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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

                      TRADE IN FINANCIAL SERVICES:

                 CURRENT ISSUES AND FUTURE DEVELOPMENTS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                INTERNATIONAL MONETARY POLICY AND TRADE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 26, 2001

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-30

                  U.S. GOVERNMENT PRINTING OFFICE
73-597                     WASHINGTON : 2001

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
             Terry Haines, Chief Counsel and Staff Director

        Subcommittee on International Monetary Policy and Trade

                   DOUG BEREUTER, Nebraska, Chairman
DOUG OSE, California, Vice Chairman  BERNARD SANDERS, Vermont
MARGE ROUKEMA, New Jersey            MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          BARNEY FRANK, Massachusetts
MICHAEL N. CASTLE, Delaware          MELVIN L. WATT, North Carolina
JIM RYUN, Kansas                     JULIA CARSON, Indiana
DONALD A. MANZULLO, Illinois         BARBARA LEE, California
JUDY BIGGERT, Illinois               PAUL E. KANJORSKI, Pennsylvania
MARK GREEN, Wisconsin                BRAD SHERMAN, California
PATRICK J. TOOMEY, Pennsylvania      JANICE D. SCHAKOWSKY, Illinois
CHRISTOPHER SHAYS, Connecticut       CAROLYN B. MALONEY, New York
GARY G. MILLER, California           LUIS V. GUTIERREZ, Illinois
SHELLEY MOORE CAPITO, West Virginia  KEN BENTSEN, Texas
MIKE FERGUSON, New Jersey

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 26, 2001................................................     1
Appendix
    June 26, 2001................................................    29

                               WITNESSES
                         Tuesday, June 26, 2001

Farmer, Thomas L., General Counsel, Bankers' Association for 
  Finance and Trade..............................................    10
Judge, Steve, Senior Vice President, Government Affairs, 
  Securities Industry Association................................    11
O'Connor, Peter, Executive Vice President, ACE INA, on behalf of 
  the 
  American Insurance Association.................................     8
Weisbrot, Mark, Co-Director, Center for Economic and Policy 
  Research.......................................................    14

                                APPENDIX

Prepared statements:
    Bereuter, Hon. Doug..........................................    30
    Oxley, Hon. Michael G........................................    63
    Sanders, Hon. Bernard........................................    65
    Waters, Hon. Maxine..........................................    70
    Farmer, Thomas L.............................................    79
    Judge, Steve.................................................    84
    O'Connor, Peter..............................................    72
    Weisbrot, Mark...............................................    94

              Additional Material Provided for the Record

Bereuter, Hon. Doug:
    Foreign Trade in Financial Services: Background Information, 
      CRS memo, March 26, 2001...................................    33
    Foreign Trade in Financial Services: Bilateral and Regional 
      Agreements and Relations: CRS memo, April 27, 2001.........    40

 
                      TRADE IN FINANCIAL SERVICES:
                 CURRENT ISSUES AND FUTURE DEVELOPMENTS

                              ----------                              

                         TUESDAY, JUNE 26, 2001

             U.S. House of Representatives,
            Subcommittee on International Monetary 
                                  Policy and Trade,
                           Committee on Financial Services,
                                                     Washington, DC
    The subcommittee met, pursuant to call, at 2:35 p.m., in 
room 2128, Rayburn House Office Building, Hon. Doug Bereuter, 
[chairman of the subcommittee], presiding.
    Present: Chairman Bereuter; Representatives Roukema, 
Castle, Manzullo, Biggert, Capito, Sanders, Waters, Carson, and 
Sherman.
    Chairman Bereuter. The hearing will come to order. I regret 
we are getting such a late start. But the good news is that we 
expect--no assurances, but we expect that we'll be 
uninterrupted now for 2 hours. The Subcommittee on 
International Monetary Policy and Trade meets in open session 
today to examine financial services trade. The subcommittee 
will hear from private sector witnesses who will testify about 
financial services trade as it pertains to insurance banking 
and securities.
    This hearing will be the beginning of this subcommittee's 
and the full committee's examination of this important subject. 
The word ``trade'' was actually added to this subcommittee's 
title. It had not been a part of the title before. And I am 
convinced that financial services exports have a substantial 
benefit for the American people and for American firms. And if 
this subcommittee and committee doesn't pursue it, then we are 
neglecting our responsibilities.
    In fact, on July 11th, U.S. trade representative, Robert 
Zoellick, will brief the Members of the Financial Services 
Committee at the full committee level on pending issues and 
financial services trade, and he addressed some of those issues 
in a meeting this morning here on Capitol Hill. The Financial 
Services Committee has jurisdiction over trade as it pertains 
to financial services. This is quite important as U.S. cross-
border trade and financial services have recently grown quite 
significantly.
    U.S. cross-border transactions, of course, are between 
resident U.S. companies and foreign consumers. In the year 
2000, U.S. cross-border exports of financial services equaled 
$20.5 billion, which is an increase of 26\1/2\ percent relative 
to 1999. Moreover, unlike the current overall U.S. trade 
deficit, U.S. financial services trade had a positive balance 
of $8.8 billion in the year 2000. It is important, I think, to 
note that these statistics do not even include the activities 
of the affiliates of U.S. companies, which are physically 
located in a different country.
    I want to call my colleagues' attention to two memoranda 
addressed to this Member from the Congressional Research 
Service, at my request, and I think they provide good 
background for us as we prepare to explore this subject. And I 
want to particularly commend Patricia Workman and William H. 
Cooper for the work they have done on these memoranda and for 
their offer of further assistance.
    [The information referred to can be found on page 33 in the 
appendix.]
    Before introducing our distinguished panel of witnesses, I 
would like to briefly stress the following three issues that 
are quite important in today's hearings. First, U.S. policy 
toward foreign financial institutions, barriers to financial 
services trade and current efforts to open financial service 
markets. I am interested in the thoughts of our witness panel 
on these three particular subjects, as well, of course, as on 
other relevant subjects and issues. First, the U.S. uses a 
policy of national treatment for foreign financial institutions 
that have a presence in the U.S.
    National treatment allows foreign-owned financial 
institutions and U.S. domestically owned financial institutions 
to be treated the same. In fact, under the Financial Reports 
Act of 1988, the Secretary of the Treasury must provide to 
Congress a quadrennial study of changes and laws that affect 
national treatment of foreign banks and security firms in the 
United States.
    Second, U.S. financial service firms do confront many types 
of trade barriers. For example, Japan, until recently, 
restricted sales of foreign insurance companies of life and 
non-life insurance. Another example, the Brazilian government 
denies foreign marine cargo insurers the ability to compete for 
that business. I am interested in other specific examples which 
restrict foreign markets' access to U.S. financial 
institutions. But I think you could just give us an unlimited 
amount of such examples.
    Third, even with these trade barriers, there are current 
efforts to open up financial service markets, which my 
colleagues are all aware of. Financial service trade is part of 
the larger framework of the World Trade Organization (WTO) 
negotiations on trade and services. The General Agreement on 
Trade in Services (GATT) within the WTO was concluded in 1997. 
As a result of a financial services agreement, it included 
member commitments to provide national treatment and market 
access to foreign providers of financial services.
    Moreover, in the year 2000, a new round of service 
negotiations of course began in the World Trade Organization 
(WTO). Furthermore, the Free Trade Areas of the Americas, 
(FTAA), is another example of an effort to open up the 
financial services market. In June of 1998, nine negotiating 
committees, including one for financial services, were 
established under the 34 nations in the Western Hemisphere. Due 
to the prospective emerging markets, the U.S. financial 
services sector could benefit greatly from the FTAA.
    Lastly, this Member believes that giving the President 
Trade Promotion Authority, (TPA), would provide new 
opportunities for financial services trade. While the U.S. 
continues to be the global leader in financial services, this 
position could be threatened by the lack of a TPA. Currently, 
the European union has free trade agreements with 27 countries, 
while the U.S. has only two such free trade agreements which 
are signed into law. The TPA would greatly enhance the 
credibility, I think, of the U.S. negotiating position in both 
the WTO and the FTAA.
    On May 10th, President Bush provided Congress an outline of 
his 2001 legislative agenda, including the TPA. In addition, I, 
of course, would note, Representative Phil Crane introduced the 
TPA bill, HR 2149 which currently has 89 co-sponsors.
    To assist the subcommittee examining these issues I am 
pleased we will have the opportunity to hear from our 
distinguished panel of private witnesses.
    First Mr. Peter O'Connor, the Executive Vice President of 
Global Government Affairs and New Markets for ACE INA, will 
testify on behalf of the American Insurance Association (AIA). 
ACE INA, which has offices in 50 countries, is one of the 
world's largest providers of property and casualty insurance. 
Mr. O'Connor has 30 years of international management 
experience.
    Second, the subcommittee will hear from Thomas L. Farmer, 
the General Counsel of the Banker's Association for Finance and 
Trade, (BAFT). This association, which represents 
internationally active financial institutions and companies, 
promotes the expansion of financial service markets worldwide. 
Mr. Farmer has had a distinguished career, which includes being 
a founding member of the Overseas Development Council and the 
former General Counsel of the Agency for International 
Development.
    Third Mr. Steve Judge will testify on behalf of the 
Securities Industry Association, SIA. The SIA represents nearly 
700 security firms, including investment bankers, broker 
dealers and mutual fund companies. SIA member firms are active 
in both U.S. and foreign markets. Mr. Judge has been the head 
of the Securities Industry Association since 1993. Prior to 
joining SIA, he was a congressional staff member for more than 
13 years.
    In addition, Dr. Mark Weisbrot, the Co-Director of the 
Center for Economic and Policy Research in Washington, DC will 
testify. Dr. Weisbrot has written different publications on 
trade and globalization. In addition, he is the author of a 
weekly column on economic and policy issues that is distributed 
to newspapers by the Knight Ridder Tribune media services.
    We welcome the distinguished panel to our hearings, and 
without objection, your written statements will be included in 
their entirety in the record. But first, I turn to the 
distinguished Ranking Member of the International Monetary 
Policy and Trade Subcommittee, Representative Bernie Sanders 
from Vermont for any comments that he might have.
    Mr. Sanders.
    [The prepared statement of Hon. Doug Bereuter can be found 
on page 30 in the appendix.]
    Mr. Sanders. Thank you very much, Mr. Chairman, and welcome 
to our guests. And I thank you for holding this important 
hearing. I think the first point that I would make is that 
while it is very important to be talking about financial 
services and trade, we should understand, as Mr. Weisbrot will 
tell us, I suspect in a few moments, that our net exports of 
financial services currently total about $8.8 billion. Now that 
sounds like a lot of money. But even if this were to double in 
the next few years, the increase would only reduce our current 
account deficit by about two percent. So I think it is 
important to look at the issue of financial services within the 
context of our entire trade policy.
    I happen to be one of the Members in the Congress who 
believes that our current trade policy overall is a disaster. 
And it is worthy of a lot more discussion than we presently 
hear. It is quite incomprehensible to me that in a time when we 
have this year, a trade deficit of over $400 billion, a record-
breaking trade deficit, that we hear very, very little about 
that issue.
    We have, as many of you know, presidents in recent years, 
whether it is currently President Bush or President Clinton or 
President Bush's father, the former President, they were all 
very strong free trade advocates. And what very often President 
Clinton and the others would tell us is that for every $1 
billion in U.S. exports, we gain about 14,000 jobs. And that is 
true.
    But unfortunately, they didn't do the other side of the 
equation. What happens when you have a $400 billion trade 
deficit? How many jobs do you lose? And the answer is 
obviously, that we lose many, many jobs. And, in fact, using 
the same accounting principles that President Clinton and 
others have used, we have lost over 1.4 million good-paying, 
manufacturing jobs since last year alone, and 6.3 million 
manufacturing jobs overall due to our failed trade policies.
    So while today we will hear, in fact, that trade regarding 
financial services has been a positive for the United States, 
we cannot not put that in the overall context of our trade 
policies in general, which, to my mind, are a disaster. In 
terms of the North American Free Trade Agreement, (NAFTA), in 
terms of China, as all of you know, we have an $8.38 billion 
trade deficit with China. Let us talk about that as we discuss 
renewing most-favored-nation status for China, which I suspect 
will be coming before Congress in July.
    In terms of NAFTA, we have now a $24.2 billion trade 
deficit with Mexico. Before NAFTA, as a matter of fact, that 
used to be a surplus. We have a $50 billion trade deficit with 
Canada, which has more than doubled since NAFTA. So I am not 
quite clear how people keep telling us that NAFTA, or most-
favored-nation status and free trade with China has been this 
great success. And that is only in terms of job loss. But there 
are other aspects to the economy when you are looking at huge 
trade deficits, and that is the pressure on wages.
    There was a recent poll, a study that came out, which 
indicated, lo and behold, guess what, the middle class has not 
been doing particularly well, despite the great economic boom. 
In fact, the average American today is working longer hours for 
lower wages than was the case 25 years ago before the great 
economic boom. And if you are looking at people who do not have 
college degrees, young entry-level workers without a college 
education saw their average real wage plummet by 28 percent 
between 1979 and 1997, because many of the jobs that 
traditionally had gone to high school graduates are now being 
done in China and in Mexico.
    So Mr. Chairman, I will be brief. And with your permission, 
would like to enter my full comments into the record. But the 
bottom line is, we cannot just look at financial services and 
say ``Hey, free trade is great.'' Now I understand that we 
don't have jurisdiction for these other issues within this 
subcommittee.
    But my own view is we have got to be honest. Our current 
trade agreements are not working for the average American 
worker, for the vast majority of our people. Yes, they are 
working for multi-national corporations who love the idea of 
being able to gain access to China and Mexico and every other 
country on earth where they can hire labor at very, very low 
wages, take American jobs, bring them abroad. But, I think, Mr. 
Chairman, I applaud you for holding this hearing, and I 
understand the limitations of our jurisdiction. But I am one 
who believes that our current trade policy has been a disaster 
for American workers. We need to rethink it. And with your 
permission, Mr. Chairman, I would submit my remarks for the 
record.
    Chairman Bereuter. Thank you, Mr. Sanders. Without 
objection, the gentleman's entire statement and other Members' 
opening statements which they may have will be a part of the 
record. Hearing no objection, that will be the order. Are there 
Members that wish to be heard in opening statement?
    [The prepared statement of Hon. Bernard Sanders can be 
found on page 65 in the appendix.]
    Mr. Sherman. Yes, Mr. Chairman.
    Chairman Bereuter.  I see Mr. Sherman. Under the rule, Ms. 
Waters and Mr. Sherman are entitled to 3 minutes each.
    Ms. Waters.
    Ms. Waters. Thank you very much, Mr. Chairman. I appreciate 
this hearing and I appreciate the fact that you organized this 
hearing on Trade and Financial Services and your willingness to 
allow the Members of the subcommittee to express our concerns 
regarding the direction of our Nation's trade policies. 
President Bush has placed the passage of Trade Promotion 
Authority, also known as Fast Track Authority, at the top of 
his legislative agenda on international trade. Fast Track 
Authority may be used for a new round of World Trade 
Organization negotiations, as well as negotiations for a Free 
Trade Area of the Americas and other regional and bilateral 
trade agreements. These trade negotiations could have far-
reaching implications for people in the United States and 
around the world.
    I am particularly concerned about the impact that trade 
agreements have on labor, the environment and public health. 
International trade cannot be expanded at any cost. We must 
insure that working people and their families actually benefit 
from international trade. This will not happen unless 
individual countries have laws and policies to improve wages, 
working conditions, protect the environment and address the 
needs of their people. Only then will increased trade result in 
rising incomes and the improvement of living standards in the 
United States and the countries in which we trade.
    Let me begin by pointing out that I am not one to demand 
that all countries have the same minimum wage or that 
developing countries be forced to accept the same labor and 
environmental laws as the United States. However, labor unions, 
consumer advocates and environmental organizations must be at 
the table when the United States negotiates trade agreements 
and their legitimate concerns must be addressed. This will 
require the participation of people who represent labor unions 
and civil society organizations, and in the developing 
countries well as the United States.
    I am especially concerned about the impact of WTO 
intellectual property rules on public health in developing 
countries. The Trade Related Aspects of Intellectual Property 
Rights, the TRIPs Agreement, is one of the international 
agreements enforced by the WTO. The TRIPs agreement allows 
pharmaceutical companies, for example, to demand monopoly 
prices for medicines for which they have patents, including 
medicines for the treatment of HIV and AIDS.
    As a result of the TRIPs agreement and pressure from 
pharmaceutical companies, millions of people in developing 
countries have been denied life-saving medicines, because they 
cannot afford to pay the prices the pharmaceutical companies 
demand. A few countries have begun to respond to the HIV/AIDS 
pandemic by enacting laws to allow the distribution of generic 
HIV/AIDS medicines to their populations. Pharmaceutical 
companies have responded by using the WTO and TRIPs Agreement 
to challenge their laws.
    I am not going to continue this statement. I will ask that 
it be submitted for the record. But let me just close by saying 
I am concerned about what is happening also in the Caribbean, 
our neighbors. And, because I have spent some time there, I 
have witnessed the way that we have treated them in terms of 
their banking laws. I think there is a lot of room for 
improvement.
    We have a lot of American firms, for example, that are 
going down to the Bahamas, but they cannot get the tax credits 
for holding their conventions there. The conventions that they 
hold there are important trade for the Bahamas, for example, 
because their economy is built on tourism. And if, in fact, our 
companies are going there, the economy is built on tourism, 
they are our friends and our neighbors. When we talk about 
financial services, why don't we correct some of the problems 
that we have created before we even start to talk about some 
new ones?
    Also, I want to just say this: If we are interested in 
``know your customer'' rules and laws, we have got to practice 
what we preach. Let us not go someplace else demanding what we 
don't do here in the United States. With that, I will yield 
back the balance of my time.
    [The prepared statement of Hon. Maxine Waters can be found 
on page 70 in the appendix.]
    Chairman Bereuter.  Thank you, ma'am.
    The gentleman and lady's entire statement under previous 
unanimous consent requests are included.
    The gentleman from California, Mr. Sherman.
    Mr. Sherman. I commend the Chairman for holding these 
hearings and commend the gentleman from Vermont, especially, 
for his focus on the most enormous trade deficit in the history 
of mammalian life and the effect that financial services can 
have on that. You don't have to be a member of the Progressive 
Caucus to see the importance of our trade deficit. At that 
table 2 years running, Chairman Greenspan has sat there and in 
response to my questions, has been amazed, as I am, that this 
trade deficit has gone on so long without exploding. And 
predicting that some day, some date that neither one of us 
would predict, that it has to come to an end, perhaps a 
crashing end.
    The financial services area is one area where we have some 
competitive advantages and might be able to get some of that 
trade deficit reversed. But financial services are perhaps 
unique among the products in the world. If you have a 
competitive advantage in widgets, you export widgets and it 
helps your trade deficit.
    In contrast, financial services, while it can produce tens 
of thousands of jobs here in the United States, could also be 
the vehicle for exporting hundreds of billions of dollars in 
capital. And I think it is important that we look at what we 
can do to keep capital in the United States. We had a $1.3 
trillion tax cut in this country, adopted in large part to 
increase the amount of capital available for the expansion of 
American business, not to simply lead to the export of capital 
from the United States to other countries.
    In addition, you have the enormous effect our financial 
services industry can have on some of the most horrific human 
rights problems around the world. Slavery, obviously, had an 
enormous impact on our economy. That was a century-and-a-half 
ago. Today, slavery is being practiced in Sudan and this House 
had the fortitude to close off Sudan and those companies that 
do business with Sudan from the U.S. capital markets, 
particularly the New York Stock Exchange.
    And I think that this subcommittee ought to look for other 
opportunities where it does have an impact on our business, but 
is there anybody in this room that would want to gain an 
economic advantage by supporting or participating in slavery in 
Sudan? I don't think so.
    So I commend the Chairman for holding these hearings and 
think that as we go through the process, we need to ask is our 
involvement in international financial markets going to help us 
with the trade deficit and is it going to reflect American 
values, particularly in dealing with some of most extreme human 
rights violations? I think, though, that I join with the 
gentleman from Vermont in saying we need a more comprehensive--
outside the jurisdiction of this subcommittee--review of how a 
country that once ran the world's greatest trade surplus is now 
running the world's greatest trade deficit. I yield back.
    Chairman Bereuter. I thank the gentleman. And without any 
further ado, we will proceed with the witnesses. Because I 
think some of the major benefits will come from the questioning 
to the witnesses. I am going to ask the witnesses to summarize, 
in effect, to meet a 5-minute limitation. I regret doing that, 
but I think it is probably essential for the benefit of our 
deliberations.
    First we would like to hear from Mr. Peter O'Connor, 
Executive Vice President of ACE INA testifying on behalf of the 
American Insurance Association.
    Mr. O'Connor.

 STATEMENT OF PETER O'CONNOR, EXECUTIVE VICE PRESIDENT, GLOBAL 
 GOVERNMENT AFFAIRS AND NEW MARKETS FOR ACE INA, ON BEHALF OF 
               THE AMERICAN INSURANCE ASSOCIATION

    Mr. O'Connor. Thank you, Mr. Chairman, and other 
distinguished Members of the International Monetary and Policy 
and Trade Subcommittee for holding this important hearing 
today. I am providing testimony today on behalf of the American 
Insurance Association, which represents 370 major U.S. property 
casualty insurers. Trade in financial services has grown 
rapidly over the last decade and is now a major component of 
the U.S. trade policy. And insurance has been a strong member 
of that increasingly robust trade sector. In fact, U.S. 
financial services exports last year stood at $17 billion, a 30 
percent increase from 1999. Subsidiaries of U.S. insurers sold 
over $46 billion of products overseas in 1998.
    Liberalization of trade and insurance, combined with the 
development of open and transparent regulatory regimes, is 
critical to the growth of U.S. insurers and to the health of 
the U.S. insurance industry overall. But more importantly, it 
is critical to the ability of emerging and transitional 
economies to grow and develop their economies and provide 
social safety net protections to their citizens. Insurance is 
important to any economy for a number of reasons, but I will 
cite only two. First, insurance is an essential and vital 
component of a country's financial infrastructure. Insurance 
companies can be major sources of national income. In 
collecting relatively small premiums from their many thousands 
of insureds, insurance companies are able to invest large sums 
locally.
    This, in turn, deepens and broadens the domestic financial 
services marketplace, which generates higher savings rates and 
therefore greater economic development. Insurers are also the 
largest purchaser of Government bonds, which are used to 
finance infrastructure projects such as schools, hospitals, 
roads, and power plants.
    Second, insurance supports beneficial increases in overall 
trade and investment and creates jobs, both in the U.S. and in 
the emerging market. American companies, including small- and 
medium-size enterprises, are more likely to export to and enter 
foreign markets if they have access to specialized products and 
services that they require and U.S. insurers provide. Increased 
sale of U.S. products overseas translates to more jobs being 
created back home to supply the overseas demand. Countries 
around the world, both developed and developing, are 
recognizing the important role of a healthy and competitive 
insurance marketplace in their economy.
    As a result, U.S. insurance company investment and sales 
outside our country have increased substantially over the last 
decade. The insurance industry has been increasingly active in 
a number of public policy areas to promote expanded 
international trade. U.S. insurers strongly support the efforts 
of U.S. trade officials and many Members of Congress to expand 
trade in both the multilateral and bilateral arenas. But our 
focus in both realms is clear: greater market access for our 
business and greater regulatory transparency for our products.
    On the multilateral front, the U.S. insurance industry 
strongly supports the Bush Administration's efforts to initiate 
a broad trade round within the World Trade Organization, 
beginning at its ministerial in Doha, Qatar in November. While 
the 1997 commitments are valuable, U.S. insurers are ready to 
build on those commitments and work with U.S. negotiators to 
gain further access to those markets and improve regulatory 
conditions.
    Specifically, the U.S. insurance industry has rallied 
behind a proposed model schedule that urges countries to make 
improvements to their 1997 market access commitments, but also 
to address domestic regulatory issues that effectively act as 
barriers for U.S. insurers. On the bilateral front, the U.S. 
insurance industry has been strongly supportive of U.S. trade 
agreements to expand trade in all areas, including insurance 
with countries that welcome foreign investments and trade. We 
are particularly supportive of the U.S. bilateral trade 
agreement with Vietnam and have lobbied for its passage in 
Congress. The insurance industry supports ongoing trade 
negotiations with other countries, both developed and 
undeveloped, including the European Union, Japan and India.
    Our recent focus has been on emerging markets that have 
long maintained less developed insurance systems, but now 
appear committed to creating modern and competitive insurance 
sectors, including China, India and Vietnam.
    Based on the market opening commitments China made in its 
1999 accession agreement with the U.S. and reaffirmed earlier 
this month, the industry was strongly supportive of permanent 
normal trade relations for China last year. We remain committed 
to normal trade relations for China this year, when Congress 
votes on that measure to maintain its current trade status 
until China becomes a full WTO member.
    Finally, AIA and its member companies, as well as others in 
the insurance industry, strongly support the enactment of the 
Trade Promotion Authorities, known as TPA. We believe the 
stronger the mandate the President has to enter into trade 
agreements, the more likely it is the U.S. will be able to 
negotiate agreements that provide greater benefits to the U.S. 
economy and consumers.
    All of these separate ongoing trade issues involving many 
countries around the world ultimately address different market 
barriers and economic circumstances that are unique in each 
country. But our goal with each issue is the same, to further 
open each market so that U.S. investors can fairly compete 
there.
    In conclusion, Mr. Chairman, a healthy and productive 
global insurance infrastructure is vital to a prosperous, 
innovative and growing global economy. AIA, ACE INA and others 
in the insurance industry have been proud to play a role in 
expanding insurance sales abroad and in the process benefiting 
consumers, economies, and global living standards.
    We look forward to working with you and all Members of the 
subcommittee on the major policy and trade challenges of this 
year. We appreciate having the opportunity to testify before 
you today and would be happy to answer any of your questions 
that you may have.
    [The prepared statement of Peter O'Connor can be found on 
page 72 in the appendix.]
    Chairman Bereuter. Thank you Mr. O'Connor.
    We will now hear from Mr. Thomas Farmer, General Counsel, 
Bankers' Association for Finance and Trade. Mr. Farmer, you may 
proceed.

   STATEMENT OF THOMAS L. FARMER, GENERAL COUNSEL, BANKERS' 
               ASSOCIATION FOR FINANCE AND TRADE

    Mr. Farmer. Thank you, Mr. Chairman. You have our written 
statement. It is brief, and I am sure you have a chance to read 
it now or later, and I won't go into that statement in any 
detail. I will try to respond more directly to some of the 
issues that you and your colleagues have raised. Let me make 
one diversion here in anticipation of my colleague from the 
SIA.
    Chairman Bereuter. Bring the mike a little bit closer.
    Mr. Farmer. Let me just say that I have just read his 
statement, and I wish to associate our association with what he 
has said. We have worked together on a lot of these issues, and 
we are quite close to them. Let me make a special reference to 
two issues that are in his statement that are not even alluded 
to in ours, which concern unilateral sanctions, and again, I 
think that is something that is worth discussing later. And 
then the brief reference to the adequacy finding by the 
European Union, (EU), on privacy issues. Again, that is an 
important issue and he has presented it very well.
    Let me also say that we are very pleased that a number of 
Members of your subcommittee and the full committee have 
already expressed their views on that issue. And we hope to be 
able to work with you on resolving that before very long. Let 
me go ahead and address one of the issues that I have alluded 
to that the Chairman brought up, which is national treatment, 
which is an important principle and the Bankers' Association 
for Finance and Trade, (BAFT), has supported that for many 
years.
    I have had the privilege of working on that very issue for 
at least 20 years. And I have to tell you, it is a very blunt 
instrument, because it is really not in the interest of the 
U.S. to close its markets to foreign institutions for the 
reasons that I have mentioned in our statement. The depth and 
liquidity of the U.S. financial markets is very much supported 
and strengthened by the ability of foreign banks to get full 
national treatment in this country.
    And this subcommittee, over the years, has passed 
legislation which has consistently, and we are very pleased 
about that, treated foreign institutions on the same basis as 
American institutions, and that is one of the reasons why our 
markets, the U.S. financial markets, are as deep and as liquid 
and as well-functioning. And one of the contentions we have 
made is that to a large extent, the vitality of the U.S. 
economy results from the lower cost of capital, the breadth of 
instruments that are available, and the access of foreign 
investors and lenders to the U.S. capital markets.
    Almost consistently, the U.S. has benefited from the 
ability of foreign capital to operate in this country, whether 
it comes here through our institutions through their foreign 
head offices or from foreign-owned institutions through their 
local offices. This has been very successful, and we have made 
a lot of progress, and the U.S. Treasury has played a key role 
in persuading other countries, including Japan, to which you 
made references, and Canada, to which I made reference, to open 
up their markets to American financial institutions. The 
persuasive element in those negotiations, and I have seen them 
up close, has not been so much the threat that we will exclude 
them from our markets, but the fact that our markets are 
working better than their markets, and that it is in their 
interest to permit foreign-owned institutions into their 
markets.
    Canada is maybe one of the prime examples of that. The U.S. 
Government has had this debate with the Canadians for a long 
time. Even in NAFTA, the Canadians did not want cross-border 
branching, and therefore it isn't part of NAFTA. But then in 
1995, the Canadian government began to worry about the 
shrinkage of the Canadian capital market, the impact on the 
Canadian economy and their conclusion was, to a large extent, 
this was due to the fact that the Canadian government had made 
Canadian markets unattractive to foreign banks and so they 
reversed course.
    And in 1997, in the General Agreement on Trade in Services, 
(GATS), they made a commitment to open up their markets to 
cross-border branching and then they did that. In this example, 
the function of the U.S. market has worked in a number of 
cases. I think Mr. Judge will agree with me also on the 
Japanese bilateral negotiations. Again the Japanese concluded 
that really it was in their interest to open up their markets. 
And I think that is the way to proceed in those negotiations, 
to have the principle of national treatment, but to realize its 
limitations, and importantly, to keep the openness of our 
markets as a glowing example of what really helps the economy, 
and the economy of the U.S.
    So I would emphasize that I am not qualified--I am not an 
economist--to discuss trade imbalances generally, and certainly 
my charter doesn't run to that. But I would like to suggest 
that the attractiveness of U.S. markets, U.S. financial 
markets, has resulted in, partly through the structure of these 
markets, has resulted in a large inflow of foreign capital over 
the years.
    I don't have any figures that compare the outflow or the 
inflow, but my guess is that on balance, there is more of an 
inflow. In any case, I think it has helped us deal with what is 
admittedly a very difficult situation, which is the trade 
imbalance. So I'd like to address those points.
    [The prepared statement of Thomas L. Farmer can be found on 
page 79 in the appendix.]
    Chairman Bereuter. Thank you, Mr. Farmer.
    We'd like now to hear from Mr. Steve Judge, Senior Vice 
President for Government Affairs, Securities Industry 
Association.

  STATEMENT OF STEVE JUDGE, SENIOR VICE PRESIDENT, GOVERNMENT 
            AFFAIRS, SECURITIES INDUSTRY ASSOCIATION

    Mr. Judge. Chairman Bereuter, Mr. Sanders, Members of the 
subcommittee, thank you for the opportunity to present the 
securities industry's views on trade issues that affect the 
financial services industry. The U.S. capital markets are the 
deepest, most transparent and most innovative in the world. The 
securities industry's unique function, matching those who have 
capital with those who will use it productively and advising 
clients and investors on how to manage their investments, are 
vital to world's economic growth.
    The U.S. financial services sector's continued strength 
depends upon access to foreign markets. It is critical that we 
continue to pursue access to all markets worldwide. Increased 
competition improves efficiency and provides consumers with the 
broadest range of products and services at the lowest cost. 
Countries that erect barriers to entry, not only harm our 
ability to provide the products and services our customers 
demand, but also inhibit growth and innovation in their own 
economy.
    The products and services that U.S. financial services 
firms offer are eagerly sought by foreign individuals, 
institutions and governments. In fact, financial services 
exports topped $20.5 billion with a record trade surplus of 
$8.8 billion. Over the last decade, the U.S. capital markets 
have seen their share of the global pie shrink. Approximately 
80 percent of the world's Gross Domestic Product, (GDP) and 
half of the world's equity and debt markets are located outside 
the U.S.
    So obviously, many of the best future growth opportunities 
lie in non-U.S. markets. It is a long-established U.S. policy 
to promote economic growth through open markets. The Securities 
Industry Association, (SIA), supports efforts to eliminate the 
protectionist barriers through WTO financial services 
negotiations and through bilateral and regional pacts.
    SIA strongly believes that substantial liberalization of 
financial services markets can only be realized if countries 
improve regulatory transparency. Lack of transparency and 
implementation and application of regulations frustrates 
markets' access in the same way as does tariffs.
    Over the last 2 years, SIA has undertaken a major effort to 
increase regulatory transparency. We published a paper 
identifying the principles on which transparent regulatory 
systems are built. This effort has received the support of U.S. 
financial services regulators and we have worked with APEC, the 
OECD, IMF, WTO regulators in North America, Europe, Asia and 
Latin America. Indeed, just earlier today, SIA spoke to members 
of the International Organization of Securities Commissions on 
the importance of transparent regulation. And we will give a 
major presentation of this paper to their annual meeting on 
Friday in Copenhagen.
    We are urging our trade negotiators to incorporate these 
transparency principles in future agreements. These principles 
would eliminate preferential access to regulatory proposals, 
require public availability of proposed regulations, provide an 
adequate public comment period on new regulations, and mandate 
the enforcement of regulations on a non-discriminatory basis.
    SIA strongly supports the inclusion of financial services 
in the year 2000 round. We believe this is a tremendous 
opportunity to build upon the 1997 WTO accord. Though that 
agreement did not achieve the elimination of all the barriers 
that the securities industry sought, it did create a strong 
basis for further liberalization. SIA's objectives for the 
upcoming round are to expand on the 1997 commitments, transform 
voluntary liberalizations undertaken since 1997 into binding 
commitments, and to reject offers that do not fully grandfather 
existing investments and operations.
    We are extremely supportive of the Administration's efforts 
to forge trade accords with Chile and Singapore, and the free 
trade area of the Americas. These targeted negotiations provide 
an opportunity for groundbreaking financial service agreements, 
and they must set a high standard against which future 
agreements will be measured.
    SIA supports Trade Promotion Authority for the President as 
an essential tool in negotiating favorable trade agreements. We 
have been actively seeking a declaration from the European 
Union, (EU), that Title V of Gramm/Leach/Bliley, in combination 
with the Fair Credit Reporting Act and other U.S. laws and 
rules, constitutes adequate protection for personal data 
handled by the U.S. finance services sector for purposes of the 
EU data protection directive. Such a determination is critical 
for the U.S. financial services sector by guaranteeing that the 
uninterrupted flow of data will insure continued investor and 
market confidence.
    The privacy debate in the United States will continue to 
evolve. A U.S./EU agreement on adequacy does not preclude 
further developments and privacy law in either the U.S. or in 
Europe. An EU adequacy determination would, however, allow U.S. 
financial services firms to comply with the extensive legal 
regimes already in place on both sides of the Atlantic without 
the threat of costly and disruptive data stoppages.
    SIA is increasingly concerned about proposals to seek to 
use the U.S. capital markets to achieve foreign policy goals. 
U.S. capital markets attract investors and companies from all 
over the world, and regularly serve as a safe haven in times of 
crisis. Denying access to U.S. capital markets is not an 
effective tool for addressing complex foreign policy issues. 
Doing so could seriously disrupt investor confidence, both 
domestic and foreign in U.S. markets and jeopardize our 
continued vibrancy. If issuers are denied access to our markets 
through unilaterally imposed sanctions they may simply find 
capital in other markets where U.S. firms are less likely to be 
competitive.
    As the world leader in providing innovative services and 
products, U.S. financial service firms are essential to job 
creation and economic growth in the United States and 
worldwide. Access to foreign markets is more necessary than 
ever to help firms meet their customer's demands. Your 
leadership will be a critical factor in deciding the framework 
for ongoing negotiations within the WTO and other upcoming 
market-opening trade accords.
    Once again, I thank you for your efforts in the past and 
for the opportunity to testify today. SIA stands ready to work 
with you as an active participant in these important 
discussions.
    [The prepared statement of Steve Judge can be found on page 
84 in the appendix.]
    Chairman Bereuter.Thank you very much, Mr. Judge.
    Now we will hear from Dr. Mark Weisbrot, the Co-Director of 
the Center for Economic and Policy Research. Mr. Weisbrot, you 
may proceed as you wish.

 STATEMENT OF MARK WEISBROT, CO-DIRECTOR, CENTER FOR ECONOMIC 
                      AND POLICY RESEARCH

    Mr. Weisbrot. Thank you. I would like to thank Chairman 
Bereuter and the subcommittee for this opportunity to testify 
on this issue. The Center for Economic and Policy Research is a 
non-profit, non-partisan policy institute and we seek to expand 
public debate on issues such as this. I will focus my remarks 
on the public interest in these agreements, such as the Free 
Trade Agreement of the Americas, (FTAA), the General Agreement 
on Trade in Services, and NAFTA, and also such legislation as 
Trade Promotion Authority.
    While it is clear there are some gains to be made by U.S. 
financial firms and banks by the liberalization of trade in 
financial services, we must weigh these gains against the cost 
of entering into and expanding the international agreements by 
which such liberalization is achieved. You cannot liberalize 
trade in financial services without accepting the rest of the 
agreements, such as the FTAA. We must also consider the costs 
and risks associated with liberalization and deregulation, some 
of which only become apparent after the fact, as in our own 
savings and loan deregulation experience in the 1980s.
    On the benefit side, it is argued that the expansion of 
trade in financial services can help reduce our trade deficit. 
As Congressman Sanders already pointed out, there is not going 
to make very much difference even if we were to double the $9 
billion surplus that we currently have. It is about 2 percent 
of our current account deficit, which is now running at 4.5 
percent of GDP, $450 billion a year. And as Congressman Sherman 
pointed out, this is a very serious problem and I am always 
amazed as an economist by how little attention it gets in the 
press. It will have to get some attention soon, because we 
cannot go on doing this indefinitely. Our foreign debt is now 
nearly 20 percent of the Gross Domestic Product. If we keep 
going at the rate we are going now, it will reach 50 percent in 
less than 7 years, which is a level that no industrialized 
country has ever had. And again, from an economic point of 
view, this is at least as serious a problem as a budget deficit 
of the same order. In fact, it is more serious, because the 
money is owed to people and institutions outside the country. 
And yet, Congress does take very seriously, and the press does 
take very seriously, the possibility of a Federal budget 
deficit 10 and 20 years into the future, while at the same time 
this much more important trade and current account deficit is 
basically ignored.
    However, we should be wary of promises that expanding our 
trade through agreements such as NAFTA, the proposed FTAA or 
the WTO, will reduce our trade deficit, as the proponents of 
NAFTA promised back in 1993. Of course prominent economists 
argued that it was going to expand our trade, which it did, and 
expand our trade surplus and create a net gain of hundreds of 
thousands of jobs here, and instead--and I am using figures, 
they are only slightly different, because they are in constant 
1992 dollars, from what Congressman Sanders said--but you can 
see our NAFTA deficit went from $16.6 billion in 1993, 
quadrupling to almost $62.8 billion in 2000, and of course our 
overall current account deficit has ballooned.
    The subcommittee asked whether it would be advisable as 
part of the process of expanding trade in financial services to 
ease the restrictions on foreign companies that wish to sell 
securities in U.S. markets. I just want to mention that we have 
enough problems here policing our own securities markets, as 
was shown in the recent collapse of the bubble in tech stocks, 
and you have any number of examples.
    One I gave here is Priceline, for example, which is now 
trading at 18 percent of its peak value. Well, they measured 
their revenue in terms of their ticket sales, airline ticket 
sales and hotel room sales, the total amount of them. This is 
one of the many accounting manipulations that was not stopped 
by the Securities and Exchange Commission, and partly as result 
of that, we had a huge bubble and it burst and millions of 
Americans are already having to change or postpone their 
retirement plans. So I would suggest that we need to get our 
own house in better order before we expand our own markets to 
more difficult-to-police foreign securities.
    Finally, a couple more points if I can. The deregulation of 
financial services has other risks. We saw this in the Asian 
financial crisis, which most economists now agree was brought 
on by an opening up of capital markets in the region, which led 
to a sudden influx of hot money that flowed right out within 
the following year in 1997-1998. And you had a reversal of 
capital flows, about 11 percent of GDP for South Korea, 
Indonesia, Philippines, Malaysia and Thailand. This is what 
really brought on the crisis and the collapse of the currencies 
and the economic collapse in the region, which did have an 
effect also in the United States, particularly on certain 
industries. Steel workers, farmers were particularly hard hit.
    So we have to be careful with international deregulation of 
financial services even on its own terms and apart from the 
other conditions that are included in these agreements.
    I guess I am out of time, but if we do have time I would 
like to come back to some of the other conditions that are in 
these agreements that we should be particularly wary of.
    [The prepared statement of Mark Weisbrot can be found on 
page 94 in the appendix.]
    Chairman Bereuter. Thank you very much. Gentlemen, thank 
you very much for your testimony. We very much appreciate it. 
We will now move to the 5-minute question rule, and I will 
begin the questioning by a question that I want to address to 
all of you. I will give you a minute or two to think about it 
and I would like to then have brief answers from each of you. I 
will move to a second question in the meantime. These are the 
two related questions.
    What type of barriers do you believe are the most damaging 
to international trade in financial services? And then, second, 
I want to ask you which countries are the most restrictive, 
have the most restrictive rules for gaining market access? You 
can give me one, two or three nominees.
    And in the meantime, Mr. Judge, I would like to go to a 
comment you had at page 6 related to what you describe as a 
NAFTA model for transitions; that is, transition periods, for 
entry into developing country markets. And the points that you 
are making that NAFTA could be in, that it is sector specific. 
Is that the primary reason you cite this or is it something 
about the transition period model itself?
    Mr. Judge. No, it was the transition model itself. In some 
negotiations it makes sense to have a transition period to get 
to a goal of total market access and that cannot be 
accomplished immediately.
    Chairman Bereuter. How do you think, for example, the China 
WTO access treated your country on transition periods and other 
elements that limit or begin to open up your access to 
securities, exports, sales?
    Mr. Judge. Our support for the China agreement was based on 
the general benefit to the economy. The securities industry 
itself did not receive as favorable a treatment under that as 
other industries did.
    Chairman Bereuter. It was one of their disappointments in 
short, wasn't it?
    Mr. Judge. Yes, we were very disappointed in the agreement 
reached on securities with China.
    Chairman Bereuter. Now if I could come back and ask each of 
you, just doing down the line, Mr. O'Connor, do you want to 
give me what are the most damaging barriers to international 
trade in financial services?
    Mr. O'Connor. Well, based on my experience, I think some of 
the barriers that are significant are ownership. In some 
countries there is a limitation on ownership for foreign 
companies. India has a limitation of 26 percent, which is very 
bothersome. Another one is the product approval process. That 
has been very problematic in Japan where foreign companies, 
until recently anyway, have been subject to another approval 
process for their products that was different than it was for 
Japanese companies. And then another example, I think certain 
countries, China comes to mind here, they have closed out 
certain sectors, certain product sectors for foreign companies. 
Automobile insurance is a closed sector. There were other 
sectors, but automobile is one.
    Chairman Bereuter. Let's deal with the barriers first. Mr. 
Farmer, which are your nominees?
    Mr. Farmer. Well, we will talk about the barriers first.
    Chairman Bereuter. Yes.
    Mr. Farmer. The commercial banking industry I don't think 
feels it has significant barriers to entry in any market that 
is of real interest to the industry in terms of an economy 
which would be worth trying to operate in.
    Chairman Bereuter. Is that because of national treatment 
giving us more leverage?
    Mr. Farmer. That is basically due to the fact that the 1997 
GATS agreement made a great deal of progress, and always I 
mention Canada and Japan being prime examples there. There are 
barriers in the sense of hurdles to operating successfully in 
some of these markets I have mentioned in my statement, where 
the regulatory structure is such that the risks for operating 
in those markets make them unattractive. Lack of transparency 
in the regulatory system, actually the SIA statement on that is 
quite comprehensive. Lack of ability to have input on 
regulatory structures, and the other thing I would say is 
weakness of the local banking sector. It really isn't possible 
to operate successfully in a country if the local banking 
sector, as it is, for example, in Russia, simply doesn't 
operate properly.
    Chairman Bereuter. That is interesting. We will have to 
come back to that one. I want the other barriers nominated by 
Mr. Judge if I may. Excuse me, Mr. Farmer. Mr. Judge.
    Mr. Judge. Where they exist, ownership and market 
establishment barriers are still very important, but we found 
that, as Tom said, Mr. Farmer said, the 1997 WTO accords 
removed many of those. But more important are the lack of 
transparent regulatory systems in these countries. That is 
something that is really a country-by-country, barrier-by-
barrier, regulation-by-regulation fight that we have to make.
    Chairman Bereuter. Thank you very much. I am out of time, 
but I want to go to Dr. Weisbrot to see if he wants to suggest 
the most egregious or difficult barriers.
    Mr. Weisbrot. I can't speak for the industry, obviously--I 
think this is one of the problems with the way this is looked 
at--some of the things that are barriers to entry to financial 
services markets are actually regulatory measures that are 
necessary to maintain stability in local capital markets. And 
the example I gave in my testimony, for example, as to what 
brought on the Asian financial crisis was a removal of 
restrictions on foreign borrowing that allowed banks and 
corporations there to borrow almost unlimited amounts from 
abroad of short-term capital. Of course, this is what created 
the instability that led to the currency crashes that brought 
with it the whole collapse of the economies in the region, 
because you had this enormous influx of short-term capital, 
which was pushed very strongly by the U.S. Treasury Department. 
Prior to this deregulation it would not have been possible.
    Chairman Bereuter. Thank you very much. That subject about 
what caused the financial crisis in Asia is the subject of 
another discussion, but my judgment is that is only one of the 
reasons. The other was crony capitalism and mishandling of it 
by the IMF in its initial stages, but that is for another day.
    Mr. Sanders.
    Mr. Sanders. Thank you, Mr. Chairman. I understand we have 
representatives from the insurance banking and securities 
industry here and you are testifying about financial services, 
and that is fair enough. That is your interest. But I would 
like you to do me a favor and put another hat on as well. Just 
pretend that you are not representing a financial services 
industry, but you are a Member of the United States Congress 
that has to look at financial services and a dozen other 
things. And if a constituent came up to you and said, sir, we 
now know that financial services are running a surplus, Mr. 
Congressman, but we have an $83 billion trade deficit with 
China--I know some of you have mentioned NAFTA. We have now a 
$24 billion trade deficit with Mexico, whereas before NAFTA, we 
had a surplus. We have a $50 billion trade deficit with Canada, 
which has more than doubled since NAFTA.
    So now you are a United States Congressman and not just a 
representative of a financial service industry. Tell me what 
you would tell a constituent when a constituent said, hey, 
these are not working for me, because I lost my job or my wages 
are going down or my wife lost her job. So how do you feel 
about the China agreement, the NAFTA agreement overall? 
Overall, not just from your financial services. Give us some 
advice as to how we should vote on these issues.
    Mr. O'Connor, if you could briefly respond, Mr. Farmer, Mr. 
Judge, Mr. Weisbrot.
    Mr. O'Connor. Congressman, the insurance industry is a 
particular industry. It is not a manufacturing industry, it is 
a service industry. So I don't think anybody has lost their job 
in the insurance industry, because of opening of new markets. I 
would use the specific example of China. Right now, the Chinese 
can sell their goods in the United States. Basically they have 
a pretty good free access to the U.S. marketplace where U.S. 
companies don't have access to selling goods to the same extent 
in China. I would say the WTO accession and implementation of a 
bilateral trade agreement would reduce the trade deficit with a 
significant trading partner of the United States where we have 
a deficit, and that is China.
    Mr. Sanders. I appreciate that and, as you know, we don't 
pick and choose in general. When we are dealing with NAFTA, you 
are not just dealing with insurance, you are dealing with 
automobiles and steel and everything else.
    So you did not quite answer my question. I am appreciative 
of the fact that the financial services industry is running a 
surplus, but we can't pick--well, we can pick and choose, but 
the approach we have taken is broad trade policy.
    Mr. Farmer, how would you answer that question?
    Mr. Farmer. Let me say I am neither a Member of Congress or 
an economist.
    Mr. Sanders. For a few minutes you will be a Member of 
Congress.
    Mr. Farmer. I am way over my head. I think a lot depends on 
who your constituents are. I would think Mr. Bereuter's 
constituents, to the extent they are farmers, are quite happy 
with NAFTA and some of the other agreements. In other words, I 
think there are balances. Certainly I think if I were an 
economist, and I am not, I think you need to look at trade 
balances on a worldwide basis, not on a bilateral basis. I know 
we are running a worldwide deficit at this point also, but we 
are running also a capital account and this is one area where 
the financial services industry comes in well. A lot of this is 
balanced off by the need for, and the willingness of, our 
creditors to keep holding onto those little green pieces of 
paper that we give them, the dollar bills. That is partly due 
to the fact that they can invest these papers extremely well in 
the United States, thereby helping our capital markets, 
lowering our capital costs, and the part of the economy that is 
driven by them doing well.
    Mr. Sanders. I have to interrupt you, because we don't have 
much time and I want others to comment. I would say when we 
talk about trade or economic policy in general sometimes we 
miss the bottom line, and what the bottom line is to me, to be 
frank, is how the average citizen is doing. Does this trade 
policy benefit the average person? You are right, in some cases 
a farmer in Mr. Bereuter's district or my district benefits, 
but on average when you are running up a $400 billion plus 
trade deficit I think the evidence is overwhelming that the 
average American is not benefiting.
    Mr. Judge, your view?
    Mr. Judge. First of all, I might tell other industries to 
follow the example of the financial services industry. The 
financial services industry seems to have a pretty good example 
of how this can be done. I encourage other industries to follow 
the notion of expanding markets overseas. I would want to make 
sure there is a cause and effect relationship between the 
enactment of the trade agreement and the trade deficit that you 
point out. I am not sure in the absence of these trade 
agreements that the trade deficit would be all that much 
better. In fact, it could be worse. I would make sure I 
understood there is a cause and effect relationship there, and 
I am not sure there is one there yet.
    Mr. Sanders. Subject for another discussion.
    Mr. Weisbrot.
    Mr. Weisbrot. I don't think actually any economist would 
dispute the relationship between the trade agreements and the 
deficit. They might dispute the actual effect of that trade 
deficit on things like wages for employment over the long run. 
But I think what you would have to say is, first of all, the 
agreements--NAFTA and the FTAA, they are deliberately designed 
to make it easier for U.S. corporations to move their 
investments elsewhere, direct foreign investment elsewhere. So 
there is no doubt that they have that effect. The other effect 
they have is to push wages down. Here, if you look at them, is 
the one probably most important statistic that you can look at 
concerning the U.S. economy from the point of view of the 
people, and that is the median wage. That is, the real median 
wage adjusted for inflation is today the same as it was 27 
years ago. Now this is unprecedented in American economic 
history. This means that the majority of the labor force in the 
United States has literally not shared in the gains from 
economic growth over the last 27 years. If you compare that to 
the previous 27 years, the typical wage increased by 80 
percent. The difference between 80 percent and zero is huge, 
and a good part of that again, economists would argue how much, 
but a sizable part of that is due to our international 
commercial agreements and exchanges.
    Mr. Sanders. Thank you all.
    Chairman Bereuter. The time of the gentleman has expired. 
There were three Members here at the beginning of session. Mrs. 
Roukema was here at the beginning of the first session. First, 
we will hear from Mrs. Roukema, Mr. Castle, Mrs. Biggert, and 
then order of appearance under the committee rules.
    Mrs. Roukema.
    Mrs. Roukema. I don't quite know where to begin here, but I 
have listened very carefully to what you have to say. And 
coincidentally I might tell you that I and Mr. Bereuter were at 
a policy hearing this morning where Trade Ambassador, I'm 
sorry, Bob Zoellick, our Trade Negotiator for the Bush 
Administration, was speaking, and we had noted the Trade 
Promotion Authority which a couple of you referenced. That has 
been evidently pointed out as something that Congress has to 
do. I don't know how high a priority you rank that. But I would 
like to know if you want to comment on the Trade Promotion 
Authority. I would be happy to hear that, but I would like to 
know what do you think our Trade Rep, Mr. Zoellick, should be 
doing now for your industry, and I heard you say you need more 
transparency country to country. And you did talk about some of 
the damaging barriers to financial services. What should the 
Trade Rep be doing with the Administration and through the 
Administration with your industry?
    Mr. O'Connor. I think the Trade Representative should be 
addressing these barriers that we mentioned earlier.
    Mrs. Roukema. I'm sorry? Should be?
    Mr. O'Connor. Addressing.
    Mrs. Roukema. Has there been any movement in that direction 
in the correspondence? There has been correspondence and 
dialogue.
    Mr. O'Connor. Yes. There is an open communication link 
between our industry anyway and the U.S. Trade Representative, 
and we constantly advise. This is a moving target. As we go 
forward, we constantly advise what are the remaining barriers 
and what the problems are. Transparency continues to be a 
problem and we make our proposals to USTR and have frequent 
meetings with them, and they are very serious about us helping 
the financial services industry, particularly insurance, 
address these issues with the offending countries.
    Mrs. Roukema. Either you or anyone else, please amplify on 
that, but at the same time tell me, has there been any action 
taken besides communication and discussions?
    Mr. Farmer. Could I? Let me say the way the U.S. Government 
is structured in financial services outside of insurance, the 
principal responsibility, negotiating responsibility is not 
with Mr. Zoellick, but with the Secretary of the Treasury. We 
have worked very closely with the Treasury over the years 
through various administrations and they have been very 
actively negotiating on these very issues with foreign 
governments.
    My reference to Canada and Japan reflect mostly the efforts 
of the U.S. Treasury to get the regulatory structures improved 
in these countries, and that has continued to go on. And I 
would say the Treasury also is working with the IMF, which is 
beginning to give technical assistance to countries that don't 
understand regulation. And so through the Treasury/IMF channel 
there has been a lot going on.
    As you know, the current Treasury is just getting into 
place for various reasons, and we are looking forward to even 
more activity by them when they get their top people in place.
    Mrs. Roukema. Thank you.
    Yes, Mr. Judge.
    Mr. Judge. First of all, we strongly support TPA, and we 
think it should be a high priority. Second, I think the U.S. 
Government should be encouraging that the WTO Financial 
Services Round to remove further barriers. I think Mr. Farmer 
pointed out the good relationship between USTR and the 
Treasury, and Treasury's responsibility for banking and 
securities and USTR's responsibility for insurance and other 
financial services.
    The last Administration, and the previous Administration, 
have done a very good job working with the industry in trying 
to identify our major concerns and addressing them. I think so 
far the rhetoric out of the Administration has been very 
positive on these issues, and so we look forward to working 
with them in the next year or two and developing those 
negotiating positions.
    Mrs. Roukema. Excuse me. You said the rhetoric has been 
good, but has there been action as well?
    Mr. Judge. I don't mean that pejoratively. The public 
statements have been very positive is a better way of saying 
that. My rhetoric was flawed there.
    Mr. Farmer. The senior political officials of the Treasury 
are not yet in place and it is not fair to judge the Treasury 
performance on the last few months.
    Mrs. Roukema. Mr. Weisbrot.
    Mr. Weisbrot. We are against the Trade Promotion Authority, 
and we think, first of all, the Constitution confers upon the 
legislative branch the authority to regulate commerce with 
foreign nations. It is a relatively recent development that it 
has been shifted more and more to the executive branch, and I 
think one of the problems of it is you have these commercial 
agreements that are negotiated that do neglect the public 
interest, as Congresswoman Waters was pointing out, in terms of 
environmental health, public health and of course the effect on 
workers.
    Mrs. Roukema. Excuse me, I wasn't quite sure. What did you 
say about Trade Promotion Authority? Whose responsibility did 
you say it is?
    Mr. Weisbrot. Congress should have the responsibility, the 
main responsibility, for trade and commercial agreements.
    Mrs. Roukema. You are saying we should be pushing that 
immediately?
    Mr. Weisbrot. No, I think what Trade Promotion Authority 
does is it shifts that authority to the executive branch by 
allowing Congress to have only an up or down vote on that. So 
it really takes most of the power away from Congress on that.
    Mrs. Roukema. But you are the minority on that?
    Mr. Weisbrot. I don't know if I am the minority in the 
country.
    Mrs. Roukema. I mean on the panel.
    Thank you very much.
    Chairman Bereuter. The gentlelady from Illinois, Mrs. 
Biggert, is recognized.
    Mrs. Biggert. Thank you very much, Mr. Chairman. I have a 
question. What areas do you want to see addressed in the next 
round of negotiations? I will start with Mr. O'Connor.
    Mr. O'Connor. I will pick up on that and also respond to 
Congresswoman Roukema's question further. AIA, the industry 
association that I represent, has identified 150 barriers, 
trade barriers, entry barriers, market barriers, and that list 
is being prepared and it will be transmitted to USTR. And that 
will be also on the agenda for the Doha Ministerial, which will 
take place this fall.
    Mrs. Biggert. Are you optimistic that there will be 
progress made on these fronts?
    Mr. O'Connor. In some areas. That is a long list. But there 
are some priority areas. I think I mentioned a couple of them 
earlier, and we are hopeful that there will be progress.
    Mrs. Biggert. OK. About 10 years ago, the U.S. financial 
services industry was quite concerned with the development of 
the EU and how that would affect the ability of U.S. firms to 
compete. So what has been the experience of the financial 
sector with the EU?
    Mr. Farmer. Let me say on banking it has been excellent. 
There have been lengthy negotiations with the EU, again very 
strongly assisted by the U.S. Treasury, and the end result has 
been that U.S. financial institutions are treated the same way 
as European institutions just as we treat them over here. I 
would say on the whole within the G-7 countries now there is a 
reciprocity of the national treatment and equal access to each 
others' institutions that is exemplary.
    The EU privacy directive is another matter. It is a 
misunderstanding we think on the part of the Europeans as to 
what our privacy regime consists of, and that is 
understandable. It is very new. It is very complex, and I think 
we are just beginning to understand ourselves how it is working 
and how effective it is.
    Mrs. Biggert. Then just another general question is what 
are the benefits to the U.S. financial services firms when new 
markets are opened to their services and how does this help our 
economy?
    Mr. Judge. How does it help our economy? It helps in 
several ways. First, when new markets are opened up, U.S. firms 
are able to provide services to that economy that they were 
unable to provide before. That provides revenue for U.S. firms.
    Second, it means the economies in those countries are more 
competitive, they are more advanced. It provides us the ability 
to export other goods into that country that they may not have 
been able to purchase before. They may not have had the income 
or they may not have had the need for those goods and services 
produced by United States manufacturers.
    Third, we provide export financing for those exports into 
that country. There are several ways in which greater access by 
U.S. firms to those countries increase U.S. economic interests.
    Mrs. Biggert. Thank you. Thank you, Mr. Chairman.
    Chairman Bereuter. Thank you very much, Mrs. Biggert.
    The gentleman from Illinois, Mr. Manzullo, is recognized.
    Mr. Manzullo. Thank you very much. Unfortunately, the 
people that were criticizing you for only having an $8 billion 
trade surplus do not realize that the trade surplus for all 
services is $80 billion. And that is engineering, 
architectural, legal, I think about 17 different areas that all 
become part of what we know as trades and services. For years I 
have belonged to a group called the Transatlantic Business 
Dialogue that entered into a memorandum of understanding on 
policy standards which would open up the way in EU, for more 
American service sectors. I wonder if you could comment? There 
are continued negotiations for transparency in each of those 17 
areas.
    Mr. Farmer, you already stated that things couldn't be any 
better in banking in Europe. But is there any improvement in 
our relations in the EU for banking? And then Mr. Judge for 
securities and Mr. O'Connor on insurance.
    Mr. Farmer. Well, I would just say that basically leaving 
aside our current debate on the privacy issue, the important 
thing is not to disrupt the good relationship that is now 
working. And these are capital markets which we think are doing 
well, and the Europeans are beginning to get to a Europe-wide 
financial market, which doesn't yet exist, and when it does, I 
think it is going to be very beneficial for our firms as well. 
I don't think we have any real disputes or differences of views 
between ourselves.
    Mr. Manzullo. We will leave that alone, then. Good.
    Steve.
    Mr. Judge. Well, I think Tom is right that this is an 
evolving relationship between the United States and Europe. As 
they have greater common markets, there are fewer country-by-
country differences, and so that is an advantage. We do have 
different regulatory systems, and we have to learn how each of 
the different systems work. They need to learn about ours and 
we need to learn about theirs.
    On balance, I think the relationship between the United 
States and the EU is as good as any relationship in the world, 
but clearly there are areas we can work on, and we are working 
on them. They have begun efforts in several areas, privacy, 
capital adequacies. We have an ongoing dialogue with the EU at 
present on some of their new initiatives and that we expect to 
continue. So those are areas we have to work on. On balance, it 
is a pretty good relationship. We have some issues at present.
    Mr. O'Connor. The U.S. insurance industry and the trade 
associations, working together with the Europeans, have come up 
with a model schedule which deals with an ideal form of 
regulation, transparent regulation, that we would like to have 
adopted as much as possible around the world, so that we have 
to start to have a global scale, a global model of regulation 
that we can all follow. A lot of progress has been made on that 
and we have good support from the Europeans as well.
    Mr. Manzullo. Would that apply to China also?
    Mr. O'Connor. Yes.
    Mr. Manzullo. I know we have Met Life in our district and 
they have been trying to get into China for a considerable 
period of time.
    The other question I have is more of a comment. Bob 
Vastine, who is with the Coalition of Service Industries--I 
think you are all part of that--wrote an article in the Keough 
Journal several months ago where he states that when we pierce 
markets initially with the service industry that the 
merchandise sector will follow behind that. And I would like 
your comments on that.
    Mr. Judge. I think that is a very good point, that it is 
many times the easiest way in which to enter a market, the 
first entrant being the financial services industry. But doing 
so, you bring in the tools with which other parts of the 
economy and other parts of the U.S. economy can export into 
that country. You have the financing for the export, you have 
the financial infrastructure in place to make those exports 
possible. So I think in many ways we in the financial services 
sector are the door opener for many trade relationships.
    Mr. Manzullo. Could Ex-Im Bank have any role in providing 
more financial services for exports?
    Mr. Farmer. I would not say that, but I think obviously to 
the extent that our customers, our exporters are able to export 
better with Ex-Im financing, thereby the economy benefits. I 
don't think that it directly benefits the financial services 
sector other than its ability to effectively serve and provide 
export financing, especially for small business, which is more 
dependent because of its risk profile for Ex-Im support than 
maybe some of the others.
    Mr. O'Connor. On the insurance side, certainly the 
availability of insurance products from foreign insurance 
companies in a new opening market helps ease the entry for 
manufacturing companies who are entering into a market and want 
to have insurance coverage that provides the similar type 
coverage that they will be getting in the U.S. So that does 
help encourage investment overseas.
    Mr. Manzullo. Thank you very much.
    Chairman Bereuter. I thank you.
    I do have a couple more questions, and we will take 
questions from other Members if they wish. First of all, you 
all have excellent testimony.
    Mr. O'Connor, I particularly was struck by the five reasons 
you cite why insurance is important to any economy. I think 
that is very succinct and it seems to me out of enlightened 
self-interest insurance sectors ought to either be developed in 
those countries or they should permit American and other 
developed country insurance companies to come there if they 
want their economy to thrive. I think that is a very 
interesting citation of five simple reasons why it is important 
that insurance must exist for an economy to thrive.
    I am struck, as I listen to you--particularly the three 
representatives of the financial services sector, how Mr. 
Farmer has fewer concerns and complaints. It seems to me it 
must relate to the fact that there is a banking system in every 
country, crude or as inadequate as it may be; whereas insurance 
is not really available in any substantial area of some 
developing countries, or it does not cover the areas of 
insurance that we would cover in this country. The same is true 
with securities. And so we can make national treatment work as 
leverage to assure that American banks doing business abroad in 
a different country, or within the EU market areas, are treated 
equally; national treatment in turn if we give them national 
treatment in this country.
    So we lack that leverage. I don't know if you, Mr. Judge, 
or you, Mr. O'Connor, have anything to suggest to us as to how 
we can have more leverage for insurance and securities. If you 
do, I would like to hear it now or later. What can we do to 
better arm the USTR to make sure we get a good deal for your 
sectors?
    Mr. Judge. One of the key things that we have found in 
discussing trade opportunities with other countries is that it 
is important that they understand that it is in their own best 
interest to allow freer access by U.S. financial services 
firms, banking, insurance and securities into their markets, 
that that increases their economic efficiencies, that that 
increases the opportunities for growth. One thing I think that 
is important is their own self-interest, and we have to educate 
them about that.
    In terms of leverage, we have a very open market and we do 
not support negotiations of restricting our market in order to 
provide leverage over other countries and financial services. 
We think that probably has some short-term and long-term 
problems in it. But what is important is that banking tends to 
be the first industry that is out there. And in order to have a 
good securities market you have to have an accumulation of 
assets to have an efficient securities market. I think the same 
is probably true for insurance. You need to have a basis first 
of a good commercial banking market.
    Mr. O'Connor. I think the greatest leverage that we have in 
our industry is the fact that we generate--let me put it 
another way. We mobilize savings within a country so we can 
generate a tremendous pool of funds that haven't been generated 
before that would be invested in state bonds, government bonds, 
which I said earlier in my testimony would then be invested in 
infrastructure projects such as schools, hospitals, highways, 
railways, airports. I think that is significant leverage. And 
as countries see that the U.S. has had a lot of experience in 
mobilizing capital and putting that capital to work to build 
infrastructure, when the new markets see that message and 
understand that message, I think that is terrific leverage, 
because they are all very concerned about building a modern 
infrastructure as quickly as possible.
    Chairman Bereuter. Japan has historically been one of the 
most difficult countries for the insurance sector, for foreign 
insurance companies to leap to clear. Do you think that has 
contributed in any fashion to their financial problems? For 
example, the Japanese people right now are putting their money 
into the post offices there as their major savings outlet. And 
as you know, the interest rates that are paid there are 
basically just storing their money. Do you have any suggestions 
as to whether or not this is a major impediment or cause of 
their financial problems? Or would that be an exaggeration?
    I am searching for a good rationale why we can convince the 
Japanese they have to bring their barriers down.
    Mr. O'Connor. The reason for the problems in the Japanese 
economy, particularly in the insurance sector, which is really 
troubled, there is a flight to quality to the State postal 
savings system. I think the significant part of that problem 
was created by a lack of transparency in regulation, and I 
would say that regulation is a problem there.
    Chairman Bereuter. Am I imagining things or have you in 
your sector made a breakthrough in Korea lately? Did I read you 
finally had success for opening up markets in South Korea, in 
the Republic of Korea?
    Mr. O'Connor. It is not on our priority list. At least in 
our industry, on the P and C side, we have been active for many 
years. It is a difficult market to do business in, but we don't 
see a significant barrier at this time.
    Chairman Bereuter. I would like to supply all four of you 
with copies of two memoranda that are prepared for the Members 
here by the Congressional Research Service, particularly the 
last one dated April 27, which looks at the potential impact on 
the financial services sector of agreements in Jordan and 
Singapore and Vietnam, and I know one of you specifically 
mentioned your interest in Vietnam. Is that you, Mr. Judge?
    Mr. Judge. I mentioned Singapore.
    Chairman Bereuter. Singapore, and they also look at Chile.
    Dr. Weisbrot, I can't help engaging you a little bit here 
in light of what you said with respect to your lack of support 
for Trade Promotional Authority, and I think it is beyond my 
capacity to turn you around on that today, but I would make 
this comment and invite you to respond to it if you wish.
    The reason we granted President Ford Fast Track Authority, 
which is now named Trade Promotional Authority, as you probably 
know, was related to the fact that you are absolutely right 
that under the Constitution Congress has the authority to 
regulate foreign commerce, but the problem we ran into is that 
countries or groups of countries were unwilling to proceed with 
trade negotiations, because they realized they could sit there 
all day, and finally after months, perhaps work out agreements 
with the United States Trade Representative and then Congress 
could come along and second-guess them. So that was not the end 
of the line when they finally shook hands across the table as 
to what the agreement could be. And so we delegated to the 
President, every President until the President's party failed 
him in the House, to give President Clinton Trade Promotion 
Authority for then-called Fast Track Authority. We always gave 
the President that ability. And the assurance we gave to the 
countries across the table from us in those trade negotiations 
is that Congress couldn't change it. They could vote up or 
down, but they couldn't amend it and it would be handled 
expeditiously in 90 days. So we reached Fast Track Authority 
only because we reached an impasse with trade negotiations. 
They were unwilling to let that negotiation be second-guessed 
by Congress when it finally came to us, since both Houses have 
to approve that kind of agreement, that kind of a treaty.
    So what alternative do we really have, given the 
unwillingness of other countries to engage us in trade 
negotiations under the old arrangement?
    Mr. Weisbrot. Well, I have two or three answers to that.
    Chairman Bereuter. OK.
    Mr. Weisbrot. First of all, I do hear the story a lot, but 
I do also see examples of a story when the U.S. negotiators are 
taken seriously without the Fast Track Authority. You did see 
the Multilateral Agreement on Investment was negotiated from 
1994 to 1997, and it was about 90 percent complete, according 
to people who were involved in the negotiations, and it did 
eventually collapse, but it had nothing to do with the United 
States not being taken seriously, and I don't remember any 
country or anybody in any other country in negotiations raising 
the issue that the United States did not have Fast Track 
Authority to negotiate with the 28 other members of the 
Organization for Economic Cooperation and Development in which 
the treaty was being negotiated. And that was a major treaty. 
That was every bit as powerful as NAFTA or the proposed FTAA in 
terms of things that were being negotiated.
    So I think it clearly is possible to negotiate without the 
Fast Track Authority.
    Chairman Bereuter. You can negotiate, but you can't 
conclude.
    Mr. Weisbrot. Like I said, it was never an issue, and they 
could have concluded. If it was not for the opposition from 
over 600 non-governmental organizations all around the world 
who mounted an enormous campaign against that agreement, I 
think it would have been concluded. I don't think it would have 
fallen apart as a result of the authority of the United States 
not being respected there to negotiate that agreement.
    The other thing is if you look at the agreements you are 
talking about where back in the seventies you are talking about 
the GATT, for example, General Agreement on Tariffs and Trade, 
where the issue being negotiated was really just tariffs and 
some non-tariff barriers to trade, mainly just tariffs. And now 
these trade agreements are enormously much more powerful. That 
is why I don't call them trade agreements. I always call them 
commercial agreements, because it is a misnomer to call NAFTA 
or the FTAA a trade agreement, because the provisions of those 
agreements that have the most impact on society and the economy 
of the member countries are, in fact, the non-trade parts of 
those agreements.
    So the agreement, for example, that Congresswoman Waters 
mentioned on intellectual property rights, which is included in 
NAFTA and the WTO and will be included in the FTAA, and of 
course the investor-to-State dispute resolution mechanism of 
NAFTA, which gives corporations for the first time ever the 
right to directly sue governments for regulations, 
environmental or any other kind of regulations that infringe on 
their profits, that is an enormous change that affects every 
aspect of our regulation. There has already been environmental 
regulation, both in Canada and it is now threatening 
environmental regulation in California of the gasoline additive 
MTBE, which California tried to ban and it is now being 
challenged by a Canadian company. There are a number of 
examples of these cases, and of course there are all the cases 
in front of the WTO. Basically these agreements have reached 
into a broad area that affects public health and safety 
enormously, much more than the General Agreement on Tariffs and 
Trade did, and to tell Congress they have only an up or down 
vote on these issues to me is just a terrible abdication of 
responsibility.
    Chairman Bereuter. Well, if I had an alternative that was 
workable, and you haven't given us one.
    Mr. Weisbrot. I think Congress----
    Chairman Bereuter. And it is not just agreements. I admit 
to you, in fact, that recent agreements like NAFTA are very 
broad in their implications. They are trade related, they are 
commerce related. They are international commerce related. But 
they are broad, I will give you that. They have an effect on 
our society as well as the other partners of society. But it is 
not just the trade agreements of the seventies. We didn't have 
to go. We weren't forced by our negotiating partners to go to 
some new arrangement until 1974. And then from 1974, from 1994 
to 1996, I think it was 1994, we had all these Presidents 
successively given this grant of power by Congress, saying you 
do your best to conclude the deal and you can be assured that 
your trade partner knows that proposed agreement that we 
finally have inked is not going to be changed. It may go down 
entirely, but it is not going to be changed. It is not that 
they do not respect us. They know that the man who is sitting 
at the table does not have the final authority. We uniquely 
have given our parliamentary body, in this case the Congress, 
the final say because of our Constitution. So tell me an 
alternative.
    Mr. Weisbrot. Can I suggest one? One would be for Congress 
to set the guidelines, to set out a series of goals and say 
this is what we want the executive to negotiate in these 
agreements.
    Chairman Bereuter. Yes, that can certainly be done.
    Mr. Weisbrot. And then they know beforehand this is what 
they are supposed to negotiate, and then they resolve the 
problem you are referring to, where other countries might worry 
that the Congress is not going to approve that agreement. Then 
you will have a real congressional input from a body that is 
much more accountable to the public than the USTR.
    Chairman Bereuter. That is certainly a reasonable 
suggestion on your part. Just how far do you take it? Do you 
take it to the point of micromanagement, where in effect it is 
impossible for negotiation to proceed? But it doesn't have to 
be taken to that point. So I accept your suggestion that we can 
be more detailed in the guidelines that we give to our trade 
negotiators and you can even differentiate between what they 
will do on bilateral versus multilateral.
    Mrs. Capito, you have the last word if you would like.
    Mrs. Capito. No, I don't have any questions.
    Chairman Bereuter. I would like to thank you very much.
    I believe we have just barely scratched the surface. I am 
very interested in this subject. I believe we can make progress 
and we can assist you and therefore reduce the trade deficit 
that we have by enhancing the level of services, especially the 
financial services, that we are able to export abroad. And I 
know Chairman Oxley is particularly interested that the 
subcommittee and committee make progress in this area.
    So for the first time in anybody's memory this House of 
Representatives is going to focus on trying to make sure that 
financial service exports are more successful. Thank you, 
gentlemen, for your testimony.
    [Whereupon, at 4:09 p.m., the hearing was adjourned.]

                            A P P E N D I X

                             June 26, 2001

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
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