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[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

                 FUTURE OF THE WORLD TRADE ORGANIZATION

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 30, 2000

                               __________

                             Serial 106-88

                               __________

         Printed for the use of the Committee on Ways and Means

                    U.S. GOVERNMENT PRINTING OFFICE
67-261 CC                   WASHINGTON : 2001

_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

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.

                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 20, 2000, announcing the hearing...............     2

                               WITNESSES

American Bar Association, Section of International Law and 
  Practice, Peter Lichtenbaum, Liaison to the WTO Secretariat, 
  and Partner, Steptoe and Johnson, LLP..........................    57
Minnesota, State of Hon. Jesse Ventura, Governor.................     7
National Cattlemen's Beef Association, Charles P. Schroeder......    45
U.S. Alliance for Trade Expansion, National Association of 
  Manufacturers, and Purafil, Inc., William Weiller..............    39
U.S. Chamber of Commerce, and Leapfrog Smart Products, Inc., Dale 
  Grogan.........................................................    52
Yeutter, Hon. Clayton, Mogan & Hartson, LLP......................    18

                       SUBMISSIONS FOR THE RECORD

American Forest & Paper Association, statement...................    68
American Iron and Steel Institute, Barry D. Solarz, letter and 
  attachment.....................................................    69
American Textile Manufacturers Institute, statement and 
  attachment.....................................................    75
Griswold, Daniel T., CATO Institute, statement and attachments...    79
Luggage and Leather Goods Manufacturers of America, Inc., New 
  York, NY, statement............................................    90
Panda Energy International, Inc., Dallas, TX, Darol Lindloff, 
  statement......................................................    91
Pharmaceutical Research and Manufacturers of America, statement..    94
Semiconductor Industry Association, George Scalise, statement....    99
U.S. Integrated Carbon Steel Producers, statement................   104
U.S. Wheat Associates, Wheat Export Trade Education Committee, 
  Christopher Shaffer, and National Association of Wheat Growers, 
  Terry Detrick, joint letter....................................   108

 
                 FUTURE OF THE WORLD TRADE ORGANIZATION

                              ----------                              

                        THURSDAY, MARCH 30, 2000

                          House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 11:28 a.m., in room 
1100, Longworth House Office Building, Honorable Bill Archer 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE

March 20, 2000

FC-19

 Archer Announces Hearing on the Future of the World Trade Organization

    Congressman Bill Archer (R-TX), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing to 
review future prospects for U.S. participation in the World Trade 
Organization (WTO), particularly in light of the expected accession of 
China and Taiwan to the WTO later this year. The hearing will take 
place on Thursday, March 30, 2000, in the main Committee hearing room, 
1100 Longworth House Office Building, beginning at 11:00 a.m.
      
    Oral testimony at this hearing will be from both invited and public 
witnesses. Invited witnesses will include Minnesota Governor Jesse 
Ventura. Also, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee or for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Uruguay Round was the eighth round or series of multilateral 
trade negotiations under the General Agreement on Tariffs and Trade 
(GATT). These negotiations to expand trade, which date back to the 
establishment of the GATT in 1948, were a response to the Great 
Depression and the political upheaval and conflicts of the 1930s, which 
deepened as a result of protectionist policies such as the Smoot-Hawley 
Tariff. Work under the GATT system aimed at raising living standards 
and promoting international economic growth through the opening of 
world markets has spanned six decades.
      
    The trade 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 
multilateral trade round was to establish the WTO to administer the 
GATT agreements and to settle disputes among WTO members.
      
    Sections 124-125 of the Uruguay Round Agreements Act (URAA) (P.L. 
103-465) require the President to submit a special report on U.S. 
participation in the WTO every five years from the date the United 
States first joined the WTO. Congress received the first of these five-
year reports on March 2, 2000. Included in the ``2000 Trade Policy 
Agenda and 1999 Annual Report of the President's Trade Agreements 
Program'' is the President's review of the WTO, including highlights 
and accomplishments that took place during the last five years such as: 
(1) expanded market access, (2) intellectual property rights 
protection, (3) a sound and effective system to settle disputes, (4) 
expansion of the rule of law, (5) historic agreements governing 
financial services, basic telecommunications services, and information 
technology, (6) progress on the so-called ``built-in'' agenda to 
continue to liberalize agriculture and services, (7) progress on 
negotiations on electronic commerce, (8) growing membership from 119 
nations in 1995 to 135 in 1999, and (9) the anticipated accession of 
China and Taiwan, two countries comprising over 21 percent of the 
world's population.
      
    Issues related to the future operation of the WTO include: moving 
forward with the built-in agenda on agriculture and services, and 
addressing new issues such as biotechnology, electronic commerce, trade 
and labor, and trade and environmental protection.
      
    H. J. Res. 90, a joint resolution which would withdraw approval of 
the United States from the Agreement establishing the WTO, was 
introduced March 6, 2000, by Rep. Ron Paul (R-TX) and others and will 
be considered by the Committee on Ways and Means within 45 session days 
pursuant to the requirements of sections 124-125. On March 8, 2000, the 
President submitted legislation to amend the so-called ``Jackson-
Vanik'' amendment to the Trade Act of 1974 to grant China Permanent 
Normal Trade Relations treatment, so that U.S. firms, workers, and 
farmers can take advantage of the trade concessions associated with 
China's agreement to join the WTO.
      
    In announcing the hearing, Chairman Archer stated: ``Although the 
recent breakdown at the WTO meeting in Seattle was a missed opportunity 
to kick-off a new round of trade talks to further reduce barriers to 
U.S. exports, there have never been more compelling reasons for the 
United States to continue to have a seat at the table of international 
trade. For decades, the WTO, and the GATT system before it, have stood 
guard over the integrity of trade rules, allowing American-made goods 
and services to compete in virtually every corner of the world and 
leading to the prosperity we enjoy today. As China prepares to enter 
the WTO, American farmers, workers and businesses are once again 
prepared to compete and win in the international marketplace. We must 
not miss this historic opportunity.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing will be to examine: (1) overall results of 
U.S. membership in the WTO and the GATT, (2) whether future 
participation of the United States in the WTO and the multilateral 
trading system can be expected to benefit Americans, and (3) prospects 
for increased economic opportunities for U.S. farmers and workers 
associated with Chinese membership in the WTO and the normalization of 
trade relations between the United States and China.
      

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, March 23, 2000. 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 Committee 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 Committee staff at (202) 
225-1721.
      
    In view of the limited time available to hear witnesses, the 
Committee may not be able to accommodate all requests to be heard.
      
    Those persons and organizations not scheduled for an oral 
appearance are encouraged to submit written statements for the record 
of the hearing. All persons requesting to be heard, whether they are 
scheduled for oral testimony or not, will be notified as soon as 
possible after the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies, along with 
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, 
of their prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the Committee office, room 1102 Longworth 
House Office Building, no later than Tuesday, March 28, 2000. Failure 
to do so may result in the witness being denied the opportunity to 
testify in person.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
April 13, 2000, 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 Committee office, room 1102 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 or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `http://www.house.gov.ways__means/'.
      

    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.
      

                                

    Chairman Archer. Good morning. Today the Committee 
continues its review of what international trade means in the 
everyday lives of farmers, workers, and businesses of this 
country. The WTO manages a system of world trade rules.
    Established in 1994, but built on 50 years of experience 
under the GATT agreements, the WTO structure of fair trade 
rules was shaped by ten American presidents working in 
bipartisan agreement with Congress. Put simply, these are our 
rules and our trading partners must follow them.
    But let us pause for a moment and try to imagine what it 
would be like if the U.S. was no longer a member of the World 
Trade Organization. A U.S. without trade would be a nation with 
12 million less jobs and millions more displaced or laid off. 
Small- and medium-sized business, the engines of our economy 
that generate 97 percent of all U.S.-based exports would be 
crippled if America did not compete in the global marketplace. 
One out of every 3 acres farmed would be lost. Families would 
be hit with even higher taxes, already a post-war high, and 
lose as much as $3,000 each year in purchasing power.
    As I said 2 weeks ago, the President should schedule very 
soon a national television address about this issue. He did so 
on Haiti, Bosnia, Iraq, and Kosovo. Clearly, our relationship 
with China is equally valuable to America. We have checked with 
the national networks and they tell us they have never turned 
down a request by the President to speak to the American 
people. So I hope the President will reconsider this. He can do 
this because, without his active leadership, our historic 
opportunity may be lost and the American people will suffer.
    But today, we are going to do our bit and we have a 
national spokesman who is with us who will speak on this issue. 
And for his introduction, I yield to my colleague and friend 
from Minnesota, Congressman Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman. And thank your for 
your strong and important leadership on these trade issues. Mr. 
Chairman, and Members of the Committee, it is a real privilege 
to introduce my good friend of 22 years, the Governor of the 
great State of Minnesota, to the Committee today.
    I used to say in my younger years that Hubert Humphrey was 
the greatest salesman Minnesota has ever had. Well, at the 
time, that was right. But our current Governor has replaced the 
late Vice President Humphrey as Minnesota's top salesman. There 
is no better person to give the Minnesota perspective on 
international trade than our top salesman, Governor Ventura. 
And I am very pleased to have Governor Ventura as a partner in 
this tripartisan effort to shape our Nation's trade policies.
    Mr. Chairman, in Minnesota, bipartisan is no longer part of 
the vocabulary. It is tripartisan. Governor Ventura tells our 
story so well because he brings common sense for middle America 
to this highly charged and polarized issue. As the Governor 
will explain today, Minnesota has everything to gain from 
China's accession into the WTO. Minnesota also has a lot to 
lose if Congress does not capitalize on this historic 
opportunity before us.
    Thank you, again, Mr. Chairman, for holding this hearing. 
Thank you, Governor Ventura, for coming here to tell us the 
simple truth about the importance of free and open trade to 
Minnesota and to our Nation. And I also want to welcome our 
Commissioner of Agriculture, Commissioner Hugoson, another 
strong supporter of free trade; Mr. Tom Foley, who is director 
of our Washington office; and John Woodley, the Governor's 
Director of Communications. Thank you also for being here 
today.
    Chairman Archer. Governor, I apologize for keeping you 
waiting, but we had unexpected votes on the floor of the House. 
And it is the tradition of this Committee, I must keep you 
waiting for at least 1 or 2 more minutes, because I am going to 
recognize the minority and Mr. Levin for any opening statement 
that he would like to make.
    Mr. Levin. Thank you, Mr. Chairman. I would like to welcome 
all of our witnesses and thank you all for testifying today. 
And I am particularly pleased to welcome you, Governor----
    Governor Ventura. Thank you.
    Mr. Levin [continuing.]--To this Committee. On many issues, 
you have demonstrated both candor and activism. We need both 
straight talk and activism in our relationship with China. 
Straight talk tells us that China will join the WTO with or 
without our consent. Straight talk tells us that if we do not 
grant China permanent NTR, we will not gain many of the 
economic benefits negotiated in the agreement, while our 
competitors will get all of them.
    Straight talk also tells us that China is an enormous 
country where its markets are still largely under state control 
and the rule of law is in the earliest stages of development. 
Straight talk also tells us that we must find concrete ways to 
press China on human rights, labor rights, and the environment; 
that the annual NTR vote has not been effective in such efforts 
and that we need instrumentalities to do better.
    If we are activists, I believe that we can find a way to 
accomplish both. Gain the benefits of the agreement and keep 
the heat on China on key issues. If we are activists, we, on 
the one hand, will reject the notion that this is a simple win/
win proposition. That all of the benefits flow one way and that 
there will be no downside to an intensified economic 
relationship with China. And on the other, we will reject the 
notion that we should simply turn down PNTR and rely on 
existing bilateral agreements.
    An activist approach means finding multiple new points of 
pressure. As President Clinton said in the State of the Union--
and I quote, ``We need to know that we did everything possible 
to maximize the chance that China will choose the right 
future.''
    To do so, we need a plan of action, and I have suggested 
some specific parts of that. To enact into United States law 
the vital China-specific antisurge provision negotiated last 
November. To set up mechanisms to constantly monitor and 
enforce China's commitments. To press China on human rights and 
labor rights through a permanent, fully staffed congressional 
executive commission. And to intensify efforts to establish a 
working group on labor and press for internal reforms within 
the WTO.
    My visits to China, including this past January, have 
convinced me that change there is irreversible, but its 
direction is not inevitable. No single factor will determine 
that direction. Increased international trade and communication 
can be positive, as you indicate in your testimony, Governor, 
but they need to be buttressed by other internal and external 
forces.
    Our actions concerning trade with China will have major 
significance for America, for the world, into the future. A 
recent World Bank study projects that China could be the second 
largest national economy in the world in just 20 years. If we 
are activists, we will shape our relationship with China to 
maximize the economic benefits and to continue pressure on 
China to implement its agreements and to improve dramatically 
in the areas of human rights, labor standards, and the 
environment.
    We should attempt to do nothing less and I am encouraged 
there now appears to be movement in that direction. Again, 
Governor, welcome, on behalf of all of us.
    Governor Ventura. Thank you.
    Chairman Archer. Governor, we are delighted to have you 
with us today. I watched you on Sunday morning and that 
enhanced my expectations for your presentation today. So 
welcome and you may proceed.

     STATEMENT OF HON. JESSE VENTURA, GOVERNOR OF MINNESOTA

    Governor Ventura. Thank you, Mr. Chairman. Congressman 
Ramstad, thank you, and Members of the Committee, thank you for 
the opportunity to be here today to testify in favor of China's 
participation in the WTO and normal trading relations with 
China. It is a sincere honor to represent the State of 
Minnesota before the Ways and Means Committee.
    That said, let me start by declaring what I am not. I am no 
trade expert. I don't speak Chinese. I have never negotiated an 
international trade deal. They didn't offer international trade 
relations at Roosevelt High School in Minneapolis when I 
graduated in 1969. What I do bring to you today is a dose of 
common sense.
    China's participation in the WTO and a permanent normal 
trade relations between China and the United States is the 
number one marketing opportunity of the 21st century, and it is 
being handed to us on a silver platter.
    To join the WTO, China has made one-way concessions across-
the-board in agriculture, manufactured goods, services, 
technology, and telecommunications. I like the idea of all 
countries playing by the same rules, and I like the idea of 134 
countries joining us to shake one worldwide finger at China if 
they break international trade deals. That is essentially what 
the WTO will allow.
    There is a Chinese saying that says one hand can't block 
the sun. Not my hand. Not the hand of Congress. Not the 
President's hand. China is going to trade in the international 
marketplace with or without our stamp of approval. We alone 
cannot prevent China from entering the WTO and trading with 
everybody else.
    Closed doors don't work. We have tried that. For 45 years 
we have had an embargo to prove that we don't like how Cuba 
does business. Well, the joke is on us. Castro has outlasted 
nine, going on ten, of our Presidents. While embroiling 
ourselves in controversies over little children, communism 
remains. Markets are shut to our agriculture products, and we 
haven't impacted improvements in their human rights. Let's not 
let that happen here.
    I am here to tell you who cares about this China issue in 
Minnesota. Farmers care. Business, both big and small, cares. 
And, finally, a lot of ordinary people with common sense care.
    Farmers care because, as Minnesota's agriculture leaders 
recently told me, this agreement is the single most important 
step we can take to improve market opportunities for 
agriculture. And the farm economy could use a boost right now.
    Farmers want to be self-sufficient. They don't want to rely 
on government subsidies. They want the right to market their 
products and get a fair price and profit. Free trade, more than 
anything else, can do that. It gives them that chance. Being 
handcuffed to government subsidies is prison, not freedom.
    Second, business cares. I talked to the CEO of a Minnesota 
company called Pemstar. I know full well that this town is full 
of people who are glued to these. Well, Pemstar makes these 
panels. Now, every time you make a call, you can think of 
Minnesota.
    Pemstar recently hired 15 to 20 new workers in Minnesota 
just to support their growing operation in China. This deal is 
about forging a relationship that spans the Pacific for the 
good of our economy. It is about individual companies in 
Minnesota and around the Nation who want to export because 
experience tells us that exports make for healthier companies.
    Exporting companies--they grow jobs 20 percent faster than 
those that don't export. They pay higher wages and provide more 
benefits than those that don't export. And they tend to be more 
productive because they are leaner, more innovative, and are 
more technologically advanced. Two hundred and twenty-eight 
Minnesota companies exported to China in 1997. Over half of 
these firms have fewer than 500 employees.
    Finally, why do everyday Americans care about this bold 
move? Because, simply, it makes common sense. Don't sell our 
citizens short. They know that the world is a small place in 
this high-tech world. And they basically want a better life for 
their children. They want their kids to have access to better 
jobs than they have, and they want to see our economy continue 
to grow.
    Improvements in China's economy also makes them a more 
stable part of the international community and opens their 
minds to our free market ideals and democratic values. we don't 
have to approve of their human rights to help improve them. 
Opening their doors to our business practices, our culture, and 
our democratic ideas, will open their process. And when China's 
egg industry can't feed it's people, isn't simple food on the 
table human rights?
    Finally, why should I, as Governor of Minnesota, care about 
this trade agreement? Because Minnesota, ladies and gentlemen, 
is going global. And I don't want protectionist feelings in 
Congress to stand in the way of progress for Minnesota.
    I can't speak for the other States, but I can tell you that 
Minnesota is already a world competitor. Among nations, we 
would rank 28th in economic output if we seceded from the 
Union. We have the guts to compete on the world stage.
    If you don't forge ahead to open China's markets, rest 
assured the window of opportunity will be lost. The Europeans 
would like nothing better than for the U.S. Congress to 
continue fussing over this agreement and I urge you not to let 
that happen. We don't have time to sit here and watch the 
world's partners go on trading without us. I have traveled the 
world in my prior careers, and my trip to Japan, since the 
election, will be followed by a trip to China.
    I have watched the world become smaller over the years and 
I came to this job as Governor of Minnesota determined to leave 
my State positioned to seize the day. Please help me by saying 
yes to China. This is the biggest economic decision of the 21st 
century. Please don't blow it. Thank you.
    [The prepared statement follows:]

Statement of the Hon. Jesse Ventura, Governor of Minnesota

    Congressman Ramstad, Mr. Chairman and Members of the 
Committee, thank you for the opportunity to be here today to 
testify in favor of China's participation in the WTO and 
permanent normal trading relations with China. It is a sincere 
honor to represent the state of Minnesota before the Ways and 
Means Committee.
    That said, let me start by declaring what I am not.
    I'm no trade expert, I don't speak Chinese and I've never 
negotiated an international trade deal. They didn't offer 
international trade relations at Roosevelt High School in 
Minneapolis.
    What I do bring to you today is a dose of common sense.
    China's participation in the WTO and permanent normal trade 
relations between China and the United States is the number one 
marketing opportunity of the 21st Century, and it's being 
handed to us on a silver platter.
    To join the WTO, China has made one-way concessions across 
the board in agriculture, manufactured goods, services, 
technology and telecommunications. I like the idea of all 
countries playing by the same rules, and I like the idea of 134 
countries joining us to shake one world-wide finger at China if 
they break international trade deals. That's essentially what 
the WTO will allow.
    There is a Chinese saying that says ``One hand can't block 
the sun.'' Not my hand. Not the hand of Congress. Not the 
President's hand. China is going to trade in the international 
marketplace with or without our stamp of approval. We alone 
cannot prevent China from entering the WTO and trading with 
everybody else.
    If Congress votes down this agreement, China will still 
enter the WTO, but won't have to live by the rules we've 
negotiated. Obviously, this would put us at a disadvantage and 
would cause our U.S. companies to be treated as second class 
citizens.
    Closed doors don't work. We've tried that. For 45 years 
we've had an embargo to prove that we don't like how Cuba does 
business. Well the joke's on us. Castro has outlasted nine 
going on 10 presidents. While embroiling ourselves in 
controversies over little children, communism remains.
    Markets are shut to our agriculture products, and we 
haven't impacted improvements in human rights.
    Let's not let that happen here. Enough about Cuba--that's 
for another day.
    I'm here to tell you who cares about this China issue in 
Minnesota.

Farmers care. Business--both big and small--care. And, finally, 
a lot of ordinary people with common sense care.

    Farmers care, because as Minnesota's agriculture leaders 
told me, this agreement is the single most important step we 
can take to improve market opportunities for agriculture. And 
the farm economy could use a boost right now.
    Farmers want to be self-sufficient. They don't want to rely 
on government subsidies. They want the right to market their 
products and get a fair price and profit. Free trade, more than 
anything else we can do, gives them that chance.
    Producers are also interested in PNTR for China and China's 
participation in the WTO because they are tired of being the 
pawn in the game of international relations. Time after time, 
U.S. foreign policy negotiates trade deals that are often on 
the backs of America's farmers. Such and such a country does 
something wrong, so our wheat or soybean or corn or livestock 
producers can't export there. This gets old. Here's an 
opportunity to right those wrongs of the past and do something 
positive for American agriculture trade.
    Let me tell you more about Minnesota farmers and their 
common sense thinking on this issue:
    The U.S. Department of Agriculture (USDA) projects that in 
the next century, Asia will account for 75% of the growth in 
U.S. farm exports, 50% of this growth will be to China. China 
has 7 percent of the world's arable land to support 20% of the 
world's population. They need our food.
    Nathan from the Corn Growers--sitting right here in the 
front row--told me that USDA projects China to be a net 
exporter of corn this year. Their high export subsidies allow 
them to offer cheap corn on the international market. This 
agreement will change that. It will allow the U.S. to export 
177 million bushels of corn in the first year and China will 
have to drop export subsidies. Not only will our corn exports 
to China increase, but U.S. corn will be very competitive in 
markets that have been buying subsidized Chinese corn. This 
means about $3 billion to our corn producers. That's not pocket 
change.
    Our pork producers think this is a pretty good deal, too. 
Chinese people consume far more pork than any other country, 
but right now its markets are practically closed. Minnesota 
pork is a highly competitive product, coveted around the world. 
When China joins the WTO, it will lower its tariffs on pork 
from 20 to 12%, with no quantity limits.
    Minnesota is the nation's 3rd largest producer of soybeans, 
and China is the world's largest growth market for soybeans. 
According to the Minnesota Soybean Growers Association, China's 
1.3 billion people have a per capita consumption of only 4.75 
lbs. of soybean oil annually. In Taiwan, the average per capita 
consumption is 47 lbs. If China's consumption were to grow to 
Taiwan's level, it would need almost 6.8 million metric tons 
more. That's equivalent to the oil in almost 105 million metric 
tons (3.86 billion bushels) of soybeans. That's 46% greater 
than the entire U.S. soybean crop in 1999.
    And, the Chinese like to drink beer, and that's a good 
thing for our barley growers. Under this agreement the 30% 
tariff on barley will decrease to 10%. The U.S. Grains Council 
forecasts Chinese imports of malting barley will double to more 
than 91 million bushels in this decade. As the nation's 5th 
largest producer of barley, this market is critical to 
Minnesota.
    And have you ever heard of the Chicken Council? Minnesota 
is the number one turkey producing state in the country and 
China is the United States' largest export market for poultry. 
The Chicken Council and the Turkey Growers think that China 
could easily become a $1 billion market in a few years, if this 
agreement comes to fruition. Right now, poultry must go through 
Hong Kong. After PNTR, direct exports to China will be allowed. 
We grow 180,000 birds per day. Well, Minnesota's producers see 
the benefits of opening a market to one point two billion 
people who eat their product.
    There have also been recent negotiations to open the market 
for fertilizer and I urge the negotiators to resolve this 
fertilizer issue now, so that Minnesota fertilizer companies 
can compete on an open, level playing field in the Chinese 
market.
    There is a multiplier effect for agriculture. Supply and 
demand drives the market. China wants our poultry. We increase 
production of poultry, that in turn increases the demand for 
corn and soybeans to feed those birds. It also increases the 
processing needs here on American soil.
    In summary, agriculture tariffs will be cut in half.

Second--business cares.

    I talked to the CEO of a Minnesota company called Pemstar. 
I know full well that this town is full of people who are glued 
to these phones. Well, Pemstar makes these. Now every time you 
make a call, you can think of Minnesota.
    Pemstar recently hired 15 to 20 new workers in Minnesota 
just to support their growing operation in China.
    They want to see this agreement happen because under WTO, 
China will totally get rid of its tariffs on many computer-
related products.
    This deal is about forging a relationship that spans the 
Pacific for the good of our economy.
    It's about individual companies in Minnesota and around the 
nation who want to export because experience tells us that 
exports make for healthier companies.
    Firms that export experience 20% faster employment growth 
than those that don't. They pay 13-18% higher wages and 
salaries and they provide 11% higher benefits than companies 
that don't export. These firms are 30-50% more productive 
because they are leaner and more competitive, more innovative, 
and more technologically advanced.
    Two hundred twenty-eight (228) Minnesota companies exported 
to China in 1997. Over half of these firms have less than 500 
employees. We're talking about small and medium-sized companies 
here, not just big business.
    Finally, why do everyday Americans care about this bold 
move?
    Because, simply, it makes common sense.
    Don't sell our citizens short. They know that the world is 
a small place in this high tech world.
    Ordinary Americans probably don't pay a lot of attention to 
what happens in this Committee, or to what happens at the State 
Capitol in St. Paul.
    Most normal people are too busy working, paying their 
bills, checking up on who their kids are talking to over the 
Internet and watching the NCAA basketball tournament to care 
about PNTR with China. But when they stop to think about it, 
and I challenge the American people to stop and think about it, 
I believe that they'd say ``vote yes.''
    Why? Because people want a better life for their children. 
They want their kids to have access to better jobs than they 
have, and they want to see our economy continue to grow.
    Improvements in China's economy also makes China a more 
stable part of the international community and opens their 
minds to our free market ideals and democratic values.
    And to those who say this agreement is a problem for human 
rights, I ask you, whose human rights are you talking about? I 
met with a group of Chinese students who are studying at the 
University of Minnesota. Currently, our very own University of 
Minnesota has the largest population of Chinese students and 
scholars in the United States, numbering 1200. These students 
estimate that ninety-five percent of Chinese people back home 
want to see this happen.
    Why? Because they want the ability to have access to our 
food, our technology, and our culture. China experienced one of 
the biggest famines in this century. More than 20 million 
people died in three years of famine. They remember what it was 
like to have their market closed to outside sources of food.
    We don't have to APPROVE of their human rights to help 
IMPROVE them. Opening their doors to our business practices, 
our culture, our democratic ideas will open their process.
    The old way of dealing with China hasn't worked. Despite 
your yearly review, there are still human rights abuses in 
China. I think we can all agree that structural changes within 
China will be necessary to change China for the better in the 
long term. Year-to-year debates on how they're doing won't give 
us the structural changes that are needed inside China. If we 
slap their hand by putting restrictions on this agreement, 
we'll hurt China but we won't injure them. We might embarrass 
them, but we won't empower them to change.
    The Chinese students at the University of Minnesota also 
told me their concerns. They know that this change to a free-
market economy will not be easy. Reforms will be painful. But 
the Chinese people are willing to hurt in the short term 
because they know that this will benefit them greatly in the 
long term. The true judgement of this agreement will come in 10 
or 20 years.
    Finally, why should I, as Governor of Minnesota, care about 
this trade agreement?
    'Cause Minnesota is going global. And I don't want 
protectionist feelings in Congress to stand in the way of 
progress for Minnesota.
    I can't speak for other states, but I can tell you that 
Minnesota is already a world competitor. Among nations, we 
would rank 28th in economic output in the world if we seceded 
from the Union. We have the guts and the confidence to compete 
on the world stage.
    I urge you, Mr. Chairman and Members of the Committee, to 
take into consideration the opinions of the vast majority of 
middle Americans on this topic. The far right of the right and 
the far left of the left aren't going to be convinced. Don't 
waste your time.
    If you don't forge ahead to open China's markets, rest 
assured the window of opportunity will be lost. The Europeans 
would like nothing better than for the U.S. Congress to 
continue fussing over this agreement. I urge you not to let 
that happen. Let America be the first in line to reap the 
benefits of this trade agreement. It's the most important step 
you can take to boost our economy in the new millenium.
    We don't have time to sit here and watch the world's 
partners go on trading without us. I've traveled the world in 
my prior life, and my trip to Japan since the election will be 
followed by a trip to China.
    I've watched the world become smaller over the years, and I 
came to this job as Governor of Minnesota determined to leave 
my state positioned to seize the day.
    Please help me by saying yes to China.
    Thank you.
      

                                

    Chairman Archer. Governor, thank you. You said on 
television Sunday that you would be at your best. You have done 
better than your best. You just hit a home run. Thank you so 
very much for giving us that common sense presentation. Over 
the years, we, on the Ways and Means Committee have believed 
that trade policy is a bipartisan activity and you have, today, 
made a tripartisan activity.
    Governor Ventura. Thank you.
    Chairman Archer. And I thank you for that. I may keep my 
questioning as short as possible because I know you have to 
leave at 12:15 in order to catch a plane and we delayed--we 
didn't delay, but the votes on the floor of the House delayed 
this hearing.
    From your testimony, I know you agree that erecting 
protectionist walls around the United States will not keep our 
firms, workers, and agriculture lean and tough enough to 
compete for the 96 percent of the world's market that is 
outside of the United States of America. And you have even 
given us examples in Minnesota, and I am not going to ask you 
to give us more, and if I had more time, I would. But I do want 
to ask you--you said on television that you are a member of two 
unions or you were a member of two unions, I believe.
    Governor Ventura. Still am.
    Chairman Archer. And labor unions are a key part of your 
constituency in Minnesota. And, yet, we find some of the 
greatest opposition to the presentation that you have made 
today coming from the labor unions. Is it possible that we 
might see some shift, in your opinion, of the position of 
unions on trade issues?
    Governor Ventura. In my opinion, I certainly would hope 
they would shift their position. I think this is something 
that, Mr. Chairman, that exporting creates jobs. I think if you 
will think back a couple of years ago, when I belonged to a 
different party that I recently am no longer a member of, I 
remember the leader of the party saying that we would hear a 
giant sucking sound of jobs leaving the United States of 
America.
    Well, I can tell you right now that Minnesota has the 
lowest unemployment in the history of the State and the lowest 
unemployment in the history of America, really, right now. We 
are in a situation in Minnesota where we have 44,000 jobs 
currently and don't have the people available to fill them. So 
we are in a unique situation and I don't see one bit how jobs 
are going to leave--union jobs are going to leave America based 
on a trade relationship with China. It is simply not going to 
happen and the statistics bear it out.
    Chairman Archer. Thank you, Governor.
    Mr. Rangel.
    Mr. Rangel. Let me join the Chairman, Governor, in 
welcoming you here, and especially for your straightforward, 
candid testimony. In the House and Senate, we have the most 
fierce anticommunist fighters that the world has ever seen. 
And, yet, in recent months and years, we have found that these 
fighters have now come to believe that the best thing that you 
can do to bring down the--break down the walls of communism is 
to expand trade and to have cultural and economic exchange. 
And, yet, while they feel very comfortable in doing this with a 
billion Red Chinese Communists, they find it very awkward to do 
business with President Castro in Cuba. What are your thoughts 
on that?
    Governor Ventura. Congressman Rangel, I agree with you. I 
think that--in fact, I--at the National Governors' Association 
meetings that we had with President Clinton, when it was my 
turn on the floor, I presented the same argument. I said, Mr. 
President, you know I support world trade. You know I support 
WTO. You know I support including China. But I said, I sense a 
bit of hypocrisy here that I need cleared up. I don't 
understand how China is different than Cuba. And I, in my usual 
manner of speaking, I also made it clear that I am very tired 
of feeling like a criminal every time I want a Cuban cigar. And 
I do like one on occasion.
    I--to me, it is a failed policy, Congressman. It is--as I 
said in my statement, Castro is now moving up to our tenth 
president. We thought that by doing this we would somehow drive 
him out of office in Cuba. I think it has had the opposite 
effect. I think it has solidified his position in Cuba. I think 
it has made the Cuban people more solidly behind him because of 
the fact that we take this posture.
    And I would, likewise, agree that both in opening up trade 
with China, as well as Cuba, it would certainly help human 
rights on both sides because you can't--ultimately I believe 
Chinese human rights must be solved by the Chinese people, not 
by the United States of America's people. And I feel the same 
way with Cuba. Cuban human rights will likewise be solved by 
the Cuban people, not the United States of America. We can show 
them by example. We can have our businesses there conducting 
our business at the high level that our industry does it, and 
it will ring to them. It will--when they go home from work at 
the end of the day, they will talk. And ultimately, I think--I 
believe sincerely this trade agreement with China is so 
powerful that we will--we could well see to a great extent, the 
fall of communism in China, not quickly, but over 15, 20, 25 
years from now.
    Mr. Rangel. Thank you very much. I would like to publicly 
thank the Chairman. As you know, the House and Senate has 
passed the African Growth and Opportunity Trade Bill and it 
seemed as though it was in limbo and conference. And I just 
would like to report that Chairman Archer has been very 
instrumental in trying to break down the log jam and we hope 
that Africa will join the family of continents and nations for 
really free trade. Thank you, and thank you, Mr. Chairman.
    Chairman Archer. And that----
    Governor Ventura. Mr. Chair, could I make another 
statement.
    Chairman Archer. Certainly.
    Governor Ventura. Thank you. I would also like to 
acknowledge to my right, the Hmong soldiers that we have here 
today that I had a small part in being able to stand up on 
their behalf. And, as I understand it, there--the bill passed 
and that they will be getting American citizenship and I would 
personally like to welcome them as citizens to the United 
States of America.
    Chairman Archer. Thank you, Governor.
    Mr. Thomas.
    Mr. Thomas. Thank you, Mr. Chairman. Also, I would like to 
compliment you on your speech, Governor. I would compliment you 
by saying I thought it was a body slam.
    Governor Ventura. We all have our sordid past.
    Mr. Thomas. I also compliment you on the pride that you 
take in the position that Minnesota has. And I am also pleased 
to say, as a Californian, that the State of California is 
coming around economically as well. If California were to 
secede from the Union, when the world had a big seven 
conference, California would be one of them. And so, in that 
sense, all of us are somewhat bewildered by those individuals 
who still strongly believe that the solution for America's 
wealth is to build a wall around America.
    You indicated that you were not, one of those people. There 
is something that you are that many of us have not been, and 
you alluded to your former party membership. You had an 
opportunity to interact with a number of these people who seem 
to be the focal point for opposition to America's continued 
involvement in world trade.
    Could you just give us a little bit of a feel for what you 
believe to be their rationale? Because some of these folks, so 
emotionally, almost viscerally, oppose our involvement with 
peoples of other countries, you would tend to think it might be 
xenophobia. But when I have talked to them, they really do 
believe they have an economic model that would benefit America 
if we cut off world trade. Could you give us an idea of what 
you believe their motives are and the relative value of their 
motive?
    Governor Ventura. Well, Mr. Thomas, I will say this, their 
motives have puzzled me also. And that was probably one of the 
major reasons I chose to leave that particular party. Because I 
don't get it why they would, at all, think that isolationism 
and cutting us off from trading partners throughout the world 
is beneficial for our country. It is not. It, plain and simple, 
is not. And I think it has been proven already that it is not.
    I think what you have here is, it is a group of strange 
bedfellows in a way. You have the ultra-left left now uniting 
with the ultra-right right and becoming bedfellows over a trade 
and economic issue. I think that what I represent and what my 
beliefs and--of my former alliance with the Reform Party is a 
very much centrist common sense movement of people in the 
middle, people who are not far left; they are not far right, 
but they take the best ideas from the right and the left and 
combine them into common sense. And I think and hope that is 
what I represent.
    And I certainly would think and hope that would be what a 
third-party movement would want to represent. But they don't 
seem to want to do that. I think they have become a playground 
for very extreme positions now and a way to foster those 
positions and get them into the mainstream limelight, which I 
don't believe is what the third-party movement is about. Thank 
you.
    Chairman Archer. Mr. Shaw.
    Mr. Shaw. Thank you, Mr. Chairman. And, Governor, it is, 
indeed, a pleasure. I have heard you refer to yourself as Jesse 
the Mind. And I think that you have certainly exhibited that. 
They may not have taught you international relations in high 
school, but somewhere along the line you picked up a lot of 
common sense. I am not going to belabor your--the hearing by 
questions, because I think you have--your statement was so 
concise and so complete and I was in such total agreement with 
what you said, I will leave it right there and just 
congratulate you on a very fine statement before this 
Committee.
    The strongest antidote for Communism is free trade. And----
    Governor Ventura. Yes.
    Mr. Shaw [continuing]. It is the only way that these people 
are going to be--China has made great strides because people 
now can move from one part of the country to another and find a 
job. They are not totally dependent upon the government. They 
still have horrible problems. And I think Sandy, or someone, 
mentioned in their opening statement that they are really at a 
embryo stage, really, in developing business law. In some 
cases, they really have done some bad things with regard to 
trade and with regard to protecting their government-owned 
businesses and lawsuits after judgments. And they have got a 
long ways to go. But to shut them off is certainly not the 
answer and you certainly picked up on that very well. And a 
pleasure to have you before this Committee. I yield back.
    Governor Ventura. Thank you, Mr. Shaw. I would like to 
respond, if I may, to something. The University of Minnesota 
has more Chinese students than any university in the United 
States. And I met with 40 to 50 Chinese students before I came 
out here. And they told me very clearly that this is very scary 
to China also and that China initially is going to suffer. They 
are going to feel some pain from opening their markets to the 
world. But they have an insight and a belief that in the long 
run, it will be good not only for the world, but good for their 
own country of China.
    And these students were very sincere. I enjoyed very much 
meeting with them. And, to be honest, I had never been in a 
room with as many Ph.D.s in my life as what was sitting at the 
table around me that day. But they made it very clear that--and 
as--and I want to repeat, too, they told me that Chinese 
farmers today cannot feed their country. There simply is not 
enough land to do it. And they were the ones that looked at me 
and said, isn't it human rights to simply have food on the 
table for every human being? So they need us. This is a good 
situation that I think, as I stated, this will be the biggest 
economic decision that we make in this century and I am humbled 
to be a part of it in any way, shape, or form.
    Chairman Archer. Thank you.
    Mr. Coyne.
    Mr. Coyne. Thank you, Mr. Chairman. Governor, welcome and 
thank you for your testimony.
    Governor Ventura. Thank you.
    Mr. Coyne. I was just wondering, does it concern you at all 
the wage disparity that exists between unionized workers in the 
United States and what the average laborer in China makes?
    Governor Ventura. Certainly it bothers me somewhat. But, 
again, as I talked about job situation in Minnesota right now, 
we have jobs we can't fill, 44,000 of them in the Twin City 
Metro area right now. We have people that will not do those 
labor-type work at those type of wages and, yet, they are 
important jobs that need to be done. I think, if I could--my 
friend from California will tell you that California, above 
all, has labor jobs that, if there wasn't this available work 
force, California would grind to a halt because many 
Californians won't do that particular job.
    And my view is, in today, in light of statistics, that we 
don't have the people to fill the jobs, I don't have a worry 
about that----
    Mr. Coyne. Yes.
    Governor Ventura [continuing.] At this point in time.
    Mr. Coyne. You alluded, in your testimony, to the fact that 
there would be American corporations going to China and you 
felt that that was a positive thing. Does it concern you at all 
that some of those corporations may be doing that to take 
advantage of the low-wage workers that are in China?
    Governor Ventura. Well, if it's an American corporation, 
then it is our job to look after these workers. Isn't it?
    Mr. Coyne. By putting them into a country that pays low 
wage, subsistence wages?
    Governor Ventura. Well, is it tapping a work force that can 
reap the benefits of our presence there.
    Mr. Coyne. You mean the Chinese workers.
    Governor Ventura. Sure.
    Mr. Coyne. Oh. Thank you.
    Governor Ventura. Thank you.
    Chairman Archer. Mrs. Johnson.
    Mrs. Johnson of Connecticut. Thank you for your testimony, 
Governor. You do represent a state in which there are very 
large unionized work forces. They are generally associated with 
the products that are going abroad, that are exported. I know 
you meet with them. When you talk with them, I want to know 
what your conversation has been. Have you been able to get any 
understanding among people on the ground running of not just 
the degree to which new jobs depend on exports, but also how 
their jobs can be eliminated if your companies can't compete?
    Because if our big companies that are now at the top of the 
competitor list don't get into the Chinese market and their 
European counterparts do, it won't be many years before the 
greater profitability of the European countries will give them 
more R&D money to create the next revolution in product. And, 
finally, we will be the second-rate producers, not the top-rate 
producers, and that will eliminate the very jobs they are 
trying to protect.
    You know, and I just wonder, when you sit and talk with 
the--because I know you talk to everybody--when you sit and 
talk with the AFL-CIO leadership and with the workers--do you 
ever get down with the work force? You know, and you give them 
some of the common sense reality stuff, what--do they hear it? 
The line guys hear it, not the top leadership.
    Governor Ventura. Let me just say that by opening up China 
to our businesses, we are opening them also up to our business 
practices, our democratic ideas, and our values toward workers. 
And that is a win for the world. And I agree wholeheartedly 
with you that this is a dangerous situation that we are going 
to lead ourself into, and it is almost they are cutting off 
their nose to spite their face with the way they think.
    As far as my dealings with unions, maybe I will give you a 
little history that myself and the Lieutenant Governor, we are 
the only two vested union members to run for Governor and 
Lieutenant Governor in Minnesota and, yet, we couldn't get one 
union endorsement. And let me just say though, that is not a 
slight upon union workers because we won the rank and file.
    Mrs. Johnson of Connecticut. Right.
    Governor Ventura. The problem was with leadership who 
wouldn't endorse us. Even though their rank and file voted, we 
won rank and file votes. So my view is, I take my message--I 
bypass the union leadership usually and take my message 
directly to the people and to the workers.
    Mrs. Johnson of Connecticut. Yes. Well, I have found the 
same thing. When you talk to people one-on-one, they understand 
perfectly. And I just hope that you would try to get in as many 
work places as you can in the next month or two to get those 
people to really write letters and understand that this is 
America's future--economic strength we are talking about here. 
Thanks so much for your testimony.
    Governor Ventura. Thank you very much.
    Chairman Archer. Mr. Ramstad.
    Mr. Ramstad. Thank you, Governor, for telling it like it is 
on trade. Your testimony was almost as good as watching KG get 
a triple double. We Minnesota Timberwolves' fans understand 
what that means. Let me just ask you a question, Governor. You 
are an athlete and a coach and, to carry this metaphor one step 
further, you know how important it is in sports to ensure that 
everyone plays by the rules. And today you said you like the 
idea of all countries playing by the same rules.
    Just, if you would, please, expand on this analogy--why you 
believe it is essential for countries and companies to compete 
under this same set of rules, under an internationally 
recognized, mutually agreed-to framework.
    Governor Ventura. Well, Congressman, thank you. I think it 
is as simple as--simplified into a sports game. If one team has 
a different set of rules than another, there is an unfair 
advantage. It is that clear and simple. And by us not trading 
with China, they certainly are going to trade with every other 
country throughout the world and we will be left out of the 
process on it. And I think that it--with a united front of all 
the countries of the world working with China, it will be a 
much more positive impact on the country of China to play 
within those rules.
    As I said in my statement, with just our country shaking a 
finger at them, they may not pay much mind of that. But if 
there are 134 countries, along with us, shaking a finger at 
them, they will pay attention to that, I believe. Because then 
it is their economics and their country that is on the line at 
that point, rather than ours. And so my answer would quite 
simply be, it is--you can't play sports with two sets of rules 
and I don't believe you can do business with two sets of rules. 
And you don't have two separate leagues and expect them to play 
equal. You--they have to be under one set of rules in one 
league for it to be fair competition.
    Mr. Ramstad. Well, thank you again, Governor.
    Governor Ventura. Thank you.
    Mr. Ramstad. I certainly agree with you. And I just wish 
every Member of Congress could be in this room today. I don't 
have any questions that we would pass a permanent NTR with 
China. You are an effective spokesperson on this and many other 
issues. And thank you for bringing your pragmatic, common 
sense, tripartisan approach to public policy.
    Governor Ventura. Thank you, Mr. Ramstad. And I will 
finish, because I do have to leave. And, again, encourage you 
all, this is, to me, I will repeat myself, the greatest 
economic issue of this century and we dare not lose it. We dare 
not allow this to happen. Because, always remember, we won't be 
judged by the decision that we necessarily make immediately 
today. We will be judged on the decisions made today around 20 
years from now, I believe. And if we miss the boat on this one, 
there is going to be a very harsh judgment, I believe, 20 years 
from now. Thank you very, very much. I appreciated my time 
here. It is always a joy to come here to Washington, and good 
luck.
    Chairman Archer. Governor, thank you very much. We 
appreciate your time and, again, my apologies----
    Governor Ventura. Oh.
    Chairman Archer [continuing.] For starting a little bit 
late.
    Governor Ventura. No apologies necessary, Mr. Chair. You 
have busy jobs to do and I am flexible.
    Chairman Archer. Thank you very much.
    Governor Ventura. Thank you.
    Chairman Archer. My next witness is Ambassador Clayton 
Yeutter, no stranger to the Chairman, having been my next-door 
neighbor for a number of years. We are delighted to welcome you 
to the Committee and we will be happy to receive your 
testimony.

STATEMENT OF HON. CLAYTON YEUTTER, OF COUNSEL, HOGAN & HARTSON, 
L.L.P., (FORMER UNITED STATES TRADE REPRESENTATIVE, AND FORMER 
           SECRETARY, U.S. DEPARTMENT OF AGRICULTURE)

    Ambassador Yeutter. Thank you very much, Mr. Chairman. And 
the first thing I would do would be to say amen to what 
Governor Ventura had to say with respect to the China issue. 
Second, let me say it is great to be back, Mr. Chairman, and to 
have an opportunity to appear before this Committee. It has 
been 25 years since I first started testifying before the Ways 
and Means Committee when I was Deputy STR all the way back in 
the Ford Administration.
    These are important topics before you, Mr. Chairman. You 
have my prepared testimony which I will summarize here in brief 
fashion.
    The two basic questions before you today are, one, whether 
or not the United State ought to continue to be an active 
member of the World Trade Organization, and, second, whether or 
not we ought to welcome China into the WTO and grant permanent 
normal trade relations in the process.
    To me, the obvious answer to both of those questions is 
yes, and, to me, both are no-brainers. It is clearly in the 
best interest of the United States to be involved with the 
GATT, now the WTO, and also to have China in the WTO--which 
implies fulfillment of the permanent normal trade relations 
requirement.
    Let me start first with a big picture look at the WTO 
issue. What we say about the WTO is also very relevant to the 
China issue that is before you today. As you know, the GATT--
the WTO predecessor--launched in 1948, so it has a track record 
of about 50 years. It was one of the most innovative 
institutional developments, of the 20th century.
    As you will recall, the GATT, the IMF, and the World Bank 
were all created at the same time in the aftermath of World War 
II. In retrospect, if one looks back over the last 50 years, 
the most important of those three institutions has probably 
been the GATT. Those of us in this room are clearly 
beneficiaries of the work that has been done in the GATT over 
the last half century. There are an awful lot of people in this 
country and in the world who are living a whole lot better 
lives today than they would have been had the GATT not been 
created. And, of course, the WTO continues that.
    The expansion of world trade over the last half century has 
benefitted billions of people in this world. We should never 
underestimate the importance of that achievement. Not only has 
this been important in economic terms, but in terms of 
contributing to peace in the world as well.
    Who has been the major beneficiary of all this? The United 
States, without question. We are the largest exporter in the 
world, the largest nation involved in world trade. We are the 
largest importer too, and American consumers benefit enormously 
from that. So we have all gained much from the GATT/WTO over 
the last half century.
    We have also gotten a lot of bang for our buck. The GATT, 
and now the WTO, are not what many of us would deem to be 
``typical'' United Nations organizations--bureaucratic, bloated 
and cumbersome in their operations. This is a lean, mean group 
with a very austere budget, de minimus budget from the 
standpoint of the United States. The WTO is not bureaucratic at 
all. It is controlled and run by the member nations, and with a 
very strong U.S. influence. We, the U.S. really have the best 
of all worlds in terms of our relationship with the World Trade 
Organization.
    But let me go into a few specifics on why we need this 
entity; many of these points are relevant to your discussion of 
China as well. The first one is some entity must open up 
markets around the world. We can do a lot of negotiating on a 
bilateral or multilateral basis (I did a whole lot of that, as 
you well remember, during my tenure in the government.) But 
that is an inefficient way to do it. It is just a whole lot 
more efficient to get the benefits of an agreement with 150 
nations, which is what the WTO will soon have, than to do it 
one-by-one or five or six at a time. The only practical way to 
do that is through the WTO. So we need to take advantage of the 
economies of scale in working with 150 nations.
    And we need badly to get additional market-opening 
measures, as you well know, because most of our market 
opportunities in the future will be outside the United States. 
I believe you made the point, Mr. Chairman, that only four 
percent of the world lives within the borders of the United 
States. It is the other 96 percent where we are going to have 
our growth in customers in the coming years. And if we are 
going to reach out to that 96 percent, we have to have a 
mechanism like the WTO to do it.
    Nor can we afford to operate under the law of the jungle. 
If we were to abandon the World Trade Organization, that is 
what we would have. And as the largest participant in world 
trade, clearly we would have to reconsider the way we do 
business throughout the world. It would be most regrettable, 
and enormously costly, to have the United States operating in a 
situation where the law of the jungle applies. The biggest 
loser--the United States.
    We also got an awful lot of work to do multilaterally. The 
internet poses numerous new challenges. We have ongoing 
negotiations in services and agriculture. And we are embryonic 
in the WTO with intellectual property protection. Investment is 
going to be a huge issue in the future, maybe an even bigger 
issue than trade over the next 20 or 30 years. Again, the WTO 
has just began to work in that area. There are a lot of other 
new issues coming along that likewise deserve attention. There 
just has to be an international mechanism to focus on all those 
issues and as a practical matter that must be the WTO.
    As this hearing indicates, we also need to bring other 
nations into the WTO which are not now there, and that 
includes, particularly, China and Taiwan--and perhaps, 
ultimately, Russia. There must be a mechanism to bring that 
about.
    So there are a lot of reasons, Mr. Chairman, why the WTO if 
we did not now have it, we would have to go back and recreate 
that would take several years to do, after loads of effort, and 
it would be just utter foolishness to go down that path.
    Let me quickly say a few words about China. First of all, 
we need to understand that if we are to have an impact on human 
rights, worker rights and all the other issues that are of 
concern to the critics of permanent normal trade relations, our 
track record of going so outside the WTO is really pretty bad.
    We've tried economic sanctions in similar situations and as 
Governor Ventura indicated, fundamentally they have been one 
big bust. So it seems incongruous to suggest the way we are 
going to change things in China is by trying to keep it out of 
the WTO or by denying permanent normal trade relations. Do we 
really think that by going through a vote on normal trade 
relations every year we are going to affect policies within 
China in a positive way? We haven't yet and, in my judgment, we 
are not likely to do so in the future. In my view this is a 
foolish endeavor which occupies a lot of time in the Congress 
and among the American public, time which could be used much 
more productively elsewhere.
    Now, looking at the specifics of this situation, we have an 
excellent negotiating outcome in the United States-China 
agreement, preparatory to China entering the WTO. My successor 
at USTR, Ambassador Barshefsky, did an outstanding job in that 
negotiation. Fundamentally we, the U.S., got nearly everything 
we wanted out of it.
    Unfortunately, the White House initially rejected that 
agreement when they concluded it might not fly politically here 
in the Congress and with the general public. But that was a 
mistake. When lots of people around the U.S. responded and 
said, Mr. President, you are off on the wrong direction on 
this, USTR went back on bended knee and fortunately was able to 
put the agreement back together again. We now need to embrace 
it because it is an excellent agreement from the standpoint of 
the United States.
    Now, the question is can we use the WTO entry process as 
leverage on these other matters that are occurring in China of 
which we don't approve? The fact is that leverage is going to 
disappear, if it exists at all, very, very quickly.
    China is going to enter the WTO whether we like it or not. 
Negotiations with the European Union are still to be completed. 
There are some additional negotiations pending with Japan, and 
then a WTO working party report will have to be presented to 
the WTO Council and adopted. It is very likely that all of that 
will occur this year. If it does occur, China will then be come 
a member of the World Trade Organization.
    So do we grant permanent normal trade relations to China or 
do we go a different route and persist with our present policy? 
To do the latter, in my judgment, would be a huge mistake for 
the United States.
    With China in the World Trade Organization, its economic 
activity will expand rapidly with the rest of the world. And, 
as Governor Ventura indicated, as did Congresswoman Johnson, we 
will be left behind. That is significant indeed when we are 
talking about economic involvement with a fourth of the world's 
population. There will be no motivation at that point in time 
for the Chinese to do anything that we would wish them to do. 
Our influence on human rights, worker rights, or environmental 
protection, other similar issues, will diminish very, very 
rapidly. We will accomplish nothing in that regard by delaying 
approval of permanent normal trade relations with China.
    The other factor involved here is that if we isolate 
ourselves with such a vote, we are going to be the villains of 
the piece in all of China. Do we really want to convert China 
into an enemy of the United States, comparable to the 
relationship we had with the Soviet Union not many years back? 
I mean, do we really want an adversarial relationship with 
China? Is there some benefit to the United States in doing 
that? Will we improve human rights or worker rights in China if 
this bilateral relationship becomes far more adverse? To me, 
none of that makes any sense whatsoever.
    The proper course of action then is to bring China into the 
WTO, on the conditions that have already been negotiated by 
Ambassador Barshefsky, provide for permanent normal trade 
relations, and then do an effective job of making sure that 
Chinese commitments are followed in the future. The latter, of 
course, is a question of implementation and a very important 
one.
    The benefits of that scenario are that not only do we have 
a chance to focus in on the implementation of whatever China 
agrees to in this process, but we have the leverage of another 
150 nations to help us once China becomes a member of the WTO. 
This becomes a win-win proposition if we have a viable WTO and 
if we bring China in on the terms that I have outlined.
    Mr. Chairman, I'll be pleased to answer any questions the 
Committee may have.
    [The prepared statement follows:]

Statement of the Hon. Clayton Yeutter, Of Counsel, Hogan & Hartson 
L.L.P. (former United States Trade Representative, and former 
Secretary, U.S. Department of Agriculture)

    Mr. Chairman and Members of the Committee, it is a special 
pleasure for me to testify before you today. The topic at 
hand--the role and merits of what is now the World Trade 
Organization (WTO)--is one that has garnered my personal 
attention for much of the past quarter century. A few of you 
will recall that my first appearances before this Committee 
took place when I was Deputy Special Trade Representative 
(1975-1977) during the Tokyo Round and continued when I served 
as U.S. Trade Representative (1985-1989) \1\ during the Uruguay 
Round. This Committee gave me splendid bipartisan support 
during all those years, and for that I will be eternally 
grateful.
---------------------------------------------------------------------------
    \1\ Mr. Yeutter also served as U.S. Secretary of Agriculture from 
1989-1991. He is currently Of Counsel to Hogan & Hartson, L.L.P., a 
Washington, D.C. law firm.

---------------------------------------------------------------------------
The Big Picture

    To me it is astonishing that anyone in America would 
seriously advocate U.S. withdrawal from the WTO. We've now had 
five years of experience with this organization in its present 
form, preceded by nearly 50 years of experience with its 
predecessor, the General Agreement on Tariffs & Trade (the 
GATT). By any standard, the track record of this international 
organization has been outstanding. It fostered an unprecedented 
expansion of trade in the aftermath of World War II and, in my 
judgment, may have done more to contribute to world peace than 
any international institution in the economic arena. Without 
question a vast majority of the world's population has a higher 
level of living today than would have been the case had the 
GATT not been created, and had its impact not been extended via 
the WTO.
    This may not be a utopian organization. Show me one that 
is--in governments anywhere or even in the private sector! But 
some entities are far more admirable than others, and this is 
one of those. Because of its name \2\ some believe this to be 
either (1) a new ``one world'' organization, or (2) another 
bureaucratic United Nations entity. In either case the 
assumption is that the WTO is accountable to no one, and is a 
costly burden to everyone.
---------------------------------------------------------------------------
    \2\ Were it still the GATT, I wonder if we would even be having 
this hearing today.
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    Those interpretations are totally off base. Member nations, 
big and small, have been actively involved with the GATT from 
the very beginning. The reason: because it has never made a 
major decision except by consensus, and such a modus operandi 
demands active participation. Would U.S. involvement be so 
categorized? Absolutely. In fact, most member nations would 
suggest that we've thrown our weight around a bit too much, but 
I would answer them by saying ``That's the price we pay for 
world leadership, and we do not apologize for it.''
    The WTO is also one of the leanest of all international 
bodies. If anything, its staffing is inadequate and its budget 
too small. For what the GATT/WTO has meant to the world since 
l947, the cost has been de minimus for every member nation. It 
has certainly been the bargain of the 20th century for the 
United States, the biggest beneficiary (by far) of an improved 
global trading environment.

The Specific Case for the WTO

    But let's look more specifically at some of the reasons why 
it would be utterly foolish for the U.S. to withdraw from the 
WTO. \3\
---------------------------------------------------------------------------
    \3\ A far more comprehensive summary of what the WTO has meant to 
the U.S. may be found in Section II of the President's 1999 Annual 
Report of the Trade Agreements Program. It is a superb reference piece.
---------------------------------------------------------------------------
    First, it is still the most efficient, effective mechanism 
for opening up market opportunities throughout the world. With 
only 4 percent of the world's population within our borders, it 
is patently obvious that much of our economic growth long term 
must come through international commerce. We're not paying much 
attention to that challenge today because of the phenomenal 
performance of our domestic economy over most of the past 20 
years. But let's not be complacent; nothing lasts forever. Over 
the long pull we must be internationally competitive, and we 
must compete. Therefore, our omnipresent need is the chance to 
compete, in what I would define as a free and open marketplace.
    We'll reach that objective only by negotiations, and we'll 
get there more quickly by multilateral negotiations (in the 
WTO) than in any other way. We can open up foreign markets 
bilaterally (country by country) or plurilaterally (through 
regional free trade agreements) but that's a much slower 
process. The pace of change is crucial these days, and if we 
can simultaneously bind 150 nations to market opening measures 
that's a huge advancement over binding only one, or a half 
dozen. Some will suggest that the GATT/WTO model has not been 
known for speed in the past, since recent rounds of 
negotiations have had multi-year timetables. But that's a 
question of leadership, of commitment on the part of the 
participating nations, and of where those nations use their 
most experienced, talented negotiators.
    Second, the world cannot afford to conduct international 
commerce through ``the Law of the Jungle.'' We in the U.S. take 
for granted our excellent legal infrastructure, but many 
trading nations barely comprehend what this is all about. 
Examples of the latter abound in Russia today, and universal 
acceptance of the ``rule of law'' is far from assured in a good 
many other countries. Hence, it is imperative that we have an 
oversight mechanism somewhere, and the WTO is the logical place 
for this. That is why we, the U.S., worked hard in the Uruguay 
Round to secure approval of a vastly improved dispute 
settlement format. And it is vastly improved, even though we're 
not winning all of our cases.
    Rarely, in the entire history of the GATT and the WTO, has 
the U.S. lost a case that it did not deserve to lose. What is 
more important is that in the past we would win a case, but 
then nothing would happen. Under the WTO we're now getting a 
more definitive resolution of the cases that we're winning, 
though not in all instances. We need to further tweak the WTO's 
dispute settlement mechanism, but it is performing much better 
than most people realize. In the absence of this mechanism we'd 
have infinitely more difficulty fighting ``rule of law'' 
battles throughout the world.
    Third, we need the WTO for surveillance purposes. 
International commerce has grown so much in recent decades, and 
has become so complex, that a vast increase in the number of 
contentious disputes is almost inevitable. But governments 
cannot take every disagreement through a formal dispute 
settlement process. Were they to do so, the entire process 
would bog down fatally. The WTO couldn't handle it, and neither 
could traditional diplomacy. There has to be another way. 
Alternative dispute resolution methods--at the WTO and 
elsewhere--may help, but they are a partial answer at best. The 
better way is for member nations to follow the basic precepts 
of the GATT and WTO in their trade policies (and for their 
participating business firms to do likewise).
    In that regard a little surveillance, i.e., moral suasion, 
can go a long way. The WTO should periodically comment formally 
on how well a given member nation is living up to its 
obligations as a signatory. That may sometimes be 
embarrassing--even for the U.S.--but so be it. If such 
surveillance deters a WTO member from taking actions contrary 
to its obligations, it most likely will also preclude the need 
for a costly, time consuming dispute settlement proceeding.
    Without the WTO it would be far more difficult to apply 
multilateral moral suasion to the conduct of international 
commerce. All WTO member nations should be held accountable for 
their policies. It is not unreasonable to expect them to honor 
the spirit, as well as the letter, of their obligations.
    Fourth, we need the WTO for the evaluation, oversight and, 
if necessary, discipline of regional free trade agreements. 
We've had a veritable explosion of free trade agreements in the 
world over the past dozen years or so. As you know, I led the 
negotiation of the U.S.-Canada FTA, which later became NAFTA, 
and lots of others have followed since. They are now too 
numerous to list.
    Without doubt these agreements foster and facilitate trade. 
For the U.S., Canada, and Mexico, NAFTA has been a huge 
success--far greater than most Americans realize. Nations which 
are not represented in NAFTA recognize that, for they are 
excluded from many of those benefits. Hence, they feel 
compelled to counter the regional FTA trend in some manner. One 
way is to ``join the club,'' by creating another FTA, as did 
several South American nations through the creation of 
Mercosur. A second way is to ``hook on'' to an existing FTA. 
The European Union did that recently, at least to a degree, 
through its FTA with Mexico, one of the NAFTA partners.
    We'll undoubtedly see many other iterations of the FTA 
model as the future unfolds. Hopefully regional FTAs will 
always advance the cause of free and open trade, but that is 
not necessarily a given. Some of the recent agreements are far 
less comprehensive than they should be. They've simply 
neglected some of the tough issues, and those are the areas 
where progress is most needed. Furthermore, no one is 
evaluating the level of discrimination against non-
participating nations that is inherent in such agreements. 
Someone needs to do so, to make sure that the overall 
advantages of each regional FTA outweigh the disadvantages. 
Otherwise such an agreement should be declared as violative of 
those nations' WTO obligations. Aside from the WTO, there is no 
international institution which can provide sorely needed 
discipline over these FTAs.
    Fifth, there's a lot of multilateral trade work to do, and 
that task must be assigned to some institution. The logical 
place is the WTO.
    For years, the GATT focused almost exclusively on tariff 
reductions. It was not until the Tokyo Round in the mid-70s 
that it began to focus on non-tariff barriers as well. And it 
was not until the Uruguay Round, a decade later, that it began 
to broaden its negotiating agenda (at the behest of the United 
States) to encompass new areas such as services, intellectual 
property, and investment. (Agriculture might well be added to 
that list, for earlier attempts to confront the severe trade 
distortions in that area of commerce had been futile.) The WTO 
has more recently produced specific agreements in financial 
services, basic telecommunications services, and information 
technology.
    But there is lots more to do in each of these new areas. 
The U.S. has a huge interest in preserving the global scope of 
the Internet, unhampered by barriers of any kind. WTO rules in 
services are embryonic at best, and we're still 30 years behind 
the curve in agriculture.\4\ The OECD developed a proposed set 
of investment rules, but that effort then aborted. Barriers to 
investment can be just as damaging and distortive as can 
barriers to trade, so the WTO needs to take on that challenge 
and put a sound set of rules in place.
---------------------------------------------------------------------------
    \4\ Negotiations in both those areas are already underway at the 
WTO, by virtue of commitments made at the conclusion of the Uruguay 
Round.
---------------------------------------------------------------------------
    In addition, the WTO needs to determine whether to add 
competition policy to its agenda and, if so, in what manner. 
Concomitantly it needs to determine how to deal with 
antidumping issues in the complex, interrelated world in which 
business must operate today. At the Seattle ministerial the 
U.S. sought to take antidumping rules off the table, which was 
a mistake. We should be prepared to negotiate all legitimate 
trade policy issues of consequence, and antidumping assuredly 
fits that definition.
    Much of the controversy in Seattle--at least on the 
streets!--centered around environmental and worker rights 
issues. Such issues are indeed important, but it was not 
evident that the demonstrators (or their supportive 
organizations) knew how the WTO was dealing with them today, 
let alone how it might deal with them in the future. 
Criticizing the WTO for its alleged failure to take 
environmental and worker rights issues into consideration in 
the development of trade rules is nonsensical when one realizes 
that the WTO still operates on a basis of consensus. That is 
equivalent to ``shooting the messenger'' when one dislikes the 
message. Labor and environmental groups need to determine how 
best to work within the system of international organizations 
in confronting such questions, rather than trying to torpedo 
the organizations themselves.
    Sixth, the rules of international commerce need to be 
applicable to all major trading nations, and that can happen in 
the immediate future only if the WTO remains in existence. In 
particular this applies to China and Taiwan, which should be 
granted WTO membership almost simultaneously, and soon. That 
alone will subject the trading patterns of almost a fourth of 
the world's people to international rules, scrutiny and 
discipline for the first time ever--with the United States 
being the principal beneficiary. In time, Russia and other 
nations of the former Soviet Union might well join this list.
    The WTO has a long tradition of negotiating conditions of 
entry for new member nations. When the Uruguay Round began, 
fewer than 100 nations participated. Now, 14 years later, we 
can expect the involvement of more than 150 nations in the next 
negotiating round. There is just no practical way for any other 
international organization to handle in a timely, orderly 
fashion the entry and ``rules of the road'' indoctrination of 
so many new member nations. If those nations are to play a 
meaningful role in the world economy, and reap the benefits 
thereof, the WTO has to be there for them.
    Seventh, nations (and particularly the U.S.) need a 
trustworthy international forum where critical trade issues can 
be massaged, nurtured, abandoned, embellished, etc. Few such 
institutions exist, for any purpose. Most international 
organizations are either too politicized, too bureaucratic, too 
lacking in economic understanding, or too narrowly focused to 
handle the complex issues of international commerce. The GATT 
was specifically designed for that function and it (and its 
successor, the WTO) has filled such a need in exceptional 
fashion. For more than half a century this organization has 
been a role model of practical, pragmatic decisionmaking. 
Whereas many international organizations might be described as 
``lots of talk, little action,'' the GATT and WTO have been 
just the opposite. They've provided a superb forum for talking 
through the tough issues of the day, but they've also provided 
solutions. The WTO is an active, vigorous problem solver, and 
that's one of the main reasons international trade has grown so 
much during the last half of the 20th century.

The Case for Walking Away

    There are many other persuasive reasons for continued U.S. 
involvement with the World Trade Organization, but let's now 
examine the other side of this question: ``What would we gain 
by walking away from the WTO?''
    The big gain, some would contend, is that we'd get our 
sovereignty back. This Committee had considerable discussion of 
the sovereignty question when the Uruguay Round agreement was 
submitted for Congressional approval. The alleged loss of 
national sovereignty is a bizarre argument, with respect to 
this or any other international agreement. We do give up a 
corner of our sovereignty each time we sign such agreements. 
Why then do we do it? Because we ask other nations (in this 
case, about l50 other nations) to give up a corner of their 
sovereignty in return. Why do they do it? Because of the mutual 
benefits offered by a particular agreement.
    I have already delineated many of the benefits of the GATT/
WTO to the U.S. Obviously the other WTO member nations 
concluded there were benefits to be had by them as well--or 
they wouldn't have signed up. We willingly gave up a bit of our 
sovereignty, and so did all the other signatory nations. None 
of this is unique to the WTO; similar tradeoffs have been 
involved with every international agreement this country has 
ever signed during its 200+ year history. So ``getting our 
sovereignty back'' is a baseless argument.
    A second argument for abandoning the WTO is that we'd be 
able then to ``leverage'' the rest of the world at will. In 
other words, we'd be able to set the rules of trade, 
unobstructed by past precedents or GATT/WTO agreements. By 
threatening economic sanctions against nations with which we 
disagree, and by denying access to the American market, 
presumably we'd get our way in international commerce. If all 
went well, we could ``have our cake and eat it too.'' We could 
be protectionist if we wished, and we could discriminate among 
trading partners whenever we saw it in our interest to do so. 
We could hold down imports, expand exports, and get rid of our 
troublesome trade deficit. American hegemony at its best!
    If only economic life were that simple, and that 
accommodating. But it isn't. What I've outlined is a U.S. dream 
world. If such a world ever existed, it was only for a few 
years in the immediate aftermath of World War II. Today it is 
just a dream, and one that would turn into a nightmare if we 
ever sought to make it come to pass!
    In economic terms our planet is shrinking every year. 
Consequently, policies such as those just described, with an 
inherently selfish dimension, are doomed to fail. As Americans, 
we cannot lift ourselves up by pushing others down. We are now 
far too dependent on the global economy for that. The correct 
prescription is to pull others up, enriching them and us in the 
process. We've done that with considerable success over most of 
the past 50 years, and we ought to think long and hard before 
abandoning that model.
    A third argument is more subtle. The contention would be 
that we should not abandon the concept of global trade rules, 
but what we need is an improved institution for developing and 
implementing such rules. In other words, let's get rid of the 
WTO and replace it with a new organization that would be more 
acceptable to the United States.
    Can that be done? Of course (at least on paper). No 
organization is sacrosanct, in this country or in the world. 
The WTO can be replaced. The relevant question is: ``At what 
cost?'' In my view that price tag--in economic, diplomatic, 
national security, and foreign policy terms--would be 
unacceptably high!
    Were the U.S. to walk away from the WTO, the other member 
nations would then have to decide whether to (1) proceed 
without us, or (2) negotiate provisions applicable to a 
successor organization. If the rest of the world chose to 
proceed without the U.S., we'd have a situation of the kind 
described in the second argument above, and one that would 
severely disadvantage the U.S. in the short run. If, as is more 
likely, the WTO would soon collapse and a successor entity 
would have to be put in place, the question becomes: ``Is it 
realistic to expect that a 'new WTO' would be more favorably 
disposed toward the U.S. than is the present organization?''
    Having worked with the GATT/WTO for much of the past 25 
years I would respectfully suggest that the odds of creating a 
more favorable environment \5\ from our standpoint are between 
slim and none! The U.S. has had enormous influence in the 
evolution of these organizations over the past half century. 
During that time other nations have grown in stature, economic 
strength, and sophistication. Not surprisingly, they are now 
less inclined to defer to the U.S. on major policy questions. 
They want to do their own thinking, evaluate their own self-
interest. And they do it very well. I am confident that we 
could negotiate parameters for a new multilateral trade 
organization that would be satisfactory to the U.S., but I'd be 
willing to wager they'll be no more satisfactory than those 
applicable to us today. So why go through at least two or three 
years of negotiating turmoil, coupled with equivalent turmoil 
in the international marketplace, to accomplish little or 
nothing?
---------------------------------------------------------------------------
    \5\ Particularly in light of the enmity that would be generated by 
our withdrawal.
---------------------------------------------------------------------------
    A fourth argument might be: ``But aren't there some 
political benefits to walking away? We'd be sending a strong 
message to the rest of the world about American toughness, and 
our willingness to go it alone if we don't like what others are 
doing.'' Yes, trade policy is ready-made for demagoguery, in 
any country. We can stir people up with ``America first'' 
statements, which will then stimulate an equivalent response by 
political figures in other nations. When the dust settles, what 
will we have accomplished? Essentially nothing where substance 
is concerned. We will have created unrealistic expectations 
within the U.S. as to what kind of institution will replace the 
WTO, and we will have generated lots of animosity throughout 
the world. That's not a great way to make friends, and we still 
do need friends in the world.
    All the arguments for walking away from the WTO have a ring 
of plausibility--but nothing more. When one examines the 
tradeoffs, the arguments all fail. In each case, the cost to 
the U.S. in the image we present to the world, and the cost to 
America's citizens emanating from the trade turmoil that would 
be created, is just too great for this to be seriously 
considered. Proponents of walking away choose not to recognize 
the costs, but that is naive. These decisions are made in the 
real world, and American families would quickly suffer those 
costs--and hold their political representatives accountable for 
them. That is, of course, one of the great advantages of a 
democratic society.

China

    Finally, since this hearing also encompasses the issue of 
Chinese membership in the WTO, along with permanent normal 
trade relations for China here in the U.S., I would like to 
offer a few comments on that subject.
    First, Chinese behavior--on trade, human rights, and a host 
of other issues--has not yet reached the norms that we in the 
U.S. consider acceptable. That is changing for the better, but 
not at a pace that we would prefer. Some Americans are even 
concerned that China may become a global adversary, perhaps 
even comparable to the Soviet Union of this past century. Let 
us hope and pray that such will not be the case.
    All of the above merits intense contemplation on our part, 
and careful, skillful creation of a strategy for nurturing the 
U.S.-China relationship. In my judgment, we've not done that 
well in recent years. Our China policy has often been passive, 
inconsistent and, at times, even incoherent. We must do better 
in the future.
    But none of that has much relevance to the issues now 
before this Committee and the Congress. From a U.S. standpoint 
the simple question is: ``Will we be better off with China 
inside (the WTO) or outside?'' They are outside today, and 
we've discovered that we have limited influence on Chinese 
policy. We want them in only under acceptable terms, of course. 
But Ambassador Barshefsky has done a fine job of negotiating 
those terms, so that issue is fundamentally behind us. Since 
our marketplace is relatively open, we've not had to offer much 
to the Chinese. Most of the economic benefits of the agreement 
flow to the U.S.
    Therefore, we should now ask ourselves whether we're likely 
to have more influence within China after they become WTO 
members, and my response would be in the affirmative. Why? 
Because we can then bring to bear not only whatever leverage we 
as a nation have, but also the leverage of about 150 other 
nations, the full membership of the WTO. With China seeking to 
expand its position in world trade, it cannot afford to ignore 
the views of its customers, particularly when those customers 
are bound together by common rules, as occurs in the WTO. That 
joint leverage does not exist today, with China being outside 
the WTO and thereby able to play off one customer nation 
against another.
    China today has some semblance of rules of law, at least on 
paper. But so long as it is outside the WTO, Chinese officials 
can follow or ignore those rules solely on the basis of their 
own self-interest. As a sovereign nation they can still do that 
once they are in the WTO, but then there is a price to be paid. 
That is quite a difference, and a vast improvement over the 
present situation.
    Some people will, however, suggest that we should continue 
to deny permanent normal trade relations to China even if that 
nation is accepted as a WTO member. That would simply not be 
rational. Our objective should be to cultivate and nurture the 
U.S.-China relationship in the coming years. If we do this 
well, not only should China become a fine export market for 
American business, but hopefully we'll also persuade the 
Chinese to alter their conduct in human rights and others areas 
of concern to us. That is the potential win/win element of this 
debate, but it will never materialize if we have a contentious, 
divisive normal trade relations debate every year. It is time 
to move beyond that, to a more confident, mature relationship 
based on earned respect.

Conclusion

    In summary, we should now do what we can to facilitate 
China's entry in the World Trade Organization, followed 
immediately by the entry of Taiwan, accompanied by the grant of 
permanent normal trade relations to China. The rationale for 
this is compelling, and nothing is to be gained by delay.
    Then we should exercise American leadership to make the WTO 
a more effective, functional institution than it is today. 
Expanded trade offers a better way of life to billions of 
people in our world. For some of them it is the only way. To 
cast aside that potential in a moment of American pique would 
border on the criminal. And it would clearly not be in our own 
self-interest, for we're the biggest winner of all when trade 
expands.
    Walking away is not an option. Slugging it out in Geneva is 
hard work, but nothing good comes easy! If we stay and slug it 
out, rather than cut and run, later generations of Americans 
will thank us--and so will lots of other folks elsewhere in the 
world.
    Mr. Chairman, I'll be pleased to respond to any questions 
you may have.
      

                                

    Chairman Archer. Ambassador Yeutter, thank you for coming 
and giving us the benefit of your extended experience and 
knowledge in this field. And you do have that historic 
experience and knowledge that none of us here on the roster has 
as your--as having been STR and also having been Secretary of 
Agriculture.
    Ambassador Yeutter. Thank you.
    Chairman Archer. I couldn't help but think, as you began to 
go over a little bit of the history, that trade has not been a 
controversial issue for the most part for many, many, many 
years. I remember the Kennedy round and there was great 
bipartisanship. There were no allegations that we can't open up 
trade because we don't like what some government is doing in 
other social areas. We don't like what their pay scales are. We 
don't like any of these things. That never entered into the 
picture until just recently at a time, interestingly enough, 
when we are at a peak of prosperity in the United States of 
America.
    It seems very ironic to me, and yet it is clear that--I 
think it is clear, in any event--and I think any objective 
reading of history is that gap, as you say, was extremely 
important to creating better standards of living all over the 
world that would not otherwise have existed without it.
    And I, frankly, am at a loss to understand how all of this 
controversy is being inserted today. And I just wondered if you 
have got any sort of analysis of that that might be helpful.
    Ambassador Yeutter. It is perplexing to me, too. It is 
amazing, Mr. Chairman, that we seem to be tempted to shoot 
ourselves in the foot just when things are going well. I don't 
know what explains that phenomenon, but it does seem to be the 
case.
    As you know, I sit on a whole host of major corporate 
boards, many of them doing business all over the world. And I 
can guarantee you that the United States has never been so 
competitive internationally. We are in a wonderful position to 
expand American influence--economic, political, and all other 
elements of influence--internationally. Our lead in much of the 
high-technology area, Mr. Chairman, is so great today, it is 
almost embarrassing. But that is the future and we need to be 
nurturing that future.
    On the China situation, Mr. Chairman, my experience from 
traveling the world is that we influence other nations by 
osmosis. We don't do it by pounding the table and sermonizing 
to the Chinese, the Cubans or anybody else. We do it by 
involvement with them, by the international exchange of people, 
goods, services and everything. It is the osmosis process that 
brings American values into their systems.
    We will deny all of that to China if we say no to permanent 
normal trade relations and if China enters the World Trade 
Organization notwithstanding our objections. This is, by far, 
our best opportunity of influencing Chinese conduct. Holding a 
vote every year on normal trade relations is not the preferred 
course of action!
    Chairman Archer. Well, at the risk of being redundant, but 
in the arena in which we operate, I find that redundancy has a 
great deal of value. If you don't keep repeating things, people 
don't seem to pay much attention to them. Number one, you have 
said it, Governor Ventura said it, and it is so important--
China will enter the WTO with or without our approval. Congress 
will have no vote on whether China enters the WTO. This has 
even been misreported in some of our better print media, which 
has implied that the Congress will be taking a vote on entry of 
China into the WTO.
    Ambassador Yeutter. Yes.
    Chairman Archer. And it should be said over and over and 
over again, Congress will not vote on this. So that is number 
one. Number two, what you have said and Governor Ventura said, 
I think, even more specifically----
    Ambassador Yeutter. And the other element to add to that, 
Mr. Chairman, and excuse the interruption, is that when it 
occurs (probably later this year) we will forego most, if not 
all, the benefits of Ambassador Barshefsky's negotiation.
    Chairman Archer. That was going to be my second point. My 
second point, which should be said over and over again, is that 
the United States has given up nothing in the bilateral 
negotiations with the Chinese. Our market will still stay as 
open or as closed, depending on how you want to look at it, 
irrespective of what happens with China entering the WTO. But 
the unilateral reductions and barriers that China has given up 
and, as Governor Ventura said, that some of the Chinese that he 
has talked to, said it is going to be tough on us for a while. 
We are going to be the one that are going to see the 
dislocations. That, as they open their market, we will not be 
able to take advantage of that.
    Ambassador Yeutter. Yes.
    Chairman Archer. But all of the other countries in the 
world will.
    Ambassador Yeutter. Exactly.
    Chairman Archer. Now, those are the powerful arguments that 
I think are involved in this issue.
    Ambassador Yeutter. They are. And just to add to your final 
point, Mr. Chairman, this is a big deal. As I read the 
newspapers in Arizona and here, and see some of the commentary 
emanating from opponents, the opposing view seems to be this is 
no big deal if we turn the Chinese away now. We can reconsider 
later. But it is a very, very big deal. As Governor Ventura 
indicated, this is one of the major decisions this Congress 
make in this century. It is astonishing to me that many Members 
of Congress have not yet recognized the importance of this 
decision at this point in time.
    Chairman Archer. Thank you, Mr. Ambassador.
    Mr. Thomas.
    Mr. Thomas. Thank you very much, Mr. Chairman. Hi, Clayton. 
It is good to see you again.
    Ambassador Yeutter. Thank you.
    Mr. Thomas. It is ironic that you follow Governor Ventura 
because he was very direct in denying any expertise in the 
area, and now we have somebody who probably claims as much 
expertise as anyone in the area.
    When you look at the history, a portion of which I have 
shared with you, it is just ironic to me when I think back in 
those days in the seventies and in the eighties, when, one, we 
had to try to get you on a plane and that as you got on the 
plane, I would urge you, for example, if you were going to 
China, to be sure and push the red wine and beef issue because 
we were always on the fringe. We were never formally and 
structurally at the table. And with the GATT, although our 
agricultural exports were always a significant factor in the 
balance of trade, we were outside the real structure.
    Through your work, hard work, and others, with the WTO, 
perhaps misnamed, we actually are at the table. If anybody 
looks at progress, in terms of taking what are some of our most 
important exports and placing them at the center of the trade 
question and providing a structure for the resolution of 
problems, we have made enormous advances. So, again, it is 
ironic to me that people would say you can't measure the 
progress. Hogwash. They haven't looked at the history.
    But here is the concern that I have. You mentioned the 
President cutting Ambassador Barshefsky off at the knees. If 
anybody knows anything about Chinese culture, they know how 
important face is. And given what happened to them for their 
willingness to come back at the table, they really must want 
this deal. That is a measurement that I think people don't 
appreciate. And the point is made, and I don't need to belabor 
it, since we are one of the most open and the largest open 
trading regimes in the world, any deal we strike with anyone 
else is bringing their barriers down, not ours.
    I, frankly, lay a lot of the current problems at the 
President's feet. The President must lead. He has been in and 
out on his focus. He was pushing NAFTA; he wasn't pushing 
NAFTA.
    Ambassador Yeutter. Yes.
    Mr. Thomas. He let fast track lapse and then acts as 
though, well, it is not that important. Well, now, it is 
important. And we are beginning to see this same kind of flow 
of Presidential leadership on not only the question of normal 
trade relations with China, but even our vote, which we will 
take about staying in WTO. So to a certain extent, the American 
people needed to have someone steadfastly in front of the push 
on all aspects for world trade. That, I think, is something 
that we will hopefully have him engaged fully and completely so 
we can solve it.
    Here is my dilemma. At the very time we are on the verge of 
creating a much better system, while we have been engaged with 
the Europeans over time on beef hormones, on citrus, on 
bananas, on canned peaches, minor, minor issues, the Europeans 
seemed willing to almost go nuclear on the foreign sales 
corporation question. Never has anyone dealt with a $4\1/2\ 
billion hammer.
    At the very time, we have got to show as much harmony as we 
possibly can. From your perspective on history, can you just 
give me some indication of European motivation? Now, just let 
me say, if someone wants to fundamentally change our tax code, 
I think going through the alphabet to DSC to FSC and onto other 
letters, we have to face the fact that our system is not 
compatible with the current world trading system and this helps 
us, cold water in our face, change our tax system. But, boy, 
the timing could not have been worse in my opinion. And, in 
your opinion, what is it that the Europeans hope to gain by 
this, what I consider to be a fairly reckless and dangerous 
move?
    Ambassador Yeutter. I am not sure that I can answer that 
very satisfactorily, Mr. Thomas. But what I do know is that 
trade relations between the United States and the European 
Union are by no means the best. This is another example of the 
administration not exercising the kind of leadership that is 
called for in this area.
    You are absolutely correct, Mr. Thomas, in that the United 
States must lead on trade. If we don't lead, nothing much 
happens. We haven't been doing a very good job of that in 
recent years, and now some of that is coming back to haunt us. 
One of the areas in which that is occurring is FSC. The FSC 
case has gone before the WTO and we have lost. I might say, by 
the way, that this loss should not generate any criticism of 
the WTO dispute mechanism for it is working very well, far 
better than in the past.
    Fundamentally, when we lose in the WTO, we deserve to lose. 
The fact is, we deserved to lose on FSC. It is just unfortunate 
that the administration wasn't able to work out an arrangement 
to put that issue to rest before it ever went through the full 
WTO process. In my judgment, what this Committee ought to do at 
the moment is throw that ball back in the administration's 
court and say, do something with it. That is a responsibility 
of the executive branch, initially at least.
    Maybe the administration will have to come back and ask you 
for legislation to fix this problem, but all executive branch 
options ought to be exhausted first.
    Mr. Thomas [presiding.] Thank you very much. Gentleman from 
Pennsylvania wish to inquire?
    Mr. Coyne. Thank you, Mr. Chairman. Welcome, Ambassador 
Yeutter.
    Ambassador Yeutter. Thank you.
    Mr. Coyne. I don't know if you were here with the testimony 
of Governor Ventura, but----
    Ambassador Yeutter. I was.
    Mr. Coyne [continuing.] He indicated that he thought it 
would be a good idea to have our American corporations in China 
and they would better serve us in being able to have an 
equitable trade atmosphere between the two nations and other 
nations as well. And he didn't have any problem with American 
corporations going there and taking advantage of the very low 
wages that are paid in China to their workers. Do you have any 
trouble with that?
    Ambassador Yeutter. Not really. Because international 
competitiveness is determined by a lot of factors of which wage 
rates are only one. There is no question that wage rates are 
far lower in China than here and probably always will be. But 
as the Governor was indicating, we ought to be able to turn 
that to our advantage and, in fact, create additional jobs here 
in the United States, rather than lose them.
    Right now, as the Governor indicated, we need more labor in 
the United States rather than less. I live in Arizona and, if 
you walk down the streets in Phoenix, about every third door 
has a ``help wanted'' sign on it. So we may well have some 
labor shortages for a long period of time here in the United 
States And we want the high-income jobs rather than the low-
wage jobs. So to the degree that American companies can get 
inputs in their manufacturing process from China or somewhere 
else in the world, benefit from the low wages in doing so, 
bring those inputs into the United States and finish a product 
off here using our high-wage employees, it seems to me that is 
truly advantageous.
    Mr. Coyne. So you wouldn't have any problem with 
corporations that you represent, or sit on the board of, going 
to China and paying wages that are significantly lower than 
what we pay union wages here or, worse than that, substandard 
safety conditions that exist in China.
    Ambassador Yeutter. Well, substandard safety conditions are 
another matter. There are legitimate worker rights issues in 
the world as a whole--not just in China, but in a good number 
of countries. We ought to see if we can't have an influence on 
that. I don't happen to believe that WTO entry is the right 
issue on which to make that stand. It seems to me we have other 
form in which to deal with worker rights abuses around the 
world. We need to crank up the International Labor Organization 
and find ways of being more persuasive and creating in dealing 
with worker rights issues throughout the world.
    But in terms of wage rates, that is another kettle of fish 
entirely. As I said earlier, low wage rates elsewhere can be 
worked to our advantage if we approach this issue intelligently 
and seek to complement American workers, rather than substitute 
for them.
    Mr. Coyne. Well, do you see companies and corporations in 
this country actually moving there to move away from the high 
wages of the United States to the lower wages?
    Ambassador Yeutter. No. I don't see that as a major problem 
at all. The companies with which I am associated, are really 
looking at how they can put together a package of factors of 
production that will make whatever it is they are producing 
internationally competitive in the world. To the degree they 
can do that here in the United States, they do it in the United 
States. They don't reach outside unless there is a particular 
need. In many cases, they are able to preserve jobs here and, 
in fact, pay higher wages here by being able to do some of 
their labor intensive jobs outside of the United States at 
lower wages.
    They make that combination of factors work out so that they 
have a product or service at the end of the day which can 
compete with anyone. It seems to me that in a global economy, 
that is an inevitable objective. We stop that trend with 
protectionism or anything else here in the United States. It is 
in exorable. What we need to do is make sure that it works out 
to be in the self-interest of the United States. And I believe, 
in most cases, it does.
    I don't see China, Mexico or other countries with lower 
wage rates taking many jobs away from the United States, the 
sucking sound that we talked about earlier, other than those we 
rather not do. Those countries don't have the other factors of 
production to fit with low wage rates; hence their ``total 
package'' is uncompetitive with us. Putting it into a 
basketball model they have to be role players. The principal, 
and most rewarding, factors of production are here in the 
United States. That is true, Mr. Coyne, with every major 
company on whose board I sit.
    Mr. Coyne. Thank you.
    Mr. Thomas. The gentlewoman from Connecticut wish to 
inquire?
    Mrs. Johnson of Connecticut. First of all, the Honorable 
Mr. Yeutter, it is a pleasure to have you here----
    Ambassador Yeutter. Thank you.
    Mrs. Johnson of Connecticut. [continuing.] And with your 
long experience, both in trade and in manufacturing. And I 
would like to return to the--to pursue the line of questioning 
of my colleague from Pennsylvania. What percent of low-wage, 
U.S. manufacturing jobs have already gone to a low-wage 
country, whether it is Puerto Rico, under our special tax 
provisions, whether it is Mexico, whether it is Brazil, whether 
it is China, whether it is Thailand, Cambodia, wherever. What 
percentage of those low-wage jobs are still in American 
manufacturing?
    Ambassador Yeutter. Not very many of them are here any 
longer, Congresswoman Johnson, because Americans don't have to 
work for those wages anymore.
    Mrs. Johnson of Connecticut. Yeah.
    Ambassador Yeutter. They have better jobs available here 
they don't want to carry out most of those tasks. It is hard to 
fill them.
    Mrs. Johnson of Connecticut. Now, let me ask you a second 
question. I am beginning to see as--and I spend a lot of time 
on factory floors. I am beginning to see jobs come back from 
China.
    Ambassador Yeutter. Yes.
    Mrs. Johnson of Connecticut. Why? Because one little 
company, who was up against China's ability to package because 
they pay such low wages, had figured out a little machine that 
as the stuff came off the--these were screws, very little 
things. They are hard to make in America because of the cost. 
And they could--they had figured out a new machine that just 
put these into packages, did the whole thing, so they could 
keep this job in America. They added value to their product. 
Now is this just my creative little plan or are we actually 
learning to do some of the things that were low wage in China? 
Because, after all, there is transportation costs associated 
with this in America.
    Ambassador Yeutter. Well, as I indicated earlier, companies 
really look at the total package of costs. They do add in 
transportation costs, packaging, and everything else that is 
associated with the product or service they sell. Nowadays, 
with information technology that is available, we can do this a 
lot better than in the past. Companies have access to 
information that they didn't have previously years. All this 
has happened in just the last few years. Firms now know the 
cost of their manufacturing operations with much more precision 
than before.
    As a consequence, they are making these very rational 
decisions on a global basis. A lot of people in America, of 
course, fear that outcome because they think somehow this is 
going to shift lots of jobs elsewhere. I don't fear it at all. 
I think a better knowledge base clearly works to the advantage 
of the United States.
    Mrs. Johnson of Connecticut. If you could get us any 
information on the number of jobs that are beginning to move 
back as we learn to do the technology--one of the problems with 
the minimum wage issue is that when you push it up, restaurants 
are figuring out how to serve food without people.
    Ambassador Yeutter. Sure.
    Mrs. Johnson of Connecticut. So price and technology are 
intimately related. And what I see happening is the creativity 
in our technology capability is now beginning to address itself 
to keep production here more holistically. Then the last 
question I wanted to ask you was, what percentage of the jobs 
that have moved abroad, whether to China--and, of course, it 
would be very useful to know, you know, country by country--are 
coproduction jobs that have to go? Because we did not like the 
Chinese--the Japanese automakers building cars in our country 
and importing all the parts and we did something about it.
    Ambassador Yeutter. Right.
    Mrs. Johnson of Connecticut. So we need to sort out this 
old issue of cheap labor and whether or not it actually is 
taking jobs abroad anymore and where we are with the jobs that 
have to go abroad in order--and then last, because my time has 
run out now, I would like to get some--if you can help me with 
figures that talk about manufacturing productivity increases. 
We are producing so much more stuff. And we have, what, four--
we are 4 percent--you had it here--4 percent of the world's 
population within our borders and it is slow growing. So when 
we produce three or four times as much product, we can't sell 
it to ourselves. And if we can't----
    Ambassador Yeutter. That is so true.
    Mrs. Johnson of Connecticut [continuing.] Sell it abroad, 
we can't sell it. Then we don't have jobs. So if you can help 
me with any of the data that lie behind that. I do think 
Members are rational, although it is hard to stand up to union 
leaders. You don't have to stand up to union membership because 
when you give them the information, they, too, have common 
sense. Thank you.
    Mr. Thomas. Would the colleague yield briefly?
    Mrs. Johnson of Connecticut. Yeah. I would be happy to.
    Mr. Thomas. What I find ironic is that in this discission, 
this is the kind of discussion that we have in terms of where 
the jobs go, labor and the rest. We have just been handed a 
catastrophe. The Foreign Sales Corporation decision goes right 
to the corporation's bottom line and that there are people 
looking to move tomorrow by the virtue of that tax decision 
that never would have moved----
    Ambassador Yeutter. Yes.
    Mr. Thomas [continuing.] Playing the labor structure game. 
And so here we try to divine the understanding of automatic 
packaging and not let the labor market deal with itself. Yet, 
somehow, we aren't directly already in a panic creating a 
resolution to a problem which will produce corporations 
leaving, simply because the bottom line won't let them stay.
    Ambassador Yeutter. Right.
    Mr. Thomas. And I find that very ironic.
    Ambassador Yeutter. Going back to some of your points, 
Congresswoman Johnson, very quickly. One is, data are really 
very inadequate in the whole trade arena--very distorted. 
Because so many products are now combinations of work 
accomplished in maybe as many as 20 countries before they 
become a final product. Is that an American product? Is it 
somebody else's product? Is it an import or is it an American, 
domestically produced product? It is often impossible to tell. 
So the data are very inadequate, and I think this is one of the 
reasons that we have become mislead by the trade deficit.
    I don't happen to believe the trade deficit is anywhere 
near the problem that is indicated by the numbers we see. I 
don't believe those numbers accurately reflect what is really 
happening in international commerce. I also think that is one 
of the reasons our economy continues to perk along in such 
great fashion, even though we supposedly have this gigantic 
trade deficit.
    And the other factor is information technology. We have to 
emphasize over and over again, that this technology has made 
thousands of U.S. companies far more sophisticated than in the 
past. They now know how to do things in the most cost-effective 
way, and there by enhance their international competitiveness.
    Mr. Thomas. Thank you, Ambassador.
    Ambassador Yeutter. But let's give Congressman Levin a 
chance.
    Mr. Thomas. The gentleman from Michigan wishes to inquire.
    Mr. Levin. Thank you. Well, we have had a far-ranging 
discussion, so let me just comment briefly. Mr. Yeutter and I 
are old friends. I just urge that we try to find some balance 
here. I think what the Chairman said, Mr. Archer, that China is 
going into the WTO with or without the United States. That is 
true. In terms of the benefits, I think it is an overstatement 
to say that if we don't grant permanent NTR, we will get none 
of the benefits. That isn't true. But it is also not true that 
we will get all of them.
    Mr. Archer asked why these last years has trade policy 
broken down? And I think realistically, in part, the answer is 
because conditions have changed and more and more of our trade 
is with countries that have very different economic and related 
conditions to the United States.
    More and more of our trade is with evolving economies that 
have very different labor market standards, very different 
environmental standards, and also, and China is the supreme 
example, very different structures or lack of them, regarding 
human rights. That wasn't true basically of Europe and Japan 
and our trade relationships were primarily in the '70s and '80s 
with them. And our disputes were with Japan, which had these 
basically similar labor and other structures. So it isn't so 
unusual or, I should say, unexpected that we would run into 
these difficulties. And I am hopeful that we can resurrect a 
bipartisan policy.
    In that respect, let me urge we resist being too partisan. 
And, Mr. Yeutter, Clayton, I just urge on FSC, let's avoid 
casting stones too readily. I do not think it is fair to say 
that that problem is basically because of the lack of 
administrative--administration leadership. I just don't think 
that is really what happened. We had an agreement with the 
European community. Maybe you negotiated it. I forget who did. 
And they essentially reneged. They have reneged on an agreement 
that we had with them, an agreement that they essentially were 
not going to challenge and they decided to do that. And they 
have used a structure that we helped to create and we better be 
careful about haranguing the administration or WTO because some 
of the opponents who want to have us withdraw from the WTO talk 
about this structure and that it has binding effect on the 
United States. And those who believe there should be such a 
structure had better be careful in how we handle the cases we 
don't like as well as the multiple of decisions that we do 
like.
    So, and by the way, in terms of the competition with low-
wage economies, I think it is foolish to deny there is 
competition. Look, I voted against the steel quota bill because 
it violated our WTO obligations, but we were competing with 
Chinese steel, which flooded in here, as well as steel from 
other countries. And the labor market factor was one of them. 
That is why we have 201. That is why after April--it wasn't 
there then--Ambassador Barshefsky and others negotiated a 
strong antisurge provision in the Chinese agreement, which is 
an important tool for us, which I think we should embed in 
legislation. It is an important tool. It is there because we 
are competing with these countries, potentially and we need 
some kind of a defense.
    So I mean, there is something between a sucking sound and 
nothing. So I just urge that we have a sense of perspective and 
a sense of balance and work together to try to make, as the 
Governor said, some sense out of all this. And I would just 
urge on the Foreign Sales Corporation, look, we need to work 
together to see if we can find an answer to this. And I don't 
think it is helpful to cast stones where I don't think they 
belong.
    My guess is, Mr. Yeutter, if you had been running our 
policy these last years, because the Europeans reneged, in 
simple terms, we likely would be where we are today facing the 
issue of how we respond to their, I think--I won't use the word 
betrayal--their backing down on a commitment they made to us.
    Ambassador Yeutter. You may be right in that respect, Mr. 
Levin; there is no way to know that. And I agree with you that 
we should try to keep international trade policy on a 
bipartisan basis. But I get frustrated by the fact that we are 
just not getting some things done that ought to be accomplished 
in the trade policy field. The United States just has to take 
responsibility for that. A lot of this what kind of 
relationships we have with our counterparts in other countries, 
a lot of it is a question of preparation, and a lot of it is a 
question of how well we design and carry out our strategies.
    We could get into the Seattle situation, but I don't want 
to belabor that issue. The fact is, we just didn't perform very 
well, and we have to accept the consequences of unsatisfactory 
performance.
    Mr. Levin. But I don't think whatever were the problems 
that Seattle had, a darn thing to do with the Foreign Sales 
Corporation.
    Ambassador Yeutter. Oh, no. But they had----
    Mr. Levin [continuing.] And----
    Ambassador Yeutter [continuing.] But they had to do a lot 
with short comings in American leadership.
    Mr. Levin. Well, OK. I--my guess is it had more to do with 
European decisions looking after other issues, whether it is 
bananas or the air bus. And I think it is a mistake for us to 
oversimplify these issues and rather easily throw stones when 
what we need to do is less of that and more rebuilding a 
bipartisan consensus.
    Ambassador Yeutter. Yes, but let's have some accountability 
too.
    Mr. Levin. And I hope we can do that on the China issue, 
Mr. Thomas, as we have discussed.
    Ambassador Yeutter. I hope so, too. The only final comment 
I would have Mr. Levin, is that we have a lot of trade problems 
on your front burner in the Congress and on the front burners 
of the American public as a whole. Many of those are going to 
have to be solved in the next administration, whether it be 
Democratic or Republican. Too many of these have festered for 
too long and they need attention.
    Mr. Levin. I agree. We also had problems in the seventies 
and eighties.
    Ambassador Yeutter. Well, sure.
    Mr. Levin. A lot of them.
    Ambassador Yeutter. Sure. But I am a little more worried 
now than I was back in those years.
    Mr. Thomas. Does gentleman from Georgia wish to inquire?
    Mr. Collins. Thank you, Mr. Chairman. Mr. Yeutter, speaking 
of Seattle, I think the most fruitful statement that I saw was 
on a marquee. As I came out of the Western hotel, the morning I 
was leaving, and that used to be a little theater, but now it 
is a little restaurant. And it says, thanks, WTO. It has been a 
riot. That was an interesting experience out there.
    I recall, too, that in 1995 in a trip with the Trade 
Subcommittee to China, we were meeting with the senior minister 
of trade. And the question was asked about what will it take? 
What does the United States have to do in order for China to 
enter the WTO?
    We need specifics. Those were the--that was the statement 
and the question that Ms. Barshefsky asked us to ask when we 
left Singapore.
    Ambassador Yeutter. Yes.
    Mr. Collins. And to the surprise of all who were there, 
including the Deputy Ambassador to China, because, at that 
time, the Ambassador was here in the States traveling with the 
defense minister, Mr. Ju stated that China would enter the WTO 
before the end of this century, which is this year. So this 
is--we have been knowing that this was coming.
    Many have said that this is an opportunity. You know, 
sometimes we get opportunity mixed up with temptation. And when 
you look at the concessions that China has made, it does look 
like a great opportunity----
    Ambassador Yeutter. Yes.
    Mr. Collins [continuing.] Because they have made a lot of 
concessions in a lot of areas that will be better beneficially, 
especially to the industries in this country that have moved 
into high tech. But the reason, I think, that it maybe getting 
a little bit confused with temptation is because when you look 
at the area of textiles, you won't find them in the 
negotiations.
    Now, I am not talking about the cut-and-sew--the apparel. 
It is hard to high tech a sewing part of the cut-and-sew 
business. But the textile industry, otherwise, has moved into 
high tech. They have moved into higher paying jobs. And they 
are not asking for total protection. They are asking for 
transition. And I don't see those in the negotiations that we 
have made with China.
    I have long said that it would be better for this nation, 
for China, to be in the WTO because there will be concessions 
made for our market access in their country. And we discussed 
that too in 1995 with Mr. Ju and he also informed us in that 
same meeting that they were going to reduce the tariff on 
textiles into their country and also increase the quota that we 
would ship in. So they have--there are areas that can be 
negotiated with them in the area of textile. I do notice that 
in the area of agriculture, that one of the commodities that is 
greatly increased is cotton. Now, you don't eat cotton. At 
least, I don't think you do, not much of it anyway. But you do 
make cloth from it, yarn, cloth. You are using textiles. So I 
am very concerned that we have moved away from one industry 
that has moved into the high tech area, moved into higher job 
pay, but we are moving off and leaving them in these 
negotiations. It looks as though they are the sacrificial lamb. 
That is my concern.
    Ambassador Yeutter. Well, obviously I can't speak for 
Ambassador Barshefsky as to how she handled that issue in the 
negotiations. My understanding, though, is that textiles are 
handled in accordance with the Uruguay Round agreement on that 
subject which called for a phaseout of the old MFA program over 
a period of 15 years, if I remember correctly and that----
    Mr. Collins. With 5 years left to go.
    Ambassador Yeutter. Yes. And if new countries enter the WTO 
during that period, quota programs will be appropriately 
adjusted. So my understanding is that China, upon entry to the 
WTO, will have to be considered in that process. But this would 
not increase the amount of Textile imports flowing into the 
United States. China's entry into the WTO would not alter that 
number, to the best of my knowledge.
    Mr. Collins. Well, yes. And I understand that. But in all 
of the negotiations to increase the export from here and import 
into China of other products and other industries, we left them 
out. And that is my concern, because it is a large industry 
still in parts of the country.
    Ambassador Yeutter. Sure.
    Mr. Collins. And, you know, a job loss to anyone is a loss. 
And many people can't transcend from one job to another job 
very easy.
    Ambassador Yeutter. Yes. That is true. But you also got 
some winners for Georgia agriculture in that process, too.
    Mr. Collins. Well, I--not too long ago, I met with several 
industries within one county that I served. And I had some 
there who would be winners and some who would be losers. It was 
interesting to have the dialogue at a luncheon.
    Ambassador Yeutter. Yes.
    Mr. Collins. But I thought it was needed because I think 
both needs to understand the difference between opportunity and 
temptation. Thank you for being here.
    Chairman Archer. [presiding.] And, Mrs. Thurman.
    Mrs. Thurman. Just a comment, Ambassador. I want to be 
associated with Mr. Levin's remarks somewhat because we all 
really are struggling very hard on this issue for lots of 
reasons. And, quite frankly, as you talk about areas festering 
in some of the trade issues, some of it is because of exactly 
the problems what we are having in this country and that is, 
who are the winners and losers.
    No person or people in any other country is not having the 
same hesitations and the same arguments--the European Union, 
with their farmers. So to try to just kind of broad brush any 
of this, I think, is--each area is very different. Each has 
their own isolationist point and struggling through this change 
in the economy across this world is very difficult for 
everybody. So I don't think we can just broad brush that one 
administration or another has not been strong. I certainly can 
tell you on this issue, this President has sent everybody and 
anybody that they can to come talk to me about it. So--I can 
tell you his strength is----
    Ambassador Yeutter. I am glad to hear that.
    Mrs. Thurman [continuing.] Being shown in this Congress. 
So--I just--I need to make that point with you--because I have 
sat at some of those negotiation tables. I have a very strong 
agricultural background from the State of Florida. And I have 
worked on many of these agreements. I have looked at what has--
happened in--under the NAFTA agreements. And all of these 
related to what brings us to the tables today. But the fact of 
the matter is, there are--they may be festering, but it is not 
always because we haven't developed the right action.
    Ambassador Yeutter. Well, as Congressman Levin indicated, 
there have been trade problems around for a long time and I 
have personally had 30 years of struggles with them. 
Congressman Levin has had almost that many. So we have gone 
through a lot of these battles. But when you look at the big 
picture, which is what one ultimately must do on a national 
basis, it is hard to conclude that this would not be a really 
good thing for the United States as a whole.
    There are going to be some winners and losers. There are 
with every trade agreement, every entry of a nation into the 
WTO. There is always some trauma involved in this, and it is 
greater in some congressional districts than others. So I know 
what you folks go through with your own constituencies. But 
finally, when the chips are down, you have what is best for the 
United States is a whole? And it seems to me the answer in this 
case is quite obvious.
    Mr. Houghton. [presiding.] Well, Mr. Ambassador, I agree 
with everything you have said. You and I have never had an 
argument, have we?
    Ambassador Yeutter. I don't believe so, Mr. Houghton.
    Mr. Houghton. And so it is wonderful to have you here. 
Thanks so much for your presentation.
    Ambassador Yeutter. Thank you.
    Mr. Houghton. I would like to ask the next panel to come 
on, Mr. William Weiller, as Chairman of the Board of Purafil 
and representing the U.S. Alliance for Trade Expansion and 
National Association of Manufacturers; Mr. Schroeder, Chief 
Executive Officer of National Cattlemen's Beef Association; 
Dale Grogan, President of Leapfrog Smart from Orlando, Florida, 
a member of the U.S. Chamber; and Peter Lichtenbaum, Partner, 
Steptoe and Johnson on behalf of the Section of International 
Law and Practice, American Bar Association. All right. Mr. 
Weiller, would you like to----
    Mr. Weiller. Thank you.
    Mr. Houghton [continuing.] Give your testimony?

 STATEMENT OF WILLIAM WEILLER, CHAIRMAN OF THE BOARD AND CHIEF 
 EXECUTIVE OFFICER, PURAFIL, INC., ATLANTA, GEORGIA, ON BEHALF 
OF U.S. ALLIANCE FOR TRADE EXPANSION, AND NATIONAL ASSOCIATION 
                        OF MANUFACTURERS

    Mr. Weiller. Thank you. And good afternoon, Mr. Chairman. 
My name is Bill Weiller. I am the Chairman of the Board and CEO 
of Purafil, a leading manufacturer of air purification systems 
based in Atlanta, Georgia. I would like to thank you for the 
opportunity to testify before the House Ways and Means 
Committee on U.S. participation in the World Trade 
Organization. And I am here on behalf of the U.S. Alliance for 
Trade Expansion, and obviously also for Purafil. I have a 
prepared statement for the record and some remarks.
    The U.S. Alliance for Trade Expansion, commonly referred to 
as U.S. Trade, encompasses an impressive, broad-based group of 
agriculture, consumer, manufacturing, retailing, and services 
organizations representing $2 trillion in annual trade and over 
150 million Americans. The coalition seeks to promote the 
benefits of economic growth, job expansion and higher living 
standards in the United States as a result of free trade and 
specifically U.S. participation in the WTO.
    Many might be surprised that Purafil, a small American 
business with about 70 employees, is even remotely interested 
in the WTO and its objectives. In fact, we often encounter the 
notion that global free trade is good for big companies and bad 
for the little guy. Small and medium-sized businesses do not 
attract the headlines the multinationals do, and often our 
successes in the global marketplace go without notice. But I am 
here to let you know that open trade is not only good for 
Purafil, it is the backbone of our business and our strategy.
    In fact, Purafil is representative of many small 
businesses. I have attached a chart to my testimony, which you 
may find interesting. In '89, nearly half of the National 
Association of Manufacturers' small- and medium-sized member 
companies said they did not export. Today, 80 percent of all 
those manufacturers export. This important sea change has taken 
place over the past decade. It would not have been possible 
were it not for the trade liberalization brought about by the 
WTO and, of course, more credit is given for the GATT preceding 
it.
    No matter how good our products, we would not be able to 
export overseas if foreign country barriers were too high or if 
world trade were not based on rules. This is where the WTO has 
come in. Over the years the WTO and its predecessor, GATT, have 
cut tariffs and trade barriers, have developed more fair 
trading rules, and have done an enormous job in leveling the 
playing field. Tariffs on U.S. manufactured goods exports to 
most developed countries, for example, are about 3 percent or 
less today; but not too many years ago, they were high enough 
to limit our sales prospects severely. Similarly, rules 
affecting standards, custom valuation, intellectual property 
rights, and other essentials of trade have all improved 
dramatically as the WTO has worked to liberalize trade.
    A letter signed by over 300 companies and associations was 
sent to each Member of the House today. The message is very 
simple. No more Smoot-Hawleys. We urge you to oppose House 
Joint Resolution 90, introduced by Representative Ron Paul, 
which calls on the Unites States to withdraw from the WTO. 
Trade--exports and imports--now represent about 30 percent of 
the U.S. economy. And no rules of the road governing 30 percent 
of the U.S. economy, is unthinkable.
    Removing ourselves from the rules-based trading system 
would have disastrous consequences for the American economy, 
jeopardizing both the longest economic expansion in U.S. 
history and continued U.S. global economic leadership. The 
consequences would impact agriculture, and my colleague on this 
panel will address those issues in greater detail.
    Intellectual property rights: TRIPs, Trade Related Aspects 
of Intellectual Property Rights, are critical to American 
holders of patents, trademarks and copyrights. Total foreign 
sales of the core copyright industries amounted to an estimated 
$45 billion in 1993. TRIPs implementation has produced the most 
significant progress to date for protecting pharmaceutical 
patents in developing countries. We should not make the world 
safe for pirated American software, pharmaceuticals, and other 
high-value products.
    Manufacturing: The story of my company's rapid export 
growth is repeated thousands of times by other U.S. exporters. 
In the mid-eighties, manufactured goods exports were 3.5 
percent of the U.S. Gross Domestic Product. Today, they are 7 
percent of America's GDP, double what they were 15 years ago. 
That means U.S. manufactured goods exports have been growing 
twice as fast as U.S. domestic production. That is quite an 
achievement, and it would not have been possible without the 
WTO's trade liberalizing actions. Thus it should be no surprise 
that the WTO trade-related system, one that opens markets and 
helps protect us against abusive trading practice, is more 
important than ever to American manufacturers.
    Retailing: In that area, tariffs are essentially import 
taxes that, if re-introduced as a result of a U.S. pullout, 
could add 30 percent or more to the price of consumer products. 
As Federal Reserve Chairman Alan Greenspan has noted on several 
occasions, imports have also served as a great inflation-tamer 
in a period of rapid economic growth.
    Services: The WTO rules safeguard American service 
exports----
    Mr. Houghton. Go right ahead. Or you are at the end of your 
time, but----
    Mr. Weiller. Yes, sir. I will be----
    Mr. Houghton [continuing.] We will go right ahead here.
    Mr. Weiller [continuing.] Well, basically, what I also 
wanted to say that we support not only staying in the WTO, but 
also the--China's accession to the WTO and the looming vote to 
a PNTR. And my company and our association strongly urge to you 
to vote for it. Thank you.
    [The prepared statement follows:]

Statement of William Weiller, Chairman of the Board and Chief Executive 
Officer, Purafil, Inc., Atlanta, Georgia, on behalf of U.S. Alliance 
for Trade Expansion, and National Association & Manufacturers

    Good morning, Mr. Chairman. My name is Bill Weiller, I am 
the Chairman of the Board and CEO of Purafil, a leading 
manufacturer of air purification systems based in Atlanta, 
Georgia. I would like to thank you for the opportunity to 
testify before the House Ways and Means Committee on U.S. 
participation in the World Trade Organization (WTO). I am here 
on behalf of The U.S. Alliance for Trade Expansion, and 
obviously also for Purafil.
    The U.S. Alliance for Trade Expansion, commonly referred to 
as ``US Trade,'' encompasses an impressive broad-based group of 
agriculture, consumer, manufacturing, retailing and services 
organizations representing $2 trillion in annual trade and over 
150 million Americans. The coalition seeks to promote the 
benefits of economic growth, job expansion and higher living 
standards in the United States as a result of free trade and 
specifically U.S. participation in the WTO.
    Many might be surprised that Purafil, a small American 
business with about 70 employees, is even remotely interested 
in the WTO and its objectives. In fact, we often encounter the 
notion that global free trade is good for big companies and bad 
for ``the little guy.'' Small and medium-sized businesses do 
not attract the headlines the multinationals do, and often our 
successes in the global economy go without notice. I am here to 
let you know that open trade is not only good for Purafil, it 
is the backbone of our business.
    In fact, Purafil is representative of many small 
businesses. I have attached a chart to my testimony, which you 
may find interesting. In 1989, nearly half of the National 
Association of Manufacturers' small and medium-sized member 
companies said they did not export. Today, only one in five 
fall into that category. In 1989, only 4 percent of those 
members earned more than 25 percent of their revenue from 
exporting and another 4 percent earned between 11 percent and 
25 percent. Today, those percentages have more than doubled to 
9 percent and 11 percent respectively. Let me just hammer that 
point home. Today, in NAM's surveys we're finding that 
exporting generates over 11 percent of the earnings for 1 out 
of every 5 exporters and over 25 percent for 1 out of every 10 
of these smaller manufacturers. This important sea-change that 
has taken place over the past decade would not have been 
possible were it not for the trade liberlaizationliberalization 
brought about by the WTO.
    I'd like to tell you a little bit about my company and how 
the WTO has allowed us to expand our exports. Purafil 
manufactures air quality systems that remove odorous, corrosive 
and toxic gases. In short, we sell clean air. Our customers 
include paper mills in Argentina, Oklahoma and North Carolina. 
We protect valuable artifacts in the Netherlands, the Sistine 
Chapel, and in Washington, DC. We service petrochemical 
refineries in Texas, Brazil, and Saudi Arabia. Despite our 
small size, Purafil is an industry leader in this niche market.
    Sixty percent of our sales are made outside of the United 
States. Exporting is vitally important to Purafil: it is the 
cornerstone of our corporate strategy. We are not a company 
that got into international sales by accident or solely as a 
reaction to market demand. We have recognized that in order to 
survive, to continue to provide jobs to our employees, and to 
continue to fund the R & D efforts necessary to our success, we 
have to export and become experts in doing international 
business.
    The problems that Purafil can solve are the same worldwide. 
A refinery in Baton Rouge experiences the same hazardous 
emissions from manufacturing processes as does a refinery in 
Saudi Arabia. The Sistine Chapel protects its artwork from 
environmental degradation, as does the U.S. National Archives 
in Washington. Our intellectual property, considering our size, 
is significant. We have worked hard to take a technology that 
was developed in the U.S. about 30 years ago and have 
constantly refined and improved it.
    If Purafil were not present to solve these problems, the 
increased demand for a solution would result in foreign 
competitors gaining the business. Right now, Purafil is the 
best in the world at solving air purification problems. We have 
a technology that cannot be matched. Purafil has worked hard to 
stay on top of our industry, and I fear that without exporting, 
someone else will take the lead. We have few viable U.S. 
competitors that serve all the applications and markets that we 
do. That ``someone else'' could likely be a company from 
outside the U.S.
    But no matter how good our products, we would not be able 
to export overseas if foreign country barriers were too high, 
or if world trade were not based on rules. That is where the 
WTO has come in. Over the years the WTO and its predecessor, 
the GATT, have cut tariffs and trade barriers, have developed 
more fair trading rules, and have done an enormous job in 
leveling the playing field. Tariffs on U.S. manufactured goods 
exports to most developed countries, for example, are about 
three percent or less today; but not too many years ago they 
were high enough to limit our sales prospects severely. 
Similarly, rules affecting standards, customs valuation, 
intellectual property rights, and other essentials of trade 
have all improved dramatically as the WTO has worked to 
liberalize trade.
    As much as the WTO has done, there is still more to do. For 
example, Mr. Chairman, the tariff for our equipment in South 
Africa is 19%. In response to this, we signed a licensing 
agreement with our local representative so they could build 
portions of our equipment in country and remain competitive. 
That representative utilized the Purafil name and proceeded to 
dissolve the relationship and become a low cost, Purafil-
educated competitor, leaving us with little recourse. We are 
facing similar high tariff situations in India, Brazil, China 
and others. One solution is to form licensing agreements in 
these countries, but in doing so, we dilute our profit margins 
and make it easy for partners to eventually become competitors. 
The real solution is for the WTO to move forward in continuing 
to reduce tariffs and other barriers, particularly in the 
developing countries, where the barriers are still high.
    Purafil will continue to do everything in its power to 
remain competitive. I am here today to ask you to do your part 
-level the playing field so our people, our technology and our 
products can compete in the global market. Don't force us to 
compete with the trade barriers and tariffs currently in place.
    I don't need statistics, studies or business experts to 
tell me that exporting creates jobs and is good for the 
economy. As a small business owner, I see it every day I go to 
the plant. I'm constantly reminded when I look at the shipments 
on our dock and see their final destinations.
    That is why we support continued U.S. membership in the 
WTO. For Purafil and other small-business exporters, we will 
continue to be successful only if we maintain our international 
customer base. In order to do that, we will depend on the 
reduction of tariffs and other trade barriers. A multilateral, 
rules-based approach to trade, negotiated through the WTO, is 
strongly supported by Purafil.
    I want to submit for the record a letter signed by over 130 
XXX companies and associations. The message is very simple: No 
more Smoot-Hawleys. We urge you to oppose H.J. Res. 90, 
introduced by Congressman Ron Paul (R-TX), which calls on the 
U.S. to withdraw from the WTO.
    Removing ourselves from the rules-based trading system 
would have disastrous consequences for the American economy, 
jeopardizing both the longest economic expansion in U.S. 
history and continued U.S. global economic leadership. The 
consequences include:

Agriculture

    The WTO Agreement on Agriculture required countries, for 
the first time, to reduce or cap tariffs, export subsidies and 
internal support mechanisms, and established new science-based 
rules for measures restricting imports on the basis of human, 
animal or plant health and safety. If the U.S. withdrew, 
American farmers could be excluded from these benefits. 
Moreover, American farmers would not benefit from further 
negotiations already launched at the WTO to reduce trade-
distorting export subsidies overseas. One-third of American 
farm production is sold overseas. These exports support 
approximately 750,000 American jobs.

Intellectual Property Rights (IPR)

    The enforcement mechanisms now available to the U.S. under 
the WTO's Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPs) are critical to American holders of 
patents, trademarks and copyrights. Total foreign sales of the 
core copyright industries amounted to an estimated $45.8 
billion in 1993. TRIPs implementation has produced the most 
significant progress to date for protecting pharmaceutical 
patents in developing countries. We should not make the world 
safe for pirated American software, pharmaceuticals, and other 
high value-added products.

Manufacturing

    The story of my company's rapid export growth is repeated 
thousands of times by other U.S. exporters. In the mid-1980's 
manufactured goods exports were 3.5 percent of U.S. GDP. Today, 
they are nearly seven percent of America's GDP -double what 
they were only 15 years ago. That means U.S. manufactured goods 
exports have been growing twice as fast as U.S. domestic 
production. That's quite an achievement, and it wouldn't have 
been possible without the WTO's trade liberalizing actions -
including the ``zero-for-zero'' initiatives in the Uruguay 
Round and the Information Technology Agreement that eliminated 
duties on many high technology products -just to name a couple. 
With $527 billion in exports in 1998, the United States is by 
far the world's largest exporter of manufactured goods -almost 
20 percent more than our nearest competitor. Manufactured 
products now account for 62 percent of all U.S. exports. Thus 
it should be no surprise that the WTO's rules-based 
international trading system -one that opens markets and helps 
protect us against abusive trading practices -is more important 
than ever to American manufacturers.

Retailing

    The U.S. retailing sector employs nearly one-fifth of the 
American workforce, and contributes greatly to the high U.S. 
standard of living by providing consumers with the wide variety 
of products they demand at affordable prices. Tariffs are 
essentially import taxes that, if re-introduced as a result of 
a U.S. pullout, could add 30 percent or more to the price of 
consumer products. As Federal Reserve Chairman Alan Greenspan 
has noted on several occasions, imports have also served as a 
great inflation-tamer in a period of rapid economic growth.

Services

    The WTO General Agreement on Trade in Services (GATS) 
establishes a rules-based trading system for services. The WTO 
rules safeguard American service exports, which were $260 
billion in 1998 and resulted in a surplus of $79.4 billion. The 
Basic Telecommunications Agreement represents 91 percent of the 
total domestic and international revenue of $600 billion 
generated in this sector annually. The Financial Services 
Agreement represents 95 percent of the international trade in 
banking, insurance, securities and financial information. 
Negotiations to further liberalize world-wide trade in 
services--including the delivery of services via electronic 
commerce--began in January 2000.
    It's not just the economy that is at stake, but our 
national security as well. The rules-based trading system that 
has developed since the end of World War II stands in sharp 
contrast to the mushrooming trade barriers that the world saw 
in the 1930s. These policies sent trade flows into a long 
downward spiral that culminated in the virtual collapse of 
international commerce, depression and, finally, war. The 
bitter lessons of the first half of the 20th century provide a 
map of what roads not to go down in dealing with an integrated 
world economy--economic nationalism, isolationism and 
protectionism.
    The WTO is by no means perfect. We, along with other 
groups, have advocated a range of measures to improve the 
functioning of the system. At the same time, it is indisputable 
that the rules-based trading system has been a positive force 
shaping the world since the end of World War II. It has played 
an essential role in the transformation of the American economy 
since the mid-1980s, driven in no small measure by the 
competition faced both here and abroad. Concerning the 
alleviation of poverty, trade is a key element in any economic 
growth strategy worth mentioning in the developing world.
    U.S. membership in the World Trade Organization deserves 
the support of all Americans. We urge you to oppose H.J. Res. 
90 which calls on the United States to withdraw from the World 
Trade Organization.
    Thank you.

    [GRAPHIC] [TIFF OMITTED] T7261.001
    
      

                                

    Mr. Houghton. Thank you very much.
    Now, Mr. Schroeder.

  STATEMENT OF CHARLES P. SCHROEDER, CHIEF EXECUTIVE OFFICER, 
    NATIONAL CATTLEMEN'S BEEF ASSOCIATION, DENVER, COLORADO

    Mr. Schroeder. Yes, sir. Thank you, Mr. Houghton, and to 
Members of your Committee. I am Chuck Schroeder, CEO of the 
National Cattlemen's Beef Association and we very much 
appreciate the opportunity to participate in your consideration 
of an extremely important issue for the beef industry, for 
American agriculture, and for the country.
    During 1999, we had some very encouraging news in the beef 
industry as we saw an expansion in beef demand domestically for 
the first time in 20 years. That was good news. However, as 
Chairman Archer acknowledged earlier, we have only got 4 
percent of the world's consumers here within our borders. And, 
as we look down the road, we recognize that our only 
opportunity to expand our markets and create economic growth in 
our industry is to look at those markets beyond our borders.
    We have worked very hard to promote beef exports. They, 
last year, represented 12 percent of the value of all wholesale 
beef sales in this country. We have worked hard over a number 
of years. If you look at the last 20 years of international 
marketing for the beef industry, we have gone from $500 million 
in sales about 20 years ago to almost $3.2 billion last year, 
about a 6-fold increase.
    Now, while that is encouraging, really what it does is 
highlight the growing importance for us of taking advantage of 
every opportunity that we might have to move beef into 
international markets.
    My comments today, and as are reflected in my expanded 
remarks that are submitted for the Committee, are based on the 
beef industry's experience in winning a WTO case against the 
EU, yet still not achieving access to their market. And, as you 
know, the EU has essentially banned imports of U.S. beef since 
1989. After we jumped every hurdle in the process with the WTO, 
the EU was still unable to modify its regulations. And on July 
29 of last year, the U.S. began implementing retaliatory 
measures against exports in the EU valued at about $116.8 
million.
    While despite our disappointment at not achieving access, I 
do want to say to you today that the National Cattlemen's Beef 
Association does support continued United States participation 
in the WTO. In fact, we believe it is essential. And I enjoyed 
being on the program today with my friend and mentor and fellow 
cornhusker, Clayton Yeutter, who makes that point with 
significant articulation.
    But based upon our experience, and this was mentioned in 
Ambassador's Yeutter's remarks, among the strengths of the 
current WTO system, is the very well-defined process for 
initiating a case where there is a dispute and for determining 
the final ruling or settlement.
    The current system is certainly much improved over its GATT 
predecessor in that respect. And we would highlight that the 
strict science-based rules that are established for resolving 
these issues are another major strength for the current 
dispute-settlement process.
    On the other hand, however, we would say that the existing 
system can be further improved. The primary weakness of the 
current system, in our view, is the absence of an enforcement 
mechanism to assure that there is compliance once a ruling is 
handed down. And that is what we are suffering under today as a 
part of American agriculture.
    The WTO case attempting to resolve the EU beef ban, took 
nearly a third of a decade, as you know, as you watched that 
process, from when the case was initiated until retaliation 
began. That process included an initial ruling, an appeals 
process, and then the arbitrator's 15-month reasonable period, 
as he called it, for the EU to change its regulations.
    Now, while that is a lengthy process, the total time 
expended is probably pretty consistent with the duration of 
most U.S. court cases and perhaps that would be acceptable if 
the EU would have complied at the end of that reasonable 
period.
    I think we would all recognize, and Ambassador Yeutter 
pointed it out, that the EU commitment to the WTO is 
questionable based on their reaction and their responses to WTO 
rulings that have gone against the EU's position. The failure 
of the EU to comply with this particular ruling on beef in a 
timely fashion, we believe, threatens--yes, sir.
    Mr. Houghton. We have go to a vote. And I wonder if you 
could summarize pretty quickly what you have to say so that we 
could give, in the next 5 minutes, the two other gentleman an 
opportunity to testify. And I am sorry we have to do this. The 
problem is we have got three votes up now and we are going to 
hold you for a long time. And maybe we could do that. Submit 
your testimony and then we will be able to get back to you. 
Could you do that?
    Mr. Schroeder. Certainly.
    Mr. Houghton. All right.
    Mr. Schroeder. Mr. Houghton, I would offer three quick 
points. Number one, indeed, we encourage continued 
participation in the WTO. We think there are improvements that 
can be made in the process and those are part of my testimony. 
Second, relative to China, the point has been made today how 
important China trade would be to the United States. It would 
be particularly so for us in the beef industry and other 
elements of agriculture. We encourage members to push for a 
date certain on the vote and to try to rally support for 
providing PNTR to China.
    Finally, I would just say that we encourage members to 
press the administration for implementation of rulings by the 
WTO process. I think many people in agriculture feel that we 
still play on a very uneven playing field in world trade and we 
would like to see as aggressive action as we can to have this 
important part of the American economy functioning effectively.
    [The prepared statement follows:]

Statement of Charles P. Schroeder, Chief Executive Officer, National 
Cattlemen's Beef Association, Denver, Colorado

    Thank you Chairman Archer and Members of the Committee for 
holding this hearing to discuss Future Prospects for U.S. 
Participation in the WTO. NCBA commends your leadership and 
continuing efforts to examine the ongoing changes and the 
resulting issues and concerns of cattlemen and women as we work 
to find ways to improve our ability to more effectively market 
U.S. beef in international trade. I am Chuck Schroeder, CEO of 
the National Cattlemen's Beef Association, headquartered in 
Denver, Colorado.
    NCBA encourages open and honest discussion of all issues 
facing the cattle industry, such as is being provided by 
today's hearing. Such debate is vital to the democratic policy 
development process--both within NCBA and to the nation at 
large. NCBA has long supported a ``free but equitable'' trade 
philosophy and the opening of two-way international beef 
markets. We thank you for the opportunity to submit our views.

Importance of Trade:

    During 1999 there were encouraging signs that for the first 
time in 20 years domestic U.S. beef demand has increased. 
However, our ``home'' market contains only about 4 percent of 
the world's population. Our greatest potential for expanding 
markets is in international trade. As the beef industry 
continues to improve its efficiency and productivity, as well 
as the quality of its commodity, we are becoming increasingly 
dependent on the rest of the world to buy our products to 
provide economic growth. The U.S. beef industry has worked hard 
to promote beef exports, which now account for more than 12 
percent of the value of wholesale beef sales.
    The industry's hard work has resulted in an expansion of 
beef and beef variety meats exports from approximately $500 
million dollars twenty years ago to approximately $3.2 billion 
in 1999, and represents a more than a six-fold increase. In 
simpler terms, 1999's 2.45 billion pounds of U.S. beef and beef 
variety meats export sales represents 10 percent of the 33 
million head of cattle processed into beef. While encouraging, 
these numbers highlight the growing importance of taking 
advantage of every opportunity to move U.S. beef into 
international trade, such as would be afforded by 
implementation of the agreement negotiated with China.
    As this reliance on international markets has grown, so 
have the effects of political and economic strife in our key 
export markets, which in turn have contributed to the 
volatility of U.S. cattle prices. The 1998 calendar year--a 
year of recession in most Asian markets--was the first time 
that more than one million metric tons of U.S. beef and beef 
variety meats were exported. This record volume was exceeded in 
1999. Compared to 1998, exports of beef and beef variety meats 
during 1999 increased of 8.9 percent on a volume basis and 
increased nearly 14.3 percent on a value basis.
    Recovery in Asian economies, especially Korea, continued 
economic prosperity in Mexico and increasing global consumer 
confidence that U.S. beef is the safest and most wholesome in 
the world has contributed to improved international demand for 
American beef. Beef imports also increased 8.2 percent in 
volume and nearly 16.5 percent in value during 1999, the result 
of increasing U.S. beef prices and improving U.S. beef demand. 
Devaluation of currencies in Australia, Brazil and other Latin 
American countries and increased beef production in beef 
exporting countries also contributed to increased U.S. beef 
imports during 1999 versus 1998.
    The U.S. must enter all beef trade negotiations with market 
access being a top priority. NCBA realizes that for 
international trade to expand and work to the advantage of U.S. 
beef producers any agreements must also be equitable. NCBA is 
sensitive to the fact that past agreements have not always 
worked to the competitive advantage of America's beef cattle 
producers. Past agreements could have been more favorable for 
U.S. cattlemen, but it is easy to second-guess our predecessors 
with the benefit of hindsight. While this is the hand that we 
have been dealt under current agreements, NCBA will continue to 
work to assure producers' interests are protected as we seek 
improvements in existing agreements, as well as in any new 
agreements.
    The United States is currently the least restricted and 
largest beef import market in the world purchasing 15 percent 
more beef than the second largest importer, Japan. The United 
States is also the second largest beef exporter. Beef markets 
in other developed countries remain virtually closed to U.S. 
beef, such as in the European Union (EU), or protected by 
relatively high tariffs as is the case in Japan and Korea. A 
strong, clear and irrevocable message must be sent by U.S. 
negotiators to Cairns Group and Mercosur countries--major 
exporters of beef to the United States--that no increased 
access to the U.S. beef market will be forthcoming until 
meaningful access and tariff reduction is achieved in other 
major beef importing countries.

The EU Beef Case:

    My comments today are based on the beef industry experience 
of having taken a case through the entire WTO dispute 
settlement process and won, but first, a bit of background on 
the case. The EU has essentially banned imports of U.S. beef 
since 1989. This thinly disguised trade barrier was implemented 
in the name of consumer protection in spite of ample scientific 
evidence that production technologies approved by FDA and 
widely used in the U.S., but prohibited in the EU were safe. 
The U.S. government complained in the GATT, but the EU, as was 
permitted at that time blocked dispute resolution.
    After the WTO replaced the GATT the U.S. filed its formal 
complaint in January 1996, claiming the EU beef ban was a non-
tariff trade barrier. Australia, and New Zealand joined the 
United States in the action. Canada filed a separate case, and 
the final report addressed issues raised in both (U.S. and 
Canadian) cases. These were, in effect, test cases for the 
application of the Uruguay Round Agreement on the Application 
of Sanitary/Phytosanitary Measures.
    Following a series of legal actions and appeals a WTO 
arbitrator upheld all previous rulings and gave the EU until 
May 13, 1999 to bring regulations into compliance with WTO 
guidelines. Under WTO procedures the EU was then obligated to 
modify its regulations by May 13, 1999 to comply with the 
ruling or the United States could retaliate. Unfortunately the 
EU was unable to modify its regulations and on July 29, 1999 
the U.S. began implementing retaliatory measures against 
exports from the EU valued at $116.8 million.
    The objective of the U.S. beef industry has always been to 
re-gain access to the European beef market, not retaliation. 
Retaliation or compensation will not benefit the beef industry 
and these alternatives are viewed only as a means to an end--
access to the EU market--not the primary objective. Based on 
the criteria of market access as the primary objective, one 
could say that the WTO dispute settlement process has not 
worked--we still do not have access to the EU beef market. 
However, compensation and retaliation are also possible 
outcomes for any WTO case and the U.S. has implemented tariffs 
of 100 percent on $116.8 million of EU goods consistent with 
alternatives provided in the WTO dispute settlement process. 
They provide a ``burr under the saddle'' to push the EU to 
compliance. From that perspective the WTO dispute settlement 
process has worked, though the industry has not yet achieved 
its objective.

Maintain Participation and Integrity of the WTO Dispute 
Settlement Mechanism:

    NCBA strongly supports continued United States 
participation in the WTO. Based on our experience, among the 
strengths of the current WTO system is the well-defined process 
for initiating a dispute case and for determining the final 
ruling/settlement. The current system is much improved over its 
GATT predecessor in this respect. The strict science-based 
rules established for resolving these issues is another major 
strength of the current dispute settlement process.
    On the other hand, the existing system can be further 
improved. The primary weakness of the current system is the 
absence of an enforcement mechanism to assure compliance once a 
ruling is handed down. The WTO case attempting to resolve the 
EU beef ban took nearly a third of a decade from when the case 
was initiated until retaliation began. The process included an 
initial ruling in the case, an appeals process and the 
arbitrator's 15-month reasonable period for the EU to change 
its regulations.
    Although lengthy, the total time expended is probably 
consistent with the duration of most U.S. court cases and 
perhaps acceptable IF the EU would have complied at the end of 
the ``reasonable period.'' The frustration is that the EU 
waited until the reasonable period was nearly expired before 
beginning to discuss possible resolutions, knowing full well 
that any resolutions under consideration likely would take 
another two or three years to implement. Compared to the old 
GATT system, the problem now is much more one of compliance 
with a ruling once a final ruling is issued.
    The EU commitment to the WTO is questionable based on 
reactions and responses to WTO rulings that have gone against 
the EU position. In the beef case, the EU response was to 
announce intentions to initiate yet additional risk 
assessments, despite the fact that multiple risk assessments 
have been conducted over two decades without showing credible 
evidence of risk. This blatant stonewalling is unacceptable and 
requires aggressive and decisive action to address cavalier 
disregard of the WTO trade rulings and policy. Failure of the 
EU to comply with this ruling in a timely fashion threatens the 
integrity and credibility of the SPS Agreement and the WTO 
dispute settlement mechanism.

Suggested Changes to the WTO Dispute Settlement Process:

    To encourage early settlement and/or compliance, possible 
improvements to the dispute settlement process would include:
    Reimbursement for Prior Injury: An escrow account or 
bonding requirement could be established where the defending 
party would begin paying at the time of the initial ruling. 
Under the current system, compensation or retaliation only 
starts once the entire process is completed. The injured party 
is not reimbursed for losses incurred during or prior to the 
case. The bottom line: There is no incentive for early 
settlement or compliance by the losing party because the 
current system effectively rewards stall and delay tactics.
    This problem is accentuated under the current dispute 
settlement process because the losing party only has to pay for 
future losses, which do not begin as long as the process has 
not reached settlement. Another alternative would be to allow 
the winning party to collect monetary reimbursement for injury 
incurred during and prior to the case.
    Streamline the Process: This issue has already has a 
solution--a package of reforms that would tighten and shorten 
the WTO dispute settlement resolution schedule has been 
negotiated by WTO members, including the United States. NCBA 
supports quick approval and rapid implementation of this 
reform.
    ``Carousel'' Retaliation: Another enforcement tool 
supported by the U.S. beef industry and others is for the 
retaliation list to be revised periodically--often referred to 
as ``carousel'' retaliation. Under the current system, the 
countries and the commodities that are not targeted for 
retaliation breathe a sigh of relief once the list is 
published. Without periodic changes to the list, there is 
little, if any, internal political pressure from these entities 
to settle. If the list of affected commodities were subject to 
change on a random basis, countries and/or commodities could 
never be certain they had escaped targeting. This uncertainty 
would help generate constant pressure on all offending parties 
to come into compliance with the WTO ruling.
    The U.S. beef industry can again speak from experience on 
this issue. The 1989 retaliation against the EU in this case 
was suspended when the WTO case was initiated in January 1996. 
The 1989 retaliation was static and the burden fell mostly on 
Italy. Although it imposed some economic and political pain on 
Italy, it hardly affected the other 11 member states. Italy's 
interests were quickly written-off by the other member states, 
and there was no significant pressure to change the policy. For 
that reason, the U.S. remains shut out of the market.
    All EU member states carry responsibility for maintaining 
this illegal policy--none should be immune from the effects of 
retaliation. Since each EU member believes other member states 
will bear the brunt of the U.S. retaliation, there is minimal 
pressure within the EU to change or withdraw its ban on U.S. 
beef. With the retaliation in the EU beef case set at only 
$116.8 million, a static retaliation list has significant 
impact on the exports of only two or three member states out of 
the 14 (UK has been exempted from retaliation by the 
Administration.
    Once retaliation is taken, carousel retaliation seeks to 
ensure that it is applied in a way to best ensure compliance. 
With this tool, USTR could use its existing authority to 
periodically re-shuffle the list of targeted products to 
impact, over time, the interests of each member state. This 
approach is uniquely applicable to--and was conceived primarily 
for use against--the European Union because of the EU's one-of 
a kind policy-making apparatus.
    USTR could voluntarily rotate among products included on 
the list published March 25, 1999, or involve additional 
products, as appropriate. However, the Administration has been 
unwilling to exercise this authority. NCBA and a broad 
coalition of agricultural organizations strongly support the 
``Carousel Retaliation Act,'' H.R. 2991 co-sponsored by 
Congressman Combest, Chairman of the House Agriculture 
Committee, Congressman Stenholm, Ranking Member of the House 
Agriculture Committee and over 80 other co-sponsors. In the 
Senate, S.1619 is sponsored by Senator DeWine, with a 
bipartisan group of over 30 co-sponsors. Provisions of S. 1619 
passed the Senate as part of the Africa Free Trade bill and is 
now in conference.
    In order to enhance the credibility of the WTO and to 
increase U.S. leverage to deliver relief in cases, U.S. 
agricultural interests are urging that the carousel language 
that passed the Senate remain in the Africa bill and be quickly 
enacted into law. Europe's outspoken opposition to the notion 
of carousel rotations is promising evidence that this approach 
may finally get Europe's attention and exert the pressure 
needed to induce EU compliance with WTO rulings. NCBA urges 
members of this Committee to strongly support including 
carousel language in the final Africa Free Trade conference 
report.
    Target Larger Member States First: Although all 15 member 
states are responsible for maintaining the illegal EU hormone 
ban, some are more influential over EU policy than others. Each 
of the five larger member states--France, Germany, Italy, 
Spain, and the United Kingdom--has more votes and appoints more 
Commissioners than the 10 smaller countries. NCBA recommended 
that the initial product list be developed to affect the 
interests of a subset of these five countries. If the initial 
retaliation does not precipitate an appropriate change in the 
EU beef import policy over a reasonable period of time, the 
list should be adjusted and reissued to affect the products of 
the remaining large countries. Subsequent adjustments in the 
list should be targeted toward subsets of the smaller 
countries.
    Tariff Levels Should Be Flexible: All but a handful of the 
products identified in the March 25, 1999 Federal Register 
notice as candidates for the retaliatory 100-percent tariffs 
are agricultural products. This is significant because the EU 
Common Agricultural Policy represents a vast network of direct 
and indirect subsidies--including export subsidies--designed to 
artificially enhance the competitiveness of EU agricultural 
exports in international markets. Unless tariffs are 
established at truly trade-prohibiting levels, they are not 
retaliation in the true sense of the word. If the objective in 
assessing retaliatory duties is to eliminate trade i.e., 
retaliation, it should be recognized that EU subsidies are 
variable and can be increased to offset the amount of the 
tariff. This suggests that initial tariffs at levels higher 
than 100 percent should be considered and/or that USTR should 
reserve the right to increase the tariff if the EU increases 
subsidies in an attempt to neutralize the effects of the 
retaliatory tariff.

Other WTO Issues:

    Do Not Open the SPS Agreement: NCBA supports strict 
enforcement of the science-based trading rules established in 
the Uruguay Round Agreement on the Application of Sanitary and 
Phytosanitary Measures (the SPS Agreement). The red meat 
industry is generally satisfied with the SPS Agreement and 
opposes its opening for further negotiation.
    Definition of Dumping: The beef industry is driven by 
supply and demand and these forces determine the market price 
for beef. Market-driven industries traditionally run in cycles, 
and most beef producers periodically sell below the cost of 
production (at a loss) during the high production/low price 
periods of the cattle cycle. Indeed, it is these low prices and 
industry losses that result in herd reduction and declining 
supplies. These periods of cyclical low prices and producer 
losses in the beef industry meet the definition of dumping 
under current WTO rules--even in the absence of evidence of 
predatory behavior, intention to monopolize, or other 
intentional efforts to drive competitors out of business.
    Following expenditure of scarce industry resources to 
defend against dumping cases filed by Mexican producers against 
U.S. cattle, beef and beef variety meats, NCBA appointed a 
working group to draft new language defining ``dumping'' that 
would better protect U.S. producers in future cases. The 
objective is to make the definition of dumping more consistent 
with the cyclical realities of producing agricultural 
commodities.
    The current definition of dumping under WTO rules does not 
make sense for cyclical commodity markets like beef because one 
of the key criteria defining ``dumping'' is that the commodity 
must be sold below the cost of production in the importing 
country. During future negotiations, NCBA supports changing WTO 
rules so that our exporters are not found to be dumping because 
they are selling below cost because of market prices they 
cannot control.

Political Climate and Industry Concerns:

    There is a perception among many in agriculture that past 
GATT and WTO rounds often traded away U.S. agricultural 
priorities. U.S. crop and livestock producers were left facing 
high tariffs and a host of non-tariff trade barriers in foreign 
markets while domestic agricultural markets were liberally 
opened to imports. Continued failure of the EU to live up to 
its obligations as a full WTO member and lift the ban on U.S. 
beef is a constant irritant and often cited as an example of 
how the WTO process fails to work.
    One of the underlying premises of the 1996 ``Freedom to 
Farm Bill'' was that aggressive pursuit of growing export 
markets would be a critical strategy to replace the safety net 
of traditional farm programs. NCBA firmly believes this to be 
true. Eliminating trade barriers is essential to the success of 
any international trade negotiations.
    Despite the overwhelming evidence that the international 
market must be the focal point for market growth and economic 
vitality, there is a growing protectionist sentiment at the 
grassroots level. This sentiment is the result of increased 
questioning at state and local levels about the impacts of 
trade on individual agricultural producers and increased 
skepticism about the willingness of federal officials to 
aggressively negotiate agreements favoring U.S. interests.
    In addition, there is a growing lack of confidence even 
among ``free'' traders that our trading partners will live up 
to their obligations under negotiated agreements. Simply put, 
U.S. producers are tired of facing their international 
competition on a persistently tilted playing field. There also 
is a perception that U.S. negotiators and regulatory agencies 
are more focused on developing protocols and modifying 
regulations to address concerns of countries seeking access to 
U.S. markets rather than on identifying and addressing 
regulations/barriers in importing countries that limit access 
of U.S. products.
    It is clear that Congress and the Administration have not 
had a unified strategy to systematically attack the trade 
problems of U.S. agriculture. The inability to secure approval 
of ``fast track'' negotiating authority prior to the Seattle 
Ministerial meeting is testimony to this void. Congressional 
leaders and the Administration have often seemed more 
interested in forcing the opposition into a difficult vote and 
then playing the ``blame game'' for political gain than in 
working together to pass meaningful trade legislation that will 
benefit agriculture.
    There is plenty of fault to go around. The breakdown of the 
Seattle talks and attempts to patronize varied non-trade 
related special interests has further contributed to concerns 
about whether agriculture's interests will once again be traded 
away for political expediency. And finally, reluctance of the 
Administration to utilize the most hard-hitting retaliation 
strategies, including the carousel approach, against the EU in 
the beef and banana cases just compounds the concerns that U.S. 
negotiators are more concerned about political and diplomatic 
pressures than the interests of domestic pro-trade injured 
parties.
    Agricultural producers are justifiably concerned about 
sending a team to the negotiating table that has a more 
consistent track record of in-fighting among Congressional and 
Administrative ranks than in engaging the opposition for 
meaningful trade liberalization. Failure of the Seattle Round 
means that the United States must achieve a meaningful ``win'' 
on the trade front soon or the anti-trade activists will take 
us down the road to protectionism--if not isolationism--
resulting in trade wars and a return to costly government 
supply management/price support farm programs.
    The China Agreement: With a population of 1.2 billion and 
nearly 200 million consumers with middle-class incomes, China 
is a consumer market with enormous potential. Any market 
potential and any trade agreement that involves one out of 
every five inhabitants on planet Earth is impossible to ignore 
just because of the sheer magnitude of the numbers. For 
example, NAFTA impacted the total population of Canada, Mexico 
and the United States--a combined population of approximately 
400 million. China has three times the population of the 
combined NAFTA countries.
    The U.S. beef industry (and the rest of agriculture) has 
the potential for huge gains in the broader trade package that 
was finalized with China prior to the WTO meetings in Seattle. 
The agricultural community is anxiously waiting to see if 
Congress is going to fulfill it's promises of trade expansion 
embodied in the 1996 Farm Bill or if election year partisan 
politics will rule the day over agricultural interests.
    A condition for any trade agreement with China to be 
finalized is that the U.S. government must approve Permanent 
Normal Trading Relations (PNTR, formerly MFN) for China. For 
the agreement to be completed, Congress must separate the 
importance of trade and access to emerging markets for U.S. 
agricultural products from other political concerns and approve 
PNTR for China. If China joins the WTO and PNTR is not 
approved, the rest of the world will gain access to the Chinese 
market under the same conditions that are available to U.S. 
producers in this agreement--BUT U.S. producers will not be 
able to participate. In effect sanctions will be placed on U.S. 
agricultural products that could be sold into the Chinese 
market while the rest of global agriculture once again gains 
access at our expense.
    Congress has approved annual renewal of NTR every year in 
recent years with increasingly wider margins. Annual renewal of 
NTR granted China continued access to the U.S. market and 
resulted in record trade deficits. The recent agreement levels 
the playing field. It gains access to the Chinese market for 
U.S. goods, including agricultural products and is good for the 
beef industry, for American agriculture and for business. A 
vote against PNTR for China is a vote against U.S. agriculture.
    It is critical for Congress to now do the right thing for 
agriculture and the country and cast a favorable vote for PNTR. 
A date for the vote must be set so that NCBA and other 
agricultural interests can generate grassroots support. Given 
protectionist sentiments in some quarters, both in here and 
abroad, failure to cast a favorable vote for trade expansion 
with China now could have implications comparable to the 
protectionist provisions of Smoot-Hawley.
    The U.S. must re-establish its commitment to opening 
international markets soon or risk giving the agenda to more 
protectionist elements by default. NCBA supports continued 
membership in the WTO. We appreciate the initiatives that have 
been undertaken to gain access to ``level playing field'' 
international markets and to resolve lingering issues that 
restrict the ability of the U.S. beef industry to offer its 
products to international consumers.
    Mr. Chairman, NCBA thanks you and the committee for this 
opportunity to participate in the process of resolving critical 
trade issues within the beef industry. We look forward to 
continuing U.S. membership in the WTO, a successful vote 
granting PNTR for China and accession of China to the WTO. We 
stand ready to provide additional input on this and other trade 
issues, such as those involving the EU and approving 
legislation to provide trade-negotiating authority. Thank you 
for the opportunity to present this information.
      

                                

    Mr. Houghton. OK. Good. Well, thank you very much.
    Mrs. Thurman. Mr. Chairman----
    Mr. Houghton. And, again, I am sorry we had to----
    Mrs. Thurman [continuing.] Mr. Chairman----
    Mr. Houghton [continuing.] Truncate this thing. Mr. Grogan, 
could you summarize in a couple of minutes what you had----
    Mrs. Thurman. Mr. Chairman----
    Mr. Houghton [continuing.] And, Mr. Lichtenbaum, maybe you 
could do the same thing.
    Mrs. Thurman. I just wanted to introduce Mr. Grogan because 
he actually----
    Mr. Houghton. Oh. I am sorry. Absolutely. I am sorry.
    Mrs. Thurman [continuing.] Is a Florida company. More 
importantly, when I was in the State Senate, he actually was in 
my district. He now is in--or would have been in Cliff Stearns, 
but we are just glad you are here. Thanks.
    Mr. Houghton. Oh, thanks, Karen, very much. All right. Mr. 
Grogan, go ahead.

 STATEMENT OF DALE GROGAN, PRESIDENT, LEAPFROG SMART PRODUCTS, 
  INC., ORLANDO, FLORIDA, AND MEMBER, U.S. CHAMBER OF COMMERCE

    Mr. Grogan. Thank you, Ms. Thurman. I sure appreciate that. 
Mr. Houghton, I will truncate my comments. I am here as 
President of Leapfrog Smart Products. We are a software 
development firm based in Orlando now. And we are a member of 
the U.S. Chamber of Commerce. And my comments are specifically 
directed to how WTO affects our business as a small business. 
Leapfrog is a four-year old company and what we do is write 
software for smart cards. And smart cards are those little 
credit card-sized pieces of plastic that have computer chips in 
them and the computer chips do a whole host of different 
things.
    What we have seen is that the United States has lagged in 
the world market as it relates to employing and deploying this 
technology. The technology first came over from Europe about 25 
years ago, but the hotbed of activity right now is Asia and, in 
particular, China.
    China is so important to our company that we have 
established a number of joint ventures there in China with 
partners. The difference in doing business in China versus, 
perhaps, a decade ago, is absolutely startling. We have a joint 
venture with a couple of different companies over there. And 
historically, a joint venture in China was, the Chinese would 
contribute land or land-use rights and 1,000 workers. No more.
    Our joint venture partners have capital at risk. They have 
profit motives and we have Chinese investment into the 
corporation. In fact, we have specifically Chinese national 
citizens as investors as in-ground, in-country partners. So the 
way of doing business is dramatically different.
    Furthermore, the size of the market in China, just in the 
smart card industry, absolutely dwarfs what we are doing here 
in the United States. There is one project, Mr. Houghton, right 
now that is being bid at the U.S. level, which is $1\1/2\ 
billion coming through our Federal Government through the GSA. 
It is called the common access project. One-and-a-half billion 
dollars, two-and-a-half million smart card holders. In China, 
there is a project sponsored by the government that represents 
980 million smart cards.
    For Leapfrog, a small company, and we have 50 employees, we 
would be foolish to turn our backs on that. We simply could not 
survive if we ignored the rest of the world, China, in 
particular, because the market is so, so large.
    So, for us, in a quick summation, WTO is very important for 
us for three important reasons. One, the protection of our 
intellectual property. We are a software company. That is our 
asset. So having the WTO adds another layer of protection. The 
Chinese recognize it. They want WTO inclusion obviously, and it 
levels the playing field.
    Mr. Houghton. Need to hurry up.
    Mr. Grogan. I am finishing.
    Mr. Houghton. OK.
    Mr. Grogan. So I guess, in closing, the two other points 
are, access to the markets for a small company is important. 
And keeping the negotiated advantages that Ambassador 
Barshefsky had is critically important. The punch line of all 
this is that right now, I am responsible for 50 people's lives. 
We have 50 employees. By having our trade in China and WTO, we 
can protect those lives. I appreciate your time.
    [The prepared statement follows:]

Statement of Dale Grogan President, Leapfrog Smart Products, Inc., 
Orlando, Florida, and Member, U.S. Chamber of Commerce

    I am Dale Grogan, President of Leapfrog Smart Products, 
from Orlando, Florida and a new member of the US Chamber of 
Commerce. Thank you for the opportunity to express the 
viewpoint of small business as it relates to U.S. membership in 
the WTO and the implications of U.S. membership on trade with 
China, particularly in light of the expected accession of China 
and Taiwan into the WTO this year.
    Leapfrog Smart Products is a software application 
development firm that creates solutions for Smart cards. Smart 
cards are mini-computers embedded in plastic the size and shape 
of a credit card. Just like Microsoft creates software for 
personal computers, Leapfrog creates software for computers 
called Smart cards.
    We are proud to testify on behalf of the U.S. Chamber of 
Commerce and likewise believe the Chamber speaks on our behalf 
on this and other issues. The U.S. Chamber is the world's 
largest business federation, representing more than three 
million businesses and professional organizations of every 
size, sector and region in the country.
    In keeping with the Committee's March 20 hearing advisory, 
my comments today will focus on four topics: (1) the importance 
of PNTR status and WTO membership for China as it benefits our 
technology-based business, (2) the overall results of U.S. 
membership in the WTO and the General Agreement on Tariffs and 
Trade (GATT), (3) whether future participation of the United 
States in the WTO and the multilateral trading system can be 
expected to benefit Americans, and (4) prospects for increased 
economic opportunities for U.S. businesses and workers 
associated with Chinese membership in the WTO and the 
normalization of trade relations between the United States and 
China.
Point 1: ``PNTR status and WTO membership for China as it 
benefits our business:''

    From a technology perspective, China is no longer the 
sleeping giant--she is awake. The time gap between the 
Industrial Revolution and the Technology Revolution in the U.S. 
was about 80 years; in China, it is about 8 years. 
Infrastructure is being built faster than you can possibly 
imagine and the marketplace is ready for Western goods and 
services, in particular, technology--any kind of consumer-based 
technology. Whatever the ``western consumer'' has, the Chinese 
want and need
    China's greatest resource today is its collective buying 
power. China recognizes this and rightfully protects that 
resource. To effectively do business in China, having a strong 
in-country partner is absolutely elemental. Without a partner 
who is motivated by profits, you're dead. Fortunately the 
business climate in China has changed over the past decade. It 
used to be that a Chinese joint venture meant that the Chinese 
would ``contribute'' land (or a factory) and labor. That was 
easy to do for the Chinese, because both were, and are, 
abundant. The joint venture that Leapfrog just completed with 
our Chinese partners is the new model (we think) for Sino-
American business. The objective of the joint venture is to 
manufacture a Smart card reader for worldwide distribution, 
including China. Also, we expect to sell our software solutions 
into China--soon to be the world's largest purchaser of Smart 
card technology.
    Under the parameters of our joint venture, our Chinese 
partners not only contribute the factory and skilled labor 
force required to manufacture our new fingerprint reader, they 
also are bona fide investors into the deal with capital of 
their own at risk. Not only that, our partners will be 
responsible for business development within China. An American 
company without a Chinese partner is a rudderless boat. The 
third leg of the stool is that we have a local Chinese 
businessman as an investor. Because our joint venture is 
privately owned, we all share the same capitalistic goal of 
profits.
    The key to making deals like we have with our Chinese 
partners is having PNTR and WTO membership for China. The 
Chinese business people want this. Normalization and WTO status 
only re-affirms the rules of the game. For us, WTO status in 
effect forces Chinese businesses to ``play by the rules.'' The 
WTO protections, specifically of intellectual property, give 
hi-tech companies such as Leapfrog the comfort and ability to 
extend our business reach into the global market, a necessary 
ingredient in the Internet-driven information age.
    For a small company like Leapfrog (we have about 50 
employees now), having the ability to sell our software into 
China is critical to our success. The fact of the matter is 
that the U.S. market lags Asia dramatically. For example, over 
the next five years, U.S. market for Smart card software will 
be about $200 million. China alone will be over $2.0 billion. 
Companies in our industry simply cannot ignore the Chinese 
market. The harsh reality of business is that isolationism 
would simply kill our company.

Point 2: ``Overall Results of U.S. Membership in the WTO and 
the GATT''

    During the pre-World War II period, the United States and 
other nations learned the hard way that protectionism and other 
forms of isolationism were self-defeating. The collective 
destinies of all of the countries are inseparable and 
interlocked. As the notorious Smoot-Hawley tariffs in the U.S. 
and other mirror measures around the world aggravated an 
already severe depression, many nations eventually realized 
that protectionism could not be the answer. Thus a global 
trading system was conceived and eventually embodied in the 
GATT. Founded in 1947, the GATT system, had as its underlying 
premise that protectionist policies were inimical to nations' 
economic well-being. GATT established international ground 
rules for a process of economic integration that continues to 
this day. In sharp contrast to earlier practices, nations 
agreed to treat any one nation's commerce the same as that of 
(almost) all other nations (``;most-favored-nation'' treatment 
or, in U.S. law more recently, ``normal trade relations''), as 
well as how they would treat their own commerce (national 
treatment).
    Since that time, the world economy has evolved into a very 
different and much more complex state. As nations struggle to 
cope with these new realities, official efforts at economic 
integration are continuing around the world. The Uruguay Round 
Agreements represent by far the most ambitious of these 
efforts. Those agreements committed over 135 nations to 
adherence to the following principles:
     Trade without discrimination. This means WTO 
members agree to give equal treatment to commerce from other 
member countries (``;most-favored-nation'') as to domestic 
commerce (``;national treatment'').
     Predictable and growing access to markets. This is 
of particular importance to our company and includes a 
continuing commitment by WTO members to reduction of tariff and 
nontariff barriers to trade, as well as transparency in 
domestic laws, regulations, and practices.
     Fair competition. Where conditions and 
restrictions on free trade remain, applicable rules and 
procedures enforced by WTO members must be fair and, again, 
non-discriminatory.
     Economic development and reform. Over three 
quarters of the 135-plus members of the WTO are developing 
countries, in the process of reform from non-market systems. 
Accelerated trade concessions and extra flexibility in required 
adherence to WTO rules are provided in a number of areas.
    While the GATT Uruguay Round Agreements are historic for 
the ground and the number of signatory nations they cover, they 
also represent--through the WTO's dispute-settlement 
processes--an unprecedented application of a rule-enforcement 
mechanism to the conduct of trading nations. While the WTO is 
not in a position to directly force individual nations to 
change their trade laws, it can provide an international 
``stamp of approval'' for other nations' responses to trade 
barriers and distortions that they and the WTO have deemed 
improper. As a result, under the WTO we have better enforcement 
of U.S. rights and greater assurances that our trading partners 
will abide by the rules and open their markets to American 
exports.
    More broadly, participating in the WTO also permits us to 
advance our democratic values. Countries that subscribe to WTO 
rules--rules we had a disproportionate role in shaping--are 
obliged to adhere to these rules in commercial transactions. In 
short, the WTO reinforces the rule of law. As I mentioned 
earlier, this is critical for a software company where our 
intellectual property can be reverse engineered or pirated. WTO 
rules creates new barriers against piracy that benefit both 
small and large businesses.

Point 3: ``Whether Future Participation of the US in The WTO 
and the Multilateral Trading System can benefit Americans''

    Trade's importance to the U.S. economy has grown enormously 
over the past forty years. The share of U.S. exports 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 lives outside of 
the United States. It should make common sense not only to 
trade with them, but also to lead and work with other nations 
to solve international crises and promote expanding trade and 
sustained economic growth.
    As the world changes, continuing U.S. engagement is 
becoming more important to the national interest, not less. The 
world is becoming more multipolar in political and economic 
terms. New players are emerging on economic and political 
fronts. Economic and trade ``blocs'' such as the North American 
Free Trade Agreement (NAFTA), the European Union, the Asia-
Pacific Economic Cooperation area (APEC), and others continue 
to gain prominence.
    There is no question that, if the U.S. is to successfully 
reassert its leadership in world economic affairs, it must not 
only resume its place at the head of the trade negotiating 
table, but also demonstrate its willingness to lead at that 
table. Historically, such U.S. leadership has led to 
strengthened trade rules that have allowed American businesses, 
farmers and workers to find new opportunities, create new jobs, 
and raise living standards. In other words, to enjoy the 
benefits that increased trade has on our lives.
    Notwithstanding the debacle of the WTO ministerial 
conference in Seattle, global trade continues to expand with 
attendant benefits for consumers, workers and business. 
Continued progress toward trade liberalization requires that we 
recognize the WTO's continuing value to U.S. interests. We must 
therefore continue efforts to build upon and improve upon the 
system as it now stands.
    The structure of rules governing trade in goods and 
services remains in place within the WTO. We should work 
vigorously in the coming year to insure rapid and full 
implementation of all existing commitments by WTO members.
    The WTO's less advanced members, especially the lesser 
developed countries, must obtain a deeper stake in the WTO 
system through additional trade liberalization initiatives and 
through understanding the benefits of global trade for their 
economies.
    The rapid pace of global economic integration will insure 
that continuing delays in further trade liberalization pose 
serious risks and burdens for global trade. Every attempt 
should be made to move forward as much as feasible in the 
already mandated negotiations on agriculture and services. 
Opportunities for limited progress, such as sectoral 
initiatives, should be pursued wherever feasible.
    There are those who, during the struggle to implement the 
North American Free Trade Agreement (NAFTA), argued that 
NAFTA's implementation would be followed by the ``giant sucking 
sound'' of U.S. jobs heading south to Mexico. But what has 
really happened? Since NAFTA's implementation--and also since 
the subsequent implementation of the Uruguay Round Agreements--
the U.S. economy has enjoyed record employment. It is clearly 
in our national interest to replicate this success wherever and 
whenever possible.

Point 4: ``Prospects for increased opportunities for the U.S. 
associated with Chinese membership in the WTO and the PNTR 
between the United States and China''

    In its single most important vote this session, Congress 
will soon decide whether to extend permanent normal trade 
relations (PNTR) status to China as part of the recently-
negotiated China-U.S. agreement on China's pending WTO 
accession. Once China concludes the requisite additional 
agreements with the European Union and others, it will enter 
the WTO--whether or not Congress grants PNTR. If Congress votes 
not to grant PNTR, we will forfeit to our competitors in Asia, 
Europe and elsewhere the benefits of improved access to China's 
market that we negotiated for ourselves last year--with the big 
losers being American farmers, American manufacturers, American 
technology firms like Leapfrog, American service providers, and 
American workers.
    China has some of the most restrictive trade barriers in 
the world. But in stark contrast to the Chinese market, the 
U.S. market is wide open to imports. U.S. families already 
benefit from increased choices and price competition brought 
about by Chinese imports. By tearing down thousands of Chinese 
trade barriers, the US-China WTO agreement will help level the 
playing field between our two countries and give U.S. companies 
an opportunity to increase their share of the Chinese market.
    U.S. exporters will not be the sole beneficiaries of the 
U.S.-China WTO agreement. More business for U.S. exporters 
means more business for their vendors and suppliers. Thus, even 
companies with no international sales will be able to attribute 
some increase in business to the agreement by virtue of their 
supplier relationship with companies that sell to China.
    In short, the agreement is one-sided in our favor. In 
exchange for Chinese concessions, the United States is not 
required to open its markets wider to Chinese imports. These 
concessions are the price of admission China must pay to become 
a WTO member. With the exception of the annual ``normal trade 
relations'' (NTR) renewal process, the United States in effect 
already treats China as if it was a WTO member. We must end the 
annual NTR renewal process and grant China permanent status in 
order to insure that we receive the benefits of this landmark 
agreement.
    The U.S has an historic opportunity to secure broader and 
more consistent access to China's markets. While China must 
still complete its WTO negotiations with other nations, the 
U.S. should not delay its final approval. The US-China WTO 
agreement contains most of the major components that will be in 
China's final access protocol. Any additional market-opening 
measures negotiated by these other countries must be extended 
to the United States as well. Thus, the final terms of China's 
accession to the WTO can only be improved over the already 
impressive US-China agreement.
    In conclusion:
    The China WTO Agreement will:
     Eliminate import duties on high-technology goods 
by 2005.
     Permit foreign investment in the Chinese Internet, 
and liberalize Internet services.
     Permit provision of telecommunications services 
via satellite.
     Allow foreign investment in all types of telecom 
services and phase out most geographic restrictions.
     Protect intellectual property rights through 
adherence to the WTO TRIPS Agreement.
    We have just become a public company, and so we are 
scrutinized by Wall Street every day. I can tell you that when 
we announced our Chinese joint venture, our stock jumped 28%. 
The market recognizes business opportunities and responds 
accordingly. We believe that what we are doing is right and 
benefits our shareholders, our employees, and their families. 
The positive fall-out from doing business with China is simple: 
jobs. High-tech engineering jobs, service jobs, support jobs, 
production jobs, the list goes on. In the hi-tech business we 
provide full solutions. This means that we buy component goods, 
such as Smart cards, computers, and readers. Additionally, 
there is a host of support services that are provided from 
back-office processing to infrastructure support to 
telecommunications efforts. The point is for every solution 
sold in China, bunches of jobs are created here in the US. The 
jobs fuel the economy.
    On a personal level, in my many trips to China, I have 
found the people interesting, humble, honest, and hard working. 
The business issues they face on a daily basis are the same as 
we have here in the U.S.: soaring costs, shrinking margins and 
global competition. Like it or not, China is on the way to 
becoming a capitalist juggernaut. We have a simple choice to 
make in business. We can either embrace and profit from China 
as a trading partner or stick our heads in the sand and hope 
they go away. I am responsible for the livelihood of fifty 
families now; the choice is simple for me. We need PNTR and WTO 
for China. On behalf of the U.S. Chamber of Commerce and its 
members, I urge you to follow our lead.
    This concludes my testimony. I will be glad to answer any 
questions.
      

                                

    Mr. Houghton. I thank you. Well, I appreciate your 
understanding. Yes.
    Mr. Lichtenbaum.

 STATEMENT OF PETER LICHTENBAUM, PARTNER, STEPTOE AND JOHNSON, 
LLP, & LIAISON TO THE WTO SECRETARIAT, ON BEHALF OF SECTION OF 
    INTERNATIONAL LAW AND PRACTICE, AMERICAN BAR ASSOCIATION

    Mr. Lichtenbaum. Thank you, Mr. Houghton. My name is Peter 
Lichtenbaum. I am a partner with Steptoe and Johnson, appearing 
here on behalf of the American Bar Association's Section of 
International Law and Practice. I very much appreciate the 
opportunity to be here and have a longer statement for the 
record.
    To be, hopefully, as brief as possible, we support U.S. 
membership in the WTO. We recommend that the Congress not 
approve the legislation that has been introduced. The WTO is 
very important with respect to two aspects on which we have 
expertise, dispute settlement and institutional issues.
    On the dispute settlement issues, a number of the reasons 
why this is in the U.S. interest have been talked about today. 
We have a guaranteed day in court. We have high-quality panel 
decisions. We have strict time limits at each stage. In 
general, notwithstanding the experience of the cattlemen, the 
compliance has been very good and the system has yielded 
commercial results for U.S. exporters.
    Still, the ABA Section recognizes that changes may be 
warranted. One of those areas, obviously, is the area of 
compliance or implementation or enforcement.
    Mr. Houghton. OK.
    Mr. Lichtenbaum. It is worth thinking about what changes 
are warranted given the beef hormones decision and the bananas 
decision which the EU has not complied with. At the same time, 
as Mr. Levin pointed out, the United States is not only a 
plaintiff, but also a defendant in cases like the FSC. And so 
we have to be wary about proposals that might put us in a 
position that we don't want to be in when it is our turn. So we 
need to strike a balance.
    Second, greater transparency is obviously critical from a 
political standpoint. In particular, all written submissions by 
governments should be available on the Internet when they are 
filed and there should be clear rules for submitting amicus 
briefs to panels.
    And, third, the budget and staffing for the system should 
be increased. It is penny-wise and pound-foolish to stint on 
the funding for dispute resolution. Right now, the system is 
stretched to its capacity. The United States should take a 
leadership role in providing the resources that are needed.
    On my second topic, the WTO, as an institution, we all know 
the WTO is----
    Mr. Houghton. We have literally got to go here.
    Mr. Lichtenbaum. I will finish. Thank you very much.
    Mr. Houghton [continuing.] And could you wrap up? I am 
terribly sorry here. But I mean, I think it is for our 
convenience. We have got 2 minutes to go over and vote. And----
    Mr. Lichtenbaum. I understand.
    [The prepared statement follows:]

Statement of Peter Lichtenbaum, Partner, Steptoe & Johnson LLP, and 
Liaison to the WTO Secretariat, on behalf of the Section of 
International Law and Practice, American Bar Association

    The views expressed herein are presented on behalf of the 
Section of International Law and Practice (SILP) of the 
American Bar Association (ABA). They have not been approved by 
the House of Delegates of the American Bar Association and, 
accordingly, should not be construed as representing the policy 
of the American Bar Association.

Summary

    The ABA/SILP urges the Congress to reject a Resolution 
rescinding Congressional approval of the Uruguay Round 
agreements, for the following reasons:
     The application of the rule of law to 
international economic relations strongly serves the U.S. 
national interest. As an embodiment of the rule of law 
approach, the WTO helps establish and oversee the 
implementation and operation of rules that promote an open 
trading regime for goods and services. The vigorous enforcement 
of these rules under the Dispute Settlement Understanding 
ensures that they bind states to commitments made during the 
Uruguay Round. This development of the rule of law in 
international trade provides the security and predictability in 
commercial relations needed for U.S. consumers, producers, and 
exporters to flourish.
     The WTO provides the institutional forum for the 
greater liberalization of rules restricting commerce among 
nations. Many of those restrictions now cover areas (such as 
services and other intangibles) in which the United States has 
a comparative advantage and which form the foundation for the 
modern U.S. economy. The United States has far fewer trade 
barriers than many, if not all, of its trading partners. The 
future economic growth and development of the U.S. economy 
depends greatly on the access to foreign markets by U.S. 
producers not only of goods, but also of services and 
intellectual property. As the institution that already exists 
to address such issues, the WTO promotes U.S. national 
interests.
     Despite some high profile disputes where the U.S. 
position did not prevail, overall the WTO dispute settlement 
system has served and can reasonably be expected to serve U.S. 
interests. The WTO dispute settlement system has enabled the 
United States to obtain significant market access for U.S. 
exporters in a timely manner.
     The general success of the WTO in serving U.S. 
interests does not blind the ABA/SILP to the institution's 
imperfections. The ABA/SILP urges the United States to lead 
reform in the following principal areas: (1) strengthening the 
implementation provisions of the Dispute Settlement 
Understanding to promote greater compliance with WTO 
obligations; (2) enhancing transparency in dispute settlement 
and decision-making processes; and (3) ensuring that the entire 
WTO membership is adequately reflected in WTO decision-making 
processes.
     On balance, despite the institution's 
imperfections, U.S. membership in the WTO has advanced and 
continues to advance U.S. interests far more than would 
withdrawal from the organization. The reforms identified by the 
ABA/SILP would strengthen the WTO and thereby serve to promote 
U.S. interests more effectively.

               I. International Trade and the Rule of Law

    The establishment of the World Trade Organization at the end of the 
Uruguay Round and the incorporation into the multilateral trading 
regime of several new agreements and areas of liberalization has 
highlighted the importance of a properly-functioning international 
trading order. The liberal trading system begun by GATT and then 
strengthened by the WTO has contributed to the current economic growth 
experienced in the United States and to the growth and development of 
nations around the world. Recently, a dialogue has ensued on how we can 
seek to promote our trading interests while recalling that the U.S. 
national interest includes far more than simply trade policy. The 
following testimony discusses the role of the WTO's dispute settlement 
mechanism and institutional machinery in promoting U.S. national 
interests. It is the view of the ABA/SILP that Congress should maintain 
its support for U.S. participation in the WTO.
    Any assessment of the costs and benefits of WTO membership for the 
national interest is, by its nature, complex and multi-faceted, 
requiring an analysis not only of the economic issues involved, but 
also those of the environment, labor, consumer, and other aspects of 
civil society. In this testimony, the ABA/SILP does not address the 
full range of factors that will necessarily be part of the final 
evaluation of the U.S. interest in WTO participation. Rather, the ABA/
SILP today offers its views on areas where it has particular expertise, 
continuing the work undertaken by the ABA and the ABA/SILP in recent 
years regarding the promotion of the rule of law in international 
commercial relations. Specifically, the ABA/SILP offers its views on 
dispute settlement and institutional issues in the WTO.
    A fundamental goal of the ABA is to promote the rule of law in 
international affairs. The ABA has undertaken a wide range of 
activities to support the rule of law, including through technical 
legal assistance such as the Central and Eastern European Law 
Initiative (CEELI), programs on topics such as anti-corruption efforts, 
and public advocacy. In the international trade context, such work 
includes a 1994 ABA resolution endorsing the WTO Dispute Settlement 
Understanding and the Agreement Establishing the World Trade 
Organization; a 1998 ABA resolution encouraging the right to counsel of 
all WTO Members in dispute resolution proceedings; and the 
representation of the ABA/SILP as a non-governmental organization at 
the WTO's Seattle Ministerial meeting. The application of the rule of 
law to international trade, first embodied multilaterally in the GATT 
and now in the WTO, has been and continues to be highly successful in 
promoting security and predictability in commerce between nations. Such 
commercial security and predictability, benefiting U.S. producers and 
consumers, clearly promotes U.S. national interests.
    Dispute settlement is the cornerstone for an effective multilateral 
trading regime; it is essential to promoting the rule of law in our 
commercial relations. The dispute settlement mechanism in the WTO has 
been proven effective in its first five years, resolving many trade 
conflicts while establishing a solid foundation of jurisprudence that 
promotes stability in our trading relations. The system has been 
generally supportive of U.S. trading interests, as witnessed by 
extensive U.S. participation in and reliance on the system for 
upholding the legal commitments made by Member states in the Uruguay 
Round. In our analysis of the WTO dispute settlement system, however, 
we note that despite its successes, there remain, in particular, four 
areas that warrant consideration of reform: (1) Adequate implementation 
of panel decisions; (2) Access to the dispute settlement machinery for 
developing countries; (3) Greater transparency in the dispute 
resolution process; and (4) Procedural changes in the Panel system and 
Appellate Body.
    The WTO has provided the basic institutional structure to 
facilitate the maintenance and the further development of an open 
trading system. As a new institution, however, the WTO faces the 
challenge in the future of continuing its success in liberalizing 
global trade while moving toward greater inclusion and transparency. To 
truly take root and have credibility, the WTO must ensure that its 
operations are open to examination and understanding by the general 
public. In addition, the entire WTO membership, in particular 
developing countries, must be adequately reflected in the institution's 
decision-making processes. These reforms will strengthen the WTO's 
legitimacy and enable it to more effectively promote open trade. This 
is very much in the U.S. national interest.

                       II. WTO Dispute Settlement

    In establishing a multilateral trading order based on 
clearly-identified rules agreed to beforehand by participating 
states, the mechanism to resolve differences regarding those 
rules is as crucial to the success of the trading system as the 
substantive rules themselves. A strong dispute settlement 
system enhances the legitimacy of the trading regime by 
reaffirming the application of the rule of law to all member 
states without requiring that each state rely solely on 
bilateral diplomacy to seek withdrawal of noncompliant 
measures. WTO dispute decisions not only address the measures 
in question in the specific dispute, but also fill gaps and 
thereby provide greater clarity for stable trading relations 
among all WTO members. Thus, the WTO's Dispute Settlement 
Understanding (DSU) system enhances the predictability of 
access to other markets, access for which members negotiated 
through a careful balancing of national interests. By 
preserving this balance of interests, the DSU complements the 
WTO's substantive provisions. Strong dispute settlement 
procedures in the WTO are important in order to maintain open 
markets for exporters as the U.S. economy becomes more highly 
oriented toward exports as a contributor to economic growth. 
Furthermore, as more substantive disciplines have been 
negotiated under the auspices of the WTO, in areas such as 
services and intellectual property, the WTO dispute settlement 
system serves the broadening base of the U.S. economy.

A. The DSU: A Continuing Success

    Prior to the Uruguay Round negotiations, the GATT and its 
companion Codes provided a relatively narrow range of trade 
disciplines, and many countries were not subject to these 
disciplines. In addition, GATT's dispute settlement system was 
sometimes ineffective. A single country, including the losing 
party in a dispute, could block adoption of an adverse panel 
decision, thereby preventing an effective resolution of a GATT 
violation. Moreover, even where a report was adopted, there was 
no effective process to achieve compliance.
    Recognizing that the WTO would remain credible only if it 
was supported by a strong, rule-based dispute settlement 
system, the Uruguay Round negotiators established a prompt, 
effective mechanism for resolving international trade disputes. 
Although not perfect, the new system is widely and justly 
considered as successful. The reverse-consensus procedure 
established in response to previous GATT practice of losing 
states' blocking adverse panel findings has resulted in 
definitive pronouncements on the validity of challenged 
measures under states' WTO obligations. Losing parties can no 
longer frustrate the process at that stage.
    The process proceeds with defined time limits at each 
stage, a characteristic strongly promoted by the United States 
during the Uruguay Round negotiations. Although many cases have 
extended beyond the nine-month time limit provided in the DSU, 
over two-thirds were completed within one year. The average 
time of eleven months for the resolution of each WTO case 
compares favorably to the previous GATT average of fourteen 
months.
    This improvement is particularly impressive when one 
considers the dramatic increase in the number of disputes 
brought to the WTO when compared with states' reliance on GATT 
dispute settlement: since the entry into force of the WTO 
Agreements, the WTO has successfully resolved thirty-seven 
cases through its arbitral panels, and forty-one cases have 
been successfully settled under the auspices of WTO 
consultations. Therefore, the first five years of WTO practice 
have witnessed the successful resolution of more disputes than 
under the entire 47-year GATT regime.
    Given the virtually-automatic adoption of panel reports, 
because of the reverse-consensus rule, the Appellate Body has 
proven particularly critical to the success of WTO dispute 
settlement as the higher judicial body to which decisions of 
WTO panels are appealed. In the twenty-six cases decided by the 
Appellate Body since 1995, it has shown ample willingness to 
correct the legal interpretations of panels.
    Both WTO panels and the Appellate Body have faced a larger 
caseload than expected. States have increasingly invoked the 
WTO dispute settlement system since the institution's 
establishment. Whereas there were only five active disputes in 
1995, there are now 26 active disputes. As noted earlier, the 
number of cases decided in the WTO already exceeds the number 
of GATT cases decided from 1947 to 1994. Twenty-six of thirty-
two panel decisions have been appealed. In addition, pre-
Uruguay Round GATT disputes involved issues under only one 
trade agreement. Today, in contrast, two-thirds of the disputes 
involve more than one WTO agreement. Moreover, because of the 
DSU's time limits, the increased number of more complex 
disputes must be processed more quickly.
    Despite the heavy, and increasing, number of disputes, 
their increasing complexity and the shortened time limits, WTO 
budget and personnel allocations relating to dispute settlement 
have not increased commensurately. Notwithstanding the five-
fold increase in the number of active disputes since 1995, the 
WTO's dispute settlement budget has increased only 
incrementally and there is only one additional attorney (a 
total of six) in the Legal Division.\1\ The WTO Secretariat, 
USTR, other governments' trade officials, and neutral observers 
are convinced that the system is stretched to capacity.\2\ For 
the system to remain credible and effective, budget and 
staffing allocated to it need to be increased. As the world's 
largest commercial power (and the traditional leader of 
worldwide support for improved and enforceable trade 
disciplines), the United States should take a leadership role 
in efforts to ensure that WTO Members agree to provide 
sufficient budgetary and staffing allocations for all 
activities related to the WTO dispute settlement process and 
that all Members pay their assigned annual contributions fully 
and promptly.
---------------------------------------------------------------------------
    \1\ At present, in disputes involving anti-dumping, safeguards and 
subsidies lawyers from the WTO's Rules Division also participate, thus 
mitigating slightly the resource burden.
    \2\ See e.g., 1999 Trade Policy Agenda and 1988 Annual Report of 
the President of the United States on the Trade Agreements Program, at 
33-34.
---------------------------------------------------------------------------
    Even given this strain on the system's resources, both the 
lower panels and the Appellate Body have received widespread 
support from government officials and neutral commentators for 
the high quality of WTO decisions. The broad recognition of the 
quality of WTO decisions provides the organization with added 
legitimacy, as even parties that do not succeed in their cases 
can generally accept the reasoning of panels as fair and 
unbiased.
    Furthermore, this enhanced legitimacy, supported by the 
high quality of WTO decisions, encourages compliance by the 
losing party in a WTO dispute. When a dispute settlement panel 
(or the Appellate Body in the case of an appeal) rules that a 
Member's law, regulation or practice violates one or more of 
the WTO's substantive provisions, the decision automatically is 
adopted (absent a consensus to the contrary). If the losing 
party does not alter its law, regulation or practice to conform 
to the ruling within a designated period, retaliation in the 
form of trade counter-measures will be authorized (unless the 
parties agree upon appropriate compensation). If a panel's 
decision is unbiased and well-reasoned, a losing party may be 
more likely to bring its measures into conformity with its WTO 
obligations. This willingness to comply with a panel's findings 
is revealed in the record of compliance under the WTO thus far, 
which shows that in only two cases--the Bananas and Hormones 
disputes--has the losing party remained non-compliant and 
failed to remedy its illegal measures.
    Given the generally successful performance of the Dispute 
Settlement Understanding so far, it is not surprising that the 
United States has made effective use of WTO dispute settlement 
to advance its national interests. Assessing the achievements 
of the DSU specifically in terms of cases involving the United 
States, however, requires an examination of two further 
questions. First, have the cases successfully brought by the 
United States under the DSU generated meaningful commercial 
results? Second, in the cases brought against the United 
States, have WTO panels, in their interpretation of WTO 
commitments, expanded U.S. obligations beyond those accepted 
during the Uruguay Round negotiations? \3\
---------------------------------------------------------------------------
    \3\ The ABA/SILP notes that the WTO also permits a state's 
interests to be represented even when the state itself is not a party 
to the specific dispute. The United States has made particular use of 
this third-party mechanism to ensure that legal interpretations 
important to the United States are adequately briefed.
---------------------------------------------------------------------------
    With regard to the twenty-two complaints brought by the 
United States and acted upon at the WTO, twenty were resolved 
favorably for the United States, either through a mutually 
acceptable settlement or a decision by a Panel or the Appellate 
Body. Many of these cases are reported to have resulted in 
significant commercial gains. As a recent example, the U.S. 
obtained a commitment from India to remove a wide range of 
import bans and licensing requirements on a large number of 
agricultural, textile and consumer products, following a WTO 
ruling that India's balance of payments restrictions were 
inconsistent with its obligations. In another recent case, the 
U.S. obtained a ruling that an Australian automotive leather 
exporter was required to repay an illegal export subsidy.\4\ At 
the same time, commercial results have not been satisfactory in 
certain cases, due to insufficient implementation of WTO 
panels' findings in these cases. Specifically, this remains a 
concern in the Bananas and Hormones cases against the EU, 
discussed further below.
---------------------------------------------------------------------------
    \4\ Examples of other cases in which the U.S. has obtained 
significant commercial results are available on the U.S. Trade 
Representative's website, http://www.ustr.gov.
---------------------------------------------------------------------------
    For cases decided against the United States, there is a 
very important concern that in construing the WTO obligations, 
panels should not impose upon the United States international 
commitments to which the U.S. Government never acceded during 
the Uruguay Round. Some believe that certain of the cases 
successfully brought against the United States indicate that 
panels may define U.S. commitments more broadly than the U.S. 
Government expected at the time of the Uruguay Round 
agreements. The jury is still out on the extent to which this 
concern will be a recurrent problem. On balance, the overall 
dispute settlement results for the United States reveal a 
dispute resolution system based on fair and generally well-
reasoned judicial opinions, performing at least as well as was 
expected five years ago, if not better.
    Finally, the interests of the United States and indeed the 
entire trading system are served by the confidence of the 
Members in the WTO dispute settlement system, reflected in the 
volume of cases brought before WTO panels. As trade disputes 
are increasingly aired and resolved in a manner not before 
possible under the old GATT system, the rule of law becomes 
more firmly entrenched in the liberal trading order, thereby 
securing the open markets necessary for sustained U.S. and 
world economic growth.

B. The DSU: Prospects for Improvement

    The success of the Dispute Settlement Understanding does 
not and should not belie the significant areas for reform that 
warrant further consideration based on the first five years of 
experience. Areas in which the ABA/SILP urges consideration of 
reform fall into the following four categories: (1) Securing 
adequate implementation of panel decisions; (2) Promoting 
greater transparency in dispute resolution procedures; (3) 
Altering the ad hoc system of Panels and the lack of remand 
authority for the Appellate Body; and (4) Ensuring developing 
countries effective access to the WTO dispute settlement 
mechanism.

1. Implementation

    As previously noted, states found to have measures in 
violation of their WTO obligations have generally complied with 
panel and Appellate Body decisions and brought their laws and 
practices into conformity with their international legal 
obligations. The two stark exceptions to this practice remain 
the European Union's intransigence in the Bananas and Hormones 
cases. Although these cases are only two of the thirty so far 
decided under the WTO, they represent significant challenges to 
the rule of law established under the DSU. The European Union, 
a leading trading power, has not implemented the findings 
issued by WTO panels and the Appellate Body. Rather than 
negotiating a WTO-consistent resolution with the United States, 
the European Union has opted, instead, to accept U.S. 
suspension of concessions.\5\ Because the amount of 
compensation or suspension of concessions is equivalent to the 
level of harm suffered by the challenging party, the DSU 
establishes no particular incentive to comply. In the absence 
of any tangible incentives, a violating state may be ambivalent 
among the options of compliance, providing compensation, and 
accepting a suspension of concessions.
---------------------------------------------------------------------------
    \5\ The Bananas case reflects an additional concern regarding the 
implementation of dispute settlement panels' decisions: What happens 
when a measure, revised to accommodate a WTO panel decision, is claimed 
to still be in violation of a state's WTO obligations? Must the 
successful challenging state recommence dispute settlement proceedings 
to challenge the modified law, or may the state suspend concessions 
once the Panel finds the state is caused harm by that law? This query 
remained at the heart of the controversy between the EU and the United 
States in the implementation of the Bananas decision. The WTO panel 
finally settled the issue in favor of the United States, finding that 
another dispute settlement panel would not be required before the 
United States was permitted to suspend concessions. Nevertheless, 
further textual clarification on the interrelationship between Articles 
21.5 and 22 is crucial to ensure the implementation of panel findings 
in future controversies.
---------------------------------------------------------------------------
    However, consideration also must be given to the 
consequences to the United States of adverse decisions. The 
adverse ruling on the WTO-compatibility of the US tax law 
allowing the creation and use of Foreign Sales Corporations 
(FSCs) is an example. U.S. national interests may mean that the 
United States needs to retain the sovereign right to decide 
that it cannot or will not comply with a WTO panel decision.
    One suggestion for addressing these incentive difficulties, 
at least in the short-run, involves the adoption of an 
interpretation or an amendment that would clarify and 
strengthen the preference for implementation in DSU Article 22. 
However, such proposals must be carefully assessed to ensure a 
balance between strengthening compliance and preserving 
necessary U.S. sovereignty.
2. Transparency

    The United States has long encouraged greater transparency 
in dispute settlement proceedings, a position the ABA/SILP 
supports as one promoting higher quality decision-making, 
increasing support and participation of a larger group of 
stakeholders, and reflective of a process more consistent with 
democratic principles. Furthermore, greater transparency, 
particularly in dispute resolution, strengthens the credibility 
of the system, thereby enhancing compliance and support for the 
rule of law. In the context of dispute settlement, proposals 
for enhanced transparency focus on increased opportunities for 
NGO involvement, as observers and amici, and on greater 
distribution of relevant dispute resolution materials, 
including Members' submissions.
    The United States has urged, and the ABA/SILP supports, 
dispute settlement proceedings that are open to observers from 
non-party Member countries as well as civil society. Opening 
the doors of these meetings, particularly to representatives 
outside the trade community, is essential to validate the 
judicial decision-making process by which many states' laws and 
practices are held to be consistent or inconsistent with the 
WTO Agreements. Denying access to civil society only fosters 
continued mistrust and skepticism among groups whose support is 
essential to regain a trade consensus at the international 
level. Furthermore, input from these groups may be important to 
the dispute settlement process as the WTO inevitably addresses 
conflicts arising from domestic regulation, such as areas of 
environmental protection and health and safety. It is precisely 
at these edges of its competence that the WTO, understandably, 
is subject to most criticism. Therefore, by opening itself to a 
broader spectrum of views, decisions in these cases would be 
legitimated by larger segments of society. In this regard the 
ABA/SILP encourages the U.S. invitation for panels and the 
Appellate Body to actively seek and accept amicus submissions 
from NGOs.
    Developing countries have articulated concern regarding the 
involvement of NGOs in the WTO dispute resolution process. 
Based on a perception that NGOs in developed countries are far 
more organized and active than those in developing countries, 
concerns have been raised that developed-country NGOs will have 
a disproportionate influence on Panels. This bias in favor of 
developed-country NGOs, it is believed, would favor the 
interests of the developed world in dispute settlement, at the 
expense of decisions favorable to the developing world. This 
argument presumes, however, that these highly organized NGOs 
share the beliefs and interests of their home governments, and 
that therefore, increased NGO involvement would raise the 
volume of developed-world voices heard by panelists. The United 
States, in pressing the case for greater NGO access, should 
address this argument and note that this coinciding of 
interests between developed-world NGOs and their home 
governments is not necessarily the case. In fact, many NGOs in 
the developed world are likely to have shared concerns with 
NGOs and governments in the developing world.
    In addition to pushing for civil society access into the 
halls of WTO dispute resolution, the United States is also 
seeking, rightly, to expand the flow of information from inside 
the WTO to the rest of the world. In particular, there should 
be immediate public release of all submissions to Panels, with 
the exception of business confidential information. 
Nonconfidential versions of business confidential information 
should be required to be made public at the time the submission 
is filed. An additional benefit of releasing submissions would 
be shorter, more accessible Panel reports. Much of the bulk in 
Panel reports now stems from the need to detail every argument 
made by every interested party to a dispute. Public release of 
government submissions mitigates the need for such detailed 
descriptions of parties' arguments in the Panel decisions 
themselves. Understandably, this requirement of immediate 
release of submitted documents may pose administrative 
difficulties, particularly in document-intensive cases, such as 
Japan-Film. Such logistical difficulties, however, are not 
insurmountable and are only minor inconveniences when compared 
to the benefit of information and education provided by public 
release of documents.

3. Panel and Appellate Body

    There have been additional suggestions to strengthen the 
quality of the current dispute resolution system. The ABA/SILP 
believes they deserve serious consideration in future 
discussions about the DSU.
    For example, many observers have considered whether the 
Appellate Body should have authority to remand proceedings to 
the original panel. Currently the Appellate Body has authority 
only to ``uphold, modify or reverse the legal findings and 
conclusions of the panel.'' This issue has arisen because in 
some cases the panel has not made a factual finding on an issue 
that later, in the opinion of the Appellate Body, is necessary 
to resolve the dispute. It is arguably improper for the 
Appellate Body to make factual findings in such situations, 
because DSU Article 17 limits appeals to issues of law and 
legal interpretations developed by the panel. For instance, the 
lack of necessary panel findings or any remand procedure meant 
that the United States was unable to obtain a WTO ruling in the 
case it brought against the EU over classification of certain 
computer equipment. Remands would allow factual issues to be 
resolved by the panel, which should have greater expertise in 
the facts of the dispute. However, remands almost certainly 
would lengthen disputes beyond the time deadline currently 
provided for DSU proceedings.
    Another proposal for reform, suggested by the EU, would 
establish a standing body of 15 to 24 professional panelists, 
with three panelists serving on each case, to replace the case-
by-case selection of panelists under the current system. This 
proposal might address the difficulties in forming high-quality 
panels and finding panelists to whom the parties do not object, 
factors which to date have been a significant cause of delay in 
the establishment of Panels. Further, the proposal might enable 
panelists to devote greater time to individual cases and 
increase their familiarity with WTO jurisprudence. A related 
issue is consideration of the appropriate criteria to be 
applied in selecting panelists (whether or not the EU proposal 
is adopted), in particular whether judicial experience should 
be a significant factor, given the increasing importance of 
legal reasoning in WTO panel decisions compared to the earlier 
GATT model of conciliation and mediation.
    One concern regarding this proposal is whether establishing 
a standing body of panelists would inappropriately limit the 
ability to appoint panelists with particular expertise relevant 
to a particular dispute. Environmental organizations, for 
instance, may argue that this proposal could ``lock in'' what 
in their view has been a pro-trade orientation of panelists 
(relative to other values such as protecting the environment) 
and preclude the WTO from drawing on panelists with different 
perspectives. Another concern (and a significant one) is that a 
Standing Body would increase the WTO's budget, and thus 
Members' contributions, significantly.
    The United States traditionally has been the leading voice 
for a prompt, efficient WTO dispute settlement mechanism. Since 
the United States is the world's major commercial power, a 
credible WTO dispute settlement system--one that is rule-based, 
objective and whose decisions are respected and implemented--is 
very much in the U.S. national interest. As noted earlier, the 
U.S. is the principal user of the dispute settlement process, 
and it has achieved very favorable results through the DSU in 
most of the cases it has filed. As U.S. businesses (and thus, 
our economy more generally) continue to look to foreign markets 
for opportunities to provide goods and services, there will be 
an increased national benefit in ensuring that all countries 
are abiding by their WTO commitments. An effectively 
functioning DSU will be an important tool for the U.S. 
government in securing economic prosperity for the country. The 
first years of dispute settlement under the WTO show promise; 
the United States should now exercise its leadership to pursue 
those reforms that would strengthen the DSU and thereby promote 
U.S. interests in a trading order governed by a fair and open 
set of rules.

4. Access for Developing Countries

    Promoting the effective participation of developing 
countries in WTO dispute resolution would be consistent with 
the U.S. government's traditional role in promoting the rule of 
law in international trade. Furthermore, this issue is relevant 
to Congress' assessment of the WTO because developing 
countries' inability to make full use of the DSU undermines the 
legitimacy of the DSU and the world trading system and may 
frustrate efforts to amicably settle disputes. Therefore, the 
ABA/SILP believes that it is important for WTO Members to 
identify and implement a strategy to enable developing 
countries to participate fully in the DSU. Effective 
implementation of successful WTO cases may be meaningless for 
developing countries if they are deterred from using the 
dispute resolution system to their advantage. The current 
statistics suggest, at the very least, a strong possibility of 
relative underutilization of the WTO dispute settlement 
mechanism by the developing world: less than one-third of all 
complaints brought under WTO auspices are raised by developing 
countries. The limited human and financial resources of 
developing countries, combined with the limitations inherent in 
existing WTO technical assistance to these countries, currently 
prevent these countries from making full use of the DSU.
    One proposal that the ABA recommended in 1998 was to assure 
countries the right to counsel of their choice. The presence of 
private attorneys in what has been viewed as government-to-
government proceedings has raised concerns about the ability of 
the organization to preserve the confidential and diplomatic 
nature of dispute resolution meetings. Such concerns, whatever 
their validity, do not necessarily argue against the ability of 
states to be represented by attorneys of their own choosing. 
Rather, the appropriate response to such concerns is to develop 
guidelines to address the practice of private lawyers in such 
traditionally diplomatic settings as international trade 
dispute resolution, as the ABA has suggested. The WTO, through 
rulings of the Appellate Body and a dispute resolution panel, 
has already accepted this right to counsel of one's choosing in 
Bananas and Indonesia-Autos, respectively. Nevertheless, the 
ABA/SILP encourages the clear articulation and development of 
rules of conduct to govern these legal representatives in their 
representation of governments in WTO dispute settlement.
    While important, the right to private counsel may be beyond 
the financial resources of some of the least developed Members 
of the WTO, thereby requiring that alternative avenues be 
examined to assist developing states in their legal 
representation before the WTO.\6\ One means of guaranteeing 
access to the dispute settlement system for developing 
countries is the Advisory Centre on WTO Law, recently 
established by a group of developed and developing countries. 
The Centre, created independently from the WTO in order to 
safeguard the neutrality of the WTO Secretariat, is envisioned 
as providing legal advice on WTO law and support in legal 
proceedings to developing country Members.
---------------------------------------------------------------------------
    \6\ The ABA/SILP recognizes greater attention must also be paid to 
longer-term strategies, that is, to the development of indigenous 
capacity in developing states to participate effectively in DSU 
proceedings.
---------------------------------------------------------------------------
    A proposal has also been made, by the EU and Venezuela, to 
establish a separate ``independent unit'' within the WTO 
Secretariat to assist developing countries in the dispute 
settlement process. Under the proposal, however, the unit would 
not represent WTO Members in panel proceedings, but only in the 
pre-panel stages. This limitation raises serious questions 
about whether the proposal would adequately address the 
constraints on developing country participation in the DSU, 
since panel proceedings are the most resource-intensive phase 
of the proceeding. Moreover, to the extent that the unit is 
providing case-specific advice on the strengths and weaknesses 
of particular arguments, the proposal appears to risk 
jeopardizing the neutrality of the WTO Secretariat that is 
guaranteed by DSU Article 27.2.
    These initiatives reflect the underlying need for enhancing 
the ability of developing countries to participate in the 
dispute settlement mechanism. Because the support of developing 
countries for WTO dispute settlement is a crucial element in 
their support for the WTO as an institution, the ABA/SILP 
believes that it is important for the United States to work 
with other WTO Members to address seriously and promptly 
additional ways to enhance the ability of developing countries 
to participate in WTO dispute settlement.

     III. The WTO as an Institution: Not Broken, But Needing Reform

    The WTO is currently confronting problems that result from 
its own success in attracting members and broadening its scope, 
problems that are especially difficult to manage for a new 
institution. The ABA/SILP believes that these problems require 
the United States to take an active leadership role in working 
toward a solution acceptable to all parties, as opposed to 
withdrawing from the WTO.

A. Establishment of a Multilateral Trade Institution

    At the outset, it is important to appreciate that the WTO 
is a new institution. The GATT, which was developed as part of 
the postwar international financial architecture with the World 
Bank and the IMF, established the first set of multilateral 
rules governing international trade relations. The GATT was 
only to form part of the Havana Charter, which created what was 
to become the International Trade Organization (ITO), which 
would have addressed, among other topics, tariffs, private 
restraints on trade, and monetary issues. The International 
Trade Organization, however, failed to be established.
    Over the years, the GATT, which was intended only as a 
short-term provisional stop-gap until the ITO was implemented, 
did develop institutional characteristics and became a de facto 
institution, albeit without legal personality and the 
supporting structures inherent in an international 
organization. Nevertheless, states came to rely on the quasi-
institutional character of GATT despite the fact that it was 
not a true international institution. The stresses placed upon 
the system by states' reliance on this quasi-institution were 
highlighted during the Uruguay Round. If new subject areas were 
to be handled under the trade regime and if trade disputes were 
to be resolved in a satisfactory manner, states recognized the 
need for an institutional umbrella.
    With this understanding, the Members established the WTO as 
the first true institution to oversee the trading relations of 
its Member states. Thus, although the WTO is often understood 
as a successor to the GATT regime, it is, in fact, a new 
organization developed for the cooperation of states in 
reducing trade barriers and managing interstate trading 
relations.
    The success of the multilateral trading system that the WTO 
now oversees, particularly from the perspective of the rule of 
law, should not be overlooked. The GATT's original purpose of 
restraining and eventually eliminating protectionism has been 
significantly achieved through a consistent reduction in trade 
barriers in the postwar era. The GATT trading system also 
revealed a dynamic flexibility in its ability to address the 
increasingly creative protectionism of states as they responded 
to the fall in tariff barriers with an increase in non-tariff 
barriers. This flexibility is a cornerstone of the WTO, as an 
institution that continues to serve the liberalization of trade 
in goods while moving to address the numerous trade barriers in 
other sectors, such as services and intellectual property, that 
are increasingly crucial to the U.S. economy. The United States 
retains a significant interest in pursuing in the WTO forum the 
progressive elimination of present obstacles to trade, whether 
in goods, services, or intellectual property.
    The ability of the WTO to adapt to the changing needs of 
its Members counsels in favor of addressing the institution's 
imperfections within the framework already established by the 
Uruguay Round. As previously noted, the WTO is a nascent 
institution. It is therefore not surprising that despite its 
successes in maintaining the benefits of an open trading regime 
while holding states to their commitments made in the WTO 
Agreements, the WTO faces growing pains and institutional 
difficulties.

B. Need for Institutional Reforms

    Although it has only been five years since the inception of 
the WTO, the institution has been, in effect, a victim of its 
own success from its birth. Instead of merely assuming the GATT 
(covering tariffs and non-tariff barriers) under its 
institutional aegis, the WTO faced at its founding a dramatic 
increase in the scope of its expected competences: the 
organization included trade-related areas that had never been 
subject to multilateral disciplines and whose very relationship 
to trade had never been tested in an institutional setting.\7\ 
The Uruguay Round also saw a proliferation of new Member states 
that had not before been members of GATT, such that the WTO was 
founded with 128 Members, a long way from the founding 22 
nations of GATT. The growth of the membership has continued, 
now totaling 135 states, with 31 more states in line to become 
Members after accession negotiations. The rapid expansion of 
subjects within the WTO's purview and the universality of its 
membership has greatly increased the importance of the 
organization's work.
---------------------------------------------------------------------------
    \7\ These comments express no position on the desirability of 
including within or excluding from the WTO any particular trade 
discipline or subject matter area.
---------------------------------------------------------------------------
    With these changes, the WTO will need to create new and 
refined procedures as the years bring experience to bear upon 
the institution's organizational dynamics. The ABA/SILP 
highlights the urgent need for enhanced transparency in WTO 
operations and greater inclusion of developing countries in WTO 
decision-making processes.
    There is a need for increased transparency both externally 
(vis-a-vis the general public) and internally (vis-a-vis the 
WTO membership). The need for external transparency stems from 
the obligations of the WTO to remain accountable to citizens. 
This accountability is particularly necessary as the 
organization extends beyond the reach of ``pure trade'' issues 
to those national measures that, while they affect trade, may 
fundamentally be non-trade-related in purpose. By addressing 
such measures, the WTO has become important to many domestic 
constituencies in the United States and elsewhere. Enabling 
these groups to access information regarding WTO decision 
making is necessary to build a consensus regarding the 
relationship between trade interests and other regulatory 
goals. Since the success of any multilateral trading regime 
depends on the continued support of citizens in Member states, 
the WTO must seek to provide greater information regarding its 
decision-making processes.
    Internal transparency, that is, the adoption of processes 
that are open to all Members, focuses on the need to ensure 
that all Member states are able to participate effectively in 
the organization processes. Specifically, although decisions 
are formally taken by consensus, many developing countries 
argue that numerous ``backroom'' agreements are made in small, 
informal closed-door meetings. Many developing countries are 
unsatisfied with the current processes. The perceived exclusion 
of developing countries and the potential estrangement of these 
states from the WTO directly threatens U.S. interests in the 
development of a liberal trading order. If developing countries 
are isolated from WTO processes, and they continue to view 
themselves effectively removed from procedures that decide 
their own rights and obligations, their support for the 
multilateral trading regime could decline. Similarly, the 
established procedures for arriving at decisions also should be 
reformed to ensure inclusion of all Members.
    The dissatisfaction of developing states with the Seattle 
Ministerial brought to the foreground the importance of the 
negotiation process. The WTO Agreements do not specify the 
means by which negotiating rounds are to be conducted, 
resulting in an ad hoc system that creates a tendency for large 
trading powers to agree on most basic elements of agreement 
among themselves. The absence of developing countries from 
initial discussions, however, prevents their participation 
during much of the crucial agenda-setting stage, at which point 
fundamental questions are, in effect, resolved without open 
debate. Understandably, the WTO faces the difficult prospect of 
attempting to secure universal agreement to a series of highly 
complicated texts among 135 Members; the demands of efficiency 
require that negotiations not include the full participation of 
each Member at every step of the negotiations. Nevertheless, 
there is a need to strike an appropriate balance between 
efficiency and the effective participation of countries that 
will be expected to assume commitments. Any agreement without 
the full and informed participation of the WTO membership will 
lack the legitimacy necessary to secure good faith 
implementation of WTO obligations and will weaken the long-term 
stability of the WTO as an institution. This is not in the U.S. 
national interest.
    As a new institution, the WTO was created to build on the 
GATT trading regime and incorporate the new disciplines 
negotiated during the Uruguay Round. Coinciding with these new 
substantive disciplines was the dramatic increase in the number 
of states whose interests would need to be reflected in the 
organization's institutional structure. These two developments 
posed particular challenges for a new institution. In the first 
five years of its experience, the WTO has experienced the 
consequences of its own success in increasing its scope and 
thereby raising the importance of its work to segments of 
society beyond the trade community. The organization is 
simultaneously accommodating an ever-increasing membership with 
many states anticipating future participation. Despite the 
success of the WTO in fulfilling its objective of ensuring that 
states adhere to their international legal obligations for the 
benefits of global commercial relations, it faces challenges in 
the areas of transparency and decision-making processes. The 
ABA/SILP encourages the United States to take this opportunity 
to lead the WTO membership to pursue reforms necessary to 
strengthen the institution.

                             IV. Conclusion

    The WTO continues after its first five years to serve U.S. 
interests by promoting the rule of law in international trade 
relations and providing the forum to facilitate ongoing trade 
liberalization measures. As a result it continues the GATT 
tradition of securing a stable, predictable environment for 
open trade. However, the WTO goes beyond the mere establishment 
of rules for an open multilateral trading system. In providing 
for efficient, binding, high-quality dispute resolution, and in 
functioning as the institutional backdrop for the series of 
trade-opening measures including and beyond trade in goods, the 
WTO promotes U.S. interests far more successfully than the 
previous GATT regime. Unsurprisingly, the WTO is not perfect. 
There are valid concerns about it as it begins its next five 
years and attempts to commence the first round to be launched 
under its auspices. These concerns are best addressed, however, 
within the framework of the system established five years ago. 
The United States can best promote its interests by reaffirming 
its commitment to the WTO while assuming a leadership role in 
the resolution of those concerns.
      

                                

    Mr. Houghton [continuing.] And we just don't want to hold 
you. So thank you very much for your understanding. I would 
love to--I have got your testimony. We will read it. We will 
distribute it. And if there are any other issues that you would 
like to share with us, please let us know. All right? Thanks 
again, very much.
    Mr. Lichtenbaum. Thank you.
    Mr. Houghton. Meeting adjourned.
    [Whereupon, at 1:30 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of the American Forest & Paper Association

    The U.S. forest products industry strongly supports China's 
accession to the World Trade Organization (WTO), and urges 
timely Congressional approval of Permanent Normal Trade 
Relations (PNTR) for China.
    China holds great promise as a major export market for U.S. 
wood and paper products. However, Chinese tariffs in our sector 
are among the highest in the world. Those high tariffs--coupled 
with a broad range of nontariff barriers--currently inhibit our 
industry's ability to take advantage of the potential that is 
inherent in China's huge population, relatively low per capita 
consumption of wood and paper products, shortage of quality 
housing, economic growth and burgeoning middle class.
    Bringing China into the WTO rules-based trading system, 
under the market access conditions that were agreed bilaterally 
in November 1999, should significantly enhance export prospects 
for U.S. producers of wood and paper products. At the same 
time, China's integration into the global trading system will 
strengthen the economic and political forces which are changing 
Chinese society, and thereby advance important American 
security, social and human rights interests.

U.S.-China Bilateral Market Access Agreement

     The bilateral WTO accession agreement concluded 
last November between the U.S. and China will reduce most 
Chinese paper and wood tariffs to the 5-7.5% level, with some 
tariffs as low as 1-2%. Most of these rates will be achieved by 
2003. This is well below current levels of 12-18% on wood and 
15-25% on paper products.
     China agreed that if an Accelerated Tariff 
Liberalization (ATL) agreement is reached in the WTO, China 
will join the forest products initiative upon accession. While 
an ATL agreement was not reached in Seattle, this suggests that 
China is not opposed to elimination of wood and paper tariffs 
not later than 2005. It is therefore critical that this 
opportunity for tariff elimination in a huge market not be 
lost.
     U.S. companies' ability to do business in China is 
currently limited by restrictions on trading rights (importing 
and exporting) and distribution of imported products. Within 
three years, any entity will be able to import forest products 
into any part of China and engage in the full range of 
distribution services.
     The agreement requires that China extend to U.S. 
forest products suppliers any preferential treatment it 
provides to other countries.

Permanent Normal Trade Relations for China

     The U.S. forest products industry has long 
supported the normalization of U.S. commercial relations with 
China. As China prepares to join the WTO, it is essential that 
Congress grant permanent, unconditional trade status to ensure 
that U.S. exporters and investors get the full benefits of the 
very favorable bilateral market access agreement and the other 
commitments China makes as a condition of its accession.

The Importance of China's Paper and Wood Market to U.S. 
Suppliers

     China's membership in the WTO, with its system of 
rules and obligations, will give U.S. exporters a means for 
addressing inconsistent, discriminatory and trade-distorting 
practices that have made doing business in China very 
difficult.
     China already has access to our market, since U.S. 
tariffs on forest product imports are at zero or very low. WTO 
accession on the terms of the U.S.-China bilateral market 
access agreement will ensure a more level playing field on 
tariffs.
     The removal of tariff and nontariff barriers to 
China's market is expected to provide significant export 
opportunities for U.S. producers of paper and wood products. 
Because China is deficient in forest resources, with limited 
potential for extending its own fiber supply, its need to 
import paper and wood products is expected to increase 
substantially as it pursues economic and industrial expansion.
     Pulp and Paper Products: U.S. pulp, paper, 
paperboard and converted products exported to China totaled 
more than 800,000 metric tons in 1998, with a value of $430 
million (there is also significant trans-shipment through Hong 
Kong). In 1998, China was the only Far East market which saw an 
increase in U.S. exports despite the effects of the Asian 
financial crisis (U.S. exports to all other markets in the 
region dropped sharply).
     Over the past decade, China has experienced the 
world's fastest paper and paperboard consumption growth. 
However, production capacity has not kept up with this growth. 
Projections by the Food and Agricultural Organization (FAO) 
show that China's paper and paperboard consumption will 
continue to grow strongly over the next decade and that the gap 
between supply and demand will continue to widen and be filled 
by imports.
     Wood Products: Exports of solid wood to China will 
approach $60 million in 1999, up from $41 million in 1998. Most 
products are imported in the form of logs or lumber and re-
manufactured in China for use in interior applications such as 
furniture, flooring, doors and windows. These markets should 
continue to grow as more Chinese can afford to upgrade their 
current dwellings or purchase new housing.
     Almost no U.S. wood is used in housing 
construction, but this could change as the Chinese government 
has launched an ambitious, market-oriented housing reform plan 
to privatize and increase the quality of Chinese housing. AF&PA 
is participating in the revision of the Chinese design standard 
for timber frame construction with the Chinese Ministry of 
Construction, and using our membership in the U.S.-China 
Residential Building Council to increase pressure on China to 
allow greater use and importation of U.S. wood building 
products.
     In order for U.S. products to compete in both 
interior and housing construction areas, high Chinese tariffs 
must be eliminated. U.S. value-added interior products such as 
flooring, veneer, molding and millwork, windows and doors 
cannot compete in local markets when facing an 18% tariff on 
top of the Chinese VAT tax.
     Price competitiveness in building materials is 
foremost in Chinese purchasing decisions, and U.S. wood 
products are competing against locally produced materials such 
as steel and concrete. Without tariff elimination and major 
building code changes, it will remain difficult for U.S. 
manufacturers to compete effectively in this growing and 
increasingly prosperous market.
      

                                

                          American Iron and Steel Institute
                                       Washington, DC 20036
                                                     April 13, 2000

A.L. Singleton
Chief of Staff
Committee of Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515

Dear Mr. Singleton:
    The American Iron and Steel Institute (AISI), on behalf of its U.S. 
member companies, is pleased to provide comments to the Committee on 
Ways and Means on the future of the World Trade Organization (WTO).
    On February 22, 2000, AISI provided detailed comments on ``The 
Outcome of the WTO Ministerial in Seattle'' to the Trade Subcommittee 
of the Committee on Ways and Means (attached). We refer the Committee 
to this statement, because it addresses many of the issues that 
Congress will now need to consider carefully in its review of the WTO.
    With respect to this current Committee inquiry, AISI supports in 
general the separate written ``Statement of U.S. Integrated Carbon 
Steel Producers on the Future of the World Trade Organization,'' which 
has been submitted for the record of this hearing. In addition, we 
offer the following as a summary of the consensus views of AISI and its 
U.S. member companies on the issue of congressional review of the WTO:

                      AISI Position on WTO Review

    AISI supported the GATT Uruguay (UR) results, including the 
creation of the WTO. We did so then because the UR implementing bill 
preserved effective U.S. laws against unfair trade, notwithstanding the 
fact that the UR itself resulted in a substantial net weakening of U.S. 
laws against unfair trade. Back in 1994-95, AISI also rejected the 
argument of WTO opponents that the WTO would harm U.S. sovereignty. 
After all, so the argument went, the U.S. could always ignore an 
adverse WTO panel decision, not change its law or policy and just 
accept foreign retaliation.
    Recently, however, AISI has become concerned that the WTO--if 
certain foreign governments get their way--will impair U.S. 
sovereignty. This is because a large number of WTO appeal cases are now 
being filed and threatened by foreign governments in an effort to 
misuse WTO dispute settlement in order to weaken U.S. trade laws. If 
these efforts succeed, it would only further undercut public support 
for the WTO. Congress needs to be aware of this growing abuse and take 
actions now to ensure that U.S. trade laws are not further undermined, 
whether through international negotiations, trade law weakening 
amendments--or WTO dispute settlement.
    This year, Congress will review whether the United States should 
continue to participate in the WTO. In light of the devastation 
suffered by the U.S. steel industry in 1998-99 due to record levels of 
unfair trade--and given the ongoing foreign government attacks against 
U.S. trade laws and WTO rules--AISI is looking at this issue based upon 
our key trade objectives and requirements. In any debate over the value 
of the WTO, Congress should consider the need to ensure that:

    1. the global trading system remains rules-based;
    2. the WTO is truly effective;
    3. the WTO must achieve real structural reform (e.g., dispute 
settlement reform, more participation by the private sector and greater 
transparency), which is especially necessary after Seattle;
    4. U.S. trade laws are strengthened to the full extent allowed by 
WTO rules;
    5. there is absolutely no weakening of the WTO's existing fair 
trade rules or of current U.S. trade laws; and
    6. there is a review process for WTO panel decisions established 
under U.S. law, similar to the one sponsored in the last Congress by 
Representatives Benjamin Cardin (D-MD), Ralph Regula (R-OH) and others 
in the House and Senate. This will help ensure that, in future WTO 
appeals, WTO panels do not exceed or abuse their authority.

    Whether the issue is trade law enforcement or the Foreign Sales 
Corporation, the Administration should make it clear to foreign 
governments that there is a price to be paid for abuse of the WTO 
process. We suggest that Congress begin by convening a special inquiry 
into Japan's role in the international trading system--including its 
continued closure to imports of manufactured products and its continued 
improper regulation of trade.
    AISI appreciates the opportunity to provide written comments on the 
future of the WTO. This is a critical issue, because the ability--or 
inability--to maintain an effective, rules-based trading system will 
affect significantly future U.S. economic performance.

            Sincerely,

                                               Barry Solarz
                                      Vice President, Tax and Trade

    Attachment

Statement of American Iron and Steel Institute

    The following statement on the outcome of the Seattle World 
Trade Organization (WTO) Ministerial Conference is submitted on 
behalf of U.S. member companies of the American Iron and Steel 
Institute (AISI), who together account for approximately two-
thirds of the raw steel produced annually in the United States.

                           Rules-Based Trade:

AISI and U.S. Government Position in Seattle

    In going to Seattle, AISI representatives stressed that:

     trade liberalization without effective fair trade 
rules cannot work in the interests of America;
     there can be no further trade liberalization 
unless trade will be fair; and
     the best way to do this is through strong trade 
laws, strictly enforced.

    The AISI message going to Seattle can be summed up in three 
words: RULES-BASED TRADE. After Seattle, this message has 
become even more important.
    AISI went to Seattle to support the long-held, bipartisan 
position of the U.S. government in favor of continued 
multilateral trade liberalization, based on no further 
weakening of the WTO's antidumping and anti-subsidy rules. The 
U.S. government and AISI took this position because, had these 
agreements been opened up, it would have led to certain 
weakening of the WTO's fair trade rules.
    In the months leading up to the WTO Ministerial, the 
Administration stated repeatedly that, in the national interest 
of the United States--and in the ultimate interest of trade 
liberalization and the global trading system--it would not 
allow the WTO's antidumping and anti-subsidy rules to be the 
subject of negotiations. The Administration deserves credit for 
holding firm in Seattle against strong foreign government 
pressures to reopen the WTO's dumping and subsidy agreements.
    The Congress also deserves credit for making its views 
known. There is overwhelming bipartisan support for preserving 
effective international disciplines against unfair trade. In 
the months leading up to the Ministerial and then again in 
Seattle, Steel Caucus Members and other Members of Congress 
communicated an unswerving message of support on this issue. 
Last year, more than half of the U.S. House of Representatives 
called on the President not to enter into any international 
negotiation that includes U.S. trade laws. In 1997, in its 
markup of ``fast track'' legislation, the Ways and Means 
Committee approved without dissent a provision instructing U.S. 
negotiators to reject any agreement that would weaken existing 
disciplines against dumping and subsidies. Today, the 
bipartisan consensus in Congress on this point is even 
stronger. It is that fast-track procedures should never again 
be used to amend U.S. trade laws.
    AISI's position is that there is a role in the U.S. market 
for fairly traded imports, but there is no role for unfair 
trade. In President Clinton's August 1999 Steel Action Plan, 
the Administration said it agreed with us. It announced that it 
is committed to a policy of ``zero tolerance of unfair trade.''
    The devastation suffered by the U.S. steel industry and its 
workers over the past 18 months due to record levels of unfair 
trade has served as a warning. It has reinforced the need of 
competitive U.S. industries for strong, effective, vigorously 
enforced trade laws. The events in Seattle in the first week of 
December 1999 have also served as a warning. They have 
reinforced the point that effective disciplines against unfair 
trade are critical if we are to maintain an open market policy 
in the U.S., enable further trade liberalization and promote 
market opening and much needed adjustment abroad.

                        Seattle in Perspective:

Reasons for Outcome

    There are many reasons why the Seattle Ministerial may not 
have succeeded in launching a new round of international trade 
negotiations. The simplest explanation is that there were many 
complex, divisive issues; there was too little time; there were 
135 members (60 more than at the time of the Uruguay Round); 
and there was a lack of consensus and political will among the 
key players for going forward.
    Key points on which there was no consensus included (1) 
agriculture, (2) the basic relationship of developing countries 
to the WTO and (3) the new issues, such as the nexus between 
trade and labor and trade and the environment. Perhaps most 
important, both the European Union (EU) and Japan, unwilling to 
take the needed steps on agriculture, pushed a very broad 
negotiating agenda in large part as a diversionary tactic.
    While posing as a friend of the developing world, the EU 
subordinated everything else to the core goal of defending its 
closed and heavily subsidized agricultural regime, which is so 
injurious to developing countries. In the process--and urged on 
by Japan--the EU indicated an openness to undermining the WTO's 
antidumping rules. In much the same way, Japan--the number one 
dumper in the U.S. market--pursued a reopening of the WTO's 
antidumping rules on behalf of its own manufacturers, all the 
while claiming it was taking this position on behalf of the 
developing world.
    The antidumping issue was one of several divisive issues, 
because other countries thought the U.S. would change its 
position, and we did not. However, the Seattle Ministerial did 
not fail because of the U.S. position on antidumping. The U.S. 
position on trade laws was sound and no surprise. It was a 
long-held bipartisan position, articulated clearly, often and 
early in the process.
    As to where we go from here: AISI remains committed in 
support of trade liberalization--provided there is no further 
weakening of existing fair trade rules.

                    Ongoing Foreign Government Goal:

Erode and Weaken U.S. Trade Laws

    What modest decline occurred last year in overall U.S. steel 
imports took place because of the successful use of trade laws by 
America's steel companies and unions. As the steel crisis has shown, 
the antidumping and countervailing duty laws are America's last line of 
defense against surging unfair trade. Foreign unfair traders view the 
trade laws as the only remaining major obstacle to their unfettered 
abuse of the open U.S. market. To attack this obstacle head on, foreign 
governments and producers are employing three main ways to achieve 
their goals.

     International Negotiations. In Seattle, foreign 
governments sought to weaken U.S. trade laws through multilateral 
negotiations. Thanks to the steadfast position maintained by the 
Administration and the Congress, the forces of trade law weakening did 
not achieve their goal. However, these forces will not stand still. 
They will continue their efforts to try to weaken U.S. trade laws 
through multilateral negotiations, whether in the WTO, the FTAA 
negotiations or the APEC process. Therefore, Congress needs to remain 
vigilant.
     WTO Dispute Settlement. Having failed to achieve trade law 
weakening at Seattle, Japan, Korea and other countries whose producers 
have engaged in unfair trading are now trying to achieve through the 
WTO dispute settlement system what they could not achieve through 
multilateral negotiations. Thus, Japan--the same Japan that still 
refuses to import steel, and continues to underperform dramatically as 
an importer of manufactured goods in general--has recently filed a 
complaint with the WTO regarding U.S. antidumping measures on hot 
rolled steel, and both Japan and Korea have threatened to file other 
WTO appeals relating to steel trade cases decided under WTO-consistent 
U.S. laws. The U.S. government needs to defend aggressively the trade 
laws enacted by Congress from this effort by unfair traders to use the 
WTO dispute settlement process to undermine America's fair trade rules.
     Trade Law Changes. In addition to using multilateral 
negotiations and WTO appeals of U.S. trade laws and trade law 
application, counsel for foreign governments and producers are now 
drafting trade law weakening legislative proposals. On this, both the 
Congress and the Administration need to send a very clear signal. 
Instead of trade law weakening, Congress should ensure that U.S. trade 
laws are as strong as what the WTO allows. In this regard, AISI urges 
prompt enactment of the Fair Trade Law Enhancement Act (H.R. 1505/S. 
1741), the Continued Dumping and Subsidy Offset Act (H.R. 842/S. 61) 
and other proposals to strengthen U.S. trade laws consistent with WTO 
rules. This should include amendments targeting the problem of 
diversion of steel and other manufactured goods to the U.S. market as a 
result of foreign anticompetitive practices.

                            Steel's Example:

Need for Strong Remedies Against Unfair Trade

    Over the past 30 years, the U.S. steel industry has faced a 
world of pervasive trade and market-distorting practices, 
including:
     widespread foreign government ``targeting'' and 
subsidizing of steel;
     foreign government barriers to imports of steel 
and steel-containing products; and
     foreign government toleration of private cartels 
and corruption in the steel sector.
    These trade-distorting conditions have enabled less 
efficient foreign steel companies to produce at levels not 
supported by market forces, to maintain artificially high steel 
prices in their home markets and to dump large quantities of 
steel in the United States.
    The revitalized U.S. steel industry is very familiar with 
the challenge of having to compete against pervasive unfair 
trade practices. However, what occurred in 1998 was like 
nothing seen before. With Asia and Latin America in recession 
and with Russia in collapse, the United States experienced the 
single largest surge of dumped and subsidized steel imports in 
its history. This was a transplanted crisis caused by major 
structural economic failures elsewhere. The result was an 
unprecedented surge of imports, which turned the U.S. into the 
World's Steel Dumping Ground.
    The past 18 months should have been the best of times for 
an American steel industry restored to world class status, 
which in recent years has added over 20 million tons of new, 
state-of-the-art steelmaking capacity. Instead, the U.S. saw 
record steel imports in 1998, the second highest import total 
in history last year and continued unfair trade by less 
efficient foreign steel producers throughout this period. 
Against the background of record U.S. steel demand--and due to 
one reason alone--unfair imports:

     five U.S. steel companies are now in Chapter 11 
bankruptcy;
     virtually all U.S. steel companies have seen 
profits plunge or losses mount; and
     thousands of U.S. steelworkers have experienced 
layoffs, shorter work weeks or reduced benefits.

    This is not the way that market-based trade is supposed to 
work. Between 1980 and the onset of the steel crisis, the U.S. 
steel industry succeeded in reinventing itself. By 1998, we had 
become a new industry producing new steels, using new equipment 
and employing new processes. Thanks to nearly $60 billion in 
modernization investments since 1980 and a costly and painful 
restructuring of all aspects of steel operations, a new U.S. 
steel industry had by 1998 emerged as a highly competitive, 
technologically advanced, low cost, environmentally responsible 
and customer-focused industry.
    In contrast, the steel industries of other countries, 
including Asia, the former Soviet Union and South America, did 
not make the adjustments that the U.S. industry made in the 
1980s and 1990s. They maintained substantial excess capacity, 
and this excess found a destination in 1998-99 in the large and 
open U.S. steel market. As a result, over the past 18 months, 
the United States has experienced an unprecedented level of 
unfair steel imports sold at cut-throat prices in violation of 
U.S. laws and WTO rules.
    Internationally competitive U.S. steel companies and their 
highly productive employees have learned important lessons from 
the 1998-99 steel crisis. They are that:

     a surge of unfair and disruptive imports causes 
lasting damage;
     the damage can extend to all segments of the U.S. 
steel community, and affects even the most competitive 
producers;
     the current trade laws are inadequate and are not 
designed to address the kind of major shifts in trade flows 
that result from structural economic failures abroad; and
     yet, these laws at the present time are the only 
effective WTO-consistent defense that exists to counter surging 
unfair and disruptive imports.

    Therefore, steel producers in the United States, now more 
than ever, support:

     prompt and strict enforcement of U.S. trade laws;
     modernization of these laws in a WTO-consistent 
manner; and
     preservation of effective international 
disciplines against unfair trade.

    Today, significant unfair trade and serious import injury 
are continuing in the U.S. steel market. The import injury is 
confirmed by the International Trade Commission's recent 
affirmative findings with respect to hot rolled steel, cut-to-
length plate, wire rod and welded line pipe. The unfair trade 
is confirmed by the very high margins of dumping or 
subsidization found recently by the Commerce Department on hot 
rolled, cold rolled, plate and other products. An important 
point, often overlooked, is that this injury is long term 
damage for which the competitive U.S. steel industry will never 
be compensated.
    The injury caused to U.S. steel companies and employees by 
unfair trade should also be a cause of long term concern to 
steel's U.S. customers. It is vital that U.S. steel companies 
continue to generate internally the capital needed for 
modernization so that they can continue to reduce costs, 
improve quality, compete against other materials and serve 
customers. It is not in the long term interest of customers to 
see competitive U.S. suppliers undermined by unfair trade from 
less efficient foreign competitors.

                         Global Trading System:

Effective Fair Trade Rules are Essential

    In a July 1998 submission to the WTO Working Group on the 
Interaction between Trade and Competition Policy, the U.S. 
government said that antidumping law remains:

        ``necessary to the maintenance of the multilateral trading 
        system. Without this and other remedial safeguards, there could 
        have been no agreement on broader GATT and later WTO packages 
        of market-opening agreements, especially given the 
        imperfections which remain in the multilateral trading system. 
        . . . [T]he antidumping rules represent an effort to maintain a 
        ``level playing field'' between producers in different 
        countries . . . [and] are a critical factor in obtaining and 
        sustaining necessary public support for the shared multilateral 
        goal of trade liberalization.''

    It is no surprise that the countries that repeatedly engage 
in unfair and disruptive trade are the most vocal critics of 
U.S. trade laws. Japan and other governments, whose domestic 
markets remain largely closed, went to Seattle to open up--in 
order to weaken--the WTO's fair trade rules. Other governments 
would like to take away the only effective tools the United 
States has to counter unfair trade. It is no accident that 
countries with closed markets and cartels want to weaken the 
WTO's antidumping rules and that countries that subsidize their 
inefficient industries want to weaken the WTO's anti-subsidy 
rules.
    However, this effort to weaken disciplines against unfair 
trade is a direct threat not just to steel and other 
competitive U.S. industries. It is also a direct threat to 
further progress on global trade liberalization. Effective 
rules against dumping and trade-distorting subsidies are an 
essential element of the multilateral trading system. These 
rules are what enables the public here and elsewhere to support 
open trade.
    It is the failure to counter injurious dumping and other 
unfair trade practices that undermines public confidence in 
free trade and public support for further multilateral trade 
liberalization. For more than 50 years, multilateral trade 
rules have allowed the U.S. and other countries to counter 
injurious dumping. The reason: a clear recognition that, over 
time, there can be no free trade unless it is rule-based and 
fair.
    When the public believes that existing trade rules are 
ineffective or are not being enforced, support for open trade 
begins to erode--and support for more restrictive, sometimes 
less transparent, solutions starts to grow. This is what has 
occurred in the United States in recent years, and the only way 
to reverse this trend is to improve and enforce U.S. laws 
against unfair trade.
    Only a few years ago, the Uruguay Round of trade 
negotiations led to weaker international disciplines--and 
national laws--against dumped and subsidized imports. The U.S. 
Administration, to its credit, went to Seattle determined to 
maintain the effectiveness of current international disciplines 
against unfair trade. Japan and other governments went to 
Seattle determined to discipline not the underlying trade-
distorting practices, but the WTO-consistent laws used in 
response to those practices.
    America's support for the WTO is not unconditional. It will 
not withstand another assault on the system's basic fair trade 
rules. The real problem in international trade is not the 
antidumping remedy. It is dumping, closed markets and other 
trade-distorting practices. If the public is again to support 
further trade liberalization, we need to build a new trade 
consensus in the United States around effective trade rules, 
effectively enforced. By contrast, if Japan and other 
governments get their way and U.S. trade laws are further 
weakened, public support for open trade will continue to 
decline.
    It took nearly eight years in the Uruguay Round to re-
negotiate the current international regime of antidumping and 
anti-subsidy rules. These rules have yet to be tested and have 
not proven defective. What the global trading system needs is 
proper compliance with current rules--not new negotiations, 
with new and confusing rule changes that could threaten all WTO 
members' exports.

                           Seattle's Message:

Importance of U.S. Trade Policy Objectives and Requirements

    This spring, Congress will review whether the United States 
should continue to participate in the WTO. In light of the 
devastation suffered by the U.S. steel industry in 1998-99 due 
to record levels of unfair trade--and given the ongoing foreign 
government attacks against U.S. trade laws and WTO rules--AISI 
is looking at this issue through the prism of key trade 
objectives and requirements. In any debate over the value of 
the WTO, Congress should consider the need to ensure that:

    1. the global trading system remains rules-based;
    2. the WTO is truly effective;
    3. the WTO achieves real structural reform (e.g., dispute 
settlement reform, more participation by the private sector and 
greater transparency), which is especially necessary after 
Seattle;
    4. U.S. trade laws are strengthened to the full extent 
allowed by WTO rules;
    5. there is absolutely no weakening of the WTO's existing 
fair trade rules or of current U.S. trade laws; and
    6. there is a review process for WTO panel decisions 
established under U.S. law, similar to the one sponsored in the 
last Congress by Representatives Benjamin Cardin (D-MD), Ralph 
Regula (R-OH) and others in the House and Senate. This will 
help ensure that, in future WTO appeals, WTO panels do not 
exceed or abuse their authority.

    In addition, Congress should consider convening a special 
inquiry into Japan's role in the international trading system--
including its continued closure to imports of manufactured 
products and its continued regulation of trade.

                              Conclusions

    Laws against unfair trade, especially the antidumping and 
countervailing duty laws, are necessary to offset foreign 
unfair trade and market-distorting behavior, level the playing 
field and restore public confidence in free trade. Such laws 
help ensure that more efficient domestic producers are not 
weakened or destroyed by less efficient foreign firms. Because 
these laws serve the interest of customers, consumers and the 
entire economy, successive U.S. Administrations and Congresses 
have taken the position that it is essential to preserve 
effective U.S. laws against unfair trade and effective 
international fair trade rules. This was the position that the 
U.S. government and AISI both took to Seattle.
    With respect to the Seattle WTO Ministerial, both the 
Administration and the Congress deserve significant credit for 
taking a strong stand against foreign government pressures to 
reopen the WTO's antidumping and anti-subsidy rules.
    The events that occurred in the streets of Seattle indicate 
what could occur in the global trading system without fair 
trade rules. Indeed, the global trading system as we now know 
it would not exist, and could not survive, without such rules. 
The key message coming out of Seattle is that it is essential 
to build a new trade consensus in the United States around the 
concept of RULES-BASED TRADE. The best way to begin doing this 
is for Congress and the Administration to:

     work together to strengthen U.S. trade laws in a 
WTO-consistent manner; and
     continue to resist foreign government efforts to 
weaken further the existing U.S. and WTO fair trade rules--
whether through international negotiations, WTO dispute 
settlement or trade law changes.
      

                                

Statement of American Textile Manufacturers Institute

    This statement is submitted on behalf of the American 
Textile Manufacturers Institute (ATMI). ATMI is the national 
trade association for the domestic textile industry. Our member 
companies operate in more than 30 states, and our industry 
employs nearly 600,000 workers in the United States.
    Before discussing our specific concerns regarding the World 
Trade Organization (WTO), we would like to reiterate that the 
American textile industry believes in and supports the concept 
of open markets based on fair and equitable conditions of 
trade. We strongly supported the NAFTA agreement and we are 
currently supporting versions of the CBI and Sub-Saharan Africa 
trade legislation that create a fair playing field for both 
U.S. workers and the people of the Caribbean and Africa.
    By way of background, the U.S. textile industry is a major 
exporting sector, ranking sixth in the world in 1998 according 
to WTO figures. Last year, we exported almost $14 billion worth 
of goods (17 percent of our output), with 24 of our export 
markets exceeding more than $100 million in sales. However, in 
order to grow and prosper, our industry must have access to 
many of the markets that are closed or highly restricted to 
imported textile products.
    The passage of the Uruguay Round Agreements Act five and 
one-half years ago held both promise and threat for this 
industry. In terms of threat, it mandated the removal of all 
textile and apparel quotas over a ten year time period for WTO 
members. In terms of promise, it held open the prospect of 
access to many of the markets that had long been closed to our 
products. President Clinton spelled out that promise in very 
clear terms when he said that the WTO would ``require all 
nations to finally do what we've already done--to cut tariffs 
and other barriers and open up trade to our products and 
services. It will level the export playing field for American 
companies and American workers all around the world.'' \1\
---------------------------------------------------------------------------
    \1\ President Clinton, November 19, 1994, Radio address.
---------------------------------------------------------------------------
    In regard to textiles, the Clinton administration went 
still further and stated that tariffs on overseas textile 
products must be reduced to specific levels, and that non-
tariff barriers to U.S. textile exports must be removed within 
three years after the WTO agreements went into effect. The 
administration explicitly warned that countries that blocked 
U.S. textile access could see their quota growth cut back and 
their zero duty status under the GSP program revoked \2\, among 
other actions.
---------------------------------------------------------------------------
    \2\ Administrative Action Statement, p. 774, Uruguay Round 
Agreements Act (P.L. 103-465).
---------------------------------------------------------------------------
    However, five years into the WTO, the promise of new and 
open markets remains as distant as ever. As the attached report 
which ATMI has submitted for the record demonstrates, the U.S. 
textile industry has received no significant new market access 
for its textile and apparel exports since the WTO came into 
being. None. Every major market that was closed to our exports 
prior to the WTO being formed remains closed today.
    In contrast, since 1995, textile and apparel imports into 
the U.S. have grown by 65 percent as our government conforms to 
its WTO commitments and dismantles the quota system and lowers 
tariffs. This flood of imports into the U.S. market has 
occurred with devastating results. By complying with its WTO 
commitments while other countries were ignoring theirs, the 
United States saw its textile and apparel trade deficit 
increase 50 percent in five years, to more than $50 billion.
    Not surprisingly, the job losses in our industry have been 
heavy. Since the WTO agreements were signed, 121,000 textile 
workers have lost their jobs--nearly ten times the number of 
job losses reported by the domestic steel industry that 
prompted so much reaction by Congress last year.
    We draw your attention to the chart attached to this 
testimony that illustrates in vivid detail the inequitable 
state of textile market access in this post-GATT era. As you 
can see, the list of markets that remain closed to our products 
is a long one. India remains closed, Pakistan remains closed, 
Thailand remains closed, South Africa remains closed--all in 
all, two-thirds of the world's consumers, whose markets account 
for $8 trillion dollars in GDP, remain essentially off limits 
today to U.S. textile exports.

    A portion of the blame for this must go to the WTO itself. 
As the attached report demonstrates, the WTO structure is rife 
with loopholes and exceptions that allow countries with major 
textile and apparel sectors to keep their markets closed while 
they pour ever increasing amounts of goods into the United 
States. In the report, we have documented 36 new trade barriers 
that have been imposed against U.S. textile and apparel exports 
during the last five years.\3\ Increased valuations at customs 
which have raised duties, impossibly costly marking rules, high 
tariff walls, widespread industry subsidization--all of these 
are ways in which the WTO itself continues to allow for a mind-
boggling array of trade-blocking behaviors, particularly by 
major textile and apparel producers.
---------------------------------------------------------------------------
    \3\ Only two of these were violations of WTO rules.
---------------------------------------------------------------------------
    Even when a barrier does fall, we have found that another 
quickly springs up to take its place. For example, since Brazil 
lowered its textile tariffs in 1994, it has undertaken eight 
different trade blocking measures, such as eliminating letters 
of credit, revaluing imports, and beginning a ``zero 
tolerance'' scheme whose purpose is to reject imports for the 
most minor of administrative errors. The result? By 1999, our 
textile exports to Brazil, which soared during the brief time 
that Brazil decided to meet its WTO obligations, had actually 
dropped by more than 50 percent as Brazil returned to its 
closed market status.
    Just recently, India played the Brazil game--on the same 
day that the U.S. declared victory in its five-year effort to 
force India to drop its 50-year old ban on imports of textiles 
and other consumer products, India announced that it would 
``compensate'' by increasing tariffs on all affected goods.
    A portion of the blame must also go to the U.S. government. 
As part of the Uruguay Round legislation, the administration 
promised it would take action within three years if markets 
remained closed. It specifically warned that the U.S. could 
revoke GSP duty-free status and withhold increases in U.S. 
textile and apparel quotas from countries that failed to 
provide market access. In India's case, these benefits amount 
to billions of dollars a year--this would represent strong 
leverage if the administration has the will to proceed.
    As the attached report demonstrates, India is but one of 
many WTO countries that have failed to open their markets. We 
would like to take this opportunity now to urge that GSP and 
WTO quota growth benefits be withdrawn from the following 
countries that have maintained trade barriers to U.S. textile 
exports in violation of their WTO commitments:

        Argentina, Brazil, Bangladesh, Egypt, India, Indonesia, 
        Mauritius, Morocco, Pakistan, Romania, South Africa, South 
        Korea, Thailand.

    On the WTO's side, it is clear that this organization's 
process for implementation and enforcement is in strong need of 
reform. Member countries ignore commitments and most countries 
face no disciplinary action even in the face of clear and 
obvious violations. Absent equitable conditions of market 
access, fair trade will not occur in five years, or for that 
matter in fifty years. In fact, if the past five years have 
taught us anything, it is that trade-blocking behavior will not 
go away on its own accord and that closed markets will not open 
until countries are forced to open them. ATMI has reviewed the 
loopholes and other problems in the WTO and we have included a 
list of badly needed reforms in the attached report.
    In accordance with the final point of this hearing's focus, 
we would like to comment on the potential impact that China's 
admission into the WTO would have. As ATMI has already pointed 
out in our statement submitted to the committee at your hearing 
last month,\4\ the impact of the U.S. government's agreement to 
phase out China's textile and apparel quotas at a rate twice as 
fast as that granted to any other WTO country will be severe. A 
study by the U.S. International Trade Commission predicts that, 
as a result, Chinese imports will triple their share of the 
U.S. apparel import market. A similar study by Nathan 
Associates confirmed this result and concluded that 154,000 
workers in the U.S. textile and apparel sector would lose their 
jobs under an accelerated phase-out schedule.
---------------------------------------------------------------------------
    \4\ Statement of the American Textile Manufacturers Institute, 
February 16, 2000
---------------------------------------------------------------------------
    There will be other impacts as well. China is not known for 
keeping the agreements that it signs--in fact, China has signed 
one market access, six textile and four intellectual property 
agreements over the past 15 years, and has broken them all. 
Given this poor track record, China's accession to the WTO is 
sure to strain an already controversial and overburdened WTO 
dispute settlement system.
    Even more importantly, the major textile exporting nations 
have already signaled that they consider even the weak rules of 
the current WTO structure too difficult to stomach. They now 
say they want subsidy, customs, intellectual property and 
dumping rules weakened still further. China is sure to throw 
its support behind these initiatives. Though not even yet a 
member, China has already complained that developing nations 
are getting short shrift in the WTO. All in all, the prospect 
for creating actual rules of fair trade within the WTO will be 
considerably dimmed the day that China joins that body.
    We would also like to make one final point on China now 
that the U.S./China agreement on accession has been disclosed. 
The agreement has a major flaw that has gone largely unnoticed. 
It concerns the absence of any commitment by China to eliminate 
export subsidies on industrial products. One may ask why is 
this so important -don't U.S. countervailing duty laws apply to 
illegal subsidies? The answer is yes, but these laws do not 
apply to non-market economies. The Department of Commerce made 
this ruling over ten years ago and, unless it changes its 
ruling, anyone injured by subsidized industrial exports from 
China will be unable to petition for relief under U.S. 
countervailing duty laws.
    The reasoning for such a decision by the Commerce 
Department was hard to fathom then, and remains so today. But 
it needs to be reversed and we urge this committee to seek such 
a change now. Many industries, not just textiles, will be at 
the mercy of China's state-directed economy with all the 
subsidies that such a system employs unless the Commerce 
decision is reversed.
    In closing, we hope the committee will review the attached 
report and take into account its findings. The U.S. textile 
industry and its workers are not afraid to compete on a level 
playing field with any textile producers. We have one of the 
highest capital reinvestment rates of any manufacturing sector 
and are consistently ranked as one of the most productive 
textile sectors in the world. But we cannot compete against 
governments that use sky-high tariffs and a whole host of WTO-
sanctioned non-tariff barriers to keep their markets closed.
    It is time for the U.S. government to stand strong on 
behalf of its workers and manufacturers to make sure that 
equitable conditions of market access for U.S. products prevail 
in the major markets of the world. The WTO should do more to 
make this happen, but only the United States government CAN do 
more and make it happen.
[GRAPHIC] [TIFF OMITTED] T7261.002

      

                                

Statement of Daniel T. Griswold, Associate Director, Center for Trade 
Policy Studies, Cato Institute

    Street protestors in Seattle during the World Trade 
Organization meeting last November delivered a long indictment 
against the organization and its guiding principle of trade 
liberalization. Union leaders, environmental activists, and 
protectionists such as Pat Buchanan charged that international 
agreements to expand trade have systematically undermined 
employment, wages, environmental standards, democracy, and 
national sovereignty. It seemed that whatever discontent anyone 
may have had with the state of the world today, trade was the 
culprit.
    Meanwhile, defenders of trade liberalization were either 
silent, on the defensive, or overshadowed by the televised 
spectacle of chanting crowds, tear gas, and shattered store 
windows. Lost somewhere in the noise and the fog was the 
reality of what trade expansion and the WTO have accomplished 
for the United States and the global economy.
    One fact that friends and foes of trade can agree on is 
that America is becoming more open to the global economy. Since 
passage of the Reciprocal Trade Agreements Act in 1934 and the 
founding of the General Agreement on Tariffs and Trade in 1948, 
American tariff barriers have been on a downward trend, from an 
average of more than 40 percent in the 1930s to 2.8 percent 
today.\1\ In addition to entering into multilateral trade 
commitments, the United States joined with Mexico and Canada in 
1994 to form a free-trade area through the North American Free 
Trade Agreement. The result of those policy initiatives has 
been a steady expansion of America's integration into the 
global economy. The two-way flow of trade has now reached more 
than 25 percent of gross domestic product, a record high for 
this century and up sharply from the 1960s. The United States 
today is both the world's largest importer and its largest 
exporter.\2\
---------------------------------------------------------------------------
    \1\ Council of Economic Advisers, ``America's Interest in the World 
Trade Organization: An Economic Assessment,'' November 16, 1999, http:/
/www.whitehouse.gov/WH/EOP/CEA/html/wto/, p. 1.
    \2\ Ibid.
---------------------------------------------------------------------------
    The WTO has also played an important role in facilitating 
trade liberalization in the rest of the world. Since the late 
1940s, barriers against the free flow of goods and capital have 
been falling, with average global tariffs on manufactured goods 
down among industrialized countries from an average of more 
than 40 percent to under 4 percent today.\3\ Meanwhile, 
developing countries have been unilaterally lowering their own 
barriers to trade and investment and now are 80 percent of the 
WTO's membership of 135. The result of that sea change in 
policy has been a geometric leap in global trade flows. The 
volume of world merchandise trade today is 16 times the volume 
in 1950, a rate of growth three times faster than the growth of 
global output.\4\ The global flow of foreign direct investment 
(FDI) has more than quadrupled in the past decade, from $206 
billion in 1990 to $827 billion in 1999.\5\
---------------------------------------------------------------------------
    \3\ Organization for Economic Cooperation and Development, Open 
Markets Matter: The Benefits of Trade and Investment Liberalization 
(Paris: OECD, 1998), p. 31.
    \4\ Ibid., p. 25.
    \5\ United Nations Conference on Trade and Development, ``World FDI 
Grows 25 Percent in 1999, Surpassing U.S.$800 Billion,'' Press release, 
February 8, 2000, http://www.unctad.org/en/press/pr--2837.en.htm.
---------------------------------------------------------------------------
    To the opponents of trade, of course, that is all bad news. 
They trace the beginning of America's alleged economic decline 
to the early 1970s, when the pace of our integration into the 
global economy quickened.\6\ From their perspective, the 
creation of NAFTA and the WTO have only compounded our 
troubles. Their case against the WTO, free trade, and 
globalization rests largely on convincing us that we are worse 
off today than we would be if we had more vigorously resisted 
closer economic ties with the rest of the world.
---------------------------------------------------------------------------
    \6\ Pat Buchanan, in his anti-trade manifesto, The Great Betrayal 
(New York: Little, Brown, 1998), p. 53, marks the beginning of the 
``free-trade era'' as the conclusion of the Kennedy Round of GATT 
negotiations in 1967. His allies on the left, Lori Wallach and Michelle 
Sforza, Whose Trade Organization? (Washington: Public Citizen, 1999), 
p. 156, date ``the onset of globalization in its current form'' to 
1973.
---------------------------------------------------------------------------

                 The Link between Trade and Prosperity

    Trade promotes efficiency, the spread of new ideas and 
technology, the more efficient allocation of capital, and a 
greater international division of labor. Trade allows Americans 
to increase their overall productivity by shifting capital and 
resources to sectors of the economy where we are more 
productive relative to other industries. By specializing in 
what we do best--for example, growing wheat, designing computer 
chips, and building aircraft--we can trade our surplus 
production for the goods and services that people in other 
nations are best at producing. The result of international 
specialization is that countries that trade enjoy higher 
productivity and higher living standards than they would if 
they did not trade.
    Along with specialization, trade brings the dynamic 
blessing of competition. Competition spurs innovation, controls 
costs, and keeps downward pressure on prices. For consumers, 
enhanced competition means lower prices, better quality, and 
wider variety, raising the real value of their wages. For 
example, the quotas and tariffs the U.S. government maintains 
against imported textiles and clothing impose an estimated net 
cost on the U.S. economy of $10.4 billion a year.\7\ The burden 
of this protectionism falls disproportionately on lower-income 
families, who spend a higher proportion of their incomes on 
essentials such as food and clothing. Fortunately, those quotas 
are scheduled to be phased out by 2005 under a WTO agreement.
---------------------------------------------------------------------------
    \7\ U.S. International Trade Commission, The Economic Effects of 
Significant U.S. Import Restraints: Second Update 1999, USITC 
investigation n. 332-325, publication 3201, May 1999.
---------------------------------------------------------------------------
    For domestic producers, trade allows access to lower-cost 
inputs and more sophisticated machinery. For example, the U.S. 
textile industry--even as it stifles foreign competition for 
its customers--has raised its productivity by importing state-
of-the-art capital equipment from overseas suppliers. One 
reason U.S. computer makers are so competitive on world markets 
is that they can import a range of intermediate inputs, such as 
disk drives, monitors, semiconductors, and motherboards, from 
suppliers in Asia.
    For exporters, trade expands markets abroad, making 
possible larger production runs and cost savings through 
economies of scale. Two sectors with the most to gain from 
liberalization are agriculture and services. In 1998 American 
farmers exported $54 billion in products, accounting for about 
a quarter of their cash receipts, despite relatively high trade 
barriers against farm imports worldwide. U.S. service providers 
accounted for 29 percent of total U.S. exports in 1998, up from 
17 percent in 1950, again despite relatively high trade 
barriers.\8\ WTO negotiations in agriculture and services set 
to begin this year are aimed at reducing the persistently high 
barriers to U.S. exports in those sectors.
---------------------------------------------------------------------------
    \8\ Council of Economic Advisers, ``America's Interest in the World 
Trade Organization,'' p. 9. The leading U.S. service exports are travel 
and transportation services; royalties and licensing agreements; 
business, professional, and technical services; and financial services.
---------------------------------------------------------------------------
    The WTO has worked to open markets for U.S. exporters and 
to keep them open. During the financial turmoil abroad in 1997 
and 1998, WTO commitments helped discourage countries in 
distress from reverting to protectionism under domestic 
political pressure. This helped to avoid a destructive cycle of 
trade retaliation such as the one that plagued the global 
economy in the 1930s. In addition, the United States has been 
the most frequent user of the WTO's dispute settlement 
mechanism, prevailing in 23 of 25 cases it has brought against 
other members. These cases have prompted the removal of 
discriminatory barriers against U.S agricultural, services, and 
manufacturing exports. Also, if China is allowed into the WTO, 
its potentially huge market will be much more open to U.S. 
exporters. And since 1997 WTO members have negotiated three 
sectoral agreements that lower barriers to U.S. exports of 
information technology, financial services, and basic 
telecommunications services.
    An open economy also provides additional capital from 
abroad, lowering domestic interest rates, expanding the 
nation's stock of capital, and raising the productivity of 
American workers. Japanese investment in U.S. auto plants, for 
example, has raised the productivity of American autoworkers by 
providing new plants and equipment and introducing new 
production techniques. An open economy has allowed American 
investors, including workers vested in pensions, individual 
retirement accounts, and 401(k) retirement plans, to earn 
higher returns abroad and to spread, and thus reduce, the risk 
in their portfolios.
    All these advantages of openness predicted by economic 
theory have been realized in the countries that practice open 
trade. The world's most prosperous countries are those that are 
relatively open to trade with other nations, while the poorest 
nations are those that remain relatively closed. If the 
protectionists were right, just the opposite would be true. In 
fact, according to a study by the Organization for Economic 
Cooperation and Development, nations relatively open to trade 
grow about twice as fast as those that are relatively closed--
for all the sound economic reasons listed above.\9\
---------------------------------------------------------------------------
    \9\ Organization for Economic Cooperation and Development
---------------------------------------------------------------------------
    When the WTO agreements from the Uruguay Round of trade 
talks are fully implemented in 2005, their potential benefit 
could be an increase to global income of between $171 billion 
and $214 billion annually. The gains for the United States 
alone could amount to from $27 billion to $37 billion a year 
(in 1992 dollars) \10\--an impressive return compared to the 
$19 million Congress appropriates annually for our membership 
in the WTO.\11\
---------------------------------------------------------------------------
    \10\ Council of Economic Advisers, ``America's Interest in the 
World Trade Organization,''
    \11\ U.S. Trade Representative, ``1999 Annual Report of the 
President of the United States on the Trade Agreements Program,'' March 
2000, Annex II,
---------------------------------------------------------------------------
    By encouraging trade liberalization, the WTO helps to raise 
living standards in the United States and the rest of the 
world. It encourages more vigorous global competition among 
producers, leading to lower consumer prices, rising worker 
productivity, and higher living standards.

                         Trade, Jobs, and Wages

    One of the oldest charges against free trade is that it 
destroys jobs. The charge contains a grain of truth. Like 
technology, expanding the freedom of Americans to trade can 
accelerate the shift of employment from one industry to 
another. While trade is responsible for destroying some jobs, 
it also creates new jobs. The result is not more or fewer jobs 
in the U.S. economy but a better mix of jobs.
    The notion that expanded international trade causes general 
unemployment in an economy is obviously false. In the past 
decade, as U.S. trade barriers have fallen and two-way trade 
has expanded, total civilian employment in the United States 
surged by 16 million, from 117 million jobs in 1989 to 133 
million in 1999.\12\ That explosion of job creation helped to 
push the unemployment rate down to just above 4 percent by the 
end of 1999, the lowest level in 30 years.\13\
---------------------------------------------------------------------------
    \12\ Council of Economic Advisers, Economic Report of the President 
2000 (Washington: Government Printing Office, 2000), p. 348.
    \13\ Ibid., p. 354.
---------------------------------------------------------------------------
    Critics of trade mistakenly assume that imports raise the 
unemployment rate by displacing Americans who would otherwise 
make the same products domestically. In reality, import growth 
and the unemployment rate are negatively correlated. The more 
we import, the more jobs there are for Americans; or, to phrase 
it more precisely, the more Americans who hold jobs, the more 
we can afford to import.
    Since 1973 the unemployment rate has tended to fall more 
rapidly in years with strong import growth and to rise in years 
when import growth was weak or negative (Figure 1). In fact, 
every percentage point increase in the rate of import growth 
during that period is associated with a 0.1 point drop in the 
unemployment rate. A 15 percent increase in real imports will 
typically be associated with a 0.9 point drop in the 
unemployment rate during the year (December to December), while 
a smaller 10 percent increase in real imports is associated 
with a 0.4 point drop in unemployment. A 5 percent fall in real 
imports is typically matched by a 1.1 point increase in 
unemployment.
    The connection between the unemployment rate and imports 
offers no comfort to protectionists who promise to drive down 
the unemployment rate by restricting imports. Since 1973 there 
has not been a single year in which falling imports have been 
associated with a falling unemployment rate. The empty lower-
left quadrant in Figure 1 shows the hollowness of the 
protectionists' argument. The debate over trade should not be 
about the number of jobs in our economy; it should be about the 
kind and quality of jobs. \14\
---------------------------------------------------------------------------
    \14\ Total employment in an economy is determined by labor market 
flexibility and by broader, macroeconomic factors such as monetary 
policy. This means, of course, that proponents of trade expansion who 
argue that it will ``create jobs'' are propagating the same fallacy as 
opponents who argue that it will ``destroy jobs.''

---------------------------------------------------------------------------
The Real Story of Real Wages

    Even though trade does not reduce the total number of jobs 
in our economy, what about the quality of the jobs and the wage 
gap between high-and low-skilled workers? Critics of trade 
expansion contend that we are trading away good-paying jobs in 
manufacturing for lower-paying jobs in the service sector. As 
evidence, they point to widely quoted figures that are 
purported to show that the average real wage in the United 
States has fallen since 1973, and that trade with low-wage 
countries is primarily to blame.
    The argument that trade liberalization through the GATT/WTO 
has made Americans poorer contradicts the most obvious facts 
about the U.S. economy in the year 2000. Americans today are 
much better off than they were in the early 1970s by virtually 
every economic measure available. Americans are living longer, 
enjoying better health, and consuming more goods and services 
per capita than ever before.
    The claim of declining real wages is misleading for two 
reasons: it overstates inflation, and it does not acknowledge 
the growth of nonwage benefits. In the past few years 
economists have reached a consensus that the official consumer 
price index systematically overstates inflation; the 1996 
Boskin Commission estimated the overstatement to be about 1.1 
percentage points a year.\15\ Compounded over 25 years, an 
annual 1 percentage point overstatement of inflation would 
cause a 26 percentage point understatement of the growth in 
real wages--which would turn the alleged 4 percent drop in real 
wages into a 22 percent gain in purchasing power.\16\
---------------------------------------------------------------------------
    \15\ The main reason why the CPI systematically overstates 
inflation is that it fails to capture the beneficial impact of new 
products on the purchasing power of our paychecks. Americans today can 
buy a minivan full of products--such as personal computers, VCRs, 
microwave ovens, cellular telephones, and digital cameras--that simply 
were not for sale in 1970, at least not a price any of us could afford. 
And when those new products are finally added to the CPI shopping 
basket, the most dramatic price reductions have already been realized.
    \16\ Author's calculation, based on an average annual CPI increase 
of 5.4 percent from 1973 to 1998.
---------------------------------------------------------------------------
    The commonly cited real wage numbers also fail to include 
such nonwage benefits as health insurance premiums, retirement 
account payments, eye and dental care, stock options, and paid 
maternity leave. Nonmonetary benefits as a share of wages have 
risen by one-third since 1973: from 32.7 percent in 1973 to 42 
percent in 1995.\17\ Failure to account for nonwage benefits 
makes the real wage numbers grossly misleading.
---------------------------------------------------------------------------
    \17\ W. Michael Cox and Richard Alm, Myths of Rich and Poor: Why 
We're Better Off Than We Think (New York: Basic Books, 1999), p. 18.
---------------------------------------------------------------------------
    Even those flawed numbers indicate that the angst over real 
wages is misplaced. In the past three years real wages have 
begun to rise strongly again in step with rising productivity. 
According to the Bureau of Labor Statistics, real wages rose by 
an annual average of 2 percent in 1997, 1998, and 1999, during 
a period in which imports and foreign investment in the United 
States were rising to record levels.\18\ Real per capita 
disposable income is up 17 percent in the past decade.\19\
---------------------------------------------------------------------------
    \18\ Council of Economic Advisers, Economic Report of the President 
2000, p. 360.
    \19\ Ibid., p. 341.
---------------------------------------------------------------------------
    This rising tide of real compensation has lifted all boats, 
including those of less-skilled workers, as the expanding U.S. 
economy has raised demand for all types of labor. According to 
the Council of Economic Advisers, ``Between 1993 and 1998, real 
average household incomes have grown between 9.9 and 11.7 
percent for every quintile of the income distribution, and the 
median African American household has seen a 15 percent 
increase in real income. Between 1993 and 1998, family incomes 
in the lowest quintile rose at a 2.7 percent annual rate, 
slightly faster than the 2.4 percent rate recorded by the top 
quintile.'' \20\
---------------------------------------------------------------------------
    \20\ Ibid., p. 27.
---------------------------------------------------------------------------
    If the critics of trade were right--that more open trade 
drives down real wages, especially for low-skilled workers--
then none of those developments should be happening.

Who's Flipping Hamburgers?

    Predictions that trade would turn us into a nation of 
hamburger flippers have proven to be ludicrous. That myth is 
built on the misconception that service jobs are somehow 
inherently inferior to those in manufacturing, which gives rise 
to the erroneous assumption that the ongoing growth of the 
service sector has caused a decline in real living standards.
    Since the passage of NAFTA and the Uruguay Round Agreement, 
the service sector in the United States has expanded so much 
that, today, service-producing industries account for more than 
80 percent of all jobs in the United States. It is true that a 
significant number of service jobs are relatively low paying, 
in particular those in the retail trade, but the fastest-
growing sectors of service employment are on the high end. 
According to a study by the U.S. Department of Labor, 81 
percent of the new jobs created since 1993 have been in 
industry/occupation categories paying above-median wages, and 
65 percent are in the highest-paying third of categories.\21\
---------------------------------------------------------------------------
    \21\ Council of Economic Advisers and U.S. Department of Labor, 
Office of the Chief Economist, ``20 Million Jobs: January 1993-November 
1999,'' December 3, 1999, p. 5.
---------------------------------------------------------------------------
    Those new jobs are in communications, computer programming, 
finance, teaching, management, and other white-collar 
professions. Overall, the typical manufacturing job pays only 
about 1 percent more than the typical service job, and that gap 
is about to vanish. For nonretail service jobs, the average pay 
is now about 5 percent higher than for manufacturing jobs.\22\
---------------------------------------------------------------------------
    \22\ Cox and Alm, p. 146.
---------------------------------------------------------------------------
    It would be wrong to describe the lower-paying service jobs 
as dead-end work. Many workers prefer those kinds of jobs for 
the flexible hours and work experience they offer. The fast-
food industry, to cite the most obvious example, has become a 
virtual training program for the American workforce, with 
millions of workers gaining their first on-the-job experience 
in the industry. Today nearly 70 percent of workers flipping 
burgers and performing other tasks in the fast-food industry 
are under the age of 20.\23\ For most of those workers, low-end 
service jobs are a valuable but temporary step on the ladder to 
greater economic success.
---------------------------------------------------------------------------
    \23\ Ibid., p. 147.
---------------------------------------------------------------------------
    Critics of trade tend to romanticize the appeal of 
manufacturing jobs. This sector of the economy also has its 
share of low-end jobs that pay below-average wages, in 
particular in the textile and apparel sectors. Working 
conditions can also be less pleasant, safe, and secure than in 
the large majority of service jobs. The shift from 
manufacturing to service jobs partly explains the dramatic 
decline in the death rate from on-the-job accidents in recent 
decades.
    It is simply a myth that an economy cannot prosper if the 
share of jobs in manufacturing is falling. The current U.S. 
economy is proof.

The Gap between Rich and Poor

    Another charge against open trade is that it has widened 
the gap between rich and poor in America. The claim rests on 
the theory that trade with low-wage countries has driven down 
the wages of low-skilled domestic
    labor. According to the theory, competition with poor 
countries causes U.S. industries to shift production away from 
labor-intensive goods, thus reducing the demand in this country 
for low-skilled workers. The result is what economists call 
``factor price equalization''--U.S. wages for low-skilled labor 
are dragged down toward the level in less-developed countries.
    The theory sounds plausible on its face, but it fails to 
explain what has actually been occurring in the U.S. economy. 
It is true that, until the mid-1990s, the wage gap had been 
growing between workers with a college degree and those with 
only a high school education. But the evidence points to 
technological change, not international trade, as the primary 
reason for the widening gap between wages of skilled and 
unskilled workers.
    If trade were the dominant factor, then most industries 
should be increasing their percentage of low-skilled workers to 
take advantage of lower wages. But, in fact, U.S. industries 
across the board have been shifting their workforces toward 
higher-skilled positions. This demonstrates that the rising 
wage premium for college degrees has been due, not to external 
competitive pressures, but to broader internal changes in the 
American economy. Specifically, a more information-based, 
technologically driven economy needs relatively more brains and 
less brawn than did the more manufacturing-based economy of the 
past.
    It is true that, although technology has provided the much 
bigger shove, technology and trade have been pushing in the 
same direction-toward greater reliance on high-skilled workers. 
Anti-trade critics try to twist this into a black mark for 
globalization, but would they really prefer the opposite? Would 
anybody really want to see an American economy that relied 
increasingly on low-skilled workers? The increasing premium on 
education, skills, and training is surely good news for 
America's future. If some Americans lack the skills to take 
full advantage of the promise of that future, the proper 
response is to improve our public policies on education and 
training--not to dumb down the American economy by blocking 
technological progress or erecting trade barriers.

                 America's Thriving Manufacturing Base

    Despite predictions of its imminent doom, manufacturing in 
America today is thriving. American factories are producing 
more goods than ever before. Healthy gains in efficiency have 
kept American manufacturers competitive in international 
markets, maintaining America's position as the world's no. 1 
exporter of manufactured goods. The resurgence of U.S. 
manufacturing comes against a backdrop of record imports.
    Far from deindustrializing, America in the past decade has 
experienced a robust expansion of industrial output. Since 
1992, during a period in which the WTO and NAFTA have both been 
in operation, industrial production--which includes the output 
of U.S. mines, utilities, and factories--has increased 37 
percent. Manufacturing output by itself has risen even faster, 
by 42 percent (Table 1).
    Consider the example of the U.S. auto industry. Domestic 
output of motor vehicles and parts has shot up 51 percent since 
1992. Total domestic output of cars and light trucks reached 
12.6 million in 1999, a record high and up more than 3 million 
since 1992. Strong domestic demand for new cars, light trucks, 
and sport utility vehicles has helped to boost profits and 
employment in the industry. In 1998 domestic automobile 
employment approached 1 million, an increase of 177,000 since 
1992. Industry profits were healthy in 1999. Those are not the 
signs of an industry that has been destroyed.
    Contrary to what the critics of trade predicted, American 
industry has not been losing ground, either in absolute terms 
or relative to the rest of the world. America remains the 
world's top exporter of manufactured goods, with exports in 
1998 worth $528 billion.\24\ America's share of global 
manufacturing exports held steady in the 1990s at about 13 
percent.\25\ Among America's leading exports in 1998 were 
aircraft, computer equipment, telecommunications equipment, 
valves and transistors, passenger cars, and motor vehicle 
parts. Compared with the other major industrial powers, 
including the once feared Japanese juggernaut, the United 
States has been widening its lead in industrial output in the 
past decade (Figure 2).
---------------------------------------------------------------------------
    \24\ United Nations, Monthly Statistical Bulletin, March 2000, p. 
275.
    \25\ U.S. Bureau of the Census, Statistical Abstract of the United 
States: 1999 (Washington: Government Printing Office, 1999), Table 
1243, p. 755.
---------------------------------------------------------------------------
    Open U.S. markets have been essential to the competitive 
strength of America's most dynamic high-tech manufacturing 
industries. For example, U.S. personal computer manufacturers 
are among our leading exporters. But open up one of those PCs 
and you'll find a microcosm of the global economy: operating 
system and microprocessor from the United States, memory chips 
from Japan and Korea, a disk drive made by a U.S. company in 
Singapore, a motherboard and peripherals from Taiwan. Any 
attempt to close off the American economy with tariff walls 
would be a disaster for the U.S. computer industry.
    Free trade has been a tonic for American industry. 
International competition has spurred innovation, efficiency, 
and customer satisfaction. The biggest winners have been 
American families, who benefit from the lower prices, greater 
variety, and higher quality of products that international 
competition makes available. Not all industries benefit from 
open competition, of course. Output and employment in the 
domestic apparel sector continue to fall as production shifts 
to lower-cost producers abroad. But, for the health and 
vitality of the American manufacturing sector as a whole, not 
to mention the overall economy, international trade has been a 
blessing.\26\
---------------------------------------------------------------------------
    \26\ For a more detailed analysis of the impact of international 
trade on domestic manufacturing and employment, see Daniel T. Griswold, 
``Trade, Jobs, and Manufacturing: Why (Almost All) U.S. Workers Should 
Welcome Imports,'' Cato Institute Trade Briefing Paper no. 6, September 
30, 1999.
---------------------------------------------------------------------------
    Warnings about deindustrialization tend to focus, not on 
output, but on jobs. But even here, the worries are based on an 
irrelevant half-truth: manufacturing employment has not been 
growing. The number of Americans employed in manufacturing at 
the end of 1999 was about 18.4 million, up slightly from 1992 
but down from the all-time peak of 21 million in 1979. Before 
the downturn in exports hit in 1998, in the wake of the East 
Asian economic crunch, the number of manufacturing jobs in the 
United States had actually increased by 700,000 from the first 
quarter of 1993 through the fourth quarter of 1997.
    In the end, the debate over jobs is irrelevant because the 
real measure of a nation's industrial might is not the number 
of people employed in this or that sector but the value of what 
they produce. The fact that American manufacturers can produce 
42 percent more than they could in 1992 with about the same 
number of workers is a testament to rising efficiency--
``competitiveness,'' if you will--not industrial decline.
    The shift to service-sector jobs is a natural consequence 
of a more advanced and prosperous economy. As incomes rise, 
families tend to spend a smaller share of their income on goods 
and a correspondingly larger share on services. We spend 
relatively more than we used to on such services as travel, 
eating out, recreation, lawn care, entertainment, and financial 
advice. It only makes sense that, as our relative consumption 
of manufactured goods falls, so too will our relative 
production--even as our absolute production continues to climb. 
Virtually all the other advanced economies in the world have 
undergone the same transition. The relative decline of 
manufacturing is a sign not of national decline but of a nation 
reaching a higher stage of economic development.

                         No Giant Sucking Sound

    More than half a decade after congressional approval of 
NAFTA and the WTO, domestic investment in the United States is 
booming. The same open economy that has benefited American 
consumers and workers has created a profitable climate for new 
business investment. As a result, more than a trillion dollars 
was spent in the United States last year on fixed 
nonresidential private investment.
    The record expansion now heading into its 10th year has 
been marked by a healthy growth in investment. Since 1992 real 
nonresidential private investment in the United States has 
almost doubled, from $630 billion to more than $1.2 trillion 
(in 1996 dollars). Real investment in information-processing 
equipment and software has more than tripled.\27\ The surge in 
investment and new technology has led directly to the rise in 
worker productivity that in turn has fueled economic expansion 
and rising living standards.
---------------------------------------------------------------------------
    \27\ Council of Economic Advisers, ``America's Interest in the 
World Trade Organization,'' Table B-17, p. 327.
---------------------------------------------------------------------------
    The predicted flight of capital to countries with lower 
costs and standards never materialized. In fact, during the 
past decade the United States has been the world's largest 
recipient of foreign investment. Year after year the United 
States has run a net surplus in its capital account, with 
foreign savers investing more in the United States than 
American savers sent abroad. This inflow of foreign capital has 
kept interest rates down, built new factories, and brought new 
technology and production methods to our economy. If there has 
been any giant sucking sound since 1993, it has been the rush 
of global capital to the safe and profitable haven of the 
United States.
    American manufacturers continue to be net investors in 
Mexico and China, but the relative magnitude of the investments 
remain small. From 1994 through 1998 the annual net outflow of 
FDI in manufacturing to Mexico averaged $1.7 billion; the net 
annual outflow of manufacturing investment to China has been 
even smaller, averaging $661 million (Table 2). Those sums are 
inconsequential in a U.S. economy that averaged almost $8 
trillion in annual GDP during the same period. In contrast to 
the relative trickle of outward investment to Mexico and China, 
domestic investment in U.S. manufacturing in 1997 totaled 
$192.3 billion.\28\ In fact, from 1994 to 1998, the United 
States received an average annual net inflow of manufacturing 
FDI of $12 billion.\29\
---------------------------------------------------------------------------
    \28\ Joint Economic Committee of Congress, p. 10.
    \29\ U.S. Department of Commerce.
---------------------------------------------------------------------------
    While anti-trade polemicists focus all their attention on 
jobs shipped overseas, they ignore the jobs shipped here. Today 
some 12.3 percent, or almost one in eight, of manufacturing 
workers in America are employed by a U.S. affiliate of a 
foreign-owned company.\30\ Honda, Toyota, DaimlerChrysler AG, 
BMW, Fuji, and other foreign-owned companies in the United 
States have become major employers.
---------------------------------------------------------------------------
    \30\ William J. Zeile, ``Foreign Direct Investment in the United 
States: Preliminary Results from the 1997 Benchmark Survey,'' Survey of 
Current Business 79, no. 8 (August 1999): 32.
---------------------------------------------------------------------------
    As is the case with trade, most of America's foreign 
investment dealings are with other advanced economies. 
According to a study by the Deloitte & Touche consulting firm, 
80 percent of FDI by U.S. manufacturing firms in 1998 was in 
other high-wage countries.\31\ The top five destinations for 
U.S. manufacturing FDI in 1998 were the United Kingdom, Canada, 
the Netherlands, Germany, and Singapore--all high-wage 
economies with labor, health, and environmental regulations 
comparable to or more restrictive than those of the United 
States.\32\
---------------------------------------------------------------------------
    \31\ Deloitte Consulting, ``Foreign Direct Investment Trends of 
U.S. Manufacturers: 1999 Annual Report,'' Deloitte & Touche, New York, 
2000, p. 1.
    \32\ Ibid., p. 12.
---------------------------------------------------------------------------
    Outward U.S. foreign investment is not drawn primarily by 
low wages and lax regulations in poor countries. ``Contrary to 
common belief, cheap labor does not drive U.S. manufacturing 
FDI,'' the Deloitte & Touche study concluded. ``Indeed, global 
expansion strategies are driven in large part by relative 
economic stability, well-developed infrastructures, lucrative 
market potential, and talented and skilled workers. Access to 
lower cost labor and raw materials are important, but not the 
primary driver.'' \33\
---------------------------------------------------------------------------
    \33\ Ibid., p. 1.
---------------------------------------------------------------------------
    By focusing on low wages in less-developed countries, the 
opponents of openness miss the crucial fact that workers in 
poor countries are much less productive than workers in the 
United States. Their wages are lower, not because they are 
inherently lazy or incapable, but because they lack the human 
and physical capital and the pro-market institutions that 
foster higher productivity. Their countries have historically 
followed unsound economic policies: punishing tax rates, heavy 
market regulation, neglect of education, traditional hostility 
to foreign investment, high import barriers, and inflationary 
monetary policy. The policy mistakes that have kept wages low 
in poor countries also discourage foreign investment.
    The United States has nothing to fear from openness to 
trade and investment with less-developed countries. Global 
trade liberalization encouraged by the WTO promotes investment, 
growth, and development in the United States as well as our 
trading partners.

                     America's Benign Trade Deficit

    With the U.S. economy performing so well during a period of 
record trade expansion, complaining about the trade deficit has 
become the last refuge of the enemies of openness, who 
routinely point to the record deficit as prima facie evidence 
that global trade is undermining the U.S. economy. They argue 
that future trade agreements threaten to ``worsen'' the deficit 
and therefore should be opposed.
    America's trade deficit is not the result of unfair trade 
barriers abroad; it is the result of our continuing surplus of 
foreign investment. The net inflow of capital allows Americans 
to import goods and services in excess of what we export--hence 
the trade deficit. As long as our level of domestic investment 
exceeds our level of domestic savings, the United States will 
be a net recipient of foreign capital and will run a trade 
deficit. In contrast, nations such as Japan will routinely run 
trade surpluses because their level of domestic savings exceeds 
domestic investment.
    Unless a policy addresses the balance of savings and 
investment, it will have no ultimate effect on the trade 
deficit. Protectionism aimed at reducing the trade deficit 
would only deprive foreign producers of the dollars they would 
otherwise earn by exporting to the United States. The resulting 
reduction of dollars in the international currency markets 
would then drive up the dollar's value, making U.S. exports 
less attractive abroad and imports more attractive at home--
offsetting the effects on the U.S. trade deficit of a 
protectionist tariff.
    Under current conditions, the U.S. trade deficit is 
actually a sign of America's relative economic health compared 
with that of our major trading partners. The deficit reflects 
the attractiveness of U.S. investments and the spending power 
of U.S. consumers, whose rising employment and real wages have 
spurred demand for imports. This is why, as a general rule, the 
U.S. trade deficit grows during periods of economic expansion 
and shrinks during periods of sluggish growth or recession.\34\
---------------------------------------------------------------------------
    \34\ For a more detailed discussion of the causes and consequences 
of the U.S. trade deficit, see Daniel T. Griswold, ``America's Maligned 
and Misunderstood Trade Deficit,'' Cato Institute Trade Policy Analysis 
no. 2, April 24, 1998.
---------------------------------------------------------------------------
    Trade liberalization through the WTO will not have a 
significant effect on the U.S. trade deficit in either 
direction. It will make the countries that participate in the 
liberalization more prosperous by allowing their citizens to 
reap the productivity gains from the spread of technology, more 
efficient production, and a more economical division of labor.

                               Conclusion

    America's membership in the WTO has been a double blessing 
for the United States. The liberalization of markets abroad has 
created export opportunities for U.S. companies, raising 
profits, employment, and wages in industries that serve 
expanding global markets. Meanwhile, WTO membership exerts 
pressure on the U.S. government to keep our own market open to 
the global economy, which gives American families access to a 
wider range of affordable goods and services, thus raising the 
real value of our paychecks. The competition from abroad spurs 
domestic producers to keep prices down, develop new and better 
products, and adopt more efficient production methods. The 
ability to import raw materials, capital equipment, and 
intermediate inputs, such as competitively priced steel and 
semiconductors, lowers the cost of production for U.S. 
producers and keeps them competitive in global markets.
    All the economic arguments against the WTO agenda of trade 
expansion have proven to be hollow in practice as well as in 
theory. The U.S. economy is thriving at a time of record trade 
and international investment. America's unprecedented 
integration into the global economy has been accompanied by 
record low unemployment, booming investment and industrial 
production, and rising real wages up and down the income scale.
    Granted, open trade is not the only, and may not even be 
the chief, cause of the long boom we are experiencing, and a 
policy of open trade does not guarantee unbroken prosperity. 
Ultimately, the argument for free trade does not depend on 
current economic conditions. If the United States were mired in 
recession, free trade would still be the best policy both in 
theory and in practice. But at the very least, today's 
juxtaposition of trade and economic expansion disproves the 
protectionist argument that open trade is a recipe for 
unemployment and falling living standards.
    In testimony before the Senate in February, Federal Reserve 
Board chairman Alan Greenspan reminded senators that America's 
openness to imports and immigration has fueled the U.S. 
economy, prolonging our record expansion. ``As we are creating 
an ever more complex, sophisticated, accelerating economy, the 
necessity to have the ability to bring in resources and people 
from abroad to keep it functioning in the most effective manner 
increasingly strikes me as relevant,'' he testified. The Fed 
chairman then went on to warn that, unless fears about trade 
and openness are addressed, ``I do think the forces against 
globalization can significantly undercut this remarkable surge 
in prosperity that we are observing.'' \35\
---------------------------------------------------------------------------
    \35\ Alan Greenspan, ``The Federal Reserve's First Monetary Policy 
Report to Congress for 2000,'' Testimony before the Senate Banking 
Committee, February 23, 2000. The quote was in response to questions 
from Sen. Robert Bennett (R-Utah).
---------------------------------------------------------------------------
    By encouraging governments around the world to liberalize 
trade, the WTO enhances the individual freedom as well as the 
material well-being of Americans. Through a rules-based 
approach to trade policy, the WTO discourages governments from 
exercising self-defeating power over the economic lives of 
citizens. Because of the WTO, Americans are not only better off 
materially; they are also a bit freer from the power of 
government to decide what they produce and consume.
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Statement of the Luggage and Leather Goods Manufacturers of America, 
Inc., New York, NY

    The Luggage and Leather Goods Manufacturers of America 
(LLGMA) is submitting this statement in response to the Ways 
and Means Committee's request for public comment on continued 
participation of the United States in the World Trade 
Organization (WTO). LLGMA represents U.S. manufacturers, 
distributors, and retailers of luggage, handbags, business and 
computer cases, small leather goods, and other travel 
accessories.
    LLGMA is opposed to H.J. Res. 90, which proposes the 
withdrawal of the United States from the World Trade 
Organization (WTO). Withdrawal of the United States from the 
WTO is unthinkable. It would constitute an abandonment of this 
country's role as the world's economic leader and its ability 
to positively shape and influence rules and regulations 
governing world trade.
    The WTO provides a structure for conducting world trade and 
resolving disputes between nations. And as imperfect as the WTO 
Dispute Settlement process is, at its best, it provides a forum 
for settling disputes before they escalate into major trade 
wars, where retaliatory trade sanctions are common. U.S. travel 
goods companies, distributors, and retailers have more than 
once faced the threat of draconian tariff sanctions and such 
threats are highly disruptive to our businesses.
    WTO disciplines on illegal export subsidies, intellectual 
property rights (patents and trademarks), transparent customs 
procedures and proper customs valuation, and use of illegal 
import restraints are important outgrowths of this nation's 
active participation and leadership in the WTO. These 
disciplines help our industry compete both in the United States 
and in markets abroad.
    As a result of negotiations conducted under the auspices of 
the WTO, countries have been lowering their tariffs or agreed 
to legally bind them at certain levels. These tariff reductions 
along with the assurance that tariffs will not be raised have 
helped our members find new markets that were formerly closed 
to them.
    For all these reasons, it would be a critical mistake for 
the United States to withdraw from the WTO. World trade must be 
rules-based, and the rules must take U.S. strengths and 
interests into account. The U.S. cannot influence this process 
outside the organization that creates and implements these 
rules. H.J. Res. 90 is a bad idea and LLGMA hopes that the Ways 
and Means Committee and Congress will oppose it.
      

                                

Statement of Darol Lindloff, President, Panda Energy International, 
Inc., Dallas TX

    Thank you, Mr. Chairman, for the opportunity to submit this 
written statement to the Committee on the opportunities that 
may flow from improving trade relations with China. I am Darol 
Lindloff, President of Panda Energy International, Inc., an 
independent power company headquartered in Dallas, Texas. We 
are in the business of developing power plants and supplying 
electricity both in the United States and international 
markets. Panda has interests in two operating power plants in 
Maryland and North Carolina, three merchant power projects 
under construction in Texas, a hydroelectric project in Nepal, 
and the project I am about to describe in China. We also have a 
number of other projects actively under development elsewhere 
in the US.
    I am not here to urge you either to grant or deny permanent 
normal trade relations, or PNTR, status to China. China is an 
important member of the international community; we all benefit 
if it is allowed to participate in world trade on the same 
terms as other countries and it subscribes to the same basic 
rules.
    Rather, my purpose today is to call your attention to the 
story of how one US company has fared when trying to do 
business in China. As you and your colleagues decide whether to 
grant PNTR status to China in the coming week, I believe you 
will find valuable the story I am about to share and the issues 
it raises.
    Panda spent the last six years developing a private power 
project in Hebei province in northern China. Construction is 
now complete, and the project is ready to start commercial 
operation.

                             Power contract

    Panda signed two contracts--an ``Electric Energy Purchase 
and Sales Agreement'' and a ``General Interconnection 
Agreement''--with the North China Power Group Company in 
September 1995 under which the North China Power Group Company 
agreed to buy the electricity produced by the project at a 
price to be determined by a formula.
    The North China Power Group is one of five regional power 
agencies that fall under what used to be known as the Ministry 
of Power and Industry but that, after recent reforms, is now 
called the State Power Corporation of China. The North China 
Power Group covers the region that includes Hebei province.
    The contracts commit the North China Power Group Company to 
``dispatch,'' or call on, the plant for 100% of its capacity 
during peak hours and 60% to 65% during off-peak hours and 
trough periods.
    The tariff, or price at which electricity from private 
power projects in this part of Hebei province can be sold, is 
set by the Tangshan Municipal Pricing Bureau. The pricing 
bureau sent Panda a notice in October 1995 that the company 
could assume a price of 0.5997 renminbi per kWh for purposes of 
its financial planning, but said the company would have to 
apply for the actual tariff 30 days before the project was 
ready to start commercial operation. The bureau attached the 
formula that would be used to set the tariff. This was the same 
formula used to arrive at the planned tariff. The only 
difference was that the actual tariff would be calculated by 
replacing the cost variables in the formula with actual costs 
closer to the time the project was ready to start supplying 
power.

                            US bond offering

    By the spring 1997, Panda was ready to start construction. 
It borrowed $155.2 million in April that year by issuing public 
debt in the US capital markets. Of this amount, a sizable share 
was set aside in reserves to cover interest payments on the 
debt during construction and other working capital 
requirements.
    A total of $110 million has been injected to date into the 
Chinese joint ventures that own the project. (The project 
assets have been divided among four Chinese joint ventures. 
Panda owns approximately 83% of each joint venture. Other 
investors own approximately 5%, and the remaining 12% is owned 
by the Luannan government, the county within Hebei province 
where the project is located.)
    The project consists of two 50-megawatt coal-fired 
generation units (e.g., boilers and steam turbines). 
Construction of both units was completed last fall, and both 
had been ``synchronized'' with the regional power grid by 
December 1999 and were in a position to start generating 
electricity.

                           Tariff application

    In May last year, Panda applied to the Tangshan Municipal 
Pricing Bureau for its tariff. It plugged the actual numbers 
into the pricing formula and came up with a figure of 0.704 
renminbi per kWh.
    The pricing bureau audited the cost figures, made site 
visits, and came back with comments on the Panda application in 
July. Panda used the pricing bureau's figures in place of its 
own in the formula and arrived at a figure of .58685 renminbi 
for the tariff. However, on July 22, the pricing bureau showed 
Panda a draft order that said the tariff would be only 0.37 
renminbi and suggested the North China Power Group Company 
would not buy the power at this price but rather the project 
would be allowed to charge the price if Panda could find 
customers itself to which to make direct retail sales of 
electricity.
    The project does not have authority under Chinese law to 
make direct retail sales. Demand for power in the region has 
fallen since the project started construction. The Chinese 
appear to have assigned the swing industrial load (i.e., the 
portion of demand that is more susceptible to economic cycles) 
to foreign-owned independent power projects, and reserved the 
safer base load to the public sector for Chinese-owned 
facilities.
    A tariff of 0.37 renminbi would bankrupt the project, even 
if it could find retail customers for the entire output.

                          Efforts to seek help

    Panda met with the vice mayor of the Tangshan municipal 
government, Zhang Yu, on August 3 in an effort to explain its 
situation. The vice mayor asked what was the lowest possible 
tariff the project would require to avoid defaulting on its 
debts. Panda sent a letter three days later that said the 
project would need a tariff of at least 0.53 renminbi per kWh 
to service the debt (or 0.453 renminbi per kWh if one ignored 
the share of the tariff that went back to the government in the 
form of value added taxes).
    Over the next month, Panda tried to see other officials at 
both municipal and provincial levels. It had only limited 
success. For example, we showed up for a scheduled meeting with 
the deputy general secretary of the Tangshan municipal 
government only to be told that the gentleman was in Russia.
    In early September, Panda learned that an executive vice 
governor of Hebei province, Mr. Cong Fukai, had given the 
problem to a deputy director of the Hebei Provincial Planning 
Commission, Mr. Cao Mangui, and told him to solve it. Around 
this time, Alan Turley, the commercial minister-counselor in 
the US embassy in Beijing, sent a letter to the executive vice 
governor urging him to help.
    In late October, Mr. Cao summoned all the interested 
parties to the provincial capital. Panda was invited but not 
allowed in the room. Mr. Cao ``split the baby.'' He took the 
0.37 renminbi that had been proposed by the Tangshan pricing 
bureau and the 0.53 tariff that Panda said the project needed 
to avoid defaulting on its debt and settled on the midpoint of 
0.45 renminbi.
    Mr. Cao called in the Panda representatives the next 
morning, briefed them on the outcome, and asked whether they 
could accept the 0.45 figure. We responded on November 2 that 
the proposed tariff of 0.45 renminbi would leave the project 
unable to service its debts, but said we would see how much 
room we had with the US bondholders to restructure the debt.
    Panda had initiated discussions with the bondholders 
starting in August at the first sign there might be trouble. 
The talks had progressed by this time to a point where the 
bondholders were demanding that Panda give up a majority of its 
ownership interest in the project and also pay them a 
considerable amount to reduce the debt to a level that the 
project might be able to service at the reduced tariff.
    I flew to China and delivered a letter in person on 
November 5 accepting the 0.45 tariff on two conditions--first, 
the tariff would be implemented quickly so that the project 
could start operation on schedule and, second, the tariff would 
come with an assurance that the government would buy the output 
at this figure as required under the power sales contract.
    The following Monday, November 8, we were briefed on a 
report that Mr. Cao had written for the governor to send the 
Tangshan authorities directing them to accept the tariff of 
0.45 renminbi, but not taking a position on the two conditions. 
The report justified the 0.45 tariff on grounds that the figure 
had been widely adopted for other foreign power plants in the 
province.
    The report never made it to the governor. It became tied up 
in a maze of the governor's aides and was eventually blocked by 
the head secretary who was concerned about the harshness of the 
report on the Tangshan municipal government and who wanted to 
hear from the local government before allowing the report to 
reach the governor.
    I tried to get Mr. Cao to come with me in person to the 
governor's office. Mr. Cao seemed to be trying to distance 
himself from our case and, the next day, we learned that he had 
been reassigned to another job. Mr. Turley at the US embassy 
sent another letter to the executive vice governor, Mr. Cong 
Fukai, on November 10 and this was followed up by a brief faxed 
memo from Bruce Quinn at the US embassy urging Mr. Cong to 
implement the compromise that I had travelled to China to say 
we would accept. The Hebei government responded around November 
18 that a satisfactory solution had been reached.
    The following day, we were given a brief order from the 
Tangshan pricing bureau that said in its entirety:

        ``In accordance with the opinion given by the leaders of the 
        provincial pricing commission in the tariff coordination 
        meeting on October 28, 1999, the tariff of the electric energy 
        sold in Luannan County for Tangshan Panda Heat & Power Co., 
        Ltd. will be 0.45 yuan/Kwh. The execution period of the tariff 
        for the time being is one year. The above commercial tariff 
        will become effective at COD [the commercial operation date].''

    The problem with the order is Luannan County has only a 10 
megawatt demand for electricity. Thus, the project is assured 
of earning the tariff on only about a tenth of its output.
    Panda sent a letter to the executive vice governor of Hebei 
province on November 25 expressing its disappointment. The 
letter said, in part,

        ``Mr. Cong, you are a very important, powerful and busy person. 
        I honestly do not know if you truly have been made aware of 
        what has transpired over these last weeks, and this recent 
        Tangshan Government action which has now put our project in a 
        desperate situation. In the interest of fair business and 
        future foreign investment, please get personally involved in 
        this issue now and take some positive action to save us. Right 
        now we have no future.''

    The letter was signed by John Zamlen, general manager of 
the Tangshan Panda Heat and Power Co., Ltd. in China.

                               Conclusion

    As I said at the start of my statement, I am not here to ask you 
and your colleagues to grant or deny China PNTR status. I am here to 
relate a story of how one US company fared when it tried to supply 
electricity to the Chinese. Unfortunately, we have come to find that 
our experience is not all that uncommon. However, in our case, the 
consequences are potentially disastrous because Panda had to guarantee 
the US bondholders that they would be repaid. We feel like the jilted 
bride who entered into a marriage five years ago with the Chinese only 
to find them trying to walk away from the marriage now that the child 
has been born. This isn't fair.
    At this time, we still do not have an assigned tariff necessary for 
the commercial operation of our facility. There is a growing lack of 
concern on the part of local and provincial officials for even granting 
a tariff. If this is not achieved soon, the consequence will be the 
failure and bankruptcy of a U.S. capital-markets funded international 
project in China.
    Thank you.
      

                                

Statement of Pharmaceutical Research and Manufacturers of America 
(PhRMA)

                                Summary

    The Pharmaceutical Research and Manufacturers of America 
(PhRMA) believes that the World Trade Organization (WTO) and 
the global trading system that it represents provide enormous 
benefits for all Americans. Contrary to claims made during and 
since the WTO Ministerial Conference in Seattle, international 
trade creates economic growth and opportunity -and this is the 
best hope for improving economic situations and living 
conditions for all of the world's citizens. Thus, not only is 
it in the interests of Americans that the U.S. participate 
actively as a member of the WTO, but we should encourage all of 
our trading partners to join the WTO as well.
    PhRMA urges the United States Government to pursue every 
opportunity for improving the ability of the innovative 
pharmaceutical industry to compete in foreign markets. The 
United States has a substantial interest in ensuring that our 
trading partners do not erect barriers to our ability to 
compete in their markets, through non-market-based government 
interventions such as price and profit controls, inadequate 
intellectual property protection standards, unfair or coercive 
government procurement practices, high tariffs and other 
measures. We urge the U.S. Government to take advantage of our 
membership in the World Trade Organization to seek to remove 
these impediments to trade. We stand ready to work with the 
Office of the U.S. Trade Representative (USTR), other key 
actors in the United States Government, and the Congress, to 
pursue an effective course of action in a new round of trade 
negotiations and through other opportunities.
    PhRMA also believes that the bilateral agreement on market 
access signed by the U.S. and China will bring significant 
gains for both of our countries, and we support the approval of 
Permanent Normal Trade Relations status for China.

                               Statement

    The Pharmaceutical Research and Manufacturers of America is 
a trade organization representing the country's leading 
research-based pharmaceutical and biotechnology companies, 
which are devoted to inventing medicines that allow patients to 
lead longer, happier, healthier and more productive lives. This 
year, PhRMA members expect to invest over $26 billion in 
research and development efforts to identify and bring to 
market new drugs. Our members employ almost a quarter of a 
million Americans in a variety of high-skill, high-wage jobs. 
The industry's annual worldwide sales in 2000 are expected to 
exceed $149 billion, an increase of more than 11 percent over 
1999 figures. One third of this revenue comes from sales of our 
products in foreign markets. Our ability to compete 
successfully in those markets is dependent on effective, non-
discriminatory trade rules that protect our technology and 
reduce trade barriers faced by our products.

                          Benefits of the WTO

    PhRMA believes that the WTO has led to clear benefits for 
the global trading system as well as all of its participants. 
These benefits include:
     Rule of law and discipline: The WTO has 
transformed the 50-year old trading system from a complex set 
of rules applied to few members into a process where the rules 
are transparent and apply to all members, allowing all to enjoy 
the benefits of an open trading system.
     Dispute settlement: WTO members can rely on a 
process for the prompt settlement of disputes; while 
improvements could be made, the WTO has generated greater 
predictability in the application of rules.
     Market access: Tariffs are falling in many 
sectors, export opportunities are growing for all producers, 
and new entrants into the global marketplace, especially small 
and medium-sized enterprises, are benefiting from new market 
openings and innovations.
     Intellectual property protection: WTO members have 
accepted a landmark set of rules providing a minimum 
international standard for protection of patents, copyrights, 
trademarks and other forms of intellectual property. Strong IP 
protection is essential for the research and innovation of 
America's most competitive industries, and creates incentives 
for further investment and technological progress worldwide.
     Global membership: The WTO now includes 136 
members, with 30 additional countries seeking to join. Since 
membership requires acceptance of WTO rules that help to open 
markets, having emerging economies of Eastern Europe, Asia, the 
Middle East, and Africa join helps to transform those 
economies.
     Dynamic forum for trade liberalization: The 
dynamism of the WTO has allowed the trading system to keep up 
with changes in technological development, providing concrete 
benefits to business and consumers alike, whether through 
accommodating new means of trade (such as e-commerce) or by 
lowering consumer prices through greater competition.
     Economic stability: The WTO has improved our 
ability to address economic crises. During recent financial 
upheavals, we were able to avoid the protectionism and 
retaliation that marked the Depression era, in large part due 
to the commitments to open markets engendered by the WTO.
    While the benefits from the WTO and a global trading system 
characterized by rules and fairness accrue to both businesses 
and consumers generally, there are important gains which can be 
highlighted for the pharmaceutical industry and the patients 
that rely on it to develop new medicines.
     Importance of trade: The U.S. research-based 
pharmaceutical industry earns one-third of its revenues from 
sales in foreign markets, and therefore has a substantial 
interest in ensuring that our trading partners allow us to 
compete fairly in their markets.
     Free trade is good commercial policy and good 
public health policy: The pharmaceutical industry is pro-trade 
in part because is good commercial policy for us. The WTO helps 
to remove trade barriers and open markets, which are good for 
our companies' bottom lines. But more importantly, free trade 
is good public health policy for the world. To help people live 
longer and to improve the quality of their lives, our industry 
needs access to market around the world, and to have our 
intellectual property rights protected.
     Patients rely on a fair global trading system: Our 
industry's ability to deliver medicines to patients depends on 
having consistent , fair and dependable trade rules that are 
agreed upon and implemented on a global basis.
    The best hope for improving economic situations and living 
conditions for the world's citizens is through continued 
economic growth. Such growth will result from increased trade 
and globalization, the availability of new technologies, and 
greater choice and opportunities for consumers around the 
world. The WTO, and its Members, can help to achieve these 
goals.

                            Priority Issues

    PhRMA has five priority areas for the World Trade 
Organization and new trade round negotiations.
     Intellectual property. Preclude any attempt to 
reduce, dilute or delay implementation of existing TRIPS 
obligations, ensure the possibility of initiating work to 
enhance the Agreement at a suitable time during the next round, 
and seek to enhance existing standards through other bilateral 
and multilateral fora.
     Market liberalization. Encourage WTO Members to 
take note of the negative impact that non-market based 
government interventions have on international trade and 
investment, examine the use of such measures, and assess their 
impact on the benefits of trade and investment in innovative 
products and technology.
     Government procurement. Pursue expansion of the 
plurilateral Agreement on Government Procurement to ensure the 
coverage of governmental and quasi-governmental entities 
responsible for direct and indirect procurement of and/or 
payment for pharmaceutical products.
     Customs and tariff issues. Expand the 
pharmaceutical tariff agreement to cover both additional 
products and countries, complete the World Customs 
Organization's harmonization work program under the Agreement 
on Rules of Origin, and implement the Customs Valuation 
Agreement by developing Countries.
     Sanitary and phytosanitary measures. Emphasize the 
importance of transparent and non-discriminatory rules, and 
oppose any attempts to undermine the risk assessment and sound 
science standards of the Sanitary and Phytosanitary Measures 
Agreement.
    The Uruguay Round of multilateral trade negotiations 
produced significant gains in the area of patent protection, 
particularly in the creation of the Agreement on Trade-Related 
Aspects of Intellectual Property Rights (``TRIPS Agreement''). 
USTR and other trade agencies have already stated their 
commitment to enforcement of existing trade agreements. PhRMA 
considers such efforts to be of critical importance, 
particularly with regard to Uruguay Round commitments on the 
protection of intellectual property rights, sanitary and 
phytosanitary measures, and customs valuation. Such efforts 
will not be sufficient, however, to address the problems that 
the industry faces abroad.
    Accordingly, PhRMA urges the members of the Ways and Means 
Committee to ensure that the U.S. Government retains its 
ability to pursue a forward-looking set of objectives in future 
trade negotiations. In these negotiations, the U.S. Government 
should advocate the creation of new trade rules to address, 
inter alia, the two most critical issues facing our innovative 
industry: insufficient intellectual property rights protection 
and non-market-based government interventions, which act as 
barriers to full market access for our medicines.

Intellectual Property

    Issue: Implementation of the existing obligations of the 
Agreement on Trade-Related Aspects of Intellectual Property 
Rights (TRIPS) cannot be delayed. The inclusion of intellectual 
property (IP) obligations in the Uruguay Round Agreement was a 
significant accomplishment for the U.S. Government. Developing 
countries were given an extended transition period to implement 
their obligations. For many of these countries, including key 
developing country markets like India and Argentina, this 
transition period expired on January 1, 2000. While many 
developing countries have used this transition period to 
implement the changes necessary to create functional 
intellectual property systems based on TRIPS standards, a 
significant number of countries have not made either the 
legislative reforms or the systemic changes essential to 
creating functioning IP systems.

PhRMA Position

     PhRMA urges the U.S. Government to hold developing 
countries to the commitments they undertook on intellectual 
property as part of the Uruguay Round Agreement.

        --It is critical that the United States use the WTO dispute 
        settlement proceedings to ensure compliance with the 
        obligations of the TRIPS Agreement. In this regard, PhRMA urges 
        the U.S. Trade Representative to place those countries that 
        continue to have the most deficient IP standards at the top of 
        the list for dispute settlement purposes, notably Argentina, 
        Brazil, India and Egypt.

    Issue: Future work relating to the TRIPS Agreement should 
not permit any weakening of existing obligations. Over the past 
year, the WTO TRIPS Council has discussed two issues of 
particular significance for PhRMA. First, the TRIPS Council has 
addressed obligations in the TRIPS Agreement to protect certain 
biotechnology inventions involving plants and animals. Second, 
there have been extensive discussions on the expiration of the 
moratorium on dispute settlement actions based on so-called 
``non-violation'' deficiencies. Such disputes involve measures 
implemented by a WTO Member that indirectly deprive U.S. right 
holders of their protection, rather than being directly 
contradictory measures. In addition, a number of developing 
country WTO Members have made proposals to begin work that 
would lead to a weakening of the current obligations of the 
Agreement.

PhRMA Position

     PhRMA believes it will be necessary at an 
appropriate point in time to improve the standards in the TRIPS 
Agreement to reflect those found in fully industrialized 
countries, such as in the United States. However, PhRMA is also 
well aware of the desires of certain developing country WTO 
Members to avoid meeting the obligations they undertook in the 
Uruguay Round. PhRMA is fundamentally opposed to any re-opening 
and diminishment of the existing obligations of the TRIPS 
Agreement.
     PhRMA also urges the U.S. Government to:

        --pursue a favorable outcome to the review of the protection of 
        certain biotechnology inventions required by the Agreement to 
        ensure that all such inventions can be protected
        --foreclose any possibility of re-opening commitments 
        undertaken in the Uruguay Round on specific provisions of the 
        Agreement or that would extend the transition periods provided 
        to developing countries.

                         Market Liberalization

    Issue: Non-market-based government interventions have the potential 
to distort free trade and open competition. In a growing number of 
foreign markets, PhRMA member companies face non-market-based 
government interventions designed to stifle price-based competition and 
limit consumption of pharmaceutical products, by denying patients 
access to American innovative medicines. While the industry recognizes 
and supports the need for governments and consumers to contain costs, 
the approaches used by governments can often distort free trade in 
these products and open competition. These measures may deny to WTO 
members the benefits of trade and investment in innovative products and 
technology, including the ability of patients to access pharmaceutical 
products. In some cases, government interventions are intended to 
protect domestic pharmaceutical industries from imports; in these 
instances, there is clear discrimination against foreign products, 
violating WTO requirements for the national treatment of all products.

PhRMA Position

     The U.S. Government should encourage the WTO to take note 
of the negative impact that non-market-based government interventions 
may have on international trade and investment, examine the use of such 
measures, and assess their impact on the benefits of trade and 
investment in innovative products and technology. This is an important 
priority because these measures can lead to international market 
distortions that profoundly undermine the goals of free trade.
     The U.S. Government should address the use of such non-
market-based government interventions within the pharmaceutical markets 
of its trading partners through a variety of approaches, including, but 
not limited to, the TRIPS Agreement, the General Agreement on Trade in 
Services, and the Agreement on Trade-Related Investment Measures.

    Issue: Government procurement of pharmaceuticals often ignores fair 
trade practices and open competition. Many of the public sector 
entities responsible for the direct and indirect procurement of and/or 
payment for pharmaceutical products are not covered by the Government 
Procurement Agreement, or do not adhere to the rules set forth in the 
Agreement. As a result, purchases of pharmaceutical products by 
government (or quasi-governmental) entities often ignore the principles 
of fair competition and transparency.

PhRMA Position

     PhRMA urges the U.S. Government to pursue the expansion of 
the scope of the plurilateral Government Procurement Agreement to 
ensure the coverage of governmental and quasi-governmental entities 
responsible for the direct and indirect procurement of and/or payment 
for pharmaceutical products. WTO Members who are not currently parties 
to the Government Procurement Agreement should be encouraged to ratify 
it and bring their procurement policies into accordance with the 
Agreement.

    Issue: Corruption remains a problem in many countries and has a 
negative impact on both business and the general public. Corrupt 
business practices raise the cost of doing business, and discourage 
investment. The World Bank estimates that billions in procurement-
related bribes are paid annually, while other experts estimate that 
corruption results in price differences of 20-30%, reflecting a waste 
of scarce public and private resources.

PhRMA Position

     PhRMA requests that the U.S. Government broaden the WTO's 
inquiry into transparency in government procurement practices to 
encompass the impact of government corruption on trade. As an interim 
position, PhRMA urges the U.S. Government to ask WTO members to join 
them in declaring the public health sector to be a corruption-free 
zone.

Customs and Tariff Issues

    Issue: The pharmaceutical tariff elimination agreement, while 
beneficial for consumers and the industry alike, is limited in the 
scope of its coverage of products and countries. The number of 
countries participating in the ``zero-for-zero'' tariff elimination 
agreement on pharmaceuticals remains limited, allowing for many ``free 
riders'' whose products are not assessed duties upon importation into 
the U.S., but who do not reciprocate with respect to U.S. exports to 
those countries. In addition, the coverage of products is not 
comprehensive. Although there is a schedule for periodic updates, such 
negotiations cannot keep pace with rapid developments in the industry, 
creating unproductive administrative costs.
    Our industry works diligently to make our products available 
worldwide, yet we are often frustrated to find that countries with the 
largest population of medically underserved people often have high 
tariffs on medicines. We firmly believe that tariffs on pharmaceuticals 
represent nothing more than a tax on the sick, and should be opposed 
outright by all trading nations.

PhRMA Position

     PhRMA requests that the U.S. Government call upon all WTO 
members to immediately reduce tariffs on medicines to zero. Should that 
not be possible in the short run, PhRMA supports improvements to the 
pharmaceutical tariff elimination agreement by revising the tariff 
nomenclature to permit coverage of new products without the cumbersome 
process of negotiating update agreements every three years. PhRMA also 
seeks to include the ``free-rider'' countries, either through direct 
inclusion in the agreement, or through full participation in the 
Accelerated Tariff Liberalization initiative. All additional countries 
acceding to the WTO should be required to become signatories to the 
pharmaceutical tariff elimination agreement.

    Issue: Rules of origin and customs valuations are inconsistently 
implemented on a global basis, leading to an often arbitrary commercial 
environment. The Harmonization Work Program under the Agreement on 
Rules of Origin has not been completed, resulting in uncertainty for 
the industry and inconsistencies in the international marketplace. 
There are conflicting local regulations, rulings, and questions about 
the applicability of foreign customs rules to drug registration agency 
rules. Customs valuations of traded finished drug products, bulk active 
ingredients, and intermediates are subject to arbitrary valuation 
schemes, because of the lack of full implementation of the Customs 
Valuation Agreement by developing countries.

PhRMA Position

    Prompt completion of the World Customs Organization's (WCO) 
Harmonization Work Program under the Agreement on Rules of Origin will 
permit the industry to apply consistent, predictable country of origin 
rules for labeling and other purposes. The U.S. position is that 
chemical reactions, normal dosage formulation, and activities resulting 
in a change in tariff heading confer the origin status of the country 
in which the prescribed activity took place. PhRMA agrees with this 
position, and urges its adoption by the WCO. The U.S. should urge all 
WTO members to adhere to the implementation schedule of the WTO Customs 
Valuation Agreement, and deny requests for further delays.

Food and Plant Safety

    Issue: Efforts to re-open the Agreement on the Application of 
Sanitary and Phytosanitary Measures (SPS Agreement) would cause 
commercial damage to the industry without any clear safety benefit to 
consumers. Some are calling for changes to the SPS Agreement that would 
base health and safety regulations on political goals or vaguely 
phrased ``consumer concerns'' that are not grounded in fact, rather 
than on sound science and on a risk assessment.

PhRMA Position

     PhRMA believes that the U.S. Government should emphasize 
the importance of the implementation of transparent and non-
discriminatory rules consistent with the intent of the SPS Agreement, 
and should oppose any attempts to undermine its risk assessment and 
sound science standards, particularly with respect to the 
``precautionary principle.'' The U.S. Government should object 
vigorously to any effort to dilute the disciplines already found in the 
SPS Agreement or to limit the scope of their application.

China and Permanent Normal Trade Relations Status

    Today there are 17 major American research-based pharmaceutical 
companies in China which enjoy a 12 percent share of the Chinese 
pharmaceutical market of US$6 billion, or around $720 million in annual 
sales. PhRMA member companies employ almost 20,000 workers directly in 
their operations in China. PhRMA member companies have invested some US 
$1 billion in China over the past decade. The American industry 
operates throughout China, and its presence and investment there have 
provided China's citizens with access to modern life-saving medicines, 
allowing them to lead longer and healthier lives.
    The bilateral agreement on market access signed by China and the 
U.S. in November 1999 will bring significant gains for America's 
pharmaceutical sector, including:
     Reduction in the average tariff rate on pharmaceuticals by 
about 60%, from the current level of 9.6% to 4.2%.
     Ability of any entity to import most products, including 
pharmaceuticals, into any part of China. Currently, U.S. companies' 
ability to do business in China is strictly limited because the right 
to engage in trade (importing and exporting) is restricted to a small 
number of companies receiving specific authorization, or who import 
goods to be used in production. Because this practice has limited U.S. 
exports, its elimination will benefit U.S. companies and their workers.
     Permission for foreign enterprises to engage in the full 
range of distribution services. China has generally prohibited 
companies from distributing imported products or providing related 
distribution services. The removal of this prohibition will enable U.S. 
companies to increase their activity in China. More importantly, this 
will mean significant benefits to Chinese consumers in terms of the 
quality of the products and services they receive.
     Implementation of the Agreement on Trade-Related Aspects 
of Intellectual Property Rights (TRIPS). PhRMA considers this to be a 
very important part of the commitment of the Chinese Government, 
especially in terms of enforcement of established laws and granting of 
exclusive marketing rights through use of a patent. The protection of 
intellectual property will enable research-based pharmaceutical 
companies to continue to discover and develop new medicine.
     China's WTO accession should lead to greater industry 
confidence in the Chinese market, and should gradually lead to 
increased investment by the industry in China. This will also generate 
jobs and greater resources for the industry to invest in research and 
development for new medicines in the United States. Although U.S. labor 
has expressed concern that jobs will leave the U.S. for China, the 
opposite is in fact true: the development of an enhanced market in 
China will lead directly to greater employment in the U.S.

                               Conclusion

    PhRMA appreciates the opportunity to present these comments on the 
future of the World Trade Organization. PhRMA looks to USTR and other 
U.S. trade agencies to seek significant improvements to existing 
international trade rules in a new trade round, with the objective of 
eliminating all constraints to the operations of free markets on a 
global basis. At the same time, the U.S. Government must continue to 
seek compliance with existing WTO rules through vigorous enforcement 
efforts. Gains already achieved through previous negotiating rounds 
should not be held hostage to the initiation of the next round.
      

                                

Statement of George Scalise, President, Semiconductor Industry 
Association

    The Semiconductor Industry Association (SIA) appreciates 
this opportunity to testify regarding the benefits of continued 
participation by the United States in the World Trade 
Organization (WTO) and the proposed accession of China to the 
WTO.
    SIA is the leading trade association representing the U.S. 
computer chip industry. SIA member companies comprise 90 
percent of U.S.-based semiconductor production. SIA serves as a 
forum for chip manufacturers to work collectively to advance 
the competitiveness of the U.S. industry and to promote trade, 
technology, environmental protection, and worker safety and 
health.

                  I. The U.S. Semiconductor Industry.

    According to Department of Commerce data, the semiconductor 
industry is the leading manufacturing industry in the United 
States in terms of value-added to the U.S. economy, 
contributing 20 percent more to U.S. GDP than the next leading 
industry.
    U.S. semiconductor makers employ about 276,000 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 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.
    The industry is both capital intensive and R&D intensive: 
indeed, SIA members must spend a third of their revenues on 
research and capital equipment, among the highest percentage of 
any industry in the world.
    The R&D and capital equipment investments of the 
semiconductor industry have been a powerful force of efficiency 
in the economy. We are proud to be in an industry where the 
cost of our products declines while the functionality increases 
rapidly. The increase in computing power and the decrease in 
prices have allowed the spread of PCs to homes, schools and 
small businesses, and have been a driving force behind the 
explosion of the Internet and ecommerce in the United States.
    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 croughly half of the U.S. industry's 
revenues are derived from overseas sales--SIA has been 
dedicated since its inception to promoting market opening 
around the world. That is why U.S. participation in the WTO, 
and China's accession to the world trade body, are key issues 
for the semiconductor industry.

         II. The Benefits of Participation in the WTO to Date.

    SIA has been a strong supporter of the Uruguay Round 
agreements and the WTO. The Uruguay Round brought forth 
important changes to the world trading system, including the 
progression from the General Agreement on Tariffs and Trade 
(GATT) to the more comprehensive WTO. Importantly, the Uruguay 
Round agreements contained continued commitments to market 
opening measures and the rules against unfair trade--the 
essential underpinnings of the world trading system. 
Additionally, the Uruguay Round expanded the areas covered by 
the international trading system, including intellectual 
property rights, investment, and services.
    The experience of the semiconductor industry provides a 
good illustration of the concrete benefits that have been 
possible because of the WTO. Three examples are highlighted 
below: the reduction in semiconductor tariffs in the EU after 
its 1995 expansion; the elimination of tariffs on a broad range 
of information technology goods under the WTO's Information 
Technology Agreement; and the moratorium on e-commerce duties. 
Each of these profited the U.S. semiconductor industry and each 
is directly attributable to the operation of the WTO and its 
rules-based system.

Tariff Cuts in the EU After Expansion.

    Prior to the Uruguay Round, tariffs on semiconductors in 
the EU stood at 14%. These high tariffs constituted a 
significant barrier to exports of U.S. semiconductors to the 
EU. In the Uruguay Round, the United States succeeded in 
partially reducing these tariffs, but they remained an 
impediment to our exports.
    The WTO rules provided the means to reduce EU tariffs 
further. In 1995, after the completion of the Uruguay Round, 
the EU was expanded to include Austria, Sweden and Finland, and 
these countries increased their tariffs on semiconductors to 
the higher rates imposed then by the EU. As a direct result of 
GATT Articles XXIV(5) and XXIV(6), the United States had the 
right to negotiate compensation from the EU for the tariff 
increases resulting from this expansion. As part of that 
compensation, the United States secured a reduction in EU 
semiconductor duties to either 7% or zero. These substantial 
tariff cuts, which expanded opportunities for U.S. chipmakers 
in the EU and lead to increased exports there, were the direct 
result of U.S. rights that existed under the WTO agreements.

The Information Technology Agreement.

    As noted above, the presence of high tariffs on 
semiconductors has been a key barrier to the export 
opportunities and competitiveness of U.S. computer chips. The 
WTO has been instrumental in helping to reduce tariff barriers. 
In 1997, the Information Technology Agreement (ITA) was 
concluded under the auspices of the WTO. Under this agreement, 
52 economies to date, representing over 90 percent of trade in 
information technology products, have agreed to totally 
eliminate their tariffs on semiconductors and a variety of 
other information technology products. As a leader in high-tech 
products, the United States will gain much from zero duties on 
these products.
    It is worth noting that the Information Technology 
Agreement is unique in that countries agreed to eliminate their 
information technology tariffs without tying these concessions 
to benefits in other areas or sectors. This is due to the 
recognition of the benefits achieved by tariff elimination, 
such as lower costs for businesses and consumers and 
improvements in a country's information technology 
infrastructure.
    As will be discussed below, the ITA should be deepened and 
widened. SIA believes that the United States should push to 
widen the ITA to include all WTO Members. Further, the ITA 
should be deepened through the so-called ``ITA II'' process to 
include other high-tech products. It is important to remember, 
though, that without the WTO, it is doubtful that the ITA would 
exist at all.
The Moratorium on E-Commerce Duties.

    Another tariff-related issue of importance to SIA is the 
tariff treatment of electronic commerce. As e-commerce expands, 
so does the demand for semiconductors. One of the surest ways 
to slow the growth of e-commerce, however, is to subject it to 
tariffs. Under the auspices of the WTO, in 1998 WTO Members 
agreed to a temporary moratorium on e-commerce duties, which 
the United States is now pressing to make permanent. Here 
again, the United States, as the clear world leader in e-
commerce, has received substantial and real benefits from its 
participation in the WTO.
    These are just a few of the areas in which the United 
States has obtained concrete benefits which were made possible 
by U.S. participation in the WTO. The bottom line is that 
reducing trade barriers and opening foreign markets provides 
substantial benefits to U.S. firms and their workers. And the 
WTO is instrumental to U.S. market-opening efforts.

    III. The Benefits of Continued Participation and the Dangers of 
                              Withdrawal.

    Participation in the WTO promises even more benefits to the 
United States in the future. As will be discussed below, the 
United States stands to gain markedly from the WTO expansion to 
include China. Further, as the Uruguay Round commitments come 
into full effect, and as the WTO takes further steps towards 
improving market access, the benefits of being in the WTO will 
continue to grow.
    The progress in the WTO will not come automatically, 
however. The United States must continue to play a leading role 
in defining the agenda of the WTO. We must do our best to 
ensure that issues important to the United States are addressed 
in ways beneficial to us. Thus, continued U.S. membership and 
leadership within the WTO are essential to promoting U.S. 
economic interests. Discussed below are key issues important to 
SIA.

The Antidumping Rules.

    SIA is a strong supporter of the antidumping law. That the 
benefits of open markets may be eroded by unfair trade 
practices has been recognized since the inception of the 
international trading system--the GATT specifically sanctions 
measures to remedy the distortions caused by dumping. The 
semiconductor industry in the United States knows first hand 
the importance of these rules to ensure that producers, often 
in protected home markets, do not abuse the system. Injurious 
dumping in the semiconductor sector threatened the very 
existence of the U.S. industry as recently as the mid-1980s.
    The rules on antidumping were negotiated in great depth in 
the Uruguay Round. In many ways, these rules are still 
untested: The regulations to implement them were only fully 
adopted in the United States in 1998 and a number of countries 
are now challenging U.S. antidumping actions at the WTO under 
the new rules. Yet a number of WTO Members are pressing for a 
renegotiation of these rules in any new WTO round of 
negotiations.
    It would be inappropriate and premature to alter the 
Uruguay Round antidumping rules so soon after they were 
overhauled. Additionally, it is clear from the statements of 
various trading partners that they would like to do more than 
alter the antidumping rules--they would like to eliminate them. 
The United States must resist these efforts. The maintenance of 
a strong and effective antidumping remedy is a critical 
component of the international trading system. SIA applauds the 
USTR for its steadfast position against including the 
Antidumping Agreement on the agenda for the new round of WTO 
negotiations. The United States should stand firm within the 
WTO against future efforts to weaken the antidumping rules. To 
do so requires continued active U.S. participation in the WTO.

WTO Dispute Settlement.

    As noted above, a number of WTO Members have begun to abuse 
the WTO dispute settlement system. Several countries have 
challenged the use of WTO-approved trade remedies by the United 
States, including the antidumping and countervailing duty laws, 
as well as the Section 337 law on enforcing intellectual 
property rights against infringing imports. Further, the EU has 
abused the dispute settlement system by using it to seek to 
overturn a deal the EU struck with the United States in the 
early 1980s regarding the Foreign Sales Corporation tax regime.
    These developments are of significant concern to SIA. We 
are still hopeful that these cases can be resolved in a way 
that maintains the continued vitality of U.S. rights to act 
against unfair trade practices and that ensures that U.S. 
businesses will have a level playing field in international 
trade with respect to varying tax regimes. SIA believes that 
these cases demonstrate the need for a continued active U.S. 
government role within the WTO to reform the dispute settlement 
system and to prevent its abuse in the future.

Expanding the Information Technology Agreement.

    As noted above, the Information Technology Agreement has 
produced concrete benefits for the U.S. high-tech industry. 
While 52 economies have signed onto the ITA, it is now time to 
finish the job and request that the remaining WTO Members 
eliminate their IT tariffs so their economies can benefit from 
increased application of information technologies. Further, the 
ITA does not cover all information technology products. The 
United States will benefit by expanding the ITA to include more 
countries and more goods.
    The United States, therefore, 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. While the United States has been 
successful in encouraging many countries to join the ITA and 
eliminate their tariffs, increased participation in the ITA 
should remain a top priority. ITA participation remains very 
limited in certain regions of the world. In Latin America, for 
example, only a few countries are currently signatories to the 
ITA. Persuading additional WTO Members to join the Agreement 
should continue to be a U.S. trade policy priority.
    The United States stands to benefit, also, from 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.
    Expeditious elimination of tariffs on semiconductors and 
other information technology products will spur development of 
a competitive electronics industry in foreign markets by 
allowing U.S. producers to sell advanced semiconductors to 
their foreign customers at the lowest possible price, and 
thereby will also increase U.S. exports and jobs.

Maintaining the Moratorium on E-Commerce Duties.

    While SIA supports the position of the U.S. government that 
the temporary moratorium on e-commerce duties remains in effect 
after the suspension of the Seattle WTO Ministerial meeting, 
some other countries claim that it has expired. SIA believes 
that this moratorium is very important for the continued growth 
and expansion of the Internet generally and e-commerce 
specifically, and must therefore be made permanent. The United 
States must lead in this effort. Moreover, given the increasing 
importance of electronic commerce over the Internet and the 
leading role of the United States in this industry, SIA 
believes that the United States should, in addition to 
encouraging permanent implementation of duty-free treatment, 
also urge WTO Members to commit to tax-free treatment of 
electronic transmissions.

Full Implementation of TRIPs Obligations.

    The WTO brought intellectual property rights for the first 
time under the umbrella of the international trading system. 
The WTO's Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPs) served as a landmark in the protection 
of intellectual property worldwide. U.S. industries in a broad 
variety of sectors have benefited greatly from the new rules 
for intellectual property protection contained in the WTO and 
the contribution the WTO has made for greater appreciation of 
these rules throughout the world. The U.S. high-tech industry 
will continue to benefit so long as the TRIPs obligations are 
fully implemented by WTO Members.
    As the representative of an R&D intensive industry, 
however, SIA is very concerned about the full and effective 
protection of intellectual property rights. Recently, many 
countries have balked at complying with their TRIPs obligations 
in the timeframe to which they agreed in the Uruguay Round. 
Failure to meet these deadlines means that the expected 
commercial gains from the TRIPs Agreement will not be realized. 
The United States should continue to push for full 
implementation of TRIPs obligations, particularly by less 
developed countries, within the original timeframe.
    These and other issues, such as rules on investment, access 
to state-invested enterprises, and certain rules of origin 
issues, remain important to SIA. In the coming months and years 
we hope to be able to work with Congress and the Administration 
to ensure that the needs of the U.S. semiconductor industry and 
the hundreds of thousands of workers it employs are addressed 
at the WTO. If the United States were to opt out of the WTO, 
however, that move would significantly hinder the ability of 
the United States to promote U.S. economic interests and to 
achieve further market-opening measures in the future.

     IV. China's Accession Presents Enormous Benefits with No U.S. 
                              Concessions

    SIA has strongly supported China's bid to join the WTO, on 
the condition that the accession was accomplished on a 
commercially viable basis. The agreement with China secured by 
the United States last November meets this objective and 
promises to provide important opportunities for U.S. high-tech 
industries. In order to reap the benefits of China's accession 
to the WTO, however, Congress must grant permanent normal trade 
relations (PNTR) status to China. SIA cannot state strongly 
enough the importance of this vote and our support for granting 
China PNTR status this year.

Substantial Opportunities.

    China's accession to the WTO promises to open this 
significant and growing market to U.S. products and businesses, 
generating exports and jobs for the United States. China is the 
world's most populous country and for the past decade has been 
the fastest growing major economy in the world. In the next 
decade, China is expected to become one of the largest markets 
in the world. Based on U.S. Commerce Department data, China 
represented the 12th largest high-tech export market in 1998, 
with electronics exports exceeding $3.0 billion. Electronics 
comprised 21 percent of total U.S. exports to China in 1998.
    Electronics means semiconductors. The current semiconductor 
market in China is estimated to be up to $8 billion per year. 
Some analysts expect it to become the third largest 
semiconductor market by 2001 (behind only Japan and the United 
States) and the second largest by 2010. The current 
semiconductor equipment and materials market in China is 
estimated to be over $1 billion per year and is projected to 
reach almost $4 billion in 2003.
    China's other markets are similarly immense. The market for 
computers in China is growing at 37 percent per year. 
International Data Corporation predicts that by 2003, China 
will be the third largest PC market. China's software market is 
growing at 28 percent per year. By the end of this year, 
China's cellular telecommunications market is projected to be 
second only to the United States. More than 9 million people 
are using the Internet in China already, with that number set 
to more than double by the end of the year.

China's WTO Commitments.

    Prior to the U.S. agreement with China, SIA set forth 
specific concerns about trade and investment in China which we 
believed an agreement with China should address. The agreement 
ultimately reached addresses each of these concerns, as 
discussed below.
    Tariff Elimination and the Information Technology 
Agreement. China currently imposes tariffs of 6-10% on 
semiconductors and average tariffs of 13% on information 
technology products. These tariffs pose a significant obstacle 
to U.S. exports to China. Upon accession to the WTO, China will 
join the ITA, and will thereby eliminate its tariffs on 
semiconductors and many other high-tech products.
    Purchasing by State-Invested Enterprises. State-invested 
enterprises control a significant share of the trade in 
electronic goods into and out of China. This presents the risk 
that these enterprises will be encouraged to purchase from 
domestic suppliers, discriminating against U.S. goods. As part 
of its accession agreement, China has agreed to ensure that 
state-owned and state-invested enterprises will make purchases 
and sales based solely on commercial considerations. Given the 
significant role of state-invested firms in the electronics 
industry in China, as well as expressions by the Ministry of 
Information Industry (MII) of an interest in promoting 
purchases of domestically-produced goods in the 
telecommunications sector, this is an issue that bears 
continued monitoring and enforcement efforts.
    Elimination of Investment Restrictions. In the past, China 
has imposed a variety of onerous foreign investment 
restrictions, including export targets, local content 
requirements, and pressure to transfer technology, which hinder 
firms seeking to do business in China. As a part of its WTO 
accession agreement, China has agreed to end local content and 
export performance requirements and to ensure that laws on the 
transfer of technology will be consistent with WTO obligations 
to protect intellectual property rights. Again, these 
commitments will require active monitoring and enforcement if 
U.S. firms are to receive the expected benefits.
    Trading and Distribution Rights. China has limited imports 
by restricting ``trading rights''--the ability of companies to 
import and export from China. Additionally, China restricts the 
ability to distribute goods and to provide after-sales 
services. These restrictions are particularly important to the 
semiconductor industry because they interfere with key means of 
competition. Design and development of application-specific 
chips requires extensive contact between semiconductor 
producers and the ultimate end-users. As part of its accession 
obligations, China has agreed to grant trading rights to all 
firms and to open the market for distribution services and 
after-sales servicing within three years after accession for 
most sectors.
    Protection of Intellectual Property Rights. China has 
patent, copyright, and trademark laws, but does not have a 
strong record of enforcing them. China's accession to the WTO 
means that it will be bound by the obligations in the TRIPs 
Agreement. Further, China has agreed to be bound by these 
obligations without any transition period. This commitment is 
an important step toward protecting U.S. intellectual property 
rights in China.
    Non-Market Economy Antidumping Rules. Chinese state-
invested enterprises could in the future make significant 
below-cost sales of semiconductors in international trade, 
adversely affecting the U.S. semiconductor industry. Although 
China is moving towards a market economy, we should not let its 
accession to the WTO obscure the fact that China is very 
different from most other WTO Members. The level of state 
involvement in the economy and control of prices presents 
special challenges and conditions which must be addressed. In 
realization of these facts, the United States has secured the 
right to continue to use the non-market economy (NME) 
methodology in the application of its antidumping laws against 
China for 15 years after China's accession to the WTO.

Congress Should Approve PNTR Status for China.

    In order to secure the benefits of China's accession to the 
WTO, Congress must approve PNTR status for China. The United 
States would gain nothing by declining to grant PNTR status to 
China, and by failing to grant PNTR status to China we would be 
shooting ourselves--our business, workers, and communities--in 
the foot. China will join the WTO. If we do not grant PNTR 
status, then when China joins it will not be obliged to comply 
with its WTO obligations vis-à-vis the United States. 
Meanwhile, it is likely that we will continue to grant NTR 
status to China annually. Each year for the past twenty years 
we have extended NTR status to China--providing access to our 
market as if it were already a WTO Member. The only result from 
not granting PNTR status to China, then, will be that U.S. 
businesses and workers will lose out to foreign companies in 
the race to develop China and to take advantage of the benefits 
that a market of almost one-fifth of the world's population 
will provide.
    Therefore, SIA urges Congress not to pass up on this 
important opportunity to bring China into the world trading 
system and to permanently normalize trade relations with China. 
The significant market reforms that China will undergo as a 
result of its accession to the WTO will benefit both China and 
foreign firms by promoting the growth and continued development 
of the Chinese economy. Further, as China liberalizes its 
market, these changes will strengthen those within China 
seeking a more open and democratic system as well. China's 
accession to the WTO can therefore serve as an important force 
in making China a more productive member of the international 
community.
    Thank you for this opportunity to present the views of the 
U.S. semiconductor industry.
      

                                

Statement of U.S. Integrated Carbon Steel Producers

    This statement sets out the views of the five major 
integrated U.S. producers of carbon steel products--Bethlehem 
Steel Corp., U.S. Steel Group, a unit of USX Corp., LTV Steel 
Co., Ispat Inland Inc., and National Steel Corp.--on the need 
to ensure that the future direction of the World Trade 
Organization (WTO) properly serves the interests of U.S. 
industries. Unless the health and wellbeing of American 
industries--and the workers they represent--are fully accounted 
for by the WTO, support for international trade will wane, and 
the significant strides made by the United States and its 
trading partners in this very important area over the last 
decade will be put in jeopardy.
    Perhaps more than any other domestic industry, the U.S. 
steel industry has had to adjust to the new WTO framework 
concluded during the Uruguay Round. During the last five years, 
the steel industry has coped with the implementation of novel 
and untested domestic legislation, a radically altered method 
of dispute resolution, and, at the same time, an unprecedented 
level of unfairly traded imports largely as a result of the 
Asian and Russian financial crises. Even after five years, the 
practical effects of these seminal events continue to emerge, 
constantly presenting new challenges for domestic steel 
producers.
    As daunting as these challenges continue to be, they have 
provided the steel industry with the appropriate landscape for 
which to judge the effectiveness of the WTO system. The U.S. 
steel industry is therefore well positioned to assess how the 
WTO is in fact working, and the types of reforms that are 
necessary.

           The Need to Evaluate U.S. Participation in the WTO

    The idea that U.S. participation in the WTO must be 
evaluated is not controversial; practically all parties agree 
that some type of modification of the WTO system may be 
necessary. The need to evaluate the WTO was most recently 
evidenced by the failure of the world's major trading partners 
to agree on an agenda for negotiations in Seattle last 
December. However, even before the Seattle Ministerial, 
deficiencies that affect the manner in which the WTO operates 
had been identified. For instance, one notably common view has 
been that the WTO, as an institution, lacks the necessary 
components of transparency and accessibility, particularly in 
the area of dispute resolution, to gain widespread acceptance. 
Accessibility and transparency in the decision-making process 
are essential elements for any international institution, 
particularly one as significant as the WTO. The setbacks 
resulting from the WTO Ministerial conference in Seattle simply 
exposed the inability of the WTO to take into account the 
interests of all of the parties affected.
    The Congress must now focus its attention towards two 
related notions as it navigates the future course of the WTO. 
First, the ability of domestic industries to rely on the U.S. 
unfair trade laws in order to prevent illegal dumping and 
subsidization must, at a minimum, be maintained. And second, it 
is imperative that the WTO dispute settlement process be 
modified in order to prevent abusive litigation by foreign 
governments and to provide for a fair and transparent decision-
making process. Both of these notions are essential to the 
global trading system, and U.S. support for international 
trade.

The United States Must Maintain its Commitment to the Unfair Trade Laws 
                         in Future Negotiations

    In the months leading up to the WTO Ministerial conference, 
the United States' firm position was that the WTO Antidumping 
and Subsidies Agreements would not be the subject of 
negotiations. For instance, in its 1997 markup of fast track 
legislation, the Committee on Ways and Means approved without 
dissent a provision instructing U.S. negotiators to reject any 
agreement that would weaken existing disciplines against 
dumping and subsidies. Further, over 200 members of the House 
co-sponsored a resolution last year stating that the Congress 
would not consider legislation to implement a trade agreement 
that required changes to our trade laws. The U.S. position on 
antidumping and anti-subsidy rules was set forth clearly and 
did not undermine efforts to begin a round on those issues ripe 
for negotiation by the WTO.
    The Administration's actions in following through on its 
commitment to keep the renegotiations of our trade laws off the 
table is recognized and appreciated. At the same time, it 
remains vital that this position be re-affirmed and that it be 
made clear to our trading partners that the United States will 
not discuss changes that will weaken the trade laws in future 
bilateral or multilateral negotiations.

The U.S. Steel Industry Needs Strong Unfair Trade Laws

    The United States is in a unique position in that its 
market is the most open and transparent in the world while the 
markets of certain foreign competitors remain largely closed to 
outsiders. Consequently, U.S. steel producers, like other U.S. 
industries, are particularly vulnerable to unfair trade 
practices such as dumping and subsidization.
    Unfairly traded steel imports continue to harm the American 
steel industry and its workers. Since the beginning of the 
current steel import crisis, over 10,000 jobs have been lost 
and five companies have gone into bankruptcy at a period in 
which the economy as a whole has witnessed unprecedented 
growth. The steel industry's last line of defense against 
unfairly traded imports is the antidumping and anti-subsidy 
remedies available under the unfair trade laws.
    Foreign unfair traders realize that the only significant 
obstacle to unfettered abuse of the open U.S. market is the 
unfair trade laws. Countries which have recently suffered 
severe economic turmoil--Japan, Korea, and Russia--have 
continued to target the U.S. market with dumped and subsidized 
imports. Without the full force and effect of the unfair trade 
laws, every indication is that massive foreign dumping and 
subsidization will persist, and cause greater injury. In short, 
further erosion of our trade laws will lead to further injury 
to the domestic steel industry and its workers.

The Global Trading System Also Needs Strong Unfair Trade Laws

    The antidumping and anti-subsidy rules enshrined in U.S. 
law and the WTO Agreements, as well as in domestic legislation 
throughout the world, are essential pillars of the global 
trading system. Illegal trade practices such as dumping and 
subsidization distort the marketplace and preclude the benefits 
of open and fair global competition from coming to fruition.
    Since its origin in 1947, the GATT has prohibited illegal 
dumping and subsidization. Article VI of the GATT condemns 
dumping that ``causes or threatens material injury to an 
established industry or materially retards the establishment of 
a domestic industry.'' Likewise, GATT Article XVI recognizes 
subsidies as a distortion of the free flow of goods and 
services and a major obstacle to a system of international 
competition based on relative efficiencies. To remedy the 
disruptive and injurious effects of dumped and subsidized 
imports, Article VI permits the imposition of antidumping and 
countervailing duties on unfairly traded imports through the 
implementation of domestic laws, such as the U.S. trade laws.
    These provisions are vital to the international trading 
system--they promote free trade by ensuring fair trade. 
Moreover, one of the primary objectives of the unfair trade 
laws is to encourage foreign governments to abandon anti-
competitive practices and establish open and fair global 
competition. Strong antidumping and anti-subsidy rules are 
essential if global and regional open market policy objectives 
are to be achieved and maintained. Quite simply, maintaining 
open trade requires the enforcement of fair trade.
    The current WTO unfair trade rules were comprehensively 
negotiated and concluded only after spending substantial effort 
and resources during the five years of Uruguay Round 
negotiations. These rules were designed to ensure a basic level 
of fairness and to prevent abuse by countries with closed 
markets of other countries' open market policies. The U.S. 
unfair trade laws now in place were significantly amended five 
years ago in order to conform with the agreements negotiated 
during the Uruguay Round. Re-opening negotiations on these laws 
would only undermine confidence in the WTO system and future 
negotiations, and would severely erode support for free trade.

          THE WTO DISPUTE SETTLEMENT PROCESS MUST BE IMPROVED

    At the conclusion of the Uruguay Round of negotiations, it 
was widely acknowledged that the rules regarding WTO dispute 
settlement would be among the most radical and striking 
features of the post-Uruguay international trading system. 
However, as several recent instances have demonstrated, the 
rules governing WTO dispute settlement fail to provide for an 
acceptable method of resolving legitimate claims in a fair and 
judicious manner. Instead, the WTO dispute settlement process 
has evolved into an alternative forum for foreign countries to 
attempt to gain what they failed to achieve in multilateral 
negotiations--the weakening of U.S. trade laws.

The WTO Dispute Settlement Process Punishes Transparency

    The openness of our market and the transparency of our 
trade laws has meant that the United States has increasingly 
become the favorite target of foreign countries at the WTO. In 
order to bring a claim before the WTO dispute settlement body, 
the challenged domestic measure must be identifiable. The fact 
remains that in the United States, the laws that regulate 
trade, and the administrative and judicial processes by which 
they are administered, are visible, accessible, and 
transparent. However, the legal and political frameworks that 
operate to regulate trade in many other countries are, in large 
part, impenetrable and non-transparent.
    The WTO has demonstrated an inability to deal effectively 
with the elimination of non-transparent barriers to trade. 
Therefore, in the future, the United States will continue to 
find itself in front of the WTO dispute settlement body at the 
behest of foreign competitors. A dispute settlement system that 
punishes transparency and rewards hidden anti-competitive 
practices is not in the interest of the U.S. industries, nor 
the global trading system as a whole.

The WTO Dispute Settlement Process Is Subject To Abuse by 
Foreign Countries

    Since the inception of the WTO, U.S. trade laws have been a 
primary target of foreign countries, in terms of both frequency 
and significance. There are currently at least eight cases 
attacking U.S. trade-related laws before a WTO panel, the WTO 
appellate body, or in WTO consultations. A number of countries, 
particularly Japan and Korea, are now trying to achieve through 
the WTO dispute settlement system what they could not achieve 
through multilateral negotiations.
    In fact, Japan (with Korea following suit) has endorsed a 
strategy to challenge at the WTO every U.S. trade law decision 
that is adverse to the interests of the Japanese industry, 
regardless of the merits of the claims. Such a strategy is 
entirely inconsistent with the concept of a judicious method of 
resolving disputes, and amounts to abuse of the dispute 
settlement process. By categorically appealing every adverse 
decision to the WTO, foreign governments effectively transform 
the dispute settlement body into a bastardized forum for 
bilateral or multilateral negotiations. In addition, since 
panel decisions rarely result in total vindication for one 
party, even in cases where the United States is victorious, the 
strength of the U.S. trade laws will be partially weakened. 
Over time, countries that are allowed to engage in this 
strategy will achieve their desired result--gradual erosion of 
the U.S. trade laws.
    Important and hard-fought U.S. policies, previously 
negotiated by U.S. lawmakers, are being superseded by the 
decisions of unqualified foreign panelists. If the WTO dispute 
settlement body is to be an effective forum for resolving 
legitimate international trade disputes, measures must be in 
place to prevent its abuse.

WTO Panel Decisions Are Rewriting Domestic Laws

    The WTO dispute settlement body has effectively rewritten 
domestic legislation by subverting international agreements 
previously negotiated by the U.S. government. For instance, in 
December of 1999, a WTO panel ruled in UK Bar that the WTO 
Subsidies Agreement prevented the United States from imposing 
countervailing duties on steel bars imported from the United 
Kingdom after ownership of the heavily subsidized bar operation 
had been privatized. This decision, if adopted, will gut the 
anti-subsidy statute to its core--governments could use limited 
subsidies to create or expand burgeoning industries and then 
escape discipline by simply selling off their ownership 
interest.
    The UK Bar holding, of course, has ramifications beyond the 
steel industry; all domestic industries that compete with 
publicly owned or recently privatized foreign companies are 
encompassed. Since U.S. industries are almost invariably 
privately owned companies, and not state-run entities, the 
decision is decidedly adverse to the interests of the country 
as a whole.
    The decision in UK Bar usurps the roles statutorily 
assigned to the Department of Commerce and manufactures 
obligations that the United States would never have agreed to 
in multilateral negotiations by disregarding the standard of 
review properly applicable to countervailing duty cases. In 
doing so, the WTO panel ignored a prior WTO Ministerial 
Declaration whose sole purpose was to ensure that 
countervailing duty cases would use the same standard of review 
as antidumping cases. Under the WTO Antidumping Agreement, 
national authorities are assigned the primary role in 
interpreting the complex provisions of the agreement, and their 
reasonable interpretations must be upheld. In the Uruguay Round 
negotiations, the United States fought for and gained (but not 
without sacrifice) this largely deferential standard of review. 
The panel's failure to apply that standard in UK Bar led to an 
unacceptable result, and demonstrates the panel's unchecked 
ability to rewrite the trade laws and agreements enacted by the 
Congress and negotiated by the U.S. government.

WTO Panels Are Not Accessible or Representative And Must Be 
Held Accountable

    Decisions such as UK Bar highlight the many flaws in the 
makeup, procedure and jurisdiction of WTO panels. WTO panels 
are comprised of three foreign individuals who are not trained 
nor necessarily qualified to serve in a judicial capacity, yet 
these panelists can, without accountability, overrule laws 
passed by the Congress and negotiated and administered by the 
U.S. government.
    The decision-making process itself does not afford basic 
due process protections. Private parties are not allowed to 
participate as a matter of right, and the proceedings are 
conducted in an opaque and secretive fashion. Under the current 
WTO system of resolving disputes, the parties most directly 
interested and affected are effectively shut out of the 
process. Such a system is entirely at odds with even the most 
fundamental notions of fairness.
    The disturbing prospect of having international bureaucrats 
sitting in judgement of U.S. laws, with little or no 
jurisdictional accountability, has been recognized by the 
Congress. In 1995 Senators Dole and Moynihan proposed a bill, 
endorsed by the Administration, that would establish a WTO 
Dispute Settlement Review Commission in order to allow 
effective monitoring of the operation of the WTO system to 
ensure that U.S. rights are being protected.
    This proposal would establish a commission of federal 
judges to review the operation of the WTO dispute resolution 
system and, particularly, decisions adverse to the United 
States. The Commission would provide some accountability for 
the actions of WTO panelists and appellate body members by 
tying the Commission's findings to expedited procedures for 
consideration of a joint resolution withdrawing Congressional 
approval of the WTO agreements.
    Creation of such a commission would in and of itself 
discourage dispute resolution panels from exceeding their 
authority, and would provide reassurance to Americans that 
their laws were being respected. The Administration should work 
with Congress to enact such a WTO Dispute Settlement Review 
Commission.

                               Conclusion

    The future direction of the WTO depends, in large part, on 
the active participation of the United States, the world's 
largest and most competitive market. In guiding the WTO's 
future direction, the Congress must ensure that the interests 
of U.S. industries are not undermined by the WTO system.
    In order to accomplish this, the United States must 
maintain its firm position that the unfair trade laws will not 
be weakened through future multilateral negotiations. As the 
recent steel import crisis has demonstrated, strong, effective 
and vigorously enforced trade laws are necessary to ensure that 
American industries and workers are not left defenseless 
against unfairly traded imports. Moreover, the unfair trade 
laws are essential to maintaining an open market policy in the 
U.S., and encouraging the same abroad.
    The United States must also make changes to the WTO dispute 
settlement process. The current WTO dispute settlement process 
rewards non-transparency. The process is being abused by 
foreign parties to achieve the effective erosion of U.S. trade 
laws--an effort that was flatly and rightfully rejected by U.S. 
negotiators in Seattle. In addition, the current process 
effectively shuts out the parties most affected, and operates 
in an overly secretive fashion. The United States must provide 
for accountability of WTO panel decisions in order to ensure 
that international bureaucrats do not unfairly strike down the 
U.S. trade laws without repercussions.
    The administration of American trade policy is the proper 
responsibility of the Congress, not international bureaucrats.
      

                                

                                      U.S. Wheat Associates
                                       Washington, DC 20002
                                                     March 28, 2000

The Honorable Bill Archer, Chairman
House Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Archer:
    The wheat industry commends you on holding a hearing on the 
tremendously significant issue of U.S. membership in the World Trade 
Organization. We respectfully request that this letter be included in 
the record for the hearing scheduled for March 30, 2000. The membership 
in question is of vital importance to U.S. wheat growers.
    The Uruguay Round Agreement, which created the WTO, marked a major 
departure in how trade negotiations were conducted multilaterally. The 
Agreement on Agriculture provides specific staged reductions in global 
farm protection: the tariffication and reduction on non-tariff barriers 
to trade; the capping and reduction on a volume and value basis for 
export subsidies; and the aggregate measure of domestic support subject 
to certain reduction commitments.
    Without the pressure for greater market access, the elimination of 
non-tariff trade barriers, and the disciplines on the use of export 
subsidies the WTO affords, the livelihood of U.S. wheat growers would 
be in greater jeopardy. While great strides were made during the 
Uruguay Round, much work is left to liberalize world wheat trade. Wheat 
growers have identified the WTO as the best means to further farm trade 
liberalization. Export subsidies from the EU continue to be a thorn in 
the side of U.S. wheat producers and without the leverage of other WTO 
member countries further discipline of export subsidies would be 
impossible. Additionally, the U.S. wheat industry is pressing for 
greater disciplines under the auspices of the WTO on the structure and 
practices of monopoly state trading entities such as the Canadian and 
Australian Wheat Boards.
H.J. Resolution 90

    According to USTR, opening markets by lowering trade barriers 
contributed as much as a 36 percent increase to U.S. exports between 
1994 and 1999 despite the Asian crisis which has been very hard on 
American agriculture. The number of U.S. jobs supported by exports 
increased by 1.4 million from 1994 to an estimated 11.7 million in 1998 
(the last year available). Jobs supported by goods exported from the 
United States are estimated to pay between 13 percent to 16 percent 
more than the U.S. national average wage. Anyone serious about the 
economic stability of American agriculture knows that we export over 30 
percent of what we produce.
    The approval of this legislation would deal a devastating blow to 
the WTO and the current rules-based world trading system we depend 
upon. It would be an affront to the promotion of free and fair trade. 
This action would precipitate a return to an era of obscene tariffs, 
outrageous non-tariff barriers to trade and massive trade distorting 
subsidization. Choices for American consumers and open markets for our 
producers provide the backdrop for U.S. progress and innovation. The 
high and consistent growth of the U.S. economy necessitates an active 
role for the U.S. in promoting global trade. We need to work with other 
countries to strengthen and improve the WTO, not run from the 
challenge.
    The WTO and the market opening rules it provides are essential to 
the health of U.S. agriculture and the future economic stability of our 
entire economy. The wheat industry calls upon you and your colleagues 
to quickly put an end to the resolution to take the U.S. out of the 
WTO.
    If you do not commit yourselves to this, what has been gained will 
have no value. The United States leadership role in guiding world trade 
and development will have ended and the economic future of the 
agriculture industry will be severely hampered.

The Impact on Wheat Growers

    In the past couple of years, an unfortunate series of unpredictable 
events, the Asian financial crisis, natural disasters here at home and 
a surge in world production have conspired to severely depress the U.S. 
farm economy. Although our trading partners in Asia and other parts of 
the world have experienced extreme economic upheavals, their 
commitments to market opening agreements have permitted their markets 
to remain open. While we have real stress going on in our rural 
communities, and we see no end in sight in the short term, we know that 
any future market growth lies in our ability to export to the world.
    Trade is a big part of our eventual recovery. For many farmers, 
trade and trade policy is an abstract concept, but for wheat farmers it 
is a very necessary element in our businesses. The U.S. wheat industry 
exports, on average, nearly half of total production. That accounted 
for 28.9 million tons (MT) flowing out of our nation's ports last year 
to over 130 countries worldwide. The WTO provides an effective rules 
based system of world trade that strives to ensure free and fair 
competition. Trade in wheat is an especially competitive business as 
35.5 MT was exported by monopoly state-run trading entities (Canada and 
Australia) while another export subsidy driven 15 MT left the European 
Union last year.
    The U.S. is a mature market; we can not expect much increase in 
domestic consumption. With 96 percent of the world's consumers outside 
of our borders we cannot delay negotiations to open world markets. For 
the wheat industry there is no option but to push forward as rapidly as 
possible with the WTO negotiations to further open world markets.

Conclusion

    As the Seattle Ministerial approached, the industry was 
consistently warned to moderate its expectations. We were told 
repeatedly that Seattle was a beginning of a negotiation not an end. 
Suspension of the talks in Seattle represents a delay in getting 
started on a negotiating process that is not only inevitable but also 
critically important. There is only one direction for the United States 
to pursue at this point; we must move forward.
    U.S. farmers are hurting now, and it is unrealistic to wait for 
conditions in the world market to improve on their own. The President 
and Congress can greatly assist in this effort by working together to 
pass legislation approving Permanent Normal Trade Relations for China 
and fast-track trade negotiating authority, and by soundly rejecting 
House Joint Resolution 90.
    Thank you for your attention to our comments and recommendations.

            Sincerely,

                                       Christopher Shaffer,
                             Wheat Export Trade Education Committee
                                              U.S. Wheat Associates

                          Chairman Terry Detrick, President
                                 National Association Wheat Growers

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