[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE IMPORTANCE OF TRADE NEGOTIATIONS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
FEBRUARY 11, 1999
__________
Serial 106-61
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
66-817 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
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unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
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C O N T E N T S
__________
Page
Advisory of February 4, 1999, announcing the hearing............. 2
WITNESS
Office of the U.S. Trade Representative, Hon. Charlene Barshefsky 9
______
SUBMISSIONS FOR THE RECORD
American Textile Manufacturers Institute, statement.............. 40
Kemet Electronics Corporation, Greenville, SC; and Vishay
Intertechnology, Inc., Malvern, PA, Leslie Alan Glick,
statement...................................................... 42
National Airmotive Corporation, Oakland, CA, statement........... 43
Small Business Survival Committee, Raymond J. Keating, statement. 44
THE IMPORTANCE OF TRADE NEGOTIATIONS
----------
THURSDAY, FEBRUARY 11, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, D.C.
The Subcommittee met, pursuant to notice, at 1:05 p.m. in
room B-318, Rayburn House Office Building, Hon. Philip M. Crane
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-6649
FOR IMMEDIATE RELEASE
February 4, 1999
No. TR-2
Crane Announces Hearing Series on the
Importance of Trade Negotiations in
Fighting Foreign Protectionism
Congressman Philip M. Crane (R-IL), Chairman of the Subcommittee on
Trade of the Committee on Ways and Means, today announced that the
Subcommittee will hold a series of hearings on the importance of
expanding trade and resisting protectionism through active United
States involvement in trade negotiations. The first hearing will take
place on Thursday, February 11, 1999, in B-318 Rayburn House Office
Building, beginning at 1 p.m.
Oral testimony at this hearing will be from invited witnesses only.
The sole invited witness will be United States Trade Representative
Charlene Barshefsky. However, any individual or organization not
scheduled for an oral appearance may submit a written statement for
consideration by the Committee and for inclusion in the printed record
of the hearing.
Other hearings in the series are expected to address: (1) the
potential impact of ongoing trade negotiations on jobs, wages, economic
opportunity and the future competitiveness of U.S. manufacturers and
service providers; (2) implementation and compliance with existing
trade agreements; (3) prospects for an agreement to establish a Free
Trade Agreement of the Americas (FTAA); (4) trade talks under the
auspices of the Asia Pacific Economic Cooperation Group (APEC); (5)
negotiations on the so-called ``built-in'' agenda in the World Trade
Organization (WTO); and (6) the possibility of further bilateral trade
negotiations with Europe, Chile, New Zealand, Australia and other
nations in the Pacific Rim region. Additional hearing dates and details
will be released in subsequent announcements.
BACKGROUND:
The United States currently participates in three major
multilateral and regional trade negotiations. At the December 1994
Summit of the Americas in Miami, leaders of 34 Western Hemisphere
democracies agreed to establish a FTAA, in which barriers to trade and
investment are progressively eliminated. They committed to begin the
process immediately, make concrete progress by the year 2000, and
conclude negotiations by no later than 2005. These negotiations were
officially launched at the Second Summit of the Americas in Santiago,
Chile, in April 1998.
The APEC forum, an association of 21 economies bordering the
Pacific Ocean, working cooperatively to reduce barriers to trade and
investment, has declared its intention to establish free trade and
investment in the region by the year 2010 for developed countries and
by 2020 for others. In November of 1997, APEC members held a Joint
Ministerial Meeting and Leaders Summit in Vancouver, where they
identified 15 sectors in which they intended to cut tariffs and remove
other barriers to trade. At the November 18, 1998, Ministers and
Leaders Meeting in Malaysia, countries agreed to move work on the
tariff portion of nine of these sectors into the WTO, with the aim of
completing an agreement with participation beyond APEC countries by
1999.
The Uruguay Round was the eighth round or series of multilateral
trade negotiations under the General Agreement on Tariffs and Trade
(GATT). The agreements reached at the end of 1994 during the Uruguay
Round were noteworthy in that they greatly expanded coverage of GATT
rules beyond manufactured goods trade to include agricultural trade,
services trade, trade-related investment measures, intellectual
property rights, and textiles. The most visible accomplishment of this
multilateral round was to establish the WTO to administer the GATT
agreements and to settle disputes among WTO members, as well as other
matters of interest to other WTO Members.
The Uruguay Round agreement calls for the resumption of
negotiations by the year 2000 to further liberalize trade in
agriculture and services, as well as on government procurement
practices and enforcement of intellectual property rights. The next WTO
Ministerial conference, which will be hosted by the United States
November 30-December 3, 1999, is slated to consider the procedures and
substance of the so-called ``built-in'' WTO agenda.
In announcing the hearings, Chairman Crane stated, ``With this
broad set of hearings, where we will hear from Americans in many walks
of life, I intend to review prospects for success in each of the major
trade negotiations in which the U.S. currently participates. At a
difficult time in the World economy, as countries face pressures to
increase protectionism, trade negotiations provide us the opportunity
to prevail on them to adopt market-opening measures. Active U.S.
involvement is essential. The country can no longer afford to keep our
seat warm at the WTO, and in the FTAA and APEC trade talks, while the
attention and energy of our government is focused elsewhere. Our trade
negotiators lack the tools they need to achieve concrete results.''
FOCUS OF THE HEARING:
The focus of the hearing on February 11th will be to examine and
assess the President's trade policy agenda and negotiating priorities
for the remaining two years of this Administration.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Thursday,
February 25, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Trade office, room 1104 Longworth House
Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1
format, typed in single space and may not exceed a total of 10 pages
including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Crane. The Subcommittee will come to order.
Good afternoon to one and all. We are going to be
interrupted, Charlene--in a few minutes is the projection--with
a vote on the floor. But I think getting started, since you are
under tight time constraints, we don't want to waste any
minutes.
This is the first in a series of hearings of the Ways and
Means Subcommittee on Trade to consider the importance of
expanding trade and resisting protectionism through active U.S.
involvement in trade negotiations.
I want to welcome our Ambassador, who will address the
President's trade agenda for the remaining 2 years of his
Administration.
To achieve the urgent goal of jump-starting economic growth
in U.S. export markets, it is important that we take a thorough
look at the prospects for success in each of the major trade
negotiations. My own personal view is that U.S. objectives are
repeatedly being compromised as trade liberalization continues
to take a back seat in the President's overall priorities. As
opportunities are slowly squandered, just saying you support
expanded trade and renewed negotiating authority is not
sufficient.
This country can't afford to simply keep our seat warm at
the WTO, and in the Free Trade Agreement of the Americans and
APEC trade talks while the attention and energy of our
Government are focused elsewhere.
With this broad set of hearings, where we will hear from
Americans in many walks of life, I believe we will continue to
build the case for active and committed U.S. involvement in
efforts to bring down foreign barriers to our exports. At a
difficult time in the world economy, as countries, including
our own, face pressures to increase protectionism, trade
negotiations provide us with the opportunity to prevail on them
to adopt market-opening measures, but only if USTR's team is
actively involved, armed with adequate tools and the commitment
at the highest levels of the Administration to achieve concrete
and meaningful results.
Because future trade agreements offer the best opportunity
we have to expand and ensure the success of U.S. businesses and
workers in the marketplace of the 21st century, we must do all
we can to quickly pass fast-track legislation. Administration
officials and others have spoken generally about renewing the
consensus on trade. And now I am prepared to discuss with the
Administration any specific ways in which it believes that my
fast-track bill, which the Administration agreed to in 1997, is
somehow deficient. I hope that opponents of fast-track will not
try to kill our efforts by making vague, unspecified references
to the need for improvements in the bill. I call today on any
critics to show me precisely where they believe my bill falls
short, and to offer constructive and specific proposals that
can garner bipartisan support.
I now would like to recognize the newly installed Ranking
Member of the Trade Subcommittee, our colleague, Sandy Levin
for any statement he might like to make.
Mr. Levin. Thank you, Mr. Chairman. As you have said, this
is the first in a series of important hearings on U.S. trade
policy. It comes at a key time. We face immediate challenges
such as how to respond to the unprecedented surge of steel
imports into the United States that followed the Asian economic
crisis and the severe harm those imports have done to workers
and firms in this vital sector of our economy.
At the same time, with the Seattle Ministerial meeting only
a few months away, we in Congress face the opportunity and the
challenge of working together and with the Administration to
develop U.S. trade strategies and objectives for the next major
round of WTO negotiations that will address effectively the
constantly changing dynamics of global trade.
We cannot afford to squander that opportunity because, as
in the past, the U.S. agenda will drive much of the world's
agenda in the next Round. Our agenda must effectively address
important new dynamics in global trading, including the
increasingly important role that developing counties and
transitional market economics such as China, Indian, Brazil,
Mexico, and Russia play in setting the terms of trade, and the
increasingly significant role that informal trade barriers and
government-generated barriers in areas such as distribution are
playing in preventing U.S. firms and workers from realizing the
full benefits from trade to which the United States is
entitled.
It is important to recognize that these problems are, in
part, a testament to the success we have had in negotiating
away other impediments to trade, such as tariffs and other
traditional border measures. As we have peeled away these
layers, we find ourselves in an environment in which any type
of distortion in the operation of competitive markets can have
a profound impact on the terms of trade. These distortions have
helped to create the current steel import crisis and are
central to understanding the barriers that must be targeted for
elimination in the next round of negotiations.
Given the constantly changing dynamics of competition in
the global marketplace, we must be prepared at all times to
take a fresh look at the new problems that arise and we must be
ready to discuss openly and candidly the best policies to
address those problems. In that regard, I want to commend the
effort by the Finance Committee in the Senate earlier this
month to examine and open a dialog on many of the more
contentious issues in U.S. trade policy, and express the hope
that we in the House can carry that dialog forward today and in
the hearings that follow.
I have the impression that there is a willingness in many
circles to take a fresh look at problems that we have been
debating increasingly in the trade area over the last 4 or 5
years. Clearly, one area that must be addressed is the role of
labor markets in trade relations.
In previous decades there was little focus on or
controversy about labor market issues. The interest in labor
rights was more in the context of a human rights agenda.
However, with the increased role in economic globalization of
trade with and competition from nations with very different
economies and economic structures than ours, there occurred a
parallel growth in concern about the impact of these vastly
different labor markets on economic conditions and the standard
of living in our own Nation. Controversy grew as to whether
international and bilateral rules of trade should address in
any manner these differences.
The President and our colleagues on the Senate Finance
Committee have signaled that it is time to change our approach
on this subject and have started to open a dialog.
First and foremost, I think we have to be clear about why
we need some agreement in the trade context on operation of
labor markets. Simply put, distortions in foreign labor markets
can have an impact on economic conditions of competition in
markets around the world, including in the U.S. control of
labor markets, whether through actual regulation or failure to
enforce basic labor standards, can create such distortions.
Once we move beyond answering the question of why the
operation of labor markets is relevant to trade, we still must
answer the second, and perhaps the more difficult question: How
do we address issues in the operation of labor markets
effectively in a way that also promotes continued growth in
opportunities for trade? Clearly, there are no easy answers.
Some have suggested as a starting point in trade negotiations
that we require our trading partners to respect and enforce the
basic labor principles that many of them, including virtually
all WTO members, have already endorsed in the ILO context;
namely, the right to associate and bargain collectively,
abolition of compulsory labor, abolition of child labor,
elimination of employment discrimination, and adherence to
acceptable conditions of work.
Under any circumstances, the objective in addressing this
important issue must be, as the President has said, to ensure
that the globalization of trade involves a leveling up, not a
leveling down. The objective is not to destroy legitimate
comparative advantages of developing countries or to use the
valid issue of operation of labor markets to create invalid
obstacles to trade. To the contrary, our common goal must be
greater integration of global markets in ways that promote
growth and opportunity for our workers and farmers and
businesses, while also promoting a trading system in which all
countries gain.
I hope that all my colleagues will join in this important
dialog so that we can move forward together.
Ambassador, as always, it is a great pleasure for us to
have you here, and I look forward to hearing your thoughts on
this and other important subjects in this vital area of
international trade.
[The opening statement follows:]
Statement of Hon. Sander M. Levin, a Representative in Congress from
the State of Michigan
This is the first in a series of important hearings on U.S. trade
policy. This set of hearings comes at a key time. We face immediate
challenges such as how to respond to the unprecedented surge of steel
imports into the United States that followed the Asian economic crisis
and the severe harm those imports have done to workers and firms in
this vital sector of our economy.
At the same time, with the Seattle Ministerial only a few months
away, we in Congress face the opportunity and challenge of working
together and with the Administration to develop U.S. trade strategies
and objectives for the next major round of WTO negotiations that will
address effectively the constantly changing dynamics of global trade.
We cannot afford to squander that opportunity, because, as in the
past, the U.S. agenda will drive much of the world's agenda in the next
Round. Our agenda must effectively address important new dynamics in
global trade, including: the increasingly important role that
developing countries and transitional market economies such as China,
India, Brazil, Mexico, and Russia play in setting the terms of trade;
and the increasingly significant role that informal trade barriers and
government-generated barriers in areas such as distribution are playing
in preventing U.S. firms and workers from realizing the full benefits
from trade to which the United States is entitled.
It is important to recognize that these problems are, in part, a
testament to the success we have had in negotiating away other
impediments to trade, such as tariffs and other traditional border
measures. As we have peeled away these layers, we find ourselves in an
environment in which any type of distortion in the operation of
competitive markets can have a profound impact on the terms of trade.
These distortions have helped to create the current steel import crisis
and are central to understanding the barriers that must be targeted for
elimination in the next Round of negotiations.
Given the constantly changing dynamics of competition in the global
marketplace, we must be prepared at all times to take a fresh look at
the new problems that arise and we must be ready to discuss openly and
candidly the best policies to address those problems. In that regard, I
want to commend the effort by the Finance Committee earlier this month
to examine and open a dialog on many of the more contentious issues in
U.S. trade policy, and express the hope that we in the House can carry
that dialog forward today and in the hearings that follow.
I have the impression that there is a willingness in many circles
to take a fresh look at problems that we have been debating
increasingly in the trade area over the last 4 or 5 years. Clearly, one
area that must be addressed is the role of labor markets in trade
relations.
In previous decades there was little focus on or controversy about
labor market issues. The interest in ``labor rights'' was more in the
context of a human rights agenda. However, with the increased role in
economic globalization of trade with and competition from nations with
very different economic structures than ours, there occurred a parallel
growth in concern about the impact of these vastly different labor
markets on economic conditions and the standard of living in our
nation. Controversy grew as to whether international and bi-lateral
rules of trade should address in any manner these differences.
The President and our colleagues on the Senate Finance Committee
have signaled that it is time to change our approach on this issue, and
have started to open a dialog on this subject.
First and foremost, I think we have to be clear about why we need
some agreement in the trade context on operation of labor markets.
Simply put, distortions in foreign labor markets can have an impact on
economic conditions of competition in markets around the world,
including in the United States. Control of labor markets, whether
through actual regulation or failure to enforce basic labor standards
can create such distortions.
Once we move beyond answering the question of why the operation of
labor markets is relevant to trade, we still must answer the second,
and what is perhaps the more difficult question: How do we address
issues in the operation of labor markets effectively in a way that also
promotes continued growth in opportunities for trade? Clearly, there
are no easy answers. Some have suggested as a starting point in trade
negotiations that we require our trading partners to respect and
enforce the basic labor principles that many of them, including
virtually all WTO Members, have already endorsed in the ILO context;
namely, the rights to associate and bargain collectively; abolition of
compulsory labor; abolition of child labor; elimination of employment
discrimination; and adherence to acceptable conditions of work.
Under any circumstances, the objective in addressing this important
issue must be, as the President has said, to ensure that in the
globalization of trade there is a ``leveling up, not leveling down.''
The objective is not to destroy legitimate comparative advantages of
developing countries or to use the valid issue of the operation of
labor markets to create invalid obstacles to trade. To the contrary,
our common goal must be greater integration of global markets in ways
that promote growth and opportunity for our workers and farmers and
businesses, while also promoting a trading system in which all
countries can gain.
I hope that all my colleagues will join in this important dialog so
that we can move forward together.
Ambassador Barshefsky, as always, it is a great pleasure, and I
look forward to hearing your thoughts on this and other important
subjects in this vital area of international trade.
[The opening statement of Hon. Jim Ramstad, follows:]
Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this important hearing today to
discuss the importance of trade negotiations and fighting protectionism
in the trade arena.
The U.S. has the most open market in the world. There is nothing
more important for our country than to break down tariff and non-tariff
barriers to free trade in other countries. I have worked with
colleagues on both sides of the aisle, and the Administration, when the
U.S. has had to fight unfair trade practices and protectionism against
U.S. products, and I will certainly continue to do so.
Sadly, however, I have also had to confront some of my own
colleagues when our own protectionist sides have shown themselves. Just
last year, we fought that battle, and unfortunately, we lost. Fast
Track negotiating authority was not renewed, CBI parity was defeated
and the African Growth and Opportunity Act was not enacted.
But, being an optimist, I hope this year will be different. We are
off to a good start, having passed the Miscellaneous Trade and
Technical Corrections Act in the House on Tuesday and marked up the
African Growth and Opportunity Act in this Subcommittee last week. The
President also made a strong pitch in favor of trade in his State of
the Union Address.
Mr. Chairman, it is imperative that we renew Fast Track Authority
for the President this year--especially before the WTO Ministerial
meeting, which will be held in Washington State in November. The
Administration must have this authority if our country is to be taken
seriously at those meetings as we try to knock down barriers to U.S.
goods and fight protectionism against free trade in general.
Mr. Chairman, thanks again for calling this hearing. I look forward
to hearing from our distinguished U.S. Trade Representative about the
President's agenda for the year. I also hope to learn how she thinks we
can work together to enact Fast Track Authorizing legislation as soon
as possible.
Chairman Crane. Thank you, Sandy.
We shall now proceed with the Honorable Charlene
Barshefsky. But Charlene, let me just warn you, I got word that
the vote may start in a minute. I am trying to figure out what
is the best thing to do.
Do you guys think we ought to run over there right now
rather than interrupt her?
Mr. Levin. You never know, it could be an hour. Why don't
we start.
Chairman Crane. All right. Then we will proceed.
STATEMENT OF HON. CHARLENE BARSHEFSKY, UNITED STATES TRADE
REPRESENTATIVE
Ambassador Barshefsky. Thank you, Mr. Chairman and Members
of the Committee. Let me begin by thanking you and the
Subcommittee for holding this hearing. Our hope is that this
will be a first step toward realizing the President's goal of
finding common ground in a bipartisan consensus on trade issues
as we open a new trade agenda for a new century. So I am very
pleased to be here to review our agenda and to take advantage
of your thoughts and advice.
In his State of the Union, the President set out a bold and
ambitious trade agenda, including the launch of the new round
of global trade negotiations. We are committed to lead in
removing trade barriers, creating fair and open markets, and
expanding trade, while ensuring that ordinary citizens continue
to benefit from the trading system in the next century.
This agenda builds on a long tradition of bipartisan
commitment to fair and open markets, a commitment which has
borne fruit in helping us create a dynamic, creative,
competitive economy which is the envy of the world. Since 1992,
we have had uninterrupted growth; as of last month, the longest
peace time expansion in our history. We have created nearly 18
million new jobs. The unemployment rate has fallen from 7.4
percent to 4.3 percent, the lowest rate since 1970. We have
raised wages, home ownership, and family living standards.
The reasons for this are many, but trade and participation
in the world economy have played an irreplaceable role. Since
1992, we have negotiated 270 separate trade agreements which
have helped open markets and create opportunity for Americans.
These include five of historic importance--the North American
Free Trade Agreement, NAFTA, which cemented our strategic
relations with our immediate neighbors; the Uruguay Round
Agreements, which created the World Trade Organization; and
three new multilateral agreements on information technology,
financial services, and basic telecommunications which,
together with intellectual property protection, are the
foundation of the twenty-first century economy.
As a result, America's trade has flourished. Last year we
exported close to a trillion dollars in goods and services, a
51 percent increase from the 1992 level, despite a slowing of
our export growth due to the Asian financial crisis. We now
have an opportunity, though, and a responsibility to take the
next step.
As host and chair of the WTO's Third Ministerial Conference
to be held in Seattle at the end of this year, we will be able
to shape the global trade agenda as we enter a new century. As
we approach this event and the accelerated negotiating round it
will inaugurate, we are developing an agenda that extends well
beyond traditional market-opening initiatives to ensure that
the world trading system responds to the pace of change, to
diverse constituencies, and to the challenge of the global
economy.
We envision a new type of round with three separate
dimensions to proceed simultaneously. First, expedited
negotiations in a wide range of areas. They would include, for
example, sharp reduction or elimination of industrial tariffs
and non-tariff barriers; market access and liberalization for
services industries, including audio-visual, express delivery,
financial services, the professions, telecom, distribution,
travel, tourism, and other others; agriculture, including State
trading enterprises, tariffs, the elimination of export
subsidies, the addressing of Europe's common agricultural
policy, biotechnology, and other topics; intellectual property,
beginning with the full implementation of Uruguay Round
commitments and extension to new technologies; government
procurement, exploration of how the WTO can help create an
international pro-competitive regulatory climate, particularly
in services as well as to advance investment, and further our
efforts against bribery and corruption. These negotiations
would have clearly defined timetables and expectations.
Statements by the EU and Japan in support of a 3-year
negotiating timetable are encouraging.
The second dimension, to proceed simultaneously with the
first, has to do with institution-building. A new round should
include a commitment to both institution-building and reform of
the WTO itself. This would include, for example, capacity
building in developing countries to help them implement what
they agree to do; trade facilitation, particularly in the
customs area; and more effective coordination between the WTO,
on the one hand, and the International Labor Organization, the
IMF, and the World Bank, as well as environmental bodies, on
the other. And it would include a greater commitment to greater
transparency in the WTO itself particularly in dispute
settlement, as well as accessibility to and responsiveness to
citizens.
And third, the third dimension also to proceed
simultaneously, is that a new round must accommodate ongoing
results. For example, as we develop the agenda this year, we
will also work toward completion of the ITA-II, the extension
of the information technology agreement, transparency in
government procurement, a consensus on the nine APEC sectors,
improvements in dispute settlement, and in electronic commerce
extension of the moratorium on tariffs applied to electronic
transmissions.
Our trade agenda beyond the very ambitious we foresee for
the next round is equally broad. We are, as you know, enforcing
WTO commitments and bilateral agreements with all of our
trading partners through over 80 separate enforcement actions
since 1993, including 42 at the WTO. And we are carrying on
sectoral, regional, and bilateral negotiations covering every
part of the world. My prepared testimony addresses this agenda
in detail, but I would like to take a minute to cite just a few
examples.
In the Western Hemisphere, the talks toward a free trade
area of the Americas are proceeding well, including the
achieving of concrete progress this year as well as bilateral
efforts to open markets in each of our hemispheric partners. In
Europe, we are working to remove barriers and strengthen trade
relations with the EU through the Transatlantic Economic
Partnership. This includes negotiations on technical trade
barriers, agriculture, and, in particular, biotechnology and
food safety, intellectual property, government procurement,
services, electronic commerce, and advancing shared values such
as transparency and the participation of civil society. At the
same time, we are enforcing strictly European compliance with
dispute settlement decisions, such as those on bananas and
beef, and we will address problems in our trade relations both
bilaterally and through the new negotiating round that the
President has proposed.
In Africa, we are implementing the President's initiative
to improve trade relations and ensure Africa's full integration
into the multilateral system. For the past 5 years, Mr.
Chairman, it is the Ways and Means Committee that has led the
effort to develop a more effective Africa trade policy for the
next century. And let me applaud you, Mr. Chairman, Congressman
Rangel, and Mr. McDermott, as sponsors of the Africa Growth and
Opportunity Act, in particular, and thank the entire
Subcommittee for your decision to markup a bill early in this
session. We look forward to its rapid passage by the House.
In Japan, we will continue our intense and sustained effort
to further open and deregulate the Japanese market. We have
concluded 35 bilateral trade agreements with Japan since 1993
and we will monitor their implementation closely. We will also
address continuing sectoral issues such as glass, steel, autos,
insurance, and other topics. And we are pursuing an ambitious
set of goals under our Enhanced Deregulation Initiative with
Japan which covers a number of key sectors for American
exporters, including telecom, pharmaceuticals, housing,
financial services, and medical equipment. At the same time, as
you know, we are addressing the very large and rapid increase
in steel imports from Japan.
In China, we will continue to monitor and strictly enforce
our agreements on intellectual property rights, textiles, and
market access in goods and agriculture, and address bilateral
trade problems. At the same time, we will continue to seek
broad market opening through our negotiations toward China's
accession to the WTO. In this regard, membership in the WTO for
China on commercially meaningful grounds is in our interest and
it is in China's interest. Broadly speaking, WTO principles
such as transparency, openness, and public and enforceable
commitments will help strengthen the rule of law in China and
create sustainable long term growth. And the specific market
access and other reforms WTO accession requires from China are
no more onerous than what other WTO members have already done.
Premier Zhu Rongji's proposed visit to the United States this
spring gives China and the United States a chance to advance
this goal. As this approaches, China has an opportunity,
perhaps the last for some time to come, to resolve the
remaining issues. We hope China will take it. We also recognize
that China may again decide it is not ready for the
commercially meaningful steps WTO membership requires and thus
WTO membership may not come for some time. But delay in trade
reform is not an option. We will not hesitate to make sure that
we are treated fairly, and we will continue to urge China to
move toward acceptance of international norms, economic and
otherwise, which are so important to us, to China's neighbors,
and to China itself.
Apart from Japan and China, more generally in Asia we are
continuing our APEC sector liberalization effort and are
working to build consensus on WTO-related issues before the
1999 Ministerial.
In the Middle East, we are promoting regional integration
on the foundation of our free trade agreement with Israel and
with the creation of new Israeli-Jordanian industrial zones
whose products will receive preferential access to the United
States, and we have in mind similar projects with Egypt and the
Palestinian authority.
In each of these regions and in the multilateral agenda as
well as bilaterally, we are, of course, committed to the full
enforcement of the agreements we reach. We are the most active
user of WTO dispute settlement, and of course our own trade
laws are vital.
We are also committed to ensuring that as trade expands
environmental standards rise and respect for internationally
recognized core labor standards grows. With respect to the
environment next month, our work includes both finding ways to
liberalize trade while strengthening environmental protection,
as an APEC initiative to liberalize trade in environmental
goods and services will do, and, at the same time, to avoid
potential conflict between trade agreements and environmental
objectives. The WTO, with our support, is convening a high
level meeting on trade and the environment this spring to more
fully address these questions. This marks a new level of
awareness and interest in the world trading community on trade
and environmental issues. And as to internationally recognized
core labor standards, we are working on several fronts. First,
we are working to improve the collaborative relationship
between the WTO and ILO. Second, we are strengthening the ILO
itself by adding funding for ILO child labor programs in
addition to those we already support in Bangladesh, Thailand,
the Philippines, Africa, and Brazil. And we are finding ways to
address core labor standards as we advance our trade policy
goals. The North American Agreement on Labor Cooperation is one
example. Another is our most recent trade agreement, a textile
agreement with Cambodia in which Cambodia is required to
improve the enforcement of its labor laws in the garment sector
in exchange for additional market access benefits.
This, Mr. Chairman, is a broad and ambitious agenda. We
hope to pursue it based on a strong bipartisan consensus which
includes renewal of trade negotiating authority for certain
agreements. Negotiating authority imparts greater credibility
and effectiveness on behalf of American economic interests,
helps ensure the successful implementation of important trade
agreements, and thus contributes to our goal of opening
markets, increasing growth, and raising living standards. We
intend to approach its renewal in a spirit of finding common
ground and strong bipartisan consensus. This will, however,
require flexibility on all sides. In addition, let me stress
our strong support for legislation to enhance the Caribbean
Basin Initiative, renew the GSP program, pass the OECD
shipbuilding agreement, and renew trade adjustment assistance,
and of course, as I mentioned earlier, we place great
importance on passage of the Africa legislation.
In summary, the U.S. economy and the living standards of
our citizens have benefited immensely from the work of this
Congress, this Administration and previous Administrations that
we have done together. As we open a new century and prepare to
shape the trading world of the next generation, we plan to work
with this Committee and others in Congress as well as
stakeholders in the system to shape an agenda that, as the
President said, will allow us to tear down barriers, open
markets, expand trade, and ensure that ordinary citizens in
America and in all countries benefit. Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of the Hon. Charlene Barshefsky, U.S. Trade Representative
Thank you, Mr. Chairman, for inviting my testimony on the role of
trade in our economy, and the state of American trade policy today. I
am grateful to you and to the Subcommittee as a whole for offering us
this opportunity to discuss our trade policy record and agenda for the
future, and I look forward to continuing the close working relationship
we have had with the Subcommittee. And let me say that you have called
this hearing at an opportune time, because we are opening a year in
which every part of our trade agenda will be ambitious and will hold
great promise for our country.
Three weeks ago, President Clinton called for the initiation of a
new multilateral negotiating Roundtable to meet the demands of the 21st
century. This will begin at the World Trade Organization's Third
Ministerial Conference, chaired by the United States--and the largest
trade event ever held in the United States--and it will shape world
trade in the next century. Our multilateral agenda will be accompanied
by the regional, bilateral and sectoral negotiations we have underway
in each part of the world; and by enforcement of our rights under WTO
dispute settlement, the North American Free Trade Agreement and through
our domestic trade laws.
We hope and expect to carry out this agenda in the tradition of
bipartisanship and close consultation between the Executive and
Legislative branches which have characterized many years of American
trade policy. My testimony will touch on each of these points,
including trade negotiating authority, which we believe will help us
achieve our goals. But let me begin by discussing the context in which
we develop and execute our policy agenda.
Trade Policy Principles
Trade policy forms part of both our national economic policy and
our approach to the world beyond our borders.
At home, engagement in world trade, based on fair rules and the
rule of law, offers American firms, agricultural producers and workers
larger markets. Almost 80% of world economic consumption takes place
outside the U.S., and if America is to continue to grow and remain
competitive in the future, trade policy must ensure that Americans have
fair access to these markets. Trade also offers American consumers a
greater choice of products at competitive prices and higher quality.
Overseas, trade helps increase world prosperity, advances the rule
of law, and helps to strengthen international peace. As President
Franklin Roosevelt said in 1944:
``A basic essential to peace, permanent peace, is a decent
standard of living for all individual men and women and
children in all nations. Freedom from fear is eternally linked
with freedom from want. [And] it has been shown time and time
again that if the standard of living in any country goes up, so
does its purchasing power--and that such a rise encourages a
better standard of living in neighboring countries with whom it
trades.''
These principles have formed the basis of American trade policy
since the end of World War II. We have advanced them on a bipartisan
basis through a strong working partnership between the Executive Branch
and Congress through ten Administrations, ever since the creation of
the General Agreement on Tariffs and Trade in 1948. The Clinton
administration's trade policy, we believe, is firmly in this tradition:
such advances as the passage of the North American Free Trade
Agreement, the Uruguay Round, our 35 bilateral trade agreements with
Japan--a total of 270 trade agreements--would not have happened without
the advice, support and contribution of the Trade Subcommittee and
Congress as a whole.
Trade and the U.S. Economy
The results of these policies have contributed immeasurably to the
peace and prosperity America now enjoys. We have the most dynamic,
creative and competitive economy in the world, and are ideally placed
to succeed in the next century.
Since 1992, we have had uninterrupted growth--our economy has
expanded from $7.1 trillion to $8.5 trillion in real terms (1998
dollars) and last month, the present economic expansion became
America's longest in history.
We have created jobs. Employment in America has risen from 109.5 to
127.2 million jobs, a net gain of nearly 18 million, as unemployment
rates fell from 7.4% to 4.3%.
And we have raised wages. Since 1992, average wages have reversed a
twenty-year decline and have grown by 6.0% in real terms, to $449 a
week on average. This family prosperity is reflected, for example, in
record rates of home ownership.
Altogether, we have achieved an historic combination of high
growth, low unemployment, low inflation, low interest rates and rising
wages unmatched in decades. The reasons for this are many. They include
improved support for education and job training and an uninterrupted
reduction in the federal deficit beginning in 1993 and culminating with
the budget surpluses we now enjoy. But trade and participation in the
world economy have played an irreplaceable role.
And overseas, as trade has grown and international trade rules have
strengthened, the hopes of the wartime generation have been in many
ways realized.
Peace among the world's great nations has grown more secure.
Prosperity has blossomed--as world exports have grown from $60
billion to $6.5 trillion in constant dollars since 1960, world economic
production has quadrupled and real per capita income has more than
doubled, from under $3100 to over $6300 last year.
As a consequence, people have better lives. In 1955, the world
average life expectancy at birth was 48 years; now it is 65. Where the
worldwide infant mortality rate was 148 per thousand, today it is 59.
And faith in markets under the rule of law has been vindicated:
those nations which shut off the free flow of goods, services and
information have tended to stagnate while those which remained open to
the world have tended to prosper. One need only examine the ghastly
experiment which has taken place on the Korean peninsula--as South
Korea has risen to become one of the world's leading industrial powers,
while North Korea is afflicted by chronic hunger--to show how stark is
the contrast. And there is no stronger vindication of our work than the
fact that Russia, China and 16 other economies have abandoned central
planning and seek WTO membership.
Our Administration has had the good fortune to build upon this
foundation. Since 1992, we have negotiated 270 separate trade
agreements which have helped open markets and create opportunity for
Americans. These include five which have fundamentally transformed
world trade: the North American Free Trade Agreement, which cemented
our strategic trade relationship with our immediate neighbors; the
Uruguay Round, which created the World Trade Organization with a
binding dispute settlement mechanism and extended international trade
rules to new areas through agreements on agriculture, services,
intellectual property; and three multilateral agreements on information
technology, financial services and basic telecommunications.
U.S. Trade Today
As a result, America's trade has flourished. Last year we exported
$932 billion in goods and services--a 51% increase from the 1992 level
of $617 billion, despite a slowing in export growth due to the
financial crisis. Our goods exports were very evenly divided among four
major markets, meaning that we have critical trade interests in each
part of the world:
------------------------------------------------------------------------
Canada Asia-Pacific Latin America European Union
------------------------------------------------------------------------
$156 billion $166 billion $143 billion $150 billion
------------------------------------------------------------------------
Measured by country, our largest five goods export markets were
Canada at $156 billion, followed by Mexico at $71 billion, Japan at $57
billion, the United Kingdom at $40 billion and Germany at $25 billion.
Service export figures are only partially available for 1998. Our
full-year 1997 service exports, divided regionally, were more heavily
weighted to Asia and Europe but still indicate critical interests in
each region:
------------------------------------------------------------------------
Canada Asia-Pacific Latin America European Union
------------------------------------------------------------------------
$20.5 billion $73.6 billion $34.2 billion $74.8 billion
------------------------------------------------------------------------
In 1997, our six largest service export markets were Japan with $34
billion, the United Kingdom with $23.7 billion, Canada at $20.5
billion, Germany at $13.5 billion, France at $9.4 billion and Mexico at
$9.3 billion.
Altogether, the United States was the world's largest exporter in
1998. We were also the largest exporter of the goods and services
supporting the highest-wage jobs: agricultural products, advanced
technology products and capital goods. Our goods exports now support
11.6 million American jobs.
The United States was also the world's largest importer, at $1.1
trillion in goods and services imports in 1998. Imports play an
important role in our economy, by raising living standards for
consumers (especially lower-income Americans), dampening inflation,
ensuring the widest possible choice of products at the best prices, and
providing essential inputs for U.S. industries, many of which then
export their goods at competitive prices. However, open markets depend
on fair trade rules, and we are and will be vigilant in enforcing our
laws against import surges, subsidies, dumping, or other measures
intended to artificially boost exports or protect foreign markets.
Trade Agenda in 1999
This brings me to our agenda for the years to come. As in the past,
we hope to base our work on the foundation of a bipartisan consensus
and a strong working relationship between the Administration and
Congress. Generally speaking, our trade policy seeks the following
goals.
Address the trade effects of the financial crisis which
now directly affects nearly 40% of the world.
Continue our progress toward open and fair world markets
through a new negotiating Round, as well as our role as host and Chair
of the WTO's Third Ministerial Conference, regional negotiations and
bilateral talks.
Advance the rule of law and defend U.S. rights by ensuring
full compliance with trade agreements and strongly enforcing our trade
laws.
Encourage the full participation of all economies,
including economies in transition and developing nations, in the world
trading system on a commercially meaningful basis;
Ensure that the trading system helps lay the foundation
for the 21st-century economy by offering maximum incentives for
scientific and technological progress.
Ensure that trade policy complements our efforts to
protect the world environment and promote core labor standards
overseas; and
Advance basic American values including transparency and
accessibility to citizens and involvement of civil society in the
institutions of international trade.
Trade Negotiating Authority
As we pursue this agenda, the Administration will consult with the
Subcommittee and Congress on the renewal of traditional trade
negotiating authority. The President, in his State of the Union
address, called for a new consensus on trade. He said we must find the
common ground on which business, workers, farmers, environmentalists
and government can stand together. This commitment to common ground has
been a hallmark of the Subcommittee's approach to trade policy over the
years. I want to personally thank you, Mr. Chairman, along with each
member of the Subcommittee, for your commitment and hard work toward
this goal in the last Congress.
Consistent with that approach, we believe negotiating authority
should bolster the traditional bipartisan support for trade policy and
allow us to pursue an agenda that reflects consensus goals. It is a
tool which can help us negotiate with greater credibility and
effectiveness on behalf of American economic interests, and thus
contribute to our goal of opening markets, increasing growth and
raising living standards.
Trade Effects of Financial Crisis
Let me now address our agenda in detail. I will begin with the
trade effects of the financial crisis affecting Asia, Russia and parts
of Latin America.
This crisis has now lasted a year and a half, and its effects on
our trade interests have been severe. Countries which have implemented
IMF reform programs have seen a number of good results, including
currency stability and returning investor confidence. However, real
economies continue to suffer. Six major economies--Hong Kong,
Indonesia, Malaysia, South Korea, Russia and Thailand--are likely to
have contracted by 6% or more last year.
As a result of this crisis, the American trade imbalance has
widened. This reflects largely a sharp drop of about $30 billion in
American exports to the Pacific Rim, and a consequent break with the
pattern of rapid U.S. export growth of the past few years. Our overall
import growth last year (with the principal exception of the steel
sector, in which imports rose very rapidly in the second half of 1998,
affecting thousands of jobs) remained consistent with growth rates in
previous years. Thus the larger deficit largely reflects predictable
macroeconomic factors.
Our trade policy response begins by ensuring that our trading
partners continue to live by commitments at the WTO and in our regional
and bilateral agreements. The strength of the trading system is an
enormous advantage here--despite the worst financial crisis in fifty
years, the world has resisted the temptation to relapse into
protectionism. This has greatly reduced the potential damage to our
economy, and particularly to American manufacturing exporters and
agricultural producers. In addition, other markets--particularly our
NAFTA partners Canada and Mexico, to whom U.S. goods exports grew by
$13 billion last year--have in part compensated, thanks to the more
open North American market NAFTA has created, for some but not all of
these lost exports. An ambitious trade agenda will further strengthen
our effort to ensure that the crisis does not cause the world to move
backward.
We continue with a policy response covering several areas:
IMF Recovery Packages--We have supported reform packages with the
IMF at the center in affected countries. Several of these contain trade
conditionalities which we vigorously monitor.
Restored Growth in Japan--A return to growth in Japan, Asia's
largest economy, is essential for the economic health of the region.
The Administration's view is that this will require fiscal stimulus
that continues until solid growth is restored, financial reform, and
deregulation and market-opening. USTR's responsibilities lie in this
last area. In addition to an aggressive bilateral agenda, the agreement
we reached in Japan last May sets out concrete deregulatory measures in
telecommunications, housing, medical devices, pharmaceuticals and
financial services sectors, and measures to strengthen competition
policy enforcement and transparency. When fully implemented, these will
create opportunities for exporters and workers in America, other
Pacific economies and Japan. We are now discussing new measures in
these sectors and energy as well.
Steel--The President's January 7 Steel Report to the Congress lays
out a seven point action plan on the steel import surge. Among other
points, the plan projects a roll-back of imports from Japan--the key
cause of the import surge--to pre-crisis levels, and states that the
Administration is prepared, if necessary, to self-initiate trade cases
to ensure that this roll-back takes place. The plan also outlines
actions taken by the Commerce Department to expedite ongoing dumping
investigations and apply any dumping margins retroactively. In
addition, the Administration expresses strong support for an effective
safeguards mechanism; and commits us to continue to assess the
effectiveness of steps taken to date, and working closely with the
industry, labor, and members of Congress, to assess additional steps.
To assist in this ongoing review, we also announced that preliminary
steel import data will be released, thus enabling the industry's
business planners to react to imports on a more timely basis.
I. Growth and Higher Living Standards
Let me now turn to our negotiating agenda. In this agenda, we seek
enduring goals--growth, higher living standards, the rule of law, a
rising quality of life, better protection of health, safety and the
environment, and the advance of basic values. As President Clinton said
in the State of the Union address, we need to find new methods of
negotiating and address a broader array of issues to secure these goals
in the next century.
1. New Round and WTO Ministerial Conference
This is the basis of President Clinton's call for a new,
accelerated negotiating Round for the 21st century. The Round would
begin at the WTO's Third Ministerial Conference, which I will chair and
which will be held in Seattle from November 30th to December 3rd. This
will be the largest trade event ever held in America, bringing
government leaders, Trade Ministers, business leaders, non-governmental
organizations and others interested in trade policy from around the
world. It is an extraordinary opportunity for us to shape at least the
next decade of multilateral trade negotiations and to highlight our
economic dynamism to the world.
The Round President Clinton has called for would be somewhat
different from previous Rounds, in that we should be able to pursue
three dimensions simultaneously: first, a negotiating agenda to be
completed on an accelerated timetable; second, institutional reforms
and capacity-building at the WTO; and third, ongoing results in
priority areas.
To begin with, we would hope to advance a number of important
initiatives in the months leading up to the Ministerial Conference and
at the event itself. They include:
An ``Information Technology Agreement II'' adding new
products to the sectors already covered by the first ITA.
Extension of last May's multilateral declaration not to
assess customs duties on electronic commerce, to make sure that the
Internet remains an electronic duty-free zone.
An agreement on transparency in procurement to create more
predictable and competitive bidding, reducing the opportunity for
bribery and corruption and helping ensure more effective allocation of
resources.
Build consensus on the sectoral liberalization initiative
begun in the Asia-Pacific Economic Cooperation forum. This would
eliminate tariffs and in some cases liberalize services in chemicals;
energy equipment and services; environmental goods and services; fish
and fishery products; gems and jewelry; medical and scientific
instruments; toys; and forest products. Meaningful participation by
Japan in the fishery and forest products sectors would be essential to
success.
The second dimension of institutional reform would promote
transparency, allow the WTO to facilitate trade and participation for
less developed nations, help it coordinate more effectively with
international bodies in other fields, and continue to strengthen public
confidence in the WTO as an institution. Here we would hope to take up
such issues as:
Trade facilitation: Most of the world's regional trading
arrangements--ASEAN, APEC, the European Union, Mercosur, NAFTA, the
proposed FTAA--contain a critical element of trade facilitation, often
beginning with customs reform to reduce transaction costs and make
trade more efficient. The WTO can help accomplish this on a much
broader scale.
Capacity-building: We need to narrow the growing disparity
between the rich countries and the poor countries. We have to ensure
that the WTO can work effectively with member economies and other
international institutions, particularly with respect to the least
developed nations, to ensure that they have both access to markets and
technical assistance to meet the kinds of obligations that will help
them grow. This and other issues will be addressed at a High-Level
Meeting on Trade and Development this March.
Addressing the intersection between trade and
environmental policies: As trade promotes growth overseas, we must at
the same time ensure clean air, clean water and protection of our
natural heritage, as well as effective approaches to broader questions
like biodiversity and climate change. We have already scheduled a High-
Level Meeting of trade and environment experts in March, which we
anticipate will provide fresh and valuable input to our work in this
area and help frame a vision for future work.
Addressing the intersection between trade and labor:
Again, as in our domestic economy, growth can and should be accompanied
by safer workplaces, elimination of exploitive child labor and respect
for core labor standards. The WTO in particular can work in more
coordination with the International Labor Organization on some of these
issues. As the President has announced, the US will provide funds for a
new multilateral program in the ILO to provide technical assistance for
international labor rights initiatives, and through our own Department
of Labor will help our trading partners strengthen labor law
enforcement. These and other such efforts should be a focus of renewed
cooperation with the ILO.
Coordination with the international financial
institutions, in a world where the separation of trade from financial
policy has become entirely artificial: The WTO must work more
effectively with the IMF and World Bank to achieve their common goals
of a more stable, predictable and prosperous world.
Transparency: We will also seek reform, openness and
accountability in the WTO itself. Dispute settlement must be
transparent and open to the public. Citizens must have access to panel
reports and documents. Civil society must be able to contribute to the
work of the WTO, to ensure both that the WTO can hear from many points
of view including labor, environmental, consumer and other groups, and
that its work will rest on the broadest possible consensus.
With respect to the expedited negotiating agenda of this Round, we
are now consulting with Congress, industry, and other interested
parties on a detailed negotiating agenda for talks which would begin
after the Ministerial. While the final scope of the agenda is yet to be
determined, we believe that at a minimum they should include such
issues as:
Agriculture, where we envision broad reductions in
tariffs, the elimination of export subsidies, and further reductions in
trade-distorting domestic supports linked to production. We must seek
transparency and improved disciplines on state trading enterprises,
seek reform of the EU's Common Agricultural Policy, and ensure that the
world's agricultural producers can use safe, scientifically proven
biotechnology techniques without fear of trade discrimination.
Services, in which we hope to see specific commitments for
broad liberalization and market access in a range of sectors, including
but not limited to audiovisual services, construction, express
delivery, financial services, professional services,
telecommunications, travel and tourism, and others.
Government procurement, in which purchases are over $3.1
trillion per year, much of it in sectors where America sets the world
standard: high technology, telecommunications, construction,
engineering, aerospace and so forth. At present, only 26 of the 133 WTO
Members belong to the plurilateral WTO Government Procurement
Agreement. We thus look to bring more countries under existing
disciplines.
Intellectual property, where our efforts to ensure full
compliance with the existing provisions of the Uruguay Round will be
combined with campaigns against piracy in newly developed optical media
technologies such as CDs, CD-ROMs, digital video discs and others; and
end-user piracy of software.
Industrial tariff and non-tariff barriers, where we will
seek to continue our progress in reducing bound and applied tariff
levels, and continue to address non-tariff measures in industrials
sectors.
A forward work-program on newer issues for the
multilateral system to consider, including considering how competition
and investment policies meet the test of assuring fair and open trade
and how the WTO can help to create an international pro-competitive
regulatory climate, particularly in services, and further advance our
efforts against bribery and corruption.
Outside the context of the Round, we are pursuing the accession of
31 economies to the World Trade Organization: Latvia, whose accession
is complete and awaiting ratification; and Albania, Algeria, Andorra,
Armenia, Azerbaijan, Belarus, Cambodia, China, Croatia, Estonia, FYR of
Macedonia, Georgia, Jordan, Kazakstan, Laos, Lithuania, Moldova, Nepal,
Oman, Russia, Samoa, Saudi Arabia, Seychelles, Sudan, Taiwan, Tonga,
Ukraine, Uzbekistan, Vanuatu and Vietnam. In all cases we seek a
commercially meaningful accession with the greatest possible
commitments to all WTO agreements, including the most recent ones.
We are also exploring ways to more fully integrate the least
developed countries, particularly in Africa, into the system. This
includes both seeking deeper commitments, and technical assistance in
fulfilling those commitments, and legislation to improve trade
relations with Africa.
Finally, we will shortly be deciding on entry into force of the
1997 WTO financial services negotiations. As you may recall, these
extended negotiations concluded on an interim basis in 1995 because we
were dissatisfied with offers from important trading partners,
especially in developing and emerging markets. In contrast, in the
negotiations that concluded in December 1997, we obtained broader and
deeper commitments, in banking, insurance, and securities, from a wide
range of developed and developing countries, including the key emerging
markets of primary interest to U.S. industry. These countries had until
January 29, 1999, to complete any necessary domestic procedures and
formally notify the WTO of their acceptance of the protocol for
bringing their commitments into force. Fifty-three countries, including
the United States, met the deadline, and these 53 are now empowered to
decide whether to allow their commitments to enter into force, on an
MFN basis, from March 1. We have been consulting with your staff, staff
of other relevant committees, and the U.S. private sector to determine
a strategy that is in the best commercial interest of the United States
and that will demonstrate our view that all WTO Members must live up to
their commitments.
2. Regional Trade Agenda
At the same time, we are pursuing an active agenda in each region
of the world. A brief review is as follows:
Canada--With Canada, our largest trade partner, we have serious
concerns on a range of agriculture matters. We took an important step
on these last December by concluding a market access package opening
opportunities for American grain farmers, cattle ranchers and other
agricultural producers. We will continue our work in these areas this
year. We will also address major market access impediments to our
magazine publishers (as I note in the section on enforcement) and other
media and entertainment industries. We will also continue to enforce
our bilateral sectoral agreements. At the same time, we intend to work
with Canada on bilateral issues of mutual interest, and on negotiations
toward the Free Trade Area of the Americas and at the WTO where we
share many goals.
Mexico--Trade with Mexico has expanded very rapidly since passage
of the North American Free Trade Agreement. Last year, Mexico passed
Japan as both our second largest goods exports market and our second
largest overall goods trade partner. We will continue to monitor
implementation of Mexico's NAFTA commitments, scheduled to be complete
by 2008, and address bilateral issues including land transportation,
corn syrup and sugar, and telecommunications barriers as well as piracy
in intellectual property rights. We have also stepped up our efforts in
the trilateral work program now underway in more than 25 Committees and
Working Groups, with the intention of maximizing our gains under the
NAFTA.
Western Hemisphere--The Miami and Santiago Summits of the Americas
have called on us to complete work on a Free Trade Area of the Americas
no later than the year 2005. This year, in accordance with Summit
directions, we intend to achieve ``concrete progress'' toward the FTAA
in our nine Negotiating Groups and through business facilitation and
other measures. At the same time, we will seek approval from Congress
of an expanded and improved Caribbean Basin Initiative with benefits
similar to those now accorded Mexico and Canada.
Europe--We are working to remove barriers and strengthen trade
relations with the EU through the Transatlantic Economic Partnership
begun last year. This includes negotiations on seven separate agenda
items: technical trade barriers, agriculture (including biotechnology
and food safety), intellectual property, government procurement,
services, electronic commerce and advancing shared values such as
transparency and participation for civil society. We are also working
to ensure the protection of American interests as the EU expands to
include Central and Eastern European nations. At the same time, we are
enforcing European compliance with dispute settlement decisions and
will address problems in our trade relations both bilaterally and
through the new negotiating Round President Clinton has proposed.
Asia--Under the Asia-Pacific Economic Cooperation (APEC) forum we
are looking long-term toward free and open trade in the region. This
year, as I noted earlier, we will seek WTO consensus on the nine-sector
liberalization package begun in APEC, and begin work on six additional
sectors. We will also address bilateral issues with Korea, the ASEAN
nations and other Asian trade partners. This will include seeking
Normal Trade Relations with Kyrgyzstan, Mongolia and Laos, and
negotiating a broad trade and commercial agreement with Vietnam.
Japan--In trade relations with Japan, our largest overseas trade
partner, we will continue our intense and sustained effort to open and
deregulate the Japanese market. We have concluded 35 bilateral trade
agreements with Japan since 1993; we will monitor their implementation
closely and enforce them vigorously. We will also address sectoral
issues including rice, steel, insurance, glass, film and other topics.
And as I noted earlier, we are pursuing an ambitious set of goals under
the Enhanced Initiative on Deregulation and Competition Policy, both in
individual sectors and in broader structural issues. We hope to see
substantial progress on these issues as Prime Minister Obuchi's spring
visit approaches.
China--We will monitor and strictly enforce our agreements on
intellectual property and market access with China, and address
bilateral trade problems in agriculture, direct marketing and other
areas. At the same time, we will continue to seek broad market-opening
through our negotiations toward China's accession to the World Trade
Organization, which I address more fully below.
Africa--USTR is implementing the President's Partnership for
Economic Growth and Opportunity in Africa, which owes a great deal to
the work of the Trade Subcommittee, by supporting economic reform,
promoting expanded trade and investment ties, and encouraging Africa's
full integration into the world trading system by negotiating bilateral
agreements, technical assistance and other measures.
A sound policy framework in African countries that opens economies
to private sector trade and investment offers the greatest potential
for growth and poverty alleviation as well as trade opportunities for
the U.S. Last month, for example, we signed a Bilateral investment
Treaty with Mozambique and over the next few months we expect to sign
Trade and Investment Framework Agreements, or TIFAs, with South Africa,
Ghana, and the West African Economic and Monetary Union. We also place
a very high priority on Congressional approval of the African Growth
and Opportunity Act. I want to state my personal appreciation for the
work of Chairman Crane, Congressman Rangel and Congressman McDermott to
secure its early passage in this Congress.
Broader efforts to encourage full integration of developing
countries into the trading system will also bolster our Africa policy.
In this regard, we will seek renewal of the Generalized System of
Preferences.
Middle East--Building upon our Free Trade Agreement with Israel, we
have inaugurated a program that aims to bolster the peace process,
while advancing American interests. Starting with a framework of
bilateral trade and investment consultations in the region and a newly
inaugurated industrial zones program, we will help the Middle Eastern
countries work toward a shared goal of increased intra-regional trade.
OECD--We strongly support passage of the OECD Convention on
Shipbuilding Subsidies and will work with you to ensure its success.
II. Enforcing the Rule of Law
Second, US trade policy will support and advance the rule of law
internationally by ensuring the enforcement of trade agreements and
U.S. rights in the trading system.
Much of our enforcement work takes place at the World Trade
Organization. We have filed more complaints in the WTO--41 cases to
date--than any other WTO member, and our record of success is strong.
We have prevailed on 19 of the 21 American complaints acted upon so
far, either by successful settlement or panel victory. In almost all
cases, the losing parties have acted rapidly to address the problems.
We will insist that this remain the case in all our disputes, including
those with the European Union on beef hormones and bananas, and with
Canada on magazines. At the same time, the U.S. has complied fully with
all panel rulings it has lost, although these are few in number. And we
will, of course, use our rights under the NAFTA to ensure open markets
to our goods and services in Canada and Mexico.
We are also monitoring implementation of WTO commitments. All WTO
developing country members are scheduled to fully implement their
intellectual property commitments, and all members are required to
implement customs valuation commitments by January 1, 2000. We will
insist on strict compliance with these deadlines.
Likewise, we are vigilant to ensure enforcement of textile quotas
and implementation of textile market access requirements overseas. A
number of our trading partners clearly have further work to do in
market access, including some of our largest and fastest growing
textile suppliers. We have and will continue to aggressively pursue our
rights, whether through the consultation process or ultimately through
the WTO dispute settlement regime.
U.S. trade laws are also a vitally important means of ensuring
respect for U.S. rights and interests in trade. We will continue to
challenge aggressively market access barriers abroad using laws such as
Section 301, ``Special 301'' and Section 1377, to open foreign markets
and ensure fair treatment for our goods and services, ensure
nondiscrimination in foreign government procurement and ensure
compliance with telecommunications agreements.
To ensure that we have the maximum advantage of domestic trade
laws, the Administration will reauthorize by Executive Order two laws
for which authority has lapsed: ``Super 301'' and Title VII. We wish to
work with the Subcommittee to include these laws in your legislative
agenda.
The Administration is also, of course, committed to full and
vigorous enforcement of our laws addressing dumping and subsidies, and
on injurious import surges.
III. Integrating Transition Economies
Third, our trade policy will continue our progress toward
integrating China, Russia and other economies in transition into the
trading system. This will both advance specific American trade
interests, and contribute to our larger goal of a more secure peace in
the next century.
This task is the last great step in the process which began with
the formation of the GATT and continued with the admission of Germany
and Japan: the integration of China, Russia and sixteen other economies
in transition from communist planning into the trading system. These
economies and a number of Middle Eastern nations are the two largest
groups remaining outside the trading system. Their entry will make
membership in the trading system nearly universal; and the accession of
the transition economies will be a fundamentally important step in
their domestic reforms as well. This would remove large distortions in
world markets, dramatically enhance market access for American
producers, and bolster international stability by giving these nations
a greater stake in world prosperity beyond their borders
To support rather than undermine both domestic reform in these
economies and the rules of the trading system, these countries must be
brought into the WTO on commercially meaningful terms. The result must
be enforceable commitments to open markets in goods, services and
agricultural products; transparent, non-discriminatory regulatory
systems; and effective national treatment at the border and in the
domestic economy.
This is an ambitious task, but not an impossible task. Central
European countries like Poland, Hungary and the Czech Republic have
succeeded, and their experience shows that WTO membership has assisted
their domestic economic reform policies. The most recent successful WTO
applications, Latvia and Kyrgyzstan, have had the same experience.
In the months to come, we will negotiate intensely with all
acceding economies, including China--the largest prospective WTO
member. We have made important progress with China in the past two
years, and the visit of Premier Zhu Rongji in April offers China a
chance to make a decisive advance. We will consult closely with the
Subcommittee and with other members of Congress as negotiations
proceed.
Likewise, at the most recent summit with Russia (September 1998),
President Yeltsin agreed to work to intensify Russia's WTO accession
efforts. Russia's current economic difficulties clearly present
challenges and Russian Cabinet reshuffling has slowed the process, but
we will continue to consult with the Russians toward a commercially
viable accession package.
IV. The 21st-Century Economy
Fourth, trade policy will help lay the foundation for the 21st-
century economy by ensuring that the trading system is compatible with
rapid advances in civilian science and technology.
In medicine, environmental protection, agriculture, entertainment,
transportation, materials science, information and more, science is
advancing at extraordinary speed. This offers the world tremendous
potential to increase wealth, raise productivity, improve health care,
reduce hunger, protect the environment and promote education. These are
also areas in which the United States has a significant comparative
advantage.
Under President Clinton, our trade policy has made high technology
a strategic priority. Consistent with national security, we have aimed
to ease the development and commercialization of new technologies, and
ensure strong incentives for scientific and technological progress. We
have negotiated far-reaching new agreements in sectors like computers,
semiconductors, information technologies and many other areas. This
work continues in multilateral, sectoral and regional negotiations.
In the multilateral system, the rapid advance of technology
requires us to improve the trading system's institutions and
negotiating methods. In a world where successive generations of new
products arise in a matter of months, and both information and money
move instantaneously, we can no longer take seven years to finish a
negotiating Round, or let decades pass between identifying and acting
on trade barriers. We will have to move faster and more efficiently,
which is a significant reason for the President's call for an
accelerated Round.
We must also ensure that trade policy, both in the WTO and in our
regional and bilateral negotiations, helps ensure that we can take
advantage of our comparative advantage in knowledge industries and
other new technologies. Three broad issues cut across many sectors:
Intellectual Property Rights--Our success in this field over the
past decade owes a great deal to the work of Congress, both in the
Trade Act of 1988 with its creation of ``Special 301,'' and on the
Uruguay Round. Today, the vast majority of our trading partners have
passed modern intellectual property laws and are improving levels of
enforcement. In this area, we will spend a great deal of time ensuring
that all WTO members comply with their obligation to introduce full
intellectual property protection by January 1, 2000. (For countries,
like China, which are not WTO members, we will vigorously monitor
compliance with bilateral agreements.)
We have also launched campaigns against worldwide piracy of new
optical media technologies, and against end-user piracy of software.
These issues are integral parts of our regional negotiating agenda in
Asia, Latin America, Europe, Africa and the Middle East. Looking ahead,
we must extend protection of intellectual property rights beyond basic
laws and enforcement to protect new technologies like genetically
engineered plant varieties.
Global Electronic Commerce--In accordance with the President's
Global Electronic Commerce initiative, USTR seeks to preserve
electronic trade over the Internet as duty-free. At the last WTO
Ministerial Conference, in May of 1998, we won agreement to a
``standstill'' for tariffs on electronic transmissions. As I noted
earlier, we will seek to extend that agreement this year. Likewise, in
our negotiations toward the Free Trade Area of the Americas, at APEC
and in the Transatlantic Economic Partnership, we have created special
committees to advise us on ways to ensure all participants can take
maximum advantage of electronic commerce.
Biotechnology--A third top priority for us in this area is
biotechnology. Among the chief sources of innovation in this field are
American agriculture and medicine. USTR will seek to ensure that
pharmaceutical companies, farmers and ranchers can use safe,
scientifically proven techniques like biotechnology to make agriculture
both more productive and friendly to the environment, without fear of
encountering trade discrimination. This is a priority for us in the
Transatlantic Economic Partnership negotiations and in developing our
agenda for future WTO negotiations.
We also have an active sectoral high-tech agenda. This includes,
for example, the ITA II agreement I discussed earlier. We are also
working closely with our civil aircraft industry to ensure its future
and combat foreign, particularly European, subsidies and other unfair
practices. This work extends into many other fields.
V. Rising Quality of Life
Fifth, US trade policy seeks to ensure that worldwide as in the
United States, trade and growth go together with a rising quality of
life, including setting high standards of environmental protection, the
observance of core labor standards, and high levels of consumer
protection.
As in our domestic economy, we regard environmental quality and
protections for workers as essential parts of economic policy. Trade
policy has an important role to play, in coordination with our efforts
in other fora, to ensure growing respect for internationally recognized
core labor standards and sustainable development worldwide.
1. Trade and the Environment
Our Administration believes that prosperity through open trade and
the protection of health, safety and the environment need not conflict,
and should be mutually supportive. This is the case in our domestic
economy, where in the past three decades our GDP has risen in real
terms from $3.7 to $8.5 trillion--while our percentage of fishable and
swimmable rivers and streams doubled, the number of citizens living in
cities with unhealthy air fell by half, and many endangered or
threatened species, including the bald eagle, are recovering.
The Preamble of the WTO recognizes this in the international
setting, stating that sustainable development is a central objective of
its work. Where there are potential conflicts, we should strengthen our
ability to resolve them in a manner that protects the environment,
health and safety and does not undermine the trading system. This
includes working to ensure that the proper expertise is brought to bear
on complex technical and scientific issues, particularly those with
environmental, health and safety dimensions.
In many cases elimination of trade barriers will also contribute to
a cleaner environment and the conservation of natural resources. For
example, this can help countries gain access to cost-effective
equipment and technology. APEC's work toward an agreement to liberalize
trade in environmental goods and services, part of which has now moved
to the WTO, can help countries monitor, clean up and prevent pollution,
and ensure clean air and water. Likewise, the APEC initiative on energy
equipment and services can promote rapid dissemination of efficient
power technologies, thus allowing production of power with reduced
carbon emissions and contributing to international efforts to address
climate change.
At the same time, as the trading system ensures that members avoid
using environmental standards as disguised trade barriers, in
eliminating barriers to trade we must not compromise on the achievement
and maintenance of high levels of environmental, health and safety
protection. And the system must work together with multilateral
environmental institutions.
At our suggestion, the WTO is convening a High-Level Meeting on
trade and the environment this spring to more fully address these
questions. This marks a new level of awareness and interest in the
world trading community on trade and environmental issues. We
anticipate that it will provide fresh and valuable input to our work in
this area and help frame a vision for future work.
We will also continue to support the effective implementation of
the North American Agreement on Environmental Cooperation in
conjunction with the NAFTA. Cooperative activities that have occurred
as a result of this agreement have improved environmental protection in
a number of different areas--for example, an agreement on the
conservation of North American birds; the creation of a North American
Pollutant Release Inventory; an agreement on regional action plans for
the phase-out or sound management of toxic substances, including DDT,
chlordane, PCBs and mercury; and the creation of a trilateral working
group that has improved the enforcement of environmental protection
laws. Benefits have also resulted from the implementation of the Border
Environment Cooperative Commission (BECC) which was also entered into
in conjunction with the NAFTA. The BECC has fifteen environmental
infrastructure projects under construction today, funded in part by the
North American Development Bank, including the first wastewater
treatment plants in Juarez.
2. Trade and Core Labor Standards
Likewise, the trade system must help to assure the dignity and
safety of workers. Here again, we can draw lessons from our experience
at home, where since 1970, as manufacturing production doubled, the
number of workplace deaths fell 60%. Our efforts here include seeking
closer cooperation between the WTO and the International Labor
Organization, bolstering ILO capabilities to address exploitative child
labor and other violations of internationally recognized labor rights
as well as ensuring safe and healthy workplaces, and working with
individual trade partners to advance our goals.
At the Singapore WTO Ministerial Conference in 1996, the WTO for
the first time recognized the importance of labor standards and
cooperative work with the International Labor Organization, while
clearly separating advocacy of labor rights from protectionist trade
policies. We wish to build on this to ensure that the trading system
works more effectively with the International Labor Organization, with
businesses and with citizen activists to ensure observance of
internationally agreed core labor standards--banning forced labor and
exploitive child labor, guaranteeing the freedom to associate and
bargain collectively and eliminating discrimination in the workplace.
We have thus proposed in Geneva that the WTO establish a forward
work-program to address trade issues (e.g., abusive child labor, the
operation of export processing zones) related to labor. We also have
raised labor standards in country policy reviews under the Trade Policy
Review Mechanism. In these reviews each WTO member's trade regime is
examined, and other members are provided an opportunity to raise
questions. We have used this opportunity, for example in the recent
Swaziland review, to seek clarifications about labor practices that we
believe are inadequate.
To bolster these efforts, the President recently announced a $25
million program to help the ILO work with developing countries to put
in place basic labor protections, safe workplaces and guarantee worker
rights and enforce their own laws so that workers everywhere can enjoy
the benefits of a strong social safety net. (The US has already funded
ILO child labor programs in Bangladesh, Thailand, the Philippines,
Africa, and Brazil.) These are fundamental human rights and common
concerns, and trade policy has a place in addressing them..
We are also taking steps in a number of other areas directly
related to trade policy. The Administration has directed the Customs
Service to step up its efforts to ensure that items made by forced or
indentured child labor are not imported into the United States. USTR is
enforcing provisions of existing law that impose penalties for clear
violations of worker rights. For example, we partially removed GSP
trade preferences from Pakistan over child labor concerns. At the same
time, however, the Administration has worked through the Labor
Department to develop long-term solutions to the problem, by addressing
specific Pakistani industries. As a result, 7,000 children have been
removed from jobs stitching soccer balls and 30,000 children from jobs
knotting carpets.
Likewise, we are finding ways to address core labor standards as we
advance our trade policy goals. The North American Agreement on Labor
Cooperation under NAFTA is one example. Another is our most recent
trade agreement--the textile agreement with Cambodia--which includes
provisions requiring Cambodia to improve the enforcement of its labor
laws in the garments sector.
VI. Advancing American Values
Sixth, in 1999 we will seek to advance basic American values and
concepts of good governance, by making the institutions of trade more
transparent, accessible and responsive to citizens.
As the President has said, as trade grows, the rules of trade do
more to ensure that markets are open to our goods and services, and the
trading system coordinates more fully with environmental, labor and
financial institutions, the need for transparency, accessibility and
responsiveness grow. This is natural and a development which we both
support and are working to realize.
One principal forum here is the WTO, where we are seeking
agreements on more rapid release of documents, ensuring that citizens
and citizen organizations can file amicus briefs in dispute settlement
proceedings, and that dispute settlement proceedings be open to public
observers. In the interim, President Clinton has made a standing offer
to open any dispute panel involving the United States to the public, if
our dispute partner agrees.
A second forum is the FTAA negotiations, in which--for the first
time in any trade negotiation--we have created a Civil Society
Committee to give business associations, labor unions, environmental
groups, student associations, consumer representatives and others a
formal means of conveying concerns and ideas to all of the governments
involved in the talks.
A third is our encouragement of new Transatlantic Dialogues with
the European Union for consumers, labor and environment as part of the
Transatlantic Economic Partnership. Through this effort we are
promoting our shared values with Europe in the activities and
negotiations we are undertaking as part of the TEP and multilaterally.
Conclusion
This is an ambitious and far-reaching agenda. We plan to work
closely with the Subcommittee and Congress as a whole to realize it,
and look forward to the benefit of your thoughts and advice at this
hearing and in the months ahead. This includes the renewed negotiating
authority that will help us bring our negotiations to a successful
conclusion.
In conclusion, Mr. Chairman, much has changed in the international
economy in the fifty-one years since the United States led 23 countries
in creation of the GATT. Our national interest in economic events
beyond our borders has grown, our people have found new opportunities
and new challenges in trade, and many new nations have become active in
trade.
These developments in many ways are the result of America's
commitment to a vision of open and fair trade under the rule of law,
and to the bipartisan policies we have pursued for many years to
realize it. As a result of this success, we now face some new and
complex challenges. The President's State of the Union Address outlined
these challenges and the need for a new consensus to meet them.
But as deeply changed as today's world may be, the vision President
Roosevelt laid out in one of the darkest moment of human history--an
open world, prosperous and governed by the rule of law--remains valid
in a world more prosperous, healthy and hopeful than ever before. And
the necessity for a bipartisan consensus on our goals, and a strong
partnership between the Executive and Legislative branches of
government, remain essential to achieve this vision. With your advice
and your help, as we open a new Round of negotiations and embark on a
highly ambitious agenda for the next century, we hope to bring it
closer to realization than ever.
Thank you very much, Mr. Chairman and Members of the Subcommittee.
Chairman Crane. Thank you, Charlene. We will be back as
quickly as possible.
The Committee stands in recess subject to the call of the
Chair.
[Recess.]
Chairman Crane. If everyone will please take seats, the
Committee will reconvene.
We apologize again for the interruption, Charlene, but you
know how this place works.
At any rate, I would like to ask our colleagues please to
try and keep their questioning of our distinguished witness to
5 minutes so as many as possible might be able to question her.
I say that because I know that Charlene's schedule requires
that she be out of here in 40 minutes, sharp.
So I will start. By my count, Charlene, you mentioned that
the President's trade agenda includes five legislative
priorities. On trade negotiating authority, there has been a
lot of discussion as to rebuilding a consensus on trade. And if
this is the way to move ahead, it is essential that the
Administration quickly present to us some specifics as to where
it believes our fast-track bill, which the Administration
agreed to in 1997, is now deficient. We will be hearing from
you soon I trust.
Ambassador Barshefsky. Mr. Chairman, we are always happy to
work with the Committee. You are quite right, the President has
urged a rebuilding of the bipartisan consensus. Obviously, the
Administration wants to assist in that rebuilding of the
bipartisan consensus on trade, including on trade negotiating
authority. So we are very pleased, yes, to work with the
Committee.
Chairman Crane. Thank you. The WTO Ministerial meeting that
is going to be held in Seattle at the end of November, I guess
it is, isn't it, end of November, early December----
Ambassador Barshefsky. Yes.
Chairman Crane. Will be a key event in building support in
the United States for this valuable institution. It seems to me
it will be important for U.S. negotiators to demonstrate
concrete results that will have commercial benefits for U.S.
workers and industries. What is your timing in identifying U.S.
priorities for the agenda?
Ambassador Barshefsky. Mr. Chairman, we have, first off,
issued Federal Register notices and have received back a number
of comments from industry as well as interested groups on what
our priorities should be. We will also be conducting some
individual hearings around the country in particular areas, for
example, agriculture, so that we have a full sense of
priorities. In addition, we will be working very closely with
Ways and Means Committee as well as with other committees of
Congress that have specific substantive jurisdiction over the
areas to ensure that on a bipartisan basis we have consensus on
the way in which we should move forward. And last, I will be
requesting the House leadership and the Senate leadership to
put together a special bipartisan group which we would hope
would include a number of Committee Chairs and Ranking Members
to assist us in prioritizing the particulars of what we wish to
negotiate as well as the areas where negotiation may not be
advisable at this juncture but could form the basis for a
forward work plan.
So we have a variety of mechanisms designed to ensure that
we get the broadest possible input from Congress, from the
private sector, from other affected constituencies because it
is critical that we speak with one voice.
Chairman Crane. Setting aside legislation to implement the
Uruguay Round and NAFTA trade agreements for a moment, looking
ahead, what do you expect will be the major trade policy
accomplishments of this Administration?
Ambassador Barshefsky. I think there are a number. I think,
first of all, the moving of a global agenda toward the twenty-
first century economy through agreements as we have concluded
in telecommunications, financial services, information
technology, the extension of those to ITA-II, to global
electronic commerce. I think all of these areas coupled with
our very vast program on intellectual property rights
protections is the first concerted effort by an Administration
to move trade policy into those areas where the United States
is the world's leader, the most competitive, and which forms
the basis for the twenty-first century economy.
I think, second, the focusing in on market access issues to
the extent that we have--270 trade agreements is a lot of
agreements covering every area of the world, covering virtually
every major sector of economic activity. Pushing that agenda as
we have been so aggressively and consistently I think is
another important feature of the President's trade policy.
Third, we have been more aggressive than I believe any
previous Administration on enforcement of our trade agreements.
Over 80 enforcement actions since 1993, 42 in the WTO. We are
the largest user of WTO dispute settlement. I know that we
still have enforcement problems and I intend to work hard to
see that those are corrected. But I think our enforcement
efforts have been very substantial and very sustained.
And I think, last, expanding the dialog to encompass other
affected interest groups, whether it is environmental concerns,
labor concerns, the concerns of consumers, is another I think
very important feature of the Administration's policy; that is,
to ensure that as trade moves forward, as economic growth
continues, that growth is consistent with protection of the
environment, increases in worker standards in the world, and
keeping an eye on the consumer interest. And I think expanding
the dialog to include those affected by trade policies is
another important feature of the Administration's trade agenda.
Chairman Crane. Thank you. My time has expired, but I would
like to correct for the record one component of your response
when you were attributing to the Clinton administration the
information technology agreement. We all know that was yours.
Ambassador Barshefsky. You are very kind.
Chairman Crane. No sleep for a week.
I now yield to Mr. Levin.
Mr. Levin. Thank you. We are glad you are here and that we
are continuing this dialog. In fact, I think your testimony and
your responses to Mr. Crane should help intensify the dialog.
We clearly need to do it. If we simply march along the ruts of
last year, I think we will end up the same place as we did last
year. We need to intensify our discussions to seek common
ground.
The Chairman has asked for specifics from the
Administration. Well and good. I think it is important, though,
that all of us pay attention to some of the general outlines
that you have mentioned, that the President clearly mentioned
in his State of the Union Address as well as in his speech at
the Economic Club where he made it clear that he envisaged
authority, including ability, to work on a broad range of
trade-related items, including those on the environment and
labor market issues that I tried to spell out in my opening
remarks and the reasons for it. He not only specifically
referred to those areas in Detroit, but before a group mainly
of business people said that it was important that in our
negotiations the whole world be leveled up and not leveled down
economically, and that trade must not be a race to the bottom.
And if we will take those words seriously, I think it will be a
step toward moving ahead and seeing if we can find some common
ground.
Let me ask you a bit more about China because, in terms of
our relations with evolving economies, this may be the most
important set of negotiations. It is pretty clear since
permanent MFN or NTR has to be granted by Congress that we are
going to have to play a role. There will not be WTO accession
for China unless there is involvement of this institution. So
if you would for the record, we have had some informal
bipartisan discussions on this as recently as yesterday, why
don't you for the record spell out where you think matters are
with the largest evolving economy. It, in spades, is what I
tried to describe in my opening remarks. There is talk about
the definition, the standard of ``commercially meaningful,''
but with the size and the different nature of the Chinese
economy both in capital markets, labor markets, every market,
how do you see the negotiations going? Where are they now and
where do you think they might be going?
Ambassador Barshefsky. As I said in my remarks, and I have
said to the Committee before, China's accession to the WTO is
terribly important, not just for the United States, but for
China itself. And it is very much in our interest to see China
in the WTO in as much as WTO accession will promote the rule of
law in China, will subject China to multilateral scrutiny on
economic issues which does not occur now, and will compel China
to make public commitments which are fully enforceable through
dispute settlement in the WTO. So this is a very vital goal.
But our view has been, and continues to be that China's
accession must be on terms fully compatible with the accession
of WTO members. That is to say, this is not a political
accession, it is not a political deal, there is no political
deal that will get China into the WTO, this is a commercial
matter. That means that China's offers must cover the broad
spectrum of areas in the WTO, whether tariffs, non-tariff
barriers, agriculture, services, the full range of WTO rules.
And this is a very complex, huge undertaking. But China's
offers must cover all of these areas and must be commercially
meaningful, particularly to the United States but, of course,
globally as well.
An accession for China on terms different from WTO members
would weaken the WTO, would subject other developing countries
to an extraordinary competitive challenge by China, would
potentially lessen the commitments of other countries who feel
why should they do more than what China would be required to
do, and could set an unacceptably low standard for the
accession of other countries, including Russia, which are not
as far along in their accession claims as is China. So
accession on weak terms is simply not in the cards. It is not
possible.
On the other hand, obviously, China cannot do everything in
1 day. Of course, it will need in many areas transition periods
or phase-ins, as we do for all members who accede to the WTO,
in a manner that is not destabilizing to the Chinese economy
but that, in fact, opens that economy on the kind of broad
basis envisioned by WTO rules and market access commitments. I
think that China has continued to show a willingness to
negotiate. We have been at this for a long time; in this
Administration, 6 years, in the Bush administration, 4 before
that, in the Reagan administration, several before that. I
think in particular we have made some important progress in the
last 2 years in China, and we continue to talk on a very
intensive basis with the hope that an agreement can be reached.
But it will only be reached if China's offers are commercially
meaningful.
Mr. Levin. Thank you.
Chairman Crane. Thank you. The gentleman's time has
expired.
Mr. Houghton.
Mr. Houghton. Thank you. Madam Ambassador, good to see you.
Ambassador Barshefsky. Good to see you.
Mr. Houghton. I would just like to step back a little bit.
There are a lot of technical questions I would like to ask you
about Eastman and steel and China and things like that, but if
you assume that fast-track, which we hope will not happen, is
on ice for a while, do we have the basic working structure in
the world to create fairness in the back-and-forth trading of
our goods and services?
Ambassador Barshefsky. I think we do. I think it goes
without saying that this President, and any president, should
have at his disposal or her disposal all of the tools possible
and available to open markets, to make sure that trade is
fairly conducted. Trade negotiating authority is one aspect,
our trade laws is one aspect, effective WTO dispute settlement
is one aspect, aggressive market-opening agreements that are
enforceable is another aspect, and so on.
I think we do have, other than trade negotiating authority,
I think we do have effective tools for leveling the playing
field and ensuring fairness in trade. Our unfair trade laws are
strong. They are in this Administration and in previous
Administrations rigorously enforced. I think that's one
element. We have pursued very aggressively dispute settlements
in the WTO, bringing 42 cases, and that is, by far, more than
any other single country because we are serious about enforcing
commitments and ensuring that trade is fairly conducted. And,
of course, the agreements that we negotiate are based on the
barriers that have been identified. They are also to ensure
that trade is conducted on a fairer basis.
None of these mechanisms works perfectly, and I think we
see that currently to some extent, but all of these elements I
think do work together to help level the playing field. And if
you look at our export performance the last 6 years, a 51
percent increase in our exports, I think that it is fair to say
that through those mechanisms and, of course, many other
mechanisms, we are making important progress.
Mr. Houghton. I guess the thing that I worry about most is
not necessarily our trade laws, but, of course, the enforcement
of our trade laws, or the trade laws of other countries, or the
World Trade Organization, or the dispute settlement process. It
seems in the final analysis that a country doesn't have control
over is market access. That's when you get into private cabals,
the choking off of the distribution system. That really could
be the worst of all worlds; we had all the conditions right,
all the legalistic formulas there all lined up and yet those
things kept us out. I don't know what you can do, but I would
appreciate your comments.
Ambassador Barshefsky. We have, as you know, under our
section 301 a provision that allows us to go after anti-
competitive practices that are tolerated by foreign
governments; that is, foreign government toleration of cartel-
like activity or other anti-competitive practices that impede
market access. And I agree with you that this is a very
important area. We see this most acutely in the case of Japan
but we see this also in other countries, and that is government
barriers that are erected not in the traditional trade sense,
but by simply making it much more difficult, raising the
barriers to entry for foreign products, rendering them less
competitive in the market through anti-competitive practices,
practices that we might address under our anti-trust laws, for
example.
Mr. Houghton. Well, I just wondered, and we have talked
about this before, and this will be my last question, Mr.
Chairman, is that sometimes whether it is the Chamber of
Commerce, or the NAM, or the Keidanran, or whatever it is,
those sort of quasi-national but really private agencies can be
of help. Are you using them at all?
Ambassador Barshefsky. We do use them and they are
sometimes of help. Keidanran has been particularly helpful in
the case of deregulation in Japan where Keidanran has backed a
number of the U.S. proposals for deregulation, and that has
been very helpful. So we do routinely use organizations like
that. At the same time, we always keep an eye out, and this was
pointed out in the film case brought by Kodak, we always keep
an eye out for whether organizations, not Keidanran but other
organizations that are business-related, engage in anti-
competitive conduct, and we always have to keep an eye out for
that as well.
Mr. Houghton. Thank you very much.
Chairman Crane. Thank you.
Our next panelist, Mr. Ramstad.
Mr. Ramstad. Thank you, Mr. Chairman.
Madam Ambassador, always a pleasure to see you and to work
with someone of your calibre. You are doing an outstanding job.
Ambassador Barshefsky. Thank you.
Mr. Ramstad. I, as you know, represent the wonderful State
of Minnesota. We have 300 of the best medical device, medical
equipment companies in the Nation, comprising our medical
alley. Those companies comprising the medical technology sector
are very concerned about the declining trade balance with Japan
in this area, in the medical technology sector. Every year for
decades, as long as I can remember, our trade surplus with
Japan in medical devices and equipment has been growing
steadily, but it decreased by nearly $220 million last year.
How is USTR responding to this situation for one of the few
sectors in which we currently maintain a positive trade balance
with Japan?
Ambassador Barshefsky. You are quite right, this is a
sector where we have been very, very successful in Japan. The
U.S. medical device sector still has about a 40 percent market
share in Japan. It has a very, very high import penetration
rate into Japan. Part of the reason we see such a substantial
downturn in revenue, however, has as much to do with Japan's
recession as it does with any increases in market access
barriers. That is to say, our import penetration rate keeps
growing although net revenue received is going down. That is
largely the function of Japan's recession.
Having said that, Japan has two and perhaps three
supplemental budgets related to public procurement. The area of
medical devices and medical technology is an area that is
typically procured by government-public entities in Japan. And
in my last trip to Japan, which wasn't too long ago, and then
in subsequent trips by my staff, including my deputy Richard
Fisher just last week, we have underscored to Japan that we are
going to watch very carefully procurement procedures under the
supplemental budgets in four sectors, one of which is in the
medical equipment and technology and medical device sector, to
ensure that we receive our fair share of that procurement
budget.
Mr. Ramstad. So, similar to the prominent attention that we
have given in trade talks in the media, steel, pharmaceuticals,
and insurance, we will give medical technology the same
visibility and profile?
Ambassador Barshefsky. Yes. And the Japanese government is
well aware of that. This is very, very high on the list. Very
high.
Mr. Ramstad. Actually, I think you mentioned 40 percent
market share in Japan for U.S. companies, I just called
yesterday and got the latest and it is closer to 30 percent
now. And as you know, the U.S. industry average is 50 percent
market share overseas. So I share your concern and I appreciate
hearing that the medical technology sector will be so elevated
in terms of attention for high level trade talks as well as in
the media.
Let me ask you finally in this area, because it is so
important, as you know, Japan has made specific commitments to
USTR under the Enhanced Initiative on Deregulation and
Competition Policy to reform its pricing system for medical
technology and to expedite product safety and reimbursement
approvals.
Ambassador Barshefsky. Yes.
Mr. Ramstad. Has there been progress on this? And how do
you intend to secure full implementation of these commitments?
Ambassador Barshefsky. We have made progress. This is an
area that we and Commerce jointly work at. Japan has threatened
various alterations to its pricing mechanism for medical
devices and for pharmaceuticals which we have thus far
successfully fought off. But the threat always remains. The
reimbursement policies generally remain a problem. It is one I
think on which we have made some progress. Certainly,
regulations that would have made the situation more onerous
have been avoided. But we still have quite a ways to go.
Mr. Ramstad. Thank you again, Ambassador.
Ambassador Barshefsky. Thank you.
Mr. Ramstad. Mr. Chairman, I yield back.
Chairman Crane. Thank you.
Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman.
Welcome, Madam Ambassador. It is good to hear you again. I
want to thank you officially, I think it is the first official
time I have had a chance to thank you for making that decision
about putting that WTO Ministerial in Seattle this fall.
Everybody is looking forward to it. I do hope, Mr. Chairman,
that we can have some sort of a delegation there present in
Seattle because we are going to go all out to make sure that it
is successful from the point of view----
Chairman Crane. If the gentlelady would yield. I hope that
we might have the Trade Subcommittee out there at least, and
use that as a launching pad to go on over to the Far East.
Ms. Dunn. Great.
First of all, I wanted to refer you to the APEC talks. You
know how important they are especially to my part of the
country, but certainly in the region. As we took our Ways and
Means Trade Subcommittee trip to Australia and New Zealand in
December, we were asked all over both of those countries
whether there still was the energy and the interest in APEC
talks. There has been some sense from them that that interest
has subsided. And I must say that I am a bit disappointed that
so much of what they attempted to do at the last APEC meeting
was kicked over to the WTO meeting. I am wondering if you
believe those talks could be reenergized if you had trade
negotiating authority.
Ambassador Barshefsky. I think the issue there was not the
absence of trade negotiating authority. The issue at APEC was
Japan, that is that all of the APEC economies with the
exception of Japan agreed to liberalize trade in nine product
sectors and in most of those to go to zero tariffs, which Asia
had never before committed to do. Significant about that is the
fact that Korea and the ASEAN countries, countries like
Indonesia, Thailand, Malaysia, the hardest hit in the Asian
financial crisis, agreed to go forward with this proposal. It
was really quite extraordinary. Only Japan said that it could
not go along with the proposal in full but would have to
exclude two key sectors which were of vital importance to the
ASEAN countries. That was a very disappointing result, we
though, in fact, irresponsible.
The initiative is now with the WTO. The APEC countries
including Japan committed to work toward agreement in these
nine sectors and we will hold Japan to that. And so I think
that the way this initiative can be reenergized is by moving it
forward in the WTO to acquire a critical mass of countries to
allow these kinds of very dramatic tariff cuts to be
implemented.
Ms. Dunn. That's good. And just as a follow-up,
particularly important in my area of the world are the wood and
paper product tariffs.
Ambassador Barshefsky. Yes, of course.
Ms. Dunn. We had such a hard time, although we had some
heroes there at APEC in the New Zealand folks who stood up for
us. Is there a plan between now and then to make sure that
these talks move ahead, and what would that plan be?
Ambassador Barshefsky. We are working closely with New
Zealand, which is in the APEC chair now, as well as a number of
the other APEC countries in the WTO to move the initiative
forward. Wood and paper is one of the sectors that Japan
refused to participate in. So we will continue that drive very,
very aggressively in the hopes of achieving consensus in the
WTO.
Ms. Dunn. Thank you. Thanks, Mr. Chairman.
Chairman Crane. Thank you.
Mr. Neal.
Mr. Neal. Thank you, Mr. Chairman.
Madam Ambassador, while we all want to be supportive of the
dispute resolution process at WTO, there are those who lose a
case and then afterwards refuse to comply with the agreement.
It is almost like watching a game and your team loses, but you
say they really didn't lose, and you either want to play
another game or you want to try another strategy to prevail. I
know we all subscribe to the notion of a settlement process, at
least in general, and wish to support it, but what do we do
with those that decide that after the game has been played,
they don't like the outcome?
Ambassador Barshefsky. I think, in general, WTO dispute
settlement has worked actually quite well. I say that not just
because our record happens to be very good, 19 wins out of 21
cases isn't too bad, but because in general we have found the
process to be fairly conducted, the panelists of a high
calibre, and in general we have been pleased with the way that
system has functioned. We think it is quite protective of U.S.
rights, but also the rights of other countries.
Having said that, there are certain improvements we would
like to see and we will be discussing those with the Committee
as we formulate a WTO agenda. Our view is that compliance is
critical to the credibility of a global dispute settlement
mechanism. If you lose a case, if you need to find the means by
which to comply, there are various ways within international
rules that a country can comply, including, for example, by
providing compensation to the winning party to the extent the
losing party's practices for whatever reason cannot be changed.
We are in a situation now with Europe in both bananas and
in beef, two agricultural cases, and Europe's first two losses
under the system, in which Europe basically refuses to comply
with clear WTO rulings. The bananas case is particularly
egregious since Europe has lost four times in international
dispute settlement over its banana regime; twice under GATT
rules, once at a panel before the WTO, and once in an appellate
body at the WTO, all of whom found Europe's regime to be
internationally inconsistent. But over the course of 6 years,
Europe has changed it precious little, and to the extent it has
changed it, it is more discriminatory than it was before it
made the change. Under those circumstances, the United States
will exercise its rights to retaliate under WTO rules where
there is a failure of compliance. We have urged Europe for the
past 18 months to settle the underlying banana dispute with us.
And over the past 18 months, we have provided Europe with an
array of settlement options and we have invited them to provide
us with options. They have persistently refused. They must bear
the consequence of that refusal and that failure to comply.
Mr. Neal. And Canada and foreign magazines?
Ambassador Barshefsky. We have a similar situation in
Canada and foreign magazines. Canada has altered its magazine
regime in a manner that renders it even more discriminatory
against so-called split-run editions of magazines. This is not
a cultural issue in Canada, this is the protection by the
Canadian government of two particular publishing interests in
Canada, a far cry from notions of a sovereign protecting the
inherent culture of its people. This has to do with money not
culture.
As such, Canada is positioned to alter its regime. It
refuses to do so. Here again, we have urged Canada to settle
the underlying dispute with us. We don't wish to take
retaliatory action but we absolutely will, including against
Canada, under our NAFTA rights to the extent Canada fails to
comply.
Mr. Neal. Fair enough. Thank you, Madam Ambassador.
Chairman Crane. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman.
Madam Ambassador, welcome again. It is a pleasure to see
you here. Let me ask a couple of questions, if I may, on the
matter of intellectual property. I happen to be one of several
Los Angeles Representatives who, obviously, are very concerned
with the growing piracy that we see with intellectual property.
It is just such a growing market out there. If we could just
capture some of that lost profit, I think a lot of us would be
doing better. We would have probably a lot larger budget
surplus even in this country.
There is talk that some of the countries that signed the
agreement on trade-related aspects of intellectual property
rights won't be prepared to meet their obligations once they
kick in for some of the developing countries in the year 2000.
Also, there is concern that we may not take a strong approach
with some of these countries, which will cause us to lose
credibility in trying to enforce other aspects of it into the
future.
I was wondering if you would give me your prognosis, in a
sense, of our ability to enforce the TRIPS Agreement, and also
the likelihood that a number of these countries that will now
fall within the TRIPS Agreement in the year 2000 will actually
be in compliance.
Ambassador Barshefsky. I think that we have made some very
important progress on intellectual property rights protection
over recent years. We see the incidents of piracy particularly
in traditional areas, for example, CD, to some extent CD-ROM,
going down. We have an emerging concern about piracy in newer
technologies, DVD, for example, as well as with piracy
particularly by government ministries of software. And we have
special programs designed to deal with those emerging problems.
With respect to TRIPS implementation, we have already
brought a number of WTO cases against developed countries who
are already subject to the TRIPS rules to ensure compliance by
a number of countries, the various member states of the Europe
Union, against Japan, and others including in Latin America.
With respect to the developing countries, you are right, many
of their obligations kick in January 1, 2000. We have already
embarked on a very large program to work with developing
countries bilaterally as well as within the WTO framework to
ensure that those countries come into compliance at January 1,
2000. We have been very up-front in telling a number of
countries about which we have some concern that we will file
cases beginning January 1, 2000, to the extent their compliance
is not in accord with the TRIPS Agreement.
I am I think reasonably optimistic that most countries will
come into compliance. I do think among some of the developing
world we have a capacity problem; that is that many of these
countries, or some, don't really have the institutional
structures or capacity to implement fully. And for these
countries we have indicated we would be pleased to provide
technical assistance, whether through USTR or the Commerce
Department or our Customs Service, in assisting countries in
setting up mechanisms by which they can comply.
Mr. Becerra. Are you comfortable that most of these
developing countries have the laws at least in place, they may
not have the infrastructure, but do they at least have the laws
in place?
Ambassador Barshefsky. Many have the laws in place or are
working on the laws this year. I, of course, am very
sympathetic when they tell me that they have from time to time
difficulty in working with their legislatures. But other than
that, we are not really detecting any bad faith, per se, on the
part of countries. For some, the laws are harder to pass than
they thought; for others, the laws are in place but they are
concerned about the institutional capacity to enforce. But I
don't think it would be fair to say that we see instances of
outright bad faith.
Mr. Becerra. What about the whole issue of the WIPO
Agreement, the copyright and neighboring rights agreements that
were reached. I am being told that there are some 5 or 6
countries who have signed on so far to some of these agreements
and we need 30 of them before these treaties can take effect.
Are we doing anything to try to move forward in getting some of
these countries to sign on so these treaties can take effect,
and further, in a more collateral way, also help us with the
problem of online piracy of U.S. intellectual property?
Ambassador Barshefsky. This is most particularly something
that the PTO, the Patent and Trademark Office under the
Commerce Department has been working on, and that is to work
with countries to ensure they can ratify their WIPO
commitments. That program will continue. And there again I
think perhaps we need a little extra time, but I think, again,
countries do want to come on board, there is just sometimes a
glitch in allowing them to do so.
Chairman Crane. The time of the gentleman has expired.
We are about to lose our distinguished guest. But
beforehand, Mr. Watkins.
Mr. Watkins. Mr. Chairman and Members of the Committee, I
appreciate the Committee letting me be here.
Madam Ambassador, I appreciate your comments. You were
probably alluding to this yesterday when we were talking about
the beef hormone ban.
Ambassador Barshefsky. Yes.
Mr. Watkins. I get more upset every day and am losing
patience more every day because this morning in the National
Journal and Congressional Daily it says your opinion is they
will not be able to meet their May 13 deadline, and from their
research studies that they are going to have to have more time,
and they have offered us some options about what to do.
For 10 years, for 10 years--and they even say that
scientific studies will probably prove it is A-OK--but for 10
years-plus now they have been dragging their feet. If they are
not going to do it by May 13, when are they? I have about three
questions along that line. When? How long is it going to be?
And we talk about, well, maybe we could have some option of
some penalties that they would pay. I would say, how much?
Because after 10 years-plus, this is jeopardizing WTO.
We were talking a while ago, why cannot we pass fast-track?
I think you know why, I think we know why--the White House is
why. If we cannot pass fast-track, we may not be able to get
the agreement to stay in the WTO if we don't get something. I
know we have got a good track record, 19 out of 21, but bananas
in our area. You don't want to be protectionist, but when they
rule in your favor, and the scientific studies, and they still
continue to drag feet.
So could you answer two or three of those questions there
for me.
Ambassador Barshefsky. Sure. May 13 is a fixed deadline. It
is a date by which Europe has to comply with the panel and
appellate body rulings on the beef hormone case. And those
ruling made clear that Europe's import ban on hormone-treated
beef is not consistent with Europe's international obligations.
There is no question about that. So May 13 is a fixed deadline.
Europe has available to it several options under the rules.
One is it can, and should, lift its import ban. And we have
said, and Dan Glickman, our Secretary of Agriculture, and I
wrote to our counterparts last night indicating that, of
course, it is clear the ban should be lifted. Having said that,
we have also suggested to Europe that we sit down and talk
through how that happens and to talk through whether there is a
means to lift the ban but yet leave European consumers
comfortable with the influx of U.S. beef. We have some ideas
along those lines which we have been working on with our
industry in this regard and we will present those to the
European Union.
The alternative to Europe is that under the rules Europe
can compensate the United States for its failure to comply. How
much is typically determined by arbitration. From our point of
view, the rule is clear. They need to lift the ban. We are
happy to work with them in a means to do that, but May 13 is
the deadline.
Mr. Watkins. I think we need to put pressure there and say
not under any conditions, lift the ban without conditions,
because they keep trying to put some type of conditions there
every time we turn around.
Ambassador Barshefsky. Yes.
Mr. Watkins. I would be very interested in what kind of
penalty.
Mr. Chairman, I think if there ends up being some penalty,
I think we need to put that penalty, that money right back into
the European Union advertising U.S. beef and make sure that we
can capture some of those markets that way. I plan to try to go
to WTO in the next couple of months to try to sit down and talk
to some of the people.
But I hope that you and Peter will drive a hard bargain on
this thing, because it seems like they are just wiggling every
time they turn around.
Ambassador Barshefsky. Yes. What Europe is doing is very,
very destructive. Extremely destructive. First off, because
they are not complying. Second, because they are not complying
in agricultural cases. This is the area under the old GATT
system where Europe persistently refused to comply. And they
have taken their old attitude in the GATT system of
noncompliance and simply transferred it to the WTO which is not
meant to accommodate issues of noncompliance. The reason that
we changed the dispute settlement system was to ensure that
compliance could be mandated, if not directly, then through
retaliation, but to ensure that compliance would be mandated.
So what Europe is doing here in not complying with the first
two cases out of the box is extremely, extremely destructive.
This is why we have urged Europe to comply. While we have
gone the extra step in both bananas and beef, we have urged
Europe to come to a negotiated settlement with us. And the fact
that Europe refuses to take these very basic steps, steps that
every other losing country has taken, including the United
States, every other country has taken steps to comply or to
negotiate compliance, the fact that Europe refuses is
irresponsible in the extreme.
Mr. Watkins. Madam Ambassador, if I could ask just this one
question, Mr. Chairman, would you mind providing the minutes of
those negotiations. I want to see if Peter is getting tough
over there with this or not.
Ambassador Barshefsky. Peter is tough. I will send Peter
over to see you.
Mr. Watkins. I am skeptical. Mr. Chairman, some of us who
have been fast-track on this, we get concerned.
Chairman Crane. OK.
Our final panelist is Mr. Portman.
Mr. Portman. Thank you, Mr. Chairman.
I have got to say I am very pleased by your responses to
Mr. Neal's question and now your responses to Mr. Watkins'
questions. I wish you great luck at the Seattle Ministerial. I
know it is the Barshefsky-Dunn Ministerial right now. Ms. Dunn
is offering great hospitality there.
But, honestly, it is wonderful that we are going to have
this largest trade meeting ever in the United States. There's
all kinds of additional work to be done and agreements and so
on. But it really is for naught if WTO doesn't work.
I look at your testimony, on page 12 you reference the beef
and banana issue, you reference the fact that in every single
instance where we have lost in the WTO we have fully complied.
Ambassador Barshefsky. Right.
Mr. Portman. And Mr. Neal was right on target. If the WTO
cannot be enforced, despite what those of us who voted for it
did in December 1994 when we stood up in front of our
colleagues and said, ``Listen, we are free traders and you have
got to go along with us on this change from the GATT system,''
which was not one where you had teeth in it, where you didn't
have the kind of dispute resolution, and go with us in this
WTO. We will ensure that there, indeed, will be resolution to
these problems and the United States, which is the country most
open to trade, will benefit from that. And as you have said, we
have used it 41 or 42 times in terms of compliance. That's
great.
But if it doesn't work, I think there are two immediate
effects. One is, again, you can forget what comes out of
Seattle, you can forget fast-track this year, you can forget
those of us who are adamant free traders being able to sell the
benefits of free trade because it won't be viewed as fair trade
because the agreements we have are not being enforced. Second,
I think there is a very real possibility that the world trading
system is then threatened, because why should other countries
like the United States fully comply every time when, as you
say, after four instances of the Europeans found to be clearly
in violation, as I understand it, in the last one, which was
the WTO one, it was the most trade violations of any case ever.
Ambassador Barshefsky. Right.
Mr. Portman. On the little issue of a banana regime which
can be resolved if the Europeans simply have the will to do it.
And I can't believe they are going to crash down the world
trading system and all the liberalization that so many of us
believe in and that they have fought for, we have fought for
over this one issue.
So I guess I would say two things today. One is, thank you
very much for your continued emphasis on that. What you and
Ambassador Scher have done in Geneva even in the last month is
commendable.
But I just am amazed by the response to the Europeans. We
have this commitment the President has made through the Bowles
letter to retaliate either on February 1 or on March 3. We are
now into February, and so I feel compelled to ask you a couple
of questions. One is, if the damages panel that we have now set
up, because the Europeans insist on it after irresponsibly
blocking through procedural mechanisms the authorization, if
this panel that we now have set up on damages fails to issue a
finding by March 2, which is really the critical date now, or
issues a finding that they cannot determine damages because the
EC measures have not yet been litigated, which is the endless
loop we have all talked about, will the United States
nonetheless retaliate on March 3 in the amount that we already
have established, which was $520 million?
Ambassador Barshefsky. Let me say, we have the matter in
litigation now before the panel in terms of arbitration. I
would reserve my response until I see what the panel does. I
don't think it is productive for the United States while a case
is before the panel to get ahead of ourselves. We have a high
degree of confidence that the panel will come forward in the
arbitration with an amount. That is what our focus is on now
and I would leave it at that at this juncture. I am obviously
happy to come talk to you, but I think for the present time I
would leave my answer just where it is.
Mr. Portman. Well, again, my concern is simply one of
resolve. That if the Europeans don't think, Mr. Chairman, that
we have the resolve to retaliate, they will never come to the
table. We spent 6 years on this. Wes just talked about 10 years
on the beef hormone case. We are talking about something the
implications of which are much larger than beef hormones or
bananas or magazines in Canada. This has to do really with the
trading system itself having integrity. And if we don't show
that kind of resolve--and I understand your answer really is we
need to be sure that the cost is accurate, in other words, that
the $520 million is an accurate figure. We believe it is, and I
think you are confident of that. If that is the case, I
certainly hope we do have the resolve to say we will, indeed,
go ahead and retaliate as scheduled.
Second question, just quickly, Mr. Chairman, the EU has
used all kinds of procedural tactics to try to block
authorization. Nonetheless, through your persistence,
Ambassador, you were able to prevail. And yet a lot of issues
just weren't resolved. I guess I would ask you what assurances
did we, as the United States, receive and our Latin American
partners--and remember, this is not just about us, it is about
them, too--from the WTO, from the EC that would indicate that
come March 2 the United States would not find itself in the
very same position where again these same issues would get
raised again and again?
Ambassador Barshefsky. Right. Our sense is that since the
arbitration panel has been formed that come March 2 we will be
through with the matter in the WTO. That is certainly our
attitude and our view, and that is where we are now. Whatever
else the EU might do other than come to the table, as they
should have done 18 months ago, whatever else the EU does will
be largely irrelevant to the exercise by the United States of
its rights in the WTO.
Mr. Portman. So you did not necessarily receive assurances,
but you don't think those assurances were necessary to have
been received?
Ambassador Barshefsky. Correct.
Mr. Portman. Thank you. Again, I appreciate the work that
you and Ambassador Scher have done to keep up this effort
because it is bigger than all these----
Ambassador Barshefsky. Right.
Mr. Chairman, may I make one comment?
Chairman Crane. Absolutely.
Ambassador Barshefsky. If I may, just in response to
something Mr. Portman said, because I would like to be sure
that the U.S. view on this important matter of dispute
settlement is well understood.
The United States believes that the dispute settlement
system actually works well. We, obviously, have a problem with
European compliance in agricultural cases. This is a
traditional problem. I don't use that word to by any means
excuse it, but simply to say that European refusal to comply on
international rules regarding agriculture should not be used to
impugn the integrity of a dispute settlement process which is
used round the world and which for the United States and
virtually every other country has worked to produce fair
results. And I say that even though we have lost some cases we
didn't really want to lose. As in any litigation, you win some
you shouldn't have won, and you lose some you feel you
shouldn't have lost.
But our view is that this is a system that is vital to
American interests. It has worked well other than in the case
of Europe, and it is a system to which we are very committed.
There are some improvements we would like to see, some arising
from the banana situation, to ensure an end to the endless loop
of litigation, which, of course, raised the question how many
times do you have to win. In our view, you have to win once,
not four times before your rights are secured.
As to the problem in the system which is not so much a
systemic problem as it is an attitudinal problem on the part of
Europe, we urge Europe, particularly the European Commission to
come forward to recognize its responsibilities to uphold this
system that, above all else, we and Europe were principal in
creating, to comply even if it is not politically comfortable
to comply, as we have complied even though in several cases it
was not politically comfortable to comply, and to meet its
international obligations as we and as all of our collective
trading partners have done. The fact that Europe has not chosen
to do that, however, should not impugn the integrity of the
system at large.
Chairman Crane. Madam Ambassador, we can't tell you how
much we appreciate your appearance today and always, and we
apologize for extending you a little beyond your deadline, and
look forward to your reappearance before the month is out,
hopefully, for our hearing on steel.
Ambassador Barshefsky. Good. Thank you very much, Mr.
Chairman.
Chairman Crane. Thank you, Charlene.
Ambassador Barshefsky. Thank you.
Chairman Crane. The Subcommittee stands adjourned.
[Whereupon, at 2:43 p.m., the hearing adjourned, to
reconvene at the call of the Chair.]
[Questions for Ambassador Barshefsky from Chairman Crane
and Mr. Shaw, and her respective answers, follow:]
Response from Hon. Charlene Barshefsky to Question from Chairman Crane
Question 1. On December 19, 1998, you joined Secretary of State
Albright, Secretary of Commerce Daley and FCC Chairman Kennard in a
letter to European Commissioner Martin Bangemann expressing U.S.
concerns over the E.U.'s policies relating to 3G standards for wireless
equipment and services. In his return correspondence, Commissioner
Bangemann denied that the E.U. was deliberately excluding competition
from it's markets. In the same letter, Commissioner Bangemann
characterizes the ETSI decision-making process as open, fair and fully
transparent with industry players from both within and outside Europe
participating in it. However, there continues to be a concern among
U.S. industry that the E.U. will mandate the rise of a wireless
standard that excludes American third generation wireless equipment
from European markets. What steps is the U.S. government taking to
ensure that the E.U. market is open to competing wireless equipment and
services?
Answer. I have been personally involved in resolving this issue,
because I believe that third-generation wireless technologies offer
great promise for U.S. consumers and businesses. This is why USTR has
made every effort to assure that foreign markets are open to U.S.
manufacturers and service suppliers. Our work is based on the fact that
the development of third-generation wireless standards is a crucial
issue for U.S. telecommunications equipment and service suppliers in
wireless markets, the fastest-growing segment of the telecommunications
industry worldwide.
As you know, EU Commissioner for Telecommunications Martin
Bangemann recently responded to a letter that I and my Cabinet
colleagues sent him on this issue. In his response, the Commissioner
committed to using forthcoming ITU recommendations as the basis for
European standardization of third-generation wireless services. USTR
will closely monitor whether the European Community and its Member
States honor these assurances. In particular, we will pay close
attention to the processes used to license third-generation equipment
and services, with a view to making sure they accommodate any
standard(s), including any converged standards, agreed to by industry
and recommended by the ITU. Moreover, in the preparation of this year's
National Trade Estimates Report and the annual review of
telecommunications trade agreements, USTR will work closely with
participants in the ITU standards-making and European third-generation
licensing processes to ensure that European governments permit open and
unfettered competition in Europe that reciprocates the access enjoyed
by European firms in the United States. Our goal will be to assure that
industrial policy concerns of governments do not impede the industry-
led effort to develop 3G systems, and thereby the ability of American
high technology workers to access global markets.
Response from Hon. Charlene Barshefsky to Question from Hon. E. Clay
Shaw
Question 1. Saudi Arabia has a pending application for accession to
the World Trade Organization. The working party is presently
considering that application and bilateral negotiations may begin soon.
A United States citizen, Fawaz Arafat, has invested in Arab
Membrane, a company organized in Saudi Arabia. This company has been
illegally taken over and had its assets, including its intellectual
property, expropriated by a competitor. Despite Mr. Fawaz's complaints
through the normal judicial processes of the Saudi Kingdom, and to the
United States Ambassador in Riyadh, Wyche Fowler, Mr. Fawaz continues
to be denied the basic rights Saudi law grants all investors.
Madam Ambassador, are you prepared to investigate this case, as it
may be indicative of a serious deficiency in the consistent application
of Saudi law to foreign investors. Moreover, would you raise this issue
with Saudi Arabian officials at the next meeting of the Saudi Arabian
Working Party of the WTO and any other appropriate venue? Can you give
assurances that Saudi Arabia's application for accession to the WTO
will not be approved until situations such as that of Fawaz Arafat are
resolved?
Answer. We, along with the American Embassy in Riyadh, will raise
Mr. Fawaz's case with the Saudi government. Our Embassy, however, is
still awaiting additional background documentation, requested from Mr.
Fawaz's lawyer, in order to pursue this matter further.
While the Administration supports Saudi Arabia's accession to the
WTO, we have made clear to the Saudi government that it must be on
commercially meaningful terms that guarantee and protect market access
for U.S. goods, services and agricultural products. In this respect,
Saudi Arabia's application for accession to the WTO will depend on its
adoption of WTO rules and disciplines that should provide greater
transparency and consistency in the Saudi trading regime and benefit
U.S. investors such as Mr. Fawaz.
[Submissions for the record follow:]
Statement of American Textile Manufacturers Institute
This statement is submitted by the American Textile Manufacturers
Institute (ATMI), the national association of the domestic textile mill
products industry.
ATMI is pleased to provide the Subcommittee on Trade with its views
on fighting foreign protectionism and commends the Subcommittee for
undertaking its inquiry at this most auspicious time. It is auspicious
because while plans are being made to conduct an ambitious series of
future trade negotiations, scant attention has been paid to what has
evolved in the wake of the last multilateral trade negotiation: the
Uruguay Round. With respect to trade in textiles and apparel, the
results are rather dismal.
The Uruguay Round Agreement on Textiles and Clothing (ATC) calls
for the abolition, over a ten-year ``transition period,'' of the
mechanisms used to control textile and apparel trade embodied in the
Multifiber Arrangement. This concession by the textile importing
nations--the United States, Canada, the European Union, etc.--is worth
tens of billions of dollars annually to the textile and apparel
exporting nations. But they are required to make concessions as well.
Article 7 of the ATC clearly states:
``Members shall (emphasis added) take such actions as may be
necessary to abide by GATT 1994 rules and disciplines so as to:
(a) achieve improved access to markets for textiles and
clothing products through such measures as tariff reductions
and bindings, reduction or elimination of non-tariff barriers,
and facilitation of customs, administration and licensing
formalities.''
All signatories to the Uruguay Round Agreements bound themselves to
commit to these undertakings. But many major exporting countries have
done little or nothing to increase access for U.S. textile and apparel
products. Among these are the so-called ``big emerging markets'' of
Argentina, Brazil, India, South Africa and the ASEAN bloc nations which
remain, unfortunately, mostly ``big closed markets'' when it comes to
the export of U.S. textile products.
There should be no mistake--these are big markets we are losing out
on. India alone contains a middle class larger by some estimates than
the population of the United States. Brazil used to be one of our
fastest growing textile export markets before its government started
raising barriers. All told, these countries, in particular, represent
billions of dollars in potential exports for U.S. textile
manufacturers. They represent thousands of new U.S. jobs. But none of
this will happen if these countries are allowed to continue to ignore
their obligations under Article 7 or to impose the kinds of barriers
that are described below.
The ATC ``transition period'' (1995-2004) had hardly begun when,
instead of liberalizing its textile/apparel import regime, Brazil
raised its import tariffs on a wide range of textile products to rates
which far exceed those which it had notified (``bound'') to the World
Trade Organization. In addition, Brazil imposed onerous payment
requirements for importers to finance their purchases. As if that
weren't enough, Brazil reverted to its long-standing practice of
imposing additional imposts and fees on imports, measures which have
the effect of raising the tariff to astronomical levels. Thus, it is no
surprise that U.S. exports of textiles and apparel to Brazil, the
largest market in the Western Hemisphere after the United States, fell
28 percent from 1997 to 1998.
Argentina has perhaps been even more heavy-handed. After having
bound ad valorem tariffs on textiles/apparel imports to the WTO,
Argentina introduced an abundance of specific tariffs, calculated in
dollars per kilogram, on textile/apparel imports. These tariffs had the
effect, in many cases, of raising the tariffs to levels which exceeded
the ad valorem rates which Argentina had bound to the WTO.
In response, the United States lodged a formal complaint with the
WTO, which after proper review, determined that Argentina had violated
its Uruguay Round commitments and so notified Argentina. To this day,
Argentina has done nothing in response to the WTO's finding and the
United States has not retaliated. We urge it to do so.
For a half century, Pakistan has been one of the most resolutely
protectionist countries in the world with respect to trade in textiles
and apparel. While building one of the largest textile export
industries on the planet, Pakistan has sheltered its domestic market
from foreign competition with high tariffs and, as an extra measure of
protection, outright bans on the importation of most textile products
and all apparel.
With respect to tariffs, Pakistan did indeed commit to significant
reductions, over a ten-year period, of some of its textile and apparel
import tariffs, meaning that they will be reduced from stratospheric
levels to the merely excessive. There is still no effective, meaningful
access to the Pakistani market for U.S. producers nor will there be.
None, however, can match India for blatant disregard of the ATC and
its determination to keep trade in textiles and apparel a one-way
street. India, like Pakistan, has kept its market closed for fifty
years through a combination of excessive tariffs and bans on the import
of most textiles and all apparel and claimed its actions justifiable
for balance of payments reasons. The World Trade Organization has
notified India, in no uncertain terms, that its import regime is no
longer justifiable for balance of payment reasons. But India has
ignored the WTO's admonition.
India has completely abrogated its Uruguay Round tariff commitments
by introducing new special taxes and duties which result in an ad
valorem equivalent tariff on textiles and apparel reaching as high as
89 percent. It maintains a ``negative restricted list'' covering many
textile products and nearly all apparel. Inclusion on the list means
that the product cannot be imported. For textiles not on the negative
restricted list, import licenses are required. These may be obtained
only by entities which will use the imported goods to produce something
for export.
And, as if the forgoing were not enough, administrative delays in
obtaining import licenses and clearing imports have the effect of
raising the price of the import significantly or incurring confiscatory
demurrage changes.
India is clearly in violation of its Uruguay Round commitments and
more than deserving of a response by the United States. That response
should be the withdrawal of India's GSP privileges and enhanced
textile/apparel quota growth, as set out in Article 2 of the ATC. The
United States has the right to take these actions and it should do so.
In short, as the United States continues to increase access for
textile and apparel products from these and other countries, it is only
fair that U.S. textile and apparel manufacturers should get the same
reciprocal access for its products as well. This was the promise and
the intent of the Uruguay Round agreements.
Unfortunately, as we have noted, this promise has not been
fulfilled. Not only is the playing field not level, the other team is
not playing by the rules. The United States must insist that all WTO
members live up to the spirit and the letter of the ATC and provide
effective market access. When they do not, the United States should
take the strongest possible actions. ATMI is hopeful that Congress will
take a leadership role in bringing this to fruition.
Statement of Leslie Alan Glick, Esq., Porter, Wright, Morris and
Arthur, on behalf of Kemet Electronics Corporation and Greenville,
South Carolina, Vishay Intertechnology, Inc., Malvern, Pennsylvania
Mr. Chairman and Members of the Subcommittee on Trade, this
statement is submitted by Kemet Electronics Corp and Vishay
Intertechnology, Inc. in response to the notice issued by this
Committee on February 4, 1999 (TR-2) announcing a series of hearings
``on the importance of expanding trade and resisting protectionism
through active United States Involvement in Trade Negotiations.''
Hearings were scheduled for February 11, 1999 and written comments for
the record were invited until February 25, 1999.
Kemet is a leading producer of capacitors headquarter in
Greenville, South Carolina. Kemet also has facilities in other
locations in South Carolina , North Carolina, Texas, as well as in
Mexico. Kemet produces Tantalum and Ceramic capacitors that are an
important component in most electronic devices produced in the United
States and abroad. Vishay Intertechnology, Inc. is headquartered in
Malvern, Pennsylvania, with production facilities in Connecticut,
Nebraska, Maine, New Hampshire, Florida, Virginia, North Carolina, as
well as overseas. Vishay is a leading producer of ceramic and tantalum
capacitors as well as resistors used in electronics products produced
in the United States and abroad.
Although Kemet and Vishay are recognized leaders in the field and
produce high quality state-of-the-art products, they have been unable
to penetrate the Japanese market. Since Japan is a leading producer of
electronics products that utilize capacitors and resistors, Kemet and
Vishay have been virtually eliminated from one of the world's largest
markets for its products. At the same time, Japanese companies have
free and open access to the United States market and are a fierce
competitor here. Japanese penetration of the U.S. market was made
easier by actions of the Administration in negotiating the Information
Technology Agreement that included capacitors and resistors as products
subject to duty reduction and removal, over the strong objections Kemet
and Vishay and other producers of these products. These companies under
the name Passive Electronics Coalition testified before this Committee
in opposition to the Information Technology Agreement on February 27,
1998. Nevertheless, the agreement was approved by the United States and
resulted in a lowering of the import duties on capacitors and resistors
from Japan in stages. This action greatly hurt Kemet and Vishay by
enabling the Japanese competitors to lower their prices in the U.S.
Market. The agreement gave no benefits to Kemet and Vishay because
prior to the Information Technology Agreement, the major markets for
their products, Europe and Japan already had either very low duties or
no duties at all. Thus, the U.S. gave up a very high tariff and allowed
Japanese companies to import more into the U.S. market at lower prices,
without giving anything in return to the U.S. capacitor and resistor
industry that was injured by Japanese imports. The Agreement did not
address non-tariff barriers which are the real problem in access to the
Japanese market.
The problem of Japanese non-tariff barriers to electronics products
and information technology products (which includes capacitors and
resistors although Kemet and Vishay did not consider these truly
``information'' products since they do not store or transmit
information--however, they were included as part of the ITA) is well
documented by the U.S. International Trade Commission that has studied
this matter. The U.S. I.T.C. has found as follows:
Some IT industry representatives assert that the benefits of
duty elimination as a result of the ITA could be reduced by
non-tariff barriers. For instance U.S. telecommunications
equipment producers have pointed out that while the ITA was
designed to deal with tariff barriers, ``many of the barriers
to exports are not tariffs but non-tariff barriers.'' For
instance, some of the largest potential export markets, such as
Japan, have zero tariffs on IT products but market penetration
by foreign producers remains low. Among the non-tariff measures
cited by IT industry representatives are, (1) discriminatory
certification, testing, conformity assessment and other
standards-related measures, (2) unfair marking and labeling
requirements, and (3) proliferation of quality system
registration requirements.\1\
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\1\ United States International Trade Commission Staff Research
Study 23, ``Global Assessment of Standards Barriers to Trade in the
Information Technology Industry,'' November 1998, Pub. No. 3141 at 2-4
(Footnotes omitted)(emphasis added).
In an earlier report specifically on the proposed modifications to
the information technology agreement, the ITC found that, ``U.S.
capacitor and resistor industry face strong international competitions.
Passive components are mature products, largely interchangeable and are
extremely price sensitive.'' The ITC noted that U.S. producers have a
``disadvantage vis-a-vis foreign competitors which are often vertically
integrated firms producing broad lines of components and end products .
. .'' In regard to Japan the ITC noted that ``Japan is the world's
dominant producer of capacitors and resistors . . . Japanese producers
are often much larger than their U.S. competitors and often manufacture
a wide variety of other electronic products . . . Japanese capacitor
and resistor producers are usually closely integrated with Japanese
manufacturers of consumer electronics, computers and communications
equipment and as a result there is a high degree of captive
consumption.''\2\
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\2\ United States International Trade Commission, ``Advice
Concerning the Proposed Modification of Duties on Certain Information
Technology Products and Distilled Spirits,'' April 30, 1997, USITC Pub.
No. 3031 (Final) at 5-36, 5-38.
---------------------------------------------------------------------------
This Committee is aware of the barriers that exist to U.S. exports
in Japan that have been cataloged by other industries such as
automobiles, auto parts and semiconductors. The U.S. government has
responded aggressively to such problems by negotiating market access
agreements with Japan that in some cases established actual
quantitative goals for Japanese imports of these U.S. products. No such
efforts have been provided on behalf of the U.S. producers of
capacitors and resistors. As a result, both Kemet and Vishay have
experienced a negative economic impact during the past year that has
lead to downsizing, terminations of workers and transfer of production
to offshore facilities. All of this has had a severe impact on these
companies, their workers and communities.
Kemet and Vishay respectfully ask this committee to advise and
instruct U.S. trade negotiators, either as part of any authorizing
legislation or legislative history or by direct communication from this
Committee, in future rounds of trade negotiations either bi-laterally
with Japan or in the content of multilateral agreements such as APEC
and the WTO, as well as in any future negotiations relating to the
Information Technology Agreement to specifically raise the issue of
market access of U.S. capacitors and resistors in the Japanese market
and to negotiate agreements with Japan to increase their imports and
consumption of U.S. capacitors and resistors similar to what has been
done for other U.S. industries facing similar problems.
Statement of National Airmotive Corporation, Oakland, California
Why Are American Companies Being Excluded from the Canadian Defense
Market?
National Airmotive Corporation (``NAC''), located in Oakland,
California, is a leader in the aviation industry and qualifies as a
small business under the SBA. NAC specializes in the repair, overhaul,
and modification of aircraft turbine engines, particularly T-56 Allison
gas turbine engines. These engines are used in helicopters and
airplanes for border patrol, surveillance, and military purposes.
In 1995, NAC sought to bid on contracts with the Canadian
Government for the repair and overhaul of T-56 engines. NAC was
notified by the Canadian Department of Defence (``DND'') that it was
not permitted to bid on solicitations relating to Allison turbine
engines based on Canadian exemptions from the NAFTA agreement. Since
that time, NAC has regularly responded to DND's assertions, arguing
that the NAFTA exceptions do not apply to NAC's activities and that
NAFTA Chapter 10 requires DND to allow NAC to bid. Canada, on the other
hand, has promulgated many unsubstantiated theories on why NAC cannot
bid on T-56 procurements.
A number of United States agencies have intervened on NAC's behalf.
For instance, the United States Trade Representative's office has
repeatedly approached Canada regarding this issue. In fact, on July 24,
1996, Ambassador Ira Shapiro, Senior Counsel and Negotiator for USTR,
sent a letter to Robert Wright, Deputy Minister of the Canadian
Department of Foreign Affairs and International Trade, arguing that
NAC's activities are covered under the NAFTA agreement. Additionally,
the United States Department of State delivered a demarche to the
Canadian government in 1996, demanding that Canada provide the United
States with a definitive written explanation of why Canada had not
permitted NAC to bid on Canadian T-56 contracts. Also, since 1996, the
Office of Foreign Procurement at the United States Department of
Defense has consistently pressed the Canadians for a resolution of this
issue. Unfortunately, in every instance, the Canadians have sent back
United States officials empty-handed. After nearly four years of
interaction, no definitive response has yet come from DND.
Meanwhile, the effect of Canada's actions has been to
systematically exclude NAC from the Canadian T-56 work. At the same
time, Standard Aero, Ltd., NAC's principal Canadian competitor, has
been allowed to freely bid on United States Department of Defense
contracts for similar work on Allison turbine engines, and has been
awarded United States contracts on a number of occasions. As a result,
NAC's Canadian competitor is able to obtain high prices in its
protected Canadian market (where it has been the ``sole source'' since
1960 and where NAC is not allowed to bid), and then undercuts NAC in
the United States on bids with the Defense Department.
The United States has noted for some time that Canada employs
discriminatory procurement practices and it is an area of ongoing
United States concern. For instance, Canadian discriminatory
procurement policies have been cited in the 1995, 1996, and 1997
National Trade Estimate Reports. Currently, the Bureau of Export
Administration, Office of Strategic Industries and Economic Security,
is compiling data on Canadian procurement discrimination and will be
presenting its report to Congress later this year. NAC's difficulties
have been specifically addressed in the President's most recent Title
VII report and the United States International Trade Commission's 1997
report on the Impact of the NAFTA on the U.S. Economy and Industries.
Based on past experience, NAC believes that Canada will continue to
stall on these issues and has no interest in reaching a solution. This
is understandable since NAC's Canadian competitor currently has access
to United States Department of Defense contracts and NAC is completely
excluded from participating in DND procurements. Simply stated, the
United States has given Canada no incentive to compromise. However, the
longer Canada forestalls a solution to this problem, the more NAC
suffers financially because it must compete in an unfair trading
regime.
Consequently, the protracted and blatant nature of Canada's
international treaty violations justify forceful United States action.
The United States government can no longer allow Canada to take
advantage of its preferred status under NAFTA and the WTO Government
Procurement Agreement to the detriment of American producers. If the
United States is going to enter into bilateral and multilateral
agreements, it must ensure that reciprocity is observed. In NAC's case,
such agreements have failed to open up foreign markets and have instead
harmed domestic producers. It is ironic to note that Canada can rely on
NAFTA to keep Standard Aero in the United States market while at the
same time using NAFTA to keep NAC out of Canada.
The United States must not continue rewarding Canada for breaching
international law. Instead, the United States must take all possible
steps to ensure that Canada lives up to its international obligations,
and that the United States receives its full benefits under
international agreements. NAC believes that the time for negotiations
has passed and that a NAFTA dispute resolution panel may be the only
way to permanently resolve this issue. At the very least, the United
States should disqualify Canadian firms such as Standard Aero from
bidding on United States contracts until Canada agrees to level the
playing field. In fact, why are we closing bases and putting Americans
out of work, while sending work to Canada, where American companies are
not even allowed to bid?
Statement of Raymond J. Keating, Chief Economist, Small Business
Survival Committee
On behalf of the Small Business Survival Committee (SBSC) and its
more than 50,000 members across the nation, I appreciate this
opportunity to submit written testimony to the Subcommittee on Trade
regarding U.S. trade policy and its importance to the entrepreneurial
sector of our economy.
The prevailing view that only so-called ``big business'' cares
about free trade and open international markets could not be further
from the truth. Entrepreneurs and small businesses, in several ways,
dominate U.S. participation in global markets, and certainly will
continue to do so in the next century. The biggest obstacle to
fulfillment of our destiny in international trade is, of course,
protectionist measures imposed by government.
In its most obvious effect, protectionist measures (such as high
tariffs and quotas) increase prices for consumers. However, the ill
effects do not stop at that point. For example, the resulting reduction
in competition means diminished quality, and less creativity and
entrepreneurship. Jobs are lost in import industries, and protectionist
responses by other nations devastate export firms and their employees.
And while protectionism is bad economic policy in and of itself, it can
facilitate other equally dismal policies, as economist Paul Craig
Roberts has explained (``Tariffs Protect Big Government,'' The
Washington Times, October 13, 1997): ``In fact, tariffs protect ill-
considered government policies, such as costly regulations and high
taxes on labor and capital, that make our goods uncompetitive in
international markets. Tariffs also protect coercive and self-serving
union policies, and they protect fat corporate bureaucracies.''
Indeed, free trade is one of those rare issues whereby almost all
economists are in agreement. Let's take a quick look at why and how
free trade works and generates widespread benefits.
Comparative Advantage: Comparative advantage--a law of economics
offered by David Ricardo in the early 19th century--merely shows that
countries, businesses and individuals boost economic prosperity by
producing the goods and services they are most efficient at producing,
and then trading to acquire the other goods and services they need and
want. Even if one holds an absolute advantage in a variety of areas,
focusing on the endeavor where comparative advantage exists (i.e.,
where efficiency is maximized) and then trading with others creates a
scenario where all prosper.
An example always helps, and economist Robert Eisner provided two
in one eloquent paragraph recently in The Wall Street Journal (``A Free
Trade Primer,'' October 13, 1997):
``Consider a couple of modern applications of Ricardo's
wisdom: Michael Jordan may be able to mow a lawn faster than
any gardener, but it is best for him to pass up lawn care and
stick to basketball. Similarly, the U.S. may well be more
productive than other countries in textiles as well as aircraft
production, but it would do better to import those cheap shirts
from China and ease the way for Boeing to export its planes all
over the world.''
Competition: Increased competition due to lower trade
barriers obviously means big benefits for consumers--higher quality
products and services, greater consumer choices, and lower prices. Such
benefits have salutary effects throughout the economy by freeing up
resources for other investments and purchases.
Innovation and Entrepreneurship: Increased rivalry in the
domestic market and expanded opportunities internationally provide
considerable incentives for increased innovation and entrepreneurship.
In fact, lowering trade barriers should disproportionately benefit
small, entrepreneurial firms who cannot afford to set up shops in
foreign nations. Reducing governmental hurdles levels the playing field
for such businesses.
Trade and Growth: Obviously, a more efficient allocation
of resources, opening of new markets, increased competition, lower
prices, and enhanced innovation and entrepreneurship resulting from
free trade boost economic growth and job creation.
In the end, free trade is about individual freedom. It means
allowing consumers to trade with whomever they choose. It means
allowing entrepreneurs and businesses of all sizes to pursue
opportunities around the globe. Expanding trade means gains and
increased prosperity for all.
The question to be answered now is: Do theory and reality coincide
when it comes to trade? The following facts reveal the importance of
trade to the U.S. economy, and the significant participation by small-
and mid-sized businesses:
Expanding U.S. Trade Boosting Growth: Trade has become
increasingly important to the U.S. economy. As late as 1960, U.S.
exports and imports as a share of the total U.S. economy registered 9
percent, same as in 1940. By 1997, that percentage had risen to 25
percent.
Trade's impact on the U.S. economy becomes even more astounding
when you look at real GDP growth thus far in the 1990s. In real 1992
dollars, U.S. GDP expanded from $6,136.3 billion in 1990 to $7,188.8
billion in 1997, an increase of $1,052.5 billion or 17 percent.
Meanwhile, real U.S. exports rose from $564.4 billion in 1990 to $962.7
billion in 1997, an increase of $398.3 billion or 71 percent. Real
imports jumped from $626.3 billion in 1990 to $1,109.2 billion in 1997,
an increase of $482.9 billion or 77 percent. Taking exports and imports
together, a stunning 84 percent of U.S. economic growth in the 1990s is
tied directly to international trade.
High-Paying Jobs: According to the Heritage Foundation's
Issues '98, export-related jobs pay 12.5 percent to 18 percent more
than non-export jobs.
Small Business Share of Export Value: According to the
U.S. Department of Commerce (August 1997), companies with fewer than
500 employees accounted for almost 30 percent of export value in 1992.
Export Firms Overwhelmingly Small Businesses: According to
the U.S. Department of Commerce (August 1997), 96 percent of exporters
were small- or medium-sized businesses with fewer than 500 employees in
1992. Firms with fewer than 20 employees accounted for 59 percent of
all exporters. Companies with fewer than 20 employees accounted for
about one-third of exporting manufacturers, 75 percent of wholesalers,
and 72 percent falling under the category ``other companies.''
Small Manufacturers Expanding Internationally: In early
1997 (February 26, 1997, ``Small Firms Go International''), Investor's
Business Daily reported that while 1 in 10 manufacturers with fewer
than 100 employees exported in 1987, that number leaped to about 1 in 5
by 1992. In addition, the share of small- and mid-sized firms getting
10 percent or more of their sales from exports increased from 27
percent to 51 percent in the short span from 1994 to 1996.
Small Business Dominating International Trade: In The
State of Small Business 1995, the U.S. Small Business Administration
reported that 86 percent of U.S. businesses involved in international
trade are wholesalers and other intermediaries, and that these
businesses are typically small.
The Advantage of Entrepreneurial Skills: In a January 1998
article (``Internationalization of Small- and Medium-Sized Technology-
Based Firms: An Exploratory Study'') in the Journal of Small Business
Management, Professors Necmi Karagozoglu and Martin Lindell note that
small- and medium-sized technology firms have certain advantages and
disadvantages operating internationally compared with large businesses.
The authors note that a clear advantage is ``flexibility, speed, and
advantage-seeking behavior.'' These are the hallmarks of the high-
growth, entrepreneurial business.
Women and Trade: According to the U.S. Department of
Commerce, women-owned businesses participated in the global marketplace
at the same rate as U.S. businesses overall--i.e., 13 percent--in 1992.
In a March 1995 study, the National Foundation for Women Business
Owners found:
57% of women-owned businesses in the global marketplace
developed a new product or service during 1992 compared to 44% of those
not doing business globally.
52 % of women-owned businesses involved in international
trade expanded domestically versus 23% of those not exporting or
importing.
Growth in U.S. Manufacturing: Most protectionists like to
point to a decline or stagnation in U.S. manufacturing jobs as dire
fallout from free trade. This supposedly shows that the U.S. is losing
its manufacturing capabilities and cannot compete internationally. A
look at U.S. manufacturing numbers, however, tells quite a different
tale.
It turns out that U.S manufacturing production has been steadily
rising for decades. In addition, if you look at new manufacturing
orders, while clearly being walloped by the stagflation of the late
1970s and early 1980s, as well as the recession of the early 1990s, the
overall trend is positive.
The fact that U.S. manufacturing generally has been humming along,
while manufacturing employment is stagnating or slightly declining (for
example, 19.4 million manufacturing jobs in 1967, 19.7 million in 1977,
19 million in 1987, and 18.5 million in 1997), speaks not to our
manufacturing weakness globally but to our strength. The U.S. has been
investing, modernizing and vastly increasing productivity in
manufacturing. We are producing more with fewer workers. We are
becoming more competitive.
In the end, theory and real life come together quite clearly when
it comes to trade. Free trade works.
Then what policies should U.S. elected officials be following to
prepare us for the increasingly competitive and global economy of the
21st century?
Unilaterally reducing U.S. trade barriers makes sense for
consumers and the economy in general, but politically this is a non-
starter.
The next best scenario is to be negotiating with other
nations, groups of nations, and international bodies to lower their
barriers to trade as we do the same with our own. The options seem
endless, for example, a Pacific Rim free trade zone, an open market
from Canada to the tip of South America, further reducing trade
obstacles through the WTO, pacts with individual nations, and so on.
However, when negotiating trade agreements, the President of the
United States needs to be fully empowered with fast-track authority.
Fast track allows the President to negotiate trade accords, with
Congress limiting itself to a ``yes'' or ``no'' vote--avoiding the big
temptation of adding special-interest amendments.
Throughout history, the main obstacle to reaping the full benefits
of free Trade--including the complete unleashing of U.S.
entrepreneurship in the global marketplace--has been special-interest
influence, that is, the few seeking protection at the expense of the
many and the economy in general. Politicians too often succumb to such
petty special interests. Indeed, this is unfortunate as the trade issue
generally has been a bipartisan one since the end of World War II,
often rising above the fray of special-interest threats.
Fast track is a positive policy innovation to counter such
selfishness. Of course, Congress still has its say under fast-track
negotiating authority--if they do not like the trade agreement before
them, they can vote it down, and tell the President to go start over
again. But if the President presents a positive, pro-growth, pro-
entrepreneur trade accord, the vote should be a resounding ``yes.''
Fast-track authority makes particular sense for innovative
entrepreneurs and growing small businesses, who dominate much of U.S.
international trade and need to be able to gain access to international
markets unencumbered by high tariffs and other protectionist barriers.
We are increasingly concerned that the United States is becoming a
bystander as other nations negotiate favorable agreements that could be
potentially damaging to U.S. business interests. Fast-track authority
is critical to U.S. competitiveness and the overall well-being of the
U.S. economy into the 21st century.
Once again, thank you very much for this opportunity to present my
written perspective on behalf of the Small Business Survival Committee.