U.S. GOVERNMENT PRINTING OFFICE

66–807 CC WASHINGTON : 2000

IMPORTANCE OF TRADE NEGOTIATIONS IN FIGHTING FOREIGN PROTECTIONISM: ACTIVE U.S. INVOLVEMENT

HEARING

BEFORE THE

SUBCOMMITTEE ON TRADE

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MARCH 4, 1999

Serial 106–71

Printed for the use of the Committee on Ways and Means

(

For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ii

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON TRADE

PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

AMO HOUGHTON, New York

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JENNIFER DUNN, Washington

WALLY HERGER, California

JIM NUSSLE, Iowa

SANDER M. LEVIN, Michigan

CHARLES B. RANGEL, New York

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

XAVIER BECERRA, California

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

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

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

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

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

is further refined.

iii

C O N T E N T S

Page

Advisory of February 19, 1999, announcing the hearing ..................................... 2

WITNESSES

American Farm Bureau Federation, Dean Kleckner ............................................ 52

Baszile Metals Service, Barry Baszile ................................................................... 26

Business Roundtable, and Boeing Company, Philip M. Condit ........................... 17

Coalition of Service Industries, and Chubb Corporation, Dean R. O’Hare ......... 34

Council of the Americas, Washington Operations, Hon. William T. Pryce ......... 63

Emergency Committee for American Trade, and Cargill, Incorporated, Ernest

S. Micek ................................................................................................................ 6

National Foreign Trade Council, Inc., and Foster Wheeler Corporation, Richard J. Swift ........................................................................................................... 29

Gardner, Kevin, Cave City, Kentucky ................................................................... 57

Staffing Innovations, Inc., Michael D. Ryan ......................................................... 66

Tramco, Inc., Leon Trammell ................................................................................. 60

SUBMISSIONS FOR THE RECORD

American Forest & Paper Association, W. Henson Moore, statement and

attachment ............................................................................................................ 70

American Natural Soda Ash Corporation, Westport, CT, John Andrews, Mike

Murray, and John F. McDermid, statement ...................................................... 74

American Sugar Alliance, James W. Johnson, Jr., statement and attachments 80

Gilbarco, Inc., Greensboro, NC, David Kaehler, statement ................................. 90

International Association of Machinists and Aerospace Workers, Upper Marlboro, MD, R. Thomas Buffenbarger, statement ................................................. 90

Rubber and Plastic Footwear Manufacturers Association, Mitchell J. Cooper,

statement and attachments ................................................................................. 92

Semiconductor Industry Association, George Scalise, statement ........................ 96

United Brotherhood of Carpenters and Joiners of America, Portland, OR,

Michael V. Draper, statement ............................................................................. 102

U.S. Chamber of Commerce, statement ................................................................. 103

(1)

IMPORTANCE OF TRADE NEGOTIATIONS IN

FIGHTING FOREIGN PROTECTIONISM: ACTIVE U.S. INVOLVEMENT

THURSDAY, MARCH 4, 1999

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

The Subcommittee met, pursuant to notice, at 10 a.m., in room

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

(Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721

February 19, 1999

No. TR–4

Crane Announces Second Hearing in Series on the

Importance of Trade Negotiations

in Fighting Foreign Protectionism: Active U.S.

Involvement

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

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

hold the second in a series of hearings on the importance of expanding trade and

resisting protectionism through active U.S. involvement in trade negotiations. The

hearing will take place on Thursday, March 4, 1999, in the main Committee hearing

room, 1100 Longworth House Office Building, beginning at 10 a.m. The first hearing

in this series was announced on February 4, 1999, in release number TR–2.

Oral testimony at this hearing will be from both invited and public witnesses. Any

individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed

record of the hearing.

BACKGROUND:

The United States currently participates in three major multilateral and regional

trade negotiations. At the December 1994 Summit of the Americas in Miami, leaders of 34 Western Hemisphere democracies agreed to establish a Free Trade Agreement of the Americas (FTAA), in which barriers to trade and investment are progressively eliminated. They committed to begin the process immediately, make concrete progress by the year 2000, and conclude negotiations by no later than 2005.

These negotiations were officially launched at the Second Summit of the Americas

in Santiago, Chile, in April 1998.

The Asia Pacific Economic Group (APEC) forum, an association of 21 economies

bordering the Pacific Ocean, working cooperatively to reduce barriers to trade and

investment, has declared its intention to establish free trade and investment in the

region by the year 2010 for developed countries and by 2020 for others. In November 1997, APEC members held a Joint Ministerial Meeting and Leaders Summit in

Vancouver, where they identified 15 sectors in which they intended to cut tariffs

and remove other barriers to trade. At the November 18, 1998, Ministers and Leaders Meeting in Malaysia, countries agreed to move work on the tariff portion of nine

of these sectors into the World Trade Organization (WTO), with the aim of completing an agreement with participation beyond APEC countries by 1999.

The Uruguay Round was the eighth round or series of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT). The agreements

reached at the end of 1994 during the Uruguay Round were noteworthy in that they

greatly expanded coverage of GATT rules beyond manufactured goods trade to include agricultural trade, services trade, trade-related investment measures, intellectual property rights, and textiles. The most visible accomplishment of this multilatVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
3

eral round was to establish the WTO to administer the GATT agreements and to

settle disputes among WTO members.

The Uruguay Round agreement calls for the resumption of negotiations by the

year 2000 to further liberalize trade in agriculture and services, as well as on government procurement practices and enforcement of intellectual property rights. The

next WTO Ministerial conference, which will be hosted by the United States November 30–December 3, 1999, is slated to consider the procedures and substance of the

so-called ‘‘built-in’’ WTO agenda, as well as other matters of interest to WTO Members.

At the hearing held on February 11, 1999, the Subcommittee received testimony

from United States Trade Representative Charlene Barshefsky, who discussed the

President’s trade agenda.

FOCUS OF THE HEARING:

The Subcommittee requests that witnesses address the adequacy and direction of

the President’s trade policy agenda and negotiating priorities for the remaining two

years of this Administration.

In addition, witnesses should focus their testimony on such issues as: (1) the potential impact of ongoing trade negotiations on jobs, wages, economic opportunity

and the future competitiveness of U.S. manufacturers and service providers, (2) implementation and compliance with existing trade agreements, (3) prospects for an

agreement to establish a FTAA, (4) the status trade talks under the auspices of the

APEC Group, (5) negotiations on the so-called ‘‘built-in’’ agenda in the WTO, (6) ongoing WTO accession negotiations for China and other countries, and (7) the possibility of further bilateral trade negotiations with Europe, Chile, New Zealand, Australia, and other nations in the Pacific Rim region.

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

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

or Pete Davila at (202) 225–1721 no later than the close of business, Thursday, February 24, 1999. The telephone request should be followed by a formal written request to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House

of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515.

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

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

scheduled appearance should be directed to the Subcommittee on Trade staff at

(202) 225–6649.

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

not be able to accommodate all requests to be heard. Those persons and organizations not scheduled for an oral appearance are encouraged to submit written statements for the record of the hearing. All persons requesting to be heard, whether

they are scheduled for oral testimony or not, will be notified as soon as possible

after the filing deadline.

Witnesses scheduled to present oral testimony are required to summarize briefly

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

WILL BE STRICTLY ENFORCED. The full written statement of each witness will

be included in the printed record, in accordance with House Rules.

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

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

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

in WordPerfect 5.1 format, of their prepared statement for review by Members prior

to the hearing. Testimony should arrive at the Subcommittee on Trade office, room

1104 Longworth House Office Building, no later than Tuesday, March 2, 1999. Failure to do so may result in the witness being denied the opportunity to testify in

person.

4

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

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

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

along with an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, with

their name, address, and hearing date noted on a label, by the close of business,

Thursday, March 18, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and

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

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

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

hearing.

FORMATTING REQUIREMENTS:

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

or exhibit submitted for the printed record or any written comments in response to a request

for written comments must conform to the guidelines listed below. Any statement or exhibit not

in compliance with these guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.

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

compatible 3.5-inch diskette in WordPerfect 5.1 format, typed in single space and may not exceed a total of 10 pages including attachments. Witnesses are advised that the Committee will

rely on electronic submissions for printing the official hearing record.

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

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

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

by the Committee.

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

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

or organizations on whose behalf the witness appears.

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

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

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

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

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

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

other forms.

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

Wide Web at ‘HTTP://WWW.HOUSE.GOV/WAYSlMEANS/’.

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

If you are in need of special accommodations, please call 202–225–1721 or 202–226–

3411 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.

of hearing of the Ways and Means Subcommittee on Trade to conChairman CRANE. Good morning. This is the second in a series

f

sider the importance of expanding trade and resisting foreign protectionism through active U.S. involvement in trade negotiations.

On February 11, Ambassador Barshefsky discussed the President’s trade agenda for the remaining 2 years of this Administration. Today we are joined by CEOs from four major American comVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
5

panies, the president of the American Farm Bureau, and by three

witnesses who will represent the interests of several small businesses and a family farm. I have asked today’s witnesses to give

us their thoughts on the adequacy and direction of the President’s

trade agenda. Recognizing that the United States is currently participating in five major trade initiatives, including the new WTO

round, the Free Trade Agreement of the Americas, APEC, and the

Trans-Atlantic Economic Partnership, I will be listening very closely for advice on priorities for the next 2 years.

I recently read a speech given by Bill Gates in Seattle where he

lays out the importance of trade negotiations for ensuring that the

booming Internet trade remains tax-free and non-discriminatory,

that U.S. intellectual property is protected, and that trade rules

around the world are made more uniform. Because of the huge

fixed costs associated with high tech industries of the 21st century,

such as computers and software, their future survival will depend

on the volume of sales inherent in global markets. As we have been

saying, the United States needs to find new ways to sell to the 94

percent of the world’s population that lives beyond our borders. Of

course we can not conclude such negotiations without arming U.S.

trade negotiators with the clout and the leverage they would realize from fast track negotiating authority.

At the last hearing, I said to Ambassador Barshefsky that I am

prepared to discuss with the Administration any specific ways in

which it believes that my fast track bill, which the Administration

agreed to in 1997, is somehow deficient. I will reiterate my call

today to any critics to show me precisely where they believe my bill

falls short, and to offer constructive and specific proposals that can

garner bipartisan support.

Because future trade agreements offer the best opportunity we

have to expand and ensure the success of U.S. businesses and

workers in the marketplace of the 21st century, we must do all we

can to quickly pass fast track legislation. In the meantime, I hope

that hearings such as this one today, will make crystal clear that

all U.S. companies, workers, and consumers, stand to gain through

trade agreements.

I would now like to recognize the Ranking Minority Member of

the Trade Subcommittee, Sander Levin, for any statement he

would like to make.

Mr. LEVIN. I thank you, Mr. Chairman. I will be very brief because we have two panels and we may have some votes. We want

very much to get moving.

This is part of what I hope will be an intensive dialog about

where we should be going in terms of our international trade. We

have a lot of changing currents within the international trade picture. The countries that we trade with are increasingly those who

have very different structures than we do, both in terms of their

capital structures, their labor structures, and environmental structures. In my judgment, we need to adapt to these changing currents and make sure that we have a trade legislative framework

that is responsive to these changes and sensitive to them.

As I have said before, I think we need to evolve a new consensus

on trade. The one that we used to have broke down on various

issues, including and especially this issue of how we respond to the

6

different nature of trade, the different content of it, the evolving

trade with evolving economies. I hope out of this dialog will come

some new ideas. I think it would require a reshaping substantially

of the fast track proposals that were offered a couple of years ago.

But anyway, your testimony is an important part of this effort

to have a renewed dialog, and I hope come to a new consensus on

trade. So I join the chairman in looking forward to your testimony.

Chairman CRANE. Thank you, Mr. Levin. We will proceed in the

order that you are indicated on the list of witnesses. I think you

all have that before you. Mr. Micek, Mr. Condit, Mr. Baszile, Mr.

Swift, and Mr. O’Hare. I would suggest that you try to keep your

verbal presentations to around 5 minutes. Any printed statement

will be made a part of the permanent record.

[The opening statement of Hon. Jim Ramstad follows:]

Statement of Rep. Jim Ramstad, a Representative in Congress from the

State of Minnesota

Mr. Chairman, thank you for calling this hearing today to discuss the importance

of trade negotiations.

Earlier this week, I met with Hennepin County Commissioner Randy Johnson,

who was out in Washington, D.C. for the National Association of Counties meeting.

One of the top issues he wanted to talk to me about was trade.

Commissioner Johnson is working with a group in Hennepin County that is trying

to be proactive on behalf of Minnesota’s workers and businesses. They are concerned

that the Twin cities region may become a victim rather than a player, in the new

world economy. They are doing all they can to develop an aggressive strategy, involving the public and private sectors, to allow the Twin Cities to compete in the

global economy. They know their strong international involvement is critical to the

economy of Hennepin County, the rest of the state and everyone living there.

I want to help in their effort. I want workers and employers in Minnesota to be

able to compete with the rest of the world. I know when given a fair opportunity,

they will succeed. I don’t want them to be a powerless victim.

But my support for Hennepin County and the rest of this nation is hampered if

the Administration does not have fast track authority. Regardless of how ambitious

the Administration’s agenda for the next two years is, they won’t be achieving much

if Congress doesn’t give them the authority to negotiate trade agreements and help

American companies compete throughout the world. We’ll only have the WTO dispute settlement process to protect what trade liberalization we have already

achieved—not the power to knock down more unfair barriers to trade throughout

the world.

That’s why I hope the Administration will submit suggestions to this Subcommittee soon on how best to craft legislation to extend the President this authority. I also wish all my colleagues in this House had the insight that Hennepin County has on the need for an aggressive approach and the importance of trade to our

nation.

Again, thank you for holding this hearing to highlight these issues. I look forward

to hearing from our witnesses today, especially Ernie Micek, Chairman and CEO

of Cargill and a good friend from Minnesota.

STATEMENT OF ERNEST S. MICEK, CHAIRMAN AND CHIEF EXSo we will with that, proceed with Mr. Micek.

f

ECUTIVE OFFICER, CARGILL, INCORPORATED, MINNEAPOLIS, MINNESOTA, AND CHAIRMAN, EMERGENCY COMMITTEE FOR AMERICAN TRADE

Mr. MICEK. Thank you, Mr. Chairman, and good morning. My

name is Ernie Micek. I am chairman and chief executive officer of

Cargill, Incorporated. Cargill is a privately-held agribusiness company founded over 130 years ago in Iowa.

7

Cargill is an excellent example of why the United States needs

to support an open trading system, both at home and abroad. Just

as greater trade and investment in overseas markets increasingly

fuel growth in our national economy, Cargill’s growth depends in

large part on markets outside the United States. In the commodity

businesses in which we participate, we need to be a global company

to grow and succeed.

But today, I am testifying as chairman of the Emergency Committee for American Trade on behalf of the heads of ECAT member

companies, whose prosperity, like Cargill’s depends on the continued expansion of U.S. international trade and investment. ECAT

members are major American companies with global operations

and represent all principal sectors of the U.S. economy. The annual

sales of ECAT member companies total over $1 trillion, and the

companies employ approximately 4 million persons. ECAT companies, besides providing employment, add value in many important

ways to the communities where their plants and offices are located.

ECAT commends you, Mr. Chairman, and other Members of the

Trade Subcommittee, for your leadership on the trade expansion

initiatives. I am pleased to have the opportunity to testify before

the Trade Subcommittee today on the importance of moving forward with a positive U.S. trade agenda and resisting the forces of

protectionism. It was precisely this concern that led 33 ECAT

CEOs to join me in sending a letter to the President at the end of

last year, stressing the need to pursue a positive trade agenda to

promote the health of the U.S. economy. I would like to ask that

a copy of the ECAT letter be entered into the record of this hearing.

Above all else, ECAT member companies believe that a policy of

expanding U.S. international trade and investment through bilateral, regional, and multilateral negotiations is essential to a sustained U.S. economic growth and standards of living. American

companies, both large and small, are operating in a global economy

that is increasingly concentrated outside the United States. In fact,

96 percent of the world’s consumers are located outside of the

United States. With the lowering of trade barriers and technological advances, American companies are increasingly able to

reach these consumers. As a result, trade accounts for one-fourth

of our gross domestic product. The agribusiness sector in which

Cargill operates is a perfect example of this, as the products coming from one-third of America’s acres are exported. But this number could be greater if it were not for the Asian crisis.

Trade and investment have strengthened the U.S. economy by

generating new economic activity here at home through research

and development, and capital investments, as well as by creating

better, higher paying jobs, as documented in ECAT’s 1998 study,

Global Investments, American Returns. The trade and foreign direct

investment of American companies has complemented rather than

reduced economic activity in the United States in areas such as research and development, and investment in physical capital. American firms engaging in international trade and investment have

provided important new business opportunities in the United

States as they purchase over 90 percent of their intermediate inputs for their products from U.S. suppliers. At the same time, the

8

foreign affiliates of American firms are an important market for

U.S. product and services, accounting for 40 percent of U.S. exports. This new economic activity generated by U.S. trade and investment, promotes U.S. economic growth and higher U.S. standards of living overall.

The ECAT publication includes case studies from 10 ECAT member companies. Cargill’s case study describes our fertilizer business

that has production activities concentrated in the United States.

Our fertilizers are distributed to more than 20 countries around

the world. Our Florida facilities produce more than 4 million tons

of phosphate per year, 75 percent of which is exported.

What this means in human terms is that our fertilizer trade supports approximately 1,500 jobs at Cargill, and an estimated 40,000

phosphate-related jobs in Central Florida. The company employees,

whose jobs are supported by trade, do the best job of conveying the

human side of trade.

In the fall of 1997, just before the expected vote on trade negotiating authority, Jim Johnson, a maintenance mechanic and past

president of the local union from our fertilizer operation near

Tampa, took time off from his job to come to Washington to tell

Members of Congress what trade meant to his job and his son’s job

at our Tampa plant. He urged Members of Congress to support

trade negotiating authority so that the United States would not be

left behind while the rest of the world continues to form trade alliances to its advantage.

Jim hit the nail on the head, saying that the lack of trade negotiating authority kind of puts us in a position of having our tools

around our neck instead of in our hands. Borrowing Jim Johnson’s

words, ECAT is concerned that unless the United States adopts a

forward-looking, positive trade agenda, we will be left with our

tools to expand trade investment around our necks, instead of in

our hands. Simply put, the United States needs to press for our

trading partners to take more challenging steps to open their borders to trade.

The increase in America’s standard of living that has occurred

since World War II would not have been possible without U.S. political and economic leadership and maintaining an open trading

system that has produced a dramatic rise in world trade. As our

economy has become more closely integrated into the world economy, it is more important than ever that the United States, as the

leader of the current economic order, not abandon its over one-half

century of leadership of the world trading system. The gains we

have made over the past half century could be lost if we do not

maintain our commitment to an open trading system, and resist

domestic and global pressures toward protectionism.

The world achieved a great degree of global economic integration

from the late 19th century until World War I. It was only in the

early 1980’s that the world reached and then exceeded the earlier

level of international economic integration.

As chair of ECAT, I have made trade education a continuing

ECAT priority. In order to move forward on a positive trade agenda, we must re-engage the support of Congress, the Administration,

and American workers and their families for trade expansion.

9

Globalization is now an inescapable fact of life. We can’t turn

back the clock. While the global economic system is in its early

stages in facing great challenges, it is up to us to have a positive

leadership role that promotes greater economic opportunities for

U.S. companies and their employees and their families. ECAT believes that a positive trade agenda should establish a clear set of

objectives for the 1999 WTO Ministerial and a new round of WTO

negotiations and commitments to achieve China’s full integration

into the international trading system and renewal of trade negotiating authority.

This year, as host of the 1999 WTO Ministerial, the United

States has the opportunity to exercise its leadership in launching

a new round of trade negotiations that will advance trade liberalization well into the 21st century. In order to achieve this result,

the upcoming ministerial agenda must remain focused on trade liberalization, advance a reasonable framework and scope for the new

round, and must promote new initiatives that will create momentum for liberalization. We believe the United States must take the

lead in this effort.

U.S. business has an important role to play in ensuring the success of the ministerial, by encouraging the adoption in the United

States of a positive agenda in making the case for the contributions

of the WTO and to continuing trade liberalization.

ECAT is joining with the Business Roundtable and other U.S.

business organizations through an ad hoc coalition on a WTO Ministerial to coordinate business support for ministerial activities.

ECAT also supports early action on several items, including CBI

Parity, the African trade bill, and the miscellaneous tariff bill because they are important in and of themselves and in order to create momentum for the action under the broader trade agenda. The

African Growth and Opportunity Act would provide a valuable platform for increasing U.S. commercial ties with sub-Saharan Africa.

The CBI Parity bill would benefit both the United States and Caribbean economies.

In pursuing a positive trade agenda, we must resist pressures to

close our borders, despite the rising trade deficit. The world is

watching us and the actions that we take. For instance, if we respond to rising steel imports, other than in accordance with procedures set out in our unfair trade remedies statutes and other than

ways consistent with multilateral trading rules, we will set a dangerous precedent. Speaking both as chairman of ECAT and as CEO

of a company that has a steel division, we must stand firm and reject protectionist measures or we will risk more retaliation.

The United States and its trading partners must face the pressures on the open trading system by acting in accordance with the

rules of the multilateral trading system. The United States will not

succeed in this regard without the cooperation of our trading partners.

So in summary, I and other members of ECAT, believe that efforts must continue to reach a bipartisan agreement on the extension of trade-negotiating authority that will ensure trade expansion

into the 21st century. ECAT believes that armed with the positive

trade agenda that we have outlined, Congress, the Administration,

and the business community, will be best positioned to offer conVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
10

structive alternatives to protectionist proposals. In both the short

and the long-term, moving forward on a positive trade agenda gives

us the greatest opportunity to guarantee that the trade and foreign

direct investment of U.S. companies will continue to produce American returns in the form of greater U.S. economic growth and higher standards of living.

I appreciate the opportunity to present ECAT’s views. I would be

happy to answer any questions that Subcommittee Members might

have.

[The prepared statement follows:]

Statement of Ernest S. Micek, Chairman and Chief Executive Officer,

Cargill, Incorporated, Minneapolis, Minnesota, and Chairman, Emergency

Committee for American Trade

INTRODUCTION

My name is Ernie Micek. I am Chairman and Chief Executive Officer of Cargill,

Incorporated. Cargill is a privately-held agribusiness company founded over 130

years ago in Iowa. Today the company is headquartered in Minneapolis, Minnesota,

and is involved in marketing, processing, and distributing agricultural, food, financial, and industrial commodities throughout the world. We have some 80,000 employees in more than 1,000 locations in 65 nations with customers and suppliers in

approximately 130 more countries.

Cargill is an excellent example of why the United States needs to support an open

trading system both at home and abroad. Just as greater trade and investment in

overseas markets increasingly fuel growth in our national economy, Cargill’s growth

depends in large part on markets outside the United States. We need to be a global

company to grow and succeed.

Today, I am testifying as Chairman of the Emergency Committee for American

Trade on behalf of the heads of ECAT member companies, whose prosperity like

Cargill’s depends on the continued expansion of U.S. international trade and investment. ECAT members are major American companies with global operations and

represent all principal sectors of the U.S. economy. The annual sales of ECAT member companies total over one trillion dollars and the companies employ approximately four million persons.

ECAT commends you, Mr. Chairman, and other Members of the Trade Subcommittee for your leadership on trade-expansion initiatives. I am pleased to have

the opportunity to testify before the Trade Subcommittee today on the importance

of moving forward with a positive U.S. trade agenda and resisting the forces of protectionism. It was precisely this concern that led 33 ECAT CEOs to join me in sending a letter to the President at the end of last year stressing the need to pursue

a positive trade agenda to promote the health of the U.S. economy. I would like to

ask that a copy of the ECAT letter be entered into the record of this hearing.

Before addressing the specifics of ECAT’s views on the U.S. trade agenda, I want

to discuss how the global trade and investment activities of American companies are

producing significant returns for the U.S. economy.

GLOBAL INVESTMENTS, AMERICAN RETURNS

Above all else, ECAT member companies believe that a policy of expanding U.S.

international trade and investment through bilateral, regional, and multilateral negotiations is essential to sustain U.S. economic growth and standards of living.

American companies, both large and small, are operating in a global economy that

is increasingly concentrated outside the United States. In fact, 96 percent of the

world’s consumers are located outside of the United States. With the lowering of

trade barriers and technological advances, American companies are increasingly

able to reach these consumers. As a result, trade accounts for one-fourth of our

Gross Domestic Product. The agribusiness sector, in which Cargill operates, is a perfect example of this, as the products coming from one-third of America’s acres are

exported.

Trade and investment have strengthened the U.S. economy by generating new

economic activity here at home through research and development and capital investments, as well as by creating better, higher-paying jobs. As documented in

ECAT’s 1998 study, Global Investments, American Returns, the trade and foreign direct investment of American companies have complemented rather than reduced

11

economic activity in the United States, in areas such as research and development

and investment in physical capital. American firms engaging in international trade

and investment have provided important new business opportunities in the United

States, as they purchase over 90 percent of their intermediate inputs for their products from U.S. suppliers. At the same time, the foreign affiliates of American firms

are an important market for U.S. products and services, accounting for 40 percent

of U.S. exports. This new economic activity generated by U.S. trade and investment

promotes U.S. economic growth and a higher U.S. standard of living overall.

I think the best way to communicate what this really means is to look at actual

company case studies and the lives of company employees whose jobs depend on

trade and investment. The ECAT publication includes case studies from 10 ECAT

member companies. Cargill’s case study describes our fertilizer business that has

production activities concentrated in the United States and product distributed to

more than 20 countries around the world. Our Florida facilities produce more than

four million tons of phosphate per year, 75 percent of which is exported. Cargill’s

phosphate exports enable us to operate the Florida facility 24 hours-a-day, 365 daysa-year. If we had to rely on the U.S. market alone, our Florida plant would sit idle

for most of the year and our production costs would increase.

What this means in human terms is that our fertilizer trade supports 1,450 jobs

at Cargill and an estimated 40,000 phosphate-related jobs in Central Florida. The

company employees whose jobs are supported by trade do the best job of conveying

the human side of trade.

In the fall of 1997, just before the expected vote on trade-negotiating authority,

Jim Johnson, a maintenance mechanic and past president of a local union from our

fertilizer operation near Tampa, took time off from his job to come to Washington

to tell Members of Congress what trade meant to his job and his sons’; jobs at our

Tampa plant. Jim urged Members of Congress to support trade-negotiating authority, so that the United States would not be left behind while the rest of the world

continues to form trade alliances to its advantage. Jim hit the nail on the head, saying that the lack of trade-negotiating authority ‘‘kind of puts us in a position of having our tools around our neck instead of in our hands.’’

A POSITIVE TRADE AGENDA

Borrowing Jim Johnson’s words, ECAT is concerned that unless the United States

adopts a forward-looking, positive trade agenda, we will be left with our tools to expand trade and investment around our neck instead of in our hands. The increase

in America’s standard of living that has occurred since World War II would not have

been possible without U.S. political and economic leadership in maintaining an open

trading system that has produced a dramatic rise in world trade. As our economy

has become more closely integrated into the world economy, it is more important

than ever that the United States not abandon its over half-century of leadership of

the world trading system.

The gains we have made over the last half-century could be lost if we do not

maintain our commitment to an open trading system and resist domestic and global

pressures toward protectionism. The world achieved a great degree of global economic integration from the late 19th century until World War I, during which time

international trade and investment reached high levels. This period was followed by

decades of global fragmentation caused by political conflicts, as well as protectionist

trade policies such as the prohibitive U.S. Smoot-Hawley tariffs that helped bring

on the depression of the 1930s. It was only in the early 1980s that the world

reached and then exceeded the earlier level of international economic integration.

Trade Education. As Chair of ECAT, I have made trade education a continuing

ECAT priority. In order to move forward on a positive trade agenda, we must reengage the support of the Congress, the Administration, and American workers and

their families for trade expansion. ECAT’s trade education initiative, called

TradeWorks, is intended to rebuild the support of American workers, Congress, and

the Administration for an open trade system and continued trade liberalization. It

aims to achieve this objective by doing a better job of explaining why and how the

global activities of American firms promote U.S. living standards and benefit the

lives of company employees. First, it is seeking to broaden understanding of the critical role of both trade and investment in promoting economic growth and higher living standards in the United States. Toward this end, ECAT’s study, Global Investments, American Returns, details the benefits that flow to the U.S. economy from

trade and foreign direct investment. Second, the project is developing a set of educational materials and an efficient delivery system that will enable ECAT member

companies to educate their workers, communities, and elected officials about the

ways in which their worldwide operations help to raise U.S. living standards, and

12

inform them about how international trade and investment better their lives. The

name ‘‘TradeWorks’’ is taken from Cargill’s own trade education program and conveys the simple idea that trade works to make our lives better.

Elements of A Positive Trade Agenda. In this time of global economic challenges,

the United States must lead by example in keeping its markets open and pursuing

a positive trade agenda that promotes greater economic opportunities for U.S. companies and their employees and their families. ECAT believes that a positive trade

agenda should establish a clear set of objectives for the 1999 WTO Ministerial and

the new round of WTO negotiations, and commitments to achieve China’s full integration into the international trading system and the renewal of trade-negotiating

authority.

ECAT also supports early action on several items, including CBI Parity, the Africa

trade bill, and a miscellaneous tariff bill, because they are important in and of

themselves and in order to create momentum for action on the broader agenda. The

African Growth and Opportunity Act would provide a valuable platform for increasing U.S. commercial ties with sub-Saharan Africa. The CBI-Parity bill will benefit

both the U.S. and Caribbean economies. CBI Parity can be an important part of rebuilding the economic infrastructure of Caribbean nations devastated by Hurricane

Mitch.

In pursuing a positive trade agenda, we must resist pressures to close our borders

despite the rising trade deficit. The world is watching us. If we respond to rising

steel imports other than in accordance with procedures set out in our unfair trade

remedy statutes and other than in ways consistent with multilateral trading rules,

we will set a dangerous precedent. Speaking both as Chairman of ECAT and as

CEO of a company that has a steel division, we must stand firm and reject protectionist measures.

ECAT’s views on the major elements of this agenda are set out below.

THE 1999 WTO MINISTERIAL: LAUNCHING A NEW WTO ROUND

This year as host of the 1999 WTO Ministerial, to be held in Seattle, Washington,

the United States has the opportunity to exercise its leadership in launching a new

round of trade negotiations that will advance trade liberalization well into the next

century. In order to achieve this result, the upcoming ministerial agenda must remain focused on trade liberalization, must advance a reasonable framework and

scope for the new round, and must promote new initiatives that will create momentum for liberalization.

The Seattle Ministerial. It is important that the United States work to ensure that

the Seattle ministerial meeting is successful in producing a positive framework and

agenda for the launch of the new round and in reinforcing both domestic and international support for the multilateral trading system.

To create a positive framework for the new round, the focus of the ministerial

agenda must be kept on trade expansion. The agenda should not be sidetracked by

divisive issues such as labor, environment, competition policy, and investment on

which there is little hope of gaining consensus within the WTO. On labor and environment, the United States should assume a constructive role and emphasize ways

in which international cooperation and consensus may best be achieved. For example, the United States is pursuing an appropriate course on labor issues by increasing its support for the ILO and focusing its efforts to achieve a consensus on labor

issues within that organization. If the United States allows contentious issues to

dominate the ministerial, confidence in the global trading system and U.S. leadership will be undermined.

To be successful, the ministerial agenda should also include a renewed effort to

broaden WTO membership to include those emerging economies that are not yet

subject to WTO rules. China, the largest emerging economy in the world, must be

brought into the multilateral trading system. Its admission to the WTO on the basis

of a commercially-acceptable protocol of accession should be given top priority on the

ministerial agenda. The continuing financial instability in Asia and the slowdown

in the global economy make it more critical than ever that China be subject to WTO

rules and a participant in sectoral liberalization initiatives.

Reaching an agreement on sectoral market access initiatives, such as the negotiations on the nine sectors covered under the Early Voluntary Sector Liberalization

(EVSL) negotiations, at the time of the ministerial would help to make it a success

and would provide momentum for liberalization negotiations in the new round. The

EVSL initiative would result in the elimination of tariffs in chemicals, toys, medical

equipment and scientific instruments, energy, fish and fish products, and forestry

sectors in global trade. Similarly, progress at the ministerial in negotiations to reVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
13

move non-tariff barriers in the information technology sector would also promote a

successful meeting.

U.S. business too has a role to play in ensuring the success of the ministerial by

encouraging the adoption of a positive agenda and making the case for the contributions of the WTO in continuing trade liberalization. ECAT is joining with the Business Roundtable and other U.S. business organizations through an ad hoc coalition

on the WTO ministerial to coordinate business support for ministerial activities.

A WTO ministerial that produces a positive agenda backed by consensus will send

a strong signal to global markets about the strength and vitality of the open trading

system. A successful ministerial will encourage emerging economies to stay the

course on trade liberalization.

Success in Seattle will reinforce domestic support for the WTO. Under the Uruguay Round Agreements Act, the Administration is required to report to Congress

next year on how the WTO has worked for American interests in the first five years

of its operation. The law also provides that Congress can vote to revoke U.S. membership in the WTO if the WTO dispute settlement body rules against the United

States three times in any five-year period. It is essential that the Administration

be able to submit a positive report on the benefits of the WTO following a highly

successful U.S. ministerial meeting.

Finally, if the ministerial produces a trade-liberalizing agenda, U.S. support will

build for renewal of trade-negotiating authority. One of the factors that has hindered progress on renewal has been the lack of a specific articulation of negotiating

objectives. The Administration, the Congress, and the private sector are now engaged in the process of developing negotiating objectives for the new round, which

will clarify areas in which negotiating authority is necessary.

Standstill Commitment. To help U.S. trading partners resist the adoption of protectionist measures in response to global economic pressures, the United States

should take the lead in urging that WTO members enter into a standstill on trade

restrictive measures in advance of the ministerial. The United States could then

propose that WTO members formally adopt a standstill commitment at the ministerial. Such a commitment would help safeguard the liberalization achieved under the

Uruguay Round and subsequent sectoral negotiations and provide a positive foundation for future liberalization in the new round.

Scope and Framework for Negotiations. A new round should be broad in scope,

including negotiations mandated under the built-in agenda on agriculture and services, as well as negotiations to reduce industrial tariffs, promote business facilitation, and improve transparency in government procurement. The scope of the negotiations should also be flexible to allow the later inclusion of sectors or issues that

are not currently ripe for negotiation.

Negotiations should generally adhere to the WTO model of a ‘‘single undertaking’’

that requires all WTO members to observe the final agreements reached in a new

round. At the same time, the framework for the new round should allow for agreements to be implemented as soon as they are finalized, rather than require that

their implementation be delayed until all agreements are completed, as was the case

in the Uruguay Round. It is also important to establish timetables to ensure that

negotiations yield positive results within reasonable time periods.

ECAT’s views on the major areas that should be included in a new round are provided below.

1. Agriculture. The agriculture negotiations should aim to secure substantial, progressive reductions in support and protection, including deep cuts in bound tariff

rates and the elimination of export subsidies. Negotiations should seek a reduction

in average tariff bindings over six years by 50 percent from current levels. Tariff

peaks should be reduced to levels that will not prohibit imports. Negotiations should

clarify that tariff-rate quotas are transitional measures and provide for their phaseout. Sectoral zero-for-zero tariff agreements should also be encouraged.

The agriculture negotiations should seek a reduction in the aggregate measure of

support beyond the Uruguay Round level. The United States also should seek to

eliminate the monopoly control of state trading entities (STEs) and discipline their

behavior.

In connection with the launch of the agriculture negotiations, the Seattle ministerial declaration should endorse the initiative being developed within APEC to establish a global ‘‘open food system.’’ The initiative calls for putting the reform of food

and agricultural policies at the top of the U.S. and global trade agendas. It is based

on the premise that encouraging greater reforms in agricultural policies and promoting a more efficient global food system will encourage global economic development, as well as broader trade and investment in the goods and services sectors.

The United States should advocate the establishment of a WTO working party to

discuss the creation of a global ‘‘open food system.’’

14

2. General Agreement on Trade in Services (GATS). The United States should pursue new negotiations to liberalize trade in services, particularly financial services,

as part of a new round. Further liberalization of services trade will enhance global

growth, assist developing countries in obtaining the necessary infrastructure to sustain development, and help restore investor confidence in global markets.

One of the primary objectives of the services negotiations should be to encourage

the creation of transparent, impartial regulatory regimes in local markets. The creation of such regimes is essential to make the GATS national treatment and market

access commitments meaningful.

In seeking expanded liberalization commitments, the United States should aim to

limit reservations to the greatest degree possible. The United States should seek

commitments to ensure national treatment and the right of establishment, eliminate

restrictions on cross-border transactions, promote pro-competitive regulatory reform,

and remove obstacles to the free movement of business personnel.

3. Market-Access Negotiations. The new round should include market-access negotiations to remove tariff and non-tariff barriers in a wide range of industrial sectors.

The negotiations should include efforts to achieve tariff reductions in the nine EVSL

sectors to the extent such reductions have not been finalized by the time of the ministerial. The market-access negotiations should also cover the six additional sectors

identified in APEC for further liberalization, particularly food products.

Textile and apparel tariffs, which remain very high relative to other industrial

products, should also be included in market-access negotiations, with the goal of

seeking further reductions before the termination of textile and apparel quotas in

2005. Finally, the negotiations should encompass efforts to broaden membership in

the Chemical Tariff Harmonization Agreement (CTHA), with the understanding

that no further reductions in chemical tariffs should be considered until all major

chemical-producing nations are fully committed to the CTHA.

4. Trade Facilitation. ECAT strongly supports the inclusion of business-facilitation issues on the ministerial agenda. The United States should seek a WTO agreement on trade facilitation that would encompass the adoption of a binding WTO

agreement based on the rules contained in the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention), a work

program on trade facilitation, and a commitment to simplify rules of origin. The

United States should encourage the WTO to focus its trade-facilitation efforts on

customs procedures and advocate the establishment of a WTO working group on the

harmonization and simplification of customs procedures. The United States should

also support the simplification and harmonization of non-preferential rules of origin

so that they no longer create unnecessary trade impediments.

5. Government Procurement. ECAT supports U.S. efforts to bring more countries

into the WTO Procurement Agreement, to broaden its coverage, and to negotiate an

agreement on transparency in procurement. The United States should seek to conclude an agreement on transparency by the time of the ministerial. It should include

requirements regarding the transparency of procurement laws and regulations, adequate notice of bidding opportunities, use of objective criteria in preparing bid specifications and in evaluating bids, adequate dispute settlement, and WTO notification

of preference levels.

The transparency provisions of the Government Procurement Agreement should

be harmonized with the text of a new transparency agreement.

CHINA’S ACCESSION TO THE WTO

Securing China’s accession to the WTO on the basis of a commercially-viable protocol of accession is a priority for ECAT. The United States can no longer afford to

have China, as the largest emerging economy in the world, outside of the global

trading system. Fully integrating China into the global trading system will help to

ensure that it plays a positive role in the global economy and provides broader market access for U.S. goods, services, and agriculture. China’s accession to the WTO

would be read by financial markets throughout the world as a vote of confidence

in the international economy. It would also send a powerful signal to other Asian

emerging economies about the value of maintaining open markets and adhering to

multilateral trading rules in restoring global economic stability and growth.

In advocating China’s WTO membership, ECAT does not believe it should be at

any price. China must be willing to make the necessary economic reforms and market-access commitments to create a commercially-viable protocol of accession that

provides meaningful market access for U.S. goods, services, and agriculture. These

commitments must be in addition to China’s full implementation of existing liberalization commitments. If China agrees to such a protocol, the United States should

15

support China’s WTO membership and request that the Congress approve the permanent extension of normal trade relations (NTR) status to China.

China’s market holds enormous potential for U.S. goods, services, and agricultural

exports. Since 1979, when the United States first extended most-favored-nation

treatment to China, U.S. exports of goods and services have grown nearly twenty

times, reaching $18 billion last year. Over the same time period, U.S. investment

in China has grown to $25 billion. U.S. exports to China support more than 200,000

jobs in the manufacturing and agricultural sectors, as well as tens of thousands of

jobs in the U.S. retail, services, transportation, marketing, consumer goods, and

telecommunications sectors.

The United States has just begun to scratch the surface of the China market.

China is already the fourth largest market for U.S. agricultural exports. In recent

years, China has imported large quantities of U.S. grains, cotton, poultry, vegetable

oils, and other agricultural products. The American agricultural community views

China as its most important growth market for the twenty-first century.

There is vast potential too for further sales of U.S. non-agricultural products and

services. Even allowing for the impact of the Asian financial crisis, the purchasing

power of China’s middle class is expected to rise dramatically over the next decade.

China also has huge developmental needs to improve the living standards of its population and is committed to spending over $750 billion on infrastructure over the

next decade.

Cargill has a substantial stake in the China market, as it is one of our largest

markets for grain, proteins, fertilizers, and other agricultural commodities. Until recently, when a controversy arose over the presence of a fungus, TCK smut, in certain U.S. wheat, China was buying on average of 8- to 10-million tons of grain per

year. Cargill also ships orange juice and phosphate fertilizer to China from our

plants in Florida and exports cotton, corn, soybeans, soybean products, and meat to

China. Cargill has investments in animal-feed plants, a bulk fertilizer plant, and

a soybean-crushing plant in China and employs over 500 people in China.

Doing business in China presents great challenges because of poor infrastructure

and extensive market restrictions, including high tariffs, discriminatory sanitary

and phyto-sanitary standards, and government control of pricing and distribution,

as well as restrictions on trading rights. China’s WTO accession offers the opportunity to negotiate firm commitments to remove such barriers and to secure further

market access.

The United States and China have an important window of opportunity early this

year to reach a final agreement on the terms of China’s accession to the WTO. If

an agreement is not reached within the next few months, there is a real risk the

process will be delayed for several years. Securing an early agreement on a commercially-viable protocol of accession must remain a priority on the U.S. trade agenda.

RENEWAL OF TRADE-NEGOTIATING AUTHORITY

Renewal of the President’s trade-negotiating authority is also an integral part of

a positive trade agenda, as it provides the basic infrastructure necessary to achieve

further trade liberalization and other trade policy objectives. Over the past 25 years,

the legislative extensions of trade-negotiating authority have been the primary

mechanism for the executive and legislative branches to come together on a bipartisan basis to carry forward U.S. trade policy objectives. No mechanism has been

created to take the place of this process since the expiration of the last extension

of negotiating authority in 1994. As a result, a vacuum has been created and U.S.

trade policy remains stalled, jeopardizing U.S. leadership in the global trading system and endangering the continued expansion of trade and investment.

ECAT is recommending that the WTO ministerial and the launching of a new

round be used as the rationale for a new positive trade agenda, even in the absence

of trade-negotiating authority. While the United States may be able to move forward

through the ministerial and immediate post-ministerial period without negotiating

authority, our ultimate liberalization objectives cannot be achieved without it.

The Seattle WTO ministerial offers the United States the opportunity to reassert

its leadership within the WTO; however, unless the President is granted negotiating

authority for agriculture, services, and any other areas to be included in a new

round, the United States risks being left on the sidelines. Absent negotiating authority, it will be difficult for the United States to credibly participate in the newround negotiations and achieve further liberalization in sectors of greatest interest

to the United States. Our trading partners will reap the advantage.

Renewing trade-negotiating authority is also necessary for the United States to

reassert its leadership in regional trade negotiations such as the Free Trade of the

Americas (FTAA) and the Asia Pacific Economic (APEC) Forum. Although the FTAA

16

negotiations have been launched, serious questions remain whether our Latin American trading partners will be willing to enter into substantive negotiations beyond

trade facilitation measures before the United States has trade-negotiating authority.

In addition, the lack of U.S. negotiating authority has given Brazil the opportunity

to expand the Mercosur arrangement and to solidify its influence in shaping the

trade agenda within the FTAA.

Trade-negotiating authority is also essential to continue the sectoral liberalization

process that the United States is encouraging through APEC under the 15 sectors

identified under the EVSL initiative. The United States will not be able to implement fully the tariff reductions agreed to in the nine sectors covered under the

EVSL initiative or the other six sectors that may be the subject of future negotiations. Similarly, the United States may lack authority to implement fully an agreement to reduce non-tariff barriers in the information technology sector under a second Information Technology Agreement (ITA II).

The absence of a forward-looking trade policy backed by a grant of trade-negotiating authority is taking its toll on the competitiveness of U.S. goods, services, and

agriculture. Since the expiration of negotiating authority in 1994, regional preferential trade arrangements among our competitors in Europe, Latin America, and

Asia have mushroomed, putting U.S. products at an increasing disadvantage. For

example, U.S. agricultural exports are losing out to South American competitors as

a result of the preferential tariffs they enjoy under the Mercosur Agreement. Our

Canadian, Asian, and European competitors are also continuing to gain advantage

over the United States as they negotiate their own preferential arrangements with

Latin American countries. The European Union has begun free-trade negotiations

with Mexico and is close to initiating free-trade negotiations with Chile and

Mercosur. It is also negotiating preferential agreements on standards with Asian

countries. Canada now has its own free trade agreement with Chile, has entered

into a cooperation agreement with Mercosur, and is rapidly expanding its market

access in Latin America, thereby increasing the competitive challenge posed by Canadian exports to U.S. manufactured and agricultural exports.

While we must not delay progress on developing other U.S. trade policy priorities

in the absence of trade-negotiating authority, we must continue our efforts to build

bipartisan support for such authority.

THE CHALLENGES AHEAD

The United States and its trading partners must face the pressures on the open

trading system by acting in accordance with the rules of the multilateral trading

system. The United States will not succeed in this regard without the cooperation

of our trading partners. For this reason, ECAT believes that the United States

should call upon its trading partners to support a standstill on the imposition of

trade-restrictive measures in advance of the Seattle Ministerial that will be formally

adopted at the ministerial.

The United States must also ensure that the integrity of the WTO and its dispute

settlement process is maintained by insisting that the European Union and other

major trading partners uphold the decisions of WTO dispute settlement panels. In

preparing for the next ministerial and the possibility of a new round of multilateral

negotiations, the United States must ensure that the framework and results of such

negotiations strengthen WTO rules and expand market access for U.S. goods, services, and agriculture.

In seeking a more constructive bilateral relationship with China, the United

States faces the complex challenge of securing China’s entry into the WTO on the

basis of a commercially-viable protocol of accession, at a time when China is renewing its efforts to repress dissent and is imposing new restrictions on trade and investment.

I and the other members of ECAT also believe that efforts must continue to reach

a bipartisan agreement on the extension of trade-negotiating authority that will ensure trade expansion into the twenty-first century.

Time will tell whether we will be able follow Cargill’s Jim Johnson’s advice about

getting our trade policy tools from around our necks and into our hands. ECAT believes that armed with the positive trade agenda that we have outlined, the Congress, the Administration, and the business community will be best positioned to

offer constructive alternatives to protectionist proposals. In both the short and long

term, moving forward on a positive trade agenda gives us the greatest opportunity

to guarantee that the trade and investments of U.S. companies will continue to

produce American returns in the form of economic growth and higher living standards.

17

I appreciate the opportunity to present ECAT’s views and I would be happy to

answer any questions subcommittee members may have. I would also like to ask

that ECAT’s comments to USTR on the 1999 WTO Ministerial agenda be entered

into the record of this hearing.

Chairman C

Mr. Condit.

RANE. Thank you, Mr. Micek.

f

STATEMENT OF PHILIP M. CONDIT, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BOEING COMPANY, SEATTLE, WASHINGTON, AND CHAIRMAN, INTERNATIONAL TRADE AND INVESTMENT TASK FORCE, BUSINESS ROUNDTABLE

Mr. CONDIT. Mr. Chairman, and Members of the Subcommittee,

good morning. My name is Phil Condit. I am chairman and CEO

of Boeing Company. I also have the privilege of serving as the

Business Roundtable’s chairman of the Trade and International Investment Task Force. It is my privilege to offer our views on the

future direction of U.S. trade policy. I have asked that my written

testimony be submitted in the record. I will just summarize my key

points.

I would also like to introduce the gentleman to my left, Mr.

Barry Baszile, who is president of Baszile Metals Service, and aerospace supplier who has come from Los Angeles to testify this morning. He is the perfect example of a small business that depends

heavily on trade. I will let him tell his story.

Mr. Chairman, the United States clearly faces a number of fundamental choices on the direction of trade policy. Despite the fact

that trade has never been more important to this Nation’s economic growth, there continue to be questions on the wisdom of

these efforts, the efforts to expand trade by negotiating new agreements and trying to break down barriers to U.S. exports.

I would venture that those views are based upon concerns about

whether trade benefits people broadly in the United States, whether U.S. firms and employees are actually benefiting from trade

agreements, given the problems with compliance and enforcement.

Clearly these are legitimate concerns. In fact, they must be addressed if we are to work together to build a national consensus for

trade and continue to fuel our Nation’s economic growth.

Mr. Chairman, I would argue that America’s trade agenda must

be based on a set of fundamental principles. Let me see if I can

outline what I believe those principles need to be. Principle No. 1.

America must recognize the reality of a global economy and develop

the trade and investment policies that enable us to navigate

through the complexities of this global system. That involves both

the financial institutions that are required to promote international

economic stability, and the review of U.S. laws and regulations, including sanctions and trade statutes that ensure that they do not

unnecessarily impede the ability of U.S. agriculture, industry, and

their employees to compete in world markets.

Principle No. 2. We must reaffirm U.S. leadership. The United

States is the leader, and the world is looking to the United States

for leadership.

18

Principle No. 3, and probably the most important. Rules matter.

The economic system of the world must be based on a rules-based

system. Compliance and enforcement of those rules are required if

this system is to work.

Principle No. 4. Business must be a force for positive change in

the global economy. We must contribute to implementing a trade

policy that is win-win. That means we must work together to make

sure that that global system benefits all.

Mr. Chairman, while there are many issues that you and this

Subcommittee will be considering, I would like to mention two in

particular. The first is that we have a great opportunity to continue

the process of trade liberalization and improve the rules during the

upcoming WTO Ministerial in Seattle. This is the first time that

ministerial will be held in the United States. It is a unique opportunity to demonstrate U.S. leadership and introduce a new round

of trade negotiations.

Second. The strength of the multilateral trading system depends

on all key players being part of the system. I believe that it is

strongly in our benefit to work hard to include China in that world

trading system on a commercially meaningful basis. That will be

a difficult and important negotiation, but one I believe is a real opportunity in the months ahead.

I commend the Subcommittee for taking the important and leadership steps toward building a consensus that is required by holding this hearing. Thank you very much.

[The prepared statement follows:]

Statement of Philip M. Condit, Chairman and Chief Executive Officer, Boeing Company, Seattle, Washington, and Chairman, International Trade

and Investment Taskforce, Business Roundtable

Mr. Chairman, Members of the Subcommittee, good morning. My name is Philip

Condit. I am Chairman and CEO of The Boeing Company. I also have the privilege

of serving as the Chairman of the Business Roundtable International Trade and Investment Task Force.

I want to thank you for providing me and The Business Roundtable with the opportunity to share our views on the future direction of U.S. trade policy. Mr. Chairman, I would ask that my written testimony be submitted for the record and that

I summarize the key points. I would also like to introduce Mr. Barry Baszile, President of Baszile Metals Services, who has come to Washington, D.C. from Los Angeles to testify with me today. Mr. Baszile is one of Boeing’s small business suppliers

and is a terrific example of how when Boeing exports its products to international

customers, the benefits extend throughout the U.S. economy.

Mr. Chairman, the United States today faces a number of fundamental choices

in the direction of its trade policy. Despite the fact that trade has never been more

important to this nation’s economic growth, some continue to question the wisdom

of efforts to liberalize trade. I would venture that their views are based upon concerns about whether the benefits of trade are broadly shared and whether U.S.

firms and workers are actually benefiting from trade agreements.

These are clearly legitimate concerns and need to be addressed. In fact, they must

be addressed if we are to work together to rebuild a national consensus for trade

and fuel the nation’s economic growth.

I. AMERICA MUST REACH NEW TRADE AGREEMENTS TO PROSPER

Over the last several decades, successive Congresses and Administrations working

together on a bipartisan basis have made significant and admirable progress in

breaking down foreign trade barriers, benefitting our companies, workers, farmers

and the country as a whole. However, the ever-changing global economy continually

presents new opportunities and challenges. The United States must reach out for

these opportunities and meet these challenges. To do so, the United States must

continue to pursue trade liberalization, especially through new international agreeVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
19

ments. If we are not in the vanguard, we risk falling behind other countries that

are pursuing their own agendas.

International trade agreements are needed to open foreign markets for American

companies, workers and farmers. The United States has been the leader in working

for open markets because we know that, with our market the most open in the

world, and with our companies, workers and farmers the world’s most competitive,

we have the most to gain from removing foreign barriers to our goods and services

through trade agreements and the most to lose if such barriers persist.

However, despite recent trade agreements and improvements in world trade rules,

foreign barriers remain and new ones continue to be erected. Many countries still

impose significant tariffs on our exports. In an increasingly competitive global economy, these ‘‘taxes’’ can make the difference between success and failure in foreign

markets.

Moreover, as tariffs and traditional non-tariff barriers to our goods and services

exports have fallen, new problems have emerged. For example, inadequate intellectual property protection, customs, and standards-related and other regulatory barriers have become a new set of problems for U.S. exporters and their workers. Our

agricultural exports continue to face tariff and non-tariff barriers. Recent agreements have partially resolved some of these problems, but more progress is needed.

Some interest groups have argued that given the deterioration in the U.S. trade

balance in 1998, this is no time to begin new liberalization initiatives. But this is

the wrong way to look at the issue. Launching new trade negotiations has the potential to stimulate economic growth in countries whose economies are suffering.

That will, in turn, boost demand for American exports.

The United States must lead in promoting trade liberalization for the undeniable

reason that today we live in a global economy. The United States is the world’s largest exporter. Our total exports were $931 billion in 1998. Total trade—imports plus

exports—accounted for over $2 trillion in business activity, or nearly 24 percent of

the size of the U.S. economy. More than 95 percent of the world’s consumers live

outside the United States, and the world’s fastest-growing and most promising new

markets are spread across the globe. There is no way that the United States can

have a bright economic future if we do not actively pursue these foreign customers

and markets.

Trade is good for our economy, good for business, good for workers, good for farmers and good for consumers American companies, workers, and farmers have worked

hard to compete in the global economy, and the United States has seen the positive

results. U.S. exports continue to rise at an impressive pace—between 1996 and

1998, real exports were up 30 percent from the 1993–1995 period. These exports are

the engine driving economic growth and job creation in the United States. Export

growth has accounted for about 27 percent of the nation’s overall economic growth

over the past ten years. During this time export growth outpaced the expansion of

the economy as a whole. U.S. exports did slow in 1998 because of the Asia economic

crisis, which highlights the reality that U.S. economic growth and stability depends

increasingly on access to international markets.

I have heard a lot of talk that trade is good only for big companies. This is just

not the case as Mr. Baszile will explain in greater detail. Small- and medium-sized

companies are active exporters too. In addition to directly exporting, many smalland medium-sized companies also supply large companies with products and services that are used in the production of exports. These suppliers are what we have

referred to in the past as the invisible exporters.

Trade is also good for American workers. Approximately 12 million U.S. jobs are

supported by exports. Exports account, directly or indirectly, for about one in ten

civilian jobs in the nation and about one in five manufacturing jobs. These exportrelated jobs are high-wage jobs. They typically pay 13 to 16 percent more than the

average compensation.

The United States cannot, and should not, ignore the real effects of job loss for

individuals, regardless of the cause. But trying to freeze the U.S. economy in place

is impossible and would not be in the interest of this or future generations. The

United States needs to ensure that all Americans earn the education and learn the

skills they need in order to be competitive in the global economy.

Exports are particularly important for the nation’s farmers. As a whole, the U.S.

agricultural sector is more than five times as reliant on foreign trade as the U.S.

economy. U.S. agriculture exports hit a record $60 billion in 1996 but have fallen

since then due to economic crises and recessions in Asia and Latin America.

Imports are also important to consumers by contributing to a vibrant, competitive

economy and high standards of living. Imports can help keep inflation in check,

which often translates into low interest rates, high investment, and hence high job

creation. Imports also give consumers a greater choice of goods and services, includVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
20

ing those not available domestically. They create jobs in areas such as retail, distribution, ports and transportation. Imports allow U.S. companies and employees to

use the best technology from around the world, increasing their productivity and

competitiveness and therefore leading to higher wages and creation of more U.S.

jobs. Moreover, imports encourage competition and innovation.

Because the United States is the world’s most competitive nation, it has the most

to gain from the global economy and from trade liberalization. In the 1980s and

early 1990s, conventional wisdom held that the United States had been overtaken

by Japan and Germany and might never regain its place as an economic leader.

Today, the United States is back on top. Our economy has been growing faster than

those in Europe and Japan. We are the world’s biggest exporter of both goods and

services. We have the highest budget surplus (as a percentage of gross domestic

product) of any G–7 economy except Canada. We have created more net jobs in the

past few years than all other G–7 nations combined, and our unemployment rate

is below that of every other major industrial economy except Japan.

The United States has the world’s largest economy, the most productive employees, the best technology, and the most innovative people. That is why it is considered to be the most competitive large country in the world, as recently confirmed

by the Global Competitiveness Report from the World Economic Forum. The United

States is highly competitive in a range of important industries, such as: semiconductors, computers, computer software, aerospace equipment, applied materials, biotechnology, construction equipment, telecommunications and other informationbased equipment and services, financial services, information services and entertainment. These are the technologies of today—and of the 21st century.

The United States has done so well because its companies and workers have aggressively sought out the opportunities presented by the global economy. The U.S.

Government needs to continue negotiating new international trade agreements and

enforce existing agreements to ensure that U.S. companies and workers, and the

products and services they produce, are given the opportunity to compete fairly and

to prosper in the global economy. The United States has nothing to fear from a

rules-based trading system.

Because trade is so economically vital, the direction and execution of U.S. trade

policy can make a big difference. The decisions that this Committee and the Congress will make in 1999 will have ramifications for decades to come. Recognizing

this, we appreciate the opportunity to offer some views from the business community.

II. U.S. TRADE POLICY SHOULD BE KEYED TO PRINCIPLES

In defining a trade agenda that will ensure U.S. competitiveness, as we enter a

new century, U.S. policymakers can be helped by orienting principles.

The four principles are:

1. Given the reality of the global economy, the United States needs trade and investment policies to navigate through the complexities of a global system and ensure

that trade achieves its intended purpose—to raise American and global living standards. The U.S. Government needs to continue to be a powerful advocate for U.S. exports, both in terms of political support and programs to support U.S. exports. At

the international level, there is a need for effective global financial institutions to

promote international economic stability. Within the United States, there is a need

for periodic review of U.S. laws and regulations—including sanctions and trade statutes to ensure that they do not unnecessarily impede the ability of U.S. agriculture,

industry, and their employees to compete in world markets.

2. U.S. leadership is critical. For the last 50 years, the United States has led the

effort to liberalize trade, and the United States and our trading partners have benefited both economically and strategically. Continued efforts to liberalize trade will

require U.S. leadership.

3. The rules-based trading system is the foundation of the global economy and enforcement of the rules is the basis for public trust and support for U.S. involvement

in the global economy. The strength of the rules-based World Trade Organization

(WTO) system also lies in its inclusiveness and transparency. Compliance with, and

enforcement of, the rules governing trade is key to sustaining support for further

trade liberalization. This applies to the WTO as well as bilateral rules under agreements negotiated between the United States and other countries. Furthermore,

given the importance of the rules-based WTO system, aggressive efforts should be

made to incorporate into the system trading partners that have demonstrated a

commitment to WTO principles and trade liberalization.

4. Business is a key driver in the global economy and must be a force for developing and implementing a trade policy that is no longer viewed as a zero sum game.

21

Nations pursue trade to benefit their citizens. Business must work together with

government to create a global trading system that provides benefits to more individuals in society and accommodates the interests of a broader range of stakeholders.

Business must also ensure that the stakeholders clearly understand the importance

of trade to their future. The best way to assure that trade is a win-win for a broader

group of Americans is by training and upgrading the skills of the workforce, enforcing international trade rules and, when necessary, ensuring that companies and employees have access to appropriate import relief procedures and remedies.

Mr. Chairman, we believe that these principles will help government officials in

gaining public support for ambitious market opening initiatives. Attention to principles can also help trade negotiators assure that the policies being pursued are internally consistent and mutually reinforcing.

III. THE AGENDA: STRENGTHENING THE WORLD TRADING SYSTEM AND EXPANDING

COVERAGE TO NEW PLAYERS

While there are many issues over which you and the Subcommittee will be deliberating during the weeks and months ahead as you define America’s trade agenda,

I would like to focus on two critical issues that go to the heart of what will continue

to be the strength of our trade policy—that is, the rules-based trading system. These

include: (1) launching a new round of trade negotiations at the WTO Ministerial

meeting this fall in Seattle; and (2) bringing China into the trading system on commercially meaningful terms.

THE URGENCY OF WTO NEGOTIATIONS

Initiating new multilateral trade negotiations in the WTO is vital for the United

States and the global economy. Since the Uruguay Round negotiations were completed in 1993, the benefits of open trade for consumers and workers have been

amply demonstrated. The new WTO has provided a framework for carrying on negotiations in selected sectors, for settling disputes, and for promoting communication

between governments and stakeholders in the private sector. This record demonstrates that the trading system works. Now it is time to begin new negotiations

to remove remaining barriers to trade and investment. Efforts are also needed to

improve the WTO’s rules and its dispute resolution process.

It is important to launch new world trade negotiations in 1999 and not to allow

differences in economic performance among countries, or election cycles their, delay

start. The world waited seven years between the GATT Tokyo Round and the Uruguay Round. But today economic constant communication electronic commerce

change is much more rapid. Because markets respond so quickly in our global economy, trade negotiations begin to generate economic benefits very quickly. Thus, further delay in starting new negotiations will postpone the economic stimulus that

successful trade negotiations can deliver. Even worse, a lack of momentum for new

trade talks may lead some governments to renege on previous liberalization commitments.

Although some have criticized the WTO, the fact is that the WTO is an organization of governments who cooperate to reduce trade barriers and eliminate improper

trade discrimination. A strong, successful WTO is in the U.S. interest because this

rules-based system can be used to confront governments that discriminate against

Americans who export goods, services, and capital investments.

The WTO Ministerial to begin in Seattle on November 30 offers an opportunity

for the U.S. Government to promote the launching of new WTO negotiations. This

is the right moment to start new talks because the experience of the last few years

shows several areas in which current WTO agreements can be built upon and improved. To assist trade negotiators in crafting an agenda for new WTO negotiations,

we offer several recommendations for how U.S. interests can be best advanced.

SUGGESTED AGENDA FOR NEW WTO NEGOTIATIONS

In considering what a new WTO negotiation should accomplish, it helps to divide

the issues into two categories:

• the built-in agenda that carries forward ongoing negotiations, and

• review and strengthening of various WTO agreements.

By distinguishing these two categories, it may become clearer to policymakers and

the public that much of what needs to be done within the WTO, at this time, is

not the development of new rule-based agreements, but rather the continuation of

the unfinished business of the Uruguay Round. This requires the completion of current negotiations and the adjustment of Uruguay Round agreements based on the

experience of the first five years of operation.

22

The improvement of current WTO agreements is especially important to preparing

the world trading system for the 21st century. Although the Uruguay Round included a number of trade agreement milestones, the full potential of these agreements has not yet been achieved. Rather than devoting resources to the negotiation

of entirely new WTO agreements, it may be best for governments to focus on improving existing disciplines.

Governments should aim to keep the overall negotiating process flexible regarding

the implementation of new decisions. In the past, the operating procedure in trade

negotiations was that nothing is decided until everything is decided. Yet the more

structured WTO decisionmaking mechanisms may provide a way to implement

agreements in individual areas as they are agreed. Requiring all agreements to be

finalized at the same time would likely draw out the negotiating process, with no

concrete results attainable for several years. Given the growing importance of trade

to the United States and world economies, the United States should not have to

wait over seven years (as in the Uruguay Round) before a package of agreements

is finalized.

A precondition for successful trade negotiators is that all WTO members should

agree to a standstill on trade-restrictive measures in advance of the Ministerial and

throughout the negotiations. Such a standstill would ensure that governments do

not modify their laws in order to gain bargaining advantage. The standstill should

not interfere with the continued use of trade remedy laws consistent with WTO

rules.

It is important that the new agreements apply to the largest possible number of

large countries. Thus, the WTO should continue working to achieve the accession

of China and other non-members on commercially acceptable terms. Strengthening

the WTO will also underline to non-members the value of being part of the multilateral trading system.

Let me now discuss some actions that the WTO should take with respect to the

built-in agenda.

The Built-in Agenda

There are three parts of the Built-in Agenda—Services, Agriculture, and Tariffs.

Services. Because world trade in services is increasing at a faster rate than trade

in goods, the expansion of the Services Agreement should be a top priority in the

next round. The problem in Services is that, at present, the General Agreement on

Trade in Services provides only minimal disciplines.

The WTO needs to begin this process by encouraging governments to ratify the

Financial Services and Basic Telecommunications Agreements and to fulfill their

commitments under them. Negotiations should also be launched to expand liberalization commitments under these two agreements. Among the high priority sectors

for obtaining new services agreements are: all levels of distribution, transportation,

construction, tourism, information technology, health care, advertising, express delivery, and business professional services.

Agriculture. The Uruguay Round made notable progress in reducing agricultural

trade barriers and making import protection more transparent. But there is far

more to do in addressing policies that impede trade. Negotiations on agriculture are

especially important because the prospects for developing countries of obtaining

greater market access can encourage responsive commitments by these countries not

only on agriculture, but also on other sectors of interest to industrial countries.

Tariffs. Although average tariff levels have fallen as a result of trade negotiations,

tariffs remain significant barriers in some sectors. This should be a high priority

in new negotiations. High tariffs must be put on a timetable for reduction. When

feasible, zero-for-zero proposals should be considered and ‘‘nuisance’’ tariffs—those

under 5 percent—should be eliminated.

Review and Strengthening of WTO Agreements

Moving beyond the Built-in Agenda, the WTO should address several problems

that have risen in the implementation of the Uruguay Round Agreements. Using the

upcoming negotiations to improve the effectiveness of the WTO is the best way to

strengthen the trading system for the challenges of the 21st century.

The following is an overview of the major issues that need to be addressed:

Intellectual Property. Even after the improvements achieved in the Uruguay

Round Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), significant gaps remain in the protection and enforcement of intellectual property

rights—regarding patents, trademarks, copyrights, and trade secrets. Governments

also need to focus on improving the enforcement of TRIPS obligations. For example,

developing countries must honor their TRIPS obligations following the termination

of the transition period ending January 2000.

23

Subsidies and Countervailing Measures. The WTO Agreement on Subsidies and

Countervailing Measures (SCM) was an important achievement of the Uruguay

Round, and trade negotiators should resist proposals to weaken it. In addition, negotiators should consider ways to strengthen the Agreement; for example, by requiring

developing countries to apply the same disciplines against export subsidies.

Customs-Related Issues. Although often technical, national regulations regarding

rules of origin, pre-shipment inspection, import licensing, and valuation can have

a significant impact on business costs and trade flows. For example, the Uruguay

Round provides for a work program on the harmonization of rules of origin. These

efforts have been slow going. The trade ministers should renew their efforts to

achieve such harmonization.

Sanitary and Phytosanitary Measures. The WTO Agreement on Sanitary and

Phytosanitary Measures (SPS) does not prevent governments from enforcing legitimate food safety and public health regulations. What SPS aims to do is to assure

that governments do not block imports through unnecessary regulations either inadvertently or through inadvertence. Any attempt to water down these requirements

should be opposed.

More attention should be given to the provision calling for governments to base

their SPS measures on international standards except when those standards fail to

provide a high enough level of health protection. Greater harmonization of food safety standards will lead to a safer world food supply and will help achieve the dual

goals of fewer trade restrictions and the avoidance of episodes in which protectionists blame tainted food on free trade.

Technical Barriers to Trade. As tariff barriers fall, some governments and standard-setting organizations will be tempted to use technical standards as a substitute

for tariffs in order to protect national industry. Recognizing this possibility, the Uruguay Round produced a new Agreement on Technical Barriers to Trade (TBT).

These new disciplines have not yet been tested in WTO dispute settlement. Nevertheless, a number of concerns have arisen. For example, for standards seeking to

fulfill health, safety, or environmental objectives, TBT lacks a requirement that

such standards be based on scientific principles.

Government Procurement. The Agreement on Government Procurement is not part

of the WTO single undertaking but rather is a ‘‘plurilateral’’ agreement comprising

only 26 of 133 WTO member countries. The upcoming Trade Round should review

this status to see if the Procurement Agreement can be fully brought into the WTO.

This is a huge sector totaling over $3 trillion a year worldwide.

For those governments that do participate in the Procurement Agreement, efforts

should be made to strengthen the Agreement by: (1) expanding coverage of subnational governments and government-controlled enterprises; (2) inclusion of additional service sectors; and (3) lowering the threshold for obligations to apply. The

issue of developing country participation in agreement the Procurement Agreement

should also be discussed. These countries may have the most to gain from transparent and fair procurement processes that make best use of their limited resources.

Electronic or E-Commerce. E-Commerce does not appear to require unique trade

rules, but because of the importance of this new sector to economic efficiency and

growth, the WTO should give specific attention to it. A top priority at the Ministerial should be to make permanent the standstill regarding tariffs on electronic

transmission. Another objective should be to ensure that MFN and national treatment are accorded to foreign providers of Internet and interactive services.

Trade-Related Investment Measures. The WTO Agreement on Trade-Related Investment Measures (TRIMs) is the thinnest of the WTO Agreements. Attention

should be given to strengthening its provisions. One of the critical areas for discipline is the imposition of trade-related investment measures, such as mandatory

technology transfer requirements. Such requirements are trade-distorting and can

often render new investment impossible.

Transparency of Government Policies. Transparency requirements are currently

spread throughout the WTO Agreements. The WTO should consider the negotiation

of a general transparency agreement that would encompass tariffs, internal taxes,

standards, sanitary measures, domestic regulations, subsidies and export incentives,

export controls, procurement, agricultural policies, rules of origin, and other customs

practices. Such an agreement could provide for clear publication of government rules

and perhaps help to curtail bribery and corruption. It could also affirm the value

of private sector participation in the rules-setting process.

Dispute Settlement. The WTO’s Dispute Settlement Understanding is the key to

effective enforcement of WTO agreements. However, experience with the WTO dispute process has revealed several areas where the procedural rules need improvement. We recommend that trade negotiators consider whether the timetable for the

panel process can be substantially streamlined perhaps by cutting down the time

24

by 50 percent. Right now, the biggest problem lies in the slow implementation of

panel and Appellate Body reports over a 12–15 month period. While this period may

already be too long, ‘‘gaming’’ by governments may drag out the compliance process

even longer. The WTO needs to address this tactic in order to retain public confidence in the dispute settlement system.

Trade and Environment. In 1994, trade ministers created a Committee on Trade

and Environment. The WTO renewed that mandate in 1996. The Committee has

held numerous meetings, but has made very limited progress. Later this month, the

WTO is sponsoring a high-level meeting on Trade and Environment to review the

issues and to stimulate new proposals.

The WTO is not the right forum to negotiate international environmental policy.

Attempting to do so would distract trade ministers from what should be their primary objective which is to open markets, prevent export subsidies, and stop trade

discrimination. Recognizing, however, that unmanaged transborder environmental

problems can sometimes become trade issues, the Roundtable endorses efforts by

governments, working with interested stakeholders, to improve the effectiveness of

multilateral environmental institutions and agreements.

There are also a few environment-related issues that need to be addressed in the

WTO, and governments should strive to make greater progress here. For example,

the status of multilateral environmental agreements under trade rules needs to be

clarified so that the WTO is not perceived in some quarters as an impediment to

environmental protection. The problem of subsidies that harm the environment e.g.,

European agricultural subsidies deserves more attention, and the Trade Policy Review Mechanism might be used to cast a spotlight on such practices.

Labor Issues. The issue of trade and labor rights has engendered so much controversy that it has eclipsed the real issue, which is obtaining more respect for

internationally recognized labor standards around the world. During 1998, significant progress was made in Geneva when the International Labor Organization

(ILO) adopted a Declaration on Fundamental Principles and Rights at Work. This

was a landmark achievement for the ILO and exemplifies what The Business

Roundtable called for in 1995 when the Roundtable urged that ILO programs be improved. Governments should continue to pursue multilateral efforts to promote labor

standards. The organization of primary responsibility should be the ILO, but complementary activities in other organizations should not be ruled out, or insisted

upon.

An important labor standard is freedom from forced labor practices. The WTO is

not oblivious to this heinous problem. Article XX(e) of the General Agreement on

Tariffs and Trade has always allowed governments to ban imports of products made

with ‘‘prison labor.’’ At this time, the applicability of this exception to products of

forced labor remains uncertain. It may be timely for the WTO to clarify this ambiguity by affirming that governments may ban products made using forced labor.

Doing so might help governments combat forced labor, a practice that is anathema

to free market principles.

Consideration should also be given to expanding GATT Article XX to deal with

products made using child labor. This year, the ILO will complete a new Convention

on exploitative child labor, and the definitions employed in this Convention might

be utilized in modifying Article XX. It should be noted that Article XX would not

permit punitive trade sanctions on unrelated products. Rather, Article XX would

only permit an import ban on the product made using child labor.

New Initiatives

A number of new rule-based WTO initiatives have been proposed such as investment and competition policy. These issues are important to the international economic system, and careful consideration should be given to determine whether these

issues are ripe for WTO negotiations.

Competition Policy. The globalization of business activities raises important questions about the extent to which foreign anticompetitive practices may undermine

market access opportunities created by bilateral and multilateral trade and investment agreements. However, at this time, there are huge uncertainties as to the

proper goals for a competition policy negotiation in the WTO and whether the WTO

is the optimal forum. For example, what are the downsides and, conversely, the upsides of addressing market access problems through an international competition

policy agreement in the WTO or other fora?

Under these circumstances, it is premature to launch a WTO negotiation on competition policy. A more constructive approach would be to establish a new WTO

work program that will focus more on exchanging information about the development and enforcement of appropriate antitrust laws.

25

Investment. Achieving disciplines on how governments treat foreign investment is

important to gaining the full benefits of the international economic system. If the

WTO Ministerial decides not to launch comprehensive international investment negotiations, a constructive course now would be (1) to strengthen the WTO Agreement on Trade-Related Investment Measures by expanding it to include additional

trade distorting investment measures, such as technology transfer requirements,

and (2) to establish a WTO work program on investment that will focus more on

exchanging information about how to structure an investment regime that will promote economic growth.

CHINA’S WTO ACCESSION

Mr. Chairman, over the next five weeks, the United States and China have a window of opportunity to accelerate the process of bringing China into the global trading system. As the largest emerging economy in the world, China can take on a pivotal role in helping to chart the course for recovery in Asia particularly in light of

the continuing weakness in the Japanese economy. In addition, the growth of the

Asian market is important to the United States and further opening China’s market

will lead to increased U.S. exports of goods, services and agriculture.

Fully integrating China into global economic institutions, such as the WTO, is the

best means to ensure that China will play a positive role in the global economy and

provide broader market access for U.S. goods and services. In order to join the WTO,

China should be required to enter into binding commitments to open its markets

and abide by the disciplines of multilateral trading rules. The liberalization required

under WTO rules would provide important new opportunities in the vast Chinese

market, which will help maintain global economic growth. WTO-mandated liberalization in China will also promote growth in China itself as the removal of discriminatory trade barriers creates new opportunities for economic activity and jobs. WTO

accession would also provide another venue to encourage China to maintain a stable

currency.

While China’s WTO membership is important because of the benefits it would provide to the American, the Chinese and the global economy, it would also be viewed

by financial markets throughout the world as a vote of confidence in the global economic system. China’s WTO membership would send a powerful signal to Asian

economies and other emerging markets around the world the importance of maintaining open markets and adhering to multilateral trading rules if economic growth

is to be maintained.

In advocating China’s WTO membership, we do not suggest that it be at any

price. China must be willing to agree to a commercially viable protocol of accession,

which provides meaningful market access for U.S. goods, services and agriculture.

These commitments must be in addition to China’s full implementation of existing

liberalization commitments. If China agrees to such a protocol, the United States

should be ready to support China’s WTO admission and request that the Congress

approve the permanent extension of normal trade relations (NTR) treatment so that

U.S. firms and workers will be able to take full advantage of the market opening

agreements that have been so paintstakingly negotiated.

Bringing China into the global trading must remain one of America’s greatest priorities. We ask for your continued leadership in achieving this goal by making it

an integral part of your global economic strategy, and we commit our support to you

to work to build support for permanent NTR trading status.

IV. CONCLUSION

The next nine months will be very important in determining the future direction

of U.S. trade policy. First, the United States will hopefully be successful in securing

China’s accession to the WTO on the basis of a commercially viable protocol of accession. This will help restore stability in Asia and strengthen the multilateral trading

system by ensuring that key members of the team are all playing by the same rules.

Second, we hope that the United States will provide the leadership necessary to

launch new negotiations in the WTO to further liberalize trade and strengthen the

WTO. I urge the Congress and the Administration to work together to reach a consensus on moving forward this year on these critical issues. And, I commend the

Subcommittee for holding these hearings to help inform members of the Congress

and the public about these vital issues and to continue the process of building a national consensus on America’s trade policy.

f

26

Chairman CRANE. Thank you, Mr. Condit.

Mr. Baszile.

STATEMENT OF BARRY BASZILE, PRESIDENT AND OWNER,

BASZILE METALS SERVICE, LOS ANGELES, CALIFORNIA

Mr. BASZILE. Mr. Chairman, Members of the Subcommittee, good

morning. I am Barry Baszile, the owner and president of Baszile

Metals Service. Our main office is located in Los Angeles, California, and we have branch offices located in Seattle, Washington,

and in York, Pennsylvania.

First, I would like to thank you for the opportunity to be with

you today to represent my company of 40 employees and our community. One of my primary reasons for being here with you today

and the reason that I am so excited about this opportunity is to try

and put a face on what you all hear so much about. That is, how

international trade impacts the thousands of small businesses in

communities scattered throughout this country.

I can tell you that Baszile Metals Service is living proof that the

benefits of participating in a global economy are not limited just to

big business. Some 24 years ago, I founded Baszile Metals. Today,

we are the only black-owned firm to manufacture parts, process

and deliver aluminum sheet, plate, rod, bar, and extrusions to the

aerospace and defense industries. I began my career making cold

sales calls on large companies. Many of those companies, like Boeing, gave us a chance. The door was opened, and it was up to us

to be reliable and provide quality products at competitive prices.

I am fortunate to have a talented, dedicated workforce. These are

people who really care about their jobs and their customers. They

know that our products must be of the highest quality because

lives depend on it. Over the past 24 years, our products have been

a part of every Boeing model of commercial aircraft, NASA’s space

shuttle, the international space station, the F–15 and F–16 jet

fighters. We are also a supplier for the Joint Strike Fighter program.

Our customers have included the Boeing Company, Rockwell

International, Northrop-Grumman, McDonnell-Douglas, Lockheed

Martin, the Department of Defense, and NASA. We have even provided copper, nickel, and zinc to the Treasury Department for the

coins. We are also a stocking supplier for bus brake and axle parts

and brake assemblies and repair kits. The hard work and dedication of our employees has paid off. Last year, our company was selected as the Boeing Company’s Small Disadvantaged Supplier of

the Year. One of the reasons for our selection was our 97.6 percent

on-time delivery record. We are extremely proud of our performance and of this recognition.

I am keenly aware of the role that my customers play in the

international marketplace, and how competitive it can be. Our role

as a supplier is to deliver quality products on time and at competitive prices. However, I have another responsibility. That is to provide jobs and economic opportunity in my community. If possible,

I would like to take just a moment to tell you how our association

27

with companies like Boeing manifest itself in our inner city Los Angeles community.

Our firm is transitioning into a true manufacturing company.

Soon, we will not only be providing metals, but producing metal

parts for our customers. We are building a 10,000-square foot machine shop to produce precision parts. The people who make those

parts will be individuals who could be classified as socially and economically disadvantaged. We are working hand-in-glove with Los

Angeles law enforcement, black and Hispanic groups, the International Association of Machinists, and the United Auto Workers,

to identify and train so-called ‘‘deadbroke dads’’ for jobs as machinists. Some of the men with this label are not deadbeats. What so

many of them need are jobs to help them fulfill their obligations.

We are going to do that. They need training to build a skill that

they can take pride in and help restore their self respect as contributing members of the community. We are going to help them do

just that.

If I might, Mr. Chairman, I would like to talk about one more

program that my company is involved in. In October, we announced

the formation of a new non-profit organization called Welfare to

Work Partners, to help address the critical needs of our inner-city

community. Welfare to Work Partners will target crucial problems

such as preparing welfare recipients to successfully enter the workforce by improving their academic competencies and life skills. Our

goal is to enhance the level of bonding and emotional relationships

between non-custodial fathers and their children, establish paternity, increase the fathers’ earning capacity, and to improve community awareness of fatherhood. The Welfare to Work Partners program is off and running. We even have our own Website. You can

find us at www.wwpartners.org.

We are teaming with the successful Fast Track LA program,

which is a unique program that provides classes to improve both

academic and important life skills. As an inner city employer, I am

sensitive to the needs to assist our employees in their own self-improvement and education. Baszile Metals has a 20 station computer lab where our employees can work on programs designed to

improve their English, reading, and math skills levels.

My background and training was as a probation officer and social

worker. Today I am a businessman working with some of our Nation’s largest companies, including the country’s largest exporter,

the Boeing Company.

Ladies and gentlemen, what I hope I have left with you today is

what one company can do in its community as the result of having

strong business partnerships with major companies to do business

in the international marketplace. I encourage you to continue to

find ways that we as a Nation can participate in fair and open

trade with other nations, so that our employees and our communities can benefit.

Thank you very much.

[The prepared statement follows:]

Statement of Barry Baszile, President and Owner, Basszile Metals Service,

Los Angeles, California

Mr. Chairman, Members of the Subcommittee, good morning. I am Barry Baszile,

the owner and President of Baszile Metals Service. Our main office is located in Los

28

Angeles, California and we have branch offices located in Seattle, Washington and

York, Pennsylvania.

First, I would like to thank you for the opportunity to be with you here today to

represent my company and our 40 employees, and our community. One of my primary reasons for being here with you today, and the reason that I am so excited

about this opportunity is to try and put ‘‘a face’’ on what you all hear so much

about. That is how international trade impacts the thousands of small businesses

in communities scattered throughout this country. I can tell you that Baszile Metals

Service is living proof that the benefits of participating in a global economy are not

limited just to big business.

Some 24 years ago I founded Baszile Metals. Today we are the only black-owned

firm to manufacture parts, process and deliver aluminum sheet, plate, rod, bar and

extrusions to the aerospace and defense industries. I began my business making

cold sales calls on large companies. Many of those companies, like Boeing, gave us

a chance. The door was opened and it was up to us to be reliable and provide quality

products at competitive prices.

I am fortunate to have a talented, dedicated workforce. These are people who really care about their jobs and their customers. They know that our products must be

of the highest quality because lives depend on it. Over the last 24 years our products have been a part of every Boeing model of commercial aircraft, NASA’s space

shuttle and International Space Station and the F–15 and F–16 fighter jets. We are

also a supplier for the Joint Strike Fighter program.

Our customers have included: The Boeing Company, Rockwell International, Northrop-Grumman, McDonnell-Douglas, Lockheed Martin, the Department of Defense

and NASA. We have even provided copper, nickel and zinc to the Treasury Department for coins. We are also a stocking supplier for bus brake and axle parts and

brake assemblies and repair kits.

The hard work and dedication of our employees has paid off. Last year our company was selected as The Boeing Company’s Small Disadvantaged Supplier of the

Year. One of the reasons for our selection was our 97.6 percent on-time delivery

record. We are extremely proud of our performance and of this recognition.

I am keenly aware of the role that my customers play in the international marketplace and how competitive it can be. Our role as a supplier is to deliver quality

products, on time at a competitive price. However, I have another responsibility and

that is to provide jobs and economic opportunities in my community.

If possible I would like to take just a moment to tell you how our association with

companies like Boeing manifests itself in our inner city Los Angeles community.

Our firm is transitioning into a true manufacturing company. Soon we will not

only be providing metals, but producing metal parts for our customers. We are

building a 10,000 square foot machine shop to produce precision parts. The people

who make those parts will be individuals who could be classified as socially or economically disadvantaged.

We are working hand-in-glove with Los Angeles law enforcement, Black and Hispanic groups, the International Association of Machinists and the United Auto

Workers to identify and train so called ‘‘deadbroke Dads’’ for jobs as machinists.

Some of the men with this label are not ‘‘deadbeats.’’ What so many of them need

are jobs to help them fulfill their obligations . . . and we are going to do that. They

need training to build a skill that they can take pride in and help restore their selfrespect as contributing members of the community . . . and we’re going to help

them do just that.

If I might, Mr. Chairman I would like to talk about just one more program that

my company is involved in.

In October we announced the formation of a new, non-profit organization called

‘‘Welfare to Work Partners’’ to help address the critical needs of our inner-city community.

‘‘Welfare to Work Partners’’ will target crucial problems such as preparing welfare

recipients to successfully enter the workforce by improving their academic competencies and life skills.

Our goal is to enhance the level of bonding and emotional relationships between

non-custodial fathers and their children; establish paternity; increase the fathers’

earning capacity and; improve community awareness of fatherhood. The Welfare to

Work Partners program is off and running. We even have our own web site

www.wwpartners.org.

We are teaming with the successful Fast Track LA program, which is a unique

training program that provides classes to improve both academic and important life

skills.

As an inner city employer, I am sensitive to the needs to assist our employees

in their own self-improvement and education. Baszile Metals has a 20 station comVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
29

puter lab where our employees can work on programs designed to improve their

English, reading and math skill levels.

My background and training was as a probation officer and social worker. Today

I am a businessman working with some of our nation’s largest companies, including

the country’s largest exporter—The Boeing Company.

Ladies and Gentlemen, what I hope I have left with you today is what just one

company can do in its community as the result of having strong business partnerships with major companies to do business in the international marketplace. I encourage you to continue to find ways that we, as a nation, can participate in fair

and open trade with other nations, so that our employees and our communities can

benefit.

Thank you.

Chairman C

Mr. Swift.

RANE. Thank you, Mr. Baszile.

f

STATEMENT OF RICHARD J. SWIFT, CHAIRMAN, PRESIDENT

AND CHIEF EXECUTIVE OFFICER, FOSTER WHEELER CORPORATION, CLINTON, NEW JERSEY, ON BEHALF OF THE NATIONAL FOREIGN TRADE COUNCIL, INC.

Mr. SWIFT. Mr. Chairman, and Distinguished Members of the

Subcommittee, I am Dick Swift, the chairman and chief executive

officer of Foster Wheeler Corporation, a global engineering, construction, and manufacturing company specializing in the process

and power industries. I also serve as the chairman of the National

Foreign Trade Council, a broad-based organization founded in

1914, of more than 550 U.S. companies having substantial international interests.

I am appearing today on the Council’s behalf. I would like to submit my detailed statement for the record and summarize my remarks for you now.

I appreciate the opportunity to testify today. Foster Wheeler, like

many other NFTC members, depends on its success in the international marketplace for the majority of its business. In fundamental respects, our Nation’s economic strength has been due to

our extensive trade and investment with other countries, and our

willingness to remain open and unafraid of global competition.

World Trade Organization trade ministers will meet in Seattle

later this year, creating a real opportunity to advance America’s

economic interests and demonstrate bipartisan support for increased trade.

Through a new round of multilateral negotiations, the United

States can reduce barriers to agricultural trade, open trade in services, and give American business new access to other markets

around the world. We can also strengthen and improve our existing

WTO trade agreements and enforcement mechanisms. The NFTC

has provided recommendations to the U.S. trade representative on

future WTO negotiations that are included in my statement for the

record.

For decades, America has been the world’s most powerful and articulate advocate of an open rules-based trading system. Today

however, many have begun to doubt America’s commitment to open

trade. It is time to get back to the positive role of trade and demonstrate the leadership necessary to implement a forward-looking

trade agenda. Congress has a vital role to play. Passage of a broad

30

pro-trade bill would clarify and renew America’s commitment to

open markets and global growth. Such a package could strengthen

the hand of our negotiators and the competitiveness of our business

in the international marketplace.

The bill should contain these elements. First, strongly endorse

multilateral trade liberalization through comprehensive WTO negotiations and other bilateral and regional trade initiatives. Such liberalization would be a powerful stimulant to global economic

growth and recovery.

Second, renew traditional trade negotiating authority. This will

provide our negotiators the tools they need to negotiate from

strength, and allow major new trade negotiations under the WTO,

FTAA, and APEC to proceed in a serious and meaningful manner.

We recognize that there will be little progress until we address the

environmental and labor issues that have been raised. We believe

that a meaningful dialog must be started to move the process forward.

Third, enact common sense sanctions reform. This will put in

place a process for thoughtful and rational cost-benefit analysis before imposing counter-productive unilateral economic sanctions.

The NFTC strongly endorses the sanctions reform legislation that

will be introduced shortly and will be sponsored by the distinguished Chairman of the Subcommittee, Congressman Crane, along

with Congressmen Dooley and Manzullo.

Fourth, provide American exporters and workers with the tools

they need to compete on a level playing field. This should include

multi-year authorization for OPIC, the Export-Import Bank, TDA,

and the Trade Advocacy Center. These organizations provide tremendous economic return on a very small investment, and the

services they provide are crucial for helping keep America competitive against foreign government supported exports in overseas markets.

Fifth, reform cold war era trade laws such as Jackson-Vanik, and

grant multi-year Normal Trade Relations status to China and Vietnam. Provisions should also be made to grant permanent NTR to

them upon accession to the WTO on a meaningful commercial

basis.

Finally, the bill should include provisions to renew and reform

the Export Administration Act and the Trade Adjustment Assistance program. Congress may also wish to include preferential trade

programs for less developed countries, such as those contained in

the Africa Growth and Opportunity Act, and the Caribbean Parity

legislation.

In crafting a pro-trade bill, the NFTC strongly urges Congress to

make sure that all of its provisions are consistent with our obligations under the WTO, and are market opening, not market closing.

Mr. Chairman, the NFTC believes that enactment of a broadbased, pro-trade bill will erase many of the doubts about our commitment to open trade, and increase America’s competitiveness in

the global market. The NFTC and its members stand ready to work

with the Committee in developing and supporting such a package.

Thank you.

[The prepared statement follows:]

31

Statement of Richard J. Swift, Chairman, President and Chief Executive

Officer, Foster Wheeler Corporation, Clinton, New Jersey, on behalf of

the National Foreign Trade Council, Inc.

Mr. Chairman and distinguished Members of the Subcommittee, I am Richard J.

Swift, Chairman, President and Chief Executive Officer of Foster Wheeler Corporation. Foster Wheeler is a U.S.-based engineering, construction and manufacturing

company specializing in the process and power industries. I am appearing today on

behalf of the National Foreign Trade Council (NFTC), a broad-based organization

of more than 550 U.S. companies having substantial international operations and

interests. At the beginning of this year, I became the Chairman of the NFTC.

I appreciate the opportunity to testify today on U.S. trade policy and the trade

agenda. I would like to begin by applauding the historic leadership role of the Ways

and Means Committee in forging a bipartisan, pro-trade agenda for our nation. Such

an agenda has never been more important.

I would like to focus my remarks on three issues: (1) the fundamental importance

of trade to the U.S. economy and the need for American leadership in fostering

global growth; (2) the need to support American exporters, workers, farmers, and

consumers through passage of a bipartisan pro-trade bill; and (3) the critical importance this year of a successful World Trade Organization (WTO) Ministerial Conference which launches new multilateral trade negotiations.

1. IMPORTANCE OF TRADE TO THE U.S. ECONOMY AND NEED FOR AMERICAN

LEADERSHIP IN FOSTERING GLOBAL GROWTH

As the world’s largest trader and most open, major market economy, the United

States has benefitted enormously from expanding global trade and investment. In

fundamental respects, our nation’s economic strength at home has been due to our

vibrant trade and investment with other countries and to remaining open and

unafraid of global competition. The result has been the longest domestic economic

expansion since World War II.

The facts speak for themselves. More than one-third of America’s economic growth

during the 1990s was from exports. Trade now accounts for close to 25 percent of

our GDP. Millions of workers depend on trade for stable, well-paying jobs. It’s been

said many times, but it bears repeating—only 4 percent of the world’s population

lives in the United States. American businesses, workers, farmers and consumers

must continue to engage actively in global trade if our economy and standard of living are to grow and remain healthy.

Like many NFTC members, Foster Wheeler depends on expanding trade and investment for a majority of its overall revenue. More than 60% of Foster-Wheeler’s

revenues are from our international activities. When Foster Wheeler grows globally,

our domestic activities also thrive. These activities include millions of dollars in purchases from American small and medium business suppliers, who are often unaware

that they are ‘‘invisible exporters.’’

Let me give you one example. Two years ago, Foster Wheeler signed a contract

to supply six steam generators for the Yancheng electric power project in China—

the largest single boiler contract in Chinese history. The project is keeping at least

200 people employed at our Dansville, New York, facility. It’s also generating millions of dollars in orders for suppliers of all kinds of products in 26 states. By the

time it’s complete, Yancheng will bring in $310 million in orders for America goods

and services—orders that are already supporting hundreds of jobs across the country.

Yancheng isn’t just a success story for Foster Wheeler. It’s a success story for

American trade policy. We win such contracts because our government supports an

open, rules-based global trading system. Those American jobs are possible because

Congress supports normal trade relations with China. Suppliers all across the country are receiving those orders today due to continued congressional reauthorization

of the Export-Import Bank, which provided critical financing.

I would like to turn briefly to the positive role of imports and keeping the trade

deficit in perspective. A primary cause of our rising trade deficit is because the U.S.

economy is much stronger than many other major economies, which have been in

severe recession, stagnation or a slower growth mode. The Asian financial crisis and

the subsequent serious downturn in these and other key markets led to a decline

in our exports last year. At the same time, the strength of the U.S. economy has

kept U.S. demand for imports at a high level. This is what is driving our rising

trade deficit. It is notable, however, that the deficit is still much smaller as a percentage of GDP than it was the last time our nation’s trade deficit (goods and services) peaked in 1987—1.98 % versus 3.27%.

32

While recognizing that certain sectors of our economy have been hit hard by slower growth overseas and stronger imports, imports play a positive role in the U.S.

economy. They provide consumer freedom of choice, fill a market demand that may

not be available domestically, and are often incorporated as components into American-made final products. Imports also provide a healthy dose of competition. In fact,

the competitiveness fostered by our openness to imports is one of the fundamental

reasons our economy is as strong as it is today. Finally, the United States, like

other countries, has trade laws to deal with injurious imports.

American economic leadership in bolstering global economic growth and U.S. exports can help stem the rising U.S. trade deficit. This means stabilizing economies

in turmoil in Asia and Latin America, keeping markets open, further liberalizing

trade and investment, and making sure American exporters and workers have the

necessary tools from our government to compete globally on a level playing field.

These tools include establishing predictable and effective trade rules, negotiating

market-opening trade agreements, halting the use of counterproductive unilateral

economic sanctions, and providing competitive export and investment financing.

There are also important indirect benefits from global economic engagement. Expanding trade and investment supports broader national objectives. It stimulates

economic growth and development, which provides countries with the means to address other important objectives besides alleviation of poverty and basic economic

survival. It improves workers lives. For example, affiliates of American companies

abroad provide higher average wages and better benefits such as health care and

housing. It improves the environment by incorporating higher environmental standards in new plants, by exporting environmentally advanced technologies, and by

eliminating harmful subsidies, particularly in the agricultural sector. And finally,

America’s trade expansion, as well as trading regimes such as the WTO, spread core

American values such as respect for the rule-of-law, openness, transparency and

regulatory due process. Trade deserves much greater credit as a positive force for

building better civil societies.

2. THE NEED FOR A POSITIVE, BIPARTISAN PRO-TRADE PACKAGE

For decades, America has been the world’s most powerful and articulate advocate

of an open, rules-based trading system. Today, however, many have begun to doubt

America’s commitment to open trade. Uncertainties about U.S. trade policy threaten

to undermine many of the opportunities expanded trade could create for American

business and workers. For example, the Administration’s trade negotiating authority has lapsed. Our relationship with our fourth-largest trading partner, China, continues to be the subject of acrimonious debate every year. Far too often, America

imposes unilateral trade sanctions in disputes with foreign countries, even our

friends. Reauthorization and funding for vital agencies that promote U.S. exports

is uncertain. Even American participation in organizations like the International

Monetary Fund (IMF), the World Bank and the WTO itself cannot be taken for

granted.

It is time to get back to the positive role of trade, and demonstrate the leadership

necessary to implement a forward-looking trade agenda. Congress has a vital role

to play. Congressional passage of a broad pro-trade bill would help to clarify and

renew America’s commitment to expanding trade and fostering global growth. Such

a package could strengthen the hand of our negotiators and the competitiveness of

our businesses and workers in the international marketplace.

The bill should contain these key elements:

• Strong support for advancing global trade liberalization, trade expansion and effective trade rules through comprehensive WTO trade negotiations, and other important bilateral and regional trade initiatives. Such action will serve as a powerful

engine of growth domestically and globally.

• Renewal of traditional trade negotiating authority on a multi-year basis to provide America’s trade negotiators the tools they need to get the job done from a position of strength and allow major new trade negotiations, including WTO, Free Trade

Area of the Americas (FTAA) and Asia Pacific Economic Cooperation (APEC) trade

talks, to proceed in a serious and meaningful manner. We recognize that there will

be little progress on this matter until we address the environmental and labor

issues that have been raised. We are prepared to sit down with the members of this

Committee, the Administration, and others to engage in a meaningful dialogue that

will move the process forward. I don’t expect that we will agree on all the issues,

but we have a mutual interest in resolving this impasse so that we can advance

our national interests in the global economy.

• Common sense sanctions reform to put in place a process for thoughtful and rational cost/benefit analysis prior to the imposition of unilateral economic sanctions,

33

and lifting current sanctions that are counterproductive and harmful to American

exports and jobs. The NFTC strongly endorses the legislation that will be introduced

as soon as next week by the distinguished Chairman of this Subcommittee, Congressmen Crane, along with Congressmen Dooley and Manzullo. • Essential trade tools for American exporters and workers to compete on a level

playing field. These should include multi-year reauthorizations for the Overseas Private Investment Corporation and the Export-Import Bank, as well as the programs

of the Trade and Development Agency and the Commerce Department’s Advocacy

Center. These organizations provide tremendous economic return on a very small

investment, and the services they provide are crucial to keeping America competitive against foreign government-supported exports in overseas markets.

• Reform of Cold War era trade statutes, such as the Jackson-Vanik amendment

to Title IV of the Trade Act of 1974, by granting multi-year Normal Trade Relations

(NTR) status to China, Vietnam and other covered countries, promoting their accession to the WTO in a commercially meaningful manner, and granting permanent

NTR to them upon such accession.

• Reauthorization and reform of the Export Administration Act in a manner

which recognizes current commercial realities of dual-use technology in the global

marketplace, and which places greater emphasis on viable multilateral solutions.

• Renewal and reform of the Trade Adjustment Assistance program to help dislocated workers obtain new skills and jobs, greater technical assistance to bolster

International Labor Organization (ILO) initiatives, and support for effective implementation of the June 1998 ILO Declaration on Fundamental Principles and Rights

at Work.

• Preferential trade programs for less developed countries, including extension of

the Generalized System of Preferences, the Africa Growth and Opportunity Act,

Caribbean Parity legislation, and renewal of the Andean Trade Preferences Act.

The NFTC and its members stand ready to work with the Committee and other

groups in developing such a pro-trade agenda in a bipartisan manner.

3. THE CRITICAL IMPORTANCE OF A SUCCESSFUL WTO MINISTERIAL AND NEW

WTO ROUND

Finally, I’d like to turn to one of the most important issues on our nation’s trade

agenda this year—the WTO Ministerial Conference and the launching of new WTO

trade talks. The NFTC believes a successful WTO Ministerial is vitally important

and that our government should be bold and farsighted in leading the way for comprehensive new WTO negotiations to advance global trade liberalization and

strengthen existing WTO agreements.

The NFTC submitted detailed comments to the United States Trade Representative last October on its recommendations for the scope and content of future WTO

trade talks, and has submitted recent comments on upcoming WTO negotiations on

government procurement issues. These comments are attached to this statement

and we request that they be made part of the record.

The NFTC supports the Administration’s efforts to reach agreement by the time

of the ministerial meeting, in a few key areas as a down payment for launching a

more comprehensive, accelerated round of WTO negotiations. So-called

‘‘deliverables’’ should include a WTO agreement on the ‘‘early voluntary sectoral liberalization’’ initiative launched by APEC countries, an agreement on transparency

in government procurement, conclusion of the second round of Information Technology Agreement negotiations, and a continued moratorium on tariffs on e-commerce. The NFTC supports a new WTO Round that further opens and expands

trade for American businesses, workers, and farmers. This should include mandated

‘‘built-in’’ negotiations on services and agriculture, industrial tariff reductions, improvements to existing WTO agreements and rules, and certain institutional

changes to ensure the WTO is equipped for the 21st century.

As members of the subcommittee are well aware, the WTO and its predecessor,

the General Agreement on Tariffs and Trade (GATT), form the core foundation of

an open and expanding multilateral trading system. It is rules-based, market-opening, and provides for effective dispute settlement. It has been key to fostering global

growth and prosperity for over five decades. The Uruguay Round alone—the last

round of multilateral trade talks which concluded in 1994—represented the largest

global tax cut in history and forged unprecedented agreements in areas such as agriculture, services, intellectual property and dispute settlement.

The upcoming WTO Ministerial in Seattle offers us a rare opportunity to demonstrate united American leadership on trade by showcasing its benefits, and by

galvanizing support for comprehensive WTO market-opening negotiations and improvements to existing WTO agreements. Such action—setting the example and

34

leading the way for further multilateral progress on trade—is one of the most important steps we can take to restore global growth and prosperity. Part of setting

the example includes upholding existing WTO obligations. The NFTC urges all WTO

members to agree to a ‘‘standstill’’ against new trade barriers.

Historically, the United States has led the rest of the world in advancing multilateral trade liberalization. As the world’s economic superpower, we must again step

up to the plate. The NFTC is working with other major business groups, some of

which are represented here today, helping the business community do its part to

assure a successful WTO Ministerial.

Mr. Chairman, thank you for the opportunity to share the NFTC’s views on the

U.S. trade policy agenda.

[An attachment is being retained in the Committee files.]

Chairman C

Mr. O’Hare.

RANE. Thank you, Mr. Swift.

f STATEMENT OF DEAN R. O’HARE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CHUBB CORPORATION, WARREN, NEW

JERSEY, AND CHAIRMAN, COALITION OF SERVICE INDUSTRIES

Mr. O’HARE. Thank you, Mr. Chairman. It is a pleasure to

present the views of the Coalition of Service Industries, CSI, on

priorities for expanding U.S. services trade.

CSI believes that an open rules-based international trade system

is essential to maintain U.S. economic prosperity, and that the

World Trade Organization is absolutely essential to that system.

The WTO has proven its value to the U.S. services sector by concluding good market access agreements on telecommunications and

financial services. Nonetheless, the organization must improve implementation and enforcement of trade agreements already negotiated and increase the accessibility to the public. Strong U.S. leadership will be required to achieve these goals.

Our coalition’s very great interest in the WTO services trade negotiations, scheduled to start in 2000, the first comprehensive services negotiation ever undertaken, is explained partly by the fact

that the United States is the world’s largest exporter and importer

of services. In 1998, U.S. services exports were $260 billion. Imports were $180 billion. The trade surplus was $80 billion from

services.

CSI has produced at USTR’s request, an initial statement of liberalization objectives in eight service sectors. I ask, Mr. Chairman,

that this document be included in the record of this hearing.

In essence, we seek the following general objectives. First, ensure

the right to establish and to control ownership of our investments.

Second, ensure national treatment for U.S. investors. Third, eliminate unnecessary restrictions on cross-border transactions. Fourth,

remove obstacles to the free movement of critical business personnel. Finally, promote pro-competitive regulatory reform.

What is pro-competitive regulatory reform? It means abandoning

outdated forms of regulation by which governments limit the number of participants in a market, limit the introduction of new products, restrict market-based pricing, and discriminate against foreign firms.

The next round of services negotiations must include reform of

these out-dated regulatory practices. We made a start in this by inVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
35

cluding the 1997 U.S. Japan bilateral insurance agreement in the

WTO financial services agreement. These provisions would create

a pro-competitive regulatory environment in Japan, and were

aimed at leveling the playing field for foreign insurers.

Unfortunately, significant aspects of the agreement have not

been implemented. The United States is engaged in other important trade initiatives that complement efforts in the WTO. Of

these, our bilateral relationship with China is critical. We strongly

support the Administration’s effort to reach a WTO accession

agreement that lets us participate fully in the Chinese market.

As you are aware, U.S. negotiators are now in Beijing. We urge

USTR to continue to insist that without commercially meaningful

commitments on services, there simply can be no deal with China.

And if China agrees to play by WTO rules, then the United States

should provide normal trade relation status to China.

In conclusion, Mr. Chairman, we believe the United States must

continue to take the lead in multilateral and other efforts to eliminate trade and investment barriers, and establish an even stronger

system of international trading rules centered on the WTO, and

buttressed by national pro-competitive regulatory supports. This

will require extending broad multi-year trade negotiating authority

to the President. We must ourselves avoid protectionist trade actions and we must build a strong domestic consensus that the benefits of open international trade outweigh its costs.

CSI is helping build this consensus by holding the first World

Services Congress in Atlanta on November 1–4, this year. In addition, CSI has helped lead a new coalition, the U.S. Alliance for

Trade Expansion, USA Trade, to support the WTO Ministerial in

Seattle. These hearings are an important step in developing a consensus on these issues, and we appreciate the opportunity to

present our views. Thank you very much, Mr. Chairman.

[The prepared statement follows:]

Statement of Dean R. O’Hare, Chairman and Chief Executive Officer,

Chubb Corporation, Warren, New Jersey, and Chairman, Coalition of

Service Industries

It is a pleasure to appear today to present the views of the Coalition of Service

Industries (CSI) on the importance of expanding trade and resisting protectionism

through active U.S. involvement in trade negotiations, and on U.S. negotiating priorities for the next several years.

CSI was established in 1982 to create greater public awareness of the major role

services industries play in our national economy; promote the expansion of business

opportunities abroad for U.S. service companies; advocate an increased focus on liberalization of trade in services in international trade negotiations; and encourage

U.S. leadership in attaining a fair and competitive global marketplace. CSI represents a broad array of U.S. service industries including the financial, telecommunications, professional, travel, transportation, information and information

technology sectors.

It is timely and important that the Subcommittee review U.S. trade policy and

the challenges now confronting it. Strong, focused United States leadership is, more

than ever, essential in a world economy torn by financial shocks and economic dislocation. As the world’s strongest economic power the U.S. must lead by example.

We must pursue trade, investment and economic policies that encourage domestic

and international growth. Just as we ask other countries to pursue sound policies,

we must avoid protectionist actions that they might emulate.

An open, rules based international trade system is essential to maintain U.S. economic prosperity, and the World Trade Organization is an absolutely essential element of that system.

The WTO is first of all dedicated to promoting the market-driven economic principles that underlie our own economic success. It does so by providing a forum

36

where governments commit themselves to reductions in trade barriers. The WTO is

what its member governments make it. And the members of the WTO rely on constant, skilled U.S. leadership to keep the WTO moving ahead.

In its first five years, the WTO has proven its value to the U.S. services sector

by the negotiation of agreements on basic telecommunications and financial services. We are fortunate to have had the skillful, energetic leadership of Director General Ruggiero during this initial period. It is very important that he be replaced

with a strong, highly able leader upon his retirement this April.

CHALLENGES TO THE WTO

While we believe it is essential to strengthen the role of the WTO in creating a

level field where players can compete freely and fairly, the organization faces several major problems which U.S. leadership must help overcome.

The first of these is the issue of the implementation and enforcement of trade

agreements already negotiated. The WTO is an effective forum where governments

negotiate agreements. By and large it has also been an effective forum where governments can bring complaints against those who do not abide by their agreements.

But it has a long way to go to develop as an institution that ensures that trade

agreements are implemented and commitments fulfilled. In part, this is a responsibility of member governments and the industries that benefit from agreements. CSI

takes this role very seriously. Our Research and Education Foundation has mapped

out a process for monitoring governments’ implementation of the telecommunications agreement. We will be putting more effort into this in the future. Likewise,

we will be closely tracking the implementation of the GATS financial services agreement, which entered into force on March 1st.

A case in point is the WTO Financial Services Agreement that was concluded by

71 signatories on December 13, 1997. Those signatories agreed to file their formal

acceptances of the agreement by January 29 this year, and they agreed that it

would come into effect on last Monday, March 1. In fact, 16 of the signatories were

not able to file their acceptances by the deadline. The issue before our financial

services industry was, therefore, whether to advise our government to support, or

to oppose, entry into force of the agreement. On balance, we concluded that it would

be in our overall interest to support it because most of the major 16 non-accepting

countries would almost certainly do so in the next six months. In addition, according

to the WTO, the governments that have accepted the agreement account for approximately 95 percent of global financial services activity. Nonetheless, it is disquieting

that countries like Australia, Poland, Brazil and Luxembourg are not able to follow

through on their commitments, on schedule.

The second of these problems is the transparency and openness of the WTO. The

President has called on the WTO to open its doors wider to the public. CSI wholly

endorses this initiative and urges WTO member governments to take steps to increase the organization’s accessibility to an interested public which has much at

stake in the outcome of negotiations or the resolution of trade disputes.

IMPORTANCE OF SERVICES TRADE

The growing economic strength of our service industries is the best argument for

the continuing U.S. commitment to an open trading system in which the WTO plays

a key role. The U.S. service sector is essential to domestic prosperity. In 1997, according to the Bureau of Economic Analysis of the U.S. Department of Commerce,

the U.S. service sector comprised 77.2 percent of U.S. gross domestic product, and

78.8 percent of private sector employment (see graphs attached, Appendix A).

In 1998, the U.S. created 2.9 million net new jobs, all in the service sector, slightly less than the 3.2 million service sector jobs created in 1997.

The U.S. is the world’s largest exporter and importer of services. In 1998, U.S. services exports were $260.3 billion, while imports were $180.8 billion, producing a

trade in services surplus of $79.4 billion. Services comprise nearly 30 percent of U.S.

exports.

Those few statistics dramatically depict the value of opening markets abroad for

the U.S. service sector.

The U.S. is very competitive in virtually every category of services trade.

• Travel and tourism contributed over $25 billion to the services trade surplus in

1997. This is the largest sectoral contribution to the overall services surplus. In addition, travel and tourism support over seven million direct jobs and generate roughly $71 billion in tax revenues for federal, state and local governments.

• Business, professional and technical services is a largely unrecognized powerhouse in American trade. In 1997, we exported more than $21 billion in these services and we had a $16 billion trade surplus. These data do not include the earnings

37

from foreign investments and foreign affiliates, which are very substantial. Trade

in business, professional and technical services—such as accounting, legal, engineering, architectural and consulting services—is especially important because it frequently paves the way for trade and investment in other service and manufacturing

sectors. • Telecommunications services are an integral component of operations of all

businesses, and are essential in promoting domestic and global growth. Telecommunications services provide the necessary infrastructure for the development

and continued expansion of the information society and electronic commerce. An estimated $725 billion in revenue was generated in 1997, and projections for the next

five years indicate that traded telecommunications services will increase at about

20 percent annually for outbound calls from the U.S. to foreign markets. • The information technology industry is also dependent on trade and trade expansion. The WTO estimates that over the next five years, sales over the Internet

will double each year. To realize this robust growth will require countries to open

their markets and allow the provision of cross border services in virtually every sector from financial services to healthcare. • U.S. law firms, when billing foreign clients, produce exports. Overall U.S. legal services exports approach $1.0 billion. • Foreign students coming to American schools, net after scholarship and local as- sistance, spent $8.3 billion in the U.S., which is a U.S. export. We have a surplus

in trade in education services of $7.0 billion. • Medical services rendered in the U.S. to foreign citizens produced an export sur- plus of $0.5 billion, although few doctors imagine themselves as U.S. exporters.

WTO ‘‘SERVICES 2000’’ NEGOTIATIONS

These facts help explain our industries’ very great interest in the new WTO services trade negotiations scheduled to start in 2000. These will be the first comprehensive services negotiations ever undertaken—negotiations which offer U.S. service industries opportunities to expand market share by reducing barriers to entry and

cross border trade, and to deal with new issues, such as regulatory reform, which

would ensure our firms’ ability to compete fairly in the local marketplace.

But these new services negotiations will not occur in isolation. They will be combined with other issues. How these negotiations will be packaged is a matter of dispute between the United States and the European Union and Japan. They seek a

comprehensive negotiation concluded by a ‘‘single undertaking,’’ in three years, ending by 2003!

The Uruguay Round produced the General Agreement on Trade in Services

(GATS) which states the general principles for freer world trade in services, and creates a very complex format for actual negotiations. In spite of the technical difficulties, the successes in telecommunications and financial services in 1997 showed that

most countries now understand how to negotiate within the complicated GATS

framework.

CONTENT OF THE NEW TRADE ROUND

CSI believes that the United States should continue to advocate a new trade

‘‘Round’’ that permits us to capitalize on the momentum that we believe has been

created through successful sectoral services negotiations. Emphatically we do not

agree with the concept of an all-inclusive round concluded by a single undertaking.

We believe that this formula will almost inevitably result in a protracted negotiation

that will impose unnecessary delays in obtaining market access for our companies.

The President in the State of the Union Message called for an ambitious new

WTO Round. We believe that his definition of ‘‘Round’’ is close to our own: a focus

on market access issues including services, agriculture and goods and certain other

issues required by the Uruguay Round agreement. This more constrained negotiation would have a better chance to conclude successfully in 2003. Other, broader

issues could be initiated in 2000 but brought to fruition later through a ‘‘rolling negotiation’’ that could conclude after 2003.

We believe it is highly important for the United States to pursue aggressively new

negotiations to liberalize services trade. We believe this negotiating framework will

lead to faster, better results for agriculture, goods and services.

WHAT DOES THE SERVICES SECTOR WANT FROM SERVICES 2000 NEGOTIATIONS?

Previous services negotiations have yielded advances in telecommunications and

financial services, but much remains to be done both in those, and a number of

other sectors. All industries in the services sector continue to face uneven implemenVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00041 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
38

tation of past commitments and continued impediments to free and fair trade, especially through regulatory systems that are used to limit competition.

CSI established last fall a Services 2000 Working Group that produced a detailed

initial statement of negotiating objectives for 8 sectors: Distribution, Express Delivery, Financial Services, Health Care Services, Information Technology, Professional

and Business-Related Services, Telecommunications, and Travel and Tourism. I ask,

Mr. Chairman, that this document be included in the record of this hearing following my statement.

In essence, these requests distill into the following general objectives:

• Expand the scope of commitments countries undertake to liberalize services

trade, by limiting the exceptions countries are permitted to take in their national

schedules; • Ensure rights of establishment and ownership for U.S. investors abroad,

through wholly owned or other forms of business ownership; • Ensure national treatment of U.S. companies abroad, so foreign investors have

the same access to local and foreign markets as domestic companies; • Eliminate unnecessary restrictions on cross border transactions; • Promote pro-competitive regulatory reform focused on adequacy of appropriate

and consistent rules, as well as transparency and impartiality of regulatory administration; and • Remove obstacles to the free movement of critical business personnel.

PRO-COMPETITIVE REGULATORY REFORM

The financial services industry in particular faces formidable barriers in countries

with arbitrary and non-transparent regulatory systems. We see the desirability of

negotiating ‘‘pro-competitive’’ regulatory principles that will complement market access commitments by providing for well-regulated financial systems. Regulatory requirements and restrictions too often deny foreign companies the opportunity to

compete on an equal basis with domestic firms. A lack of transparency in regulations, along with uneven enforcement, undercuts the benefits of market access and

often leads to weak and vulnerable financial systems.

What is ‘‘pro-competitive regulatory reform?’’

Essentially it means abandoning outdated forms of regulation, by which governments limit the number of participants in a market, limit the introduction of new

financial services products, restrict use of market-based pricing, and discriminate

against foreign firms.

We believe regulators should focus on three goals: ensuring the solvency of financial services firms, promoting the transparency of intra-company transactions, and

improving the reliability of economic data that allows customers and investors to

make better informed judgements about the soundness of financial institutions

themselves and the quality of their investments.

THE JAPAN-U.S. INSURANCE AGREEMENT

Particularly for the insurance sector, pro-competitive regulatory reform should be

on the agenda for the GATS 2000 negotiations. We made a start in this by including

the 1997 WTO U.S.-Japan bilateral insurance agreement in the WTO Financial

Services Agreement. These insurance provisions deal solely with creating a pro-competitive regulatory environment in Japan and were aimed at leveling the playing

field for foreign insurers in the Japanese insurance market. Unfortunately, significant aspects of the agreement have not been implemented. On July 1, last year, the

USTR expressed its ‘‘extreme disappointment’’ with Japan’s implementation of the

agreement, but the issue remains unresolved. This is a matter of deep concern to

the U.S. insurance sector and we have attempted to give every support to USTR’s

efforts to achieve compliance by the Japanese with their obligations under the bilateral agreement.

The irony of the situation is the fact that, if these provisions were fully implemented by the Japanese, Japanese insurers, themselves, would eventually be in a

far stronger financial and competitive position than they are today.

Regulatory systems that promote competition and solvency will encourage financial services firms to introduce innovative products, reduce prices, achieve efficiencies in operations, improve the quality of services provided, attract capital for

long term investments, introduce new technologies, and create new employment opportunities.

By pressing to eliminate restrictions on foreign establishment or ownership and

cross border transactions, by removing obstacles to the free movement of persons

and by affirmatively promoting national treatment and pro-competitive regulatory

39

principles, the United States will be helping to shape an agenda at the WTO that

will produce genuine global economic liberalization with positive benefits for both

U.S. business and consumers, as well as the liberalizing economies.

OTHER TRADE INITIATIVES

I would also like to address briefly some other trade initiatives that complement

efforts in the WTO, and that are important in their own right.

China

Our bilateral relationship with China is one of our most important. Over the past

decade U.S. exports have increased over 20-fold and those exports are estimated to

support more than 200,000 U.S. jobs.

The effort to negotiate market access for U.S. services and goods has been a longterm concern that is now bound up in the effort to negotiate China’s membership

in the WTO. As the largest emerging economy in the world, China’s integration into

the rules-based international trading system is essential to ensuring that China undertakes the obligations and responsibilities of the trading system as well as receiving the benefits.

We support the administration’s effort to reach a commercially acceptable WTO

accession agreement that will enable our companies to participate fully in the Chinese market. We believe that China’s participation in the WTO is critically important not only for China, but also for the rest of the world.

As you are aware, U.S. negotiators are now in Beijing in an effort to make

progress toward this objective. We urge USTR to continue to insist that China accept that opening its services sector is equally important as reducing tariffs on merchandise. Without meaningful commitments on services, there simply can be no deal

with China. And if China agrees to play by WTO rules, then the United States

should be prepared to provide permanent extension of normal trade relations status

to China.

Free Trade Area of the Americas (FTAA)

In our own hemisphere, regional trade grew 15 percent in 1997—twice the world

average. Two-thirds of U.S. export growth has been in the Western Hemisphere.

Countries in the region are negotiating with each other and the Europeans to secure

the benefits of this trade expansion. The United States must now take the lead in

pursuing trade and investment liberalization in our own hemisphere, if we want to

receive the full benefits of the trade expansion that is underway, and to prevent our

exporters being excluded from important new markets by trade agreements made

between other countries in the Hemisphere.

We support efforts to reach a hemispheric free trade area, which would ultimately

expand NAFTA and include virtually all of North, South and Central America.

FTAA represents an enormously ambitious undertaking that merits the full commitment of the U.S. government.

Asia Pacific Economic Cooperation (APEC)

The APEC economies represent over one-half of total world production and almost

one-half of world trade. U.S. bilateral trade with these economies is roughly twothirds of all U.S. trade. The United States has been an active participant in the

APEC effort to achieve free and open trade in the region. We have worked hard to

ensure that the momentum generated by APEC’s work to date is not derailed by

the Asian financial crisis, and that APEC economies move forward to implement

previously agreed market opening steps. We strongly support inclusion of pro-competitive financial services regulatory reform in the APEC work program.

TRADE NEGOTIATING AUTHORITY

What will it take to implement a broad and ambitious trade agenda such as the

above?

CSI urges Congress to extend broad, multi-year trade negotiating authority to the

President. Such congressional trade negotiating authority has come to be expected

as a foundation that is necessary to conclude with credibility liberalization agreements with our trading partners.

Another important step is to adopt domestic economic policies, including tax policies, that help create an environment that encourages competition and reduces the

costs of competing overseas. Congress’ support and leadership in revising and extending the deferral rules for U.S.-based financial services companies last year was

a giant step forward in conforming U.S. tax rules to U.S. trade policies. Permitting

deferral of active financial services income is essential to maintaining the competiVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
40

tiveness of our financial services firms. We urge you to further extend this provision

this year.

CONCLUSION

The economic interests of the United States dictate that we must take the lead

in multilateral and other efforts to eliminate trade and investment barriers and establish a system of international trading rules buttressed by national pro-competitive regulatory supports. It is time to reinvigorate U.S. trade policy by extending

to the President the trade authority he has traditionally been given to conduct negotiations. We must ourselves avoid protectionist trade actions. And we must attempt

to create a strong domestic consensus that the benefits of open international trade

outweigh the costs of continued engagement.

The Coalition of Service Industries is helping build this consensus by organizing

the first World Services Congress that will be held in Atlanta on November 1–4 this

year. We hope to attract more than 2000 business and government leaders, academics, and others to help construct a global consensus on the benefits of trade liberalization in services, and to support the launch of an ambitious services trade negotiation at the WTO Ministerial in Seattle at the end of November. We will welcome the participation of members of this Subcommittee and its staff in this important event.

In addition, CSI has helped form a coalition to support the WTO Ministerial.

Made up of trade associations and advocacy organizations, the U.S. Alliance for

Trade Expansion (USATrade) represents $2 trillion in annual trade and over 150

million American farmers, workers, and consumers, and seeks to promote economic

growth, job expansion, and higher living standards in the U.S. by rules-based multilateral trade liberalization through the WTO. We plan to have a strong presence

representing our various constituencies at the Ministerial in Seattle.

Our members strongly believe that expanding international trade and investment

improves the lives of Americans and that continued U.S. leadership in strengthening the rules-based international trading system is the surest way to sustain our

domestic economic strength. These hearings are an important step in developing a

consensus on these issues.

41

your presentations.

Chairman CRANE. Thank you, Mr. O’Hare. Thank you all for

f For the panel generically, I would like to throw a question out.

Ambassador Barshefsky testified last month that the Administration is seeking better coordination between the International Labor

Organization, ILO, and the WTO. What, in your views, are the

proper relationships between these two international bodies?

Mr. SWIFT. Well, Mr. Chairman, if I could take a first crack at

that. In my testimony I said that labor and environmental issues

42

should be discussed meaningfully amongst the appropriate Members of the Administration and the Congress. The International

Labor Organization is an international organization which addresses labor standards, and is the organization to do that, not the

WTO. So if they could start talking together in a meaningful way,

that is a very positive development, in my view anyway.

Chairman CRANE. Does anyone else have a view?

Mr. MICEK. Yes. I would just like to follow up on Mr. Swift’s comments. ECAT supports the use of ILO as the appropriate forum to

deal with international labor issues. We are concerned that if we

just target only labor and environmental objectives without really

dealing with the overall strategic issues that are a part of trade,

we could get bogged down and miss a great opportunity.

Chairman CRANE. Any other views on that question?

What is your advice on how labor and environmental issues

should be handled in the negotiating authority? Anyone?

Mr. O’HARE. Mr. Chairman, I would just like to comment that I

think trade negotiations and certainly labor issues are in many respects independent issues. I think the ILO has been doing an extremely good job for decades. We shouldn’t let trade issues overwhelm or overtake the progress that they are making in these

areas. I view the two as very independent issues.

Chairman CRANE. Does anyone else have a view on that?

Mr. SWIFT. If I could follow up on what I said earlier, the WTO

is a trade organization. It should be a rules-based organization to

govern how the international marketplace trades. Labor and environmental issues are not necessarily trade issues. The ILO is a better forum for labor issues than the WTO.

Chairman CRANE. A final question from me, and this is to Mr.

Baszile. We hear from many labor union representatives that fast

track and active U.S. involvement in trade negotiations are just big

business issues that will end up hurting workers in small businesses. Why do you think small businesses should support fast

track negotiating authority and active U.S. involvement in breaking down international trade barriers?

Mr. BASZILE. Mr. Chairman, small businesses, since I have been

in business for the past 24 years, have been encouraged to export

their products as much as they can. More importantly, our customer base is made up of people who export their products. So if

we don’t do it on a direct basis, we certainly benefit by the exporting activity of customers like Boeing and others. So we think it is

very important.

Chairman CRANE. Well you are sitting amongst some giants

there.

Mr. BASZILE. Yes, I am.

Chairman CRANE. We had a Trade Subcommittee hearing out in

my district about 3 or 4 years ago. I have some big corporate headquarters there, Motorola, Ameritech, United Airlines, Sears, Kemper Insurance, and so forth. We are the fifth largest export State in

the Union, Illinois. My district is probably No. 1 in the State. What

was most revealing about that hearing is that better than 90 percent of our exports out of Illinois come from companies employing

500 or fewer.

43

Mr. BASZILE. That’s right. One thing that I would just like to emphasize again, if we remember 83 percent of the jobs in this country are supplied by small business. So we are a continuing integral

part of the global economy, and of course the strengthening of this

economy in our country.

While I might not be able to sell a plane to China, I certainly

support Mr. Condit in his efforts. So therefore——

Chairman CRANE. With your component parts.

Mr. BASZILE. Absolutely.

Mr. CONDIT. And without those, we can’t do it. So it is very much

a cooperative effort with our suppliers.

Chairman CRANE. I couldn’t agree with you more.

Mr. Levin.

Mr. LEVIN. Welcome, to all of you. There has been some discussion here, especially in response to Mr. Crane’s question about

labor, about what I would call labor markets and environmental

issues. I regret there is not a more diversified panel in that respect

regarding that issue because we are going to have to confront it

and do it effectively if we are going to move ahead on a broadbased trade consensus.

I want to turn to other issues, but I would just urge you, Mr.

O’Hare, and you, Mr. Micek, to take another look at the ILO and

its record on labor market issues. To call it effective I think is totally unrealistic. Its record is not one of effectiveness on these

issues. I don’t think they are independent of trade issues. I think

they are very much a part of them.

Just look at the discussions we are having on Africa, and especially on CBI, where these labor market issues are very central to

the debate over these bills, especially CBI. It has been the basis of

the difference between the House and the Senate, cutting across

party lines. So there is no use of pretending that just ship it to the

ILO. That won’t resolve it.

I think, Mr. Swift, that your statement on page 4 is something

that we all need to take seriously, where you say ‘‘We recognize

that there will be little progress on this matter’’ that is trade negotiating authority, ‘‘until we address the environmental and labor

issues that have been raised. We are prepared to sit down with the

Members of this Committee, the Administration, and others, to engage in a meaningful dialog that will move the process forward.’’

If we do not take seriously your advice, I think we are going to

simply reach another dead-end. There is no use in trying to finesse

the issues or shove them off to the ILO. They have now a statement of principles. But in terms of embodying these in agreements,

the ILO really doesn’t have either the authority, and it surely

doesn’t have the history of doing it.

But if I might, before my time is up, because I didn’t want to lose

this opportunity to talk about another issue that is really related

to this issue of labor market issues, environmental issues. It isn’t

fast track, but it’s China WTO. A number of you have said it has

to be on commercially acceptable terms, we shouldn’t simply rubber

stamp what they want. Their structures on labor market, on capital markets, on environmental issues is so different, we better face

up to them.

44

So I want to zero in, now that I have this opportunity, Mr.

Condit, to take one piece of it. That is the issue of transfer of technology. I don’t want to ask you specifically about Boeing because

some of that may be proprietary. But I would like your views.

One of the issues, it seems to me with China that we haven’t

really faced adequately in talking about WTO, are their requirements for technology transfer. It seems to me we can’t simply stand

by idly and have this huge economy, China, place these requirements on American firms and therefore, American workers in

terms of technology transfer and other things. Would you comment

on that, please?

Mr. CONDIT. All of these issues are very complex. For most of the

companies that all of us represent the technology is a key part of

our competitiveness. So the protection of that technology is important to us, as well as to the United States overall.

On the other side, I do not perceive that as a defensive strategy.

If we don’t continue to move the ball forward, don’t continue to advance our own technology, in the long term, we will not be winners

in the world market. So reasonable limitations on technology transfer are not unreasonable; but if they get out of proportion, they will

simply limit all of the action and nothing happens.

So I guess my strongest feeling of all is that we continue as companies to take the initiative to continue to advance our own technologies. Then I am convinced we can continue to lead the world

in competitiveness. But it takes good intellectual property rules. I

think that is absolutely vital, but we need to avoid excessive technology transfer limitations.

Mr. LEVIN. I think I get your meaning. When we talk about concern of requirements, especially evolving economies, that we transfer technology, I am not suggesting that by being concerned about

it, we should drop our efforts to develop and to continue to develop

our own technology. I don’t see that those are necessarily or at all

in conflict. But it seems to me that we better realistically raise

these and confront these issues in the WTO China accession negotiations. I don’t think your company or any other would say well

let China accede and we’ll talk about that issue after they are in

the WTO.

Mr. CONDIT. But let me argue the other side for just a second.

I think it is important that we do move forward. So there is always

this balance between getting the best agreement that you can get,

and still getting one. I think that is the difficulty of any negotiation. I don’t disagree that we need to address that subject. It does

need to be there. On the other hand, we won’t get a final solution.

There will continue to be further negotiations, and will need to be.

Mr. LEVIN. Thank you.

Chairman CRANE. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman. I want to thank the

Distinguished Members of this panel for being here today. We need

to hear from you on these very, very critical issues. I was just trying to quantify in my mind how many millions of jobs your respective groups represent and what a chunk of the GDP you five people

here today represent. I wasn’t able to do it, but suffice to say, obviously when we have the Emergency Committee for American

Trade, the Business Roundtable, National Foreign Trade Council,

45

the Coalition of Service Industries, not to mention small business

represented by Baszile Metals, we need to listen closely as you represent many of our constituents. Those points also need to be heard

by the White House.

One of my major disappointments, and I think major disappointment of our chairman and most people on this panel, is the failure

to pass fast track. We see what is going on. We see how many

major regional agreements have been entered into since fast track

expired. We also see that we haven’t been part of those major regional agreements.

Yet I am still hopeful. By the way, let me also say that not all

members of this panel share the Distinguished Ranking Member’s

views on the ILO. I certainly identify with your remarks, Mr.

Micek, and yours Mr. Condit, as far as the ILO is concerned. But

I think we have to get beyond that. That is certainly important.

I just hope that a collaborative effort is made on the part of the

White House. I, in my earlier years on this panel, worked with

them on NAFTA and GATT. We worked together on a bipartisan,

pragmatic, collaborative way, and got those done. Lately, however,

I have been very disappointed. The Administration has sent signals

to this Subcommittee that we have to make changes to last year’s

fast track legislation. But I am not sure, and I don’t think anybody

here on this panel is sure, what changes they want. So my question

to any of you—and it is certainly good to see my good friend Ernie

Micek, a leader on these issues back home in Minnesota—has anybody from the White House told you or your groups what changes

need to be made in last year’s last track legislation? Have they sat

down or asked you to come down there to solicit your advice, your

expertise for passing fast track legislation this year? Any of you?

Ernie?

Mr. MICEK. Well, I have had some conversation. I think they are

concerned about focusing just on fast track. But perhaps it can be

part of the broader issue. That is why I think many of us believe

that given the opportunity that we have here in this country with

the WTO Ministerial being held in the United States, that fast

track can be part of a bigger trade issue. Hopefully when we can

see or more people can see the value of what WTO negotiations can

produce, then they will also understand that to make this happen

we do need fast track authority.

I do want to step back for just a minute on the labor issue because my experience, and I have been around for 40 years in corporate America, tells me that we are better off being part of a process. With Boeing involved, ourselves, all the various companies represented here, we are better off and we have a better chance of getting environmental issues advanced, labor issues advanced when

we are part of something than when we are excluded. To exclude

us really does nothing to advance labor and environmental concerns.

Mr. RAMSTAD. Thank you, Mr. Chairman.

Chairman CRANE. Mr. McNulty. Oh, he’s not here.

Mr. Jefferson.

Mr. JEFFERSON. Thank you, Mr. Chairman. I don’t want to start

off with a defense of the White House on fast track. But I suppose

I ought to utter some modicum of defense to say that the President

46

has expressed his seriousness on this issue. He mentioned it in the

State of the Union address. He is not oblivious to what happened

last time though. When he attempted to get it done, it was a very

difficult matter to get done. Of course it takes a lot of work on both

sides of the aisle, and it is not just his sole responsibility to work

on this issue.

So as one who has in the past supported fast track issues, I think

it is important to not single out the White House and beat them

up over this issue as we try and find a way to deal with it.

I want to ask a question in a different vein though. I found the

discussion today instructive. I want to ask you about Africa. We

have touched on our trade policies and goals in the Americas, in

Europe, and in Asia. How important is it to you that the U.S. fashion a trade and investment policy in sub-Saharan Africa? As representatives of the U.S. private sector, what are your thoughts on

the importance of increased trade and investment in this region?

Mr. CONDIT. Let me start by saying as a company, Boeing sees

real reason to support that trade development. Obviously one of

our primary products is providing equipment that moves people

back and forth and promotes trade. But we see a very definite need

to deal with trade on a global basis, not just a regional basis, but

a global basis. That clearly would include sub-Saharan Africa.

So we have been in support of that. The Roundtable is actively

looking at that issue in terms of its support, and I suspect it will

also be supportive.

Mr. JEFFERSON. Yes, Sir?

Mr. MICEK. I think it is very important that we have a trade policy with Africa. I just don’t see how the African people can be excluded from being part of the world community as we enter the

21st century. I believe the African trade act, as proposed, would

give some opportunity for them to become part of the greater community.

Our company, for example, has just within the last 2 months,

and I was there personally for the ground breaking ceremonies, are

in the process of building a $50 million cocoa processing plant in

Ivory Coast. We were welcomed there as a U.S. firm.

One of the problems is I think in Africa for U.S. companies, so

much of Africa historically is tied closely to Europe. U.S. companies

really don’t know that much about a number of the African nations. So I think any trade bill that gives the opportunity for the

United States to become involved I think would be very important.

Mr. SWIFT. If I could just comment on that. Foster Wheeler has

ongoing operations in Africa. I would second what Mr. Micek said,

that Africa is very much in the realm of the Europeans. I think

that U.S. trade with Africa would be significantly enhanced if the

kind of trade bill that we are discussing today was, in fact, enacted

so that American companies would have better knowledge of the

area, better ability to go in and compete against the European companies.

Mr. BASZILE. Mr. Jefferson, I have had some personal experience

in trying to develop trade with African countries, most particularly

on a smaller business basis. We have entertained several trade

missions from Southern Africa and other parts of Africa in Los Angeles.

47

I think what the small business community can do, and most

particularly the minority business can do, is serve as role models

as to how business is done. Some of most basic questions that we

take for granted in this country are foreign to many of the people

in Africa who now, especially Southern Africa, who have the freedom, but they don’t have the know-how to make the system work

for them.

I personally went to Southern Africa, Swaziland and South Africa, to start an aluminum pots and pans manufacturing company.

I was overwhelmingly received. We still work in that area.

So I think the small business community, with the support of

U.S. Government, can serve as a role model for many frustrated Africans who really are entrepreneurs, but they just do not have the

wherewithal to make it happen.

Mr. O’HARE. Mr. Jefferson, I would agree with all the comments

made by the panel. I would point out that a trade policy with Africa is truly an essential part of dealing in a global economy today.

As respect to industries that are near and dear to my heart, the

insurance industry, there are still, depending upon what country in

Africa you are referring to, some terribly restrictive laws governing

the level of ownership that a foreign company can have in an African insurance company. This is also the case in many of the banking pieces of financial service industries. So you know, on that

basis I think a trade policy that would encourage the very things

that we have talked about this morning would be extremely useful

for that part of the world.

Mr. JEFFERSON. I thank you for your comments.

Thank you, Mr. Chairman, for yielding to me.

Chairman CRANE. I would simply add a footnote to what was

said. That is that the sub-Saharan African countries included in

our bill number 48. There are over 700 million people there. Yet

that is only about 2 percent of our current trade. It is a tremendous

potential market. But again, getting our African Growth and Opportunity Act passed is one thing, but to start the negotiations requires fast track. So that is an essential component to going forward. I know Mr. Jefferson, I praise his efforts. He has worked

very conscientiously on behalf of both.

I would now like to yield to Mr. Condit’s representative. I know

that she is going to be inviting us all to come out to Seattle. Are

we flying Boeing? Is that it, Jennifer?

Mr. CONDIT. You better.

Ms. DUNN. You bet. No other way.

Chairman CRANE. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman. I am happy to

welcome this panel this morning. It has been a fascinating discussion. I think each of us has had a lot of questions we won’t be able

to ask because there is not much time.

But I am especially pleased that Phil Condit could be here because I have many employees who work for his company and live

in my district. So Boeing’s success is always a great joy to us. We

are particularly happy to be hosting the WTO Ministerial in Seattle, called the Seattle Round. We want to call it that, the Seattle

Round, because that will last for a good many years. There is no

48

more appropriate place, I believe, in this Nation than the bright

crescent of the Puget Sound area in which to host the WTO.

I do, Mr. Condit, want to shift things back to China for a moment. There are some in Congress who are very concerned that in

its eagerness to bring China to the table at the WTO Ministerial

this fall, the Administration will cut a deal with China to bring it

into the WTO. Others think that would be a very good thing, that

we should move ahead, and it is critically important to have them

at the table.

I really want to get your views. You mentioned that a deal

should be made only if the agreement were commercially viable. I

would like to have your thinking on how important is it to have

them with us in Seattle this fall? Ought we to go ahead and do that

deal even though they may not be totally prepared for a session

now? Should we hold out for more?

Mr. CONDIT. As I said earlier, every negotiation is a balance. To

say we want everything in this run I think would be a mistake because you won’t get there. To say that accession ought to be there

no matter what, would also be a mistake. There is a need for very

specific conditions, but it is also important that China be part of

the world trading community.

Just by population and long-term economic force, we are much

better off having them in the world trading system than outside.

So the real issue is what are the key points, how do we make those

key points, and then get an agreement. We use the words ‘‘commercially meaningful’’ which indicate this isn’t just a giveaway, but it

does mean we need to reach an agreement. I think it is very important.

Ms. DUNN. Thank you. Well, we will be sorting that one out in

the next few months.

I want to also say, fast track has been touched on. It is vitally

important to all of us. I think that you are going to find very strong

support for fast track, at least on my side of the aisle in Congress.

But the problem is that when we had our last vote on fast track,

it was a lopsided vote. We lost that vote by 180 to 243. We are still

deciding now how to proceed with fast track, many different approaches on this.

I see, as I said, that there is good support on our side of the

aisle. We brought the votes we needed the last time. The business

community is obviously interested and engaged. Certainly the U.S.

Trade Representative is very eager to have us move ahead with

fast track. Other parts of the Administration though talk a lot, but

they do not seem to produce the votes that we need when we need

them.

I am interested, Mr. Swift, in what you have said because I don’t

think I have heard it publicly before, that the business community

may be willing to sit now and talk about further negotiations on

labor and environment. There was some very strong language in

the last fast track bill. So I am interested in hearing your point of

view on how we would proceed here, and would we require, for example, that foreign nations change their environmental laws, their

labor laws, in order to be part of our requirement under fast track?

Or would that encourage them to begin to do other deals bilaterally

49

with countries like the EU, instead of pursuing agreements with

us?

Mr. SWIFT. Well, when we made the comment that we think the

people should sit down and discuss the labor and environmental

issues, that is simply because if we don’t sit down and discuss

them, they will never be resolved.

As we have said, the WTO is a trade organization. It is not specifically a labor or environmental organization. With respect to the

environment, speaking as Foster Wheeler now, I would point out

that even the Kyoto Accords recognize the many difference between

developing and developed countries. So therefore, it is difficult to

see how specific we can be in[to] fast track legislation.

However, I do believe that if we say that we shouldn’t discuss

these issues, is putting our head in the sand. We think that the

quicker that the Administration identifies exactly what it is thinking about, and creates a meaningful dialog, to the point where we

can have an omnibus trade bill so that all of the things that are

important to U.S. trade are covered, the better off we are.

Everybody has been talking around the issue, speaking for myself, and I think that when people sit down and discuss it and find

out exactly what people are really talking about, maybe some common ground could be found. But without that, I don’t know how

fast track is going to go forward.

Ms. DUNN. Thank you, Mr. Chairman.

Chairman CRANE. Thank you.

Mr. Becerra.

Mr. BECERRA. Thank you, Mr. Chairman. Thank you to all of the

panelists for being here.

Let me ask a couple of questions if I have time to get through

both of them. Before I do, if I could just add a few comments to

what was said by Mr. Levin as well.

On the whole labor and environmental debate, I think we are

going to have to be a little bit more pragmatic. Mr. Swift, as Mr.

Levin quoted some of your written testimony, I think you are accurate that the business community needs to sit down and discuss

labor and environmental issues. If we don’t come to terms with it,

and really Members of Congress don’t’ come to terms with it, it is

going to be very difficult for us ultimately to have a trade agreement that will have broad bipartisan support.

With regard to the ILO, my concern with the ILO is that it has

no teeth. There are no enforcement mechanisms in place. What it

really does is state principle, but it has no way to engender practice of the standards that are set forth.

If I can give you a real quick example. There are some 180 or

so conventions and standards that have been passed by the ILO

over its some eight decades of history. Of those, there are seven

that are considered core conventions: Two of them are on the prohibition of forced labor; two are on the right to organize and collectively bargain; one is on equal pay; one is on the elimination of discrimination; and one is on the abolition of child labor.

At this stage, there are only 37 countries out of the 174 countries

that participate in the ILO who have signed those seven core conventions. The United States, by the way, is not one of those 37

50

countries. We have only signed on to two of those seven core conventions.

So not only do we not have a mechanism to enforce what the ILO

preaches, but we also find that there is very little participation in

some of the principal conventions of the ILO. So to rely solely on

the ILO to try to get us where we need to be on labor is very difficult. That is why I think Congress will have to grapple with that

fact.

The question I would like to ask has to do with a hearing that

we had last week on steel. I would like to ask your opinion on

something. On a bipartisan basis, we had members coming forward

saying we need to do something quickly on steel, even to the degree

of saying that we should do things that would violate WTO standards. But on a bipartisan basis we had members saying that. We

have one bill that has over 180 signatures, bipartisan, that would

require us to do things that would, I believe, clearly ask us to do

things that would violate WTO.

I would like to know your impressions on what we should do on

steel, given that what we have seen is that there has been a massive introduction of steel by a factor of two to three in some cases

from some countries, and the impact it is having on the steel industry.

Mr. MICEK. Well, we are in the steel business. We also trade

steel, originate steel. Actually I think this issue is a very complex

one. But you have to look at it in the context of what has happened

in the last 2 years, which started with the Asian crises, which then

spread to Russia, and now to South America.

I think what we have to resist is our instinct to retaliate with

some legislation. We are much better off to enforce rules that are

in place or to sit down with, whether it is the Russians or the Japanese or the Koreans, in terms of limiting the amount of steel imports that come in. Not too dissimilar from what we did with the

Japanese auto industry several years ago.

I think it would be a real mistake, particularly in the light of the

upcoming WTO negotiations for the United States to do something

that would just really run in the face of trying to negotiate or expand a new round of trade talks by putting in place unilateral

trade restrictions. This would just send a very difficult, or really a

poor signal to the rest of the world.

Mr. CONDIT. Said another way, I think everybody at this table

is a strong supporter of a rule-based system. So we need enforcement; we ought to use those mechanisms and go after them hard.

Because without the enforcement, rules don’t matter. But to create

tools outside of that mechanism calls the fundamental system into

question.

Mr. BECERRA. Thank you.

Mr. BASZILE. My experience as a metals processor and distributor, I can recall when the memorandum of understanding was

signed with the Russians on aluminum ingot. I am deeply involved

in ingot. Ingot is a commodity that is traded on the international

market. It is suffering right now. No attempts are being made to

curtail the import of ingot. I think it would be inconsistent with

our trade policies if we took special measures to curtain the importing of steel.

51

Further, being from Los Angeles, with two major harbors who

are boasting about the revenues that are generated and the jobs

that are created by the heavy import of metals like steel, I think

it would be very detrimental to that region that we so vitally need.

Mr. BECERRA. Thank you.

Mr. Chairman, thank you. I know my time has expired.

Chairman CRANE. Well, I want to thank all of our panelists.

Mr. LEVIN. Mr. Chairman, let me just say one word or two

words, if I might. There was a reference to Kyoto. I think it was

95 to nothing, or whatever the vote was in the Senate, that we

should not proceed until the evolving economies were participants.

So I think, and I have said to my friends in the business community, if that is your view of Kyoto, and I agree with it, there ought

to be an understanding of the comments in your testimony, Mr.

Swift, about tackling these environmental and labor market issues

as we consider overall trade legislation.

As you leave, to all of you who commented on a rule-based system and WTO, I hope you will convey that message to people in

the minority and the majority who might be tempted to treat lightly this issue of a rule-based system as we consider any issue, including steel. Thank you.

Chairman CRANE. I want to thank you all for your participation,

and encourage you all please to get the entire business community

focused on communicating to employees now, especially in small

business, like Mr. Baszile. Because it is so essential that we advance our own trade interests and it works for big corporations and

the little guys, but especially for the little guys. That ultimately

works to the benefit of all of us. So please keep up the good work,

and stay in touch with us.

With that, I will adjourn this panel and invite our next. Dean

Kleckner, Kevin Gardner, Leon Trammell, the Honorable William

Pryce, and Michael Ryan.

Ms. DUNN [presiding]. Our welcome to the next panel. We are

glad you could join us today. Before you start, Mr. Kleckner, with

your testimony, I would like to call on our Member, Ron Lewis

from Kentucky, who will say a few words about one of his constituents on this panel.

Mr. Lewis.

Mr. LEWIS of Kentucky. Thank you, Ms. Dunn.

I want to thank you for the opportunity to introduce a young

farmer from my district, Kevin Gardner. Kevin, along with his wife

Glenna own and operate an 800-acre farm in Barren County, Kentucky, where they grow corn, wheat, soybeans, tobacco, and alfalfa,

hay. Kevin is with us today as chairman of the American Farm Bureau Federation, Young Farmer and Rancher Committee. In addition to Farm Bureau, Kevin serves on the IDEA board, Cave City

Ag-Expo Task Force, and the Barren County Board of Education

Long Range Planning Committee.

It has been my pleasure to know Kevin since 1995. He is a member of my Agriculture Advisory Council Group, and in fact hosted

one of our first meetings on his farm. Since then, he has been an

outstanding source of information for me as I represent the farmers

of the second congressional district.

52

As Kevin is about to tell you, expanding global markets affect

farms and farming communities of all sizes across this country.

Their futures depend on their access to these markets and the ability to compete, and especially in this time of some surpluses.

Kevin, thank you for taking your time to be with us today and

share your experiences and your expertise in this area. Thank you.

Mr. GARDNER. Thank you.

Ms. DUNN. Thank you very much, Mr. Lewis.

We are delighted to have him as a new member of our Ways and

Means Committee.

Let’s begin testimony then from Dean Kleckner. We will go in

order.

STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN

FARM BUREAU FEDERATION, PARK RIDGE, ILLINOIS

Mr. KLECKNER. Thank you, Madam Chair, Members of the Committee. I am Dean Kleckner. I am president of the American Farm

Bureau. I am the elected president. I am a farmer from northern

Iowa. I grow corn, soybeans, and hogs on my family farm in northern Iowa.

I welcome the opportunity to present this testimony before the

Trade Subcommittee of the full Committee on the importance of

trade negotiations in fighting foreign protectionism. We stress the

need for congressional action on the following trade priorities. I am

going to list six very briefly. I think I can do it in 5 minutes.

First point, negotiating authority. The Freedom to Farm Act in

1996 began to phaseout farm price supports. It made us more dependent on the world market. Yet agriculture worldwide remains

one of the most protected and subsidized sectors in the world economy. Congress simply must pass trade negotiating authority to enable our negotiators to create new export opportunities for farmers

and ranchers. We are going to start 9 months from today, Ms.

Dunn, or it is going to end 9 months from today in Seattle, and we

are not going to have a negotiating authority if we are not careful

for our negotiators. I think they could be the laughing stock if that

doesn’t happen. In our country, they won’t have it. However, I say

such authority should not link environmental and labor issues to

trade.

Second point, negotiations on agriculture. We support in our organization, expediting the action on agriculture in the next WTO

round. We must conclude a negotiation quickly to put U.S. ag producers on a level playing field with the rest of the world. We have

four specific objectives in the next WTO round regarding ag. A,

binding agreements to resolve sanitary issues based on science. B,

provide tariff equalization and increased market access by requiring U.S. trading partners to eliminate trade barriers within specified timeframes. C, completely eliminate export subsidies within

specified timeframes. Point D, shorten the dispute resolution procedures and processes.

Third point, regarding enforcing trade agreements. We, the

United States has brought more trade dispute settlement cases before the WTO than any other nation. We must take all action necessary to ensure that our trading partners comply, live up to the

WTO rulings.

53

Due to recent developments just 2 days ago in the U.S. case

against the EU on bananas, I want to add a few remarks that

aren’t in the prepared testimony for the record. The U.S. ag community is very disappointed with the delay in the WTO arbitration

panel’s decision on the U.S. request to retaliate against the EU for

not living up to its commitments. The WTO arbitration panel did

not issue a final ruling on Tuesday as we had hoped. Our producers are counting on the WTO to make timely decisions on disputes concerning agriculture. We are already disappointed by the

usual long process required for WTO disputes. The banana case

has serious implications for the U.S. case against the EU on beef.

The EU has stated that it will not comply with the WTO ruling on

beef in May as required.

We believe that the customs actions taken by STR yesterday regarding the banana case is a necessary first step. We hope that the

United States will retaliate in full on the banana case in the near

future, and will exercise its right to retaliate against the EU on

beef if the May deadline passes.

Fourth point, the area is sanctions. U.S. ag producers are closed

off from several export markets due to unilateral sanctions, just us,

just the United States. Our competitors relish the opportunity to

access these markets without our competition. You know, they just

lick their chops when we put on sanctions. U.S. producers, on the

other hand, lose important markets and are branded as unreliable

suppliers. That is for decades to come.

We support sanctions reform that would exempt food from sanctions except in cases of armed conflict and provide market loss assistance payments for lost sales when sanctions are imposed.

The fifth point, quickly. We have got to increase funding for export credit and market development programs. That is things like

EP and M–A–P, MAP.

The last one, Trans-Atlantic Economic Partnership or TEP, T–E–

P. Congress and the Administration should closely review elements

of the Trans-Atlantic Economic Partnership agreement between the

United States and Europe to ensure that U.S. ag interests are adequately represented and that ag exports benefit from the TEP. We

have real questions about that today.

Thank you, Mr. Chairman.

[The prepared statement follows:]

Statement of Dean Kleckner, President, American Farm Bureau

Federation, Park Ridge, Illinois

Mr. Chairman and members of the Committee, I am Dean Kleckner, President of

the American Farm Bureau Federation and a hog and soybean farmer from Iowa.

The American Farm Bureau represents more than 4.8 million member families in

the United States and Puerto Rico. Our members produce every type of farm commodity grown in America and depend on access to customers around the world for

the sale of over one-third of our production. U.S. agriculture is one of the few U.S.

industries that consistently runs a trade surplus, posting a surplus every year since

1960.

American farmers truly live and function within a global economy. When our customers face economic and fiscal crisis, as is now occurring in Asia, Russia and

Brazil, agriculture is the first to feel the effect as our customers lose purchasing

power. Economic crises and devalued currencies result in increased consumer prices,

which directly translate into weakened market demand. Lost sales mean lower incomes for our producers and economic pressures on America’s rural economies.

The ability of U.S. agriculture to gain and maintain a share of global markets depends on many factors, including obtaining strong trade agreements that are propVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
54

erly enforced, and enhancing the administration’s ability to negotiate increased market access, remedy unfair trading practices, and to adequately fund export credit

and market development programs.

We appreciate the opportunity to testify before the House Ways & Means Trade

Subcommittee on the importance of trade to agriculture and stress the need for Congressional action on the following trade priorities:

TRADE NEGOTIATING AUTHORITY

When Congress passed the 1996 Freedom to Farm Act, it phased out farm price

supports, making U.S. agriculture more dependent on the world market. American

farmers and ranchers produce an abundant supply of commodities far in excess of

domestic needs and their productivity continues to increase. Exports are agriculture’s source of future growth in sales and income.

As you are well aware, U.S. agriculture is reeling from low commodity prices.

Given an abundant domestic supply and a stable U.S. population rate, expanding

existing market access and opening new export markets for agriculture is more important than ever. Agriculture’s longstanding history of a balance of trade surplus

will not continue if we are relegated to the sidelines as new negotiations in agriculture commence.

Our negotiators must have negotiating authority to create new export opportunities for U.S. farmers and ranchers. Inaction—or sitting on the sidelines without negotiating authority—is unacceptable. Tremendous resources and efforts have been

expended to create new markets during negotiations for the Uruguay Round and the

North American Free Trade Agreement (NAFTA). Moreover, total agricultural exports account for nearly a million high paying jobs for U.S. workers—the vast majority of which are off the farm in processing and transportation.

Global food demand is expanding rapidly and more than 95 percent of the world’s

consumers live outside U.S. borders. Despite significant progress in opening markets, agriculture remains one of the most protected and subsidized sectors of the

world economy. In addition, U.S. agricultural producers are placed at a competitive

disadvantage due to the growing number of regional trade agreements among our

competitors.

Negotiating authority is needed to comprehensively address high tariffs, trade-distorting subsidies, and other restrictive trade practices through further World Trade

Organization (WTO) negotiations. Negotiating authority is also needed to pursue

promising new opportunities for market opening trade agreements in Latin America, Asia and elsewhere.

U.S. leadership of the global trade liberalization agenda has paid off for American

agriculture. If the United States now leaves it to others to form new trade pacts

and write future rules for trade, U.S. producers, processors, and exporters will be

severely disadvantaged in the competitive marketplace of the 21st century.

Congress must support negotiating authority for the President to ensure a more

profitable future for U.S. farmers and ranchers. However, such authority should not

link environmental and labor issues to trade. Whereas President Clinton emphasized the importance of trade during his State of the Union address, he also underscored his desire to include labor and environmental issues in trade agreements. We

oppose such a linkage and stand united with leaders in Asia and Mexico, and Secretary Ruggiero of the WTO against using the WTO as a forum for resolving nontrade related environmental and labor issues.

WTO MINISTERIAL

The United States will host its first ever WTO trade ministerial in December of

this year. This ministerial will serve as the kickoff for the new negotiations on agriculture and other sectors in the WTO. As the host country for this ministerial, the

United States and its trade policies will be in the spotlight. Securing negotiating

authority before the ministerial commences will demonstrate to the world that we

are committed to increasing trade liberalization and opening new markets for agriculture. Given the economic turmoil being experienced in many of our important export markets, the launching of new negotiations to further open markets has never

been more important.

WTO NEGOTIATIONS ON AGRICULTURE

The American Farm Bureau supports expediting action on the next round for agriculture in the WTO. Our market is the most open in the world. We cannot sit idly

by while our competitors trade openly in our market, but deny us access to their

markets on equal terms. We must begin the negotiations and conclude them as

55

early as possible to put U.S. agricultural producers on a level playing field with the

rest of the world.

Regarding specific objectives for the next WTO round, the negotiations must include binding agreements to resolve sanitary and phytosanitary issues based on scientific principles in accordance with the WTO Agreement on Sanitary and

Phytosanitary Measures; provide tariff equalization and increased market access by

requiring U.S. trading partners to eliminate tariff barriers within specified time

frames; and make changes to trading practices that would facilitate and shorten dispute resolution procedures and processes.

FREE TRADE AREA OF THE AMERICAS

The Free Trade Area of the Americas (FTAA) will bring together 34 countries in

an agreement designed to boost trade in the Western Hemisphere. Latin America

is an important market for U.S. agricultural products. More than one-fifth of U.S.

agricultural exports in 1998 went to Latin America, an amount that exceeded $11

billion. However, U.S. agricultural producers are at a competitive disadvantage due

to existing preferential agreements in Latin America. We need the FTAA to level

the playing field for our exports to the region.

Regarding specific objectives, increased market access and transparency must be

the lynch pins for all FTAA negotiations. In addition, all member countries must

have fully complied with their international obligations prior to its implementation.

The FTAA should cover all production sectors of the member countries’ agricultural

industries and no signatory should be permitted to protect any sector from meeting

the terms of the agreement.

ASIA PACIFIC ECONOMIC COOPERATION

The Asia Pacific Economic Cooperation (APEC) was established in 1989 to promote greater economic and trade cooperation in the Pacific Rim. APEC member

countries have agreed to establish free trade and investment in the region by the

year 2020, with developed countries reaching for this goal by 2010.

However, there have been several attempts by some APEC member countries to

delay or halt the discussions on further liberalizing their agricultural markets. This

cannot be allowed to happen. While the economies of many members in the Pacific

Rim region have suffered economic downturns, most members recognize the value

of liberalized markets and have not altered their APEC commitments. Achieving liberalization in APEC will be extremely important for the upcoming negotiations on

agriculture in the WTO wherein we hope to achieve further market openings for agriculture. The United States must be active in APEC discussions and ensure that

liberalization in agriculture maintains a high profile.

ENFORCING TRADE AGREEMENTS

The United States has brought more dispute settlement cases before the WTO

than any other nation. We must take all action necessary to ensure that our trading

partners comply with WTO rulings. The obligation of compliance should not be

taken lightly. Our trading partners cannot be allowed to unilaterally weaken the

very principles that we negotiated in the Uruguay Round agreement.

American agriculture will not have confidence in the multilateral trading system

if WTO members are permitted to disregard dispute settlement findings, as the European Union is now doing in the banana and beef hormone cases.

The United States and the European Union are now embroiled in a dispute regarding the European Union’s compliance with the WTO ruling on bananas. This

case is important to agriculture for many reasons. It is the first ruling to set limits

on the application and administration of agricultural tariff rate quotas. It is the first

action against the European Union—American agriculture’s largest trading partner.

Perhaps most important, it is the first case to test the effectiveness of the WTO

when a losing party refuses to come into compliance with a WTO ruling. As such,

it sets a crucial precedent for the WTO beef hormone case, in which the European

Union has also made known its unwillingness to come into compliance.

We encourage Congress and the Administration to take whatever actions are necessary in the banana and beef hormone cases to ensure successful, WTO-consistent

outcomes that will help demonstrate the effectiveness of the system.

We have an obligation to our producers to ensure that every available domestic

and international trade remedy will be used to prevent unfair trading practices. To

this end, we need Congress and the Administration to give priority to monitoring

and enforcing all trade agreements and to working aggressively to end unfair trading practices whenever they are found.

56

SANCTIONS REFORM

In the last decade, democracy has ascended amidst economic liberation in Taiwan,

Korea, Poland, Hungary, Slovenia, the Czech Republic, Chile, Argentina, Bolivia,

Peru, Brazil, Uruguay and Ecuador. The opportunities for peaceful American engagement and influence in the world are greater than ever before. Yet, we are closed

off from certain markets due to unilateral sanctions. Our competitors relish the opportunity to access these markets without competition from the United States due

to sanctions. U.S. producers, on the other hand, lose important markets and are

branded as unreliable suppliers for decades to come.

For example, the Soviet grain embargo cost the United States about $2.8 billion

in lost U.S. farm exports and U.S. government compensation to American farmers.

When the United States cut off sales of wheat to protest the Soviet invasion of Afghanistan, other suppliers—France, Canada, Australia and Argentina—stepped in.

They expanded their sales to the Soviet Union, ensuring that U.S. sanctions had virtually no economic impact.

Sanctions and embargoes not only cost us in immediate loss of sales, but also enable our customers to find or develop other suppliers. Once this happens, it is very

hard to win them back. A case in point is the growth of soybean production in South

America, primarily Brazil, as a result of embargoes in the 1970s and 1980s.

The United States has an unprecedented opportunity to promote its values

throughout the world by peaceful engagement. Reaching out, not withdrawing behind sanctions or embargoes, is the best way to achieve change.

The American Farm Bureau supports sanctions reform that would exempt food

from sanctions, except in cases of armed conflict, and provide producers with market

loss assistance payments for lost agricultural export sales when sanctions are imposed.

We also support the Administration’s recent changes to U.S. trade policy that will

permit food and agricultural input sales to Cuba. It is imperative that the licensing

regulations for this policy be written in such a way as to facilitate meaningful commercial trade.

INCREASED FUNDING FOR EEP/MAP

Freedom to Farm increases the importance of maintaining and expanding access

to foreign markets. However, in recent years, spending for export programs has declined, although funding for most programs was maintained at previous levels for

fiscal year 1999. We must increase funding for these programs in order to remain

competitive in the face of increasing international competition.

We need to adopt a strategic approach to U.S. farm exports that includes increased export promotion and market development funding. Doing so will strengthen our hand as we prepare to launch the next round of agricultural negotiations in

the WTO.

We cannot place our producers at a competitive disadvantage in the world market.

The United States should undertake a review of its existing agricultural export programs, improve their effectiveness and flexibility and fund these programs adequately.

The American Farm Bureau Federation supports the reallocation of unobligated

funds from the Export Enhancement Program to other programs such as the P.L.

480 food assistance program, the Food for Progress program, the Market Access Program, the Foreign Market Development program, or one of the section 416 commodity donation programs.

TRANSATLANTIC ECONOMIC PARTNERSHIP (TEP)

The Transatlantic Economic Partnership establishes a regular dialogue between

the United States and the European Union to seek to reduce trade barriers and to

ensure closer cooperation in preparation for the 1999 WTO Ministerial Conference.

Although the concept of the plan is commendable, on close examination, the TEP

provides little that is new or substantive for agriculture. Moreover, elements of the

plan cover areas of extreme importance to agriculture including food safety, plant

and animal health, biotechnology and standardization of certain regulations that directly affect agriculture.

The American Farm Bureau remains very concerned about several provisions of

the plan and related dialogues that do not include U.S. agricultural representation.

It is critical that Congress and the Administration closely review elements of the

TEP to ensure that U.S. agricultural interests are adequately represented and that

agricultural exports are not negatively impacted.

57

RAISING THE PROFILE OF AGRICULTURAL TRADE POLICY

U.S. agriculture is a primary contributor to the nation’s gross domestic product

and is highly dependent on export markets for the sale of over one-third of its production. Farmers and ranchers need a strong voice in U.S. trade policy to ensure

that agriculture’s interests are being vigorously pursued.

Creating a permanent position for the Special Agricultural Negotiator in the Office of the United States Trade Representative—with the rank of ambassador—will

elevate the importance of agriculture in the upcoming WTO negotiations on farm

products and will place agriculture at the highest possible level for resolving trade

disputes.

U.S. agricultural producers are the most productive in the world. We need Congress and the Administration to act on agriculture’s trade priorities so that U.S.

farmers and ranchers can reap the rewards of their productivity and provide an affordable food supply to U.S. and world consumers.

Thank you for the opportunity to speak on behalf of American agriculture.

[An attachment is being retain in the Committee files.]

Chairman C

Mr. Gardner.

RANE [presiding]. Thank you, Mr. Kleckner.

f STATEMENT OF KEVIN GARDNER, FARMER, CAVE CITY,

KENTUCKY

Mr. GARDNER. Thank you. Mr. Chairman, and Members of the

Committee, my name is Kevin Gardner. I operate a corn, soybean,

and burley tobacco farm in Cave City, Kentucky. I bought my farm

from my mother nearly 10 years ago when my father passed away.

The farm has been owned and operated by my family since 1792,

when land was first granted out in our county. It has enjoyed mostly prosperous times during the last 200 years.

I am here before you today to share my farming story with you,

and to highlight the growing reliance that my farm and every other

farm in the country has on access to foreign markets.

Since I was a young boy, I dreamt of being a farmer. I would

watch my dad cultivate the corn, operate the combine, harvest the

soybeans and tobacco, and wean the baby pigs. My father was an

honorable man. He was dedicated to his family, the farm, and his

community. He operated the farm the best way he knew how, and

did a good job. But he never had to worry about global financial

crises closing down his markets or non-tariff trade barriers shutting him out of the competition for a sale.

Times have certainly changed. Farmers today are focused not

only on what they grow and how they grow it, but where their end

market is, which is increasingly becoming an international destination. Today’s market is much more global in nature than the market my father faced. When I open up the morning newspaper and

read about the news of the day, I am well aware that economic

troubles in other countries, as well as good market news in faraway

lands, affect me directly. We live in a global marketplace, and as

farmers we need to be players in the global game.

For example, I sell my corn to a local feed dealership and my soybeans to a local processing plant on the Ohio River. However, I feel

the impact of the global corn and soybean prices when I sell these

products to the dealership and the plant. A large portion of the soybeans I sell I deliver to the plant are exported to Japan, the Netherlands, Mexico, Taiwan, and Spain. Mexico, incidently, has become

58

an important market for Kentucky farmers since the North American Free Trade Agreement was implemented.

Take another example. My tobacco is sold at auction at a local

warehouse. Five major tobacco companies buy U.S. burley tobacco

at auction for processing. About half the tobacco is for use for U.S.

consumption and the rest is exported.

I am a strong supporter of free and fair trade. My future depends

on it. I supported the Freedom to Farm, but note that we only got

part of the deal that we were promised. We got the freedom to

farm, but we did not get the freedom to sell. We continue to be

shut out of important markets due to a number of factors. In short,

U.S. farmers do not have the freedom to trade. I believe that our

negotiators should be allowed to return to the negotiating table to

level the playing field and to negotiate better access to more international markets.

Would my life be different if our negotiators could knock down

those phoney barriers and get rid of the subsidies on my competitors’ exports, and open up markets for U.S. farmers? You bet it

would. I would relish the opportunity to sell more corn, soybeans,

and tobacco in the international marketplace if I knew I was truly

squaring off with the competitor that didn’t have two legs up on

me before we even got out of the gate.

To boil all this down, I am asking you, our elected representatives, to remember America’s roots. We started out as an agrarian

society and we built a strong Nation, the strongest in the world

from very humble beginnings. Remember the farmer like me in the

countryside. We are the most productive and efficient farmers in

the world. Yet many export doors are closed for us for one reason

or another. The President needs negotiating authority to re-open

export market doors for U.S. agriculture.

I would like to thank this Committee and especially my Congressman, Ron Lewis, for their efforts in opening U.S. trade. I

thank you for this opportunity to testify.

[The prepared statement follows:]

Statement of Kevin Gardner, Farmer Cave City, Kentucky

Mr. Chairman and members of the Committee, my name is Kevin Gardner and

I operate a corn, soybean, burley tobacco and alfalfa farm in Cave City, Kentucky.

I bought my farm from my mother ten years ago when my father died. This farm

has been owned and operated by my family since 1792 when land was first granted

out in our county and has enjoyed mostly prosperous times during that 200-year period.

I am here before you today to share my farming story with you and to highlight

the growing reliance that my farm, and every other farm in the country, has on access to foreign markets.

Since I was a young boy, I dreamt of being a farmer. I would watch my dad cultivate the corn, operate the combine, harvest the soybeans and tobacco and wean

the baby pigs. My father was an honorable man, dedicated to his family, the farm

and his community. He operated his farm the best he knew how and he did a good

job. But he never had to worry about global financial crises closing down his markets or nontariff trade barriers shutting him out of competition for a sale.

Times have changed. Farmers today are focused not only on what they grow and

how they grow it, but also on where their end market is—which is increasingly becoming an international destination. Today’s market is much more global in nature

than the market my father faced. When I open up the morning newspaper and read

the news of the day, I am well aware that economic troubles in other countries—

as well as good market news in far away lands—affect me directly. We live in a

global marketplace and, as farmers, we need to be players in the global game.

59

For example, I sell my corn to a local feed dealership and my soybeans to a processing plant on the Ohio River. However, I feel the impact of global corn and soybean prices when I sell these products to the dealership and the plant. A large portion of the soybeans I deliver to the plant are exported to Japan, the Netherlands,

Mexico, Taiwan or Spain. Mexico has, incidentally, become an important market for

Kentucky farmers since the North American Free Trade Agreement was implemented.

Take another example. My tobacco is sold at an auction to a local warehouse. Five

major tobacco companies buy burley tobacco at that auction for processing. About

half of the tobacco is used for U.S. consumption, the rest is exported to countries

like Germany, Japan, Turkey, the Dominican Republic, Belgium or the Netherlands.

Up until last spring, I raised hogs in a farrow-to-finish operation and even specialized in early weaning pigs for the last two years of my operation. But in May of

1998, I had to close down my hog operation because the market died. The price for

hogs fell below my cost of production due largely to excess domestic supply. Imports

of Canadian hogs were also a factor.

My point in sharing my hog story with you is not to say that I am trade protectionist. On the contrary. I support free and fair trade. My future depends on it. I

supported Freedom to Farm, but note that we only got part of the deal that we were

promised. We got freedom to farm, but we didn’t get freedom to sell. We continue

to be shut out of important markets due to a number of factors. In short, U.S. farmers do not have freedom to trade. I believe that our negotiators should be allowed

to return to the negotiating table to level the playing field and negotiate better access to more international markets.

A lot of export market doors have been shut due to high tariffs and nontariff barriers. For example, I grow Bt-corn and Roundup-ready soybeans. These are genetically modified crops—or GMOs. Europe has very limited access for these products

and has slammed the import door closed on new varieties of GMO products. We

need new rules on biotechnology in the World Trade Organization because Europe

is the second largest market for U.S. agriculture. The phony barriers that Europe

erects are hurting the average farmer in the countryside—farmers like me. I feel

the impact of Europe’s anti-trade tactics when I sell my corn and soybeans to the

local feed dealership and processing plant.

Would my life be different if our negotiators could knock down these phony barriers, get rid of foreign subsidies on my competitors’ exports and open more markets

for U.S. farmers? You bet it would.

I have seen first-hand the level of subsidies given to European farmers and supply

managed programs for Canadian farmers. I have traveled to both Europe and Canada and have been struck by the amount of government support farmers in Europe

enjoy. Farmers in Europe and Canada are my primary competitors. I cannot compete against the mountain of subsidies and supply managed programs that benefit

my competitors.

All I am asking for is that we negotiate new agreements that put our farmers

on a more level playing field with the rest of the world’s farmers. I would relish

the opportunity to sell more corn, soybeans and tobacco in the international marketplace if I knew that I was truly squaring off with a competitor that didn’t have two

legs up on me before we even got out of the gate.

To boil all this down, I am asking you, our elected representatives, to remember

America’s roots. We started out as an agrarian society. And we built a strong nation—the strongest in the world—from very humble beginnings. Remember the

farmer—like me—in the countryside. We are the most productive and efficient farmers in the world. Yet too many export doors are closed to us for one reason or another. The President needs negotiating authority to reopen export market doors for

U.S. agriculture.

I would like to thank this Committee, and especially my Congressman, Ron Lewis,

for their efforts in opening trade for U.S. farmers.

Thank you for the opportunity to testify before you today.

Chairman C

Mr. Trammel.

RANE. Thank you, Mr. Gardner.

f

60

STATEMENT OF LEON TRAMMELL, CHAIRMAN AND FOUNDER,

TRAMCO, INC., WICHITA, KANSAS

Mr. TRAMMELL. Chairman Crane, Congressman Levin, Members

of the Subcommittee on Trade, I am Leon Trammell, chairman and

founder or Tramco, Incorporated, in Wichita, Kansas. Tramco creates jobs by selling and manufacturing conveying equipment. Our

primary market is the cereal food processors, such as wheat, corn,

soybean, and other oil seeds. I appreciate the opportunity to join

you in this very important discussion.

I founded Tramco in 1967 with the commitment to quality and

customer satisfaction. Almost 25 years ago, Tramco embarked on

its first out-of-country job. We were fortunate to be involved in a

grain import and transfer facility in Alexandria, Egypt. When the

project was completed, we realized that this modern facility halfway around the world had been responsible for 20 percent of our

business. That meant 15 new jobs for 1 year.

Today we have installations in over 35 countries. Why are international markets important to Tramco? We could wave the flag and

talk about helping the United States balance of payment, but the

real reason our international partners are important is that we are

an entrepreneurial company. We are always looking for additional

sales. Foreign projects offer the greatest opportunities, and we create jobs.

I am the guy who signs the paycheck four times a month for

more than 160 families. I am the guy who approves expense reports on trips our employees take to maintain business relationships on four continents. I have employees who can take raw steel

and turn it into the finest grain conveyors in the world. Their job

depends on my ability to sell.

I spoke at length about China in my written statement because

of its great size, great potential, and severe restrictions. But the

fact is, we must compete all over the world and we must win. The

livelihood of Tramco’s 160 families depend on it. Thousands of companies like mine and millions of jobs around the country depend on

it. I simply can not understand why our government seems to be

more intent on imposing economic sanctions and annual NTR renewals that our competitors don’t follow than it is with allying us

and our trade negotiators to get the best deal.

I am a member of the U.S. Chamber of Commerce. The Chamber

represents tens of thousands of entrepreneurs like myself as well

as most large companies, corporations like those represented here

today. I might add that two of those people that testified today, I

get the waterfall effect from them. That’s Cargill and Foster Wheeler. Eighty percent of our business is in grain processing and 20

percent is in general industry. The reason a company the size of

Tramco can be in 35 foreign countries is we go in on the coattails

of those companies. Once we are there and we are established as

a supplier to the Cargills and to the Foster Wheelers, it is easier

for us to penetrate the rest of the market.

Let me back up here. The Chamber of Commerce represents tens

of thousands of entrepreneurs like myself, as well as most large

corporations like those represented here. We all do business in our

own way, but we all have a common goal, which are to stay in business and create jobs.

61

To summarize, the U.S. Congress and Administration should do

everything possible to expand the international marketplace. This

means renewing fast track and rejoining trade negotiations. These

negotiations should be about opening markets and creating jobs,

not closing them. Any effort to restrict trade through protectionism

should be rejected. We need to end our reliance on unilateral sanctions. This includes giving permanent NTR status to China and

stop threatening to end it at the end of each year. Ending China’s

NTR status would be a major new sanction that would hurt

Tramco, as well as those who seek more liberty in China, but it

would not cause positive change in China.

We need to maintain trade laws that are not themselves protectionist, but help us to open markets and end protectionism. Again,

this is about jobs. This will give our negotiators more credibility,

and the American public more confidence. Finally, we need to stay

engaged in keep building relationships with our customers, not

turn them off and on like a lightswitch at the end of each year.

I will be pleased to answer any questions you might have, and

thank you.

[The prepared statement follows:]

Statement of Leon Trammell, Chairman and Founder, Tramco, Inc.,

Wichita, Kansas

Chairman Crane, Congressman Levin, members of the Subcommittee on Trade.

I appreciate this opportunity to join you in this very important discussion.

The following information is provided as a written submission for the United

States House of Representatives, Committee on Ways and Means, Subcommittee on

Trade.

These materials will provide a record on my thoughts on the importance of expanding trade, and resisting any protectionism in trade negotiations.

As background, I am:

Leon Trammell, Chairman and President, Tramco, Inc.

We are located at 1020 East 19th Street, Wichita, Kansas 67214.

Our 160+ employees are involved in the manufacturing and sale of high-production conveyors and conveying systems. Our primary market is in the ‘‘cereal foods’’

business . . . i.e., corn, soybeans, etc. We have been active in international sales

for more than 20 years, and have been most active in the China market for the last

14 years.

With your permission, it may be valuable to know of Tramco’s background and

introduction to ‘‘international’’ trade.

Almost 25 years ago Tramco embarked on its first job outside of the United

States. We were fortunate to be involved in a grain import and transfer facility in

Alexandria, Egypt. When the project was completed and brought on-line, we realized

that this modern facility—half way around the world—had been responsible for 20%

of our business.

As we said, this was ‘‘good’’ business.

This one factor alone can be cited as the reason Tramco’s quality products are now

known around the world. As a company, we made international relationships and

sales one of our primary missions.

We also know that ‘‘relationships’’ must come before any prospect of ‘‘sales.’’ As

such, we seem to have one of our employees getting their passport stamped on a

monthly basis. And, while it is not unexpected to have a $5,000 bill at the end of

each trip, we continue to make this investment in pure relationship building.

I would now like to discuss the changes we have seen in the China market (specifically) since our first introduction to this international partner. (I highlight China

for this example because, with our bidding, sales and installation activities currently in over 35 countries, China is among the most restrictive.)

• Ten years ago, with roughly 1.3 billion citizens, almost 80% of China’s population was involved in farming. Today, after extensive industrialization, this number

has dropped to between 65 and 70%. While this drop is significant, the number of

farmers—850,000,000—is still more than three times the entire population of the

United States. (As a point of reference, 100 years ago, 60% of the United States population was involved in agriculture. Today the number is 1%.)

62

• When we first went to China, the grain industry’s idea of transporting grain

was one farmer/gardener, one sack of grain and one bicycle. To be honest, there was

no infrastructure. In fact, when grain was loaded on to ships (during the few years

when China was an exporter) it was not unexpected for the farmer to carry sacks

of grain on to a ship and dump them by hand in to the ship cargo areas. • Ten years ago saw the beginning of the construction of a system of what we

could call country elevators. Their primary purpose was to ship the grain to a centralized storage facility. • We would like to believe that China is leaving a period of ‘‘labor intensity’’ and

entering a period of ‘‘brain intensity.’’ Obviously this shows great promise for a manufacturer of ‘‘high-quality, labor-saving’’ equipment.

Why are international markets important to Tramco? While we could ‘‘wave the

flag’’ and talk about helping the U.S. balance of payments, the real reason China

and our other international partners is important to us is that we are an entrepreneurial company—always looking for sales—and foreign projects offer the most opportunity in the world.

China is finishing up the greatest grain ‘‘system’’ expansion the world has ever

known. It should be noted, due to peculiar aspects of the Normal Trading Relation

status (NTR), no U.S. design and engineering firms have been involved in these

projects. Most of the work resides in Canada, England, Australia and the Netherlands. (The major U.S. firms didn’t get involved because they did not know if they

would be able to operate under NTR from one year to the next.)

Let me speak honestly about our feelings toward international activities in general, and granting permanent NTR status to China specifically: • Our business is not based upon whim and caprice. The current NTR approach

sometimes seems to be based upon whim and caprice. • Americans understand that we cannot impose our religious, political and social

views on China. It would appear as if Congress does not understand this. • Our company’s short-term planning is 12 to 18 months, and our long-term planning is five years. With the current NTR requirements with China, everything ends

on December 31. • Many of our clients realize that changing specifications in the middle of a

project might necessitate changes in the product delivery schedule. With the NTR

requirements, it doesn’t matter how many changes are requested, everything ends

on December 31. • We like to think we are always ‘‘in the ballgame’’ when it comes to designing

and delivering equipment. With NTR we have missed jobs because we couldn’t deliver materials before the end of the year. This situation is brought about because,

as the U.S. Congress threatens to withhold NTR status from China, their government threatens to impose a 40% duty on all equipment delivered from the U.S.

While this has never happened, the threat always exists.

• The current NTR activities take away two qualities we expect in a long-term

client relationship . . . continuity and consistency.

It should be obvious from my comments to this point that I am a designer and

builder of conveyor equipment . . . I am not a politician. While I vote every chance

I get, I certainly do not understand the way our government chooses to make laws

that hand-cuff our own small businesses who are trying to do businesses with

China.

For instance . . . why would the United States want a policy that would restrict

our ability to compete? Do they think they are ‘‘punishing’’ China? No. The world’s

largest potential marketplace will buy from some other country. The people being

‘‘punished’’ are our own manufacturers and engineering experts.

Or, to paraphrase the general focus of this Ways and Means Subcommittee on

Trade . . . I would urge you to do everything possible to expand trade, and resist

the introduction of any form of protectionism in any trade negotiations.

Who is Leon Trammell:

• I am is the guy who signs paychecks—four times a month—for more than 160

families. I have employees who can take raw steel and turn it into the finest grain

conveyors in the world. And, I am the guy who approves the expense reports on

those trips to make sure my key people maintain their key relationships on four

continents.

The sad thing is that Tramco is not alone. I fully expect that you will receive similar comments from others who are just as frustrated by a restriction on trade

through the inclusion of protectionism in trade negotiations.

Let me thank you for the opportunity to express these thoughts and to show how

passionate I am when it comes to establishing a ‘‘level’’ playing field. (I honestly do

not want for Tramco to ever be given an unfair advantage. We have gained our reputation and success in the toughest arena of all . . . the free marketplace.)

63

To summarize:

1. The United States Congress should do everything possible to expand the international trade marketplace.

2. Any effort to restrict trade, through protectionism, tariffs or short timetables

should be rejected.

3. On the subject of Normal Trade Relations status, I would support all efforts

to give permanent NTR status to China.

4. We should be able to continue our relationship-building in any country, while

projecting beyond New Year’s Eve.

5. While we work well with engineering firms from Europe and Australia, it would

be nice once-in-a-while to deal with companies who are a ‘‘local’’ call away.

6. Finally, long-term relationships should not end on the last day of the year, and

then restart when someone in Congress says they can recommence.

Thank you for this opportunity to share some thoughts with United States House

of Representatives Committee on Ways and Means, Subcommittee on Trade.

Thank you.

Chairman C

Mr. Pryce.

RANE. Thank you, Mr. Trammell.

f STATEMENT OF HON. WILLIAM T. PRYCE, VICE PRESIDENT,

WASHINGTON OPERATIONS, COUNCIL OF THE AMERICAS,

AND FORMER AMBASSADOR TO HONDURAS FROM THE

UNITED STATES

Mr. PRYCE. Good morning, Mr. Chairman, Congressman Levin,

and Members of the Subcommittee. I am Bill Pryce, vice president

of the Council of the Americas. The Council appreciates the opportunity to testify before you today. The Council of the Americas is

the leading business organization dedicated to promoting regional

economic integration, free trade and investment, open markets, and

the rule of law throughout the hemisphere. The Council’s membership represents the majority of U.S. private investment in Latin

America. Members include manufacturing, natural resources, technology, communications, banking, and financial services firms.

The Council was founded on the belief that the future prosperity

of the hemisphere depends on the triumph of liberal economic policies such as free trade and open markets. Despite the recent turbulence in the global economy, it is clear over the last decade that the

trend in Latin America has been in that direction. The result has

been stronger democracies and greater market opportunities for

U.S. companies. These are trends we should be encouraging.

Last April, the presidents of the hemisphere’s 34 democracies

agreed in Chile to open negotiations for a free trade area of the

Americas, and to launch new initiatives to promote education, reduce poverty, and strengthen democratic institutions throughout

the Americas. The Council believes that the FTAA represents a

great opportunity for growth and development of the region. Trade

leads to prosperity, and provides an enhanced ability to address the

summit’s broader social and political agenda.

The Free Trade Area of the Americas represents a potential market of 800 million people. It is a huge market, for everything from

cellular telephones to industrial machinery. U.S. trade with Latin

America and the Caribbean is already growing faster than with

any other part of the world. U.S. exports to Latin America have increased by more than 100 percent since 1990, and are growing

about twice as fast as exports to the rest of the world. The United

64

States sells more to Brazil than to China, more to Central America

than to Eastern Europe and the former Soviet Union combined,

and more to the 14 million people of Chile than to the 900 million

people of India.

Last month, the Council was in Miami at the FTAA negotiations.

Mr. Chairman, we heard once again directly from the negotiators

that the lack of trade negotiating authority was an impediment to

progress. The goal of reaching interim agreements by the year 2000

in order to achieve the concrete progress referred to in the Miami

Summit appears increasingly difficult to achieve. While the lack of

the President’s trade negotiating authority is not the only cause, it

certainly impedes our ability to get taken seriously. Although the

FTAA process is not scheduled to come into effect until the year

2005, the United States is in danger of losing ground in the region,

and ceding opportunity to Canada and the European Union as they

negotiate preferential trade agreements with the countries of Latin

America.

Mr. Chairman, I want to mention our most recent major trade

agreement, the NAFTA. The North American Free Trade Agreement has been a clear success. In January, the Council released its

NAFTA at Five Years report, which demonstrates even more

strongly than before that this trade agreement has been beneficial

for the United States. U.S. trade with our NAFTA partners grew

63 percent from 1993 to 1997, and stands are record levels. Since

1993, U.S. merchandise trade is up 93 percent with Mexico, 51 percent with Canada. In 1997, U.S. trade with Canada totaled $354

billion, and with Mexico, $180 billion. We now export more to our

NAFTA partners than we do to the European Union and Japan

combined.

Since NAFTA went into effect, the United States has seen the

unemployment rate drop to a 28-year low. We clearly have not seen

a massive exodus of U.S. jobs to Mexico as some had predicted. In

fact, NAFTA has led to more high quality, better-paying jobs for

U.S. workers. Without NAFTA, U.S. exporters would face Mexican

and Canadian trade barriers they do not now confront. Without

NAFTA, U.S. exporters would have been hit much harder by the

Asian financial crisis. Just as exports to Asia plummeted, U.S. exports to Canada and Mexico soared. Half the manufactured goods

export loss to Asia was made up by increased U.S. exports to Mexico and Canada, which grew by $10 billion over the first 8 months

of 1988. NAFTA has fostered growth in cross-border investment

that has improved the competitiveness of American companies, and

consequently, their ability to keep high-skill, high-wage jobs in the

United States.

The Council also believes that there are ways to improve

NAFTA. For example, by funding its institutions and further implementing the agreement. By we also believe that NAFTA is unfairly blamed for some of the trends inherent in a changing world

economy. Moreover, the agreement cannot be expected to carry all

of the facets of a trilateral relationship on its back.

Under NAFTA, U.S. business has benefited from greater efficiency, U.S. workers have benefited from the creation of high-wage,

high-skill, export-related jobs, and U.S. consumers have benefited

65

from lower prices and greater choice. These are trends we should

continue to promote and extend throughout the hemisphere.

In closing, the FTAA presents an opportunity to link the 34 democracies in the Western Hemisphere by broadening and deepening relations in ways that benefit the U.S. economy and its citizens, as well as those of our hemispheric neighbors and partners.

We need to do all we can to support it.

Thank you very much.

[The prepared statement follows:]

Statement of the Hon. William T. Pryce, Vice President, Washington Operations, Council of the Americas, and former Ambassador to Honduras

from the United States

Good morning, Mr. Chairman, Congressman Levin, and Members of the Subcommittee. I am Bill Pryce, Vice President of the Council of the Americas in charge

of our Washington operations. The Council of the Americas appreciates the opportunity to testify before you today.

The Council of the Americas is the leading business organization dedicated to promoting regional economic integration, free trade and investment, open markets, and

the rule of law throughout the Western Hemisphere. The Council’s membership represents the majority of U.S. private investment in Latin America. Members include

manufacturing, natural resources, technology, communications, banking, and financial services firms.

The Council was founded on the belief that the future prosperity of the hemisphere depends on the triumph of liberal economic principles such as free trade and

open investment. Despite the recent turbulence in the global economy, I think it is

clear that over the last decade the trend in Latin America has been in this direction.

The result has been stronger democracies and greater market opportunities for U.S.

companies.

Mr. Chairman, these are trends that we should be encouraging and that is why

I am here to speak to you today. As you know, the Summit of the Americas has

begun the process of hemispheric integration. Last April, the Presidents of the hemisphere’s 34 democracies met in Santiago, Chile and signed a document to open negotiations for a Free Trade Area of the Americas as well as to launch new initiatives

to promote education, reduce poverty, and strengthen democratic institutions

throughout the Americas. It is an ambitious agenda that will help to reduce the

risks and barriers to investment in the hemisphere as well as create a more politically stable environment. The Council believes that the FTAA represents a great opportunity for growth and development in the region. Trade leads to prosperity and

provides market-liberalizing countries an enhanced ability to address the summit’s

broader social and political agenda.

The Free Trade Area of the Americas presents a potential market of 800 million

people to whom we can sell our goods and services. It is a huge market for everything from cellular telephones to industrial machinery. U.S. trade with Latin America and the Caribbean is already growing faster than with any other part of the

world. U.S. exports to Latin America have increased by more than 100% since 1990

and are growing about twice as fast as exports to the rest of the world. The U.S.

sells more to Brazil than to China; more to Central America than to Eastern Europe

and the former Soviet Union combined; more to the 14 million people of Chile than

to the 900 million people of India.

The Council believes that expanding this trading relationship is critical to U.S.

corporate growth and overall economic health as well as to the development of Latin

America. Last month the Council was in Miami at the FTAA negotiations. Although

the FTAA process is in its early stages the groundwork is now being laid to create

the world’s largest free trade zone. However, the U.S. government can only lead successfully in this process if it is given the tools necessary to bargain with strength.

Mr. Chairman we heard once again directly from the negotiators last month that

the lack of trade negotiating authority was an impediment to progress.

The goal of reaching interim agreements by 2000 in order to achieve the ‘‘concrete

progress’’ referred to in the Miami Summit declaration appears increasingly difficult

to achieve. And while the lack of President Clinton’s trade negotiating authority is

not the only cause, it certainly impairs our ability to reach business facilitation

measures. Although the FTAA process is not scheduled to come into effect until the

year 2005, the United States is in danger of losing ground in the region and ceding

66

opportunities to Canada and the European Union as they negotiate preferential

trade agreements with countries in Latin America.

Mr. Chairman, while we are discussing the potential impact of ongoing trade negotiations on U.S. jobs, wages, economic opportunity and the future competitiveness

of U.S. companies I thought I would mention the most recent major trade agreement

that has positively impacted the U.S. economy and its workers—the NAFTA. Mr.

Chairman, the North American Free Trade Agreement has been a success. In January, the Council released its ‘‘NAFTA at Five Years’’ report. The figures in this report confirm even more strongly than before that this trade agreement has been

beneficial for the United States. Total U.S. trade with our NAFTA partners grew

63 percent between 1993 and 1997 and stands at record levels. Since 1993, U.S.

merchandise trade is up 93 percent with Mexico and 51 percent with Canada. In

1997, U.S. trade with Canada totaled $354 billion and with Mexico $180 billion.

Since NAFTA went into effect, the United States has seen the unemployment rate

drop to a 28-year low. We have clearly not seen a massive exodus of U.S. jobs to

Mexico as some had predicted. In fact, NAFTA has led to more high quality, betterpaying jobs for U.S. workers.

Simply put, without NAFTA, U.S. exporters would face Mexican and Canadian

trade barriers they do not now confront. And without NAFTA, U.S. exporters would

have been hit much harder by the Asian financial crisis. Just as exports to Asia

plummeted, U.S. exports to Canada and Mexico soared. Half of the manufactured

goods export loss to Asia was made up by increased U.S. exports to Mexico and Canada, which grew by over $10 billion in the first eight months of 1998. NAFTA has

fostered growth in cross-border investment that has improved the competitiveness

of American companies and, consequently, their ability to keep high-skill, high-wage

jobs in the United States. Beyond the positive economic impact in the three NAFTA

countries, the agreement has also encouraged economic reforms in Mexico.

Mr. Chairman, the Council believes that there are ways to improve NAFTA. We

lay out in our report some recommendations such as fully funding NAFTA’s institutions and further implementing the agreement. But we also believe that NAFTA is

unfairly blamed for some of the trends inherent in a changing world economy. The

agreement cannot be expected to carry all facets of a trilateral relationship on its

back. From the trade perspective there can be no doubt that NAFTA has been successful.

Under NAFTA U.S. business has benefited from greater efficiency, U.S. workers

have benefited from the creation of high-wage, high-skill, export-related jobs, and

U.S. consumers have benefited from lower prices and greater choice. These are

trends we should continue to promote and extend throughout the hemisphere. The

FTAA presents an opportunity to link the 34 democracies of the Western Hemisphere by broadening and deepening relations in ways that benefit the U.S. economy and its citizens. Thank you very much.

Chairman C

Mr. Ryan.

RANE. Thank you, Mr. Pryce.

f STATEMENT OF MICHAEL D. RYAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, STAFFING INNOVATIONS, INC., ATLANTA,

GEORGIA

Mr. RYAN. Yes. Thank you, Mr. Chairman, for inviting my testimony on the importance of expanding trade, to resisting protectionism through active U.S. involvement in trade negotiations. I sit

before you today as an example of our Government’s commitment

to SSMEs, in keeping them involved in the input process of global

trade agreements, as well as being a product of the late Secretary

Ron Brown’s efforts.

I am grateful to you and the Subcommittee as a whole for giving

me this opportunity to speak as a small businessman on why it is

crucial that the United States continue its ambitious trade agenda.

Since over 80 percent of the world’s economic consumption is outside of the United States, it is imperative that the U.S. negotiate

and enforce agreements worldwide, which will create open and fair

67

markets for U.S. products and services. This process of engagement

will ensure our continued growth and standard of living into the

21st century. My testimony will touch on why an aggressive trade

policy to open markets is important to small, medium, and micro

businesses.

My commitment and my company’s commitment to staying involved in the trade policy process goes back many years. SII focuses on global information technology. Our areas of expertise

range from project-based management software development, networking, communications, and technical support services. Issues affecting information technology companies on a global scale that

challenge SII include areas which are being negotiated in a number

of multilateral, regional, and bilateral agreements. In particular,

intellectual property rights, duty free, electronic commerce, expansion of the information technology agreement under the World

Trade Organization, continued liberalization under the Asian Pacific Economic Cooperation, and the Trans-Atlantic Business Dialog

are very important to SII and other technology companies. Other

areas include reduction of barriers in international personnel exchange, customs facilitation. It is imperative that a general consensus is reached regarding further trade liberalization and these

other areas.

SII’s involvement during the past 4 years in trade policy includes

my role as a U.S. delegate to APEC, TABD, and attending meetings and participation in trade mission with the U.S. Government.

It is because of my expansion and ambitious efforts into the global

marketplace and involvement in being a voice for small, medium,

and micro businesses that I am speaking today in support of continued trade liberalization.

A few issues that I wanted to make sure that I brought to the

forefront this afternoon. First, being trade negotiation authority. In

order for the United States to have credibility as we pursue our aggressive trade agenda, it is mandatory that the President be given

negotiating authority to negotiate these trade agreements in good

faith. We must get beyond partisan politics and do the right thing

by giving our President this authority. If Congress does not like the

deal being brought forward, of course they simply have the authority to vote it down. Granting negotiating authority which would

allow the United States to be more effective in this process is not

a nicety, it is a necessity. I urge Congress to act quickly to grant

the President this authority.

Intellectual property rights being the second issue. Since this is

a growing line of business for my company with our global expansion, we must work to ensure all WTO members comply with their

obligation to introduce full intellectual property protection by the

year 2000. Global electronic commerce. Electronic commerce allows

small businesses to break into and compete successfully in a global

marketplace.

International personnel exchange, which is a new issue that we

brought up under the auspices of TABD this year. As a supplier of

technical support services, restrictions on personnel exchange have

an adverse effect on my ability to grow in many of the worldwide

markets.

68

Customs. The WTO should work to simplify and reduce burdensome customs and trade procedures. Both large and small companies lose money because of unnecessary red tape in the customs

procedures worldwide.

I also wanted to make sure that I brought to the forefront the

importance of Africa. After several trips to Africa and exposure, SII

is now identifying and researching opportunities in North Africa

with countries such as Mauritania & Morocco, which has the distinction of having the oldest treaty with the United States in continuous force. The United States therefore should support the U.S.-

North African Economic Partnership Initiative. In addition, I encourage Congress to swiftly approve the African Growth and Opportunity Act.

APEC, TABD, and WTO, these forums provide the United States

with an opportunity to shape the direction of trade negotiations in

the future. The significance of these hearings are especially valuable at this time, recognizing that we are coming into a new millennium.

I, on the way to Washington, coined two words, trying to be a

little creative with this discussion. The first word that I coined, and

it just kind of dropped in my mouth, was to be ‘‘millenniumized’’.

That’s kind of a tongue twister. I kind of define that as those individuals and companies and countries that are prepared to embrace

and meet the challenges of the next millennium head on.

The next word that I have coined is ‘‘millenniumated’’, those individual companies and countries that are ill-prepared, overwhelmed,

and engulfed by those challenges that the next millennium will

hold.

It will hold with its emergence, the ability to embrace our next

generations with the outcomes of the decisions made today, or it

may hold hostage our succeeding generations with restitution to

pay for our indecisiveness and inability to reach consensus and establish global democratic economic uniformity. Countries will have

to change the way they manage the growth with respect to

globalization, and their past approaches to global economic expansion and trade agendas are not as valuable as they used to be.

Only their ability to adjust and leverage that experience is.

In conclusion, I recall hearing a story about Nelson Mandela, the

president of South Africa. He was once asked how could you have

spent 27 years of your life, for what reason would you compromise

your existence? He said that when he was a little boy, his mother

told him that there were three kinds of people in the world. The

first kind comes in and leaves nothing. The second kind comes in

and does bad things to people. The third kind comes in and leaves

it just a little better than the way they found it. The moral imperative is obvious because we all have mothers.

Thank you very much.

[The prepared statement follows:]

Statement of Michael D. Ryan, President and Chief Executive Officer,

Staffing Innovations, Inc., Atlanta, Georgia

Thank you, Mr. Chairman, for inviting my testimony on the importance of expanding trade and resisting protectionism through active U.S. involvement in trade

negotiations. I am grateful to you and to the Subcommittee as a whole for giving

me this opportunity to speak as a small businessman on why it is crucial that the

U.S. continue its ambitious trade agenda. Since over 80% of the world’s economic

69

consumption is outside of the U.S., it is imperative that the U.S. negotiate and enforce agreements worldwide which will create open and fair markets for U.S. products and services. This process of engagement will insure our continued growth and

standard of living into the 21st Century. My testimony will touch on why an aggressive trade policy to open markets is important to small, medium and micro businesses.

COMPANY INVOLVEMENT IN TRADE POLICY

Staffing Innovations, Inc. (SII) focuses on global information technology. Our

areas of expertise range from project based management, software development, networking, communications and technical support services. Currently, SII is engaged

in a concerted global outreach business agenda that includes Asia, Europe, North

Africa and the Caribbean. Issues affecting information technology companies on a

global scale that challenge SII include areas which are being negotiated in a number

of multilateral, regional and bilateral agreements. In particular, intellectual property rights, duty-free electronic commerce, expansion of the information technology

agreement under the World Trade Organization (WTO), continued liberation under

the Asian Pacific Economic Cooperation (APEC) and Transatlantic Business Dialogue (TABD) are very important to Staffing Innovations, Inc. and other technology

companies. Other areas include reduction of barriers to international personnel exchange and customs facilitation. It is imperative that a general consensus is reached

regarding further trade liberalization in these and other areas.

SII’s involvement during the past 4 years in trade policy includes my role as a

U.S. delegate to the APEC conference, Transatlantic Business Dialogue (TABD)

meetings and participation in trade missions with the U.S. government. It is because of my expansion into the global marketplace and involvement in being a voice

for small, medium and micro businesses that I am speaking today in support of continued trade liberalization.

TRADE EXPANSION AND ITS EFFECT ON SMALL BUSINESSES

Trade Negotiating Authority. In order for the U.S. to have credibility as we pursue

our aggressive trade agenda, it is mandatory that the President be given negotiating

authority to negotiate these trade agreements in good faith. We must get beyond

partisan politics and ‘‘do the right thing’’ by giving our President this authority. If

Congress does not like the deal being brought forward, you have the authority to

vote it down. Granting negotiating authority which would allow the U.S. to be more

effective in this process is not a nicety—it is a necessity. I urge Congress to act

quickly to grant the President this authority.

Intellectual Property Rights. As a small business software developer, end-user piracy of software can severely affect my bottom line. Since this is a growing line of

business for my company with our global expansion, we must work to ensure that

all WTO members comply with their obligation to introduce full intellectual property

protection by January 1, 2000.

Global Electronic Commerce. Electronic commerce allows small businesses to

break into, and compete successfully in global markets. Too often we have been

closed out of these opportunities due to lack of capital to expand overseas. Electronic

commerce provides smaller companies with a vehicle to sell their products or services globally without having to make a tremendous investment in capital therefore

making the playing field more level. It is imperative that we preserve electronic

trade over the Internet as duty free.

International Personnel Exchange. Barriers to international personnel exchange

continue to create significant impediments to global business. Issues such as a more

efficient process of obtaining work permits for employees and spouses and excessive

time in obtaining driver’s permits are impediments to the growth of many businesses who rely on the ability to attract and retain qualified employees. As a supplier of technical support services, restrictions on personnel exchange have an adverse effect on my ability to grow in many of the worldwide markets.

Customs. The WTO should work to simplify and reduce burdensome customs and

trade procedures. Both large and small companies lose money because of unnecessary red tape in customs procedures worldwide.

Africa. After several trips to Africa, SII is now pursuing opportunities in North

Africa with countries such as Morocco, which has the distinction of having the oldest

treaty with the United States in continuous force. The United States has not paid

enough attention to our economic partnership with countries in North Africa and

the rest of the continent. Therefore, I support the U.S.-North African Economic

Partnership Initiative. In addition, I urge Congress to swiftly approve the African

Growth and Opportunity Act.

70

APEC, TABD and WTO. These forums provide the United States with an opportunity to shape the direction of trade negotiations in the future. We must enter

these discussions with a new consensus on trade. As President Clinton said earlier

in the year, we must find the common ground on which business, workers, farmers,

environmentalists and government can stand together.

CONCLUSION

In conclusion, we have an obligation as the most competitive economy in the

world to continue to push for open and fair trade so that the entire global economy

will prosper. Our decisions today will directly affect the next generation of world

leaders in business as well as government. This reminds me of what Nelson

Mandela once said. When he was a young boy his mother told him that there were

three types of people in the world—the first kind comes into the world and leaves

nothing; the second kind comes into the world and does bad things to people; and

the third kind comes into the world and leaves it just a little better than the way

they found it. The moral imperative is obvious. I feel strongly that our future

growth and therefore the legacy we leave the next generation is tied to our ability

to tap into the opportunities of a global market. Therefore, I urge Congress to work

with the Administration to form a bipartisan consensus to support our ambitious

trade agenda for the 21st Century.

Thank you very much, Mr. Chairman and Members of the Subcommittee, for the

opportunity to speak with you today.

Chairman C

Mr. Lewis.

RANE. Thank you.

f Mr. LEWIS OF KENTUCKY. Yes. Thank you, Mr. Chairman. I

wanted to ask Mr. Gardner to just kind of expand on the Freedom

to Farm. You know, we passed the Freedom to Farm. I think that

it has been a program that has been successful for the farm community. But you are absolutely right, it depends on opening markets, international markets to relieve some of the pressures that

we are facing right now with surpluses.

Could you expand on that just a little bit?

Mr. GARDNER. Yes. You know, as I mentioned, I think every

farmer is for the Freedom to Farm. Even today we are still for the

Freedom to Farm without the Government help. We want the freedom to be able to raise what we can. But the United States is only

4 percent of the population. The American farmer has become more

and more progressive and more and more efficient. We just need

an export market, a way to market our commodities. This world

trade negotiation is very important for us, hopefully to open up the

door for better trade in the future so we can get some of these commodities moving and have a better price.

Mr. LEWIS OF KENTUCKY. It is especially important for the long

run and for the short-term. Our surpluses are mounting and we

need to get those markets. I agree. Thank you.

Chairman CRANE. I want to thank all of our witnesses for their

testimony today. We look forward to working with you. We are

down to about 6 minutes on the clock in there for this vote. So with

that, the Committee stands adjourned.

[Whereupon, at 11:56 a.m., the hearing was adjourned.]

[Submissions for the record follow:]

Statement of W. Henson Moore, President & CEO, American

Forest & Paper Association

On behalf of its more than 200 member companies and related associations that

engage in or represent the manufacturers of pulp, paper, paperboard and wood prodVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00074 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
71

ucts, the American Forest & Paper Association (AF&PA) is pleased to provide this

statement on the efforts of our industry to open markets and expand worldwide

trade in forest products.

• American industry over the past year and a half has had to contend with massive and widespread devaluations of currencies of our trading partners, with a consequent unprecedented expansion of the U.S. trade deficit. For American industry,

this gaping deficit is not an abstruse economic concept. It reflects quite simply the

simultaneous decline in exports and the loss of domestic customers to foreign competitors—and is not sustainable. For our workers, it means that overseas factories

are kept running on the strength of the robust U.S. economy while—taking our industry as an example—U.S. plants are forced to close. Current U.S. trade law harks

back to an era of stable exchange rates under a Bretton Woods system which no

longer today. We must take a new look at our trade laws to ensure they can address

both root causes and effects of currency changes on U.S. markets.

• In recent decades, the U.S. has tolerated, and even encouraged, export led

growth strategies by some of our trading partners—both developing and developed—

because it served our nation’s geo-political purpose. With the emergence of a new

world power system, we must now question whether U.S. trade policy should offer

up U.S. markets to support overseas economic development and political stability.

We must also examine whether U.S. trade law—or the multilateral trading system—is equipped to deal with the export surges which these policies inexorably generate.

• American industries today often compete with first world production facilities

located in third world economies. This necessarily requires a reexamination of our

approaches to trade as aid, and to the competitive implications of lower labor and

environmental standards.

The title of this hearing—the importance of expanding trade and resisting protectionism—could well summarize U.S. trade policy over the past half century.

Through successive Administrations, and with the support of both parties in the

Congress, the U.S. government has led the multilateral effort to expand global trade

and, consistent with our economic preeminence, taken the first step by reducing

trade barriers and rooting out protectionist policies in our own economy.

While this approach has served both the U.S. and the global economy well, we

are facing competitiveness challenges today that were not contemplated by the visionary architects of the post-war system.

In the testimony which follows, I will offer up the hard experience of the U.S. forest products industry—which entered this era globally preeminent and fiercely committed to free trade—as an object lesson in the need to revise our trade policy approaches to fit the exigencies of the new global economy. We will also take this opportunity to provide the Subcommittee with our recommendations for specific steps

which should be taken to make U.S. trade policy—and U.S. trade law—more responsive to the competitive needs of America’s basic manufacturing industries, including

the U.S. forest products industry.

In the process, I suggest that we handicap ourselves if we rely on old labels and

brand as protectionism, even those attempts to restore market function through insistence on balance of benefits in trade agreements. In the new global economy, U.S.

trade policy must be recast to emphasize the importance of expanding U.S. opportunities and resisting unequal trading arrangements.

MULTILATERAL TRADE NEGOTIATIONS

With U.S. and foreign sales in excess of $200 billion, our industry ranked earlier

in this decade as among the most globally competitive of all U.S. manufacturing industries. Export sales are critical to the future growth and, ultimately, the survival

of our industry. However, our experience stands as an unfortunate example of how

U.S. acceptance of inequitable trade agreements on the sectoral level can undermine

the competitiveness of even the strongest American industries.

Going back to the Kennedy Round—and notwithstanding the best efforts of a generation of U.S. trade negotiators—our industry has been unable to achieve anything

close to equivalent market access because our interests have repeatedly gotten lost

in the larger dynamics of comprehensive multilateral trade negotiations. For more

than two decades, the U.S. forest products industry has had its tariff protection sacrificed to win market concessions for other industrial sectors, while competitor countries in Europe, Asia and Latin America escaped making reciprocal concessions on

our products.

At the opening of the Uruguay Round, we decided that traditional approaches

would perpetuate this disparity indefinitely, so we originated the zero-for-zero conVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00075 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
72

cept. This was an attempt to change the fundamental structure of trade negotiations

in two important ways: • it focused on reciprocal tariff eliminations within specific sectors; • it moved away from a formulaic approach to an assured, level end point.

Although our negotiators succeeded in getting agreement by a number of countries (U.S., Canada, EU, Japan, New Zealand, South Korea, Hong Kong and Singapore) to eliminate their tariffs on paper by the year 2004, we were still disappointed

in the results of the Uruguay Round because of: • overly long phase out of paper tariffs—ten years instead of the usual five years; • failure to achieve a zero-for-zero agreement on wood tariffs; • no participation in the tariff agreement by developing countries—some of which

are major competitors in forest products and provide the most attractive growth

markets.

Despite these disappointments, we remain convinced that the achievement of reciprocal market access within individual sectors must be a specific priority objective in

future negotiations. At the same time, we urge the Subcommittee to take steps to

ensure that future negotiations work toward a greater overall balance of benefits

across our economy. To achieve this objective, we support Congressional efforts to

renew the Administration’s traditional negotiating authority.

REGIONAL NEGOTIATIONS

Regional negotiations have an important role to play in driving the multilateral

process. Last November, Ministers from 16 members of the Asia Pacific Economic

Cooperation (APEC) forum agreed to move a nine-sector trade liberalization package

to the WTO for completion. Ministers further agreed to work constructively to conclude an agreement in the nine APEC priority sectors, including forest products, in

time for the World Trade Organization Ministerial (WTO) in Seattle in November

1999.

We strongly endorse the APEC initiative, which includes a proposal to eliminate

all tariffs on paper and wood products between the years 2000 and 2004, and we

vigorously support Ambassador Charlene Barshefsky’s commitment to achieving

global participation under WTO auspices. However, European and Japanese resistance to anything short of a comprehensive trade agreement in the WTO could derail

early agreement on the APEC package and again put our interests at risk of being

traded away during a broad round of negotiations where any economic benefits to

our exporters will not come for many years.

The U.S. must not accede to European and Japanese pressure on this point. We

must preserve and fortify the concept of sectoral negotiations, and the prospect of

‘‘early harvest’’ as an essential and non-negotiable element of any agreement on negotiating modalities. We strongly encourage the Congress to provide appropriate negotiating authority to implement sectoral agreements. Part of the effort to ensure that the standard of substantially equivalent market

access is met must also focus on eliminating tariff disparities, such as those which

have so disadvantaged our exports. We will aggressively seek to identify the elimination of tariff disparities as a priority negotiating objective.

FOREST PRODUCTS TRADE WITH JAPAN

The APEC forest products initiative offers U.S. exporters of paper and wood products an opportunity to gain substantial new market access in Asia and elsewhere

but, as in the Uruguay Round, Japanese protectionism, particularly relative to wood

products, threatens a promising agreement. When President Clinton met with

Prime Minister Obuchi last September in New York, the Prime Minister explained

that Japan could not take tariff action in the APEC context, but would do so in the

WTO. Two months later, in Kuala Lumpur, the Japanese, along with trade ministers from 15 other APEC economies, agreed to refer the APEC trade liberalization

package to the WTO. In an all too-familiar pattern, the Japanese government now

attempts to deny that any such commitment was ever made and loudly proclaims

its victory in resisting U.S. pressure to end its wood tariffs. This backsliding cannot

be accepted. The U.S. must make clear its determination to conclude a WTO agreement covering all nine priority sectors in the APEC package, including forest products. This must be a prelude to the launch of any new round of negotiations on industrial tariffs, and collecting on the Japanese promise at Kuala Lumpur must be

a top priority in our bilateral trade relationship.

Our industry’s frustration with Japan is long standing. In 1992, for example, the

U.S. signed a market access agreement with Japan regarding paper products. It is

a matter of record that there was not one single year in the entire five-year term

of this agreement in which the USTR judged Japan to be compliant with its obligaVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00076 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
73

tions under this agreement. Nevertheless, in 1997, Japan unilaterally refused to

renew the agreement or even discuss its renewal. In the meantime, with an industry that is commonly considered to be a high-cost paper manufacturer, Japan’s

paper imports have declined and exports have increased.

The lack of credibility which understandably surrounds Japanese trade commitments risks more cynicism regarding an ability to reach negotiated solutions to our

market access problems with that country and must be addressed. The President’s

decision to renew Super 301 is an important step, but we encourage him to hold

the Japanese leaders directly accountable for honoring the full range of their commitments—beginning with their APEC commitment.

AN INTEGRATED APPROACH TO THE GLOBAL ECONOMIC CRISIS

The Asian financial crisis has had a significant economic impact on the U.S. forest

products industry. In 1998, the Asia-Pacific region accounted for some 28% of our

industry’s total exports of $18 billion down from a 40% share in 1997. In 1998, U.S.

exports of wood products to the region were down a whopping 37%, wood pulp exports went down 26%, and paper and paperboard exports were off 17%. In contrast,

U.S. paper and paperboard imports from Asia went up 73% over the same period.

At the same time, other major supplying countries have diverted greater amounts

of wood and paper products from slumping Asian markets to the virtually tariff-free

U.S. market.

Trade must be an integral part of our response to economic turmoil. The U.S. has

repeatedly assured countries in crisis that we will take their exports—but fairness

for our industry and our workers requires that these countries also open their markets to our products. Trade liberalization, which will introduce economies and industries to the discipline of the marketplace, cannot be a lesser priority than other

structural reforms.

NEW GLOBAL ISSUES

Today, our industry faces new competitive realities. Even while we are hopefully

nearing the end of our effort to eliminate tariff barriers, the U.S. industry finds

itself at a disadvantage in international markets for a number of other reasons.

First and foremost, the industry’s raw material costs have been climbing due to

domestic policy-imposed constraints on fiber supply. The availability of wood from

our national forests has been cut dramatically, down 75% in the past decade. While

a large portion of the forest land in the U.S. is privately held (over 60% is owned

by farmers and other non-industrial owners), our ability to sustainably manage and

harvest private timberland is being curtailed by environmental laws, regulations

and legal actions.

Secondly, required investments to meet domestic environmental regulations are

increasing production costs and using capital that could otherwise be spent on modernizing the industry’s plant and equipment. AF&PA estimates that 13% of the capital spent by the industry over the past 10 years went into environmental requirements, and that number will probably double over the next 5 years—and that does

not include any spending for global climate change regulation. At the same time,

our companies are having to compete with producers in other countries that do not

have high environmental standards or strong enforcement regimes.

Our industry is proud of the role it has played in achieving standards of environmental protection which are among the highest in the world, and we are committed

to maintaining our environmental leadership in the future. By the same token, our

industry offers some of the highest paying manufacturing jobs in the world, and we

take equal pride in the role which our industry payrolls play in sustaining the many

communities across the country in which we operate.

For us to continue meeting our obligations to our workers and to the environment,

while also maintaining our ability to compete in global markets, our government

must work to level the international playing field. We must ensure that our competitors apply responsible environmental standards and forestry practices. The U.S. must

also look at options to institute disciplines to prevent a new generation of trade barriers based on subjective environmental requirements that discriminate against products produced under equally stringent regulatory schemes.

CONCLUSION

The U.S. paper and forest products industry has consistently supported policies

designed to foster free trade, even in the face of past inequitable trade benefits on

a sectoral level. We continue to believe that successful market access negotiations are

the best antidote for protectionism. This is why the APEC initiative is so important,

74

and why the U.S. must make the achievement of a WTO agreement covering all priority sectors in the APEC package, including forest products, the single most important deliverable out of the WTO Ministerial this November in Seattle. Any less an

outcome must be viewed as a failed ministerial.

In the absence of concrete market opening gains and the establishment of a more

level playing field for our products, our industry will find it difficult in the future

to find an economic rationale for supporting traditional negotiating approaches.

When international negotiations result in tariff disparities, or domestic regulatory

requirements put our companies at a disadvantage in the global marketplace, we

will insist that balance be restored—in the name of economic equity, not protectionism. The very survival of our industry is at stake.

Statement of John Andrews, Mike Murry, and John F. McDermid, American

[Attachment is being retained in the Committee files.]

Natural Soda Ash Corporation, Westport, CT

f This statement is filed on behalf of the American Natural Soda Ash Corporation

(‘‘ANSAC’’), headquartered in Westport, CT. ANSAC is an export trading company

comprised of six U.S. soda ash producers.

This statement is filed in the context of the March 4, 1999 hearing before the

Committee on Ways and Means Subcommittee on Trade regarding the importance

of expanding trade and resisting protectionism through active U.S. involvement in

trade negotiations.

I. ABOUT SODA ASH AND THE U.S. INDUSTRY

Soda ash (disodium carbonate) is the principal raw material for making glass.

Mixing six parts sand to one part soda ash and heating it to 2,800 degrees yields

molten glass which can be formed into any common application. The United States

is blessed with unique natural deposits of trona, a soda ash raw material, in Green

River, Wyoming and Trona, California, from which this country could supply world

demand for 1,200 years.

U.S. soda ash is the most competitive in the world. Most other countries produce

soda ash through a synthetic process at costs many time higher and with major environmental pollution. However, U.S. soda ash exports are restricted in some markets through both tariff and non-tariff barriers. Because soda ash is a basic chemical commodity required to make another basic chemical commodity, glass, even a

0.5 percent premium in price can make a difference between a sale. U.S. soda ash

exports have increased from about $120 million in 1981 to over $600 million in

1997, making soda ash this country’s largest inorganic chemical export.

II. U.S. GOVERNMENT TRADE NEGOTIATING PRIORITIES FOR SODA ASH: SEEKING A

‘‘ZERO-FOR-ZERO’’ AGREEMENT

The Statement of Administrative Action (‘‘SAA’’) implementing the Uruguay

Round Agreement outlined the objectives of zero-for-zero tariff elimination in key

sectors, including soda ash. According to the SAA, ‘‘in some sectors, namely soda

ash, complete duty elimination was not achieved. Obtaining further reductions in

these sectors is a priority objective for U.S. multilateral, regional, and bilateral negotiations.’’ While both the U.S. Congress and the Administration have identified

soda ash as a zero-for-zero priority, under the Chemical Tariff Harmonization

Agreement (‘‘CHTA’’) the soda ash harmonized rate is 5.5%. It is imperative that the

Administration continue to pursue complete tariff elimination of soda ash tariffs in

the context of bilateral, regional and multilateral trade negotiations.

III. U.S. Soda Ash Exports to APEC Economies

Over the past decade, U.S. soda ash exports to the 17 other ‘‘initial’’ APEC countries have expanded from $310 million in 1990 to $540 million in 1997, a 75 percent

increase.

U.S. exports to APEC countries account for two third of U.S. exports. Though U.S.

soda ash is the most competitive in the world, it satisfies only 25 percent of aggregate demand in the 17 other APEC countries.

Soda ash is currently produced in seven of the 18 APEC economies, not including

the U.S. A 150,000 MT soda ash plant may be built in Indonesia, and there is a

potential for local production in Thailand. The soda ash production in these APEC

economies uses the synthetic manufacturing process with higher costs and adverse

75

environmental effects than natural U.S. soda ash. Thus, to enable a new soda ash

manufacturing facility to survive will likely require significant import protection

(e.g., high tariffs) to be competitive with U.S. soda ash.

With the exception of China, soda ash tariffs in the 17 other APEC economies are

relatively low, ranging from duty-free in Malaysia, New Zealand, and Singapore to

12 percent in China. The U.S. rate is 1.2 percent ad valorem. Generally, the Uruguay Round was disappointing to the U.S. soda ash industry in that improved market access to APEC markets was not achieved.

Among the 18 ‘‘initial’’ APEC countries, 1998 applied tariff rates are above the

5.5 percent CTHA rate in (1) Chile, (2) China, (3) Korea and (4) Taiwan.

ANSAC continues to be concerned over the possibility that Indonesia will increase

its current 5 percent tariff to the WTO bound rate of 40 percent. Without such protection it is doubtful that the local producer can operate at a profit.

IV. CHINA’S IMPORT SUBSTITUTION AND PREDATORY PRICING POLICIES SEVERELY

REDUCE U.S. SODA ASH EXPORTS TO CHINA AND OTHER MARKETS

A. Summary

For over a decade, China, the largest synthetic soda ash producer in the world,

has maintained an array of barriers (including discriminatory and prohibitively high

net effect import fees as well as customs and distribution impediments) aimed at

promoting its domestic soda ash industry at the expense of highly competitive U.S.

soda ash. In 1997, U.S. imports accounted for only 1.4% of Chinese domestic consumption, down from nearly 30% in 1989 and by far the lowest in Asia. Between

1990 and 1997, as demand for soda ash increased significantly, China’s production

increased 239% while U.S. exports declined by nearly 80%, from 503,000 MT valued

at $76 million to 105,000 MT valued at $16 million. In 1998, U.S. exports to China

were only about $7 million. The combination and effect of China’s policies amount

to an import substitution program which it agreed to eliminate in the 1992 U.S.-

China Memorandum of Understanding (‘‘MOU’’).

A reduction of China’s 12% applied tariff to the 5.5% Chemical Harmonization

Agreement level and elimination of distribution barriers would increase U.S. exports

by roughly $55 million annually.

While not specifically addressed in the Commission’s report, an integral part of

China’s campaign to foster its state-owned soda ash industry has been an export

drive achieved through sales at below the cost of production. China’s 820% increase

in exports between 1993–1997 has been met with predatory pricing based trade

remedy actions in countries which produce soda ash, such as Korea and India. In

other important U.S. export markets which do not produce soda ash, China’s predatory pricing has been keyed to increasing market share at the expense of U.S. soda

ash. Even in the face of Asia’s economic crisis, Chinese exports increased to Indonesia, Thailand, Malaysia, and the Philippines while U.S. exports to these key markets declined. China’s predatory export pricing practices have a real and direct effect on U.S. exports to third markets and should, therefore, be addressed by the

Commission.

B. China’s Soda Ash Industry is Targeted by the Government

At 7.3 million tons, China is the second largest soda ash producer in the world

(behind only the U.S.) and the largest synthetic soda ash producing economy. Synthetically produced soda ash is very energy-intensive and energy inputs in China

have been subsidized for years. Ninety-five percent of China’s soda ash producers

are state-owned enterprises.

The Chinese government (specifically the Chinese Ministry of Chemical Industry)

continues to be actively engaged in regulating its soda ash industry at all levels,

from pricing to production. For approximately 15 years China has implemented a

broad campaign targeting its soda ash industry for development and ‘‘by the mid–

1980’s the [Chinese] government had invested more than $1 billion in soda ash production.’’ (Chemical Week, October 29, 1998. ‘‘China Seeks Bigger Share of the Export Market’’ p 37.) Even though its industry had been well established, in 1994

China’s Vice Minister of Chemical Industry Siwei Cheng emphasized that the government would continue limiting import competition in this sector. More recently,

in announcing China’s ninth Five-Year Plan (1996–2000), which sets forth a comprehensive chemical industry policy, Cheng indicated that improvement in the domestic soda ash industry would be among the country’s major chemical sector priorities.

In 1998, there are more than 60 soda ash producers in China, with a combined

annual capacity of 7.3 million tons. Ten of these plants account for 63% of total proVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00079 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
76

duction. Only six of the over 60 plants are producing quantities significant enough

to be competitive on a world scale. All of China’s plants have operating costs in excess of current returns. Further, Chinese producers have increased their

densification capacity while at the same time seeking to lower chloride content.

These quality improvements have increased domestic production costs, increases

which are clearly not reflected in the prices they charge their customers either domestically or in export markets. Between 1989 and 1997 China’s soda ash production increased by 239%.

In 1998 the Chinese government realized it had overstimulated its soda ash industry and caused ‘‘overproduction and disorderly competition’’ which depressed

local and export market prices by 20% between January and August, 1998. (China

Economic News (Beijing). August 31, 1998. p 6. ‘‘If this continues, the industry will

lose RMB 700–800 million (U.S. $85–96 million) domestically and U.S. $12 million

in export earnings this year.’’) Clearly the prices charged by the producers to the

customers locally and in export markets bear no relation to prices that would be

set by enterprises in a market/price-oriented economy. Since January 1998 the government response to this has been to control production and dictate to its soda ash

producers a minimum sales price of $130/MT FOB (RMB 1080) for domestic sales

and $101/MT FOB (RMB 838) for export sales.

More specifically, the China National Petroleum and Chemical Corps. and the

China Soda Ash Industry association established a minimum FOB factory price of

U.S. $130 MT (RMB 1080 MT) inclusive of the 17% VAT and U.S. $101 MT (RMB

838) FOB China port for export sales. It costs approximately U.S. $130 MT to

produce soda ash in China. If the VAT tax were indeed factored into the local sales

price, Chinese soda ash producers would be selling below their cost of production.

Clearly the minimum export price is below China’s cost of producing soda ash.

While the minimum price would appear to counter the decline of prices, Chinese

producers are circumventing the decree by quoting customers a factory delivered

price (U.S. $125–U.S. $132.5) rather than an FOB factory price.

C. China’s Soda Ash Tariff and Additional Import Taxes the Highest in Asia Pacific

and Highest Chinese Inorganic Chemical Tariff

China’s Tariff Barrier (HTS 2836.20). Prior to 1990, U.S. soda ash entered China

duty-free since the product was required by state-owned industries. Today, in its ongoing effort to promote its industry, China requires distributors to pay the so-called

‘‘normal’’ (as opposed to ‘‘special’’) 35% ad valorem tariff on imports which, combined

with the 17% VAT, results in a 58% net effective import fee. End users such as China’s glass companies pay the ‘‘special’’ 12% tariff, which results in a 31.04% net effective import fee. Since nearly all of China’s 60 soda ash producers are state-owned,

the 17% VAT is not applied to the prices quoted to their customers and is simply

an additional tax aimed at curtailing imports.

Both the 58% and 31.04% net effective import fees applied to soda ash imports

give local producers a significant price advantage, particularly for a basic chemical

commodity such as soda ash. For example, factoring in the 31.04% net import fee,

in order to compete with the $130 MT FOB factory minimum price U.S. soda ash

would have to enter China at $99 MT CIF, a price that would be by far the lowest

in the world. The U.S. has had to slash its prices in China’s market to stand any

chance of attracting customers. The 58% net effective import fee bars distributors

from selling directly to customers, particularly small and medium-sized ones. The

31.04% and 58% net effective import fees are the most significant Chinese government barriers facing U.S. soda ash exports since they limit the market to exporting

end-users such as glass companies who receive a tariff and VAT refund.

China’s 35% tariff applied to distributors is the highest in the world. The 12%

‘‘special’’ tariff applied to non-distributors is among the highest in the world and are

the highest in the Asia Pacific.

Five of the above Asia Pacific countries produce soda ash (Australia, China,

Japan, Korea, and Taiwan). Among the soda ash producing economies only China

maintains a high tariff compounded by a high VAT which must be factored into the

price ANSAC’s distributors must charge their Chinese customers.

As a result of China’s tariff, VAT and distribution impediments, U.S. exports to

China declined by $60 million between 1989 and 1997 and in the most recent 1998

calendar year declined to only about $7 million. In contrast, 1998 U.S. exports to

Brazil, a country which imposes an effective 13% tariff (10% applied tariff and 3%

across-the-board import fee) and consumes 92% less soda ash than China, were $36

million.

Soda Ash Tariff Highest Among China’s Other Inorganic Chemicals. China’s tariff

levels applied to other inorganic chemical imports average 8–10%. It is clear China

has singled out soda ash for special protection from imports.

77

D. Non-Tariff Trade Measures

Distribution and Customs Barriers. In addition to the high tariff and VAT fee on

imports, since 1990 China has introduced additional policies aimed at discouraging

soda ash imports. Between 1990 and 1992, all imports of soda ash were subject to

import licensing procedures and administrative review and approval by the Chinese

government. Moreover, U.S. soda ash could only be distributed by the sole government designated distributor, Sino-Chem, which is part of the Ministry of Economic

Relations and Trade.

Currently, China maintains a complex and unpredictable web of import restrictions which are heavily dependent upon ‘‘relationships’’ (‘‘guangsi’’). These restrictions severely limit the level of imports as well as their distribution in China.

Chinese customers who import soda ash and export the finished product (i.e. glass

companies) are eligible to receive a waiver of the tariff and VAT. In order to receive

this, they must have a ‘‘Handbook’’ stamped (i.e. approved); however, there is no

guarantee approval will be given. For example, one end-user of U.S. soda ash which

exports its finished product has still been unable to receive a refund on imports received in 1997. Overall, the exorbitantly high tariff and VAT effectively limit the

purchase of imported soda ash to Chinese customers eligible to have the tariff and

VAT fees waived.

All soda ash imports take between 30 and 45 days to clear Chinese customs due

to layers of ‘‘red tape’’ and bureaucratic delays at the ports. The delays are particularly acute when they involve imports eligible for duty and VAT waivers which are

destined to customers outside of the port province. By comparison, in other Asia Pacific countries it takes only a few days to clear soda ash through customs.

Finally, soda ash distributors are unable to store the product in bonded warehouses. This forces local distributors to pay the duty and VAT upon entering customs and absorb these costs until customers are found. This is yet another disincentive facing local distributors.

Delay in Implementation of an Export Subsidy to Glass Companies Contingent

Upon Purchasing Locally Produced Soda Ash. In mid-December, 1998, China announced it will delay until December 31, 2000 a policy of granting a 9% tax refund

(i.e. an export subsidy) to joint venture glass companies who purchase locally produced soda ash. Of the estimated 54,000 MT U.S. soda ash imported into China in

1998, roughly 90% was purchased by China’s glass industry. If the trade-distorting

export subsidy for the glass industry is implemented, it will have a significant effect

on U.S. exports to China.

E. U.S. Soda Ash Market Share in China is the Lowest in Asia

In 1998, the U.S. share of China’s soda ash was about 1.4% (by volume). This represented a 51,000 MT decline (valued at $9 million) in U.S. exports between 1997

and 1998. In 1989, prior to the time China targeted its soda ash industry for special

protection, U.S. imports accounted for nearly 30% of Chinese domestic consumption.

As a result of the import substitution policies pursued by the Chinese government

for its soda ash industry, the U.S. 1.4% market share in China is significantly lower

than in other Asian countries, even those which produce soda ash such as Japan,

Korea and Taiwan.

F. China’s Soda Ash Export Campaign

An integral part of China’s targeting of its soda ash industry has been to stimulate exports. As recently stated by Li Yongwu, China’s Director of the State Bureau

of Petroleum and Chemical Industry, ‘‘increasing exports is an important way to

safeguard the sustainable growth of China’s chemical industry.’’ (Chemical Week,

October 28, 1998. ‘‘China Seeks Bigger Share of the Export Market’’ p. 37.)

On January 1, 1996, ‘‘in order to promote the exportation of products of certain

industries,’’ China’s State Council introduced a 9% direct tax refund calculated at

the FOB price for China’s soda ash exports. Thus, if Chinese soda ash producers

export $100 FOB of soda ash, they receive from the Chinese government a $9 tax

refund. This is an undisguised and transparent policy aimed at increasing Chinese

exports of certain favored industries such as soda ash.

As a result, domestic soda ash producers do not have to pay the 35% or 12% tariff

or factor into their price the 17% VAT. Further, they also receive an additional 9%

tax incentive for export. The net effect of the tax advantages afforded China’s stateowned producers has been to severely erode the pricing of soda ash in third markets

at the expense of U.S. exports. The $101/MT FOB China port minimum export price

translates into $118/MT CIF price at Asian ports. Since it costs FOB $138/MT to

produce soda ash in China, the minimum export price is $35/MT below the cost of

producing soda ash in China.

78

As could be expected, the government’s policies have been enormously successful

(principally through below cost of production prices aimed at increasing market

share) as seen by the more than 800% increase in exports between 1990 and 1997

(from 76,000 MTs in 1990 to 623,000 MTs in 1997).

The government’s export drive has in some countries (e.g. India and Korea) been

met with trade remedy actions. (Both Korea and India, which have their own soda

ash industry, have successfully accused Chinese suppliers of predatory dumping. In

the case of Korea, additional dumping duties of over 68% were initially imposed on

Chinese imports exceeding specified levels. More recently, Korea has levied dumping

duties on Chinese imports (ranging from 22–25%) below an established price (CIF

$185 MT). In the case of India, in the spring of 1998, India’s Monopolies and Restrictive Trade Practices Commission issued an order temporarily barring SinoChem from selling soda ash at predatory pricing levels.) In the past several years

China has targeted markets which traditionally have been key to the United States.

While China exports to over 30 countries, four of its priority markets have been Indonesia, Thailand, Malaysia and the Philippines, all of which have historically been

growth markets for the United States.

Indonesia. In 1996 and 1997, Indonesia—which does not produce soda ash)—was

China’s largest and this country’s third largest (behind Mexico and Japan) export

market. In 1998, China began an aggressive predatory pricing export campaign

aimed at displacing U.S. exports. In January, 1998 the U.S. soda ash CIF price

range in Indonesia was $155–$170 MT. At that time, the quoting price of Chinese

suppliers was CIF $150 MT. Chinese prices declined below the $130 MT cost of production in October, 1998 and below $120 MT in November, 1998. China’s export

drive has already yielded results, as China’s exports to Indonesia for the first eight

months of 1998 have exceeded total 1997 exports.

Thailand. Similarly, in Thailand the U.S. CIF price range in January 1998 was $153–$173 MT. While in January China’s average price was only marginally lower

at $152 MT, by November its price dropped in excess of $30 MT, to $122 MT.

G. Lost U.S. Exports Attributed To China’s Predatory Pricing.

U.S. exports to Indonesia, Thailand, Malaysia and the Philippines have declined

10% to 45% since late 1996. While Asia’s financial crisis has resulted in reduced demand for soda ash, China’s predatory export pricing displaced U.S. soda ash. In

1997 and 1998 China’s predatory pricing resulted in an actual increase in exports

to these countries at the direct expense of U.S. exports. The presence of other competitors in these markets is negligible.

The United States currently suffers a massive trade deficit with China, totaling an expected $60 billion in 1998. If that deficit is to be significantly reduced, it is

essential that competitive U.S. exports not be foreclosed from the Chinese market

by artificial barriers.

The U.S. soda ash industry’s problem is an important one not only because of the

concern over China’s efforts to limit U.S. exports that enjoy clear competitive advantages but because of the serious additional threat to key third markets.

In addition, China will benefit from the elimination of its tariff and non-tariff

measures. For many years Chinese consumers of soda ash have been eager to purchase U.S. soda ash because it would improve the quality of their product and increase the life of capital equipment since U.S. ash contains less corrosive impurities.

These consumers—representing the Chinese glass, detergent, paper, and chemicals

industries—will benefit from the elimination of trade barriers. The competitive pricing of soda ash will not only benefit these industries in international competition,

but will benefit individual Chinese consumers who will be provided alternative

choices for higher quality products.

V. India’s Embargo of U.S. Soda Ash

Since 1985 ANSAC has protested with the U.S. government India’s market access

barriers facing U.S. soda ash exports. These efforts have included nearly the entire

range of market access trade remedy actions such as the GSP, ‘‘Super 301,’’ and

USTR National Trade Estimate Report submissions.

In 1993, due undoubtedly more to a general trade liberalization trend than to any

specific interest in soda ash, the 1993/94 Indian Budget reduced the net effective

soda ash import fee from 135.75 percent to 112.75 percent. Concurrently, the India

Glass Manufacturers Federation (‘‘Glass Federation’’) began to be squeezed by India’s local soda ash producers, three of whom now control nearly 90 percent of the

market. According to the Glass Federation, due principally to the closed import market, local soda ash prices increased about 40 percent between April 1991 and April

1993. The monopoly prices extracted by the local producers have been at the exVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00082 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
79

pense of India’s glass manufacturing industry, which is responsible for 70,000 in

glass plants and tens of thousands more in other sectors of the economy. With this,

Indian glass companies began a campaign to convince their own government that

the market should be opened to imports so that the three local soda ash producers

would face price competition. As a result, the 1995/96 annual budget reduced India’s

applied tariff from 65 percent to 40 percent. While this was clearly a step in the

right direction and enabled ANSAC to make a single shipment, the tariff was still

among the highest in the world (only Pakistan’s was higher). In fact, the 40% tariff,

combined with other import fees, meant that a de facto embargo remained in place

and India’s average price for soda ash remained among the world’s highest. The

Central government’s final tariff reduction was made in the 1996/97 Budget when

the tariff went from 40 percent to 30 percent ad valorem.

India’s local soda ash producers, known collectively as the Alkali Manufacturers

Association of India (‘‘AMAI’’), were frustrated by their inability to convince India’s

Central Government to increase or maintain the soda ash tariff. When the 30 percent tariff was implemented in early 1996, ANSAC received an order for a 23,000

MT shipment which represented less than 2 percent of the total Indian soda ash

market. In early September 1996, AMAI petition the Monopolies and Restrictive

Trade Practices Commission (‘‘MRTPC’’) and obtained an ex parte order which prohibited ANSAC from exporting to India.

AMAI’s complaint before the MRTPC essentially alleges that ANSAC is attempting to sell at predatory prices below cost for the purpose of eliminating competition

in the Indian market. However, the complaint contains no evidence on U.S. costs,

which are actually the lowest in the world. Further, no evidence has been provided

to the MRTPC as to how ANSAC’s single sale is likely to drive local soda ash producers from the market.

The complaint before the MRTPC is clearly unfounded and is a transparent attempt by the local producers to circumvent the Central Government’s trade liberalization initiatives that have been taken since 1991. AMAI has also used the MRTPC

as a vehicle for bypassing international trade rules embodied in the WTO’s Antidumping Rules and to maintain their stranglehold on the market so as to keep soda

ash prices high and continue their monopoly profits. It is particularly ironic that the

very companies seeking to use the MRTPC as a venue for countering alleged anticompetitive practices are themselves seeking to perpetuate their own monopolistic

behavior.

The complaint includes certain baseless and unfounded allegations of dumping of

soda ash. However, under Indian law, which closely follows the WTO model, the

only competent authority to address a complain of this nature is the Designated Authority appointed by the Government of India under the country’s Antidumping

Rules. These Rules afford a fair opportunity to the complainant and to the party

against whom the charge of dumping has been made to address the issues raised

under the Antidumping Rules. They also include a provision requiring the Designated Authority to give notice to the government of the exporting company—in

this case the Government of the United States. Since the complaint has been filed

in the wrong forum, the United States Government has been denied the opportunity

of refuting the false charges of dumping.

AMAI fully realized that it could not prove material injury as required under the

antidumping rules. Instead, fearful of legal competition, AMAI convinced the

MRTPC to issue the injunction on the specious claim that ANSAC priced its 23,000

MT order at such a low price that it was clearly intended to monopolize the Indian

market by driving out local producers. In point of fact, ANSAC’s price was just barely competitive with prevailing prices charged by local producers.

The U.S. soda ash industry is taking all lawful steps to have the MRTPC’s Order

vacated as soon as possible. But the wheels of justice are slow. In the meantime

the Indian soda ash industry’s abuse of process and the order they have secured

stand contrary to Indian Government’s trade liberalization initiatives, the government’s obligations under the WTO’s Antidumping Rules, and the interest of local

glass and other industrial consumers whose competitive future depends upon access

to high quality and reasonably priced soda ash.

Approximately one year after the Commission issued its preliminary injunction

against ANSAC, petitioner discovered that since June 1995 the MRPTC DirectorGeneral of Investigation had been investigating the three dominant soda ash producers for cartel activity. In fact, in April 1997, the Director General concluded that

there was substantial evidence that the three dominant producers are a cartel. A

formal inquiry was opened before the MRTPC on August 7, 1997, two weeks before

India’s Supreme Court summarily rejected ANSAC’s petition to vacate the injunction.

80

In the three years since September 1996, ANSAC has lost a projected $25 million

in U.S. exports. What ANSAC is asking for is not unreasonable, namely, that the

preliminary injunction be lifted as soon as possible and that the Commission expeditiously and objectively review the facts in accordance with recognized principles of

law.

Statement of James W. Johnson, Jr., Chairman, American Sugar Alliance

fINTRODUCTION

Thank you for the opportunity to submit testimony for this important hearing. I

am James W. Johnson, Jr., president of the United States Beet Sugar Association.

I also serve as chairman of the American Sugar Alliance (ASA), of which my association is a member. The ASA is the national coalition of growers, processors, and

refiners of sugarbeets, sugarcane, and corn for sweetener.

The ASA has long endorsed the goal of global free trade because U.S. sugar and

corn sweetener producers are efficient by world standards and would welcome the

opportunity to compete on a genuine level playing field. Until that free trade goal

is achieved, however, the United States must retain at least the minimal sugar policy now in place to prevent foreign subsidized, dump market sugar from unfairly

displacing efficient American producers. This policy was substantially modified by

Congress in the 1996 Farm Bill, but remains highly beneficial to American taxpayers and consumers.

We note, Mr. Chairman, that you recently held a timely hearing on the plight of

the U.S. steel industry. Our concerns are the same. We are efficient producers, but

risk losing American jobs to the predatory trade practices of subsidized foreign producers. Like steel, American sugar farmers can compete directly against foreign producers. We cannot compete against foreign treasuries.

While the ASA supports the goal of free trade, we have serious concerns about

past agreements and about the structure of future multilateral or regional trade

agreements. Listed below are our specific recommendations, followed by some background on the United States’ role and standing in the world sugar economy and our

evaluation of the effects of past multilateral and regional trade agreements on the

world sugar market and on our industry. U.S. agriculture is extremely vulnerable

as we approach the next trade round. If we are reckless, we risk converting American agriculture into a Rust Belt. If we negotiate carefully and rationally, however,

there is enormous potential for responsible American producers to compete and

prosper in a genuine free trade environment, free from the need for government

intervention.

RECOMMENDATIONS FOR FUTURE WTO NEGOTIATIONS

The 1999 World Trade Organization (WTO) Ministerial will play a pivotal role in

establishing the scope, parameters, and goal of the next multilateral trade round.

Shaped by our experience and by the specific failures of past agreements, described

later in this paper, the following are the ASA’s recommendations for the Ministerial.

1. Compliance with past agreements, in particular, the Uruguay Round Agreement (URA) of the WTO and the North American Free Trade Agreement (NAFTA),

must be achieved before the United States forges any new agreements. The United

States, and any other country that has surpassed its URA commitments, should be

given credit for doing so before being required to make further cuts in the next

trade round.

2. The United States must not reduce its support for agricultural programs, particularly for import-sensitive crops such as sugar, any further until other countries

have reduced their support to our level.

3. Elimination of export subsidies, the most trade distorting of all practices, and

of state trading enterprises (STE’s), which were ignored previously, must be given

top priority in the next trade round.

4. The wide gap in labor and environmental standards between developed and developing countries must be taken into account in the next trade round, to provide

both incentives and penalties that ensure global standards rise to developed-country

levels, rather than fall to developing-country levels.

5. A flexible, request/offer type of negotiating strategy must be followed in the

next trade round, rather than a rigid, across-the-board, formula approach. Only in

this manner can we address the huge disparities in supports among nations and

turn the United States’ unilateral concessions to our advantage. We must provide

81

foreign countries the incentive to reduce their government programs by promising

to reduce ours further when, and only when, they have eliminated their export subsidies and STE’s, and reduced their internal support and import tariffs to our levels.

BACKGROUND ON U.S. SUGAR INDUSTRY, POLICY

Size and Competitiveness. Sugar is grown and processed in 17 states and 420,000

American jobs, in 40 states, are dependent, directly or indirectly, on the production

of sugar and corn sweeteners. The industry generates an estimated $26.2 billion in

economic activity annually. A little more than half our sugar is produced from sugarbeets, the remainder from sugarcane. More than half our caloric sweetener consumption is in the form of corn sweeteners.

The United States is the world’s fourth largest sugar producer, trailing only

Brazil, India, and China. The European Union (EU), taken collectively, is by far the

world’s largest producing region. It benefits from massive production and export

subsidy programs.

Sugar is an essential food ingredient and the U.S. sugar producing industry is

highly efficient, highly capitalized, and technologically advanced. It provides 260

million Americans most of sugar they demand, in 45 different product specifications

and with ‘‘just-in-time’’ delivery that saves grocers and manufacturers storage costs.

Roughly 15–20% of U.S. sugar demand is fulfilled by duty-free imports from foreign countries, making the U.S. one of the world’s largest sugar importers. Many

of the 41 countries supplying our sugar are developing economies with fragile democracies and they depend heavily on sales to the United States, at prevailing U.S.

prices, to cover their costs of production and generate foreign exchange revenues.

Despite some of the world’s highest government-imposed costs for labor and environmental protections, U.S. sugar producers are among the world’s most efficient.

According to a study released in 1997 by LMC International, of England, and covering the 6-year period ending in 1994/95, American sugar producers rank 19th lowest in cost among 96 producing countries, most of which are developing countries.

According to LMC, fully two-thirds of the world’s sugar is produced at a higher cost

per pound than in the United States.

During the last three years studied, 1992/93–94/95, the United States became the

lowest cost beet sugar producer in the world. American corn sweetener producers

are also the lowest cost of all caloric sweeteners in the world, and always have been

the lowest cost producer of corn sweetener.

Because of their efficiency, American sugar farmers would welcome the opportunity to compete against foreign farmers on a level playing field, free of government subsidies and market intervention. Unfortunately, the extreme distortion of

the world sugar market makes any such free trade competition impossible today.

World Dump Market. More than 100 countries produce sugar and the governments of all these countries intervene in their sugar markets and industries in some

way. The most egregious, and most trade distorting, example is the EU. The Europeans are higher cost sugar producers than the United States, but they enjoy price

supports that are 40% higher than U.S. levels—high enough to generate huge surpluses that are dumped on the world sugar market, for whatever price they will

bring, through an elaborate system of export subsidies.

World trade in sugar has always been riddled with unfair trading practices. These

practices have led to the distortion in the so-called ‘‘world market’’ for sugar. These

distortions have led to a disconnect between the cost of production and prices on

the world sugar market, more aptly called a ‘‘dump market.’’ Indeed, for the period

of 1984/85 through 1994/95, the most recent period for which cost of production data

are available, the world average cost of producing sugar is over 18 cents, while the

world dump market price averaged barely half that—just a little more than 9 cents

per pound raw value. (See Attachment A.)

Furthermore, its dump nature makes sugar the world’s most volatile commodity

market. Just in the past two decades, world sugar prices have soared above 60 cents

per pound and plummeted below 3 cents per pound. Because it is a relatively thinly

traded market, small shifts in supply or demand can cause huge changes in price.

As long as foreign subsidies drive prices on the world market well below the global cost of production, the United States must retain some border control. This is a

necessary and effective response to the foreign predatory pricing practices that

threaten the more efficient American sugar farmers.

Uniqueness of Sugar Market. Aside from the highly residual and volatile nature

of the world sugar price, there are a number of factors that set sugar apart from

other program commodities. These unique characteristics should be taken into account before sugar is lumped in with other commodities for across-the-board policy

reforms.

82

• Grower/Processor Interdependence. Grain, oilseed, and most other field-crop

farmers harvest a product that can be sold for commercial use or stored. Sugarbeet

and sugarcane farmers harvest a product that is highly perishable and of no commercial value until the sugar has been extracted. Farmers cannot, therefore, grow

beets or cane unless they either own, or have contracted with, a processing plant.

Likewise, processors cannot function economically unless they have an optimal supply of beets or cane. This interdependence leaves the sugar industry far less flexible

in responding to changes in the price of sugar or of competing crops. • Multi-Year Investment. The multimillion-dollar cost of constructing a beet or cane processing plant (approximately $300 million), the need for planting, cultivating, and harvesting machinery that is unique to sugar, and the practice of extracting several harvests from one planting of sugarcane, make beet or cane planting an expensive, multiyear investment. These huge, long-term investments further

reduce the sugar industry’s ability to make short-term adjustments to sudden economic changes.

• High-Value Product. While the gross returns per acre of beets or cane tend to

be significantly higher than for other crops, critics often ignore the high cost associated with growing these crops. Compared with growing wheat, for example, USDA

statistics reveal the total economic cost of growing cane is nearly seven times higher, and beet is more than five times higher. With the additional cost for processing

the beets and cane, sugar is really more of a high-value product than a field crop.

• Inability to Hedge. The 1996 Freedom to Farm Bill made American farmers far

more dependent on the marketplace. Growers of grains, oilseeds, cotton, and rice

can reduce their vulnerability to market swings by hedging or forward contracting

on a variety of futures markets for their commodities. There is no futures market

for beets or cane. Farmers do not market their crop and cannot take delivery of beet

or cane sugar. The hedging or forward contracting opportunities exist only for the

processors—the sellers of the sugar derived from the beets and cane. These marketing limitations make beet and cane farmers more vulnerable to market swings.

U.S. Sugar Policy Reforms. U.S. sugar policy was unilaterally and substantially

reformed in the 1996 Farm Bill, far in excess of URA commitments. The key reforms: (1) Production controls (‘‘marketing allotments’’) were eliminated. (2) Government-provided non-recourse loans, or a government-guaranteed minimum price, are

conditional and no longer guaranteed—unlike all other U.S. program commodities.

This ensures long-standing Congressional intent that U.S. sugar policy be run at no

cost to the U.S. Treasury. (3) The minimum import level, already about four times

the minimum required by the URA, was effectively raised another 20%. (4) Sugar

producers’ burdensome and discriminatory marketing assessment tax was raised

25%, increasing expected annual revenues to the U.S. Treasury from U.S. sugar policy to about $40 million. (5) A 1-cent per pound penalty was established to discourage government loan forfeitures. (6) The U.S. committed to further support price reductions when other countries surpass their URA requirements, as the U.S. has

done, and achieve levels equal to ours.

The reformed sugar policy of the 1996 Farm Bill does retain the Secretary of Agriculture’s ability to limit imports, and also provides a price support mechanism,

though only when imports exceed 1.5 million short tons. The 1998/99 sugar import

quota is only some 300,000 tons above that critical trigger level.

U.S. SUGAR INDUSTRY’S FREE TRADE GOAL

Because of our competitiveness, with costs of production well below the world average, the American Sugar Alliance supports the goal of genuine, global free trade

in sugar. We cannot compete with foreign governments, but we are perfectly willing

to compete with foreign farmers in a truly free trade environment.

We were the first U.S. commodity group to endorse the goal of completely eliminating government barriers to trade at the outset of the Uruguay Round, in 1986.

We understand we are the first group to endorse this same goal prior to the start

of the 1999 multilateral trade round. We described our goals and concerns to the

Administration in a letter in May 1997 to Trade Representative Barshefsky and Agriculture Secretary Glickman. A copy of that letter is attached (Attachment B).

The ASA does not endorse the notion of free trade at any cost. The movement toward free trade must be made deliberately and rationally, to ensure fairness and

to ensure that those of us who have a global comparative advantage in sugar production are not disadvantaged by allowing distortions, exemptions, or delays for our

foreign competitors, as we are experiencing under the current agreement.

To achieve a free trade transition process that is rational and fair, we offer the

following thoughts on past agreements, and our concerns and recommendations regarding future negotiations.

83

SUGAR AND THE URUGUAY ROUND AGREEMENT

Little Effect on World Sugar Policies. More than 100 countries produce sugar and

all have some form of government intervention. Unfortunately, these policies were

not significantly changed in the Uruguay Round Agreement of the WTO.

The URA inadequately addressed, or ignored:

• Compliance. Many countries have evaded or not yet even complied with their

URA agricultural commitments. In sugar, for example, the EU has managed to isolate most of its sugar export subsidy program from URA disciplines. The Philippines

has yet to meet its requirements for increasing minimum access levels to its sugar

market.

It was revealed at a WTO Analysis and Information Exchange Group meeting Geneva in September 1998, nearly four years since the inception of the URA, that a

mere 17 of the 132 member nations have fulfilled all their notification requirements

on domestic support, export subsidies, and market access. One must wonder how we

can monitor compliance with WTO-mandated reductions in agricultural policies

when the vast majority of countries will not even acknowledge which policies they

have in place.

• Export Subsidies. The most distorting practice in world agricultural trade is the

export subsidy. Export subsidies provide countries the mechanism to dispose of surpluses generated by high internal production subsidies. In the absence of export

subsidies as a surplus-removal vehicle, countries would have to reduce their production supports. With export subsidies in place, countries can move surpluses into

markets where they do not belong and depress market prices. Other countries are

forced to respond with import barriers. In the world sugar market, subsidized exports by the EU alone amount to about a fifth of all the sugar traded each year.

The URA did not significantly reduce the amount of sugar sold globally with export subsidies. The agreement failed to reduce the European Union’s generous price

support level and requires only a tiny potential drop in its substantial export subsidies.

• State Trading Enterprises (STE’s). STE’s are quasi-governmental, or government-tolerated organizations that support domestic producers through a variety of

monopolistic buyer or seller arrangements, marketing quotas, dual-pricing arrangements, and other strategies. These practices were ignored in the Uruguay Round,

but are, unfortunately, common in the world sugar industry. Major producers such

as Australia, Brazil, China, Cuba, and India have sugar STE’s, but were not required to make any changes in the URA.

• Developing-Country Producers. Developing countries, which represent about

60% of world sugar production and trade, have little or no labor and environmental

standards for sugar farmers, have no minimum import access requirements, and

often have high import tariffs. Nonetheless, developing countries were put on a

much slower track for reductions, or, in the case of the least developed countries,

were exempted altogether from URA disciplines.

• WTO Non-Members. Important sugar-producing and importing countries such

as China and the former Soviet republics are not WTO members, and need to do

nothing under the URA. Yet, these countries represent some 40% of global sugar

imports and 20% of production.

• Labor and Environmental Standards. The gap in government standards—and

resulting producer costs—between developed and developing countries is well documented and immense, but was ignored in the URA. In sugar, the gap is particularly

pronounced because, while the EU and the U.S. are major players, production and

exports are highly dominated by developing countries, especially in the cane sector.

Social Standards Gap. The differences in labor and environmental standards between developed and developing countries are wide.

American sugar producers operate with the highest possible regard for workers

and the environment. But we should not be penalized in multilateral trade negotiations for providing these costly protections. Foreign countries that do not provide

such protections should not be rewarded. If we are attempting to globalize our economy, we should also globalize our worker and environmental protection responsibilities. If markets are to be liberalized, standards must be harmonized.

In the next trade round, access to developed countries should be conditioned on

developing countries’ achievement and enforcement of higher labor and environmental standards. Such an incentive system could help ensure that the next trade

round results in a race to the top, in protection of workers and the environment,

rather than a race to the bottom. Attached is a press release issued by the ASA in

support of President Clinton’s remarks at the WTO in this regard last May (Attachment C).

84

Widely Varying Levels of Support. Unilateral reforms to U.S. agriculture policy in

the 1996 Farm Bill far exceeded U.S. commitments made the year before in the

Uruguay Round. Furthermore, developing countries, which dominate world agricultural trade and particularly sugar trade, were subject to a slower pace of reductions,

if any.

As a result, the United States is way out in front of the rest of the world in removing its government from agriculture and has placed its farmers in a domestic

free market situation. This gap makes American farmers uniquely vulnerable to

continued subsidies by foreign competitors.

It is key that American farmers not be penalized for attempting to lead the rest

of the world toward free agricultural trade. American farmers must be given credit

for the reforms they have endured.

U.S. Sugar Surpasses URA Requirements. The United States is one of only about

25 countries that guarantees a portion of its sugar market to foreign producers and

it has far surpassed its URA commitment on import access. The URA required a

minimum access of 3–5% of domestic consumption. The United States accepted a

sugar-import minimum that amounts to about 12% of consumption. In practice, U.S.

imports in 1994/95 and 1995/96 averaged 24%—double the promise we made in the

URA, and about six times the global URA minimum.

All this sugar imported from 41 countries under the tariff-rate quota (TRQ) enters

the United States at the U.S. price, and not at the world dump price. Virtually all

this sugar enters duty free. Just five countries (Argentina, Australia, Brazil, Gabon,

and Taiwan) that lack Generalized System of Preferences status pay a minuscule

duty of 0.625 cents per pound.

The United States calculated its above-quota tariff rate in the manner dictated

by the URA. These tariff levels are totally WTO consistent, and are dropping by

15% over the 6-year transition period, as we promised they would in the Uruguay

Round. This duty is frozen in the year 2000 and must not be reduced further until

foreign countries have complied with their URA requirements, as the U.S. has done.

Playing Field Lower, But Not More Level. The URA’s formula-based approach

called for across-the-board percentage reductions, regardless of the original level of

price support, import barrier, or export subsidy. Countries with the most egregious

barriers can maintain their advantage throughout the transition process. For example, if one country’s price support were 40% higher than another’s, and both reduced

by the URA-mandated 20%, the 40% advantage would remain in place—the playing

field has been lowered, but not leveled.

Furthermore, the United States far surpassed its URA commitments, unilaterally

dismantling its already minimal commodity program in the 1996 Farm Bill, while

many other nations with higher levels of government intervention have yet to even

minimally comply. This has tilted the playing field even further to the disadvantage

of efficient American farmers.

Formula Driven Trade Strategy. For the many reasons outlined above, the rigid,

formula-driven, or ‘‘one-size-fits-all,’’ approach for trade concessions does not work

for agriculture in general, or for sugar in particular. Pursuing this approach would:

(1) Fail to reduce the gap in supports between countries—lowering the playing field,

but not leveling it; (2) Again give developing countries virtually a free ride; (3) Further diminish U.S. negotiating leverage, which was severely reduced through our

unilateral concessions in the 1996 Farm Bill.

To date, U.S. agriculture has led the world in trade barrier reductions and we are

disadvantaged as long as the rest of the world fails to follow our example.

SUGAR AND THE NAFTA

The ASA is concerned that before the United States embarks on another multilateral trade round we must be cognizant of serious problems that remain with our

primary regional trade agreement, the North American Free Trade Agreement

(NAFTA). Evasion of NAFTA rules and violation of international trade rules by our

North American trading partners have left many American sugar producers with a

distrust of trade agreements and a serious reticence about entering into new ones.

Canada. Sugar trade between the United States and Canada, which imports

about 90% of its sugar needs, was essentially excluded from the NAFTA. U.S.-Canadian sugar trade is governed mainly by the U.S.-Canada Free Trade Agreement and

by the WTO.

Currently, Canada is threatening the integrity of U.S. sugar policy by circumventing the tariff-rate quota with a new product referred to in the trade as ‘‘stuffed

molasses’’—a high-sugar product not currently included in U.S. sugar TRQ classifications. USDA has estimated imports of this product could add about 100,000 tons

of non-quota sugar to the U.S. market per year. That amount could grow if this

85

loophole is not closed, further harming U.S. sellers of refined sugar and possibly

threatening the no-cost operation of U.S. policy.

Mexico. Mexico had been a net importer of sugar for a number of years prior to

the inception of the NAFTA. Nonetheless, the NAFTA provided Mexico with more

than three times its traditional access to the U.S. sugar market during the first six

years, 35 times its traditional access in years 7–14, and virtually unlimited access

thereafter. The NAFTA sugar provisions are summarized on the attached table (Attachment D).

These provisions were negotiated by the U.S. and Mexican governments and contained in President Clinton’s NAFTA submission to the U.S. Congress, which Congress approved in November 1993. The sugar provisions, as altered from the original

NAFTA text, were critical to the narrow Congressional passage of the NAFTA.

Nonetheless, Mexico is now undermining the integrity of the NAFTA by claiming

the sugar provisions are somehow invalid. This questioning by Mexico has bred deep

feelings of distrust in trade agreements among many American sugar producers.

In addition, Mexico has not complied with a NAFTA requirement to phase out its

tariffs on U.S. high-fructose corn syrup (HFCS). Instead, Mexico raised its tariffs

on HFCS imports to levels approaching 100%. Mexico may also be violating international trade rules by sanctioning a restraint of trade agreement among Mexican

sugar producers and soft drink bottlers to slow the pace of substitution of HFCS

for sugar in Mexican soft drinks. (The ASA has filed a paper with USTR on this

subject, ‘‘Initiation of Section 302 Investigation on Mexican Practices Affecting High

Fructose Corn Syrup,’’ June 19, 1998.)

86

87

88

89

f90

Statement of David Kaehler, President, Gilbarco, Inc., Greensboro, NC

Mr. Chairman and members of the Subcommittee, I am David Kaehler, President

of Gilbarco North America, the leading producer of gasoline pumps and related

equipment in the United States. Today, we would like to thank you, Mr. Chairman

and the Subcommittee on Trade for the opportunity to present our views on the importance of the extension of trade negotiating authority and the impact that trade

negotiations may have on our U.S. operations. Through this statement, we want to

illustrate one particular area of great concern to Gilbarco, which we believe underlines the importance for U.S. companies and U.S. workers to have access to world

markets.

Gilbarco, Inc., is headquartered in Greensboro, NC, where we employ 1,500 people

who design, produce and ship gasoline dispensers and related equipment for the

world. Indeed, we believe that our Greensboro factory is the largest of its kind anywhere in the World. About 20% of our U.S. production is shipped to 85 different

countries, including South America.

For several years our company has, through hard work and good fortune, been

the leading supplier of gasoline dispensing equipment in South America. In response to our success, competitors have established manufacturing facilities within

the Mercosur region of South America, thereby taking advantage of preferential tariff treatment offered in that trading bloc. In fact, the absence of a free trade relationship between the United States and the Mercosur countries today results in

Gilbarco having to pay duties, ranging from 17% to 30%, on the products we export

to these countries. As a result, we find ourselves at a serious price disadvantage.

In order to maintain our number one market position in South America, we are

currently alleviating the situation by cutting costs and sacrificing profits. However,

this is clearly not a tenable long-term solution. In the future, the problem could be

solved by eliminating existing tariffs on U.S. exports through the successful negotiation of the Free Trade Area of the Americas (FTAA).

Should free trade negotiations fail or extend too far into the future, we would

have no alternative but to establish a manufacturing presence in South America.

In this case, however, job opportunities would be shifted away from the U.S. and

on to a foreign market. In fact, a new facility in South America could potentially

impact about 10% of our highly skilled, highly paid U.S. production workers in

North Carolina. In addition, the domestic content of our products is greater than

80%. Our several suppliers throughout our region and the country would also suffer

the loss of business as components for South American built gas pumps would be

sourced in that region.

The extension of trade negotiating authority will enable U.S. trade representatives to effectively negotiate ‘‘final’’ trade agreements; authority they must have in

order to maintain a leadership role in the negotiations. The current situation places

American companies, our products, and our workers at a competitive disadvantage.

Indeed, while our trade negotiating authority has lapsed, competitor countries have

engaged in negotiations and are concluding trade agreements without us.

We urge the Congress to grant the Administration trade negotiating authority so

that the United States can be a credible and effective partner in negotiating the

FTAA to a successful conclusion. We also ask the Administration to exercise its

leadership and to work with the Congress so that trade negotiating authority can

be extended as soon as possible. Gilbarco, like most other manufacturers, looks forward to competing on a level-playing field with other global manufacturers because

we believe that our workers are the most productive in the world, and our products

of the highest quality.

Statement of R. Thomas Buffenbarger, International Association of

Machinists and Aerospace Workers, Upper Marlboro, MD

f The International Association of Machinists and Aerospace Workers respectfully

submits this testimony to the United States House of Representatives Ways and

Means Committee’s Subcommittee on Trade. On behalf of our members and the tens

of thousands of wood, pulp, paper and other timber-dependent workers nationwide,

we wish to express our concerns for international trade policy in the global economy.

The International Association of Machinists and Aerospace Workers represents

over 700,000 workers nationwide including 20,000 woodworkers in the forest products industry. Our members are increasingly concerned with international trade

91

agreements and the potential impacts to American industries, including forest products.

The IAMAW supports global trade that promotes fair and equitable agreements

between the U.S. and competing nations. The forest products industry is facing increased competitiveness from foreign countries. Restraints on fiber supply, environmental regulations and restrictions on market access, are all hampering our performance in the global community. Now more than ever, it is crucial that U.S. trade

policies reflect the competitive needs of American industries.

Forest product jobs are being threatened by a flood of foreign wood being dumped

into American markets. Over the last year, we have witnessed similar threats in

the steel industry. The crisis originated from illegal dumping, ineffective trade laws

and the fact that U.S. trade policy does nothing to preserve our nation’s industrial

manufacturing base. Today, our brothers and sisters in the steel industry are struggling to survive, companies are being forced into bankruptcy and tens of thousands

of workers are losing their jobs. The IAMAW wants to prevent a similar crisis in

the forest products industry.

The U.S. forest products industry is the largest producer of wood and paper products in the world and accounts for 8 percent of the U.S. manufacturing output. Our

workers produce the raw materials and products that are used by consumers

throughout the world, and we need trade agreements that promote our continued

prosperity. Our concern lies with imbalanced trade agreements that provide our

competitors with unfair advantages.

Specifically, the IAMAW is concerned with the APEC negotiations and the proposals to eliminate all tariffs on wood products. We commend the Clinton Administration and the U.S. Trade Representative for their significant progress during the

APEC negotiations, but are alarmed at Japan’s continued refusal to open its doors

to U.S. wood products. The United States cannot back down from these negotiations

and must hold Japan accountable.

While Japan has failed to meet its commitment, forest products workers in the

United States continue to witness disastrous impacts to our industry. Asian tariffs

on wood products are as high as 45 percent, whereas U.S. tariffs are at or near zero.

Fair and open access to Asian markets is crucial to preserve the livelihoods of woodworkers across the nation. While Asian imports to the U.S. skyrocket, our exports

to the region have fallen drastically, a 40 percent decrease of our industry’s total

exports of $21 billion. These trade barriers make it impossible to sell forest products

abroad.

Fairness to American workers requires the pursuit of accelerated market openings. Failure to eliminate Japanese trade barriers will exacerbate the increased flow

of exports to this country as Asian economies attempt to export their way out of the

region’s financial crisis. Immediate steps must be taken to address the flood of

under-priced imported wood products coming into our market. U.S. workers must

not be the victims of international financial collapse.

U.S. negotiators and government officials must provide a level playing field for

American industries as we compete in the global economy. Trade reform is crucial.

Working Americans will support free trade agreements that are fair and equitable

and provide us with the opportunity to prosper. As we move into the next century

and a new global economy, we cannot leave American industry and our workers behind. We must negotiate sound trade policies that will provide the next generation,

and many more to come, with the opportunity to achieve the American Dream.

f92

Statement of Mitchell J. Cooper, Counsel to the Rubber and Plastic

Footwear Manufacturers Association

The Rubber and Plastic Footwear Manufacturers Association (RPFMA) is the

spokesman for manufacturers of most of the rubber-soled, fabric-upper footwear, waterproof footwear, and slippers made in this country. The names and addresses of

the Association’s members are attached hereto.

Rubber footwear is a labor-intensive, import-sensitive industry: Labor constitutes

more than 40 percent of total cost; imports of fabric-upper footwear and of slippers

take more than ninety percent of the U.S. market and imports of waterproof footwear take close to fifty percent. These imports come from countries where wages

are from one-fifteenth to one-twentieth of the level in the domestic industry.

Two years ago the Trade Subcommittee conducted a similar examination of U.S.

trade policy objectives and initiatives, and the RPFMA submitted its views. Little

has changed since then, other than the fact that the position of the domestic rubber

footwear industry vis-a`-vis imports has worsened. This fact is demonstrated by Tables 1, 2, 3, and 4 attached hereto, which show the year-to-year increase of imports

of fabric upper and of protective footwear as a percentage of total consumption and

also the decline in domestic production employment of rubber and plastic footwear

producers and slipper producers.

The remaining companies in this industry represent the survival of the fittest.

They are convinced that their state of the art production facilities, the quality of

their products, and their name brand recognition will permit them to continue manufacturing in this country provided that there is no further tampering with the current level of tariffs on competing imports.

The rubber footwear industry recognizes that the health of our economy depends

to a considerable degree on America’s ability to export its products to other countries. Unhappily, the ability of low-wage foreign producers to compete in the laborintensive industry which produces rubber footwear presents an enormous obstacle

in the path of this industry’s efforts to export its products. Accordingly, while we

understand the desirability of ongoing and anticipated trade negotiations for the

purpose of reducing barriers to trade, we urge that there be greater recognition that

exceptions must be made for those few industries, such as rubber footwear and slippers, where a reduction in duties would clearly threaten the continued existence of

what is left of domestic production.

A major concern of this industry with respect to trade objectives and initiatives

is the distinction between our Government’s approach to such multilateral negotiations as the Kennedy, Tokyo, and Uruguay Rounds and its approach to such bilateral free-trade agreements as NAFTA. The rules for multilateral negotiations have

permitted careful scrutiny of whether cuts in tariffs on specific Harmonized System

items are warranted, whereas in bilateral negotiations the only flexibility has been

in the length of time over which all duties would go to zero. Thus, in recognition

of the unique import sensitivity of rubber footwear and slippers, the duties on the

core items of this industry remained untouched in the Kennedy, Tokyo, and Uruguay Rounds. On the other hand, under NAFTA rubber footwear and slipper duties

are being phased out over a period of 15 years (a period longer than that for virtually every other American industry, but at the end of which duties on imports

from Mexico will have been eliminated).

Unless current policy is modified so as to permit limited exceptions to duty-free

treatment in bilateral negotiations, what is left of this domestic industry cannot realistically expect to survive. The validity of this statement is evidenced by our experience under the Caribbean Basin Initiative. CBI II removed the exemption from

duty-free treatment which had previously existed for footwear from the Caribbean.

The direct consequence of this change in the law has been that rubber footwear imports from the Dominican Republic increased from 200,000 pair a year in 1990 to

more than 12 million pair in 1997. Most of these imports are accounted for by American companies which closed plants in such states as Maine, Pennsylvania, West

Virginia, and Georgia and shifted their production to the Dominican Republic.

It is important to bear in mind that the duty-free treatment of rubber footwear

from the Caribbean is currently limited to footwear whose components are manufactured in the United States. The dramatic surge in Caribbean shipments which has

occurred despite the requirements of using domestic components more than justifies

our concern about the enactment of any so-called CBI parity legislation which would

extend duty free treatment to Caribbean footwear made with components from any

other country.

93

In previous bilateral trade negotiations the United States has relied on Article

XXIV of the GATT in justification of its no-exception rule. The fact is however, that

Paragraph eight of that Article defines a free trade agreement as one where ‘‘the

duties and other restrictive regulations of commerce . . . are eliminated on substantially all the trade between the constituent territories or products originating in

such territories’’ (emphasis added). If new bilateral negotiations would adhere to the

‘‘substantially all the trade’’ language in the GATT, the rules of engagement would

be closer to those in multilateral negotiations where the unique needs of particular

import sensitive industries can be taken into account. Our hope is that if and when

this Congress grants the President fast-track authority, it will note the need for exceptions to total free trade.

The history of past negotiations demonstrates that there are very few domestic

industries whose survival is as threatened by imports as rubber footwear and slippers. Surely, the benefits that would otherwise accrue from a free trade agreement

would not be diminished by excluding this minuscule fraction of one percent of this

country’s trade from duty free treatment. Accordingly, we urge that any structuring

of policy objectives in upcoming trade negotiations should contain sufficient flexibility to permit the survival of an otherwise endangered domestic industry.

In short, while we cannot quarrel with the Administration’s objective of opening

markets to American goods, we can and do quarrel with trade policy which does not

take into account the legitimate needs of an industry, such as rubber footwear and

slippers, which is faced with limited export opportunities and virtually unlimited

imports.

APPENDIX 1

RUBBER AND PLASTIC FOOTWEAR MANUFACTURERS ASSOCIATION

American Steel Toe Co.

P.O. Box 959

S. Lynnfield, MA 01940–

0959

Converse, Inc.

One Fordham Road

North Reading, MA 01864

(with a plant in North

Carolina)

Draper Knitting Co., Inc.

28 Draper Lane

Canton, MA 02021–1598

Frank C. Meyer, Co.

585 South Union Street

Lawrence, MA 01843

(with plants also in New

Jersey, Missouri, Maine,

Mississippi, and Puerto

Rico)

Genfoot, Inc.

Littleton, NH

Hudson Machinery

Worldwide

Hudson Industrial Park

P.O. Box 831

Haverhill, MA 01831

Kaufman Footwear Corp.

Batavia, NY

LaCrosse Footwear Inc.

P.O. Box 1328

LaCrosse, WI 54602

(with plants also in New

Hampshire and Oregon)

New Balance Athletic

Shoes, Inc.

38 Everett Street

Allston, MA 02134

(with plants in Maine)

Norcross Safety Products

1136 2nd Street

P.O. Box 7208

Rock Island, IL 61204–

7208

S. Goldberg & Co., Inc.

20 East Broadway

Hackensack, NJ 07601–

6892

Tingley Rubber

Corporation

200 South Avenue

P.O. Box 100

S. Plainfield, NJ 07080

Table 1.—Shoes with Rubber or Plastic Soles/Fabric Uppers (SIC 30210 10)

[Figures in Thousands of Pairs]

fProduction Exports Imports Consumption % Imports

1998* ............................... 31,300 8,500 286,600 309,400 93.0

1997 ................................. 49,200 7,600 273,200 314,800 87.0

1996 ................................. 51,400 6,600 266,100 310,900 86.0

1995 ................................. 56,000 12,600 309,300 352,700 88.0

1994 ................................. 59,300 8,200 300,500 351,600 85.0

1993 ................................. 62,500 9,200 260,000 313,300 83.0

1992 ................................. 92,700 9,500 257,000 340,200 76.0

1991 ................................. 97,500 9,700 213,400 301,200 71.0

1990 ................................. 89,700 8,700 199,200 280,300 71.0

1989 ................................. 76,800 10,000 190,100 256,900 74.0

1988 ................................. 76,700 900 157,700 233,500 68.0

94

Table 1.—Shoes with Rubber or Plastic Soles/Fabric Uppers (SIC 30210 10)—Continued

[Figures in Thousands of Pairs]

Production Exports Imports Consumption % Imports

1987 ................................. 71,000 800 119,500 189,700 63.0

1986 ................................. 57,900 1,000 99,100 156,000 64.0

1985 ................................. 54,900 800 84,800 138,900 61.0

1984 ................................. 64,516 1,120 107,685 171,865 62.7

1983 ................................. 78,054 1,203 102,662 180,019 57.0

1982 ................................. 92,896 1,367 99,032 194,398 50.9

1981 ................................. 95,399 1,564 137,632 231,003 59.6

1980 ................................. 97,516 1,694 120,746 216,207 55.8

1979 ................................. 78,130 1,223 111,390 193,381 57.6

1978 ................................. 79,278 644 172,700 253,683 68.1

1977 ................................. 90,417 800 106,000 196,587 53.9

1976 ................................. 115,354 700 115,400 234,471 49.2

1975 ................................. 131,155 600 74,100 206,376 35.9

1974 ................................. 146,500 1,010 67,352 210,838 31.9

1973 ................................. 143,077 29 66,291 214,837 30.9

1972 ................................. 159,399 105 58,020 217,314 26.7

1971 ................................. 156,489 112 62,872 219,249 28.7

1970 ................................. 144,276 129 49,726 193,873 25.6

1969 ................................. 142,295 195 44,463 186,563 23.8

1968 ................................. 152,257 239 49,200 201,218 24.5

1967 ................................. 153,656 211 44,659 198,104 22.5

1966 ................................. 157,491 167 35,060 192,384 18.2

1965 ................................. 165,741 195 33,363 198,909 16.8

1964 ................................. 162,151 225 29,063 190,989 15.2

*Preliminary

Source: Compiled from official statistics of the U.S. Department of Commerce

Table 2.—Rubber & Plastic Protective Footware (SIC 30210 20)

[Figures in Thousands of Pairs]

Production Exports Imports Consumption % Imports

1998* ............................... 11,600 1,000 9,800 20,400 48.0

1997 ................................. 15,500 1,000 11,000 25,500 43.0

1996 ................................. 16,600 1,100 9,600 25,100 38.0

1995 ................................. 17,400 1,300 9,900 26,000 38.0

1994 ................................. 20,200 1,000 11,200 30,500 37.0

1993 ................................. 17,800 700 9,700 26,700 36.0

1992 ................................. 17,800 800 7,700 24,800 31.0

1991 ................................. 15,600 900 8,000 22,700 35.0

1990 ................................. 16,000 800 8,700 23,900 37.0

1989 ................................. 13,700 600 8,200 21,300 38.0

1988 ................................. 13,800 700 8,900 22,000 40.0

1987 ................................. 11,100 800 9,600 19,900 48.0

1986 ................................. 12,200 500 10,700 22,400 48.0

1985 ................................. 16,500 400 12,800 28,900 44.0

1984 ................................. 17,734 296 16,010 32,830 48.8

1983 ................................. 15,459 305 13,373 26,562 50.3

1982 ................................. 13,920 386 11,103 24,611 45.1

1981 ................................. 10,652 551 7,485 18,028 41.5

1980 ................................. 14,473 653 7,548 21,552 35.0

1979 ................................. 23,531 645 12,544 36,517 34.4

1978 ................................. 28,893 514 13,444 36,130 37.2

1977 ................................. 23,380 400 10,700 34,402 31.1

1976 ................................. 17,261 400 9,600 26,800 35.8

1975 ................................. 16,135 300 4,100 20,600 19.9

*Preliminary

Official government figures on rubber and plastic protective footwear were not compiled for years earlier

than 1975.

Source: Compiled from official statistics of the U.S. Department of Commerce

95

Table 3.—Production Employment

[in thousands]

Rubber and Plastic Footware (sic 302)

1973 ............................................................................................. 26.3 1986 9.2

1974 ............................................................................................. 25.3 1987 9.3

1975 ............................................................................................. 22.3 1988 9.7

1976 ............................................................................................. 21.6 1989 9.2

1977 ............................................................................................. 20.9 1990 8.9

1978 ............................................................................................. 21.0 1991 8.8

1979 ............................................................................................. 19.9 1992 8.9

1980 ............................................................................................. 19.8 1993 8.9

1981 ............................................................................................. 19.0 1994 8.9

1982 ............................................................................................. 16.2 1995 6.4

1983 ............................................................................................. 14.1 1996 4.5

1984 ............................................................................................. 14.0 1997 5.5

1985 ............................................................................................. 10.9 1998 4.8*

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

January .......................... 9.2 9.0 8.4 9.2 8.7 8.3 7.8 4.9 5.3 5.6

February ......................... 9.3 9.1 8.7 9.4 8.9 8.8 7.8 4.7 5.3 5.3

March .............................. 9.3 9.2 8.7 9.4 9.1 8.9 7.5 4.6 5.6 5.3

April ................................ 9.2 9.1 8.7 9.4 9.4 9.2 7.2 4.6 5.5 5.2

May ................................. 9.1 8.9 8.8 9.2 9.6 9.4 6.8 4.7 5.6 5.1

June ................................ 9.2 9.0 8.8 9.1 9.6 9.5 7.1 4.8 5.9 5.2

July ................................. 8.8 8.6 7.6 8.8 9.2 8.8 5.8 3.7 5.1 3.8

August ............................ 8.3 9.0 9.0 8.1 8.7 9.5 5.6 4.6 4.7 4.8

September ...................... 9.5 8.9 9.2 8.2 8.4 9.0 5.4 4.5 5.9 4.5

October ........................... 9.6 8.8 9.3 8.8 8.3 8.9 5.2 4.5 5.8 4.3

November ....................... 9.4 8.9 8.8 8.8 8.4 8.1 5.1 4.4 5.8 4.3

December ........................ 9.1 8.6 9.3 8.7 8.4 8.1 5.1 4.3 5.7 4.4*

*Peliminary figure

Source: Bureau of Labor Statistics, U.S. Department of Labor

Table 4.—Production Employment

[in thousands]

Slippers (sic 3142)

1973 ......................................................................................................... 10.2 1986 4.4

1974 ......................................................................................................... 9.7 1987 4.7

1975 ......................................................................................................... 7.8 1988 4.6

1976 ......................................................................................................... 7.2 1989 4.2

1977 ......................................................................................................... 7.2 1990 3.7

1978 ......................................................................................................... 7.5 1991 3.5

1979 ......................................................................................................... 7.1 1992 3.2

1980 ......................................................................................................... 7.5 1993 2.6

1981 ......................................................................................................... 8.2 1994 3.0

1982 ......................................................................................................... 7.5 1995 2.9

1983 ......................................................................................................... 6.5 1996 2.1

1984 ......................................................................................................... 6.0 1997 2.1

1985 ......................................................................................................... 5.1 ............ ............

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

January ...... 3.6 3.0 2.7 2.5 2.1 2.4 2.5 1.8 2.2 1.3

February ..... 4.3 3.7 3.4 2.8 2.4 2.7 3.0 2.3 2.1 1.6

March .......... 4.4 3.7 3.3 3.0 2.4 2.7 3.0 2.1 1.9 1.6

April ............ 4.4 3.8 3.6 3.1 2.6 2.9 2.8 2.0 1.9 1.7

96

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

May ............. 4.4 3.9 3.7 3.1 2.7 3.1 2.9 2.0 2.2 1.7

June ............ 4.4 3.8 3.8 3.3 2.8 3.2 3.0 2.0 2.3 1.7

July ............. 4.3 3.5 3.4 3.0 2.6 3.2 3.0 2.0 2.3 1.8

August ........ 4.6 3.8 4.0 3.7 2.9 3.3 3.1 2.1 2.3 1.7

September .. 4.3 4.1 4.0 3.8 3.0 3.5 3.1 2.3 2.3 1.8

October ....... 4.5 4.2 4.0 3.8 3.0 3.5 3.0 2.3 2.2 1.8

November ... 4.1 3.7 3.5 3.3 2.8 3.2 2.8 2.2 2.1 1.6

December .... 3.6 2.8 2.6 2.4 2.3 2.7 2.2 2.0 1.5

Source: Bureau of Labor Statistics, U.S. Department of Labor

The above data is ‘‘Unpublished Data’’ compiled from the Bureau of Labor Statistics, and are not official Bureau Statistics. This data is for internal analysis only and should not be reproduced or published.

Statement of George Scalise, President, Semiconductor

Industry Association

f I appreciate the opportunity to present to the Subcommittee on Trade of the Committee on Ways and Means the views of the Semiconductor Industry Association

(SIA) on the importance of active U.S. involvement in trade negotiations. I would

like to focus my comments on three issues: (1) the agenda for the new round of multilateral trade negotiations under the auspices of the World Trade Organization

(WTO) to be launched at this year’s WTO Ministerial meeting in Seattle; (2) priorities for the ongoing negotiations on China’s accession to the WTO; and (3) the importance of seeking early progress in eliminating tariffs in connection with the negotiations to create a Free Trade Area of the Americas (FTAA).

Before discussing the SIA’s position on these important issues, however, I would

like to give some background on the U.S. semiconductor industry.

I. THE U.S. SEMICONDUCTOR INDUSTRY

U.S. semiconductor makers employ 260,000 people nationwide, and the presence

of the industry is widespread—35 states have direct semiconductor industry employment. And these are high paying jobs. The average wage in the semiconductor industry is approximately $55,000, nearly twice the average of private industry overall.

Semiconductors are an increasingly pervasive aspect of everyday life, enabling everything from computers to automobiles to modern defense systems to the Internet

which is, in fact, a world wide web of silicon chips. They have sparked the growth

of the U.S. electronics industry, which provides employment for 4.2 million Americans in all 50 states.

According to Department of Commerce data, the chip industry contributes more

to this country’s GDP in terms of value added than any other manufacturing industry. The industry is both capital intensive and R&D intensive: indeed, our members

must spend a third of their revenues on research and capital equipment, among the

highest percentage of any industry in the world.

These tremendous investments in R&D and capital equipment have yielded a direct benefit to consumers everywhere: the cost of our products continues to decline,

and the functionality continues to increase. The increase in computing power has

allowed the spread of PCs to homes, schools and small businesses, and it has enabled the explosion of the Internet and e-commerce. The Economic Report to the

President last year pointed out that without the faster-than-average recent rate of

decline in computer prices, overall inflation would have risen steadily since early

1994: instead, because of the fall in computer prices, inflation has actually decreased.

While investing heavily in the industry’s future competitiveness and technological

capabilities, SIA members also have always actively sought to secure foreign market

access for U.S. products. Because the semiconductor industry is so global in nature—roughly half of the U.S. industry’s revenues are derived from overseas sales—

the SIA has been dedicated since its inception to promoting free trade and opening

world markets.

For example, the U.S. industry has been at the forefront of efforts to eliminate

tariffs on semiconductors and related products worldwide. At SIA’s urging, the

United States, Japan and Canada eliminated their semiconductor tariffs in the mid–

1980s. Similarly, in the 1990s, SIA strongly supported the negotiation of the InforVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00100 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
97

mation Technology Agreement (ITA), through which a total of 44 countries agreed

to eliminate their tariffs on semiconductors and other information technology products.

II. THE NEW ROUND OF WTO NEGOTIATIONS

The SIA favors continued efforts in the WTO to promote greater trade liberalization, including in the areas of tariff elimination, duty-free and tax-free treatment

of electronic commerce, services and investment. However, any new initiatives at

the WTO should be consistent with and build upon the agreements reached in the

Uruguay Round, rather than a renegotiation of the hard-won resolutions reached in

those recent negotiations.

A. Recommended Areas for New WTO Negotiations

1. Industrial Market Access. The SIA believes continued attention should be given

to tariff elimination by WTO members. As noted above, 44 countries and customs

territories currently are signatories to the Information Technology Agreement (ITA),

which provides for the elimination of tariffs on semiconductors and other information technology products. But a significant number of WTO member countries have

yet to join this important agreement. The United States should encourage all WTO

member countries to join the ITA as soon as possible and thereby permanently

eliminate tariffs on semiconductors, semiconductor manufacturing equipment and

related information technology products.

In addition, the United States should urge countries negotiating for accession to

the WTO to follow the lead of Taiwan and to join the ITA as an interim measure.

China, for example—despite President Jiang Zemin’s announcement last year that

it would join the ITA ‘‘as soon as possible’’—has made little progress toward implementation. Every effort should be made to encourage China to fulfill its commitment.

Continued attention should also be placed on the current ongoing review of the

ITA to expand the product coverage of the agreement (ITA II). Every effort should

be made to reach agreement among the existing ITA signatories to expand the product coverage of the agreement as soon as possible. For those countries that have yet

to join the original ITA, it should also be pointed out that joining the original ITA

would permit them to play an active role in determining the future direction of

international efforts to expand the product coverage of the ITA.

Expansion of the ITA to include additional products and signatories should be

maintained as a separate process during the course of broader WTO multilateral negotiations. A clear goal for the end of any new multilateral negotiations, however,

should be to make ITA participation mandatory for all WTO member countries.

2. Duty-Free Treatment for Electronic Commerce. SIA supports U.S. efforts to urge

WTO members to continue the current practice with respect to tariff treatment of

electronic commerce. Currently, no WTO member considers electronic transmissions

as importations and, consequently, no member imposes customs duties on those

transmissions.

Given the increasing importance of electronic commerce over the Internet, SIA believes that the United States should continue its leadership in this area, and—in

addition to encouraging permanent implementation of duty-free treatment—should

urge WTO members to commit to tax-free treatment of electronic transactions.

3. Services: Distribution. The ability of U.S. firms to import, export and distribute

goods in foreign markets is essential for ensuring true market access. Foreign government measures that force U.S. producers to sell through local distributors can

add significant cost and adversely affect service, inventory, and delivery. The inability to deal directly with end-users is a particular problem in the semiconductor industry, where the design and development of application-specific chips requires extensive contact between semiconductor producers and the ultimate end-users of the

chips.

Therefore, as part of any new negotiations relating to services, the United States

should seek commitments from all WTO members to permit companies of other

WTO members to engage in distribution services without restriction. Especially in

countries in the process of transitioning from centrally-planned to market-oriented

economies, numerous restrictions on the ability of U.S. semiconductor firms exist.

Similar commitments should be insisted upon with respect to all newly-acceding

WTO members. In fact, such commitments should be considered to be a fundamental obligation of WTO membership.

4. Investment Rules. The freedom to engage in direct investment is critical to market access in many sectors and particularly for the semiconductor industry. Unfortunately, existing rules on Trade-Related Investment Measures (TRIMs) do not adeVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00101 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
98

quately discipline many of the restrictions placed on investment in various countries. U.S. semiconductor manufacturers frequently must grapple with policies (both

official and unpublished ‘‘administrative guidance’’) restricting foreign ownership,

including pressure to enter into joint venture agreements with local firms. These restrictions may be imposed not only as strict legal obligations, but also as quid-proquos for decisions by government officials at both the national and sub-national

level. Regardless of their form, these measures are often used as levers to obtain

transfer of technology from foreign firms.

These measures can have a real and significant competitive impact on U.S. electronics firms, as advanced technology is often the key to competitive success. To the

extent that our trading partners can maintain such measures, U.S. exports in the

electronics sector, such as semiconductors, may be restricted. Moreover, such investment restrictions have a negative effect on the country imposing them, as they discourage the investment necessary to develop a local electronics industry on a commercially sound basis.

Improving and expanding WTO rules on TRIMs therefore should be a part of any

ongoing WTO negotiations, and should include strengthened provisions prohibiting

WTO members from imposing investment restrictions—especially those which require a foreign enterprise to invest, enter into any form of joint venture arrangement with a domestic entity or to transfer any technology or intellectual property

to a domestic entity. These strengthened provisions should also encompass measures

which are mandatory or enforceable under domestic law or under administrative

rulings, or compliance with which is necessary to obtain any approval or advantage.

5. Trade and Competition Policy. Any ongoing work in the WTO on trade and

competition policy should be focused on discouraging anticompetitive practices by

and among firms, rather than—as some other WTO members have suggested—on

reopening the WTO Agreement on Antidumping. If the WTO determines to continue

work in this area—and it is properly focused on disciplining anticompetitive practices—SIA believes that attention should be given to the potential for anticompetitive purchasing arrangements by state-invested enterprises.

State-invested enterprises—enterprises wholly or partially owned by central, provincial or local governments—can seriously interfere with competition in the markets in which they operate. Unfortunately, current WTO rules in this area are inadequate. The WTO’s principal tool for addressing distortions in trade that arise from

state-invested enterprises—Article XVII of the General Agreement on Tariffs and

Trade—does not effectively cover the purchasing decisions of state-invested commercial enterprises. In addition, such enterprises are not covered by the WTO Government Procurement Code because their purchases are for the purpose of manufacturing commercial goods rather than for government use.

State-invested enterprises are particularly active in the electronics sector in many

countries, and frequently control a significant share of the imports and exports of

electronics goods. As a result, there is a significant risk that other state-invested

enterprises will be encouraged by government officials to purchase semiconductors

from other state-invested or domestic suppliers. Such discrimination could obviously

have a very negative effect on U.S. semiconductor sales.

Given the development of potentially strong state-invested electronics sectors—

containing both semiconductor producers and consumers—and the inadequacy of Article XVII, the SIA urges stronger WTO rules that include affirmative obligations

on the part of all WTO members to:

(1) ensure that state-invested enterprises (including partially state-invested and

recently privatized enterprises that were formerly state-invested) make purchases

on the basis of commercial considerations; and

(2) afford the enterprises of other WTO members adequate opportunity, in accordance with customary business practices in market economies, to compete for sales

to state-invested enterprises.

The SIA also believes that WTO members should be required to refrain from taking any measure, including administrative guidance, to influence or direct state-invested enterprises as to the quantity, value, or country of origin of goods purchased

or sold, or otherwise impair the purchase or sale of goods. In addition, the WTO

should review on a regular basis whether state-invested enterprises are in fact making purchases on the basis of commercial considerations.

6. Rules of Origin Harmonization. In the Uruguay Round, WTO members agreed

to pursue international harmonization of rules of origin based on the substantial

transformation standard. The WTO Agreement on Rules of Origin (ARO) applies to

all origin rules used in non-preferential trade applications, from collection of trade

statistics to product marking to antidumping and countervailing duty measures. SIA

believes this work program should be reviewed to ensure that it does not undermine

the effectiveness of the U.S. antidumping law.

99

Under existing U.S. practice for determining origin, semiconductors that are fabricated in one country but assembled in another country are treated differently for

general trade purposes (such as for customs purposes) than they are for purposes

of administering antidumping measures. The treatment of semiconductors in a general trade context is determined by rules of origin, which base a semiconductor’s origin on the country where final assembly takes place. Antidumping investigations,

on the other hand, employ fact-specific criteria to determine that a semiconductor

is ‘‘from’’ the country of wafer fabrication (also known as diffusion). This is because

a final assembly standard would allow exporters subject to antidumping orders to

evade those orders by simply changing the country of final assembly—a relatively

simple and inexpensive change in the semiconductor industry.

Ongoing WTO efforts to harmonize rules of origin, however, may require the U.S.

Government to change its current practice, so that it would no longer be able to employ these differing approaches. This requires the establishment of new rules of origin for semiconductors that will ensure that antidumping orders on semiconductors

can continue to be effectively enforced. In the absence of ‘‘decoupling’’ as proposed

below, only a rule of origin based on diffusion would ensure that antidumping orders

on semiconductors can continue to be effectively enforced.

SIA believes that fact-based scope determinations for antidumping purposes

should be decoupled from general purpose rules of origin. While the WTO origin

harmonization exercise must result in origin rules that facilitate international trade

through easy-to-administer and consistently-applied criteria—it is equally important

that the origin harmonization exercise not disrupt the existing ability of governments to administer antidumping and countervailing duty orders.

To address this potential problem, some countries have proposed content-based origin rules for electronics products to ensure that their ability to impose antidumping

or countervailing duty measures is not restricted. The European Union, for example,

has proposed a 45 percent value-add origin rule for all electronics products, even

through such a rule could pose an obstacle to the free flow of trade in electronics

goods.

To prevent WTO adoption of onerous origin rules while at the same time ensuring

the effective administration of antidumping and countervailing duty measures, SIA

believes that WTO negotiators must pursue a ‘‘decoupling’’ approach that would

allow administering authorities in antidumping and countervailing duty cases to use

fact-based criteria other than rules of origin in determining the scope of antidumping and countervailing duty measures. In turn, this would permit the WTO to

adopt internationally harmonized rules for general trade that are different from,

and not based upon, the standards used to administer antidumping and countervailing duty measures. This would also allow the harmonization of general purpose

rules of origin in a manner that will facilitate, rather than encumber, trade, while

also preserving an effective antidumping and countervailing duty remedy for all

products.

B. Issues that Should Not be on the Agenda for the New Round: The WTO Antidumping Agreement

SIA supports the maintenance of a strong and effective antidumping remedy as

a critical component of the international trading system. The antidumping remedy

is especially important with respect to the semiconductor industry given the history

of injurious dumping in our sector.

The WTO Antidumping Agreement permits WTO members to take remedial action against dumped imports, and prescribes international rules for the conduct of

antidumping actions. These international antidumping rules were substantially revised in the Uruguay Round negotiations, which concluded in 1994. These revisions

in the WTO rules required implementation in national legislation and regulations,

which were only fully adopted in the United States last year.

The Uruguay Round changes in the antidumping rules resulted in a number of

new requirements, including special adjustments for calculating costs of products in

the ‘‘start-up’’ phase of production, a review of antidumping measures after five

years of being in effect, and higher de minimis thresholds for margins in antidumping investigations. All of these changes have made it more difficult for injured

industries to obtain relief under the antidumping law, and the full consequences of

these revisions have not yet been fully assessed.

Given the relatively short amount of time that has passed since these recent substantial changes to antidumping rules in the Uruguay Round, it would be inappropriate at this time to launch a new international negotiation of an antidumping

agreement. SIA therefore would strongly oppose new negotiations in this area as

part of the WTO agenda.

100

III. CHINA WTO ACCESSION NEGOTIATIONS

SIA strongly supports China’s bid to join the World Trade Organization (WTO),

but only if that accession is accomplished on a commercially viable basis. The WTO

accession negotiations provide the best means to obtain the fundamental structural

reforms in China’s economic and trade system necessary to ensure effective market

access for foreign goods in China. In this regard, SIA has a number of specific concerns about trade and investment in China which we believe should be addressed

in any agreement to admit China to WTO membership:

Elimination of Tariffs. China currently imposes tariffs of 6–10% on imported

semiconductors. These tariffs present a significant obstacle to U.S. exports to China.

President Jiang Zemin pledged last October that China would join the Information

Technology Agreement (ITA) ‘‘as soon as possible.’’ Unfortunately, to date there has

been little progress on negotiating a specific Chinese tariff phase-out schedule to implement this commitment. Semiconductor tariff elimination is in China’s interest because it would permit admission of the Chinese semiconductor industry into the

World Semiconductor Council (WSC). The WSC was created by the 1996 U.S.-Japan

Semiconductor Agreement, and is open to semiconductor industry associations from

countries and regions that have eliminated, or agreed to eliminate expeditiously,

tariffs on semiconductors.

Purchasing by State-Invested Enterprises. State-invested enterprises control a significant share of the trade in electronics goods into and out of China. As a result

of this active government role in the electronics sector, there is a significant risk

that, as Chinese semiconductor production increases both in volume and quality,

other state-invested enterprises will be encouraged by Chinese officials to purchase

from domestic suppliers. Such discrimination could significantly burden or restrict

U.S. semiconductor sales in China in the future. Given the potential long-term significance of state-invested enterprises in the Chinese electronics sector, China’s protocol of accession should include an affirmative obligation on the part of the Chinese

Government to ensure that its state-invested enterprises make purchases on the

basis of commercial considerations.

Elimination of Investment Restrictions. Chinese foreign investment restrictions,

including restrictions on 100 percent foreign ownership, export targets and local

content requirements are often imposed as quid-pro-quos for decisions by government officials at both the national and sub-national level. For high tech industries

like semiconductors, these measures are often used as levers to obtain transfer of

technology from foreign firms. China’s protocol of accession should include an explicit provision requiring China to refrain from taking any measure which requires

a foreign enterprise to invest, enter into any form of joint venture arrangement with

a Chinese entity, or to transfer any technology or intellectual property to a domestic

entity, except in accordance with WTO rules.

Trading and Distribution Rights. Chinese restrictions on ‘‘trading rights’’ (the

ability to import and export from China) are significant impediments to U.S. semiconductor firms’ ability to access the Chinese market, and, if not eliminated, may

undermine the benefit of other trade liberalization measures agreed to by China.

Equally important as the right to import is the right to distribute goods within

China and provide after-sales service for those goods. The current system forces U.S.

producers to sell through Chinese distributors and provide after-sales service

through a domestic Chinese entity. The inability to deal directly with end-users is

a particular problem in the semiconductor industry, where the design and development of application specific chips requires extensive contact between semiconductor

producers and the ultimate end-users of the chips.

Protection of Intellectual Property Rights. China has enacted patent, copyright,

and trademark laws, but their credibility requires strengthened enforcement. While

there has been no piracy of semiconductor intellectual property to date, China’s level

of technological development does not yet permit it to manufacture advanced U.S.

products or misappropriate U.S. chip designs. However, China’s capabilities in the

semiconductor sector are rapidly advancing. Therefore, China’s protocol of accession

to the WTO should commit China to abide by the obligations of the WTO Agreement

on Trade-Related Intellectual Property Rights, without any transition period before

the obligations are enforceable.

Non-Market Economy Antidumping Rules. Chinese officials have cited the use of

the U.S. antidumping law against Chinese exports as a ‘‘trade barrier’’ they wish

to see removed in the WTO accession negotiations. In particular, China is seeking

to eliminate application of the non-market economy (NME) provisions of the U.S.

antidumping law to Chinese exports, on the grounds that China is now a market

economy. Without the NME provisions of the antidumping law in effect, Chinese

state-invested enterprises could in the future make significant below-cost sales of

101

semiconductors in international trade, adversely affecting the U.S. semiconductor

industry. A provision therefore should be included in China’s WTO protocol of accession to permit the United States to continue to apply the NME provisions of the

antidumping law to China. The current draft protocol includes proposed text to this

effect, but it has not been agreed to by China.

IV. NEGOTIATIONS ON THE FREE TRADE AREA OF THE AMERICAS (FTAA)

As noted above, one of the significant successes of U.S. trade policy in recent

years is the Information Technology Agreement (ITA). At the urging of the worldwide information technology industry, the United States and 43 other countries

have agreed through the ITA to eliminate tariffs on semiconductors and other information technology products in these countries by the year 2000. The ITA, which was

negotiated under the auspices of the World Trade Organization, represents a landmark achievement in the development of global free trade. It has dramatically spedup the process of eliminating tariffs on information technology products by scheduling complete elimination for over 92 percent of world information technology trade

by 2000 and establishing procedures for eliminating tariffs on additional products.

Despite its tremendous accomplishments, the ITA has some weaknesses—for example, only two countries in Latin America have signed onto this important agreement: Panama and Costa Rica. Thus, elimination of Latin American tariffs on semiconductors remains an important item of unfinished business for U.S. trade policy.

Currently, tariffs on semiconductors in such key markets as Brazil, Argentina,

and Venezuela, remain very high—with bound rates generally around 35 percent.

Such high tariffs pose a significant barrier to U.S. semiconductor exports and also

inhibit the development of information technology industries in these countries.

Elimination of these tariffs will spur development of competitive electronics industries in Latin America, as it has in other nations. It will allow U.S. producers to

sell advanced semiconductors to their Latin American customers at the lowest possible price, thereby both increasing U.S. exports and strengthening developing Latin

American electronics industries.

The benefit to Latin American countries of semiconductor tariff elimination is

aptly illustrated by comparing developing countries that have pursued a high tariff

strategy with those that have pursued a low tariff strategy for electronics. Looking

around the world, those developing areas with low or no duties on electronics components and systems over the past two decades (Hong Kong, Taiwan, Singapore)

have been successful in developing strong, dynamic information technology industries. Meanwhile, those developing areas with high duties (Latin America, India)

have not been successful in developing their domestic electronics industries.

Elimination of Latin American tariffs in semiconductors and other electronics

goods would go a long way assisting the countries of Latin America in developing

their own competitive industries. Joining the ITA would be the quickest way to accomplish this important reform. The FTAA provides another effective mechanism for

reducing Latin American tariffs. While scheduled to be concluded no later than

2005, the FTAA calls for, among other things, the progressive elimination of tariffs

and concrete progress toward achieving the agreement’s objectives by 2000.

The SIA believes that one important way to demonstrate ‘‘concrete progress’’ in

the information technology sector is for the countries of Latin America to join the

ITA now, and agree to eliminate their information technology tariffs by 2000. Joining the ITA would not only allow the countries of Latin America to demonstrate

their commitment to the FTAA process and enjoy the benefits of free trade more

quickly, but would also demonstrate how the FTAA can support the WTO system,

ensuring that regional trade liberalization would not proceed at the expense of cooperation with the broader world trading system. In fact, the business forum that

preceded the most recent FTAA Ministerial meeting in San Jose, Costa Rica, explicitly endorsed immediate adoption of the ITA by Latin American countries. In addition, APEC’s adoption of the ITA provides a precedent for immediate adoption of the

ITA as a means to build momentum for a larger free trade region.

The SIA believes that the United States should make near-term Latin American

participation in the ITA a key element of its overall negotiating strategy for the

FTAA. In addition, as the FTAA negotiations go forward, we urge that the United

States press for strong provisions in the FTAA on protection of intellectual property

rights, removal of barriers to foreign direct investment (including forced technology

transfer requirements) and maintenance of strong and effective antidumping remedies.

102

V. FAST TRACK

In addition, I would like to emphasize in the context of both the new WTO Round

and the FTAA negotiations that the SIA strongly believes that fast track negotiating

authority is crucial to reducing trade barriers that impede the development and

growth of high-value-added U.S. industries such as the semiconductor industry. In

addition to reducing tariffs around the world, U.S. trade policy must continue to be

focused on eliminating non-tariff barriers. Fast track legislation is essential to U.S.

efforts to reduce complex non-tariff barriers that remain as significant obstacles to

our exports in many countries around the world. We therefore urge the Congress

and the Administration to work together to enact bipartisan fast track legislation

at the earliest possible opportunity.

VI. CONCLUSION

The SIA welcomes this opportunity to present its views on the importance of active U.S. involvement in upcoming trade negotiations at the WTO and in the context

of the proposed FTAA. U.S. leadership on the trade issues discussed above is critical

to the continued health and growth of the U.S. semiconductor industry.

Brotherhood of Carpenters and Joiners of America, Portland, OR

Statement of Michael V. Draper, Regional Vice-President, United

f On behalf of the United Brotherhood of Carpenters and Joiners of America, I

would like to thank the U.S. House of Representatives Ways and Means Committee’s Subcommittee on Trade for the opportunity to share our thoughts on international trade policy in the global market.

As a Regional Vice-President, I represent carpenters, lumber and sawmill workers, and pulp and paperworkers in the western United States. As construction workers, we literally build America, from skyscrapers to office buildings, from schools to

the homes where our families reside. As forest product workers, we produce the raw

materials and paper products offices around the globe used daily. While our industry adjusts to the grim reality of foreign competitiveness, our members are increasingly concerned with our ability to compete in international markets.

Over the last several decades, the U.S. economy has experienced rapidly increasing flows of international capital, goods and services. While trade and the movement

of capital across borders can bring many economic and social benefits, American

workers are the first to feel the adverse effects from unfair trade policies. In recent

years, United States’ trade agreements have been accompanied by rising trade deficits, the loss of good jobs in the manufacturing sector, stagnating or falling wages

for the majority of the workforce and decreasing job security. While working Americans support free trade and the global economy, international agreements must be

drafted in a fair and equitable manner and include provisions that will protect our

industries and our jobs.

Today, our industry has found itself at a competitive disadvantage in international markets due to restraints on timber supply, environmental regulations and

restrictions on market access around the globe. The Carpenters Union is increasingly concerned with bilateral trade imbalances and the ongoing cooperative agreements between the United States and Asia, including the Asia-Pacific Economic Cooperation negotiations. Asian companies rank among our largest competitors in the

forest products industry. Many of these companies are growing vigorously. Much of

that growth is occurring right here in the U.S. market, while our own exports to

Asia are shrinking dramatically. As America’s trade deficit reaches all time highs,

and Asia’s steep recessions cut into American exports, the weaker currencies have

made Asian goods more attractive to U.S. buyers.

Our industry is facing a barrage of foreign imports from competitors who are

‘‘dumping’’ resources into American markets in order to ease their economic woes.

A flood of foreign wood, much of which has been illegally dumped into the American

market, is threatening the jobs of hundreds of thousands of forest product workers.

A formidable arsenal of trade barriers including tariffs, restrict U.S. companies

from fair competition in Asian markets. While some Asian nations place tariffs as

high as 40% on paper products and 45% on wood products, U.S. tariffs on those

goods are at or near zero. Trade reform is crucial. Fair and open access to Asian

markets is vital to preserve the livelihoods of the 1.6 million men and women working in the wood and paper products industry throughout the United States.

Forest product exports have fallen drastically due to Japan’s refusal to lift the

barriers. Asian countries have been some of our best importers and constitute the

103

world’s fastest-growing markets for wood and paper products. In 1997, the region

accounted for 40% of U.S. exports of wood and paper products. In the first ten

months of 1998, the value of U.S. wood product exports to the Far East were down

40% from 1997. Paper and paperboard exports were off by 19%, while imports increased 74%. And during the first quarter of 1998, newsprint exports were down

25%, with imports skyrocketing by an alarming 700%. These imbalances are among

the chief reasons why America’s forest products industry has lost 80,000 jobs over

the last decade.

The Carpenter’s Union applauds the Clinton Administration’s efforts during

APEC negotiations to eliminate wood tariffs, but Japanese negotiators still refuse

to cooperate. The United States must stand firm and continue to demand tariff reductions. We cannot afford to trade our interests away. The livelihoods of American

workers are non-negotiable.

The Carpenters Union is increasingly concerned with the direction of the APEC

treaty and future tariff initatives. We need to construct and enforce international

rules that encourage the best kind of competition. Americans cannot compete if the

rules of international trade are unfair or if our trade laws are being violated without

sanctions. We need to outline our priorities during trade negotiations and elevate

the importance of U.S. industry and our workers.

Working Americans built this country into what it is today. We are highly competitive and want to compete in the global market, but the same rules must apply

to all players. Our economy is strong and the demand for our products, high. Let’s

create an even playing field for Americans, so we can sell our products around the

globe and bring home the benefits to our nation, our home town communities and

our workers.

The U.S. Chamber of Commerce appreciates this opportunity to present its views

Statement of the U.S. Chamber of Commerce

f on the importance of trade negotiations in fighting foreign protectionism. Our country has made fighting foreign protectionism a priority for decades. Ever since the

Great Depression, presidents of both parties have made it our business to try to remove foreign trade barriers so companies and workers like ours would have a better

shot at success.

But congressional defeat of fast-track legislation last September represented a significant setback. It served to underscore the fact that, in recent years, the principal

U.S. tendency on foreign economic policy has been to restrain or resist U.S. participation and integration into international commerce. For example, in its August 1998

report on unilateral economic sanctions, the U.S. International Trade Commission

noted forty-two separate U.S. laws that authorize economic sanctions for various

purposes. But by rejecting renewal of fast-track for the first time since its inception

in 1974, Congress deprived our trade negotiators of the single most important tool

they need to continue their market-opening efforts.

Maintenance of normal trade relations with China—the world’s largest nation and

one of its fastest growing economies—remains on a year-to-year footing. And in the

face of continuing economic and financial crises that have already begun to spread

from Asia to other regions, the U.S. remains reluctant—at best—to exercise the

leadership that is expected of it in the International Monetary Fund and other

international institutions.

As the world changes, continuing U.S. engagement is becoming more important

to the national interest, not less. New players are emerging on economic and political fronts. Economic issues are increasingly recognized as important at home and

abroad as trade’s share of national output grows. Economic and trade ‘‘blocs’’ such

as the North American Free Trade Agreement (NAFTA), the European Union, the

Asia-Pacific Economic Cooperation area (APEC), Mercosur, and others continue to

gain prominence.

The United States must either resume its leadership soon or abdicate to others.

Trade’s importance to the U.S. economy has grown enormously since 1959. The

share of U.S. output purchased by foreigners has grown almost three-fold since

then—as has the share of U.S. income used to purchase foreign goods and services.

Over 95% of the world’s population live outside of the United States. It should make

common sense not only to trade with them, but also to work with other nations to

solve international crises and promote expanding trade and sustained economic

growth.

Accordingly, our continuing struggle against foreign protectionism requires that

we pursue both a regional and multilateral agenda for commerce abroad and a legisVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00107 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
104

lative agenda in the U.S. Congress which advances our interests in all of the world’s

major trading regions. But such leadership can be resumed only if certain fundamentals are attended to:

• The United States must resume its place at the trade agreement negotiating

table so that markets can be further opened to U.S. business. This means providing

U.S. negotiators with the tools they need to close deals and bring them home for

expedited consideration by the Congress. Without such tools, other nations will continue to initiate negotiations and conclude agreements which establish preferential

terms for our competitors, to the disadvantage of U.S. interests. For this reason, approval of ‘‘fast track’’ trade negotiating authority should rank at the top of the nation’s international economic and business agenda for 1999.

• The United States must cease its continuing reliance on unilateral economic

sanctions and Cold War-era controls on exports of widely available goods as foreign

policy tools. History demonstrates that the primary result of such sanctions and export controls is to inflict economic injury on U.S. businesses and their workers while

at the same time strengthening—rather than weakening—the intended targets of

the sanctions and controls. But even more damaging in the long run, such sanctions

and controls cast a lingering pall of unreliability over U.S. companies whose competitiveness is subordinated to often vague and counterproductive U.S. policy proclamations.

• The United States must meet fully its obligations to international financial institutions (IFIs) on which it must depend for stabilizing and growth-enhancing influence in the global economy. IFIs such as the International Monetary Fund are the

only mechanisms through which global financial and economic crises can be effectively managed by several nations in a coordinated, complementary fashion. Similarly, the United States must provide sufficient financial resources for domestic U.S.

trade development institutions (e.g., Eximbank, OPIC, Trade and Development

Agency) that meet financing, insurance and other needs that are not fulfilled by the

U.S. private sector. At the same time, the U.S. must work to ensure that these institutions are structured and directed to meet carefully defined objectives that are consistent with their overall missions. Care should be taken to prevent enactment or

implementation of policies that might undermine, distract from or conflict with

these institutions’ missions.

• The United States must recognize the importance of maintaining viable trade

remedy laws that are designed to eliminate, offset or obtain compensation for unfair

trade practices or violations of international trade agreements by our competitors.

Such remedies are necessary to enhance U.S. negotiators’ leverage and credibility.

They will also help instill public confidence in the system, so that a political mandate for future trade negotiations can develop. This will be easier to accomplish if

appropriate checks and balances are effective.

• The United States must find a basis for addressing substantive labor and environmental concerns without holding U.S. competitiveness hostage to special interest

efforts to achieve extraterritorial application of policy objectives that are not relevant to international commerce.

U.S. REGIONAL INTERESTS AND OBJECTIVES

Fighting foreign protectionism requires that the United States adopt and pursue

clear objectives. Our stake in the world economy and in more open commerce is unmistakable. Reflecting this reality, the United States has properly and wisely engaged in major trade-liberalizing negotiations in at least three major trading areas:

In the Asia-Pacific region, the 18 member economies of the Asia-Pacific Economic

Cooperation (APEC) area represent over half of total world production and almost

half of global trade. Two-thirds of U.S. bilateral trade last year was with APEC

economies, whereas in 1980, APEC accounted for less than half of U.S. trade. In

November 1994, leaders of APEC nations declared their commitment to achieving

‘‘free and open trade’’ in the region by the year 2020 in the case of developing countries and 2010 in the case of developed countries.

The European Union (EU) and the United States are each other’s single largest

trading partner: in 1997 they traded goods worth ECU 277.000 million—around 20%

of world trade in goods. Last September, U.S. and EU negotiators agreed to a draft

action plan on a Transatlantic Economic Partnership (TEP) which envisions negotiations and other forms of cooperation with the United States in many areas of mutual concern. The EU and U.S. have by far the world’s most important bilateral investment relationship, and are each other’s most important source and destination

for foreign direct investment (FDI). The EU is the biggest investor in the U.S., accounting for 59% of total incoming foreign direct investment stock by 1996. At the

105

same time, over half of the foreign direct investment stock in the EU originates in

the United States.

In the Western Hemisphere, regional trade grew 15% in 1997—twice the world

average. Two-thirds of the growth in U.S. exports has been in the Western Hemisphere region. Recognizing this potential, nations throughout the hemisphere are

negotiating with each other and with competitors from Europe and elsewhere to

maximize their potential to capitalize on this trend. In 1994, with U.S. leadership,

most Western Hemisphere nations agreed to pursue a Free Trade Area of the Americas (FTAA) by 2005. But absent effective U.S. participation in FTAA and other regional negotiations, other nations are likely to continue gaining at our expense as

the trade benefits they negotiate with each other are not extended to U.S. products

and services.

NEGOTIATING OBJECTIVES

The United States must continue to promote its economic interests regionally and

worldwide through an aggressive negotiating agenda worldwide that can be summarized as follows: • Faster elimination of tariff and nontariff restrictions on trade in manufactured

goods, agriculture and services, • Fewer investment restrictions, • Improved intellectual property protection, • More transparent and consistent regulations, standards and government procurement policies and practices, • Modernized and simplified customs networks and procedures, • Facilitation of electronic commerce, and • Elimination of corrupt business practices.

NEGOTIATING ‘‘RULES OF THUMB’’

While specific details will vary from region to region, certain generic rules of

thumb should apply to our trade-liberalizing efforts: • As noted above, negotiators must target specific barriers and obtain remedies

which will bring concrete benefits to business and consumers. • Agreements in each area should be announced and implemented ‘‘as concluded’’

and not be held hostage to completion of all other agreements.

• U.S. and other negotiators should cooperate closely whenever possible to extend

bilateral agreements to the multilateral trading system.

As U.S. negotiators prepare for a third World Trade Organization (WTO) ministerial meeting in Seattle in November and December, they will need to focus on:

• implementation of existing agreements and work plans as formulated in the

Uruguay Round Agreements.

• negotiation of new agreements in areas not fully addressed in the Uruguay

Round Agreements, e.g., services, government procurement, subsidies, agriculture,

competition policy and intellectual property.

• criteria for integration of the least-developed (especially poor) countries, taking

into account special trade treatment their economic circumstances may justify.

U.S. CONGRESSIONAL OBJECTIVES

In November 1998, the U.S. Chamber’s Board of Directors promulgated a detailed

set of legislative recommendations that it believes would bolster our ability to fight

protectionism and otherwise achieve our objectives in world markets. All of them

are important for various reasons. But Congress can assist our trade negotiators

most directly in our battle against protectionism by taking positive action to:

Renew fast-track trade negotiating authority along the lines of legislation approved

in 1997 by the House Ways and Means Committee (H.R. 2621) or the Senate Finance

Committee (S. 1269). Congressional defeat of fast track in September 1998 will result primarily in the continuing surrender of U.S. business and jobs to our competitors in global markets. While those competitors are continuing to negotiate mutually

beneficial agreements unburdened by unilateral efforts to impose a social agenda,

U.S. trade negotiators are unable to participate meaningfully without fast track.

U.S. absence from the negotiating tables will result in growing disadvantages for

U.S. firms and their workers arising from trade preferences obtained by our competitors.

Renew China’s ‘‘normal trade relations’’ (NTR) status by June 1999. The United

States provides such treatment (previously mis-labeled ‘‘most-favored-nation’’) to virtually every other trading nation. Indeed, the ‘‘normalcy’’ of this relationship is tautological, as it is characteristic of trade relations between virtually all trading naVerDate 20-JUL-2000 16:09 Dec 19, 2000 Jkt 060010 PO 00000 Frm 00109 Fmt 6633 Sfmt 6621 K:\HEARINGS\66807.TXT WAYS1 PsN: WAYS1
106

tions. Ending normal trade relations with China would result in a several-fold increase in tariffs on Chinese products, almost certain retaliation against U.S. products, and new market advantages for our Asian and European competitors.

Make China’s normal trade relations (NTR) status permanent. The annual NTR

(previously known as ‘‘most-favored-nation’’ or MFN) renewal process itself casts a

continuing pall over China-U.S. commercial relations—without regard to the actual

outcome. Historically, pending China-U.S. deals were in effect held up or suspended

for weeks before each MFN vote until it could be confirmed that the vote would be

‘‘positive.’’ U.S. firms’ reputations continue to suffer vis-a`-vis their competition. It

is time to enact such legislation as may be necessary to make permanent that status.

Ensure provision of sufficient financial resources for U.S. trade development programs (e.g., Eximbank, OPIC, Trade and Development Agency) that meet financing,

insurance and other needs that are not fulfilled by the U.S. private sector. Foreign

subsidization of their ‘‘national champions’’ and other trade interests via preferential financing and government ‘‘guidance’’ challenges U.S. interests as much as

traditional trade barriers and restrictions. In a perfect world there would be no such

subsidies. But in the real world, such subsidies abound. Until meaningful, verifiable

action to end such subsidies is taken, we must be prepared to lead the playing field.

Accordingly, the U.S. should (1) provide sufficient funding to these entities to ensure

that they can carry out their missions, (2) ensure that these institutions are structured and directed to meet their defined objectives but not others, and (3) prevent

implementation of policies that might undermine or conflict with the trade development missions of these programs.

Prospectively mandate the application of a series of ‘‘cost-benefit’’ measurements

and evaluations that must be considered in the economic sanctions decision-making

phase and before implementation of such sanctions. How can we persuade our trading partners to open their markets when we impose non-trade-related unilateral

sanctions against them? Such criteria should include: (a) will the sanctions work;

(b) what are the resultant economic costs to U.S. industry and agriculture; (c) will

the sanctions result in a serious backlash against other U.S. humanitarian, security,

and foreign policy objectives; and (d) have other policy alternatives such as multilateral initiatives or diplomacy been tried and failed? In the 105th Congress, H.R. 2708

(Hamilton et al.) and S. 1413 (Lugar et al.), the ‘‘Enhancement of Trade, Security,

and Human Rights through Sanctions Reform Act,’’ were models for legislation that

would achieve these objectives. We expect similar legislation to be re-introduced in

this Congress very soon, if that has not already happened.

Re-establish tariff benefits of the original Caribbean Basin Initiative and provide

Caribbean countries trade benefits similar to those provided Mexico under NAFTA.

Failure to provide those benefits—such as proposed in the last Congress in H.R.

2644 (Crane et al.), the ‘‘United States-Caribbean Trade Partnership Act’’—will encourage new competitive challenges from Far Eastern textile manufacturers, whose

products are subject to far less North American value-added, e.g., cutting, distribution and marketing, than those produced by Caribbean manufacturers.

Enact long-term Generalized System of Preferences (GSP) reauthorization legislation and strictly enforce GSP eligibility criteria. GSP was first enacted in 1974 as

a means to assist developing countries grow through expanded trade as opposed to

aid. In recent years, the consensus for income-based preferential trade treatment

has given way to concerns over the competitive impact in the U.S. market of such

preferences, and GSP has been renewed only for short-term periods and with lapses

in its application that destabilize commercial relationships that depend on the program. While such concerns are legitimate, as long as GSP is an instrument of U.S.

foreign economic policy, the competitiveness of U.S. companies should not be undercut by the lack of clarity and certainty that has already resulted from lapses in the

GSP program.

Æ