```

[Senate Hearing 112-607]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-607

DOING BUSINESS IN LATIN AMERICA: POSITIVE TRENDS BUT SERIOUS CHALLENGES

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

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON WESTERN HEMISPHERE, PEACE
                  CORPS, AND GLOBAL NARCOTICS AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 31, 2012

                               __________

       Printed for the use of the Committee on Foreign Relations

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      Available via the World Wide Web: http://www.gpo.gov/fdsys/

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76-694 PDF                WASHINGTON : 2012
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                COMMITTEE ON FOREIGN RELATIONS          

             JOHN F. KERRY, Massachusetts, Chairman        
BARBARA BOXER, California            RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   MARCO RUBIO, Florida
JIM WEBB, Virginia                   JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire        JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware       JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois          JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico                MIKE LEE, Utah
               William C. Danvers, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                         ------------          

          SUBCOMMITTEE ON WESTERN HEMISPHERE, PEACE          
             CORPS, AND GLOBAL NARCOTICS AFFAIRS          

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            MARCO RUBIO, Florida
JIM WEBB, Virginia                   MIKE LEE, Utah
JEANNE SHAHEEN, New Hampshire        JIM DeMINT, South Carolina
TOM UDALL, New Mexico                JOHNNY ISAKSON, Georgia
                                     JOHN BARRASSO, Wyoming

                             (ii)          

                            C O N T E N T S

                              ----------                              
                                                                   Page

Bond, Jodi Hanson, vice president, Americas, U.S. Chamber of 
  Commerce, Washington, DC.......................................    22
    Prepared statement...........................................    23
Farnsworth, Eric, vice president, Council of the Americas, 
  Washington, DC.................................................    28
    Prepared statement...........................................    30
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening 
  statement......................................................     1
Rubio, Hon. Marco, U.S. Senator from Florida, opening statement..     3
Rooney, Matthew, Deputy Assistant Secretary for Economic Affairs, 
  Western Hemisphere Burea, U.S. Department of State, Washington, 
  DC.............................................................     9
    Prepared statement...........................................    11
    Responses to questions submitted for the record by Senator 
      Robert Menendez............................................    45
    Responses to questions submitted for the record by Senator 
      Marco Rubio................................................    49
Sanchez, Hon. Francisco, Under Secretary for International Trade, 
  U.S. Department of Commerce, Washington, DC....................     5
    Prepared statement...........................................     6
    Responses to questions submitted for the record by Senator 
      Jeanne Shaheen.............................................    47
    Responses to questions submitted for the record by Senator 
      Robert Menendez............................................    48

              Additional Material Submitted for the Record

Letter from Senator Richard G. Lugar to Ambassador Ron Kirk, U.S. 
  Trade Representative...........................................     3
Prepared statement of Chevron Corp. submitted by Edward B. Scott, 
  vice president and general council, Chevron Upstream and Gas...    37
Prepared statement of the Emergency Committee for American Trade 
  (ECAT).........................................................    41

                                 (iii)

  

 
DOING BUSINESS IN LATIN AMERICA: POSITIVE TRENDS BUT SERIOUS CHALLENGES

                              ----------                              

                         TUESDAY, JULY 31, 2012

                           U.S. Senate,    
        Subcommittee on Western Hemisphere,
          Peace Corps and Global Narcotics Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Robert 
Menendez (chairman of the subcommittee) presiding.
    Present: Senators Menendez and Rubio.

          OPENING STATEMENT OF HON. ROBERT MENENDEZ, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Menendez. Good afternoon. This hearing of the 
Western Hemisphere Subcommittee will come to order.
    Welcome to our hearing on the positive trends and serious 
challenges of doing business in Latin America. Our goal today 
is to examine ways that the U.S. Government can help promote 
American businesses and trade opportunities in the region, 
while also considering the challenges, including the impact of 
a growing Chinese foothold in the hemisphere, trade barriers to 
market access, and the impact of weak institutions and 
marginally democratic governments in some countries, on 
American investments.
    It is my view that we have, obviously, been necessarily 
distracted by events in the Middle East and around the world 
and simply have not had enough emphasis on Latin America. But 
it is also my view that we ignore our own hemispheric 
neighborhood at our own peril. While most countries in Latin 
America have escaped the worst of today's global downturn, 
there are too many troubling signs in the hemisphere to ignore. 
Our Government has to aggressively engage in the region. 
Working with the private sector, it must leverage all available 
opportunities to increase trade, promote American companies, 
and create jobs in New Jersey, in Florida, and throughout the 
hemisphere.
    During the last decade, changing economic policies, 
globalization, energy discoveries, and myriad other factors in 
Latin America have given rise to promising regional economies 
with robust exports and an expanding middle class. Not only has 
trade between the United States and Latin America expanded 46 
percent since 2009, but there are other positive trends like 
relative political stability and mostly open international 
trade policies in the region that American companies should 
take advantage of in the near- to mid-term.
    Elected civilian governments encourage foreign investment 
and foster economic growth. Brazil, Colombia, Chile, and Peru, 
for example, enjoy stable democracies favoring foreign capital 
and investment. With 56 million Latin American households 
joining a rapidly growing middle class over the last decade, 
consumers in these countries enjoy greater buying power and 
discretionary spending than ever before, and that is an 
opportunity for American industry.
    And yet, as positive as these developments are, the region 
is not immune to the debilitating effects of a global 
recession. The International Monetary Fund recently lowered its 
economic growth forecast for Latin America and the Caribbean to 
3.7 percent this year, down from 4.5 percent in 2011. A greater 
and unfortunately renewed concern is the weakening of 
democracies in the hemisphere by leaders who use their elected 
offices to grow their power by weakening democratic 
institutions, civil society, the rule of law, and independent 
media. Investors who fear instability are reluctant to place 
their trust and their resources in countries like Venezuela, 
Nicaragua, Bolivia, and Ecuador.
    The ongoing constitutional crisis in El Salvador provides 
an example of the market responding to political instability. 
Last week, Fitch Ratings downgraded its economic outlook for 
the country from stable to negative.
    And in Argentina, the government imposition of 1980s-style 
rules to limit market access, failure to pay past debts, and 
nationalization of assets without compensation has shocked 
investors. It will almost certainly take many years for that 
country to recoup the loss of market confidence resulting from 
these policies.
    Looking at the broader geopolitical picture, China has 
taken note of the positive economic and political trends in the 
region and has seized the opportunity to find a foothold in the 
region while our primary attention has been on events in other 
regions around the world. Since 2000, China has made 
significant diplomatic and economic inroads in Latin America. 
Overall, Sino-Latin American trade has increased from $12 
billion in 2000 to over $140 billion today, with China 
supplanting the United States as Brazil and Argentina's largest 
trade partner. The truth is that deals offered by China are 
often too good to pass up. In addition to offering 
unprecedented loan terms and investments, China's mercantilist 
policies are not conditioned on labor or environmental 
conditions, making them in many cases a more attractive partner 
than Western investors.
    And that brings us to the purpose of this hearing. We are 
here to examine existing and future opportunities for American 
companies in Latin America. We are here to consider 
opportunities for the U.S. Government to promote American 
business and trade in the Western Hemisphere, and we are here 
with some of the leading experts on Latin American business and 
trade to help put both the positive trends and the challenges 
we face in the region in clear perspective so that we can move 
toward policies that maximize the positive trends and mitigate 
the challenges.
    So I want to thank all of our panelists for being here, and 
let me turn to my distinguished colleague, the ranking member, 
Senator Rubio, for his opening statement.

                STATEMENT OF HON. MARCO RUBIO, 
                   U.S. SENATOR FROM FLORIDA

    Senator Rubio. Thank you. Mr. Chairman, thanks for holding 
this important hearing as well.
    Just a couple housekeeping items. First, I would ask for 
unanimous consent that this letter by Senator Lugar be entered 
into the record. It regards to the Government of Ecuador's 
mischaracterization of a June 29 United States Trade 
Representative's report on the operation of the Andean Trade 
Promotion and Drug Eradication Act.
    Senator Menendez. Without objection, so included.
    [The letter of Senator Lugar follows:]

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                     Washington, DC, July 18, 2012.
Ambassador Ron Kirk,
U.S. Trade Representative,
Executive Office of the President,
Washington, DC.
    Dear Ambassador Kirk: I am writing to express my concerns regarding 
the government of Ecuador's mischaracterization of a June 29th United 
States Trade Representative's (USTR) report on the operation of the 
Andean Trade Promotion Drug Eradication Act (ATPDEA). In order to 
maintain their eligibility for U.S. Trade Preferences, the Ecuadoran 
government is alleging that the USTR report supports Ecuador's refusal 
to comply with court orders issued by an international arbitral 
tribunal regarding a ruling that specifies that the Ecuadoran 
government was wrong to accuse Chevron of being responsible for 
environmental and social harms in the Oriente region of Ecuador, when 
in fact the USTR report states the opposite.
    According to reports, Ecuador has violated several orders and 
awards issued by an international arbitral tribunal, convened under the 
United States-Ecuador Bilateral Investment Treaty (BIT) to consider 
false claims made against Ecuador. The most recent violation was 
regarding a court award dated February 16, 2012. This award is binding 
against Ecuador.
    To become designated as a beneficiary country, Ecuador had to meet 
various Andean Trade Preferences Act (ATPA) statutory criteria, 
including not failing to ``act in good faith in recognizing as binding 
and enforcing arbitral awards in favor of [U.S. companies]'' Since ATPA 
benefits are not an entitlement, a country is not guaranteed to 
maintain its status as a beneficiary country.
    Senior Ecuadoran government officials have publicly announced that 
Ecuador will not comply with the court's awards. Ecuador's President 
called the arbitrations involving Chevron an ``atrocity.'' Ecuador's 
Attorney General openly condemned the BIT Tribunal for assuming 
jurisdiction over Chevron's claims, saying that it could not ``act as a 
tribunal that may review judgments issued by the Ecuadorian judicial 
system.''
    Ecuador has failed to comply with the court ordered awards 
promulgated by the BIT Tribunal. Ecuadoran courts and senior government 
officials have denounced the award and denied its binding quality. Had 
Ecuador engaged in such conduct prior to its designation as an ATPA 
beneficiary country, it would not have been eligible for that 
designation. Now that it has engaged in such conduct, please explain 
what the implications are for Ecuador to maintain its status as an ATPA 
beneficiary country.
    I look forward to hearing your views.
                                          Richard G. Lugar,
                                                      U.S. Senator.

    Senator Rubio. And second, just so the folks on the panel 
know, I will need to leave probably around 2:30. There is an 
Intelligence Committee meeting. It should not take long, and if 
we have not concluded here, I will be back. But thank you all 
for being here. I appreciate your service, your continued 
service to our Nation.
    Latin America obviously is a region of strategic importance 
to our country, and a prosperous and democratic and stable 
Western Hemisphere is crucial to our own safety and our own 
prosperity. This importance is only going to continue to grow. 
For example, a recent report found that the Western Hemisphere 
will become almost totally self-sufficient in the next two 
decades when it comes to energy.
    As I have said before, the last 3 decades have seen a very 
impressive expansion of political and economic freedoms in this 
hemisphere. With, of course, the sad exception of Cuba and a 
few resurgent authoritarian rulers, Latin American leaders 
recognize the legitimacy of free and fair elections, of 
promarket economic policies, and there is an unprecedented 
cooperation to curb transnational crime. We have seen this in 
nations such as Brazil, Colombia, Chile, and Mexico, to name a 
few. These countries have expanded the democratic space, and as 
a result their governmental institutions have been 
strengthened. These countries have opened markets. They have 
embraced competition and they have seen the rewards of free 
enterprise and of trade.
    I urge the administration to take even bolder steps to 
consolidate our relations with similar democratic nations in 
the region. For example, in the absence of a hemispheric-wide 
free trade zone, the Trans-Pacific Partnership offers new 
opportunities to integrate the region to the global economy. I 
hope the administration will consider putting in place a 
mechanism to include as many Latin American countries as 
possible into the TPP's economic infrastructure.
    For example, they could develop a fast track process to 
allow countries with which the United States has free trade 
agreements to join the TPP community once these negotiations 
are finalized. And at the same time, we can work on expanding 
opportunities in the region and we should also resolutely 
address the serious challenges that are plaguing the region. A 
working democracy and a functioning market economy depends 
heavily on a system of checks and balances where institutions 
are allowed to independently work their will within a country's 
constitutional framework.
    In El Salvador, Argentina, Ecuador, Nicaragua, and 
Venezuela, we are seeing a disturbing reemergence of 
authoritarian elements in the legislative and the executive 
branches of government, eager to manipulate judicial 
institutions to serve their short-term political interests. 
According to the Heritage Foundation's 2012 Economic Freedom 
Index, only four Latin American countries--only four--Cuba, 
Ecuador, Venezuela, and Argentina--rank as economically 
repressed. Not surprisingly, these countries also share the 
dubious distinction of being led by either totalitarian or 
authoritarian leaders. If left unchecked, this trend will 
diminish any good intended efforts to help American businesses 
grow and invest in this region.
    The U.S. response to this rising authoritarian challenge 
should be clear and it should be swift. An American foreign aid 
program or trade agreement is a seal of approval. It is a seal 
of approval of certain best practices and should only stay in 
place based on meeting certain good governance and legal 
protections.
    I look forward to your testimony and I hope to learn more 
about the administration's policies to address the 
opportunities and the challenges to American businesses hoping 
to invest in trade in this, our region.
    Thank you so much.
    Senator Menendez. Thank you, Senator, very much.
    Let me turn to our first panel. We will hear from Mr. 
Francisco Sanchez, the Under Secretary for International Trade, 
the U.S. Department of Commerce, who will be joined by Matthew 
Rooney, the Deputy Assistant Secretary in the Bureau of Western 
Hemisphere Affairs for the U.S. Department of State. We look 
forward to your informed thoughts as representatives of two of 
the most prominent economic development and promotion agencies 
in the U.S. Government on the evolving role of the public 
sector in U.S. trade in Latin America and what, if any, 
tangible steps are being taken to protect and grow our 
historically strong trade ties within the region. I do not know 
if you will have it in your oral testimony. Your full written 
testimonies will be included in the record, and we ask you to 
summarize for about 5 minutes.
    I am particularly concerned about some of the challenges 
aspects and want to explore those with you. If you do it orally 
in your testimony, fine. If not, we will pursue it in 
questions.
    With that, let me recognize Secretary Sanchez.

   STATEMENT OF HON. FRANCISCO SANCHEZ, UNDER SECRETARY FOR 
 INTERNATIONAL TRADE, U.S. DEPARTMENT OF COMMERCE, WASHINGTON, 
                               DC

    Mr. Sanchez. Thank you, Chairman Menendez, Ranking Member 
Rubio, members of the subcommittee. I appreciate the 
opportunity to testify about the U.S. Department of Commerce's 
work to help American businesses thrive in Latin America.
    Two years ago, President Obama launched the National Export 
Initiative and he set a goal of doubling exports by the end of 
2014. The reasoning behind this was simple. Whenever more 
American products reach more markets, it strengthens American 
businesses and stronger businesses mean more American jobs.
    Last year, U.S. exports reached a record $2.1 trillion in 
total value, supporting 9.7 million American jobs, and Latin 
America was a key to the success. It was the destination of 
close to $370 billion in U.S. goods which represents an 
increase of 54 percent since 2009.
    And there is potential to do so much more. Latin America 
has a growing middle class, meaning more customers for U.S. 
products. Considerable growth is projected across the region. 
Brazil alone will spend billions on infrastructure development 
as it prepares to host the 2014 World Cup and the 2016 
Olympics. And U.S. companies can and should play a big part in 
this growth. As President Obama has made clear, the future of 
the United States is closely linked to the future of our 
neighbors in Latin America. We are bound by a rich and shared 
history, cultural ties, and our proximity. And as we look to 
the future, it is critical that we strengthen these ties in a 
way that benefits all partners.
    Please allow me, if you would, to mention just a few of the 
administration's efforts to strengthen regional integration.
    Earlier this year, administration officials, including 
myself, and private sector partners from across the hemisphere 
participated in the Summit of the Americas in Colombia to 
create new pathways to prosperity. In June, President Obama 
announced that the United States and its partners extended an 
invitation to Mexico to join the Trans-Pacific Partnership 
trade negotiations.
    And at the U.S. Department of Commerce, we colead the U.S.-
Brazil CEO Forum and we lead the U.S.-Brazil Commercial 
Dialogue. We do this in order to strengthen the $74 billion 
bilateral trade relationship.
    In our work with Mexico, we are focused on regulatory 
cooperation, intellectual property rights protection, and on 
making North American supply chains more efficient through 
enhanced border facilitation and infrastructure.
    And of course, we work tirelessly to provide a level 
playing field so that U.S. businesses can compete.
    Our Latin American trade agreements, which cover over 84 
percent of our regional trade, do more than just eliminate 
tariffs. They provide transparency, predictability, and 
recourse where necessary. That is why the U.S.-Colombia Trade 
Agreement, which took effect in May, is so important. U.S. 
businesses now have unprecedented access to sell their goods in 
this important market. And the Commerce Department's Commercial 
Service stands ready to link U.S. businesses with opportunities 
across the region. Entrepreneurs can call our offices. They can 
visit our Web site and we will help them succeed in Latin 
America and in the entire global marketplace.
    A couple of examples of our Commercial Service's work. In 
New Jersey, our Advocacy Center helped ACROW Corporation of 
America secure a $15.5 million contract with the Government of 
Colombia to provide prefabricated modular steel bridges. And 
our Miami office recently provided counseling to Tragar 
Brothers, a Florida distributor of oil and gas equipment, 
helping them secure several sales to Petrobras and other 
Brazilian companies. Successes like this happen regularly, and 
the potential is there for even more.
    As part of this work, the administration will continue to 
collaborate with Congress on critical trade and development 
issues. Let me take a moment to thank the Senate Finance 
Committee for reporting out a bill that would take care of some 
technical corrections on textiles to the US-CAFTA-DR Free Trade 
Agreement. It will also help maintain and create jobs across 
the United States and Latin America. So I hope that Congress 
will pass this bill very soon.
    In the end, the goal of the United States and our Latin 
American partners is a shared prosperity that is built through 
partnership and guided by shared ideals and values.
    I want to thank both of you for your leadership in this 
part of the world and for the opportunity to testify today. I 
look forward to working with you and other members of this 
committee as we move forward our commercial relationship with 
Latin America. Thank you.
    [The prepared statement of Mr. Sanchez follows:]

               Prepared Statement of Francisco J. Sanchez

                              introduction
    Chairman Menendez, Ranking Member Rubio, and members of the 
subcommittee, thank you for the opportunity to speak before you today 
about the Department of Commerce's work to help U.S. businesses succeed 
in Latin America.
              u.s. exports lead to jobs and opportunities
    Two years ago, President Obama launched the National Export 
Initiative with an ambitious goal of doubling U.S. exports by the end 
of 2014. At the Department of Commerce, we work every day to help make 
this effort a success. Whenever more American goods and services reach 
more markets and more customers, it strengthens American businesses. 
And stronger businesses result in more American jobs.
    In 2011, U.S. exports reached $2.1 trillion in total value, an all-
time record. These exports supported 9.7 million jobs, an increase of 
1.2 million compared to 2009. As these numbers demonstrate, the work to 
boost U.S. exports is having an impact for families, businesses, and 
communities. We want to keep this momentum going by maximizing 
opportunities available to U.S. firms, large and small, in overseas 
markets. That work leads us to Latin America.
              the importance of the latin american market
    As President Obama has made clear, the future of the United States 
is closely linked to the futures of our neighbors in Latin America. We 
are bound by a rich and shared history, cultural ties, and proximity. 
As we look to the future, it's critical that we strengthen these ties 
in a way that benefits all partners.
    This is an important effort for U.S. businesses because the Latin 
American market is full of great opportunities. Proximity to our fast-
growing neighbors is a clear advantage in the face of global 
competition. Looking simply at ocean shipping from, say, New Jersey 
ports, U.S. cargoes can reach Colombia in 9 days and Panama in 4 days. 
By contrast, a vessel leaving a New Jersey port can take 29 days to 
reach China and 35 days to reach Indonesia.
    Last year, U.S. merchandise exports to Latin America totaled $367 
billion. This represents an increase of 54 percent since 2009, far 
greater than the 36 percent increase with the rest of the world. In one 
case, annual total merchandise trade with Mexico reached $461 billion 
in 2011. In fact, $1.3 billion in goods cross our shared border every 
day, almost double that of a decade earlier.
    These numbers are clear: Latin America has been a key part of the 
U.S. export success story of recent years. Remarkably, there is 
potential for even more progress and growth.
              commitment to u.s.-latin america engagement
    To maximize these opportunities, the President has been firmly 
committed to U.S. engagement with Latin America. Earlier this year, 
administration officials, including myself, joined public and private 
sector partners from across the hemisphere to participate in the CEO 
summit of the Americas in Cartagena, Colombia. The gathering provided a 
unique opportunity to strengthen old alliances, create new 
partnerships, and identify new pathways to prosperity.
    Clearly, these partnerships are benefiting all sides, and we've got 
to continue to look for new ways to strengthen regional integration. 
One notable milestone occurred recently when President Obama announced 
that the United States and its partners extended an invitation to 
Mexico to join the Trans Pacific Partnership trade negotiations.
               the potential of the latin american market
    There are a number of factors that make Latin America an 
increasingly attractive place to do business. Over time, it has made a 
transition toward greater democracy, empowering its citizens with new 
opportunities to succeed.
    As a result, over the past decade, millions of people have lifted 
themselves out of poverty and into the middle class. This amounts to 
half of all households in the region, and that number could grow to 
three-quarters within 20 years. Brazil, in particular, is projected to 
become a top-five global economy in the next 5 years. Countries like 
Colombia, Chile, Peru, Uruguay, and Panama. are also predicted to 
achieve considerable growth.
    Allow me to just give a few examples of the incredible commercial 
opportunities in these countries. As I mentioned earlier, Brazil is 
projected to become a top-five economy in the future. Air 
transportation, telecommunications, oil and gas and mining are all 
strong growth sectors. It will spend billions on infrastructure 
development as it prepares to host the 2014 World Cup and the 2016 
Olympics.
    U.S. companies should play a big part in this growth. There are 
many unexplored opportunities. Northeast Brazil, for example, is the 
country's fastest growing region. Its nine states have a population of 
over 53 million, and four of these states will host World Cup matches. 
Yet, this area of Brazil has often been overlooked by U.S. firms 
looking to invest or export. These are opportunities that businesses 
should seize.
    Another example is Colombia. The U.S.-Colombia Trade Promotion 
Agreement took effect earlier this year on May 15. U.S. businesses now 
have unprecedented access to sell their goods in this important market. 
Colombia will spend at least $26 billion in the next 4 years on 
extensive infrastructure projects that will require: project financing, 
public works subcontracting, logistics, construction equipment, air 
navigational and port security aids, railway construction, 
transportation equipment, security and defense items and services, and 
mass transit systems.
                meeting the challenges to doing business
    While we are encouraged by these new market opportunities, we are 
mindful of the challenges facing U.S. companies doing business in the 
region. These include inadequate infrastructure, outdated customs 
procedures, corruption, nontariff barriers, challenges remaining in 
intellectual property rights protection and enforcement, and increasing 
competition from China, just to name a few. Commerce is actively 
engaged on projects and initiatives to improve the business climates in 
these markets, addressing these challenges on several fronts. For 
example:
    We colead the U.S.-Brazil CEO Forum and lead the U.S.-Brazil 
Commercial Dialogue, which tackle trade barriers, share best practices, 
and help strengthen our $74.3 billion bilateral trading relationship.
    We work with Mexico (and Canada) on regulatory cooperation and 
intellectual property rights, and on making North American supply 
chains more efficient through enhanced border facilitation and 
infrastructure. Clearly, cooperating with our neighbors has helped to 
enhance the economic competitiveness of our three countries.
    We work with Honduras, El Salvador, and Costa Rica under the 
auspices of Pathways to Prosperity to support border management reform 
in Central America.
               promoting the benefits of trade agreements
    Our Latin American trade agreements, which cover over 70 percent of 
our regional trade, do more than just eliminate tariffs. U.S. and Latin 
American companies benefit from commitments that facilitate transparent 
rule-making, predictable legal frameworks, strong intellectual property 
rights protections, and regulatory certainty at home as well as in 
global markets. Our trade agreements, in a sense, provide a playbook 
for small companies about how to operate in these markets--they remove 
tariff and nontariff barriers, and provide transparency, 
predictability, and recourse.
    At the Department of Commerce, we educate the business community, 
especially small businesses, on how to take advantage of these new 
market opportunities. In addition, we actively monitor our trading 
partners' compliance with our trade agreements and assist companies 
when they encounter obstacles to doing business.
           linking u.s. businesses with buyers overseas and 
                    attracting investment back home
    To help American businesses make the most of these opportunities, 
our Commercial Services staff--located in more than 100 U.S. cities and 
73 countries--stands ready to link American goods and services with 
buyers overseas.
    Our talented workforce has in-depth knowledge about the export 
process, markets, and sectors. Entrepreneurs can call our offices, or 
log onto our Website, and we'll help them succeed in the global 
marketplace. Our Miami office recently provided counseling to Traeger 
Brothers, a Florida distributor of oil and gas equipment, and helped 
them secure several export transactions to Petrobras and other 
Brazilian companies worth over $87,000.
    Our Albuquerque, NM, office recently provided extensive counseling 
to the MIOX Corporation, a small manufacturer of onsite water 
disinfectant generators, which led to an export sale to Mexico valued 
at $3.5 million.
    And in New Jersey, we have helped companies like the ACROW 
Corporation of America, a client of our Advocacy Center, to secure a 
$15.5 million contract with the Government of Colombia to provide 
prefabricated modular steel bridges. ACROW competed against a British 
company, which received heavy advocacy from the British Embassy in 
Colombia, and ACROW believes our assistance was decisive for an open 
and transparent procurement process.
    Successes like these are occurring regularly, and we will continue 
to work diligently to raise awareness, help businesses navigate through 
the export process, and ultimately link American-made goods with buyers 
overseas.
    Our Commercial Services team is also on the front lines of the 
SelectUSA Initiative. Housed in the Commerce Department, it is the 
first coordinated U.S. Governmentwide effort to promote and support 
business investment in the United States. Brazil and Mexico are among 
SelectUSA's priority markets in fiscal year 2012 where U.S. and FCS 
personnel have engaged in proactive outreach to members of the 
international investor community promoting the United States as the 
premier destination for capital.
    Foreign investment is key to the American economy. U.S. 
subsidiaries of foreign-owned firms maintain a stock foreign direct 
investment position in the United States of about $2.3 trillion. These 
companies employ more than 5 million U.S. workers, which translates to 
more than $400 billion in wages, and the goal of SelectUSA is to 
attract more investment.
    Our team spreads the word about the desirable market conditions in 
the U.S. economy, including a hardworking and educated workforce, 
relatively low taxes and access to an incredible consumer base. Their 
work leads to increased investment, a stronger America, and ultimately 
a stronger region.
                         helping u.s. companies
    I want to thank the Senate Finance Committee for reporting out a 
bill that would make technical corrections on textiles to the US-CAFTA-
DR free trade agreement and will help maintain and create jobs across 
the United States and Latin America.
    The correction on sewing thread alone will help support 
approximately 1,800 jobs in the United States, Central America, and the 
Dominican Republic. U.S. producers are poised to hire more employees 
once this package passes. Along with the AGOA Third Country Fabric 
provision, these urgent changes would build on two key U.S. trade 
initiatives that support trade, investment, and employment in Africa 
and the Western Hemisphere.
    I urge the Senate to pass this bill immediately.
                               conclusion
    In the end, the goal of the United States and all our Latin 
American partners is shared prosperity that is built through 
partnership, and is guided by shared ideals and values. Latin America 
is home to some of the most dynamic markets in the world. There are 
incredible opportunities for U.S. businesses to be a part of this 
growth.
    The administration is working to help businesses seize these 
opportunities by increasing engagement, fighting for a level playing-
field, linking U.S. goods and services with overseas buyers, and 
promoting inward investment. These are all ingredients for success. I 
look forward to working with the members of this committee to help more 
American businesses succeed in Latin America, both today and for years 
to come.

    Senator Menendez. Thank you, Secretary Sanchez.
    Secretary Rooney.

  STATEMENT OF MATTHEW ROONEY, DEPUTY ASSISTANT SECRETARY FOR 
ECONOMIC AFFAIRS, WESTERN HEMISPHERE BUREAU, U.S. DEPARTMENT OF 
                     STATE, WASHINGTON, DC

    Mr. Rooney. Senator Menendez, Ranking Member Rubio, thank 
you very much for the opportunity to be here with you today to 
discuss the administration's efforts to promote the 
competitiveness of U.S. business in Latin America.
    As Under Secretary Sanchez has already noted, the Western 
Hemisphere is a region of extraordinary opportunity for U.S. 
business. Sound macroeconomic management and investments in 
health and education by many governments in the region have 
facilitated an impressive economic expansion. Since 2002, the 
GDP of the region has more than tripled, rising to 
approximately $5.5 trillion in 2011.
    These developments and numerous others have lifted, as you 
have already noted, sir, millions of households into the middle 
class. Rising U.S. exports to the region demonstrate that U.S. 
companies are already taking advantage of these opportunities.
    That is not to say that the region is without its 
challenges. Some countries, such as Argentina and Venezuela, 
have chosen policies that result in high rates of inflation. 
Weakening global demand has caused commodity prices to come off 
their highs in recent months, highlighting the risk of 
overreliance on a single sector to drive growth. Sustaining 
robust economic expansion will require the region to transition 
away from commodity-led growth, driven primarily by demand from 
China to a more balanced model that is based on rising 
productivity. In this context, many countries in the Americas 
are coming to see anew the benefit of trading relationships 
with countries such as the United States with which they 
exchange a broader range of goods and services.
    U.S. businesses also face challenges in taking advantage of 
the increasing opportunity in the region. For example, a lack 
of transparency in certain nations and a threat of 
expropriation can discourage investment.
    Nevertheless, our highly competitive private sector is well 
positioned to overcome these and other barriers and the 
administration is working every day to help them. To help U.S. 
firms compete against Chinese and other state-owned 
enterprises, we are working with the Department of Commerce to 
provide better and more easily available information on 
business opportunities around the hemisphere, in particular 
through the Infrastructure Exports Initiative which focuses on 
promoting business opportunities for infrastructure projects in 
nine countries worldwide, including Brazil and Colombia in 
Latin America.
    Last week, Secretary Clinton opened the Latin American IdEA 
partnership which we call La Idea, a business plan competition 
that will encourage U.S. small businesses to build new business 
partnerships with small businesses in Latin America.
    La Idea is a piece of a larger initiative that President 
Obama launched as he was traveling to the Summit of the 
Americas in April to help small and medium-sized businesses 
navigate the complexities of international trade. We will link 
our extensive network of small business development centers 
with similar centers throughout the hemisphere to create the 
Small Business Network of the Americas. With over 2,000 centers 
in the hemisphere serving more than 2 million small and medium-
sized businesses, linking these centers more closely together 
will provide small business owners with an on-ramp to the 
global economy. This effort builds further on several years of 
work under the Secretary of State's Pathways to Prosperity 
initiative in building and developing the small business 
development center model throughout Latin America.
    We are focused on the fact that women in the region often 
face special obstacles to getting their businesses off the 
ground. This is why the President launched the Women's 
Entrepreneurship in the Americas initiative, WEAmericas, to 
promote access to training, finance, and markets for business 
women in the region.
    Mr. Chairman, Mr. Ranking Member, our businesses have moved 
beyond just selling products to Latin America and the 
Caribbean. They are working hand in hand to build complete 
businesses from supply chains to distribution networks, to 
retail partnership. Secretary Clinton's Economic Statecraft 
initiative challenges all of us at the Department to focus on 
shaping the policy environment so that these partnerships can 
thrive.
    With this in mind, as Under Secretary Sanchez has already 
noted, we are collaborating more closely than ever with Canada 
and Mexico on economic issues such as regulatory cooperation 
and more efficient borders. We have set up a direct line for 
U.S. businesses to talk with our ambassadors and their teams in 
the countries throughout the hemisphere to get advice on 
navigating the political and economic landscape in each 
country.
    As you already noted, gentlemen, the Americas hold 
tremendous strategic importance for the United States in terms 
of energy. In the coming years, the region will supply more and 
more of our imported energy as oil producers such as Canada, 
Brazil, and Colombia ramp up output and as Mexico, already a 
major producer, considers important reforms to enable an 
increase in production.
    At the summit, a Colombian initiative called Connecting the 
Americas 2022, which seeks to enhance electrical 
interconnection across the hemisphere and which builds on the 
U.S. Energy and Climate Partnership of the Americas initiative 
from the last summit, will increase the availability of 
reliable and affordable electricity and accelerate development 
of renewable energy opening important new markets for U.S. 
exports and investment.
    We believe that these close economic ties with our partners 
in the Western Hemisphere make us more competitive, and second 
only to the protection of American citizens living and 
traveling abroad, our top priority is ensuring that our 
businesses can pursue these opportunities that the region 
presents to create jobs and prosperity for the American people.
    Mr. Chairman, Mr. Ranking Member, thank you again for the 
opportunity to be here today to discuss this important issue. I 
look forward to your questions and to working closely with this 
committee to promote U.S. economic interests throughout the 
hemisphere.
    [The prepared statement of Mr. Rooney follows:]

                Prepared Statement of Matthew M. Rooney

    Chairman Menendez, Ranking Member Rubio, and members of the 
subcommittee, thank you for the opportunity to appear before you today 
to discuss the administration's efforts promote the competitiveness of 
U.S. business in Latin America and the Caribbean.
    The Western Hemisphere is a region of extraordinary opportunity for 
U.S. business. Sound macroeconomic management and investments in health 
and education by many governments in the region have facilitated an 
impressive economic expansion. Since 2002, the GDP of the region has 
more than tripled, rising to approximately $5\1/2\ trillion in 2011. 
Average inflation rates in the region have hovered around 6 percent 
since 1997, a far cry from the days of hyperinflation and monetary 
crises that stifled investment and ate away at families' savings. In 
the last 10 years, fixed capital investment nearly quadrupled and 
governments' greater contributions to social safety nets helped 
mitigate the negative effects of the 2008-2009 financial crisis.
    These developments and many others have paved the way for a 78-
percent increase in the size of the middle class since 1990. The region 
now has 128 million middle-class households that have more disposable 
income to spend on education, health care services, cars, houses, 
consumer electronics, and other amenities that were previously out of 
reach. Rising U.S. exports to the region demonstrate that U.S. 
companies are already taking advantage of these opportunities, and the 
region's growing reservoir of consumer demand will underpin continued 
growth in trade and investment flows.
    That is not to say, however, that the region is without challenges. 
Some countries, such as Argentina and Venezuela, continue to experience 
high rates of inflation. Weakening global demand has caused commodity 
prices to come off their highs in recent months, highlighting the risk 
of overreliance on a single sector to drive growth. Sustaining robust 
economic expansion will require the region to transition away from 
commodity-led growth, driven primarily by demand from China and other 
markets in Asia, to a more balanced economic approach based on 
productivity improvements. In this context, many countries in the 
Americas are taking another look at the benefit of maintaining diverse 
trading relationships with countries such as the United States with 
which they exchange a much broader range of goods and services.
    Our businesses also face challenges in taking advantage of the 
increasing opportunity in the region. For example, the lack of 
transparency or a level playing field in certain nations, and the 
threat of expropriation or even nationalization greatly discourages 
investment. U.S. companies also tell us of the need to overcome or 
otherwise compensate for the high barriers to trade faced in Argentina. 
We have expressed our concern, both in bilateral and multilateral 
settings, over the nature and application of trade-restrictive measures 
which adversely affect imports into Argentina. We will also continue to 
urge the Argentine Government to normalize relations with all of its 
international creditors to improve Argentina's investment climate.
    Nevertheless, our highly competitive private sector is well 
positioned to overcome these and other barriers and the administration 
is working every day to help them do that. To help U.S. firms compete 
against Chinese and other state-owned enterprises, we are working with 
Commerce to provide better and more easily available information on 
opportunities around the hemisphere. State and Commerce are leading the 
Infrastructure Exports Initiative, which focuses on promoting business 
opportunities for infrastructure projects in nine countries worldwide 
including Brazil and Colombia in Latin America. We will host a global 
conference that will discuss further how U.S. companies can compete for 
these projects more successfully.
    As the President and Secretary Clinton have noted, our proximity to 
the region gives our businesses a leg up on competitors from other 
countries looking to trade with or invest in Latin America and the 
Caribbean. But it's not just geographic proximity that matters; it's 
also the deep cultural ties that exist between the people of the 
Americas. Last week Secretary Clinton underscored this point by opening 
the Latin-America IdEA Partnership (La Idea) business competition, 
which will serve as a platform to support U.S.-based diaspora groups 
who are investing in their communities of heritage in Latin America 
with the goal of building new business partnerships between U.S. and 
Latin American small and medium-sized entrepreneurs. This initiative 
builds on the Caribbean Idea Marketplace, a similar initiative already 
underway. The Secretary said it best, when she said that through these 
efforts ``We're going to find the best ideas and help them grow into 
successful businesses that create value and jobs throughout the 
hemisphere.''
    La Idea is just one piece of a larger initiative that President 
Obama launched in Tampa, FL, en route to the Summit of the Americas. 
The addition of our new trade agreements with Colombia and Panama 
brings to fruition the vision of an unbroken chain of free trade 
agreements extending from the Arctic to Tierra del Fuego. Along with 
the benefits of new market access and growth that these agreements 
bring, we have a responsibility to help our small and medium-sized 
businesses navigate the complexities of international trade to be just 
as successful on the global stage as our largest companies. To this end 
the President proposed linking our extensive network of small business 
development centers with similar centers throughout the hemisphere to 
create the Small Business Network of the Americas. With over 2,000 
centers in the hemisphere serving more than 2 million small and medium-
sized businesses, linking these centers more closely together will 
provide our local business people with an on-ramp to the global 
economy. It can start with opportunities to connect our small business 
support centers and help individual small businesses make a new sale in 
Mexico or find a business partner in Brazil for example. But, as the 
Small Business Network of the Americas develops, doing business across 
borders will be within reach for more and more of our small and medium 
businesses. This effort builds on several years of work under Pathways 
to Prosperity in developing the small business development center model 
in Latin America. Mexico and El Salvador are leading the way in 
adapting this successful U.S. approach to small business promotion to 
the realities of Latin America.
    On West Commerce Street in San Antonio, TX, there is a great little 
business called the Mariachi Connection. In 1995, Josie Benavidez 
started the business after she had a difficult time finding a 
replacement string on a guitarron for her husband Rene, a music teacher 
in the local San Antonio schools. Rene eventually quit his teaching job 
to focus full time on building their new business selling Mariachi 
costumes, sheet music, dance shoes, and instruments. Since 1999, Rene 
and Josie have been getting business advice and training from the San 
Antonio Small Business Development Center which has helped them apply 
for loans and expand their online business to sell Mariachi products 
worldwide. The International Trade Center at the San Antonio SBDC also 
worked through the Mexican network of SBDCs to help the Benavidez 
family find the right suppliers and expand their sales to Mexico. This 
partnership between our SBDCs and Mexico's SBDCs is exactly the kind of 
team work the President talked about when he launched the Small 
Business Network of the Americas and it is exactly what we need to help 
our small businesses create jobs.
    Josie is just one example of the entrepreneurial spirit of many 
women throughout the hemisphere. But, the fact of the matter is that 
women in the region often face significant barriers to getting their 
businesses off the ground, no matter how promising they might be. That 
is why the President launched the Women's Entrepreneurship in the 
Americas Initiative--or WEAmericas--to improve access to training, 
finance, and markets for businesswomen like Josie.
    These stories illustrate the fact that our businesses have moved 
beyond just selling products to Latin America and the Caribbean, they 
are now working hand in hand to build complete businesses from supply 
chains to distribution networks to retail partnerships. This is one of 
the reasons Secretary Clinton has worked to focus our commercial 
diplomacy by emphasizing the importance of economic statecraft. She has 
elevated the role of economics across all elements of our foreign 
policy to more effectively compete in a world where influence is 
increasingly measured in economic terms rather than military might. 
Through her Economic Statecraft initiative, she has challenged all of 
us at the Department to put the concerns of U.S. business at the center 
of our thinking and to keep in mind that creating global business 
linkages is part of fostering our own economic growth.
    To that end, we are collaborating more closely than ever with our 
neighbors in North America on economic issues such as regulatory 
cooperation and more efficient borders. We have made a downpayment on 
carrying out our jobs diplomacy by setting up a direct line for U.S. 
businesses to talk with our ambassadors in countries throughout 
hemisphere to get advice on navigating the local political and economic 
landscape in each country. The inclusion of Mexico and Canada in 
discussions on the Trans-Pacific Partnership is a positive development 
as we increase our economic integration with the Asia-Pacific region. 
We have also engaged with our FTA partners in the hemisphere to develop 
a shared understanding of the opportunities and challenges posed by the 
economic developments in Asia and the broader Pacific.
    The Americas also holds tremendous strategic importance for the 
United States in terms of energy. In coming years, the region will 
supply more and more of our imported energy as oil producers such as 
Canada, Brazil, and Colombia ramp up output and as Mexico, already a 
major energy producer, considers important reforms to increase its 
production. Building on the emergence of the Western Hemisphere as a 
leader in global energy production, the President came together in 
Cartagena with his counterparts to launch an initiative called 
Connecting the Americas 2022, which seeks to enhance electrical 
interconnection across the hemisphere. We believe that this initiative 
will, among other things, open broad new opportunities for investment 
in electrical generation and transmission and in grid management 
technology, all areas where U.S. businesses are highly competitive. It 
will also spread electrical power to the 31 million people across the 
region who currently lack access to electricity. Connect 2022 will 
build on the Energy and Climate Partnership of the Americas to increase 
the availability of reliable and affordable electricity. This means 
better schools and better education for children, consistent power for 
health clinics and hospitals, lower costs for businesses, and increased 
opportunity for economic development. It will also help create a 
business climate that accelerates development of renewable energy, as 
countries swap power with one another to more effectively utilize clean 
energy resources where they are available. Realizing the vision of 
hemisphere-wide electrical interconnection and increased access to 
electricity over the next decade will require government action and 
private sector investment--and work is already underway.
    We are confident that even closer collaboration with our partners 
will help all of the nations of the Americas to compete more 
successfully on the global stage. We believe that these close economic 
ties with our partners in the Western Hemisphere make us more 
competitive in the global economy, and our top priority is ensuring 
that our businesses can pursue the opportunities that the region 
presents to create jobs and prosperity for the American people.
    Mr. Chairman, Mr. Ranking Member, members of the committee, thank 
you again for the opportunity to be here today to discuss this 
important issue. I look forward to your questions and to working 
closely with this committee to promote U.S. economic interests in the 
Western Hemisphere.

    Senator Menendez. Well, let me thank both of you for your 
testimony.
    Before I go to questions, let me ask unanimous consent to 
have a statement entered by Chevron with reference to their 
dispute with Ecuador in which Ecuador has failed to adhere to 
the arbitration award issued pursuant to the U.S.-Ecuador 
Bilateral Investment Treaty. Without objection, so ordered.
    I appreciate both of your testimonies insofar as the 
positive aspects and the promise and the opportunity which I 
share. But promises and opportunity cannot be fulfilled if 
there are a series of challenges that make that investment 
largely dubious in terms of transparency, rule of law, 
arbitrary and capricious tax changes, intellectual property 
right challenges, and a series of issues.
    So let me explore some of those challenges with you. Since 
you both aptly described the promise, let us talk about some of 
those challenges.
    You know, property rights are incredibly important. If we 
are going to have American companies and citizens make 
investments in the region, you want to make sure that those 
property rights are ultimately upheld.
    The State Department announced in June that the U.S. fiscal 
transparency waiver for Nicaragua and the $3 million in 
bilateral aid attached to it would not be renewed this year. 
And given the blatant disregard for the democratic process 
exhibited by President Ortega during last October's elections, 
I am not surprised by that announcement.
    I am, however, incredibly surprised to hear last week that 
the State Department would be renewing Nicaragua's property 
waiver, including the $1.4 billion in multilateral loans that 
is tied to it.
    So if we all agreed back in June that the Ortega 
government, which has joined with its ALPA partners to 
consistently criticize the United States and regularly abuses 
the democratic process to advance its own agenda at the expense 
of the Nicaraguan people, did not deserve the renewal of its 
transparency waiver, which includes $3 million in bilateral 
aid, why would the State Department decide to renew the much 
more important property waiver and its $1.4 billion in 
multilateral loans? Is that really a message that we want to 
send, one, to Nicaragua or for that fact, any other country 
backsliding in its democratic responsibilities and in its 
responsibilities for property rights?
    Mr. Rooney. Thank you, sir.
    You are correct. The Secretary did renew the Nicaragua 
property waiver, which has been in place, if I am not mistaken, 
since section 527 was introduced in 1994. There was a broad 
analysis that took place in the process of deciding whether to 
renew that waiver, and I think one of the key factors was that 
the consultations that we have conducted during the course of 
the year on property issues resulted in the past year in a 
remarkable number--I think the number was 65--cases being 
resolved. I believe that was the largest number of cases that 
the Nicaraguans have resolved in any year since. And so we felt 
that the property waiver should be renewed.
    But we certainly share the concerns that you have expressed 
about the conditions of democracy in Nicaragua and will be 
watching carefully as we go through the coming year.
    Senator Menendez. Well, it seems to me with one hand we 
make a decision that clearly the transparency waiver was not 
there, but that is a minor amount relatively speaking, $3 
million, and then we let $1.4 billion in multilateral loans 
proceed. And while I appreciate the number of cases that may 
have been resolved in a given period, we still have 337 pending 
cases that have not been resolved years later. So I am not 
quite sure that we send the right message.
    Let me ask you about this. What about--in light of 
Ecuador's imposition of a wide range of safeguard duties 
against imports and with President Correa's failure to 
cooperate with the United States on narcotics trafficking and 
actually expelling the U.S. counternarcotics unit from the 
coastal city of Manta where it was monitoring drug shipments 
headed north to the United States, is the administration 
seriously considering extending ATPA benefits to Ecuador?
    Mr. Rooney. Thank you, Senator.
    As you know, the ATPA is a legislated program. Therefore, 
it is not ours to decide whether it should be extended, but 
rather the Congress'. That decision is sometime in the future. 
So we have not begun to consider it. We look forward to 
consulting with you and other Members of the Congress.
    Senator Menendez. Is the administration basically 
advocating for those extensions?
    Mr. Rooney. No, sir. We have not taken any position on 
that.
    Senator Menendez. You are not taking any position.
    Mr. Rooney. We are aware of the concerns that you have 
addressed.
    Senator Menendez. I would expect the administration would 
take a position that would say unless we have a different set 
of realities, the administration would be urging us not to 
extend it.
    Mr. Rooney. We have expressed to the Ecuadorians--and I 
believe they have heard that here on the Hill as well--that 
that is one of the considerations that will be----
    Senator Menendez. Here is my other big question, and 
Secretary Sanchez, I would like to hear from you, too, because 
you are supposed to be promoting, as you are, U.S. companies.
    So we get into trade agreements and a whole host of those 
include international arbitration processes by which when there 
is a dispute, those international arbitration processes are 
supposed to be the final word. So we go through the 
international process of arbitration. Ecuador has that with 
Chevron. The Dominican Republic has it with Codasa. There is 
also about imaging equipment at the ports, incredibly important 
to make sure that those ports do not have products or concerns 
to the United States in terms of narcotics trafficking which is 
an issue in terms of the opportunity for someone to use those 
ports to bring a dirty bomb to the United States. You have 
Argentina refusing to pay for its bondholders.
    So the question is if we are going to have the 
opportunities that you both so aptly described be fulfilled, 
you have to have a process by which, when you make your 
investment and there is a dispute and you agree that the 
process to resolve that dispute, for example, is an 
international arbitration process and then the award comes down 
on behalf of an American company and the country will not abide 
by it, then those countries are sending a message to the 
international community, certainly to U.S. businesses, this is 
not a good place to invest in.
    And second, what are we doing to get those countries to 
abide by their obligations both under treaties and in these 
arbitration awards?
    Mr. Sanchez. Thank you, Mr. Chairman.
    We share your concerns, particularly with Ecuador and 
Argentina. In the case of Ecuador, we share your concern that 
there seems to be a lack of commitment on the part of Ecuador 
to honor the international arbitration process in investor 
disputes. That clearly sends a chilling message to the 
investment community. I think part of what happens is when they 
pursue these policies, you see the impact in foreign direct 
investment. But we have raised this issue at very high levels 
with the Ecuadorian Government.
    As it relates to ATPA, we are monitoring the situation, and 
as the Deputy Assistant Secretary said, it is the prerogative 
of Congress to extend ATPA or not. But before we take a 
position on it, we are going to continue to consult closely 
with the business community, with you, and with other Members 
of Congress, as well as to express our very deep concern to 
Ecuador with some of the policies they have taken.
    With regard to Argentina, Argentina also is sending 
messages to both the investor and trade community that are at 
best confusing and at worst very chilling. Currently Argentina 
is ranked 113th out of 183 countries in the World Bank Ease of 
Doing Business Index. And at least part of that rather poor 
ranking has to do with some of the issues that you raise. In 
that country, we have raised these issues at the very highest 
levels. We have been in close consultation with our business 
community to understand how this is impacting them. We have 
also been in consultation with Argentinean businesses who are 
also adversely affected. They are not able to receive inputs 
that they need for their manufacturing or for their 
agricultural community that they would buy from American 
companies.
    And finally, we are also collaborating and talking with 
other countries that are affected by Argentina's policies in 
the region with countries like Mexico, but also beyond the 
region with the EU. The EU recently started consultations to 
pursue a WTO dispute settlement case, and we requested and were 
granted third-party status in those consultations.
    So we are approaching this in every way possible to make 
sure that countries with these policies that really are not 
conducive to commercial engagement understand the full impact 
of their actions.
    Senator Menendez. I am not confused by the Argentineans. I 
appreciate your diplomacy. The Argentineans send a very clear 
message. They have protectionist policies. They do not live up 
to their responsibilities to pay their debt to bondholders, and 
they are acting in ways that clearly send a message not of 
investment. I hope that beyond consultation we will seriously 
consider filing a WTO case to address the concerns of American 
businesses.
    Let me turn to Senator Rubio.
    Senator Rubio. Thank you, Mr. Chairman.
    I want to begin just with Mexico in the aftermath of their 
election. The new administration--I think they take in 
December. Is that right?
    Well, what is the general feeling from the American 
business community in terms of opportunities for investment and 
growth in Mexico?
    One of the things I have been troubled by is, rightfully 
so, all the coverage that the violence and the drug problems 
there are getting, but there is also this emerging middle class 
and consumer class in Mexico that is being created. Not enough 
attention is being--there is good news in Mexico.
    What is the view of the business community and American 
investment community about Mexico moving forward as this new 
administration comes in?
    Mr. Sanchez. Thank you, Senator Rubio.
    The business community, I believe, is very optimistic and 
we, too, are very optimistic. We start with a very good 
foundation with Mexico. Through NAFTA, our two-way trade has 
increased dramatically over the last 14-15 years. Recently, we 
and other TPP partners invited Mexico to join TPP, as you so 
aptly pointed out in your opening statement.
    A lot of what we do, particularly the Department of 
Commerce, but also with assistance from the Department of 
State, is what I call blocking and tackling. It is not going to 
be front page news, but it has an impact on reducing barriers. 
So with Mexico in particular, we work very closely on 
regulatory cooperation. We try to harmonize regulations. We 
work closely with them on standards and in sectors where we 
could both benefit, and we have also more recently been working 
on trying to make sure we are maximizing efficiency 
particularly at the border for supply chain efficiency, making 
both countries more competitive vis-a-vis the world.
    So I think the business community is very optimistic and we 
are going to continue to engage in ways that strengthen that 
commercial relationship.
    Senator Rubio. Just as an aside but I think related to 
Commerce--and I know it is a topic that is different, and I 
would hope we can look at it through the view of Commerce 
because I think it is related to Commerce. One of the things I 
always get when I meet with officials from the Mexican 
Government is the frustration that we have not developed a 
workable guest worker program akin to what they have with 
Canada or some other countries. And I do not expect you to have 
an answer for that today, but I think that does have a Commerce 
element to it which is pretty strong and that we should explore 
moving forward.
    The second question I think is for both of you and it is 
about Paraguay who has been in the news recently for, 
obviously, some of their issues that have happened with the 
constitution. But it is a country that I am surprised there is 
not more engagement with. Maybe you could describe to me what 
the American business community's view toward Paraguay is. My 
meetings and conversations with folks from there show a 
tremendous openness and quite frankly an invitation for 
American investment and a strengthening of our links and our 
relationships with Paraguay.
    Mr. Rooney. Thank you, Senator.
    As you have noted, Paraguay has been through a tumultuous 
few weeks. We have been pleased at the reaction of the 
Organization of American States. We feel that their mission 
down there was constructive and we have a way forward toward 
their elections.
    We have, as you may know, had a series of engagements over 
the last several years with Paraguay to try to seek a closer 
trading and economic relationship with that country. We, 
through USTR, have been working with them to make sure that 
they are getting the most out of the privileges that they enjoy 
under GSP. We have worked with them through an MOU that we 
signed a couple of years ago to try to help them improve their 
protections of intellectual property rights, which we see as 
not only of interest to U.S. exporters but also the key to an 
innovation-driven economic growth path for Paraguay. But we are 
certainly open to deepening those trade and economic 
relationships to the extent possible.
    Mr. Sanchez. Senator, we support efforts by the American 
business community to engage commercially with Paraguay through 
our office in Buenos Aires and our commercial office stands 
ready to help American companies that are interested there.
    On the policy side, we have worked closely with Paraguay on 
Pathways to Prosperity specifically in facilitating border 
facilitation for the more efficient and secure movement of 
goods, so I think there are opportunities there.
    Of course, recent events make the business community 
somewhat nervous. The business community likes certainty. But I 
am hopeful that this is a short-term problem. And we will 
continue to work with any American business interested in 
commercial engagement there.
    Senator Rubio. Well, just as an aside, I would say that for 
the business community, they should actually be somewhat 
encouraged by what happened in Paraguay. It happened via a 
constitutional order. You did not have the army leaving its 
barracks and marching on the capital. You had the Senate 
conducting its rightful role. People may not like the outcome, 
but they basically followed the law and the way the law was 
created. And I think it actually is a case for certainty as 
opposed to one where the army was in the streets and people 
were being jailed. So I actually think people should be 
encouraged that the rule of law prevailed even if they may not 
like the outcome.
    The last question is about El Salvador, and I am very 
concerned about that. As I said in my opening statement--and I 
know that the chairman--I think last week you met with some 
folks and I think you made your views on it very clear. And 
unfortunately, I was not able to make that meeting so I would 
hope to use this forum just to say that our foreign aid 
programs are a seal of approval. They are a stamp of approval. 
And I think that if you are going to give that kind of money 
and assistance to a country and its government, you have a 
right to insist on only wanting to give aid for countries that 
meet certain benchmarks.
    I was relatively pleased with some of the progress being 
made in El Salvador and their cooperation with us on a number 
of things like Afghanistan and some of the regional bodies and 
then deeply disturbed recently by this unconstitutional action 
by the FMLN and their political coalition they put together in 
their national assembly to create this constitutional crisis. 
As you know, they now have two Supreme Courts, two sets of 
Supreme Court Judges.
    Apart from how it endangers--and let me be clear. It does 
endanger the economic aid programs that we have, and I think 
moving forward, I want to be clear that I will make that an 
issue. I do not speak for anybody else other than to say that I 
do not think moving forward that we can continue to push 
forward on some of these aid programs if this is the kind of 
government and this is the kind of governmental actions that we 
are going to see.
    But apart from the aid things, maybe you could describe 
briefly how the business community feels or may soon feel by a 
country that has certain leaders or so-called leaders that are 
putting together these kinds of coalitions to do these kinds of 
things. I imagine it is not good for business, but how bad is 
it, and if it plays and continues to play out, how troubling is 
that particularly as you see a country that has turned over the 
issue to an extra-national body to decide, one by the way 
dominated by Sandinistas who are not exactly the model of free 
enterprise and democracy?
    Mr. Sanchez. Senator, you raise very valid concerns. The 
constitutional crisis in El Salvador is certainly of concern to 
us at the Department of Commerce and, I believe, to the 
business community. You will have a panel following us very 
soon that will be able to express directly how they feel.
    But again, business seeks certainty, and the constitutional 
crisis does not promote certainty. It raises a lot of troubling 
questions.
    On another point, we have been working closely with El 
Salvador to help them try to create a fertile business climate, 
and I believe that this runs contrary to that. So I hope that 
the Government of El Salvador can resolve this soon because it 
is in their interest to do so.
    Mr. Rooney. If I may, Senator. Thank you.
    Mr. Sanchez, we certainly share those concerns and we have 
made clear those concerns directly to the Salvadorian 
Government in San Salvador. Ambassador Aponte has spoken to 
President Funes and other Salvadorian leaders recently to make 
clear, as you have noted, that a political solution to this 
crisis needs to be found that respects transparency, good 
governance, and separation of powers. We have been encouraged, 
as I think you have, in the last few days by a recent movement 
toward a political solution, but I think that Salvadorian 
leaders are clear that a solution that is not in accord with 
separation of powers and good governance does call into 
question our assistance programs.
    Senator Menendez. Thank you, Senator Rubio.
    Let me just ask one or two more questions to you.
    Mr. Secretary, you mentioned in your opening statement the 
CAFTA-DR perfecting legislation that I supported in the Finance 
Committee and had a colloquy with the majority leader on the 
floor today, and I believe that sometime later today or 
tomorrow, there will be an effort to move those, along with 
AGOA and other elements.
    But I do hope that you take the message back, as well as 
Secretary Rooney, that while I am all for creating economic 
opportunity and jobs in the DR and in the CAFTA region, as well 
as in the African countries, that we need to be concerned about 
creating jobs here in the United States. And it is totally 
unacceptable that a U.S. manufacturer has to pay a 13.5-percent 
tariff for the same imported cotton material that a foreign 
country under these trade agreements gets to send in for zero--
zero. So how is it that an American manufacturer can compete? 
They cannot. And so in my own State, there are hundreds of jobs 
at stake. There are over 10,000 jobs.
    So I hope the administration is going to work with us 
toward the cotton and wool trust funds which existed under the 
law, expired, and at least created the level playing field that 
you have mentioned you want in other respects for the 
hemispheric trade. We need that same level playing field here.
    Is that something that we can get the administration to 
focus on?
    Mr. Sanchez. The short answer is ``Yes.''
    Let me first thank you for your support for the US-CAFTA-DR 
fixes. That will help create jobs both in those nations and 
here. So it is very important. We appreciate your support.
    I am well aware of the issue you raise. In my office, we 
have the Office of Textile and Apparel, OTEXA, and I look 
forward to working with you, your staff, and constituent 
companies to see how we could help them on this particular 
issue or any other issues that they have in supporting their 
manufacturing efforts.
    Senator Menendez. Let me ask you in a broad context about a 
concern I have here. I look at the Dominican Republic, just by 
way of example. They have in our international arbitration an 
award on Codasa which was building a road there, has U.S. 
investors in it, and they are not willing to fulfill the 
international arbitration decision which ruled in favor of the 
company.
    We have another company with American investors that has a 
contract actually ratified by the Dominican Congress to do x 
ray of all of the cargo that goes through the ports, which have 
been problematic and for which in the past narcotics have been 
included in those cargo, and they do not want to live by that 
contract either.
    You have some of the other countries that I have mentioned 
today with arbitration awards that have gone against them, and 
yet they do not want to live by that.
    Well, what are we willing to do--maybe, Mr. Secretary, this 
might be more of your bailiwick. But what are we willing to do 
with our directors at the IDB, IMF, and other entities? Because 
it just seems to me that if you do not send a message that you 
cannot with impunity go ahead and violate those trade 
agreements and arbitration awards, which you agreed to as a 
process, and then 
still have us voting for you to get moneys for a variety of 
purposes, 
then you know what? If those countries can get away with that, 
they will. And that puts American companies at a tremendous 
disadvantage.
    Mr. Rooney. Thank you, Senator.
    I think, without specific reference to the Dominican 
Republic, but in other cases we have in fact done that.
    Senator Menendez. Well, then I hope you are going to look 
at the Dominican Republic. We are happy to provide you with the 
information.
    Mr. Rooney. As the cases unfold, we certainly look at all 
those tools. In other cases we have voted against loans, for 
example, to Argentina as a policy matter in light of their 
increasingly protectionist policies. We withdrew Argentina's 
GSP benefits as a result of its failure to pay its arbitral 
awards in two cases involving U.S. companies that filed 
petitions with the U.S. Government. So those tools are 
certainly on the table, and as these cases unfold, we do not 
hesitate to use them.
    Senator Menendez. One last question. As part of its 
ascension to the TPP negotiations, Mexico recently issued 
guidelines that would allow finally for implementation of its 
NAFTA obligation to provide regulatory test data protection for 
innovative biopharmaceuticals, something that is very important 
in my State which is the medicine cabinet to the world. I 
believe this is an important step toward strengthening Mexico's 
IPR regime and to ensuring trade partners comply fully with 
their obligations.
    I have been informed, however, that the Mexican Government 
does not intend to provide the protection for biologics but 
only small molecule medicines.
    If this is indeed the Mexican Government's position, it is 
very troubling, as complying with its NAFTA obligation was one 
of the preconditions for its entry into TPP. Does the 
administration have a view regarding the appropriate scope of 
regulatory data protection under the terms of the NAFTA treaty 
and what the U.S. Government intends to do in terms of advocacy 
in this regard?
    Mr. Sanchez. Yes. Thank you, Mr. Chairman.
    We were pleased that Mexico issued a regulation. However, 
we are continuing to look closely at it. On its face, the 
regulation does not appear to exclude biologics, but we 
continue to work very closely with the industry and we will 
consult with the Mexican Government to express our strong 
interest in biologics not being excluded. I would say, though, 
at this point on its face, the regulation does not exclude 
biologics.
    Senator Menendez. And my concern--I understand when 
something is not excluded, it does not mean that it is 
included. And so I hope our advocacy would be to ensure that it 
is included because that would be part of Mexico's NAFTA 
obligations here, and if we are going to extend TPP, then we 
have got to make sure that as a foundation we have that which 
has already been agreed to with the United States to be 
fulfilled.
    Mr. Sanchez. Our advocacy will be in very close 
consultation with our industry, as well as with you and your 
office.
    Senator Menendez. Thank you both very much for your 
testimony. We appreciate it and look forward to continuing to 
work with both of you.
    Mr. Sanchez. Thank you, Mr. Chairman.
    Senator Menendez. As our two witnesses depart, let me call 
our second panel which shifts to the private sector and examine 
some of the barriers and obstacles to increasing trade presence 
in the region. We are fortunate to have with us two excellent 
panelists: Eric Farnsworth, the vice president of the Council 
of the Americas; and Jodi Hanson Bond, the vice president of 
the Americas Division at the U.S. Chamber of Commerce.
    So, we appreciate your presence. We ask you to summarize 
your testimony to about 5 minutes or so. Your full testimony is 
going to be included in the record. Since I am Cuban, it means 
that ladies go first. So Ms. Hanson Bond.

 STATEMENT OF JODI HANSON BOND, VICE PRESIDENT, AMERICAS, U.S. 
              CHAMBER OF COMMERCE, WASHINGTON, DC

    Ms. Bond. Thank you, Chairman Menendez.
    My name is Jodi Bond and I am vice president of the 
Americas at the U.S. Chamber of Commerce.
    The U.S. Chamber of Commerce is the world's largest 
business federation, representing the interests of more than 3 
million businesses of all sizes, sectors, and regions, as well 
as State and local chambers and industry associations.
    Thank you for the opportunity to speak to the subcommittee 
about some of the opportunities and challenges for the United 
States and its business community in the Americas today.
    Let me begin by underscoring the strategic importance of 
the Americas to the United States. The Western Hemisphere 
accounts for over 44 percent of all U.S. goods exports, about 
$650 billion 
all together, and 12 of our 20 free trade partners are from 
this hemisphere.
    Nevertheless, widespread rule of law challenges, in 
particular, hold back the economic dynamism of the hemisphere. 
In light of this pressing problem, 2 years ago, the U.S. 
Chamber of Commerce established the Coalition for the Rule of 
Law in Global Markets, which has highlighted five factors--
transparency, predictability, stability, accountability, and 
due process--that we believe are needed for a sound legal 
environment for business. We have found that where these five 
factors are present investment thrives, economies grow, jobs 
are created, and prosperity follows. Where they are absent 
corruption thrives, informality reigns, investment dollars 
flee, and tax revenues plummet.
    One case in point is Argentina, a country that has enjoyed 
impressive growth over the last decade, but whose unorthodox 
economic policies have contributed to a continuing boom/bust 
cycle. Many of our member companies have been invested in 
Argentina for decades. There they find a rich culture, a highly 
skilled workforce, and an educated and cosmopolitan consumer. 
Yet, we are concerned about policies making it extremely 
difficult for them to do business; policies like nonautomatic 
import licenses and import/export balancing requirements which 
we believe to be WTO-inconsistent.
    We have similar concerns about Ecuador where both the 
Departments of State and Commerce have noted weaknesses in the 
judicial system, concerns that we understand were echoed in a 
recent letter from Senator Lugar to U.S. Trade Representative 
Kirk. That weakness has at times been exploited to take 
advantage of foreign investors, including U.S. companies. 
Making matters worse, Ecuador has stated its intention to 
terminate the U.S.-Ecuador Bilateral Investment Treaty and has 
denounced preexisting binding arbitral awards.
    We are greatly concerned that if met with indifference by 
the international business community, this conduct sets a 
dangerous precedent for other countries. Indeed, a disturbing 
level of contagion has already been evident with governance 
lapses in the business environment seeming to go hand in hand 
with breakdowns in broader political governance as recently 
seen in El Salvador and Nicaragua, for example.
    Further, we are alarmed by the rapid spread of illicit 
commerce in the region, a global scourge that by some accounts 
now equals 10 percent of global GDP. To address this issue, we 
need to work with our partners like Panama whose otherwise 
strategic geography unfortunately attracts the bad actors as 
well as the good.
    Still, there are several things the United States should do 
to maintain a regional leadership presence. First, champion 
expanded Latin America presence in TPP. Next, reinforce 
cooperation with our North American partners, Mexico and 
Canada. And, promote regional priorities such as security, 
trade facilitation, and rule of law with our hemispheric 
partners.
    More specifically, in the southern cone, the U.S. Chamber 
is advocating for an already ambitious agenda with Brazil to 
increase our substantial $70 billion trading relationship. We 
believe the time is ripe for the United States and Brazil to 
explore a bilateral economic partnership agreement that not 
only includes traditional market access but new areas of 
economic and commercial cooperation in the areas of energy, 
infrastructure, and trilateral cooperation such as preference 
programs with poorer countries like Haiti. The Chamber's 
Brazil-U.S. Business Council has helped make such a partnership 
possible by working to resolve the irritants to our trade 
relationship on issues like ethanol, orange juice, spirits, 
GSP, and cotton, and it should be noted that we can do the same 
with the Government of Argentina with respect to its market 
access priorities on lemon and beef if Argentina engages in a 
constructive dialogue.
    To conclude, Mr. Chairman, we are at a pivotal point in our 
relationships in the Western Hemisphere because the economic 
forecasts are strong and the region is in a growth mode. There 
is still ample opportunity for the United States to lead, but 
if we do not, it is certain that our partners are looking 
elsewhere because Latin America is not sitting still.
    Thank you.
    [The prepared statement of Ms. Bond follows:]

                 Prepared Statement of Jodi Hanson Bond

    Thank you, Chairman Menendez, Ranking Member Rubio, and 
distinguished members of the Subcommittee on Western Hemisphere, Peace 
Corps and Global Narcotics Affairs. My name is Jodi Bond, and I am vice 
president for the Americas at the U.S. Chamber of Commerce. The U.S. 
Chamber of Commerce is the world's largest business federation, 
representing the interests of more than 3 million businesses of all 
sizes, sectors, and regions, as well as State and local chambers and 
industry associations.
    I am pleased to speak today about doing business in Latin America, 
more specifically the opportunities and challenges that our member 
companies face in this hemisphere on a daily basis.
                the strategic importance of the americas
    First, it is crucial to underscore the importance of Latin America 
to the United States of America. As our hemispheric neighbors, the 
countries of Latin America are strategically important, but they also 
represent a vital market for U.S. exporters and importers.
    While many policymakers in Washington are focused on an Asian-pivot 
and look east for new trading partners, the reality is that in 2011 the 
nations of this hemisphere purchased 43.7 percent of U.S. goods 
exports--nearly as much as the United States exported to East Asia 
(24.9 percent) and Europe (22.2 percent) combined.\1\
    Furthermore, with the importance increasingly placed on the BRIC 
countries--Brazil, Russia, India, and China--it is easy to overlook the 
fact that the United States exports more to Mexico than to all the BRIC 
countries combined. Even in growth terms, the $55 billion in additional 
U.S. export sales to Mexico over the past 2 years is identical to the 
combined growth in U.S. exports to the BRICs in that same period.\2\
    What makes the markets in the Americas so strategic relative to 
other regions is that with the imminent implementation of the U.S.-
Panama Trade Promotion Agreement, the United States will have free 
trade agreements with countries forming an unbroken chain from Canada 
to Chile. These 12 free trade partners not only share the U.S. 
perspective on the need for an open, rules-based multilateral trading 
system, but also account for 87 percent of U.S. goods exports to the 
hemisphere or more than 38 percent of U.S. total goods exports.
    Overlaying these trade policy successes is a much-improved economic 
performance by many countries of the hemisphere. Broadly speaking, the 
region weathered the 2008-2009 global financial crisis better than many 
other regions, illustrating the success of macroeconomic reforms over 
recent decades. For 2012, the United Nation's Economic Commission on 
Latin American and the Caribbean (UN ECLAC) forecasts 3.7 percent 
growth for the region as a whole, following growth of 4.0 percent in 
2011. Many individual countries have fared much better: Recent FTA 
partners Panama and Peru, for example, are forecast to grow 8.0 percent 
and 5.7 percent, respectively, in 2012. Meanwhile, Mexico, with 4.0 
percent forecasted growth, is now luring back production previously 
lost to China, which through deeply integrated North American value 
chains is contributing to job creation here in the United States.
            challenges persist: the need for legal certainty
    Notwithstanding that rosy picture, doing business in Latin America 
continues to present serious challenges. Most significantly, 
shortcomings related to rule of law are prevalent in a number of 
countries, resulting in a deficit of legal certainty for the business 
environment and collectively holding back the influence and dynamism of 
the region in global trade. To help address these concerns, the U.S. 
Chamber of Commerce has established a Coalition for the Rule of Law in 
Global Markets, which has noted five factors that determine the ability 
of any business to make good investment and operating decisions, and 
thereby have a reasonable expectation of returning a profit in any 
given market:

          (1) Transparency: Laws and regulations applied to business 
        must be readily accessible and easily understood.
          (2) Predictability: Laws and regulations must be applied in a 
        logical and consistent manner regardless of time, place, or 
        parties concerned.
          (3) Stability: The state's rationale for the regulation of 
        business must be cohesive over time, establishing an 
        institutional consistency across administrations, and free from 
        arbitrary or retroactive amendment.
          (4) Accountability: Investors must be confident that the law 
        will be upheld and applied equally to government as well as 
        private actors.
          (5) Due Process: When disputes arise, they must be resolved 
        in a fair, transparent, and predetermined process.

    We've found that where these factors are present investment 
thrives, economies grow, jobs are created, and prosperity follows. 
Where they are absent, corruption thrives, informality reigns, 
investment dollars flee, and tax revenues plummet.
Argentina
    A case in point is Argentina, a country that has enjoyed impressive 
growth over the last decade, yet whose long-term prospects are dimmed 
by policies that limit opportunities for further expansion, and appears 
to be heading for a repeat of the boom-bust cycle that has been a 
hallmark of the Argentine economy. In efforts to address macroeconomic 
challenges resulting at least in part from the country's self-imposed 
inability to access international capital markets, Argentina has 
engaged in a systematic effort to reduce exports into and capital flows 
out of its market. The resulting series of byzantine and nontransparent 
regulatory measures make Argentina one of the most difficult places in 
the world for companies to do business even as they seek to contribute 
to Argentine job creation and growth. The informal manner in which 
these policies have been implemented contributes to an environment of 
increasing uncertainty for business. Moreover, the measures themselves 
in some cases--and certainly in their application--raise questions of 
compliance with international trade obligations, as well as of due 
process under domestic law.

   One such measure is Argentina's February 2012 ``Advance 
        Import Affidavit'' (Declaracion Jurada Anticipada de 
        Importacion, or ``DJAI'') requirement, which effectively 
        requires companies to seek advance approval before they may 
        import goods into Argentina.
   A related hurdle to trade is the nonautomatic import 
        licensing regime that Argentina maintains on a wide variety of 
        imported goods. WTO rules require members to process 
        applications for these licenses within 60 days; a time limit 
        that Argentina has consistently ignored.
   A third issue pertains to Argentina's de facto trade 
        balancing requirements, whereby companies have been required to 
        balance their imports into Argentina with an equivalent level 
        of exports.
   Other companies have been pressured to relocate 
        manufacturing facilities to Argentina altogether as a 
        prerequisite for continuing to do business there.
   We are also concerned with Argentina's newly adopted patent 
        examination guidelines, which appear to significantly restrict 
        patent subject matter eligibility and appear to prohibit or 
        severely restrict patenting of deserving inventions, such as 
        polymorphs, new formulations, etc. These guidelines are not 
        consistent with WTO Agreement on Trade-Related Intellectual 
        Property Rights (TRIPS) standards and also raise significant 
        concerns regarding incentives for innovation in Argentina.
   Finally, Argentina has flaunted contractual and treaty 
        obligations through confiscation of private property and open 
        disregard for binding international arbitration rulings, 
        contributing further to the breakdown of legal certainty.

    By all reports the majority of these steps have been taken in an 
atmosphere of coercion and behind an ever-present threat of retaliation 
against both companies and their individual executives. Most, if not 
all, of these measures appear to be inconsistent with either WTO rules 
and/or the U.S.-Argentina Bilateral Investment Treaty. In fact, the 
European Union has made a formal request for consultations with 
Argentina at the World Trade Organization, later joined by the United 
States and a number of other countries. The EU's consultation request 
sets out a variety of potential WTO claims, including claims under 
Articles III (national treatment) and XI (elimination of quantitative 
restrictions) of the General Agreement on Tariffs and Trade 1994 
(GATT); a claim under the WTO Agreement on Trade-Related Investment 
Measures; a series of claims under the WTO Agreement on Import 
Licensing Procedures; and individual claims under the WTO Agreement on 
Agriculture and the WTO Agreement on Safeguards.
    At the very least, we believe that these policies do not exhibit 
behavior of a responsible global trading partner and a member of the 
G20, as the ranking member of this committee noted in a recently 
introduced resolution.
Ecuador
    A second country that has raised grave rule of law concerns is 
Ecuador. As the U.S. Department of Commerce recently noted in its Doing 
Business in Ecuador report, ``fundamental weaknesses in Ecuador's 
judicial system and the rule of law are major challenges in doing 
business in Ecuador.'' Further, the U.S. Department of State's 2011 
Investment Climate Statement on Ecuador identifies, ``systemic weakness 
in the judicial system and its susceptibility to political or economic 
pressures constitutes important problems faced by U.S. companies 
investing in or trading with Ecuador.''
    Specifically, as noted in a recent letter from the U.S. Chamber's 
Senior Vice President for International Affairs, Myron Brilliant, to 
U.S. Trade Representative Ron Kirk, the Government of the Republic of 
Ecuador has not been acting in good faith in recognizing as binding and 
enforcing arbitral awards. Not only has Ecuador withdrawn from the 
World Bank's Convention on the Settlement of Investment Disputes 
between States and Nationals of Other States and stated its intention 
to terminate the U.S.-Ecuador Bilateral Investment Treaty (BIT), it has 
also failed to comply with the preexisting order of an international 
arbitration tribunal convened under Article 6 of the U.S.-Ecuador BIT 
and administered by the Permanent Court of Arbitration in The Hague, 
``(whether by its judicial, legislative, or executive branches) to take 
all measures necessary to suspend or cause to be suspended the 
enforcement and recognition within or without Ecuador'' of the $18.2 
billion judgment by Ecuadoran courts against the Chevron Corporation. 
The Government of the Republic of Ecuador has flouted this and other 
BIT awards, with President Correa himself denouncing the panel's 
findings.
    We regret that both the judicial and executive branches of the 
Government of the Republic of Ecuador have publicly denounced the 
arbitration award and stand silently by while efforts are made to seek 
foreign enforcement of the judgment, most recently in Canada and 
Brazil, in direct violation of the international tribunal's ruling 
award. Ecuador's disregard for international standards of justice and 
its own treaty obligations not only represents a breach of its BIT 
obligations to the United States, but sends a negative message to the 
global business community contemplating making investments in Ecuador.
Contagion
    These recent actions by Argentina and Ecuador--let's not forget 
Venezuela and Bolivia too--set a dangerous precedent for other 
countries in the region and around the world. In fact, a disturbing 
level of contagion has already been evident around the hemisphere as 
these countries have undermined the rule of law with impunity. 
Frequently, these governance lapses in the business environment seem to 
go hand in hand with breakdowns in broader, political governance--as 
recently seen in El Salvador's institutional crisis and Nicaragua's 
Special Law 364, which deprives American companies being sued in 
pesticide litigation of basic due process rights.
    Furthermore, we are alarmed by the rapid spread of illicit commerce 
in the region, a global scourge that by some reports now equals 10 
percent of global GDP. This illegitimate traffic is a source of funding 
for transnational criminal organizations involved in narcotics and 
human slavery; is a source of substantial funding for terrorists; robs 
governments of tax revenues; undermines public health and safety 
objectives; and undercuts legitimate businesses, the formal sector, and 
its employment base. The corrupting influence of this trade reinforces 
a negative cycle that makes it still more difficult to combat, so it's 
critical that we seize on opportunities to address the problem. One 
such is the implementation of the Panama free trade agreement, where we 
have an opportunity to build on that new partnership to strengthen 
collaborative efforts to halt illicit commerce through Panama's 
critical global trade hub. The absence of effective efforts to curb 
illicit trade in and through Panama and its free trade zone, in spite 
some efforts by Panama's customs service, is not only undermining 
Panama's stated desire to become a trusted trade and financial hub 
bridging the Pacific economy to the Caribbean and Atlantic economies, 
but it is adversely implicating the rule of law, good governance and 
national security. No time should be wasted in encouraging progress on 
this front which would complement and reinforce bilateral efforts 
already underway to address other forms of illicit activity. 
Furthermore, we have found that many within the region recognize the 
importance of addressing this scourge given its undesirable effects.
                              what's next?
    These challenges to doing business in many of the countries, 
including with key trading partners; the relative strength of Latin 
America's economies; and the impressive network of U.S. free trade 
partners in the region, mean simply that our work is not done. Our 
trade and investment ties can be deepened, our partnerships can be 
reinforced, and our shared values and interests reaffirmed.
    The U.S. Chamber of Commerce serves as the Executive Secretariat to 
the Association of American Chambers of Commerce in Latin America and 
the Caribbean (AACCLA). Twenty-three American Chambers, or ``AmChams,'' 
in 21 countries make up this grouping that work together on a common 
policy agenda in support of U.S. economic engagement in the hemisphere. 
The U.S. Department of State through Secretary Clinton's economic 
statecraft policy has explicitly recognized the AmCham network 
worldwide as a key to U.S. economic success. Here in the Americas, we 
are proud to serve the strongest network of AmChams anywhere in the 
world.
    Our work with AACCLA and the AmChams supports and informs all of 
our shared policy goals in the hemisphere from market access and trade 
facilitation, to rule of law, enforcement of existing trade agreements, 
strong intellectual property protections, sustainability, and corporate 
social responsibility. Together, we fought for congressional approval 
of the free trade agreements with Colombia and Panama--as we did before 
for Chile, CAFTA-DR, and Peru--and together we are forging ahead to 
modernize customs processes, improve commercial infrastructure, and 
reinforce the rule of law throughout the hemisphere.
    We do so in close collaboration with key partners in and out of 
government. For instance, we are currently working with the Inter-
American Development Bank on, among other things, a trade facilitation 
project that will identify private sector-led priorities for trade 
facilitation in Central America and the Dominican Republic. Likewise, 
we work closely with the U.S. Department of State to support and foster 
public-private dialogue, facilitating the Secretary's Global Business 
Conference in February, for instance.
    Most recently, we had the opportunity to host the U.S. Department 
of State and delegations from 9 of the 12 U.S. free trade partner 
countries in the hemisphere for a discussion that set the scene for 
next steps among like-minded countries on subjects such as trade, 
workforce development, and rule of law. This included an important 
conversation about rationalizing the trade liberalization that has 
already taken place--what my colleague, Dr. Jose Raul Perales, and 
others have described as the ``spaghetti bowl of free-trade 
agreements.'' \3\
    What the dialogue made clear is that our partners in the hemisphere 
welcome U.S. leadership. But they are not going to wait for it. For 
instance, the Pacific Alliance, an accord signed by Chile, Colombia, 
Mexico, and Peru, plans to remove barriers not covered under existing 
bilateral free trade agreements, such as those relating to the movement 
of people, establishing a bloc that accounts for more than 35 percent 
of Latin America's GDP. Another example is the Integrated Latin 
American Market (MILA), an attempt to create the largest stock exchange 
in the South American Continent by creating a common regional stock 
exchange between Chile, Colombia, and Peru; and the Central American 
Electrical Interconnection System (SIEPAC), a planned interconnection 
of the power grids of six Central American nations.
    Hemispherically, three forward-looking options are commonly 
discussed in trade policy circles: (1) linking the current trade 
agreements through the various chapters such as rules of origin; (2) 
bringing the rest of the hemisphere into the fold by negotiating free 
trade agreements with the other countries in the hemisphere; or, (3) 
completing what we view as the next generation trade agreement, the 
Trans-Pacific Partnership, with a workable accession model that will 
attract additional parties.
    While the U.S. Chamber supports all of the aforementioned 
hemispheric initiatives, there are also a number of lower profile 
initiatives which offer this hemisphere significant opportunities for a 
competitive edge:
North America
    The U.S. Chamber is pursuing parallel initiatives to achieve world-
class land borders with Canada and Mexico as well as ensuring that both 
countries are parties to the next generation trade agreement, the 
Trans-Pacific Partnership (TPP). Through our U.S.-Mexico Leadership 
Initiative, the U.S. Chamber is bringing corporate statesmanship to the 
fore in the bilateral relationship with Mexico. With partners such as 
AmCham Canada and the Canadian Chamber of Commerce, the U.S. Chamber 
continues working to enhance the largest bilateral trading relationship 
in the world between Canada and the United States.
    In both countries, the United States was able to secure important 
reforms in the process of TPP entry. For instance, we were encouraged 
by the passage of Canadian copyright legislation, which represents a 
step in the right direction toward a solid intellectual property regime 
in Canada. Likewise, the recent publication by Mexico's COFEPRIS of 
guidelines on regulatory data protection goes a long way to represents 
progress toward addressing longstanding concerns about IP protection in 
Mexico by of the U.S. IP R&D-based pharmaceutical industry. We are 
optimistic about the opportunity to secure further gains and modernize 
those partnerships in the TPP negotiations.
Central America and the Caribbean
    The U.S. Chamber is highlighting the success of the U.S.-Central 
America-Dominican Republic Free Trade Agreement (DR-CAFTA) while 
working to ensure that all parties are keeping their commitments. The 
Chamber is also promoting regional security and the rule of law, 
supporting preference programs, expanding the network of AmChams in the 
region through the creation of new AmChams in countries such as 
Barbados, promoting trade facilitation and customs modernization 
through a joint IADB-U.S. Chamber Trade Facilitation Advisory Group, 
and working within the law to constructively expand legitimate trade 
and travel with Cuba.
Andes
    The U.S. Chamber continues to champion regional trade agreements, 
trade facilitation, security, and the rule of law through programming 
with key officials, along with trade coalition leadership. In the 
Andean region, we are increasingly seeking opportunities to promote 
member companies and facilitating government procurement opportunities 
in growing markets such as Colombia and Peru while combating 
protectionism in Ecuador and Venezuela.
Southern Cone
    The U.S. Chamber is pursuing a more ambitious trade agenda with 
Brazil to increase an already substantial trading relationship of more 
than $70 billion in goods in 2011.\4\ Through the Chamber-affiliated 
Brazil-U.S. Business Council--the leading advocate for the trade and 
investment relationship between the United States and Brazil--we have 
worked hard to reduce the irritants to our trade relationship, 
including on ethanol, orange juice, spirits, GSP, and cotton; still, we 
have much to do to enhance our prospective economic ties between our 
countries.
    In this context, we believe the time is ripe for the U.S. and 
Brazil to begin exploring the idea of an encompassing Bilateral 
Economic Partnership Agreement that not only includes traditional 
market access, but also new areas of economic and commercial 
cooperation such as energy, infrastructure, and innovative trilateral 
cooperation mechanisms including trade preference harmonization for 
poorer countries in the hemisphere such as Haiti, technical assistance 
related to food and energy security, and disaster prevention and 
response.
    In addition to our work on Argentina, where as we have with Brazil 
we stand ready to work with the government on its market access 
priorities for Argentine products such as lemon and beef, the U.S. 
Chamber is enhancing already strong partnerships with the 
administration in Chile, and we are alert to opportunities to expand 
U.S. trade relationships with Paraguay and Uruguay.
                               conclusion
    On all these fronts, U.S. Government leadership is key, and we 
greatly appreciate the efforts of this subcommittee, as well as the 
full committee, and particularly Chairman Menendez and Ranking Member 
Rubio. Working together, we believe that we are at a pivotal point in 
our relationships with the Western Hemisphere and that we have an 
opportunity to cement the partnerships that have been fostered by this 
committee for so long. If we fail to act, however, it is certain that 
our partners will be looking elsewhere. Latin America is not sitting 
still.

----------------
End Notes

    \1\ U.S. Department of Commerce, TradeStats Express-National Trade 
Data, http://tse.export.gov/TSE/TSEReports.aspx?DATA=NTD.
    \2\ U.S. Department of Commerce, TradeStats Express-National Trade 
Data, http://tse.export.gov/TSE/TSEReports.aspx?DATA=NTD.
    \3\ Jose Raul Perales, ``The Hemisphere's Spaghetti Bowl of Free-
Trade Agreements,'' Americas Quarterly, April 30, 2012, http://
www.americasquarterly.org/perales.
    \4\ U.S. Department of Commerce, U.S. Census Bureau/U.S. Bureau of 
Economic Analysis NEWS, February 10, 2012, http://www.bea.gov/
newsreleases/international/trade/2012/pdf/trad1211.pdf.

    Senator Menendez. Thank you.
    Mr. Farnsworth.

 STATEMENT OF ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL OF THE 
                    AMERICAS, WASHINGTON, DC

    Mr. Farnsworth. Thank you, Mr. Chairman. Good afternoon. It 
is a real privilege to be with you here today, and while it is 
not necessarily the focus of this particular hearing, I did 
want to thank you up front for your comments in the July 23rd 
Washington Post in support of regional democracy and human 
rights. And we also join you and the other members of the 
subcommittee in mourning the untimely and, indeed, tragic loss 
of Oswaldo Paya in Cuba.
    As Cuba illustrates, challenges remain in the hemisphere. 
The good news is that long-term trends overall are positive. 
The region is coming into its own with sustained economic 
growth, poverty reduction, and an expanding middle class, 
democratic governance, and more confident engagement in 
international affairs. We have already heard a lot about that 
today. Economies have stabilized and strengthened due to 
concerted reform efforts.
    At the same time, the past several years have presented a 
favorable external environment for Latin America's economies 
due in large measure to China's rise and appetite for raw 
materials. This new reality has important economic, foreign 
policy, and commercial implications, including the conduct of 
business in the region. And I would like to focus my brief 
comments on this aspect today.
    By exporting to China, much of the region was able to avoid 
recession during the recent global economic crisis. Rather than 
being a cause of economic disaster, Latin America has proven to 
be an engine of economic recovery. This is a positive and 
noteworthy change. Of course, growth across the region is now 
slowing as China decelerates, the United States struggles with 
tepid recovery, and Europe remains embroiled in its own 
financial crisis. At the same time, not all countries are 
alike. Those relying on commodities exports have done well and 
will continue to do so until they do not. In other words, 
nations that have become overly reliant on commodities will be 
negatively impacted by a slowdown if they have not use the 
recent years of solid growth to diversify into value-added 
production.
    In the meantime, imports of cheaper manufactured products 
from China have inundated Latin America and the region is 
under-
going a process of deindustrialization whereby the percentage 
of manufactured products compared to primary goods is actually 
decreasing.
    China's activities in Latin America on the investment side 
are also having an impact. In the first instance, much-promised 
investment has not yet materialized. Still, investment is 
flowing and it is rapidly increasing, particularly in those 
sectors including energy, mining, agriculture, and 
infrastructure where China feels the need to lock in access. Of 
particular interest is energy, and the trend is accelerating as 
proven energy reserves expand from Brazil's deep water to shale 
gas in Argentina to coal in Colombia.
    What we are seeing in Latin America, as well as in Africa 
and East Asia, is that the Chinese investment model differs 
from others. In the first instance, the initial asset purchased 
by Chinese entities is generally underwritten by the Chinese 
Government, thereby allowing Chinese investors to outbid their 
Western counterparts as a matter of routine. Chinese entities 
often pay a premium beyond market values for their purchases in 
order to lock in assets. Indeed, the price that CNOOC just 
offered for Canada's Nexen, its biggest overseas energy deal, 
is at a 60-percent premium.
    Once an investment is confirmed, Western investment values 
of job creation in the local economy, technology and management 
transfer, corporate governance, respect for labor rights, 
environmental protection, anticorruption, and corporate social 
responsibility are not necessarily priorities. This can 
unfairly put United States and other companies at a 
disadvantage by lowering the costs of Chinese production vis-a-
vis the competition.
    But there are larger implications as well. Efforts to 
promote labor and environmental reforms through sound business 
practices and formal trade agreements such as you have 
championed, Mr. Chairman, are undermined when Chinese 
businesses are not expected to operate under the same 
prevailing conditions. Multilateral lending agencies that 
promote financial reforms and good governance become less 
relevant if borrowing nations can receive funds from China 
without conditionality. China's huge purchases of commodities 
and provision of credits on favorable terms allow regional 
leaders the political and economic flexibility to postpone
reforms that would be consistent with open market, democratic 
governance, and the rule of law.
    With this in mind, the United States must do a better job, 
I believe, contending for the region, and you have spoken about 
that in your opening statement. We need a more strategic 
approach.
    In the first instance, the United States would do well to 
deepen further our economic relations with Canada and Mexico, 
nations that engage in common business practices with the 
United States and Europe, as partners in the promotion of a 
common agenda.
    More broadly, we need to reactivate an ambitious economic 
and trade partnership agenda for the hemisphere. The Trans-
Pacific Partnership is a meaningful start but needs to be 
reenvisioned as a strategic initiative for the Americas, not 
just Asia. It should be expanded to include Colombia and Panama 
at a minimum and over time explore the possibility of including 
other likeminded nations. A focus on energy partnership in the 
Americas would also be appropriate, as would a stronger focus 
on regional financial markets integration and activities that 
promote trade and investment generally, including rule of law.
    The battle for the soul of Latin America continues, and the 
United States must engage in a positive, proactive manner to 
offer the region a vision for cooperation consistent with our 
values.
    So, Mr. Chairman, I want to thank you again for the 
opportunity to testify before you this afternoon, and I look 
forward to your questions.
    [The prepared statement of Mr. Farnsworth follows:]

                 Prepared Statement of Eric Farnsworth

    Good afternoon, Mr. Chairman and members of the subcommittee. It is 
a privilege to be with you today. As you know, the Council of the 
Americas (``Council'') is a leading policy voice on Latin America, the 
Caribbean, and Canada. For almost 50 years, our mandate has been to 
promote democracy, open markets, and the rule of law throughout the 
Americas. Thank you for the invitation to appear before you.
    The headlines about Latin America routinely focus on threats to 
democracy along with violence and insecurity. These are certainly 
pressing issues. But the reality is that Latin America has changed 
significantly both politically and economically and, while challenges 
remain, overall trends are positive. On the whole, the region is coming 
into its own, with sustained economic growth, poverty reduction and an 
expanding middle class, democratic governance, and more confident 
engagement in international affairs. In large measure, economies have 
stabilized and strengthened due to concerted efforts to reform 
financial systems, manage inflation, reduce debt, and open them to 
trade and investment.
  china's quest for commodities is changing economic realities in the 
                                americas
    China's rise and its consequent impact on the global commodities 
trade has been a strong driver of this recent economic growth, 
particularly in the commodities exporting nations located primarily in 
South America, and it is here that I want to focus the weight of my 
comments. These nations were largely able to avoid recession during the 
global economic crisis which began in 2008 due to China's sustained 
commodities demand. In fact, China is now the top trade partner of 
Brazil, Chile, and Peru, and the second trade partner of Argentina. 
Rather than being a cause of global economic disaster as often happened 
in the past, Latin America, along with Asia, has proven to be an engine 
of economic recovery.
    This is certainly a positive change. Of course, growth across the 
region is now slowing as China decelerates, the United States struggles 
with tepid recovery, and Europe remains embroiled in its own financial 
crisis. At the same time, not all countries are alike; Mexico and 
Central America do not have the same commodities export profile as 
South America does. Nonetheless, those relying on commodities exports 
have done well, although nations that have become overly reliant on 
commodities will be negatively impacted by China's slowdown unless they 
used the recent years of solid growth to diversify into value-added 
production. Efforts to address the skills gap between students 
graduating today and the demands of modern labor markets, implement 
policies designed to create a new climate for innovation, promote labor 
market flexibility, and encourage small and medium-sized businesses as 
an engine of job creation, among other initiatives, must be expanded, 
as the Council of the Americas identified in a report presented to 
governments at the Cartagena Summit of the Americas in April.
    In the meantime, imports of cheaper manufactured products from 
China have inundated Latin America, and the region is undergoing a 
process of deindustrialization whereby the percentage of manufactured 
products compared to primary goods is decreasing. Parts of Latin 
America with strong links to China are actually moving down the value 
chain, rather than up. Brazil just signed an accord with China at the 
Rio+20 meeting which attempts to address the imbalances built in to 
that important emerging trade relationship. Conversely, the trade 
relationship that most Latin American nations have with the United 
States is much more evenly balanced, supporting, rather than 
potentially undermining, value-added production and broad-based 
economic development in the region.
    China's activities in Latin America on the investment side are also 
having an impact. In the first instance, much of the promised 
investment has not yet materialized, leading to unmet expectations. 
Still, investment is flowing and it is rapidly increasing, particularly 
in those commodities sectors including energy, mining, and agriculture, 
where China feels the need to lock in access to the supplies which have 
sustained its economic takeoff. Of particular interest is energy, where 
China has been an active participant in Venezuelan, Ecuadorean, and 
other projects, for example. Chinese investment is accelerating as 
proven energy reserves expand rapidly and dramatically across the 
Americas, from the deep water off Brazil to shale gas in Argentina. 
This is a global phenomenon and China's energy interest in the Americas 
is not limited to Latin America; just last week, for example, CNOOC 
announced its biggest overseas energy deal, agreeing to purchase 
Canada's Nexen energy company for over $15 billion.
    This theme will only become more pronounced in coming years. As 
China's authoritarian rulers seek political legitimacy not from the 
ballot box but rather from sustained economic growth and an improving 
quality of life for its 1.4 billion citizens, while maintaining a 
multitrillion dollar hard currency war chest, continued access to the 
raw materials worldwide that fuel production is seen in Beijing as a 
national security issue. Investments are made accordingly, with 
implications for doing business in the Americas.
                   all investments are not made equal
    The Chinese model of investment differs from others. In the first 
instance, the initial asset purchase by Chinese entities is frequently 
underwritten by the Chinese Government, thereby allowing Chinese 
investors to outbid their Western counterparts as a matter of routine. 
Chinese entities often pay a premium above market value for their 
purchases, in order to lock in assets. Indeed, the price offered for 
Nexen is a 60-percent premium.
    Once an investment is confirmed, Western investment values of job 
creation on the local economy, technology and management transfer, 
corporate governance, respect for labor rights, environmental 
protection, anti-corruption, and corporate social responsibility are 
not necessarily priorities. This can unfairly put U.S. and other 
companies at a disadvantage by lowering the costs of Chinese production 
vis-a-vis the competition.
    But there are larger implications here, as well. Since the end of 
the cold war, Latin America has advanced significantly to promote 
democratic governance. Progress has been uneven to be sure, but it is 
unquestionably in the U.S. interest to promote this path. Open market 
democracies that broadly share values tend to make the best long-term 
partners of the United States in the promotion of shared interests. 
China's entry into the Americas has complicated this effort, not just 
in the conduct of business but also in the conduct of foreign policy.
    For example, efforts to promote labor and environmental reforms 
through sound business practices and formal trade agreements are 
undermined when nations sign agreements with China that do not include 
similar provisions, and Chinese businesses are not expected to operate 
under the same prevailing conditions. Multilateral lending agencies 
like the World Bank, IMF, and Inter-American Development Bank that 
promote financial reforms and good governance become less relevant if 
borrowing nations can receive funds from China without conditionality. 
China's huge purchases of commodities and the provision of credits on 
favorable terms allows regional leaders the flexibility to postpone 
necessary economic and policy reforms consistent with open market, 
democratic governance, or to take actions that harm the investment 
climate.
    a competitive commercial environment calls for a more strategic 
                                approach
    China's interest in the Americas will only grow. This means that 
the United States must do a better job contending for the region. We 
need a more strategic approach.
    In the first instance, the United States would do well to deepen 
further our economic relations with Canada and Mexico, nations that 
engage in common business practices with the United States and Europe, 
as partners in the promotion of a common agenda that share common 
values. Mexico, for example, is resisting the protectionist temptation 
to which others in the region are succumbing, and has been a clear 
voice for open markets even in the face of market turbulence.
    More broadly, we need to reactivate an ambitious economic and trade 
partnership agenda for the hemisphere. The Trans-Pacific Partnership is 
a meaningful start, but needs to be reenvisioned as a strategic 
initiative for the Americas, not just Asia. It should be expanded right 
away to include Colombia and Panama at a minimum, and, over time, 
explore the possibility of including like-minded non-Pacific coast 
nations in Latin America. Other initiatives to improve the regional 
business climate would include stronger emphasis on energy partnership 
in the Americas, and efforts to promote regional financial markets 
integration as well as the rule of law. From a bilateral perspective, a 
dual tax treaty with Brazil would be one of the most effective things 
we could do to promote trade and investment with Latin America's 
largest market.
    The battle for the soul of Latin America continues, and the United 
States must engage in a positive, proactive manner to offer the region 
a vision for cooperation consistent with our values. China's entrance 
into the Americas has changed the game. A reenergized approach to the 
region is required.

    Senator Menendez. Well, thank you both for your testimony. 
I appreciate it. You have sort of squared off different 
sections of this issue. So let me pursue it in that regard.
    Ms. Hanson, was the Chamber at the Summit of the Americas, 
and if so, what were your takeaways from the Summit of the 
Americas as it relates to business executives in terms of their 
advocacy, their views, their concerns within the hemisphere?
    Ms. Bond. Thank you, Mr. Chairman.
    Yes, the U.S. Chamber was present. And, in fact, leading up 
to the Summit of the Americas, the U.S. Chamber was asked by 
the OAS to provide private sector recommendations to the 
summit, and to do so, we put together a survey to identify the 
priorities in the hemisphere of our companies to give some 
feedback. We are happy to say that the results were provided to 
each member of the Presidential delegations that were at the 
summit and I would be happy to submit a copy of these findings 
for the record.
    The key findings were that the obstacles were primarily in 
the areas, in the short term, focused on the rule of law, and 
in the long term, the state of the education system within the 
hemisphere.
    That said, where the CEO summit is concerned, I think it 
was a complete success. It really filled that space for 
hemispheric interaction between the private sector and regional 
governments. And we would be proud to work with the OAS, the 
IADB, and the U.S. Government to ensure that this space 
continues.
    Senator Menendez. So in that regard, was the interaction 
with the private sector in Latin America, with the governments 
of Latin America, with the Chamber's interaction in this 
initiative?
    Ms. Bond. Correct. Actually our CEO, Tom Donohue, was at 
the summit and we had several other hemispheric CEOs. We took a 
delegation of about 15 CEOs from U.S. companies and other 
countries did as well. Canada and all of Latin America were 
represented as well at the summit with about 400 business 
leaders with the opportunity to interact with the different 
heads of state and ministers.
    Senator Menendez. The reason I asked that question is 
because I wonder whether there is an opportunity to make the 
private sector within Latin America an advocate for some of 
these transparency, rule of law issues that we as a government 
would want to see by getting the private sector to be an 
advocate within their countries for opening up the doors to 
greater investment and trade. Do you believe there is an 
opportunity for that to be realized?
    Ms. Bond. Absolutely. As I referred to in my testimony, we 
established the Coalition for the Rule of Law to focus on the 
areas where we have had experience where these countries can 
actually do better to attract investment. And yet, through our 
network of American Chambers of Commerce in Latin America, of 
which there are 23 in this hemisphere, we have the opportunity 
to message and be a voice on rule-of-law issues with those 
local AmChams.
    Senator Menendez. Let me ask you, Mr. Farnsworth. You 
talked a lot about China, and it is a concern certainly to me. 
It seems to me that the Chinese are clearly, in one of its 
priorities, after Latin American mineral resources. And within 
the context of seeking those resources, I understand their 
enormous appetite for them. But how much are the Chinese 
exporting to Latin America? You mentioned a little bit of that. 
Are there specific trade sectors in which find ourselves in 
very severe competition with them in the hemisphere?
    Mr. Farnsworth. Yes, it is a really good question.
    The first thing to understand is what China is doing in 
Latin America is very consistent with what China is doing with 
the rest of the world, in Africa and East Asia. And in fact, 
they are relatively late to the game in Latin America. Their 
presence there has really only been, in the modern era anyway, 
less than 10 years since the first visit of Hu Jintao in 2004. 
Since that time, the engagement has dramatically increased. But 
even today, U.S. exports and trade with the region still 
outnumber the amount of trade that China is doing with the 
region by a factor of 4 to 1. So we have to keep it in 
perspective. It is still relatively small, but it is certainly 
growing and it is becoming much more of a competitive factor.
    Clearly China's interest is in the commodities of Latin 
America. And again, it is very consistent with their global 
outreach. They see this as consistent with their national 
growth strategy which is very consistent with the need to keep 
the political legitimacy of the Communist Party and the rulers 
in Beijing. And to the extent that that growth depends on 
inputs of commodities globally, they are going to look wherever 
they can to find those commodities, and that is what they are 
doing in Latin America.
    So at one level--I do not mean to oversimplify it, but they 
do not really care what is going on in Latin America per se. 
They care about what Latin America can sell to them, and in 
return what 
the Chinese have done is what they have done in other parts of 
the world. It is a classic mercantilist strategy. You bring in 
the resources from outside, you add value, and you sell them 
back to the countries in question or, in China's case, 
globally.
    And in fact, what we are seeing is this is actually 
impacting Latin America's development in a negative way because 
while the producers of natural resources and agriculture and 
mining and energy are doing quite well and that has really 
underwritten Latin America's recent economic growth, the 
manufacturers in Latin America are telling a different story 
particularly in Brazil, particularly in countries that are well 
along the way to development because their competition is 
directly from Chinese manufacturers. And so the story is a 
little bit more complicated, but one can, I think, clearly say 
that what the Chinese are doing is more of a traditional 
mercantilist model.
    They are beginning to understand the negative impact that 
that is having in Latin America in terms of development, in 
terms of their political position, in terms of what it means 
with relations in terms of the United States. But that is an 
evolutionary process. Again, they have really only been 
involved in the region for a short period of time, and it will 
be interesting to see how that evolves over time.
    One other quick thing I would add is that the Latin 
American governments are not unaware of this. In fact, at the 
Rio Plus 20 meeting in June just last month, Brazil and China 
signed an agreement, an economic cooperation agreement, which 
was specifically designed to try to bring more into balance the 
trade relationship so that without reducing the sale of 
commodities to China, nonetheless, the Brazilians are now going 
to try to increase the sale of manufactured products to China. 
And that is the real growth area that they are trying to 
develop.
    Senator Menendez. Let me just pursue one more thing on 
China. China has made some rather large loans, for example, to 
Brazil and Venezuela particularly in their energy sectors. Do 
you have any sense of whether those loans are being repaid in 
oil, and if so, then does that give China an advantage in 
setting the price for oil it is receiving and placing American 
companies at a disadvantage?
    Mr. Farnsworth. Yes, again, very good and important 
question.
    The short answer is it depends on which country. Venezuela 
and Ecuador, yes, it is in petroleum products. Argentina, it is 
more in terms of agriculture. It just depends on what the 
country has that China wants. But in the energy sector, what we 
have seen is large loans that will be paid back over time in 
energy. Generally those contracts are written so that the price 
of the energy is at market prices, and so from that 
perspective, because the energy market globally will rebalance 
and readjust, it is not that China is taking additional energy 
off the market. It is the same amount of energy, and they are 
going to use energy no matter where they get it from. So at a 
certain level, it is not being anticompetitive with U.S. 
companies.
    It does have several implications, though. One is that it 
allows countries like Venezuela to frontload a lot of populist 
spending. So what we have seen, for example, is the government 
in Caracas is now amping up or juicing the Venezuelan economy 
in advance of the October elections. This is something that 
without a lot of disposable income, if you want to put it that 
way, they would be unable to do. So it does have certainly 
political implications, No. 1.
    And No. 2 is what it means is it commits the Venezuelan or 
Ecuadorian or other populations to a relationship with China 
for the longer term that if conditions in their own countries 
happen to change, they are still committed to those for the 
long term. So it is almost like that old TV commercial from the 
1970s. ``You can pay me now or pay me later.'' It does not 
matter. The Chinese are not going to care what sort of 
government is in power, whether it is democratic or 
authoritarian or whatever. They want to get paid back in 
energy. So what the governments now are committing to do is 
they are committing their populations to wealth transfer down 
the road in advance of that payment up front.
    And then the final thing I would say is to the extent that 
it allows the Chinese Government to, shall we say, get 
preferential consideration for their companies in bidding for 
specific energy projects whether they be in Venezuela or 
Ecuador or somewhere else, that would have an anticompetitive 
feature in terms of United States companies and frankly other 
companies internationally.
    So it is a multifaceted thing, but I think the thing to 
really remember is that by giving a lot of money to the region 
without a lot of conditionality, what the Chinese presence is 
doing in the region is really enabling governments who might 
not want to pursue the path or the course that the United 
States and other Western economies might otherwise like to see 
or encourage, that gives the flexibility for some of those 
other leaders to pursue a different course.
    Senator Menendez. In doing so, it increases the possibility 
that issues in countries--Venezuela, for example--involving 
democracy, transparency, freedom of the press can be 
perpetuated.
    Mr. Farnsworth. Yes, absolutely.
    Senator Menendez. And that continues to be a challenge to 
the United States.
    Let me ask you one final set of questions. I put it to both 
of you. Even though Ms. Hanson focused on it, I would like to 
hear both of your perspectives. You talked about those five 
elements of transparency, predictability, accountability, due 
process, and I forget the fifth one. But they are all, in 
essence, to some degree within the rule-of-law process.
    If you had two or three actions that you would like to see 
the U.S. Government pursue so that all of those principles 
would be a broader reality in the hemisphere so that we would 
have greater investment opportunities to be realized, what 
would you want to see the U.S. Government do in pursuit of 
that?
    Mr. Farnsworth. Well, sure, thank you, Mr. Chairman, again 
for the opportunity.
    I think there are several things.
    First of all, we want to encourage positive actions by 
ensuring that a strong relationship with the United States 
brings rewards. So in the context of trade agreements or 
activities, whether it is through CAFTA-DR, which we have 
talked about, NAFTA, some of the other trade agreements, to 
ensure that those are working for the people, not just of the 
United States and also of the region, but to make sure that 
these are developing the economies in a way, including our own 
certainly, I think that is very positive. So you have to have 
benefits to being a friend of the United States. I think that 
is point No. 1.
    I think point No 2, there are a number of tools that we 
have. We talked a little bit about it in the first panel. Some 
have been applied to certain countries and some have yet to be 
applied. I think we need to do a better job understanding what 
tools we really have available because this is a globalized 
environment and ultimately countries do not respond to the 
United States necessarily in the same way as when we were the 
only actor in the Western Hemisphere or the primary actor in 
the Western Hemisphere. And again, this is where China is 
changing the example.
    But I do think there are instances whereby a country, for 
example, Ecuador, which has been talked about, may be in breach 
of international investment obligations, and I think at that 
point the United States is well within our rights to have a 
look at unilateral preferences that we may have granted over 
time, whether it be trade or investment or access to loans at 
the IFI's or MCC assistance, not necessarily for Ecuador 
because they do not have a program. But the point being that we 
have a number of programs that we can take a look at and 
certainly ATPA and GSP preferences are part of that. So one has 
to take a look at those aspects. So you certainly have a carrot 
and a stick.
    I think we need to focus a lot on--the piece that I do not 
think we have done a great job on is focusing on carrots in 
terms of really working with the Mexico's and the Colombia's 
and the Peru's and the Chile's of the world to try to build out 
that broader economic agenda. And I would really encourage that 
as a real priority for us.
    Ms. Bond. Thank you very much, Mr. Chairman.
    I do believe we do concur with Eric that we need to 
strengthen the United States ability to have some say in these 
regions by the fact that we need to enforce our trade 
agreements and we need to ensure that there is reason for other 
countries to be trading with the United States. We need to have 
the opportunity to be able to convey with messaging what it is 
that U.S. businesses provide to these countries when they are 
doing business overseas, that there is the opportunity to 
strengthen these two-way ties because the fact of the matter 
is, U.S. companies are the businesses that any country should 
want to be doing business in their country. The fact is that 
U.S. companies localize like none other. We create partnerships 
on the ground in countries where we do business.
    In fact, I referenced the OAS study in which we gave some 
private sector inputs to--over 90 percent of the U.S. companies 
that we surveyed do some form of corporate social 
responsibility. The fact is that localization in these markets 
is part of a long-term business strategy for growth, and we 
would love it if the U.S. Government could work with us more 
fastidiously to message that out to these governments, that 
there is more promise and opportunity that comes from doing 
business with U.S. businesses.
    Further, we would also like to strengthen international 
arbitration organizations. I outlined some of this in my 
testimony and would like to further call attention to what we 
are doing with regard to our work through the Coalition for the 
Rule of Law.
    And then also, we would like to build out the private 
sector mechanisms with which we communicate with governments 
using our AmCham network as the basis to be communicating these 
fundamental elements of engagement in these countries with 
regard to rule of law. I think that we have made some strides 
with economic statecraft to the degree that we have many U.S. 
ambassadors who are conducting calls with the business 
community. We have had some test pilot calls and we would like 
to see more of that messaging occur with our embassies overseas 
and our AmChams.
    Senator Menendez. Thank you both for your answers and your 
testimony.
    I agree with you, Mr. Farnsworth, that carrots could be 
enhanced and we should. I have a sense, however, that we have a 
reticence, when we have exhausted the carrots, not to use the 
stick, and that is problematic because carrots do not come in 
unlimited supplies. And so in that balance, I am afraid that 
sometimes--I do not know why--we seem to have a reticence to 
pursue the authorities that we have and the leverages that we 
have in different ways that I hope to pursue more aggressively 
through the committee in terms of understanding and getting the 
Government to be focused on that.
    And then I do think that to the extent that we are spending 
money in the hemisphere, rule-of-law programs and efforts to 
strengthen the rule of law is incredibly important because at 
the end of the day, you can have all the investments in the 
world, but if your investments are arbitrarily and capriciously 
taken, if you have the equivalent of our IRS changing, after 
major investments are made, tax treatment of those investments, 
if you have international arbitration awards that still cannot 
be honored, then you have an environment in which all the 
potential does not get realized either for American companies 
or, for that fact, the citizens of the hemisphere who would 
benefit from those investments in all the ways that Ms. Hanson 
has spoken about and we believe also exist.
    So I look forward to continuing this conversation with both 
of you and others in the days ahead.
    With the thanks of the committee, this hearing will have 
the record open for another 2 days. Anyone who wishes to submit 
a question--I would urge our panelists to answer them as 
expeditiously as possible.
    And with that, this hearing is adjourned.
    [Whereupon, at 3:25 p.m., the hearing was adjourned.]
                              ----------                              

              Additional Material Submitted for the Record

Prepared Statement of Chevron Corporation Submitted by Edward B. Scott, 
      Vice President and General Counsel, Chevron Upstream and Gas

    Chevron Corporation (``Chevron'') appreciates the opportunity to 
submit the following statement for consideration by the Senate 
Committee on Foreign Relations Subcommittee on the Western Hemisphere, 
Peace Corps, and Global Narcotics Affairs on the challenges posed by 
doing business in Latin America.
    Chevron's perspectives on the issue of doing business in Latin 
America are informed by our global reach, with interests in over 100 
countries, including Latin America. We are a leading international oil 
company, based in San Ramon, California, and with major operations and 
investments in the world's most important and politically diverse oil 
and gas producing regions. We also have extensive international 
investments in refining, fuels and lubricants. Other interests range 
from chemical production and mining to energy research. Further, we 
operate power facilities and are the world's largest producer of 
geothermal energy.
    Investment protection through Bilateral Investment Treaties (BITs) 
is an important tool to help ensure investment protection to U.S 
economic interests overseas. These protections are vital to protect 
U.S. interests abroad, presenting real impacts to the economy and 
energy security, both globally and domestically.
    Investment protection is an issue with real-world implications. A 
substantial portion of Chevron's overseas investments are made in 
countries without high-quality investment protection agreements with 
the United States, even as many of these countries pursue investment 
agreements with other trading partners. Sustained progress toward a 
comprehensive investment protection regime is necessary to both reduce 
the risk associated with overseas investments and to ensure that U.S. 
companies are not disadvantaged against foreign competitors whose 
investments are protected by such agreements. High-quality investment 
protection agreements, along with measures to promote good governance 
and the rule of law, are indispensible to provide a level playing field 
for U.S. companies operating abroad. They ensure that we have the tools 
available should we be subject to expropriation or nationalization of 
our assets, and help ensure equitable solutions to legitimate disputes 
between investors and host governments.
    Our comments in this statement, however, will focus on the 
significant and ongoing difficulties Chevron has faced in the Republic 
of Ecuador, including challenges brought on by Ecuador's failure to 
honor its Bilateral Investment Treaty obligations with the United 
States. These difficulties center on collusion by the Republic of 
Ecuador in a private lawsuit brought in Ecuador against Chevron rife 
with incontrovertible evidence of fraud that resulted in a fraudulent, 
$18.2 billion legal judgment against Chevron. Chevron has been forced 
to bring an action under the U.S-Ecuador Bilateral Investment Treaty 
(``BIT'')--an instrument initially read by this very body's parent 
committee in 1993--to preserve its rights by obtaining an award staying 
enforcement of the fraudulent judgment. Ecuador, however, has ignored 
the award of the BIT tribunal ordering Ecuador to prevent enforcement 
of the fraudulent judgment. Due to its inaction, Ecuador has encouraged 
enforcement of the fraudulent judgment in direct contravention of the 
BIT tribunal's award. This committee should insist upon a strong U.S. 
response to Ecuador's failure to meet its obligations to the United 
States under the BIT.
                       the consortium in ecuador
    From the 1970s until the concession expired in 1992, a subsidiary 
of Texaco Inc., Texaco Petroleum Company (``TexPet''), participated 
with Ecuador's state-owned company Petroecuador in an oil-producing 
consortium in Ecuador. Since 1992, Petroecuador has been the sole 
operator in the former concession areas, and TexPet has had no further 
role in oil production in Ecuador. In 1995, TexPet and Ecuador agreed 
that TexPet would remediate specific consortium sites assigned by the 
government in proportion to TexPet's 37.5 percent minority ownership 
share of the consortium, and the Republic of Ecuador and Petroecuador 
granted TexPet an immediate release of all environmental liabilities 
arising out of the consortium operations that were not included in that 
scope of work. In 1998, after TexPet spent $40 million to complete the 
work at the designated sites, and after numerous government inspectors 
tested and certified that the sites were properly remediated, the 
Republic of Ecuador granted TexPet and all related corporate entities a 
full and final release from any and all environmental liability on 
public lands arising from the consortium operations.
    As a result of the 1995 and 1998 agreements, Petroecuador assumed 
all remaining liabilities arising out of the former consortium's 
operations. Petroecuador acknowledges that it has not cleaned up its 
share of the consortium operations, and in fact has continued 
operations in the former concession area with a widely acknowledged 
record of operational and environmental mismanagement, averaging some 
three oil spills per week since 2000.
                       the lago agrio litigation
    In 2003, private plaintiffs' lawyers filed a lawsuit in Lago Agrio, 
Ecuador against Chevron--but not Petroecuador--seeking $6 billion in 
damages for environmental impact to public lands. A court-appointed 
expert, Richard Cabrera, filed a report in April 2008 (the ``Cabrera 
report'') that suggested Chevron was liable for between $7 and $16 
billion in damages, a number he increased in a supplemental report in 
November 2008 to $27.3 billion. On February 14, 2011, relying heavily 
on the Cabrera report, the Ecuadorean court ruled against Chevron and 
ordered the company to pay $18.2 billion in damages.
           evidence obtained through discovery sanctioned by 
              u.s. courts documents fraud against chevron
    Chevron has long maintained that the lawsuit was politicized in 
Ecuador and that it was being denied due process. Events in the last 
few years have revealed a massive fraud being perpetrated on Chevron by 
the plaintiffs' lawyers, the Government of Ecuador, the plaintiffs' 
experts, the court-appointed damages expert, and even the Ecuadorian 
judge assigned to the case. The fraud includes the plaintiffs' lawyers' 
ghost-writing the supposedly ``independent'' Cabrera report, falsifying 
documents, fabricating evidence, and even drafting the court's judgment 
in their favor.
    Throughout the case, the plaintiffs' lawyers made concerted efforts 
to conceal their fraud, including repeatedly lying about their 
involvement in drafting the Cabrera report, concealing documents that 
revealed the truth, creating bank accounts for secret payments to 
Cabrera, setting up separate e-mail accounts and using aliases to hide 
sensitive communications about their authorship of the Cabrera report 
and other matters, among other efforts.
    Seven U.S. courts around the country have recognized the fraud 
occurring in Ecuador against Chevron. The District Court in the 
District of New Jersey, for instance, held that the plaintiffs' 
lawyers' actions could not constitute ``anything but a fraud on the 
judicial proceeding.'' The Western District of North Carolina wrote 
that ``what has blatantly occurred in this matter would in fact be 
considered fraud by any court.'' The District of New Mexico stated that 
the plaintiffs' lawyers have engaged in ``corruption of the judicial 
process, fraud, attorney collusion with [Cabrera], inappropriate ex 
parte communications with the court, and fabrication of reports and 
evidence.'' The District for the Southern District of California 
further wrote that there is ``ample evidence in the record that the 
Ecuadorian Plaintiffs secretly provided information to Mr. Cabrera, who 
was supposedly a neutral court-appointed expert, and colluded with Mr. 
Cabrera to make it look like the opinions were his own.''
                the fraudulent judgment against chevron
    Despite the evidence of fraud, in February 2011, the Ecuadorian 
court issued a judgment awarding the plaintiffs and their allies $18.2 
billion in damages. However, the Lago Agrio plaintiffs' own admissions 
and forensic evidence proves that it was the plaintiffs' 
representatives, rather than the trial judge, who drafted the Lago 
Agrio judgment. Internal communications from August 2008 and onward 
show the plaintiffs' representatives discussing their intent to ``start 
the work with the new judges.'' The plaintiffs' representatives 
discussed ``developing a judgment that will be enforceable in the U.S. 
and elsewhere'' by becoming ``involved in the preparation of the final 
submission and proposed judgment.''
    Moreover, forensic experts have testified that numerous passages in 
the judgment are contained verbatim in the plaintiffs' lawyers' 
internal documents, documents that were never filed in the proceeding, 
and cite data from the plaintiffs' lawyers' own private database, which 
was never submitted in the court record. The judgment throughout also 
incorporates plaintiffs' lawyers unique citation and punctuation 
styles.
    Despite overwhelming evidence of fraud in the judgment, an 
intermediate appellate court affirmed the decision on January 3, 2012. 
On January 20, 2012, Chevron filed an appeal to Ecuador's National 
Court of Justice, the nation's highest court, where it remains pending 
even while plaintiffs seek enforcement of the judgment in third 
jurisdictions.
            chevron's arbitral award under the u.s.-ecuador 
                      bilateral investment treaty
    In light of the tainted judicial process in Ecuador--which was 
glaringly obvious even before final judgment was rendered in February 
2011--Chevron initiated an arbitration against Ecuador in September 
2009 under the U.S.-Ecuador BIT. In the arbitration, Chevron submitted 
claims that Ecuador violated its obligations under settlement and 
release agreements with Chevron's subsidiary, obligations under the 
BIT, and obligations under other applicable international law by 
failing to accord fair and equitable treatment in the Lago Agrio 
litigation.
    As the Lago Agrio trial reached its conclusion, Chevron perceived a 
serious risk that the court would issue a final judgment in plaintiffs' 
favor, and that the plaintiffs' lawyers would attempt to enforce the 
fraudulent judgment in countries throughout the world. In light of this 
risk, Chevron asked the BIT arbitration tribunal to award interim 
measures to preserve the status quo and prevent the arbitration from 
becoming an ineffective exercise. Specifically, Chevron asked the 
tribunal to instruct Ecuador to prevent any final judgment in the Lago 
Agrio litigation from becoming enforceable pending the conclusion of 
the arbitration in which the very conduct of that litigation was at 
issue.
    On February 16, 2012, the BIT Tribunal issued an award directing 
Ecuador ``(whether by its judicial, legislative, or executive branches) 
to take all measures necessary to suspend or cause to be suspended the 
enforcement and recognition within and without Ecuador of'' the Lago 
Agrio judgment, as well as the appellate judgments upholding it. The 
BIT Tribunal specified an obligation of result upon Ecuador: ``in 
particular, without prejudice to the generality of the foregoing, such 
measures to preclude any certification by the Respondent [Ecuador] that 
would cause the said judgments to be enforceable against [Chevron].''
    As anticipated, the plaintiffs' lawyers filed enforcement actions 
to collect upon the fraudulent judgment. They filed collection actions 
in Canada on May 30, 2012, and in Brazil on June 27, 2012. They have 
also suggested they will seek enforcement in 30 other countries, 
including in Venezuela or in Panama, where oil tankers pass through the 
Panama Canal.
          ecuador's disregard of the arbitral award against it
    Despite the BIT Tribunal's award, Ecuador has failed to ``act in 
good faith in recognizing as binding and enforcing'' the award. It has 
not taken any measures, let alone ``all measures necessary'' to prevent 
the Lago Agrio judgment from becoming enforceable. In fact, the 
combined actions of Ecuador's judicial and executive branches have gone 
in the opposite direction, facilitating rather than suspending 
enforceability of the judgment.
    Ecuador had multiple opportunities to take action consistent with 
its obligation under the BIT Tribunal's award, but it failed to take 
any of them. Among other steps, Ecuador could have declared, through an 
opinion by a government official or its courts, that enforcement of the 
Lago Agrio judgment is suspended, or it could have ordered through its 
courts or otherwise that the judgment is not enforceable under 
Ecuadorian law pending the outcome of the BIT arbitration. Moreover, 
now that the plaintiffs have initiated enforcement actions in Canada 
and Brazil, Ecuador could advise the courts in those countries that the 
judgment's enforcement must be considered suspended in light of the BIT 
Tribunal's award.
    Ecuador has taken none of these or any other actions that would 
cause the Lago Agrio judgment to be suspended. On this basis alone, it 
must be concluded that Ecuador has failed to act in good faith to 
recognize as binding and to enforce the award of the arbitral tribunal. 
But Ecuador has not just passively allowed the plaintiffs to seek 
enforcement of the Lago Agrio judgment, it has actively facilitated 
that initiative. On two occasions, on February 17 and March 1, 2012, 
Ecuador's courts expressly denounced the BIT Tribunal's award, and in 
orders dated March 21 and 28, 2012, the appellate court granted the 
plaintiffs' request for a declaration that the appellate decision has 
the force of res judicata. These declarations contradict the arbitral 
tribunal's directive in its award that Ecuador take all measures 
necessary to suspend the enforcement and recognition of the Lago Agrio 
judgment and the affirmances of that judgment.
    Finally, senior officials in the Government of Ecuador, including 
President Correa, have actively encouraged plaintiffs to seek 
enforcement of the Lago Agrio judgment by denouncing the arbitration 
tribunal. President Correa himself went so far as to call the arbitral 
proceeding a ``monstrosity.'' In some countries such statements might 
be dismissed as empty political rhetoric. But in Ecuador, given the 
susceptibility of the judiciary to political influence (a fact 
acknowledged by the U.S. Department of State) statements by the 
President and other senior officials encouraging the court to take 
particular action cannot be so easily dismissed. Such statements are a 
blatant interference with the judicial process, which in this case, 
amounts to a breach of Ecuador's obligation to recognize and enforce 
the arbitral tribunal's interim award.
 ecuador's failure to meet its obligations to the united states under 
                the bit requires a strong u.s. response
    Ecuador's contempt for its obligations under the BIT poses a 
serious policy concern for the United States and demands a strong U.S. 
response. The United States should take aggressive action to emphasize 
the importance the United States attaches to our BIT partners 
respecting their obligations to the United States under bilateral 
investment treaties. Without such action, the United States would 
signal to all our BIT partners that we do not take their 
responsibilities under the BIT seriously, potentially undermining the 
value of our network of bilateral investment treaties throughout the 
world.
    The administration has already taken some modest action. In a June 
29, 2012, report on the operation of the Andean Trade Preference Act 
(``ATPA''), the administration noted its concerns with Ecuador's 
commitment to its BIT obligations resulting from the BIT Tribunal's 
award to Chevron. A key criterion for eligibility to receive 
preferences under the ATPA is that beneficiary countries must ``act in 
good faith in recognizing as binding or enforcing an arbitral award'' 
in favor of U.S. investors. In light of this criterion, the 
administration stated that it will be closely monitoring Ecuador's 
compliance with U.S. preference program requirements.
                               conclusion
    The past several years has seen several countries embrace more 
modern trade liberalization policies essential to compete in the 
today's global marketplace. This is evidenced by the number of Free 
Trade Agreements now in place, each with investment chapters similar to 
BITs and serving to bolster U.S. investors' confidence and the 
corresponding U.S. job creating exports to support those investments. 
The investment rules outlined by these Free Trade Agreements and the 
U.S. Bilateral Investment Treaty program are vital tools in the broader 
USG effort to ensure a level playing field for U.S. investors operating 
overseas. Failure to enforce these rules undermines their effectiveness 
and puts U.S. overseas operations at risk. We encourage the 
subcommittee to highlight the importance of the BIT program and to 
ensure that the USG takes all measures to ensure that countries abide 
by their treaty obligations. Thank you for considering Chevron's views 
on these important matters.
                                 ______
                                 

           Prepared Statement of the Emergency Committee for 
                         American Trade (ECAT)

    The Emergency Committee for American Trade (ECAT) welcomes today's 
hearing and the subcommittee's examination of U.S. commercial and 
business relations with Latin America. Founded in 1967, ECAT is an 
organization of the heads of leading U.S. international business 
enterprises representing all major sectors of the American economy. 
Their annual worldwide sales exceed $3.0 trillion and they employ more 
than 6.4 million persons. ECAT's purpose is to promote economic growth 
through the expansion of international trade and investment. ECAT has 
been highly active on U.S.-Latin America trade and commercial relations 
since its founding, including by serving as Secretariat to the U.S. 
Business Coalition for Central America Trade, which supported the 
negotiation and implementation of the U.S.-Central America-Dominican 
Republic FTA (CAFTA-DR), as well as being a strong advocate for the 
North American Free Trade Agreement (NAFTA), the U.S.-Chile Free Trade 
Agreement (FTA) and the U.S.-Peru, U.S.-Colombia and U.S. Panama Trade 
Promotion Agreements (TPAs). ECAT has also been a strong supporter of a 
vibrant bilateral investment treaty program in Latin America, as well 
as of mutually beneficial trade preference programs, including the 
Caribbean Basin Initiative, the Caribbean Basin Trade Partnership Act 
and the Andean Trade Preference Act. ECAT presently serves as the 
Secretariat to the U.S. Business Coalition for TPP which represents 
U.S. agricultural producers, manufacturers, and service providers that 
seek a comprehensive, ambitious and high-standard outcome from the 
Trans-Pacific Partnership (TPP) negotiations, which already include 
Chile and Peru and will soon include Mexico.
    Fostering greater business opportunities through international 
trade and investment are important priorities because they 
significantly improve the lives of the American people. Participation 
in international commerce not only sustains many American jobs, it 
raises the pay scales for millions of workers and saves the average 
American family thousands of dollars per year. Workers at companies 
engaged in global commerce earn, on average, almost one-fourth more 
than those working in U.S. firms only engaged domestically. 
International trade and investment also create new opportunities that 
help sustain and build jobs in the United States and boost higher rates 
of productivity, helping to promote economic growth in the U.S. market. 
Many of our companies seek the growth in markets overseas--which can 
generate 40, 50 and even 70 percent of our U.S. companies' global 
revenues. And all Americans benefit from the lower prices, inflation, 
and interest rates that international trade helps generate. 
Expansionary international trade and investment policies are also 
important for the United States to continue to serve as the world's 
leading example for achieving economic success and prosperity through 
openness, free-market principles, the rule of law and economic 
engagement. The United States successful international engagement in 
Latin America is important economically and as part of broader American 
leadership and other national objectives in our hemisphere.
    Expansion of U.S. trade and investment in the Western Hemisphere 
strongly contributes to the growth of the U.S. economy. About one-fifth 
of all U.S. trade is with the countries of Latin America. Two-way goods 
trade between the United States and Latin America grew more than 700 
percent from $107.1 billion in 1990 to more than $762 billion in 2011. 
U.S. goods exports to the region equaled $358.7 billion, representing 
nearly 25 percent of worldwide U.S. goods exports. The stock of U.S. 
investment in Latin America has more than doubled, from $586 billion in 
2000 to $1.2 trillion in 2011.
    This submission reviews three key aspects of the U.S. commercial 
relationship with Latin America: (1) opening markets through 
comprehensive trade agreements; (2) the Andean Trade Preference program 
in light of U.S.-Ecuadorian relations; and (3) other challenges in the 
business climate in Latin America.
     i. comprehensive trade agreements promote important benefits,
                        but more work is needed
A. Existing FTAs/PAs in Latin America
    The United States has engaged in a relatively active program to 
advance commercial relations with several countries in Latin America 
through comprehensive free trade and trade promotion agreements--so-
called FTAs and TPAs. The United States has five agreements with 10 
Latin American countries in force and an additional agreement, with 
Panama, expected to be implemented shortly. Chile and Peru have been 
actively participating in the TPP negotiations, and Mexico has been 
invited to join those negotiations.

 LATIN AMERICAN COUNTRIES WITH AN FTA/PA IN FORCE WITH THE UNITED STATES
------------------------------------------------------------------------
                                                  Entry into force
------------------------------------------------------------------------
Mexico (NAFTA)............................  1994
Chile.....................................  2004
El Salvador (CAFTA).......................  March 1, 2006
Honduras (CAFTA)..........................  April 1, 2006
Nicaragua (CAFTA).........................  April 1, 2006
Guatemala (CAFTA).........................  July 1, 2006
Dominican Republic (CAFTA)................  March 1, 2007
Costa Rica (CAFTA)........................  January 1, 2009
Peru......................................  February 1, 2009
Colombia..................................  May 15, 2012
------------------------------------------------------------------------

    U.S. FTAs/TPAs in Latin America represent more than half of the 
total U.S. FTA/TPA countries. Each of these FTAs/TPAs has provided 
important benefits to U.S. businesses. Overall, U.S. trade with the 
nine countries with which the United States has had FTAs in force for 
more than 1 year has expanded significantly after the entry-into-force 
of those agreements:

   U.S. goods exports to Mexico grew between 1993 and 2008, 
        from $41.6 billion to $151.2 billion. Following the recent 
        economic downturn, U.S. goods exports to Mexico grew from 
        $128.9 billion in 2009 to $197.5 billion in 2011. With respect 
        to services, U.S. services trade with Mexico has increased from 
        $19.2 billion in 1994 to $39.6 billion in 2011.
   U.S. goods exports to Chile increased by 348 percent between 
        2003 and 2008, increasing from $2.7 billion to $12.1 billion. 
        Following the recent economic downturn, U.S. goods exports to 
        Chile increased from $9.4 billion in 2009 to $15.9 billion in 
        2011, nearly six times higher than the pre-FTA level. With 
        respect to services, U.S. services trade with Chile has 
        increased from $1.65 billion in 2003 to $3.75 billion in 2010.
   U.S. goods exports to the six CAFTA-DR countries grew nearly 
        30 percent between 2006 and 2008 to approximately $25.4 
        billion. Following the recent economic downturn, U.S. exports 
        grew from $20 billion in 2009 to $30.2 billion in 2011.
   In just the first year after the U.S.-Peru TPA's entry-into-
        force, U.S. exports to Peru increased from $6.8 billion to $8.3 
        billion.

U.S. services trade with Latin America has grown from $63.3 billion to 
$105.7 billion from 2005 to 2010 (although services data are only 
available for a small number of Latin American countries).\1\
---------------------------------------------------------------------------
    \1\ Sources: U.S. Department of Commerce, Trade Stats Express 
(http://tse.export.gov); Bureau of Economic Analysis, (www.bea.gov).
---------------------------------------------------------------------------
    More broadly, the implementation of FTAs/TPAs provides a wide range 
of benefits that improves the ability of U.S. firms in every sector of 
the U.S. economy to improve their business relations with these 
countries, creating important commercial opportunities for the benefit 
of U.S. fanners, manufacturers, service providers and their workers. 
Some of the key benefits that these FTAs/TPAs provide include the 
following:

   Making U.S. farm and manufactured goods more cost 
        competitive by cutting tariffs and redtape.
   Eliminating a wide range of nontariff barriers to U.S. 
        agricultural, goods and services exports and sales.
   Eliminating barriers to and protecting U.S. investment 
        overseas, both of which are vital to bring and sell goods and 
        services in foreign markets.
   Eliminating barriers to U.S. participation in overseas 
        procurement markets that provide important new business 
        opportunities for a wide range of U.S. industries.
   Protecting copyrights, patents, trademarks, and trade 
        secrets for the benefit of a wide range of U.S. food and 
        agricultural, manufacturing, medical, technological, scientific 
        and artistic industries.
   Improving transparency and anticorruption rules so that U.S. 
        industries can compete on a more-level playing field.
   Providing binding dispute settlement to ensure full 
        implementation of each country's commitments.
B. Improving U.S. FTAs/TPAs in Latin America
    While FTAs/TPAs have provided important benefits, the United States 
needs to move forward in a number of ways.
    1. Ensure Implementation of Existing FTAs/TPAs. Once an agreement 
is negotiated, it must be implemented by each party and enter into 
force. In this regard, ECAT strongly supports the full implementation 
and entry-into-force ofthe U.S.-Panama TPA.
    Once the agreement has entered into force, it is important that the 
United States ensure that its provisions continue to be fully 
implemented. The clearer and deeper commitments contained in U.S. FTAs/
TPAs and their binding dispute settlement help ensure strong 
implementation processes.
    2. Modernize FTAs/TPAs. While the United States has had its most 
active FTA/TPA negotiations in Latin America, there is still more work 
to be done in terms of modernizing the coverage of the existing FTAs/
TPAs; connecting them together into a larger; more commercially 
meaningful unified market and expanding them to other potential FTA/TPA 
partners. The ongoing TPP negotiations aim to accomplish several of 
these objectives by linking agreements with Chile, Peru, and soon 
Mexico with a larger Asia-Pacific agreement that will also tackle such 
important new issues as supply-and-production chain connectivity and 
cross-border data flows and set a high bar on key issues, such as the 
protection of intellectual property and investment. These negotiations 
also seek to include other potential partners in the region to increase 
the coverage and connectivity of U.S. FTAs/TPAs. From ECAT's 
perspective, it is vital that the TPP negotiations continue apace, 
reach a comprehensive, high-standard and enforceable outcome in all key 
areas and provide for the entry of other major U.S. partners in Latin 
America that can meet the high-standards.
         ii. andean trade preference act not working to improve
                u.s.-ecuadorian commercial relationship
    ECAT has been a strong supporter of U.S. preference programs with 
our Latin American neighbors, including the Generalized System of 
Preferences (GSP) that benefits many Latin American nations, the 
Caribbean Basin Initiative (CBI) as expanded by the Caribbean Basin 
Trade Partnership Act (CBTPA), and the Andean Trade Preference Act 
(ATPA). The GSP and CBI/CBTPA programs benefit numerous countries and 
are in force until September 30, 2019, and September 30, 2020, 
respectively.
    While ATPA has produced important benefits since its creation in 
1991, particularly in helping diversify the economies of Peru and 
Colombia, it is now a program that has only one beneficiary--Ecuador. 
Both Peru and Colombia have successfully graduated from ATPA with the 
entry-into-force of their trade agreements with the United States. 
Bolivia was removed as a beneficiary country on December 15, 2008, for 
failure to meet the counternarcotics eligibility criteria. As a result, 
Ecuador is the only beneficiary of this program.
    ECAT is very concerned about several fundamental areas where 
Ecuador is not meeting the ATPA eligibility requirements. In 
particular, ECAT is concerned with Ecuador's systemic problems with 
regard to the basic rule of law and failure to protect intellectual 
property. Overall, ECAT is very concerned about continued breaches of 
the basic rule of law that are occurring in Ecuador, particularly with 
respect to foreign investors and foreign investment, contrary to the 
ATPA eligibility requirements, most notably the prohibitions on 
eligibility in section 203(c)(2) to address circumstances where a 
country:

          (2)(A) has nationalized, expropriated or otherwise seized 
        ownership or control of property owned by a United States 
        citizen or by a corporation, partnership, or association which 
        is 50 percent or more beneficially owned by United States 
        citizens,
          (B) has taken steps to repudiate or nullify--(i) any existing 
        contract or agreement with, . . . a United States citizen or a 
        corporation, partnership, or association, which is 50 percent 
        or more beneficially owned by United States citizens, the 
        effect of which is to nationalize, expropriate, or otherwise 
        seize ownership or control of property so owned . . .
          (3) if such country fails to act in good faith in recognizing 
        as binding or in enforcing arbitral awards in favor of United 
        States citizens or a corporation, partnership, or association 
        which is 50 percent or more beneficially owned by United States 
        citizens, which have been made by arbitrators appointed for 
        each case or by permanent arbitral bodies to which the parties 
        involved have submitted their dispute.
          19 U.S.C. 3202(c) (2) and (3).

    U.S. and other foreign businesses continue to experience firsthand 
expropriation and the repudiation of contracts in the energy, 
construction and other industries that hurt U.S. industry and their 
workers. Not only is Ecuador taking such actions, it is simultaneously 
seeking to terminate the U.S.-Ecuador Bilateral Investment Treaty (BIT) 
that is essential to provide an independent and neutral forum to review 
Ecuador's actions.
    More broadly, there is a lack of governance that spans the 
Ecuadorian economy. ECAT is concerned about continued breaches of the 
basic rule of law that are occurring in Ecuador, particularly with 
respect to foreign investors and foreign investment. As found by the 
State Department in its annual human rights report on Ecuador released 
in April 2011, there are concerns with ``corruption and the denial of 
due process within [Ecuador's] judicial system.''
    U.S. businesses have also continued to see Ecuador's repudiation of 
its legal obligations to U.S. investors and a politicization of the 
judicial system. The rating given to Ecuador by Transparency 
International on its annual Corruption Perception Index \2\ and the 
2012 World Bank Governance Indicators rating \3\ both reinforce this 
deteriorating rule oflaw situation, with the World Bank's rating 
declining further in recent years.
---------------------------------------------------------------------------
    \2\ Transparency International, Corruption Perception Index 2011, 
accessed at: http://cpi.transparency.org/cpi2011/results/.
    \3\ World Bank, Aggregate Governance Indicators (1996-2010), 
accessed at:http://info.worldbank.org/governance/wgi/sc_chart.asp.
---------------------------------------------------------------------------
    Ecuador's treatment of Chevron Corporation also raises serious 
concerns with its eligibility under the ATPA, particularly the 
requirement that beneficiary countries respect arbitral awards. On 
February 16, 2012, the arbitration tribunal hearing Chevron's investor-
state claims against Ecuador issued its ``Second Interim Award on 
Interim Measures'' in which it directed Ecuador to ``take all measures 
necessary to suspend or cause to be suspended the enforcement and 
recognition within and without Ecuador of the judgments'' in the so-
called Lago Agrio litigation, in which Chevron is the principal 
defendant. Despite this clear direction, which expressly applied to all 
parts of the Ecuadorian State ``whether by its judicial, legislative or 
executive branches,'' Ecuador's courts have denounced the BIT and have 
granted Ecuadorian plaintiffs' request to give the Ecuadorian appellate 
decision the force of res judicata. These statements and decisions 
flatly contradict the arbitral tribunal's Second Interim Award. There 
is a high level of concern that the Ecuadoran Government may continue 
taking steps to permit enforcement of the tainted Lago Agrio judgment.
    Given these basic gaps in the rule of law and its treatment of 
arbitral awards, ECAT urges that Ecuador be removed from eligibility 
for the ATPA program and that the ATPA program be allowed to lapse.
       iii. addressing other business challenges in latin america
    Another key area of focus is addressing U.S. business challenges 
with Brazil and Argentina.
A. Argentina
    Argentina maintains very high tariffs on many import categories, as 
well as substantial nontariff barriers that significantly impede U.S. 
business activities in Argentina's market. Most notably, in 2011, 
Argentina increased its use of nonautomatic import licensing and other 
policies to pursue an import-substitution policy (requiring either 
exports or the use of local content in products manufactured in 
Argentina in return for the ability to import products into Argentina). 
Hundreds of goods also need an import license. On the basis of these 
procedures, imports are systematically delayed or refused entry on 
nontransparent grounds. As of February 2012, Argentina also requires 
importers to submit a sworn customs and excise statement in advance of 
importing goods, which has delayed imports while awaiting government 
approval. In March 2012, the United States and several other WTO 
members raised concerns over the WTO-compatibility of Argentina's 
actions. The European Union requested WTO consultations with Argentina 
on these practices in May 2012. The United States requested to join 
these WTO consultations on June 11, 2012.
    Also of substantial concern is Argentina's treatment of investors 
and arbitration awards, which resulted in Argentina's suspension from 
GSP in March 2012.
B. Brazil
    There are numerous areas where there could be improvement in the 
U.S.-Brazil economic and commercial relationship. In particular, ECAT 
would like to see Brazil move forward on key international commitments 
and negotiations, starting with:

   Joining the World Trade Organization (WTO) Information 
        Technology Agreement (ITA) and Government Procurement Agreement 
        (GPA).
   Beginning Bilateral Investment Treaty (BIT) negotiations to 
        provide a more stable and attractive environment for foreign 
        investment.
   Negotiating a Bilateral Tax Treaty.

    Several ongoing disputes remain in the U.S.-Brazil trading 
relationship, with U.S. concerns including the existence of major 
nontariff barriers, such as license, registration and similar barriers; 
domestic preferences and localization requirements including on oil and 
gas equipment; tax incentives for domestic information technology; 
nontransparent and discriminatory government procurement practices; 
unscientific barriers to agricultural trade; and investment and other 
barriers. There are also significant concerns over Brazil's record on 
the protection of intellectual property rights.
                               conclusion
    ECAT welcomes the opportunity to provide these comments and 
welcomes working with the Subcommittee to advance a strong and 
beneficial commercial relationship in Latin America.
                                 ______
                                 

  Responses of Deputy Assistant Secretary Matthew Rooney to Questions 
                  Submitted by Senator Robert Menendez

    Question. After the State Department announced that it would not 
renew the U.S. fiscal-transparency waiver for Nicaragua, and the $3 
million in bilateral aid attached to it, the Department contradicted 
its own position, extending Nicaragua's property waiver, including $1.4 
billion in multilateral loans tied to that waiver. What kind of a 
message are we sending when you make a sound decision highlighting the 
lack of transparency only to undercut your stance by approving $1.4 
billion in loans to a nontransparent government? You cited a number of 
unnamed factors that went into this questionable decision.

   Can you provide the American taxpayer and the Senate with a 
        more logical explanation of your decision to extend the 
        property waiver and $1.4 billion in loans to Nicaragua?

    Answer. We believe that encouraging Nicaragua's long-term 
development as a democratic, prosperous, and stable partner is our 
overarching national interest. At the same time, we want to support 
Americans whose property has been expropriated and resolve those cases 
as quickly as possible. With these goals in mind, we analyzed the 
issues cited in your question under applicable legislation.
    The decision regarding the issuance of the property waiver to 
Nicaragua was made on the basis of the fundamental U.S. national 
interest in seeing our citizens indemnified. The Government of 
Nicaragua made progress in resolving U.S. citizen property claims 
during the 2011-2012 waiver year, settling 65 U.S. citizen claims 
belonging to 31 U.S. citizens registered with the Embassy. This is the 
highest total number of resolved claims since the beginning of 
President Ortega's administration in 2006. We believe that granting the 
property waiver for Nicaragua will encourage its government to continue 
resolving U.S. citizen claims in the future. We appreciate your 
concerns about the international lending that Nicaragua receives, but 
would note that the United States does not have the voting weight in 
institutions like the Inter-American Development Bank to block loans. 
Under the circumstances, we believe that IDB and other multilateral 
loans that support development projects that are in our and the 
Nicaraguan peoples' interest, meet these institutions' high standards, 
and provide sufficient development impact, also promote our broader 
objectives in Nicaragua. Moreover, the Inter-American Development Bank 
has successfully tightened the conditionality of loans to encourage 
greater transparency, and we will use this leverage to push for greater 
transparency in sectors impacted by future loans.
    Granting the waiver will also allow us to continue engagement with 
Nicaragua on other issues of strategic interest, including trade and 
investment under the Central America-Dominican Republic Free Trade 
Agreement, our economic and social development assistance programs 
aimed at improving the lives of the Nicaraguan people, and our joint 
efforts to combat narcotrafficking.
    We have not waived fiscal transparency restrictions because we 
remain concerned that the Nicaraguan Government has not demonstrated 
progress in pursuing transparent governance. We are working to ensure 
that the Nicaraguan Government understands the benefits, not just in 
terms of U.S. assistance but in terms of improved governance in the 
interest of the Nicaraguan people, of a more transparent budgetary 
management approach.

    Question. Does the administration believe that Andean Trade 
Preference Act privileges should be extended for Ecuador in light of 
ongoing investment disputes between American companies, Ecuador's 
breach of the BIT, and lack of cooperation on narcotics trafficking?

    Answer. The administration has not yet a taken position on whether 
it supports an extension of the Andean Trade Preference Act (ATPA) 
program beyond July 2013, as that will depend on Ecuador's performance 
in a number of areas we are monitoring.
    Extension of Ecuador's benefits under ATPA is a congressional 
prerogative. The administration will continue to monitor developments 
concerning Ecuador to ensure that it is complying with the ATPA 
eligibility criteria and will continue to work with Congress on issues 
relevant to the operation of the program.

    Question. Sempra Energy is a U.S. energy company with 
infrastructure investments here in the United States and in Mexico--
investments that provide jobs and energy security in both countries. A 
Sempra LNG facility in Ensenada has unfortunately been subject to years 
of harassment by local courts, politicians, and the police. We 
understand that the State Department has worked in cooperation with 
Sempra to address these ongoing problems.

   Can you describe the steps that the State Department has 
        taken to help this American company that is trying to help both 
        the people of Mexico and the United States find energy 
        security?

    Answer. Energia Costa Azul (ECA), which comprises a liquefied 
natural gas (LNG) terminal near Ensenada, Mexico, is a wholly owned 
subsidiary of Sempra Energy. Individuals purporting to represent local 
landowners have enlisted the support of state and local officials in 
Baja California, including the Mayor of Ensenada, in advancing 
allegations that the plant violated land acquisition and environmental 
rules and that it is improperly sited. On the basis of these 
allegations, the Mayor of Ensenada attempted to close the plant in 
February 2011. At that time, then-U.S. Ambassador to Mexico, Carlos 
Pascual, contacted then-Mexican Secretary of Government, Francisco 
Blake Mora, on this issue and federal and state authorities intervened 
to stop potentially dangerous disruptions to the terminal's operations. 
The plant remained in operation and is still operating today.
    Sempra maintains that all of its activities were carried out in 
strict accordance with Mexican law. However, ECA opponents continue to 
seek monetary awards from Sempra in Mexican courts.
    The U.S. Government continues to monitor the situation and 
maintains contact with Sempra Energy. Ambassador E. Anthony Wayne met 
Sempra Mexico's chief executive officer on August 3 to discuss the 
situation. The company has not asked us for any intervention or support 
recently, but we stand ready to be helpful as requested.
                                 ______
                                 

 Responses of Under Secretary Francisco Sanchez to Questions Submitted 
                       by Senator Jeanne Shaheen

    Question. The ongoing failure to pay past debts by the Government 
of Argentina remains a significant concern, especially as Argentina is 
a current member of the Group of 20 nations. Argentina's unwillingness 
to live up to its responsibilities to pay current bondholders 
undermines the credibility of the global marketplace.
    In my home State of New Hampshire, the Republic of Argentina has 
refused to settle debts owed by Caja National de Ahorra Y Seguro (CAJA) 
to the TIG Insurance Company (TIG). I have written a number of letters 
to the Argentinian authorities urging them to settle these outstanding 
debts. The legitimacy of TIG's claim was validated by two final U.S. 
District Court judgments in 2001 and 2002, and the company has 
subsequently made five settlement offers to which the Argentine 
Government has never responded.

   Will you continue to emphasize the importance of resolving 
        outstanding debt issues between the Argentinian Government and 
        American debt holders? What are we doing to encourage Argentina 
        to settle these debts in a fair and efficient matter?

    Answer. The United States believes that it is in the mutual 
interest of Argentina and the United States that Argentina resolve its 
longstanding overdue obligations to all its creditors. Normalizing its 
relations with all of its international creditors will help improve 
Argentina's investment climate and its access to international capital 
markets.
    The U.S. Government is working on resolving these issues on every 
level. In Cannes last year, President Obama discussed with President 
Fernandez de Kirchner the need for Argentina to normalize its 
relationship with the international financial and investment community, 
and he urged Argentina to clear arrears to U.S. Government agencies in 
full and as soon as possible. Senior administration officials have used 
every opportunity to reinforce the President's message.
    The Department of Commerce has supported U.S. Government efforts to 
encourage Argentina to meet its obligations to its creditors. Most 
recently, in May 2012, Under Secretary Sanchez raised this issue with 
Vice President of Argentina Amado Boudou and Ambassador Jorge Arguello 
and expressed the importance of Argentina's action on the debt and 
trade issues affecting the bilateral relationship.
    Additionally, on March 26, 2012, the White House announced 
President Obama's decision to suspend Argentina's eligibility for the 
Generalized System of Preferences (GSP) program. The suspension of 
Argentina's GSP eligibility is based on a finding that the Argentine 
Government is not in compliance with the statutory GSP eligibility 
criteria set by Congress. Specifically, the Argentine Government has 
failed to act in good faith in recognizing as binding or in enforcing 
arbitral awards in favor of two U.S. companies rendered under the 
United States-Argentine bilateral investment treaty and the Convention 
on the Settlement of Investment Disputes between States and Nationals 
of Other States.
    Clearing its Paris Club arrears, honoring final International 
Centre for Settlement of Investment Disputes (ICSID) awards, and 
settling remaining issues with bondholders would send a strong signal 
that Argentina wants to pursue a positive bilateral relationship.

    Question. The European Union recently started consultations to 
pursue a WTO dispute with Argentina.

   What actions--if any--is the U.S. Government considering 
        with respect to similar WTO actions against Argentina? What 
        more can we do to urge Argentina to meet its responsibilities 
        inherent to members of the WTO?

    Answer. Argentina granted the U.S. request to participate in the 
EU's consultations with Argentina as a third party in Geneva July 11-
12, pursuant to the EU's request for consultations. We requested to 
participate in order to have a better understanding of Argentina's 
various import licensing measures.
    On August 21, 2012, the United States also requested consultations 
with Argentina concerning certain trade restrictive measures. If these 
consultations fail to resolve this matter, we would consider whether 
the United States should proceed to request the establishment of a WTO 
dispute settlement panel.
    The measures affect U.S. exporters broadly, and companies across 
various sectors support the initiation of dispute settlement 
proceedings. The measures at issue include import licensing 
requirements for goods imported into Argentina that have the effect of 
restricting imports from the United States. Argentina often requires 
importers to agree to undertake trade balancing commitments in exchange 
for authorization to import goods under these licensing measures.
    Prior to requesting consultations, the United States had expressed 
serious concerns, both bilaterally to the Government of Argentina and 
in various fora of the WTO, about measures maintained by Argentina that 
appear to restrict imports.
                                 ______
                                 

 Responses of Under Secretary Francisco Sanchez to Questions Submitted 
                       by Senator Robert Menendez

    Question. The protection of labor rights and the environment are 
fundamental tenants of prosperity here in the United States and 
overseas. Can you tell us how the administration plans to address the 
important issues of labor and environmental protection in the Trans-
Pacific Partnership? If there is resistance to robust environmental and 
labor protections in this agreement, how is the administration working 
to address these issues?

    Answer. The Obama administration is committed to a free trade 
agreement (FTA) model that recognizes the interests of workers and 
places them on an equal footing with commercial interests. Much 
progress has been made in recent years to ensure good labor laws and 
better enforcement of those laws by our trading partners. The Trans-
Pacific Partnership (TPP) provides the opportunity to continue that 
progress and strengthen our efforts to ensure that all workers benefit 
from expanded trade. Strong labor provisions are a priority for the 
Obama administration. We are working with the other TPP parties to 
develop a robust labor chapter that ensures protection in law of 
internationally recognized labor rights, including the International 
Labor Organization's fundamental labor rights, ensures effective 
enforcement of labor laws, and provides the means to hold the TPP 
parties accountable.
    The Obama administration has also made it a top priority to include 
robust trade-related environmental provisions in the TPP and to build 
upon previous FTAs to ensure strong environmental obligations, 
enforcement of these obligations, and to place these on equal footing 
with commercial obligations in the agreement. The administration also 
views the TPP as an opportunity to seek innovative environmental 
commitments in key areas related to trade, such as conservation of 
wildlife, forests and fisheries. We have made concrete proposals in 
this area and are working very hard with the other TPP parties to 
develop robust environmental provisions.

    Question. Innovative health products and services protect the 
health of Americans and our friends abroad while promoting economic 
growth by supporting innovative companies and high quality jobs. How is 
the administration working to protect IPR for innovative health 
products, including data protection for biopharmaceuticals, in the 
Trans-Pacific Partnership? Are you going to ensure that our TPP 
partners provide robust protections to enable our companies to invest 
in new lifesaving products like biopharmaceuticals? Have new TPP 
partners, including Mexico, assured you that they will protect 
intellectual property for health products?

    Answer. The administration sees biologic drugs as are a vital area 
of pharmaceutical innovation, now and in the future. Our goal for the 
Trans-Pacific Partnership is to seek 21st century Intellectual Property 
standards that stand alongside current U.S. trade agreements in the 
region, such as the U.S.-Korea Trade Agreement. Mexico and Canada have 
assured us that they understand the high level of ambition of the TPP 
for intellectual property rights. We are currently reviewing 
stakeholder submissions elaborating on concerns in both markets, 
including concerns related to biologic drugs, to inform our further 
engagement through the TPP negotiations.

    Question. The administration submitted a request to the WTO on 7 
June 2012 to join EU consultations with Argentina on ``measures imposed 
by Argentina on the importation of goods.'' Have you begun these 
consultations, and if so, can you provide examples of any specific 
progress made with Argentina on the WTO which would protect American 
exports from unfair and illegal trade restrictions in Argentina? Will 
the administration submit an independent request to the WTO to address 
trade issues with Argentina?

    Answer. Argentina granted the U.S. request to participate in the 
EU's consultations with Argentina as a third party in Geneva July 11-
12, pursuant to the EU's request for consultations. We requested to 
participate in order to have a better understanding of Argentina's 
various import licensing measures.
    On August 21, 2012, the United States also submitted its own 
request for consultations with Argentina concerning certain trade 
restrictive measures. These consultations have not yet been held. If 
consultations fail to resolve this matter, we would consider whether 
the United States should proceed to request the establishment of a WTO 
dispute settlement panel.

    Question. Does the administration believe that Andean Trade 
Preference Act privileges should be extended for Ecuador in light of 
ongoing investment disputes between American companies, Ecuador's 
breach of the BIT, and lack of cooperation on narcotics trafficking?

    Answer. The administration has not yet a taken position on whether 
it supports an extension of the Andean Trade Preference Act (ATPA) 
program beyond July 2013. Ecuador is the only remaining beneficiary of 
the ATPA.
    While it is the responsibility of Congress to consider whether to 
reauthorize the ATPA program, the administration will continue to 
monitor developments concerning Ecuador to ensure that it is complying 
with the ATPA eligibility criteria and will continue to work with 
Congress on issues relevant to the operation of the program.
                                 ______
                                 

  Responses of Deputy Assistant Secretary Matthew Rooney to Questions 
                    Submitted by Senator Marco Rubio

    Question. In September 2011, Assistant Treasury Secretary Marisa 
Lago assured the Congress that the United States would oppose most 
World Bank and Inter-American Development Bank loans to Argentina and 
urge other countries to do the same. The administration was responding 
to congressional concerns that Argentina has consistently ignored U.S. 
court judgments against it and failed to pay what it owes American 
investors. Unfortunately, the United States does not have sufficient 
voting power in those institutions to block loans on its own, and the 
loans continue to flow to Argentina.

   Do you agree that the United States should continue to 
        oppose multilateral loans to Argentina until Argentina fully 
        honors its commitments to American investors?
   In addition to oppose multilateral loans to Argentina, what 
        other measures has the administration taken to persuade 
        Argentina to fully honor its commitments to American investors 
        under international law?
   What steps is the administration taking to persuade other 
        countries to join the United States in opposing multilateral 
        loans to Argentina?

    Answer. The Department of State has worked closely with agencies 
across the U.S. Government to encourage the Government of Argentina to 
clear its debts to U.S. taxpayers and other Paris Club creditors, honor 
final awards of International Centre for Settlement of Investment 
Disputes (ICSID) arbitration panels, and resolve remaining issues with 
private bondholders as soon as possible.
    In September 2011, the Department of the Treasury initiated a 
policy to oppose all future lending to Argentina by the IDB and World 
Bank, with the exception of loans for programs targeting the very poor. 
The U.S. representatives at the multilateral development banks have 
engaged with other board members on our voting stance and have seen a 
growing number of them taking similar positions.
    In March 2012, the administration suspended Argentina's eligibility 
for the Generalized System of Preferences (GSP) program. The suspension 
of Argentina's GSP eligibility is based on a finding that the Argentine 
Government has failed to act in good faith in recognizing as binding or 
in enforcing arbitral awards in favor of two U.S. companies rendered 
under the United States-Argentine bilateral investment treaty and the 
Convention on the Settlement of Investment Disputes between States and 
Nationals of Other States.
    The Department of State strongly supports these appropriate steps, 
and in our bilateral discussions, including at the highest levels, we 
repeatedly raise our concerns about Argentina's failure to fulfill its 
obligations to U.S. creditors. We will continue to urge Argentina to 
resolve these issues.

                                  
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