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UNITED STATES -PERU TRADE

PROMOTION AGREEMENT

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 29, 2006

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)

(III)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

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

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 2

WITNESSES

Eissenstat, Everett, Assistant U.S. Trade Representative for the Americas,

Office of the U.S. Trade Representative, Executive Office of the President,

Washington, DC ................................................................................................... 5

Stoner, Jon, president, Montana Grain Growers Association, Havre, MT ......... 21

Philippi, Joy, president, National Pork Producers Council, Bruning, NE .......... 23

Trammell, Leon, founder and chairman, Tramco, Inc., Wichita, KS .................. 24

Trumka, Richard L., secretary-treasurer, AFL–CIO, Washington, DC .............. 26

O’Neill, Brian, vice managing director and vice chairman, Latin America,

investment banking, J.P. Morgan, New York, NY ............................................ 28

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bunning, Hon. Jim

Prepared statement .......................................................................................... 35

Baucus, Hon. Max:

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

Eissenstat, Everett:

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

Prepared statement .......................................................................................... 36

Grassley, Hon. Charles E.:

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

O’Neill, Brian:

Testimony .......................................................................................................... 28

Prepared statement .......................................................................................... 45

Philippi, Joy:

Testimony .......................................................................................................... 23

Prepared statement .......................................................................................... 47

Stoner, Jon:

Testimony .......................................................................................................... 21

Prepared statement .......................................................................................... 57

Trammel, Leon:

Testimony .......................................................................................................... 24

Prepared statement .......................................................................................... 59

Trumka, Richard L.:

Testimony .......................................................................................................... 26

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

COMMUNICATIONS

Amorrortu, Bacilio A. .............................................................................................. 77

Council of the Americas .......................................................................................... 79

EXPORAMERICA .................................................................................................... 82

Humane Society International ................................................................................ 92

Peruvian Asparagus Importers Association .......................................................... 98

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UNITED STATES-PERU TRADE

PROMOTION AGREEMENT

THURSDAY, JUNE 29, 2006

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

The hearing was convened, pursuant to notice, at 10:02 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Present: Senators Thomas, Bunning, Crapo, Baucus, and Bingaman.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. I thank everybody for coming to this hearing.

This hearing may not take a long time, but just in case it does

take beyond 11, I have asked Senator Thomas if he would fill in

as Chair, because I could get a commitment out of him to be here.

I have to go to the House of Representatives to testify on another

matter. So, I thank him very much for cooperating in that effort.

Welcome, everybody, to today’s hearing on the U.S.-Peru Trade

Promotion Agreement. I thank witnesses who are appearing at today’s hearing. Some of the witnesses have come a long way, and

that is always a burden, but we thank them for doing that.

The U.S.-Peru TPA is an exceptionally strong trade agreement

that deserves the support of this committee and the Congress. This

agreement provides significant benefit for U.S. farmers, manufacturers, and service providers.

The agreement will level the playing field for U.S. exporters. It

will remove Peru’s high tariffs on products imported from our country. While most of Peru’s tariffs average between 12 and 25 percent, almost all U.S. tariffs on Peruvian products are already at

zero. Some 97 percent of imports from Peru enter the United States

already duty-free.

Now, this is a very unbalanced trading relationship, largely a result of unilateral trade benefits provided by Congress to Peru

through the Andean Trade Preference Act of 1991, and that was renewed and expanded 4 years ago.

The U.S.-Peru agreement will bring balance to the U.S.-Peru

trading relationship, obviously leveling the playing field for the

United States. It will bring Peru’s tariffs down to a level of almost

all U.S. tariffs on Peruvian products. That, again, would be zero.

This agreement will, indeed, boost U.S. exports. Our own government’s International Trade Commission has found that, under this

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agreement, U.S. exports to Peru should increase by 25 percent; in

comparison, Peruvian exports to the United States will grow by 8

percent. The International Trade Commission has also determined

that U.S. Gross Domestic Product could grow by an additional $2.1

billion as a result.

The agreement will be particularly good for agriculture in the

United States. The average Peruvian duty on U.S. agricultural food

imports of 18 percent will disappear when this becomes law.

Here, again, the International Trade Commission predicts good

news, that the agreement will have ‘‘substantial positive effect’’ on

U.S. exports to Peru of major U.S. commodities of pork, beef, corn,

wheat, and rice.

Some examples. U.S. rice exports will grow 10- to 15-fold as a result of the agreement; U.S. exports of corn to Peru will likely double. The Pork Producers Council predicts the agreement will increase hog prices by 83 cents per head. According to the American

Farm Bureau Federation, the total increase in U.S. farm exports

from the agreement could exceed $700 million annually.

The agreement will boost exports of U.S. manufacturers as well.

The International Trade Commission estimates U.S. exporters of

machinery, chemicals, rubber, and plastic products will be among

the biggest beneficiaries.

The agreement will benefit U.S. service providers, as Peru is

committing under this agreement to go even beyond the World

Trade Organization obligations. This agreement is also significant

in that it will lock in recent economic reform in Peru.

In doing so, it will help to bring economic and political stability

to Peru, a situation that ought to benefit not only the United

States, but the Western Hemisphere.

Latin America, as we all know, is currently at the crossroads.

Some countries in the region, particularly Venezuela, Bolivia, and

Ecuador, are seeking to further centralize their economies, and at

the same time to distance themselves from the United States.

But other countries in Latin America, Peru among them, are

doing just the opposite. They are committed to market liberalization and to strengthening economic ties with our country.

The Peruvian Congress, by passing implementing legislation for

this agreement this very week—in fact, I believe yesterday, by a

vote of 79 to 14—clearly demonstrated its commitment to building

economic relations with our country.

By implementing this agreement, the U.S. Congress will show

that it is committed to helping build economic and political stability in Peru, and by extension, in the rest of Latin America. At

the same time, by approving this agreement the U.S. Congress will

provide substantial economic benefits to U.S. farmers, manufacturers, and service providers.

So, now I ask Senator Baucus to give his statement, and then we

will go to the witnesses.

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

I also, as you stated, appreciate witnesses coming, some of them

from very great distances. A fellow Montanan, Jon Stoner, head of

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the Montana Grain Growers Association, has flown here. It is not

easy to come from Montana to Washington, DC, and I very much

appreciate Jon’s attendance here.

I also want to welcome Mr. Eissenstat. We are used to seeing Mr.

Eissenstat here, advising us in our Tuesday meetings.

The CHAIRMAN. Not long ago.

Senator BAUCUS. Not long ago. And we deeply appreciate having

you with us, Mr. Eissenstat, in your new role. We appreciate your

contribution to public service.

Today the Finance Committee convenes to examine the U.S.-Peru

Trade Promotion Agreement. On agriculture in particular, the

agreement appears to be a big win for Montana, and U.S. farmers

and ranchers. I appreciate USTR’s hard work.

Approximately two-thirds of current U.S. agricultural exports, including wheat and high-quality beef, will receive immediate dutyfree access to Peru’s market.

Under the agreement, Peru will reduce its tariffs on wheat from

17 percent to 0. Peru will eliminate its non-science based restrictions on all types of U.S. beef—boneless, bone-in, and offals. Under

the agreement, Peru will address sugar in an appropriately sensitive manner.

The agreement also has other potentially good provisions. U.S.

exports of industrial goods, such as medical and scientific equipment, will get immediate duty-free access. U.S. providers of distribution, securities, express delivery, and computer services will

have better than WTO access to Peru’s market.

U.S. innovators will benefit from better protection and enforcement of intellectual property rights, and concerns regarding compliance with Peru’s environmental laws will be heard by an independent international secretariat.

I commend USTR for working so hard with me on this issue, and

I commend Peru for going the extra mile to reach many good provisions in this agreement. In other words, the agreement holds promise. But we are not yet ready to realize this promise. Concerns,

both substantive and political, stand in the way.

First, Peru promised to open its market to U.S. beef, not just

boneless beef from cattle under 30 months, but all beef. Peru, however, seems to be backtracking. For instance, Peru continues to ban

bone-in beef. Neither I, nor Montana’s ranchers, will be satisfied

with half measures. We expect Peru to live up to its commitments

on beef now.

Second, some major U.S. investors in Peru are subject to what

appear to be specious attempts to criminalize commercial disputes.

It will be very hard to build political support for this agreement if

it looks like current U.S. investors are not receiving fair treatment.

Third, serious labor issues have been raised, and they must be

addressed. I strongly encourage the administration to work closely

with the Peruvian government and Congress to resolve these questions now, because until then I cannot imagine how congressional

consideration of this agreement can proceed smoothly.

Fourth, this agreement comes to Congress in a very difficult time

on international trade. Trust in the administration’s trade agenda

is bottoming out. As yesterday’s mark-up on the Oman agreement

4

underscored, the frustration that has been building over the past

few years is boiling over.

Some staunchly pro-trade members of this committee are starting to conclude that the current model of trade promotion authority

does not allow them meaningful input into shaping trade policy.

The administration must begin to appreciate that this committee

does not view consultations, hearings, and mark-ups as mere exercises in checking a box. They are opportunities for members of this

committee to air their legitimate concerns, and they need to be opportunities to have those concerns addressed—not just listened to,

but addressed.

I look forward to continuing the debate on these matters as the

expiration of trade promotion authority approaches mid-next year.

Also, I am watching how the administration proceeds on agreements between now and then which may well determine whether

it gets renewed at all, that is, TPA.

For the good of the people of Montana, for the good of the people

in America, we need to try to make this process work. It is very

important.

I look forward to working with—we all say this phrase near the

end of all statements—the administration, with you, Mr. Chairman, and with everyone. It is kind of trite, but it is true, that only

by working together are we going to, in a meaningful way, get

these issues resolved. I thank you, Mr. Chairman and Mr.

Eissenstat, for all that you are doing.

The CHAIRMAN. Yes. Before we go to our first witness here, because he is with the U.S. Trade Representative’s Office, and since

we had a discussion about this very issue that you ended on, I

might ask you to take a message back to Ambassador Schwab, and

it would be along this line.

Maybe I as Chairman, or maybe all of us as members of this

committee, have been somewhat derelict in not asking for more

briefings prior to these agreements being signed so that we would

have this dialogue, so that maybe these post-signing agreements,

when they come up here for the mark-up and we offer amendments, and they are not given the consideration that maybe some

members think they should have been given, and mostly because

they have not been accepted by the administration, I made the

point yesterday that, really, before the signing, the consultation is

really valuable and that we ought to have more such consultation.

Now, I said to some extent we in this committee have to assume

some responsibility for that, because I think you folks in that agency would come up here whenever we ask you to.

But I might ask you to consider this, and that is that maybe you

think from your end, some initiatives from your end as well as initiatives from this end, of how we could have dialogue prior to

signings, prior to mock mark-up, because at that point the law does

not allow the changing of the agreement, in the sense that you

have to do what this committee says.

I assume that you are going to want to do what this committee

says before you sign something, because otherwise then the process

really does not amount to anything. It ought to, and it has in the

past, and it can in the future. So that is something maybe you can

5

consider within your agency. I hope that is in the spirit that you

meant it.

Additionally, I would like to do what I can to make the pre-mockup type consultations we have, and we have them periodically, but

maybe not often enough.

Now, as Senator Baucus has said, we have Mr. Eissenstat before

us. We all know him well. You folks in the audience, I suppose

some of you know him well, but he was a very outstanding staff

person for the Committee on Finance, specializing in trade.

Before that, he worked in the House of Representatives for a long

period of time on issues of trade. So he goes to his present position

as Assistant U.S. Trade Representative for the Americas well prepared to do work for the executive branch of the government. So,

we welcome you and would entertain your testimony at this time.

STATEMENT OF EVERETT EISSENSTAT, ASSISTANT U.S. TRADE

REPRESENTATIVE FOR THE AMERICAS, OFFICE OF THE U.S.

TRADE REPRESENTATIVE, EXECUTIVE OFFICE OF THE

PRESIDENT, WASHINGTON, DC

Mr. EISSENSTAT. Thank you, Senator Grassley, Ranking Member

Baucus, and members of the committee. Let me, first, say that it

is indeed a real honor for me to be here before you today, and I

very much appreciate the opportunity to discuss the economic and

political benefits of the free trade agreement with Peru.

The U.S.-Peru Trade Promotion Agreement marks the beginning

of a new chapter in our commercial partnership with Peru. The

agreement sets out fair and reciprocal rules which will promote

economic growth and prosperity in both countries. It eliminates unfair barriers to U.S. exporters, opening a market of 28 million consumers to U.S. manufacturers, farmers, ranchers, and service providers.

In exchange, the agreement makes permanent the trade benefits

Congress first authorized for Peru in 1991 under the Andean Trade

Preference Act. By helping to create favorable conditions and incentives, the agreement will aid in creating real growth, characterized

by more jobs and investment in Peru.

Most importantly, this agreement will support and enhance the

democratic and economic reforms undertaken by Peru’s leaders in

recent years.

Please allow me to put this agreement in context. In 1991, the

U.S. Congress, with strong bipartisan support, voted to authorize

duty-free benefits to Peru through the Andean Trade Preference

Act, or ATPA.

ATPA was designed to help expand economic opportunities and

encourage our Andean neighbors to move away from the production, processing, and shipment of illegal drugs and toward legitimate products. Peru has benefitted significantly from the program,

steadily increasing its exports to the United States since 1993.

In 2002, two events occurred which helped lay the economic and

political foundation for the agreement. First, Congress enacted the

Andean Trade Promotion and Drug Eradication Act, which renewed

trade preferences under the ATPA.

Second, Peru’s President, Alejandro Toledo, instituted a series of

political and economic reforms which have helped lift many PeruVerDate 11-MAY-2000 15:20 Dec 12, 2007 Jkt 095484 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 38595.000 SFIN1 PsN: SFIN1
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vians out of poverty, and have solidified Peru’s democratic institutions.

The entire region took note when the people of Peru recently reaffirmed their support for these positive reforms by electing a

president who is committed to continuing the pursuit of democracy

and free market principles.

The results have been impressive. Since 2003, Peru’s GDP has

grown at an annual rate of 5 percent, and this economic expansion

has reached all levels of society. Yesterday, the Peruvian Congress

approved the U.S.-Peru Trade Promotion Agreement by a wide

margin of support, by a vote of 79 to 14.

Meanwhile, our trade preference program with Peru will expire

at the end of this year. To ensure that these positive trends I have

outlined continue, the time for us to act on this important agreement is now.

The political and economic benefits of this agreement are significant. For the United States, the agreement makes trade between

us a two-way street. Today, 98 percent of our imports from Peru

enter the United States duty-free under unilateral preference programs. Meanwhile, less than 2 percent of our U.S. agricultural exports and 4 percent of U.S. industrial exports can enter Peru dutyfree.

The agreement makes our trade relationship more reciprocal and

more equitable. On day one of the agreement, 80 percent of our industrial products will be able to enter Peru duty-free. Duties on the

remaining industrial products will be phased out over 10 years.

This will mean significant new opportunities for American manufacturers of technology products, mining, agriculture and construction equipment, medical and scientific equipment, auto parts, paper

products, and chemicals. Peru also agreed to join the Information

Technology Agreement, which is considered the gold standard of

liberalization in high-tech products.

In agriculture, we see a similar story. While Peruvian agricultural exports face few, if any, duties when they enter the United

States, U.S. agricultural exports face Peruvian tariffs as high as 25

percent on most products.

Under Peru’s current WTO commitments, these tariffs can legally be set as high as 30 to 68 percent. Additionally, Peru applies

variable tariffs based on price bands on more than 40 products, including corn, rice, dairy, and sugar.

The agreement eliminates the disparity that currently exists between the United States and Peru. It lowers tariffs, turning our

one-way preference program into a trade partnership and ensures

that our exporters will not face higher tariffs in the future.

On day one of the agreement, almost 90 percent of our current

agricultural trade with Peru will enter the Peruvian market dutyfree. In addition, Peru will immediately eliminate its price band

system on trade with the United States. Tariffs on other agricultural products will be eliminated gradually, most within 5 to 15

years; within 17 years, all of our agricultural exports will be dutyfree.

In addition, the agreement will enable U.S. exporters to compete

more favorably with those exports from other countries which already enjoy preferential access to the Peruvian market.

7

Over the past several years, Peru has entered into preferential

trade agreements with many of our strongest competitors in the region, including Brazil, Argentina, and Chile.

The agreement affords U.S. exporters preferential treatment that

will position them favorably vis-a`-vis these competitor countries. It

also gives U.S. exporters a competitive edge over countries such as

China, which are gaining market presence in Peru.

Here are a few examples of how the agreement will help boost

our agricultural exports to Peru. U.S. beef and beef products currently face applied tariffs, ranging from 0 to 20 percent in Peru.

Under the agreement, tariffs on the most important products for

the U.S. beef industry, high-quality beef, will drop to zero immediately upon entering into force. This will enable our beef industry

to compete on equal or better terms with beef products from Argentina and Brazil.

Tariffs on most pork products, currently set as high as 25 percent, will be eliminated immediately or within 5 years. This will

position the U.S. pork industry on an equal or more favorable basis

with pork products from Chile.

The U.S. poultry industry is another clear winner. The agreement provides an immediate 1,200-ton tariff rate quota at zero

duty for chicken leg quarters, and the quota will grow at an annual

compound rate of 8 percent.

Other U.S. agricultural exports, such as wheat, cotton, fruits,

tree nuts, vegetables, and vegetable products are all expected to increase significantly, as the agreement will immediately eliminate

Peru’s tariffs on these products, which range from 12 to 25 percent.

In sum, this agreement will substantially benefit U.S. agriculture.

The agreement benefits U.S. exports by going beyond tariff reductions. It eliminates non-tariff barriers that currently limit U.S.

products and services from competing in Peru’s market.

Under the agreement, Peru will become the first Andean country

to lift its import restrictions on remanufactured goods. The agreement also establishes state-of-the-art customs procedures to expedite the movement of goods between our markets.

It also provides new opportunities for U.S. companies in Peru

across a wide range of services sectors, such as telecommunications, banking, insurance, audiovisual services, and express delivery, just to name a few.

The agreement provides comprehensive and strong protection for

U.S. intellectual property interests, including copyright protection

for the digital age, as well as patents, trademarks, and proprietary

data protections.

Strong anti-corruption procedures are included, as well as provisions on transparency. Finally, the agreement establishes a secure,

predictable legal framework for U.S. investors in Peru.

I want to briefly address two issues that I know are of particular

concern to many members of the Congress: labor and the environment. Peru has undertaken significant labor reforms in the past

several years and is committed to undertaking additional reforms

in an effort to address the concerns the U.S. has raised.

Peru has ratified all eight conventions of the International Labor

Organization, and Peru’s constitution guarantees freedom of association, collective bargaining, and the right to strike. In 2003, Peru

8

enacted a major labor reform law, strengthening labor rights and

responding to the ILO’s observations on Peru’s labor laws.

The agreement includes a variety of tools that will help to ensure

that workers in Peru benefit from these reforms. First, the agreement will require Peru to effectively enforce its labor laws. Should

Peru fail to do so, the United States can invoke the agreement’s

consultation proceedings and dispute settlement, if needed.

The agreement also calls for Peru to provide fair, equitable, and

transparent domestic legal procedures through which persons can

seek enforcement of Peru’s laws, creates a labor cooperation and

capacity building mechanism, and establishes a Labor Affairs

Council to oversee implementation of, and review progress under,

the Labor Chapter.

The environment chapter also includes specific obligations in the

core text of the agreement. Specifically, each party must effectively

enforce its domestic environmental laws, and this obligation is subject to dispute settlement.

The agreement calls on parties to establish an independent secretariat to review and consider public submissions on environmental

enforcement matters in Peru. An Environmental Affairs Council,

comprised of senior-level officials with environmental responsibilities, will review how the agreement’s provisions are implemented.

Finally, in parallel with the agreement, the United States and

Peru concluded an environmental cooperation agreement that will

promote joint cooperative efforts to protect the environment.

Mr. Chairman and members of this committee, the agreement

with Peru enables us to turn our unilateral preference program

into a trade partnership, level the playing field for U.S. exporters

with respect to our competitors in Peru’s market, help lock in domestic political and economic reforms in Peru, and enhance protection for workers and the environment in that country.

Let me conclude where we began. Peru is a country heading in

the right direction. Peru’s leaders and its people are making the

right choices. Just a few weeks ago, the people of Peru elected a

new president, with a strong mandate to promote free market principles and continue efforts towards a stronger democracy.

Today it is our turn to choose. We need to seize this opportunity

to advance our partnership with Peru and help promote economic

growth, prosperity, and political stability in Peru, and throughout

the Andean region.

I hope that, after examining this agreement, the members of the

committee and the U.S. Congress will conclude that it is strongly

in our National interests.

I look forward to working with you, Mr. Chairman, Ranking

Member Baucus, and all the members of this committee to achieve

strong bipartisan support for this agreement. Again, thank you for

the opportunity to testify.

The CHAIRMAN. Thank you very much.

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

The CHAIRMAN. We will have 5-minute rounds for questioning, if

you have any questions for the administration.

I want to ask, Peru is moving very swiftly to implement the free

trade agreement with the United States. Two of its neighbors, EcVerDate 11-MAY-2000 15:20 Dec 12, 2007 Jkt 095484 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 38595.000 SFIN1 PsN: SFIN1
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uador and Bolivia, I believe I can say, have walked away from the

free trade negotiations with the United States.

Why is the country of Peru, in your judgment, taking such a different economic path than two of its neighbors? And before you answer, let me make this point. I will bet, before the end of the year,

Ecuador and Bolivia are going to be up here whining to us, why

we do not reinstitute the Andean Trade Preference Act. There is

an opportunity to work these things out in a free trade environment as Peru is, and they are not taking advantage of it. I am not

very comfortable extending preferences to countries when they

have an opportunity to work out these agreements.

So, I think these two countries had better look at this process

working its way out if they want to do it, because I am not going

to be very open to reauthorizing the Andean Trade Preference Act

when they have this sort of environment of ignoring a real opportunity to make real breakthroughs, not only for their countries, but

for our country as well.

Go ahead.

Mr. EISSENSTAT. Thank you, Senator Grassley. I think that is a

very good point, and it is one that we are trying to emphasize as

we move forward with the Peru agreement.

Countries in the region are making choices. They are trying to

decide which economic models they would like to pursue and how

they would like to embrace democratic institutions.

As I indicated in my opening testimony, the people of Peru have

chosen a path towards open markets and democracy. I think it is

important for us to embrace those countries in the region that are

pursuing these reforms.

Other countries in the region are looking at alternative models.

We continue to discuss the benefits of pro-market economics for

these economies. I think their experience under the ATPA demonstrates what trade can mean for an economy and how it can help

lift people out of poverty and expand economic opportunities.

But we cannot dictate what those countries do, and they do need

to make choices. The Peruvian people have made a very solid

choice in favor of open markets. We would like to help them solidify this choice. We would like to work with them to expand our

trade partnership.

Significantly, in doing so the agreement will help us benefit our

own exporters. So, it truly is a win-win opportunity that I hope we

will be able to embrace as we move forward with this agreement.

The CHAIRMAN. I understand that Peru will remove its agricultural price bands if the agreement is implemented. How will their

removal impact U.S. agricultural exports?

Mr. EISSENSTAT. Well, as you know, Senator, the price bands are

a variable tariff that is applied on imports into Peru depending

upon external market conditions. Because the price bands are variable, it is very difficult for our industry to be able to predict at any

particular point what their import tariff will be in Peru, so it creates a lot of uncertainty in the market.

One of the outstanding features of this agreement is that it will

eliminate the price bands on our exports. What this will mean is,

not only will we get transparent systems so we know what the tarVerDate 11-MAY-2000 15:20 Dec 12, 2007 Jkt 095484 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 38595.000 SFIN1 PsN: SFIN1
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iff will be on any given day, but we will also get a hard zero on

a lot of our exports to Peru.

This means that the market of 28 million people will be open to

our exporters, should they desire to export to that country, under

a preferential duty rate, which should substantially benefit industries such as beef, pork, wheat, corn—many of them have already

been noted today—as well as a lot of our manufacturers and service providers. So, it is a very substantive point, and it is one that

is going to make a big difference for a lot of exporters.

The CHAIRMAN. On another point, we have heard an awful lot

that the Peruvian people do not support the free trade agreement

that we have before us. I have had an opportunity to talk with

President Toledo on the phone last week and again maybe 6

months ago over dinner, and more recently to talk with Prime Minister Kuzinsky, who obviously strongly back this agreement.

These folks, I believe, 6 years ago, maybe 4 years ago, whenever

it was, were democratically elected. We have the Congress passing

the free trade agreement just this week, and its members are

democratically elected. Why do some people say that the Peruvian

people might not back this agreement?

Mr. EISSENSTAT. Well, that is an excellent question. I think it

points to a couple of different factors. One is, during the campaign,

President Toledo, actually, under their campaign laws, could not

have advocated in favor of this agreement.

So while some of the candidates were out there arguing that the

trade agreement would be bad for Peru, the administration was

somewhat constrained in what they could say about the agreement.

But I think, regardless of that, there has been a demonstration

by the people of Peru that they do support the model demonstrated

by the Peru Trade Promotion Agreement. The first indication is the

election of their new president, Alan Garcia, who has committed to

the process of democracy and open markets versus an alternative

model being propounded by others.

In addition, recent polls show that 68 percent of the people in

Peru support the agreement. The vote in the Congress is very indicative, 79 to 14, overwhelming support in the Peruvian Congress

for the agreement.

So I think, despite how this may be portrayed by some, I think

the support in Peru is quite strong for this agreement, and I know

they are looking forward to us being able to implement it soon so

they can take advantage of the benefits of the agreement for themselves as well.

The CHAIRMAN. Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Eissenstat, you are clearly aware of the little kerfuffle at this

committee yesterday on Oman. What can you tell us about that?

Will the administration respect the amendments that this committee passes?

Mr. EISSENSTAT. Well, Senator, I cannot speak to the specific

amendment. I heard your point very, very clearly this morning, and

Senator Grassley’s position. I really believe that the consultations

are key to trade promotion authority.

I know that Ambassador Schwab and myself want to consult

with you and the members of this committee. As Senator Grassley

11

indicated during one portion of his opening statement, the best

time period for us to consult is now as we move through this agreement.

We have had a number of consultations with committee staff,

some more formal than others. We have had some meetings and

teleconferences as we have proceeded through negotiating the

agreement.

I would be delighted to meet with you or a member of your staff

at any time to go through this process and to address your concerns and try to build the kind of bipartisan support I think every

member of the committee and the administration wants to have.

Senator BAUCUS. I appreciate that, and that is a good suggestion.

But sometimes a member of this committee might offer an amendment and it might be approved unanimously, which happened. I

am asking, will the administration, in the future, continue to stiffarm this committee?

Mr. EISSENSTAT. Well, I cannot predict the outcome on a particular amendment; we do not know what it will be, we do not

know what the situation will be. But I can pledge to you that we

will work to address your concerns, and, should an amendment

arise, we will work with this committee to try to address those concerns.

There are some constraints under trade promotion authority on

what can be put into an implementing bill. There are also some

other entities, such as the House——

Senator BAUCUS. But the amendment on Oman, that was permissible, was it not?

Mr. EISSENSTAT. As you know, Senator, I work primarily on

Latin American issues. I have followed the Oman process and I

was aware of the amendment. I have not actually seen the amendment, as I was working on——

Senator BAUCUS. But you are not telling this committee that it

was inappropriate?

Mr. EISSENSTAT. Well, I have seen recent correspondence——

Senator BAUCUS. Are you?

Mr. EISSENSTAT. No, no. I do not think it was inappropriate. I

think it is quite appropriate for the committee to offer any amendment.

Senator BAUCUS. But, I mean, that would be appropriate within

the context of the agreement.

Mr. EISSENSTAT. There is, as you know, a requirement for ‘‘necessary and appropriate.’’ I think what falls within that parameter

is fact-dependent. I know there was a letter sent to the committee—I have not read the letter from our general counsel—that

they did not believe that the amendment was necessary or appropriate in this context.

Senator BAUCUS. Which branch of government sets trade policy?

Mr. EISSENSTAT. The Congress, sir.

Senator BAUCUS. I strongly encourage you to remember that in

most everything you do. Just keep that in the back of your mind.

Mr. EISSENSTAT. Yes, sir.

Senator BAUCUS. All right.

Mr. EISSENSTAT. Thank you.

Senator BAUCUS. The next question. I have one more.

12

The CHAIRMAN. Just to emphasize what he said, and I will give

you additional time.

Senator BAUCUS. Sure.

The CHAIRMAN. Obviously, we still have to have a mock-up on

this Peru agreement

Senator BAUCUS. Right.

The CHAIRMAN. But when you talk about more consultation, we

have South Korea, we have Egypt, we have six or seven countries

we have bilateral agreements going on with. I think it is fruitful

to think of this conversation in regard to not making these mistakes again, not just on the amending process, but what can we do

before we consider a mock mark-up to make sure that amendments

are not necessary.

Senator BAUCUS. Thank you, Mr. Chairman. Thank you very

much. I think we are making progress. But as we all know, the

proof is in the pudding, and we are hopeful.

Mr. Eissenstat, I would like to talk to you a little bit about the

beef provisions in this agreement. According to an exchange of letters between Peru and the United States on the FTA, Peru agreed

to allow imports of all beef products in line with international

standards, as of May 31 of this year.

I understand, however, Peru is attempting to back out of its commitments regarding U.S. beef, which I find particularly disturbing,

because all of our FTA partners, I think, should abide by international standards and accept U.S. beef.

Can you tell me exactly, what U.S. imported beef products are

now being accepted in Peru today and which are not, and why?

Mr. EISSENSTAT. Well, Senator, I appreciate you bringing up this

issue. This is something we have been in deep discussions with

Peru about and we want to ensure, and will work to ensure, that

they do meet their commitments under the letter.

As of today, it is my understanding they are importing boneless

beef from the United States. It is an improvement over past trade,

but we expect the commitments of the letter to be fulfilled.

Senator BAUCUS. Which means bone-in as well as offals.

Mr. EISSENSTAT. I think the letter discusses an OIE-consistent

standard, and that is something that we expect them to achieve at

the end of the day.

Senator BAUCUS. Do you consider an exchange of letters to be an

integral part of the agreement or outside the agreement?

Mr. EISSENSTAT. Senator, like all the sanitary and phytosanitary

(or SPS) issues, the letters themselves are not part of the agreement, they are done in tandem with the agreement. It is something

that we value very highly, and we expect the SPS to be based on

sound science so we can get the exports into the markets.

Senator BAUCUS. But do you consider those letters to be an integral part of the agreement?

Mr. EISSENSTAT. The letters are part of the broader negotiations,

but they are not actually an integral part of the agreement itself.

Senator BAUCUS. And what is the operative effect of what you

just said?

Mr. EISSENSTAT. The operative effect is that that provision would

not be subject to dispute settlement under the terms of the agreement.

13

Senator BAUCUS. But it is part of the agreement. That is, those

letters are right alongside of the agreement. That is what we would

be voting on.

Mr. EISSENSTAT. I think in this context, when the Congress considers it, I fully expect, as you have raised today, that these letters

and the commitments under them would be part of the consideration.

Senator BAUCUS. That is very important before we vote. It is important that the letters be honored——

Mr. EISSENSTAT. Yes, sir.

Senator BAUCUS [continuing]. And that Peru accept all beef.

Frankly, I think it is also beef—I may be wrong on this next

point—over 20 months of age.

Mr. EISSENSTAT. Right.

Senator BAUCUS. Is that true, over 20 months?

Mr. EISSENSTAT. There is a cut-off of 30 months. I think your understanding is, you are talking about some standards under the

OIE code. I am not an SPS expert, but I think the commitments

are broad that have been made, and we expect them to meet those

commitments.

Senator BAUCUS. I stand corrected. My staff tells me it is over

30. That is the agreement.

Mr. EISSENSTAT. Well, Senator, we will work with you. As I mentioned, we do expect these commitments to be fulfilled, and we will

work with you to make sure that that is done.

Senator BAUCUS. Thank you very much.

Thank you, Mr. Chairman.

The CHAIRMAN. Yes. Now, the next order would be: Thomas,

Bunning, Bingaman, and Crapo.

Senator Thomas?

Senator THOMAS. Thank you, Mr. Chairman.

Mr. Eissenstat, nice to have you here.

Mr. EISSENSTAT. Thank you, Senator.

Senator THOMAS. Thank you very much.

First of all, let me just say that we have heard a lot the last couple of days about input into these agreements, and a lot of complaining. I wanted to tell you that, in the last year or so, I have

had more opportunity to have input through the Ambassador to

Trade than we have ever had before, and we are continuing to have

that chance. I notice there is hardly anybody here today.

I think if you want to have input, you have to come to these

hearings and participate. Also, when people come up here to share

the ideas, that’s when input is needed. You cannot do it after the

trade agreements are already made and then decide you are going

to change everything. So, I hope we can participate a little more

fully.

Senator BAUCUS. I am just curious. Why are you looking at me

when you say that? [Laughter.]

Senator THOMAS. I do not know. It seems like I heard something

about that from your side. [Laughter.]

Senator BAUCUS. Thank you.

Senator THOMAS. Just in general, tell me the size of the U.S. exports to Peru as opposed to our imports, just in dollars.

14

Mr. EISSENSTAT. I do not actually have that memorized. I can tell

you now, the disparity between our imports and exports is fairly

large. I think the total trade now is $7.5 billion. If I were just approximating, if my memory serves me right—and I can check these

numbers for you—we currently have a deficit with Peru in our

trade.

Senator THOMAS. Yes.

Mr. EISSENSTAT. One of the things that the International Trade

Commission study shows is that this agreement, should it be approved by the Congress, will reduce that deficit. It is going to eliminate a lot of tariffs on our products and help us expand opportunities in that market.

So the current balance is growing. It is a good market for a lot

of our exporters. It can be a better market. I think that a lot of

the tariff and non-tariff barriers that will be removed under this

agreement are going to provide significant opportunities for U.S.

exporters that choose to do business there.

Senator THOMAS. Peru is a relatively small country in terms of

world trade. Compared to Japan, for example, do you have any idea

of the size of our exports to these countries? I would just like to

get some feeling about where this fits into the overall look of

things.

Mr. EISSENSTAT. Yes, sir. I have some statistics here. Our total

goods trade with Peru is $5.8 billion. U.S. agricultural exports were

$301 million in 2004. This, compared to a market like Japan, is not

huge for us, but it is an important market.

It is a market where competitors in the region currently have

preferential treatment over us. And while it may not be a market

as large as something like Japan, it is a market that is willing to

embrace openness to us and have a trade partnership, and the

agreement will help us seize that opportunity.

I will provide for you and your staff a specific breakdown of that.

Senator THOMAS. I guess it seems to me, coming up with something here in fairness—and fair trade is what I really wish we

would talk about instead of free trade—might help set the priorities with other countries in South America.

We are going to have to deal with larger markets, such as Brazil,

and so on. I would guess, if we could get some fairness here, that

might set some precedents, would you not think, in that region of

the world.

Mr. EISSENSTAT. That is an excellent point. It is one of the reasons that we engage with these economies and these governments

that seek to expand these opportunities and these precedents in

Peru that will enable and will set standards that we expect, and

I would think the Congress would expect, to be met in other markets, such as Colombia, Brazil, and Argentina if an opportunity

should present itself to negotiate with those countries.

Senator THOMAS. Well, I appreciate that. I think as we do this,

particularly with smaller countries where we have a considerable

amount of leverage, why, we ought to set some precedents that we

would like to see so we have fairness around the world in the kinds

of marketing arrangements that we make. So, I appreciate what

you are doing here, and thank you.

Mr. EISSENSTAT. Thank you, Senator.

15

Senator THOMAS. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Senator Bunning?

Senator BUNNING. Thank you, Mr. Chairman. First of all, I

would like my opening statement to be put into the record.

The CHAIRMAN. Yes. And everybody’s statement will be put in.

Senator BUNNING. Since you did not open up that way, I want

to make sure that we get it in.

[The prepared statement of Senator Bunning appears in the appendix.]

Senator BUNNING. Mr. Eissenstat, there have been allegations

over the years from American companies about arbitrary and inappropriate taxation by Peruvian taxing authorities.

As you know, a House International Relations Subcommittee

held hearings on this issue in 2004. As the subcommittee examines

situations involving Doe Run Corporation, Duke Energy, the

Englehart Corporation, and several other companies, the chairman

expressed his belief that Peru’s tax agents saw American companies ‘‘as money trees.’’

If this trade agreement is approved, it is expected that investment in Peru by American companies will increase. I need assurances that our companies will not be seen as an easy source of

money.

Do we have evidence that the attitude of Peru’s taxing authorities toward American companies has improved?

Mr. EISSENSTAT. Thank you, Senator Bunning. We have had significant investment disputes with Peru over a very, very long period of time, and we have raised those with them in many different

forums. I think that one of the things that the trade agreements

enable us to do is engage on a more in-depth and deeper level in

these discussions. I think, as part of that, we have made——

Senator BUNNING. Well, are they in the agreement? That is my

question.

Mr. EISSENSTAT. Yes. That is a great question, and I was going

to get to that. Let me get to that, first. What the agreement attempts to do on investment is make our investors in Peru get the

same type of protections that a Peruvian investor would get in the

United States, and in that sense get a level playing field so there

will not be arbitrary decisions against our investors in Peru.

It does that through a number of mechanisms, both procedural

and substantive, including transparency provisions, anti-corruption

provisions, the ability to go to investor state arbitration in the

event there is a dispute, so it does provide significant new guarantees that are not present, should this agreement not be followed.

Senator BUNNING. In other words, you are telling me that if this

agreement is approved, American companies will have recourse if

taxation is inappropriately applied by the Peru government? We

will have the same level field that we would have as though they

were in the United States?

Mr. EISSENSTAT. That is the idea, and that is what we are trying

to get, Senator.

Senator BUNNING. No, not the idea. That will not get it. It has

to be in writing, and approved in writing. I do not want any side

agreements. I want it in the agreement.

16

Mr. EISSENSTAT. Yes, Senator. It is in the agreement. There is

a very extensive investment chapter. It does include procedural and

substantive guarantees for investors in Peru across the board, and

this will enable companies that have had disputes, similar to those

in the past, to go to investor state arbitration.

Should they be treated in an unfair manner, in a discriminatory

manner by the government, should they have their property expropriated without compensation, they will have remedies. That is one

of the major benefits of this agreement.

Senator BUNNING. At the same subcommittee hearing, there was

a discussion about transparency and the rule of law in the court

system in Peru. Again, there have been numerous complaints about

the treatment of international investors by the Peruvian court system.

Without due process and fair treatment by the court system, it

is difficult for any businessman to feel comfortable investing in

Peru. Obviously, this affects not only American investors, but all

investors, including the Peruvian investors themselves.

Assistant USTR Vargo, one of your predecessors, told the House

subcommittee back in October of 2004 that the administration and

members of Congress need to have confidence that the rule of law

is respected by our respective FTA partners.

Is that factual in this agreement?

Mr. EISSENSTAT. Yes. The rule of law is very important and

should be respected by our FTA partners. In selecting partners, we

look to those governments that are embracing the transparency/

openness/democratic principles.

Senator BUNNING. As recently as this morning, we talked with

General Electric, and they have a real problem right now with

Peru.

Mr. EISSENSTAT. Yes, sir.

Senator BUNNING. Is this going to be solvable under this agreement?

Mr. EISSENSTAT. The agreement will not address this particular

issue with GE. We have raised this issue with the Peruvian government. In fact, it was raised at a very senior level just 2 days

ago. I understand that it is close to resolution, and we are going

to continue to seek resolution of this in a fair manner.

Senator BUNNING. Then why is it not being included in this

agreement if you expect us to approve it?

Mr. EISSENSTAT. Well, the agreement is a prospective agreement.

It addresses problems that may arise in the future. It cannot necessarily reach back to a dispute that has happened in the past.

Senator BUNNING. In other words, if some company is getting the

royal you-know-what right now in Peru, this current agreement

will not help them.

Mr. EISSENSTAT. Well, it certainly will not help investors if we

do not get the agreement going forward. In the GE case——

Senator BUNNING. You did not answer my question.

Mr. EISSENSTAT. In the case of GE, it is a criminal proceeding.

We understand that the charges have been dismissed, but it has

gone back to the lower courts. The judge that was on the case has

been taken off, and we expect that, at the end of the day, the criminal charges will be dismissed under the agreement.

17

Senator BUNNING. Mr. Chairman, my time has expired, but I

would like another round, if we are going to have another one.

Thank you.

The CHAIRMAN. The issue you just ended with, I did have a conversation with the President of Peru on that. I want to talk to my

staff as to what extent I can speak publicly about that specific

issue, since it is in the courts. But I just wanted you to know, I

did have that conversation.

Senator BAUCUS. If I might add to that, speaking with the Prime

Minister myself yesterday, I raised the same issue.

Senator BUNNING. Well, I got the call from GE.

Senator BAUCUS. Yes, I know. Right. Correct. Which is more important. But anyway, he gave me assurances that he thought that

that was going to be resolved in time.

Senator BUNNING. Good.

Senator BAUCUS. That is what he said.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Bingaman?

Senator BINGAMAN. Thank you very much.

Thanks for being here. One of the issues that you addressed in

your testimony is the labor standards, and this is an issue that

we—quite a few of us here in the Congress, and members of this

committee—have addressed with regard to this agreement over

some period of time. I think you are well aware of that.

I met with President Toledo also, I think, last year. My initial

question to him was, why will you not, as President of Peru, agree

to labor standards, the ILO standards, and agree to some system

for monitoring those? He said, oh, we do agree to it. We have no

problem. We are glad to have it in the agreement. He said, it is

your own administration that refuses to allow it to be in the agreement.

We wrote a letter, a bunch of us in Congress to Ambassador

Portman on April 6, expressing our strong belief that we needed to

have something in this agreement on these ILO standards. Then

6 days later, the agreement was signed without anything being included.

So I am sort of hard-pressed to know how we influence that process. Do you have any plan for ILO monitoring of these commitments? I mean, this is something the Peruvians are willing to do.

Everyone seems willing to do it, except the administration.

Mr. EISSENSTAT. Well, Senator Bingaman, thank you for raising

this issue. We have been able to work successfully with your office

on a number of issues, including in the CAFTA context, to ensure

that the labor provisions in the agreement are fulfilled. I would be

very happy to do that in this context, as well.

We can discuss those types of procedures. There are basically

three parts to this labor discussion with Peru. One is the agreement itself. The second would be trying to ensure that Peru’s labor

laws are consistent with ILO standards.

I think President Toledo, as he indicated to you, feels that their

labor laws are very consistent with ILO labor standards. And

where they had seen concerns from the ILO, they had undertaken

significant reform as recently as 2003.

18

If there are areas that are inconsistent, then we would like to

work with the government of Peru to ensure, at the end of the day,

that their laws are ILO-consistent.

Senator BINGAMAN. I do not think it is a question of their laws

being consistent. I think it is a question of enforcement of their

laws and monitoring the enforcement of their laws.

I had hoped that we could include in this agreement some provision that essentially committed them, not just to enforce their own

laws, but actually had some mechanism for monitoring enforcement

that would have some credibility.

Mr. EISSENSTAT. Well, that is a great point, and it goes to the

third part of this, which is the follow-up, the capacity building and

the cooperative activities. I think in that context the specifics, making sure that they are carried through, is something we can work

on with the government of Peru going forward.

Senator BINGAMAN. So you anticipate some capacity-building program to assist the government of Peru in carrying out these obligations?

Mr. EISSENSTAT. I think that is quite possible, Senator. I think

that is something that we would look at, and we would value your

input into this process. I know that one of the unique things about

the Peruvian government is they are deeply committed to strong

labor practices in their country, as you probably know yourself

from your discussions with President Toledo. We do have some

trade capacity-building money going to Peru now. As we move the

agreement forward, we will look at other avenues as well.

Senator BINGAMAN. Let me ask about another aspect of this. You

make a major point in your testimony that one effect of this agreement is to eliminate—essentially eliminate—Peruvian tariffs on

many agricultural products that we will be then sending into Peru

in larger numbers.

It strikes me that we have a conflict between our anti-drug campaign that we are trying to promote. We are trying to encourage

Peruvian farmers to quit growing coca and diversify into other

crops.

At the same time, we are trying to persuade them all—we just

persuaded them—to sign an agreement with us to allow us to ship

all kinds of agricultural products in, vegetables, wheat, corn, everything else, which are going to undercut the ability of their farmers

to remain competitive and to remain in those other commodities.

Do you really think that this makes good sense, from our perspective? I mean, how does it help either us or the Peruvians? I can

see how it helps some agricultural companies, producers, but how

does it help our government, the United States, or the Peruvians

for us to be dramatically increasing our agricultural exports in and

undercutting their agricultural sector?

Mr. EISSENSTAT. Well, ultimately what we want to achieve is a

viable, strong agricultural sector, both in the United States and

Peru. There are a number of very small subsistence farmers who

are living on very little money per day. It is a very hard existence.

There are a lot of reasons for that.

The current situation has not pulled those people out of poverty.

The ones who are benefitting are the ones who are engaged in

trade and export opportunities. Those tend to be along the coast,

19

where generally export jobs pay better. The type of products being

grown enable them to bring more income in. But it is not just

about how much they bring in, it is being able to get their products

to market.

One of the deep problems that they have in Peru is not just what

is coming in, but how do they get their products out. There are difficulties in transportation through the Andes, getting the products

from the highlands to the port system.

There are difficulties in land titling, where the titles to lands are

not clear, so it is difficult for them to get financing and credit.

These are the kinds of things we can work on with the Peruvian

government, through USAID and other programs, to try to get the

appropriate titling, the transportation necessary to engage in the

economy.

On the imports coming into Peru, the sensitive products are

phased out over a longer period of time. Additionally, there are

some provisions for safeguards for Peru as well.

So we have tried to strike a very careful balance, allowing time

for them to adjust, recognizing that there are other elements that

we can put into place that will help ensure that these farmers can

compete and succeed in a trade agreement with the United States.

Senator BINGAMAN. Thank you, Mr. Chairman.

The CHAIRMAN. I let you go over for a little while because Senator Bunning wanted a second round. So I hope that this might be

the last of the questioning, because we have to get the next panel

on.

Go ahead, Senator Bunning.

Senator BUNNING. Thank you.

Discussing other commitments Peru has made to the U.S. in the

trade area and where they have lived up to them, can you review

the commitments made by Peru as part of the Andean Trade Preference Act and their status in fulfilling the commitments? Have

they honored the commitments they made in that act?

Mr. EISSENSTAT. Senator, I actually can answer that question.

Senator BUNNING. You cannot?

Mr. EISSENSTAT. I can. Yes, sir.

Senator BUNNING. Oh, good.

Mr. EISSENSTAT. I will read through them now. It is quite a

lengthy list.

Senator BUNNING. No. I do not want you to read through them.

If you will make them available to me, I would appreciate that.

Mr. EISSENSTAT. Yes, sir. I would be happy to do that, Senator.

Senator BUNNING. As a result of this agreement, will Peru’s Customs procedures become more transparent to U.S. exporters?

Mr. EISSENSTAT. Absolutely. This will have greater transparency

and Customs cooperation provisions that currently do not exist

today.

Senator BUNNING. This is very important: could you explain,

briefly, the rules of origin that must be met in order to gain the

benefits of the agreement for textiles and apparel exported from

Peru to the United States?

Mr. EISSENSTAT. Yes, Senator.

Senator BUNNING. Because I have a lot of textiles, and I am very

interested in it.

20

Mr. EISSENSTAT. Yes, Senator. First, let me note that this agreement is reciprocal, so all our tariffs on our textile exports are going

to be eliminated. They are going to be reduced, which will give

our——

Senator BUNNING. Going in?

Mr. EISSENSTAT. Going in.

Senator BUNNING. What about theirs coming into our country?

Mr. EISSENSTAT. It will lock into place current ATPA benefits.

The rules of origin are a yarn-forward rule of origin, meaning that

in order to qualify for duty-free treatment, the textile and apparel

goods must be made from U.S. or Peruvian yarns and fabrics.

It has some other improved safeguard provisions to strengthen

Customs cooperation to stop illegal shipment, illegal transshipment

and circumvention, and I think this is——

Senator BUNNING. Like most of them are doing now?

Mr. EISSENSTAT. It is an area that we do need improvement in,

and that is one of the reasons that we seek to do this, as you know,

in our textile trade, particularly, where transshipment can be a

very serious problem.

Senator BUNNING. Yes. China is killing us.

How would our industries’ intellectual property rights be protected by this agreement?

Mr. EISSENSTAT. Well, it provides protections in a number of

ways. Not only does it provide greater protection for patents, trademarks, and other intellectual property rights, but it also has very

explicit enforcement provisions that provide for new remedies.

Senator BUNNING. Will Peru be held accountable to international

standards for intellectual property rights under this agreement?

Mr. EISSENSTAT. Yes.

Senator BUNNING. All right.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Eissenstat. There

may be other questions in writing, but for now, that is the end of

your testimony.

Mr. EISSENSTAT. Thank you, Senator, and thank you, Ranking

Member Baucus and members of the committee. I really hope that

we can work to address your concerns. I hope, if there is any issue

where I can be of assistance, that you will not hesitate to call me.

Thank you very much.

Senator BAUCUS. Just include our amendments. [Laughter.]

Mr. EISSENSTAT. Thank you, Senator.

The CHAIRMAN. I am going to ask Senator Baucus to introduce

his constituent. Will the next panel all come at the same time to

the table, please?

Thank you, Mr. Eissenstat.

I am going to ask Senator Baucus to introduce Mr. Stoner.

Senator BAUCUS. Thank you, Mr. Chairman.

It is really a privilege for me to introduce Jon Stoner from Montana. Jon is a wheat producer, and he is also president of the Montana Grain Growers Association. He farms near Havre, MT.

Havre is along what we in Montana call the Highline. It is up

in northern Montana. It crosses Montana just below the Canadian

border. When you drive on Highway 2 on the Highline, you really

21

do think you are on a high line. You feel like you are on the top

of the world.

Anyway, Jon is from that part of the country. In addition to all

of those qualities, he is really just a good person, and it is my

honor to have you here, Jon. Thanks for taking the extra time to

come out here. I understand you came at the drop of a hat, and

we appreciate that very much.

The CHAIRMAN. The rest of our panel consists of Ms. Joy Philippi,

president of the National Pork Producers Council, from Nebraska;

Mr. Leon Trammell, founder and chairman of TRAMCO, in Wichita, KS; Mr. Richard Trumka, secretary-treasurer of the AFL–CIO

here in Washington, DC; and Mr. Brian O’Neill, vice managing director and vice chairman of Latin America, investment banking,

J.P. Morgan, New York.

As for Senator Baucus and I, I am going to be leaving in just a

few minutes because I have to go over to the House, and Senator

Baucus, at 11:30, is going to have to leave to manage the Oman

trade agreement on the floor. I have asked Senator Thomas to fill

in for me.

So, I hope you do not think your testimony is not important because we will not all be here, but we cannot predict these conflicts.

Your testimony will be given the utmost attention by us and our

staffs, so we thank you for understanding why maybe we all cannot

be here.

Mr. Stoner, would you proceed?

Mr. STONER. You bet.

STATEMENT OF JON STONER, PRESIDENT, MONTANA GRAIN

GROWERS ASSOCIATION, HAVRE, MT

Mr. STONER. Good morning, Chairman Grassley, Senator Baucus,

and members of the committee. My name is Jon Stoner, and I farm

near Havre, MT, just south of the Canadian border. I raise three

classes of high-quality wheat on my farm: hard red winter, dark

northern spring, and durham.

I also raise barley, dried peas, and lentils. I am president of the

Montana Grain Growers Association, which is a grassroots organization representing over 1,600 members in Montana.

Let me state up front that international markets and export opportunities are not an illusion for Montana producers. In 2005, the

State raised nearly 200 million bushels of wheat, with 60 percent

of that production exported overseas, primarily to the Pacific Rim

countries.

This translates into half a billion dollars in sales for our producers. We know the opportunities that free and fair trade with

our international partners can bring, and that is why we strongly

support the issue before you today, the U.S.-Peru Trade Promotion

Agreement.

If I may, let me highlight two points that wheat producers in the

United States take into account when looking at export trade opportunities.

First, 96 percent of the world’s population lives beyond our borders. The 4 percent that lives within the United States does not

consume enough wheat to sustain a viable wheat industry.

22

Second, we consistently export over 50 percent of our total U.S.

wheat production. As you can imagine, our success—or failure—

hinges on our ability to export U.S. wheat around the world. Trade

is a vital component for ensuring the financial viability of U.S.

wheat farmers.

All trade agreements, such as this U.S.-Peru Trade Promotion

Agreement, must offer a unique potential for expanding market opportunities for the American growers. The way we see it, every

market, regardless of size, is an important market.

Let me point out some of the key advantages for agriculture that

I see in this agreement. They reinforce why the agricultural community is uniformly supportive of this agreement: the market access. There are no products that are excluded.

Elimination of tariffs. Sixty percent of the tariff lines, representing 90 percent of the agricultural trade between the two

countries, will be eliminated immediately.

Sanitary and phytosanitary measures. An SPS joint committee

will be established to expedite the resolution to this issue.

Now, let us turn to the benefits that this agreement offers for the

primary crops that I raise on my farm, wheat and barley, and the

Montana barley and wheat producers that I represent.

In the case of wheat, according to the USDA, the United States

had a 66-percent share in Peru of the wheat market in 2003–2004,

and a 43-percent share in the 2004–2005 marketing year.

In 2005, U.S. wheat export sales into that market were valued at $78 million, but breathing down our necks are our competitors,

Canada and Argentina. Currently, Peru’s applied tariff rates for

wheat are 17 percent. Under this agreement, the tariffs would go

to zero immediately.

So while we already have a significant market share for wheat

in Peru, I am confident this agreement will allow us to capture

even more of that growing market. As a side note, I might add that

Peru has a relatively low per capita consumption rate for bread, so

I believe our growth potential is even greater.

Barley, the other major crop that I raise on my farm, I am even

more optimistic about its potential in Peru. This country currently

imports about 75,000 tons of malt and barley per year, but the

sales have been dominated by Australia, Canada, Argentina, and

the EU. Like wheat, the current applied tariff rate for both malt

and feed barley is 17 percent. Similar to wheat, both malt and feed

barley tariffs will go to zero upon signing this agreement.

Great Falls, MT recently became home to the newest and the

most efficient malting facility in the United States. It utilizes 13

million bushels of barley a year.

This plant, owned by the International Malting Company, is a

textbook example of a value-added agricultural enterprise ripe for

new export opportunities under a U.S.-Peru Trade Promotion

Agreement.

And because Canada is the major competitor in Peru, we are

pleased that our negotiators secured a commitment on state trading enterprises in this TPA which commits Peru to work with the

U.S. toward an agreement in the WTO negotiations, and it will basically ensure greater transparency regarding the operation and

the maintenance of export trading enterprises.

23

We applaud our negotiators for their hard work and tenacity to

reach this agreement that we believe is very beneficial to U.S. agriculture, and we strongly support the U.S.-Peru Trade Promotion

Agreement and urge Congress to pass it quickly. Again, thank you,

Mr. Chairman and members of the committee, for the opportunity

to speak in favor of this agreement.

I especially want to thank Senator Baucus for all his work representing the great State of Montana, and his work in promoting

trade is just one example of his commitment to the State and the

agricultural industry.

I look forward to answering questions at the appropriate time.

Senator THOMAS. Thank you. Thank you for being on time. I appreciate that.

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

Senator THOMAS. Ms. Philippi?

STATEMENT OF JOY PHILIPPI, PRESIDENT, NATIONAL PORK

PRODUCERS COUNCIL, BRUNING, NE

Ms. PHILIPPI. Good morning, Mr. Chairman, Mr. Ranking Member, and members of the committee. I am Joy Philippi, president

of the National Pork Producers Council, a pork producer from

Bruning, NE.

I own and operate Pine Alley, LLC, a 2,000-head swine nursery

that is networked with local producers. My parents and I are partners in our family farm operation, and we also raise 400 acres of

corn and soybeans.

In 2005, U.S. pork exports set another record. Much of the

growth in U.S. pork exports is directly attributable to new and expanded market access through recent trade agreements.

However, as the benefits of the Uruguay Round and the NAFTA

agreement are fully realized, the negotiation of new trade agreements becomes paramount to the continued growth and profitability of U.S. pork producers.

While the WTO negotiations clearly offer the single-largest opportunity to increase exports, the bilateral and regional negotiations also offer significant opportunity. We are pleased that the

U.S.-Peru Trade Promotion Agreement is now signed, and America’s pork producers fully support this agreement.

The U.S.-Peru Trade Promotion Agreement, when implemented,

will create important new opportunities for U.S. pork producers.

U.S. pork exports to Peru currently are restricted by duties as high

as 25 percent. However, PTPA, if implemented, will establish immediate tariff reductions on all pork products.

Some pork products will receive unlimited duty-free access upon

implementation, tariffs on most pork items will be phased out within 5 years, and all pork tariffs will be completely phased out in 10

years.

In addition to the favorable market access provisions, significant

sanitary and technical issues have already been resolved. The Peruvian government confirmed that it shall recognize the meat inspection system of the United States as equivalent to its own meat

inspection system.

The aggressive market access provisions, coupled with the agreement on equivalence, make the Peru agreement a state-of-the-art

24

agreement for pork producers to which all future FTAs will be compared.

Live hog prices are positively impacted by the introduction of

new export markets. Recent price strength at U.S. pork markets is

directly related to increased U.S. pork exports.

Mexico continues to be a strong and growing export market for

U.S. pork. The same competitive advantage that has resulted in expanded U.S. pork exports to Mexico will also facilitate an expansion of U.S. pork exports to 28 million new consumers in Peru.

According to Iowa State economist Dermot Hayes, the Peru

agreement, when fully implemented, will cause hog prices to be 83

cents higher than would otherwise have been the case. That means

that for a pork producer like myself, we will see our profits expand

by 7 percent.

One of the most important impacts of PTPA will be the income

growth in Peru generated by this agreement. Most consumers in

Peru currently are at an income level that does not allow them to

consume meat on a regular basis. Prosperity created by a free

trade agreement will create millions of new customers for U.S.

meat and other agricultural products.

There are many other agricultural organizations in support of

the Peru trade agreement. NPPC is coordinating the Agricultural

Coalition for U.S.-Peru trade, consisting of 59 organizations, representing the vast majority of U.S. farmers, ranchers, food producers, and exporters.

PTPA sets a new and higher standard for future free trade pacts.

More than two-thirds of current U.S. agricultural exports to Peru

will immediately receive duty-free treatment upon entry into force

of the agreement. The tariffs on remaining U.S. agricultural products will be reduced over time, with all tariffs eliminated within 17

years.

Currently, only 1.5 percent of U.S. food and agricultural exports

to Peru enjoy duty-free access. The Peruvian Congress just ratified

the U.S.-Peru Trade Promotion Agreement this week.

NPPC applauds Peru’s commitment to democracy and a free

market. PTPA is the most ambitious trade agreement ever negotiated for U.S. agriculture. It is imperative that the U.S. Congress

approve the agreement.

On behalf of the pork industry, I thank you for the opportunity

to present this statement today and will answer any questions,

when it is appropriate. Thank you.

Senator THOMAS. Thank you very much.

[The prepared statement of Ms. Philippi appears in the appendix.]

Senator THOMAS. Mr. Trammell?

STATEMENT OF LEON TRAMMELL, FOUNDER AND CHAIRMAN,

TRAMCO, INC., WICHITA, KS

Mr. TRAMMELL. Senator Thomas, Senator Baucus, and members

of the committee, thank you for the opportunity to testify on the

U.S.-Peru Trade Promotion Agreement.

I am Leon Trammell, CEO of TRAMCO, Incorporated, from

Wichita, KS, the regional vice chairman of the board of directors

of the U.S. Chamber of Commerce, as well as vice chair of the U.S.

25

Chamber’s International Policy Committee. I am also a member of

the U.S. Chamber’s Council on Small Business, and an SME member of the Trans-Atlantic Business Dialogue.

I appear today on behalf of my company, the U.S. Chamber of

Commerce, the Association of American Chambers of Commerce in

Latin America, and the U.S.-Peru Trade Coalition, a broad-based

group of companies, farmers, and business organizations representing all sectors of our economy.

TRAMCO has two small factories, one in Hull, England, which

employs approximately 20 people, and at our Wichita facility we

employ approximately 100. In both locations, we manufacture and

sell environmentally friendly conveyors, primarily for the cereal

food processors, but also for a variety of other industrial products,

such as coal, cement, wood chips, municipal solid waste, and many

others.

Our annual revenue in the Wichita facility is roughly $20 million, and our exports amount to about 45 percent of our total sales,

with Peru accounting for 3 to 5 percent more or less each year.

TRAMCO has been exporting for 33 years to over 52 foreign

countries around the world, including Peru for the last 19. On behalf of my company and also the business organizations I represent

today, I would like to voice strong support for the Peru Trade Promotion Agreement, PTPA.

Free trade agreements like PTPA will do much for companies

like mine to slash barriers to our exports. They will also improve

protection of U.S. investments in South American countries, and

they will strengthen our position and make us more competitive in

the global economy.

Currently, 90 percent of all U.S. exports to Peru are manufactured goods like TRAMCO’s products, which face an average tariff

of 12 to 25 percent. This is just one of the costs of doing business

there. PTPA will completely eliminate 80 percent of the tariffs on

manufactured goods as soon as it is entered into force, and the rest

of the products will become duty-free within 10 years.

For small businesses like mine, a tariff reduction of 12 to 25 percent is quite significant. High tariffs in the EU, sometimes as high

as 18 percent, is the reason TRAMCO opened a small factory in

Hall, England to service that market to avoid the high EU tariffs.

Most of the 52 countries I sell to already commit to some business-friendly practices, otherwise I could not have sold my products

there. The main point of trade agreements is to improve upon the

status quo, and PTPA does just that.

By ratifying PTPA, Congress will send an important message

that goes beyond Peru. It will say to the world, we are open for

business and are committed to working with them to provide mutually beneficial economic opportunities for employees, consumers,

and employers.

Today, 97 percent of all imports from Peru enter this country

duty-free because of preferential market access programs like

ATPA, and that is why Peru has increased its exports here by 157

percent during the past 3 years.

In contrast, American products and services face tariffs and other

restrictions in Peru, and, as a result, our exports to Peru during

the same time frame have increased by only 38 percent.

26

The U.S. International Trade Commission estimates that when

PTPA enters into force, exports to Peru may increase by over

$1 billion annually, while our imports may rise by approximately

$444 million. This will help us level the playing field and provide

more favorable conditions for American exporters. Further, the

U.S. ITC predicts that PTPA will add over $2 billion per year to

the U.S. Gross Domestic Product.

Mr. Chairman, I started my company in 1967 part-time. Today,

I have over 100 workers in Wichita, KS. Approximately 45 percent

of our employees owe their jobs to our ability to access markets

abroad.

My point is that free and fair trade, which is achieved by this

type of free trade agreement, is what would really help our smalland medium-sized companies that look to exports for an increasing

share of their sales.

These trade agreements work. Just look at Chile. After our Congress approved the U.S.-Chile agreement and after its implementation in January of 2004, our exports to Chile have risen 91 percent

in just 2 years.

Caterpillar, for example, has doubled its sales to Chile since

2004, and added some 5,000 new jobs in Illinois. Now, that is the

kind of success we like to achieve.

In addition, PTPA would not only open new markets for U.S.

business large and small, it will send a strong message that the

U.S. stands by its friends and allies in regions where leaders like

Hugo Chavez and Hugo Morales are vying for influence.

In closing, I would like to say, give U.S. manufacturers and farmers a level playing field with zero tariffs, and we can compete anywhere in the world. I urge the Senate to approve legislation to implement the U.S.-Peru Trade Promotion Agreement as soon as possible.

Thank you.

Senator THOMAS. Thank you very much.

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

Senator THOMAS. Mr. Trumka?

STATEMENT OF RICHARD L. TRUMKA, SECRETARYTREASURER, AFL–CIO, WASHINGTON, DC

Mr. TRUMKA. Thank you, Mr. Chairman. I thank you for the opportunity to testify today on behalf of the 9 million working men

and women of the AFL–CIO on the U.S.-Peru Trade Promotion

Agreement.

I will submit my testimony and summarize it, but I urge you to

carefully study the full testimony because it clearly shows that this

agreement fails to protect workers’ interests in the United States

and Peru.

The failed FTA model neither addresses the problems confronted

by workers in Peru nor contributes to the creation of good jobs and

decent wages at home. The workers’ rights provisions are entirely

inadequate to ensure that workers’ fundamental human rights are

respected.

Quite frankly, Mr. Chairman, the inclusion of weak labor provisions in this agreement is, quite honestly, inexcusable. In 2005,

27

President Toledo publicly expressed his support for the inclusion of

ILO core labor standards in the trade agreement, and a mechanism

to enforce them.

Moreover, then-U.S. Trade Representative Robert Portman also

promised to consider the concerns raised by Congress during the

CAFTA debate in future trade agreements. Thus, there is no reason that we continue to see the same weak language again and

again.

Workers in Peru and the United States deserve protections at

least as strong as those of commercial interests, and until those

provisions are included in trade agreements, they will continue to

face some very strong opposition.

Mr. Chairman, today over 2 million children will wake up in

Peru, and, instead of going to school, they will trot off to the workplace somewhere. Many of those children are going to go to work

in a coal mine, reminiscent of the Breaker Boys in this country

back at the turn of the century.

When you look at the picture of those children, Mr. Chairman,

all hope, all dreams have been plucked out of their eyes; they look

like cadavers. Those children, probably during the day, look up a

time or two and wonder when it all ends, who will come to help

them, how they will get a better life, when they will be able to get

a little bit of education.

Somewhere in Peru today, Mr. Chairman, about 30,000 men and

women will wake up. Some of them have been captured and forced

to work against their will in the illegal industries.

Sometime during the day, I am sure that they will look up and

they will wonder when it all ends, who is willing to help them, and

what the United States will do to bring democracy to them.

Somewhere today, Mr. Chairman, in the agricultural export industry, women, 18 to 25 years old, are going to be working 9- to

12-hour days, and, during the harvest or the shipment period, they

are going to be working 18- to 20-hour days.

Those field workers will see toxic pesticides. Some of them will

lose their sight. They will see gastritis, fungal infections, breathing

problems, and back problems. I am sure that, many times during

the day, they look up to the sky and wonder when will it all end,

who will come to help them, who will make things more fair, more

just.

Mr. Chairman, just yesterday, thousands of those agricultural

workers protested this very agreement because they think it will

make their lives worse, not better.

Now, the Trade Representative said that these countries are

making choices right now. You yourself said that this agreement

will set precedent in the area. We need to set a precedent that the

United States truly does stand on behalf of those workers, that we

want to bring democracy to that area, and some freedom.

We want those children to have a better life and to be educated.

We want people who are improperly pressed into forced labor to

have some rights and be set free. We want those agricultural workers to be able to get up off of their knees, look around, and say,

somebody did come, somebody did help.

The U.S. could do a whole lot better than we have done here. In

fact, quite frankly, the world needs us to do a whole lot better

28

when it comes to workers’ rights here and abroad. We can either

stand with and we can help those workers achieve a better life or

we can be part of the problem, and the precedent that we set will

move that area further away from us, not closer to us.

Mr. Chairman, thank you for the opportunity to speak my piece

and testify on behalf of those workers in both countries today.

Senator THOMAS. Thank you very much.

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

Senator THOMAS. Mr. O’Neill?

STATEMENT OF BRIAN O’NEILL, VICE MANAGING DIRECTOR

AND VICE CHAIRMAN, LATIN AMERICA, INVESTMENT BANKING, J.P. MORGAN, NEW YORK, NY

Mr. O’NEILL. Thank you. Good morning, Senator Thomas and

members of the committee. It is a pleasure and a privilege for me

to be here with you this morning. I am Brian O’Neill, a banker on

Wall Street for over 29 years, ostensibly all of these years working

with clients with interests in countries of Latin America, including

12 years living and working in three of the countries of South

America.

I am also a longstanding Director of the Council of the Americas,

a New York-based organization with offices in Washington, representing over 170 companies with investments and businesses in

the countries of the Americas. Founded in 1965, the Council is

dedicated to the promotion of open markets, democracy, and the

rule of law in the countries of the Americas.

The then-U.S. Trade Representative, Robert Zoellick, announced

the U.S.’s intentions to negotiate a trade agreement with Peru at

the Council’s Washington conference in 2004.

I strongly support our efforts to expand trade and investment

throughout the countries of the Americas, as these efforts are consistent with U.S. national security and economic interests.

I consistently have supported our agreements with Canada, Mexico, Chile, as well as Central America and the Dominican Republic,

as I now support this agreement with Peru.

Expanded trade and investment opportunities with Peru are

good for U.S. companies, such as Caterpillar, an exporter of equipment for the mining industry; Hunt Oil, an investor in the development and export of Peru’s largest natural gas reserves; and Phelps

Dodge, an investor in one of Peru’s larger mining projects in the

south of the country.

U.S. credibility in the region, as well as with the broader multilateral trade agenda, is an important consideration as the Senate

Finance Committee looks at this agreement.

The Peru TPA sets the stage for an attractive regional market

and should enhance integration and cooperation among the countries of the Andes, a very positive contributing factor for sustainable growth. The TPA offers significant growth opportunities for

U.S. industry and agriculture by opening a significant market and

putting it on a footing for more rapid growth.

Peru, which is already a moderately low tariff country, is significantly opening its markets to U.S. farm exports under the agreement, setting the stage for similar agreements elsewhere.

29

The U.S. is Peru’s largest trading partner and a large foreign direct investor in the country. The disciplines contained in the agreement in areas such as services, investment, and government procurement enhance the transparency and accountability of day-today governance, which makes Peru a more attractive destination

for U.S. investments.

Peru has just completed a difficult election process, and it is,

therefore, important for the U.S. to show its support to a country

that has made major efforts to lift up its economy in a marketfriendly and democratic way, while fighting poverty.

The agreement enhances the U.S. relationship with a country

that is a much-needed ally in a strategic region during a politically

sensitive time. Having TPAs with most of the countries along the

Pacific Coast of Latin America, including the agreements with Colombia and Peru, the U.S. is contributing to the creation of a strategic area of stability in the West Coast of Latin America, thereby

enhancing our interests.

These are, in my opinion, compelling foreign policy reasons to

support passage of the Peru TPA. This is a very effective tool as

a countervailing force to competing world views in the region.

In short, I believe that the Peru TPA stands on its economic merits. On the basis of reciprocity alone, for 15 years of duty-free access under the ATPA and ATPDEA, it should be non-controversial

to open Peru’s markets to our goods, as ours is already open to

theirs.

The foreign policy arguments in favor of this agreement are

equally compelling, if not, in fact, even more so. The Peru TPA is

also an important building block toward the vision of a unified

hemispheric market that will enhance U.S. competitiveness and

that of its neighbors in an era of unparalleled global competition

and opportunity.

Thank you.

Senator THOMAS. Thank you very much.

[The prepared statement of Mr. O’Neill appears in the appendix.]

Senator THOMAS. I appreciate all of you being here. It is very important to have your input and your insight into this operation, as

it is in any trade negotiations we are in.

Actually, as you know, this is a complicated process, and for the

most part, these things take a long time. We have been working

on this for months. I have to tell my friends on the committee that

we have to have input as it goes along.

When it comes here, it is finally ready for approval or disapproval. So in any event, it is really important for you to have

your input, and I know my colleagues would agree.

A couple of questions, perhaps, as we have a little time yet. Mr.

Stoner, you mentioned that the grain producers’ greatest competitors in Peru are Canada, Australia, Argentina, and the European

Union. I assume that producers in these countries probably do not

support our FTA between Peru and the United States. It seems to

me, the failure to pass this would only hurt producers in one country, the United States, particularly. Is that correct?

Mr. STONER. Well, it is going to give us a lot better chance to

compete with those people who already have the trade agreements

30

with them, so it is tough competition. Maybe they do not want us

to come in, but we need a level playing field.

Senator THOMAS. Yes. I am sure. Some of them like the advantages that they have now with the tariffs that are on our products.

We need to work on that.

Ms. Philippi, I agree with you that the Peruvian government

agreeing to recognize meat inspections in the U.S. as an equivalent

to its own meat inspections is a tremendously good provision. How

important is that provision not only in Peru, but to other future negotiations?

Ms. PHILIPPI. An equivalent inspection system ensures our standards will be accepted in Peru. This is probably one of the most important things that we need to have accomplished when we put an

agreement together, and it makes PTPA an agreement that will set

a new precedent. Other countries should understand the importance when we negotiate trade agreements.

Senator THOMAS. It is kind of difficult to understand, like in

Japan, when they want to come to look at our inspections, when

we are willing to use that product ourselves. We should not have

to re-do it and have everyone come and look at our own inspections. I think you are right. So, I hope that can be a precedent set

here, and I hope that will happen.

Mr. Trammell, what countries compete against U.S. manufacturers for the market, and will industries from those countries benefit

if this agreement is not approved?

Mr. TRAMMELL. Well, all the European countries, of course, as

well as South American countries. It depends on certain regions. I

have customers in a particular area that I compete with that I do

not in another, but in South America it is European, and the other

local manufacturers.

Our biggest competitor, always when we go abroad—and as I

stated earlier, we are in 52 foreign countries—is always the local.

That is the most difficult, because he does not have the duties, does

not have the freight.

So when you add 10 or 15 percent to your price for duties, and

when you are selling the top of the line to start with, you add another 15 to 20 percent, it puts you out.

Senator THOMAS. Yes.

Mr. TRAMMELL. I was invited a number of years ago to go to the

island of Guadelupe to design a conveying system from the ships

to the port. I asked, who am I competing against? They said, well,

a French company.

Well, I knew the French company, and they were kind of a junk

dealer, but they still had an 18-percent advantage over me. I said

to my customers look, he has an 18-percent advantage. They said,

oh, you will still be successful, I think. Well, I was not successful

because of the 18-percent duty. But I enjoyed my trip to the island

of Guadelupe and the French West Indies.

Senator THOMAS. But do not go there any more. I guess that is

right. My point was, some of the other countries have a better arrangement than we do.

Mr. TRAMMELL. That is correct.

Senator THOMAS. And so we give them an advantage by not taking advantage of being able to reduce those there.

31

Mr. Trumka, I have been told Peru has ratified all of the International Labor Organization’s core conventions, and it has ratified

71 ILO conventions. Do you know if this is true, and how does it

compare to the U.S. approval of ILO standards? How does it compare to Jordan at the time the Jordan-U.S. agreement was signed?

Mr. TRUMKA. First of all, they have ratified some of the ILO

standards, and the United States, unfortunately, has not ratified

those same core labor standards.

This agreement, however, will not force them to live up to them.

The agreement only says that they have to live up to current law.

One, it does not prevent them from changing those laws. They

could change them tomorrow if they choose. It does not force them

to do anything else.

And even whenever they do not live up to their own current

laws, the penalties for violations of labor laws are significantly

weaker than they are for commercial interests. There is a fixed cap

on the penalty, $15 million, tops, regardless of what the damages

ultimately are, and the amount is paid back to the government, so

the government pays the money back to itself.

It is not like in the United States, where if Mr. Trammell had

a violation, the money would be paid to him. This gets paid back

to the Peruvian government, which has inadequate monitoring capability. Mr. Chairman, there is just simply no question, these

are——

Senator THOMAS. Why do we have International Labor Organization standards if they are not going to be enforced?

Mr. TRUMKA. That is a good question. We ask that all the time.

Senator THOMAS. It seems like, rather than deal with each trade

agreement, if we are going to have international ones, why should

that not be our emphasis?

Mr. TRUMKA. There are no mechanisms in the ILO to enforce

those standards. They can report on it, they can talk about it. The

only way we can improve enforcement is through these agreements.

This agreement could have included stronger labor rights because

the president of Peru said he would include them, and include enforcement mechanisms.

Senator Bunning said to you, I do not want side letters. I want

them included in the agreement. We would like to have workers’

rights the same way, just exactly what he said, included in the

agreement so they are enforceable, because they are not right now.

Workers’ interests, worker capital, what should be the most important on both sides of the border gets the least protection.

Senator THOMAS. What is the balance in trade agreements between trade issues, and labor restrictions? They are two different

things, are they not?

Mr. TRUMKA. No, they are not. They are very, very intertwined.

Mr. Trammell here will tell you that if China can cheat by not paying their minimum wage and not living up to their health and safety standards, they get an advantage over him. If these people can

be forced to do forced labor, child labor——

Senator THOMAS. Well, we do not accept forced labor. It is in the

arrangement here.

Mr. TRUMKA. No, it is not.

Senator THOMAS. Yes, it is.

32

Mr. TRUMKA. I disagree with you about the enforcement mechanism.

Senator THOMAS. Well, it may be the enforcement, but forced

labor is not allowed.

Mr. TRUMKA. It cannot be enforced, so it is useless to us.

Senator THOMAS. All right.

Mr. TRUMKA. Just as Senator Bunning said.

Senator THOMAS. All right. I understand.

Mr. TRAMMELL. In 2003, 50 percent of my production was

shipped from Wichita, KS to China, so I wish I had 20 China customers. They have been great customers. I might add, I have been

doing business there for 18 years, and they have paid every dollar

of every invoice I have invoiced them, and I have never had a dispute that could not be readily resolved.

Senator THOMAS. I certainly do not disagree at all with what Mr.

Trumka is saying in terms of trying to get these changes. It is always a question of how you enforce it, where you put the pressure,

and what you can do.

Mr. TRUMKA. Mr. Chairman, could I just say one thing? I would

just like to personally thank you for your interest in these issues,

even if we disagree on them. The fact that you are here and the

fact that you are always there means a tremendous amount to people like us. So, I would just like to say thank you for your interest.

Senator THOMAS. Thank you very much.

Well, I do not think we disagree on it. Sometimes we have different ideas of how we might enforce provisions and get it done. All

of us are looking for changes in the world, all of us are looking for

better opportunities for people, for fair treatment, and how much

of it you do in trade agreements, in terms of fixing other issues,

is complicated. Of course, the fact is, if we can make some trade

agreements and develop stronger economies in these countries,

why, it does help, too. So it is a question of how we best approach

the issues.

Mr. O’Neill, it is my impression that many countries in Latin

America are at the crossroads, that there are some changes. Some

are increasingly rejecting fair markets, while others like Peru are

embracing. Do you have any opinion as to why countries in the region are going in different directions at this current time?

Mr. O’NEILL. Thank you, Senator. I think this is an opportunity

for us to send a good, clear, strong message not just to the people

of Peru, but to many of those neighboring countries, some of which

are going off in different directions, that the United States cares

and the United States recognizes the importance of agreements like

this.

I think that sending that message, particularly after the Peruvian Congress sent us such a clear message this week, I think that

will be heard outside of Peru’s borders, not just within Peru.

Senator THOMAS. Yes. I hope that is true.

Well, we all understand that the world is changing, and billions

of dollars are going around the world every day, and there is going

to be more and more of that as technology and transportation improve.

It is just our challenge to make sure that, as we move into that

new era, that it is fair, that it is an opportunity for us to take care

33

of people in the United States, as well as around the world, and

to make these business operations succeed. So it is a real challenge, and I appreciate your involvement and helping make it work

out.

Mr. O’NEILL. Thank you.

Senator THOMAS. I would like to remind my colleagues to submit

questions for the record at the close of this business session. If you

folks get questions, I hope you will respond to them in the next

couple of weeks so that members can be involved in what is happening.

So, thank you very much for being here. The hearing is adjourned.

[Whereupon, at 11:47 a.m., the hearing was concluded.]

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A P P E N D I X

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Æ