U.S. GOVERNMENT PRINTING OFFICE

67–261 CC WASHINGTON : 2001

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

(

For sale by the U.S. Government Printing Office

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

ii

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

SCOTT MCINNIS, Colorado

RON LEWIS, Kentucky

MARK FOLEY, Florida

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

LLOYD DOGGETT, Texas

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

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

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

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

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

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

is further refined.

iii

C O N T E N T S

Page

Advisory of 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

(1)

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:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721

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. In- vited 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 negotia- tions 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 SmootHawley 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

3

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 socalled ‘‘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.

4

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

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

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

along with an IBM compatible 3.5-inch diskette in WordPerfect 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.wayslmeans/’.

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

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

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

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Comues its review of what international trade means in the everyday

mittee as noted above.

Chairman ARCHER. Good morning. Today the Committee continf 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.

5

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

6

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

7

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 acrossthe-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.

8

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

9

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

10

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 mil- lion metric tons (3.86 billion bushels) of soybeans. That’s 46% greater than the en- tire U.S. soybean crop in 1999.

And, the Chinese like to drink beer, and that’s a good thing for our barley grow- ers. 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.’’

11

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.

Sunday that you would be at your best. You have done better than

Thank you.

Chairman ARCHER. Governor, thank you. You said on television

f 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.

12

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 hypocVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
13

risy 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 bewilVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
14

dered 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 ultraright 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

15

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

16

those corporations may be doing that to take advantage of the lowwage 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.

17

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

18

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

19

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

20

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

21

1Mr. 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.

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 CommitVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
22

2Were it still the GATT, I wonder if we would even be having this hearing today.

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.

tee gave me splendid bipartisan support during all those years, and for that I will

be eternally grateful.

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.

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

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

23

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 in- stances. 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 par- tial 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 sua- sion 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 re- alize. 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

24

4 Negotiations in both those areas are already underway at the WTO, by virtue of commitments made at the conclusion of the Uruguay Round.

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.

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

25

5Particularly in light of the enmity that would be generated by our withdrawal.

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. Ob- viously 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 sov- ereignty 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 re- spectfully 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? 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

26

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 influ- ence 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

27

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 noth- ing 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.

and giving us the benefit of your extended experience and knowlMr. Chairman, I

Chairman ARCHER

’ll be pleased to respond to any questions you may have.

. Ambassador Yeutter, thank you for coming

f edge 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 OrganizaVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
28

tion 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

29

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 $41⁄2 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

30

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

31

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

32

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

33

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.

34

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 beVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
35

cause 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.

36

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

37

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

38

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——

39

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 propVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
40

erty 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 mideighties, 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:]

41

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.

42

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 re- duce 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

43

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 rulesbased 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.

44

Mr. HOUGHTON. Thank you very much.

f

45

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.

46

On the other hand, however, we would say that the existing sys- tem 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 near- ly 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.

47

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 indus- try, such as is being provided by today’s hearing. Such debate is vital to the demo- cratic 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 do- mestic 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 mar- kets 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 politi- cal 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

48

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 pre- vious 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

49

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 re- forms 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 in- dustry 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 com- modities 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

50

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 cycli- cal 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 regulaVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00054 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
51

tions 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.

52

Mr. Chairman, NCBA thanks you and the committee for this opportunity to par- ticipate 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.

Mrs. T

Mr. HOUGHTON

HURMAN. Mr. Chairman

. OK. Good. Well, thank you very much.

f—— 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 impor- tantly, 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

53

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 $11⁄2 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.

54

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 consumerbased 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 SinoAmerican 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’’).

55

• 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, nondiscriminatory. • 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 threefold 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.

56

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 USChina 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 USChina 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

57

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 interest- ing, 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.

ing. Yes.

This concludes my testimony. I will be glad to answer any questions.

Mr. HOUGHTON. I thank you. Well, I appreciate your understandf 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. member- ship 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 war- ranted. 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

58

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 ter- ribly 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 properlyfunctioning international trading order. The liberal trading system begun by GATT

59

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 in- terest 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 predictVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00063 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
60

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. 2See 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.

ability 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 pro- cedures 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 pro- vided 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 pro- nouncements 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 in- crease 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 ex- pected. 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 fivefold 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

61

3The 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. 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.

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. 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 de- cisions, 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 countermeasures 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 rem- edy 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

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.

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,

62

5The 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.

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.

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 shortrun, 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.

63

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

64

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 rulebased, 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

65

6The 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.

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 re- sources 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. 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

66

7These comments express no position on the desirability of including within or excluding from the WTO any particular trade discipline or subject matter area.

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, par- ticularly 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 institu- tion 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.

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 Mem- bers, 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 ‘‘back- room’’ agreements are made in small, informal closed-door meetings. Many develop- ing 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,

67

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

f ’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:]

68

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 tradedistorting 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.

69

• 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.

fAMERICAN 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 interVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00073 Fmt 6633 Sfmt 6621 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
70

national negotiations, trade law weakening amendments—or WTO dispute settlement.

This year, Congress will review whether the United States should continue to par- ticipate 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 gov- ernment 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: RULESBASED 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

71

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’’ leg- islation, 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

72

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 Se- attle, 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.

73

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.

74

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

75

1President Clinton, November 19, 1994, Radio address.

2 Administrative Action Statement, p. 774, Uruguay Round Agreements Act (P.L. 103–465).

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 disstitute (ATMI). ATMI is the national trade association for the domestic textile inpute settlement or trade law changes.

This statement is submitted on behalf of the American Textile Manufacturers InStatement of American Textile Manufacturers Institute

f dustry. 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, rank- ing 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

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 nontariff 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. 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 mar- ket 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

76

3Only two of these were violations of WTO rules.

4Statement of the American Textile Manufacturers Institute, February 16, 2000

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.

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

77

and concluded that 154,000 workers in the U.S. textile and apparel sector would

lose their jobs under an accelerated phase-out schedule.

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.

78

79

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.

3Organization 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. 6Pat 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.

Statement of Daniel T. Griswold, Associate Director, Center for Trade

Policy Studies, Cato Institute

f 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

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

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.

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

80

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. 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. 9Organization for Economic Cooperation and Development

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 com- puter 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. Com- petition 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. 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.

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

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

81

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, 12 Council of Economic Advisers, Economic Report of the President 2000 (Washington: Government Printing Office, 2000), p. 348. 13 Ibid., p. 354. 14Total 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.’’

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

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

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

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.

82

15The 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. 17W. 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. 18 Council of Economic Advisers, Economic Report of the President 2000, p. 360. 19 Ibid., p. 341. 20 Ibid., p. 27. 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. 22 Cox and Alm, p. 146.

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

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.

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

This rising tide of real compensation has lifted all boats, including those of lessskilled 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

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

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

83

23 Ibid., p. 147.

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. 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 manu- facturing 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. indus- tries 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 higherskilled 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, tech- nology 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

84

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: Gov- ernment Printing Office, 1999), Table 1243, p. 755. 26For 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.

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). 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 micro- processor 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

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

85

27 Council of Economic Advisers, ‘‘America’s Interest in the World Trade Organization,’’ Table

B–17, p. 327.

28 Joint Economic Committee of Congress, p. 10. 29 U.S. Department of Commerce. 30William 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. 31Deloitte Consulting, ‘‘Foreign Direct Investment Trends of U.S. Manufacturers: 1999 Annual

Report,’’ Deloitte & Touche, New York, 2000, p. 1. 32 Ibid., p. 12. 33 Ibid., p. 1.

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.

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

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 foreignowned company.30 Honda, Toyota, DaimlerChrysler AG, BMW, Fuji, and other foreign-owned companies in the United States have become major employers.

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

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

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.

86

34For 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.

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

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

87

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).

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

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.

88

89

90

Statement of the Luggage and Leather Goods Manufacturers of America,

fInc., 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.

91

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.,

fDallas 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.

92

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 Chineseowned 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 ownerVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00096 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
93

ship 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.

f94

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.

95

• 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 cri- ses. 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

96

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 denyVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00100 Fmt 6633 Sfmt 6621 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
97

ing 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 TradeRelated 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.

98

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 imVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00102 Fmt 6633 Sfmt 6621 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
99

port 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

fAssociation

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.

100

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.

101

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 ecommerce, 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 mar- kets 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 reVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00105 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
102

gimes. 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 mora- torium 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.

103

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

104

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.

This statement sets out the views of the five major integrated U.S. producers of

Statement of U.S. Integrated Carbon Steel Producers

f 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.

105

As daunting as these challenges continue to be, they have provided the steel in- dustry 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 negotia- tions 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 navi- gates 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.

106

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 antisubsidy 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.

107

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. law- makers, 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 acVerDate 20-JUL-2000 16:35 Jan 16, 2001 Jkt 061710 PO 00000 Frm 00111 Fmt 6633 Sfmt 6602 K:\HEARINGS\67261.TXT WAYS3 PsN: WAYS3
108

tions 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.

fU.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.

109

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.

110

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

Æ