U.S. GOVERNMENT PRINTING OFFICE

58–930 CC WASHINGTON : 1999

WTO SINGAPORE MINISTERIAL MEETING

HEARING

BEFORE THE

SUBCOMMITTEE ON TRADE

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

FEBRUARY 26, 1997

Serial 105–83

Printed for the use of the Committee on Ways and Means

(

ii

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON TRADE

PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

AMO HOUGHTON, New York

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JENNIFER DUNN, Washington

WALLY HERGER, California

JIM NUSSLE, Iowa

ROBERT T. MATSUI, California

CHARLES B. RANGEL, New York

RICHARD E. NEAL, Massachusetts

JIM MCDERMOTT, Washington

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.

iii

C O N T E N T S

Page

Advisory of January 31, 1997, announcing the hearing ....................................... 2

WITNESSES

Office of the U.S. Trade Representative, Hon. Jeffrey M. Lang, Deputy U.S.

Trade Representative ........................................................................................... 10

U.S. General Accounting Office, JayEtta Z. Hecker, Associate Director, International Relations and Trade Issues, National Security and International

Affairs Division ..................................................................................................... 40

American Farm Bureau Federation, Ed Wiederstein, as presented by John

Keeling .................................................................................................................. 103 American Forest & Paper Association, Maureen R. Smith .................................. 167

Boidock, John, Texas Instruments, Inc., and Semiconductor Industry Association ........................................................................................................................ 72

Christian-Green, Hon. Donna M., a Delegate in Congress from the U.S. Virgin

Islands ................................................................................................................... 163

Coalition of Service Industries, Robert Vastine .................................................... 112

Cornell Dubilier, James Kaplan, Jr. ...................................................................... 78

Corning, Incorporated, Timothy J. Regan ............................................................. 65

Cross, Aaron W., IBM, and Information Technology Industry Council .............. 57

Distilled Spirits Council of the United States, Inc., Fred A. Meister .................. 179

Grocery Manufacturers of America, Inc., Karil L. Kochenderfer ......................... 172

IBM, Aaron W. Cross .............................................................................................. 57

Information Technology Industry Council, Aaron W. Cross ................................ 57

Iowa Farm Bureau Federation, Ed Wiederstein, as presented by John

Keeling, American Farm Bureau Federation .................................................... 103 Kaplan, James, Jr., Cornell Dubilier, and Passive Electronics Coalition ........... 78

Keeling, John, American Farm Bureau Federation, presenting statement of

Ed Wiederstein, Iowa Farm Bureau Federation, and American Farm Bureau Federation .................................................................................................... 103

Kemet Electronics Corp., Don Poinsette ................................................................ 78

Kochenderfer, Karil L., Grocery Manufacturers of America, Inc ......................... 172

Labor-Industry Coalition for International Trade, Laird Patterson ................... 123

Meister, Fred A., Distilled Spirits Council of the United States, Inc .................. 179

Passive Electronics Coalition:

Don Poinsette .................................................................................................... 78

James Kaplan, Jr ............................................................................................. 78

Patterson, Laird, Labor-Industry Coalition for International Trade .................. 123

Philips Components, Kevin Rafferty ...................................................................... 90

Poinsette, Don, Kemet Electronics Corp., and Passive Electronics Coalition ..... 78

Rafferty, Kevin, Philips Components ..................................................................... 90

Regan, Timothy J., Corning, Inc ............................................................................ 65

Sandstrom, Mark, Thompson Hine & Flory LLP .................................................. 146

Semiconductor Industry Association, John Boidock ............................................. 72

Smith, Maureen R., American Forest & Paper Association ................................. 167

Stewart, Terence P., Stewart and Stewart ............................................................ 134

Texas Instruments, Inc., John Boidock .................................................................. 72

Vastine, Robert, Coalition of Service Industries ................................................... 112

Wiederstein, Ed, Iowa Farm Bureau Federation, and American Farm Bureau

Federation, as presented by John Keeling, American Farm Bureau Federation ........................................................................................................................ 103

SUBMISSIONS FOR THE RECORD

American Iron and Steel Institute, statement ...................................................... 186

Page

iv

American Textile Manufacturers Institute, Carlos Moore, letter ........................ 189

Bacardi, LTD., Miami, FL, Steven Naclerio, statement ....................................... 192

Philips Electronics, Patricia A. Franco, letter ....................................................... 194

Puerto Rico, Government of, Jaime F. Morgan-Stubbe, statement ..................... 196

Software Publishers Association, statement ......................................................... 198

(1)

WTO SINGAPORE MINISTERIAL MEETING

WEDNESDAY, FEBRUARY 26, 1997

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON TRADE,

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:04 a.m., in

room 1100, Longworth House Office Building, Hon. Philip M. Crane

(Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

2

3

4

Chairman CRANE. Will all of our guests please take their seats?

Good morning and welcome to the first hearing in the 105th Congress of the Ways and Means Trade Subcommittee. The purpose of

this hearing is to examine the outcome of the WTO Singapore Ministerial Meeting held in December, especially the Information Technology Agreement endorsed by the Ministers at the meeting, and

the basic telecommunications services agreement concluded last

week.

5

In addition, we will study the prospects for the future of the

WTO, including the built-in agenda set for further negotiation, additional market access, liberalization, the extended services negotiations and potential new issues for further negotiation.

I led a delegation of the Ways and Means Members to the Singapore meeting in December and had an opportunity to meet with

WTO officials, representatives from delegations of our trading partners and business representatives. I believe that the meeting successfully provided a significant opportunity for us to assess how the

WTO Agreements have been functioning and to look to the future,

laying the groundwork for future negotiations on tariffs, services

and the built-in agenda.

The most significant outcome was the endorsement of the Information Technology Agreement, an agreement that will reduce tariffs on information technology products. I look forward to hearing

what the impact of this agreement will be on various U.S. industries.

In addition, although it was not a formal focus of the Ministerial,

I was gratified that our discussions with a wide variety of other

delegations demonstrated that our trading partners agree with the

U.S. view that accessions to the WTO should take place only under

commercially acceptable terms.

Finally, I would note my agreement with the conclusion of the

Ministers that the WTO should focus on trade related issues only

and that labor issues are best addressed by the International Labor

Organization.

I now recognize our distinguished Ranking Member, Mr. Matsui,

for any statement he would like to make.

Mr. MATSUI. Thank you, Mr. Chairman.

I want to thank you and congratulate you for holding this hearing and also for leading the delegation to the Ministerial Meeting

in Singapore. I might just point out that Karen Thurman, our newest Member, was also part of that delegation and she is here today.

Although, not a Member of the Trade Subcommittee, we welcome

her here.

I would just like to congratulate the administration for both the

information technology agreement and also the recent telecommunications agreement. I know it was very, very difficult. On

the other hand, I think you achieved quite a miracle and a doubleheader, so to speak, and I think as a result of this the United

States is going to be very well positioned as we approach the 21st

century to compete and certainly it is going to create hundreds of

thousands of jobs over the next 10, 15, 20 years.

And, so, congratulations for that effort and we look forward to

working with you on other issues that Chairman Crane has spoken

about, obviously investment issues and others. And, so, again, Mr.

Chairman, thank you and I look forward to working with you, as

well.

[The opening statements follow:]

6

7

8

9

10

Chairman CRANE. Thank you, Mr. Matsui.

Today we will hear from a number of distinguished witnesses

and in the interest of time, I would ask that you try to keep your

oral testimony to 5 minutes, and we will include longer, written

statements in the record.

Our first witness will be Deputy U.S. Trade Representative Jeffrey Lang.

Ambassador Lang, let me congratulate you on your hard work in

concluding the WTO basic telecommunications services negotiations

last week.

I believe that this agreement is a tremendous example of how

opening markets abroad will benefit our businesses and U.S. consumers. And I might add, parenthetically, that Ambassador

Barshefsky, as I understand it, is tied up with the meetings in anticipation of President Frei’s speech to the Congress tomorrow. It

is probably just as well because you can pay her appropriate tribute that she could not claim herself for the outstanding job she did

in Singapore.

With that, I yield to you, Mr. Lang.

STATEMENT OF HON. JEFFREY M. LANG, DEPUTY U.S. TRADE

REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE

Mr. LANG. Thank you, Mr. Chairman and thank you, Mr. Matsui.

You are absolutely right about Charlene Barshefsky, she has

picked up this job in midfield and run hard with the ball and done

what I think is just a spectacular job here. I truly regret that she

cannot be with you, especially since so many Members have shown

up. I think there is a lot to do this year in trade.

I was going to give an oral statement which was supposed to be

half of the written statement, I scratched out half of that and I will

now remove half of that and see if I can cut through this quickly

and leave plenty of time for questions.

But I do think there are a couple of important points that I

should make on behalf of the administration. First, the WTO is the

center of the system. Remember the trading system is designed to

ensure a rising standard of living for our people, not just opportunities for firms, but opportunities for workers and communities and

everybody else in this country.

These are things that the WTO is tailormade to do and to do in

a new world where we are going to have to be faster of foot and

more flexible than we have been in the past with the old system

of rounds.

11

Now, the Ministerial in Singapore was a significant meeting, because it was the first meeting of the WTO when we were going to

try and put these principles into effect. So, we had to make some

breaks with the past and move into an organization that was going

to be able to deal with a world of 18-month product life cycles. This

is going to require some different ways of doing things.

Obviously, the main things we were looking at was how the

agreements are being implemented? How were we going to advance

the ongoing work? And then the area that received the most press

attention about these new areas that have to be explored in the future.

We are, as I take it some of you are, pleased with the results

from Singapore. The ITA is obviously a major accomplishment. But

also the businesslike way the meetings were conducted, the precedents they set for future Ministerials in terms of the work that can

be done on paper, without Ministers having to get involved, is enormously important because we have to chew through so much more

treaty text today than we ever have had to do in the past.

Ministerials are absolutely essential. We have to have political

oversight of the trading system. And it was very important not only

that there was an interagency team from the administration there,

but that there was strong representation from the Congress and,

in particular, this Committee. Everybody in the world knows exactly how the American political system operates and they know

that without support and active participation by the Congress, the

administration cannot move forward on a trade policy without bipartisan Congressional support.

Now, let me just mention a couple of things that I think were

important at the meeting. One was, in terms of this issue of implementation—which is not particularly high-profile or sexy but is

enormously important—the key thing that went on in Singapore

was that the United States was able to get the system working

early in 1996 to produce the basic implementation reports that we

needed Ministers to approve in order to be able to move the system

forward in the next 2 years.

If you take a subject like agriculture, for example, there is obviously a lot of resistance from some of our major trading partners

about moving forward in agriculture in accordance with a built-in

agenda.

A lot of the work that led to the decision at Singapore to immediately begin an exchange of information and analysis on agriculture depended on the Committee work that had gone on sort of

below the surface in Geneva all year. Using those Committees in

Geneva is an important way to advance American interests. It does

not get much coverage but it does advance our interests very substantially.

With regard to the enforcement action, I would emphasize here

that, of course, the high profile thing is dispute settlement and we

are far and away the most active user of the dispute settlement

system. Probably 40 percent of the cases involve the United States

mostly as a plaintiff.

But it is also important that we use the committee system in

that regard. There are many countries whose trade practices are

objectionable to us. We can raise those practices in committees, like

12

the balance of payments committee, for example. Seven or eight

countries gave up balance of payments cover in Singapore because

of the committee work. I think that helps all of us. It means Turkey is more open to our exports today than they were before the

Singapore meeting, just to use a small example.

I think it bears repeating, whenever I talk about dispute settlement, even if no question has ever been raised about it, that this

system in no way impairs the national sovereignty of the United

States; only Congress, not the WTO, can change the laws of the

United States.

Now, with regard to the built-in agenda, this is the agreed agenda of things we are going to be doing in the future, that is, beyond

1997. We know the things that are coming up in 1997, things like

the rules of origin negotiation and the financial services negotiation

which I understand some of you might want to talk to me about.

But beyond that, there is an agenda beginning in 1999 of extremely important negotiations. I would be glad to go through it

with you in detail in the Q and A, but things like agriculture, services, and safeguards are all the subject of scheduled negotiations

that will go on in the future in this organization. That whole builtin agenda was approved in Singapore and it is important.

Now, let me just say with regard to the emerging issues, that we

might want to discuss this in some detail, this is trade and labor

standards, investment, competition, those kinds of issues. I think

with respect to labor, I know it is a controversial issue on the committee, but we did move forward in the sense that we were able

to get agreement from our trading partners, I think, on two basic

ideas.

One is that core labor standards should be respected, and second,

that the ILO and the WTO should continue to work together. We

would like to work with you on how this issue can move forward

in accordance with the requirements of section 131 of the act.

With regard to investment and competition, we have very modest

study programs in place. We have some problems with diverting attention to investment from the OECD negotiations in Paris. But we

think educating our developed country trading partners about the

investment issue is important. Competition is not a well-developed

issue in the WTO except for one place where it is remarkably well

developed and that is in the results of the telecommunications services negotiations which I will speak about in a minute.

Let me just say with respect to market access, obviously the ITA

is an enormously important agreement. It phases out tariffs on a

wide range of products over a very short period of time mostly by

the year 2000, $500 billion in annual trade flows, and I think that

it did help to do the ITA to be able to then to ahead and complete

the telecommunications negotiations.

Many of the important things we did in Singapore were meetings

that occurred at American initiative on the margins of Singapore.

On the margins of Singapore, for example, we had a meeting with

African trade delegations to find out what their concerns about the

trading system were. Similarly, we had a telecommunications

meeting to which we invited representatives of the World Bank and

the FCC and so on. That is when the improved offer process began.

13

I could talk all night about this telecommunications agreement,

but I think it is a remarkable achievement in and of itself. It is

even more remarkable in connection with the ITA because it increases the advantage to our workers and companies of the ITA because we will be building redundant telecommunications networks

all over the world. I think it shows that we can move forward and

negotiate in this forum on an ongoing basis on one basic condition.

That is, a lot of other countries are willing to come forward and

make commitments in the system and not just be free riders. If

countries are prepared to make commitments it appears now that

we can move forward on an ongoing basis.

So, there is a lot here I should have said but these are, I think,

some of the most important things. I know there are a lot of issues

all of you have to raise with us, but on behalf of Charlene I just

want to say that working together on a bipartisan basis is important. This is an important area of our economic development and

we have an administration which I think is intent on moving forward in the area and we want to work closely with you to find

ways to do that.

Thank you, Mr. Chairman.

[The prepared statement follows:]

14

15

16

17

18

19

20

21

22

Chairman CRANE. Thank you, Jeff.

At the Singapore Ministerial Meeting was the U.S. capacitor

manufacturing industry consulted during these negotiations and

would the inclusion of capacitors in the ITA agreement affect our

national security? And, finally, how do you respond to the other arguments raised by the portion of the capacitor industry in opposition to the agreement?

Mr. LANG. We have been aware since last spring that the capacitor industry in the United States was divided about the ITA and

that was a concern to us. It was the reason we did not include capacitors in the U.S. offer on the ITA. However, it was true that our

major trading partners who were important markets for our exports of these information technology products insisted that capacitors were an essential ITA component and that if they were excluded the deal would unravel. So, we advised all the major domestic parties, including the capacitor parties, of those considerations.

Now, we, in consulting, as the law requires us to do, with these

folks along with everybody else in this industry, we discovered that

they do have some significant export concerns in the nontariff barrier area. And that is one of the major reasons that we pushed so

hard on those nontariff barrier provisions that are included in the

agreement.

We would like to work with the whole industry to make this

agreement work for them. Exports have been increasing rapidly in

recent years. Imports have actually declined.

As far as the national security issue, it was not raised until after

the ITA was concluded in Singapore. And since the industry has

been expanding rapidly it still is unclear to the administration

what specific risks might be posed by this agreement.

I might say, at the request of the industry, the Department of

Defense in 1995 allowed the procurement of capacitors from offshore plants. DOD appears to believe that a broad procurement

23

base, including both offshore and onshore supplies, enhances rather

than detracts from national security.

But, obviously, we take any national security concern very seriously and if the Department of Defense determines that inclusion

of capacitors in the ITA jeopardizes our security interests then we

will take whatever action is necessary to rectify the situation.

Chairman CRANE. Thank you.

Mr. Matsui.

Mr. MATSUI. Thank you, Mr. Chairman.

Again, I would like to congratulate you and Ambassador

Barshefsky, Ambassador Lang, for the two agreements that you

have entered into recently.

Mr. LANG. Thank you.

Mr. MATSUI. What I would like to ask is in view of the fact that

you have been very successful in sectoral agreements in the last

few months, is this the approach that you believe will be the wave

of the future, rather than comprehensive trade agreements?

How do these interrelate and is there anything instructive from

this or is this anecdotal?

Mr. LANG. It is early days and it is tough to say. I think that

there have always been sectors in the system that require what I

call internal deals. That is, in agriculture, for example, we could

not make a deal on agriculture that was disadvantageous to American agriculture and tell them that the reason for it was we had

a great deal in the banking sector. We always had to make that

kind of deal work in that rather large sector.

I think that we are going to have to negotiate simultaneously on

a lot of things and there may be tradeoffs. If you look ahead to the

scheduling of the built-in agenda which is not based on any planning that I am aware of, it just is the result of the outflow of the

Uruguay round negotiations, you can see that there is a great deal

of simultaneity. It is not a round and I do not think a round is in

our interests when we have such a flexible economy, workers that

can adjust so quickly to changes in the competitive environment.

On the other hand, I think what telecommunications does demonstrate, in both the success this year and the failure last April,

is that we are going to have to work very hard with a much broader range of countries than we did even 10 years ago in order to get

the necessary level of commitments to be able to justify these

agreements to the American people.

We cannot get by without substantial commitments in major

countries in Latin America and Asia, Central Europe, even Africa

and Southern Asia. All those countries are going to have to make

commitments to the system and it is going to be difficult. I can tell

you it is time-consuming work. You have got to go to those capitals

and meet those people and talk with them for months at a time in

order to do it.

But I do not think a round makes it any easier. It is important

to remember for people who say that you have to have everything

on the table in order to make a deal that these issues—telecom, for

example—were on the table in the Uruguay round and they were

the things that were too tough to get done when everything was

on the table.

24

So, I am not sure that a round is the solution to the problem.

The real solution to the problem is a commitment among our trading partners to be prepared to undertake legal obligations in the

WTO. If they are prepared to make commitments commensurate

with those of the United States, adjusting for their stage of development, I think we can move forward on this continuing basis and

do quite well for the American people.

Mr. MATSUI. Last, one of the concerns I have is the recent actions by the Europeans taking the Helms-Burton legislation to the

WTO. And with this recent success, I think almost all of the negotiating parties, countries were advantaged by both the ITA agreement and the telecommunications agreement.

I believe frankly that they are jeopardizing the WTO and I want

you to know that certainly Members, like myself, support what you

are doing. The fact is that you are unwilling to allow jurisdiction

to attach to the United States on this issue because it is clearly a

foreign policy issue, although trade issues are attached to it, it is

clearly a foreign policy issue.

This is how this issue emanated from Mr. Helms and Mr. Burton, who were not at all interested in the trade aspect of this, and

you have significant support on the Hill, I believe on this, maybe

not from all circles, but at least significant support.

And I hope the Europeans understand that this could jeopardize

the WTO because even Members like myself could have questions

about it if, in fact, sanctions are held against us for this act. We

may have some reservations about the legislation, some of us internally, but this was clearly a foreign policy decision. I might disagree with it, but it was clearly a foreign policy decision.

Mr. LANG. I appreciate that and we will enforce the law. We

have made our position clear in Geneva.

Chairman CRANE. Mr. Thomas.

Mr. THOMAS. Thank you, Mr. Chairman.

I, too, am sorry that the U.S. Trade Representative Designate

Barshefsky is not with us. My understanding is she is with the

President and the President of Chile. It is unfortunate that had

you folks not wanted to push a fundamental revision of fast track,

we would have already had a fast track agreement with Chile and

perhaps she could have been with us.

You made a statement just a moment ago to the gentleman from

California that you could not make a deal that was disadvantageous to agriculture. Disadvantageous to agriculture is a rather

broad statement. I have discovered repeatedly that you have made

decisions that are disadvantageous to segments of agriculture.

And I happen to represent an area that is about $3 billion, valueadded, most of it specialty agriculture, on a broad-based structure.

I will not visit on you the sins of your elders and revisit NAFTA

and the commitment on paper that Ambassador Kantor made to

us, in part, the wine industry and failed to deliver on.

Nor will I look at the recent problem with Mexico on broom corn

and the fact that they have chosen to go after relatively narrow

segments for retaliation, one of them, once again, wine. That failure to deliver continues to be compounded.

I am especially disturbed by what happened between the United

States and Canada on the dairy/poultry agreement, in which we

25

entered into in what we thought—agriculture—was an understanding between the United States and Canada which even preceded

NAFTA but certainly carried through NAFTA and which with the

overlay of the WTO wound up with a decision that was disadvantageous to the United States.

I guess the decision does not bother me as much as the five-O

decision, meaning even the U.S. representatives failed to support

what we thought was a fundamental agreement on our side. And

I guess I just have to ask you, when you say you could not make

a deal that was disadvantageous to agriculture, most of us visiting

the recent past find that an astounding statement since you have

done so repeatedly, especially in terms of segments of agriculture.

I invite a response.

Mr. LANG. Well, I am certainly concerned about the dairy/poultry

panel decision. It is wrong. And——

Mr. THOMAS. I agree it was wrong. But our guys voted with

them.

Mr. LANG. Well, they are still wrong. And——

Mr. THOMAS. Well, are they still employed?

Mr. LANG. They are not employees of——

Mr. THOMAS. I understand, are they still citizens? [Laughter.]

Mr. LANG. But I would say as to the larger issue, I think that

we have to be concerned about the individual sectors of agriculture

and I encourage you to bring these kinds of problems to me or

Charlene and we will try to work on them.

Mr. THOMAS. I can assure you, we brought them repeatedly and

we have gotten written letters from the then Ambassador about

what was going to be done, a timeframe for correction and how it

was going to be corrected and it was never done.

I hope as we enter into this new era and as you folks come to

us with a fast track agreement, which—and I know you put a nice

little spin in your opening statement on the labor agreement that

occurred in Singapore—but I do hope that gets you to understand

maybe you have got to revise the position that you had in the past

on the question of labor, the environment and fast track.

But at least I would hope that you would not undercut the tariff

levels and reductions that were agreed to in the Uruguay round on

specialty agricultural products. And hold that as a firm line without trading off particular segments or resist it in terms of retaliation.

If I can get that out of you, at least I have a minimum comfort

level.

Mr. LANG. I will take the message back.

Mr. THOMAS. Well, I would take a personal commitment from you

that you would not reduce them below the Uruguay round.

Mr. LANG. Well, I am not sure I completely understand but I do

not have a problem with that if that is what you are asking. The

question is, if we have an overall negotiating authority, are you

asking if it would exclude specialty agriculture?

Mr. THOMAS. I guess my point is we have gone through a round

of reduction. We have made fundamental changes in the entire agricultural system in the United States. That area ought to set a

while and not enter into new arrangements with folks in terms of

further reductions on the world scene, either in terms of specialty

26

agriculture, and I would push it to general agriculture, but especially specialty agriculture.

And if you would not be opposed to that, that is as good as a letter I guess, based upon the way in which folks have honored previous written statements.

Thank you very much.

Chairman CRANE. Mr. McDermott.

Mr. MCDERMOTT. Thank you, Mr. Chairman.

Mr. Lang, you could probably look around this Committee for a

long time for anybody to understand what a capacitor is or what

it really does. And I think those kinds of issues are hard for us to

understand in any kind of specificity. But what I am concerned

about, in listening to Mr. Matsui’s remarks and your response, I

would like you to give me the arguments that the EU uses as an

explanation for why they have brought the Helms-Burton Act to

the World Trade Organization.

My life experience tells me that there is always another side to

something. And the EU must have good arguments why they think

it fits under the rubric of WTO or at least they have constructed

some way that they bring it to it where we say it is foreign policy,

they must have another theory under which they are bringing it to

the WTO. And in order to understand how the United States involves itself with the WTO—and one of the objections in the Congress was whether we would lose our national sovereignty if we involved ourselves in the WTO—I would like to understand what

their argument is on the other side.

What would a representative from the EU say if they were sitting where you are?

Mr. LANG. Well, what they would say is that because it may have

an effect on commercial operators, it should be something that is

taken up in the WTO, a commercial organization.

Mr. MCDERMOTT. Would that be a nontariff barrier? What is the

construct they are using?

Mr. LANG. Well, it is, in fact, unclear exactly what WTO concerns

it would raise. It is certainly not a tariff issue. They might argue,

at some stage in this proceeding, if it were to go forward—which

as I say, I hope it does not do—that somehow limiting visas for

commercial operators was inconsistent with the professional services agreement or something like that.

But it has no effect on goods trade, and it has no effect on trade

that I can see at all. But, as Mr. Matsui said, the problem here is

that this is not a trade matter. It is a foreign policy and national

security matter. And we have always said throughout our history—

it is not new to this administration—that no foreign panelist or

other person is in a position to judge the national security or foreign policy interests of the United States. That remains true today.

Thus, I am not a very good advocate for this position because it

is so far off the mark and so dangerous for the system.

Mr. MCDERMOTT. So what?

Mr. LANG. Dangerous for the system.

Mr. MCDERMOTT. Basically, you are characterizing their position

as being one in which they say ‘‘this is the only forum in which we

can address this issue.’’ So, they just grab the WTO?

27

Mr. LANG. Well, actually that is not true. They have been working with my colleague, Stu Eisenstadt, and in those arrangements

we have been able to deal with some of their problems. In addition,

they have already retaliated by enacting what they call blocking

legislation, legislation that is, in effect, to offset the effects of title

IV of the Helms-Burton legislation.

So, it is not clear to me that they do not have other remedies.

In fact, they are exercising other remedies, I think, quite effectively

from their perspective. I am not sure, to be perfectly frank, why

this WTO matter needs to move forward, from their perspective.

Mr. MCDERMOTT. Does this mean that when we want to implement something, if we frame it as a foreign policy issue, that we

would then be able to exclude it from WTO?

Mr. LANG. Well, I suppose taken to its extreme it might mean

that. But, in fact, for over 50 years the Congress has been very

cautious in such matters. I mean the Helms-Burton legislation

arises from a pretty repugnant act—shooting down these unarmed

civilian aircraft.

And, in my experience, when the Congress enters into this area,

it exercises a great deal of caution. I would urge it to continue to

do so, because so much is at stake here in a commercial sense—

the standard of living of our people, potentially.

On the other hand, I think it comes close to being irresponsible

to take an issue like this which is clearly a foreign policy and national security matter to the WTO because it puts us in the position of having to assert those basic propositions. Remembering now

that Europe is not just challenging the Helms-Burton law. It is also

challenging 30 or 40 years of legislation with respect to Cuba, including the embargo and all kinds of other actions that have been

on the books as foreign policy or national security actions since the

late fifties or early sixties.

Mr. MCDERMOTT. So, it is really more than Helms-Burton that

is at stake here?

Mr. LANG. Yes, sir, it absolutely is.

Mr. MCDERMOTT. Thank you, Mr. Chairman.

Chairman CRANE. Mr. Nussle.

Mr. NUSSLE. Thank you, Mr. Chairman.

There is a witness that is going to be in the second panel who

is from my home State, the Iowa Farm Bureau president. Since he

will not have an opportunity to visit with you personally about this,

I thought I would try and just touch on a couple of things here. In

his testimony he said that part of the reason why the U.S. agricultural leaders went to Singapore was to try and push a twofold

agenda.

One was to make sure that we were proceeding successfully toward renegotiating the GATT in 1999. And the second was that

they would be taken a little bit more seriously as a player in the

world and that our government would be more willing to commit

to resolving some of the agricultural trade problems.

I guess what I am curious about is how did they do in fulfilling

that two-pronged agenda?

Mr. LANG. Well, I hope they feel they did very well. They certainly had an effect on galvanizing the U.S. delegation. As I said

in my opening statement, the issue here, in taking agriculture in

28

general, was to make sure that our negotiating partners who are

reluctant about moving forward with opening their markets for

American agricultural exports be prepared to do so in accordance

with this built-in agenda which has negotiations beginning in 1999.

And the accomplishment that they wanted—and I met with them

several times during the meetings in Singapore—was to make sure

that we begin exchanging data and analysis now so that there is

no reason for stalling those negotiations when they are supposed

to begin in 1999.

I am going to Geneva in a couple of weeks and I think it is time

to begin that process of working out the exchange of data and analysis with our trading partners. I encourage the Iowa group to come

talk to me directly about what their specific concerns are.

Let me say on this agricultural issue that this is a huge portion

of our exports—something like $60 billion in exports last year. It

is actually a high-technology sector that is very successful. We have

been concerned about the implementation of the agriculture agreements.

Let me give you one example. When the agreements first kicked

into place in July 1995, we discovered that Europe was putting into

place a so-called reference price system which was not giving us

the benefit of the bargain. We did not wait for the industry to file

a 301 petition or hire lawyers or anything like that. We asked them

if they had any objection to our suing Europe. And when they did

not, we proceeded to do so on our own initiative.

Now, we are still working on that matter and Europe has been

extremely reluctant to come into compliance with that. But it is not

for lack of attention on our part, I do not think.

In any event, if there is something they need to talk to me about

in a specific crop area or something like that, I welcome them coming in and seeing me as soon as possible.

Mr. NUSSLE. Well, my understanding is that it was just yesterday the administration received a letter from, I believe, 26 different

groups suggesting that their concerns have not yet been adequately

addressed in agriculture. The president of the Farm Bureau from

Iowa is going to be here later on suggesting that farmers and

ranchers are not convinced that the WTO and NAFTA Agreements

are actually helping them.

I think the message that Mr. Thomas was suggesting and that

I am suggesting is that for fast track to be successful we have got

to have that kind of support. It is number one. It is not as sexy

as some of the other issues and condensers and all sorts of things

that Mr. McDermott was talking about—microchips and processors—that is for him to worry about. We are just talking about

corn and beans.

It is not quite as sexy, but as a result there are a lot of votes

in them there hills and when we are talking about fast track we

have to show success.

My understanding from the testimony is that we are going to receive today, as well as my own constituents in Iowa, they are not

convinced and that is the message that we need to be able to report

to you.

The final thing that I was curious about is what effect do you believe passage of the farm bill, recent reforms in farm legislation,

29

has had on the 1999 negotiations? What effect do you see that having on our long-term agriculture strategy with regard to trade, now

that you have had a chance to monitor that?

Mr. LANG. Well, let me say first that with an increase last year

in agricultural exports of something like 14 percent from $53 or

$54 billion to $60 billion, we are doing considerably better in agriculture. I remember a lot of years when we were under $30 billion

in agriculture exports. So, we are doing a lot better. But I continue

to offer to work with your people and find out what the problems

are and jump on them.

With respect to the farm bill, I think that our trading partners

are going to have to go a long way to come up to the standards of

that farm bill. We are, in terms of domestic policy, ahead of our obligations and many of them are behind in their obligations. That

is why we are bringing so many cases on these matters in the

WTO, on beef hormones, on grains, on barley, on rice, on wheat,

on corporation and we are going to continue to push to enforce

those agreements.

I think the 1999 negotiation is going to be very tough because

a lot of these folks are not ready for a competitive farm environment and the fact is, our farmers are ready for that.

Mr. NUSSLE. But, see, that is not the message they necessarily

need. We know they are going to be tough, they have always been

tough.

But the point is that if, in fact, we are ahead—and we are—and

they are behind, and nothing seems to be resolved in the meantime, granting fast track and giving more authority to have continuing agreements that do not seem to hit the mark and cannot

get us to that mark will be frustrating to agricultural sectors of all

kinds and make it very difficult for us who would like to support

fairer and freer trade, and understand the need of the administration to have a little bit of more autonomy in these negotiations

through the fast track, it would be very difficult for us to support

those things.

Mr. LANG. Well, as I say, I will take that concern back but I do

not accept that we are not doing better because of these agreements. I think I can go through crop-by-crop and show you that.

Mr. NUSSLE. Well, food sells itself.

Mr. LANG. Sir.

Mr. NUSSLE. Food sells itself.

Mr. LANG. Yes. But you have to have access to the market.

Mr. NUSSLE. Thank you, but we have to eat and the world has

to eat. So, with all due respect, I do not think it is because of you

that we are doing $30 billion better. I think we are doing better

because food sells itself. And I think that we miss our mark in

many respects if we forget that. If we have open markets, if we

have the ability to trade, we do quite well, food sells itself.

Mr. LANG. Yes, that is right, if the markets are open. That is a

big ‘‘if’’ in a lot of these things.

Mr. NUSSLE. That is the job we are asking you to help us with,

otherwise, it is going to be difficult to get that kind of legislation

in the future.

Mr. LANG. OK.

Chairman CRANE. Mr. Jefferson.

30

Mr. JEFFERSON. Thank you, Mr. Chairman.

In a few minutes, I suppose after the second panel, you will hear

from Representative Donna Christian-Green about a concern she

has about rum of the Virgin Islands. Inasmuch as you may not be

available to answer her question, I wanted to raise one for her, if

I might.

Mr. LANG. Yes.

Mr. JEFFERSON. I understand that white spirits are included in

the Singapore tariff package as a concession to the EU in view of

their status as a major exporter of white spirits, particularly vodka

and gin.

Can rum be excluded from the agreement reached in Singapore

without undermining the purpose or balance of the agreement?

And can you detail for the Subcommittee the potential effect on

the economy of the U.S. Virgin Islands if the tariff phase-out includes rum?

Mr. LANG. Say the second part again, I am sorry.

Mr. JEFFERSON. Can you detail for the Subcommittee, the potential effect on the economy of the U.S. Virgin Islands if the tariff

phase-out includes rum?

Mr. LANG. Yes. I appreciate your raising this question. I have

discussed it a couple of times with Congresswoman ChristianGreen. In fact, I talked to her yesterday or the day before.

We are very concerned about this. It is going to be difficult to remove rum from the agreement because it is so critical to the balance of concessions. You have to remember that Europe is making

a bigger tariff cut than the United States is. Part of that is compensated for by this distilled spirits agreement which includes rum

that we negotiated on the margins of the ITA.

However, the important thing to preserve in the case of the Virgin Islands is their access to the U.S. market on favorable terms.

It turns out that we think we can negotiate a type of side agreement with Europe that will preserve the benefits the Virgin Islands

get.

I was working on that negotiation earlier this morning. It is not

completed yet. But we do seem to be within reach of being able to

do that. It essentially has to do with the differential price of the

rum and it would be covered by the agreement. We may be able

to exclude from the agreement rum that would be of importance to

the Virgin Islands and that would preserve the tax carryover that

they need and so on. So, we are hopeful that we can work something out with the Europeans on the matter.

In fact, they have a similar problem which makes it a little easier to work it out. But I am in close touch with her and I am open

to any suggestions you have about how to resolve the problem. It

is a critical part of the overall agreement, but I think we do not

need to pull all of the rum out in order to solve the Virgin Islands’

problem.

Mr. JEFFERSON. Well, it is a very important issue and I hope you

will continue working hard to square it away.

Mr. LANG. Yes, sir.

Mr. JEFFERSON. You mentioned that on the margins, there was

some discussion about African trade policy in these negotiations in

Singapore. Can you elaborate on that for a moment?

31

Mr. LANG. Yes, sir.

We are very aware that Members of the Subcommittee have been

concerned about trade with Africa and at the same time we have

been carrying out the statutory mandate to study this matter. In

connection with that study we decided that it would be useful at

the Singapore Ministerial to ask African Trade Ministers, who were

uniquely collected at this meeting, to come to a meeting with my

colleagues and from other Federal agencies to discuss their concerns as a way of having some sort of direct input to our policy formulation process. That was very helpful and they were extremely

forthcoming and frank. There were some very interesting things

they said.

For example, they said they knew the era of foreign aid was over

and they had to rely on trade and investment in order to develop.

Their thinking is quite advanced and we have moved forward on

that basis trying to develop a program that will be responsive to

both congressional concerns and concerns of countries in the region.

I think this matter should be the discussion of continued consultations with the Committee over the next couple of weeks and

hopefully we can come up with legislation that would be consensus

bipartisan legislation and a real important addition to our trade

policy. It is a very important area. There are 600 million people

who are not participating very actively in the trading system there

and that is a loss to us and to them.

Mr. JEFFERSON. How do you see it as being structured in the

next several months, this continuation of the contacts and the discussion?

Mr. LANG. Well, we would be happy to structure it any way you

want to do it. I think meetings with individual members or groups

of concerned members would be fine. I think it is our responsibility

to propose some ideas to you.

One interesting thing about this subject is that in the past the

trade agencies, development agencies and financing agencies like

the Treasury Department have not worked closely on this kind of

problem.

I am pleased to say that in this situation we are working very

closely together. My colleagues and I at Treasury and State and

AID and so on have had an interagency working group on this subject since about October or November, I cannot remember exactly

when it was. We are moving forward and we hope to have some

pretty concrete suggestions for you in the next few weeks.

Mr. JEFFERSON. Thank you very much, Mr. Chairman.

Chairman CRANE. Mr. Houghton.

[No response.]

Chairman CRANE. Mr. Neal.

Mr. NEAL. Thank you, Mr. Chairman.

Mr. Lang, not long ago Ambassador Barshefsky reached an

agreement between the television monitor advocates and the computer monitor advocates for the television screen. While the compromise seemed satisfactory and congratulations in your direction,

how are you going to monitor those agreements?

Mr. LANG. Actually, we have several ways of doing that. One is

there is a review mechanism in the ITA which will allow us to consult informally with our trading partners. This particular area you

32

are talking about has been very sensitive, particularly in Europe

where some reclassifications have gone on that we are very concerned about.

So, I think that a monitoring and consultation process may be a

helpful way of getting some early warning about what they are

thinking and how they are going to implement the agreement.

In addition, this agreement will fall squarely within the dispute

settlement process of the WTO. And I have not said this before but

I should say it somewhere in this hearing, that dispute settlement

process is turning into a more powerful weapon than we had anticipated because it cannot be stalled the way the old GATT system

could.

So, most of our cases, where we are a plaintiff, are being settled

on favorable terms before a panel is even appointed, usually in 4

or 5 months. I would hope that in this case the system would prove

useful too. But we will certainly monitor the situation closely and

be glad to stay in touch with you, whatever you need us to do to

make sure it works out the way it is supposed to work out.

Mr. NEAL. Thank you.

The second question, worker rights, pages 8 and 9 of your testimony. It is fairly descriptive about how you treat the issue of worker rights. But could you verbally speak a bit to how you intend to

enforce worker rights?

Mr. LANG. Yes, sir.

First, worker rights are an element of U.S. law in a number of

programs, for example, the Generalized System of Preferences. We

continue to receive information and petitions from nongovernmental organizations and other organizations about worker rights’

problems with respect to the GSP Program and we are investigating those actively.

We have just had a team come back. I understand there is going

to be a report on my desk when I get back to the office today about

an investigation we just carried out in Indonesia where we will

have interviewed not only government officials but labor leaders

and opposition leaders and other people concerned about the problem.

Second, we have, in accordance with section 131 of the act, raised

the question of core labor standards in the WTO as a whole, which

is a difficult issue to move forward. There is a lot of fear and concern about it. Frankly, there is some division of opinion among

your colleagues on the question. But, nonetheless, as I said in my

opening statement, we were able in Singapore to get other governments to recognize these core labor standards, the right to organize, freedom from child labor and so on, and we were able to get

recognition that the ILO and the WTO should work together closely

in the future.

We now have to decide how to proceed with those kind of basic

understandings, how to move forward on them in other words, and

I think we are going to have to consult closely with you on it. It

will, obviously, I think, based on the discussion today, be an element of the fast track debate. But we are trying to move forward

on it in a multilateral context as well and we have some support.

33

Mr. NEAL. I do not profess to know more than my colleagues on

the democratic side but I can say that worker rights is a unifying

theme on our side and we will be monitoring it very, very carefully.

Mr. LANG. I understand.

Mr. NEAL. Thank you.

Chairman CRANE. Mr. Herger.

Mr. HERGER. Thank you, Mr. Chairman.

Mr. Ambassador, the longest standing section 301 case before

your agency is a case involving canned fruit. Europe has been subsidizing their canned fruit producers with hundreds of millions of

dollars annually for many years. Fifteen years ago the California

canned peach producers and the U.S. Government sought to stop

the EU from disrupting the world market by challenging EU practices in GATT dispute settlement. They won that case and a bilateral settlement was subsequently reached with the EU.

We now have data developed by the USDA that shows that the

bilateral settlement has collapsed. EU canned fruit subsidies are

way up as are EU production and exports. The Greeks now have

so many peaches in the ground that they are dumping them into

pits the size of football fields.

I am aware that the United States joined with five other countries last week in Brussels to protect EU canned fruit practices. I

also understand that continued informal talks such as these are expected by no one to produce the type of broad-based reform we need

from Europe in this sector. section 301 law requires that if a bilateral accord is not being satisfactorily implemented, USTR would

take all measures in its power to correct the problem.

Can you tell me what measures will be taken to get this longstanding dispute resolved on a permanent basis?

Mr. LANG. I certainly agree that this is a longstanding dispute.

I was actually involved 15 years ago in this dispute, so, nobody is

more frustrated with the European lack of implementation than I

am and the people at USTR.

Charlene has repeatedly raised this issue with Sir Leon Brittan,

her opposite number in Europe. So far there has been nothing

forthcoming. We have been forced to take the matter back to the

WTO. I do not want to say exactly what we will do but we are very

concerned by this. We are going to pursue it and one way or another we are going to have to resolve this thing.

But our objective is to get rid of the practice and sell more

canned fruit, not to retaliate for the sake of retaliating. But, in any

event, we will take the necessary actions to get some action on this.

You are absolutely right, this has been a long standing dispute.

Mr. HERGER. Now, the end of your answer was that you say you

will take steps to correct this. Now, the big concern that I have and

I am sure that many of us have is that if accords like this one

which are a direct result of international settlement are not adhered to——

Mr. LANG. Absolutely.

Mr. HERGER [continuing]. It really brings grave question into just

how effective these settlements are. So, I would urge you to follow

through with your last statement that we will stand very firm and

take appropriate actions.

34

Mr. LANG. I appreciate your saying that especially in public.

Thank you, sir, we will follow up on that.

Mr. HERGER. Thank you.

Chairman CRANE. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman.

Ambassador Lang, good to have you here. I know that my colleagues Mr. Thomas and Mr. Nussle referred to agriculture and

fast track and coming from Minnesota I must also.

As you know, under the WTO built-in agenda timeframes, the

deadline for reaching an agreement on agriculture is December 31,

1999. And given what is left to do as far as fast track is concerned,

that is not much time. It is really a short timeframe.

And I am concerned, like my constituents, that without the clout

of fast track authority we are not going to aggressively be able to

push for greater access for our agricultural products or participate

in the discussions at all.

I have two questions, Ambassador Lang. The first, when will the

administration present a fast track proposal? And, second, if we are

not involved, how aggressive would any agreement be in this area,

as far as agriculture is concerned?

Mr. LANG. With respect to the first question we are working

through a proposal now and consulting widely in the Congress. I

am hopeful we can get up here with a bill fairly soon. I do not want

to predict a time now because I have learned from sad experience

that predicting timing in the administration is a difficult business.

But this is——

Mr. RAMSTAD. Next month is reasonable though?

Mr. LANG. Yes. I think so. It is well advanced and I would be

hopeful about that kind of timing. The problem without fast track

becomes very serious. I might say I was out at Farm Fest. I do not

think Farm Fest was in your district, it was out in southwestern

Minnesota. But I got a chance to interact with some people who actually farm for a living, which I have not done for a long time.

It is obvious that we need to explain to people who do this for

a living why these trade agreements are important. I think it is absolutely essential that we have this authority on as broad a basis

as possible. Because we are going to have to be—this is, in part,

an answer to Mr. Matsui’s question earlier pretty opportunistic

about trade agreements.

If we can do better on a regional basis then we can on a multilateral basis, we ought to do it. We ought to have the freedom, after

consulting with you all and with the interested industry people, to

make those kinds of choices without having to come back repeatedly over short periods of time for the authority.

But I agree with you that we have to establish the confidence in

the agricultural community which is going to be used in a way that

serves their advantage. I think we just have to work that out in

the process of figuring out what this bill actually says to make sure

that we earn that confidence from our constituents.

Mr. RAMSTAD. And certainly the administration and the Congress

have had a good track record in recent years of working together

in a bipartisan, pragmatic way on trade issues. I really hope that

continues and carries over as far as fast track is concerned, because it is so critical as you recognize and know first hand.

35

I think you make a good point about the need to communicate

that better. All of us need to communicate the importance of that

more effectively.

Let me just shift gears if I may in my remaining minute or so.

Let me ask you, Ambassador Lang, what are the administration’s

objectives for dealing with the issues surrounding import-oriented

state trading enterprises in the WTO discussions? Is there a consensus for dealing with this issue?

Mr. LANG. Yes, I think there is a developing consensus about it.

We are very concerned about these State trading enterprises. We

have actually raised it with some of our trading partners. Generally I find they object very strongly to our assertions that these

wheat boards and milk boards and things like that are essentially

monopoly buyers and that state agencies are distorting markets

and do not behave in ways that are consistent with commercial

considerations.

But Congress has been concerned about this since at least 1988

when the provision about article XVII was inserted in the law. We

have received a lot of letters, not only from you but from many of

your colleagues, particularly in the midwest about these problems.

We have been raising them but I think until we get into a real negotiation where there is some give and take going on, it is probably

unlikely that we will get much done about it. But we continue to

raise the issue, for example, in the WTO agriculture committee.

I appreciate your concern.

Mr. RAMSTAD. Finally, Ambassador, let me ask you whether or

not you believe the Ministerial Meeting adequately addressed

whether there have been significant problems with the WTO member countries meeting Uruguay round implementation obligations.

Mr. LANG. No, I do not think it did completely. I am afraid a

number of those problems are going to have to be addressed in dispute settlement.

It is just that some of the countries are unwilling to move forward just on the basis of consensus and we are going to have to

use dispute settlement which we are using today. In fact, today or

yesterday, the dispute settlement body met in Geneva and we

pressed forward on several agricultural cases including barley,

wheat, corn, rice. So, we are going to have to use that remedy, I

am afraid.

Mr. RAMSTAD. Are the notification obligations too onerous? Is

that part of the hold up?

Mr. LANG. I think in developing countries the notification obligations are proving burdensome. We have been trying to provide

some technical assistance but we do not really have adequate funds

to be able to do as complete a job as we would like.

But there is no excuse for the failures to implement among our

industrialized trading partners. They know how the law works and

they have all the people they need. And those are the cases—I

mean we have cases that we are planning to move forward on pork

in the Philippines and some other cases in developing countries

where we have tried to work with them for a period of time, been

unable to work them out, so, we will have to proceed in dispute settlement.

36

But that is not the situation in these industrialized countries.

They know what the obligations are.

Mr. RAMSTAD. Of course.

Well, thank you very much, Ambassador Lang. I appreciate your

responses to all three areas of inquiry. I am particularly encouraged by your representation that we will see a fast track agreement from the administration next month.

Mr. LANG. Well, I hope I can deliver.

Mr. RAMSTAD. I do not mean to put you on the spot or anything

but I will yield back to my Chairman.

Thank you.

Chairman CRANE. Mr. Levin.

Mr. LEVIN. Thank you, Mr. Chairman.

I appreciate the chance to participate in this hearing. The main

focus of it, as scheduled, was on the information technology agreement. So, I do not want to veer too much from that. But, you know,

it is has been interesting to hear the discussion between a number

of members and Mr. Lang about agriculture and about the attitude

of many within the agricultural community about the impact of

fast track and there has also been reference here to the need for

pragmatism.

I would just suggest that we take to heart those comments and

that we be willing to apply them to other sectors of the American

economy including the industrial and the service sectors. Because

I think one of the problems with fast track has been this. There

was an effort early on in this hearing to shift the onus to the administration and say the President of Chile is coming and if the administration had acted more quickly we would have had a fast

track agreement. But I do not think, as evidenced by the comments

on agriculture, that is really a fair comment.

There are some complexities to the proposal to renew fast track.

And I think there has been some inflexibility about, for example,

the ability of the administration to talk about environmental and

so-called labor issues. And I think if the agricultural sector is asking for some pragmatism and some attention to the complexities of

fast track relating to agriculture, there has to be the same willingness to provide the ability of an administration to negotiate on

issues that are relevant to the industrial sector and to the service

sector.

And I think one reason fast track is where it is today is because

there has been some inflexibility on those issues relating to the environment and labor.

And, so, I think this hearing has been important in showing the

need for openmindedness and setting aside inflexibility on those

issues. So, I simply wanted to say that to you. We are looking forward to a proposal from the administration on fast track but if it

is going to go anywhere there is going to have to be a willingness

on the part of people on both sides of the aisle in this institution,

in the Congress, to provide the same kind of flexibility to the administration that some have asked for in the agricultural sector.

Thank you, Mr. Chairman.

Chairman CRANE. Mr. Watkins.

Mr. WATKINS. Thank you, Mr. Chairman.

37

I would like to say a special thanks to you and the Members of

the Committee for allowing me to come by and participate in this

particular outstanding Subcommittee of Ways and Means, the

Trade Subcommittee. So, I want to say thanks to you and the entire Committee.

Chairman CRANE. You are welcome.

Mr. WATKINS. Mr. Lang, I am pleased with the progress that has

been made on several fronts, especially the World Telecommunications Agreement at the Singapore Ministerial Conference. I think

you should be commended.

I have watched with great interest on numerous fronts what has

transpired in our dealings with the WTO and also our role in the

United States.

But, Mr. Lang, I do have a real concern pertaining to agricultural issues. I think that Congressman Nussle here and others

have brought that to your attention on a more general front. I have

a real concern, specifically about our lack of progress in getting the

European Union’s ban on hormone treated beef lifted. It has been

in effect for more than 8 years or longer, and has cost our producers hundreds of millions of dollars.

There have been numerous scientific studies over the last number of years by the EU, as well as the United States, that these

hormones are safe. I have a chronological listing of every step that

has been taken in this case, dating back into the eighties. I submit

to you these are nothing but stalling tactics. I think the latest

study, which confirmed the safety of the hormones, was released in

December 1995. This was 14 months ago and still nothing has happened. The ban is still in place.

And it is my belief that this proves we are up against people who

are violating their agreements. This ban is unmerited and basically

illegal.

Now, I hope we can see some actions taken to move this matter

forward. So, I would like to ask the USTR’s Office, what it feels

might be achieved in getting this ban lifted, and maybe installing

a longer term mechanism into place that might prevent this from

happening again with the WTO.

There are some real questions concerning the WTO, about

whether or not it is working against us here. Could you bring us

up to date on the latest meeting concerning this on February 17,

1997. They met on this case and they are planning to have a report

April 1. Could you enlighten me?

Mr. LANG. Yes, sir.

This has been a continuing problem with Europe. Your position

is exactly the same as ours, that it is inconsistent with their trade

agreement obligations. Now, originally what we did was to just retaliate against them. Forget about the GATT or whatever it was

and just take an offsetting action.

Unfortunately, that did not move them. They continued to keep

the ban in place. So, we have now taken this matter to the WTO

dispute settlement system. We started out on that late last fall. We

have now submitted our briefs. Earlier this week, as you mentioned, or maybe late last week—I forget when it was—the team

of experts that had been appointed by the dispute settlement panel

38

to advise them on the sound science about this thing reported subject to questions by us, by them.

As your question indicates, even European scientists have said

that these six hormones are completely harmless and have no adverse health effects. We are expecting that panel to report and we

would hope report favorably on whatever the deadline is. I would

hope it was sooner than April 1, but anyway by April 1.

Mr. WATKINS. I would hope you would keep the Committee and

my office up to date on this. Because you are going to be asking

for fast track authority and this has sure not been on a fast track

in getting a solution over the past 8 years. It has been delay after

delay after delay, illegal tactics. I know I am not only speaking for

Oklahoma, but a lot of the States in the southwest that are deeply

concerned about whether they can support fast track if we cannot

get something done to end such illegal tactics.

So, Mr. Lang, I hope you will try to do everything in your power,

the power of USTR, to try to get this ban lifted by April 1. Please

let us know where we might stand on this particular issue.

Mr. LANG. I will be glad to keep you advised and I will push with

everything I have got to get this resolved in a favorable way.

Mr. WATKINS. Mr. Chairman, I do thank you and the Subcommittee for allowing me to be here to discuss this issue.

Chairman CRANE. Mrs. Thurman.

Mrs. THURMAN. Thank you, Mr. Chairman.

And thank you, Mr. Matsui for inviting me today. I really appreciate this opportunity and also to let me participate.

Ambassador, it is nice to see you again.

Mr. LANG. Thanks.

Mrs. THURMAN. Ambassador, I guess you know that I actually

am surprised at this Committee because I did not realize there was

that much interest in agriculture. I love it. Because it is an area

that I am very concerned about with Florida and just coming off

of the Agriculture Committee certainly has made this an emphasis.

Prior to this meeting, I did talk with Florida and the Department

of Agriculture there to just get some sense of what some of their

concerns might be, particularly as it relates to some of our exports

and some of the problems that they are having and with the fact

that we are coming up, in 1991, to really look at the agricultural

agreements.

Just to maybe ask some questions, particularly as it relates to

phytosanitary measures. This seems to be an issue that has been

discussed and rediscussed and was supposed to have been taking

place in Canada in the agreement and then with NAFTA and has

just kind of been laid to the side.

And yet, for a State like Florida it is $150 million that we have

spent. And on the other side of it, it is actually causing us barriers

of not being able to get into places like Korea, Sweden, Mexico and

areas of that. Can you give me some indication of whether there

is discussion going on in this area or if this might be included?

Mr. LANG. It absolutely is. Sanitary and phytosanitary measures

were the subject of a special standards agreement in the Uruguay

round. Essentially the idea of that agreement is to prevent the use

of these measures as a disguised barrier to trade but still allow us

to determine the risks we are going to take. So, that means any

39

country can choose any risk level they want for something that is

going into the food supply. But then they must take measures with

respect to that risk level that is based on sound science.

Now, we have had a lot of concerns, as you indicate, in a lot of

countries about the application of this agreement. In Europe, it affects biotechnology products, principally. In Asia, it tends to affect

pharmacological issues, such as pesticides, Alar in apples and that

kind of thing.

In Asia, we tend to be able, it seems, to work these problems out

through consultations and negotiation. In Europe we have more

difficulty, although so far after a lot of struggling and hand wringing we have gotten most of these biotechnological products in, BT

corn, the round-up ready soybean and so on.

It continues to be a very important area especially in light of the

almost worldwide consumer concern about what is in our food supply. And we are very careful about those things, of course, in the

United States and we need to be able to continue to be careful and

choose our own risk levels on a completely sovereign basis. But we

are able to do that on the basis of sound science. We need to hold

our trading partners to that standard. We are trying very hard to

do that. If you have got specific problems or the Florida people do,

I would encourage them to get in touch with us as soon as possible

and we will try to address them.

Mrs. THURMAN. So, you believe that we are challenging them on

those areas where we have the science?

Mr. LANG. Yes, and if there is one we are missing, I need to

know about it. I mean we do not increase by 20 percent 1 year and

14 percent another year our agricultural exports without somebody

opening their market somewhere. That is a success story in agriculture. We need to keep saying that and in these places where the

system is not delivering what was promised, we need to know

about those cases and take them forward urgently.

Mrs. THURMAN. Actually I think we would have probably a better

number than the $60 billion if some of these other areas were

taken care of.

So, I certainly will bring these to your attention and make sure

that the Department of Agriculture in Florida has that opportunity

to discuss these with you.

Mr. LANG. Great, I appreciate it.

Mrs. THURMAN. Thank you very much for being here.

Mr. LANG. Thanks for your help.

Chairman CRANE. And I want to thank you also, Ambassador

Lang, for coming to testify this morning and give Charlene our

best. We look forward to her appearance in a couple of weeks, and

we look forward to working with you, too, to continue to advance

our bipartisan trade agenda.

Mr. LANG. Thank you, sir.

Chairman CRANE. Thank you.

Our next witness will be JayEtta Hecker, Associate Director for

International Relations and Trade Issues at the U.S. General Accounting Office.

Welcome, Ms. Hecker and let me remind you, as I did the Ambassador earlier, if you could try and keep your presentation to 5

40

minutes, any other written testimony will be made a part of the

permanent record.

You may proceed as you will.

STATEMENT OF JAYETTA Z. HECKER, ASSOCIATE DIRECTOR,

INTERNATIONAL RELATIONS AND TRADE ISSUES, NATIONAL

SECURITY AND INTERNATIONAL AFFAIRS DIVISION, U.S.

GENERAL ACCOUNTING OFFICE

Ms. HECKER. Thank you, Mr. Chairman.

Mr. Chairman and Members of the Committee, I am really very

pleased to be here today, to share GAO’s observations on the results of the first Ministerial of the WTO. Today, we will focus on

three areas: the new liberalization that occurred, the progress and

continuing commitment to the implementation of the Uruguay

round as well as the built-in agenda and, finally, an overview of

some actions on the new issues.

Before I begin, I would like to acknowledge the hard work and

dedicated GAO staff, who have supported me in this review. Obviously, we could not speak to the scope of these issues without their

hard work, Adam Cowles, Anthony Moran, Carolyn BlackBagdoyan and others.

To give you the highlights, the short version really is that, there

was some notable and significant progress in new liberalization.

There was a real continued commitment—no backsliding—to the

substantial commitments that were reached at the Uruguay round.

There was actually progress, as Ambassador Lang noted, on some

of the built-in agenda by taking advantage of the members and the

Ministers being brought together, particularly on basic telecom.

There was some action in each of the areas of what is seen as the

next generation of issues.

So, there really was some movement in each area and, in that

sense, a lot of people have called Singapore a success. We think it

really is necessary to look behind all that and take a deeper look

at each of those issues. I will do that in a very short version.

On liberalization, I think what is important is, that the ITA was

not on the agenda. This makes it even more notable that with what

really was a private initiative, the United States and other countries moved to force it. On the agenda, it was discussed at the

Quad and then it got more momentum at the APEC meetings. The

idea that a brandnew item, a new liberalization could be placed on

the agenda really brought to life the original concept that this Ministerial could bring together political leaders and could provide a

forum for continuing liberalization. So, I think that is really significant. This was not a built-in agenda item. There was not a deadline. There had been no commitment to negotiate in this area. So,

that makes this liberalization all the more significant.

Now, regarding the stock taking, what we did really, typical

GAO, was dig into the WTO committee reports. Really, that is the

nitty-gritty of where you see the progress, where you see the monitoring, where you see the assessment of progress. Now, it is tough

reading, because those are definitely negotiated documents. It is

not the kind of material that you pick up and you say, ‘‘OK, so that

is what is going on in agriculture or SPS or any other given issue.’’

We went through those reports basically.

41

In general, people were concluding, Ministers were concluding

that implementation was good ‘‘generally satisfactory’’ is the word

that they used. But a couple of areas were noted. I talked about

this before, before this Committee.

Notifications are not satisfactory. The countries are not really

submitting the required details of their implementation plans

about law changes to the WTO committees. That fundamentally

can impair the oversight process.

On the built-in agenda, as I said, there was progress on telecom,

which was important. Because there had been concern that deadlines passed in each of these areas, there was some question about

the viability of sector-specific negotiations. This recent success really is testimony that this is a viable option.

The new issues were diverse, from government procurement

transparency, investment, labor, environment, and competition policy. If I could take just another minute, I will highlight the results

very quickly.

In procurement, there was a promising result, which is important to the United States because we really have not had a lot of

results from the strategy that was being followed in procurement.

This is a new approach, not an all-or-nothing approach, but an approach that allows countries to have some moderate contribution

by opening and providing more transparency in their procurement.

The second and third areas are investment and competition.

There are, as Ambassador Lang said, new working groups—but

with very modest work programs and absolutely no consensus on

any future commitment to negotiate. So, even though there is some

sense that these areas do represent new barriers, there are limited

prospects for major progress in those new groups with a lack of

consensus on their scope of debate and general scope of work.

I think that is also reflected in the environment committee where

there was very limited progress. Unfortunately, all the Ministerial

did was, basically, renew the charter of that committee to work

under the same terms of reference. There was no review why they

had made no progress and why they had not been able to come to

any conclusions. They just said, ‘‘keep working under the same

terms of reference.’’

Finally, in the labor area, it really was a modest result, if anything. The Ministers’ recognition of core labor standards intrigues

us because we are not able to find anyone who has defined core

labor standards. Congress has in different laws, had different definitions. The ILO does not have one definition. There are 174 conventions that the ILO has that set different labor standards. Our

concern is that, this result is not as promising and fruitful as it

sounds—although the ILO took from this outcome a renewed commitment to deepen and broaden their own effort in this area.

That concludes my summary, Mr. Chairman.

Chairman CRANE. Thank you, Ms. Hecker.

What steps do you think should be taken to assure that an appropriate assessment of notifications and implementation obligations are being made within the WTO?

Ms. HECKER. Mr. Chairman, I think that something actually is

occurring in every committee. They know when there are not notifications being made. There is a working group within the WTO that

42

is working on giving consolidated report cards to countries saying,

‘‘OK, you owe us these 22 notifications.’’ There is even an effort,

particularly with the least developed countries, to give them more

help, saying. ‘‘Well, here is what we need from you on this one and

here is what we need on that one’’ and also providing some technical assistance to support countries doing that.

So, I think procedurally, there are definite efforts to stay on top

of what countries have not notified and to work with them to complete that process.

[The prepared statement follows:]

43

44

45

46

47

48

49

50

51

52

53

54

55

Chairman CRANE. What do you believe are the best vehicles for

progress within the WTO? For example, another Ministerial Meeting or higher level meetings or the launching of a new round, what

in your opinion is the best way to go?

Ms. HECKER. Well, you know, the Ministerial was an interesting

process to observe. I know you were there. Actually, the Ministers’

meeting was in a room that was as big as a football field. So, I am

not sure that the actual gathering of Ministers in one room is

where meaningful progress takes place.

Actually, I would turn it around to a topic that has been discussed here today. I think fast track and the negotiation of this

Committee, and the rest of the Congress, to reach agreement with

the administration of what our trade agenda should be will play a

big role in giving renewed focus and direction to the administration’s efforts. I think frankly that, absent fast track, they clearly

do not have a mandate. As to and whether it is a Ministerial, or

56

a new Round, or sessions in Geneva, I think that mandate is one

of the key factors to further direction and progress.

Chairman CRANE. Thank you. Mr. Matsui.

Mr. MATSUI. I have no questions, Mr. Chairman.

Chairman CRANE. Mr. Nussle.

[No response.]

Chairman CRANE. Mr. McDermott? He is not with us.

Mr. Jefferson.

Mr. JEFFERSON. Thank you, Mr. Chairman.

I want to ask a question about this notification. How serious an

issue is that in the overall process, where you find deficiencies?

Ms. HECKER. It is a serious process, because the basic, underlying element of compliance is the transparency of countries reporting what they are doing to implement their obligations. So, the

substance of it is important. But, also understanding and flexibility

and support for developing countries for whom this burden is quite

substantial is similarly important. That is why this working group

has been set up and procedures are being worked on to try and facilitate that process for developing countries.

Mr. JEFFERSON. Well, have you made any suggestions as to how

this can be dealt with from your point of view? I know this suggest

‘‘working group’’ is set up to look at it, but what do you think

should be done in this area, if you can come up with any suggestions?

Ms. HECKER. We have not evaluated it in detail. This is one of

a number of issues that we have concerns about, but that would

be something that we would have to look at in greater detail to

evaluate how effective this new working group is, and whether it

is really taking effective measures.

Mr. JEFFERSON. Don’t you think the major problem is the burden

it places on individual developing countries to comply with notification requirements as opposed to simply not living up to the—not

taking the requirements seriously enough to live up to them?

Ms. HECKER. I think it may be a little bit of both. I think the

burden, without any doubt, is far greater than anyone anticipated.

A lot of these agreements were negotiated separately, by separate

negotiators. I think at the end of the day, no one had any idea that

there were over 200 notification requirements that were in place by

countries. It took a lot of work to even get an overview pulled together. So, I think there was a breadth to it that no one anticipated, but I think there have been issues of noncompliance as well

that may be associated with the late reporting. There have been a

number of WTO reports about countries requesting waivers and

other actions that are really delaying effective implementation.

Mr. JEFFERSON. What timeline do you see for this Committee to

do its work?

Ms. HECKER. I do not have the information on that. I could provide it for the record.

Chairman CRANE. Mr. Houghton.

[No response].

Chairman CRANE. Mr. Herger.

[No response].

Chairman CRANE. Mr. Neal.

[No response].

57

Chairman CRANE. Well, we want to thank you, Ms. Hecker, for

your testimony.

We will now convene our panel made up of company representatives from various sectors of the information technology industry,

to discuss the information technology agreement that was endorsed

at the Singapore Ministerial Meeting.

The panel is made up of Aaron Cross, public policy director of

IBM in Washington, DC, who serves as chairman of the Information Technology Agreement Coalition and chairman of the International Committee of the Information Technology Industry Council. Second, Timothy Regan, division vice president and director of

public policy at Corning; John Boidock, vice president and director

of government relations at Texas Instruments and chairman of the

government affairs committee of the Semiconductor Industry Association; Donald Poinsette, vice president for Asia, at Kemet Electronics and James Kaplan, Jr., vice president of the Cornell

Dubilier Co., both here on behalf of the Passive Electronics Coalition; and, finally, Kevin Rafferty, senior marketing manager of

Philips Components, a division of the Philips Electronics North

America Corp.

Gentlemen, I would remind you, probably unnecessarily that, any

printed statements you have will be made a part of the permanent

record, but please try and confine your oral presentation to 5 minutes or less. We will proceed in the order in which I introduced

you.

STATEMENT OF AARON W. CROSS, PUBLIC POLICY DIRECTOR,

IBM; CHAIRMAN, INFORMATION TECHNOLOGY AGREEMENT

COALITION AND CHAIRMAN, INTERNATIONAL COMMITTEE,

INFORMATION TECHNOLOGY INDUSTRY COUNCIL

Mr. CROSS. Thank you, Mr. Chairman. I am Aaron Cross, public

policy director in IBM’s Governmental Programs Office in Washington, DC. Today, I appear on behalf of the Information Technology

Industry Council where I chair ITA’s International Committee. I

also chair the ITA Coalition. It was also my privilege to be a member of the U.S. delegation at the Singapore WTO Ministerial Meeting.

The ITA breaks new ground with significant implications for U.S.

trade policy. This was one of the most successful negotiations in

U.S. trade history. We should consider the precedent set by the

ITA, because the United States stands much to gain if we can learn

from its innovations.

First the ITA departs from the world’s traditional approach to

trade talks. Very importantly, it places the focus of trade negotiations where it rightly belongs, on meeting the needs of consumers

and not on balancing trade concessions among product sectors.

Next, the ITA points to the importance of having the right people

in office, for insuring that the United States is represented by the

most highly qualified people possible.

In delivering the ITA and the recent global basic telecommunications agreement, Ambassador Barshefsky has proven the case for

her confirmation as U.S. Trade Representative. Third, the WTO

proved itself to be a worthy and more flexible organization that its

58

predecessor, the GATT. The ITA might have been negotiated under

the GATT, but it would have probably taken another GATT round.

The ITA also serves as a model of industry-government cooperation on trade issues. The USTR worked closely with our coalition

throughout the entire process. This was augmented by the industry

advisory system authorized by U.S. law. Clearly, such communications vehicles give our negotiators a significant leg up during trade

talks by having them so well prepared.

Fifth, we can expect more such negotiations in the future and we

need your support. In October, European Commission Vice President Sir Leon Brittan, started talking about the ITA formula, saying he expects more such industry-led initiatives soon. Indeed, he

said he would promote them. In light of this, we reiterate our

strongest support for expanding USTR’s negotiating authority

through fast track this year. We need this negotiating authority because we are already planning for ITA II. These are negotiations

provided for in the agreement which will cover additional and new

nontariff elimination measures.

We are looking forward to using these new talks to promote further liberalization in global IT trade and investment.

Mr. Chairman, our enthusiasm obviously stems from what the

ITA means for the future of our industry. The tariffs savings will

be substantial, but that is only a small piece of a much larger picture. Throughout the negotiations, we focused on one message; that

this is a global initiative aimed at putting the power of information

technology in the hands of the users of the global information infrastructure or GII, what many call the information superhighway.

While much of our focus was on the Quad countries, we knew that

we could turn a good agreement into a landmark initiative if we

could get non-Quad countries to join.

The tariff rates in many of these countries are quite high. A

number of them, most of them are developing or advanced developing economies, now understand that leveling the global playingfield

for users in terms of access to IT products is essential to their economic growth. In short, the ITA will narrow the gaps between the

world’s information haves and have-nots.

Beyond these immediate benefits, the ITA will have a broader

beneficial impact on our corporate performance in American trade

policy. My written statement elaborates on some of these.

Staff has asked me to address the product coverage under the

agreement, particularly regarding capacitors.

As we built our coalition, we had in mind an agreement that

would cover computer hardware and software, semiconductors,

semiconductor manufacturing and test equipment, telecommunications products and other high technology instruments. From the

start, we established a process to evaluate requests for including

other products. We had only one guideline. For a product to be included on our recommended list, we had to have a consensus

among the coalition members.

Very early in our work, two of our member associations told us

that several of their member companies opposed including capacitors. They also reported, however, that a number of their other

members wanted these components to be included. These opposing

59

views led us to a neutral position on including capacitors and we

informed the USTR of that position.

As you know, in the final outcome, capacitors and other passive

components were included. Our coalition regrets it some, but not

all capacitor companies are unhappy with the agreement. My own

company and virtually every other coalition member company regard these firms as valued suppliers. All of us need a vital, global

passive components industry.

In conclusion, Mr. Chairman, the ITA is a landmark agreement.

It is a model for how industry and government can work cooperatively to achieve common goals. The basic aim of these negotiations

were exceeding in almost every respect. That aim, to significantly

enhance the degree to which the benefits of the GII will be made

available quickly and less expensively to IT users worldwide.

We note in closing that, by the year 2000, the global IT industry

will be the world’s largest. The ITA will help to make this happen.

We are pleased to have been invited to testify today. We appreciate Mr. Crane’s and Mr. Matsui’s initial opening remarks this

morning endorsing the ITA. We look forward to working with you

and the Subcommittee to make the ITA a success and a reality.

Thank you.

[The prepared statement follows:]

60

61

62

63

64

65

Chairman CRANE. Thanks, Mr. Cross, very much.

Mr. Regan.

STATEMENT OF TIMOTHY J. REGAN, DIVISION VICE PRESIDENT AND DIRECTOR OF PUBLIC POLICY, CORNING, INC.,

CORNING, NY

Mr. REGAN. Mr. Chairman, thank you for the opportunity to appear here. I want to talk about a unique situation, a little different

than that others might talk about.

As is the case with most negotiations, this one involved give and

take. They always do. Unfortunately, Corning and the industries

66

we are involved with, the fiber optics industry and the television

industries, were on the give side of that ‘‘give and take’’ equation.

The European Community wanted some major concessions from

the United States which would have hurt both of these industries

and there was not going to be anything in the agreement that was

going to offset the pain.

Now, of course, Corning, being a leader in these industries resisted and, as a result, we became a bit controversial. That is why

I am here today.

Fortunately, with the help of Members of this Committee, in particular, Mr. Rangel, Mr. McNulty, Mr. Neal, Mr. Houghton, yourself as well as Mrs. Thurmond, we were able to work with USTR

to find some solutions. USTR was openminded. They allowed us to

work with them and figure out a way to come up with some solutions that worked for them and for our trading partners, but at the

same time, did not sacrifice our fundamental interests.

In the final analysis, USTR established a good process and a

good process always results in a good outcome.

Now, before I get into the details, what I want to do is show you

some props. This is a copper cable. It has 400 wires in it, 200 copper pair. This little piece of fiber, which you cannot even see, has

the information carrying capacity, using relatively inexpensive, off

the shelf electronics, as 48 of these. Now, if you want to do really

sophisticated electronics that is available off the shelf today, this

little fiber here can do the work of 781 of these. If you want to use

the advanced technology that we have tested in the lab, this little

fiber can do the work of 6,400 of these.

Now, this is a great technology and it was invented in this country. Unfortunately, the ITA negotiations were headed toward undermining the ability to be able to make fiber optics here in this

country. Thankfully, we were able to get into the ITA process early

enough and to get some changes.

Specifically we told USTR not to put this product on the table.

We said do not put optical fiber, optical, cable optical couplers on

the table. They said: Why? We are the best in the world in these

areas. We are the world’s leaders. We ought to put them on the

table.

The response really is quite simple. The ITA was exporting designed to deal with tariffs. The problems we have exporting these

products overseas is nontariff barriers. So, any zero for zero tariff

deal is, by definition, imbalanced against us. We face nontariff barriers that must be dealt with and they could not be dealt with in

the context of the ITA.

So, USTR accepted our position. Unfortunately, the European

Community continued to press and they pressed very, very hard on

these issues. In the end, Ambassador Barshefsky was forced to

compromise or face the prospect that the ITA would not be successfully concluded. Now, she worked with us to find a compromise. In

the end, she agreed to cut the tariff on fiber optic cable to zero by

the year and to exclude optical fiber and optical components from

any tariff cuts whatsoever.

More importantly, she said, OK, guys. You have a problem in export markets. I am going to help you. I am going to help you tear

down those nontariff barriers to your exports, outside of the context

67

of the ITA, bilaterally. I will use other tools to make sure that we

can push these products overseas.

So, from our perspective, this was a good result. We are working

closely with her right now to implement a plan that will aggressively promote export of this very, very important technology and

make sure it is made here and not over overseas.

The other issue is televisions. Now, televisions are a different situation all together. It is related to fiber optics only in the sense

that Corning also makes glass for televisions as we do fiber optics.

The television industry is one which really has had a terrible

saga, a saga of dumping and of unfair trade that spans 20 years.

Realizing this USTR wanted to exclude the TV products from the

ITA and we applauded that decision. Unfortunately, a big issue

arose over the definition of a monitor. Normally that would not be

a big deal, but in this case, it was controversial because there is

a technological change occurring in the marketplace.

This is fundamentally rooted in the fact that distinction between

a television (and related video monitor) and a computer and (related computer monitor) is being blurred by technological change. The

two are beginning to merge. We call this convergence.

In the past, a television had a big screen and relatively poor resolution and a computer monitor had a small screen and very good

resolution. That is changing. HDTV, for example, and standard digital television now are going to have higher resolution with picture

quality that approximates 35 millimeter film. On the other side,

computers are going to get larger screens and broadcast video capabilities. So, the distinguishing factors will be eliminated. Yet, we

still had to come up with a definition for a monitor.

We worked very hard to work up one, but we encountered all

kinds of problems. The computer industry and television industry

worked together to find a solution. We could not work it out. USTR

took the lead and came up with a compromise. That compromise

defined a computer monitor by three primary characteristics. Number one, it has a dot pitch of below 0.4, a technical term for resolution. Number two, it has used cathode ray tube technology. Number three and most importantly—and this wording is kind of carefully done—it must not be capable of receiving and processing television signals without the assistance of a computer.

Now, in addition, USTR said we are going to revisit this definition in 2 years. So, that gives us some time to work this thing out.

We will have some more market data. We will be able to make a

decision about modifying this. We frankly wanted to have a resolution definition below what USTR proposed, but we understand why

USTR had to accept this definition and why USTR had to close the

deal.

We are going to work very hard over the next 2 years monitoring

the market. If we find monitors coming into the United States that

are principally used as televisions, we anticipate that USTR will be

quick to act to make sure that the duties are properly assessed.

Thank you, Mr. Chairman and thank you everybody in this Committee for all your help throughout this rather difficult process.

[The prepared statement follows:]

68

69

70

71

72

Chairman CRANE. Thank you very much, Mr. Regan.

Mr. Boidock.

STATEMENT OF JOHN BOIDOCK, VICE PRESIDENT AND DIRECTOR, GOVERNMENT RELATIONS, TEXAS INSTRUMENTS, INC.;

AND CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE, SEMICONDUCTOR INDUSTRY ASSOCIATION

Mr. BOIDOCK. Thank you, Mr. Chairman. I appreciate this opportunity to present the views of the Semiconductor Industry Association on the Information Technology Agreement.

The members of our association along with our customers and

our suppliers believe that the ITA will substantially open foreign

markets. We believe it is a major accomplishment for the whole

world trading system. By signing on, countries have agreed to

eliminate their tariffs on information technology products by the

year 2000. This is something that our industry has been working

on for over a decade.

Semiconductors are increasingly a pervasive part of everyday

life. They are the enabling technology for the information age and

the Internet. They have enhanced the functioning of such diverse

products as the family car, advanced medical equipment and modern defense systems. We in the semiconductor industry employ

250,000 people throughout the United States. We are the technology behind the nearly $400 billion U.S. electronics industry,

which employs two and a half million people.

We are currently the world market share leader with 1996 world

sales reaching $60 billion, which represents 46 percent of the

world’s semiconductor market. We are a global industry. Roughly

half of our revenues are derived from overseas sales. As a consequence, we have dedicated ourselves since the inception of the

Semiconductor Industry Association to promoting free trade and

opening world markets and we have made much progress, especially in Japan.

We have not always been the world leader, however. In the

mideighties, we lost the lead due to a combination of Japanese

dumping of semiconductors on the world market and nontariff barriers in Japan, which I might add is the second largest market for

semiconductors. During that period, concerns about the continued

existence of our industry in the United States were voiced by

many, both in and out of government, because of the significant implications that its demise would have for our Nation’s security.

The industry’s response to this problem was a several part strategy, which included, first, the elimination of tariffs on semiconductors and related products throughout the world, including here in

the United States. At our urging, the United States, Canada and

Japan eliminated their tariffs on semiconductors in the

mideighties. As a result, our industry has had to compete on the

basis of quality, technology and cost in our home market for over

10 years, unprotected by tariff barriers.

Second, we worked to secure more equitable access for foreign

semiconductor suppliers in the Japanese market. We did this with

73

the help of the Office of the U.S. Trade Representative. As you

know, Mr. Chairman, the United States recently secured the third

United States-Japan semiconductor trade agreement, thanks to the

tireless efforts of Ambassador Barshefsky and her highly dedicated

staff.

As a result of these and other efforts, the U.S. semiconductor industry has regained the world leadership position and we remain

the most competitive semiconductor producers in the world. Today,

the SIA along with our suppliers in the semiconductor manufacturing equipment industry and our customers in the information technology business are pushing for other nations to eliminate their

tariffs on information technology products through the Information

Technology Agreement.

Currently many nations of Asia as well as the European Union

maintain duties on semiconductors. For example, EU duties on

semiconductors range up to 7 percent. Elimination of these duties

will save U.S. semiconductor makers and our European customers

$1.4 billion between now and the end of the century. The benefits

do not end there. Consumers and businesses that utilize information technology products worldwide will also gain.

The ITA, by lowering the costs of access to computers and software, has the potential to increase educational opportunities for

children throughout the world, and by making computers and telecommunications equipment more affordable for small businesses,

productivity will rise. This agreement truly provides a win-win scenario for all nations choosing to participate.

Mr. Chairman, thank you very much for the opportunity to

present the views of the semiconductor industry.

[The prepared statement follows:]

74

75

76

77

Chairman CRANE. Thank you very much, Mr. Boidock.

Mr. Poinsette and Mr. Kaplan, I think you are sharing the time;

is that right?

Mr. POINSETTE. Excuse me, sir?

Chairman CRANE. I think you are sharing your time, the 5

minute time; is that right?

Mr. POINSETTE. That is correct.

Chairman CRANE. Go right ahead, please.

78

STATEMENT OF DON POINSETTE, VICE PRESIDENT, KEMET

ELECTRONICS CORP., GREENVILLE, SOUTH CAROLINA; AND

JAMES KAPLAN, JR., VICE PRESIDENT, CORNELL DUBILIER,

LIBERTY, SOUTH CAROLINA, ON BEHALF OF THE PASSIVE

ELECTRONICS COALITION

Mr. POINSETTE. Mr. Chairman and Members of the Subcommittee on Trade, my name is Don Poinsette, vice president of Kemet

Corp., located in Greenville, South Carolina, with facilities also in

North Carolina and Texas. Sitting to my left and also testifying

today is James Kaplan, Jr., vice president of Cornell Dubilier. Also

with us today but not at the witness table are my colleague, James

Jerozal, chief financial officer of Kemet, Mike Ritter, national sales

manager of Industrial Midwec Corp., which is in the Chairman’s

congressional district, Joe Bstandig, communications manager for

Vishay Intertechnologies, with facilities in 14 States and Les Glick

of the law firm of Porter, Wright, Morris and Arthur here in Washington. We represent the newly formed Passive Electronics Coalition that includes many companies producing capacitors and resistors in

18 different States and 25 congressional districts. We share a commonality of interests in preserving our companies, preserving our

technologies and protecting the more than 20,000 jobs threatened

by this information technology agreement. A complete list of these

companies is in the written statement filed on Monday and we request that it be included in full in the hearing record. Mr. Chairman, I will begin by saying that, the word passive in our name should not mislead you. The word defines our products

but not our members. Mr. Chairman, we are a very angry and extremely motivated group, due to what we consider has been a grave

injustice, perpetrated on us, on our industry and perhaps, even on

the very security of these United States themselves by the U.S.

Trade Representative in negotiating the ITA.

That negotiation took place without a single consultation with

any company in our part of the electronics industry. It took place

without regard for the Federal statutes which require that consultation. It took place in spite of two letters sent by Senator Strom

Thurmond in May and December of last year, neither of which

were even acknowledged by the USTR.

I digress here just a minute. He did in fact bring it to the attention of the USTR at that time, that there was a defense issue involved, counter to what Mr. Lang said this morning.

It took place in spite of several repeated assurances by the USTR

itself that capacitors were not included in the agreement. The latest of these assurances was made when the USTR was meeting

with other country representatives in the far away reaches of

Singapore, far from the communications channels in Washington.

Once again, both we and our attorneys were told that capacitors

were not included. Then in the December 11 issue of the ‘‘New

York Times’’ we were stunned to read that capacitors were in the

ITA.

Mr. Chairman, by definition, successful negotiations are supposed to result in win-win situations for the parties involved. In

this ITA, as far as passive electronic components are concerned, it

is all win-win for everyone outside the United States and is totally

79

lose-lose for the American companies inside the United States. The

Europeans win. The Koreans win and even Iceland can win if they

want to. The big winner, one more time, is the Japanese. The Japanese give up absolutely nothing—I repeat—absolutely nothing in

order to get these huge concessions. This is because their tariff is

already zero. They use a complex system of nontariff barriers in Japan which make it impossible for our companies to sell there. So, what do we

get in the ITA as it is currently written? In a word, we get had,

to wit, number one, the Japanese finally get that which they have

wanted for a very long time, totally duty-free access to an already

open and competitive market in the USA. Number two, American

companies get no additional access to the totally closed Japanese

markets since duties have never been an issue there.

Number three, while we are told that Europe has been insisting on the inclusion of passive devices in the ITA, we know for a fact

that the EU has been heavily influenced by Japanese companies already located there. Number four, true, we get a reduction of duties

such as Australia, Canada and Norway. It is also true that such

reductions make absolutely no difference to any of us in this room. Number five—and this may be the single most important point of all. Our own USTR has handed to the other countries, again,

most notably to the Japanese, a 9.4-percent reduction in their cost

of doing business in the USA. Mr. Chairman, I assure you and

other Members of your Committee that a near 10-percent reduction

of costs in this already extremely competitive and low margin business can only be compared to a gift from God. Finally, as if protecting American companies, technologies and 20,000 jobs was not sufficient, we would respectfully draw your attention to the national security. I would like to quote from a decision brief prepared by the Center for Security Policy directed by a

former deputy Secretary of Defense, dated February 7, 1997. The

article was entitled: ‘‘Hold Everything, Barshefsky’s New Infotech

Trade Deal Promotes Trade at Expense of U.S. Security Interests.’’ The article notes that, and I quote: ‘‘Should the United States

lose the one or two American companies still available to supply capacitors and resistors required for such systems, military readiness

could be materially degraded.’’ The newsletter goes on to say:

And this is no abstract proposition. In Operation Desert Shield/Desert Storm, U.S.

officials were alarmed to discover that dependency on foreign suppliers for spare

parts or replacement components of vital weapons systems could translate into unacceptable shortfalls in defense capacities and/or serious strains in relations with allied nations. For example, Washington had to ask the Japanese government for supplies of display screens for U.S. weapons systems that were not available for U.S.

manufacturers.

Mr. Chairman, we have raised these concerns with the Armed

Services Committee in both Houses and hopefully you and Acting

Trade Representative Barshefsky will be hearing from them soon.

Gentlemen, the simple fact is, not a single integrated circuit, not

a single microprocessor will work without having many of our type

of products alongside it. Our best estimates are, today, on average,

every integrated circuit has five Tantalum capacitors, 100 ceramic

capacitors and an equal number of resistors arrayed around it. Not

only does that allow your television to work, your VCR to work, the

engine in your car to run, the security system in your house to

80

work, but it also permits the Patriot missile to work. It permits

Trident to work. It permits TOW antitank systems to work and it

permits our space shuttles to make their way back and forth.

Kemet Corp. and Vishay are the two lone surviving American

companies manufacturing these two capacitor products. The rest of

the world is supplied, for all practical purpose, by the Japanese.

Except for the presence and continued success of these two American companies, Japan can control the world markets of Europe,

South Africa, South America, Asia, China, NAFTA and, of course,

Japan itself. If our government, this time the USTR, persists in destroying every competitive advantage we might have in the United

States then all we can look forward to is being held hostage by foreign suppliers and/or to foreign manufacturing operations.

Chairman CRANE. Well, Mr. Poinsette, are you about to finish

up?

Mr. POINSETTE. Yes, just if I may——

Chairman CRANE. We are in a bit of a time bind here.

Mr. POINSETTE. Thank you, Mr. Chairman, if I might have 2

more minutes, please.

Chairman CRANE. Well, I will tell you, we have to go and vote.

Mr. POINSETTE. OK.

Chairman CRANE. If you could sort of wrap it up in about 30 seconds, I would appreciate that.

Mr. POINSETTE. I will do that.

Chairman CRANE. Then I have sort of an announcement to make.

Mr. POINSETTE. I will do it. Thank you, sir.

It should be clear then that these products are not—repeat—not

related in any way to information technology. They do not store or

transmit information. They do not belong in the Information Technology Agreement.

So, what does our coalition want? Do we ask that the ITA be destroyed?

No, but what we do ask is that you and your Committee with all

urgency insist that the USTR remove passive components from this

agreement. Our best estimates are that these components make up

less than 1 percent of the value of the agreement. Now, I think it

is much less from what I heard earlier. It cannot possibly harm the

agreement to have them removed. Please help us preserve our companies, our jobs and our very ability to compete. We ask you to

please not be a party to giving away another vital industry to overseas interests.

Thank you, Mr. Chairman.

[The prepared statement and attachments follow:]

81

82

83

84

85

86

87

88

89

90

Chairman CRANE. Thank you very much, Mr. Poinsette. I am

sorry we did not hear from you, Mr. Kaplan.

Gentlemen, we have got to go and vote and there are going to

be three votes between now and 12:30. So, what I would suggest

because of other business, if you can, you come back at 1:30.

I am sorry, Mr. Rafferty, that we have not been able to hear your

testimony. We would like to do it at that point. Then we can ask

some questions. If you cannot stay here or come back, we would

perfectly understand. If you can, it would certainly help us. So, we

are adjourned until 1:30.

[Whereupon, at 12:02 p.m., the Subcommittee recessed, to reconvene at 1:30 p.m., the same day.]

Chairman CRANE. First, we want to apologize to our witnesses

for the disruption. I think Mr. Rafferty is the only one who has not

yet testified.

Mr. RAFFERTY. Correct.

Chairman CRANE. Will you proceed, please.

STATEMENT OF KEVIN RAFFERTY, SENIOR MARKETING MANAGER, PHILIPS COMPONENTS, PHILIPS ELECTRONICS

NORTH AMERICA CORP., JUPITER, FL

Mr. RAFFERTY. Thank you, Mr. Chairman. Good afternoon and

Members of the Subcommittee as well. I am Kevin Rafferty. I am

the senior marketing manager for capacitors for Philips Components.

Philips Components is an operating business of Philips Electronics North America Corp., which is in turn a subsidiary of PhilVerDate 11-SEP-98 11:46 Jan 06, 2000 Jkt 058930 PO 00000 Frm 00094 Fmt 6633 Sfmt 6602 D:58930 W&M3 PsN: W&M3
91

ips Electronics N.V., headquartered in Eindhoven, The Netherlands. Philips Electronics North America Corp. has more than 20

business operations in North America, employing 35,000 people. It

has more than $7 billion in annual sales in a variety of electronics

businesses, including semiconductors, consumer business electronics, lighting, consumer communications, electronic components,

security systems and information technology services.

Philips Components, headquartered in Jupiter, Florida, supplies

passive, magnetic and professional components to the electronics

market. Philips Components employs approximately 1,000 people

in locations in, again, Jupiter, Florida, Columbia, South Carolina,

Slatersville, Rhode Island and Saugerties, New York. We manufacture capacitors, resistors, magnetics, camera tubes and imaging

products. Our broad line of components serves the major electronic

original equipment manufacturer markets, including automotive,

telecommunications, computer and industrial.

I am here to testify today to support the Information Technology

Agreement or ITA, which was agreed to by the United States and

many other countries, as you know, at the World Trade Organization in Singapore last December and which will eliminate tariffs on

information technology products by the year 2000. In particular, I

am here to support the inclusion of capacitors in the ITA.

As a general matter, Philips supports the ITA because it is a free

trade company and believes that the elimination of tariffs on a

broad range of information technology products will profoundly

benefit high technology suppliers and the American economy generally. Philips chose to support the ITA despite the cost that such

support portends for our company. While Philips would stand to

gain from an ITA in terms of tariffs savings per year, the company

would also lose significant tariff protection presently applicable to

numerous products manufactured in the United States and elsewhere.

Despite such losses, Philips supported the ITA because it believes it is in the best interests of the company as well as the

United States and world economies to embrace such competitionforcing measures.

Today, I would like the record to emphasize that the decision to

include capacitors in the ITA is logical because of the capacitor’s

role in information technology products and their inclusion would

facilitate open markets that will stimulate the world economy. As

you may know, capacitors are electronic components that are storage devices for electric energy that are found in various applications within the electronics industry. There are many types of capacitors. Some form of capacitor is almost universally found in

hardware that supports information technology products.

Capacitors are found in information applications, such as, computer motherboards, disk drives, modems and cellular telephones.

Worldwide, Philips manufactures many different kinds of capacitors, such as, ceramic multilayer, film foil and aluminum electrolytic. We manufacture capacitors in the United States at our plant

in Columbia, South Carolina where we employ approximately 400

people. In South Carolina, we manufacture aluminum electrolytic

capacitors; production value is approximately $50 million per year.

We have invested substantially in all our U.S. locations in the past

92

2 years, upgrading our facilities so as to better serve our U.S. OEM

customers.

At present, capacitors are subject to approximately a 9 percent

tariff. Philips recognizes that it loses 9 percent tariff protection if

the ITA is ratified.

We have decided to support the inclusion of capacitors in the ITA

nonetheless for several reasons. First, given that capacitors are

found in hardware that support information technology products, it

seems only logical that they be included in the agreement. Second,

we believe our growth to be based on customer partnerships. Eliminating tariffs on capacitors and other components will allow our

U.S. customers, OEM manufacturers to be more competitive.

Finally, Philips believes that the inclusion of capacitors would

both allow the ITA to achieve its goal of providing access worldwide

to information technology, and force the competitive open markets

that are so necessary for the development of the global economy.

As a company, we are willing to take this competitive challenge.

In closing, Philips supports the ITA again and commends Acting

U.S. Trade Representative Charlene Barshefsky and her staff in

negotiating an agreement that will, through the inclusion of among

other electronics products, passive components such as capacitors,

enrich the American economy. Philips hopes that other companies

are also willing to accept competitive challenges and opportunities

that only an ITA can provide.

Mr. Chairman, we appreciate this opportunity to comment.

Thank you.

[The prepared statement follows:]

93

94

Chairman CRANE. Thank you, Mr. Rafferty.

Mr. Cross, you have described that two members of your coalition

are opposed to the inclusion of capacitors. Two questions. One,

could you describe the position of other capacitors within your coalition and how many are there?

Mr. CROSS. Well, Mr. Chairman, in my statement, I believe that

I said that, two of the member companies of two of our associations

that belong to the coalition expressed opposition to the inclusion of

capacitors. Besides Philips, we also have AVX, which is a major

company based—it is 75 percent Japanese-owned but its headquarters are in South Carolina. They have, I think, 4,000 employees down there. They are entirely U.S. managed and U.S. staffed.

They are listed specifically as a corporate member of our coalition.

In addition to that, Mr. Chairman, I would like to go back to one

of the things that I was trying to get across in my message. That

is, throughout the negotiation of the ITA, the central message that

we tried to carry forward—and I know the U.S. Trade Representative’s Office did the same—was that if this agreement was going

to succeed, first, we had to recognize that it was a nontraditional

trade negotiation where you were not going to get exact balance in

terms of tariff offers from the various countries involved.

We knew that, for example, as it was pointed out, Japan has virtually no tariffs on information technology products. The U.S. rates

were much lower than those of Europe. So, if you are going to be

looking for trading concessions or balancing concessions, you were

95

never going to win that argument in the first place. The key to the

success of the ITA was, therefore, not in terms of trying to look at

it from a product by product balancing effort, but to look at it from

the viewpoint of the users of the information technology products

that are covered under the ITA.

From that standpoint, as far as the capacitor issue goes, we have

a very broad and substantial number of members of the coalition.

I do not think I could give you an exact number right now—who

are the users of capacitor, who buy these capacitors and, therefore,

in terms of their own production costs would like to see those costs

come down. Therefore, they were very supportive of including capacitors under our proposal for ITA coverage.

We, however, because of the opposition of just two companies out

of a coalition that probably represents about 7,000 companies in

total, when you consider all the members of the associations, because of that opposition, we took no position on whether or not capacitors should be included under the ITA. Now, that it is done,

now that we have an agreement, our strong position despite this

concern about capacitors is, that we need to go ahead and get this

done.

There are 397, I believe, tariff line items that are included in the

ITA. The only organized opposition we have heard since then has

been expressed on one. Now, baseball batting averages, that comes

out to a 998 batting average and it is not bad.

So, we applaud Ambassador Barshefsky. We think that despite

this concern about capacitors, we regret that we have this problem,

but we would like to see it resolved.

Finally, just one point in passing that I would like to point out.

The representative that we had earlier talking about the capacitor issue had mentioned the lack of balance because of nontariff

barriers in Japan and elsewhere. That specifically is provided for

in terms of future negotiations under the second phase of the ITA.

We invite, as we did from the very beginning, we invite these companies to my left and any others who have concerns about nontariff

measures in terms of increased access and information technology,

to come and join with us as we prepare for ITA II.

Thank you.

Chairman CRANE. Thank you.

For Mr. Poinsette or Mr. Kaplan, does the elimination of tariffs

on inputs such as capacitors made in the United States in return

for tariff elimination on a broader range of products in the information technology industry help your customers buy more of your

products?

Mr. POINSETTE. I think that is a very good question. The answer

to the question is probably fundamentally yes. A better question is,

does it have them buying more of our products? That is our issue

with this. The answer to that is fundamentally no. I would take exception with several of Mr. Cross’s comments.

First of all, he said earlier that the ITA’s mission was to put information technology into the hands of the users. I would defy any

user to know that he had a capacitor laying in his hand, should it

have been put there. We think that capacitors, as a part of information technology, are as includable as steel, glass, plastic, screws,

nuts and bolts. It is to say that, if you are putting a personal comVerDate 11-SEP-98 11:46 Jan 06, 2000 Jkt 058930 PO 00000 Frm 00099 Fmt 6633 Sfmt 6602 D:58930 W&M3 PsN: W&M3
96

puter together, you have to have plastic. You have to have screws

and nuts and bolts. Well, why aren’t they in the agreement?

You cannot have an electronic circuit without the capacitors that

we produce, predominantly the ceramic and the Tantalum.

Now, let me say again, our issue is not with the ITA. I say that

again. Our issue is with the inclusion of these capacitors in this

ITA. We are the two surviving companies, Vishay and Kemet, in

the United States, American-owned and American-headquartered

with a lot of employees at stake.

Having said that, a reference was made to AVX earlier. That

AVX is 75 percent Japanese-owned. Three years ago, AVX was 100

percent an American company. Shortly, after that, it was 100 percent owned by Kyocera and only recently for financial reasons, did

they go on to the U.S. stock market. My recollection is that, they

actually issued 20 percent of their stock on to the U.S. stock market.

So, what has happened to AVX? What has happened to the Corning capacitors, for that matter? Corning used to be in the capacitor making business. They are no longer. Philips, for that matter,

used to manufacture the kinds of capacitors that we make in the

United States and they do no longer. They closed those facilities.

We are the two remaining companies.

It comes down to a decision. Does this country want to sacrifice

these two remaining companies as well as a lot of other smaller

companies—Jim Kaplan here can speak for himself—but a lot of

other smaller companies in the niche business of capacitors? Jim,

you might say a word—on the address he never got to make, just

about 10 or 20 seconds.

The USTR, as I said earlier, with the granting to these competitors that we have around the world, predominantly Japanese, of 10

percent off the cost is an enormous number in our business. This

is not a high margin business. This is a commodity, very high volume product, both in ceramic capacitors and Tantalum capacitors.

I realize that it may be difficult to understand this technology, but

when you appreciate that there are multiples of these capacitors

alongside every IC, no matter where it is used, every microprocessor, we are getting ready to sacrifice these companies on that

altar of expediency called the ITA.

We are suggesting that we should not be doing anything like

that. At this juncture, that would be the end of my points.

Mr. KAPLAN. I would like to add, if you do not mind, that there

are hundreds of types of capacitors. Vishay and Kemet are large

and they supply Tantalum and ceramic, but there are literally hundreds of types of capacitors. We are one small player. We do about

$60 million in capacitors, but ours go in the military. We are solesourced capacitors in the military programs. We supply capacitors

for the F–16, the Bradley Fighting Vehicle, Northrup, Gruman

Lucas, Aerospace and Hewlett-Packard. These are some of the

types of capacitors we make. Less than 5 percent of our product is

affected by this agreement. The rest do not go into informational

devices or computers.

Yet, 95 percent of our product is going to be affected and we get

tremendous pressure from the Japanese. So, everybody gets affected by this, not just Kemet and Vishay. There are hundreds of

97

family-owned businesses like ourselves who are employing thousands of people. It just makes it very difficult for us to even stay

in business and we do a very good job. Our capacitors are significantly cheaper than the Japanese capacitors.

Not only can we not get into the Japanese market, but we have

been in this business for 60 years. We cannot get into the Japanese

original equipment manufacturers located in the United States. We

can offer them cost savings of up to 20 percent, and our capacitors

are good enough for Northrup and Lucas and the U.S. Government,

but the Japanese will not buy them and we can still save them 20

percent. They are bent on buying exclusively from Japan. We just

feel that it is not fair.

We are just giving them another foothold, letting them get more

of our market. We are giving them 91⁄2 percent more profit. It is

just going to go right to their bottom line, to give them more money

for more equipment to automate, to compete with us more effectively. It just makes it difficult for small businesses like us to stay

in business.

Mr. POINSETTE. Mr. Chairman, if I may add a point as well to

Jim’s comments.

On the subject of recourse, when it comes to addressing the nontariff barriers of Japan, we do not have enough years left in our

lives or enough resources in our company to address that issue in

Japan. I have been trying to sell in Japan four different products

for 33 years. I have not succeeded in doing any of them. When I

took over this present job that I have with Kemet Electronics in

1979, we made a pact and a commitment to 3 years of resources

to finally break through the veneer in Japan and sell our products.

We finally had to decide that a company of our size, especially

then—we were a $185 million company at that time—we decided

at that time that, if we were going to spend those resources on

breaking markets, we were going to have a great deal more success, a great deal more benefit for our employees, for our stockholders and what not, if we went after markets that would be more receptive to us. Therefore, we addressed the markets of Singapore.

We addressed the markets of Taiwan, Hong Kong, even the European market. We have not had difficulty entering and competing

well in the European market. The Europeans buy from us. There

is a trade between these two areas of the world.

However, it is not possible in Japan and we cannot tolerate,

when Japan has given up nothing, to provide for them this 10 percent duty.

Now, I will say this, we have been open to discussion with the

USTR all along. We have been absolutely willing to discuss any

sort of solution. The USTR has refused—I say refused. Maybe that

is too strong a word—simply avoided us, has not come to address

these issues with us. Vishay and Kemet, as big as we are, have the

same problems that Mr. Kaplan’s Cornell Dubilier has. It does not

matter where the Japanese customer company is. They will not buy

our products.

Now, having said that, if the USTR can get a commitment from

the Japanese that details what their side of this bargain is in the

ITA, that details what they are going to do to open their markets

to the Tantalum capacitors, the high grade aluminum capacitors,

98

the ceramic capacitors in Japan, we say, fine. You have our blessing and let’s do this. But let’s have no reduction in duty in these

capacitors for, let’s say, 2 years. If in the third year the Japanese

have demonstrated good faith by opening that market or providing

some sort of document through negotiation with the USTR that we

can enter that market, we will drop half of the duty right then, the

third year. Maybe the fourth year, we will drop the other half of

the duty. It is not much longer than we are talking about right

now. Let’s do it that way.

Let’s get something in return when it comes to that Japanese

market in return for what we are giving up. Why do we, the U.S.

market, the singular most powerful market in the world, not get

something in return when we do this? It is a mystery to us, sir.

Thank you.

Chairman CRANE. Thank you.

Mr. Houghton.

Mr. HOUGHTON. Thank you, Mr. Chairman.

Gentlemen, it is nice to see you.

I sort of relate to the issues that you two gentlemen, Mr.

Poinsette and Mr. Kaplan, are talking about because industry after

industry in the components of the consumer electronics business

has just been cut away. It is really hard when you can enter somebody else’s market and prevent those companies or that industry

from entering their markets and, therefore, you can price whatever

you want and still make money and dump on the rest of the world.

Let me just ask you a question. Do you gentlemen, your companies produce outside of the United States?

Mr. POINSETTE. Are you addressing the question to me?

Mr. HOUGHTON. Yes, Mr. Poinsette, do you?

Mr. POINSETTE. Yes, yes, we have——

Mr. HOUGHTON. Why did you go outside the United States, I

mean, for an outside the U.S. market or do you produce there to

bring back here or what?

Mr. POINSETTE. Why?

Mr. HOUGHTON. Yes.

Mr. POINSETTE. It was a matter of synergism. In order to remain

competitive in this market, our philosophies of doing business were

that we had to have what we called a focused plant philosophy.

That means building as much stuff of the same kind, of the same

order of product in one place as we possibly can. As that——

Mr. HOUGHTON. You produce outside to sell here?

Mr. POINSETTE. Excuse me?

Mr. HOUGHTON. You produce in another country to sell here in

this country?

Mr. POINSETTE. No, the way our production works—I will start

from the beginning. We have two primary products, multilayer ceramic capacitors and solid Tantalum capacitors. Within both of

those capacitors there is what we call a raw element or a key element. In the case of a Tantalum capacitor, it is called a Tantalum

anode. We manufacture all of those anodes in the United States.

In ceramic capacitors it is called the ceramic element or the chip

element. We manufacture most of those in the United States.

99

Now, those—as we have developed over the years—and by the

way, we have been in Mexico now about 30 years. That is where

we have our facilities. They are in Mexico and in the United States.

What we do is——

Mr. HOUGHTON. They interchange products back and forth, right?

Mr. POINSETTE. No, not really. It is a continuation of the integrated line. We build what we call a higher technology——

Mr. HOUGHTON. This is what I am trying to say. If you have a

plant outside, that most of the products ultimately end up back

here in the United States.

Mr. POINSETTE. Oh, no, sir. We export about somewhere between

40 and 45 percent of our production.

Mr. HOUGHTON. I see and that will be back here into this country?

Mr. POINSETTE. These two areas are synergistic. I want to make

an important point here. We have not moved——

Mr. HOUGHTON. I do not think I got an answer on the first one.

Then you can make yours.

What you are saying is, about half of your production from Mexico comes back here into the United States?

Mr. POINSETTE. In a sense, yes.

Mr. HOUGHTON. Is that right? OK, go ahead. Go ahead with your

question.

Mr. POINSETTE. What we are doing is, we are continuing the

manufacturing process that we begin in the United States and we

finish a lot of it in Mexico.

Mr. HOUGHTON. Right, right.

Mr. POINSETTE. Not all of our product, however, is finished in

Mexico. That part of the product that is finished in Mexico goes

around the world. About 40 percent goes somewhere else. Fifty percent goes around the world and the other 50 percent back to the

United States.

May I make one point, because I think it is very important?

Mr. HOUGHTON. Yes and then I would like to get Mr. Kaplan because I have a couple of other things.

Mr. POINSETTE. Sure.

This question comes up. Well, if you are so interested why do you

have these facilities in Mexico and haven’t you really moved jobs

over? I want to emphasize the synergistic point. In 1987, we had

about 3,000 employees. About 1,500 of them were in Mexico and

about 1500 of them were in the United States. Today, we are approaching 11,000 employees and about 5,000 of them are in Mexico

and about 5500 are in the United States.

The point being that, for every time we are adding a job in the

United States, we are adding a job in Mexico and vice-versa. If it

was not for the existence of both of those places, Kemet Electronics,

Kemet Corp. would not exist. We could not compete in the world.

Mr. HOUGHTON. I see. What would it require to have all of those

jobs here in the United States?

Mr. POINSETTE. What would it require?

Mr. HOUGHTON. A higher tariff?

Mr. POINSETTE. I do not believe it is possible and the honest answer to that is labor rates.

100

Mr. HOUGHTON. OK. All right, now let me ask Mr. Kaplan because you come from a very distinguished company that has been

in business I do not know how many years, but years and years.

Do you produce overseas?

Mr. KAPLAN. We had a facility in Taiwan. We were the second

American company in Taiwan. Nine years ago, we shut it down and

moved it to Mexico. That product is an old product. It was invented

in 1912, 1913. It has changed relatively little in that time and it

is very difficult to automate. It has about 40 percent labor and the

only way we can continue to stay in the business is to provide that

product with low labor as well. So, we chose to move it to Mexico,

but we never had the jobs here in the States that we moved to

Mexico.

Mr. HOUGHTON. I guess, Mr. Chairman, that what I am trying

to reach for is an understanding of what some of the economic dynamics are here, not from the standpoint of you gentlemen and you

make your case very well, but from what the U.S. policy should be.

The fact is, that despite some of the inequities in the marketplace,

it is not a high tech business and there is nothing wrong with that.

The DOD, if I understand, has not said that this is military necessity to have production capabilities in this country.

Mr. POINSETTE. They should. I am surprised at that.

Mr. HOUGHTON. They do not, do they?

Mr. POINSETTE. That this is a military necessity? Yes, sir, I

think——

Mr. HOUGHTON. Yes, the DOD has not said that it is essential

that we have this capacity because you can buy it in so many ways

and in so many forms.

Also, if I understand it, Kyocera really sort of dominates this. Is

that right?

Mr. POINSETTE. They?

Mr. HOUGHTON. Dominate the market?

Mr. POINSETTE. Kyocera?

Mr. HOUGHTON. Yes.

Mr. POINSETTE. No, I would not say that. Are you talking about

Kyocera AVX or are you talking about Kyocera as a——

Mr. HOUGHTON. I am talking Kyocera Japan.

Mr. POINSETTE. Kyocera is a long——

Mr. HOUGHTON. But only 75 percent of AVX.

Mr. POINSETTE [continuing]. Kyocera is a dominant player in the

ceramic materials business. That is not capacitors. That is——

Mr. HOUGHTON. Who is the leading producer of capacitors in this

world?

Mr. POINSETTE. The leading producer of multilayer ceramics is

Muraa, Japanese. The second leading producer is TDK, Japanese.

The third leading producer is AVX Kyocera, Japanese. The fourth

leading——

Mr. HOUGHTON. So, it is all Japanese, right.

Let me ask Mr. Regan a question, because you know a little bit

about the capacitor business also. Also, you were touching on these

nontariff barriers. That is something that you worry about as far

as fiber optics is concerned and I am sure other people worry about

in terms of their own products. Could we talk a little bit about the

nontariff barriers?

101

You say that you have to monitor this thing very carefully. We

are all right for the moment. You are saying, if I understand it,

that you produce at a lower cost than the Japanese. There is a zero

tariff and you still cannot get in the market.

Mr. REGAN. That is correct.

Mr. HOUGHTON. So, are those nontariff barriers something which

is germane to all the discussion we have had today? Maybe others

would like to join in this. I do not want to take too much time, Mr.

Chairman, but I think this is an essential issues.

Mr. REGAN. Well, I think the point the gentleman down at the

end of the table made was precisely the same point we were concerned about in fiber optics. The U.S. market is 40 percent of the

world market for fiber optics. The only barrier to our market is the

tariff. However, we have a very difficult time breaking into foreign

markets.

Why? We have discriminatory government procurement we have

to deal with. We have behaviors which demonstrate a clear preference for domestic product. In some countries, we have investment

requirements which basically say, look, if you want to sell it here,

you have to make it here, which involves a transfer of sensitive

technology to other parts of the world. We have the discriminatory

application of domestic taxes which tends to raise the price dramatically for a product that is imported versus one that is made

domestically.

We had one case in one country, which I will not mention, where

were prepared to go in and supply the product. The big buyer

which is a PTT has said, you guys have the greatest fiber in the

world, but we are not going to certify you. We are not going to give

you certification to sell in our market, not because you do not meet

a standard, not because you are not good, but because you do not

have a plan to make it here. That is the kind of unfairness that

we face around the world.

Our concern about the ITA was that we were going to engage in

unilateral disarmament. We were going to give away our tariff and

hence, the access to our market and get nothing of meaningful

back. I think what we were able to get was something like the gentleman down the table presented, a commitment to work on these

nontariff barriers going forward and on a commitment to work very

hard on it. Now, in exchange for that, we have given up a modicum

of protection as it applies to fiber optic cable, not to optical fiber

or not to optical componentry.

We hope that this works out. If in fact USTR is successful in

opening up these markets, then we will have negotiated a good

deal. If not, I am probably going to get fired. No, I am only kidding.

[Laughter.]

Mr. HOUGHTON. Would anybody else like to make a comment?

Yes, Mr. Boidock. Would you mind if I continue this just a minute,

Mr. Chairman? We will not take too much longer.

Mr. BOIDOCK. No, I will be brief.

I just want to say that you asked an excellent question. This is

a very, very important agreement and provides $1.4 billion, as I

said in my testimony, in duty reductions or savings for our companies in Europe alone just because the Europeans are lowering their

102

7 percent tariff. However, that pales in getting access to the Japanese market, which these gentlemen are having trouble with.

Now, we had trouble with it in the semiconductor industry in the

eighties and we have worked very hard getting access to it. That

has been a significant boost to our revenues. So, I think it is an

excellent point and you need to be aggressive and you need to work

it everyday.

Mr. HOUGHTON. Mr. Cross, do you have anything? Mr. Rafferty,

would you like to say anything?

Mr. CROSS. Again, on the nontariff measures side, I think every

company here at the table share concerns about nontariff measures. My concern is that we have singled out Japan for all of the

criticism here. Nontariff measures are common throughout the

world, included in the United States. So, we have to look at this

in terms of the overall balance of interests to the United States.

Therefore, when we are looking, for example, at the second round

of ITA negotiations when nontariff measures specifically will be

brought up, we want first of all to be aggressive in going out and

pursuing market-opening measures. At the same time, we want to

do so in such a way that it is consistent with the overall interests

of the United States.

The round of questions I have heard you raise, Congressman

Houghton, I think they are all very good and to the point in terms

of where do you manufacture, where do you source from, why do

you make these kinds of economic decisions. The plain fact of the

matter is, there is no more global industry than there is in the information technology industry.

Mr. HOUGHTON. Yes.

Mr. CROSS. If you take a look at Kemet, if you take a look at

Vishay, if you take a look at IBM, if you look at Philips, if you look

at Texas Instruments, if you look at Corning, we are all global companies. We invest widely around the world because of any number

of economic factors. Some companies, for example, may choose

Israel or they may choose Mexico, not only because of lower wage

rates but also because you get advantages of free trade agreement

preferences. So, there are advantages built into the system there.

But do not tell me as a consumer of a product that I am going

to have to pay a 10 percent penalty for buying a product that is

competitive. I want, as a consumer of that product, to be able to

go in there and get the best quality at the best price.

Mr. HOUGHTON. Well, if I could just interrupt you.

You know, that may be fine for a consumer and that consumer

can buy a variety of different products with his or her money. It

is sort of tough for the fellow whose job is totally dependent upon

that product. I guess maybe we are all set.

Thank you very much for your time.

Chairman CRANE. Well, thank you and I want to thank all of our

panelists for their patience and your testimony today. We look forward to further communication with all of you.

With that, this panel is adjourned.

Chairman CRANE. Our next panel is composed of—and I would

like for you to testify in this order—Ed Wiederstein, president of

the Iowa Farm Bureau Federation on behalf of the American Farm

Bureau Federation; Robert Vastine, president of the Coalition of

103

Service Industries; Laird Patterson, counsel at Bethlehem Steel on

behalf of the Labor-Industry Coalition for International Trade; Terence Stewart, partner with Stewart and Stewart; and Mark

Sandstrom, partner with Thompson, Hine & Flory.

[Pause.]

Chairman CRANE. I understand, Ed, that you have a flight to

catch.

Mr. KEELING. Well, in fact, I am not Mr. Wiederstein. I am John

Keeling with the American Farm Bureau. He had to leave even

earlier than he thought because of an emergency back in Iowa. So,

I would like the indulgence of the Chair, if I could summarize his

testimony.

Chairman CRANE. Oh, certainly, absolutely.

STATEMENT OF JOHN KEELING, DEPUTY DIRECTOR, AMERICAN FARM BUREAU FEDERATION, PRESENTING STATEMENT OF ED WIEDERSTEIN, PRESIDENT, IOWA FARM BUREAU FEDERATION, AND AMERICAN FARM BUREAU FEDERATION

Mr. KEELING. I will be very brief. I know it is getting late in the

day.

At the risk of refocusing the Committee, I would move from capacitors to soybeans and corn and hogs and chickens and other

things agricultural. We really bring a very simple message to the

Subcommittee today and it is a success story I think.

Agriculture last year did over $60 billion in exports. We had a

$28 billion export net balance of trade which ranked us very high

in all the sectors of the economy. We are doing well in world trade.

We could do much better if we could lower the barriers that exist

to our products moving into other countries.

Recently Dean Kleckner, who is president of the American Farm

Bureau, attended the WTO Ministerial Meeting in Singapore. Just

to give you an idea of how important agriculture thought that

meeting was and thought the future of the WTO is and the success

of the WTO, of the 100 private-sector representatives who were in

Singapore, about 50 percent of those were representatives of agricultural groups, agricultural, agribusiness.

And that is at a time when the focus of those meetings was not

even particularly agricultural. So, we view our future as exports.

Right now we are sending 30 percent of our products overseas and

we have a tremendous opportunity to continue to do better than

that.

What did we want to get out of the Ministerial Meetings and

what happened there and what was our reaction? We really wanted

to see two things. We wanted to be sure that the negotiations that

are to begin in 1999 are still on schedule and set to go forth on that

timeframe.

Number two, we wanted to ensure that in the time period between now and when those negotiations begin in earnest, that the

proper background work is done, that the data is collected so that

we could flat-out hit the ground running in 1999.

We cannot afford in agriculture another trade round that takes

seven or 8 years to get accomplished. We have immediate needs

104

and need to make some changes immediately. I will get into some

of the political problems in the countryside a little bit later.

We were pleased with the WTO meetings. Deputy Secretary

Rominger from USDA was there. He was not allowed to present a

paper and we were a little bit disappointed at that but we were

generally pleased with the Trade Ambassador’s stance on things.

We are, however, offering some ideas for change in USTR that we

think would better position agriculture.

We feel strongly that we need a Deputy Ambassador for Agriculture in USTR. If you look at the trade disputes that are being

brought before the WTO, a significant portion of those trade disputes are relative to agriculture. If you look at the barriers that

exist out there, a significant portion of them are relative to agriculture. Having someone in USTR who’s primary job is to focus on

expanding the successes of a very successful sector we think is very

important.

We sometimes believe that because we have been so successful

in terms of exports, that we are really not looked at as the squeaky

wheel. If you have two kids and one of them makes all As and the

other one makes Cs you tend to focus on the one that makes Cs.

Now, as the one who is getting the good export numbers, we want

some attention too and I guess that’s the message we are trying to

send to the administration and to USTR.

I guess I will finish with looking at where we see the political

landscape and what problems that is causing us. I think that agriculture had a very significant impact on delivering both NAFTA

and GATT. We were there very solidly as a block to counter some

of the protectionist measures that were being talked about at that

time.

If we do not see significant wins coming from the trade dispute

arena and a strong, strong stance by the administration to ensure

that they are very, very serious about continuing to negotiate hard

for agriculture, although our organization remains committed to

supporting an extension of the fast track, supporting continuing to

grow into South America with NAFTA and to supporting MFN, we

are going to be short on the political grassroots base to do that unless some of our people out there in the country can see some wins.

The Canadian dairy decision and poultry decision, things like that

really undermine our strength and our ability to be strong spokesmen for that.

So, I guess we look to you all for your leadership and help and

appeal to those in the administration to ensure that agriculture remains important on the negotiating table.

Thank you.

[The prepared statement follows:]

105

106

107

108

109

110

111

112

STATEMENT OF ROBERT VASTINE, PRESIDENT, COALITION OF

SERVICE INDUSTRIES

Mr. VASTINE. Good afternoon, Mr. Chairman.

The Coalition of Service Industries was founded in 1982 for the

exact purpose of ensuring that liberalization of trade in services

was made a major focus of international trade negotiations. The

service sector now creates three-quarters of U.S. GDP, 80 percent

of U.S. employment. Last year, 2.4 million of the 2.6 million jobs

created here were service jobs.

113

The U.S. service sector racked up a trade surplus of almost $75

billion last year on record exports of about $225 billion. To give you

an idea of the pace of growth of services exports and its potential

for U.S. business and U.S. jobs, the service surplus in 1985 was

only $300 million, about a 75 percent average annual growth a

year since then.

The Uruguay round was the first multilateral trade negotiation

to include services. But its major service achievement was the general agreement on trade and services, the GATS, which provides

the general framework for services trade. But there was little effective liberalization of trade and services as a result of the Uruguay

round.

Since the end of that round in 1994, the WTO’s main task has

been to complete the round’s unfinished agenda of financial, telecommunications, professional and maritime services negotiations.

Its record has not been one of success until Saturday, February 15,

when a tremendous success was scored in a broad agreement to liberalize basic telecommunications services.

That was a huge achievement because the telecommunications

agreement is the very first trade agreement to open up world commerce in a single service sector and this is important for several

reasons. Mainly it proves that negotiations concentrated on one

sector can, in fact, succeed. Ever since the failure of the first round

of financial services talks in 1995 it has been popular in some policy circles here and in Europe to decry sectoral negotiations as impossible because it was argued there was not enough trading material in any given sector to make a deal.

It was argued, for example, that perhaps concessions could be

made in agriculture and the United States could make concessions

in agriculture in order to achieve benefits in financial services in

other countries.

The success, in fact, of the telecommunications sectors quashes

these speculations. The world trading community knows now that

it can proceed with a sectoral trade agenda and that it can succeed.

Another major reason why this is an important negotiations,

telecoms, is that it makes much more likely the success in financial

services can be concluded this December, and the progress can be

achieved later in the professions and in the maritime services.

With regard to the Singapore Ministerial and service sector liberalization as the Committee has heard and knows, the Singapore

Ministerial concentrated on information technology products and

other issues not directly related to services trade. Indeed, the final

declaration of the Ministerial contains conflicting messages about

services trade. But, while the Ministerial did not significantly advance the telecommunications financial and other services negotiations, its declaration did provide a very necessary endorsement for

the completion of the key elements of the services trade agenda.

We believe that the next major test of the WTO is to complete

the negotiations on trade and financial services with a broadly liberalizing agreement. I would like to let you know briefly about the

efforts of the U.S. financial community to achieve this success. As

background you should know that the United States has a surplus

of $4.5 billion in financial services in 1996 on exports of $6 billion.

114

The financial services group of CSI has led in forming an international group of businessmen to create a network of private-sector

support for the financial services negotiations. On February 4, this

group issued at the World Economic Forum Annual Meeting in

Davos, a statement of objectives for financial services negotiations

which is attached to my statement.

This statement of objectives expresses the unanimous agreement

of these financial leaders that offers on the table at the end of the

negotiation in 1995 were not sufficient. That new and improved offers must be tabled for the negotiations to succeed this time.

In short, the U.S. financial services community is united in its

desire to achieve an agreement that brings true liberalization. It

has developed an international program to support the negotiations

and it is optimistic that the negotiations can succeed this time but

it is aware that they will be difficult and that 9 months is not

much time to generate the momentum and sense of urgency that

motivated the telecommunications talks.

The Singapore Ministerial regrettably gave very scant attention

to the requirement for the new year 2000 services round. Our government should begin soon to consult with others to prepare for the

year 2000 round because these negotiations, the negotiations ahead

must clear away the residue of restrictions to trade in the most

promising and dynamic sectors of the world economy, that is the

transportation, telecommunications and financial services areas.

Opening trade in these crucial sectors will help improve standards of living and the pace of growth for people, business and governments worldwide.

Thank you, Mr. Chairman.

[The prepared statement and attachments follow:]

115

116

117

118

119

120

121

122

123

Mr. HOUGHTON [presiding]. Thank you very much, Mr. Vastine.

Mr. Patterson.

STATEMENT OF LAIRD PATTERSON, COUNSEL, BETHLEHEM

STEEL, BETHLEHEM, PA, ON BEHALF OF LABOR-INDUSTRY

COALITION FOR INTERNATIONAL TRADE

Mr. PATTERSON. Thank you, Mr. Chairman.

My name is Laird Patterson. I am here on behalf of the LaborIndustry Coalition for International Trade or LICIT and its sister

organization, the Coalition for Open Trade or COT. These organizations bring together companies, unions, and organizations to develop mutual positions on international trade policy issues.

While LICIT has been active across the spectrum of WTO issues,

this statement will focus on a few select areas that are of particular importance to our membership in the aftermath of the Singapore Ministerial.

The first is the formation of the new competition working group.

This is an area that LICIT and COT, in particular, have been very

active in over the past few years. Attached to our formal statement

are executive summaries of two reports that COT has produced on

this. They cover multiple sectors—paper, glass, steel, autos, auto

parts, heavy electrical equipment, and so forth—pointing out the

way that private anticompetitive practices can be a very effective

barrier to market access around the world.

And it is only logical that as we are increasingly successful

through the Uruguay round and its aftermath in breaking down

other, more formal governmental nontariff trade barriers that there

will be increasing resort to private anticompetitive practices and,

in fact, their toleration by governments as a market access barrier.

So, we think the formation of this working group could provide

a very useful forum for, in particular, educating the WTO population on the perniciousness of these practices and the need to

eliminate them. I do not think it is appropriate at this point to see

that process going into the dispute settlement area, but as an educational process we think it can be a very valuable and useful exercise.

A caveat, there clearly was at Singapore an effort on behalf of

many nations to include in this exercise the issue of antidumping.

The United States and the EU made it very clear that they thought

this was not an appropriate area for this exercise. Indeed, there is

an antidumping committee in the WTO and that is where the antidumping should stay. And our membership very strongly supports

the position of the U.S. administration that as the competition policy exercise goes forward that it not get into antidumping or other

trade matters covered elsewhere in the WTO.

A second issue of particular concern to our membership at this

point is the terms of the Chinese accession. We have been doing

some reports on that, and I believe another one is in progress.

But in one particular area we have a special concern and that

is the continued use of nonmarket economy practices for antidumping investigations involving China. It is a priority objective of the

124

Chinese to eliminate that and to be treated as a market economy.

They are not. And certainly we believe that the terms of accession

should explicitly require the Chinese to be treated as a nonmarket

economy for as long as any transition period provided in the accession.

Just very briefly, there are a couple of areas that are up for reconsideration, the first being dispute settlement which has to be renewed in another 2 years. We think the system has been working

well but we think it is important that it continue to be complemented by bilateral measures where the WTO does not have jurisdiction. We think it is important that we preserve our sovereignty, be willing to take measures unilaterally and compensate,

if necessary, but not afraid to do that. And we certainly endorse

the efforts of the United States to improve the transparency of the

WTO dispute settlement system.

Finally, just very quickly, the WTO subsidy rules are up for renewal at the end of a 5 year period. We think it was very unfortunate that the concept of green-lighting subsidies got into the Uruguay round and we would hope that when this comes up for renewal at the end of the first 5 years that that green-lighting concept not be continued.

Thank you, Mr. Chairman.

[The prepared statement and attachments follow:]

125

126

127

128

129

130

131

132

133

Mr. HOUGHTON. Thanks, Mr. Patterson.

134

Mr. Stewart, and then Mr. Sandstrom.

Mr. Stewart.

STATEMENT OF TERENCE P. STEWART, MANAGING PARTNER,

STEWART AND STEWART, WASHINGTON, DC

Mr. STEWART. Thank you, Mr. Chairman.

It is a pleasure to be here this afternoon. For the record, my

name is Terence Stewart, managing partner of Stewart and Stewart, a law firm here in town.

I am here on my own behalf today. With regard to the panel that

preceded this, I think there is general agreement that the ITA is

a very substantial positive benefit. What is unfortunate for both

the ITA and I think for the basic telecommunications agreement is

that there are disputes between the Congress and the administration on lack of clarity with regard to whether or not these agreements conform to existing law or need to be implemented through

additional law. For an agreement of this magnitude, I think that

is a great misfortune and one that hopefully the Congress and the

administration will resolve quickly.

I would like to focus on an issue that has not been much addressed that is highly technical but for most companies is the heart

of the WTO and that is the implementation of the various obligations. In the reports that came out in Singapore, it was acknowledged that the implementation and notification of implementation

across-the-board has been quite weak.

And, in fact, there are a few areas where implementation and notifications have exceeded 50 percent. This should be of substantial

concern to the Congress, as I know it is to the administration and

our major trading partners, and should put a caution on the speed

with which one expands a trading system. If you cannot implement

that to which you have agreed there is a question, why are you

seeking to agree to more?

In that connection I would have three recommendations for the

Subcommittee’s consideration. First and foremost is to assure

through other committees that there is adequate funding for both

USTR and the other agencies that are responsible for the oversight

of the implementation of our trading partners, as well as our own

implementation of our obligations.

What you see in Geneva and what you see in most agencies is

a reduction in staff, and what has happened in Geneva is that

there has been an exponential growth in demands on the time such

that even the United States is not able to cover all of the committee meetings that occur in Geneva on a day-to-day basis.

Second, there needs to be a cooperation between the Congress

and the administration to speed the public dissemination of information from the WTO. One of the major accomplishments in the

first 2 years was an agreement that USTR was instrumental in accomplishing to release, make public the vast majority of the material that is submitted to the WTO—the laws, the regulations, the

practices, the decisions.

That was done in July of last year. We are now at the end of

February 1997. Virtually no information has been disseminated

since that point despite this very important agreement. Private organizations, labor groups, companies are the best guarantee that

135

there will be implementation of obligations abroad. The data base

is the best way to accomplish that.

Third, much of the lack of implementation abroad is due to the

fact that the countries that have not implemented it are developing

or least developed countries. There is a grossly inadequate technical assistance funding——

Mr. HOUGHTON. Say that again, I did not hear what you said last

sentence.

Mr. STEWART. If you take a look at the countries who have not

implemented their obligations under the WTO, the more than

roughly 50 percent of countries, the vast majority of them are least

developed or developing countries and a substantial reason that

they have not implemented their obligations is that they do not

have the technical means in-country to do so.

The WTO has technical assistance but that technical assistance

is minuscule in amount and the United States and our trading

partners need to assure that there is adequate funding from multilateral organizations or otherwise to permit that to go on.

The same thing I believe is true with regard to the built-in agenda. I agree with the comments of the gentleman from the Farm Bureau. I would note that one of the lacks that currently exists is a

coordination between our domestic legislative initiatives and our

negotiating objectives. Last year in the farm bill those sectors of

U.S. agriculture that are vulnerable because of large subsidies

abroad that saw their own subsidies reduced, over time, faced substantial dislocations because of the fact that we do not have as a

primary negotiating objective the leveling of the playingfield with

a reduction of subsidies abroad.

I have other issues, Mr. Chairman, and they are in my statement. I see that my time is just about out. Let me just turn quickly

to two. I agree with Mr. Patterson with regard to the importance

of the competition policy issue and the limitations on that initiative

that are there.

With regard to investment, I believe that what we accomplished

in Singapore is not significant, that if we are to expand what we

achieved through the OECD, it will first and foremost be through

an expansion of the FTAA, through other regional and bilateral

agreements, and I think through the experience of developing countries who have led the way in terms of liberalizing their investment

regimes.

With regard to textiles, I would like to note just briefly, that the

Congress should be concerned with the developments in Singapore

to the extent that those developments suggest a changing of the

basic underlying agreement and I would suggest there are two

shifts.

One is the apparent belief amongst many countries in some

panel decisions that the intermediary category of goods and textiles

are subject to the same standard as an escape clause case. And,

second, that all cases must have findings and recommendations

even when there is not a consensus.

Last with regard to dispute settlement, I agree with Mr. Patterson that the system has worked quite well or reasonably well to

this point in time. I would only put a caution that the European

Union challenge to the U.S.-Cuba policy presents a major problem,

136

I believe, for the survival of the dispute settlement system. Hopefully we will get that resolved without a formal panel decision.

Thank you, Mr. Chairman.

[The prepared statement follows:]

137

138

139

140

141

142

143

144

145

146

Mr. HOUGHTON. Thanks very much.

Mr. Sandstrom.

STATEMENT OF MARK R. SANDSTROM, PARTNER, THOMPSON

HINE & FLORY LLP, WASHINGTON, DC

Mr. SANDSTROM. Thank you, Mr. Chairman.

My name is Mark Sandstrom. I am a partner in the law firm of

Thompson Hine & Flory. I should point out that one of the reasons

I was invited here today also relates to my involvement in various

ABA initiatives and recommendations that are relevant to the focus

of these hearings.

At the initiation of the international section of the ABA and, in

particular, its trade committee, the ABA has adopted a number of

recommendations on issues that are before the committee and I

think that both those recommendations and the reports will be of

use to the committee in its deliberations on these issues.

Beyond those recommendations, I should also point out that the

views expressed are primarily my own personal views and not

those of the ABA.

I think, given the testimony we have heard today, most people

would agree that the WTO, and its agreements have been successful, that the Ministerial was successful and that the main problems

probably are that we have not done enough yet both in terms of

other agreements to be negotiated and implementation of those

that are already in place.

That leads me to an issue that Mr. Stewart has already raised

in his testimony. I believe this Subcommittee and the Appropriations Committee in the Congress have got to give very careful consideration to the funding of USTR and the related agencies. We are

not talking about thousands or millions of dollars, we are talking

about billions of dollars of potential benefits to the United States,

assuming that these agencies can ensure enforcement of agreements or implementation of obligations by member parties to the

WTO. I think that it would be penny-wise and pound-foolish not to

give them the support that they need to perform that task.

The other issue which is obviously relevant is the adoption of fast

track negotiating authority. I realize that right now the ball is in

the administrations court. Hopefully within the month that Mr.

Lang mentioned this morning they will have a proposal to you. I

147

would point out that the ABA has just adopted a recommendation

at its midterm meeting last month in support of the extension of

the fast track authority. I think that is also very important. I think

it should be broad and long enough in its effective term so that effective agreements can be negotiated.

I would like to address the rest of my time on one substantive

issue that has come up briefly but I think it will become of greater

importance to this committee and trade policy in general. That is

the issue of competition laws of antitrust laws and trade laws.

It has been pointed out in the WTO Ministerial Declaration, that

the Ministers have agreed to the establishment of a working group

on competition laws. I think a couple of comments would be useful.

First of all, it is very clear that in terms of market access, where

I think most of the U.S. potential growth and economic benefit

from these trade agreements lies, is something that can be adversely affected by anticompetitive practices in foreign countries.

Those that are promoted or implemented by governments are reasonably dealt with under our section 301, but they are not, I believe, adequately dealt with in the WTO or probably any other

international agreement.

Beyond that, private restraints are even more problematic. To

the extent that they affect imports into this country, we have some

sanctions, some ways to enforce U.S. antitrust laws and a way to

protect producers and consumers from the private restraints.

But on the export side, there really is nothing in existence either

under U.S. law or under any international agreement that provides

practical relief. The other problem here is that many of the private

restraints that we would view as restricting access to foreign markets, such as nonmonopolistic refusals to deal which was the subject of some earlier testimony in the last panel—basically companies will not buy our products—or nonprice vertical restraints may

well not be covered by antitrust laws, at least antitrust laws similar to those in the United States. However, these restraints do

exist, they do have a negative impact on access to foreign markets

on U.S. exports to those markets.

I think frankly it may well be a subject of proper analysis by the

WTO at some point in time because they certainly have negative

trade impacts. The ABA adopted last year a recommendation in a

report dealing with the relationship of competition laws and market access which deals with this in more detail.

My final two comments, very briefly. There is right now an ongoing International Antitrust International Section Task Force that

is trying to look at this issue head-on, that is the relationship between antidumping laws and the competition laws. Mr. Stewart is

also a member of the task force, as am I.

One of the things that has struck me is the almost unanimous

feeling among antitrust practitioners in this country and I think

that view is shared by the U.S. agencies, the FTC and Justice, as

well, that these issues ought not to be dealt with in the WTO, but

that the OECD is a more proper forum, for that. My own view is

that I think the WTO has demonstrated a real ability to deal with

nontraditional trade matters in an effective way and in a way

which involves and requires commitments from a broad range of

148

countries—not just the industrialized, but also the BEMs, the less

developed, a whole gamut of countries.

So, I think the WTO would not be a bad place to talk about, at

least, internationally, certain antitrust issues, core practices that

ought to be prohibited, such as monopolization, price-fixing, things

like that.

And, finally, I would conclude with an issue which has been argued over for a number of years, and that is the attacks against

the antidumping laws from the antitrust practitioners. The idea

that the antitrust laws and competition laws should replace the

antidumping laws. I am a trade lawyer, so, obviously, I have my

bias on this issue, but it seems to me that replacing the antidumping laws with competition laws is a little bit like replacing a baseball team with a shortstop.

The reason the antidumping laws exist and are necessary is because they deal with cross-border, injurious, unfair pricing practices. There is absolutely no other remedy to protect industries in

our country against these practices. Within geographic areas where

antidumping laws have been eliminated or not required, you can

look at the European Union or the United States, which I think is

probably the most successful common market in history, you see

that there is free movement of goods, free movement of capital,

labor, the right of establishment—a number of conditions, including enforceable antitrust laws against parties within the jurisdiction. These conditions do not exist with respect to trade between

the United States and other countries. To talk about eliminating

the antidumping laws without establishing those other conditions

to me is basically, essentially absurd.

The final point I would make is that whereas the antidumping

laws in this country are administered under a law that parallels

almost identically an international agreement which has been

signed by over 100 other countries, if you look at competition laws,

internationally, there is essentially zip. So, before we talk about

that replacement of or influence on the dumping laws by the antitrust laws, I think we ought to get some idea, at least internationally, about what we’re talking about when we refer to the antidumping ‘‘laws.’’

Thank you, Mr. Chairman.

[The prepared statement and attachments follow:]

149

150

151

152

153

154

155

156

157

Mr. HOUGHTON. OK. Thank you. Now, I want you all to think of yourselves as being in my posi- tion and having heard what you have said and how to cull this out

to make sense, not so that it just goes into the Congressional Record and the reports of this Committee, but something specifi- cally which is important right now. I mean we have intellectual arguments, we have structural arguments, we have certain things

that affect the marketplace right at the moment. And I hear what

you say about the competition and the antidumping laws. I think

we all probably agree that fast track is something we ought to

enact, get at it. If I am wrong, say that, tell me.

Mr. Vastine talked a little bit about foreign control. And we may

want to explore that but I want to put it all in perspective and

158

then some of the structural things that we ought to do, such as

having enough money the USTR and for the negotiating process

and the cooperation between the administration and Congress, all

those things that are important.

But maybe if each one of you and if anybody has an idea in the

process, cut in here, what is the single most important thing that

I or anybody on this Committee—and, again, I’m sorry for this

thing, because it has been a crazy week. I mean we did not have

any votes on Monday, did not have any votes on Tuesday, we have

a half hour of votes and now everybody is off the rest of the week,

and, so, the people that should be here are not here, but we want

to be able to give them a consensus of what are the most important

things, prioritized, that we should be thinking about right now.

So, why do we not start with Mr. Sandstrom. What do you think?

What are those things out of all the talk, whether it is in antidumping laws or competition laws, antitrust, what are those things

that this Committee should home in on right now?

Mr. SANDSTROM. Two quick responses. First of all, I have an

awful lot of faith in this, and in previous administrations, in terms

of their ability to accomplish economic benefits through the negotiation of international trade agreements. So, I think what we need

to do is to give them the authority to go out and negotiate further

agreements and I think we need to have a process, obviously, as

required under the Constitution, which brings in the Congress as

I think the old fast track procedure has done. So, that the Congress

can review and ratify those agreements.

The other thing that I think is important is that the reality of

the international integration of our economy in the world economy

is way ahead of the perception. One of the problems that we have,

that you, Congressmen have when you go back to your constituents, is trying to explain to them why this is important to the

United States. Why it is good thing to continue in this direction.

I do not know where those educational efforts could be better undertaken but——

Mr. HOUGHTON. Slow down just a little bit.

You are speaking in a muffled tone.

Mr. SANDSTROM. Yes, I am sorry. I think that if one leaves Washington and travels around the rest of the country, the message has

not been clearly communicated to people why international trade

is good, both for jobs and standard of living. We must find ways

to communicate that message. I think this last round of agreements—telecom, ITA—will be helpful in doing that. That is something about which the administration could do a better job, the

Congress could certainly use that help. Maybe bar associations and

companies could help as well.

Because one of the problems you have——

Mr. HOUGHTON. Why do you not take it upon yourself to be the

czar or the emperor in this area. Because so many people come to

this Committee and say, we should do this, we ought to do that,

the country deserves such and such a thing and I could not agree

with you more. If we are going to accept the fruits of more jobs because of international export opportunities then we have got to explain to people our position in the world.

159

But, you know, this is not just the job of an individual Congressman who goes back to his district and goes to the various town

meetings, it is everybody’s job.

I mean what is your firm and what is your industry doing to help

us in this thing?

Mr. SANDSTROM. By the way, I want to make it very clear, I did

not say that you should do this.

Mr. HOUGHTON. No. I understand that. But I mean it is a job for

everyone.

Mr. SANDSTROM. I think we need to make it easier for Congressmen, I think we need to be the ones carrying that burden. We,

being private industry and——

Mr. HOUGHTON. Why do you not tell me sometime within the

next month what you specifically have done in this area and what

more I can do to help you?

Mr. SANDSTROM. I will do that.

Mr. HOUGHTON. You probably have never had a request like that

from this Chair, have you?

Mr. SANDSTROM. Not in a public hearing.

Mr. HOUGHTON. But it involves not only trade, but it involves our

foreign aid program, the United Nations and whatever have you.

Mr. KEELING. I accept that challenge. The president of our organization, the American Farm Bureau, has probably been the most

vocal advocate of freer trade. And freer trade has not always been

a pleasant banner to wear in agriculture. We have some sectors

who feel they will be strongly disadvantaged by that. So, there are

winners and losers. But we have advocated very, very strongly for

free trade.

I think what we would want and solicit your help in getting us

to make sure that USTR has, one, the resources as other people

have mentioned. And, then also the fire in their belly to go out

there and be tough.

I mean we have got to get reductions in export barriers, internal

subsidies.

Mr. HOUGHTON. Can I interrupt you a minute? My impression is

that the present Ambassador, Charlene Barshefsky, is doing a firstrate job.

Mr. KEELING. I think we would agree with that. We have supported her.

Mr. HOUGHTON. I think it behooves us not only to back her up

with words but also with money, too. And I think Mr. Stewart indicated that. Forgive me.

Mr. KEELING. And that is why we ask for a Deputy Trade Ambassador specifically for agriculture. We think it is an important

enough sector in the economy that it ought to get that kind of attention.

The message that sends to our trading partners, the European

Union and the Japanese, for instance, who essentially refused to let

our products in. We will find it does not matter what you do to the

Europeans in terms of trade negotiations they will always find a

way to say, we are not going to take your agricultural products.

Do you believe for an instant that our meat packing plants in

this country are not up to the standards of those in Europe? I do

not believe that, and neither does anybody else. And, yet, they use

160

that as a way to keep our products out. So, having somebody at

USTR who gets up every morning and thinks about what can I do

for agriculture to expand trade would be a good step.

Mr. HOUGHTON. Yes. I think that as long as the most precious

asset we have is our market and people want to sell to us rather

than have us sell to them, that is the preference, that it is going

to be an unending job.

We are never going to finish this thing. And, so, what you are

really talking about not only free, but also making sure that it is

level, that it is fair. And that requires just man-hours.

But it also requires a bit of spine, too.

Thank you very much.

Mr. KEELING. We think WTO is the mechanism to get that done

in the long run, but we have got to be tough.

Mr. HOUGHTON. Good.

Mr. Vastine.

Mr. VASTINE. Thank you, Mr. Chairman.

I think that the comment about negotiating authority is key.

Congress has to provide the authority and the mandates, the direction, the policy direction, the impetus for the negotiations.

Second, I think we need congressional understanding of the importance of the sectoral service negotiations and forbearance, patience, as WTO attempts these extremely difficult negotiations. I

recall last year when I testified here, you asked me a question

about telecommunications. I made the blanket statement that well,

we had to open up foreign telecommunications markets so our

firms could go in there and invest. You said, look, it has taken 25

years or something like that in this country to get our market more

competitive. How can we possibly do it in foreign countries?

No one dreamed that the result in telecommunications would be

as extraordinary. I think it is possible to do the same in financial

services, professional services, maritime, but it is going to take a

series of years and congressional support.

The third thing is accession. At Singapore, where I had the privilege of being, one Trade Minister after the other stood up and said,

we have got to globalize immediately the WTO, we have got to accept 29 I think it is or 27 new members, including China, Russia,

a few small guys like that.

That is a strong impetus, that is a very powerful impetus on the

part of other countries, they want to secure, they want to globalize

this organization. We have to be very cautious there. I would ask

this Committee to look at this carefully because in this is something, WTO accession is something the Chinese and the others

really want. This is a point of key leverage. We have got to maximize this opportunity; we, the United States.

Other countries are going to say and they do say, the EU particularly, do not worry about the terms of accession, just get them into

the fold. When they are there we can take care of it. They will liberalize. Those are the same arguments made about Japan early in

the fifties when Japan became but had exceptions from GATT rules

for a long time.

So, my point is that the Committee should join others of us in

holding a strong line on the accession issues.

161

I have a comment finally about my friend who called for a special

USTR Trade Ambassador for Agricultural. If he gets one, we want

one.

This is a dangerous game, Mr. Chairman, it is like we ought to

have a department of education, we ought to have a department of,

you know, X, Y, Z. There is in the services, I will be positive, in

the services area, there is a U.S. Trade Representative for services

negotiations. She does a very good job for us. I am sure that the

agriculture people try to do a good job for you all but if you want

your own cabinet secretary, I want mine, too.

Mr. HOUGHTON. Well, I appreciate that. We will take both of

those recommendations under advisement.

Mr. VASTINE. OK. Everybody wins.

Mr. HOUGHTON. Mr. Patterson.

Mr. PATTERSON. Thank you, Mr. Chairman.

I would certainly agree in terms of what the Committee can do

that the proper funding of the trade organizations is critical and

aggressive oversight by the Committee of the exercise of their functions is critical. I should say, continued aggressive oversight. The

Committees have never been shy in that respect.

Third, the role of the Committee in ensuring that we continue to

have strong and effective unfair trade remedies. This is critical for

American industry, American jobs. As hard as we are trying to

break down foreign trade barriers, they still exist. Conditions permitting dumping continue to exist. And it is vital to certainly the

LICIT membership that strong and effective trade remedies continue to be available.

I certainly agree with Mr. Vastine that accession to WTO by current nonmembers be on commercially reasonable and sound terms.

That is critical. We should not be dealing with the problem after

it is already in the WTO.

And, finally, there is just a point of information not on behalf of

LICIT, but Mr. Sandstrom noted the importance of trade education

and I would point out that the Business Roundtable under the instigation and leadership of the late Jerry Junkins has initiated a

very active trade education program with companies using their internal communications to teach their own people the importance of

international trade to their jobs, and so forth.

And that effort is now being expanded to other business organizations around town and will continue. But I think we are working

aggressively to educate our public on the importance of trade.

Thank you.

Mr. HOUGHTON. Thank you, Mr. Patterson.

Mr. Stewart, the last words of wisdom.

Mr. STEWART. Always a dangerous thing.

I would split my comments into five quick points.

First, I believe that the trading system at the moment has a

number of holes in it that should be filled and the Subcommittee

and the Committee’s task is to fill those through the negotiating

mandate through fast track or otherwise.

Let me just go through a couple quickly. Competition policy has

been mentioned but there are a whole host of issues that Congress

identified in the 1988 act that were not fulfilled as part of the UruVerDate 11-SEP-98 11:46 Jan 06, 2000 Jkt 058930 PO 00000 Frm 00165 Fmt 6633 Sfmt 6602 D:58930 W&M3 PsN: W&M3
162

guay round. One was exchange rate policy in terms of greater stabilization.

As you know the Yen has depreciated roughly 50 percent in the

last 3 or 4 months. That creates tremendous havoc in terms of

trade for companies whether here or abroad.

Third, the longstanding issue on the difference between direct

and indirect tax rebates, in terms of their permissibility under the

WTO which puts U.S. commerce at a substantial disadvantage. I

think those are all negotiating mandates and followthrough.

Second, there is a tendency on the part of any administration

and there is a tendency on the part of this or any other Committee

with jurisdiction, to try to paint a very rosy picture of whatever has

been accomplished in the past. I believe that you do the public a

disservice if you do not obtain realistic appraisal of the cost/benefits of agreements that are made.

The stories before NAFTA suggested great benefits or great

losses. I would say that history has suggested that both are overstated but there are substantial benefits and there are occasional

significant losses. The appraisal that gets done this year should be

a factual owe.

Mr. HOUGHTON. You do not expect me to disagree with that

statement, do you? [Laughter.]

Mr. STEWART. My hope would be that the evaluation of this and

other agreements would be factually based and not done in a way

to, if you will, beat the band.

I think that is a question of oversight by this Committee or this

Subcommittee.

Third, we have to implement what we have. And that goes to the

funding and oversight issues.

Fourth, you need to get transparency in fact. Transparency in

fact, means getting it out to the public and you have a huge opportunity that has yet to be fulfilled.

And, fifth, at the end of the day you need a system that works,

that gets balance in fact. I was a mathematician in college and

higher math is a form of philosophy where you have a minimum

number of assumptions, a minimum number of rules and try to explain the most data points that you come up with.

It is only in international trade that we have created a system

that is an absolute. Regardless of how well or how poorly the system we have devised explains the data points we get, we insist that

the system is inviolate. At some point in time, Mr. Chairman, I

would suggest that it may be appropriate to treat international

trade as any other study, namely that if the rules do not explain

the phenomenon that exists, you may wish to change the rules.

Mr. HOUGHTON. All right.

Well, I really appreciate your patience and your contribution. I

think this last bit has been very, very helpful.

Thank you very much for being here today,

Mr. STEWART. Thank you.

Mr. VASTINE. Thank you.

Mr. HOUGHTON. Now, Dr. Donna Christian-Green. Dr. Green is

the Member of Congress from the Virgin Islands; I really appreciate your coming here. Again, I apologize for being so late here,

but as you know the series of mechanical votes that we have gotten

163

involved in has put this thing off to a really very late hour. Thank

you very much.

You may proceed with your testimony.

STATEMENT OF HON. DONNA M. CHRISTIAN-GREEN, A

DELEGATE IN CONGRESS FROM THE U.S. VIRGIN ISLANDS

Ms. CHRISTIAN-GREEN. Good afternoon, Mr. Chairman.

Thank you, Mr. Chairman, for giving me this opportunity to

come here this afternoon and to discuss an issue that is of paramount importance to the people of the Virgin Islands, whom I am

very privileged to represent in this body.

The purpose of the hearing today as I understand it, is for the

administration to update the Subcommittee and Congress on the

outcome of the recent Ministerial Meeting of the WTO held in

Singapore in December 1996.

While the people of the Virgin Islands generally support free

trade and would support the agreements reached, as a result of the

Singapore meeting, one aspect of the Singapore agreements, that

being the unexpected agreement between the United States and

the European Union to phase out their tariffs on white spirits, particularly rum, by no later than the year 2000, would deal a very

severe blow to our already fragile economy if it is not changed.

As you know, Mr. Chairman, rum is a unique product of the Caribbean. It is central to the region’s history, culture and economy.

The viability of our rum industry in the Virgin Islands is of critical

importance to the stability of our economy.

It is the second most important industry in our islands, next to

tourism. It is for this reason, when we first learned that the United

States was considering making such an agreement, that former

Virgin Islands Governor Alexander A. Farrelly wrote to President

Clinton in 1994 to express our strong opposition to having white

spirits included in any duty-free agreements.

Through a special tax provision governing the relationship between the U.S. territories and the Federal Government our rum industry generates 10 percent of the total revenues of our government.

Today’s Virgin Islands economy, Mr. Chairman, is fragile at best.

We have been battered by four hurricanes since September 1989

and we are still struggling to reach full recovery. Against this backdrop, opening the U.S. markets to duty-free shipments from all

countries would mean a severe loss of jobs in the territory and further undermine our already unstable economy.

Mr. Chairman, the Virgin Islands Governor Roy Schneider and

I have been working with the Trade Representative’s Office in an

attempt to address this problem. In particular, I have discussed the

issue several times with today’s hearing’s lead witness Ambassador

Jeffrey Lang, who has been very understanding of our concerns.

It is my understanding that the USTR is in the process of working out a solution that would address our concerns. And I do want

to take this opportunity to commend Ambassador Lang and the

USTR for their efforts on our behalf and I look forward to working

with the Ambassador in finalizing an acceptable resolution to this

problem.

164

In conclusion, Mr. Chairman, the people of the Virgin Islands realize that free trade agreements are, for the most part, the engine

that is driving world affairs today. But we also understand that

these agreements do not take place in isolation. We would ask that

as we move toward the opening up of markets consideration be

given to the impact that free trade will have on the fragile economies of these smallest members of the American family and that

our interests, which are U.S. interests and U.S. jobs will also be

protected.

I thank you for allowing me to make these brief comments and

I would be happy to answer any questions.

Mr. HOUGHTON. I thank you very much.

I wish everybody’s testimony was as short and succinct to the

point as yours.

That was very well done.

Ms. CHRISTIAN-GREEN. Thank you.

Mr. HOUGHTON. I guess the only basic question I have is this, we

are moving in a direction of lowering tariffs. That is the whole concept of GATT and the WTO and NAFTA and the regional agreements, things like that. And the point being that in opening up

your borders a little bit you increase your opportunity to export a

great deal. Now, what is the answer to this thing as far as the Virgin Islands are concerned?

Ms. CHRISTIAN-GREEN. Well, Ambassador Lang is working toward an agreement that involves a price limit and while it is true

that reducing tariffs could open up markets, for us it is a much bigger issue in that the Virgin Islands does receive over $50 million

each year from duty placed on rum that is produced in our territory. And it does provide a significant portion of our government

funding annually. And this is where the losses would be realized

and this is why we are asking for, if not rum being taken out of

the agreement, that some reasonable agreement be reached to protect our particular industry.

Negotiations are still in progress. I think Ambassador Lang said

this morning he is working on it as late as today and would involve

a price limit on gallons, as I understand it.

Mr. HOUGHTON. You may not know these figures and they absolutely are not essential but if you do have them at the tip of your

tongue, I would appreciate them. What percentage of the white

spirits, of the rum, in this world or hemisphere are produced out

of the Virgin Islands?

Ms. CHRISTIAN-GREEN. I do not really have that answer. I would

imagine that it is a very small portion. Even compared to Bacardi,

we are maybe a third.

Mr. HOUGHTON. And Puerto Rico——

Ms. CHRISTIAN-GREEN. Yes.

Mr. HOUGHTON [continuing]. And places like that, right.

Ms. CHRISTIAN-GREEN. They are three or four times as big producers as we are.

Mr. HOUGHTON. OK. But it is not over 50 percent.

Ms. CHRISTIAN-GREEN. Oh, no. It is quite small.

Mr. HOUGHTON. But although it is more than 10 percent of the

basic economy of the Virgin Islands?

165

Ms. CHRISTIAN-GREEN. It is small on a world scale in terms of

the entire market but it is very big for the Virgin Islands.

Mr. HOUGHTON. Now, one other specific question. In terms of

rum production and the exporting of it, are there any major markets that you find difficult to get into that want to export their

product? In other words, can you, for example, can you export your

product to Puerto Rico?

Or even within our own kin, are there nontariff barriers there?

Or can you export it to Chile or to Brazil?

Ms. CHRISTIAN-GREEN. What I am being told by my legislative

director is that under this agreement we would not be able to export to Chile or the South American countries. I know that we do

not export to other Caribbean countries.

Mr. HOUGHTON. Let me just hold on here. Let me just give you

an example. So, you might be willing to import Chilean Risling

white wine into the Virgin Islands yet, they would not permit Virgin Islands rum to come into their country?

Ms. CHRISTIAN-GREEN. Well, I can speak to some of the other

Caribbean countries where we are not allowed to export our rum

there, but their rum comes in freely to the Virgin Islands, although

there is a duty placed on it.

Mr. HOUGHTON. Well, one final question. If you were Ambassador

Barshefsky, and obviously, your allegiance is to the American

sphere, the protectorates, the States, the whole business. But, at

the same time, you wanted to have the United States in the forefront, what would you say about the ultimate trade position in

white spirits with the Virgin Islands? Would you say that this

would be something which would have a zero tariff in 20 years or

never or there will be other stipulations? What would the trade policy be?

Ms. CHRISTIAN-GREEN. Well, we realize that we would not have

a zero tariff for a long period of time, but we certainly anticipate

that we would have it past the year 2000, so, that we could further

develop our markets. But we do need a bit more time, even the

year 2000 would be a bit too short for us but we do not expect it

to continue in perpetuity.

Mr. HOUGHTON. So, the objective is a good one but the timing is

poor?

Ms. CHRISTIAN-GREEN. For us it is. For us the timing is poor. We

would prefer to have it go on in perpetuity, but we realize that that

is not realistic and so we would accept some limitation but not the

year 2000 because we are still developing the market for our rum.

Mr. HOUGHTON. All right.

Well, listen, I thank you very much for your testimony and you

are very articulate and it was very helpful.

Thank you.

Ms. CHRISTIAN-GREEN. Thank you, Mr. Chairman.

[The prepared statement follows:]

166

167

Mr. HOUGHTON. Thanks again for your patience.

Well, since there are no other witnesses, anybody want to testify?

Ooops, we have got it on the other side. I am sorry, I did not turn

the page.

So, we have Maureen Smith and Dr. Kochenderfer, and Fred

Meister, sorry about that.

Will you please come to the table.

Now, Ms. Smith, would you like to testify?

STATEMENT OF MAUREEN R. SMITH, INTERNATIONAL VICE

PRESIDENT, INTERNATIONAL AFFAIRS, AMERICAN FOREST

& PAPER ASSOCIATION

Ms. SMITH. Thank you very much, Mr. Chairman.

My name is Maureen Smith and I am the international vice

president for the American Forest & Paper Association.

The U.S. forest products industry had a lot riding on the outcome

of the Singapore Ministerial. We were hopeful we could convince

our trading partners to build on the results of the Uruguay round

and support a proposal by the government of Canada to eliminate

tariffs on paper products as of January 1, 1998 and agree to zerofor-zero treatment of wood products as well.

We had a lot at stake. First, an estimated $15 billion in additional export sales between now and the year 2004; second, some

28,000 direct U.S. jobs; and finally, our future ability to compete

for the fastest growing export markets and our own domestic market, as well.

When we testified before the Subcommittee last April in the company of the United Paperworkers International Union, we explained that the tariff agreement reached in the Uruguay round allowed our European competitors to maintain tariffs on paper products for an unreasonable 10-year period at levels which even today

in some cases exceed 7 percent. In addition, the Council allowed

Japan to keep its tariffs on wood products at levels which top 14

percent, while U.S. tariffs in these two sectors were already at zero

or nominal levels.

We viewed the December Singapore meeting as our last chance

to reverse this inequity. At that time, we were encouraged by the

statement of Ambassador Barshefsky that both wood and paper

tariffs would be priority U.S. objectives in Singapore. Regrettably,

and notwithstanding the efforts of our tireless, and for many

nights, sleepless negotiators, and strong support from the congressional delegation in Singapore, we failed to get our trading partners to level the playingfield with us.

In sum, neither Europe nor Japan appears ready to give the U.S.

forest products industry the same level of access to their market

that their suppliers have here in the United States. In Europe, although several individual member States and customer industries

had weighed in with Brussels in support of a Singapore tariff package including wood and paper products, the EU appears to have

paid more attention to the protectionist interests of some paper

producers including, we understand, Finland, and blocked any

progress on this point.

168

Earlier this month, Deputy U.S. Trade Representative Jeff Lang

met with Finnish trade officials to try to make some progress in

this area. And we are deeply grateful for his personal involvement.

Also, in Singapore, as in the Uruguay round, Japan once again

blocked any progress on wood products tariffs. Japan’s continuing

refusal to even consider further wood tariff cuts is inconsistent

with its stated desire to reduce housing costs in Japan. This also

raises legitimate questions about how genuine reform of the Japanese housing industry can be accomplished without opening the

wood products market.

Ambassador Barshefsky has made it clear that the elimination of

tariffs on wood products is the priority U.S. objective in APEC. And

Japanese intransigence in Singapore makes the achievement of

this objective both more difficult and more urgent.

In conclusion, Mr. Chairman, our industry is forced to look beyond Singapore in our search for relief from a crippling tariff disadvantage. In doing so, we make the following recommendations

for U.S. policy.

First, market access must be the first priority of the United

States in the WTO and the first job of the WTO. We urge the administration to take the lead in developing initiatives which will

accelerate post-Uruguay round tariff liberalization and offer opportunities for expedited WTO action on proposed tariff measures.

Second, the administration’s existing tariff cutting authority

which is bound by the zero-for-zero sectors is inadequate. USTR

must have the ability to put together broader tariff cutting initiatives which will include items of sufficient interest to our trading

partners and which could accommodate changing interests of U.S.

companies and industries.

And, finally, U.S. participation in the work of the WTO committee on trade and environment must focus on ways to asset trade

disciplines in areas such as ecolabeling.

Thank you, Mr. Chairman. That concludes my statement and I

would be pleased to expand on any of these points during the question period.

[The prepared statement follows:]

169

170

171

172

Mr. HOUGHTON. Thank you very much, Ms. Smith.

Dr. Kochenderfer.

STATEMENT OF KARIL L. KOCHENDERFER, DIRECTOR, ENVIRONMENTAL AFFAIRS, GROCERY MANUFACTURERS OF

AMERICA, INC.

Mr. KOCHENDERFER. Thank you, Mr. Chairman.

173

My name is Karil Kochenderfer, and I direct environmental affairs for the Grocery Manufacturers of America. GMA is a member

of the Coalition on Truth in Environmental Marketing Information.

The Coalition’s members are trade associations representing America’s interests in the chemical, forest and paper, electronics, food

and consumer product industries among numerous other industries.

Together we represent over 1,200 companies in the United States

doing over $1.2 trillion of business internationally. And with me

today is Bruce Hirsch of O’Melveny and Myers to help me answer

any questions.

GMA’s members support the sharing of environmental information with consumers through ecolabeling. But we are very concerned that ecolabels, particularly those being developed in Europe,

provide misleading and incomplete information and can serve as a

barrier to trade.

The Singapore Ministerial addressed ecolabeling and achieved

limited progress toward greater transparency and participation in

ecolabeling programs. However, further steps are needed to protect

U.S. exporters from those who may abuse ecolabeling schemes and

to prevent misleading claims that undermine the legitimate objectives of ecolabeling.

What are these objectives? They are to inform consumers and to

encourage the development of use of products with reduced environmental impact. We agree with these objectives and they are

broadly shared by government, industry and environmental groups

alike.

A system modeled on the FTC guides for the use of environmental marketing claims is an excellent means of achieving these

objectives, while at the same time preventing misleading claims

that can lead to trade disputes. They are based on truthfulness,

science, verifiability, and nondeceptiveness. These guides have been

praised by environmental groups and business alike and have led

to an increasingly meaningful environmental labeling practices in

the United States.

We urge the U.S. Government to build on these results and to

advocate an FTC approach to environmental labeling internationally. While the Coalition strongly supports ecolabeling based on the

approach embodied in the FTC guides, we are deeply concerned

over ecolabeling programs that are being called ecoseals.

Namely, an ecoseal is a type of ecolabel that is awarded by a central certification panel that purports to judge the environmental effects of products and packaging, and to tell consumers with a single

seal which products and packages are best for the environment.

An example can be seen on the last page of my testimony. Our

20 years of experience with ecoseals in Europe and elsewhere have

shown that these programs are inherently flawed and create

unresolvable problems. Specifically, one, the selection of the criteria

upon which ecoseals are awarded is subjective. It is not scientifically sound.

Two, they are inherent barriers to trade and innovation. Three,

they fail to educate consumers. The ultimate goal of these seals is

to educate and bring a greater awareness about the environment

but they fail to achieve even this.

174

And four, fundamentally, they are barriers to trade because the

criteria frequently discriminate and are protectionist in nature.

I would like to go a little further, if I may, into the issue of

science because it is integral to the criteria for any credible ecoseal

program.

At this time there is just no objective way to scientifically determine which products or packaging are best. Products have different

strengths and weakness from environmental standpoint, even within the same category. For example, one product may have low energy consumption but generate high solid waste, and in another

case one may have low solid waste but cause greater water pollution.

And even within a single environmental parameter there are

tradeoffs and even within geographic areas. The relative priority of

environmental issues varies. For example, detergents that use less

water are inherently more valuable in countries that are dry.

The process of granting an ecoseal inherently is based on value

judgments by the issuing organization and these ecoseal panels

typically consist of government officials, companies and experts

from the country establishing the program.

Faced with no objective means for trading off environmental attributes of products, they are inherently sensitized to local concerns. We suspect that discrimination favoring these products to

the local manufacturers is often intentional.

Therefore, ecoseals have become sources of increasingly contentious trade disputes as Ms. Smith alluded to. Last year, the EU

issued an ecoseal criteria for paper and pulp that threatened to

shut the U.S. producers out of the European markets. We can expect trade disputes such as these to occur with increasing frequency as ecoseal programs proliferate in the coming months and

years.

And we are here to say that we cannot let U.S. products to continue to be discriminated against by protectionist measures disguised as environmental good deeds. We hope we have your support and thank you.

[The prepared statement and attachment follow:]

175

176

177

178

Mr. HOUGHTON. Thank you, Ms. Kochenderfer.

179

I appreciate that and I have a question or two.

Mr. Meister.

STATEMENT OF FRED A. MEISTER, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, DISTILLED SPIRITS COUNCIL OF THE

UNITED STATES, INC.

Mr. MEISTER. Thank you, Mr. Chairman.

I am Fred Meister, president and chief executive officer of the

Distilled Spirits Council of the United States. We are the trade organization which represents U.S. producers and exporters of distilled spirits.

I appreciate this opportunity to express our strong support for

the tariff elimination agreement for distilled spirits, which was concluded at the WTO Ministerial conference held in Singapore.

This agreement provides for the elimination of tariffs on so-called

white spirits, including vodka, rum and gin, and liqueurs by no

later than January 1, 2000. In addition, the agreement brings forward the schedule for eliminating tariffs on whiskey and brandy

that was agreed to in the Uruguay round by 4 years, also to January 1, 2000.

The agreement on spirit tariffs is an important step toward global free trade in the distilled spirits sector. The European Union is

our leading export market totalling nearly 35 percent of our exports to the world. It is the largest market in which we still face

tariffs and those tariffs are measurably higher than ours.

As a result of the duty-free treatment secured by the Singapore

agreement, we expect to substantially increase our sales to the European market to more than $200 million per year. Expanding exports holds the key to our industry’s future. The Singapore agreement also provides an excellent basis for pressing other WTO members to eliminate their tariffs as well. For these reasons we urge

the Congress to endorse the distilled spirits tariff agreement

reached at Singapore and to continue to support the administration’s efforts to secure tariff elimination commitments from additional countries.

I also appreciate this opportunity to express our strong position

that all distilled spirits should be included for tariff elimination.

All of our products compete directly with one another for consumer

preference, market share, and brand loyalty.

The agreement reached at Singapore ensures for the first time

that U.S. exporters of white spirits, such as vodka, rum and gin,

and liqueurs will benefit from tariff elimination—just like U.S. producers of whiskey and brandy—in the largest foreign market for

us.

Caribbean suppliers of rum have called for the removal of rum

from the tariff elimination agreement. These suppliers already

enjoy duty-free access for their rum both to the U.S. market and

to the European market, while U.S. producers of rum, located almost entirely in Puerto Rico, face significant tariffs on their shipments to Europe. DISCUS, therefore, strongly opposes this attempt

to remove rum from the tariff elimination agreement in order to

maintain the Caribbean suppliers advantage over Puerto Rico in

the European market.

180

The European Union is a large and growing export market for

Puerto Rican rum. With the removal of EU tariffs, U.S. producers

in Puerto Rico will be able to expand their sales greatly to the EU.

This will generate increased production and create new jobs in the

rum industry in Puerto Rico, which currently accounts for more

than 2,600 jobs and at least 5 percent of the island’s economy—an

estimated $1.4 billion per annum.

In addition to denying U.S. rum producers duty-free access to

their largest export market, removing rum from the agreement

would place them at a competitive disadvantage vis-a-vis all other

distilled spirits which will receive duty-free treatment. Excluding

rum from this agreement also would make it extremely difficult to

secure duty-free commitments in other trade agreements in the future.

Mr. Chairman, we have been working with the administration

and members of the Congress to address the issues raised by the

Caribbean rum producers and by the Virgin Islands rum producers

and we will continue to do so. However, we cannot agree with their

request that rum be removed.

We urge the Congress to endorse this agreement and to work

with the administration to ensure its full implementation.

Thank you very much.

[The prepared statement follows:]

181

182

183

Mr. HOUGHTON. Thank you, Mr. Meister. Let me ask you a question in response to Donna Christian- Green’s comment about rum. Would you say that her industry

would be better off if it agreed to the tariff dropping the restrictions that we have now in the Singapore agreement? Or would you

say it would be better for her, personally, to have more time in

order to stretch the adjustment period out?

Mr. MEISTER. We would make a distinction, Mr. Chairman, between the Virgin Islands and the Caribbean Islands. In the case of

the Virgin Islands we would not oppose some reasonable solution

to their problem, which we recognize. But, at the same time, we

would not support their contention that rum should be removed

from the agreements. Nor, would we support the idea that it should

be stretched out beyond the year 2000. But as Ambassador Lang

said this morning, they are working on some agreements. We can

be cooperative in that effort if it is, in fact, reasonable.

In the case of the Caribbean Islands, however, it is an entirely

different set of circumstances. In the case of Trinidad, and Jamaica, and Barbados, they have been exporting their rum to the

United States duty-free and to the European Union duty-free.

What this agreement does is to permit the Puerto Rican rum industry to have a level playingfield with the Caribbean producers. All

of them should be able to compete in the European Union without

tariffs on any of their products. We very strongly would oppose

anything that would give them or permit them to have their continued preferential treatment to the disadvantage of the Puerto Rican

rum industry.

Mr. HOUGHTON. Now, that makes broad sense.

I do not disagree with that, but what does it say to the person

who is producing rum in the Virgin Islands?

Mr. MEISTER. Well, the Virgin Island producers to our knowledge

have been interested only in shipping to the United States where

184

they already have the advantage of duty-free access. We do not

know of plans by the Virgin Islands rum industry to try to export

their product to Europe and, so, the agreement would not have an

impact on them on that basis.

Mr. HOUGHTON. Well, that probably is true but that is not what

Ms. Christian-Green said.

Mr. MEISTER. Well, I think we have some disagreement over the

intentions of the Virgin Islands rum industry.

Mr. HOUGHTON. OK.

Let us talk about the Uruguay round, Ms. Smith.

Given the Uruguay round history on tariffs for paper and wood

products, what is the incentive for the European Union and also for

Japan to agree to liberalize tariff in your industry and, so, really,

in effect, do you believe there is a forum for further tariff reduction

in the near term?

Ms. SMITH. I am sorry, Mr. Chairman, the question is what incentives might be offered?

Mr. HOUGHTON. Yes.

What is the incentive, why should the European Union and

Japan agree to liberalize tariffs in your industry, I mean what is

the incentive for them?

Ms. SMITH. I agree that on the face of it, the argument that has

been offered by Finland is persuasive. Finland says they sell 75

percent of their paper exports to the European market and only 5

percent to the United States. So, on the face of it, they say they

have no interest in pursuing tariff liberalization.

However, if we look at the experience of the paper industry in

the NAFTA when tariffs were eliminated between the United

States and Canada as an example, the historical experience there

is that shipments in both directions increased.

If you look at European experience when the tariffs were eliminated between the original European Common Market countries

and EFTA, and when the Scandinavians then gained duty-free access to the rest of the European market, in that instance the production on both sides in the paper industry increased remarkably.

I would be very happy to submit for the record charts that we

have which show that the time coincidence of these two economic

developments precludes any other explanation other than the classic explanation that free trade does, indeed, benefit both partners.

Mr. HOUGHTON. Yes. But if I could just interrupt for a minute.

The Uruguay round took place in what was it, it was 1986, something like that.

Ms. SMITH. Yes.

Mr. HOUGHTON. And I think you indicated there has been some

real problems as far as paper and wood products.

Ms. SMITH. Yes.

Mr. HOUGHTON. So, my question again is and maybe you have

said it and I did not pick it up, is what turns that, what is the incentive? We can sit here and discuss these issues and maybe we

can translate it into laws but what is the incentive for those people

do to something they have been unwilling to do before?

Ms. SMITH. Well, I am sorry, my answer was that in the first instance we believe free trade is to their advantage and that would

be an incentive. But, second, you are exactly right. If we approach

185

it in terms of a traditional trade negotiation USTR needs authority

to go beyond their existing zero-for-zero authority so they can put

together a package of issues that might be of interest to our trading partners.

Europe has answered that their existing authority which goes to

industries where the United States is very competitive is not of interest to them in putting together a package.

Mr. HOUGHTON. Sure.

Well, I would like to thank you very much for that.

I would like to ask a question of Ms. Kochenderfer.

What about the ecolabeling issue? Is there consensus among our

nonEuropean Union trading partners that the ecolabeling scheme

is discriminatory?

Ms. KOCHENDERFER. There is a developing consensus. We are

talking to our other Ministers at WTO and in other forums. Basically sharing with them our experiences trying to get into the EU

market and are finding that their stories are very similar.

And, so, I think there is a developing consensus that, in fact,

these seals have become barriers to trade and there needs to be

more openness, more honesty, more sharing of information and we

are finding agreement with them.

Mr. HOUGHTON. OK.

There needs to be, there should be. How does that happen?

Ms. KOCHENDERFER. Well, what we see with the FTC guides is

basically truth in advertising, be open, be honest. The market will

determine whether a claim is false or not. Companies will bring

claims against one another before the FTC and ultimately in the

world, if you will, an international FTC.

With true competition, two competitors will definitely say whether one is being truthful in advertising by saying something is nonbiodegradable or recyclable or whatever. And if the other is not

being truthful, they will bring it to the FTC or an FTC-like forum

in an international arena. And we think that competition, that

market orientation brings about greater information sharing rather

than just a kind of a seal which really does not convey anything.

Mr. HOUGHTON. OK.

Well, that is all the questions I have. I want to thank you very

much for your patience and for your testimony and this concludes

our hearing.

The record, as you may know, will be open until March 12.

So, thank you very much, this hearing is concluded.

[Whereupon, at 3:39 p.m., the hearing was adjourned.]

[Submissions for the record follow:]

186

187

188

189

190

191

192

193

194

195

196

197

198

Æ