[Congressional Record Volume 143, Number 64 (Thursday, May 15, 1997)]
[Senate]
[Pages S4592-S4593]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROTH (for himself, Mr. Moynihan, Mr. Chafee, Mr. Graham, 
        Mr. Hatch, Ms. Moseley-Braun, Mr. Grassley, Mr. Baucus, Mr. 
        Gramm, Mr. Conrad, Mr. Nickles, Mr. Breaux, Mr. Jeffords, Mr. 
        Bryan, Mr. Rockefeller, Mr. Kerrey, Mr. Murkowski, Mr. D'Amato, 
        and Mr. Lott):
  S. 747. A bill to amend trade laws and related provisions to clarify 
the designation of normal trade relations; to the Committee on Finance.


                   normal trade relations legislation

  Mr. ROTH. Mr. President, I rise today to introduce a bill to clarify 
the meaning of the term, ``most-favored-nation trading status.'' I do 
so because the term gives the false impression that MFN is some sort of 
special privilege or reward.
  In fact, MFN is not a special privilege or reward. It designates the 
most ordinary, most normal trading relationship among countries. Since 
the founding of our Republic, the principle of nondiscrimination 
embodied in MFN has served as the cornerstone of U.S. international 
trade policy.
  In its most basic trade application, this principle requires a 
country to apply the same tariff duty rate on a particular product from 
one country as it applies to imports of the same product from all other 
countries.
  For example, if the U.S. tariff on imported clock radios is 5 
percent, all clock radios imported from countries with MFN status are 
subject to a 5-percent tariff. Imports from countries that do not have 
MFN status--and there are only six countries that fall into this 
category--are subject to far higher duty rates.
  Another important point about MFN is that it is not a one-way street. 
When we give MFN status to a particular country, that country, in 
return, gives the United States most-favored-nation status.
  Therefore, because we give Singapore MFN status, the clock radios we 
import from that country are subject to the same tariff rates as clock 
radios from Thailand, Spain, or any other country to which we extend 
MFN.
  In return, when Singapore imports our computer chips, it imposes the 
same tariff on United States chips as those imported from Japan, Korea, 
Great Britain, or any other country to which it extends MFN.
  What does the United States get out of all this? American companies 
get to compete on fair and equal terms with their foreign rivals.
  Let me emphasize again: MFN status does not confer--let alone imply--
special treatment.
  In fact, when we decide to give special treatment to imports from 
other countries--as Congress has expressly chosen to do for certain 
products from over 130 nations--those imports are subject to tariff 
rates substantially below the MFN rate. Sometimes we even allow 
specified countries to export products to the United States duty free.
  In short, MFN status denotes the standard, not the exceptional, 
trading relationship. Ending this standard trading relationship by 
revoking MFN is an extreme measure. In fact, because MFN is so 
fundamental to trade relations among countries, some correctly liken 
its withdrawal to a declaration of economic war.
  Because of the confusion created by the phrase, ``most-favored-nation 
trading status,'' Senator Moynihan and I and virtually all the Members 
of the Finance Committee have agreed to introduce legislation to 
replace the phrase wherever appropriate in U.S. trade law with a more 
suitable term--``normal trade relations''--a term that underscores the 
unexceptional nature of the MFN concept. I believe that if we adopt 
this legislation, we will all better understand the issue, and our 
discussions on extending normal trade relations to various countries 
will be more constructive.
  It should be clear to our trading partners that creating this new 
term will not alter our international rights and obligations. Rather, 
in choosing the term ``normal trade relations'' we aim to describe more 
accurately the nondiscriminatory principles underlying U.S. trade law 
and policy.
  Last year, similar legislation passed the Senate unanimously. I ask 
my colleagues to do the same again this year.
  Mr. MOYNIHAN. Mr. President, I am pleased to join once again with the 
distinguished Chairman of the Finance Committee, Senator Roth, to 
reintroduce legislation that will, we believe, help to dispel the fog 
that sometimes shrouds our discussions of trade policy. This bill 
would, simply and directly, replace the term ``most favored nation'' 
with the phrase ``normal trade relations''--a more accurate, less 
muddled phrase that better describes this fundamental principle of 
trade policy.
  The concept is well established. It has been traced by historians to 
the 13th century. More particularly, to a clause in the treaty of 
November 8, 1226, in which the Emperor Frederick II conceded to the 
city of Marseilles the privileges previously granted to the citizens of 
Pisa and of Genoa. Not greater privileges, but merely the same as had 
been extended to others.
  The term itself--``most favored nation''--dates to the end of the 
17th century. And has been nearly as long a

[[Page S4593]]

cornerstone of American trade policy. Since the 18th century, our trade 
policy has been grounded on the principle of nondiscrimination: the 
vast majority of our trading partners receive treatment equal to the 
treatment we give every other trading partner. In no sense can this 
fairly be characterized as most favored treatment; rather it is the 
treatment that we normally accord our trading partners.
  And yet we continue to use that 17th century term in treaties and 
agreements, in executive orders and in trade laws, a term that, even at 
the beginning, was a misnomer. There is, Mr. President, no single most 
favored nation. There never really was.
  As noted in a 1919 report to the Congress by the United States Tariff 
Commission, known today as the United States International Trade 
Commission:

       It is neither the purpose nor the effect of the most-
     favored-nation clause to establish a ``most favored nation''; 
     on the contrary its use implies the intention that the 
     maximum of advantages which either of the parties to a treaty 
     has extended or shall extend to any third State--for the 
     moment the ``most-favored''--shall be given or be made 
     accessible to the other party.

  That is, the most favored nation is not the nation with which we are 
negotiating, but rather a third nation altogether that happens to 
benefit at the moment from lower tariffs or other preferences with 
respect to some particular product. The most-favored-nation principle 
means merely that we will grant to our negotiating partner the same 
terms that we have given to that third country, for the moment more 
favored.

  Little wonder, then, that the term has created confusion. And yet we 
must continue to discuss the concept for the simple reason that there 
exists still, in U.S. law, a very unfavorable tariff--the Smoot-Hawley 
tariff (stemming from the 1930 act of the same name). This was the last 
tariff schedule enacted line-by-line by the Congress and it produced 
the highest tariff rates, overall, in our history. It is still on the 
books, though it applies only to a handful of countries.
  In response to the disaster that followed enactment of the Smoot-
Hawley tariff, which, at the time applied to all of our trading 
partners, Congress authorized the Roosevelt administration to negotiate 
a series of trade agreements aimed at reducing tariffs worldwide. These 
efforts culminated in a series of trade agreements with individual 
countries, and ultimately paved the way for a series of broad 
multilateral negotiations under the auspices of the General Agreement 
on Tariffs and Trade that reduced American tariffs, just as they 
slashed tariffs worldwide. These much lower tariff rates are the 
tariffs that we call our most-favored-nation tariff rates and they 
apply, in fact, to the vast majority of countries. They are thus the 
norm, and not in any way more favorable tariffs.
  They are, indeed, not the lowest tariff rates that the United States 
applies. We have free-trade arrangements with Canada, Israel, and 
Mexico that call for the complete elimination of tariffs. We have 
eliminated tariffs on certain imports from developing countries under 
the Generalized System of Preferences, from Caribbean nations under the 
Caribbean Basin Initiative and from Andean countries under the Andean 
Trade Preferences Act. The tariff rates under these regimes are, in all 
cases, lower than what we now call our most-favored-nation tariff 
rates. Hence the confusion, and hence the need to find a more apt 
phrase.
  Mr. President, this legislation will be familiar to most of my 
colleagues. The identical bill was introduced in the 104th Congress 
with the cosponsorship of the entire Finance Committee and it passed 
the Senate by unanimous consent. I expect that we will be able to 
repeat that victory in the 105th Congress, and I hope that we can do so 
promptly.
  Let me underscore that this legislation in no way alters the bedrock 
principles of equal treatment or nondiscrimination. It merely drops an 
outdated term in favor of one that ought to help make our trade policy 
more comprehensible to the American public.
  Mr. CHAFEE. Mr. President, today Senators Roth, Moynihan, and I, 
along with others on the Finance Committee, are introducing legislation 
to clarify the meaning of most favored nation [MFN] trading status--a 
change I have advocated for some time.
  Over the past few years, MFN has gained notoriety as a special favor 
that the U.S. grants to other nations. Not true. Indeed, MFN is a 
misnomer if there ever was one.
  Rather, MFN refers to a centuries-old concept used by all trading 
nations--the concept that no nation shall be granted trade treatment 
less favorable than that granted to the most-favored-nation. In other 
words, no playing favorites! Every nation is to receive equal treatment 
when it comes to the terms of trade.
  Thus, the MFN concept represents the lowest common denominator of 
trade status.
  Over the centuries, this simple non-discrimination concept came to be 
known as most favored nation status. Frankly, that is unfortunate. That 
particular terminology has fostered the mistaken view that MFN is a 
special treatment granted only to a privileged few. Yet just the 
opposite is true: MFN, as the basic trading status between nations, is 
granted to virtually all nations with whom the U.S. trades. The 
exceptions can almost be counted on one hand: Serbia, Laos, 
Afghanistan, Vietnam, Cuba, and North Korea.
  In sum, while the concept of MFN is sound, the term used to denote 
that concept is misleading and has resulted in a good deal of 
mischief--a fact that Senators Moynihan and I have lamented often 
during Senate Finance Committee hearings. It is high time that we 
called the MFN nondiscrimination concept by a term that more accurately 
represents its meaning.
  Therefore, today my colleagues and I are introducing this bill to 
amend U.S. law, where appropriate, to replace the term ``MFN'' with the 
term ``NTR''; normal trade relations. From this point on, we will 
discuss legislation and hold debate on the nondiscrimination concept 
using the term ``NTR'' in place of MFN.
  Will the concept of MFN remain the same? Yes. Are we signalling a 
change in domestic policy, or modifying our international obligations 
in any way? No. But we are making perfectly clear to everyone the true 
meaning and purpose of this centuries-old concept. And it is my hope 
that our legislation will result in a better understanding of 
international trade relations, both here in the Congress and in the 
eyes of the public.
  Last year, Senators Roth, Moynihan, and I introduced a virtually 
identical bill, again with the support of Finance Committee members. 
That bill sailed through the Senate unanimously, and was sent to the 
House of Representatives. However, the house was not able to act on the 
bill prior to the date of adjournment of the 104th Congress. It is my 
hope that by introducing this bill tody, there will be more than enough 
time this year to move the measure through both chambers and send it to 
the President for his signature. I therefore urge swift consideration 
of our legislation by the Senate.
                                 ______