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[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]

                     PRESIDENT BUSH'S TRADE AGENDA

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 11, 2004

                               __________

                           Serial No. 108-43

                               __________

         Printed for the use of the Committee on Ways and Means

                    U.S. GOVERNMENT PRINTING OFFICE
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_____________________________________________________________________________
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

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.

                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 3, 2004, announcing the hearing................     2

                                WITNESS

U.S. Trade Representative, Hon. Robert B. Zoellick, Ambassador...    10

                       SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, statement...............    70
Africa Growth and Opportunity Act Civil Society Network, letter..    74
American Cancer Society, American Heart Association, American 
  Lung Association, Action on Smoking and Health, Campaign for 
  Tobacco-Free Kids, and Essential Action, joint statement.......    75
Doctors Without Borders, New York, NY, Nicolas de Torrente, 
  letter.........................................................    78
Johnson, Diane, Tyler, TX, statement.............................    82
National Electrical Manufacturers Association, Arlington, VA, 
  statement......................................................    82
Student Global AIDS Campaign, statement..........................    89
Tadros, Paul, Montreal, Quebec, letter...........................    92

 
                     PRESIDENT BUSH'S TRADE AGENDA

                              ----------                              

                        THURSDAY, MARCH 11, 2004

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:05 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
March 03, 2004
FC-16

                      Thomas Announces Hearing on

                     President Bush's Trade Agenda

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
President Bush's trade agenda. The hearing will take place on Thursday, 
March 11, 2004, in the main Committee hearing room, 1100 Longworth 
House Office Building, beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. The sole 
witness will be United States Trade Representative Robert B. Zoellick. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Using the Trade Promotion Authority (TPA) granted to him by 
Congress in 2002, the President is pursuing multilateral negotiations 
in the World Trade Organization (WTO) to expand U.S. trade 
opportunities in agriculture, industrial goods, and services. 
Ambassador Zoellick has sought to revive these negotiations to show 
progress in 2004.
      
    The President has also recently notified Congress of his intent to 
enter into free trade agreements (FTA) with Australia and the Central 
American countries of Costa Rica, El Salvador, Guatemala, Honduras, and 
Nicaragua. Negotiations with Morocco have just concluded, and there 
also are ongoing FTA negotiations with the Dominican Republic, the 
Southern African Customs Union (Botswana, Lesotho, Namibia, South 
Africa, and Swaziland), and Bahrain. The President has notified 
Congress of his intent to begin FTA negotiations with Thailand, Panama, 
and the Andean countries of Bolivia, Colombia, Ecuador, and Peru. In 
addition, he is continuing negotiations to establish the Free Trade 
Area of the Americas.
      
    At the same time, Congress also plans to consider enhancing and 
extending the African Growth and Opportunity Act (AGOA) because certain 
provisions are set to expire in the fall. AGOA is a trade preference 
program directed at sub-Saharan African countries and provides 
extensive duty-free access for countries that meet the eligibility 
criteria.
      
    In announcing the hearing, Chairman Thomas stated, ``Expanded trade 
means more business for America's farmers, manufacturers, and service 
providers, better buys for American consumers, higher living standards 
for American families, and good jobs for America's workers. I am 
committed to ensuring the Administration's adherence to the rigorous 
consultations and detailed negotiating objectives established in TPA. 
This hearing will give Ambassador Zoellick the opportunity to outline 
the President's trade priorities and is an important component of the 
Committee's oversight responsibilities.''
      

FOCUS OF THE HEARING:

      
    The hearing is expected to examine current trade issues such as: 
(1) the recently concluded FTAs with Australia, the Central American 
countries, and Morocco; (2) other free trade agreements currently being 
negotiated or which have been notified by the President; (3) prospect 
for trade expansion in agriculture, industrial goods, and services 
through multilateral negotiations in the WTO; (4) compliance with WTO 
dispute settlement decisions; (5) potential extension and enhancement 
of AGOA; and (6) other trade issues.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person or organization wishing to submit written 
comments for the record must send it electronically to 
hearingclerks.waysandmeans@ mail.house.gov, along with a fax copy to 
(202) 225-2610, by close of business Thursday, March 25, 2004. In the 
immediate future, the Committee website will allow for electronic 
submissions to be included in the printed record. Before submitting 
your comments, check to see if this function is available. Finally, due 
to the change in House mail policy, the U.S. Capitol Police will refuse 
sealed-packaged deliveries to all House Office Buildings.
      

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 submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in WordPerfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
    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. All statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    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 202-226-3411 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.

                                 

    Chairman THOMAS. Good morning. Today's hearing is about the 
U.S. trade agenda for 2004. Ambassador Zoellick, it is a 
pleasure to have you with us here again to discuss your 
efforts, especially some very positive recent efforts to expand 
international trade, and create job opportunities for American 
workers, farmers, and businesses.
    Since the President signed into the law the Trade Promotion 
Authority (TPA) (P.L. 107-210) 2 years ago now, the United 
States has been engaged in multiple trade negotiations. Most 
importantly, the President and the U.S. Trade Representative 
(USTR) is pursuing multilateral negotiations in the World Trade 
Organization (WTO) to expand U.S. export opportunities in 
agriculture, industrial goods, services, while protecting 
international property rights. Recent efforts, which we will 
focus on, especially a letter sent by the USTR to a broad 
number of folk at the beginning of this year to attempt to 
build some momentum on the reinvigoration of the Doha Round, I 
am anxious to hear whether or not that has borne the kind of 
fruit that we hoped for. Basically, I think it entails everyone 
reassessing pre-Cancun versus post-Cancun and whether or not 
positions that produced post-Cancun should be reviewed and 
moved forward.
    At the same time, the United States is engaging its trading 
partners on a bilateral and a regional basis. These agreements, 
when negotiated in a comprehensive and ambitious manner, create 
an environment of competitive liberalization and lead momentum 
to successful WTO negotiations, in my opinion. For example, 
last summer Congress employed TPA and the Administration moved 
free trade agreements (FTAs) with Chile and Singapore. They set 
very high standards in goods, services, intellectual property 
rights, investment, labor, and the environment.
    The Administration has recently concluded FTAs with 
Australia, Morocco, and five Central American countries. These 
agreements made remarkable strides in opening markets to our 
goods and services. However, not every FTA can achieve the 
highest marks. Sometimes you have to settle for what you are 
able to achieve and there were some sectors that were excluded 
from coverage and our concern is that these not become 
precedent-setting.
    In any event, the Committee is currently examining these 
agreements to determine the best timing for congressional 
consideration. Also, the USTR's office, notwithstanding the 
fact that we focus primarily on the big-picture trade 
agreements, has been actively involved in aggressively 
enforcing U.S. positions. They have successfully defended 
against challenges from Canada on lumber, India on textile 
rules of origin, Japan on sunset reviews, and obviously we need 
to have that very close nexus between opening up trade and 
defending and pursuing our rights in trade. Ambassador, I look 
forward to your comments. Prior to that I will recognize the 
Chairman of the Subcommittee on Trade, the gentleman from 
Illinois, Mr. Crane.
    [The opening statement of Chairman Thomas follows:]

    Opening Statement of The Honorable Bill Thomas, Chairman, and a 
        Representative in Congress from the State of California

    Good Morning. Today's hearing is about the U.S. trade agenda for 
2004. Ambassador Zoellick, it is a pleasure to have you here to discuss 
your efforts to expand international trade and create jobs and 
opportunities for American workers, farmers, and businesses.
    Since the President signed Trade Promotion Authority (TPA) into law 
in 2002, the United States has been engaged in multiple trade 
negotiations. Most importantly, the President is pursuing multilateral 
negotiations in the WTO to expand U.S. export opportunities in 
agriculture, industrial goods, and services. Thanks to Ambassador 
Zoellick's efforts, I see momentum building to reinvigorate the Doha 
Round, and I hope we will achieve substantial progress this year. Such 
progress depends on the willingness of all WTO members to move off pre-
Cancun positions.
    At the same time, the United States is engaging its trading 
partners on a bilateral and regional basis. These agreements, when 
negotiated in a comprehensive and ambitious manner, create an 
environment of competitive liberalization and lend momentum to 
successful WTO negotiations. Last summer, Congress employed TPA to 
approve FTAs with Chile and Singapore that set high standards in goods, 
services, intellectual property rights, investment, and labor and 
environment. The Administration has recently concluded FTAs with 
Australia, Morocco, and five Central American countries. These 
agreements make remarkable strides in opening markets to our goods and 
services. However, I am disappointed that we have begun to exclude 
sectors from coverage and that an investor-state dispute settlement 
mechanism is not included in the Australia agreement. In any event, the 
Committee is currently examining these agreements to determine the best 
timing for congressional consideration.
    While opening new markets for U.S. exports is a key priority, it is 
equally essential that we ensure that our trading partners abide by 
existing trade agreements. USTR's track record in WTO dispute 
settlement in the past 18 months has been impressive. The United States 
has successfully challenged Canada on dairy and wheat, Japan on apples, 
and Mexico on telecommunications. The United States has successfully 
defended against challenges from Canada on lumber, India on textile 
rules of origin, and Japan on sunset reviews. We must continue to 
aggressively pursue our rights. We must also make sure that we are in 
compliance with our own WTO obligations.
    Ambassador Zoellick, I look forward to hearing your comments. I now 
recognize the Chairman of the Trade Subcommittee, Mr. Crane.

                                 

    Mr. CRANE. Thank you, Mr. Chairman. I join in welcoming 
Ambassador Zoellick here today. Ambassador, I applaud your 
efforts and those of all the hardworking individuals at USTR 
who continue to press every day for new export opportunities 
for U.S. businesses and workers, more choices for U.S. 
consumers, and better adherence by our trading partners to 
existing trade commitments.
    Despite my unwavering support for free trade and your 
tireless efforts on its behalf, I do have a significant concern 
with one aspect of recent U.S. trade policy, and that is for 
sugar. United States sugar policy was bad enough before but 
recently sugar appears to be immune from negotiations. Some of 
my constituents, from candymakers to corn refiners, are 
particularly hard hit by this policy, which represents the 
indulgence of the few at the expense of the many. There are or 
were several candymakers in the Chicago area, as I know you are 
aware.
    According to industry estimates, almost 10,000 jobs have 
been lost in the U.S. confectionery industry due to the U.S. 
sugar program's import restrictions. To make matters worse, 
sugar has recently received special treatment. It has been 
completely excluded in the Australia agreement and the Central 
American FTA (CAFTA) contains extremely limited quota 
concessions with no reduction in out-of-quota tariffs. In CAFTA 
the centrals responded to the paltry concession on sugar by 
granting very long duty elimination on U.S. candy exports. 
Thus, the confectionery industry got a double blow because on 
the import side it cannot get access to reasonably priced sugar 
and on the export side the centrals provided in most cases 10- 
to 15-year phase-outs on sugar, candy, and chocolate 
confections. Fifteen years is a long time to wait for a 
benefit.
    Another constituent victim of U.S. sugar policy is the corn 
refining industry, which is a hostage in a tit-for-tat battle 
with Mexico over sugar and high-fructose corn syrup. The North 
American Free Trade Agreement (NAFTA) provides that the United 
States can export high-fructose corn syrup into Mexico without 
duty and in return, Mexico can sell its surplus sugar in the 
United States. In the face of U.S. insistence on limiting 
Mexican sugar imports, Mexico has retaliated in several ways, 
most recently by imposing a discriminatory tax on products 
containing high-fructose corn syrup. This issue has been 
festering for years now and I urge you, Mr. Ambassador, not to 
allow the U.S. sugar industry to block resolution of this 
dispute.
    As I said at the beginning, I applaud the overall efforts 
of you and your colleagues in your office in opening markets 
for U.S. exports by eliminating tariffs, also known as 
protection taxes, reducing nontariff barriers, streamlining 
standards, opening services markets and strengthening 
intellectual property protections. These efforts provide a 
significant benefit to the U.S. economy. It is time we include 
sugar in this agenda and get comprehensive free trade back on 
track. I yield back the balance of my time.
    [The opening statement of Mr. Crane follows:]

Opening Statement of The Honorable Philip M. Crane, a Representative in 
                  Congress from the State of Illinois

    Thank you, Mr. Chairman. I join in welcoming Ambassador Zoellick 
here today. Ambassador, I applaud your efforts and those of all the 
hardworking individuals at USTR who continue to press every day for new 
export opportunities for U.S. businesses and workers, more choices for 
U.S. consumers, and better adherence by our trading partners to 
existing trade commitments. Despite my unwavering support for free 
trade and the tireless efforts of USTR on its behalf, I do have a 
significant concern with one aspect of recent U.S. trade policy, and 
that's for sugar. U.S. sugar policy was bad enough before, but recently 
sugar appears to be immune from negotiation. Some of my constituents, 
from candymakers to corn refiners, are particularly hard hit by this 
policy, which represents the indulgence of the few at the expense of 
the many.
    There are--or were--several candymakers in the Chicago area. 
According to industry estimates, almost 10,000 jobs have been lost in 
the U.S. confectionery industry due to the U.S. sugar program's import 
restrictions. To make matters worse, sugar has recently received 
special treatment: it has been completely excluded in the Australia 
agreement, and CAFTA contains extremely limited quota concessions with 
no reduction in out-of-quota tariffs. In CAFTA, the Centrals responded 
to the paltry concession on sugar by granting very long duty 
elimination on U.S. candy exports. Thus, the confectionery industry got 
a double blow because on the import side it can't get access to 
reasonably priced sugar and on the export side the Centrals provided in 
most cases 10- to 15-year phase-outs on sugar candy and chocolate 
confections. Fifteen years is a long time to wait for a benefit.
    Another constituent victim of U.S. sugar policy is the corn 
refining industry, which is a ``hostage'' in a tit-for-tat trade battle 
with Mexico over sugar and high-fructose corn syrup (or HFCS). NAFTA 
provides that the United States can export HFCS into Mexico without 
duty and, in return, Mexico can sell its surplus sugar in the United 
States. In the face of U.S. insistence on limiting Mexican sugar 
exports, Mexico has retaliated in several ways, most recently by 
imposing a discriminatory tax on products containing HFCS. This issue 
has been festering for years now and I urge you, Mr. Ambassador, not to 
allow the U.S. sugar industry to block resolution of this dispute.
    As I said in the beginning, I applaud the overall efforts of USTR 
in opening markets for U.S. exports by eliminating tariffs--also known 
as protection taxes--reducing nontariff barriers, streamlining 
standards, opening services markets, and strengthening intellectual 
property protections. These efforts provide a significant benefit to 
the U.S. economy. It's time we include sugar in this agenda and get 
comprehensive free trade back on track.

                                 

    Chairman THOMAS. I thank the gentleman. The Chair would 
recognize the Ranking Member, the gentleman from New York, Mr. 
Rangel, for any comments he may wish to make.
    Mr. RANGEL. Thank you, Mr. Chairman. Mr. Ambassador, first 
let me join my colleagues in congratulating you for the work 
that you do for our great Nation and your patience in the most 
difficult situations that you face. I am particularly pleased 
to see your willingness to pick up the pieces in Cancun and to 
reach out to the developing nations. It is true that unless you 
help these countries, democracies cannot prevail, as we have 
seen in Haiti.
    I also want to point out that most of us in the Congress 
believe that these matters of international concern should not 
be moved forward with party labels, and increasingly Democrats 
are labeled as being against free trade, notwithstanding the 
fact that with China, the Africa Growth and Opportunity Act 
(AGOA) (P.L. 106-200), and the Caribbean Basin Initiative (CBI) 
(P.L. 98-67), we have worked together in a bipartisan way. I 
wish desperately hard that we could continue to do that, to 
give you the type of support that you need when you represent 
not Republicans but the United States of America.
    I am very pleased to share with you that the Chairman and 
Mr. Crane are working with the Democrats to improve AGOA, to 
make certain that investments will continue to flow, that they 
have an opportunity to fulfill the goals that we wanted for 
them, but just as importantly for the United States of America. 
Soon we expect that we will be dealing with the European Union. 
I would not want to be dealing with them as a Democrat. I would 
want to be dealing with them as an American and a Member of 
Congress. I do not know whether these are hurdles that we can 
overcome. Maybe the Senate would have to provide the 
leadership, since we do not expect to get it from the 
President. When we come to other agreements that we would like 
to participate in, it seems like there is a hurdle that we 
cannot overcome and that is establishing some standards, some 
labor standards, some environment standards so that it does not 
appear that there is a race to the bottom in terms of just 
getting the lowest paid workers throughout the world.
    I hope, in conclusion, that there could be some sensitivity 
to the questions of America that pays the price for progress. I 
come from a city where 50 percent of the African-American males 
are out of work and it is difficult to tell them the value of 
free trade and what is going to happen down the line, that the 
more that we have jobs abroad, that jobs are going to be 
created here. It is not your job to invest in education and 
high tech, to make certain all Americans feel that they are 
going to be the beneficiaries of this free trade, but you have 
to have a domestic policy that supplements it so people are not 
frightened to death that these agreements are going to take 
Americans' jobs and just transfer them abroad and that we do 
not have a tax policy that encourages people to have these jobs 
abroad. That is not your job but it is your team's job and I 
would like to be a part of that team. With the Chairman's 
permission I would like to yield to the Ranking Member of the 
Subcommittee on Trade, Mr. Levin.
    Mr. LEVIN. Thank you, Mr. Rangel and Mr. Chairman and 
welcome, Mr. Ambassador. Your prepared comments lead off with 
this statement: ``Isolating America from the world is not the 
answer.'' Yesterday the President took the same tack, stating, 
and I quote, ``There are economic isolationists in our country 
who believe we should separate ourselves from the rest of the 
world.''
    Whether we should isolate America from the world is not the 
question. It is not the question asked by this Committee, where 
Democrats have taken leadership roles in trade-expanding 
efforts--CBI, AGOA, China, Jordan. It is not the question asked 
by most in Congress and it is not the question asked by the 
American people, who have seen during the Bush Administration 
the loss of 2.8 million manufacturing jobs, record trade 
deficits--$43 billion now reported for the last month--budget 
deficits, major increases in outsourcing and services, and 
continued foreign barriers to our products.
    I hope we can avoid the rhetoric today about isolationism, 
protectionism that mischaracterizes, polarizes and demonizes 
and ask instead the real questions, and let me mention two of 
them. Question one: should we use every tool at our disposal to 
shape the terms of international trade and competition or 
simply let it flow and assume problems will work themselves out 
in the wash of free trade? In my judgment, the Administration's 
answer to question one is still too often more trade is always 
better, no matter its terms and contents. It is manifested in 
the Administration's failure to use the tools at its disposal 
to respond effectively to shape the rules of competition.
    When it comes to China, for example, your testimony states, 
and I quote, ``We are committed to using special safeguards, 
applying fair trade laws and taking action under international 
trade rules.'' President Bush has denied relief in all three 
special China safeguard cases. Despite findings by the 
independent International Trade Commission (ITC), and despite 
the impact of the undervalued Chinese currency on American 
jobs, the Administration still does not have an effective 
strategy. Despite a growing culture of noncompliance with WTO 
commitments in China, the Administration has failed to bring a 
single case in the WTO against China.
    The Bush Administration has also failed to use FTAs to 
address other critical terms of competition. Your prepared 
statement talks in several places about, and I quote, ``A world 
that trades in freedom.'' How about the freedom for workers to 
associate and bargain collectively, as you have steadfastly 
refused--this Administration has--to include enforceable core 
labor standards in trade agreements.
    A second real question: Are the Administration's actions 
consistent with its rhetoric? When the Administration states, 
as you do in your statement, the need to help people manage 
change, particularly when it concerns jobs, the answer here is 
a huge credibility gap. Not a finger lifted, and this happened 
again last week when Secretary Chao sat in the chair you are 
in--not a single finger lifted to extend the Federal 
unemployment insurance program, despite 760,000 unemployed 
workers running out of benefits without finding work.
    You talk about the tripling of Trade Adjustment Assistance 
(TAA) but Senator Baucus recently stated that ``The 
Administration fought tooth and nail against every penny and 
every provision to expand TAA.'' You talk about the President 
proposing $500 million in new money for worker training and 
education but the Congressional Research Service (CRS) 
indicates the President's budget would cut worker training 
programs by $500 million from 2002 levels.
    So, I conclude. I look forward to the views you express on 
these real questions, not the straw man of isolationism. The 
American public does not want to build walls. They do want to 
know that someone is on their side, fighting to advance their 
interests, to open markets for U.S. goods and services, and to 
set rules of competition that create a more level playing field 
between nations, and to rebuild a strong bipartisan coalition 
in this Congress, which this Administration has failed to do, 
to bring about expanded trade with economic growth and jobs for 
the American people. Thank you, Mr. Chairman.
    [The opening statement of Mr. Levin follows:]

Opening Statement of The Honorable Sander M. Levin, a Representative in 
                  Congress from the State of Michigan

    Thank you, Mr. Chairman.
    Ambassador Zoellick, your prepared comments lead off by stating 
``isolating America from the world is not the answer.'' Yesterday, the 
President took the same tack, stating that ``[t]here are economic 
isolationists in our country who believe we should separate ourselves 
from the rest of the world.''
    But whether we should ``isolate America from the world'' is not the 
question.
    It is not the question asked by this Committee--a Committee where 
Democrats have undertaken leadership roles in trade-expanding efforts, 
for example on CBI, AGOA, China, and Jordan--it is not the question 
asked by most in this Congress, and it is not the question asked by the 
American people, who have seen during the Bush Administration:

      2.8 million manufacturing jobs lost.
      Record trade and budget deficits, so large that the IMF 
has warned that they could destabilize the global economy.
      Switching from a trade surplus in Advanced Technology 
Products to a large trade deficit, which just grew 78% between 2002 and 
2003.
      Major increases in outsourcing in the services sector.
      And continued major barriers to American products in 
foreign markets, with little prospect for progress given the stalled 
WTO talks.

    I hope we can avoid rhetoric today about ``isolationism'' and 
``protectionism'' that mischaracterizes, polarizes, and demonizes, and 
instead ask and answer the real questions American workers and 
businesses have regarding this Administration's trade policy. I mention 
two of these below.

        Question #1.  Should we use every tool at our disposal to shape 
        the terms of international trade and competition or simply let 
        it flow, and assume problems will work themselves out in the 
        wash of free trade?

    Ambassador Zoellick, the New York Times indicated that you 
``learned a lesson'' from the firestorm generated by Mr. Mankiw's 
comments in your handling of the issue before the Senate Finance 
Committee. The lesson should not be ``choose your words more 
carefully,'' but that the Administration needs to change its approach 
to U.S. trade policy.
    In my judgment the Administration's answer to Question 1 is still 
``more trade is always better, no matter its terms and contents.'' It 
is manifested in the Administration's failure to use the tools at its 
disposal to respond effectively to problems that arise and to shape the 
rules of competition.

      When it comes to China, your testimony claims that ``We 
are committed to using special safeguards, applying fair trade laws, 
such as the antidumping provisions, and taking action under 
international trade rules if China falls short in its trade 
commitments.'' But the facts speak otherwise:
      President Bush has denied relief in all three cases under 
the special China safeguard despite findings by the independent ITC 
that U.S. manufacturers had been injured by import surges from China.
      Despite the impact of the undervalued Chinese currency on 
American jobs, the semi-annual Treasury report on currency manipulation 
gave a free pass to China and the Administration does not have an 
effective strategy to deal with the issue.
      Despite a growing culture of noncompliance with WTO 
commitments in China, the Administration has failed to bring a single 
case in the WTO against China and has allowed the annual review of 
China's WTO compliance to become a mechanical exercise rather than a 
meaningful review.
      The Bush Administration has failed to use tools to open 
other foreign markets, as well. The Clinton Administration brought on 
average 10 cases per year in the WTO against foreign market access 
barriers; the Bush Administration has brought less than three cases per 
year.
      For the first time since the creation of the WTO, the EU 
is imposing trade sanctions against U.S. manufacturers and farmers, yet 
the Administration has failed to take a leadership position to forge a 
solution. Meanwhile, the U.S. trade deficit with the EU has 
skyrocketed, growing 70% since President Bush took office and now 
standing at $94 billion.
      The Bush Administration has failed to use free trade 
agreements to address critical terms of competition. Amb. Zoellick, 
your prepared statement talks in several places about a ``world that 
trades in freedom.'' How about the freedom for workers to associate and 
bargain collectively, as you have steadfastly refused to include 
enforceable core labor standards in trade agreements?

        Question #2.  Are the Administration's actions consistent with 
        its rhetoric when the Administration states, as your statement 
        does, that we need to ``help people manage change, particularly 
        when it concerns jobs'' and to ``help someone who loses a job 
        get back on his or her feet?''

    The answer here is a huge credibility gap. The Administration has 
not lifted a finger to extend the Federal unemployment insurance 
program despite the fact that since the program expired, 760,000 
unemployed workers have run out of unemployment insurance benefits 
without finding work.
    Your written statement touts the tripling of the TAA program in 
2002, yet Senator Baucus recently stated that ``the Administration 
fought tooth and nail against every penny, and against every 
provision'' related to TAA in that bill.
    Your written statement claims that the President has proposed $500 
million in ``new'' money for worker training and education, yet an 
analysis by the Congressional Research Service indicates that President 
Bush's FY'05 budget would result in a net cut to worker training 
programs of $500 million from FY'02 levels.
    I look forward to your views on the real questions, not the straw 
man of isolationism and protectionism. The American public doesn't want 
to build walls, Ambassador Zoellick, they want to know that someone is 
on their side, fighting to advance their interests, to open markets for 
U.S. goods and services and to set rules of competition that create a 
more level playing field between nations, and to rebuild a strong 
bipartisan coalition in the Congress, which this Administration has 
failed to do, to bring about expanded international trade with economic 
growth and jobs for the American people.

                                 

    Chairman THOMAS. I thank the gentleman. The Ambassador is 
recognized. His written statement will be made a part of the 
record, and you can address us as you see fit in the time that 
you have.

STATEMENT OF THE HONORABLE ROBERT B. ZOELLICK, AMBASSADOR, U.S. 
                      TRADE REPRESENTATIVE

    Mr. ZOELLICK. Thank you, Chairman and Mr. Rangel. I want to 
thank all the Committee for the advice and support not only 
over the last year but over the past 3 years. I think we have 
accomplished a great deal together and for those that are still 
doubtful in their bipartisan spirit, we will be happy to engage 
with them on the case.
    I certainly recognize, as I know all of you do, that the 
benefits of trade are a contentious subject. We certainly heard 
a lot about that over the past couple of months as people were 
competing to see how far they could add to an economic 
isolationist agenda for this country. My written testimony 
covers a number of the topics that were raised but this morning 
I will just review the PowerPoint that I hope you all have in 
front of you. The strategy that we have been pursuing is one of 
trying to expand trade for growth, for opportunity, for 
development, and fairness through a series of initiatives. 
First on the negotiating front, we are trying to work on 
multiple fronts at once--globally, regionally and bilaterally--
because we feel this is the best way to give America the most 
leverage.
    In addition, as all of you mentioned in one form or 
another, it is vitally important we have full enforcement of 
the laws and agreements but also to help workers adjust to the 
loss of jobs. The Trade Act of 2002 (P.L. 107-210), which I 
actively supported, including the trade adjustment provisions, 
produced $6 billion of added TAA over the course of 5 years, 
$1.3 billion last year. That means about 200,000 workers are 
eligible for that. It also included an alternative TAA pilot 
that could be an important example for the future.
    The President in his State of the Union address emphasized 
the importance of developing jobs for the 21st century and 
proposed a $500 million program to deal with linking community 
colleges with local job needs. Now by moving on multiple 
fronts, we can help all of the American economy--consumers, 
workers, exporters. Frankly, the United States already starts 
with relatively low trade barriers. Our average trade-weighted 
tariff is a little bit under 2 percent. So, when we create 
these FTAs, we are bringing others a lot down further in an 
open and level playing field for our producers.
    Also with an economic recovery--and I hesitate to differ 
with some of you--I think this would be a absolute worst time 
to move to economic isolationism--ideas like repealing NAFTA, 
which came up on some voices, ideas of adding barriers, adding 
costs, adding price increases. I do not think that is the way 
to go when you have 4 to 5 percent growth and you are reducing 
unemployment. Now the Trade Act of 2002, which I know many of 
you put a lot of effort in to get through after its failure to 
pass three times in the 1990s, is something we have tried to 
put to good use and here I want to particularly thank the 
Chairman. I know he put a lot of effort in with a lot of 
priorities to help us get this done.
    As all of you know, we completed and, with your help, 
passed the Singapore FTA (P.L. 108-78) and Chile FTA (P.L. 108-
77) and we were pleased with the bipartisan support we got for 
those. We have now launched and completed an Australia FTA 
(P.L. 108-286). We have launched and completed an agreement 
with five Central American countries and just this week we are 
trying to add the Dominican Republic. We have launched and 
completed a FTA with Morocco (P.L. 108-302).
    We have launched FTAs with five countries in Southern 
Africa and Bahrain. We have announced our intent to try to 
proceed in the spring of this year with some of the countries 
in the Andean region of Latin America, Panama, and Thailand. In 
doing so, we have also tried to set out a strategy for 
countries to move toward free trade, with the enterprise for 
the Association of Southeast Asian Nations (ASEAN) Initiative 
in Southeast Asia. We have launched a Middle East Free Trade 
Initiative to try to help countries in the moderate Arab world 
to move toward tolerance and openness.
    In Miami, where I had a chance to be with Mr. Shaw, we 
created a framework for the Free Trade Area of the Americas 
(FTAA) and tried to move it toward concrete results. As the 
Chairman mentioned, Doha is vitally important for our overall 
WTO global negotiations and while Cancun was a missed 
opportunity, I really believe that 2004 need not be a lost 
year. Now let me talk about some of these in a little bit 
greater depth and start with the global trade negotiations, 
where obviously there is the biggest benefit. The challenge is 
to try to bring 148 economies, from small island economies in 
the Caribbean to the United States of America, to an agreement 
on boosting markets for agriculture, for goods and for 
services.
    On the way to Cancun we resolved something that I think is 
very important in building the credibility of the system was 
the last issue related to what is called the Trade Related 
Intellectual Property Rights (TRIPs) and medicines issue to 
make sure that developing countries could compulsory license 
when they needed to deal with problems like Advanced Immune 
Deficiency Syndrome (AIDS) and other pandemic diseases. At 
Cancun, and a number of you were there to help us, I think you 
saw that a number of countries wanted to posture and pocket 
proposals without opening their own markets. There was also the 
problem of the so-called Singapore issues--competition, 
investment, transparency in government procurement and trade 
facilitation--which, while a couple of them are important, in 
our view were not the core agenda. The core agenda is opening 
agriculture, goods and services markets, and, although these 
issues were pushed by the European Union, Japan and Korea, they 
really ran into a block with Africa and some of the Asian 
countries. An important message coming out of Cancun is the 
need to have agriculture reform for both developed and 
developing countries together.
    Nevertheless, it is my sense that there was some good work 
done at Cancun. People developed some draft frameworks for work 
in the future. It was our sense that in the months after 
Cancun, and this goes to one of the points you made, Chairman, 
I think there was a reassessment by countries about the missed 
opportunity. So, in January of this year I wrote a letter to my 
147 colleagues to try to set forth a common sense assessment of 
what we could do to move forward, and, in February, I traveled 
some 32,000 miles all around the world and saw some 40 
ministers of different countries, to try to move this forward. 
In brief, here is where I think we are.
    I think agriculture is absolutely fundamental and it will 
be important to get the last key player--this is really the 
European Union--to eliminate export subsidies--I think there is 
a chance of doing that--and also to get substantial harmonizing 
cuts in subsidies, trade-distorting subsidies, which the United 
States is willing to make if we can get Europe and Japan to 
move forward, but also to combine that with significant market 
openings. In manufactured goods we are trying a combination of 
formula cuts because our tariffs again are relatively low 
compared to others--a formula would help cut others--sectoral 
initiatives and nontariff barriers. In services we need to get 
more and better offers from a group of countries.
    On the Singapore issues the key for us is not to let them 
be a distraction, so we suggest focusing on trade facilitation 
alone. I think, Mr. Chairman, there is actually a new energy 
and sense of possibility here. My hope is that by this summer 
we might be able to achieve the frameworks that we failed to 
achieve in Cancun. I want to hesitate to add, as all of you 
know who have dealt with this, this is not an easy task. 
Bringing around 148 economies together on a consensus requires 
a particular challenge. I think the key will be whether the 
European Union can move on this export subsidy issue and some 
of the trade facilitation issues and whether we can get some of 
the major developing countries to also recognize they are going 
to have to contribute. Here I am not talking about the 
Caribbean countries or sub-Saharan African countries but some 
of the major players in Latin America and Southeast Asia are 
also going to have to agree to open their markets.
    On the FTAA, what we tried to do at the Miami meeting was 
to set forward a way that we could move forward with 34 very 
different countries. We suggested developing a common set of 
rights and obligations for all 34 countries--this would focus 
on market access barriers and would be very important for the 
United States--but then to agree to try to create a higher 
level of commitments for those willing to go further. That 
would provide the opportunity to integrate with a lot of our 
current FTA partners.
    We also outlined an alternative path and it makes the point 
about why this competitive liberalization strategy is 
important. We already are in process of either having FTAs or 
negotiating FTAs with two-thirds of the hemisphere's gross 
domestic product (GDP), not counting the United States. So, 
there is a clear message, which is we would like to try to do 
this hemisphere-wide but if we cannot, we are going to work 
with those who do. As I think the Chairman would agree in his 
opening statement, these are very gold-standard agreements in 
terms of what we get in Intellectual Property Rights (IPR) and 
services and agriculture.
    In terms of the other regional agenda, I think both the 
Chairman and Mr. Rangel mentioned the importance of AGOA's 
extension. There were $14.1 billion of African exports under 
AGOA to the United States last year. That is about a 55-percent 
increase. While a lot of those are oil-based, if you look at 
the non oil-based numbers, they are also up very considerably.
    So, we believe AGOA has been an outstanding success and I 
know that the Chair and Mr. Rangel have frankly taken it upon 
themselves to try to see what extension can be done and we 
certainly want to work with you as we try to do that. I know 
Mr. Thomas and I were in Mauritius together where we learned 
about this fine balance about how, in dealing with the fabric 
provisions, we do not want to undermine the fabric creation in 
Africa because for their long-term ability to compete with 
China, they are going to need to be able to be fabric-producers 
as well as apparel-producers. So, I know that will be a 
challenge one has to try to deal with here.
    In terms of the Middle East Free Trade Area, we now have 
FTAs with Israel and Jordan, one with Morocco that we look 
forward to taking up with the Congress, and one we are making 
good progress with Bahrain. This is part of a strategy that 
recognizes you have major development challenges all across the 
Arab world but we want to try to create models of success. If 
you look at these agreements, having Jordan and Israel in the 
heart of the Middle East, Morocco in the Magreb, Bahrain in the 
Gulf, these are becoming models for countries. They are 
starting to draw people toward a series of reforms.
    Now some countries, like Saudi Arabia, are not even members 
of the WTO yet, so the challenge is to get them part of the 
WTO. Then the next stage we use is these trade investment 
framework agreements (TIFAs), which we use to kind of build 
countries' trading relationship with us, solve problems, 
whether they be customs or IPR. We now have these with Algeria, 
Egypt, Saudi Arabia, Tunisia, Yemen, Kuwait, and in the next 
couple of weeks we expect to sign them with Qatar and United 
Arab Emirates.
    Similarly, we have tried to put out a map for moving toward 
more open markets with Southeast Asia, the Enterprise for ASEAN 
Initiative. We now have a FTA with Singapore. We will be 
beginning one with Thailand, a very important market, and we 
have now had TIFAs with Indonesia, Philippines, Brunei, 
Malaysia is interested in signing, and these will be the way in 
which we can create the foundation toward possible FTAs.
    Now on the bilateral side we are very pleased with the 
support for the Singapore and Chile FTAs. We hope these will be 
models but recognize that each agreement has to be customized. 
The Australia FTA we launched in March of last year, completed 
in February of this year. The Central American FTA with Costa 
Rica, El Salvador, Guatemala, Honduras, Nicaragua, completed 
that in January. As I mentioned, we are moving ahead with the 
Dominican Republic negotiations, and here I want to thank 
Congressman Weller, who made a special effort to come with me 
to the Dominican Republic, trying to move this forward. It was 
very helpful there to have a Member of Congress talk about the 
context of what we need to do to be successful.
    Morocco, we were again pleased that we completed that 
agreement. Southern African Customs Union, this is one I know 
that both Mr. Portman and Mr. Rangel have worked with us on, we 
launched in January. This will take a little longer. It is very 
complex, with these five countries, but I think it will be very 
important to have a FTA in Africa.
    For Bahrain, Mr. Ryan was at an event with me last week 
where we announced the business coalition to help move this FTA 
forward. Also, then the Andeans, Panama, and Thailand, which we 
hope to launch in April or May of this year. Now, a lot of 
people ask me questions about these and say, well, these are 
individual countries, but what do they add up to? Let me offer 
you a sense. These FTAs together amount to America's third-
largest export market, and that would be the sixth-largest 
economy in the world.
    Now, people often say well, what about others, and they 
compare different numbers. To do an accounting of this, you 
start with NAFTA because NAFTA covers about 35 percent of our 
exports. Now the next biggest players are the European Union, 
which does not want to do a FTA, Japan and Korea, which I would 
love to have a shot at a FTA with but they are not going to 
open their agriculture markets and we do not do trade 
agreements if we cannot open up agriculture. Then, of course, 
we have China, which I think we need to have some 
implementation issues ahead of moving toward anything in that 
nature.
    So, if you take those countries out, of the remaining part 
of the world economy, not counting our current free trade 
partners with NAFTA or these economies, of the remaining set, 
the ones that we are working on cover 35 percent of U.S. 
exports. If you add in the full FTAA, it is 50 percent. So, you 
can see these numbers do have a way of adding up.
    Now, let me just touch briefly on the particular 
agreements. The Australia FTA, and I want to thank Mrs. Dunn, 
who has been helpful in a leadership role on this, is our first 
FTA with a developed country since Canada. The National 
Association of Manufacturers, the U.S. Chamber of Commerce and 
others have dubbed this a manufacturing FTA because it creates 
immediate duty-free treatment on 99 percent of U.S. 
manufactured exports. That is 150,000 jobs already supported 
with our trade with Australia and the manufacturing community 
estimates this would create an extra $2 billion of exports, an 
extra $2 billion of income for the United States. It also 
expands markets for U.S. service providers and farmers. All 
U.S. farm exports are duty-free from day one.
    The main problem we have had with Australia and one the 
Chairman has had a keen interest in, given particularly some of 
the California products, is dealing with the sanitary and 
phytosanitary standards. So, we have worked simultaneously to 
try to make sure we deal with those in a scientific way, 
dealing with grapes and pork and stone fruit and citrus. At the 
same time, we have tried to deal with U.S. agricultural 
products with some sensitivity. Mr. Herger has talked to us 
because he has been very supportive of our trade agenda, but we 
had some sensitive items to deal with. I was very pleased, as I 
mentioned to some of you, that yesterday the Farm Bureau came 
out and said they would support this agreement if there is 
follow-through on the sanitary and phytosanitary standards.
    On the pharmaceutical benefits scheme improvement, this is, 
I know, a very sensitive area but a very important area for a 
key part of the U.S. economy, and we think we handled this in a 
way that deals with transparency and benefits of innovation and 
research and development. Mr. McCrery and Ms. Dunn and I talked 
about this and I think we managed to get some very significant 
improvements there. Even though this was a developed economy, 
we have environmental and labor provisions in this accord, as 
we do in all our FTAs, and I must emphasize for those who 
raised questions about this, we are the only country that has 
enforceable environmental and labor provisions in our FTAs, so 
we have played a leadership role.
    On CAFTA, I see Mr. Brady in front of me and I want to 
thank him because he has been very helpful in organizing 
support for this. Mr. Jefferson also had me in New Orleans and 
was kind enough to focus on the benefit of the Port of New 
Orleans in this. Here is an important part about some of these 
FTAs. If you look at the CBI arrangements, the preferential 
arrangements, tariffs on Central American goods are already 
low. Seventy-seven percent of regional imports enter the United 
States duty-free, but we do not get any reciprocal trade 
access. With CAFTA, more than 80 percent of U.S. manufactured 
goods would be duty-free immediately and more than half of the 
current U.S. farm exports are duty-free immediately. That means 
beef, cotton, wheat, soybeans, fresh vegetables, processed 
foods, wine, and we get some very important gains on pork and 
poultry, rice, corn, dairy, dried beans, vegetable oil. Again 
yesterday the Farm Bureau came out in support of this 
agreement.
    Now, the sensitive topic, as a number of you mentioned, 
with sugar. This is a subject where there is very strong 
feelings, given the sugar program that is in place for the 
United States. What we did is not touch the tariff on sugar but 
we did increase the quota, but the increase of the quota 
amounts to 1.2-percent of U.S. production. After 15 years that 
rises itself to the huge number of 1.7-percent. That 1.2-
percent is one day's worth of production and this was an 
important balance. So, I appreciate your comments, Mr. Crane. 
We have some others here who are a little bit more sensitive on 
the sugar topic and at the end of the day I have to try to 
bring you agreements that I think we can get passed, with the 
support that we can get. So, I think we got very good success 
in terms of America's agricultural interests and we dealt with 
this most sensitive product very sensitively.
    There is also important textile and apparel provisions here 
and I want to just take a moment to stress something. We 
included some cumulation provisions that will encourage 
integration of the North and Central American market and the 
reason why I think these are absolutely critical is that quotas 
on textile and apparel that were put in place by the Congress 
and President Clinton in 1994, are coming off at the end of 
this year. So, the real challenge would be how do you compete 
with China? These provisions really try to create an integrated 
market by drawing some of the fiber and textile production from 
the United States but also the apparel production in the 
region. We included only for Nicaragua what we call Trade 
Preference Levels (TPLs), some ability to bring in third-party 
fabrics. We really tried to design this as a comprehensive 
system. I am pleased that some of the people that have moved 
into this industry, like Wilbur Ross, have been very supportive 
of this agreement because I think they see this is the best way 
that we will be able to be more competitive in a global 
context.
    We have very good IPR standards and protections, openings 
all across the service sectors, including telecommunications 
and insurance, very strong transparency, anti-corruption, good 
governance rules, and labor and environmental protections that 
go beyond Chile and Singapore. Mr. Levin mentioned Senator 
Baucus. We were very pleased to work with Senator Baucus on 
upgrading the environmental provisions in this. We included 
some special citizen petitions, some benchmarks and monitoring 
for our environmental agreement, appellate agreement for 
investor state, so we were delighted to work with him in a 
bipartisan fashion to come up with environmental provisions we 
can all be proud of.
    I want to make one other point about these countries. In 
the 1980s I worked with Secretary Baker at the U.S. Department 
of State and I remember coming into office actually in 1989 and 
dealing with one of the toughest legislative issues that we 
ever encountered. It was dealing with Contra funding. At that 
time I remember the challenge with this Congress was not people 
trading across borders but people killing across borders. You 
had problems in these countries of whether they would be run by 
communist dictatorships, whether they would be run by para-
militaries or whether they would be run by democracies.
    You now have five democracies in these countries. Some of 
them, to be frank with you, are fragile. It is not an easy 
task. What they see this FTA about is reaching out to the 
United States to try to have a chance to sell here, to build 
growth, to create market openings. I have to say when I look at 
the history of the United States and Central America, we follow 
a very sad pattern. We get drawn into a problem, we get our 
hands burnt, we somehow figure out how to deal with it, and 
then we ignore it. I hope this is a way that economically we 
can support very important political and human rights 
developments in that region.
    In Morocco, again I see Phil English here, who has been 
very helpful with us, with Chris John and John Tanner. This is 
the best ever package we have had with a developing country in 
terms of goods. Ninety-five percent of the goods are duty-free 
on day one. It expands export opportunities for U.S. 
agriculture, very broad support of the services markets, new 
protections for U.S. investors, strong IPR and anti-corruption 
rules. They are already changing some of their labor and 
environmental laws in a beneficial fashion, working with the 
International Labor Organization (ILO).
    The other point again I want to emphasize here is trade is 
part of our economic interests but it is part of America's face 
with the world. When you read the papers and you see what 
happens in the Muslim world and you see those that are trying 
to fight toward openness, this is a country that is moving 
toward an open parliamentary system, better treatment of women, 
openness, and I think this allows us to frankly pursue our 
economic and political interests together.
    Trade with China is, I know, a very, very sensitive topic, 
one I have gone over with many of you as to particular items. I 
just want to set the context. The agreement that Mr. Levin 
mentioned that many of you fought to pass created the rules. We 
now have U.S. exports to China growing 75 percent over the past 
3 years at a time that American exports to the rest of the 
world have fallen. So, there is opportunity in this market. It 
is our sixth-largest export market. I know we all agree that 
their implementation cannot slacken. The message that we drive 
home is that if we are going to keep America's market open to 
China, we are going to need to be able to have them follow 
through on your obligations, whether it be agriculture, whether 
it be intellectual property, whether it be standards issues, or 
others.
    Now, China has responded to some of these problems. For 
example, we worked very closely on agriculture issues because 
that was a very important market for us. We have record gains 
in soybeans. We had $2.9 billion sales of soybeans this year. 
Cotton exports are up almost 500 percent, about $800 million. 
In addition to those sales, they have now worked through their 
biotech approval process for soybeans, cotton, corn, and others 
who are on the way. They are opening up financial services 
market, motor vehicle financing. They have added various 
purchasing missions.
    I know I have worked with Nancy Johnson on a lot of this. I 
was pleased to see also Mr. Houghton out there. I'm not sure if 
General Electric and Pratt & Whitney are exactly in your 
districts, but I think they are very close. These are some of 
the beneficiaries of these.
    The message, however, that we emphasized to the Chinese is 
one-off purchases are not enough. We have to have a systemic 
opening of the system. In April I will be meeting, with Don 
Evans, with the Vice Premier Wu Yi of China to try to elevate 
the dialogue to work on these issues and would be pleased to 
respond to some questions on this, and the use of safeguards 
for textiles. On the particular Section 421 provisions, Mr. 
Levin, we can go through some of the specifics. We are open to 
those but we have to look at the overall net gain and loss on 
some of those; and I will take you through each one if you 
would like, on where there is net gain and loss and why some of 
these companies--frankly the real problem would be the 
competition they face from elsewhere or some of their own 
practices, but I would be happy to go through them one by one 
if you would like.
    Monitoring and enforcement. As we have mentioned, while we 
focus a lot on trade agreements in this Committee, our day-to-
day is frankly trying to make sure that we deal with the 
problems of keeping markets open. So, I just listed some of the 
examples here--with agriculture, a case against dairy with 
Canada, pork with Mexico, apples with Japan, IPR patents 
Argentina, autos, the Philippines.
    Some pending cases, you see one listed there with 
telecommunications in Mexico. That is estimated to be worth 
$500 million to our telecommunications people. I worked with a 
number of you with our cases we have against the European Union 
on biotech and geographic indicators. We also wanted to 
emphasize for the textile industry, that I know has had a 
difficult adjustment, that others have to play fair, too. So, 
we took a case against Egypt that I believe they are actually 
going to settle with us because they know they are out of 
compliance.
    I see Mr. Pomeroy here. You know about our actions with 
Canada on wheat. What I also want to emphasize is that this is 
just one piece of the effort. For example, as I mentioned to 
some of you, I was very delighted that Secretary Veneman and I 
last week were able to reopen the beef market in Mexico, a $589 
million market dealing with the Bovine Spongiform 
Encephalopathy problem. Frankly, Mr. Tanner is not here now but 
in their run-up to the Colombia FTA, we just got a commitment 
by the Colombians to follow through on an investment dispute, 
about $800 million with Nortel. Mr. Camp and I worked on dried 
beans with Mexico.
    There is a whole host of these. Many of you know about them 
in particular, but I think a lot of people that listen do not 
realize the day-to-day work that goes on on these. The other 
side of the coin is the United States also has to be in 
compliance and I compliment the Chairman and others for trying 
to help finally solve this Foreign Sales Corporation (FSC) 
problem. As many of you know, we are now facing retaliation. 
That retaliation is going to get higher. It covers $3 billion 
of U.S. exports. As Mr. Rangel mentioned, there is a bill 
moving in the Senate. One way or another we have to be able to 
get this legislation through so that we can end this 
retaliation against American exports.
    There are others coming down the road. There is something 
called the Byrd Amendment that was put on an appropriations 
bill that we tried to resist but frankly, we have lost the WTO 
case. Right now we are fighting the retaliation amount, but 
this could be $150 to $200 million of different retaliation. 
Some of the ones here that are smaller may not get your 
attention but I will tell you this. When we go around the world 
and try to tell other people they should follow the rules, when 
the United States is a scofflaw it makes it a little harder, 
and we need your help on these because they require 
congressional action.
    Looking ahead, I think at least our perspective is the 
critical point is not to frighten Americans about change. We 
know there is anxiety out there. It is to help them deal with 
change and recognize that some of this is due to technology, 
some of it is due to competition around the country, some of it 
is due to global competition. That means economic isolationism 
will not work, so ideas to try to kill jobs, shut off 
opportunities, we tried that in the 1930s and it did not work 
and I do not think we want to go back on that path.
    Americans can be big beneficiaries of openness in trade. 
Americans compete with anybody in the world, if given a fair 
shot. Right now we are in a position where the United States 
economy is growing. You had 8.2-percent growth in the third 
quarter, 4.1-percent growth in the fourth quarter. Private 
estimates are 4- to 5-percent growth. Yes, we have not added as 
many jobs as we would like but we have added 364,000. One thing 
I know is if we turn at this point to start to block our 
markets, it is the absolute worst thing that we could do for 
America's return to creating good-paying jobs.
    Indeed, as I mentioned, U.S. trade barriers are already 
relatively low. If we get others to lower their barriers it is 
a win-win proposition. As I have also discussed with you and 
for a larger message here, the U.S. business community is going 
to also have to stand up to this a little bit more. I talk to a 
lot of chief executive officers (CEOs) and they say, ``Yeah, we 
hear a lot about all these terrible issues and we are not sure 
we should speak up for them.'' I talked with Mr. Weller when we 
were down in the Dominican Republic. American business 
executives have got to defend those who defend openness and 
free trade. They have to come and show some plants and show the 
benefits for workers that are creating jobs because of trade, 
and there are a lot of jobs out there, about 20 million jobs. 
It is about 6.5 million jobs created because of foreign 
investment. Businesses have to help you and me to keep the 
market open.
    It has to be combined with monitoring and enforcement of 
agreements, whether it be targeted use of safeguards, as we did 
in steel or we did with textiles, reliance on unfair trade 
laws, and, of course, following the rules to help ourselves but 
also helping Americans adjust to change. This is partly a 
question of education. If American students cannot read and 
write and do arithmetic, they are not going to be able to deal 
with the 21st-century economy, so that is where the President's 
program to set standards, while some people do not like the 
follow-through on standards, you have to have high standards if 
you are going to have people be able to compete.
    The same with worker training. I mentioned to Mr. Cardin 
before we began that I really appreciate the leadership that he 
and Mr. Portman have shown dealing with issues like portable 
pensions, because frankly, we are going to need that 
flexibility for a modern economy. Then also to help people be 
able to keep and save some of their own hard-earned dollars, 
because that helps people be able to adjust to change, as well.
    In addition to our side, I also want to make a point about 
the larger global community in which we live. Over the past 
decade, trade has lifted some 140 million people around the 
world out of poverty. I probably travel the world more than any 
other Cabinet officer, even more than Secretary Powell, and one 
thing that I am absolutely convinced of is, the United States 
will not prosper in a world where lives of destitution lead to 
societies without hope. So, this can be a win-win proposition 
and we appreciate the help of this Committee in helping us move 
this agenda ahead, Mr. Chairman.
    [The prepared statement of Mr. Zoellick follows:]

  Statement of The Honorable Robert B. Zoellick, United States Trade 
                             Representative

    Chairman Thomas, Congressman Rangel, Members of the Ways and Means 
Committee:

Introduction: The Challenge Ahead of Us

    It is a pleasure to be with you again. I want to start by thanking 
all of you--from both parties--for the support and advice you have 
provided us, not only over the last year, but for the past three years.
    Together we are accomplishing some important results for America.
    Yet I know the benefits of trade are a subject of debate.
    Consider this statement:
    ``With America's high standard of living, we cannot successfully 
compete against foreign producers because of lower foreign wages and a 
lower cost of production.'' Perhaps this pessimism sounds familiar. It 
could very well have come from one of today's opponents of trade, 
arguing against a modern-day free trade agreement. But in fact these 
words were written by President Herbert Hoover in 1929, as he 
successfully urged Congress to pass the disastrous Smoot-Hawley Tariff 
Act that raised trade barriers, destroyed jobs, and deepened the Great 
Depression.
    Today, as in the 1930s, trade can be a contentious subject. But as 
we learned 75 years ago, isolating America from the world is not the 
answer. We need to open markets for American companies to compete in 
the world economy, so we can create new jobs and build economic 
strength at home. When we work with the world effectively, America is 
economically stronger. Ninety-five percent of the world's customers 
live outside our borders, and we need to open those markets for our 
manufacturers, our farmers and ranchers, and our service companies. 
Americans can compete with anybody--and succeed--when we have a fair 
chance to compete. Our goal is to open new markets and enforce existing 
agreements so that businesses, workers, and farmers can sell their 
goods and services around the world and consumers have good choices at 
lower prices.
    Opening foreign markets to U.S. products and services is vital to 
economic growth, and an expanding economy is the key to better-paying 
jobs. U.S. exports accounted for about 25 percent of U.S. economic 
growth during the last decade and supported an estimated 12 million 
American jobs.
    When the world's consumers fly in an airplane, boot up a computer 
or watch a movie, they are helping to employ Americans. And 6.4 million 
Americans have jobs working for foreign companies, building cars in 
Ohio, Kentucky, Tennessee, Alabama and South Carolina--or processing 
mortgages in Minnesota or engineering software in California.
    Although we have opened many markets, too many foreign countries 
still will not let us compete on an equal footing. They keep our 
products out, they illegally copy our technology, and they block us 
from providing services. We want to make sure our products and services 
get a fair chance to compete, and to be vigilant and active in 
enforcing our trade agreements so that American workers have a level 
playing field.
    Recent U.S. trade agreements have cut hidden import taxes and saved 
every working family in America as much as $2,000 a year, and our 
newest agreements could add more to these savings. Arguing for trade 
barriers is like arguing for a tax on single working moms, because 
that's who pays the most in import taxes as a percentage of household 
income. Our goal is to cut those hidden import taxes--while other 
countries cut theirs too--to give working families a boost.
    At the same time, we need to help people manage change--
particularly when it concerns jobs. Jobs not only provide for our 
families, they give us hope for a better tomorrow. Losing a job is 
hard, whether it is because of a recession, changing technology, or 
competition from another State or overseas. No matter the cause, it is 
important to help someone who loses a job to get back on his or her 
feet.
    That's why Congress and the President tripled Trade Adjustment 
Assistance in the Trade Act of 2002. In 2003, this program provided 
some $1.3 billion in support and retraining, with nearly 200,000 
workers eligible for assistance.
    That's why the President is focused on helping workers to learn new 
skills for the jobs of the future. His Jobs for the 21st Century 
initiative provides over $500 million in new funding for education and 
job training, including $250 for community colleges to provide workers 
job training and skill development.
    And that's why the private sector has an important role too: Today 
American companies spend $70 billion a year on worker education and 
training, and they will need to expand this investment in people for 
the future.
    Some of today's opponents of trade, like those of yesteryear, want 
to retreat, to cut America off from the world. But we need to remember 
that what goes around, comes around: If we close America's markets, 
others will close their markets to America. And the price of closing 
markets is larger than economic isolationists recognize. Over the last 
decade, trade helped to raise 140 million people out of poverty, 
spreading prosperity and peace to parts of the world that have seen too 
little of both. Americans will not prosper in a world where lives of 
destitution lead to societies without hope.
    That's why President Bush's vision is of ``a world that trades in 
freedom.''

Strategic Overview

    Three years ago, to support economic growth, an innovative America, 
development, and fair and open engagement with the world, the Bush 
Administration outlined a trade strategy for America. At the heart of 
our effort has been a plan to pursue reinforcing trade initiatives 
globally, regionally, and bilaterally. Through an ambitious trade 
agenda, the United States is working to secure the benefits of open 
markets for American families, farmers, workers, consumers and 
businesses. By pursuing multiple free trade initiatives, we are 
creating a ``competition for liberalization'' that provides leverage 
for openness in all negotiations, establishes models of success that 
can be used on many fronts, and develops a fresh dynamic that puts 
America in a leadership role.
    This strategy is producing results.
    With the leadership of Chairman Thomas and other Members of this 
Committee of both parties, the President secured congressional approval 
of the Trade Act of 2002.
    The United States was instrumental in defining and launching a new 
round of global trade talks at the World Trade Organization (WTO) at 
Doha in late 2001. That same year we completed the unfinished business 
of China and Taiwan's entry into the WTO, working from the bilateral 
trade terms established by President Clinton, so as to establish a 
legal framework for expanding U.S. exports and integrating China's 
economy into a system of global rules. Also in 2001, the Administration 
worked with Congress to pass a Free Trade Agreement (FTA) with Jordan 
and a basic trade accord with Vietnam. After the 2000 election, 
President Clinton had announced an interest in FTAs with Singapore and 
Chile, and this Administration negotiated state-of-the-art accords in 
2001-02 and gained congressional approval in 2003.
    A critical aspect of the Trade Act of 2002 was the renewal of the 
President's trade negotiating authority. In 2003 and early 2004, the 
Administration put that authority to good use, promoting global 
negotiations in the WTO, working toward a Free Trade Area of the 
Americas (FTAA), completing and winning congressional approval of free 
trade agreements with Chile and Singapore, launching bilateral free 
trade negotiations with 14 more nations (concluding talks with seven of 
them), announcing its intention to begin free trade negotiations with 
six additional countries, and putting forward regional trade strategies 
to deepen U.S. trade and economic relationships in Southeast Asia and 
the Middle East.
    The Trade Act of 2002 also renewed and improved trade preferences 
covering an estimated $20 billion of business with developing countries 
in Africa, Latin America, and Asia through the renewal and improvement 
of the Andean Trade Preference Act, the African Growth and Opportunity 
Act, and the renewal of benefits under the U.S. Generalized System of 
Preferences. In addition, the Trade Act of 2002 tripled the level of 
trade adjustment assistance available to U.S. workers to nearly $6 
billion over five years.
    USTR, working closely with other Federal agencies, works to make 
sure that our trading partners live up to their commitments. A 
significant amount of the day-to-day work of USTR is spent pressing 
foreign officials to abide by their trade obligations.
    Just to give an example, successes over just the past few months 
include pushing China to certify biotech imports of U.S. soybeans, 
cotton, corn, and other products, getting China to open up its car 
financing market, urging the Philippines to permit direct access for 
U.S. telephone calls, pressing investment disputes with the Andean 
countries close to resolution, and reopening the Mexican market to U.S. 
beef.
    We resolve most problems without resorting to formal dispute 
proceedings, which take additional time and involve uncertain outcomes. 
Most U.S. companies suggest formal dispute proceedings only as a last 
resort. When we determine it will be the most effective way to settle 
disputes, we pursue cases under the WTO, NAFTA, or our new FTAs.
    In particular, we are devoting more enforcement resources to China. 
While U.S. exports to China support more jobs for American workers, we 
face a number of persistent problems that must be resolved. I spend a 
significant amount of my time addressing matters such as Chinese tax 
policies that disadvantage American exports of products as diverse as 
semiconductors and fertilizer; rampant piracy of intellectual property 
rights; technical commercial standards that are drafted to exclude 
foreign economic participation--such as on wireless encryption; among 
other concerns. Ensuring that these trade barriers do not stand is 
important to achieving the long-term benefits of China's WTO accession 
package: greater openness, adherence to the rule of law, and the 
institutionalization of market principles.
    We recognize that enforcement of China's commitments requires 
sticks as well as carrots, and we are certainly willing to utilize the 
tools Congress has made available to us. These include the careful use 
of the China textile safeguard (which the Administration invoked for 
three product categories last December); anti-dumping laws; the 
product-specific safeguards; and WTO dispute settlement, an option that 
we may need to deploy very soon.

Pressing Forward in the WTO

    At key points, the United States has offered crucial leadership to 
launch, prod, advance and reenergize the Doha Development Agenda, the 
global trade negotiations at the WTO. At the same time, we have 
emphasized that in a negotiation with 148 economies seeking consensus, 
others must also work constructively with us.
    After the Doha launch, the United States proposed the elimination 
of all global tariffs on consumer and industrial goods by 2015, 
substantial cuts in farm tariffs and trade-distorting subsidies, and 
broad opening of services markets. We are the only major country to put 
forward ambitious proposals in all three core areas. These proposals 
reflect extensive consultations with Congress and the private sector.
    In addition to laying the groundwork for bold market opening, the 
United States took the lead in resolving the contentious access-to-
medicines issue in August 2003.
    At the Cancun WTO meeting in September, however, some wanted to 
pocket our offers on agriculture, goods and services without opening 
their own markets, a position we will not accept. Since Cancun, I 
believe many countries have concluded the breakdown was a missed 
opportunity that serves none of our interests. That recognition is a 
useful starting point for getting the negotiations on track.
    Only a few weeks after Cancun, more than twenty diverse APEC 
economies--encouraged by the United States and joined by some of our 
free trade partners--called for a resumption of WTO negotiations, using 
the draft Cancun text as a point of departure. In December, the WTO 
General Council completed its work for the year with an important 
report by its Chairman on the key issues that need to be addressed if 
the Doha Development Agenda is to move forward.
    By late December, we sensed many WTO members were interested in 
getting back to the table, probably working from the draft text 
developed at Cancun. So in January I wrote a letter to all my WTO 
colleagues putting forward a number of ``common sense'' suggestions to 
move the Doha negotiations forward in 2004. I emphasized that the 
United States did not want 2004 to be a lost year. The letter suggested 
that progress this year will depend on the willingness of members to 
focus on the core agenda of market access for agriculture, manufactured 
goods, and services.
    In agriculture, we believe that WTO members need to agree to 
eliminate agricultural export subsidies by a date certain, 
substantially decrease and harmonize levels of trade-distorting 
domestic support, and seek a substantial increase in real market access 
opportunities both in developed and major developing economies. The 
United States continues to stand by its 2002 proposal to set a goal of 
total elimination of trade-distorting agricultural subsidies and 
barriers to market access.
    For manufactured goods, we are proposing that WTO members pursue an 
ambitious tariff-cutting formula that includes sufficient flexibility 
so that the methodology will work for all economies. In addition to the 
tariff-cutting formula, sectoral zero-tariff initiatives need to be an 
integral part of the negotiations, perhaps using a ``critical mass'' 
approach to define participation--as in the successful Information 
Technology Agreement. We also underscored the need to develop specific 
plans to address nontariff trade barriers effectively in the Doha 
negotiations.
    In the important area of services, the United States suggested that 
Ministers press for meaningful services offers from a majority of WTO 
members, as well as make available technical assistance to help 
developing countries present offers. The services sector is an 
increasingly important part of economic development. More open services 
markets help provide the infrastructure for development. The sector 
also offers increasing opportunities for developed and developing 
countries to work together for mutual benefit.
    Finally, we are asking that countries not permit the so-called 
``Singapore Issues'' to be a distraction from our critical work on 
market access. We need to clear the decks. Based on extensive 
consultations in Africa and Asia, I believe we can move forward 
together on trade facilitation, which cuts needless delays and 
bureaucracy at borders and ports. I have urged my colleagues to drop 
the other topics.
    The initial response to this initiative has been encouraging both 
from overseas and among domestic constituencies. To follow up the 
January letter, in February I traveled some 32,000 miles--around and up 
and down the world--to meet with representatives of over 40 countries 
to hear their ideas and encourage their commitment.
    I believe we are regaining some momentum, although the road ahead 
is marked by risks. Our ability to make notable progress by this summer 
depends principally, in my view, on two steps: one, reconciling the 
conundrum of the ``Singapore Issues'' by agreeing to focus solely on 
trade facilitation; and two, by concentrating on the draft agriculture 
text to see if we can agree on specific frameworks for reform. To 
secure movement on agriculture, all countries will need to agree to 
eliminate export subsidies, including the subsidy element of credit, to 
end State Trading Enterprise monopolies, and discipline food aid in a 
way that still permits countries to meet vital humanitarian needs.

Advancing Negotiations in the Free Trade Area of the Americas

    Since taking office, the Administration has been working to 
transform years of general talks about a Free Trade Area of the 
Americas (FTAA) into a real initiative to open markets in the 
hemisphere, with a focus on first removing the barriers that most 
affect trade. The FTAA would be the largest free trade zone in the 
world, covering 800 million people with a combined gross domestic 
product of over $13 trillion. It would expand U.S. access to Western 
Hemisphere markets, where tariff barriers are currently much higher 
than the trade-weighted U.S. average of 2 percent, and where nontariff 
barriers are abundant. Studies report that an average family of four 
would see an income gain, through greater purchasing power and higher 
income, of more than $800 per year from goods and services 
liberalization in the FTAA.
    At the Summit of the Americas in Quebec City in 2001, the United 
States started to lead the FTAA into a period of concrete market access 
negotiations. In February 2003, the Administration put forward--on 
schedule--its comprehensive and significant market access offers to 
FTAA partners in the areas of agriculture, industrial goods, services, 
investment, and government procurement. But others hesitated.
    Therefore, in November 2003, at the FTAA Ministerial in Miami co-
chaired by the United States and Brazil, we developed a pragmatic 
approach to match the different circumstances of the 34 nations of the 
hemisphere--ranging from small Caribbean island states to the United 
States. We agreed to establish a common set of rights and obligations 
covering all nine areas under negotiation and that benefits would be 
commensurate with obligations undertaken. In addition, we agreed that 
nations that are prepared to go further could do so through 
plurilateral arrangements in some areas. This higher level of 
commitment--and benefit--creates incentives for countries to do more, 
without leaving others behind. The countries most likely to be 
ambitious are the ones that work with us on our gold-standard bilateral 
FTAs.
    The FTAA will not be an easy negotiation, as this Committee knows. 
Yet we are committed to working creatively and flexibly with our 
hemispheric partners to achieve a long-held dream: the free flow of 
commerce throughout the Americas.

Spanning the Globe With Bilateral Free Trade Agreements

    Miami also provided the venue for the announcement of several new 
U.S. bilateral free trade initiatives, demonstrating how our movement 
on multiple fronts can support our larger trade goals.
    In 2003, the United States signed free trade agreements with Chile 
and Singapore, and those agreements won strong bipartisan majorities in 
Congress. These comprehensive, state-of-the-art FTAs set modern rules 
for 21st century commerce and broke new ground in areas such as 
services, e-commerce, intellectual property protection, transparency 
and anti-corruption measures, and enforcement of environmental and 
labor laws to help ensure a level playing field for American workers. 
They also built on the experience of prior free trade agreements and 
will serve as useful models to advance other U.S. bilateral free trade 
initiatives in 2004.
    In Latin America, for example, the long-sought FTA with Chile took 
effect on the tenth anniversary of NAFTA, and only two weeks after the 
Administration concluded a U.S.-Central America Free Trade Agreement 
(CAFTA) with El Salvador, Guatemala, Honduras, and Nicaragua. In 
January, we finalized CAFTA by resolving a few remaining issues with 
Costa Rica, and on February 20, the President notified Congress of his 
intent to enter into that agreement. Meanwhile, we continue to work to 
integrate the Dominican Republic into CAFTA, and indeed this week we 
are conducting the third and, we hope, final round of negotiations with 
the Dominicans. CAFTA plus the Dominican Republic would create the 
second-largest U.S. export market in Latin America, behind only Mexico.
    This spring the United States intends to launch new FTA 
negotiations with Panama, Colombia, and possibly Peru and Ecuador, 
while continuing preparatory work with Bolivia. Added together, the 
United States is on track to gain the benefits of free trade with more 
than two-thirds of the Western Hemisphere through state-of-the-art, 
comprehensive sub-regional and bilateral FTAs.
    Just last month, we concluded a landmark free trade agreement 
between the United States and Australia. On February 13, President Bush 
notified Congress of his intent to enter into this ``Manufacturing 
FTA.'' Our terms with Australia will eliminate tariffs on more than 99 
percent of U.S. manufactured goods exports to Australia on day one. 
Those exports account for 93 percent of total U.S. sales to Australia's 
large market, and support 150,000 good-paying American jobs. In 
creating new export opportunities for America's manufacturers, this 
deal will help a recovering sector of our economy while also expanding 
markets for America's services firms, creative artists, and farmers.
    With virtually all U.S. manufactured exports going duty-free 
immediately under this agreement, America's manufacturers estimate they 
could sell $2 billion more per year to Australia. They predict that 
U.S. national income would grow by nearly that much as well. Markets 
for services such as life insurance and express delivery will be 
opened, too; intellectual property will be better protected; U.S. 
investments will be facilitated; and American firms will be allowed to 
compete for Australia's government purchases on a nondiscriminatory 
basis for the first time. All U.S. farm exports--more than $400 million 
per year--will go duty-free to Australia, benefiting many sectors such 
as processed foods, fruits and vegetables, corn oil, and soybean oil.
    In Southeast Asia and the Middle East, the President has announced 
initiatives to offer countries a step-by-step pathway to deeper trade 
and economic relationships with the United States. The Enterprise for 
ASEAN Initiative (EAI) and the blueprint for a Middle East Free Trade 
Area (MEFTA) both start by helping non-member countries to join the 
WTO, strengthening the global rules-based system. For some countries 
further along the path toward an open economy, the United States will 
negotiate Trade and Investment Framework Agreements (TIFAs) and 
Bilateral Investment Treaties (BITs). These customized arrangements can 
be employed to resolve trade and investment issues, to improve 
performance in areas such as intellectual property rights and customs 
enforcement, and to lay the groundwork for a possible FTA.
    President Bush announced the Enterprise for ASEAN Initiative in 
October 2002. Significant progress was made in 2003, and the stage has 
been set for further achievements in 2004. With the newly enacted 
Singapore FTA to serve as a guidepost for free trade with ASEAN 
nations, the President announced that he would begin negotiations for a 
comprehensive free trade agreement with Thailand in the second quarter 
of 2004, and on February 12th, we formally notified Congress of our 
intent to launch FTA negotiations with Thailand. At the Cancun WTO 
Ministerial last September, Cambodia was offered accession to the World 
Trade Organization, so it could take another step toward active 
participation in the global rules-based economy. Spurred by the 
progress of its neighbors, Vietnam is also working toward WTO 
membership, building on the foundation of a basic bilateral trade 
agreement with the United States that was enacted by Congress in 2001. 
The United States signed a bilateral trade agreement with Laos in 2003, 
and the Administration continues to support granting Normal Trade 
Relations (NTR) to Laos. The United States is using TIFAs with the 
Philippines, Indonesia, and Brunei to solve practical trade problems, 
build closer bilateral trade ties, and work toward possible FTAs.
    The Middle East Free Trade Area initiative, announced by the 
President in May 2003, offers a similar pathway for the Maghreb, the 
Gulf states, and the Levant. In addition to helping reforming countries 
become WTO members, the initiative will build on the FTAs with Jordan, 
Israel, and now Morocco; provide assistance to build trade capacity and 
expand trade so countries can benefit from integration into the global 
trading system; and will launch, in consultation with Congress, new 
bilateral free trade agreements with governments committed to high 
standards and comprehensive trade liberalization.
    The U.S.-Jordan FTA entered into force in December 2001 after close 
bipartisan cooperation between the Administration and Congress. As a 
result, trade between the United States and Jordan has nearly tripled 
in only three years.
    In 2003, the Administration launched free trade negotiations with 
Morocco, which we are pleased we completed just last week. Immediately 
upon the agreements entry into force, 95 percent of bilateral trade in 
industrial and consumer goods will become duty free, the best day-one 
tariff elimination in a U.S. free trade agreement with a developing 
country. Our terms with Morocco provide immediate cuts in Moroccan 
trade barriers to wheat, corn and soybeans, and new access for U.S. 
beef and poultry; openings for service providers like audiovisual, 
telecommunications, distribution, and engineering firms; and new 
opportunities for manufacturers of construction equipment, chemicals 
and information technology.
    In January 2004, the United States began free trade negotiations 
with Bahrain. Last week Representatives Paul Ryan, a Member of this 
Committee, and Jim Turner launched a Congressional Bahrain Caucus 
backed by more than 20 other Members of the House and Senate. The 
caucus will work with a Bahrain FTA business coalition representing 
firms ranging from heavy manufacturers and leading-edge technology 
companies to small businesses.
    Morocco and Bahrain have been leaders in reforming their economies 
and political systems. Our market opening efforts with these two Arab 
states are part of the opening act in President Bush's Middle East 
Initiative, which is aimed at fostering prosperity, encouraging 
openness, and deepening economic and political reforms throughout the 
region.
    In 2004, the United States will continue its efforts to bring Saudi 
Arabia into the WTO and will expand its network of TIFAs and BITs 
throughout the region. The United States now has ten TIFAs in the 
region, most recently signing agreements with Saudi Arabia, Kuwait, and 
Yemen. We plan to sign TIFAs with Qatar and the United Arab Emirates 
soon. As additional countries in the Middle East pursue free trade 
initiatives with the United States, the Administration will work to 
integrate these arrangements with the goal of creating a region-wide 
free trade area by 2013.
    In Africa, the African Growth and Opportunity Act (AGOA)--enacted 
in 2000 and expanded in 2002--has created tangible incentives for 
commercial and economic reform by providing enhanced access to the U.S. 
market for products from 37 eligible sub-Saharan nations. Enhancements 
made in 2002 to the African Growth and Opportunity Act improved access 
for imports from beneficiary sub-Saharan African countries. We look 
forward to working with Congress on legislation on AGOA that will 
accelerate its gains, including by extending provisions and enabling 
countries to take full advantage of AGOA through enhanced technical 
assistance.
    To build on this success, as called for in the AGOA legislation, 
the United States launched FTA negotiations with the five countries of 
the Southern African Customs Union (SACU): Botswana, Lesotho, Namibia, 
South Africa, and Swaziland. The U.S.-SACU FTA will be a first-of-its-
kind agreement with sub-Saharan Africa, building U.S. ties with the 
region even as it strengthens regional integration among the SACU 
nations.
    The bilateral FTAs we have concluded or are pursuing constitute 
significant markets for the United States. U.S. goods exports to these 
countries were $66.6 billion in 2003. This would have made them the 
third-largest U.S. export market behind only Canada and Mexico, and 
ahead of Japan. The economies of these countries totaled $2.5 trillion 
in 2002 at purchasing power parity exchange rates, which would rank 
them as the world's sixth-largest economy. And most are developing 
countries that offer significant growth opportunities in years to come. 
We are laying free trade foundations for win-win economic ties between 
America and these partners.

Ensuring a Level Playing Field with China

    Since China joined the WTO, it has become America's sixth-largest 
export market. U.S. exports to China grew 75 percent over the last 
three years, even as U.S. exports to the rest of the world declined 
because of slow global growth. China has become a major consumer of 
U.S. manufactured exports, such as electrical machinery, transportation 
and telecommunications equipment, numerous components, and chemicals. 
The market share of U.S. service providers in China has also been 
increasing rapidly in many sectors. Meanwhile, growth in exports to 
China of agricultural products has been robust; for example, U.S. 
exports of soybeans reached an all-time high in 2003 of $2.9 billion 
and cotton exports were $733 million, up 431 percent over 2002.
    In 2003, senior Administration officials met frequently with 
Chinese counterparts to address shortcomings in China's WTO compliance. 
We delivered a clear message: China must increase the openness of its 
market and treat U.S. goods and services fairly if support in the 
United States for an open market with China is to be sustained.
    As a result, China has taken steps to correct systemic problems in 
its administration of the tariff-rate quota (TRQ) system for bulk 
agricultural commodities, and relaxed certain market constraints in 
soybeans and cotton trade, enabling U.S. exporters to achieve record 
prices and sales. Recent approval of biotech soybeans, cotton and 
corn--and promised additional approvals--has created greater certainty 
for U.S. exporters. China has also reduced capitalization requirements 
for financial services, including opening the motor vehicle financing 
sector.
    China's large installment purchases of billions of dollars of U.S. 
products--including Boeing 777s and 747s, GE and Pratt & Whitney 
aircraft engines, Ford and General Motors cars, as well as agricultural 
products--during recent purchasing missions bode well for 2004. 
However, we continue to stress the need for structural change that 
ensures ongoing, open, and fair access--not reliance on one-off sales.
    In 2004, the Administration will concentrate on ensuring that: 
American intellectual property rights are protected; U.S. firms are not 
subject to discriminatory taxation; market access commitments in areas 
such as agriculture and financial services are fully met; standards are 
not used--whether for technology or farm products--to unfairly impede 
U.S. exports; China's trading regime operates transparently; and 
promises to grant trading and distribution rights are implemented fully 
and on time. The Administration will consult closely with Congress and 
interested U.S. stakeholders in continuing to press China for full WTO 
compliance, and will not hesitate to take action to enforce trade 
rules.
    China's lax enforcement of intellectual property rights, including 
counterfeiting, is a fundamental issue. Piracy of movies, music and 
software is so rampant in China that the practices could subvert the 
development of knowledge industries and stifle innovation around the 
world. The scope and magnitude of the problem does not just threaten 
outsiders, but China's own citizens as well. Counterfeit automobile 
brakes, electrical switches, medicines and processed foods with 
pilfered brand names and poor quality control present health and safety 
risks throughout China. Premier Wen Jiabao has spoken of the importance 
of IPR and has assigned Vice Premier Wu Yi, a former trade minister who 
helped defuse the SARS crisis, to chair a working group on IPR 
enforcement. She will meet with Secretary Evans and me next month as 
part of our Joint Commission on Commerce and Trade.
    In addition, China has adopted discriminatory tax policies--most 
blatantly on semiconductors--and new wireless encryption standards 
intended to block U.S. market access. We are pressing China to resolve 
these disputes promptly.
    At the end of this year China and the United States face another 
challenge. Our Uruguay Round commitments, ratified by Congress, 
required us to begin phasing out our textile and apparel quotas in 
1995. That process will be completed at year's end. We have urged the 
Chinese to recognize concerns raised by this important transition. We 
are committed to using special safeguards, applying unfair trade laws, 
such as the anti-dumping provisions, and taking action under 
international trade rules if China falls short in its trade 
commitments.

Promoting a Cleaner Environment and Better Working Conditions

    No country is doing more than the United States to push for strong 
labor and environmental provisions in international trade agreements. 
While some other countries talk about labor and the environment in the 
context of trade, only the United States is actually doing something to 
integrate these topics as an active part of its trade agenda.
    Following the negotiating objectives set forth by Congress in TPA, 
we are focused on combining effective enforcement with practical 
cooperation to improve labor and environmental conditions overseas. Our 
strategy varies depending on the countries we are negotiating with, 
because conditions vary and one size does not fit all. But in general, 
we have a ground-breaking, three-part approach:

      First, we often find that the issue with working or 
environmental conditions is not the laws on the books in developing 
countries, it is with the enforcement of those laws. So our FTAs 
require that countries effectively enforce their own labor and 
environmental laws, backed up by enforceable dispute settlement 
procedures.
      Second, we need to understand and address the reasons 
that laws are not being enforced. Often in poor countries, it is a 
resource question. Labor Ministries are often poorly funded, and there 
is a lack of money devoted to enforcement, inspections, and awareness 
of worker rights. To address this issue, we are pursuing a cooperative 
approach, working with USAID, the Department of Labor, EPA, the State 
Department and others to focus on real-world problems, such as a lack 
of trained inspectors at Labor Ministries, the lack of awareness of 
employees of their rights under existing laws, and the need for 
education about child labor. We seek the help of American companies and 
NGOs, too. We work with the Multinational Development Banks to 
coordinate projects with them. The provisions in our trade agreements 
also encourage the development of local civil society, through public 
participation and transparency so that reforms can be sustained by 
homegrown efforts.
      Third, we want to cooperate with countries to improve 
their laws where there are gaps. Chile, for example, repealed its 
Pinochet-era labor laws during the course of negotiating the FTA with 
the United States because we took a firm but cooperative approach. Just 
recently, one of my staff returned from Guatemala with news that the 
government is working hard to reduce its backlog of worker-rights cases 
in its courts, because they know CAFTA is coming and they want to 
improve the climate for investment and trade. El Salvador has 
significantly expanded funding for its Labor Ministry, with monies 
targeted especially on inspection and enforcement. Morocco enacted a 
new Labor code that will take effect this year. These are just a few of 
the many examples where our combination of enforcement standards and 
cooperation is helping reform these societies.

    Of course, free trade also helps developing countries grow, 
generating the resources for greater protection of workers' rights and 
the environment. Growing developing countries build a middle class that 
calls for better environmental and working conditions. Poor people also 
want better lives for their families. We will not improve their working 
conditions or environment by making it harder for them to sell the 
fruit of their labor.
    We are putting this multi-faceted approach to trade and development 
into practice. The Chile and Singapore FTAs create the basis for 
cooperative projects to promote respect for international core labor 
standards and to support environmental protection and sound management 
of natural resources. Both agreements also require that parties 
effectively enforce their own environmental and labor laws.
    The dispute settlement procedures of the new FTAs apply to all 
obligations of the agreements and set high standards for openness and 
transparency, such as open public hearings, public release of legal 
submissions by parties, and the opportunity for interested third 
parties to submit views. In all cases, the emphasis is on promoting 
compliance through consultation, joint action plans, and trade-
enhancing remedies.
    The FTAs with the Central American countries, Morocco, and 
Australia adopt similar approaches to labor and environmental 
provisions, but are each tailored to fit individual circumstances. In 
Central America, for example, the Administration has emphasized trade 
capacity building projects to enhance the awareness and enforcement of 
labor laws. We encouraged countries to work with the International 
Labor Organization (ILO) to identify areas for improvement in labor 
laws and enforcement. The ILO study found that while the labor laws on 
the books were generally good, there were some gaps that needed to be 
addressed, and enforcement needed to be improved. The CAFTA partners 
are already responding to a number of these recommendations. We are 
assisting with trade-capacity building and cooperation to help. The 
fragile democracies of Central America are now looking to the Congress 
to see whether you will back their drive for self-improvement and 
reform.

Building New Bridges: Trade Capacity Building

    The United States is the largest single-country donor of trade-
related technical assistance in the world, reflecting its commitment to 
fostering developing countries full participation in the global trading 
system. As much as capacity building helps developing countries, it 
directly advances U.S. interests as well. Capacity building assistance 
both improves the quality of trade agreements, increases the ability of 
our trade partners to fulfill their commitments, and creates the 
conditions for expanding trade and development.
    The U.S. resources from USAID and a dozen other agencies totaled 
more than $2.5 billion in funding for trade capacity building 
activities (FY2000 through FY2003). The United States provided $752 
million in trade capacity building activities in FY2003, up 18 percent 
from FY2002.
    In the CAFTA, FTAA, Morocco and SACU FTA negotiations, the United 
States has established separate cooperative groups on trade capacity 
building to define and identify priority needs for trade-related 
development assistance. The United States also seeks to give eligible 
countries the capacity to take advantage of preference programs such as 
AGOA. For example, U.S. technical assistance linked to AGOA assists 
eligible countries to develop AGOA export strategies, establish 
linkages with American businesses, and meet U.S. food safety and other 
standards.
    Looking ahead, the Administration will continue to assist the 
developing world in integrating trade into development strategies. This 
will include working with multilateral institutions and private sector 
donors to promote initiatives such as the FTAA's Hemispheric 
Cooperation Program, and the WTO Technical Assistance Plan and the 
Integrated Framework. In our efforts in this hemisphere, the Inter-
American Development Bank has done excellent work helping us to break 
new ground meshing trade and development policy by creating new 
mechanisms to meet the needs of developing countries. We hope to 
encourage the World Bank to demonstrate similar flexibility and 
responsiveness.
    Helping developing countries understand the importance of trade in 
services is another role for capacity building. International Monetary 
Fund and World Bank reports show that efficiency in the production of 
services is a force multiplier in helping developing economies grow. 
Studies demonstrate that openness in financial services and 
telecommunications alone has boosted economic growth rates in 
developing countries by 1.5 percent. Additional services like 
transportation, distribution, education, and health are of critical 
importance in developing countries, both for the emergence of a 
competitive businesses and, more broadly, for social development and 
poverty reduction. When developing countries open their services 
markets, the United States benefits, too.
    As bilateral trade negotiations are concluded, the United States 
will continue to assist trading partners in implementing their 
commitments and managing their transition to free trade. The 
Administration will also continue to work with countries to maximize 
the benefits of preference programs such as AGOA, the Andean Trade 
Preference Act, the Caribbean Basin Partnership Act, and the 
Generalized System of Preferences.
    In addition, the Bush Administration is emphasizing the important 
contributions that small businesses make to the U.S. and global 
economies. Small businesses are a powerful source of jobs and 
innovation at home and an engine of economic development abroad. By 
helping to build bridges between American small businesses and 
potential new trading partners, these enterprises can become an 
integral part of our larger trade capacity building strategy. In our 
continuing work with the U.S. Small Business Administration, our Office 
of Small Business Affairs at the Office of the United States Trade 
Representative has: increased small business representation in its 
advisory committee system; included previously excluded small business 
industry sectors in new trade agreements, such as the inclusion of 
recycled clothing in CAFTA; and focused on issues of special concern to 
small businesses, such as trade facilitation, e-commerce, and 
intellectual property rights protection. Ensuring that American small 
business concerns are addressed in our trade policy results in stronger 
agreements that help to create jobs at home and abroad.

Monitoring and Enforcing Trade Agreements

    We take pride in the progress we are making to negotiate new 
commitments to open markets for American products and workers, but the 
bulk of the work done day-in and day-out at USTR is to ensure that 
countries live up to their current commitments or to solve problems for 
American businesses and workers.
    Congress created USTR to assure that trade policy--including 
enforcement--was centrally located within the Executive Branch. We take 
USTR's enforcement mandate seriously.
    The scope of enforcement extends well beyond the number of cases 
brought before WTO or NAFTA tribunals. On any given day, there is a 
steady stream of U.S. companies in the Winder Building working with us 
to figure out how best to press foreign governments to live up to their 
commitments to open up their markets to U.S. goods and services.
    The vast majority of enforcement efforts by USTR are brought to 
successful resolution without the need to resort to formal litigation. 
Most U.S. companies urge us to do everything that we can to resolve a 
problem without bringing a WTO or NAFTA case, given the amount of time 
such cases take.
    In recent years, informal means of resolving trade issues have 
enabled biotech farm exports and key U.S. financial services to expand 
their access to the Chinese market. Japan has agreed to lower customs 
fees by 50 percent as well as increase intellectual property 
protections. Mexico has implemented rules for pharmaceuticals that 
respect U.S. patents, and Canada has dropped copyright legislation 
opposed by U.S. firms that use the Internet. We solved pork, poultry, 
dry bean, and beef issues with Mexico. We increased access for poultry, 
pork, and beef in Russia. We addressed rice and motorcycle export 
problems and are improving IPR protection in Taiwan. We headed off 
Korea's attempt to close the market to Dodge Dakotas based on 
questionable tax classifications. We encouraged Hong Kong to clean up 
illegal production of optical discs. The list goes on and on.
    But sometimes enforcement can only be achieved through litigation, 
and we stand prepared to bring WTO and NAFTA cases to secure 
compliance.
    Some of our recent WTO victories include:

      An important case against Mexico on telecommunications 
worth $500 million, according to industry. Under current law, Mexico 
allows its dominant company, Telmex, the exclusive authority to 
negotiate, on behalf of all carriers, the rate that U.S. telecom 
companies must pay to complete their calls in Mexico. These exorbitant 
rates penalize American and Mexican families seeking to maintain cross-
border ties, raise the price of doing business across the border, and 
burden U.S. telecom firms with unnecessary costs.
      In December 2003, the United States won a major case 
before the WTO holding that Japan's import restrictions on U.S. apples 
are a violation of Japan's WTO obligations. Japan had argued that the 
restrictions were needed to protect Japanese plants from disease, but 
U.S. scientific evidence showed the apples could not transmit the 
disease. This is a valuable precedent against others that might use 
Sanitary/Phytosanitary Standards (SPS) to block farm products unfairly.
      The United States won an important victory in June 2003 
when the WTO rejected India's challenge to U.S. laws on determining the 
country of origin of textile and apparel products.

    We have pending cases against: the European Union's ban on new 
imports of genetically-modified foods and against the EU's over-
reaching on Geographic Indicators; Mexico's questionable anti-dumping 
duties on beef and rice; Canada's discriminatory practices affecting 
wheat; and against Egypt's textile tariffs.
    As noted earlier in my testimony, we are focusing more of our 
enforcement resources on China. While some of China's compliance 
problems were initially viewed as growing pains as it brought laws and 
regulations into line with new WTO obligations, China must do more to 
ensure that it is living up to obligations. Without more progress on 
matters we have been pressing with China, we will certainly need to 
avail ourselves of our rights under the WTO.
    Of course, our ability to demand that others follow the trade rules 
is strengthened when we address cases we lose. We very much appreciate 
the Committee's efforts to repeal the FSC law to end retaliation 
against U.S. exporters. We also look to work with Congress to remedy 
other U.S. violations, including the Continued Dumping and Subsidy 
Offset Act of 2000, the 1916 Act (reflecting early antitrust practice), 
Section 211 of the Omnibus Appropriations Act of 1998 concerning 
conditions that permit the banning of trademark enforcement, and the 
ruling on hot-rolled steel. America should not be a scofflaw of 
international trade rules.

Conclusion

    I want to close by again thanking the Committee for its support and 
guidance.
    During 2004, we hope to continue to push forward step-by-step 
toward the vision set out by President Bush of ``a world that trades in 
freedom.'' It is a vision of a world in which a working family can save 
money on everyday household items because trade agreements have cut 
hidden import taxes. It is a vision of a world in which a Central 
Valley farmer, a New York financial planner, a Michigan auto worker, a 
New Orleans longshoreman, an Illinois manufacturer of excavators, or an 
Iowa pork producer can sell his or her products or services in Costa 
Rica or Australia or Thailand or Morocco as well as across America. It 
is a vision of a world in which free trade opens minds as it opens 
markets, supporting democracy and encouraging tolerance. And it is a 
vision of a world in which hundreds of millions of people are lifted 
from poverty through economic growth fueled by trade.

                               __________

                         The U.S. Trade Agenda

                                Overview
  Expanding trade for growth, opportunity, development, and 
fairness through multiple initiatives:
      Global
      Regional
      Bilateral
      Enforcement of laws and agreements
      Worker adjustment and education for the future

  Moving on multiple fronts empowers the United States to:
      Support U.S. workers, exporters, consumers
      Exert leverage for openness and a level playing 
field
      Strengthens America's hand today and for the 
future

                        Putting TPA to Good Use
                    Highlights of 2003-2004 to date

  Completed and passed Singapore and Chile FTAs
  Launched and completed Australia FTA
  Launched and completed CAFTA; working on DR
  Launched and completed Morocco FTA
  Launched Southern Africa & Bahrain FTAs
  Announced intent for Andeans, Panama, & Thailand FTAs
  Advanced Enterprise for ASEAN Initiative (EAI)
  Launched Middle East Free Trade Initiative (MEFTA)
  Miami framework to move FTAA toward concrete results, 
creating incentives for progress
  Doha WTO: Cancun was a missed opportunity, but 2004 need not 
be a lost year

                                  WTO
                       Global Trade Opportunities

  Need to bring 148 economies to an agreement on opening 
markets for agriculture, goods, and services--to boost growth & 
development--in stages
  Cancun:
      Solved ``TRIPs & Access to Medicines'' for 
developing countries
      Some wanted to posture, others to pocket U.S. 
proposals without opening their own markets
      ``Singapore Issues'' distracted from core agenda
      Need agriculture reforms for developed and 
developing countries
      Nevertheless, draft frameworks create basis for 
work

                              WTO in 2004
                       Global Trade Opportunities

  Proposals for progress in 2004:
      Agriculture: eliminate export subsidies; 
substantial, harmonizing cuts in trade-distorting domestic subsidies; 
significant market opening
      Manufactured goods: combination of formula cuts, 
sectoral initiatives, and non-tariff barriers
      Services: get more (and better) offers from 
others on the table
      Focus on trade facilitation, not other 
``Singapore Issues''
      U.S. leadership: January letter and February 
strategic dialogue with over 40 countries

                                  FTAA
                          Regional Initiatives
  At Miami, U.S. laid out paths for trade opening, development, 
and hope in Latin America
      A common set of rights and obligations for all 34 
FTAA countries. Significant market access benefits.
      A higher level of commitments among those willing 
to go further. Provides opportunity to integrate U.S. FTA partners.
      Gold-standard U.S. bilateral FTAs to cover \2/3\ 
of Hemisphere's population and non-U.S. GDP.
  Benefits commensurate with obligations
  Creates incentives for countries to do more, without 
completely leaving behind those who can't or won't move

                          Building Trade Areas
                          Regional Initiatives
  AGOA Extension
      AGOA has been an outstanding success
      Work with Congress to pass legislation to extend 
AGOA
  Middle East Free Trade Area (MEFTA)
      Build on our FTAs with Israel, Jordan, Morocco, 
and, in the future, Bahrain
      Offer graduated steps to encourage reforms
      Tailor steps to different levels of development
      Now have Trade and Investment Framework 
Agreements (TIFAs) with Algeria, Egypt, Saudi Arabia, Tunisia, Yemen, 
and Kuwait
  Enterprise for ASEAN Initiative (EAI)
      Network of FTAs in ASEAN: first Singapore, now 
Thailand
      TIFAs with Indonesia, Philippines, and Brunei; 
Malaysia interested in signing

                         Free Trade Agreements
                         Bilateral Initiatives
  Singapore & Chile FTAs
      Models for more to come--each customized
  Australia FTA
      Launched March 2003; completed February 2004
  Central America FTA (CAFTA)
      Costa Rica, El Salvador, Guatemala, Honduras, & 
Nicaragua
      Launched January 2003; completed January 2004
      Dominican Republic negotiations proceeding
  Morocco FTA
      Launched January 2003; completed March 2004
  Southern Africa FTA (Southern African Customs Union)
      Botswana, Lesotho, Namibia, South Africa, & 
Swaziland
      Launched January 2003
  Bahrain FTA
      Launched January 2004
  Andeans, Panama, Thailand
      To launch in 2004

                             Australia FTA
                               Highlights
  ``A Manufacturing FTA'': Immediate duty-free on 99% of U.S. 
manufactured exports
  Expands markets for services and farmers
  All U.S. farm exports duty-free from day one
  Sensitive U.S. agriculture handled with care
  Pharmaceutical Benefits Scheme improvements
  Environment/Labor protections

                                 CAFTA
                               Highlights
  Today, under the CBI, U.S. tariffs on Central American goods 
are low. 77% of regional imports enter the U.S. duty-free . . . without 
reciprocal U.S. access
  With CAFTA, more than 80% of U.S. manufactured goods duty-
free immediately
  More than half of current U.S. farm exports duty-free 
immediately
  Sugar: Increased access = 1.2% of U.S. production; no change 
in above-quota tariffs
  Textiles and apparel: Important ``cumulation'' provisions 
will encourage integration of market to prepare for competition from 
China
  Strong IPR standards and protections
  Openings across all services sectors, including 
telecommunications and insurance
  Strong transparency, anti-corruption, and good governance 
rules
  Labor and environment protections that go beyond Chile and 
Singapore

                              Morocco FTA
                               Highlights
  Over 95% of goods duty-free on day one--best market access 
package ever with a developing country
  Expands export opportunities for U.S. agriculture
  Broad opening of services markets complemented by strong 
transparency provisions
  New protections for U.S. investors
  Strong IPR and anti-corruption rules
  Commitment to enforce labor and environment laws, working 
with ILO
  Key step in building MEFTA

                            Trade with China
  U.S. exports to China grew 75% as exports to rest of world 
declined from 2000 to 2003
  Now America's sixth-largest export market
  China's WTO implementation cannot slacken
  Clear message:
      China must open its market if U.S. support for 
trade with China is to be maintained
      Must comply with WTO obligations
        Ag, IPR, taxes, standards, others
  China's response: some systemic problems addressed
      Record gains in soybean, cotton exports; biotech 
approvals
      More open financial services, motor vehicle 
financing
      Purchasing missions useful, but not enough
  JCCT: Elevated dialogue to ensure level playing field
  Will use safeguards to ease U.S. transition and enforcement 
rules to insist on compliance

                       Monitoring and Enforcement
  Successfully used dispute settlement to benefit American 
exporters, consumers and producers:
      Agriculture: Dairy (Canada), pork (Mexico), 
apples (Japan)
      IPR/patents (Argentina)
      Goods: Autos (Philippines)
  Pending U.S. cases:
      Rice, telecom (Mexico)
      Biotech, GI (EU)
      Textiles (Egypt)
      Wheat (Canada)
  U.S. compliance issues:
      FSC, Byrd Amendment, 1916 Act, Section 211, Hot-
rolled steel

                             Looking Ahead
  Americans' need to manage global economic and technological 
changes
  Economic isolationism won't work: will kill jobs and 
opportunities
  Americans can be big beneficiaries of trade, openness, global 
growth, development: more choices, lower prices, higher-paying jobs
  Use WTO negotiations, FTAs, and other trade initiatives to 
lower barriers abroad, level the playing field, spur growth and 
development: win-win opportunities
      U.S. trade barriers already relatively low
      U.S. businesses need to discuss with employees
  Combine with monitoring and enforcement of agreements, 
targeted use of safeguards, reliance on unfair trade laws--and 
following the rules ourselves
  Help Americans to adjust to change (education, worker 
training, portable pensions, ability to keep and save own hard-earned 
dollars)
  World where poor people around the world lose opportunity to 
improve lives for themselves and their children is not good for 
America's future

                                 

    Chairman THOMAS. Thank you, Mr. Ambassador. As usual, a 
very comprehensive review of activities around the world. It 
seems that although trade is important and growing, we 
sometimes fail to look in the mirror and toward the latter part 
of your presentation you talked about our responsibilities 
toward the world trading order. One of the things I think we 
fail to do often is realize how much we get out of the world 
trading order, especially the improved but can still be more 
improved dispute resolution mechanisms. We win far more than we 
lose but if we do not, where we have lost, accept the 
responsibility to change, we put at risk the structure that we 
have, especially when the contest is between the world's two 
largest trading blocs. I am very concerned about our 
unwillingness or inability to resolve what in my memory I think 
is the largest formal retaliation structure that we have been 
confronted with.
    What happens--I hate to say crystal ball because I hope the 
future changes significantly very quickly--if in the month of 
March alone it is more than $16 million and by the time we go 
through this ease-up process, which the Europeans have been 
very kind to put us in a tub of cold water and then gradually 
increase the temperature rather than dumping us into boiling 
water where we might react, at the end of the year close to 
$500 million worth of lost opportunity through retaliation and 
the potential for getting into a desire not to change our laws 
but to strike back because of the pain created by our 
unwillingness or inability to make change over the FSC income 
question. I would like a brief response in that area.
    Then second, there is some legislation that suggests we 
partially reinvent our administrative trade structure; i.e., 
take some portions of the current USTR activities and place 
them in the U.S Department of Commerce. You mentioned in your 
presentation how although we focus primarily on the larger big-
picture trade questions, enforcement of the law is probably on 
a day-to-day basis as important and perhaps sometimes more 
important in laying the groundwork for an understanding that 
through the FTAs we can remove some of the tension that is 
present by virtue of the grinding enforcement activities.
    In your opinion, does this help diminish, significantly 
negatively affect the operation of the USTR, understanding you 
have obviously a very direct interest in USTR. Frankly, I think 
most of us are less concerned about the particular structure 
that our government might take toward dealing with trade 
internationally than what would be most effective in getting 
the job done. Those are two areas I wish you would talk about 
for just a minute.
    Mr. ZOELLICK. Well, on the first one dealing with the FSC, 
I certainly recognize that this has been an extremely difficult 
and contentious issue up here and as I have before, Chairman, I 
want to compliment you for your leadership. You were the first 
or certainly one of the first, I think the first to try to 
start to move this process forward.
    I know it has caught up into a lot of debates here about 
the appropriateness of different types of tax policies and my 
key message is that I just hope that the House and Senate can 
pass bills and reconcile and get them done as soon as possible 
because right now the European Union has the authority to 
retaliate on about $3 billion of U.S. exports. It started at 5 
percent. It could have started at 100 percent but it started at 
5 percent and each month that increases by another percent.
    So, for those of you that are worried about added costs for 
American exports, that is a 5 percent added tax for about $3 
billion of our products covering a wide range of activities in 
a number of different States. I have looked here at some of the 
States, particularly New York, New Jersey, Utah, California, 
Texas, Ohio, Wisconsin, Minnesota, Georgia, Pennsylvania, 
Louisiana--it goes on and on here, so your constituents are the 
ones being hurt. So, I know that there are different views of 
this. I saw, Chairman, I read that you now have a revenue-
neutral bill, which I hope will bring more support as we go 
forward. So, as the President sent a note up on this, I believe 
recently, there are different ways that one can do this. We are 
not going to tell the Congress that there is one way or the 
only way. At this point we just urge it to get done.
    On your second question, Chairman, as I think many on the 
Committee know, the Congress created the USTR office in 1961 
with a particular point in mind, and that is to try to 
centralize coordination of all these activities in the 
Executive Office of the President. What it really does is it 
allows us to draw on the resources of many offices. So, the 
bill you mentioned that Mr. Wolf has put forward would shift 
the enforcement responsibility to Commerce but frankly, as I 
mentioned here, we deal with agricultural issues as well as 
industrial issues. We deal with financial issues. So, what 
would be lost under that is the need to be able to draw 
together the best resources across the government, whatever the 
topic.
    Equally important, as even our earlier discussion here 
suggested, in some ways the enforcement action is kind of the 
artillery that is part of a larger effort that involves 
reconnaissance, it involves intelligence efforts. So, 
enforcement is not separate from persuasion, explanation, 
trying to--sometimes the problems arise--we have a problem now 
with India with almonds and it involves the Agriculture 
Ministry; the Commerce Ministry was frankly unaware of it. 
Sometimes we use disincentives. Sometimes we use the incentives 
of moving toward our FTAs. So, there is a continuum of actions 
here and even after you have an enforcement action, you do not 
just want to block trade; you want to move forward. So, as we 
resolved the bananas issue, that involved negotiation based on 
litigation; dairy with Canada. So, I am afraid what it would 
start to do is balkanize the overall operations.
    There is one other key point. Trade agreements are not 
separate from the enforcement agreements. The knowledge you 
have in terms of what you learn in litigation is critical to 
your ability to what you put in the next agreement and vice 
versa. Obviously I have some bias in this but I think the 
lawyers and the technical people we have are the best in the 
government and here I can say with some fairness. As many of 
you know, I worked at the Department of State, U.S. Department 
of the Treasury, the White House, U.S. Department of Justice. I 
have a pretty good sense of comparison and it is a top-flight 
group of people. So, I think it would be a mistake to start to 
dismember these functions.
    Chairman THOMAS. Thank you, Mr. Ambassador. Gentleman from 
New York wish to inquire?
    Mr. RANGEL. Mr. Ambassador, you are good at what you do but 
I do not think that free trade is win-win. When you make these 
types of adjustments; when certain jobs no longer make sense to 
our businessmen and it makes more sense for them to go abroad; 
when you have 9 million people that are out of work; when you 
find 3 million people have lost manufacturing jobs; when you 
find that you have a tax policy where we just do not have the 
revenues to support Federal programs and that we are asking the 
States to assume more and more of the education and training 
responsibilities; when you find people that have been out of 
work and they do not have unemployment benefits and they have 
given up on jobs and their families are broken; and when you 
find out of these groups where the military looks like a fairer 
option in terms of economic opportunity and you take a look at 
those people that are being sacrificed in Iraq and find out 
that they come mainly from families in rural areas, inner 
cities where unemployment is extremely high--it is really not 
win-win.
    If we did have a program that understood that yes, progress 
is going to cause displacements and we are going to be there 
and not be insensitive, but you are not the Secretary of Labor; 
you are not the Secretary of Education; you are not the 
Treasury Secretary, so you do what you have to do but when the 
pain has to be felt, it does not fall on the affluent. It does 
not fall on those that clip coupons. It falls on those that 
have the very, very least. That is why if you had to find out 
one thing that separates the parties philosophically is that we 
say that when you do have trade agreements you should have 
minimum standards, world labor standards that are included in 
these agreements and that they be enforceable.
    You, in negotiating these agreements, even if some of these 
standards make sense, you have to look at the committees in the 
Congress to see where you are going to get the votes from. 
Well, with some of these things we need some leadership to find 
out whether you can bring the parties together so that you can 
share with us why Republicans think that it is wrong to have 
basic labor standards in international trade agreements that 
protect the workers over there so that we are not dealing with 
those people that abuse the human rights and the labor rights 
of the people that are there.
    You mentioned and I have mentioned that now the European 
Union has seen fit to provide sanctions against our exporters. 
They are not doing it against Democrats or Republicans; they 
are doing it against the United States of America. Certainly in 
my State of New York where we have agricultural products and 
other products, they are going to escalate the tariffs. I guess 
we are going to reciprocate against them and then it is going 
to be a lose/lose.
    What makes the Administration so unreceptive of trying to 
provide some leadership so that we can look like we are a 
country of citizens and not of parties? You have Mr. Thomas's 
bill. He has taken a $4 billion trade initiative and made a 
$128 billion problem out of it with a big deficit. You have the 
Crane-Rangel bill that does not cost anything and, at the same 
time, does not put all the money overseas to attract 
investment. You have the Grassley bill over there that seems to 
be a compromise of all of these bills.
    If you are just waiting for Republicans and Democrats--and 
we do not even talk to each other here. So, does it not appear 
to you as an American that the President of the United States 
should be able to say hey, we are all Americans; let us get on 
with it; let us solve this problem? There is enough to fight 
about but this should not be one of the issues and yet the very 
issues, the labor and environment issues in trade, how you 
treat the unemployed, how the lack of sensitivity to those who 
are displaced, these are American issues and yet I do not hear 
anything from the Administration. I am not saying that you 
should be dealing with it but it is not win-win when factories 
close and people are unemployed and the dignity of having a job 
is lost, including health insurance. It is mean, it is painful, 
and it is costly.
    Mr. ZOELLICK. Well, I am glad you start out by saying that 
I do my job well. Well, Mr. Rangel, you have a tall order 
there.
    Chairman THOMAS. The gentleman's time has expired but if 
you can provide a succinct comment, and perhaps some of it 
could be responded to in writing.
    Mr. ZOELLICK. Well, with your indulgence, Mr. Chairman, I 
will just touch on a couple of points.
    Chairman THOMAS. Certainly.
    Mr. ZOELLICK. One, as you focused on the FSC bill, Mr. 
Rangel, the President has done exactly what you said. He said 
whether it be Democrat or Republican, House or Senate, come 
together and pass a bill. So, there are different bills, as you 
and I discussed, and frankly there are different approaches to 
try to deal with this problem and it is the prerogative of the 
Congress under the Constitution to determine that and we would 
be pleased if Congress can move on those items. I know the 
Chairman has pushed this. I know you have pushed this. I know 
both of your intentions are to try to get it done and that is 
what the President has asked, is would the Congress please get 
this done so we do not have the retaliation against American 
exports.
    Now, on environment and labor issues, again we may in the 
hearing be able to go through this in greater detail but 
actually, this Administration built off the Jordan agreement 
negotiated by the Clinton Administration, in view added to it 
and we now have environment and labor provisions in trade 
agreements. Other countries do not enforce them and we do.
    Now, the core aspect of those agreements is to require 
countries to enforce their own environmental and labor laws and 
then, along with that, we work with countries to try to make 
sure, whether it be environment or labor, that they have good 
laws. So, if you look at most of the countries that we have 
dealt with, Chile, for example, the agreement that I know both 
of you supported, in the process of doing the FTA they totally 
overhauled the Pinochet-era labor code. In the case of some of 
the countries we are dealing with right now, Morocco added a 
whole new set of labor laws that will go into effect in June. 
El Salvador recognizes that it is not just a question of labor 
laws and this will be the big challenge; it is a question of 
getting resources devoted. So, they have added 20 percent to 
their enforcement resources and they have cut down the time in 
terms of hearing a complaint to 1 or 2 weeks.
    There is a new government in Guatemala. The President has a 
very strong human rights background. He has appointed people to 
the key positions that have already threatened that countries 
in the economic processing zones that do not allow workers to 
organize will not be able to have their licenses. So, now for 
the first time they are bringing forward collective bargaining 
agreements. In Morocco what we tried to do is to supplement it 
with support by the U.S. Department of Labor of about $5 
million to try to deal with child labor and enforcement and 
also with the ILO about another $3 million.
    In CAFTA, I was down in Costa Rica when we announced a 
grant of almost $7 million to try to deal--to help people 
understand the labor laws better, help with better enforcement, 
develop systems like mediation. I have gone over to other 
places, like the Inter-American Development Bank and the World 
Bank, to see what financial support we can get from them. We 
have about a $25 million effort, public and private, to deal 
with child labor issues in Central America.
    So, these are frankly far better than the situation that we 
inherited, Mr. Rangel, and I hope that they would give those 
who I know would like to support trade but want to be able to 
show the improvements in terms of labor and environment a very 
strong case to make because at the end of the day it really is 
going to require three things, Mr. Rangel. It is going to 
require good laws in these countries; it is going to require 
enforceable obligations, which we have in our agreements; and 
it is going to require the resources to move forward. You and I 
both know because we worked with both the Caribbean and sub-
Saharan Africa and others, that at the end of the day it is 
best if it is a cooperative effort. You have to develop the 
sense in these countries themselves to develop the civil 
society and to have an ongoing effort. So, the one thing I can 
assure you, Mr. Rangel, as we go forward, and I think you know 
this, is that we are committed to trying to use the trade 
agenda to not only open markets but open societies and do it in 
a way that improves environment and labor conditions and deals 
with anti-corruption and a whole series of other issues. I 
think we have a good record. I would be pleased to, as you 
know, talk about it with you at greater length.
    Chairman THOMAS. I thank the gentleman. The Chair is more 
than willing to allow for an expansive response to the Ranking 
Member but the Chair would appreciate it if Members would show 
a degree of self-discipline, operating under the 5-minute rule. 
The Chair recognizes the gentleman from Illinois if he wishes 
to inquire.
    Mr. CRANE. Thank you, Mr. Chairman. Our colleague, Mr. 
Levin, raised the point that since President Bush took office 
we have lost about 2.3 million jobs in manufacturing here and 
since President Hu Jintao took office in China they have lost 
about 3 times that many manufacturing jobs. The loss of 
manufacturing jobs in countries around the world has been 
overwhelming, and what is the explanation behind all that loss 
of manufacturing jobs worldwide?
    Mr. ZOELLICK. Well, it really goes to the point, Mr. Crane, 
that in all countries as you increase the productivity, you 
need fewer workers to create the overall product that you used 
to do. So, let me just give you a context. In the 1991 to 2000 
period our manufacturing trade deficit rose from $48 billion to 
$328 billion. That is before we took office. At the same time, 
manufacturing output rose 64 percent and actually the jobs 
increased by a little bit, not by much but a little bit.
    Now, why is that? It really goes to the point Mr. Rangel 
and I were talking about about win-win. The real challenge here 
is if we can open everyone's markets--and our markets are 
relatively open--and we get others to grow, they are going to 
buy more. So, the fallacy of some of the win/loss notions of 
trade is the idea that if the other person opens their markets 
or we open our markets, that you do not both benefit. If you 
look at the history of the world economy, particularly after 
the 1930s where people tried the other approach of blocking 
trade, what you can see is the world can grow together.
    Now, there are serious problems, as Mr. Rangel mentioned. 
We have legitimate differences about how to try to deal with 
these, whether it be taxes or education or worker adjustment 
and training. I think we probably all agree, though, that the 
challenge is if we are going to open markets, we need to help 
people adjust. We may have a different view of how to do that 
in terms of educational policy, we may have a different view in 
terms of tax policy, but we all want to try to help people be 
able to make that adjustment. That is why I have always been a 
strong supporter of TAA and trying to think of new ways to try 
to use that because I think if you are going to have an open 
trading system, whether it be manufacturing or services or 
others, you have to help people get back on their feet.
    Mr. CRANE. As I am sure you are aware as a former history 
student, historically the Republican Party was the party of 
protectionism and isolationism. I grew up before World War II 
and listening to the debates amongst relatives in those days 
and my family were all Republicans from the beginning; I think 
they would all be voting Democratic today based on their views 
on trade.
    It was something that caused the Republicans controlling 
Congress to pass in 1890 the McKinley Tariff Act, which was the 
most protectionist tariff measure in our history up to that 
point. Grover Cleveland, Democrat, had been in for 4 years, out 
for 4 years, when that act was passed. Then he got reelected 
again and he worked to dismantle it and restore the economy 
because it caused an economic downturn that was very 
substantial and hurt everybody. Grover Cleveland made the 
observation at the time when you put those walls around your 
country, you impose the greatest injury on that man who earns 
his daily bread with the sweat of his brow, to which I say 
amen. It took Republicans until after World War II to finally 
become free-traders and unfortunately, many of our colleagues 
on the other side shifted gears and went the other way. Let us 
hope that we still have the opportunity to get the case out 
there and present it in a way that will guarantee that we will 
make the kind of progress we need.
    One last quickie question with you. Few industries are as 
dependent on intellectual property protection, specifically 
patent protection, as the pharmaceutical industry and will you 
include in this year's review and report market access barriers 
faced by U.S. pharmaceutical manufacturers in foreign markets?
    Mr. ZOELLICK. I am sorry; I did not hear the last part, Mr. 
Crane. You said will we include----
    Mr. CRANE. Tariff barriers, market access barriers faced by 
U.S. pharmaceutical manufacturers in foreign markets.
    Mr. ZOELLICK. I believe we are required to do that already 
but I will double-check to make sure.
    Mr. CRANE. Thank you very much.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Michigan, Ranking Member on the Subcommittee on Trade, 
wish to inquire?
    Mr. LEVIN. Thank you. I do. I do not want to talk about 50 
to 60 years ago. I just want to say, Mr. Ambassador, you can 
continue to say that those who raise these issues are proposing 
economic isolationism but those of us on this Committee who 
raise these issues and those in the Senate, including Senator 
Kerry, who raise these issues, if you try to pin the label of 
economic isolationism on us and on them it just will not work. 
It is a dog that will not hunt. You can keep on saying it but I 
think the trouble with it is it masks the issues and it tends 
to diminish a discussion of the key issues.
    Let me just say about FSC, you say it is the prerogative of 
this Congress, but so is tax policy and other policies and I 
just want to give you my view as someone who sponsored, with 
Mr. Crane and Mr. Rangel and Mr. Manzullo a bill many, many 
months ago. If the Administration does not do more than simply 
say Congress should get it done, I do not think it is likely it 
will get done. The Administration must take a leadership 
position and say what it wants. It does not mean we will give 
it exactly what it wants but on other issues the Administration 
has taken a distinct position. We do not know what your 
position is on any of these FSC replacement bills.
    On CAFTA, enforce your own laws? You do not say that about 
intellectual property or about subsidies or about other things. 
Tariffs? You say change your laws. While enforcement of your 
own laws may work with Singapore and Chile and I voted for it 
because they have the five standards in their laws and they 
enforce them, that is not true in the Central American setting. 
You talk about the need to open up societies. One good way to 
help do that in Central America is for them to give their 
workers the freedom of association and it will also help us 
sell products to them.
    I want to just ask you quickly, though, about China. I 
know, as always, you are prepared and sometimes we work 
together, as we did on that medicine issue at Doha and I 
congratulate you on the breakthrough there. Look, we worked 
hard to get a special safeguard provision, a specific one, in 
China Permanent Normal Trade Relations (PNTR), and it was 
worded differently than others, as you know. In essence, there 
is a presumption in favor of providing relief, an effort to 
somewhat restrict the discretion of the President. So, we wrote 
in there that the adverse impact on the U.S. economy must be 
clearly greater than the benefits of such action.
    So far there have been, as you know, three petitions filed. 
The ITC in every case suggested action. In every case--and the 
last one--I forget the first two, the exact votes--the last one 
was unanimous and the others, I think, were close to that. Yet 
the President decided to do nothing. So, I would like to know 
and there may not be time here, I would like to have a specific 
indication from you as to what was the rationale, because I 
know you were involved in this, for a decision to turn down 
this third in a row safeguard action. As far as I am concerned, 
the feeling is three strikes and you are out in terms of 
stepping up to the plate and using a critical part of PNTR. I 
see the yellow light. I read the President's decision. It did 
not spell out how he met the standard and I would appreciate it 
if in the next few days or whatever is reasonably convenient 
but expeditious if you could spell out the exact reasoning in 
each of these three cases.
    Mr. ZOELLICK. I am going to seek the Chairman's indulgence 
because I think those are two important points. It is frankly 
very important for the Committee to hear as a whole. On the 
CAFTA issue, let me just note what the ILO, the----
    Mr. LEVIN. Mr. Zoellick, let me just interject.
    Mr. ZOELLICK. May I answer the question?
    Mr. LEVIN. I then want a chance to respond if you are going 
to go into----
    Mr. ZOELLICK. I am sorry. Do I get a chance?
    Chairman THOMAS. The Chair understands that the question 
was asked by the gentleman from Michigan with then a 
stipulation that he wanted you to answer him in writing. You 
wanted to offer some answer to the question for the full 
Committee. The gentleman wants to respond to whatever it is 
that you are going to say, assuming he is not going to agree 
with whatever you are going to say.
    Mr. LEVIN. This was on CAFTA.
    Chairman THOMAS. So, the Chair is willing again to allow 
for an exchange based upon the way the question was asked and 
the desire to respond. My assumption is that notwithstanding 
your verbal response, the gentleman from Michigan's request for 
a written response would still be in order.
    Mr. LEVIN. On the China----
    Chairman THOMAS. The three-segment question. So, the Chair 
is more than willing to go forward as long as the questions are 
asked and the responses that are provided are illuminative of 
the concerns that the Committee has.
    Mr. ZOELLICK. Well, I will try to illuminate. You made a 
point about the ILO standards and I just want to take a moment 
to tell you what the ILO has said about the six Central 
American countries, including the Dominican Republic. First, 
the right of workers to freely exercise their right to form 
trade unions is recognized by the respective constitutions of 
these countries. So, you have an interest in the ability to 
freely exercise the right to form trade unions. Two, national 
legislation recognizes the right to voluntary collective 
bargaining. Three, the right to strike is recognized under 
national legislation. These are the ILO's words, not mine. 
Four, the principle of equality and the prohibition against 
discrimination are enshrined in the constitutions of all the 
countries covered by this survey. Five, the constitutions of 
the five countries include special provisions concerning the 
employment of minors. Six, constitutional law in these 
countries recognizes the right of any citizen to choose his or 
her work freely, to obtain decent employment, recognizes that 
it is the right of workers to terminate their contracts of 
employment at any time.
    The laws are pretty good. Where I hope we can work 
together, Mr. Levin, is on the enforcement of those laws and 
the resources. That is where we really need to make the effort. 
Now as for your second question----
    Mr. LEVIN. Let me just respond and then go on, just so the 
issue is joined here. I urge everybody to read the ILO report. 
It indicates 20 or more significant problems in the CAFTA 
countries with the right to associate and the right to bargain 
collectively and others. I urge anyone to go down to Central 
America. It is not just that the laws are okay, they are not 
enforced. There are deep holes in the law of these countries. 
Workers who try to associate can be fired and simply paid 
severance.
    Your failure, your insistence on using ``enforce your own 
laws,'' no matter how they are, is one of the reasons why CAFTA 
cannot pass this Congress, Mr. Zoellick.
    Mr. ZOELLICK. The reason that CAFTA has trouble is because 
we have a bunch of economic isolationists using labor as an 
excuse----
    Mr. LEVIN. No.
    Mr. ZOELLICK. If I could answer your second question----
    Mr. LEVIN. Mr. Zoellick, if you want to call Mr. Rangel and 
me an economic isolationist----
    Mr. ZOELLICK. I will be happy to talk about it.
    Mr. LEVIN. You can do it. I just want to tell you to sit 
here and to call Mr. Rangel, myself, Mr. Cardin, as I go down 
the line, and Senators on the other side who have disagreement 
with you on this economic isolationists----
    Mr. ZOELLICK. I did not say that.
    Mr. LEVIN. Yes, you did.
    Mr. ZOELLICK. Find it in the record.
    Mr. LEVIN. I did. I will.
    Mr. ZOELLICK. There was certainly a lot of debate over the 
past couple of months in this country----
    Mr. LEVIN. I am talking about us and the Senate.
    Mr. ZOELLICK. I am trying to work with you, Mr. Levin.
    Chairman THOMAS. The Chair is willing to allow for 
continued questions beyond the 5-minute rule, now 4 minutes 
beyond the 5 minutes, if there are questions asked and answers 
provided. If we continue exchanges in which there is a give and 
take over points that turn it into a debating society, the 
Chair will stringently enforce the 5-minute rule. Was there one 
additional response to the questions asked by the gentleman 
from Michigan?
    Mr. ZOELLICK. Yes, Mr. Chairman. I think this is one where 
Mr. Levin and I can come closer. What I want to assure you, Mr. 
Levin, is that----
    Chairman THOMAS. There is plenty of room for that.
    Mr. ZOELLICK. Is that we welcome effective Section 421 
provisions and the key here, I think you alluded to. There is 
language that says that after the ITC does a market disruption 
standard, which is why you get the votes that you do--it is a 
relatively modest standard--then it is the job of the President 
to make an assessment of national interest, including the 
adverse impact of the U.S. economy being clearly greater than 
the benefit.
    So, you asked about the most recent case. The ITC itself 
found that the costs of this action, of any protective action, 
would be greater than the benefit, and they gave numbers. In 
addition, what they pointed out is that they expected that if 
we put up any sort of barriers, that actually the benefits 
would just go to other countries abroad, so the United States 
would not get a benefit. Now in this case, this particular 
country, and this is some of the challenge we have when we look 
at these, part of its problem is it has had 400 environmental 
violations and Occupational Safety and Health Organization 
(OSHA) violations in recent years.
    Mr. LEVIN. That is not mentioned in the decision.
    Mr. ZOELLICK. The decision did not have to be based on that 
because of the economic interests, but I am explaining the 
context that we have to deal with. They have had felony 
violations for both labor and environmental, and a misdemeanor 
on the labor one. They have had fines. They are now under 
public indictment for trying to stop their workers from talking 
about these violations. My point, Mr. Levin, is just this 
company has other problems than China. Now, I would be happy to 
go through the other ones and talk through each one. We will 
give it to you in writing.
    Mr. LEVIN. Good.
    Mr. ZOELLICK. The key point where I hope we can get some 
point here is we are not averse to using the Section 421. We 
used it in terms of the textile safeguards, as you know, but we 
have to make an evaluation of does it hurt the Americans that 
would use the product more than it would help that beneficiary 
and, if we create a barrier would the business just go 
somewhere else in the world? So, I would be happy to go through 
the logic with you.
    Mr. LEVIN. Thank you.
    [The information follows:]

                                  Executive Office of the President
                             The United States Trade Representative
                                             Washington, D.C. 20508
                                                      April 2, 2004

The Honorable Sander M. Levin
U.S. House of Representatives
Washington, D.C. 20515

Dear Congressman Levin:

    The President has asked me to reply to your letter regarding the 
China-specific safeguard mechanism set forth in Section 421 of the 
Trade Act of 1974, as amended, and the recent investigation of imports 
of certain ductile iron waterworks fittings from China. I would also 
like to take the opportunity to respond to your question at the March 
11 Ways and Means Committee hearing regarding the President's decision 
in the two earlier Section 421 cases involving pedestal actuators and 
wire hangers.
    First, in all three cases the President has accepted the U.S. 
International Trade Commission's (ITC) factual determination that the 
domestic industry had suffered market disruption. However, the 
President's role under Section 421 is to consider the broader question 
of how import restrictions would affect the national economic interest 
and, specifically, whether the adverse impact on the U.S. economy would 
be clearly greater than the benefits. In these three cases, the 
President determined that import restrictions would have an adverse 
impact on the U.S. economy clearly greater than the benefits of such 
action based on the particular circumstances of each.
    In the pedestal actuators case, the proposed import restrictions--
quotas--were unlikely to provide any benefit to the one U.S. producer 
of pedestal actuators. Indeed, the U.S. producer's major U.S. customer 
testified that it had been sourcing pedestal actuators from a Chinese 
company because of dissatisfaction with the U.S. producer. It testified 
that, if quotas were imposed, it would source its over-quota pedestal 
actuator needs from another foreign company, most likely one from 
Taiwan. At the same time, higher input costs due to the import 
restrictions would likely have harmed the downstream U.S. industry that 
incorporates pedestal actuators into mobility scooters, particularly 
with regard to its ability to compete with foreign producers of 
imported mobility scooters. Furthermore, the increased costs resulting 
from the import restrictions had the potential to harm the aged and 
disabled consumers of mobility scooters. This set of circumstances, 
combined with the fact that the import restrictions also would have 
hurt some of the many U.S. workers employed by the U.S. consuming 
industry, meant that the import 85 percent of the U.S. wire hanger 
market. In the President's view, with this dominant share of the 
market, domestic producers had the opportunity to adjust to competition 
from Chinese imports without import relief. At the same time, the 
President noted the strong possibility that import relief would 
actually provide little or no benefit to any of the domestic producers, 
given evidence indicating that wire hanger production would simply 
shift from China to third countries not subject to Section 421's China-
specific restrictions. The President also cited other considerations in 
support of his decision, including the uneven impact of import relief 
on domestic distributors of wire hangers as well as the additional 
costs that would be incurred by downstream consumers of wire hangers, 
and in particular dry cleaning companies, which are in many cases 
small, family-owned businesses.
    In the fittings case, the President's decision was based on two 
fundamental considerations. First, he found that imposing the import 
relief available under Section 421 would be ineffective because imports 
from third countries would likely replace curtailed Chinese imports. He 
noted that the switch to third country imports could occur quickly 
because the major U.S. importers already import substantial quantities 
from countries such as India, Brazil, Korea and Mexico. He also noted 
that any lag time in switching from China to alternative import sources 
would not likely lead to significant additional demand for domestically 
produced fittings, given that importers' current inventory supplies can 
last 6-12 months. Second, as confirmed by data analysis conducted by 
the ITC, the President found that import relief would cost U.S. 
consumers substantially more than the increased income that could be 
realized by domestic producers. These costs would be borne largely by 
local governments (and taxpayers) seeking to build, expand or upgrade 
municipal water systems.
    While not necessary to the President's decision, the public record 
makes clear that other serious factors have contributed to petitioner's 
problems. The public record reveals that, since 1995, the petitioner 
has been cited for over 400 workplace safety violations and 450 
environmental violations. The public record also shows that petitioner 
has a State misdemeanor conviction for willfully violating workplace 
safety rules and causing a worker's death, as well as a State felony 
conviction for an environmental violation. In addition, in December 
2003, five, current or former managers of one of petitioner's 
subsidiaries were the subject of a 35 count Federal criminal indictment 
alleging they conspired for years to violate workplace safety and 
environmental laws and obstructed repeated Federal Government inquiries 
by lying, intimidating workers into silence imports. In fact, in 2003, 
more than 50 percent of the anti-dumping orders put in place by the 
Commerce Department involved Chinese imports, up significantly from the 
historical average of just under 20 percent.
    At the same time, the Administration is actively working to open 
markets for U.S. manufactured and other goods in China, and these 
efforts have met with some success. U.S. exports to China increased by 
28 percent in 2003. Indeed, over the last 3 years, while U.S. exports 
to the rest of the world have decreased by 9 percent, U.S. exports to 
China have increased by 76 percent. China has become a major consumer 
of U.S. manufactured and agricultural exports, while U.S. service 
providers' share of China's market has also been increasing rapidly in 
many sectors. Nevertheless, as you are aware, our firms continue to 
face significant trade barriers that China should have eliminated or 
reduced when it joined the World Trade Organization. As you can see 
from our 2003 Report to Congress on China's WTO Compliance, issued in 
December, we are working hard, and will continue to work hard, to 
address these matters on a number of fronts.
    In addition, we just filed the first case against China at the WTO 
on March 18. We are challenging China's discriminatory tax rebate 
policy for integrated circuits, which adversely affects more than $2 
billion of U.S. exports annually.
    Thank you for bringing your concerns to my attention, and please do 
not hesitate to contact one should you or your staff have further 
questions.

            Sincerely,
                                                 Robert B. Zoellick

                                 

    Chairman THOMAS. The gentleman's time has expired and in 
both the Ranking Member of the full Committee and the Ranking 
Member of the Subcommittee on Trade's position's stature, the 
Chair was willing to more than double the 5 minutes. The Chair 
is constrained to say that in looking over both sides of the 
dais he sees no one else that meets that same standard of 
indulgence, so the 5-minute rule will be more rigorously 
enforced. Does the gentleman from Florida wish to inquire?
    Mr. SHAW. Yes, Mr. Chairman, and I will abide by the 5-
minute rule and not in any way test your patience this morning. 
Mr. Ambassador, you and I have talked at length about the 
Secretariat of the Americas and the placement of it and the 
importance of having it in this country. There is no question 
in my mind but that Miami, Florida would be the best location 
because of air transportation, because of the diversity of 
language, and I think also that they have made a very 
substantial bid for this. I have a full statement regarding 
that that I would like to ask unanimous consent to be placed 
into the record.
    Chairman THOMAS. Without objection.
    [The opening statement of Mr. Shaw follows:]

 Opening Statement of The Honorable E. Clay Shaw, a Representative in 
                   Congress from the State of Florida

    Mr. Ambassador, welcome back.
    I have a few areas of the Administration's trade agenda to discuss 
this morning.
    I would like to begin with an issue that is tremendously important 
to the State of Florida. As you well know, the United States is in the 
process of ongoing negotiations of the Free Trade Area of the Americas. 
When completed, this agreement will include 34 democracies in this 
hemisphere and will be the largest free trade area in the world.
    An important component of the FTAA negotiations is the issue of 
housing the FTAA permanent Secretariat.
    Earlier this month, Miami officially submitted its proposal to be 
the permanent home of the Secretariat. Included in their proposal was a 
rationale detailing the numerous reasons why Miami is the ideal choice 
for the permanent Secretariat. I would like to highlight some of these 
attributes to you now.
    To begin with, Florida is the largest trading partner with most all 
Latin American and Caribbean nations. With respect to Miami, it is the 
undisputed leader in international business for the Western Hemisphere, 
housing 300 regional and world headquarters of Fortune 500 companies, 
more than 100 foreign consular offices and foreign business 
organizations and more than 100 international banking institutions. 
Miami also has the largest number of custom brokers and freight 
forwarders in the United States and because of it's geographical 
location and IT infrastructure, it has become the high-tech link 
between the United States, Central and South America, the Caribbean and 
Europe.
    Of certain concern to FTAA Secretariat consideration is the flow of 
travel in and out of the future headquarters. Miami answers that call 
with the Miami International Airport, the top U.S. airport for 
international travelers to and from Latin America, offering more direct 
flights to Latin America and the Caribbean than any other airport in 
the world. But if you prefer to arrive by sea, Miami is well equipped 
to handle that request as the undisputed ``cruise capital of the 
world,'' not to mention that the Port of Miami is also one of Florida's 
top container ports. And finally, let us not discount the natural 
beauty of this city by the sea with beautiful year round temperatures 
and cultural and entertainment options to satisfy most any taste. For 
all these reasons and more, I urge your and the Administration's 
support of Miami as the permanent home for the FTAA Secretariat.
    Now let me turn to another area of international concern, the 
ongoing situation in Haiti, an island nation less than 700 miles off 
the coast of the United States. What we have seen in the last few weeks 
is the culmination of years of frustration and struggle on the part of 
the Haitian people, eager to provide for a better life for themselves 
and their families. As I have said in the past, I believe strongly that 
there can be no democracy until there is an economy. The people of 
Haiti have suffered too long, remaining to this day, the least 
developed nation in the Western Hemisphere. Haiti is a country drowning 
in over 70% unemployment and over 80% poverty rate for it's population 
of 7 million. One out of 12 Haitians suffer from HIV/AIDS, and an 
estimated 250,000 Haitian children are orphaned.
    As we sit here today, our trade policy with Haiti is at a critical 
juncture and the United States stands poised to make a substantial 
contribution to this struggling nation. While I applaud the 
Administration and our international partners for the handling of this 
crisis, we can not drop the ball and allow Haiti to slip back into 
lawlessness and despair. Our economic policy will largely determine how 
the scale will tip in regards to Haiti and I encourage the 
Administration to embrace a policy that encourages economic stability 
and growth; as well as improved quality of life in Haiti.
    One such measure is a bill I introduced along with my friend 
Senator Mike DeWine and others on this Committee, The Haitian Economic 
Recovery Opportunity Act, H.R. 1031. Specifically, our bill amends the 
``Trade and Development Act of 2000'' by granting duty-free status on 
Haitian apparel articles assembled from fabrics and yarns from 
countries in which the U.S. has a free trade agreement. This bill, in 
my view, is an economic lifeline Haiti desperately needs.
    The time is now to assist Haiti. As our trade agenda moves forward, 
it's vitally important we remember the Haitian people.
    Mr. Ambassador, I thank you for your work in this area and your 
efforts to improve trade relations between our two counties. As we work 
together to make economic, social and political stability in Haiti a 
reality, we will mark our progress not only in jobs created, but in 
families who no longer have to say goodbye on one shore in search of a 
better life on another.
    If you would please comment on these two areas.

                                 

    Mr. SHAW. I also want to comment or associate myself with 
the comments of Mr. Crane with regard to the sugar industry. We 
are losing a lot of jobs. There is no reason for the candy 
industry to stay here in the United States when the main 
ingredient into the product on the world market is 
substantially lower. I think the concessions that are given to 
sugar are a mistake and I would hope that in further 
negotiations, particularly as we go into Central America, that 
we open up our sugar market to the world trade. That is not a 
question. That is just expressing my opinion with regard to 
that.
    There is a bill that is out there--I know Mr. Crane is a 
cosponsor and I think Mr. Rangel may be a cosponsor, too, and 
that I am certainly supporting as a sponsor of, and that is the 
setting up of knit-to-fit shops down in Haiti, the sewing 
shops, and making it free of tariffs on imports coming to the 
United States, provided the textiles used come from a country 
with which we do have a FTA with regard to those textiles. 
These people down in Haiti are desperate. We are wasting our 
time trying to grow a democracy where there is no economy. We 
have to go along a parallel course and grow the economy at the 
same time. Without that, any advances that we make with placing 
a democratically elected government in Haiti that can sustain 
itself and take care of the people and be popular to the people 
would be lost.
    My question to you is has the Administration or you taken a 
position with regard to the bill? I think you are probably 
familiar with it. Or is there anything else you would like to 
tell us about how we might be able to energize the economy in 
Haiti?
    Mr. ZOELLICK. I am not familiar with that particular bill, 
Mr. Shaw, but I will check into it. I do not know if this is 
similar to the one that Senator DeWine has talked about on the 
Senate side?
    Mr. SHAW. Yes, it is.
    Mr. ZOELLICK. What I also mentioned to Mr. Rangel is I 
think we all share an interest in helping Haiti and frankly, 
the best thing that I can think of in the near term is to try 
to complete this FTA with the Dominican Republic and get that 
through the Congress because when I was down there recently I 
learned there are about a million Haitians working in the 
Dominican Republic. Someone mentioned to me this morning there 
may be now 2 million. There are some coproduction-sharing 
operations that were developed under the CBI that was passed by 
the Congress and we are trying to be very careful in this FTA 
that we actually do something that might encourage those and 
certainly not do anything to discourage those.
    So, I wish I had a better idea to deal with Haiti's economy 
but I think the best thing right now I could think of to do is 
to make sure that the economy of its neighbor is growing and 
dynamic. As many of you know, the Dominican Republic has had 
its own financial problems this year, so it is even more 
important to try to move that forward.
    I will say again, when I was down there with Mr. Weller, we 
also met with the lead opposition candidates, and I think they 
have been supportive of this effort, too. So, even though 
President Mejia's term is coming to an end, he is running for 
reelection, we want to try to make sure that there is broad 
support in the Dominican Republic to make this go forward, but 
I will be pleased, Mr. Shaw, to look at the other bill, too.
    Mr. SHAW. Thank you and I yield back, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. The Chair, in an 
attempt to even up the sides in terms of inquiries, would now 
wonder if the gentlewoman from Connecticut wishes to inquire.
    Mrs. JOHNSON. Thank you, Mr. Chairman. Welcome, Mr. 
Zoellick. First of all, I want to congratulate you on building 
labor and environmental provisions into all of our trade 
agreements, and I did not know that we were the only country to 
do this and to try to do it in a way that those provisions will 
be enforceable and result in other countries making some real 
progress on the quality of their domestic labor and 
environmental laws.
    I also want to congratulate you on the impact on 
manufacturing of so many of the agreements that you have worked 
out and are working on, and I am going to eliminate all the 
preambles to my questions and just lay out my three questions. 
If you prefer to answer any of them in writing, you may do so. 
I would also like a copy of the letter you are going to do for 
Mr. Levin on those three cases that were brought in regard to 
China.
    So, first of all, I would like an update on how the USTR's 
office is increasing pressure on the Chinese to prevent 
counterfeiting. It is just a huge problem, all kinds of 
evidence of their marketing other people's goods, and I want to 
know what you are doing to increase enforcement of the 
intellectual property provisions of the agreement to which they 
are a signatory.
    I also want to know what you are doing to reduce direct 
state subsidies that Europe provides to its big multinational 
companies. I know over the years we have made some progress on 
all of that, but there is much more progress to be made and as 
we are faced with repeal of the Extraterritorial Income (ETI), 
I would like to know what progress we are making in regard to 
backing down the direct subsidies that Europe provides to its 
multinationals.
    Last, I hope as you review the ETI proposals with us that 
you, with all your experience in the global economy, can assure 
that we do give our businesses a more competitive position in 
the global economy than they will enjoy if we simply repeal the 
one thing that has been really helpful to at least our 
multinationals. So, it is not just repeal. We have to replace 
with something of quality that assures that we will not lose 
jobs in America because of this change in our tax law. So, I 
look to you for help on that. Those are the three things I 
would like your attention to.
    Mr. ZOELLICK. Well, let me deal with the third one last 
because I can be briefest on it. That is I am not a tax expert 
but I, of course, would always be pleased to work with Members 
of the Committee, both sides of the aisle, and give whatever 
advice I could and I know that the Treasury team that is tax 
experts I know is also willing to do the same. I have been in a 
number of meetings where they have offered their suggestions 
and ideas.
    On the China IPR issue, you are exactly right, Mrs. 
Johnson. This is a huge issue and I am glad you focused on the 
counterfeiting part because there are problems with basic 
intellectual property but the counterfeiting is one that also 
runs real dangers for the people of China and the world because 
it is a question, for example, of producing windshields that 
might not meet the shatterproof standards but yet that may be 
sort of mislabeled in terms of the brands. It is a question of 
pharmaceuticals that do not work. It is a question of foods 
that may not be safe for people.
    We have tried to work on this on a couple of different 
fronts. One is we are trying to get forces within China to 
recognize the danger of this and this goes to the point that 
some of the best ways to get these things done is to recognize 
the dangers for the Chinese, including trying to get some in 
China who now respect the role of brands and who are starting 
to build brands to recognize the benefit of protecting them.
    Second, we emphasize--the President has emphasized this, 
Secretary Evans and I--the Chinese put Madam Wu Yi in charge of 
intellectual property. She is the Vice Premier, so it is above 
the trade minister. Just to give you a sense of the seriousness 
with which I hope they are looking at this, she is the woman 
they put in charge of the Severe Acute Respiratory Syndrome 
(SARS) crisis when it broke out. She has started, with our 
encouragement, to hold some sessions with the American business 
community, the Chinese business community, the government in 
China, and she will be here in April and this will be one of 
the key items on our agenda.
    Third, in the counterfeiting area, one idea that I would 
like to look at more with the Customs Department, and I will 
share this because it is something that we may need 
congressional help on, is there is authority now for the 
Customs people to stop people from bringing in products. It is 
the Section 337 authority that has misused trademarks, but I do 
not know the full broad reach of that authority and frankly, if 
the Chinese do not start to solve this problem I would suggest 
that Customs has the authority that says if a Chinese company 
is counterfeiting and causing huge problems in terms of whether 
it is the goods that are coming in or not, maybe we should 
block those goods to try to get some pressure on it. So, that 
is an idea that I would like to try to work on further.
    On the state subsidies in Europe, our best shot at trying 
to deal with that, Mrs. Johnson, is that in the WTO 
negotiations there is a section dealing with subsidies codes, 
so the Doha negotiations the Chairman talked about is where we 
are putting forward proposals on that. I will hesitate to 
mention that is the rules negotiation that many Members also 
get very sensitive about because of anti-dumping and 
countervailing duty, but our view has been if people want to 
discuss those laws that we use to prevent subsidies, then it is 
fair game to try to work at some of those subsidies, as well.
    Chairman THOMAS. I thank the gentlewoman. Does the 
gentleman from Maryland, Mr. Cardin, wish to inquire?
    Mr. CARDIN. Thank you very much, Mr. Chairman. Mr. 
Zoellick, it is always a pleasure to have you before the 
Committee. I want to weigh in on the sugar issue if I might 
because I disagree with Congressman Crane. I agree with your 
assessment that this is an issue that has to be handled 
carefully in any type of a regional or bilateral agreement but 
let me just raise the issue.
    You obviously have not satisfied the individuals who would 
like to have a more open amount of sugar coming into the United 
States. My concern is why you have any provision in this 
agreement, in CAFTA, regarding sugar. When you try to deal with 
it from a regional point of view or deal with it bilaterally, 
it really raises the issue whether it can be done in that 
regard, whether it should not be done on a global issue. The 
sugar policy, you might be surprised to learn that in Maryland 
and Baltimore we have more than steel; we have a sugar 
refinery.
    Mr. ZOELLICK. I know.
    Mr. CARDIN. Domino. It is the last remaining one on the 
East Coast of the United States and the sugar policies of this 
country have had a mixed impact on the growth and success of 
sugar refinery in the United States. So, I am not here 
promoting that everything is right in our sugar policy but I am 
here to say that I think it needs to be dealt with on a global 
basis rather than on regional or bilateral agreements. There is 
the issue of whether there should be some differential between 
raw sugar cane and refined sugar coming into the United States. 
So, I just wanted to raise that issue because I know you are 
getting it from both sides in regard to the CAFTA agreement and 
I, for one, would have preferred to see nothing in this 
agreement, rather than the way that it proceeded.
    I do have one specific question on CAFTA and that is there 
may be different views here as to whether we should have been 
more aggressive in regard to labor enforcement and labor 
standards but I have a concern as to whether the CAFTA 
agreement affects current rights within the countries that are 
involved in regards to the CBI or in regards to the Generalized 
System of Preferences (GSP) or other agreements that may impact 
labor enforcement. Have they been impacted at all by what is in 
CAFTA?
    Mr. ZOELLICK. Let me start briefly with your sugar one and 
then try to get onto the second one. On the sugar one you had 
asked why we had to include it at all. Each of these agreements 
are case by case. You obviously have to customize. There are a 
lot of sensitive agricultural commodities that the Central 
Americans had that we wanted to open up for American 
agriculture and the only way that we could get those benefits 
for beef, poultry, dairy, a whole bunch of others was by saying 
we are willing to try to open up, too.
    So, then what we tried to do is within the limitations of 
the sugar program that Congress has created, we tried to make 
sure that we could create some modest opening but not undermine 
the sugar program. So, the key, for those of you that do have 
sugar interests, is to recognize that the way the sugar program 
works, it limits the overall amount coming into the country so 
as to maintain the price at a certain level. There are 
basically about 300,000 tons that could still come in beyond 
the current quotas that have been granted.
    The Central American agreement only allowed in about 
100,000 tons--99, actually--and it grows to about 140,000 over 
15 years, and that is why it is well within those overall 
limits. We did not touch the tariff, which is the real concern 
about sugar coming in over that amount. So, it is a sensitive 
balance but it is one of the reasons why again yesterday the 
American Farm Bureau, including the sugar industry, said they 
manage the sugar industry very carefully but they expanded the 
market for a whole bunch of other things that America wants to 
try to sell. Frankly, in Australia it is a developed country, 
as opposed to a developing country. While sugar is important, 
it was not as important, it was not as important as a lot of 
the other benefits and it was my hope that we could be able to 
keep it out and still get the things we needed and that is what 
we did.
    On the question about the GSP, the GSP and the CBI, first 
off, does not have any environmental requirements. So, one very 
important aspect about CAFTA is that we now have the 
enforcement of the environmental laws, as well as trying to 
promote the standards and higher standards of environmental 
laws.
    The preferential agreements, whether CBI or GSP, have 
various standards that we have used with these countries along 
the way. What we are now doing in place of that is to have the 
requirement about enforcing their own laws, and this is where 
Mr. Levin and I have a disagreement, I think, is that we 
believe that the quality of the laws is pretty good and where 
there are gaps, we are working with those countries to upgrade 
it. The real challenge is getting the resources to enforce 
those laws and that is partly something we can do, it is partly 
something we are getting the private sector to do. I am getting 
non-governmental organizations (NGOs) to try to help in this 
process. So, we look at this as a three-part: enforce your 
laws, increase the quality of the laws, provide the resources.
    Mr. CARDIN. Thank you.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from New York, Mr. Houghton, wish to inquire?
    Mr. HOUGHTON. Yes. Thank you very much, Mr. Chairman. Mr. 
Zoellick, great to see you again and I appreciate your being 
here. The President gave a speech yesterday in Cleveland and he 
talked about many things and he talked about the completion of 
the negotiations with Australia and he talked about 
manufactured products and also touched on the agricultural 
products. Can you break that down a little bit? What does it 
mean for the United States completing this agreement?
    Mr. ZOELLICK. Well, as I mentioned, this is our first FTA 
with a developed country since Canada and our manufacturing 
sector is extremely excited about it because we eliminate 99 
percent of the tariffs on day one, so we often have phase-ins 
of sensitive items.
    We currently have about $28 billion of trade with 
Australia, including services and goods. We actually have 
about, I think, an $8 or 9 billion surplus. It is one of the 
few countries we have a surplus with, so there are good 
opportunities. The manufacturing community has estimated that 
on the manufacturing side alone you could boost exports by 
about $2 billion a year and they estimate that would increase 
national income by about $2 billion.
    On the agriculture side I think we export about $400 
million to Australia and one of the analyses that the Farm 
Bureau made yesterday was that net-net, they think this will be 
about a wash. In other words, we will be exporting more and 
they will be also exporting more to us in certain areas.
    Where we had sensitive items, and they were primarily sugar 
and beef and dairy, we tried to deal with those effectively. 
Another thing that is often hard to calculate, Mr. Houghton, is 
the services business. This is now 80 percent of the employees 
in America and 66 percent and we have expanded the services 
provisions, as well as frankly upgraded a whole series of 
intellectual property issues. So, one of the things that is 
always hard to calculate about these agreements is the dynamic 
effect as they start to add more economic opportunity for both 
sides, but we are very proud of this agreement and under the 
TPA rules, the earliest that the President could sign it is 
about early May, but we hope actually, although the calendar is 
not long, that we could get that agreement through the Congress 
this year.
    Mr. HOUGHTON. Thanks very much.
    Chairman THOMAS. Does the gentleman from California, Mr. 
Herger, wish to inquire?
    Mr. HERGER. Thank you very much. Ambassador Zoellick, I 
want to thank you for your very strong efforts in bringing down 
the overwhelmingly high tariffs that so many of our other 
countries, our trading partners, have that would allow us, 
particularly the agricultural products that are grown in my 
Northern California district, of which we export approaching 50 
percent of, allowing us to open up those markets. As you know, 
there has been interest from the agricultural community in 
negotiating trade deals with nations that are viewed as large 
export markets. Some have mentioned South Korea, Taiwan, for 
example.
    Could you tell me what countries come to mind as promising 
export markets for our agricultural products and particularly 
some of the specialty crops that are grown in my area--rice, 
peaches, walnuts, almonds, to name a few? Is the U.S. 
considering trade talks with any of these nations?
    Mr. ZOELLICK. Well, I want to start by thanking you, Mr. 
Herger. I think when I made my opening statement I was not sure 
if you were here. I know we have worked with some sensitive 
items for you and I appreciate your support for openness with 
those sensitivities. With the Chairman's leadership, we have 
obviously put some real attention on some of the crops in 
California that do not get subsidized, do not have any 
particular benefits, and I am pleased there are some benefits 
for walnuts and nuts in the Australia agreement, too. It is 
sort of a soup-to-nuts agreement because we have processed 
soups there, as well.
    I think the two biggest ones on the agenda that have good 
potential are Colombia and Thailand, where there is strong 
interest in the agricultural community. Their barriers are 
relatively high. Thailand has been buying a lot of agricultural 
products but we think we can improve that a lot. With Korea, 
the challenge is I do not think they are willing to negotiate a 
FTA with us. Part of our problem, as people mentioned, some 
economies that I would love to have a shot at--Japan, Korea--
they will not open up their ag markets and frankly we do not 
feel it is appropriate to just do an agreement that does 
manufacturing or services and does not include agriculture. In 
Taiwan we have been trying to work with them on their WTO 
implementation, and this is another item I know we have worked 
together because we have had some problems on some of the rice 
issues, as well as telecommunications and IPR issues. So, we 
want to frankly get them to follow through on their WTO 
obligations before considering a set of additional steps.
    What I want to emphasize again is that if you look across 
some of these potential markets in Latin America and Asia, you 
are also talking about rising incomes. So, some of these, I 
think particularly for some of the crops from your district, 
offer some good opportunities but we not only have to open the 
markets; we have to deal with the sanitary and phytosanitary 
issues that sometimes arise, too.
    Mr. HERGER. Thank you. While in India recently you 
expressed your concern to the Indian government regarding new 
regulations requiring that California almond exports to India 
be fumigated with methylbromide, a chemical being phased out in 
California. I want to thank you for taking this necessary step. 
As you know, more than 60 percent of California almonds are 
exported and India is a major market. What is the status of 
this issue and are you optimistic that the Indian government 
will change these misguided regulations?
    Mr. ZOELLICK. I want to start by making a point that you 
hear a lot of complaints from India these days about actions in 
the United States. The point that I have tried to emphasize to 
the Indians is that if they want to be able to keep our markets 
open, for example, in some of the services connections, they 
cannot play these sorts of games on almonds.
    I learned about this right before I was in India. I was 
there as part of the WTO negotiations and as I mentioned I 
think a little earlier, I think the Agriculture Ministry took 
this action without even informing the Commerce Ministry. They 
are supposed to notify people because we believe, as you know, 
that there are alternative methods to be able to deal with 
fumigation and we now have a United States Department of 
Agriculture (USDA) team that is on the way to India to try to 
see if we can resolve this issue.
    I also made a point before leaving. We have a new 
ambassador, David Mulford, who has been in the economic and 
treasury world and emphasized that how together, we need to 
keep following up on this issue because almonds are our second 
largest agricultural export to India, about $70 million a year. 
Now that tells me two things, Mr. Herger. One is they should be 
opening up a lot of other agricultural products and then in 
addition, they should not be playing games with one of the few 
things they are buying.
    Mr. HERGER. Thank you very much, Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Washington, Mr. McDermott, wish to inquire?
    Mr. MCDERMOTT. Thank you, Mr. Chairman. Mr. Ambassador, I 
eagerly grabbed your new President's Trade Policy Agenda to 
read through what you had in mind for Africa. As you may know, 
there are a number of African ambassadors sitting out in the 
audience today and we welcome them to come and hear this 
meeting and would love to hear what you have to say.
    I find nothing in here about an extension of AGOA. Now I do 
not know why that is except I have the sneaky feeling that 
maybe South African Customs Union (SACU) is what you are really 
moving toward, rather than extending AGOA to the entire 
continent. You are really looking at those countries in 
Southern Africa where, in fact, there has been quite a bit of 
investment--Lesotho, Namibia, South Africa, and so forth--but I 
do not see anything that would suppose to be directed at the 
whole continent. It is not a continent-wide thing you are 
talking about. You are really talking about SACU on page 5.
    I was in Mauritius with you and I heard all the comments 
about how we were going to extend AGOA, and so forth, but I 
have also heard and seen that a lot of these countries are not 
yet self-sufficient and the ITC report that you requested says 
75 percent of AGOA apparel imports in 2002 were made from 
third-country fabric. This reflects the limited availability 
and relatively high cost of sub-Saharan African yarns and 
fabrics. So, it is pretty clear that they still need some help 
if we are going to deal with them.
    Now I heard you talk about the fragility of certain 
Caribbean groups, that we had to be careful because they were 
very fragile. I think the same is true in Africa and I would 
like to hear you talk about what kind of an extension you want 
for AGOA. Is a year a reasonable extension or do you need 2 
years? I mean if you are a clothing buyer you are planning 
right now for what you are going to sell at Christmas time. 
That is almost a year out. No African country can give a 
guarantee at this point of what they can deliver in December 
because AGOA may be done on the first of October. Certainly if 
they are going to plan for the spring, they are not going to 
give African companies a contract because they just cannot give 
them a guaranteed price, and so forth. So, knowing the business 
cycle and all, how long do you think the extension for Africa 
should be and do you think it should be continent-wide or just 
for SACU?
    Chairman THOMAS. If the Ambassador would suspend, I know we 
talk in acronyms around here but because we do have cameras 
here, there may be people who have no idea what SACU is. It is 
the SACU and I just thought we should put that on the record so 
that someone who does not follow this to the level of acronyms 
would have some understanding of the discussion.
    Mr. MCDERMOTT. I think, Mr. Chairman, I mentioned Lesotho 
and Namibia and South Africa but I left out Swaziland and 
Botswana. Those are the five countries in SACU.
    Chairman THOMAS. That covers the SACU.
    Mr. MCDERMOTT. Yes, thank you for that clarification. 
Everyone on the dias would know what it was but since this is 
for television, I guess you are right.
    Chairman THOMAS. I will tell the gentleman that this is for 
all Americans, not just the people on the dias and it is hard 
to follow sometimes the discussions in this Committee because 
we are all very knowledgeable and we get down to the level of 
short-handing----
    Mr. MCDERMOTT. You are using my time, Mr. Chairman.
    Chairman THOMAS. No, I tell the gentleman this is not 
coming out of his time.
    Mr. MCDERMOTT. Ah, thank you.
    Mr. ZOELLICK. This is actually a polite reminder for me, 
Mr. McDermott. I often use these terms and he is trying to let 
me know to speak English.
    Mr. MCDERMOTT. It is so nice of you to take the brunt of 
it.
    Mr. ZOELLICK. I bet I could find it for you in our trade 
report but on page 10 of my testimony, third full paragraph, I 
spared you from reading all this but let me just read you the 
essence of it. ``In Africa, the African Growth and Opportunity 
Act, AGOA, enacted in 2000 . . . has created tangible 
incentives for commercial and economic reform by providing 
enhanced access to 37 eligible sub-Saharan nations. 
Enhancements made in 2002 to the African Growth and Opportunity 
Act improved access for imports from beneficiary sub-Saharan 
countries. We look forward to working with Congress on 
legislation on AGOA that will accelerate its gains, including 
by extending provisions and enabling countries to take full 
advantage of AGOA through enhanced technical assistance.''
    Now let me get slightly more specific. The AGOA itself, as 
you probably know, actually expires in 2008 but the President 
called for a longer extension of that. The provisions that I 
think we talked about together in Mauritius, and I know the 
Chairman has been focused on and so has Mr. Rangel, is the 
third-party fabric provisions.
    Mr. MCDERMOTT. Those go out in 2004.
    Mr. ZOELLICK. September, and that is one reason why as I 
have talked about it, my real concern about this one is the 
window. This year it is going to be hard to get things done, so 
what we have tried to pledge, as I mentioned in the opening 
point, I know that the Chairman and Mr. Rangel and others are 
talking about kind of the solution to this--it includes some 
technical assistance things, by the way, to make sure that 
countries can use these provisions.
    On the third-party fabric, here is the balance that you may 
recall we discussed in Mauritius. All the quotas, all our 
quotas for textile imports come off in 2004. That means that in 
particular the competition from China, India, a couple of other 
countries is going to be very vigorous. What the report, the 
ITC report showed us and my other discussions is that for 
Africa to really be competitive, it is going to need not only 
to have the apparel, the sewing; it is going to need to have 
the fabric investment, and you are starting to see that fabric 
investment in places like Lesotho, South Africa, and Kenya.
    You are correct, Mr. McDermott. It is not fully there yet. 
So, the question is how long do you extend it? Might you want 
to try to use a phase-down? For example, the minister from 
Lesotho, and Lesotho has done an excellent job of creating a 
large number of jobs from this and sort of moving the 
international trade economy, had suggested that if we do not 
use a phase-down, it might signal to people that this will just 
continue to be extended. So, he kind of encouraged a phase-
down. Now people have talked about 2 years. People have talked 
about 3 years. To be honest, I do not think this is----
    Mr. MCDERMOTT. Is 1 year enough?
    Mr. ZOELLICK. I would be reluctant, I think, on that 
personally, and for the reasons you said. You need some 
business planning on this. So, this is something where I think 
you will get slightly different views from different African 
countries because the ones that are now getting the fabric 
production would like it to end earlier so they could create 
the integrated market. They are really right because, for 
example, there is a denim plant I think now being put in 
Lesotho and for them really to be able to compete with China, 
they need to be able to do the fabric through the sewing. So, 
the sooner they get that, the better, but they are not quite 
ready now. So, that is the issues that the Chairman and Mr. 
Rangel and I and others have been trying to talk about but the 
key thing, and I want to endorse your words, the worst thing to 
have happen would be to let this not get done.
    Mr. MCDERMOTT. Thank you. I hope that we can actually get 
this done. It would be a real shame to go into an election year 
having done nothing and leaving Africa hanging out there. After 
all we have talked about putting in AIDS and we are going to 
put in all this money for treatment of AIDS but not give them 
the economic development tools----
    Mr. ZOELLICK. Just a word on the SACU because I want to 
make it 100 percent clear. We see these, the FTAs, as 
complements to AGOA and indeed, the original AGOA bill 
encourages us to do this. Our progress with these five 
countries in Southern Africa has already generated interest in 
other countries in terms of trying to open markets more and 
build in a reciprocal relationship. So, frankly, we see it as a 
stepping stone process, Mr. McDermott, but I assure you our 
interest in negotiating with the SACU is not to the exclusion 
of AGOA. We want both.
    Chairman THOMAS. I will tell the gentleman just very 
briefly that I think AGOA would fall far short if what we 
really wound up doing was strengthening and increasing just the 
concept of cut and sew in Southern Africa, that an integrated 
textile industry in the long run makes them most competitive. 
If that is our shared goal, how we get there, there may be some 
slight disagreement over it but surely our goal would be to 
provide them an integrated structure with which to compete, 
rather than simply utilize the lower-cost labor on a cut-and-
sew operation with fabric coming from outside the area. That is 
what we need to work on.
    Mr. MCDERMOTT. May I just respond briefly?
    Chairman THOMAS. Certainly.
    Mr. MCDERMOTT. It is textiles that bring--or it is the 
apparel industry that brings the demand that develops the 
textile industry, and that is why I do not want to lose any of 
the impetus of the apparel industry. I understand the whole 
integration question and all the rest but if you take away the 
demand that the apparel industry has right now, then you stop 
everything that is coming behind it, that we hope will come 
behind it. It is really why I want there to be some apparel 
protection for at least some period of time.
    Chairman THOMAS. I tell the gentleman I think we are in 
complete agreement. The response of the Ambassador of one year, 
that it was probably too short, I think is entirely accurate. 
When you go into multiple years you then begin to emphasize 
more the low-cost labor than the integrated textile industry 
and that is an area that I believe we need to resolve very 
quickly so that no one thinks that AGOA, as a concept and as a 
particular trade instrument, would be jeopardized by the 
political season.
    I appreciate the gentleman's initial positions on moving 
into Southern Africa aggressively. We have worked together on 
this and the Chair looks forward to continuing to work together 
with the gentleman from Washington. Does the gentleman from 
Louisiana wish to inquire?
    Mr. MCCRERY. Briefly, Mr. Chairman. My voice is just about 
gone. Mr. Ambassador, when you hear people say American jobs 
are moving to Mexico because of NAFTA and American jobs are 
moving overseas because of fast track authority, does that just 
drive you nuts?
    Mr. ZOELLICK. Well honestly, yes.
    Mr. MCCRERY. Why?
    Mr. ZOELLICK. Because what you actually see are people that 
are taking advantage of the economic anxiety that is associated 
with an economic cycle and with change and they are leading 
people in the wrong direction because building walls will not 
create jobs. Helping people with education so they can compete, 
helping them with trade adjustment assistance so they can get 
back on their feet, and opening markets around the world is 
what helps us proceed.
    Look, I was part of the effort to negotiate NAFTA. 
President Clinton, with a Republican Congress, helped get it 
through. There were a lot of forecasts about all the 
devastating effects. Well, in the years that followed we 
created 20 million jobs in this country. Manufacturing expanded 
on a real basis by about 45 percent.
    Now there is no doubt, and looking at Mr. Camp, I know he 
faces this challenge, that there will be companies that move 
and this creates anxiety for communities, but I will tell you 
the other side of it. I checked the numbers in Michigan because 
I know this is a topic that he has had to deal with recently. 
There are about 250,000 people employed in Michigan because of 
foreign investment. So, the other side of it is that by having 
an open and competitive economy, we draw people. The formula 
that has helped this economy grow is not by adding to prices or 
adding to barriers but helping people compete.
    The other side of it, Mr. McCrery, that is always lost is 
the benefits of lower taxes by cutting import taxes. The work 
that came out of the Clinton Administration showed that the 
benefits of NAFTA and the Uruguay Round together for the 
average American family of four is $1,300 to $2,000 a year, and 
who do you think gets helped the most on that? The people that 
frankly spend a higher portion of their paycheck for clothes or 
food or other things. So, as I noted, I think, in my testimony, 
it is the single family or working mother that gets hurt most 
by trade barriers.
    So, people often do not know the benefits of that because 
when they just have lower prices, they do not know what it is 
caused by. So, what we need to try to do, whether it be NAFTA 
or Australia or CAFTA or others, is make sure we deal 
sensitively with the adjustments that we need, try to deal with 
the environment and labor issues as we have talked about in a 
way that is not the United States trying to sort of be heavy-
handed with developing countries but do try to encourage them 
and try to help support their process, and that is the way that 
I think is going to become a win-win venture for the United 
States going forward. When you last think about it, Mr. 
McCrery, some people look at markets like Japan and think that 
this is the model. Well, it does not look like the model to me. 
They have been having a hard time growing for 10 years.
    I do not underestimate the challenge of adjustment and you 
have to help people with that because whether you lose your job 
to new technology or you lose it to trade and competition, that 
is a very difficult time for people. You have to help them. The 
solution is not to try to create added barriers and costs and 
try what people tried in the 1930s. I remind people often we 
had a trade surplus in the 1930s; it did not really work.
    Mr. MCCRERY. Thank you.
    Chairman THOMAS. Does the gentleman from Michigan, Mr. 
Camp, wish to inquire?
    Mr. CAMP. I do. Thank you, Mr. Chairman. Mr. Ambassador, I 
want to thank you for your effort on the dry bean issue, which 
you mentioned earlier. It did take several years to resolve but 
I do not think it would have been resolved without your 
personal involvement and commitment there, and that has opened 
up a new market for our agricultural producers. Just recently 
for the first time Michigan has been able to get an agreement 
to export apples to Mexico, which is going to be an important 
thing for us and our agricultural exports to Mexico since NAFTA 
have grown significantly from just under a million to 15 
million now in 2003.
    With regard to the sugar commodity, I would agree with the 
comments some others have made in that a WTO solution is one 
that would be better for us and I agree with the comments of 
others who question why it was even included in the CAFTA 
agreement for that reason and want to say, for one, I want to 
thank you for your efforts in terms of the Australian 
agreement. As we look at these bilateral agreements, it makes 
it much more difficult to track all of these complex impacts 
throughout our society and make sure that we have a fair trade 
agreement with the countries that we are dealing with. So, I 
just want to make that comment.
    I do have legislation that would create a special Section 
301 procedure at USTR for agriculture much like what we already 
have existing for intellectual property and it has bipartisan 
support and I know Congressman Pomeroy of this Committee and 
both the Chairman and Ranking Members of the Senate Finance 
Committee have introduced similar legislation in the Senate. 
This legislation would designate priority countries whose 
barriers to U.S. agricultural exports because enforcing these 
agreements--getting them is one thing; enforcing them is 
another--would designate those countries that are not living up 
to international trade agreements and I would appreciate your 
support in moving this bill forward and just want to ask if you 
have any comment particularly on that bill.
    Mr. ZOELLICK. I will be pleased to examine the bill, Mr. 
Camp. I think the key thing is that starting from the beginning 
of when the President interviewed me for this job, he asked me 
to emphasize American agriculture and trade, and so we have 
tried to do that and I am delighted that I think our 
agricultural exports may be close to a record level now, about 
$59 billion. So, we frankly put a strong list of priorities on 
opening these markets anyway, so I will be pleased to look at 
your bill.
    Just a word on Michigan in terms of agriculture, and I know 
the sensitivity with some of the sugar products. The balance we 
had to strike, Mr. Camp, with Central America is could we get 
open goods for other products if we are going to open up sugar 
just a little bit? It is interesting. You look at the State of 
Michigan and the numbers I have, there are about 46,000 farms 
in Michigan. There are about 1,100 that produce sugar, 2.6 
percent. Of the total cash receipts for agriculture in 
Michigan--people do not realize what a big agricultural State 
it is; it is about $3.4 billion and there is $100 million in 
sugar. So, when we are able to sell corn and cattle and 
soybeans and wheat and some of the other products and beans, 
people in Michigan benefit from it. So, what we try to do, and 
this is always the balance, is to try to deal sensitively with 
a product like sugar, but make sure the rest of American 
agriculture gets an opportunity.
    Mr. CAMP. Actually, the impact on the State, when you look 
at the refinery side, as well, the ripple effect is more like 
$300 million to the State. So, it is a much bigger commodity, 
but I appreciate that.
    The other thing is we just passed the 10-year anniversary 
of NAFTA and I look at Michigan and our unemployment rate in 
our State is about the same as it was when NAFTA was passed, 
after having had 10 years of historically low unemployment in 
our State. My question to you is what are your thoughts on the 
overall impact of NAFTA on the U.S. economy and particularly 
how many jobs have been created in the United States? I am not 
sure you have specific State data there but in Michigan 
particularly. Who are the big winners and losers in the NAFTA 
agreement?
    Mr. ZOELLICK. Part of the challenge that you have now in 
Michigan and around the country is we are coming out of a tough 
part of an economic cycle, and this is something that is 
important for people to recognize. I am not putting blame on it 
but you had a pretty big bubble in terms of high-tech and in 
terms of the stock market. You ended up having a recession 
start about the year 2000 and you have frankly 9/11. A lot of 
people forget we are a country at war. We are fighting a 
campaign in Afghanistan and Iraq. So, again I hope that as you 
start to see this growth, which we are having some pretty good 
numbers but not enough yet on the job side, that that creates 
additional opportunities in Michigan and elsewhere.
    Now in the case of NAFTA, I could try to get some of the 
statistics more for the State. My overall statistics, our 
exports have increased about 88 percent to both Canada and 
Mexico, about $267 billion. One of the other benefits of this 
that again people often do not look at is you get some lower-
cost production because you also get some of the inputs being 
lower that help our manufacturers be more competitive and it is 
important then for people to keep in mind we are competing 
globally. So, part of this is how we compete as North America 
against a global market.
    As I mentioned to Mr. McCrery, in the years that followed 
you had 20 million extra jobs. The manufacturing output 
increased 44 percent. Going to this point about more efficient 
production, manufacturing wages actually increased about 14.4 
percent in the 10 years since NAFTA on a real hourly basis and 
that is more than double in the prior 10 years. So, that is 
part of the challenge, is how do we become more competitive, 
better paying jobs, but keep adding them with frankly a low 
tax, low interest rate, low inflation economy, as we have now.
    Mr. CAMP. Thank you. I see my time has expired. Thank you, 
Mr. Chairman.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Massachusetts, Mr. Neal, wish to inquire?
    Mr. NEAL. Thank you very much, Mr. Chairman. Mr. 
Ambassador, I think the inference has been drawn a couple of 
times during the question and answer period that somehow there 
is an effort being made to take advantage of the dislocations 
that have occurred because of trade policies and anxiety is a 
very powerful current, as you know, in public life and speaking 
to those issues is one of the obligations that House Members 
have. So, I guess I would reject the idea that we ought not to 
ask these questions in an effort to education the citizenry as 
to the pros and cons of free trade.
    I think you can say with some certainty that one of the 
difficulties with the free trade debate, Mr. Ambassador, is 
that when the debate ends and the agreements are signed that 
the trade lawyers have their jobs, college professors have 
their jobs, and the editorial writers have their jobs, but 
there are an awful lot of fine people who do not have their 
jobs anymore and speaking to that anxiety is a very, very 
important consideration.
    Now specifically let me ask you what are the barriers and 
why are they so significant in terms of us penetrating the 
Indian middle class and Indian markets? What is the difficulty 
with that issue as you see it?
    Mr. ZOELLICK. First, Mr. Neal, I just want you to know I do 
not disagree with that. I mean it is an anxiety that we have to 
be able to debate and argue about. I think some of your 
colleagues took my comments that related to a more general 
debate, which certainly we all know is being done over the past 
couple of months, for their positions, and it is not the same.
    Mr. NEAL. Right.
    Mr. ZOELLICK. In the case of India, the problem here, Mr. 
Neal, is that India was one of the charter members in the 
General Agreement on Tariffs and Trade (GATT), which is now the 
WTO. In over 50 years, frankly, most of the cuts were made by 
developed countries, not by developing countries. So, India 
more than almost any other developing country I know has what 
they call very high bound tariffs. So, in other words, their 
agriculture tariff could be up to 110 percent. It is not; it is 
lower than that, but they could go up to that level. Similarly 
in the manufacturing area. So, their manufacturing tariff--our 
average is about 3 percent; theirs is about 30 percent. It has 
been traditionally a very closed economy.
    Starting in 1991 after a balance of payments crisis they 
started to change and there has been a reform process going on 
in India and as we all know, there are some parts of India--in 
the high-tech and software sector--that are globally 
competitive. There are other parts, frankly, that they have 650 
million subsistence farmers that they are very worried about 
its effect on their democracy. So, it is an economy that is at 
the point of change and frankly, what I think we have to try to 
do, in part through the WTO negotiations, in part bilaterally, 
is try to get them to recognize there are benefits, there are 
win-win benefits from doing business with us, but they are also 
going to have to be open to our products along the way. Whether 
it be sanitary and phytosanitary standards, like dealing with 
almonds, or whether it be tariffs, we need to get those 
lowered.
    Now the Indians themselves have often found it easier to 
lower their tariffs unilaterally. They do it through their 
budget and they have been bringing down tariffs in some goods 
categories. One of the things that when I took this job that I 
thought this was going to be a very important market, I created 
an assistant U.S. Trade Representative for South Asia because I 
felt this was going to be an area we are going to have to try 
to work with more.
    One of the things we need to do, Mr. Neal, is kind of 
actually not only deal with the government but the business 
community. Next week I am going to be meeting with a member of 
the Confederation of Indian Business because they see the 
larger interest. Try to build political support in their 
country to try to support liberalization because they have some 
of the same challenges we have in anxiety and with a billion-
person democracy, you can see the sensitivities. So, I do not 
mean to be letting anybody off the hook but if we are going to 
try to open this up, we need to get forces within India to help 
us support liberalization and change and frankly, tell them, 
like I told them in India a couple of weeks ago, look, I want 
to keep our markets open but it is going to be darn hard to do 
so if they do not open theirs.
    Mr. NEAL. Specifically I have been on the Subcommittee on 
Trade, as you know, for a long period of time and from the day 
that I went on that Subcommittee, the issue of intellectual 
property rights in India was very divisive. Could you speak to 
the changes or the proposed changes that you are suggesting?
    Mr. ZOELLICK. It is actually getting better and it is 
getting better for the reasons that I mentioned. The Indians 
are starting to recognize the importance of protecting 
intellectual property as they start to develop a knowledge 
industry. The current commerce minister, my counterpart, 
actually was an intellectual property rights lawyer. So, their 
laws are starting to get better and their enforcement of the 
laws is starting to get better. Now there is still a long way 
to go but this is one area where frankly, the challenge is more 
with China than it is with India, not to underestimate it with 
India, but they are seeing the benefits in this area and that 
is the type of thing I would like to build more broadly.
    The other point frankly, and here I want to compliment both 
our ambassador, the prior ambassador, Bob Blackwell, who came 
back to Washington, and David Mulford are people that have 
really spoken out about the importance of the economic change 
and reform. As you know, it is good to have somebody on the 
scene constantly hitting the point.
    Mr. NEAL. Thank you very much. Thanks, Mr. Chairman.
    Chairman THOMAS. Does the gentleman from Minnesota wish to 
inquire?
    Mr. RAMSTAD. Thank you, Mr. Chairman. Thank you, Mr. 
Ambassador, for your strong and effective leadership as our 
USTR. It is good to see you again. As you said in your prepared 
statement, Mr. Ambassador, the WTO recently ruled that the 
Continued Dumping and Subsidy Offset Act, commonly known as the 
Byrd Amendment, was found inconsistent with WTO obligations 
because it provides remedies for dumping and subsidies beyond 
those permitted by the agreements; in other words, found it to 
be an illegal subsidy.
    In addition, the Congressional Budget Office just recently 
released a report--in fact, just last week--that was highly 
critical of the Byrd Amendment not only for its WTO 
noncompliance but also because it creates inefficiencies in our 
economy. For these two reasons, Mr. Ambassador, just yesterday 
I introduced legislation, along with my good friend and our 
Subcommittee on Trade Chairman Mr. Crane, to repeal the Byrd 
Amendment. Now the President's budget for the past 2 years has 
called for outright repeal of the Byrd Amendment. However, the 
Omnibus Appropriations Bill (P.L. 107-38), as you know, last 
year included a provision that the USTR, that you should 
negotiate an allowance for the Byrd Amendment within the WTO; 
in other words, negotiate a carve-out. So, my question is this. 
Today does the Administration still support outright repeal of 
the Byrd Amendment?
    Mr. ZOELLICK. The answer is yes, Mr. Ramstad. As I 
mentioned, I am glad you are drawing this to people's attention 
because there is going to be a hearing to arbitrate the amount 
that will be completed by about June and shortly after that 
about nine countries will be able to start to retaliate against 
American exports. I do not want to say the precise sum because 
we are trying to debate it and have a lower sum, but the 
numbers they are seeking would be about $150 million now, plus 
there could be an additional $90 million.
    I would say one other thing, Mr. Ramstad, that may also 
help you and Mr. Crane and others on this. Mrs. Snowe on the 
Senate side also talked about perhaps having the revenue go to 
some of the issues related to worker issues and that is an 
issue that if the Congress find it easier to pass, that if that 
is something that we could work with you on, I would certainly 
be willing to try to talk to my colleagues about that, as well.
    Mr. RAMSTAD. Thank you, Mr. Ambassador. I am familiar with 
Senator Snowe's work and have discussed it with her, and I look 
forward to working with you to that end.
    I certainly--in looking at the Byrd Amendment, how anybody 
could argue that it is anything but a waste of time, effort and 
capital, it is time, effort and capital that we are spending 
chasing court cases rather than growing our economy and 
creating jobs, so I certainly appreciate your position, the 
Administration's position in supporting the legislation that I 
have introduced for outright repeal and would yield back the 
remainder of my time. Thank you again, Mr. Ambassador.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Georgia, Mr. Collins, wish to inquire?
    Mr. COLLINS. Yes, sir, Mr. Chairman. Mr. Ambassador, in 
your opening statement you have a quote here that relates back 
to 1929. ``With America's high standard of living we cannot 
successfully compete against foreign producers because of lower 
foreign wages and the lower cost of production.'' One thing for 
sure we do not want to do is lower our standard of living here 
in this country. Our workers work hard and our businesses do 
their best to compete. I think you could actually say that 
American workers/businesses are having a difficult time 
competing against foreign producers because of lower foreign 
wages and lower costs of production, could you not?
    Mr. ZOELLICK. Actually, Mr. Collins, wages do not determine 
where people invest. I often point out if wages were the 
determinant of investment, Haiti would be the manufacturing 
capital of the universe.
    Now why is that not the case? It is because people's wages 
reflect what they produce, their productivity. That is a 
combination of their education. It is a combination of the 
capital that has been invested. It is a combination of the 
infrastructure of the country. It is a combination of the tax 
policies, the financial system.
    So, the heart of keeping America competitive is integrating 
those policies effectively so that our productivity remains 
very high and it is, I might add, higher than it is in Germany 
or Japan or others, so that workers get paid more. That is one 
of the reasons why workers that are in export industries get 
paid, on average, 13 to 18 percent higher, because they are 
competitive globally. So, I do not believe that it is driven by 
wage rates alone. I think, on the other hand, as we have talked 
about on both sides of the aisle, people have a sense that they 
want to use trade to try to increase the enforcement of----
    Mr. COLLINS. I do not want to cut you off, Bob, but I just 
ask you simply is it not true that that does create an unlevel 
playing field with competition if they are able to pay and have 
cheaper wages and lower production costs? That is just a yes or 
no without going all through Haiti and all those other 
countries.
    Mr. ZOELLICK. If you want an answer yes or no, the answer 
is no, it is not alone. It depends on the productivity.
    Mr. COLLINS. Well, that is your opinion.
    Mr. ZOELLICK. It is going to be the opinion of a lot of 
people who study commerce and business, which I used to be in, 
Mr. Collins.
    Mr. COLLINS. I will be respectful. I had a CEO in my 
office--it was not too long ago--and we were talking about a 
particular trade agreement and I asked him why he did certain 
parts production in Georgia and finished the production in 
Central America. After asking that twice, he said because of 
cheap labor. Now if it is not true that we are not having 
difficulty competing, explain the largest trade deficit in 
history and an increase in retail sales.
    Mr. ZOELLICK. Well first, Mr. Collins, if you look at 
Georgia today, one of the reasons why it draws so much foreign 
investment, and there is about 225,000 jobs created in Georgia 
because of foreign investment, is because it is a good place to 
do business.
    I want to be careful, Mr. Collins, that I not be 
misunderstood on this. Wages are related to productivity, so it 
is the combination of the two that you need to have. So, wages 
are certainly a determinant but it has to be related to overall 
productivity. The trade deficit of this country is determined 
by relative growth in various countries and it is also 
determined by exchange rates in various countries. So, for 
example, one of the things that you see is that when this 
Administration came into office the trade deficit was about 
$378 billion. It has gone up by an extra hundred billion 
dollars. I went back and looked to try to get the derivation, 
just as the most recent monthly numbers showed, and you see 
that 82 percent of that in the manufacturing area is because we 
are not selling as much, not because we are importing more. Now 
why are we not selling as much? We are not selling as much 
because other people are not growing as much.
    So, the heart of this policy has got to be to get other 
people to grow and--this is a key point, Mr. Collins, I think 
we can probably agree on, is that you have to lower barriers at 
the same time because our barriers are relatively higher. So, 
if we get them to grow and we lower their barriers, that is the 
best chance we have to be able to compete globally.
    Mr. COLLINS. I just marked my 42nd year in small business 
and labor and other costs always enter into the equation of 
production or performance. You can try to convince others and I 
think that is what is wrong, Bob. People understand much more 
about what is going on in the marketplace and the job market 
and the trade deficit than we really sometimes give them credit 
for, and we are trying to debate them on the issues. You do not 
do that. You respond.
    The response is yes, it costs more to produce in this 
country than it does in others where you have cheap labor, 
different regulatory costs, different taxation structure than 
what we have, different tort reforms, different tort 
initiatives. Yes, it does cost more here oftentimes than it 
does in many other parts of the world, and people understand 
that. To continue to try to debate them on that issue, you will 
come up a loser every time.
    Mr. ZOELLICK. Well, I agree with you about those points but 
if you add costs, whether you add costs because you do it in 
terms of additional tariffs or if you do it in terms of 
litigation costs or you do it in terms of taxes, it makes you 
less competitive.
    Mr. COLLINS. You do not do it with additional tariffs.
    Chairman THOMAS. The gentleman's time has expired.
    Mr. COLLINS. You do not do it by isolation and you do not 
do it by protectionism. You look at costs and if you are a part 
of the cost, which the government is, then you address your 
part of the cost.
    Mr. ZOELLICK. You and I agree, Mr. Collins.
    Chairman THOMAS. The gentleman's time has expired. Does the 
gentleman from Georgia, Mr. Lewis, wish to inquire?
    Mr. LEWIS. Thank you very much, Mr. Chairman. Mr. 
Ambassador, welcome. I want you to know that this Member from 
Georgia, from the other side of the aisle, is going to be a 
little more friendly to you and you are welcome to come to 
Georgia any time. You can fly into the Atlanta airport and you 
will be right in my district.
    I read your testimony; I read it well. I noticed we have a 
lot of concerns, a lot of problems, a lot of issues about 
China. I noticed yourself from time to time, you must use both 
the sticks and the carrots. What are you using with China right 
now? Are you using both sticks and carrots? Are you very 
hopeful and optimistic that we are going to solve and resolve 
some of these problems we have with China?
    Mr. ZOELLICK. We are making progress, Mr. Lewis, but there 
is a lot more work to be done. Our agricultural exports were up 
124 percent last year to China and it goes to the point I am 
making about growth. In some areas, like soybeans and cotton, 
you had tremendous increases. Cotton was almost a 500-percent 
increase last year. To combine those two, one of the reasons we 
were able to get those increases is that we were having some 
problems with soybeans and cotton and others related to the 
tariff rate quotas that they put in. So, we hope we have been 
able to remedy those problems, and also in the biotech area so 
we can use biotech cotton, biotech soybeans, biotech corn, but 
after that we then need to turn to the next areas.
    I talked a little bit about intellectual property before 
but one of the areas that is most troublesome to me, Mr. Lewis, 
is that the Chinese have some tax policies that we consider 
discriminatory, just as we are trying to deal with the FSC 
issue in ours. One of them deals with semiconductors in 
particular. I think it is more important than just the 
semiconductors, although that is important, because I think it 
is important to show the Chinese that they cannot use those 
discriminatory policies, whether it be for fertilizer or for 
semiconductors or for others.
    To use your point about the stick, if the Chinese do not 
resolve this very shortly, we could very well be the first 
country that brings a WTO case against them. I would like to 
try to get others to be part of it and that is one of the 
things that we have been trying to work on. We do have 
manufacturing interests--Mr. Collins and I, I am sure, agree 
very much on this in terms of trying to move things forward--
and we have had some success at that. Last year we sold almost 
$5 billion of electrical machinery covering things from 
integrated circuits to telecom parts and equipment.
    I talked to the CEO of General Motors (GM) because, you 
know, GM has been doing a lot of business there. I said what 
can you tell me that helps explain how this helps American 
producers and workers? He pointed out in the last few years 
they actually have been selling about $1.4 billion worth of 
machinery, products, components as part of their development in 
China. Now at the Lansing River plant 15 percent of the 
production actually goes to either Cadillacs or Buick Regal 
kits. So, this kind of shows some of the interconnection.
    The situation with China is such that we cannot let them 
slow down in terms of the implementation of these issues, so 
whether it be taxes, whether it be standards for agriculture or 
others, IPR. The most important one, Mr. Lewis, that I am 
looking down toward is that by the end of the year the Chinese 
have an obligation to open up what they call the trading and 
distribution rights system, which means that today if you 
wanted to sell into China you would have to work through 
somebody. Well, one of their obligations by the end of 2004 is 
to open that up, so you can go directly to put American goods 
on Chinese store shelves. So, we are putting a lot of pressure 
on the Chinese to make sure that they follow through on that 
element.
    Mr. LEWIS. Well, thank you very much, Mr. Ambassador. Mr. 
Chairman, I yield back the balance of my time.
    Chairman THOMAS. I thank the gentleman. Does the gentleman 
from Missouri, Mr. Hulshof, wish to inquire?
    Mr. HULSHOF. Thank you, Mr. Chairman. May I have permission 
to revise and extend my remarks?
    Chairman THOMAS. Certainly, without objection.
    Mr. HULSHOF. Thank you. Mr. Ambassador, welcome. Last week 
a former colleague, former Member of this Committee, Mr. 
Watkins of Oklahoma, came back, so we had a chance to talk and 
it was great to see Wes. He and I introduced the measure a 
couple of years back to actually create the position of a 
permanent ag ambassador within your office and I wanted to 
commend--I know Mr. Johnson was here earlier--how impressed 
that I am with the job that Ambassador Johnson has done on a 
myriad number of issues, really tough issues affecting 
agriculture and I wanted to put that in the record.
    What I would like to do in the short time that I have is to 
raise an issue regarding, as I term it, soybean piracy in South 
America. As you know, both Argentina and Brazil are expanding 
their acreage that they are putting into production 
agriculture, specifically soybeans, and what is compounding a 
problem is that they are not abiding by provisions that they 
have agreed on on protecting our American intellectual property 
as it relates to genetically enhanced varieties of soybeans, 
specifically as we have come to know it, Monsanto's Roundup-
Ready soybeans.
    The USDA's Foreign Agriculture Service (FAS) says that it 
is probably going to be about 5 years or less when Brazil is 
going to exceed American agriculture. What is more, FAS 
estimates that genetically enhanced soybean varieties 
constitutes between 10 and 20 percent of Brazil's 2003 crop, 
even though these varieties are not available for sale. In 
fact, at Cancun when Members of this Committee met with the 
trade representative, Mr. Ameran from Brazil, the fact is that 
their government did not even acknowledge that Brazilian 
farmers were using Roundup-Ready technology.
    So, my question is actually twofold on this specific issue. 
How can American farmers and U.S. farms, just like the one our 
family operates back in Missouri, how can we remain competitive 
with this other production in other countries when our chief 
advantage, access to improved technology, is constantly being 
eroded by countries that ignore American IPRs and I would say 
even commitments under existing trade agreements? That is 
question number one.
    Question number two is what action is your office or that 
you or Ambassador Johnson is taking to combat patent 
infringements of agricultural products in South America and 
across the globe?
    Mr. ZOELLICK. Well first, let me thank you, Mr. Hulshof, 
for your compliments for Al Johnson and his team. They do 
excellent work and they are a small group but they spend a lot 
of time talking to the community to make sure we know their 
priorities and we try to deliver for them. So, I will relay 
that; thank you.
    I think the two questions in my mind are integrated in that 
there is a lot we can do on soybeans separately. As I mentioned 
before, we have now boosted our soybean sales to China, for 
example, to $2.9 billion and, as you and I know, that is one of 
the reasons soybean prices have been relatively healthy.
    In the case of the intellectual property, we have a high 
priority in terms of all American intellectual property rights. 
It turns out that the global international property agreement, 
the TRIP Accord, the Trade and Intellectual Property, has some 
limits and one of the things is it does not require countries 
to have patents available for plants. So, that is one of the 
reasons--it is a good example of how our FTAs complement what 
we try to do in the WTO by setting higher models. We push for 
this. So, for example, we have that in our Chile agreement; we 
have it in CAFTA. We will seek it with the Andean countries in 
Latin America.
    Now as you point out, Brazil is a particularly difficult 
case because, as you know, on the one hand they have not 
officially approved biotech soybeans, even though everyone 
knows they are growing them. Now that has been working its way 
through the Brazilian court process but we have been working 
with Monsanto and others. As you know, there is an interim 
measure; there is a technical fee that I think is about two-
thirds of the fee that our farmers pay, and that fee, in 
reality, what I learned is that Monsanto actually does not have 
a patent on the plant. They have it on the gene, so that is 
another slight complication in this issue. What we try to do 
through the individual agreements and working with companies is 
to make sure that their intellectual property is protected as 
best we can and they get paid for it. It obviously creates a 
level playing field for your soybean farmers.
    Mr. HULSHOF. I appreciate that and I know my time has 
expired. May I submit another question to you in writing?
    Mr. ZOELLICK. Certainly.
    Mr. HULSHOF. As far as sanitary and phytosanitary concerns. 
Thank you.
    Mr. ZOELLICK. I would be pleased.
    Mr. HULSHOF. Thank you, Chairman.
    Chairman THOMAS. The Chair would wish to indicate that we 
have not yet had second bills on a series of at least three 
votes and possibly four votes that will take more than one-half 
hour to resolve. So, unless there is strenuous objection, the 
Chair would indicate that the gentleman from Texas has won the 
lottery based upon arrival in the Committee because we have 
room for one more questioner if the full 5 minutes is used. If 
that is not the case, we may be able to work another one in. 
Does the gentleman from Texas wish to inquire?
    Mr. SANDLIN. Yes, Mr. Chairman. I will try to be brief. 
Thank you, Mr. Ambassador, for being with us today and I wanted 
to ask you a few questions about China, specifically as it 
affects my district. Now as I understand it, the ITC under the 
law, and not the Administration, initially is charged with 
investigating market disruptions from China. Is that correct?
    Mr. ZOELLICK. Under the Section 421 petition.
    Mr. SANDLIN. The ITC unanimously determined in December 
that import relief should be granted in the U.S. ductile iron 
waterworks fitting industry. Do you remember that?
    Mr. ZOELLICK. I do.
    Mr. SANDLIN. Now in spite of that unanimous decision by the 
ITC, the President rejected that relief and he said this. 
``Providing import relief for the U.S. pipefittings industry is 
not in the national economic interest of the United States.'' 
Is that right?
    Mr. ZOELLICK. That is correct.
    Mr. SANDLIN. Now the law passed by Congress, the Section 
421 you are referring to, specifically says that there is a 
presumption in favor of relief when the ITC makes an 
affirmative determination, correct?
    Mr. ZOELLICK. I am not 100 percent sure but I will take 
your word for it.
    Mr. SANDLIN. Okay. That legal standard can only be overcome 
by the President finding that the adverse effect on the U.S. 
economy clearly is greater than the benefits. Is that correct?
    Mr. ZOELLICK. That is correct.
    Mr. SANDLIN. Clearly is a fairly high legal standard. Now 
the Administration does not conduct its own hearings and take 
evidence and testimony and things like that, correct?
    Mr. ZOELLICK. I think we do have a hearing process, as 
well.
    Mr. SANDLIN. Do you? That is initially the obligation of 
the ITC; is that right?
    Mr. ZOELLICK. The ITC's obligation, Mr. Sandlin, is to 
determine the market disruption standard, a relatively low 
standard, not the final standard in terms of national interest 
and the balance of economic----
    Mr. SANDLIN. Did you know, though, that even though the ITC 
unanimously decided there should be protection and the 
President rejected that, that by denying that relief, Tyler 
Pipe in Tyler, Texas is going to lose 500 jobs?
    Mr. ZOELLICK. I did not know that but here is what I know 
about the case. What I know about the case----
    Mr. SANDLIN. Well, I want you to explain but we are going 
to lose 500 jobs and then Alabama and Ohio are going to lose 
600 to 700 jobs. So, it seems to me it is clearly difficult to 
say that it is good for the U.S. economy because clearly it is 
not good for the Tyler, Texas economy, is it?
    Mr. ZOELLICK. Well, I do not think Tyler, Texas would be 
the sole definition of the U.S. economy.
    Mr. SANDLIN. That is a very good point. Of course, the ITC 
took all that into consideration and they said, ``Because U.S. 
producers currently have a substantially larger market share 
than nonsubject imports, the relief we propose will primarily 
benefit U.S. producers.'' Another commissioner said, ``While it 
is true that imports from nonsubject countries would likely 
increase in the event of a remedy, the increase would be far 
from one-on-one replacement.'' So, not only does it benefit the 
U.S. economy as a whole to get the relief that the ITC 
recommended; it benefits Tyler, Texas in not losing 500 jobs 
and Alabama and Ohio in not losing 600 to 700 jobs. Is that 
correct?
    Mr. ZOELLICK. Would you like me to talk about this case 
more?
    Mr. SANDLIN. Yes, sir, if you would like to. I would just 
like for you to explain how it is better for the U.S. economy 
to ship jobs from Texas and Alabama and Ohio and create jobs in 
China. It seems like the Chinese have a position of we are 
going to comply when it is convenient for us and then our 
policy of just working with them is allowing them to take 
advantage of us.
    Mr. ZOELLICK. First, the ITC data also showed that the cost 
to consumers would be higher than the benefit to producers by a 
significant amount.
    Mr. SANDLIN. So, are you saying----
    Mr. ZOELLICK. Could I----
    Mr. SANDLIN. I am just asking you to clear up----
    Mr. ZOELLICK. No, I would like to just answer.
    Mr. SANDLIN. I know you would like that but I want to ask 
you----
    Mr. ZOELLICK. I would like to answer the question.
    Mr. SANDLIN. I have another question for you.
    Mr. ZOELLICK. Would you like me to answer your question?
    Mr. SANDLIN. No, sir. I would like you to answer the 
questions I ask you. You have an opportunity to talk. I ask the 
questions; you answer them. That is kind of the way it works. I 
am asking you if this goes in the flow of what the President's 
chief economic adviser said when he said well, it is better to 
ship jobs overseas. Are you telling me it is better to ship the 
jobs overseas to make a cheaper product so that American 
workers who do not even have a job cannot afford to buy them?
    Mr. ZOELLICK. No.
    Mr. SANDLIN. Okay, what are you saying?
    Mr. ZOELLICK. What I am saying is that the ITC first 
determined that the cost of this to the American consumer would 
exceed the benefits to the producer by a significant amount. 
Second, what their research showed and others showed is that if 
we put in the safeguard, the beneficiary would primarily be 
Taiwan.
    Now separate from the decision, as I pointed out to Mr. 
Levin, there is some evidence that this company may have some--
--
    Mr. SANDLIN. Let me interrupt you.
    Mr. ZOELLICK. For example, the company now has----
    Mr. SANDLIN. Mr. Chairman, I would ask that he be directed 
to answer my question.
    Mr. ZOELLICK. Did you say that I could answer your 
question? I would like to finish answering the question.
    Mr. SANDLIN. I have a question for you.
    Mr. ZOELLICK. I am going to answer your question.
    Mr. SANDLIN. I know you want to argue.
    Mr. ZOELLICK. This company has 400 OSHA violations.
    Chairman THOMAS. The gentleman's time has expired. There 
are less than 5 minutes left on a series of votes on the floor.
    The Chair wishes to thank the Ambassador. I apologize to 
those Members who have waited patiently for their turn but it 
does seem unreasonable to ask the Ambassador to wait for one-
half hour to 40 minutes, besides the fact that he is always 
very generous with his time and comes to Capitol Hill probably 
more frequently than any other Member of the Cabinet to engage 
with Members. The Chair does feel a little chagrin that this 
hearing, which has been excellent for the virtually 3 hours 
that we have engaged in it, ends on this note.
    The Committee stands adjourned.
    [Whereupon, at 12:50 p.m., the hearing was adjourned.]
    [Questions submitted from Representatives Hulshof and 
Doggett to Mr. Zoellick, and his responses follow:]
             Questions Submitted by Representative Hulshof
Question: Beef-Sanitary and Phytosanitary Issues
    First and foremost, while several of your commodity groups are 
still slightly skeptical of the benefits of a FTA with Australia, all 
of these are extremely impressed with the ability of Ambassador Allen 
Johnson to negotiate such a tough agreement. In many cases, groups that 
were preparing to oppose the measure are now, at the least, holding 
their fire through a congressional vote. The ``Ag Ambassador'' deserves 
some credit from you on the Australia FTA.
    That said, Australia might soon join the growing list of countries 
that use artificial sanitary and phytosanitary (SPS) rules to protect 
their domestic industries from increased imports of American beef, 
pork, poultry, citrus, stone fruits and apples. While these trade 
agreements carefully negotiate market access provisions, many believe 
that not enough attention is given to the harmonization of national 
food safety standards to truly allow American beef access to our 
trading partners. The agreement clearly calls for ``working groups'' to 
be established to clear these issues, and, to some, it would appear 
that the U.S. is making some of the same mistakes all over again.
    As many know, the U.S. and Canada are still struggling to reach 
agreement on harmonization some 12 years after the dispute began. Now 
that Canadian beef has access to the American market (almost 800,000 
cattle annually), there is little incentive for them to move quickly on 
harmonization. As a result, only 250,000 American cattle move to 
Canada, when industry estimates that some 750,000 could move.
    The same issues are likely to arise with CAFTA and Australia, 
especially in the wake of an isolated discovery of BSE in Washington. 
This is an emerging concern with your cattlemen back in the district, 
especially with 43 export markets closed, and 10% of all beef harvested 
headed for overseas markets (worth $2.7 billion annually).
    What is USTR doing to incorporate air-tight harmonization regimes 
into the actual agreements being currently negotiated?

    Answer: Many of our trade concerns develop from the sanitary and 
phytosanitary (SPS) measures of other parties, which are often based on 
non-scientific factors (e.g., political concerns, protectionism). WTO 
members have the right to maintain and establish their own specific SPS 
measures as long as these measures are consistent with WTO trade rules. 
The U.S. negotiating objective for SPS measures in FTAs is to ensure 
that SPS measures are consistent with WTO disciplines, are based on 
scientific evidence, and are supported by science-based risk 
assessment.

    Question: What is the current status of U.S. efforts to harmonize 
SPS issues with the Australia, the CAFTA countries and others?

    Answer: Harmonizing SPS measures with other countries is not 
necessarily in our interest. Negotiation of harmonized regimes may 
result in the lowering of existing U.S. SPS measures. Rather, our 
approach during FTA negotiations has been to identify specific access 
problems and work with the countries to resolve the issues using 
science. We do seek to harmonize related SPS measures where we can get 
others to accept U.S. measures (e.g., meat inspection and beef grading 
in Chile).

    Question: How can Congress help these negotiations along--is there 
some improvement to the U.S. food safety regime needed to move these 
negotiations along? Is there a button we can push?

    Answer: Harmonization of SPS regimes is not necessarily in the 
interest of the United States, since U.S. regulators need to maintain 
their authority to make decisions to ensure the safety of the American 
public and American agriculture.
    Using this approach, we have been successful in resolving several 
issues with our FTA partners, e.g., meat inspection issues with CAFTA 
countries; apple and pear phytosanitary issues with Chile; and beef, 
grape, and pork SPS issues with Australia.
    The United States has one of the best food safety systems in the 
world. Members of Congress can help U.S. negotiating objectives by 
highlighting in meetings with our trading partners the importance of 
resolving SPS issues utilizing science and with a view to facilitating 
trade.

                               __________
             Questions Submitted by Representative Doggett

    Question: The Federal Government frequently excludes specific 
products from trade agreements for economic reasons. By extension, the 
Federal Government should also exclude products like tobacco for health 
and humanitarian reasons. Tobacco kills more people than AIDS, legal 
drugs, illegal drugs, road accidents, murder, and suicide combined. No 
nation that cares about the health of its people would actually want to 
increase tobacco consumption, yet the inclusion of tobacco in FTAs 
appears to do just that.
    Please explain why the Federal Government has taken actions that 
promote the use of this toxic, addictive product.

    Question: As you know, there is an Executive Order in place that 
requires your office to consult with U.S. health officials before 
taking any action related to trade in tobacco products. The purpose of 
this requirement is to make sure that our trade policy does not 
exacerbate the global epidemic of tobacco use, which already is 
expected to claim the lives of 500 million people alive in the world 
today.
    1.  On the basis of this Executive Order, is there a joint 
responsibility and obligation on the part of the United States Trade 
Representative (USTR) and Health and Human Services (HHS) to make sure 
the Administration has complete health information before it acts?
    2.  For the inclusion of tobacco products in U.S.-Central American 
FTA, would you please describe the specific steps your office took
      i)  to ensure that HHS had an adequate opportunity to provide 
advice in a timely fashion; and
      ii)  to ensure that HHS actually provided the health information 
necessary for the USTR to make an informed decision.
    3.  Your office has included tobacco products in the trade 
agreements you have negotiated despite studies that suggest that such 
inclusion is likely to raise smoking rates and seriously damage public 
health internationally.
      A.  Has your office performed any assessments regarding the 
likely impact on public health of this Administration's tobacco trade 
policy decisions?
      B.  If these assessments are not being done, can you please 
explain why not?
      C.  If these assessments are being done, will you share them with 
Congress and the public?
    4.  I would like more information on how tobacco products came to 
be included in the U.S.-Chile FTA. Several legislators and public 
health groups were tracking this issue, and tobacco products were 
excluded until the last minute. This eleventh hour change gives the 
appearance that sound health policy was overcome by tobacco industry 
influence.
      A.  Would you detail the steps the tobacco industry took to 
ensure the inclusion of tobacco in the agreement?
      B.  If it was not this lobbying effort that made the difference, 
please explain what caused the change in policy.

    Answer: I am responding to your questions for Ambassador Zoellick 
regarding tobacco trade policy. First, as a general matter, our trade 
agreements respect the non-discriminatory health policy decisions of 
other countries toward tobacco or tobacco products. Where a country 
permits the production, sale, or consumption of these products, we 
generally seek improved access to that market so as not to disadvantage 
American farmers, workers, and business whose jobs depend on exports. 
We do this as part of a broader effort to conclude comprehensive trade 
agreements that cover substantially all trade in goods and services 
between the United States and our trading partners.
    To that end, we work closely with other agencies, including the 
Department of Health and Human Services (HHS), to ensure that U.S. 
trade policy is conducted in a manner consistent with the Executive 
Order concerning Federal Leadership on Global Tobacco Control and 
Prevention.
    With regard to your questions concerning the U.S.-Chile FTA, please 
refer to my June 2, 2003 letter in which I respond to earlier, similar 
questions on this topic.

                                 

    [Submissions for the record follow:]
                Statement of Advanced Medical Technology
    AdvaMed represents over 1,100 of the world's leading medical 
technology innovators and manufacturers of medical devices, diagnostic 
products and medical information systems. Our members are devoted to 
the development of new technologies that allow patients to lead longer, 
healthier, and more productive lives. Together, our members manufacture 
nearly 90 percent of the $75 billion in life-enhancing health care 
technology products purchased annually in the United States, and nearly 
50 percent of the $175 billion in medical technology products purchased 
globally. Exports in medical devices and diagnostics totaled $22.4 
billion in 2003, but imports have increased to $22 billion--indicating 
a new trend towards a negative trade balance for the first time in over 
15 years.
    The medical technology industry is fueled by intensive competition 
and the innovative energy of small companies--firms that drive very 
rapid innovation cycles among products, in many cases leading new 
product iterations every 18 months. Accordingly, our U.S. industry 
succeeds most in fair, transparent global markets where products can be 
adopted on their merits.
Global Challenges
    Innovative medical technologies offer an important solution for 
industrialized nations, including Japan and European Union members that 
face serious health care budget constraints and the demands of aging 
populations. Advanced medical technology can not only save and improve 
patients' lives, but also lower health care costs, improve the 
efficiency of the health care delivery system, and improve productivity 
by allowing people to return to work sooner.
    To deliver this value to patients, our industry invests heavily in 
research and development (R&D), and U.S. industry is a global leader in 
medical technology R&D. The level of R&D spending in the medical device 
and diagnostics industry, as a percentage of its sales, more than 
doubled during the 1990s, increasing from 5.4% in 1990, to 8.4% in 
1995, to 12.9% in 1998. In absolute terms, R&D spending has increased 
20% on a cumulative annual basis since 1990. This level of spending is 
on par with spending by the pharmaceutical industry and more than three 
times the overall U.S. average.
    However, patients benefit little from this R&D investment when 
regulatory policies and payment systems for medical technology are 
complex, non-transparent, or overly burdensome, causing significantly 
delays in patient access. They can also serve as non-tariff barriers, 
preventing U.S. products from reaching patients in need of innovative 
health care treatments.
    AdvaMed applauds continued progress on international trade 
initiatives, including bilateral, regional and global trade 
negotiations, such as the Free Trade Area of the Americas (FTAA) and 
the Doha Development Agenda in the World Trade Organization (WTO). We 
support new efforts like the Central American Free Trade Agreement 
(CAFTA), under which the Central American partners to the agreement 
will grant U.S. exports of medical devices duty-free treatment. We are 
hopeful that future bilateral agreements can also include directives to 
knock down tariff and non-tariff barriers for medical technologies. In 
addition, the President and U.S. Trade Representative (USTR) should 
continue to pursue trade liberalization in the medical technology 
sector with our major trading partners.
    AdvaMed believes the USTR, Department of Commerce (DOC) and 
Congress should monitor regulatory, technology assessment and 
reimbursement policies in foreign health care systems and push for the 
creation or maintenance of transparent assessment processes and the 
opportunity for industry participation in decisionmaking. We look to 
the Administration and Congress to actively oppose excessive 
regulation, government price controls and arbitrary, across-the-board 
reimbursement cuts imposed on foreign medical devices and diagnostics.
Continued U.S. Leadership Needed to Fight Trade Barriers in Japan
    For the medical technology industry, the Bush Administration's 
efforts with Japan under the U.S.-Japan Partnership for Economic Growth 
are critical for maintaining access to the Japanese health care market.
    After the U.S., Japan is the largest global market for medical 
technologies at $25 billion. U.S. manufacturers annually export over 
$2.5 billion to Japan. These statistics are good indicators of our 
industry's global competitiveness in the field of medical technology 
and it strongly underscores the importance of critical ongoing efforts 
with the U.S. Government to open the Japanese market further to cost-
saving and life-enhancing medical technologies.
    In 1986, U.S. Government leadership began to help open Japan's 
marketplace for medical devices under the Market Oriented Sector 
Specific (MOSS) trade agreements. These efforts have helped to grow and 
sustain a favorable U.S. trade balance for medical devices in the range 
of $1.1 billion in recent years.
    In late 2001, however, the Japanese Ministry of Health, Labor and 
Welfare (MHLW) took steps that constituted a significant setback in the 
progress that had been made over the last 15 years in the medical 
device sector by adopting a new pricing policy that includes ``foreign 
average pricing'' (FAP). The U.S. Government and Congress have long 
opposed FAP schemes, which discriminate against the U.S. industry and 
fail to recognize the significantly higher costs of doing business in 
Japan. Combined with very slow processes for the introduction of new 
product reimbursement prices, industry supports the following targeted 
proposals for reform of Japan's reimbursement system:

      Transparent, public processes and predictable rules in 
setting product reimbursement levels and related adjustments;
      When FAP is applied, the use of reasonable comparator 
U.S. list prices;
      Measures to expedite the coverage, payment and access to 
brand-new-to-Japan medical technologies (category C2), as per earlier 
trade agreement commitments; and
      Creation of payment categories that better reflect the 
differences in technologies.

    In addition to these reimbursement concerns, industry also has 
pressing issues in the realm of regulatory product approvals, as Japan 
works to implement the 2002 Pharmaceutical Affairs Law by April 2005. A 
number of provisions of this law are essential to medical device 
products, as industry seeks to achieve a streamlined and transparent 
product approval process. Key issues in the PAL and other areas include 
(but are not limited to):

      Improved ``pre-consultations'' process and use of a 
standardized ``checklist'' of submission contents to clearly identify 
requirements prior to application submission, as well as better 
documentation practices within MHLW on discussions with industry (to 
avoid misunderstandings and to create binding decisions);
      Clearly defined review performance goals as part of the 
newly established user fee program. Performance goals should represent 
improvement over current performance and provide predictability in the 
review process with clearly defined procedures for stopping and 
restarting the review clock;
      Establishment of an appeals mechanism to resolve 
scientific disputes in a timely and efficient manner; and
      Better harmonization with international standards and 
with Global Harmonization Task Force recommendations in areas such as 
``adverse event reporting'' and ``quality systems programs'' where 
Japan is implementing unique and burdensome requirements on 
manufacturers.

    Going forward, industry seeks U.S. Government and congressional 
support to help ensure open dialogue with Japan. We also seek 
assistance in securing and enforcing Japanese commitments so that 
restrictions in both the regulatory and reimbursement areas do not 
disproportionately and unfairly impact U.S. medical technology 
manufacturers.
    In addition, the Bush Administration's efforts with Japan under the 
U.S.-Japan Partnership for Economic Growth are critical for achieving 
further market-opening measures in Japan's health care market.
Regulatory and Reimbursement Obstacles Impede Market Access in Asia-
        Pacific
    AdvaMed looks to the U.S. Government to pursue trade liberalization 
throughout the Asia-Pacific region, including in China, Taiwan and 
Korea. AdvaMed and its member companies have identified a number of 
real and potential barriers to doing business in these countries. While 
most of the barriers pertain to unnecessary or redundant regulatory 
requirements, there are increasing concerns in the areas of 
reimbursement and intellectual property. AdvaMed looks forward to 
working with Congress and the Administration to address the following 
barriers:

      A Lengthy and Costly Product Registration Process
      Redundancy in the Registration Process
      Antiquated Type-Testing Requirements
      Lack of Transparency in Decision-Making
      Inappropriate Price Controls
      Counterfeiting of Medical Technology
      Parallel Trade of Medical Technology

    For the medical technology industry, the Bush Administration's 
efforts with China under the U.S.-China Joint Commission on Commerce 
and Trade are critical for allowing U.S. medical technology firms 
broader access to the burgeoning Chinese health care market. The 
nascent U.S.-China Health Care Forum initiative, led by the U.S. 
Department of Commerce and supported by AdvaMed and other health care 
partners, holds great promise as another vehicle for addressing many of 
the trade-related and health policy-related barriers confronting U.S. 
medical technology firms in China.
    China has quickly become an important market for the U.S. medical 
technology sector. While solid statistics are not widely available yet, 
AdvaMed estimates that the Chinese market for medical technology is $3 
billion and growing rapidly. It is on pace to surpass some of the key 
European markets for medical technology in a few short years. As global 
leaders, U.S. medical technology firms already account for a 
significant portion of sales in China and the position of these firms 
underscores the importance of ongoing efforts with the U.S. Government 
to open the Chinese market further.

Europe: Seek Appropriate Policies That Improve Patient Access to 
        Innovative Medical Technologies
    Efforts to oversee foreign policies impacting the export and sale 
of U.S. medical technologies abroad should also focus on the European 
Union (EU). U.S. manufacturers of medical devices export nearly $8.8 
billion annually to the EU and maintain a $1.2 billion trade surplus 
with the EU. Within the EU, Germany ($20 billion) and France ($8 
billion) are the largest markets for medical devices. The industry will 
monitor the accession of ten new member states on May 1, 2004 to 
determine the impact on exports of medical devices to the European 
Union.
    We appreciate congressional and Administration efforts on behalf of 
the industry in opposition to a European Commission draft directive 
that would up-classify all shoulder, hip and knee joint implants from 
Class IIB to Class III. This directive, which is guided by 1980s data 
and application of the precautionary principle, could affect thousands 
of devices, many of which are made by U.S. manufacturers, and would 
cost the average orthopedic company approximately 500,000= in fees 
alone for the Notified Body reviews necessary to comply with the 
directive. Importantly, the decisionmaking process on this issue has 
been opaque, and has offered little opportunity for stakeholder input.
    In addition, the industry looks forward to the implementation of 
the medical device annex of the U.S.-EU Mutual Recognition Agreement 
(MRA). Bringing health care products to the market faster is an 
important priority consistent with the protection of public health and 
the reduction of regulatory costs and redundancy. The medical device 
industry was disappointed that the MRA transition was not completed by 
the original December 2001 deadline, but we anticipate that the 
European Commission and the FDA will complete transition activities in 
the near future. We ask Congress to push for the full implementation of 
the medical device annex of the MRA.
    Finally, as the health technology assessment (HTA) trend spreads 
throughout Europe, EU member states should be encouraged to adopt 
policies for their health technology assessment systems that are 
transparent, timely, and adequately account for the benefits of 
innovative technology. Industry should be allowed to participate in the 
HTA process.

Utilize Multilateral, Regional, and Bilateral Forums to Eliminate 
        Tariff and Nontariff Barriers to Trade that Unnecessarily 
        Increase the Cost of Health Care
    We encourage congressional and Administration efforts to eliminate 
significant tariff and nontariff barriers to trade for medical 
technology maintained by many countries, particularly developing 
countries. Such barriers represent a self-imposed and unnecessary tax 
that substantially increases the cost of health care to their own 
citizens and delays the introduction of new, cost-effective, medically 
beneficial treatments. For example, the medical technology sector 
continues to face tariffs of 15-20% in Mercosur countries, 9-12% in 
Chile, Peru, and Colombia, and 6-15% in China.
    The Doha Development Agenda offers an important opportunity for the 
United States to ensure global access to medical technology by securing 
global commitments on lowering tariff and nontariff barriers for the 
medical technology sector. We encourage the U.S. Government to build 
upon the zero-for-zero tariff agreement on medical technology achieved 
in the Uruguay round by expanding the product coverage and adding 
countries throughout Latin America and Asia as well. Moreover, 
elimination of nontariff barriers such as burdensome import licensing 
regulations and non-transparent government procurement policies will 
help developing countries ensure patient access to lifesaving medical 
technologies.

Utilize Multilateral Opportunities to Establish Basic Regulatory and 
        Reimbursement Principles to Expand Global Trade and Patient 
        Access to New Technologies
    We commend the WTO's recent efforts to ensure global access to 
medicines and medical products. While all economies seek to provide 
high quality, cost effective health care products and services to their 
citizens, they should also ensure timely access to state-of-the-art, 
life-saving equipment and implement compliance procedures that are 
efficient and effective. To further expand patient access to safe and 
effective medical devices and ensure cost effective regulatory 
compliance, USTR should seek to ensure that economies around the world 
make their policies and practices conform to the relevant and 
appropriate international trading rules established by the World Trade 
Organization (WTO).
    Toward that end, member economies should agree to make their 
medical device regulatory regimes conform to these guiding principles:

      Acceptance of International Standards;
      Transparency and National Treatment;
      Use of Harmonized Quality or Good Manufacturing Practice 
Inspections;
      Recognition of Others Product Approvals (or the Data Used 
for Those Approvals);
      Development of Harmonized Auditing and Vigilance 
Reporting Rules;
      Use of Non-Governmental Accredited Expert Third Parties 
Bodies for Inspections and Approvals, where possible.

    Similarly, many economies require purchases of medical technologies 
to take place through centralized and/or government-administered 
insurance reimbursement systems. To ensure timely patient access to 
advanced medical technologies supplied by foreign as well as domestic 
sources, member economies should agree to adopt these guiding 
principles regarding the reimbursement of medical technologies:

      Establish clear and transparent rules for decisionmaking;
      Develop reasonable time frames for decisionmaking;
      Data requirements should be sensitive to the medical 
innovation process;
      Ensure balanced opportunity for the primary suppliers and 
developers of technology to participate in decisionmaking, e.g., 
national treatment;
      Establish meaningful appeals processes.

    The medical technology industry is committed to working with 
Congress and the Administration on upcoming trade policies and 
agreements to ensure patients throughout the world have access to 
medical products.

Conclusion
    AdvaMed appreciates the shared commitment by the President and the 
Congress to expand international trade opportunities and encourage 
global trade liberalization. We look to the President and his 
Administration to aggressively combat barriers to trade throughout the 
globe, especially in Japan. AdvaMed is fully prepared to work with the 
President, USTR Ambassador Zoellick, the Department of Commerce, and 
the Congress to monitor, enforce and advance multilateral, regional and 
bilateral trade agreements, particularly with our key trading partners.

                                 

            Africa Growth and Opportunity Act Civil Society Network
                                             Washington, D.C. 20006
                                                    August 12, 2004

Honorable William Thomas
Chairman, Ways and Means Committee
U.S. House of Representatives
Washington, D.C. 20515

Dear Chairman Thomas,

    The AGOA Civil Society Network--a nonpartisan collective of civil 
society groups including NGOs, trade unions and private sector 
representatives from the U.S. and Africa, would like to extend our full 
support of the AGOA III bills (S. 1900 and H.R. 3572) currently under 
review in the House and Senate. Many amendments in the bill will afford 
Africa with an opportunity to participate in fruitful trade initiatives 
with the U.S. and is a healthy counterpart to effectively sustaining 
human rights initiatives that are guided by the U.S. and other friends 
of Africa.
    We believe that both versions of the bill under review in Congress 
include a number of key amendments that are to the benefit of African 
and U.S. businesses wishing to participate in free and transparent 
trade. As we will describe below, there are also a number of amendments 
that the AGOA Civil Society Network believes should be included in 
future formulations of the bill.
    As the bills currently under review in the House indicate, the 
extension of third country fabric provisions is crucial to the 
sustenance of AGOA. To allow this provision to expire or to leave the 
decision of whether it will expire or not waning a suspended amount of 
time is poisonous to the lifeblood of the successful investments that 
have been made on the ground in Africa. Many investors are ready to 
pack up and leave the thousands of Africans that have been able to 
secure jobs, and an extension is vital to helping them keep those jobs 
so that African economies are able to compete with other world 
economies successfully.
    We also believe that mechanisms should be put in place under the 
bill to ensure market access and competitiveness of AGOA-eligible 
countries beyond the phasing out of the country quota under the World 
Trade Organization agreement on textiles and apparel. The United 
States, EU and Japan should also collectively eliminate subsidies, 
quotas and all forms of trade protection, and allow the laws of 
comparative advantage in a free market system to create a level playing 
field that can allow for African participation.
    AGOA should also be expanded to encourage African countries to 
diversify and look beyond petroleum and other goods that dominate AGOA 
export. There is a need for expansion particularly in the areas of 
agriculture, light industry, information technology, tourism, the 
service and technology sectors and logistics. Any expertise and 
technological skills that might enable AGOA-eligible countries (as well 
as other African countries with an interest in AGOA) to meet value-
added requirements for agricultural products should be provided.
    Along with the removal of restrictions on the Overseas Private 
Invesment Corporation (OPIC) and EXIM Bank on funding textile/apparel 
and agricultural projects in Africa that is present in both versions of 
the AGOA bill, the AGOA Civil Society Network believes that SME 
development should be addressed and encouraged. AGOA must address the 
lack of access to credit suffered by supporting institutions that 
create internationally recognized banking and crediting opportunities 
to small- and medium-sized enterprises in sub-Saharan Africa and the 
U.S. Such a focus would not only encourage business development and 
capacity building efforts on the ground, but would allow for a greater 
amount of tangible impact.
    Though many of us are not U.S. voters, we would like you to keep us 
in mind in your formulation of the bill and during the deliberations on 
AGOA III that take place in Congress at both the Committee level and in 
the House Chambers with your fellow congressmen. AGOA III's 
encouragement of diverse private sector activity on the continent will 
greatly influence the creation of an environment that is conducive to 
free, transparent global trade with Africa. A successful AGOA will not 
only help to include Africa into the global economy, but will help to 
increase the standard of living of millions of Africans throughout the 
continent.

            Sincerely,
                                     The AGOA Civil Society Network

                                 
   Statement of American Cancer Society, American Heart Association, 
 American Lung Association, Action on Smoking and Health, Campaign for 
                Tobacco-Free Kids, and Essential Action

    This statement represents the views of the American Cancer Society, 
American Lung Association, Action on Smoking and Health, Campaign for 
Tobacco-Free Kids and Essential Action. We will focus our comments on 
the important relationship between U.S. tobacco trade policy and global 
public health.
    For reasons detailed in these comments, we are deeply troubled by 
this Administration's policy of including tobacco products within the 
scope of free trade agreements despite strong evidence that this policy 
threatens sound tobacco control policies in the U.S. and abroad, 
stimulates higher smoking rates in low and middle income nations, and 
contributes to a major cause of preventable death in the world today. 
We believe there is an important oversight role for Congress to play to 
ensure that public health concerns take precedence over commercial 
interests in setting tobacco trade policy, and in ensuring that public 
health input is provided into the policymaking process through the 
Department of Health and Human Services and the public health 
community.

Tobacco Products Are Uniquely Addictive and Lethal
    Tobacco use causes an estimated 4.9 million deaths per year 
worldwide.\1\ While most preventable causes of death are expected to 
decline over time, tobacco-caused mortality is projected to double to 
10 million deaths per year by 2025.\2\ In all, tobacco is expected to 
claim about one billion lives during this century, a ten-fold increase 
over the last century.\3\ This will constitute the largest avoidable 
loss of life in recorded history. The surging death toll is due to the 
powerfully addictive nature of tobacco products combined with the rapid 
and virtually unchecked spread of tobacco use to those nations least 
able to bear the staggering health care costs and lost productivity. By 
the 2020s, 70 percent of all deaths caused by tobacco will occur in 
developing nations.\4\
---------------------------------------------------------------------------
    \1\ Ezzati M, Lopez AD. Estimates of global mortality attributable 
to smoking in 2000. Lancet, 2003, 362:847-852.
    \2\ World Health Organization, Tobacco Free Initiative, ``Why is 
tobacco a public health priority?'' http://www.who.int/entity/tobacco/
resources/publications.
    \3\ Peto R, Lopez A. The Future Worldwide Effects of Current 
Smoking Patterns, Imperial Cancer Research Fund, 2000, http://
www.ctsu.ox.ac.uk/pressreleases/50thAnniv/article.cfm.
    \4\ World Health Organization, World Health Report 1999 (Geneva: 
WHO, 1999).
---------------------------------------------------------------------------
The Role of International Trade Policy in the Global Epidemic of 
        Tobacco Use
    Lower prices and increased availability and consumption of 
beneficial products--``goods'' in a literal sense--are major goals of 
free trade and provide important justifications for free trade 
policies. The problem with tobacco products is that they are far from 
beneficial. Each additional increment of consumption causes additional 
suffering and death, as well as a net economic loss to the economy of 
the nation in which it is consumed and to the global economy.\5\ This 
distinction between a beneficial product and a harmful one essentially 
turns the traditional presumption in favor of trade liberalization on 
its head with respect to tobacco products. Logically the presumption 
should be against actions that stimulate consumption of harmful 
products.\6\
---------------------------------------------------------------------------
    \5\ Barnum, H. ``The Economic Burden of the Global Trade in 
Tobacco,'' Tobacco Control, 1994, 3:358-361.
    \6\ The practical effect of reversing the presumption in favor of 
free trade in tobacco products would not be to condone unjustified 
discrimination in tobacco product trade, but to make clear that, with 
respect to trade in tobacco products, protecting public health is of 
paramount importance. Nations would remain free to attack 
discriminatory tobacco trade practices provided that they could 
demonstrate that doing so would not stimulate higher rates of tobacco 
use.
---------------------------------------------------------------------------
    Tobacco products are no exception to fundamental economic 
principles. Liberalization of trade in tobacco products does, in fact, 
stimulate higher levels of tobacco use in most nations. Econometric 
studies show that liberalization of trade in tobacco products has a 
significant stimulative effect on tobacco use in low income nations, a 
modest effect in middle income economies, and little effect in high 
income nations.\7\ In large populations, even a modest impact of trade 
policies on smoking prevalence rates translates into entirely avoidable 
suffering and death on a massive scale. Given the projection that 
tobacco use will kill approximately one billion people over the course 
of this century, it is easy to see that any policies that raise global 
smoking prevalence rates by even a fraction of a percent will translate 
over time into millions of additional preventable deaths.
---------------------------------------------------------------------------
    \7\ See, e.g., Taylor A, Chaloupka FJ, Guindon E, Corbett M. ``The 
impact of trade liberalization on tobacco consumption,'' Chapter 14 in: 
Jha P, Chaloupka FJ, editors. Tobacco Control in Developing Countries. 
Oxford: Oxford University Press, 2000; Chaloupka FJ, Laixuthai A. 
``U.S. Trade Policy and Cigarette Smoking in Asia.'' National Bureau of 
Economic Research Working Paper No. 5543, 1996; Hsieh, CR, Hu, TW, Lin, 
CFJ. ``The Demand for Cigarettes in Taiwan: Domestic Versus Imported 
Cigarettes,'' Contemporary Economic Policy, 1999, 17(2):223-234; 
Bettcher, DW et al., ``Confronting the Tobacco Epidemic in an Era of 
Trade Liberalization,'' World Health Organization 2001, WHO/NMH/TFI/
01.4, pp. 48-53. Review; Bettcher, DW, Yach, D, Guindon, E. ``Global 
trade and health: key linkages and future challenges.'' Bulletin of the 
World Health Organ. 2000, 78(4):521-34. Review.
---------------------------------------------------------------------------
    In addition to the impact of tariff reductions, which stimulate 
marketing and price competition and transform tobacco markets in other 
ways associated with higher smoking rates, the decision to include 
tobacco products in free trade agreements can result in unreasonable 
constraints on sound tobacco control policies. We are especially 
concerned about three areas:

    Intellectual property provisions. U.S. tobacco companies have 
invoked intellectual property protections in trade agreements to oppose 
bans on the use of the misleading terms ``mild'' and ``light,'' in 
Europe and Canada, alleging that such prohibitions interfere with 
trademark-protected names that include such terms. They have also used 
trade agreements to challenge proposed health warning labels and 
ingredient disclosure laws in Thailand.

    Technical barriers to trade. Tobacco companies have invoked 
technical barriers to trade provisions in trade agreements to protest 
bans on the use of the terms ``mild'' and ``light,'' arguing that they 
are not the least trade restrictive means to pursue the objective of 
ensuring that consumers are not misled into believing there is a health 
benefit to ``mild'' or ``light'' cigarettes. Technical barriers to 
trade provisions also could be used to challenge tobacco product 
content regulations and other tobacco control measures.

    Foreign investment protections. Investment protections of the type 
included in the proposed Central America Free Trade Agreement (CAFTA) 
would give companies such as Philip Morris, BAT and Japan Tobacco 
standing to challenge directly national laws that they claim would 
result in an ``indirect'' expropriation of their property. Under 
similar provisions of NAFTA, Philip Morris already has suggested that a 
Canadian ban on ``light'' and ``mild'' would amount to an expropriation 
of its trademark on products such as Benson & Hedges Lights and 
Rothmans Extra Light. We believe it would be disastrous to provide 
tobacco companies with the ability to directly challenge national or 
subnational tobacco control laws in an investment agreement.

U.S. Law Recognizes Unique Health Concerns Raised by Tobacco Trade 
        Policies
    As the conflict between the goals of promoting trade in tobacco 
products and reducing tobacco use has become clear, consensus has grown 
that concern for human health should take precedence over commercial 
interests in policy decisions. This is reflected in the Doggett 
Amendment, an amendment to the Appropriations Act for the Departments 
of Commerce, State and Justice, the Judiciary and Related Agencies, 
originally passed in 1997 and renewed in similar form annually since 
then. The Doggett Amendment forbids the use of appropriated funds ``to 
promote the sale or export of tobacco or tobacco products, or to seek 
the reduction or removal by any foreign country of restrictions on the 
marketing of tobacco or tobacco products, except for restrictions which 
are not applied equally to all tobacco or tobacco products of the same 
type.'' \8\
---------------------------------------------------------------------------
    \8\ Pub. L. 105-119, Section 618.
---------------------------------------------------------------------------
    The policy embodied in the Doggett Amendment was adopted and 
expanded upon by an Executive Order that applies to all government 
agencies. Significantly, the Executive Order also requires that the 
Department of Health and Human Services ``advise the USTR, and other 
interested Federal agencies, of the potential public health impact of 
any tobacco-related trade action that is under consideration.'' \9\
---------------------------------------------------------------------------
    \9\ ``Federal Leadership on Global Tobacco Control and 
Prevention,'' Executive Order, The White House, January 18, 2001.
---------------------------------------------------------------------------
Recent Tobacco Trade Policy Decisions Do Not Reflect Public Health 
        Input
    Despite the Executive Order requiring advice by HHS regarding the 
potential health impact of any tobacco trade-related policy decisions, 
tobacco products have been routinely included in free trade agreements 
negotiated by this Administration. There has been no public discussion 
or disclosure of the public health implications of this policy. It is 
not clear what advice, if any, HHS has provided to USTR, or whether HHS 
has been provided with a meaningful opportunity to provide public 
health input into the policymaking process. We are not aware of any 
assessments or reviews by HHS of the potential health impact of recent 
tobacco trade policy decisions. Such assessments would be an essential 
step in providing meaningful input to the policymaking process.

Recommendations
    1.  The U.S. Government should adopt the position that tobacco 
products should be excluded from the scope of tariff and nontariff 
provisions of free trade agreements in order to protect public health. 
This position will protect U.S. and global public health, since trade 
agreements could be used to undermine U.S. tobacco control policies as 
well as policies in other nations. The United States regularly excludes 
products from the scope of trade agreements for economic policy 
reasons. The case for excluding tobacco products for health and 
humanitarian reasons is much more compelling and would be readily 
agreed to by most trading partners.
    2.  Due to the vital public health issues involved, tobacco trade 
policy decisions should be made transparently and with full involvement 
by HHS and the public health community. No action in this area should 
be taken without thorough assessment and consideration of the potential 
public health impact.
    3.  Congressional involvement and oversight in this area is 
critically important. We urge the Committee and others in Congress to 
exercise careful oversight to ensure that global health concerns are 
given priority over commercial interests in U.S. tobacco trade policy.

Conclusion
    At the May 2003 World Health Assembly the United States joined all 
other member nations in supporting adoption of the Framework Convention 
on Tobacco Control, which recognizes ``that the spread of the tobacco 
epidemic is a global problem with serious consequences for public 
health that calls for the widest possible international cooperation and 
the participation of all countries in an effective, appropriate and 
comprehensive international response.'' We believe that future trade 
policy should be crafted consistent with the letter and spirit of the 
FCTC and should ensure that trade agreements do not undermine life-
saving tobacco control measures.
    We would like to thank the Committee for holding this hearing and 
for the opportunity to present the views of the public health community 
on this important topic.

                                 

                                            Doctors Without Borders
                                      333 Seventh Avenue, 2nd Floor
                                      New York, New York 10001-5004
                                                     March 24, 2004

Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Dear Members of the House Committee on Ways and Means,

    I am pleased to submit these comments to the Senate Finance 
Committee on behalf of Doctors Without Borders/Medecins Sans Frontieres 
(MSF) in response to the Committee's hearing regarding the 
Administration's trade agenda held on March 9, 2004. These comments 
focus entirely on the potential negative consequences of the 
Administration's trade agenda on access to essential medicines. MSF is 
deeply concerned that provision sought by the Office of the United 
States Trade Representative (USTR) will undermine the historic World 
Trade Organization (WTO) Ministerial Declaration on the TRIPS Agreement 
and Public Health, resulting in devastating consequences in terms of 
access to medicines for millions of people in the Andean region with 
HIV/AIDS and other communicable diseases throughout the developing 
world.
    We call upon USTR to abandon immediately ``TRIPS-plus'' negotiating 
objectives and negotiate regional and bilateral free trade agreements 
in keeping with the spirit and letter of the Doha Declaration, which 
the U.S. adopted along with all other WTO members in November 2001. In 
order to ensure that countries, including the U.S., uphold that 
commitment in good faith, we must recommend that intellectual property 
provisions be excluded from these agreements altogether.

Background: MSF
    MSF is an independent, international medical humanitarian 
organization that delivers emergency aid to victims of armed conflict, 
epidemics, natural and man-made disasters, and to others who lack 
health care due to social or geographic marginalization. We operate 
over 400 medical relief projects in over 75 countries throughout the 
world. The organization was awarded the 1999 Nobel Peace Prize. MSF 
currently has a field presence in numerous countries included in 
regional or bilateral agreements with the U.S., including Bolivia, 
Brazil, Colombia, Ecuador, El Salvador, Guatemala, Haiti, Honduras, 
Morocco, Nicaragua, Peru, South Africa, and Thailand. Teams provide 
medical care for people with HIV/AIDS, malaria, tuberculosis, Chagas' 
diseases, and other diseases, as well as primary care, maternal/child 
health care, and other services for displaced, homeless, and vulnerable 
people.

Patents, Prices and Patients: The Example of HIV/AIDS
    According to UNAIDS, there are currently over 40 million people 
living with HIV/AIDS in the world; six million of whom clinically 
require antiretroviral therapy now.\1\ The AIDS epidemic is having 
major consequences for infectious diseases in the region, such as 
tuberculosis. It is estimated that 95% of the people who require 
immediate treatment for HIV/AIDS do not have access to antiretroviral 
therapy--which, in wealthy countries such as the U.S., has dramatically 
extended and improved the lives of people living with HIV/AIDS, 
reducing AIDS-related deaths by over 70%\2\--simply because they, and 
the health systems that serve them, cannot afford it.
---------------------------------------------------------------------------
    \1\ http://www.unaids.org/wad/2003/Epiupdate2003_en/
Epi03_07_en.htm#P180_52121--Accessed March 18, 2004
    \2\ According to the U.S. National Institute of Allergies and 
Infectious Diseases (at the National Institutes of Health) and the 
Centers for Disease Control and Prevention, the estimated annual number 
of AIDS-related deaths in the United States fell approximately 70 
percent from 1995 to 1999, from 51,117 deaths in 1995 to 15,245 deaths 
in 2000. This drop is attributed primarily to the introduction of 
highly active antiretroviral therapy (HAART). Centers for Disease 
Control and Prevention (CDC). HIV/AIDS Surveillance Report 2001; 13 
(no. 1):1-41.
---------------------------------------------------------------------------
    Just three years ago, the average cost of a triple combination of 
antiretrovirals was between $10,000-$15,000 per patient per year, and 
today it is available for as little as $140 per patient per year under 
certain circumstances. These price reductions were the direct result of 
international public pressure and generic competition, particularly 
from Indian and Brazilian manufacturers. Generic competition was 
possible as a result of the lack of patent protection for 
pharmaceutical products in those countries. In the coming years, with 
the full implementation of the TRIPS Agreement, such competition will 
not be possible due to the granting of patents on pharmaceuticals in 
key developing countries with manufacturing capacity, unless flexible 
conditions for granting compulsory licenses are available, as per the 
Doha Declaration, and compulsory licenses are routinely issued to 
address public health concerns. Compulsory licensing of pharmaceuticals 
is one of the most important policy tools for ensuring generic 
competition.
    The case of AIDS drug prices helps illustrate what is to come when 
all new pharmaceutical products will be patent protected beginning in 
2005, when most WTO members with pharmaceutical capacity will implement 
the TRIPS Agreement.\3\ For all these new medicines, generic 
competition will be stamped out. As a consequence, prices of new 
medicines will inevitably shoot up, far beyond the means of patients in 
need in poor countries. The lever that has brought the price of AIDS 
drugs down will be lost. If the U.S. regional and bilateral agreements 
create a system that blocks use of equivalent but cheaper drugs, it 
will be a catastrophe for our patients and for all people in the 
region, because the difference in price can be the difference between 
life and death.
---------------------------------------------------------------------------
    \3\ Note that least-developed countries (LDCs) do not have to grant 
or enforce patents on pharmaceutical products before 2016, as per 
paragraph 7 of the WTO Declaration on the TRIPS Agreement and Public 
Health, available at http://www.wto.org/english/thewto_e/minist_e/
min01_e/mindecl_trips_e.htm
---------------------------------------------------------------------------
MSF Comments to USTR on TRIPS-Plus Provisions
    On numerous occasions, MSF has raised concerns publicly about the 
U.S. insistence on including IP provisions that far exceed requirements 
set forth in the TRIPS Agreement, and directly undermine the Doha 
Declaration, which clearly recognized concerns about the effects of 
patents on prices and stated unambiguously that TRIPS should be 
interpreted and implemented in a manner ``supportive of WTO members' 
right to protect public health and, in particular, to promote access to 
medicines for all.'' \4\ MSF has called repeatedly on USTR to ensure 
that the Doha Declaration remains a ceiling for trade negotiations on 
IP as they relate to public health technologies, and, as a logical 
consequence, to exclude IP from bilateral and regional trade agreements 
altogether.
---------------------------------------------------------------------------
    \4\ To view the full Declaration, see http://www.wto.org/english/
thewto_e/minist_e/min01_e/mindecl_trips_e.htm
---------------------------------------------------------------------------
    The U.S. objective of restricting generic competition and 
undermining the Doha Declaration is evident in U.S. negotiating 
objectives for the Free Trade Area of the Americas,\5\ USTR's fact 
sheet on CAFTA,\6\ and the testimony submitted to the Senate Finance 
Committee \7\ regarding the Administration's Trade Agenda. MSF 
submitted official comments regarding the Second Draft Consolidated 
Texts of the FTAA (Chapter on Intellectual Property Rights) \8\ to USTR 
on February 28, 2003, in accordance with the official procedures.\9\ We 
also submitted an open letter to USTR concerning the IP provisions 
contained in CAFTA.\10\ Specifically, we have raised concerns about 
past U.S. proposals that would:
---------------------------------------------------------------------------
    \5\ http://www.ustr.gov/regions/whemisphere/intel.pdf--Accessed 
March 18, 2004
    \6\ http://www.ustr.gov/new/fta/Cafta/2003-12-17-factsheet.pdf--
Accessed March 18, 2004
    \7\ http://finance.senate.gov/hearings/testimony/2004test/
030904rztest.pdf--Accessed on March 18, 2004
    \8\ Available at http://www.ftaa-alca.org/ftaadraft/eng/ngip_e.doc
    \9\ Available at http://www.accessmed-msf.org/prod/
publications.asp?scntid=4320031157162& contenttype=PARA&
    \10\ http://www.cptech.org/ip/health/trade/cafta/msf10152003.html--
Accessed on March 18, 2004

    1.  Restrict the use of compulsory licenses to overcome barriers to 
access created by patents;
    2.  Confer abusive powers to regulatory authorities to enforce 
patents; and
    3.  Grant exclusive rights over pharmaceutical test data
    4.  Extend patent terms on pharmaceuticals beyond the 20 years 
required in TRIPS;

    We have elaborated below upon provisions commonly included in U.S. 
free trade agreements and their potentially harmful impact on access to 
essential medicines.
    But first, it is important to point out that the text of many 
regional and bilateral agreements pursued by the U.S., including CAFTA, 
U.S.-Morocco FTA, and U.S.-Thailand FTA, were not made available 
during, and sometimes after, negotiations. In the case of the FTAA, 
despite numerous statements by negotiators indicating the importance of 
carrying out negotiations in a transparent manner, the text of the 
third draft is still almost entirely in brackets, and all footnotes 
have been omitted from the draft text, making it impossible to know 
which proposals are attributed to which governments. We therefore urge 
USTR to make the text of U.S. regional and bilateral free trade 
agreements available to the public throughout negotiations in order to 
increase the level of transparency and greatly enhance efforts to 
engage in an informed public debate about crucial issues in the 
Agreement.

Comments on Common Intellectual Property Provisions Included in U.S. 
        Free Trade Agreements
1. Restrictions on the use of compulsory licenses

    Compulsory licenses for pharmaceuticals are one of the most 
important tools for ensuring generic competition and are commonly used 
by industrialized countries such as the U.S. They will be especially 
important after 2005, when all WTO countries with pharmaceutical 
manufacturing capacity, except for least developed countries, will 
provide patents for pharmaceutical products and processes. After this 
date, generic production will be almost entirely dependant upon 
compulsory licensing, meaning that flexible conditions for granting 
compulsory licenses must be in place in order to ensure the continued 
supply of affordable generic medicines.
    A compulsory license is a public authorization, consistent with 
TRIPS, to ignore a patent that is in force in a country. However, it is 
of no use if the drug regulatory authority cannot register any generic 
drug during the life of the patent. This is what USTR has managed to 
negotiate in almost all previously signed FTAs (such with Australia, 
CAFTA, Chile, Morocco and Singapore).\11\ By barring drug regulatory 
authorities from registering generic versions of drugs under patent, 
the U.S. is blocking the ability of countries to make use of compulsory 
licenses to ensure access to medicines for their people.
---------------------------------------------------------------------------
    \11\ Article 15.10 CAFTA--Measures Related to Certain Regulated 
Products, paragraph 3.a; Article 16.8 U.S.-Singapore FTA--Certain 
Regulated Products, paragraph 4.(a)(b); Article 17.10 of U.S.-Chile 
FTA--Measures Related to Certain Regulated Products, paragraph 
2.(b)(c); USTR fact sheet on U.S.-Morocco FTA available at 
www.ustr.gov/new/fta/Morocco/2004-03-02-factsheet.pdf; U.S.-Australia 
FTA Chapter 17 available at www.ustr.gov/new/fta/Australia/text/
text17.pdf.
---------------------------------------------------------------------------
    We urge USTR to refrain from including provisions that will 
restrict the use of compulsory licenses in future regional and 
bilateral free trade agreements, in order to preserve the full use of 
this important safeguard for low- and middle-income countries.

2. Abusive powers to drug regulatory authorities (DRAs) to enforce 
        patents

    As explained above, provisions in numerous free trade agreements 
negotiated by the U.S. use drug regulatory authorities to help enforce 
patents and prevent generic competition. This is clearly going beyond 
the traditional role and functions of drug regulatory authorities, 
which are limited to checking the safety, efficacy and quality of 
medicines authorized for use in human beings. In a number of U.S. FTAs, 
DRAs are requested to refuse the marketing of quality generic medicines 
if the original medicine is patented in a given country.\12\ This 
effectively means that drug regulatory authorities will function as 
patent enforcement agencies and will potentially result in the 
enforcement of ``bad quality'' patents, which would be revoked if 
challenged before courts.
---------------------------------------------------------------------------
    \12\ Article 15.10 CAFTA--Measures Related to Certain Regulated 
Products, paragraph 3.a; Article 16.8 U.S.-Singapore FTA--Certain 
Regulated Products, paragraph 4.(a)(b); Article 17.10 of U.S.-Chile 
FTA--Measures Related to Certain Regulated Products, paragraph 
2.(b)(c).
---------------------------------------------------------------------------
    We urge USTR not to include a similar provision in other U.S. FTAs, 
as it can only serve to protect invalid patent claims, since valid 
claims receive adequate protection through normal judicial 
processes.\13\
---------------------------------------------------------------------------
    \13\ See also Essential Action comments in response to USTR request 
for public comment on FTAA draft text, August 22, 2001, Rob Weissman--
available at http://lists.essential.org/pipermail/pharm-policy/2001-
August/001422.html

---------------------------------------------------------------------------
3. Exclusive rights over pharmaceutical test data

    The TRIPS Agreement only requires WTO members to protect clinical 
information that is generally required by drug regulatory authorities 
to approve/register the marketing of a new medicine (``undisclosed test 
or other data'') against ``unfair commercial use'' and ``disclosure'' 
in the framework of unfair competition law. However, many U.S. FTAs 
\14\ clearly go beyond this minimum requirement and confer exclusive 
rights on these pharmaceutical test data for a period of five years, 
from the date of approval of the original medicine in the developing 
country. Some agreements go even further by conferring data exclusivity 
also in cases where the original medicine is not registered in the 
developing country.\15\ Under these conditions, market exclusivity 
could last for up to ten years.
---------------------------------------------------------------------------
    \14\ Article 15.10 CAFTA--Measures Related to Certain Regulated 
Products, paragraph 1.(a); Article 16.8 U.S.-Singapore FTA--Certain 
Regulated Products, paragraph 1; Article 17.10 of U.S.-Chile FTA--
Measures Related to Certain Regulated Products, paragraph 1.
    \15\ The original manufacturer is given five years, from the date 
of approval in the original country, to apply for registration in the 
developing country and get a new five-year period of data exclusivity, 
resulting in a possible total of 10 years of data exclusivity in the 
developing country. See Article 15.10 CAFTA--Measures Related to 
Certain Regulated Products, paragraph 1.(b)
---------------------------------------------------------------------------
    Such proposals are clearly aimed at preventing generic competition 
of medicines, which are not patented in some countries as a result of 
pre-TRIPS legislation, and result in a de facto market monopoly. In 
cases where the original medicine is not registered in the developing 
country, which may be the case for countries that do not constitute an 
attractive market for the original manufacturer, the prevention of 
generic competition will lead to a complete lack of access to 
medicines, at any cost, for up to ten years.
    We therefore urge USTR not to pursue these unacceptable provisions 
that contradict the letter and spirit of the Doha Declaration.

4. Extensions of patent terms beyond the 20-year minimum in TRIPS

    The TRIPS Agreement obligates WTO members to provide patent 
protection on medicines for 20 years. However, the U.S. has been 
pushing for patent extension to ``compensate'' for delays either in 
drug registration or in patent granting. These are unjustifiable 
extensions of patent terms. Extensive literature \16\ has shown that 
twenty-year patents are more than enough--indeed they may be considered 
excessive--to allow the pharmaceutical industry to recoup investments 
made in research and development, if such investments were made.
---------------------------------------------------------------------------
    \16\ MSF and Drugs for Neglected Diseases Working Group (now 
Neglected Diseases Working Group), Fatal Imbalance, September 2001 
available at www.accessmed-msf.org/documents/fatal_imbalance_2001.pdf 
and The Report of Commission on Intellectual Property Rights, September 
2002, available at http://www.iprcommission.org/papers/text/
final_report/reportweb final.htm
---------------------------------------------------------------------------
    Patent extensions are not required by the TRIPS Agreement and a WTO 
panel expressly stated that extensions to compensate for drug 
registration delays do not constitute a ``legitimate interest'' of 
patent owners.\17\ From a public health perspective, it is critically 
important that the terms of pharmaceutical patents not exceed what is 
required in TRIPS and not allow for possible extensions. Extending 
patent terms on pharmaceuticals beyond the 20 years required in TRIPS 
would be detrimental to the health of people in developing countries, 
including those in the Andean region, as it would unnecessarily delay 
generic competition.
---------------------------------------------------------------------------
    \17\ Canada--Patent protection of pharmaceutical products--
Complaint by the European Communities and their member states (WT/
DS114/R).
---------------------------------------------------------------------------
    It is well known that patent offices worldwide, especially small 
ones with limited resources, are overwhelmed with an increasing number 
of patent applications. Patent extension to compensate for delays in 
the granting of patents will therefore essentially penalize small 
patent offices, and may result in the granting of invalid patents for 
lack of necessary time and expertise for examination.
    We therefore urge USTR to refrain from seeking such measures in 
upcoming regional and bilateral agreements.
Conclusion
    Recently negotiated trade agreements by the U.S., including CAFTA, 
U.S.-Chile, and U.S. Singapore, as well as the U.S. negotiating 
objectives for FTAA demonstrate its intent to strengthen intellectual 
property regulations beyond what is required in TRIPS, and reduce the 
extent of TRIPS safeguards to the detriment of public health. If the 
free trade agreements create a system that undermines and contradicts 
the Doha Declaration, blocking use of affordable generic medicines, it 
will be a catastrophe for our patients and millions of others in the 
developing world with HIV/AIDS and other diseases.
    One hundred and forty two countries, including the U.S., negotiated 
and adopted the Doha Declaration, firmly placing public health needs 
above commercial interests and offering much needed clarifications 
about key flexibilities in the TRIPS Agreement related to public 
health. We have repeatedly stated that the Doha Declaration must remain 
a ceiling for international trade negotiations on intellectual property 
as they relate to public health technologies and called upon the U.S. 
Government to ensure that its regional and bilateral free trade 
agreements do not renege on the historic agreement reached in Doha.
    The TRIPS Agreement already establishes comprehensive standards for 
IP protection in WTO members, which protect sufficiently the interests 
of IP holders. The promise of Doha is that the TRIPS Agreement can and 
should be interpreted and implemented in a manner ``supportive of WTO 
members' right to protect public health and, in particular, to promote 
access to medicines for all.'' \18\ Regional and bilateral U.S. free 
trade agreements threaten to make it impossible for countries to 
exercise the rights re-confirmed in Doha.
---------------------------------------------------------------------------
    \18\ To view the full Declaration, see http://www.wto.org/english/
thewto_e/minist_e/min01_e/mindecl_trips_e.htm
---------------------------------------------------------------------------
    As a medical humanitarian organization, we cannot accept the 
subordination of the health needs of our patients and millions of 
others to U.S. trade interests. In order to ensure the protection of 
public health and the promotion of access to medicines for all, we 
therefore must recommend that intellectual property provisions be 
excluded from U.S. regional and bilateral free trade agreements 
altogether.

            Sincerely,
                                                Nicolas de Torrente
                                                 Executive Director

                                 
                Statement of Diane Johnson, Tyler, Texas
    The classical free trade model shows how high-wage nations and low-
wage nations can trade with each other for mutual benefit through the 
principal of comparative advantage. [Voluntary trade should be mutually 
beneficial because it's voluntary.] But the basic model does not 
account for government policies that encourage major movements of labor 
(immigration) and investment. We should never underestimate the power 
of misapplied government to create a ghost town or impoverish its 
people.
    The question is: If hi-tech jobs, manufacturing jobs, service jobs, 
and resource industry jobs are shifted abroad, what will be left for 
Americans to produce so that they can purchase in the world economy and 
enjoy a rising standard of living (or even maintain where they are)? 
When the plans of the globalists [link] are understood, the answer is 
grim. They have targeted the American middle class [link] for 
extinction.
    The promised help for the less fortunate throughout Latin America 
is also a fraud.
    The Mexicans would rather be in their country but due to the 
failure of NAFTA they are pouring over the border to drain our system 
of its resources of social services, medical, and law enforcement.
    Do the people of this nation no longer have a voice in the trade 
policies with the fact we have become the victims of a trade deficit of 
over 7 trillion? With this comes the destruction of the middle class.

                                 

Statement of National Electrical Manufacturers Association, Arlington, 
                                Virginia

Highlights

    Worldwide tariff elimination for all NEMA products

    Negotiate and ratify free trade agreements (bilateral, regional and 
multilateral) that further open commerce in electrical goods while 
upholding NEMA principles (see below right)

    Help member companies benefit from the emergence of China as a WTO 
member

    Help member companies benefit from emerging commercial 
opportunities in Iraq

    Minimize European Union penalties on electrical goods stemming from 
the FSC/ETI dispute and other issues

    Build on 2002 U.S.-EU Principles of Regulatory Cooperation to 
address various European regulatory proposals such as those relating to 
Chemicals and Energy-Using-Products (``EuP'')

    Ensure that prospective WTO members such as Russia and Saudi Arabia 
comply with existing international agreements relating to technical 
barriers

    Recognize that Supplier's Declaration of Conformity and Third-Party 
Certification are separate, valid solutions for market conformity 
assessment needs

    Ensure that all parties to the NAFTA comply with their commitments

    Continue technical exchanges with APEC standards officials

    Revise ``Buy America'' procurement regulations in line with 
international commercial realities

    Secure adequate USG resources for negotiations, monitoring, 
enforcement and overseas presence

    Reform economic sanctions

2003 Success Stories

      Won three-year Commerce Dept. award of $387,000 to assist 
establishment of NEMA presence in China
      Successfully lobbied Administration and Congress for 
withdrawal of foreign steel tariff program, emphasizing damage done to 
the U.S. electro-industry
      Worked with European industry counterparts to greatly 
reduce number of NEMA member products targeted by EU penalties stemming 
from the FSC dispute
      Testified before the House Ways and Means Committee on 
U.S.-China economic relations
      Supported congressional approval of U.S.-Chile and U.S.-
Singapore FTAs, after ensuring that both involve tariff elimination for 
NEMA products while not featuring Mutual Recognition Agreements (MRAs) 
for unregulated electrical products
      Succeeded in getting electrical and energy sector tariff 
elimination to the forefront of Washington's WTO and FTAA planks

NEMA Principles for FTAs

      Immediate Tariff Elimination
      No Mutual Recognition Agreements (MRAs) For Non-
Federally-Regulated Products
      Energy Services Liberalization
      Openness and Transparency in Government Procurement
      Protection of Intellectual Property Rights
      Reduction in Technical Barriers to Trade (TBTs) and 
Compliance with all World Trade Organization (WTO) TBT Agreement 
Requirements
      Inclusive Definition of ``International Standards''
      Market-Driven Standards and Conformity Assessment
      Effective Monitoring and Enforcement Mechanisms
      Free Trade Benefits Not Unnecessarily Encumbered By Labor 
Or Environmental Provisions
      As Many Market Opening Measures As Possible

                               __________

           Worldwide Tariff Elimination for All NEMA Products

    Objectives: The worldwide elimination of tariffs on electrical 
products is a basic NEMA goal. We are founding members of the Zero 
Tariff Coalition, and earlier played active roles in pushing for the 
APEC EVSL and ATL initiatives. We therefore urge the U.S. to pursue 
tariff elimination for electrical products in all fora, including 
through sectoral talks under the World Trade Organization ``Doha 
Development Agenda'' (DDA) round of negotiations, and through regional 
and bilateral negotiations. WTO members should agree to implement so-
called ``zero-for-zero'' agreements to eliminate tariffs on electrical 
products as soon as possible, preferably on an early provisional basis 
with immediate effect until these ``Free'' tariff rates are bound into 
the DDA round's final concluding agreement.
    We thank the U.S. Government for stressing electrical and energy 
sector tariff elimination in the WTO negotiations and applaud WTO Non-
Agricultural Market Access negotiations Chairman Girard for making 
tariff elimination in these sectors a top priority in his May 2003 
negotiating draft.
    NEMA also urges the U.S. to push for completion of the second phase 
of the Information Technology Agreement (known as ``ITA-2''), which 
would eliminate tariffs on a wide range of IT items, including some 
NEMA products. NEMA also supports continued efforts by U.S. officials 
to expand the membership of the existing ITA.

    Benefits: While U.S. electrical exports have been generally growing 
around the world over the last ten years, they have increased most 
dramatically in two instances where tariffs were eliminated: (1) to 
Mexico since the NAFTA agreement came into being; and (2) for medical 
devices worldwide following the WTO Uruguay Round medical devices 
sectoral zero-for-zero tariff elimination agreement. We would like to 
see these stories emulated elsewhere; they don't just benefit our 
companies, they serve to make the best, most price efficient products 
available to consumers and companies in other countries.

  Negotiate and Ratify Free Trade Agreements (Bilateral, Regional and 
                             Multilateral)
             that Further Open Commerce in Electrical Goods
                    While Upholding NEMA Principles

    Free Trade Agreements: NEMA lobbied long and hard for Trade 
Promotion Authority, as well as the Chile and Singapore free trade 
agreements, and we now urge Congress to quickly ratify new bilateral 
FTAs as they are completed.
    Specifically, NEMA urges Congress to move quickly to approve the 
free trade agreements with Australia, Morocco and Central America 
(CAFTA) this year. The 90-day review period required under the Trade 
Act of 2002 and the realities of this year's political calendar provide 
a small window for Congress to act favorably on these FTAs, which 
feature immediate tariff elimination for most NEMA products and other 
beneficial provisions for our industry. NEMA will be an active member 
of the U.S. business coalitions supporting congressional passage of 
these valuable agreements.
    We also encourage the Administration to pursue NEMA priorities such 
as the following in the many other multilateral (as in the WTO Doha 
Development Agenda), regional (as in the Free Trade Area of the 
Americas), and ``bilateral'' (e.g., Southern Africa, Thailand, Bahrain, 
Panama, Colombia) negotiations it is pursuing:

      Tariff Elimination
      No Mutual Recognition Agreements (MRAs) For Non-
Federally-Regulated Products
      Energy Services Liberalization
      Openness and Transparency in Government Procurement
      Protection of Intellectual Property Rights
      Reduction in Technical Barriers to Trade (TBTs) and 
Compliance with all World Trade Organization (WTO) TBT Agreement 
Requirements
      Inclusive Definition of ``International Standards''
      Voluntary, Market-Driven Standards and Conformity 
Assessment
      Effective Monitoring and Enforcement Mechanisms
      Free Trade Benefits Not Unnecessarily Encumbered By Labor 
Or Environmental Provisions
      As Many Market Opening Measures As Possible

    Free Trade Area of the Americas (FTAA) Talks, Particularly the 
Negotiating Group on Market Access (NGMA): NEMA applauds the U.S. 
Government for placing tariff elimination for electrical goods at the 
forefront of its 2003 initial FTAA negotiating offer and looks forward 
to continued leadership from the Administration and Congress. NEMA also 
encourages all FTAA countries to implement customs facilitation 
measures to which they have already agreed. Moreover, NEMA urges the 
U.S. to convince the Hemisphere that any standards and conformity 
assessment provisions included in an FTAA must mirror the WTO TBT 
Agreement. NEMA will continue to be engaged in the process, and 
exchange views with its industry counterpart associations throughout 
the Americas.

    Opposition to Mutual Recognition Agreements (MRAs): In NEMA's view, 
the use of MRAs should be limited and considered only as an alternative 
for conformity assessment needs when applicable to federally regulated 
products such as medical devices. MRAs are not the answer to conformity 
assessment needs in non-regulated areas; if anything, they serve to 
encourage the creation of unnecessary product-related regulation. In 
this regard, while we strongly objected to the inclusion of an 
electrical safety annex in the U.S. MRA with the European Union a few 
years ago, we are pleased that the Administration has either excluded 
electrical products from subsequently negotiated MRAs or refused to 
sign on to any such accords that include them. We look forward to a 
continuation of that stance, and trust that the Administration will not 
entertain intergovernmental MRAs as a part of current free trade 
negotiations.

    ``International'' Standards: In addition, the U.S. Government must 
continue working to dispel the misinterpretation that the use of the 
term ``international standards'' in the WTO TBT Agreement applies only 
to International Electrotechnical Commission (IEC), International 
Standards Organization (ISO) and International Telecommunications Union 
(ITU) standards. An interpretation should also include widely-used 
norms such as some North American standards and safety installation 
practices that meet TBT guidelines. Misinterpretation can be 
disadvantageous to U.S. businesses' efforts to sell in global markets. 
Moreover, the importance of openness and transparency are lost when 
focus is placed only on those three standards bodies.

    Energy Services Liberalization: NEMA supports liberalization of 
trade in energy services, in order to allow more people worldwide to 
enjoy high quality, affordable energy, and also to provide new 
opportunities to those energy service and electricity providers who use 
the equipment made and services provided by NEMA's members. Thus, NEMA 
is an active member of the industry coalition campaigning for the 
inclusion of commitments on energy services in the WTO's ongoing 
negotiations on services under the DDA. NEMA's primary perspective is 
that of the industry that provides the equipment and products used to 
build and maintain electrical energy systems, but many NEMA members are 
active providers of energy services as well. The liberalization that is 
good for utilities is also good for our manufacturers, service 
suppliers, and for the users of electricity. USTR has included energy 
services in its proposals for the WTO services negotiations and we look 
forward to continued efforts from the Bush Administration and support 
from Congress to secure commitments from our trading partners in this 
crucial area.

    Transparency in Government Procurement: Around the world a lack of 
transparency in awarding contracts has served to unfairly exclude U.S. 
companies on countless occasions. It is time for U.S. entities to be 
able to compete on equal footing with other suppliers.
    While the U.S. has been a leader of efforts to achieve a WTO 
agreement to make government procurement more open and transparent, WTO 
negotiations on this topic continue to be put off. We look forward to 
even more leadership from USTR and Congress in pursuing a WTO 
agreement.
    NEMA also urges the Bush Administration to increase efforts to 
obtain full implementation and enforcement of all signatories to the 
1999 OECD Anti-Bribery Convention and the 1997 OAS Convention on 
Corruption.

  Help Member Companies Benefit From the Emergence of China as a WTO 
                                 Member

    In 2003, NEMA won a Commerce Department Market Development 
Cooperator Program award of $387,000 in matching funds to support 
NEMA's China Initiative and the establishment of a Beijing presence to 
assist members and engage Chinese counterparts on matters of common 
interest.

    China: NEMA members continue to be intensely interested in selling 
to, sourcing from and competing with China, having lobbied hard in 
recent years for Beijing's entry into the WTO. China (when combined 
with Hong Kong) is now our industry's 3rd largest trading partner after 
Mexico and Canada, and our number 3 export market as well. Our 
industry's sales to China have been growing rapidly over the last 
decade, now exceeding exports to all but a handful of countries. We are 
excited about future possibilities as the Middle Kingdom's economy 
continues to expand impressively--though our members' products continue 
to face a variety of tariff and non-tariff barriers.
    In this respect, while Beijing committed upon entering the WTO to 
change its conformity assessment procedures so as to accord non-Chinese 
product ``national treatment,'' for many electrical products it has 
also recently made erroneous moves to only accept goods built according 
to either Chinese national standards or those ``international'' 
standards developed and published by the International Electrotechnical 
Commission (IEC) and International Standards Organization (ISO). (ISO 
and IEC standards still frequently do not include products built to 
North America-based international requirements.) Up to now, the Chinese 
have also frequently accepted ``North American'' items that are 
compliant with the National Electrical Code (NEC).
    Like many other sectors, the U.S. electrical industry also 
continues to have fundamental, ongoing concerns about intellectual 
property protection in the People's Republic. Our members continue to 
be victimized by vast and repeated trademark infringement. NEMA seeks 
continued strengthening of China's anti-counterfeiting measures and 
enforcement.

         Minimize European Union Penalties on Electrical Goods
           Stemming From the FSC/ETI Dispute and Other Issues

    Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) 
Dispute: Working with European industry counterparts, in 2003 NEMA was 
able to greatly reduce the number of U.S. electrical goods that would 
be subject to European Union reprisals. Now the Association strongly 
encourages Congress to enact an appropriate WTO-compliant reform to the 
FSC/ETI program. NEMA does not take a position on the form this 
revision should take, except that the revised law should not undermine 
the financial position of the U.S. electrical sector.

    Suspension of the Electrical Safety Annex of the U.S.-EU MRA: NEMA 
is pleased that the EU Commission has suspended implementation of the 
Annex, since our feeling is that it adds no value to the existing 
electrical safety systems in the U.S. and EU. The historical record of 
electrical safety, based on a private-sector-promulgated standards and 
conformity assessment system, is a good indicator that private-sector 
approaches are successful. The U.S. Occupational Safety and Health 
Administration (OSHA) NRTL (Nationally Recognized Testing Lab) 
Regulations call for OSHA accreditation of conformity assessment bodies 
(CABs). EU CABs can be accredited by OSHA for testing and certifying EU 
products to U.S. voluntary standards for OSHA recognition in the 
workplace. In 2001, OSHA granted NRTL-status to a German lab and 
thereby demonstrated the integrity of its approach, in which EU 
applicant CABs are given the same consideration as U.S. CABs. The Bush 
Administration should continue to maintain this OSHA NRTL independence 
while working with the EU to achieve better understanding of the U.S. 
position.

 Rehabilitation and Reconstruction of Iraq's Electrical Infrastructure

    Iraq: The U.S. electrical industry is very interested in providing 
products and services toward the reconstruction of Iraq in particular. 
The Association is pleased that Congress appropriated $5.56 billion in 
2003 for the reconstruction of electrical infrastructure and is working 
to help member companies here benefit from the attendant and emerging 
opportunities.

 Build on 2002 U.S.-EU Principles of Regulatory Cooperation to Address 
                                Various
        European Regulatory Proposals such as Those Relating to
                  Chemicals and End-use-Products (EuP)

    Regulatory Cooperation: NEMA applauds the Bush Administration and 
the European Union for their 2002 agreement on Guidelines on Regulatory 
Cooperation and Transparency. We ask that pilot projects adopted for 
implementation of the Guidelines include the current EU regulatory 
initiatives relating to Chemicals and Energy-Using-Products. For 
reasons elaborated above, we do not think that electrical safety is an 
appropriate pilot project.
    As we and other industry associations noted in a June 2001 paper 
for U.S. Trade Representative Robert Zoellick, and as noted in greater 
detail below, the EU is increasingly establishing regulations that are 
not justified by available technical evidence and by sound science and 
whose cost is not proportionate to intended consumer or environmental 
benefits. Typically, these regulations are developed with procedures 
that are not transparent to all stakeholders, including the U.S. 
electrical manufacturing industry and other trading partners. Further, 
stakeholders find they have no way to hold EU authorities accountable 
for the regulations produced.
    Our industry is committed to working with the Administration, 
through engagement with the EU on questions of governance and 
regulatory disciplines, to find solutions to its systemic regulatory 
problems, ensuring justification, transparency and openness in 
development of directives, decisions and regulations, as well as 
``national treatment'' and accountability in their application.

    Proposed EU Regulations Relating to Chemicals and Energy-Using-
Products (``EuP''): The European Union will continue work on these two 
proposals in 2004 despite serious opposition to the Chemicals proposal 
in particular from governments such as those of Germany, France and the 
United Kingdom. Despite some revisions, the Chemicals proposal as 
envisioned, known as REACH, would still have wide-ranging reporting 
implications for downstream users such as the electrical industry. The 
Energy-Using-Products directive, an earlier version of which was known 
as the Electrical and Electronic Equipment (EEE) proposal, would 
mandate eco-friendly design and require manufacturers to comply with a 
series of requirements throughout the life-cycle of a product. The 
planned EuP and its envisioned implementing measures would feature 
product energy efficiency requirements, a concept NEMA has supported in 
proposed U.S. energy legislation.
    We very much would like to avoid a repeat of 2002, during which the 
EU completed two new directives that create difficulties for U.S. 
electrical and electronics products by raising costs and allowing 
differing standards and procedures among the 15 member states. The 
first directive addresses take-back and recycling of Waste Electrical 
and Electronic Equipment (WEEE) while the second, known as the ROHS 
(Restriction on the Use of Hazardous Substances) directive, imposes 
bans on the use of certain substances currently used in manufacturing 
without providing sufficient basis for processes to identify any needed 
substitutes.
    NEMA urges the Bush Administration and Congress to clearly identify 
these four measures as serious potential trade barriers and to seek an 
accommodation that would emphasize rational, cooperative and science-
based measures as alternatives to broad-brush regulatory mandates.

    EU Initiatives Regarding Electromagnetic Fields (EMF): In 1999, the 
EU Council issued a Recommendation that set EMF exposure limits for the 
general public over a range of frequencies. Although it has been 
acknowledged by some supporters that the limits include an excessive 
safety factor, EU member states may provide for a ``higher level of 
protection'' than in the Recommendations, and thus can adopt more 
strict exposure limits. Extensive U.S. Government research on extra low 
frequencies (ELF) has concluded that ``the scientific evidence 
suggesting that ELF/EMF exposures poses any health risk is weak.'' 
Similar conclusions have been reached by health risk studies in other 
countries.
    A series of emerging EU initiatives also lacking sufficient 
justification pose additional EMF-related challenges to our industry: 
the aforementioned EuP proposal, a new proposal to regulate EMF 
exposure in the workplace only, and the revision of a safety directive 
for low voltage equipment (known as the LVD). Each of these will draw 
on the same excessive limits used in the Recommendation.
    Manufacturers on both sides of the Atlantic have warned their 
authorities through the TABD process that EMF could become a major 
point of contention between the U.S. and Europe. NEMA has notified the 
Commerce Department that EU member state implementation of the EU 
Council EMF recommendations would create a substantial barrier to trade 
by restricting the free movement of goods, which would severely affect 
U.S. electrical manufacturing interests. In the face of political 
pressures to adopt EMF regulations, NEMA believes that standards for 
human exposure to ELF-EMF are only warranted if a credible scientific 
basis can be established for adverse effects. On that basis, NEMA 
supports the TABD position that EMF exposure standards must be 
harmonized globally. The U.S. Government must continue its efforts to 
work with the leaders in the EU Commission and in the member states to 
avoid another trans-Atlantic trade dispute over a sensitive issue.

      Ensure that Prospective and Current WTO Members Comply with
        International Agreements Relating to Technical Barriers

    WTO Accessions: NEMA also hopes for greater progress in bilateral 
negotiations with WTO accession candidates. Particularly with regards 
to Russia, NEMA hopes that standards and TBT fundamentals are not 
sacrificed for the sake of geopolitical expediency. In the case of 
Saudi Arabia, NEMA appreciates and urges continuing emphasis on 
standards and TBT issues in the ongoing negotiations. NEMA 
representatives have traveled to Riyadh and established an effective 
cooperative relationship with Saudi Arabian Standards Organization 
(SASO) officials. A former NEMA employee now serves in place as the 
U.S. standards attache in Riyadh.

    WTO Technical Barriers to Trade (TBT) Agreement: NEMA supports the 
concepts outlined in the WTO TBT Agreement and believes that all 
countries should implement, to the fullest extent, the obligations 
outlined there. These obligations include: standards development 
processes that are transparent and include participants from all 
interested parties; a conformity assessment system that upholds the 
principles of most-favored nation treatment (meaning equal treatment in 
all countries); and national treatment (meaning equal treatment of 
domestic and foreign products, as well as test laboratories conducting 
conformity assessment services) in the application of testing and 
certification procedures.

  Recognize that Supplier's Declaration of Conformity and Third-Party 
                             Certification
  are Separate, Valid Solutions for Market Conformity Assessment Needs

    Let The Market Decide: NEMA strongly believes that market 
conditions should determine the appropriate means of certifying that a 
product conforms to safety requirements, be it Third-Party 
Certification or Supplier's Declaration of Conformity (SDOC). In this 
respect, efforts to give SDOC legal standing should be resisted and 
kept in perspective, since such moves could have significant 
repercussions for the existing, successful U.S. electrical safety 
system--the latter being largely set up along Third Party lines.

        Ensure that NAFTA Parties Comply with Their Commitments

    NAFTA Implementation Issues: NEMA member sales to Mexico have 
boomed since the inception of the NAFTA, and most remaining Mexican 
tariffs on U.S. electrical products have reached zero in 2003. Also, 
with an office in Mexico City, NEMA is well positioned to work with 
U.S. authorities to monitor and influence the Mexican standards 
development process for electrical products, ensuring that Mexican 
norms do not act as barriers to U.S. products.
    In this respect, NEMA is becoming very involved in the standards 
and conformity assessment processes in Mexico. The country is 
developing 20 to 30 new national electrical product standards (known as 
NOMs) each year and is moving in the direction of making all of its 
standards mandatory. The authorities do accept and take into account 
public comments on proposed standards; however, a document that has 
been substantially revised based on public comments may not be 
circulated for final public review prior to publication as a mandatory 
standard. Moreover, a standard adopted as mandatory can incorporate by 
reference another voluntary standard without any public review or 
comment opportunity. NEMA would welcome the Mexican standards 
authority's application of consistent and transparent procedures in the 
consideration and adoption of NOM standards, which directly affect 
market access for many proven commercial products.
    Mexico was required under its NAFTA obligations starting January 1, 
1998, to recognize conformity assessment bodies in the U.S. and Canada 
under terms no less favorable than those applied to Mexican conformity 
assessment bodies. However, so far no U.S. or Canadian conformity 
assessment bodies have been recognized by Mexico for conducting 
conformity assessment on most products that are exported from the U.S. 
and Canada to Mexico. Mexico has indicated that it is willing to 
conform to these obligations only when the Government of Mexico 
determines that there is additional capacity needed in conformity 
assessment services. This procedure does not meet the intent of 
Mexico's NAFTA obligations, serving to protect their conformity 
assessment bodies and Mexican manufacturers from fair competition from 
U.S. and Canadian exports into Mexico.

       Continue Technical Exchanges with APEC Standards Officials

    APEC Standards: NEMA is actively involved in bringing a greater 
understanding of conformity assessment alternative processes to the 
Asia-Pacific region. We have been presenters at two meetings of APEC's 
Sub-Committee on Standards and Conformity Assessment, and we have so 
far collaborated with the National Institute of Standards and 
Technology on two workshops for APEC member country representatives.

      Revise ``Buy America'' Procurement Regulations in Line with
                   International Commercial Realities

    ``Buy America'' Procurement Regulations: U.S. Government ``Buy 
America'' restrictions on non-sensitive electrical products should be 
re-evaluated in the context of both the increasingly global economy and 
potential savings. By restricting access to the U.S. market, these 
restrictions also have the reciprocal effect of disadvantaging U.S. 
companies seeking to sell into foreign markets. The United States 
should consider entering into bilateral and regional agreements 
providing reciprocal access to government procurement in countries that 
are not members of the WTO Government Procurement Agreement.

Secure Adequate USG Resources for Negotiations, Monitoring, Enforcement 
                                  and
                           Overseas Presence

    Monitoring, Enforcement and Overseas Presence: NEMA applauds the 
Administration and Congress for their successful efforts to bring China 
and Taiwan into the WTO. NEMA welcomes the opportunity to help our 
member companies take advantage of the market-opening entry of China 
and Taiwan into the rules-based international trading system and is 
working with USTR, the Commerce Department, and Congress to monitor and 
ensure compliance.
    The U.S. Government needs to do more than simply reach favorable 
trade accords; it also needs to be vigilant in making sure that other 
countries live up to their commitments to foster openness, transparency 
and competition. In this regard, our view is that the Commerce 
Department's Standards Attache program should be expanded and fully 
funded. Likewise, we greatly appreciate the assistance provided by 
Foreign Commercial Service (FCS) offices abroad, and hope that FCS 
activities will receive ample support in FY 2004 and the years ahead.
    With the support of a Market Development Cooperator Program (MDCP) 
grant from the Commerce Department, NEMA opened offices in Sao Paolo, 
Brazil and Mexico City, Mexico in 2000. The MDCP is an innovative 
public/private partnership whose grant budget should be expanded so 
that more organizations can enjoy its benefits. In 2003 NEMA won a 
second MDCP award in support of the Association's China initiative and 
to help support the establishment of a Beijing presence. NEMA looks 
forward to continuing its close cooperation with the Commerce 
Department on this new project.
    NEMA applauds Congress' approval of a funding and manpower increase 
for the U.S. Trade Representative's Office and the International Trade 
Administration for FY 2004. Similarly, the Bush Administration and 
second session of the 108th Congress should maintain and enhance this 
generous increase in resources for the trade agencies, allowing them to 
even more effectively negotiate, monitor and enforce trade agreements.

                           Economic Sanctions

    Reform: NEMA supports passage of legislation that would establish a 
more deliberative and disciplined framework for consideration and 
imposition of economic sanctions by Congress and the Executive Branch. 
In addition, existing economic sanctions should be reviewed to 
determine if their effectiveness justifies the costs to U.S. jobs and 
industries.
About NEMA:
    The National Electrical Manufacturers Association is the largest 
trade association representing the interests of U.S. electrical 
industry manufacturers, whose worldwide annual sales of electrical 
products exceed $120 billion. Its mission is to improve the 
competitiveness of member companies by providing high quality services 
that impact positively on standards, government regulation and market 
economics. Founded in 1926 and headquartered in Rosslyn, Virginia, its 
more than 400 member companies manufacture products used in the 
generation, transmission, distribution, control, and use of 
electricity. These products, by and large unregulated, are used in 
utility, industrial, commercial, institutional and residential 
installations. Through the years, electrical products built to 
standards that both have and continue to achieve international 
acceptance have effectively served the U.S. electrical infrastructure 
and maintained domestic electrical safety. The Association's Medical 
Products Division represents manufacturers of medical diagnostic 
imaging equipment including MRT, C-T, x-ray, ultrasound and nuclear 
products. NEMA members' annual shipments exceed $100 billion in value.

                                 
               Statement of Student Global AIDS Campaign
    The Student Global AIDS Campaign (SGAC) is a national student-led 
organization dedicated to ending the global AIDS pandemic. We have 
chapters at over 65 colleges, high-schools and universities, across the 
U.S., and individual members at over 100 other schools.
    SGAC was founded on the belief that AIDS is the crisis of our 
generation and that we will be judged by our response to it. We believe 
that AIDS is a political crisis and that students can fight effectively 
for solutions to the AIDS pandemic. Additionally, we believe that we 
should stand in solidarity with young people abroad by supporting the 
work they do to fight AIDS on the ground.
    The Student Global AIDS Campaign believes that people living with 
HIV/AIDS should not be denied treatment--especially because of 
artificially high patented prices. As such we denounce the current U.S. 
position of racketing up intellectual property protection in developing 
nations.
    There are serious doubts as to the appropriateness of high levels 
of intellectual property protection for developing nations. The United 
Kingdom Commission on Intellectual Property Rights, which was an 
unbiased assessment of the appropriate level of intellectual property 
in developing nations and included members of both civil society as 
well as the pharmaceutical industry, has clearly noted negative impact 
of high levels of protection.
    It is important to consider the purpose behind patents. Patents are 
not a god-given right, but rather an attempt to bridge the societal 
trade-off between the desire for new inventions and the desire to make 
these inventions available to the public. The United States realized 
this during its own development. As the United States was 
industrializing, it made it nearly impossible for foreign firms or 
persons to obtain patents. Americans blatantly copied and sold European 
inventions. This copying process certainly was not appreciated by the 
European inventors, but the learning process from reverse engineering 
and imitation played an important role in ensuring that America 
industrialized quickly and efficiently.
    Despite the argument advanced by some that patents are a necessary 
precursor to development, it seems that for countries that are still 
developing, a lack of IP may be more helpful to ensuring they reach the 
technology frontier and can more quickly contribute to the scientific 
community in the future. Therefore from such a view, IP protection does 
not contribute to development but is an indicator of it. Indeed, the 
United States as the most technologically advanced nation in the world 
now, finds it advantageous to erect high standards of protection, but 
this followed its.
    It is therefore hypocritical of the United States to pressure 
developing nations to adopt higher standards of IP when historically 
while in the same position it blatantly disregarded such rights. In the 
long run both developing nations themselves and the United States would 
benefit from their development and stability. The harm of unnecessarily 
high patent protections may prevent developing nations from reaching 
this goal.
    The introduction of the IPR chapter to trade agreements is a 
relatively new innovation. It was only under heavy pharmaceutical and 
movie industry lobbying that the Trade Related Aspects of Intellectual 
Property Rights (TRIPS) agreement was inserted into the WTO in 1994. 
Such an agreement does not belong in an organization that is dedicated 
to promoting the concept of free trade. By definition patents confer a 
temporary monopoly which is anti-competitive and raises prices for 
consumers.
    Luckily the TRIPS agreement included flexibilities for members to 
protect their national health interests. TRIPS allows compulsory 
licensing which grants nations the right to break a patent under 
certain conditions. This is a right the United States Government has 
used liberally for many things that we believe are in our national 
interest. Unfortunately, even with the built in flexibilities of the 
TRIPS agreement developing nations are under a lot of pressure not to 
exercise these rights to treat their public health epidemics. In South 
Africa's instance, just the attempt to insert language that would have 
allowed for compulsory licensing brought a large amount of pressure 
from the pharmaceutical companies and the U.S. Government. There are 5 
million people infected with HIV in South Africa--a staggering 
statistic by any standards. In order to provide treatment for all these 
people the government cannot afford to pay the brand name cost of 
$15,000 per person per year for ARV therapy. Generic competition is the 
only reasonable option under such circumstances.
    Ultimately it took activist pressure and the anthrax attacks before 
the U.S. allowed developing nations to put their public health before 
the rights of the IP protection granted to private pharmaceutical 
corporations. When the U.S. Government threatened to compulsory license 
Cipro, the treatment to anthrax, the developing nations forced her to 
sign onto the Doha Declaration on the TRIPS Agreement and Public 
Health. This Declaration which was unanimously agreed to by all WTO 
members stated among other clauses that:

      We agree that the TRIPS Agreement does not and should not 
prevent members from taking measures to protect public health. 
Accordingly, while reiterating our commitment to the TRIPS Agreement, 
we affirm that the Agreement can and should be interpreted and 
implemented in a manner supportive of WTO members' right to protect 
public health and, in particular, to promote access to medicines for 
all.

    Furthermore, the U.S. Trade Act of 2002 directed the USTR to 
negotiate trade agreements consistent with the Doha Declaration on the 
TRIPS Agreement and Public Health and its mandate for countries to use 
flexibilities in patent rules to ``protect public health and, in 
particular, to promote access to medicines for all.''
    But the intellectual property provisions of the U.S.-Central 
America Free Trade Agreement (CAFTA) contravene the directive of the 
Trade Act of 2002. CAFTA provisions require countries to adopt patent 
and related rules far more stringent than the requirements of the World 
Trade Organization's Agreement on Trade-Related Aspects of Intellectual 
Property (TRIPS). These provisions will delay the start of price-
lowering generic competition in Central American countries, instead 
keeping drug prices high and out of reach for large numbers in Central 
America. If CAFTA is adopted, thousands of sick people will be forced 
to go without essential medicines that could significantly improve 
their quality of life or even save their lives.
    Among the most troubling provisions of CAFTA are provisions that:

      Extend pharmaceutical patents beyond the 20 years 
required by the WTO (Articles 15.9.6 and 15.10.2).
      Establish special 5-10 year monopoly protections for 
pharmaceutical marketing approval data (Article 15.10.1). These 
monopolistic rules prevent generic firms from showing that their 
product is equivalent to already approved medicines and then relying on 
the safety and efficacy data submitted by the product's originator. 
Instead, the generic firms must either duplicate the costly and time-
consuming tests--which no generic will be willing to do for the small 
Central American markets--or wait until the marketing monopoly 
protections expire. The result will be delays in generic competition 
for at least five years in the absence of patent barriers.
      Potentially work as effective prohibitions on compulsory 
licensing (Article 15.10.3). By its plain terms, CAFTA Article 15.10.3 
appears to make the period of exclusivity for marketing approval co-
extensive with the life of a patent. Thus, even if a country issued a 
compulsory license--authorizing generic competition for a product that 
remained on patent--generic firms would effectively be barred from the 
market, because they could not rely on the originator company's 
marketing approval data.
      Inhibit compulsory licensing through investment rules 
that threaten huge penalties if compulsory licensing is carried out in 
a way not compliant with CAFTA's intellectual property provisions 
(Articles 10.7, 10.16 and 10.26).
      The impact of these measures will be dire.
      There are more than 200,000 people with HIV/AIDS living 
in Central America. Four of the six countries in Latin America with the 
highest HIV/AIDS prevalence rates are in Central America, according to 
the World Bank.
      Generic competition can help these people stay alive, by 
lowering the cost of lifesaving medicines, and enabling them to get 
treatment, either in the public or private sector.
      But CAFTA rules will delay generic entry, for AIDS 
medicines as well as drugs to treat other serious illnesses, leaving 
the vast majority who are unable to afford high drug prices to suffer 
or die needlessly.
      CAFTA's Article 15.10.3, appears to prohibit any generic 
firm from relying on the data submitted by a patent holder at any point 
during the term of the patent unless the generic firm has the 
permission of the patent holder.
      This addresses the fact that there are two aspects to 
bringing a product to market, especially in pharmaceuticals. First the 
companies take out patents on their new drugs in order to prevent 
others from copying and underselling them at a lower price. However, 
while the patent creates a monopoly, approval by a regulatory agency 
(such as the Food and Drug Administration in this nation) is needed 
before the drug can be sold on the market. In order for the regulatory 
agency to allow the drug to be sold on the market there must be test 
data demonstrating safety and efficacy. Normally generic drugs do not 
to rerun these clinical trials to demonstrate safety and efficacy but 
rather show that their product is biomedically equivalent to the brand 
name drug and therefore the same data applies.
      The CAFTA agreement essentially prevents the use of a 
compulsory license under any circumstance--even one of national 
emergency through Article 15.10.3. This prohibition on this test data 
during the term of the patent means that governments will be unable to 
break a patent under any circumstances. This has important implications 
for the United States as well as devastating impacts in the developing 
world. If countries lose the flexibility of compulsory licensing, if 
another anthrax threat were to occur the government would be unable to 
protect its citizens by issuing mass quantities of the antidote. As we 
deal with terrorism, it is essential that we do not lose some of our 
most important tools in protecting our citizens by signing them away in 
these free trade agreements.
      For all these reasons the Student Global AIDS Campaign 
urges you to remove the IPR chapter from existing bilateral and 
regional trade agreements, and preclude their inclusion in future 
agreements. IPR does not belong in bilateral and regional trade 
agreements since the WTO has already guaranteed patent protection. The 
impact of stricter patent laws on the public health of developing 
countries would be enormously negative as might its impact here in the 
United States as well.

                                 
                    [BY PERMISSION OF THE CHAIRMAN:]

                                                        Paul Tadros
                                 2068 Sherbrooke St. West, Suite 32
                                          Montreal, Quebec, H3H 1G5
                                                    August 12, 2004

The Honorable Bill Thomas
Chairman of the Committee on Ways and Means
U.S. House of Representatives
Washington, DC

Dear Sir:
Re: The Administration's Fiscal Year 2005 Revenue Proposals 
        (``Proposals'')
    Thank you for the opportunity to comment on the Proposals and hope 
they would be viewed in the constructive light in which they are 
intended.
Introduction
    The comments/observations herein will be limited to: (1) the 
earnings stripping rules [section 163(j)]; (2) subpart F and, (3) ETI.
    We are in difficult times with increased competition around the 
globe. After reading the Proposals, I could not help but come to one 
conclusion: the Proposals are regressive due to the misconceptions on 
which they are based.
Section 163(j)
    The reasons for change, which read in part: ``Tightening the rules 
of section 163(j) is necessary to eliminate these inappropriate income-
reduction opportunities'' seem not to be based on reality. However, 
when one looks at the subpart F provisions, perhaps one understands why 
that ``reality'' is tainted. In order to understand the comments herein 
on section 163(j), I will use certain aspects of subpart F as an 
illustration. The comments in the section titled ``Subpart F'' vis-a-
vis capital export neutrality and capital import neutrality equally 
apply herein.
    Under subpart F, where a CFC requires funding for its operations 
and such funding (in the form of debt) is received from another related 
CFC, the interest (ignoring the same country exception) paid by the 
borrower is treated as subpart F income in the U.S.' parent's hands. 
The message this, basically, sends to the U.S.-based multinational is: 
``do not utilize sound cash management principles. If your affiliate 
needs funds, borrow externally so that we can reduce your 
competitiveness.''
    Therefore, a similar principle is being applied in the in-bound 
context. If there is a job creation ``killer'' in these Proposals, this 
is it. If a foreign corporation has a choice of opening a manufacturing 
plant in Tennessee to employ 1,500 Americans or opening a plant in 
Windsor, Ontario, with all other factors equal, to which location does 
one think the investor leans? U.S.-based companies and foreign 
corporations should have freedom to allocate their resources in the 
most efficient manner.
    Currently, Treasury and the IRS have at their disposal existing 
section 163(j), a body of case law as to whether an instrument is debt 
or equity and section 482. These are more than adequate.
    In many cases, the economic benefits to the U.S. from job creation 
are far greater than the ``tax cost'' to the Government. To date, there 
is no clear compelling evidence submitted to substantiate the ``Reasons 
for Change.''
Subpart F
    The principles under which subpart F was created some 42 years ago 
do not apply today. In other words, it still amazes many of us how 
Treasury is still sticking to the concepts of capital export neutrality 
(``CEN'') and capital import neutrality (``CIN''). Perhaps, when there 
were ``borders'' and the gold standard was the norm, CEN and CIN were 
valid concepts. We all know that is not the case anymore. In fact, with 
each passing day, ``borders'' are disappearing and the gold standard 
went the way of the dinosaur.
    However, one cannot close this topic without extending 
congratulations to you, Mr. Chairman, for the provisions proposed in 
the ``Thomas'' Bill. At the same time, one has to express 
disappointment in that the Proposals did not seek to address this 
critical issue.
ETI
    Why a logical well-thought out solution has not been formulated 
seems inexplicable. Other countries, to a large extent, have been able 
to find ways to assist the competitiveness of the enterprises in their 
countries.
    Any solution has to be tailor-made to the U.S. but, under one 
condition. The Administration and Congress have to understand that 
``you cannot please everyone.'' Some companies may like the solution, 
some would not. The key factor, at the end of the day, is the country 
better off?
    As a start, I would urge you to look no further than ``your 
backyard'' to the North. From discussions with the professionals in 
Canada, one key element which affects the effective tax rate in the 
manufacturing sector, is labor. In other words, the greater the 
investment in labor, the lower the effective rate. Of course, this is 
enhanced with R&D credits which are more effective than the U.S.' 
system.
    Mr. Chairman, I must, respectfully, say that the proposals in your 
Bill or the Crane-Rangle Bill are ineffective.
Conclusion
    The U.S. has been a leader and an innovator over the decades. Let 
us, now, not have it fall to second grade through illogical and ill 
conceived tax policies. If these policies are allowed to continue, the 
results, invariably, would be continuing to make U.S. enterprises 
uncompetitive and curtailing investment into the U.S. for job creation.
    In summary:

    1.  Any proposal to make section 163(j) worse than it is currently, 
should be eliminated;
    2.  The original proposals in H.R. 2896 vis-a-vis subpart F should 
be acted upon this year. However, make the effective dates sooner, not 
later. There are too many good provisions which have effective dates 3 
or 4 years hence. If these proposals had been in place 5-10 years ago, 
the chances of the inversions occurring would have been significantly 
diminished; and,
    3.  The solution to ETI is simple, just do it.

    From my experience, too many times countries have used tax policy 
to curtail any benefits from trade agreements. If free/fair trade is 
the policy, tax policy should not act as a contradiction thereto. 
Unfortunately, this seems the road the U.S. is heading.

            Sincerely,
                                                        Paul Tadros
                                                                CPA

                                 
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