U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

51–072 CC 1999

U.S. TRADE POLICY OBJECTIVES AND INITIATIVES

HEARING

BEFORE THE

SUBCOMMITTEE ON TRADE

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

MARCH 18, 1997

Serial 105–53

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 February 25, 1997, announcing the hearing ..................................... 2

WITNESSES

Office of the U.S. Trade Representative, Hon. Charlene Barshefsky .................. 17

Bergsten, C. Fred, Institute for International Economics .................................... 68

Business Roundtable, Joseph Gorman ................................................................... 80

Center for Strategic and International Studies, Sidney Weintraub .................... 154

Cooper, Mitchell J., Rubber and Plastic Footwear Manufacturers Association . 168

Cowen, Bruce D., TRC Companies, Inc., and U.S. Chamber of Commerce ........ 114

Denham, Robert E., Salomon Bros., Inc ................................................................ 100

Emergency Committee for American Trade, Michael H. Jordan ......................... 96

Gibbons, Hon. Sam, Gibbons & Co., Inc ................................................................ 64

Gorman, Joseph, TRW, Inc., and Business Roundtable ....................................... 80

Hills & Co., Carla A. Hills ...................................................................................... 48

Holmer, Alan F., Pharmaceutical Research and Manufacturers of America ...... 136

Institute for International Economics, C. Fred Bergsten ..................................... 68

Jordan, Michael H., Westinghouse Electric Corp., and Emergency Committee

for American Trade .............................................................................................. 96

National Foreign Trade Council, John E. Pepper ................................................. 90

Pharmaceutical Research and Manufacturers of America, Alan F. Holmer ....... 136

Pope, Carl, Sierra Club, as presented by Daniel Seligman .................................. 118

Proctor & Gamble Co., John E. Pepper ................................................................. 90

Public Citizen’s Global Trade Watch, Lori Wallach .............................................. 142

Rubber and Plastic Footwear Manufacturers Association, Mitchell J. Cooper .. 168

Salomon Bros., Inc., Robert E. Denham ................................................................ 100

Sierra Club, Carl Pope, as presented by Daniel Seligman ................................... 118

Sweeney, John P., Heritage Foundation ................................................................ 159

TRC Companies, Inc., Bruce D. Cowen .................................................................. 114

TRW, Inc., Joseph Gorman ..................................................................................... 80

U.S. Chamber of Commerce, Bruce D. Cowen ...................................................... 114

Visclosky, Hon. Peter J., a Representative in Congress from the State of

Indiana .................................................................................................................. 9

Wallach, Lori, Public Citizen’s Global Trade Watch ............................................. 142

Weintraub, Sidney, Center for Strategic and International Studies ................... 154

Westinghouse Electric Corp., Michael H. Jordan ................................................. 96

SUBMISSIONS FOR THE RECORD

AK Steel Co. et al., joint statement and attachment ............................................ 178

American Association of Exporters and Importers, New York, NY, statement .. 183

American Forest & Paper Association, W. Henson Moore, statement and

attachments .......................................................................................................... 186

Association of American Chambers of Commerce in Latin America, Andrew

Howell, statement ................................................................................................ 189

Bethlehem Steel Corp. et al., joint statement ....................................................... 191

Flashlight Tariff Coalition, James B. Clawson, letter .......................................... 195

Jamaica, Government of, His Excellency Richard L. Bernal, statement ............ 197

Stewart, Terrence P., Stewart and Stewart, statement and attachment ............ 205
(1)

U.S. TRADE POLICY OBJECTIVES AND

INITIATIVES

TUESDAY, MARCH 18, 1997

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON TRADE,

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:03 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

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721

February 25, 1997

No. TR–3

Crane Announces Hearing to

Review U.S. Trade Policy Objectives and

Initiatives

Congressman Philip M. Crane (R–IL), Chairman, Subcommittee on Trade of the Committee on Ways and Means, today announced that the Subcommittee will hold

a hearing on U.S. trade policy objectives and initiatives. The 21st century starts

January 1, 2001. That’s four years away. The hearing will take place on Tuesday,

March 18, 1997, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a.m.

Oral testimony will be heard from both invited and public witnesses. Invited witnesses will include United States Trade Representative-Designate Charlene

Barshefsky, who will discuss the President’s trade policy agenda for his second

term. Any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee or for inclusion in the

printed record of the hearing.

BACKGROUND:

With U.S. exports and imports of goods and service accounting for over 30 percent

of the Gross Domestic Product, the international character of the United States

economy is more pronounced than ever. Trade barriers facing U.S. exporters have

a direct negative impact on the ability of the United States to generate economic

growth and create new jobs. At the same time, many countries with formerly closed

economies in Asia, Latin America, and Eastern Europe are replacing long-standing

policies of State control with free market reforms and liberalized trade regimes. Developing countries, many of which are entering periods of high economic growth, will

create new demand for American products and services, if the markets of these

countries are opened to foreign imports, and the United States more actively promotes its exports.

Possessing only four percent of the world’s population and a relatively mature

economy, the United States must have a trade policy which aims to capitalize on

its strengths: a skilled workforce, high levels of innovation and productivity growth,

a vigorous service sector, and a superior educational system. However, maintaining

the competitiveness of U.S. firms in world markets will be achieved only if the

United States is well-positioned to react quickly to a continually changing global environment. As the importance of removing a new generation of sophisticated trade

barriers, including prohibitions on providing financial services, opaque procurement

practices, unfair subsidies, arbitrary sanitary and phytosanitary standards, and investment restrictions grows, so does the need to exercise U.S. trade policy leadership where the gains for U.S. firms and workers are judged to be the most substantial.

The 103rd Congress approved legislation implementing the results of two major

trade negotiations, the North American Free Trade Agreement (NAFTA) and the

Uruguay Round Trade Agreements, which established the World Trade Organiza3

tion. Implementation of both agreements should be monitored to ensure that the intended benefits are fully realized. Several trade initiatives, including those aimed

at establishing a Free Trade Agreement of the Americas and the Asia Pacific Economic Cooperation Group, are ongoing but have shown recent signs of stalling.

Other important undertakings, such as bringing Chile and Caribbean Basin countries into NAFTA and the Transatlantic Agenda announced by President Clinton

and European leaders at the December 1995 Madrid Summit, offer the possibility

of further eliminating barriers to trade and investment in these important markets.

FOCUS OF THE HEARING:

The Subcommittee requests that witnesses address: (1) appropriate trade negotiating objectives in a post-Uruguay Round environment and priorities for future

trade liberalization initiatives; (2) the potential economic impact of new trade agreements; (3) consequences for the U.S. economy if trade liberalization in the world

economy wanes; (4) implications for the U.S. economy of expanded trade arrangements, especially in the Western Hemisphere, to which the United States is not a

party; and (5) whether the United States is ceding economic opportunities and world

leadership to other nations if it were not to pursue additional market opportunities

for U.S. firms and workers though various multilateral, regional, and sectoral negotiations.

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

Requests to be heard at the hearing must be made by telephone to Traci Altman

or Bradley Schreiber at (202) 225–1721 no later than the close of business, Tuesday,

March 11, 1997. The telephone request should be followed by a formal written request to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House

of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515.

The staff of the Subcommittee on Trade will notify by telephone those scheduled to

appear as soon as possible after the filing deadline. Any questions concerning a

scheduled appearance should be directed to the Subcommittee on Trade staff at

(202) 225–6649.

In view of the limited time available to hear witnesses, the Subcommittee may

not be able to accommodate all requests to be heard. Those persons and organizations not scheduled for an oral appearance are encouraged to submit written statements for the record of the hearing. All persons requesting to be heard, whether

they are scheduled for oral testimony or not, will be notified as soon as possible

after the filing deadline.

Witnesses scheduled to present oral testimony are required to summarize briefly

their written statements in no more than five minutes. THE FIVE-MINUTE RULE

WILL BE STRICTLY ENFORCED. The full written statement of each witness will

be included in the printed record, in accordance with House Rules.

In order to assure the most productive use of the limited amount of time available

to question witnesses, all witnesses scheduled to appear before the Subcommittee

are required to submit 200 copies of their prepared statement and a 3.5-inch diskette in WordPerfect or ASCII format, for review by Members prior to the hearing.

Testimony should arrive at the Subcommittee on Trade office, room 1104 Longworth

House Office Building, no later than close of business, Friday, March 14, 1997. Failure to do so may result in the witness being denied the opportunity to testify in

person.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

Any person or organization wishing to submit a written statement for the printed

record of the hearing should submit at least six (6) copies of their statement and

a 3.5-inch diskette in WordPerfect or ASCII format, with their address and date of

hearing noted, by the close of business on Tuesday, April 1, 1997, to A.L. Singleton,

Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102

Longworth House Office Building, Washington, D.C. 20515. If those filing written

statements wish to have their statements distributed to the press and interested

public at the hearing, they may deliver 200 additional copies for this purpose to the
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Subcommittee on Trade office, room 1104 Longworth House Office Building, at least

one hour before the hearing begins.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request

for written comments must conform to the guidelines listed below. Any statement or exhibit not

in compliance with these guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages including attachments. At the same

time written statements are submitted to the Committee, witnesses are now requested to submit

their statements on a 3.5-inch diskette in WordPerfect or ASCII format.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material

not meeting these specifications will be maintained in the Committee files for review and use

by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments

by the Committee, must include on his statement or submission a list of all clients, persons,

or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, full address, a

telephone number where the witness or the designated representative may be reached and a

topical outline or summary of the comments and recommendations in the full statement. This

supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being submitted for printing.

Statements and exhibits or supplementary material submitted solely for distribution to the

Members, the press and the public during the course of a public hearing may be submitted in

other forms.

Note: All Committee advisories and news releases are available on the World

Wide Web at ’HTTP://WWW.HOUSE.GOV/WAYSlMEANS’.

The Committee seeks to make its facilities accessible to persons with disabilities.

If you are in need of special accommodations, please call 202–225–1721 or 202–225–

1904 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.

and Means Trade Subcommittee to consider the broad issue of U.S.

Chairman CRANE. Good morning. This is a meeting of the Ways

f

trade policy goals and initiatives. My hope is that Members and

witnesses will discuss the role that the United States intends to

play in the international economy into the next century.

One course is for the United States to maintain an agenda of active engagement with the rest of the world, accepting the responsibility of our traditional leadership role and preserving our position as the world’s greatest exporter. The other option is to sit hesitantly on the sidelines in the next century, letting our competitors

shape the rules under which U.S. firms and workers do business

in international markets.

In considering the variety of trade initiatives in which the United

States is a participant, I am struck by the fact that chances for success, in many instances, will be markedly improved if Congress approves new trade agreement negotiating authority. But regardless

of the outcome of the fast track debate, the United States must
5

continue to remain aggressively engaged in trade talks in Asia,

among countries in the European Union, and in our own hemisphere. There is much that can be achieved while fast track legislation is pending.

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

for an opening statement.

Mr. MATSUI. Thank you, Mr. Chairman. This hearing today to review U.S. trade policy objectives and initiatives is important and

timely, as Congress and the country begin to engage in a debate

over the future direction of U.S. trade policy and trade negotiations

as we prepare to enter the 21st century.

The President has stated his intention to seek renewal of fast

track authority to implement trade agreements. To conduct a successful U.S. trade policy, it is essential to rebuild a bipartisan domestic consensus within the private sector, as well as the administration and Congress, on our future trade negotiating priorities and

objectives.

International trade—that is, imports and exports of goods and

services—now account for over 30 percent of our gross national

product. Increased exports are a leading engine for our economic

strength and growth and have created many new and higher paying jobs.

The United States must maintain its leadership in seeking further trade liberalization around the world in order to maintain a

strong competitive economy. At the same time, we must be cognizant of and address the fact that not all industries, companies,

or workers share in the benefits of trade, and recognize that there

are costs as well as benefits to increased trade.

Globalization is a fact of life today and for the future and cannot

be reversed. The challenge is to find better ways for all of our companies and workers to compete, to adjust to, and benefit from the

global economy.

With respect to fast track, Mr. Chairman and Members of this

Subcommittee, the fact is that foreign countries are unwilling to

negotiate trade agreements with us that require congressional approval unless they have some assurance the agreement they negotiate is not subject to renegotiations by the Congress. It would appear that until we renew fast track, the President’s ability to manage our trade relations to open markets abroad will be severely restricted.

Democratic and Republican Presidents alike have had fast track

authority for the past 20 years and have used it successfully in negotiating and implementing major bilateral, multilateral, regional

trade agreements through a process that involved thorough consultation with and input of the congressional leaders and the private sector.

The challenge now before us is to build a broad domestic consensus with the United States, involving government, business, labor,

consumers, and other private interests to support future marketopening trade initiatives, to achieve agreement on appropriate negotiating objectives and priorities for our country, and to provide

the tools to the President necessary to accomplish these goals.

Mr. Chairman, this hearing is a worthwhile first step in this direction. I look forward with great interest to the testimony today
6

from the administration, private sector, academic witnesses, and

others. In particular, I welcome Ambassador Barshefsky and congratulate her on passage last week of the legislation that enabled

her to be confirmed as the U.S. Trade Representative.

[The opening statements of Mr. Matsui and Mr. Ramstad follow:]
7
f

8

Mr. M

Chairman C

ATSUI. Thank you, Mr. Chairman.

RANE. Today we will hear from a number of distinf

guished witnesses. Our first witness will be Congressman Pete Visclosky, who represents the First District of Indiana. Please proceed,

Pete.
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STATEMENT OF HON. PETER J. VISCLOSKY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA

Mr. VISCLOSKY. Thank you, Mr. Chairman. And as I understand,

my entire statement will be entered into the record.

Chairman CRANE. Without objection.

Mr. VISCLOSKY. Mr. Chairman, I would like to thank you and the

other Members of the Trade Subcommittee for allowing me to testify regarding U.S. trade policy objectives and initiatives. I would

like to briefly focus my testimony on the importance of linking respect for internationally recognized worker rights to the conduct of

international trade.

Linking respect for worker rights to trade is not a new or radical

concept in U.S. or international law. Nearly a century ago, the

United States first banned the importation of white phosphorus

matches because of the hideous occupational poisoning inflicted on

workers involved in their production. Since 1974 the Congress has

included worker rights provisions in at least eight trade laws with

broad applicability.

In March 1994 I joined in a bipartisan group of 67 House Members in sending a letter to President Clinton urging him to marshall international support to establish a standing Committee on

worker rights and labor standards within the WTO and, on an interim basis, a GATT working party on this issue.

Unfortunately, the Marrakesh Ministerial Declaration, signed in

1994, did not provide for the establishment of a GATT working

party or WTO standing Committee on this issue because of strong

foreign opposition to just talking about the relationship between

the trading system and internationally recognized labor standards.

Since the Marrakesh Declaration did not provide for the establishment of a GATT working party or a WTO standing Committee

on worker rights, I introduced legislation in the 103d Congress directing the President to do so. I was pleased that the implementing

legislation for the Uruguay round of the GATT, which was signed

into law in 1994, included a worker rights provision based on my

legislation. This provision requires the President to seek the establishment of a working party within the WTO to explore ways in

which to link the conduct of international trade with respect for

fundamental worker rights.

In December 1996 I was joined by 49 of my House colleagues in

sending another letter to the President, urging him to establish a

working party on worker rights and labor standards during the

WTO’s ministerial conference in Singapore. The President identified worker rights as a high priority and then-Acting U.S. Trade

Representative Charlene Barshefsky worked to address worker

rights at the conference. Although signatories to the Singapore

Declaration pledged a commitment to observe internationally recognized core labor standards, the United States was unable to convince our trading partners to establish a working party on worker

rights within the WTO.

While this small step forward is better than nothing, it falls far

short of what is necessary to convince some of our trading partners

that this is an issue that will not go away by sticking their heads

in the sand.
10

Ambassador Barshefsky has worked hard to promote worker

rights and labor standards as part of the U.S. trade policy. I applaud her initiative and remain hopeful that she and the Clinton

administration will continue their efforts to generate support for

these issues in the international community.

However, to date, what has been lacking is the political will and

the resolve on the part of some of the WTO member nations to develop binding trade rules that advance the interests of workers, not

just those of financiers, corporate managers, and consumers.

For example, the United States and the global trading community must not tolerate the export of products that were produced

by children in bondage or by adult workers who are denied their

basic freedom to form and join an independent trade union.

While the United States has repeatedly failed to convince our

trading partners to include worker rights and labor standards in

trade agreements, I believe there are several ways in which the

105th Congress can influence the process. In reauthorizing fast

track negotiating authority, which lapsed in 1994, the Congress

should include language requiring that any trade agreement negotiated under the fast track procedure address the issue of worker

rights and internationally recognized labor standards. If we fail to

include such a provision in fast track reauthorization, we run the

risk that worker rights and labor standards will continue to be perceived as issues of secondary importance in the formulation of U.S.

trade policy.

Now, more than ever, it is up to our country to take a decisive

leadership role and insist that this long-neglected issue be addressed forcefully with our trading partners.

Mr. Chairman, I hope to work with you and the other Members

of the Subcommittee as you continue to grapple with finding ways

in which to improve our global trading system. I thank you very

much for providing me with this opportunity today.

[The prepared statement follows:]

Statement of Hon. Peter J. Visclosky, a Representative in Congress from

the State of Indiana

Mr. Chairman, I would like to thank you and the other members of the Trade

Subcommittee for allowing me to testify regarding U.S. trade policy objectives and

initiatives. Today, I would like to briefly focus my testimony on the importance of

linking respect for internationally-recognized worker rights to the conduct of international trade, and would ask that my entire written statement be made a part of

the hearing record.

Linking respect for worker rights to trade is not a new or radical concept in U.S.

or international law and policy discussions. Nearly a century ago, the U.S. first

banned the importation of white phosphorus matches because of the hideous occupational poisoning inflicted on workers involved in their production. When the Treaty

of Versailles was signed in 1919, it committed the ratifying nations ‘‘to endeavor to

secure and maintain fair and humane conditions to which their commercial and industrial relations extend.’’ Furthermore, when the Atlantic Charter was announced

in 1941, President Franklin Roosevelt committed our nation to ‘‘the fullest collaboration between all nations in the economic field with the object of securing for all, improved labor standards, economic advancement, and social security.’’

Since 1974, the Congress has included worker rights provisions in at least eight

trade laws with broad applicability. Among other things, these provisions: (1) authorized suspension of benefits to trading partners, where persistent patterns of conduct deny internationally-recognized worker rights (as defined in Section 301 of the

Trade Act of 1974, as amended); (2) prohibited preferential tariffs to trading partners not taking steps to afford workers internationally-recognized worker rights

(Generalized System of Preferences, Title V of the Trade Act of 1974, as amended);
11

(3) required the President to seek the establishment of a working party in the World

Trade Organization (WTO) to examine the relationship between internationallyrecognized worker rights and trade (Section 131 of the Uruguay Round Agreements

Act); and (4) specified the promotion of worker rights as ‘‘principal negotiating objectives’’ of the United States in trade agreements (Section 1101 of the Omnibus Trade

Act of 1988).

Mr. Chairman, as you and other members of this subcommittee may know, this is an issue that I have been involved with for some time. In March 1994, I was

joined by a bi-partisan group of 67 House Members in sending a letter to President

Clinton urging him to marshal international support to establish a standing committee on worker rights and labor standards within the WTO, and, on an interim

basis, a General Agreement on Tariffs and Trade (GATT) working party on this

issue. The objectives of the proposed working party were to explore ways in which

to link the conduct of international trade to respect for fundamental worker rights—

including the freedom of association, the right to organize and bargain collectively,

and the prohibition of forced or compulsory labor. The imposition of uniform labor

standards, such as wages and hours, was not an objective. Unfortunately, the Marrakesh Ministerial Declaration signed in 1994 did not pro- vide for the establishment of a GATT working party or WTO standing committee

on this issue because of strong foreign opposition to even talking about the relationship between the trading system and internationally-recognized labor standards. Instead, an eleventh-hour agreement was reached whereby countries were able to

raise new issues, including labor standards, in the Preparatory Committee, which

was charged with establishing the agenda for the WTO. Since the Marrakesh Declaration did not provide for the establishment of a GATT

working party or a WTO standing committee on worker rights, I introduced legislation in the 103rd Congress, H.R. 4271, directing the President to do so. I was

pleased that the implementing legislation for the Uruguay Round of the GATT,

which was signed into law in 1994, included a worker rights provision based on my

bill. This provision, which was referenced above, requires the President to seek the

establishment of a working party within the WTO to explore ways in which to link

the conduct of international trade with respect for fundamental worker rights. In December 1996, I was joined by 49 of my House colleagues in sending a letter to the President, urging him to establish a working party on worker rights and labor

standards during the WTO’s Ministerial Conference in Singapore. The President

identified worker rights as a high priority, and then-Acting U.S. Trade Representative Charlene Barshefsky worked to address worker rights at the conference. Although signatories to the Singapore Declaration pledged a ‘‘commitment’’ to observe

‘‘internationally-recognized core labor standards,’’ the U.S. was unable to convince

our trading partners to establish a working party on worker rights within the WTO.

While this small step forward is better than nothing, it falls far short of what is

necessary to convince some of our trading partners that this is an issue that will

not go away by sticking their heads in the sand.

It is my pleasure to be appearing before the subcommittee today with newly confirmed U.S. Trade Representative Charlene Barshefsky. Ambassador Barshefsky

has worked hard to promote worker rights and labor standards as part of U.S. trade

policy. I was pleased that, in her overview of the President’s 1997 Trade Policy

Agenda, she mentioned the importance of advancing several ‘‘new’’ issues, including

labor rights. The 1997 agenda explicitly states that the Clinton Administration will

continue its strong advocacy of the need to include worker rights and core labor

standards as part of the World Trade Organization as it evolves, as well as to address the issues in the context of bilateral and regional trading agreements.

I applaud Ambassador Barshefsky’s initiative, and remain hopeful that she and

the Clinton Administration will continue their efforts to generate support for these

issues in the international community. However, to date, what has been lacking is

the political will and the resolve on the part of some of the WTO member nations

to develop binding trade rules that advance the interests of workers, not just those

of financiers, corporate managers, and consumers. For example, the U.S. and the

global trading community must not tolerate the export of products that were produced by children in bondage or by adult workers, who are denied their basic freedom to form and join an independent trade union. The time has come for the international trade community to come to grips with these insidious problems and correct this glaring shortcoming.

Starting immediately, there are some constructive actions that can be taken by

the U.S. to build more international support and persuade WTO member nations

to act collectively against brutal systematic labor repression. First, the President

should make a clear and unequivocal commitment and corresponding public pronouncement that the establishment of a WTO working party on worker rights and
12

trade should be added to the on-going work program of the WTO. In keeping with

this goal, the USTR must elevate worker rights to a top-tier priority for all future

trade negotiations. As long as they remain one of many negotiating objectives, they

will continue to be bargained away in favor of commercial and sectoral interests.

Another suggestion I would make is that we need to persuade our trading partners, who have shown reluctance to even talk about the relationship of

internationally-recognized labor standards to trade, to discuss their concerns. Until

there is a working party within the WTO to deal specifically with these concerns,

it will be difficult to get beyond the rhetoric and hyperbole. However, as an intermediate step, I would welcome a White House-convened international summit this

year to help break the ice. The U.S. could lead in this area by inviting the labor

and trade ministers from a group of, perhaps, 10 to 15 developed and developing

countries to a conference on worker rights and trade. At a minimum, a summit devoted exclusively to discussing the relationship of internationally-recognized worker

rights to the conduct of international trade would illuminate the specific arguments—pro and con—that need to be carefully examined. Hopefully, an international consensus could be galvanized among a core group of countries from which

a broader WTO working group could be built.

As trade barriers continue to fall, and the U.S. plays a crucial role in negotiating

trade agreements, such as the Uruguay Round, I feel that it is incumbent upon the

U.S. government to persuade our trading partners to demonstrate respect for basic

worker rights and labor standards. We should look for effective bilateral leverage

to use in persuading opposing countries that it would be preferable, and in their

self-interest, for all trading nations to agree upon ways to strengthen and better enforce the rules of fair and open trade so as to discourage systematic labor repression. Enhanced worker rights will empower workers everywhere to help themselves

and to share more fully in the benefits of trade within countries, as well as among

them. It will also help ensure that U.S. workers and companies are not put at a

competitive disadvantage simply because a trading partner does not have the same

respect for worker rights and labor standards that we do.

While the U.S. has repeatedly failed to convince our trading partners to include

worker rights and labor standards in trade agreements, there are several ways in

which the 105th Congress can influence this process. In reauthorizing fast-track negotiating authority, which lapsed in 1994, the Congress should include language requiring that any trade agreement negotiated under the fast-track procedure address

the issue of worker rights and internationally-recognized labor standards. If we fail

to include such a provision in fast-track reauthorization, we run the risk that worker rights and labor standards will continue to be perceived as issues of secondary

importance in the formulation of U.S. trade policy. Any one or a combination of

these options would be a significant step forward from where we stand coming out

of Singapore. Now, more than ever, it is up to the United States to take a decisive

leadership role and insist that this long-neglected issue be addressed forcefully with

our trading partners.

Mr. Chairman, although we may have different views on this important subject,

I hope to work with you and other members of the subcommittee as you continue

to grapple with finding ways in which to improve our global trading system. Thank

you, again, for allowing me this opportunity to share my views with you. I would

be happy to answer any questions you, or other members of the subcommittee,

might have.

Are there any questions for our witness?

Chairman CRANE. Thank you, Mr. Visclosky.

f

Mr. RANGEL. Thank you.

Most all of us agree with the general theme of what you are talking about. I participated in the WTO ministerial in Singapore, and

when you start talking with the Chinese about these things, they

look at you with glazed eyes because they are saying, absolutely,

that they have tens of millions of people on welfare working in

these state plants, and they are not thinking about having them

compete in the world market. You want to talk transition, they will

talk transition, but these people are not productive; nor can their

security afford for them to be left out there.
13

Then when you go to Chile, of course, they do not have any problems with anything you want to put in an agreement because they

say these are the things they would be doing without a treaty, so

it is no problem.

How do we specifically state what we believe are the minimum

standards that workers should have and what their environmental

conditions should be when we enter into a trade agreement with

a country?

Mr. VISCLOSKY. Mr. Rangel, I think we have to do two things.

One is to suggest to countries such as Chile that we do expect them

to abide by the statutes they have on the books. In many of these

instances, the countries who are very flagrant violators of international labor standards actually do have those legal policies in existence; they do not abide by them.

I think the other important thing we have to stress to them is

that we are not looking to gain ourselves an unfair trade advantage. If a country, for example, has a lower wage rate that is culturally and historically a fact of life, I am not looking. I do not

think any of us are looking to raise that in an unfair fashion. That

is fine.

But again, I think just common decency and humanity would indicate that there is something wrong with small children stitching

soccer balls and carrying bricks and working in hard labor.

And the other point I want to make is, all I am suggesting and

asking for is that we establish a working group to have meaningful

conversations about this.

Mr. RANGEL. Well, let’s talk fast track. What language is acceptable to you? Would you accept a working group to pass fast track?

Mr. VISCLOSKY. Mr. Rangel, I would like more than a working

group. As a practical matter, I think that would be about as far as

we could push the situation politically.

Mr. RANGEL. What language would you like to see in the fast

track?

Mr. VISCLOSKY. Mr. Rangel, I introduced legislation two Congresses ago, and I would recommend that to the Subcommittee’s attention.

Mr. RANGEL. Was that similar to the language that was in the

NAFTA Agreement?

Mr. VISCLOSKY. It is not, not to the NAFTA Agreement. This was

incorporated as far as implementing the bill for Uruguay round of

the GATT. It was essentially suggested to the administration that

we talk about this issue. I would like something more compulsory

as far as a commitment from WTO member countries that they will

abide by universally recognized core labor standards. That would

be my ultimate goal.

And again, as a practical matter, could we force that issue in the

next year or two? Again, I would be doubtful that we could.

In the end, I would like to see some binding conditions as far as,

again, just basically accepted international labor standards. As a

practical matter, I was born 47 years ago; I do not think that is

going to happen tomorrow morning. But I think as a bare minimum, we ought to demand that there be a working group established and serious negotiations, with the long-term view that there

be requirements on international labor standards. But again, to
14

proceed in a deliberate fashion, recognizing that there is very

strong committed international opposition to our position.

Mr. RANGEL. You are talking about an American working group

or an international working group?

Mr. VISCLOSKY. We have asked that there be a working group

under the WTO. If we enter into bilateral agreements, it ought to

be between the countries involved in that bilateral agreement.

What I would be looking for, to be honest with you, is to have

as many lines in the water as possible. We are still trying to force

the issue with the WTO. For example, if you enter into a bilateral

agreement with Chile then again, in the best-case scenario, I think

we ought to have some definitive standards as far as labor rights.

Barring that, we ought to have a specific working group that is serious about establishing those compulsory standards.

Mr. RANGEL. Thank you.

Thank you, Mr. Chairman.

Chairman CRANE. Mr. Matsui.

Mr. MATSUI. Thank you, Peter. I think I understood what you

said in response to a question by Mr. Rangel, that you could not

support an extension of current law? Is that my understanding, or

you could support an extension of current law?

Mr. VISCLOSKY. Mr. Matsui, I am becoming a doubter about fast

track authority, to be honest with you. I voted against NAFTA. I

voted for GATT, but I am increasingly concerned about the effect

it is having on people who are employed or want to be employed

in my congressional district. I have some general concern.

On the other hand, if you see fast track reauthorized, I do think

we ought to use that as a vehicle to press some of these very important issues.

Mr. MATSUI. Let me say this. I think all of us share your concerns. What we are doing now is dealing with less developed countries that obviously do not have the standards of the European

countries, the United States or even some of the Asian countries,

such as Japan. And at the same time, we need to get into these

countries and have their markets because if we do not, the developed countries of Europe, Japan, and others will go in there and

we will be left in the cold.

We have somewhat of a dilemma. I share your concerns, but one

of the reasons the WTO was so critical in 1994 when we passed it

was because that is the body, the organization that we want to

take many of these issues in the future, to try to get an international consensus on some of these issues pertaining to labor, the

environment, and some of these other matters.

I think what we need to do is give this process some time. The

WTO has only been in existence for some 2 years now, and I think

over time we will find that if we allow it to grow, it will become

a strengthened organization that could begin to debate some of

these very issues.

But the concern I have is that if we try to impose what we believe to be strong standards that we have on some of these less developed countries, they will not negotiate with us and then other

countries will go in there and take these markets over.

And, as you know, the export opportunities in the United States

now are about 30 percent of the GDP of this country and it will
15

undoubtedly take a larger share, given the fact that the economy

is pretty internationalized now. The economies of Latin America,

and obviously Asia, are the young, growing economies of the world.

Somehow, we have to make sure that we get into those and compete in them.

I think if we are allowed to do that, we can compete against any

country or any company in the world.

Mr. VISCLOSKY. Mr. Matsui, I guess I would have a couple of

comments on that. I appreciate your observation that we are only

2 years down the road. The administration last December was very

aggressive in Singapore about again, simply establishing a working

group to talk about this. We did not enjoy success in that endeavor.

We have an international labor organization. I had representatives from the organization in my office late last year. They have

no enforcement authority. They have talked and they have negotiated for years on this issue to, from my observation, no avail at

all.

I want to open up free trade and the possibility of exports to

these countries. I also am very concerned about imports from those

countries. And I think there are two values here: One, the moral

value, and I think the values we hold in our democracy to make

sure everyone who labors is treated fairly. From a selfish standpoint, I must tell you I think to the extent we can encourage people

to raise their standards, we help ourselves become more competitive.

And again, getting back to Mr. Rangel’s point, I was born 47

years ago. I have no false expectations that something mandatory

could be forced on individuals. But to the extent every time we

enter into one of these agreements we make it clear to that prospective trading partner that we are deadly serious about labor

rights and we want to have serious talks with them about this, I

think we help move that negotiation process along with the WTO.

Mr. MATSUI. Well, I appreciate your comments. I would only

point out what you pointed out, that Ambassador Barshefsky was

very effective in Singapore, and I think we finally got this on the

map, on the radar screen, and it became an international issue,

something that we had not seen in the past. This was obviously a

very first step in a long process.

But thank you for your testimony. I really appreciate this opportunity.

Mr. VISCLOSKY. Thank you.

[The following was subsequently received:]
16

Mr. V

Chairman C

ISCLOSKY

RANE

. Mr. Chairman, thank you very much.

. I thank you, too, Congressman.

f

Chairman CRANE. We appreciate your presentation.

Our next witness will be Hon. Charlene Barshefsky, U.S. Trade

Representative-Designate.

Ambassador Barshefsky, it is with great pleasure that I welcome

you here today to discuss the President’s trade agenda for his second term. I must say it will be heartening to finally erase that

word ‘‘designate’’ from your title.
17

Speaking on behalf of many of my colleagues on the Subcommittee, you serve as our envoy, and we want you to have the tools and

stature that you need to conclude the best deals possible for U.S.

workers and firms.

Looking through your written testimony reminds me of the fact

that as deputy, you were present when many of the trade initiatives facing the United States were set in motion. In the Free

Trade Agreement of the Americas negotiations and in the APEC

talks, the United States committed to the target dates of 2005 and

2010, respectively, for achieving free trade.

During the next 4 years, your task is to set the course that will

achieve these two key bipartisan goals.

I look forward to your testimony and that of our other distinguished witnesses on how we can best move the trade agenda forward.

And now we look forward to hearing from you, Madam Ambassador.

STATEMENT OF HON. CHARLENE BARSHEFSKY, U.S. TRADE

REPRESENTATIVE

Ms. BARSHEFSKY. Thank you, Mr. Crane. I am pleased to report

that the President signed the joint resolution last night. So, in fact,

the word ‘‘designate’’ is gone.

Chairman CRANE. Oh, I am very pleased to hear that because we

have all been waiting here with expectation. Congratulations.

Ms. BARSHEFSKY. Thank you very much. If I might, on a personal

note, thank you and all of the Members of the Subcommittee and

the Full Committee for your encouragement and support.

It is a pleasure to appear before you today to set forth the administration’s views on the direction of trade policy. Of course, no

discussion of that policy should begin without reaffirming our commitment to a bipartisan partnership with Congress. That has been

a cornerstone of our past success. Only bipartisanship will lead to

future success. I pledge to work closely with all Members of the

Subcommittee and the Full Committee to advance U.S. trade interest, to expand exports, to create more and better jobs and opportunities for Americans today and tomorrow.

We should begin by recognizing that our economy is the strongest in the world, that expanded trade has played an important role

in building that strength, and that no country in the world is better positioned than we to take advantage of the enormous opportunities presented by a global economy. We are at a unique moment

and we need to seize it now. Our competitors cannot beat us, but

we can lose if we put ourselves on the sidelines.

As we look toward the next 4 years, consider our situation. Our

economy is the envy of the world. We are in the sixth year of current economic expansion. Over the past 4 years we have created

nearly 12 million new jobs. The G–7 combined barely created

600,000.

We have seen a resurgence in U.S. competitiveness. We are once

again the world’s largest exporter, setting historic records: Manufactured exports up 42 percent; high-tech exports, 45 percent; services, 26 percent; agriculture up 40 percent. We are the world’s largest producer of semiconductors and we are the world’s largest pro18

ducer of automobiles. We are the most competitive major economy

in the world.

Our economic expansion has been investment led, building a

foundation for even greater economic success in the future. In 1995

total business investment in the United States was more than $800

billion. Our industrial production in the last 4 years is up nearly

18 percent. In Japan it is up 5; in Germany it is a negative 2.

The growth of our industrial capacity is at its highest level since

the seventies. We have more manufacturing jobs than we had 4

years ago, and the industrial Midwest has gone through a virtual

renaissance of manufacturing and productivity.

Trade policy has contributed significantly to the economic

strength of our country today. From the early weeks of the administration, the President made it clear that we would compete and

not retreat behind walls. We would not accept the status quo,

whereby too often trading partners took advantage of our open

market while maintaining closed markets at home.

We have relentlessly pursued an agenda of opening foreign markets and breaking down barriers—multilaterally, regionally and bilaterally. We have negotiated, as you know, over 200 trade agreements, all designed to advance our economic and trade interests.

In the past 4 years we completed the Uruguay round. We completed the NAFTA which increased our exports to Mexico and kept

Mexican markets open despite the worst economic crisis in Mexican

modern history. We have worked tirelessly to break down market

access barriers in Japan, reaching 24 agreements and increasing

our exports 43 percent in 4 years.

We have led the world in setting tougher standards for trade

with China. We breathed new life into APEC. We have led multilateral effort in this hemisphere to build the Free Trade Area of

the Americas. We initiated the effort regarding the creation of a

United States-European Union transatlantic marketplace. We took

the lead in combating bribery and corruption in government procurement, in respecting core labor standards, and in pursuing an

agenda to make trade and environmental policies mutually supportive.

We have vigorously enforced our trade laws and agreements, filing 46 enforcement actions and 23 WTO cases. And, over the last

3 months, we have completed an information technology agreement

and an agreement on basic telecommunications, two far-reaching

multilateral agreements reducing trade barriers around the world

for our most competitive industries.

We pursued these initiatives because we recognize that trade is

increasingly important to the future of our Nation. It is nearly 30

percent of GDP, up from 13 percent in 1970. Exports over the last

4 years have generated roughly one quarter of our economic

growth, and these are good jobs. They pay better than nontraderelated jobs. Exports support about 11.3 million jobs in the United

States, 1.4 percent of which were created in the last 4 years.

None of this is to suggest that we do not face challenges and continuing problems. Many markets around the world remain closed

to our exports. And to the extent our trade deficit is a result of

these barriers, particularly on a bilateral basis, they must be reduced. Too many Americans are left behind in the current economic
19

expansion without the skills or education to benefit from the increased opportunities. Neither government nor the private sector

should rest while that is the case. And I recognize that for those

Americans who have lost jobs because of trade or technological

change or corporate downsizing, it is cold comfort that the overall

picture is positive.

But, Mr. Chairman, in considering the direction of future trade

policy, we need to start by recognizing that our economy is stronger

than it was 4 years ago and far stronger than it was 10 years ago.

None of us should be complacent, but our economic success is no

accident. We put our government’s market-opening efforts behind

our companies, workers, and farmers at precisely the time they

were at their most competitive.

After years of doubt and soul searching about our country’s ability to compete, we have successfully, together, defined a distinctively American partnership to win in a tough global economy. But

this is hardly the time to rest on our laurels.

As we contemplate the next 4 years in trade, we face a very clear

choice and the choice is this. We can recognize that the American

economy is the model for the world and continue to open foreign

markets and seize the initiative when it comes to international

competition. We can recognize the extraordinary opportunities that

are presented in which developing nations want and need the full

range of our goods, our services, and agriculture. We would face up

to problems as we identify them, working to put in place education,

training and adjustment policies needed to help those who are not

benefiting from the new economy, advancing core labor standards,

and protecting the environment, being vigilant to the consequences

and potential threat of forced technology transfer.

But we would be starting from the proposition that we have been

basically on the right track and that we should stay fully engaged,

using all our tools to take advantage of the opportunities that

present themselves, as we did when we forged the ITA.

Or, on the other hand, we can convince ourselves, against the

evidence, that we are on the wrong track. We can choose our course

guided by a picture of economic decline and disinvestment, that

there is no resemblance to what is happening in our country. We

can ignore our trading interests and opportunities around the

world. We, instead, can let ourselves bog down in an endless debate

over NAFTA and primarily our relations with Mexico. We can, in

short, lose our momentum, abdicate our position of strength, either

permit markets to stay closed or let others seize the initiative from

us and gain preferential treatment. The choice is that clear.

With all we have accomplished in the last 4 years, the world has

continued to change in ways critically important to understand. We

must recognize the dangers of an action, and I want to turn to this

for a moment.

In every region of the world, but particularly Asia and Latin

America, the two fastest growing regions, governments are pursuing strategic trade policies and preferential arrangements, forming

relations around us rather than with us.

In this post-cold war economy, countries are creating new, exclusive trade alliances, to the potential detriment of U.S. prosperity

and U.S. leadership.
20

Examples abound. MERCOSUR is a customs union, as you know,

with ambitions to expand its scope to all of South America. Argentina, Brazil, Paraguay, and Uruguay, which form MERCOSUR, are

the largest economy in Latin America, with a GDP of about $1 trillion. MERCOSUR has struck agreements now with Chile and Bolivia. They are discussing agreements with the Andean countries,

such as Colombia and Venezuela. They are discussing agreements

with the Caribbean Basin.

The MERCOSUR ambition is driven, in part, by decades-old visions of a Latin America united by free trade, by also has a clear

strategic objective regarding commercial expansion and a stronger

position in world affairs.

The EU has begun a process aimed at reaching a free trade

agreement with MERCOSUR. They have concluded a framework

agreement with Chile to that end. The President of France, who

was just in the region, said, ‘‘Latin America’s essential economic interests lie not with the United States but with Europe.’’

China has targeted Mexico, Argentina, Brazil, Chile, and Venezuela as strategic priorities in Latin America. That is to ensure

that key Latin countries are receptive to its broader agenda and to

itself as a rising power.

Japan has undertaken high-level efforts throughout Asia and

Latin America in country after country.

ASEAN is forming a Southeast Asian trade area that will include

400 million people and some of the fastest growing economies of

the world. It is a region where China, Japan, Korea, and the EU

are focusing competitive energy.

Argentina’s President Menem recently suggested a MERCOSUR–

ASEAN Free Trade Agreement. Mexico wants to be the commercial

hub between North and South America and serve as a venue in

which to enter North, Central, and South America from Asia and

Europe. It is jointly pursuing free trade with Europe and is reaching out to Asia. It has concluded agreements with Colombia, Venezuela, and Costa Rica and is negotiating with Honduras, El Salvador and Nicaragua and now has initiated talks with

MERCOSUR.

Chile has a similar strategy. It has concluded agreements with

MERCOSUR, Mexico, Colombia, Venezuela, Ecuador. It intends to

start negotiations with Central America and Asia. Japan is its largest export market. Chile sees itself as a bridge from MERCOSUR

to Asia and back and is positioning itself in that way.

In the Asia-Pacific region, competition comes from many sources

and is the most intense in the world. Japan has been well ahead

of the United States in East Asia in terms of corporate presence.

And in more recent years, Korean chaebols, their conglomerates,

have likewise pursued an aggressive strategy.

The countries of Southeast Asia, some of the most dynamic

economies of the world, are integrating into ASEAN. That will give

those countries advantages over the United States, particularly in

agriculture.

The point, Members of the Subcommittee, is that 95 percent of

the world’s consumers live outside our boundaries and 85 percent

of them reside in the developing world. Our ability to create jobs,

to sustain our standard of living, will depend in no small part on
21

how successful we are relative to our competitors in embracing

trade opportunities offered by these markets.

We should not be indifferent to currents that can be identified

even by a casual read of the newspapers. In my view, we have all

the talents needed to compete successfully, but our competitors are

determined, they are sophisticated, they are strategic, and they are

focused. Many U.S. firms are already seeing evidence of this, to

their disadvantage.

I believe our trade policy must be driven by two factors: First,

an emphasis on building prosperity at home through the expansion

of our exports, built on a strong foundation of reciprocity as we proceed; and second, ensuring that we are strategically well positioned

in the world to advance our economic, trade, and broader interests,

including regional stability, through a growing number of enduring

trade relationships, particularly where those arrangements put us

at the center of activity.

The principle underlying our trade policy must be to support U.S.

prosperity, U.S. jobs, and the health of U.S. companies. The outgrowth of that policy must be continued U.S. leadership as the

world’s indispensable nation, transmitting values of democracy,

market economics, human rights, and the rule of law to our partners.

Given the evidence of concerted efforts by our competitors to improve their position and the potential erosion of U.S. leadership, we

need to respond with our most effective and strategically powerful

trade policy. We need to position ourselves as the most important

player in the global constellation of trade activity now and into the

future. We need to be positioned to play a catalytic role in all key

regions of the world. We must utilize the full range of our tools of

leverage on the trade front while, of course, we continue to enforce

our trade agreements.

There are some who believe that simply opening markets on a

global scale is the be-all and end-all, no matter how it is done and

no matter who benefits. I take a little different view. It is imperative we open markets in a manner consistent with the rules of the

WTO, but we must make sure Americans benefit directly from this

process. And to do that, Americans must drive the rules of the global landscape and the opening of markets. There is no other way to

protect our jobs, our vital trading interests, or our global leadership.

In the next 4 years the administration believes we must keep on

opening foreign markets and breaking down barriers. We cannot

fully confront the competitive challenges we face without an aggressive reciprocity-based push on the multilateral, bilateral, and

regional fronts, and I will highlight just a few initiatives.

On the multilateral front, within 4 years WTO negotiations will

occur in key areas: Agriculture, services, intellectual property, government procurement, financial services. We will also pursue various sectoral arrangements along the lines of the ITA and the

Telecom Agreement.

The built-in agenda from the Uruguay round provides further opportunities to advance our agenda. We will be reviewing technical

barriers to trade, sanitary and phytosanitary rules, customs valuation, import licensing procedures, the rules of origin and a number
22

of other areas, including State trading activities in the agricultural

sector.

Indeed, even within the OECD, we are already in active negotiations on an investment agreement to ensure equitable and fair

treatment for U.S. investors, as well as negotiations on bribery and

corruption, competition policy, and transparency in government

procurement.

On the regional side, Latin America and the Caribbean are the

fastest growing export markets for the United States. If trends continue, it will exceed the EU as a destination for U.S. exports by

2000 and exceed Japan and the EU combined by 2010. It is also

the fastest growing region in the world. With regard to the regional

agenda, the United States is committed not only to concluding the

FTAA by 2005 but also to make concrete progress by 2000.

We are at a key juncture. Chile should be the first step in the

process. The region views what we do with Chile as a litmus test

for future plans. Chile is both symbolic of the opportunities in the

region and the region’s rising significance to our longer term economic and strategic interests. At the same time, of course, we remain committed to the Caribbean Basin Trade Enhancement Act.

The Asia-Pacific region is enormous in scope and has major implications for the future of the United States. It contains the fastest

growing economies of the world. It has a total population of nearly

3 billion. We estimate that reaching the goal of open markets in

APEC would increase U.S. exports in goods alone by 27 percent or

$50 billion annually. A step toward the ultimate APEC goal would

be market-opening agreements with key economies or key sectors,

to provide our exporters with strategic advantage.

With Europe, our focus will be on nontariff barriers, which continue to impede transatlantic trade.

Africa is a region rich in resources and potential. We must engage that region with determination, to help ensure its effective

and sustainable development and democratic governance.

On the bilateral side, we recognize that certain problems can

only be addressed effectively with the degree of specificity on a bilateral basis. We will continue to be engaged in a very aggressive

bilateral push with respect to Japan and China, Argentina and

Korea, Canada, and many other countries. Now, as in the past,

market access in many cases will occur only through intensive bilateral efforts. This also includes intense scrutiny under our enforcement capacity.

We can pursue portions of this agenda and of our vision with existing trade tools, like section 301 or section 1377 on Telecom or

title VII, which we will renew by executive order. But to seize the

opportunities in the global economy, to fully meet competition, to

provide us with strategic positioning that will determine our future

in the next century, the President needs a new granting of trade

agreement implementing authority or fast track.

Fast track is a key component of our trade arsenal and it is the

one component that is missing. For this reason, the President has

emphasized the importance of renewing fast track and has asked

me to work with Members of Congress of both parties to forge a

strong and workable consensus.
23

Clearly, this should not be a matter of party or politics. Every

President since President Ford has had fast track authority for key

periods. For over 60 years, reacting to the lessons of the SmootHawley tariff, America has led the effort to open foreign markets

and increase U.S. and global prosperity.

Persistent market opening has led to a period of increased global

commerce unprecedented in world history. It has created enormous

opportunities for our companies and workers, provided a seedbed

for democracy abroad, and helped further greater stability in a still

uncertain world. We should not turn our back on that pattern of

leadership, which continues today.

There is no substitute for our ability to implement comprehensive trade agreements. The absence of procedural authority is the

single most important factor limiting our capacity at this time to

open markets and expand American exports and trade opportunities.

Mr. Chairman, let me spend a moment to discuss fast track and

NAFTA in context. There is no question that many important

issues characterize our relationship with Mexico: Trade, drugs, immigration, worker welfare, the environment, and others. Those

issues existed before we negotiated the NAFTA; they will exist in

the future.

Mexico is a developing country with which we share an enormous

border. It is inescapable that issues of this type will be part of our

bilateral agenda for years to come. NAFTA is not and cannot be the

full long-term solution to the problems that we may encounter, but

by keeping Mexico on the path to prosperity through market reform, it can be part of the solution.

The fast track debate is something entirely different. The fast

track debate is and should be about our ability to conduct a global

trade policy, to advance our global trade interests, and to remain

the global leader in this world.

Many of the issues in the Mexico debate relate to our shared and

unique border. They do not address the need to seize trillions of

dollars in global infrastructure opportunities in Asia. They do not

give us the tools to continue cutting European agricultural subsidies. They do not help us respond to preferential trading relationships or exclusionary practices to which the United States is subject. We must keep our focus, and the focus is the challenge of tomorrow.

Our competitors would like nothing better than for the United

States to sideline itself, debating NAFTA and, in particular, our relationship with Mexico, for years to come while they moved ahead.

It would be a great, serious, self-inflicted wound. America is poised

to seize great opportunities. Our competitors cannot beat us; we

can only lose by removing ourselves.

Similarly, we can no longer allow our disagreements over the relationship between trade, labor standards, and environmental protection to prevent us from granting the President fast track authority. We simply have to forge a consensus on this subject, which

eluded us in 1994 and 1995. I have been consulting broadly with

Members of Congress, business, labor, environmental groups, and

others, and we will continue to do so. I do not intend to put forward
24

a specific formulation today, but I wanted to share several

thoughts.

It is important to recognize that a commitment to the protection

of core labor standards and their relationship to trade is not new

and is not unique to the United States. The international commitment to address the issue goes as far back as the Havana Charter,

which was the effort to establish the International Trade Organization after World War II. We were gratified that at the WTO ministerial in Singapore, the world acknowledged, for the first time,

the importance of core labor standards in a ministerial declaration,

but we did fight for stronger steps. Advancing worker rights and

labor standards is in our national interest and it is consistent with

our deepest national values.

Making environmental and trade policy mutually supportive, although a somewhat newer public policy phenomenon on a global

scale, similarly enjoys strong support in our country and internationally. The 1992 Rio Sustainable Development Summit, the

1994 Summit of the Americas, and ongoing work in the WTO all

reflect an international commitment to the importance of making

these policy areas mutually supportive.

In my view, the challenge is how to maximize progress in three

areas which are of importance to us: Expanded market access and

global leadership, advancing worker rights and core labor standards, and promoting environmental protection and sustainable development.

We are committed to a strategy of pursuing our goals, but also

maintaining flexibility, rather than pretending that one prescription fits all countries or all cases. Based on my experience over

these past 4 years, I think there is no substitute to building a consensus at home behind a strategy to advance our objectives on core

labor standards and environmental protection.

I am also certain that we will not convince other nations to improve their labor standards, to improve environmental protection,

or to adhere to a rule of law by denying the President the ability

to negotiate trade agreements with them. We will, however, cripple

our own export performance and lose jobs at home.

Mr. Chairman, let me conclude by saying that President Kennedy once described himself as an idealist without illusions. I think

that description captures very well President Clinton’s approach to

trade. He and those of us who serve in the administration genuinely believe that expanded trade can contribute to our prosperity

and to global growth, particularly in the developing world, where

poverty is still widespread.

But we have no illusions as to the challenges ahead. Every trade

barrier that is there is there for a reason: Economic, political, bureaucratic, cultural. Some countries only want to export and not

import.

The competition around the world will continue to be intense. We

have reasons to be confident, but only if we forge a domestic consensus that allows us to move ahead. We need to get down to business. The hard work of the past 4 years only gives us the opportunity to do the hard work of the next 4 years.

Mr. Chairman and Members of the Subcommittee, thank you.

[The prepared statement follows:]
25

Statement of Hon. Charlene Barshefsky, U.S. Trade Representative

Thank you, Mr. Chairman and Members of the Committee. I am pleased to ap- pear before you today. I appreciate this opportunity to set forth the Administration’s views on the direc- tion of trade policy. When I entered the field of international trade twenty two years

ago, trade was really the province of a relatively few academics, trade technicians,

and a relative handful of interested members of Congress. Those days are long past.

As trade has become more central to our economic health, it has understandably become a matter of great importance to virtually all members of Congress and to people in all walks of life across our country. This Administration, and any future Administration, bears the responsibility of explaining our trade policy clearly and

building broad political support for it. To advance that goal, I pledge today to engage—as much as possible—in what President Truman once called ‘‘plain speaking.’’ No discussion of our trade policy should begin without reaffirming our commit- ment to a bipartisan partnership with Congress. No trade policy can ultimately succeed without the support of the Members. Bipartisanship has been a cornerstone of

our past success and will continue to be in the future. I pledge to work closely with

all members of this Subcommittee—and the full Ways and Means Committee—to

advance the cause of opening foreign markets and thereby expanding exports and

creating more and better jobs and opportunities for Americans in the workforce

today, and their children who will be joining it in the coming years.

TRADE AND THE STRENGTH OF THE U.S. ECONOMY

We should begin by recognizing that our economy is the strongest in the world; that expanded trade has played an important role in building that strength; and

that no country in the world is better positioned to take advantage of the enormous

opportunities presented by a growing global economy. In fact, we are at a unique

moment and we need to seize it now. Our competitors cannot beat us, but we can

lose if we put ourselves on the sidelines.

As we look toward the next four years, consider our situation:

• Our economy is the envy of the world. We are in the sixth year of the current economic expansion. Over the past four years, we have created nearly 12 million

new jobs, while the G–7 created roughly 600,000. We have the lowest budget deficit

as a percent of GDP of all the G–7 nations. Our combined unemployment and inflation—the so-called misery index—are at the lowest level since 1963. Countries

around the world seek to emulate the ‘‘American model.’’ • We have seen a resurgence in U.S. competitiveness. We are once again the world’s largest exporter setting historic records in manufactured goods, high technology goods, services, and agriculture. Over the last four years, our manufactured

exports are up 42%, high technology exports jumped 45%, service exports climbed

26% and farm exports rose 40%. We are the world’s largest producer of semiconductors and the largest producer of automobiles. The World Economic Forum has found

America to be the most competitive major economy in the world for three years running. • Our economic expansion has been investment-led, building the foundation for even greater economic strength. In 1995, total business investment in the U.S. was

more than $800 billion. Our industrial production is up nearly 18% in real terms

over the last four years. Japan’s production is up 5 percent and Germany’s has declined by 2 percent over this period. Growth of our industrial capacity growth is at

its highest level since the 1970’s. We have more manufacturing jobs than we had

four years ago. The industrial Midwest has gone through a virtual renaissance of

manufacturing and productivity.

Trade policy has contributed significantly to the economic strength of our country

today. From the early weeks of the Administration, the President made it clear that

we would compete, not retreat behind walls. We would not accept the status quo

whereby too often our trading partners took advantage of our open market while

maintaining closed markets at home. We have relentlessly pursued an agenda of

opening foreign markets, and breaking down foreign market barriers—multilaterally, regionally and bilaterally.

We committed to work for a system where all trade nations, developed and developing, would adhere to the same set of basic rules, and we have made important

strides in that regard with the creation of the WTO and elsewhere. We have not

yet fully leveled the playing field for U.S. companies, workers and farmers, but we

have clearly made progress. The world is generally more open to U.S. exports than

it was when the President took office, and far more open than when Congress, on

a bipartisan basis, passed the landmark 1988 Trade Act which gave us and our

predecessors the clear direction and the tools to open markets around the world.
26

This Administration has negotiated over 200 trade agreements, all designed to ad- vance our economic and trade interests. In the past four years: • We completed the Uruguay Round, the largest trade agreement in world his- tory, which will add $100–200 billion to GDP annually when fully implemented. • We completed the NAFTA, which increased our exports to Mexico, and kept

Mexican markets open despite the worst economic crisis in Mexican modern history. • We worked tirelessly to break down market access barriers in Japan, which have presented one of the central trade challenges for the past twenty years, reaching 24 agreements and increasing our exports 43% in four years (with exports covered by these agreements growing roughly twice as fast). • We led the world in setting tougher standards for trade with China: battling to open a highly protected market, negotiating landmark agreements in intellectual

property and textiles, and insisting that China’s accession to the WTO occur only

on commercially meaningful terms. • We breathed new life into APEC, starting with the President’s leadership in 1993, spelling out a long term vision for free and fair trade, making progress more

concrete year by year, culminating with the key role played by APEC in completing

the Information Technology Agreement (ITA), and anchoring our country more firmly in the fastest growing region of the world. • We have led the multilateral effort in this hemisphere to build the Free Trade Area of the Americas (FTAA) by 2005, with concrete progress by 2000, deepening

our commitment to our own hemisphere, recognizing the extraordinary progress of

open markets and democracy throughout the region. • We initiated the effort regarding the creation of the U.S.–EU Transatlantic Marketplace. We have been working closely with the private sector to improve market access. • We took the lead in combating bribery and corruption in government procure- ment, in respecting core labor standards, and in pursuing the agenda to make trade

and environmental policies mutually supportive. • We have vigorously enforced our trade laws and agreements using every tool possible and making it clear that agreements, if not implemented by our trading

partners, will be enforced. In the past four years we have brought 48 trade enforcement actions. We have filed 23 cases to enforce U.S. rights under the new dispute

settlement procedures of the WTO, having filed 15 complaints last year alone. • Over the last three months, we have completed the Information Technology Agreement (ITA) and the Agreement on Basic Telecommunications—two farreaching multilateral agreements reducing trade barriers around the world for our

high technology industries. The ITA will benefit producers of such products as semiconductors, computers, telecommunications equipment and software. These industries support 1.5 million manufacturing jobs and 1.8 million related service jobs.

This agreement amounts to a global tax cut of $5 billion. The telecommunications

accord is expected to generate approximately 1 million U.S. jobs over the next 10

years and save billions of dollars for the American consumer. We estimate the average cost of international phone calls will drop by 80 percent—from $1 per minute

on average to 20 cents per minute over several years. The cost of U.S. domestic calls

should also fall as the agreement helps raise investment in the U.S. in competitive

telecommunications networks.

We pursued these initiatives because we recognized that trade is increasingly important to the future of our nation. Trade is now equivalent to nearly 30 percent

of GDP, up from 13 percent in 1970. Exports over the last four years have generated

roughly one quarter of our economic growth. And these are good jobs; they pay 13–

16% more than non trade-related jobs. That’s one reason why over 68% of the jobs

created in the U.S. between 1994–96 paid above the median wage. Exports support

an estimated 11.3 million U.S. jobs, and over 1.4 million of these jobs were generated by increased exports over the last four years.

None of this is to suggest that we don’t face challenges and continuing problems.

Many markets around the world remain closed to our exports and, to the extent our

trade deficit is the result of these barriers, particularly on a bilateral basis, they

must be reduced. Far too many Americans are left behind in the current economic

expansion, without the skills or education to benefit from the increased opportunities. Neither government nor the private sector should rest while that is the case.

And I recognize that for those Americans who have lost jobs because of trade or

technological change or corporate downsizing, it is cold comfort that the overall picture is positive.

In considering the direction of future trade policy, however, we need to start by

recognizing that our economy is stronger than it was four years ago, and far stronger than it was ten years ago. None of us should be complacent, but our country’s

economic success is no accident. We put our government’s market opening efforts
27

behind our companies, workers and farmers at precisely the time when they were

at their most competitive. After years of doubt and soul-searching about our country’s ability to compete, we have together succeeded in defining a distinctively

American partnership to succeed in a tough global economy. As we consider what

comes next, we can take pride, for a moment, in what we, together, have accomplished.

A MOMENT OF CHOICE; THE DANGERS OF INACTION

But only for a moment. This is not the time for resting on our laurels. As we contemplate the next four years in trade, we face a very clear choice.

We can recognize that the American economy is the model for the world, and continue to open foreign markets and seize the initiative when it comes to international

competition. We can recognize the extraordinary opportunities presented by the

growing global economy, in which developing nations, which want and need the full

range of our manufactured goods, services and agricultural products, are poised to

fuel continued global growth. We would face up to problems as we identify them together: working to put in place education, training and adjustment policies needed

to help those who are not benefitting from the new economy; advancing core labor

standards and protecting the environment; being vigilant to the consequences and

potential threat of forced technology transfers. But we would be starting from the

proposition that we have been basically on the right track, and we should stay fully

engaged, using all our tools, taking advantage of opportunities that present themselves as we did when we saw the chance to reach an ITA.

Or we can convince ourselves, against the evidence, that we are on the wrong

track. We can choose our course guided by a picture of economic decline and disinvestment that bears no resemblance to what is happening in our country. We can

ignore our trading interests and opportunities around the world, and let ourselves

instead bog down in an endless debate over NAFTA, but primarily our relations

with Mexico. We can, in short, lose our momentum, abdicate our position of

strength, either permit markets to stay closed, or let others seize the initiative from

us and gain preferential treatment. The choice is that clear.

With all we have accomplished in the past four years, the world has continued

to change in ways that are critically important to understand. We must recognize

the dangers of inaction. In every region of the world, but particularly Asia and Latin

America, the two fastest growing regions of the world, governments are pursuing

strategic trade policies and, in some cases, preferential trade arrangements, forming

relations around us, rather than with us, and creating new exclusive trade alliances

to the potential detriment of U.S. prosperity and leadership. Example abound:

• MERCOSUR (Argentina, Brazil, Paraguay, Uruguay) is a developing customs

union with ambitions to expand its association agreements to all of South America.

MERCOSUR is the largest economy in Latin America and has a GDP of roughly

$1 trillion and a population of 200 million. It has struck agreements with Chile and

Bolivia, is discussing agreements with a number of Andean countries (Colombia,

Venezuela, etc.) as well as countries within the Caribbean Basin. The MERCOSUR

ambition is in part driven by the decades old vision of a Latin American free trade

area, but also has a clear strategic objective regarding commercial expansion and

a stronger position in world affairs.

• The EU has begun a process aimed at reaching a free trade agreement with

MERCOSUR, the largest market in Latin America, comprised of Argentina, Brazil,

Paraguay, and Uruguay, with a GDP of over $1 trillion. They have also concluded

a framework agreement with Chile that is set up to lead to a free trade agreement.

The President of France, just in the region, said we ‘‘will have to set the foundations

for a new and ambitious partnership,’’ with Latin America, adding that Latin America’s ‘‘essential economic interests... lie not with the United States but with Europe.’’

President Chirac was traveling with four Cabinet officials and 20 leading French

businessman.

• China has targeted Mexico, Argentina, Brazil, Chile and Venezuela as ‘‘strategic

priorities’’ in Latin America. China wants to enhance commercial ties and ensure

that key Latin countries are receptive to its broader global agenda as a rising

power, both in the WTO and other fora. The Chinese leadership has undertaken an

unprecedented number of trips to Latin America in that last two years, and Latin

America is its second fastest growing export market.

• Japan has undertaken high level efforts throughout Asia and Latin America to

enhance commercial ties through investment and financial initiatives. The Prime

Minister of Japan recently visited Latin America seeking closer commercial ties and

a greater Japanese commercial presence in all respects.
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• ASEAN is forming a free Southeast Asian trade area that will include 400 mil- lion people and some of the fastest growing economies in the world. It is a region

where China, Japan, Korea and the EU are focusing competitive energies. In a bold

initiative indicative of the new dynamic in the global economy, Argentina’s President Menem recently suggested a MERCOSUR–ASEAN free trade area—an agreement that would encompass over 600 million people. • Countries within this hemisphere are equally aggressive. Mexico wants to be the commercial hub between North and South America, but also serve as a venue

in which to enter North, Central and South America from Asia and Europe. It is

jointly pursuing a free trade area with Europe and is reaching out to Asia. President Zedillo and his Cabinet have undertaken numerous missions to Asia and have

been well received. It has reached trade agreements with Colombia, Venezuela, and

Costa Rica and is negotiating with Honduras, El Salvador and Nicaragua. It has

initiated talks with MERCOSUR.

• Chile has a similar strategy. It has concluded agreements with MERCOSUR,

Mexico, Colombia, Venezuela and Ecuador. It intends to start similar negotiations

with Central America and has an eye toward agreements with Asia. Japan is its

largest export market, but Chile sees itself as a bridge from MERCOSUR to Asia

and back, and is positioning itself with its MERCOSUR neighbors for that purpose.

It has also struck an agreement with Canada that includes a range of market opening elements.

• In the Asia-Pacific region, competition comes from many sources, all of which

have contributed to a declining share of U.S. exports to the region. Competition

within Asia is the most intense. Japan has been ahead of the U.S. in East Asia in

terms of corporate presence, and especially in the past decade, in terms of the

amount of overseas development assistance (ODA) it is willing to spend to advance

its commercial interests. In more recent years, Korean chaebols have likewise pursued an aggressive strategy to both invest and attain market share in dynamic East

Asian economies, ranging from textiles to steel to autos.

• The countries of Southeast Asia, some of the most dynamic economies in the

world, are integrating through its ASEAN Free Trade Area. The integration gives

other ASEAN countries access in some key areas where U.S. exporters would otherwise have an advantage, such as in agricultural products, particularly processed

food products.

Ninety five percent of the world’s consumers live outside our boundaries, and 85

percent of them reside in developing countries. These are the large growth regions.

Last year, the developing world imported over $1 trillion in manufactured goods

from the industrialized countries, and this is the tip of the iceberg. The infrastructure needs alone of the developing world are estimated to be enormous. For example, in just 8 of the large developing countries, traditional infrastructure needs (telecommunications, power, transportation and petroleum infrastructure) are estimated

to be over $1.6 trillion.

Our ability to create jobs and sustain our living standard in the next century will

depend, in no small part, on how successful we are, relative to our competitors, in

embracing the trade opportunities offered by these emerging markets. We should

not be indifferent to currents that can be identified simply by reading the newspapers. In my view, we have all the talents needed to compete successfully, but our

competitors are determined, sophisticated, strategic and focussed. Many U.S. firms

are already seeing evidence that their competitors are engaged in an intensive effort

to rework the rules of these dynamic marketplaces to their advantage.

A recent example illustrates the dangers. In November 1996 Canada reached a

comprehensive trade agreement with Chile that will eliminate Chile’s 11% acrossthe-board tariff starting this year. Northern Telecom recently won a nearly $200

million telecommunications equipment contract over U.S. companies in part because

to buy from a U.S. producer meant an additional $20 million in costs (duties) relative to purchasing from Canada.

We have done much to level the playing field in the past four years, but in this

case, we are sitting on the sidelines, spotting Canadian competitors an 11% price

advantage every time we compete in the Chilean market. We will suffer that handicap again and again, in country after country, if we do not stay in the game of opening markets for our companies and workers. Looking at this sobering pattern, we

need to reaffirm the commitment of the President in 1993, to ‘‘compete, not retreat.’’

OUR GLOBAL TRADING AGENDA

Our trade policy must be driven by two factors: our emphasis on building prosperity at home through the expansion of our export and trade opportunities built on

a strong foundation of reciprocity as we proceed; and ensuring we are strategically
29

well positioned in the world to advance our economic, trade and broader interests,

including regional stability, through a growing number of enduring trade arrangements, particularly where those arrangements put us at the center of activity. The

principle underlying our trade policy must be to support U.S. prosperity, U.S. jobs

and the health of U.S. companies. The outgrowth of that policy is continued U.S.

leadership as the world’s indispensable nation transmitting the values of democracy,

market economics, human rights and the rule of law.

Given the evidence of concerted efforts by our competitors to improve their position around the world, and the potential erosion of U.S. leadership, we need to respond with our most effective and strategically powerful trade policy. We need to

position ourselves as the most important player in the global constellation of trade

activity now and into the future. We need to be positioned to play a catalytic role

in all key regions of the world. We must utilize the full range of our tools of leverage

on the trade front while at the same time continue to enforce our trade laws and

agreements vigorously.

There are some who believe that simply opening markets on a global scale is the

be-all-and-end-all, no matter how it is done or no matter who benefits. I subscribe

to a different view. It is imperative that we open markets in a manner consistent

with the rules of the WTO, but we must make sure Americans benefit directly from

this process, and to do that Americans must drive the rules of the new global landscape and the opening of markets. There is simply no other way to protect our jobs,

our vital trading interests or our global leadership on trade.

In the next four years, the Administration believes we should keep on opening foreign markets, and breaking down foreign trade barriers. We believe in this for our

own export performance, for our own jobs and for own prosperity at home. The ITA

and the telecommunications agreement provide vivid evidence of how our country

can benefit from important sectoral agreements. We will continue to use the multilateral system, and have provided recent evidence of just how much can be accomplished multilaterally. At the same time, we cannot fully confront the competitive

challenges we face or open the major emerging markets around the world without

an aggressive, reciprocity-based push on the regional and bilateral fronts.

Multilateral Efforts

Within four years, major WTO negotiations will occur in several areas where the

United States is a top global competitor: agriculture, services, and the rules for intellectual property rights. This year we will be resuming WTO negotiations on financial services, a sector where U.S. companies excel. At the same time, the Administration will work with industry and workers to search out ever more opportunities

in key sectors. We will continue to look for sectoral opportunities to benefit U.S. exporters to build on the successes we have had in recent months.

Building on the positive outcome of the negotiations on the ITA and telecommunications, we are turning our attention to the WTO financial services negotiations

which resume in April. We are committed to achieving a meaningful and comprehensive agreement by the end of the year. Earlier efforts to reach agreement

were not successful due to inadequate offers by key countries. To successfully conclude these negotiations this year, our trading partners must signficantly improve

their commitments based on the GATS principles of market access, national treatment and MFN. However, with the precedent that has now been established in the

telecommunications agreement, we hope to see improved offers in the financial services talks.

Negotiations to further open the $526 billion global agriculture market are to be

initiated in 1999. While the Uruguay Round reduced some of the most difficult barriers to agricultural trade, helping us to attain a record level of agricultural exports

in 1996, our work is far from done. Removing agricultural barriers wherever they

exist is one of our highest priorities of the next four years, so follow-on negotiations

in the WTO are extremely important. We will work hard with our allies on this

issue to move ahead.

Services negotiations to expand this $1.2 trillion global market—where U.S. firms

exported more than $220 billion in 1996 (est.) with a surplus of $74 billion—are to

start in January 2000. The trade related intellectual property rights (TRIPs) agreement which protects, for example, the interests of fast-growing U.S. copyright industries exporting over $400 billion a year, is to be reviewed, with key elements examined beginning before then. We must do everything possible to expand opportunities

for such vibrant industries.

The ‘‘built-in agenda’’ from the Uruguay Round provides other opportunities to

open foreign markets. In a world trading environment increasingly less characterized by traditional tariff barriers, the built-in agenda is in many respects aimed at
30

clearing away the impediments left by non-tariff barriers—be they deliberate or the

unintended consequence of bureaucracy and inefficiency. • For example, the rules governing technical barriers to trade (covering product standards, technical regulations and associated procedures such as testing and certification) are scheduled to be reviewed by December of this year, just as sanitary

and phytosanitary rules affecting trade in agricultural goods will be reviewed by

January of next year. These reviews will play an important role in our broader efforts to ensure that the development and application of product standards and environmental, health and safety regulations are technically justified and do not serve

as disguised protectionist measures. • Similarly, bringing about the full implementation of the customs valuation agreement by 2000, particularly by WTO members in key emerging markets, will

help to ensure that our exports to those markets are not impeded by improper or

incorrect customs valuation methods which might artificially distort the price of our

products and erode the benefits of Uruguay Round market access gains. • Likewise, the upcoming reviews of pre-shipment inspection and import licensing procedures can make a big difference in opening up access to the growing markets

of low-and middle-income countries, where governmental reliance on pre-shipment

inspection and import licensing to compensate for underdeveloped domestic customs

administrations can sometimes result in unjustified trade barriers through commercial uncertainty and corruption. • Negotiations for harmonizing the rules for determining the origin of inter- nationally traded products are also due to be completed by July 1998. A harmonization agreement will significantly enhance commercial predictability and will reduce the ability of governments to manipulate origin rules as a means of ‘‘reclassifying’’ products under a higher tariff. For those U.S. industries which source their

parts and components from around the world for production in various countries,

these rules are critical to their ability to predict costs and conduct business. • The launch this year of new negotiations to improve and expand the coverage of WTO rules on government procurement can facilitate U.S. efforts to improve our

access to the lucrative infrastructure projects now planned or under way in the rapidly growing regions of the world. We estimate that Asia alone will provide opportunities for up to $1 trillion in business for such projects over the next decade. • The U.S. will push for broader and clearer reporting of state trading activities which will lead to a better understanding of the relationships between state trading

enterprises (STEs) and governments and of the types of activities in which STEs

engage. Due to our concerns about the state trading activities of other countries, especially in agricultural products, there is heightened scrutiny of STEs in the WTO. We also have a full agenda of accession negotiations regarding the WTO. As al- ways, we are setting high standards for accession in terms of adherence to the rules

and market access. Accessions offer an opportunity to help ground new economies

in the rules-based trading system. As I indicated earlier, the Administration believes that it is in our interest that China become a member of the WTO; however,

we have been steadfast in leading the effort to assure that China’s accession to the

WTO would occur only on commercial, rather than political, grounds. The pace of

China’s accession negotiations depends very much on Beijing’s willingness to improve its offers.

While China’s accession has attracted far more attention, the United States takes

every opportunity to pursue American interests with the 28 applicants that are now

seeking WTO membership, and to give leadership to the process. Russia’s WTO accession could play a crucial part in confirming and assuring Russia’s transition to

a market economy, governed by the rules of law and international trade. Discussions so far on Russia’s accession, while still at an early stage, have been quite positive and we look for more progress. We are excited about the prospects of the accession of many of the former Soviet Republics, and the Baltic States. Others, like

Saudi Arabia and Vietnam, are also becoming more active.

Within the Organization for Economic Cooperation and Development, we are in

active negotiations over the Multilateral Agreement on Investment to ensure equitable and fair treatment for U.S. investors. In both this forum and the WTO, we

are also actively engaged in negotiations on bribery and corruption, competition policy and transparency in government procurement.

Regional Efforts

Latin America and the Caribbean were the fastest growing market for U.S. exports in 1996. If trends continue, it will exceed the EU as a destination for U.S.

exports by the year 2000, and exceed Japan and the EU combined by the year 2010.

It is also the second fastest growing region in the world, having transformed itself

over the last decade in a manner unnoticed by some, but with profound positive im31

plications for the United States. The Administration recognizes the enormous opportunity to build on this historic transformation.

With regards the regional agenda, the United States is committed not only to concluding the FTAA by 2005, but also to concrete progress by 2000. A May 1997 hemispheric trade Ministerial meeting is to determine how and when these critical negotiations will be launched, and a second Summit of the Americas will take place in

Chile in early 1998. We are at a key juncture in this process. The President will

be visiting the region in April and May of this year. We are now turning to the negotiating phase of the FTAA and believe that the second Summit of the Americas

set for March 1998 in Santiago is the venue to launch the hemispheric negotiations.

Chile is our first step in the FTAA process. The region views what we do with

Chile as a litmus test for our plans for the region. Chile is symbolic of the opportunities in the region and the region’s rising strategic significance to our longer term

economic interests. U.S. exports to Chile area up 148 percent since 1990. Chile is

a leading reformer in Latin America and its kind of reform is in the economic interests of the U.S. to ensure a growing export market well into the next century.

At the same time, and with building the FTAA very much in mind, the Administration remains committed to Caribbean Basin Trade Enhancement and will be

working with the Congress on legislation to accomplish this objective. We believe

it is important to provide the countries of this vital region with the right kinds of

incentives to be full participants in the FTAA effort while at the same time provide

the most effective tools possible to assist them in this effort.

The Asia Pacific region is enormous in its scope and has major implications for

the future of the United States in many ways. It contains the fastest growing economies in the world, largely emerging economies with a total population nearing 3 billion people. Within the Asia Pacific Economic Cooperation (APEC) forum, we estimate that reaching the goal of open markets would increase U.S. goods exports

alone by 27 percent annually, or almost $50 billion a year. More specifically, APEC

is embarked on a program of early liberalization in key sectors. Sectoral initiatives,

such as the ITA, will be critical to further anchor the United States in Asia through

growing U.S. exports in key technologies. In addition, as a step towards the ultimate

APEC goal, market-opening agreements with key economies (or key sectors) of the

Asian Pacific rim would provide U.S. exporters with a strategic advantage over U.S.

competitors in the region. It would also provide the United States with a strong economic anchor in Asia, a key step in this region bursting with vitality and opportunity.

With Europe, our focus will be on non-tariff barriers which continue to impede

transatlantic commerce, most particularly regulatory barriers and a variety of agricultural impediments. Approximately half of our $126 billion of merchandise exports

to the EU require some form of EU certification in addition to U.S. requirements.

Redundant testing and certification procedures increase the base cost of exports.

Our business community strongly supports our current negotiations to complete Mutual Recognition Agreements (MRAs) to eliminate redundant testing between the

United States and the EU. The areas under discussion include telecommunications,

electronics, medical devices, pharmaceuticals and recreational craft. At the same

time, we will be steadfast in our bilateral discussions and in the WTO to convince

the EU to honor its commitments to U.S. agriculture. We recognize this is a major

priority of the agricultural sector and it is a major priority of this Administration.

Africa is a region rich in resources and potential, which we should engage with

determination to ensure its effective and sustainable development and democratic

governance. We recently completed preparation of a report to Congress on the Administration’s trade and development policies for Sub-Saharan Africa. There is an

urgent need to integrate Sub-Saharan Africa into the international trading system.

We also believe the achievement of this goal lies in African countries reforming their

own economies and in our encouraging this process.

Bilateral agreements

We recognize that certain problems can only be addressed effectively, and with

a degree of specificity necessary, on a bilateral basis. Thus, we will continue to be

engaged in bilateral market opening efforts with virtually every country in which

we have a trading relationship: from Japan on telecommunications, photographic

film, paper and other issues, to Canada on copyright protection, to Argentina on patents, to Korea on autos—the list is lengthy and significant. There should be no misunderstanding. Now, as in the past, market access in many cases will only occur

through intense bilateral efforts. This includes the intense scrutiny necessary under

our enforcement capacity.
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THE IMPORTANCE OF FAST TRACK AUTHORITY

We can pursue portions of our agenda with our existing tools. But, to seize the opportunities in the global economy and to fully meet the competition, the President

needs a new grant of trade agreement implementing authority, or fast track. Fast

track is a key component of our trade arsenal. For that reason, the President has

emphasized the importance of renewing trade agreement implementation authority

and has instructed me to work with members of both Houses and both parties to

forge a strong and workable grant of fast track authority. Clearly, this should not be a matter of party or politics. Every President since President Ford has had fast track authority for key periods. For over 60 years, reacting to the lessons of the Smoot-Hawley tariff, America has led the effort to open

foreign markets and increase U.S. and global prosperity. When the GATT was first

formed in 1947, global tariffs averaged 40 percent among industrial nations.

Today—after decades of bipartisan American leadership—global tariffs are closer to

5 percent and still declining with the Uruguay Round phase-in, and we have set the

rules for bringing down many nontariff barriers. That persistent market opening

has led to a period of increased global commerce unprecedented in world history.

It has created enormous opportunities for our companies and workers, provided a

seedbed for democracy abroad and helped further greater stability in a still uncertain world. We should not turn our back on that pattern of leadership, which continues as recently as the completion of the ITA and the telecommunications pact. There is no substitute for our ability to implement comprehensive trade agree- ments. The absence of agreed procedural authority to do so is the single most important factor limiting our capacity at this time to open markets and expand American

exports and trade opportunities in the new global economy. Such authority is a prerequisite to U.S. negotiating credibility and success on major trade fronts.

FAST TRACK AND NAFTA IN CONTEXT

Mr. Chairman, let me spend a moment discussing NAFTA because I think it is very important to put it in the right context as we move forward. There is no question that many important issues characterize our relationship with Mexico: trade, drugs, immigration, worker welfare and the environment, to

name a few. Those issues existed before we negotiated NAFTA and they will exist

in the future. Mexico is a developing country with which we share a huge border.

It is inescapable that issues of this type will be part of our bilateral agenda for some

time. NAFTA is not—and cannot be—the full, long-term solution to problems we

may encounter, but by keeping Mexico on the path to prosperity through market

reforms, it can be a part of the solution.

Mr. Chairman, the fast track debate is and should be about our ability to conduct

a global trade policy—and to advance our global trade interests. Many of the issues

in the Mexico debate relate to our shared and unique border. They do not address

the need to seize the trillions of dollars in global infrastructure opportunities in Asia

to be created in the next decade. They do not give us the tools to continue cutting

European agricultural subsidies. They do not help us respond to preferential trading

relationships, or exclusionary practices that limit the United States. We must focus

on the challenges of tomorrow.

Our competitors would like nothing better than for us to sideline ourselves, debating NAFTA and our relationship with Mexico for several more years while they

move ahead. It would be a serious, self-inflicted wound. America is poised to seize

great opportunities. Our competitors cannot beat us; we can only lose by removing

ourselves.

TRADE, LABOR AND ENVIRONMENT

Similarly, we can no longer allow our disagreements over the relationship between trade, labor standards and environmental protection to prevent us from

granting the President fast track authority. We simply have to forge a consensus

of this subject which eluded us in 1994 and 1995. I have been consulting broadly

with members of Congress, business, labor and environmental groups, and will continue to do so. I do not intend to put forward a specific formulation today, but wanted to share several thoughts in this area.

It is important to recognize that a commitment to protection of core labor standards and their relationship to trade, is not new, nor is it unique to the United

States. The international commitment to address this issue goes back as far as the

Havana Charter, which was the effort to establish the International Trade Organization after World War II. We were gratified that at the WTO Ministerial in Singapore, the trading of the nations of the world acknowledged, for the first time in a
33

Ministerial declaration, the importance of core labor standards to trade, although

we fought for stronger steps. Advancing worker rights and labor standards is in our

national interest and it is consistent with our deepest national values.

Making environmental and trade policy mutually supportive, although a some- what newer public policy phenomenon on a global scale, similarly enjoys strong support in our country, and internationally. The 1992 Rio Sustainable Development

Summit, the 1994 Summit of the Americas, and ongoing work in the WTO all reflect

an international commitment to the importance of making these policy areas mutually supportive. In my view, the challenge is how to maximize progress in three areas which are of major importance to us: expanded market access, advancing worker rights and

core labor standards, and promoting environmental protection and sustainable development. We are committed to a strong strategy of pursuing our goals, and maintaining flexibility rather than pretending that one prescription would fit all countries or all cases. Based on my experience over these past four years, I think there

is no substitute for building a consensus at home behind a strategy to advance our

objectives on core labor standards and environmental protection. I am also certain

that we will not convince other nations to improve their labor standards or environmental protection by denying the President the ability to negotiate trade agreements with them. We will, however, cripple our own export performance and lose

jobs at home.

CONCLUSION

President Kennedy once described himself as ‘‘an idealist without illusions.’’ I think that description captures well President Clinton’s approach to trade. He, and

those who work for him, genuinely believe that expanded trade can contribute to

our prosperity, and to those around the world, particularly in the developing world

where poverty is still widespread. But we have no illusions about the challenges

ahead. Every trade barrier facing us is there for a reason: economic, political, bureaucratic, cultural. Some only want to export and not import. The competition

around the world will continue to be intense. We have reasons to be confident, but

only if we forge a domestic consensus that allows us to move ahead. We need to

get down to business. The hard work of the past four years gives us only the opporyour commitment and your hard work as we witnessed in Singatunity to do the hard work of the next four.

Chairman CRANE. We want to express our appreciation to you for

f

pore, and I like your emphasis on a global trade strategy, supported by fast track negotiating authority. We look forward to getting our compromises negotiated with one another on that issue. Most observers would agree that the APEC process of reducing trade barriers has been slow. Would you consider the possibility of

bilateral trade agreements with specific member countries of APEC

in order to reinvigorate the progress toward free trade in Asia? And

what are the advantages of bilateral trade agreements over regional ones?

Ms. BARSHEFSKY. Mr. Chairman, I think that progress in APEC, while perhaps slow, nonetheless is actually fairly persistent and

continuing. I think we have made important strides. I do not think anyone in this room, even 5 years ago, would ever have thought that the region, the Asia-Pacific region, would agree

to the concept of free and open trade by a date certain. I think that

was simply beyond the purview of most of our collective imagination. Nonetheless, that commitment has been made and steps are

being taken toward the realization of that goal.

In terms of catalyzing the APEC process, there is no question

that perhaps a targeted bilateral trade agreement or two would act

to move that process along very much in a direction important to

U.S. interests. Of course, as you know, the region is very diverse
34

economically, culturally. It is divided by a differing history, and it

is separate from us in ways quite different from our own hemisphere in terms of culture and oftentimes overall outlook. Providing

leadership in APEC through the ability to negotiate trade agreements would be very important for our longer term objectives.

The advantages over bilateral agreements versus regional agreements are, in part, ones of timing and, in part, ones of substance.

I think it is true to say that the fewer number of countries one negotiates with, typically the less compromise one needs to make. The

greater number of countries and the greater their range of interests, the harder it is oftentimes to forge consensus, and sometimes

that requires more compromise.

Of course, as we demonstrated last April in the telecommunications talks, there are points beyond which the United States will

not compromise and we will simply walk away. That strategy

proved valuable when we forged a much more important agreement

just several weeks ago.

But we do think that bilateral agreements do have their own advantages relative to regional, and regional arrangements may have

certain advantages relative to multilateral.

Chairman CRANE. The proliferation of free trade agreements that

you outline in your testimony, especially in Latin America, is resulting in a tangled web of conflicting rules governing United

States businesses operating in the region. Will the Free Trade

Agreement of the Americas negotiation help to build some commonality and order into the process of trade liberalization in our

hemisphere?

Ms. BARSHEFSKY. That is precisely one of the reasons to do the

FTAA. There are a series of conflicting rules in our own hemisphere, not merely with respect to, for example, customs procedures or business operations but with respect, for example, to intellectual property rights, differences in tariff treatment, still even

some differences in the classification of products. These are, in

their own way, barriers that hamper the free flow of goods and

hamper our ability to maximize our exports, particularly our export

performance relative to other countries.

The idea behind the FTAA is to forge a more common set of

rules, particularly on the commercial side, to avoid these kinds of

impediments.

Chairman CRANE. And finally, President Clinton and EU President Santor agreed in December 1996 to conclude negotiations by

January 31 of this year on a package of mutual recognition agreements. MRAs permit products tested and certified as meeting required technical regulations or standards in one country to be sold

without further approval in another country. What is the status of

this negotiation, and when do you expect a successful result?

Ms. BARSHEFSKY. The negotiations have proceeded apace. We are

further along still in some areas than in others. A particular point

of dispute between the United States and the EU has been on

pharmaceuticals and the extent to which testing requirements can

be harmonized. That is a difficult area, impacting as it does, of

course, on public health and safety.

We are continuing to pursue these discussions with the EU. We

believe we already have in hand an acceptable MRA package. The
35

EU would like to see more, and that is the conflict we are going

to have to resolve in the coming weeks.

Chairman CRANE. Thank you very much.

Mr. Matsui.

Mr. MATSUI. Thank you, Mr. Chairman.

Again, congratulations, Ambassador. I am very happy to see you

finally confirmed and now our official U.S. Trade Representative.

Ms. BARSHEFSKY. Thank you.

Mr. MATSUI. I appreciate your testimony in the sense that many

of my colleagues are trying to make the whole issue of the reauthorization of fast track linked to NAFTA. You know, one could

make the same argument that you need fast track because of the

United States-Israell Free Trade Agreement, the Caribbean Basin

Initiative, or the Free Trade Agreement with Canada.

Fast track really is not about NAFTA. As you stated in your testimony, the problems with Mexico are varied, in the sense that

there are a lot of issues involved in this.

I hope that my colleagues and those that are going to debate this

issue will follow your example and talk about the need for fast

track in terms of the whole issue of our strategic relationship with

many of the countries we deal with and not make this a debate on

NAFTA or Mexico or the drug problems or immigration or any

other issue pertaining to Mexico.

Perhaps you can, and you have, but perhaps in some detail you

can tell me what your thought would be if we do not give you the

authorization on fast track. What will happen over the next 4

years? I think we have a very limited window, perhaps this year

and perhaps early next year. What would be the consequences of

that, if fast track authority were not granted to you and the President?

Ms. BARSHEFSKY. I think, Mr. Matsui, I prefer to think positively

on the subject because I do believe that there is an understanding

of the important role that our ability to export, our ability to remain the world’s most competitive nation plays with respect to our

domestic prosperity and our ability to lead the world.

We are in an extraordinary position. We are the world’s most

competitive economy. Our industries are at their most competitive

time. We are operating at a time when our major trading partners

are in a less advantageous position. The European economies remain weak relative to ours. The Japanese economy remains weak

relative to ours.

We are in a position to advance our interests at this point in

time as in no other point in time in recent history. We must take

advantage of that positioning, and we must use it to create for ourselves a situation in which our leadership remains paramount in

the global community.

We ought to be at the center of a constellation of trading relationships around the world. It is that positioning that creates not

only our economic prosperity, but also creates the kinds of strategic

alliances that must be built in the face of a world that is no longer

either divided or together because of cold war alliances. We need

a new tool for alliance building.

We can, in effect, kill two birds with one stone. We can use trade

to forge our own domestic prosperity while, at the same time, build
36

longer term strategic alliances to enhance our own global positioning and ensure our leadership.

Ultimately, trade policy should be about that. It should be about

our ability to remain exactly what the United States is. That is our

focus. Fast track is one of the important tools in maintaining that

goal.

Mr. MATSUI. Thank you. I have no further questions at this time.

Chairman CRANE. Thank you.

Mr. Houghton.

Mr. HOUGHTON. Thank you, Mr. Chairman. Madam Ambassador,

it is nice to see you here. Thanks very much for coming.

Ms. BARSHEFSKY. Thank you.

Mr. HOUGHTON. I really have two questions. The first is about

fast track. I totally agree with you that we have to do this and we

have to do it soon. One of the things I think we forget is that the

U.S. Congress is not sitting on a pinnacle of its own. It is in competition with the Diet, the Bundestag, and a variety of other countries and economies around this world. Therefore, as you know in

business, timing is everything and this is important timing.

However, let’s just assume for the moment that the forces of evil

are at work against you and many of us who believe in fast track

and it does not happen. Are you not able, with your arsenal of

tools, to do a variety of other things which, in effect, almost

produce the same economic benefits for this country in this area,

competing against what will be a large bloc which is the

MERCOSUR bloc? That is number one.

Number two is, Is there any element of timing which is important in terms of the ASEAN Free Trade Agreement? We talk about

this but when we do, we always think about China. It looms over

the horizon as something so important. But what are those things

which we need to do now because of the same competitive forces

we have in South America with the ASEAN nations?

Ms. BARSHEFSKY. Certainly, as I indicated in my testimony,

there are a variety of things on the trade agenda that can be accomplished without fast track and indeed for which we do not require fast track authority. But you are asking me whether, through

strictly bilateral tools, which is what we have now, we can accomplish, for example, a catalyzing of the FTAA process or a catalyzing

of the APEC process, whether we can go beyond simple mutual recognition agreements with Europe and move into other areas. You

are asking me whether, using only bilateral tools, we could expand

the ITA or the Telecommunications Agreement just entered into or

financial services.

If that is the question, the answer is that the United States

needs the authority to negotiate and enter into comprehensive arrangements. And let me use the ITA as an example. But for the

fact that we had residual negotiating authority in the Uruguay

Round Implementing Act, there would be no ITA. I am in the position that a number of the companies in the ITA have come to us

to say, ‘‘Can you expand the product coverage?’’ And the answer is,

No, I cannot. I do not have the tariff proclamation authority to do

it.

We, in the ITA, further negotiated for the right to raise nontariff

barriers in information technology products. I cannot negotiate
37

those nontariff barriers on a pluralateral basis in the ITA without

fast track authority.

Now, I could do it bilaterally, country by country, product by

product, which is like taking an ice pick to Everest.

The short answer is fast track authority has always been, for

every President since President Ford, an important part of the

trade arsenal, and it remains an important part of the trade arsenal today.

With respect to ASEAN, we have a variety of initiatives with the

ASEAN countries to expand exports and to enhance the trade relationship between the United States and ASEAN. That relationship

could be strengthened by additional initiatives, which we are looking at. And, of course, the extent to which we can pursue closer

economic ties with one or another ASEAN nation, the relationship

would be further enhanced.

Mr. HOUGHTON. Thank you, Mr. Chairman.

Chairman CRANE. Mr. Rangel.

Mr. RANGEL. Thank you.

Again, let me join the Subcommittee not only in congratulating

you but in sharing how proud you made us feel as a congressional

delegation at the World Trade Organization Ministerial. The respect that our trading partners have for you raised our level of

pride for our country.

Of course, our Helms-Burton Act causes us quite a bit of embarrassment and there is no sense discussing this with you, since you

do not create our trade policy but you enforce it, and you do it well.

But whomever you talk with, I hope you share with them that

there is no need for a great nation like ours to resort to just immoral, illegal, unconstitutional, and sensitive trade policies against

the smallest country in the world when we are setting these lofty

standards that are being respected by countries. We have to stand

by our own rules.

Now, on the bipartisanship of fast track, it is true we have enjoyed that for decades. But it seems now that the question as to

what would be the minimum standards we would expect that people would treat their workers or just how much damage a trading

partner can do to the environment, I think whether Republican or

Democrat, there is a minimum standard.

The question is, Do we get in and micromanage it or do we encourage labor leaders to negotiate contracts? And it would seem to

me that we have reached the point where there is a great division

that exists in the Congress.

I would strongly suggest, since it is more than just a bipartisan

difference, that the President might speak to some of the people

who feel so strongly about this and raise the question of national

security as it relates to trade because it is more than just language;

it is how it is perceived.

And when we start to agree with each other, we have to be saying the same things, even though it took a long time to get there.

And it seems to me that it is very, very important that we not

allow ourselves to hold back the fast track for political reasons. I

think only the President can put some of his political clout on the

line to let both Democrats and Republicans know that what we are
38

talking about is in our national interest, and if anything is going

to be worked out, he is going to have to play a role in that.

Last, I am glad you included education in your opening remarks.

I do hope the State Department, as well as your agency, realizes

that when we talk about the hopes and dreams of America, we are

not just talking about corporate stockholders.

A lot of people do not have access to that bridge that the President refers to. With low-income jobs becoming ever more scarce as

they go overseas, we have to build that bridge for every American.

Again, it is just something that you do not have to comment on

now. I refuse to believe that we can enter these multinational trade

agreements and we cannot talk about drugs.

Ms. BARSHEFSKY. What was that?

Mr. RANGEL. Drugs, narcotics, illicit drugs coming into this country.

Ms. BARSHEFSKY. I did not hear you.

Mr. RANGEL. As we tear down the barriers for a freer trade, we

know that we are opening up the opportunity for drug dealers and,

unfortunately, in many cases leaders of countries.

I do not want to take away from the sophistication of what you

do. Nor do I want to dramatically change the rules of how you do

business with these so-called diplomats. But you should be able to

share with them that there are some steamrollers coming down

that are not that sophisticated and they had better put narcotics

on the table when we are talking about anything, because the question is not how much corporations and government benefit from

free trade but how much people benefit from free trade.

We could not have anyone stronger than you. I intend to be supportive of you, but I do hope that you make it clear that I will be

raising those items whenever I get a chance. And congratulations

again.

Thank you, Mr. Chairman.

Chairman CRANE. Thank you, Mr. Rangel.

Mr. McDermott.

Mr. MCDERMOTT. Thank you, Mr. Chairman.

Good morning. Welcome.

Ms. BARSHEFSKY. Good morning.

Mr. MCDERMOTT. As I was reading your testimony last night,

sort of in anticipation of coming here, I could not help but be struck

by the fact that although Mr. Crane and Mr. Rangel and I and others have been working on an African trade initiative, I find only

one short paragraph in your testimony. And I was puzzled by the

implications of one of the sentences. It says, ‘‘We believe that the

achievement of this goal’’—that is, trade with Africa—‘‘lies in African countries reforming their own economies and in our encouraging this process.’’

It seems to me that African countries have been subjected to

World Bank and IMF strictures for a considerable period of time,

but the thing that has been missing over the course of time has

been the U.S. Government stepping in. And once the stick has been

used, the carrot has been missing.

I wonder if you could talk just a little bit about what your feelings are because you do not develop that at all. You spend a lot

of time talking about fast track and other things, which obviously
39

are important, but if the title of one of your subparts of this was

the dangers of inaction, it seems to me the dangers of inaction for

the United States in Africa are that we turn that population of 600

or 700 or 800 million people over to everyone else in the world and

we sort of cede it to the Europeans and to the Japanese. It does

not seem like a good policy for the United States to cede that large

a market.

Ms. BARSHEFSKY. I agree with you entirely. Europe holds about

30 percent of the share in Africa; the United States holds 7 percent. Part of that has to do with historic relationships between the

former European colonies and Europe. Part of that has to do with

our own almost inexcusable ignoring of an entire continent.

There is no question that United States leadership will be critical

to the success of reform in Africa. By that I mean of course African

nations and their leadership have to make the right decisions, have

to pursue paths of reform, have to reduce corruption, have to be

even more concerned about levels of poverty, health, and so on. But

if the United States is not leading the way in many of those

areas—providing technical assistance, providing expertise, providing trade and trade benefits—I think it is going to be very difficult

for those countries to move forward and to regain their former stature.

I will tell you a statistic which I find astonishing. Thirty years

ago Africa was far wealthier than Asia. Thirty years ago. What has

happened? This is a question of profound importance to the United

States.

We, as you know, have an Africa initiative in the administration.

It is one that I think some would feel does not go far enough, but

we are trying to create at least a baseline and common understanding, first off, of the extent of the problem and then second, of the

existing programs that we have now, those that are good and those

that are not any good; and third, what the future direction ought

to be.

And, as you know from this report we just released, there are

three areas in particular that the United States believes it can be

particularly helpful on with respect to Africa. Trade is one and in

that regard, one of the things that we would like to look at with

the Subcommittee is the reorientation of our GSP Program to benefit the least developed of the developing countries. And that is in

particular Subsaharan African, and this is something we would

like to work on with the Subcommittee. That is one small piece but

trade, including working with the bank, the fund, the other international financial institutions.

Second, the whole process of regulatory reform. Africa is bogged

down—many countries are bogged down in a bureaucratic morass.

Infrastructure, even of a business nature, is not there, but there

are rules and regulations that abound. The question is how does

one rationalize this system so that business can take place in a

productive way?

And then the third area, of course, is to strengthen democracy

and democratic reform, hoping to undergird stability in the region.

These are all areas where the United States has to begin leading.

I think as a country, we have been remiss in the obligations we
40

have, not only as a superpower, but also because we are ceding extraordinary advantage to other countries.

Let me give you one example that may not be so obvious. China

has courted Africa, courted Africa assiduously. The trade minister

in China, my direct counterpart, has been to Africa about eight or

nine times in 1996 alone. If I am not meeting with her, she seems

to be in Africa.

Why is that? Two reasons. First of all, the tremendous economic

potential that is in Africa. But second, and for the United States

this is perhaps even more interesting and fundamental, China

wishes to bring Africa within its orbit so that in multilateral institutions—the WTO or the U.N.—it has a base of power to challenge

that of the United States.

Why on Earth would we let that happen unchecked and

unregarded? We need to, as we are doing now, think through again

our policies with respect to Africa and make sure we are also a

global player on that continent.

Mr. MCDERMOTT. I would just say one thing. I hope we do not

require Africa to improve everything in democracy building before

we make the moves with the 14 or so countries that we could make

relationships with. We certainly did not require the Asians to do

that. And I think there is certainly room for us to move at least

in a dozen or so countries in Africa now, rather than wait for some

perfection of their democratic processes.

I appreciate your thoughts and we will talk with you further

about it.

Thank you.

Chairman CRANE. Mr. Herger.

Mr. HERGER. Thank you, Mr. Chairman.

Madam Ambassador, I would like to emphasize my strong opinion that it is essential that the administration place as much emphasis on enforcing international trade agreements as it places on

negotiating them. Fully implementing, closely monitoring, and

strictly enforcing our trade agreements are pivotal to our national

interest. Absent such strict monitoring and enforcement, I fear, our

agreements will become simply U.S. concessions for benefits that

never fully materialize.

I am concerned, for example, about strict monitoring and enforcement without exception of the 1996 United States-Canadian lumber agreement; yet this is a generic problem applying to all our

trade agreements.

Madam Ambassador, will you ensure that agreement implementation, monitoring, and enforcement receive the highest attention

at USTR and, in particular, will you ensure that USTR does whatever is necessary to maximize enforcement efforts throughout the

interagency process?

Ms. BARSHEFSKY. I think the points you have made are very well

taken, that USTR will continue, as we have over the past number

of years, to enforce vigorously the trade agreements that we enter

into.

If we have trade agreements with countries, we have two choices.

Either they implement or we have to enforce. If we do not enforce,

there is no credibility in the process and no credibility to the agreements negotiated.
41

In the last 4 years, we have brought 46 enforcement actions. We

have also brought 23 WTO cases, 15 in the last year alone. All of

that, I think, demonstrates the importance to this administration

of strict enforcement.

In addition, we created a separate monitoring and enforcement

unit at USTR to better concentrate our resources on that important

task, and Commerce has set up a parallel organization. We tend to

do more of the litigation; they tend to do more of the strict monitoring of trade agreements compliance, but together, we cover the waterfront.

Mr. HERGER. Thank you. Another example, Madam Ambassador,

is my concern about recent tariff increases on shelled and in-shell

almonds imposed by the Indian Government. As you know, the

U.S. exports nearly 50 million dollars’ worth of almonds to India

annually. Many of these almonds are grown in and around my district in northern California.

I understand the Department of Agriculture has sent correspondence to India on this matter and plans to follow up with a telephone call to the Indian embassy tomorrow. Both occasions will be

used to inform the government of India that it has breached its

agreement on almonds with the United States.

I would hope you would use your position to take this issue on

personally and see that it is appropriately resolved. And will you

work with the President to reopen this market for the United

States in accordance with the Indian agreement negotiated by Ambassador Kantor?

Ms. BARSHEFSKY. Congressman, we are already involved in this

with USDA. We have already spoken to the Indian Ambassador

about this issue. This tariff change occurred—we learned of it at

the end of last month. It was a change that appeared in the Indian

budget. Obviously, this is unacceptable and we will be working

very, very hard to rectify the situation one way or another.

Mr. HERGER. Thank you very much, Madam Ambassador, and I

join in congratulating you on your recent Senate confirmation.

Ms. BARSHEFSKY. Thank you very much.

Mr. HERGER. You are welcome.

Chairman CRANE. Mr. Jefferson.

Mr. JEFFERSON. Thank you, Mr. Chairman.

Madam Ambassador, I have supported fast track every time,

NAFTA and MFN for China, but I am disturbed, somewhat disturbed, anyhow, by some of your responses to Mr. Rangel and to

Mr. McDermott about two different questions.

Our Government has taken the position that with respect to

trade with China, we delink considerations of human rights and

political restructuring from the economic issues of trade and investment, and we proceed down two different tracks. Now, whether

that is right or wrong, that is what we do.

We can do no less, it would seem to me, when it comes to the

Africa question. I do not know the commitment of every country in

Africa to democratization, but I certainly know the commitment

that China does not have in that area. And it is not to be overlooked as we talk about how to get after this whole issue of trade

investment.
42

I hope that when we discuss these questions in the future, we

will talk about them in the same way we talk about delinking

these issues with China. That is the first thing.

The second thing, because I know this time runs very quickly, is

on Mexico. I am from Louisiana and we are overrun by drugs in

our State because of the traffic from Mexico. Seven years ago, eight

years ago, we did not have the problem. Now crime is rampant because drugs are driving crime.

I have not required, in my experience, any votes connected to any

of the concerns. We have talked about how important environmental considerations were and labor considerations were, but we

have tried to give the administration a great deal of freedom in this

area.

Now drugs have become a very prominent question. This has to

be on the table with Mexico. It has to be discussed. It has to be

addressed and it has to be dealt with because it is not much of a

neighbor who throws garbage into your back yard, and that is what

is happening here.

I hope that we will take these two issues very seriously, deal

with Africa as we deal with China, as Mr. McDermott says, with

Asia, have the two-track policy proceed hard. It does not mean we

ignore the democratic problems but we proceed very strenuously on

those on the diplomatic side, and we work hard on the State Department side to get that done.

But on the trade and investment side, we treat Africa as a good

venue for trade and investment, and we encourage it with everything we have to do it with.

You asked the question why Asia is doing better than Africa 30

years later. It is obvious to me: Western investment. It is not because Asian Governments are less corrupt or because they are

more industrious. They simply became investment venues that we

had an interest in. And in the last 15 years we have raised the per

capita income there because we have brought jobs and investment

there. And if we take jobs and investment to Africa, you will see

the economic turnaround there, as well.

That is my comment.

Ms. BARSHEFSKY. Thank you. If I may, Congressman, in identifying the ways in which we believe the United States can assist African nations—that is, trade and investment, issues of regulatory reform and rule of law and democracy—I was not intending to indicate that somehow these are linked or one could not proceed with

one if one did not proceed with the others simultaneously or as preconditions. I was merely identifying the areas where we believe the

United States has particular expertise or can be of assistance.

There is no question that standing on its own, trade and investment is key, is key to the recovery of many African nations and

will also be key to their stability. And so as a principal objective,

obviously it is to see if we cannot enhance the trade and investment areas, if you will, to start the ball rolling.

The issue of GSP is one such possibility. Working with the bank,

the fund, and so on presents another series of possibilities. Perhaps

agreeing with Congress on some new initiatives could be yet a

third possibility. But I do think it is vitally important that we work

in Africa to help create in Africa not only development but sustain43

able economic development while, at the same time, we do work on

other areas, such as democratic governance, rule of law, commercial policy—the full range of issues one might expect if one were

attempting genuinely to assist these countries to economic recovery. So in that, I am agreeing with you.

I think, on the question of drugs and Mexico, of course there has

been quite a debate in this chamber about that. The administration’s position on recertification is, I think, well known, and that

is a genuine feeling on the part of the administration that the

Mexican Government has been a cooperative partner in the fight

against drugs. And evidence presented included the fact that the

Mexican Government now has very strong criminal laws, enforcement activity is way up, criminal prosecution has increased, the

eradication of drugs fields and so on has increased in Mexico, so

on and so forth. But there is no question that this is an issue of

critical concern.

You know this, I know: We are 4 percent of the world’s population; we consume 50 percent of the world’s illegal drugs. We obviously, therefore, also have some significant domestic business to attend to.

But I take the point. I understand the significance of the drug

issue and its ramifications and implications for U.S. policy, and we

would like to work with you.

Chairman CRANE. The gentleman’s time has expired.

Mr. Camp.

Mr. CAMP. Thank you, Mr. Chairman and thank you, Ambassador, for being here.

Given that U.S. agriculture is one of the shining examples of how

good trade is for America, I was pleased to see your office reported

that you will be focusing more on agricultural issues. As we all

know, trade is one of the big stars of American exports—$30 billion

in trade surplus in agriculture and a total of $60 billion in agricultural exports.

My question is that reports have indicated that you will be elevating agricultural issues at the trade office, and I wondered if you

could provide me with some details of what resources, in terms of

time and personnel, will be devoted to agriculture and what differences might we see as a result of your efforts and maybe some

of the long- and short-term changes.

Ms. BARSHEFSKY. The administration is committed and I am

committed to elevating the profile of agricultural trade issues. Agriculture is our largest good export. We hit record agricultural exports in 1995. In 1996 we broke that record and hit a new record.

I think USDA forecasts for 1997 are a little bit of a downturn in

exports, still at very high levels, but they have made some

weather-related projections which indicate a little bit of a downturn

from 1996 but probably still above the 1995 level.

In terms of USTR, USTR has a very, very excellent agriculture

shop but in my view, we need to expand that shop, buildup a little

more expertise in that shop, and elevate the profile and the rank

of our negotiators in that shop so that they are dealing with the

appropriate counterparts in foreign countries.

In addition, Dan Glickman and I have spent a fair amount of

time talking about ways that USTR and USDA can be better co44

ordinated than we are. Of course, USDA sets agricultural policy.

On any agricultural trade issues, they are on our delegation, and

vice versa. But oftentimes even with that, we are not quite as well

coordinated as we should be. And, of course, trading partners love

to see a less than perfectly coordinated U.S. Government response.

We will be working on that aspect as well.

Mr. CAMP. The United States-European Union trade and investment relationship is usually described as a very strong one and a

balanced one and that is perhaps because of the size of it, but we

do seem to have an unusually large number of disputes in the agricultural sector.

I wonder if you could just share why you think we face so many

problems with the EU in the farm sector and how we might resolve

some of those difficult issues.

Ms. BARSHEFSKY. The words ‘‘dispute’’ and ‘‘EU agriculture’’

seem to go hand in hand. If you look at the range of agricultural

trade disputes around the world, and the list is long and the number of countries is many, relations with the EU still stand out as

being particularly nettlesome.

I think the reason for that has to do, in part, with EU internal

politics, the domestic politics of the individual member states, the

fact that in some areas, the United States is far more competitive

and more aggressive than the EU, and the EU view oftentimes in

industrial sectors of containment.

If you look at the way the EU treated Japan policy for many,

many years, it was not a market access-driven policy, as the United

States policy was. It was, instead, a policy of containment—shutting their own market, keeping Japan out. The result was a diminution in competitiveness of the EU’s own industries.

There are some similarities between that kind of containment

policy and EU agriculture policy, which seeks to shut out competitors from the EU market. The result has been a decline in competitiveness in many EU agricultural sectors, particularly in sectors

like bioengineered agricultural products, which rely on very high

technology.

We have identified a range of problems, bilateral problems, in

the agriculture sector with the EU and our intent would be basically to go down the list one by one, doing our best to resolve them.

I should also add that agriculture negotiations begin again in the

WTO in 1999, and we would like to be somewhat better positioned

than we are right now before those negotiations begin.

Mr. CAMP. Thank you.

Chairman CRANE. Mr. Nussle.

Mr. NUSSLE. Thank you, Mr. Chairman.

I would like to, first of all, associate myself with the comments

of Mr. Camp and his questions and also add my interest obviously

in the agricultural sector.

In your testimony, and it is not numbered but it is under the

title of ‘‘Fast Track and NAFTA in Context,’’ Madam Ambassador,

you state that ‘‘Fast track debate is and should be about our ability

to conduct a global trade policy and to advance our global trade interests. They do not address the need to seize trillions of dollars

in global infrastructure opportunities in Asia. They do not give us

the tools to continue cutting European agricultural subsidies. They
45

do not help us respond to preferential trading relationships or exclusionary practices that limit the United States.’’

I guess my first question is in the area of—when do we get to

deal with those issues, and how? Because really, for us, fast track,

from our constituents’ standpoint, gives away our ability in many

instances to deal with some of that minutia, so to speak. How do

we deal with those issues outside of the context of fast track?

Ms. BARSHEFSKY. Let me first, I think, correct a misimpression.

That is the extent to which fast track would impinge on a member’s ability to get involved in the minutia, to use your word.

Of course, if you look at the history of fast track, you see that

accompanied with it are a series of consultative prerequisites and

member contact, without which, actually, fast track can be denied.

The result is that if you look at agreements like the Uruguay

round agreements or NAFTA, the level of congressional consultation was unprecedented because fast track itself depended on the

adequacy of consultation with Congress.

Our view, continuing in that tradition, is that if anything, fast

track tends to increase the consultations between the administration and individual members on the full range of issues that are

of concern to them.

Now, I do not see that any member’s ability to influence policy

is particularly different with fast track or without. The key is that

administration and members must work together to fashion the appropriate policy on the particular issues or range of issues of concern.

I made the comment earlier that without fast track, on some of

the issues that you addressed, for example, agricultural subsidies

in Europe, we are relegated to using bilateral tools. If we are going

to tackle agricultural subsidies in Europe, bilateral tools will not

work. Europe will not move bilaterally. We have been through 30

years of this with Europe, and I think that is an uncontestable

proposition. They will only move in the context of multilateral or

broader talks, and for us to implement the outcome of those talks,

fast track authority is needed or neither Europe nor our trading

partners will enter into the discussion.

Mr. NUSSLE. And that is my confusion because you say in your

statement that fast track is not about that and now what you are

saying——

Ms. BARSHEFSKY. Oh, I am sorry. Then perhaps the statement

was inartfully drafted. What we are saying is that the question of

Mexico is not related to how we pursue infrastructure in Asia or

agricultural subsidies in Europe or other issues. The question of

Mexico, which may raise concerns for members, certainly is one

that should be addressed, but not one that resolves the rest of our

global trade agenda and not one that serves to do anything other

than put our competitors in a more advantageous position and let

Europe rest with the agricultural subsidies it still employs.

Mr. NUSSLE. Well then, let me ask, because I just had a town

meeting in Waukon, Iowa, and Allamakee, Iowa, and John Simmons and Ollie Emerson grilled me—they are two residents from

that corner of the woods, and they grilled me quite a bit on the

whole issue of how many jobs we have lost to Mexico, how easy it

is for companies to move to Mexico, how difficult and bad the
46

NAFTA Agreement has been, and why we should, as a result, pull

in the reins in many instances.

There have been too many sets of figures out about all of this different information. Could you maybe put some of this to rest today?

What have we lost or gained in terms of jobs? How many companies have moved or expanded, either in Mexico or here? We need

that information in order to, in some instances, battle misperceived

information or misunderstood information.

Ms. BARSHEFSKY. As you know, the administration believes that

NAFTA has been a very, very good agreement for the United

States. Our exports to Mexico now are at record levels, a historic

high, despite the worst Mexican recession in recent history. Our export recovery in this recession was very, very short with Mexico.

That is to say that our exports dipped in 1995, rebounded very,

very strongly in 1996.

During the last recessionary downturn in Mexico, caused by peso

devaluation, which was in 1982, our exports fell by one-half and

they took 7 years to recover.

The reason we have done so much better in the Mexico economy

now is that NAFTA has undergirded Mexican market-opening reform. Mexico has had no choice but to stay on the NAFTA schedule. That means continually opening its market to U.S. exports, despite its recessionary downturn. We feel that NAFTA has been a

very good agreement.

On the questions that you raise, rather than perhaps misspeak

and give you yet a different set of figures or slightly different, I

would be happy to provide you with quite detailed information.

Thank you.

Chairman CRANE. And I might add a footnote to what Ambassador Barshefsky said and that is we are enjoying the equivalent

of full employment right now in this country. But beyond that, we

had an incident in Chicago that Mayor Daley told us about. They

could not find tool and dye workers. They had to import legal immigrants, import legal immigrants for $20 an hour jobs.

There is a lot of distortion and misrepresentation on that question of job loss.

Mr. Levin.

Mr. LEVIN. Thank you, Mr. Chairman. I welcome the chance to

participate.

Ambassador, congratulations on your confirmation. I am glad you

are here, very glad.

Ms. BARSHEFSKY. Thank you.

Mr. LEVIN. Your testimony has tried to provide a context for this

discussion and I applaud you for doing that. There can be some differences as to what the context looks like but I think essentially

you are saying we ought to take another look before we leap, not

taking too long.

And I think especially as trade has been evolving and trade

issues have been evolving more and more with developing nations,

we need to have a context. We need to take that kind of a hard

look, not an academic one but a hardheaded one.

In your testimony, in the effort to provide a context, at the end

you talk about the important issues of interrelationships of the

economy with labor and environmental issues. In your testimony
47

you say, ‘‘Advancing worker rights and labor standards is in our

national interest and is consistent with our deepest national values.’’

Then you go on, on the next page, to say, ‘‘In my view, the challenge is how to maximize progress in three areas which are of

major importance to us: Expanded market access, advancing worker rights and core labor standards, and promoting environmental

protection and sustained development.’’

Then you say, actually a bit earlier, your conclusion: ‘‘We simply

have to forge a consensus of this subject that alluded us in 1994

and 1995.’’

I am not sure we will bridge all the differences or there will be

a full consensus, but I think your testimony, if we look at it carefully, will help to advance a hardheaded dialog.

I think NAFTA is relevant. It is not the whole story. We need

to look both at our exports and their imports.

Let me ask you, though, in the time you and I have remaining,

to just say a word about why you say advancing worker rights and

labor standards is in our national interest? I assume you mean our

national economic interest. You also say it is consistent with our

deepest national values.

I think most people would agree with that. I am not sure how

much agreement there is on the statement ‘‘Advancing worker

rights and labor standards’’—as you put otherwise, ‘‘core labor

standards’’—is in our national interest. Why is that?

Ms. BARSHEFSKY. Let me say that the United States has long

sought to act in a manner to improve working conditions around

the world through various multilateral fora, through various regional arrangements, through various cooperative arrangements

with various countries.

This is an important issue for a number of reasons. One, of

course, is the question of U.S. workers competing against workers

who make substantially lower wages. Some of that may be justified

by comparative advantage or differing economic circumstances, but

a more serious question arises when that disparity is a result of

an enforced government policy to keep it that way.

So, too, the question, for example, of child labor has substantial

bearing on the United States and our longer term economic prospects. To the extent countries engage in bonded labor, forced child

labor, countries that have no mandatory education or very little in

the way of educational systems, we see no way for its domestic population to get out of a vicious cycle. But these countries become

greater and greater exporters around the world. And, of course, we

are in competition with those exports.

There is a double blow which is the lack of development in those

countries and the lack of regard for its own workers or people and

then, of course, the competitive situation.

But I think, at the same time, we have to recognize that labor

is only one variable in the cost of production and in most industries

it is actually the least important variable in that cost, with infrastructure and the cost of capital playing a much more substantial

role in a country’s outward competitiveness in the global marketplace.
48

As far as our core values go, of course for the United States, we

are a land of opportunity. The notion that governments would

knowingly discriminate among classes with respect to labor, would

force children into occupations that are plainly hazardous, would

keep a segment of population relegated to a particular status is abhorrent, I think, to the U.S. way of thinking.

Mr. LEVIN. Thank you very much.

Thank you, Mr. Chairman.

Chairman CRANE. We want to express profound appreciation to

you, Ambassador Barshefsky, for all of the hard work you have

done thus far, and we look forward to burdening you even more in

the future and we look forward to working with you, too.

Thank you for coming.

Ms. BARSHEFSKY. Thank you so much.

Chairman CRANE. Our next witness follows the tough negotiator

who has just been here before our Subcommittee. She had quite a

reputation for the tenacity she demonstrated when she represented

the United States in NAFTA and Uruguay round negotiations

under President Bush.

In continuation of our bipartisan tradition, I want to express appreciation to Ambassador Carla Hills for accepting my invitation to

join us today. We are very much indebted to you, Carla, for coming.

With that, you may proceed.

STATEMENT OF CARLA A. HILLS, CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, HILLS & CO.; AND FORMER U.S. TRADE

REPRESENTATIVE

Ms. HILLS. Thank you, Mr. Chairman. I was delighted to receive

your invitation to share with you my thoughts on trade policy.

As the world’s largest exporter, importer, and investor, we have

a major national interest in ensuring that global commerce continues to flourish in ways that maximizes our opportunities and minimizes the risks for our citizens, and history tells us that we make

a difference.

America exercised post-war leadership to open the global economy, and the results were spectacular. World trade, global growth,

and the U.S. economy soared.

In the eighties, when protection began to hinder our growth, the

United States pushed for another round of trade talks. In the nineties, our leadership in the Uruguay round and in the NAFTA

helped lock in market reforms. Without our leadership, the world

would be a very different place today, to the detriment of our citizens.

To maintain our influence internationally, we need to do four

things better: First, develop a broader domestic consensus and understanding that U.S. prosperity depends on remaining globally engaged; second, be more clear, consistent, and decisive in our trade

policies. At the outset, we must think carefully about what it is we

want, say what that is, mean what we say, and do what we say

we will do; third, we need to lead by example, abiding by the agreements that we negotiate, if we expect others to do so; and more

carefully weigh the growing burdens on trade from the use of economic sanctions as a means of furthering our nontrade objectives;
49

and finally, we need to cultivate international support for our positions.

As we look ahead to the future, our trade policy must promote

open markets. But even with the best of policies, our Nation cannot

effectively lead if our trade negotiators cannot deliver on the deals

they negotiate. Thus, the immediate challenge is for this Congress

and this administration to agree on new trade agreement approval

authority traditionally known as fast track.

Fast track seeks to harmonize the powers that the Constitution

grants Congress to regulate international commerce with the constitutional powers given the President to negotiate with foreign

powers. Fast track was conceived as a result of a bipartisan recognition that our trade team could not negotiate effectively if their

counterparts knew that if they struck a deal, a second negotiation

would follow with Members of Congress. Such a two-step process

would inevitably lead the nations with whom we negotiate to hold

something back.

To take advantage of future and current opportunities, the 2-year

stalemate over the relationship between trade and standards for

labor and the environment must come to an end.

Assuming fast track is granted, a top priority should be to move

forward with Chilean accession to the NAFTA. Two administrations, Republican and Democrat, have concluded that it well serves

our national interest to bring Chile into the NAFTA, for the

NAFTA constitutes the type of comprehensive agreement that we

should want to take root in this hemisphere.

Its market-opening provisions have substantially raised trade

among all three parties. Unfortunately, that positive outcome has

been overshadowed by Mexico’s financial crisis. But the NAFTA

had nothing to do with Mexico’s financial difficulties, nor has it

been detrimental to any of the parties’ interest.

Quite the opposite is true. The NAFTA helped ensure that Mexico remain committed to an open economy, and as a result, it has

bounced back much more rapidly than most expected, and United

States entrepreneurs retained access to the Mexican market allowing them to sell a record $57 billion in exports last year.

Chilean accession to the NAFTA is important in itself and for the

signal that it would send about America’s commitment to hemispheric trade liberalization.

At the 1994 Summit of the Americas, the hemisphere’s leaders

unequivocally committed to negotiate a comprehensive Free Trade

Area for the Americas by the year 2005. Since then, the momentum

for a hemispheric free trade has stalled, largely because of our indecision. As a result, integration is proceeding without U.S. leadership, creating problems for us. The proliferation of agreements is

creating a morass of conflicting rules for our businesses. U.S. firms

are disadvantaged in the region, as nations lower trade barriers

without our participation. And as the hemisphere moves forward,

we are losing the influence to ensure that integration reflects our

economic interest.

Trade ministers meet in Brazil in May, and the United States

could enhance its influence there if our negotiators had an expression of congressional support through the passage of fast track.
50

Asia is another key region where, like Latin America, we ought to be exercising the leadership befitting our great Nation. By exercising leadership on trade and economic issues in two of the fastest

growing regions of the world, Asia and Latin America, we can

maximize our commercial opportunities and advance our trade objectives. In addition to regional liberalization, we need internationally agreed rules to govern global commerce. That is why three administrations worked hard to conclude the Uruguay round agreements,

which in addition to substantial trade liberalization created the

WTO and provided that trade ministers meet every second year to

continue to remove trade barriers.

At the first WTO ministerial meeting this past December, min- isters concluded the Information Technology Agreement, which will

save our entrepreneurs about $1 billion. In mid-February, WTO

members agreed to open basic telecommunications worldwide, a

market valued at about $600 billion annually. Ambassador Barshefsky and her team deserve high praise for both of these agreements. We can do more. In agriculture and services, we have only start- ed to liberalize. Negotiations in both are set to resume in 1999, and

the United States should be positioned to lead in these important

areas. We need rules in investment. A more controversial area is

the relationship between trade and standards governing labor and

the environment.

Just as the United States lacks a domestic consensus on how to

address these issues, there is no consensus in the WTO. In my

view, we need first to agree on our objectives, then use available

fora to negotiate internationally agreed standards, just as we have

done in our more effective international environmental agreements.

Once we have the standards, we can tailor appropriate enforcement

mechanisms.

Another issue that will affect trade policy is the terms on which new members enter the WTO. Of the 34 nations applying, the largest is China. China’s entry into the WTO, based upon a sound protocol of accession, is very much in our Nation’s interest. It will ensure us increasing access to the Chinese market and give us a multilateral forum in which to deal with our trade differences.

To achieve the strongest protocol of accession, our negotiators should be in a position to tell the Chinese that Congress will grant

permanent MFN if the terms of their accession meet our specific

concerns.

Mr. Chairman, I am happy to answer your questions.

[The prepared statement follows:]

Statement of Carla A. Hills, Chairman and Chief Executive Officer, Hills &

Co.; and Former U.S. Trade Representative

Mr. Chairman and members of the Subcommittee, thank you for inviting me to discuss with you U.S. trade policy objectives and initiatives. Many people have questioned whether the United States can or should continue to be the leader of the global economy. Over the past four years, a variety of voices

on all sides of the political spectrum have said the United States should look to its

domestic interests and reduce its global involvement. These views suggesting an ‘‘either-or’’ choice between our foreign and domestic in- terests cause me discomfort. It is increasingly hard to draw a line between the two.

Nor do I find it persuasive that by withdrawing from global endeavors, we are somehow better able to solve our economic problems here at home.
51

It is true that the world has benefited substantially from U.S. economic leader- ship. But the principal beneficiaries have been our own citizens, who have been

blessed with five decades of unparalleled prosperity. In my view, self-interest alone should persuade us to maintain our global leader- ship on trade and economic issues, which does not always mean control, but certainly means influence.

IMPORTANCE OF TRADE TO THE UNITED STATES

The United States has an enormous stake in the continued growth of world com- merce. We are the world’s largest exporter. Last year we sold $837 billion abroad,

or almost $3,100 for every man, woman, and child in our country. We also are the world’s largest foreign investor and host to foreign investment. Just looking at direct investment, in 1995 (the most recent year for which data are

available), our stock of direct investment abroad was $711 billion overseas, and the

stock of foreign direct investment in the United States was $560 billion. Our global trade and our investment earnings and payments now equal about one-third of our $7 trillion economy. We are inextricably linked to the global economy. And that linkage has helped fuel America’s substantial growth over the past half century. Hence, we have a major interest in ensuring that global commerce flourishes in ways that maximize opportunities and minimize risks for our citizens. History tells

us that we can make a difference.

U.S. ECONOMIC LEADERSHIP HAS SHAPED THE WORLD TO OUR ADVANTAGE

U.S. economic leadership over the past 50 years has shaped the global economy very much to our benefit. Following the Second World War, it was our leadership that opened the global economy in the belief that economic interdependence would encourage political stability. To that end, we led a coordinated effort to establish a series of international institutions, including the General Agreement on Tariffs and Trade—the GATT—to promote global trade and economic growth. And we launched the Marshall Plan to

stimulate recovery in Europe and, in turn, stimulate markets for our exports. The results were spectacular. In the quarter century following the war, world trade soared 500 percent, the global economy grew at the fastest sustained rate

ever, nations devastated by the war rebuilt, and the United States enjoyed the highest growth in its history. In the 1980s, as trade protection began to hinder world growth, the United States pushed for a new trade round to modernize and strengthen the global trading system. The Uruguay Round, launched in 1986, went beyond tariffs to services, intellectual property rights, and investment—areas of rapidly growing commercial importance.

In the early 1990s, U.S. trade leadership caused a sea change in economic policies around the world.

It is no exaggeration to claim that our successful negotiation of the North Amer- ican Free Trade Agreement in 1992 did far more than stimulate trade throughout

North America. It also: • Breathed new life into the then-stalled Uruguay Round; • Encouraged the 18 nations of the Asia-Pacific region to adopt a set of principles to liberalize trade and investment over the next 25 years; and, • Placed liberalization at the top of the agenda in the Western Hemisphere, where for the first time hemispheric leaders have committed to negotiate a free

trade agreement by the year 2005. Our economic, political, and military leadership over the past five decades has not only helped to ensure that the freedoms we cherish are enjoyed by an ever-widening

range of people, but also has created an international climate that is more secure. We have helped build a world that is increasingly in our image, and our success in stimulating change more and more appears to be self-sustaining. Last year, for

example, a military coup in Paraguay failed, thanks to threatened political and economic pressure brought by Paraguay’s partners in MERCOSUR—Argentina, Brazil,

and Uruguay, who themselves have changed dramatically since 1989. Similarly, in Venezuela, despite vows at his inauguration to pursue populist stat- ist policies, President Raphael Caldera found he could not swim against the tide of

global economic reform and has moved to restore free-market orthodoxy.

Just imagine if the United States had failed to lead economically and politically

over the past 50 years, how different the world would look today, to the grave detriment of basic U.S. interests.
52

THE U.S. STILL NEEDS TO BE THE WORLD’S ECONOMIC LEADER

If, as we turn the corner into the next century, the United States fails to exercise economic leadership, we could jeopardize the peace and prosperity for which we paid

so dearly this century. For example: We want open markets as that is the best way to ensure world growth and stability.We want nations making a transition from statist economies to market regimes to be integrated into the global economic system. We want developing nations, which purchase about 40 percent of our exports, to

prosper.

We want all nations to adopt sound macroeconomic policies to ensure stable, noninflationary growth. That will enable freer flows of trade and investment and increased growth, and allow nations to deal more effectively with issues of security, population, poverty, pollution, social equity, disease, terrorism, and drug trafficking—challenges that are difficult to contain within national borders. Most of our economic objectives require cooperation among nations. If we drop out, there is less likelihood that cooperation will occur and more likelihood that we will

not like the outcome.

LEADERSHIP IN TODAY’S GLOBAL ECONOMY

Believing, as I do, that the United States is unwise in the extreme not to main- tain its influence with respect to global economic issues, the question is what needs

to change. I would suggest attention in four areas.

Rally Domestic Support

First, we need to develop a broader domestic understanding that the United States must remain engaged globally if it is to prosper. In trade, for example, for most of the post-World War II era, there was a strong domestic consensus in favor of promoting free and open markets here and abroad

to strengthen ties with our allies, reduce economic frictions, and spur global and

U.S. economic growth—all to the end of containing communism. With the Cold War’s end, that consensus has started to unravel. Trade, which

once was viewed as a ‘‘no-brainer,’’ now is seen by too many as a ‘‘no-gainer.’’ This

is a very dangerous trend. Yet there has been little effort by our national leaders to defend and promote our trade policies and to explain the importance to our economy of global commerce—

imports as well as exports. The vacuum has been filled disproportionately by those

who seek to turn back the clock and retreat into a ‘‘Fortress America’’ of protectionism.

Trade is truly a virtuous circle, but we need to educate people about its virtues or risk losing them.

Be Clear and Consistent

Second, we need to be more clear, consistent, and decisive in our policies. We

must think carefully about what it is we want, say what this is, mean what we say,

and do what we say we will do. Public indecision and inconsistency costs us support at home and abroad. Let me illustrate with two examples.

In 1993, there was a long delay before the Administration unequivocally came out in support of the NAFTA. That worried the agreement’s proponents in both parties,

who wondered if the Administration would be there at the end. It energized the opposition and turned what should have been an easy approval vote into a cliffhanger. And, it badly hurt our standing in Asia when the United States announced in June 1993 that it would not renew most-favored-nation (MFN) status for China unless it made progress on human rights. For 11 months, China was criticized publicly

for its lack of progress. In 1994, when the United States announced that it would

both renew MFN and delink it from human rights, the Chinese, as well as people

at home and abroad, were astonished.

It was the right decision, but the way in which we handled it made our subse- quent negotiations in Asia more difficult on a range of issues. Making threats that

we do not or belatedly discover that it is in our own best interest not to keep erodes

our credibility.

Lead by Example

Third, we must abide by the agreements we negotiate if we expect others to do

so.
53

When the United States announced 100-percent tariffs on $6 billion of Japanese

cars without first taking its case to the WTO, it trumpeted to the world that it

would ignore the WTO’s dispute settlement mechanism. Our ‘‘shoot first and litigate

later’’ approach set an unfortunate example that could cost us in the future.

Also, we need to weigh the growing and unpredictable burden on our trade from the use of economic sanctions as a means of furthering foreign policy and other nontrade objectives. Between 1993 and 1996, we imposed sanctions on some 35 nations

unrelated to trade and economic issues. Where, after careful analysis, we conclude

that we must take remedial actions, our actions must be effective (unilateral sanctions almost never are) and reasonably related to the conduct we oppose. When our security is at stake, I believe we have every right to take action that

we deem in our national interest. But as we have concerns about attempts to intrude upon our sovereignty, we should be careful when our actions infringe on the

rights of other nations to pursue economic and foreign policies that sometimes differ

from our own.

Cultivate Friends and Allies

Finally, we need to cultivate international support for the positions we take. That

requires diplomacy and effective coalition building early on.

In the Uruguay Round, our ability to work with other agricultural-exporting nations helped rein in Europe’s trade-distorting subsidies. The negotiation of the Information Technology Agreement is a more recent example of the success we can

achieve when we build a core group of supporters and then seek to expand the

group.

There are times when unilateral action may be necessary, as, for example, when

U.S. interests are being harmed but no internationally agreed rules exist to protect

them. But unilateralism should be used sparingly, for we waste valuable political

capital, particularly when we ignore the international rules that do exist.

A TRADE POLICY FOR THE NEW MILLENNIUM

Although global trade and investment are more open today than at any time in

the past eight decades, the United States still faces a series of challenges.

To advance our national interest and enhance our prosperity, our trade policy

should seek to promote open world markets through multilateral action; bilateral or

regional action; and, on rare occasions when necessary, unilateral action. These elements, wisely employed and tailored to the circumstance, can be mutually reinforcing.

We should give action at the multilateral level our highest priority, for it is there

that we can build major market openings that deliver the maximum opportunity for

our entrepreneurs and create a more predictable, rules-based environment in which

they can do business. Regional and bilateral agreements may enable us to pursue

more focused strategies and achieve faster, deeper, and more comprehensive liberalization than may be possible in a multilateral context. Also, these narrower agreements may provide a base upon which to build broader support for our trade and

investment objectives.

New Trade Agreement Implementing Authority

Even with the best of trade and investment objectives and the most carefully conceived strategies, the United States will not be a leader, and our nation’s trade negotiators will not be effective, if they do not have the ability to deliver on the deals

they negotiate.

Thus, the first, and in my view, the immediate challenge facing the United States

is for this Congress and this Administration to agree on new trade agreement implementing authority—traditionally known as ‘‘fast-track’’ authority.

Fast track constitutes a cooperative process between the Congress and the Executive Branch for negotiating and approving trade agreements that seeks to harmonize the exercise of the power that the Constitution grants the Congress to regulate commerce with the power it grants the President to negotiate with foreign nations. Historically, the Congress lays out specific negotiating objectives for the Administration and is closely consulted by the Administration during trade negotiations. In return, the Congress votes to approve or reject—amending—the agreement

that the Administration negotiates.

Fast track was conceived as a result of bipartisan recognition that our trade team

could not effectively negotiate for our nation if their counterparts knew that if they

struck a deal, a second negotiation would follow with members of Congress.

Such a two-step process would inevitably cause nations with which we negotiate

to hold something back for the second negotiation. Nations repeatedly have told us
54

that without such procedures, they will not negotiate significant trade agreements

with us.

We need new fast-track authority to take advantage of current opportunities— bringing Chile into the NAFTA and moving forward with the Free Trade Area of

the Americas and the Asia Pacific Economic Cooperation Forum (APEC)—as well as

other opportunities that may present themselves in the future. The two-year stalemate between those who want our trade agreements to focus solely on trade and economic issues and those who want them in addition to cover

labor and environmental issues must come to an end.

NAFTA Expansion

Assuming fast track is granted, our first priority should be to expand the member- ship of the North American Free Trade Agreement—NAFTA—through Chilean accession to that agreement. Chile has led the process of economic reform in Latin America and has enjoyed 13 straight years of economic growth. Over the past five years, two Administrations—Republican and Democrat—have promised to negotiate with Chile to bring it

into the NAFTA.

The NAFTA constitutes the type of agreement we should want to take root in this hemisphere. It provides for full elimination of all tariffs, including agriculture; broad

market openings for services providers; world-class protection of intellectual property rights; protection for the rights of investors; and a mechanism for settling our

trade disputes.

In the first year of the agreement, its market-opening provisions led to record trade among all three NAFTA partners. Unfortunately, that positive outcome was

overshadowed by Mexico’s financial crisis, and the NAFTA’s opponents were quick

to say that the United States never should have entered into the agreement. But the NAFTA had nothing to do with Mexico’s financial difficulties. Nor was it detrimental to any of the parties’ interests.

Indeed, quite the opposite is true. The NAFTA helped to ensure that Mexico remains committed to an increasingly open, deregulated, and competitive economy. Thanks in large measure to trade, Mexico’s economy has bounced back much fast- er than most analysts predicted. Last year’s economic growth topped five percent.

And, demonstrating a restoration of its financial credibility, Mexico raised $16 billion on international financial markets and, on January 15, repaid—3 years ahead

of schedule—the final $3.5 billion borrowed from the United States to help it

through the peso crisis. The United States has been a beneficiary of this rebound. Despite the peso’s de- valuation, our exports to Mexico set a new record of almost $57 billion in 1996,

nearly 24 percent higher than in 1995, and substantially above any year prior to

the NAFTA. This stands in stark contrast to what happened after the 1982 financial

crisis, when restrictions Mexico imposed cut our exports by half, and it took six

years before they returned to pre-crisis levels.

Mexico is by no means out of the woods economically, and it faces very serious

social and political challenges. It is a nation in transition, just as much as the nations of Eastern Europe and the former Soviet Union. But President Zedillo is trying

to move Mexico in the right direction, and the NAFTA has encouraged that movement.

Free Trade Area of the Americas

Chilean accession to the NAFTA is important in itself and in terms of the signal

it would send about America’s commitment to economic reform and trade liberalization in the hemisphere.

Free trade throughout the Americas is a logical sequel to the NAFTA and the Enterprise for the Americas Initiative launched by President Bush in 1990, which ushered in a wave of good will in Latin America toward the United States and support

for continued trade and economic reform.

Hemispheric trade liberalization was enthusiastically endorsed at the December

1994 Miami Summit of the Americas. There, all 34 leaders in attendance committed

for the first time ever to negotiate a free trade agreement for the Americas as comprehensive as the NAFTA by the year 2005.

Since then, although work on the Free Trade Area of the Americas (FTAA) has

continued at the technical level, progress at the political level has stalled. The stalemate over fast-track authority and the 1996 election put the United States on the

sidelines, unable to lead by offering a credible plan of action on which it could deliver.

While we have dawdled, others have moved forward. MERCOSUR, the common

market comprising Argentina, Brazil, Paraguay, and Uruguay, has signed free trade
55

agreements with Chile and Bolivia, creating a market of 225 million consumers with

a combined GDP of roughly $1 trillion. Mexico has negotiated numerous free trade

agreements throughout Latin America and is in talks with the European Union.

And Canada has signed an agreement with Chile, giving Canadian exporters and

investors an edge over U.S. companies. In short, integration in the hemisphere is proceeding, but without U.S. participa- tion or leadership. The dangers to us are several. First, the proliferation of competing free trade arrangements in the hemisphere is increasingly creating a morass of conflicting rules for our businesses operating in

the region. Second, U.S. entrepreneurs are at a growing competitive disadvantage as other nations in the region lower trade barriers among themselves without U.S. participation.

Third, as the hemisphere moves forward, the United States becomes less relevant

to the process, and we lose influence and the opportunity to ensure that integration

takes account of our economic interests.

The United States still has time to act. Trade ministers are set to meet in Belo

Horizonte, Brazil, in May. The United States has proposed an ambitious agenda for

that meeting. Its voice at that meeting and throughout the hemisphere would be

immeasurably strengthened, and its counsel much more likely taken, if Ambassador

Barshefsky and her team could go to Brazil with a strong expression of Congressional support through the passage of fast-track authority. We could then reclaim

our role as leader in the process of hemispheric integration, a process we started

over a decade ago with the U.S.-Canada Free Trade Agreement, continued through

the NAFTA, and can complete with the FTAA.

APEC

Asia is another region where our national interest requires that we exercise lead- ership with respect to trade and investment liberalization.

The World Bank projects that Asia will grow eight percent annually over the next decade, outpacing growth in the rest of the world by more than two-to-one. By the year 2000, it is estimated that 600 million Asians will have disposable in- comes as high as the average in the industrialized world at the start of this decade. Because Asian economies together comprise one quarter of the world’s economic output and an even larger share of our global commerce, how reforms progress in

this important region will in large measure determine what can be achieved globally. Since 1993, leaders of the geographically far-flung economies that comprise the Asia-Pacific Economic Cooperation forum—APEC—have met annually. APEC includes the diverse economies that rim the Pacific, such as China, Hong Kong, and

Taiwan; Indonesia, Thailand, and Singapore; Japan, Malaysia, and South Korea;

Australia, Canada, and the United States.

In 1994, APEC leaders agreed to eliminate their trade and investment restrictions: the industrialized economies to meet that goal by the year 2010, and the developing economies to do so by the year 2020.

In subsequent annual meetings, they have adopted specific market-opening measures. Because these 18 nations produce half the world’s output, other nations increasingly pay attention to agreements reached by the APEC members on trade and

investment issues.

The endorsement by APEC this past November of the Information Technology

Agreement—aimed at eliminating tariffs on items connected with information technology, such as computers, semiconductors, and LAN equipment—paved the way for

the World Trade Organization in December to conclude the agreement, which will

save our entrepreneurs over $1 billion.

Ambassador Barshefsky and her team deserve great credit for their skillful handling of this negotiation.

By exercising leadership in two of the fastest-growing regions of the world—Asia

and Latin America—we can maximize our commercial opportunities for our entrepreneurs and our workers and advance our trade objectives.

The World Trade Organization

But for U.S. entrepreneurs to obtain maximum opportunities in the global economy, it is essential that we have a body of rules to govern international commerce

agreed to by all the players with whom they trade or would like to trade.

That is why three Administrations pushed so hard for a successful conclusion to

the Uruguay Round of multilateral trade negotiations. The Uruguay Round agreements, approved by the Congress in 1994, cut global tariffs, and, for the first time,

opened services markets, lowered barriers and subsidies in agriculture, strength56

ened protection for intellectual property rights, and made dispute settlement under

the newly created World Trade Organization—the WTO—faster and more certain.

As part of improved dispute settlement, nations are turning to the WTO with

much greater frequency to settle trade disagreements. Since the WTO entered into

force in 1995, some 45 distinct matters involving 68 requests for consultations have

been referred to the WTO. The United States has been a complainant in just over

half (23) of these matters. Of these 23 cases in which the United States has filed

a complaint, we have won or settled 6 cases, 9 are before active dispute settlement

panels, and 8 are either pending consultations or awaiting the formation of a formal

dispute settlement panel. Of the 10 matters in which we are a respondent, we settled 4, lost 3, and 3 are still under consideration.

The Uruguay Round agreements also provided that trade ministers will meet

every second year in an effort to continue to remove barriers to trade and investment.

At their first ministerial meeting this past December in Singapore, the ministers

not only reached a consensus on the issues they would tackle in the future—liberalization of telecommunications, financial services, agriculture and investment—they

also concluded the Information Technology Agreement I mentioned earlier.

In mid-February, the WTO concluded an accord opening basic telecommunications

worldwide. This market, valued at roughly $700 billion annually, up to now has

been dominated by state-run monopolies. U.S. companies excel in this sector, and

the accord is another outstanding accomplishment for Ambassador Barshefsky and

her team.

We can do more. The Uruguay Round agreements only started the liberalization

process with respect to agriculture, where subsidies in developed countries alone

still cost consumers almost $350 billion annually, and tariffs in some foreign markets reach 900 percent.

And while many services were covered, many were not. Negotiations in both sectors are set to resume in 1999, and the United States should be in a position to

lead in these important areas so vital to our economic success.

Investment is another area where we need internationally agreed rules. Although

negotiations are proceeding under the auspices of the Organization for Economic Cooperation and Development (OECD) on a Multilateral Agreement on Investment

(MAI), the OECD has a limited membership—Europe, North America, Japan, Australia, New Zealand, and South Korea. I worry that non-members may be unwilling

to accept commitments over which they had no say. At the Singapore meeting, WTO

trade ministers agreed to exploratory work in this area. Since investment issues

often are inextricably linked to services issues—for example the right to establish

a local office or repatriate earnings—I believe we should encourage the WTO to

move beyond exploratory work to serious investment negotiations.

A more controversial area is the relationship between trade and labor and environmental standards. Just as the United States lacks a domestic consensus on how

to address these issues, there is no consensus in the WTO.

As a practical matter, those who argue that any new trade agreements signed by

the United States should include labor and environmental provisions enforceable by

trade sanctions are putting the cart before the horse.

In both areas we need first to agree on the governing norms. We have a variety

of fora in which to discuss these issues and to negotiate internationally agreed

standards. We should use these fora to develop international consensus on the

standards we wish to adopt, as we did in environmental agreements such as the

Convention on International Trade in Endangered Species, the Montreal Protocol on

Substances that Deplete the Ozone Layer, and the Basel Convention on the Control

of Transboundary Movements of Hazardous Wastes and Their Disposal. Once we

have internationally agreed values and standards, we can tailor the enforcement

mechanism to the particular accords, which may include some form of trade sanction for goods that violate those standards, as with the agreement protecting endangered species.

Another major issue confronting the WTO, which is relevant to U.S. trade policy,

is the over 30 countries seeking membership in the WTO—many of whom just a few

years ago, such as Russia, China, Vietnam—would have turned their backs on the

disciplines WTO membership requires.
57

CHINA

One of the largest is China.

It makes little sense to talk about a World Trade Organization in which a country

with 20 percent of the world’s population, having an almost $1 trillion economy, and

which is the world’s eleventh largest exporter, is not a member.

China’s entry into the WTO, based upon a sound protocol of accession, is very

much in our nation’s interest. WTO membership would put China on a predictable

path of economic reform that would ensure us of increasing access to the Chinese

market. It would also give us a multilateral forum in which to deal with our trade

differences without giving up our right to use our domestic trade laws if China

reneged on its commitments to open its markets.

Our negotiators have consistently sought to ensure that China agrees to commercially meaningful commitments to open its market, protect the rights of exporters

and investors, enhance the transparency of China’s laws and regulations, and abolish restrictions that are not WTO-consistent in its protocol of accession.

Complicating these negotiations for the United States is our annual review process required by the Jackson-Vanik law to renew China’s most-favored-nation (MFN)

status. MFN is a misnomer. In today’s world, it is the normal, non-discriminatory

treatment we grant about 160 other nations.

Since China already has permanent MFN status from every other major WTO

member, the value of WTO membership to it is greatly reduced without the assurance of permanent MFN from the United States.

But unless the Jackson-Vanik law were repealed, China would not obtain permanent MFN trading status from us even if it joins the WTO.

The Jackson-Vanik law is a relic of the Cold War. Under its provisions, for a

President to give a Communist nation MFN status, the law requires that he certify

annually the fact that their citizens are free to emigrate.

We have differences with China, but immigration is not one of them. We have

thousands of Chinese students enrolled in our schools and thousands of Chinese

visitors each year. Instead, we use the occasion of the Jackson-Vanik review to debate China’s conduct in a number of non-trade areas.

Our negotiators should have every means available to ensure that they can negotiate the strongest, most commercially meaningful terms of accession for China as

possible. To me, that means that the Administration should be explaining to the

Congress the reasons why we should grant China permanent MFN status if we get

a solid accession agreement. If the Administration could say to the Chinese, ‘‘We

have consulted closely with the Congress, and we believe we will be able to obtain

permanent MFN status provided the terms of your WTO accession are clearly in our

commercial interest,’’ it cannot help but enhance the chances of successfully concluding the strongest protocol of accession for China’s entry into the WTO.

CONCLUSION

For half a century, the United States has been an active participant in building

the global trading system. It has been a voice for removing the barriers that divide

the nations in the world, in the belief that shared economic opportunity would unite

us.

As we look to the new century, we should look back with pride on our accomplishments and forward with hope for the future. We have earned the respect of our trading partners in this century to shape events in the next.

In contrast to other trade agreements we have successfully conChairman CRANE. Thank you very much.

f

summated, such as with Canada and Israel, the Uruguay round,

and NAFTA, by contrast, have some very vocal opponents in this

country, as Mr. Nussle was touching upon. How can we make a

better case that NAFTA is successfully achieving what was intended when you first negotiated it?

Ms. HILLS. I think our leaders need to speak out on the merits

of the NAFTA. There is absolutely no question that this agreement

enhances our national interests. It has given us the opportunity to

expand our exports. It has protected us from restrictions that Mex58

ico in the past has imposed upon our exports. It has opened up a

market, and it has galvanized liberalization and economic reform

throughout the hemisphere.

Chairman CRANE. I think one unfortunate thing was the timing

of that devaluation and the misunderstanding that has been aggravated by some political candidates as to a cause-and-effect relationship. But it is a burden and as Mr. Nussle indicated, I am sure we

have all had feedback from back home that is negative and ill informed, and I commend you for your comment.

Another thing is, Ambassador Barshefsky testified that because

of the degree of openness of the U.S. economy, no other country in

the world is in a better position to take advantage of the large opportunities presented by this expanding global economy, and you

agree that U.S. firms and workers stand up well to international

competition.

Ms. HILLS. Absolutely, Mr. Chairman. We are the most competitive nation in the world.

We also have very low trade barriers. I cannot understand why

people would argue against our seeking to bring down high barriers

in markets where we want to sell, when already the barriers that

surround our markets are negligible or nil.

Chairman CRANE. Well, I couldn’t agree with you more. We have

got to get your message out, too.

Mr. Matsui.

Mr. MATSUI. Thank you, Mr. Chairman.

I would like to thank Ambassador Hills for being here today, and

obviously, your testimony and all of the work you have done over

the years, particularly as you were U.S. Trade Representative a

few years ago, we appreciate everything you have been doing for

our country.

I just have one basic question. It was a followup on the Chairman’s question. In terms of fast track, if we don’t get it in the near

future or any time over the next 2 or 3 years, what will happen

in terms of MERCOSUR and the Latin American market, which is

a young market, one obviously that we would like to continue to

do trade with, particularly exports with countries like Argentina,

Brazil, and perhaps others? Perhaps you can lay out a scenario of

what would happen if we don’t obtain a fast track.

Ms. HILLS. Without fast track, we cannot effectively negotiate the

hemispheric free trade or even a trade agreement with the southern cone, the MERCOSUR group of nations, and South American

liberalization will proceed without us.

Already, our entrepreneurs are expressing dissatisfaction over

the differing rules that they encounter because of the proliferation

of trade agreements, and as tariffs are lowered among nations

where we have not been a participant, we, of course, are disadvantaged economically.

Mr. MATSUI. I understand that, in fact, a few chief executive officers of manufacturing concerns had suggested to me they may have

lost business opportunities because, for example, the tariffs on computer equipment between Brazil and Argentina, or at least exports

into Argentina from Brazil, the tariff is very low. Whereas, the

United States exports to Argentina, the tariffs are rather high. Is

that one of the problems that is going on now in terms of the dis59

advantage U.S. exporters have, particularly in the manufacturing

equipment area?

Ms. HILLS. Absolutely, Mr. Matsui, and the mention was made

of wheat earlier. The fact is, Canada can send wheat to Chile as

a result of its agreement with Chile on more competitive terms

than our farmers.

Mr. MATSUI. In terms of the comments made by Ambassador

Barshefsky, fast track is not about NAFTA. Fast track is about our

strategic interest, and I know you refer to that in your comments,

but could you elaborate on that somewhat in terms of why it is important and why is it not appropriate, even though I agree with

you in terms of the value of NAFTA? I think NAFTA had value

when it was obviously much better in terms of our bilateral relationships to have NAFTA than not to have NAFTA, but perhaps

you can discuss the whole concept of why this issue should be

delinked from the whole discussion of NAFTA.

Ms. HILLS. The discussion should be hinged on our need to be a

leader in the world, to shape events to our economic and strategic

advantage, and if our trade negotiators cannot go to the bargaining

table and negotiate market openings in the fastest growing regions

of the world, we are competitively disadvantaged, and that simply

has to be corrected.

We have been sidelined for 2 years, and some consensus and

compromise must be reached on this issue of fast track, or we are

going to do our Nation a grave disservice.

Mr. MATSUI. Thank you very much, Ambassador Hills.

Chairman CRANE. Mr. Houghton.

Mr. HOUGHTON. Ambassador Hills, it is great to see you here. We

are benefiting from the things you did when you were in office, and

we are enormously appreciative of your leadership here.

I asked Ambassador Barshefsky about the ASEAN nations, and

I am still a little confused about this because we have certain targets. Obviously, the MFN or the WTO as far as China is concerned,

there are certain issues with Japan. Clearly, we have the relationships with Europe, and we are now trying to battle with fast track,

with Chile, in order to compete with the MERCOSUR agreement,

but what should we be doing in APEC or with the ASEAN nations

that we are not now doing?

Ms. HILLS. Asia is the fastest growing region in the world. Its

growth for the next decade is going to outpace growth in the rest

of the world by more than 2 to 1. We are a mature economy, with

5 percent of the people, and producing about one-quarter of the output. Needless to say, we must be in these markets that are so vibrant and growing.

At the turn of the century in just 3 years, there will be 600 million Asians with incomes that are as high as Europe had at the beginning of this decade. Asia is a market of enormous potential.

As a leader, we want to be in a position to benefit from opportunities all around the globe. I think Ambassador Barshefsky was absolutely right. We have interests in moving forward on open issues

in the WTO.

Of course, we want Japan to deregulate and provide more market opportunity.
60

In the Latin American region, which is the second fastest growing region, we are more likely to be in that region than either Europe or the Asians.

APEC, of which we are a member, produces half the world’s output. So we want liberalization to take place in that region. We

want to be a mover and a player in the Asia-Pacific Economic Cooperation Forum.

The 7 ASEAN nations, soon to be 10, are a vibrant part of APEC.

The ASEANs have agreed to open their market by the year 2003.

We should be talking to them about how we can participate and

encourage further liberalization because this is a very interesting

market for U.S. producers.

Mr. HOUGHTON. Just to continue here for a moment, we should

be talking to them, and we should be talking to every country, and

particularly those that have a decent market and are growing very

fast economically, but is there anything specifically that we should

be doing, similar to the fast track authorization in the ASEAN

area?

Ms. HILLS. Mr. Houghton, the fast track authorization would enable us to more effectively do something specific in all regions. If

we don’t have fast track, you can erase all the nations, all the regions, and the whole world for future trade liberalization.

The ASEANs are an important component of the Asia-Pacific

Economic Cooperation Forum, which meets annually in November.

We were, I think, successful in achieving a market opening in the

information technology agreement in December because we had

reached a consensus with the 18 APEC members in November. In

other words, it set up that agreement so that we could carry it to

a successful conclusion with the rest of the world.

So, yes, there are many specific things we can do with the

ASEANs which are part of APEC, and with APEC as a whole. As

a world leader, we should be there, but we need fast track to effectively be there.

Mr. HOUGHTON. Thank you very much.

Chairman CRANE. Mr. Rangel.

Mr. RANGEL. Madam Ambassador, let me join with the rest of

our colleagues in thanking you for the great foundation you laid as

we move forward in expanded trade.

One of the things you spelled out in your testimony is that we

should abide by negotiations we have already agreed to. How would

you fit Helms-Burton into that category, now that you are no

longer with any administration?

Ms. HILLS. I, Mr. Rangel, am not a proponent of unilateral sanctions, primarily because I don’t think they work.

Second, I am a proponent of consistency. A consistent theme in

U.S. policy has been to deal with closed economies by trying to get

them to open through engagement with the world.

Third, when we have nontrade objectives as a result of grave offense, and quite honestly, Cuba has caused us the gravest offense,

I would like to see our response be commensurate with the offense

caused. When we use trade sanctions to deal with nontrade offense,

we hurt ourselves, on the one hand, and we do not accomplish our

objectives, on the other.
61

Mr. RANGEL. I need your advice because I don’t believe Castro

should just walk away after the atrocities that he has committed

on so many good people, but I agree with you, 100 percent, that

we shouldn’t cause more pain than we are receiving relief by doing

it. If you find any way that I could be effective in doing the things

that you believe should be done, if there is a way to do it without

causing embarrassment to our country, that would be the way I

would want to do it.

It is unfortunate how a loud-mouthed person like me has to be

so quiet when I am overseas listening to my country being condemned for something that over here I condemn, but over there, I

just have to say, Well, we are driving the bus, you know, and that

is it.

The second thing is the President speaks a lot about this bridge

that we have to build to the next century. There is no question that

you can see the way our trade is going as we shift to services and

goods for overseas. We are losing a lot of low-skilled jobs.

What made the country so great was that immigrants could come

and do anything, but they knew their kids would have access to a

decent education and they would win.

You have no idea of the hopelessness that prevails in many communities where the schools are just not functioning. Now, I am so

pleased with the President having cleared this GI bill for everyone.

But internationalists such as you, are there papers you read that

perhaps our work force is not keeping up with the competition or

expanded trade? Or are the increased number of people in jail—it

is 1.6 now, which is comparable to a large number of people who

just are old or untrained—is that considered just one of the costs

of doing business? Can we move forward from an economic point

of view, locking up folks and not doing better in the school system?

Could we survive competitively even if we sought not to do these

social things?

Ms. HILLS. Well, as a society, Mr. Rangel, we will want to address these very serious issues.

Mr. RANGEL. I know that.

Ms. HILLS. We can try to open markets, and our trade can thrive

and our economy can grow, but trade policy won’t solve all the

issues that face our society. We must give attention to education

and to upgrading the skills of our people and to eliminate dependency.

Mr. RANGEL. Let me reframe the question. I am not saying this

is the right thing to do, or do we want to do it, or should we do

it, or whether it is local or State. I am not talking about that.

I am just saying that if the rule prevailed and we accepted it,

that an education is not a Federal issue and should be left up to

the local and State governments to decide. And if, for whatever reason, we find an ever-increasing number of young people going to

jail, and the Congress would say that, too, is local and we can’t do

anything about it, my question to you, not as a social worker and

not as an educator and not as a criminal justice major: Considering

the expenses it takes to lock up people and that we will need to

continue to compete as it relates to the skills of the work force, is

there any discussion as to whether there is a disparity in the air?

Forget the reason why.
62

Ms. HILLS. My response would be that, obviously, if we have a

festering and growing social problem, it is a difficult and costly

issue for our economy to carry, but far more than that, we should

want to correct the problem because we are the Nation that we are.

Mr. RANGEL. Well, you know that that is a humane, decent answer, but I want an economist that would assume that someone

else would do the right thing, and they would just give me the statistical data, and that is how far can we go ahead.

We find out what the expense is of doing business. We can look

at it, as we did with slavery, and say, you know, be kind, be gentle,

do the right thing, but we have got to get this cotton picked.

In this particular case, we have got to be competitive with the

rest of the world. But you know where I am going, and if you find

anything along those lines that would justify me forcing this country to do the right thing because they have to do it, it is a heck

of a lot easier than me talking with my colleagues saying that education is a national concern, it shouldn’t be left up to local school

boards. So, if you could help me with that, too, I would appreciate

it.

Ms. HILLS. I would be delighted.

Mr. RANGEL. Thank you for all the good you have done.

Chairman CRANE. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman.

Ambassador Hills, good to see you again.

Ms. HILLS. Thank you.

Mr. RAMSTAD. I have long been a fan of yours, dating back to the

many years in which my predecessor and mentor, Bill Frenzel,

served on this panel. I know how much respect Mr. Frenzel had for

you as well, and we appreciate your input here today.

I was very impressed by your strong definitive statement about

fast track authority. I, like you, and most Members of this Subcommittee, are concerned about the retreat, if you will, from free

trade. In the Congress as a whole, the antifree trade forces seem

to have dominated the debate in recent times, and I believe strongly that we need to reverse this trend.

Let me ask you this, Ambassador. In your exchange with Mr.

Houghton, I wasn’t quite clear. You said that fast track authority

alone will give the administration the tools they need to make sure

the United States is able to participate in all of the regional agreements developing around the world, or do we need other steps as

well to ensure that we are not left out of other advantageous agreements?

Ms. HILLS. We need fast track authority to enable us to sit down

at a table and negotiate regional and global agreements. Otherwise, our trading partners will not negotiate with us. They will understand that even if they strike a deal with Ambassador

Barshefsky and her team, they cannot give us what we ask because

they have another negotiation to go through with Congress, and

therefore, they simply will not negotiate with us. That has been the

reason for and the history of why we have had fast track, and we

have had it, without interruption since 1974.

It is only in this past 2 years that we have had this hiatus that

has kept the United States on the sidelines.
63

Mr. RAMSTAD. And I am not surprised that my question elicited

that response.

I think it is just tragic that we have had this hiatus, and we

need to reverse this, I believe sooner rather than later, to avoid any

more deleterious consequences.

I am not sure I know the answer to educate, inform, and improve

the free trade mood, if you will, of our colleagues. I know that we

here can’t do it alone; that we need people like you and others like

Mr. Gibbons who served with such distinction in this body. We

need people from industry. We need people from labor. We need

pressure on the Members, as you, I am sure, understand, given

your experiences here.

It is very frustrating, and I guess, if nothing more, I am expressing one Member’s frustration at the retreat from free trade, and

the problem that the administration is having and those of us who

want to get fast track approved.

My point is, I think we need to work in a bipartisan pragmatic

way, not just those of us here in Congress, but with you and others

as well. Please help us. We need it.

Thank you, Ambassador.

Mr. Chairman.

Chairman CRANE. Mr. Levin.

Mr. LEVIN. Thank you, Mr. Chairman.

Welcome. I wanted very much to say hello and to hear you once

again. It is good to see you back.

Ms. HILLS. Thank you.

Mr. LEVIN. Maybe I will refrain from any specific questions, except to say that I think that your successor, not immediately, but

your successor’s testimony should help spark some important debate about the context against which we are considering fast track,

and I think it has been bogged down in part because there is a failure to discuss, to debate, and resolve that context.

I am not sure there has been any overwhelming loss or tragic

loss. I do think, unless we talk through the general, we are going

to continue to be bogged down on the specifics.

You have a background in your present position that should help

us engage in that discussion, and whether one agrees or not all the

time, I look forward to your participation.

Ms. HILLS. Thank you, Mr. Levin.

Chairman CRANE. Well, again, we want to express appreciation

to you, Carla, for coming, and we solicit your ongoing input and

contributions because we need all the outside help and guidance we

can get.

Ms. HILLS. Thank you, Mr. Chairman and Members of the Subcommittee.

Chairman CRANE. Thank you so much for coming today.

Our next panel of witnesses will include Hon. Sam Gibbons, the

former Chairman of the Ways and Means Committee and a former

colleague of ours on the Trade Subcommittee; and Fred Bergsten,

director of the Institute for International Economics.

I look forward to hearing from both of you, and I would like to

take a moment, though, to welcome Sam back. It is good to see you

are still working on behalf of the advancement of opening foreign
64

markets and carry that message that free and open trade helps our

economy.

I just feel a little awkward with you sitting there, Sam, and all

of us sitting here. That is a little disconcerting, but will you proceed with your testimony, gentlemen.

STATEMENT OF HON. SAM M. GIBBONS, CHAIRMAN, GIBBONS

& CO., INC.; AND FORMER MEMBER OF CONGRESS

Mr. GIBBONS. Well, I want to tell you, it feels a lot different

being down here than up there.

Chairman CRANE. Is it more comfortable?

Mr. LEVIN. Which is better?

Mr. GIBBONS. It takes the same strong sternum to get through

these down here as it used to up there, and I appreciate it. I appreciate the invitation to come here, and I shall be brief and try to

respond to any questions that you have.

I am just really happy to share this table with Fred Bergsten,

who I have known and admired for so long.

Well, as you know, I spent 30 years laboring in this venue. It

was a labor of love, and I still love it.

As all of you know, good trade helps America. It is the foundation of peace, and if we are going to have a peaceful, prosperous

world, we have got to trade together.

I think it is important that all of us, who sit in a position like

you do, every now and then back off and look at ourselves and say

who are we and where are we going, and that is what the purpose

of this hearing is today.

The first thing that strikes us square in the face is that we are

really less than 5 percent of the Earth’s population. Ninety-five

percent of all the markets are outside of the United States. All the

consumers out there who are going to consume all the things that

we produce are outside the United States.

We are the wealthiest group of people on Earth. We have a set

trade policy for good purposes for 50 years. We have been the leader. We consume more. We export more. We import more, and we

have established in the world the rule of law, and we have done

more for better labor rights and better environment than anybody

else on Earth. There is a lot more to be done, but we have gotten

started.

We can congratulate ourselves, which I think we probably do too

often by sitting back and patting ourselves on the back and saying,

Hey, we have done it for 50 years, aren’t we wonderful, but, you

know, the job has only started. It is certainly nowhere near finished, and we need to get out of that self-congratulatory position

and get on with leading again.

If when we come out of this long 2-year-or-longer sort of Rip Van

Winkle type of approach, we are going to find that China is out

there with its huge population, its rapidly growing economy, followed by India, almost the size of China, more middle-class consumers in India than there are in the United States, more college

graduates in India than there are in the United States, and yet,

we don’t know where India is going or where it is going to be. They

are really an uncertain ally in the future.
65

Indonesia, the fourth largest country on Earth—and, you know,

Indonesia did play some kind of role, as murky as it may have

been, in our last election. God knows what they did, but they are

the fourth largest country on Earth, rich in natural resources, and

we don’t have any idea where they are going or what they are

going to do, and we need to get engaged with them, to say nothing

of Europe with its now 380 million Europeans in the European

Community, 380 million Europeans. That is contrasted with our

265 million Americans, growing all the time, not only with this European Union, but now it is EuroMed.

That is to say nothing of Russia or Japan or Korea or South

America. South America, almost equal in population to North

America, is rapidly putting together its MERCOSUR and its Andean group and all those things, and they are making deals outside

of the hemisphere with the Europeans, with the Asians, and we

have a lot going on out there that we need to get up and start leading again or we are going to find ourselves responding to their

trade policy and their ideals and their market challenges instead

of us being out there grabbing those, often claiming them as our

own.

The problem is really our style of government. No place on Earth

does there exist an institution like the U.S. Congress.

Now, we love it, we honor it, but all the other countries out there

that have anything like a democracy have parliamentary-styled democracies, and those parliamentary-styled democracies do not get

as engaged in the whole process of trade, as does the Congress.

Now, I am not condemning the Congress. I am just identifying

our problem. It is difficult for us to lead because nobody wants to

deal with us as long as they have got to make a deal with our negotiator, which they must do. It is impossible for 535 of us up here

on this Hill to negotiate, but they have to make a deal with our

negotiator out there, and then they have to come back and have it

torn apart here on the House floor or the Senate floor, so you can’t

make a deal.

We have overcome that in all—actually, we overcame it about 30

years ago, but we really overcame it in the seventies with fast

track, and unless we get down and grant fast track really quickly

to the administration, we are going to find ourselves in a bad drifting situation.

Fast track is a misnomer, as all of us know. There is nothing fast

about it. I don’t know where the hell the word came from. I was

in the room when it was invented, but it wasn’t logical then, and

it is certainly not logical now, but fast track is the way you have

to go. You have to give the administration the power to negotiate.

I found out, and a part of it is my fault, and this is part of a

self-confession now. We have tried to micromanage fast track too

much. We spend too much time trying to figure out what the hell

we are going to put in there as the negotiating objectives and very

little time following the actual negotiations after we have sent

those negotiators out.

I won’t tell you about all the meetings that I used to call, and

were not too well attended, some in this room, some back there in

the library, some over in 137, all over the Hill here trying to get
66

people, Members of Congress, engaged in talking to our negotiators

because that is where you are going to get your points across.

We could write letters to the negotiators. We could form groups

and blocks of people and go to the negotiators and say, Hey, you

are not pushing this strong enough, but we spend all the time trying to figure out what we are going to get them to negotiate about,

trying to micromanage how in the negotiations, trying to micromanage what the outcome of the negotiations is, and that is just

a waste of time.

What we ought to do is give them fast track, follow them very

closely in the negotiating process, intervene it. These negotiations

are really very public negotiations. If you go to them, you are going

to find there are not only our negotiators there and the foreign

countries’ negotiators there, but there are a whole flock of American businessmen there. There are a whole flock of other businessmen there, and they are all working with those negotiators as they

go along.

We have a wonderful formal process here in the United States

of working with these negotiators, but what we need to do is to get

them out and get them negotiating, getting them out so that they

can lead, so that we could be setting the world standard, not trying

to follow other people.

The problem is we ought not worry about wasting so much time

about what is in the negotiating objectives. We ought to spend

more time following negotiators after they get their license or their

fast track so they could go out negotiating, and then that is the

time we ought to work on them.

Let us get started. We have granted to Presidents, from Kennedy

on, negotiating authority. Kennedy really had the broadest negotiating authority, but he had very limited objectives. When he

brought back his negotiation, we here in the Congress just sort of

waved at it when it came through, and then we got a little more

serious years later in the others. The fast track we have practiced

has really been a good democratic operation, but it can’t be done

unless it is done on a bipartisan basis, and we must get started on

it.

I will be glad to answer any questions you have.

[The prepared statement follows:]

Statement of Hon. Sam M. Gibbons, Chairman, Gibbons & Co., Inc.; and

Former Member of Congress

I welcome this invitation to appear before you. I appear before this Committee

representing no one other than myself.

I’ve spent a lifetime studying the trade issues before this Committee, including

30 years of practical hands on experience in the policy-making process.

Good international trade benefits all Americans. Fair competition increases our

national standard of living, but with that comes a requirement to work and live

smarter.

Fair and competitively traded goods and services build a more peaceful and prosperous world. Good international trade is the foundation of our peace and prosperity.

Who are we Americans and where are we going? Americans are about 5% of the

earth’s population. Ninety-five percent (95%) of the world’s consumers live beyond

our borders. Americans are the wealthiest people on earth. We produce, consume,

export and import more than any country in the world. We have been the world’s

leader for more than 50 years in setting trade policy, promoting the international

rule of law, building market economies, pushing for better human rights, striving
67

for a better environment and higher labor standards. We have made these historic

accomplishments while making unprecedented contributions to world peace.

We could sit back on our laurels—be very comfortable and console ourselves with

self congratulations for a job well started.

But, if we continue to be complacent as we drift towards more protectionism and

nationalistic isolationism, we will find ourselves responding to global trade policies

established by others. There is nothing inevitable about our success or our position

in the world.

Emerging from our sleepy drift we will find China with its rapidly expanding

economy and huge population dominating the world with its economic and military

power threatening our security. India with its huge population (about the size of

China) will be an uncertain player in our peace and security. Indonesia, the fourth

largest country on earth, rich in resources will be a new and untried power—to say

nothing of the new Europe, Russia, Japan, Korea, or the enormous emerging markets in Latin America.

We can not rest on our laurels. We can not afford to turn inward. We must lead

or be condemned to follow. The world is not waiting for the United States. Huge

trading blocks are emerging, filling the void in U.S. leadership. South America is

organizing MERCOSUR, Europe its European Union and Euromed, the Asian Pacific Rim countries under ASEAN and so it goes around the world. We have only

NAFTA, which is fragile, untested in global negotiations and some in the United

States would like to dismantle it.

Americans have rested long enough. We are running out of time and opportunity

to lead again.

One of our challenges is our style of government characterized by our very strong

Congress, the strongest and most independent in the world. This unique characteristic prevents our negotiators from making a solid deal in a negotiating session. No

foreign government will make a deal with us in a negotiation because they know

from experience that Congress will ultimately re-write the agreement. No other

country negotiates like the United States because they have Parliamentary governments which do not amend agreements. Their Parliaments only accept or reject, so

they require us to do the same before they will sit down to serious negotiations with

us.

Over the years, by trial and error we have learned to overcome this unusual characteristic of our government by developing a procedure that we erroneously call ‘‘fast

track.’’

If the United States is going to have the opportunity to develop trade policy for

the rest of this century and beyond, Congress must provide broad unrestricted trade

negotiating authority or else we will be in the position of reacting to the trade policies developed by the rest of the world.

Our government must have ‘‘fast track’’ trade neogtiating authority or no one will

go to the negotiating table with us. History is full of failed attempts.

My years of experience tell me that the Congress wastes too much time just getting ready to start the negotiations. Congress tries to predict with excessive detail

and precision what and how to negotiate. This pre-negotiation micro-management

is not important because after all nothing counts until, by law, the Congress approves the agreement.

The process takes years, conditions change, what seems important now may be

nothing by the time Congress finally must act and vice versa.

So let’s get started. If the negotiations are agreeable to Congress then it can be

converted into the law of the land. If the negotiated agreement is not acceptable to

Congress then nothing happens and no U.S. law is changed, nothing is lost.

We have waited too long to get started. Let’s not wake up someday and find our

opportunities have vanished.

For the last 38 years, every U.S. President has been given ‘‘fast track authority.’’

We have always granted it on a bipartisan basis. Let’s get started! It is in our best

interest.

I welcome your questions and observations.

Mr. Bergsten.

Chairman CRANE. Thank you.

f
68

STATEMENT OF C. FRED BERGSTEN, DIRECTOR, INSTITUTE

FOR INTERNATIONAL ECONOMICS

Mr. BERGSTEN. Mr. Chairman, thank you. It also feels awkward

for me to be sitting here next to the former Chairman after so

many years of responding to him across the well.

Mr. GIBBONS. I apologize.

Mr. BERGSTEN. No. I want to say what an honor it is, and he has

reconfirmed today what a leader he is in this process. I have admired what he accomplished for so many years, and it is a real

privilege to be next to you today.

I just want to make three points to the Subcommittee today. The

first is to suggest that passing fast track is one of the most constructive steps that the Congress can take this year to promote the

objectives of the American economy, and I say that for a simple

reason. The foremost problem in our economy is stagnant standards of living.

We have full employment. We have created 50 million jobs in the

last 27 years. But wages, and in fact incomes, have been stagnant,

and standards of living have not improved. That to me is our major

national economic problem.

Trade is a very important part of the solution to that problem.

Export jobs pay 10 to 15 percent more than average jobs. The productivity of export firms is 20 percent above the norm. Exporting

firms expand their employment 20 percent faster than average

firms, and small- and medium-sized firms account for 70 percent

of the employment growth.

This is particularly true for manufacturing employment, and I

would like you to look, if you have my statement in front of you,

at the chart at the end, because it tells a fairly dramatic story that

I think is not widely appreciated.

The chart shows manufacturing jobs in the economy. The middle

line shows the sharp upward trend in manufacturing jobs in exporting plants.

The bottom line shows the fall in manufacturing jobs in nonexporting plants.

In fact, it may surprise you to know that more of our manufacturing jobs, i.e., high-paying jobs, are now in exporting plants than

are in nonexporting plants, and the gap is rising sharply every

year.

The growth in jobs at exporting plants has outweighed the decline in jobs at nonexporting plants so much that the sharp reduction in total manufacturing jobs, which began about 20 years ago,

has now been arrested. If current projections hold true, by sometime early next century we will actually return to the high point

for manufacturing jobs of the late seventies.

This is one illustration of the tremendous payoff that the economy can get from the trade sector in terms of total jobs, but particularly in terms of good high-paying manufacturing jobs, and that

is why I suggest that Congress do what it can to promote the trade

sector of the economy. It will be an important part of the solution

to the real problem that ails the American economy, which is the

failure of wages, income, and standards of living, and to rise to the

levels we would like to see.
69

I don’t suggest that trade is a magic elixir. To be sure, we have

to undertake domestic steps to empower our people to take full advantage of the opportunities provided by increased trade. The most

important of those steps are better education for all Americans and

continuous training of our work force. I want to recognize Mr. Rangel’s work in this area because I think he has articulated the link

between the trade side and domestic side of the economy as clearly

or more clearly than anybody—by stressing the need for new initiatives on education, worker training, and the like. Education and

training are critical, but we would have to undertake those efforts

without trade. However, in my view, trade enables our society to

exploit the benefits of investments of that type to the maximum

possible extent, and we want to see education and training in the

linked environment that Mr. Rangel has talked about so pointedly

and so effectively and, in fact, so eloquently.

Second, even if we do everything right at home, the benefits that

I’m talking about are available only if we continue to break down

export barriers, and I think we have a huge opportunity to do so

because we face an asymmetrical situation in the world economy.

The United States has already eliminated virtually all impediments to foreign access to our markets. Other countries still complain a lot, but the truth is we have very few barriers.

On the other hand, other countries still have extremely high barriers, and that is particularly true of the large, rapidly growing

markets in Asia and Latin America that Sam Gibbons quite rightly

emphasized.

So, if we were able to move to reciprocal trade liberalization with

those countries that have high barriers, it essentially would mean

that they move along the trading spectrum in our direction—toward free trade.

The best U.S. trade policy would be to achieve free trade with

our most important trading partners. The only way we can achieve

a level playingfield is to induce the other countries to emulate our

past liberalization by going to free trade, and the time is right because our economy is strong and vibrant. Our firms are competitive.

Our European and Japanese competitors are in poor economic

situations. They have lost a lot of their self-confidence. We are prepared to take advantage of the situation far better than we were

5 years ago, 10 years ago, or at any time during my prolonged activity in this business.

The last three administrations, those of Reagan, Bush, and Clinton, have effectively pursued United States interest by negotiating

a series of trade liberalization arrangements, starting with Israel

and Canada, moving to Mexico, and NAFTA, and then to global

progress in the Uruguay round. But the greatest potential lies

ahead.

Building on President Bush’s proposed enterprise for the America’s initiative, President Clinton agreed at the December 1994

Summit of the Americas in Miami to create a Free Trade Area of

the Americas. A month before that in Indonesia, the APEC Summit

participants agreed to achieve free and open trade and investment

in the Asia-Pacific region.
70

Building on another Bush initiative, the administration plans to

pursue further global liberalization in agriculture services and several other key sectors. If successful, all this will achieve what I

suggested—moving to free trade with countries that have high barriers as opposed to our very low barriers. Moving them to our category would give us tremendous asymmetrical benefits, but the administration could pursue those initiatives only if it has fast track

authority from Congress, and without that, as the former Chairman said, nothing will move ahead.

The exceptions prove the rule. Over the last 2 years, the administration achieved two major breakthroughs with huge benefits for

the American economy, American workers, and the whole society:

the information technology agreement and the telecommunications

services agreement. But those agreements were achieved because

they were among the few areas where fast track authority still existed or additional authority was not needed. On other important

trade issues, the United States simply could not move ahead, because it didn’t have fast track authority.

Finally, I believe that it is urgent for you and the administration

to work out new fast track authority, and the reason, to put it

bluntly, is that other countries are eating our lunch while we stand

on the sidelines.

A couple of examples. MERCOSUR is already the third-largest

trading bloc in the world. It is moving to consolidate trade agreements among the South American countries, while we are on the

sideline unable to do anything.

Even Chile, whose President spoke eloquently to you a couple of

weeks ago, is unwilling to negotiate with the United States. It has

negotiated a deal with Canada, a deal which, incidentally, violates

some of our norms on antidumping and the freedom of capital

movements—this happened because we weren’t party to the negotiations. South America is consolidating as we sit on the sideline.

There are other elements at play as well. The European Union

is out dealing with non-EU countries while we don’t act. So far, the

European Union only has framework agreements, but they could be

the precursor of something more significant.

The latest framework agreement came to my attention yesterday.

I didn’t know about it in time to include it in my statement. When

President Chirac of France was in Brazil last week, he proposed to

the Brazilians, and they, of course, accepted, the first ever summit

meeting bringing together the heads of state of all of the countries

and all of the MERCOSUR countries.

Now, what does that sound like, if not like the EU countries trying to get into our backyard, making deals that would build

Europe-South America trade relations—at our expense? If we continue to dither, this scenario will repeat itself for the next 4 years,

and in a very fast-moving, dynamic world economy, we are going

to be left behind.

We delay at our peril. The time is long past when the world

would simply wait for the United States. The others will move on

without us if we are not ready.

So, at the end of the day, I am urging the administration to effectively carry forward its stated commitments to make fast track one

of its highest priorities for 1997. I urge you to provide the new ne71

1 Also Chairman, Competitiveness Policy Council and Chairman, APEC Eminent Persons

Group throughout its existence 1993–95. The views expressed in this statement are those of the

author and do not necessarily reflect the views of individual members of the Institute’s Board

of Directors or Advisory Committee. 2These and other data are derived in J. David Richardson and Karin Rindal, Why Exports

Matter: More!, Washington: Institute for International Economics and The Manufacturing Institute, 1996. 3See Dani Rodrik, Has Globalization Gone Too Far?, Washington: Institute for International

Economics, March 1997. 3See the several reports of the Competitiveness Policy Council to the President and Congress,

especially Building a Competitive America (March 1992) and A Competitive Strategy for America (March 1993).

gotiating authority as soon as possible. It is imperative to move forward on the bipartisan basis that has, with so much benefit to the

country, characterized our trade policy for the last 60 years. Thank you very much.

[The prepared statement follows:]

Statement of C. Fred Bergsten,1 Director, Institute for International

Economics

The American economy can reap enormous benefits from new international trade initiatives that reduce foreign barriers to our exports. Congressional renewal of fast

track negotiating authority is essential to permit the Administration to pursue such

initiatives and is one of the most beneficial steps the Congress could take this year

to help our economy. Provision of such authority is extremely urgent because our

competitors around the world are taking advantage of the absence of American authority and will do so even more extensively if we stay out of the game. I will briefly

elaborate each of these three statements on the view that they should provide the

focus for American trade policy in 1997 and beyond—and especially for Congressional action in the immediate future.

TRADE AND THE AMERICAN ECONOMY

The main problem facing the American economy is the very slow growth of average living standards over the past generation. Our economy has created 50 million

jobs over the past 27 years and more than 10 million jobs over the last four years.

But the median family income is virtually unchanged from the 1970s. The average

real wage has been flat for almost twenty years. Our cardinal economic problem is

to create better jobs with higher wages and benefits.

Trade provides an important part of the solution to that problem. Export jobs pay

10–15 percent more than the average wage. Productivity in export firms is 20 percent above the norm. Exporting firms expand their employment about 20 percent

faster than others and are 10 percent less likely to fail. Small and medium-sized

firms account for 70 percent of these results.2

The rapid export expansion of the past decade has come largely in high-wage

manufacturing industries. Since 1992, a majority of our manufacturing workers

have been employed in plants that export. The export surge has almost stopped the

decline of unemployment in the manufacturing sector (see chart 1). A continuation

of recent trade trends could restore net growth in manufacturing jobs within the

next few years. It could even restore their previous (1979) peak in the first decades

of the next century.

Increased globalization thus provides substantial benefits for American workers

and the American economy. To be sure, we must undertake a series of domestic

steps to empower our people to take full advantage of the opportunities provided

by globalization.3 The most important are better education for all Americans and

continuous training for our work force.3 But these efforts would be needed even if

we had no trade, and globalization enables our society to exploit their benefits to

the maximum possible extent. There is no reason to settle for more modest returns

on our investment in education and training when global integration offers such

handsome benefits.

THE CRUCIAL IMPORTANCE OF TRADE NEGOTIATIONS

Even if we do everything right at home, such benefits are available only if we continue to succeed in breaking down barriers to our exports abroad. The United States

now has an enormous opportunity to do so because we face a hugely asymmetrical

international situation. On the one hand, we have already eliminated virtually all
72

4 American’s remaining barriers carry a net economic cost of only about $10 billion in an econ- omy of more than $7 trillion. See Gary C. Hufbauer and Kimberly Ann Elliott, Measuring the

Costs of Protection in the United States, Washington: Institute for International Economics,

January 1994. 5Some critics have argued that recent American trade liberalization initiatives have been a failure because of the sharp deterioration of our trade balance with Mexico. That deterioration

was caused by the Mexican macroeconomic and financial crisis, however, which had little to do

with NAFTA. In fact, NAFTA shielded the United States from an even greater impact from the

Mexican crisis by deterring Mexico from responding (as in the past) by erecting new import controls and exempting the United States from those new controls which it did impose. 6 I in fact believe that the United States should now seek to roll together the numerous re- gional free trade agreements, including the existing European Union and NAFTA, into a global

free trade effort. See my ‘‘Globalizing Free Trade,’’ Foreign Affairs, May/June 1996 and my testimony of September 11, 1996 before this Subcommittee.

impediments to foreign access to our own market.4 On the other hand, most other

major economies—particularly the large and rapidly growing markets of Asia and

Latin America—continue to impose substantial restrictions on our (and others’)

sales to them. ‘‘Reciprocal’’ liberalization in the future thus essentially means that

other countries reduce their barriers to, or at least toward, our low level.

The best way for the United States to achieve truly fair trade is thus to negotiate free trade with our most important trading partners. The only way we can achieve a level playing field is to induce them to emulate our past liberalization. The time

is right because the American economy is strong and vibrant while both Europe and

Japan are suffering from prolonged stagnation and loss of self-confidence. The Reagan, Bush and Clinton Administrations have pursued American interests effectively and courageously by negotiating an ascending series of liberalization arrangements. The initial free trade treaties were with Israel and Canada in the middle 1980s. Mexico was added via NAFTA in the early 1990s.5 Global progress was made simultaneously in the Uruguay Round. The greatest potential lies ahead, however. Building on President Bush’s proposed Enterprise for the Americas Initiative, President Clinton agreed at Miami in December 1994 to create a Free Trade Area of the Americas. In Indonesia a month earlier,

he agreed at the annual APEC summit to achieve ‘‘free and open trade and investment in the Asia Pacific region’’ by 2010 (for the advanced countries that account

for about 90 percent of APEC trade, by 2020 for the rest). Building on another Bush

initiative, the Administration plans to pursue further global liberalization in agriculture, services and several other key sectors in the World Trade Organization.6

The Administration can pursue these initiatives only with the provision of fast track negotiating authority by the Congress. Without fast track, the United States

will be unable to win maximum concessions from other countries because they will

fear that Congress will reopen negotiations and demand more. Even Chile, whose

President Frei recently addressed the Congress eloquently on these issues, will not

deal with the United States in the absence of such authority. APEC’s initial effort

to launch its liberalization effort got off to a slow start last year largely because the

United States was unable to move and other countries were unwilling to do so in

our absence.

The exceptions prove the rule. The United States was able to lead two major suc- cessful trade negotiations over the past year: an Information Technology Agreement

and a deal on global telecommunications services in the WTO. Each eliminates barriers on over $500 billion of trade in two of the world’s most dynamic sectors. Both

are hugely in the interest of the United States and were in fact strongly promoted

by American companies. Both were possible only because the Administration retained residual negotiating authority from the Uruguay Round and was thus able

to advance American interests in an effective manner.

The achievement of free trade in the Western Hemisphere and the Asia Pacific,

and perhaps subsequently in the World Trade Organization, would maximize the

benefits for the American economy described above. The largest and most rapidly

growing economies in the world would eliminate their barriers to our market access.

This would of course include nontariff border barriers and relevant domestic measures, though tariffs themselves remain quite important in many of those countries.

American exports would boom further and millions more high-paying jobs would be

created. The new negotiating authority should encompass these possibilities. There

are few steps that the Congress could take this year that would be as helpful for what

ails the American economy.

THE URGENCY OF ACTION

It is extremely urgent for the Congress and the Administration to work out new fast track authority. World trade and investment patterns are moving and shifting
73

at breakneck speed. Other countries and groupings are rapidly filling the void left

by the American inaction (with the two exceptions cited above) of the past two

years. We run a serious risk of being left behind if we do not quickly re-engage. Examples abound:

• Mercosur, already the third largest trading bloc in the world, is consolidating

virtually all of its neighbors into a South America free trade agreement and will

continue to do so without concern for our interests as long as the absence of negotiating authority blocks us from engaging its members in serious negotiation to

achieve a Free Trade Area of the Americas.

• The subregional arrangements in Asia, notably the ASEAN Free Trade Area,

have accelerated their own liberalization timetable and will thus increasingly discriminate against us unless we are able to energize APEC to bring down barriers

across the entire Asia Pacific region.

• Prolonged American absence from implementation of APEC’s liberalization

goals could revive interest in an Asian-only arrangement along the lines of Malaysian Prime Minister Mahatir’s proposed East Asia Economic Caucus (EAEC).

• Tired of waiting for the United States, Chile has struck bilateral free trade

deals with Canada and Mexico that include provisions that raise questions for US

interests, including a total phaseout of antidumping rules and legitimization of continued capital controls.

• The European Union is doing deals throughout the world, including with

Mercosur and East Asia, which are only consultative at this point but could become

much more substantive if the United States continues to dither.

Hence we delay at our peril. The time has long passed when the world would simply wait for the United States to act. The Europeans, Asians and Latin Americans

have all become major autonomous players in the world economy. They will move

on without us if we are not ready.

At the same time, American leadership is essential to push the global economy

in the most constructive directions. We simply must get back in the game if we are

to protect our own interests, and to exploit the opportunities to achieve the enormous future benefits described above.

In view of all this, I urge the Administration to effectively carry forward the commitments made repeatedly by President Clinton to make fast track one of his highest priorities in 1997 and to recognize that it must compromise on the labor and

environmental issues in order to do so. I urge the Congress to then provide the new

negotiating authority as soon as possible. It is imperative to move forward on the

bipartisan basis that has, with so much benefit to the country, characterized American trade policy for the past 60 years.

f
74

The focus on fast track extension, to me, is the most important

Chairman CRANE. Thank you, Fred.

f

consideration before our Subcommittee and by the administration

and by Congress, too, or I mean should be, because of the importance of our expanding exports. But you mentioned, Sam, earlier

that here is South America with 380 million people, and yet, almost roughly 39 percent of our total exports went to South America, 1996. It is probably the biggest single market that we have,

even bigger than Asia for the time being. That is not to say I am

discounting the importance of reaching agreements with our Asian

trading partners as quickly as we can, too. I would hope that somehow we might get some communication to the administration and

get this question of fast track extension resolved, and ideally, as I

think Charlene said, get it resolved before the President goes down

to South America in May. We need your ongoing input and guidance on a bipartisan basis, and that was one of the things while

serving under you on this Trade Subcommittee that was so enjoyable was we had the greatest degree of bipartisanship of any issue

that came before our Congress.

I want to thank you both for your testimony, and keep up the

input. Any guidance you might give any of the folks in the administration, Sam, please do that, as well as to us here in Congress.

Bob.

Mr. MATSUI. Thank you, Mr. Chairman. I don’t have any questions. I would just like to, again, thank Chairman Gibbons for all

the effort he has given and inspiration he has given to all of us

over the years, particularly as Chairman of our Subcommittee

there in 1993 and 1994. We just can’t tell you how much we appreciate your service to the country and to all of us.
75

Those of us who are still here always look to you for a role model

on issues of trade and opening markets, and we want to thank you

very much.

I would just like to, again, comment on what you had testified

to in terms of what our role should be. I think, obviously, we

should be concerned about objectives and putting fast track together, but we should really be spending our time, as you suggest,

on meeting with our negotiators during the course of their negotiations with these countries, and I think that observation is one that

is well taken and one that we should really all focus on.

So, again, I want to thank you, Mr. Chairman, and thank you

as well, Fred, for your testimony. I continue to work with you all

the time, and I appreciate it. Thank you both.

Mr. Chairman.

Mr. GIBBONS. We are working together on a bipartisan basis out

of the congressional framework here to work with the administration to try to help them put their ideas together and get them sold.

You have got to understand that I voted for a rather unusual law

that I am trying to obey, and that is I can’t come down here and

talk with you about the thing. I can talk to anybody else on Earth,

but there are 535 people that I am forbidden by law to come down

and talk to. That quarantine runs out in a few months. So, I am

unusually quiet right now.

I can come down at your invitation, though. If you can stand me,

invite me.

Mr. MATSUI. Thank you.

Chairman CRANE. Mr. Rangel.

Mr. RANGEL. I got some kind of feeling, Sam, that I don’t have

to invite you in order to hear from you, but it is strange how you

leave, I move up one, and now I am back one. Some things never

change.

Mr. GIBBONS. Charlie, I have sat in every chair up there.

Mr. RANGEL. You and I, too.

Mr. GIBBONS. Way over here on the other side, to the left of

Sander. I used to sit over there with President Bush, if you can believe it, that long ago.

Mr. RANGEL. Well, listen, Sam, I have no hesitancy in saying I

will be calling upon you, and certainly with Fred, who made the

observation about the possible moving ahead further than a large

segment of our economy. I understand that a book has been written

by your shop. I saw the name of Danny Roderick on this subject.

I am living more closely to the panic than I express, but I know

I have to find ways to say things that other people understand. It

just seems to me that people need to review what America is sending them to compete with, as opposed to our competitors who come

here and get the education and go back home and teach. I just

don’t know whether we can keep up.

In any event, everyone talks about how this fast track just has

to be done or all of our credibility will be shot, the President should

have it, the Congress is too far involved, and we have to be bipartisan, and yet, all morning, nobody said what are we talking about.

I haven’t heard one person even mention it, and the administration

is working on language. Language for what? What is the issue?
76

Is it wrong to say we do have some minimum standard of conduct on behalf of people that this great Nation is doing business

with? Does it mean we should go in and organize labor unions and

organize strikes and tell them to pay what we pay? No, but somewhere along the line, it has to be something between leave them

alone, after all, the companies are going to do the right thing, and

getting involved in telling them what they can do with their property, their environment, and their workers.

Now, how in the devil can we do the right thing, as bipartisan

as we like to believe we are, where nobody is helping us to do the

right thing? Not even the President of the United States. He is

waiting to work this out.

Some people are now locked into concrete, and I was just telling

Bob Matsui that some people who were calm about this last year,

now they believe that all of the destruction of life as we know it

in Mexico is directly connected with NAFTA.

Now, once they start spreading it, what do we know? There are

some people that say mind your own business, let the free enterprise system work its will, and that is wrong. What do we do, Sam?

If we call upon you as a consultant and a specialist, you know the

President, you know us, you know Phil, what is the answer?

Mr. GIBBONS. I think it is more important to follow the negotiations after they are started than to try to tell them in advance

what, by micromanaging, exactly what they should be.

Mr. RANGEL. And what that is going to lead to is that the President is going to get Republican support, the minimum amount of

Democrats, and you will have to stretch to call it bipartisan.

Mr. GIBBONS. Since I am not as busy as I used to be, Mr. Rangel,

I have gone back and read some of the things we did in the past

and some of the things I have said in the past, and I have got a

little mea culpa. I will tell you, we tried to micromanage it too

much. We put too much detail in there.

When I read some of it, I kind of laugh because some of the stuff

just repeats year after year after year after year, and the problem

is we could never strike a deal. It is not that we didn’t try. We

couldn’t strike a deal in that area. Perhaps we could have struck

a deal if the Members of Congress had said, Hey, that is not what

we are talking about, we have got to get something done about

labor rights, we have got to get something about the environment,

but that comes from blocks in the Congress who could do a better

job in doing that than trying to set all this out in the broad overall

instructions that we can’t seem to agree on.

Mr. RANGEL. You seem so relieved since you don’t have an election to face.

Mr. GIBBONS. You don’t know what a relief that is.

Mr. RANGEL. It just means everything.

Mr. GIBBONS. If all of you knew what a relief that is, there

wouldn’t be any of you up there because it is wonderful.

Mr. RANGEL. Well, common sense prevails. All of the politics now

is out of your mind. You just want us to do the right thing, don’t

you, Sam?

Mr. GIBBONS. Absolutely, absolutely.

Mr. RANGEL. Well, we will keep working on that.
77

Mr. GIBBONS. All right, and I will work with you if you will invite me up to talk with you.

Chairman CRANE. Mr. Jefferson.

Mr. JEFFERSON. Sam, it is good to see you. I don’t have any questions. I had a moment to talk with you. I am very pleased to see

you here, to be back on the Subcommittee, and I enjoyed my service with you.

As always, you have expressed yourself forthrightly and with

great conviction, and I appreciate your being back with us. I look

forward to working with you on this issue and any others that

come up.

Mr. GIBBONS. Thank you, Mr. Jefferson.

I remember what you said in one of your questioning sessions

and what Mr. Rangel has said about drugs and all those things. We

need to include that in there, but one of the things that is happening in the United States is that while we are entering into

globalization, we are destroying our safety nets around. We ought

to be strengthening and straightening out our safety nets in education, in all of those kind of things, because as we move into this

globalized economy, and we don’t have any choice, really, we have

got to move into it, we have got to realize that some people are not

going to be able to make the change.

That is one reason my family lives in Florida instead of in the

hills of Virginia over here because, as farmers back 125 years ago,

we Gibbonses couldn’t keep up. We went to Florida, and we were

able to finally get ahead down there, but there are those people.

There are real people that are out there. They need to be caught

by our safety net, rehabilitated, retrained, sent forward. Instead of

doing that, we are neglecting the safety nets. We are destroying the

safety nets, and yes, we ought to be talking about drugs and about

all those things in these negotiations.

There was one statistic that someone threw out here. I think it

was Mr. Hills. We are less than 5 percent of the world’s population.

We consume more than 50 percent of all the world’s drugs, and yes,

we need to do something about it. We need to work with those suppliers, but we have got to work on the demand side up here.

We have got to come up with programs in this Congress——

Mr. JEFFERSON. There is one question about that.

Mr. GIBBONS [continuing]. That do more about the demand side.

Mr. JEFFERSON. The issue before us is on these trade questions.

Mr. GIBBONS. Yes.

Mr. JEFFERSON. We get to talk about the supply side of it.

I can’t argue about your observation on the demand side, but we

have been involved so intimately in the last few years with Mexico,

and we have tried to open markets and deal with financial support

when the time came to bail them out from tough problems, and we

have tried, I think, to be good neighbors.

We just want to have the same response from them on this drug

question, and I don’t think it means we hold up all the fast track

issues, necessarily, but it certainly means that these things we discuss, as we contemplate these agreements with Mexico—because

this is really different from the environment and the labor issues

which are very important issues we must address. This is one that
78

is devastating our community and putting pressure on this safetynet side that you are talking about.

We really must do something about it, and I hope we don’t try

to pick between the demand and supply side issues because we

have to work on the demand side, but right now, since we are talking about trade, and with our neighbors, they must be better neighbors on the supply side of this question, as far as I think.

Mr. GIBBONS. Well, I agree with you. I think a lot of the fine lawabiding Mexicans would agree with you.

The problems they are having down there are really serious problems, with the undermining of their government and all the things

that we see.

There are a lot of fine people in Mexico. They hate drugs and

want to do away with them and decry the corruption and distortion

it is bringing to their society.

We need to do more, but we have got to calm down the demand

side of the equation. We are financing with American dollars this

doggone war that is about to overrun us.

Chairman CRANE. Mr. Levin.

Mr. LEVIN. Mr. Chairman, I will be very brief. I want to say hello

to two wonderful people. Because you are such important parts of

the debate, let me just say one thing.

Fred, you said in your testimony, you talked about breaking

down barriers, and as you know, I would say amen to that. Before

that, you say the main problem facing the American economy is the

very slow growth of average living standards over the past generation, and I think most Members of the House would agree with

that.

Then you say trade becomes an important part of the solution to

that problem, and the debate in part here is how much trade is an

important part of the solution and how much it has been a part of

the problem.

I think, Sam, that we are not micromanaging, and I don’t think

we should, the debate by trying to work out what is the scope of

authority of the administration on that issue, and some expression

from this institution as to how important we think it is.

Thank you, Mr. Chairman.

Chairman CRANE. Thank you.

Mr. RANGEL. Mr. Chairman.

Chairman CRANE. Yes, Charlie.

Mr. RANGEL. Just let me say this to Fred. I hope that you and

your institute might find some way for those who have this concern

about the gap, perhaps after the book is published, to see how we

can best present our argument in a noncombative way.

Our major problem on this Subcommittee and in the Congress is

not that we challenge each other’s sincerity. It is just that we can’t

find the right words to get this thing across. I am encouraged by

your remarks. I only ask you to provide me some help and to feel

comfortable in contacting me whenever if you can think of some

way Phil Crane and I could better use the same language, because

we have not had a problem that has been partisan. We have just

had problems in the language that we feel comfortable with. Both

of you could be very helpful in that area because we are very disappointed we have not fulfilled our commitments to our trading
79

partners with fast track, and I don’t see anyone working to move

it any faster. We had a dead-still for no good reason, as I see it.

Thank you.

Thank you, Mr. Chairman.

Chairman CRANE. Well, again, we thank you, Sam and Fred, but

before we break, any input you could provide to the administration,

too, Fred, like I was mentioning to Sam—I mean, you have fed us.

Now feed them so that we might try and expedite this process.

With that, then, we will be in recess until 2 p.m. for our next

panel of chief executive officers, and again, thank you both, Fred

and Grover Cleveland—oh, excuse me. It is Sam Gibbons. I knew

there was a resemblance there.

Thank you both.

Mr. GIBBONS. Thank you.

[Whereupon, at 1:57 p.m., the Subcommittee recessed, to reconvene at 2:07 p.m., the same day.]

Chairman CRANE. Gentlemen, if you will take your seats, please.

We shall resume our hearing for today.

It is now my privilege to introduce our next panel of witnesses,

which consist of chief executive officers from four prominent American firms. The panel consists of Joe Gorman, chairman and chief

executive officer of TRW, on behalf of the Business Roundtable;

John Pepper, chairman and chief executive officer of Procter &

Gamble, on behalf of the National Foreign Trade Council—and I

will yield to Rob Portman to welcome you momentarily—Michael

Jordan, chairman and chief executive officer of Westinghouse Electric Corp., on behalf of the Emergency Committee for American

Trade, who I am pleased to see here as a Chicago Bulls fan; and

finally, Robert Denham, chairman and chief executive officer of

Salomon Bros.

I look forward to hearing your thoughts about future trade initiatives which lay ahead for America and how they will affect U.S.

companies.

With that, I will yield to my distinguished colleague, Congressman Portman.

Mr. PORTMAN. Mr. Chairman, I thank you. I think Mr. Pepper

is pretty well known to the three members of the panel who are

with me today, but I would like to introduce him briefly.

Chairman CRANE. Better than Mike Jordan?

Mr. PORTMAN. Well, not as well as Michael Jordan. John Pepper

has got a pretty good jump shot, in case anybody wants to know

that about him. He is not as good on the rebounding.

He is chairman and chief executive officer, as you know, of the

Procter & Gamble Co., and the reason I wanted to introduce him

was to point out that he has actually taken Procter & Gamble and

moved it aggressively into the international area by expanding exports and international business.

It is my understanding, Mr. Pepper, that Procter & Gamble has

doubled its sales and profits outside the United States in just a few

short years since you took the helm, and I think that is an enviable

record for all of our businesses in this country, and that includes

a lot of established markets, but also, some of our new emerging

markets—China, Russia, India, Latin America, and so on.
80

He has a remarkable record, then, of actually expanding economic growth through exports which a lot of us talk about, and he

also has a remarkable record, Mr. Chairman, you should know, of

attention to our youth, and he focuses primarily on education initiatives. He has done a great job in our State and around the country, but also on the increasing problem we see of drug abuse among

our teenagers. Yesterday, he took an hour out of his very busy day

to be with us to unveil a new proposal in Cincinnati, as an example, with regard to fighting drug abuse.

So, on all those counts, I want to commend him and thank you

for giving me the honor of introducing him this afternoon.

Chairman CRANE. Well, we are happy to have you all here, gentlemen. Traditionally, we ask that you try and confine your presentations to around 5 minutes, but any written statements will be

made a part of the permanent record.

With that, we will start in the order I introduced you.

Mr. Gorman, Mr. Pepper, Mr. Jordan, and Mr. Denham.

STATEMENT OF JOSEPH GORMAN, CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, TRW, INC.; ON BEHALF OF BUSINESS

ROUNDTABLE

Mr. GORMAN. Mr. Chairman and Members of the Subcommittee,

I am Joseph Gorman, chairman and chief executive officer of TRW,

Inc. We are a Cleveland-based manufacturing and service company

providing products and services with a high technology or engineering content to the automotive, space and defense, and systems integration markets.

We currently operate in 27 countries around the world and employ about 68,000 men and women, including 38,000 in the United

States.

I am appearing today on behalf of the Business Roundtable, an

association of more than 200 chief executive officers of leading U.S.

corporations, employing in the aggregate over 10 million people.

The Roundtable includes companies representing virtually every

sector of the economy, including automotive, telecommunications,

computers, semiconductors, transportation, consumer products, financial services, and many others.

I appreciate the opportunity to speak with you today about U.S.

trade policies and initiatives.

My point today is quite simple. The United States must be the

leader in global trade liberalization efforts in order to ensure that

markets around the world are open to American companies and

their workers.

International trade and investment are more than ever critical

for the well-being of the U.S. economy, its companies, and its workers. To keep a strong and growing economy, to expand opportunities for Americans, and to increase our standard of living, we have

no choice. We must compete and win in the global economy, and

this must be the foundation of the Nation’s economic and trade policy.

In business, if you stop investing in the future, you will surely

fall behind: for the United States, trade and investment liberalization is equally important. If we are not leaders on liberalization, we
81

surely will fall behind other countries that are pursuing aggressively their own liberalization agendas.

Moreover, continued efforts are needed to open up markets in developing countries, markets that will present huge opportunities for

this country in the years to come. Despite recent improvements in

world trade rules, trade and investment barriers remain, and new

ones are being erected all of the time. That is why it is critical we

vigorously pursue trade and investment liberalization initiatives,

such as those taking shape in the Asia-Pacific region and Latin

America.

The economic impact of new trade agreements can only be positive for the United States. Basically, we are already open to the

world. Thus, we almost always gain more from trade and investment agreements than we give. On top of this, our competitive edge

means that we are most likely to be able to seize the opportunities

presented by new market openings.

The United States must lead in opening up markets and expanding global commerce. This February, 70 countries reached a global

agreement to open up telecommunications markets. The United

States refused to accept an agreement last year because it was too

weak. We fought hard for a better deal. It was only through our

leadership that a truly good agreement was reached, one that will

open up significant new opportunities for our companies and workers. But importantly, if we cease to lead, the world will not wait

for us.

The last several years have seen an increasing flurry of trade negotiations and trade arrangements around the world. Our trading

partners have matured politically and economically and are moving

toward narrow regional agreements to open markets for their own

products and services. We should be concerned about these agreements that don’t include us because they can have significant adverse effects on our exporters, our workers, and our economy.

Of particular concern are overlapping and growing trade agreements in Latin America, our own backyard. For example, U.S. companies’ exports to MERCOSUR countries can face significant tariffs

while exports among MERCOSUR members are becoming duty

free. As a result, United States-made products become less competitive in, say, Argentina, against products made in any other

MERCOSUR country, such as Brazil.

There is another danger if the United States abdicates leadership. While regional and bilateral arrangements may continue in

the absence of U.S. leadership, overall liberalization globally may

stagnate. This would not be to anyone’s benefit, and certainly not

to ours. We need the opportunities represented by markets in other

countries to continue boosting our economy and raising our standard of living.

We cannot hope to conclude meaningful agreements, however, if

we cannot assure our trading partners that agreements reached

with our trade negotiators will not have to be negotiated a second

time with the U.S. Congress or the U.S. private sector.

During the last 30 years, Presidents Nixon, Ford, Carter,

Reagan, Bush, and Clinton all utilized the fast track process. Expanding trade has always been and should be a bipartisan issue.
82

Both sides of the aisle are in favor of expanding economic growth

and creating jobs.

The Roundtable continues to believe that fast track should be extended for a period of time that realistically takes into consideration the increasingly complicated nature of international trade

and investment negotiations.

The Roundtable also believes that fast track should be reauthorized for use in both multilateral and bilateral negotiations. To limit

it to one or the other or to specific countries is too restraining. It

would unduly restrict the United States from taking advantage of

unforeseen negotiating opportunities that may arise and would increase the likelihood of other countries reaching trade agreements

without U.S. participation.

The United States is the strongest country in the world economically, politically, and militarily. However, we cannot maintain

these strengths if we do not continue to engage fully the world outside our borders.

Ninety-five percent of the world’s consumers live outside the

United States. The world’s fastest growing and most promising new

markets are spread truly across the globe. There is no way we can

have a promising future as a nation if we don’t actively pursue

these foreign customers and markets.

Mr. Chairman, that concludes my remarks. I look forward to answering any questions that you may have.

[The prepared statement follows:]

Statement of Joseph Gorman, Chairman and Chief Executive Officer, TRW,

Inc.; on Behalf of Business Roundtable

INTRODUCTION

Mr. Chairman and members of the subcommittee, I am Joseph Gorman, Chairman and Chief Executive Officer of TRW Inc. TRW is a Cleveland-based manufacturing and service company that provides products and services with a high technology or engineering content to the automotive, space and defense, and systems integration markets. We currently operate in 27 countries around the world and employ about 68,000 men and women, including about 38,000 in the United States. I

am appearing today on behalf of The Business Roundtable, an association of more

than 200 chief executive officers of leading U.S. corporations, employing over 10 million people. The CEOs examine public policy issues that affect the economy and develop positions which seek to reflect sound economic and social principles. The

Roundtable includes companies representing virtually every sector of the economy,

including automotive, telecommunications, computers, semiconductors, transportation, consumer products, financial services, and many others. I appreciate this opportunity to speak with you today about U.S. trade policy objectives and initiatives.

In the interest of providing the most useful input from The Roundtable, I’m going

to focus on points (2) through (5) of your hearing announcement. While specific

trade negotiating objectives and priorities are of course important issues, I think

that I can more usefully address these other issues, given the nature of The Roundtable, whose members span many sectors of the U.S. economy.

My point today is simple: the United States must maintain its leadership in global liberalization efforts so that it can ensure that markets around the world are

open to American companies and their workers. International trade and investment

are, more than ever, critical for the well-being of the U.S. economy, its companies,

and its workers. To keep a strong and growing economy, to expand opportunities

for Americans, and to increase our standard of living, we have no choice—we must

compete and win in the global economy. This must be the foundation of the nation’s

economic and trade policy.
83

TO WIN IN THE GLOBAL ECONOMY, THE UNITED STATES MUST LEAD LIBERALIZATION

EFFORTS

Over the past few decades, successive Congresses and Administrations have made admirable progress in breaking down barriers to foreign markets. U.S. companies

have done a lot to take advantage of these opportunities, to the benefit of their

workers, their communities, and the country as a whole. However, the everchanging global economy continually presents new opportunities and challenges. We

must reach out for these opportunities and meet these challenges. In order to do

so, the United States must continue to pursue trade liberalization, breaking down

foreign barriers to our exports and investment. In my industry, as in all others, if you stop investing in the future, you run the

serious risk of falling behind. Trade and investment liberalization is the same—an

ongoing process in which the United States must invest. If we are not in the vanguard of liberalization, we risk falling behind other countries, which are pursuing

their own liberalization agendas. Moreover, continued efforts are needed to open up

markets in developing countries, markets that will present huge opportunities for

this country in the years to come. Despite recent improvements in world trade rules,

trade and investment barriers remain, and new ones may always be erected. That

is why it is critical that we aggressively pursue trade and investment liberalization

initiatives, such as those taking shape in the Asia-Pacific region and in Latin America.

International trade and investment agreements are still needed to open foreign markets for American companies and their workers

We need to continue pushing the envelope on trade liberalization. The United

States has been the leader in pushing for open markets because we know that with

our market the most open in the world, we have the most to gain from removing

foreign barriers to our goods and services. And the best way to push trade liberalization forward is to pursue aggressively trade agreements that tear down foreign

barriers. We have led the world through creation of the GATT and seven subsequent

rounds of tariff-cutting and other market-opening negotiations under the GATT

framework, which culminated in the creation of the WTO. We put into effect the

NAFTA, which has already demonstrated its benefits. This has all been good work,

and has helped our companies and workers compete in the global economy. But

more is needed.

Many countries still maintain significant tariffs on U.S. exports. In an increasingly competitive global economy, these small taxes can make the difference between success and failure in foreign markets. Further tariff-cutting agreements are

therefore necessary and we should pursue them on a multilateral, regional, bilateral, and sectoral basis.

Moreover, as tariffs and traditional non-tariff barriers to our goods and services

exports have fallen, new problems have emerged. For example, inadequate intellectual property protection, investment restrictions, customs and other administrative

problems, and standards-related barriers have emerged as major problems for U.S.

exporters. Our agricultural exports continue to face a range of non-tariff as well as

tariff barriers. Recent agreements have gone part of the way to resolving some of

these problems but again, more is needed multilaterally, regionally, bilaterally, and

sectorally. With respect to agriculture, new multilateral talks are particularly needed.

The economic impact of new trade agreements can only be positive for the United

States. We already are pretty much open to the world. Thus, we almost always gain

more from trade and investment agreements than we give. On top of this, our competitive edge means that we are most likely to be able to seize the opportunities

presented by new market opening.

If the United States is not at the table, it can’t play and it can’t win

If the United States does not lead in opening up markets and expanding global

commerce in a way that will benefit our companies and workers, no one else will.

For example, this February, 70 countries reached a global agreement to open up

telecommunications markets. The United States refused to accept an agreement last

year because it was too weak; we fought hard for a better deal. It was only through

our leadership that a truly good agreement was reached, one that will open significant new opportunities for our companies and workers. The United States must ensure that it continues to hold its position of leadership—we need to be at the head

of the table to make sure that agreements are fair and meet U.S. interests.

The world is not waiting for us; the last several years have seen an increasing

flurry of trade negotiations and trade arrangements around the world. In the past,
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nearly every major trade agreement required U.S. leadership. This is no longer the

case. Our trading partners have matured politically and economically and are moving toward narrow regional agreements to open markets only for their own products

and services. Both within and among the major trading regions—Asia, Europe, and

Latin America—countries are working toward new trade arrangements that would

exclude the United States and change the rules of the game to their advantage and

our disadvantage. For example:

• Mercosur, comprised of Argentina, Brazil, Uruguay, and Paraguay, is implementing a common market.

• Mercosur and Mexico may reach a trade agreement this year.

• Mercosur now has association agreements with Chile and Bolivia, and may

reach an agreement with Venezuela in the future.

• The Andean Community, consisting of Bolivia, Colombia, Ecuador, and Venezuela, are establishing a free trade area.

• Mercosur and the Andean Community are discussing a free trade arrangement.

• Chile now has separate free trade agreements with both Mexico and Canada.

• Latin American nations have a web of other bilateral arrangements that are the

precursors of future free trade agreements.

• There has been discussion of a Mercosur-ASEAN free trade area.

• ASEAN members are implementing a free trade area.

• South Asian nations are pursuing a preferential trading arrangement.

• The European Union has been exploring trade agreements with both Latin

American and Asian nations. The EU expects to conclude a reciprocal trade agreement with Chile and has initiated talks with Mexico to pursue a comprehensive

trade agreement.

• Several countries, mainly in Central Europe, are negotiating entry into the EU.

• Central European nations are pursuing a free trade agreement.

We should be concerned about these agreements that don’t include us because

they can have significant adverse effects on our exporters, our workers, and our

economy. Of particular concern are overlapping and growing trade agreements in

Latin America, our own backyard, that do not include the United States. For example, U.S. companies’ exports to Mercosur countries can face significant tariffs, while

exports among Mercosur members are becoming duty-free. Thus, U.S.-made products become less competitive in, say, Argentina against products made in another

Mercosur country, such as Brazil. Of course, U.S. companies can produce their goods

in Mercosur countries rather than in the United States if necessary to remain competitive in the region, but it hardly makes sense for U.S. trade policy to encourage

this. Moreover, in order to meet the local content requirements of Mercosur and

benefit from duty-free treatment, U.S. companies that produce in Mercosur members will have to source more of their parts and components from Mercosur countries, cutting down on purchases from U.S. suppliers. The end result: a loss for the

U.S. economy and U.S. workers.

In addition, other countries often do not reach the same high levels of liberalization, transparency, and fairness in their trade and investment agreements that the

United States insists on in its own agreements. As more and more trade agreements

are reached that exclude the United States, it becomes increasingly likely that in

a future negotiation with another country or trade bloc, the United States will be

unable to reach a good agreement because the negotiating partner will insist on the

weaker standards in its other trade agreements. We could then be faced with two

choices: accept a bad agreement or reach no agreement at all.

There’s a related danger if the United States abdicates leadership. While regional

and bilateral arrangements may continue in the absence of U.S. leadership, overall

liberalization in the global arena may stagnate. This would not be to anyone’s benefit, and certainly not to ours. We need the opportunities of markets in other countries to continue boosting our economy and raising our standard of living. The

United States therefore must ensure that global liberalization efforts continue

through all possible avenues. In particular, we must maintain our leadership role

at the WTO and ensure that it continues the good work of opening markets around

the world.

Thus, in order to ensure that our trading partners don’t implement agreements

and regimes detrimental to our interests and that future progress in expanding

global trade is not compromised, we must remain engaged and maintain the leadership role we have exercised so successfully these many years. This is not a burden

for the United States. It is an unparalleled opportunity to shape the world’s economic relationships in our interests.
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Fast-track procedures are a necessary tool for reaching new trade and investment

agreements.

It is clear that new trade and investment agreements are needed to promote continued growth for the United States, and to ensure that we are not left out in the

cold as other countries reach their own agreements. We cannot hope to conclude

meaningful agreements, however, if we cannot assure our trading partners that

agreements reached with our trade negotiators will not have to be negotiated a second time with the U.S. Congress or the U.S. private sector.

During the last thirty years, Presidents Nixon, Ford, Carter, Reagan, Bush, and

Clinton all utilized the fast-track process established by the Congress to facilitate

international trade and investment negotiations to break open foreign markets for

U.S. products and services. Expanding trade has always been, and should still be,

a bipartisan issue—both sides of the aisle are in favor of expanding economic growth

and creating jobs.

The reasons for fast-track today are just as compelling as they were in the past,

if not more so. In the past, fast-track authority was enacted in the context of an

existing or contemplated major trade negotiation. As I described earlier, things have

changed—important trade negotiations no longer wait for U.S. leadership, and other

countries are reaching their own agreements without us. In addition, agreements

are being negotiated in a broad range of contexts—multilaterally, regionally, bilaterally, and sectorally (e.g., the recent telecommunications and information technology agreements). If fast-track procedures are not reauthorized, our trade negotiators will not be able to pursue effectively negotiations that are on the immediate

horizon, such as those in Latin America and the Asia-Pacific region. Trade negotiators will also not be able to grab at targets of opportunity that may arise. If our

trade negotiators are unable to continue tearing down foreign trade and investment

barriers, it can only harm the nation’s economic, political, and security interests.

The Roundtable continues to believe that fast-track should be extended for a period that realistically takes into consideration the increasingly complicated nature

of international trade and investment negotiations. The Roundtable also believes

that fast-track should be reauthorized for use in both multilateral and bilateral negotiations. To limit it to one or the other or to specific countries is too restraining—

it would unduly restrict the United States from taking advantage of unforeseen negotiating opportunities that may arise, and would increase the likelihood of other

countries reaching trade agreements without U.S. participation.

The Business Roundtable hopes that the Administration and Congress will reach

a compromise as soon as possible on the outstanding issues regarding fast track and

implement new negotiating authority. With fast-track, our negotiators can proceed

with the important work of breaking down barriers to American exports and boosting opportunities for our companies to compete and win in the global economy.

SUCCESS IN THE GLOBAL ECONOMY IS CRITICAL FOR THE AMERICAN ECONOMY, ITS

COMPANIES, AND ITS WORKERS

The United States must lead in promoting trade and investment liberalization

around the world because the U.S. economy, as well as its businesses, have become

internationalized. This is a fact of life that we can not, and should not, run from,

but rather must embrace. Some may seek to hide from the global economy. But we

can’t run from the reality of globalization, and we can’t afford to turn our backs on

the opportunities it presents.

The United States is the strongest country in the world economically, politically,

and militarily. However, we cannot maintain our economic strength, nor our

strength in other areas, if we do not continue to engage fully the world outside our

borders. Ninety-five percent of the world’s consumers live outside the United States.

The world’s fastest-growing and most promising new markets are spread across the

globe. There’s no way we can have a promising future as a nation if we don’t actively pursue these foreign customers and markets.

The global economy is real, and the United States is part of it

International trade is increasingly important for the world as a whole. From 1994

to 1995, world trade in goods increased 8 percent by volume and 19 percent by

value, rising to a bit over $5 trillion. In contrast, the increase in world goods output

was only 3 percent. Equally impressive, world trade in services increased 13 percent

by value to just over $1 trillion.

And the world at large is more important to the U.S. economy than ever before.

We remain the world’s largest exporter—our total exports were $835.7 billion

($611.7 billion of goods and $224.9 billion of services) in 1996. Total trade—imports
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plus exports—accounted for nearly $1.8 trillion in business activity, equal in magnitude to nearly 24 percent of the size of the U.S. economy as a whole.

My company, like all members of The Business Roundtable, is constantly aware

of how important the global economy is. TRW’s automotive customers are global.

Our companies, quite simply, cannot grow or even survive if we don’t tap foreign

markets. For my company, international sales totaled $3.9 billion in 1996, or about

40 percent of our total sales.

Trade is good for our economy, good for business, good for workers, good for farmers,

and good for consumers

The nation has recognized the existence of the global economy and the opportunities it presents. American companies have worked hard to compete and win in that

economy, and we have seen the positive results. U.S. exports continue to rise at an

impressive pace—in 1996, exports were up 6.2 percent from the year before. And

exports in some key product areas are growing even faster. For example, in 1996,

exports of airplanes and airplane parts jumped 26.9 percent; exports of computers

were up 11.6 percent; and exports of scientific instruments were up 10.7 percent.

Exports are the engine driving economic growth and job creation in the United

States. Export growth has accounted for about one-third of the nation’s overall economic growth over the past ten years, and export growth continues to greatly outpace the growth of the economy as a whole. In 1996, exports of goods and services

rose by 6.5 percent in real terms, compared to a 2.4 percent increase in real GDP.

Trade is good for the economy and for our companies. But as importantly, it’s good

for American workers. There are now over 11 million U.S. jobs that are created and

supported by exports. Export-related jobs accounted for 1 out of every 8 net jobs created in the United States between 1992 and 1996. Exports account for about 1 in

10 civilian jobs in the nation, and about 1 in 5 manufacturing jobs.

Export-related jobs are also higher-wage jobs. Export-supported jobs in general

pay, on average, 13 percent more than the average U.S. wage. The premium is even

more striking if you look at the core of export-supported jobs—those directly supported by goods exports. These jobs pay, on average, 20 percent more than the average U.S. wage. And a lot of our export growth is in high-wage, high-tech sectors.

These are clearly the types of jobs we want to promote for this and future generations.

Exports are also very important for the nation’s farmers. U.S. agriculture exports

hit a record $61.2 billion in 1996, up 7 percent from 1995. One out of every three

farm acres in America, and 50% of our wheat acres, 57% of our rice acres, and 37%

of our soybean acres, are dedicated to exports. Last year, U.S. agriculture had an

estimated $27.4 billion trade surplus—the largest ever.

Trade benefits the company that sells goods or services abroad. But trade also has

a tremendous beneficial ripple effect in communities and throughout the U.S. economy. Trade benefits suppliers, especially the numerous small and medium sized

companies whose goods are either incorporated into exports or whose goods and

services directly support the operations of U.S. exporters. Trade benefits numerous

service providers, such as insurance companies and banks that finance an exporting

company’s activities. The benefits ripple throughout the local community, to the restaurants, stores, and other establishments near the facilities of exporters and their

suppliers.

Let’s not forget that imports are also important to maintaining a vibrant, competitive economy and high standards of living. Imports give consumers a greater choice

of goods and services, and provide them with goods and services not always available from U.S. sources. They create jobs in areas like retailing, distribution, ports,

and transportation. Imports allow U.S. companies and workers to use the best technology and components from around the world increasing their productivity and

competitiveness and therefore leading to higher wages and creation of more U.S.

jobs. Moreover, imports encourage competition and innovation in general. Walling

off producers from competition often results in bloated, uncompetitive enterprises.

This does not benefit anyone—not the company, not its workers, not consumers, and

not the nation.

International investment is also a crucial part of competing and winning in the global economy

Not only is trade good for the United States—international investment is important, too. In order to seize the opportunities presented by the global economy, companies must be able to invest in other countries when this makes sense for their

businesses. And this investment creates new markets and customers for U.S. companies and their workers and boosts the U.S. economy.
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The primary goal of foreign investment is the desire to serve the consumers in

the country or region in which the investment occurs, not to find cheap labor or

other inputs. In 1994 (the latest year for which data is available), about 67 percent

of total sales by U.S. companies’ majority-owned foreign affiliates were sold in the

affiliate’s country of location; another 23 percent were sold in other foreign countries. So, a total of 90 percent of U.S. companies’ sales of foreign-made goods and

services are sold outside the United States. This makes sense. Customers, be they

users of intermediate goods in their own production operations or end users, demand prompt and reliable service from their suppliers. It is frequently difficult to

meet those demands from thousands of miles away in the United States. Customers

sometimes need or want to receive their goods from nearby manufacturing facilities.

Proximity is even more important for services, of course. Consumers expect their

banks, telephone companies, and professionals to be nearby.

Investment abroad brings back significant benefits here at home. Workers in the

United States often design, test, and market products made at overseas plants. And,

because U.S. companies invest overseas to stay competitive and win new customers,

their foreign investments help boost U.S. exports and maintain and create American

jobs. Exports follow investment—in 1994 (the latest year for which data is available), exports of goods by U.S. companies to their foreign affiliates totaled $129 billion, 25 percent of all U.S. goods exports. And U.S. companies’ trade with their foreign affiliates generated a $19.2 billion trade surplus.

U.S. companies’ overseas operations also generate income that comes back here

to the United States, where it can be reinvested in U.S. operations to the benefit

of the local economy and U.S. workers. In 1995, this flow of income back into the

United States was over $100 billion. Moreover, overseas investments are often needed to keep U.S. companies competitive. Foreign investment allows companies to

enjoy greater economies of scale and scope, as well as access to important foreign

technologies.

Foreign investment by U.S. companies is concentrated in developed countries. If

foreign investment were motivated by a search for low cost inputs, developing countries would be the predominant location for foreign investment. But developing

countries account for only about one-fifth of U.S. companies’ total overseas investments. Companies’ foreign investment decisions are complex; many factors, including the size of the country’s and the region’s market; the quality and reliability of

transportation, telecommunications, energy, and other infrastructures; protection of

intellectual property; the regulatory and legal climate; skill level of workers; presence of needed materials and inputs; political risks; stability of the currency and

economy, go into the mix. Production costs, including labor costs, are but one of

many factors.

Unfortunately, sometimes U.S. companies are forced to invest in foreign countries

in order to jump over high barriers to imports. In these situations, the only way

to compete in that market often is by producing your goods in that country. This

is yet another reason for breaking down foreign trade barriers: to ensure that our

companies are not forced to invest abroad, and can make foreign sales through exports from the United States when that is a competitive way to do business. My

company is a prime example of how breaking down foreign trade barriers can increase sales from the United States by eliminating some of the need to invest

abroad. Since 1990, as foreign barriers have progressively come down, TRW’s export

sales as a percentage of our international sales have grown from about 10 percent

to 20 percent.

Because the United States is the world’s most competitive nation, we have the most

to gain from the global economy and from trade and investment liberalization

To borrow from Mark Twain, reports of the death of U.S. competitiveness have

been greatly exaggerated. Back in the 1980s and early 1990s, conventional wisdom

held that the United States had been overtaken by Japan and Germany and might

never regain its place in the sun.

Well, look what happened: today, the United States is back on top. Our economy

has been growing faster than those in Europe and Japan. We have led the G–7 nations in growth of industrial output for the past five years and in growth of manufactured exports from 1985 to 1995. While we need to make more progress, we have

the lowest budget deficit as percentage of GDP of any G–7 economy. We have created more net jobs in the past few years than all other G–7 nations combined, and

our unemployment rate is below that of every other major industrial economy besides Japan (which keeps official unemployment low through artificial means that

harm its economy). While we still have a trade deficit, it has declined by 40 percent

as a percentage of GDP, from about 2.7 percent in 1985 to 1.6 percent in 1996.
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We have the world’s largest economy, the most productive workers, the best tech- nology, and the most innovative people. That’s why we are considered to be the most

competitive country in the world, as confirmed last year by the World Competitiveness Yearbook from the International Institute for Management Development. Remember how pundits were writing off the U.S. computer and semiconductor industries in the 1980s? Well, now we’re highly competitive in a range of important industries, such as: semiconductors, computers, computer software, aerospace equipment, applied materials, biotechnology, construction equipment, telecommunications

and other information-based equipment and services, financial services, information

services, and entertainment. These are the technologies of today—and of tomorrow.

We must not be afraid to leap wholeheartedly into the opportunities presented by

the international marketplace.

We have done so well as a nation because we have willingly sought out the oppor- tunities presented by the global economy. We have the resources and the capability

to be winners. All we need to do is ensure that our companies and our workers, and

the products and services they produce, are given the opportunities to compete and

win in the global economy. We need to do more, of course, to ensure the continued competitiveness of the nation, its companies, and its workers. In a world of increasing technological innovation, companies must be able to rely on a steady flow of educated, trained, and

skilled scientists, technicians, and workers. To meet this need, The Business Roundtable supports appropriate and effective worker retraining programs and initiatives

to improve the U.S. education system. The global economy and technological change demand a new national workforce development strategy. The existing federal and state programs are fragmented and

uncoordinated. Current programs need to be reassessed with a new focus on quality

and international competitiveness. The Business Roundtable supports reform of federal job training programs—last Congress we supported H.R. 1617, the Comprehensive and Reformed Education Employment and Rehabilitation Systems (CAREERS)

Act, which would have consolidated up to 100 education, job training and assistance

programs. This legislation emphasized competitiveness as a fundamental goal for

U.S. workforce development programs. We would support similar legislation in the

105th Congress. In 1989, The Roundtable CEOs agreed that improving the performance of the K– 12 education system is a critical priority and The Roundtable made a 10-year commitment to a state-by-state transformation of our schools. Our focus is at the statelevel because states have primary responsibility for education in our country. Thanks to efforts by The Business Roundtable and others in the past few years, 43 states now have business-led reform coalitions that are keeping the pressure on

local school systems to change. For example, in Ohio where TRW has its headquarters, the Ohio Business Roundtable is working closely with Governor Voinovich

on a set of reforms that are beginning to result in higher test scores. Clearly, we

have a long way to go before our K–12 education system is considered the best in

the world, but we believe we are headed in the right direction.

The government must also ensure that national policies and laws do not unduly

hamper U.S. companies’ global competitiveness. For example, the U.S. tax system

needs to deal better with the global nature of today’s businesses. Current rules for

taxing foreign-source income are inexhaustibly complex and expensive to comply

with. The U.S. rules depart from international norms and increase tax burdens for

U.S. companies by restricting the use of foreign tax credit, deferral, and treaty benefits.

With growing world economic integration, the anticompetitive effects of U.S. international tax policy will be magnified. The U.S. system for taxing foreign source income should be reviewed with an eye to making it more compatible with the modern

economic environment. If this issue is not addressed, U.S. companies competing in

global markets will be seriously handicapped, to the detriment of their workers and

the nation as a whole.

With improved education and training and wise governmental policies the United

States will remain highly competitive. In an open global economy, America will

come out on top.

Developing countries in particular hold huge promise

Right now, the majority of our trade is with developed countries—Canada, countries in Europe, and Japan. However, the real big opportunities are in large developing countries. These are the countries that can grow, and are growing, the quickest.

For example, between 1985 and 1995, the U.S. economy grew 26.4 percent, Europe’s,

26.5 percent, and Japan’s, 33.7 percent. Developing countries in Asia grew by a

whopping 109.3 percent in the same period.
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While world imports grew 96.8 percent between 1985 and 1995, developing econo- mies’ imports jumped 180.4 percent, and imports of developing countries in Asia

were up 226.1 percent. And these developing countries are in particular need of the

types of goods and services that we are great at producing, in such areas as, telecommunications, construction, information technology, biotechnology, environmental

protection and cleanup, and finance.

Moreover, development builds demand for consumer goods and services, again an area of U.S. predominance. By the year 2010, China, India and Indonesia combined

will have 700 million people with annual income equal to that of Spain today. The

opportunities for the United States are, frankly, mind-boggling. We are already seeing significant benefits from trade with these markets. Be- tween 1992 and 1996, U.S. goods exports to Pacific Rim countries (excluding Japan

and China), jumped 57 percent; goods exports to Latin America surged by 49 percent. This is much faster than growth of our exports to many of our major developed

country trade partners—in the same four years, U.S. goods exports to Europe grew

only 18 percent. Growth of developing country economies and U.S. exports to those

countries are predicted to continue rising dramatically. If current trends continue,

by 2010 Latin America will surpass Japan and Western Europe combined as a market for U.S. exports.

There’s another important point to make here. Economic liberalization in other

countries benefits not only the United States, but the liberalizing country itself, as

well as global stability in general. Developing countries around the world have recognized the benefits of liberalization and have, to varying degrees, abandoned protectionist strategies in favor of openness. The result has been an economic boom in

many developing countries. This in turn promotes creation of middle classes, which,

along with openness to the rest of the world, promotes democracy and economic and

political stability. Thus, economic liberalization advances important U.S. noneconomic goals. And, in pure self-interest, we should note that these effects in turn

boost the market for U.S. exports.

Critics of international trade and investment are off the mark

With the opportunities of the global economy come fears. Some have argued that trade costs U.S. jobs because of imports. It is true that some jobs are displaced by

imports. However, trade is only one factor that impacts the job market; technological change is far more significant. But we must look at the result of the changes

taking place in the national and world economy—the gradual shift of jobs from lowproductivity, low-competitiveness, low-wage jobs to high-productivity, highcompetitiveness, high-wage jobs. We are moving inexorably towards a knowledgebased economy with jobs shifting away from unskilled industrial employment to

skilled workers in a service-related and information-based economy. These job shifts

are to be expected and welcomed as we approach the 21st century; they will lead

to a better future for today’s and tomorrow’s workers.

There are always advocates of imposing trade barriers to ‘‘protect’’ jobs. Unless

we are willing to reconsider the failed theories of isolated and planned economies,

we know that jobs are created by the reality of the marketplace. You cannot permanently freeze jobs into the economy if the realities of technology and competition

mandate otherwise. Moreover, we cannot effectively promote export growth and

open markets abroad while closing our own markets.

Even recognizing the realities of the market, we cannot and should not ignore the

real effects of job loss for individuals. I simply do not believe that trying to freeze

our economy is in the interest of this or future generations of workers. Our work

force is one of the most diversified and highly educated in the world, and as a very

large and flexible economy, we have the ability to absorb workers into productive

and well-paying jobs. Protectionism is not the way to help our workers, our citizens,

nor our economy. What we need to do is keep our economy dynamic and open, and

promote good, solid, effective training and education to help workers adapt to

change. As I’ve already mentioned, The Business Roundtable remains committed to

working with Congress and the Administration to develop and implement good education and training programs.

Some have pointed to the U.S. trade deficit as evidence that trade is bad for the

United States. Actually, we have a trade deficit because we consume more than we

produce. The rest of the world provides us with what we demand, so we run a deficit. Also, in the last few years, our economy has been growing steadily while our

trading partners are stuck in recessions or slow growth periods, so we temporarily

import more and export less. The federal budget deficit doesn’t help, either. It’s another manifestation of our propensity to consume excessively.

We also recognize that the trade deficit has fallen significantly in the last decade

when compared to the size of our economy. Moreover, a large portion of our trade
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deficit consists of petroleum imports, which is not a job-displacing commodity—our

deficit in petroleum products was 35.2 percent of the total trade deficit in 1996. Another huge chunk—18 percent—was in our auto and auto parts deficit with Japan,

which is due to special, unique bilateral problems. I would also note that, compared

to the size of its economy, the United States imports far less than every other developed country except Japan.

When discussing the trade deficit, we should be addressing the low savings rate

in the United States and the high federal budget deficit, not imports. If we can lick

these problems, we will have gone a long way to improving the U.S. economy, and

the trade deficit will fall in line. Tearing down foreign barriers to our exports can

only help. Resorting to isolationism and protectionism to ‘‘solve’’ the trade deficit

problem will not help the economy.

There are also those who argue that international investment is bad. I think that

the facts I have already presented prove that this is not true. It’s important to recognize that the decision to invest is a very complex one, involving many factors, not

just low production costs. The United States is endowed with numerous advantages

which make it a very attractive place for U.S. companies and foreign companies to

invest, including a highly productive and well-educated work force, state of the art

communications networks and computer systems, technologically advanced production facilities, a well-developed transportation infrastructure, and stable and sophisticated legal and financial systems. If low wages were the main determinant of investment decisions and manufacturing strength, Haiti and Bangladesh would be

economic leaders, not the U.S., Germany, and Japan.

There are also those who bemoan the fact that the United States is no longer the

clear world leader in all aspects of global commerce, as we were after the Second

World War. There’s a reason for this—we recognized that a prosperous and growing

world economy was central to achieving our nation’s economic, foreign policy, and

national security objectives. That is why our national policy for the past 50 years

has been to promote world growth and prosperity. The Marshall Plan was one element of this long-standing U.S. policy. Promoting trade and investment liberalization on a continuing basis is another.

World growth is a win-win proposition—bigger markets abroad mean more sales

for our companies and workers. If our companies and workers are competitive—and

they are—our nation can be a clear winner in a vibrant world economy. We must

continue to be fully engaged and we must work with other countries to promote

openness and growth, which will benefit all players in the global economy, including

our own citizens.

CONCLUSION

The United States can only maintain its economic strength if it competes and wins

in the ever-expanding global economy. Trade and investment agreements are needed

to tear down foreign barriers and ensure that our companies can make full use of

their competitive advantage. If the United States does not maintain its leadership

position in world liberalization efforts, it will be on the sidelines as other countries

reach agreements that leave our companies and workers out in the cold. The Business Roundtable hopes that the private sector, Congress, and the Administration

can all work together in this area and ensure a bright future for our country.

Mr. Pepper.

Chairman CRANE. Thank you, Mr. Gorman.

f

STATEMENT OF JOHN E. PEPPER, CHAIRMAN OF THE BOARD

AND CHIEF EXECUTIVE OFFICER, PROCTER & GAMBLE CO.;

ON BEHALF OF NATIONAL FOREIGN TRADE COUNCIL

Mr. PEPPER. Mr. Chairman, distinguished Members of the Subcommittee, I am John Pepper, chairman of the board and chief executive of the Procter & Gamble Co. I am testifying today on behalf

of NFIC, the National Foreign Trade Council.

I would like to focus my remarks on just three points. The first

is, and Joe Gorman made it, the world is not waiting for the United
91

States to take advantage of the benefits from trade agreements.

That is what makes this matter so urgent.

The United States has an impressive record of achievement leading the rest of the world in the direction of a trading system that

is rules based, transparent, and open. That, as we all know, has

been at the foundation of a great economic stimulus under which

world trade has consistently outpaced world economic growth.

Frankly, I, along with my colleagues at the NFTC, are seriously

concerned that we are now falling behind many other major countries without fast track authority.

It has now been 3 years since Chile was invited to joint NAFTA.

Other trade-negotiating efforts initiated in late 1994 are losing momentum, such as the creation of a Free Trade Area of the Americas

and the move toward eventual free trade among APEC countries.

While we have been sitting on the sidelines, considering lots of

things, but not getting them done, our trading partners are aggressively reaching agreements among themselves.

Allow me to elaborate. Chile’s uniform 11 percent tariff is being

phased out for both Mexico and Canada, but not for the United

States. Among the MERCOSUR countries, tariffs as high or higher

than 40 percent have been totally eliminated, but not for us.

Consequently, and not surprisingly, interregional trade among

MERCOSUR partners is exploding. It has grown over 40 percent

in just the past 2 years between those countries. Meanwhile, the

best trade growth the United States can report with any one of the

MERCOSUR countries is 20 percent over the same period, less

than half of what is being achieved within that group.

Beyond that, the European Union is moving to establish new

trade relationships with Mexico. Japan is in the process of forming

greater relationships with Latin American, and I haven’t mentioned the Andean Pact. Latin America is the second fastest growing region in the world. It is our neighbor, and if we don’t move

forward, in my judgment, to achieve the FTAA, we may be about

the only major country without preferential trade status.

Point two, the U.S. economy is dependent on expanding trade

and investment globally. While we are the world’s largest, most

competitive economy, 95 percent of the world’s population lives outside the United States. This means that the vast majority of

growth potential for our economy, for jobs in our country, comes

not from the United States, but from the rest of the world.

Our experience at Procter & Gamble is a good example. We are

a $35 billion company today. More than half of our total business

comes from outside the United States, but 73 percent of our growth

in the last decade has come from international markets.

Had we not been able to expand our business globally over that

period, we would be a much smaller and much weaker company

today. We would be less competitive. We would employ fewer

American workers, and those jobs that we did provide would be a

lot less secure.

Instead, we have 44 U.S. manufacturing plants. We have over

40,000 employees. Many of those plants have significant export

business and key nonmanufacturing functions located in this country, such as research and development and engineering are servicing our business all around the world.
92

Our Jackson, Tennessee, plant is an excellent illustration of this.

We built Jackson in 1971 to produce Pringles Potato Chips and

Duncan Hines baking mixes. Around 1990 to 1991, we began to develop an export business for Pringles. Today, worldwide exports of

Pringles are over $200 million. We employ over 1,300 people at

Jackson, Tennessee, and we are launching a $185 million expansion to the facility, made possible primarily because of greater exports. This will create 200 additional new jobs there and a multitude more in small businesses serving our material supplies for

the plant.

I would like to comment on NAFTA as one example of an agreement negotiated under fast track authority. NAFTA has and continues to be successful. The Department of Labor indicates that

311,000 jobs have been created under NAFTA. Exports, despite the

peso devaluation, are setting new records—$57 billion last year—

an increase of 23 percent in dollar terms over the previous year.

Additionally, I think it is significant to point out that the United

States share of Mexico’s imports has grown from 69 percent before

NAFTA to 76 percent today. This is in contrast to the decline in

the United States share of imports into Brazil from 25 to 23, and

in Argentina from 24 to 21. I would submit this is due to less favorable free trade and the existence of MERCOSUR there.

What is more, NAFTA has kept Mexico on the path toward open

economic reform and trade liberalization with the United States

during what has obviously been its worst recession in modern history.

Procter & Gamble’s United States exports to Canada and Mexico

have nearly tripled since NAFTA was implemented. Other NFTC

members believe, as we do, that NAFTA is a win-win for all three

countries and should be expanded. To do this, however, we must

get fast track.

That leads me to my third and final point. Without fast track authority to negotiate new agreements, the United States will jeopardize domestic job growth, and it will be disadvantaged to other

countries and regions of the world.

Fast track authority must be a top priority for our government.

Spending time, as I often do, in Latin America, I fear that this does

not have the urgent attention it needs.

Fast track should be broad in its coverage and long term. The

issue of linking labor and environment to fast track is highly controversial. These nontrade objectives are worthy of pursuit in and

of themselves, I am sure, but they should not impede the progress

of trade expansion, which is so important to our economy.

Trade expansion by itself brings about economic development for

our trading partners, which supports the improvement of environmental and labor conditions.

At P&G, we seek to attain, attract, and retain the best people

anywhere we do business. What is more, we design and engineer

our manufacturing equipment to a single high global standard,

whether that is in Mehoopany, Pennsylvania, or in Guangzhou,

China.

In conclusion, let me say that if we are to secure a prosperous

future for our children, we must work together. It is critical that

Congress and President Clinton join together to get new bipartisan
93

fast track authority. We have no time to lose. The world is moving.

I think it will move faster, not slower. We must act now.

That concludes my testimony.

[The prepared statement follows:]

Statement of John E. Pepper, Chairman of the Board and Chief Executive

Officer, Procter & Gamble Co.; on Behalf of National Foreign Trade Council

Mr. Chairman and distinguished members of the Subcommittee, I am John E.

Pepper, Chairman of the Board and Chief Executive of The Procter & Gamble Company. I am appearing today on behalf of the National Foreign Trade Council, a

broad-based organization of over 500 U.S. companies having substantial international operations or interests. I also serve on NFTC’s board.

I appreciate the opportunity to testify today on U.S. trade policy. I would like to

focus my remarks on fast track trade negotiating authority and make three points:

1) the world isn’t waiting for the U.S. to take advantage of the benefits from trade

agreements; 2) the U.S. economy is dependent on expanding trade and investment

globally; and 3) without fast track authority to negotiate new trade agreements, the

U.S. will jeopardize domestic job growth and be disadvantaged to other countries

and regions throughout the world.

1. The World Isn’t Waiting for the U.S. To Take Advantage of the Benefits from

Trade Agreements

The United States has an impressive record of achievement in leading the rest

of the world in the direction of a trading system that is rules-based, transparent

and open. Through multilateral, regional and bilateral efforts, we have negotiated

clear rules of the game for international trade, and have progressively reduced tariff

and non-tariff trade barriers. The result has been an enormous economic stimulus

under which world trade has consistently outpaced world economic growth. It also

has led to a trading system that is largely built around U.S. concepts of marketbased economic growth and a sense of fair play.

NAFTA and the WTO, two examples of agreements negotiated under fast track

authority, are resounding successes and we should be proud of them. Expansion of

these agreements is critically important as is the pursuit of other initiatives that

promote basic U.S. trade interests. This means moving forward on Chile’s accession

to NAFTA, expanding free trade throughout the Western Hemisphere, encouraging

the APEC process, and strengthening the WTO through accession of major emerging

economies, such as China, Russia and Vietnam, on viable commercial terms.

NFTC members are seriously concerned that we are falling behind. It is now approaching three years since Chile was invited to join NAFTA. Other trade negotiating efforts initiated in late 1994 are losing momentum, such as the creation of a

Free Trade Area of the Americas (FTAA) and the move toward eventual free trade

among APEC countries. Our negotiating ability and credibility is limited without

fast-track authority.

Meanwhile, our trading partners are aggressively reaching agreements among

themselves, while the United States is forced to sit on the sidelines. Chile and Canada have negotiated their own free trade pact, the European Union is moving to establish special trade relationships with Mexico and elsewhere in Latin America. The

Andean Pact is getting stronger. Japan, as well, is wisely seeking to enhance its

trade position in the region. Chile, moreover, has a free trade agreement with

MERCOSUR, which is led by Brazil. While there is nothing wrong with these agreements in and of themselves, we must recognize the benefits created by them exclude

the U.S.

These developments are putting American firms and workers at a competitive disadvantage. For example, Chile’s uniform 11% tariff is being phased out for both

Mexico and Canada, but not for us. Among the MERCOSUR countries, tariffs as

high or higher than 40% have been eliminated. Consequently, intraregional trade

among MERCOSUR partners is exploding, growing over 40% in the past two years.

Meanwhile, the best trade growth the U.S. can report with any MERCOSUR country is 20% over the same period. Latin America is the second fastest growing region

in the world and if we don’t move forward on achieving the FTAA, we may be the

only country without preferential trade status.

2. The U.S. Economy is Dependent on Expanding Trade and Investment Globally

The U.S. is the worldÆ’s largest, most competitive and innovative economy.

However, it’s important to remember that 95% of the world’s population lives outside the United States. This means that the vast majority of growth potential for
94

American industry—growth that provides American jobs—comes not from the U.S.,

but from the rest of the world.

Our experience at Procter & Gamble is a good example. We are a $35 billion com- pany. More than half of our total business comes from outside the U.S.—and 73%

of our growth in the past decade has come from international markets. Had we not

been able to expand our business globally over that period, we’d be a much smaller

company today. In fact, we would be a far less competitive company today. We’d employ fewer American workers and those jobs we did provide here would be far less

secure. Instead, we have 44 U.S. manufacturing plants and more than 40,000 U.S. em- ployees. Many of our U.S. plants have substantial export business, and key nonmanufacturing functions here in the U.S., such as Research & Development, Engineering, and Logistics support our international operations. Our Jackson, Tennessee facility is an excellent illustration of this point. The Jack- son Plant was built in 1971 to produce Pringles and Duncan Hines baking mixes

for domestic sales. It wasn’t until around 1990/91 that we began to develop an export business for Pringles. Today, exports of Pringles to Canada, Europe, Latin

America and Asia are over $200 million in sales, and represent a third of the plant’s

production volume. We now employ 1300 people at Jackson and we’re launching a

$185 million expansion to the facility. This expansion will result in 200 additional

new jobs to our work force there. The future for P&G is in expanding our international business opportunities. Obviously, Jackson has and will continue to be a

major beneficiary of this trend. I’d like to comment on NAFTA in light of the Administration’s pending review and questions about its success. The record is clear—NAFTA has brought major benefits

to the United States and is very much in the mutual interest of the NAFTA partners—the United States, Canada, and Mexico. NAFTA is doing exactly what it was

intended to do—breaking down Mexico’s very high trade barriers to us and leveling

the playing field. It has expanded U.S. jobs, trade and market share. The facts speak for themselves. Today, 2.3 million high-wage U.S. jobs depend on trade with Canada and Mexico—311,000 of these jobs have been created under

NAFTA. Exports to Mexico are setting new records, despite the peso crisis. In 1996,

we exported $57 billion to Mexico—an increase of 23% over the previous year and

37% over 1993, the year before NAFTA went into effect. Likewise, exports to Canada in 1996 were 33% above 1993 exports. U.S. market share in Mexico has grown

from 69% before NAFTA to 76% today. At the same time, our non-NAFTA European

and Japanese trading partners have seen their market shares decline. NAFTA, moreover, has kept Mexico on the path towards open economic reform

and trade liberalization with the United States during its worst recession in recent

history. This is in sharp contrast to what happened during the financial crisis of

1982 when Mexico imposed 100% duties and other trade restrictions on American

products. It took seven years for our exports to recover then. This time it took only

eighteen months.

NAFTA has created business opportunities for Procter & Gamble. Procter & Gamble’s exports of finished products from the U.S. to Canada and Mexico have nearly

tripled since NAFTA was implemented. We believe we have only scratched the surface of market opportunities available as a result of NAFTA.

Other NFTC member companies have also benefited from NAFTA and remain

fully committed to this agreement. It’s a win-win for all three countries and should

be expanded.

The NFTC also applauds the recent conclusion of the WTO Information Technology Agreement which was concluded under a residual grant of fast-track negotiating authority. It is a demonstration of our ongoing ability to lead in the trade

arena when our negotiators have the necessary tools. While Procter & Gamble had

no specific stake in the outcome of this agreement, we know that the expansion of

rules-based regimes will ultimately help our business.

While these trade agreements benefit American firms and workers, it’s imperative

that all of us do a better job of explaining how trade makes us strong. We can’t afford not to. Trade now accounts for 30 percent of U.S. GDP. Exports have been responsible for one-third of U.S. economic growth over the past decade. These exports

support 11 million American jobs. Export related jobs pay better, and are more stable and productive. Clearly, trade fuels our economy.

3. Fast Track Authority Must Be Renewed Now.

Without fast track negotiating authority, our ability to access foreign markets is

seriously compromised and places us at a competitive disadvantage. Renewal of fast

track must be a top priority for our government. It should be broad in its coverage

and long term.
95

The issue of linking labor and environment to fast track is highly controversial.

These non-trade objectives are worthy of pursuit in and of themselves, but should

not impede the progress of trade expansion. Trade expansion by itself brings about

economic development for our trading partners, which supports improved environment and labor conditions.

At Procter & Gamble, we seek to attract and retain the best people wherever we

do business. Additionally, we design and engineer our manufacturing equipment to

a single high global standard whether it’s being installed in Mehoopany, Pennsylvania or Guangzhou, China.

In conclusion, let me say that important events on the horizon beg for strong U.S.

trade leadership, credibility and strategic vision. If we are to secure a prosperous

future for our children, we must work together. It is critical that Congress and

President Clinton join together to enact new fast-track trade negotiating authority

that builds on our impressive and positive trade legacy. We have no time to lose.

The rest of the world is moving. The time to act is now. Thank you.

f

Mr. Jordan.

Chairman CRANE. Thank you, Mr. Pepper.

f
96

STATEMENT OF MICHAEL H. JORDAN, CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, WESTINGHOUSE ELECTRIC CORP.; ON

BEHALF OF EMERGENCY COMMITTEE FOR AMERICAN

TRADE

Mr. JORDAN. Mr. Chairman, I want to thank you for this oppor- tunity to testify before the Trade Subcommittee of the Ways and

Means Committee of the House of Representatives. While I fully

support my colleagues’ call for trade liberalization initiatives and

their instruments such as fast track, in the interest of brevity, I

shall confine my remarks to two particular topics, unilateral U.S.

trade sanctions and the financing of U.S. exports. Before I continue, let me point out my awareness that the Ways and Means Committee is not the Committee of formal jurisdiction

insofar as either sanctions or export finance are concerned, but this

Subcommittee and its Senate counterpart are primarily responsible

for setting trade policy within the Congress. That brings me directly to my two central points. First, the growing recourse to unilateral trade sanctions has brought us to the point where they are

having a serious deleterious impact on overall U.S. trade policy,

and second, the lack of legislative commitment to export financing

seriously undermines our international competitiveness. The National Association of Manufacturers in its recent survey, which I am submitting for the record, points out that between 1993

and 1996, the United States has enacted 61 U.S. laws and executive actions authorizing unilateral trade sanctions, a new one every

31⁄2 weeks.

The Congress of the United States owes it to the national export- ing community and its work force to ask what substantive effect

these sanctions can have in a global economy where a buyer refused service in one country can almost always find a willing seller

in another.

Let me offer a specific example from the experiences of the Westinghouse Corp. Our energy systems business unit, which is based

in Monroeville, Pennsylvania, is widely regarded as one of the leaders, if not the leader, in the global nuclear power industry. Unfortunately, notwithstanding the quality of our products, demand for

new nuclear powerplants in the United States is nonexistent, but

this need not have posed a serious problem for our Monroeville

work force because, like many companies which have had to confront major shifts in the American marketplace, our energy systems unit could have responded by displaying the type of flexibility

which is said to be its hallmark, shifting from a domestic focus to

one concentrated on the high-growth international markets where

demand for nuclear power is high, most notably in China.

Unfortunately, legislation was passed in 1989 which effectively

prevents United States civilian nuclear equipment manufacturers

from selling their products in China. Now, without arguing the

moral or ideological reasons for its passage, we must recognize that

no other nation joined us in that prohibition. Consequently, the impact on China has been nil and the impact on Monroeville severe.

China, denied the ability to purchase the superior United States

product which it still wants, by the way, has since 1989 purchased

or contracted for approximately $8 billion in nuclear plants from

France, $3 billion from Canada, and $4 billion from the Russian
97

Federation. Meanwhile, our Energy Systems Unit in Monroeville

has been obliged, through layoffs and early retirement, to dispense

with the services of 3,500 members, or one-third of its work force.

I would like to stress that these layoffs affect nuclear and mechanical engineers, marketing and sales professionals, as well as

heavy manufacturing jobs throughout the country. In fact, we are

quickly facing a dwindling supply of nuclear experts that will impact our ability to service existing reactors in the United States,

and we think this is a national issue.

Mr. Chairman, I have no doubt that had those men and women

been allowed to compete in the Chinese market along side their

European, Japanese, and Canadian counterparts, they would all be

working today, and we would have the leading share. This legislation, effectively, deprived them of very well-paying jobs and exported most of those to France, Canada, and Russia.

I think the terrible irony from a business perspective is that

many of the members who initiate and support ongoing trade restrictions will be making speeches from the floor this year decrying

the escalating trade imbalance between China and the United

States. If we want to turn our backs on the potential of $4 billion

per annum sales in nuclear equipment, in addition to the billions

lost in secondary services, we must accept a massive and growing

trade deficit with China. This deficit is expected to reach unprecedented levels as long as we have a trade policy which is driven

more by a desire to make gestures of little value than it is to underwrite the economic security of the men and women in this Nation. Simply, it is hard enough to achieve market-opening opportunities in tomorrow’s largest economy without self-imposed closure

through trade policy.

Now, so far as concerns export financing, I must say I am

amazed to hear some Members of Congress decry it as so-called

corporate welfare and demand its termination. Are they unaware

that the Japanese economy is in the doldrums, that the French and

German unemployment rates are touching 12.5 percent, and that

there is no more dangerous competitor than a desperate one? Does

anyone doubt that the governments of these nations will try to stop

their unemployment by providing the most aggressive financing

support for their exports into large emerging overseas markets?

Yet, we hear Members of Congress call for us to abandon institutions such as the U.S. Export-Import Bank, the Overseas Private

Investment Corp., and the Trade Development Agency, as if to

demonstrate some sort of moral probity to our trade rivals, all of

whom, by the way, are increasing the power of their export finance

institutions at levels that far exceed our own. Anyone who wishes

to question that assertion should consider that in 1995, the ExportImport Bank financed $13.2 billion in exports. By contrast, its German equivalent financed $23 billion, the French financed $53 billion, and the Japanese financed a massive $144 billion in exports.

Mr. Chairman, during this country’s confrontation with the Soviet Union, I was never one to support unilateral disarmament on

the presupposition that Moscow would do likewise. By the same

token, we cannot support those who would have us abandon some

of our most significant weapons in an increasingly cut-throat international financing and trading environment. If we do, the con98

sequences for U.S. exporters will be such that the phrase ‘‘trade

policy’’ will have to it a remarkably irrelevant ring. Now, I am

painfully aware of the effects of these recent trade policy decisions.

My corporation has had to significantly downsize as a result of

these policies, and more will follow with the elimination of our export finance agencies. I can assure you that Westinghouse will not

be alone.

So, in closing, let me stress that I do not seek to lay responsibil- ity for this Nation’s trade sanction or export financing woes at the

door of this Subcommittee. To the contrary, under both Republican

and Democratic leadership, this Subcommittee has been strongly

supportive of U.S. trading interests. But without a proper understanding of the impact of unilateral sanctions and the importance

of export finance toward U.S. exporters and their employees, you

can be assured there will be more chief executive officers like myself telling you similar tales of frustration and failure. The current

trend has created a system that business simply does not comprehend. However, a comprehensive, commercially driven trade

strategy is urgently needed in today’s cut-throat international trading system. I come here today to request such a strategy and to

look to you as those who have the capability and the understanding

to fashion and implement such a strategy. With the Chairman’s permission, I would like to, in addition to

the NAM’s sanction review I mentioned before, submit for the

record recommendations from the President’s Export Council on

the implementation of unilateral sanctions, a case study on the effectiveness of United States sanctions on civilian nuclear trade

with China, and a copy of ECAT’s supplemental views on United

States trade policy objectives. Mr. Chairman, I thank you for this opportunity to speak with this group on such an important issue. [The prepared statement follows:]

Statement of Michael H. Jordan, Chairman and Chief Executive Officer,

Westinghouse Electric Corp.; on Behalf of Emergency Committee for

American Trade

MR. CHAIRMAN, I WANT TO THANK YOU FOR THIS OPPORTUNITY TO

TESTIFY BEFORE THE TRADE SUBCOMMITTEE OF THE WAYS AND MEANS

COMMITTEE OF THE HOUSE OF REPRESENTATIVES. I AM ALSO HONORED

TO REPRESENT THE EMERGENCY COMMITTEE FOR AMERICAN TRADE IN

TODAY’S HEARING. WHILE I FULLY SUPPORT MY COLLEAGUES’ CALL FOR

TRADE LIBERALIZATION INITIATIVES AND THEIR INSTRUMENTS SUCH AS

FAST TRACK, IN THE INTEREST OF BREVITY, I SHALL CONFINE MY REMARKS TO TWO PARTICULAR TOPICS—UNILATERAL U.S. TRADE SANCTIONS AND THE FINANCING OF U.S. EXPORTS.

BEFORE I CONTINUE, LET ME POINT UP MY AWARENESS THAT THE

WAYS AND MEANS COMMITTEE IS NOT THE COMMITTEE OF FORMAL JURISDICTION IN SO FAR AS EITHER SANCTIONS OR EXPORT FINANCE ARE

CONCERNED. THIS SUBCOMMITTEE AND ITS SENATE COUNTERPART ARE

PRIMARILY RESPONSIBLE FOR THE SETTING OF TRADE POLICY WITHIN

THE CONGRESS. BUT THIS BRINGS ME DIRECTLY TO MY CENTRAL TWO

POINTS. FIRST, THE GROWING RECOURSE TO UNILATERAL TRADE SANCTIONS HAS BROUGHT US TO THE POINT WHERE THEY ARE HAVING A SERIOUS DELETERIOUS IMPACT ON OVERALL U.S. TRADE POLICY. SECOND,

THE LACK OF LEGISLATIVE COMMITMENT TO EXPORT FINANCING SERIOUSLY UNDERMINES OUR INTERNATIONAL COMPETITIVENESS.

THE NATIONAL ASSOCIATION OF MANUFACTURERS, IN ITS RECENT

SURVEY WHICH I AM SUBMITTING FOR THE RECORD, POINTS OUT THAT

BETWEEN 1993 AND 1996 THE UNITED STATES HAS ENACTED 61 U.S. LAWS

AND EXECUTIVE ACTIONS AUTHORIZING UNILATERAL TRADE SANCTIONS
99

(A NEW SANCTION EVERY 3 1/2 WEEKS). THE CONGRESS OF THE UNITED

STATES OWES IT TO THE NATIONAL EXPORTING COMMUNITY AND ITS

WORK FORCE TO ASK WHAT SUBSTANTIVE EFFECT THESE SANCTIONS

CAN HAVE IN A GLOBAL ECONOMY WHERE A BUYER REFUSED SERVICE

IN ONE COUNTRY CAN ALMOST ALWAYS FIND A WILLING SELLER IN ANOTHER.

LET ME OFFER A SPECIFIC EXAMPLE FROM THE EXPERIENCES OF THE

WESTINGHOUSE CORPORATION. OUR ENERGY SYSTEMS BUSINESS UNIT,

BASED IN MONROEVILLE, PENNSYLVANIA, IS WIDELY REGARDED AS ONE

OF THE LEADERS, IF NOT THE LEADER, IN THE GLOBAL NUCLEAR POWER

INDUSTRY. UNFORTUNATELY, NOTWITHSTANDING THE QUALITY OF THE

PRODUCT, DEMAND FOR NEW NUCLEAR PLANTS IN THE U.S. IS NONEXISTENT. THIS NEED NOT HAVE POSED A SERIOUS PROBLEM FOR OUR

MONROEVILLE WORK FORCE. LIKE MANY COMPANIES WHICH HAVE HAD

TO CONFRONT MAJOR SHIFTS IN THE AMERICAN MARKETPLACE, OUR

NUCLEAR ENERGY SYSTEMS UNIT COULD HAVE RESPONDED BY DISPLAYING THE TYPE OF FLEXIBILITY WHICH IS SAID TO BE ITS HALLMARK,

SHIFTING FROM A DOMESTIC FOCUS TO ONE WHICH CONCENTRATED ON

HIGH GROWTH AREAS OVERSEAS WHERE DEMAND FOR NUCLEAR POWER

IS HIGH, MOST NOTABLY CHINA.

UNFORTUNATELY, LEGISLATION WAS PASSED IN 1989 WHICH EFFECTIVELY PREVENTS U.S. NUCLEAR EQUIPMENT MANUFACTURERS FROM

SELLING THEIR PRODUCT IN CHINA. WITHOUT ARGUING THE MORAL OR

IDEOLOGICAL REASONS FOR ITS PASSAGE, WE MUST RECOGNIZE THAT

NO OTHER NATION JOINED US IN THIS PROHIBITION. CONSEQUENTLY,

THE IMPACT ON CHINA HAS BEEN NIL AND THE IMPACT ON OUR EMPLOYMENT SEVERE. CHINA, DENIED THE ABILITY TO PURCHASE THE SUPERIOR U.S. PRODUCT WHICH IT WANTED, HAS SINCE 1989 PURCHASED

OR CONTRACTED FOR APPROXIMATELY $8 BILLION OF NUCLEAR PLANTS

FROM FRANCE, $3 BILLION FROM CANADA AND $4 BILLION FROM THE

RUSSIAN FEDERATION. MEANWHILE, ENERGY SYSTEMS IN MONROEVILLE

HAS BEEN OBLIGED, THROUGH LAY-OFFS AND EARLY RETIREMENT, TO

DISPENSE WITH THE SERVICES OF 3,500 MEMBERS OR ONE-THIRD OF ITS

WORK FORCE. MOREOVER, I WOULD LIKE TO STRESS THAT THESE LAYOFFS AFFECTED NUCLEAR AND MECHANICAL ENGINEERS, MARKETING

AND SALES PROFESSIONALS AS WELL AS HEAVY MANUFACTURING JOBS.

IN FACT, WE ARE QUICKLY FACING A DWINDLING SUPPLY OF NUCLEAR

EXPERTS THAT VERY LIKELY WILL AFFECT THIS NATION’S ABILITY TO

SERVICE OUR OVER 100 DOMESTIC REACTORS. THIS IS A NATIONAL SECURITY ISSUE.

MR.CHAIRMAN, I HAVE NO DOUBT THAT HAD THOSE MEN AND WOMEN

BEEN ALLOWED TO COMPETE IN THE CHINESE MARKET ALONGSIDE

THEIR EUROPEAN, JAPANESE AND CANADIAN COUNTERPARTS, THEY

WOULD ALL BE WORKING TODAY. THIS LEGISLATION EFFECTIVELY DEPRIVED THEM OF THEIR WELL-PAYING JOBS BY EXPORTING THOSE JOBS

TO FRANCE, CANADA AND RUSSIA.

MOREOVER, THE TERRIBLE IRONY, FROM A BUSINESS PERSPECTIVE, IS

THAT THOSE SAME MEMBERS WHO INITIATE AND SUPPORT THESE ONGOING TRADE RESTRICTIONS WILL BE MAKING SPEECHES FROM THE FLOOR

THIS YEAR DECRYING THE ESCALATING SINO-U.S. TRADE DEFICIT. IF WE

WANT TO TURN OUR BACKS ON THE POTENTIAL $4 BILLION PER ANNUM

SALES IN NUCLEAR PLANTS, IN ADDITION TO THE BILLIONS LOST IN SECONDARY SERVICES, WE MUST ACCEPT A MASSIVE AND GROWING TRADE

DEFICIT WITH CHINA. THIS TRADE DEFICIT IS EXPECTED TO REACH UNPRECEDENTED LEVELS AS LONG AS WE HAVE A TRADE POLICY WHICH IS

DRIVEN MORE BY A DESIRE TO MAKE GESTURES OF LITTLE VALUE THAN

IT IS TO UNDERWRITE THE ECONOMIC SECURITY OF THE MEN AND

WOMEN OF THIS NATION. SIMPLY, IT IS HARD ENOUGH TO ACHIEVE MARKET OPENING OPPORTUNITIES IN TOMORROW’S LARGEST ECONOMY

WITHOUT SELF-IMPOSED CLOSURE THROUGH TRADE POLICY.

AS FAR AS EXPORT FINANCING IS CONCERNED, I MUST SAY THAT I AM

AMAZED TO HEAR SOME MEMBERS OF CONGRESS DECRY IT AS SOCALLED ‘‘CORPORATE WELFARE’’ AND DEMAND ITS TERMINATION. ARE

THEY UNAWARE THAT THE JAPANESE ECONOMY IS IN THE DOLDRUMS,

THAT THE FRENCH AND GERMAN UNEMPLOYMENT RATES ARE TOUCHING 12.5% AND THAT THERE IS NO MORE DANGEROUS COMPETITOR THAN

A DESPERATE ONE? DOES ANYONE DOUBT THAT THE GOVERNMENTS OF

THESE NATIONS WILL TRY TO STOP THEIR UNEMPLOYMENT ROT BY PRO100

VIDING THE MOST AGGRESSIVE FINANCING SUPPORT FOR THEIR EXPORTS INTO LARGE EMERGING OVERSEAS MARKETS?

AND YET WE HEAR MEMBERS OF CONGRESS CALL FOR US TO ABANDON

INSTITUTIONS SUCH AS THE EXPORT-IMPORT BANK, THE OVERSEAS PRIVATE INVESTMENT CORPORATION AND THE TRADE DEVELOPMENT AGENCY AS IF TO DEMONSTRATE SOME SORT OF MORAL PROBITY TO OUR

TRADE RIVALS, ALL OF WHOM ARE INCREASING THE POWER OF THEIR

EXPORT FINANCE INSTITUTIONS AT LEVELS FAR EXCEEDING OUR OWN.

MR.CHAIRMAN, DURING THIS COUNTRY’S CONFRONTATION WITH THE

SOVIET UNION, I WAS NEVER ONE OF THOSE TO SUPPORT UNILATERAL

DISARMAMENT ON THE PRESUPPOSITION THAT MOSCOW WOULD DO

LIKEWISE. BY THE SAME TOKEN, WE CANNOT SUPPORT THOSE WHO

WOULD HAVE US ABANDON SOME OF OUR MOST SIGNIFICANT WEAPONS

IN AN INCREASINGLY CUT-THROAT INTERNATIONAL TRADING ENVIRONMENT. IF WE DO, THE CONSEQUENCES FOR MAJOR U.S. EXPORTERS WILL

BE SUCH THAT THE PHRASE ‘‘TRADE POLICY’’ WILL HAVE TO IT A REMARKABLY IRRELEVANT RING. I AM PAINFULLY AWARE OF THE EFFECTS

OF THESE RECENT TRADE POLICY DECISIONS. MY CORPORATION HAS

HAD TO SIGNIFICANTLY DOWNSIZE AS A DIRECT RESULT OF THESE POLICIES. MORE WILL FOLLOW WITH THE ELIMINATION OF OUR EXPORT FINANCE AGENCIES. I CAN ASSURE YOU, WESTINGHOUSE WILL NOT BE

ALONE.

IN CLOSING, LET ME STRESS THAT I DO NOT SEEK TO LAY RESPONSIBILITY FOR THIS NATION’S TRADE SANCTION AND EXPORT FINANCING

WOES AT THE DOOR OF THIS COMMITTEE. TO THE CONTRARY, UNDER

BOTH REPUBLICAN AND DEMOCRATIC LEADERSHIP, THIS COMMITTEE

HAS BEEN STRONGLY SUPPORTIVE OF U.S. TRADING INTERESTS. BUT,

WITHOUT A PROPER UNDERSTANDING OF THE IMPACT OF UNILATERAL

SANCTIONS AND THE IMPORTANCE OF EXPORT FINANCE TOWARD U.S.

EXPORTERS AND THEIR EMPLOYEES, YOU CAN BE ASSURED THAT THERE

WILL BE MORE CEO’S LIKE MYSELF TELLING YOU SIMILAR TALES OF

FRUSTRATION AND FAILURE. THE CURRENT TREND HAS CREATED A SYSTEM THAT BUSINESS DOES NOT COMPREHEND. A COMPREHENSIVE, COMMERCIALLY DRIVEN TRADE STRATEGY IS URGENTLY NEEDED IN TODAY’S

CUT-THROAT INTERNATIONAL TRADING SYSTEM. I COME HERE TODAY TO

REQUEST SUCH A STRATEGY AND LOOK TO YOU AS THOSE WHO HAVE

THE CAPABILITY AND UNDERSTANDING TO FASHION AND IMPLEMENT

THAT STRATEGY.

MR. CHAIRMAN, THANK YOU FOR THE OPPORTUNITY TO SPEAK BEFORE

THIS VITALLY IMPORTANT BODY.

Mr. Denham.

[Additional material is being retained in the Committee files.]

Chairman CRANE. Thank you, Mr. Jordan.

f

STATEMENT OF ROBERT E. DENHAM, CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, SALOMON BROS., INC.

Mr. DENHAM. Mr. Chairman and Members of the Subcommittee,

I very much appreciate the opportunity to discuss U.S. international trade policy objectives and future trade initiatives.

International trade liberalization benefits U.S. workers, U.S.

businesses, and creates markets for U.S. exports. As the chairman

of Salomon, Inc., international economic liberalization and trade

are integral to our strategic planning.

We currently do over 50 percent of our financial service business

aboard. Our continued growth, expansion plans, and ability to compete throughout the world will require new free trade commitments

and a thorough implementation of prior agreements.
101

It is important that our financial service competitors, others in

international business, and the host governments of the countries

in which we do business all play by the same rules.

As the other panelists have discussed today, the United States

has the world’s most liberal and open economy. This has made the

United States the leading economy of the world. More than 11 million U.S. jobs now depend on exports, 1.5 million more than only

4 years ago.

Wages and jobs supported by goods in financial services exports

are 13 to 16 percent higher than in non-trade-related jobs. Over the

last 4 years, roughly one-fourth of our economic growth has come

from exports. Services exports alone are up 26 percent in the last

4 years.

We are now at a crossroads. Our fundamental interest is in moving others toward markets that are as open as ours. In this increasingly competitive global environment, the question is no

longer should the United States continue to seek new trade liberalizing initiatives. The questions are now when, with whom, and how

should we pursue the next course of trade liberalizing negotiations.

Specifically, U.S. leadership must play a key role in influencing

regional trade pacts that are currently under negotiation, so as to

ensure these arrangements are favorable to U.S. businesses and

workers. We cannot afford to be left out.

Recognizing the benefits of freer trade, many of our trading partners, especially those in our own hemisphere, have now started to

band together forming regional trading arrangements, such as the

common market of the South, or MERCOSUR, and the Andean

community. This gives us a historic opportunity. If we join in the

negotiations, we can benefit from the market opening that will result. Otherwise, negotiations will proceed without us and preferential arrangements available to countries that do participate

will mean that U.S. firms will be disadvantaged. This would do tremendous damage to our economic future. It is no fanciful concern.

The European Union right now seeks an agreement with

MERCOSUR, the South American trade alliance that is anchored

by Brazil and Argentina. MERCOSUR has completed an association agreement with Chile that provides free trade between the

participating nations. MERCOSUR has also undertaken highly

visible commercial initiatives toward Asia, the ASEAN nations, as

well as Korea and Japan.

Negotiations will begin soon between MERCOSUR and Colombia,

Venezuela, and Mexico, countries which are eager to remove trade

barriers faced by their competitive domestic companies.

Even our own NAFTA partners, Canada and Mexico, have made

side trade liberalization deals with Chile, a nation that has an economic outlook and profile that should qualify it to be the first nation to accede to NAFTA.

Unfortunately, the United States stands to lose trade and investment opportunities as a result of these arrangements. If we do not

join in, we will be at an insurmountable disadvantage in these

markets. The United States is already seeing the impact of these

arrangements as importers who can realize significant tariff savings, source their supplies from countries that benefit from these

free trade arrangements.
102

The Free Trade Area of the Americas seeks to put our firms on

an equal playingfield within the hemisphere, but currently, partnerships are being formed without us. Unfortunately, even with

NAFTA and GATT, most of the critical markets for the future still

maintain market access barriers that can prohibit exports from entering. We have a stake in marketing opening around the world, in Asia, in Latin American, in the former Eastern European bloc, and in Africa where trade restrictions have contributed to the complete failure of economies. But we have special interest in seeing trade barriers come down in this hemisphere, where American firms tend to

have strong market positions. Without a clear international trade vision, whether we want to

or not, the United States will sit on the sidelines as growing regional trading pacts create increasing interdependence of their participating economies by lowering tariffs and breaking down market

access barriers.

Congress must show our partners that the United States is ready

to move forward. This is why fast track authority is so essential.

Without a signal from Congress, others will not take U.S. interest

in market-opening agreements seriously.

To conclude, trade liberalizing measures directly affect business,

jobs, and consumers each day. The opportunities and protections

created by the pacts, such as NAFTA and the Uruguay round, enable firms such as Salomon Bros. to be more globally competitive

in committing capital and delivering financial services.

I would again like to thank the Subcommittee for holding a hearing on this important subject, as it affects all of us as

businesspeople, as workers, and as citizens with a stake in the future of our domestic economy.

Unfortunately, we cannot count on the generosity of other nations to afford us access to their markets, even if they will gain

also from freer trade. We must seek further liberalization. This can

only come in the form of future negotiations by the administration

with the authority granted by Congress.

Thank you. I look forward to working with you in the future on

international trade and financial services issues and policy.

[The prepared statement follows:]

Statement of Robert E. Denham, Chairman and Chief Executive Officer,

Salomon Bros., Inc.

Thank you, Mr. Chairman and Members of the Committee. It is a pleasure to appear before you today. I am honored and very much appreciate the opportunity to

discuss U.S. international trade policy objectives and future trade initiatives. International trade liberalization benefits U.S. workers, U.S. businesses and creates markets for U.S. exports. I would like to discuss today the benefits of international

trade to the U.S. economy and U.S. jobs in general and the benefits of international

trade in the financial services industry, in particular. I would also like to emphasize

the importance of the United States in maintaining its political and economic role

as the leader of international trade liberalization.

Salomon Brothers ranks among the world’s foremost global financial firms, and

is one of the largest securities dealers in the world. Salomon Inc., the parent company for Salomon Brothers and Phibro. Salomon Brothers has one of the largest

capital bases in the industry. The firm makes markets in securities and provides

a broad range of underwriting, research, financial advisory and investment management services to governments, corporations, and institutional investors. Phibro is

one of the world’s leading commodity trading organizations. We are truly a global

company with over 8,500 employees located in 34 offices on five continents.
103

As the Chairman of Salomon Inc., international economic liberalization and trade

are integral to our strategic planning as we and our clients seek new and emerging

markets for growth. We currently do over 50 percent of our financial services business abroad. Our continued growth, expansion plans and ability to compete throughout the world will require new free trade commitments and the thorough implementation of prior agreements to achieve a level playing field in the global marketplace.

It is important that our financial service competitors, others in international business, and the host governments of the countries in which we do business all play

by the same rules. Salomon Brothers’ position in the financial system gives us a comprehensive view of trends in the U.S. economy and in the global economy. I have personally examined some trends and the forces driving these trends. I have observed how our capital goods producers depend upon investment flows to sustain demand for construction equipment, power generators and other products that are made by American

workers. These investments are instrumental in building an infrastructure using financial, communications and technology services; all basic needs for economic

growth in emerging markets and key U.S. export leading sectors. As the other distinguished panelists have discussed today, the United States has the world’s most liberal and open economy. This has made the United States the

leading economy of the world. The export and movement of capital, goods and services support millions of jobs in the United States. More than eleven million U.S. jobs

now depend on exports—1.5 million more than just four years ago. Wages in jobs

supported by goods and financial services exports are 13 to 16% higher than in non

trade-related jobs. Over the last four years, roughly one quarter of our economic

growth has come from exports. Service exports alone are up 26% in the last four

years. We are now at a crossroads. Our fundamental interest is in moving others toward markets that are as open as ours. In this increasingly competitive global environment, the question is no longer should the U.S. continue to seek new trade liberalizing initiatives. The questions are now when, with whom, and how should we pursue

the next course of trade liberalizing negotiations. Specifically, U.S. leadership must

play a key role in influencing regional trade pacts that are currently under negotiation. This is important to ensure that these arrangements are favorable to U.S.

businesses and workers. We cannot afford to be left out.

As this Committee is well aware, in 1993 and 1994, the United States was the

leader in furthering global economic liberalization with the final passage of the

North American Free Trade Agreement (NAFTA) and the success of the Uruguay

Round of GATT. These major trade initiatives created a set of rules and obligations

for the member countries to follow that have led to increases in our exports throughout the world. These exports have directly resulted in more and higher paying jobs

for U.S. workers.

Recognizing the benefits of freer trade, many of our trading partners, especially

those in our own hemisphere, have now started to band together to form regional

trading arrangements such as the Common Market of the South (Mercosur) and the

Andean Community. This gives us an historic opportunity. If we join in negotiations,

we can then benefit from the market opening that will result. Otherwise, the negotiations will proceed without us and preferential arrangements available to countries that do participate will mean that U.S. firms are disadvantaged. This would

do tremendous damage to our economic future. It is no fanciful concern.

The United States continues to strengthen its trading relationship with our trading partners around the world. These partnerships include specific initiatives in the

Western Hemisphere with the Free Trade Area of the Americas (FTAA) and in Asia

with the Asia Pacific Economic Cooperation (APEC) forum. Without clear international trade policy goals and a clear road map, we will at best be a follower of

the considerable progress being made by other nations through new regional trade

initiatives.

The European Union right now seeks membership in MERCOSUR, the South

American trade alliance anchored by Brazil and Argentina. MERCOSUR has completed an association agreement with Chile that provides free trade between the

participating nations. MERCOSUR has also undertaken highly visible commercial

initiatives towards Asia—the ASEAN nations as well as Korea and Japan. Negotiations will begin soon between MERCOSUR and Colombia, Venezuela and Mexico—

countries which are eager to remove trade barriers faced by their competitive domestic companies. Even our own NAFTA partners, Canada and Mexico, have made

side trade liberalization deals with Chile—a nation with an economic outlook and

profile that should qualify it to be the first nation to accede to NAFTA.

Unfortunately, the United States stands to lose trade and investment opportunities as a result of these arrangements. If we do not join in, we will be at an insur104

mountable disadvantage in these markets. The U.S. is already seeing the impact of

these arrangements as importers who can realize significant tariff savings source

their supplies from countries that benefit from these free trade agreements. The

FTAA seeks to put our firms on an equal playing field within the hemisphere, but

currently, important partnerships are being formed without us. The vision for APEC includes a long time frame for achieving new market-opening initiatives in the region. This region is a challenge because of the countries’ disparate sizes, prosperity and disposition toward trade liberalization, but the size and

rapid growth rate of the region make it extremely important to our economic future.

It is thus particularly important that the United States remain the leader in setting

the trade liberalization rules for this important region. In 1996, President Clinton appointed me to the APEC Business Advisory Council (ABAC). ABAC is comprised of senior business leaders from the APEC economies

reporting to the Asia-Pacific Economic Cooperation forum. The APEC economic ministers asked for the creation of the ABAC in 1995 to advise and make recommendations to the APEC economic leaders. Last year, ABAC made recommendations to the

APEC leaders in Manila. This year recommendations will similarly be made at the

APEC summit in Vancouver, British Columbia. The ABAC recommendations focused on investment measures needed to liberalize cross-border investment flows

and to accelerate the implementation of member economies’ commitments under the

General Agreement on Trade in Services (GATS) and the Agreement on TradeRelated Investment Measures (TRIMs).

My experiences in Asia as a member of ABAC along with the expansion of Salomon Brothers into the emerging marketplaces of Asia and Latin America have

demonstrated to me the importance of pursuing market-opening initiatives on behalf

of United States workers and U.S. goods. The General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Investment Measures (TRIMs) in the Uruguay Round have alleviated

many of the major trading and business impediments of the past. Because of these

pacts and the fact that the United States has the lowest tariffs and market-access

barriers in the world, foreign direct investment now accounts for nearly six percent

of total private direct investment in the United States, at slightly over $60 billion

in 1995.

Foreign direct investment in the United States and abroad is one of the greatest sources of cross border international trade today. It has become imperative to encourage foreign direct investment if we are to pursue market-opening initiatives on

behalf of United States workers and to further continued increases in U.S. exports.

Foreign direct investment in our economy is an essential element for strengthening

growth and improving living standards in the United States. The United States was the world’s largest recipient of foreign direct investment in 1995 at slightly over $60 billion, which is nearly one-fifth of the world total foreign direct investment of $315 billion. Foreign direct investment is important for

U.S. jobs—nearly 4.9 million jobs were provided by non-bank affiliates of foreign

companies in the United States during 1994, the latest year for which data is available. Foreign direct investment in the United State was more than 60 percent greater than the world’s second largest recipient of foreign direct investment, China ($37

billion).

Unfortunately, even with NAFTA and GATT, most of the critical markets for the

future still maintain market-access barriers that can prohibit exports from entering.

We have a stake in market opening around the world—in Asia, in Latin America,

in the former Eastern European bloc, and in Africa, where trade restrictions have

contributed to the complete failure of economies. But we have special interests in

seeing trade barriers come down in this hemisphere, where American firms tend to

have strong market positions.

Without a clear international trade vision, whether we want to or not, the United

States will sit on the sidelines as growing regional trading pacts create increasing

interdependence of their participating economies by lowering tariffs and breaking

down market-access barriers. Congress must show our partners that the United

States is ready to move forward. This is why fast track authority is so essential.

Without a signal from Congress, others will not take U.S. interest in market opening agreements seriously.

To conclude, trade liberalizing measures directly affect business, jobs, and consumers each day. The opportunities and protections created by the pacts such as

NAFTA and the Uruguay Round enable firms such as Salomon Brothers to be more

globally competitive in committing capital and delivering financial services.

I would again like to thank the Committee for holding a hearing on this important subject, as it affects all of us as business people, as workers, and as citizens

with a stake in the future of our domestic economy. Unfortunately, we cannot count
105

on the generosity of other nations to afford us access to their markets even if they

will gain from freer trade. We must seek further liberalization and this can only

come in the form of future negotiations by the Administration with authority granted by Congress.

Thank you and I look forward to working with you in the future on international

trade and financial services issues and policy.

Mr. Pepper, we got this piece about making Pringles in the varChairman CRANE. Thank you, Mr. Denham.

f

ious locations. Do you export Pringles outside of the country?

Mr. PEPPER. Yes, we do. About one-third of our current production goes outside the country, and as I indicated, we are expanding

our Jackson, Tennessee, facility with a $185 million investment.

We will be hiring 200 more people. We only produce Pringles in

two places in the world right now, most of it in Jackson, Tennessee,

and some of it in Mechelen, Belgium. We are essentially doubling

capacity in Jackson, the great bulk of that to be shipped all around

the world.

Chairman CRANE. But you indicate on this brochure the various

towns and companies that participate in the production of Pringles,

including one in my home State of Illinois. It is located in Herrin,

a small town down State, and there, the enrollment in the Herrin

plant is 130. Some of these, one in Kansas City is 25. Others are

in the hundreds, exclusive of the potato growers, but they are also

parts of—some of them—large corporations hiring as many as

19,000 people, while one, International Paper, 70,000.

Let me ask you a question. If the Trade Subcommittee—and I

ask this of all of you, but, Mr. Pepper, I would like to hear from

you first—if we visited Kansas City, Missouri, and toured the

Omega Plastics plant with the 25 enrollment in Kansas City in

production of Pringles and asked trade questions, would the employees know their role in production of Pringles for export in the

world markets?

Mr. PEPPER. I have not been there, but I am certain they would.

They are seeing the growth of this business. They know that a

large part of it is coming from outside the country.

The reason I particularly wanted to show this to you is because

it is often said these trade pacts are good just for big business. People can look at a can like Pringles and think, Procter & Gamble

produces this without seeing all the suppliers, a thousand farmers,

and all the truckers who support us in our business.

The cap you mentioned is being produced at Omega Plastics. We

are producing a half a billion of those little caps each year by the

25 people at Omega Plastics and the 200 people at Plastic Enterprises in Missouri. I think a lot of people don’t realize all the other

businesses, the smaller businesses that are benefiting and depend

upon the expansion of trade in just one product like this.

Chairman CRANE. Well, I asked the question, and I will ask all

of you to respond, too, only because one of the concerns I have experienced back home, and I am sure my colleagues, many of them,

have, too, is when you start to talk about trade at a town meeting,

you put the people to sleep. Yet, Illinois, my home State, is the

fifth largest export State in the Nation, and we are the fourth larg106

est exporter to Mexico, and our exports went up 35 percent last

year, to Mexico alone. Yet, the worrisome thing is whether the employees in these businesses—and most of them are small businesses—understand the importance of trade to their jobs. These

companies are not giants. Most of them, by far, are businesses that

have 500 or fewer employees, and something I have been trying to

get across to chief executive officers for some time is to make sure

your employees know the essentiality of expanding market access

beyond our borders. This is vital to our economy.

I am curious whether you have an unrelenting program of communication going with employees around the country.

Mr. GORMAN. I might respond to that. About 50 percent of our

total costs are purchased goods costs. In all of our automotive products, we export steering gears, rack and pinion power steering

gears out of Tennessee to Wolfsburg, Germany, to be put on Volkswagens. We have virtually 100 percent of their rack and pinion

steering gear business worldwide, and 50 percent of that steering

gear comes from smaller suppliers to TRW, including the basic raw

steel, but many of the parts, formed parts, as well.

We work very hard at educating our employees regarding the

customer that they are servicing, and indeed, when we sent out

paychecks to our employees, it says brought to you by TRW’s customers, and we tell our employees if the product is going to Tokyo

to be put on a Toyota or if it is going to Germany to be put on a

Volkswagen. There is a great deal of export in all of our products.

Chairman CRANE. Mr. Jordan, do you have any comments?

Mr. JORDAN. Yes. While we have done quite a bit of that, certainly, in our company and some of our supplier companies, I think

it is an area that probably could be mined much more intensively.

I say that in terms of some of the debates that have arisen on U.S.

trade sanctions, whereby people think there is no cost to our economy or to workers from voting for these.

I think we need to strengthen within the business community

and among employees regarding the costs of lost business from

trade sanctions. We lost one-third of our work force in the nuclear

business, but that will cascade to probably five times that, 15,000

or 20,000 jobs lost throughout the country.

One of the issues we need to press very strongly is increasing export awareness in the work force and not just with the supplier

company management. That is an area in which we should put

stronger efforts, and is one of the initiatives that we have discussed

within the business community.

Chairman CRANE. Mr. Denham.

Mr. DENHAM. Mr. Chairman, I think you are raising a very important issue. I do believe that as the world’s economies become

more globally connected, it gets increasingly obvious to workers

just how connected their jobs are to liberalization.

In our business, it is not just the investment bankers in New

York who are flying around the world and perceive their connection

to the global economy, but we have about 400 people working in

Tampa that handle the clearing and settlement, the processing of

transactions that we do around the world.
107

We operate that facility 24 hours a day because they are working

with all time zones around the world. They are working real time

with transactions around the world.

They are traveling to Mexico, to Brazil, to other countries to deal

with settlement and processing problems that get created.

I know that our clients, when I meet with them to talk about

capital raising, a few years ago, they were interested mostly in distribution capability in the United States, how well can we distribute securities in the United States. Today, of course, they are interested in that, but they want to know about our Asian distribution.

They want to know about our European distribution.

The concern that you have is a good one, but it is being addressed, I think, as these connections become increasingly obvious.

Chairman CRANE. As you are aware, Mr. Denham, there were

some politicians in the last cycle who endeavored—well, the cycle

before, too—to establish a linkage between NAFTA and the peso

devaluation in Mexico. Had there not been a NAFTA Agreement

preceding that peso devaluation, what in your estimation would

have been the consequence?

Mr. DENHAM. I believe we were very fortunate when the Mexican

economic problems arose that we could deal with them in the context of a NAFTA. Because of NAFTA, the United States stake in

the Mexican issue was more obvious. I think that encouraged more

rapid action by the United States, so that we dealt with the problem before it became much more critical.

It also is clear that the Mexican economy has been able to adjust

much more rapidly to their changed economic circumstances because of NAFTA. The Mexican economy has been much more flexible. So the recovery time has been much, much more rapid than

it would otherwise have been.

There are some things in the world you can change, and there

are some things you can’t change. One thing you can’t change is

that border with Mexico. They are going to be our neighbors for a

long time, and an ability to cause more flexible economic adjustment when that economy gets into trouble is extremely valuable to

our economic interest and our political interest in the United

States.

Chairman CRANE. I don’t know whether you were at Salomon

Bros. back with the peso devaluation in 1982, but that took us, my

recollection is, almost 5 years before we recovered. Here, to be sure,

we suffered a setback in 1995, but by 1996, our exports were surging again. It is not that we don’t have a negative trade balance

with Mexico, but if all of a sudden all the people only have 50 cents

on the dollar left in their pockets, their consumption rates are

going to be scaled back somewhat.

Well, I appreciate everything you have contributed, and I would

like to yield now to our distinguished colleague, Mr. Matsui.

Mr. MATSUI. Thank you, Mr. Chairman.

Before I ask the gentlemen questions, I know this morning you

very properly acknowledged Sam Gibbons, the Chairman of the

Committee and Chairman of the Trade Subcommittee for about 14

years, and the gentlemen here that are testifying, I just might

mention that Mr. Gibbons is over to my left over here. He has been

one of the ardent supporters of free trade over the years and prob108

ably one of the leaders in the Congress over the past decade and

a half.

[Applause.]

Mr. MATSUI. Today was the first day, I believe, since you have

retired that you have testified before our Subcommittee. Is that

right?

Mr. GIBBONS. Yes, it is, and I will come back any time you want.

Mr. MATSUI. Let me thank the four of you for your testimony.

I might just follow up on what Chairman Crane has said, Mr.

Denham. I think that, frankly, if we did not stabilize the peso, that

is the President along with the Treasury Secretary, Mr. Rubin, and

the United States stabilize the peso, we could have seen a free-fall

of the peso, and that could have affected investments elsewhere

throughout the world, particularly in emerging countries such as

the Eastern European countries at the time. I think that was a

very critical decisions that, obviously, the President and the Treasury Secretary did make back in 1995, I guess, January 1995.

You are absolutely correct. If it were not for the NAFTA, I don’t

believe we would have been able to get in there and work with the

Mexicans as we were able to.

I am just going to make a few observations, besides thanking

you. I think Chairman Crane said it. He said most constituents

begin to fall asleep when they hear discussion on trade issues, and

I find that to be the case as well, but I also find it to be even more

of a case when we talk about fast track because it is a procedural

issue, one that doesn’t really have any tangible results. So, for that

reason, I particularly appreciate the fact that the four of you are

here talking about fast track, and it is my hope that from this

hearing we will be able to inform more of the public and also many

of the companies, the chief executive officers, and the employees of

the companies how important fast track is.

Again, it is not tangible in the sense that the most-favorednation status for China is or the issue of the NAFTA, Canadian

Free Trade Agreement, because you can see tangible results should

they become law, but when you talk about fast track, it seems

years and years away before anything might happen.

I had breakfast one morning with the chief executive officer of

a major company in California. He had not talked about fast track.

We talked about a few other trade issues, and I suggested to him

that fast track should be high on our agenda. He said, Well, I am

assuming fast track would pass, and I said, Well, I am not too sure,

I think we have some work to do. He paused for a moment, and

he said, I can’t imagine what would happen if we didn’t have fast

track, it would be horrendous, and I think all of us feel that way.

We always assume we are going to get it, but we haven’t had it

for the last 2 years.

I suppose if we can’t put it together this year, if we don’t get the

right political support for it, we could have a problem this year as

well. Then I am afraid in 1998, 1999, and the year 2000, being either congressional races or Presidential races, it might not be possible at all. I really hope we can really focus on fast track over the

next 4 or 5 months because, in order to get a majority of votes,

both the House and the Senate, and send it to the President, it is

going to take a great deal of effort on all of our parts.
109

That leads me to the second observation, and that is, I hope and

I know the business community intends to be—and I know that my

colleagues on both sides of the aisle tend to be—flexible on the

issue of labor and the environment, and I know that raises major

problems and concerns on both sides, whether they are environmentalists or organized labor or the business side on the other

hand. But if we really want to get fast track this year, I think everybody will have to be reasonably flexible in order to achieve the

kind of results we want, because the goal is to get this process so

the President will have a negotiating tool.

Some of the side issues, such as labor and the environment, are

important, but on the other hand, it pales compared to the issue

of having that ability to negotiate with many of our trading partners.

Last, I would like to just make the final observation that whatever we do will have to be bipartisan. I think we have been so critical in the area of trade policy in the United States because we have

been bipartisan, we have been so successful, I should say, because

it always has been bipartisan, and if we have one party passing the

legislation with the other party and the loyal opposition, a consensus will be lacking, and every time the President attempts to negotiate a new agreement under the fast track, you will hear the party

that didn’t vote for fast track complain. Obviously, we don’t want

that kind of result.

I think a lack of a national consensus would result in, perhaps,

an erosion in the U.S. support for free and open trade, as time goes

on.

It is my hope that we can be flexible and also have a bipartisan

consensus, and it really will take leadership in the private sector

to achieve, that among others as well, but particularly in the private sector because, undoubtedly, we look to you for the real leadership on the whole issue of international trade.

I want to thank you for your testimony and thank you for your

leadership in this area, one which will not show tangible results

overnight to all of you, but in the long term will probably be one

of the most important issues we will take up in this Congress.

Thank you.

Chairman CRANE. Thank you.

Mr. Houghton.

Mr. HOUGHTON. Thank you, Mr. Chairman. Thank you, gentlemen.

I don’t think I have anything profound to say. I would probably

echo many of the things which Chairman Crane and Mr. Matsui

have mentioned, but the fact is, there are only four of us here, and

maybe we represent in total a little less than 3 million people.

There are a lot of people out there who are getting different vibes.

Now, we can tell all the horror stories. We can say what we

ought to do, what we should do, and so forth. The question is, What

do we do, because it seems to me it is almost a little bit like the

story with technology.

I remember the company which I used to be associated with.

Technology was a threat to employment. It took away jobs, and it

was a very great learning process. The same thing is in terms of

export business. You understand that the wage rates are higher.
110

You understand that exports are important, but you think it is a

basic threat to the employment in this country. That somehow

must be changed.

I think there are three areas here. First of all is the administration, and I think we ought to really understand that somehow we

have got to do this thing together, and I would appreciate your reactions here.

The administration is being led, I really think, by Ambassador

Barshefsky doing a terrific job. I don’t see the real commitment to

the administration to this thing, really laying down some political

lines, and I think you can help there.

The other thing is in terms of labor. When you talk to labor leaders, many times they understand this, but they are so committed

and they have been so out on the line that it is very difficult for

them to contract, but long term, this is going to benefit their position if they can find some way of getting off that springboard.

Then the third area, I think, is our own cohorts. There are people

who really believe in the Ross Perot or Pat Buchanan approach to

this thing. It is better to pull back and look inward rather than

looking outward and looking at a world which is going to exist in

10 years rather than the one that existed in 1987.

It seems to me that it is what we do about it. It is not the issue.

We know what the issue is. All of us agree with this. How do we

work together on this thing? The administration, the labor unions,

and also our own associates. You have plans in different areas that

have different representatives. What can you do? What can we do

to help you? This must be a joint effort because somehow, some

way, we are not cracking this thing the way we should.

I would doubt—and I don’t know whether my colleagues would

agree—that NAFTA would pass today. It is that serious. Yet, we

know that the single most important thing with all our international trade relationships is to pass fast track. Everything else

pales in comparison, and how do we get that done? Maybe you

would have some reactions.

Mr. GORMAN. May I comment from a Business Roundtable point

of view. Again, representing over 200 companies that make up the

membership of the Business Roundtable, we have recognized this

year that one of our most important tasks, indeed, has to do with

educating and making the general public, as well as our key constituents, aware of the importance of free and open trade, and not

only in connection with our exports and in connection with NAFTAtype agreements, but also in terms of opening markets that still,

in many ways, are closed around the globe, opening those markets

to our companies and to the workers involved in those companies.

So what we have done is put together, under my committee at the

Business Roundtable, a task force that is working hard to educate,

on the one hand, all the key constituent groups of our companies,

that is to say, our employees, our customers, our suppliers, our

local communities in which we operate and the like.

Indeed, we have recruited George Fisher of Kodak, the chairman

of Kodak, to lead that effort, and we have had over 100 companies

sign up to do that, learning how to send out publications, how to

hold seminars, how to send out mailings in support of the kind of

trade efforts that we support.
111

We have also asked Phil Condit of Boeing, and he has graciously

agreed, to lead the task force that educates the general public,

trade associations, Members of Congress, of course, as well as administration officials, and in addition to the general public.

We have got a massive effort underway with 107 or so companies

signed up, and we are adding companies every week to that. I

think you can count on our help there.

We paid a visit to the Hill not long ago. We had 28 separate visits on that 1 day, again, trying to get the trade message out. We

work hard for all of you and with all of you on bringing this about.

Mr. PEPPER. I would like to make a couple of comments on this

point. I think as we talk free and open trade, there is a real danger

of this being here they come again, an old record. As you say, people go to sleep.

To me, there are two real differences in what we are talking

about today versus the past. Free and open trade has always been

right, and it has been an opportunity. What is realized today is

that other people have caught onto trade, and not doing it has become a bona fide threat. I really mean that, and particularly in

Latin America.

If we aren’t part of these free trade agreements, we are going to

lose big. It will be much worse, in my judgement, over the next 5

years than in the previous three. Why do I say that? Massive foreign investments are being made in Brazil and Argentina. There

will be huge production bases there, and if the trade barriers are

not as favorable for the United States as within that unit, this difference I just cited of 40 percent growth there, 20 percent for us,

is going to become even larger.

The tenor of the conversation is wrong. People can say it is the

same message as before, but it isn’t. The first difference is there

is a threat here. We must do it because other countries are, and

that wasn’t the case before, certainly not in Latin America.

The second difference is we are having a harder time showing

this is good. I don’t think people are looking at the facts behind

NAFTA in Canada and Mexico accurately. In our business, we live

and die by market share. We have built a share of exports into

Mexico.

Mr. HOUGHTON. John, could I interrupt just 1 minute? We all

agree with you. We all agree. We are all on the same time. The

question is how do we get it done, and it seems to me there are

two phrases, ‘‘export jobs’’ and ‘‘fast track.’’

There is a terrific competitive problem with MERCOSUR, and if

we don’t get fast track, there is a chance we could be frozen out

of that South American market.

Now, that is sort of an intellectual argument for somebody who

is working in the steel mill or a glass plant or something like that,

but if we could link more jobs, better paying jobs, export jobs with

this one issue in fast track and drive it home to a lot of our constituents, those are the things that we have got to do, and right

now, because if we miss this window, we may not have it again.

Mr. PEPPER. I agree with you, but as you said, the administration doesn’t seem to have it as a high priority. There are only four

Members in this room right now.
112

I spent 2 days preparing for this hearing, and we are activating

an education program to our employees. We need to get to suppliers better, as the Chairman indicated, but I would agree that you

and your associates also have a role to play in this. If this is as

high a priority as we are talking, this is guts ball.

Mr. HOUGHTON. And we agree.

Chairman CRANE. Mr. Portman.

Mr. PORTMAN. I am going to pile on here, preaching to the choir,

but let me just focus on two aspects of it because, as you all were

giving your testimony, of course, this is what came to mind, what

the Chairman mentioned. Bob Matsui, I heard your comments. I

had to step out for a moment, but I couldn’t agree with you more

than fast track is critical and we need to get the business community to work in a closer partnership with those of us who are free

trade oriented.

I think John Pepper may be on to something, and that is this notion of appealing to American competitiveness and the spirit of

competitiveness; that it is not just us opening foreign markets and

expanding trade, as we did argue so, I think persuasively finally

with regard to Mexico, but it is this notion that if we don’t get in

there, someone else is.

Having been down in Chile with the Chairman and a Trade Subcommittee group and being in some of the MERCOSUR countries,

Argentina in particular, it is clear to me that between the EU and

the Japanese, we are getting pushed out.

One specific suggestion I would make is that companies like

Procter and other companies represented here today—I don’t know

if General Electric could have stories like this in the MERCOSUR

countries, but could come up with specific stories of actually losing

market share.

I know this has to do with investment, as well as exports, but

I assume the liberalization of investment law is causing you problems down there. You say you live and die by the market share.

You all do, even all of the Salomon Bros. clients and others who

are being forced out of markets or at least their market share is

being reduced because of more liberal arrangements with other

countries, the Europeans, the Japanese, and others.

I think we need to appeal to that a little bit and get those competitive juices flowing, and then the second one I think we need to

continue to hammer on is open markets. This is not about losing

jobs to foreign countries. This is about changing the imbalance.

We had a great argument with that with Mexico because we had

the 3 or 4 to 1 imbalance, but their tariff barriers are much higher

than ours. Our country is relatively open already. We allow people

to trade freely here with a few exceptions, some of those we are

trying to knock down still, but it is really about just leveling that

playingfield, but let me ask a specific question, if I could, to the

group with regard to the WTO and the new Uruguay round arrangements with regard to dispute settlement.

I am, to be frank, very hopeful about the new dispute settlement

procedure. I know we are going to have a banana decision maybe

momentarily, Mr. Chairman. I don’t know. Maybe today, maybe tomorrow. I don’t know how it is going to come out, but I feel as

though it will probably be in our interest, to the United States in113

terest, not just to the banana producers, but I think it is going to

be a liberalizing effect because it is binding, and in the past, you

used to be able to block these decisions, but on the other hand,

some have argued—and at my town meetings, Mr. Chairman, they

don’t fall asleep. They usually take me on, on trade and tell me

that we are exporting jobs and it is so terrible, but I have heard

the argument that this new dispute settlement technique methodology and procedure, because it is so expedited, has caused some

U.S. companies some disadvantage, and also, of course, the fact

that it is binding might come back to haunt us as U.S. exporters.

Do any of the panelists have thoughts on the new WTO dispute

settlement mechanism?

Mr. JORDAN. Let me just make one comment. We have been introduced to some of the dispute settlement mechanisms in NAFTA

which are quicker than previous dispute settlement mechanisms. It

is clear that the strengthening of the WTO as an institutional body

is very important and that we have to learn to live with the negatives, as well as the positives.

The Buchanan, sort of Perot argument, fails to recognize that the

reason this country has the most vibrant economy in the world is

simply because we were exposed to greater competitive forces than

was any other place, including Japan and the European Community. We have grown employment—grown high-tech employment

and high-pay employment—because we have succeeded in becoming more competitive.

I think we in this country have to learn that we lose some of

these disputes when they go to settlement. We as a country have

survived and prospered since the seventies because we have become much more competitive. Having the most open economy, it

has actually done the best of any economy in the world. I think

that is a message that is often lost in the debate with Fortress

America groups, but it is one that is very, very important. The statistics all show that our work force has become more educated and

our economy more productive.

Mr. PORTMAN. Do you link that back to the WTO dispute settlement?

Mr. JORDAN. I think that is a positive.

Mr. PORTMAN. You think that is a positive because it will result

in competition, plus protection?

Mr. JORDAN. It will result in a faster resolution of issues and

help ensure that we are competitive in any market. We can compete in any market in the world. Yes, sometimes there is something

in our system that inhibits foreign competitors, however, I think

we are going to win in dispute settlements much more often than

not.

Mr. PORTMAN. Mr. Gorman, do you have thoughts on that?

Mr. GORMAN. I would comment briefly. I do believe that a

strengthened WTO is very important in terms of making certain we

have a comprehensive, transparent, predictable, open, common

trading practice around the globe.

I think it will help us, including the dispute resolutions in Asia,

where we have particular bilateral issues, and it does not preclude

our continuing to work some of our most frustrating problems in

a bilateral fashion.
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I think, on balance, while there are tradeoffs, there is no question it is a favorable development.

Mr. PORTMAN. Mr. Denham.

Mr. DENHAM. I think you won’t find many businessmen who are

troubled by a speedy dispute resolution system. As fast as business

changes today, unless disputes are resolved quickly, the resolution

is likely to be fairly irrelevant when it comes. I think most

businesspeople very much favor seeing disputes resolved through a

mechanism that is very speedy, and as people have said, sometimes

we will win, sometimes we will lose. Sometimes we will deserve to

lose, and sometimes we will deserve to win, and the real question

about WTO dispute resolution mechanisms will be do they provide

a fair process so that we win those that we deserve to win and only

lose those that we deserve to lose.

Mr. PORTMAN. Thank you.

Thank you, Mr. Chairman.

Chairman CRANE. Well, gentlemen, I want to express again my

appreciation for your willingness to give up your time so generously. I am sorry we did not have a bigger turnout for your presentations because you all have perceptions and understandings that

vastly transcend what those of us who serve on this Subcommittee

have, but we will appreciate getting input from you on a continuing

basis, and any way in which we can more constructively try and

get the message out, please don’t hesitate to let us know that, too.

We appreciate what you have done. With that, I thank you for your

time and effort.

Our next panel of witnesses include Bruce Cowen, president of

TRC Companies, on behalf of the U.S. Chamber of Commerce; Daniel Seligman, senior fellow of the Sierra Club’s responsible trade

campaign; Alan Holmer, president of the Pharmaceutical Research

and Manufacturers of America; and Lori Wallach, director of Global

Trade Watch, Public Citizen.

Again, let me ask you please to try and confine your oral presentations to no more than 5 minutes, but any written printed documents you may have will be made a part of the permanent record.

With that, we will proceed in the order I introduced you: Bruce

Cowen, Daniel Seligman, Alan Holmer, and Lori Wallach.

STATEMENT OF BRUCE D. COWEN, PRESIDENT, TRC

COMPANIES, INC.; ON BEHALF OF U.S. CHAMBER OF

COMMERCE

Mr. COWEN. Mr. Chairman, I am Bruce Cowen, president of TRC

Companies, Inc., a U.S.-based international environmental engineering consulting company, headquartered in Windsor, Connecticut. I am pleased to testify before you today on behalf of the U.S.

Chamber on whose board of directors I sit.

TRC is a publicly owned company traded on the New York Stock

Exchange, with 20 offices throughout the United States and offices

in Chile and Poland. TRC currently employs approximately 650

employees, and we operate as a small business and consider ourselves a small business.

For over 30 years, we have been serving our clients by providing

engineered solutions to complex environmental problems, including
115

air quality, hazardous and solid waste management, remediation,

and water and waste water treatment.

TRC currently has active projects outside the United States in

Argentina, Chile, Colombia, Guatemala, Mexico, Peru, Poland, and

South Korea, among others. We are a relatively small U.S. firm, active in global markets.

We are creating and implementing solutions to environmental

problems in the developing world, and we are employing U.S. workers in the process. There is no question that a more liberal trade

environment with a more level playingfield will permit us to do

more, but from the broader U.S. business perspective, the U.S.

economy is heavily and increasingly dependent on international

trade for business and jobs.

U.S. trade has grown much faster than the U.S. gross domestic

product over the last few decades. Therefore, we must elevate our

attention to trade issues to a level commensurate with trades importance.

Congress and the executive branch should work together to accomplish several U.S. trade policy objectives this year. They include, number one, reauthorization of trade agreement negotiations. Speedy renewal of fast track trade-negotiating authority

without linkage to social agenda objectives is critical to preservation of U.S. leadership in world economic affairs. Once granted, fast

track authority should be used to negotiate mutually beneficial

agreements in the Western Hemisphere and elsewhere. The price

for fast track must also include regular good-faith consultation

with Congress and the private sector.

Number two, continuation of normal China-United States commercial relations. Ending China’s MFN status will not advance

United States interest, but it will assure less United States influence in that huge and rapidly growing market, as well as new commercial advantages for our competitors who are not contemplating

similar action.

Number three, elimination of unilateral U.S. economic sanctions.

Such sanctions almost invariably produce the same adverse results,

further isolation of U.S. foreign policy, reinforced rather than

weakened hostile regimes, and reduced economic opportunity for

U.S. firms and their workers who lose markets to foreign competitors whose governments do not impose such restrictions.

Number four, leadership in World Trade Organization accession

issues. China and Russia have begun to embrace market principles

relatively recently and with very different results. Given their potential for growth, both economies should demonstrate their commitment to the world trading system with market-orientated policies and acceptance of WTO discipline.

Number five, reauthorization of trade development programs. In

an ideal world, the government would play a very limited role in

global commerce. However, the realities of the global mixed economy require the U.S. Government to support its private sector

against foreign government-backed competition to maintain as level

a playingfield as we can.

I want to thank you, Mr. Chairman and Members of the Subcommittee. I will be happy to take questions from the Subcommittee.
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[The prepared statement follows:]

Statement of Bruce D. Cowen, President, TRC Companies, Inc.; on Behalf

of U.S. Chamber of Commerce

Mr. Chairman, I am Bruce Cowen, a member of the U.S. Chamber’s Board of Directors and its International Policy Committee. I am also President of TRC Companies, Inc. in Windsor, Connecticut. TRC is a 650-employee international environmental engineering and consulting company operating here in the U.S. as well as

in Latin America, Central Europe and elsewhere. TRC has over 30 years of indepth, environmental problem-solving experience and is recognized for its expertise

in a wide range of air quality and waste management problems, as well as regulatory compliance, pollution prevention and control and strategic environmental

planning. It is on the Chamber’s behalf that I am testifying today.

As you suggest in your hearing advisory, a maturing U.S. economy and an increasingly dynamic and competitive global economy demand U.S. engagement and

leadership as never before. The U.S. economy is heavily and increasingly dependent

on international trade for business and jobs. Trade’s share of U.S. GDP grew from

13% in 1970 to 30% by 1995. Between 1985 and 1994, U.S. exports rose 112% while

U.S. GDP only increased 25%. According to a 1996 study by the Institute for International Economics, during that same period, exports generated one-third of America’s economic growth and about 5 million new jobs. U.S. firms which export have

greater productivity and wages that are 20% and 15% higher, respectively, and are

9% less likely to go out of business in an average year. And these companies also

experience almost 20% faster employment growth than those who never exported or

ceased exporting.

As other economies grow more rapidly than our own, our own influence in global

markets will diminish, even as we grow in absolute terms. For this reason, the U.S.

national interest requires a renewed emphasis on efforts to attain a level playing

field for U.S. business in global markets. In pursuing this level playing field, the

U.S. must:

• negotiate and enforce trade agreements that require the reduction or elimination of unfair foreign trade barriers and distortions;

• use access to the U.S. market as leverage to obtain access to foreign markets;

• enforce U.S. trade laws to remedy the adverse effects of foreign dumping, subsidization and other unfair trade practices;

• provide appropriate export development services and advocacy to counter foreign government-supported competitors; and

• limit the imposition of export and other trade controls to those absolutely necessary to achieve legitimate U.S. national security objectives.

None of these goals are new. All of them have been codified or otherwise established in one form or another over many years. However, in some cases, statutory

authority to continue their pursuit has lapsed, while in other cases, new challenges

require new tactics and strategies. In either case, to accomplish these ends, the U.S.

must seek in earnest several key objectives over the next few years and commence

action on them this year. They include:

• Reauthorization of trade agreement negotiations. Fast-track trade negotiating

authority expired in 1993, which means negotiating initiatives launched after that

time will not receive the benefit of fast-track consideration unless Congress expressly renews such authority. Speedy renewal of fast-track trade negotiating authority without linkage to social agenda objectives is critical to preservation of U.S.

leadership in world economic affairs. Once granted, fast-track authority should be

used to negotiate new trade and investment agreements in the western hemisphere

and other areas. In particular, creation of a ‘‘Free Trade Area of the Americas’’

(FTAA) by 2005 remains an invaluable opportunity for the United States to consolidate its trade leadership in an economically vibrant hemisphere of over 725 million

consumers. Yet, while we sit on the sidelines, other western hemisphere nations

continue to negotiate market-opening agreements within the region, such as Chile’s

free trade agreement with the Mercosur countries. Both the Mercosur region and

Mexico are also negotiating with the European Union and Asian nations. Absent

U.S. engagement and leadership in negotiating market-opening agreements in the

western hemisphere, American companies are at real risk of being denied access to

commercial advantages that are being granted to non-U.S. companies.

The price for fast-track must include regular, good-faith consultation with Congress and the private sector. Fast-track does not mean abdication of Congressional

prerogatives, as it entails waiving Congressional rules and can be revoked at any

time, with or without Presidential objection, by either the House or Senate.
117

• Continuation of ‘‘normal’’ China-U.S. commercial relations. China’s ‘‘mostfavored-nation’’ (MFN) status has been subject to annual review by Congress every

year since 1989. Later this spring, Congress will again consider whether or not to

maintain China’s MFN status. It is critical that Congress ensure its continuation,

preferably through permanent renewal. So-called MFN status (which is a misnomer

in that virtually all nations enjoy it) constitutes the basic fabric of China-U.S. trade

relations. Simply put, MFN status ensures that all nations will treat commerce with

any other single nation the same way it treats all other nations. There is in fact

nothing ‘‘most-favored’’ or preferential about it. Failure to continue China’s MFN

status will assure less U.S. influence in that huge and rapidly growing market, as

well as new commercial advantages for our competitors, without advancing U.S. interests. Termination of China’s MFN status would also amount to a singularly devastating attack on the basic underlying economic relationship between the two nations, causing massive tariff increases on goods from China, and would virtually

guarantee a similar response from China. Moreover, none of China’s Asian or European trading partners is contemplating similar action. The result, therefore, will be

not to obtain changes in China to our liking, but rather to curtail U.S. access to

the Chinese market and positive U.S. influence over China’s economic and political

evolution, while our Asian and European competitors reap the windfall benefits of

a newly advantageous position vis-a-vis U.S. firms in that market. • Moderation and eventual elimination of unilateral U.S. economic sanctions. In

the increasingly competitive, economically multipolar world of the 1990s and beyond, U.S. efforts to economically isolate objectionable regimes cannot work unless

those efforts also enjoy the active support of other major trading nations. For decades, U.S. policymakers have sought to use trade and economic leverage as a tool

to achieve a host of foreign policy objectives often bearing little or no relationship

to U.S. commercial objectives. However, for some time, the U.S. has lacked the ability to control world economic affairs and work its will on its unwilling trading partners. Not only are our trading partners not acquiescing to these sanctions, they are

formally protesting their use directly and in multilateral fora, and crafting ‘‘mirror’’

measures targeted at U.S. interests. As a consequence, unilateral economic sanctions almost invariably produce the same adverse results: further isolation of U.S.

foreign policy, reinforced rather than weakened hostile regimes and diminution of

economic opportunity for U.S. firms and their workers who stand to lose markets

to foreign competitors who are not so encumbered. The U.S. Chamber’s Board of Directors has long recognized this and in November 1996 reaffirmed its opposition to

unilateral economic sanctions against any country for any reason other than to

counter direct threats to the physical security or territorial integrity of the United

States. • Leadership in World Trade Organization (WTO) accession issues. China and

Russia, the two great Cold War-era ‘‘alternatives’’ to capitalism, have begun to embrace market principles relatively recently, and with very different results. China

clearly poses the greater challenge at present. However, both nations pose major

competitive challenges to U.S. commercial interests worldwide, in terms of foreign

competition within their markets and their own current and future competitiveness

in world markets. Given both nations’ potential, both economies should demonstrate

their commitment to the world trading system through implementation of marketoriented policies and acceptance of WTO discipline. The U.S. Chamber fully supports both countries’ accession to the WTO but only under protocols consistent with

commercial principles and their status as major trading powers. Both countries

must also agree to adhere to the market principles assumed of all GATT/WTO signatories. This includes, but is not limited to, commitments to improved market access, nondiscrimination, effective intellectual property protection, amelioration of

often arbitrary tariff and customs burdens, and forsaking of performance requirements (local content, technology transfer, export requirements) on foreign investors.

• Reauthorization of trade development programs. In an ideal world, government

would play a very limited role in global commerce. However, the realities of the

global mixed economy require the U.S. government to support its private sector

against foreign government-backed competition to achieve a level playing field. The

charters of the Export-Import Bank (Eximbank) and the Overseas Private Investment Corporation (OPIC) expire this summer and need to be renewed. As Congress

considers charter renewal, it should keep in mind that these institutions should provide competitive financial services, e.g., financing and insurance that are not otherwise available but are required to help U.S. companies remain competitive and penetrate foreign markets. To maintain a broadly competitive position, the United

States must preserve or expand the contribution of those federal agencies that help

U.S. exporters compete and prosper. In addition, as part of the U.S. government’s

strategic plan to selectively match the subsidization assistance offered by our major
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competitors, the U.S. government should also be prepared to fund project-related

feasibility studies and planning activities, such as administered by the Trade Development Agency.

Mr. Chairman, this concludes my testimony. I will be happy to try to answer your

questions. Thank you.

Mr. Seligman.

Chairman CRANE. Thank you, Mr. Cowen.

f

STATEMENT OF CARL POPE, EXECUTIVE DIRECTOR, SIERRA

CLUB; AS PRESENTED BY DANIEL SELIGMAN, SENIOR

FELLOW, SIERRA CLUB

Mr. SELIGMAN. Thank you, Mr. Chairman. My name is Dan Seligman. I am a senior fellow in charge of the Sierra Club’s Responsible Trade Program. I am here today representing the Sierra

Club’s executive director, Carl Pope, who was unable to be here

today. And, I am here representing the 600,000 members of the Sierra Club nationwide.

I think I can speak confidently for virtually the entire environment community in the United States when I say that we have

been deeply disappointed with the delivery of commitments made

by the Clinton administration and even by Congress on trade and

environment issues over the last 3 to 4 years.

In essence, from our standpoint, the trade agenda is imposing a

theoretical model designed by economists on a very complex set of

biological and physical systems, the global environment, and the

social systems that are underguarded by that global environment.

So doing, trade is provoking a set of changes that are unpredicted,

unintended, but often quite damaging, not only to communities and

the environment here in the United States, but to communities and

the environment abroad as well.

We see three major impacts from what we call the free-for-all

free trade agenda.

First, we see pressure to reduce environmental protections, as

countries and communities compete for advantage in the global

economy by weakening or ignoring environmental protections.

Second, we see pressure from international trade bureaucracies

to weaken environmental standards in the name of reducing barriers to trade and investment.

Finally, we see erosion of democratic and community values as

power to decide environmental and public health issues shift from

National Governments to unaccountable international trade bureaucracies and to the private sector, especially the transnational

corporations that seem to benefit so much from the current free

trade regime.

I won’t go into each of these issues in great detail. The body of

my testimony elaborates in some specificity each of the points I

outlined. I would focus, however, on two points that relate to the

NAFTA.

First, in entering a trade agreement with our northern and

southern neighbors, the Clinton administration sought to create

mechanisms to avoid the downward pressure on standards that

comes from increasing competition in the global market.
119

A NAFTA environmental side agreement was created for the express purpose of bringing complaints when countries weaken their

environmental laws in the name of free trade or to attract investment. That commission has been virtually useless in applying pressure to each of the NAFTA countries as they have gone about

weakening fundamental environmental laws over the last 3 years.

The second issue I would like to point to is the United StatesMexico border because it symbolizes so much about what the environment and trade are all about. This Congress made a firm commitment when they voted and adopted NAFTA that $2 billion

would flow from the North American Development Bank to clean

up the environmental mess on our southern border. So far, that

fund has generated about $10 million in cleanup money. That is

about 1 percent of the funding promised. Yet, at the same time,

partly because of the peso devaluation, the maquiladora sector has

boomed. Employment has boomed on the United States-Mexico border, the maquiladora zone.

The situation on the border reflects conditions that are fairly endemic throughout the developing world. Specifically big companies,

major transnationals, take advantage of the lax standards in these

countries to avoid shouldering basic responsibilities to provide environmental infrastructure, a decent wage, or decent working conditions to the people whom they employ.

We have heard a little bit of discussion about fast track this

afternoon. I would direct your attention to a letter that was sent

from the National Wildlife Federation and the Sierra Club to Vice

President Gore explaining the environmental community’s position

on fast track.

Because of the disappointment we have experienced, groups on

both sides of the NAFTA divide have come together and demanded

that tough, specific environmental negotiating objectives be built

into any fast track authority.

Second, an issue not so much addressed here, is the multilateral

agreement on investment. For reasons I outline in my testimony,

we think that this agreement, if anything, has much worse implications for the global environment than the NAFTA does or the

World Trade Organization.

The idea of willy-nilly freeing large corporations to invest in environmentally sensitive sectors like mining, timber, what have you,

in countries without the environmental standards to ensure that

that investment is done responsibly, this simply doesn’t make good

sense. We see important international environmental values at

stake in this kind of agreement, and again, my testimony would

provide some examples of our concerns in that area.

So, in conclusion, I would ask that Members of the Subcommittee

actually look hard at what free trade policy has implied for the

United States, for our environment, for our trading partners and

their environment. I would also ask Subcommittee Members to

think very hard about how to redo the way we conduct trade policy

so that we are not looking at the kind of harmful consequences that

I think are beginning to stare us in the face.

I would conclude by saying that a responsible trade agenda is not

one that bores the American public. I was in Kansas City, 10 days

ago, with a colleague of mine from Public Citizen, Lori Wallach’s
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organization. We spoke at a rally of citizens of that town, very concerned about NAFTA expansion, and what is implied for their jobs

and for the environment. I will share with you a letter of inquiry

that they have sent to their congressional delegations asking why,

seriously, we cannot conduct trade policy in a more responsible

way.

Thank you very much.

[The letter of inquiry and prepared statement follow:]
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1The Sierra Club no longer accepts grants or awards from the federal government. Prior to

adoption of the Lobbying Act requiring disclosure of such grants or awards for organizations lobbying the federal government, the Sierra Club received a small amount of contract money as

well as reimbursement for service trips from the federal government.

Statement of Carl Pope, Executive Director, Sierra Club;

f 1 as Presented by Daniel Seligman, Senior Fellow, Sierra Club

On behalf of the Sierra Club’s 600,000 members, I wish to thank Chairman Crane

and members of the committee for offering me the opportunity to testify today on

a critical topic—the future of America’s international trade policy. Current free trade policy gives corporations new rights to trade and invest glob- ally but fails to define responsibilities to communities, to working families, or to the

environment. By granting broad new economic rights without commensurate environmental or social responsibilities, US trade policy is eroding a host of community,

social, and environmental values both here at home and around the world.

As this subcommittee reviews the future of US trade policy, I hope you will recon- sider the current ‘‘free-for-all’’ approach to international trade. Instead, the United

States should shift toward what Sierra Club calls a ‘‘responsible trade’’ policy which

anticipates and avoids the unintended harmful side affects of corporate

globalization. Threats to the environment from ‘‘free-for-all’’ free trade include:

1) pressure to reduce environmental protections as countries and communities

compete for advantage in the global economy by weakening or ignoring environmental protections; 2) pressure from international trade bureaucracies to weaken environmental

standards in the name of reducing barriers to trade and investment; and 3) erosion of democratic and community values as power to decide environmental and public health issues shifts from accountable national governments to unaccountable international trade bureaucracies and to the private sector, especially to

transnational corporations.

I will touch on each of these issues during my testimony.

But first, let me underline that the environment is not a side issue or irrelevant

to trade policy. Literally everything produced in the global market originates in the

environment as natural resources and returns eventually to the environment as

waste or pollution. With the accelerating scale and speed of global economic change,

we see growing evidence that unplanned and unintended environmental destruction

is overwhelming the economic benefits that current trade policy is meant to achieve. To understand why this is so, we must understand what the environment really is. The environment is not just the pretty photos we took on our last trip to Yellowstone or the Grand Canyon. The environment is the infinitely complex web of life

which supports and sustains not only the national and international economy but

also the local communities that we need to provide a decent, healthy place to raise

our families. A basic principle of conservative philosophy holds that human meddling with complex systems which we did not create can provoke more unintentional

harm than intentional good. Many people learned that lesson by watching governments attempt to engineer large-scale social change. But the same holds true when

powerful international organizations, such as the World Trade Organization, and

powerful private institutions, such as transnational corporations, attempt to reshape

the global economy to suit the abstract theories of free trade economists. A responsible trade policy would anticipate and avoid unintended harm to the en- vironment from economic globalization. Doing so is not protectionist; it is simply

prudent.

The environmental impacts of trade are of special concern because trade is now

the principle engine of global economic growth. And impacts of the global economy

are arguably now the leading source of damage to the global environment. Major

trade agreements having important environmental impacts include the North American Free Trade Agreement (NAFTA) and the World Trade Organization/General

Agreement on Tariffs and Trade (GATT/WTO). We can anticipate that new agreements now under negotiation, especially the Multilateral Agreement on Investment

(MAI), scheduled for completion in May 1997, could have even more significant impacts.

But our concern about economic globalization is not confined to trade agreements.

Trade policy reinforces the growing tendency of corporations to ‘‘go global’’ in search

of markets, resources, and cheap labor. Just 100 large companies control half of US
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exports. The top fifteen exporters—including GM, GE, Boeing, and IBM—control

one-quarter of all US exports. The largest companies command resources greater

than good-sized countries. Globalization, as we shall see, plays to the strengths of

the biggest corporations—increasing their profits, and adding to their political influence. The result, I fear, is diminished control for the average citizen and diminished

autonomy for democratic institutions such as the United States Congress. Together, trade policy and transnational corporations are fusing the global econ- omy into a single market for the first time in human history. While environmental

harm from economic globalization cannot be easily measured in dollars and cents,

the evidence suggests that the benefits of the current free trade policy could be overshadowed by losses to the environment. A responsible trade policy would not ignore

the warning signs. Just consider these examples:

I. RACING TOWARD THE BOTTOM

A. Relaxing Environment Protection

When corporations gain rights to trade and invest wherever they wish, those rights are not matched with strong, well-enforced responsibilities to working families, communities, or the environment. Countries compete against each other for economic advantage by waiving the enforcement or adoption of strong environmental

laws or by offering breaks on taxes needed to pay for clean water and clean air. Recognizing this risk, the NAFTA deal included institutions designed ostensibly to prevent a competitive ‘‘race to the bottom.’’ An environmental side agreement was

written to ensure that each of the NAFTA countries (the United States, Canada,

and Mexico) maintain and enforce high environmental standards. NAFTA Article

1114 allows for government-to-government consultations if countries compete for investment by weakening their environmental laws. As United States Trade Representative Mickey Kantor promised in September 1993, ‘‘[The side agreement]

ensur[es] that laws and standards continue to provide high levels of environmental

protection and that those laws are enforced.’’

Unfortunately, these environmental agreements lacked teeth and have completely failed to deliver on their intended purpose. Instead, NAFTA trade and investment

rules have made it easier for US companies to blackmail communities and workers

by threatening to move jobs abroad. The result has been downward pressure on environmental standards across North America. Did NAFTA ‘‘cause’’ the weakening of

environmental laws described here? Obviously, not by itself. But it added to pressure already building from other trade agreements and from economic globalization. • In the United States, timber giant Boise Cascade closed mills in Joseph, Oregon (1994) and Council, Idaho (1995) and moved operations to the impoverished state

of Guerrero, Mexico, taking advantage of new investment protections under NAFTA.

Before moving, the company exploited job insecurity in the United States to wrest

more timber from U.S. national forests. A company spokesman told The Idaho

Statesman, ‘‘How many more mills will be closed depends on what Congress does....

The number of timber sales will determine our decision to move south.’’ The 104th

Congress was all too eager to heed such pressure. It passed a law that mandated

a vast increase in logging in our national forests, but suspended all environmental

laws and the citizen’s right to seek redress in court.

• The ‘‘War on the Environment’’ spilled over into Canada and Mexico. Contrary

to arguments often heard during the NAFTA debate that environmental protection

rises as countries grow richer, Canada has actively weakened its environmental

laws by turning over environmental responsibilities to the provinces. Investors can

more easily play subnational units of government against one another, so the Canadian provinces have weakened important environmental protections. For instance,

the Province of Alberta adopted legislation in May 1996 prohibiting citizens from

suing environmental officials to enforce the law. Ironically, Alberta was the first of

only two Canadian provinces to bother singing the NAFTA environmental side

agreement. When Canadian environmentalists declared their intention last summer

to complain to the NAFTA environmental commission about the new gag law, Alberta’s environment minister, Mr. Ty Lund, simply threatened to withdraw Alberta

from the side agreement. Apparently, Alberta is willing to abide by its NAFTA’s environmental commitments only as long as they are not enforced. Instead, Alberta

authorities advertise the province’s lax regulatory climate as the ‘‘Alberta Advantage.’’ In so hospitable a business climate, it is little wonder that Pittsburgh’s Consolidation Coal, Shell Oil, and other international mineral companies have flocked

to Alberta.

• Mexico also has backed away from commitments to adopt and enforce strong

laws made during the NAFTA debate. In October 1995, Mexico announced it would

no longer require environmental impact assessments (EIAs) for investments in such
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highly polluting sectors as petrochemicals, refining, fertilizers, and steel. Mexican

officials said they were eliminating the requirement for EIAs to ‘‘increase investment’’—an apparent violation of a NAFTA provision that prohibits weakening laws

to attract investment. Of course neither Canada nor the United States will take

Mexico to task because each is guilty of the same violation.

B. Erosion of Corporate Responsibility

Those who supported creation of the NAFTA environmental commission argued frequently that a tough agreement was not necessary because US corporations take

their good practices with them when they invest abroad. Many felt that the unregulated market would increase environmental protection all by itself. After three years

of NAFTA, experience shows, however, that once companies gain international mobility, they can play jurisdictions off against one another to gain breaks on their environmental responsibilities. Surprisingly the pattern is true even when US companies invest in advanced developed countries like Canada.

1. The Cheviot Mine—For instance, Alberta, Canada has attracted nearly $250 million in investment from Pittsburgh-based Consolidation Coal (CONSOL), a 50

percent partner in the Canadian firm Cardinal River Coals, by waiving important

environmental protections,. Cardinal River plans to dig twenty-six coal pits in a 14

mile corridor near Cheviot Mountain, just one mile from Jasper National Park. The

Cheviot Mine would destroy prime habitat necessary for survival of grizzly bears,

wolves, moose, elk, cougars, and wolverines inside Jasper, according to the Canadian Park Service. Since Canadian habitat now serves as a reservoir to restock wildlife populations depleted across the border in the United States, the Cheviot mine

could prevent the recovery of bear and wolf populations as far south as Yellowstone.

Unfortunately, a proposed Canadian Endangered Species Act is far weaker than the

US ESA, and would not protect the wildlife habitat now threatened by the Cheviot

Mine.

In addition, to save Cardinal River the costs of hauling waste rock, Alberta envi- ronment officials might not require the company to refill 14 of the 26 opens pits.

Reclamation of excavated coal pits is normally required in the United States. Instead, Cardinal River will dump rock wastes into pristine alpine valleys and

streams, destroying trout habitat in apparent violation of Canada’s Federal Fisheries Act, which prohibits degradation of fish bearing streams. Cardinal River promises to turn the unfilled pits into artificial lakes and stock them with trout. But

Mike Bracko, a retired plant manager at Cardinal River’s Luscar Mine and the leader of local opposition to the Cheviot mine, doesn’t believe that artificially stocked

coal pits can ever replace the alpine streams that he fished as a boy. As Bracko recently told The Edmonton Journal, ‘‘I haven’t personally seen a man-made lake that

can compare with a natural one. I don’t believe Cardinal River is above the Creator.’’

Unfortunately, thanks to the legislation adopted last May in Alberta, Mr. Bracko

would be denied legal recourse if the Alberta environment ministry approves Cardinal Rivers’ permit application in violation of provincial environmental law. In the

globalized North American economy, wishes of ordinary citizens must take a back

seat to the power of giant transnational corporations like Consolidation Coal.

2. The US-Mexico Border—The site of 2,500 mostly foreign-owned maquiladora assembly plants, the US-Mexico border became a symbol during the NAFTA debate

of the disparity in environmental protection between the United States and Mexico

and a key test of the ability of free trade to protect the environment. Today the border is worse off than ever. The number of maquiladoras has gown by 15–20 percent

since NAFTA took effect while the maquiladora workforce has surged by nearly 50

percent. Yet no additional resources have been made available for environmental

protection. A recent article in Texas Business calls the border ‘‘one of the most polluted regions on the globe.... By most accounts, the border environment is getting

worse, with millions of gallons of raw sewage a day pouring into the [Rio Grande]

waterway and tons of garbage stacking up on the Mexican side of the border. Hundreds of thousands of people on both sides of the border live in colonias, which lack

adequate water and wastewater treatment and solid waste disposal.’’

To tackle these problems, the NAFTA deal created a new funding institution, the

North American Development Bank (NADBank) to provide $2 billion of loan guarantees for environmental infrastructure, mostly water supply, sewers, and municipal

waste facilities. Rather than simply tax the maquiladora owners to make them

shoulder their responsibilities to the families who work in their plants, the

NADBank set up a shaky funding scheme that relies on government guarantees to

attract private investment for clean up projects. However, Mexico’s December 1994

peso crisis shook investors confidence in NADBank, so they are reluctant to finance

projects. Mexican border towns hard hit by the peso’s collapse also won’t borrow
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from NADBank because its rates are actually higher than already unaffordable market rates. As a result only about $10 million has actually flowed to the border from

the NADBank, less than one percent of the promised funding. Carlos Melcer, an economist who helped design the NADBank, summed it up this way: ‘‘People are very unhappy and people are very disappointed.’’ Actually the border’s working families are more than disappointed. The suffer from hepatitis at

more than three times the rate of their US neighbors, as well as from such preventable diseases as typhoid, amoebic dysentery, and parasitic infections. Some argue that the NADBank’s failures were caused by the peso’s collapse, and had nothing to do with NAFTA. In fact, political pressure from the United States

on Mexico to run a trade deficit with the United States in the run-up to the NAFTA

vote laid the basis for the peso’s overvaluation and eventual collapse. Given its obligations to make payments in dollars on its massive foreign debt, Mexico must run

a trade surplus with the United States as a matter of course. While more timely

intervention by Mexico’s Treasury to reduce the peso’s value might have avoided a

crisis, the underlying pressure on the peso was, in fact, closely related to the politics

of NAFTA passage in the United States.

II. ATTACKS ON ENVIRONMENTAL PROTECTIONS

The new trade rules enshrined in trade agreements and institutions like the

NAFTA and the WTO/GATT attempt to attack increase trade flows by eliminating

so-called ‘‘non-tariff barriers’’ to trade (NTBs). Under current trade rules, NTBs can

be any law or practice that has the effect of interfering with trade. Challenges to

our environmental standards as trade barriers are heard by tribunals of trade experts operating behind closed doors. The public has no right to participate. If laws

are judged trade-illegal, they must either be changed—or the guilty party could face

trade restrictions. Of perhaps even greater concern than the formal trade dispute

resolution process, trade lawyers and lobbyists have taken a cue from the new trade

rules to seek preemptive changes by congress and by regulators to US environmental, safety, and health standards before those standards become an issue in

international disputes. The effect has been to give hand industry insiders new levers

to complicate, slow, and potentially derail the difficult task of protecting public

health and the environment. Here are just two examples.

A. Clean Air Threatened

In its very first ruling in early 1996, the World Trade Organization ruled that a

key part of the US Clean Air Act must be changed to square with international

trade rules. EPA is now rewriting the challenged Clean Air Act rules for reformulated gasoline (RFG) to comply with the WTO decision, raising the possibility of reducing the effectiveness of the RFG program and increasing ground-level ozone pollution in some of our most polluted cities. Ironically, the EPA has now proposed

toughening ozone and soot standards to eliminate respiratory problems in 250,000

children each year. The WTO could help undo tougher public health protections that

EPA backed by 3,000 health studies thinks are necessary.

The RFG rule attempts to improve gasoline cleanliness by 15 percent over 1990

standards. In creating the rule, EPA faced a difficult question about international

enforcement. US refiners are required to document the quality of gasoline they

produce year by year. Their data tend to be highly reliable because/ companies know

EPA can take them to court for infractions. In contrast, foreign refiners are outside

US jurisdiction, so their data on gasoline quality cannot be easily verified or enforced. As a result, the RFG rule allowed individual US refiners to reduce pollutants

from the baseline of their own 1990 production. Importers, in contrast, had to reduce gasoline pollutants from the baseline for the same pollutants in all gasoline

sold in the United States in 1990. As a result, foreign refiners producing gasoline

that is dirtier than average had to clean up their gasoline relatively more than a

similar US refiner. However, those foreign refiners whose gasoline was cleaner actually had less cleaning up to do than the typical US refiner.

Venezuela, a producer of dirtier gasoline, successfully challenged the RFG rule in

the WTO, charging trade discrimination. In re-writing the RFG rule to eliminate the

disparate treatment of dirty-gas producers, US air quality may suffer. Already EPA

has demonstrated it can be persuaded to do so. In early 1994, the EPA drafted new

RFG rules under pressure from State Department officials seeking to head off a

trade challenge. The draft rules would actually have reduced the effectiveness of the

RFG program in major cities like Boston and New York by 10 to 25 percent, in order

to accommodate imports of dirtier gasoline.

The EPA’s decision to comply with the WTO RFG ruling implies that the federal

government is willing to square all domestic environmental, health, and safety
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standards with WTO rules. No doubt, scores of Washington, DC lawyers will use

the leverage they gain from international trade rules to slow down, change, or stop

public health standards which their clients consider burdensome. Attorney Carole

Stern recently made the point abundantly clear in The Washington Times. After the

RFG ruling, US regulators, she stated, ‘‘may need to coordinate with the U.S. trade

representative or Commerce or other departments in review of these regulations to

make sure they’re not inadvertently giving an opportunity for economic challenge

[in the WTO], because if the result of that is that it makes the regulation unenforceable, it will have a negative effect.’’ In plain English, new international trade rules and institutions throw a wet blan- ket over the ability of federal and state government to protect the environment and

public health. We should not increase constraints on democratic government from

additional international trade and investment rules until we fully understand the

implications of those rules now in place.

B. The Consumers Right-to-Know Jeopardized

Largely thanks to the WTO, independent, third-party ecolabeling programs, whether private or governmental, have come under attack in a variety of domestic

and international fora. The attacks have gained new intensity during the last year.

If effective, these attacks would sharply curtail the right of consumers to know

about the environmental impacts of products and services they buy. In addition, citizens organizations could lose an important, voluntary, market-based mechanism to

encourage environmentally and socially preferable practices in a wide variety of industries. The stakes for the environment are especially high in an increasingly global marketplace, where production processes are frequently beyond the reach of

strong domestic regulations and consumer choice provides one of the only incentives

for environmentally sound production. The attack on ecolabeling has been mounted quietly by a sophisticated, well- funded coalition of industry lobbyists. Those lobbyists have carried their campaign

into a broad array of domestic and international fora. The industry coalition is comprised of eleven trade associations in the paper, electronics, packaging, and cleaning

products industries (among others) purportedly representing 2900 companies with

more than $1 trillion in annual sales. The ostensible purpose of this coalition, which

calls itself the Coalition for Truth in Environmental Marketing Information

(CTEMI), is to promote the marketing of objective, factual information about environmental aspects of products so that consumers may make informed purchasing decisions.

In fact CTEMI is dedicated to doing away with third-party seal of approval pro- grams, which it considers ‘‘fundamentally flawed.’’ Its campaign accuses seals of

being barriers to trade, obstacles to innovation, subjective and unscientific, and ineffective at educating consumers. CTEMI has taken these and other arguments to many U.S. Federal agencies and

international organizations over the past year-and-a-half. Perhaps its greatest success so far was nearly convincing the U.S. Trade Representative last June to propose general principles of ecolabeling before the Committee on Trade and Environment of the World Trade Organization. These principles, which, for example, called

for ecolabeling to be based on ‘‘sound science,’’appeared under the guise of a code

of good practice but would clearly have been used to suppress ecolabeling programs

around the world.

Also on the international level, the International Organization for Standardization

(ISO), an industry-dominated international standard-setting body, is now developing

rules for ecolabels that would sharply constrain the way labeling systems operate.

Proposed rules would dictate ecolabeling standards, the way in which standards are

developed, and the form of the label itself. Perhaps the most insidious provision in

the draft standard is a requirement to achieve consensus in developing criteria.

Given that ecoseal programs represent environmental leadership in the market, a

mandate for consensus with industry is tantamount to blocking or devaluing the

standards on which ecoseals are based.

While ISO standards themselves are nominally voluntary, the ISO is recognized

as an official international standard-setting body under the World Trade Organization (WTO). The WTO could ultimately require adoption of ISO standards by both

governments and independent labeling programs. Even in the absence of formal

WTO requirements to adopt ISO standards, the huge advertizing budgets of industries that might subscribe to ISO-based ecolabeling standards could be used to flood

markets with claims about the environmental benefits of ISO-certified products,

overshadowing the presence of independent, third-party labels in the marketplace.

In addition, the WTO itself is now debating new guidelines for ecolabeling programs. The application of current WTO rules to ecolabeling programs is ambiguous.
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A range of interests, including several developed nations and an overwhelming number of developing nations, as well as members of the international business community, are pushing for a strict interpretation of these rules in order to constrain

ecolabeling programs, including private, voluntary programs. Such a restrictive new

interpretation of WTO rules may arise through any of a variety of channels: through

an interpretive declaration by the WTO trade ministers, through an opinion issued

by a formal WTO dispute settlement panel, or through adoption of new rules or interpretive language by one of the WTO’s standing committees. In addition to these generalized attacks on ecolabeling through international and domestic institutions, specific industry actors who fear that their poor environmental performance will become a competitive disadvantage, are using both international and domestic fora to wage battles against individual ecolabels programs.

For instance, certain paper and textiles companies are lobbying to have the United

States, and/or other third party nations bring a WTO challenge to the ecolabels

being developed by the European Union. Given the inherent pro-trade bias of the

WTO, and because the party bringing any such challenge would pick a case with

the most trade-egregious facts, such a challenge offers another way in which broad

new constraints could further weaken the consumer’s right to obtain environmental

information through ecolabels.

The attack on the consumers’ right to know jeopardizes independent, third party

labeling programs covering a host of products that affect an enormous array of environmental and social values. Examples include timber and wood products from wellmanaged forests; fruits and vegetables produced under conditions that attempt to

preserve local environmental and social values—such as limits on the use of artificial pesticides and fertilizers, clean water, soil conservation, decent labor conditions,

and preferences for family farmers; consumer products such as paints and cleaners

which limit toxics in the home and in production; milk produced from cows treated

with bovine growth hormone (BGH), a product linked by preliminary scientific data

from Europe to elevated rates of breast cancer and other health problems, and; coffee produced under traditional ‘‘shaded’’ conditions which eliminates the need for artificial pesticides while preserving wildlife and traditional, small-farmer communities in developing countries.

Ultimately, other types of consumer labels, such as those indicating products

made with good labor practices, could also be undermined. Jeopardized labels include the ‘‘rugmark’’ label indicating oriental rugs made without child labor, and

good labor practice labels indicating that clothing was not made under sweatshop

conditions.

III. THE FUTURE OF US TRADE POLICY

Rather than address squarely the failures of the current trade policy, policymakers seem intent on adding fuel to the fire. The Clinton Administration will soon

request fast-track authority from Congress to negotiate expansion of the NAFTA to

Chile and possibly beyond. In addition, the Organization for Economic Cooperation

and Development (OECD) might complete negotiation of a Multilateral Agreement

on Investment (MAI) in May.

Both agreements are fraught with environmental peril.

A. NAFTA Expansion—Approval of the NAFTA by Congress in the fall of 1993

was based on assurances that each of the NAFTA countries had strong environmental laws, but only enforcement was lacking in the case of Mexico. As indicated

above, the NAFTA environmental side agreement was negotiated to encourage effective enforcement by offering the opportunity for citizen complaints for persistent

patterns of failure to effectively enforce environmental laws. In addition, NAFTA

Article 1114 allows for consultations between governments if any country waives its

environmental law to attract investment.

The principle of ‘‘good laws, well-enforced’’ enshrined in the NAFTA environmental side agreement and in NAFTA Art. 1114 is relevant to any US trading partner even if we do not share borders—and therefore a high risk of cross-border pollution. If actually implemented, the principle of ‘‘good laws, well-enforced’’ could help

prevent countries from competing with each other in the international market by

weakening their laws or relaxing enforcement. As we have seen, the NAFTA deal

did not provide the teeth strong enough to make this good idea a practical reality.

Even so, Chile—and other potential NAFTA partners in Latin America—do not

meet the basic test applied to the original NAFTA members. Chile does not have

a strong system of environmental protection. It lacks regulations to implement its

framework environmental law. And it lacks any protection whatever for its Native

Forests. As a result, Chile’s Central Bank now predicts that logging for export will

destroy all of Chile’s native forests within thirty years.
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While adding Chile to NAFTA may have relatively small overall environmental and economic impact, Chile will also set the pattern for proposals to expand NAFTA

to additional countries. It makes little sense to expand a failed agreement without

substantially improving it. In particular, readiness criteria should be established to

ensure that any potential NAFTA partner adopts and enforces strong environmental

laws. The obligation to effectively enforce strong domestic environmental laws must

be enforceable through a binding international dispute mechanism. That mechanism

should be a core part of any trade agreement, and not relegated to a side bar. Finally, NAFTA should establish a secure, dedicated source of funding for environmental enforcement and infrastructure.

B. The Multilateral Agreement on Investment

The (MAI raises even greater cause for concern than NAFTA expansion. Originally negotiated in the OECD, a ‘‘club’’ of the world’s richest nations, the MAI will

be offered to developing countries who agree to its terms on a ‘‘take it or leave it’’

basis. The MAI will open all economic sectors to foreign investment, strip countries

and states of the right to adopt laws and regulations which have the effect of discriminating against foreign investors, and allow foreign investors to directly challenge our laws in domestic courts under the MAI’s rules. In addition, increased capital mobility under the MAI will further increase investors’ ability to play countries

off against one another for tax breaks, low wages, and concessions on their environmental obligations.

1. Threats to US Environmental Laws—A number of US environmental laws are

already considered vulnerable under the MAI. Examples include:

• Recycled-content laws which tend to favor domestic firms better able to source

production inputs locally;

• the Community Reinvestment Act (CAR), which requires banks to lend a portion of their deposits to the communities where they are based. The CAR could be

vulnerable under the MAI on grounds that it puts a competitive handicap on foreign

banks which chose to operate in lower income communities. The CAR is important

environmentally because it helps concentrate investment in inner city neighborhoods, reducing the tendency for urban sprawl, and

• Land-use restrictions around parks and protected areas, which could be interpreted under the MAI as partial expropriations of private property.

2. Racing Toward the Bottom, Again—Moreover, increased flows of foreign investment to developing countries with inadequate environmental laws could jeopardize

environmental resources of international significance. Developing countries desperate for foreign capital will be tempted to ignore environmental impacts, exacerbating the international ‘‘race toward the bottom.’’

To cite just one example, thanks to relaxation of investment restrictions, mining

investment in Brazil leapt to $2.5 billion last year from an average of only $40 million per year over the previous five years. According to The Wall Street Journal,

the catalyst for the investment surge was elimination of a 49 percent cap on foreign

participation in mining ventures. It is precisely this type of discrimination between

foreign and international investors that the MAI will eliminate globally.

Due to both geography and size, Brazil holds South America’s richest deposits of

gold and other precious metals. Unfortunately, many of the deposits lie under the

Amazon rainforest, a region of incalculable biological richness and a vital sink for

carbon emissions that would otherwise accelerate global warming. Indeed, Brazil’s

rainforests are in deep trouble if the interests of transnational investors prevail. According to The Journal, ‘‘The most notable challenge is obtaining reliable geological

data in a country that is still largely unsurveyed and covered by great swaths of

inhospitable jungle. ‘The country isn’t mapped in detail, and you’ve got all those

darn trees in the way.’ says Ross Lawrence, a Toronto-based mining consultant.’’

Destruction of the Amazon rainforest is already accelerating with the influx of mining investment, road construction, and commercial logging as timber companies gain

access to trees along roads often built for miners. If Brazil’s case is any indicator,

the world’s rainforests will come under increasing pressure should the MAI go forward.

IV. THE ENVIRONMENT COMMUNITY SAYS ‘‘ENOUGH IS ENOUGH’’

In response to the growing evidence that US trade policy does not respect environmental realities, environmentalists have joined together across the NAFTA divide

to call for an ‘‘environmentally responsible trade policy.’’

1. MAI—On February 13, Sierra Club, National Wildlife Federation, and the

World Wildlife Fund joined six other organizations in calling for a one year postponement of the MAI. In addition, our organizations called for a) an environmental
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review of the MAI consistent with OECD and Clinton Administration policy, b) the

promulgation of environmental ‘‘readiness criteria’’ to ensure that MAI members

have and enforce strong environmental laws, c) mandatory, enforceable requirements to prevent weakening of laws to attract investment, d) measures requiring

investors to operate under the stronger of host or home country environmental laws,

e) guarantees that the MAI could not be used to weaken or eliminate legitimate environmental protections, f) measures updating the 1976 OECD guidelines on Multinational Enterprises, and g) measures to open up dispute resolution under the MAI

to the public and to environmental experts.

The long list of demands reflects our concern that the MAI slips well below even the inadequate NAFTA in its sensitivity to environmental concerns. 2. Fast-track.—On February 27, Sierra Club and National Wildlife Federation joined four other environmental organizations in calling on the Administration to

seek fast-track authority with specific environmental negotiating objectives. To put

US trade policy on an environmentally responsible path fast track needs to include

negotiating objectives to (a) safeguard US environmental laws, b) ensure that international corporations comply with high environmental standards no matter where

they operate, c) ensure that our trading partners have strong environmental laws

consist with their sovereign rights to establish appropriate domestic development

policies, and d) require environmental assessment of new trade agreements. We believe that the proposals in these two letters are the minimum necessary

measures to ensure an environmentally responsible trade policy. I hope the Committee will take them seriously under consideration. So doing, you will be in step with

the wishes of US voters, 73 percent of whom believe that environmental and labor

issues should be addressed in trade agreements, according to a recent BankBoston

survey.

So doing, you will also address the disquiet growing among a broad range of

globalization advocates, from Thomas Friedman on the op-ed pages of The New

York Times to the 1,000 corporate executives recently gather in Davos, Switzerland

for the World Economic Forum. These voices of the establishment have now begun

to wonder whether willy-nilly globalization can really achieve its aims. As this subcommittee considers the future of US trade policy, I would in particular urge you

to consider the words of Harvard Professor Michael Sandel, recently quoted by Mr.

Friedman. As Sandel writes, ‘‘Democracy today is not possible without a politics

that can control global economic forces, because without such control it won’t matter

who people vote for -corporations will rule.’’

For the sake of our democratic ways, if for nothing else, let’s get off the ‘‘free-forall’’ free trade merry-go-round. Let’s seek a path to a responsible trade policy.

Mr. Holmer.

Chairman CRANE. Thank you.

f

STATEMENT OF ALAN F. HOLMER, PRESIDENT, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA

Mr. HOLMER. Thank you very much. My name is Alan Holmer.

In the mideighties, I ran the dumping and countervailing duty program at the Commerce Department. During the second Reagan administration, I was Clayton Yeutter’s general counsel, and I was

Deputy U.S. Trade Representative for the last 2 years of the

Reagan administration.

I was here with the Subcommittee and the Full Committee for

the 1985 trade bill, which went nowhere; the 1986 trade bill, that

died in the Senate; and the 1988 trade bill and the United StatesCanada Free Trade Agreement, both of which became law.

I know about the challenge of establishing a trade policy and renewing fast track in an environment where you have a President

that is of one party and a Congress of another party.

I am pleased to testify this afternoon on behalf of the Pharmaceutical Research and Manufacturers of America, including companies like Searle in Illinois; in California, companies like Amgen,
137

Genentech, and Alza; in New York, companies headquartered there

like Pfizer and Bristol-Myers Squibb. These are the pioneer companies, the companies that develop over 90 percent of all new medicines that are made in the United States. Our business is biomedical innovation. Our mission is to discover and develop new

medicines to prevent and to cure disease.

When we succeed, everyone succeeds. Americans and people all

the world over lead longer, happier, healthier, more productive

lives. Last year alone, we brought 53 new medicines to market, covering 40 different diseases, including heart disease, cancer, Alzheimer’s, asthma, glaucoma, and multiple sclerosis. Our companies

don’t plan to stop there. In 1997 our companies will invest $19 billion on research and development, over 21 percent of sales.

The issue before this Subcommittee this afternoon is of vital importance to biomedical innovation. Our innovation suffers from inadequate pharmaceutical patent protection in markets around the

world. The TRIPs agreement that was negotiated in the Uruguay

round under fast track moves us very much in the right direction,

but not fast enough and not far enough. That is why the Uruguay

Round Agreements Act calls for acceleration and improvement of

TRIPS.

More generally, the United States needs new fast track authority. First, we need fast track authority to stimulate economic

growth and job creation. In today’s global market, we need access

to customers, suppliers, goods, services, and markets all over the

globe. If we regress from or stall on trade liberalization, the United

States will fall behind. Our economic growth will be suboptimal,

and we will have fewer new jobs.

You have heard all the reasons about that in the testimony that

has been presented this morning and this afternoon, and I won’t

try to repeat it here, but I would like to focus on two issues that

you, Mr. Chairman, and Mr. Matsui raised earlier.

The first relates to NAFTA. Obviously, there was a financial crisis recently in Mexico. The last time they had a comparable crisis,

as you mentioned, was in 1982, and what they did was they increased the tariffs on U.S. exports going to Mexico, and our exports

fell by one-half.

This time, they had a financial crisis, and what did they do?

Well, Mexico raised tariffs on all sorts of countries around the

world, but not against United States exports because they couldn’t.

They couldn’t do it because we have NAFTA. The NAFTA protected

U.S. interests. As a result, U.S. exports are already back now at

record levels to Mexico.

Second, an issue that both you, Mr. Chairman, and you, Mr.

Matsui, raised about the lack of attention from the public and the

fact that there is not uniform support in the United States for free

trade. I think that is right, but I don’t see anything that has occurred as being really a seismic shift.

I can remember being at USTR back in 1985, back when we had

a $170 billion trade deficit. You will remember this, Mr. Matsui.

Remember the Rostenkowski-Gephardt-Bentsen bill, the one that

was going to establish a mechanical way of addressing the trade

deficit with Japan? I can remember your former staff director,

Rufus Yerxa, calling me up down at USTR saying, ‘‘Alan, there is
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just no constituency up here for free trade.’’ That was 12 years ago,

and those were difficult times, but the answer is not to retreat. The

answer for all of us—including the private sector to do a better job

of educating the American people on the benefits of open markets,

the benefits of strong intellectual property protection, and the benefits of free trade.

Engagement will not solve all of our problems, but retreating won’t solve any of our problems. Thank you, Mr. Chairman.

[The prepared statement follows:]

Statement of Alan F. Holmer, President, Pharmaceutical Research and

Manufacturers of America

Good morning, Mr. Chairman and Members of the Subcommittee. I am Alan Holmer, President of the Pharmaceutical Research and Manufacturers of America,

or PhRMA. PhRMA represents the country’s major research-based pharmaceutical

and biotechnology companies, which are leading the way in the search for new cures

and treatments that will enable patients to lead longer, healthier, and more productive lives.

There is no industry in America that is more committed than ours to innovation, and the ability to innovate depends, in turn, on strong protection of intellectual

property rights in the United States and around the world. That is why I appreciate

this opportunity to discuss PhRMA’s views and objectives on U.S. trade policy,

which we hope to achieve by working with this Subcommittee, Congress, and the

Administration.

The Committee’s announcement of this hearing touched on several issues directly relevant to innovation, and, specifically through biomedical innovation, to improved

healthcare and better lives for patients all over the world. If U.S. industries, such

as pharmaceuticals, are to capitalize on their strengths, U.S trade policy must focus

on breaking down trade barriers, including lack of adequate intellectual property

protection for American products. Open overseas markets are critical to the continued success of the U.S. research-based pharmaceutical industry, which generates almost one-half of its sales in foreign markets.

SUMMARY

This testimony, after providing a brief background discussion of the intellectual

property provisions in the North American Free Trade Agreement (NAFTA) and the

Uruguay Round Trade Agreements that established the World Trade Organization

(WTO) as well as some pertinent data about our industry, will focus on several

areas that raise concerns and present opportunities for U.S. trade policy. It will consider:

• Bilateral Trade Problems and Opportunities

• China’s Accession to the WTO

• Multilateral Agreements/Issues

• Transatlantic Business Dialogue (TABD)

The following are among the major points made in the testimony:

• Three countries present special problems because of their total failure to provide adequate intellectual property protection—Argentina, India, and Egypt.

• China is negotiating to join the WTO, but the pharmaceutical industry has

grave concerns about whether the U.S. should support China in this effort in view

of its intention to impose price/profit controls on drugs and its lack of effective enforcement of its patent law.

• PhRMA strongly supports the granting of ‘‘fast-track’’ negotiating authority to

begin the process of expanding NAFTA.

• The Transatlantic Business Dialogue presents another important vehicle for

pursuing U.S. trade objectives.

BACKGROUND

As noted by the Committee, the 103rd Congress passed two landmark trade

agreements, NAFTA and the Uruguay Round Trade Agreements that established

the World Trade Organization. Both of these agreements were pushed by the United

States to open foreign markets to competition, trade, and investment.

Both agreements contain important sections on intellectual property protection

that have wide-ranging regional and global effects. The NAFTA, specifically Chapter
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17, represents the highest standard of intellectual property protection ever achieved

by the United States in an international agreement. NAFTA provided effective legal

protection for pharmaceutical patents, including pipeline protection that enabled

U.S. inventors to obtain patent protection for medicines already patented in the

United States but not yet marketed (or patented) in Mexico. The Mexican patent

law implementing these NAFTA provisions took effect immediately for all fields of

technology, including pharmaceuticals. PhRMA strongly believes that the NAFTA in- tellectual property provisions should be the model for future trade agreements. Regrettably, the intellectual property section of the WTO Uruguay Round Agree- ment, the Trade Related Aspects of Intellectual Property, or TRIPs, falls short of

the NAFTA standard. Although the two agreements contain similar substantive provisions, TRIPs, at the insistence of a number of developing countries, allows such

countries to delay pharmaceutical patent protection until 2005. Furthermore, unlike NAFTA, TRIPs provides no pipeline provision, leaving many life-saving, breakthrough new medicines subject to patent piracy in such important

markets as Argentina, India, and Egypt. Because of these two major flaws in the

TRIPs agreement, when the 103rd Congress approved the Uruguay Round Agreement Implementation Act, it stated that the United States will seek both an acceleration of TRIPs implementation and enactment of laws in foreign countries to

strengthen TRIPs standards. Patent piracy reduces the amount of revenue that companies can invest in re- search and development. Pharmaceutical R&D is costly, lengthy, and risky. On average, it takes more than $500 million and 12–15 years to discover, develop, and

obtain approval of a new medicine. And only one in 5,000 compounds ever makes

it to market. The political risks are steep as well. Throughout the world, costcontainment pressures and regulatory impediments inhibit the industry’s ability to

continue its high level of investment in new products. Despite these disincentives, PhRMA companies continue to lead the world in

pharmaceutical innovation. This year, these companies are investing a record $19

billion in research and development—21 percent of sales. But to maximize the benefits of biomedical innovation, the U.S. Government must pursue a trade strategy

that builds on our national and industrial strengths. The issues discussed below present our views on important U.S. trade problems

and challenges.

BILATERAL TRADE PROBLEMS AND OPPORTUNITIES

Argentina

Unlike its neighbors Brazil and Mexico, Argentina has not attempted to halt fla- grant pharmaceutical patent piracy. Despite repeated assurances by Government officials over the past eight years, Argentina still does not protect pharmaceutical patents and Argentine pirates continue to expand their business in other Latin American countries, exporting pirated pharmaceutical inventions and obstructing initiatives to improve the level of protection in the hemisphere.

In March 1996, Argentina approved a new patent law, which, due to its deficiencies, ambiguities, and contradictions, fails completely to provide protection for

pharmaceutical patents. The new legislation falls far short of the commitment made

by President Menem in 1989 to enact a patent law in Argentina that would afford

product protection for pharmaceuticals immediately, provide protection to products

in the pipeline, and severely limit the compulsory licensing of patents.

Under the 1996 legislation, pharmaceutical product patent protection is deferred

until October 2000. Due to the lack of protection for medicines in development (the

pipeline) and other severe deficiencies, however, effective pharmaceutical product

protection cannot be expected even after that date. Deficiencies in the law include

restrictions on biotechnology; exceptions to patent rights and open-ended compulsory

licensing; ambiguous language on exhaustion of rights; lack of protection to health

registration data, and ineffective enforcement procedures.

Consequently, the new legislation does not fulfill several minimum mandatory

standards to protect intellectual property included in the multilateral WTO/TRIPs

Agreement. Thus, it is clear that patent protection will not be effectively enforced

even after TRIPs is fully implemented. Further, extensive litigation is likely to attempt to resolve the many ambiguous and contradictory provisions in the patent

law.

On December 18, 1996, the Argentine Congress approved legislation on trade secrets that also falls far short of international standards and TRIPs. The law does

not provide any protection to the proprietary data that pharmaceutical companies

submit for registration. Article 5 compels the Ministry of Health to approve similar

products (i.e., copies) in a maximum of 120 days based on the submission of minimal
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information. By not providing a term of protection (as is the case with similar legislation in other countries), a competitor does not have to submit its own data during

that term and, thus, can be in the market in less than four months.

The lack of effective pharmaceutical patent protection is ultimately detrimental

to Argentina. Argentine patients suffer because the country’s capability for innovative biomedical research has been stifled without intellectual property protection,

and foreign investment continues to flow to other countries. For example, following

Brazil’s passage of a strong intellectual property law, U.S. pharmaceutical companies announced investments in that country of about $1 billion.

In 1995, PhRMA estimated that its member companies lost $540 million to Argentine patent pirates. Current market trends show losses running at the same level.

However, exports by Argentine pirates to other Latin American countries increase

this figure by millions of dollars due to the loss of potential U.S. exports to other

countries.

India

India remains one of the world’s worst offenders of patent rights. Under the Indian Patent Act of 1970, the country provides no effective protection for pharmaceutical patents. As a result, India is becoming a haven for bulk pharmaceutical

manufacturers that pirate the intellectual property of companies from other countries.

While India has a few immediate TRIPs obligations, notably to provide a statutory

basis for implementation of the mailbox requirements and the five-year marketing

exclusivity provisions in the TRIPs Agreement, it has failed to comply even with

these minimum requirements. To attract foreign direct investment and join the

growing group of developing and newly industrialized countries that have decided

to offer first-rate patent protection, India should adopt a patent law that offers immediate product patent protection for pharmaceuticals, including pipeline protection.

USTR has filed a formal complaint in the WTO against India, asking for a panel

to be convened to consider the country’s refusal to provide minimum protection for

pharmaceutical products under TRIPs. While this is a positive step, PhRMA urges

a stronger U.S. Government effort to obtain effective intellectual property protection

in India.

Significantly, after the Indian Government changed its copyright law several

years ago, both local and foreign investors proceeded to create a Silicon-valley style

industry in the Bangalore region, employing thousands of skilled computer specialists who no longer had to leave the country to find gainful employment.

Egypt

Egypt is a significant market—indeed one of the largest—in the Middle East/

Africa region, but it does not provide any meaningful patent protection for pharmaceuticals. This not only harms our industry, but also leaves Egypt behind many

other countries, such as Mexico and Brazil, that have enacted effective intellectual

property regimes that benefit their patients, their healthcare systems, and their

economies.

A draft law has been prepared by the Government and is now awaiting two key

Government recommendations before it is submitted to the Parliament—on the

length of any ‘‘transition’’ period before which product patent protection will be effective, and on whether pipeline protection will be included. Most of the substantive

provisions reflect the standards established by TRIPs. However, a draft prepared

more than two years ago did not contain a clause for delayed implementation and

included a pipeline clause. Due to the influence of companies opposed to patent protection in Egypt, as well as efforts by anti-patent forces in Argentina and Canada,

these two crucial issues are now undecided.

The United States, with its large foreign aid commitment to Egypt and numerous

other bilateral programs, has many channels of communication with the country, including the Gore-Mubarak Partnership. We urge that Congress ensure that all possible courses of action are identified and used to persuade Egypt to improve its intellectual property regime.

CHINA’S ACCESSION TO THE WTO

There are few trade issues that will be as important this year as China’s accession

to the WTO. We understand that the Administration wants these negotiations to

proceed smoothly, but also wants China to remove the impediments to accession before the U.S. supports its bid.
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PhRMA has identified ‘‘pharmaceutical price and profit controls’’ and ‘‘administrative protection’’ of pharmaceutical patents as the two principal issues affecting our

industry’s interests in China and our priorities in the WTO accession negotiations. The proposal to impose price controls is a critical recent issue that raises serious

questions about China’s commitments to open trade. The details of such controls

have not been disclosed by the Chinese Government. In a meeting in early March

with industry representatives, however, officials of the State Pharmaceutical Administration of China (SPAC) and the State Planning Commission made it clear that

price controls will be implemented by the end of this year. Price controls would seriously compromise existing investments and the willing- ness of foreign pharmaceutical firms to continue to invest in China. These controls

would create enormous market distortions and would undermine the spirit of the

WTO, depriving foreign firms of many of the benefits conferred through Chinese accession.

Another area of great concern to PhRMA companies is the lack of compliance with the United States-China Memorandum of Understanding (MoU) on Intellectual

Property Protection, with specific reference to ‘‘administrative protection’’ of qualifying pharmaceutical patents. The SPAC, mentioned above, is responsible for administering provisions for ‘‘pipeline’’ or marketing exclusivity. These provisions have

been implemented unevenly and with stringent and cumbersome requirements. In

several cases, a Chinese company has been able to register a copy of a U.S. original

product even though the U.S. company has been informed that it has been given

marketing exclusivity under the provisions for ‘‘administrative protection.’’ If China’s Government does not comply with the provisions of the MoU, it is dif- ficult to believe that it will comply with its accession provisions to the WTO. Certainly, if China does not adequately address these problems, our industry will not

be able to support China’s accession.

MULTILATERAL AGREEMENTS/ISSUES

Free Trade Area of the Americas (FTAA)

The Free Trade Area of the Americas (FTAA) provides an opportunity for the US Government to negotiate increased trade liberalization in the Western Hemisphere.

NAFTA was a landmark agreement that lowered many barriers, eliminated many

tariffs, and significantly upgraded the terms of intellectual property protection.

PhRMA supports the granting of ‘‘fast-track’’ negotiating authority to begin the

process of expanding NAFTA. By establishing NAFTA’s standards, particularly in

intellectual property, as regional standards, important bilateral objectives may be

achieved, such as stopping Argentine patent piracy.

Asia-Pacific Economic Cooperation (APEC) Forum

PhRMA strongly supports the 18-member Asia Pacific Economic Cooperation (APEC) forum and the principles of free trade on which it was founded. Specifically,

we support APEC’s efforts to develop more transparent trade and investment systems, streamlined approval and registration processes, and lower tariffs. APEC also

reinforces the WTO’s commitment to ensuring the development of free and fair

international trade practices. Finally, we believe that our industry’s active participation in, and support for, the APEC forum will foster goodwill and strategic connections in the region.

Doing business in the Asia-Pacific region is fraught with difficulty and ambiguity,

especially for the research-based pharmaceutical industry that depends heavily on

high standards of intellectual property protection and is heavily regulated. It can

be difficult to determine what tariffs and commercial regulations apply to particular

transactions or what government agency is responsible for granting licenses. The result often is costly legal entanglements, time wasted, and bad business decisions.

APEC seeks to ameliorate some of these problems. For instance, the APEC Committee on Trade and Investment is developing a tariff database that will list each

member’s tariff structure and customs process. The Subcommittee on Customs

hopes to publish a customs guidebook with information on current regulations and

non-tariff barriers. Additionally, APEC’s efforts to harmonize members’ regulatory

and approval processes across a wide-range of industry sectors, including the pharmaceutical sector, will facilitate business transactions and reduce the time and

money spent on launching a new product in the region.

Although many of our member companies doing business in the APEC area expect

eventually to manufacture regionally much of what is now being exported there,

APEC’s efforts to reduce tariff rates will make it less costly for PhRMA companies

to import necessary raw materials and to export regionally manufactured products

throughout the Asia-Pacific region. For example, China, at the prodding of fellow
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APEC members, agreed at the 1995 Osaka Ministerial meeting of APEC to reduce

tariff rates by 30 percent on more than 4,000 items, many of which are

pharmaceutical-related.

PhRMA also supports APEC because it serves to bolster the WTO. Thus, it appears that China may use APEC as a vehicle for implementing certain measures

that fulfill WTO obligations or for discussing possible implementation of measures

that suit APEC’s aims and WTO’s obligations.

TRANSATLANTIC BUSINESS DIALOGUE (TABD)

The TransAtlantic Business Dialogue (TABD) is another important vehicle for

pursuing U.S. trade objectives. The TABD aims to facilitate closer economic relations between the U.S. and the European Union to contribute to the creation of a

TransAtlantic marketplace. We have been involved with the TABD since its inception. In the pharmaceutical sector, the TABD is addressing mutual recognition of

manufacturing laboratory and clinical practices, acceptance of clinical trials, expert

reports, and exchange of assessment reports. It also is seeking to adopt common

harmonized technical requirements to avoid conflicting trademarks.

PhRMA supports the speedy development of a Mutual Recognition Agreement on

Current Good Manufacturing Practices (CGMP) between the U.S. and the European

Commission. Any understanding that may be reached between the two parties, however, must be based on the need to ensure that predetermined quality requirements

for drug products are met, EU and U.S. inspectors have a common level of qualifications, CGMP harmonization is facilitated, and clear and uniform interpretations are

provided on compliance.

We note that, until such time as an MRA is concluded, exports by our member

firms from the U.S. to the EU are subject to batch testing for quality assurance at

point-of-entry in the EU. This not only poses practical and immediate problems to

our members, but also creates a possible non-tariff trade barrier because U.S. imposes no such requirement on imports into this country from the EU.

Negotiations are moving slowly despite a call by industry in both the U.S. and

Europe that the parties enter into a confidence-building phase to overcome mutual

misunderstandings and distrust. At a time of scarce resources, the MRA negotiations hold the promise of achieving greater economies-of-scale without sacrificing

standards of quality assurance.

Finally, the TABD is urging stronger patent protection in Europe by calling for

avoidance of amendments to weaken patent laws in Europe and for the adoption of

the EU Biotech Patent Directive, which would harmonize patent protection for

biotechnology-derived products throughout Europe. It is also urging that price controls be replaced by market-driven competition, and that parallel trade be curtailed

as long as drug price controls exist with differing levels of patent protection.

CONCLUSION

In conclusion, Congress has several opportunities to improve the trade environment for American industry. To capitalize on our comparative advantages, as a nation and as individual industries, the Subcommittee and Congress must continue to

provide active leadership. Intellectual property protection, as a key to innovation,

needs to be improved in several important emerging markets, such as Argentina,

India, and Egypt. And, even where there has been improvement, as in China, important issues of implementation and enforcement remain. Regionally and multilaterally, economic liberalization, resulting in increased trade and investment, can be realized through the FTAA, APEC, and TABD initiatives that involve many of our

major trading partners.

Ms. Wallach.

Chairman CRANE. Thank you, Mr. Holmer.

f

STATEMENT OF LORI WALLACH, DIRECTOR, PUBLIC CITIZEN’S

GLOBAL TRADE WATCH

Ms. WALLACH. Mr. Chairman, Members of the Subcommittee,

thank you for the opportunity to testify. My name is Lori Wallach,

and I am the director of Public Citizen’s Global Trade Watch. Pub143

lic Citizen is a consumer group founded by Ralph Nader in 1972

that now has 125,000 members nationwide.

Past witnesses in today’s hearing have called for more of the

same in U.S. trade policy. In my testimony, I am calling for a time

to pause and study the outcomes of the status quo U.S. trade and

investment policy. Specifically, I propose establishing a blue-ribbon

commission comprised of diverse representatives of business, labor,

environmental, and other sectors involved in the trade and international investment debate to study the real-life outcomes of the

U.S. trade and investment policy. For the past approximately 20

years, we have been heading in one direction, and it has taken decades of planning and since the early eighties, also negotiations. Ultimately, that design, that model has been locked in with NAFTA

and the World Trade Organization.

Now the question that is posed is the one that Mr. Rangel stated

which is, What are the effects on people of that policy?

Today, we have heard from a variety of different corporations

and from some former government officials who now represent

business—their constituencies think the status quo is a good thing,

but what about the broad public interest?

I find it very interesting that USTR Barshefsky repeatedly says

the current trade debate about fast track is not about NAFTA. Actually, it is exactly about NAFTA because the fundamental question is the NAFTA model.

The recent NAFTA and GATT negotiations have culminated in

one set of rules that integrate services and goods, trade and dispute resolution that include investment rules. It is one way of

doing business. It is one set of rules.

However, when a President asks for fast track authority to expand NAFTA, we are no longer talking about negotiations in a vacuum. It is about adding more countries on to one set of rules. The

question is, Did that version work? We have had 31⁄2 years of

NAFTA to see. We will have more data under the World Trade Organization. It is on this basis of factual inquiry of outcomes for

which we call for such a blue-ribbon study.

If one studies now the real-life outcomes of NAFTA in 31⁄2 years,

NAFTA has not measured up to its proponents’ promises. In fact,

the question now is more about whether it has broken.

The whole issue is in what outcomes this set of rules, if applied

to other countries, will result. NAFTA is the set of substantive

rules we have adopted, and fast track is the process we have used

for negotiations, but only recently. Fast track has only ever been

used on five trade agreements. In fact, there are a lot of Members

of Congress who now live with the political liability of today’s trade

agreements expanding into a lot of issues beyond traditional tariffs

and quotas who are rethinking the fast track version of sharing of

authority over international commerce.

The fast track process also gets to the issue that Chairman

Crane has raised about whether there is misinformation or a lack

of information about trade.

I would say the contrary to lack of or misinformation is true as

it pertains to: For the first time the U.S. public is actually quite

aware of what the personal implications are for their jobs, for their
144

communities, for their futures of international trade and investment policy. The defenders of the status quo, the set of rules we have now

with NAFTA and the WTO, suggest that anyone who is a critic,

such as my organization, is antitrade. But, it is really not a question of ‘‘trade or no trade.’’ It is about what rules we trade by. We have now a set of rules that I think has been properly called corporate-managed trade. For instance, we subsidize investment

risk insurance. Chapter 11 of NAFTA provides at no cost to a company, insurance for their investments backed by the U.S. Treasury.

But, is that the best way to go? Thus, we pose five questions in the testimony that should be re- viewed, not the least of which is the geopolitical assumptions under

which our trade policy has been framed. Finally, why we think it is very important for this blue-ribbon panel we have proposed to be diverse goes to the issue of environment and labor that has stalled new trade negotiating authority.

Witness after witness today has tried to say these issues are external to trade policy, but indeed, they are a core part of trade policy.

What a blue-ribbon panel would have to review is: Will U.S. trade

policy recede back to a narrower set of issues such as traditional

tariff and quota terms. Or, will it, like NAFTA, have whole chapters on food safety standards, environmental standards, and so

forth? There is no way to deny that environment and other nontraditional issues are in the center of today’s trade policy. Today’s

trade pact sets rules about these areas. The real question is, Will

the treatment of these issues be balanced, or will our trade policy

be pulled back to no longer cover extraneous areas? In conclusion, either on the substance or on the politics, it doesn’t

appear the exact status quo of our current trade policy will last.

The question is, Do we plan for changes that make an inevitable

change beneficial to the public interest, or will we stand by mired

in the status quo and let those changes occur randomly?

Thank you very much, and I look forward to your questions.

[The prepared statement follows:]

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

Mr. Chairman and members of the committee, on behalf of Public Citizen and its

members nationwide, thank you for the opportunity to testify. My name is Lori Wallach. I am the director of Public Citizen’s Global Trade Watch. Public Citizen is a

consumer advocacy group with 125,000 members nationwide founded in 1974 by

Ralph Nader. Public Citizen is a member of the Citizens Trade Campaign along

with hundreds of other consumer, labor, religious, environmental, family farm and

other progressive citizens’ groups across the country. The combined membership of

the Citizens Trade Campaign member organizations is over 7 million. The issue

raised by today’s hearing is very broad one: the future direction of U.S. trade policy?

This question could be the basis—and has been the basis recently—of long books,

including some to which I and others in my organization have contributed.

Indeed, the committee should be praised for considering that broad topic. In the

past decade, U.S. international trade and investment policy has careened speedily

down one path leading to the Uruguay Round of the General Agreement on Tariffs

and Trade (GATT) and its World Trade Organization (WTO) and to the North American Free Trade Agreement (NAFTA).

Some argue we should continue straight along this old policy path—pushing for

a NAFTA for Asia through the Asian Pacific Economic Cooperation, for NAFTA-plus

global investment rules with strong WTO-style enforcement through the Multilateral Agreement on Investment and for expansion of the NAFTA’s rules to the entire

hemisphere. Many of those supporting the expansion of the old status quo of substantive international trade and investment policy also promote a continuation of
145

the old process for making international trade and investment policy. Thus, we see

negotiations on an expansive, powerful Multilateral Agreement on Investment underway since 1995 at the OECD of which virtually no Members of the U.S. Senate

or House of Representatives are aware, including those with jurisdiction over banking and other industries directly targeted by the pact. As well, the millions of families, pensioners, small investors, small and minority businesses and others who

would be directly impacted by the proposed pact have no idea it is being negotiated.

Under the current trade advisory committee, the handful of environmental and

labor representatives sprinkled into the 800 security-cleared industry advisors are

the only non-business interest representatives allowed official access to draft texts

of the agreement. Indeed, the negotiations of this proposed far-reaching international investment agreement which is planned to be completed by mid-May have

been so secretive, that state attorney generals and many high-level agency officials

in the federal government have no idea that the U.S. position in the negotiations

is to push for ‘‘investor-to-state’’ dispute resolution—the right of private investors

to be able to sue governments in binding dispute resolution to charge that the governments have broken their obligations under the international agreement. Others now argue that the time has come to pause, and in the name of prudence, to review the outcomes of our past policy decisions and the policy-making processes

that led to this status quo.

Unlike gravity or death, the system we now have in place of corporate economic globalization with its engines of NAFTA and the WTO is only one choice. This system developed in the vacuum left by unregulated corporate behavior and the unregulated flow of billions in global financial markets. It then took years of planning

and careful strategy by the interests who are benefitting from the status quo to lock

it in via international agreements such as the 1994 GATT Uruguay Round. However, just as this set of rules and incentives is resulting in one set of out- comes, a different set of rules and incentives would provide different outcomes.

For instance, the World Trade Organization and NAFTA do not target all ‘‘fetters’’ on commerce for elimination. Rather, the agreements promote the elimination of restrictions that protect people, while increasing protection for corporate interests. For

instance, the regulation of commerce for environmental, health or other social goals

is strictly limited. Labor rights, including prohibitions on child labor, which were

to be included in the Uruguay Round under congressional orders, were entirely left

out as inappropriate limitations on global commerce. But the protection of corporate

property rights—such as intellectual property—received expanded monopoly power.

The right for capital to invest in any country in any area absent conditions was also

strengthened. The small minority of interests that are benefitting from this particular system have tried to convince the world that either the changes and their negative outcomes are not significant, or alternatively, that this system and its effects are inevitable. It appears that this public relations campaign cannot counter the reality of

these policies outcomes: There has been growing public protests—from Korea to

France to Germany to India—against implementation of these policies as required

in developed countries through compliance with trade pacts and in developing countries through compliance with structural adjustment plans from multilateral development banks. As well, public opinion polling in the United States shows deteriorating public approval of our trade policy—not because the public does not know about

it, but on the very basis of what the public knows about the outcomes of NAFTA

and the WTO.

My organization falls into this second category of those who believe the time has

come for a careful review of the goals and outcomes of trade and investment policies.

We believe it is vital to examine several key questions in forming the direction of

our future policy in the areas of international trade and investment:

1. What are the specific goals we want our trade and investment policies to obtain

and what pitfalls must we avoid?

2. How does our status quo policy objectively measure up to these goals and potential problems?

3. Are we making our trade and investment policies based on current and accurate geopolitical, social and economic data?

4. Is our policy forward-looking to include likely future scenarios we will encounter?

5. Is the processes for making our trade and investment policies designed to serve

the broad public interest?

Each of these questions merits careful consideration by thoughtful people representing a wide variety of interests and qualified in a wide variety of disciplines.

Thus, we believe the time is overdue to create a national blue-ribbon commission—

comprised of a truly diverse set of large and small business representatives, labor
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and environmental representatives, experts in public health, natural resources and

food security and agriculture and more. This blue ribbon commission would be given

a time line to prepare a report. A moratorium on further major international trade

and investment commitments should be adopted until we have available the guidance such an intensive study would provide.

What goes by the name of trade and investment policy today inherently shapes—

by incentive or regulates by law—almost every aspect of what we have traditionally

considered our domestic social, labor, economic, health and environmental policies.

Consequently, such a diverse panel of experts is required to consider future U.S.

trade and investment policy.

Recent attempts by U.S. business organizations and some Members of Congress

to argue that environmental and labor issues have no place in trade policy are bewildering. These issues are clearly essential to our current trade and investment

policies. Indeed, those who now want to deny that today’s trade and investment policies directly include and affect labor, environmental, social and other noncommercial

matters are the very individuals and industries who pushed for trade policy to leave

the realm of tariffs and quotas and invade for the purpose of deregulation the entire

breadth of health, environmental, social and economic policies that had been previously areas of domestic jurisdiction. This outcome was promoted through the imposition of the NAFTA and the GATT Uruguay Round rules.

A simple review of the chapter headings of the actual NAFTA and WTO texts reveals that both recent pacts have moved significantly beyond their traditional roles

of setting quotas and tariffs to institute new and unprecedented controls over domestic environmental and safety and other product standards, over regulation of industries from banking to transportation to communications to insurance, over intellectual property and investment rules, and even domestic administrative procedures, to name a portion of their new, expansive jurisdiction.

The real question is not whether today’s trade agreements include labor and environmental rules. The questions is about what sort of rules they contain. Indeed, a

closer review of the voluminous rules contained in those 700-page long agreements

shows that the rules taken as a sum elevate maximization of trade and international investment flows above other potentially competing social, political and economic goals.

As a practical matter, the pacts accomplish this goal by requiring the democratically-elected governments that are NAFTA and WTO members to accept strict legal

limitations on what domestic policies they may pursue. The World Trade Organization text is quite clear on this matter, stating: ‘‘Each member shall ensure the conformity of its laws, regulations, and administrative procedures with its obligations...’’ The agreements we have now apply the ‘‘least trade restrictive’’ test to environmental, health, labor and other domestic standards. This legal standard means

domestic laws must be reviewed to ensure that they do not hinder the maximization

of trade flows. Maximization of trade flows—not job creation, wage increases, or

other economic goals—is elevated as the highest value under these rules.

A blue ribbon panel might expose this inherent conflict in the status quo and suggest some resolutions. For instance, either:

Trade and investment policy can be pruned back to the realm of tariffs and quotas

and not take into account other policy questions relating to the environment, human

rights, development, food security and labor right which could be determined in

other international pacts, or, alternatively, if trade and investment policy continue

to encroach on these others issues, they must be considered and balanced in the policy formation process.

My organization would advocate limiting the scope of international trade and investment policy so that it is not the default impetus of the making of our human

rights, social, and environmental policy. Domestically, we do not put food safety or

forestry conservation standards in the middle of tax legislation aimed at promoting

business development. International agreement concerning these other issues need

to be given equal footing with international commercial rules, with disputes settled

in an open, unbiased setting—not the secretive dispute resolution bodies of international commercial pacts.

The American public, according to a November 1996 poll conducted by Wirthlin

and Associates for the BankBoston, wants environmental and labor policies integrated into trade policy. While 75% of Americans cannot agree on much of anything

and less than 50% elected recent Presidents, the Wirthlin poll found 75% of Americans think we must put labor and environmental measures into future trade agreements.

These are only some of the opinions that should be taken into consideration in

thinking about our trade and investment policy as we approach the millennium.
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We constantly hear that the core of U.S. post cold war foreign policy is international commercial policy. This is an odd supposition in a number of ways: it directly contradicts the notion of trade and investment policy being free from other

issues. Trade has become the basis of our decisions on nuclear proliferation, human

rights and international environmental matters. Be it by default or with intent, we

now regularly put maximization of trade and investment deregulation ahead of

these other values.

Moreover, putting trade and investment policy in the realm of foreign relations

blurs the reality that these polices first and foremost mean real life effect on jobs,

wages and communities here in the United States. Promoters of the status quo

pushed for NAFTA and still occasionally defend it arguing that such economic engagement is good for our relations with our southern neighbor, Mexico. As the $1.7

trade surplus the United States had with Mexico in 1993 crashed into a $16.3 billion deficit in 1996—an all time record breaking the previous record trade deficit

with Mexico in 1995—defenders of the status quo argue that this meant jobs for

Mexico and only the loss of bad, low paying, menial jobs for the United States.

Of course, the Commerce Department data shows that a major part of the new

NAFTA trade deficit is in autos and auto parts and high end electronics, like televisions. These are the high wage, high tech jobs U.S. workers are supposed to find

in the new global economy. Meanwhile, the majority of the modest growth of U.S.

exports to Mexico one can find swamped under the massive flood of new imports

from Mexico, are parts going to Mexican assembly plants to make goods for reexport to the United States and capital equipment for setting up new factories to

produce good to re-export to the United States. Only 12 percent of U.S. exports to

Mexico consist of consumer goods.

Even as this shift was occurring, the Washington Post and Wall Street Journal

were reporting about how U.S. service-related jobs including computer programming, insurance actuarial work, medical record keeping, airline reservations were

being shifted overseas to English-speaking developing countries like Jamaica, Barbados, India or low-wage regions like Northern Ireland. As far as relations with

Mexico go, polling data shows Mexican public opinion of the United States is significantly lower than before NAFTA. As well, the assorted international relations

issues—which NAFTA promoters had used to justify the loss of some low-paying

U.S. jobs—have actually deteriorated in the three years of NAFTA including issues

of border health and the environment, illegal drug trafficking, and poverty-drive

emmigration of Mexican families unable to support their families at home.

Finally, to the extent there is a logic to the status quo trade policy—considered

the core of our post-cold-war international policy—it is premised on geopolitical, economic and technological basis that disappeared with the end of the cold war.

The diverse segments of the U.S. society that have opposed more of the same old

trade status quo—and who now argue for forward-looking new policies to replace

the old status quo represented by NAFTA—are accused of being unwilling to accept

‘‘new realities.’’ It is actually those locked into the status quo who are failing to take

into account significant global changes.

First, whether it ever had merit, the U.S. cold war policy of providing the U.S.

as a market-of-last-resort to all comers as a lure for building alliances and reliance

to contain the ‘‘Soviet threat’’ no longer has a basis. Yet the old policies and the

trade deficit they it created continue. Second, this status quo denies the fundamental transformation of the world’s economies inherent in the new entry into one global ‘‘capitalist’’ system of literally several billion educated, skilled and low paid workers in China and the former Soviet bloc. (As scholars and policy-makers in developing countries point out, we cannot forget the implications on those populations that

forcing western, intensive agriculture practices and mandatory open food trade will

have in the developing world where the majority of citizens are farmers.) Of course,

in the long term, the combination of these factors, and the relentless downward

pressure of this strategy on wages, means fewer and fewer people will be able to

buy goods, causing a global crisis in effective demand.

Third, those clinging to the status quo fail to recognize that the new computer

and communications technology now operating under the old rules guarantee enormous instability in financial flows. The globalization of finance has occurred in a

vacuum of corresponding safeguards and regulations. Missing today are international or national policies appropriate to this reality. For instance, computer and

other communications developments now allow for the daily transfer of over one trillion dollars around the globe daily in nonproductive trades, such as currency speculation. In this chaos, what happened to Mexico in December 1994 will happen again

in Mexico and elsewhere over and over absent new rules premised on the reality

of the new technological capacity. It is only matter of time before the run is on the
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U.S. dollar and we experience the same domestic economic catastrophe that this

rampaging financial river has wrought on others.

What are we doing in response to this inherent instability? Recognizing the scope

of the problem and taking systematic steps to counter it? No, instead we are trying

to force countries, to eliminate such safeguards and adopt the thorough deregulation

that contributed to Mexico’s meltdown. One example of such a safeguard is in Chile

where the U.S. is trying to eliminate its ‘‘speed bumps’’ to limit withdrawal of certain portfolio investment for set time periods after investment.

Finally, we need rules that recognize perhaps the starkest reality of all: the limited ecological capacity of this planet to literally survive the impacts on water supplies, natural resources, food production, and absorption of waste and toxics. The

scientific data on each of these questions is growing and needs to be reviewed as

a basis for informed policy-making for the future. Just to pose one question in this

vein: Have those now pushing the existing NAFTA rule be expanded to Chile considered that the Chilean federal government recently completed a study showing that

if current logging practices are continued—and NAFTA would intensify logging in

Chile—Chile will be without forests in ten years. Logging is just one of four natural

resources extraction industries that are the basis of 80 percent of Chile’s exports.

The implications for other natural resources industries comprising the 80 percent

of exports would be devastating: without trees to hold soil and help with rain absorption, agriculture and salmon fish farming would be harmed. The social and

health impacts would be even more broad and would have hemispheric implications.

A growing movement in Chile, including small businesses and the church, is now

asking this question of Chile’s business and political elite who are pushing for

NAFTA expansion.

CONCLUSION

It is increasingly evident that the status quo of trade and investment policy cannot hold. If we ignore for the moment the crisis in effective demand and the dangerous instability in global capital flows that the status quo promotes, the public’s

disapproval of the outcomes of this system will force changes.

As a political matter, polling continues to show a growing ‘‘anxious’’ class. President Clinton may be able to brag about the new jobs created by the U.S. economy

in the past four years, but consider the types of jobs the economy under the status

quo trade and investment rules is creating. The U.S. Department of Labor’s Bureau

of Labor Statistics reports that the top four occupations having the largest numerical increase over the next decade are: waiters and waitresses, retail clerks, cashiers

and janitors.

U.S. wages have failed to grow significantly including, for the first time in recorded economic history, during this time of economic recovery. With expenses rising, a major swath of the population is working harder to earn less.

Meanwhile, as the stock market and CEO compensation swells to untold record

levels, massive layoffs continue. The sense of despair and loss of control this situation breeds is at least part of the explanation for the tumultuous electoral behavior

of the past two U.S. federal elections.

The anxious class is newly politicized and looking for answers—in the Perot movement, in the ultra-conservative nationalist presidential candidacy of Patrick Buchanan, in a liberal third party and in fearful isolated groupings.

As a nation, we must deal with this situation with thoughtfulness and care,

studying what changes are necessary in our trade and investment status quo to obtain policy goals we choose.

Or, we can ignore the building discontent with the status quo and wait for more

random changes, which almost certainly will occur haphazardly, piece by piece.

My organization would certainly prefer the former, thoughtful model of designing

our future trade and investment policy. Indeed, we would look forward to playing

a role in constructing such a forward-looking international trade and investment

policy for the next millennium.

Ms. Wallach, you call for the moratorium on new trade agreeChairman CRANE. Thank you for your testimony.

f

ments, and for all practical purposes, we have had that now 2

years in a row. But given that other countries continue to move forward in the absence of U.S. trading negotiation authority, wouldn’t
149

such a moratorium exclude the U.S. from this global process, and

wouldn’t a moratorium limit our ability to shape the new trade

rules so that they support U.S. interests?

Ms. WALLACH. Actually, the United States is in a unique position

to truly take a leadership role in a forward-looking trade policy because we are the consumer market of choice. We have a unique leverage, and unfortunately, a huge trade deficit that represents that

great consumer market, that many other countries want access to.

Whereas some smaller consumer markets might be in the situation you have described, the United States is the market everyone

wants. We are in a position to actually promote a new thoughtful

policy and demonstrate leadership, and it will be to our great detriment not to do so. The long-term implications of the current status quo don’t suit the public interest.

Chairman CRANE. Well, one of the concerns I have in that area

is that the absence of our negotiating authority has caused Brazil

to consolidate its MERCOSUR relationship with our South American neighbors, with the exception of Chile, but the European

Union and the Japanese and others are moving in to fill the vacuum created by an absence of our presence, and I think that would

be injurious rather than beneficial to the very things you are concerned about.

Ms. WALLACH. All of those countries are currently members of

the GATT. The United States has guaranteed MFN market access

into those countries already under the GATT. The United States is

not experiencing dropping export levels with those countries. The

question is, What in the long term are a set of trade rules that

guarantee market access, which is good for U.S. jobs and business,

but also set rules for products coming back into the United States.

This seems to be the half of the formula that is missing. What

are the terms from market access into the United States? Now they

are solely commercial, but there are key issues that will implicate

the wages of people in Illinois what happens to small family farmers there.

For instance, will we have some basic environmental and labor

standards, or will we have a race to the bottom? And those are the

set of issues, what the terms are for trading as far as market access that are very vital, and untouched now.

Chairman CRANE. Mr. Holmer, could you speak to that point, especially with regard to your industry and Argentina?

Mr. HOLMER. Mr. Chairman, your question is right on the mark.

If the United States does not act, clearly, the world is going to

leave us behind.

Canada and Mexico, they both negotiated free trade agreements

with Chile. The EU is looking at an FTA with the MERCOSUR

countries. China has targeted Mexico, Argentina, Brazil, Chile, and

Venezuela. Japan has undertaken all sorts of trade initiatives

throughout Asia and Latin America.

This morning Ambassador Barshefsky talked about the fact that

with respect to Chile, there are real-world consequences that

United States companies are facing. We are trying to sell telecommunications equipment into Chile. What is the effect? Chile

has an 11-percent tariff. For Canada, that has gone down to zero.

What is the impact on United States exports going to Chile? United
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States exporters essentially have an 11-percent penalty compared

to our competitors in Canada. That is a real impact on U.S. exports

and U.S. jobs.

Regarding Argentina, we need to get stronger patent protection.

For 8 years Argentina Government leaders have made commitments to the Bush administration and the Clinton administration

that they will have strong patent protection. They haven’t delivered.

If we were able to have an expanded NAFTA or a free trade

agreement in Latin America, we believe we could get Argentina to

come across and provide the kind of patent protection law we need.

But without that fast track authority, we will have a devil of a

time trying to get them to come to the table.

At an earlier time, we had the same problems with Mexico. We

couldn’t get Mexico to provide a strong patent law. What happened? We were going to have a NAFTA. Mr. Rostenkowski had a

number of very serious conversations with the leaders of Mexico.

They produced a world class patent law, and the NAFTA Agreement now on intellectual property is the finest intellectual property

agreement that the United States has ever negotiated. That is the

kind of leverage you can have with fast track negotiating authority.

Chairman CRANE. Now, Mr. Cowen, could you comment on penetrating that South American market?

Mr. COWEN. Well, our largest growth area within TRC is South

America.

We have heard comments that environmental standards in foreign countries are actually decreasing. We are a U.S. company,

strictly in the environmental services market; that the U.S. market

is flat to down. If we don’t go overseas, our business is deteriorating, similar to what is happening in our industry, because of a lack

of reauthorization of Superfund, among others.

Let me give you a couple of real examples of what we are doing.

We designed and built a state-of-the-art, $25 million landfill in

Santiago, Chile, for a United States client. It is based on U.S. environmental standards.

We are working in Peru for the mining industry, improving air

pollution relating to the copper industry. We have designed a hazardous waste cell to contain hazardous waste within Argentina.

Now, environmental standards in Latin America are basically

emerging for many reasons exclusive of United States trade agreements. As their economies are improving, citizens are looking for

better environmental standards.

I think a lack of trade policy will only hurt us. We are competing

against the Europeans. We are competing against the Japanese. I

think whatever we can do to enhance with a trade agreement by,

first of all, bringing Chile as our next NAFTA partner, will only

improve the United States selling of environmental technology and

doing work within Latin America. It is probably the largest growth

market, but if we don’t do something on trade, like you said, we

could be edged out of that market.

Chairman CRANE. Thank you very much.

Mr. Matsui.

Mr. MATSUI. Thank you, Mr. Chairman.
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Ms. Wallach, we have had a number of discussions on a number

of issues such as these over the years, not recently, but over the

years. Let me say this. I don’t necessarily take issue with the goals

you are trying to achieve in some of the areas you are discussing.

The problem I see is that about two-thirds of the world population right now is in many of these less-developed countries,

maybe even a little more than that, but I am just thinking about

India, China, parts of Latin America, parts of Eastern Europe, and

parts of Russia, and that being the case, if we basically impose a

moratorium and then attempt to use as leverage our markets with

these countries, I wonder whether or not we would be starting

trade wars all over the world with approximately two-thirds of the

world population.

I think the real problem is how do we handle these things in a

practical way. Obviously, in order to keep our economy running,

with the slow growth that we have, 2.3, 2.5-percent growth, about

30 percent of our GDP is based upon trade and exports. What

would you suggest? I would think we would have some severe economic problems in this country if, in fact, we followed the model

you are suggesting.

Ms. WALLACH. You are asking what should be the relations with

those countries that are not now under, for instance, the WTO?

Mr. MATSUI. I am assuming you are suggesting that with respect

to Mexico, we perhaps roll back the tariffs or increase some of the

tariffs. I don’t want to put words in your mouth, but I am suggesting you favor the pre-NAFTA situation. Obviously, China would be

a problem to you for labor reasons and otherwise.

What are you suggesting we do? What are you suggesting would

happen in terms of our trade relations with these countries?

Ms. WALLACH. I personally and my organization and others I

work with, including a lot of people in those other countries, have

some very specific ideas of what kind of international rules are different than these status quo rules that you would set up as international global commercial terms. Obviously, negotiating international standards versus putting in place unilateral ones are

highly preferable. The reason why we believe it is very important

to have a broad indepth commission includes some of the very

issues you have raised. For instance, what you do about trade with

China, a country of 1.2 billion people. These questions go to the assumptions that currently underlie our status quo trade policy. Our

old assumptions do not take into account all of those potential

workers there in Vietnam, China, and the former Soviet Union, for

instance, who were previously excluded from global markets by

their political and economic systems.

There are some arguments that, for instance, insiders like Mr.

Soros and Sir James Goldsmith have been raising about how you

take the current set of rules and you apply them to what is a very

different set of realities about the global work force and potential

markets. Market size is way behind the work force size. Thus, the

question becomes what rules do you put in place that actually establish markets versus just very low worldwide wages because of

the labor surplus. Those kinds of big questions are why I think it

is very important we stop now and review. We have a set of rules.

They have been applied to a large portion of the world’s economy.
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We have data coming out of those rules, and now we face huge

questions about how to proceed—the biggest one being China.

Mr. MATSUI. This morning, Ambassador Barshefsky testified, and

I have great hopes that over the next 4 years or so, she will make

significant progress in some of these areas at the WTO and perhaps the administration and other international organizations, but

particularly the WTO.

She was able to get the issue of labor on the table, and it is going

to take time. There is just no question, because these countries obviously don’t have the same standards as we do.

Some of them go all the way back to the 1890’s when we were

not having particularly strong labor standards ourselves. The problem is you have different stages of development of countries that

we are trading with. Obviously, we would like to have some symmetry, but it is a very, very difficult problem, and I don’t know how

you really address this problem except to engage these countries

and trade with them and hope that you, through trade, affect their

behavior somehow and affect some of the standards they might

have.

Ms. WALLACH. May I just address this issue of labor rights?

Mr. MATSUI. Yes, please. Yes.

Ms. WALLACH. When I saw the actual language coming out of the

Singapore Ministerial, frankly, I found it to be one of the most depressing turn of events at the WTO, given that while the word

‘‘labor standards’’ was mentioned, it was in the context of dismissing the propriety of those issues being dealt with in connection to

trade rules and that rather, the ILO should be the body of jurisdiction.

So, to the extent there are some people who think what you do

is, if you will, ‘‘green the GATT,’’ ‘‘blue the GATT,’’ by putting labor

and environmental and other rules in parallel to the trade rules,

what seems pretty apparent is that actually the direction of that

body is just to the contrary. There was a vacuum before Singapore

about whether or not those issues would be considered appropriate.

The Singapore Ministerial Declaration gave the first political signal

that no, in fact, they weren’t appropriate to include in trade terms.

Mr. MATSUI. In fact, you are right. They did suggest to go to the

ILO. On the other hand, we did get this on the table, and obviously, we are going to continue to discuss this with them. I think,

over time, perhaps we are going to make some changes, but this

is a matter that is going to take, in my opinion, significant time.

We are not going to be able to solve this problem in 1 month or

2 months or 10 months or even 5 or 6 years, perhaps, but obviously, we have to make a start.

Again, I don’t disagree with your goals. I think this is a very serious environmental issue, obviously the whole labor issue. I just

don’t know how we can address these issues in any other context

except in the WTO. Obviously, using sanctions, trade sanctions on

many of these things could just result in an escalating trade war

that we would lose control over.

I know we have had these discussions in the past. On the other

hand, I appreciate what you are doing in the sense of raising these

issues.
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Ms. WALLACH. And turning it into a big discussion is why the

idea of the blue-ribbon panel—because what you just bring to mind

is a saying, one of my Malaysian colleagues often repeats: If you

have your whole family packed into a car and you are going really

fast on a road, but you are not quite sure where it is going and

you have heard there could be some cliffs, before you just keep

going straight on at full speed, you slow down or you stop and look

and see where you are going. That is the point of taking a review

now.

We have made a lot of steps in one direction. Now the question

is, What are the outcomes?

Mr. MATSUI. Mr. Seligman.

Mr. SELIGMAN. Thank you, Mr. Matsui.

To carry Lori’s metaphor one step further, actually, I am a little

bit perplexed, given the fact there have been a number of questions

raised about the NAFTA and the WTO, why we are rushing ahead

so rapidly with this new investment agreement with implications

that are so great, the multilateral agreement on investment.

Mr. Matsui, you ask about a practical step to begin to insert, if

you will, different kinds of rules into these agreements. The MAI,

multilateral agreement on investment, as it is being negotiated

right now, in the Organization for Economic Cooperation and Development, is really among the wealthier countries of the world. It

is not a question of north-south trade or north-south investment.

It is not a question of bridging standards between developed and

less-developed parts of the world. And yet, there are absolutely no

provisions whatever in this agreement to deal with the environmental issue, or labor issues for that matter.

It is particularly troubling because the Organization of Economic

Cooperation and Development actually has a policy on its book requiring or calling for—it is nonbinding, of course—calling for environmental assessment of major trade and investment agreements.

Now, it would seem to me a fairly simple matter for the United

States, which represents conceivably 30 or 40 percent of OECD production, to simply call on its trading partners to live up to the policy on the books. Why don’t we find out what the environmental

implications of that agreement are before rushing ahead and implementing it?

I would call your attention to one example I cite in my testimony

of investment liberalization in the country of Brazil, which has

been mentioned here, and that investment occurred principally in

the mining sector, which as you know is very sensitive, in particular because many of the ores in Brazil lie beneath the Amazon rain

forest, otherwise known as the lungs of the world.

There is a particularly amusing, from my standpoint, remark by

a Toronto investor bemoaning the fact that there are all those darn

trees in the way that the mining companies have to get rid of before they can make good on their investment.

I am just pointing this out as an example of the kind of conflict,

unintentional, we may be getting into when we are rushing ahead

with trade and investment liberalization without looking down the

road and seeing that a cliff lies ahead that we should be paying attention to.

Mr. MATSUI. Thank you. I thank all four of you. I appreciate it.
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Chairman CRANE. Well, I want to thank you all, too, and remind

you again that your printed statements will be made a part of the

permanent record, and thank you for participating.

And now our final panel which consists of Sidney Weintraub,

William E. Simon Chair in Political Economy at the Center for

Strategic and International Studies; John Sweeney, a policy analyst for International Trade and Latin American Issues at the Heritage Foundation; and Mitchell Cooper, counsel to the Rubber and

Plastic Footwear Manufacturers Association.

Gentlemen, if you will try to confine your oral presentations to

no more than about 5 minutes, your printed statements will be

made a part of the permanent record. And with that, we will start

with you, Mr. Weintraub.

STATEMENT OF SIDNEY WEINTRAUB, WILLIAM E. SIMON

CHAIR IN POLITICAL ECONOMY, CENTER FOR STRATEGIC

AND INTERNATIONAL STUDIES

Mr. WEINTRAUB. Thank you, Mr. Chairman. I am going to talk

primarily about free trade in the Western Hemisphere. I want to

introduce some comments at first on NAFTA, but I don’t want to

dwell on NAFTA. Many of the points I am going to make, you have

already heard. I heard some of them, and I haven’t been here all

day, but I will go ahead and make them very briefly, in any event.

Repetition won’t hurt too much.

First, my own background. I am now at the Center for Strategic

and International Studies. I had been a professor at the University

of Texas at Austin for about 20 years. I spent about 25 years before

that in the U.S. State Department, much of that working on trade

and financial issues. That is my background.

I want to make one or two points about NAFTA, and then I will

go on to free trade in the hemisphere. The big fear when NAFTA

was being debated in the United States was that it would cause

great loss of jobs because of the low wages in Mexico, the runaway

investment, and the resultant imports back into the United States.

I have written about this in a book that just came out, but let

me just sort of summarize my main point. Since NAFTA has been

in effect, the United States has been creating about 2.5 million jobs

a year. Every time employment seems to go up too much, not only

does Wall Street go bonkers, but Alan Greenspan and the Federal

Reserve try to slow down the job creation.

The problem, as we have had it, as the Feds sees it, is not that

we are losing jobs, but that we are creating too many jobs. Therefore, the argument that NAFTA would lead to massive job loss just

isn’t so. It just hasn’t been brought out.

Every 2 weeks we create as many jobs as have been certified as

lost as a result of increased imports from Canada and Mexico. I

don’t want to make light of the fact of the people who are losing

those jobs. They need assistance. That is a real issue, but the issue

of massive job loss in the United States has proved to be quite

false. Just the reverse is going on.

Many of your previous witnesses talked about the growth in

trade with Mexico, despite the financial collapse at the end of 1994

and 1995. I won’t repeat that, but the existence of NAFTA and the

way Mexico went about its recovery was really quite remarkable.
155

There is also an argument that we lose jobs when imports occur.

You can’t very well be losing jobs when imports occur if you are already at full employment. If you are already at full employment,

any additional jobs would just lead to greater inflation. I suggest

that many of the criteria which people use to attack NAFTA won’t

stand up to careful investigation.

I also have great problems, as most economists do, and that is

my discipline, with looking at bilateral trade balances to represent

a global picture of what happens in the U.S. trade.

Let me make 10 points about free trade in the Americas, and

many of those, these points, have already been made by others, and

therefore, I don’t think I have to spend too much time on them.

The first one is that our tariffs are already lower than everybody

else in the hemisphere, and second, we are facing discrimination in

these markets. These points were made over and over again by

many of your other witnesses, and therefore, I just find it incomprehensible that we would not try to level the playingfield in our

competition in Latin America.

Second, if you look at the United States share of exports into

Latin America, we capture about 40 percent of the Latin American

market. We capture, by contrast, about one-half as much or less,

of the markets in other continents, of the European market or the

Asian market. The failure to enter into hemispheric trade in this

market really means that we are going to sacrifice the very market

where we have the greatest natural advantage, and it is very hard

for me to understand why we would want to do that.

The third point is, a lot of the discussion really revolves around

merchandise trade. Many executives came here. These chief executive officers are involved not only in merchandise trade, they are

involved in the export of services, and the export of services, in a

way, it is far more dynamic than the export of goods.

All of the antifree trade arguments seem to leave out that this

is one of the great competitive advantages of the United States.

Telecommunications, videos, insurance, banking, transportation,

you name it, and the best way to open up other markets which are

even more closed, relatively, to services than they are to goods.

A point made by others, U.S. tariffs now average about 3 to 4

percent. Latin American tariffs average from about 10 to 25 percent, or 11 percent if you pick Chile. It is a good deal for us to negotiate. We give up much less than we get back in return.

One of the important things to keep in mind is that the whole

development model of Latin America went through a profound

transformation in the eighties, from being a closed area, highly dependent on import substitution, not too concerned about exports.

The model has changed completely. Latin America is now opening.

The countries are depending on exports. In other words, we are

now negotiating, or would, if we could negotiate, with a group of

countries that do not look inward, but with a hemisphere that is

now globally engaged.

Several of your previous witnesses made the point that other

countries are now entering into talks with Latin America. The European Union is there. Jacques Chirac just made a trip to South

America. The German Chancellor has been there recently. The Japanese Prime Minister has been there recently.
156

All countries are engaged in the globalization taking place. Many

of the people who are advising us not to go ahead with a free trade

area in the Americas, not to go ahead with further negotiation are

really saying they don’t want globalization. That is understandable,

but globalization is a force beyond anything we can do in this room,

and it is almost childish, I think, to sort of say let’s withdraw from

the world. We can’t do it. We can’t do it at all.

Two other quick points and then I will quit. The hemisphere is

now largely democratic. Some of the democracies are weak, but it

is all there. For the first time in the modern era, maybe the first

time ever, what exists in Latin America are two conditions that

should be very important to us, open markets and democratic dominance. I think this is the moment to take advantage of these two

phenomena which we should and do deeply believe.

Let me make one economic point that I would like to close with.

The United States is going to have a deficit in the current account

of its balance of payments, in its trade in goods and service, and

as long as we invest more than we save. This must be so because

of the way we keep our balance-of-payments accounts. Since we

generally have a surplus with the world in our exports of services,

this means that the deficit is going to have to be in the trade account. There is no way to avoid a global deficit in the trade account

if our savings don’t increase enough to cover our investment. That

is just the double-entry bookkeeping of the balance of payments.

What I am saying is that protectionists, even if they were to succeed, would not eliminate the merchandise deficit, unless they were

willing to give up a lot of the investment now being made, or unless we were able to save more than we are saving now. I think

this point ought to be kept in mind as this debate goes forward.

Thank you.

[The prepared statement follows:]

Statement of Sidney Weintraub, William E. Simon Chair in Political

Economy, Center for Strategic and International Studies

The United States, under the North American Free Trade Agreement, already is

moving to eliminate trade barriers between Canada, Mexico, and the United States.

My emphasis, therefore, will be on U.S. trade policy toward the rest of the Western

Hemisphere.

PERFORMANCE OF NAFTA

First, however, a few words about NAFTA because its progress has influenced

thinking about hemispheric free trade. Those who opposed NAFTA at the outset are

continuing a drumbeat against the agreement. As is generally known, the opponents

of NAFTA point to the collapse of the Mexican economy in 1995, the alleged loss

of jobs due to direct investment in both Mexico and Canada, and the large U.S. merchandise trade deficits with each of the two countries.

I do not wish to engage in a lengthy discussion of NAFTA here, but I have done

so in a book published recently by the Center for Strategic and International Studies, entitled ‘‘NAFTA at Three: A Progress Report.’’ I wish to make just a few points.

The massive loss of jobs alleged to have resulted from NAFTA is made against the

backdrop of record job-creation in the U.S. economy of some 2.5 million a year since

the agreement has been in effect. The U.S. ‘‘problem,’’ as the Federal Reserve sees

it, is too much job-creation.

The total documented U.S. job loss due to increased imports from Canada and

Mexico is about 120,000 for the three plus years NAFTA has been in place. The

United States has created as many jobs every two weeks as have been documented

to be lost because of imports from Canada and Mexico over the entire existence of

NAFTA. And this does not count the jobs created by increased exports to those two
157

countries. The reality is that job-creation in the United States depends overwhelmingly on developments in the domestic economy. Looking just at Mexico, two-way trade was $81.5 billion in 1983, the year before the agreement went into effect. Last year, 1996, two-way trade was almost $130 billion. All of the increase was not due to NAFTA, but much of it was. U.S. exports

to Mexico in 1993 were $42 billion and last year they were $57 billion. Canada and

Mexico are our first and third most important trading partners. The United States did have a large deficit in merchandise trade with Mexico last year, amounting to $16 billion. The merchandise trade deficit with Canada was $23

billion. The argument that this led to the loss of jobs is belied by the facts of U.S.

job-creation. The U.S. Federal Reserve Board has conducted monetary policy since

NAFTA has been in place on the assumption that the United States has full employment. This, in essence, means that the U.S. economy as a whole could not have created more jobs without stimulating inflation. Under these circumstances, the imports from Canada and Mexico provided greater choice to consumers without overall

job loss.

Some people lost jobs in competing industries. Some workers were unable to take

advantage of the job-creation of the U.S. economy. But the way to deal with these

problems is through better adjustment programs, not to deny choice to 260 million

consumers.

The U.S. merchandise trade deficit with Mexico can be explained mainly by the

combination of U.S. economic growth and economic decline in Mexico in 1995. By

now, the Mexican economy is recovering. A bilateral merchandise trade balance is

not normally a meaningful measure. It omits trade in services, which is about 20

percent the size of merchandise trade; the United States generally exports more

services than it imports from the two NAFTA partners, but this also depends on

income growth. Looking at trade with a single country uses a shifting bilateral

measure instead of the global picture of U.S. trade. And, most important, focusing

on the merchandise trade balance, whether bilateral or global, shifts blame to others

for outcomes produced at home.

The United States inevitably will have a deficit in the current account of the balance of payments as long as it invests more than it saves. We must, under these

circumstances, import capital to finance the investment and, the way the balance

of payments is measured, this translates into a current account deficit to compensate for the capital account inflow. The largest single element of the current account is merchandise trade. Those who believe that the sky is falling because the

United States has a bilateral or global trade deficit (and it is not clear to me why

they believe this) should focus on the real causes (inadequate U.S. saving) and not

blame foreigners for our own shortcomings.

FREE TRADE IN THE AMERICAS

Enough on NAFTA. I would like to turn to the rest of the hemisphere. In the interest of brevity, I will limit myself to ten reasons for seeking free trade in the

Americas.

1. As the United States dawdled on taking steps toward negotiating a Free Trade

Area of the Americas, facts were being created on the ground by other countries.

Argentina, Brazil, Paraguay, and Uruguay formed and deepened MERCOSUR, the

Common Market of the South. Other subregional economic groupings were reinforced in the Andean countries, Central America, and the Caribbean. Many countries entered into bilateral and plurilateral free-trade agreements. Chile and Bolivia

associated themselves with MERCOSUR. MERCOSUR is flirting with the idea of

a free-trade agreement with the European Union.

This means that U.S. products already are facing discrimination in exporting to

South and Central America, and will face even more in competition with products

from other countries in Latin America, and perhaps even in Europe. This can be

significant for many products and can affect U.S. agricultural and manufactured exports. The only way to overcome this handicap is by entering into free trade ourselves. There is no other realistic option. Members of this Congress who oppose free

trade must explain to exporters in their districts why they must compete in the

hemisphere under a handicap.

2. This is our hemisphere. U.S. exporters capture more than 40 percent of the

Latin American and Caribbean market, compared with proportions one-third to onehalf as large in other hemispheres, such as Europe and Asia. Thus, as hemispheric

countries grow economically and suck in imports, the effect is considerably greater

for U.S. traders than is similar growth in Asia or Europe. The failure to enter into

hemispheric free trade sacrifices this natural advantage in what has been our most

favorable market.
158

Omitting Canada and Mexico, for which free trade already exists, U.S. exports to hemispheric countries were almost $53 billion in 1996. The merchandise trade balance with this region was positive by about $3.5 billion, but this, in my view, is not

in itself an important consideration. What is worth keeping in mind is that as Latin

America prospers, and it inevitably will in light of the responsible economic policies

being followed in the main countries of the region, its large population represents

a significant and growing market. Why would we want to give it away? 3. The United States exports more than goods; we also sell services. When the anti-free traders make their arguments, they invariably omit U.S. exports of telecommunication services, movies, videos, insurance, banking, transportation, and a

host of other services. These service sales are estimated to be about 20 percent the

value of merchandise exports. The most dynamic U.S. exports are related to services, such as those deriving from the information revolution that is largely a U.S.

creation. The precedent for inclusion of services in trade agreements was established

in NAFTA and carried over, although less comprehensively, in the Uruguay Round

of the General Agreement on Tariffs and Trade. The best way to assure an open

market for U.S. service exports to Latin America and the Caribbean is through a

hemispheric free-trade agreement encompassing these activities. 4. A modern free-trade agreement does not stop at trade in goods and services, but goes beyond that to examine internal measures that impede trade. Trade negotiations no longer are limited to tariff reduction, as is evident from the 11 working

groups set up in the hemisphere after the Miami Summit meeting of December 1994

to deal with other issues.

NAFTA includes provisions on investment, government procurement, the protec- tion of intellectual property, standards for industrial goods, sanitary and

phytosanitary standards, customs procedures, and dispute settlement, among other

matters. The NAFTA parallel agreements contain understandings on environmental

and labor protection and, while I realize that these are controversial, the disagreement relates primarily to the use of trade sanctions for carrying them out, not to

the underlying desire to deal with these issues internationally. I hope that persons

of good will on both sides of the aisle in the Congress do not hold up the benefits

of hemispheric free trade by their inability to resolve their differences on these

issues.

5. The Uruguay Round brought U.S. tariffs down to about 3 to 4 percent on aver- age, while those in Latin America and the Caribbean range from 10 to 25 percent.

Even the 3 to 4 percent range is overstated because of the many nonreciprocal tariff

preferences granted by the United States to developing countries generally, to nations in the Caribbean Basin, and to those in the Andean region. The price for the

United States to obtain access to Latin American and Caribbean markets in a hemispheric free-trade negotiation is a bargain. There are, of course, higher U.S. tariffs

and other barriers on sensitive products, just as there are prohibitive restrictions

on the importation of many products elsewhere in the hemisphere. The most arduous negotiations will be on these products, but this does not negate the conclusion

that the United States would get more trade-barrier reductions than it would have

to give up in hemispheric free-trade negotiations.

6. The prevailing economic development model in Latin America and the Caribbean changed radically during the 1980s, from closed markets based on an importsubstitution model, to open markets that stress the imperative of exporting. These

changes were urged for many years by the United States. Nations largely closed to

foreign direct investment now actively seek such investment from the United States

and other industrial countries. We are no longer negotiating with countries that

look inward, but rather with a hemisphere that has become globally engaged.

The idea of hemispheric free trade, which would have been rejected out of hand

15 years ago, was greeted with enthusiasm when first proposed by President Bush

in the Enterprise for the Americas initiative in 1990. There is now less enthusiasm

in the hemisphere, largely because the United States has given little indication that

it really intends to follow through. Negotiation for hemispheric free trade requires

the granting of fast-track authority to the administration and the failure to achieve

this raises skepticism in the hemisphere about U.S. trade intentions.

7. Those who oppose an open U.S. market in exchange for open markets elsewhere

in the hemisphere are, in essence, modern-day Luddites. They reject the reality of

globalization under which investment moves out of the United States as well as into

it. They would prefer that the United States produce all kinds of products, those

that require low skills and provide only low wages, rather than emphasize those industrial and service activities that require skilled personnel and new technologies.

They can no more succeed than could the Luddites and still retain a vibrant, highwage, productive U.S. economy. U.S. companies are not alone in seeking opportunities for foreign investment and coproduction as the way to enhance trade competi159

tiveness. Western European countries and Japan are doing the same. U.S. companies have a long history of investment in Latin America and the Caribbean and this

is one reason why they dominate most hemispheric markets. The United States cannot close itself off from the imperatives of globalization and still remain prosperous;

and there is no region where this reality is more germane than in our own hemisphere.

8. Today, almost for the first time in the history of the Americas, all countries in the hemisphere, save Cuba, are democratic. Many of the democracies are frail.

Many have electoral and other flaws. Many countries in the hemisphere lack universal educational opportunities, have weak judicial systems, and tolerate excessive

corruption. But the essential building block is there in the form of democratically

elected governments and legislatures and the conviction that further development

of their democracies is the path of the future. This situation does not exist in widespread fashion in other regions, other than Western Europe. Hemispheric free trade

can thus take advantage of two features that hardly existed earlier, economic policies based on market principles and political structures based on democratic aspirations.

9. Two points mentioned earlier in the discussion of NAFTA should be emphasized, one on jobs and the second on merchandise trade deficits. There is no evidence that an open market prejudices U.S. job creation. We have witnessed this in

recent years, when jobs were created at record levels in the United States at the

very time of maximum U.S. openness to imports and during the three years of

NAFTA’s existence. There is now examination among U.S. economists as to whether

and how much an open market prejudices the wages of low-skilled U.S. workers, but

there is little disagreement on the point that U.S. job-creation depends overwhelmingly on domestic economic policy. The argument that hemispheric free trade would

lead to massive job losses in the United States has as little basis as the contention

that NAFTA would lead to substantial net job losses.

10. The United States must have a current account deficit as long as it invests

more than it saves at home. There are two key parts to the current account of the

balance of payments, trade in goods and trade in services, and the United States

today exports more services than it imports. This makes it inevitable that the deficit

will show up in the merchandise trade account. Blaming government negotiators,

or open markets, or the unfairness of other countries, or whatever, will not change

this reality. The corrective is straightforward—to save more, if we do not wish to

reduce investment. Raising U.S. savings by eliminating the budget deficit should

help reduce the merchandise trade deficit.

The United States is a global trader. It will have bilateral deficits with some

countries and surpluses with others. The United States now has a modest surplus

in merchandise trade with Latin America, other than Mexico. However, these bilateral and regional numbers are subject to change, almost year by year, depending

on the relative strengths and weaknesses of economies. Protectionism does not get

at the root issue of trade balances, the cries of protectionists notwithstanding.

Mr. Sweeney.

Chairman CRANE. Thank you, Mr. Weintraub.

f

STATEMENT OF JOHN P. SWEENEY, POLICY ANALYST, INTERNATIONAL TRADE AND LATIN AMERICAN ISSUES, HERITAGE

FOUNDATION

Mr. SWEENEY. Mr. Chairman, Members of the Subcommittee,

thank you very much for the invitation to be here today.

I submit a longer written testimony for the record. I won’t repeat

many of the points my colleague, Dr. Weintraub, made. I agree

with them wholeheartedly.

My background includes 33 years living and working in Central

and South America in trade, primarily, as a businessman and as

a journalist. I think I know the area and the issue quite well.

America began retreating from free trade the day that the peso

collapsed in 1994 in Mexico. That retreat until now has not been

reversed, and every day that passes, every minute that passes, we
160

lose position in the Western Hemisphere. We lose influence and

leadership in the Western Hemisphere. We lose markets in the

Western Hemisphere, and we lose jobs here in America as a result.

The 105th Congress and the Clinton administration should seek

to achieve some very specific objectives to reestablish America’s

leadership role in the process of worldwide expansion of trade.

First, we have to put American trade expansion back on track.

Second, we must expand the North American Free Trade Agreement to Chile. Third, we must enlarge and deepen the World Trade

Organization. Fourth, we must support the Asia-Pacific economic

cooperation forum to make it a better vehicle for liberalizing Asian

trade. Fifth, we must work at improving United States relations

with China, which admittedly is a difficult challenge. Sixth, we

must strengthen America’s trans-Atlantic ties with the European

Union, and seventh, we must build congressional and public support for free trade and investment.

Now, to reverse the retreat from free trade that we have seen in

the last 2 years, it is absolutely indispensable that Congress grant

the executive a new fast track negotiating authority quickly in

order to facilitate Chile’s accession to the NAFTA.

The enlargement of NAFTA to include Chile would reaffirm

America’s commitment to creating a Free Trade Area of the Americas by 2005. Moreover, the inclusion of Chile in NAFTA would confirm America’s commitment to leading the FTAA process at the

same time that it would open a new gateway for United States exports to markets in South America and APEC, of which Chile is

also a member, as well as MERCOSUR, of which Chile is now an

associate member.

The renewal of broad fast track negotiating authority, without

any language linking trade issues to labor standards and the environment, would also facilitate the expansion of NAFTA to other

countries in Latin America and the negotiation of free trade agreements with countries in Asia.

Without a fast track authority in hand, the administration cannot enter into serious trade negotiations with Chile or any other

country. Suggestions that fast track is not necessary to enter into

trade negotiations are mistaken. No country in this world today

will invest the time or the resources in negotiating any kind of

trade agreement with the United States if American negotiators

cannot guarantee that any agreement reached will not be mutilated beyond recognition by the U.S. Congress.

However, to get America’s trade expansion back on track, we

need strong presidential leadership. Without strong executive leadership, even the wisest and best-intentioned congressional leadership will find it nearly impossible to advance America’s trade interests. So far, we have not seen that leadership forthcoming.

Before closing, I would like to make a couple of points here about

an issue that has been very much on the agenda in the last 3

weeks. It was not going to be part of my testimony, but I would

like to talk about the issue of Mexico drug certification.

Congressional critics of President Clinton’s decision to certify

Mexico as an ally fully cooperating in the fight against drug trafficking are right to question that decision. Mexico could be doing

more to aid in that process. However, decertifying Mexico will not
161

purge the corruption in Mexican law enforcement. It will not reduce the flow of illegal drugs crossing the United States-Mexico

border every day, and it might well weaken the Zedillo administration beyond recovery. Before voting to decertify Mexico, Congress should carefully weigh the potentially negative consequences of punishing Mexico

for the Clinton administration’s failed drug policies, and I would

like to mention just two of these consequences, and I will stop, sir. First, it would probably scare foreign investors into pulling their money out of Mexico. Decertification would be equivalent to an official no-confidence vote in the stability of the Mexican economy, and

many foreign investors would react accordingly by divesting themselves of Mexican bonds and equities. More economic hardship in

Mexico would fan the fires of growing social discontent in that

country, and it would certainly increase the incentive for many

Mexicans to migrate illegally to America. The second consequence that it would have that I would like to

mention here is that it would derail U.S. trade expansion in the

rest of the Western Hemisphere. The Mexican drug certification

flap between Congress and the Clinton administration has pushed

trade off the congressional agenda for the past 3 weeks. If Mexico is decertified, the future of NAFTA would be in doubt.

If NAFTA fails, not only would we see more hardship and turmoil

in Mexico, but we will have no vehicle upon which to build a Free

Trade Area of the Americas.

Thank you, sir.

[The prepared statement follows:]

Statement of John P. Sweeney, Policy Analyst, International Trade and Latin American Issues, Heritage Foundation

FREE TRADE IS IMPORTANT TO AMERICA

Free trade makes good economic sense. It creates jobs and maximizes personal economic liberty; it provides a larger market in which American companies can sell

their products; and it enables businesses to import crucial components to manufacture products in a cost-competitive manner. American companies continue to export

goods and services to other countries because of the great demand for American

products, and because they can produce more than Americans want. Free trade and

sound investment policies have proven to be undeniably good for America and Americans, which the following facts substantiate: America is the world’s largest exporter of goods and services. In 1995, America sold over $783 billion in goods and services worldwide. According to the Office of

the U.S. Trade Representative, total international trade accounted for 30 percent of

the 1996 U.S. gross domestic product (GDP), or $2.3 trillion. In 1970, trade accounted for barely 13 percent of America’s GDP. Moreover, the USTR’s office estimates that by 2010, trade will represent 36 percent of America’s GDP.

The value of U.S. merchandise exports has grown more than 600 percent over the

last 25 years. Since 1988, almost 70 percent of the growth in the U.S. economy was

derived solely from exporting goods and services.

One out of every five American jobs is supported by trade. In 1996, exportoriented manufacturing and service companies supported 11.3 million American jobs

that paid an average of 13 percent to 16 percent more than U.S. jobs overall. Nearly

half of the manufacturing jobs created in the U.S. in recent years have been in foreign-owned companies.

Since 1965, unemployment has declined every year that the U.S. trade deficit expanded (more imports came into the U.S. than goods were exported). Conversely,

unemployment increased in years in which the trade deficit shrank (fewer imports

came into the U.S.). Increased exports mean more jobs for Americans, and increased

imports adds to the national wealth.

America is as much an industrial giant today as it has been in the past. The manufacturing base of the United States is not shrinking because of free trade, as trade
162

protectionists contend. In fact, it is not shrinking at all. According to the U.S. Department of Commerce, manufacturing accounts for 21 percent of GDP, which is the

same percentage of the economy today as in 1967. Employment in manufacturing

has remained relatively stable over the last three decades. The number of Americans working in manufacturing today (about 10.5 million) is about the same as it

was in the early 1960s. While that number is a smaller percentage of a growing U.S.

population, it proves that Americans are still finding jobs in manufacturing. The 105th Congress and the Clinton Administration should seek to achieve very specific objectives to reestablish America’s leadership role in the process of worldwide expansion of free trade. The general objectives policymakers should use as

guidelines throughout the next presidential term are to:

(1) Put American trade expansion back on track;

(2) Expand the North American Free Trade Agreement to Chile.

(3) Enlarge and deepen the World Trade Organization;

(4) Support the Asia-Pacific Economic Cooperation (APEC) forum to make it a better vehicle for liberalizing Asian trade;

(5) Improve U.S. trade relations with China;

(6) Strengthen America’s transatlantic relations with the European Union; and,

(7) Build congressional and public support for free trade and investment.

Strong presidential leadership and fast-track negotiating authority are essential

for maintaining American leadership in the global economy. To expand America’s

international trade interests, strong and sustained presidential leadership is essential. If strong Executive leadership is lacking, even the wisest and best-intentioned

congressional leadership will find it nearly impossible to advance America’s trade

interests. Similarly, fast-track negotiating authority is essential for the swift approval by Congress of trade agreements negotiated by the executive branch of government. Without fast-track negotiating authority, the balance of pressure from congressional constituencies with a direct interest in trade will likely shift toward a

stance increasingly supportive of protective intervention. Clearly, then, the foundations for restoring a bipartisan congressional consensus in support of trade expansion are first, strong leadership from the executive branch, and second, the renewal

by Congress of fast-track negotiating authority that limits the Executive’s scope of

action to tariff and non-tariff trade negotiations.

PUTTING AMERICAN TRADE EXPANSION BACK ON TRACK

Although America’s international trade priorities and commitments span the

globe, the Western Hemisphere is the region where U.S. trade negotiators scored

the most impressive gains during the first half of the 1990s. Therefore, the process

of putting American trade expansion back on track should begin in the Western

Hemisphere. Between 1980 and 1992, the Reagan and Bush Administrations forged

the closest relationship with Latin America that the U.S. has enjoyed in more than

a century. This new hemispheric partnership was based on both democracy and the

creation of a hemispheric free trade area as established in the Enterprise for the

Americas Initiative (EAI) and the North American Free Trade Agreement (NAFTA),

which was conceived as the base upon which U.S.-led trade expansion in the Western Hemisphere over the next decade would result in the creation of a Free Trade

Area of the Americas (FTAA) by 2005.

Since the collapse of the Mexican peso at the end of 1994, however, NAFTA has

become a political football for politicians who claim that free trade causes such domestic problems as increased drug trafficking and illegal immigration. But these

critics are mistaken. NAFTA did not cause the Mexican peso crisis and is not responsible for America’s social problems. Moreover, far from being a failure, NAFTA

has scored some impressive trade and investment successes. During NAFTA’s first

two years (1994 and 1995), trade and foreign direct investment among the U.S.,

Mexico, and Canada increased. The average U.S. tariff on Mexican products fell

from 3.5 percent to 1.5 percent, while average Mexican tariffs on U.S. products

dropped from 10 percent to 4.9 percent. As a result, trade among the three NAFTA

countries rose by 17 percent in 1994 to $350 billion, and bilateral U.S.-Mexico trade

grew by 20.7 percent, surpassing $100 billion for the first time.

In 1995, despite the recession caused by the peso’s collapse, overall U.S.-Mexico

trade increased 8 percent to $108 billion, while total intra-NAFTA trade grew 10.6

percent to $380 billion. After declining by 8.9 percent in 1995 to $46.3 billion, U.S.

exports to Mexico increased by 12.1 percent during the first three months of 1996

compared with the same period in 1995.

During 1996, two-way merchandise trade with Mexico increased 20.2 percent from

the previous year, to nearly $130 billion, of which $56.7 billion were U.S. exports

to Mexico, while $73 billion were imports from Mexico, including $36.8 billion of ex163

ports that originated from maquiladora assembly plants in Mexico. Exports now account for about 30 percent of Mexico’s gross domestic product. During the period from 1990 to 1996, U.S. exports to the world increased 57 per- cent, while U.S. exports to Latin America and the Caribbean Basin (excluding Mexico) increased by 110 percent. The Western Hemisphere accounted for 39 percent of

U.S. merchandise exports in 1996. Not only are Canada and Mexico the first and

third largest U.S. trading partners, but the rest of Latin America and the Caribbean

Basin has been one of the fastest growing U.S. export markets in recent years. During 1995 and 1996, it was the only major region with which the U.S. recorded a

trade surplus. In 1995 the total gross domestic product (GDP) of Latin America and

the Caribbean Basin was $1.5 trillion, Moreover, Latin America intra-regional trade

more than doubled from $41 billion to $88 billion during the period from 1990 to

1995. The U.S. exported more to Chile in 1995 and 1996 than it did to Russia, India,

or Indonesia.

To put American trade expansion back on track in the Western Hemisphere and

around the world, the 105th Congress and the Clinton Administration should strive

to agree on the following specific objectives:

Congress needs to renew the Executive’s fast-track negotiating authority

To reverse America’s retreat from free trade, the 105th Congress should grant the Executive a new fast-track negotiating authority quickly, in order to facilitate

Chile’s accession to NAFTA. The enlargement of NAFTA to include Chile would reaffirm America’s commitment to creating a Free Trade Area of the Americas (FTAA)

by 2005. One of the greatest mistakes made recently by U.S. policymakers was postponing the inclusion of Chile in NAFTA until after the 1996 elections. The failure

to add Chile to NAFTA weakened American leadership and influence in the FTAA

process. There is no reason to delay the admission of Chile to NAFTA. Chile’s total

gross national product is equivalent to about 1 percent of the American economy.

Chile has enjoyed positive economic growth for 14 consecutive years. Growth during

the past six years under a democratic civilian government has averaged 7.5 percent

annually. Chile has pre-paid a large chunk of its external public-sector debt, has no

balance-of-payments problem, and has enjoyed single-digit inflation since 1994. Its

investment and savings rates are approaching those of the Asian tigers. The inclusion of Chile in NAFTA would confirm America’s commitment to leading the FTAA

process and open a new gateway for U.S. exports to markets in South America and

APEC (of which Chile is a member).

The renewal of a broad fast-track negotiating authority, without any language linking trade issues to labor standards and the environment, also would facilitate

the expansion of NAFTA to other countries in Latin America and the negotiation

of free trade agreements with countries in Asia. Without a fast-track negotiating authority in hand, the Administration cannot enter into serious trade negotiations

with Chile or any other country. Suggestions that fast-track is not necessary to

enter into trade negotiations are mistaken. No country will invest the time or resources in negotiating with the U.S. if American negotiators cannot guarantee that

any agreement reached will not be mutilated beyond recognition by the U.S. Congress.

The U.S. Should Seek to Improve Relations with China.

China is indisputably one of the most important challenges facing American policymakers. China’s emergence as a great power will be among the defining events

of the next century. This will be true not only for Asia, but for the international

system as well. How China integrates into the international system, and whether

it accepts or rejects existing international economic, political, and legal norms, will

define the very nature of that system. The U.S. should not try to isolate China in

the international community. Instead, U.S. policy should seek to open and expose

China to the outside world. Washington should work to expand the economic freedoms which international commerce and China’s own modernization have engendered. International trade will continue to open China’s economy, furthering economic reform, economic freedom, and, ultimately, greater political openness. To

achieve these goals, the U.S. government should pursue several strategies:

(1) Congress should renew MFN status for China. The U.S. should encourage

China to open itself to the outside world and to adhere to international rules and

standards of conduct. However, the U.S. also should punish China selectively for security transgressions, but do so without unduly hurting Americans or isolating

China. Instead of revoking MFN, which would harm Americans more than Chinese,

not solve China’s human rights problems, and isolate China from further American

influence, we should approach China with carrots and sticks—promising to reward

them when they adhere to international standards (with support for WTO member164

ship, for example, if they meet the criteria), but punishing them selectively when

they do not. We want to keep China open to U.S. trade and influence, but that does

not mean that we give them a blank check to do anything they please. We should continue MFN status for China, encourage non-military trade, main- tain high level contacts, and support public diplomatic activities inside China. However, we must also be willing to consider some ‘‘sticks’’ to express our displeasure

over threatening behavior. For example, we should: • Consider restrictions on Chinese military commercial activities. • Urge the Clinton administration to be far more vigilant in enforcing U.S. sanc- tions against Chinese transgressions in proliferating missiles and militarily dangerous technologies. • Curtail World Bank support for China. • Restrict the flow of satellite expertise and technologies to China. • Maintain a strong military presence and capability in Asia to deter China from

aggression. • Work with our friends and allies in Asia to develop a defense against Chinese and other ballistic missiles.

We share concerns about Chinese human rights abuse but we feel that revoking MFN would only make matters worse. Instead of revoking MFN, we should offer al- ternative ‘‘sticks’’ with which to punish China—sticks which address the specific security threats to Americans, but which avoid a general cut-off of trade that would

be harmful to American interests. However, we should not apologize for China’s behavior by adopting an ‘‘engagement at any cost’’ approach, or by over-emphasizing

China’s progress toward liberalization. Our approach is one of balance—one that

best serves the interests and values of all Americans.

Our goal is a peaceful and mutually productive relationship with China. As it now stands, it makes no sense to assume that we have two simplistic choices—either to

‘‘engage’’ China regardless of what they do, or to ‘‘contain’’ and isolate them. These

are false choices. Instead, we should have a balanced policy that moves China, however slowly, in the right direction. This requires telling the Chinese clearly what we

(and the world) expect of them, to reward them when they comply, but to punish

them (selectively) when they don’t. These ‘‘rules of the road’’ should be the benchmark against which we measure the breadth and depth of our engagement of China. If we cut off all trade with China, Europeans, Japanese, Koreans and others will

rush in to take our place, relieving China of the economic pressure intended by the

trade cut-off. In fact, the Chinese government would likely retaliate by cracking

down on dissidents even more.

The best way to promote human rights in the long-run in China is to retain MFN, because it creates internal pressures and external influences that favor liberalization. Some disagree, arguing that economic liberalization has not produced enough

political freedoms or democracy in China. But these skeptics exaggerate the degree

of economic liberalization in China. The Heritage Foundation’s Index of Economic

Freedom shows that China, economically, is still ‘‘mostly unfree.’’ Therefore, we

should not be surprised that political liberalization has been so slow. As China liberalizes more economically, we would expect more political liberalization to follow.

Trading with commercial Chinese companies that manufacture shoes and other

consumer goods is good for the cause of freedom in China. It spreads free market

values and institutions and opens China to outside influences. However, we should

not necessarily allow Chinese military front-enterprises unimpeded access to the

U.S. if doing so endangers our security. Not all trade with China is equal. Some

is good while some is potentially harmful if it spreads weapons that endanger Americans and American interests. We need to distinguish between these two types of

trade.

The ‘‘isolate China’’ strategy has been tried and failed. There was a time when

we not only did not have trade relations with China, but did not have diplomatic

relations as well. Yet, during this time, when China was going through its horrible

Cultural Revolution, millions of Chinese were killed and suffered unspeakable

human rights abuses. Historically, the more isolated communist China has been

from the outside world, the worse it has treated its people.

It is not appropriate to apply Cold War analogies of China and the Soviet Union.

China is a growing dynamic economy, not the economic basket case of the Soviet

Union; therefore, it is not about to crack if we apply enough pressure. Others will

simply trade with China if we do not. Nor is China the military threat the Soviet

Union was. China does not now possess the ability to project its conventional military power around the globe the way the Soviet Union did during the Cold War (although it does have nuclear ballistic missiles). We should be vigilant and deter

China if it should become aggressive in the future, but we are not yet on a Cold

War footing with China.
165

China is not yet an enemy, but it does cross our security interests on certain issues—proliferation and Taiwan, for example. When it does, we should respond

forcefully. Therefore, we should consider imposing limited and targeted trade restrictions on Chinese commercial activities that threaten our security. However, the

U.S. should not revoke China’s MFN status.

(2) The U.S. should support the accession of China to the WTO as a developed

country, when it meets the criteria. The accession of China to the WTO would give

China an enhanced stake in the stability of the global trading system and in the

peace and prosperity of the Asia-Pacific region. By integrating China into the WTO,

the ability of U.S. policymakers to persuade China to respect the rules of the international trading system would increase significantly. Moreover, the conditions under

which China joins the WTO will establish a precedent for about 30 other countries

that also want to join the world trade body. If the conditions for entry are too rigid, China may be discouraged from joining the WTO and choose instead to remain outside the global trading system, exporting

its goods to other countries (including the U.S.) without being subject to the same

trading rules observed by its trade partners. However, if the conditions established

for China’s entry into the WTO are too lax, other countries waiting in line to join

the WTO certainly will seek similar conditions. The U.S. should encourage China’s

accession to the WTO as a developed country, allowing some flexibility in terms of

the deadlines for China’s compliance with the standards applicable to developed

countries. However, purely political considerations—such as Beijing’s insistence that

it enter the WTO before Taiwan—should not be a factor.

However, there is a caveat: If it turns out that China is guilty of involvement in the Democratic Party’s campaign fundraising scandals, such a turn of events would

seriously jeopardize China’s prospects for joining the WTO and retaining its MFN

status.

(3) Congress should encourage the Administration to negotiate a bilateral intellec- tual property protection pact with China. As a quid pro quo for supporting China’s

accession to the WTO, the U.S. should press China to negotiate a bilateral agreement on intellectual property protection based on NAFTA standards rather than the

WTO’s TRIPS agreement. The objective of such an agreement should be to apply

the rule of law across the entire country, instead of the current unwieldy and inefficient process whereby China’s progress in this area is based on a quota system that

quantifies the number of factories closed for violating intellectual property rights.

The U.S. should seek to enlarge and deepen the World Trade Organization.

The United States has long been a supporter of the General Agreement on Tariffs and Trade (GATT), an international agreement first signed by 24 countries (including the U.S.) in 1947. The first GATT trade agreement reduced barriers to trade

that helped cause the global depression of the 1930s. Since 1947, there have been

eight rounds of negotiations under the auspices of GATT, with each round liberalizing trade a little more. The most recent, called the Uruguay Round, was signed into

U.S. law in 1994 and created a new body called the World Trade Organization

(WTO).

There are now 129 members of the WTO, which provides these countries with a

means to resolve trade disputes without resorting to trade protectionism. The WTO

establishes the rules of international trade by which all members of the WTO must

abide. These rules govern business contracts, the liability for not fulfilling a contract, and the resolution of disputes over interpretation of a contract’s terms. Without agreement on these rules, any nation could conduct business arbitrarily according to its own domestic laws, which often are contrary to laws in other countries.

However, the Clinton Administration has not utilized the WTO effectively to avoid

trade disputes with America’s trading partners. Instead, it has tried to bypass the

WTO and has used unilateral trade measures, like Section 301 of the 1974 Trade

Act, to settle trade differences with other countries.

Instead of resorting to unilateral trade measures, the U.S. should seek more actively to expand and deepen the WTO by implementing these strategies:

(1) The Administration should implement the Uruguay Round Agreements. The

U.S. should make sure that all members of the WTO fully and faithfully implement

their trade liberalization commitments in accordance with established timetables

and deadlines for compliance. The U.S. also should ensure that tariff barriers

phased out by WTO members are not replaced by regulatory barriers. This means

that, instead of bypassing the WTO to manage trade differences unilaterally, the

U.S. should make full use of the WTO’s multilateral dispute resolution rules to go

after regulatory barriers that undermine American exports and foreign investment.

In addition, the U.S. should complete in 1997 the sectoral agreements to liberalize

trade in financial services and basic telecommunications. The completion of these
166

1 Regardless of the existence of a multilateral agreement on competition policy or the lack of

one, the U.S. should not hesitate to abolish its antiquated antitrust laws immediately and unilaterally. These laws burden America’s business with outdated regulations that prevent them

from engaging in joint ventures with other domestic and foreign firms. Moreover, these laws are

often misused by the U.S. government to persecute and harass productive and successful U.S.

companies.

multilateral agreements was deferred until 1997 as a result of the Clinton Administration’s refusal to sign the agreements before the 1996 U.S presidential elections. (2) The Administration should urge other members of the WTO to hold a new ne- gotiating round with the goal of achieving global free trade and investment by 2010.

The President should exercise bold leadership and press other WTO members to

convene a new round of global trade liberalization talks by 1998. The new WTO

round should subsume APEC’s goal of free trade and investment by 2010 as its own.

This policy should encourage APEC to accelerate the liberalization of trade and investment in Asia. It would not be the first time that trade liberalization in one set

of negotiations spurred liberalization in another. For example, the creation of APEC

helped bring the Uruguay Round negotiations to a successful conclusion in the early

1990s.

(3) The Administration should promote the accelerated implementation of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Strong

protection of intellectual property rights benefits both developed and developing

countries. Weak intellectual property protection deters the foreign investment that

helps fuel economic development. The Uruguay Round Agreements, which took effect in 1995, represented a significant advance for the protection of intellectual property. The Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement,

which also took effect in 1995, formally codifies substantive standards for the protection of all forms of intellectual property and includes administrative and judicial

procedures, civil and criminal penalties and procedures, and customs regulations designed to uphold these standards. However, the American business community considers the TRIPS agreement only minimally acceptable. It is U.S. policy to encourage other countries to adopt intellectual property protection standards more stringent than TRIPS. For example, the NAFTA standards for intellectual property protection are more rigorous than TRIPS. These standards should not be lowered for

any country—such as Chile, Argentina, Australia, New Zealand, or Singapore—that

wishes to accede to NAFTA.

(4) The Administration should negotiate a Multilateral Agreement on Competition

Policy. Because there is no international agreement governing competition policy,

the U.S. and other governments have been tempted to act unilaterally to resolve

what are, in reality, competition policy problems. Such unilateralism increases global trade friction and undermines confidence in the recently established WTO dispute

settlement mechanism. The U.S. government should seek to negotiate a Multilateral

Agreement on Competition Policy. The most promising route for such negotiations

is the Organization for Economic Cooperation and Development (OECD). While the

WTO ultimately is the proper forum for negotiating a worldwide agreement, developing WTO rules on competition policy would be a very lengthy and difficult process

because of the diverse development levels and legal traditions among WTO members. Consequently, the developed countries, which share similar interests, are more

likely to reach a workable competition policy agreement through the OECD in a reasonable time. The Multilateral Agreement on Competition Policy should incorporate

competitive conduct rules, separation of commercial and regulatory activities, and

privatization and competitive neutrality principles. A Multilateral Agreement on

Competition Policy based on these principles would force most signatory countries

to reform or abolish their existing antitrust or antimonopoly laws.1 In addition, such

an agreement would foster economic deregulation and significantly alleviate trade

friction arising from competition policy differences, reducing the likelihood of disruptive unilateral trade actions.

(5) The Administration should negotiate a Multilateral Agreement on Investment

Policy. The Uruguay Round Agreements established the first global rules for liberalizing international investment with the Agreement on Trade-Related Investment

Measures. As a result, the U.S. now has three major sets of rules for investment

liberalization: the WTO Agreement on Trade-Related Investment Measures, the

NAFTA, and the APEC Investment Principles. The U.S. is also negotiating a fourth

agreement: the Multilateral Agreement on Investment (MAI). Dissatisfied with the

limited scope of the WTO Agreement on Trade-Related Investment Measures and

the non-binding nature and deficiencies of the APEC Investment Principles, the U.S.

and other developed countries launched negotiations through the OECD in May

1995 to draft a comprehensive, binding MAI. The finance ministers from the OECD
167

member countries directed their negotiators to have the MAI treaty ready for signing before May 1997. The U.S. should not seek exceptions for itself to the rules for

investment liberalization, and should press other OECD members to make as few

exceptions as possible.

The U.S. should support the APEC Forum as a Better Vehicle for Liberalizing Asian

Trade.

East Asia is the home of the world’s fastest growing economies. Since the early 1980s, the volume of imports and exports exchanged across the Pacific has exceeded

U.S. two-way trade with every other region of the world. In 1995 American exports

to Pacific Rim countries totaled over $188 billion and supported over 3.6 million

American jobs. In today’s post-Cold War world, an ever more profitable economic relationship with East Asia remains one of America’s foremost strategic interests.

Thus, it is imperative that Washington seek ways to expand trade with Asia. To

accomplish this goal, the U.S. should seek to create the world’s largest free trade

area in the Asia-Pacific region. The Asia-Pacific Economic Cooperation (APEC)

forum, formed in 1989, is an instrument the U.S. can use to foster trade liberalization and enhance American commercial opportunities in the region. To make APEC

a better vehicle for liberalizing Asian trade, the U.S. should execute several strategies: (1) The Administration should harmonize and merge NAFTA and the Australia and New Zealand Closer Economic Relations (CER) agreements. The governments

of these important U.S. trading partners have expressed strong interest in a faster

process of trade liberalization than that which was agreed upon during APEC’s November 1994 meeting in Bogor, Indonesia. By merging the NAFTA and CER agreements, the U.S. could promote American economic and strategic interests in several

areas. For example, since trading disciplines currently contained within the NAFTA

and CER are more rigorous than those established by the WTO, the merger of the

NAFTA and CER agreements would place increased pressure on other U.S. trading

partners to upgrade their own trade standards and regulations. Similarly, the convergence of the NAFTA and CER agreements would provide a powerful inducement

for other APEC countries—such as China, Japan, and South Korea—to speed up

APEC’s timetable for trade liberalization. Such trade agreements also would energize the sluggish FTAA process in the Western Hemisphere, contribute to restoring

American leadership to that process, and generate momentum for the eventual

merger of the FTAA and APEC into a single free trade area encompassing more

than half of the world’s population. (2) The Administration should strengthen APEC’s Investment Principles into a binding agreement. At the Leaders’ Meeting held in Bogor, Indonesia, in November

1994, APEC adopted a set of non-binding Investment Principles. While these principles represent an important step toward a more comprehensive accord than the

WTO’s Agreement on Trade-Related Investment Measures, five of the ten principles

are inadequate and should be strengthened. These inadequate principles cover the

transfer of funds, capital movements, national treatment of foreign investors, performance requirements, and investment incentives. At future APEC meetings, the

U.S. should press other member countries to establish an unfettered right to move

funds across international borders, eliminate any restrictions on cross-border investment flows, eliminate all exceptions to national treatment, prohibit all trade-related

investment performance requirements, and prohibit any special government grants

and tax subsidies to attract investment that are not generally available to all potential domestic and foreign competitors. Once these voluntary investment guidelines

have been improved, the U.S. should press for the conversion of APEC’s Investment

Principles into a legal agreement that binds all APEC members.

(3) The U.S. should support concerted unilateralism in the Asia-Pacific region.

This building-block approach to trade liberalization acknowledges the great diversity

in economic development of APEC’s members and is a necessary stage in the process

of building the confidence required to undertake more comprehensive trade negotiations after the year 2000. Under ‘‘concerted unilateralism,’’ each APEC member

would be responsible for presenting its own individual action plan for meeting

APEC’s broad trade liberalization objectives. These plans would be subject to peer

review and peer pressure by other members.

(4) The U.S. should seek to merge NAFTA, the Association of South-East Asian

Nations (ASEAN) free trade area, and the 1983 Closer Economic Relations (CER)

agreement between Australia and New Zealand, into a single free trade area by no

later than 2000. APEC members are not located only in the Asia-Pacific region, but

in the Americas as well. Current Western Hemisphere countries that form part of

APEC include the U.S., Canada, Mexico, and Chile. Currently there is some disagreement among Asian members of APEC regarding the admission of new mem168

bers. For example, ASEAN is opposed to admitting any new members, especially

India, that might diminish the trading advantages enjoyed by ASEAN countries.

The U.S. should press APEC to admit new members, particularly from Latin America where governments generally are more supportive of rapid trade liberalization.

CONCLUSION

America has always benefited from free trade and investment. Whenever Wash- ington has erected protectionist walls around America, it has paid the price with

lost jobs, higher consumer costs, lower competitiveness, and infringements on individual economic liberty. To ensure America’s economic growth and stability in the

future, America’s leaders, especially in Congress, must rededicate their efforts to

support free trade and investment. They must make the opponents of free trade, the

media, and the general public understand how much America’s economic well-being

depends on their freedom to buy and sell goods from whomever they choose. American leadership has consistently pushed the world toward democracy and economic freedom. As America approaches the 21st century, it must become increasingly more competitive in a global economy. No country has ever prospered by closing its domestic markets to foreign trade or investment. In order for the U.S. to

maintain the highest living standards in the world, it has to face the challenges of

the global market and lead the world in strategies for overcoming them. The restoration of public and political support for free trade requires strong leadership with

a commitment to free trade principles and a willingness to take immediate action.

To continue to straddle the free trade fence will condemn America to economic stagnation and allow other countries to lay claim to the title of Land of the Free.

Mr. Cooper.

Chairman CRANE. Thank you, Mr. Sweeney.

f

STATEMENT OF MITCHELL J. COOPER, COUNSEL, RUBBER

AND PLASTIC FOOTWEAR MANUFACTURERS ASSOCIATION

Mr. COOPER. Thank you, Mr. Chairman. Let me start with two assurances. First, I will take less than 5

minutes. Second, I want you to know that what I am about to say

is neither inconsistent with nor disapproving of the persuasive testimony that you have heard today regarding the need for some type

of fast track legislation. Having said that, let me point out to you that rubber footwear is, as I think you know, a labor-intensive, import-sensitive industry. Labor constitutes more than 40 percent of total cost. Imports

of fabric upper footwear and slippers take in excess of 80 percent

of the U.S. market, and imports of waterproof footwear in excess

of 40 percent.

These imports come from countries where wages are from one- fifteenth to one-twentieth of the level in the domestic industry. A major concern of this industry with respect to trade objectives and initiatives is the distinction between our government’s approach to such multilateral negotiations as the Kennedy, the

Tokyo, and the Uruguay rounds, and its approach to such bilateral

free trade agreements as NAFTA. The rules for multilateral negotiations have permitted careful scrutiny of the degree to which tariffs can be cut on specific harmonized system items, whereas, in bilateral negotiations, the only

flexibility has been in the length of time over which all duties

would go to zero.

Thus, in recognition of the unique import sensitivity of rubber

footwear and slippers, the duties on the core items of this industry

remained untouched in the Kennedy, Tokyo, and Uruguay rounds,
169

and we are talking about high duties. The average duty on waterproof footwear is 37.5 percent today. The average duty on fabric

upper footwear is approximately 40 percent.

On the other hand, under NAFTA, rubber footwear and slipper

duties are being phased out over a period of 15 years, a period

longer than that for virtually every other American industry, but

at the end of which duties on imports from Mexico will have been

eliminated.

Unless current policy is modified, perhaps in the language of fast

track, if not, I hope by persuasion of people like you, Mr. Chairman, in an effort to save, among others, the plant in Rock Island,

Illinois, which is run by Norcross Safety Products people who make

waterproof footwear, but unless current policy is modified, so as to

permit limited exceptions to duty-free treatment in bilateral negotiations, what is left of this domestic industry cannot realistically

expect to survive.

The validity of this statement is evidenced by our experience

under the Caribbean Basin Initiative. CBI–II removed the exemption from duty-free treatment which had previously existed for footwear from the Caribbean. The direct consequence of this change in

the law has been the rubber footwear imports from the Dominican

Republican increased from 200,000 pairs a year in 1990 to 12 million in 1996, and that, Mr. Chairman, represents some modification

of my printed testimony. Only yesterday, I got from the ITC a correction of the figure of 10 million in 1996 to 12 million.

Most of these imports are accounted for by American companies

which closed plants in States such as Maine, Pennsylvania, West

Virginia, and Georgia, and shifted their production to the Dominican Republic.

We are now at a truly critical juncture. The United States hopes

to commence free trade negotiations with Chile, with the rest of

Latin America, and with countries in the Pacific rim. In previous

bilateral trade negotiations, the United States has relied on article

XXIV of the GATT in justification of its no-exception rule. The fact

is, however, that paragraph 8 of that article defines a free trade

agreement as one where, ‘‘The duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories or products originating in such

territories,’’ and I’ve added the emphasis to ‘‘substantially.’’

If new bilateral agreements would adhere to the ‘‘substantially,’’

all the trade language in the GATT, the rules of engagement would

be closer to those in multilateral negotiations where the unique

needs of particular import-sensitive industries can be taken into account.

The history of past negotiations demonstrate that there are very

few domestic industries whose survival is as threatened by imports

as is rubber footwear and slippers. Surely, the benefits that would

otherwise accrue from a free trade agreement would not be diminished by excluding this minuscule fraction of 1 percent of this country’s trade from duty-free treatment.

Accordingly, we urge that any structuring of policy objectives in

upcoming trade negotiations should contain sufficient flexibility to

permit the survival of an otherwise threatened domestic industry.

Thank you.
170

[The prepared statement and attachment follow:]

Statement of Mitchell J. Cooper, Counsel, Rubber and Plastic Footwear

Manufacturers Association

The Rubber and Plastic Footwear Manufacturers Association (RPFMA) is the

spokesman for manufacturers of most of the rubber-soled, fabric-upper footwear; waterproof footwear, and slippers made in this country. The names and addresses of

the Association’s members appear on appendix I.

Rubber footwear is a labor-intensive, import-sensitive industry: Labor constitutes

more than 40 percent of total cost; imports of fabric-upper footwear and of slippers

take in excess of 80 percent of the U.S. market and imports of the waterproof footwear in excess of 40 percent. These imports come from countries where wages are

from one-fifteenth to one-twentieth of the level in the domestic industry.

A major concern of this industry with respect to trade objectives and initiatives

is the distinction between our Government’s approach to such multi-lateral negotiations as the Kennedy, the Tokyo, and the Uruguay Rounds and its approach to such

bi-lateral free-trade agreements as NAFTA. The rules for multi-lateral negotiations

have permitted careful scrutiny of the degree to which cuts in tariffs on specific

Harmonized System items are warranted, where as in bi-lateral negotiations the

only flexibility has been in the length of time over which all duties would go to zero.

Thus, in recognition of the unique import-sensitivity of rubber footwear and slippers, the duties on the core items of this industry remained untouched in the Kennedy, Tokyo, and Uruguay Rounds. On the other hand, under NAFTA rubber footwear and slipper duties are being phased out over a period of 15 years (a period

longer than that for virtually every other American industry but at the end of which

duties on imports from Mexico will have been eliminated).

Unless current policy is modified so as to permit limited exceptions to duty-free

treatment in bi-lateral negotiations, what is left of this domestic industry cannot realistically expect to survive. The validity of this statement is evidenced by our experience under the Caribbean Basin Initiative. CBI II removed the exemption from

duty-free treatment which had previously existed for footwear from the Caribbean.

The direct consequence of this change in the law has been that rubber footwear imports from the Dominican Republic increased from 200,000 pair a year in 1990 to

10 million pair in 1996. Most of these imports are accounted for by American companies which closed plants in such states as Maine, Pennsylvania, West Virginia, and

Georgia and shifted their production to the Dominican Republic.

We are now at a truly critical juncture. The United States hopes to commence

free-trade negotiations with Chile, with the rest of Latin America, and with countries in the Pacific Rim.

In previous bi-lateral trade negotiations the United States has relied on article

XXIV of the GATT in justification of its no-exception rule. The fact is however, that

paragraph eight of that article defines a free trade agreement as one where ‘‘the

duties and other restrictive regulations of commerce...are eliminated on substantially all the trade between the constituent territories or products originating in

such territories’’ (emphasis added). If new bi-lateral negotiations would adhere to

the ‘‘substantially all the trade’’ language in the GATT, the rules of engagement

would be closer to those in multi-lateral negotiations where the unique needs of particular import sensitive industries can be taken into account.

The history of past negotiations demonstrates that there are very few domestic

industries whose survival is as threatened by imports as is rubber footwear and

slippers. Surely, the benefits that would otherwise accrue from a free trade agreement would not be diminished by excluding this minuscule fraction of one percent

of this country’s trade from duty free treatment. Accordingly, we urge that any

structuring of policy objectives in upcoming trade negotiations should contain sufficient flexibility to permit the survival of an otherwise threatened domestic industry.

f
171

Appendix I

RUBBER AND PLASTIC FOOTWEAR MANUFACTURERS ASSOCIATION

American Steel Toe

PO Box 959

S. Lynnfield, MA 01940–0959

Converse, Inc.

One Fordham Road

North Reading, MA 01864

(with a plant in North Carolina)

Draper Knitting Co.

28 Draper Lane

Canton, MA 02021

Genfoot

Littleton, NH

S. Goldberg and Co.

20 East Broadway

Hackensack, NJ 07601–6892

Hudson Machinery Worldwide

PO Box 831

Haverhill, MA 01831

Spartech Franklin

113 Passaic Ave., Kearney, NJ 07032

Kaufman Footwear

Batavia, New York

Frank C. Meyer Co.

585 South Union Street

Lawrence, MA 01843

(with plants also in New Jersey,

Missouri, Maine, Mississippi, and

Puerto Rico)

New Balance Athlectic Shoe, Inc.

38 Everett Street

Allston, MA 02134–1933

(with plants in Maine)

Norcross Safety Products

1136 2nd Street,

PO Box 7208

Rock Island, IL 61204–7208

LaCrosse Footwear, Inc.

PO Box 1328

LaCrosse, WI 54602

(plants also in New Hampshire and

Oregon)

Tingley Rubber Corporation

200 South Avenue, PO Box 100

f

S. Planfield, NJ 07080

Chairman CRANE. Thank you, Mr. Cooper.

Mr. Weintraub, how would you assess United States relations

with Mexico and the operation of NAFTA at the present time?

Mr. WEINTRAUB. I have a hard time at the present time because

of the narcotics debate that has taken place here in the Congress

over the past several weeks.

There was a tremendous transformation that took place in

United States relations with Mexico starting in the mideighties. Up

until that time, as the title of a well-known book by Alan Riding

said, our relationship with Mexico was distant. We were not very

close. Mexican politicians ran for office blasting the United States.

It was quite common.

Starting in the mideighties, when Mexico began to think in terms

of free trade with the United States and of a closer relationship,

those relations became warmer, more cordial, more cooperative. If

you read the Mexican press on a regular basis, the transformation

was quite remarkable.

In the last few weeks, a lot of the old animosities have come out

again. There has been deep resentment in Mexico of some of the

very harsh language used during the discussion of drug certification. So, at the moment, I would say that the relationships still

have not completely reverted, but they have deteriorated from what

they were for about 10 years until about 3 or 4 weeks ago.

Chairman CRANE. You, I believe, mentioned or made reference to

the President’s commitment to hemispheric free trade, or did you,

Mr. Sweeney, by the year 2005? One of you, I think, made a reference to that.
172

Realistically, do you think we will get a balanced budget in the

year 2002 with greater probability than hemispheric free trade by

2005?

Mr. WEINTRAUB. I hope you get a balanced budget by the year

2002. Let me be super confident and say that will succeed, and I

will give the 2005 date for hemispheric trade the same odds, Mr.

Chairman.

Chairman CRANE. Do you want to comment on that, Mr.

Sweeney?

Mr. SWEENEY. I don’t know enough about the budget to make a

comment like that. I would hope we can balance it quickly, although as a person who watches events in Washington, I have my

doubts about the sincerity and commitment of some of what we are

seeing coming out of this administration.

As for the prospective for making a Free Trade Area of the Americas by the year 2005, I think that may happen, but the issue is,

will the United States be a player or not, and right now, quite

frankly, the United States is not a player.

In the last 2 years, United States relations with the rest of Latin

America have deteriorated to an alarming extent. From Mexico

City to Buenos Aires and Santiago, many Latin Americans who

had staked their businesses, their political careers, their futures on

some kind of hemispheric arrangement are now saying, Well, the

yankees don’t want us, let’s do a deal with Europe, let’s do a deal

with Asia, let’s do a deal with China. Nobody is waiting for the

United States.

One of the previous panelists was saying we should declare a

moratorium and then leverage. My comment to Sidney as we were

listening to that is how incredibly arrogant of Americans to think

that we can set standards for the rest of the world and tell them

to wait until we make up our minds whether we want to play the

game or not.

Right now we are not there, and we are not there because this

administration has chosen not to lead.

Chairman CRANE. In your written testimony, Mr. Sweeney, you

suggest that the United States should seek to merge NAFTA, the

Association of Southeast Asian Nations Free Trade Area, and the

1983 Closer Economic Relations Agreement between Australia and

New Zealand into a single free trade area by no later than the year

2000. First, you might comment on the advantages of negotiating

with these governments, but second, let me ask you once more with

regard to the timeframe.

Given what we have gone through the last 2 years, do you think

that is doable?

Mr. SWEENEY. I think it is doable, sir, if the leadership is here

in the United States, if we have the leadership and we are exerting

that leadership.

I know that Australia and New Zealand and countries that belong to ASEAN are interested in faster trade liberalization than

other countries that belong to APEC. The Australians, and particularly the government of New Zealand, has indicated they are willing to negotiate at a faster pace. Singapore would like to do the

same.
173

Many countries in South America are interested in doing trade

deals with Australia and New Zealand and ASEAN. Argentina, for

example, recently suggested a free trade agreement between

MERCOSUR and ASEAN. That would be a market of 600 million

people.

I think it can be done. There are a lot of countries out there that

want to do it. The only country that doesn’t seem to make up its

mind, lamentably, is America.

Chairman CRANE. That is really what I mean. We would be an

active participant, presumably. I thought you meant in achieving

that stated role.

Mr. SWEENEY. I certainly hope we would be, sir, but I think the

issue is up in the air right now.

Chairman CRANE. Well, the concern, of course, I have is that we

still have not resolved fast track, although I am pleased to report

that Ambassador Barshefsky has that as her number one priority,

and certainly, it is our number one priority, too. But unfortunately,

Mickey Kantor derailed the fast track extension, you will recall,

and I was sympathetic to hear his line of argumentation. But I

really did not see any benefits flowing out of guaranteeing that we

didn’t have that in place. Chile has been hanging in the wings all

this while, waiting to get the United States off the dime. It is very

unfortunate, and in the interim, we are, I think, losing our clout

with our other South American neighbors.

Would any of you share that opinion?

Mr. SWEENEY. Yes, sir, I do, and more than losing clout, I think

we are losing prestige. I think we are losing image. We are losing

influence, and we are poisoning the well of our friends and allies,

and I think that is very dangerous, particularly since Latin America at this moment in time is at a difficult point in its transition

from closed inward-looking economies to outward-looking competitive export of economies.

Growth in Latin America has been slower than it should have

been in the last 6 or 7 years. Poverty has increased in Latin America because reforms have not advanced at a sufficiently rapid pace,

and a backlash is starting to build up. If the United States does

not get back into the game and start supporting its friends and allies in Latin America who are committed to reforming the region

and opening it up, we are going to see a return to social discontent

and unrest in many countries. We are going to see increased illegal

immigration to the United States. We are going to see the increased penetration of transnational criminal enterprises throughout the Western Hemisphere, and all of these developments will be

to the detriment of America’s economic and security interest in the

Americas.

Chairman CRANE. Well, I share that concern, and the thing that

is troublesome is that I was in Miami when the President made

that commitment at that Miami conference, and there was basically ecstacy on the part of the 34 Democratic countries that were

represented at that conference about this kind of commitment.

Since that time, our inaction, which I hope will be overturned very

soon, but our inaction has worked, I think, to the detriment of our

hemispheric interests, our world interests, if you will, and I hope

we can achieve these objectives over the course of the next 2 years.
174

Something you talked about, Mr. Weintraub, was jobs, and we

have what they are calling, for all practical purposes, full employment right now in the United States, and I am curious, with the

modest economic growth rate of 2.5 percent, do you know how

many illegals are working in the United States right now?

Mr. WEINTRAUB. The estimate of the INS, the most recent study,

is 5 million.

Chairman CRANE. Five million. Here we are at full employment.

We are employing 5 million illegals.

I mentioned earlier today that we had a luncheon with our delegation and Mayor Daley from Chicago last week, and he indicated

they couldn’t get tool and dye workers in Chicago, and they had to

import legal immigrants to do tool and dye work and pay them $20

an hour. That is not a bad income for, I guess, a tool and dye worker. I don’t know what all the job skills entail, but $40,000 a year

ain’t bad, and especially how attractive an offer that was to a lot

of legal immigrants who came over here to fill those slots.

I am just wondering, is our economic growth so prodigious at this

moment in history that we can’t find the workers to do the work

we need?

Mr. WEINTRAUB. Well, it would appear that we can’t find the

workers to do what we need in a good many fields, in a good many

skilled fields.

I think you have to distinguish. The unskilled worker has been

having a hard time, and there is real hardship among unskilled

workers.

Chairman CRANE. Well, are all of those 5 percent unemployed?

Are they all unskilled workers?

Mr. WEINTRAUB. Of the 5 million, by no means, but a good proportion of them are unskilled, not all of them, I am sure, but there

are skill shortages.

If you look at the want ads all over the country, there are shortages of people with particular skills, and jobs go wanting in the

United States today.

Chairman CRANE. Well, one of the things I recall, when Steve

Syms was a Member of the House, his family had an apple orchard

outside of Boise. He told me that come harvest time, his dad offered jobs picking apples. Now, this was 1972. You make the adjustment for the deterioration of our dollar. His dad was offering

$5 an hour to pick apples. That would be like $20 an hour or more

today, and couldn’t get locals to come out and pick apples.

As it turns out, illegal immigrants from Mexico came there at

harvest time and they started harvesting the crop. Then the immigration officials descended on them and gathered them all up and

took them back south of the border. His dad was having heart arrest that his crop was going to rot on the trees. They were all back

in 2 days.

He said they routinely would go from different crops to different

crops to harvest and then go back down to Mexico. I am wondering

because it certainly doesn’t take a lot of skill to pick apples.

Mr. COOPER. Mr. Chairman, may I make—I am sorry.

Chairman CRANE. Oh, sure thing.

Mr. COOPER. May I make a comment?

Chairman CRANE. Yes, indeed. I am curious about——
175

Mr. COOPER. Well, I can’t disagree, obviously, with anything that

has been said on this subject, other than to point out that the picture is not a uniform one.

I started to represent the rubber footwear industry over 30 years

ago, at which time there were approximately 30,000 employees.

Now I would like to think there is not a cause-and-effect relationship with my representation and the fact that employment has fallen to approximately 5,000 employees, but that is the fact.

Chairman CRANE. Well, let me ask a question in that context.

Are you only producing one-sixth of the footwear that you were producing with 30,000?

Mr. COOPER. No, because there is a fair amount of mechanization, a fair amount in this industry, just as there is abroad, but I

will point out to you, for example, that even under the relatively

high tariffs, admittedly high tariffs, that this industry has, a company like Nike found it profitable to lay off 1,000 employees in

Maine, to close its domestic operations, and to shift everything to

the Pacific.

All I am trying to point out is that within the macro picture,

there is a micro picture, and I think it is in everybody’s best interest not to lose sight of the fact that everybody has not been the

beneficiary of a rising tide, and that it is not—you don’t have to

say we are opposed to fast track or we are opposed to trade negotiations. We favored the Uruguay round, the Kennedy round, the

Tokyo round, and this industry’s problems were recognized. You

can have it both ways. You can have enormous success in a free

trade negotiation, for example, if you are 99.5 percent successful.

That is what happened in NAFTA. Everybody except less than onehalf of 1 percent in American industry was phased out over a period of 10 years or less, but there was some recognition that there

are a few industries in this country which do require special consideration, not because they are inefficient, but because they are so

labor-intensive and because the products can be manufactured in

relatively undeveloped countries where wages are so very low.

All we are saying is that if you apply the same rules of the game

to bilaterals that you apply to multilaterals, I think you would find

more support in the House of Representatives for fast track legislation than exists today.

Chairman CRANE. Let me ask you a question. Did you go overseas to manufacture any of your shoes?

Mr. COOPER. A lot of my clients are importing by either——

Chairman CRANE. No, no, no. I mean your business. Did you

start manufacturing overseas?

Mr. COOPER. Well, I am a lawyer for 15 companies. No, no. I am

counsel to this industry.

Chairman CRANE. Let me ask you a second question. When the

industry provided 30,000 jobs domestically, have you any idea how

many of those boots they produced a year?

Mr. COOPER. I have that figure, Mr. Crane. I don’t want to cite

it off the top of my head. Clearly more today.

Chairman CRANE. But you are producing more boots now?

Mr. COOPER. More—no, no. That is inaccurate. I am sorry. No,

we are not. The total consumption is greater.
176

When I started to represent them, imports took about 20 percent

of the market. Today it is 80 percent of the market. No, domestic

production is down.

Chairman CRANE. That is because you can’t meet the demand?

Is that it?

Mr. COOPER. It is because it is very simple to manufacture this

product now in countries like the People’s Republic and in Vietnam, in the Dominican Republic where it is now duty free, and to

bring it in and to compete successfully against domestic production.

Chairman CRANE. Well, you are talking about cheaper labor beyond our borders.

Mr. COOPER. That is correct.

Chairman CRANE. Yet, you talked about mechanization of the domestic industry. That should reduce costs significantly and give

you a more competitive leg up against——

Mr. COOPER. I am sorry, but this mechanization is taking place

there, too. The companies that are doing this are companies like

Nike and Reebok. They are American companies. They are, to some

extent, my clients, Mr. Chairman, but the balance of interests of

my clients has remained in this country because they want to be

known as American producers of American products, and as long

as they can continue to operate here, they will do so.

Chairman CRANE. Mr. Traficant always insists that government

purchases be labeled ‘‘made in America.’’

Mr. COOPER. That is right.

Chairman CRANE. I am curious because our auto industry finally

revived due to Japanese competition, and the Japanese were implementing things they had learned from us, like the robotization of

the body assembly lines, and they produced a better quality product at a lower price. Detroit finally came to its senses and started

doing the same thing, but I am wondering if there isn’t a parallel

when you talk about mechanization of some of the production of

boots.

Mr. COOPER. Well, we are not talking about companies that are

either Japanese companies or Indonesian companies. We are talking largely about American companies who have brought their skill

and knowhow over there because they can manufacture for less.

The production processes are the same there as they are here. The

product is no better. Nobody is going to be able to persuade me

that if they go into a Foot Locker and choose between a New Balance, which is made in this country, or a Nike which is made

abroad, that they are doing it on the basis of quality. No one has

ever faulted the quality of a New Balance shoe against a Nike

shoe. I mean, they are both high-quality shoes. It is a question of

where can you produce at the least cost.

The Government has recognized this. That is why the duties

have remained high in this industry. Although there has been

mechanization, labor is still the principal item of cost, and they

have not been able to overcome that.

Chairman CRANE. Mr. Sweeney, did you have a comment?

Mr. SWEENEY. Well, yes, I have two comments. One, I think if

you look at what is happening in the United States today and compare it with what is happening in other parts of the world, you find

that there has been a shift of jobs overseas at the lower skill end
177

of technological companies and manufacturing enterprises. I think

that is an inevitable process that would have happened irrespective

of whether or not the United States was a free trader and was negotiating free trade agreements.

As the world economy grows and countries come out of the Third

World and start developing and trying to join the first world, first

of all, they have a surplus of labor. That is their strongest factor

of production, and they are going to specialize in those areas where

they can take advantage of that.

At the same time, however, you see here in America, going back

over the last 20 years, that many new jobs have been added at the

higher end of the technology or the skills scale, if you will.

The second comment I wanted to make is that whenever you

hear people talking about trade, you hear about workers which is

a very important thing. A worker who loses his or her job is something very painful. I have been unemployed. I know what it feels

like. It is a terrifying situation to find yourself in, but we are also

talking about consumers. Free trade, unquestionably, has benefited

the American consumer and the American family. There is a tradeoff as we see the economy globalizing and job shifting overseas in

some areas, but at the same time ultimately, the American consumer benefits, and I think the historical record shows that, beyond the shadow of any doubt.

Chairman CRANE. Well, I was going to cite another example. In

my district, I have the corporate headquarters of Motorola, and we

have a community college close by. Motorola got the community college to introduce targeted courses for specific upgrading of skills for

their employees, and other corporations have followed suit since.

There is an upgrading of skills of employees that has been initiated

by corporations, and mercifully, it has worked out to everyone’s advantage, including the community colleges.

Well, gentlemen, I want to thank you for your testimony and appreciate your presentations, and your written statements, as I have

indicated before, will be made a part of the permanent record, and

keep the inflow coming, including Mr. Cooper, on how many of

those jobs we lost in the shoe industry.

One thing I want to say, Mr. Cooper, before you go, though.

Mr. COOPER. Yes.

Chairman CRANE. You talked about plastic. Didn’t you say something about some plastic component in shoes?

Mr. COOPER. Yes. It is rubber. Well, the industry is rubber and

plastic.

Chairman CRANE. When Procter & Gamble was here, did you

hear them testifying——

Mr. COOPER. I was here, yes.

Chairman CRANE [continuing]. About the billion plastic lids——

Mr. COOPER. Right.

Chairman CRANE [continuing]. That are made for Pringles, and

that is in Lee Summit, Missouri? I will give you the address if you

are interested.

Mr. COOPER. That is all right.

Chairman CRANE. Thank you all.

With that, the Subcommittee stands adjourned. This concludes

our hearing, but the record will be open until April 1 of this year.
178

[Whereupon, at 4:40 p.m., the hearing was adjourned.]

[Submissions for the record follow:]

Statement Submitted on Behalf of: AK Steel Co., American Beekeepers

Association, American Honey Producers Association, American Textile

Manufacturers Institute, AMT—The Association for Manufacturing Technology, Bethlehem Steel Corp., California Forestry Association, Coalition

for Fair Atlantic Salmon Trade, Coalition for Fair Lumber Imports, ColdFinished Steel Bar Institute, Copper and Brass Fabricators Council,

Ferroalloy Association, Footwear Industries of America, Fresh Garlic

Producers Association, Independent Forest Products Association, Inland

Steel Industries, Inc., Intermountain Forest Industries Association,

Leather Industries of America, LTV Steel Co., Municipal Castings Fair

Trade Council, National Steel Corp., National Association of Wheat Growers, Northeastern Lumber Manufacturers Association, Southeastern Lumber Manufacturers Association, Southern Tier Cement Committee, USX

Corp., Valmont Industries, and Western Wood Products Association

I. INTRODUCTION

Chapter 19 of the North American Free Trade Agreement (‘‘NAFTA’’) extended to

Mexico the novel and unprecedented system for resolving antidumping duty (‘‘AD’’)

and countervailing duty (‘‘CVD’’) appeals that was introduced by the U.S.-Canada

Free Trade Agreement (‘‘CFTA’’) in 1989. Under this system, AD and CVD determinations made by NAFTA-countries’ government agencies are appealable to ad hoc

panels of private individuals from both countries affected, rather than impartial

courts. The international panels do not interpret agreed NAFTA AD or CVD rules;

rather, they review agency determinations solely for consistency with national law.

This system departs radically from traditional international dispute settlement

principles whereby international bodies resolve disputes over the interpretation of

internationally agreed texts. Unlike any other international dispute mechanism in

which the United States participates, the Chapter 19 system entails direct interpretation of U.S. law and implementation under national law of decisions rendered by

non-judges and indeed by non-citizens. In practice, this system has led to the implementation of decisions that contravene U.S. laws.

The Chapter 19 system should be reformed or eliminated from the NAFTA. It certainly should not be extended to additional U.S. trade agreements. Indeed, doing so

would compound its problems. Language should be included in fast-track legislation

to prevent this from occurring. (Proposed legislative text is attached to this statement.) Statutory containment of Chapter 19 would not only prevent the

compounding of a major policy mistake but also improve the prospects for fast track

negotiating authority and expanded free trade.

II. SUMMARY

Established as an interim measure only for U.S.-Canada trade, the Chapter 19

system is fundamentally flawed and undemocratic. It places far-reaching decisionmaking power in the hands of private individuals who do not have judicial experience and who are not accountable for their performance. Under this system, international panels—with foreign nationals frequently in the majority—are allowed to

interpret and implement U.S. law, and their decisions have the force of law. Constitutional safeguards to assure judicial impartiality are lost when such panels replace U.S. courts. Justice Department officials warned Congress in 1988 that, for

this very reason, the proposed system was unconstitutional.

In addition, the system’s ad hoc and fragmented nature dooms it to failure as a

replacement for domestic courts. Especially if the system were extended to additional countries, industries attempting to exercise their rights against unfair trade

from different points of origin would end up facing a multiplicity of panel and court

proceedings likely to yield divergent rulings on identical issues. Neither industry

nor the government agencies involved could afford to prosecute so many litigations.

The result would be incoherent bodies of law, an unpredictable environment for litigants and businesses, and even the possibility of most-favored-nation problems resulting from unequal application of AD and CVD laws. In short, the system would

become unworkable (and congressionally-mandated U.S. trade remedies unusable).

The Chapter 19 system has already failed in some of its most critical disputes.

As Congress has noted, panels reviewing U.S. Government determinations have repeatedly disregarded the requirement that they behave like a U.S. court and apply

U.S. law, and they have impaired implementation of U.S. trade remedies. Panel de179

1 Reported cases include, for example, United States v. Tappan, 24 U.S. (11 Wheat.) 418 (1826)

and Elliot v. Swartwout, 35 U.S. (10 Pet.) 137 (1836).

cisions have created an environment in which U.S. industry can have little faith in

U.S. trade remedy policies as applied to imports from Canada and Mexico, much

less to imports from an even broader array of countries.

The Chapter 19 system need not, and should not, be extended to other countries

since the WTO dispute settlement system satisfies U.S. importers’ and exporters’

need for international dispute resolution. Unlike the Chapter 19 system, the WTO

system is based on traditional international dispute settlement principles, i.e., international bodies interpreting international rules. The unprecedented impairment of

sovereign legal functions entailed by Chapter 19—with foreign nationals interpreting and implementing domestic law—is unworkable in the United States and, in the

long term, in any other country.

Congress should direct the Administration to negotiate the reform or elimination

of Chapter 19 from the NAFTA. In addition, any legislation renewing fast-track procedures should expressly prohibit agreements that extend the Chapter 19 system to

trade with additional countries and make negotiating authority and fast track procedures inapplicable to implementation bills for such agreements.

Precluding extension of Chapter 19 is needed to limit the deterioration of U.S.

trade remedies and the administration of justice. In addition, doing so would enhance prospects for fast track and expanded free trade by removing a widespread

concern about them. Consequently, containment of Chapter 19 would lead to broader support for fast track negotiating authority and expanding free trade.

III. BACKGROUND ON THE CHAPTER 19 SYSTEM

A primary Canadian goal in negotiating the CFTA was exempting Canadian exports from the United States’ AD and CVD laws. The United States maintained a

contrary and more cautious position: the agreement should establish disciplines on

unfair trade practices rather than permitting them to go unsanctioned.

U.S. and Canadian officials reached a compromise on this issue as the negotiations drew to a close in the Fall of 1988. The CFTA provided that after the agreement came into effect the United States and Canada would pursue negotiations on

subsidy disciplines and a ‘‘substitute system’’ of AD and CVD rules. CFTA at Art.

1907. Pending achievement of the ‘‘substitute system,’’ and for a maximum of seven

years, the countries would operate under the Chapter 19 system of AD/CVD review

by panels. Id. at Art. 1906.

Chapter 19 was revolutionary and extremely controversial. First, judicial review

of disputes involving customs duties by impartial courts created under Article III

of the Constitution has a long history in the United States.1 Replacing impartial

courts with binational panels raised the specter of unfair decisions and the circumvention of U.S. law.

Second, during Congress’s consideration of the CFTA, U.S. Justice Department officials advised that the system would be unconstitutional if panel decisions were implemented automatically, as is now the case. United States-Canada Free Trade

Agreement: Hearings Before the Senate Judiciary Committee, 100th Cong. 76–87

(1988) (‘‘Senate Judiciary Comm. Hearing’’). Several Members of Congress expressed

serious reservations about the constitutionality and workability of Chapter 19, including Senators Grassley and Heflin. See id. at 89–98; S. Rep. No. 100–509, at 70–

71 (1988).

The Chapter 19 system was ultimately accepted as part of the CFTA based on

executive branch commitments to Congress that: 1) panels reviewing U.S. agency

determinations would be bound by U.S. law and its governing standard of review,

just as the U.S. Court of International Trade is so bound; 2) there would be strict

and fully enforced conflict-of-interest rules; and 3) the system would be in place only

a short while and only with Canada. According to one of the primary U.S. negotiators on this issue, the system could only work for Canada. It was:

not, and [was] not intended to be, a model for future agreements between

the United States and its other trading partners. Its workability stems from

the similarity in the U.S. and Canadian legal systems. With that shared

legal tradition as a basis, the panel procedure is simply an interim solution

to a complex issue in an historic agreement with our largest trading partner.

United States-Canada Free Trade Agreement: Hearings Before the House Judiciary

Committee, 100th Cong. 73 (1988) (Testimony of M. Jean Anderson).
180

2 Each country involved in the dispute appoints two panelists. NAFTA Chapt. 19, Annex 1901.2. The two countries are then to agree on a fifth panelist. Id. If they are unable to agree, the two countries decide by lot which country will select the fifth panelist. Id. 3 U.S. Const. art. II, § 2, cl. 2. ironically, the Appointments Clause emerged, in part, from the Founders’ experience with the British colonial government’s selection of Royal officials, a preponderance of whcih were customs officials. The Founders included as a grievance in the Declaration of Independence that the King ‘‘has erected a multitude of New Offices, and sent hither

swarms of Officers to harass our People, and eat out their substance.’’ The reference is to customs officials, Barrow, Trade and Empire 256 (1967).

The constitutionality of the Chapter 19 system has been discussed in numerous articles. See,

e.g., Barbara Bucholtz, Sawing Off the Third Branch: Precluding Judicial Review of Anti- Dumping and Countervailing Duty Assessments Under Free Trade Agreements, 19 Md. J. Int’l

LK. & Trade 175 (1995); Alan B. Morrison, Appointments Clause Problems in the Dispute Resolution Provisions of the United States-Canada Free Trade Agreement, 49 Wash. & Lee L. Rev.

1299 (1992).

Although the Chapter 19 system was accepted, negotiations with Canada to create disciplines on unfair trade practices, including subsidies, failed. Nonetheless, with

little additional discussion, and contrary to executive branch commitments to industry, the system was made a permanent part of the NAFTA in 1994.

IV. CHAPTER 19’S DESIGN IS FLAWED IN SEVERAL RESPECTS AND HAS SERIOUS

CONSTITUTIONAL PROBLEMS

Under the Chapter 19 system, panels are formed on a case-by-case basis to re- view the consistency with national law of AD and CVD determinations issued, in

the United States, by the Commerce Department (‘‘DOC’’) and the U.S. International Trade Commission (‘‘ITC’’). The panels contain five members—three from

one country involved in the case and two from the other—who are private-sector

trade experts, usually lawyers.2

The System is Undemocratic and Unaccountable

On its face, the system is, at minimum, anomalous. A group of private individ- uals, each with his or her own clients and interests, is empowered to direct the actions of government officials and dictate the outcome of cases involving billions of

dollars in trade. These panelists do not have judicial training. Nor are they insulated, as judges must be, from outside pressures and conflicts. Once a case is over,

the panelists simply return to their occupations—many of them practicing before the

very agencies whose decisions they recently were reviewing. They are not accountable in any way for their decisions as panelists. This process is contrary to traditional principles of representative governance. In- deed, as indicated above, Justice Department officials advised Congress that the

Chapter 19 system contravenes a constitutional provision intended to establish accountability among U.S. decision-makers (the ‘‘Appointments Clause’’).3 Congress cannot ‘‘sanction’’ or ‘‘correct’’ erroneous decisions because the ‘‘judges’’ are not part

of a standing judiciary.

The System Violates Principles of Impartial Judicial Review

Article III of the Constitution establishes safeguards to assure an impartial fed- eral judiciary, e.g., life appointment and freedom from salary diminution. As noted

above, review of trade cases by Article III judges has a long tradition in the United

States, and dispensing with Article III protections for reviews of AD/CVD determinations is unwarranted. In fact, and as further explained below, conflicts of interest on the part of panelists were a major problem in the Chapter 19 review involving Canadian softwood lumber. Even holding constitutional infirmities aside, the

conflict-of-interest prone Chapter 19 setup creates a serious perception problem

damaging to the credibility of the international trading system.

The System’s Premise is False and Objectionable

The Chapter 19 system is premised on the outrageous assumption that domestic courts are incapable of resolving these cases in a fair and impartial manner. There

is no evidence to support this proposition. In any event, this type of extraordinary

device is not viewed as necessary in other litigation contexts in which foreign interests frequently participate, such as appeals of agency determinations in the communications arena. There is no basis to single-out trade remedies as requiring this

mechanism.

The System’s Ad Hoc, Fragmented Nature Renders it Unworkable

The Chapter 19 system contemplates that a separate panel proceeding is to re- solve each AD/CVD appeal on a country-by-country basis. In practice, this cannot
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4 Indeed, a recent Canadian survey indicated that a Chapter 19 appeal can cost $100,000 to

150,000, while an appeal to a federal court costs only $25,000 to 40,000 to litigate. See Laura

Eggerston, ‘‘Costs Deter NAFTA Dispute Settlements,’’ The Globe and Mail, Mar. 20, 1997, at

B–9. 5See North American Free Trade Agreement Implementation Act, Joint Senate Report, S.

Rep. No. 103–189, at 42 (1993) (‘‘[T]he Committee believes . . . that CFTA binational panels

have, in several instances, failed to apply the appropriate standard of review. . . .’’); see also

North American Free Trade Agreement Implementation Act, House Ways & Means Committee

Report, H.R. Rep. No. 103–361, at 75 (1993).

work, especially if Chapter 19 is extended to many different countries. An industry

seeking a remedy against unfair trade from several countries—as is often the case—

would end up facing proceedings before panels for each of the countries from which

unfairly traded merchandise is imported and, potentially, another proceeding at the

Court of International Trade. The resulting decisions could relate literally to identical issues.

Neither the affected industry nor the U.S. agencies involved could afford to engage in this multiplicity of litigations.4 Even if this were manageable procedurally,

the panels would inevitably come to different interpretations of U.S. law on the

same underlying facts and issues. Such an atomized judicial mechanism cannot retain (and indeed has never gained) credibility. The inevitable result is an unworkable system, leading to the effective neutralization of U.S. trade laws.

V. In Practice, Chapter 19 has Resulted in Bad Decisions With-Out Remedy

Before it came into effect, Senator Grassley expressed deep concern about the

novel experiment in replacing the U.S. judiciary with panels and whether it could,

in practice, earn the respect of private parties. Senate Judiciary Comm. Hearing at

89–90, 94, 96. Unfortunately, Senator Grassley’s concerns have been vindicated.

Based on the panels’ track record, private parties cannot have faith that the trade

laws will be administered fairly or correctly as regards imports from Canada and

Mexico.

Were they to adhere to the standard of review mandated by the NAFTA and U.S.

law, panels would reach exactly the same results as the Court of International

Trade and be very deferential to DOC and ITC trade determinations. In particular,

they would sustain the agency’s findings unless they have no ‘‘reasonable’’ factual

basis or are grounded on a legal interpretation that is ‘‘effectively precluded by the

statute.’’ PPG Indus., Inc. v. United States, 928 F.2d 1568, 1573 (Fed. Cir. 1991).

As recognized by Congress, the reality has often been to the contrary.5 Panel decisions involving Canadian pork and swine imports were so flawed that the U.S. Government sought review by appellate Chapter 19 panels (‘‘extraordinary challenge

committees’’ or ‘‘ECCs’’). The swine ECC virtually conceded that the lower panel

erred but declined to take corrective action. Live Swine from Canada, No. ECC–93–

1904–01–USA, slip op. at 6 (Apr. 8, 1993) (‘‘the Committee felt the Panel may have

erred’’).

The Chapter 19 system also failed conspicuously in the last case involving subsidized Canadian softwood lumber, where:

• Both the lower panel decision and the ECC decision were decided by bare majorities divided by nationality. Certain Softwood Lumber Products from Canada, No.

USA–92–1902–1904–01, slip op. (Dec. 17, 1993); Certain Softwood Lumber Products

from Canada, No. ECC–1904–01–USA, slip op. at 37 (Aug. 3, 1994) (‘‘Lumber ECC’’).

• Two of the three Canadian members of the lower panel and their law firms had

previously represented Canadian lumber interests and governments but did not disclose all of their conflicts. See Lumber ECC at 71–86, Annex 1 (Wilkey opinion).

• The panels disregarded extensive case law and explicit Congressional committee

reports which specified the proper interpretation of the CVD law on litigated issues.

See Brief of the United States, No. ECC–1904–01–USA, at 69, 79–80 (May 3, 1994).

• An ECC member expressly chose to ignore the review standard for panels that

is established by the NAFTA and the applica-ble U.S. statute. See Lumber ECC at

28 (Hart opinion) (indicating that panels need not apply the review standard of the

Court of International Trade).

The dissenter in the lumber ECC decision was former Federal Appeals Court

Judge (and former Ambassador) Malcolm Wilkey. According to Judge Wilkey, the

underlying panel majority opinion ‘‘may violate more principles of appellate review

of agency action than any opinion by a reviewing body which I have ever read.’’

Lumber ECC at 37 (Wilkey opinion). Moreover, Judge Wilkey concluded that the

lumber case violated all of the safeguards on which Congress based its conclusion

that the Chapter 19 system is consistent with constitutional due process protections.

Id. at 69–71, citing H.R. Rep. No. 100–816, Pt. 4, at 5 (1988).
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6 Canada and Chile did not alter their CVD policies, but did reportedly agree to phase out

AD remedies for bilateral trade. Weakening AD policies is not an option for the United States

given the many U.S. industries that have suffered grievous injury—sometimes elimination—at

the hands of dumped merchandise. In any case, the Canada-Chile agreement demonstrates that

Chapter 19 is unnecessary in any new agreements. 7Letter from Vincent m. McCord, Vice President of the Association of American Chambers of

Commerce in Latin America and Executive Vice President of the American Chamber of Commerce in Chile, to Donna R. Koehnke, Secretary of the International Trade Commission (July

19, 1995).

VI. RECENTLY CONCLUDED TRADE AGREEMENTS DEMONSTRATE THAT CHAPTER 19 IS

UNNECESSARY

The infirmities in Chapter 19’s design and its failures in practice demonstrate

that the U.S. Government should not extend the Chapter 19 system to other countries. Even setting aside these problems with Chapter 19, however, it should not be

part of future U.S. free trade relationships because it is not needed.

First, the new WTO system fulfills any legitimate need for international AD/CVD

dispute settlement. Unlike the Chapter 19 system, WTO dispute settlement operates

under standard principles of international dispute settlement: WTO panels resolve

disputes over the meaning of the WTO agreements, deciding whether the importing

country has complied with its international obligations. This process, coupled with

access to domestic courts, should satisfy any concerns about securing unbiased review of AD/CVD determinations. There is simply no need for the intrusive system

under which panels hand down controlling dictates on the application of domestic

U.S. law.

Even if Chapter 19’s theoretical benefit to U.S. exporters showed real signs of materializing, that benefit would be vastly outweighed by the systemic problems described above and the undermining of U.S. trade remedy policies that would inevitably result. Moreover, the benefit to U.S. exporters would be marginal indeed since,

with respect to ensuring that foreign governments’ AD/CVD determinations comply

with national law, the WTO agreements include provisions on effective judicial review. These provisions present an opportunity to achieve by more legitimate means

the goals Chapter 19 was allegedly designed to promote.

Finally, our current NAFTA partners and prospective new partner have indicated

that Chapter 19 is unnecessary in future trade agreements. Mexico omitted Chapter

19 from trade agreements with several Latin American countries. Canada and Chile

omitted the system from the trade agreement that they signed late last year as a

precursor to NAFTA expansion, choosing expressly to rely instead on WTO dispute

settlement.6 Furthermore, the Association of American Chambers of Commerce in

Latin America, citing many of the concerns identified in this statement, has warned

that at least U.S. business interests in Chile are likely to oppose inclusion of Chapter 19 in any agreement with that country.7

Given these developments, there is no credible argument that Chapter 19 is needed to secure expanded free trade. Indeed, as discussed below, efforts to extend Chapter 19 are impeding the cause of expanded free trade.

VII. STATUTORY CONTAINMENT OF CHAPTER 19 IS NEEDED

Since Chapter 19 is harmful and unnecessary, measures are needed, at minimum,

to ensure that it is not extended to additional trading partners. The most straightforward means of enacting such measures would be through the fast-track bill itself.

The statute should direct the executive branch not to further alienate federal jurisdiction and authority to decide cases under U.S. law through international agreements and should withhold trade agreements negotiating authority and fast-track

procedures from any such agreements.

Ensuring that the problem of Chapter 19 will not be compounded through the

trade agreements program will significantly benefit the prospects for fast track and

expanded free trade. It will remove impediments (e.g., concerns about diminished

sovereignty, constitutional problems) for those inclined to be supportive. At the

same time, it is highly unlikely that any Member of Congress or any constituency

will withhold his or her support from fast track, an expanded NAFTA or the FTAA

if Chapter 19 is excluded from the resulting agreements.

VIII. CONCLUSION

The U.S. Government should negotiate elimination of the Chapter 19 dispute settlement system as it exists with Canada and Mexico; under no circumstances should

it be extended to new participants under the NAFTA or the FTAA. Congress should:
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• ensure that fast-track legislation prevents extension of Chapter 19 to additional

countries; • hold hearings on the Chapter 19 system to investigate (1) whether the system is unconstitutional; (2) whether the system is necessary in light of WTO rules and

the WTO dispute settlement system; (3) the suitability of the system as a permanent replacement for judicial review of trade cases; and (4) the past administration

of the system; and • direct the Administration to negotiate the elimination or reform of the Chapter 19 system from the NAFTA.

enter into any treaty or other international agreement that, in whole or in part, 1. Notwithstanding any other provision of law, the U.S. Government shall not

Draft Section of Fast Track Bill

f

would have the purpose or effect of transferring any jurisdiction or authority to decide cases under U.S. law away from the federal judiciary. 2. The trade agreements negotiating authority of—[formerly Sec. 1102 of the 1988 Act] shall not apply to the negotiation of any trade agreement that would have the

purpose or effect of transferring any jurisdiction or authority to decide cases under

U.S. law away from the federal judiciary, and the procedures of Section 151 of the

Trade Act of 1974 [fast track], or any similar successor provisions, shall not apply

to implementing legislation submitted with respect to any such trade agreement.

Statement of American Association of Exporters and Importers, New York,

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New York

INTRODUCTION AND BACKGROUND

The American Association of Exporters and Importers (AAEI) is comprised of over

1000 U.S. member firms that export, import, distribute and manufacture a complete

spectrum of products, including chemicals, electronics, machinery, footwear, autos/

parts, food, household consumer goods, toys, specialty items, textiles and apparel.

Members also include firms which serve the international trade community, such

as customs brokers, freight forwarders, banks, attorneys, insurance firms and carriers. AAEI members conduct operations in all fifty states, employing millions of

U.S. workers. Together, AAEI companies account for a large majority of nonmilitary, commercial U.S. trade. Over many decades, AAEI has cultivated strong working relationships with Fed- eral departments and agencies regulating international trade, including the U.S.

Trade Representative, the U.S. Customs Service, the Department of Commerce, the

U.S. International Trade Commission and the Food and Drug Administration. As we

prepare for the next century of international commerce, AAEI is grateful for the opportunity to present its comments on this crucial review of U.S. trade policy objectives and initiatives. Among the most pressing trade issues for which the U.S. must

develop clear and unwavering policies and objectives concern trade with China, fast

track negotiating authority, the continuation of the Generalized System of Preferences, expansion of free trade in the Americas and meaningful liberalization of

trade in textiles and apparel.

CHINA TRADE

AAEI has long favored, including as late as its June 11, 1996 testimony before

the Trade Subcommittee, the granting by the U.S. of permanent and Unconditional

MFN trading status to China. AAEI has also urged concomitant revision of the

Jackson-Vanik Amendment toward this aim. AAEI believes that human rights,

arms control, environmental, and other political and economic issues are more productively addressed and affected by means other than denial of, or threat of revoking normalized trade relations. Open trade, and its benefits to all, is more achievable within commercial engagement rather than by isolation of trading partner nations. A larger and more important step is the eventual inclusion of China into the

World Trade Organization (WTO) on commercially acceptable terms. Continued exclusion of the important China market from potential disciplines and remedies

under WTO has lost any effective advantage or meaning for the U.S. The WTO cannot function effectively with continued exclusion of China—one of the world’s fastest
184

growing trading economies. Additionally, WTO membership may compel China to

reverse some restrictive policies bringing its economy more in line with other members.

MFN status is the cornerstone of normal commercial trading relationships with

countries worldwide, including China, and is a key aspect of the bilateral trade

agreement with China entered in 1979. The term ‘‘most-favored-nation’’ is a misnomer, suggesting some sort of privileged trading relationship. In fact, we grant

most of the world’s nations MFN status, which merely entitles a U.S. trading partner to the standard tariff rates available to other trading partners in good standing.

The Chinese market is already the world’s third largest, according to an International Monetary Fund (IMF) study, and has continued to grow at an annual rate

of more than 10%. This market is simply too important to our future international

competitiveness and to the battle against inflation in the U.S. to ignore or to jeopardize through an unstable trading relationship. As President Clinton has recognized, MFN is an essential cornerstone for a long-term, stable bilateral relationship

with China in both the economic and foreign policy realms. Any annual review process introduces uncertainty, weakening the ability of U.S. traders and investors to

make long run plans, and saddles U.S./China trade and investment with a risk factor cost not faced by our international competitors.

AAEI members agree that human rights issues warrant our attention and further

bilateral negotiations between the U.S. and China. However, the Association does

not believe that the threat of terminating MFN is an appropriate or constructive

tool for pursuing this important U.S. foreign policy objective. History suggests that

despite China’s strong interest in trade with the U.S., efforts to impose our will on

the Chinese government through a series of public demands will prove to be counterproductive. MFN is the foundation on which the U.S. bilateral relationship with

China rests.

Failure to renew China’s MFN status would harm U.S. exporters as well as importers. China represents a significant and very promising market for U.S. exports,

with over $13 billion worth of U.S. goods purchased by the Chinese last year. The

Department of Commerce estimates the value of U.S./China trade and investments

will be $600 billion in the next five to seven years.

AAEI strongly supports initiatives by the Administration and Congress to grant

China MFN status on a permanent basis and urges serious consideration of a revision of the Jackson-Vanik Amendment toward this aim. A revision of Jackson-Vanik

does not require a revision of U.S. human rights objectives. AAEI believes that

President Clinton correctly determined that those objectives should not be limited

to trade issues between the U.S. and China. U.S. human rights objectives can, and

should, be attained without terminating China’s MFN status. Terminating China’s

MFN status could only harm U.S. trade and foreign policy interests and ultimately,

the progressive forces in China on which future progress will depend. Strong U.S.-

China trade ties encourages private commerce initiatives within China.

Looking ahead to the bigger picture, AAEI believes that it is through China’s full

integration into the world community of nations that its citizens will benefit from

the relaxation of the current authoritarian political climate. Therefore, AAEI supports Administration and Congressional initiatives favoring China’s admission to

the World Trade Organization. Indeed, our own trading position is not helped by

the continued exclusion of the crucial China market from potential disciplines and

remedies under the WTO. Human rights, arms control, environmental and other political and economic issues are more productively addressed in a climate of normalized trade relations.

FAST TRACK NEGOTIATING AUTHORITY

AAEI supports renewal of Fast Track as an essential tool for the U.S. to conclude

meaningful trade agreements with its partners. It gives U.S. negotiators the necessary backing and credibility to maximize U.S. interests on a multilateral level.

The provision assures that Congress receives continuous updates through every

phase of the negotiation process, culminating in a well-informed up or down vote.

The notion that Fast Track binds the hands of Congress, preventing it from impacting important trade negotiations, is a misconception. Fast track legislation puts

Congress into the negotiation process at a pivotal time, before it begins. Throughout

the negotiations, Congress delineates detailed guidelines, to which the President

must adhere. These guidelines set the framework for the negotiation process. The

President is also required to continuously report back to Congress on the progress

of the talks. To view Fast Track as a vehicle granting the President complete autonomy in trade negotiations is misleading. Congress gives up very little oversight au185

thority by approving Fast Track. In fact, Fast Track statutorily defines and maintains the role Congress is to play.

CONTINUATION OF THE GENERALIZED SYSTEM OF PREFERENCES

AAEI has supported GSP since its inception in 1974 and strongly urges its re- newal. For over twenty years, GSP has given developing countries access to the

world marketplace by allowing them to export many products to industrialized countries free of duty, while maintaining effective safeguards to prevent this treatment

from harming U.S. production. GSP is based on a philosophy of trade, rather than

aid, as a more effective, cost-efficient means of promoting sustained economic development.

The imminent expiration of GSP is of great concern to importers. Over twenty other industrialized countries have adopted the GSP concept and continue to import

goods duty-free from developing countries. The United States must continue this

program in order to remain competitive in international trade and to foster development where needed.

Additionally, duty-free sourcing of materials and components is important to U.S. industries which use them in production of finished products. If U.S. manufacturers

can obtain these materials and components only at prices which include the payment of duty, increases in the price of finished products will inevitably be passed

to the U.S. consumer. For example, a substantial volume of electrical products, such

as outlets and switches, are imported from Beneficiary Developing Countries under

GSP to be used in the housing industry. If such products are not available at prices

which do not include duty, whatever increased costs are involved will be paid by

purchasers of new homes.

Finally, in the past, the existence of the GSP program has resulted in Beneficiary Developing Countries either protecting or improving intellectual property rights and

living up to other international obligations. It is clear that if the GSP program is

not renewed, countries which have previously protected or improved these rights

will have no further incentive for doing so. AAEI urges that upon its expiration on May 31, 1997, GSP be renewed for at least ten years. The program has historically encouraged trade with underdeveloped nations and has led to substantial economic gains for both these countries and the

United States.

FREE TRADE AREA OF THE AMERICAS

The second fastest growing economic region in the world is Latin America. By

2010 it is estimated that the United States will send more U.S. goods and provide

more services to Latin America than to Europe and Japan combined. Forging economic ties among nations of the Americas will solidify recent economic reforms, promote growth, develop the middle classes and strengthen democracy, while creating

jobs in the United States.

The negotiation of Chile’s accession to the NAFTA is an important first step in

developing hemispheric free trade. The United States must cultivate a partnership

with the leader of economic reform in Latin America and its most vibrant economy

in over a decade.

If we do not act quickly, we may miss out on a valuable economic opportunity.

Chile is currently negotiating separate agreements with both Mexico and Canada.

It will be unfortunate if agreements are reached outside the NAFTA framework.

Numerous separate agreements will complicate matters for business as well as the

economy as a whole.

TRADE IN TEXTILES AND APPAREL

AAEI regrets that the integration schedule decreed by CITA with regard to the

agreed phaseout of the Multifiber Arrangement does not conform to the letter and

the spirit of the GATT Uruguay Round Agreements. The U.S. failure to adhere to

the agreed quota reductions will harm our standing in the international community.

Furthermore, U.S. consumers, whose interests should be paramount in the process,

will continue to bear the brunt of retaining almost 90 percent of our protectionist

quotas for a full ten years. To maintain quotas on virtually all ‘‘sensitive’’ categories

for ten years is to do a disservice to the very industry the quotas are designed to

protect.

By not providing for real liberalization in the first phase of integration, the

United States failed to stimulate industrial adjustment in this country, or to increase competition. The U.S. is now compounding this failure by continuing to steer

away from sensitive items.
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AAEI supported the concept of a ten-year phaseout of the Multifiber Arrangement

during the Uruguay Round negotiations, because it understood the necessity of preparing the domestic industry for complete elimination of quotas by a gradual reduction. Textile and apparel exporting nations agreed to the phaseout in good faith,

with the same understanding of its nature. U.S. action in scheduling the phaseout

has not shown the same good faith. By effecting a reasoned, gradual approach to

integration, CITA will be able to fulfill its commitments to our association, to other

members of the importing community, to signatories to the GATT Agreement and,

ultimately, to the American consumer, who bears the brunt of the burden of restrictive quotas.

Statement of W. Henson Moore, President and Chief Executive Officer,

American Forest & Paper Association

f

My name is W. Henson Moore. I am President and CEO of the American Forest

& Paper Association (AF&PA). AF&PA, the national trade association of the forest,

pulp, paper, paperboard, and wood products industry, represents more than 200

companies. The vital national industry which AF&PA represents accounts for 8% of

total U.S. manufacturing output. The industry employs approximately 1.6 million

people and ranks among the top 10 manufacturing employers in 46 states. Its annual payroll is about $50 billion, and sales of forest and paper products top $200

billion annually in the U.S. and abroad.

We very much appreciate this opportunity to share with the Subcommittee our

views regarding the role U.S. trade policy must play in promoting economic growth

and maintaining manufacturing employment here in the U.S.

Like Hippocrates, we believe the first principle of U.S. trade policy must be to do

no harm. When management, workers and resources combine to give the U.S. a

competitive edge in an industry, the minimum standard for U.S. trade policy effectiveness would appear to be to do nothing which undermines our ability to sell our

products in overseas markets.

Unfortunately, in the trade offs that are typical of trade negotiations, this does

not always happen. During the course of past trade negotiations, U.S. tariffs on

paper and wood products were reduced almost to zero, while our principal trading

partners—in Europe and Japan—were allowed to keep their tariffs on these products at high levels. (I am submitting for the record charts which graphically demonstrate the gap which separates our virtually tariff free market from both Europe

and Japan.)

During the Uruguay Round, we tried to remedy this situation with our zero for

zero proposal. While we did get agreement to eliminate paper tariffs, the Europeans

would not agree to do so until the year 2004. And due to the objections of Japan,

our trading partners will only cut tariffs on wood products by an average of 28%.

The result is that an industry which is globally competitive in terms of its resource base, manufacturing costs, product quality and environmental stewardship

cannot translate that advantage into sales in world markets because our trading

partners have been allowed to maintain crippling tariff barriers. At the same time,

the fact that we no longer have any meaningful tariffs on these products here in

the U.S., and that European markets are so well protected, has encouraged our competitors to build capacity—which translates into jobs added overseas and jobs foregone here in the U.S.

We are particularly frustrated because our efforts to improve on the Uruguay

Round results have been resisted by our competitors, who frankly admit that they

are very comfortable to be able to hide behind a tariff wall at home and sell in our

market at will. As recently as the Singapore Ministerial meetings last December,

the efforts of Ambassador Barshefsky and several members of this Subcommittee to

rectify this situation were rebuffed by our competitors in Europe (such as Finland)

and Japan. Unfortunately, the views of consumers of paper and wood products, who

recognize that earlier tariff cuts would mean lower costs to them, apparently were

not represented in Singapore.

To return to my opening premise, the American forest products industry urges the

Administration to focus on the damage which an unbalanced global playing field has

done to capacity, employment, and earnings in our industry and to make the restoration of equity and balance in forest products trade a top priority item on the

1997 Trade Policy Agenda. We urge Ambassador Barshefsky to spearhead an integrated effort with the explicit goal of achieving global free trade in forest products

before the end of the century.
187

There are several elements of the Administration’s 1997 Trade Policy Agenda

which we wholeheartedly support and which would form vital links in an integrated

forest products initiative:

• The APEC forum must be used to eliminate Japanese resistance to the early

elimination of both paper and wood products tariffs. At the same time, APEC must

focus on the role of regional producers, such as Indonesia, Malaysia and Thailand,

which maintain very high tariffs on forest products and yet benefit from duty free

access to the U.S. and other developed country markets through GSP (Generalized

System of Preferences). Agreement on the part of these producers to immediate duty

free treatment for wood and paper products must be a precondition for continuing

U.S. GSP status.

Indonesia in particular is building a world class, competitive paper industry, with

substantial support from its government. The U.S. must take account of such sector

specific competitive situations, and use sector comparability as its yardstick for assessing APEC tariff offers.

• In the FTAA process, the Administration must intensify its efforts to focus on

tariff cutting, for wood and paper products in particular. The elimination of regional

tariffs in these products must be included in any definition of ‘‘concrete progress’’

in the year 2000.

• In WTO accession negotiations with China and Russia, as well as other candidates, the immediate elimination of wood and paper tariffs must be established

as a precondition of membership from the beginning. In addition, extensive nontariff barriers exist in China which, if not addressed prior to China’s accession to

the WTO, will lock U.S. producers into a position of long-term competitive disadvantage. Our experience painfully demonstrates that U.S. toleration of an unequal bargain does not work. It only institutionalizes protectionism, and robs the U.S. of the

leverage it needs to negotiate tariff cuts in future. We should not make this mistake

again.

To the extent that fast track authority will be needed to accomplish these objectives, the forest products industry has already indicated it would be strongly supportive.

The Government of Canada, which shares our concern for the extent to which its

forest products sector has been disadvantaged by this tariff inequity, has proposed

the elimination of all tariffs on paper products by January 1, 1998. The upcoming

Quad meeting in Toronto would appear to be a most appropriate occasion for the

U.S. to identify free trade in forest products as a priority U.S. objective for 1997.

We urge USTR to immediately seek the support of the Canadian host government

for a special focus on forest products trade at this Quad, with the objective of getting

a commitment by the Quad member states to reach agreement on the immediate

elimination of wood and paper tariffs by the end of the year. Among the other occasions on which we would expect to see progress on tariff elimination would be the

U.S.–EU Summit in the Hague in May and the meeting of APEC Trade Ministers,

again hosted by the Government of Canada, in May.

Ours is a strongly competitive industry. In 1993, Fortune Magazine identified us

as one of only two U.S. industries which had the overall competitive strength to retain a dominant position in world markets through the decade of the 90’s. This position is eroding everyday on which we continue to compete with one hand tied behind

our backs, while our competitors take profits from our open market and their protected markets, and use them to build new capacity, forcing us in turn to take downtime to try to balance global supply and demand. We believe that it cannot be acceptable U.S. trade policy that we—or any other U.S. industry—should be required

to do so.

Thank you, Mr. Chairman.

Attachments
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189

Statement of Andrew Howell, Executive Director, Association of American

Chambers of Commerce in Latin America

Chairman Crane, thank you very much for this opportunity to comment on the

United States’ trade negotiating priorities from the perspective of the over 16,000

members the Association of American Chambers of Commerce in Latin America

(AACCLA). My name is Andrew Howell and I serve as a executive director of

AACCLA, whose members manage the bulk of US investment in the region, and are

therefore the best resource for information on the impact that US trade and investment policy initiatives have on American business in the Americas.

In this statement, I would like to discuss how important it is for the United

States to return to a leadership role in building free trade throughout the Americas,

from the perspective of US business operating in the Latin American and Caribbean

market.

ASSERTING US LEADERSHIP

The United States has long been at the forefront of opening foreign markets, and

has one of the most open economies in the world. The North American Free Trade

Agreement (NAFTA) set new standards for trade agreements in many areas when

it was signed and approved in 1993. Its broad coverage of trade and investment

issues has been seen as the model around which Hemisphere-wide free trade would

be built.

The successful completion and implementation of the Uruguay Round of the General Agreement on Tariffs and Trade also demonstrated the commitment of the

United States to the world-wide trading system. Throughout over 8 years of trade

negotiations, the US public and private sector worked together to forge one of the

most ambitious multilateral trade pacts in the history, and the largest tax cut in

the world.

In sum, US trade policy objectives created a climate for doing business overseas

that helped bring new, growing markets within the reach of US exporters of all

sizes. These new markets, in turn, help the US economy grow at rates that would

be unattainable if our companies were limited to selling their goods and services domestically.

However, since 1994, progress on opening new markets in the Americas has been

stalled in part because of the absence of fast-track negotiating authority. For the

past two years, our trade negotiators have been unable to actively bring about the

elimination of the many barriers to trade and investment in Latin America. American goods, services and most of all, know how, have positioned US companies as

leaders in the varied economies of the region. US engineering firms build the highways and railroads that move people across vast distanced; US manufacturers create new, cutting-edge products known for their craftsmanship and dependability;

consumers across Latin America and the Caribbean have always been eager to buy

blue jeans, watch American movies, eat hamburgers and shop in US style malls. In

short, US business has a leg up on our competitors because we have worked so hard

to have a strong market presence in every sector of the Latin American economy.

Over the last several years, this hard work has helped boost trade between the US

and Mexico from $100.3 billion in 1994, to $129.8 billion in 1996, a 29 percent increase since the implementation of NAFTA. Overall, US trade in the region has

grown from $180.5 billion in 1994 to an astounding $231.1 billion in 1996, an increase of over 28 percent.

Yet we cannot be complacent and think that consumers and business leaders will

remain inclined to buy US goods and services unless we set the trade rules that

allow them to successfully compete in these markets. New competitors emerge in

the international market constantly, and if our negotiators are left without authority, we cannot take advantage of the promise of the Latin American market. And

today, the opportunity exists for increased market access in the Americas. The 34

market based economies of the Americas are in agreement that open markets are

the foundation of sustainable economic growth.

US INACTION MEANS GAINS BY OTHERS

Yet while the United States is participating in the valuable, pre-negotiation information gathering phase of the Free Trade Area of the Americas, we are not in a

position to negotiate with anyone. In the past, US leadership might have mean a
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standstill in trade liberalization measures in the Hemisphere. Instead, we now see

the European Union pressing forward to negotiate deals with the many growing

markets of our own Hemisphere. Trade negotiators have been meeting with their

counterparts in the Mercosur markets of Argentina, Brazil, Paraguay and Uruguay;

with Chile; and with Mexico in order to gain preferential access.

Within the region, trade negotiators from Argentina, Brazil, Chile and Mexico, for

example, are proposing their own trade liberalization agenda. Since the US is not

at the table, our economic interests are not represented, which means that the rules

of the game are written by our competitors. The business community wants the

road-map for Hemisphere-wide free trade to be built by our negotiators, under terms

that are fair for our exporters and investors.

Chile, for example, has been a leader in moving toward free trade in the Hemisphere. That nation’s increased trade with other countries in the region demonstrates the benefits the nation has derived from lowering tariffs and investment

barriers.

Chile’s bilateral and multilateral deals dot the landscape of every sub-region within the Americas. Chile signed bilateral deals with both of our NAFTA partners. The

Chile-Mexico deal has lowered the duties on nearly 90 percent of total bilateral

trade to nearly zero. As a result, 1996 trade jumped between the two nations by

48 percent.

In the Andean region, Chile has also been actively striking deals. Chile and Colombia have agreed to lower the duties on 333 products traded between the two nations to zero. In 1996, trade between those two nations rose 23 percent. Chile and

Venezuela will have tariff free trade by 1998. Trade between the two nations rose

70 percent in 1995, and 28 percent in 1996. Furthermore, Chile and Ecuador have

signed a deal which will lower the tariffs on all items traded between the two nations to zero by the end of 1998.

Chile has also struck a deal with the formidable trade group of Mercosur, which

includes Argentina, Brazil, Paraguay and Uruguay. While tariff-free trade will not

be in effect until 2014, significant market opening steps are already being taken.

Since October 1, the Mercosur-Chile deal has led to a 30% tariff reduction on 73

percent of Chilean exports, and 81 percent of Chilean imports.

Meanwhile, we have been unable to lower either the 11 percent duty rate or the

numerous other non-tariff barriers that US exporters must face when trying to sell

in the Chilean market. As a result, the long-term growth of our bilateral trade relationship is limited, as are our opportunities to beat out our competitors who already

have (or will soon negotiate) preferential access to the Chilean market.

PRESERVATION OF OUR ECONOMIC SELF INTEREST

The status quo clearly disadvantages US exporters. Therefore, we must re-insert

ourselves into the Hemisphere’s trade liberalization program, and bring Chile into

the NAFTA. Only by acting can we stem the potential loss of US market share in

Latin America.

By striking trade agreements with countries like Chile who are eager to join

NAFTA, we have the opportunity to not only ‘‘lock-in’’ market access, but also set

forth clear ground rules for doing business. By setting forth clear, understandable

rules for conducting trade, we can create a business environment in which economic

growth can flourish, and companies of all sizes can grow and create jobs.

A good example of the need for clear rules was demonstrated by Mexico’s reaction

to the 1995 peso devaluation. During the 1995 economic downturn which shrunk the

Mexican economy by nearly 9%—the government raised duties on goods from European and Asian nations, causing Mexico’s imports from these two regions to drop

20 and 30 percent, respectively. However, because of the NAFTA rules, Mexico was

unable to reimpose duties on American exports, and our shipments to Mexico fell

less than 9%.

Yet when the U.S. is not at the table shaping the rules of international trade, our

prospects for growth decline because the rules are made to help others, not us.

CONCLUSION

Mr. Chairman, the members of AACCLA ask only that our Executive and Legislative leaders pass long term fast-track negotiating authority that is limited to the

resolution of commercial issues and that spells out our vision for the creation of a

Free Trade Area of the Americas. An international trade policy that gives our negotiators the authority to strike deals while also allowing the Congress to maintain

its traditional oversight role is essential to a prosperous United States.
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Statement of Bethlehem Steel Corp., U.S. Steel Group (a Unit of USX Corp.),

LTV Steel Co., Inland Steel Industries, Inc., National Steel Corp., and AK

Steel Co.

This statement describes the views of the six major integrated U.S. producers of

carbon steel products—Bethlehem Steel Corp., U.S. Steel Group (a Unit of USX

Corp.), LTV Steel Co., Inland Steel Industries, Inc., National Steel Corp. and AK

Steel Co.—on U.S. trade policy objectives and initiatives. We appreciate the opportunity to submit this statement for inclusion in the record of the hearing held by

the Subcommittee on Trade on March 18, 1997.

I. INTRODUCTION: THE NEED FOR STRONG INTERNATIONAL RULES AGAINST UNFAIR

TRADE PRACTICES

World trade in steel has been more distorted by government intervention than in

any other manufacturing sector. These distortions have seriously damaged a highly

competitive and strategically important U.S. industry, and these unfair trade practices continue.

• Dumping. Comprehensive import protection and cartels have restrained competition, diminished market pressure on producers to cut back excess capacity, and

given rise to dumping. Dumping occurs when producers can practice price discrimination between markets, by selling at a higher price in the home market than in

export markets. They can do this when they are able to limit imports into their own

market and restrict internal competition.

• Subsidies. Over $100 billion in subsidies were given to foreign steelmakers between 1980 and 1992. The Member States of the European Union spent more on

steel subsidies between 1980 and 1985 ($37 billion) than the United States spent

to put a man on the moon ($25 billion).

After exhaustive investigation and analysis, the U.S. Government has confirmed

the enormity of unfair trade in the steel industry. In its 1993 investigation of flatrolled steel products from 22 different countries, the Department of Commerce found

weighted-average subsidy and dumping margins of 37 percent. The Department’s

1995 investigations dealing with steel pipe confirmed widespread dumping of those

products by producers in 9 different countries. Last year, the Department of Commerce initiated yet another round of investigations, this time relating to steel plate

products, based on petitions once again documenting massive dumping in the steel

sector.

During the Uruguay Round negotiations, efforts were made at the behest of the

Congress to strengthen international disciplines against foreign unfair trade practices. Unfortunately, the final Uruguay Round agreements concluded in Geneva in

1993 and implemented by the Congress in 1994, while positive in some respects, did

not eliminate dumping and the market barriers that make it possible, nor did they

prohibit harmful subsidies. Therefore, continued U.S. Government attention to foreign unfair trade practices in future negotiations is needed.

II. PAST U.S. NEGOTIATING OBJECTIVES CONCERNING UNFAIR TRADE PRACTICES

In the past, official U.S. negotiating goals have consistently stressed the importance of strengthening subsidy discipline and improving anti-subsidy and antidumping remedies. The Omnibus Trade and Competitiveness Act of 1988 included in the

negotiating objectives tied to its grant of fast track authority the following ‘‘principal

trade negotiating objectives’’ directly addressing these matters:

The principal negotiating objectives of the United States with respect to unfair trade practices are . . . to improve the provisions of the GATT and nontariff measure agreements in order to define, deter, discourage the persistent use of, and otherwise discipline unfair trade practices having adverse

trade effects, including forms of subsidy and dumping and other practices

not adequately covered such as resource input subsidies, diversionary

dumping, dumped or subsidized inputs, and export targeting practices . . .

.

Section 1101(b)(8) of the Omnibus Trade and Competitiveness Act of 1988 (19

U.S.C. § 2901(b)(8)).

Such clearly defined goals have ensured that U.S. negotiators pursued stronger

trade remedies as a priority objective and have alerted foreign governments that

agreements weakening U.S. trade laws were unlikely to be approved at the imple192

menting stage by Congress. A shift to ambiguous negotiating goals in this area

would seriously undermine the ability of U.S. negotiators to protect, let alone enhance, U.S. trade remedies. Accordingly, language similar to that contained in prior

enactments is essential in any new fast track bill.

III. SPECIFIC ISSUES TO BE ADDRESSED IN FUTURE NEGOTIATIONS

Any new negotiating authority granted by the Congress to the President should include specific negotiating objectives regarding the improvement of disciplines

against foreign unfair trade practices along the lines of the provisions from the Omnibus Trade and Competitiveness Act of 1988 cited above. Among the specific issues

which should be addressed are the following:

A. Repeat Dumping

Nothing in the WTO Antidumping Agreement deals with the problem of repeat

offenders. The antidumping law provides only a limited mechanism for relief to industries injured by dumping: a prospective remedy against unfair trade. For those

foreign companies that repeatedly engage in dumping, existing antidumping procedures and remedies are clearly not sufficient to deter repeated dumping. For these

repeat offenders, the antidumping law is simply another cost to be absorbed in the

course of capturing market share.

Uruguay Round Developments. Establishing disciplines against repeat dumping

was one initiative urged by the United States during the Uruguay Round. However,

in the face of the strong efforts of certain other GATT members to weaken the international rules against dumping, the United States was unable to make any progress

on this issue.

Recommended U.S. Trade Policy Objective. The U.S. negotiating objectives should

state that a goal of future negotiations should be international rules to discipline

and deter repeat dumping. There are a variety of steps that could be taken to respond to this problem in the context of revisions to international antidumping rules.

Accelerated investigation procedures might be established for petitions against repeat offenders. Earlier imposition of preliminary duties might be ordered. Another

possibility would be to impose retroactive antidumping duties to offset some of the

earlier injury caused to domestic industries by repeated dumping.

B. Circumvention of Antidumping and Countervailing Duty Orders

Another problem facing U.S. industries repeatedly injured by dumped or subsidized imports is the problem of circumvention. Through small changes in the character of a product, or by moving the point of final assembly to another country, foreign companies are often able to evade antidumping and countervailing duty orders

imposed by the Department of Commerce. The result is continued imports of

dumped or subsidized goods in the U.S. market and continued injury to U.S. producers, despite clear provisions in the GATT and WTO agreements for a remedy

against dumping and injurious subsidies.

Uruguay Round Developments. As with repeat dumping, the United States put

forward proposals to deal with the problem of circumvention of antidumping and

countervailing duty orders during the Uruguay Round negotiations. Unfortunately,

the final Uruguay Round agreements did not directly address the question of rules

against circumvention of antidumping and countervailing duty orders, although a

Ministerial Decision was reached referring the question to the WTO Committee on

Antidumping for review. The U.S. implementing legislation did put in place new

U.S. procedures to combat circumvention of antidumping and countervailing duty

orders, although they were not particularly aggressive, given the absence of clear

international rules.

Recommended U.S. Trade Policy Objective. The U.S. negotiating objectives should

state that the United States should therefore seek to negotiate international rules

on circumvention and the related issue of diversionary dumping as soon as possible.

C. Subsidies

The volume of subsidies given to the steel sector worldwide has been greater than

those given to any other industrial sector. Much of the expansion of foreign

steelmaking capacity since the early 1960s was funded either by governments directly (through equity infusions and soft loans) or indirectly (by manipulating the

financial system to channel abundant capital to expanding steel industries).

Uruguay Round Developments. The Uruguay Round made a number of substantial changes to the GATT rules governing subsidies. Article 8 of the Subsidies Agreement ‘‘greenlights’’ certain categories of subsidies—research and development, regional, and environmental—rendering them non-actionable both with respect to U.S.
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countervailing duty law and with regard to WTO dispute settlement, even if the

subsidized goods cause injury. However, Article 31 of the Subsidies Agreement provides that Article 8 and certain other new Subsidies Agreement provisions will expire after five years unless renewed by decision of WTO member countries. Section 282 of the Uruguay Round Agreements Act implements Article 8 of the WTO Subsidies Agreement by making certain categories of otherwise

countervailable subsidies non-countervailable. However, section 282 of the Act further provides that these new, non-countervailable categories will not apply on or

after July 1, 2000, unless extended by subsequent legislation considered under ‘‘fast

track’’ rules.

Arguments Against Greenlighting of Subsidies. Greenlighting provides few bene- fits at all—and certainly no net benefit—to the United States. Under WTO rules,

no countervailing duty or other action can be taken against most subsidies unless

the subsidy in question is found to cause injury to the domestic industry of another

country. U.S. goods benefitting from general research and development subsidies are

not likely to raise a question of injury to foreign industries, and U.S. firms do not

benefit significantly from the other categories of greenlighted measures. Meanwhile,

the other new provisions added to the Subsidies Agreement along with greenlighting

in the Uruguay Round—updated subsidy notification requirements and ‘‘serious

prejudice’’ rules—have not measurably benefitted the United States or curbed foreign subsidization. Nor is it clear that in order to extend these provisions, which

at least in principle enhance subsidy discipline, it would be necessary to also extend

greenlighting, which in principle detracts from it. If subsidized goods cause no injury, the subsidies involved are already non-action- able, without regard to greenlighting. If they do cause injury, the rationalization for

the subsidies is largely irrelevant, and offsetting measures should be available. Subsidies, after all, represent an intrusion by governments seeking to alter normal market outcomes. Subsidies associated with trade harm—whether that harm goes by

the label of ‘‘adverse effects,’’ ‘‘serious prejudice,’’ or ‘‘material injury’’—should be actionable under international and national law. Since all subsidies have a monetary

equivalent, and since money is fungible, there is no basis for singling out certain

types of subsidies as presumptively less harmful than other types. Article 31 of the WTO Subsidies Agreement provides that greenlighting will ter- minate after an initial 5-year trial period unless extended by a Ministerial decision

(which must be unanimous). Nothing in the GATT 1994 or the WTO Subsidies

Agreement prejudges the position that any WTO Member will take with respect to

the extension of greenlighting. Recommended U.S. Trade Policy Objective. The U.S. negotiating objectives should state that the greenlighting of subsidies does not serve U.S. interests and should

be terminated at the end of the initial 5-year trial period. Ending greenlighting is

important to the continuing U.S. effort to curb trade-distorting foreign subsidies.

Therefore, the Congress should direct the Administration to oppose renewal of the

greenlighting provisions of the WTO Subsidies Agreement when they expire in 2000.

D. Anticompetitive Business Practices

World steel trade is highly restricted by national and international cartels. Outside the United States, most national steel markets are monopolized by one producer or regulated by cartels, and trade between national markets is subject to a

wide range of anticompetitive arrangements and restrictions. These arrangements

have contributed to the creation and perpetuation of an enormous capacity surplus

by shielding producers from competition and have fostered endemic dumping on

world markets.

Effect of Cartels. Cartels have prevented market forces from eliminating excess

capacity in restricted markets which in turn has led to dumping. A typical steel cartel functions by limiting the availability of steel in the home market through restraints on production and deliveries. Because of their high fixed costs, however,

producers confront severe economic pressure to operate their facilities at as high a

capacity as possible. The solution generally has been to export surpluses, dumping

them outside the home market at whatever prices can be obtained.

The international cartel arrangements restrict steel trade flows between virtually

all of the major western industrialized and newly-industrializing nations. They do

not, however, include the United States and other open markets. As a result, the

pressure on the more open markets is dramatically increased. The U.S. market, as

the largest open market in the world, is the natural target for foreign producers

with excess capacity.

Known Steel Cartels. The so-called East of Burma Agreement (also known as the

London Agreement) between several foreign steelmakers came to light during the

U.S. Government’s 1993 antidumping investigations against a number of foreign ex194

porters. Importers of steel in foreign countries subject to the Agreement informed

the U.S. steel industry of the restrictions imposed upon them by the cartel. The

Agreement restricts direct trade in steel between certain ‘‘spheres of influence’’ in

the Eastern Hemisphere, with Burma serving as the demarcation point of those

spheres. Under the Agreement, shipments of steel are subject to quotas and price

restraints and punishment for breach of the agreement is dumping of twice the tonnage into the market of the violator.

The European steel market has been cartelized since the 1880s. Since the mid1970s, the European Commission has regularly intervened in the market to reduce

price competition and stabilize the market. In 1980, the European Commission established a system of mandatory production quotas and minimum prices that was

administered in close coordination with Eurofer, the integrated steel producers’ association. This system was phased out in 1988, but cartel activity by the producers

was widely reported to have continued in a clandestine manner. In 1993, with a

price war raging in a depressed market, the European Commission reinstituted a

system of ‘‘voluntary’’ production guidelines designed to raise prices and stabilize

the market. In addition to these internal measures, since 1978 the EU has also negotiated bilateral import restraint agreements with the major foreign suppliers of

steel to the European market.

Recommended U.S. Trade Policy Objective. At the Singapore Ministerial, the

WTO agreed to establish a Working Party on trade and competition policy. However,

the exact agenda of this new Working Party remains very much in doubt. The Congress should therefore give direction to these discussions by laying out as a long

term negotiating objective the development of international rules to prohibit government toleration of private anticompetitive practices such as the formation of cartels,

price-fixing agreements, and other anticompetitive arrangements which can distort

international trade.

However, in defining our trade policy objectives in this area, the United States

should be sure to move forward at a modest, careful pace. In the near term, multilateral efforts in this area should focus on fact-gathering rather than rule-making.

The goal should be to identify barriers to market access for goods, services and investment that are not adequately covered by international commitments, and that

may not be reachable under current rules and dispute settlement. This is the proper

focus for OECD discussions and for any near term consideration of this issue within

the WTO. Rule-oriented negotiations will need to await further preparatory work by

both the private sector and the U.S. Government. In the meanwhile, the United

States must continue to address bilaterally (through Section 301) foreign government toleration of private restraints that block U.S. exports to, or investment in,

foreign markets. As with intellectual property rights, such an approach will enhance

our government’s ability to bring this important issue into the multilateral system

with appropriate rules at a later date.

The negotiating objective also should make it clear that the Congress expects the

WTO Working Party on Trade and Competition Policy established at the Singapore

Ministerial to reject proposals to renegotiate the WTO Antidumping Agreement,

consistent with the statements made by Ambassador Barshefsky and EU Trade

Commissioner Sir Leon Brittan in Singapore last December.

E. Export Targeting

Numerous U.S. industries have been injured by export targeting by foreign governments, chiefly Japan and Korea (although China has launched several industrial

targeting plans in recent years and could become a threat in the future).

U.S. Law on Export Targeting. Section 301 of the Trade Act of 1974 provides for

U.S. Government action against export targeting, which it defines as ‘‘any government plan or scheme consisting of a combination of coordinated actions (whether

carried out severally or jointly) that are bestowed on a specific enterprise, industry

or group to become more competitive in the export of a class or kind of merchandise.’’ However, it will be difficult for the United States to act against foreign targeting so long as there are no internationally agreed upon rules in this area.

Recommended U.S. Trade Policy Objective. The U.S. negotiating objectives should

include as a goal the development of international rules against export targeting.

Such an objective was part of the negotiating objectives adopted by the Congress

in the Omnibus Trade and Competitiveness Act of 1988. As no progress has yet been

made on this objective, it is appropriate for the Congress to renew it as a goal in

any new fast track legislation.
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IV. CONCLUSION

Unfair trade practices continue to present serious threats to many U.S. industries and their workers, including the U.S. steel industry. Until international rules clearly prohibit all forms of unfair trade, U.S. industry will be left at a disadvantage in

world competition. It is incumbent upon the Congress and the Administration to

work together to fashion a trade policy for the United States that will deal decisively with these issues. Moreover, until such time as more effective agreements against unfair trade prac- tices are implemented, existing U.S. trade remedy laws such as the antidumping

and countervailing duty laws provide the only effective and internationally-recognized remedies against many forms of foreign unfair trade practices. These laws are

essential to ensuring that international economic competition is based on free market principles, and that government intervention and tolerance of private anticompetitive practices are not allowed to distort market forces. They should be vigorously enforced and, wherever possible, strengthened. Thank you for the opportunity to present our views on this most important subject.

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FLASHLIGHT TARIFF COALITION

SUITE 1200, 818 CONNECTICUT AVENUE, NW.

WASHINGTON, DC 20006

April 1, 1997

A. L. Singleton

Chief of Staff

Committee on Ways and Means

U.S. House of Representatives

1102 Longworth House Office Building

Washington, D.C. 20515

RE: U.S. Trade Policy Objectives and Initiatives

Dear Mr. Singleton:

We are submitting this statement on behalf of the Flashlight Tariff Coalition to the House Ways and Means Committee, Subcommittee on Trade in response to its

Advisory of February 25, 1997, No. TR–3, requesting comments on the above captioned subject. The goal of the Flashlight Tariff Coalition is to eliminate tariffs on flashlights and flashlight parts around the globe. The elimination of tariffs would enhance the competitiveness of the firms that manufacture flashlights on a worldwide basis and create a level playing field for all producers. In addition, the elimination of duties

would increase U.S. exports of flashlights and would directly benefit consumers

through both short and long term cost savings. Specifically, U.S. exports of flashlights have more than doubled in the last five

years. Exports of domestically produced flashlights would increase even more if duties, often as high as from 20% ad valorem to 57% ad valorem, were eliminated in

key export markets in Europe, Asia and Latin America. In addition, the U.S. MFN

tariff on flashlights is also relatively high—17.5%.

In order to achieve this goal and receive the anticipated benefits, the Coalition

supports the following two efforts underway abroad and in Congress—regional and

multilateral trade initiatives, and the enactment of Fast Track legislation:

(1) The Coalition strongly supports the pursuit by the Administration of regional

and multilateral agreements which could result in the elimination at the earliest

possible date of tariffs on flashlights and flashlight parts. The Coalition is now

working with the Clinton Administration to achieve this end in both the Asian Pacific Economic Cooperation Forum (APEC) and the Summit of the America negotiations for a Free Trade Area of the Americas (FTAA). At the appropriate time, the

Coalition will seek to have flashlights considered in a possibly expanded Information

Technology Agreement and in the Transatlantic Business Dialogue (TABD) market

access discussions.In addition, the Coalition is working to gain support for this goal

in countries in Asia, Latin America and Europe.

(2) The Coalition strongly supports early enactment by this Congress of Fast

Track legislation to provide the Administration with the broad negotiating authority

it needs to participate in the regional and multilateral trade initiatives it is now

pursuing. Fast Track authority is crucial to the achievement of the Coalition’s goals.
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Without Fast Track, the U.S. will not be able to participate fully in regional and

multilateral efforts to improve market access through the reduction of tariffs. Other

countries will benefit from these negotiations, that will continue regardless of U.S.

participation.

The following U.S. companies, which represent a majority of American flashlight

companies, support the goals of the Coalition:

—Black and Decker Corporation, Towson, Maryland;

—The Coleman Company, Inc., Golden, Colorado;

—Dorcy International, Inc., Columbus, Ohio;

—Eveready Battery Company, Inc., St. Louis, Missouri;

—Garrity Industries, Madison, Connecticut;

—Lumilite Products Co., Portland, Oregon;

—Mag Instrument Company, Ontario, California;

—Panasonic Industrial Company, Secaucus, New Jersey; and

—Tandy Corporation, Fort Worth, Texas.

In addition, the Coalition has been working with manufacturers and government

officials in key countries in Asia and Europe to gain their support.

In conclusion, we thank the Subcommittee for this opportunity to provide these

comments and urge the full Committee to move swiftly on broad Fast Track negotiating legislation to provide the Administration with the tools it needs to implement its trade policy initiatives. We would be happy to provide any further information the Subcommittee may require.

Sincerely,

JAMES B. CLAWSON

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Executive Director
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STEWART AND STEWART

2100 M STREET, NW.

WASHINGTON, DC 20515

April 1, 1997

Mr. A. L. Singleton

Chief of Staff

Ways and Means Committee

1102 Longworth House Office Building

Washington, DC 20515

Re: U.S. Trade Policy Objectives and Initiatives (TR–3)

Dear Mr. Singleton:

In accordance with the Committee on Ways and Means’ Trade Subcommittee Advisory, I herewith submit the following written statement for the printed record in

the above referenced matter.

These written comments in response to the February 25, 1997, Subcommittee notice are submitted in my personal capacity and not on behalf of the firm’s clients

or my firm.

In reviewing the written submissions of government and private sector witnesses

at the hearing on March 18, there was general agreement—with several notable exceptions—that there is a pressing need for fast track legislation this year. NAFTA

expansion, APEC and/or FTAA programs being certain examples. Most witnesses

appear to want a broadbased grant of authority. The private sector also raised concerns for the costs to U.S. communities, companies and workers of unilateral trade

restrictions. The saga of Westinghouse’s nuclear power plant operations should be

a matter of concern for members of the Subcommittee and the Congress generally.

Other issues receiving support from the business sector included permanent MFN

treatment for China, renewal of GSP and others items. Public Citizen’s Global Trade

Watch was the major participant to ask for a thorough examination of the costs/

benefits of liberalized trade.

I believe that the Committee and Subcommittee should support on a bipartisan

basis the renewal of fast track. However, I believe the Congress should identify a

range of negotiating objectives for fast track at the unilateral, regional and sectoral

level to assure that future agreements continue to attack the hurdles which reduce

the proper functioning of the market or which necessarily influence trade flows. In

that regard, I would encourage the Subcommittee to include in any list of negotiating objectives, not only objectives needed to permit progress in APEC, the FTAA and

the built-in-agenda of the WTO but also, objectives outlined in the Omnibus Trade

& Competitiveness Act of 1988 that were not accomplished in the Uruguay Round

negotiations. In testimony before this Subcommittee on November 10, 1993, I presented a scorecard before the conclusion of the Uruguay Round on how statutory

objectives identified in the 1988 Omnibus Trade and Competitiveness Act were fulfilled or not. Uruguay Round of Multilateral Trade Negotiations: Hearing Before the

Senate Comm. on Finance, 103d Cong. 151 (1993). Several critical issues not addressed remain important to U.S. industry, workers and communities.

Congress set out the negotiating objectives for the Uruguay Round in the Omnibus Trade and Competitiveness Act of 1988, 19 U.S.C. Section 2901 et seq.

One such objective in the 1988 Act not addressed in the Uruguay Round Agreement was the elimination of the bias in the trade system from the differential treatment provided to rebates of ‘‘direct’’ v. ‘‘indirect’’ taxes (objective 16). While this

issue has been less pressing during a period when the U.S. dollar was more properly

valued, it creates a major disincentive for U.S. companies producing and exporting

from the U.S. Introductory Statement the Honorable Sam M. Gibbons (D-FLA) for

H.R. 4050, Value-Added Tax Proposal, Sept. 11, 1996, 104th Cong. 2d Sess. (1996).

Another negotiating objective in the 1988 Act (item 5) deals with current account

surpluses. While the U.S. has pursued many bilateral agreements with countries

who have big current account surpluses, significant progress has not been made

with some countries, particularly Japan or China. This objective should be repeated

in any grant of fast track authority and should be monitored for results in fact.

Another objective Congress set out in the 1988 Act addressed unfair trade practices-including: forms of subsidy and dumping and other practices having adverse

trade effects, including forms of resource input subsidies, diversionary dumping,

dumped or subsidized inputs and export targeting practices. These objectives were
206

1Over time, many economists and others have argued that the federal budget deficit was the

primary cause of our current account deficit. As noted in Amb. Barshefsky’s statement on March

18, 1997, the U.S. budget deficit is currently the lowest of any of the G–7 countries, including

Japan. Yet in 1996, the U.S. account deficit hit an all-time record.

Some speakers have suggested other causes drive bilateral and current account deficits (e.g.,

Westinghouse Exec. re: unilateral sanctions). Some of these causes may in fact affect the deficit.

Others may or may not be relevant. The Congress should work with the private sector and the

administration for developing a better understanding of the continuing causes of our trade deficit. Too many of the alleged causes of the trade deficit appear implausible. As Congress has repeatedly attempted to reduce the deficit over the years, it should be sure it has the best current

thinking on the causes. Any such causes should be added to the negotiating objectives. Exhibit

1 to this letter shows the budget deficits and current account surpluses/deficits for the G–7

countries in recent years.

only partially achieved in the Uruguay Round agreements. Yet the problems of unfair trade continue to distort trade flows and resource allocation. Some problems

today are essentially unaddressable. One of these would be third country dumping,

particularly if dumping is occurring in many countries simultaneously. This is a

growing problem in many sectors—irrational pricing in many third country markets,

whether due to multi-country dumping, targeting, cross-product subsidization or

otherwise. The Congress should either include negotiation objectives multilaterally,

regionally or bilaterally or encourage sectoral negotiations to go beyond existing

rules (a ‘‘WTO plus’’ approach).

The WTO built-in-agenda and the program for further negotiations agreed to in Singapore at the WTO Ministerial meeting should be part of the U.S. trade agenda

for 1997 and beyond. In particular the environmental program and the negotiations

on transparency in government procurement should be given significant attention. Similarly, at the Singapore Ministerial there was agreement to explore anti- competitive issues in a Working Group to determine if negotiations should proceed.

The Working Group should focus on issues not presently covered by existing WTO

agreements. That focus was identified by both the U.S. and the EU in Singapore.

See joint press statement of Ambassador Barshefsky and Sir Leon Brittan of 13 December 1996 [‘‘As this is a new area of work for the WTO, complementing the Organization’s existing activities, the group’s work should not be extended into matters

already dealt with by the WTO and its various committees. We expect the group

to focus on the international dimension of competition (antitrust) rules.’’ Statement

on Competition Policy in the World Trade Organization, USTR 96–95, 13 Dec. 1996]. A major issue in 1988 and today is foreign direct investment. Because of the fail- ure to obtain desired results in the TRIMs Agreement, an MAI has been being negotiated as part of the OECD, although completion has now been postponed to later

this year. It is important that a negotiating objective of the Congress be inclusion

of investment liberalization requirements in any new agreements. Such liberalization should either equal or go beyond NAFTA investment rules regardless of the size

of the agreement (i.e., multilateral, regional, bilateral or sectoral). While much was accomplished in terms of framework and at least some initial liberalization in agriculture occurred during the Uruguay Round, much remains to be

tackled. Experience under NAFTA has uncovered problems in some sectors (e.g.,

fruits and vegetables), the numbers of TBT and SPS challenges in the WTO suggest

a long battle to obtain improved liberalization and the nature of the WTO negotiations leave a very uneven field for many U.S. agricultural products. The Congress

should include as negotiating objectives the harmonization of export subsidy regimes

and their control reduction/elimination. Large differences in export subsidy amounts

will continue to inflict harm on many U.S. agricultural industries preventing sustainable pricing from being achieved. Some sectors of agriculture might be consolidated for WTO Plus Agreements as discussed below.

With regard to sectoral negotiations, Congress should include sectoral objectives

within any fast track renewal. Such objectives can include ‘‘0-for-0’’ tariff levels

where the industry supports sectoral agreements that go beyond the WTO (‘‘WTO

Plus’’). The continued current account deficit 1 in the U.S. reflects a number of continuing problems that are not easily quantified. Anticompetitive practices of foreign

competitors-customers, regulations, distribution access and many other issues can

drive trade flows. There have been concerns that construction trade—whether for

government contracts or private work—is easily distorted. Similarly, bilateral agreements in areas like automobiles, automobile parts, semiconductors and others show

the complex set of issues that must be addressed if trade flows are to reflect underlying competitive forces. As the issues that must be addressed may vary by sector,

it would seem appropriate to encourage sectoral negotiations that are ‘‘WTO Plus’’

where the domestic industry supports the initiative. Congress and the Administration must recognize that sectoral agreements are not possible where leverage cannot
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be brought to bear. Thus harmonization can include many things including, importantly, 301 actions. Intellectual property and services are important areas for improved protections and liberalization. IP agreements going beyond TRIPS, incorporating recent agreements within WIPO, or providing earlier protection are obviously very important to

many sectors of the American industry as exemplified by the statement of Mr.

Holmer on behalf of pharmaceutical companies. The Congress and Administration

should not only make as an objective for various fast track negotiations the obtaining of ‘‘TRIPS Plus’’ rights and obligations, but should also consider whether sectoral negotiations for major IP industries could help leverage IP protection by addressing other issues peculiar to particular sectors that may affect IP protection as

well. IP and service issues can obviously also be addressed for some countries

through the WTO accession process that is ongoing. Finally, Congress should examine ways of supplementing the training programs made available to certain countries (e.g., China) for a broader IP education and upgrade of enforcement. On services, the WTO’s ongoing and built-in agenda requires negotiations now and in the years ahead to both establish rules and liberalize trade in the area. The

Congress should identify negotiating objectives for both liberalization priorities and

standards/outcomes of the rules negotiations. For example, government procurement

should be covered in services, should be universal and subject to mandatory phaseouts of any claimed exceptions or exemptions. The U.S. should want subsidy disciplines on services, their definition should be stricter than those applied in goods,

particularly considering some of the historic concerns in financial services (e.g.,

cross-subsidization by the Japanese financial institutions). Finally, the U.S. should

want a safeguard claim included, along the lines established for goods. Moreover, as the recent ITA and Basic Telecommunications Services Agreements suggest, for some critical service sectors, there may be synergies in pursuing service

liberalization in tandem with ‘‘WTO Plus’’ agreements in goods or IP issues. There should be included as well much more ambitious objectives in government procurement and state trading liberalization than has existed in the past. With the

rapid growth of trade by countries like China with substantial government-owned/

controlled segments of the economy, there is an urgent need to improved transparency, due process and standards of behavior for state-owned companies. Similarly, while the Singapore Ministerial declaration starts the process of

multilateralizing our Government Procurement Agreement by focusing on transparency issues, too much of the world’s GDP falls under Government Procurement

not to make this a high priority in all fora. The Draft Protocol of Accession for

China to the WTO is disappointing in that there are no specific references to the

Government Procurement Agreement in the draft Protocol. Another important issue that needs to be addressed, is better disciplines on exchange rate movements. While most speakers on March 18 referenced the strong export growth since 1985, none of the speakers referenced the fact that exports started

growing following the Plaza Accord 1985 agreement to devalue the dollar. As the

Subcommittee is aware, since April 1995, the value of the dollar has appreciated

47% against the Japanese Yen, and more than 21% against the German

Deutschmark.

These dramatic changes in exchange values reflect greater changes in competitiveness than elimination of tariffs in the Kennedy, Tokyo, and Uruguay Round agreements together for most products. The U.S. and its trading partners must develop

mechanisms to keep current exchange rates close to the underlying value of a currency (i.e., reflecting relative changes in inflation roles).

At the same time, Congress should require the Administration to negotiate bilaterally with major trading partners whose currencies are significantly out of line

with underlying value. While existing U.S. law empowers/requires the U.S. Treasury to pursue currency valuation under certain conditions [Exchange Rates and

International Economic Policy Coordination Act of 1988, codified at 22 U.S.C. Section 5301 et seq.], this authority has not been used with respect to certain countries,

particularly China. Id. at 5304(b). A review of trade statistics with China shows that

Chinese imports underprice imports from all/most other countries by huge margins

on hundreds of HTS categories. Such systematic underpricing is a strong indication

of an undervalued currency. The same conclusion can be drawn from World Bank

PPI data which suggest a purchasing power in China substantially greater than the

nominal currency (close to 5-to-1 in 1994; The World Bank Atlas 1996 at 18). It is

important that trade flows reflect underlying commercial realities. A negotiating objective for the Administration should be assuring such rationality whether through

multilateral, regional or bilateral negotiations.

There is much through trade policy objectives that can and should be done that

can be helpful for U.S. companies, their workers and their communities. Congress
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in the past has helped obtain completion of negotiations by providing time limits

to accomplish certain objectives. Any fast track legislation should include time limits

and should require periodic evaluation against the objectives identified. Similarly,

regional agreements should not depart from NAFTA on issues like maintenance of

strong trade laws against unfair trade practices, preferential Rules of Origin, improved investment and IP protection. At the same time, aggressive use of Section

301 proved useful during the Uruguay Round to get TRIPs and service negotiations

moving. The U.S. should remain vigilant in using its trade remedies to bring reluctant trading parters to the table for liberalization of issues not part of the existing

WTO or that are subject to plurilateral rights and obligations only.

At the same time, review of actions under national laws other than through national courts, should not be further pursued. Regional dispute settlement should be

limited to those areas where the governments involved have an interest—whether

laws of others conform to regional agreement obligations. Chapter 19 NAFTA-type

reviews should be eliminated.

On issues such as TBT and SPS, the U.S. must continue to pursue at all levels

barriers that are not scientifically based or otherwise violate our rights under the

WTO. This should not prevent the establishment of higher standards where science

supports or where the potential cost of an error dramatically extends the benefit of

expanded trade. Time will tell whether the NAFTA and WTO agreements will meet

these objectives.

Mutual recognition agreements, such as those pursued between the U.S. and EU

are potentially very beneficial and should be encouraged, although some challenge

mechanism should be maintained to permit the establishment that a foreign standard accepted under the MRAs do not meet relevant U.S. standards.

On transparency, the Congress should include a requirement making regional

agreement negotiating history documents and all documents post-agreement releasable to the public. Moreover, it should require the U.S. to expand access—historical

and current—to WTO and GATT documents. Particularly, laws, regulations, written

decisions under particular articles should be made available to the public (typically

only one copy of such documents are filed with the WTO and are available to member governments to review if wanted).

On labor rights and environmental issues, Congress should create objectives of

forward movement on enforcement of core labor standards in countries through regional or multilateral review and encourage establishment of improved environmental standards on a multilateral or regional basis.

Most of the comments to date have not dealt with particular geographical regions.

However, the marginalization of least developed countries generally and the plight

of many countries in subsaharan Africa in particular have been of increasing concern both within the WTO and within the United States. In 1996 a bill was introduced in the Congress to expand trade between the U.S. and subsaharan Africa [African Growth and Opportunity: The End of Dependency Act of 1996]. This Subcommittee is holding hearings in the near future on an African trade policy. I will

forward more detailed comments on that subject at the later time. Although trade

and investment with Africa should be important components in the overall U.S.

trade and investment policy, the objectives of any such policy should be clear from

the beginning and take into account the diverse economies involved. For least developed countries, infrastructure, institutions building and technical assistance in

modification of laws may be more important than additional preferential tariff treatment, although preferential tariff treatment should not be ignored.

Finally, as Congress considers the trade policy objectives for the future, I would

encourage this Subcommittee to create a policy which takes into account the needs

of all citizens. With welfare reform, entry level positions in manufacturing and service industries may be of increasing importance. It is critical that Congress assure

that our trade policy does not eliminate the hope of those who must find a place

in the workplace in the months and years ahead. Education, training and other

issues can help many and can certainly be used over the long haul. There are, however, people who must find work now. Surely, our trade policy objectives can reflect

the needs of all citizens.

Sincerely,

Terence P. Stewart
f

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Exhibit 1

Current Account Balance Excluding Exceptional Financing

[In Billions of U.S. Dollars]

1990 1991 1192 993 994 1995

United States ................... (92.9) (7.7) (62.0) (99.7) (150.9) (153.0)

Canada ............................. (22.6) (24.6) (22.6) (23.4) (17.3) (8.7

Japan ................................ 35.9 68.4 112.3 132.0 130.6 111.2

France .............................. (9.9) (6.5) 3.9 9.0 8.1 17.5

Germany ........................... 48.3 (18.8) (21.5) (15.1) (21.4) (19.8)

Italy .................................. (17.6) (24.6) (29.5) 9.4 14.9 25.71

United Kingdom .............. (33.5) (15.3) (17.2) (16.6) 93.0 (10.6)

Source: International Financial Statistics 1996 Yearbook at page 134.

Budget Deficits

[In Billions of U.S. Dollars]

1990 1991 1192 993 994 1995

United States ................... (218) (273) (289) (254) (202) (160)

Canada ............................. (18) (21) na na na na

Japan ................................ (47) 58 12 (66) na na

France .............................. (25) (15) (52) (68) (73) 17.5

Germany ........................... (24) (38) (47) (47) na na

Italy .................................. (121) (123) na na na na

United Kingdom .............. 7 (10) (53) (62) na na

na=Not available.

Source: International Financial Statistics 1996 Yearbook.

Budget Deficits as a Percent of Gross Dometic Product

1990 1991 1192 993 994 1995

United States ................... ¥4% ¥5% ¥5% ¥4% ¥3% ¥2%

Canada ............................. ¥3% ¥4% na na na na

Japan ................................ ¥2% 2% 0% ¥2% na na

France .............................. ¥2% ¥1% ¥4% ¥5% ¥5% na

Germany ........................... ¥2% ¥2% ¥2% ¥2% na na

Italy .................................. ¥11% ¥11% na na na na

United Kingdom .............. 1% ¥1% ¥5% ¥7% na na

na=Not available.

Source: Computed from information shown above.

Æ