U.S. GOVERNMENT PRINTING OFFICE

74–222 WASHINGTON : 2001

OUTCOME OF SUMMIT OF THE AMERICAS AND

PROSPECTS FOR FREE TRADE IN THE HEMISPHERE

HEARING

BEFORE THE

SUBCOMMITTEE ON TRADE

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MAY 8, 2001

Serial No. 107–22

Printed for the use of the Committee on Ways and Means

(

(II)

COMMITTEE ON WAYS AND MEANS

BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHIL ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J. D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY C. HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

KEVIN BRADY, Texas

PAUL RYAN, Wisconsin

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

EARL POMEROY, North Dakota

ALLISON GILES, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON TRADE

PHILIP M. CRANE, Illinois, Chairman

E. CLAY SHAW, JR., Florida

AMO HOUGHTON, New York

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JENNIFER DUNN, Washington

WALLY HERGER, California

PHIL ENGLISH, Pennsylvania

JIM NUSSLE, Iowa

SANDER M. LEVIN, Michigan

CHARLES B. RANGEL, New York

RICHARD E. NEAL, Massachusetts

WILLIAM J. JEFFERSON, Louisiana

XAVIER BECERRA, California

JOHN S. TANNER, Tennessee

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

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

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

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

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

is further refined.

(III)

C O N T E N T S

Page

Advisory of April 25, 2001, announcing the hearing ............................................ 2

WITNESSES

Office of the United States Trade Representative, Hon. Robert B. Zoellick,

United States Trade Representative .................................................................. 31

U.S. General Accounting Office, Loren Yager, Director, International Affairs

and Trade .............................................................................................................. 55

American Apparel and Footwear Association, Stephen Lamar ........................... 129

American Federation of Labor and Congress of Industrial Organizations, John

J. Sweeney ............................................................................................................ 73

American Textile Manufacturers Institute, Carlos Moore ................................... 124

Bolivia, Republic of, Hon. Ana Maria Solares ....................................................... 121

Christian-Christensen, Hon. Donna M., a Delegate in Congress from the

United States Virgin Islands ............................................................................... 16

Colombia, Government of, Hon. Marta Lucia Ramirez Rincon ............................ 112

Fisher, Hon. Richard W., Washington, DC ............................................................ 65

Moran, Hon. James P., a Representative in Congress from the State of Virginia ....................................................................................................................... 9

National Association of Manufacturers, Franklin J. Vargo ................................. 78

National Retail Federation, Erik Autor ................................................................. 136

Tauscher, Hon. Ellen O., a Representative in Congress from the State of

California .............................................................................................................. 13

U.S. Chamber of Commerce, Association of American Chambers of Commerce

in Latin America, and BankBoston Colombia, William Gambrel .................... 95

United States Council for International Business, Daniel M. Price .................... 87

SUBMISSIONS FOR THE RECORD

American Farm Bureau Federation, statement .................................................... 143

Asociacion De Exportadores De Prendas De Vestir A Los Estados Unidos

De America (Exporamerica), Lima, Peru ́, statement ........................................ 146

Coalition for Sugar Reform, statement and attachment ...................................... 147

Distilled Spirits Council of the United States, Deborah A. Lamb, letter ............ 150

Florida Farmers & Suppliers Coalition, Inc., Lake Worth, FL, Paul DiMare,

letter ...................................................................................................................... 151

Florida Fruit & Vegetable Association, Orlando, FL, statement and attachment ...................................................................................................................... 152

Grocery Manufacturers of America, statement ..................................................... 156

Kal Kan Foods, Vernon, CA, Marietta E. Bernot, letter ...................................... 159

Michigan Farm Bureau, Lansing, MI, statement ................................................. 161

National Electrical Manufacturers Association, Rosslyn, VA, Malcolm

O’Hagan, statement ............................................................................................. 163

North American Peruvian Business Council, Myles Frechette, statement ......... 163

Shaw, Hon. E. Clay, Jr., a Representative in Congress from the State of

Florida, statement ................................................................................................ 165

Union of Needletrades, Industrial and Textile Employees, New York, NY,

Jay Mazur, statement .......................................................................................... 166

West Indies Rum and Spirits Producers Association, statement ........................ 172

(1)

OUTCOME OF SUMMIT OF THE AMERICAS

AND PROSPECTS FOR FREE TRADE IN THE

HEMISPHERE

TUESDAY, MAY 8, 2001

HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON TRADE, Washington, DC.

The Subcommittee met, pursuant to notice, at 2:08 p.m., in room

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

(Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721

April 25, 2001

No. TR–2

Crane Announces Hearing on Outcome of Summit of the Americas and

Prospects for Free Trade in the Hemisphere

Congressman Philip M. Crane (R–IL), Chairman, Subcommittee on Trade of the

Committee on Ways and Means, today announced that the Subcommittee will hold

a hearing on the outcome of the Summit of the Americas held in Quebec City, Canada, April 20–22, 2001, and the prospects and timing for achieving the Free Trade

Area of the Americas (FTAA). Members will also consider proposals to expand trade

with Andean countries through the extension and expansion of the Andean Trade

Preference Act which expires on December 4, 2001. The hearing will take place

on Tuesday, May 8, 2001, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 p.m.

Oral testimony at this hearing will be from both invited and public witnesses. Invited witnesses will include United States Trade Representative, Ambassador Robert Zoellick, representatives from the business community, and other interested

groups. Also, any individual or organization not scheduled for an oral appearance

may submit a written statement for consideration by the Committee or for inclusion

in the printed record of the hearing.

BACKGROUND:

During the Trade Subcommittee hearing held March 29, 2001, concerning whether the United States should negotiate more free trade agreements, the Subcommittee heard testimony from small and large companies on the urgent need for

the United States to pursue trade agreements to expand trade in this hemisphere.

At this hearing, witnesses are expected to expand on that premise, address the advancements in the free trade agenda accomplished at the Summit of the Americas

meeting held April 20–22, 2001, and discuss issues related to extension and expansion of the Andean Trade Preference Act.

The FTAA negotiations were officially launched at the Second Summit of the

Americas in Santiago, Chile, in April 1998. Leaders of 34 Western Hemisphere nations have committed to completing negotiations by 2005. The goal is to establish

an agreement that would reduce barriers to trade region-wide, allowing all countries

to trade and invest with each other under the same rules.

The 1991 Andean Trade Preferences Act (ATPA), P.L. 102–182, grants Colombia,

Bolivia, Ecuador, and Peru tariff preferences on certain goods for 10 years in an effort to help those countries fight narcotics trafficking. Several categories of import

sensitive products, including textiles and apparel are excluded from the program.

The ATPA has proven a valuable weapon in the war against drugs by creating economic incentives to encourage the Andean countries to move out of the production

and shipment of illegal drugs and into legitimate products. The four beneficiary

countries have requested that ATPA be extended, and benefits be expanded to include other products such as textiles, apparel, and tuna.

In announcing the hearing, Chairman Crane stated: ‘‘President Bush has indicated that a Free Trade Area of the Americas is one of his top trade priorities. The

3

FTAA would open markets for U.S. farmers, producers and service providers, help

the U.S. economy rebound from the current slump, and foster free and open societies in countries struggling to establish and maintain democratic roots. While we

are moving toward hemispheric free trade, I would like to continue our Andean preference program and expand it to create more economic incentives for these countries

to move away from drug production.’’

FOCUS OF THE HEARING:

Witnesses are asked to address the trade commitments made at the Summit of

the Americas meeting in Quebec City and prospects for the FTAA negotiations, and

to offer trade proposals to assist Andean countries in their fight against drug production.

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

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

or Pete Davila at (202) 225–1721 no later than the close of business, Tuesday, May

1, 2001 The telephone request should be followed by a formal written request to Allison Giles, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. The staff

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

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

appearance should be directed to the Subcommittee on Trade staff at (202) 225–

6649.

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

may not be able to accommodate all requests to be heard. Those persons and

organizations not scheduled for an oral appearance are encouraged to submit written statements for the record of the hearing. All persons requesting to be heard,

whether they are scheduled for oral testimony or not, will be notified as soon as possible after the filing deadline.

Witnesses scheduled to present oral testimony are required to summarize briefly

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

RULE WILL BE STRICTLY ENFORCED. The full written statement of each

witness will be included in the printed record, in accordance with House

Rules.

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

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

are required to submit 200 copies, along with an IBM compatible 3.5-inch diskette

in WordPerfect or MS Word format, of their prepared statement for review by Members prior to the hearing. Testimony should arrive at the Subcommittee on

Trade office, room 1104 Longworth House Office Building, no later than

Thursday, May 3, 2001. Failure to do so may result in the witness being denied the opportunity to testify in person.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

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

record of the hearing should submit six (6) single-spaced copies of their statement,

along with an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format,

with their name, address, and hearing date noted on a label, by the close of business, Tuesday, May 22, 2001, to Allison Giles, Chief of Staff, Committee on Ways

and Means, U.S. House of Representatives, 1102 Longworth House Office Building,

Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Trade office,

room 1104 Longworth House Office Building, by close of business the day before the

hearing.

4

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written

statement or exhibit submitted for the printed record or any written comments in

response to a request for written comments must conform to the guidelines listed

below. Any statement or exhibit not in compliance with these guidelines will not be

printed, but will be maintained in the Committee files for review and use by the

Committee.

1. All statements and any accompanying exhibits for printing must be submitted on an IBM

compatible 3.5-inch diskette in WordPerfect or MS Word format, typed in single space and may

not exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing.

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material

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

by the Committee.

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

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

or organizations on whose behalf the witness appears.

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

telephone and fax numbers where the witness or the designated representative may be reached.

This supplemental sheet will not be included in the printed record.

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

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

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

other forms.

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

Wide Web at ‘‘http://waysandmeans.house.gov’’.

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

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 3411 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Comand Means Trade Subcommittee to consider the status of negotiamittee as noted above.

Chairman CRANE. Good afternoon. This is a hearing of the Ways

f tions to establish a Free Trade Area of the Americas and also to

receive testimony on the expansion of the Andean Trade Preference

Act which expires on December 4th. Ambassador Zoellick is here to

report on the outcome of the Quebec Summit meeting where President Bush communicated his deep commitment to the creation of

a free trade area in this hemisphere encompassing 800 million people, $11 trillion in economic production, and $3.4 trillion in regional

trade.

Ambassador Zoellick reached a strong agreement on detailed

deadlines that give the talks new structure and momentum. The

heads of State indicated their decision to make the draft negotiating text public, which is an unprecedented step forward in fostering open discussion regarding the impact of expanding trade in

the region. I welcome the President’s pledge to achieve trade promotion authority and conclude the United States-Chile Free Trade

Agreement by the end of the year.

I am convinced that free trade success in the Americas will help

spur the World Trade Organization (WTO) to launch a new round

of multilateral negotiations. In recent years, the United States has

5

lapsed in its responsibility to lead the world and the hemisphere

on these issues, and I am anxious to build on the strong successes

coming out of the Free Trade Area of the Americas (FTAA) Summit

in Quebec.

With respect to extension of the Andean Trade Preference Act, I

want to welcome the Colombian Minister of Foreign Trade, Marta

Lucia Ramirez, and Bolivia Vice Minister of Trade, Ana Maria

Solares, who will speak later this afternoon. I would also like to

recognize the other two Andean Ministers who are with us today.

Today, the United States serves as both the leading source of the

Andean region’s imports and the largest market for its exports, a

relationship that yields more than $18 billion worth of commerce.

The four Andean nations are taking courageous steps to eliminate

drug production among their farmers, and it is my intention to

craft an Andean Trade Preferences Act (ATPA) bill that will offer

real economic alternatives to the Andean citizens as they move out

of the drug trade.

Through expanded trade, we intend to undermine high unemployment and poverty as the factors and motivations for otherwise

good, productive citizens to become involved in illicit crop cultivation that is eventually sold on our streets.

And now I would like to yield to the ranking minority Member

of the Subcommittee, Mr. Levin, for any remarks he would like to

make.

[The opening statement of Chairman Crane follows:]

Opening Statement of the Hon. Philip M. Crane, a Representative in

Congress from the State of Illinois, and Chairman, Subcommittee on Trade

Good Afternoon. This is a hearing of the Ways and Means Trade Subcommittee

to consider the status of negotiations to establish a Free Trade Area of the Americas

and also to receive testimony on the expansion of the Andean Trade Preference Act,

which expires on December 4th.

Ambassador Zoellick is here to report on the outcome of the Quebec Summit meeting, where President Bush communicated his deep commitment to the creation of

a free trade area in this hemisphere encompassing 800 million people, $11 trillion

in economic production, and $3.4 trillion in regional trade. Ambassador Zoellick

reached a strong agreement on detailed deadlines that give the talks new structure

and momentum. The Heads of State indicated their decision to make the draft negotiating text public, which is an unprecedented step forward in fostering open discussion regarding the impact of expanding trade in the region.

I welcome the President’s pledge to achieve trade promotion authority and conclude the United States-Chile free trade agreement by the end of the year.

I am convinced that free trade’s success in the Americas will help spur the WTO

to launch a new round multilateral negotiations. In recent years, the United States

has lapsed in its responsibility to lead the world and the hemisphere on these

issues, and I am anxious to build on the strong successes coming out of the FTAA

Summit in Quebec.

With respect to extension of the Andean Trade Preference Act, I want to welcome

the Colombian Minister of Foreign Trade Marta Lucia Ramirez and Bolivian Vice

Minister of Trade Ana Marie Solares, who will speak later this afternoon. I would

also like to recognize the other two Andean ministers who are with us today.

Today, the United States serves as both the leading source of the Andean region’s

imports and the largest market for its exports-a relationship that yields more than

$18 billion of commerce. The four Andean nations are taking courageous steps to

eliminate drug production among their farmers, and it is my intention to craft an

ATPA bill which will offer real economic alternatives to Andean citizens as they

move out of the drug trade. Through expanded trade we intend to undermine high

unemployment and poverty as factors and motivations for otherwise good, productive citizens becoming involved in illicit crop cultivation that is eventually sold on

our streets.

6

I’ll now yield to the Ranking Minority Member of the Subcommittee, Mr. Levin,

for any remarks he would like to make.

And now I welcome my colleagues Mr. Moran, Ms. Tauscher, and Ms. Christensen

to hear their testimony.

Mr. L

It is time to move ahead on the trade agenda for 2001. I would

EVIN. Thank you. Thank you, Mr. Chairman.

f like to offer a few brief observations and action items to consider.

It will not help to misdescribe or misunderstand the record of the

last administration. In the last session, there was forward motion.

The Clinton administration and the Congress, working on a truly

bipartisan basis, acted on China PNTR and Africa Caribbean Basin

Initiative, CBI, breaking the 5-year deadlock on trade legislation.

The administration also negotiated new trade agreements with Jordan and Vietnam.

It also will not help to frame the issues of 2001 in terms of old

labels or old battles. There was movement during the last few

years in good measure because there was a recognition that the nature of trade has been changing, both in its size and its contents.

As developing nations with different economic structures from our

own and other industrialized nations have become an increasing

part of global trade, new issues have arisen. The effort to address

these new issues is not a new kind of protectionism. Such labeling

is mistaken and counterproductive, setting up a polarization that

could help derail the trade agenda.

No one can turn back the clock on globalization. On the other

hand, it is a mistake to believe that one cannot or should not shape

its course. Shaping globalization requires a forthright effort, among

other things, to address the issues of labor and environmental

standards because of their very relevance to international economic

competition.

The nexus between trade and labor is reflected in the recent New

York Times article, ‘‘Labor standards clash with global reality,’’

where an executive of an American company stated, regarding its

practices on labor standards, ‘‘We cannot be the whole solution.

The solution has to be labor laws that are adequate, respected, and

enforced.’’ And in the same article, the statement by the President

of El Salvador, describing the variation of government enforcement

of core labor standards, ‘‘The difficulty in this region is that there

is labor that is more competitively priced than El Salvador.’’

It is also reflected, whether one agrees with the decision or not,

in the rationale stated by the Bush administration when it withdrew from the Kyoto treaty of global warming, and I quote, ‘‘It exempts the developing nations around the world, and it is not in the

U.S. economic best interest.’’

It will not be helpful to try to finesse these issues. They are not

entirely new. We have had some previous experience. For example,

labor standards have long been part of the General System of Preferences (GSP) where there has been a full array of enforcement

mechanisms available to us, and they have been used by us responsibly. The same is true of the labor provisions in the Cambodia

Textile and Apparel Agreement.

7

It is time to build on these experiences and move ahead, not be

stuck in past polarizations. I have urged we should move on Jordan

as negotiated, we should move on Vietnam, doing so in a way that

recognizes the need to further address labor standard issues as we

negotiate a textile and apparel agreement with Vietnam. The steel

crisis also needs to be addressed resolutely. Doing so in a collaborate and bipartisan fashion will help to build the experience and

confidence necessary to work effectively on FTAA and the Andean

Trade Preference Act and on the significant transfer of power from

Congress to the executive branch embodied in fast track negotiating authority.

Congress has taken this step only twice before in our history. On

both of those occasions, in 1974 and 1988, extended in 1991, the

laws contained three critical components: one, negotiating objectives and related legal mandates to the Executive; two, mechanisms for congressional involvement in and public input into the

negotiating process; and, three, commitment to an up or down vote

on the final package. It ignores history to say that Congress can

recapture this grant simply through the implementation legislation.

So how do we move forward to design the three components? I

believe we need to start getting into this in detail. On the first

component, negotiating objectives, we need to get beyond general

concepts. For example, one issue is whether we are going to establish separate negotiating priorities for multilateral, regional, and

bilateral agreements. I believe that that makes sense.

Another issue, going beyond the general concepts of one-sizedoes-not-fit-all, is to develop language that ensures that dispute

settlement remedies are designed to be demonstrably effective in a

variety of contexts, and that dispute settlement procedures are

more open and inclusive in all contexts.

Turning to the second component, updating the partnership between Congress and the Executive, we are going to have to decide

what procedural mechanisms are needed to ensure effective congressional oversight of and public input into each step of the process. For example, how many and what kinds of congressional

checkpoints should we build into the process? For instance, should

there be a congressional Committee vote at the beginning and a

midpoint in each negotiation? What additional mechanisms should

we create? And how exactly should they work? For example, providing for meaningful labor standard and environmental reviews,

updating the advisory Committee for business, labor, environmental, and other groups?

There is a close relationship between negotiating objectives and

procedural mechanisms. A right fast track approach requires that

we move beyond slogans and sound bites, embrace all of the issues

of trade, old and new, and strive to shape globalization with rules

of competition that promote U.S. economic interests and raising living standards around the world. And I look forward to the testimony here as we talk about our relationships with the rest of the

Americas.

Thank you, Mr. Chairman.

[The opening statement of Mr. Levin follows:]

8

Opening Statement of the Hon. Sander M. Levin, a Representative in

Congress from the State of Michigan

It is time to move ahead on the trade agenda for 2001. I would like to offer a

few brief observations and action items to consider.

It will not help to mis-describe or misunderstand the record of the last Administration. In the last session there was forward motion. The Clinton Administration

and the Congress, working on a truly bi-partisan basis, acted on China PNTR, and

Africa/C.B.I., breaking the five-year deadlock on trade legislation. The Administration also negotiated new trade agreements with Jordan and Vietnam.

It also will not help to frame the issues of 2001 in terms of old labels or old battles. There was movement during the last few years in good measure because there

was a recognition that the nature of trade has been changing—both in its size and

its contents. As developing nations with different economic structures from our own

and other industrialized nations have become an increasing part of global trade,

new issues have arisen.

The effort to address these new issues is not ‘‘a new kind of protectionism.’’ Such

labeling is mistaken and counterproductive, setting up a polarization that only helps

to derail the trade agenda.

No one can turn back the clock on globalization; on the other hand, it is a mistake

to believe that one cannot or should not shape its course. Shaping globalization requires a forthright effort to address the issues of labor and environmental standards

because of their very relevance to international economic competition.

The nexus between trade and labor is reflected in a recent New York Times article, ‘‘Labor Standards Clash with Global Reality,’’ where an executive of an American company stated, regarding its practices on labor standards, ‘‘We can’t be the

whole solution. . .The solution has to be labor laws that are adequate, respected

and enforced.’’ And, in the same article, the statement by the President of El Salvador describing the variation of government enforcement of core labor standards,

‘‘The difficulty in this region is that there is labor that is more competitively priced

than El Salvador.’’ It is also reflected, whether one agrees with the decision or not,

in the rationale stated by the Bush Administration when it withdrew from the

Kyoto Treaty on Global Warming, ‘‘It exempts the developing nations around the

world and it is not in the United States’ economic best interest.’’

It will not be helpful to try to finesse these issues. They are not entirely new; we

have had some previous experience. For example, labor standards have long been

part of our GSP system where there has been a full array of enforcement mechanisms available to us and they have been used responsibly. The same is true of the

labor provisions in the Cambodia textile and apparel agreement.

It is time to build on these experiences and move ahead, not be stuck in past polarizations.

I have urged we should move on Jordan, as negotiated. We should move on Vietnam, doing so in a way that recognizes the need to further address labor standard

issues as we negotiate a textile and apparel agreement with Vietnam. The steel crisis needs to be addressed resolutely.

Doing so in a collaborative and bipartisan fashion will help to build the experience

and confidence necessary to work effectively on FTAA and the Andean Trade Preference Act and on the significant ‘‘transfer of power’’ from Congress to the Executive

branch embodied in Fast Track trade negotiating authority.

Congress has taken this step only twice before in our history. On both those occasions—in 1974 and 1988—the laws contained three critical components: (1) negotiating objectives and related legal mandates to the executive; (2) mechanisms for

congressional involvement in—and public input into—the negotiating process; and

(3) commitment to an up or down vote on the final package. It ignores history to

say that Congress can ‘‘recapture’’ its grant simply through the implementation legislation.

So, how do we move forward to design the three components? I believe we need

to start getting into this in detail. On the first component—negotiating objectives—

we need to get beyond general concepts. For example, one issue is whether we are

going to establish separate negotiating priorities for multilateral, regional and bilateral agreements. I believe that makes sense. Another issue—going beyond the general concepts of ‘‘one size does not fit all’’—is to develop language that ensures that

dispute settlement remedies are designed to be demonstrably effective in a variety

of contexts and that dispute settlement procedures are more open and inclusive

in all contexts.

Turning to the second component—updating the partnership between Congress

and the executive—we are going to have to decide what procedural mechanisms

are needed to ensure effective Congressional oversight of and public input into each

9

step of the process. For example, how many and what kinds of congressional

checkpoints should we build into the process—for instance, should there be a congressional or committee vote at the beginning and a midpoint in each negotiation?

What additional mechanisms should we create and how exactly should they work— for example, providing for meaningful labor standard and environmental reviews,

updating the advisory committee system for business, labor, environmental and

other groups. There is a close relationship between negotiating objectives and procedural mechanisms.

A right fast track approach requires that we move beyond slogans and sound

bites, embrace all issues of trade, old and new, and strive to shape globalization

with rules of competition that promote U.S. economic interests and raise living

standards around the world.

Ms. Tauscher, and Ms. Christensen, to hear their testimony, and

Chairman CRANE. And now I welcome my colleagues, Mr. Moran,

f I would like to ask you to try and keep the oral testimony to roughly 5 minutes. And any written testimony will be made a part of the

permanent record.

We will proceed in the order I introduced you.

STATEMENT OF THE HON. JAMES P. MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Mr. MORAN. Thank you very much, Mr. Chairman. I appreciate

the fact that on this Committee seniority trumps beauty and

brains, so it is nice to be able to go first as a result.

Chairman Crane and Ranking Member Levin and Mr. Becerra,

Mr. Houghton, Mr. Camp, Ms. Dunn, Mr. English, Mr. Brady, I

thank all of you for this opportunity to testify on two important

hemispheric trade priorities: negotiation of a Free Trade of the

Americas Agreement and reauthorization of the Andean Trade

Preferences Act.

I would first like to cite my firm support for granting trade promotion authority to the President. Trade Promotion Authority

(TPA) is crucial to the President’s ability to negotiate an FTAA,

and its approval by Congress would demonstrate the United States’ commitment to expanding hemispheric trade. I encourage Members

of this Committee to act in a bipartisan manner to advance legislation implementing TPA that also appropriately addresses concerns

over labor and the environment.

The expansion of trade in the Western Hemisphere represents

one of our greatest economic and societal opportunities in the coming decade. The creation of an FTAA will create a $10 trillion trading bloc of 34 countries and 800 million people stretching from the

Bering Strait to Tierra del Fuego. The stars are aligned in terms

of Latin America’s leadership, enabling us to have a historic opportunity to lead in this endeavor, to ensure that an FTAA reflects

U.S. interests and values that can sustain the path of democracy

and economic reform by our Latin American partners. Expanding

trade relations with our neighbors in this hemisphere not only

makes sense from a trade perspective, but also from a foreign policy and an economic security standpoint.

As cochair of the New Democrat Coalition, we believe our future

economic growth and prosperity depend on trade, but that we

should be able to balance our economic interests with democratic

values. Trade is and should be a non-partisan issue, the result of

10

collective efforts by bipartisan Members to advance our overall economic interests. But in order for this to be a successful bipartisan

effort, we must address labor and environmental concerns in a genuine and purposeful manner.

I commend the administration’s emphasis on expanding our

trade relations in the Western Hemisphere. U.S. Trade Representative Bob Zoellick has already shown leadership in this endeavor.

He has provided the guidance and expertise that is essential to

crafting an agreement that represents U.S. interests in the region,

but also secures the backing of our Latin American partners.

Despite this bright start, I would like to sound the caution expressed by Peter Hakim, President of the Inter-American Dialogue,

in his article entitled ‘‘The Uneasy Americas,’’ that appeared in a

recent issue of Foreign Affairs. He cites that, and I am quoting, ‘‘If

Latin America loses confidence in Washington . . . the opportunities for American leadership in the hemisphere will diminish, along

with hopes for an effective U.S.-Latin American partnership.’’ Mr.

Chairman, this administration and Congress cannot overstate the

importance of TPA renewal to securing the support of our Latin

American neighbors for wider economic and political cooperation.

We must also recognize the difficult economic and political situations faced by many of these countries, which are increasingly

skeptical of the U.S. commitment to the region. The United States

leadership in negotiating an FTAA, along with congressional approval of TPA, will send the right signal to our Latin American allies. Such steps as renewing the Andean Trade Preference Act and

expanding consultation with our Latin American neighbors on

trade and development matters will go a long way toward repairing

ties with many countries in the hemisphere.

Reauthorization of the ATPA, although of marginal consequence

to the United States, is critical to the Andean region’s economy. Renewal of ATPA should expand upon the existing program and allow

similar preferences for apparel items that the Congress offered to

the Caribbean countries last year. The formula that worked for the

Caribbean countries fit the economic realities of the Caribbean’s

apparel industry while being sensitive to U.S. textiles. We need to

find a similar approach for addressing the economic realities of the

apparel industry in the Andean region.

At a minimum, the Caribbean Basin Trade Partnership Act

weakens the Andean countries’ apparel industries and leads to revenue and job losses as apparel producers begin moving their operations to Caribbean locations. I encourage the Committee not only

to reauthorize the Andean Trade Preference Act, but to expand the

agreement to include items such as apparel, tuna fish, and petroleum products that are crucial to sustaining economic growth outside the drug industry.

Under Plan Colombia, the United States has invested more than

$1.3 billion in military aid in Colombia to fight the drug war. This

aid, while important, does not go far enough in offering alternative

economic development that can deter the cultivation and exportation of cocaine in Colombia. Expansion of ATPA benefits that includes apparel items is one critical for the United States to fight

the drug war while also improving economic opportunity and stability in the region. Basically, poor farmers need alternative ways

11

to feed their families. For Colombia to be truly successful in stemming the drug trade, it will need more economic opportunities that

will provide jobs and wages that can sustain Colombian workers

and farmers.

We also need to encourage countries like Bolivia, which has successfully and courageously nearly eradicated the drug industry, but

whose struggling economy depends upon textiles and apparel made

of specialty wool from llamas and alpaca sheep. The relatively

small investment of providing greater trade incentives under ATPA

renewal would reap tremendous long-term gains for these countries

and for U.S. consumers. Our Andean trading partners are also

poised to be strong allies in our mutual efforts to secure a larger

hemispheric trading bloc. I urge the Committee to expedite consideration of an expanded ATPA before the expiration of this agreement later this year.

Mr. Chairman, I would simply close by reiterating the importance of congressional approval of trade promotion authority legislation. I am confident we can successfully tackle the difficult issues

of labor and the environment in this process. Hopefully, the Jordanian agreement will prove to be a helpful precedent in this regard. TPA is integral to demonstrating United States’ resolve in

the region and will offer the opportunity to negotiate other trade

agreements that benefit American consumers and businesses.

As expressed in the Declaration of Quebec City approved by

President Bush and the 33 other heads of State from the Americas,

‘‘we do not fear globalization, nor are we blinded by its allure. We

are united in our determination to leave to future generations a

Hemisphere that is democratic and prosperous, more just and generous, a Hemisphere where no one is left behind.’’ The President’s

words best express the importance of an FTAA to our future.

Mr. Chairman, I thank you for this opportunity to appear before

the Committee and would be happy to respond to any questions

you and other Members may wish to ask, and I urge your positive

and timely passage of this crucially important trade legislation.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Moran follows:]

Statement of the Hon. James P. Moran, a Representative in Congress from

the State of Virginia

Chairman Crane, Ranking Member Levin, and Members of the Subcommittee, I

thank you for this opportunity to testify on two important hemispheric trade priorities: negotiation of a Free Trade of the Americas Agreement (FTAA) and reauthorization of the Andean Trade Preference Act (ATPA).

As an unwavering supporter of free trade, I would first like to cite my firm support for granting trade promotion authority (TPA) to the President, but it should

appropriately address labor and environment concerns. TPA is crucial to the President’s ability to negotiate an FTAA and its approval by Congress would demonstrate

the United States’ commitment to expanding hemispheric trade. I encourage Members of this Committee to act in a bipartisan manner to advance legislation implementing TPA.

The expansion of trade in the Western Hemisphere represents one of our greatest

opportunities in the coming decade. The creation of a FTAA will create a $10 trillion

trading bloc of 34 countries and 800 million people stretching from the Bering Strait

to Tierra del Fuego. If the sheer magnitude of this hemispheric agreement is not

compelling enough to prompt Congressional approval of trade promotion authority,

a Free Trade of the Americas Agreement is critical in another sense. We have an

historic opportunity to lead in this endeavor to ensure that it reflects U.S. interests

and values that can sustain the path of democracy and economic reform by our

12

Latin American partners. Expanding trade relations with our neighbors in this

hemisphere not only makes sense from a trade perspective, but also from a foreign

policy and economic security standpoint.

Mr. Chairman, as you know, I have been one of my party’s strongest proponents

of free trade. As co-chair of the New Democrat Coalition, I have worked with other

members who believe our future economic growth and prosperity depend on trade,

but that we should be able to balance our economic interests with democratic values. Trade is and should be a non-partisan issue, the result of collective efforts by

bipartisan Members to advance our overall economic interests. In order for this to

be a successful bipartisan effort, we must address labor and environmental concerns

in a meaningful way.

I commend the Administration’s emphasis on expanding our trade relations in the

Western hemisphere. U.S. Trade Representative Robert Zoellick has already shown

outstanding leadership in this endeavor, providing the guidance and expertise that

is essential to crafting an agreement that represents U.S. interests in the region,

but also secures the backing of our Latin American partners.

Despite this bright start, I would like to sound the caution expressed by Peter

Hakim, President of the Inter-American Dialogue, in his article entitled ‘‘The Uneasy Americas,’’ that appeared in a recent issue of Foreign Affairs. He cites that ‘‘If

Latin America loses confidence in Washington . . . the opportunities for American

leadership in the hemisphere will diminish, along with hopes for an effective U.S.-

Latin American partnership.’’ For these reasons, this Administration and Congress

cannot neglect the regional importance of renewing trade promotion authority in securing the support of our Latin American neighbors for wider economic and political

cooperation.

We must also recognize the difficult economic and political situations faced by

many of these countries, which are increasingly skeptical of the U.S. commitment

to the region. The United States leadership in negotiating an FTAA, along with

Congressional approval of TPA, will send the right signals to our Latin American

allies. Such steps as renewing the Andean Trade Preference Act and expanding consultation with our Latin American neighbors on trade and development matters will

go a long way toward repairing dormant ties with many countries in the hemisphere.

Reauthorization of the ATPA, though of little consequence to the United States,

is critical to the Andean region’s economy. It should also be expanded to offer greater economic incentives to our Andean partners, including a reduction in tariffs on

apparel goods. The formula that worked for the Caribbean Basin Initiative (CBI)

countries, which last year were extended duty-free and quota-free treatment for U.S.

imports of apparel assembled in these countries, fit the economic realities in the

Caribbean’s apparel industry. We need to find a similar approach for addressing the

economic realities of the apparel industry in the Andean region.

The apparel industry in Colombia, for example, has suffered as a result of the improved trade preferences extended to the CBI countries, with many manufacturers

closing their operations and setting up facilities in the Caribbean. This has dealt

a tremendous blow to Colombia and the other Andean countries which have lost any

competitive advantage in apparel goods. For Colombia, trade in apparel represents

a significant industry for a country suffering from economic instability and few employment opportunities. The United States has invested more than $1.3 billion in

military aid in Colombia under Plan Colombia to fight the drug war. This aid, while

important, does not go far enough in offering alternative economic development that

can deter the cultivation and exportation of cocaine in Colombia. Expansion of

ATPA benefits that includes apparel items is one critical way for the United States

to fight the drug war while also improving economic opportunity and stability in the

region. The relatively small investment of providing greater trade incentives to Colombia and the other nations under ATPA renewal would reap tremendous longterm gains for these countries and for U.S. consumers.

While ATPA has offered the Andean countries tariff preferences on certain goods

in an effort to enable them to pursue alternatives to cocaine production and trafficking, it has not gone far enough to stimulate long-term economic incentives that

will sufficiently counter the narcotics industry in the region, most notably Colombia.

For Colombia to be truly successful in stemming the drug trade, it will need more

economic opportunities that will provide jobs and wages that can sustain Colombian

workers and farmers.

Renewal of ATPA should expand upon the existing program and allow similar

preferences for apparel items that the Congress offered to the Caribbean countries

last year. This is absolutely essential in the case of Colombia, whose apparel industry employs roughly 300,000 workers and comprises $408 million in U.S. imports.

At a minimum, the Caribbean Basin Trade Partnership Act (CBTPA) will weaken

13

the Andean countries’ apparel industries and lead to revenue and job losses as apparel producers begin moving their operations to Caribbean locations.

According to the U.S. International Trade Commission’s March 2001 report on

U.S. Andean Apparel Trade, ‘‘Among the most immediate potential impacts that

could occur from Colombia’s loss of competitiveness with the CBERA countries are

(1) a decline in foreign investment and a diminished alternative to drug production

in Colombia and (2) a further decline in production-sharing trade with the United

States that has occurred since 1997.’’ I would also add that the Andean countries

will face additional competition from Asian suppliers of apparel goods, who will gain

access to the U.S. market free of quota restrictions in 2005.

Our Andean trading partners are also poised to be strong allies in our mutual efforts to secure a larger hemispheric trading bloc. We should start our efforts to expand trade in the Americas by first approving an expanded Andean Trade Preference Act that includes apparel and other goods from the region. I urge my colleagues on the Committee to expedite consideration of an expanded ATPA before the

expiration of this agreement later this year.

Mr. Chairman, I would simply close by reiterating the importance of Congressional approval of trade promotion authority legislation. I am confident we can successfully tackle the difficult issues of labor and the environment in this process.

TPA is integral to demonstrating the United States’ resolve in the region, and will

offer the opportunity to negotiate other trade agreements that benefit American consumers and businesses.

As expressed in the Declaration of Quebec City approved by President Bush and

the 33 other heads of state from the Americas, ‘‘we do not fear globalization, nor

are we blinded by its allure. We are united in our determination to leave to future

generations a Hemisphere that is democratic and prosperous, more just and generous, a Hemisphere where no one is left behind.’’ I think this splendidly captures

the importance of an FTAA to our future.

Mr. Chairman, I thank you for this opportunity to appear before the Committee

and would be happy to respond to any questions you and other Members may wish

Tauscher?

to ask.

Chairman CRANE. Thank you, Mr. Moran. And now, Ms.

f STATEMENT OF THE HON. ELLEN O. TAUSCHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. TAUSCHER. Thank you, Mr. Chairman and the ranking member and other members of the Subcommittee. Thank you for inviting me to express my views on U.S. trade with our southern neighbors. We are at a critical point in the ongoing relationship with our

good friends in Central and South America. We have already established free trade agreements with Canada and Mexico. Now we

must look to widen our horizons, expand business and cultural opportunities, share the good fortunes of free trade with our Andean

neighbors, and then proceed with trade agreements for the rest of

the democratic countries in South America.

Through my role on the House Armed Services Committee, I

have been deeply involved in U.S. operations in Central and South

America, especially in terms of U.S. development and support of

Plan Colombia. I recently traveled to this region and met with the

fine young men and women of the U.S. armed forces who are working diligently to achieve the goals that Congress set when this body

passed legislation to provide assistance in this most difficult of battles: the war on drugs.

I met with the commanding generals in Southern Command, the

troops in the field, the special operations community, and the CoVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 W:\DISC\74222 ATX004 PsN: ATX004
14

lombian military. Their morale is high, their missions are clear,

and their work to achieve these goals is working well as we speak.

We have every right to be proud of our military and must strive

to provide them the best support possible.

I have also met the Colombian leadership, President Pastrana,

Minister Ramirez, the Colombian Trade Minister, Mr. Urrutia, the

head of the Colombian Central Bank, and other cabinet-level leaders in Colombia. One constant through all of the discussion on how

to win this war on drugs is this central thesis: to move a population from an industry of drug cultivation, production, transportation, and dissemination, there must be gainful employment somewhere else. The only true and proven method of increasing opportunities in an emerging economy is to open trade. There are no alternatives in a democratic society.

The existing ATPA arrangement has been positive towards this

end, but it needs substantial expansion of trade benefits. Colombian President Pastrana clearly stated his desire for expanded

trade opportunities when he visited with President Bush here in

February. Two weeks ago in Quebec City, he again declared his

country’s need for enhanced trade with the United States. While

less than 1 percent of total U.S. imports of apparel come from

ATPA beneficiaries, the U.S. exports approximately $10 billion in

goods to these nations. Between 1992 and 1999, the industries in

Colombia favored by ATPA generated $1.2 billion in output and approximately 140,000 jobs. It is also important to note that a 1999

Department of Labor report shows that preferential tariff treatment under ATPA does not appear to have had an adverse impact

on or have constituted a significant threat to U.S. employment.

As you know, last year the United States formalized our commit- ment to the Colombian government in the form of $1.3 billion in

assistance. Plan Colombia includes assistance in the peace process,

counter-drug efforts, reform of the justice system with attention to

human rights, enhanced efforts toward democratization and social

development, and support of the Colombian economy. The Colombian government has committed $4 billion to this program, which

is expected to cost $7.5 billion over a 6-year period. Of the $1.3 billion U.S. dollars sent to the region, approximately $147 million is

programmed for alternative economic development; this is far

below what we need to do in this area. All the pillars of the program are critical, but the concept of ‘‘weaning’’ the Andean economies off drugs as an industry is intrinsically linked to the development of industries that engage in conventional trade.

The most unasked question in the war on drugs is: ‘‘What if the

plan succeeds?’’ A couple of numbers clearly illustrate how unprepared we, as a hemispheric community, are for the best-case scenario: The World Bank estimates that the combined gross domestic

product, GDP, of the four Andean nations involved in ATPA is approximately $200 billion. The Office of the National Drug Control

Policy estimates that annual exports of cocaine from the Andean

region are approximately $12 billion. A very cursory, macro examination quickly reveals that if tomorrow all the drug industries

were crushed and drug money disappeared from this region, the

Andean nations would experience a 6 percent drop in gross domestic product. For comparison’s sake, you will most likely remember

15

one of our worst economic crises in the United States, the Arab oil

embargo in the early seventies. That difficult time caused only a

3.5 percent drop in our own GDP, and it was catastrophic for us.

Whether instantaneous or over the next 5 years, this region is

clearly not prepared to replace drug money with wages and other

sources of revenue that are derived from standard business practices. We must open up the doors of trade to speed the transition

of these economies away from drug money.

This is a multi-dimensional problem that we are deeply involved

in: We are part of the problem and need to be part of the solution.

To date, we in the United States have made a ‘‘bet’’ that $1.3 billion of American assistance can help solve this problem. I believe

that if we truly want to shape the environment to ensure our success, we must ‘‘protect our bet’’ with a trade package that sets the

conditions to change their earnings source from drug money to industries that are part of the 21st century economy.

Thank you, Mr. Chairman, for inviting me to speak to you today

on the issues of Andean trade. It is my hope that we can develop

an effective Andean Trade Preference bill with strong bipartisan

support that expands the trade preferences and extends the

timeline well into the future.

Thank you.

[The prepared statement of Ms. Tauscher follows:]

Statement of the Hon. Ellen O. Tauscher, a Representative in Congress

from the State of California

Mr. Chairman, thank you for inviting me to express my views on U.S. trade with

our southern neighbors. We are at a critical point in the ongoing relationship with

our good friends in Central and South America. We have already established free

trade agreements with Canada and Mexico. Now we must look to widen our horizons, expand business and cultural opportunities, share the good fortunes of free

trade with our Andean neighbors, and then proceed with trade agreements for the

rest of the democratic countries in South America.

Through my role on the House Armed Services Committee, I have been deeply involved in U.S. operations in Central and South America, especially in terms of U.S.

development and support of ‘‘Plan Colombia’’. I recently traveled to this region and

met the fine men and women of the U.S. armed forces who are working diligently

to achieve the goals that the Congress set when this body passed legislation to provide assistance in this most difficult of battles: the war on drugs. I met with the

commanding generals in Southern Command, the troops in field, the special operations community, and the Colombian military. Their morale is high, their missions

are clear, and their work to achieve these goals continues as we speak. We have

every right to be proud of our military and must strive to provide them the best

support possible.

I have also met with the Colombian leadership, President Pastrana, Minister Ramirez, the Colombian Trade Minister, Mr. Urrutia, the Head of the Colombian Central Bank, and other cabinet-level leaders in Colombia. One constant through all of

the discussion on how to win this war on drugs is this central thesis: to move a

population from an industry of drug cultivation, production, transportation, and dissemination, there must be gainful employment elsewhere. The only true and proven

method of increasing opportunities in an emerging economy is to open trade. There

are no alternatives in a democratic society.

The existing ATPA arrangement has been a positive influence towards this end,

but it needs substantial expansion of trade benefits. Colombian President Pastrana

clearly stated his desire for expanded trade opportunities when he visited with

President Bush here in February. Two weeks ago in Quebec City, he again declared

his country’s need for enhanced trade with the United States. While less than 1%

of total US imports of apparel come from ATPA beneficiaries, the U.S. exports approximately $10 billion in goods to these nations. Between 1992 and 1999, the industries in Colombia favored by ATPA generated $1.2 billion in output and approximately 140,000 jobs. It is also important to note that a 1999 Department of Labor

16

report shows that preferential tariff treatment under ATPA does not appear to have

had an adverse impact on, or have constituted a significant threat to U.S. employment.

As you know, last year the United States formalized our commitment to the Colombian Government in the form of $1.3 billion in assistance. Plan Colombia includes assistance in the peace process, counter-drug efforts, reform of the justice

system with attention to human rights, enhanced efforts toward democratization

and social development, and support of the Colombian economy. The Colombian government has committed $4 billion to this program, which is expected to cost $7.5

billion over a six-year period. Of the $1.3 billion U.S. dollars sent to the region, approximately $147 million is programmed for alternate economic development; this

is far below what we need to do in this area. All the pillars of the program are critical, but the concept of ‘‘weaning’’ the Andean economies off of drugs as an industry

is intrinsically linked to the development of industries that engage in conventional

trade.

The most unasked question in the War on Drugs is ‘‘What if the plan succeeds?’’

A couple of numbers clearly illustrate how unprepared we, as a hemispheric community, are for the best case scenario: The World Bank estimates that the combined

GDP of the four Andean nations involved in ATPA is approximately $200 billion.

The Office of the National Drug Control Policy estimates that annual exports of cocaine from the Andean region are approximately $12 billion. A very cursory, macro

examination quickly reveals that if tomorrow, all of the drug industries were

crushed and drug money disappeared from this region, the Andean nations would

experience a 6% drop in GDP. For comparison’s sake, you most likely remember one

of our worst economic crises in recent times, the Arab Oil embargo in the early

1970’s. That difficult time caused only a 3.5% drop in GDP. Whether instantaneous

or over the next 5 years, this region is clearly not prepared to replace drug money

with wages and other sources of revenue that are derived from standard business

practices. We must open up the doors of trade to speed the transition of these economies away from drug money.

This is a multi-dimensional problem that we are deeply involved in: we are part

of the problem and need to be part of the solution. To date, we have made a ‘‘bet’’

that a $1.3B American assistance program can help solve this problem. I believe

that if we truly want to shape the environment to ensure our success, we must ‘‘protect our bet’’ with a trade package that sets the conditions to change their earnings

source from drug money to industries that are a part of the 21st century economy.

Thank you, Mr. Chairman, for inviting me to speak to you today on the issues

of Andean trade. It is my hope that we can develop an effective Andean Trade Preference bill with strong bipartisan support that expands the trade preferences and

extends the timeline well into the future. Thank you.

Chairman C

Ms. Christensen.

RANE. Thank you.

f STATEMENT OF THE HON. DONNA M. CHRISTIANCHRISTENSEN, A DELEGATE IN CONGRESS FROM THE

UNITED STATES VIRGIN ISLANDS

Ms. CHRISTIAN-CHRISTENSEN. Thank you, Mr. Chairman, ranking

member, distinguished colleagues, for the opportunity to testify

this afternoon on the important hearing on the Andean Trade Preferences Act and a future Free Trade Area of the Americas. In particular, though, I am grateful for the chance to explain to the Subcommittee on Trade the critical importance of retaining current

treatment for rum in any renewed ATPA and of opposing future

tariff reductions for rum in the context of the FTAA.

I am accompanied today by Mr. Andrew Wechsler, sitting behind

me, of the Law & Economics Consulting Group, who is currently

conducting an updated economic analysis of the rum tariff issues

for the governments of the Virgin Islands and Puerto Rico. Both

Mr. Wechsler and I would be pleased to answer any specific quesVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 W:\DISC\74222 ATX004 PsN: ATX004
17

tions after my testimony, and I would like to submit a statement

from the Governor of the Virgin Islands, Charles Turnbull, for the

record with your permission.

Chairman CRANE. Without objection, so ordered.

[The following was subsequently received:]

Statement of the Hon. Charles W. Turnbull, Governor of the United States

Virgin Islands

Introduction

Mr. Chairman and distinguished Members of the Subcommittee on Trade, I am

pleased to provide this statement on behalf of the government of the United States

Virgin Islands (‘‘GVI’’) in conjunction with the Subcommittee’s hearing on the future

of trade in the Western Hemisphere. In particular, I appreciate the opportunity to

outline for the Subcommittee the crucial role which rum plays in the economy and

financial stability of government of the Virgin Islands and for other island jurisdictions in the Caribbean. For the reasons set forth below, Congress must assure that

any legislation extending the Andean Trade Preferences Act (‘‘ATPA’’) includes the

current exclusion of low-value Andean rum. For the same reasons, I also respectfully urge that Congress oppose additional tariff reductions for rum in the negotiation of any future Free Trade Agreement of the Americas (‘‘FTAA’’).

In 1991, after careful consideration, Congress affirmatively acted to exclude rum

from the list of products eligible for duty free treatment under the ATPA. The powerful reasons of this exclusion—including the critical importance of rum to Caribbean Basin economies and the resource, cost and capacity advantages of Andean

producers—still exist today. Indeed, as explained below, U.S. duties on low-value

bulk and bottled rum were recently affirmed after delicate and complex discussions

among the United States, the European Union, Caribbean governments and nongovernmental stakeholders in the 1997 ‘‘zero-for-zero’’ agreement on distilled spirits.

The result of these 1997 negotiations reflects longstanding United States policy

to preserve tariffs on imported rum. This consistent U.S. policy is based on the fundamental fact that the rum industry and existing U.S. tariff preferences play a critical role in the economies of the Virgin Islands and other Caribbean jurisdictions.

Under, a congressionally mandated program to foster the development of the Virgin

Islands, Federal excise taxes on Virgin Islands rum shipped to the United States

are returned to the GVI treasury. This revenue source—which accounts for approximately 15 percent of the GVI’s total budget—secures hundreds of millions of dollars

of government-issued bonds to finance the capital infrastructure of the Islands.

Any reduction or elimination of existing tariffs on low-value rum would disrupt

these carefully considered trade and finance programs. Any such steps would have

particularly devastating consequences for the fiscal stability of the GVI, which is

currently struggling with a financial crisis exacerbated by the massive destruction

wrought by successive 100-year hurricanes and other natural disasters over the last

dozen years. Moreover, the elimination or reduction of duties on rum would have

dire consequences for U.S. producers in the Virgin Islands and Puerto Rico—who

comprise virtually all of the domestic rum industry—and for Caribbean beneficiaries

of the U.S. Caribbean Basin Initiative (‘‘CBI’’).

Congress must, therefore, continue to oppose any efforts to facilitate reductions

in rum tariffs in the context of the ATPA or the FTAA.

A. The Virgin Islands Economy Is Linked By Congressional Design To The

Health Of the Territory’s Rum Industry

As an unincorporated territory of the United States, the Virgin Islands is uniquely

dependent upon the continuing health and vigor of its rum industry.

Rum is a product of special significance to the Virgin Islands and other Caribbean

jurisdictions. Rum has been produced in the Caribbean for centuries, providing important contributions to local economies, as well to the history and lore of the region. Today, the rum industry plays even greater role in the prosperity and stability

of the Virgin Islands economy. Indeed, rum production is the second most important

industry in the Virgin Islands, surpassed only by tourism.

Most Virgin Islands rum occupies the low-price end of the market and is sold as

unaged bulk rum to regional distributors in the United States. The distributors, in

turn, bottle and sell the rum under private labels or sell to national beverage companies which market under various product labels. Virgin Islands-produced rum is

also sold as prepared cocktail mixes. Because Virgin Islands bulk rum is generally

sold as a commodity and does not have name brand recognition, it cannot command

premium prices. Rather, bulk rum is extremely price sensitive and is sold in a highVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
18

ly competitive environment where pennies can literally make or break a sale. As a

result of this position in the market, Virgin Islands-produced rum is vulnerable to

imports from low-cost countries, like Brazil and Colombia, with large indigenous

sugar cane industries.

In recognition of the special importance of rum to the Virgin Islands economy,

successive Administrations have acted affirmatively to maintain tariffs on imports

of low-value rum from non-CBI countries. Current U.S. tariffs on low-priced rum are

25.9 cents per proof liter for bottled rum valued at $3 per proof liter or less and

25.9 cents per proof liter for bulk rum valued at $0.69 per proof liter or less. These

duties are critical to the continued viability of the Virgin Islands rum industry. (As

noted below, the importance of these tariffs was affirmed as recently as 1997 in a

U.S.-EU accord on rum.) Removal of the current duty on low-value rum, on the

other hand, would confer an enormous advantage upon Andean and other non-CBI

producers, who already enjoy substantial cost and production advantages and would

likely expose Virgin Islands producers to immediate and destructive import competition. In short, the current duty is necessary to prevent serious injury to the Virgin

Islands rum industry and, by extension, to the entire Virgin Islands economy.

Corollary to its interest in ensuring the competitive health of a historic industry,

the GVI and the United States Government also have a common interest in protecting one of the GVI’s principal sources of governmental revenue. Congress has,

by statute, mandated that Federal excise taxes imposed on Virgin Islands rum be

returned to the treasury of the Islands to finance needed capital projects and public

services. Under the Virgin Islands Revised Organic Act 1954 (‘‘ROA’’), Pub. L. No.

517, 68 Stat. 12, which established a comprehensive scheme of local self-government

in the Territory, Congress provided that Federal excise taxes collected on rum manufactured in the Virgin Islands and shipped to the United States shall be returned

to the treasury of the Virgin Islands. ROA, § 28(b) (codified at 26 U.S.C. § 7652(b),

(e)). Prior to the enactment of the Revised Organic Act, the Virgin Islands was dependent upon ad hoc congressional appropriations for the support of its local government. As part of its statutory scheme for the political and economic development

of the Virgin Islands, Congress intended that these tax cover-over provisions generate a permanent source of funds for the Virgin Islands government and thus contribute to the financial self-sufficiency of the Territory. See S. Rep. No. 1271, 83d

Cong., 2d Sess. 4 (1954), reprinted in 1954 U.S. Code Cong. & Ad. News 2585. See

also Commonwealth of Puerto Rico v. Blumenthal, 642 F.2d 622 (D.C. Cir. 1980),

cert. denied, 451 U.S. 983 (1981) (purpose of cover-over provisions is ‘‘to ease financial plight’’ of the Virgin Islands and Puerto Rico).

The rum industry and the cover-over provisions of the Revised Organic Act presently contribute approximately 15 percent of the Territory’s total budget. For 2000,

the GVI received approximately $75 million in rum excise taxes. These cover-over

revenues are used to secure bonds issued by the GVI and sold to mainland institutions and investors. These bonds, in turn, finance needed capital improvements and

infrastructure development in the Territory including, inter alia, the construction of

schools, health care facilities, airports and other vital projects throughout the Virgin

Islands—projects made all the more necessary by the billions of dollars of damage

caused by major hurricanes and other natural disasters over the last decade. In addition, the number of direct jobs generated by these capital expenditures run into

the thousands—far outpacing the number of jobs in the rum industry, which is itself

one of the largest manufacturing industries in the Territory.

The rum industry thus provides one of the principal sources of employment and

government revenue in the Virgin Islands. Even a modest increase in imports from

Andean and other non-CBI producers triggered by extending duty-free treatment to

low-cost rum would invariably result in depressed prices and correspondingly reduced profits for U.S. rum producers in the Virgin Islands. Because of the linkage

established by Congress between the industry and excise tax revenues, even minimal displacement of Virgin Islands rum shipments to the United States by foreign

competition will threaten the fiscal stability of the Territorial Government, raise the

cost of the government borrowings, and, derivatively, put the entire economy of the

Islands at risk. Accordingly, Congress must retain current restrictions on rum in the

ATPA and oppose the inclusion of rum in any tariff negotiations under the FTAA.

B. Any Reduction or Elimination of Current U.S. Duties on Low-Value Rum

Would Run Counter to Long-Standing Federal-Territorial Policy

Both the Congress and the Executive Branch of the United States have repeatedly

recognized the unique role that the rum industry plays in the legal, economic and

political relationship between the United States and its island territories in the Caribbean. The United States has taken affirmative action on many occasions to protect

19

the Virgin Islands and Puerto Rico rum industries from potential competitive harm

that would result from changes in trade preferences for rum.

Historically, all foreign-produced rum imported into the United States was subject

to U.S. customs duty. In 1983, in response to the President’s foreign policy objectives for the Caribbean, Congress enacted the Caribbean Basin Economic Recovery

Act (‘‘CERA’’)—popularly known as the ‘‘Caribbean Basin Initiative’’—which created

a special system of tariff preferences for products (including rum) originating from

eligible Caribbean countries. Pub. L. No. 98–67, 19 U.S.C. §§ 2701 et seq. The legislation was carefully developed to balance domestic economic interests against U.S.

foreign policy goals for the Caribbean. After careful Congressional deliberation, a

legislative compromise was worked out to protect the Virgin Islands and its rum industry from any increase in Caribbean rum imports. Among other things, Congress

enacted several compensatory measures in recognition of the heightened vulnerability of the Virgin Islands rum industry to CBI imports, including a partial rebate

to the GVI of a percentage of excise taxes imposed on foreign-produced rum. See

Pub. L. No. 98–67 § 214, 19 U.S.C. §§ 1202, 2251 (note), 2703 (note), 33 U.S.C.

§ 1311 (note).

The Federal Government has also demonstrated its continued recognition of the

special role of rum in the Virgin Islands economy in its disposition of various petitions under the Generalized System of Preferences. In 1981, 1982, 1987 and 1990,

the U.S. government rejected various GSP petitions seeking duty-free entry of rum

produced by non-Caribbean producers. The rejection of these GSP petitions reaffirmed the import-sensitivity of the rum industry and reflects a considered judgment that the potential harm to the Virgin Islands and Puerto Rican rum industries

outweighed any policy benefit to the petitioning countries.

For all these reasons, efforts to eliminate or reduce current tariff preferences for

rum—whether in the context of ATPA renewal or future FTAA negotiations—would

be contrary to longstanding Federal policy against the extension of tariff preferences

for low-value rum produced outside of the Caribbean.

C. Changes in Current Tariff Treatment for Rum Would Be Inconsistent

With the Considered Judgments Which Underlie the APTA and the 1997

Agreement on Rum

Of particular importance in the context of the Subcommittee’s consideration of a

renewed ATPA is that fact that Congress expressly excluded rum from the list of

products eligible for duty-free treatment when the ATPA was enacted in 1991. This

action was taken by Congress and the Administration after very careful consideration of the impact that duty-free treatment for rum would have on the Virgin Islands, and Puerto Rico and CBI jurisdictions generally. In explaining this action,

the House Ways & Means Committee stated:

The Committee added rum to the list of articles that would be ineligible for

duty-free treatment under the Act in order to preserve the benefits that Congress has provided to Puerto Rico, the Virgin Islands, and the Caribbean Basin

countries. Rum is a product which the ITC has identified as benefiting most

from duty-free treatment under the CBI . . . Andean Rum Producers have significant natural resource and cost advantages over their Caribbean and U.S.

Territorial counterparts as well as large excess production capacity.

H.R. Rep. No. 102–337 at 15 (1991). As explained below, the powerful reasons

then for excluding rum from duty-free treatment under the ATPA still exist today.

Developments over the last decade also make the retention of current rum tariffs

even more imperative for the Virgin Islands and other CBI beneficiaries. As part

of a tariff agreement initialed at the December 1996 WTO Ministerial in Singapore,

the United States and the European Union (‘‘EU’’) committed to phase out their tariffs on ‘‘white spirits’’ (including rum) by no later than 2000. In response to this unexpected announcement, U.S. and Caribbean governments and producers, Administration officials and Members of Congress strongly emphasized to U.S. and EU negotiators that, unless exempted, such a drastic change in the duty structure for rum

would deal a severe blow to the Virgin Islands, Puerto Rico and the island nations

of the Caribbean, whose economies and governments depend heavily on revenues

generated by trade in rum.

In response to these demonstrable concerns, the United States and the EU returned to the negotiating table in 1997 and—with substantial input from the GVI

and other Caribbean governments and producers—subsequently fashioned a compromise tariff mechanism for rum. This mechanism sought to balance trade liberalization with the particular concerns of the Caribbean region. It did so by retaining

existing MFN duties (and the duty preferences of Caribbean producers) on lowpriced bottled and bulk rum while substantially liberalizing duties on more expenVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
20

sive rum. Pursuant to this agreement, current higher U.S. duties on low-priced rum

are cut off above $3.00/proof liter for bottled rum and $0.69/proof liter for bulk rum.

The willingness of U.S. and EU negotiators to reopen their initial tariff commitments to address the import sensitivity of low-value rum affirms the special and the

significant role which rum generally plays for the economies and governments

throughout the Caribbean. The 1997 rum agreement was a reasoned compromise

agreed to by the concerned governments with substantial participation by key nongovernmental stakeholders. In renewing the ATPA and advising on a negotiating

strategy for the FTAA, Congress must recognize and continue this careful approach

to the unique issues raised by rum.

The exclusion of rum from duty-free treatment under the ATPA and the careful

compromise reached in the 1997 rum accord demonstrate that rum is not a product

which can or should be included in any across-the-board grant of duty-free treatment or formula-based tariff reduction schemes. Rather, any renewal of the ATPA

and any tariff discussions in the context of the FTAA must address the special economic and political significance of the rum trade to the Caribbean region. The considered compromise reached in the 1997 agreement on rum provides a proper balance between the needs of the Virgin Islands and other Caribbean producers of lowvalue rum and liberalized trade for higher-priced rum.

D. The Reduction or Elimination of Current U.S. Duties on Rum Would Result In Serious Injury To U.S. Producers In the Virgin Islands And The

Overall Economy of the Virgin Islands

Duty reductions for rum pursuant to a renewed ATPA or as part of any FTAA

negotiations would impose unacceptable hardships on the Virgin Islands and its

rum producers. Because it lacks strong name brand identification and a well-developed national distribution network, Virgin Islands rum generally cannot command

premium prices. Rather, as explained above, most Virgin Islands rum is sold at the

low end of the market and is generally purchased in bulk as an unaged commodity

by U.S. bottlers. In this sales environment, Virgin Islands producers must compete

almost exclusively on the basis of price and, accordingly, are particularly vulnerable

to competition from low-cost producers of bulk rum.

Removal or reduction of current duties on low-value rum would provide producers

from outside the Caribbean region with an irresistible incentive to target the low

end of the U.S. rum market currently occupied by Virgin Islands producers. For example, Andean and Brazilian producers and producers from other large South

American countries currently enjoy numerous economic advantages relevant to the

production of rum. These include below-world-market prices for molasses, more

highly developed transportation and distribution networks, inexpensive fuel, low

manufacturing-sector wages and freedom from U.S. regulatory requirements. The

extension of ATPA to rum would open the doors especially to Colombia, but also

Peru. Colombia presently consumes more rum than France, 2.5 million cases per

year. This does not include aguardiente, an extremely popular Colombian beverage

that, like rum, is derived from sugar cane. Colombia has four major rum distillers

and a mature industry. Colombia has a significant existing capacity in rum and an

ability to augment it rapidly by diverting from aguardiente. Duty-free access to the

United States, coupled with its clear cost advantages, would allow Colombia rapidly

to enter the low-valued rum market, displacing the Virgin Islands producer.

The extension of duty-free rum treatment to all of South America via the FTAA

would create an even more grim picture for the future of this traditional Virgin Islands industry. Brazil is the global industry’s 800 pound gorilla—it is the world’s

largest producer of caned spirits, accounting for 73 percent of global consumption

in 1999. Cachaca, a product very similar to rum, is the national drink of Brazil.

Brazil clearly has the capacity to single-handedly suffocate the Virgin Islands rum

industry in its low-valued market. The role of the existing duties is crucial to the

competitiveness of the Virgin Island’s rum industry because Brazil’s wage structure

in the beverage industry is far below that of the Virgin Islands. Brazil is also a

major producer of sugar and molasses, the key cost component in rum production.

With more sugar than it can use, and low energy costs (due to both subsidies and

the burning of cane stalk), Brazil would, overnight, become the lowest-cost large

source for low-valued bulk rum if duties were removed.

The GVI and other interested parties have commissioned Mr. Andrew Wecshler,

Managing Director of LECG, LLP, a leading trade and economic consulting firm, to

conduct an analysis of the probable economic effects of the elimination of current

duties on rum. Attached to this statement is a Power Point presentation which summarizes Mr. Wechsler’s preliminary conclusions. This analysis makes clear that,

without the benefit of the current tariff protection affirmed in the 1997 rum agreement, Virgin Islands producers would quickly be overwhelmed by non-CBI producers

21

in the price-based segment of the U.S. market in which Virgin Islands rum competes.

The elimination of U.S. tariff protection for the price-sensitive, low-value segment

of the U.S. rum market would also seriously threaten the future of the Congressionally mandated program to finance the development needs of the Virgin Islands

through the return of excise taxes on rum to the GVI treasury. As explained above,

this cover-over program finances some 15 percent of the GVI’s annual budget and

secures government bonds issued for crucial development and infrastructure

projects. This vital economic program depends, however, on the continued existence

of a viable rum production industry in the Virgin Islands.

Without current tariff protections, non-CBI producers would likely use their tremendous competitive advantages to displace Virgin Islands rum from the U.S. market, thereby drying up GVI treasury revenues from the return of excise taxes on

Virgin Islands-produced rum. This lost revenue could not be made up by the partial

rebate of excise taxes on foreign rum granted by the CBI. The CBI provides only

a limited guarantee of Virgin Islands rum revenues and simply does not make the

Virgin Islands whole where foreign imports are increasing disproportionately at the

bottom end of the bulk rum market—precisely the segment where the Virgin Islands

industry competes. Moreover, from a practical political standpoint, even this limited

rebate program would be unlikely to continue if Virgin Islands rum production were

no longer viable.

Finally, and perhaps most significantly, the very prospect of serious reductions in

rum cover-over revenues would likely imperil the GVI’s bond rating and overall

economy even before any non-CBI rum producers could avail themselves of reduced

U.S. tariffs. Bond markets and investors are justifiably wary of risk and would hesitate to provide needed bond financing at acceptable costs to the GVI based on a

threatened and declining stream of cover-over revenues.

Thus, the elimination of current tariff preferences for Virgin Islands rum would

have a devastating domino effect on the Virgin Islands and its economy. Without

these preferences, rum cover-over revenues would seriously decline and the GVI

could lose access to financial markets. Because of the dependence of the Virgin Islands on rum-related revenues, these developments would ultimately put at risk the

fiscal autonomy, if not solvency, of the GVI.

E. The Elimination of Current Tariff Preferences on Rum Would Be Contrary To Sound Public Policy In Light of the Precarious Fiscal State of

the Virgin Islands

As noted above, current tariff protections for Virgin Islands rum are founded on

a longstanding Federal-Territorial policy which links the Islands’ development with

revenues from rum. This policy provides compelling reasons to resist any elimination of tariff preferences for Virgin Islands rum. Moreover, in view of the current

precarious fiscal state of the GVI, any tariff reductions for rum pursuant to a renewed ATPA or FTAA tariff talks would be particularly ill-timed and inconsistent

with sound public policy.

Indeed, the new administration in the GVI has inherited a fiscal state of affairs

of enormous and alarming proportions. The current recurring and non-recurring liabilities of the GVI exceed $1.2 billion, excluding the funding requirements for many

capital projects such as schools, correctional facilities and solid waste management

facilities. A sizeable portion of the Government’s current liabilities is the direct result of successive hurricanes which have battered the Virgin Islands over the past

decade. As of December 31, 2000, these hurricane-related liabilities included nearly

$200 million in outstanding FEMA loans. In addition, the GVI requires over $125

million in assistance for rebuilding/replacing a number of capital projects, such as

schools, prisons and other facilities mostly destroyed during the hurricanes.

The GVI is committed to extraordinary self-help measures to address this fiscal

crisis. With the ongoing assistance of the U.S. Department of Interior, the GVI has

developed a Five-Year Fiscal Recovery Plan and is implementing a number of specific measures to reduce or cut costs and enhance revenue collections. As part of this

recovery effort, the GVI is seeking over $300 million in Federal relief relating to

FEMA disaster loans and hurricane-related infrastructure reconstruction. Additionally, the GVI is seeking further Federal assistance through the extension of the increase in the rum tax cover-over rate to $13.25 per proof gallon, which Congress enacted in 1999 and which expires on December 31, 2001.

In light of the Federal Government’s substantial involvement and interest in

these recovery efforts, it makes no sense for the U.S. Government to simultaneously

undermine one of the major sources of revenue of the GVI through the elimination

of current rum preferences pursuant to a revised ATPA or FTAA tariff negotiations.

Sound fiscal policy—as well as longstanding trade and development policies emVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
22

bodied in the ATPA and other legislation—thus supports the maintenance of the

current tariff structure and the preservation of the U.S.-EU rum accord.

Conclusion

For reasons discussed above, the reduction or elimination of tariffs on rum in the

context of a revised ATPA or future FTAA negotiations would pose an inevitable

and serious threat to the health of the Virgin Islands economy and its rum industry,

as well as to the fiscal autonomy of its Government. Granting duty-free treatment

to rum would have a devastating impact on one of the Virgin Islands’ most significant and historic industries and one of its largest and sources of governmental revenue. The United States has wisely refused to abandon the critical rum industry

in the Virgin Islands. Because of the current weakened fiscal state of the Virgin Islands Government, the case against changing current U.S. tariff protections for rum

is even more compelling today. For the reasons set forth above, the Congress must

retain current ATPA restrictions against duty-free treatment for Andean rum and

must preserve the careful compromise embodied in the 1997 U.S.-EU rum accord

by excluding rum from future FTAA tariff reduction negotiations.

23

24

25

26

27

Ms. CHRISTIAN-CHRISTENSEN

f. Thank you. In 1991, after very

careful consideration by Congress and the administration, rum was

28

expressly excluded from duty-free treatment under the ATPA. The

Ways and Means Committee then explained that this action was

necessary to preserve the benefits that Congress had provided to

Puerto Rico, the Virgin Islands, and the Caribbean Basin countries.

Developments over the last decade—particularly a landmark

1997 international trade understanding and agreement on rum tariffs—have made the retention of current tariff preferences on rum

even more imperative for the Virgin Islands and the Caribbean region as a whole.

Today, rum is the second most important industry in the Virgin

Islands, surpassed only by tourism. It provides an essential revenue source for the Virgin Islands Government because under a

congressionally mandated program for the development of the Islands, Federal excise taxes on rum shipped to the United States

are returned to the local treasury. These funds currently account

for more than 15 percent of the Virgin Islands total budget and

have played a critical role in the economic and budgetary health of

the Islands.

Most rum produced in the USVI is sold as unaged bulk rum to

regional distributors in the United States as a commodity without

name brand recognition. Therefore, the rum cannot command the

premium prices. It is also extremely price-sensitive and vulnerable

to imports from low-cost countries. As Congress recognized in 1991,

Andean and other non-CBI producers have significant natural resource advantages in the production of rum. These advantages include: large, indigenous sugar cane industries, inexpensive fuel, low

wages, and substantial rum and alcohol production capacity. Without current U.S. tariff preferences, these low-cost regional producers can be expected to overwhelm Virgin Islands and CBI producers of low-value rum in the U.S. market.

In addition to excluding rum from duty-free benefits under the

ATPA in 1991, Congress also adopted and maintained a special

compensatory program for Virgin Islands rum in the context of

CBI. Through the 1980s and 1990s, successive administrations also

repeatedly rejected various GSP petitions for duty-free entry of

rum produced by non-Caribbean producers. All of these decisions

reflect a recognition that rum is highly import-sensitive. They were

also the result of a carefully considered judgment that the likely

harm to the Virgin Islands and the island nations of the Caribbean

far outweighs any potential policy trade benefits from tariff liberalization.

The unique and critical role of rum in the Caribbean region and

the importance of maintaining preferences for low-value rum was

most recently affirmed in a landmark 1997 understanding between

the United States and the European Union. In WTO tariff negotiations in 1996, U.S. and EU negotiators had initially agreed to

phase out all tariffs on rum and other ‘‘white spirits’’ by 2000. This

unexpected development, which was the last occasion on which I

testified before this Subcommittee, was met with alarm by Caribbean governments, administration officials, and Members of Congress, who emphasized to the trade negotiators that such a drastic

change in the tariff structure for rum would deal a severe blow to

the economics of the U.S. Virgin Islands, Puerto Rico, and the Caribbean.

29

In response, the U.S. and EU, as well as Caribbean governments

and producers, revisited rum tariffs in complex and delicate discussions to address the special role of rum in the Caribbean region.

These discussions resulted in a carefully constructed compromise

for rum under which the United States agreed to substantially liberalize duties on expensive rum, while protecting the interests of

the USVI and other Caribbean island producers, maintaining existing MFN duties on low-value bottled and bulk rum.

The 1997 agreement on rum forms the basis for current U.S. tariff preferences on rum.

In summary, in 1991, this Committee wisely decided to exclude

rum from duty-free treatment under ATPA. This decision reflected

a longstanding concern by the United States that trade preferences

for rum are vitally important to the economies of the Virgin Islands, Puerto Rico, and the island nations of the Caribbean. The

wisdom of this decision has been confirmed by developments since

1991. In particular, the 1997 agreement on rum between the

United States and the EU reflects the understanding that tariff liberalization of rum must be tempered with an appreciation for the

special role that rum, particularly low-value rum, plays in the Caribbean region. For these and other reasons, we ask Congress to assure that the current, carefully considered tariff preferences for

rum are not disturbed by the ATPA or by other regional trade arrangements.

Thank you, Mr. Chairman, ranking member, other members of

the Subcommittee. Mr. Wechsler and I would be pleased to answer

any questions, and thank you again for the opportunity to testify.

[The prepared statement of Ms. Christian-Christensen follows:]

Statement of the Hon. Donna M. Christian-Christensen, Delegate, United

States Virgin Islands

Mr. Chairman and distinguished colleagues, I am pleased to participate in this

important hearing on the future of hemispheric trade relations under a renewed Andean Trade Preferences Act (‘‘ATPA’’) and a future Free Trade Area of the Americas

(‘‘FTAA’’). In particular, I am grateful for the opportunity to explain to the Subcommittee on Trade the critical importance of retaining the current treatment for

rum in any renewed ATPA and of opposing future tariff reductions for rum in the

context of the FTAA.

I am accompanied today by Mr. Andrew Wechsler of the Law & Economics Consulting Group, who is currently conducting an updated economic analysis of rum

tariff issues for the Governments of the Virgin Islands and Puerto Rico. Mr. Wechsler would be pleased to answer any specific questions that the Subcommittee may

have. In addition, I am submitting a written statement from Virgin Islands Governor Charles W. Turnbull, which I respectfully request be included in the record

of this hearing.

In 1991, after very careful consideration by Congress and the Administration, rum

was expressly excluded from duty-free treatment under the ATPA. At that time, the

Ways & Means Committee explained that this action was necessary to preserve the

benefits that Congress has provided to Puerto Rico, the Virgin Islands, and the Caribbean basin countries. Rum is a product which the ITC has identified as benefiting

most from duty-free treatment under the CBI. . . . Andean rum producers have significant natural resource and cost advantages over their Caribbean and U.S. Territorial counterparts as well as large excess production capacity.

Developments over the last decade—particularly a landmark 1997 international

trade understanding and agreement on rum tariffs—have made the retention of current tariff preferences on rum even more imperative for the Virgin Islands and the

Caribbean region as a whole.

Rum has been produced in the Caribbean for centuries and is an important part

of the history, lore and economic fabric of the region. Today, rum is the second most

important industry in the Virgin Islands, surpassed only by tourism. Rum also proVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
30

vides an essential revenue source for the Virgin Islands government. Under a congressionally mandated program for the development of the Islands, federal excise

taxes on rum shipped to the United States are returned to the local treasury. These

funds currently account for more than 15 percent of the Virgin Islands total budget.

Rum has played a particularly critical role in the economic and budgetary health

of the Virgin Islands over the last decade. During that period, the Islands have

struggled to recover from the massive destruction and economic dislocation caused

multiple natural disasters, including two of the most devastating hurricanes of the

century.

Most rum produced in the USVI is at the low-price end of the market and is sold

as unaged bulk rum to regional distributors in the United States. Because it is sold

as a commodity without name-brand recognition, this rum cannot command premium prices. It is also extremely price-sensitive and vulnerable to imports from lowcost countries. As Congress recognized in 1991, Andean and other non-CBI producers have significant natural resource advantages in the production of rum. These

advantages—which continue today—include large, indigenous sugar cane industries,

inexpensive fuel, low wages, and substantial rum and alcohol production capacity.

Without current U.S. tariff preferences, these low-cost regional producers can be expected to overwhelm Virgin Islands and CBI producers of low-value rum in the U.S.

market.

This Congress and successive Administrations have repeatedly recognized the

vital role which rum plays in the economies of the Virgin Islands, Puerto Rico and

the Caribbean region, and have consistently resisted making significant changes to

tariff preferences for rum. In addition to excluding rum from duty-free benefits

under the ATPA in 1991, Congress has also adopted and maintained a special compensatory program for Virgin Islands rum in the context of the CBI program.

Throughout the 1980s and 1990s, successive Administrations also repeatedly rejected various GSP petitions for duty-free entry of rum produced by non-Caribbean

producers. All of these decisions reflect a recognition that rum is highly import sensitive. They were also the result of a carefully considered judgment that the likely

harm to the Virgin Islands and the island nations of the Caribbean far outweighs

any potential policy trade benefits from tariff liberalization.

The unique and critical role of rum in the Caribbean region—and the importance

of maintaining preferences for low-value rum—was most recently affirmed in a landmark 1997 understanding between the United States and the European Union. In

WTO tariff negotiations in 1996, U.S. and EU negotiators had initially agreed to

phase out all tariffs on rum and other ‘‘white spirits’’ by 2000. This unexpected development was met with alarm by Caribbean governments, Administration officials

and Members of Congress. They emphasized to the trade negotiators that such a

drastic change in the tariff structure for rum would deal a severe blow to the economies of the USVI, Puerto Rico, and the Caribbean.

In response to this outcry, U.S. and EU negotiators, as well as Caribbean governments and producers, revisited rum tariffs in complex and delicate discussions

aimed at addressing the special role of rum in the Caribbean region. These discussions, which involved officials at the highest levels of the various governments, resulted in a carefully constructed compromise for rum. Under this compromise, the

United States agreed to substantially liberalize duties on expensive rum. However,

to protect the interests of the USVI and other Caribbean island producers, the

United States also agreed to maintain existing MFN duties on low-value bottled and

bulk rum.

This 1997 agreement on rum forms the basis for current U.S. tariff preferences

on rum. In this landmark agreement, the United States and key trading partners

struck a careful balance between tariff liberalization and the unique concerns of the

Caribbean region. Any efforts to eliminate current tariff preferences for rum in the

context of ATPA renewal or FTAA negotiations will upset this careful balance and

will result in serious damage to the Caribbean region.

In 1991, this Committee wisely decided to exclude rum from duty-free treatment

under the ATPA. This decision reflected a longstanding concern by the United

States that trade preferences for rum are vitally important to economies of the Virgin Islands, Puerto Rico and the island nations of the Caribbean. The wisdom of this

decision has been confirmed by developments since 1991. In particular, the 1997

agreement on rum between the United States and the EU reflects the understanding that tariff liberalization for rum must be tempered with an appreciation

for the special role that rum—particularly low-value rum—plays in the Caribbean

region. For these and other reasons, Congress must assure the current, carefully

considered tariff preferences for rum are not disturbed by the ATPA or by other regional trade arrangements.

Mr. Wechsler and I would be pleased to answer any questions.

f31

Chairman CRANE. Thank you, Ms. Christensen. Are there any

questions of our witness?

[No response.]

Chairman CRANE. If not, let me express—oh, Mr. Levin?

Mr. LEVIN. I would like to thank them very much for their testimony, and this helps to kick off the discussion of these important

issues. Thank you very, very much.

Chairman CRANE. Well, it does, and we look forward to working

on a cooperative basis with you all, and we appreciate your testimony this afternoon. Thank you so much.

And now I welcome our distinguished U.S. Trade Representative,

the Honorable Robert Zoellick. Proceed when ready.

STATEMENT OF THE HON. ROBERT B. ZOELLICK,

UNITED STATES TRADE REPRESENTATIVE

Mr. ZOELLICK. Mr. Chairman, Representative Levin, Members of

the Committee, if I could request that my full statement will be entered into the record, and I would then summarize it.

Chairman CRANE. Without objection.

Mr. ZOELLICK. I want to begin by thanking you for giving me this

opportunity to speak before the Subcommittee. I have certainly

benefited from discussions with the Members of this Committee,

and I look forward to working closely with all of you. I also wish

to thank, in particular, Representatives Levin and English for joining the President at the Summit of Americas meeting in Quebec

City.

I also appreciate Congressman Moran’s fine statement. I am delighted to be one of his constituents, and recognizing where Congresswoman Tauscher and Christensen come from, I would be delighted to be their constituents, too, I think.

I am pleased to report that in the administration’s first months,

with your help, we have been able to take steps to advance free

trade in this hemisphere and around the world. We have launched

the negotiations on the free Trade Area of the Americas, made

progress on bilateral free trade agreements with Chile and Singapore, and have resolved productively a number of disputes with our

trading partners.

Yet we should not let this progress mask a more troubling reality: the United States is falling behind the rest of the world when

it comes time to trade liberalization. Globally, there are 130 free

trade agreements. The United States is a party to just two. The

European Union has free trade or special customs agreements with

27 countries, 20 of which have completed in the last 10 years, and

the EU is negotiating 15 more right now. Last year, the European

Union and Mexico—the second-largest market for U.S. exports—entered into a free trade agreement. Japan is negotiating a free trade

agreement with Singapore and is exploring free trade agreements

with Mexico, Korea, and Chile.

We have no one to blame for falling behind but ourselves, and

there is a price to pay for our delay. As Senator Graham of Florida

has pointed out, during the last century, when it came time for

countries to adopt standards for the great innovation of that era—

32

electric power—Brazil turned to European models because the

United States was not active in Brazil. So when you visit Brazil,

be sure to bring an electric adapter. Today, as Senator Graham has

explained, Brazil is making decisions about standards for autos and

other products. So the United States needs to decide whether it

wants to stand on the sidelines again.

To cite just one other example, while U.S. exports to Chile face

an 8-percent tariff, the Canada-Chile trade agreement will free Canadian imports of this duty. This is the same agreement that President Clinton said that we would no negotiate in 1994. As a result,

U.S. wheat and potato farmers are now losing market share in

Chile to Canadian exports.

One of our colleagues, Congressman John Tanner, summed up

the big-picture stakes as effectively to me as anyone that I have

heard: ‘‘America’s place in the world is going to be determined by

trade alliances in the next 10 years in the way military alliances

determined our place in the past.’’

In any discussion of future free trade agreements, we need to

highlight the benefits of previous accords. Together, North American Free Trade Agreement (NAFTA) and the completion of the

Uruguay round have resulted in higher incomes and lower prices

for goods, with benefits amounting to between $1,300 and $2,000

a year for the average American family of four. That is real money

for farmers, nurses, teachers, police officers, and office workers, not

bonuses for corporate executives.

Trade barriers hurt families. When trade is restricted, hardworking fathers and mothers pay the biggest portion of their paychecks for higher cost food, clothing, and appliances imposed

through taxes on trade.

NAFTA has also produced a dramatic increase in trade. U.S. exports to our NAFTA partners increased 104 percent between 1993

and 2000; U.S. trade with the rest of the world grew only half as

fast.

Increased trade supports good jobs. In the 5 years following the

implementation of NAFTA, employment grew 22 percent in Mexico

and generated 2.2 million jobs. In Canada, employment grew 10

percent and generated 1.3 million jobs. And in the United States,

employment grew more than 7 percent and generated about 13 million jobs.

I recognize that these benefits of open trade can only be achieved

if we build public support for trade at home. To do so, the administration will enforce, vigorously and with dispatch, our trade laws

against unfair practices. In the world of global economics, justice

delayed can become justice lost.

The administration will also be monitoring closely compliance

with our trade agreements, as well as insisting on performance by

our trading partners. Thanks to the help of the Congress and its

support of the Trade Compliance Initiative advanced last year,

USTR received additional staffing to strengthen its ability to ensure that the terms of agreements are fulfilled.

The Bush administration is promoting free trade globally, regionally, and bilaterally. By moving on multiple fronts, we can create

a competition and liberalization that will increase U.S. leverage

33

and promote open markets in the hemisphere and around the

world.

The Free Trade Area of the Americas provides a framework for

the administration’s hemispheric strategy. This area, once completed, will be the largest free market in the world.

At the Summit of the Americas in Quebec City, all 34 heads of

State signed a declaration pledging to conclude negotiations on the

FTAA no later than January 2005. The United States is committed,

working with others, to meet or beat that deadline.

Moreover, the draft text of the agreement will be released once

it has been translated into the four official languages of the FTAA.

This is an important, and perhaps unprecedented, step to build

public awareness and support an open process. All 34 nations participating in the Quebec City Summit also committed to help the

smaller economies of the hemisphere, especially the nations of the

Caribbean and Central America, so they could address the unique

challenges they face in moving forward with hemispheric integration.

Furthermore, summit leaders agreed that any unconstitutional

alteration or interruption of the democratic order in a state of the

hemisphere would disqualify that Government from further participation in the Summit of the Americas process.

While pursuing regional free trade through the FTAA, the Bush

administration is also negotiating a free trade agreement with

Chile. During a visit I made to Santiago last month, I met with

President Lagos and other senior Government and legislative officials, as well as representatives of business, labor, and environmental groups. I had two objectives: One, I wanted Chile to know

that the Bush administration is serious about the free trade agreement, a point that President Bush and President Lagos made clear

following their recent White House meeting, when they announced

their goal of completing the negotiations by the end of this year.

My second objective was to send a signal to the nations of Latin

America and the rest of the world. The United States will reward

good performers. Chile, for example, has been at the forefront of

Latin American nations in liberalizing trade, while setting an example to the world of a free people reclaiming their democracy and

making the transition to a mature, developed economy.

Leaders from many other nations in this hemisphere have now

told me that they want to pursue free trade agreements with the

United States. We will consider each of these offers seriously, while

focusing on the FTAA.

We are also pleased to have made progress on a number of trade

disputes. Last month, we settled the U.S.-EU banana conflict, an

issue that interfered with our economic relations for nearly a decade. We have resolved a number of disputes by working through

the World Trade Organization and the NAFTA Agreement. For example, Greece has moved to counter the piracy of U.S. films and

television programs. Mexico has agreed to allow dry beans from the

United States to be imported in a more timely and predictable

manner, and India has lifted on U.S. agricultural, textile, and industrial products.

Frequent and substantive communication lies at the heart of the

executive-congressional partnership on trade, and I intend to keep

34

our lines of communication open as we move on our free trade

agenda.

The Bush administration’s top trade priority is for the Congress

to enact U.S. Trade Promotion Authority by the end of this year.

Under this authority, the Executive Branch would be bound by law

to consult regularly, and in detail, with Members of Congress as

trade agreements are being negotiated. But once that long and exhaustive process of consultation is completed, and the painstaking

negotiations have ended in an agreement, our trading partners

have the right to know that Congress will vote on the agreement,

up or down. Indeed, in the absence of Trade Promotion Authority,

which expired in 1994, other countries have been reluctant to close

out complex, politically sensitive trade agreements with the United

States.

We would like to launch a new round of global trade negotiations

in the WTO, emphasizing a key role for agriculture. Further reforms in the Middle East and Africa need our encouragement, and

we are committed to working with the Congress to enact legislation

for a free trade agreement with Jordan. I compliment the Committee for its important work with Africa and the Caribbean last

year and look forward to working with the Congress to improve the

implementation of the Africa Growth and Opportunity Act and the

Caribbean enhancement provisions. We would also welcome your

ideas about additional legislative authority to promote trade, economic growth, openness, the rule of law, and democracy in Africa.

We hope to see the Andean Trade Preferences Act, which expires

in December, renewed and expanded. I am delighted that the Committee has invited ministers from the region to provide them direct

testimony about the effects of this law, and I plan to meet with

them tomorrow. The Central American countries have expressed an

interest in a free trade agreement with the United States, and we

will seek your ideas and preferences as we consider that possibility.

There are opportunities in the Asia Pacific Economic Cooperation

and, I hope, with APEC. We will start with a free trade agreement

with Singapore, and we will work with you to pass the basic trade

agreement with Vietnam negotiated by the Clinton administration.

We are encouraged by the renewed emphasis on structural and regulatory reform by the Koizumi administration, and we look forward

to working with Japan as it pursues this agenda, which is long

overdue.

To help developing nations appreciate that globalization and

open markets can assist their own efforts to reform and grow, we

will need to extend the legislation authorizing the Generalized System of Preferences program.

And now that there is a fragile peace in the Balkins, we must

secure it by pointing people toward economic hope and regional integration. Therefore, we would like to work with the Congress to

follow through on the prior administration’s proposal to offer trade

preferences to countries in Southeast Europe.

As we pursue this agenda, we would like to work with you to

consider a range of ideas for improving labor and environmental

conditions of our trading partners, as long as these proposals are

not protectionist. We might use incentives, not just disincentives,

to encourage better environmental protection and labor standards.

35

For example, incentives can be related to aid programs, financing

through multilateral development banks, and preferential trade.

We can also strengthen the role of complementary specialized institutions, such as the International Labor Organization (ILO).

USTR has announced recently that we will conduct written environmental reviews of major trade agreements, including the FTAA

and the negotiations on agriculture and services underway in the

World Trade Organization. In addition to the current environmental advisors, the Bush administration agreed to add an environmental representative to the Chemical Advisory Committee, in

response to requests by environmental groups for participation on

that committee. I have already benefited from both individual and

group meetings with representatives of many environmental groups

from the United States and other countries.

At the Summit of the Americas, President Bush stated, ‘‘Our

commitment to open trade must be matched by a strong commitment to protecting our environment and improving labor standards.’’ As the Congress and the executive branch explore how to

demonstrate that trade supports labor and environmental standards, we should look first to economic growth. As the President has

said, ‘‘When there is more trade, there is more commerce, and

there is more prosperity. And a prosperous society is one more likely to have good environmental standards and to be able to enforce

those standards.’’

The EPA and others can provide the kind of technical assistance

that will improve the ability of our trading partners to improve

both the adequacy of their environmental protection regimes and

their ability to enforce their laws and regulations.

We should enable advocacy groups to plant local roots. If labor

standards and environmental protection come to be seen by developing nations as a price of trade imposed by wealthy countries,

these causes will not gain widespread local support.

When we think about the connection among trade, economic

growth, labor, and the environment, we should see them as being

mutually supportive, not in conflict with one other. So I look forward to working with the Congress, and interested parties in the

private sector, to discuss these issues further and to seek to find

common ground.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Zoellick follows:]

Statement of the Hon. Robert B. Zoellick, United States Trade

Representative

Chairman Crane, Representative Levin, and Members of the Committee:

I want to begin by thanking all of you for giving me this opportunity to speak

before the Ways & Means Subcommittee on Trade. I have benefited from discussions

with members of the Committee and look forward to working closely with all of you

as the Bush Administration moves forward with its free trade agenda. I also wish

to thank in particular Representatives Levin and English for joining the President

at the recent Summit of the Americas meeting in Quebec City.

In Quebec City, the President explained why free trade is one of his top priorities:

‘‘Free and open trade creates new jobs and new income. It lifts the lives of all our

people, applying the power of markets to the needs of the poor. It spurs the process

of economic and legal reform. And open trade reinforces the habit of liberty that sustains democracy over the long haul.’’

I am pleased to report that in the administration’s first months, with your help,

we have been able to take steps to advance free trade in this hemisphere and

36

around the world. We have launched the negotiations on the Free Trade Area of the

Americas, made progress on our bilateral free trade agreements with Chile and

Singapore, and have resolved productively a number of disputes with our trading

partners.

The U.S. is Falling Behind

Yet we should not let this progress mask a more troubling reality: the United

States is falling behind the rest of the world when it comes to trade liberalization.

Years ago, U.S. involvement in international trade negotiations was a prerequisite

for them to succeed. That is not the case today.

Globally, there are 130 free trade agreements. The United States is a party to just

two: one is with Canada and Mexico—NAFTA—and the other is with Israel. The

European Union has free trade or special customs agreements with 27 countries, 20

of which it completed in the last 10 years. And the EU is negotiating another 15

accords right now. Last year, the European Union and Mexico—the second-largest

market for American exports—entered into a free trade agreement. Japan is negotiating a free trade agreement with Singapore, and is exploring free trade agreements

with Mexico, Korea, and Chile.We have no one to blame for falling behind but ourselves. And there is a price to pay for our delay. As Senator Graham of Florida has

pointed out, during the last century, when it came time for countries to adopt standards for the great innovation of that era—electric power—Brazil turned to European

models because the United States was not active in Brazil. So when you visit Brazil,

be sure to bring an electric adapter. Today, as Senator Graham points out, Brazil

is making decisions about standards for autos and other products—so the United

States needs to decide whether it wants to stand on the sidelines again.

Our inaction hurts American businesses, workers, and farmers, as they find themselves shut out of the many preferential trade and investment agreements negotiated by our trading partners. To cite just one example, while U.S. exports to Chile

face an eight percent tariff, the Canada-Chile trade agreement will free Canadian

imports of this duty. As a result, U.S. wheat and potato farmers are now losing market share in Chile to Canadian exports.

Congressman John Tanner has summed up the big picture stakes to me as effectively as anyone I have heard: ‘‘America’s place in the world is going to be determined by trade alliances in the next 10 years in the way military alliances determined our place in the past.’’

The Benefits of NAFTA and other Trade Agreements

In any discussion of future free trade agreements, we need to highlight the benefits of previous accords. Together, NAFTA and the completion of the Uruguay Round

have resulted in higher incomes and lower prices for goods, with benefits amounting

to $1300 to $2000 a year for an average American family of four. That is real money

for farmers, nurses, teachers, police officers, and office workers, not bonuses for corporate executives.

Trade barriers hurt families. When trade is restricted, hard-working fathers and

mothers pay the biggest portions of their paychecks for the higher cost food, clothing, and appliances imposed through taxes on trade.

NAFTA has also produced a dramatic increase in trade between the United States

and Mexico. When the Congress approved NAFTA in 1993, U.S.-Mexico trade totaled $81 billion. Last year, our trade hit $247 billion—nearly half a million dollars

per minute. U.S. exports to our NAFTA partners increased 104 percent between

1993 and 2000; U.S. trade with the rest of the world grew only half as fast.

Increased trade supports good jobs. In the five years following the implementation

of NAFTA, employment grew 22 percent in Mexico, and generated 2.2 million jobs.

In Canada, employment grew 10 percent, and generated 1.3 million jobs. And in the

United States, employment grew more than 7 percent, and generated about 13 million jobs.

I recognize that these benefits of open trade can only be achieved if we build public support for trade at home. To do so, the Administration will enforce, vigorously

and with dispatch, our trade laws against unfair practices. In the world of global

economics, justice delayed can become justice lost.

The Administration will also be monitoring closely compliance with trade agreements as well as insisting on performance by our trading partners. Thanks to the

help of the Congress in its support of the Trade Compliance Initiative advanced last

year, USTR received additional staffing to strengthen its ability to pursue a twotrack strategy of negotiating agreements and ensuring that the terms of these

agreements are fulfilled. With these added resources, USTR will increase the number of staff devoted to monitoring the practices of our trading partners under existing trade agreements and to litigating trade disputes in all sectors.

37

For the United States to maintain an effective trade policy and an open international trading system, its citizens must have confidence that trade is fair and

works for the good of all people. That means ensuring that other countries live up

to their obligations under the trade agreements they sign.

Moving Forward

The Bush Administration is promoting free trade globally, regionally, and bilaterally. We are working to help launch a new round of global trade negotiations in

the World Trade Organization later this year, while pursuing regional agreements

such as the Free Trade Area of the Americas and bilateral agreements with countries such as Chile and Singapore. By moving on multiple fronts, we can create a

competition in liberalization that will increase U.S. leverage and promote open markets in our hemisphere and around the world.

The Free Trade Area of the Americas provides a framework for the Administration’s hemispheric strategy. This area, once completed, will be the largest free market in the world.

We have made real progress in turning the idea of an FTAA into a reality. At

the Summit of the Americas in Quebec City, all 34 heads of state signed a declaration pledging to conclude negotiations on the FTAA no later than January 2005. The

United States is committed to working with others to meet, or beat, that deadline.

Moreover, the draft text of the agreement will be released once it has been translated into the four official languages of the FTAA. This is an important, and perhaps

unprecedented, step to build public awareness and support an open process. All 34

nations participating in the Quebec City summit also committed to help the smaller

economies of the hemisphere—especially the nations of the Caribbean and Central

America—address the unique challenges they face in moving forward with hemispheric integration.

The commitment to free trade was made in tandem with an unambiguous pledge

to support democracy. Summit leaders agreed that any unconstitutional alteration

or interruption of the democratic order in a state of the hemisphere would disqualify

that government from further participation in the Summit of the Americas process.

For a region that was home to the strict Calvo doctrine on non-interference by others in states’ internal affairs, this democracy clause is a striking sign of a new political outlook for the hemisphere.

While pursuing regional free trade through the FTAA, the Bush Administration

is also negotiating a free trade agreement with Chile. During a visit to Santiago last

month, I met with President Lagos and other senior government and legislative officials, as well as representatives of business, labor, and environmental groups. I had

two objectives. One, I wanted Chile to know that the Bush Administration is serious

about the free trade agreement—a point that President Bush and President Lagos

made clear following their recent White House meeting, when they announced their

goal of completing the negotiations no later than the end of the year.

My second objective was to send a signal to the nations of Latin America, and

the rest of the world: The United States will reward good performers. Chile, for example, has been at the forefront of Latin American nations in liberalizing trade,

while setting an example to the world of a free people reclaiming their democracy

and making the transition to a mature, developed economy.

Leaders from many other nations in this hemisphere have now told us they want

to pursue free trade agreements with the United States. We will consider each of

these offers seriously, while focusing on the FTAA.

We are also pleased to have made progress on a number of trade disputes. Last

month, we settled the U.S.-EU banana conflict, an issue that had interfered with

our economic relations for nearly a decade. We have resolved a number of disputes

by working through the World Trade Organization and the North American Free

Trade Agreement. For example, Greece has moved to counter the piracy of U.S.

films and television programs, Mexico has agreed to allow dry beans from the

United States to be imported in a more timely and predictable manner, and India

has lifted restrictions on U.S. agricultural, textile, and industrial products.

The Legislative Agenda

Frequent and substantive communication lies at the heart of the Executive-Congressional partnership on trade, and I intend to keep our lines of communication

open as we move on our free trade agenda.

The Bush Administration’s top trade priority is for the Congress to enact U.S.

Trade Promotion Authority by the end of the year. Under this authority, the executive branch would be bound by law to consult regularly and in detail with members

of Congress as trade agreements are being negotiated. But once that long and exhaustive process of consultations is completed, and the painstaking negotiations

38

have ended in an agreement, our trading partners have the right to know that Congress will vote on the agreement up or down. Indeed, in the absence of Trade Promotion Authority, which expired in 1994, other countries have been reluctant to

close out complex and politically sensitive trade agreements with the United States.

We would like to launch a new round of global trade negotiations in the WTO,

emphasizing a key role for agriculture. We will seek to negotiate regional and bilateral agreements to open markets around the world. Further reforms in the Middle

East and Africa need our encouragement, and we are committed to working with

the Congress to enact legislation for a free trade agreement with Jordan. I compliment the Committee for its important work with Africa and the Caribbean last

year and we look forward to working with the Congress to improve the implementation of the African Growth and Opportunity Act and the Caribbean enhancement

provisions. We would also welcome your ideas on additional legislative authority to

promote trade, economic growth, openness, the rule of law, and democracy in Africa.

We also hope to see the Andean Trade Preferences Act, which expires in December, renewed and expanded. President Pastrana of Colombia has said that renewing

the act would be one way to counter the drug traffickers in his country, as it would

stimulate job creation in the real economy and diminish the appeal of the drug

trade. The Central American countries have expressed interest in a free trade agreement with the United States, and we will seek your ideas and preferences as we

consider that possibility.

There are opportunities in the Asia Pacific and, I hope, with APEC. We will start

with a free trade agreement with Singapore and will work with you to pass the

basic trade agreement with Vietnam negotiated by the Clinton administration. We

are encouraged by the renewed emphasis on structural and regulatory reform by the

Koizumi administration, and we look forward to working with Japan as it pursues

this agenda, which is long overdue.

To help developing nations appreciate that globalization and open markets can assist their own efforts to reform and grow, we will need to extend the legislation authorizing the Generalized System of Preferences program.

Of vital importance, we will seek to work closely with the European Union and

its candidate members in Central and Eastern Europe, both to fulfill the promise

of a trans-Atlantic marketplace already being created by business investment and

trade, as well as to reinvigorate, improve, and strengthen the WTO processes.

Now that there is a fragile peace in the Balkans, we must secure it by pointing

people toward economic hope and regional integration. Therefore, we would like to

work with the Congress to follow through on the prior administration’s proposal to

offer trade preferences to countries in Southeast Europe.

Protecting Labor Standards and the Environment

As we pursue this agenda, we would like to work with you to consider a range

of ideas for improving the labor and environmental conditions of our trading partners, as long as these proposals are not protectionist. We might use incentives, not

just disincentives, to encourage better environmental protection and labor standards. For example, incentives can be related to aid programs, financing through

multilateral development banks, and preferential trade. We can also strengthen the

role of complementary specialized institutions, such as the International Labor Organization.

USTR has announced recently that it will conduct written environmental reviews

of major trade agreements, including the FTAA and the negotiations on agriculture

and services underway in the World Trade Organization. These reviews provide negotiators with timely information on the environmental implications of trade accords

and give us guidance on how trade and economic growth can strengthen environmental performance. In addition to the current environmental advisors, the Bush

Administration agreed to add an environmental representative to the chemical advisory committee, in response to requests by environmental groups for participation

on that committee. I have already benefited from both individual and group meetings with representatives of many environmental groups from the United States and

other countries.

At the Summit of the Americas, President Bush stated, ‘‘Our commitment to open

trade must be matched by a strong commitment to protecting our environment and

improving labor standards. As the Congress and the executive branch explore how

to demonstrate that trade supports labor and environmental standards, we should

look first to economic growth. As the President has said, ‘‘When there’s more trade,

there’s more commerce and there’s more prosperity. . . . And a prosperous society

is one more likely to have good environmental standards and be able to enforce

those standards.’’

39

The Environmental Protection Agency and others can provide the kind of technical assistance that will improve the ability of our trading partners to improve both

the adequacy of their environmental protection regimes and their ability to enforce

their environmental laws and regulations.

We should enable advocacy groups to plant local roots. If labor standards and environmental protection come to be seen by developing nations as a price, imposed

by wealthy countries, these causes will not gain widespread appeal.

When we think about the connection among trade, economic growth, labor, and

the environment, we should see them as being mutually supportive, not in conflict

with each other. I look forward to working with the Congress, and interested parties

in the private sector, to discuss these issues further and to seek to find common

ground.

Conclusion

The Bush administration has an ambitious trade agenda, reflecting the importance President Bush assigns to free trade. We should seize the opportunity before

us to reassert America’s leadership in setting trade policy and to build a post-Cold

War world on the cornerstones of freedom, opportunity, democracy, security, free

markets, and free trade. By doing so, we can set a course for peace and prosperity

for the Americas and the global system, not just for a year or two, but for decades

to come.

Chairman C

Let me take advantage of this opportunity to congratulate you on

RANE. Thank you, Mr. Ambassador.

f the outstanding work you did with the EU in resolving the banana

dispute with them.

Mr. ZOELLICK. Thank you.

Chairman CRANE. And we want to see you continue down that

outstanding path.

Mr. ZOELLICK. Thank you.

Chairman CRANE. Since U.S. trade with non-NAFTA, Western

hemispheric nations is relatively small compared to levels of trade

with NAFTA countries, why should the United States be interested

in an FTAA, and in what sectors is the United States most likely

to benefit from a completed FTAA?

Mr. ZOELLICK. Well, Mr. Chairman, there is a combination of

reasons. First, as a number of you mentioned, this would create the

largest free trade agreement in the world, covering some 800 million people. And some of the numbers that I cited about the boom

in trade, including U.S. exports with Canada and Mexico, give a

sense of some of the potential that we would have with the rest of

the countries of Latin America. And, indeed, even without that

agreement, we have had increased growth of our exports to Latin

America in excess of the growth that we have had in the rest of

the world.

But, in addition to that direct trade purpose, I think there is a

broader economic purpose. The countries of this region are still undergoing serious economic reforms. They are doing so with relatively fragile democracies, many of them created over the past 10

or 15 years. And, frankly, that reform process is under stress and

some of the democracies are under strain. So one of the best ways

that we can help support lasting economic reform by democratic

partners is to create a framework for cooperation and economic

growth.

Indeed, if you look back at this hemisphere, Mr. Chairman, it

wasn’t so long ago that some of the major countries, including

Brazil and Argentina, were trying to develop nuclear programs. InVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 W:\DISC\74222 ATX004 PsN: ATX004
40

deed, Argentina was developing a missile being funded by Iraq. But

in the process of opening those economies and moving to democracies, both Brazil and Argentina created full-scope nuclear safeguards, and Argentina not only gave up its missile program, but

it destroyed that missile that had been funded by Iraq.

So the stakes of this run to trade, they run to economic growth

and stability, and they also run to democracy and security, including, as a number of speakers have pointed out here, in the Andean

region. So, frankly, the stakes are high, and one way that the

President has spoken about this is that we spent much of the last

50 years trying to overcome an East-West divide. We still face a

North-South divide. And our own work in this hemisphere, with

freedom, with economic openness, with democracy, with a peaceful

set of security relations, could give us the opportunity to create a

bridge between North and South that will be a model for the rest

of the world.

And so the stakes, in my view, Mr. Chairman, are strategic, as

well as economic.

Chairman CRANE. I think it is important that the Subcommittee

work closely with you to craft an Andean bill which offers concrete

economic opportunities to the Andean countries and which is, if at

all possible, simpler to administer than the recently passed CBI

legislation.

Have the countries given you an idea of what they think will

work to help them create additional employment opportunities?

Mr. ZOELLICK. Well, I should obviously let some of the officials

from those countries emphasize their key points. I think the starting point, Mr. Chairman, is that, as Congressman Moran and Congresswoman Tauscher emphasized, they are looking for ways to not

only promote growth, but to promote export diversification. So,

while many of the topics focus on a sensitive sector like textile and

apparel, I think we should be open and look for possibilities beyond

that area.

So I think the task, Mr. Chairman, is to look at ways we could

both extend the ATPA and to broaden it. On extending it, at least

it is our proposal, that this be targeted to December 2005 so that

it is a bridge to the FTAA, since that is our date for trying to complete it and bring it into force.

In terms of broadening it, at a minimum, I think we would want

to try to create parity with the Caribbean and the African bills that

the Congress passed last year, and I think, where possible, we

should look to go beyond that. I have talked with some of you in

the apparel area about how some regional arrangements might

help both U.S. firms, as well as firms in the region, as we look toward the end of the Multi-Fiber Agreement in a couple of years

and create a more integrated market.

But having said this, Mr. Chairman, I think the thing we have

to keep in mind is we have to get this done by December 4, and

we all know that there are some very sensitive issues here, and

that it is not going to be an easy process to work through. So I

think my suggestion for a starting point would be to achieve parity

and see where we can go beyond, but not let the perfect be the

enemy of the good.

Chairman CRANE. Thank you, Mr. Ambassador. Mr. Levin?

41

Mr. LEVIN. Thank you, and welcome.

Let me focus in on the two specific subject matters before us. I

have already, in my opening statement, as you know, Mr. Ambassador, expressed my views on the larger issues, and I have tried

to do so clearly in that opening statement regarding Jordan, and

Vietnam, and other issues and fast track the Trade Promotion Authority.

As I understand it, the administration may be issuing a Statement of Principles later this week or sometime hereafter, and I will

welcome the opportunity for further discussion, and I think you can

expect that I will speak as clearly as I can on them, as I did this

morning or this afternoon on these issues, these broader issues,

and will continue to talk, both privately and publicly, about these

issues. I think it is the only way to move forward.

I think it is interesting, in your statement, that you talk about

a matter that was brought at Quebec, and that is what happens

when a country interrupts its democratic path and essentially the

disqualification from further participation in the summit. I think

that helps to illustrate what I think is a basic notion, and that is

that we should be careful not to equate free trade as automatically

leading to democracy, that, to some extent, we should be working

towards democratic processes as part of the trade equation. I mention that just because I think that that discussion in Quebec illustrated and underlined the need for us to look upon trade not as an

end, in and of itself, but as a tool.

So let me just say one other thing and then ask you a few specific questions. On Page 6, there is a reference in relationship to

labor standards and environmental standards, a reference to the

danger of it appearing that we are imposing on other countries. It

says here, ‘‘imposed by wealthy countries as a price.’’ Just a couple

of comments on that.

You know, to some extent, this whole struggle for free markets,

for free trade and what goes into it, could be characterized as an

imposition of free market principles on other countries. I think we

need to be careful when we describe it in terms of imposition. We

have a model in mind, and it is based—it is what the WTO is based

on, and it is really what the FTAA is based on, I think, and that

is the notion that free markets, and I mean that in a broad sense,

that free markets will be beneficial. And we have particular ingredients as to what we mean by it. When intellectual property was

proposed, as you know, 10/15 years ago, it was argued by some that

we were trying to impose industrialized nation standards on those

of other countries.

And so I just want to kind of send up a warning flag that we are

not really doing that here. In terms of labor standards, for example, the vast majority of these countries have agreed, in various

ways, to abide by core labor standards of the ILO, and the question

is not our imposition of them, but their abiding by them and the

implementation of those within the trade ambit.

But let me then just ask you, specifically, because I think that

might be most helpful in this hearing, to tackle one or two of the

issues. The textile issue and Andean has been raised. Also, let me

raise an issue in the FTAA, one of the most thorny issues, to help

us begin to sink our teeth into this, and that is agriculture, where

42

there is a clear interplay between what we might discuss within

the FTAA and what we might be discussing in the WTO.

Could you just give us, perhaps preliminarily, your thoughts

about how we are going to handle one of the most thorny of issues

within the FTAA and how that interacts with what we might be

doing in discussions in Geneva, and Brussels, and elsewhere.

Mr. ZOELLICK. Certainly. Let me just make three points here:

First, as you noted, Congressman Levin, the President said yesterday that he would be sending up some principles later this

week. And the reason I want to highlight that, particularly for this

Committee, given its jurisdiction, is that we have consciously taken

an approach of stressing consultation first, without things on

paper, and the next step is to come up with an outline of ideas, but

still short of a bill. And I know that from my earliest meetings here

there was some concern the administration might move very quickly, present bills, and create a more difficult environment, and this

was a conscious effort by us to now, after 3 months, put words on

paper, but to still create an opportunity for a full exchange about

transforming that into a bill.

The second point, since you mentioned the environment and

labor local roots. Let me emphasize the point I was seeking to

make because I do think it is also critical in the dialog that we

have started here.

As you know, I have dealt with international issues for some 20

years, and I have seen them pursued in different ways around the

world. And my key point is that, as someone who has actually promoted environmental movements, in particular, in many parts

around the world, including developing countries, what I have seen

is that those NGOs and those countries that build on local constituencies and help create an environment for free exchange, freedom

of assembly, democracy, and the prosperity that allows those

groups to build their own case within those countries, are much

more successful in planting local roots for those causes, and I believe the same is true for labor organizations and labor unions.

What I have certainly seen before, and I have certainly seen in

the 3 months I have been on this job, is there is a very strong fear

out there in the developing world that we cannot ignore, that the

developed countries, including the United States, want to use some

of these labor and environmental standards as a new form or protectionism. Now you may not like the term, but it is something

they feel very strongly. And as you and I have discussed, I think

some members do want to use it for protectionism.

And so I think it is critical, as we go forward with this debate,

that we do so in a way that creates the win-win environment that

I think both of us would like to develop in these countries. And

that is why I think a richer set of tools and a set of incentives can

help these countries develop their own interest in the environment

and labor, and I, frankly, agree with you, one best way to do this

is to build on their own commitments and their own laws; for example, core labor standards. But I think this is a key point worth

emphasizing.

On agriculture, the approach that we have taken in the FTAA

is that the larger issues of dealing with subsidies, particularly domestic subsidies, have to be dealt with globally. We, as a country,

43

cannot agree to concessions in a hemispheric context that would,

frankly, put us in a more difficult position, in terms of dealing with

those in a global round. That has been our position.

Now there are other things that we can try to do. For example,

we can open access to markets. We can actually try to gain cooperation with a number of the countries of Latin America, and

others in the CAIRNES [ph] group, to try to cut export subsidies,

which has continued to be a plague that the rest of the world has

encountered from the European Union. And an increasingly important area is the question of sanitary and phytosanitary standards.

In fact, if there is one issue that I have seen the increased seance

of, in the time between when I last was in government and now,

it is the danger that these standards, for either health or safety

reasons, can be misused or used for protectionist purposes, which

emphasizes the need for, on the one hand, science and reasoned

analysis, as people put them in place, some common set of standards, which we have been working, for example, in something

called the CODEX on recently and had some very successful meetings, but also to help these countries be able to have the capability

to develop the appropriate systems. Part of this is trade capacity

building.

We have talked, in this context, a little bit about the Africa bill,

and this is another critical area that we need to do work with the

African countries, in terms of their ability to take part in the agriculture market of the United States and vice versa.

So that at least gives you, I think, a general sense.

Mr. LEVIN. Thank you. I just want to emphasize that the impetus

on labor and environmental standards, the impetus is not a new

kind of protectionism. This is an issue that we need to address and

work on, and for most of us it is an essential ingredient of expanded trade, not diminished trade. Thank you, Mr. Chairman.

Chairman CRANE. Mr. Jefferson.

Mr. JEFFERSON. Thank you, Mr. Chairman.

Mr. Ambassador, it is a pleasure to have a chance to meet with

you on the global wide range of issues with you.

I want to narrow, if I can, just to the question of African Growth

and Opportunity Act, AGOA–II, which we optimistically speak of

around here, at least some of us do. I want to talk about the specific provisions that such a piece of legislation might have and to

see how you feel about that, whether that is your vision as well.

First, last year we ran into last-minute issues about caps, as you

know, on the use of regional fabric. It was not an issue when it left

the House, but it became an issue late in the process and came out

with caps that are somewhat restrictive in reaching the goals that

we had for the bill starting out. So I would like you, first, to comment on that if you could, about how you feel about the prospect

of that being in AGOA–II and how important it is as a provision.

The second is some technical issues that we talked about that

will allow textiles from the region to be imported into the country

and additional funds finally for technical assistance for subsidized

African countries and U.S. companies to take advantage of the bill.

A lot of these countries don’t have enough money and enough technical expertise to figure out how to make this thing as fully as it

44

should, and we talked about this whole question of providing some

opportunities for them to have more of a chance there.

And, lastly, we talked about allowing for duty-free imports of

other special fabric categories of apparel and textile products that

we don’t produce in the U.S., that is the idea, ones we don’t

produce, so they aren’t in competition with our products, but to

permit them to come in from African countries.

Could you tell me whether or not you think those four items will

be, in your mind, ones to be included in AGOA–II.

Mr. ZOELLICK. Certainly, and let me just start with a more general point, if I could, Congressman.

I have had a chance to meet the AGOA coalition that helped

enact this bill, and it was one of the best meetings that I had because it covered everything from civil rights groups to business

groups. And the degree of enthusiasm and interest that this had

generated for the continent, as well as for trade, was really an

amazing thing, and it is something that I followed up on by inviting the African ambassadorial community to come in and brief me

on their sense on how we are doing with the implementation.

So, in general, when I think about this area, I am thinking, first,

about the implementation of what we have got and what Congress

passed. And, second, I would very much welcome a dialog about

what we could do to add on to it because I think the potential is

quite tremendous here, and I would like it to be a key of what we

do, and I know Secretary Powell is also very interested in this.

Second, I want to look closely at some of the non-apparel issues,

as well. Because as I talk to some of the ambassadors, I know

many of the political fights are on the apparel topics, but as we are

going to help some of these countries move to other stages of value

added, including some basic manufacturing, this is an area that I

think we need to highlight.

Third, on some of the particular issues that you mentioned, we

are trying to work with Customs on the knit-to-shape issue, and I

hope that is moving closer to resolution; similar on the accumulation of inputs issue. My own view on that is that we should interpret those as broadly as possible to promote trade. And if we can’t

get that done in the regulatory process, for whatever reason, then

I would certainly be pleased to come back and work with you in

the legislative process.

As you also know, and as you suggested, part of this we can accomplish in the accumulation area with the visa systems, and we

are trying to move quickly to approve the countries. We have now

approved, I think, five countries, we have got two more on the way,

to be able to take full advantage of this. But as you also mentioned,

in terms of the Sanitary/Phytosanitary, SPS, system with agriculture, this is an area where we are working to get some technical

assistance funding to be able to try to help countries take part and

also to be able to impart our goods.

We recently received some additional support from AID on this,

in terms of putting together some of the briefings in regional areas

and centers in Africa. We just had one for the African countries in

Geneva, for their WTO delegations. And I am meeting the AID-designate director, Mr. Nascio [ph], from Massachusetts, in part, to

45

emphasize this interest, and I understand he has a very strong interest in it as well.

So I think, in terms of working with AID, but also I have mentioned this to President Wolfensohn of the World Bank, in terms

of developing the trade capacity, so I think the full set that you

mentioned, the one cautionary point that I will make, and you

know very well, is that, as we move this forward, you mentioned

the caps issue, the Committee encountered what happened with

caps last year around, and I would like to try to get more done in

this area, and I would be pleased to try to work with you to carry

through as much as we can.

We know there are some obstacles and points in our own political

system, and I think we also need to be open, in terms of trying to

figure out other ways we can help these countries. And I would add

to that, frankly, the whole HIV/AIDS issue, which we also talked

about because this is a clear issue that is critical to their economies. I mean, it is a health issue, but it is pretty hard to have a

healthy economy if your people are suffering like that.

So I tend to see this in a comprehensive fashion and would be

pleased to work on both the implementation and follow-up legislation.

Mr. JEFFERSON. Thank you, Mr. Chairman.

Mr. HOUGHTON. Mr. Zoellick, good to see you here. Thanks very

much for what you are doing for all of us. As you know, I am a

big free trader. I agree in this. And yet, I do not think there is any

inconsistency between doing what is right for the people who are

working in this country and also opening up markets overseas. And

I just—I have always found it difficult to find that we cannot break

this thing open, make it possible, whether it is trade promotion authority or the Free Trade of the Americas or what it is, we just

seem to come upon little roadblocks, and we just don’t seem to get

over them.

Let me ask you a few questions. I do not think this will take long

to answer. You talked about there are certain countries that have

been reluctant to close trade agreements with us. What are those

countries?

Mr. ZOELLICK. I am sorry. The countries reluctant to close trade

agreements?

Mr. HOUGHTON. Yes. You said in your testimony there are certain countries that have been reluctant to close on trade agreements with us absent a fast-track authority.

Mr. ZOELLICK. Oh. Well, the best example would be when we

were having the discussions on the Free Trade Area of the Americas in Buenos Aires. There were many countries—Brazil has been

one of the most publicly outspoken about this—that feel that if we

do not have the overall negotiating authority, then there is no need

for them to move forward.

Mr. HOUGHTON. Can I ask you a question? In your heart of

hearts do you really feel that is the reason Brazil said what it did?

I have a feeling that Brazil wants to keep us out of Mercosur, and

is basically an enemy in this area, and they will use any excuse

to justify their position.

Mr. ZOELLICK. I honestly think it is more complicated than that.

Brazil is certainly a country that has had a very insular economic

46

policy, in many ways like the United States did, because it was a

continental-sized economy. And there are, no doubt, very strong industrial interests that are quite happy with the way it is, but I do

think that President Cardoso and the current trade and foreign

minister, Minister Lafer, deserve a lot of credit for trying to move

Brazil into a global economic system, and they are taking on some

of these interests, and they face their political constraints as well,

including the presidential election in 2002.

I think in the case of Mercosur, there are some that look upon

Mercosur as a separate area from the rest of the world, but I think

that is going to be increasingly hard to sustain. Mercosur has had

its own strains. I mean, as Brazil had a devaluation of its currency,

and Argentina’s currency was linked to the dollar, you could see

the strains within the Mercosur system. This led Uruguay to say

that it would like to have a free trade agreement with the United

States. Some in Argentina have explored additional arrangements

with the United States, and indeed, part of the Argentine economic

solution was to pose tariffs on other parties that were different

from the customs union. So I think Mercosur itself is under some

degree of strain.

But I think that the current Brazilian leadership does indeed

want to bring the country into the international economic system.

It is 170, 180 million people. We trade more with Brazil than we

do with China. They have got great possibilities for that country.

But they do face some sensitive sectors, and frankly, so do we, and

some of the questions that they are raising are legitimate questions

about our points of sensitivity. And so they do want to know if they

are going to face their difficult political challenges, and cross those

bridges and make agreements that their elected leaders can be

criticized for, they do not want the rug pulled out from them at the

end of the day on our side, and that is a reasonable point.

Mr. HOUGHTON. I understand that. Are there any other countries

similar to them?

Mr. ZOELLICK. Well, I think as we approach the overall global

round, some of the other major developing countries, for example,

India, are concerned about our ability to follow through. Now, as

you know, the United States launched the Uruguay Round in 1986

and we did not have the overall authority until 1988. So I am not

saying that it is impossible to launch a round. I do believe that, for

better or for worse, the world is watching the U.S. Congress on this

issue right now because circumstances have changed since the

1980s. There was not such a question about this in the 1980s, but

now there is a question because Congress has failed to pass it since

1994. So East Asia is another region where countries believe that

the United States, frankly, is moving to a greater protectionist

course.

So I have mentioned some of the big players, but it is true for

some of the smaller countries as well, and again, the truth is in

some of the facts. President Clinton stood with Prime Minister of

Canada, Prime Minister Chretien, and President Zedillo, in 1994,

and said to the Chileans, ‘‘We are going to go ahead and do a free

trade agreement.’’ The Canadians did. The Mexicans did. And we

all of a sudden announced in December of last year that we would

start. And that was simply based on the fact of political paralysis

47

up here. So I take Mr. Levin’s point, that there has been progress

made, including by this Committee, but I can point to a lot of examples around the world where we have been frozen, and you can

talk to other people around the world and get a sense of the things

we have not engaged in, whether they be bilateral agreements, regional or global, so it is costing us.

Mr. HOUGHTON. My time is up. Thanks very much.

Chairman CRANE. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman, and welcome,

Ambassador. It is good to have you back, and congratulations on

the great job you did up north on our behalf.

I wanted to ask you a question about the protection of intellectual property. We both share that goal of protecting intellectual

property. Can you give us some of your insights on some of your

discussions that occurred in Quebec City on protecting and enforcing intellectual property rights among the countries involved in the

FTAA?

Mr. ZOELLICK. Well, it is a critical issue that covers everything

from pharmaceuticals, where you know the sensitive discussion

that was prompted by the HIV/AIDS issue, to a question of enforcement of copyrights issues, to a question of its connection to the

high-tech world, which we have discussed in other contexts. It is

a great area of comparative advantage for the United States, and

so economically, it is important to us, but I also find that in discussing this with other countries, that most recognize that it serves

their interest as well, because intellectual property is often going

to be a key to investment and developing new businesses.

And to give you an example from another part of the world, I had

this discussion with President Kim of Korea, where he understood

the problems that Korea was having in terms of enforcement, and

he in part supported our efforts because he believed that it would

hurt Korea’s economy and its own development to fail to move forward.

So I think increasingly, Congresswoman, the issue is not just one

of rules, it is one of enforcement. And as we look at the optical

disks area, for example, we recently initiated some action against

Ukraine, which has a terrible problem in terms of basically

pirating intellectual property through disks. So I believe that increasingly this will be an issue of how this relates to high-tech, ecommerce and how we deal with the enforcement topics.

Ms. DUNN. Thank you. Let’s move then to the Japanese market.

Many sectors of the United States’ economy are very worried about

the barriers in the Japanese market, especially from my neck of

the woods, in the medical technology sector. In the next few

months you are going to have an opportunity to meet with the Japanese negotiators. What actions have you thought about proposing

on behalf of this administration to encourage greater market access

in Japan?

Mr. ZOELLICK. Well, I will speak both specifically to medical technology and a little more generally. As you know, and in part you

have been very deeply involved with, the United States is the world

leader in terms of advanced medical technology. And my predecessors had worked on this issue in Japan through the broader

framework of deregulation that they created. Japan is about a $24

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billion market. It is the largest export market for the United

States. And some of the deregulation at issue that provided advances in areas like accepting foreign clinical data for the approval

of materials, and frankly, moving to a pricing system that would

accelerate the reimbursement pattern. Because of that the United

States now has about 25 percent of that market, if my recollection

is correct, but it is one that, in working with the industry, we think

we can also enhance.

So what we would like to do in the medical services area is very

similar to what we would like to do more broadly, which is to try

to promote deregulation, structure reform, more competition in

Japan, which we believe will open the market for the United States

and foreign competitors, but also will be vital for Japan’s own revival, which is going to be important for buying all sorts of goods

from the United States and around the world. Japan has poured

countless billions, trillions of yen into various fiscal expansion programs, and they have gotten to the point where they have put cement on almost every stream in Japan. But it is not working, and

I think one possibility for the Koizumi government is to move toward this greater form of competition through deregulation. We are

proposing some ideas to the Japanese on this. I met one of the new

cabinet ministers last week, who just flew in for 24 hours, a gentleman I had known before, an economics professor. And so I think

this is an area where it has the best chance of success because it

is a win-win proposition. It is good for Japan and it is good for us.

And the medical technology is a good example of where I think this

can be a win-win sub-sector.

Ms. DUNN. Good. I am very happy to hear about that. So will

some of my constituents be happy.

Touching on a third area in my last minutes, I am interested in

the United States and Vietnam Bilateral, because it will be of very

direct benefit to some of the companies that I represent in Washington State, companies, for example, that produce aircraft, agricultural products and software. Can you give us an update on where

that agreement stands? What is the timing, for example, that is in

the back of your mind for the administration to send this agreement to Congress?

Mr. ZOELLICK. Well, we are very interested in moving this agreement forward. We also believe it is an important agreement. As

you know, it has a slightly more complicated procedure because it

has got a privileged motion. So once it is submitted, it moves on

a clock through the Congress. And so we have been, frankly, looking to work with the Congress to see how we can move Jordan,

which some of you talked about, the Andean trade preferences, the

Vietnam agreement, the Balkans agreement, the GSP and the

Trade Promotion Authority.

I know that the communist government in Vietnam would like

us to do this overnight. I know that Mr. Crane had a chance to talk

to them. A communist government does not have to worry about

floor time. We do.

A second problem is, that we ought to at least recognize, is having spoken to the officials in the Clinton administration that handled this, that communist government in Vietnam sat on this

agreement for about a year, when they were urged, time and time

49

and time again, to move it forward. So basically from 1999 to 2000

there was nothing done on the Vietnamese side.

So I think it is important to move forward. I think it could support those in the government in Vietnam that are moving forward

with economic reforms. But even here, I would emphasize that we

are not standing in the way of economic reforms. There is lots of

countries in the world that figure out how to reform their economy

without necessarily having us be looking over their shoulder. So,

frankly, that excuse does not cut much with me.

And I will also point out that in the consultations that I have

done with some of your colleagues about this, there are some items

that I will be asking the US Embassy to follow up on. For example,

the US Commission on International Religious Freedom had a recent hearing where they had some troubling incidents in terms of

the Christians and the Buddhist community. There has also been

some real repression about some of the ethnic people in the highlands. We had some issues raised by some of your colleagues about

textiles and about catfish, and so I do not want these to get in the

way, but I think if we are going to move quickly, then we are also

going to need to be able to get some response from the Vietnamese

government on things that some of your colleagues would like to

see.

So I would be pleased with you to work with it quickly, but I

think, frankly, it is going to depend a little bit on the congressional

reaction to the other items that we are sending up this week.

Ms. DUNN. Good. Thank you very much. Thanks, Mr. Chairman.

Chairman CRANE. Mr. Becerra.

Mr. BECERRA. Thank you, Mr. Chairman.

Ambassador, thank you for being with us, and thank you for your

comments on the Free Trade with the Americas Agreement.

Let me ask a couple of questions with regard to your statement,

and I do not know if you mentioned it in your summary, your

verbal statement, but in your written statement, on page 6, where

you talk about labor and the environment, you mention that we

might want to consider using incentives, not just disincentives, to

encourage better environmental protection on labor standards, and

you mention also that we might want to strengthen the role of complementary specialized institutions, such as the International

Labor Organization. I am wondering if you could give us a little bit

more detail about what you mean about strengthening the role of

the ILO and if you might comment on your position, or the administration’s position, with regard to providing some kind of enforcement mechanism within the ILO for purposes of labor standards.

Mr. ZOELLICK. Yes. And I just interrupt your time for a minute

because of one thing I forgot to answer with Congresswoman

Dunn’s question is, I discovered we also had an agreement with

Laos that we have not acted on since 1997, and frankly, we ought

to try to deal with that at the same time. It is a similar sort of

agreement without privileged purpose.

I am glad you highlighted that point, Congressman, because part

of the larger message that I have been trying to make is that, as

Congressman Levin has mentioned, I do think we need to integrate

environment and labor into this broader agenda, but I think that

there is a wide spectrum of possibilities between what can develop

50

through growth on its own and rushing to some negative form of

sanctions. And some of these I have talked about with the heads

of some of the development banks about how they can try to create

some financial support for programs that would support correlator

standards or support the integration of environmental objectives

with larger lending.

Now, in the case of the ILO in particular, I met with the head

of the ILO actually before I assumed office, and I think it is an organization that offers some interesting possibilities in terms of

some basic standards that all of us can stand by, the recognition

that many countries have agreed to those standards, going back to

Mr. Levin’s point about building on other areas that people have

agreed on, and then trying to work with them to support either

their local legislation and the enforcer of that legislation.

I mean, just to give you an example, I spoke to a Guatemalan

official about a week or two about labor legislation they were passing, because I thought it was important that we try to support the

effort for a society that has known much violence, to be able to implement laws that followed their own obligations. We can do this

with their AID funding.

But particularly in the ILO area, in the past year or two, you

know, the ILO, which has been seen as not really having an effective enforcement arm, has started to explore whether it might suggest enforcement actions for its member States. And the key first

test to this relates to Burma, and I have taken a particular interest

in this because I think it is important for Burma as well as the

principle of where we would like the ILO to go. Now, the issue with

Burma related to forced labor, and as you may know, we have had

various sanctions on Burma related to investment and other provisions dating back to the last time that I was in government. I was

willing, frankly, to explore the use of additional trade sanctions

and discussed this with my EU colleague, because I do not think

it is wise for us to do this just on our own. The problem in this

case is that I learned that Aung San Suu Kyi, the Nobel prize winner, has engaged in a dialog now with the military government,

and does not believe that sanctions at this time would be constructive. So I can do a lot of things. I cannot jump in the shoes of a

Nobel Peace prize winner on that issue. And so I am trying to follow that one, because I think, frankly, if things do not improve, I

would like to look at that as another time to see whether we might

move forward.

Mr. BECERRA. I am not sure if you are telling me though whether

or not you would be in favor of providing the ILO with teeth, some

enforcement teeth, in order to help bring about some higher standards on labor and environment.

Mr. ZOELLICK. Well, what I am saying is, is the way the ILO

would do that, is it would make a recommendation for its Member

States, and I am saying this is a real-life example as opposed to

a concept, and I am certainly willing to look at it.

Mr. BECERRA. Sounds like some kind of reporting mechanism,

where we can use the reports by the ILO on the activities of a

country to guide us on whether or not there could be any enforcement or attempts to try to get the country to better enforce its own

labor standards or perhaps improve their labor standards.

51

Mr. ZOELLICK. Exactly. And let me give you one other example,

and that is, you know, Congressman Levin has been involved with

this in the case of Cambodia and the textiles arrangement, and

there has been sort of a mixed record about that, but one of the

things that I think will improve it, is the ILO is now sending a

team to try to help with the implementation of that agreement, and

I think that is a very constructive step. So it is a good example of

how the ILO can set standards, it can help us in terms of the technical assistance, and we can direct some of our funding and multidevelopment banks with funding, but, frankly, I am also open to

the idea of enforcement efforts done by national governments related to those core standards.

Mr. BECERRA. Thank you very much.

Mr. HOUGHTON. [Presiding.] Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman.

Ambassador Zoellick, I also want to congratulate you on your inspired advocacy of America’s economic interests in Quebec City, for

what I think was your active role in making sure that that summit

was perhaps the most transparent we have ever had in response

to some of the criticisms from the street. Clearly this was a much

more open process than has happened in the past. And also I want

to congratulate you and the administration on grappling with some

very difficult issues about the scope of the negotiation.

Now, having been out in Seattle, I understand how important

this is in launching a negotiation. I went out to Seattle hoping to

have a chance to meet with some of my counterparts, to talk about

why I thought that anti-dumping and countervailing duties laws

should not be on the agenda. I know that you faced basically the

same issue in Quebec City. And at the same time, the administration, as I understood it, came out against including anti-dumping

and countervailing duties on the agenda you were advocating,

keeping open the option of labor and environmental issues. And as

I understand it, the compromise that was struck, was that you

were able to leave the agenda open so that any Member nation

would be able to include things on the agenda as the FTAA went

forward. I think that is a good solution. I would like you to comment a little bit about it, and if I might, I would also like to express the fact that I do not believe that an FTAA negotiation is an

appropriate or feasible way of making significant changes in our

anti-dumping and countervailing duty laws. Your comments, sir?

Mr. ZOELLICK. Well, as you suggested, the way these negotiations

work is that people are allowed to put forward their own text, and

in the environment and labor area, we fought long and hard for the

freedom to be able to put forward some language that basically

said that countries should not adjust their environmental labor

standards to draw up an investment, and some language very similar to what we already have in the NAFTA provision. And at the

end of the day, people agreed with our right to put forward that

language. It partly relates to some of the other questions I have,

that it does reveal the degree of sensitivity in the developing world

about what I think is a very modest set of proposals, but how people are worried that they are going to be used for protectionist purposes, whether people here like that term or not. They do.

52

The second point is, is that in the anti-dumping area, as you

said, there are many people that would like to change our antidumping laws. Our position is that we do not want to change them,

and so that is our stated role. There are issues that people have

looked at more generally in terms of the transparency in the procedures, and in sort of how the procedures work, which, frankly, I am

open to more because I am concerned about how these laws will be

used against US companies elsewhere in the world. There are some

striking charts about how other countries are now using these antidumping and countervailing duty laws without the rules and transparency that the United States has. But, you know, I share the belief that I know you do, that I think that to be able to sustain free

trade in this country, we are going to have to be able to have

strong laws to deal with unfair trade practices.

And if I might add, I feel this on the safeguards as well, on the

whole issue of the 201. You know, this is a subject I have talked

about with a lot of my colleagues, and I have raised overseas. I

think in a world where, you know, information can move at the

speed of light, and financial transactions at a similar speed, and

trade is moving at a close to similar speed, it is just a reality that

some industries in some communities are not going to move as

quickly. And I do not believe our solution should be to protect them

and not let them adjust, but I do believe we have to create some

mechanisms to allow them to adjust in time so as to be able to

maintain support for trade. And this is true in some agricultural

areas, and it is true in some manufacturing categories. I think for

us to be able to do this effectively, however, we are going to have

to be stringent, because, as you know, all the pressures will be on,

you know, holding back change which cannot be held back. So I am

a strong believer in trying to see how this administration can use

201 provisions effectively, but without letting them slip into a new

form of protectionism.

Mr. ENGLISH. Mr. Chairman, with your indulgence, I wanted to

ask a quick follow-up question.

Since you, Ambassador, raise the issue of 201, and you are aware

of my interest in the steel issue, I was wondering if you could

quickly update us on the administration’s current thinking on the

possible use of a section 201 action to remedy the steel industry’s

dilemma?

Mr. ZOELLICK. The main point I should make, Congressman, is

that since you do such a good job of monitoring this closely, there

is very little I can add from the last time that you asked me, which

was probably last week.

But in essence, this is a topic that Secretary O’Neill, Secretary

Evans, Secretary Chao and myself have all been deeply engaged in.

There is an interagency group that is chaired out of the White

House. Secretary O’Neill I think has taken a particular interest in

some potential international solutions based on his experience with

the aluminum industry.

And so we have also, as you know, discussed this with the wide

range of industry members, and as you know, there are some different views on this because some of the industry feels that they

are more efficient, and they would be able to operate better if some

capacity was not in place, and others, it depends on the nature of

53

their business operations and whether they are a fully integrated

operation, or it depends somewhat on their strategy. And in similarly, obviously, some of the local unions that are related to specific

plants, have a different perspective from the general steel workers

who may be recognizing an overall need for restructuring.

So my sense is, Congressman, that this is an issue that we believe is going to have to be resolved in a matter of weeks to month.

I cannot say for sure. There is no decision. You know my own preference, but that is not—I do not mean to suggest that is going to

by any means be the result, but I do think that it is important for

those interested in the issue to be actively engaged, because we

are.

Mr. ENGLISH. Thank you for sharing our sense of urgency, and

thank you for you testimony today.

Mr. HOUGHTON. Mr. Brady.

Mr. BRADY. Thank you, Mr. Chairman.

Mr. Ambassador, you made the point very early on that we have

a lot of time and a lot of effort to catch up on, and these trade jobs

are the ones that our kids are going to use to be able to raise a

family on, and it is embarrassing to know that Chile has free trade

agreements with every nation in this hemisphere except the United

States and Cuba. It is embarrassing to know that out of the investment treaties we have—which basically when America invests in a

country, we sell to that country—we are 26th in the world there,

just behind those free-enterprise bastions of Cuba and Morocco, but

we have edged out Tunisia, I think, in those investment treaties.

We need to be back on the field so that, again, our children will

have the kinds of jobs they can raise their family on. I know in

Texas, we have seen as a result of NAFTA, just in 5 short years,

in the area we were most likely to have jobs competitive, manufacturing, the one that Ross Perot said we would hear to giant sucking

sound in, just in 5 years we have created enough new manufacturing jobs, just in our State, to fill every seat of the Astrodome

twice over, just in 5 years, new manufacturing jobs.

Along the border between Mexico and Texas, which is a terrible

environmental area, just since NAFTA we now have—the last time

I checked—$2 billion of environmental projects to clean the air and

to clean the water better than it ever has before, and we still have

a long way to go, but that would have never occurred without the

free trade agreement. And from labor’s standpoint, not only are

standards rising in Mexico, but you would be hard pressed to argue

that the new plants opening there pay less or have less benefits

than those that existed before. It is a win-win situation.

I appreciate the effort you are making to focus on enforcement.

Anyone who read the report out of your office from last week would

have to be impressed with the aggressiveness of America and this

administration to aggressively enforce these trade laws and agreements. There is no question too, that as in any agreement, whether

it is between two businesses or two nations or more, there will be

disputes. Some can be handled through the administration. Some

have to go through a court and an appeals process, and can be very

frustrating. But I think you are right on track to enforce the trade

agreements, to have written analysis of the impact on the environment, to invite the labor community into these assessments, to

54

make sure that we, indeed, as you said, are rising, not just free

trade, but freedom, environmental progress, labor progress, all at

the same time. They really are compatible and really do go together, and I appreciate again the effort you are making to enforce

and to raise them. Thank you, Mr. Chairman.

Mr. HOUGHTON. Thanks, Mr. Brady.

Mr. ZOELLICK. Can I just make a brief comment?

Mr. HOUGHTON. Yes, sure.

Mr. ZOELLICK. Is that because the Congressman and I have

talked about this for a long time. In fact, we had the pleasure of

starting to dig into this, I think, before the first Seattle meeting,

and I know you have a strong interest in this.

And the point I just want to make on enforcement is that to be

fair, this is really an effort that has crossed administrations. A

number of the things in the report that you pointed out were

things that were done by my predecessors in the Clinton administration, and it is also very much related to this Congress, because

you have given us additional 25 people. Many people do not realize

that we only have about 203 people at USTR trying to cover the

world. So that extra 25 people makes a big difference to us. We are

in the process of staffing them up right now, so, frankly, it is the

support of the Congress on this that enables us to do a better job,

and that report that you read was a combination of my predecessors as well as the current team.

Mr. BRADY. Another example that free trade is a bipartisan

issue. Thank you, Mr. Chairman.

Mr. HOUGHTON. Any other comments? Thanks very much, Mr.

Ambassador. Certainly appreciate your testimony.

Mr. ZOELLICK. Thank you.

[Questions submitted from Mr. Shaw, and Ambassador Zoellick’s

response are as follow:]

Question 1: Is it possible and are you inclined to treat such import sensitive commodities differently in the FTAA and WTO negotiations, and

maintain tariff protection as the primary means of offsetting years of artificial foreign advantages? What other methods exit?

Response 1: Although the U.S. objective in both the FTAA and WTO is to open

markets for agricultural products, the tariff negotiations in the two fora will differ

in many respects. The results of the FTAA negotiations must comply with WTO

rules and disciplines for free trade agreements, including the requirement to progressively eliminate tariffs on substantially all trade within ten years. In the WTO

agriculture negotiations, we generally seek tariff reductions rather than tariff elimination, although we do not preclude the possibility of zero-for-zero negotiations for

certain agricultural commodities. Given these differences in the underlying scope of

the negotiations, it is highly unlikely that import sensitive commodities would receive the same treatment in the FTAA and WTO negotiations. We recognize the

need to work with Congress and interested representatives of our agricultural sector

to develop the most appropriate methods to address the concerns of import sensitive

industries in each of the ongoing negotiations.

Question 2: Do you foresee a situation where you will be forced to make

choices between competing interests, trading some import sensitive commodities against export focused commodities or other industrial products,

for the sake of reaching an agreement?

Response 2: Most negotiations require some difficult decisions. This will no doubt

be true for the FTAA and WTO negotiations. These decisions will likely involve how

to best accommodate the particular interests of all segments of the U.S. industry,

including import sensitivities and export interests. Our objective is to get the best

deal possible for U.S. agricultural producers, processors and consumers in both negotiations, as part of the overall package of results in each negotiation.

55

Question 3: Maintaining the strength of U.S. trade remedy laws, such as

antidumping and countervailing duty procedures, is critical to survival for

many American farmers. Will you notify Congress in advance if you foresee

that negotiations require modification in the application of the U.S. antidumping laws to dumped agricultural imports, prior to the ratification

process?

Response 3: The Administration agrees that maintaining the strength and effectiveness of our trade remedy laws is of critical importance. The Administration will

continue to consult closely with Congress on all aspects of the FTAA negotiations,

particularly with respect to important issues such as trade remedies.

Question 4: Since NAFTA took effect, Florida’s fruit and vegetable growers have repeatedly expressed concern about lost domestic sales to Mexican tomatoes, bell peppers, cucumbers and other crops. They cite any number of reasons for those lost sales—from lower U.S. tariffs, to increased investments in Mexico, to the peso’s devaluation after NAFTA took effect, to

inadequate U.S. safeguard mechanisms for import-sensitive fruits and vegetables. How would the FTAA be more responsive to these various concerns?

Response 4: The Administration wants to work with Congress and Florida fruit

and vegetable growers to find the most appropriate way to address the growers’ con- cerns regarding the FTAA. Safeguard mechanisms are certainly one possibility that

we are exploring. We would be very interested in receiving advice from interested

Members concerning the way safeguards or other mechanisms could be structured

to address the concerns of Florida fruit and vegetable growers.

Question 5: What concrete steps do you intend to take in this trade initiative to prevent the most import-sensitive U.S. products, including Florida

fruits and vegetables, from being harmed?

Response 5: The Administration recognizes that many Florida fruit and vegetable growers are concerned about the potential effects of the FTAA. Currently,

FTAA negotiators are focusing on the general framework (so-called ‘‘modalities’’ that

will be used as the basis for the tariff negotiations, as well as developing texts on

specific issues such as safeguards. Detailed product-by-product tariff negotiations

are scheduled to begin by May 15, 2002. During this year, the administration is

seeking specific advice from Congress and our private sector concerning the types

of general approaches to tariffs and other issues, including safeguards, that might

Director of the International Affairs and Trade, United States Genaddress the concerns of import sensitive sectors.

Mr. HOUGHTON. Now we will call the next panel. Loren Yager,

f eral Accounting Office; the Honorable Richard Fisher, former Deputy United States Trade Representative; the Honorable John

Sweeney, President of the American Federation of Labor and Congress of Industrial Organizations; Franklin Vargo, Vice President

of the International Economic Affairs, National Association of Manufacturers; Daniel Price, Partner, Powell Goldstein, Frazer and

Murphy, on behalf of the United States Council for International

Business; and William Gambrel, President of the Bank of Boston,

Colombia, and Vice President of the Association of American

Chambers of Commerce in Latin America.

Chairman CRANE. [Presiding.] We will proceed in the order you

were presented to the Committee, and I would ask that you try and

keep oral testimony to roughly 5 minutes, and any printed testimony will be a part of the permanent record. And with that, we

shall commence with Mr. Yager.

STATEMENT OF LOREN YAGER, DIRECTOR, INTERNATIONAL

AFFAIRS AND TRADE, U.S. GENERAL ACCOUNTING OFFICE

Mr. YAGER. Thank you, Mr. Chairman. Mr. Chairman and Members of the Subcommittee, I am pleased to have the opportunity

today to discuss our observations on the two recent meetings affectVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00059 Fmt 6633 Sfmt 6602 W:\DISC\74222 ATX004 PsN: ATX004
56

ing the negotiations for a Free Trade Area of the Americas, the

Trade Ministerial in Buenos Aires, Argentina, and the Presidential

Level Summit in Quebec City, Canada.

We reported in March 2001 that the negotiations are at a critical

juncture, and that these two meetings offered an opportunity to

provide momentum and set an ambitious pace for the next more

difficult phase of the negotiations. In that report we cited a number

of goals that needed to be accomplished for the meetings to be successful. The primary message of my testimony this afternoon is

that the April meetings accomplished those goals and set the stage

for the phase of the negotiations where the hard bargaining will

begin.

Specifically today, I will discuss what the Western Hemisphere

nations did on three issues. They addressed controversial topics.

They set objectives and deadlines for the next phase, and they provided momentum for the negotiations. Finally, I will conclude with

some long-term challenges that we discussed in our March report.

First, the ministers reached accommodations on a number of controversial issues that had slowed progress on other topics. These

agreements, on subjects such as labor and the environment, antidumping and smaller economies, enabled countries to set forth

basic principles while keeping topics on the table for future resolution. For example, as Ambassador Zoellick stated earlier, on labor

and the environment, the ministers defused the conflict over

whether to include US text by stating that any delegation has the

right to present proposals it deems relevant, though others may

place these proposals in brackets to indicate their disagreement.

However, the adjacent sentence in the ministerial declaration

states that most of the ministers believe non-compliance with environment and labor rights should not result in trade restrictions or

trade sanctions. While the ministers and leaders did not resolve

these questions, the agreements did allow them to move on and accomplish the rest of the agenda for the meetings.

The second accomplishment was the direction provided for refining the draft text and beginning negotiations on market access,

which reflect the hard bargaining of the negotiations. To move toward consensus on the draft text, ministers directed negotiating

groups to refine as much as possible of the 200 plus pages of overlapping and competing text before the Ministerial. To prepare for

the beginning of market access negotiations, the ministers instructed specific negotiating groups to develop recommendations by

April 1, 2002 on the basic ground rules for negotiation. Ministers

also established the deadline of May 15th, 2002 for negotiating

groups to initiate the market access negotiations on tariffs and

other topics.

The third accomplishment was that the trade ministers and leaders added momentum to the process in two ways. One was the decision, again mentioned earlier, made at the April meetings, to publicly release the draft text of the non-negotiating groups. In response to public pressure and recommendations by the business

community, the ministers determined that releasing the text would

help increase the transparency of the negotiating process and build

public understanding of the FTAA. The leaders also set a firm

57

1See Free Trade Area of the Americas: Negotiations at Key Juncture on Eve of April Meetings

(GAO–01–552, Mar. 30, 2001).

deadline for completion of the agreement in January 2005, accelerating the pace of the negotiations.

Facing a critical juncture in the FTAA process, the FTAA countries accomplished an ambitious agenda designed to start the hard

bargaining phase of the negotiations on a sound footing. Still, as

we had previously reported, the FTAA negotiations face other longterm challenges, including managing the scope and complexity of

work required to finalize draft rules, resolving contentious issues,

and summoning the political will in the United States and other

countries to conclude an agreement.

Mr. Chairman, this concludes my testimony. I would be happy to

answer any questions that you or other Members of the Subcommittee have.

[The prepared statement of Mr. Yager follows:]

Statement of Loren Yager, Director, International Affairs and Trade, U.S.

General Accounting Office

Mr. Chairman and Members of the Subcommittee:

I am pleased to have the opportunity today to discuss our observations on two recent meetings affecting the negotiations for a Free Trade Area of the Americas

agreement: a trade ministerial in Buenos Aires, Argentina, on April 7, 2001, and

the presidential-level Summit of the Americas in Quebec City, Canada, on April 20– 22. The Free Trade Area of the Americas agreement, if completed, would eliminate

tariffs and create common trade and investment rules within the 34 democratic nations of the Western Hemisphere. As you know, these negotiations are among the

most significant ongoing multilateral trade negotiations for the United States. President Bush has stated repeatedly that establishing the Free Trade Area of the Americas is one of his top trade priorities. We reported in March 2001 1 that the negotiations are at a critical juncture and these two meetings offered an opportunity to inject momentum and set an ambitious pace for the next, more difficult phase of the

negotiations. We also reported that, going into the meetings, the ministers faced an

ambitious agenda of decisions designed to start the next phase of the negotiations

on a sound footing. At your request, we reviewed the results of the meetings. Specifically, today I will discuss what Western Hemisphere countries did to (1) address

controversial issues, (2) set objectives and deadlines for the next phase of the negotiations, (3) build public support, and (4) adding needed momentum into the negotiations. My observations are based on our past and ongoing work on the Free Trade

Area of the Americas process, including in Buenos Aires, Argentina. Before I get

into the specifics of these topics, let me provide a brief summary.

SUMMARY

As we stated in our March report, the trade ministers for the Free Trade Area

of the Americas (FTAA) countries faced an ambitious agenda in the April meetings.

This was because a number of controversial and complex issues had slowed progress

on the objectives and deadlines that had to be concluded in the April meetings.

However, accommodations reached by the ministers on topics such as labor and the

environment, antidumping, and nations with smaller economies allowed countries to

set forth basic principles while keeping topics on the table for future resolution. For

example, on labor and the environment, the ministers stated that any delegation

has the right to present negotiating proposals it deems relevant. However, the ministers went on to announce that most ministers believe noncompliance with environment and labor rights should not result in trade restrictions or sanctions.

As a result of the movement on these controversial issues, the trade ministers

were able to set out clear objectives and deadlines to promote progress during the

next 18 months of the negotiations. These negotiations will culminate at the next

trade ministerial to be held in Ecuador, in October 2002. So far, the FTAA negotiations have produced a draft text agreement, covering nine major issue areas. The

next negotiating phase will involve hard bargaining to refine the draft text and

begin negotiations on market access concessions. To move toward consensus on the

draft text, ministers directed negotiating groups to eliminate material that is in dispute to the maximum extent possible. To prepare for the beginning of the market

58

2 English, French, Portuguese, and Spanish.

access negotiations, ministers instructed specific negotiating groups to develop recommendations by April 1, 2002, on the methods and modalities (basic ground rules)

for negotiation. The ministers also asked the groups to develop, where appropriate,

inventories of tariffs, nontariff barriers, subsidies, and other practices that distort

trade. Ministers directed negotiating groups to initiate these market access negotiations no later than May 15, 2002.

The FTAA trade ministers took several notable actions to build public support for

the FTAA process. The biggest surprise decision made at the April meetings was

the agreement to publicly release the draft text of the nine negotiating groups. In

response to public pressure for greater openness and recommendations by the business community, the ministers determined that releasing the text would help ensure

the transparency of the negotiating process and build broad public understanding

of and support for the FTAA. The text, which is several hundred pages long, will

be made public after its translation into the four official languages 2 of the negotiations. The trade ministers also took action to enhance the role of civil society— meaning nongovernmental groups representing business, labor, environment, and

other interests—in the FTAA process.

The April meetings appear to have been successful in providing high-level political

leadership across the hemisphere and fresh momentum to the FTAA negotiations.

At their summit in Quebec City, President Bush and other leaders signaled their

commitment to the FTAA and their desire to work together to attain the common

goals of expanding trade, improving economic opportunities, strengthening democracy, and redressing social and economic inequities. The meeting also set new deadlines for completing and implementing the agreement, partly accomplishing the feat

of setting an accelerated pace for negotiations. Business and congressional leaders

attended, underlining interest by key U.S. stakeholders, even as protests graphically

demonstrated the opposition mobilizing against an FTAA. The outcomes at Buenos

Aires and Quebec allow the next phase of technical negotiations to start on a sound

footing. However, boosting U.S. congressional and public support, dealing with a

large and complex agenda of issues, and accommodating the diverse needs and positions of participants are among the challenges facing FTAA negotiators in the hard

bargaining ahead.

BACKGROUND

In December 1994, the heads of state of the 34 democratic countries in the Western Hemisphere agreed at the first Summit of the Americas in Miami, Florida, to

conclude negotiations on a Free Trade Area of the Americas no later than 2005. The

FTAA would cover a combined population of about 800 million people, more than

$11 trillion in production, and $3.4 trillion in world trade. It would involve a diverse

set of countries, from some of the wealthiest (the United States and Canada) to

some of the poorest (Haiti) and from some of the largest (Brazil) to some of the

smallest in the world (Saint Kitts and Nevis). Proponents of the FTAA contend that

a successful negotiation could produce important economic benefits for the United

States. Business groups say that if relatively high tariffs and other market access

barriers are removed, U.S. trade with the region could expand further. While an

FTAA may provide benefits for the United States, it may also adversely impact certain import-competing sectors. Other groups, such as certain unions and environmental groups, have also strongly voiced concerns about the FTAA’s impact on U.S.

workers and on the U.S. government’s capacity to act in the public interest.

From a technical standpoint, ministers agreed in 1998 at the San Jose ́ Ministerial

meeting that the FTAA would be a single undertaking, meaning that the agreement

would be completed and implemented as one whole unit instead of in parts. They

also agreed that the FTAA agreement will be consistent with the rules and disciplines (practices) of the World Trade Organization, and that the FTAA could coexist with other subregional agreements, like the Common Market of the South

(Mercosur) and the North American Free Trade Agreement (NAFTA), to the extent

that the rights and obligations go beyond or are not covered by the FTAA. An eventual FTAA agreement would contain three basic components: (1) chapters on general

issues and the overall architecture of the FTAA and its institutions, (2) schedules

for reducing tariff and nontariff barriers, and (3) chapters on specific topics. The

chairmanship of the negotiations changes every 18 months, with Argentina serving

as chair through the April 2001 meetings, succeeded by Ecuador for the next round

of negotiations. Brazil and the United States are set to co-chair the final round from

November 2002 to December 2004. Ministers set out the workplans for the negotiating process and select new chairs for the negotiating groups in 18-month increments.

59

3The term ‘‘bracketed’’ refers to the punctuation placed around language in the draft chapters

for which agreement has not yet been reached. For example, if two countries submitted different

proposals for language in a chapter, brackets would be placed around each proposal until a consensus is reached on the differences between the two.

The FTAA negotiations have so far met the goals and deadlines that the trade

ministers set. Since beginning the process in 1994, the 34 participating countries

have succeeded in building a technical foundation for the negotiations. As shown in

figure 1, from December 1994 to March 1998, the participants developed the overall

structure, scope, and objectives for the negotiations. The participating countries

then formally initiated the negotiations at the San Jose ́ Ministerial and the

Santiago Summit of the Americas in 1998. The negotiating groups, illustrated in figure 2, recently produced a first draft of chapters for specific issues, such as market

access, investment, and agriculture. According to U.S. and foreign negotiators, however, the draft text is heavily bracketed,3 indicating that agreement on specific language has not been reached. In addition, negotiations on market access have yet to

begin. Nevertheless, participants described this draft text as an important accomplishment and stated that it will form the basis for future negotiations. The negotiations have also produced several business facilitation measures and improved coordination between participating countries on trade matters.

60

Figure 2: Organization of the FTAA Negotiations

Legend:

SPS=Sanitary and phytosanitary measures (These measures are taken to protect

human, animal, or plant life or health)

Note 1: Current chairs of the various FTAA entities are listed in parentheses. The

objectives of each negotiating group and the Trade Negotiations Committee appear

in italics.

Note 2: The Tripartite Committee provides technical assistance to the negotiations

and is composed of the Organization of American States, the Inter-American Development Bank, and the United Nations Economic Commission for Latin America and

the Caribbean.

Note 3: The FTAA ministers and negotiating groups are serviced by an Administrative Secretariat.

Note 4: The venue for the actual negotiations was initially located in Miami and

will rotate to Panama City and Mexico City.

Source: GAO.

MINISTERS DEFUSE CONTROVERSIAL ISSUES

FTAA ministers took measures in Buenos Aires to prevent several controversial

or complex topics from blocking the progress of the negotiations. In our March report, we noted that the trade ministers faced an ambitious agenda in the April

meetings because the controversies had consumed considerable time in the preparatory process. One such issue involved the right of countries to put forward text

in the negotiating groups, specifically on labor and the environment. The United

States had sought to include proposals in the investment negotiating group obligating parties to strive to ensure that their environmental and labor laws would not

be relaxed to attract investment. Other FTAA countries objected to this proposal,

stating that labor and the environment were outside the mandate of the negotiating

group and did not belong in an FTAA. The ministers resolved this conflict by stating

that the negotiating groups should work under the principle that any delegation has

the right to present proposals it deems relevant, though others may place these proposals in brackets if they do not agree. However, most ministers went on to anVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00064 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
61

4The text of the ministerial declaration states, ‘‘Most Ministers recognize that the issues on

environment and labour should not be utilized as conditionalities nor subject to disciplines, the

non-compliance of which can be subject to trade restrictions or sanctions.’’

nounce their opposition to the use of sanctions for enforcing labor and environment

provisions.4

Another challenging issue addressed by ministers to keep the process on track involved considering the needs of smaller economies. As we reported, countries with

smaller economies are concerned with both technical and resource constraints that

make the negotiating process a challenge and with preventing their economies from

being overwhelmed by the larger ones once the agreement is implemented. According to FTAA experts, their concerns about resource constraints were met in part by

assurances from the U.S. Trade Representative and the President of the Inter-American Development Bank that they would attempt to identify additional technical assistance. In addition, their concerns about implementation were addressed in the

ministerial declaration, wherein the ministers in Buenos Aires reiterated their commitment to take into account the differences in levels of development and size of

the economies among the FTAA participants. The ministers further directed the

Trade Negotiations Committee to formulate by November 2001 some guidelines for

applying treatment for dealing with the differences in the size of the economies.

A third area in which controversy was forestalled involved antidumping. Prior to

the ministerial, a U.S. alternative proposal in the negotiating group on antidumping

created a controversy among the FTAA participants. The Office of the U.S. Trade

Representative has stated that the FTAA agreement should ensure the right of each

country to maintain and apply trade remedies within the FTAA. According to one

of the foreign lead negotiators, the U.S. alternative proposal angered many other

participants because it was viewed as an effort on the part of the United States to

take the antidumping issue off the negotiating table. While U.S. officials have denied that this was their intent, the issue threatened to distract the ministers at

Buenos Aires, according to observers. The issue was defused, however, by several

ministerial directives. Specifically, the ministers placed language in the ministerial

declaration repeating their initial charge from the San Jose Ministerial for the negotiating group on subsidies, antidumping, and countervailing duties to intensify its

efforts to reach a common understanding and improve the rules and procedures for

operation and enforcement of trade remedy laws. The ministers further directed the

negotiating group to submit recommendations on the methodology to achieve this

objective by April 2002. In effect, the ministerial action reminds all participants that

they have previously agreed to seek improvements in trade remedy regimes, while

providing a deadline for action toward that end.

MINISTERS PROVIDE DIRECTION FOR NEXT PHASE OF NEGOTIATIONS

As we noted in our March report, an important task for the April meetings was

setting the pace, goals, and structure for the remainder of the FTAA process. At the

Buenos Aires Ministerial, FTAA trade ministers took a series of steps to set out the

objectives and timeframes for the next 18 months of the negotiations, which will culminate in the next trade ministerial to be held in Ecuador in October 2002. These

steps are illustrated in figure 3.

62

5Other modality decisions include, for example, the period of time in which the tariff reductions will occur.

One of the important tasks of the April meetings was to prepare for the beginning

of market access negotiations. Before countries can begin to negotiate on market access concessions, they must agree on the basic ground rules of the negotiations, such

as the type of tariff rate to use as the starting point. Negotiators refer to these

ground rules as the ‘‘modalities.’’ 5 Several of the specific directions ministers provided to the negotiating groups are listed below (applicable negotiating groups are

listed in parentheses):

• Recommend methods and modalities for upcoming negotiations on tariffs, nontariff barriers, rules of origin, subsidies, investment, government procurement, services, and other practices that distort trade in agricultural products (market access;

agriculture; investment; subsidies, antidumping, and countervailing duties; services;

and government procurement).

• Create a preliminary inventory of nontariff measures (market access, agriculture).

• Recommend what types of other practices that distort agricultural trade should

be addressed (agriculture).

• A related step ministers took to advance the FTAA process was to set a date

for beginning market access negotiations. As we reported in March 2001, the FTAA

participants had not set out a date to begin the market access negotiations, where

countries start to offer tariff and nontariff concessions. In Buenos Aires, ministers

directed specific negotiating groups to begin these negotiations no later than May

15, 2002. This pertains to tariff liberalization in the market access and agricultural

groups, and rules of origin in the market access group. The deadline also pertains

to investment, services, and government procurement groups for market access negotiations in their respective groups.

• The ministers also instructed negotiating groups to take steps to reach consensus on the draft text. As we reported, the draft text generally represents a consolidation of all proposals submitted by FTAA countries so far. FTAA participants

state that the draft reflects wide differences between the countries over substance

and philosophical approaches to key issues. The ministers specifically directed the

nine negotiating groups to intensify efforts to resolve existing differences and reach

consensus, with a view to eliminating brackets and consolidating text to the maximum extent possible. Ministers also set August 2002 as a deadline for negotiating

groups to submit their revised draft chapters to ministers.

In addition to setting specific objectives for the negotiating groups, the ministers

formed a new Technical Committee on Institutional Issues to begin discussions on

the FTAA’s overall institutions, like the location of a permanent secretariat and the

type of mechanism that will be used for dispute settlement. U.S. officials also expect

that this committee will act as a mechanism to deal with issues that pertain to all

negotiating groups or do not fall within a specific group. U.S. and other officials participating in the process stated that this new committee is comparable to the negotiVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00066 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
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6The committee was created at the urging of the United States to provide a vehicle for public

input on business concerns, environment and labor rights, and other issues. 7The English-version FTAA web page is located at www.ftaa-alca.org/alcale.asp.

ating groups in that it will have a different chair than the chair of the negotiations

and will be supervised by the Trade Negotiations Committee.

MINISTERS ATTEMPT TO BUILD PUBLIC SUPPORT FOR FTAA

In March, we noted that the April meetings represented an opportunity to build

public support for the FTAA and address concerns about openness. The FTAA trade

ministers took several notable actions in an effort to do so. The biggest surprise of

the April meetings was the decision to publicly release the bracketed text of the

nine negotiating groups. As we previously reported, Canada, more than 50 Members

of Congress, and various U.S. nongovernmental groups had called for the release of

the bracketed text, because publicly available information on the FTAA negotiations

has been limited. In addition, recent public protests added to the groundswell of

support for releasing the text. However, given the ongoing and confidential nature

of FTAA deliberations, this proposal was expected to be controversial at the meetings. Nevertheless, in response to public pressure and the recommendation of the

business community, the FTAA leaders determined that releasing the text would

help improve the transparency of the negotiating process and would increase public

understanding of and support for the FTAA. The text, which is several hundred

pages long, will be made public after its translation into the four official languages

of the negotiations.

The trade ministers also took action to enhance the role of civil society in the

FTAA process. The Committee of Government Representatives on the Participation

of Civil Society 6 has been contentious since its creation. For example, one country

had consistently blocked the committee from preparing recommendations based on

the public input received. In part because of the disagreement over the role of the

committee, many civil society representatives we interviewed told us they were disappointed with the committee because there was little evidence that their input was

being given serious consideration in the negotiations. At Buenos Aires, however, the

ministers took action to strengthen and extend the role of the committee. For example, they instructed the committee to:

• develop a list of options by the next Trade Negotiations Committee meeting on

how to foster a process of increasing and sustained communication with civil society,

• analyze the possibility of incorporating more information on the FTAA’s web

page,7 and

• forward the public input by civil society to the appropriate negotiating groups.

Whether or not these steps will be deemed sufficient by outside observers remains

to be seen. Nevertheless, the steps, taken in combination with the release of the

bracketed text, will make the FTAA process more open to public scrutiny and comment than it has been so far.

LEADERS TAKE STEPS TO PROVIDE POLITICAL MOMENTUM TO THE FTAA

PROCESS

As we noted in our March report, one of the most important aspects of the April

meetings was the opportunity by hemispheric leaders to inject needed momentum

into the negotiations at a key juncture, since the phase of negotiations in which

countries set out initial positions has ended, and the coming phase is expected to

narrow the many substantive differences that remain. The leaders addressed the

issue of momentum in two ways. First, they set precise deadlines for concluding and

implementing an FTAA. Second, they provided political-level support and direction

to the process as it enters a more ambitious and difficult phase.

In April, hemispheric leaders endorsed a more precise formulation of the dates for

the conclusion of negotiations and the entry into force of the agreement that should

accelerate technical-level progress. As we reported, at the 1994 Miami Summit leaders set 2005 as the original target date to conclude the negotiations but did not

specify precisely what this meant. Chile put forward a proposal last year to move

up the target date to December 31, 2003, with a final agreement entering into effect

on January 1, 2005. However, some FTAA participants, most notably Brazil, publicly stated that these dates were unrealistic. As a compromise, FTAA leaders approved a ministerial recommendation at the Quebec City Summit to establish January 2005 as the deadline for concluding FTAA negotiations and December 2005 as

the deadline for the agreement’s entry into force. The U.S. Trade Representative

called this step a key development to add momentum to the process and later noted

that the United States is prepared to try to help beat these deadlines.

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8 In the past, the Congress has enacted trade promotion authority (also known as ‘‘fast track’’)

to implement trade agreements with other countries. This authority provided for a congressional

vote within a limited period of time to accept or reject the implementing legislation for a negotiated agreement without making any changes.

On the political level, the April Summit engaged President Bush and other heads

of state in the FTAA process and provided an opportunity for leaders to renew their

countries’ political commitment to the FTAA. For the U.S.’s part, President Bush

underlined the importance he attaches to achieving progress in liberalizing trade

and to solidifying and improving relations within the Western Hemisphere as a

means to increase and spread prosperity and foster freedom and democracy. At the

same time, he said, ‘‘Our commitment to open trade must be matched by a strong

commitment to protecting our environment and improving labor standards.’’ Calling

the vision of ‘‘a fully democratic hemisphere bound by goodwill and free trade’’ both a ‘‘tall order’’ and a ‘‘chance of a lifetime,’’ the U.S. President pledged to seek and

secure from the Congress ‘‘fast track’’ or trade promotion authority 8 by the end of

2001. Other FTAA participants see this authority as a litmus test of U.S. commitment to an FTAA and view it as necessary for concluding and passing an eventual

agreement. Demonstrating commitment to continued trade liberalization in the

hemisphere, President Bush also said he would seek to renew and expand the Andean Trade Preferences Act, which accords unilateral U.S. tariff preferences to nations

of the Andean region, and to conclude a bilateral free trade agreement with Chile

by yearend 2001.

Statements of other key regional players also underlined their political commitment to an FTAA. For example, speaking on behalf of the Caribbean, Barbados

Prime Minister Owen Arthur expressed satisfaction that ‘‘arrangements for economic integration have now been so deliberately designed to truly accommodate the

special concerns of the smallest and most vulnerable entities in our hemisphere.’’ Reluctance by Caribbean participants about accelerating the pace of negotiations

was a major factor at Buenos Aires in discussions on setting FTAA deadlines, according to participants. Brazilian President Fernando Henrique Cardoso urged fellow leaders to aim for a ‘‘Community of the Americas,’’ including an FTAA that progressively eliminates barriers to trade, opens up opportunities for growth, and does

away with inequalities. At the same time, he warned that an FTAA that failed to

provide access to more dynamic markets would be ‘‘irrelevant or, worse, undesirable.’’ The only country taking a new stance in the Quebec City summit declaration

from the Buenos Aires Ministerial was Venezuela, which reserved its position on the

final deadline for concluding and implementing an FTAA due to concerns about its

technical ability to meet the implementation deadline.

Generating interest in and support of the FTAA within the U.S. Congress, the

U.S. business community, and the U.S. public remains a challenge. As we reported,

many FTAA participants believe this support will be crucial if the United States is

to provide the leadership they believe is necessary for concluding a deal. It is also

required for ultimate approval of an FTAA in the Congress and in the U.S. ‘‘court

of public opinion.’’ However, some FTAA participants believe the United States has

been distracted from pursuing trade liberalization because it is without a domestic

consensus on the benefits of trade and the way in which to handle the overlap between trade and labor rights and the environment. Moreover, U.S. policies on key

aspects of FTAA rules, such as investment, have yet to be announced. Support by

the Congress and the business community for the FTAA has been limited until recently, though a sizeable number of U.S. trade associations and firms participated

in the Americas Business Forum at Buenos Aires, and a bipartisan congressional

delegation accompanied President Bush to Quebec City. Meanwhile, the opposition

by key interest groups, who demonstrated in the streets of Buenos Aires and Quebec

City, is actively mobilizing. For example, the American Federation of Labor-Congress of Industrial Organizations, Public Citizen, and the Sierra Club have launched

campaigns against the FTAA as it currently stands.

Longer-term Challenges

Facing a critical juncture in the FTAA process, the FTAA countries generally accomplished that part of an ambitious agenda designed to start the next phase of the

negotiations on a sound footing. Still, as we have previously reported, significant

challenges will need to be overcome to successfully conclude an agreement. Hard

bargaining will be required to turn the accumulation of proposals currently on the

table into a mutually agreed-upon, binding document. In addition, the FTAA negotiations face other longer-term challenges, including

• managing the sheer scope and complexity of work required to finalize draft

rules,

65

• negotiating market access concessions, • devising an institutional structure for the implementation of the agreement, • recognizing the diverse negotiating objectives and economic conditions of the

FTAA participants, • achieving consensus on the negotiated outcomes, • dealing with changing political and economic conditions as the negotiations unfold, and • summoning the political will to conclude an agreement.

A number of participants told us that the FTAA can be successfully concluded if

the key Western Hemisphere leaders demonstrate that they have the political will

to conclude the agreement. The April meetings provided a major step in this direction, as well as clear guidance and milestones for technical-level progress. But the

ultimate success or failure of the FTAA will rest on the continued demonstration

of political commitment to the negotiation’s conclusion.

Mr. Chairman and Members of the Subcommittee, this concludes my prepared

statement. I will be happy to answer any questions you or other Members may have.

CONTACTS AND ACKNOWLEDGMENTS

For future contacts regarding this testimony, please call Loren Yager or Kim

Frankena at (202) 512–4128. Individuals making key contributions to this testimony

included Anthony Moran, Jody Woods, and Tim Wedding.

STATEMENT OF THE HON. RICHARD W. FISHER, WASHINGTON,

Chairman CRANE. Thank you, Mr. Yager. Mr. Fisher.

f DC, AND FORMER DEPUTY UNITED STATES TRADE REPRESENTATIVE

Mr. FISHER. Mr. Chairman, thank you for inviting me back. I am

honored to be here. As I said in my written testimony, remember,

I am a free man. I do not have to say nice things. But I am genuinely thrilled to be here with so many wonderful representatives

and people that do the good work of discussing the trade issues

which are so vital to our economy. So I am honored to be back. I

thank you. I thank Mr. Levin and all the Members for inviting me

here.

If you just get to the bottom line here, first, trade is a vital part

of our economy. If you take imports and you add exports to it, and

divide it by GDP, you come up with 27 percent of our GDP. The

way that we distribute this around the world is heavily emphasized

in our own hemisphere, and that is why we are here today. If you

look at the numbers, about 46 to 47 percent of what we sell is within our hemisphere, and 40 percent of what we buy is from within

our hemisphere (which is, by the way, the same proportion that we

buy from countries across the Pacific).

I want to touch briefly on what I call the buy side, given my securities background, and then I want to talk about the sell side,

which is so vital.

On the buy side, as a country, we import $1.4 trillion in goods

and services every year. Imports are good. They are not bad. They

help keep down the cost of living in this country, and if you shop

at Dollar General or Wal-Mart or Kmart or Target or any of these

stores, this is how you put clothing on the backs of your families

and how you feed your families. When we increase our imports, we

enhance consumer choice. When we cut tariffs, essentially what we

do is we cut tariffs at the border.

Let me put that in perspective, or give you numbers to put in

perspective. In the Uruguay Round we cut tariffs from 5.8 to 2.8

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percent. Without the benefit of that tax cut, those tariff cuts, our

consumers would have paid last year $25.2 billion more for their

imports from countries outside of NAFTA than they did otherwise

with those cuts. When you add Canada and Mexico to the mix,

given the cuts that we negotiated through the NAFTA, we add another $18.2 billion in tax cuts at the border for our consumers from

what they otherwise would have paid last year. 25.2 plus 18.2 is

$43.4 billion that our consumers and our businesses saved by virtue of the tax cuts we negotiated in NAFTA and the Uruguay

Round.

Keep that in mind when you think about the potential on the import or buy side within our hemisphere, because, again, as I said

earlier, 40 percent of what we import comes from within the hemisphere.

Of course, you cannot sustain a political mandate for the buy

side unless you emphasize the sell side. And as I said earlier, almost 50 percent of what we sell to the rest of the world is right

here in our hemisphere, versus 22 percent across the Atlantic and

27 percent across the Pacific. It’s important to bear in mind that

that market share is focused on two countries. Twenty-five percent

of everything we sell goes to Canada. My favorite old saw, that

Canada used to be called ‘‘the vichyssoise of nations’’ because it

was cold and half-French and difficult to stir, no longer applies.

Now it is an exciting market for us, it is the ‘‘salsa’’ of our markets.

It is an important market. We sell more to Canada than we sell

to the entire European Union.

Fifteen percent of what we sell goes to Mexico. If we continue to

grow the rate of growth of what we sell to Mexico, (before NAFTA

it was $481⁄2 billion, last year it was $111.7 billion), in another 3

years we will sell more to Mexico than we sell to the entire EU–

15. This is a startling statistic, and it shows that, indeed, we can

find a good market even in a country which is poorer than we are.

And it is not just for things we send to sell and then send back

into the United States. In a typical month last year we sold to

Mexico $48 million in surgical equipment, Congresswoman Dunn,

250,000 tons of soybeans, 28,000 cars, $700 million in semiconductors, and my favorite statistic, 200,000 golf balls and 3,200 sets of

golf clubs. They are lousy golfers. But they are great customers.

This is the kind of business that we want to have in the rest of

the world.

And very importantly, along with economic success, Mexicans

now are greater advocates of democracy and of human rights. I

speak from experience. I grew up in Mexico. The old protected autarchic Mexican economy was riddled with corruption, was a shield

for one-party control, led to suppression of individual liberty. It is

no coincidence to me that a businessman, Vicente Fox, has been

elected 7 years into NAFTA, and it shows us that, indeed, trade

does have a political effect and a democratizing effect if we conduct

the right kind of negotiation. That is the good news.

The bad news is that south of the Yucatan, we sell less than 8

percent of what we sell the world, and we bring in less than 6 percent.

Congressman Crane, you asked a very good question. I know you

know the answer to the question. Which is why should we be interVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00070 Fmt 6633 Sfmt 6602 W:\DISC\74222 ATX004 PsN: ATX004
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ested in the rest of the hemisphere if we presently sell so little to

that part of the hemisphere? I once had an employee that worked

for me, who we wanted to send to Europe to operate an office

there—and he said, ‘‘Why should I go to Europe? I have never been

there before.’’ He did not last very long in our firm. The point is

that that is precisely why we should be talking about what they

call the ALCA or what we call the FTAA, north of the border here.

And that is that there are 403 million people that we are not penetrating and selling to. 173 million of those people live in one country, in Brazil, and if we can sell as much as we sell to Mexico with

100 million people, we can certainly sell a great deal more than we

currently sell to the 403 million people that live south of the Yucatan Peninsula.

I usually like to quote Henry James, who said in a wonderful novella that ‘‘courtship is poetry and marriage is hard prose.’’ I was

lucky. In the last administration I got to do the courtship part.

Now Ambassador Zoellick and you all have to do the hard prose.

And I want to just focus on three areas that I think you are going

to have to work on very, very hard, draw them to your attention,

and then conclude my discussion.

Congressman Levin, you asked a very critical question of Ambassador Zoellick, and that is, how do we deal with agriculture? With

regard to agriculture last week Brazil’s Agricultural Minister put

the issue right up front. He said: if the US does not lift the protectionist barriers and open its market to Brazilian products, we are

not interested in an FTAA. And he went on to define barriers to

include not just high import tariffs, but also government subsidies

to US farmers, and as Ambassador Zoellick said, food safety measures. Some of this bluster is certainly for negotiating purposes or

for domestic consumption, but the Argentines and the Chileans and

the Colombians and others are also eager to access our agricultural

markets. The ‘‘easiest’’ part of that is going to be the tariff structure, which averages 12 percent on ag. imports, but goes up to

116.4 percent on sugar, 26.4 percent on beef and so on.

The tough part is how you all are going to square the corner on

both sides of the aisle on this matter of how we deal with the support systems, and there we face a conundrum that Ambassador

Zoellick referred to earlier. How do we deal with our support payment programs solely in the context of the Americas without

handcuffing our ability to deal with the EU, who is the single biggest violator of agricultural export subsidies? And yet, if we cannot

come to grips with this problem in our own hemisphere, then how

can we expect the Europeans to take us seriously? If we cannot

come to grips in our biggest trading area, the most important market of the United States, how can we expect the Japanese, the Koreans and the Europeans to take us seriously when we go to negotiate with them on agriculture?

The second problem area in anti-dumping. Again, that came up

just now in the discussion. It is a critical area. A week ago Chile’s

lead FTAA negotiator pointed out that in what they have proposed

for the FTAA, that anti-dumping has to be on the table. She said,

‘‘We know this is a sensitive issue, but many countries are concerned by what we see as, quote, ‘arbitrary use of anti-dumping

measures in the United States.’ ’’

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Congressman English, this is an important subject, and I agree

with Ambassador Zoellick, that we should not be shy about exploring how our Latin brethren implement their anti-dumping regimes.

I like to remind people that in the year to June 2000, which is the

last measurement we have, Brazil and Argentina combined filed 40

anti-dumping actions. We filed 17. The question is: how do we cope

with the causes of dumping, the surpluses in steel, (which is about

80 percent of our anti-dumping cases), in chemicals, in pharmaceuticals and agricultural products and so on? And by the way,

again, we face this issue: if we cannot deal with this issue in our

own hemisphere, how do we deal with the all-time champions of

anti-dumping measures, which are the Europeans who most actively use that tool?

I mention these aspects of ag. and anti-dumping to politely suggest that both the Congress and the executive branch have some

soul searching to do on these critical issues, even before we get to

the very tough issue of labor and environment, because this negotiation is not about reducing US tariffs. We are already down to

2.8 percent tariffs, and actually less than that in our hemisphere.

What it is about is providing market access to the United States

in return for getting access to the goods and service markets and

dismantling non-tariff barrier to our products in the rest of the

hemisphere.

As to labor and environment, I think we have to be very frank

about this. It takes two to tango. It takes two to negotiate. Trade

sanctions are out. Our Latin colleagues will not put this on the

table. And in fact, we are going to have to struggle mightily to

structure any discussion of these issues, as Ambassador Zoellick referred to earlier, so as not to appear protectionist. I think it is possible to construct an architecture of limited monetary assessments

applied to the failure to enforce existing laws in the signatory countries, but only where their alleged enforcement failure has a demonstrable trade effect. I doubt you are going to get much more

than that, based on my experience in negotiating the courtship

phase of this effort within the hemisphere.

Let me just conclude by saying that, first of all, we know that

as far as the economy is concerned, we can benefit by structuring

a proper agreement. We also know that democracy is sputtering in

several countries, in Venezuela, in Ecuador, in Nicaragua, Guatemala. We know the problems of Colombia as discussed earlier, and

in Peru. We know that Argentina is under economic duress. And

we know that Brazil and the entire hemisphere is worried about

the status of the financial markets. I have a question, which is:

how can denying these countries greater access to our markets,

coupled with the disciplines that we would negotiate—the rules

and efficiencies and so on, that we would insist be embodied in

FTAA along with a pledge that we limit its benefits to democracies—help them overcome their problems if we deny them access

to our country? And if we are not willing to think on that plane,

thinking purely selfishly, this is a big market and expanding it is

good for us. We know again from NAFTA that we can conduct freer

trade with a poor country and expand jobs on both sides of the border.

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There is one other aspect that I think is very critical that I rarely hear people talk about in trade discussions, which is the financial dimension. Our stock and bond markets are under severe duress. The debt markets in the world are under severe duress. This

is not a Wall Street issue, by the way. 88 million Americans and

50 million households now own mutual funds, and in fact, all told

households now have over $12 trillion invested directly in corporate

securities. So do the trustees of corporate pension funds and of

Taft-Hartley moneys. And it strikes me that we send an absolutely

negative signal to the financial markets if we tell the world that

we are unable to muster the wherewithal within this country to

press the envelope on trade. In fact, we should use government for

what is useful here, and that is to engineer a constructive international agreement to pry open new markets. If we do not have

new markets, we cannot have more sales. If we do not have more

sales, we cannot have more workers, we cannot have greater profits, we cannot secure the retirement system that so many millions

of our citizens now individually oversee.

So I thank you very much for having me here. I am happy to answer any questions. I submitted a longer text for the written

record. I am honored to be here. Thank you very much.

[The prepared statement of Mr. Fisher follows:]

Statement of the Hon. Richard W. Fisher, Washington, DC, and Former

Deputy United States Trade Representative

Chairman Crane, Congressman Levin, members of the Committee, it is a pleasure

and an honor for me to be invited back into this Committee Room today.

There are some things that one does not miss about serving as Deputy USTR.

There are others that one treasures. I actually miss working with the Trade Subcommittee. Mr. Chairman, you and I worked very closely together on so many issues

in the last Administration and almost always saw eye-to-eye, despite being from different parties. And Congressman Levin, you have been a faithful and constant reminder for all of us that it is important to view trade as a means to an end—that,

as the preamble to the GATT says, the purpose of trade liberalization is to ‘‘raise

standards of living, ensure full employment, and develop the full use of resources

of the world.’’ Gentlemen, remember I am a free man. Which means I don’t have

to say nice things about you as a matter of course. So when I say it, I mean it: the

members of this Committee do great service to our country with your leadership

roles in trade and, as an ordinary citizen, I thank you for it.

AN FTAA MAKES SENSE

Let me get to the point about Quebec and the Summit of the Americas: the United

States needs to press the envelope of trade liberalization in this hemisphere.

On the sell side, our hemisphere is already the largest market for our exports,

yet we are far from realizing our potential sales to our Latin and Caribbean neighbors.

On the buy side, we can do more to provide market access to countries to the

south and east of the Yucatan Peninsula.

Increased two-way trade flows and the enhanced investment in the region that

will surely follow will bolster those economies and undergird democracy, reduce poverty and enhance the rule of law, improve human rights and encourage greater respect for the hemisphere’s ecosystem. We would be fools to let pass the opportunity

for a Free Trade Area of the Americas. It is both in our economic and our strategic

interest to make this happen.

It is also in the interest of our Latin and Caribbean neighbors. For all of them

conduct the majority of their trade within the hemisphere. And each covets access

to our market, the Big Enchilada Economy, just as we covet access to the 400 million people that live in their markets. Colombia, for example, which sells 50% of its

exports to the United States, has an obvious interest in lowering the cost of doing

business here. Brazil, on the other hand, sells just 19% of her exports to the U.S.;

she has a natural interest in expanding her market share here.

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The idea of a barrier free market for the entire hemisphere was originally a Latin

conception: Simon Bolivar, the Great Liberator, was the first to champion the cause.

Mexico’s first native-born leader, Benito Juarez, proposed a similar initiative in the

1860’s. Here in the North, Secretary of State James Blaine tried to promote the concept in 1906, Franklin Roosevelt spoke about it in the first days of his presidency

in 1933, and it has since been praised in concept by leaders of both parties from

Jack Kennedy to the first President Bush.

But until recently it was never taken beyond the world of oratory and conceptual

discussion.

President Clinton formally initiated the process of turning this from an academic

vision into reality at the 1994 Summit of the Americas in Miami. The Clinton Administration further advanced the ball at a subsequent summit in Santiago in 1998.

But, truth be told, in the second half of the Clinton Administration, I was the highest-level voice actively campaigning for a Free Trade Area of the Americas, from

my lowly perch as Deputy U.S. Trade Representative.

Now, we once again have a President as advocate-in-chief. In Quebec, Mr. Bush

picked up the FTAA baton with impressive vigor. He declared point blank ‘‘the time

has come to achieve a Free Trade Area of the Americas.’’ He pledged to ‘‘put forward

a set of principles that will be the framework for more intensive consultations with

Congress,’’ some of which is already taking place. And he added that he was ‘‘committed to attaining trade promotion authority before the end of the year,’’ in order

to make concluding an FTAA possible.

This is good news. As the former managing partner of the Texas Rangers baseball

team might say, the FTAA has moved up from the minor leagues to the ‘‘bigs.’’

Question is: can we channel this new found enthusiasm to hit the ball out of the

park, or will we strike out at the plate?

I am an unabashed fan of the FTAA. I urge you to aggressively pursue those ‘‘intensive consultations’’ with the Administration and get on with it. Let me tell you

why.

TRADE IS VITAL TO OUR ECONOMY

Trade is a driving force for our economy. In fact, the United States is more internationally exposed than any other major economy or trading bloc. External trade

in goods and services accounts for 27% of our GDP. That’s greater than Japan at

19% and it’s slightly more than the external trade of the EU 15’s collective GDP.

We depend on it for an affordable cost of living, for job creation, for the corporate

profits that secure the value of retirement investments, for our economic vitality.

THE BUY SIDE

On the buy side, U.S. businesses who seek cheaper material inputs and people

who shop for bargains at Target, Wal-Mart, Dollar General, K-Mart and other such

vendors have benefited from trade liberalization, just as foreign consumers have

benefited from having better access to U.S. made goods and services. We use $1.4

trillion in yearly imports to lower the cost of living for our people and to increase

choice and purchasing power for consumers and employers.

When we increase others’ market access to our economy, we enhance consumer

choice. When we cut tariffs on imports, we effectively cut taxes on consumption. A

tariff cut is a tax cut at the border. In the Uruguay Round, for example, we dropped

the average tariff on imports into the U.S. from 5.8% to 2.8%. Last year we imported $840 billion from countries other than our NAFTA partners. Without the

Uruguay round tariff cuts, our consumers would have paid $25.2 billion more for

those imports than they ended up paying. When you add Canada and Mexico to the

mix, we added another $18.2 billion in tax cuts at the border for our consumers from

what they would otherwise have paid last year had we not negotiated the tariff cuts

of NAFTA. Twenty five point two billion plus 18.2 billion equals $43.4 billion in tax

cuts at the border last year alone. This is real money, even in a $10 trillion economy. The point is: by broadening choice and reducing the tax we impose on our citizen’s consumption of imported goods, we lower the cost of living and raise the living

standards of the American people.

Forty percent of what we import comes from the Americas, about the same volume as we import from Asia. So further liberalization of tariffs and non-tariff barriers to imports from Latin America will accrue great benefits to the American consumer and businesses.

71

THE SELL SIDE: LOOK AT NAFTA

On the sell side, almost 50% of what we export to the world is sold within our

hemisphere. We sell more to Canada than we sell to the entire European Union.

At the rate of expansion we have experienced in the six years since NAFTA was

completed, our exports to Mexico will surpass those to Europe in another three

years. In fact, we sell almost as much to just Canada and Mexico alone—almost

$300 billion a year—as Japan sells to the entire world.

From our experience with the NAFTA, we know that free-trade agreements work

to our advantage. NAFTA has been a home run for U.S. exporters. Since that agreement was inaugurated, our exports of goods to the world outside of our NAFTA

partners have increased 52%, which isn’t too shabby. But our exports to Canada

have increased by 78% and our sales to Mexico are up 169%. Before NAFTA, we

sold $41.6 billion to Mexico; last year we sold Mexico $112 billion in U.S. made

goods. And this is not just stuff that they sew with cheap Mexican labor and send

back across the border. In a typical month last year we sold Mexicans $48 million in surgical equipment, 28,000 cars and trucks, $700 million in semi-conductors,

250,000 tons of soybeans, and, my favorite statistic, 200,000 golf balls and 3,200 sets

of clubs. They may be lousy golfers, but they are great customers, thanks to NAFTA.

IMPORTANT ANCILLARY EFFECTS

Importantly, with their economic success, Mexicans now are greater advocates of

democracy and human rights. I grew up in Mexico. The old, protected, autarchic

Mexican economy was a shield for one-party control, for massive corruption, dramatic concentration of wealth, and the suppression of individual liberty. It is no coincidence to me that Vicente Fox, a businessman, became the first truly democratically-elected president in Mexican history seven years after NAFTA. To be sure,

Mexico is far from being a perfect place. But it is a lot further along the spectrum

of raising standards of living, ensuring full employment, and developing the full use

of its resources and the human potential of its people because of the expanded production and exchange of goods on both sides of the border.

NOW, FOR THE REST OF THE AMERICAS

That’s the good news. The bad news is that while we have done brilliantly in

NAFTA, we have under-performed in the rest of the hemisphere. We sell less than

8% of our exports south of the Yucatan, Mexico’s southern border. We have underpenetrated the vast Latin American and Caribbean markets, home to 403 million

people. And we buy less than 6% of our imports from those very same countries.

Therein lies the raw economics of a trade deal. We have the potential to sell more

to them, and they to us. And generating more trade within the hemisphere will help

improve the rule of law and strengthen the potential of representative democracy

in an area where, in too many countries, these core values are at risk.

We now need to replicate Mexico’s success in the rest of the Americas. This is

what Quebec and the FTAA are all about.

HARD PROSE IN THREE AREAS

In one of his charming novellas, the great writer Henry James wrote that, ‘‘courtship is poetry, and marriage is hard prose.’’ The FTAA team I headed in the last

administration advanced the courtship phase all the way to the drafting of a

prenuptial agreement, which was completed just weeks ago in Buenos Aires and will

soon be released to the public. In Quebec, President Bush reaffirmed the marriage

proposal. He will get down the aisle and to the altar of a free trade agreement only

if his counterparts in the Hemisphere and here at home in this Congress are willing

to say, ‘‘I do.’’ It won’t be easy for them or for you to do so. There are three areas that will be

hard to crack, where the prose will be very hard, indeed. The first is agriculture.

The second involves trade remedies and anti-dumping. The third is the vexing question of whether it is appropriate to include provisions of one form or another to protect workers rights or enhance environmental protection.

AGRICULTURE

With regard to agriculture, last week Brazil’s Agriculture Minister put the issue

right up front. He said, ‘‘If the U.S. doesn’t lift its protectionist barriers and open

its market to Brazilian products, we aren’t interested’’ in the FTAA. He went on to

define ‘‘barriers’’ to include not just high import tariffs, but also government subsidies to U.S. farmers and food safety measures. Some of Brazil’s bluster here is unVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00075 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
72

doubtedly for domestic consumption and for negotiating purposes. But the Argentines, Chileans and Columbians are also eager to access our agriculture markets

and to somehow overcome our powerful farm support systems, which means to accomplish an FTAA, we will have to be prepared to put agriculture on the table.

The ‘‘easiest’’ part will be negotiating reductions in agricultural tariffs, which currently range up to 116.4% for sugar and 26.4% for beef, with an average 12% overall. Grappling with our support payments will be more difficult. Here we face a conundrum: how can we deal with our support payment programs solely in the context

of the Americas without handcuffing our ability to compete with the EU? And yet,

if we can’t come to grips with this problem in our own hemisphere, and thus cannot

accomplish a true free trade agreement in our biggest market trading area—in our

very own back yard—how can the rest of the world expect us to deliver what’s nec- essary to launch a global round which includes agriculture? Congress is going to

have to work mighty hard to get over this agricultural obstacle.

ANTI-DUMPING

On the trade remedy front, our anti-dumping regime is under constant attack

from our Latin colleagues. A week ago, Chile’s lead FTAA negotiator pointed out

that in Chile’s free trade agreement with Canada, the parties renounced the application of anti-dumping measures. ‘‘That,’’ she said, ‘‘is what we [Chile] have proposed for the FTAA . . . We know this is a sensitive issue, but many countries are

concerned by what we see as arbitrary use of anti-dumping mechanisms in the U.S.’’ In the last Administration, we forbade our negotiators from even discussing antidumping. Our line was that we and our trading partners were just perfecting the

implementation of the new anti-dumping regime agreed to in the Uruguay Round

and that until we had that in place and had tested its efficacy, we shouldn’t delve

into the subject. I don’t think that will work here.

Indeed, I think we should consider taking advantage of this opportunity to put

this topic front and center and explore just how our Latin brethren implement their

anti-dumping regimes. How transparent and/or ‘‘arbitrary’’ are they? How do they

really work? Why is it that in 1999, Brazil and Argentina together filed 40 antidumping actions while we filed only 17? What is the real cause for concern here:

is it within the hemisphere or across the Pacific Ocean? How might we cope with

the causes of dumping—the surpluses in steel, chemicals, pharmaceuticals, and certain agricultural products—as partners with a common cause, rather than as adversaries?

It is important to remember that in Seattle, we were told by the EU that if we

were not willing to put our anti-dumping regime on the table, there could be no

global trade round. This was despite the fact that the Europeans are the all-time

champions of anti-dumping. (In the year to June of 2000, the EU led the world with

49 new anti-dumping investigations). Again, I ask: if we can’t deal with this constructively within our own hemisphere and form a common front within our biggest

trading area, how can we expect to deal with the Europeans, the Japanese, the Chinese and the rest of the world on anti-dumping?

I mention these aspects of the FTAA to politely suggest that the Congress and

the Executive branch has some soul searching to do even before debating the merits

of so-called ‘‘labor and environment’’ issues.

This negotiation is not about reducing U.S. tariffs, though we have some chips

to play with in our agriculture tariff structure. When you factor in various trade

preferences we extend, the average U.S. applied tariff on imports from the region

is well south of 2.8%. On the other hand, the tariff applied to our exports to Peru

is 20%. Brazil slaps on a 17% tariff; Colombia, 12%; and Chile, 8%, and Argentina

is flopping all over the map as it undergoes Minister Cavallo’s exorcism of economic

demons. The trade-off here—the gist of an FTAA—calls for these countries to remove both these high tariffs and non-tariff barriers to our exports of goods and services, in return for our removing our non-tariff barriers and providing better market

access to their goods. Boiled down to its essence, that is the deal in the minds of

the Latins. If we are not able to muster a consensus here for providing greater market access to our friends in the hemisphere, then there will be no deal.

LABOR AND ENVIRONMENT

As to ‘‘labor and environment,’’ let’s be blunt. It takes two to tango, as it does

to do a trade deal, and we cannot get our Latin partners on to the dance floor if

we lead with two left feet (or, for that matter, with two right feet). Trade sanctions

are out. In fact, we will have to struggle mightily to structure any discussion of

these issues so as not to appear protectionist. I know that Ambassador Zoellick and

others are working hard to find a workable formulation on these issues and I wish

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them luck. It may be possible to construct an architecture of limited monetary assessments applied only to the failure to enforce existing laws in the signatory countries and only where the alleged enforcement failure has a demonstrable trade effect. I doubt you will get much more than that.

You will have to decide if this is sufficient. Once more I ask you to bear in mind

the message we are sending here to the rest of world: if we cannot resolve this issue

in our own neighborhood, how do we expect to resolve this with the rest of the

world, who are equally, if not more vehemently, convinced that these are merely

protectionist foils?

CONCLUSION

Latin America is at a tender juncture in history. So is our economy, as are the

global financial markets. I view expanded trade in the hemisphere as a vehicle for

reducing risks on all three fronts.

Democracy is sputtering in Venezuela, Colombia, Peru, Paraguay, Ecuador, Haiti,

Nicaragua, and Guatemala. Argentina is under economic duress that threatens the

financial markets not only of its neighbor, Brazil, but the entire hemisphere, including the U.S. and global debt markets.

Question: how would denying these countries greater access to the U.S. market

(coupled with the discipline of the rules and efficiencies we would insist be embodied

in an FTAA, including limiting its benefits to democracies), help them overcome

their problems? Why would we want to add to those problems rather than provide

some measure of relief and incentive and hope?

If our neighbors’ problems are insufficient motivation for an FTAA, then we

should examine the selfish arguments for the home team. On our side of the border,

we know that exports plus imports divided by GDP is 27%. In the USA, trade exerts

a big influence on consumption, employment and profits. Our long economic expansion is running out of wind. Unemployment is rising. We know that exports mean

more jobs. We know that cheaper imports hold down the cost of living. We know

from NAFTA that we can conduct freer trade with a poorer country and both come

out winners with job creation on both sides of the border. We know we exchange

too little trade with countries to the south and east of Mexico and would profit from

more.

The financial dimension is less clear, but none-the-less important. Our stock and

bond markets are under severe pressure. The financial markets are no longer the

exclusive purview of Wall Street; they are the preoccupation of Main Street. Eightyeight million Americans in 50 million households—let me repeat that—88 million

Americans in 50 million households—own mutual funds for retirement and investment purposes. All told, households have over $12 trillion invested, either through

mutual funds or directly, in corporate securities. They are feeling a little insecure

right now. So are the trustees of corporate pension funds and of Taft-Hartley monies. Underpinning the value of the securities that represent our citizens’ retirement

monies and financial well-being is the health of the companies that issue those securities. Those companies can’t grow profits for shareholders or meet interest payments or hire more workers unless they increase sales. They can’t grow their sales

unless they grow their markets. And it is a heck of a lot easier for them to grow

their markets if we can engineer constructive international agreements that pry

open new ones for them.

I am interested in engineering an FTAA that will pry open a market of 400 plus

million people in our own backyard. This is the dream we started working on seven

years ago at the Miami Summit. It is the promise of what came out of Quebec.

Thank you for the opportunity to offer my two cents. I am happy to answer any

STATEMENT OF JOHN J. SWEENEY, PRESIDENT, AMERICA

questions.

Chairman CRANE. Thank you, Mr. Fisher. Mr. Sweeney.

f FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL

ORGANIZATIONS

Mr. SWEENEY. Thank you very much, Mr. Chairman, members of

the Committee. I am happy to have the opportunity to speak to you

today on behalf of the 13 million working men and women of the

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AFL–CIO about the prospects for new trade agreements in the

Western Hemisphere, particularly the proposed Free Trade Area of

the Americas and the possible extension of the Andean Trade Preference Act.

The FTAA has been under negotiation since 1998. During that

time business leaders have met annually with the trade negotiators

to present their views and make recommendations. Business input

has shaped both the negotiation process and the content of the

agreement so far. Labor and environmental leaders from all over

the hemisphere, as well as representatives of family farm, human

rights, women’s and development organizations have also met regularly with each other during this period, to exchange views, discuss

alternative models for social and economic integration, and communicate with the FTAA negotiators.

Unlike the business advocates, however, the views of broadly representative civil society organizations appear to have had no impact whatsoever on the course of FTAA negotiations. Labor and environmental concerns are completely absent from negotiations so

far, and the investment and services provisions appear to be based

on the flawed NAFTA model. Finally, the draft text has still not

been made public despite requests from hundreds of civil society organizations in Latin America, the Caribbean and North America.

And yet the FTAA, if implemented, will have a profound impact

on the lives of everyone in this region and beyond. A Free Trade

Area of the Americas will affect the terms of competition between

businesses, but also between governments angling to attract foreign investment or localities struggling to keep jobs in their communities. And it will, of course, affect the daily lives of workers and

farmers struggling to earn a living, often under very harsh conditions, all over the hemisphere.

In short, if it continues along its current path, the proposed

FTAA will dramatically shift the balance of bargaining power in

this hemisphere, further protecting and strengthening corporate

rights, while leaving workers, environmental advocates, human

rights champions, and national governments, with less leverage

and less clout. Like NAFTA, this particular model of regional economic integration will lead to growing income inequality, environmental degradation and erosion of workers’ rights.

That is why workers and trade unions throughout the western

hemisphere are united in rejecting the current FTAA. At its recent

Congress in Washington, D.C., the Inter-American Organization of

Workers, known as ORIT, called for any hemispheric agreement to

include a social dimension, including enforceable core workers’

right, protections for the rights of migrant workers, debt relief,

guarantees that public health concerns will take precedence over

trade rules, and a truly transparent, inclusive and democratic process, both for the negotiation of the FTAA and for the implementation of any regional agreement.

The failure to negotiate meaningful and enforceable workers’

rights protections in the FTAA would represent a giant step backward for workers in the hemisphere. Currently some workers’

rights protections are included in US trade laws that affect the

hemisphere, including GSP, the Caribbean Basin Trade Partnership Act, and the Andean Trade Preference Act. While we believe

75

these provisions should be strengthened and improved, they have

nonetheless provided some avenues for improving labor laws and

enforcement in the hemisphere. This minimum degree of economic

leverage will be lost if the FTAA moves forward without any protections for workers’ rights at all.

Workers rights are under attack in many countries in our hemisphere, including our own. We need to use the leverage of new

trade agreements to strengthen and improve workers’ rights protections, not gut them, as the architects of the FTAA propose.

The success or failure of the FTAA or an extension of the ATPA

will hinge on governments’ willingness and ability to develop an

agreement that appropriately addresses all of the social, economic

and political dimensions of trade and investment, not just those of

concern to corporations. Failure to address these concerns will

produce an agreement that is resoundingly rejected by the people

and parliaments of this hemisphere, and that produces disastrous

economic results for working people from Alaska to Argentina.

I look forward to your questions and working with you on these

important issues.

[The prepared statement of Mr. Sweeney follows:]

Statement of John J. Sweeny, President, American Federation of Labor and

Congress of Industrial Organizations

Mr. Chairman, members of the Committee, I thank you for the opportunity to

speak to you today on behalf of the thirteen million working men and women of the

AFL-CIO about the prospects for new trade agreements in the western hemisphere,

particularly the proposed Free Trade Area of the Americas (FTAA) and the possible

extension of the Andean Trade Preference Act (ATPA).

The FTAA has been under discussion since 1994, with formal negotiations beginning in 1998. During that time, business leaders have met annually with the trade

negotiators to present their views and make recommendations on the content of the

agreement. Business input has shaped both the negotiation process and the content

of the agreement so far.

Labor and environmental leaders from all over the hemisphere, as well as representatives of family farm, indigenous, human rights, women’s and development organizations, have also met regularly with each other during this period to exchange

views, discuss alternative models for social and economic integration, and communicate with the FTAA negotiators.

Unlike the business advocates, however, the views of broadly representative civil

society organizations appear to have had no impact whatsoever on the course of

FTAA negotiations. None of the nine FTAA negotiating groups is charged with negotiating labor and environmental protections, and none of the groups has even agreed

to discuss how to incorporate workers’ rights or environmental standards into the

FTAA. The modest U.S. proposal for a study group on workers’ rights was rejected

by the other governments last year. The investment and services provisions of the

FTAA appear to be modeled on the North American Free Trade Agreement

(NAFTA), which has utterly failed to deliver the promised benefits to working people in the three North American countries. And, finally, the draft text has still not

been made public, despite requests from hundreds of civil society organizations in

Latin America, the Caribbean, and North America.

And yet the FTAA, if implemented, will have a profound impact on the lives of

everyone in this region, and beyond. A Free Trade Area of the Americas will affect

the terms of competition between businesses, but also between governments angling

to attract foreign investment, or localities struggling to keep jobs in their communities. It will affect the criteria national governments may or may not set to determine who is eligible to bid for government contracts, and it will affect the balance

between public provision of essential services and private-sector competition in

these areas. And it will, of course, affect the daily lives of workers and farmers

struggling to earn a living, often under very harsh conditions, all over the hemisphere.

In short, if it continues along its current path, the proposed FTAA will dramatically shift the balance of bargaining power in this hemisphere, further protecting

76

and strengthening corporate rights, while leaving workers, environmental advocates,

human rights champions, and national governments with less leverage and less

clout. Like NAFTA, this particular model of regional economic integration will lead

to growing income inequality, environmental degradation, and erosion of workers’ rights.

That is why workers and trade unions throughout the western hemisphere are

united in calling the current FTAA a failed model of trade and development policy.

At its recent Congress in Washington, D.C., in April, the Inter-American Organization of Workers (known by its Spanish acronym, ORIT) unanimously rejected the

current FTAA. ORIT, which includes the AFL-CIO, along with unions representing

more than 45 million workers in the western hemisphere, called for any hemispheric

agreement to include a social dimension, including the following elements: • Enforceable protection of the core workers’ rights identified by the International

Labor Organization’s 1998 Declaration on Fundamental Principles and Rights at

Work: freedom of association, the right to organize and bargain collectively, and the

right to be free from child labor, forced labor, and discrimination in employment; • Protection under national law and international treaty obligations for the rights

of migrant workers throughout the hemisphere, regardless of their legal status; • Measures to ensure that countries retain the ability to regulate the flow of speculative capital; • Debt relief; • Compliance with World Health Organization guidelines, which say that public

health should be paramount in trade disputes; • Equitable and transparent market access rules that allow for effective protection against import surges; and • A truly transparent, inclusive, and democratic process, both for the negotiation

of the FTAA and for the implementation of any regional agreement.

In addition, if there are to be hemispheric negotiations on investment, services,

government procurement, and intellectual property rights, ORIT and the AFL–CIO

are united in insisting that any agreement must not undermine the ability of governments to enact and enforce legitimate regulations in the public interest: • Investment rules should not discipline so-called indirect expropriations, should

rely on government-to-government rather than investor-to-state dispute resolution,

and should preserve the ability of governments to regulate corporate behavior to

protect the economic, social, and health and safety interests of their citizens; • Services rules must be negotiated sector by sector and must not undercut government provision or regulation of services in the public interest; • Government procurement rules must give governments scope to serve important

public policy aims such as environmental protection, economic development and social justice, and respect for human and workers’ rights; and • Intellectual property provisions must allow governments to limit patent protection in order to protect public health and safety, especially patents on life-saving

medicines and life forms.

The failure to negotiate meaningful and enforceable workers’ rights protections in the FTAA would represent a giant step backwards for workers

in this hemisphere. Currently, some workers’ rights protections are included in

U.S. trade laws that affect the hemisphere: the Generalized System of Preferences

(GSP), which grants additional trade benefits to developing countries, the Caribbean

Basin Trade Preference Act (CBTPA), which grants some NAFTA benefits to the

Caribbean and Central American countries; and the Andean Trade Preference Act

(ATPA), which grants benefits to Colombia, Peru, Bolivia, and Ecuador. While the

precise formulation varies, all of these agreements provide for the withdrawal of

trade benefits from countries that are not at least ‘‘taking steps’’ to afford internationally recognized workers’ rights.

The AFL–CIO has called for the strengthening of these provisions and for more

consistent and transparent enforcement. Despite the room for improvement, however, these trade-related workers’ rights protections have been responsible for improving labor laws in some countries and for enhancing enforcement in others. In

many cases, the threat of withdrawing benefits has been sufficient to motivate compliance, and no trade sanctions were actually applied.

The Dominican Republic, for example, reformed its labor code to meet ILO standards in 1992 in response to a workers’ rights petition filed by Human Rights Watch.

After the filing of an additional petition in 1993 by the AFL–CIO (when the government had failed to enforce the new code), the government took concrete action

against an apparel company accused of numerous illegal anti-union actions. As a result of the improved labor code and improved enforcement efforts, workers were

eventually able to win their first collective bargaining contract in the history of Dominican free trade zones. After this breakthrough, three other collective bargaining

77

agreements were signed in the zones before the end of the year, according to USTR

GSP documents and a Labor Department report. Because of these GSP petitions,

there are now independent unions in the Dominican free trade zones where there

were none before.

The threat of losing GSP privileges has also motivated labor law improvements

in El Salvador. After the AFL–CIO filed several GSP workers’ rights petitions in

the early 1990s, El Salvador accepted ILO assistance to draft a labor code that conforms more closely to international standards on freedom of association and the

right to organize and bargain collectively.

This minimum degree of economic leverage will be lost if the FTAA moves forward

without any protections for workers’ rights at all. Workers’ rights are under attack

in many countries in our hemisphere, including our own.

Over 1,500 union members and leaders have been murdered in Colombia since

1991—35 more this year alone—with no effective action by the government to identify and hold responsible the perpetrators. An ILO investigative mission, which visited Colombia in February 2000, reported that: ‘‘Cases where the instigators and

perpetrators of the murders of trade union leaders are identified are practically nonexistent, as is the handing down of guilty verdicts.’’ This very grave situation in Colombia clearly deserves both attention and resources. We do not believe that simply extending the ATPA will eliminate these

egregious abuses. We believe any new ATPA legislation must ensure effective prosecution of persons responsible for physical attacks and other illegal acts perpetrated

against trade unionists and others seeking to exercise their rights to freedom of association and assembly. We support appropriations for technical assistance through

the International Labor Organization (ILO), to bring labor laws and enforcement

into compliance with ILO standards, especially in the areas of freedom of association

and collective bargaining. And any extension of ATPA must provide for regular reporting to Congress on progress in these areas, with the elimination of benefits for

cases of persistent and serious non-compliance.

We need to use the leverage of new trade agreements to strengthen and improve

workers’ rights protections, not gut them, as the architects of the FTAA propose.

Some people have expressed concerns that such workers’ rights provisions would

constitute disguised protectionism and become an excuse for closing markets and denying the benefits of trade to poorer countries. Nothing could be more wrong.

First, the record shows that the AFL–CIO has consistently used existing workers’ rights provisions (in GSP and other trade laws) to support the struggles of workers

in developing countries and not to protect American jobs.

Second, the trade unions of the hemisphere are united in insisting that enforceable workers’ rights be included in any hemispheric trade agreement. The absence

of such protections, Latin American trade unionists have found, allows—and even

encourages—governments to compete for scarce foreign investment by overtly or implicitly agreeing to keep wages artificially low by repressing independent trade

unions. This repression may start with union organizers, but inevitably spreads to

include repression of free speech and assembly.

Respecting freedom of association is absolutely essential to building a vibrant democracy, and allowing workers to bargain fairly with employers and to raise their

voices effectively in the political process is absolutely essential to building a strong

middle class.

The charge of protectionism is invariably applied to labor and environmental

standards, but not to corporate concerns like market access or intellectual property

rights. The plain fact is that withdrawing trade benefits is the most effective way

of enforcing provisions of a trade agreement. This is the method now used under

NAFTA, the World Trade Organization (WTO), and other U.S. trade laws. So the

charge that protecting labor standards through trade measures is somehow uniquely

protectionist rings false.

An acceptable hemispheric agreement must not simply replicate the failed trade

policies of the past, but must incorporate what we have learned about the problems

and weaknesses of the current rules. The success or failure of any hemispheric trade

and investment agreement will hinge on governments’ willingness and ability to develop an integration agreement that appropriately addresses all of the social, economic, and political dimensions of trade and investment, not just those of concern

to corporations.

Failure to address these concerns will produce an agreement that is resoundingly

rejected by the people and parliaments of this hemisphere and that produces disastrous economic results for working people from Alaska to Argentina.

Any discussion about granting fast track negotiating authority must first address

these important issues. Before we send our negotiators into four more years of negotiations toward the FTAA, we should have an open domestic debate about how best

78

to protect the interests of workers and the environment in the context of new trade

agreements.

We believe that any fast track legislation must require the inclusion of enforceable workers’ rights and environmental standards in the core of all new trade agreements. New trade agreements must ensure that all workers can freely exercise their

fundamental rights and require governments to respect and promote the core labor

standards laid out by the ILO. Workers’ rights and environmental standards must

be covered by the same dispute resolution and enforcement provisions as the rest

of the agreement, and these provisions must provide economically meaningful remedies for violations. An agreement that does not meet these principles must not be

considered under Fast Track procedures. Monetary fines modeled on the NAFTA

labor side agreement or the Canada-Chile agreement are inadequate and have proven an ineffective means of enforcement.

It is not sufficient simply to revise the list of negotiating objectives to include

workers’ rights and environmental protections. Workers’ rights have been among our

negotiating objectives for more than 25 years, with very little progress being made.

Congress must also ensure that ordinary citizens have access to negotiating texts

on a timely basis, and that negotiators are accountable to both Congress and the

public as to whether mandatory negotiating targets are being met.

Trade agreements must not undermine public services or public health, nor allow

individual investors to challenge state laws in secret. Trade authority must delineate responsibilities for investors, not just rights, and must not require privatization

and deregulation as a condition of market access.

Trade negotiating authority must also instruct U.S. negotiators that a top priority

is to defend and strengthen U.S. trade laws. Fast-tracked trade agreements must

not prevent governments from implementing national policies to promote a strong

manufacturing sector.

I look forward to your questions and to working with you on these important

issues in the months to come.

Chairman CRANE. Thank you, Mr. Sweeney. Mr. Vargo.

f STATEMENT OF FRANKLIN J. VARGO, VICE PRESIDENT,

INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS

Mr. VARGO. Thank you very much, Mr. Chairman, and let me say

it is a great honor to be on the same panel with and to follow Mr.

John Sweeney, who is truly a great American.

The National Association of Manufacturers has the Free Trade

Area of the Americas as its very top trade priority. It is extremely

important to American manufacturing and to American manufacturing workers that the FTAA proceed forward. It is also important

to raising living standards throughout the hemisphere, and contributing toward democracy.

Now, Latin America is one of two areas of the world that still has

the highest trade barriers, the other being Southeast Asia. Despite

this, we already export 60 billion a year to Central and South

America. That is four times what we export to China. But with the

removal of trade barriers in the hemisphere, our projection is that

that 60 billion of exports today, within the decade will more than

triple, to $200 billion. It will be subject to the NAFTA effect, and

if you look at what has happened to our exports to NAFTA, for example, Exhibit 3 in my prepared statement has a graph showing

that our exports to Mexico and our exports to Central and South

America, up until 1994, moved very closely together. They were almost identical. But in the years since NAFTA started, we now export twice as much to Mexico, twice as much as we do to all of CenVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00082 Fmt 6633 Sfmt 6602 W:\DISC\74222 ATX004 PsN: ATX004
79

tral and South America. We want that same effect to apply

throughout the hemisphere.

Now, the United States is already a very open market. Perhaps,

though the Committee is very well informed, you may not be aware

of just how open we are. Last year, average US tariffs were 1.6 percent. 1.6 percent is not a trade barrier, it is a speed bump. Twothirds of all of our imports came in absolutely duty free. Now, in

Central and South America, American exporters face duties that

average in major markets 14 percent or more, and it is not uncommon for American manufacturers to face duties of 20 to 30 percent,

and on top of that, we have standards barriers and other barriers.

These have to come down.

Now, the matter is urgent because we are not the only ones who

are talking about negotiating or actually negotiating with Central

and South America. So are the Europeans. And if the Europeans

manage to get duty-free access to these markets while we still have

to pay those 20 and 30 percent duties, that is going to shut a lot

of exports out and put a lot of our present $60 billion at risk.

Now, NAM had a delegation in South America, in Chile, and we

went to Buenos Aires to talk with other business communities and

the American Business Forum. And we believe the FTAA is very

feasible to negotiate. We also believe it is feasible to negotiate

quickly a trade agreement with Chile, and we say why should we

wait until 2005 if Chile is ready to open up its market now?

But another thing was very clear, Mr. Chairman, and that is

that both the Latin American business communities and the governments, without trade promotion authority, these negotiations

are not going to go forward, no TPA, no negotiations, and we will

be stuck with the status quo, and we will lose under the status

quo. The time has come to stop negotiating with ourselves and

start negotiating with our trading partners, because the cost of inaction is about to get very high. It would be very ironic if we were

to continue to debate labor rights in other countries, while thousands of American workers lost their jobs if our foreign competitors

were able to cut trade deals with Central and South America while

we were not, and we lost those exports.

Now, we are prepared to view labor and environmental concerns

in a very flexible manner. We support good labor and environmental practices. We oppose trade sanctions. But if the objective is

genuine concern for labor and environmental standards, we believe

there are positive steps that reasonable people could agree on and

move forward on, and we are ready to look at alternatives, and we

are ready to look for creative solutions.

But if we do not negotiate the FTAA, and if we keep the status

quo, we lose. You know, keeping our 1.6 percent duties and allowing them to keep their 20 to 30 percent duties, and letting the EU

into South America duty free, is not a winning solution for American manufacturers or for America’s factory workers.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Vargo follows:]

Statement of Franklin J. Vargo, Vice President, International Economic

Affairs, National Association of Manufacturers

Mr. Chairman and Members of the Committee:

80

I am pleased to be here this afternoon on behalf of the National Association of

Manufacturers in this important discussion of the outcome of the Quebec Summit

of the Americas and the prospects for free trade in the hemisphere. The National

Association of Manufacturers represents 14,000 American firms producing about 80

percent of all U.S. manufacturing output. Manufacturing comprises approximately

one-fifth of all the goods and services produced by the U.S. economy, and directly

supports 56 million Americans—the 18 million American men and women who

make things in America and their families.

Trade is of great importance to the NAM, for almost nine out of every ten dollars

of U.S. merchandise exports are manufactured goods. Last year, U.S. exports of

manufactured goods were $690 billion, 88 percent of total U.S. merchandise exports.

The $52 billion of agricultural goods exported last year accounted for 7 percent of

U.S. merchandise exports, and mining and all other industries accounted for the remaining 5 percent. Similarly, manufactured goods dominate our imports, where last

year they accounted for 83 percent of the total.

About one-sixth of our total manufacturing output is exported, and for many important industries the ratio is much higher. For example, exports account for 54 percent of U.S. aircraft production, 49 percent of machine tools, 46 percent of turbine

and generator output, 45 percent of printing machinery, and the list goes on.

FTAA—NAM’S TOP TRADE PRIORITY

Earlier this year, the NAM identified and prioritized its top trade objectives. This

process, which included final review at this spring’s NAM Board meeting, concluded

that the NAM’s top trade priority is the creation of the Free Trade Area of the

Americas (the FTAA). The reason for this is that the FTAA would strongly affect

the bottom line for American industry. It is of major significance to U.S. manufacturing production and employment, it is achievable in a near-term time frame, and

it is of urgent importance.

There are two areas of the world where barriers are still high South America and

Southeast Asia. The FTAA would eliminate barriers throughout the Western Hemisphere, creating the world’s largest free trade area—a market of 34 countries and

800 million people. The Western Hemisphere already accounts for nearly one out

of every two dollars of all our exports. Most of this goes to Canada and Mexico, for

the North American Free Trade Area (NAFTA) has generated a huge trade boom.

We believe the FTAA will do the same for trade with Central and South America.

Last year U.S. firms exported $60 billion to Central and South America, an

amount four times as much as we exported to China. But the market is only a fraction of what it could be. Trade barriers have been holding back both our exports

and the region’s economic growth. This does not just affect large firms. In fact, of

the 46 thousand U.S. companies that export to Central or South America, 42 thousand—91 percent of the total—are small and medium-sized firms.

Based on our experience with NAFTA, the NAM predicts that with the successful

negotiation and implementation of the FTAA, our present $60 billion of annual merchandise exports to Central and South America would more than triple within a

decade to nearly $200 billion. That would represent a very considerable increase in

U.S. industrial production generating more high-paying jobs in America’s factories.

America’s agricultural and services exports would also grow proportionately.

U.S. imports would grow as well probably by close to the same amount. The U.S.

economy needs imports as well as exports. We benefit both by creating more highpaying export-related jobs and by being able to purchase imported goods more

cheaply. America’s living standard has benefited very strongly.

It is important to recognize that the industries that trade the most pay the highest wages. In fact, as seen in Exhibit 1, while trade-intensive industries paid an average annual compensation last year of $60 thousand per worker, industries that

are moderately engaged in trade paid $48 thousand, and those that are not tradeengaged paid $44 thousand.

The Need for the FTAA

America is already a very open market. The FTAA would open markets for U.S.

products in the rest of the hemisphere. Last year, the average import duty paid on

all imports into the United States was only 1.6 percent. That is not a trade barrier;

it is barely a speed bump. Moreover, two thirds of all our merchandise imports from

the world last year paid no duty at all. They entered the United States totally dutyfree.

American exporters to South America, unfortunately, face a different situation.

There, duties in major markets average 14 percent or more, and it is not uncommon

for U.S. manufactured goods to face duties of 20-30 percent or higher. For example,

as one of our members, the 3M company recently testified, Colombia assesses a 20

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percent duty on their U.S.-made electrical tape. Ecuador charges their filter products a 30 percent duty. And so it goes. Those are serious barriers. Exhibit 2 depicts

average tariffs in the United States and South America.

Moreover, a recent World Trade Organization (WTO) report shows that Latin

America has the highest bound duty rates in the world averaging 35 percent. Southeast Asia comes in second, with a 28 percent average bound duty. These are ′′bound′′

duties, the legal duty limits that countries are not allowed to exceed. While bound

rates tend to be much higher than the rates countries actually charge, they are important because they are the basis for WTO negotiations and because countries are

permitted to raise duties up to their bound levels if they choose.

Tariff barriers, furthermore, are augmented by costly customs clearance procedures, standards that can be used as entry barriers, expensive and redundant testing and certification procedures, and other obstacles to trade. Eliminating these tariff and non-tariff barriers would lower the cost of U.S. products in Central and

South America and would significantly increase U.S. exports. Faster economic

growth in Central and South America would occur as well, for their economic

growth has been held back by their trade barriers. Removing trade barriers will enable production within these countries to become more efficient, allowing producers

to focus on the goods and services they can produce most effectively, and lowering

the costs of what they buy.

The best example is Chile, a country that for a decade has determined it can only

increase its living standard by reducing trade barriers, focusing its production on

what it does best, and importing the rest. The result? Chile’s economic growth over

the past decade has been the fastest in South America—and has been double the

average for all of South America. In fact, over the past decade Chile has been the

third fastest-growing economy in the world.

There is a real urgency to negotiating the FTAA, for the European Union (EU)

is also negotiating free trade agreements with key South American countries. This

is no trivial matter, for the European Union currently sells about as much to South

America as we do. The consequences for U.S. exports would be severe if the EU

were to obtain duty-free access to these markets while U.S. exports continued to

face duties that could be 20 or 30 percent. A huge shift away from U.S. products

to European products would result. The latest development is that Japan is now exploring the possibility of free trade agreements with South American countries.

Opposition to the FTAA

Some very vocal groups are opposed to the FTAA. They would rather keep the

status quo. Looking at the status quo—1.6 percent duties in the United States vs.

duties ranging up to 20-30 percent in South America—it is difficult to understand

why anyone would believe we are better off by not reducing our duties and their

duties down to zero. Under the status quo, especially if the EU obtains preferential

access to South America, U.S. factories and the American workforce would be the

big losers.

Much of the opposition to an FTAA is due to a belief that the North American

Free Trade Area (NAFTA) has not been beneficial to the United States, and that

the FTAA would compound this. Individuals taking this position have simply not

looked at the facts. Far from being disadvantageous to the United States, NAFTA

has been an enormous success.

For starters, NAFTA has resulted in an astonishing U.S. export boom. U.S. exports to Mexico have more than doubled since the initiation of NAFTA. The $111

billion we exported to Mexico last year exceeded our exports to Japan, Germany,

and France combined—the three largest economies in the world outside the United

States. Last year Mexico accounted for close to one-third of all U.S. export growth

worldwide. That is quite an achievement.

To see how strong an effect NAFTA has had on our export growth, consider the

fact that U.S. exports to Mexico have historically tended to be about the same size

as our exports to Central and South America, about $30 billion to each in 1994, for

example. But since NAFTA, U.S. exports to Mexico have soared to nearly twice the

level of our exports to Central and South America. This is dramatically visible in

Exhibit 3. The FTAA will have the same effect on our exports to Central and South

America as NAFTA did for our exports to Mexico.

But what about the import side? It is certainly true that our imports from Mexico

rose even faster than our exports, and what was a U.S. trade surplus in 1993 has

become a large deficit. This is a key reason why many view NAFTA as a failure

for the United States. In fact, one organization claims this trade deficit has cost the

United States 700,000 manufacturing jobs. The reasoning is that if exports create

jobs, imports must destroy them.

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There are two problems with this logic. The first is conceptual, for many imports

simply don’t compete with U.S.-made products or they fill gaps where the U.S. just

can’t produce enough to meet demand. For example, one-third of our deficit with

Mexico stems from oil imports necessary to meet our energy needs. Additionally, the

exceptional growth of the U.S. economy pulled in imports from Mexico along with

imports from the rest of the world.

The second problem is that the facts just don’t support an argument that the

trade deficit with Mexico has cost manufacturing jobs. A close examination of the

data shows that indeed there is a $17 billion deficit in our manufactures trade with

Mexico. But one industry predominates: motor vehicles. In fact, we have a $24 billion deficit in our automotive trade with Mexico.

Note that the deficit in automotive trade with Mexico exceeds our total manufactures goods deficit with Mexico. What that means is that our trade with Mexico in

all other manufactures is in surplus by $7 billion. Let me stress that point: U.S.

non-automotive manufactures trade with Mexico had a $7 billion surplus last year.

Moreover, that surplus has been growing in recent years—an almost unique phenomenon in our trade with the world. Thus, in the logic of those who equate deficits

with job losses—since there is no deficit here, there is no net job loss.

If there has been a NAFTA job loss, it must have been in autos, where the trade

deficit grew $20 billion since the initiation of NAFTA. However, this is not borne

out by the facts either. In fact, employment in the U.S. auto industry, even after

the recent decline in the U.S. economy, stands at over 100 thousand jobs higher

than before NAFTA began. While total manufacturing jobs in the United States

grew 2 percent from 1993 to 2000, auto sector jobs grew 20 percent ten times as

fast. There has been no net job loss in the auto sector, and the reason is that the

integrated North American auto industry really works, and it works for all three

countries.

So where is the job loss? In the non-automotive manufactured goods trade surplus

we have with Mexico? Or in the auto industry that has gained more than 100,000

jobs since NAFTA? The answer is that the facts simply do not support claims that

NAFTA has led to a significant net loss in manufacturing jobs.

What about the ‘‘sucking sound’’ of a wholesale movement of U.S. factories closing

their doors and moving to Mexico? Certainly some factories have moved to Mexico,

but there has not been the flood that many seem to take for granted. Furthermore,

many more U.S. factories have stayed right where they are and have expanded their

payrolls to produce that $111 billion we are now exporting to Mexico.

U.S. balance of payments data show that there has been only a modest increase

in U.S. investment in Mexico. Prior to NAFTA, U.S. companies invested $3 billion

in Mexico (3 percent of global U.S. foreign direct investment). In 1999 (latest year

available), they invested $5 billion (4 percent of global U.S. foreign direct investment).

Moreover, most of this investment increase has been in finance, wholesaling, retailing, etc.—not in manufacturing. U.S. manufactured goods investment in Mexico

has been fairly steady at about $2.5 billion per year since NAFTA began. This is

only a fraction of the $35 billion invested last year by U.S. manufacturers abroad,

mainly in high-wage developed countries. Three- fourths of U.S. manufacturing investment goes to the industrial countries. And in 1999, 40 percent of the manufacturing investment to the developing world went to one country—not Mexico and not

China but high-wage Singapore.

Thus it is clear that when one looks at what has really been happening, NAFTA

is actually a great success. Rather than trying to avoid another NAFTA, we should

seek to emulate it and expand free trade to the rest of the hemisphere, particularly

in Central and South America.

THE PROSPECTS FOR HEMISPHERIC FREE TRADE

Let me now turn to the prospects for actually being able to obtain free trade in

the hemisphere. An NAM business delegation visited Chile and Argentina last

month to discuss the FTAA and the bilateral negotiations with Chile. After consultations with business executives and government officials we concluded that the

chances for successful negotiation of both agreements are excellent. We found a lot

of agreement on the negotiating agenda and an ample amount of common ground.

This is not to say the negotiations will be easy. We have high expectations and

major goals to be achieved in the negotiations, and we will continue to press U.S.

negotiators to obtain the best possible package of trade liberalization. Other business communities left no doubt that they will do the same. The negotiations will

have to be balanced, with all parties seeing benefits. This is why everything must

be put on the table for negotiation.

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Considerable groundwork has already been done. Nine negotiating groups have

worked over the past couple of years to lay out the framework for the negotiations.

Notably, the trade ministers of the 34 nations met their goal of producing an initial

bracketed text at the last month’s FTAA ministerial meeting in Buenos Aires, Argentina. The U.S. leadership, Ambassador Zoellick and Secretary Evans, did an excellent job of defusing questions of timing, and obtaining agreement that actual negotiations would start next May.

Importantly, the Summit of the Americas in Quebec last month provided the final

necessary ingredient—the political agreement and commitment to move ahead.

President Bush did what we had hoped. He laid out the FTAA as a key trade priority and stressed the U.S. would devote all necessary resources to the negotiations.

The other ministers agreed and charged their trade officials to move ahead. The significance of the Quebec Summit is that it marked the end of phase one—the planning and the groundwork, and the beginning of the next phase—the actual negotiations.

Business not only strongly supports these negotiations, but is also helping pull

them forward. Representatives of the U.S. business community and the 33 other

business communities participated in the Americas Business Forum in Buenos Aires

immediately prior to the FTAA Ministerial meeting. The purpose of the forum was

to exchange views, find common ground, and make recommendations to governments. Clearly evident at the business forum was that business communities

throughout the hemisphere want to move ahead. They recognize that Latin America’s economic future can only be assured through the removal of trade barriers and

the creation of a free trade area.

Also true, however, is that most Latin business communities are concerned about

their ability to compete and survive in an open market. They are cautious, particularly about the period of time over which tariffs would be eliminated. The U.S. business community would like to eliminate as many tariffs as possible as soon as implementation of the FTAA begins. Few Latin business communities agree at this

point. They argue that some sensitive industries will require more time to adjust.

This will be an important part of the negotiations.

The NAM will continue to work with Latin American industries to maintain forward movement. For example, last week the NAM signed a memorandum of understanding with the Venezuelan industry association, CONINDUSTRIA, to begin a

process of communication and cooperation—particularly with respect to the FTAA.

In signing that document, the Venezuelan industry leadership stated its strong support for implementing the FTAA by the end of 2005—or even earlier if that is feasible.

Bilateral Negotiations

In addition to the FTAA, the U.S. is currently negotiating a bilateral trade agreement with Chile. The NAM applauds this negotiation and wants to see it concluded

by the end of this year. We seek a robust, world-class agreement that would quickly

eliminate trade barriers and would provide full investment coverage. Based on our

meetings in Chile last month with government leaders, key legislators, and business

executives, we are convinced this is feasible.

There are two reasons for our strong support of this bilateral negotiation. First,

the agreement will help expand bilateral trade with Chile. Chile is the most free

trade-oriented country in South America, and is ready now to enter into free trade

with the United States. Why should we wait until 2005 to begin obtaining improved

market access through the FTAA if we can begin obtaining this access next year

through a bilateral agreement? Of course, compatibility with the FTAA must be ensured.

The second reason is that conclusion of the agreement with Chile will reinforce

the FTAA negotiations and serve to set high standards. Having an agreement with

Chile will maintain the momentum of the FTAA negotiations. In fact, the NAM has

urged USTR to commence bilateral FTA negotiations with other countries in South

America. We understand that the Central American countries (accounting for over

$12 billion of U.S. exports, four times as much as to Chile) have indicated their interest, as have other countries including Uruguay and Argentina. So long as the

U.S. government has the capacity to engage in these negotiations, they should proceed as soon as possible. Like the Chile negotiations, additional bilateral negotiations will help ensure success for the larger FTAA negotiations.

NEEDED: TRADE PROMOTION AUTHORITY

In concluding my statement, I want to stress there is one absolutely essential prerequisite to these negotiations B providing the President with Trade Promotion Authority (TPA). Our trading partners insist on having the assurance that what they

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negotiate with the United States will be voted on as a single package. They will not

negotiate under circumstances in which the final deal turns out not to be final, but

is one which Congress modifies.

It must be stated bluntly: without Trade Promotion Authority, the FTAA negotiations simply will not move forward. I believe the same can be said for prospective

negotiations on a new round in the WTO. The Latin business communities and government officials with whom we have met were all unanimous on that point: no TPA

. . . no negotiations.

Regrettably, some would applaud if there were to be no negotiations; but, as I

stated earlier in my testimony, maintenance of the status quo means that we lose.

Allowing Latin nations to keep their duties of 20–30 percent on major U.S. exports

while we keep our 1.6 percent tariff speed bump against theirs is not a winning solution for the United States.

The time has come to stop negotiating with ourselves and to start negotiating

with our trading partners. In particular, the issue of how to handle labor and environmental concerns has stalled us for too long. We must find a way to move forward, for the cost of continued inaction is about to get very expensive. How ironic

it would be if we continued to debate labor rights in other countries while thousands

of American workers began to lose their jobs as our foreign competitors completed

trade deals with Latin America and took our export business away.

Business has already stated that it is prepared to view labor and environmental

concerns in a flexible manner. Business is not opposed to good labor and environmental practices. U.S. business standards are the highest in the world, and we tend

to carry them with us through our investments in foreign countries—as is illustrated in a joint Manufacturers Alliance—NAM study of U.S. company practices in

developing countries that will be released shortly.

We believe that if the objective genuinely is to advance labor and environmental

standards in the world, then there are positive steps that can be taken. We remain

opposed to trade sanctions, but we are ready to discuss alternatives and to look for

creative solutions.

Neither business, nor workers, nor environmentalists would benefit from continuing the status quo in our trade relations with Central and South America. We

will all do better with the FTAA. I believe it was Jean Monnet, one of the founders

of the European Community, who said, ‘‘Let us all put ourselves on one side of the

table, and the problem on the other side. Working together, we can move ahead.’’

Thank you, Mr. Chairman.

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STATEMENT OF DANIEL M. PRICE, MEMBER, UNITED STATES

Chairman C

COUNCIL FOR INTERNATIONAL BUSINESS

RANE. Thank you, Mr. Vargo. Mr. Price.

f Mr. PRICE. Thank you, Mr. Chairman and members of the Committee. I am pleased to be here on behalf of the US Council for

International Business. And I would like to focus on the issue of

investment in the FTAA.

Time permitting, I would like to address three points. First, the

importance of investment flows, inbound and outbound to the US

economy; second, the importance of including an investment chapter in the FTAA and what that chapter should address; and finally,

I would like to respond to some of the concerns that have been

raised about the investor-State dispute settlement mechanism that

appears both in NAFTA and in US bilateral investment treaties.

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First, it is important we recognize that the world economy is no

longer characterized by companies that simply sit within national

borders and either export or sell locally. Companies are investing

abroad in increasing numbers. They do so to get closer to their

markets, acquire new technologies, form strategic alliances, or otherwise enhance their competitiveness, including by integrating production and distribution.

Now, the United States has been a principal beneficiary of this

dramatic increase in investment flows. On the inbound side, the

United States is host to the largest amount of foreign investment.

Foreign investment in the year 2000 reached almost $317 billion.

As of 1998, foreign companies in total had invested $3.5 trillion in

the United States. Foreign companies employ 5.6 million people in

the United States, and pay average annual salaries of over $46,000

per year, which is well above the average salary for US workers

as a whole. Likewise, US subsidiaries of non-US companies accounted for 131⁄2 percent of all US manufacturing jobs. Finally, as

of 1998, foreign company affiliates in the United States accounted

for approximately 22 percent of US exports.

On the outbound side the picture is equally bright. As of 1998, US companies had invested over $4 trillion abroad. In terms of

sales, foreign affiliates of US companies had sales of approximately

$2.4 trillion. That is nearly 21⁄2 times the amount of US exports.

And exports by United States companies that have affiliates abroad

were $438 billion in 1998. That amount equals some two-thirds of

all US exports. And of those exports, 50 percent went to US affiliates abroad. As Congressman Brady noted in his earlier statement,

investment pulls exports. It is a fact.

Now, some have suggested that investment liberalization leads to

a race to the bottom. I suggest the evidence is to the contrary. If

lax environmental standards, low wages, and the absence of worker

rights were the principal determinants of investment flows, one

would expect the least developed countries to be the host to the

majority of foreign investment. Yet the reverse is true. More investment flows between developed countries. More than 75 percent of

all foreign direct investment is in the developed world. The United

States itself is host to more than 30 percent. China, by contrast,

received $40 billion in FDI in 1999. That is less than 5 percent of

global flows.

The wage picture is equally compelling. The average compensation paid to workers at majority-owned US companies throughout

the world in 1998 was $33,100. In Canada and Europe, which received two-thirds of all US outbound investment, the average compensation at US majority owned affiliates was $41,200. This is

hardly a race to the bottom.

I suggest that the critics of investment flows are confusing cause

and cure. The problems of environmental protection and labor

standards are problems of economic development. Inadequate

standards do not attract and are not the result of increased investment flows. Rather, they are in part the consequences of the absence of investment capital necessary to alleviate poverty and raise

living standards.

Now let me say a word about what goes in these agreements.

And I think you will find that in addition to securing economic benVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00092 Fmt 6633 Sfmt 6602 W:\DISC\74222 ATX004 PsN: ATX004
89

efits, these agreements achieve broader US policy goals. Investment agreements negotiated by the United States typically incorporate US constitutional protections against the taking of property

without just compensation, and against arbitrary and discriminatory government action. Just as they have done in the United

States, these principles foster the development of the rule of law,

respect for private property, and a market-based free enterprise

system that are the essential hallmarks of a democratic society.

But what are these elements? I will address them very briefly.

The first point I would like to make is that these elements are not

new. The principal protections found in NAFTA and that ought to

be included in an FTAA, have been in US investment agreements

since at least World War II. All of these protections are traditional

protections of US investment policy. The one innovation in 1980,

when the US started negotiating bilateral investment treaties, was

the inclusion of investor-State dispute settlement.

Well, what are these protections? First, national treatment and

most favored nation treatment. That is, the creation of a non-discriminatory environment within which US investors can compete.

Second, international law protections that the United States has

long fought for, including fair and equitable treatment and full protection and security, and otherwise treatment in accordance with

international law. The fair and equitable treatment standard is

particularly important and a safeguard against arbitrary, unreasonable or other unjustifiable government actions. The third element has to do with financial transfers, and it safeguards the free

movement of capital associated with an investment. The fourth element is the prohibition of so-called performance requirements, export requirements, local content requirements, trade balancing requirements, similar to those the United States succeeded in prohibiting in the negotiation of the WTO Agreement on Trade-Related

Investment Measures. The final element of these investment treaties and of an investment chapter, is the investor-State dispute settlement mechanism. That is the right of the investor to seek money

damages from a host government that causes economic injury when

it violates a provision of the agreement.

Let me say just a few things about investor-State. First, an investor-State tribunal, under NAFTA, is empowered to award only

money damages. Tribunals do not have the authority to order a

party to change its laws or to nullify a party’s laws as some have

suggested. Second, it is US investors that have the most capital at

risk abroad, and thus, have the most to gain from an effective dispute settlement mechanism. I would note that if one reviews the

actual decisions of NAFTA tribunals and not the hype about the

bringing of the cases, one will find that these tribunals have acted

with great care, and there is no evidence to suggest that these tribunals have or will jeopardize public welfare to uphold economic interest. The track record to date demonstrates that these tribunals

have been quite judicious.

Now, critics have raised concerns about cases that have yet to be

decided. Critics have raised a concern about the mere fact that

cases have been brought against the United States. I suggest to

you that part of the price of living in an international system governed by the rule of law is that cases will be brought against the

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1Mr. Price is a partner at Powell, Goldstein, Frazer & Murphy LLP in Washington, DC where

he advises clients on international trade investment matters. While Deputy General Counsel in

the Office of the U.S. Trade Representative he served as a negotiator of Chapter 11 of NAFTA

and numerous bilateral investment treaties. He was also U.S. Deputy Agent to the Iran-U.S.

Claims Tribunal in The Hague. He received his B.A. from Haverford College, a Diploma in Legal

Studies from Cambridge University, and J.D. from Harvard Law School. 2The United States Council for International Business is a trade association of some 300 companies active in the global marketplace. Founded in 1945, the Council is dedicated to promoting

an open system of world trade, investment, and finance. The Council advances the global interests of American business both a home and abroad. It is he American affiliate of the International Chamber of Commerce (ICC), the Business and Industry Advisory Committee (BIAC)

to the OECD, and the International Organization of Employers (IOE). As such, it officially represents U.S. business positions both in the main intergovernmental bodies and vis-a-vis foreign

business communities and their governments.

United States. If those cases are not meritorious, they will not prevail. If they are meritorious and the United States is required to

pay damages, that is part of the price of being in the system. I

would note that the United States has enjoyed enormous benefits

from these provisions. Of the 16 claims that have been brought

under NAFTA, 11 have been brought by US investors.

This is not to say that the system cannot be improved. I think

one should take a serious look at transparency provisions for investor-State, for making the filings available to the public, and making

the proceedings open to the public. One might also consider an

amicus or friend-of-the-court procedure.

Finally, I think consideration should be given to developing an

appellate mechanism. Right now the only available review is

through national courts, and we have recently seen that in Canada.

As we consider an agreement with 34 countries, it may be useful

to think about a self-contained appeal mechanism that would address concerns of consistency and would also address the concern

of some critics about the possibility of wild or aberrant decision.

Let me conclude by saying that the US has the most at stake in

hemispheric integration, and that a comprehensive and strong investment chapter will be a crucial part of that agreement. Thank

you very much.

[The prepared statement of Mr. Price follows:]

Statement of Daniel M. Price,1 Member, United States Council for

International Business 2

I. Introduction

Thank you for inviting me here today to present the views of the United States

Council for International Business on the importance of including investment protections in the agreement establishing the Free Trade Area of the Americas (FTAA).

Trade and investment are interdependent. To achieve the benefits of economic liberalization, investment barriers must be addressed as comprehensively as trade barriers. And the rules protecting U.S. investment abroad must be both rigorous and

enforceable.

Taken together, the expansion of trade and investment flows has spurred economic growth, created jobs for millions of people in the United States and abroad,

raised global living standards, and has helped forge bonds of mutual interest and

economic opportunity among countries around the world.

International investment flows are rapidly becoming as important as trade in

goods and services. The world economy is no longer characterized by companies that

remain parked within national borders and that simply export or sell locally. Companies are investing abroad in ever-increasing numbers. They do so to get closer to

their markets, acquire new technologies, form strategic alliances and enhance competitiveness by integrating production and distribution. The activities of their affiliates are impressive and make an enormous contribution to economic welfare worldwide. According to the United Nations World Investment Report 2000, sales by foreign affiliates of corporations totaled $14 trillion in 1999, over four times the figure

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for 1980 and twice the value of global exports. Foreign affiliates accounted for over

$3 trillion in exports in 1999. The production of foreign affiliates now accounts for

approximately 10% of global GDP, and foreign affiliates now employ over 40 million

people.

II. Responding to Criticisms of Investment Protection and Liberalization

In spite of the economic significance of investment flows, some critics have suggested that promoting stable investment regimes abroad will lead to an export of

American jobs. Some have also argued that investment liberalization will lead to a

‘‘race to the bottom’’ with investment flowing principally to countries with minimal

or no protections for the environment or worker rights. The facts do not support

these claims.

A. International Investment Flows—Inbound and Outbound—Contribute to the Economic Prosperity of the United States

The United States has been, perhaps, the greatest beneficiary of the explosion in

international investment over the past decade. The United States receives more

than 30% of worldwide investment. According to the U.S. Bureau of Economic Analysis (BEA), foreign investment in the United States grew seven-fold between 1994

and 2000, reaching almost $317 billion last year. As of 1998, foreign companies had

invested over $3.5 trillion in the United States. They employed 5.6 million people

and paid average annual salaries of over $46,000, well above the average salary for

U.S. workers as a whole. U.S. subsidiaries of non-U.S. companies accounted for

13.5% of all U.S. manufacturing jobs. In 1998, foreign companies’ affiliates in the

United States accounted for approximately 22% of total U.S. exports. Inbound investment is critical to the health of the U.S. economy.

Outbound investment is equally important. According to the BEA, between 1994 and 2000, U.S. outbound investment doubled from $73 billion to $148 billion. As of

1998, the assets of non-bank foreign affiliates of U.S. companies exceeded $4 trillion.

In 1998, non-bank foreign affiliates of U.S. companies had over $2.4 trillion in

sales—that is nearly two and one-half times the amount of U.S. exports of goods

and services. According to the Survey of Current Business, exports by U.S. multinationals were $438 billion in 1998, an amount equal to some two-thirds of all U.S.

exports. Approximately 50% of these exports were to the majority-owned affiliates

of those U.S. companies. Thus, agreements promoting stable investment regimes

abroad do not export jobs, but rather lead to increased exports of goods and services

and contribute broadly to the economic well-being of the United States.

B. Investment Liberalization does not Lead to a Race to the Bottom

If lax environmental standards, low wages and the absence of worker rights were

the principal determinants of investment flows, one would expect the least developed countries to be the host of the vast majority of foreign investment. Yet the reverse is true.

More than 75% of all foreign direct investment is in the developed world. As

noted, the United States itself is host to more than 30% of all such investment. The

United Kingdom runs a distant second with a little more than one-fourth the total

of the United States or $82 billion as of 1999. China, by contrast, received $40 billion in 1999, less than 5% of global flows. Thus, investment has, in fact, raced to

the top, flowing in overwhelming proportion to stable democracies that are characterized by high living standards, well-developed regulatory regimes and transparent

legal systems.

The wage statistics are equally telling. In 1998, the average compensation paid

to workers at majority-owned U.S. affiliates throughout the world was $33,100. In

Canada and Europe, which receive two-thirds of all U.S. outbound investment, the

average compensation at U.S. majority-owned affiliates was $41,200. Investment

has not ‘‘raced’’ to the lowest wage levels.

The critics confuse the cause and the cure: problems of environmental protection

and labor standards are preeminently problems of economic development. Inadequate environmental standards and worker rights do not attract, and are not the

result of, increased investment flows; rather they are in part the consequences of

the absence of investment capital necessary to alleviate poverty and raise living

standards—the root cause of the problem.

III. The Importance of an Investment Chapter in the FTAA

Our Latin American and Caribbean partners in the FTAA have experienced a dramatic surge in foreign investment over the past decade. The enormous opportunities

that have opened up in the region—in large part as a result of massive privatization

efforts—have made Latin American and Caribbean countries a primary destination

for foreign investment among the developing countries of the world. The region now

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accounts for approximately 10% of global FDI inflows. According to the United Nations, FDI in the top 10 recipient countries in the region grew almost 23% between

1998 and 1999 alone, and as of 1999 stood at $27 billion in 1999.

While the U.S. is the largest investor in the region, it has not kept pace with

growth of investment opportunities there. According to the BEA, U.S. companies invested $17.71 billion in Latin America and the Caribbean in 1994. U.S. investment

in the region in 2000 was virtually the same, at approximately $17.8 billion. The

United States is clearly not taking advantage of the investment boom in the region.

In fact, most of the investment flows are between countries within the region, as

they have already begun the process of economic integration without us. In addition,

our major competitors, particularly from Europe, have stepped in to fill the vacuum.

An FTAA that both opens borders to trade and provides strong investment protections would create enormous commercial opportunities for U.S. industry and would

unleash synergies in production and distribution operations. Trade liberalization

without investment liberalization will prevent companies from achieving these

synergies and rationalizing their supplier networks. Conversely, investment liberalization without trade liberalization will lead to the creation of duplicative production operations as producers are forced to build manufacturing facilities behind the

‘‘tariff walls’’ protecting each market. Investment protection and liberalization is

thus a crucial part of a free trade agreement.

In addition to these economic benefits, an investment chapter would promote

broader U.S. policy goals. Investment agreements negotiated by the United States

essentially incorporate U.S. constitutional protections against the taking of property

without just compensation and against arbitrary or discriminatory government actions. As they have done in the United States, these principles foster development

of the rule of law, respect for private property and a market-based free enterprise

system that are essential hallmarks of a democratic society.

Recognizing these important dynamics, some thirty leading U.S. companies and

trade associations wrote to Ambassador Zoellick on April 19 affirming their support

for inclusion of an investment chapter in the FTAA modeled on the strong and comprehensive provisions found in NAFTA (letter attached).

IV. The Need for Strong Legal Protection of Foreign Investment: Core Elements of an Investment Chapter

The explosive growth in cross-border investment is attributable to several factors,

not the least of which is the development of strong, stable legal regimes to protect

property rights. Over the past decade, we have witnessed a sea change in the way

countries—particularly developing countries—have treated foreign investment.

Whereas before they pursued economic growth through state control of the private

sector and import substitution policies, they have come to realize that growth is best

promoted through free trade and liberal investment regimes. Countries in Latin

America in particular have undertaken vast privatization efforts and have revamped

their legal systems to attract foreign investment.

According to the United Nations, of 1,035 changes worldwide in laws governing

foreign direct investment between 1991 and 1999, 94% were more favorable to foreign investment. The number of bilateral investment treaties (BITs) has risen from

181 at the end of 1980 to 1,856 at the end of 1999. Countries in Latin America and

the Caribbean have signed approximately 300 BITs, virtually all of which were negotiated in the 1980s and 1990s. As of December 31, 1996, the countries of Latin

America and the Caribbean had negotiated 37 BITs among themselves, all in the

1990s. It is no coincidence that these changes to the legal landscape have occurred

at the same time as cross-border investment has expanded over the past decade.

It should be noted, however, that the United States has signed investment agreements with only three of the top 10 Latin American recipient countries of foreign

investment. The FTAA would include six of the remaining seven markets.

Including an investment chapter in the FTAA would help lock in these advances

in creating a regulatory environment hospitable to international investment. While

strong investment laws are not themselves sufficient to attract foreign investment,

they are a necessary prerequisite for such investment. A recent study by economists

at the Inter-American Development Bank found that strong investment laws, particularly laws protecting foreign investors from expropriation and preserving contract rights, play central roles in attracting FDI. It also found that free trade agreements significantly increase investment among the members of the free trade area.

In order to establish a strong investment regime throughout the Hemisphere, the

FTAA should include all of the fundamental protections that have been codified in

United States bilateral investment treaties and in Chapter 11 of the NAFTA. The

United States has sought the inclusion of these principal protections in bilateral and

multilateral investment agreements since World War II when it began negotiating

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a series of modern treaties of friendship, commerce and navigation (FCN). The investor-state dispute settlement mechanism was included in the first U.S. bilateral

investment treaty (on which all subsequent U.S. BITs have been based) in 1980.

What are these fundamental protections?

First, the investment chapter should guarantee foreign investors the better of national treatment or MFN treatment, both with respect to the establishment of investments and treatment thereafter. This will ensure nondiscriminatory treatment

and the removal of barriers to entry.

Second, the FTAA should protect investors against expropriation without payment

of compensation. This protection should extend both to direct expropriation—for example, the physical taking or nationalization of property—and to indirect expropriation such as may occur through regulation or other forms of so-called creeping expropriation. The inclusion of indirect expropriation is crucial. Government action

may impair or destroy the value of an investment even if there is no physical seizure or destruction of the property.

Third, the investment chapter should guarantee investment fair and equitable

treatment, full protection and security, and protection in accordance with international law. These provisions have long been included by the United States in bilateral and multilateral investment instruments. The fair and equitable treatment

standard, in particular, protects against lawless, arbitrary, unreasonable, bad faith

or other unjustifiable government actions. These protections help promote the rule

of law and are meant to safeguard the interests of U.S. investors where government

action or inaction, while not rising to the level of expropriation per se or outright

discrimination on nationality grounds, nonetheless subjects the investor to adverse

and injurious treatment.

Fourth, the investment chapter should guarantee the free movement of capital associated with the investment, including the repatriation of profits. Without this protection, investors will not commit the resources necessary to undertake large-scale

investments.

Fifth, the investment chapter should prohibit performance requirements such as

local content and export requirements, and other trade-related investment measures. Such measures distort trade flows and create economic inefficiencies, thereby

offsetting the benefits of the agreement.

Finally, the investment chapter should include a mechanism to allow investors to

arbitrate investment disputes with host governments and obtain monetary compensation for damages resulting from violations of the agreement. Access to an arbitration procedure of this sort is the only effective way to guarantee enforcement and

obtain appropriate redress. Limiting investment dispute settlement to a state-tostate procedure will politicize disputes, leaving investors, particularly small- and

medium-sized enterprises, with little recourse save what their government cares to

give them after weighing the diplomatic pros and cons of bringing any particular

claim. Furthermore, a state-to-state dispute settlement procedure based on the WTO

model, which provides only prospective relief, will not remedy most violations of the

agreement. If, for example, a government expropriates an investor’s property, prospective relief without providing compensation to the investor will not redress the

injury done to the investor.

V. Responding to Criticism of NAFTA’s Investor-State Dispute Settlement

Mechanism

The investor-state dispute settlement mechanism has been perhaps the most controversial aspect of the investment chapter of the NAFTA. Critics have alleged that

it undermines a nation’s sovereign right to regulate. The evidence simply does not

support these claims.

At the outset, two facts should be recognized. First, under NAFTA an investorstate arbitral tribunal can only award the payment of compensatory money damages

to an injured investor; tribunals have no authority to order a party to change its

laws. Second, it is U.S. investors that have more capital at risk than investors from

any other country, and thus have the most to gain from an effective mechanism for

enforcing investor protections.

In any case, there is no evidence that arbitration tribunals will jeopardize public

welfare to uphold the economic interests of foreign investors. A careful examination

of the NAFTA arbitration decisions to date reveals that the tribunals have acted

with great care. In two cases where an arbitration tribunal ruled in favor of a U.S.

foreign investor—SD Myers and Metalclad—the tribunal found that the government

authorities were acting arbitrarily or targeting a specific foreign investor with unfair or discriminatory measures. It should be noted that Mexico brought suit in a

Canadian court to set aside the Metalclad award, and the court recently upheld the

tribunal’s decision that the U.S. investor’s property had been expropriated. In two

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other cases—Azinian and Waste Management—the U.S. investor lost outright, one

on the merits, the other on jurisdiction.

In the recently released decision in Pope & Talbot, the tribunal rejected all but

one of the U.S. investor’s claims. The one claim that was upheld was based on a

finding that the Canadian authorities had acted unfairly in imposing extremely burdensome, and arguably illegal, administrative requirements on the investor. While

the tribunal was careful to avoid questioning the motives of the Canadian Government in that case, it appeared from the facts that the Government’s actions were

motivated by a desire to punish the investor for bringing the NAFTA claim.

In Ethyl—which is often cited by critics as an example of a case where a foreign

investor forced a government to withdraw a bona fide environmental measure—Canada settled a NAFTA case brought by a U.S. investor. However, the settlement was

spurred by a holding by a Canadian panel, not the NAFTA arbitration tribunal, that

the particular measures imposed by Canada violated an internal Canadian arrangement called the Agreement on Internal Trade.

This track record hardly demonstrates that arbitration tribunals have overstepped

their bounds in protecting the rights of investors. To the contrary, the evidence to

date shows that tribunals have taken a reasonable, balanced and judicious approach

in interpreting and applying the NAFTA investment provisions.

Nevertheless, critics of the NAFTA investment chapter point to cases against the

United States that have not yet been decided—such as the Methanex or Loewen

cases—and have speculated about how tribunals in those cases might rule. Indeed,

those critics find troubling the very initiation of these claims. I do not express a

view on the merits of these pending cases. However, the mere fact that cases have

been brought against the United States in no way undermines the legitimacy or integrity of the dispute settlement process. Indeed even frivolous cases may be

brought before a NAFTA panel just as they are brought in United States courts

every day, but this does not mean that either the court system or the arbitration

mechanism is flawed. If claims are found to be frivolous, then they will be rejected.

If claims are justified, then the respondent, including the United States as the case

may be, should pay compensation. This is the price of living in an international system governed by the rule of law.

The United States has long been the champion of international investment rules.

It has fought hard for recognition of the international rule of law and for respect

for international dispute resolution bodies. The United States has enjoyed enormous

benefits from invoking dispute settlement provisions to break down trade barriers

or redress injuries to investors. Indeed, of the approximately 30 claims under BITs

that have come before the International Centre for Settlement of Investment Disputes (‘‘ICSID’’), about one-third have been brought by U.S. investors. And of the

16 claims that have been brought under NAFTA’s investment provisions, 11 have

been brought by U.S. investors. It would be ironic if the United States, long the advocate for subjecting sovereign actions to scrutiny under international law, were

now to retreat from the very international principles it worked so hard to enshrine.

Concerns about investor-state arbitration—and agitation over its compatibility

with sovereignty—are without foundation. Fears about overreaching arbitral panels

are likewise unfounded given the record of decisions.

None of this should be taken to imply that the system could not be improved. The

process would benefit from two important changes. First, the FTAA parties should

consider increasing the transparency of the process by ensuring that the briefs and

arbitration proceedings are open to public view, subject to reasonable protections for

confidential business information. An amicus, or ‘‘friend of the court,’’ procedure

might also be developed whereby interested members of the public could express

their views on the issues before the tribunals.

Second, the parties to the FTAA might consider the desirability of creating an appellate body that would review arbitral awards for errors of law. Such an appellate

mechanism would accomplish three salutary goals: (1) it would address the risk of

an aberrant or wildly erroneous decision that seems to have captured the imagination of critics; (2) it would contribute to the development of a coherent body of jurisprudence on the interpretation of the FTAA; and (3) it would eliminate the possibility of having the court systems in each of the 34 FTAA parties become involved

in the review of FTAA awards and hence the interpretation of FTAA, a possibility

left open by NAFTA.

The Hemisphere stands at the threshold of comprehensive free trade agreement

talks in which investment rules should figure prominently. Investor-state dispute

settlement will be essential to ensuring the effectiveness of those rules. Now is not

the time to depart from longstanding United States investment policy and time-tested methods for the resolution of investment disputes.

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As the largest economy in the region, the United States has the most at stake

in hemispheric integration. By leading the negotiation of an agreement that removes trade and investment barriers and promotes democratic values, the United

States can secure for itself and its neighbors the benefits of economic growth and

prosperity. An investment chapter is an essential component of any agreement seeking to achieve these goals.

[The attachment is being retained in the Committee files.]

Chairman C

Mr. Gambrel.

RANE. Thank you, Mr. Price.

f STATEMENT OF WILLIAM GAMBREL, PRESIDENT,

BANKBOSTON COLOMBIA, AND VICE PRESIDENT, ASSOCIATION OF AMERICAN CHAMBERS OF COMMERCE IN LATIN

AMERICA, BOGOTA, COLOMBIA, ON BEHALF OF U.S. CHAMBER OF COMMERCE

Mr. GAMBREL. Mr. Chairman and Members of the Committee,

thank you for inviting me to appear before this distinguished panel

today. I am pleased to represent the Association of American

Chambers of Commerce in Latin America, known as AACCLA.

The AACCLA is a leading advocate of increased trade and investment between the United States and Latin America. The association’s 20,000 member companies manage over 80 percent of all U.S.

investigation in Latin America through 23 American Chambers of

Commerce in 21 countries.

I am also pleased to represent the U.S. Chamber of Commerce,

which is the largest business federation in the world.

I could easily spend my allotted time today describing the boom

in trade and investment between the democratic nations of the

Americas in the past decade. In this sense, the business community

has taken the lead in pushing for an integrated hemispheric marketplace. Nonetheless, we in the business sector are very pleased

to see the hemispheric governments working to bring down barriers

to trade and investment.

I applaud the commitment announced in Quebec City to complete

the Free Trade Agreement of the Americas by January 2005. Also

in Quebec, President Bush declared that he is committed to obtaining trade promotion authority before the end of this year. This is

absolutely critical, and we in the business community are prepared

to help the President make the case for trade promotion authority.

There are many reasons why trade expansion is such a priority

today, but I would like to focus on just one. With the exception of

the United States, nations around the world spent the nineties

weaving a spider web of free trade agreements. Over 133 regional

trade agreements are currently in force worldwide. The European

Union has signed 27 free trade agreements, and Mexico alone has

signed 32. However, the United States is a party to just two trade

agreements: NAFTA and the Free Trade Agreement with Israel.

This pattern of diminished U.S. participation in trade expansion

must not continue.

The spider web of free trade agreements that we have seen

emerging threatens to put U.S. companies at a competitive disadvantage. How? Chile is a perfect example. Today, companies

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from Canada, Mexico, and a number of other countries enjoy dutyfree access to the Chilean market. But U.S. exporters still pay

Chile’s highest duty of 8 percent. The result is that American companies are losing millions of dollars in potential sales every year.

I would like to flag one potential obstacle to the FTAA: the ongoing dispute over efforts to link trade agreements to labor and environmental rules. We have heard some about that in this distinguished panel today.

AACCLA and the U.S. Chamber strongly support efforts to protect the environment and to improve working conditions for all employees. But these concerns we think should be dealt with separately. Our hemispheric partners have made it very clear that they

will oppose a final FTAA agreement if it makes market access contingent upon labor and environmental rules. AACCLA and the U.S.

Chamber share this view.

Before concluding, I would like to urge the Congress to renew

and enhance the Andean Trade Preference Act. Since the Andean

Trade Preference Act was passed in 1991, a wide range of exportoriented businesses have been established in the Andean countries,

generating jobs, boosting tax revenues, and strengthening civil society. During my 6 years that I have lived in Colombia, I have witnessed firsthand how these trade benefits foster social stability and

provide a legitimate alternative to the illegal drug business. Failure to renew the ATPA would undermine the new business ventures that have prospered through legitimate trade with the United

States.

In addition to the renewal of ATPA, I urge Congress to expand

the list of Andean goods that qualify for duty-free access to the

U.S. market.

Finally, Congress should also consider making Venezuela a beneficiary of the ATPA. We have seen that efforts to oppose the narcotics trade in one country are undermined if production can be

easily shifted to somewhere else. By granting these simple trade

benefits to all the Andean countries, we can support the thousands

of small—and medium-sized businesses that are the bedrock of democracy and peace in the Andean region.

Trade expansion is an essential ingredient in any recipe for economic success in the 21st century. Chairman Crane, I would like

to thank you and your colleagues on the Subcommittee for your

leadership on trade. AACCLA and the U.S. Chamber of Commerce

stand prepared to support your efforts on trade expansion in any

way that we can.

Thank you very much.

[The prepared statement of Mr. Gambrel follows:]

Statement of William Gambrel, President, BankBoston Columbia, and Vice

President, Association of American Chambers of Commerce in Latin

America, Bogota, Colombia, on behalf of U.S. Chamber of Commerce

Mr. Chairman, thank you for inviting me to appear before this panel today. I am

Bill Gambrel, President of BankBoston Colombia, and Vice President of the Association of American Chambers of Commerce in Latin America, known as AACCLA.

AACCLA is a leading advocate of increased trade and investment between the

United States and Latin America. Representing 23 American Chambers of Commerce in 21 Latin American and Caribbean nations, the association’s 20,000 member companies manage over 80 percent of all U.S. investment in the region.

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I am also pleased to submit this testimony on behalf of the U.S. Chamber of Commerce, which is the largest business federation in the world. Representing nearly

three million companies of every size, sector, and region, the Chamber has supported the business community in the United States for more than 80 years.

I appreciate this opportunity to testify on the outcome of the Third Summit of the

Americas in Quebec City last month and on the prospects for free trade in the hemisphere. I will also comment briefly on the need to renew and enhance the Andean

Trade Preference Act.

Commerce in the Americas

As background, it is worth noting that the commercial relationship between the

United States, Canada, and Latin America has progressed admirably in recent

years. The flow of trade and investment throughout the hemisphere has never been

greater. The day is not far distant when the United States will trade more with our

neighbors here in the Western Hemisphere than with Asia and Europe—combined.

The numbers tell quite a story. The United States trades more with Canada than

with the entire European Union. This is true even though the European Union has

a population ten times that of Canada. Mexico is our second largest trading partner,

and two-way trade surpassed $250 billion last year.

Brazil has received more direct investment from the United States than any other

emerging market in the world. The total stock of U.S. investment in Brazil—roughly

$35 billion—is four times the amount American companies have invested in China.

The Caribbean Basin is emerging as a vital trading partner to the United States.

In 1999, the 24 countries in the Caribbean and Central America purchased more

U.S. goods and services than China, India, and Russia—combined.

Business Sets the Pace

The business community has been moving toward an integrated hemispheric market for decades, and now our governments are running to catch up. At the First

Summit of the Americas in 1994, the leaders of 34 Western Hemisphere nations set

the goal of free trade in the Americas. Now, as we evaluate the outcome of the Third

Summit of the Americas, it’s clear that we have moved closer to this objective than

we might have thought possible.

The Summit and the Buenos Aires Trade Ministerial held three weeks earlier produced tangible progress on a number of fronts. In Argentina, the hemisphere’s trade

ministers endorsed a draft, bracketed text for the Free Trade Area of the Americas

(FTAA) agreement. They also agreed to start negotiations on market access in May

2002, and they set a deadline to complete the text of the FTAA by January 1, 2005.

The ministers also surprised observers by agreeing ‘‘to release the current draft consolidated text to the public soon after the conclusion of the Third Summit of the

Americas in Quebec City.’’

In perhaps the most important announcement made in Quebec, President Bush

declared to the assembled heads of state and government that he is ‘‘committed to

attaining Trade Promotion Authority before the end of the year.’’ This is absolutely

critical, and we in the business community stand prepared to support the effort to

win Congressional approval of Presidential Trade Promotion Authority in any way

we can.

Rationale for the FTAA

I believe we are seeing this progress because the basic rationale for the FTAA is

stronger than ever. Hemispheric free trade will boost economic growth and reduce

poverty throughout the hemisphere. The FTAA will also provide an opportunity to

re-energize economic reform throughout the Americas. It will confirm a shared commitment to the market-opening policies that create the conditions for growth.

The FTAA will encompass 34 nations with over 800 million citizens. Its collective

GDP will exceed $13 trillion. The FTAA will:

• Eliminate existing tariff and non-tariff barriers and bar the creation of new

ones;

• Remove other restrictions on trade in goods and services as well as investment

unless specifically exempted;

• Harmonize technical and government rule-making standards;

• Exceed World Trade Organization disciplines, where possible;

• Provide national treatment and investor safeguards against expropriation;

• Establish a viable dispute settlement mechanism; and

• Improve intellectual property rights protection.

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The Case for Renewed U.S. Leadership on Trade

However, the FTAA is not simply going to fall into our laps. Without renewed

U.S. leadership on trade, this ambitious and complex trade agreement simply will

not happen.

As you know, special interests in the United States spent a great deal of time in

the 1990s arguing about trade. While this was going on, other nations around the

world have been busy weaving a spiderweb of free trade agreements. Over 130 regional trade agreements are currently in force worldwide. The European Union has

signed 27 free trade agreements, and Mexico alone has signed over 30. However,

the United States is a party to just two free trade agreements: the North American

Free Trade Agreement (NAFTA), and the U.S.-Israel free trade agreement.

This pattern of diminished U.S. participation in trade liberalization must not continue. The spiderweb of free trade agreements that we’ve seen emerging in the

Americas and elsewhere threatens to put U.S. companies at a competitive disadvantage. Basically, other nations are negotiating trade agreements that provide preferences for their firms over our own.

Chile is a perfect example. Today, companies from Canada, Mexico, and a number

of other countries enjoy duty-free access to the Chilean market. But because U.S.

exporters still pay Chile’s highest duty of eight percent, American companies are

losing hundreds of millions of dollars in potential sales every year. As many people

have observed, this is like starting a basketball game eight points behind.

Benefits of the FTAA

The NAFTA offers an excellent preview of the benefits promised by the FTAA.

Since the NAFTA came into force, trade between the United States and Mexico has

tripled, surpassing $250 billion last year. Trade between the United States and Canada reached $400 billion in 2000—a figure double the pre-NAFTA level. This explosion in trade has allowed companies in all three NAFTA countries to generate millions of new jobs. The NAFTA is one of the main reasons why some 12 million U.S.

jobs rely on exports.

While enhanced competition in the marketplace has led to job losses in some industries, the new, trade-related jobs that have been created tend to provide better

pay than the jobs that were lost. Studies show that export-related jobs pay 13 to

18 percent more than other jobs.

As Ambassador Zoellick has pointed out, the combined effects of the NAFTA and

the Uruguay Round trade agreement that created the World Trade Organization

(WTO) have increased U.S. national income by $40 billion to $60 billion a year.

Thanks to the lower prices that these agreements have generated for such imported

items as clothing, the average American family of four has gained between $1,000

to $1,300 from these two pacts.

The NAFTA has proven to be a foreign policy masterpiece, transforming Mexico’s

economic prospects and arguably paving the way for the democratic breakthrough

witnessed in last year’s elections. From a national security perspective, the possibility of reproducing these results on a hemispheric scale is enticing.

Potential Obstacles to Hemispheric Free Trade

Some believe that protectionism in the United States is the biggest obstacle to

hemispheric free trade. They point out that Congress voted down ‘‘fast-track’’ trade

negotiating authority in 1998, and President Clinton never saw it renewed.

However, the American people continue to embrace free trade. The highly respected Pew Center for the People and the Press found recently that over 60 percent

of Americans support free trade and reject protectionism.

More recently, Congress has shown that it will support trade liberalization when

business makes the case for it. The approval of permanent normal trade relations

for China and the Trade and Development Act of 2000 give eloquent testimony to

the fact that Congress will pass major trade legislation by solid majorities when the

business community pushes the argument for expanded trade.

A more serious obstacle to the FTAA is the ongoing dispute over efforts to link

trade agreements to labor and environmental standards. When the Clinton Administration pushed for trade-linked rules to enforce labor and environmental standards

at the Seattle WTO meeting in December 1999, the vast majority of countries were

strongly opposed.

AACCLA and the U.S. Chamber strongly support efforts to protect the environment and ensure improvement in the quality and conditions of workers, but these

concerns should be addressed separately. There are other avenues for the United

States to discuss labor and environmental issues with other nations. For instance,

President Bush already has the authority to address labor issues through the International Labor Organization.

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In the final declaration issued at their April meeting, the hemisphere’s 34 trade

ministers indicated that most ministers are firmly opposed to the use of trade sanctions in connection with rules on labor or the environment. Our hemispheric partners have made very clear that they will oppose a final FTAA agreement if it makes

market access contingent upon labor and environmental standards. AACCLA and

the U.S. Chamber share this view, and we will oppose any trade agreement

that includes labor and environmental provisions and accompanying sanctions in the agreement.

We need to remember that trade is part of the solution—not the problem—when

it comes to protecting the environment and improving working conditions.

The Andean Trade Preference Act

Before concluding, I would like to urge the Congress to renew and enhance the

Andean Trade Preference Act (ATPA). As you know, the ATPA grants duty-free access to the U.S. market for selected exports from the Andean countries, but it will

expire in December. AACCLA, the American Chambers of Commerce in Bolivia, Colombia, Ecuador, and Peru, and the U.S. Chamber of Commerce all strongly support

ATPA renewal.

Taking advantage of the market access granted by the ATPA in 1991, a wide

range of export-oriented businesses have been established in the Andean countries,

generating jobs, boosting tax revenues, and strengthening civil society. Renewal of

the ATPA will ensure that these economic benefits endure, thereby fostering social

stability and deterring the illegal narcotics trade. By the same token, failure to

renew the ATPA would undermine the new business ventures that have prospered

through legitimate trade with the United States.

In addition to renewal of the ATPA, Congress should consider expanding the list

of Andean goods that qualify for duty-free access to the U.S. market. The Act’s success over the past decade can be leveraged in the years to come by making its provisions more generous.

Finally, Congress should also consider making Venezuela a beneficiary of the

ATPA. Recent history shows that efforts to oppose the narcotics trade in one country

are undermined if production can be easily shifted elsewhere. By granting these

simple trade benefits to all the Andean countries, we can support the thousands of

small and medium-sized businesses that must be the bedrock of economic progress,

democracy, and peace in the Andean region.

Conclusion

Trade expansion is an essential ingredient in any recipe for economic success in

the 21st century. If U.S. companies, workers, and consumers are to thrive amidst

rising competition, completing the FTAA and renewing the ATPA must be top priorities.

In the end, U.S. business is quite capable of competing and winning against anyone in the world when markets are open and the playing field is level. All we are

asking for is the chance to get in the game.

percent while U.S. duties average less than 1.6 percent and that

This concludes my testimony. I will be happy to try to answer any questions.

Chairman C

Mr. Vargo, you point out that South American duties average 14

RANE. Thank you.

f the EU is currently negotiating free trade agreements with several

Latin American countries that will significantly undercut American

exports.

How damaging do you think the status quo is to the health of

the U.S. economy over the long term?

Mr. VARGO. Well, I think over the long term, Mr. Chairman, that

it could be quite damaging because Latin America has the prospects for being a rapidly growing market. A WTO analysis that

came out a couple of weeks ago shows that South America has the

world’s highest average level of bound tariffs, and if we do not get

those down, not only would we not share in the growth if the Europeans had duty-free access, but we would lose a lot of what we already have.

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We have, frankly, not made an estimate of just exactly what

would happen if Europe had duty-free access while we continue to

pay 20 and 30 percent, but it would be a substantial amount of

that $60 billion. So this is very important. We lose under the status

quo. Nobody gains. I am convinced that the environmentalists do

not gain, Mr. Sweeney’s members do not gain. We have got to find

a way to move ahead. You know, by engaging the Latins, I think

that we can help raise environmental standards, by raising their

living standards, we help raise living standards. We need to move

ahead.

Chairman CRANE. Mr. Sweeney, do you have Mr. Vargo’s text in

front of you?

Mr. SWEENEY. No, I do not.

Chairman CRANE. Mr. Vargo, could you show him your Exhibit

1?

That Exhibit 1 in Mr. Vargo’s written testimony compares the

level of wages paid by companies that are most trade-intensive

versus those that are least trade-engaged, and I was wondering

what your commentary was on that. The figure here, if I am not

mistaken, this is 60,000 a year for the most trade-intensive, and

for the least trade-intensive in this chart, it is a little over 40,000

a year. Is that correct, Mr. Vargo?

Mr. VARGO. Yes, sir, it is.

Mr. SWEENEY. Well, I am not sure, with all due respect, what the

source of Mr. Vargo’s information is, and I would have to take a

closer look at it.

Chairman CRANE. All right. Mr. Gambrel, Mr. Sweeney testified

that the NAFTA has utterly failed to deliver the promised benefits

to working people in the three North American countries. Would

you please comment on that statement?

Mr. GAMBREL. Certainly. The figures that we are looking at in

terms of the benefits of the NAFTA show a different story. We have

seen and we have heard comments in terms of exports increasing

by more than 60 percent in some cases. That has actually created

more jobs in the United States and more jobs in the countries, both

Canada and Mexico.

We have seen the case of a Mexico that in the past has struggled

with democracy, where it had a one-party system. We have recently

seen the effects of a democratic change of power from one party to

another, and we think that that has something to do with the trade

benefits and the linkages with the United States of the market

such as Mexico.

We also saw a financial crisis in Mexico, which in the past has

had a multiple effect on other countries in Latin America, last a

very, very short period of time. We think that also has a direct relationship to its contacts with trade through NAFTA. So we think

that there have been many more benefits of the NAFTA than not

benefits.

Chairman CRANE. Mr. Rangel.

Mr. RANGEL. Thank you. Well, Ambassador Fisher, now that you

are a free man, you do not have to be nice to us. [Laughter.]

As a free man, could you tell us why, as we seek to do business

with these communist nations—Red China and North Korea and

North Vietnam—as a free man, why could we not try to break

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down the communist regime in Cuba by using the same tactics as

we have used, using trade as a method for encouraging democracy?

Mr. FISHER. Well, we have made an effort in Vietnam. As you

know, we negotiated a bilateral commercial agreement with Vietnam.

Mr. RANGEL. I guess I did not make my question clear. Why do

we exclude Cuba while we make these efforts in these other countries? And I ask you this as a free man.

Mr. FISHER. As a free man, I would tell you that the politics of

that situation are so complicated; that, as you know, USTR was

never allowed to delve into Cuba. This is the nature of a political

equation. Whether it is right or wrong, it does not seem to square

the corner with what we have tried to do with WTO accession for

China, what we are trying to do elsewhere in the world. But that

is a political reality, and, Congressman Rangel, as a free man, I

know you know a lot more about politics than I do, but that is the

nature of the situation.

Mr. RANGEL. Well, the politics of Florida seem to be more important than the international politics.

Why did you say, a man that is as genteel as you, that you wanted to be blunt and it takes two to tango and we cannot get our

Latin partners to the dance floor if we talk about labor and environment? That seemed like really rough language for a diplomat.

Mr. FISHER. My point was that I do not believe sanctions as

a remedy—that that dog will not hunt. In other words, just to mix

my metaphors—neither will that dog dance. The point is if we are

going to insist on sanctions, unless we are willing to focus all of our

effort to capture that, I do not believe that our Latin partners will

come to the dance floor.

Mr. RANGEL. Do you feel as strongly—— Mr. FISHER. I am not saying we abandon the effort, but I am just

saying my point was simply on sanctions. They will not agree to

sanctions as remedies.

Mr. RANGEL. Do you feel as strongly about sanction as it relates

to violation of our intellectual property laws?

Mr. FISHER. Do I personally feel about this?

Mr. RANGEL. That is all we are talking about.

Mr. FISHER. Well, we currently have in place remedies for violation of our intellectual property laws. All I am saying is that in

order to do a deal, in terms of this very vexing and important question of labor and environment, from the standpoint of what we can

expect our partners to be able to come to the table for—— Mr. RANGEL. Well, sanctions——

Mr. FISHER. If we make sanctions part of the deal, they are not

going to come to the table, so we have no deal.

Mr. RANGEL. So you are saying that——

Mr. FISHER. I am not saying it is right or wrong. That is a fact.

Mr. RANGEL. So they are willing to come to the table when we

protect our pharmaceuticals by having sanctions against them if

they violate their intellectual property rights or with electronic

trade, and somehow they dance, they tango. And, of course, if our

Ambassadors do not put it on the table, nobody wants to be put in

the position that sanctions are going to be made against them. I

think it violates a nation’s pride. But we do not have a problem

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with it when it works. You do not have a problem with sanctions.

You just have a problem with sanctions as it relates to labor and

environment, because you do not believe—and you are the professional—that it reached the same level as intellectual property

rights when it comes to trade negotiations.

Mr. FISHER. I could tell you from my experiencing of 3 years of

teeing up the Free Trade Area of the Americas that this subject,

whether we want it or not, is not the point. The point is that our

partners—and it takes two to do a deal, two sides—our Latin partners will not come to the table. They have made that very clear,

if on this subject of environmental and labor the remedies result

in sanctions.

Mr. RANGEL. Did our Jordanian partners come to the table and

tango with us with the treaty that was negotiated with them?

Mr. FISHER. They did. They did come to the table, but I am simply making a point that from my experience our Latin partners will

not. But you can ask the Ministers who are here. That is the reality. From the standpoint of intellectual property rights, again,

that has already been negotiated in previous agreements globally.

And it is a WTO area of activity, and we do have our disputes and

differences on that front, as they are very clear right now with

Brazil.

But, Congressman, I am just trying to sort of define the parameters here on these three very difficult areas. These are the realities, no matter how we feel. I do not think they will play with us—

again, unless we want to focus all of our attention on this area.

They are attracted by the strength of our market—this is a $10

trillion economy. We are the biggest consumer in the world. That

would be part of the trade. I just do not think they are going to

accept it, and I wanted to be frank and point out to you that I

think that is a non-starter.

Mr. RANGEL. Well, Mr. Ambassador, I do not blame them for not

accepting it, if our former trade negotiator is saying that they are

not going to accept it. It is really to me a question of what you believe is good for our country. And I know that you would believe

that a part of the history and improvement in the quality of life,

that the trade unions have played a true part in making us a more

productive country. Everyone. No one challenges that, not even the

Chamber of Commerce. And, you know, the extreme of not being

concerned about the conditions of the worker could be slavery in

this country, which worked for us. It did not work for the slaves,

but it did work for us.

And, of course, we would want other nations to know that you

do not have to be labeled a protectionist when you are saying there

should be some basic human labor rights that America—this is

what we stand for. When we see super-stars that are investors in

overseas garments that are made under conditions that make

Americans cringe, America responds to it, whether it is child labor,

slave labor, prison labor. And all we are saying to our partners is

you have got to have some—you do not have AFL–CIO contracts.

You do not reach the standards of an industrialized nation overnight. But you got to have something locked in place that is enforceable because that is the kind of country we are. We want you

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to have disposable income. We want you to be healthy. We want

you to be productive so that you can be our trading partner.

It is so American—it is so American that I wonder why people

would refuse to tango with us.

Mr. FISHER. Well, again, I do not disagree with your point of

view, and, in fact, let me remind you, as Congressman Levin reminded me the other day in a good speech he gave at the Center

for Strategic and International Studies, CSIS, trade is a means to

an end. In the preamble of the GATT, it talks about raising living

standards, about engendering full employment and developing the

full use of the resources of any country, including its people. We

do not dispute that. That is not the purpose of my statement. I do

not disagree with you, Congressman. But I do feel that if we are

not careful in this area, given the way that this thing has proceeded over the last few years, given the reality of Seattle, we have

to be extremely careful to deal with this issue that does not send

protectionist signals, whether it is truly protectionist or just being

interpreted as such.

And I simply wanted to make the statement that from the standpoint of this particular exercise, Free Trade Area of the Americas,

I do not believe that the remedy of sanctions is workable in this

case.

Now, on the subject area in general, I did point out that I do believe that it is possible to figure out a way or engineer a system

or an architecture, as I put it, that has monetary assessments for

violations of domestic laws as long as they impact trade. I think

that is the most we will be able to get in this discussion, if we can

get that much. And I simply, out of respect for you, want to give

you my opinion based on my 3 and a half years of experience of

negotiating this particular issue.

This is not a personal judgment. Do not interpret it that way. It

is simply a matter of what I think can work and what is a nonstarter. And, by the way, I say that very respectfully, Congressman, as you know.

Mr. RANGEL. Oh, no, I understand that. It is just that I really

do not think you can understand how powerful your statement

might appear to those people that we are negotiating with, because

if I belong to one of these countries and heard a former trade representative such as you say that, do not even think about it because it is going to be unacceptable and it is supported by protectionists, then I would hang up, too. It is almost—like Mr. Pickle

once said, it is like going to a wife-swapping party and someone

does not bring their wife. [Laughter.]

We do not have anything to negotiate with because our people already said it is not going to work.

Mr. FISHER. Congressman, that is just one individual citizen’s

opinion.

Mr. RANGEL. Well, you are a very powerful man, and other people can call—you know, there was a time that you said you were

talking about Cuba, you must be pro-Castro or pro-communist, except when you are talking about China. And now if you are saying

that you would like to have some rights for labor and human

rights, you are protectionist.

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I think that if we want to move forward toward having the bipartisanship that we used to enjoy on this Committee and in the Congress, we really ought to give up the labels and to rely some more

on dance instruction and see whether or not we can make this

thing fit, because trade policy, like foreign policy, should be bipartisan. And we are trying desperately hard to talk with people, even

those that say that it may not work. We are trying to make it

work.

Thank you for coming back and giving us guidance. Next time,

whisper. [Laughter.]

Mr. FISHER. Thank you, Congressman.

Chairman CRANE. Thank you. Mr. Houghton.

Mr. HOUGHTON. Thanks, Mr. Chairman.

I would like to ask you gentlemen, but particularly Mr. Vargo

and Mr. Price, about the Jordanian agreement. I have never really

been sure what is negotiable and what is not. Is it the dispute settlement? Is it the sanctions versus the fine? Is it the labor standard? What is it?

But when you take a look, as I have here, at the Jordanian

agreement, there are some things that sort of make some sense

here. Now, what are the things that bother you about it, or do you

agree that this is a good concept?

Mr. VARGO. Well, I assume you are talking about the labor and

environmental provisions in the Jordan agreement.

Mr. HOUGHTON. Yes, right.

Mr. VARGO. Well, the NAM has not taken a position on that yet.

I have to say that we candidly do not like the fact that embodied

within the agreement is the possibility of taking trade actions to

enforce labor and environmental provisions. We have not taken a

position on it, however, because we have—— Mr. HOUGHTON. Sanctions, you mean?

Mr. VARGO. That is right.

Mr. HOUGHTON. Right.

Mr. VARGO. We have not taken a position because, in the spirit

Mr. Rangel mentioned, we look forward to working on a bipartisan

basis to seeing an overall solution to the question of labor and environment, which, as I indicated in my testimony, has stalled us for

too long and we cannot afford it anymore.

Mr. HOUGHTON. I do not want to put words in your mouth, but

in taking a look at some of these articles here, in terms of labor

laws, the right of association, to organize and bargain, prohibition

of any form of forced labor, compulsory labor, minimum age for employment, things like that, if the sanctions were out, this would not

be a problem for you?

Mr. VARGO. It would not be a problem for us.

Mr. HOUGHTON. All right. So how do you feel, Mr. Price?

Mr. PRICE. Congressman, I am afraid I will not be able to give

you a very satisfactory answer as I am here on behalf of the USCIB

on the issue of investment only and cannot really express the views

of the association on that point. I could offer a personal view, but

I do not know how satisfactory that would be.

Mr. HOUGHTON. Okay. Well, you know, Mr. Sweeney, it always

seems to come down to, to me, although the environment obviously

is very important, it is the whole conditions of the labor market

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and are we dealing with our labor force fairly when we are trying

to encourage international trade. And I do not know whether this

sanction issue is critical for you or there are other things, the dispute settlements or whatever. What are the things which are really

critical for you here?

Mr. SWEENEY. Well, the labor movement really feels that labor

provisions of trade agreements must be enforced through the same

means as commercial provisions. We feel also that fines

themselves—— Mr. HOUGHTON. Can I just ask, so, in other words, if—— Mr. SWEENEY. We are looking for parity.

Mr. HOUGHTON. If a country says that we will abide and enforce

our labor laws, that is not good enough for you.

Mr. SWEENEY. We would have to see the details. I mean, the Jordanian agreement is an example of an agreement with a country

that basically has good labor laws. The Jordanian labor movement

and the Chamber of Commerce in Jordan support the agreement.

Those are really some major steps for a good agreement. But we

would have to see the details in terms of sanctions and fines and

how enforceable they were.

Mr. HOUGHTON. But let me just press this thing further. Unless

a country has an egregious set of labor laws and an inability to enforce them, you would think that with reasonable conditions in

their country and enforcing those laws, similar to those of Jordan,

that these would be acceptable for you?

Mr. SWEENEY. There would definitely have to be some enforceable provisions.

Mr. HOUGHTON. Okay. Now, Mr. Fisher, could I ask you a question? What are those non-negotiable issues on the part of our Latin

American neighbors that are critical in any negotiation?

Mr. FISHER. What are the non-negotiable issues? Across the

board, or are you just talking about this area of—— Mr. HOUGHTON. What are the critical ones?

Mr. FISHER. I think this comes down to, from a Latin standpoint,

a very simple issue, again, which is market access in the United

States, in return for which not only—again, it was mentioned earlier. Our applied tariff here is about 1.5 percent, 1.6, whatever it

is, as far as these trading partners are concerned. So the tariff

issue is not the issue.

The issues are other aspects of market access, with the exception

of the high tariffs imposed in agriculture, but then the non-tariff

barriers to agriculture and to other exports, especially goods, because the rest of the hemisphere, particularly south of Mexico, although they are growing their production of services, are not huge

service producers.

From our standpoint, of course, we want to have access to their

markets. And, again, we talked earlier, some of the tariffs there are

awfully high, so it is meaningful to reduce the tariff barriers. But

then it is the non-tariff barriers, the procedures, the efficiencies in

the economy, the rules, the way laws are enforced and so on, that

is the trade.

And I think, again, listening to my former counterparts and Mr.

Zoellick’s current counterparts in the hemisphere, the key issues

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tion area for the southern cone in particular. To get Brazil to play

ball here—and it is the largest country south of Mexico; it is 173

million people—they have said pointblank that we have to have agriculture on the table. Very tough for us to do as we are crafting

a farm bill. Very tough for us to do to take on these very important

constituencies for us, the farmers and ranchers of this country.

Similarly, in terms of antidumping activity, as I mentioned earlier, they want that on the table. And that is what they are looking

for.

So are they non-negotiable? Everything is negotiable. I do not believe, however, again, just to go back to this point earlier, that certain remedies in terms of sanctions are not negotiable. I think that

would basically throw this trade out the window.

We may decide, Congressman, that we do not want to do an

FTAA, by the way, that we cannot get it.

One, that certain countries do not want to participate in this

thing, that we cannot move Brazil, that we are limited in what we

are able to spend politically. And we may decide, as Ambassador

Zoellick said earlier, that we will just proceed with bilateral after

bilateral or with smaller groupings. The purpose of my testimony

was simply to point out that there are certain tough areas for us

that we are going to have to look into our hearts to see if we can

deal with them, and those are the ones I mentioned.

Mr. HOUGHTON. Well, thanks. My time is up. Mr. Chairman,

thank you.

Chairman CRANE. Let’s see. Mr. Becerra.

Mr. BECERRA. Thank you, Mr. Chairman.

Let me first thank all of the gentlemen for their testimony and

their comments with regard to the issues that we face in trying to

negotiate these agreements with our Latin American partners.

Let me just go through a list of objectives and standards and ask

if any of you object to or disagree with any of these.

First would be the freedom to associate. Does anyone here object

to or disagree with the right of people to freely associate in their

country? And just chime in if you think no. What about the right

to organize? Anyone disagree or object to that right?

Mr. SWEENEY. I am in favor.

Mr. BECERRA. Duly noted. The right to collectively bargain, does

anyone disagree with the right or object to the right to collectively

bargain? What about do you object to or disagree with the elimination of child labor? What about do the elimination of forced

labor, slave labor? Does anyone object to or disagree with the elimination of discrimination in employment?

Those are, for the most part—I may have missed one or two, but

those are the core labor standards in the ILO’s Declaration of Fundamental Principles and Rights to Work.

If no one disagrees with them, is there any reason why anyone

would disagree with including those within any trade agreement

that we have with any country, whether it is Latin America or otherwise? Mr. Vargo?

Mr. VARGO. Mr. Becerra, we certainly do not disagree with those

core labor standards. We do not disagree with the idea that nations

should do more to bring them about. We do disagree, though, that

one can take a trade agreement and say the purpose of the trade

107

agreement is to bring about compliance with these objectives. The

purpose of a trade agreement to us is a simple one. It is to remove

trade barriers, and that first and foremost is what we want.

We do not think that this is necessarily incompatible with taking

steps to bring about greater adherence to labor rights around the

world, or environmental standards. We do definitely object to the

possibility of creating a new trade barrier or an opportunity to restrict trade in the future from it. That is the only thing we are objecting to.

Mr. BECERRA. Wouldn’t it be considered a trade barrier if a country were to use much less expensive labor to manufacture or

produce a product that we ourselves could produce here and as a

result create, in effect, a better bargaining position for that trade?

Mr. VARGO. No, that is not a trade barrier. It affects trade. It

may affect competitiveness. It may not be fair trade. But it is not

a trade barrier.

Mr. BECERRA. So, Mr. Vargo, are you implying that you would

support unfair trade?

Mr. VARGO. No. I am saying that there are many things that can

affect trade. Competition policy can affect trade.

Mr. BECERRA. So how are we to compete with other countries if

we do not require in our agreements that they not engage in, for

example, forced labor or child labor? How will our industries compete domestically?

Mr. VARGO. Well, Mr. Becerra, we are competing with them now.

The question is: Are we going to get them to lower the trade barriers that are now keeping out our products? To us that is the

issue. It is not are we going to trade with them or not. We do trade

with them. But we trade with them under circumstances under

which, for many reasons, our trade barriers are very low. And that

is a fact, sir. They are very low. And theirs are high. And we want

to get them down.

Mr. BECERRA. And as a result, we are saying to them we are

going to open up our markets completely to you if you do certain

things. And it seems to me that we would want them to do the

right things.

Now, we cannot force them necessarily to have our wage standards because we are working on different planes. But certainly we

would want them to at least function and operate under at least

core labor standards, which do not ask for a great deal beyond

what most people think are humane policies.

Mr. Price, let me ask you a question. In response to Mr. Houghton, you said you really could not give him a direct response to the

question about the issue of labor standards. And yet in your testimony, you talked about how investors do not necessarily go to the

cheapest countries or the countries with the cheapest labor because

if that were the case, you would see a lot of investment going into

the poorest countries, and you mentioned that it really would be a

race to the bottom. I think you did comment on labor standards,

so I hope you could give us a more complete answer to Mr. Houghton’s question.

But let me ask you to comment. I agree with you. You are not

going to see investment going to the countries that are poorest simply because the atmosphere there is not the best for investments.

108

But I think last week’s reaction by the stock market to the news

in this country that unemployment had shot up dramatically and

how the stock market was jubilant and went up is clearly a sign

that investment does operate on what is a lower-cost market. And,

therefore, I think it would be difficult, I think, to argue—and I

would hope you are not arguing—that indeed investors look for the

highest-cost markets. And to me it seems that labor is one of the

components of the production of any particular good, and, therefore, you are going to as an investor take into account what a country has with regard to wages in its country, would you not?

Mr. PRICE. Let me try and answer that. Congressman Houghton

asked me to comment specifically—— Mr. BECERRA. You have to get closer to the microphone.

Mr. PRICE. I am sorry. Let me try and answer your questions.

Congressman Houghton asked me to comment specifically on the

provisions of the Jordan FTA, and I said I was not in a position

to do that on behalf of the organization that sent me here since I

am talking about investment.

Let me respond to your question now. I think it is true that investment flows—and it is demonstrable—to high-wage jurisdictions

with a high standard of living. The point that I was making in my

testimony is that if wages were the principal determinant of the location of investment, you would expect the majority of investment

to be in low-wage jurisdictions—— Mr. BECERRA. But no one has ever argued that wages are the

sole determinant of where investment goes. And providing wage or

environmental standards within a trade agreement would not in

and of themselves affect investment decisions by people throughout

the world in a country with a core labor standard within a trade

agreement, would it?

Mr. PRICE. Well, I think we are talking about two different

things. One is the question of whether wages or labor costs are a

factor in investment decisions. I think that was your first question.

And I think the answer is they are. They are among the factors

that are taken into account. Again, it depends on what the purpose

of the investment is, and it depends how the other factors are

weighted.

What I think you have just asked me now is whether investment

decisions would be affected if labor and environmental provisions

were included in trade agreements. And I think the answer to that

is it would depend on what those provisions said and whether the

provisions create new risks to foreign investment or not.

Chairman CRANE. The gentleman’s time has expired.

Mr. BECERRA. Thank you, Mr. Chairman.

Chairman CRANE. Let me alert everybody on the Committee that

we have only one more hour to go, and we have our Foreign Ministers coming up in the next panel. And so if you will all please adhere to the lights and remember that when the green light goes off

and the red light goes on, your time has expired. And I am talking

to Members of the Committee. With that, I recognize Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman. I will keep my questioning disciplined.

Ambassador Fisher, it is a pleasure to have you here. May I say,

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cussion, and commenting, as I imagine you guessed I would, about

your testimony with regard to antidumping and countervailing

duty issues being put on the table, I think that you have made a

case that there is a good basis for having a discussion worldwide

about the sorts of standards that are applied to 201- and 301-like

processes, and encouraging other countries to adhere to our standards when it comes to those laws.

We do, though, have a WTO antidumping code in place, and

given that—and I presume you agree with me on this—I believe

that having strong trade protections, strong methods of policing our

market against unfair trade practices, is critical to maintaining

support for free trade within our country.

Do you think that an FTAA is really an appropriate place to

have a negotiation? This is, after all, a negotiation for a regional

trading pact. Would this not be better handled either under the

WTO or would it not be better handled as a side agreement separate from any FTAA that might be developed? Since we like, some

of us like side agreements, as it applies to labor and the environment, would not a side agreement be a more appropriate place to

deal with an antidumping or countervailing duty understanding?

Mr. FISHER. First, I am certainly not advocating changing our

laws, Congressman.

Mr. ENGLISH. Very good.

Mr. FISHER. Secondly, I’m not advocating abandoning our right

to take action against people that dump into our market.

I think I heard Ambassador Zoellick say earlier what we always

said, that this new anti-dumping regime has just been put in place,

and our arguments were that, until we saw how this worked and

what its efficacy was, we did not want to put it back on the table.

That makes a lot of sense.

Frankly, what I’m saying is I’m tired of hearing from our Brazilian and other friends that we’re unfair. Look at how many antidumping cases Argentina and Brazil combined filed when we only

17—they filed 40. Let’s call their bluff on this. In other words, let’s

say, ‘‘you say that our system is arbitrary, let’s examine, with a

fine-tooth comb, how you apply these in your own country,’’ let’s

achieve a common understanding of how we’re putting this new regime in place——

Mr. ENGLISH. Would it not be easier, though, to move forward—

I don’t mean to interrupt, but I’m under strict time here.

Would it not be easier to conduct this discussion outside of an

FTAA? Wouldn’t it be easier to conduct this discussion in a way

that doesn’t increase how controversial the FTAA already is domestically?

Mr. FISHER. Well, again, this is one of the—remember, we have

nine negotiating groups within this structure, already carved out

by common agreement amongst the 34 countries that this will be

discussed. I’m not sure you can remove it, Congressman, at this

stage.

Mr. ENGLISH. Your point is well-taken.

Mr. FISHER. But we shouldn’t be afraid to talk about it, because

I think we’re going to find that we might have some common cause

here if we’re careful.

110

Mr. ENGLISH. Mr. Sweeney, I agree with many of the things that

you have included in your testimony, and I would encourage you

to look at House Resolution 1446, which I have introduced, that

would provide for a standard trade negotiating authority.

But you say in your testimony, ‘‘We believe that any fast track

legislation must require—your emphasis—the inclusion of enforceable workers’ rights and environmental standards in the core of all

new trade agreements.’’ I guess my question in view of that is, what would be the appropriate core labor and environmental standards to be included in a

specialized trade agreement, like financial services, competition

policy, or intellectual property rights? Are there not some trade

agreements we may want to have with our hemispheric partners,

or our partners world-wide, that are so specialized they don’t naturally have a labor and environmental component to them?

Mr. SWEENEY. We would have to say that we think the core labor

standards and environmental concerns have to be addressed in all

trade agreements.

Mr. ENGLISH. Okay. Mr. Gambrel, from your perspective, what is

the appropriate core labor or environmental standards to be included in a financial services treaty?

Mr. GAMBREL. I can’t think of any, Congressman.

Mr. ENGLISH. Ambassador Fisher.

Mr. FISHER. The financial services is just part of a total trade

agreement. I don’t think that’s what Mr. Sweeney was saying, in

terms of specifically financial services itself. I believe what he was

saying is that it’s part of the total agreement, and he feels it should

be part of—— Mr. ENGLISH. I’m out of time. My point is that there are some

things that we may want to negotiate that don’t include labor and

environment, and I think my bill addresses it. Thank you, gentlemen. Excellent testimony.

Chairman CRANE. Mr. Levin.

Mr. LEVIN. Thank you, Mr. Chairman.

We regret that the ministers and others on the next panel have

been delayed. But I think, though, this has been an especially useful panel, and I think it’s good that we have all heard it.

Some of you I know well, and that should not detract from my

commenting directly.

First of all, let me suggest, in terms of our discussion of core

labor standards, I hope the ministers here and others not only listen to the former Deputy USTR and others, but those who are

presently in the U.S. Congress.

I think it is a mistake to have the total focus on exactly what

remedy and to forget—for example, in the GSP, sanctions have

been available to the U.S. for many, many years. Most of the Latin

American countries have operated within a GSP system that allowed the U.S. to utilize what are called trade sanctions. We have

done that responsibly, and there has been the threat—and Mr.

Sweeney spells this out rather at length, and I think interestingly—there has been the threat they haven’t been utilized. But

GSP has moved the issue of core labor standards along.

So the notion that countries will not, under any circumstances,

negotiate, I hope isn’t misread. If that had been the standard 15

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years ago on intellectual property, we never would have done anything, because countries were saying to us ‘‘never’’. We were saying

let’s move ahead and let’s discuss it, and eventually we came up

with that kind of a structure.

Secondly, let me say to you, Mr. Vargo, we have had a lot of discussion about these issues. If I might say so, I think the purpose

of trade agreements isn’t simply to remove trade barriers. The

WTO talks about a standard of living being uplifted, and I think

you agree with that. Anti-dumping laws are there not to remove

trade barriers, competition policy, safeguard mechanisms that are

permitted under WTO. It’s because the feeling is you have to have

rules of trade, terms of trade, and that the only issue isn’t only

opening up trade barriers of other countries. I hope we will think

about that.

Thirdly, if I might just pick up briefly on Mr. Becerra’s point, Mr.

Price, I just want to go back to this because you say, ‘‘If lax environmental standards, low wages and the absence of worker rights

were the principal determinants of investment flows, one would expect the least developed countries to be the host of the vast majority of foreign investment.’’ You also say, ‘‘The critics confuse the

cause and cure: problems of environmental protection and labor

standards are preeminently problems of economic development.’’

No one is saying that labor standards and environmental standards are ‘‘the’’ principal determinant of investment flows. Really, in

your back and forth, you acknowledge the relevance of environmental and labor standards to decisions in many cases of investment. There is no single principal determinant of investment. I

think you’ll agree.

The question is, is it part of the mix. I think the answer clearly

is—and as evidence, I referred earlier to the Equadorian situation—is that it’s relevant in many situations. For example—and I’ll

say this bluntly—if Brazil feels that we won’t discuss environmental issues in the FTAA, and that will be part of the bargain,

that’s a non-starter. No agreement will pass this institution if there

isn’t a consideration of environmental issues. I see Mr. Fisher

shaking his head, I think in agreement.

Last, I just want to make clear, Mr. Sweeney, and I think others

of you have said this, the issue of labor standards and environmental standards, the thrust does not come basically from any effort at protectionism, any form of it. It comes from a number of us

who want expanded trade. It’s an essential ingredient of that.

Thank you.

Chairman CRANE. Thank you.

With that, I want to express our appreciation to all of the members of this panel. I will excuse you after your outstanding presentations.

Now it’s a delight to introduce the next distinguished panel to

discuss the renewal of the Andean Trade Preference Program. I especially welcome Colombian Minister of Foreign Trade, Marta

Lucia Ramirez, and the Bolivian Vice Minister of Trade, Ana Maria

Solares. And because the Andean Trade Preference Program is part

of a close partnership effort between the United States and the Andean countries that strongly impacts national security interests of

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the United States, I have elected to waive normal Committee rules

so that we may hear your testimony today.

I want to thank both of you and the other Andean Ministers in

the audience for taking time out of your business schedules to be

here today.

Due to Committee time constraints, we have included you on a

panel with representatives from U.S. industry. I recognize that this

is unusual and I appreciate your patience and understanding in

graciously accommodating our time constraints.

If you folks could take your seats, please. We have to conclude

today’s hearing at 6:00 o’clock sharp, and as a result, I want to remind colleagues on the Committee here to watch the lights with regard to their questions, and also all of our witnesses who will be

testifying today, if you can keep your oral testimony to 5 minutes

or less, please do so. Any written testimony will be made a part

of the permanent record.

With that, I now welcome Minister Ramirez to begin.

STATEMENT OF THE HON. MARTA LUCIA RAMIREZ RINCON,

MINISTER OF FOREIGN TRADE, GOVERNMENT OF COLOMBIA

Ms. RAMIREZ. Thank you very much, Mr. Chairman.

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

inviting me to appear before this panel today. If you allow me, I

am going to read the short version of my statement, but I am going

to leave both for your records.

I am Marta Lucia Ramirez, Minister of Foreign Trade for the

government of Colombia. I appear here today on behalf of the Andean community countries not only to express our strong commitment for a Free Trade Area of the Americas, but also to ask your

support for the early enactment of legislation to renew, expand and

enhance the Andean Trade Preference Act.

As you know, the ATPA expires in December of this year. It is

appropriate that this Committee today looks at both the FTAA and

the ATPA. These two important trading initiatives are interrelated.

A hemispheric free trade area will increase economic growth and

employment and create new opportunities for all of our countries.

That is why we are pleased with the outcome of last month’s summit in Quebec City. We look forward to advancing negotiations toward the implementation of the FTAA by no later than year 2005.

More immediately, the issue of ATPA renewal, expansion and enhancement must be addressed by the U.S. Congress. ATPA was designed to promote export diversity and strengthen legal activities

in our country through new exports and through the generation of

new legal jobs in order to confront the destabilizing threats to our

democracies posed by illegal narcotics production and trafficking.

ATPA is also about saving lives. It’s about the strength of our democracy, both in Andean countries and in the United States, because it reinforces our common goal, which is the fight against illegal drugs and the corruption it generates.

USTR stated in their last report that the ATPA is strengthening

the legitimate economies of the countries in the region and is an

important component in the U.S. effort to contain the spread of the

illegal drug trade.

113

Moreover, both the Andean countries and the United States have

benefited economically from the ATPA. Over the last 9 years, the

ATPA has created 140,000 new jobs in the Andean Region. In dollar terms, U.S. exports to ATPA countries have risen 75 percent between 1991 and the year 2000.

The United States serves as the leading source of raw materials,

capital goods and technology imports for each of the ATPA countries, as well as our leading export market. As a result, ATPA benefits have generated employment in both the United States as well

as in the Andean Region.

Colombian flowers are an excellent example of why ATPA is

working, and of the social and economic benefits that ATPA promotes. The $439 million in cut flowers that ATPA shipped to the

United States last year resulted in some $9 billion in retail sales

in America, generating jobs and income for many Americans. But

equally important, the Colombian flower industry is a world-recognized leader in the war on drugs, maintaining state-of-the-art drug

interception technology and collaborating closely with the United

States Customs Service on interdiction.

In addition, due directly to the benefits ATPA provides, the Colombian flower industry initiated major labor and environmental

programs that are models not only in Colombia but also in so many

other countries.

We are well aware of the suggestions that ATPA could be rewritten to match the benefits provided to the Caribbean and Central

American countries last year. Indeed, Senator Graham of Florida

has already introduced such a bill in the Senate, S. 525. We appreciate that first step. However, the Andean Region and the CBI region are very different. The structure of our productive sector is so

different. We in the Andean Region have more vertically integrated

industries and the purposes of the CBI are very different from

what the ATPA must accomplish. Therefore, we believe that the

ATPA must reflect those differences.

One of the sectors offering the greatest opportunities for the generation of new jobs in our region is textiles and apparel chain. The

ATPA countries are currently a minor player in the U.S. apparel

market, accounting for less than one percent of the total U.S. apparel imports, and that is all we have accounted for every year

since 1992.

By contrast, the CBI countries account for almost 23 percent of

total U.S. apparel imports. These numbers demonstrate that, with

respect to textiles and apparel, the ATPA countries are more like

the sub Saharan African countries than we are like the CBI countries. Therefore, we believe that an enhanced ATPA should be

based more on the model established in the African Growth and

Opportunity Act rather than the one in the CBI.

The Andean countries also need to promote new foreign investment in key business sectors to achieve economic recovery and effectively fight the drug war. While the original ATPA, with its 10-

year term, initially brought new investment into the region, recently new investment has declined considerably, mainly because of

the uncertainty of the medium- and long-term market access conditions to the North American market.

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To generate new interest in the region, we need ATPA to be extended for a term sufficient to ensure that the FTAA has come into

force before the ATPA completes another term. Additionally, we

would like you to consider that, of the five Members of the Andean

community who have benefited from the ATPA, these preferences

do not cover Venezuela. Our trading block, as well as the United

States, will benefit if ATPA were expanded to include all the Members of the Andean community.

Mr. Chairman, members of the Subcommittee, the Andean countries greatly appreciate your support in holding this hearing today

to discuss renewal of the ATPA. We are very hopeful that you will

act quickly to enact a new ATPA before the current program expires. Time is of the essence. It is absolutely essential that we create jobs to assist those who are displaced by illegal crop eradication

and to lure workers back to those areas where legitimate employment can be developed.

In particular, we ask that this Subcommittee take up and pass

ATPA legislation preferably before the July 4th recess, in order to

generate momentum for this legislation. Such momentum is needed

if a new, expanded and enhanced ATPA is to be enacted before the

current ATPA expires in December.

We welcome the opportunity to work with you, and with the

Bush administration, which has been very supportive, to achieve

both an enhanced ATPA and an FTAA as quickly as possible.

Mr. Chairman, I thank you for this opportunity and honor to be

here sharing with you such an important Subcommittee.

Thank you very much.

[The prepared statement of Ms. Rincon follows:]

Statement of the Hon. Marta Lucia Ramirez Rincon, Minister of Foreign

Trade, Government of Columbia

I. Introduction

Mr. Chairman, members of the Subcommittee, I am Marta Lucia Ramirez, Minister of Foreign Trade for the Government of Colombia. I appear here today on behalf of the Andean Community countries to express our strong support for a Free

Trade Area of the Americas (FTAA) and for early enactment of legislation to renew

and enhance the Andean Trade Preferences Act (ATPA). As you know, the ATPA

expires in December of this year.

It is appropriate that this committee today looks at both the FTAA and the ATPA,

as these two important trade initiatives are integrally related. A hemispheric free

trade area will increase economic growth and employment and create new opportunities for all our countries. It will also provide direction for the Andean countries

to establish a firm schedule for liberalization and to achieve consistency in the

breadth of our liberalization schemes. In this respect, we were pleased with the outcome of last month’s Summit in Quebec City. We look forward to advancing negotiations toward creation of the FTAA by no later than 2005.

More immediately, the issue of ATPA renewal and enhancement must be addressed by the U.S. Congress, and soon since the current ATPA will expire in December. ATPA was designed to promote export diversity and to create new legal employment in our countries, and thus help to confront the destabilizing threats to our

democracies posed by illegal narcotics production and trafficking. But ATPA is also

about saving lives both in Andean countries and the United States because it reinforces our fight against illegal drugs.

II. Renewal and Enhancement of ATPA

The current ATPA has been meaningful for both the Andean countries and the

United States. The report of the Office of the U.S. Trade Representative (USTR) on

the operation of the ATPA makes clear that ATPA is working. The report states explicitly that the ATPA is strengthening the legitimate economies of the countries in

the region and is an important component in the U.S. effort to contain the spread

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of the illegal drug trade. USTR has concluded that the ATPA has resulted in export

diversification for our countries and that net coca cultivation has declined.

The Andean countries are firmly united in their quest for prompt enactment of

legislation to renew and enhance the ATPA. A renewed and enhanced ATPA will

serve as a stepping stone toward completion of the FTAA. Moreover, expanded trade

offers the most effective means for the Andean countries and the United States to

work together to make progress against illegal narcotics production and trafficking.

An unintended impact of the Caribbean Basin Trade Partnership Act is that the

ATPA countries have lost competitiveness against the Caribbean and Central American nations. In Colombia alone, almost 2,000 jobs already have been lost because

U.S. importers have moved orders to the CBI region in order to obtain the duty savings. Many more jobs remain threatened. To prevent job losses, some Colombian

companies have been forced to reduce their prices in order to keep the business, but

obviously they cannot sustain this practice.

Expanded trade will complement the investments we have made together to combat drugs. Indeed, our partnership to fight drug production and trafficking will not

succeed without economic growth spurred by expanded trade between our countries.

It is absolutely essential that Colombia and other Andean countries create jobs to

assist those who are displaced by illegal crop eradication and to lure workers back

to those areas where legitimate employment can develop.

No country has had to incur more sacrifices to stop drug production and trafficking than Colombia. We count our dead by the thousands and our material losses

by the billions of dollars. Currently, with unemployment at 20%—the worst level in

our history—it is absolutely essential to generate more jobs. President Pastrana has

implemented tough reforms and austerity measures to address the economic downturn in Colombia. These reforms have resulted in a fragile economic recovery.

A renewed and enhanced ATPA will help Colombia fortify its economy and lay the

foundation for sustainable long-term economic growth. We therefore believe it is imperative to renew the ATPA before it expires on December 4, and to enhance it to

include the products currently excluded from the legislation.

III. ATPA Benefits the Andean Region and the United States

Andean industries benefiting from ATPA—including cut flowers, non-traditional

fruits and vegetables, jewelry and electronic components—have generated $3.2 billion in new output since ATPA’s inception in 1991, and $1.7 billion in new exports.

Over the last nine years ATPA has created 140,000 new jobs in the region.

U.S. General Imports From ATPA, Top Ten ATPA Items for the Year of 2000

4-digit HTS Description ATPA Value (US$)

7403 .................................. Refined Copper And Copper Alloys (Other Than

Master Alloys Of Heading 7405), Unwrought.

565,169,004

0603 .................................. Cut Flowers And Buds Suitable For Bouquets Or

Ornamental Purposes, Fresh, Dried, Dyed,

Bleached, Impregnated Or Otherwise Prepared.

439,531,768

3212 .................................. Pigments Dispersed In Nonaqueous Media, In

Liquid Or Paste Form, For Paint Manufacture;

Stamping Foils; Dyes And Other Colors Packaged For Retail Sale.

199,392,893

7113 .................................. Articles Of Jewelry And Parts Thereof, Of Precious Metal Or Of Metal Clad With Precious

Metal.

155,196,411

1604 .................................. Prepared Or Preserved Fish; Caviar And Caviar

Substitutes Prepared From Fish Eggs.

80,220,426

7901 .................................. Zinc, Unwrought ...................................................... 58,373,185

2843 .................................. Colloidal Precious Metals; Inorganic Or Organic

Compounds Of Precious Metals, Chemically

Defined Or Not; Amalgams Of Precious Metals.

50,117,850

0709 .................................. Vegetables Nesoi, Fresh Or Chilled ....................... 43,557,681

3921 .................................. Plates, Sheets, Film, Foil And Strip Nesoi, Of

Plastics.

28,869,065

4202 .................................. Travel Goods, Vanity Cases, Binocular And Camera Cases, Handbags, Wallets, Cutlery Cases

And Similar Containers, Of Various Specified

Materials.

26,744,716

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U.S. General Imports From ATPA, Top Ten ATPA Items for the Year of 2000—Continued

4-digit HTS Description ATPA Value (US$)

1701 .................................. Cane Or Beet Sugar And Chemically Pure Sucrose, In SolidForm.22,595,104

But it is important to note that there has been a two-way benefit. The United

States is an extremely important trading partner for the Andean countries, with the

United States serving as the leading source of imports for each of the ATPA countries as well as our leading export market. In dollar terms, U.S. exports to ATPA

countries have risen 75 percent between 1991 and 2000, with two-way trade increasing dramatically from $9.2 billion in 1992 to $17.9 billion in 2000. As a result, ATPA

benefits have generated employment in the U.S. as well as in the Andean region.

A review of the trade data indicates that many of the items shipped by the United

States to the Andean region are used to generate ATPA qualifying goods. These

items include, among others, fertilizers, paperboard and plastics, which are used in

our flower industry, including for the greenhouses in which these flowers are grown.

U.S. Exports to ATPA Countries for the Year of 2000—Intermediate Products and Raw

Materials

4-digit HTS Description Export Value

4804 .................................. Kraft Paper & Paperboard, Uncoat Nesoi, Rolls

Etc.

156,213,581

2903 .................................. Halogenated Derivatives Of Hydrocarbons ........... 130,800,177

3901 .................................. Polymers Of Ethylene, In Primary Forms ............ 107,340,801

3100 .................................. Fertilizers, Exports Only Incl Other Crude

Mat’Ls.

84,282,265

7108 .................................. Gold (Incl Plat Plated), Unwr, Semimfr Or Powder.74,911,310

8474 .................................. Machinery For Sorting Screening Etc Minerals,

Pts.

72,573,269

5201 .................................. Cotton, Not Carded Or Combed ............................. 71,113,180

2902 .................................. Cyclic Hydrocarbons ................................................ 62,371,090

8413 .................................. Pumps For Liquids; Liquid Elevators; Parts

Thereof.

52,716,305

3907 .................................. Polyethers, Expoxides & Polyesters, Primary

Forms.

51,615,093

2304 .................................. Soybean Oilcake & Oth Solid Residue, Wh/Not

Ground.

45,487,152

3808 .................................. Insecticides, Rodenticides; Fungicides Etc, Retail 36,993,530

2905 .................................. Acyclic Alcohols & Halogenat, Sulfonatd Etc

Derivs.

33,283,418

3920 .................................. Plates, Sheets, Film Etc No Ad, Non-Cel Etc,

Plast.

31,925,844

8406 .................................. Steam Turbines & Other Vapor Turbines, Parts .. 31,032,456

2901 .................................. Acyclic Hydrocarbons .............................................. 28,491,214

3902 .................................. Polymers Of Propylene Or Other Olefins, Prim

Forms.

27,926,250

4002 .................................. Synth Rubber & Factice, Inc Nat-Syn Mix, Pr Fm

Etc.

24,640,263

3906 .................................. Acrylic Polymers In Primary Forms ...................... 22,977,269

2915 .................................. Sat Acyclic Nonocarbox Acid & Anhyd, Halogon

Etc.

22,815,228

2926 .................................. Nitrile-Function Compounds .................................. 22,387,343

5402 .................................. Synthetic Filament Yarn (No Sew Thread), No

Retail.

22,383,281

4810 .................................. Paper & Paperboard, Coated With Kaolin Etc, Rl

Etc.

20,435,308

3824 .................................. Binders For Found Molds; Chemical Prod Etc

Nesoi.

20,103,857

2933 .................................. Heterocyclic Comp, Nit Hetero-Atoms Only .......... 18,908,820

2836 .................................. Carbonates; Peroxocarbonates; Comm Amm Carbonate.18,420,841

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U.S. Exports to ATPA Countries for the Year of 2000—Intermediate Products and Raw

Materials—Continued

4-digit HTS Description Export Value

4703 .................................. Chemical Woodpulp, Soda Or Sulfate, Not

Dissoly Gr.

17,733,992

4802 .................................. Paper, Uncoat, For Writing Etc, Rolls; Hndmd

Paper.

17,295,361

The Colombian flower industry is an excellent example of how trade between our

countries is mutually beneficial. In Colombia last year, one percent of total household income came from the cut flower industry, with Colombia shipping $400 million

worth of flowers to the U.S. Approximately two thirds of $14 billion worth of cut

flowers sold in the U.S. last year came from Colombia. Importantly, that means that

the $400 million in cut flowers Colombia shipped to the U.S. resulted in some $9

billion in retail sales in America. Clearly, we are bringing profit to U.S. companies.

Colombia’s flowers are not simply generating economic rewards for the U.S. market. They also are a prominent example of how our two countries’ trade, national

security and social policy objectives are intertwined. The Colombian flower industry

is a world-recognized leader in the War on Drugs, maintaining perhaps the most

state-of-the-art drug interception technology in our region and has long collaborated

with the US Customs Service on interdiction. In addition, since ATPA was inaugurated, and due directly to the benefits ATPA provides, the Colombian flower industry has been able to initiate major labor and environmental programs that stand

out as models in Colombia. Among other things, the Colombian flower sector has

initiated anti-violence training programs for its 75,000 workers; established an aggressive anti-pesticide program for Colombia’s many flower farms to help promote

a greener Colombia; launched a new program to build better homes for the workers

of the Colombian flower industry; and established strong child care and nutrition

programs for the tens of thousands of working mothers who are critical to the flower

industry.

This is positive news, but the fact remains that last year only about 10 percent

of all Andean exports to the United States were eligible for ATPA benefits, according to a Congressional Research Service study. ATPA must be expanded to cover

all products, not just selected goods. Strengthening the legal economies in our countries is absolutely vital to stabilizing the region economically and politically. Only

through such enhancement of the ATPA will we generate the level of new employment opportunities needed to help those workers whose jobs are eliminated as a result of crop eradication as well as the many skilled workers who are currently unemployed. Even USTR’s report notes that the ATPA has just ‘‘begun to show important successes.’’ Beginning, after almost ten years, is not enough. To achieve full

success, ATPA must be both extended and enhanced.

An enhanced ATPA that provides duty-free access to the U.S. market for a maximum variety of labor-intensive goods would offer great support for democratic institutions in the region. This program would also attract new investment and economic

development, thereby redirecting the unemployed and underemployed away from

the coca and poppy fields and providing alternative employment for those displaced

by the eradication of illegal crop production. Moreover, an enhanced program that

undermines the economic power of insurgents and credits our democratic leaders

with achieving that program would inevitably strengthen the hand of democratic institutions in the region. Key to such success, however, is an ATPA renewal that is

sufficiently broad in scope, without being overly complicated, and of a duration that

is adequate to ensure that investors believe there is sufficient time to reap a return.

IV. Crafting Textile and Apparel Provisions in the ATPA

We are well aware of suggestions that ATPA could be rewritten to match the benefits provided to the Caribbean and Central American countries last year, under the

Caribbean Basin Trade Preferences Act. Indeed, Senator Graham of Florida already

has introduced such an ATPA renewal bill in the Senate, S. 525, and we appreciate

that first step. However, the Andean region and the CBI region are very different

and the purposes of the CBTPA were very different from what the ATPA must accomplish. Therefore, we believe that the ATPA must reflect those differences.

One of the sectors offering the greatest opportunities for the generation of employment is textiles and apparel. The ATPA countries are currently a minor player in

the U.S. apparel market. The ATPA countries account for only one percent of total

apparel imports—and that is all we have accounted for every year since 1992. The

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CBI countries account for almost 23 percent of total U.S. apparel imports, and their

share of the U.S. market has been growing over the past decade. Those numbers

demonstrate that, with respect to textile and apparel exports to the United States,

the ATPA countries are more like the sub-Saharan African countries than we are

like the CBI countries. Therefore, we believe that an enhanced ATPA should be

based on the model established in the African Growth and Opportunity Act rather

than the one in the CBTPA.

Apparel Imports to the United States

CBI versus NAFTA versus Andean Region (% of total apparel imports to the

U.S.)

Unlike the CBI region, the Andean region is not dominated by so-called 807 assembly operations. The apparel industry in the ATPA countries is highly vertical,

meaning that we manufacture yarns, fabrics, and finished garments and textile

goods, offering our customers a ‘‘full package’’ of services. To do this, we import a

great deal of inputs from the United States. We would import even more if there

were benefits for our textile and apparel exports to the U.S. under ATPA.

The fact is that today the Andean countries already import far more raw cotton

from the United States than the CBI countries, even though there are only 4 ATPA

countries and there are two dozen CBI countries ($72 million versus $58 million

worth of raw cotton). The United States is by far Colombia’s top supplier of raw cotton, accounting for 50 percent of our imports. The ATPA countries also import a significant quantity of manmade fibers and manmade fiber yarns from the United

States—a total of $57 million worth in 2000. (The U.S. exported $32 million worth

to the CBI region during the same period.) These inputs provide some indication of

the extent to which enhanced ATPA offers real export opportunities for the U.S. cotton, manmade fibers and yarn industries.

U.S. Exports to the ATPA Countries for the Year of 2000—Value of Wool, Cotton and MMF

Inputs

4-digit HTS Description APTA export

value % Share

Raw Wool:

5101 ................................. Wool, Not Carded Or Combed .............. 3,895 0.1

Total raw wool ....................................... 3,895 0.1

Wool Yarn:

5106 ................................. Yarn Of Carded Wool, Not Put Up For

Retail Sale.

8,979 0.5

5107 ................................. Yarn Of Combed Wool, Not Put Up

For Retail Sale.

478,977 8.5

5109 ................................. Yarn Of Wool Or Fine Animal Hair,

For Retail Sale.

35,144 2.0

Total wool yarn ..................................... 523,100 5.8

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U.S. Exports to the ATPA Countries for the Year of 2000—Value of Wool, Cotton and MMF

Inputs—Continued

4-digit HTS Description APTA export

value % Share

Wool Fabric:

5111 ................................. Woven Fabrics Of Carded Wool Or

Fine Animal Hair.

1,003,721 4.1

5112 ................................. Woven Fabrics Of Combed Wool Or

Fine Animal Hair.

1,114,008 2.2

5113 ................................. Woven Fabrics Of Coarse Animal Hair

Or Horsehair.

3,645 1.0

Total wool fabric ............. ............................................................ 2,121,374 2.8

Total Wool Products ....... ............................................................ 2,648,369 3.0

Raw Cotton:

5201 ................................. Cotton, Not Carded Or Combed ........... 71,113,180 3.8

5202 ................................. Cotton Waste (Including Yarn Waste

Etc.).

402,883 1.2

5203 ................................. Cotton, Carded Or Combed .................. 744,673 8.1

Total raw cotton .................................... 72,260,736 3.8

Cotton Yarn:

5205 ................................. Cotton Yarn (Not Sewing Thread)

Nu85% Cot No Retail.

1,197,918 0.5

5206 ................................. Cotton Yarn (Not Sewing Thread)

Un85% Cot No Retail.

1,626,213 6.0

5207 ................................. Cotton Yarn (Not Sewing Thread) Retail Packed.91,772 1.0

Total cotton yarn ............ ............................................................ 2,915,903 1.0

Cotton Fabrics:

5208 ................................. Woven Cotton Fabrics, Nu 85% Cot,

Wt Nov 200 G/M2.

12,083,580 3.8

5209 ................................. Woven Cotton Fabrics, Nu 85% Cot,

Wt Ov 200 G/M2.

9,217,064 1.3

5210 ................................. Woven Cotton Fabrics, Un85% Cot,

Mmfmix, Nov200G/M2.

3,859,125 2.6

5211 ................................. Woven Cotton Fabrics, Un85% Cot,

Mmfmix, Ov200G/M2.

1,019,031 0.9

5212 ................................. Woven Cotton Fabrics Nesoi ................ 1,133,715 3.3

6002 ................................. Knitted Or Crocheted Fabrics, Nesoi .. 4,037,827 0.7

Total cotton fabrics ......... ............................................................ 31,350,342 1.6

Total Cotton Products .... ............................................................ 106,526,981 2.6

Manmade Fibers:

5501 ................................. Synthetic Filament Tow ....................... 9,595,901 18.6

5502 ................................. Artificial Filament Tow ........................ 1,384,611 0.4

5503 ................................. Synthetic Staple Fibers, Not Carded,

Combed Etc.

12,881,397 3.5

5504 ................................. Artificial Staple Fibers, Not Carded,

Combed Etc.

953,370 1.3

5506 ................................. Synthetic Staple Fibers, Carded,

Combed Etc.

472,318 3.9

Total manmade fibers .... ............................................................ 25,287,597 3.0

Manmade Fiber Yarns:

5402 ................................. Synthetic Filament Yarn (No Sew

Thread), No Retail.

22,383,281 2.8

5403 ................................. Artificial Filament Yarn (No Sew

Thread), No Retail.

492,416 0.7

5404 ................................. Syn Monofil Not Un 67 Dec, Cr-Sect

Nov1Mm, Stno5Mm.

7,703,640 4.2

5406 ................................. Manmade Filament Yarn (No Sew

Thread), Retail Pack.

346,773 3.5

5509 ................................. Yarn (No Sew Thread), Syn Staple

Fib, Not Retail.

669,603 0.7

5510 ................................. Yarn (No Sew Thread), Art Staple Fib,

Not Retail.

548,361 20.0

5511 ................................. Yarn (No Sew Thread), Manmade Staple Fiber, Retail.144,748 0.7

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U.S. Exports to the ATPA Countries for the Year of 2000—Value of Wool, Cotton and MMF

Inputs—Continued

4-digit HTS Description APTA export

value % Share

Total manmade fiber

yarns.

............................................................ 32,288,822 2.7

Manmade Fiber Fabrics:

5407 ................................. Woven Fab Of Syn Fil Yn, Incl

Monofil 67 Dec Etc.

4,309,513 0.4

5408 ................................. Woven Fab Of Art Fil Yn, Incl Monofil

67 Dec Etc.

765,996 0.4

5512 ................................. Wov Fabric, Synth Staple Fib Nu 85%

Synth St Fiber.

770,603 0.1

5513 ................................. Wov Fabric, Syn St Fib Un85%, Cot

Mix, Nov17Og/M2.

560,543 0.6

5514 ................................. Wov Fabric, Syn St Fib Un85%, Cot

Mix, Ov 170 G/M2.

1,172,606 1.6

5515 ................................. Woven Fabrics Of Synthetic Staple Fibers Nesoi.537,033 0.6

5516 ................................. Woven Fabrics Of Artificial Staple Fibers.411,983 1.0

Total Manmade fiber

fabrics

................................................................. 8,528,277 0.5

Total Manmade Fiber Inputs................................................................. 66,104,696 1.8

Parts of Clothing (All fibers)................................................................. 15,529,867 3.0

Total Wool, Cotton, Manmade Fiber Inputs................................................................. 190,809,913 2.3

V. Greater Incentives for the Andean Region

It also must be acknowledged that simply providing the ATPA countries with the

same benefits as the CBI countries will not necessarily induce investors or U.S. importers to do business with the Andean countries. We need a greater incentive to

overcome the higher cost of labor in our countries and to overcome the security concerns of American business.

We therefore sincerely hope that the U.S. Congress will craft an ATPA enhancement law that is simple and uncomplicated, providing unlimited duty-free access for

all textile products made from either U.S. or Andean origin inputs. It is also essential to provide duty-free access for garments made in the region from third country

inputs so long as the most important manufacturing operations occur in the Andean

region. We hasten to note that the jobs generated by these benefits will in no way

take away jobs from the United States. The duty-free access will instead permit the

ATPA countries to compete with suppliers in Asia.

The Andean countries need duty-free access for all other products as well. We

urge Congress to eliminate all of the exclusions that are part of the current ATPA.

In our view, just as in the African Growth & Opportunity Act, duty-free access

should be provided to all footwear, leather goods, watches, canned tuna, petroleum

products, and any other product eligible for GSP treatment, if the GSP rules of origin are met.

For example, the labor intensive fishing industries of the ATPA beneficiary countries have developed significantly during the last years, but have been precluded

from becoming competitive in the U.S. market because of the high duties and restrictive access rules that apply. Thus, ATPA countries account for only $10 million

of the $600 million worth of tuna imported into the U.S. each year. Additionally,

90 percent of the capital goods and inputs necessary to produce canned tuna reflects

U.S. investment in the ATPA countries. Improved access to the U.S. market would

serve the interests of this U.S. investment in tuna processing plants and also provide new employment opportunities.

Additionally, we would like the Subcommittee to consider that while four of the

five members of the Andean Community have benefited from ATPA, these preferences do not cover Venezuela. Our trading bloc, as well as the United States,

would benefit if ATPA were expanded to include all the members of the Andean

Community.

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Conclusion

Mr. Chairman, members of the Subcommittee, the Andean countries greatly appreciate your support in holding this hearing today to discuss renewal of the ATPA.

We are very hopeful that you will act quickly to enact a new ATPA before the current program expires. Time is of the essence. Colombia needs to promote new foreign investment in key economic sectors to achieve an economic recovery and effectively fight the drug war. While the original ATPA, with its 10-year term, initially

brought new investment into the region, new investment has declined considerably.

In order to generate new interest in the region, we need ATPA to be extended for

a term sufficient to ensure that the FTAA has come into force before the ATPA completes another term. Only then will investors trust that they will have sufficient

time to see a real return on that investment.

In particular, we ask that this subcommittee take up and pass ATPA legislation

rapidly, preferably before the July 4th recess, in order to generate momentum for

this legislation. Such momentum is needed if a law to renew and enhance ATPA

is to be enacted before the current ATPA expires in December.

We welcome the opportunity to work with you, and with the Bush Administration,

which has been very supportive, to achieve both an enhanced ATPA and a FTAA

as quickly as possible. Thank you.

Solares.

Chairman CRANE. Thank you, Minister Ramirez. Minister

f STATEMENT OF THE HON. ANA MARIA SOLARES, VICE-MINISTER OF TRADE AND ECONOMICS, MINISTRY OF FOREIGN

AFFAIRS, REPUBLIC OF BOLIVIA

[The following testimony was interpreted from Spanish:]

Ms. SOLARES. Thank you, Mr. Chairman. First of all, I would like

to thank you very much for taking the initiative to invite us to participate in this panel to deal with a subject that is so important for

the Andean Group countries.

Thank you, also, for your personal interest in this subject.

I have provided a document in writing explaining in detail my

presentation, and I’m aware that I have a short amount of time

right now.

I will be going directly to the point on the subjects that I want

to mention to you, but I hope you will give me a little bit of consideration with regard to time because I need interpreting.

Chairman CRANE. If you will yield, we will, indeed. All of the

written testimony will be a part of the permanent record as well.

Ms. SOLARES. Thank you.

First of all, I would like to indicate that the countries of the Andean Region are here in this room and in this country to encourage

a reaffirmation and breathing new life to the terms of the strategic

alliance that was agreed on ten years ago between our countries.

This alliance was formed because of a common problem that we

have, and because of a common goal that we share. This alliance

was conceived with a holistic approach that would create actions to

confront the problem of drug trafficking and its levels of demand,

consumption and distribution. This would create a type of cooperation. The goal was to have cooperation that in economic terms

would result in trade and investment.

This Andean Trade Preferences Act has been an expression of

this strategic alliance, which has been as very effective means for

encouraging trade in both directions between our countries. Indeed,

we have seen that, as a result of this agreement of ATPA, there

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has been an increase in exports to the United States. There has

also been a generation of imports to the Andean countries from the

United States in machinery products and imports and, to be honest, this results in a greater amount of imports than Israel and

Brazil.

We can also see this Andean Trade Preference Act as a way to—

as an instrument to lead to free trade, which is something that we

all desire. Nevertheless, we must return to the original concept

that led to the agreement. It was originally conceived in order to

create alternative forms of work so that people who would be involved in illicit drug production would be able to have other types

of work that would be legitimate jobs.

Something else that we must recognize as the goals of this agreement is to lead to national security, the health of our people, and

stability in the Andean countries. Mr. Chairman, we have made

tremendous strides over the past ten years, but as you know, drug

trafficking never sleeps. We must preserve our accomplishments,

but also deepen our efforts.

So what we must do at this time with regard to the Andean

Trade Preferences Act is renew the terms, broaden them, and also

incorporate Venezuela in the Andean Group countries of this Act.

In order to do this, we would like to propose a new modality. We

would suggest a general opening up of the U.S. markets, excluding

some of the sensitive sectors to the United States. We would hope

in this regard to see a priority given to the textile sector. We would

hope that in this production we would be able to contribute to all

aspects of the chain of production, using inputs from the U.S. as

well as those from our own region.

Mr. Chairman, please allow me to refer to my country’s case. As

you know, my country has accomplished tremendous progress with

a lot of difficult effort. By applying the dignity plan, we have almost completely eradicated or removed our country from the vicious circle of drug trafficking.

We have been able to withdraw from international markets 240

tons of cocaine. Obviously, these tons would have multiplied tremendously on the streets of large cities throughout the world. Mr.

Chairman, we need to preserve this progress. So one way to do this

would be to open up alternative employment sources for people to

be able to reduce the terrible effects of unemployment that we’re

seeing these days. The only way to do this is to produce more and

export more, because we have a very small market in our country.

Thus, we have a tremendous need to be able to participate in international markets and, of course, principally that of the U.S.

We must also see textiles as a priority sector, but not in the form

of assembly plants. If we were to stick to that modality, then Bolivia would not be able to take advantage of this opportunity. With

regard to the purchases that you make in this sector, our purchases are very small in number.

Mr. Chairman, we trust that, through the opening up of U.S.

markets, you will show to our Andean community your solidarity

in struggling against the common problem that we share.

Thank you very much.

[The prepared statement of Ms. Solares follows:]

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Statement of the Hon. Ana Maria Solares, Vice-Minister of Trade and

Economics, Ministry of Foreign Affairs, Republic of Bolivia

Thank you very much Mr. Chairman for calling this important hearing on an

issue so vital to the Andean countries, in such a timely matter.

Mr. Chairman: In the last decade, the Andean countries have engaged in a serious

effort to combat the scourge of drugs that was destroying the youth and the social

fabric of our nations. We committed ourselves to fight vigorously and relentlessly

in the elimination of all production of illegal coca plantations, to destroy drug laboratories, to seize drug shipments and to arrest individuals engaged in this illicit

business. Our countries even created laws and government institutions to better address the problem. In no uncertain terms, Mr. Chairman, I would like to start my

presentation by assuring you that the countries represented here, have invested all

the human and economic resources available to us in this fight.

But as you know very well, the global nature of the problem surpasses the capacity of individual action by any nation. The fight against drugs, from the beginning,

has demanded a global alliance between producing and consuming countries, based

on the principle of shared responsibility. With this in mind, ten years ago, the

United States of America and the countries of the Andean region established a strategic partnership, developing an integral vision of the problem. We all committed

to confront the different aspects of the illicit drug trade—supply, demand, and consumption—through a combination of programs in the interdiction, prevention, and

economic development areas.

The Andean Trade Preference Act (ATPA) was conceived a decade ago within this

context. The United States and the nations of the Andean region would use trade

as part of our mutual effort to strengthen our economies, which in turn, would help

us in the war against drugs. Trade and the economic prosperity that accompanies

it, we, and are seen, as the right way to push back against the drug cartels.

The good news is we have had some success. In 10 years of existence, ATPA has

become an essential tool for the commercial interchange between the United States

and the Andean region. Approximately 140.000 new jobs have been created in the

region. In addition it has created important flows of investment and has doubled

the two way trade between the United States and the nations of the region. During

this period, the Andean countries have also made important strides in the war

against drugs. More than three hundred sixty six hectares of coca were eliminated

preventing the availability of hundred tons of drugs in the U.S. streets; important

drug cartels were disbanded; and hundreds of cocaine labs were destroyed.

Our fight has been aggressive, but our social and economic costs have also been

extremely high. There have been thousands of lives lost, unemployment grew to unprecedented levels, and in the process, our democratic institutions have been under

permanent threat.

Today, the Andean region face a very critical moment, and in accordance with the

concept of shared responsibility that inspires our cooperation, we see the renewal

and expansion of ATPA as critical to guarantee sustainability of our achievements

and our ability to make further progress. Further, ATPA renewal and expansion is

needed even more because of the competitiveness of the Andean nations in the U.S.

market has been diminished due to the establishment of NAFTA and the preferential trade mechanisms granted to Caribbean and Sub-Saharan countries.

We, the Andean countries, are fully committed to the idea of and the process for

negotiating the Free Trade Area of the Americas. But until the FTAA becomes a

reality, we need a robust ATPA that would remain in place until the FTAA becomes

a reality.

THE SITUATION OF BOLIVIA

Mr. Chairman let me address for a minute the specific situation of my country,

Bolivia.

As you know, in 1997, President Hugo Banzer made the historic commitment to

eliminate all production of illegal coca/cocaine in our territory in only 5 years. When

his plan was presented, many, including people in the United States were skeptical.

At the time, Bolivia was the second major producer of coca/cocaine in the world. We

had 45.800 hectares of coca plants in our territory. We were the second poorest nation in the Hemisphere after Haiti.

In three years, my government has eliminated 100% of coca production in the

Chapare region, the largest area of coca cultivation for illicit purposes, with only

2000 hectares of illegal plantations remaining in the Yungas area. We have conducted more than 16.900 drug interdiction operations, have destroyed more than

4.000 labs of cocaine, have arrested more than 14.400 people implicated in

narcotrafficking, have seized more that 50.000 kilos of cocaine, but most imporVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00127 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
124

tantly, our anti-drug strategy has resulted in preventing the availability of some 240

tons of cocaine in the U.S. streets.

The social, economic and political cost of this fight, Mr. Chairman, has been extremely high in my country. We have lost in this process thousands of jobs, elevating the unemployment and underemployment levels to more than 24%. The coca/

cocaine sub-economy in Bolivia, albeit illegal, went much beyond generating important levels of direct employment, it also fostered related economic activities in transportation, trade and industry. It is calculated that in the last 3 years, since the implementation of our anti-drug Dignity Plan, Bolivia lost $370 million dollars due to

the reduction of the gross value of the coca, and $230 million dollars due to the concept of value added given to it. This means a loss of $600 million U.S. dollars, which

comparatively amounts to 60% of our total exports.

This deep deactivation of our economy has also been aggravated by the impact

of other necessary economic reforms taken by the Government of Bolivia. For example, Bolivian Customs reform, designed to eliminate corruption fueled by money

laundering, and discourage informal trade, has also taken away another $300 million dollars, which contributed to increased unemployment levels. In addition, the

strict compliance of Bolivia in abiding agreements in the area of intellectual property, and the fight against piracy, has meant another negative impact. In could go

on mentioning other examples, but the bottom line is that all those factors have

helped to create an economic downturn and very serious social unrest.

Because of all this, we face an urgent need to further develop our economy and

to generate new sources of income. Our traditional exports have been agricultural

commodities. If we are to use trade as an engine of growth for the Bolivian economy,

we must diversify our export base. We believe that the textile and garment industry

offers great potential for additional export income, which in turn, will also generate

much needed new jobs.

Currently, the manufacturing sector in Bolivia represents 15% of our total exports, which last year grew to 1 billion dollars. The textile and garment industry

represents 4% of that amount. Our objective for the coming years would be to foster

the growth of the textile and garment industry to 20%, equivalent to $200 million

dollars. Even if we manage to grow to that level, the total exports of textiles and

garments from Bolivia to the United States will represent a mere 0.3% of the total

U.S. imports of textile and garment from abroad.

Within this context, Bolivia, united with all the Andean countries beneficiaries of

ATPA, would like to see a renewal and expansion of the law that would be as wide

and as simple as possible. Listing, only if needed, the products that would not be

included for the preferential treatment. Bolivia would not be benefited if in the new

law, regional inputs in the whole chain of production are conditioned or limited. The

practice of ‘‘maquila’’ can be highly beneficial to other countries, but not to ours

given its great distance form the U.S. market, its land locked condition and the high

costs of transportation. Bolivia also hopes that in granting trade preferences to the

Andean countries, the United States will consider the particular needs of Bolivia

and the other nations of the region with regard regards to the raw material and

the finished products made from llama, alpaca, and vicun ̃ a.

In conclusion, Mr. Chairman, I would like to thank you for the interest you have

put in this very important matter to the Andean region, and request that the cooperation of the United States be expressed, fundamentally, in opportunities of market access to as wide range of products as possible.

Thank you very much, and I am prepared to answer any questions you might

have on this topic.

Chairman CRANE. Thank you. Mr. Moore.

f STATEMENT OF CARLOS MOORE, EXECUTIVE VICE PRESIDENT, AMERICAN TEXTILE MANUFACTURERS INSTITUTE

Mr. MOORE. Mr. Chairman and Members of the Committee, my

name is Carlos Moore. I am Executive Vice President of the American Textile Manufacturers Institute, the national trade association

of the U.S. textile industry. Our member companies operate in

more than 30 States and process approximately two-thirds of all

textile fibers consumed by mills in the U.S.

125

With respect to the subject of a Free Trade Agreement of the

Americas, ATMI believes that the details will prove critical as to

whether an FTAA will help the U.S. textile industry establish beneficial trading partnerships in this hemisphere. We believe the goal

of an FTAA, from a textile perspective, must be to establish measures that will benefit our industry. We believe the same to be the

case of an Andean Trade Preference Act.

This has become even more crucial in the past year. The U.S.

textile industry is being seriously injured by low-priced imports,

primarily from Asia, and also by the economic slowdown in our

economy. In 1999, our industry earned $690 million from total

shipments of $78.6 billion. Last year, our industry lost $529 million, on sales of $76 billion. Employment dropped by 25,000 over

the past calendar year, and many thousand more jobs have been

lost already this year.

As imports continue to take away domestic business from our

members, we are working hard to find markets outside the U.S.

However, many markets, primarily those in Asia and especially

India, are closed to imports. That is why NAFTA has become increasingly important to us and why we believe that an effectively

implemented Caribbean Basin law can contribute to our industry’s

growth.

Let me address a few key concerns about the FTAA. As ATMI

stated in its March 7th statement to this Subcommittee, it is important that the FTAA governments create a sub-group within the

market access negotiating group that is dedicated to textile and apparel access issues. These market access issues include safeguards,

customs enforcement, verification, and negotiation of over 1,500

tariff lines, and they are technical and detailed. To date, no such

sub-group has been established.

We also believe that an FTAA, like NAFTA, should include a

basic yarn-forward rule of origin, but without the large tariff preference levels included in NAFTA that granted benefits to countries

outside the agreement.

On the matter of renewal and expansion of the ATPA, we have

serious concerns regarding the inclusion of textiles and apparel,

particularly coming so close on the heels of last year’s Trade and

Development Act of 2000. This law, which went into effect only

seven months ago, has not been given the opportunity to achieve

its desired results. Moreover, there are still a number of outstanding issues which must be resolved before the new Caribbean

Basin trade partnership’s potential benefits and impact can be

properly determined and evaluated.

While ATMI endorsed and supported the CBI portion of the law,

we are still concerned about U.S. Customs’ interpretation of key

provisions of the Act, especially with respect to texturing of U.S.

yarn and the dyeing and finishing of U.S. fabrics which we believe

should be carried out only within the United States.

The sub Saharan Africa portion is also troubling to our members,

including our concerns about a surge mechanism, the size, structure, and growth rate of quotas on apparel made of non-U.S. components, and generally its weak anti-transshipment measures.

Senator Bob Graham, who was helpful in securing enactment of

the CBI law, has introduced legislation in the Senate to renew the

126

ATPA and to extend it to textile products, provided the final product is made of U.S. fabric, of U.S. yarn.

Let me state very clearly that ATMI would strongly oppose any

efforts to weaken this fabric and yarn requirement. If the U.S. is

to grant Andean countries greater access to our markets on a unilateral basis, the principles of fairness and reciprocity require that

U.S. textile components be used.

We also note that Senator Graham’s bill would permit duty-free

entry for knit-to-shape apparel articles assembled in the Andean

Region, and it also provides benefits to Andean knit-to-shape apparel from components formed in the U.S., regardless of where the

yarns were made. They could be U.S., Andean, or Asian. It doesn’t

matter. These are significant differences from the precedent set in

last year’s Caribbean legislation and are in opposition to the intent

of the legislation which is to promote increased trade in goods

sourced from the region.

We further note that Senator Graham’s bill provides for an additional 70 million square meters of imported apparel made of regional knit fabric of U.S. yarn, which would be allowed to increase

over the next 3 years. While ATMI represents yarn spinners who

could benefit from this provision, we also represent knitters who

could be harmed by its inclusion.

Finally, as we stated earlier regarding the CBI law, we believe

that texturing of yarns and dyeing and finishing of fabrics should

be done only in the U.S., and U.S. Customs has yet to issue a final

ruling on these issues. Because these issues are still unresolved,

that adds greatly to our concerns with respect to the expansion of

the ATPA to include textiles and apparel.

In light of our concerns cited above, and particularly in light of

reports that this body might seek an even further weakening of the

Graham bill to the detriment of our Members, we are opposed to

expanding the ATPA to include textiles and apparel.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Moore follows:]

Statement of Carlos Moore, Executive Vice President, American Textile

Manufacturers Institute

My name is Carlos Moore. I am Executive Vice President of the American Textile

Manufacturers Institute (ATMI), which is the national trade association for the U.S.

textile industry. Our member companies operate in more than 30 states and process

approximately two thirds of all textile fibers consumed by plants in the United

States.

ATMI welcomes this opportunity to discuss the outcome of the recent Summit of

the Americas held in Quebec City, particularly with respect to how that meeting has

set the stage for negotiations on a Free Trade Agreement of the Americas (FTAA).

We will also discuss renewal of the Andean Trade Preference Act (ATPA) and its

possible expansion to include textiles.

As we stated in a submission to the committee earlier this year, we are an industry that is simultaneously both a major exporter and one that is deeply impacted

by foreign imports. Accordingly, since we do endeavor to compete in this global trading environment, the domestic textile industry believes that United States trade policy should be motivated by principles of fairness and equity. I would refer you to

my statement of March 7 for a detailed account of this overall issue, as well as how

our industry has fared in recent years, largely as a result of the financial problems

in Asia and despite our efforts to constantly modernize and seek new export markets.

To preface my remarks, which will make several references to NAFTA, I would

like to remind the Committee that ATMI initially took no firm position for or

against the North American Free Trade Agreement. Rather, our Board of Directors

127

instructed ATMI’s officers at the time, and ATMI staff, to work with our government to seek a yarn-forward rule of origin and effective Customs enforcement provisions. When the first Bush Administration incorporated this as its negotiating position, and was subsequently successful in getting such provisions into the final agreement, ATMI’s Board then adopted a position in strong support of NAFTA, and we

forcefully lobbied the Congress to urge NAFTA’s adoption. The textile portion of the

NAFTA is an outstanding case where a trade agreement is both fair and equitable

to the textile sectors of all three NAFTA partners.

This is evidenced by the billions of dollars of two-way trade in textile and apparel

exports that have been created since NAFTA was implemented. Indeed, during the

past seven years, Mexico has overcome China to become by far the largest supplier

of apparel to the United States. It was a deal that embodied the fairness and equity

we would urge in an FTAA, although customs fraud has become an increasingly serious problem, as I will discuss later.

With respect to the subject of today’s hearing, ATMI recognizes that the leaders

of the 34 nations at the recent Summit of the Americas clearly support the goal of

completing negotiations for an FTAA by January 2005. But as with all trade agreements, the details are critical as to whether an FTAA will help the U.S. textile industry establish beneficial trading partnerships with customers in these nations, as

has been the case under NAFTA and in the Caribbean Basin. We believe that the

goal of an FTAA from a textile perspective must be to establish measures that will

benefit our industry.

As we stated in our March 7 testimony, it is important that the governments create a subgroup within the market access negotiating group dedicated to textile and

apparel access issues. This would mirror the process that has been used in every

major negotiation—including the Uruguay Round, NAFTA and the U.S.-Canada

FTA—that has involved textiles and apparel to date. The issues involved in textile

and apparel market access, which include safeguards, customs enforcement and

verification and the negotiation of over 1,500 tariff lines, are technical and detailed.

A dedicated sub-group on textile market access is absolutely necessary for a successful outcome. To date, no such sub-group has been established.

As was the case with NAFTA at this stage of the negotiations, ATMI’s Board of

Directors has not yet taken a formal position on an FTAA. However, in general

terms we believe the agreement should, like NAFTA, have a basic yarn-forward rule

of origin, but without: (a) the large tariff preference levels (TPLs) included in

NAFTA that granted benefits to countries outside the free trade agreement; or (b)

the special preferences given to 807A goods under NAFTA that did not require U.S.

yarn. We also believe that customs enforcement provisions in the FTAA should include not only the provisions in NAFTA, but should be expanded to take into account the difficulty in policing an entire hemisphere. New customs programs should

include those in the recently enacted Trade and Development Act of 2000. Other enforcement measures should also be included and ATMI will be ready to advise U.S.

negotiators about them.

Specifically, the FTAA must be fair and beneficial to U.S. textiles; it must have

enforceable rules and governments must commit to enforcing those rules. To use

NAFTA as a point of reference, the textile and apparel rules must exclude granting

benefits to non-participating countries through TPLs, have strict origin requirements, allow for cross-country customs verification and have reciprocal tariff phaseouts. Enforcement is key; each time that free trade is expanded, the opportunity for

goods from outside the free trade region to enter illegally through transshipment or

smuggling is expanded, to the detriment of all of the participating countries.

Indeed, seven years into the NAFTA agreement it has become clear that largescale smuggling of textile and apparel goods into Mexico and the United States to

avoid quotas and tariffs is now a problem of the first magnitude. These goods, which

falsely declare NAFTA origin and which deprive the U.S. and Mexican Treasuries

of many millions of dollars in duties, cause great harm to U.S. and Mexican producers of textiles and apparel and their workers. Despite the authorization of funds

and of dedicated agency personnel to NAFTA textile enforcement in the NAFTA legislation, U.S. Customs has yet to crack down on this illegal trade.

To summarize, ATMI believes that the FTAA can provide benefits to the industries of all the participating countries, including U.S. textile producers, but only if

a separate negotiating subgroup succeeds with a final package that includes textile

and apparel provisions based on NAFTA, with the improvements we describe above.

On the matter of renewal of expansion of the ATPA, which expires in December,

our industry is aware that the leaders of the four Andean Pact nations—Bolivia, Colombia, Ecuador and Peru—met with President Bush in Quebec City on the need

to include textiles in a new agreement. We have serious concerns regarding this

issue, particularly coming so close on the heels of last year’s Trade and Development

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Act of 2000. This law, which went into effect only seven months ago, has not been

given the opportunity to achieve its desired results. We should be careful about

doing anything which might diminish the benefits which the new law is intended

to provide to the apparel producing countries of the Caribbean and to their yarn and

fabric suppliers in the United States.

Moreover, there are still a number of outstanding issues which must be resolved

before the new Caribbean Basin Trade Partnership Act’s potential benefits and impact can be properly determined and evaluated. While ATMI endorsed and supported the CBI portion of that law, ATMI is still concerned about U.S. Customs’ interpretation of key provisions of the Act, especially with respect to texturing of U.S.

yarn and dyeing and finishing of U.S. fabrics.

ATMI’s position is not unreasonable. Our position supports post-assembly apparel

dyeing and finishing in the Caribbean. Our position also supports dyeing and finishing in the Caribbean for U.S.-formed yarn and thread required for use in qualifying apparel, as well as for regional knit fabric. Our position for U.S.-only dyeing

and finishing would apply only with respect to U.S. fabric in garments not qualifying for the regional knit apparel or T-shirt allowance and to fabric used in textile

luggage. Our position with respect to textured yarn—that is, that such yarn must

be both extruded and textured in the U.S.—reflects the commercial reality of the

most efficient and cost-effective way of producing textured yarn.

Also, the Sub-Saharan Africa portion of the Trade and Development Act of 2000

Act contained sections that were very troubling to our members. These included the

lack of a workable surge mechanism, the size, structure and growth rate of the

quota for garments made of non-U.S. components and generally weak anti-transshipment measures. These concerns will be taken into account in our evaluation of

any Andean Pact renewal proposal that might include textiles.

Senator Bob Graham, who was so helpful in securing enactment of the CBI law,

has introduced legislation in the Senate, S. 525, to renew the ATPA and to extend

it to textile products provided the final product is made of U.S. fabric of U.S. yarn.

Let me state very clearly that ATMI would strongly oppose any efforts to weaken

this U.S. fabric and yarn requirement. If the U.S. is to grant the Andean countries

greater access to our markets on a unilateral basis, the principles of fairness and

reciprocity demand that only U.S. textile components be used.

We also note that Senator Graham’s bill would permit duty-free entry for knit to

shape apparel articles assembled in the Andean region from components knit to

shape in the U.S. and/or a beneficiary country of U.S. yarn. It also provides such

benefits to Andean knit to shape apparel from components formed in the U.S. regardless of the source of these yarns—they could be U.S., Andean, Asian—it doesn’t

matter. These are significant differences from the precedent set in last year’s Caribbean Basin legislation, and are in opposition to the intent of the legislation, which

is to promote increased trade of goods sourced from the region.

We further note that Senator Graham’s bill provides for an additional 70 million

square meters equivalent (sme) worth of imported apparel made of regional knit fabric of U.S. yarn, which would be allowed to increase by 16 percent annually over

the next three years. While ATMI represents yarn spinners who could benefit from

this provision, we also represent knitters who could be harmed by its inclusion.

Finally, we would like to reiterate our support for a ruling by Customs, as stated

above, regarding texturing of yarns and dyeing and finishing of fabrics under last

year’s CBI law, and we are still waiting for that favorable determination. Because

that issue is still unresolved, that is another uncertainty that adds to our concerns

with respect to the expansion of the ATPA.

In light of all the concerns cited above, and particularly in light of reports that

this body might seek an even further weakening of the Graham bill to the detriment

of our members, we are opposed to expanding the ATPA to include textiles.

In closing, Mr. Chairman, ATMI is not opposed to fair and equitable trade agreements which establish mutually beneficial trading arrangements and thus create a

true economic partnership between U.S. textile companies and our customers in

other regions. That is why we supported NAFTA and the Caribbean provisions of

last year’s trade bill. Let’s establish a true economic partnership within this hemisphere that benefits apparel makers throughout the FTAA region and U.S. textile

producers.

Thank you.

Chairman CRANE. Thank you, Mr. Moore. Mr. Lamar.

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STATEMENT OF STEPHEN LAMAR, DIRECTOR, GOVERNMENT

RELATIONS, AMERICAN APPAREL AND FOOTWEAR ASSOCIATION, ARLINGTON, VIRGINIA

Mr. LAMAR. Thank you. My name is Steve Lamar and I’m Director of government Relations for the American Apparel and Footwear Association, the national trade association of the apparel and

footwear industries.

Just to give you a sense of where we fit in, our Members purchase fabric from companies like those in Mr. Moore’s group, or we

make our own fabric. We then go and make clothing either in the

United States or abroad, and then we sell the clothing ourselves or

through companies like those in Mr. Autor’s group.

Thank you for providing our Association the opportunity to appear before you today. I would like to focus my comments this

afternoon on the need for a robust renewal and expansion of the

ATPA as it relates to the apparel industry.

The American Apparel and Footwear Association supports enhancement of the ATPA to provide additional benefits for apparel

produced in the Andean Region. Expansion of the current ATPA to

provide such benefits, to the extent they provide an effective incentive to sourcing and production in the region, is a natural extension

of our policies to promote hemispheric integration and to eliminate

the economic conditions that permit drug trafficking in the Andean

Region. Expansion of the ATPA is also a key stepping stone to negotiation of a well-balanced and commercially viable Free Trade

Area of the Americas, a goal we also support.

In general, we believe any expansion of the ATPA benefits to

cover apparel products should incorporate the following principles:

First, the program should be simple to use. As this Subcommittee

knows all too well, a similar extension of benefits to the Caribbean

Basin and African countries is mired in disputes over arcane and

complex rules of origin. Although these programs provided important new incentives for apparel production and, consequently, U.S.

textile and yarn exports—by the way, I congratulate the Subcommittee for the leadership they exhibited last year in getting

this legislation passed—it has been difficult to realize fully these

incentives because of problems in delays and interpreting the law

and in promulgating rules and regulations.

Second, the program should be unique to the trading relationships with and within the Andean Region. One of the goals of the

program is to provide legitimate job creation opportunities in the

region. Such goals are thwarted, however, if existing Andean exports to other Andean markets are diminished by an overly restrictive rule of origin. Similarly, an overly restrictive rule of origin will

make it difficult for new investments and production—which may

depend on Andean, Asian or European fabrics—to stimulate job

creation.

Third, the program should promote flexible sourcing of apparel

and their inputs within a given rule of origin. For example, the

rule of origin should reflect a negative list of goods that cannot

qualify for preference, rather than a positive list of goods that can.

This would ensure maximum opportunities to navigate within a

particular rule of origin and eliminate some of the interpretation

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problems we have seen with regard to the Caribbean Basin and Africa legislation.

Fourth, the legislation should be of sufficient duration to provide

meaningful incentives for investment and trade. This is especially

important if the preferences are subject to significant labor, antinarcotics, and trade conditionality. If the countries are going to be

required to make long-standing commitments to gain better access

to the U.S. market, fairness dictates that the access be given an

equally longstanding nature.

Finally, this legislation should provide a bridge to the Free Trade

Area of the Americas for the ATPA region. It should help prepare

countries for their FTAA commitments while promoting the kind of

trade linkages that will develop and strengthen under the FTAA.

In my written statement I have provided some statistics and

graphs that highlight features of the ATPA apparel trade environment. These statistics show significant differences between the

ATPA and the CBI regions, suggesting that the CBI trade partnership model, per se, may not be the most appropriate and effective

model for the Andean region. The data also show that there are

well-developed patterns of input sourcing that rely upon other Andean sources, as well as sources outside the region.

Finally, the data emphasize that, although this region is not an

important sourcing center for the United States, this region depends greatly on access to the U.S. market for its apparel products.

In conclusion, I would like to emphasize that the AAFA strongly

supports expansion of the ATPA to include apparel. A number of

our members are manufacturing in those countries and others have

signaled their interest in sourcing from those countries in the future if a flexible and easy-to-use program is created.

An ATPA program that is simple, flexible, and accommodates

and maximizes the natural advantages of the region, will offer the

best opportunities and incentives for our members to commence

and expand their trade partnerships with these countries. But one

that is overly restrictive, or which effectively negates the duty savings by imposing additional costs, will be largely ignored by our industry.

Thank you for providing us this opportunity to be here today,

and I’m available for any questions.

[The prepared statement of Mr. Lamar follows:]

Statement of Stephen Lamar, Director, Government Relations, American

Apparel and Footwear Association, Arlington, Virginia

Thank you for providing us the opportunity to discuss the need for a ‘‘robust’’ renewal and expansion of the Andean Trade Preference Act (ATPA) as it relates to

the apparel industry.

The American Apparel and Footwear Association (AAFA)—the national trade association of the apparel and footwear industries—supports the enhancement of the

ATPA to provide additional benefits for apparel produced in the Andean region. Expansion of the current ATPA to provide such benefits, to the extent that they provide an effective incentive to sourcing and production in the region, is a natural extension of our policies to promote hemispheric integration and to eliminate the economic conditions that permit drug trafficking in the Andean region. It is also a key

stepping stone to negotiation of a well-balanced and commercially viable Free Trade

Area of the Americas (FTAA), a goal we also support.

In general, we believe any expansion of the ATPA benefits to cover apparel products should incorporate the following principles.

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First, the program should be simple to use. As this Subcommittee knows all too

well, a similar extension of benefits to the Caribbean Basin and African countries

is mired in disputes over arcane and complex rules of origin. Although those programs provided important new incentives for apparel production (and consequently

U.S. textile and yarn exports), it has been difficult to realize fully these benefits created by those incentives because of problems and delays in interpreting the law and

in promulgating rules and regulations.

Second, the program should be unique to the trading relationships with and

within the Andean region. One of the goals of the program is to provide legitimate

job creation opportunities in the region. Such goals are thwarted, however, if Andean exports to other Andean markets are diminished by an overly restrictive rule of

origin. Similarly, an overly restrictive rule of origin will make it difficult for new

investments and production—which may depend upon Andean, Asian, or EU fabrics—to stimulate job creation.

Third, the program should promote flexible sourcing of apparel and their inputs within a given rule of origin. For example, the rule of origin should reflect a

‘‘negative list’’ of goods that cannot qualify for preference rather than a ‘‘positive

list’’ of goods that can. This would ensure maximum opportunities to navigate within a particular rule of origin and eliminate some of the narrow interpretation problems we have seen with regard to the Caribbean Basin and Africa legislation.

Fourth, the legislation should be of sufficient duration to provide meaningful

incentives for investment and trade. This is especially important if the preferences

are subject to significant labor, anti-narcotics, and trade conditionality. If the countries are going to be required to make long-standing commitments to gain better access to the U.S. market, fairness dictates that the access be of an equally longstanding nature.

Finally, this legislation should provide a bridge to the Free Trade Area of the

Americas for the ATPA region. It should help prepare countries for their FTAA

commitments while promoting the kind of trade linkages that will develop and

strengthen under the FTAA.

With these five goals in mind, I would like to provide some observations on the

textile and apparel industry trade with and in the Andean region.

Apparel trade from the ATPA region is fairly small both in absolute terms

and compared with other U.S. imports. In 2000, the United States imported

159.9 million Square Meter Equivalents (SMEs) of apparel from the ATPA region. This represents less than one percent of the total U.S. apparel imports

and less than 5 percent of imports when compared against those from the Caribbean Basin Initiative (CBI) countries. At the same time, the U.S. represents

a significant market for apparel exports from the ATPA countries. (Figure 1A

and 1B).

ATPA apparel trade is not based on the same production-sharing module that

is the basis for the CBI countries. In 2000, about 35 percent of all apparel imported from the ATPA region was entered under the 807 program (meaning

components were cut in the United States). Because there is no special access

program in place with the ATPA countries, no apparel was entered under an

807A-style program (which requires the use of U.S. fabric). In contrast, in 2000,

at least 82 percent of apparel imported from the CBI was entered under a program that requires U.S. components, with a large portion of that requiring U.S.

fabric. (Figure 2).

When examining the make up of the ATPA’s production sharing trade, it becomes clear that Colombia, the largest source of overall apparel imports from

the Andean region, is the dominant player. More than 91 percent of all ATPA

production sharing trade with the United States takes place with Colombia. Although once a dominant part of Colombia’s trade with the United States, 807

trade has diminished in recent years as Colombia has repositioned itself away

from the production sharing trade. From 1997 to 2000, the percentage of Colombia’s production sharing trade with the United States dropped from 80 percent

to less than 55 percent of all apparel exports to Colombia. (Figure 3).

Apparel imported from the Andean countries is generally more expensive

than that imported from the CBI countries. ATPA woven apparel is approximately 25 percent more expensive (when examining $/Kg for Chapter 62 imports) than similar goods from the CBI region. ATPA knit apparel is approximately 75 percent more expensive than similar goods imported from the CBI

region. Conversations with manufacturers in the region attribute a variety of

factors to this cost increase, including security expenses, transportation costs,

higher labor costs, and higher prices commanded by certain apparel products

made with specialty fabrics (Figures 4A and 4B).

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In general, the Andean countries import fabrics from a variety of sources.

During 1997, the last year that such figures are available from the OAS, the

U.S. was a leading supplier of fabric, yarns, and fibers to the Andean region.

However, Andean countries imported significant quantities of fabrics, yarns,

and fibers from within the Andean region and from countries in Asia and Europe, depending upon individual fabric requirements. For example, fine woolen

fabrics for tailored clothing are sourced in Europe because of diminished sources

of U.S. woolen fabrics and because the Andean woolen fabrics are not of sufficient quality for those particular garments. Cotton fabrics are sourced in the

Andean region (primarily Peru and Colombia) and the United States, which has

an established presence in all markets. Man made fiber fabrics are sourced in

various regions, including the United States and Asia (Figures 5A, 5B and 5C).

Looking at it another way, Andean countries represent a significant export

market for fabrics from other Andean countries. Bolivia, for example, relies

upon other Andean countries to consume about a third of its wool fabric exports.

Similarly, Colombia and Peru have significant export markets in the region for

cotton and some man made fibers. These figures, of course, do not include fabrics produced and consumed entirely within a single Andean country.(Figure 6).

Together, these statistics show significant differences between the ATPA region

and the CBI region, suggesting that the CBI trade partnership model per se may

not be the most appropriate and effective model for the Andean region. The data

also show that there are well-developed patterns of input sourcing that rely upon

other Andean sources as well as sources outside the region. Finally, the data emphasize that, although this region is not an important sourcing center for the United

States, this region depends greatly on access to the U.S. market for its apparel products.

In conclusion, I would like to emphasize that the AAFA strongly supports expansion of the ATPA to include apparel. A number of our members are manufacturing

in those countries and others have signaled their interest in sourcing from those

countries in the future if a flexible and easy to use program is created. An ATPA

program that is simple, flexible, and accommodates and maximizes the natural advantages of the region will offer the best opportunities and incentives for our members to commence and expand their trade partnerships with these countries. But

one that is overly restrictive, or which effectively negates the duty savings by imposing additional components, compliance and logistical costs, will be largely ignored

by our industry.

Thank you for providing us this opportunity. I am available to answer any questions.

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Chairman CRANE. Thank you, Mr. Lamar. Mr. Autor.

f STATEMENT OF ERIK AUTOR, VICE PRESIDENT AND INTERNATIONAL TRADE COUNSEL, NATIONAL RETAIL FEDERATION

Mr. AUTOR. Thank you, Mr. Chairman.

My name is Erik Autor. I am Vice President and International

Trade Counsel with the National Retail Federation. The National

Retail Federation appreciates the opportunity to present the views

of the U.S. retail industry on an enhanced Andean initiative and

on the Free Trade Area of the Americas.

NRF is the Nation’s largest trade association representing the retail industry. NRF Member companies cover the entire spectrum of

retailing, including department, specialty, discount, catalogue,

Internet and independent retailers. U.S. retailers employ 23 million Americans, about one in five workers in this country, and registered sales in 2000 of over $3 trillion.

First of all, I would like to associate myself with Mr. Lamar’s

comments. We discuss the retail industry’s views on the FTAA in

our written statement, and, in the interest of time, I shall focus my

remarks on the Andean initiative, which we view as a building

block to the FTAA.

An Andean initiative should advance the larger U.S. policy goals

for the Andean region: stopping narcotics production and trafficking, and promoting political and economic stability. To reflect

those larger goals, we believe this initiative should be called the

Andean Regional Stabilization and Development Act. It is doubtful,

however, that these goals can be achieved without a trade program

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that provides economic options and opportunities for the people of

the region.

Currently, workers and farmers in the Andean countries have

few decent employment opportunities in legitimate industries. An

Andean initiative that includes trade preferences for apparel could

quickly provide thousands of jobs for these people, particularly

women. These jobs would not threaten U.S. production or jobs. The

Andean countries are small suppliers to the United States market,

at less than 1 percent of imports, and are likely to remain so for

the foreseeable future.

By providing needed business and investment, U.S. retailers can

play an important role in helping to develop an integrated textile

and apparel industry in the region. U.S. retailers are interested in

new apparel sourcing opportunities in the Andean region, but that

new business will be created if, and only if, the right incentives are

in place.

In structuring a trade preferences program for apparel, the Caribbean Basin Trade Initiative that Congress passed last year is not

an appropriate model for the Andean region. Looking at their competitiveness, the cost of doing business, the structure of their textile and apparel industries, the size and patterns of trade, the Andean countries have more in common with sub-Saharan Africa than

the Caribbean Basin region.

In our view, a viable textile and apparel trade program for the

Andean countries must be simple to use and structured to recognize the unique problems and needs of the Andean region. It must

avoid complex rules of origin and eligibility restrictions that become disincentives for using the program. I have in mind here restrictions that require the use of only U.S. inputs, such as yarn and

fabric, or require that certain production operations occur only in

the United States, such as dyeing and finishing of yarn and fabric.

A viable textile and apparel trade program must also provide sufficient incentives for retailers and other U.S. businesses to use the

program. Under a viable trade program, we believe that trade preferences should apply to any apparel assembled or knit-to-shape in

one or more Andean countries from inputs produced in the United

States and/or one or more Andean countries that provide the essential characteristics to that apparel; from yarn or fabric, regardless

of origin, determined to be in short supply, and yarn and fabric

produced outside the United States and the Andean region subject

to reasonable limitations, to encourage the development of an integrated textile and apparel industry in the region.

U.S. retailers want to see trade with the Andean region grow,

and by increasing their business in the region, are prepared to play

a role in furthering the larger U.S. policy goals for the region. However, retailers have other sourcing options in places where, quite

frankly, it is easier to do business—Asia, Mexico, and the Caribbean Basin. Without adequate incentives in place, retailers will go

elsewhere and there will be no new business in the Andean region.

If the incentives are insufficient to attract U.S. retailers, who sell

clothing, to do more business in the region, the result will be lost

business opportunities for U.S. cotton growers, yarn spinners, fabric producers and apparel manufacturers, who make clothing and

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the inputs for producing clothing, as well as producers and workers

in the region.

More importantly, the likelihood of achieving our country’s larger

foreign economic and drug policy goals for the region would be diminished.

Thank you for the opportunity to speak before the Subcommittee.

[The prepared statement of Mr. Autor follows:]

Statement of Erik Autor, Vice President and International Trade Counsel,

National Retail Federation

I. Introduction

My name is Erik Autor. I am a Vice President and International Trade Counsel

for the National Retail Federation (NRF). NRF is the nation’s largest trade association representing the U.S. retail industry. NRF members cover the entire spectrum

of retailing—department, specialty, discount, catalog, Internet, and independent

stores—and also include 32 national retail associations and all 50 state retail associations. NRF speaks for an industry that encompasses over 1.4 million retail establishments, employs more than 23 million people—about 1 in 5 American workers,

and registered sales of over $3 trillion in 2000.

NRF and the U.S. retail industry strongly support the negotiation of a Free Trade

Agreement of the Americas (FTAA), and expanding the current trade program

through the Andean Trade Preferences Act (ATPA) as an important stepping-stone

towards creation of the FTAA. Initially, we would make the following general points

on these initiatives:

• With respect to the Andean program, a ‘‘robust’’ trade initiative is critical to

achieving the larger U.S. foreign, economic, and drug policy goals for the region.

• An essential component of a ‘‘robust’’ Andean trade initiative is to provide trade

benefits for apparel products produced in the Andean region with strong incentives

to encourage U.S. investment and business in the region and create jobs in legitimate industries.

• With respect to the FTAA, NRF strongly believes that the Administration

should not exclude any issue, including the U.S. trade laws, from the negotiating

agenda.

II. The Andean Regional Initiative

It should first be emphasized that the United States has critical foreign policy interests in the Andean Region. This region is the most politically and economically

unstable area in the hemisphere and is a major production point for illegal narcotics

smuggled into this country. Economic and political instability has also resulted in

an increase in illegal aliens coming into the United States from countries in the region. It is, therefore, in the interests of the United States to implement policies that

will effectively address these problems—curtail the production and trafficking of illegal narcotics, encourage political and economic stability in the Andean countries,

help build democratic institutions, foster market-based economic reforms, generate

economic growth, and create decent employment opportunities in legitimate industries.

With these larger goals in mind, we do not believe that an expanded Andean initiative should be seen primarily as a unilateral trade preferences program and certainly not mainly as a textile and apparel trade initiative. Bigger issues are at

stake. Indeed, we might even suggest that the Congress consider a new name for

this initiative—The Andean Regional Stabilization and Development Act (ARSDA).

That being said, we believe it will be difficult, if not impossible to achieve these

larger policy goals without a trade component that will actually work to encourage

U.S. investment and trade with the region. Only U.S. trade and investment can provide the capital necessary to reverse the massive unemployment in the Andean

countries and create economic and employment opportunities in legitimate industries as an alternative to coca production and narcotics trafficking.

On this point, U.S. retailers can play an important role. Many retailers are interested in new apparel sourcing opportunities in the Andean region. The countries of

the Andean region—Colombia, Peru, Ecuador, and Bolivia—have integrated textile

and apparel industries that, while comparatively small, produce high-quality cotton

knit shirts and trousers, baby garments, and specialty items, such as swimwear.

However, to increase sourcing of apparel in the region, retailers need the right incentives in place. The obstacles to doing business in much of the Andean region are

daunting. Crime, corruption fed by the insidious influence of narco-traffickers, politVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00142 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
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ical instability, and lack of adequate infrastructure present huge disincentives for

American companies doing business in the region when other alternatives in Asia,

Mexico, and the Caribbean Basin are available. However, the picture is not all

bleak. As the example of the development of a thriving cut flower industry in Colombia and other Andean countries demonstrates, when the right incentives are in

place, legitimate industries can grow and prosper in the region.

Other than a handful of industries, like cut flowers, workers in the Andean countries currently have few decent employment opportunities. Many peasants in the

Andean highlands have few economic alternatives to growing coca. However, the

members of the drug cartels take the lion’s share of the profits from drug trafficking, not the peasant growers, most of whom survive at a bare subsistence level.

The region also has large unemployed and underemployed urban populations. Moreover, jobs in the region’s existing apparel industry are threatened as companies

have begun moving production to Mexico and countries in the Caribbean Basin,

which are more competitive than the Andean region, have closer proximity to the

U.S. market, and can take advantage of existing trade preferences under the

NAFTA, the U.S.-Caribbean Basin Trade Partnership Act (CBTPA) and the Caribbean Basin Initiative (CBI).

Increased trade with the United States would lead to the building of new textile

and particularly apparel factories that would quickly provide jobs to thousands of

rural peasants and urban workers. Following the current pattern in developing

countries, jobs in these factories would pay wages at higher levels than the national

average wage. They would also provide employment opportunities, particularly for

women. The pattern of economic development in every country, including the United

States and Japan, has shown that the establishment of a viable textile and apparel

industry has always been the first rung on the ladder to creating a modern, industrial economy. The pattern has also shown, that giving women employment opportunities and control over their family’s finances is the best way to provide people in

developing countries the economic resources to move up the economic ladder and obtain marketable education and training.

It is important that we take quick action to stop the flight of apparel production

from Colombia to Mexico and the Caribbean Basin and make the textile and apparel

industries in the Andean region more competitive. Like the sub-Saharan African

countries, the small textile and apparel producers in the Andean region are likely

to be big losers to the more efficient producers in Asia once textile and apparel

quotas are eliminated at the end of 2004. Just as AGOA has given the sub-Saharan

African countries a fighting chance to get into the game, we need an Andean initiative that will allow the textile and apparel producers in the region to become more

competitive and attractive to U.S. business in preparation for a quota-free world in

2005. This goal cannot be achieved without a sensible, incentive based textile and

apparel program.

It should be emphasized that an increase in textile and apparel jobs and production in the Andean region does not threaten U.S. jobs. In 2000, American consumers

spent about $300 billion on apparel. U.S. textile and apparel imports from the ATPA

region totaled just $831 million (before markup) or about 0.5 percent of the U.S.

market. This level of trade is comparable to that of the sub-Saharan region. In contrast, Mexico and the Caribbean Basin region account for 27 percent of total U.S.

textile and apparel imports. Therefore, for the foreseeable future, it is evident that,

the Andean region is likely to be a comparatively small, niche player in supplying

apparel to the United States and that any sourcing shifts created as a result of increased trade with the Andean countries will come at the expense of other foreign

producers, most likely in Asia.

The question arises—what incentives would U.S. retailers need to increase

sourcing and investment in the Andean region? The experience of the CBTPA over

the last year provides us some useful lessons. Unfortunately, with the CBTPA we

have faced a host of implementation problems, in which the Customs Service has

interpreted most ambiguities in the language in the most trade restrictive way.

Moreover, the complex rules of origin, exclusions of certain categories of apparel

made from regional fabric, quantitative limitations on categories of eligible apparel

products made from regional fabric, and weak short-supply procedures, have proven

to be disincentives for retailers in using the program. As a result, U.S. retailers, apparel manufacturers, textile and apparel importers, yarn spinners, cotton growers,

and fabric manufacturers, as well as the Caribbean Basin countries have been so

far disappointed that the program has failed to generate as much trade as hoped.

The potential problems that could arise in constructing the Andean initiative are

of even greater concern. With their competitive handicaps vis-a`-vis the Caribbean

Basin countries, it is clear that if Congress merely provides the Andean countries

the same trade benefits as under the CBTPA, there will be no new trade and investVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00143 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
140

ment. In order to avoid the problems in the CBTPA legislation and create a viable

program that would be more than window dressing, the trade preferences for apparel must be simple, easy to use, and provide more generous level of incentives

than are available under the CBTPA. Specifically, we would advocate that the Andean program provide trade preferences to any apparel assembled or knit-to-shape in

one or more Andean countries from: • Inputs (yarn and fabric) produced in the United States and/or one or more Andean countries. • Yarn or fabric regardless of origin that is determined to be in short supply. • Yarn and fabric produced outside the United States and the Andean region subject to reasonable limitations.

Without such incentives, U.S. retailers will not increase sourcing and investment

in the Andean countries and will continue to source largely from Asia, Mexico, and

the Caribbean Basin. If the incentives in the program are insufficient to attract U.S.

retailers, it will also mean lost business opportunities for U.S. cotton growers, yarn

spinners, and fabric producers, and apparel manufacturers. If the companies that

sell apparel at retail in the U.S. are not doing business in the region, then the U.S.

suppliers of inputs to make that apparel will not have any new business in the region. But, more disturbingly, without the business of U.S. retailers in the Andean

countries, the likelihood of achieving our country’s larger foreign, economic, and

drug policy goals for the region is also diminished.

II. The Free Trade Area of the Americas

It is our view that regional trade initiatives such as the CBTPA and the Andean

initiative can serve as important building blocks for negotiation of the Free Trade

Area of the Americas (FTAA). NRF has been a strong supporter of the FTAA since

its inception, under the Clinton Administration, and its predecessor, the Enterprise

for the Americas Initiative, under the first Bush Administration.

In the FTAA and other trade negotiations, some domestic industries have pressured U.S. negotiators to take certain issues, such as the U.S. trade laws, off the

table. It is widely held that, in trying to develop a negotiating agenda for the next

round at the World Trade Organization (WTO), use of this tactic played a key role

in the failure of the WTO Ministerial in Seattle. Therefore, as a negotiating strategy, we strongly urge the Bush Administration not to tie their hands by excluding

any issue, and especially trade remedies laws, from the FTAA negotiating agenda.

As a substantive matter, application of the antidumping law is frequently defended on the basis that foreign producers are using protected ′′sanctuary′′ home

markets as a way to subsidize their foreign exports at dumped prices. Since a free

trade agreement would eliminate the ability of a producer to create a sanctuary

home market, we believe that the application of the antidumping laws is an appropriate topic of discussion in negotiations on free trade agreements.

We are also of the opinion that, with the elimination of the global textile and apparel quotas in less than four years, the inclusion of any special protections for the

textile and apparel sector in the FTAA negotiations is unwarranted. We are particularly concerned about an unduly long phase out of textile and apparel duties, burdensome textile and apparel rules of origin (often in the guise of addressing illegal

transshipment) that inhibit rather than encourage trade, and special safeguards

that apply only to textiles and apparel. If we are serious about eliminating trade

barriers and liberalizing trade across the board in free trade agreements, then we

need to seriously address the remaining trade barriers on textiles and apparel, including U.S. duties that average 16 percent on these products.

Chairman C

Before we get to questions, let me remind colleagues on the ComRANE. Thank you, Mr. Autor.

f mittee here that tomorrow our Andean Trade Ministers have

agreed to meet with us, with the full Committee on Ways and

Means, and we’re looking forward to that meeting. So we will reserve questions for you folks until we sit with you tomorrow. Anyone who has any questions for our other witnesses, since we have

to be out of here in approximately eight minutes, I will start with

Mr. Rangel.

Mr. RANGEL. I will yield, Mr. Chairman.

Chairman CRANE. Mr. Rangel yields back his time. Mr. Levin.

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Mr. LEVIN. Thank you very much.

Let me just ask one question, because, as mentioned, we are

going to have the opportunity to meet with the Trade Ministers tomorrow. If I might then focus a question on those of you who won’t

be here tomorrow. Again, thank you for your testimony. I think you

have helped to focus this discussion very well, all of you. You clearly have somewhat different interests in mind, and that is what this

is all about, seeing how we can talk about apparel and fabrics and

piece them together.

Mr. Moore, let me ask you, so that I’m clear, and my colleagues

are clear, in your testimony—and we won’t have time to go into a

lot of detail, but let’s just spend a minute or two probing this. You

say at the bottom of the third page, ‘‘If the U.S. is to grant the Andean countries greater access to our markets on a unilateral

basis—’’ and any Andean agreement, I suppose, would be unilateral, though eventually part of a multilateral agreement ‘‘—the

principles of fairness and reciprocity demand that only U.S., textile

components be used.’’ Then you go on to conclude that, in light of

the concerns that you’ve laid out, particularly in light of reports

that this body might seek an even further weakening of the

Graham bill, to the detriment of your Members, you are opposed

to expanding the ATPA to include textiles. Let me, if I might, just

ask you a question or two about that.

As I understand it, there is, within the Andean countries, some

considerable use of materials, or fabric, that doesn’t compete with

that produced in the United States. There is some of that, isn’t

there?

Mr. MOORE. Certainly there is some, and we never suggested

there was no textile production in the Andean countries.

Mr. LEVIN. But there is some production there of fabric that isn’t

made in the United States—in other words, it’s not competitive

with American production of materials or fabric? Or am I wrong?

Mr. MOORE. There may be. There may be some exotic fibers that

we don’t process here. But I’m not aware of a lot of fabrics that are

made in the Andean countries that we do not make.

Mr. LEVIN. So you’re saying there isn’t any substantial material,

fabric, that is made in the Andean region which is not also made

in the United States?

Mr. MOORE. There may be some, I said, but——

Mr. LEVIN. But you think it’s small?

Mr. MOORE. As I said, maybe some exotic fibers, but in both the

NAFTA and CBI law, there were provisions to exclude fabrics that

were not made at all in the United States. So we would not be opposed to——

Mr. LEVIN. You wouldn’t be opposed to that kind of provision?

Mr. MOORE. No. It was other provisions we were concerned

about.

Mr. LEVIN. Mr. Chairman, our time is running out. We have just

started on this today and I know we’ll work on it further. Thank

you. It has been an excellent panel, and thank you for your patience.

Chairman CRANE. I think Minister Ramirez wanted to respond

to your question.

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Mr. LEVIN. Okay. I didn’t want to take up the time of my other

colleagues for questions. Please.

Ms. RAMIREZ. Mr. Chairman, thank you, and thank you, Congressman Levin.

I just want to add something to Mr. Moore’s comments. This is

not only a question about exotic fibers. This is also a question

about some specific fibers and jobs that we are doing with some

American raw materials. In the case of cotton, for example, we are

importing into the Andean region something close to $80 million of

cotton from the United States. We are using this cotton in order

to produce jobs and textiles. So these textiles can be used for a Colombian or Peruvian or Equadorian or Bolivian apparel that we are

expecting to export to the United States. So that’s why I like very

much the association of retailers proposal, in order to have a regional content that permits us to use Colombian fibers or regional

fibers made with some of the American raw materials, which gives

the United States also the benefit of including some of your goods

in the apparel that we are going to export to you with preferential

access. So this is not only exotic fibers. These are regular fibers

that we are expecting to use also. Thank you.

Chairman CRANE. Thank you.

Mr. LEVIN. Mr. Moore, do you want to briefly comment?

Mr. MOORE. Well, that was my point. As I mentioned, our industry is really being clobbered right now with several major developments that have occurred in the last year—the slowdown of the

economy and the imports that continue from countries that keep

their own markets closed. We are facing bankruptcies, two this

week, and one mill was closed by creditors. We lost over 25,000

jobs last year, and thousands this year.

Now, the ATPA is a true unilateral grant of access to the U.S.

market. We’re not talking about this in the FTAA context. We recognize in the FTAA context that that’s a two-way deal, like NAFTA

is. But in a unilateral grant, we do not want to endanger our workers and our production any further. We think there can be gains

for both under the CBI model, gains in U.S. textile production and

in U.S. textile employment, and gains in apparel production and

employment in the Andean region.

So that is the position that we are taking. We are being hammered right now, very badly, and when you look at job losses of

thousands and thousands in one year, and the first loss on sales

that our industry has ever sustained in modern times—a $500 million loss in 2000—we believe that you need to structure an agreement so that you can provide some incentive for growth and survival for our industry.

Mr. LEVIN. Thank you.

Chairman CRANE. Let me thank all of our panelists. Unfortunately, we are going into session and it’s my understanding we will

have a recorded vote on the floor very soon, if not immediately. But

I want to express appreciation to all of you for participating as panelists today. We are sorry for the program running as long as it

did, and for our Ministers here from the Andean countries, we look

forward to seeing you tomorrow.

Thank you all. The Subcommittee standards adjourned.

[Whereupon, at 6:02 p.m., the hearing was adjourned.]

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[Submissions for the record follow:]

Statement of the American Farm Bureau Federation

The American Farm Bureau Federation is the nation’s largest agricultural organization with over five million member families. Our members produce every crop

raised in America and depend on exports for over one-third of their total production.

Negotiations now underway in the Free Trade Area of the Americas are important

to our members from both an import and export perspective. This agreement will

create an open market of 34 countries. Several of these nations produce many of

the same commodities that we grow in America. According to a recent U.S. Department of Agricultural report, the commodities that are expected to benefit from an

FTAA include wheat, soybeans, cotton and corn. Conversely, increased competition

in the U.S. market could substantially affect U.S. sugar, peanut and orange juice

producers. Producers from these countries already enjoy significant access to our

market and also compete with us in the international marketplace. It is imperative

that U.S. producers begin to enjoy access to the FTAA markets on equal terms.

We also view the FTAA as an opportunity to apply the trade lessons we learned

from the North American Free Trade Agreement. On average, NAFTA has significantly benefited the U.S. agricultural sector. When you take a closer look at specific

commodities, however, there have been some winners and losers. While we cannot

expect significant gains for all commodities in all trade agreements, we can, and

must, ensure that the rules that are adopted as part of the FTAA result in fair trading opportunities. To this end, we have requested that special safeguards be implemented in the FTAA for perishable commodities that account for seasonality and

regionality.

Recognizing the importance of achieving such an agreement, the Farm Bureau believes very effort must be made to develop negotiating consensus in the Western

Hemisphere that underscores the objectives the United States seeks to achieve in

the WTO negotiations. Although important gains can be made in the FTAA including eliminating export subsidies, disciplining state trading enterprises and ensuring

market access for bioengineered commodities, the real gains from trade are more

likely to be achieved in the WTO negotiations on agriculture.

Most importantly, any agreement reached in the FTAA must recognize the existing rights and obligations of the General Agreement on Tariffs and Trade (GATT)

1994 as provided in the Marrakesh Declaration, which established the WTO. Agreements reached as a result of the FTAA negotiations should in no way subordinate

or prejudice member parties’ WTO commitments.

The Farm Bureau supports adoption of the following general objectives for the

FTAA negotiations:

• Require compliance with existing WTO commitments of all WTO-member trading partners in the FTAA.

• Stipulate that no signatory should be permitted to protect or exclude any sector,

or commodity within that sector, from meeting the terms of the agreement.

• Provide for the continued and regular use of private commodity and trade policy

advisory group input into the FTAA negotiation process.

General Market Access:

Customs Procedures:

• Develop equivalent customs procedures to facilitate the flow of traded products

and minimize market disrupting commercial disputes.

Rules of Origin:

• Establish standardized rules of origin.

Agricultural Market Access:

• Allow for adoption of zero-for-zero sectoral initiatives where commodity specific

support for such an approach exists.

• Improve the administration of tariff-rate quotas to increase the transparency

and predictability of market access opportunities.

• Eliminate nontariff barriers to trade in agricultural products, including, but not

limited to: domestic absorption requirements (barring market access until the domestic supply of a commodity is exhausted); price pooling of domestically supplied

and exported products; discriminatory licensing procedures, reference price calculations that overstate the value of imports, product certification and labeling procedures that discriminate against approved exports and sanitary and phytosanitary

measures that are not science-based.

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Export Subsidies:

• FTAA member countries should eliminate export subsidies as called for in the

San Jose Ministerial Declaration by FTAA Ministers.

• FTAA signatories should call for the elimination of export subsidies in the WTO

negotiations on agriculture.

Domestic Support:

• Domestic support negotiations should take place in the WTO and not in the

FTAA.

Additional Agricultural Objectives:

• Develop principles for the immediate, unrestricted, science-based trade of agricultural products produced with genetically modified organisms.

• Obligate signatory countries to adhere to science-based sanitary and

phytosanitary measures in accordance with the WTO Agreement on Sanitary and

Phytosanitary Measures and require all FTAA countries to come into full compliance with its provisions.

• Eliminate state trading enterprises or adopt disciplines that require full transparency of STEs that operate in the region.

• Institute special safeguard provisions that remedy price depressing import

surges of perishable commodities in a quick and efficient manner and establish disciplines that address seasonal and regional import surges for agricultural products.

• FTAA countries should support the harmonization of labeling requirements and

product certification procedures (including harmonization of pesticide registration

requirements) in regional and international standard setting bodies.

• Promote the development of science-based international standards in recognized

regional and international standard setting bodies.

Dispute Resolution:

• Develop expedited dispute resolution procedures and processes for perishable

commodities.

• FTAA dispute settlement procedures should provide strong provisions for compliance with dispute settlement rulings and should facilitate trade.

Environment and Labor:

• Environment and labor issues that restrict trade should not be included in the

agreement.

The United States, in negotiating the FTAA, should insist on strict implementation of international trading rules to prevent unfair practices by countries in the

hemisphere and to ensure unrestricted access to these important markets. This

agreement, as with all others, should be continually evaluated with emphasis on fair

trade as well as free trade.

Andean Trade Preferences Act (ATPA)

Farm Bureau will not support renewal of the ATPA unless certain import sensitive products such as asparagus are excluded. The act should only be renewed if

this exclusion is granted and a competitive trigger similar to that of the Generalized

System of Preferences (GSP) is implemented that eliminates the tariff preference

once a country becomes internationally competitive in a specific commodity and the

safeguard mechanism for perishable products is improved.

While the objectives of the ATPA are laudable, U.S. producers should not be put

out of business as a result of the Act. Considerable injury to U.S. producers resulted

from the duty-free importation of cut flowers under the ATPA and the same scenario is beginning to unfold for our asparagus producers.

Providing duty-free treatment for imports from Andean countries—Bolivia, Colombia, Ecuador and Peru—has measurably affected trade in certain horticultural products and has had a significant impact on domestic production of those commodities.

For example, the duty-free treatment provided to asparagus growers in Peru has

further enhanced an already competitive industry that existed in Peru prior to enactment of the ATPA. Once a small industry in the early 1980’s, Peru has become

the world’s largest producer and exporter of asparagus. Asparagus is Peru’s second

largest agricultural export item with about $130 million in annual export earnings.

Asparagus imports from Peru have grown more than ten-fold since 1990. Imports

of Peruvian asparagus, predominantly for the fresh market, have more than doubled

in the last three years. Steady increases in Peruvian asparagus imports are expected for the next several years. The U.S. market absorbs up to 80 percent of the

Peruvian fresh asparagus crop. In addition, a sizeable asparagus processing industry exists in Peru. Although most of the processed product is white asparagus desVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00148 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
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tined for European markets, significant quantities of green asparagus are now being

diverted to frozen utilization.

U.S. industry sources indicate that five to 10 million pounds of Peruvian frozen

asparagus have been made available to the U.S. market in the past year. Imports

of this magnitude are significant because the total U.S. market for frozen asparagus

is only 10 million pounds annually. Duty free access for Peruvian frozen asparagus

has exacerbated the situation. Peruvian imports are displacing U.S. frozen asparagus production at an alarming rate.

Peru produces asparagus for two distinct markets: green asparagus (primarily

fresh, with an increasing portion dedicated to frozen/processed product) for the U.S.

market and processed white asparagus for the European market. Peruvian cultivation of asparagus occurs year round with very high yields per acre experienced by

its growers.

The extent to which the ATPA has advanced narcotics eradication in Peru is highly questionable largely because cultivation of asparagus in Peru occurs in the desert

region along Peru’s coastline, not in the foothills and mountains where Peruvian

drug cultivation is known to exist.

Farm Bureau believes that duty-free treatment should not be accorded under the

ATPA for specific commodities wherein a country is deemed economically competitive. The determination of economic competitiveness should follow the criteria now

used in the Generalized System of Preferences program requirements.

The GSP competitive need limitation revokes duty-free treatment for certain

goods once that article/commodity accounts for 50 percent or more of the total value

of imports of that commodity or exceeds a pre-established dollar value (in 1996 the

value was set at $75 million). Once GSP treatment is revoked for a commodity, the

tariff for that product reverts to the MFN level.

Instituting this change would support the objective of the ATPA of providing economic alternatives to narcotics production, but would not allow foreign imports to

put U.S. producers out of business in the process.

Second, a safeguard mechanism should be instituted to address import surges of

perishable agricultural commodities. Import surges can be extremely disruptive to

U.S. agricultural markets, especially considering seasonality concerns and the price

variability of perishable agricultural products. Criteria now exist in the NAFTA and

the WTO agreement on agriculture that enable safeguard actions to be taken under

specified conditions. Certain trade remedies, such as the U.S. 201 law, allow the administration to take action to mitigate import surges when they are determined to

be causing or threatening injury to U.S. producers. However, imports from ATPA

and other countries are exempt from consideration in the investigation of 201 cases.

In order to address the often irreparable damage caused to U.S. producers of perishable products due to import surges, we request that any extension or renewal of

the ATPA include an automatic, transparent, and temporary safeguard mechanism.

The safeguard mechanism would provide much needed import relief to U.S. producers being injured by an import surge and would still provide market access for

ATPA beneficiary countries during the remedy phase.

Farm Bureau appreciates this opportunity to comment on the Free Trade Area

of the Americas and the Andean Trade Preferences Act.

[By permission of the Chairman.]

Statement of Asociacion De Exportadores De Prendas De Vestir A Los

fEstados Unidos De America, Lima, Peru ́

Mr. Chairman, the Association of Apparel Exporters to the United States

(EXPORAMERICA) is a non-profit association compromised of private Peruvian

companies that export apparel to the United States. Our members create jobs in the

clothing sector that are instrumental in battling illegal drug production and trafficking. We are pleased that an extension and expansion of the Andean Trade Preferences Act (ATPA) is on the Committee’s agenda. We look forward to working with

the Committee on an ATPA that benefits all four Andean nations in order to reduce

the drug trade by strengthening the local legal economies.

The ATPA was enacted on December 4, 1991 to authorize preferential trade benefits for the Andean nations. The purpose of the ATPA is to expand economic incentives to assist Bolivia, Ecuador, Colombia, and Peru to generate an alternative to

employment in the drug production and trade. The goal is to increase legal employment through exports to the United States market. The beneficiary countries have

146

to meet criteria for cooperating in the drug war. Duty-free treatment only applies

to certain products. The product list does not include textiles and apparel. Yet, these

products create many farming and manufacturing jobs that provide alternatives to

work in the coca fields. The ATPA expires on December 4, 2001. It is essential that

the ATPA be extended and expanded promptly.

The ATPA has had only a moderate impact in generating new employment opportunities in Peru because textiles and apparel are excluded from duty free treatment.

Textiles and apparel are the principal industrialized exports to the U.S.A. Peruvian

products that currently benefit from the ATPA are mostly minerals that do not involve an intensive labor process and have very low import duties. By contrast, we

have a fully integrated and highly efficient apparel industry that creates many jobs

vital to the fight against drugs. Most apparel from Peru and Bolivia is made from

high quality, locally grown cotton or from llama or alpaca that is native to the region. The use of cotton grown in Peru and Bolivia is an essential part of our industry. Cotton is an important alternative crop to the coca and provides an important

source of lawful employment for both our agricultural and factory workers.

Recently, the Trade Ministers of the Andean community at a meeting in Lima

stated their joint position on the inclusion of textile apparels in the ATPA in a document called ‘‘Position of the Andean Community to the Andean Trade Preference

Act.’’ The Trade Ministers believe that textiles and apparel should be included in

the ATPA and more specifically, ‘‘the expansion of the coverage of the ATPA should

not be conditioned to regulations regarding the origin of raw materials that restrict

the access of our textiles and apparel.’’

Hundreds of thousand of jobs are at stake. The Trade and Development Act of

2000 now provides the Caribbean Countries with preferential tariff treatment for

certain textile and apparel products. This expansion of benefits to CBI countries

places Andean farmers and manufacturers at a competitive disadvantage and

threatens to undermine the drug war. Peru’s textiles sector supports 32 percent of

the population employed in the manufacturing industry, which amounts to approximately 180,500 jobs. Another 200,000 jobs are in the agriculture industry. Workers

who would otherwise have lawful jobs will be left without an alternative to coca production, if our industry continues to be at a competitive disadvantage due to high

tariff barriers in the United States.

Expanding the ATPA to include textiles and apparel would not have a substantial

negative impact on the U.S. economy. In 1999, textile/apparel exports from Andean

countries represented only 1.1 percent of the total textile/apparel exports to the

United States and 0.46 percent of this is exported from Peru. The ATPA countries

export far less textiles/apparel than the CBI region. In addition, Peruvian apparel

exporters are interested in importing additional cotton from the United States to

supplement the Peruvian cotton production. Thus, to the extent, we can sell more

apparel to the United States, the more cotton we will import from the United

States, providing export markets and jobs to your country as well.

We look forward to working with you to expand your initiative to provide a solution that benefits all the Andean nations. The drug war cannot be won without improving the economies in the entire Andean region. The data on the drug trade

clearly shows that the coca economy is regional, and that actions adopted in one

country affect the drug combat efforts in neighboring countries. The success in

Peru’s drug fight, for instance, has corresponded with an increase in Colombia’s

coca-growing activity. Any bill that does not help the entire region will only move

the drug problems from one country to the next, which does not help you or us.

An expansion of the ATPA to include textiles and apparel would provide the necessary economic incentives to eliminate the lure of illicit jobs and build a stronger

more stable hemisphere.

We appreciate the opportunity to present testimony before the subcommittee to

Statement of the Coalition for Sugar Reform

f discuss the implications of the proposed Free Trade Area of the Americas to American sugar consumers. The Coalition for Sugar Reform is an umbrella organization

representing some 20 U.S. trade associations, consumer and environmental groups,

businesses and taxpayer advocates united in their belief that the U.S. sugar program should be fundamentally reformed. The Coalition commends the subcommittee

for holding this hearing. We cannot emphasize strongly enough the vital importance

of increased U.S. market access for sugar to the Administration’s overall goal of lowVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00150 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
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ering trade barriers and increasing the level of trade in goods and services in the

Western Hemisphere.

Simply stated, maintaining the archaic U.S. sugar program in anything like its

present form will undercut our ability to open foreign markets for a whole range

of U.S. products and services, particularly agricultural commodities and value-added

products. This isn’t simply about the price of a five-pound bag of sugar, or even the

$2 billion extra that consumers spend annually because of our sugar program. It’s

actually about our ability to deliver on the promise to open markets more fully

around the world for our farmers, ranchers, food processors and everyone else who

is part of America’s food industry. The sugar program is the Achilles heel of U.S.

trade policy.

Through the Free Trade Area of the Americas, we have a unique opportunity to

continue the extraordinary period of trade expansion that began with the completion

of NAFTA and the Uruguay Round in 1993 and has continued through last summer’s approval of Permanent Normal Trade Relations. By any measure, markets

around the world are far more open than they were a decade ago, thanks to U.S.

leadership. Under the new Bush Administration, we are poised to continue that

record of trade expansion through the conclusion of a successful FTAA. However,

the inconsistency in the U.S. position created by our domestic sugar program has

the potential to jeopardize these future negotiations and will certainly not engender

good will from our Latin American neighbors.

The special importance of trade to U.S. agriculture has long been clear; our farmers and ranchers were many years ahead of the rest of the economy in recognizing

the vital importance of access to foreign markets. As Agriculture Secretary Ann

Veneman stated last month,

Expanding trade is the President’s top priority for U.S. agriculture. With

96 percent of the world’s population living outside the United States, the

work market is essential to the future of the American food chain. Nearly

one-half of our annual production of wheat and rice, one-third of our soybeans, one-fifth of our corn and two-fifths of our cotton are sold overseas.

In addition, we are exporting growing quantities of grains and oilseeds

through meat exports, and an increasing volume of other high-value products. Agricultural trade barriers and production-distorting subsidies continue to inflict heavy costs on consumers, producers, and exporters around

the world. Recent analysis by USDA’s Economic Research Service shows the

average global tariff on agricultural products is over 60 percent, compared

to about 12 percent for products coming into the United States. Clearly, the

U.S. has much to gain from further reform. As trade barriers continue to

fall, exports to our NAFTA partners are growing faster than those to other

regions of the world. That’s why we will continue to work toward regional

trade agreements, such as the FTAA.

Trade is also vital to the growth of value-added and processed foods and

feedstuffs. Global trade in processed food is growing twice as fast as bulk commodity

trade, and consumer products now account for a greater percentage of U.S. agricultural exports than raw commodities.

The progress in opening markets around the world has undeniably benefitted U.S.

agriculture and the food sector. The Uruguay Round was a landmark accomplishment, which finally began to bring agricultural trade under fair and internationally

accepted rules. The Uruguay Round Agreement on Agriculture abolished quotas, ensuring that countries would use only tariffs to restrict imports; and went on to reduce and bind those tariffs. It subjected export subsidies and trade-distorting domestic support measures to specific limits, reducing them as well. Through the

Agreement on Sanitary and Phytosanitary Measures, WTO members agreed to use

science-based sanitary and phytosanitary standards to protect human, animal and

plant life and health, taking away, at least in principle, one of foreign governments’

most powerful protectionist tools. NAFTA gave our farmers and ranchers preferential access to Mexico as well as to Canada; our agricultural exports to those

countries have grown by nearly $4 billion since 1993, and now represents more than

one-fourth of our agricultural exports. We have successfully negotiated numerous bilateral agreements opening up new opportunities in a large range of commodities:

tomatoes and apples in Japan; citrus and other fruits in Brazil, Chile, Mexico and

other countries; beef in Korea, cattle, hogs, wheat and barely into Canada. China’s

WTO accession agreement is an historic achievement in many respects ,but certainly in terms of dramatic new opportunities for U.S. agriculture. USDA predicts

more than $1 billion annual increase in processed food exports as a result of this

agreement.

148

Despite these achievements, all over the world agriculture remains the most sensitive area—economically, politically and culturally—of international trade. While

many barriers have come down, agricultural products, TRQs have created some access for imports, but continue to maintain restrictive conditions. The European

Union continues to employ 90 percent of the world’s export subsidies, damaging the

interests of our farmers and ranchers, and harming many of the nations of the developing world. Countries still routinely invoke sanitary and phytosanitary barriers

to block imports, in the absence of sound science. State trading enterprises still play

far too large a role in agricultural trade. The economic health of our agricultural

sector depends on getting strong rules, and breaking down these barriers, to ensure

greater access to markets around the world.

For these reasons, in recent years every U.S. official has made it crystal clear that

a primary goal for the United States in any future trade negotiation was agriculture

trade liberalization. Our ambitious objectives are set forth clearly in the ‘‘Proposal

for Comprehensive Long Term Agricultural Trade Reform’’ submitted in Geneva last

year. That proposal ‘‘entails reforms across all measures that distort agricultural

trade and that once adopted, will reduce levels of protection, close loopholes that

allow for trade-distorting practices, clarify and strengthen rules governing implementation of commitments, foster growth and promote global food security and sustainable development.’’ The proposal notes that ‘‘the United States believes there

are compelling arguments for further reform. Too often and in too many countries,

the production and marketing decisions farmers make are still driven by government programs and protections from market access barriers, rather than market

conditions. As a result, competitive farmers, ranchers and processors are denied sufficient access to markets and face subsidized products and the trade-distorting policies of foreign governments, leaving the world with an agricultural market still far

from the WTO objective of a fair and market oriented system.’’

There is no doubting the commitment of Congress and this Administration to continue world agricultural markets. The real question is how we will accomplish that

vital objective. Because agricultural trade barriers still proliferate around the world,

the U.S. comes to any negotiation with an ambitious list of liberalization objectives.

Because the playing field is not currently level, the United States will press other

nations to undertake more changes and more market opening than we are prepared

to do. Because we are already so open, we have relatively little to use as leverage

in exchange for the market opening that we seek.

Against this backdrop, it is quite clear that the U.S. sugar program stands as one

of the principal impediments to our hopes for continuing agricultural trade liberalization. First, the program makes our calls for ‘‘a fair and market oriented system’’

sound hollow and hypocritical. If we saw this program in another country, we would

regard it as a major and unacceptable distortion of trade. In fact, OECD estimates

distributed by USDA show that this is one commodity where, during 1996–98, U.S.

subsidies were actually somewhat higher than European Union subsidies, when expressed as a share of production value.

The 1996 Farm Bill ended government controls and phased out payments to farmers of corn, wheat, cotton and other crops. The sugar program is glaring exception

to this progress. USDA continues to tightly control the marketplace through the

TRQ, and high price support levels remain in effect. The lower duty applicable to

in-quota imports is unchanged, while the over-quota duty rate actually rose initially

and has remained at levels that are still prohibitive to imports. Thus, the Uruguay

Round Agreement—despite its introduction of important principles for agricultural

trade—made almost no progress in altering the basic features of the sugar program.

While defenders of the sugar program point out that the United States imports approximately 15 percent of its sugar, this contrasts sharply with the 40 percent market share that foreign sugar had in the U.S. market before the current sugar program was put in place in 1981.

The U.S. sugar industry argues that the European Union’s subsidy program is

worse than that of the United States; thus, if the U.S. scraps its own sugar program, subsidized EU sugar will pour into the United States and drive U.S. sugar

growers out of business. The European Union’s sugar subsidy does, in fact, distort

markets in ways the U.S. sugar program does not, because it depends on export subsidies. However, even without the U.S. sugar program, dumped and subsidized European sugar would be unable to enter the country due to the anti-dumping duties

that have been in place for some time against European sugar producers (Belgium,

France, Germany) and the countervailing duties applied to European Union sugar.

In addition, the U.S. has deliberately chosen not to follow the European model in

other agricultural products in the past, instead attempting to compete in world markets and tear down the trade barriers of other countries.

149

The sugar industry continues to argue that the decline of the world price of sugar

in recent years is the result of dumping and is a sure sign of things to come if the

sugar program is eliminated. In fact, both world and domestic sugar prices have declined recently due to unprecedented oversupply, stimulated by favorable weather

conditions, increases in acreage due to lower prices for other commodities, and contracting markets in Russia and Asia. To the extent that a lower price may be reflective of dumping, however, U.S. antidumping laws provide an effectively remedy to

a domestic industry that is being injured by less-than-fair-value imports. There is

no reason why the antidumping laws and the countervailing duty laws, which protect other industries from unfairly traded products, will not afford similar protection

to the sugar industry, assuming that dumping or subsidizing is occurring and resulting in injury.

There are few issues, if any, that matter to more developing nations—many included in the Free Trade Area of the Americas—than increased sugar access to the

markets of the developed world. This issue stands close to the top of the agenda

of two of the leading developing nations, Brazil and Chile. But, it is the highest priority for some of the smallest, struggling economies in our hemisphere: Colombia,

Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. These developing nations tend to maintain the highest tariffs against our agricultural products. They are potentially among the fastest growing markets for our farmers and

ranchers if those barriers can be reduced. We know from Seattle, and the discussions since, that many developing nations believe that they have been shortchanged

by the international trading system. Many believe that they made significant market opening commitments in the Uruguay Round and have received too little benefit

in terms of reciprocal access to the markets of the developed world. The inequities

of the U.S. sugar program compel the conclusion that the grievances of the developing countries are well justified, not just deeply felt.

Our own citizens will benefit from reform of the sugar program, including liberalized imports. According to the General Accounting Office, users and consumers of

sugar paid nearly $2 billion more in 1998 for products containing sugar than if there

had been no sugar program. In order to claim that consumers will see no benefit

from sugar liberalization, one has to assert that there is no competition in the food

industry. We submit that no one who shops for groceries will take this claim seriously. Our food manufacturers and grocers are intensely competitive, as anyone who

compares prices and uses coupons can tell you.

The Coalition for Sugar Reform hopes this hearing marks the beginning of a serious discussion of the myriad costs of the archaic U.S. sugar program in the context

of future international trade negotiations. Every nation has its sensitive commodities, and sugar is plainly one of ours. But when one sensitive commodity—produced

by relatively few growers—is vitally important to the economic well-being of so

many other nations in our own hemisphere, it can cause a major imbalance in the

international trading system. Reform of the U.S. sugar program would provide a

vital boost to the economies of many poor and developing nations in the Western

Hemisphere. At the same time, such reform would clearly be a major catalyst in expanding export opportunities for American producers of grains, oilseeds, cotton,

meat, processed foods and value-added agricultural products.

[The attachment is being retained in the Committee files.]

DISTILLED

fSPIRITS COUNCIL OF THE UNITED STATES

Washington, DC 20005–3998

May 22, 2001

Ms. Allison Giles

Chief of Staff

Committee on Ways and Means

U.S. House of Representatives

1102 Longworth House office Building

Washington, DC 20515

Re: Comments on the Summit of the Americas and the Free Trade Area of the

Americas

Dear Ms. Giles:

On behalf of the Distilled Spirits Council of the United States, Inc. (DISCUS), I am

writing to provide a statement for the printed record of the hearing of the Subcommittee on Trade of Tuesday, May 8, regarding the Summit of the Americas and

150

the Free Trade Area of the Americas (FTAA), DISCUS is the national trade association representing U.S. producers, marketers, and exporters of distilled spirits products. DISCUS member companies export to more than 120 countries, including the

parties of the FTAA. In 2000, U.S. producers exported approximately $63 million

in spirits products to the countries of the western hemisphere, accounting for about

20 percent of global U.S. spirits exports. DISCUS strongly supports the efforts of

the U.S. government to negotiate a comprehensive free trade agreement with the

governments of the western hemisphere, and we welcome this opportunity to provide a written statement.

DISCUS has been a vocal supporter of the FTAA since the Miami Summit, and

we applaud the progress made thus far toward completion of the agreement. We are

encouraged by the recent progress made at the Quebec City Summit of the Americas. Although we supported the Chilean proposal for an accelerated time frame for

completion of the agreement, we nonetheless welcome the Declaration of Quebec

City instructing the negotiators to complete their work by January 2005 so that the

agreement may enter into force no later than December 2005. We further applaud

the decision to release to the public the preliminary draft negotiating documents,

confirming the leaders’ commitment to transparency during the negotiating process.

DISCUS was also pleased that the Buenos Aires Ministerial Declaration directed

that the actual market access negotiations begin no later than May 15, 2002.

High tariffs continue to present a significant market access barrier to U.S. spirits

exports, particularly in our most important emerging markets. The distilled spirits

industry benefitted from the ‘‘zero-for-zero’’ negotiations that began during the Uruguay Round. As a result of the Round and over the course of subsequent negotiations, the ‘‘Quad’’ countries—the United States, European Union, Canada, and

Japan—agreed to eliminate tariffs on most categories of distilled spirits. As a consequence, the United States has eliminated all tariffs under Harmonized Tariff

Schedule (HTS) Subheading 2208, with the exception of certain categories of rum.

We view the FTAA as an excellent opportunity to expand the scope of the zero-forzero initiative. Accordingly, we seek the immediate, hemisphere-wide elimination of

tariffs on all spirits products, thus securing tariff treatment for U.S. spirits throughout the hemisphere that is equal to the treatment that the U.S. currently accords

imported spirits.

Further, the FTAA presents an opportunity to eliminate non-tariff measures

which continue to present major market access obstacles to U.S. spirits exports.

DISCUS urges the U.S. government to use the opporunity of the FTAA as a mechanism to enhance hemispheric disciplines regarding: • The use of discriminatory internal tax systems that place a disproportionate tax

burden on imported products vis-a ́-vis like, substitutable, or directly-competitive domestic goods, or that serve to protect the domestic industry; • Non-competitive practices by state monopolies concerning the production or sale

of goods;

• The use of export restraints, export and import price requirements, and import

licensing conditioned on the fulfillment of a performance requirement;

• Trade-distorting sanitary measures that are not based on sound science; and,

• Non-transparent notification procedures that provide inadequate time periods

for public comment on, implementation of, and compliance with any new rules, laws,

or regulations that may affect trade.

As part of the FTAA process, DISCUS also believes that participants should fully

implement their obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), including the establishment of mechanisms to ensure and enforce the protection of geographical indications associated with distinctive distilled spirits. DISCUS and its member companies view the FTAA as a critical

vehicle to secure from FTAA participants explicit protection for Bourbon and Tennessee Whiskey (which is a straight whisky authorized to be produced only in the

State of Tennessee) as distinctive products of the United States, using language

similar to that found in NAFTA Annex 313 (‘‘Distinctive Products’’). Accordingly, the

FTAA participants should agree not to permit the sale of any product as Bourbon

or Tennessee Whiskey unless it has been produced in the United States in accordance with the laws and regulations of the United States, nor permit the use of these

designations for any product which is not Bourbon or Tennessee Whiskey.

Our trading partners are moving forward with numerous bilateral and multilateral agreements that favor competing spirits suppliers and place U.S. exports at a

competitive disadvantage. Within the hemisphere, Canada currently has free trade

agreements in place with Chile and Costa Rica, and is negotiating an agreement

with El Salvador, Guatemala, Honduras and Nicaragua. Mexico currently has agreements with 31 nations, including Bolivia, Chile, Costa Rica, Colombia, El Salvador,

the European Union, Guatemala, Honduras, Nicaragua, Uruguay, and Venezuela.

151

The Andean Community and Mercosur impose significant common external tariffs

that impede U.S. exports to these markets. Our major competitors, including the

countries of the European Union and the European Free Trade Association, have

in place or are currently negotiating agreements with Chile and Mercosur. As these

preferential trade agreements proliferate, U.S. spirits exporters are systematically

locked out of critical markets. It is essential that the United States engage actively

and constructively with the countries of the western hemisphere to bring the FTAA

to fruition and maintain U.S. competitiveness in these markets.

As we enter this critical stage of the FTAA process, it is vital that U.S. negotiators be empowered to secure tangible benefits in the negotiations. Providing the

President with Trade Promotion Authority (TPA) is essential to ensure that the U.S.

government has the authority to negotiate the minute and painstaking details of

comprehensive trade agreements, including the FTAA and the bilateral free trade

agreements with Chile and Singapore. It also seems clear that prospects for securing TPA will be a key consideration of our trading partners in deciding whether to

launch a much-needed new WTO round in Doha in November. Without TPA, U.S.

negotiators will lack the tools they require to negotiate the best possible deal for

the United States. DISCUSS stands ready to support efforts to secure prompt passage of TPA legislation this year.

Thank you again for the opportunity to offer our views on the FTAA negotiations.

Sincerely,

DEBORAH A. LAMB

Vice President

fInternational Issues and Trade

FLORIDA FARMERS & SUPPLIERS COALITION, INC.

Lake Worth, Florida 33454–0623

April 12, 2001

Hon. E. Clay Shaw, Jr.

U.S. House of Representatives

Washington, DC 20515

Dear Congressman Shaw:

We are writing to make known our position on Trade Promotion Authority (TPA),

formerly known as Fast Track. On April 3, 2001 the industry leadership, by unanimous consent, agreed to oppose this legislation. In the past we have twice opposed

Fast Track and most of the Florida Congressional Delegation has remained committed to vote against such legislation.

Since enactment of NAFTA, over 300 winter vegetable farmers have gone out of

business in Florida alone. We are now learning that hundreds of smaller producers

in southern States also suffered similar fate. We are further disappointed by the billions of dollars that have been paid to producers from apples to cranberries during

the last two years. Florida has not received one cent of the supplemental appropriations to compensate our farmers for losses suffered by these unfair foreign competition practices.

Last year alone (1999–2000), our tomato growers in Florida lost $112 million. Our

farmers employ over 100,000 workers, but no one seems to care about them either.

We simply cannot compete with third world countries paying $4.00 per day in

wages. Our industry cannot survive unless it is protected as a sensitive and strategic food industry.

We wish that in the spirit of free trade and better foreign relations, we could support such initiative, however, realistically we know we cannot survive under the

present scenario. We urge you to vote no for Trade Promotion Authority.

Sincerely,

PAUL DIMARE,

f Chairman

Statement of Michael J. Stuart, President, Florida Fruit & Vegetable

Association, Orlando, Florida

The Florida Fruit & Vegetable Association (FFVA) submits the following comments to be included in the record of the May 8, 2001, hearing held by the House

152

Committee on Ways and Means regarding the outcome of the Summit of the Americans, and the prospects and timing for achieving the Free Trade Area of the Americas (FTAA). The following comments address specific FTAA objectives for the agriculture and market access negotiating groups to help ensure fair treatment for Florida’s import-sensitive fruit and vegetable sectors.

FFVA is an organization comprised of growers of vegetables, citrus, sugarcane,

tropical fruit and other agricultural commodities in Florida. Florida’s unique geographical location in the United States affords growers an opportunity to provide

American consumers and export markets with fruits, vegetables and seasonal crops

during the months of the year when other domestic producers cannot grow and harvest these crops. Historically, competition for Florida’s fruit and vegetable industry

in the U.S. marketplace has come from Mexico, other areas that have farmland suitable for winter production in the northern hemisphere, and from Latin America. In

export markets, Florida crops compete against low-cost, often subsidized producers

from Latin America, Europe, and elsewhere.

I. General Views

FFVA’s principal concern with the proposed FTAA is that it could lead to further

reduction in import-sensitive U.S. tariffs in favor of competitive exporters in Chile,

Brazil, Argentina and other western hemispheric countries, creating greater competition in the U.S. market for Florida’s fruit and vegetable growers. Accordingly,

FFVA’s priority objective in the negotiations is to ensure that the tariff methodology

adopted to eliminate agricultural tariffs allows for exceptions from tariff elimination

for Florida’s most import-sensitive fruit and vegetable products. FFVA is on record

with the U.S. government in support of similar objectives for the U.S.-Chile Free

Trade Agreement.

Florida’s growers are skeptical about a FTAA in part because both the North

America Free Trade Agreement (NAFTA) and the Uruguay Round Agreement in the

World Trade Organization (WTO) have failed to protect Florida’s import-sensitive

products from increased competition in the U.S. market.

Sine the NAFTA Agreement took effect, Florida fruit and vegetable growers have

lost significant domestic sales to Mexico of tomatoes, bell peppers, cucumbers and

other crops. NAFTA encouraged this increased competition in two ways: first, by reducing U.S. tariffs, making already low-priced Mexican products more competitive;

and, second, by encouraging investment in Mexico’s agricultural industries from

non-traditional sources. The increased investment has substantially advanced Mexico’s technology, increased Mexico’s production in competitive crops, and reduced perunit costs of those commodities. These advantages, along with the cost savings derived from the devaluation of the peso shortly after the NAFTA took effect, have

significantly increased Mexico’s export competitiveness relative to Florida.

Likewise, the Uruguay Round ‘‘reforms,’’ which reduced U.S. tariffs across the

board, including tariffs on import-senstitive products, have left Florida’s fruit and

vegetable sectors more vulnerable to imports. While the Uruguay Round has contributed to limited progress in opening foreign markets for Florida tomato and citrus products, losses in the U.S. market have on balance outpaced gains inexport

markets. Florida’s fruit and vegetable exports continue today to face tariff quotas

and unjustified phytosanitary restrictions.

With competition in the U.S. market increasing, many of Florida’s producers have

been forced to curtail their operations. Others have closed down altogether. Even

import relief acions have not stopped the harm.

A hemispheric-wide free trade agreement will compound this adversity. Chile,

Brazil and Argentina are competitive producers and exporters of fruit and vegetables that are also grown in Florida. Imports of these products at duty-free or preferential duty rates pose an immediate threat for Florida’s growers.

FFVA therefore requests that high priority be given to the following comments respecting FTAA tariff elimination, tariff-rate quotas, safeguard measures, currency

devaluation, and santitary and phytosanitary disciplines.

II. In the Area of Tariff Phase-Outs, FFVA is Seeking Special Exemptions

For Flordia’s Most Import-Sensitive Products

In NAFTA, despite the extreme import sensitivity of Florida’s fruit and vegetable

products, only frozen concentrated orange juice (FCOJ) and, for part of the year, cucumbers received the meximum tariff phase-out period of 15 years provided for

under the NAFTA agreement. In many sectors like tomatoes, peppers, and cucumbers, ten-year phase-out periods have proven insufficient to protect against increased imports from Mexico. Consequently, U.S. growers have been forced to spend

precious industry dollars to fight back unfair competition from Mexico through antidumping procedures and other trade remedy laws.

153

The FTAA is a regional trade agreement covering many more countries than

NAFTA—including Brazil, Argentina and Chile, all countries that are highly competitive with Florida’s fruit and vegetable sector. These countries currently export

melons, lettuce, onions, tangerines/mandarins, and frozen concentrated orange juice

to the U.S. market, products that compete directly with Florida production. To ensure that the FTAA negotiations do not lead to increased U.S. imports from these

countries of principal fruit and vegetable products, FFVA is asking that a requestoffer approach be pursued that explicitly authorities exemption from tariff phaseout for FFVA’s most highly import-sensitive fruit and vegetable products. Although

exemptions from tariff phase-out were not granted under NAFTA, there is no WTO

requirement that this be the standard for an FTAA, nor is there a policy justification for such an approach, given the greater competitive threat presented by the

larger trade agreement. Moveover, FTAA countries like Chile, Argentina, and others

are themselves interested in product exemptions for import-sensitivie agricultural

sectors.

A complete list is attached of FFVA’s most important fruit and vegetable products

for which special tariff exemptions are requested. Even where Generalized System

of Preferences (GSP) benefits are currently being conferred on these products, FFVA

considers the GSP exemption to be temporary and the Latin American countries

competitive producer of many of these products. Accordingly, Florida’s growers and

processors oppose granting permanent duty-free access for these products under the

FTAA.

III. Past Safeguard Measures Specific to Agriculture Have Been Ineffective

A major problem with both the NAFTA and Uruguay Round Agreement for Florida’s import-sensitive fruit and vegetable products is the inadequate safeguard

mechanisms included in those agreements. These measures have been ineffective in

curbing increased imports resulting from the preferential tariff access.

NAFTA contains a special agricultural safeguard that is a volume-based TRQ

mechanism that restores the pre-NAFTA tariff on a limited number of products if

certain volume targets are met. There safeguards have been ineffective for two reasons. First, they are limited to only a few commodities, leaving many of Florida’s

import-sensitive products uncovered. Second, the volume ceiling that triggers the

safeguard measure is met only at the very end of the season when the extra volumes in the markets have already depressed prices and injured U.S. growers. Although the Uruguay Round contains a priced-based mechanism, the safeguard does

not apply to Florida’s fruit and vegetable crops, since none of these were subject to

non-tariff barrier measures prior to the Uruguay Round negotiations.

Because an FTAA will stimulate imports of perishable, senstivite agricultural

producrs even if they are exempted from tariff reduction, any agreement should include a special safeguard mechanism for agriculture that is (1) broader in product

coverage than the NAFTA mechanism (i.e., one that covers all import-sensitive agricultural products); and (2) triggered automatically based on price, not year-end volumes of imports. A price-based mechanism is preferred, since it reacts to import volumes throughout the season whenever they increase because of unfairly low prices,

and before irreparable injury has occurred to the U.S. industry. The duration of the

safeguard should also be sufficiently long to allow the U.S. industry to adjust to the

import surges and the injury caused by the increased imports. Finally, the safeguard mechanism should be structured to include effective relief once the trigger

price or volume is reached. Under NAFTA, the relief was to ‘‘snap back’’ to the

bound or applied pre-NAFTA tariff rate. A more effective mechanism might be to

allow, at least indefined circumstances, a breach of binding to a higher tariff level

if necessary to product the injured U.S. industry.

The U.S. proposal for the FTAA Group on Agriculture does not include a special

agricultural safeguard measure. Under the general market access text, the U.S. proposes a hemispheric safeguard measure that would allow tariff increases, but no

TRQs. The text reserves the right ‘‘to propose at a later date provisions on dispute

settlement panel review specific to hemispheric safeguard measures, and sector-specific safeguard regimes.’’ Under this reservation, FFVA urges the U.S. government

to explore the inclusion of a special agricultural safeguard to protect import-sensitive U.S. agricultural sectors. Given the great number of countries involved in the

FTAA, the competitiveness of many of these countries in the fruit and vegetable sectors, and the attractiveness of the U.S. market, adequate safeguard measures are

imperative to protect import-sensitive U.S. fruit and vegetable products.

154

IV. The FTAA Should Include A Mechanm to Guard Against the Unexpected

Effects of Currency Devaluation

NAFTA did not include provisions to address currency devaluation. As a result,

when Mexico’s peso dramatically devalued shortly after the NAFTA agreement took

effect, Mexico’s exports to the U.S. market instantly became much cheaper and increased significantly, while U.S. exports to Mexico became more expensive and declined. Many of Florida’s fruit and vegetable industries experienced this rapid shift

in import/export flows and incurred significant losses.

Several of the Latin American currencies not currently pegged to the U.S. dollar

also are susceptible to rapid devaluation. To protect against the negative effects on

trade, U.S. negotiators should consider ways in which FTAA ‘‘protections’’ could be

structured to incorporate appropriate safeguards that would counter increased exports that occur when a country’s currency unexpectedly devalues.

V. The FTAA Should Seek to Strengthen the Sanitary and Phytosanitary

Disciplines Contained in the NAFTA And Uruguay Round Agreement

Despite the disciplines included in the WTO Agreement on Sanitary and

Phytosanitary Measures, access for Florida’s fruit and vegetable crops in many export markets continues to be limited by sanitary and phytosanitary restrictions and

regulations. Chile and Argentina are two Latin American countries that have limited and delayed access for Florida citrus under the guise of sanitary and

phytosanitary concerns.

The U.S. is proposing that FTAA countries collaborate in the WTO to strengthen

international standards and to

coordinate on data exchange, research and technical assistance. FFVA supports that

proposal, but further urges the U.S. government to include disciplines in the FTAA

itself that will better ensure that FTAA countries do not use unjustified plan quarantine issues to prohibit or stall access for U.S. agricultural products. Another area

of cooperation that should be explored in the FTAA is harmonization of pesticide

regulations among the FTAA countries.

VI. Conclusion

The above objectives, especially those addressing tariffs and safeguard measures,

are necessary to ensure that U.S. import-sensitive agricultural products from Florida and other U.S. states are not put at risk by a FTAA. FFVA looks forward to

working with the Ways and Means Committee and Congress generally to ensure

that these goals are achieved.

Florida Fruit & Vegetable Association Import-Sensitive Products

H.S. Number Product Description

2001 U.S. Tariff Rates

MFN Rate GSP Rate (does not include GSP for LDDCs)

0702.00.20 .......... Tomatoes, fresh/chilled (3/1–7/14

or 9/1–11/14).

3.9/kg .....................

0702.00.40 .......... (7/15–81) ....................................... 2.8/kg. ....................

0702.00.60 .......... (11/15 to end of next Feb.) ........... 2.8/kg. .................... Free

0703.10.20 .......... Onion sets ..................................... 0.83/kg. .................. Free (Chile excluded)

0703.10.30 .......... Pearl onions ≤ 16 mm. diameter 0.96/kg. .................. Free

0703.10.40 .......... Other ............................................. 3.1/kg. .................... Free

0704.10.20 .......... Cauliflower and broccoli (6/15–

10/15).

2.5% ....................... Free

0704.10.40 .......... Other (not reduced in size) .......... 10% ........................ Free

0704.10.60 .......... Cut/sliced ...................................... 14% ........................ Free

0704.20.00 .......... Brussels sprouts ........................... 12.5% ..................... Free

0704.90.40 .......... Kohlrabi, kale ............................... 20% ........................

0705.11.20 .......... Head lettuce (6/1–10/31) .............. 0.4/kg. .................... Free

0705.11.40 .......... Other ............................................. 3.7/kg. .................... Free

0705.19.20 .......... Other than Head Lettuce (6/1–

10/31).

0.4/kg. .................... Free

0705.19.40 .......... Other ............................................. 3.7/kg. .................... Free

0707.00.20 .......... Cucumbers (12/1 to end of Feb.) 4.2/kg. .................... Free

0707.00.40 .......... (3/1–4/30) ...................................... 5.6/kg. .................... Free

0707.00.50 .......... (5/1–6/30; 9/1–11/30) .................... 5.6/kg. ....................

0707.00.60 .......... (7/1–8/31) ...................................... 1.5/kg. .................... Free

0708.20.10 .......... Lima beans (11/1–5/31) ............... 2.3/kg. .................... Free

155

Florida Fruit & Vegetable Association Import-Sensitive Products—Continued

H.S. Number Product Description

2001 U.S. Tariff Rates

MFN Rate GSP Rate (does not include GSP for LDDCs)

0708.20.20 .......... Cowpeas ........................................ Free ........................

0708.20.90 .......... Other ............................................. 4.9/kg. ....................

0709.30.20 .......... Eggplants (4/1–11/30) .................. 2.6/kg. .................... Free

0709.30.40 .......... Other ............................................. 1.9/kg. .................... Free

0709.40.20 .......... Celery (reduced in size) ............... 14.9/kg. ..................

0709.40.40 .......... Other (4/15–7/31) ......................... 0.25/kg. .................. Free

0709.40.60 .......... Other ............................................. 1.9/kg. ....................

0709.51 ............... Mushrooms ................................... 8.8/kg. + 20% .........

0709.60.20 .......... Chili peppers ................................ 4.4/kg. .................... Free

0709.60.40 .......... Other ............................................. 4.7/kg. .................... Free

0709.90.20 .......... Squash .......................................... 1.5/kg. .................... Free

0709.90.90 .......... Other vegetables .......................... 20% ........................

0804.50 ............... Guavas, mangoes, mangosteens

(fresh).

6.6/kg. .................... Free

0804.50.80 .......... Dried ............................................. 1.5/kg. .................... Free

0805.10 ............... Oranges ......................................... 1.9/kg. ....................

0805.20 ............... Mandarins, clementines (fresh or

dried).

1.9/kg. ....................

0805.30.20 .......... Lemons (fresh or dried) ............... 2.2/kg. ....................

0805.30.40 .......... Limes (fresh or dried) .................. 1.8/kg. .................... Free

0805.40 ............... Grapefruit (fresh or dried) (8/1–

9/30).

1.9/kg. ....................

0805.40.60 .......... During October ............................. 1.5/kg. ....................

0805.40.80 .......... Any other time ............................. 2.5/kg. ....................

0807.11.30 .......... Watermelons (12/1–3/31) ............. 9% .......................... Free

0807.11.40 .......... Any other time ............................. 17% ........................

0807.19.10 .......... Cantaloupes (fresh) (8/1–9/15) .... 12.8% .....................

0807.19.20 .......... Any other time ............................. 29.8% ..................... Free

0807.19.70 .......... Other melons nesi (fresh) (12/1–

5/31).

5.4% ....................... Free

0807.19.80 .......... Any other time ............................. 28% ........................

0807.20 ............... Papayas (papaws) (fresh) ............ 5.4% ....................... Free

1701.12.50 .......... Beet sugar .................................... 35.74/kg. ................

1701.11.50 .......... Cane sugar ................................... 33.87/kg. ................

1701.91.05 .......... Cane/beet sugar subject to general note 15.3.6606/kg. less

0.020668/kg. for

each degree and

fractions of a degree in proportion but not less

than 3.143854/kg.

Free (Brazil excluded)

1701.91.10 .......... Cane/beet sugar pursuant to

U.S. note 5 of this chapter.

3.6606/kg. less

0.020668/kg. for

each degree

under 100 degrees and fractions of a degree

in proportion but

not less than

3.143854/kg.

Free

1701.91.30 .......... Other ............................................. 35.74/kg. ................

2008.30.35 .......... Orange pulp, otherwise prepared/preserved.11.2% .....................

2009.11 ............... Orange juice, frozen,

unfermented.

7.85/liter ................

2009.19.25 .......... Orange juice, not concentrated ... 4.5/liter ..................

2009.19.45 .......... Orange juice, other ...................... 7.85/liter ................

2009.20.20 .......... Grapefruit juice, not concentrated.4.5/liter ..................

2009.20.40.20 ..... Other/frozen .................................. 7.9/liter ..................

156

1For example, roughly 30–35 percent of the population is under the age of 15 in Argentina,

Brazil and Chile compared with 21 percent in the United States and Canada.

Florida Fruit & Vegetable Association Import-Sensitive Products—Continued

H.S. Number Product Description

2001 U.S. Tariff Rates

MFN Rate GSP Rate (does not include GSP for LDDCs)

2009.30.10 .......... Lime, unfit for beverage, concentrate/non-concentrate

(2009.30.10.20 and 2009.10,40).

1.8/liter .................. Free (Honduras excluded)

2009.30.20 .......... Lime, other ................................... 1.7/liter .................. Free

2009.30.40.00 ..... Other single citrus fruits, not

concentrate.

3.4/liter ..................

2009.30.60 .......... Single citrus juice/other, concentrate.7.9/liter ..................

2009.90.40 .......... Mixture of juices, other ............... 7.4/liter ..................

2106.90.46 .......... Syrups from cane/beet sugar,

other.

35.74/kg. ................

2106.90.48 .......... Orange juice, fortified .................. 7.85/liter ................

2106.90.52 .......... Juice of any single fruit or vegetable (other than orange juice),

fortified.

The rate applicable

to the natural

juice heading in

2009.

Free (El Salvador

excluded)

2202.90.30 .......... Orange juice, fortified, not made

from a juice having a degree of

concentrate of 1.5 or more.

4.5/liter ..................

2202.90.35 .......... Other ............................................. 7.85/liter ................

2202.90.36 .......... Single fruit or vegetable juice

(other than orange juice) fortified, not concentrated.

The rate applicable

to the natural

juice heading in

2009.

Free (Dominican

Republic excluded)

2202.90.37 .......... Mixed fruit or vegetable juice

(other than orange juice) fortified, not concentrated.

The rate applicable

to the natural

juice heading in

2009.

Free (A*)

The Grocery Manufactures of America (GMA) welcomes this opportunity to

Statement of Grocery Manufacturers of America

f present our views on the Free Trade Area of the Americas (FTAA) negotiations.

GMA supports the FTAA negotiations and has actively participated in the both the

Toronto and Buenos Aires Americas Business Forums.

GMA is the world’s largest association of food, beverage and consumer product

companies. With US sales of more than $460 billion. GMA members employ more

than 2.5 million workers in all 50 states. The organization applies legal, scientific,

and political expertise from its member companies to vital food, nutrition and public

policy issues affecting the industry. Led by a board of 42 Chief Executive Officers,

GMA speaks for food and consumer product manufacturers at the state, federal and

international levels on legislative and regulatory issues. The association also leads

efforts to increase productivity, efficiency and growth in the food, beverage and consumer products industry.

GMA views the FTAA negotiations as an important opportunity to build upon the

success of the North American Free Trade Agreement (NAFTA), and enhance economic integration throughout the Western Hemisphere. In FY–2001, US exports of

processed food products to the hemisphere reached their highest level since 1970.

In fact, at roughly $9.44 billion, processed food exports alone represent 39 percent

of all US agricultural exports to the region.

Economic factors, such as population and income growth indicate that there is

room for significant expansion of trade in processed food products throughout the

region. While the US and Canada have largely stable and aging populations, Latin

America has a growing and relatively young population.1 As a result, more food is

demanded on a per capita basis in Latin America because of a younger population

157

2 U.S. Foreign Direct Investment in the Western Hemisphere Processed Food Industry, ERS/

USDA, March 98.

with higher caloric requirements and a propensity for purchasing non-traditional

food.2 In addition, rising incomes throughout the region should lead to increasing

expenditures on processed food.

Yet, despite this optimistic outlook, food manufacturers have been unable to realize the full potential of the market due to trade barriers in the region. GMA believes

the FTAA process is an appropriate vehicle through which to address these impediments. The following are GMA’s specific comments with respect to negotiating modalities for the FTAA, and in particular, those of the Agriculture Negotiating Group.

In addition, we also offer comments on the prospects for success of the negotiations.

Recommendations for the Agriculture Negotiating Group

Market Access

Barriers to processed food and beverages in the FTAA countries remain significantly higher than those for many other products. And, although the WTO Agreement on Agriculture delivered some benefits, the reductions in tariff for processed

foods and beverages were mostly at the lower end of the allowable range. Because

the rules allowed countries to average their tariff cuts, countries naturally chose to

make high percentage reductions on already low tariffs and lower percentage reductions on higher tariffs. Consequently, tariffs on processed food product exports to the

region range between 20 to 40 percent and, in some cases, exceed 100 percent.

To address these barriers, GMA recommends tariff elimination based on a formula

approach that will accelerate the elimination of tariff peaks (asymmetrically high

tariffs) and address the problem of tariff escalation, where tariffs increase with the

level of processing. This approach should, in essence, reduce the higher tariffs faster

than the lower ones to create meaningful market access for processed food products

in a reasonable time frame. GMA also suggests that negotiations should also result

in elimination of non-tariff barriers to processed food products. In addition, we recommend that this liberalization in tariff and non-tariff barriers be completed in less

than the ten-year period negotiated in the NAFTA.

GMA also believes that there should be no product or policy exceptions in the

FTAA negotiations. For the benefits of the FTAA to be truly realized by the food

processing industry, it is imperative that sugar, peanuts an dairy be subject to

meaningful reform and liberalization throughout the hemisphere. Tariff-rate quotas

(TRQ), which are often utilized to provide access for sensitive commodities, must be

employed judiciously and administered in a market-oriented and pro-competitive

manner. Finally, we recommend that the negotiations on tariff reductions begin

from applied rather than bound rates to ensure commercially meaningful reductions

in a reasonable timeframe.

Export Competition

GMA supports the Ministerial objective of a hemisphere-wide ‘‘subsidy free zone.’’

Export subsidies artificially distort world market prices and steal market share from

efficient producers. Elimination and prohibition of future subsidies in the FTAA is

an import fist step toward multilateral commitments in the same area.

Domestic Support

GMA believes the most effective means for achieving a reduction in domestic support for agricultural commodities will come through increased market access and an

elimination of export subsidies. We recommends however, that any continued domestic support be decoupled from production so that it is the least trade distorting

as possible, consistent with provisions in WTO Agreement on Agriculture.

SPS Issues

We urge negotiators to ensure that any FTAA sanitary and phytosanitary regulations are fully consistent with the WTO Agreement on Sanitary and Phytosanitary

Measures (SPS) and based soundly on science. Sound science should necessarily be

at the core of any agreement in order to ensure that national health and safety regulation are not used as disguised barriers to trade. In addition, we support increased cooperation and consultation on SPS-related trade barriers in the region.

We recommend that the US consider a NAFTA-like SPS committee to work on harmonization of science-based regulations and standards throughout the region.

158

1Decision 371 of the Cartagena Agreement Commission.

Prospects for the FTAA Negotiations

GMA firmly believes that the success of the FTAA is necessarily liked to the

launch of a new round of negotiations in the WTO and the passage of Trade Promotion Authority.

Importance of WTO Round

Agriculture has emerged as one of the most contentious sectors in the FTAA negotiations. For example, at the April Trade Ministerial in Buenos Aires, many countries argued for a direct linkage between reductions in domestic support and reductions in tariffs. In addition, although countries have committed to the elimination

of export subsidies in the region, they are conflicted as to how to deal with subsidized exports from third country markets. Unfortunately, these issues cannot realistically be solved in the FTAA context. Rather, they must be addressed in a multilateral context to achieve meaningful commitments from all trading partners. It

makes no sense for the US to ‘‘unilaterally disarm’’ and lose leverage against our

most significant and reluctant trading partners, the EU and Japan. Put simply, it

is unlikely there will be an FTAA agreement without agriculture and extremely difficult to achieve any results in agriculture negotiations in the FTAA without comprehensive round of negotiations in the WTO.

Trade Promotion Authority

Trade Promotion Authority (TPA) is an essential and necessary tool for progress

in the FTAA. TPA establishes a partnership between the Administration and the

Congress that protects trade agreements negotiated by the Administration from

amendment during congressional consideration. With TPA, the Administration can

ensure trading partners that commitments made during negotiations will be honored when Congress considers these trade agreements. Without TPA, it is unlikely

that trading partners will put forth meaningful offers for fear concessions will be

withdrawn later. GMA is committed to the passage of Trade Promotion Authority

by the end of this year.

Conclusion

Thank you for this opportunity to share our views on the Free Trade Area of the

Americas. GMA firmly believes that it is of critical importance to farmers and producers alike to continue to expand market access, reduce tariffs and dismantle barriers to food and agricultural products. Achieving the objectives discussed above will

benefit consumers throughout the hemisphere with a more reliable, diverse, safe

and affordable food supply. We look forward to working with you and the Administration to achieve these goals.

f KAL KAN FOODS

VERNON, CALIFORNIA

May 22, 2001

Subcommittee on Trade

Committee on Ways and Means

U.S. House of Representatives

1102 Longworth House Office Building

Washington, DC 20515

I respectfully submit comments for the Committee’s consideration on behalf of Kal

Kan Foods concerning renewal of the Andean Trade Preference Act (ATPA). While

Kal Kan Foods firmly supports assistance to the Andean Community to promote

trade and economic development, the Committee’s attention is also requested to the

need to secure more fair and reasonable treatment by Andean Pact members for US

exports.

Kal Kan Foods manufactures food for pet dogs and cats at factories in California,

South Carolina, Ohio, Texas, Illinois, and Nevada for domestic consumption and for

export worldwide including to Colombia and the Andean Pact countries.

I. Issue Summaries

Colombia is a member of the Andean Community and is participating in the Community’s ‘‘price-band’’ tariff system which was implemented in 1995.1 Pet food (HS

2309.10) is the only multiple ingredient processed finished product that is ‘‘linked’’

to the price band system. In this case the linkage is to yellow corn whether or not

the pet food contains corn.

159

2 Colombia has not yet exceeded its WTO bound rates for pet food. Colombia’s 2000 bound rate

for pet food is 106.6% ad valorem and the final bound rate is 97% in 2004. 3 Article 12 provides that If the CET for the linked product is greater than the CET for the

marker product, then the additional variable duty of the linked product will be the greater of

the following two values: (a) Additional variable duty of the market product, multiplied by the

‘‘quotient’’ between the CET of the marker product and that of the linked product; (b) the additional variable duty of the marker product, less the difference between the CET of the linked

product and the CET of the marker product.

Since April, 1995 Colombia’s 20% basic tariff on pet food has been increased 40

times with the increases averaging 44%. Since early 1999 the duty has varied from

53% to 88% and by the end of the year was 100%.2 A 7% IVA tax was imposed on

pet food mid year but was not imposed on yellow corn.

The duty rate for the period June 1–15 will be 54%. Both the level of the tariff

and the substantial, frequent fluctuations are major impediments to trade because

they force retail prices beyond acceptable consumer levels (more than a 100% premium over local brands) and make it impossible for importers to predict costs and

price products accordingly. As a direct result of Colombia’s high tariffs on pet food,

US pet food manufacturers, including Kal Kan, who make the world’s leading

brands are being forced out of the Colombia market.

Early last year, as part of negotiations at the WTO in Geneva regarding Colombia’s request for a delay in implementing the WTO Agreement on Customs Valuation, the US Government secured an agreement from Colombia to de-link wet pet

food from the price-band system. However, the Government of Colombia has thus

far failed to act on this commitment to the United States.

II. Background

The stated purpose of the Andean price band system is to stabilize import costs

for 13 agricultural commodities whose international prices are considered by the

Pact countries to be volatile or ‘‘distorted.’’ The commodities included are rice, malting barley, yellow and white corn, soybeans, wheat, crude palm oil, crude soybean

oil, raw and refined sugar, powdered milk, poultry meat, and pork meat. This protection is achieved by increasing import tariffs when prices are low and lowering

them when prices are high. The price band also links 147 additional commodities

and one finished product (pet food) that are considered derivatives or substitutes for

the 13 ‘‘marker’’ commodities. For example, derivative and substitute products

linked to yellow corn are poultry mean, sorghum, starches, glucose syrup, bran, and

food for pet animals and livestock.

The operation of the band is based on an Andean Community Board determination of a ceiling price, a floor price, and a reference price which are then used to

calculate a duty surcharge or discount to be assessed on imports of marker and

linked products. The floor and ceiling prices are derived from the international fob

prices and are valid for one year. The reference price is the 15-day average price

of the market product adjusted by so-called ‘‘international market information.’’

None of these price relate to import transaction values. If the reference price is

within the price band i.e. between the floor and ceiling prices, then the common external tariff (CET) will be applied to imports of the marker product. If the reference

price is above or below the price band than a surcharge or discount will be calculated. The example below shows the most common situation—an import surcharge.

EXAMPLE OF A VARIABLE DUTY SURCHARGE CALCULATION

Marker or Linked Product CET Reference Price

US$/mt

Floor Price US$/

mt

Ceiling Price

US$/mt

Yellow Corn ............................ 15% 117 161 192

Step 1: The difference between reference price and floor price or 161¥117=44 Step 2: Calculate duty on the amount of difference, and add difference or 44+[44×15%]=$50.60

Step 3: Convert this specific duty to advalorem or $50.60+117=43%. This is the variable surcharge component of the total duty.

Step 4: Calculate total duty by adding the CET to the variable surcharge or 15%+43%=58%.

Step 5: This duty rate of 58% is applied against the reference price.

As of January 2000 the duty on yellow corn cannot exceed 44%.

Pet food (linked)—20%. Because pet food is linked to yellow corn the import duty on pet food is the CET plus the variable duty surcharge. However, because the CET on pet food is higher than the CET on corn Article 12 3 of Decision 371 applies which adjusts the variable duty surcharge to reflect the difference between the CET on yellow corn (15%)

and the CET on pet food (20%). In this case rule (b) applies and the calculation is 43%¥5%=48%. The total

duty on pet food is 20%+38%=58%*

This duty rate of 58% is applied against the declared value of the imported pet food.

There is no ceiling on the pet food duty.

160

4For example, the American Association of Feed Control Officials (AAFCO) has set out nutrient profiles for pet dogs and cats at each stage of life that prepared pet foods must deliver. The

nutrients include crude protein, crude fat, crude fiber, Ash, Calcium, and Phosphorus.

Among the objections to the price band system are the lack of process transparency and arbitrary nature of reference price inputs. Also, the system’s use of reference prices introduces volatility to the cost of importing and makes it impossible

for importers to predict costs and build markets. The arbitrary nature of the system

was evidenced in 1999 when Colombia, bowing to pressure from domestic poultry

producers, reduced the duty on 100,000 mt of yellow corn to 35%. However, the tariffs on pet food and other products linked to yellow corn were not reduced. Similarly,

early in 2000 the government decreed the duty on yellow corn could not exceed 44%

but no such maximum duties were set for linked products.

Not all members of the Pact impose the additional duties on yellow corn and

linked products. Bolivia and Peru do not participate in the price band system and

their tariffs on pet food are 10% and 12% respectively which provides fair market

access for imported products.

III. The Linkage of Pet Food to Yellow Corn Is Unjustified

The Andean price band system sets two criteria for products to be included as

‘‘linked’’: (1) the product includes the marker commodity as a raw material; (2) the

product can be substituted for a marker commodity or a related product in industrial use. Pet food does not meet either of these two criteria.

Pet food is a highly processed product that is made to meet national and international standards for food for pet dogs and cats. Regulatory authorities 4 have determined the nutrition requirements for pet animals at each stage of life, for example, from puppies to mature dogs. Pet food recipes are designed to utilize ingredients

that deliver complete nutrition in a digestible form that meets national standards.

Corn may be included among the many ingredients used in pet food but could not

be used alone if the regulatory standards for energy and nutrition content are to

be met. In the case of wet pet food which has a high water content and is packed

in cans, pouches or trays, the corn content ranges from 0 to 1%.

Further, it cannot be said that pet food is in any way derived from corn or that

corn is an essential ingredient in pet foods for which there is no substitute. Additionally, it has been shown that there is no correlation between the price of yellow

corn and the price of pet food.

Pet food cannot readily be substituted for corn. Pet food is made to meet specific

energy and nutrient targets for pet animals and is more costly to produce than the

yellow corn feed meal that would be used for livestock. The cost of feeding prepared

pet food to livestock would be prohibitive.

Of the 147 products linked to the 13 marker commodities, including the 27 products linked to yellow corn, pet food is the only highly processed multiple ingredient

product. This singling out of pet food among all processed products for linkage is

discriminatory and reveals a misunderstanding of how pet food is formulated and

the international nutrition standards that influence ingredient selection.

It is for the reasons stated above that a petition was filed with the Colombian

Ministry of Agriculture to remove pet food from the price band and apply only the

20% CET to imported pet food.

Kal Kan Foods supports efforts by the Administration and Congress to advance

trade liberalization among all countries of the Americas. The Andean Trade Preferences Act can be viewed as one component of this larger vision. With this in mind,

it is important to build support among all US business sectors and the American

public by ensuring that US exporters also have a fair opportunity to participate in

all the markets of the Americas.

Sincerely,

MARIETTA E. BERNOT

President

f161

Statement of the Michigan Farm Bureau, Lansing, Michigan

Michigan Farm Bureau appreciates the opportunity to present this written testimony on the impact the Andean Trade Preference Act (ATPA) has had on our domestic asparagus industry. Michigan Farm Bureau is the state’s largest general

farm organization, representing more than 45,000 farmer member families.

The ATPA provides the four Andean countries of Bolivia, Columbia, Ecuador and

Peru with duty free and reduced duty access to our market. ATPA was enacted to

assist those countries in their fight against narcotics trafficking. The extent to

which the ATPA has advanced narcotics eradication in Peru, however, is highly

questionable largely because cultivation of asparagus and other crops in Peru occurs

in the desert region along Peru’s coastline, not in the foothills and mountains where

Peruvian drug cultivation is known to exist.

Providing this duty free and reduced duty treatment to imports from these countries has measurably affected trade in certain horticultural products and has had

a significant impact on domestic production of these commodities.

The duty free treatment provided to asparagus growers in Peru has further enhanced an already competitive industry that existed in Peru prior to enactment of

the ATPA. Once a small industry in the early 1980’s, Peru has become the world’s

largest producer and exporter of asparagus. Asparagus is Peru’s second largest agricultural export item with about $150 million in annual export earnings. Export production is for two different markets: green asparagus (primarily fresh) for export to

the United States, and processed white asparagus for the European market. Peruvian cultivation of asparagus occurs year round with very high yields per acre experienced by its growers.

The U.S. market consumes 75% of the fresh asparagus produced in Peru. Peru’s

fresh exports to the U.S. market have increased by 10-fold in the last decade, doubling in just the last two years. Peru ranks second to Mexico in fresh asparagus

sales to the U.S.

As the Peruvian industry has matured they have also begun to ship larger quantities of processed asparagus to the U.S. In 2000, Peru shipped 813 metric tons of

canned asparagus and 1,560 metric tons of frozen asparagus to the United States.

Processed asparagus imports from Peru in 2000 were almost eight times greater

than the amount shipped in 1994. Peru is the largest offshore source of processed

asparagus with a total volume exceeding the amounts imported from all other

sources combined.

U.S. industry sources indicate that five to ten million pounds of Peruvian frozen

asparagus have been made available to the U.S. market in the past year. Imports

of this magnitude are significant because the total U.S. market for frozen asparagus

is only ten million pounds annually. Duty free access for Peruvian frozen asparagus

has exacerbated the situation. Peruvian imports are displacing U.S. asparagus production at an alarming rate.

U.S. Asparagus Production and Imports from Peru—Metric Tons

U.S. ProductionImports

from Peru

Peru as a

Percent of

U.S. Production

1994 ........................................................................................ 99,656 8,593 8.6%

1995 ........................................................................................ 91,808 10,032 10.9%

1996 ........................................................................................ 90,220 11,574 12.8%

1997 ........................................................................................ 91,899 13,368 14.5%

1998 ........................................................................................ 92,806 15,151 16.3%

1999 ........................................................................................ 99,383 23,424 23.6%

2000 ........................................................................................ 103,572 32,196 31.1%

Asparagus production in the U.S. is centered in California, Washington and

Michigan. These three states make up over 95% of annual production. Minor production is found in New Jersey, Illinois, Indiana, Maryland, Minnesota and Oregon.

Over the past decade U.S. asparagus acreage had declined by 17%, while production

has deceased 7%. Per capita consumption of asparagus in the U.S. has increased

slightly in recent years.

162

1 Andean Trade Preference Act, Impact on U.S. Industries and Consumers and on Drug Crop

Eradication and Crop Substitution. USITC Publication 3358, September 2000. Seventh Report

1999, Investigation No. 332–352. 2 Agricultural Trade; Impacts of the Andean Trade Preference Act on Asparagus Producers and

Consumers. Government Accounting Office, March 2001.

In recent reports to Congress, the U.S. International Trade Commission 1 and the

U.S. General Accounting office 2 concluded the following about ATPA and the asparagus industry:

• The ATPA has encouraged the production of nontraditional agricultural commodities, such as asparagus, in Peru (ITC).

• The Peruvian asparagus industry has dramatically increased production in the

past decade and is projected to increase as much as 40% from 1999 to 2000

(ITC).

• Peru’s substantial increase in asparagus production has allowed them to become

a major exporter of frozen product, complementing their already strong position

in canned and fresh asparagus (GAO).

• As U.S. imports of asparagus have increased, demand for domestic processed asparagus has declined (GAO).

• Imports of ATPA-exclusive products were estimated to have had a potentially

significant effect on a number of domestic industries, including asparagus (ITC).

• Asparagus production in the U.S., particularly processed production, has been

displaced by duty-free imports from Peru under ATPA, and reauthorization of

ATPA will result in continued displacement of domestic producers (GAOP).

• A portion of this displacement will continue even without reauthorization of

ATPA, due to Peru’s climate and cost advantage (GAO).

• Asparagus is not listed as one of the crops that provide an alternative to the

production of coca in Peru’s major drug producing areas. However, asparagus

production was found in areas adjacent to coca producing regions (ITC).

• Farmers and pro-coca local officials in Peru’s coca areas have actively resisted

coca eradication efforts and have shunned the development of alternative crops

(ITC).

For the reasons noted above, Michigan Farm Bureau requests that significant

modifications be made to the ATPA should it be renewed at all. First, we request

that duty free treatment not be accorded for specific commodities wherein a country

is deemed economically competitive. The determination of economic competitiveness

should follow the criteria now used in the Generalized System of Preferences (GSP)

program requirements. Once a country has reached the established level of economic

competitiveness, it would no longer be eligible for duty-free access to the U.S. market for that commodity. Instead, the tariff for that product would revert to the MFN

level.

Instituting this change would support the objective of the ATPA of providing economic alternatives to narcotics production, but would not allow foreign imports to

put U.S. producers out of business in the process. We do not oppose competition

with foreign imports, but we do oppose providing trade preferences to countries to

the extent that such preferences result in the elimination of otherwise competitive

U.S. production.

Second, a safeguard mechanism should be instituted to address import surges of

perishable agricultural commodities. Import surges can be extremely disruptive to

U.S. agricultural markets, especially considering seasonality concerns and the price

variability of perishable agricultural products. Criteria now exist in the NAFTA and

the WTO agreement on agriculture that enable safeguard actions to be taken under

specified conditions. Certain trade remedies, such as the U.S. 201 law, allow the administration to take action to mitigate import surges when they are determined to

be causing or threatening injury to U.S. producers. However, imports from ATPA

and other countries are exempt from consideration in the investigation of 201 cases.

In order to address the often-irreparable damage caused to U.S. producers of perishable products due to import surges, we request that any extension or renewal of

the ATPA include an automatic, transparent, and temporary safeguard mechanism.

The safeguard mechanism would provide much needed import relief to U.S. producers being injured by an import surge and would still provide market access for

ATPA beneficiary countries during the remedy phase.

f163

Statement of Malcolm O’Hagan, President, National Electrical

Manufacturers Association, Rosslyn, Virginia

Mr. Chairman, Members of the Committee. Thank you for this opportunity to discuss NEMA’s experiences in the Americas and our perspective on the proposed Free

Trade Area of the Americas (FTAA).

The National Electrical Manufacturers Association (NEMA) is the largest trade

association representing the interests of U.S. electrical industry manufacturers. Our

more than 450 member companies manufacture products used in the generation,

transmission, distribution, control and end-use of electricity. Annual shipments exceed $100 billion in value.

NEMA brings a unique perspective to your hearing as a result of the successful

outreach efforts that we have been conducting throughout the Hemisphere in recent

years. Supported partly by a Commerce Department Market Development Cooperator Program grant, we have opened Sao Paulo and Mexico City offices that have

not only helped our members do business in the Americas, but have proven invaluable with regards to addressing standards-related and other non-tariff barriers to

trade. Moreover, we have also been engaging counterpart industry groups, in particular conducting a mini ‘‘Summit of the Americas’’ for our industry in Costa Rica

last November, as well as taking the initiative to begin signing numerous memoranda of understanding with a variety of Latin trade associations. Finally, we have

also attended several of the Americas Business Forums and last month were part

of a U.S. business delegation that went to Santiago to meet with leaders there to

show our strong support for the proposed US-Chile FTA.

In short, NEMA has found that there are plenty of groups and individuals

throughout the Hemisphere who share our view that the FTAA is a ‘‘win-win’’ goal.

While NEMA applauds the limited progress made in the recent Buenos Aires and

Quebec.

City meetings, our view is that participating governments need to catch up with

the latent desires of their populations to further develop and integrate economically.

Substantive FTAA negotiations are long overdue in starting, with many capitals

still not seriously engaged in the process. In our view, the 34 governments should

have moved up the deadline for the completion of negotiations from 2005 to 2003

so as to help the people of the Americas enjoy the benefits of trade liberalization

as soon as possible.

Specifically, NEMA strongly encourages FTAA negotiators to attain the following

as soon as possible as soon as possible as soon as possible:

• Tariff Elimination

• Openness and Transparency in Government Procurement

• No Mutual Recognition Agreements (MRAs) For Non-Federally-Regulated Products

• Energy Services Liberalization

• Protection of Intellectual Property Rights

• Compliance with all World Trade Organization (WTO) Technical Barriers to

Trade (TBT) Requirements

• Inclusive Definition of ‘‘International Standards’’

• Voluntary, Market-Driven Standards and Conformity Assessment

• As Many Market Opening Measures As Possible

• Effective Monitoring and Enforcement Mechanisms

• Free Trade Benefits Not Encumbered By Labor Or Environmental Provisions

Statement of Myles Frechette, North American Peruvian Business Council

Thank you for your consideration of these remarks.

Mr. Chairman, I commend you for the timeliness of this hearing on prospects for

f free trade in the Hemisphere. I am Myles Frechette, Executive Director of the North

American Peruvian Business Council (NAPBC) whose fundamental mission is to facilitate investment and promote trade between Peru and North America. The

Founding members of the NAPBC are Newmont Mining Corporation, Barrick Gold

Corporation, Caterpillar Inc., Continental Airlines, J.P. Morgan, Compan ̃ ́ıa De

Minas Buenaventura S.A., and Forza S.A. Other members of the NAPBC are ExxonMobil Corporation, Patton Boggs LLP, Riggs Bank N.A., Texaco Inc., Ferreyros S.A.,

Hunt Oil Company, and Schmeltzer, Aptaker & Sheppard, P.C. The NAPBC was inVerDate 11-MAY-2000 00:47 Oct 03, 2001 Jkt 005300 PO 00000 Frm 00167 Fmt 6633 Sfmt 6621 W:\DISC\74222 ATX004 PsN: ATX004
164

corporated in August 2000 as a non-profit organization and includes U.S., Canadian

and Peruvian companies.

The NAPBC would like to work with Congress to promote and increase trade opportunities in the Hemisphere. The 1991 Andean Trade Preference Act (ATPA)

grants Colombia, Bolivia, Ecuador, and Peru tariff preference on certain goods for

ten years in an effort to help those countries fight narcotics trafficking. The ATPA

has proven to be a valuable weapon in the war against drugs by creating economic

incentives to encourage the Andean countries to avoid the illegitimate industry of

narcotics, especially coca, and increase the production of legitimate products.

In January, the Office of the United States Trade Representative released its

third report to Congress on the operation of the ATPA. the report indicates that the

ATPA has generated significant job opportunities in a variety of sectors, including

cut flowers, non-traditional fruits and vegetables, jewelry and certain electronic inputs. Between 1991 and 1999, total two-way trade between the U.S. and the ATPA

beneficiary countries nearly doubled. The ATPA has been essential to strengthening

the legitimate economies in the Andean countries.

I was Ambassador to Colombia from July 1994 to November 1997. During my

service there, I saw at first hand the benefits of the ATPA and the potential of an

extended and ‘‘robust’’ ATPA. The ATPA created thousand of jobs in Colombia,

helped Colombia’s economy and government offset the high cost of countering narcotics trafficking and turned the private sector into staunch and vocal supporters

of anti-narcotics cooperation.

The ATPA did not include several import sensitive products such as apparel and

textiles. Congress is now faced with the unique opportunity of expanding and extending the ATPA before it expires on December 4, 2001. Congress should not

squander this opportunity to provide the ATPA countries with an effective tool for

combating the war on drugs.

Even though in 1999 Bolivia, Colombia, and Peru achieved record levels of coca

eradication, these cooperative efforts to combat the scourge of drugs are ongoing and

should be strengthened.

The ATPA should be expanded to include textiles and apparel. The ATPA was

based on the Caribbean Basin Initiative (CBI) which did not originally provide tariff

relief for apparel and textiles. Recently, the Andean countries’ competitors for textile

and apparel have received beneficial trade treatment from the United States due

to the recently enacted ‘‘Trade and Development Act of 2000.’’ CBI beneficiaries now

receive preferential tariff treatment for regional products made with American fabric and yarn. This expansion of CBI already compounds disadvantages to the Andean textile and apparel industries created by the North American Free Trade Agreement.

By including textiles and apparel, the ATPA would become a valuable weapon in

the war against drugs in the Andean region. The data on the drug trade clearly

shows that the coca economy is regional, and that actions adopted in one country

affect anti-drug efforts in neighboring countries. The success in Peru’s drug fight

corresponds with an increase in drug production in Colombia which clearly indicates

the interconnected relationship between drug protection and trafficking in Peru, Colombia and Bolivia.

We commend Senator Graham (D–FL) for taking the lead on expanding the ATPA

and for including textiles and apparel. However, we are concerned about the limitations of the textile and apparel provisions included in S. 525, the Andean Trade Performance Expansion Act. The textile provisions included in S. 525 are based on the

textile and apparel provisions included in the expansion of the CBI as passe in the

Trade and Development Act of 2000. An approach based on the use of fabric and

yarn does not help the Andean countries.

The use of cotton grown in Peru and Bolivia is an essential part of their industry.

The cotton industry provides an important alternative crop to the coca industry and

additional lawful employment for both agricultural and factory workers. These jobs

are vital to Peru’s efforts in the war against drugs. Peruvian products that currently

benefit from the ATPA are mostly minerals but mining is not as labor intensive as

the textile and apparel industries.

Recently, the Trade Ministers of the Andean community at a meeting in Lima

stated their joint position on the inclusion of textiles and apparel in the ATPA in

a document called ‘‘Position of the Andean Community to the Andean Trade Preference Act.’’ The Trade Ministers believe that textiles and apparel should be included in the ATPA and more specifically, ‘‘the expansion of the coverage of the

ATPA should not be considered to regulations regarding the origin of raw materials

that restrict the access of our textiles and apparel.’’

Tens of thousands of jobs are at stake. Most apparel from Peru and Bolivia are

made from high quality, locally grown cotton or are made from llama or alpaca that

165

is native to the region. In Peru alone, the textile sector supports 32 percent of the

population employed in the manufacturing industry, which amounts to approximately 180,500 jobs. Workers who would otherwise have lawful jobs will be left

without an alternative to coca production.

Expanding ATPA benefits to include apparel made with regional fabric will not

have an adverse impact on the domestic U.S. industry. In 1999, textile and apparel

exports from Andean countries represented only 1.1 percent of the total textile and

apparel exports to the United States. The ATPA countries export far less textiles

and apparel to the United States than the CBI region does.

An expansion of the ATPA to include textiles and apparel would provide economic

and political stability to the Andean countries. Increasing the number of legitimate

employment opportunities would provide a needed boost to the struggling economies

of the Andean countries. The NAPBC looks forward to working with Congress to extend benefits under the ATPA in order to provide the necessary economic incentives

to eliminate the lure of illicit drugs and strengthen democracy in the region.

Statement of the Hon. E. Clay Shaw, Jr., a Representative in Congress from

the State of Florida

f Mr. Chairman I am a avid supporter of free trade and the expansion of markets

with open lines of movement of goods and services between our country and our

trading partners, I have supported ‘‘Fast Track’’ and now support ‘‘Trade Promotion

Authority,’’ as well as voting in favor of the various trade agreements that now define our larger commercial relationship with the world, particularly the Uruguay

Round agreements that formed the WTO and our partnerships with Canada and

Mexico, which are embodied in NAFTA and other bilateral agreements in this hemisphere.

I support free trade because I understand how it benefits both the consumers and

the producers in our own economy to modernize and advance our ability to make

the most of our own comparative advantages and our trading partners’ competencies. In addition, many of us are fully aware of the strategic role expanded

trade plays in building diplomatic bridges and common purpose and other nations,

sometimes more effectively than direct foreign aid or technical assistance. Even as

some countries resent yet strive to emulate U.S. success, recent events underscore

how some of the most thorny international security and internal political challenges

can be subordinated to the desire for stronger economic commercial ties, when cooler

heads prevail.

I have also heard the legitimate grumblings of parties in this country who do not

feel that they got the best deal possible in recent agreements. Even worse, some

have rightly observed that not all the commitments they received for their concessions have been squarely met. Some in these industries have communicated to me

that they have reasonably concluded that further expansion of free trade in our

hemisphere is not in their own best interest.

Today, rather than argue apples and oranges, I want to give voice to citrus and

tomatoes. I remain committed to free trade, but I acknowledge that unless we forthrightly address the issues that hold back some individuals and certain industries

from wholeheartedly supporting expanded trade in our hemisphere, we miss an important opportunity to assure that we are doing right by own citizens in all four

corners of the U.S. If now is the time for debate, then let us meet the debate headon with facts, understanding various parties’ positions and prepared to continue improving in the future how we do business in international trade negotiations. This

way, the people we represent can have confidence we are doing, for them, the best

job possible of protecting their interests.

In particular, many fruit and vegetable growers in Florida have expressed frustration to me in recent years. At previous hearings and in personal discussions with

many in this room, including Ambassador Zoellick, I have mentioned ‘‘seasonality’’

as an important element of assuring fairness to certain farmers in competing with

Latin American during certain limited growing seasons. I raise it again today, asking for some specifies, so that we may move the debate forward.

A number of U.S. agricultural commodities, including fresh and processed citrus,

have been found import-sensitive in the past, and been required to compete with

unfairly traded or subsidized imports both in domestic and foreign markets. In addition, foreign advantages gained through looser antitrust laws and differing environmental standards and labor conditions, have permitted many foreign producers of

horticultural products to overcome superior U.S. product quality. Trade relief laws

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1See, e.g., Scheve, Kenneth and Slaughter, Matthew, Globalization and the Perceptions of

American Workers, Institute for International Economics, March 2001.

alone have not fully satisfied these industries in offsetting the very advantages that

have launched and nurtured some of these foreign competitors.

Thank you for your attentiveness to these issues. I look forward to discussing

them with you in more detail as we move forward on TPA and in negotiations with

our trading partners.

Statement of Jay Mazur, President, Union of Needletrades, Industrial and

Textile Employees, New York, New York

f I appreciate having this opportunity to comment on last month’s Summit of the

Americas in Quebec City, Canada, on progress to date in negotiating a Free Trade

Area of the Americas (FTAA) and on renewal and possible expansion of the Andean

Trade Preference Act (ATPA). I speak for 250,000 members of the Union of

Needletrades, Industrial and Textile Employees (UNITE) in the United States and

Canada, many of whom were in Quebec City during the Summit. I also speak for

an equal number of retired members of our union, many of whose lives were made

more difficult because of United States trade policy.

In addition to the impact of trade on our members in Canada and the U.S. UNITE

works with garment worker unions and union federations throughout Latin America. We are aware of the prolonged and profound economic hardships suffered by

working people of the region, so we wholeheartedly support any policy of the United

States that would raise the living standards of workers in the region.

The negotiations on FTAA and the expiration of ATPA provide a critical opportunity for the government of the United States to re-think how it can best help promote development in Latin America. There is no evidence that nearly 20 years of

trade under various versions of the Caribbean Basin Initiative (CBI), 10 years of

trade under the ATPA or 7 years of trade under the North American Free Trade

Agreement (NAFTA) have advanced the most pressing development needs of the

peoples of those respective regions. Furthermore, there is considerable evidence that

the special U.S. apparel market access programs for Mexico and the Caribbean

Basin countries, the model on which the proposed ‘‘enhancement’’ of ATPA is based,

may actually retard development.

Any strategy for development must strengthen democratic institutions that move

developing societies toward the rule of law and a more equitable distributions of

wealth. A legitimate FTAA and a genuine enhancement of ATPA would place them

in the context of such strategy, one adapted to the most pressing needs of the Western Hemisphere today.

The demonstrations in Quebec City, like those before them in Seattle, Washington, D.C., Buenos Aires, Prague and countless other cities in this Hemisphere

and around the world, cannot be dismissed as the actions of a handful of radicals

or a political version of spring break. They are reflections of serious concerns about

the rules of trade that have been established since the creation of the World Trade

Organization in 1994. Polling consistently shows that the uneasiness expressed by

the demonstrators reflects the view of the vast majority of the American public.1

For all of its virtues, trade in the 90s has left multitudes of the world’s citizens

behind. While globalilzation has created spectacular wealth for the few, whatever

has trickled down to the many must not be confused with social development or

even economic growth. Workers in both developed and developing nations have seen

their real incomes stagnate or decline over the past decade. Nearly 2 billion people

are living on less than one dollar a day; 2.6 billion lack even basic sanitation. Hundreds of millions of people are malnourished. Globalization has increased income

and social disparities within nations and between nations. I has left many people

behind.

The sheer size and, with it, the power of multinational corporations is overwhelming nations. Of the 100 largest economies in the world, 51 are corporations—

only 49 are countries.

Those who are negotiating trade agreements today and hereinafter ignore these

facts at their peril. We do not believe Congress should or will continue to pass trade

legislation or approve trade agreements that protect the interests of multinational

corporations and investors and ignore the interests of working families.

As Dani Rodrik, Professor of International Political Economy at Harvard University, put it:

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2 Rodrik, ‘‘Trading in Illusions,’’ ‘‘Foreign Policy, March/April 2001, p. 55. 3Mahbub ul-Haq, Reflections on Human Development. Oxford: Oxford University Press, 1999. 4 UNITE analysis of official Mexican data on consumer price indices, total compensation, and

hours worked. Data available via the internet at http://www.inegi.gob.mix. 5 UNITE analysis of official Mexican data on consumer price indices, total compensation, and

hours worked. Data available via the internet at www.inegi.gob.mix. 6See Equipo Tecnico Multidisciplinario Para Centroamerica, Cuba, Haiti, Mexico, Panama, y

Republica Dominicana, Fuerza Laboral, Ingresos y Poder Adquisitivo de los Salarios en

Centroamerica, Panama y Republica Dominicana, San Jose, Costa Rica: Oficina Internacional

del Trabajo, 1998. This report contains data on the cost of basic food baskets for the larger countries of the Caribbean Basin. A simple rule of thumb to estimate the cost of a more complete

basket is to double the cost of the food basket.

The new agenda of global integration is built on shaky empirical ground

and it seriously distorting policy makers’ priorities. Making compliance with

it the first order of business diverts human resources, administrative capabilities, and political capital away from more urgent development priorities

such as education, public health, industrial capacity, and social cohesion.2

It is UNITE’s position that steps must be taken to bring the Western Hemisphere

countries into compliance with internationally recognized core labor standards, or

the result will be increased inequality and the stagnation of living standards.

Trade policy liberalization is not a development strategy

‘‘Development’’ and economic growth are not synonymous. According to a principal

architect 3 of the United Nations Development Program’s influential annual Human

Development Report, development hinges on four elements: • productivity growth: • empowerment of people; • equity; and • sustainability. The U.S. government has not evaluated whether current trade policies have promoted measurable progress on the above four dimensions in the Western Hemisphere. Exports of products to the United States have grown, according to the U.S.

International Trade Commission. Officials from some transnational corporations say

that they feel less inhibited about doing business in various parts of the region. No

thorough study has been done by the U.S. Government, however, of the impact of

NAFTA, CBI in its various forms and the ATPA on the working people who actually

produce articles covered under the trade acts.

Evidence is available, however, about the impact of special apparel market access

programs on the working people of Mexico and Central America. Both the CBI and

NAFTA programs were promoted as development strategies for Mexico and the Caribbean Basin. The evidence from these countries suggests, however, that simple extension of special U.S. Market access to apparel and textiles (and by extension,

other products) will fail to promote or consolidate any of the cornerstone elements

of the development in the Hemisphere.

Trade boom, development bust

Apparel exports to the United States from Mexico and a few Caribbean Basin

countries boomed during the 1990s. Employment in Mexico’s apparel industry increased some 60 percent between 1993 and 1998. The CBI and Mexico apparel

booms, however, have not driven forward development in those countries:

Productivity and living standards:

• Mexican apparel industry labor productivity declined more than 15 percent between 1993 and 1998. • Real (inflation-adjusted) hourly compensation for Mexican apparel workers

dropped almost 25 percent over the same period.4

• Apparel industry labor productivity in major Caribbean Basin apparel-exporting

countries dropped significantly after 1986 (when the first CBI special access

program for apparel was launched).5

• The wages of the majority of workers employed in the apparel maquiladoras

and ‘‘export processing zones’’ of Mexico and the Caribbean Basin are insufficient to purchase nationally defined ‘‘basic baskets’’ of goods and services that

satisfy physical needs.6

Empowerment

The rights of workers have long been defined by the International Labor Organization (ILO), and were made binding on all member-nations in 1998. The countries

168

7See various reports submitted to and issued by the U.S. National Administrative Office for

the North American Agreement on Labor Cooperation. 8See the preliminary WRC report on systematic abuse of workers’ rights at the Kukdong apparel factor via the internet at http://www.workersrights.org. Also see http://mikebiz.com for a

less thorough report. 9See, for example, Human Rights Watch, Mexico: A job or your rights (New York: HRW, December 1998). Available via the internet at http://www.hrw.org/hrw/reports98/women2/. 10The annual earnings of top executives of large U.S. apparel retail and manufacturing corporations that source production in Mexico and the Caribbean Basin frequently exceed $1 million (see http://www.ecomponline.com/). The annual average wage of Mexico apparel production

workers is about $2,000 (see official Mexican government statistics, available via the internet

at http://www.inegi.gob.mx). Average annual earnings data are not available for the CBI countries.

in the FTAA are all members of the ILO. They are, therefore, bound to ‘‘promote

and realize’’ the basic rights of their workers: freedom of association, the right to

organize and bargain collectively; and the right to be free from forced labor, child

labor and discrimination in employment. There is no evidence that special access

to the U.S. market encourages the exercise of workers’ rights. Again the experience

of export-oriented apparel promotion in Mexico and CBI provides a dismal record:

• Only a few dozen collective bargaining agreement exist in the CBI region, where

approximately half a million workers in CBI countries employed at hundreds

of companies produce apparel for export to the United States. Employers, in collusion with government authorities, systematically crush workers’ organizing efforts. Employees are left defenseless against the arbitrary and abusive practices

of their employers.

• Numerous studies exist that describe in detail the pervasive and systematic restriction of freedom of association and the right to organize in Mexico.7 The university-founded Workers’ Rights Consortium recently examined industrial relations at a supposedly ‘‘model’’ apparel factory in the Mexican state of Puebla

and uncovered gross violations of workers’ fundamental rights.8

• Human rights activists in Mexico and the CBI countries have documented patterns of attacks on women’s rights and freedoms within export-oriented apparel

firms.9 Some abuses, such as pregnancy testing, appear to be motivated by an

interest in avoiding the economic cost of legally mandated pregnancy and maternity benefits. Other abuses, such as occupational discrimination and tolerance of sexual harassment (and, less frequently, sexual assault), appear to be

employed by managers as tools of control over the workforce.

• Export-oriented apparel firms have been found to employ children who fall

below the legal age threshold and to discourage working youths from attending

school. Countries and companies that have been subjected to international

media attention focused on this issue appear to have taken some steps to eliminate these practices.

Equity:

What fruits there have been from the apparel export boom in Mexico and the CBI

countries have been distributed inequitably. The principal beneficiaries of the market access programs have been U.S.-based apparel companies, retailers and importers, elites in Mexico and the CBI countries, and some Asian companies that have

set up apparel and textile factories in Mexico and the Caribbean to export to the

U.S. market. Workers in Mexico and the CBI countries are not getting their fair

share.

The increasing integration of Mexican and Caribbean Basin production workers

into the U.S. apparel supply chain has meant that the income gap between those

at the top of the transnational industry pyramid and those at the bottom has grown.

Without even taking stock options into account, CEOs of U.S. companies in the apparel industry frequently make over 500 times as much money in a year as the average Mexican apparel worker producing goods for their companies.10

Sustainability:

The United Nations’ Economic Commission for Latin America and the Caribbean

(ECLAC) study of Mexican and Central American maquiladoras has aptly summarized a fundamental flaw with the maquiladora-led growth strategy:

The contribution made by [Mexican and Central American maquila factories] to economic growth is more modest than that which one could suppose upon seeing the volume of their activity. Should the maquila factories

multiply in their current form, the countries would be specializing in supplying cheap labor, and [the sector’s] growth would depend on the continual

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11 Comision Economica para America latina y el Caribe. Maquila y transformacion productiva

en Mexico y centroamerica. LC/MEX/R.630. 28 de octubre de 1997. Translated by UNITE from

the original Spanish. Emphasis added. 12 Countries where wages have fallen the most are also the countries that have the worst

record of abusing worker rights. For an interesting argument along these lines see: Dani Rodrik,

Democracies Pay Higher Wages, NBER Working Paper 6364, revised October 1998, published

in the Quarterly Journal of Economics. 13 Bobbin, ‘‘Exploring the HOT Topics of 2000: Sourcing and electronic commerce.’’ Dec. 2000. 14See The Second Report of the Special Representative of the Director-General for Cooperation

with Colombia (Geneva: ILO, 2001); Report of the United Nations High Commissioner for

Human Rights on the human rights situation in Colombia; International Confederation of Free

Continued

cheapening of this factor. This is not compatible with a long-range strategy

of growth with social equity.11

The data contained in Table 1 below support the ELCAC’s assertion. Growth in

apparel imports from CBI countries has tended to increase most rapidly where hourly labor costs have increased the least. Where labor costs increased significantly,

growth in apparel exports to the USA slowed.12 Apparel manufacturer and retailer

executives are seeking out the lowest cost labor they can find. Is this not a race to

the bottom? And will not those countries that are unwilling to pursue the race to

bottom to its logical conclusion discover that reliance on apparel export-led employment growth leads to a dead end?

Table 1

Apparel Industry Growth of

U.S. imports

Growth of reported avg.

hourly labor

costs (USS)

1989–98 1985–96

Honduras ................................................................................................. 2523% 10%

El Salvador .............................................................................................. 2512% ¥27%

Guatemala ............................................................................................... 466% 8%

Dominican Rep ........................................................................................ 256% 56%

Costa Rica ................................................................................................ 206% 186%

Jamaica .................................................................................................... 74% 71%

• Sources: (imports) U.S. Department of Commerce, Major Shippers Reports, various years; (wages) Bobbin Consulting Group (1987), and Werner International

Management Consultants (1998); (wages*) UNIDO available via the internet at

http://www.unido.org.

Apparel executives see tariff preferences as a useful tool by which to pressure supplier companies to lower prices. The apparel industry magazine Bobbin recently related the expectations of the president of Sportif, a U.S. branded sportswear company, about the role of ‘‘NAFTA parity’’ for CBI countries. In the executive’s view,

Bobbin reported,

‘‘It’s possible that Caribbean competition will create supply-and-demand dynamics that could cause Mexico’s labor rates or currency value to fall.’’13

This might seem to apparel industry executives to be a positive development.

However, for the working people of North, Central and South America whose livelihoods are tied to the transnational apparel industry, intensification of the deregulated scramble for market share is cause for grave concern. The same is equally true

of workers making other manufactured goods and even those providing soon-to-be

integrated services.

Any policy that rests its hopes for development primarily on apparel industry export promotion is flawed. Any such policy that fails to promote and protect nationally and internationally recognized worker rights is fatally flawed. Such a policy

makes the United States complicit in the perpetuation of worker abuse.

Systematic violation of workers’ rights in Andean countries

For millions who live and work in the four Andean countries covered by the

ATPA, freedom, as it relates to work is an illusion. Year after year, investigators

from inter-governmental and non-governmental organizations document unconscionable violations of the most fundamental rights of trade union leaders and rank-andfile members.14 It is alarming, but not surprising, that one-third of all complaints

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Trade Unions (various publications); and U.S. State Department, Country Reports on Human

Rights Practices (various years). 15 Report of the Direct Contacts Mission to Colombia, 7–16 February 2000. Emphasis added. 16 Report of the United Nations High Commissioner for Human Rights on the human rights

situation in Colombia. Emphasis added.

in the world filed with the Committee on Freedom of Association of the International Labor Organization (ILO) originate in the Andean region.

Despite condemnation from unions and the ILO, new labor laws in Colombia,

Peru, Ecuador and Bolivia have undermined the right of collective bargaining in

those countries. In Peru, according to the State Department’s Human Rights Report

for 2000, ‘‘the ILO specifically criticized a provision that permits businesses to employ youth workers between the ages of 16 to 25 as up to 30 percent of the workforce; workers in this age bracket are precluded from union membership and participation’’ (emphasis added).

As a result of these practices, the number of collective bargaining agreements in

the region has dropped precipitously. A recent ILO study reports that the number

of agreements in Peru dropped from 1,762 in 1990 to 623 in 1996, and in Ecuador

from 315 in 1987 to 206 in 1996, while in Bolivia only two new agreements were

signed in the decade from 1990 to 1999.

Additional weakening of labor laws in export processing zones (EPZs) serves to

further impede union organization. According to the State Department, in Peru:

‘‘Special regulations aimed at giving employers in export processing and duty free

zones a freer hand in the application of the law provide for the use of temporary

labor as needed, for greater flexibility in labor contracts, and for setting wage rates

based on supply and demand.’’ In Colombia, there are no unions in the EPZs, while

in Ecuador employers have used short-term contracts to prevent organization in the

zones.

Colombia is the leading Andean exporter of apparel to the United States. Colombia also is the most dangerous country in the world in which to be a trade unionist.

Killings of labor leaders and unionized workers remain a ‘‘regular’’ occurrence in Colombia, according to an ILO special Direct Contacts Mission, which visited the country in February 2000. ‘‘Cases where the instigators and perpetrators of the murders

of trade union leaders are identified are practically nonexistent, as is the handing

down of guilty verdicts,’’ according to the ILO investigative team.15

The Medellin-based National Labor School reports that approximately 1,500 union

members have been murdered since 1991, when the ATPA first took effect.

• Over 100 union members were killed during 2000, according to a tripartite Colombian commission;

• Thirty-five additional killings of trade unionists have already been reported in

2001.

The U.N. High Commissioner for Human Rights, in her 2001 report on Colombia,

lay a portion of the responsibility for the persistence of human rights abuses at the

feet of the government:

‘‘. . . [P]rotection of human rights and compliance with international recommendations were neither accorded the importance nor pursued with the

persistence or effectiveness that the serious situation in Colombia requires.

This was reflected in the Government’s limited follow-up, continuity and

vigor regarding relevant mechanisms and standards. It was also reflected

in the absence of adequate resources for programs and institutions that

have a vital role to play in the human rights area and could contribute towards the resolution of the country’s human rights crisis. The High Commissioner expresses her concern at the fact that the authorities have failed

properly to follow up the majority of the international recommendations.

‘‘The Office was able to confirm that the principal problem as regards

human rights is not an absence of laws, programs, mechanisms or institutions, but a failure to use them and thus an absence of tangible decisions,

action and results.’’ 16

In addition to the extra-judicial violence perpetrated with impunity in Colombia,

the latest Annual Survey of Violations of Trade Union Rights issued by the International Confederation of Free Trade Unions reports that authorities in the Andean

countries utilize various tools to repress strikes. For example, in Colombia 149 people were injured and 418 arrested when security forces clashed with workers in

1999.

171

The Inadequacy of the Workers’ Rights Provisions in Existing Trade Law

Under the Generalized System of Preferences (GSP), the U.S. extend trade preferences to a country only if it ‘‘has taken or is taking steps to afford to workers in

that country . . . internationally recognized workers’ rights.’’ The U.S. trade union

movement and other labor rights activists have tried on numerous occasions to utilize the workers’ rights provision in response to gross and persistent violations of

those rights in Western Hemisphere countries that benefit from U.S. trade preferences. The labor movement has found the enforcement mechanism flawed. One

major problem is the snail’s pace of investigations; another is the fact that the U.S.

Government has too much discretion over whether or not to take action.

Take the example of Guatemala. Labor rights advocates in the United States first

petitioned the U.S. Government to investigate gross violations of internationally recognized workers’ rights in Guatemala in 1986. Petitions also were filed in 1987,

1989, and 1990, 1991 and 1992. The U.S. Government refused to act on the petitions

until 1992. The Government engaged in a ‘‘review’’ of the state of workers’ rights

in Guatemala through 1993. In 1994 the GSP statue lapsed and the review process

ended. The AFL–CIO submitted new allegations of violations of workers’ rights in

1995—again, the U.S. Government chose not to suspend benefits, but to ‘‘review’’ Guatemalan law and practice. The U.S. terminated this review in 1997, having concluded that the government of Guatemala was, indeed, ‘‘taking steps’’ to afford Guatemalan workers their internationally recognized rights. The AFL–CIO filed a new

petition in 1998. The U.S. Government rejected the new petition, then reversed

itself and self-initiated an investigation in the wake of brutal physical attacks on

Guatemalan banana workers’ union leaders. Since the decision to investigate was

made, the U.S. Government has made a good faith effort to promote respect for

workers’ rights in Guatemala. But while the U.S. Government investigated, the

Guatemalan courts rendered judgments against the banana union leaders’ assailants that amounted to a slap on the wrist and made a mockery of justice. The union

leaders were forced to flee for their lives, and came to the United States in March

of 2001.

The leaders of the Guatamalan banana workers’ union join many other labor leaders and workers’ rights advocates from throughout the Hemisphere likewise forced

into exile. The absence of those activists and leaders represents a real setback for

development in the Americas.

The workers’ rights clause in the ATPA and the related enforcement mechanism

established by the U.S. Trade Representative are simply inadequate to deal with the

level and intensity of exploitation that takes place on a routine basis in many of

the Andean countries. Both the law and the enforcement mechanisms are especially

inadequate for dealing with countries here paramilitary forces, government authorities, and employers mount assaults on trade union rights on a daily basis.

The FTAA will not even include the weak labor provisions in the ATPA, the GSP

or the CBI NAFTA Parity program adopted in 2000. It does not include the weak

and mostly unenforceable labor side agreements that are in NAFTA. The ongoing

negotiations for the FTAA have studiously avoided serious consideration of labor

rights and the critical connection between labor rights and economic development.

The nine negotiating groups for the FTAA do not include a group on labor issues,

nor are labor issues being negotiated by any of the groups. The United States has

not insisted that labor rights be included in the FTAA, nor has any other country.

Conclusion

Half a million U.S. apparel and textile workers have lost their jobs over the past

ten years as U.S. apparel retailers and brand marketers have shifted production

and sourcing to Mexico, the Caribbean Basin and, to a lesser degree, the Andean

countries. These production and sourcing shifts have failed to contribute in any

measurable way to development in those countries and have driven down standards

for apparel workers in the United States, many of them immigrants from Latin

America. members of UNITE, therefore, find it hard to understand why U.S. policy

makers expect that expanding the NAFTA model of trade to the rest of the Hemisphere will improve working conditions, lift standards of living, and enhance people’s freedom in the region.

Negotiations for expanded trade in the Western Hemisphere must include as a

core commitment a concerted effort to strengthen institutions—both within individual nations and a the international level—that will (1) ensure substantial compliance with existing laws that promote and protect workers’ rights and (2) promote

movement by governments and employers in the region toward full respect of internationally recognized workers’ rights.

Without such action, the FTAA and a renewed and expanded ATPA will simply

accelerate the race to the bottom for millions of workers. That is not acceptable.

f172

Statement of West Indies Rum and Spirits Producers Association

The West Indies Rum and Spirits Producers Association (‘‘WIRSPA’’), representing

the major producers of rum and spirits in the Caribbean region, appreciates this opportunity to express its views on both (i) the proposed extension of the Andean

Trade Preferences Act (‘‘ATPA’’) and (ii) the proposed Free Trade Area of the Americas (‘‘FTAA’’). In both of these initiatives, special attention must be given to rum

in order to avoid causing irreparable damage to the struggling economies of the Caribbean Basin.

Rum’s Special Role in the Caribbean

Rum is a product of special significance to the Caribbean Basin, where it has been

produced for centuries, contributing to local economies and enhancing the culture

and folklore of the Caribbean region. U.S. trade policy has long reflected an appreciation for rum’s unique role in Caribbean history—for example, establishing a tax

‘‘cover-over’’ mechanism to support rum production in the U.S. Caribbean territories

(1983), by rejecting petitions for duty-free entry of non-Caribbean rum under the

Generalized System of Preferences (1987 and 1990), and by excluding rum from the

ATPA (1991).

Andean Trade Preferences Act

The ATPA provides special duty-free benefits to Bolivia, Colombia, Ecuador, and

Peru. Some have advocated that this expiring program should be not only renewed,

but expanded to include formerly excluded products such as rum. Adding rum to the

ATPA would trigger sharp dislocations in the Caribbean Basin. Legislative history

explains that rum was excluded from the original ATPA ‘‘in order to preserve the

benefits that the Congress has provided to Puerto Rico, the Virgin Islands, and the

Caribbean Basin countries ....Andean rum producers have significant natural resources and cost advantages over their Caribbean and U.S. Territorial counterparts

as well as large excess production capacity.’’ H.R. Rep. No.102–337 at 15 (1991).

That description is as accurate as ever.

The only meaningful change in circumstances since those words were written in

1991 occurred as a result of the 1997 U.S.-EU tariff agreement on distilled spirits.

As of 2003, most rums (and all branded rums) will be able to enter the United

States duty free from anywhere in the world. Thus, much of what the Andean countries would get from bringing rum into the ATPA has already been accomplished

by other means. However, the EU and U.S. negotiators in 1997 were careful to preserve their tariffs (and thus the Caribbean suppliers’ duty preference) on low valued

rums, upon which Caribbean suppliers depend to remain in business. This carefully

negotiated solution appropriately balanced the interests of global spirits companies

with the unique needs of the fragile Caribbean economics. Expanding the coverage

of ATPA duty-free benefits to include rum would threaten that balance.

Exports from the ATPA countries, particularly Colombia, could quickly overwhelm

and displace Caribbean suppliers. Approximately 2.3 million cases of rum per year

are produced in Colombia, by government entities under a legal monopoly. Colombia

also has substantial rum exports, and even with the remaining tariff on low-valued

rums, U.S. imports from Colombia doubled in 2000 as Colombia took advantage of

duty reductions already implemented since 1997. This increase includes Colombia’s

emergence, for the first time in 2000, as an exporter to the United States of bulk

rum—an ominous indicator of what Colombia could accomplish if the remaining import duty on low-valued bulk rum were lifted. Colombia’s competitive advantages include: (1) substantial surplus sugar production, so that molasses is readily available

to rum producers at very low cost; and (2) large petroleum deposits that enable rum

producers to secure inexpensive fuel oil, whereas Caribbean producers in the USVI,

Puerto Rico, and most CBI countries must depend on more expensive imported fuel

oil. Moreover, lower costs of labor and environmental compliance strongly suggest

that overhead expenses—the only other significant cost category—are also lower in

Colombia and the other Andean countries than in the Caribbean Basin countries.

Therefore, displacement of Caribbean rum would be substantial, and the consequences, in a region whose fragile economies can ill-afford them, would include

lost sales, closed distilleries, and lost jobs.

Free Trade Area of the Americas

For the same reasons that duty free access for low-valued rums should not be

granted to the four Andean countries under the ATPA, it would be devastating to

the Caribbean rum suppliers to grant duty free access to the entire hemisphere

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under the FTAA. Duty free access for countries like Brazil and Venezuela would

quickly wipe out the hard-earned position of Caribbean suppliers of rum in the U.S.

market. The resulting damage to Caribbean economies, including those of the U.S.

territories, would be unbearable. The tariff on low-valued rums was left in place for

a reason, and that reason is every bit as valid today as it was in 1997.

We note that our positions on these issues are precisely aligned with the positions

that the U.S. territories in the Caribbean are advocating through their representatives in Washington.

* * * * *

The Committee on Ways & Means has long been a staunch defender of the Caribbean region. We urge you to maintain that role as you design these upcoming trade

initiatives.

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