and lawlessness. Noting
that the United States played a crucial role in the success of
all major trade negotiations since World War II, he cautioned
that ``the world trade agenda will stall if the world's largest
economy won't drive it.'' He regretted the failure of the Early
Voluntary Sectoral Liberalization Initiative (EVSL) in APEC,
saying that he was told by USTR that Congress had denied the
authority needed to implement this agreement. Warning that the
United States should not tie trade to extraneous matters, he
told the Codel ``you will crash and burn if you link'' fast
track to ``moral issues.''
Minister Downer repeatedly and energetically cautioned that
the U.S. nonpayment of its United Nations (UN) dues was doing a
disproportionate amount of damage to the image and influence of
America around the world. He commented that as a politician, he
was especially aware of the need for constituency building,
especially among G-77 countries, who believe that the United
States is ``kicking sand in their eyes.'' Minister Downer also
said that the U.S. nonpayment of dues made things difficult for
allies like Australia who are lobbying others to support UN
actions.
Both Congressman Dreier and Senator Grassley discussed
their view, and that of their constituents, that the United
States has an obligation to insist that the UN reform its
bloated bureaucracy. Responding to these concerns, Minister
Downer said that the United States had already achieved
significant reforms, including a new Secretary General, but
that the United States should not ``keep raising the high jump
bar all the time.'' Mr. Dreier pointed out that ``if the
President pushes fast track vigorously, he will have an easier
time'' convincing Congress to approve UN dues.
Meeting with Peter Vaile, Minister of Agriculture,
Canberra, Australia
December 8, 1998
This meeting was the first high-level U.S.-Australian
exchange for Minister Vaile, Secretary of Agriculture, who was
appointed in October. The Minister briefly mentioned a number
of current bilateral problems such as potential U.S. safeguard
actions on lamb and Australian action on pork, as well as
Australian concerns with the use of the Export Enhancement
Program and the Dairy Export Incentive Program. He indicated
that the Australian Productivity Commission had recently ruled
that imports of pork are negatively affecting pork producers,
but the ``preferred response'' would likely be direct
assistance to help the industry adjust to competition, as
opposed to tariff protection.
On the upcoming WTO talks, Minister Vaile said Australia
has very strong interests. Since more than 80% of its farm
products are exported, the country always has to be focused on
the international marketplace. He said he was looking forward
to an early meeting with Secretary Glickman in order continue
joint preparations for the upcoming WTO Ministerial meeting.
Finally, he expressed great interest in learning more about
U.S. risk insurance programs for farmers. He told the Codel
that currently only one company in Australia will insure
against frost. Congresswoman Thurman responded that
participation in the risk insurance program in the United
States is voluntary and that the program is designed to take
the place of disaster payments from the government. Senator
Grassley emphasized that the New Zealand government ought to
consider promoting risk management by the private sector,
rather than paying farmers after disasters occur. He would like
the United States to take its program one step further so that
a certain level of production can be guaranteed, with income
protection being sold on the futures market.
Meeting with The Honorable Peter Costello, Treasurer of Australia,
Canberra, Australia
December 8, 1998
For a briefing on the tax reform proposal under
consideration in the Australian Parliament, the delegation met
with Peter Costello, Treasurer of Australia. Mr. Costello
explained that Australia's tax revenue is lower than many
developed countries at around one-fourth of gross domestic
product. The problem with the current system is that income tax
rates are too high and many middle income people are caught in
high rate brackets. The tax reform package under debate in
Australia would lower the individual tax rate and seek to
broaden the tax base through an across the board 10% tax on
goods and services that would function much like a value added
tax (VAT).
The total revenue proceeds from the new tax will go to the
states. In return, the states have agreed to abolish all of
their indirect taxes. At the same time, the federal government
will abolish its grants to the states.
Chairman Crane asked why the federal government doesn't
abolish its grants to the states and let them decide how to
raise revenue on their own. Mr. Costello explained that under
the Constitution, states cannot levy taxes on goods.
Congresswoman Johnson asked how the tax burden will be
lessened overall as a result of this proposal. Mr. Costello
replied that projections predicted a 1% decrease in overall tax
revenue.
Chairman Crane asked about the spending priorities of the
federal government's budget and who will pay for natural
disasters and other emergencies. Mr. Costello answered that
presently the federal government spends 50% of its budget on
social security, 25% on health care, and 10% on education. The
federal government will maintain a program to address natural
disasters.
Chairman Crane asked whether turning over control to local
people in areas like education is under consideration and
whether Australia has studied the Chilean model of privatizing
social security. Mr. Costello said that control over education
would be turned over to the local level and that the government
has studied the Chilean model on social security. In Australia,
it is predicted that by 2020 a majority of the workforce will
fund their own retirement. Under the current system in
Australia, social security taxes equal 6% of employees' wages.
The superannuation funds are managed by industry wide
prudential regulators. Soon it is expected the assets in the
superannuation funds will exceed bank assets in Australia.
Chairman Crane asked whether the tax reforms under
consideration would retain the current corporate tax structure.
Mr. Costello said yes because it is necessary to maintain the
progressive elements of the existing structure in order to
offset the regressive nature of the proposed goods and services
tax. Chairman Crane said that he considers a flat income tax
rate progressive because wealthier taxpayers pay a greater
amount of taxes.
Congressman Dreier asked about the capital gain tax rate in
Australia. Mr. Costello said that the existing system accounts
for inflation and only taxes real gains. Capital gains are
treated as ordinary income so the marginal tax rate applied is
the applicable rate based on a taxpayer's income. Overall, the
proposed reductions in individual income tax rates would reduce
capital gains rates as well.
Chairman Crane asked whether Australians will be aware of
the amount of goods and services taxes that they will be paying
and expressed the concern that such a tax can easily be hidden
and rates ratcheted up. Mr. Costello said that the federal
government has entered into an agreement with the states so
that the rate cannot be changed without the consent of each
state.
Reception hosted by Mr. William M. Bellamy, Deputy Chief of Mission,
U.S. Embassy
December 8, 1998
The delegation attended a reception hosted by Mr. William
M. Bellamy, Deputy Chief of Mission, U.S. Embassy, and had
informal discussions with a wide-ranging group of Australian
government and business representatives.
PARTICIPANTS FROM AUSTRALIAN GOVERNMENT AND BUSINESS
Mr. David Spencer, Deputy Secretary, Department of Foreign
Affairs and Trade (DFAT)
Ms. Joanna Hewitt, Deputy Secretary, DFAT and Ambassador for
APEC
Mr. Mark Pierce, Assistant Secretary, Trade Negotiations
Division,
DFAT
Mr. Murray Cobban, First Assistant Secretary, Americas &
Europe,
DFAT
Mr. Robert Hodgkins, Director, U.S. Section, DFAT
Mr. Ron Huisken, Director General of the Alliance Policy &
Management Branch, Department of Defense
Dr. Wendy Craik, Executive Director, National Farmer's
Federation
Mr. Bill Paterson, Assistant Secretary, Asia, APEC & Trade,
Prime
Minister & Cabinet
Mr. Paul Hickey, Executive Director, Australian Quarantine &
Inspection Service
Mr. Dennis Gebbie, Department of Agriculture, Fisheries &
Forestry
Mr. & Mrs. Thor Beowulf (Melissa) President, U.S.-Australia
Business Council
Mr. Andrew Southcott, M.P.
Mr. Phil Barresi, M.P.
Mr. Larry Anthony, M.P.
Senator Peter Cook, Shadow Minister for Trade
Senator David McGibbon
Mr. Gavan O'Connor, M.P.
Mr. And Mrs. Brian Livermore (Jacqueline), Senior Policy
Consultant, IBM Australia
Mr. David McKenzie, The Australian
Dr. John Lake, Executive Director, Australian-American
Educational Foundation
Dr. Gregory Austin, Department of International Relations, ANU
Dr. John Kunkel, Adviser, Office of The Hon. Tim Fisher,
Parliament House
Mr. Bill Tweddell,
DFAT
Senator Bill O'Chee (Queensland)
Mr. Allan McKinnon, Assistant Secretary, Agricultural Branch,
DFAT
Senator John Woodley (Queensland)
Mr. Warren Entsch, M.P.
Mr. Laurie Brereton, M.P.
Mr. Bob McMullan, M.P.
PARTICIPANTS FROM U.S. EMBASSY
Mr. Stephen Engelken, Political Counselor, U.S. Embassy
Mr. George White, Labor Officer, U.S. Embassy
Mr. Kurt van der Walde, Political Officer, U.S. Embassy
Mr. Curtis Stewart, Economic Counselor, U.S. Embassy
Mr. Joe Richardson, Economic Officer, U.S. Embassy
Mr. Brian Siler, Economic Officer, U.S. Embassy
Mr. Steve Gangstead, Cultural Affairs Officer, U.S. Embassy
Mr. Randy Zeitner, Agricultural Counselor, Department of
Agriculture, U.S. Embassy
Dr. Eric Hoffman, Area Director, Oceania, Department of
Agriculture, U.S. Embassy
Ms. Jo Ellen Powell, Administrative Counselor, U.S. Embassy
Meeting with the National Farmers Federation (NFF), Canberra, Australia
December 9, 1998
At a meeting in the offices of the National Farmers
Federation, the Codel met with Mr. Ian Konges, President of the
NFF, Lyall Howard of the Sheep Meat Council, Neil Fisher of the
Grains Council, Greg Evan of the Wool Council, and Justin
Toohey of the Cattle Council. All of the NFF members praised
what they said were excellent relations between Australia and
the United States. Specifically mentioned was cooperation on
multilateral issues such as WTO efforts to reform global
agricultural trade and negotiations on a biosafety protocol
regulating trade in genetically modified living organisms
(GMOs). They said that the agriculture sector in Australia,
which exports 80% of its production, is focused on expanding
international trade opportunities.
However, the NFF members told the Codel that despite the
general pattern of cooperation, there are a number of specific
issues where Australia has concerns. Greg Evans raised the
petition for import relief under section 201 of the Trade Act
of 1974, which was filed by the U.S. sheep industry in early
October. Australia and New Zealand are the two largest
suppliers of lamb imports to the United States. Mr. Evans
offered his view that imports were not the primary cause of the
downturn facing the U.S. industry, which was suffering a
decline in production due to the recent repeal of the domestic
support program authorized by the U.S. Wool Act. The U.S.
industry, he said, is also suffering the self-inflicted wounds
of a defeat in the check-off promotion program which had
previously worked to improve the image of lamb in eyes of U.S.
consumers. He emphasized that wool is part of Australia's
heritage, much like coal and gold.
Senator Grassley countered that even by the Australian
Government's assessment, as reflected in a recent brochure, the
United States has very low trade barriers. He said that
sometimes U.S. farmers see themselves as ``suckers,'' because
they believe that Australia was diverting large quantities of
lamb from former markets in Asia to the United States.
According to Customs import data, between 1995 and 1997, lamb
meat imports increased by 23% from New Zealand and by 46% from
Australia. Senator Grassley assured the group that any
safeguard action taken by the U.S. would be fully consistent
with WTO rules.
Neal Fisher of the Grains Council emphasized his
organization's interest in the treatment of genetically
modified organisms under the planned international agreement on
biosafety. He note that the Council's position is close to that
of the United States on most aspects of the agreement. Fisher
also passed on complaints he had received from peanut producers
in Queensland about the protectionist nature of the U.S. peanut
program.
Mr. Toohey of the Cattle Council raised the bilateral issue
of meat inspection and described ``Project Two,'' an Australian
meat inspection project designed to move to industry quality
assurance programs (similar to the plant hazard program), where
the government plays an auditing role.
Several members of the Codel, including Chairman Crane and
Congresswoman Thurman discussed the importance of resolving
phytosanitary and sanitary disputes. They urged Australia to
adopt more standards based on sound science and on the
principles of transparency. For their part, the NFF members
stressed the island nature of their country, which they believe
creates the need for extraordinary protection standards in
certain circumstances.
Senator Grassley reviewed the current state of U.S. export
credit guarantee programs. Emphasizing that the United States
employs the Export Enhancement Program in a defensive manner
against predatory European subsidies, he said that farmers in
the United States are facing grain prices that are at a
fifteen-year low. In his view, the United States is helping the
world counter the effects of European subsidies. He asked the
Australians whether they thought it would be beneficial to
allow the Europeans to continue their subsidization practices
unimpeded by other countries.
NFF members mentioned that Australia was under great
pressure to ``sign off'' on China's accession to the WTO, but
emphasized that they saw this negotiation as a ``one-off''
opportunity to achieve a good deal on agriculture, which is
their priority. In their view, U.S. trade policy is ``unsettled
at the moment,'' as demonstrated by the failures at the last
APEC meeting. They expressed concern that the WTO is twelve
months away from the 1999 Ministerial meeting, but the United
States and the Cairnes Group still need to coordinate to ensure
that Europe and Japan are not in a position to delay the start
of the new negotiations on agriculture.
Meeting with Senator the Honorable Margaret Reid, President of the
Senate, and the Honorable Neil Andrew MP, Speaker of the House
of Representatives
December 9, 1998
Speaker Andrew welcomed the delegation to the Speaker's
suite. The Speaker is the principal office holder in the House
of Representatives. In addition to basic work as a member, the
Speaker presides at meetings of the House, represents the
Chamber in dealing with Government and with other authorities,
and, in conjunction with the President of the Senate, oversees
the Parliament's administration.
He expressed his special affinity for Americans, which he
experienced firsthand during a visit to American in 1970, and
again recently in 1996 when his son began at Penn State
University. He said that the Australians rely on the United
States to maintain global harmony, and it is critical that the
United States remain interested in events in Australia and the
region. He welcomed the delegation to the parliament building,
which is just 10 years old.
Chairman Crane stated that the major interest of the
delegation is in expanding trade relations with Australia, and
that he is looking forward to working together in APEC and the
WTO in that regard. He related his efforts to try to get fast
track negotiating authority renewed in the next year, and
pending that, his interest in pursuing a free trade agreement
with Australia, New Zealand, and perhaps Singapore, as a
healthy and stabilizing influence in the region.
Congressman Dreier discussed his new role as the Chairman
of the House Rules Committee and asked about comparisons
between the U.S. and Australian House of Representatives. The
Speaker noted certain disciplinary measures at his disposal,
such as excluding members from the chamber for 1 hour or 24
hour periods, after two warnings.
The President of the Senate was asked to comment on the
rather raucous debate and virulent questioning witnessed by the
delegation in both the House and the Senate. Chairman Crane
noted that such debate would not be possible under the rules in
the U.S. House. President Reid responded that, in her view,
question time no longer had any value and had become just pure
theater. This was due to the much stronger and more rigid party
system in Australia. For example, the Labor party will now
expel members for voting against the party. The current
Government party was more flexible on this matter. In the
Senate, bills go through Committee, hearings are held for
testimony from affected parties, etc. By contrast, in the
House, legislation is handled via party meetings, and the
outcome of the legislation when voted on is predetermined. In
the Senate, amendments are more likely to pass due to the
relative balance of the parties. Nonetheless, the opposition is
still more likely to automatically oppose every bill to uphold
its institutional role.
The President of the Senate is the presiding officer of the
Senate, whose chief function is to guide and regulate the
proceedings in the Senate. The President is also responsible
for the administration of the Department of the Senate, in much
the same way as a government minister is responsible for the
operation of a government department.
Speaker Andrew said his institutional role is to maintain
order, to the extent he can. Regarding campaign financing, in
the House, races are publicly financed based on the number of
votes cast ($1.75 per vote cast) above a minimum percentage of
the vote (4%). All of the funds go the parties for
distribution, plus those election campaigns that are self-
financed. President Reid said that in the Senate, all campaigns
are run centrally and financed in each state by the party. When
asked whether her leadership role was an asset with her
constituency, President Reid said no. She is hampered by the
fact that while Senators from the states have 6-year terms,
Senators from the territories (she represents the Australian
Capital Territory) serve 3-year rotating terms, the same as the
House.
After a brief discussion of the proposed Goods and Services
Tax (GST), Congresswoman Johnson made the general observation
that it appeared that the United States has relatively more
barriers to trade than Australia does. She also said she has
been impressed by the depth of the intelligence alliance
between the two countries.
Speaker Andrew remarked about the general support in
Australia for trade liberalization and support for GATT rules.
He said the bipartisan support for lowering trade barriers must
be maintained and observed that Americans did not seem to be as
``keen'' for it now. Chairman Crane concluded the meeting by
urging the hosts to exhort the U.S. Administration to support
passage of fast track legislation.
Meeting with The Honorable Peter Cook, Shadow Minister for Trade,
Canberra, Australia
December 9, 1998
Senator Cook circulated copies of an article he authored
entitled ``Trade issues in hibernation,'' which outlines his
perspective on what Australia's role should be in APEC and the
WTO (see Attachment E). Senator Cook believes that Australia
should take a much more aggressive approach in setting the
negotiating agendas in these fora.
Senator Cook feels that APEC has ``lost its way'' and that
APEC members decided to put aside hard issues at the last
meeting just when they needed to address them. But even if the
issues were too difficult to resolve, Senator Cook feels APEC
members should have tried to make whatever progress was
possible. The Senator noted that many APEC members are Cairns
Group members. For them, the November 1998 APEC meeting was a
missed opportunity to lay groundwork for the WTO agricultural
negotiations scheduled to begin in 1999.
Senator Cook believes that APEC needs to be refocused. The
admission of countries like Russia, Vietnam, and Peru have
diluted the intensity of APEC's direction and resolve.
More broadly, Senator Cook would like to find a way to
bring India and China into a more open relationship on trade.
On the possibility of a free trade agreement with the United
States, Senator Cook said that he supports the concept as long
as an analysis of the benefits and costs to Australia shows
that it is in its national interest.
Chairman Crane indicated that a free trade agreement with
Australia is an objective of the delegation but noted the need
to renew fast track negotiating authority. Chairman Crane went
on to say that a free trade agreement between the United
States, Australia, New Zealand, and perhaps Singapore could
have positive ripple effects throughout the region in terms of
encouraging sound economic reforms.
Senator Cook said that he believes the current government
of Australia is carefully looking at the possibilities of a
free trade agreement, but he added that he would like to see an
opportunity to resolve issues with Japan, Australia's largest
trading partner, as well as China.
Chairman Crane pointed out that a free trade agreement
would help Australia manage and stabilize its trade throughout
the region. Senator Cook noted that the currency exchange rates
have given Australia a price advantage in the U.S. market in
the export of commodity products.
Congresswoman Dunn asked about the Senator's views on the
candidates for Director General of the WTO. Senator Cook
replied that he is friends with both Mr. Moore of New Zealand
and Mr. Supachai of Thailand. The Senator felt it was a
difficult decision to make but that Mr. Supachai would probably
be his choice.
Congresswoman Johnson asked whether Thailand was very
interested in trade liberalization at the last APEC meeting and
whether the Thai candidate for Director General of the WTO
would be in a position to work aggressively on trade issues.
Senator Cook said that the Thai candidate may be difficult for
the Europeans to accept and that Mr. Moore might get the
region's support in the end.
Luncheon meeting with the Australian-United States of America
Parliamentary Group, Canberra, Australia
December 9, 1998
The Honorable David Jull, Member of Parliament and Chairman
for the 38th Parliament of the Australia-United States of
America Parliamentary Group (see membership list in Attachment
F), welcomed the delegation and explained that friendship
groups were formed many years ago in the Australian Parliament
to develop informal relationships between Members of Parliament
and their counterparts overseas. Mr. Jull indicated that he
welcomed the opportunity to share views with the delegation in
informal discussions on a wide range of issues.
Chairman Crane responded by saying that the Members of the
delegation heard only positive input on Australia prior to
leaving the United States and that their experience has only
reinforced this impression. Chairman Crane indicated that he
looks forward to continuing a relationship with members of the
Australia-United States of America Parliamentary Group,
particularly if any travel to Washington, D.C. in the future.
Country Briefing by Richard Greene, Consul General from the U.S.
Consulate General in Sydney, Australia
December 9, 1998
Consul General Greene gave the delegation an overview of
the operations of the U.S. Consulate in Sydney, noting that the
most important function of the Consulate is to reinforce the
very close bilateral relationship between the United States and
Australia. The U.S. business presence in Australia is very
strong, and five of the six largest corporations in Australia
are headed by Americans.
Sydney is hosting the Olympics in 2000, and the United
States will field the largest number of athletes and coaches.
Moreover, U.S. corporate sponsorships will make the Olympics in
Sydney a success. It is important to have the U.S. government
involved in insuring the success of the 2000 Olympics in terms
of security, Customs procedures, and business support.
The state of New South Wales, where Sydney is located, is
facing many of the same issues as are U.S. states, including an
aging population, infrastructure problems, manufacturing
surplus capacity, depressed commodity prices, rising health
care costs, education issues, and crime.
Chairman Crane asked whether crime is contained to
neighborhoods in Sydney. Consul General Greene noted that
overall the crime rate is lower than in the United States.
Consul General Greene went on to note that there is
compulsory voting in Australia, which changes the nature of
elections because candidates do not have to motivate the
populace to get them to the polls. Candidates instead focus on
articulating their party's platform. Australians who do not
vote in an election face a fine of approximately US$50.
Overall, campaigns tend to be much shorter than in the United
States.
Consul General Greene noted that there is a gap between the
warm welcome that visiting Americans receive in Australia and
the business environment that U.S. firms find when they try to
operate in Australia. Some of the obstacles U.S. businesses
experience include marginal tax rates as high as 48%; a high
level of government intervention in the economy; a lack of
focus in the economy on providing service; the small size of
the economy; and lower costs than elsewhere in Asia, but higher
than in the United States.
Congressman Herger asked Consul General Greene if he could
identify some examples of overt government intervention in the
economy. The Consul General specified that labor laws make it
extremely difficult to dismiss employees. Also, tax rates are
fairly high. Privatizations in the telecommunications and
energy sectors have been difficult because the public does not
want them to happen. Welfare payments are virtually unlimited
as a result of the public perception of welfare as a social
contract to keep crime rates down.
Consul General Greene noted that the current tax reform
package under debate has avoided most issues related to
corporate taxes.
Congresswoman Johnson asked about the political situation
in New South Wales. Consul General Greene noted that a state
election will take place in March 1999. The current Premier of
New South Wales, Bob Carr, is from the Labor Party and will
face a challenge from the Liberal Party candidate, Mrs.
Chikarovski. The Consul General noted that the One Nation Party
has made progress in tapping into voter dissatisfaction with
the two major parties, but not in a way that can be sustained.
The party articulates anti-trade and anti-immigration policies
that are contrary to Australia's national interests.
Briefing by the Department of State and Regional Development of New
South Wales, Sydney, Australia
December 10, 1998
David Mageachie, the general Manager of Trade Services,
welcomed the delegation and opened by explaining that the role
of the Department is to contribute to the sustainable economic
growth of New South Wales. To that end, the Department seeks to
secure foreign investment, promote exports, promote innovation,
and provide advice to government on the competitiveness of New
South Wales as a business location.
Historically, states were heavily involved in setting their
industrial development policy. Export commodity trade was a
primary business, but this was not a sustainable approach in
the long term. Commodity prices fell in the 1970s, threatening
a downward spiral in standards of living. In the 1980s,
structural reform was implemented to introduce strong
competition, labor agreements, productivity increases, and a
floating currency. The result has been a robust and outward
looking economy.
Mr. Judd Webber, Senior Manager for Trade Services, then
gave the delegation an overview of the New South Wales economy.
In all, 164 U.S. companies have selected New South Wales as
their regional headquarters. The Department of State and
Regional Development is the first point of contact for
businesses in the state. The Department facilitates investment,
seeks to grow the businesses already located in the state, and
helps businesses capture the international opportunities of the
region.
Geographically, New South Wales is the gateway to Asia. Its
time zone is important because it spans the closing of the U.S.
stock market and the opening of the European markets. With one-
third of Australia's 18 million citizens residing within its
borders, New South Wales provides businesses with a highly
skilled and multilingual workforce. New South Wales accounts
for one-third of Australia's gross domestic product, and its
economy is expected to grow at a rate of 4% per year through
the year 2000. New South Wales' exports total about US$10
billion annually, two-thirds of which consists of merchandise
exports to the Asian region.
After the presentation, Congresswoman Thurman asked for the
Department's views on the tax reform package under debate in
Parliament. Ms. Lynette Foulkes from the Department responded
that taxes are mostly levied by the federal government because
states are prohibited from levying taxes on goods. States can
tax transactions only. The federal government is looking to
levy consumption taxes to supplement state revenues.
Congresswoman Johnson observed that there does not appear
to be a great deal of talk in the current tax debate on
simplification. There is no clear relationship in the current
debate between reform and simplification. Ms. Foulkes said that
Australian businesses, as well as the U.S. Chamber of Commerce,
are pushing for simplification but it is clear that it will
have to come later.
Chairman Crane asked about the redistribution formula that
will be used to distribute the consumption tax revenues to the
states. Mr. Mageachie said that it is not clear how it will be
shared with states, but there is an awareness that revenues
generated in more prosperous economies like New South Wales
will be used to support more rural and less prosperous states.
Congresswoman Thurman asked about the minimum wage in
Australia. Mr. Mageachie replied that it is indexed by
education level or age so that teenagers can work and earn less
than the minimum wage for adults.
PARTICIPANTS FROM THE NEW SOUTH WALES DEPARTMENT OF STATE AND REGIONAL
DEVELOPMENT
Mr. David Mageachie, General Manager, Trade Services
Mr. Judd Webber, Senior Manager, Trade Services
Mr. Malcolm Forbes, Client Manager, Trade and Business Services
Ms. Lynette Foulkes, Senior Manager, Investment Services
Mr. Alan Noble, Senior Manager, Trade Services
Mr. Paul William-Smith, Manager, Trade Services
Round Table Luncheon Discussion with American Chamber of Commerce
(AMCHAM), American Club, Sydney Australia
December 10, 1998
Bill Ferguson, President of AMCHAM and Managing Director of
Citibank in Australia, and Richard Colbran, President of the
American Club, both welcomed the delegation.
Richard Greene, Consul General, introduced the delegation.
He said that this is the most important delegation to come to
Australia in terms of trade policy, and that trade was the most
important issue between the two countries. He related that the
delegation has been on busy schedule, and that it has been
impressed by what they had seen thus far.
Mr. Ferguson then gave the perspective of Americans doing
business in Australia. Having worked in 12 different countries,
he found no country more open and hospitable than Australia.
The government there began a policy of opening its markets in
the 1980s, and U.S. business has benefitted from those
policies. He went on to discuss the importance of the U.S.-
Australian business relationship. The United States is the
biggest foreign investor in Australia, and number two in terms
of overall trade. The United States has a positive balance of
trade with Australia, and there are many excellent
opportunities for U.S. business there. However, Ferguson noted
several issues of concern, particularly on intellectual
property rights, but acknowledged that Australia has issues
with the United States as well. He discussed the corporate tax
overhaul currently underway, noting that the current tax system
inhibited business. He reiterated the importance of having the
delegation there to highlight the important trade issues.
Chairman Crane began his remarks by noting that no one in
the delegation had ever been to Australia before. He was struck
by the strong relationship the Australian people had with the
United States. He noted the primary purpose of the delegation
is to expand trade relations. He asked for their support in
renewing fast track negotiating authority, saying that it is
essential to prevent unraveling of existing trade agreements.
He said that under fast track, Congress does not relinquish its
authority over trade, but rather is able to expand trade while
maintaining its constitutional role. He recalled that the
October vote on fast track did not receive the traditional
bipartisan support, mainly because the Administration did not
support it. He urged the attendees to convey to the
Administration the importance of adopting it early in 1999.
Then it would be possible to discuss a free trade agreement
with Australia, New Zealand, and Singapore, which could have a
stabilizing influence in Asia and help others rethink their
commitment to free trade and democratic institutions. He
explained: ``A good example is the best sermon.'' He concluded
his remarks by saying that Australia is a key influence in
Asia, and he looks forward to even closer relations.
When asked about the likelihood of such a free trade
agreement, Chairman Crane placed the odds at ``50-50,'' based
on the chances of passing fast track. The Chairman was next
asked why the United States was protesting Australia's recent
change to allow parallel imports of music. He responded that it
is a valid concern on particular types of intellectual
property. Theoretically, the practice of parallel importation
should be fine, but he raised concerns about the difficulties
it creates in intellectual property enforcement. From the
standpoint of free trade, parallel imports make sense-it works
to the advantage of consumers. However, it also facilitates the
theft of intellectual property, and that must be addressed. He
was next asked how the current U.S. domestic political problems
affect the U.S. role in Asia. The Chairman replied that it is a
distraction but should not affect the relationship. He stressed
that institutions will survive personal improprieties,
emphasizing the importance of continuing to advance U.S.
interests. When asked what the Ways and Means Committee would
do to facilitate the opening of the U.S. market to the
Australian software industry, Chairman Crane said that this was
a new matter brought to his attention on the trip and that it
requires further investigation.
In response to the question of whether the U.S. would
continue cabotage on ships, Congresswoman Johnson replied that
while the U.S. position was not perfect, there is a legitimate
tension between trade and defense manufacturing interests,
noting that policies such as VRAs have had some use in that
regard. She said that the United States is trying to maintain
some shipbuilding capabilities and must rethink this policy
periodically in relation to its defense infrastructure needs.
This issue would need to be addressed, especially in the
context of a potential FTA.
The final question was whether there was disappointment
over the outcome of the recent APEC meeting. Chairman Crane
responded that he is looking forward to the September meeting
in New Zealand and the WTO meeting in November in the United
States to get things back on track. Mr. Ferguson concluded the
meeting by offering his appreciation for the Chairman's
longstanding commitment to free trade.
PARTICIPANTS FROM AMCHAM
Bill Ferguson, Citibank
Robin Speed, Speed and Stracey
Bruce Stracey, Speed and Stracey
Richard Denness, Schering-Plough Pty Ltd.
Patrick Wall, U.S. Commercial Service
Tony Stinson, Sample Systems Pty Ltd.
PARTICIPANTS FROM THE AMERICAN CLUB
Richard Colbran, Med-Law Associates
Robert Heininger, MA Michael Property Ltd.
Alan Van Es, TASA International
Margot McKay, TASA International
Bill Fenn, TASA International
Grant Jagelman, Spatial Systems
John Bleakley, Maxwell Optical Industries Pty Ltd.
Bob Harrison, Maxwell Optical Industries Pty Ltd.
John Mclhuish, Australian Institute International
Lola Crossingham, Flavours of India Restaurant
John Wagner, Flavours of India Restaurant
Cynthia Wagner, Flavours of India Restaurant
PARTICIPANTS FROM U.S. CONSULATE
Richard Greene, Consul General
Kris Pelz, U.S. Consulate
Pat Wall, Senior Commercial Officer
Meeting with New South Wales Farmers Federation, Sydney, Australia
December 10, 1998
At a wide-ranging meeting with representatives of the New
South Wales Farmers Federation in Sydney, the Codel spoke with
John Cobb, who raises wool, wheat, and beef; Glenn Dalton, a
wheat farmer; and Ian McClintok. After indicating that the
Federation is a private organization ``that shies away from
taxpayer funding so that it is a better position to defend the
interests of its members,'' John Cobb said that he wanted to
discuss five major issues: 1) the effects of international
trade on agriculture production; 2) preparations for the 1999
WTO ministerial meeting; 3) the Export Enhancement Program; 4)
genetically modified organisms; and 5) the ``corporatization''
of agriculture in Australia.
Mr. Cobb asked the Codel to consider the effects that U.S.
EEP sales have on the Australian farmer. He said that both EEP
and DIEP undermine Australian sales in their traditional export
markets. Mentioning that Secretary Glickman and Secretary
Albright had come to Australia to make assurances that U.S. EEP
sales are not designed to undermine Australia's interests, he
expressed concern that U.S. food aid to Indonesia not interfere
with Australian commercial sales there. Pointing to a map, he
mentioned that the farther west one goes in New South Wales,
the drier it gets. The biggest challenges for farmers in New
South Wales are storing enough summer moisture to grow winter
crops, defending the boundaries of their farms, and getting
enough reliable, experienced casual labor in times when farmers
are earning less and less return from their land. Mr. Cobb
urged the Codel to resist subsidizing exports and to allow the
market to deliver the right signals to the producers.
Mr. Cobb also warned that U.S. import restrictions on
Australian lamb would hit NSW farmers very hard, and he
indicated that his group is resisting the imposition of higher
tariffs on Australian pork imports, even though some of his
members might support this type of safeguard.
Chairman Crane said that many of these barriers could be
put on the table if Australia and the United States were to
begin negotiations to establish a free trade agreement. In his
view, further trade liberalization in the region would help
stabilize economies that are suffering the effects of the Asian
financial crisis. Senator Grassley said that Australia and the
United States have very few differences compared to all the
trade issues on which the two countries agree and work
together. He complemented the group for its leadership in
helping the WTO overcome deadlocks which were blocking the
Uruguay Round Agreement. Saying that the United States would
get fast track ``based on whether the President works for it,''
he indicated that the United States would look to the Cairnes
Group and Australia to ``fill the vacuum so that it's not taken
over by the Europeans.''
Chairman Crane said that the United States is prepared for
serious negotiations on agriculture in the WTO that will lead
to significant results for farmers.
There was general agreement on the need to develop a common
set of rules around the world for genetically modified
organisms and sanitary and phytosanitary standards. The Codel
also concurred with concerns expressed about achieving market
access in China, where non-tariff barriers to imports of
agricultural products abound.
Saying that in his state of California, agriculture is
about $17 billion industry of which 70% is exported,
Congressman Dreier reiterated the importance of passing fast
track trade negotiating authority. Congressman Herger talked
about the significance of free trade for his district, which
grows specialty crops such as peaches, walnuts and almonds.
Members of the Farmers Federation asked the Codel whether
it would be possible to achieve a significant reduction in the
levels of trade protection imposed by Europe on agricultural
imports. Senator Grassley made the point that 70% of the
European budget is used to support the common agricultural
policy (CAP), and that tariff levels in Europe average about
80-100% for agricultural products, as opposed to 8-15% for
manufactured goods. He said the EEP program must persist until
Europe does away with its export subsidies and that, until a
reduction in subsidies and protection is negotiated with
Europe, the United States ``must continue to fight on the
battlefield.''
Members of the Farmers Federation concluded the meeting
with a short discussion on problems they face with conglomerate
retail grocery chains, which control the sale of almost 80% of
agricultural products in Australia. Saying that there were two
issues involved, competition at the retail level and
corporatization, Senator Grassley pointed out that the U.S.
antitrust law is aimed at protecting consumers, rather than
particular sections of the industry.
Meeting with Paul Kelly, Sydney, Australia
December 10, 1998
The delegation met with Paul Kelly, described as
Australia's pre-eminent journalist.
Mr. Kelly described the three prongs of Australia's
external engagement, which impact how Australia views itself in
relation to the world. The first prong is the relationship with
Great Britain. Australia was established in 1788 as a British
colony and was dependent on Britain, emotionally as well as
with respect to the economy and trade, long after its
independence. Accordingly, Australia is a ``derivative
society.'' Gradually, Australia has evolved into ``adulthood''
with Britain.
The second prong is Australia's relationship with the
United States. World War II began the modern basis for the
relationship with the two countries. Australia was under attack
from Japan, and the United States was instrumental in
preserving Australia's territorial integrity. Today, security,
trade, financial, cultural, and military links cement the
relationship, and many Australians have direct relationships
with the United States. The relationship is lopsided because
the United States is more important to Australia than vice-
versa.
The third prong is Australia's relationship with Asia. This
relationship developed post World War II. Mr. Kelly gave some
examples, including Australia's support for Indonesian
independence from the Dutch, a strong 30-year relationship with
Japan stemming from raw materials trade, and diplomatic
relations with China beginning in December 1972 and a close
relationship with the three Chinas. Australia is tied deeply in
economic terms with Northeast Asia, with Japan as the largest
trading partner, followed by the three Chinas and Korea.
Southeast Asia is the focus of Australia's security concerns,
particularly in light of the Asian financial crisis.
Mr. Kelly described that Australia has great strength as a
commodity producer. Australia, although a price taker in
commodity markets, was able to take its income from commodity
sales to construct a tariff wall. Behind this wall, between the
1890s and the 1970s, Australia built a strong manufacturing
sector. In the 1970s, however, Australian leaders realized that
a closed market was not viable and opened its economy and
became more competitive. As a result, Australia expanded beyond
commodities to manufactured goods, services, information
technology, and high tech. At the same time, Australia began to
use multilateral or regional (not bilateral) fora to expand its
clout. In response to a question from Congresswoman Dunn, Mr.
Kelly explained that the decision to open the market in the
1970s was the result of an intellectual reassessment by a
series of Australian leaders, particularly in the Labour Party.
In both 1988 and 1991, Australia made far-reaching decisions to
cut tariffs, to restructure the economy in a new compact for
economic growth, and to expose Australia to market forces and
test it. Today, Mr. Kelly stated, Australia is reaping the
benefits of this policy--despite the Asian financial crisis,
Australia is still growing and is at the top of the OECD growth
range.
Mr. Kelly stated that Australia reflects the stress of
modernity. With its European heritage, it is adjusting to
global pressures. In addition, there has been a revival of
significant protectionist elements in both Australian parties.
At the same time, the dominant, universal theme within
Australia concerning the United States is that the United
States should maintain a global focus and stay committed to
international organizations such as the World Trade
Organization and the International Monetary Fund, as well as to
its partners in Northeast and Southeast Asia, including
Australia.
Congressman Dreier asked Mr. Kelly to explain the lessons
for the United States in Australia's growth and development. He
responded by stating that to maintain community support for
trade and globalization, a country must address: (1)
unemployment and job insecurity; (2) the equity problem
(Australia is a very egalitarian society); and (3) the
impression that there is a new division of labor between the
new industries and the older industries which have not been
traditionally global. Congressman Dreier stated that often
workers are not aware of the benefits of trade. Chairman Crane
said that this fact is often the fault of company leadership,
which does not make globalization relevant to the workers.
Congressman Dreier added that union pressures often make such
communication difficult. Congresswoman Johnson further stated
that job insecurity is a natural result of globalization, and
the United States does not deal with this well. Some CEOs, she
stated, do well at retraining the workforce, giving workers
confidence. The U.S. unemployment system, she said, currently
based on layoffs and rehires, does not reflect the workplace
reality. Profound changes, therefore, are necessary, she
concluded.
Congresswoman Johnson then asked Mr. Kelly about the role
of services in the Australian economy. He replied that services
have grown in importance since the earlier days, in which
Australia had ``first world living standards but a third world
economic system.'' Now Australia has a more broadly-based and
diversified society, going beyond commodities to minerals,
manufacturing, services, high tech, and information technology.
Twenty years ago, Mr. Kelly stated, Australia would not have
been able to survive a financial crisis like it is doing today.
Australian banks are performing well, and Australia has one of
the best-managed central banks in the world. In addition, the
workforce is highly trained.
Congresswoman Dunn remarked that the welfare system,
however, still reflects the old world. Mr. Kelly replied that
Australian political consciousness came late while economic
change came fast. The socialist movement in Australia was the
leader for the world. Australian society is egalitarian and
anti-authoritarian. As a result, the welfare system is seen as
a fundamental right and is deeply entrenched. He said that a
full 30% of Australian citizens receive some form of
``welfare.'' However, Mr. Kelly added, there has been
increasing awareness that the passive welfare state is a
failure and needs reform. John Howard's government views
welfare as a mutual obligation, in that the worker must take
responsibility and has an obligation to the state. Mr. Kelly
sees the beginnings of a move away from the passive welfare
system, but he said that Australia will never go as far as the
United States and that there will always be a strong social net
in Australia.
Congressman Dreier asked Mr. Kelly about the Australian
view toward the impeachment of President Clinton. Mr. Kelly
responded that many Australians like President Clinton and
believe that there should be a major separation between private
and public life. The general view, he said, is that things have
gotten out of hand with respect to the impeachment.
Reception Meeting with Council of Growing Companies, Sydney, Australia
December 10, 1998
Mr. Kym Bonnefin, CEO of the Council of Growing Companies,
welcomed the delegation, and discussed the role of the Council.
It is an organization representing CEOs who run fast growing
companies in Australia. The organization was founded in the
United States and has branches overseas. Its primary objective
is to provide educational opportunities and an exchange of
ideas among its members, and to be a voice for entrepreneurism
with the Australian government. The reception also highlighted
the artwork of Charles Billich, the official artist for the
Australian Olympic Team at the games of the XXVI Olympiad.
Chairman Crane recounted his family's positive experience
involving Australia and the strong bond between the U.S. and
Australian peoples. He noted the primary purpose of the
delegation to expand trade relations, and recounted the
discussions the delegation had with officials of the Australian
government over the past several days. He thanked Mr. Bonnefin
for the warm hospitality shown to the delegation.
PARTICIPANTS FROM THE COUNCIL OF GROWING COMPANIES AND GOVERNMENT OF
NEW SOUTH WALES
Kym Bonnefin, CEO, The Council of Growing Companies
Lynne Bonnefin, Director, The Council of Growing Companies
Michael Greenberg, Principal, Double Eagle Capital
Stephen Murphy, Director, SPIKE Wireless
Bruce Simpson, Managing Director, Sydney Point-of-Sale Products
Chris Rigney, Managing Director, The Infohouse
Barry Westlake, Managing Director, The Enterprise Market
Michael Inglis, Tax Consultant Barrister
John Brogden MP, New South Wales State Parliament
Howard Davy, Managing Director, HTD Australia Pty Ltd.
Karl Kazal, Managing Director, Australian World Traders
Jim Loupos, Manager, Australian World Traders
Roslyn Daveney, Managing Director, Boomerang Aboriginal Art
Chris McCaffery, Solicitor, Eakin McCaffery Cox
Ken Dodsworth, Managing Director, Gryphon Publishing
Chris Costigan, Manager, Corporate Policy, Pfizer
Patrick Duncan, CEO, Lucent Technologies
Greg Massey, Director, Pfizer
Jeff Rope, Director, Pfizer
Alan Taylor, Director, Pfizer
Jenny Higgs, Corporate Affairs, Bristol Myer Squibb
Andrew Gilkes, Chief Executive, Investment 2000
Meeting with the International Banks and Securities Association of
Australia, Sydney, Australia
December 11, 1998
For a briefing and discussion of the Asian financial
crisis, the delegation met with representatives of the
International Banks and Securities Association of Australia.
The briefing was provided by Bill Shields, Executive Director
and Chief Economist of Macquarie Bank, who distributed copies
of charts to the delegation related to the Asian financial
crisis (see Attachment G).
The causes of the Asian financial crisis relate to the
domestic policies of the affected countries. Countries in the
region pegged their currency to the U.S. dollar. As the U.S.
dollar rose, it undercut the competitiveness of Asian
countries. When the rhetoric is cut away, the situation really
is a classic case of economies growing too fast and relying
increasingly on shorter term debt.
Mr. Shields noted that the Asian currencies began to
decline in the fall of 1997, but all began to level off and
rise by January 1998 except for the Indonesian rupiah. Each
time Indonesia signed an agreement with the IMF, it reneged on
its commitments, resulting in a loss of confidence in the
economy and a withdrawal of capital investments from the
country. As a result, the rupiah fell more than any other
currency and has been slower than others to recover.
During the first half of 1997, the region underwent a shift
from net asset lending to net deficit lending. This means that
capital investment funds were withdrawn from the region and
invested elsewhere. In particular, funds were reinvested in
Russia and in Brazil, where investors could get a higher rate
of return. The G7 is now trying to make short term capital
flows more stable by imposing restrictions on the ability of
investors to shift funds so dramatically.
Congresswoman Dunn asked about the nature and prudence of
the advice given to countries by the IMF. Mr. Shields indicated
that the response of Thailand, South Korea, and Malaysia to the
IMF programs has restored confidence in the economies and
hastened their recovery.
Mr. Shields noted that South Korea had early and immediate
debt rescheduling to reduce its amount of short term debt. The
debt has not been eliminated, but it has been rescheduled in
the hope that the country will be able to pay in the future.
South Korea is establishing an excellent track record in
managing the debt rescheduling. Thailand has established a
satisfactory record but has not been as up front about the
problem and has been less aggressive in working to solve it.
Senator Grassley asked whether there is any evidence that
the IMF sends signals to countries that they do not need to be
responsible about their actions because the IMF will simply
bail them out. Senator Grassley indicated that he believed if
more transparency were introduced into the IMF, it would be
more difficult for the IMF to go into countries where it is not
needed. Mr. Shields replied that he believes there is no
alternative than to have the affected governments adhere to
some sort of restructuring, but that it is debatable whether or
not this needs to be done through the IMF or could be handled
in some other way. Mr. Shields did agree on the need for
transparency and a defined role for the IMF.
Senator Grassley followed up by asking about middle class
people in countries affected by the Asian financial crisis. He
also inquired about the relationship in affected countries
between the government and banks. Mr. Shields responded that
the middle class has generally accepted wage cuts so that the
burden of the crisis is borne broadly across society. Mr.
Shields also indicated that the IMF restructuring programs in
affected countries are intended to eliminate inappropriate
relationships between the government and banks.
Congressman Dreier asked what reforms pursued by the IMF in
the region are the most important. Mr. Shields indicated that
the IMF has shown the greatest ability to establish financial
stability, which it achieves through higher interest rates,
responsible budgeting, regulation of financial institutions,
and bankruptcy reform. The IMF has not been very successful in
matters such as privatizations and tax reform.
Mr. Shields went on to explain that because South Korea has
been so successful in implementing its IMF mandated reforms,
its currency has appreciated, undercutting its ability to
recover through exporting. As a result, South Korea is
recovering through broader government spending.
He further noted that as Mexico continues to recover from
its 1995 financial crisis, it has benefitted from the strength
of the U.S. economy. However, unlike South Korea, Mexico's
currency has remained low against the U.S. dollar. This has
enabled Mexico to continue to recover without undertaking
serious banking reform.
Congresswoman Johnson asked what action Mexico undertook
and what it should have done. Mr. Shields responded that Mexico
took steps early to deflate the economy to enhance its
competitive position. The country still needs to undertake
significant banking reform. The problem with the IMF is that it
deals with short-term current account problems and is not
equipped to deal with long-term recovery problems.
Senator Grassley asked about efforts to break up the
chaebols in South Korea as part of that country's recovery. Mr.
Shields said that the President of South Korea has taken a
strong stance on the need to break up chaebols, but it will
take a long time to accomplish. It is clear, however, that it
will not happen unless the IMF forces South Korea to address
the issue and very senior political officials put pressure on
government and industry.
Mr. Shields continued his briefing by saying that 9 to 12
months ago, many analysts predicted that Australia would be
adversely affected by the Asian financial crisis, but the
Australian economy continues to grow by 5% per year. The reason
has been that except for Japan, all other major economies
continue to grow. Australian growth has continued due to
domestic consumer spending. Domestic demand in Australia has
remained high, as it has in the United States, because of cuts
in domestic interest rates.
Senator Grassley noted that for the first time, the United
States has a negative savings rate. Mr. Shields pointed out
that in Australia everyone is required to save, but he noted
that the savings rate has fallen. In the United States, growth
will have to slow at some point given the mature level of the
economy, but consumer spending can sustain positive economy
growth longer than had been commonly expected.
Congressman Dreier asked whether Australia permits a mixing
of banking and securities industries and noted the debate in
the United States on Glass-Steagall reform. Mr. Shields said
that Australia does permit mixing of banking and securities
industries. This has boosted efficiency and delivered benefits
to Australian consumers and business by reducing margins
between costs and rates without reducing profitability.
PARTICIPANTS FROM THE INTERNAL BANKS AND SECURITIES ASSOCIATION (IBSA)
OF AUSTRALIA
Mr. Robert Webster, Executive Director, IBSA
Mr. Bill Shields, Executive Director and Senior Economist,
Macquarie Bank
Mr. Terry Francis, Bank of America
Mr. Russell Kennett, State Street Bank
Briefing by Professor Helen Hughes and Professor Wolfgang Kasper, the
Centre for Independent Studies, on Social Security and Trade
and Asian Economic Issues, Sydney Australia
December 11, 1998
Mr. Greg Lindsay, Executive Director, explained that the
Centre for Independent Studies is an independent think tank and
research institution, and he introduced the panelists.
Professor Hughes is a Senior Fellow at the Centre from the
Department of Economics, Research School of Pacific and Asian
Studies, Australian National University, and was present to
discuss pensions and the superannuation system in Australia
(see Attachment H for her detailed presentation). She began by
saying that Australia was one of the first countries to create
a pension system in 1908. Contributions in that system were set
at 40% of average earnings (for couples). Benefits were income
and means tested and paid out of current taxes. As a result,
not everyone was covered by that system. In the 1980's, there
was a move to a new superannuation system like that in Chile.
Prior to that time, large companies had superannuation schemes,
but this only covered about 40% of the workforce. The goal was
to cover all workers. Today, about 90% of full time workers
(mostly men) and 70% of part time workers (mostly women) are
covered. Under this new system, the employer sets aside a
percentage of the payroll into an individual account (like in
Chile). The contribution rate is now set at 7%, going up to 9%,
for employers and 3-6% for employees. Most accounts are held in
industry funds (e.g., steel, construction) with each fund
managed as a whole.
According to Professor Hughes, one problem with the new
system is that it introduces moral hazard, i.e., people believe
the government will bail out any failing funds and do not think
they need to save any additional money. Another is that the
system is burdensome for employers to manage. The complexity
makes for high administrative costs, which siphon off
resources. The financing scheme, based on payroll, discourages
employment. Industry fund managers have been poor, and returns
have averaged only 2.6%, worse than savings accounts. Some
funds have engaged in some high risk investments. In addition,
trade union influence has come to dominate certain industry
funds. For example, the construction union fund became involved
in high risk land speculation. This has become a large source
of union power, and so-called ``social investment'' has become
politicized. Professor Kasper added that Germany has a similar
problem of corrupted industry funds. Another problem
highlighted by Professor Hughes is the huge proliferation of
funds, especially in relation to the size of the Australian
economy. While there are about 385 large funds, there are
186,000 funds altogether. Only about 10% were audited last
year, and about 30% of those had problems. In her view, current
supervision is not working, and stronger prudential rules are
called for. Professor Hughes said that workers need to be
allowed to move their money between funds by choice.
Congressman Dreier asked about market risk and its
potential to erode earnings. He was told that the system
provides the potential to earn about 60% of average wages under
optimal circumstances. Professor Hughes went on to say that the
current system of industry funds is wrong. For her, individual
accounts, like IRAs, are acceptable, but it is much better to
have compulsory savings. However, she noted that the World Bank
has endorsed the Australian system. She suggested that the key
to lowering administrative costs for individual accounts is to
give people freedom of choice to move among funds.
Chairman Crane asked about survivor benefits and was told
that the system includes that feature. Congresswoman Johnson
asked for a clarification about means testing of benefits in
the system. Professor Hughes explained that there remain two
systems: an old age pension system for those without other
income paid for from current taxes, which was a safety net
system, and the superannuation system. Benefits in the former
system are computed based on a complex formula considering
things such as home ownership.
Congresswoman Dunn asked if there should be a concern about
changing demographics of an aging population. Professor Hughes
disagreed, noting that as the population aged, it is staying
healthier and working longer. Senator Grassley mentioned his
concern about the mind set of early retirement. Professor
Kasper pointed out that immigration helps with the ratio of
workers to retirees. However, Congresswoman Thurman questioned
whether anyone should be forced to work longer. Professor
Hughes responded that people should have a choice: retire early
and have a lower standard of living, or work longer and have a
higher standard. She suggested looking at the Singapore model,
where people have to work for 40 years to get a full benefit.
She said that the U.S. scheme is in trouble because of a
fundamental flaw: the low earnings rate in the system cannot
support the expected level of benefits.
Professor Kasper then began a discussion of Australia's
international trade status. He explained that at the turn of
the century, substantial trade restrictions created a high cost
economy. This caused transaction costs to get very high. The
government's policies did not support world competitive forces.
Now, although tariffs are much lower, transactions costs remain
very high, which is a present problem for competitiveness.
Globalization has put pressure on profits, but it has not
affected the cost structure as much as it could. While the
economy has been modernized, the underlying culture has not
changed. Trade unionism, with high wages behind a protected
market, caused ``industrial malaise.'' While there is higher
growth now, especially in high tech, it is not growing enough,
in Professor Kasper's view. He believes that exports, at about
25% of GDP, should be around 35%. While exports are hampered by
protections in place in the United States and the EU, it is
mainly due to too many uncompetitive industries, e.g., wool. He
believes that the economy must move more into service
industries aimed at Asia. The good news for him is that the
Asian crisis has caused exporters to become more agile.
Professor Kasper's plea to the United States is not to turn
inward. This would cause Australia to backslide;
``protectionists are just waiting to come back.''
Congresswoman Johnson asked about the impact of labor laws,
work rules, etc. Professor Kasper described the prevalence of
central wage fixing (with unions), problems with longshoremen,
and costly work practices. For example, workers get premium pay
for work on Sundays, holidays, and at night. Because of these
``shift penalty rates,'' manufacturers are only using 20% of
capacity. He cited the example of the auto industry, which
loses money even behind protected markets. Because of central
wage fixing, there is no wage competition. Under the national
dismissal law, it is very hard to fire a worker, which serves
to drive down employment in small business (too risky to hire
the extra worker). Increasingly, courts are finding in favor of
workers and Parliament has followed suit. He concluded by
saying that Australia is ``not a country for small business,''
which he believes is driving away European and Asian investors.
He said that these policies serve only to hurt workers on the
low end of the scale and the middle class. He cited, for
example, the 47% marginal tax rate which begins at $38,000 of
income.
Attachment A
[GRAPHIC] [TIFF OMITTED] T8478.001
[GRAPHIC] [TIFF OMITTED] T8478.002
[GRAPHIC] [TIFF OMITTED] T8478.003
[GRAPHIC] [TIFF OMITTED] T8478.004
[GRAPHIC] [TIFF OMITTED] T8478.005
Attachment B
[GRAPHIC] [TIFF OMITTED] T8478.006
[GRAPHIC] [TIFF OMITTED] T8478.007
[GRAPHIC] [TIFF OMITTED] T8478.008
[GRAPHIC] [TIFF OMITTED] T8478.009
[GRAPHIC] [TIFF OMITTED] T8478.010
[GRAPHIC] [TIFF OMITTED] T8478.011
[GRAPHIC] [TIFF OMITTED] T8478.012
[GRAPHIC] [TIFF OMITTED] T8478.013
[GRAPHIC] [TIFF OMITTED] T8478.014
[GRAPHIC] [TIFF OMITTED] T8478.015
[GRAPHIC] [TIFF OMITTED] T8478.016
[GRAPHIC] [TIFF OMITTED] T8478.017
[GRAPHIC] [TIFF OMITTED] T8478.018
[GRAPHIC] [TIFF OMITTED] T8478.019
[GRAPHIC] [TIFF OMITTED] T8478.020
Attachment C
[GRAPHIC] [TIFF OMITTED] T8478.021
[GRAPHIC] [TIFF OMITTED] T8478.022
[GRAPHIC] [TIFF OMITTED] T8478.023
Attachment D
[GRAPHIC] [TIFF OMITTED] T8478.024
[GRAPHIC] [TIFF OMITTED] T8478.025
[GRAPHIC] [TIFF OMITTED] T8478.026
Attachment E
[GRAPHIC] [TIFF OMITTED] T8478.027
Attachment F
[GRAPHIC] [TIFF OMITTED] T8478.028
[GRAPHIC] [TIFF OMITTED] T8478.029
[GRAPHIC] [TIFF OMITTED] T8478.030
[GRAPHIC] [TIFF OMITTED] T8478.031
Attachment G
[GRAPHIC] [TIFF OMITTED] T8478.032
[GRAPHIC] [TIFF OMITTED] T8478.033
[GRAPHIC] [TIFF OMITTED] T8478.034
[GRAPHIC] [TIFF OMITTED] T8478.035
[GRAPHIC] [TIFF OMITTED] T8478.036
[GRAPHIC] [TIFF OMITTED] T8478.037
[GRAPHIC] [TIFF OMITTED] T8478.038
[GRAPHIC] [TIFF OMITTED] T8478.039
[GRAPHIC] [TIFF OMITTED] T8478.040
[GRAPHIC] [TIFF OMITTED] T8478.041
[GRAPHIC] [TIFF OMITTED] T8478.042
Attachment H
[GRAPHIC] [TIFF OMITTED] T8478.043
[GRAPHIC] [TIFF OMITTED] T8478.044
[GRAPHIC] [TIFF OMITTED] T8478.045
[GRAPHIC] [TIFF OMITTED] T8478.046
[GRAPHIC] [TIFF OMITTED] T8478.047
[GRAPHIC] [TIFF OMITTED] T8478.048
-