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PERSPECTIVES ON THE 2007 TRADE AGENDA

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 8, 2007

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 2

WITNESSES

Summers, Larry, Charles E. Eliot University Professor, Harvard University,

Cambridge, MA .................................................................................................... 5

Smith, Fred, CEO, Federal Express, Washington, DC ......................................... 7

Baugh, Bob, executive director, Industrial Union Council, AFL–CIO, Washington, DC ............................................................................................................. 8

Lang, Craig, president, Iowa Farm Bureau Federation, West Des Moines,

IA ........................................................................................................................... 10

Warlick, Andy, president, Parkdale Mills, Inc., Gastonia, NC ............................ 12

Holland, Steve, director, Montana Manufacturing Extension Center, Bozeman, MT ................................................................................................................ 14

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Baugh, Bob:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 41

Response to a question from Senator Hatch .................................................. 52

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 2

Holland, Steve:

Testimony .......................................................................................................... 14

Prepared statement .......................................................................................... 58

Lang, Craig:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 67

Smith, Fred:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 69

Summers, Larry:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 73

Warlick, Andy:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 86

(III)

(1)

PERSPECTIVES ON THE 2007 TRADE AGENDA

THURSDAY, MARCH 8, 2007

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:06 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Lincoln, Wyden, Stabenow, Salazar, Grassley,

Hatch, Bunning, Crapo, and Roberts.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The committee will come to order.

Welcome to our second Finance Committee hearing on the 2007

trade agenda. On February 15th, we heard from the U.S. Trade

Representative on the administration’s trade agenda, and today we

welcome six key stakeholders to share their perspectives.

Former Majority Leader Mike Mansfield once said, ‘‘Knowledge

is essential for acceptance and understanding. By examining the

political heritage, economic experience, and even the national

myths that tie people together, we can begin to better understand

each other and contribute to the knowledge and understanding that

will lead to a better world.’’

As a Montanan, Mike Mansfield long enjoyed hearing from diverse voices, from our 11 Native American tribes, to the tens of

thousands of immigrants who came to Montana from every corner

of the world. Montanans recognized that we are best served by listening to as many different voices as we can. It makes us better

thinkers and may even lead to a better world.

Today we have invited witnesses to examine the trade agenda

from many angles. We have witnesses who see the trade agenda

from the point of view of academia, agriculture, labor, textiles, big

business, and small manufacturers. We welcome our witnesses

here today and we especially welcome—I do, anyway—Steve Holland, who traveled from Bozeman, MT to be here this morning.

Our witnesses bring diverse voices to the debate, but they all

share a common goal: we all want a trade policy that advances our

national interests. We all want America’s farmers, ranchers, manufacturers, workers, and innovators to succeed on the world stage.

We all want to create and maintain good, high-paying jobs here in

America. We all want to do these things in a way that preserves

our environment.

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Trade policy is at a critical juncture. The forces of globalization

are marching forward. Our trading partners, especially China, are

locking up key export markets abroad. America’s fast track negotiation authority expires in less than 4 months.

Article I, section 8 of the Constitution gives Congress the responsibility ‘‘to regulate commerce with foreign nations.’’ We in Congress, therefore, will decide what comes next.

How can we best shape the future of trade policy? How can we

best use trade policy to create jobs here in America? How can we

best use trade policy to maintain America’s economic leadership for

the next generation?

Before Congress can answer these questions, we need to hear

from the many voices that care about trade policy. Some voices, including my own, believe that we best advance these goals through

a vigorous trade policy. By lowering trade barriers abroad, we develop new export opportunities. We can create jobs and further economic growth here at home.

We, however, cannot sit on the sidelines while our trading partners, other countries, open critical export markets without us and

do deals among themselves. We cannot trail behind the forces of

globalization. We must seek the opportunities and take advantage

of them. We must get out ahead of them. Our workers, farmers,

ranchers, and manufacturers deserve nothing less.

But, understandably, many Americans have deep reservations

about trade. Out-sourcing and falling wages frustrate our workers.

Lax enforcement of our trade laws and agreements frustrates many

businesses, including small business. Non-tariff barriers abroad

frustrate our farmers, ranchers, and many others.

We need to listen to all of these voices. Fundamentally, we need

to create a new consensus. Times have changed, especially since

the last major trade bill, the 1988 Trade Act. We need to develop

a trade policy that commands broader support among Americans,

and we all look forward to those goals.

Senator Mansfield said, ‘‘One of the best ways to bring about better understanding is through exchanges of all kinds.’’ Today’s exchange will bring diverse voices to that trade debate. Today’s exchange can help us better understand what has, and what has not,

worked in trade policy. Today’s exchange may just help us build a

new consensus on trade policy.

So we look forward to listening to all of your voices. We look forward to hearing the exchange among you, and with us. We look forward to our getting a better understanding of each other’s points

of view. After all, we are America.

We should strive toward consensus. I look forward to making the

decisions that will help America’s workers, farmers, ranchers, and

manufacturers. And who knows? Today’s exchange may even lead

to a better world.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. An overview of my approach to trade is that,

in the 70 years that we have moved from the protectionist policies

that led us to the Great Depression of the 1930s and that policy

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being changed with the reciprocity programs of the 1930s, going

through GATT and now the WTO, not only has the United States

benefitted from it very dramatically, but the entire world has benefitted from it as well.

As we continue to move forward, there’s going to be even more

benefit to the world, especially based on the proposition that onethird of the world’s economy is based upon trade. And so we have

been moving in the right direction. I think we can look at that 70-

year history and say that protectionists are always wrong.

So with that in mind, Mr. Chairman, I thank you for starting

down the road of continuing dialogue in this area and continuing

your trade policy of the past, which has been very free-trade.

I also thank the witnesses who are here with us today, and especially my friend, Mr. Craig Lang, president of the Iowa Farm Bureau, a fellow farmer, and also very active in the American Farm

Bureau Federation as a member of that board of directors. We welcome all of you, but especially, for me, Craig Lang.

This is a very important hearing. The committee will need to address a number of pressing trade issues this year. We have to find

a way forward immediately to implement trade agreements with

Peru, Colombia, and Panama. I am hopeful that, before that process ends, we add to the string Korea and Malaysia.

We need to reauthorize trade promotion authority, which expires

July 1st, so that the United States remains a relevant voice at the

negotiating table and we do not relapse to where we were in the

1990s when, worldwide, there were about 130 bilateral trade agreements reached and the United States was only a party to two of

them.

The world, until then, relied upon the United States of America

to be a leader in this regime of moving towards negotiations on

trade, and the rest of the world showed the United States, during

that 8 years that the President did not have trade promotion authority, that they were not going to sit around and wait for the

United States to lead. So, I hope that that lesson teaches us that

we should not let TPA authority lapse again and the United States

lose its leadership.

So, we do need to reauthorize that. We need to reauthorize the

trade adjustment assistance programs, and we need to examine

ways to improve that program in a fiscally responsible manner.

I think we need to take another look at our unilateral preference

programs to determine whether it makes sense to retain or reform

those current programs. Today’s hearing will help us as we prepare

to tackle those issues.

Senator Baucus is surely up to tackling them, and I want to be

working with him. American farmers, ranchers, manufacturers,

and service providers are counting on us to get it right. We need

to continue to open markets and reduce non-tariff barriers to our

exports.

We have an immediate opportunity to do just that. The American

Farm Bureau estimates that, when fully implemented, our trade

agreements with Peru and Colombia, together, will result in about

$1.5 billion in additional exports.

The U.S. International Trade Commission estimates that each of

these two trade agreements will help reduce our trade deficit.

4

These agreements offer the prospects of billions of dollars in export

sales, not just for agricultural products, but for manufacturing and

services as well.

It frustrates me then to hear critics talk out of both sides of their

mouth on trade. One minute they are criticizing the size of our

trade deficit, and the next minute they are opposing trade agreements that will help improve our trade deficit situation. To me,

that is not credible, but we hear it outside of Congress and we hear

it inside the Congress.

We have an opportunity right now to work on trade agreements

where countries that have benefitted from trade benefits from the

United States have reduced tariffs over a long period of time to

level that playing field for American farmers, manufacturers, and

services to get our products in there right now, yet we are arguing

over some things that are preventing that from happening and the

jobs that are being created from it.

Now, of course, I realize that the political landscape has changed

since the November election. I am reminded of that as I am sitting

here instead of sitting over there. It has changed. We need to address concerns on labor raised by members on the other side of the

aisle if we are going to get Peru, Colombia, and Panama trade

agreements implemented. But they ought to be implemented yesterday and not tomorrow.

I remain optimistic that we can find a way to address those concerns, while not creating concerns on my side of the aisle that

trade agreements could be used as a back door to force changes in

U.S. labor policies. Let me say, there are people on my side of the

aisle whom I can say these things about as well, so that is not directed just towards Democrats.

It remains to be seen whether the critics are truly interested,

though, in finding common ground on policy or just trying to kill

agreements outright. While these agreements are important economically, they are also important politically, or maybe you want

to say diplomatically.

We need to send a strong signal of our support to our allies in

Latin America and not turn our backs on them. Failure to implement trade agreements with Peru, Colombia, and Panama would

just further embolden Chavez and his acolytes.

With respect to trade promotion authority, I know some have

suggested that we need some breakthroughs in the Doha negotiations in order to justify renewal. Now, I disagree. I think that they

have it backwards.

It is hard for me to see why our trading partners would put their

cards on the table if there are doubts about Congress putting a

final deal to a straight up-or-down vote. So I think we in Congress

have to take care of our own business first by renewing trade promotion authority.

I also look forward to exploring ways to improve our trade adjustment assistance programs in a fiscally responsible manner, but

not take us down the road of Europe, where they have not had

growth in employment for the last 10 or 15 years of any great extent compared to the United States of America.

I am beginning to reexamine these programs myself, and I will

have more to say about them in the weeks ahead. Clearly, there

5

is a lot of work to be done, and I look forward to working with the

Chairman and members of our committee to produce concrete results.

The CHAIRMAN. Thank you very much, Senator.

I will turn to the panel. I thank all of the panelists for coming,

some of you a great distance, at inconvenience to a lot of you. We

deeply appreciate it. Here is an opportunity for each of you to make

the best use of this time here and say what is on your minds.

Our first panelist is Larry Summers. He is the Charles E. Eliot

University Professor at Harvard University; next, Mr. Fred Smith,

who is CEO of Federal Express; next, Bob Baugh, who is executive

director of the Industrial Union Council of the AFL–CIO; Mr. Craig

Lang, president of the Iowa Farm Bureau Federation; Andy Warlick, president of Parkdale Mills in Gastonia, NC; and, finally, Mr.

Steve Holland, who is director of the Montana Manufacturing Extension Center in Bozeman, MT.

We will just go down the line here and start with you, Mr. Summers. You have about 5 minutes. I urge you, because we have a

lot of people here today and Senators want to ask questions, if you

could keep yourself down to 5.

STATEMENT OF LARRY SUMMERS, CHARLES E. ELIOT UNIVERSITY PROFESSOR, HARVARD UNIVERSITY, CAMBRIDGE, MA

Mr. SUMMERS. Senator Baucus, it is a pleasure to address you as

‘‘Mr. Chairman.’’ And, Mr. Chairman, it is a pleasure to return to

testify before this committee, which has done so much in the past

to shape our national economic policy and will, I am confident, do

a great deal in the future.

We come together at a critical juncture in U.S. economic policy,

with a global economy that is evolving in unprecedented ways,

shaped by two primary developments: revolutions in technology

and the rise of the developing world.

It has been estimated that it is possible that as many as 20 percent or more of U.S. jobs will potentially be subject to foreign competition as a consequence of technology over the next 2 decades beyond those that are subject to competition today.

What is happening in Asia is without economic precedent in the

history of the world. They called it the industrial revolution because, for the first time in human history, living standards doubled

within a single human life span.

At rates of growth that have prevailed in China recently, living

standards will rise 100-fold within a single human life span, and

transformative and remarkable economic growth is under way in

many of the emerging markets. What happens between the United

States and the emerging markets will shape the history of this century.

These twin forces of globalization and technology have produced

enormous benefits for the U.S. economy. After 20 years of slow productivity growth, we have, for more than a decade, been in a period

of productivity acceleration. The business cycle has moderated to a

very great degree.

We have attained combinations of unemployment and inflation

that would have been thought impossible 15 years ago. Even late

6

in an expansion, mortgage interest rates are below 6 percent, permitting record levels of home ownership.

We do not have a viable economic strategy other than embracing

globalization, but doing so effectively requires us to respond to the

very large challenges that it brings. I would highlight four.

First, assuring a sustainable global growth. The United States,

the world’s largest power, is now the world’s greatest borrower on

an unprecedented scale. As the first figure in my testimony illustrates, that borrowing is financing consumption rather than investment. It is surely not sustainable. It is not sustainable arithmetically in terms of the economics, not sustainable politically in

terms of the dislocations that it brings.

So, the choices that are made here in Washington with respect

to our Nation’s fiscal policy and our level of national savings, other

areas of this committee’s jurisdiction, will be of profound importance going forward.

Second, even with the best imaginable fiscal and monetary policies, it is crucial that we make the investments that are essential

for economic growth. To mention just one example from what I

have been doing these last number of years, 15 years ago it was

the case that the United States led the world in the fraction of

young people who went to, and graduated from, college. Today, we

struggle to be in the top 10 nations in this world in that regard.

That is an example of a central issue of appropriate investment in

education.

Equally important are investments in technology. It cannot be

wise, at a moment of unprecedented opportunity for our country,

for our investment in the biomedical sciences to have actually declined last year for the first time in 40.

These investments will have to be focused on achieving American

clusters of strength that are very difficult for others to replicate

and that can serve as magnets for talent from around the world.

The CHAIRMAN. I am going to ask you to take one more minute.

Mr. SUMMERS. One more minute. All right. Third and fourth will

be fast.

Third, and most critically, we need to address the challenge of

economic inequality and insecurity because it is the right thing to

do for American families, because it is necessary to support growthoriented policies.

To offset the changes that have taken place in the income distribution over the last 25 years, one would need to transfer nearly

$600 billion from those in the top 1 percent of the income distribution to those in the lower 80 percent.

If we are going to maintain support for a market-oriented global

system, we need, in a whole variety of ways, starting with the progressivity of our tax and transfer systems, to address this challenge

of rising inequality and insecurity.

Finally, Mr. Chairman, it is essential that the United States repair and restore our strong relations with the rest of the world. To

do so, we need to be prepared to engage in bilateral and multilateral diplomacy directed at opening markets. It is not plausible to

assert that any large part of what has taken place, driven by technology and globalization, is a consequence of particular trade

agreements.

7

But failure to make it possible for the United States to engage

in trade agreements would severely jeopardize our ability to compete with other nations that are pursuing trade agreements, would

limit our influence on a broader range of issues, and would deny

American exporters a range of attractive opportunities. Thank you

very much, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Summers. That is

very, very helpful.

[The prepared statement of Mr. Summers appears in the appendix.]

The CHAIRMAN. Mr. Smith?

STATEMENT OF FRED SMITH, CEO, FEDERAL EXPRESS,

WASHINGTON, DC

Mr. SMITH. Thank you very much, Mr. Chairman. On behalf of

the 275,000 people who make their living in the FedEx companies,

I very much appreciate being invited to appear before you and this

distinguished group of Senators of the Finance Committee.

As many of you know, FedEx, particularly through our express

company, is a major facilitator of U.S. trade. Operating a fleet of

some 700 airplanes and 80,000 vehicles, we carry millions of shipments a day in the international trades, the high-tech and high

value-added goods that really mark modern society.

We have spent many years promoting the opening of markets

and the development of trade, and we strongly support the renewal

of the TPA and believe that the failure to do so would have several

adverse repercussions. It would certainly reduce the chances of

completing the Doha Round. It would endanger the completion of

major bilateral agreements such as Malaysia and Korea.

It would allow our trading partners to submit preferential trade

deals—and this is particularly important—that put the United

States at a distinct disadvantage in terms of our products and services, and it would signal, in an unprecedented manner, America’s

first retreat from global trade leadership.

Trade is, now, about 25 percent of our entire economy. It accounted for 20 percent of the overall growth in the U.S. economy

in 2005. Over the past 10 years, trade has raised U.S. GDP by

nearly 40 percent, and the U.S. added over 16 million jobs during

that same period. Today, the best estimates are, U.S. annual incomes are $1 trillion higher, or $9,000 per household, due to increased trade liberalization since 1945.

The services sector, of which we are a part, represents 77 percent

of U.S. GDP now, and employs 80 percent of U.S. workers. It is one

of our greatest competitive strengths.

Services, like FedEx, form the critical infrastructure of modern

economies, and they account for about half of the price of every

manufactured product that we buy.

The value of U.S. services exports, $414 billion in 2006, is 5

times greater than the value of our agricultural exports. We have

a $73-billion surplus in services trade. The ten highest-paying industries in the United States are all in the services sectors. Opening markets to U.S. service providers must be a key component of

our trade policy.

8

Now, protecting the interests of our domestic farming community

is, of course, important to our National interests, but so is the need

to remain competitive in the global marketplace for goods and services. We need to find a balanced solution to the agricultural subsidies issue and then push aggressively to complete the Doha

Round.

Even if we were to achieve a breakthrough on Doha, it will take

several months to formalize the written text, so TPA, therefore, is

essential, and quickly. I know that you in this committee, and the

Congress as a whole, are trying hard to come up with a bipartisan

approach to addressing labor and environmental issues in our trade

agreements, and we applaud that.

Companies like FedEx who benefit from trade have a role to play

in promoting America’s free trade agenda, and I can assure you we

will do our utmost to equip our workforce to succeed in the global

economy and share in the gains that trade provides.

America stands to continue to gain much from free trade. Our

people and our companies continue to be the most competitive and

innovative in the world in the services sector, in many manufacturing areas, and in agriculture. We very much appreciate, again,

the opportunity to present our thoughts before the committee, Mr.

Chairman.

The CHAIRMAN. Thank you very much, Mr. Smith. I appreciate

that.

[The prepared statement of Mr. Smith appears in the appendix.]

The CHAIRMAN. Next, Bob Baugh. Mr. Baugh?

STATEMENT OF BOB BAUGH, EXECUTIVE DIRECTOR,

INDUSTRIAL UNION COUNCIL, AFL–CIO, WASHINGTON, DC

Mr. BAUGH. Thank you, Senator Baucus and members of the

committee, for the opportunity to testify here this morning.

It is time for fundamental change in U.S. trade policy. Our def- icit hit $764 billion, our cumulative international debt exceeds

$3 trillion, real median wages and family income continue to stagnate, as Senator Baucus noted. We see heart-rending reports daily

about the abuses of worker rights, both here and abroad.

Democratic governments find their policy scope increasingly constricted by global trade rules. The loss of 3 million manufacturing

jobs and 40,000 manufacturing facilities in offshoring, design, engineering, and R&D is a threat to the Nation’s economic and national

security.

It means that the next best idea, the next innovation, the next

generation of products, and the next investment will be made in

some other country. It does not have to be this way.

For globalization to live up to its promise, we need an entirely

new set of rules and institutions. No government should gain a

competitive advantage by offering to violate its own workers’ rights

just to keep labor costs down. No company should profit by taking

advantage of vulnerable workers in one country to produce goods

to sell to wealthy consumers in another.

We need to support the International Labor Organization’s Declaration on Fundamental Principles of Rights at Work, and these

must be enforceable, with binding dispute settlement and enforcement mechanisms, just like we have on the commercial side.

9

International environmental commitments should be reaffirmed

and protected, but private investors must not have the right to

challenge domestic environmental or public interest laws and regulations before closed international courts.

We need to ensure that trade rules do not threaten government’s

ability to provide affordable and high-quality public services or to

regulate labor markets, the environment, public health, or consumer safety. Those are the kinds of constrictions we are seeing.

Trade agreements must not require privatization or deregulation

as a condition, nor should they obstruct developing countries’ rights

to essential medicine for HIV-AIDS and other medical crises.

Procurement provisions must not undermine the ability of government to use its tax dollars for economic and social goals, and

changes in our own immigration laws should be done by Congress,

not by irreversible commitments made in trade agreements.

We need more transparency and a much broader public participation in the negotiation of trade rules. Business should not be the

only non-government group at the table; a lot of us have things at

stake in these negotiations.

We have been on the wrong track. Our own government has let

us down with trade negotiations in a regime that promotes corporate rights to the exclusion of everything else. They have failed

to enforce their own trade laws and do little to protect them from

international challenge. What has gone on in the WTO is a disaster: we have lost case after case after case.

The revised Doha Round of negotiations can only be greeted with

pessimism, from our point of view. The framework fails to address

the concerns of working families here and abroad.

The recent administration proposal to abandon ILO workers’

rights and replace them with U.S. labor laws in the Peru, Colombia, and Panama free trade agreements is an arbitrary, unworkable, and ill-conceived idea that would be an international embarrassment.

One hundred and seventy-five countries have signed this convention. It is the standard of the world, which is exactly the kind of

standards we talk about in this committee and within the World

Trade Organization’s frameworks.

The Treasury Department’s repeated inability to find any technical violation of the currency laws by the Chinese government is

an absolute outrage. But there is hope. I would like to thank Senator Stabenow, Senator Bunning, Senator Levin, Senator Casey,

and Senator Snowe for their leadership in introducing the Free

Currency Act in the Senate yesterday. This is an important step

forward, and we look forward to working with you on this legislation.

The AFL–CIO welcomes the national debate over how best to reform our trade policies, but we will vigorously oppose any attempt

to extend the current fast track authority. It is time to strengthen

the role of the Congress in this important area.

There is a right track. Let me suggest four ways. One, the first

step in any new trade policy must be a strategic review of our existing trade agreements before moving on to new ones. Such a review much include recommendations on how to address the problems in existing agreements, up to, and including, renegotiation.

10

Number two, Congress should have a role in choosing trade partners, which it does not, currently. Congress should lay out readiness criteria to assess any trade agreement partner, including the

economic opportunities for U.S. workers, firms and farmers, a country’s legal framework and enforcement regimes, a country’s compliance with ILO standards, multilateral environmental agreements

and fundamental human rights, and the existence of a democratic

governance system.

With these rules, frankly, no one would have renegotiated a

trade agreement with Colombia, where over 2,000 trade unionists

have been murdered in the last decade.

A key element to make in the negotiation objective laid out by

Congress must be mandatory. These objectives much be mandatory, not optional. The U.S. Trade Representative has consistently

ignored Congress’ instructions.

The mandatory negotiating objective should, at a minimum, address labor, environment, investment, procurement, protecting our

trade laws, intellectual property rights, services, and immigration.

Point number four, Congress must certify that an agreement has

met all the mandatory objectives before an agreement can be

signed. These represent only the most crucial changes that are

needed to get our trade policy back on track.

Congress must act now to reassert its voice over trade policy,

which increasingly affects so many areas, as everybody has noted,

of domestic policy. Without deep reform, we cannot come together

and meet the many challenges that we face as a Nation. The AFL–

CIO looks forward to working with all of you in putting the Nation

back on the right track. Thank you.

The CHAIRMAN. Thank you, Mr. Baugh.

[The prepared statement of Mr. Baugh appears in the appendix.]

The CHAIRMAN. Mr. Lang?

STATEMENT OF CRAIG LANG, PRESIDENT, IOWA FARM

BUREAU FEDERATION, WEST DES MOINES, IA

Mr. LANG. Thank you, Mr. Chairman. My name is Craig Lang.

I am a fifth-generation farmer from Brooklyn, IA. I farm 1,000

acres with my father and brother. I am proud to say that Monday

was the first day that my son was fully employed as a sixth-generation farmer at Yareby Farms in Brooklyn, IA.

So much about what I will say today has more to do with my

family farm than me being president of the Iowa Farm Bureau, or

on the American Farm Bureau board of directors, because certainly

having a successful opportunity for the next generation to farm in

Brooklyn, IA is of high priority not only to me, but to my dad.

There is no question that export markets are important to American agriculture. We export a fourth of this country’s farm production. Iowa is second only to California in the amount of products

we export. In 2005, Iowa exported nearly $4 billion of agricultural

products. This represents 27 percent of our total farm cash receipts

in Iowa.

American farmers rely on growth potential in export markets.

The U.S. has an immature market for food consumption, only increasing as our population increases. However, for 95 percent of

the rest of the population that live outside of our borders, it is a

11

different story. Population growth, income growth, and consumption growth in developing countries of Asia, Central and South

America, and Africa are creating more demand for our products.

Currently, we are trending away from our traditional export

markets of Europe and Japan, while increasing trade with our

NAFTA partners. Today, Canada and Mexico buy a third of all of

our U.S. farm exports. Consumption transfer for food and commodities is flat in this country, but increasing dramatically in markets

like China.

Soybean consumption in the U.S. market has increased by approximately 25 percent compared to a decade ago. However, Chinese soybean consumption has grown 236 percent in the last 10

years.

Why? Income growth is resulting in more demand for animal protein in the Chinese diet. Therefore, Chinese pigs, chickens, dairy

cows, and fish are being fed Iowa soybeans.

India is another huge developing market, with a middle class

that now outnumbers the entire U.S. population. It is very clear

that our most exciting trade opportunities are now overseas.

However, despite the previously mentioned trade opportunities,

we still face trade barriers such as high import tariffs, restrictive

import quotas, embargoes due to plant and livestock issues, and

concerns about biotechnology. Oftentimes these barriers are nothing more than excuses that have more to do with politics than food

and safety.

We need your help addressing these frustrations. Many different

trade difficulties could be remedied by government-to-government

negotiation, with the staff of USDA, USTR, FDA, and even the

State Department meeting with foreign counterparts. It is crucial

that we continue the funding and staffing levels for those Federal

agencies that support agricultural trade.

Bilateral and regional free trade agreements are doing much to

open new markets for American agriculture. We are grateful to the

USTR’s tireless negotiators and hope that Congress will quickly

ratify treaties as they are concluded. It is critical that Congress

take immediate action on the Peru and Colombia trade promotion

agreements.

Yesterday, the American Farm Bureau board of directors approved a go-ahead for our organization on the Panama free trade

agreement. Combined, these agreements represent an additional

$1.5 billion in U.S. agricultural exports after full implementation

of the agreements.

Currently, about 90 percent of the agricultural products from

these two countries enter the United States duty-free because of

preferences. Passage of these agreements will provide U.S. agricultural exports the same duty-free treatment.

We continue to support multilateral trade negotiations like the

WTO Doha Round. Success in WTO could make progress on farm

subsidies reform and export subsidy and import tariff reductions

with 149 other countries all at one time.

American farmers are willing to trade significant reductions in

trade-distorting domestic farm support for real tariff reductions

and proportionate gains in market access. Our trade partners need

12

to know that we are serious about successful conclusion of the

WTO negotiations.

To send this message, it is imperative that Congress renew trade

promotion authority before it expires in June of this year. Efforts

to establish new bilateral and multilateral trade agreements will

come to a halt without TPA.

Also, Congress should remove restrictions on agricultural trade with Cuba. Cooperatives in my State of Iowa sold more than $75

million of corn, soybeans and wheat to Cuba in recent years. I cannot understand how we can play baseball there, but we cannot

trade our food.

In addition to trade policy and trade negotiations, farmers count

on Congress to support American agriculture with trade development and promotion. The USDA Market Access Program, Foreign

Market Development Program, and other grant programs help leverage check-off funds.

Agricultural contributions and trade association dues from organizations like the Iowa Farm Bureau are always working to help

international trade. As a farmer and farm organization leader, I

am excited about the potential for trade that lies over the horizon

and outside of our borders. I believe it is the one thing that will

help my son be a good farmer and have an opportunity to raise his

family in Brooklyn just like I did.

Thank you.

The CHAIRMAN. Thank you, Mr. Lang.

[The prepared statement of Mr. Lang appears in the appendix.]

The CHAIRMAN. Mr. Warlick?

STATEMENT OF ANDY WARLICK, PRESIDENT,

PARKDALE MILLS, INC., GASTONIA, NC

Mr. WARLICK. Chairman Baucus, Senator Grassley, and distinguished members of the committee, thank you for the opportunity

to appear today and outline the U.S. textile industry’s perspective

on the 2007 trade agenda.

My name is Andy Warlick, and I am the president and CEO of

Parkdale Mills, a privately held textile manufacturer headquartered in North Carolina, with plants in North Carolina, South

Carolina, Virginia, and Alabama.

Parkdale Mills has been a strong supporter of the NAFTA,

CAFTA, and Andean Trade Preference programs. In my oral testimony today I would like to touch on a number of issues, including

the recently passed Haiti legislation and the need for a trade policy

agenda that delivers benefits to manufacturers that produce in the

United States and employ millions of workers here at home.

About this last point, I would like to make one initial observation. In the recent elections, it was demonstrated clearly that a lot

of Americans believe that trade policy has been headed in the

wrong direction and needs to be turned around.

As we debate what changes might be made, I implore you to keep

your attention focused on rebalancing the playing field to make

sure that American jobs stay here. U.S. workers are the most productive, creative, and highest-skilled workers around the globe, but

bad trade policy and the government’s lack of attention and focus

on enforcement efforts has tilted the playing field against them.

13

For a snapshot of those difficulties that a poorly thought-out

trade policy and lax enforcement can cause to U.S. manufacturing,

one need turn no further than the Haiti Hope Act passed by Congress just last December.

First of all, I hope the committee appreciates the fact that the

Hope Act is not a trade bill, it is a textile bill. Ninety-nine percent

of the contents of this legislation impacts U.S. textile manufacturers alone, yet the U.S. textile industry was never consulted, not

even once, as Congress drafted this legislation.

There was neither a hearing on this proposal, nor a committee

mark-up, that would have allowed key stakeholders and those who

represent us the opportunity to provide feedback and input.

On top of that, this program contains rules and regulations

which we now know from experience are impossible to enforce, yet

Congress expands these flawed programs time and again.

To make matters worse, I further understand that later this

month the U.S. Government will certify that Haiti has met the

Customs enforcement requirements mandated under this law, even

though Haiti has not taken any of the steps that the law requires.

So what we have is an eleventh-hour trade deal that ignored the

interests of the primary impacted stakeholder and that contains

unenforceable rules, and our government is not making a semblance of an effort to try to adequately enforce it.

It is no wonder the average person back home has lost faith in

Congress’s ability to deliver on the promise of free trade. I can recall when the China PNTR was a major issue before Congress, and

the U.S. textile industry was very concerned that the WTO accession agreement with China would not be enforced because past

agreements with China had not been enforced.

We were assured by supporters in Congress and by the government that this time things would be different, and that bringing

China into a rules-based, global trading system was the best way

to address our trade concerns with China.

Of course, 6 years later we are back at the same place. The

agreement is not being enforced. China is not reducing its subsidies, it is not protecting intellectual property rights, and it is continuing to manipulate its currency.

The net effect is that U.S. companies and workers lose because

the Chinese have advantages in setting prices wherever they need

to set prices to make a sale. They are not worried about profits,

shareholder values, or creditworthiness. They simply make the sale

to keep their plants operating and keep their people employed.

They can achieve this through a complex web of subsidies, including currency manipulation, export tax rebates, non-performing

loans, subsidized transportation, and subsidized utility rates, just

to name a few.

Many, if not most, of these are illegal under U.S. trade law and

WTO law, yet there appears to be precious little interest in Congress or by the government in going after countries that do not live

up to their WTO obligations.

In my mind, this is the crux of the problem with trade policy

today. We have a de facto policy that allows foreign governments

to subsidize their exports and throw U.S. workers out of their jobs,

while our own government essentially looks the other way or conVerDate 11-MAY-2000 14:56 Jun 02, 2008 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 42395.000 SFIN1 PsN: SFIN1
14

veniently provides aid and assistance to those businesses overseas

and to those governments. Main Street America cannot overcome

such an unjust system.

China is only the biggest example. Since 1994 when the industry

was told that new market access opportunities would be aggressively pursued as part of the Uruguay Round, the exact opposite

has, indeed, happened.

During this time, one-way preferential trade programs and free

trade agreements with loopholes for third-country fabrics have

dominated the trade agenda in textiles and apparel, with very limited gains being made in new market opportunities for U.S. exports.

I can think of two big steps that would go a long way to restore

American workers’ faith in trade. The first is that Congress should

quickly pass the Fair Currency Act, which was introduced today in

the Senate with bipartisan support. The legislation would allow

countervailing subsidies to be applied to China and provide that

currency misalignment is a countervailable subsidy.

The second would be to do something about the problem of valueadded taxes that are employed by 137 countries, including every

major industrial power except the United States. These countries

rebate VAT taxes on exported goods and levy VAT taxes on imported goods. This double taxation puts U.S. producers at a significant disadvantage, $294 billion in 2005, as a result of the valueadded taxes.

In closing, I would like to emphasize that the U.S. textile industry is supportive of trade. In fact, our livelihoods now depend upon

it. But trade at any cost, that is more about achieving foreign policy and social objectives than it is about creating an open and

transparent trade environment, means that U.S. manufacturers

will continue to lose.

On behalf of our employees and myself, thank you for this opportunity.

The CHAIRMAN. Thank you very much, Mr. Warlick. That was

very interesting.

[The prepared statement of Mr. Warlick appears in the appendix.]

The CHAIRMAN. Mr. Holland, you bat clean-up here.

STATEMENT OF STEVE HOLLAND, DIRECTOR, MONTANA

MANUFACTURING EXTENSION CENTER, BOZEMAN, MT

Mr. HOLLAND. Thank you. Good morning, Chairman Baucus,

Ranking Member Grassley, and distinguished members of the committee. I would like to begin by thanking you for this opportunity

to share my views and perspectives on international trade issues

facing America’s small manufacturing community.

There are more than 350,000 small- and medium-sized manufacturers in the United States. Manufacturing exports support over 5

million jobs in the United States, and those jobs pay higher-thanaverage wages and usually include health care insurance and other

benefits. Further reduction in trade barriers would spur the creation of more higher-paying jobs in the U.S.

There are a number of trade issues that affect all manufacturers

who export, and I will mention just one: large and small manufacVerDate 11-MAY-2000 14:56 Jun 02, 2008 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 42395.000 SFIN1 PsN: SFIN1
15

turers who export are looking for fair trade. That is what free trade

agreements are intended to accomplish.

However, as has been noted here today, some of our trading partners do not do what they agreed to do. Allegedly, some partners

manipulate currency, illegally subsidize exports, and fail to protect

our intellectual property.

Enforcement of our agreements and the removal of illegal trade

barriers need to carry the same priority as trade negotiations.

There are additional statistics and details about manufacturing in

my written testimony that I have submitted for the record.

Barriers to fair trade affect all exporters. However, I have focused my recommendations in three areas that I believe will significantly benefit small- and medium-sized firms and that will

allow us to tap the export potential they represent.

First, I urge you to support innovation, because it is foundational

to U.S. competitiveness. Innovation is the key to our ability to compete globally. This has been true since the industrial revolution.

Small- and medium-sized enterprises are recognized as an important source of innovation in the U.S.

Second, ensure trade agreements have transparency for standards and local regulations. Foreign cities and regions often have

their own standards and regulations that deal with products. Even

when product specifications are clearly delineated in a contract,

small- and medium-sized enterprises can run afoul of unexpected

requirements.

Small companies do not have the resources to deal with a large

number of local regulations, so it would be very helpful if trade

agreements resolved these issues, perhaps by developing a form of

reciprocity or by establishing a hierarchy that can be used to resolve differences.

Third, the small manufacturing community needs an export

guide and self-evaluation tool. We need access to information in an

efficient and customized manner. A web-based self-assessment tool

that would help create a map to exporting that is specific to the

company and the target market would be extremely valuable.

Fourth, we need to enable more and affordable assistance to compete in foreign markets. The U.S. needs to adopt an investment

mind-set concerning trade. Some foreign governments are paying

for trade missions and are making investments in exports.

For example, the Canadian International Trade Authority will

pay for trade missions, provide marketing grants, and fund company contributions to World Bank- and Regional Development

Bank-funded projects. The U.S. charges for these services.

Lastly, we need to encourage and sponsor trade missions. About

30 percent of non-exporters are interested in exporting, but cite the

lack of information about export markets, customers, and export

procedures as barriers.

These are areas where they need help most. Trade missions are

an efficient way to help experienced and novice exporters alike.

Chairman Baucus, Ranking Member Grassley, and committee

members, thank you for this opportunity, your time, and for all you

are doing for America’s small manufacturers.

[The prepared statement of Mr. Holland appears in the appendix.]

16

The CHAIRMAN. Well, thank you all very, very much.

I am going to ask one question of all the panelists, and that is

your thoughts about how to beef up our trade enforcement. Some

suggest a new office within the USTR, a new ambassador or assistant ambassador whose sole job is trade enforcement. The number

of people in the USTR’s office that is dedicated to enforcement is

very small, just a handful.

Others suggest putting enforcement within, say, the Justice Department, take enforcement away from USTR and other agencies

and put it in the Justice Department. Others have other ideas.

I was just struck when I was in Japan about 20 years ago, speaking with the head of Sony. I said, ‘‘What would you do if the President of the United States gave you carte blanche in developing

United States economic policy?’’

He said, very simply, without skipping a beat, ‘‘You need a Department of Trade.’’ He said, ‘‘You have a Department of Housing

and Urban Development, you have Agriculture. You do not have a

Department of Trade. You have to have a Department of Trade.’’

It just made a lot of sense to me, clearly, the idea that we have

to have a lot more focus on exports and on what is happening in

the world to help our country more.

But going down the list here, I will start with Mr. Summers.

Your thoughts on our export structure. That is, our enforcement

structure, our enforcement personnel, and new ways to address enforcement so we can get a better handle on IPR violations in China,

India, and other countries, and all the other matters that have

been addressed. I am going to ask the same question of each of you,

so be prepared.

Mr. SUMMERS. Mr. Chairman, I would support an office within

the Office of the Trade Representative with that responsibility, and

also with the reporting responsibility to the Congress on major enforcement problems that we are having with the trade agreement.

I believe it is important that it be in the Trade Representative’s office so that it can be integrated with the overall administration’s

set of policies.

In my experience, we accomplish more with respect to violations

through high-level diplomacy associated with Presidents’ trips or

trips by Cabinet members than we do working through the particular jurisdictional arbitration procedures of the different trade

agreements. And so by placing it in the Trade Representative’s office, I think you have the best chance of its being integrated into

the broader thrusts of U.S. economic policy.

I think it would be quite unwise to place it in the Justice Department, which I think would not be well-situated to engage in the

kind of international negotiations that are involved in trade dispute resolution.

The CHAIRMAN. Do you think we need to beef up the personnel

there, have more people?

Mr. SUMMERS. I suspect having more people would be a good

idea, yes.

The CHAIRMAN. All right.

Mr. Smith?

Mr. SMITH. Well, my recommendation, Mr. Chairman, would be

to change the title of the Department of Commerce to the DepartVerDate 11-MAY-2000 14:56 Jun 02, 2008 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 42395.000 SFIN1 PsN: SFIN1
17

ment of Commerce and Trade, and to actually make the USTR a

part of Commerce. Today, there is this sort of bifurcated view that

Commerce is over here doing things about the American economy,

and the USTR is doing something over here.

As I said in my remarks, 25 percent of the U.S. economy now is

related to exports or imports. It is growing at a rate, worldwide,

about 3 times faster than the GDP growth rate of any country.

So you fast-forward in our economy, barring some huge political

mistake and so forth, it is going to be much more like Europe and

Asia, and so forth, where imports and exports are a bigger part of

the economy, not less.

The U.S. State Department has, at the embassies abroad, commercial officers. The infrastructure is already in place to do that.

It would streamline, in my mind, dealing with the business interests, commercial interests.

The second thing I would mention to you, as we have watched

international trade, over these past 25 years, grow—Senator Grassley mentioned this in his remarks—some of the biggest problems

are in non-tariff barriers. And probably the biggest culprit in that

area are local regulations and customs clearance capabilities.

If you export to the United States, we have a fabulous Customs

Service. Most of the items that are brought into the United States

are cleared electronically before they ever get here. It is a very

smooth process. There are some exceptions, but it is certainly almost frictionless.

You go to many parts of the world, and we are simply not able

to be competitive exporting to those countries because of archaic

customs regulations, archaic practices, corruption, and so forth.

And the final thing I would mention to you, as Mr. Summers

said, in a lot of places the problem about fair trade is not that the

country does not want to live up to its trade obligations, but they

have many political problems inside their country and their politics.

For instance, you go to China; I am very convinced that the head

offices of the Chinese government are very much against piracy of

intellectual property and so forth, but the reality on the ground of

selling DVDs in Shanghai or Wuhan defies the authorities there

the same way a lot of things that go on in this country defy our

authorities.

So, I think you really have to deal with these things at a very

high level to get the commitment of these governments to put their

resources to enforce them.

The CHAIRMAN. Well, my time has expired, which means the rest

of the four of you are going to have to answer my question in the

next round. I don’t have time now.

Senator Grassley?

Senator GRASSLEY. Yes. Thank you very much. I appreciated all

the testimony, even those people who testified who disagree with

me, because I know that you sincerely approach it. It is only

through discussion like this that we will reach the compromise that

it is going to take to move forward.

Mr. Lang, what would a good WTO agreement look like to you?

I am not asking you personally, but for farmers, generally.

18

Mr. LANG. Right. First, in understanding that improvement and

leveling the playing field in trade around the world would easily

bring 500 million people out of poverty, I think a good trade agreement would be one that reduced the high import tariffs, eased up

some of the restrictive import quotas, actually, one that was agreed

upon that was best for each country. It is going to be very difficult.

Trade agreements are a journey. They do not happen overnight.

They are agreements that take time to mature.

But one that actually allowed fairness of trade so that a particular product manufactured or grown was done because of the resources in people and land, and other kinds of resources that you

have in those countries because of that, without some kind of political agenda.

Senator GRASSLEY. All right.

You mentioned in your testimony the importance of Peru and Colombia. We receive a lot of their farm exports into this country

duty-free. As I indicated in my opening statement, it would level

the playing field for us. Have you heard of opposition by farmers

to these trade agreements, and if so, what would be the basis of

their opposition?

Mr. LANG. The opposition that you normally hear about these

kind of agreements is more about the farmers in those existing

countries having opportunities removed from them that do not

allow them to improve their status of life.

I do not believe that those disagreements that I would have with

them are justified because I have seen firsthand that, as economies

improve, as trade starts, those farmers have other opportunities to

make a living, to increase their status of life.

But those are the disagreements I have heard, some reluctance

on the part of fruit and vegetable growers in this part of the country, saying it is not fair. But, quite honestly, Senator Grassley,

those preferences are already in place that are not fair.

As we go ahead and approve those trade agreements, what happens is, it makes it more fair trade back and forth because those

products are coming into this country without restrictions the way

they are.

Senator GRASSLEY. Yes.

Mr. Smith, what type of barriers or impediments has FedEx encountered in trying to access foreign markets? How would you see

an agreement on services through the World Trade Organization

address some of those barriers?

Mr. SMITH. Well, I think I mentioned some of them a minute ago,

Senator Grassley: customs impediments and structural issues. I

think the trade agreements that we sign simply have to focus much

more on those non-tariff barriers and provide enforcement mechanisms in case they are encountered. They have been quite prolific

around the world in many countries.

Senator GRASSLEY. Mr. Summers, what, in your view, are the

ramifications if Congress would fail to renew trade promotion authority?

Mr. SUMMERS. Senator Grassley, I believe that if the United

States is not able to move forward on an active trade agenda, a

trade agenda based on bipartisan cooperation with the full involvement of the legislative branch, a trade agenda that is broader in

19

embracing a range of social issues, I believe that Americans will be

poorer, I believe that prosperity in the world will grow less rapidly,

and I believe that the serious problems that the United States

faces right now in its international relations will be magnified.

I believe that those whose interests are not coincident with ours

will gain influence in the world and will see an important opportunity if the United States withdraws.

Senator GRASSLEY. Thank you.

Mr. Chairman, I will let you move on.

The CHAIRMAN. Thank you very much, Senator Grassley.

Senator Wyden?

Senator WYDEN. Thank you very much, Mr. Chairman. I thought

this was an excellent panel. A couple of old friends, Bob Baugh,

with his roots in Oregon, and Larry Summers, whom I ask for

counsel all the time. It has just been a great panel.

I am going to be going home this weekend. At town meetings, I

will hear from middle-class workers who are going to say that they

do not believe trade agreements work for them. I have always been

supportive of trade. But when workers stand up at these meetings

and say the deals do not work for them, they want to see a fresh

approach, I am taking these concerns seriously.

So I have been looking at ways to see if it is possible to come

up with a new strategy for trade so that more workers get into the

winner’s circle. And it seems that most of the current government

policies, like trade adjustment assistance, get there too late.

It essentially gets there after the horse is out of the barn. And

workers are saying, this is not exactly what I am interested in, because somebody is going to re-train me for the job and I will make

half as much as I did at my old job.

So one of the things I wanted to do is look at the nature of a

trade agreement, because trade agreements reduce tariffs. Tariff

reductions are like tax cuts for companies.

And I think the first question I would ask would be of you, Mr.

Smith, because you have some good programs. You are trying to

help the workers on training and the like. But since tariff reductions are like a tax cut for you, why should you all not give the

workers a check when you get a tariff reduction?

You do not really even need a government program. It just seems

to me that when a trade agreement passes and you get a tariff reduction, why should you not give the workers a check so that the

winner’s circle gets expanded?

Mr. SMITH. Well, Senator, we do give them a check. Every 40 or

50 additional shipments that we carry in the international marketplace results in another hire at FedEx. You take our pilots who fly

these clipper ships of the Computer Age, those are not minimum

wage jobs. I mean, the captains on those airplanes make in excess

of $200,000 a year, with seniority. The First Officer is $150,000.

So, as the growth of trade takes place, we hire more people at

good jobs. I think our tax bill last year was something approaching

$1.5 billion, and our capital expenditures this year will be in excess

of $3 billion.

So, the number of people we employ directly pales in comparison

with the numbers of workers that we employ building Freightliner

20

trucks up in Oregon, and Ford vehicles, and General Motors vehicles, and Boeing airplanes, and so forth.

Senator WYDEN. I will not give you a hard time about what we

are called. Our name is Oregon. [Laughter.]

Mr. SMITH. Sir? What is that?

Senator WYDEN. I will not give you a hard time about that.

Mr. SMITH. I am sorry. I misspoke.

The CHAIRMAN. Well, that is interesting you say that, Senator,

because privately I was going to tell Mr. Smith it is really Oregon.

Mr. SMITH. Oregon.

Senator WYDEN. My only point is, I have usually made those

same arguments, Mr. Smith. Those arguments do not cut it with

middle-class workers any more. I think we are going to have to

have, for those of us who want to expand trade, some fresh strategies to get workers in the winner’s circle.

That is what I wanted to ask Mr. Summers and Mr. Baugh.

What are your thoughts? Not necessarily even the question I asked

Mr. Smith, but what are your thoughts about how we can get more

of these middle-class workers into the winner’s circle?

Mr. SUMMERS. Senator Wyden, I think you are posing exactly the

right question. I think the key thing that is very difficult to explain

is that the dislocations and the insecurity that people are experiencing that they are blaming on trade agreements are, in fact, not

the responsibility primarily of trade agreements, they are primarily

the reflection of things that are inevitable: the technological

changes that I talked about, the profound increase in the developing world.

So I think that to try to fix the problem by changing trade agreements is, in a way, like trying to fix a flat tire by blowing it up

through the place where it leaked. I think, rather, trade agreements have to be part of a broad economic strategy directed at the

middle class.

If one thinks about the greatest period of American international

economic leadership, the period after the second World War with

the Marshall plan, the forming of the GATT, the Bretton-Woods organizations, and so forth, an integral part of what made that possible was that we also had a government that was providing the

GI bill.

We also had a government that was providing the FHA and making it possible for middle-class families to purchase their own

homes for the first time.

We also had an expanded commitment to progressive taxation

that gave everyone a chance to be prosperous. So I believe we need

to link these issues of economic internationalism with a broader domestic strategy directed at creating a fairer economy.

That goes to everything from the tax code, to the provision of

health insurance on a universal basis, to embarking on the kinds

of projects that will employ large numbers of people, as the people

building those houses did in the 1940s, as the Internet did in the

1990s, as the interstate highway system did in the 1950s. I think

we cannot debate trade only in terms of trade, but have to put it

in the broader context of adapting the economy to globalization.

Senator WYDEN. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator Wyden.

21

Senator Roberts?

Senator ROBERTS. Thank you, Mr. Chairman. I did not realize,

sitting here on the end, that it was my turn.

The CHAIRMAN. Well, you came early, so it is your turn.

Senator ROBERTS. Well, I know that. I was going to read that

quote by Mike Mansfield, but you already read it. [Laughter.]

Trade promotion authority expires in 120 days. I came here primarily to ask the witnesses as to whether or not we should go

ahead and approve that within 120 days, mainly because I agree

with Senator Grassley, as well as the Chairman, saying you have

to either be a player or a bench warmer.

My score, to date, is that we have two players, two bench warmers, and two undecideds. I am going to ask the Chairman if he

might consider that we have one-armed witnesses, so they cannot

say ‘‘on the other hand.’’

But at any rate, I do not know how we would get all of this done

that we want done under the banner of trade, and ‘‘all of this’’

meaning some very positive things, i.e., human rights, the international labor standards, the democratic governments, better environment, better health standards, trade reform, better enforcement, improve our own tax code, health insurance.

Small business health insurance passed, by the way, 8 times in

the House, and we got 55 votes for it in the Senate, but for some

reason we cannot get it done. And building expansion. I do not

know how you do all that in 120 days.

But having said that, I would like to ask Mr. Smith a question.

And by the way, thank you for your wisdom. The EU has been subsidizing Airbus for as long as I can remember. Why on earth the

United States’ Department of Defense would consider a foreign bidder in regards to our national security is a little bit beyond me.

But you showed great wisdom in just purchasing 15 new Boeing

777 fighter—or, pardon me, freighter aircraft. They are not fighter

aircraft, they are freighter aircraft. [Laughter.] You may want to

make them fighter aircraft. But, anyway, thank you for doing that.

What would be on your wish list and what would happen to you

if TPA was not renewed in the next 120 days? I have serious

doubts that that is going to happen.

Mr. SMITH. Well, as I said in my remarks, Senator, for the last

70 years the United States has been a leader in expanding world

trade. It was started by a great Tennessean, Cordell Hull, in the

1930s, who was the architect of a lot of the institutions that had

promoted free trade.

I think the United States is now faced with a proposition that

Mr. Summers mentioned, where there are economies rising around

the world that are going to be peer economies, every bit the equal

of ours in terms of the size, in terms of their capabilities. For us

to withdraw from the trading system would be, in its own way, a

mistake of the same magnitude, in my opinion, as Smoot-Hawley

was back in the 1930s.

Senator ROBERTS. Well, I do not think you are going to find too

much progress on all the things that I just listed if you have a

trade agreement with Colombia, Peru, with China, or Russia, or

Hugo Chavez. I just do not think that is going to work. I am not

22

sure trade is the end-all catalyst to achieve these things, which everybody agrees would be a better situation.

President Lang, what would happen to you as an individual producer? You mentioned that your son would be the sixth generation

from Brooklyn, IA. Senator Bunning is sort of looking over here,

thinking I am talking about the Brooklyn Dodgers.

Senator BUNNING. They are gone.

Senator ROBERTS. Yes, I know. I can name them. I cannot name

you anybody from L.A.

But at any rate, what would happen in terms of your individual

farming operation if we do not move ahead on the TPA and avoid

what we had in Seattle, the tear gas round in Seattle, and make

a little progress?

Mr. LANG. That is right. Thank you for the question. Trade promotion authority is extremely important to the American farmer

and rancher, and it is from a negotiating standpoint. The rest of

the world does not think we are serious if we do not have trade

promotion authority.

Senator ROBERTS. Yes. But I want to know what is going to happen to you.

Mr. LANG. What would happen to me is, probably our prices

would start to decrease. Of course, in Iowa today we have ethanol

for the corn, but our dairy market, which makes our dairy payment, which makes up about 95 percent of our income for our dairy

operation, we would see that international trade on dairy, which is

not a part of the large global scene, would start to shrink.

And I will tell you, our margins are very small right now. If we

can make anywhere from 50 cents to 60 cents per hundred-weight

of milk sold out of 35,000 pounds a day, we can pay our bills. But

if it goes below that, you can see how serious it is: we are out of

business.

Senator ROBERTS. I appreciate that.

Mr. LANG. I do not believe there is anything that is going to replace that.

Senator ROBERTS. I appreciate that.

I am already a minute over time, Mr. Chairman, and I apologize.

You have already rapped my knuckles on this several times in the

past, but I just wanted to let Andy know, in North Carolina, that

Kansas is now cotton country. We have 200,000 acres of cotton. We

have the largest cotton warehouse in the country, about six gins.

We found out too the different strains of cotton.

I just wanted you to know that when Stephen Foster sang that

song, ‘‘Those Old Cotton Fields Back Home,’’ he was talking about

Kansas. [Laughter.] And I was checking people’s ties as I was going

around here; I did not get to check the Chairman’s tie. I would not

do that. But that is a good-looking tie. Where did you get that?

Mr. WARLICK. This came from Alan Byrd or Cargill Cotton Company.

Senator ROBERTS. All right, sir. And what did that cost you? It

is a good-looking tie. [Laughter.]

Mr. WARLICK. It was given to me. It was actually a cotton boll.

Senator ROBERTS. All right. But what did it cost you? [Laughter.]

Mr. WARLICK. It was a gift and it was given to me.

23

Senator ROBERTS. So your wife bought that for you. Well, I did

not want to get into that. But at any rate, I looked at mine. Mine,

I am a little embarrassed to tell you, came from Marshall’s and

cost twenty bucks, and it was made in China, but it is allegedly

an American company. I checked the one over here with Jim. His

came from Italy.

Senator BUNNING. Joseph A. Bank.

Senator ROBERTS. Senator Grassley wears borrowed ties. He is

not here, so I can say that. [Laughter.] I am just wondering.

But we had better get this TPA thing done, it seems to me, or

we are going to be sitting on the sidelines. We can make all the

speeches in the world about achieving all these things, and we are

not going to have the ability to have any kind of effect.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Senator.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman.

I want the ties made in the United States, so that is what I hope

our goal would be, even though Senator Lincoln and I do not wear

those. That is all right. Good morning. Thank you to all of you.

I have many, many questions and not enough time. But let me

just start out by saying that, Mr. Summers, Larry, when you

speak, you speak about much more than just trade and fast track

authority, you speak about a larger investment in people, dealing

with economic inequality, education, and so on, so it is a bigger picture.

Mr. Warlick, I very much agree with your statements about rebalancing the playing field in America for American businesses and

American workers. I think that the most critical issue facing us

economically, and maybe from a national security standpoint, is

how we compete in a global economy successfully and keep American businesses, and American workers, and the American middle

class. We make things and we grow things. We do that in Michigan, we do that in this country, and we need to keep doing it.

But I also think, Mr. Warlick, your comments about people having lost faith is very, very important. Senator Wyden spoke about

that as well.

So, one story, then a question. A very common story not only in

Michigan, but in many, many places: North Carolina, South Carolina, Ohio, Kentucky, Tennessee, around the country. We have a

community, Greenville, MI, where 3,000 people worked for

Electrolux making refrigerators. They added three shifts, $100 million in new equipment. They were making a profit.

But everybody else making refrigerators went to Mexico. They

were worried that if they did not go to Mexico also, they would be

at a competitive disadvantage, and so they picked up and went to

Mexico to pay $1.57 an hour and no health benefits.

Now there are folks in Mexico who are picking up and going to

China because they can pay less than a dollar an hour. That is a

race to the bottom that, frankly, in America we do not want to win

because we are going to lose our way of life and our middle class.

My concern is, instead of creating a middle class in Mexico to buy

those refrigerators from us, we are sending the jobs over there.

24

We can say, well, we are not going to make refrigerators any

more, and that is all right. But what else are we not going to make

any more in this country? Defense equipment? I mean, where does

this go if we do not deal with the fundamental questions around

labor costs, health care costs, environmental costs, investing in

education, and so on?

I think this is not just a story from Michigan. I think the question is, are we going to race down in a global economy or race up?

We are smart enough to be able to race up if we invest in those

things that will allow us to do that and enforce our trade laws.

Senator Lindsey Graham and I have introduced a Trade Prosecutor Division of USTR bill to deal with currency manipulation

and counterfeiting and intellectual property rights that are stolen,

and so on. I appreciated the comments today from Mr. Baugh and

Mr. Warlick to the bill that Senator Bunning and I have introduced.

Enough comments. I could go on. We are not doing this right for

American businesses, in my opinion. We are not doing this right

and the costs will be great, and have already been great, for too

many Americans.

My question is this. We talk about labor costs and other costs,

but we also hear that there are actually other kinds of incentives

to shift production overseas. And I would ask members of the

panel, what other kinds—we certainly do not want to have additional incentives to send jobs overseas.

Mr. Baugh and Mr. Warlick, if you would speak to the question

of, in addition to competing for $1.57 an hour and no health benefits, what else do we have to look at in terms of incentives to go

overseas?

Mr. BAUGH. Thank you, Senator. I think there are a couple of

things to look at. One is the whole issue of how we deal with trade

policy itself and the incentives that corporations have to actually

go over to other countries and take advantage of cheap labor, illegal subsidies, currency manipulation, and the others. I mean, we

are incenting our own businesses to do this.

We also incent them, through our own tax code, with the deferral

process, the laws that allow corporations to hold profits offshore,

and this has been commented on in the Ways and Means Committee. It is a serious, serious issue. That is an incentive to do so.

It was mentioned earlier about the border adjustability taxes or the

VAT issue and how that affects business as well.

I think our accounting rules, as they apply in the U.S. tax code,

incent businesses to go because they get credits for closing things

here. They can use that money and borrow it and go overseas and

actually open up businesses.

It is our firms accessing those markets that come back here.

Over half of the products that come back into the United States

from China are produced by American firms doing business in

China. We have helped incent that by our tax code, and we have

helped incent it by our trade policy and our failure to enforce trade

policy.

We have filed three cases, two on workers’ rights, one on currency manipulation. All have been rejected and ignored by the U.S.

25

Trade Representative and this administration. Congress re-filed

the currency case twice, bipartisan. It was rejected again.

So, I think it is both, what incentives exist in the tax code system that encourage businesses to take this and go offshore—you

have General Motors notifying their suppliers, they must do a percentage of their manufacturing offshore in the future. I mean, what

kind of a system is this if we want to keep businesses here?

And I would make this last point, because everybody talks about

innovation. I appreciated Mr. Warlick’s comments to that effect, or

Mr. Holland’s comments. The key to innovation is actually on the

factory floor, and it is our research, design, and engineering. If anybody thinks it is just front-line factory workers who are being

shipped offshore and those jobs, it is not. It is finances, it is services, it is research, design, and engineering. That is where I come

back to this point that, if you want to talk about innovation, you

have to have a base to create the innovation. That is why those investments are being made elsewhere. We have lost 3 million more

jobs in manufacturing in the last 6 years, but there is a goodly

chunk of that that is high-level, professional/technical people, too,

who are part of the source of the innovation for our future. I think

we keep losing sight of that.

That is where I would agree, surprisingly, with Mr. Summers on

something. It is our failure to have a national strategy around that.

China does. Korea does. Japan does. They target markets, they target segments, they target industries. They set their laws in place

and utilize the trade policy to access the U.S. market.

Our corporations are complicit with them. Frankly, I would say

the way we have dealt with trade policy, our government has been

complicit in the process, because it is a system that has been set

up and the global rules made up by our global corporations. Frankly, sometimes national interests and their interests are not in coincidence.

Senator STABENOW. Thank you. If I might have Mr. Warlick be

able to respond for just a moment.

The CHAIRMAN. Very quickly, Senator. Your time is way over.

Senator STABENOW. I apologize.

The CHAIRMAN. Very, very short.

Senator STABENOW. Mr. Warlick, if you could.

The CHAIRMAN. Very short. Fifteen seconds.

Mr. WARLICK. Yes. I think you have to sometimes look beyond

the labor cost advantages that they do have and you look for the

things you can do, and enforcement and transshipments and fraud

are huge in a lot of these agreements.

But our industry was proactive. It invested $33 billion in new

plant and equipment in the last 10 years, looking to be more automated, looking to be more productive, retraining our workforce so

that we can compete by not lowering or having a race to the bottom, but by competing with higher wages and doing it through productivity.

But I have to tell you, the most disheartening thing is when you

see the subsidies, whether they are export rebates, whether it is

currency, whether it is direct subsidies going to industries, when

you see that, you come to the realization that there are a lot of

manufacturing companies in this country that, if their labor cost

26

was zero, they still would not be competitive, and that is a problem.

The CHAIRMAN. Thank you very much. Thank you.

Senator STABENOW. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Salazar?

Senator SALAZAR. Thank you very much, Chairman Baucus, for

holding this hearing. Thank you to the excellent panel for your

presentation.

I want to first say to Mr. Smith from Federal Express, I appreciate also the leadership you have taken on energy efficiency with

respect to the vehicle fleet for Federal Express and the hybrid vehicles that you brought to Colorado just about a week ago, so thank

you. Thank you for doing that.

I have a comment, then a quick question I am going to ask. I

would ask specific questions to just three of the panelists.

But, first, let me just make a comment. It seems to me that as

we deal with trade promotion authority, and even with the potential approval of some trade agreements on down the road, that we

have created a climate which is a very polarized climate here. At

the end of the day, we know it is going to take 60 votes to get at

least the trade promotion authority extended or renewed in whatever way.

My question that I would like Mr. Bob Baugh and Fred Smith

to respond to is, is there a way that we can break through the polarization that currently exists? I hear you, from a labor perspective, saying, no way, no how should we go ahead and extend it.

So how do we try to break through that polarization and get

labor and business on the same page so we can move forward with

a national strategy, given the reality of our global economy? So I

will have you respond, and just take 1 minute each, if you will, on

that. Then to Mr. Lang, I appreciate the perspective that you bring

from agriculture.

My question to you is, with respect to Iowa farmers and other

farmers around the country, how specifically have they been helped

by the free trade agreements that we have entered into, say, in the

last 10 years? So why do I not go first with you, Mr. Lang, if you

will do a minute, and then if I can have the rest of you give your

response in one minute.

Mr. LANG. All right. Thank you. Free trade agreements have

really leveled the playing field for farmers and ranchers across the

country, back to the Australian Free Trade Agreement. We look at

the entire trade agreement as a whole.

Senator SALAZAR. How has it helped you on your farm?

Mr. LANG. As a free trade agreement for me, let’s say, as a farmer, let’s take the Central American Free Trade Agreement. It has

actually allowed corn to flow indirectly out of Iowa into Central

America, which helped increase our price.

Senator SALAZAR. So it created a new market for you as a corn

farmer in Iowa.

Mr. LANG. Yes. Right. Correct. Yes.

Senator SALAZAR. All right.

Mr. LANG. As a dairy farmer during free trade agreements, like

with Australia, New Zealand, and those kind of agreements, there

are some issues that have been worked out where we felt like we

27

were not treated fairly in trade otherwise; issues like butter and

non-fat dried milk, those kind of things were analyzed. So as you

looked at the whole thing, it has helped.

Senator SALAZAR. Thank you, Mr. Lang.

So, Mr. Baugh and Mr. Smith, how do we make peace between

labor and business on this issue?

Mr. BAUGH. I think, Senator, I want to clarify. We did not ever

say no way, no how, not ever. We said no to the current fast track

authority, the way it works currently.

In fact, we have engaged in months of conversations with our allies because we are always asked, how would you do this? We actually have come up with a series of ideas that I tried to outline in

my testimony and will be happy to present more information on in

detail.

Senator SALAZAR. What would be the two things that would be

most important for you as the spokesperson for the AFL–CIO?

Mr. BAUGH. There are more than two.

Senator SALAZAR. Give me just the top two.

Mr. BAUGH. I will give you more than two.

Senator SALAZAR. I just want the top two.

Mr. BAUGH. Asserting Congress’ role, readiness of trade partners,

the implementation of the labor laws. But that also comes with a

whole series of others, environmental standards, procurement, the

other things I mentioned. I think this is absolutely doable because

it will raise the wages and benefits of workers throughout the

world, and that is the approach we are taking.

Senator SALAZAR. All right.

Mr. Smith?

Mr. SMITH. Well, assuming that there is a consensus that continuing to trade with the rest of the world is a good thing, and I

would hope that is the case, obviously with the Democratic majority there is going to be some change in TPA and the entire trading

regime in terms of labor standards and in environment.

So the only advice I would have is for people on that side of the

aisle to get what they can, and the people on the other side of the

aisle to recognize that they are going to get something and to come

to a compromise. That is what the democratic process is about.

I doubt that it is going to be with one fell swoop that the Democratic majority is going to get everything that it wants. Whatever

the list that Mr. Baugh has there, he is probably not going to get

it all, but take one step at a time and keep moving the direction

he wants to move it. That is the only thing I could recommend.

Senator SALAZAR. Thank you very much.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Bunning?

Senator BUNNING. Thank you, Mr. Chairman.

Mr. Warlick, I have been concerned with the issue of transshipment for a while now. It was an issue of particular concern regarding CAFTA, Singapore, and the Vietnamese trade agreements.

Could you give me the perspective of your industry regarding

how well our Customs enforcement agents have been stopping illegal transshipments of textiles?

28

Mr. WARLICK. Well, it is a huge problem for our industry. I think

at the Customs level, it is one of the biggest problems that they

have, enforcing some of these.

Senator BUNNING. Are they not? Are they just passing over, or

what is going on?

Mr. WARLICK. I do not think at this point they have the manpower to do the job that is necessary.

Senator BUNNING. So you think we should beef up?

Mr. WARLICK. Absolutely. Yes, sir.

Senator BUNNING. All right.

Mr. Baugh, Mr. Warlick, as you know, I am extremely concerned

about the manipulation of the yuan by the Chinese government,

and Senator Stabenow and I, and Senator Snowe, followed that recommendation of the Chinese U.S. Economic and Securities Review

Commission by allowing U.S. manufacturers to raise currency manipulation as a subsidy in countervailing duty cases.

I know you are familiar with the legislation and its companion

bill, the Ryan-Hunter bill, in the House. Do you think the enactment of that bill will be helpful to the U.S. industry?

Mr. BAUGH. Senator Bunning, absolutely. The problem has been,

we have not addressed it. The Treasury continues to come out with

reports saying there are no violations. But we are going to help

them. We are going to help them find the violation.

Frankly, you can bring action through our own trade laws by this

with this action, and you can bring it against the Chinese. And if

you bring it as an industry or even bring it as a firm, the fact that

once you get a ruling moving that along, it affects the whole thing

because it is the manipulation of the yuan.

Senator BUNNING. It emphasizes it for Treasury.

Mr. BAUGH. It emphasizes it. I would also point out to folks that

this is about all currencies, not just the Chinese. We think they are

the most egregious and visible, but as Senator Stabenow has

raised, the Japanese have engaged in this, and, in fact, the Treasury’s own reports state that the other Asian tigers keep their currencies in line with the Chinese because they view them as their

main competitor. So there are a lot more people engaged in this

who affect the American economy.

Senator BUNNING. Mr. Warlick?

Mr. WARLICK. Yes. I think it makes a huge impact because it

acts as an export subsidy and it makes our products much more

expensive when we try to export into these markets.

So, there is no question that that will help. That will give a big

boost to our industry and improve our competitiveness with China

or other countries who manipulate their currencies for export advantage.

Senator BUNNING. Mr. Warlick, you said in your statement that

the U.S. textile industry is completely defenseless against imports

and that is why it needs these special safeguards regarding Vietnam and China. Why is that so?

Mr. WARLICK. Well, in that regard, safeguards, our industry is

the third-largest exporter in the world of fabrics and yarns. We do

not have an apparel industry like we used to have in this country.

We have been able to take advantage of NAFTA, CAFTA, and some

of the Andean trade preference programs to be able to move and

29

export our fabrics and take advantage of that. But to be able to

bring countervailing duties or dumping charges, we would have to

be bringing that against finished apparel.

Senator BUNNING. Why can’t you? In other words, because of

the——

Mr. WARLICK. That remedy is not available to our industry. We

do not have the apparel industry here.

Senator BUNNING. Not available. That was the follow-up.

Mr. WARLICK. It would have to be brought by the apparel industry.

Senator BUNNING. In other words, traditional remedies would not

be available to you because of the difference in the things that you

manufacture and the things that are sent in.

Mr. WARLICK. Yes.

Senator BUNNING. All right.

Mr. Lang, the WTO recently released a report critical of the EU’s

barriers to imported agricultural goods. Does the Farm Bureau

have any comment on the state of our agricultural exports into Europe, and any improvement or lack thereof in that area recently?

Mr. LANG. Certainly, from my viewpoint as president of the Iowa

Farm Bureau, Europe has been a country we have not focused on

for exports for some time because of the restrictions and the difficulty of getting our products in.

Plus, the biotech issues and other things as well. We know that

when it comes to WTO discussions, it seems like the ones that always catch the headlines are the U.S. and Europe, our refusal to

reduce those needs of our farmers. But I am just going to say that

we are more than willing to reduce those trade-restricting issues

that we have for fair trade, and I hope Europe will do the same.

Senator BUNNING. Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Hatch?

Senator HATCH. Well, I want to welcome you all here. It is good

to see you, Mr. Summers, back. I appreciate you. Mr. Smith, great

to see you. Mr. Baugh, I was very interested in your comments that

I have heard since I have been here, and appreciate you. We are

just very grateful to all of you for being here.

Mr. Summers, though, let me start with you. I do not know if

you are aware of a letter recently sent to President Bush from various members of Congress, led by Chairman Rangel over in the

House, but members of the House and Senate, on market access for

American automobiles to the South Korean market.

In essence, the letter suggests a managed trade approach. They

let in 1,000 of our cars, we let in 1,000. I have never favored a

managed trade approach, but do favor complete opening of markets

in a fair way that would allow U.S. manufacturers to fairly compete abroad.

But I would like to get your feelings on this letter and on managed trade. Do you agree with me that there should be, and is, a

better way of approaching our trading partners?

Mr. SUMMERS. Senator Hatch, I am not familiar with the letter,

so I will not attempt to characterize its policy. I share your sense

that open markets are a much better way than managed trade.

30

At the same time, I recognize the frustrations that lead to managed trade and the desire for measurable indicators of reductions

in barriers. But I think we are best off avoiding mutual quotabased approaches to trade.

Senator HATCH. Well, thank you. That would be my approach.

Many have argued that the United States has benefitted more

than any other country as a result of the global trading system, yet

anxiety continues to run high in our country. How important is

education to address that particular concern?

Mr. SUMMERS. I think education is of central importance. I remarked in my opening statement, Senator Hatch, that 15 or 20

years ago the United States led the world in the fraction of young

people who graduated from college.

Senator HATCH. Right.

Mr. SUMMERS. And today we are struggling to be in the top 10.

It is not because American students are learning everything you

could learn in college in high school. Very much the contrary.

So I think improvements in both the quantity and the quality of

education that American young people receive is absolutely central

to our ability to succeed as a country. I think that is a responsibility for education at every level.

Senator HATCH. Well, thank you.

Mr. Smith, if the Doha negotiations are put on hold for another

year, how is that going to affect your ability to compete in other

markets?

Mr. SMITH. Well, Senator, if the Doha Round is delayed, it is delayed. It simply reduces the benefits of opening up the additional

markets.

I might comment on that letter that you mentioned.

Senator HATCH. Sure.

Mr. SMITH. I do not know the specifics about it, but I do not

think the letter was particularly to try to manage trade. It is the

fact that the Koreans essentially keep our cars out of their market,

while our market is open to theirs.

They are sort of at the heart of what this debate is all about,

that many trading partners with the United States have used tariff

or non-tariff barriers, or do not enforce the trade agreements or

offer as many opportunities.

Senator HATCH. You might want to look at the letter. We sent

it down to Mr. Summers. I am not trying to criticize my colleagues,

it is just that I think it is an interesting approach.

Mr. Baugh, I am impressed with you. Since the private sector spends roughly $5 in occupational training for every $1 that the

Federal Government spends, how can we better leverage private

sector investments in worker training, especially through programs

like TAA?

Mr. BAUGH. Well, I think, frankly, TAA has been under-funded

for a number of years. Clearly, the people who have lost their jobs,

and even the small percentage who have even been certified, very

few of them have even been able to access the program—38,000

last year. States have run out of money during the height of the

great job loss.

I think that we actually need to bolster our unemployment insurance system and the services provided, and provide a real signifiVerDate 11-MAY-2000 14:56 Jun 02, 2008 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 42395.000 SFIN1 PsN: SFIN1
31

cant increase in the amount of TAA resources that are available to

people.

I think there is a disconnect here, though, Senator, and I would

like to point it out, about education is the only answer to all of this.

I mean, we have doubled the amount of college graduates between

1973 and 2006 to 28 percent. One of the things, if we even look at

our own Department of Labor reports, is that they point out the

projects for 2014 show that the share of jobs for which college-level

education is actually required is projected to be just 21 percent.

That brings me back to some comments I made earlier. I do not

know if you were here when I did it.

Senator HATCH. I do not think I was.

Mr. BAUGH. But the connection between the loss of really good

technical skill jobs and that tie to this college education, and what

has happened in terms of offshoring as a result of these trade policies that are in place: I think there is a problem here.

I agree that we should have the best-educated workforce in the

world, but at the same time it is like somebody pulled the plug out

of the drain and there is a part that is draining out that is part

of our innovative sector that we are losing.

Senator HATCH. Mr. Chairman, can I just ask one more question

of Mr. Baugh?

The CHAIRMAN. Sure.

Senator HATCH. I appreciate that. I enjoy working with Senator

Baucus very, very much.

Let me just ask you as a follow-on, why does the AFL–CIO continue to maintain that TAA program funds have been cut, when we

all know that it is a mandatory program and all who are eligible

receive income support and training benefits?

Mr. BAUGH. Oh, they have not, though.

Senator HATCH. Tell me about that. I am giving you a chance to

explain.

Mr. BAUGH. Senator, I will be happy to provide you with the information and the numbers following this meeting.

Senator HATCH. Would you? I think it is important we work together to get that type of stuff done.

Mr. BAUGH. Yes. We have plenty of data that show the populations that have been under-served and the States that ran out of

money, and people who did not receive those services at all.

Senator HATCH. All right. Well, send me whatever you can on

that.

[The information appears in the appendix on p. 52.]

Senator HATCH. I wish I had enough time to ask all of you questions, but we appreciate you coming. We appreciate the Chairman

holding this meeting. It is very important.

Mr. Summers, we are glad to see you back in the private sector,

even though I thought you did a very great job up there.

The CHAIRMAN. Thank you, Senator.

I will follow up now with my enforcement question. When I

asked the question, two of you were able to answer it. I will repeat

the question. Namely, your thoughts, the rest of you, the four of

you, on how we beef up, if we do, our enforcement functions and

capabilities in the United States to make sure other countries live

up to their agreements.

32

Mr. Baugh?

Mr. BAUGH. Thank you, Senator. I would certainly support

stronger enforcement and beefing up. An Office of Trade Enforcement may be the way to go. I am agnostic as to where it is. But

I think the most important thing when we do this is, we actually

have to do it. I mean, we have had a series of 421 cases come from

the International Trade Commission.

The CHAIRMAN. That is part of the question: what do we do to

make it more likely that we do it?

Mr. BAUGH. Yes. Well, I think then actually perhaps Congress—

this is part of the thing about why we put in the Fair Currency

Act and others to actually move to an enforcement level, to actually

put some backbone into this.

I sat in a meeting of Hill staff the other day in a briefing on carbon trading. The question was, what if we do this and the large developing nations do not play? What do you do?

The CHAIRMAN. Right.

Mr. BAUGH. And it was really a question of enforcement. It was

a question of actually having the ability to take action that is actionable. Frankly, one of the staffers who has just done business

in China for 10 years backed it up by saying, ‘‘What I have learned

is, the Chinese government will do what is convenient for the Chinese.’’ I think that is true of any of our trading partners.

If they do not believe we are going to enforce, if they do not see

us taking action, they are not going to do anything about it.

Beefing it up and actually taking some actions will have a far larger effect than having to bring every single case forward, because

people will start paying attention to it when we say we are going

to do something, we are not going to let this go on.

The CHAIRMAN. Mr. Lang?

Mr. LANG. First of all, I would say that you have to change the

will of the people. Not just the will of the countries we are trading

with, those people, but the will of the American consumer. First of

all, they have to understand how important trade is as a benefit,

the prices that they pay for goods and services. It is the American

people who are demanding that we trade.

Along with that, we have done a number of things. USTR has an

agricultural representative within their division to do that. I certainly would not encourage another department to be built. But I

have been to China eight times.

The CHAIRMAN. How many?

Mr. LANG. Eight times.

The CHAIRMAN. Oh. I thought you said 80.

Mr. LANG. No. I would not remember that many times. But what

I have seen from their people is, the people change the government.

At some time they are going to demand certain products that we

have because they want it, not because we want it so much for

them.

I think that change will happen. Enforcement at the borders.

Those things are important. Increased money for research. Those

things are important. But not one single thing is going to answer

the question that you asked about.

The CHAIRMAN. Mr. Warlick?

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Mr. WARLICK. Well, I think, number one, we ought to police the

transshipment and fraud problem that we have coming into this

country, because that undermines a lot of our FTAs with our trading partners, and will continue.

The CHAIRMAN. You think it is not well-enforced now? Transshipment is not very well-enforced?

Mr. WARLICK. I think transshipment of fabrics and textile goods

is a huge problem in this country.

The CHAIRMAN. All right.

Mr. WARLICK. Our Customs officials, I think 78 percent of some

of their finds come in this category as far as catching illegal shipments. It is a big problem because it does undermine our ability

to negotiate FTAs with countries and make sure that each country

is living up to its agreement.

But I think, also, that we ought to have, whether it is at the

USTR level, a way to deal with WTO violations, whether that is

subsidies that are illegal under WTO or what have you. Those need

to be dealt with so that manufacturers here have an incentive to

invest because they know that we are going to live up to these

agreements and they know what to expect. When you do not live

up to these agreements and you do not know what to expect, it just

adds more risk into investing in this country.

The other thing I may look at doing with Customs is put in some

type of whistle-blowing system that allows the Customs area to assess those fines and use those fines to fund more Customs officers

to police this. With the trade deficit that we have, it is inconceivable to think that we are doing the job that we need to be doing

on imported products coming into this country.

The CHAIRMAN. Thank you very much.

Mr. Holland?

Mr. HOLLAND. Thank you, Senator Baucus. I will try not to be

redundant with the answers here today. I did not hear anything I

disagreed with. I think your question highlights what I consider

the most important thing that we need to be dealing with in our

trade relations today, and that is enforcement of our trade agreements.

It seems as though we are solving other problems in other arenas

in our government at the expense of manufacturers when we do not

enforce trade agreements as we work on other very important relationship issues in other countries, and we need to rebalance that.

Perhaps a way to do that is to look at segregation of duties between those sorts of functions. They are related so tightly that we

cannot ignore all the other issues, but we need to rebalance that.

One of my favorite potential solutions for manufacturing in general, and all the issues facing manufacturers, including trade and

enforcement, is the placement of a high-level Secretary/Under Secretary that is focused on manufacturing issues that could, therefore, also be a spokesman for these kinds of things and help with

those priorities.

The CHAIRMAN. Thank you very much.

Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

The CHAIRMAN. Welcome.

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Senator LINCOLN. I know. I have been back and forth, and I appreciate your patience.

I want to thank you for holding this hearing. Trade policy, without a doubt, presents us with an incredible variety of both opportunities, and certainly significant challenges. Particularly this year,

we have the pending TPA and the TAA, and the ongoing Doha negotiations, our bilateral trade negotiations.

These are all just a few of what is going on. I think bringing us

together to have this kind of a frank discussion is enormously important, and I appreciate your leadership on that.

I want to thank our witnesses today. Mr. Smith is my neighbor

across the river there, so I do not hesitate. I will be your translator

for Senator Wyden if he cannot understand.

Mr. SMITH. I was going to say, I have a little bit of an accent.

Senator LINCOLN. Yes. Well, we just wonder about their accents,

you and I do. But we appreciate your expertise and your thoughtfulness here.

Mr. Summers, I hope that we will have another hearing on

adapting the economy to global trade and competitiveness. I think

that, without a doubt, this is a whole pie of issues. It is not just

our trade negotiations, it is all of what we face in the businesses

of this country that play into their ability to be competitive.

Mr. Warlick, I want to compliment you because you bring up the

enforcement part, which I seem to have fought more than anything.

I go over to the ITC and testify. I am like a common face over there

now.

But we realize that other countries know our trade laws better

than we do. They wait us out for about 3 years, and they know

they can destroy an industry because we cannot move through our

system quickly enough to even do anything.

The talk about how we build within our government the agencies

that need to be there—I have consistently gone to the Commerce

Department. We have introduced, over the last several Congresses,

an expedited remedy bill, much of which the Department of Commerce could do through their own directives if they so chose to do.

But we cannot even get an answer out of the Department of Commerce, because they tell us it is just too complicated, and trade is

too complicated.

Well, we may just sit around thinking it is too complicated, then

all of a sudden we lose our marketplaces and we are going to find

ourselves dropping in stature in terms of nations across the globe.

So, we appreciate what you all bring to the table on this.

I, in my public service, have supported trade policies, in part because I recognize and face that we are becoming increasingly more

of a global marketplace.

Mr. Lang, I come from a seventh-generation Arkansas farm family. If there was any valuable lesson I learned growing up on that

farm, it is that you have to have good neighbors. But to have good

neighbors, you have to be a good neighbor, and a lot of that means

demanding respect when you negotiate with your neighbors about

what you are going to do.

Are you going to keep your culverts clean? When it comes up a

storm and you need an extra tractor, are you going to loan it and

work through those difficulties? That kind of bodes to our diploVerDate 11-MAY-2000 14:56 Jun 02, 2008 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 42395.000 SFIN1 PsN: SFIN1
35

macy and the issues of whether or not we are recognized as a good

neighbor globally and whether we demand the respect that we need

in enforcing the agreements that we make, and following through.

I think those are all such valuable lessons for all of us here.

Just quickly, two questions I wanted to get out there. I could talk

all day on this issue, but I do not have that long.

Mr. Lang, you speak of the importance of the export opportunities for farmers and ranchers. I guess my bottom-line question on

that is, I think it is just absolutely necessary—just as we should

seek out comprehensive bilateral deals that provide us increased

access for all of our products, and I will say that particularly in the

context of Korea because I brought that up with the Trade Representative—to ensure that all of our products are on the table

there.

In your view, should USTR resist a deal that does not provide

the necessary access for our producers? I guess, in other words, is

no deal better than a bad deal in the case of agriculture?

Mr. LANG. First of all, I certainly agree with what you said earlier on, that we have to be a trusted customer, that we have to

have a good relationship. I think that is one of the things that we

failed at.

My experience in China has been that the Chinese traders have

said that if Canada brings in a ship with a product into Shanghai

and there is an issue, the Canadian government takes care of it immediately. If the same thing happens with the U.S., the U.S. denies there is a problem. So, I just want to bring that to your attention.

The other thing is, I think from our perspective, we live in a community, a community that has manufacturing, a community that

has processing, life sciences, and all of those. I think a trade agreement has to be good for the entire community.

So, I think there is a time in a trade agreement when you have

to say no because it effectively leaves out a piece of that economy

that is good for those amenities in life that are important to you.

Senator LINCOLN. I think so, too.

Mr. Holland, just briefly, in your testimony you touch on the

frustrations of our smaller manufacturers trying to determine how

to take advantage of export opportunities and overall need. Some

of those things come through the manufacturing extension partnership.

I do not know if I missed part of that discussion, or maybe you

brought that up. Other trade assistance centers. Do you have any

personal experience with that? Can you elaborate on your experience in those regards?

Mr. HOLLAND. Thank you, Senator. Yes. My organization is, in

fact, a manufacturing extension partnership. We are the partnership in Montana. Our role in exports would be to help the manufacturers be ready to export in terms of standards, in terms of capabilities. It is very important for our client base, the small manufacturers, to be able to export and then to have access to those markets.

I personally run into frustrations with lack of resources. We

charge for gold key services. Travel on trade missions, and so forth,

is very expensive. We are facing other nations that pay for all that,

36

so other nations are investing in the export, the growth of small

manufacturers, and I wish I was as eloquent as Mr. Baugh, because I could take his speech and substitute small manufacturers

for his terms of labor, and so forth, and they would be amazingly

aligned. Thank you.

Senator LINCOLN. Thank you.

Thank you, Mr. Chairman. I appreciate your patience, and all of

your willingness to engage in this conversation. It is going to be an

important part of where we go.

The CHAIRMAN. It very much is. Thank you, Senator.

Senator LINCOLN. Thank you.

The CHAIRMAN. Mr. Summers, I want to take advantage of your

presence here. There has been a lot of discussion about currency,

whether it is the yen, the renmimbi, or whatnot. On the face of it,

it seems like the criticism has more than a grain of truth in it.

That is, other countries are manipulating their currencies to their

advantage at our expense.

As you well know, Senator Grassley and myself, and Senators

Graham and Schumer are working on the currency bill to try to

move us and try to find a solution, but in a way that is WTO-consistent, that is, does not violate WTO. I am just curious as to your

thoughts as former Treasury Secretary. What do we do here? What

makes most sense? How can we be most effective?

Mr. SUMMERS. Mr. Chairman, I think it is a very difficult policy

problem. I share your view that it is essential to change the macroeconomic basis of trade imbalances that, along with a variety of

policy changes toward more savings here, exchange rates adjustments, particularly in Asia, are almost certainly part of that policy

package.

I share your concern that exchange rates in some Asian countries—notably China—are not set by market forces, but instead are

pegged at particular levels through government policy, supported

by substantial volumes of currency intervention.

I believe that it would be in our national interest, in the global

interest, and for a variety of economic reasons in China’s interest,

for those exchange rates to be adjusted.

At the same time, I think this is the second reality that makes

this a very difficult problem. I think there is a great deal of logic

and evidence to suggest that truculence over exchange rates and

the perception of truculence over exchange rates can do substantial

damage to financial stability, with very serious consequences for

American interest rates, for the American stock market.

We have been reminded in the last 10 days that markets are not

always stable, that volatility is a risk, that we are currently in a

place where I think most observers would agree that markets are

more than usually fragile, given how long they have been stable

and given the degree of complacency that has set in.

I think we need to act with very great care, given the magnitude

of the capital flows from China on which our economy has come to

rely. So, I believe that bipartisan expressions of concern, bipartisan

dialogue with China around the problem of global imbalances of

the kind that is contemplated in some legislative proposals, is of

very great value.

37

I am concerned when the emphasis in our dialogue puts excessive weight on particular commercial issues affecting financial

service firms in China, not that those issues are not significant, but

they seem to me to be much less significant than the set of issues

around the macroeconomic imbalances.

But I would caution that proposals that would give automaticity

to tariffs or other kinds of barriers seem to me to run a real risk

of being quite disturbing to confidence at a moment when, for better or for worse, that is a very sensitive issue in global markets.

I realize, Mr. Chairman, that there is a slightly two-armed economist character to that answer, but I think we would be at our peril

if we tried to force a change. We might or might not succeed. It is

possible that we would come to rue our success if sufficient financial instability resulted.

So I think the approach of making clear that this really is a central issue in the relationship, that it is framed around global imbalances—we, I think, addressed with some success during my years

at the Treasury some of the issues in Japan, but we were very concerned always to do so whenever we could on a multilateral basis.

I am a little concerned about a bilateral basis.

The CHAIRMAN. I appreciate that very much. Mr. Baugh makes

a point which I think a lot of Americans subscribe to, namely that

we just talk with them and express our concerns with them, and

not much happens.

That is a frustration that I think a lot of Americans have, a lot

of members of Congress have. So assuming that there is some validity to that, how do we get from here to there without the truculence that causes the disruptions which you are concerned about?

Mr. SUMMERS. Look, I do not minimize the problem, but I caution on two grounds. One, and I recently spent time in China, talking to the relevant officials. My sense is that, for those who see this

our way—because what we want, for a variety of reasons having

to do with the threat of inflation and financial instability in China,

is, I believe, actually in China’s interest.

The one appearance that I think is absolutely unacceptable to

the Chinese is that they make a change based on a threat from the

outside. So I think the unfortunate truth is that threats will get

their backs up and will make it less likely that we will see the

changes that we want to see.

I do not think there is a way to force this change any more than

other countries would find it possible to force the United States to

bring about a different exchange rate of the dollar by making

threats with us.

So, I think a measured approach. I think it is appropriate for it

to be clear that this is not just the President, this is not just the

executive branch, that this is a matter of profound Congressional

concern.

I think it is important also, and much more likely to succeed, if

we approach the Chinese multilaterally with the engagement of the

Japanese, with the engagement of the Europeans. I think, frankly,

that if we are making particular trade threats, we forfeit any opportunity to approach the Chinese in a multilateral basis.

So I share very much your frustration, but I think that many of

the worst mistakes of policy come from policy that is motivated by

38

an entirely legitimate frustration, but that will ultimately be counterproductive.

The CHAIRMAN. So what kind of multilateral approach is effective? I mean, there is the Plaza Accord, there is IMF. What works

here?

Mr. SUMMERS. I think you mentioned two important steps. I

think there is a role for the IMF in this. I also think there is a role

for giving a lot more thought. There has been evolution in this direction.

The G–7 is made up of the United States, Japan, and Canada

and four European countries. Given its economic weight in the

world, China should be at that table because it is much harder to

be influenced by that table if you are not at that table.

Now, there have been efforts made to create various forums, but

I think that is a process that has to be accelerated. I also think

that Senator Lincoln made a very important point. I come from

Philadelphia, so I do not know how to talk about culverts. But Senator Lincoln made a very important point, to my mind, about, if

you want to have good neighbors, you have to be a good neighbor.

I am not sure that over the last years when our budget deficit,

our conduct on a variety of international issues, has been an issue

of major concern in the rest of the world that we have conducted

ourselves on a whole range of issues in a way that is wellcalculated to encourage others to be responsive to our desires.

And on my last point, I am not familiar enough with the full

range of the agenda, but I think it would profit us to think about

the question—this is something that is important to us, where we

think China needs to help—what is important to China where we

are prepared to help?

I think one of our problems in diplomacy over the last half dozen

years is that it is not a question we have tended to ask ourselves.

I think if we did and we sort of elevated this on the diplomatic

agenda, I think that, over time, would be of value.

The CHAIRMAN. Thank you very much. I have to run here.

Senator Lincoln?

Senator LINCOLN. A follow-up with one thing.

The CHAIRMAN. Sure. You can ask as many questions as you

want.

Senator LINCOLN. No. I know we all have to go. But you talk

about being good neighbors. I translate it to growing up on a farm.

The other difficult thing, though, is to negotiate with your banker.

If China owns so much of our debt, how do we negotiate good,

sound trade agreements that we feel are respectful of both sides

when we are negotiating with our bankers? How much of a role

does that play?

Mr. SUMMERS. Well, you make a really important point, Senator

Lincoln. I would suggest that, whatever the merits of negotiating

with your banker, putting a stick in your banker’s eye does not

tend to be a very attractive strategy. I think that goes back to, no

country can force another country to borrow money.

The reason we are borrowing from them is because we are borrowing, and that goes to the whole issue of fiscal responsibility,

goes to the whole issue of our national savings rate. But you are

39

absolutely right. To a very important degree they have become our

banker, but I think we ignore that very much at our peril.

Senator LINCOLN. Thank you.

The CHAIRMAN. Thank you, Senator.

This has been very, very helpful. Our first hearing on this subject, as I mentioned earlier, was with Ambassador Schwab. Yours

is our second hearing to get a broad-brush view. We will have subsequent hearings on lots of the points raised by all of you, which

are very, very good. I have lots of questions that we do not have

time to get into right now, but we will at subsequent hearings.

Again, I want to thank you very, very much for taking the time

to be with us.

The hearing is adjourned.

[Whereupon, at 12:15 p.m., the hearing was concluded.]

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