U.S. GOVERNMENT PRINTING OFFICE

61–707 CC WASHINGTON : 2000

THE FUTURE OF OUR ECONOMIC PARTNERSHIP

WITH EUROPE

HEARING

BEFORE THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

TUESDAY, JUNE 15, 1999

Serial No. 106–71

Printed for the use of the Committee on International Relations

(

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania

JAMES A. LEACH, Iowa

HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVE CHABOT, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

AMO HOUGHTON, New York

TOM CAMPBELL, California

JOHN M. MCHUGH, New York

KEVIN BRADY, Texas

RICHARD BURR, North Carolina

PAUL E. GILLMOR, Ohio

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

SAM GEJDENSON, Connecticut

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

ALCEE L. HASTINGS, Florida

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

ROBERT WEXLER, Florida

STEVEN R. ROTHMAN, New Jersey

JIM DAVIS, Florida

EARL POMEROY, North Dakota

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

RICHARD J. GARON, Chief of Staff

KATHLEEN BERTELSEN MOAZED, Democratic Chief of Staff

FRANCIS C. RECORD, Professional Staff

JILL N. QUINN, Staff Associate

(III)

C O N T E N T S

WITNESSES

Page

The Honorable Stuart Eizenstat, Undersecretary for Economic, Business and

Agricultural Affairs, U.S. Department of State ................................................. 8

The Honorable David Aaron, Undersecretary for International Trade, U.S.

Department of Commerce .................................................................................... 12

Mr. Willard Berry, President, European-American Business Council ................ 36

Mr. Michael Farren, Corporate Vice President for External Affairs, Xerox

Corporation ........................................................................................................... 44

Mr. Bob Robeson, Vice President of Civil Aviation, Aerospace Industries Association .................................................................................................................... 38

Dr. Paula Stern, President, The Stern Group ....................................................... 41

Mr. Stephen Weber, President, Maryland Farm Bureau, American Farm Bureau Federation .................................................................................................... 39

APPENDIX

Prepared Statement

The Honorable Benjamin A. Gilman, a U.S. Representative in Congress from

New York, Chairman, Committee on International Relations ......................... 58

The Honorable Sam Gejdenson, a U.S. Representatives in Congress from

Connecticut ........................................................................................................... 61

Undersecretary Stuart Eizenstat ........................................................................... 62

Undersecretary David Aaron .................................................................................. 80

Mr. Willard Berry .................................................................................................... 95

Mr. Robert E. Robeson ............................................................................................ 104

Mr. Stephen Weber .................................................................................................. 112

Dr. Paula Stern ........................................................................................................ 124

Mr. Michael Farren ................................................................................................. 157

Additional material submitted for the record:

Report prepared and submitted by Dr. Paula Stern entitle ‘‘The Transatlantic

Business Dialogue: A Paradigm that Delivers’’ ................................................. 60

(1)

THE FUTURE OF OUR ECONOMIC

PARTNERSHIP WITH EUROPE

Tuesday, June 15, 1999

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERNATIONAL RELATIONS,

Washington, D.C.

The Committee met, pursuant to call, at 10:05 a.m. in Room

2172, Rayburn House Office Building, Hon. Benjamin A. Gilman

(Chairman of the Committee) presiding.

Chairman GILMAN. The Committee will come to order. I take

great pleasure in opening the first in a series of hearings that our

Committee will hold over the next several months on the Transatlantic Relationship and its importance to United States economic,

political, and security interests.

With total trade and investment between our Nation and the European Union now exceeding $1 trillion, that is with a capital T,

$1 trillion annually, the EU is already our largest trading and investment partner. It is also the world’s largest single market, and

with the creation of the Euro, this market should keep on growing

for many American firms.

yet present, our deficit in goods and services with Europe is

growing faster than with any other region of the world. Moreover,

trade disputes between us are taking center stage at the World

Trade Organization and, worse, often occupying too much time

when the leaders of the two sides come together. Perhaps more important, and more corrosive in the long term, than the major disputes that are taken up formally are the systemic problems that

American firms are having getting a fair shake from EU institutions on routine standard setting and regulatory matters.

On this side of the Atlantic, we would like to ensure that the EU

is able to do its fair share in reviving global trade in the face of

the lingering effects of the Asian financial and economic crisis. Unless the EU is able to revive its economy, which is going to take

major structural reforms, it will neither be able to do right by its

own people nor play a fully responsible role in the world.

But in the past many of our policymakers have downplayed the

importance of our trying to manage our political, our commercial

and trade links with Europe through the EU. They have favored

emphasizing our strong security relationship with Europe anchored

in the North Atlantic Treaty Organization.

This Administration, through the New Transatlantic Agenda

process, has worked hard to understand the importance of our relationship with the EU as an institution, and in shaping our relationVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00004 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
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ships with the Member States in significant part through the prism

of their EU membership.

Today, as conflict in the Balkans seems to be coming to an end,

and we hope it will be a peaceful end, and with the beginning of

the peacekeeping phase of the Kosovo humanitarian crisis, we have

seen tangible evidence of the continuing importance of NATO. Certainly the threats to our common interests and values are no less

compelling now than at the height of the Cold War. The challenges

of post war reconstruction throughout Southeast Europe will put

additional strains on our complex relationship.

We are confident, however, that the Administration witnesses before us today will be capable of defending our values and our interests with our European partners and with our competitors. Ours is

truly an indispensable relationship, with one quarter of our exports

going to Europe and with those exports supporting some 1.5 million

U.S. jobs. Additional efforts are now needed to harmonize our approach to the upcoming WTO Ministerial Conference in Seattle and

to promote new market-opening approaches to the increasingly important trade in services across the Atlantic.

But there are great challenges as well as opportunities in this

all-important relationship: it is being put to the test as never before with the EU’s increasing willingness to use standards as market access barriers, or in a more benign view of their intentions,

to permit standards to be used as barriers. It may well be, as is

sometimes argued, that the standards are so constructed to meet

local needs, for local reasons. But if they are, in fact, clearly intended to slam the door on our exports to Europe, we must be prepared, at some point, to take effective retaliatory measures. But we

need to make certain, first, that European policymakers know that

they are allowing the standards-setting bureaucrats to set up yet

another trade dispute with the United States.

The U.S. Department of Commerce estimates that EU standards

across a wide spectrum of agricultural and high tech products act

directly as trade barriers on $20 to $40 billion in U.S. exports and

could affect an additional $150 billion annually of our exports.

There is increasing concern as well that EU legislation or regulations now being developed on key products could impede the entry

of U.S. products into the EU.

The ongoing disputes over bananas, beef, and genetically modified organisms have prompted the trade experts and the policymakers on both sides of the Atlantic to renew the calls for an improved ‘‘early warning system’’. Before the next agricultural or aircraft dispute threatens to disrupt Transatlantic relationships, the

Congress and the Administration need to work even more closely

with the incoming members of the European Parliament and the

European Commission to identify emerging trade and investment

disputes before Brussels or Washington locks in a final position.

Toward this end, I am pleased to report that the first meeting

of the Transatlantic Legislators’ Dialogue earlier this month

marked the first attempt to bring legislative and executive branch

officials from our nation and the EU into the same room to define

our common problems and to begin finding mutually acceptable solutions. I want to acknowledge the initiative that Secretary

3

Eizenstat has taken to build ‘‘early warning’’ into the work of the

Transatlantic process.

However, in our view, the key to effective ‘‘early warning’’ is sunlight. We simply have to allow the private sector businesses, the

non-governmental organizations, and through the press, the public

at large to know more about potential policy changes as they are

being developed. Neither the American or European administrations nor the legislative branches, can analyze those potential policy changes as effectively as those directly affected by change. The

private sector will then let the administrations and legislators

know what changes they need. In all frankness, much more work

is needed to promote openness in Brussels, in the Commission, in

the Council, and in the European Parliament.

We are pleased to see with us this morning the Administration

official who was most instrumental in bringing together the Senior

Level Group with the Transatlantic Legislators’ Dialogue, Undersecretary of State for Economic and Business Affairs, and Treasury

Deputy Secretary-Designate, Stuart Eizenstat, who has done much

to resolve ongoing trade disputes between our nation and the EU.

As a former United States Representative to the European Union,

while he is a leading voice for cooperation and dialogue with our

European partners, I know that he can also be a very tough negotiator on behalf of American interests.

I look forward to hearing his review of our relationship and his

suggestions for keeping it on track over the coming year.

Also with us, Undersecretary of Commerce for International

Trade, David Aaron, is no less experienced a trade negotiator and

diplomat. His leadership in the International Trade Administration

at the Commerce Department and at the Organization for Economic Cooperation and Development has been essential in promoting and protecting our interests in the EU and around the

world.

We appreciate the fact that two such high-ranking members of

our Administration are here today. I know that there is a lot of cooperation in the Administration on European affairs, but given the

enormous stake in getting this relationship right, I think it is crucial that every agency in the Administration pull together and put

our relationship with Europe at the top of their list of priorities.

At this time I would be pleased to recognize our Ranking Minority Member, Mr. Gejdenson, for any opening remarks he may wish

to make.

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

Mr. GEJDENSON. Thank you, Mr. Chairman. There are seldom

opportunities where the Chairman and I agree to such a large extent. I can remember as the European Union was being formed,

and at that time, the Administration that was in power had three

people in Brussels. One of my great fears was that they would use

standards to block American products, and the example I used to

use, I should go back and dig it out of the hearings, was they would

add a spar, a piece of metal to the air frame and say that Boeing

couldn’t sell overseas anymore, that it would now have to be Airbus

until Boeing qualified under their less than scientific approach to

strengthen the frame of an airplane.

4

The issue that has affected my State directly, but it is symptomatic of what happens, is the hush kit issue. I think part of the

problem is America’s governmental responsibility for dealing with

these issues is somewhat diffused, and I think we need to focus, as

we focused on Japan at the beginning of this Administration, to

focus on Europe. There has been no scientific evidence that I know

of that has correlated the amount of air that goes through a bypass

system and the noise of a jet engine, and for us to sit down and

see this as anything else but an attempt to close the European

market to American products is foolishness.

Now, I am not here to argue that we need to disengage from Europe. Anytime you have a discussion that criticizes one of our trading partners some people stand up and say we can’t isolate them,

we can’t go back to a protective economy. I am not advocating any

of those things, but I think this Administration has got to send an

even tougher message to Europeans. Yes, we want to be friends;

yes, we like the idea that you have a European Union; yes, we are

for more engagement. But we can’t allow them to sector by sector

block American products, and the hush kit is one of the clearest examples. Some of our genetically designed seeds are being blocked

from many of these countries, and it seems to be not based on any

scientific evidence but simply based on protecting indigenous industries.

I think that the State Department and the folks in Commerce

and elsewhere have changed their old attitude. There was a time

when these kinds of issues were beneath our diplomats, and diplomats thought they should just deal with war and peace and the

larger issues of humanitarian relief. I think we ought to do all of

those things. I commend the Administration for doing a great job

in Kosovo, leading the 19 nations of NATO and a reluctant Congress, at times, to a successful conclusion.

But this is what gives American citizens confidence that their

government is paying attention, and I know you both have done

great work, but we need to focus on this even more because of what

it says back home and what it says to the Europeans. If the Europeans are successful in coming up with this absolutely unscientific

attempt to block American jet engines then they will have a green

light for all the other products they want to protect in Europe, and

in that case, we better be ready for the fight of our lives. This is

333 million of the richest people, and access to the old East Bloc

countries as their economies recover.

This is going to be tough economic competition. I am not frightened. I think the United States is the most powerful economic and

military force in the world. But we cannot allow arbitrary control

to keep American products out, and I look forward to hearing the

testimony.

Chairman GILMAN. Mr. Lantos.

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

Mr. LANTOS. Thank you very much, Mr. Chairman. I want to

commend you for holding this hearing. There are two things I

would like to say, Mr. Chairman, if I may. First, I want to pay public tribute to Undersecretary Eizenstat. He is the quintessential,

outstanding, extraordinary public servant in this city who has demVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
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onstrated his commitment to the highest quality of public service

in a variety of most important capacities as our Ambassador to the

European Union, in sub-Cabinet posts in now three departments,

and I am just looking forward to the next step in his illustrious and

most impressive career.

Second, Mr. Chairman, I would like to say a word about Europe

and European leadership, and I think I am entitled to do so as a

former European. The great men at the end of the Second World

War, Adenauer of Germany and Alcide De Gasperi of Italy, and

Paul Enrespoc of Belgium and Churchill and Jean Monnet of

France, would be turning in their graves if they would see our European friends and allies defining much of their relationship with

the United States with respect to bananas and beef hormones.

There was a time, still in the memory of some of us, when the

United States and Europe were bound by great ideas of how to

transform a devastated and totalitarian continent into a prosperous

and democratic society. The notion that our vision has been so dramatically—their vision—has been so dramatically lessened that

when we meet with our European counterparts all of the great

issues that have unified us for two generations, the enormous contributions of the United States to the fact that Europe today is not

a Soviet satellite because, had it not been for NATO, Europe would

be a Soviet satellite, just boggles the mind. I think that in the

wake of the Kosovo engagement, which of course also would have

been a failure had it not been for the United States leadership and

the overwhelming participation of the United States, Europe today

would be in total disarray, NATO would have disintegrated because a two-bit dictator would have triumphed over NATO had it

not been for the United States and the leadership of this Administration.

So, Mr. Chairman, I take a much less kindly view of our European friends and allies than most of my colleagues. Europe has

benefited from the United States military leadership and economic

assistance in a historically unique fashion. In two world wars we

liberated Europe. With the Marshall Plan, we made Europe successful and prosperous, and we have been sniped at year after year

after year with tangential, little selfish issues, and I, for one, am

sick and tired of it.

My feeling is that our policy toward Europe will have to be one

of friendship and cooperation, but also a greater degree of assertiveness. Had it not been for the United States, had it not been for

our military and economic sacrifice and leadership, Europe today

would not be in the position it is in today, and I don’t think we

should treat the various self-centered economic policies with the degree of respect that we apparently do.

My feeling is that Europe owes us a great deal, and we owe Europe very little. This needs to be stated publicly and clearly and

without reservation, and I very much hope that our two distinguished witnesses will be able to address my particular concerns.

I am totally disinterested in talking about bananas and beef hormones. I want to talk about the overall relationship.

I am interested in talking about the fact that had it not been for

us, Kosovo would have been a failure. Had it not been for us, the

Marshall Plan would not have been there and European recovery

6

would have taken decades longer, decades longer, and would never

have been as cohesive as, in fact, it was.

Every time I visit our military cemeteries in Europe I am appalled by the incongruity between the vast numbers of American

young lives which were lost for the sake of Europe and the self-centered approach of many European governments and opposition parties to our role in the 20th century.

I thank you, Mr. Chairman.

Chairman GILMAN. Thank you, Mr. Lantos.

Mr. Rohrabacher.

Mr. ROHRABACHER. I would just like to associate myself with

about half of what Mr. Lantos said in a very big way. Tom Lantos

is a very articulate spokesman, and he, of course, has a deep and

abiding interest in American foreign policy and has studied the

issues for many, many years, and he has my deep respect.

However, I do disagree with him on several points, and of course,

over the current—our current operations in the Balkans, we have

a fundamental disagreement. However, the point that Mr. Lantos

made concerning the overall European relationship in the United

States, I think, deserves some very close attention. I believe that

the American people are going through a change in their perception

as to what our relationship should be with Europe, and I think the

Balkans operation will crystallize many of their thoughts. It is

something we have to realize, that we are in a new era of history,

and in the post-Cold War era of history we are not going to have

the same relationship that we had with Europe. The American people will not stand for the same relationship that we had with Europe during the Cold War.

NATO cannot be a situation in which the proportionate share of

benefits goes to our European allies and a proportionate share of

costs go to the American people. That just will not be agreed to by

the American people, and it will reflect itself in our elections as

they come forward, I believe, in the next 4 years.

Stability, I believe what is going on in the Balkans is based on

trying to provide European stability. Just like as they say, it is not

the job of the United States military, and it is a job of the Europeans to provide their own stability, it is not the job of the American taxpayer to provide stability for Europe at a great cost of tens

of billions of dollars.

So, in the future—and I agree with Mr. Lantos, we bore this burden and we ended up with very little thanks for it and I have

heard Mr. Lantos in private meetings. I remember when our

French colleagues came here, and Mr. Lantos asked them about

why it is that they were so close to the Germans, willing to make

all sorts of agreements with the Germans, but when it came to the

Americans, we were always held at arms length and treated with

such disdain at times. I thought that sentiment—after we of course

had come to Europe twice to save the French from the Germans——

Mr. LANTOS. Will my friend yield for a moment?

Mr. ROHRABACHER. Certainly.

Mr. LANTOS. Since he mentioned Germany, may I just tell our

distinguished witnesses, a short while ago I was in Berlin at a

meeting where the distinguished Mayor of Berlin was present, and

7

I pointed out to him that it would be nice if the municipality of

Berlin would accommodate our embassy’s request to reroute some

traffic for security reasons because at the moment our new embassy location is in a singularly exposed place subject to terrorist

attack.

The distinguished Mayor of Berlin reminded me that this is a

very complex issue because several streets will have to be redesigned and traffic rerouted, and I couldn’t resist the temptation to

tell him that the Berlin Airlift was a bit more complex logistically

and a bit more important historically than rerouting traffic on two

side streets of Berlin, and he was stunned by this revelation.

Mr. ROHRABACHER. Thank you very much.

Mr. LANTOS. I thank my friend for yielding.

Mr. ROHRABACHER. As I say, we have a strong area of agreement

and some areas of disagreement. But in the future, I know that the

American people are going to demand that the relationship with

Europe be mutually beneficial and certainly not in a situation

where the United States bears the burden any longer of the cost

that should be rightfully going to Europeans, and I yield back the

balance of my time.

Chairman GILMAN. Thank you, Mr. Rohrabacher.

Mr. Hastings.

Mr. HASTINGS. Mr. Chairman, I just want to urge a note of caution, and ask my colleagues to be mindful of the enormity of the

contributions that have been made by virtue of all of the activity

that we did put forward in the Marshall Plan and everything else

that has been mentioned by Mr. Lantos and Mr. Rohrabacher and

yourself.

There are a significant number of structures in Europe, not the

least of which the one that has generally laid the foundation for

our activity, at least geographically, has been NATO. With the ongoing actions hopefully coming to a positive conclusion, it is clear

that with the European Union and its development, albeit nascent,

that too is a formulation of a work in progress, and is going to require a considerable amount of attention.

The caution that I urge is with the new isolationist mood that

seems to be developing, at least inside the United States Congress.

We need to be mindful at this time in the world of our responsibilities to ensure that we are stable and secure in the world’s economic environment. Toward that end, when colleagues do not participate in interparliamentary exchanges—and Mr. Chairman, no

later than last week we had members of the Council of Europe

here, and seven or eight of our Members saw fit to visit with them,

and they outnumbered us. When I met with the Organization for

Security and Cooperation in Europe, we had a small delegation

from time to time. Annually we do have a good delegation, but

overall we fail to participate in the quarterly meetings of that organization.

The same could be held for at least three others that are critical,

and when I am there, as I am sure many of you are, we find that

the people are begging us to have exchanges with them. In Denmark, I talked with people about hormone beef, and you get an entirely different view as to whether or not they are willing to cooperate. Recently, in Ireland and in London, the same exchanges were

8

had and all of the results were positive, at least from the standpoint of talk.

I do believe that the World Trade Organization is where the action is going to be for liberalization of trade and that we need to

be on top of it and stop just playing political games and sit down

and try to understand not only what the Administration is offering,

but what we as policymakers are able to offer ourselves.

With that, I part company with my good, good, good friend from

California. While he does signify that he is not interested in bananas and hormone beef, and I too join that we don’t need a whole

lot of explication in that arena, I would urge all of us to understand

that the European Union and Europeans dragged their feet for a

long time. A positive sign is that they have not seen fit to appeal

the decision of the WTO with reference to bananas. But what I beg

us to do, the Administration, and us as policymakers, is not to let

this matter go on the back burner, because there must be some

kind of way that we can assist the Caribbean economies in some

manner while the problems are being worked out at the World

Trade Organization.

My final statement, Mr. Chairman, is that the European Union

held an election last week, and we talk all the time about elections

and their importance. A hell of a lot of people in Europe didn’t participate in that, and I urge you to be mindful that everybody is not

on board with the European Union.

Thank you very much.

Chairman GILMAN. Thank you, Mr. Hastings.

Secretary Eizenstat, please proceed, and you may put your full

statement in the record or summarize, whatever you deem appropriate.

STATEMENT OF STUART EIZENSTAT, UNDERSECRETARY FOR

ECONOMIC, BUSINESS, AND AGRICULTURAL AFFAIRS, DEPARTMENT OF STATE

Mr. EIZENSTAT. Thank you. I would like to put my full statement

in the record, and I very much appreciate the statements that have

been made by you and the other Members. It is an honor to be

here, also——

Chairman GILMAN. Without objection, your full statement will be

made part of the record. Please proceed.

Mr. EIZENSTAT [continuing]. With my good friend David Aaron.

I want to specifically applaud your leadership, Chairman Gilman, in working to improve Transatlantic relations. Your commitment to lead, for many years, the U.S. side of the Congressional

European Parliament Delegations, and I have met you on both

sides of the Atlantic during those meetings, and your initiative recently to form the new Transatlantic Legislators’ Dialogue is

strongly supported by the Administration, and much appreciated.

With the European Union, we share a commitment to the promotion of security, prosperity and democracy, not only in the EuroAtlantic area but beyond as well. It is no hyperbole to suggest that

the relationship between the United States and the European

Union may be the most important, influential and prosperous bilateral relationship of modern times. Two-way trade and investment

9

flows, as you indicated, are now some $1 trillion annually, supporting more than 6 million jobs on both sides of the Atlantic.

One in 12 industrial jobs in the United States is in a Europeanowned factory, and European countries are the biggest foreign investors in 41 of our 50 U.S. States.

We have launched the Transatlantic Economic Partnership covering ten broad areas to reduce existing trade barriers, improve

regulatory cooperation, and establish a bilateral dialogue on multilateral trade issues in the WTO. We have agreed with the EU that

the WTO should begin a new broad-based round of trade negotiations following a structure that will yield results expeditiously in

agricultural service and other areas. We have also agreed to seek

permanent commitments by WTO members not to impose duties on

electronic commerce transactions, an area where Secretary Aaron

has had a particular impact.

There is no more vivid example of our common values and goals

than in the work we are doing with the EU right now in the

postconflict reconstruction of Southeastern Europe. As the confrontation in Kosovo comes to an end, together we have a big job

before us. Our joint aim is to build a solid foundation for a new era

of peace and stability, helping a region that has been one of the

continent’s most violent become, instead, a part of the European

mainstream. We forged a new stability pact for the region, and we

believe that just as we have borne the lion’s share of the military

expenditures, it is only right that the European Union bear the

lion’s share of the reconstruction, and this is something they themselves have indicated they wish to do.

The 15 member EU is now about to undertake its largest enlargement ever. It will be one of the most important challenges facing Europe in the 21st Century, and I would say to my dear friend,

Congressman Lantos, that when he talks about great enterprises,

this expansion will be a historic opportunity to further the peaceful

integration of the continent if it is done right. The EU plans to

spend on its new members, between 2000 and 2006, the equivalent

in 1999-dollars of what we spent on Western Europe through the

Marshall Plan. It will encourage cooperation, reinforce democracy,

and reduce nationalistic and ethnic tensions. If in the end it is successful, the European Union will be the largest single market in

the world with over 500 million citizens in an economy significantly

larger than our own.

Thirteen countries have applied for EU membership so far, and

the European Commission is in the middle of negotiations with 6

of those 13, and another 5 are going through initial screening. The

year 2003 is the earliest likely date for accession of the first wave

of candidates and, frankly, the balance of risks are for a later rather than earlier date for enlargement. Enlargement should be a net

plus for U.S. exports of goods and services to help the countries of

Eastern and Central Europe. Nonetheless, we will ensure that our

commercial and economic interests are not disadvantaged. We are

working both with the EU and its candidate states to prevent the

erection of new barriers to trade as part of the enlargement process.

10

The main problem concerns the interim period between now and

ultimate accession, because at accession they will take the common

external tariff of the European Union, which is generally quite low.

But in the interim, as tariff levels for EU products drop to zero

in the candidate countries, they remain at higher levels for U.S.

products, to our disadvantage. We are working with the candidate

countries to find suitable remedies. We are encouraging them to

adopt the lower EU tariff schedules as soon as possible. Slovenia,

for example, has begun to do this.

The European Commission has agreed with our strategy and accession candidates are beginning to respond. Certainly, we will be

economic competitors, but with our combined strength, together we

will also be able to set a global agenda supporting democracy and

open markets. We share, if I may say so, more values with Europe

than we do with any other region.

Enlargement of the EU requires the candidate countries to conform their laws and practices to EU norms. It would almost be like

saying that a new State coming into the United States has to conform to every page of the code of Federal regulations. It is a mammoth job. It requires change, not only in the candidate countries,

but also on the part of the current member states as well.

The largest step is the reform of the Common Agricultural Policy

or the CAP. The EU has now agreed to put a ceiling on total money

expenditures over the next several years, but this cannot be done

without reforming its agricultural subsidies. Almost half of the

EU’s overall budget, over $50 billion, is earmarked for agricultural

subsidies. The European Commission’s modest CAP reforms are inadequate to do the job. They will complicate the process of enlargement, and they do not go nearly far enough in terms of reducing

the distorting effects of the CAP on the world trading system.

Other countries, including developing countries, will continue to be

forced to pay for European farm inefficiency by losing sales in

home and third markets.

Historically, every enlargement of the EU has been preceded by

a deepening of the level of internal cooperation. They are already

slow in many cases to respond to a crisis. This will be further complicated when they expand to 21 members.

With the advent of the Amsterdam Treaty on May 1, we are witnessing a dramatic shift in power. The European Parliament now

has a greatly enhanced role in EU decisionmaking and will enjoy

equal say or co-decision with the Council Ministers on more than

two-thirds of all EU legislation. The Amsterdam Treaty will also

result, Mr. Chairman and Members of the Committee, in major

changes in the way the EU conducts its foreign policy.

A new High Representative for its common foreign security policy

will give the EU greater visibility on the international scene. They

have selected NATO Secretary General Javier Solana as the first

High Representative for their common foreign security policy. He

has been an extraordinary Secretary General of NATO, and we believe he will perform equally well at the EU. We look forward to

working with him.

An EU with an effective common foreign and security policy

would be a power with shared values and strong Transatlantic ties

with which we could work globally to solve problems. The EU has

11

also chosen former Italian Prime Minister Prodi as the next President of the European Commission. We have worked well with him

before, and we have great confidence in him as well.

We often let the immediacy of our current trade disputes blind

us to the very real benefits that we both enjoy from access to each

other’s markets, but obviously there is a tough road ahead, and yet

we can’t allow our relationship to be defined solely by these disputes. Nevertheless, the EU takes actions such as its unilateral

hushkits regulation where Ambassador Aaron did a fabulous job of

at least temporarily diverting a problem.

For its counterproductive response to the previous WTO panels

on the bananas and beef from exacerbating trade tensions, it is for

that reason that we have suggested an early warning system to

identify such problems before they burst into full-scale disputes.

We are indeed facing a tough set of trade disagreements, and we

continue to hammer home the principle of fair and transparent

trade rules: the need for the EU to respect international commitments and WTO rulings; abiding by scientific principles, and not

politics; and making health, safety, and environmental decisions.

The need for a clear and rational trading principle may be greatest in the area of biotechnology. Within a few years, virtually 100

percent of our agricultural commodity exports will either be genetically modified or mixed with GMO products, and our trade in these

products must be based on a framework of fair and transparent

procedures which address safety on a scientific, and not a political

basis.

We have, since 1994, approved some 20 GMO agricultural products. Since 1998, Europe has not approved any. There is no scientifically based governmental system to approve GMO products,

and therefore, the European public is susceptible to ill-informed

scare tactics. The EU approval process for GMOs is not transparent, not predictable, not based on scientific principles, and all

too often susceptible to political interference.

We have been working to break this pattern of confrontation, and

indeed there are leaders in Europe who recognize that an EU regulatory system drawn up in accordance with its own international

trade obligations would be a boon to both business and consumers.

We have a new bio-tech working group to address GMO issues.

The same can be said with respect to beef hormones, where the

European public is subjected to daily scare tactics which try to portray the hormone issue as a health and safety issue when indeed

there is broad scientific evidence that beef hormones are completely

safe. There is no reason why American beef producers should pay

the price for internal political calculations in Europe inconsistent

with WTO principles.

To conclude, as we look toward the future, our goal is to work

together to promote our goals of security, prosperity, and democracy. Together we can accomplish more than either the U.S. or the

EU can by acting alone. We want to work more effectively to deal

with fast-breaking crises, to find ways to manage our disagreements before they get out of hand, and to expand areas of joint action and cooperation. We are working on just that in the hopes that

we can articulate a new vision at the June 21 U.S.–EU Summit in

Bonn through a new Bonn declaration. This would fit in with our

12

larger goal of using 1999 for a series of summits, NATO, OSCE,

which Congressman Hastings mentioned, and the U.S.–EU Summit

to strengthen the abiding European Atlantic Partnership which has

been so important to maintain stability in Europe for the 20th Century and to make sure it does the same for the 21st.

Thank you.

Chairman GILMAN. Thank you, Secretary Eizenstat.

[The prepared statement of Undersecretary Eizenstat appears in

the appendix.]

Chairman GILMAN. We will now proceed with Undersecretary for

International Trade, Department of Commerce, Honorable David

Aaron. Please proceed. You may put your full statement in the

record and summarize, whichever you may deem appropriate.

STATEMENT OF DAVID AARON, UNDERSECRETARY FOR

INTERNATIONAL TRADE

Mr. AARON. Thank you very much, Mr. Chairman. I will also put

my full statement in the record.

Chairman GILMAN. Without objection, the full statement will be

made part of the record.

Mr. AARON. Mr. Chairman, I too would like to thank you for your

leadership in Transatlantic relations. I am pleased to be with you

and the Committee this morning to discuss the prospects for our

economic and commercial partnership for the European Union. As

you and Secretary Eizenstat have pointed out, the U.S.–EU commercial relationship is the largest in the world by far. Indeed, if

you aggregated all the U.S. businesses that are located in Europe,

they would constitute the fourth largest economy in all of Europe.

But while our economic relationship remains robust, the trade

deficit with Europe is cause for concern. In 1998, our deficit with

Europe reached $27 billion, an increase of $10 billion over 1997.

Historically, our trade balance has been balanced. Indeed, in the 20

years up to 1995, the total accumulated deficit on the part of the

United States was only $1 billion, but since then it has become $60

billion. This reflects the difference in economic growth between Europe and the United States rather than an increase in European

trade barriers. Indeed, American competitiveness is still quite

strong because our growth in exports was 6 percent last year while

European internal growth was only 2 percent. We are doing a good

job of selling into a depressed and slowly growing market.

However, to shrink the deficit the European Union needs to

strengthen its economies. It needs to undertake domestic reforms.

It needs to stimulate employment and domestic investment. As

with any important economic relationship, disputes arise from time

to time. Our economies have grown so close together that I sometimes regard them as a set of finely meshed gears, and even small

issues like grains of sand in a transmission can cause not only

enormous noise but enormous damage if they are not fixed.

Let me briefly address two recent examples of this kind of damage in the areas of data protection and hushkits. We have been

working for over a year to reconcile the very different United

States and European Union regimes on data protection. The European Union has adopted a comprehensive umbrella legislation that

covers every area of data privacy and tries to answer every possible

13

question and meet every contingency. The United States, in contrast, relies on a much more flexible set of targeted laws and selfregulation backed up by the Federal Trade Commission and our

consumer protection laws, both at the Federal and State level.

The European Union is now considering under this regime

whether United States data protection is adequate. We believe it

is, but if we do not reach an arrangement with the European Union

all Transatlantic data flows could be halted, with catastrophic effects on the economies on both sides of the Atlantic. To bridge the

gap, we have proposed a set of safe harbor principles.

The companies subscribing to them would be able to keep exchanging data with Europe. After lengthy talks we have reached

agreement on virtually all substantive privacy issues. Procedural

issues such as enforcement mechanisms, the role that the Europeans will play in abiding by the agreement, and transition times

for U.S. companies to adhere to the safe harbors are delaying final

agreement. We hope to reach such agreement by this fall.

The European Union has also adopted a ban on hushkits, as was

mentioned earlier by Mr. Gejdenson. These are essentially jet engine mufflers or replacement engines that would be banned by the

European Union to achieve aircraft noise reduction. Interestingly

and importantly, this rule would affect only U.S. products, to the

tune of $1 billion, and it would allow the amount of European

equipment that is just as noisy or even noisier to increase. The regulation would undermine 40 years of multilateral cooperation on

aircraft noise regulation in the ICAO.

On April 29, the EU council adopted this hush kit regulation but

postponed its implementation until May of 2000. This gives us additional time to resolve our differences with the EU on aircraft

noise standards and specifically hushkits and re-engine aircraft

issues and try to work out, through the ICAO, an international

standard that would further improve noise.

So far however, their response to our proposals has been desultory and inadequate. If they do not respond more seriously and

constructively, this crisis will revive.

I might also make a passing comment, if I could, on the enlargement question that Secretary Eizenstat pointed out and the differential in tariffs which has arisen from the process. Assistant

Secretary of Commerce Patrick Mulloy is now in Eastern Europe.

He has just held talks in Poland on this very important issue and

they are making very good progress thus far. We are encouraged

by this development.

It has been clear to both the United States and the European

Union for some time that we have needed better ways of identifying and setting issues earlier. In 1996, at Ambassador Eizenstat’s

initiative, we inaugurated a series of initiatives to identify priority

areas that needed to be addressed and provide a mechanism to

make progress. This new Transatlantic agenda marks, for the first

time, an attempt to involve heads of government in the resolution

of commercial problems.

At the top are semiannual U.S.–EU summits, one which will

take place next week in Bonn. They are supplemented by meetings

of the senior level group chaired by Ambassador Eizenstat, senior

trade and economic officials on both sides.

14

The Transatlantic Economic Partnership was also established

under the NTA, as were the Transatlantic Business Dialogue, the

Transatlantic Labor Dialogue, the Transatlantic Consumer Dialogue and the Transatlantic Environmental dialogue. We are very

pleased, Chairman Gilman, that you have taken the Transatlantic

Legislative dialogue, TLD. We expect the TLD to add significantly

to the richness of Transatlantic contacts and found its inaugural

meeting held during last week’s senior level group to be very productive.

Now, the U.S.–EU Summit in Bonn, Germany next week will

allow us once again to demonstrate the staying power of our economic relationship. At the summit, President Clinton, EU President Santer and German Chancellor Schroeder will announce a

number of important deliverables. Among them are an expansion

of the Transatlantic economic partnership and an early warning

system to address trade issues before they rise to the level of trade

disputes such as we saw this spring.

Speaking in Europe last week, Secretary Daley called the formation of an early warning system a Doppler radar system for tracking trade storms, adding that he has asked me to be his long range

weatherman on trade. I will work with my EU counterparts and

with all the Transatlantic bodies, the TAB, TLD, TALD and so

forth, to follow the summit announcement and set forth such a

process. I hope to have better luck than most weathermen.

Another issue to be address at the summit is the reconstruction

of Kosovo. The United States has paid most of the costs of the military operation during the conflict, and the Europeans have agreed

to take the lead in the reconstruction efforts for Kosovo. We believe

that U.S. companies have much to offer and should play a prominent role in rebuilding Kosovo. However, historically, a large majority of European Union aid is tied, therefore, limiting the ability

of U.S. companies to obtain contracts. We will make it clear to the

European Union governments that U.S. companies must be able to

openly compete in the EU finance reconstruction programs in

Kosovo. We believe that we have earned it.

Let me close by emphasizing that the U.S.–EU relationship takes

a lot of work to maintain, but it is worth it, to the U.S. and the

EU, and the rest of the world. There is much work to be done, but

our expanded dialogues and early warning system will help keep

our relationship on track.

Thank you, Mr. Chairman.

[The prepared statement of Undersecretary Aaron appears in the

appendix.]

Chairman GILMAN. Thank you, Secretary Aaron, for your remarks, and Secretary Eizenstat, for your good remarks.

Let me kick off our questions with the issue of European bars to

the use of genetically modified organisms or GMOs. Of course it is

a vital concern to our American agricultural community. Secretary

Aaron, in your view, should this issue be included in the U.S.–EU

or G–8 summit discussions in Germany?

Is that a subject now on the formal agenda of this summit meeting, and if it isn’t, why not, and what steps could the EU take in

its food safety policies? Do they have the potential to affect not only

15

a large amount of U.S. agricultural exports but also a full range

of pharmaceuticals and cosmetics exported by the U.S.?

Mr. AARON. Mr. Chairman, it is going to be on the summit agenda. We will be discussing it. It forms part of the report which Secretary Eizenstat has supervised and put together for the summit

discussions. Essential issues here are really threefold. First of all,

the European process for making decisions on genetically modified

organisms is not Transparent. Second, it does not appear to be

based on scientific evidence. Third, it is taking place in an atmosphere that can only be described as nearly hysterical concerning

food safety in the European Union.

I think it is very important to recognize that and develop our

own strategy, in the context of a situation in the EU where, because of the mad cow disease and its very devastating effect on the

authority and credibility of the scientific and official community in

Europe, now we have had this recent dioxin issue in Belgium.

What you are getting is a continuing impact on the public but

to the point that they have become extremely allergic to this kind

of technology. You have the public press waging a campaign, for example, in Britain where they are calling these things Frankenstein

foods.

This is totally blown out of proportion, but it is an EU problem

that we have to somehow address, and what we need to do is find

a way to help them re-establish the credibility and reliability of

their system of dealing with advanced bio-technology. In the Transatlantic Economic Partnership, there is a bio-technology working

group. It is working on the problem, but I think that the political

dimensions of this have gotten to the point that you have all sorts

of protectionist pressures now wrapping this cloak of public

hysteria around them and taking advantage of it. We have got to

find a way to cut through that, and I hope that the conversations

at the summit will provide some impetus for us being able to do

so.

Chairman GILMAN. Let me address this question to both our panelists. When the EU expanded to include Greece in 1981, Portugal

and Spain in 1986, and Austria, Finland and Sweden in 1995, it

disadvantaged our own commercial interests. What steps can we

now take to ensure that the process of admitting new member nations will not similarly disadvantage our U.S. interests? How can

our negotiators achieve an appropriate measure of parity for our

own interests as the United States begins another round of accession talks with Poland, Hungary, Czech Republic, Cyprus, Estonia,

and Slovenia?

Mr. EIZENSTAT. There really are two steps. The first is that we

have already notified all the future accession countries that we will

seek compensation for the breach of their tariff bindings, which will

occur as a matter of definition when they join the European Union,

just as we did with Portugal and Spain and Austria and other accession countries, and this is not a punitive matter. It is simply a

matter of a right under the WTO. So that provides our interests,

our business interests, a right to compensation in the form of lower

tariffs in other areas.

Second, we are working very assiduously, even now, to make

sure that during this transition period between the time that negoVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
16

tiations commence and end for the admission of new members that

we are not disadvantaged, and we are, in fact, disadvantaged. The

International Trade Commission recently did a study showing, for

example, in Poland alone, that there could be up to $20 billion in

lost U.S. exports from the differential in that their tariffs are at

zero for EU products but they have maintained their higher tariffs,

their MFN tariffs, for the United States.

So what we have done as a strategy, which the European Commission has agreed to, is we have gone to each of those countries

and we have asked them to reduce immediately, certainly as soon

as possible, their tariff levels to the generally lower EU tariffs that

they would take when they become members, and that will remove

some of the disadvantage during this transition period.

Chairman GILMAN. Did you want to comment on that, Secretary

Aaron?

Mr. AARON. No. Just as I indicated in my statement, right now

we have a team in Eastern Europe discussing with those governments this precise point, and the report I received this morning on

the discussions in Poland was very encouraging.

Chairman GILMAN. Let me ask, Secretary Aaron, under the

Kyoto Climate Change Treaty, EU nations felt they were protected

from any new emission reductions that would be required by the

protocol because of the massive reduction in emissions already happening in the UK and Eastern Europe.

These already recurring reductions created an EU bubble protecting other U.S. economies from potentially Draconian cuts. We

now understand the EU may have miscalculated, and its emissions

may exceed those allowed by Kyoto. We have reports of EU members squabbling about who will make extra cuts, and projections

that the EU may need to buy emission credits from the Russians.

We thought that the system the Administration designed under

Kyoto depended on the U.S. buying those Russian credits. Are we

now going to face higher prices and competition from the EU for

those Kyoto emission credits?

Mr. AARON. Mr. Chairman, if I might, I would rather defer to

Ambassador Eizenstat on this.

Mr. EIZENSTAT. No. Let me explain our differences with the EU

with respect to climate change. We have strongly favored the most

cost effective way of achieving our Kyoto targets, and that is by

using flexible market mechanisms, in particular, trading of emission rights as well as the mechanisms by which the developed and

developing world can exchange projects, transferring technology to

developing countries and obtaining credits back. We believe that

the European Union’s attitude in adopting ceilings and

unadministerable caps on the amount of emissions that can be

traded will make the whole system less cost effective, less capable

of achieving objectives in a cost effective way; and we strongly,

strongly oppose that effort at caps.

In fact, a number of countries will have excess emissions to

trade. It is certainly possible that the European Union may be competing for those emissions, if, in fact, they can’t meet their targets

through domestic means.

This is something we have always anticipated, and we have

taken it into account in our cost estimates, but they seem to want

17

to reach their targets by high taxes internally. Our mechanism is

to do so by market mechanisms, which we think is much more effective and much less costly and equally effective from an environmental standpoint.

Chairman GILMAN. Just one more question. Secretary Eizenstat,

Committee staff have heard many complaints about the processes

of the European Commission, specifically that projects are often

staff-driven without considered policy-level input and broad coordination and that our companies are, at least on occasion, not permitted to participate in those Commission consultative processes

that do exist.

Does the executive branch have any strategy to open a Commission up to public view and to public input in a nondiscriminatory

basis, and what can we do about the fact that so many of their proposals are worked up in a Commission so that it is difficult or impossible to change them once they are proposed, either by way of

a green paper or more formally? I welcome your comments, Secretary Eizenstat.

Mr. EIZENSTAT. As a result of the Amsterdam Treaty, there has

been a profound change in the balance of power between the European Parliament and the executive arm of the European Commission. The European Parliament has shown by the dramatic action

which was taken that led to the resignation of the entire Commission, has asserted responsibilities that it had not done so before,

and it has insisted on more democratization and more openness

and more accountability by the Commission to the only popularly

elected body in the European Union, namely, the Parliament.

We expect to see more oversight. We will see more scrutiny of

new commissioners, as they are named by Mr. Prodi, and I think

we will see a gradual opening up of the Commission, recognizing

that as an executive arm there are certain things, as our executive

branch has, that are kept within that branch.

What we have urged, also, Mr. Chairman, is that with processes

like the review of GMOs, that this has to be open to a transparent,

open, scientifically-based process. The notion of keeping approvals

for major agricultural products done in a way that is not open and

which we have no ability to input is totally contrary to the way a

democratic system should work.

When the FDA, for example, makes a decision on a particular

food or drug, they have open hearings. People can introduce evidence. Now what happened with the beef hormone issue is a precise example of an absolutely atrocious decisionmaking process,

and that is that after the WTO ruled that the beef hormone ban

had no basis in science and had to be ended, and gave the European Union 15 months to finally make that decision, just before the

deadline, without any credence given to this by the WTO, they

started a new risk assessment.

How did they do it? They chose scientists without our knowing

who they were. They operated in ways that no one had any information about. They came out with a report that was not based on

any introduction of any evidence by any outside parties, and this

kind of lack of process, lack of openness, is precisely what you are

talking about.

18

We won’t stand for it. It is unacceptable, and that is one of the

reasons that we have retaliated on the beef issue to the tune of

$200 million and will keep that on until we get our WTO rights

won through an open, scientifically based process. We suggest a labelling procedure to resolve this, but this is the kind of closed process I think you are referring to, Mr. Chairman.

Chairman GILMAN. Thank you, Secretary Eizenstat.

Mr. Gejdenson.

Mr. GEJDENSON. Thank you, Mr. Chairman.

Let me commend Undersecretary Aaron for all the work that he

has done in this area as well. He has really been one of the folks

in the Administration who understands the importance of this battle and trying to focus our resources as a government to making

sure that we keep this market access issue fair for all parties. I am

not looking for advantages necessarily for American companies. I

just want to make sure they don’t get shut out in this process.

I guess my question would be first to Secretary Aaron. We went

through this great phase in America where we were reluctant to

go to the metric system, and darn it, we were not going to cave in

to metric, and along the way we also decided we weren’t interested

in getting involved in the European standards-setting. We let them

set their standards, we set ours.

Now we are starting to pay some price for that past neglect. Is

there a way—as we see the problem with the Europeans stepping

out of the aircraft standard-setting organization, the ICAO—is it

just unreasonable to assume that the Europeans would see any

benefit from international or American-European standards-setting

at this stage while we are fighting these individual battles. Are we

going to stop the Concorde if they stop the American jet engines.

I think we probably ought to do some more. I think we should

trigger it, so we don’t have to take another action, that as soon as

they—if they implement in 2000 the hush kit issue, that we ought

to automatically send the Concorde packing, and maybe some other

things. But besides these kinds of retaliatory responses, is there an

avenue that is beneficial that both Americans and Europeans say,

OK, let’s sit down and see if we can start a process to build international standards as we have in manufacturing with ISO, and can

we do this in health and safety and all these other areas?

Americans aren’t going to be happy about it either. Americans

are very, you know, kind of proud of their own standard and their

own operation, but I think in an international world that is rapidly

accepting European standards as the world standard, America’s

going to be left behind if we don’t create a real international standard.

Mr. AARON. You make a very good point because I think that one

of the things that we have found, our general approach to standard-setting has been let’s let the private sector sort this out, and

the Europeans have tended to say let’s pick a standard, and the result of that in many areas of the world has been that their standard has been adopted by other governments who have a kind of du

registe notion of how government and the private sector should

work together.

One interesting example of this has been the debate over the

third generation wireless standard. In other words, what is going

19

to be the technology and the standards for your cell phones in the

future generation, and literally billions of dollars have been riding

on this. The Europeans have learned to create an exclusionary

standard that would just be the European standard, but we took

the position that the private sector should solve this.

Ultimately what happened was that the Transatlantic Business

Dialogue, this cooperative relationship that exists between government and the private sector, came up with a compromise. That

compromise is now being adopted. Now, I think that the real answer to the kinds of process questions that you talked about is not

just better U.S.–EU coordination, but U.S.–EU coordination that

pulls in the private sector, pulls in all the real various actors and

gives us an opportunity to open up their process and make it much

more responsive, and not only to public concerns, but also to market forces.

Mr. EIZENSTAT. I would like, if I may, to amplify. First of all,

there are a number of things we have done. Ambassador Aaron correctly mentions the work we have done on third generation wireless. When I first came to Brussels as Ambassador of the EU, we

were dealing with the first and second generation. We had the

same issue of a so-called ESI standard, a European standard, potentially being the sole standard, and by working in the Administration and the work that Ambassador Aaron and the State Department and others have done, we have now been able to open up

those standards. What we tried to do both there and in the hush

kit issue is move these to international bodies—in the case of wireless, to move them to the ITU, and in the case of hushkits, to move

them to ICAO, the International Civil Aviation Organization—so

that we don’t have a European standard, we have an international

standard.

Next, one of the real pioneering efforts that we have done under

the new Transatlantic Agenda is the negotiation of mutual recognition agreements. We completed seven of those in 1998. They will

save American industry about $50 billion. They will save about $1

billion in trade, over $50 billion in products. This is a real savings,

and the concept is that you test once in each other’s market, and

you don’t have to have duplicative tests in terms of standards.

Finally, is this early warning concept that both Ambassador

Aaron and I have referred to. The whole concept is to try to avoid,

Mr. Gejdenson, the development of unilateral standards in Europe

that preempt the U.S. efforts. If we can nip these in the bud before

they reach a political level, we can avoid a lot of heartache and a

lot of tension.

So we have a very clear strategy of moving as much as we can

into the international bodies, like ITU and ICAO, of going toward

MRAs and more and more products, and we hope to finish one in

marine safety for this summit, which will save even more money

for U.S. companies, and then to use our early warning mechanism.

Mr. GEJDENSON. Thank you.

Chairman GILMAN. Thank you, Mr. Gejdenson.

Mr. Rohrabacher.

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. Before

I get into my questions, let me just say that I was just notified that

the State Department, one full year after my request for documents

20

concerning Afghanistan—and as you know, I have made a charge

that the Administration has a covert policy of supporting the

Taliban and requested documents to find out whether or not that

charge had more substance than just the information that I had

available to me. Six months after Madeline Albright had agreed to

provide the documents that I requested, a full year after I requested them, 6 months after Madeline Albright agreed that she

would provide them, at last the State Department is going to send

over some of the documents starting at the end of this week.

Let me just say, Mr. Secretary, that I would hope that in the future there would be a better good faith effort in working together

with Members of Congress on issues. When we request documents

like this and make a serious charge, as I did, I think that it behooves us not to stonewall or not to drag one’s feet and just get it

over with because my charge may or may not be correct, but we

certainly deserve to have the documents. We are elected by the

people to oversee what is going on in the State Department. So,

with that, let me just thank you and hope that we proceed now as

the documents get into my possession.

You stated, Secretary Eizenstat, that the EU should help rebuild—to a greater degree the United States should rebuild in the

Balkans because we bore a lion’s share of the fighting. How much

do you think that will cost us, and what do you think the cost is

going to be for rebuilding? How much will it cost them? How much

will it cost us, and how much have we spent so far?

Mr. EIZENSTAT. Well, first, let me respond to your statement. I

hope we can act expeditiously on document requests, and I am

sorry that it has taken so long.

Second, with respect to the reconstruction, if I may divide this

into two segments. The first is the disadvantage to the front-line

countries, Romania, Bulgaria, Macedonia, Albania, who have borne

the brunt of accepting both refugees and the interruption of trade

flows from the war. Congress is already in its supplemental appropriated sum of moneys for balance payment assistance, and we are

examining now whether additional assistance will be necessary,

and if so, how much. We do not yet have figures.

Third, and quite apart from that, and yet it has to be integrated

in the end, is Kosovo reconstruction. This is everything from reconstructing homes that have been destroyed by the Serbs, putting

roofs on, restoring electricity grids, building homes, enabling the

refugees to come back.

There is, Mr. Rohrabacher, an EU-World Bank process that will

take the lead in assessing costs for reconstruction. We will be part

of that, but it is clearly understood by the EU that they will do the

lion’s share of both Kosovo reconstruction and the Southeast Europe frontline issue. The reason that I am not able to give you a

figure now is because we literally are just within the last 24 to 48

hours getting on the ground in Kosovo. We have to assess the extent of the damage, and only when that is done will we be able to

come up with a figure. We obviously know the Congress, and we

ourselves, need that. We are working very carefully to try to construct that.

Mr. ROHRABACHER. What percentage do you think we should

pay?

21

Mr. EIZENSTAT. We don’t at this point want to get into percentages. Let me simply say that as the President himself said on Memorial Day, we have borne the largest share of the burden militarily, and that the overwhelming amount of the reconstruction

should be done by the Europeans.

We will be working out percentages in the future. We don’t have

percentages now, but suffice it to say that the EU will assume, and

wants to assume, the overwhelming share of the reconstruction

costs. That is, however, to indicate that we also do wish to participate in that. We think we have an obligation, but it should be a

minority share.

Mr. ROHRABACHER. One suggestion is that we should not be rebuilding Serbia until perhaps the Serbians have paid for their—or

at least someone else has paid for their share of the damage that

they caused in Kosovo. I think it would be kind of ironic to have

the United States taxpayers end up paying for the liberation of

Kosovo and at the same time pay for the rebuilding of those parts

of Kosovo that were destroyed by the Serbs themselves. So I would

hope that we would use some leverage in this rebuilding effort so

that we don’t end up rewarding the Serbs for the type of activities

that they participated in.

Mr. EIZENSTAT. I appreciate very much those sentiments. I want

to indicate to you that there are existing sanctions on Serbia, both

the so-called outerwall sanctions and more comprehensive sanctions that the U.S. has, and we believe that it is premature to

phase those sanctions out when we do not know the attitude of

Milosevic’s regime to implementing the Kosovo settlement or to engaging constructively in reaching a political settlement on Kosovo

autonomy. So we will maintain those sanctions during this period

of time, and we are urging our European allies to do the same.

Mr. ROHRABACHER. Thank you.

Mr. AARON. Mr. Chairman, if I could just add one point. U.S. industry wants to participate in this reconstruction. I had over a

hundred companies at a meeting last week at the Department of

Commerce expressing interest in both the reconstruction and work

in the frontline states as well as in Kosovo, but it is very important

that even as the Europeans assume a greater economic burden for

the reconstruction of Kosovo that they have to do that in a way

that gives our companies equal opportunity to show what they can

do to be effective in that region and not keep us out by tired aid

programs as they often have in the past. We think we have earned

the right to be full partners in the reconstruction of Kosovo.

Mr. ROHRABACHER. Thank you very much.

Mr. COOKSEY.—[Presiding.] Mr. Lantos.

Mr. LANTOS. Thank you very much, Mr. Chairman. I would like

to react to some of the issues that have come up and then ask you

to comment.

First, I want to say a word on behalf of the Serbs. There are powerful democratic forces in Serbia which have been suppressed by

this dictatorial Milosevic regime, and I think it would be singularly

ill-advised and unfair for us to take it out on the Serb people the

acts of their leadership. May I remind my colleague from California

that at the end of the Second World War we led the way in providing vast humanitarian aid to Germany, and subsequently, we

22

provided vast economic and reconstruction aid to a democratic Germany, even though Hitler was overwhelmingly responsible for the

unbelievable human and material damage that occurred during the

Second World War.

So I think it is extremely important that we do not confuse the

genuine and legitimate decency of the bulk of the Serbian people

with this appalling and sickening dictatorial regime. I think it is

also important for us to realize that in Europe there is an end of

the—there is a light at the end of the tunnel, and the light at the

end of the tunnel, of course, is the opportunity to join the European

Union. This will be the most powerful magnet for the Serbian people to get rid of the Milosevic regime because, short of doing that,

they haven’t got a ghost of a chance, not only of getting economic

aid but of joining the European Union.

If one takes a historic view, gentlemen, of this process, the emancipation of Europe since the end of World War II came in two

parts. The first part came right after the war with NATO, the Marshall Plan, and West Europe recovered. Since the collapse of the

Soviet empire, 1990 broadly speaking, we have now seen the emancipation of the second half of Europe. First came the Central European countries, three of them now in NATO, and now we have

reached the Balkans.

Now, some might argue that mainstreaming the Balkans is an

oxymoron because if anything cannot be mainstreamed it is the

Balkans. I don’t agree. I think the Balkans can be mainstreamed,

and I think we have an enormous responsibility in doing so, not

only for humanitarian reasons. As you pointed out, Ambassador

Eizenstat, this is not a zero sum game. While in the short run we

incur expenses, in the long run a prosperous stable and democratic

group of nations in the Balkans will be a tremendous benefit to

American industry and to American agriculture and to American

high tech and to American companies in general.

I would like to ask both of you a couple of questions about enlargement. I am delighted to see that following the defeat of

Meciar, the quasi -fascist leader in Slovakia, Slovakia is now in the

process of being considered part of enlargement, and I hope in time

it will be considered for NATO. I am very much interested in finding out your comments about the attitude of the European Union

with respect to both Turkey and Malta as the enlargement issue

is concerned. It is self-evident that of the 13 countries that had applied, Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia,

Lithuania, Malta, Poland, Romania, Slovakia, Slovenia and Turkey,

all but these two are on track. Some will happen much sooner. Slovenia, Hungary, Estonia probably in the first round, Czech Republic. But there are some clouds over both Turkey and Malta.

Since I am of the opinion that when Secretary Albright speaks

about a Europe free and whole she includes these two countries, I

think it is important we have your most candid and best assessment as to where the European Union is with respect to both Turkey and Malta.

Mr. EIZENSTAT. Let me respond to your comments, and I think

you, Mr. Rohrabacher, said it very well, but we all respect the

enormous vision you have of Europe, and we take very seriously all

your comments with which we almost always agree.

23

With respect to Serbia, we certainly have never attacked the Serbian people and we have always tried to make it clear, and we continue to make it clear, that our disagreements are with Milosevic,

not with the people of Serbia. At the same time, in terms of the

analogy, we did in fact pour aid into Germany, but it was a Germany in which Hitler had died and which democracy had taken

over, and Milosevic remains in power and we don’t even know, let

alone a democracy, whether there will be a full implementation of

the Kosovo settlement. We think that it is important to keep sanctions on to encourage the FRY and Serbian governments to do the

right things, including the full implementation of a political settlement with Kosovo.

Mr. LANTOS. I fully agree with that.

Mr. EIZENSTAT. Second, with respect to the Balkans, I couldn’t

agree more. I think that the Balkans can and indeed must be incorporated into the mainstream of Europe or we will face continued

conflicts in the 21st Century. What the President and Secretary of

State, Secretary Daley and others have emphasized is the critical

importance of making sure that we have created, after the conflict,

the kind of economic conditions which provide them an equity in

Europe, and the whole process that we will be working on with the

European Union, with the World Bank and others, is designed to

give them a stake and to make it clear that they have a future in

and are not separated from Europe.

In fact, the studies we have done, Mr. Chairman, indicate that

there are two ways to go about this. One is to reduce intra-Balkan

barriers to trade of which there are very few. But even more promising is the incorporation of those countries into the EU process,

not necessarily immediately as members, but in terms of trade relationships and trade integration.

Third, with respect to your question on enlargement, the fact is

that of the 13 countries that have applied, six are in the first wave,

Cyprus, the Czech Republic, Estonia, Hungary, Poland and Slovenia. Five others are in an initial screening stage, Bulgaria, Latvia, Lithuania, Romania and Slovakia. Countries can move into different tranches if they show greater progress, if Slovakia were, for

example, to do so.

With respect to Turkey, this is an area where we have had differences with the European Union for a number of years. Turkey

actually has the longest standing application for membership,

going back to the 1960’s. Turkey is a European country. It wishes

to be a secular country. It is important that it be given as much

opportunity to enter into the European Union as other countries.

It obviously has to meet the same standards, but it ought to be

given that opportunity, and we have encouraged the European

Union to do so, and we hope they will.

Malta has reactivated its application for membership to the EU.

The EU has not yet made a formal decision on that, but again, we

think that the more countries that can meet the standards of the

EU the better, and the safer and more secure and more prosperous

Europe will be.

Mr. LANTOS. Mr. Chairman, I know my time is up, but may I just

make one quick observation?

Mr. COOKSEY. Yes.

24

Mr. LANTOS. And perhaps invite a response. We are talking

about dividing the cost of immediate assistance and reconstruction

between the European Union and the United States. I am sure this

is not an exclusive list, and I personally would like to see maximum political pressure applied to the European neutrals who have

contributed nothing to the military effort so that they will contribute all the more to the economic efforts, Sweden, Switzerland,

Austria, and others. I also would like to ask you about the contribution of both the wealthy Arab states which are particularly

well suited to support Kosovo’s rebuilding, which is an overwhelmingly Muslim area, and the participation of Japan in this effort.

Mr. EIZENSTAT. It is an excellent point, Congressman Lantos,

and let me assure you, we will earnestly seek that, and there will

be a formula for that. For example, there are likely to be several

donor conferences, perhaps even one this summer, that will be

called for purposes of immediate assistance, short-term assistance

for Kosovo, to help refugee resettlement, and perhaps a longer term

donor conference that will be held in the fall to deal both with

longer term needs of Kosovo and the needs of the front line countries.

Now, the precise sequencing and timing is still up in the air, but

clearly there will be donor conferences, and we will do everything

possible to see to it that Japan, the European neutrals who are not

part of the EU and not even part of NATO, and Muslim countries

participate. Japan has already indicated a $200 million contribution for refugee resettlement which we think is a good start, and

so we think that sharing this burden ought to be disbursed as

widely as possible. Your point is very well taken, and we will very

much encourage those countries to participate in the donor process.

Mr. LANTOS. Thank you very much.

Mr. COOKSEY. First, I want to tell you how much I personally appreciate your being in front of this Committee, and I do respect

your academic credentials and most importantly your experience in

this area. Some of my colleagues sometimes disagree on policy, but

I would hope it is not personality.

Tracking along Mr. Lantos’ line of questioning, I would really

like to direct this question to you, Secretary Aaron. Is it possible,

or can there be a formula for this reconstruction of Kosovo, and I

assume some reconstruction efforts in Yugoslavia, so that U.S. companies can have a proportion of the contracts equal to the proportion that the American tax payers pay for this? Is that possible?

Mr. AARON. Well, I think, Mr. Chairman, we would be really

happy if we just had an open, untied process here. Money for relief

is growing scarce in the world. There was a donor conference just

a few weeks ago in Stockholm for the relief victims for Hurricane

Mitch at which over $6 billion was pledged. Now we are going to

have donor conferences on reconstructing this area. This money has

to be spent in the most efficient way, and in our view this money

should be untied. There ought to be fair competition, there ought

to be transparent rules, and we ought to go at it in the most efficient way. Let the market do this, and we will be satisfied with the

outcome.

Mr. COOKSEY. That is a good answer, a good economic answer,

and I agree with that.

25

Secretary EIZENSTAT. Yes, sir.

Mr. COOKSEY. The EU’s continued heavy subsidies for agriculture

are, in my opinion, a denial of the realities of information technology, biotechnology, and globalization. Do you feel like this is a

reflection of the personal views of the statesmen, the European

statesmen, or is it a——

Mr. EIZENSTAT. I would like to be very direct on the subsidy

issue for agriculture, having lived over there for a couple of years,

as did David a little way down the road.

First of all, it is important to understand that Germany, which

was and is the residency country of this 6 month period, made a

tremendous effort within the last several weeks to have a major reduction in what they call the agenda 2000 exercise, that is, their

next 6 year budget, to substantially reduce agricultural export subsidies in the EU and internal price supports and break the link between production and prices. There are many countries in the EU,

if I may say so, I think a majority, who would have supported that.

But there are a number of countries, France being one of them,

that latch on to these subsidies as something very important.

Second, and here is where I want to try to be a little bit philosophical, as much as we disagree with, and Lord knows we do, and

we put every effort into eliminating this tremendous disadvantage—we think it burdens our farmers, it burdens our tax payers,

it burdens developing countries—there is a social component to

those countries which continue to latch on to these heavy and, I believe, unsustainable subsidies. I don’t believe they will be able to

sustain them over time. It costs too much, $50 billion. They will

never be able to do the enlargement with this process unless it

changes. But there is a social component, and that is, they want

to keep farmers on the farm. They don’t want them immigrating

into urban areas, and this is one of the social aspects that makes

it difficult to follow the logical economic consequence of the way the

world is changing.

I believe, over time, that the economic logic is so compelling, the

budget costs so overwhelming, and the disadvantage to enlargement so compelling, that we will get reform in this process. I also

hope that the WTO process, as we inaugurate the ministerial efforts in November, where one of our key priorities, our overall priorities, is reducing these subsidies, will be successful in getting the

EU to further reduce their subsidies.

Mr. AARON. Can I make a comment on this as well? When I first

arrived in Europe 5 years ago, we were in the middle of this battle

on agriculture in the WTO or in the GATT, and a European who

supported our position said something to me—‘‘you have to understand something, we have been cultivating this land for 2,000

years, and when you ask a European to imagine an ideal landscape, he doesn’t picture a wilderness.’’

So this social point that Stuart just made is a very important

one, but the irony is the OECD has demonstrated conclusively that

less than half of the people in the rural areas of Europe get their

income from agriculture, and those that do get less than half their

income from agriculture. So you really have a decreasing and declining part of this rural economy having anything to do with agriculture, and they have to find other ways now to support the kind

26

of landscape they want to preserve rather than simply supporting

these kinds of unjustifiable subsidies.

Mr. COOKSEY. Mr. Pomeroy and I are both on the Agricultural

Committee. I am going to yield any of my time that I might have

left to him, but I was really struck by your comment, Mr.

Eizenstat, that you stated almost half, $50.5 billion of the EUs

1990 budget, is earmarked for agriculture. That is a travesty.

Mr. Pomeroy.

Mr. POMEROY. I thank the Chairman for yielding. Sanctions are

up on the floor. I have to depart, but there was a point I wanted

to make directly on this issue. There is a social dimension to their

incredible subsidy structure for agriculture. There is a cultural dimension to their incredible food-safety angst, but both serve their

economic interests against ours, and so as you mentioned earlier,

Secretary Aaron, it can wrap around a pure protectionism, these

social or cultural issues. I believe we have to do a much better job

of establishing cross linkages that make them pay for the social

and cultural. For example, I know that they are about to take a

run—and I value Europe. I have lived in Europe. I have an affinity

for the people there, and they are an extraordinarily important

partner of ours, economically, and every other way. So it is with

a fondness that I say this.

But they are going to come after our insurance marketplace, and

they will assert that State regulation of insurance is a barrier to

entry, and I look for that to be raised with vigor even next year.

I believe that these are the kinds of cross linkages we have to establish, cross sectors, so that we place maximum pressure on them

over the long haul and we make them bear proper expense to what

they are costing our country, and our agriculture in particular, due

to these social and cultural issues that, quite frankly, can’t be really bargained away. I mean, they are going to be a long time resolving, working our way through those, but in the meantime they

ought to be paying a hefty price for it.

Mr. EIZENSTAT. I think your point is well taken. Let me be very

brief on this so you can go to the floor. If they want to have a farm

policy with social implications, they have no basis to shift those social costs to us. Let them put in a huge direct payment. If they

want to spend half their budget on direct payments that is their

business. What is our business is when they do it in a way through

export subsidies and very high internal subsidies that shift the

costs to our taxpayers and to our farmers. That is what is unacceptable.

Mr. POMEROY. That is precisely correct. We can do better than

we have done, I believe, in asserting that point.

Mr. COOKSEY. Mr. Menendez.

Mr. MENENDEZ. Thank you, Mr. Chairman.

Mr. Secretary and Mr. Ambassador, thank you both for your

service to our country, and I appreciate your testimony today. I

want to direct my questions to Secretary Eizenstat, if I may. I am

with you on your goals of getting the EU to be in compliance with

us and on some of the issues that we have chosen to pursue on banana and hormone treated beef cases.

However, I have a caveat, and I am wondering whether the Administration has thought at all in terms of the impact of the retalVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
27

iatory tariffs on small American businesses. I understand the need

to do the retaliatory measures, but I am particularly concerned

about the impact on the small businesses that only import two or

three items and cannot withstand or survive the long-term economic consequences of those retaliatory provisions. I am wondering, as we look at what seems to be an escalating trend in economic retaliation, are we looking at the impact and at any type of

a carve out for small business that may only have a handful of

items that they import and for which we, in essence, could crush

them by virtue of the retaliatory measures versus the larger companies that have a diversification and who can better withstand

the actions and have the ability to deal with some of the retaliatory

measures and consequences here domestically?

Mr. EIZENSTAT. I will respond to that, and I am sure Ambassador

Aaron will want to supplement it. First of all, in all of the disputes

that we have, we make every effort to negotiate settlements,

whether it is bananas or beef or hushkits, so that we don’t have

to retaliate. In every single effort, we bend over backwards to avoid

having to do retaliation, and we do retaliation only when we have

no other option available. With respect to, for example, beef hormones, we have not actually retaliated. We simply requested a

damage amount, and we hope that the EU will negotiate an acceptable regime which will allow market access for our beef.

Second, when we do retaliate, we go through a very exhaustive

process, and the interagency 301 process allows for public comment. We try to exclude those products which would have a disproportionately negative effect on U.S. employment, on the U.S.

economy, on small businesses that have difficulty adjusting, and so

those companies have the ability to tell us that the retaliation may

end up disadvantaging them. That is something that we try to take

into account when we do our retaliation, if and when we have to

retaliate.

So, first, we try to avoid it and we try to get a negotiated settlement. That is what we are doing with bananas. That is what we

are trying to do with beef. Second, there is a process for public comment, and those are taken seriously. We do try to factor in the impacts on domestic companies and on small businesses.

Mr. MENENDEZ. Just before Ambassador Aaron answers so you

can include it hopefully in your answer. Many of the companies

that I have heard from in my district, and that I have spoken

about with some of my colleagues in the House who face similar

circumstances did make, either through their associations or individually, their testimony known, yet they are still suffering under

the consequences of the measures and some of them, as they speak

to me, seem to have not a long lifespan left if we continue these

measures for any significant amount of time. Ambassador.

Mr. AARON. Let me just say I think that as Secretary Eizenstat

has indicated, the retaliation list for the beef hormones is still

under consideration, and the final list has not been solidified. So

that the concerns of the small companies that may be affected by

this, we really need to pull to the fore, and I will guarantee you

that our participation in this and our responsibility for small and

medium-sized businesses are such that we will take active interest

28

in trying to defend the interests of small businesses that might

be——

Mr. MENENDEZ. But there are already a list of items that have

been listed for the banana case.

Mr. AARON. Yes, there are.

Mr. MENENDEZ. I am speaking to those items already that several companies in my own congressional district have come to me

and said look, we are not large importers of a variety of products,

we only have a couple, and the couple that we have happen to be

on the list. So it just seems to me that the bulk of what we try to

do can be accomplished while creating some minor carve out for

some of these small, and I underline that again, small businesses.

Moreover, we can control that they don’t become an escape hatch

to your measures by limiting their imports to what they imported

the previous year, and I would really urge that the Administration

consider such a measure.

Mr. AARON. You make a very good point, and we will consider

it. I would just like to say, if I may, Congressman, this is not a

final list. Even though it is published, it is not a final list. We are

still taking comments, we are still considering comments. So we

would be particularly interested in knowing which of your companies could be affected.

Mr. MENENDEZ. That is on beef, but I understand that the other

one is finalized, and that is the one I am referring to.

Mr. AARON. I am hopeful that we are now in the midst of negotiations with the EU on what we hope will be a WTO consistent

regime on bananas. If we can reach it, that would obviate the need

for retaliation.

Mr. MENENDEZ. Last, in a somewhat indirect issue, I would like

to refer again to Secretary Eizenstat. As you know, I and the Ranking Democrat of this Committee and other Members have pursued,

with reference to sanctions, the Administration’s proposal on

Sudan, which I generally support. The question of gum arabic. It

is a very unique product. It is only produced in about two or three

places in the entire world. It is an emulsifier that particularly is

used in certain cases by the pharmaceutical industry for drugs here

in this country, prescription drugs. It is used as a unique product

that is not substitutable, and it seems to me that what we are

doing in this particular case, unless we carve out somewhat of an

exception or give some licensing provisions, is to hand over an

American industry. Since the imposition of the sanctions the price

for gum arabic has risen by 40 percent, the French have come in

and purchased all of the contracts in Chad and the other locations.

They are going to make a killing.

They are going to resell it to us. The Sudanese are going to get

more money, not less, as a result of the sanctions, and we will have

undermined the very nature of the type of consequence that we

want to provide.

As you know, I am more likely than not to be a supporter of

using sanctions as a way in which to promote peaceful diplomacy,

but I would like to know what your position is on this, and do you

not think that this is one case in which, because of the uniqueness

of the product, we are actually not helping our policy; we are hindering it?

29

Mr. EIZENSTAT. First, you have been a very strong and effective

champion of this issue, and as you remember when you talked to

me and others last year, we issued two licenses to allow limited imports of gum arabic from Sudan. In the first case, to allow a shipment that had already been shipped to enter the United States,

and in the second to permit entry into the U.S. of gum arabic

which had already been contracted for prior to the embargo.

We are now facing a situation where we have to consider this

again, and we understand very much the arguments you have

made. We also have to balance that against the need to maintain

our pressure on Sudan in response to that country’s continued unacceptable behavior, and I can assure you that your concerns will

be taken very seriously. We have not made any decisions. It is a

very difficult decision, and we will certainly fully take into account

your concerns as we must the need to maintain pressure on Sudan.

Mr. MENENDEZ. Mr. Chairman, one brief follow-up question, and

I thank you for your indulgence. Can we agree to this, can we

agree that the market reality is such that the prices have increased

by more than 40 percent and that the French are out there aggressively taking all of these contracts or all of the products?

Mr. EIZENSTAT. Factually, the French have made every effort to

corner the market. They have bought much of the production, perhaps all of the production from the Sudan, and it is possible too

that will require U.S. companies to go through the French for this

product.

That appears to be factually the case, but that is one of the

things we are looking at. We want to verify that and make certain

that is the case. We also have to look at what alternatives, if any,

exist in terms of the quality of the gum arabic that is available

from Chad and other countries. So there are a lot of factors to take

into account, but you are quite right, the French appear to be making an effort, we have to determine how successful, to corner the

market.

Mr. MENENDEZ. Last, is it my understanding that there is nothing under the sanctions regime as it relates to the Sudan that

would prohibit a United States company from buying the French

product of the gum arabic?

Mr. EIZENSTAT. At this point, I think that is correct.

Mr. MENENDEZ. Thank you.

Mr. COOKSEY. Mr. Burr.

Mr. BURR. Secretary Aaron, let me move to one thing. Is there

a structure for this early warning system? Is that a formalized

plan?

Mr. AARON. There has not yet been created a formal body to do

this job. That really lies in the future.

Mr. BURR. But structurally you know how it should operate now?

Mr. AARON. What has been established are a set of principles,

and really, the senior level group, and I would like Secretary

Eizenstat to comment on this, they created a process by which

these issues can come forward.

Mr. BURR. Let me ask you this, under that concept that both of

you see, what signals would go off now as it relates to agriculture

and the EU changing from where they currently are? Would buzzers go off under this early warning system right now?

30

Mr. AARON. That is already a red light that is sort of flashing

both in terms of subsidies and all of that. So that is well understood. What this process would do would be to identify, let’s say

there is some new regulation that is proposed that would be harmful to trade, or there is a new initiative on standards or something

of that, something that we hadn’t already known about.

Mr. BURR. We believed that when the EU got back together that

they were going to reverse themselves on some of their agricultural

subsidies. They came consequently out of that meeting and actually

gave in a little bit more to additional subsidies, and I am asking

under this proposal of an early warning system, would we have

seen that coming? Would we have seen, in fact, not them coming

to us but them going farther away from what we wanted?

Mr. AARON. In this particular situation, I think we are talking

about sort of two different classes of objects here. As far as this agricultural thing is concerned, I don’t think the Europeans themselves knew how they were going to come out of the room when

they were trying to do this Agenda 2000 deal on agriculture. Once

they came out we knew about it immediately. It is certainly on our

list before the WTO and for the negotiations that we believe have

to take place now on agriculture.

I think what the early warning system is going to look like is,

you know, different bodies inside the European Union, different

Committees in the European Parliament, different national laws

that may be contemplated or procedures that all of the sudden are

put into place that blind side us, that have an impact. It is really

those things that are kind of below the level of vision than something big like this agricultural thing that nonetheless start out as

a cloud no bigger than a man’s hand but then become an enormous

storm. It is really that kind of thing that this early warning system

is going to be focused on.

Mr. EIZENSTAT. If I may, Congressman, just to reinforce what

Ambassador Aaron said. First of all, it will work under the auspices of the senior level group. Second, a perfect example of how

the early warning system could have worked if it had been in place

is with respect to the hushkits issue that Ambassador Aaron

worked on and that Congressman Gejdenson mentioned. The reason for that is that this came up through one part of the European

Commission without other parts, particularly the trade and U.S.

relations part, even knowing about it. If we had the early warning

system in place, it would have alerted others within the EU that

this was going to cause a real friction point with the United States

So it is those kinds of issues, getting them before they bubble up

and become formal decisions, that we want to try to nip in the bud.

Mr. BURR. Secretary Eizenstat, let me ask you about the mutual

recognition agreement. There was a lot of controversy as to whether the Food and Drug Administration would accept the European

standards. Where are we on that agreement or disagreement now?

Mr. EIZENSTAT. It is a good question. First, Congressman, we

reached agreement in about seven industrial sectors on mutual recognition, and in the industrial areas it is much easier to simply

have one test where we accept each other’s test. We were not able

to do that in the pharmaceutical area, in part because our FDA

was unwilling to accept the tests from certain of the European

31

Union countries, not believing they came up to our level. So we

have established best laboratory practices for pharmaceuticals

where we will try to identify labs in Europe where, over time, the

FDA will have such confidence, and then we can move to a more

formal MRA structure. So we are not there yet.

We also had an issue, which you have taken an interest in, and

that is, we call it the SRM ban. This was with respect to a type

of pharmaceutical. It would have prevented the use in pharmaceuticals and in other products, particularly in pharmaceuticals, of

certain bone marrow from cattle, and if it had been put in place,

it would have banned large amounts of our pharmaceutical exports.

Fortunately, we have been able to postpone that. We are trying to

work through our Transatlantic Business Dialogue and other processes to come to an agreement on how to handle those. So I would

say, frankly, pharmaceuticals have lagged behind other products in

terms of MRAs, and we are really now just looking at good lab

practices.

Mr. BURR. Let me ask you just in conclusion, we have just had

a case of the inspection program on food safety where I think we

have made the decision not to accept Belgium eggs. Let me ask you

to comment, if you would, relative to their inspection standard

there. Did they catch it? Did we catch it? Who saw the problem

first, and what does that say about their inspection process?

Mr. EIZENSTAT. It was not initially captured through, but then

it subsequently was by their own processes, both within Belgium

and then within the EU. They had a similar situation with some

of our hormone-free beef where they found traces of, they said, of

hormones, and just within the last 24 hours they have now said

that they are prepared to lift that ban, given certain assurances

that we have had.

Following the Belgian government’s announcement in late May

that elevated dioxin levels had been detected in animal feed and

poultry products as a result of dioxin contamination of fat, our Department of Agriculture and our FDA took the action to minimize

any risk of importing it. So the Belgian government did find the

initial levels that led us to act. We announced on June 3 that we

would hold all poultry and pork products from the European Union

countries pending certification that the products are not contaminated.

Then on June 4, our FDA instructed food inspectors to request

documentation that Belgian processed food products containing

eggs, and Belgian, French, and Dutch animal feed products were

not from contaminated sources.

More recently, on June 11, the FDA revised its earlier action to

require the inspectors to detain eggs and egg-containing products

from Belgium, as well as certain animal feed products. These detained products can’t be released until the importer provides lab

test results indicating that the products are not contaminated.

So we have taken these as a precaution. Both agencies are continuing to review the records of European products imported since

January to determine if there are any additional measures that are

needed, and we are working closely with Belgian officials to identify the extent of the possible contamination.

32

Mr. BURR. I thank our witnesses. I would yield back, Mr. Chairman.

Mr. COOKSEY. Mr. Faleomavaega.

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman.

Gentlemen, I do want to echo the sentiments expressed earlier

by the gentleman from New Jersey to thank you for the tremendous services that you are rendering for our country in the positions of leadership that you currently hold within the State Department. I have a couple of questions. It is my recollection that it costs approximately $250,000 to $300,000 to put these hushkits in these commercial airlines, as I

understand, required by Federal law, and I am somewhat amused

by the fact that now the Europeans are putting a little pressure on

us that they think that these hushkits are not necessary as far as

they are concerned.

Of course, it is an environmental issue in our country, and I am

curious the fact that the irony of this issue of hushkits is that it

is not required on military aircrafts. If you ever have a chance to

go to Andrews Air Force Base, and a lot of these residential areas

near that area, because these jet air crafts don’t have hushkits, I

just wanted to get a comment from you, if we see somewhat of a

contradictory policy here.

We required hushkits for our commercial airlines, but not for

military aircrafts, and yet they probably do more damage or some

of the environmental problems that we are concerned with, and we

are making this requirement to commercial airlines in Europe, and

they are balking at us. Can you see how we are going to settle this

problem in an international arena of arbitration?

Mr. AARON. Basically, what has happened is this. At the ICAO

we agreed on new noise standards, and we allowed companies and

airlines to come to their own solution as to how we reach these new

what are called stage three noise standards. Now, one of the ways

to do that for older airplanes that made more noise was to put

hushkits on them. The other is to re-engine the aircraft. A third

way is to just buy a new aircraft that has been designed to be

quieter.

What the Europeans basically said was even though these aircrafts are going to meet the new noise standards we don’t want

them, we don’t want that, we want new airplanes. Why do they

want new airplanes? Because they know 50 percent of all the new

airplanes that are bought in the world are bought from Airbus, as

opposed to 100 percent of the hushkits which are bought from the

United States. I mean, it doesn’t take a genius to know exactly

what was behind this from a trade and protectionism point of view.

Now, as to the issue of military aircraft. They have been set

aside under ICAO, I think, for some time, and it is true, it is as

true in Europe for their military aircraft as it is for ours.

Mr. FALEOMAVAEGA. Mr. Secretary, both of you can answer this.

You had indicated earlier about the process of how we may go

about financing the reconstruction of Kosovo, but I have not heard

anything about Belgrade. I think we have done more damage to

Belgrade. Given the current negotiations, I am just curious, has

there been any discussion about the reconstruction effort in Belgrade if and whenever at that point it should arise?

33

Mr. EIZENSTAT. Well, Mr. Milosevic brought about the damage to

Belgrade by his own policies.

With respect to any reconstruction, a democratic-tolerant Serbia

would certainly be an important part of the whole reconstruction

effort, but that is a Serbia we do not have, under Milosevic and we

don’t think that they are entitled to reconstruction assistance when

he continues, not even—we don’t even know if he will fully implement the Kosovo settlement.

Mr. FALEOMAVAEGA. So it is basically the policy of the Administration, as long as Milosevic is in power, we cannot count on any

assistance from our nation as far as any reconstruction of Belgrade

in terms of the damage that we have done?

Mr. EIZENSTAT. As long as he maintains his current posture, and

we will have to see over time how Serbia changes, but he is an indicted war criminal, and that has to be taken into account. He is

heading that government. So it certainly would make it very difficult for us to provide assistance to that government. Now, in

terms of basic human needs, that is something that we will have

to look at over a longer term. But certainly, in terms of reconstruction, to someone who is an indicted war criminal, that would not

be part of our policy.

Mr. FALEOMAVAEGA. You have basically discussed about the economic wonders in terms of our dealings with Western Europe, but

where are we now with Eastern Europe, the 15 new Eastern European nations that have now become part of the free world? Are

these struggling, or are we having a lot of help from the Western

European nations?

Mr. MANZULLO.—[Presiding.] We are running pretty late, and I

really would like to get the next panel up here, if you wouldn’t

mind.

Mr. FALEOMAVAEGA. Mr. Chairman, I have been here very patiently, and other Members have gone way beyond the five minutes.

Mr. MANZULLO. If you could answer the question.

Mr. EIZENSTAT. I will be glad to. First, Congressman, the European Union, between now and 2006, will be putting in the equivalent of about $80 billion to those countries. That will be, in 1999

dollars, equivalent to what the U.S. spent on the Marshall Plan. So

there will be a massive effort by the European Union to bring these

countries up in their economic development.

Second, almost all have strong, functioning, sustainable democracies which are tolerant. A number of the countries have settled

their ethnic disputes, for example, the ethnic Hungarians. The attraction of European Union membership is an important magnet to

encourage democracy, tolerance, and free markets.

In terms of their economy, while some are still struggling, like

for example Bulgaria and Romania, many are doing quite well. Poland, for example, has done remarkably well when one considers

how close it is to Russia, and the difficulties Russia has had economically. Through very good economic management, Poland has

avoided the sort of Asian and Russian contagion problem, and

countries like the Czech Republic and Hungary and Poland and

many others are doing fairly well and have avoided problems, but

they have a long way to go. They are still well below per capita inVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
34

come levels of the 15 EU countries, and it will take many years

and much effort for them to come up to those EU levels.

Mr. AARON. Let me make one point, too. It is important to recognize that our interests in that area are fundamentally strategic and

political, because if you look at the economic picture what our trade

relationship, for example, to Eastern Europe is in Russia and all

of the former Soviet Union, if you put it all together, is not as big

as our trading relationship to the five countries of Central America,

countries that for the most part we neglect in a lot of our policy

considerations. So from an economic standpoint we have to realize

that as important as these countries may be to us politically and

strategically, we have to focus sometimes on our own backyard.

Mr. EIZENSTAT. Although Ambassador Aaron is right, the EU is

naturally going to be the biggest trading partner, it is important

to realize that we are the largest investment partner in terms of

the amount of investment. We tend, in Poland and many of the

countries in central Europe, to be larger than any other single European country in terms of actual investment.

Mr. FALEOMAVAEGA. Thank you, gentlemen.

Mr. MANZULLO. I don’t have any questions. Congressman

Faleomavaega, if you had a burning question, I would be glad to

yield.

Mr. FALEOMAVAEGA. I do have one burning question, Mr. Chairman.

Mr. MANZULLO. Please go ahead.

Mr. FALEOMAVAEGA. I am sorry. Thank you, Mr. Chairman.

Gentlemen, we have come to the point now in looking at what

we have done in our efforts, and clearly this ethnic cleansing, the

atrocities committed by the Milosevic regime, I call it atrocities because these are not acts of war. They are murders and rapes,

abuses, tortures. We know this because of the tremendous conscience that European nations have gotten to bear after the Nazi

regime advanced by Hitler and the Arianism and all of that sort

and coming out about ethnic cleansing, and my question about it—

2 million people were murdered in Cambodia by Pol Pot, they have

got their problems in Rwanda and in Africa.

My only question is that because NATO has been the basis of

stabilization in Europe, do you, gentlemen, see also the need that

we should create NATOs in Asia, in Africa, in the Western Hemisphere? Because the United Nations is totally unable to perform

the mission that NATO is currently having to do in Yugoslavia.

Mr. EIZENSTAT. I think it is important that the countries of some

of these regions, like the African countries in the OAU, develop the

operational capacity to stop slaughters which have occurred as in

Burundi and Rwanda. We can’t make the perfect enemy the good

and suggest that because we have been able to be successful in

Kosovo that somehow we are to blame for not stopping similar

atrocities in Cambodia or in Africa. It is important for those countries to organize themselves as the European countries and the

U.S. have done in NATO, to take action on their own, and if that

had been done and if there had been more affirmative action that

could help.

Now, there have been efforts, for example, Nigeria is playing a

very constructive role in terms of its efforts for peacekeeping

35

through Ecolas process in Western Africa. Those kinds of processes

are very important and can play a very important role. The U.N.

does have a role to play, and I think that it is important that it

be a more efficient and effective role to intervene earlier when

these kinds of mass slaughters have occurred. We have had too

much of that in the 20th century, and I hope that we have learned

the lessons as we enter into a new millennium that we need more

effective mechanisms to intervene earlier to prevent this kind of

slaughter wherever it occurs.

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. Thank you, gentlemen.

Mr. BURR. Mr. Chairman, would the Chairman be willing to yield

for one or two questions, since we will be leaving for a series of

votes?

Mr. MANZULLO. Let me give this direction. As soon as you are

done with that we have to vote. I would like to recess for about 20

minutes and instruct the staff to set up the tables so as soon as

we get back we can start in again.

Mr. EIZENSTAT. Mr. Chairman, may we be excused at that point?

Mr. MANZULLO. Absolutely. You are excused. Undersecretary

Aaron, I think I missed you three times in my office, even once last

week. This is the fifth time I have stood you up, but I agree with

you in principle on 99.9 percent of everything. So forgive me.

Mr. Burr, you have a question? Was that the second bell or first

bell?

Mr. BURR. That was the first bell of a series of two votes so we

may be longer than 20 minutes.

Mr. MANZULLO. You can go to the second bell, and then I will

hammer you down.

Mr. BURR. Let me ask you, Secretary Eizenstat, what is the likelihood, short term, that the agriculture subsidy policies in the EU

will change? First part of the question. Second part is, as they look

at the addition of new countries, Czech Republic, others, who have

a significant need in their own agricultural population, what is

going to be the pressure there to extend subsidies upon their entry?

Mr. EIZENSTAT. I would say, frankly, in terms of short-term

change, they had their chance a couple of months ago when the

German presidency tried their best to push through some real reductions in subsidies. They failed. So I would think, frankly, in the

short term their chances are nil. However, I think in the medium

term, over the next 3 to 5 years, they are much better for the following reasons, one of which you have clearly alluded to, but I

would like to mention both.

The first is on enlargement. It is not economically sustainable for

the EU to bring in Poland, for example, which is a huge agricultural country, almost a third of the people are employed on the

farm in Poland and some of the other countries of Central Europe.

Under the current structure of subsidies, it would so bust the budget and their own budget caps that they put in just a couple of

months ago that there is simply no way to do it without in a

marked way revising their common agricultural policy. They simply

can’t afford the enlargement.

36

So they will have a collision between incorporating these countries in say 2002, 2003, or 2004 and a budget that simply won’t be

able to sustain it.

Second, I do believe that the WTO talks, which will commence

in Seattle, give us the vehicle, the external vehicle, for the EU to

make the changes they have to make internally to accommodate

the enlargement. Just as happened in the Uruguay round, although they were insufficient, we cut export subsidies by about 20

percent. There were some more modest changes in internal subsidies. I believe that the WTO talks will lead to further reductions

in subsidies, and this indeed is one of our very, very top priorities

as we go into the WTO ministerial.

So I hope the combination of the WTO talks and the pressures

of enlargement will begin to reduce substantially and radically

what I think are very trade distorting, very expensive subsidies.

Mr. BURR. I thank you and yield back.

Mr. MANZULLO. We want to thank Undersecretary Eizenstat and

Undersecretary Aaron for coming to the meeting today. We will get

together some time in the future on it, and this Committee will be

recessed for about 25 minutes.

[Recess.]

Mr. MANZULLO. We are going to reconvene the second panel. Mr.

Berry, since you are the first one here, you will have the opportunity to be the first one to speak. Bill Berry is the President of

the European-American Business Council located here in Washington, where he has led the Council in a variety of positions concerning international trade, investment and finance issues. Before

joining the Council in 1992, he led several national and State organizations involved in international trade.

Bob Robeson is Vice President of Civil Aviation of the Aerospace

Industries Association of America. It is the trade association representing leading U.S. manufacturers of aerospace equipment.

Prior to joining the AIA in 1998, he held a number of positions in

government, including Senior Economist for European Community

Affairs in the Department of Commerce.

Steve Weber is current President of the Maryland Farm Bureau,

and a graduate of the University of Baltimore with a Bachelor of

Science degree in Business Management. He has served as President to the Maryland Roadside Market Association and sat on the

Baltimore County Development Commission.

Mr. MANZULLO. Mr. Berry, you are first up.

What I would like to do is try to limit the testimony of each of

the witnesses to 5 minutes. If you want to read, that is fine. I prefer that you paraphrase as long as your presentation is something

with which you feel comfortable. Please.

STATEMENT OF WILLARD BERRY, PRESIDENT, EUROPEANAMERICAN BUSINESS COUNCIL

Mr. BERRY. Thank you, Mr. Chairman. I will try to summarize

my comments. I appreciate the opportunity to testify, and the fact

that these hearings have been organized. The council which I represent is a Transatlantic organization of companies which works

with officials on both sides of the Atlantic to secure a more open

trade and investment climate. Everyone knows about the remarkVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
37

able aspects of the EU–U.S. trade and investment relationship, so

I won’t go into them.

But any relationship of this size will always have its share of disputes, and the relationship between the United States and Europe

is no exception. Although we cannot head off all trade disputes, we

can address some of the systemic issues that continually cause

problems. Many of the trade problems between the U.S. and the

EU have been intractable because they involve issues unrelated to

business and the two sides have policy priorities which are different.

Where disputes are caused by different views of, say, food safety,

or for that matter on protection of the environment or aid to developing countries, it is often difficult to find an economic solution.

The classic confrontational approach of trade negotiators and the

threat of trade sanctions are often not the best way to handle such

problems. Instead, the U.S. and EU should continue to improve

their dialogue on divisive issues in hopes of finding common

ground.

With regard to food safety, both industry and governments need

to redouble their efforts to educate consumers. It is incumbent on

European governments to fix their regulatory processes to ensure

consumer protection and restore confidence in the system at the

same time. If the U.S. and EU governments truly want to serve the

economic interests of their constituents, they will focus on advancing the Transatlantic Economic Partnership and the Transatlantic

Business Dialogue and supporting multilateral trade liberalization

under the WTO.

We are very encouraged by the development of an early warning

system to deal with these disputes. We congratulate the leadership

of this Committee in organizing the Transatlantic Legislators Dialogue. We support early warning. Unfortunately, our experience is

that most of the most difficult problems we face on the agenda are

really not new.

Mr. BERRY. With regard to beef hormones, this is an issue which

raises many systemic problems which have been plaguing the relationship. Despite losing a WTO case, and an appeal, the EU has

refused to lift the ban. By ordering yet another risk assessment the

EU has tried to find some basis for the ban despite overwhelming

scientific evidence showing that U.S. beef products are safe. This

approach not only perpetuates this dispute but also adds to the

consumer confidence problem in Europe by suggesting there is a

substantial health risk where none exists. A more constructive approach is needed.

Our recommendations on biotechnology follow previous witnesses. It is a big problem. We do feel that there is need for timely,

predictable and science-based regulatory processes, and in this area

we think the recommendations of the Transatlantic Business dialogue should be followed.

With regard to bananas, the EU must make meaningful changes

to its banana regime to conform to WTO rules. The privacy area

is one which is, although there are still some problems there, we

think the dialogue has been very constructive, and we look for

some solution which Secretary Aaron said would take place in the

fall.

38

The Transatlantic Economic Partnership I mentioned is very important, and we think it should be given the highest priority, although it has been slow of late.

In sanctions, we think this is an example where dialogue and

how leaders facing an extraordinarily difficult issue have really

managed to postpone a crisis. We think the 1998 agreement on expropriated property and secondary boycotts has defused much of

the Transatlantic controversy. We would like to see some changes

in the Helms-Burton law. We support the Lugar-Crane bill, and we

also think the Congress should oppose efforts by State and local

governments to enact sanctions measures and maintain their own

role in the conduct of foreign policy.

Finally, I would like to say that a very high item on the agenda

is the WTO negotiations. We think this is important for our companies. It is important for the relationship, and I think it is important for maintaining a competitive position in a globalizing economy.

Thank you very much.

Mr. MANZULLO. Thank you, Mr. Berry.

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

Mr. MANZULLO. Mr. Robeson.

Mr. ROBESON. Thank you, Mr. Chairman. Before giving you my

remarks, I would just like to mention that our President, John

Douglas, is in Paris and has been having meetings on the subject

of hushkits, which is the focus of my testimony, and as a result of

those discussions there have been some minor changes to the testimony which I brought and gave to your staff. So that will be given

to you, but no substantive conclusions are different from what is

contained in the testimony.

Mr. MANZULLO. Any additional materials without objection will

be made a part of our record.

STATEMENT OF MR. BOB ROBESON, VICE PRESIDENT OF

CIVIL AVIATION, AEROSPACE INDUSTRIES ASSOCIATION

Mr. ROBESON. Thank you. I appreciate that.

Our fundamental problems with the EU non-addition rule really

point to some bigger issues in terms of how rulemaking is conducted in the European Union. With respect to the non-addition

rule, the first problem is that it is a design-related rule, which is

to say it imposes design criteria rather than performance criteria,

and that is quite different from the way we normally design and

certificate airplanes. We certificate that the airplane can meet certain performance regulations, and, in fact, noise regulations are in

place both in the United States and Europe which govern this, and

we certify to those requirements, and they are based on testing

which shows that the airplane meets those requirements. So our

view is that the regulation has no scientific basis.

Unfortunately, whether by design or by mere happenstance, the

rule has been constructed in such a way as to only affect U.S. producers of these products, as was pointed out in earlier testimony.

One of our members estimates that the effect is in the neighborhood of $1 billion if the rule goes into effect in April of next year.

There are other AIA companies and other producers in the States

who are not members of AIA whose products will also be affected,

39

and that means that the absolute number probably kicks up well

above that, to say nothing of what this rule does to the residual

value of aircraft currently operating in the United States, but

which could not find a market either in Europe or to countries on

the littoral that would be flying into Europe if they are re-engined

or reconfigured to meet stage three requirements.

So we find that the regulation, as it was drafted, has a discriminatory effect upon U.S. producers as well as operators. But more

fundamentally than that, what the rule really means to us is it

calls into question the way in which these kinds of regulations are

agreed in internal fora, and that is really the most important point

of this testimony. The hushkits are legal under ICAO requirements

ascurrently constructed. We are looking at products which may

have a production life of something like 20 years and a follow-on

life in operation of something like another 30 or 40 years per airplane. So it is conceivable, like a DC–9 designed and produced in

the 1960’s is still operating today 30 years later.

If you arbitrarily change these requirements unilaterally to carve

out a third of the world market it throws all of our calculations in

terms of investment into a cocked hat. So it is very important to

keep this in ICAO where there is an international consensus and

we don’t have a Balkanization, it seems an apt term these days,

a Balkanization of environmental requirements as they apply to

the vehicle. It is not only noise that is at issue. ICAO is also responsible for setting requirements governing aircraft emissions,

and it is very important that the EU does not set a precedent

which will take us away from ICAO as the venue for setting those

consensus standards.

So we have asked that the Administration do two things. One,

pull the EU back into ICAO to address the issue of aircraft noise

and see whether we can come up with a new standard, a so-called

stage four standard.

The second thing is we have written to the U.S. Trade Representative, Ambassador Barshefsky, asking that they self-initiate

an investigation to determine whether or not the hush kit rule is

consistent with EU obligations under the relevant international

agreements. The Air Transport Association has made a similar request. The General Aviation Manufacturers Association is also preparing an identical request, and we would urge the Congress to

support us in their conversations with the Administration to open

such an investigation.

Mr. MANZULLO. Thank you.

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

Mr. MANZULLO. Mr. Weber.

STATEMENT OF STEPHEN WEBER, PRESIDENT, MARYLAND

FARM BUREAU, AMERICAN FARM BUREAU FEDERATION

Mr. WEBER. Good afternoon, Mr. Chairman and Members of the

Committee.

Mr. MANZULLO. Could you put the microphone directly in front

of you.

Mr. WEBER. Good afternoon, Mr. Chairman, Members of the

Committee. I am Stephen Weber, President of the Maryland Farm

40

Bureau, and a third generation food and vegetable grower from

Baltimore County. The American Farm Bureau represents more

than 4.8 million member families that produce every type of farm

commodity grown in America.

The European Union is the second largest market for U.S. agricultural exports, comprising 16 percent of U.S. agricultural export

trade. However, EU trade policies and agriculture support programs inhibit U.S. export growth and potential to this region. The

resignation of the European Commission and the uncertainty that

lingers as most of the commissioners serve in caretaker roles until

their replacements are named late this summer casts serious doubt

on resolution of several outstanding agricultural trade problems in

our bilateral trading relationship. Increased diplomatic efforts by

U.S. officials and Congress must be undertaken to ensure that EC

officials do not use disarray in their political system to delay

progress on important agricultural trade issues.

There are a number of significant trade problems in the U.S.–EU

agricultural trading relationship which I will touch on briefly. As

you know, the United States and European Union have been enrolled in a lengthy dispute regarding the European Union’s compliance with the WTO ruling on bananas and beef. Even though retaliation is now in effect on bananas, the EU officials continue to put

forth reform options that are not consistent with WTO trade rules.

The United States should adopt a carousel approach for retaliation

on bananas wherein the list of targeted EU products is rotated periodically to ensure that specific concessions are suspended for all

member countries.

Regarding the beef case, it is critically important that the Administration adhere to the timeline to retaliate against EU imports

for noncompliance of the WTO ruling on beef. According to that

timeline, the Administration has committed to suspension of concessions no later than mid-July, following a ruling by the arbitral

panel on damages. As with the banana case, the United States

should adopt a carousel retaliation approach with beef. Specifically,

the carousel list should target the largest EU member states as

first up for retaliation in this exercise.

The Administration and Congress should also be mindful that

the EU is likely to alter its already heavy subsidization of agricultural products to mitigate the effects of prohibitive duties to be levied on their agricultural imports in the United States. If this occurs, the prohibitive duty should be adjusted to eliminate the offsetting increase in subsidy levels by the EU.

One of the most contentious trade irritants in the U.S.–EU trading relationship is the EC approval process for genetically modified

organisms. Significant delays and a lack of transparency in the EC

regulatory approval process for GMOs had a substantial impact on

U.S. export of soybeans and corn to the EU.

The EU’s regulatory process for GMOs is a nontariff trade barrier that disregards scientific findings regarding the safety of bioengineered products. Moreover, EC regulations concerning labelling

of GMO products do not provide meaningful information to consumers who lack empirical and scientific basis for labelling and

lack procedures to ensure enforcement on a nondiscriminatory

basis.

41

U.S. negotiators should place the issue of biotechnology high on

the agenda of emerging issues to be addressed in the upcoming negotiations on agriculture in the WTO.

EU import trade policies and agricultural support programs have

significantly impacted the ability of U.S. agricultural producers to

export to the EU. Further reform of the EU’s agricultural support

policies, aggressive enforcement of EU implementation of WTO rulings, and international obligations of market access for bioengineered items are areas that should be addressed in order to foster

growth in U.S. agricultural exports to the EU.

Thank you for this opportunity to testify on behalf of U.S. agriculture.

Mr. MANZULLO. Thank you very much.

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

Mr. MANZULLO. Our next witness, Dr. Paula Stern, is President

of the Stern Group, an economic analysis and trade advisory firm

in Washington, formerly a chairwoman of the U.S. Trade Commission, International Trade Commission. She advises businesses on

trade issues. It is a pleasure to have you here this afternoon, Dr.

Stern.

Dr. STERN. Thank you very much. It is a privilege to be here. I

am mindful of the time and wish to request that my full statement

be entered in the record.

Mr. MANZULLO. All statements will be entered into the record.

Dr. STERN. Also to request while you are being so affirmative

that the statement that I prepared on the Transatlantic Business

dialogue, which staff of your Committee noted had not been made

part of any congressional record, be included as well.

Mr. MANZULLO. We shall do that.

[The information referred to appears in the appendix.]

STATEMENT OF Dr. PAULA STERN, PRESIDENT, THE STERN

GROUP

Dr. STERN. Thank you very much. My task today, I believe, is to

stand at 20,000 feet and look down on the U.S.–European partnership. I guess that is appropriate since that is how we won the war

in Kosovo. In the post-Kosovo conflagration, my view is that

debalkanizing the Balkans will be the most prominent project in

U.S. economic partnership with Europe.

There are, of course, important points that are being made by my

fellow panelists that deal with issues that have preoccupied our negotiators and our leaders in both Europe and the United States,

and I do not want to suggest that talking about the future in

Southeastern Europe minimizes the importance of some of the ongoing issues. However, I do believe that at the end of this war it

is an opportunity for us to crystallize our thinking, see where we

have been in the last 50 years.

After all, we have just had the NATO 50th anniversary here, and

really, I think that the last 80 days in Southeastern Europe have

given us an opportunity now to stand back and say, well, ‘‘where

are we going to go for the next 50 years and what is the nature

of the U.S.–EU partnership going forward? How do we expand and

extend some of the lessons that we have learned from the Marshall

42

Plan, for example, to apply them going forward to those countries

that had been behind the Iron Curtain for the last 50 years?’’

Today most people believe that the world is globalizing, not balkanizing, but in fact, our world is not as globalized as it had been

in the 19th century when trade flowed freely. Deterioration in the

Balkans, which ushered in the First World War, in effect balkanized the rest of Europe, and the wounds never healed. The Iron

Curtain added an ideological divide between the capitalist and

Communist world. The Curtain has gone now, but many of the divisions remain as the legacy of the 20th century balkanization.

Today our job is to break down those barriers to ethnic, national,

and regional cooperation to, in effect, debalkanize the world, including the Balkans itself.

Security partnerships, such as NATO; economic and political developments, such as the Stability Pact which was mentioned here

today, which is being planned for the region of Southeastern Europe; as well as cooperation in trade through the WTO, through bilateral negotiations, are all means to this end: to, in effect,

debalkanize. Guided by the wisdom of history, we can achieve these

needs by negotiating correctly, administering skillfully, and understanding some fundamental political truths.

The EU, as we had heard from Ambassadors Eizenstat and

Aaron today, are taking the lead now in establishing a Stability

Pact for the Balkans. The United States seems to be willing, at this

point, to see the EU take the lead, mindful of the fact that the U.S.

was responsible for the lion’s share of the military sorties and for

humanitarian aid up until now.

But certainly, the EU and the World Bank and others who are

going to be helping have their work cut out for them. What we

have learned from the Marshall Plan, I think, is really the most

important thing that I would like to bring to this Committee’s attention. I have developed at some length, points that I think are

worthy of further time and discussion. I am mindful that the clock

has already indicated that we have a yellow light here, but let me

just underline that the Marshall Plan was not about just giving

money.

There was a key point to the Marshall Plan and that was that

the recipients who received that money were required to cooperate

amongst themselves, and that is a critical matter. It relates to the

political processes which we will have to be pushing in these countries. Simply pushing money into these countries will not achieve

the goals that we have. It is clear that Europe—Western Europe—

at the end of World War II was in just as desperate straits, perhaps even more desperate straits, and experienced greater levels of

destruction than Southeastern Europe has today. In three short

years, the Marshall Plan played a major role in turning Western

Europe around to what in effect was an economic miracle.

Also, political institutions in Western Europe at that time were

not much better than they are in Southeastern Europe. The divisions between the countries were deep; Communist parties were

strong. Governments in all the countries were weak, and many

only stayed in power for a few months at a time. This economic and

political recovery in World War II was not necessarily preordained.

It took a lot of hard intellectual thinking in advance and a lot of

43

bargaining, and it took the participation of those countries and regions as well as the help from the U.S. coming from abroad.

The Marshall Plan is relevant today because it had this very key

point, and mindful that Chairman Gilman has just come in, let me

just underline that point, and that is that those who look at the

Marshall Plan tend to overlook this point, and it is that there are

important non-financial, self-help, multinational planning components which distinguish the Marshall Plan from other aid efforts

overseas which came later. These non-financial elements need to be

stressed because the Marshall Plan was not only or even principally a transfer of resources, it was a program which helped, indeed required Europe to mobilize its own resources.

Now, I would like to also just close and invite any questions, if

there are, about my comments that are in this testimony, as well

on the bilateral relationship between the U.S. and the EU, and

particularly the nature of the transatlantic economic partnership

which will be the subject of the EU-U.S. Summit that is coming up

at the end of this month. There is one area in particular, competition policy or antitrust policy, which has generated I think more

heat than light amongst our negotiators. As the Co-Chair of the Attorney General’s International Competition Policy Advisory Committee that is making recommendations to the Administration at

the end of this year regarding how to enhance collaboration and coordination of our anti-trust policies with that of the rest of the

world, it has become very clear to me that the U.S. and the EU

are in effect harmonizing and converging as we speak.

This is happening in the oversight of mergers area. It is happening in cooperation tackling hard-core cartels, and there are

other areas where there is much bureaucratic cooperation, but

there needs to be a complete review of how we will operate going

forward into the next 50 years.

So the competition policy piece is an area I would like to alert

you to because it has not been given a great deal of reveiw and

needs to be looked at as the U.S. and the EU plan for going to the

World Trade Organization talks in November.

I would also like to point out that there is a discussion in my

written testimony on Europe’s macroeconomic underachievement,

the fact that it has not been growing. In fact, this a flip side to the

question that the Chairman asked earlier today about the European-U.S. trade imbalance. That, too, is discussed in there. Finally,

I would like to underline the importance in all of this of the Transatlantic Business Dialogue, which has been a force over the last 4

or 5 years for making sure that pragmatic, business-like thinking

is helping to shape the thinking of our government negotiators as

they talk on all of these topics.

Mr. MANZULLO. Thank you, Dr. Stern. I look forward to reading

the totality of your testimony.

[The prepared statement of Dr. Stern appears in the appendix.]

Mr. MANZULLO. You said there are documents in addition to

what we have? There is something revised?

Dr. STERN. It is a manuscript written in November 1998 which

I know your staff has, and I will certainly make sure that the other

authorities have it.

Mr. MANZULLO. What is that entitled?

44

Dr. STERN. It is called, the Transatlantic Business Dialogue, A

Paradigm That Delivers.

Mr. MANZULLO. Appreciate that very much. Look forward to

reading that.

Dr. STERN. Thank you.

Mr. MANZULLO. Our next guest is J. Michael Farren, who is Vice

President of External Affairs for Xerox Corporation. Mr. Farren,

you are probably wondering why you are testifying last, and I had

people testify in the order that they came from the break. Otherwise, you would have been second.

STATEMENT OF MICHAEL FARREN, CORPORATE VICE

PRESIDENT FOR EXTERNAL AFFAIRS, XEROX CORPORATION

Mr. FARREN. All the better being last. Thank you, Mr. Chairman.

I have a statement which I will submit and try to summarize it in

my verbal comments. I am here, of course, in my capacity as the

U.S. Working Chair of the Transatlantic Business Dialogue, something that Paula Stern just referenced and has been involved in as

well for a number of years.

In that context, I would particularly like to note Chairman Gilman’s reference to the Transatlantic Legislative Dialogue. It is

something that the Business Dialogue hopes to be able to develop

a close working relationship with, and we think a great deal can

be accomplished on both sides of the Atlantic by using both as tools

to strengthen the relationship.

The Transatlantic Business Dialogue was established in 1995. Its

goal is to increase Transatlantic trade and investment and essentially to make sure that the governments don’t get in the way of

that sound investment. This year the TABD is chaired by Richard

Thoman, who is President, and Chief Executive Officer of Xerox

Corporation, and Jerome Monod, the Chairman of the supervisory

board of Suez Lyonnaise des Eaux.

We think 1999 is going to be a unique year for the TABD. It has

done a great deal of work over the last 4 years. We think some of

that can be particularly fruitful, given the fact that the World

Trade Organization has its ministerial coming up in Seattle in November. The Transatlantic Economic Partnership negotiations continue to move ahead, and frankly, the fact that there is a new European Parliament and new Commission coming in also makes it

timely to push some of these issues.

The Transatlantic trade relationship, as Chairman Gilman noted

in his opening statement, is the world’s largest economic partnership, and it is important to note from the point of view of the business community we see that partnership as strengthening. Certainly the high profile disputes such as bananas, beef, genetically

modified foods, which were discussed extensively during the course

of this morning’s hearing draws a lot of possibilities, but in trade

terms that really amounts to less than half a percent of the total

trade. So the vast majority of trade is, in fact, proceeding without

dispute and continuing to grow.

The TABD, we think in the last 4 years, has played a strong role

in that. We have played a role as an early warning system on disputes, and we think that we have made a real contribution on some

of the issues, in fact, that were discussed extensively this morning,

45

such as third generation wireless, the airplane hushkits, personal

data protection on electronic commerce.

On May 10, the TABD had its mid-year meeting. Over 200 industry and government participants came to Washington to really assess our priorities coming out of the Charlotte conference and also

look ahead to the Berlin conference this coming fall on what the

CEOs ought to be focusing on.

I would like to go through the five working groups and some of

the key issues that are being addressed. Regulatory and standards

is working group one. Specifically, the TABD has pressed both governments to implement a pilot project on the approval process for

biotechnology products, again to increase transparency, one of the

issues that was referenced by both Undersecretary Aaron and Undersecretary Eizenstat.

The issue of third generation wireless standards, again, it was

the TABD that served as the forum for the private sector agreement that led to what we think will be a long-term solution for

that. Aircraft hushkits: The TABD was one of the first forums

where that issue was raised.

Metric labelling: The TABD worked very closely with the European Commission to delay that directive for 10 years, and also, the

reforms of the 1990 Fastener Quality Act which was just passed by

Congress and signed by the President, I think as recently as last

week, which we think will resolve some of the Transatlantic issues

on fasteners.

Working group two is business facilitation. This year we are focusing on an international standard for accountancy procedures

and also customs coordination. We think standards for international accountancy is a critical issue that will have broad implications globally.

Working group three focuses on the World Trade Organization

and global issues. We are looking at the array of issues that will

come up at the ministerial in establishing priorities for the two

business communities that we hope will be pursued by the U.S.

Government and the Commission. Those include issues related to

services and intellectual property. We are also concerned with China’s accession of the WTO, and have strongly endorsed that. We

would also like to see the ministerial serve as a means of pushing

ahead on the information technology agreement part two. We also

see the ministerial as an opportunity to move ahead on something

that Paula Stern referenced, which is examining international competition policy more broadly, and its implications for world trade.

I would also like to see the WTO and the U.S. and the EU look

at dispute settlements, particularly and especially Undersecretary

Aaron’s reference to an early warning process.

Working group five is electronic commerce, and this is looking at

the overall framework on how electronic commerce will change the

nature of global markets and trade.

Finally, working group four is small- and medium-sized enterprises. Since 1995, we have tried very hard to make sure that

small- and medium-sized enterprises had a real voice in the Business Dialogue and also had a higher profile in policymaking with

both the U.S. Government and the Commission.

46

In conclusion, we think that the TABD has a unique role going

out in the future as part of an early warning system. We also think

that through the WTO ministerial and the TEP the business community can help set some of the priorities to deal with the critical

issues before they become a matter of Transatlantic dispute.

Thank you very much.

Mr. MANZULLO. Thank you.

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

Mr. MANZULLO. Mr. Cooksey.

Mr. COOKSEY. Thank you, Mr. Chairman. I have five questions,

and I will address the questions to each one of you.

Dr. Stern, my question to you is what specific steps can the U.S.

and EU put in place to increase transparency in the regulatory

process?

Mr. Farren, can early warning mechanisms be put in place to address emerging trade issues before they become full-blown crises?

Mr. Berry, how can Commission working groups and advisory

committees be modified or changed to permit greater transparency?

Mr. Robeson, what role can and should the Congress and the European Parliament play through Transatlantic Legislators’ Dialogue? You might contribute to that question, too, Mr. Weber.

So, Dr. Stern, what specific steps can the U.S. and the EU put

in place to increase transparency in the regulatory process?

Dr. STERN. I can see from your questions to several of us that

transparency is of concern to you. As you know from hearing the

testimony earlier today, the question of transparency, particularly

with regard to science-based or lack of science-based risk analyses

has been the most troublesome source of many of our disputes in

the last several years. You have heard that in the context of the

hormone-treated beef, you have heard it in the context of the

hushkits, and it is this question of how to measure risk with products and how to approve standards that will be acceptable.

We have to be mindful of the fact that Europe has a different

regulatory process than does the United States. But there has been

a lot of experience that the U.S. has had, particularly with regard

to the FDA, which has given confidence to the American consumer.

That same type of science-based approach and vetting that provides opportunity for all interested parties to be heard also is undertaken at the Department of Agriculture.

So I think that transparency is simply a means to enhance a political buy-in of the consuming public for any one product, agricultural or industrial. I don’t pretend to be able to say what type of

hearing process will make the most sense in the European context,

simply because bureaucratically it is different from ours.

Mr. COOKSEY. Well, I agree with you about using scientific methods. I am a physician and was trained in the scientific method, and

we have got groups in this country, trial lawyers for example, who

throw scientific process or method to the wind, and we have certain

regulatory agencies that do the same thing. It is a problem, and I

agree, but that would certainly be a step, if we get the Europeans

to do it and got everyone in this country to do it we would be better

off. So maybe that is part of the solution.

47

Mr. Farren, can early warning mechanisms be put in place to address emerging trade issues before they become full-blown crises?

This is the Doppler system we referred to in the early testimony.

Mr. FARREN. I think it is definitely well worth the effort to have,

on both sides of the Atlantic, government officials trying to get actively engaged in issues before they become a matter of controversy. I think, to a degree, the Business Dialogue already provides a private sector analog to which can—what can be done

which is regular meetings, full engagement of the stake holders,

and public policy issues and the ability to raise them to the highest

levels at an earlier stage than they would normally bubble up, relying on the traditional process in place.

I think there are a couple of problems that were referenced this

morning. One is that individual DGs within the European Commission do tend to act independently, have their own individual constituencies, their own regulatory authority, and they don’t necessarily come together with a broader, more holistic view of what

impacts they will be having transatlantically.

The Parliament also has procedures that tend to push things out

without adequate hearings. I think the change in the Parliament,

the change in the Commission may make things happen in Europe

a little bit differently.

I think generally there is inadequate consultation on many of the

public policy initiatives to the extent that the private sector can get

engaged in that, and there is more Transatlantic discussion that

will be helpful. I think another problem which is one of the reasons

why the European Commission was so interested in developing the

Business Dialogue, constituencies within Europe and European

constituencies are really inadequately developed. They still tend to

take a nationalistic approach.

Mr. COOKSEY. By constituencies you mean, for example, manufacturers across the EU or farmers across the EU or——

Mr. FARREN. I think farmers, the CAP may have brought them

together more effectively. I will let me colleagues speak to that, but

certainly the business constituencies. I was Undersecretary for

Trade during the Bush Administration and it was very difficult,

and I knew from my colleagues on the European side, it was very

difficult for them to come up with a non-nationalistic approach to

particular issues because they tended to hear from business—from

the perspective of German business, French business, UK business,

not European business-at-large, and I think that was one of their

motivations in looking favorably on the Transatlantic Business Dialogue. It helped get their own side of the issue organized.

Mr. COOKSEY. Do you feel that business-to-business, EU businesses as to American businesses, could move through this process

more expeditiously, for example, than politicians?

Mr. FARREN. Depending on what your definition of politicians is.

As policymakers, I think the business community can be very effective at raising concerns with particular issues to a higher level

than they would normally get. Many of the issues we have talked

about over the course of this hearing were known at lower levels,

and in a Commerce Department parlance an office manager undoubtedly would have been very involved in some of these issues,

perhaps months or years ago.

48

It takes an awful long time for it to get to the undersecretary or

minister level, and I think the business community, through the

Business Dialogue, has helped do that because we have ministerlevel participation, and they hear about issues much more directly

from constituencies that have a vital interest in seeing them corrected before they become a matter of dispute.

Mr. COOKSEY. Thank you. Mr. Berry.

Mr. BERRY. Thank you. Mike touched a little bit on this, but you

know, there are some dramatic changes going on in Europe, and I

think we can expect some improvements in transparency as a result. If you followed what Mr. Proti is doing in terms of selecting

and organizing a new Commission, he has authority to do this

which is new under the Treaty of Amsterdam, which became effective the first of May. He is not only making sure that he organizes

this group as a team, he will have someone within his office who

will basically coordinate activities among the members of the Commission which will be a new thing and which I think will work or

mitigate against the kind of secrecy and competition which characterized some of the activities within the Commission before.

The other thing that is significant is under the Treaty of Amsterdam the Parliament is given new powers, so they are not a rubber

stamp exclusively, they cannot initiate legislation but they can

amend legislation. They can veto legislation. So you can imagine

that there will be a lot more give and take and a lot more discussion about policies as they advance.

Not just that, but something that Mike was saying which is not

as strictly institutional is that in the business arena you have seen

movements. The way business groups were organized is they were

organizations of organizations, so frequently you did not have direct input from specific companies. It was filtered through national

organizations, and if you look at something like the electronic commerce area or the third generation wireless, is that these organizations are transforming so you don’t just have delegates from organizations within the member states but you now have direct participation, and I think that is going to affect the transparency a lot

and put issues on the table in a way that they directly represent

interests and the specific things that are involved in a decision.

Mr. COOKSEY. Quite frankly, I feel that as we move into this—

and we are there—but as we move very rapidly into this era of

globalization and information technology, the countries and the

companies that fail to make those moves in an expeditious manner

are going to cease to be players, much less stakeholders, and so if

they’re not dragged into the 21st century, they will cease to be factors in this.

Mr. BERRY. This process has been underway for some time. One

of the first major things that happened in the Transatlantic Business Dialogue was the information technology agreement which

was strongly supported by businesses in Europe and in the U.S.,

and after this happened, the European Commission said, well, oh

no, oh, there are lots of businesses that object to it, and in fact,

there weren’t, so we had to tell the Commissioner, one of the people

who was involved in this, that essentially this was not a business

issue.

49

It was a revenue issue. They didn’t want to change these tariffs

because of the revenue they would lose, and that is really what it

was, and that is how the business community regarded it. So these

things change just because of more communication and more direct

participation.

Mr. COOKSEY. It is really the politicians that were lagging, it

sounds like.

Mr. Robeson, Mr. Weber, my question, what role can and should

Congress and the European Parliament play through the Transatlantic Legislators’ Dialogue?

Mr. ROBESON. That is a pretty good question. I just came back

from a week in Rome meeting with European and U.S. aviation

regulators, and I came to the conclusion that travel is what we do

when we go abroad in order to gain a deeper misunderstanding of

someone’s culture.

What brings that to mind is a discussion in the hush kit context

after the Congress got a little excited and drafted and passed a proposal to ban the Concorde with over 400 votes in the House. One

of our European interlocutors from one of the EU member countries called AIA’s president John Douglass up and said how in the

world—what are you thinking of to get that kind of response pulled

up. Mr. Douglass said that if you think that I have the power to

get 400 people on the Hill to vote one way, then I need to have my

salary doubled and my staff expanded.

So the point is that anything that you and the EU Parliament

can do to get together to improve the understanding of the legislative cultures would be a tremendous help. The Europeans on their

part are irritated at us with the Fastener Quality Act. It was very

important to get those changes made. There is a kind of two-way

street here of what is affecting people, so that is important.

But the key, the real key, is also the transparency. It is critical.

You know, one of the problems with the early warning system is

this, when I see something that has hushkits emblazoned on it, I

know right away that it affects my constituents. When I see something that says metric labelling or I see something that says electromagnetic compatibility or disposal of electronic waste, you know,

the people I am relying on to tell me that is out there and could

affect my constituents, they don’t see airplane stamped on it. They

see, you know, radios, and so there has to be some way to identify

all of these issues just as the fasteners affected the aerospace industry, and frankly when it was first passed, shame on us because

we didn’t pay enough attention ourselves.

So a key element in assisting you will be for us to work together

also with our legislators, to let you know what we are finding out

so that you can put that in your database and get calibrated a little

bit when you talk to the Europeans.

Mr. COOKSEY. I am leaving in two weeks to participate in one of

these dialogues. I agree with you, and I think it needs to be done.

Mr. Weber, did you want to add to that?

Mr. WEBER. Of course, we support efforts——

Mr. MANZULLO. Mr. Weber, if you could put the microphone closer to you.

Mr. WEBER. Certainly. We support efforts to increase communication on bilateral trade issues. The culture thing that was menVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
50

tioned this morning, we have a culture here in this country, too,

with our farmers. I guess I am reminded of a visit I had last year

from a Swiss medical student. He was interning at Johns Hopkins.

He came into our—we are Weber’s Farm and he was there at

Weber and he wanted to take—we have little Weber’s Farm shirts,

and he wanted to send home a shirt to his dad who operated a 14

acre, 7 cow dairy farm in the Swiss Alps, totally subsidized, of

course, and there is this huge cultural difference here.

We have a culture here, too, and, of course, ours is to move to

free markets, a market-oriented economy. It has been very, very

painful, American agriculture, as you know. So there is this tremendous culture gap between what we are trying to do and what

they are trying to do.

I would note that on the Transatlantic Economic Partnership, agriculture was really not involved in any meaningful way. There was

no dialogue established on agricultural trade issues. The TEP attempts to address agricultural problems, seting up minimal provisions to look at food safety and biotech issues. Neither are expected

to resolve our complex problems. In fact, the biotech project for approvals has not been implemented, and the EU has stopped biotech

approvals all together.

We would hope that Congress and the Administration would review the TEP with a view to establishing an agricultural dialogue

or placing agricultural reps on existing dialogues and pressuring

the EU to implement the biotech approval pilot project.

Thank you.

Mr. COOKSEY. Thank you. Your testimony is quite good, and Dr.

Stern, I am looking forward to reading your document. Are you a

professor or former professor?

Mr. MANZULLO. A former trial lawyer.

Dr. STERN. No, I am not a lawyer. I have a Ph.D. in international

relations, and I do occupy a university chair in international business. So I like to combine business issues with public policy. Perhaps my comments also reflect a certain academic bent, too.

Mr. COOKSEY. I am still a clinical professor and enjoy the academic part of it, but this has been a great discussion. I have to run

to another meeting.

Dr. STERN. Thank you.

Mr. MANZULLO. Thank you, Doctor. I have just an observation,

and then a couple of questions. Let me make a statement that perhaps some of you may disagree with. One of you will agree wholeheartedly.

The group of electorate who is the most informed on international trade are farmers. I have a background in cattle myself,

not a big operation, but I did that for years when I practiced trial

law, Doctor, in northern Illinois. If you would just take a look at

any of the weekly farm journals that come out, half of it, if not

more, deals with international trade. It is written in such a fashion

with charts and colors, lots of white space, so that many farmers

who did not have the opportunity to earn a college degree, as you

did Mr. Weber, can read this to understand fully the intricacies of

international trade. The Farm Bureau has done an exemplary job

of educating its members.

51

I have never seen such a group of people who have a grasp of

what is a very complicated issue. The reason the Farm Bureau has

succeeded is the same reason that most corporations have failed

miserably. Most corporations in this country, with a few exceptions,

have not shown the link between job retention and international

trade. Their goal is to come to Washington to hire lobbyists to influence Members of Congress about trade issues, and it is not

working. It is going in the opposite direction.

My suggestion is to copy, for example, what some of the companies like J.I. Case and Caterpillar are doing. Case just put out a

little tool kit with a video and charts to each of its employees showing the absolute necessity for Fast Track. If we are to get Fast

Track through, if we are to get China’s accession to the WTO, it

has got to come from the employees and not from the CEOs. It is

an observation, but it is a valid one. I have every right to make

that because I am a Member of Congress, and I am also one of the

most ardent free traders. The business community has failed miserably. Now, how do you turn that around?

When I was first elected back in 1992 some sage said if you are

in favor of NAFTA vote for it very quietly and say nothing. I became very upset with that because Members of Congress have an

obligation to formulate public policy. We went back to the airport

in Rockford, Illinois, which had just opened a huge hangar, and

brought in about 25 companies which would benefit directly as a

result of the North American Free Trade Agreement. It was headlines in the major newspaper, there were color pictures, and when

people could actually see the products that they made were the

beneficiaries of a decrease in tariffs they changed their mind about

international trade.

To exacerbate the problem are some of the restrictions that are

proposed in the Cox Report. Chris Cox is a dear friend of mine. But

I had breakfast this morning with Anson Chan, who is the head

of the civil service in Hong Kong, and she gave her version as to

what would happen if Hong Kong were placed as a Tier III country

along with mainland China, and the absolute total devastation that

would have on the exports of our computers.

So I am not very optimistic with this Congress or any Congress

in the future. We have had several situations where we have been

involved in helping our companies achieve at least equal treatment

overseas only to have the labor unions come out against us in order

to beat us over the head. Over the past 61⁄2 years, I am so totally

frustrated.

A good example was a colleague of mine, and the CEO of a company came into his office to lobby for Fast Track. That company

has over 20,000 employees who are constituents in this Member’s

district. The Member told the CEO that if you can’t convince your

own employees that their jobs depend upon enhanced international

trade, then how can you convince me when you are not even my

constituent?

So I just want to just throw that out because I know companies

are doing all kinds of things, but I would just urge you to take the

lead that the Farm Bureau has made on it. Illinois, 47 percent of

our raw fibers and unprocessed grain are exported. This is immense. That is half of the farming economy. The congressional disVerDate 11-SEP-98 10:43 May 01, 2000 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 61707.TXT HINTREL1 PsN: HINTREL1
52

trict that I represent, which runs from the Mississippi River across

the top of the State of Illinois, we have the No. 1 dairy county, the

No. 1 cattle-producing county. We have a Hormel plant that ships

two containers every other week of boned pork to Japan, a direct

beneficiary of the General Agreement on Trades and Tariffs Agreement. What we try to do in our congressional district is to microeconomize everything.

I don’t believe in macroeconomics. I just don’t listen to people

who believe in macroeconomics, because until it impacts me and

the people I represent, I am not interested in it. Every other Member of Congress is the same. Until it impacts your industry, you are

not interested in something.

So I didn’t mean this to be any type of a lecture, but the frustration level is very intense. In fact, I am missing a meeting now on

whipping Members as to where they stand on normal trade status

with China. Be that as it may, I just want to let you know that

there are resources available, and Dr. Stern, you probably know

this better than anybody, through the Department of Commerce

and the various international trade agencies where you can take a

particular sector of the country and find out the extent of the exports to do a microanalysis.

In fact, I have urged Washington representatives so many times

that I am blue in the face, if you want to convince Members of Congress as to the importance of these international agreements, simply do a microanalysis of each congressional district, and then you

go back home and you talk to the people and you say, look, this

is extremely important.

You had a comment on that, Dr. Stern?

Dr. STERN. Yes. My experience with just this last point is that

during the Uruguay Round discussions or even prior when we were

trying to see the final stages of the multilateral trade negotiations,

I did an assignment where we gathered data which was not being

gathered at the Department of Commerce, or anywhere in the Administration at that time on a state-by-state basis, of each state’s

leading exports. That was back in the late 1980’s, but now that

data is on tap at the Department of Commerce. It is extremely important. As you know, it was used in the NAFTA debate and was

also generated in the debate on the final Uruguay Round legislation that launched the WTO.

I appreciate your frustrations. I completely agree with you that

the agriculture sector has traditionally been in the lead pushing

open markets overseas through multilateral trade negotiations. If

you go back and look at the history going back to the Kennedy

Round, no president has been given congressional authority to negotiate without the very firm leadership of agriculture. That has

been a very key thing.

Labor had, in the past, also been a supporter of multilateral

trade negotiations liberalization. That shifted and it consequently

makes, I am sure, many of the bigger business CEO’s who may

come and visit you, still of their workers who benefit, as you said,

either by producing goods exported overseas or just by being more

efficient in producing in the U.S. by virtue of the fact that they are

importing components which may be useful in enhancing their efficiency.

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The question of how you convince the country that trade is good

is, yes, tied to jobs, but I think overall, given the fact that we have

become such a major exporter and importer in this country and

that we need markets open at home, as well as overseas, to enhance world trade and enhance economic growth, that we have to

make the standard of living argument.

We have to say, look, this is better for you both as a producer

of goods, be they industrial or agricultural, but it makes it better

for you as a consumer and for the livelihood of your family, that

you do have this trade, that you do have these products, that it is

keeping prices down, that we don’t have inflation in this economy,

and quite frankly, we couldn’t be growing as fast as we are right

now if we didn’t have imports coming in. We would have an inflationary pressure.

I know you don’t want to talk about macroeconomics as you said,

but this is a macroeconomic phenomenon. To be able to grow at

four percent and to be having unemployment rates as low as we

are without pushing up against inflation, is because we have got

imports coming in that are helping to keep prices down. That is a

trade argument, but it is a macroeconomic argument, too.

Mr. MANZULLO. Did anyone else want to comment? Mr. Robeson?

Mr. ROBESON. Yes. It is a pretty interesting observation, and if

you look at our industry you can see how complex it gets pretty

quickly.

We in the civil side of our business, including space and whatnot,

we rely on exports for about two-thirds of our sales. So we not only

like access to foreign markets; without them, our overheads would

be so high we couldn’t survive. So when we are dealing with our

unions, you know, they are in the Boeing plant and they see Malaysia or whomever they see on the tail of that airplane, you don’t

need a degree in rocket science to know where that bird is going,

but the people who don’t see it are the suppliers. The small- and

medium-sized enterprises, all they know is they ship to Boeing and

they don’t know where that thing is going. It ultimately gets exported, but they don’t see it. So one question is how you get down

to all of these enormous supplier bases and explain to them the importance of open markets to their livelihood.

The other issue is dealing with the large unions. If you take a

look at hushkits, for example, we have the IAM and the UAW on

board with us because they understand how important it is to a

number of their locals, and they are writing to the Administration

with the same positions we have.

But a contrary phenomena is in the case of foreign repair stations where we are at polar opposites with the IAM on that issue.

Now, we think that they are not only wrong as a matter of public

policy, but they are also wrong in terms of what it will do to their

constituents. So the question is why are they taking that position.

Do they really believe substantively they are right, or is there a political agenda, or what is going on? So dealing with our employees

from a company point of view is a very complicated issue, but you

are right. That is where—you know, when you get a letter or correspondence from everybody at the plant up in East Hartford or

something, Mr. Gejdenson will sit up and say, ‘‘whoa, this matters’’,

and we as an industry are working that issue. We are identifying

54

where all the plants are of our membership. We are putting together a macro picture of that, which then goes right down to the

microlevel, and we can go into an office of a Congressman and say

there is the plant there, here is what the effect on jobs is going to

be, and we can tell you why we are taking the positions we are taking on these kinds of issues.

Mr. MANZULLO. There are companies such as Caterpillar that

identified their subcontractors. I know they have been working to

identify the subs. A lot of their subcontractors have no idea where

their products are going, absolutely no idea whatsoever. We try to

stay in contact. We have about 300 exporters that we have identified in our congressional district out of about 1,600 manufacturing

facilities of one size or the other, and it is a very long process. In

fact, the little guys are the ones that think they are being hurt

most by imports to this country when, in fact, they need to realize,

through a process of education, that they are the beneficiaries.

Mr. Farren, did you have any comment to the statement that I

had made?

Mr. FARREN. I think the problem goes beyond the willingness or

capacity of business particularly big business to educate their work

force. I think the point you just made on the subs is absolutely on

target. There is also a reason why agriculture tends to have a

greater sensitivity to exports, and that is because the U.S. Government for decades has done an awful lot to increase their awareness

sensitivity, and, frankly, getting all range of farmers engaged in export, the U.S. has never had a similar program, particularly with

small- and medium-sized firms. I mean, you can point to them, but

their scale is just totally different.

When I was Undersecretary of Commerce, our commercial operation, for example in Tokyo,—and this was at the height of the

U.S.-Japan trade issues and also back at the time when automotive, high tech was under enormous pressure, there was a push

to export, we were pressing the Japanese to open up their markets—our entire export program in Japan was funded to the tune

of $6 million. The agricultural program for export in Japan—this

is a country that in large measure was closed to agricultural imports up until that period of time. The Agriculture Department

spent $60 million. The assistance to processed food products exceeded the entire amount, and I am not talking about subsidies. I

am just talking about putting on information, doing trade analysis,

helping people come into a country and actually finding someone

to deal with, just basically commercial activity.

The level of support to food processors was greater than all industrial products. So we are now reaping essentially what we have

invested in for decades in the sense of heightening an awareness

on trade within the industrial community, and I agree, it goes back

to suppliers and employers. It also goes to business leaders to get

out there and carry the message, but also to public policymakers.

This morning, in fact, I was at a meeting with Chairman Gilman

where a group of high tech firms came in and briefed a small number of Congressman on the current status of the high-tech industry

in the U.S. and how it has changed, and in fact, a report was just

released.

55

We provided everyone with a copy. I will use the State of Illinois

as an example. We are trying to get out the word, which is little

known I think even within the business community, that, for example, the State of Illinois is the No. 3 State in terms of high-tech

exports——

Mr. MANZULLO. Do you have extra report?

Mr. FARREN.—Of $16 million, and 50 percent of all the exports

out of Illinois are high-tech products, but a total of $16 billion, with

207,000 people employed in Illinois.

Mr. FARREN. We absolutely have to get the message out. I think

there is plenty of explanation to go around beyond the business

community, to business, to Government, to how we have invested,

how we have got accountants and lawyers. If you are a small business firm, just as an example, and you are trying to export to a

foreign country, try to find a local lawyer in a small town who really has any sophistication or expertise, try to get a bank that can

really help you do it.

We have never generated the infrastructure that other countries

have. Germany, Austria, any number of European countries made

enormous effort to get small- and medium-sized firms engaged, and

that gave them an awareness of exports that the U.S. never developed, and we are now paying the consequences for it.

Mr. MANZULLO. I just introduced a bill that would reauthorize

the ITA, TDA, and OPIC with an increase in the budget. I usually

vote against anything that has an increase in it, but look at the

fact that the French will spend six to seven times that amount. In

fact, my Small Business Export Subcommittee held a hearing 4

weeks ago dealing with reauthorization of OPIC. A lady testified

from outside of Madison, Wisconsin who is the CEO of a firm that

makes little boats which have weed-eating machines on the end

and they put them in the lagoons and lakes. They are extremely

efficient because in many areas of the world the ecosystems are so

fragile that you can’t introduce any chemicals.

Well, a Canadian firm found out that she was in the process of

trying to tie up some sales in Thailand, so the Government of Canada gave a weed-eating boat to the King of Thailand as a gift, just

like that. They probably bought it from the company, just said here

is a gift, see if you like it, we can give you a deal on as many more

as you want. That really brings into stark reality the problems that

we have with export promotion in this country.

Mr. Berry, do you have a comment? Then I had a question I

wanted to ask all of you on what I had said. If not, I can move into

the question.

Mr. BERRY. I agree with you on the fact that there is not enough

understanding, and particularly about jobs. When I started this

job, just on the bilateral relationship, there was no information

whatsoever on Europe. So we have a book that we put out every

year which shows how many jobs in each State are dependent either upon exports to Europe—and Europe is, in most States, the

No. 1 or No. 2 export market—and then we show all of the categories, the sectors, or on the investment, direct investment from

Europe. So it is enormously important, but it is something that

people don’t appreciate.

56

Mr. MANZULLO. I was over in Florence about 6 weeks ago with

the Transatlantic Policy Network, TPN, and was talking to an MP

from Germany about the beef hormone issue. He said, you know,

as far as he was concerned it really didn’t make that much difference, but the people in Europe are so dead set against U.S. beef

that has the growth hormone plug. He said this issue is absolute

total political fire.

I notice the vote in today’s paper. The socialists lost control of

the European Union to the Christian Democrats in very light turnout. The Christian Democrat Party, the EPP, emerged as the largest single group of representatives and said the heaviest Socialist

losses were registered in the UK, where the ruling Labor Party lost

half its 60 seats despite polls indicating that as many as 70 percent

of British voters support the national administration led by Prime

Minister Tony Blair.

Labor Minister Margaret Beck, who had appointed Blair to run

the party’s Euro-election campaign, blamed the low turnout on public perceptions that the EU is too remote from their everyday concerns and, quote, Europe must be reformed to make it more relevant to its people, end of quote, she declared. Sort of the thought

that many Americans have to export and the small person manufacturing has to export.

I would like anybody who wants to give his or her opinion as to

whether or not you think the change from the Socialist to the EPP

in the European Parliament is going to have any significance.

Mr. BERRY. In terms of policy, I am not exactly sure what the

significance is going to be. I know the EPP, I think has probably

2—about 240 seats. That is what I heard last night. The Socialists

are down to about 180 from about 216. But within the Conservative

or the Right group that now holds power there are a lot of divisions, and it isn’t clear that there is any programmatic consensus

among those people. So we will see where it has to go from, you

know—I mean, what kinds of consensus they can develop on these

policies.

Mr. MANZULLO. Dr. Stern, did you have a comment on that?

Dr. STERN. Only that the Parliament, of course, is increasing in

influence, but their influence relative to the other government apparatus is not equivalent to that which Congress is equipped—

equal check and balance—with the executive branch and the judiciary. Over there I think you still have a situation where the European Commission will be dominant and——

Mr. MANZULLO. Except now the European Parliament appoints

the European Commission.

Dr. STERN. That has certainly proved to have been a very powerful affect. However, we still have the same Commission sitting

there as we speak and it will probably be there until next fall at

the earliest.

Mr. MANZULLO. We met with Proti.

Dr. STERN. Yes.

Mr. MANZULLO. Apparently he is a breath of fresh air to the entire process over there. Anybody else want to comment on that

change in European Parliament?

Mr. BERRY. One other thing about the Parliament is that they

didn’t spend any money on the elections. So there wasn’t—at least

57

in the UK—I mean, there wasn’t very much resources really put

in, and apparently the new way they had this list and that also——

Mr. MANZULLO. Proportional voting in England?

Mr. BERRY. Yes. That also tended to discourage turnout because

people didn’t have any particular candidate they could promote,

they had to promote, and it was linked to a whole list.

Mr. MANZULLO. We want to thank you for coming this morning

and making it all through the afternoon. If there are any additional

comments that you want to make the record will remain open for

a week, and again, thank you for coming here and sharing you

thoughts and views with us.

This meeting is adjourned.

[Whereupon, at 1:50 p.m., the Committee was adjourned.]

(59)

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JUNE 15, 1999

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