[WPRT 106-16]
[From the U.S. Government Printing 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
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                                 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.

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