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U.S.-PERU TRADE PROMOTION AGREEMENT

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

SEPTEMBER 11, 2007

(

Printed for the use of the Committee on Finance
COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)
(III)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 2

WITNESSES

Kantor, Michael, partner, Mayer Brown, Washington, DC .................................. 4

Lee, Thea, policy director and chief international economist, AFL–CIO, Washington, DC ............................................................................................................. 6

Forkan, Patricia, president, Humane Society International, Washington, DC .. 8

Winkles, David, Jr., president, South Carolina Farm Bureau, Oswego, SC ...... 10

Catania, Thomas, vice president, government relations, Whirlpool Corporation, Benton Harbor, MI ...................................................................................... 11

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Catania, Thomas:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 31

Forkan, Patricia:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 35

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 2

Kantor, Michael:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 45

Lee, Thea:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 51

Roberts, Hon. Pat:

Prepared statement .......................................................................................... 59

Winkles, David, Jr.:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 60

Responses to questions from committee members ......................................... 70

COMMUNICATIONS

American Apparel and Footwear Association (AAFA) .......................................... 73

American Chamber of Commerce of Peru (AmCham Peru) ................................. 78

American Council of Life Insurers (ACLI) ............................................................. 84

American Forest and Paper Association (AF&PA) ............................................... 87

Council of the Americas .......................................................................................... 89

Emergency Committee for American Trade .......................................................... 92

EXPORAMERICA .................................................................................................... 98

Generic Pharmaceutical Association (GPhA) ........................................................ 108

Montana Grain Growers Association ..................................................................... 114

National Cattlemen’s Beef Association .................................................................. 116

National Corn Growers Association (NCGA) ......................................................... 119

National Pork Producers Council ........................................................................... 122
Page

IV

Peruvian Asparagus Importer’s Association .......................................................... 132

Retail Industry Leaders Association (RILA) ......................................................... 139

Telecommunications Industry Association (TIA) .................................................. 142

Wal-Mart Stores, Inc. .............................................................................................. 144
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U.S.-PERU TRADE PROMOTION AGREEMENT

TUESDAY, SEPTEMBER 11, 2007

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Stabenow, Salazar, Grassley, Lott, Crapo, and

Ensign.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

In 1998, President Bill Clinton said, ‘‘We must do more to ensure

that spirited economic competition among nations never becomes a

race to the bottom in environmental protections or labor standards.

Rather, we should be leveling up, not leveling down.’’

President Clinton made that statement almost 10 years ago. For

at least that long, we have searched for ways to ‘‘level up.’’ We

have struggled to ensure that trade agreements raised environmental standards for our trading partners rather than lowered our

own.

We have finally achieved that goal. For the first time in any

trade agreement, the U.S.-Peru Trade Promotion Agreement includes meaningful and forceful labor and environmental standards.

These protections resulted from the landmark May 10th bipartisan

trade deal between Congress and the administration.

Despite the hiccups before and since, this agreement is a remarkable achievement. It is amazing, when you stop to think about it.

It reflects the hard work and compromise of many groups. I applaud Speaker Pelosi, I applaud Senator Grassley, I applaud Chairman Rangel, Ambassador Schwab, Mr. McCrery, and all the others

who were involved. We should be justifiably proud of what we produced.

For the first time in any trade agreement, the Peru agreement

requires the parties to implement the five core International Labor

Organization standards. These standards will ensure that Peruvian

workers have the right to organize. These standards will ensure

that Peruvian workers have the right to bargain collectively. These

standards will ensure that Peruvian children have the right to

learn in classrooms rather than toil in sweatshops.

For the first time in any trade agreement, the Peru agreement

also requires the parties to implement seven core environmental
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treaties. These provisions will ensure that the Peru agreement expands our environmental values abroad, and at the same time expands our exports abroad. And, for the first time in any trade

agreement, the Peru agreement makes these labor and environmental provisions fully enforceable.

The agreement will subject them to the same dispute settlement

mechanism that applies to all other obligations. This mechanism

will ensure that the labor and environmental provisions are not

merely paper tigers. They have real teeth. I intend to make sure

that the administration enforces them vigorously.

These provisions are, in short, exactly what we have been seeking for more than a decade. They promote trade in a way that

projects our fundamental values. They benefit workers and encourage environmentally sustainable development. I hope that these

long-awaited achievements will serve as a stepping stone to move

America’s trade agenda forward. We still have a lot of work to do.

I have introduced bills on Trade Adjustment Assistance, currency

misalignment, and trade enforcement. I expect Congress to consider those bills before the end of the year. Congress also needs to

review pending free trade agreements with Panama, Colombia, and

Korea.

As another president, John F. Kennedy, once said, ‘‘Things do not

happen, things are made to happen.’’ Working together, Congress

and the administration have made things happen in the Peru Free

Trade Agreement. I am hopeful that, working together, we can

make things happen in other areas of our trade agenda as well.

In closing, I would like to extend my deepest condolences to the

victims of the tragic earthquake that struck Peru recently. My

thoughts and prayers are with them and their families as they recover from its devastating effects.

Senator Grassley?

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Thank you very much, Chairman Baucus, for

scheduling this hearing. It highlights a very important part of the

work of this committee, and one that I hope we can proceed on not

only with the consideration of this agreement, but a couple other

agreements that are pending.

This happens to be the second hearing held by the committee on

our trade agreement with Peru. The first one was July 29th last

year. As we all know, Congress did not enact implementing legislation for that trade agreement with Peru last year.

The Democrats won the election, and probably, if I had been in

the minority and won an election, I would want to put my imprint

on some things going through Congress. So, the Democrats demanded additional provisions in our trade agreements before they

would be implemented.

After lengthy negotiations, particularly with the administration,

but some of us in Congress were involved as well, we agreed to

compromise with the House Democratic leadership, and that compromise was announced with a lot of fanfare on May 10th. Our

trade agreement with Peru was then renegotiated to reflect that

compromise.
3

Today’s hearing provides the committee an opportunity to review

the trade agreement, as it has been modified. I have accepted the

May 10th compromise because, even with those changes, I believe

it remains in the national interest to implement these trade agreements.

I hope that we can quickly follow up today’s hearing with informal committee consideration of drafting the implementing legislation. I want to complete this implementation process for Peru during this work period so that we can turn to other agreements with

Colombia and Panama before the end of the year.

Our agreement with Peru is a very strong trade agreement. It

deserves the support of this committee and the Congress. Implementation will provide substantial benefits for U.S. farmers, manufacturers, and service providers. Peruvians will also significantly

benefit.

For our benefit, the Farm Bureau Federation, for agricultural exports, said it could increase by over $705 million each year under

the agreement. More broadly, the U.S. International Trade Commission estimated that the agreement will lead to a 25-percent increase in U.S. exports to Peru, while Peru’s exports to the United

States will grow by 8 percent. So that is a win-win situation.

At the same time, it will help reduce our trade deficit. Critics of

our trade deficit in the Congress should take note: if you want to

do something positive about the trade deficit, then vote in favor of

our trade agreement with Peru.

I did not know this at the time that we brought up CAFTA, but

we were in trade deficit with those countries of CAFTA, and now

we are trade-positive with those countries, which shows that these

trade agreements do have some benefit for our trade deficit.

I believe that we should all understand that Peru has demonstrated that it is committed to market liberalization and the

strengthening of relationships with the United States.

For reasons other than economic, this diplomatic relationship is

in stark contrast to other countries in the region, like Venezuela,

Ecuador, and Bolivia, that seem to be consolidating political power,

expropriating industries, and otherwise disregarding investors’

rights, and in the process distancing themselves from the United

States.

So I think that failure to implement our trade agreement with

Peru would send exactly the wrong signal. It would empower leaders down there, like Hugo Chavez, who is already antagonistic towards the United States, and it would disillusion the Peruvian people who view the United States with friendship.

It is, therefore, very important to our national interests that

Congress implement our trade agreement with Peru as soon as possible. So in that process, I thank Chairman Baucus for holding this

hearing.

The CHAIRMAN. Thank you, Senator, very much.

We are very fortunate to have today’s group of witnesses. I look

forward to hearing from them and their perspectives on this proposed agreement.

Today’s panel begins with Secretary Mickey Kantor, who is currently a partner at the Mayer Brown law firm. Ambassador Kan-
4

tor—first of all Secretary Kantor, who is also ambassador—formerly served as USTR during the Clinton administration.

Next, following Secretary Kantor, is Ms. Thea Lee, policy director

and chief international economist, AFL–CIO. Ms. Lee has long

been a chief proponent of including enforceable labor provisions in

our FTAs. Thank you for attending our hearing.

The third witness is Patricia Forkan, president of the Humane

Society International. The Humane Society played a critical role in

ensuring that the environmental provisions of the Peru FTA, for

the first time, explicitly covered illegal trade in wildlife.

The fourth witness, Mr. David Winkles, is president of the South

Carolina Farm Bureau. He will testify today on the agriculture provisions of the Peru FTA.

Finally, we welcome Thomas Catania, vice president of government relations at the Whirlpool Corporation. Mr. Catania will discuss the FTA’s impact on the U.S. manufacturing sector.

Mr. Secretary, why don’t you begin? Five minutes is the allotted

time here. Of course, all your statements will be included in the

record.

STATEMENT OF MICHAEL KANTOR, PARTNER,

MAYER BROWN, WASHINGTON, DC

Mr. KANTOR. Thank you very much, Mr. Chairman, Senator

Grassley. I want to thank the committee for having me today.

I want to congratulate the Chairman, Senator Grassley, the

Chairman of the House Ways and Means Committee, Mr. McCrery,

and the administration for working together in reaching agreement

on enforceable protections for labor and environment so this agreement will move U.S. trade policy forward in a positive manner.

Mr. Chairman, I have long been a supporter of an open and

rules-based global trading system as an important means of promoting and securing U.S. economic interests. Unfortunately, credibility and support for an open and rules-based trading system is increasingly at risk.

Mr. Chairman, the fears brought about by interdependence, driven by technology and globalization, are real and continue to have

a profound effect on our future. More and more skills can be outsourced. New competition for industries has arisen. People are

rightly concerned.

It is wrong to think we can stop the forces of globalization, but

I contend that we can shape them to our benefit by relying on three

principles: invoking strong leadership to promote and advocate the

advantages we gain through engaging in globalization and molding

our policies to take advantage of this phenomenon, with the goal

of raising standards of living in the U.S. and around the world; second, reaching common-sense trade deals that address a broad array

of American interests, advancing the interests of American workers

and their families, and that are consistent with our values; and

third, ensuring vigorous enforcement of our trade laws and agreements to build confidence that we are beneficiaries of what we

were promised, and that partners are playing by the rules.

For instance, at this time USTR is not organized or funded sufficiently to enforce a policy of this magnitude. This would necessitate

building an enhanced capability and a new unit at USTR dedicated
5

to the effective monitoring and enforcement of our trade laws and

agreements, much like you have suggested, Mr. Chairman.

But, Mr. Chairman and members of the committee, without a

great commitment to education, research and development, and a

21st-century infrastructure, even the best trade deals will not be

enough to sustain our economy, ensure our competitiveness, and

fairly distribute the benefits of globalization. In my view, the U.S.-

Peru Trade Promotion Agreement is now the kind of trade agreement that is worthy of the support of the Congress and the American people.

Tariffs on goods and agricultural products will be eliminated on

both sides. U.S. duties on a majority of imports from Peru are already at zero under the Andean Trade Preference Act. Now our exports from the U.S. to Peru will enjoy the same treatment, providing new opportunity for U.S. farmers and manufacturers. But no

trade agreement is a common-sense agreement without enforceable

labor and environmental provisions. This agreement establishes a

critical precedent.

In my view, we should not conclude trade agreements without

provisions of this nature. The American people are not afraid of

competition, but they also know when it is not a fair fight. Labor

and environmental provisions are essential to trade agreements for

a number of reasons that are good common sense.

The recent commitment by the leadership of the Peruvian government has helped to ensure that these provisions will be real and

have a solid impact. But we should all be cognizant of the fact that

failure to enforce these or other requirements of this agreement

will only serve to disappoint those on both sides who worked so

hard to implement this agreement and will further erode the confidence of the American people.

We need enforceable provisions in trade agreements to ensure

that our trading partners are not using lax labor and environmental laws or are turning a blind eye to enforcement in order to

gain an unfair competitive advantage. If we do not use our trade

agreements to raise the labor and environmental standards of our

trading partners to begin to equalize these differences, U.S. workers and companies will be fighting an uphill battle.

Unless most Americans believe they will be positively impacted

by trade, we will not convince the American people to support a

forward-looking trade agenda. If the American people fear that our

trading partners could be cutting to the front of the line by failing

to adopt strong protections for workers and the environment or failing to enforce the laws they have on the books, they will never

have faith that the U.S. Government is negotiating agreements

that promote their interests.

Labor and environmental provisions are good, common sense for

our trading partners as well. We know that providing workers with

basic rights and enforcing them leads to rising wages, a growing

middle class, and increased pluralism, all of which help to ensure

that the benefits of trade agreements are shared by a wide range

of society. In addition, it creates independent unions which also

help to strengthen democratic institutions and promote the rule of

law.
6

These factors—rising wages, a growing middle class, and stronger democratic institutions—inevitably lead to our trading partners

becoming larger and more stable markets for U.S. products. An important part of future economic growth of the United States is tied

to our ability to successfully sell our products and services in foreign markets. These worker rights provisions will promote that

goal.

Stronger protections for the environment benefit not only the

United States and our trade partners, they benefit the global environment as well. Pollution does not know borders. It is critical that

environmental provisions are included and enforced in order to

avoid a race to the bottom.

Mr. Chairman, these ideas I have laid out are not new. In fact,

the need for connection between greater opportunity for trade and

greater support for worker rights was first recognized 23 years ago.

The U.S.-Peru agreement, at long last, returns us to the standards

set in the Jordan FTA. The agreement is supportive of the interests

of our economy, companies, and workers, while enhancing the dignity and future of workers in Peru. The Peru agreement is a strong

agreement, with an important ally in Latin America. It is good for

both economies, good for workers, and good for the environment. I

urge members of this committee to give it your support.

Thank you very much.

The CHAIRMAN. Thank you, Mr. Secretary, very much. Thank you

very, very much.

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

The CHAIRMAN. Ms. Lee?

STATEMENT OF THEA LEE, POLICY DIRECTOR AND CHIEF

INTERNATIONAL ECONOMIST, AFL–CIO, WASHINGTON, DC

Ms. LEE. Thank you so much, Chairman Baucus, Senator Grassley, members of the committee. We appreciate the opportunity to

come here today to give our views on the Peru Trade Promotion

Agreement, which has been an important issue for our members.

And one thing I wanted to do to start out with was to put the

discussion over this bilateral trade agreement into the broader context of our overall trade policy and the enormous challenges facing

American workers today as they try to navigate through a dynamic

and ever-changing global economic landscape.

They face stagnating wages, eroding health and pension benefits,

and hostile—and sometimes illegal—anti-union tactics from employers. I think that context is important to understanding the concerns that American workers have expressed over our trade policy

and what can and cannot be accomplished in the context of one

trade agreement.

But with respect to the Peru agreement, the first thing I want

to say is we welcome and applaud the progress that was made by

all the parties who participated in the negotiations around the May

10th deal. The new provisions, in particular, on worker rights and

the environment represent significant progress in crucial areas that

we have fought to achieve for many years. These issues have been

central to the debate over globalization and its impact on working

families, both here in the United States and around the world.
7

These provisions improve on the Jordan commitments by using

clear and unequivocal language to commit both parties to the

agreement to adopt, maintain, and enforce the ILO core labor

standards in their laws and in practice.

They, as Chairman Baucus said, ensure that the same dispute

settlement and enforcement provisions will be available for labor

and environment provisions as are available for the commercial

provisions in the agreement. They represent enormous improvement over the previous FTAs negotiated under the Bush administration.

We hope that the new labor provisions will provide a starting

point for future efforts to strengthen and effectively enforce protections for workers in the global economy. Writing labor language

into trade agreements will certainly not solve all the problems

workers face, but it provides one more important and useful tool

to pressure both governments and corporations to respect workers’

fundamental human rights.

But it is important that Congress will bring to bear strong pressure on the executive branch to ensure that these newly negotiated

provisions are effectively implemented and enforced, as Secretary

Kantor said, as these provisions cannot serve their objective if the

executive branch does not enforce them.

The Peru agreement also includes new and improved language

on procurement, which is an important step forward. It clarifies

that government procurement contracts may require that a supplier comply with minimum worker rights conditionality or meet

environmental or conservation standards under the technical specifications of the contract.

There are also improved provisions on intellectual property

rights, which are of particular interest to our unions which represent performers. We appreciate the enhanced protections

achieved in this area on behalf of our members who rely on royalties for their livelihoods.

We are encouraged by the broader new direction outlined by the

Democratic leadership to undertake broad trade policy reforms beyond the existing trade agreements. Chairman Baucus mentioned

some of the legislation that is under discussion with respect to currency misalignment, imported product safety, strengthening our

trade laws, and these are all signs that needed reforms and trade

policy are being taken seriously, and we appreciate those.

But beyond the labor and environment provisions, there are several other important issues of concern to working families which

were, unfortunately, not addressed adequately in the Peru trade

agreement, particularly with respect to investment, the investor

state dispute resolution provisions, and procurement issues with

respect to out-sourcing American jobs and services.

These are issues that we have raised over the last decade or so

in our testimony, in our letters to Congress. They are not new

issues for us. They have important ramifications for our members’

jobs and communities, and we will continue to fight to strengthen

and repair these provisions in future trade agreements.

It is also important to note that, while the May 10th template

represents important progress, it is by no means a complete fix, appropriate for any country or any situation. Intractable and egre-
8

gious human rights violations in Colombia and unequal market access issues in South Korea put these two agreements in a completely separate, and significantly more problematic, category.

Likewise, the extension of fast-track authority raises another entire set of issues about the relationship between Congress and the

President with respect to trade negotiating authority. The AFL–

CIO will vigorously oppose the free trade agreements with Colombia and Korea, and any renewal of current fast track authority.

We also understand that discussions with the Peruvian government on needed reforms in labor law are under way, and we certainly hope that these discussions will yield strong results. It has

been standard practice to negotiate for compliance with the terms

of the agreement prior to implementation of those agreements, and

we hope that these efforts will bear fruit in the area of labor law

reform.

I thank you for your attention, and I look forward to your questions.

The CHAIRMAN. Thank you very much.

[The prepared statement of Ms. Lee appears in the appendix.]

The CHAIRMAN. Ms. Forkan?

STATEMENT OF PATRICIA FORKAN, PRESIDENT,

HUMANE SOCIETY INTERNATIONAL, WASHINGTON, DC

Ms. FORKAN. I am, as the Chairman said, Patricia Forkan. I am

president of the Humane Society International, which is the international arm of the Humane Society of the United States. HSUS

is the country’s largest animal protection organization, and in conjunction with HSI we have a constituency of over 10 million individuals, as well as a significant global presence.

I have served on the Trade and Environment Policy Advisory

Committee (TEPAC) for a number of years, and HSUS has participated as an accredited Non-governmental Organization (NGO) in

three WTO ministerial conferences. We applaud the commitment of

the United States to include the environment, along with other

areas of economic and trade policy. I am also pleased the results

of the bipartisan trade deal will go even further to enhance environment and wildlife protection.

While progress has been made, environmental protection can be

strengthened even further. I would ask that my written testimony

will be put into the record. That has further details on how to

achieve that.

Although not every aspect of the Peru agreement furthers the

aims of our organization, we believe the environmental provisions

provide needed opportunities and incentives to enhance environmental protection. First, the environmental chapter obligates parties to effectively enforce their environmental laws and, as necessary, to adopt or maintain domestic legislation to fulfill their obligations.

Now, these are for seven Multilateral and Environmental Agreements. We are very pleased that MEAs are specifically provided

for. This provision, as currently written, only obligates countries

that are already members of the MEAs.

In the future, we believe that this provision should require parties to be members of the listed MEAs prior to ratification of the
9

trade agreement. Otherwise, we fear that this provision is a disincentive to join an MEA in the future because of additional obligations that might result as a result of the trade agreement.

Second, the provisions concerning party-to-party disputes were

changed in the bipartisan deal with Peru. Previously, offending

parties were subject to a monetary assessment, capped at $15 million, which was then to be used to correct the environmental practice that had led to the violation.

Now the default remedy is a suspension of benefits, but no requirement that the money be used to correct the problem. So going

forward, we believe the cap on monetary assessments should either

be eliminated or monies collected under the suspension of benefits

be used to correct the complaint about practice.

Third, we are pleased to see public participation provisions included in the agreement. Both parties have agreed to set up an

independent secretariat to accept citizens’ submissions. It is critical

that the parties ensure that the secretariat effectively carries out

its obligations under the environment chapter.

Peru has also agreed to set up and consult a National Advisory

Committee on Environment. These provisions give the public a

voice concerning implementation of the chapter and provide them

with tools to hold their governments accountable for failing to effectively enforce environmental laws.

Fourth, for the first time the U.S. has included a commitment in

the trade agreement to protect and conserve biodiversity. Peru is

one of the most biologically diverse countries in the world, home to

unique and endangered species. This provision underscores the parties’ commitment to biodiversity conservation, including endangered species and other animals.

Fifth, we are very pleased the preamble to the annex on the forest sector governance recognizes the link between illegal logging

and illegal trade in wildlife. We would have liked this link, however, to be more prominently recognized throughout the annex. It

is crucial to have enhanced wildlife provisions included in future

trade agreements.

Lastly, we are hopeful the concurrently negotiated Environmental Cooperation Agreement will provide a strong basis for ongoing cooperation. It is incumbent upon the U.S. Government, however, to devote appropriate levels of long-term funding to these cooperative programs.

An impressive amount of initial funding was guaranteed for the

DR-CAFTA environmental initiatives. We have witnessed firsthand how these funds enabled environmental improvements in

those countries. We strongly urge this committee, and Congress, to

also ensure requisite funding is given to the environmental programs in the U.S.-Peru ECA.

For these reasons, we are encouraged that the Peru agreement

will support increased environmental protection in both countries.

Thank you.

Senator GRASSLEY. Thank you.

[The prepared statement of Ms. Forkan appears in the appendix.]

Senator GRASSLEY. Now, Mr. Winkles?
10

STATEMENT OF DAVID WINKLES, JR., PRESIDENT,

SOUTH CAROLINA FARM BUREAU, OSWEGO, SC

Mr. WINKLES. Thank you, Mr. Chairman and members of the

committee. I would like to thank this committee for the opportunity

for the American Farm Bureau Federation to testify on the U.S.-

Peru agreement.

My name is David Winkles. I am president of the South Carolina

Farm Bureau, and I am also a soybean, corn, wheat, and cotton

farmer. I am also a member of the American Farm Bureau Federation’s Trade Advisory Committee.

Trade is important to U.S. farmers and ranchers, and it is critical for U.S. agriculture that industry, Congress, and the administration work together to further open and develop world markets.

For every 25 potential customers for our food, feed, and fiber worldwide, only one lives here in the United States.

Equally important, agricultural productivity is increasing nearly

twice as fast as domestic demand for agricultural products. This

means that our dependence on trade as an outlet for our growing

agricultural product will only increase over time.

AFBF supports all three Latin trade promotion agreements, the

Peru, Colombia, and Panama agreements. We encourage this committee, and the Senate, to vote on the Peru Trade Promotion

Agreement without delay. At the same time, we would encourage

you to promptly take action on the Colombia and Panama agreements.

These three agreements provide gains across U.S. agriculture,

and we estimate that passage of the Peru, Colombia, and Panama

agreements will increase U.S. agricultural exports by almost $1.5

billion per year when the agreements are fully implemented.

These three agreements will make agricultural trade more equitable between the U.S. and these partner countries by making U.S.

agricultural exports have duty-free access to their markets, equivalent to the access they already have to the U.S. market.

Colombia and Peru receive duty-free access to the U.S. market

under the Andean Trade Promotion and Drug Eradication Act, but

U.S. products entering the countries have continued to face duties.

Panama receives duty-free access under a similar agreement, the

Caribbean Basin Initiative.

The recent action by Congress to extend the Andean Trade Promotion and Drug Eradication Act for an additional 8 months disadvantages U.S. farmers and ranchers. The Andean Trade Promotion and Drug Eradication Act allows Peru and Colombia continued duty-free access and provides nothing for U.S. agriculture in

currently restrictive markets.

Passage of the Peru and Colombia TPAs would provide U.S. agriculture the same open access to Peru and Colombia and an opportunity to increase competitiveness and boost market share. The

Peru agreement expands exports for a wide range of U.S. farm

products. Increased exports of the major grain, oil seed, fiber, and

livestock products are likely to exceed $475 million.

The total increase in United States farm exports associated with the Peru agreement could exceed $705 million per year, including

such items as vegetables, fruits, tallow, and other high-value processed products. We do, however, anticipate increased U.S. imports
11

of Peruvian sugar, estimated at about $6.4 million after full implementation.

The Peru agreement will allow the United States to compete

with Peru’s other Latin American trading partners that are currently supplying a large percentage of the Peruvian food and fiber

market based on preferential access. Chile has a 28-percent market

share of the Peruvian food market, and Colombia and Argentina

each have an 11-percent share. Our share currently stands at 8

percent, and fluctuates wildly from year to year given our role as

a residual supplier.

Peru’s high tariff structure is a major impediment to access in

many sectors, including agriculture. For example, Peru uses tariffs

on meats, some fresh fruits and vegetables, and pullets, even

though there is little domestic production of these items. The average tariff rate is roughly 18 percent, compared to a U.S. rate of

zero on many Peruvian products.

Under the Peru agreement, more than two-thirds of current U.S.

agricultural exports to Peru will become duty-free immediately.

Items that receive immediate duty-free treatment include highquality beef, cotton, wheat, and soybeans, soybean meal, apples,

pears, cherries, almonds, and some processed foods. The Peru

agreement requires the elimination of all tariffs on all agricultural

products exported by the United States to Peru.

As much as trade agreements focus on tariffs, non-tariff barriers

are also troublesome for U.S. exporters. This agreement resolves

sanitary and phytosanitary barriers to agricultural trade, including

in the Peruvian case regarding food safety inspection procedures

for beef, pork, and poultry.

The Peru agreement also allows parties to utilize tariff rate

quotas and safeguards to transition their sensitive agricultural

products into the agreement. Those tools are eliminated after full

implementation. The agreement is positive for U.S. agriculture.

The total increase in U.S. farm exports associated with the Peru

agreement could exceed $705 million per year. Congress’s quick action on this agreement would greatly be appreciated by U.S. agriculture.

Thank you.

Senator GRASSLEY. Thank you, Mr. Winkles.

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

Senator GRASSLEY. Now, Mr. Catania?

STATEMENT OF THOMAS CATANIA, VICE PRESIDENT, GOVERNMENT RELATIONS, WHIRLPOOL CORPORATION, BENTON

HARBOR, MI

Mr. CATANIA. Thank you, Senator Grassley and distinguished

members of the committee. As Chairman Baucus introduced me, I

am vice president of government relations for Whirlpool Corporation, but I also spent a number of years in Whirlpool’s Miami office,

which manages U.S. sales to the Latin American region.

Whirlpool is the world’s leading manufacturer and marketer of

home appliances, with more than 73,000 employees in over 70

manufacturing and technology centers around the world. In the
12

United States, Whirlpool has 14 major manufacturing divisions and

over 26,000 active employees.

Whirlpool is a member of the U.S. Chamber of Commerce, the

Association of American Chambers of Commerce in Latin America,

and the Latin American Trade Coalition, all of which support the

pending trade promotion agreements with Peru, Panama, and Colombia.

I am pleased to be before you today to discuss the merits of the

U.S.-Peru Trade Promotion Agreement and its potential to

strengthen U.S. manufacturing. Whirlpool strongly supports this

agreement because it removes barriers to trade that disadvantage

U.S. companies that export to Peru.

At Whirlpool, we welcome the challenge to compete globally with

foreign suppliers if subject to the same rule of law. This is made

possible by U.S. trade agreements that even the terms of trade.

Currently, U.S. exports are disadvantaged by preferential arrangements within the hemisphere that foreign appliance manufacturers

take advantage of by setting up operations in Mexico to export

within Latin America.

The U.S.-Peru agreement will allow Whirlpool to maintain U.S.

jobs rather than relocate or expand operations in other Latin

American locations as we try to increase our exports in the region.

Since 1991, Peru has enjoyed duty-free access to the U.S. market

for most goods and services as a result of the Andean Trade Preference Act, and subsequently by the Andean Trade Promotion and

Drug Eradication Act. The positive effects in Peru of these laws

were significant, and they led to numerous political and economic

reforms that have helped Peru’s GDP grow substantially.

The agreement we are discussing today has the potential to spur

even more development and growth in Peru’s economy by encouraging trade, creating jobs, and attracting investment. Having fair

access to a growing and dynamic market like Peru is critically important to Whirlpool, other U.S. manufacturers, as well as farmers

and service providers.

While Peru already enjoys duty-free access to the U.S. market for

most goods, Whirlpool currently pays substantial tariffs on U.S. exports to Peru. The U.S.-Peru TPA will help level the playing field

by eliminating tariffs and other non-tariff barriers, and providing

access to the 28 million Peruvian consumers for our U.S.-produced

goods and services.

In fact, should the agreement enter into force, tariffs of 15 to 20

percent on Whirlpool’s U.S. exports of refrigerators, ranges, and

clothes washers would be immediately eliminated. Today, Whirlpool’s exports to Peru come from many of our U.S. manufacturing

operations, including those in Arkansas, Indiana, Iowa, Ohio, and

Tennessee.

The U.S.-Peru TPA, as well as other Latin American TPAs with

Colombia and Panama, would save Whirlpool millions of dollars in

duties not paid and would encourage even greater export opportunities for Whirlpool’s U.S. manufacturing operations.

In part because of the agreement, Whirlpool forecasts a 400-percent increase in U.S. exports to Peru from 2007 to 2009. In addition, we recently opened a legal entity—primarily a sales and service company—in Peru called Whirlpool Peru.
13

The U.S.-Peru TPA is expected to have a positive effect throughout the U.S. economy. According to the International Trade Commission, U.S. economy-wide imports from Peru are expected to increase by $439 million, while U.S. exports to Peru are expected to

increase by $1.1 billion. That is an 8-percent increase in Peruvian

exports and a 25-percent increase in U.S. exports.

These figures do not even consider the positive impact of the

elimination of non-tariff barriers, which will facilitate and reduce

costs on U.S. exports even more. Specifically, U.S. manufacturers

will benefit from: non-discriminatory national treatment in all aspects of our business; comprehensive rules of origin that ensure

only U.S. and Peru benefit from the agreement; transparency and

efficiency in administering Customs procedures, including the

agreement’s rules of origin which provide clarity, predictability,

and certainty to manufacturers; enhanced commitments in distribution services such as wholesaling, retailing, and franchising;

and greater protection for intellectual property rights, specifically

criminalization of end-user piracy, providing strong deterrence

against piracy and counterfeiting and limiting the grounds for revoking a patent, thus providing protection against arbitrary revocation.

Forging new and lasting relationships in Peru, and throughout

the region, will provide Whirlpool with an opportunity to improve

its competitiveness and achieve economies of scale throughout the

western hemisphere.

In addition, healthy Latin American markets translate into

greater development of infrastructure to facilitate the movement of

more products into the region. In sum, the U.S.-Peru TPA is good

for Whirlpool and other U.S. manufacturers, and it will promote

economic growth and prosperity in both the U.S. and Peru. We

hope the Congress will move quickly to pass this agreement and

the Panama TPA to ensure strengthened export opportunities for

U.S. manufacturers.

Mr. Chairman and members of the committee, thank you for the

opportunity.

The CHAIRMAN. Thank you, Mr. Catania, very, very much.

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

The CHAIRMAN. Ambassador Kantor, your thoughts on just how

much this should be a template, these provisions, in future trade

agreements. Should we go farther? Should we require it, as an absolute minimum? Generally as we look at future FTAs, or maybe

fast track for that matter, to what degree should these be included?

Mr. KANTOR. I believe the labor and environmental provisions

should be a template. I cannot imagine why we would enter, certainly, into any bilateral or regional agreement without including

enforceable labor and environmental provisions.

I even believe we ought to begin seriously at Geneva with the

WTO, to have the WTO—finally—seriously involve themselves in

these issues and begin to recognize labor and environmental rights,

which are just as important as protecting investment or protecting

intellectual property rights, or advancing the cause of agriculture,

or any other matters that are in trade agreements. So, Mr. Chair-
14

man, I believe they ought to be a part of every agreement from now

on.

The CHAIRMAN. Mr. Catania, as a representative from business,

would you agree or disagree?

Mr. CATANIA. I think that there has always been a virtuous relationship between promotion of trade, economic growth, and improvement in labor and environmental standards. Which is the

chicken and the egg and whether the provisions in this agreement

are an essential prerequisite to it—I think that as long as we end

up achieving an ultimate objective of a successfully negotiated

trade agreement, I think it is inevitable, as economic prosperity occurs in these countries, that we will see significant improvement in

labor and environment conditions.

The CHAIRMAN. Ms. Lee, your thoughts about the enforcement

provisions in this agreement. I am also introducing legislation to

boost American enforcement of trade agreements. And the degree

to which you think that should be improved upon, or just generally,

how do we enforce?

Ms. LEE. I think that is an excellent question, Mr. Chairman,

and it is the key one for us with respect to labor and environment,

that the language is put in place, it is written into the trade agreement. What we need from our executive branch, and we need Congress to keep an eye on, is that there is consistent and effective enforcement across the board of all the provisions that are in trade

agreements.

That is what businesses need, I think, and they rely on, is not

to play favorites, to pick and choose, or to choose some provisions

over others. We have been very frustrated over the last 6 or 7 years

with the Bush administration’s complete failure to enforce the

labor provisions that we have in trade agreements, including the

Jordan agreement. We have also filed several cases under section

301 with respect to worker rights in China, with respect to currency manipulation. Those cases have not even received consideration by the administration.

So one of the issues that we looked at is whether there is a way

for Congress to strengthen its oversight role of the executive

branch in this area to maybe hold annual hearings with subpoena

power to get a full reporting from the executive branch on what

steps have been taken, what issues have been brought to their attention, what investigations have occurred, and we think that

would strengthen the ability to enforce more consistently across the

board, and that would be a huge improvement.

The CHAIRMAN. Yes. Because I hear some who say, gee, maybe

these provisions are all right, but they do not trust this administration. Now, this administration is not going to be around forever,

but maybe they will not be able to trust the next administration.

So do you think that oversight, hearings, maybe—you mentioned

subpoena power. That is a bit unusual. Sometimes you have to resort to it.

But what else besides oversight hearings? How do you keep administrations’ feet to the fire? And, as you say, how do you keep

consistency? We do not want an on again/off again, like a yo-yo effect, one administration, then another, and so forth.
15

Ms. LEE. Well, I think there is also transparency, that the decisions that are made by the administration should be completely

transparent. The basis for accepting or rejecting a case should be

completely laid out.

I think another issue is what role unions, NGOs, or individuals

have to initiate a case and to get a hearing for issues that they

bring to attention. Maybe we also need more staff in both the U.S.

Trade Representative’s office and the Labor Department to ensure

that there is monitoring on the ground.

We do look at the Cambodia agreement as a good example of a

case where we built an institution with the help of the ILO, the

International Labor Organization, to monitor the enforcement of

the labor rights in the Cambodia-U.S. apparel quota extension

agreement, and that was something that did help create the understanding on the ground in Cambodia on the part of the government, the businesses, and the workers, that there was an understanding that these provisions were to be enforced, and that was

useful.

The CHAIRMAN. I know my time has expired, but I know Senator

Stabenow has been very concerned about enforcement and just introduced legislation somewhat along the lines that we have discussed here, again, to beef up enforcement in the USTR, for example, and I appreciate her efforts in that regard.

Thank you very much. My time has expired.

Senator GRASSLEY. Our last two witnesses were very clear that

they wanted us to pass this Peru agreement. I would like to ask

Mr. Kantor, Ms. Lee, and Ms. Forkan, yes or no, do you think we

should pass this agreement right away?

Mr. KANTOR. I may have skipped that, Senator, but it was in my

statement. Yes, I believe you should.

Senator GRASSLEY. All right.

Ms. Lee?

Ms. LEE. Because of the important issues that I mentioned that

were not addressed in this agreement, we will not be advocating for

passage of the Peru agreement. We have unions on both sides of

this issue, but our priorities will be strong opposition to the Korea

and Columbia agreements.

Senator GRASSLEY. All right.

Ms. Forkan?

Ms. FORKAN. Well, I am going to take a different approach here.

As the Humane Society, we really do not have policies on vast sections of free trade agreements.

Senator GRASSLEY. All right.

Ms. FORKAN. So we are very interested in what is happening

with environment and wildlife, but we do not take a position one

way or the other on the entire agreement.

Senator GRASSLEY. That is all right.

Mr. Kantor, our previous trade agreements provided for the use

of monetary assessments to improve the enforcement of labor and

environmental laws in other countries. However, under the approach embodied in this May 10th compromise, violations of labor

and environmental obligations are subject to a suspension of trade

benefits just as if it were a commercial dispute. It seems to me—

and I would like your view—that this approach is counterpro-
16

ductive because it deprives us of an effective tool for improving the

enforcement of our trading partners’ labor and environmental laws.

Mr. KANTOR. Senator, I understand your approach. I believe the

suspension of benefits carries with it a greater impact on the country that is not enforcing any provisions of this agreement—particularly labor and environment, but others like IPR investment and

other provisions—which will, let us say, encourage the other countries which have had a suspension of benefits to beef up their enforcement and do exactly what would have been done by some fund

or some fine, so to speak, being placed upon them to be used then

to do the same thing that could be done, I think, by suspension of

benefits. I think suspension of benefits carries with it much more

impact, and that is what I believe we should be looking for.

Let me say one more time, Senator, I am so worried about the

credibility of our trade policy and agreements with the American

people. I believe the American people will support trade or support

the expansion of trade only if they believe we will enforce these

agreements, take them seriously, and enforce our trade laws as

well. Our ability and willingness to enforce them, and then to suspend benefits as a result of violations, I think will create more

credibility for our trade policy in the future.

Senator GRASSLEY. All right.

That leads me then to the next question, that does not have to

be quite as long, with where you just left off. Could you provide

some specific examples of problems, perhaps from your clients or

anybody else that you know about, that the U.S. Trade Representative is refusing to take to dispute settlement?

Mr. KANTOR. Well, I think this administration, without getting

into any specifics, has filed about one-third the number, or even

less, the number of trade violations or disputes with trade panels

than the previous administration, the administration I served.

Now, numbers do not tell the whole story. I believe, up until the

last year and a half, this administration has virtually ignored enforcing our agreements in trade laws. That has changed to some

degree. It has changed because of increased—actually with regard

to China and with regard to other areas as well.

So I think that is a welcome move in the right direction. I think

the fact this administration now has agreed on enforceable labor

and environmental provisions in this and other agreements is also

a big step forward. So, we are making progress.

I think everyone recognizes, Senator, that trade has lost its

credibility with the American people because the American people

do not believe we will stand up for their interests. And I think we

have to resolve that problem by dealing straight with the American

people, by enforcing these agreements, by having strong and enforceable provisions in the agreements. I do not think we can sustain a forward-looking, progressive, and successful trade policy

without that.

Senator GRASSLEY. Ms. Lee?

Ms. LEE. Senator Grassley, we would be happy to provide you

with a long list of the cases that we have filed, worker rights cases,

under the Generalized System of Preferences (GSP), section 301

cases I mentioned earlier, and there are also the section 421 cases

where the administration has failed to act and has failed to provide
17

any basis for not acting with respect to violations of workers’ rights

that we have documented very carefully.

Senator GRASSLEY. I asked for it, and I should receive it from

you. Thank you.

The CHAIRMAN. Thank you very much, Senator.

Senator Salazar? And I deeply regret I am going to have to leave,

and Senator Grassley is going to continue chairing the hearing.

Senator SALAZAR. Thank you, Chairman Baucus and Senator

Grassley, for holding this important hearing.

First, I want to say I have long been interested in making sure

that our trade relationships and our geopolitical relationships are

appropriately put together as we look south and north. In the first

meeting I had with President Bush some 21⁄2 years ago, I told him

that I thought that the focus of this administration had not been

appropriately put into the north/south relationships with Latin

America.

Earlier this year, I traveled with Senator Reid and several other

Senators into Bolivia, Peru, and into Ecuador, and it was part of

an undertaking led by Senator Reid in which what he wanted to

do was to make sure that we were putting a focus on Latin America and the importance of the relationship between the United

States and Latin America.

In my view, the vision that Senator Kennedy had with our relationship with Latin America on the creation of the Alliance For

Progress is something which has been abandoned, really, in the

last several years, and it is something that we need to reengage

and we need to embrace.

It is in that context that I hope to be able to support the Peruvian Free Trade Agreement, and I do intend to support it if I can

be assured that the enforcement provisions with respect to labor

and with respect to environment are, in fact, going to be more than

words on a paper that have been negotiated here.

I am reminded of a conversation that I had with President Garcia when I was in Peru about the historic relationship between the

U.S. and Peru dating back to World War II, where Peru essentially

provided us the land base in Peru to be able to carry out some of

our major activities in that conflict in World War II. So this is a

very important document. It is a geopolitical document, an economic document for our country, and one that I very much am

looking forward to supporting.

But I want to get to the two principal questions that my colleagues have asked, and that is on the enforcement. I think there

is agreement, as I hear from the panel, that the labor and environmental provisions that are now included in the agreement were

positive steps forward.

But again, the question becomes, how do you make sure that

they are enforced, that they do not become just empty words on a

paper? So if I can have Secretary Kantor and Ms. Lee respond to

that question. How do we absolutely make sure that we enforce

these provisions on labor?

Mr. KANTOR. Well, number one, I do not think you can assume

they will be enforced, although I am hoping that they will be on

both sides. I would think the first thing is, this committee and oth-
18

ers should make sure the administration is held accountable if they

are not enforced.

The second is, I believe we should build a separate enforcement

arm of the U.S. Trade Representative’s office, with the head of that

arm being confirmable by the U.S. Senate in order to try to make

sure not only that USTR has the resources, but that Congress

makes it clear that they want the USTR’s priority to be to enforce

not only this agreement, but other agreements and trade laws as

well.

I think the combination of oversight and a separate arm, not separate in terms of administration but separate in the terms of having enough resources and with a confirmable head of that office, as

I think Chairman Baucus has suggested, I believe Senator Stabenow has suggested, would be a big step forward. But in terms of

assuring, I cannot assure you, nor can anyone else.

Senator SALAZAR. Would you say, Secretary Kantor, that at this

point in time we do not have that enforcement capacity, and so we

have to create that enforcement capacity to ensure that it occurs?

Mr. KANTOR. I think so. The capacity of USTR is very small. It

is the smallest trade agency of any developed country in the entire

world. USTR, the people who work there, they do a terrific job.

They are very, very praise-worthy folks, and they know what they

are doing. But there are very few of them. So, therefore, I think

you need to add some resources and make sure the resources are

used in the enforcement area.

Senator SALAZAR. Ms. Lee?

Ms. LEE. Thank you, Senator Salazar, for the question. I think

there are a couple of things we can do. One is, the current conversation that is happening between the Peruvian government and

members of Congress about labor law reform is an important downpayment on the assurance that these provisions are being taken seriously, needed labor law reforms are put into place.

This is similar to the kind of conversations that USTR has had

with many other countries, around things like intellectual property

rights protections or taxes, that they should take the steps to bring

their labor laws into compliance now before the agreement is put

into place, in some ways because this is easier to do now than it

is to initiate dispute settlement afterwards.

Some of these labor law reforms have been in front of the Peruvian Senate for more than 5 years without action being taken. So,

it would be really important to see the Peruvian government show

that they are willing to take those steps.

The other issues, I think, have to do with both capacity and will.

And as you say, there is a need for more capacity within the administration to ensure that they have the resources to investigate

complaints that are filed and that they are taking the action. But

the second piece is whether they have the will to do it, and I think

that is where Congress’s role of oversight is so important, to be

vigilant about whether in fact these provisions are being taken seriously, are being acted upon.

Senator SALAZAR. I look forward to hearing more from you on

both the capacity and will concept, and I am sorry, but my time

is already up.

Senator GRASSLEY. Senator Stabenow, then Senator Lott.
19

Senator STABENOW. Thank you, Mr. Chairman. Thank you for

holding the hearing. There is no question that trade policy for our

country is one of the most important topics for Michigan. I am very

happy to see Tom Catania from Whirlpool Corporation here. We

are very proud of Whirlpool and your location in Michigan, and

also about your leadership on energy-efficient appliances. We are

very proud of you and look forward to more and more success.

Mr. Chairman, the Peru FTA is really a tough one for me. In

fact, any trade agreement right now in Michigan is tough. There

is no question, former Secretary Kantor, that the Federal Government has lost credibility with the American people, certainly the

people in Michigan, when it comes to whether or not we are going

to enforce our trade rules. We are not.

I could bring in a whole range of businesses that have lost patents, stopped making product, laid off people because of illegal

practices, currency manipulation, on and on. I am pleased to see

that you are suggesting that we need a trade enforcement arm.

I was very pleased to introduce a bipartisan bill with Lindsey

Graham in the last session calling for that trade enforcement division. We called it a U.S. Trade Prosecutor. But I am very pleased

that the Chairman and Ranking Member have included that in a

broader trade enforcement bill, and it is critically important that

we get that passed.

But we have serious work to do before the American people will

feel that we are credible when we say that we are going to enforce

trade agreements, or help them if they lose their job because of

trade. I do recognize, though, that this FTA has come a long way,

and I want to commend everybody involved, our House colleagues,

Senate colleagues, others who have been able to bring our country’s

values related to labor and environment into this agreement. I

think it is an important step forward.

But right now what we have are the right words on paper, and

having the right words on paper is not enough when people are losing their jobs, and certainly in Michigan that is the case. I think

what we have to be doing is talking about the right trade policy,

not the right words on a piece of paper.

Frankly, our trade policy and inaction on enforcement have hurt

the middle class of this country. We have had a misguided trade

policy, and I believe it is time for a new agenda. A trade agenda

that helps working families adjust to globalization, that ensures

our trading partners are following the rules, and has the right enforcement for unsafe products that are getting into the hands of

our children.

Right now, 33,000 people in Michigan alone—that is 90 percent

of the people who have lost their jobs to trade—are not receiving

any training funds under TAA because we have not increased the

caps or reauthorized TAA. And, with all due respect, just extending

it is not enough.

But how do I tell 33,000 people, who were told, we will help you

adjust through training and new investments to the new jobs, 90

percent of the people who have lost their jobs are not receiving the

assistance that the Federal Government promised?

In the last several weeks, we have also seen product after product recalled because of lead found in imported toys, yet the field
20

staff for product safety continues to decline. There is a huge relationship in terms of budget issues, as has been addressed.

Most recently, we are facing a credit crunch at a time when so

much of our debt is held by foreign markets in countries who are

manipulating their currency. We passed a bill out of the Finance

Committee. We have yet to enact that into law.

So my position is, Mr. Chairman, that before we go any further,

we have to get our trade policy right, regardless of specifics on a

trade agreement. We can no longer say, pass this trade agreement,

we will fix it, we will enforce it, we will deal with it later, because

the American people do not believe that any more. We have to have

those things, TAA, currency, and trade enforcement done so that

people will have confidence in what we say.

Now, specifically as it relates to Peru, when we talk about fresh

fruits and vegetables, we are the major importer from Peru of fresh

fruits and vegetables. This has had a tremendous impact already

on asparagus prices in Michigan. I realize I have not been asking

a question, but I will end by saying that when we talk about TAA,

we need to expand it to our farmers. We have duty-free access, but

Peru has cut the American acreage for asparagus in half; 40,000

acres of asparagus is gone, and yet our farmers did not qualify for

assistance because of outdated calculations on TAA. So, TAA is a

very broad, important policy. If I might just say, and without having asked a question, I guess, Mr. Chairman, this is more of a position. I certainly have questions.

Senator GRASSLEY. You are entitled to your position.

Senator STABENOW. Thank you. But I do feel that, from my perspective, representing a whole lot of hard-working middle-class

folks who are fighting for their way of life in this country, we have

to get it right before we start passing any more trade agreements.

Thank you.

Senator GRASSLEY. Senator Lott?

Senator LOTT. Well, thank you, Mr. Chairman. And thank you,

Chairman Baucus, in absentia, for going forward with the process

and having this hearing today to move toward enactment of the

Peru Trade Promotion Agreement. We need to do this, and we need

to also take up the others that are pending, particularly Panama

and Colombia.

I believe in trade liberalization. I believe it helps us. See, a lot

of people view trade as a threat, a challenge to us. But, as Mr.

Winkles said, it is an opportunity to open markets for us to benefit.

So I think you need to look at these trade agreements, just not in

terms of the agreement themselves, but the economic opportunities

that they present for American manufacturers, farmers, ranchers,

service providers, and that they benefit these countries broadly.

But even beyond that, I believe that it promotes democracy and

political stability. Every day, President Garcia has to stand up to

Hugo Chavez in Venezuela and those who wish to pull Latin America toward isolationism and anti-Americanism. The same thing

with President Uribe. He has shown real courage. They have made

real progress in Colombia. This would open up their markets to us.

It would help them and help us. So, I support this.

I particularly have been supportive of agreements in Central and

South America. I supported the Central American Free Trade
21

Agreement, and I supported the Andean Trade Agreement because

I thought it was the right thing to do for these countries. I think

we spend so much time focused on the rest of the world, particularly Europe and the Middle East, that we ignore Central and

South America sitting right here under our nose.

There are hundreds of millions of people there who, if we could

help their economy rise, it would benefit them, it would benefit democracies, and it would benefit our own economy. So that is why,

last year, I was panicked that we were about to defeat the Central

American Free Trade Agreement. As a matter of fact, it was very

small in terms of what it would mean for either side. Yet, it was

huge in terms of the image of what we were trying to do. So, I support Peru.

I have my reservations about the South Korean agreement. That

proves that I do not just go for every one of them. I want to know,

what have they been doing in terms of opening their markets? I

want to know, are they going to keep their agreements? Can we

trust them? I ask that about every country, and I have some reservations about the Korean agreement. But I think, in terms of

Peru, this is a slam-dunk. And when the questions were raised, negotiations took place with the administration. They made some

changes. The Peruvians stepped up and did the job. We need to

move this and do it quickly.

But let me address a question to you, Mr. Kantor. You have been

through these wars before. I enjoyed working with you when you

were our Trade Representative in the Clinton years. We did some

good things together. But there is criticism. I have been critical. I

can remember standing in the Cabinet room with President Reagan

saying, Mr. President, free trade has to also be fair. The world is

shoving us around. Enforce these agreements.

Well, it seems that, regardless of who is in the White House, or

which party, it has not always been done. I guess some of the people at this table could be critical of the Clinton administration for

not doing more to enforce the agreements.

Tell me, tell these people, tell the people watching why we do not

do a better job of enforcing agreements. Take out the partisan

stuff. Let us talk about the realities of how, when you get involved

in that, then you have to deal with the different entities, you have

to deal with the State Department, you have to deal with overflight rights, and everything gets tangled up in how we do this.

What about it, Mr. Kantor?

Mr. KANTOR. Well, first of all, when I started as USTR I was 6-

foot-4 and blonde. [Laughter.]

Senator LOTT. I hope I helped pound you down a little bit.

Mr. KANTOR. Senator, I appreciate that, and I appreciated working with you in the past—and, frankly, every member here I have

worked with. I enjoyed it. You were terribly supportive, which I appreciate.

The best part about this bill, frankly—and I will get to your

question—is it looks like it is going to be bipartisan in its support.

We have to get back to a bipartisan trade policy. Trade should not

be like some other issues and become highly partisan.

Trade is a process. It is not ideological or philosophical or theological. It is all about trying to move the American economy for-
22

ward, making sure we have the jobs and the standard of living,

continually raising those to make sure our companies can do well

by competing. We are an interdependent world, Senator, as you

know so well. We have to engage that world and compete—as one

of my friends used to say, compete, not retreat.

In terms of why they are not enforced, what happens, there are

all kinds of reasons that come up. Part of it is a lack of resources

at USTR. That is part of it, not all of it. Part of it is, you have

fights continually with the State Department and others who say,

oh, no, you can’t do that at this time because we have something

going on with X country and that will hurt what we are doing.

Senator LOTT. I have heard it.

Mr. KANTOR. And I heard it until I was up to here with it. The

fact is, it is not true in almost every case. Not all, but almost every

case.

Number three, I believe, in order to create credibility, as Senator

Stabenow was saying, with the American people, we must—must—

enforce our trade laws and trade agreements so the American people believe they are getting the benefit of their bargain. They will

stand behind an aggressive trade policy that in fact will help our

standard of living.

But unless we do that, unless and until, whoever the next President is, and from whatever party, is willing to stand up and say,

this is important, it is important for our economy, it is important

for the American people, then it is not going to happen. I fully hope

we can expect the next President, and whoever the USTR is, and

whoever the administration is, will do that.

Senator LOTT. Thank you, Mr. Chairman. My time has expired.

Senator GRASSLEY. Thank you.

Mr. Catania, in your testimony you note that Whirlpool recently

opened a sales company in Peru. You also note that Whirlpool’s exports to Peru come from operations that you have in Arkansas, Indiana, Iowa, Ohio, and Tennessee. Could you comment on how the

establishment of a local presence in a country such as Peru helps

to sustain and grow jobs for Whirlpool in the United States? Because I assume that your employment is not going down because

you are doing business in those countries.

Mr. CATANIA. Right. Senator, thank you for your question. The

important thing to understand about marketing appliances at the

retail level is that you have to have a meaningful presence on the

sales floor, and you also have to have the ability to provide the

after-sales support for appliances that consumers everywhere in

the world expect.

So, our initial operation there is primarily focused on presenting

a portfolio of products to our retailers from our operations throughout the world. As it stands today, we are somewhat hamstrung by

the substantial duties that are imposed on our products coming

from the United States. So in the interim, we have been primarily

serving that market out of our Brazilian operations.

What this trade agreement does for us is, first of all, ensures

that our sales and distribution operations are on an equal footing

from a legal, non-tariff trade barrier perspective with all other

sales operations there. We can enter into the kind of contracts and
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relationships with the retail trade that we need to, to be competitive.

In addition, we have the opportunity to mix product from all of

our locations, but primarily bring more of our product in from the

United States, clear it through typically duty-free zones and so

forth, and bring competitive products, such as we produce at the

facility in Amana, IA, to what we expect to be a growing market,

which will have a growing appetite for products at the higher end

which we produce in the United States.

Senator GRASSLEY. In your testimony, you note the benefits of

Whirlpool under the agreement in terms of lower import duties in

Peru. Could you comment on the competitive landscape if we fail

to implement the trade agreement?

Mr. CATANIA. Well, some of our competitors—foreign competitors,

the Koreans in particular—have chosen to make their manufacturing investments in Korea, I believe in part because of their recognition of the favorable trade position that Mexico enjoys with

Peru as compared to the United States.

So by eliminating that disincentive potentially, while we are not

encouraging or asking our competitors to move more manufacturing into the United States, it is clear why they would have an

incentive to choose Mexico for a manufacturing operation in light

of the present trading relationship.

Senator GRASSLEY. Yes.

Mr. Winkles, how would implementation of the trade agreement

with Peru help the United States evolve from being a residual supplier, as you said in your testimony, to a more significant supplier

of the Peruvian market?

Mr. WINKLES. Well, Senator, there is considerable variability.

That is why we are a residual supplier. In years where there is a

lack of supply with their traditional suppliers, then they have to

turn to us, the United States.

The tariff rates set currently create a disadvantage or an uncompetitive nature for us, so, if we had a level playing field, zero and

zero, we would become a supplier, a normal supplier, again, adding

stability to the marketplace, which is most important for folks involved in agriculture.

Senator GRASSLEY. Mr. Winkles, in your testimony you predict

the United States will develop an agricultural surplus with Peru

when the agreement is implemented. What other agricultural exporting countries would step in to fill the void if we fail to implement this agreement?

Mr. WINKLES. Certainly Brazil, Argentina. Other countries in the

area are ready and willing to step up to the plate and be suppliers.

Senator, there is one thing I would like to mention when we are

talking about trade in general. There have been over 150 trade

agreements signed over the past 10 years.

The American Farm Bureau would really like to see a successful

completion of the Doha Round—and I know we are here to talk

about Peru today—but these regional agreements, these countryon-country agreements, are absolutely critical for our future benefit

as agriculture, our future as a continued supplier to the world.

Senator GRASSLEY. Ms. Forkan, in your testimony you state that,

if the remedy applied to a violation of an environmental obligation
24

is a suspension of benefits, any monies collected should be required

to fix the problem that led to the violation. Now, we can appreciate

your trying to recapture advantages of the monetary assessment

approach, but I am not sure that that is a workable recommendation. Suspension of trade benefits often leads to the cessation of

trade because the duties imposed are trade-prohibitive, and, if the

trade ceases, no money is collected. I would like to have your response to the position that I have just stated.

Ms. FORKAN. Well, one of the things that I had hoped to be able

to talk about earlier was that the enforcement issue that everyone

has been talking about, certainly from our point of view, enforcement is important on the ground. And certainly with DR-CAFTA

and Peru, we have been working on the ground to help the folks

in those countries enforce their laws.

So while I appreciate the fact and agree with what has been said

about enforcement, we cannot forget that enforcement has to happen there as well. When we are working with developing countries,

we need to have capacity building to do that. So we personally have

sent former captains and detectives from American law enforcement to help the enforcement people in those countries carry out

enforcement of the laws.

So one of the things that I wanted to also emphasize is, as a result of that, we need to have capacity-building money directed at

these countries so that they can carry out what is expected of

them, so no matter how many people we have overseeing what they

are doing, unless they know how to do it and have the ability to

do it and have the understanding, then we are not going to get

where we want to go.

As far as the question, one of the things we do not like is that,

when you have a trade agreement, a lot of the times that animals

are involved, you do not get a remedy for the issue. You get, perhaps, a remedy that makes the manufacturer or whoever happy,

but it is not going to make the situation better for animals. So we

would rather have monies going towards solving the issues rather

than into the individual Treasury of the country. So that is really

what we are trying to get at here.

A perfect example is tuna/dolphin, where, if that were ever

brought under WTO—it was brought under GATT and that was a

different era—we might have to pay Mexican fishermen who are

killing dolphins. Well, that just makes no sense. We want the fishermen to change how they are doing it, and so they change by having the ability to learn how to use the nets and doing various other

things. So that is what we are trying to get at here, to get a better

way of fixing the problem, not just condemning the problem.

Senator GRASSLEY. My last point would be to Ms. Lee. It is not

about the substance of these amendments, but about a process. I

want to tell you something that I disagree with, tell you why I disagree, and then ask you to respond if you want to. Also, if I am

wrong, Mr. Kantor would know if I am wrong because he was in

the position of enforcing and carrying out some of these agreements.

In your testimony, Ms. Lee, you state that it is essential that

countries bring their labor laws into compliance with the provisions

of our trade agreement prior to implementation. You go on to state
25

that this is standard practice. That is the statement that I disagree

with.

The standard practice has been that, upon conclusion of a trade

agreement, Congress enacts implementing legislation that authorizes the President to trigger entry into force once the President is

satisfied that our trading partner has taken all the necessary legislative and regulatory steps needed to comply with the agreement.

Until the President is satisfied then, the agreement does not

enter into force. The argument that you—and I have heard others

make it as well—turns that around. If another country demands

that we enact the terms of a trade agreement into our law before

that country would even begin the implementation process, I would

think that we in the United States would be offended and walk

away from the trade agreement.

In any event, I see no reason to depart from the standard practice of authorizing the President to trigger entry into force upon determining that our trading partners have fully conformed to the obligations of the trade agreement.

Now, this is the history of it, as far as I am concerned. In one

form or another, that is how it has been done, going back at least

as far as the Trade Agreement Act of 1979 for both Democratic and

Republican presidents. We should not depart from that now. That

is my opinion. I think you are asking us to depart. Maybe you did

not realize it, but I think you are departing from the standard

practice that we have had.

Ms. LEE. Thank you for the question, Senator Grassley. I actually do not think we are in disagreement on this point. If the President is to certify that the parties conform to all the provisions in

the agreement, my point is that, with respect to labor law, there

are certain areas where Peru, at the moment, does not conform to

the provisions that are agreed to in the agreement. So before the

President can certify in good faith that the parties conform, then

these steps need to be taken.

This is, when I said ‘‘standard practice,’’ maybe it is more of an

informal practice. But certainly it has been the case with respect

to Guatemala and the intellectual property rights laws, with Dominican Republic and the taxes on soft drinks. These issues were

addressed prior to implementation, and that is preferred practice.

So I do not think we are actually in disagreement.

One of the points I guess I would make is, there has been selective enforcement or priority placed on this by the administration,

and that what we would like to see is the labor provisions given

no less weight than the other commercial provisions in the agreement, like the intellectual property rights provisions. I do not think

we are actually that far apart, Senator Grassley.

Senator GRASSLEY. Well, maybe we are not, between you and

your position and me as a Senator. But it seems like your position

is different than the one the House of Representatives has taken,

because they have made very clear they were not going to take up

these bills in the House of Representatives until actually the Congress has passed the laws that we changed as opposed to the House

of Representatives passing it, the Senate passing, and the President signing it.
26

We have agreed to it, and then maybe a year from now, the

President, if the Peruvian Congress has done it, then the President

would certify it. If they do not ever do it, it is not certified and it

never goes into agreement. In fact, are we not right now under the

present provisions—we passed something with Oman several years

ago and it has not been certified yet, I do not believe, or some country in that region of the world. So maybe you and I do not agree,

but the way it is being carried out is different than since 1979.

Ms. LEE. That may be the case. I think it probably has to do with

whether there is confidence that the President is taking all these

factors into account.

I guess I wanted to raise one other issue. You had said whether

another country were to ask the U.S. to comply, whether we would

be insulted. With respect to labor law reforms, we would not be insulted. The AFL–CIO would not be insulted. We think these trade

agreements should be two-way streets and the labor obligations

should apply to the United States and should be enforced, and our

trading partners have a right to raise any issues that they think

might be there, just as we have the right to raise those issues with

respect to their laws.

Senator GRASSLEY. All right.

Senator Roberts?

Senator ROBERTS. Thank you, Mr. Chairman. I apologize to the

panel, and to you, sir, for the lateness of my arrival. I have been

saving western democracy this morning, and it is a tough job.

[Laughter.]

I have a couple of questions here for the Honorable Ambassador

and Secretary and friend, Sir Michael Kantor. I have just dubbed

you in that respect.

Mr. KANTOR. My mother would be very proud.

Senator ROBERTS. All right. Thank you very much for the work

that you have done in the past, and working with the Congress.

In your testimony, you list three principles that you believe

should guide how the United States addresses the big word, the

Lou Dobbs special, ‘‘globalization.’’ You mentioned raising standards of living for all participants, advancing the interests of the

American worker and their families, and vigorous enforcement of

our trade laws.

Senator Grassley said that the situation in South America was

tumultuous. That is a very fancy word for being in a tough situation. My question to you is, and it is an obvious question, and I

would go back to South America, I think I am correct in saying

that there are 31 nations in the southern command, 300 million

people, average age 14, a lot of problems down there.

We have taken a lot of infrastructure away from the southern

command where they were of help during times of need and actually helping people, and I am talking about the military and our

National Guard folks. That is not the case today with Afghanistan

and Iraq, and the numbers of people. So, I think it is very tumultuous, obviously, with Hugo Chavez being the next Castro, or whoever he intends to be.

Do geopolitical and national security concerns play a role when

negotiating trade agreements? If not, why not? How would you rate

national security along with the three that you mentioned?
27

Mr. KANTOR. Strategic issues are always somewhere in your

mind as you negotiate any trade agreement, Senator, because negotiating a trade agreement that is enforceable, that is strong, that

strengthens both countries can be very helpful in terms of

strengthening the ability of a country to progress, to institute

democratic principles, to strengthen their institutions, and so it is

always there. Obviously it is not a direct part of any trade negotiation, but it does have an effect. I think in this case with Peru, approving this agreement will have a positive effect on Peru’s stability, and hopefully our reputation and credibility in Latin America.

Senator ROBERTS. Well, one of the things I have been trying to

say to my farmers and ranchers in the various trade organizations

that are very effective in Kansas, I have to tell you, the bloom is

sort of off the trade lily. We have a situation where one of the leaders of the House appeared at the State Fair here just this past

weekend and said the House-passed farm bill, which I am not very

excited about to say the least, basically, I think the words were,

‘‘To hell with the WTO.’’

Now, that is not a very encouraging statement. If we are into a

period of, I do not want to say isolationism, or populism, or unhappiness in regards to how people describe globalism, concentration,

out-sourcing, all of that, I understand it. But it used to be that

when Chuck Grassley gave a speech, about the second thing that

he would talk about, and that I would talk about—same speech,

him in Iowa, myself in Kansas—was the value of exports and the

value of trade.

I do not see that on the American agriculture scene today. I am

trying to point out that a trade agreement with Peru, which is a

‘‘gimme’’ in regards to our interests, involves national security. It

involves national security, especially given the backdrop of what we

are facing in regards to South America, not to mention the rest of

the world. So, I appreciate your comments.

One other question, if I might. In your testimony, you note one

of the merits of trade agreements is resolving the sanitary and

phytosanitary—the acronym for that is SPS; everything has to be

an acronym, as you know—barriers to U.S. products and commodities.

We all have seen the damage that what I call ‘‘fake science’’ can

do to a market after the BSE discovery in late 2003. How many

animals have we inspected now at the USDA? It is over 600,000.

There is probably a million now in regards to BSE from which we

are still trying to recover. One Canadian critter across the border

does not make a sound science problem or challenge for other people, but you would think it does in regards to trade agreements.

Do you see an increasing trend in resorting to these types of nontariff barriers? If so, what is the importance of determining the

equivalency in food safety inspection procedures, and can we do

that? In your experience, can we actually do that? I mean, look at

the beef trade with Japan and with South Korea. They just discovered a tiny bone fragment about the size of a piece of rice, and they

have canceled all shipments in regards to one of our beef packers.

Now, come on. That is not sound science, in my view, with all due
28

respect to theirs. Can we do that? Can we see some progress there

and the importance of it?

Mr. KANTOR. Well, it is important. It is important that we be

equal to and balance our response to these countries in the way

that they are treating us. You know better than I, Senator Roberts,

the Japanese have had many more cases of BSE in their population, their cattle population, than we have.

These become barriers to give advantages to local farmers and

growers in terms of competing with the United States. In almost

every case, that is true. That is where I go back to enforcement and

standing up for the interests of the American people.

The American people will be credible—the government here in

Washington, whatever administration is in, whoever we are talking

to as members of Congress—will be credible if we will stand up for

their interests, legitimate interests, and being able to access markets and to sell their products in the way that they wish.

The fact is, our agricultural exports are critical not only to the

agricultural community, but to America’s economic health. We have

to make sure we have access to these markets and that we stand

up for America’s interests in a legitimate way.

Now, I would not suggest that we operate in a way that the Koreans or the Japanese have at times in terms of—the beef market

would be an example. But I do think we can be more resolute, more

focused, and we can react in a stronger way to these kinds of impediments to trade.

Senator ROBERTS. Do you see any possibility, in a food safety inspection procedure, that would make it a lot easier in terms of

equivalency with all of the various issues that you have talked

about? Can we not do this on an international basis? That would

sure solve a lot of problems.

Mr. KANTOR. Well, the whole issue of harmonization, harmonization of regulations and standards——

Senator ROBERTS. Exactly. That is the better word.

Mr. KANTOR. We ought to get on with it. The fact is, it is really

hurting our economy not to harmonize. It hurts other economies as

well. I would hope that this administration, the next administration, and future administrations would try to bring harmonization

into the trade agenda in a vigorous way.

Senator ROBERTS. I thank you for your response. Those are the

only two questions I have, Mr. Chairman. I apologize to the other

members of the panel. I especially would have liked David Winkles,

from South Carolina, to respond to several agriculture questions, in

that my wife is from South Carolina. That does not make sense to

a lot of people, but it does to people from South Carolina. You can

take the girl out of the South, but not the South out of the girl.

Where is Oswego? Are you close to Sumter, or to Columbia, or

maybe Greenville?

Mr. WINKLES. Oswego is rapidly becoming a suburb of Sumter.

Senator ROBERTS. All of her family came from there. We probably

went to church together and did not even know it.

Mr. WINKLES. Did not even know it.

Senator ROBERTS. All right. It is nice to have you here, sir.

Thank you, Mr. Chairman.

Mr. WINKLES. Thank you.
29

Senator GRASSLEY. Thank you all very much.

And for Chairman Baucus and for myself, I thank the witnesses

very much for appearing today. On behalf of the Chairman, I would

ask that any members who have questions to submit for the record,

do that by 5 p.m. on Thursday, this Thursday. Then for the witnesses who are at the table, we would like to have the responses

for the record come back no later than 6 p.m. on Thursday, September the 20th. Thank you very much.

The hearing is adjourned.

[Whereupon, at 11:32 a.m., the hearing was concluded.]

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