[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
FREE TRADE AREA OF THE AMERICAS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
__________
MARCH 31, 1998
__________
Serial 105-71
__________
Printed for the use of the Committee on Ways and Means
----------
U.S. GOVERNMENT PRINTING OFFICE
56-186 cc WASHINGTON : 1999
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 BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky 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
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
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
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of March 17, 1998, announcing the hearing............... 2
WITNESSES
Office of the U.S. Trade Representative, Hon. Richard W. Fisher,
Deputy U.S. Trade Representative............................... 16
______
American Farm Bureau Federation, Al Christopherson............... 38
Coalition of Service Industries, Robert Vastine.................. 42
Council of the Americas, Hon. William T. Pryce................... 34
Farr, Hon. Sam, a Representative in Congress from the State of
California..................................................... 8
Industry Functional Advisory Committee on Customs, JBC
International, and Joint Industry Council, James B. Clawson.... 57
Minnesota Farm Bureau Federation, Al Christopherson.............. 38
National Wildlife Federation, John J. Audley..................... 60
Semiconductor Industry Association, George Scalise............... 52
Southdown, Inc., and Southern Tier Cement Committee, Dennis M.
Thies.......................................................... 76
SUBMISSIONS FOR THE RECORD
Air Courier Conference of America International, Falls Church,
VA, statement.................................................. 91
American Electronics Association, statement...................... 93
American Sugar Alliance, and Sugar Cane Growers Cooperative of
Florida, Carolyn Cheney, joint statement and attachments....... 98
Bernal, His Excellency Richard L., Ambassador, Government of
Jamaica, statement............................................. 140
Brown, Reginald L., Florida Fruit & Vegetable Association,
Orlando, FL, statement and attachment.......................... 128
Center for the Study of Economics, Columbia, MD, Steven Cord,
statement and attachments...................................... 111
Chapter 19 Coalition et al., joint statement.....................
Chemical Manufacturers Association, Arlington, VA, statement..... 113
Cheney, Carolyn, American Sugar Alliance, and Sugar Cane Growers
Cooperative of Florida, joint statement and attachments........ 98
Cord, Steven, Center for the Study of Economics, Columbia, MD,
statement and attachments...................................... 111
Customs and International Trade Bar Association, New York, NY,
Rufus E. Jarman, Jr., and Patrick C. Reed, statement........... 115
Dresser-Rand Co., Corning, NY, statement and attachment.......... 119
Floral Trade Council, Haslett, MI, statement..................... 123
Florida Fruit & Vegetable Association, Orlando, FL:
Reginald L. Brown, statement and attachment.................. 128
Michael J. Stuart, statement................................. 134
International Trademark Association, David C. Stimson, letter.... 137
Jamaica, Government of, His Excellency Richard L. Bernal,
Ambassador, statement.......................................... 140
Jarman, Rufus E., Jr., and Patrick C. Reed, Customs and
International Trade Bar Association, New York, NY, statement... 115
National Association of Manufacturers, statement................. 148
Reed, Patrick C., and Rufus E. Jarman, Customs and International
Trade Bar Association, New York, NY, statement................. 115
Rubber and Plastic Footwear Manufacturers Association, Mitchell
J. Cooper, statement and attachment............................ 152
Stimson, David C., International Trademark Association, letter... 137
Stuart, Michael J., Florida Fruit & Vegetable Association,
Orlando, FL, statement......................................... 134
Sugar Cane Growers Cooperative of Florida, Carolyn Cheney, joint
statement and attachment (see listing under American Sugar
Alliance)...................................................... 98
U.S. Express Integrated Transportation Services Sector et al.,
joint statement................................................ 154
U.S. Integrated Carbon Steel Producers et al., joint statement... 161
West Indies Rum and Spirits Producers Association, statement..... 162
FREE TRADE AREA OF THE AMERICAS
----------
TUESDAY, MARCH 31, 1998
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 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) 225-1721
FOR IMMEDIATE RELEASE
March 17, 1998
No. TR-22
Crane Announces Hearing on
Free Trade Area of the Americas
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on the status and outlook for
negotiations aimed at achieving a Free Trade Area of the Americas
(FTAA). The hearing will take place on Tuesday, March 31, 1998, in room
B-318 Rayburn House Office Building, beginning at 2:30 p.m.
Oral testimony at this hearing will be from both invited and public
witnesses. Deputy U.S. Trade Representative Richard W. Fisher will
represent the Administration. Also, any individual or organization not
scheduled for an oral appearance may submit a written statement for
consideration by the Committee or for inclusion in the printed record
of the hearing.
BACKGROUND:
The goal of free trade in the Western Hemisphere was first put
forward by President Bush in June 1990 when he proposed the Enterprise
of the Americas Initiative. At the December 1994 Summit of the Americas
in Miami, leaders of 34 Western Hemisphere democracies agreed to
establish the FTAA in which barriers to trade and investment will be
progressively eliminated. They committed to begin the process
immediately, make concrete progress by the year 2000, and to conclude
negotiations by no later than 2005. The Summit Declaration signed on
December 11, 1994, identified 11 major areas that will be covered in
the negotiations: market access, customs procedures and rules of
origin, investment, sanitary and phytosanitary measures, standards and
technical barriers to trade, subsidies, antidumping and countervailing
duties, smaller economies, competition policy, government procurement,
intellectual property rights, and services. Subsequent ministerial
meetings held in 1995, 1996, and 1997 have established working groups,
and laid other groundwork for these negotiations.
Since 1990, four sub-regional groups in particular have made
considerable progress in breaking down intra-regional trade barriers.
Mercado Comun del Sur--``The Common Market of the South'' (also called
MERCOSUR) consists of Argentina, Brazil, Paraguay, and Uruguay and is
the second largest preferential trading group in the Americas, after
the North American Free Trade Agreement (NAFTA). The Andean Pact,
consisting of Bolivia, Colombia, Ecuador, Peru, and Venezuela, ranks
third. The Caribbean Community and Common Market, consisting of 13
English speaking Caribbean nations, has agreed to implement a common
external tariff over a period of six years, although members will be
able to maintain their own non-tariff barriers. The Central American
Common Market, originally established in 1961, was reinvigorated in
1990.
In addition to work in these sub-regional groups, Latin American
countries have participated in other trade negotiations, several of
which fall outside the FTAA framework. MERCOSUR, as well as some of the
other Latin American groups are engaged in ongoing negotiations with
the European Union. Also, Canada and Chile recently concluded a
bilateral trade agreement which does not involve the other two NAFTA
members. This occurred when Chile's accession to NAFTA, a key priority
of the United States, was temporarily forestalled by delay in passing
legislation to extend fast-track trade negotiating authority for
President Clinton. As a result of the 1997 pact between Canada and
Chile, U.S. exporters are at an 11 percent disadvantage in the Chilean
market vis a vis their Canadian competitors.
Western Hemisphere Trade Ministers held their first meeting under
the FTAA process in June 1995 in Denver, Colorado. At the third
ministerial meeting in Belo Horizonte, Brazil, in May 1997, Ministers
agreed that ``FTAA negotiations should be initiated in Santiago, Chile,
in April 1998'' when President Clinton will join other Western
Hemisphere leaders at the Second Summit of the Americas.
In announcing the hearing, Chairman Crane stated: ``The Santiago
Summit marks an important juncture in the path the United States has
chosen towards reaching a FTAA agreement by 2005. Challenges to
progress include the lack of fast track negotiating authority, and
concern that exclusive sub-regional negotiations, which do not include
the United States, may be detrimental to our interests. American
leadership in the region is particularly critical now. As the Santiago
Summit approaches, we must work to ensure that U.S. aims are adequately
represented in these historic talks which have the potential to affirm
and advance the expansion of freedom and prosperity in our
hemisphere.''
FOCUS OF THE HEARING:
The focus of the hearing will be to examine: (1) progress in the
FTAA negotiations and how these talks affect the national economic and
security interest of the United States, (2) prospects for the upcoming
Santiago Summit meeting, and (3) the status of existing sub-regional
trade arrangements in the Western Hemisphere. Testimony will be
received on specific objectives for the FTAA negotiations, the results
of the recent ministerial held in Costa Rica on March 19, 1998, and the
anticipated impact of expanding trade in the hemisphere on United
States workers, industries, and other affected parties.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Bradley Schreiber at (202)225-1721 no later than the
close of business, Wednesday, March 25, 1998. The telephone request
should be followed by a formal written request to A.L.Singleton, Chief
of Staff, Committee on Ways and Means, U.S. House of Representatives,
1102 Longworth House Office Building, Washington, D.C. 20515. The staff
of the Subcommittee on Trade will notify by telephone those scheduled
to appear as soon as possible after the filing deadline. Any questions
concerning a scheduled appearance should be directed to the
Subcommittee on Trade staff at (202)225-6649.
In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether they are scheduled
for oral testimony or not, will be notified as soon as possible after
the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Subcommittee are required to submit 200 copies of their
prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS
Text or WordPerfect 5.1 format, for review by Members prior to the
hearing. Testimony should arrive at the Subcommittee on Trade office,
room 1104 Longworth House Office Building, no later than 5:00 p.m.,
Friday, March 27, 1998. Failure to do so may result in the witness
being denied the opportunity to testify in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
single-space legal-size copies of their statement, along with an IBM
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1
format only, with their name, address, and hearing date noted on a
label, by the close of business, Tuesday, April 14, 1998, 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, at least one
hour before the hearing begins.
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 typed in single space on legal-size paper and may not exceed a total
of 10 pages including attachments. At the same time written statements
are submitted to the Committee, witnesses are now requested to submit
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS or
WordPerfect 5.1 format. 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, full address, a telephone number where the witness or the
designated representative may be reached and a topical outline or
summary of the comments and recommendations in the full statement. 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 releaes 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. And on
our schedule our witness was to be our colleague, Mr. Farr from
California, but we cannot find Mr. Farr. Wait 1 second. Oh,
here he is. All right, well. Then we will start with our
colleague, Mr. Farr. And, Mr. Farr, please take a seat, and try
to keep and your oral testimony, if you can, within the general
range of 5 minutes. All written material will be made a
permanent part of the record. And you may proceed.
[The opening statements follow:]
[GRAPHIC] [TIFF OMITTED] T6186.025
[GRAPHIC] [TIFF OMITTED] T6186.002
[GRAPHIC] [TIFF OMITTED] T6186.003
Opening Statement of Hon. Jim Ramstad, a Representative in Congress
from the State of Minnesota
Mr. Chairman, thank you for calling today's hearing to
discuss U.S. trade with Latin America and the Free Trade Area
of the Americas.
There exists a special relationship between the U.S. and
our fellow nations in the Western Hemisphere. While trade with
Latin America, excluding Mexico, currently accounts for only 7%
of total U.S. merchandise trade, we know the potential for
growth in this trade relationship is tremendous. Trade with
Latin America rose by 20% in 1997, making it the fastest
growing region for U.S. exports. When you include Mexico, trade
with the region is expected to surpass trade with Europe and
Japan combined by 2010.
Of course, this is our potential growth rate--and we must
take the appropriate steps to realize this goal, which will
contribute mightily to the U.S. economy and create more and
better paying jobs for U.S. workers.
We have been watching closely the many regional trade
agreements being negotiated in the region over the past few
years, most of which do not involve the U.S. While these
regional agreements certainly help the participating nations'
economies, I am worried about the lack of U.S. involvement. Of
course, many initiatives we would like to be negotiating are on
hold because we have not yet renewed fast track Authority.
fast track Authority is not only key to allowing our
participation in regional agreements, but it is crucial for the
success of the FTAA overall. The U.S. is, and should continue
to be, the leader in our Hemisphere. Without the authority the
administration needs to guide the direction of the
negotiations, I fear the agreements will not be as aggressive
as they could be to open markets for U.S. exports.
Yet, I have been told that the fourth ministerial meeting
held in San Jose earlier this month set the stage for a
successful launch of substantive negotiations at the upcoming
Santiago Summit. I am certainly interested in learning more
from Ambassador Fisher, Al Christopherson of the Minnesota Farm
Bureau Federation and others about the progress made at that
ministerial meeting, as well as what we can expect to happen at
the Santiago Summit.
Thank you again, Mr. Chairman, for calling this hearing. I
look forward to hearing from today's witnesses about the
importance and implications of U.S.--Latin American trade and
the FTAA.
STATEMENT OF HON. SAM FARR, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF CALIFORNIA
Mr. Farr. Thank you very much, Mr. Chairman. I'm sorry I'm
late, I ended up looking for B-318 in the Capitol, so it shows
how new I am to this place. [Laughter.]
I think the best way to try to bring this issue up is to
show you how twisted I think our policy is regarding Colombia.
Yesterday, on the floor, under the suspense calendar, there was
a short discussion about an appropriation that we were making
to Colombia of $36 million to buy three Black Hawk helicopters
to assist their military in drug eradication. That all comes
about because Colombia is still the largest grower and exporter
of drugs to the United States.
Our policy regarding Colombia probably started back in 1991
when we gave preferential tariff treatment under the Andean
Trade Pact Agreement, in which we intended Andean countries to
develop legal alternatives to drug crop cultivation. This
legislation that we adopted gave tariff-free status to a range
of goods, including cut flowers. Since 1991, however, the
number of hectares devoted to coca cultivation in Colombia has
steadily increased. Therefore, we've had to appropriate money
to assist them with helicopter purchases. We have, moreover--
the President of this country, for the third consecutive year,
has found Colombia uncooperative in its narcotic control
efforts, and failed to fully certify it. They gave a waiver of
national interest. This year, primarily, because it's an
election year in Colombia, and they wanted to be able to
maintain dialog with the Colombian Government.
How does this relate to what we're doing here today? Well,
since 1991, the Colombian flower growers, where we gave them
free entry of their product into the United States, and I might
add that we don't do this for any other country. Holland is the
second largest exporter of flowers to the United States and we
do charge them a tariff. The Colombians now have 70 percent of
the cut flower business in America. They have a $300 million
business.
What I'm asking for is essentially a little bit of fair
play. I'm for free trade. I voted for GATT. I voted for NAFTA.
But I'm also a supporter of fair trade. Tariffs should be equal
for everyone. We need a level playingfield. We charge tariffs
when we have products in this country that we make, and we try
to level the playingfield. They charge tariffs for products
they make. And, in fact, everything we export to Colombia, we
pay tariffs on: the machinery, the produce, the chemicals, the
oil, all pay a tariff of between 5 and 15 percent. Yet, we
allow Colombians to export flowers to the United States for
free.
I think trade agreements should also recognize and address
potential impact on domestic industries. And this is one where
we've failed. We're still involved in this drug problem with
Colombia, but we failed to analyze what the impacts have been
on our domestic products, and particularly, on our growers.
With regard to the Andean Trade Pact--no one has taken a look
at it until you, Mr. Chairman. We are beginning to ask these
questions that have gotten us to the table.
The number of American flower growers has fallen 60 percent
since 1989. California flower growers go out of the business at
a rate of 10 percent a year. Cut flowers are now Colombia's
fifth largest export. The dollar value in Colombian cut flowers
imports has increased from $88 million in 1992, as I said, to
$442 million in 1997, a fivefold increase. The Colombian cut
flower industry currently controls 65 to 70 percent of the
United States import market. The next largest importer, as I
said, is Holland which only has 12 percent.
So we have to fix something that's broken here. It just
isn't working, and I urge the Subcommittee to end this unfair
flower trade by passing H.R. 54, and to consider the effect of
the ATPA, the Andean Trade Pact Agreement, when it considers
future trade agreements, like Free Trade Area of the Americas.
And let's just try to make some sense out of the kind of
chaos of what's going on here between 1 day allowing all of
these flowers in free. I was a Peace Corps volunteer in
Columbia, so nobody loves Colombia more than I do. I think it's
a great country, love the people there, and a lot of the people
I know are in the flower business. They have a mature business
now. This isn't 1991. This is 1998, and they have 70 percent of
the American market. Is a tariff going to kill the market?
Absolutely not. Are they still going to be competitive in
America? Absolutely. But it makes no sense that they have this
unfair advantage just so that when we go to Colombia, we have a
business interest that we can talk to about the internal
politics.
That's what's happening, the external foreign affairs of
this country are being heard by the White House, and the
internal economic devastation by that foreign policy is being
ignored. The only way we can correct it is for Congress to act.
We have the ability to level the playingfield. I think by our
actions of yesterday, and this hearing today, we have the
opportunity to do that. I urge this Subcommittee to do it--take
a look at the legislation--it has bipartisan cosponsors, it
affects many parts of America, and all the States that you
gentleman represent.
Thank you very much. I would be glad to answer any
questions you might have.
[The prepared statement follows:]
Statement of Congressman Sam Farr, a Representative in Congress from
the State of California
Mr. Chairman, Members of the Subcommittee, thank you for
holding this hearing on the progress of Free Trade Area of the
Americas, the prospects of the Santiago Summit meeting, and
existing trade agreements in the Western Hemisphere. I
appreciate you giving me the opportunity to testify before you
today on a failed foreign policy, the Andean Trade Preference
Act.
I would like to reiterate, as I did when I testified last
year, that I support free trade. I come from a state that
remains the nation's largest producer of agricultural products
and the nation's leader in exports, so I understand the need
for free and open markets. The 17th District of California,
which I represent, has proven itself innovative and
resourceful, becoming one of the fastest growing exporters in
the country. It is within this context of innovation and
resourcefulness that I support free trade. In addition to good
economic sense, it strengthens ties between countries and
encourages the flow of information, knowledge, and
understanding.
As a Peace Corps volunteer in Colombia I learned that Latin
America was a strong and diverse region, and its economic
potential was only just beginning to make itself felt. I look
forward to a positive outcome from the upcoming Summit in
Santiago. Properly structured, the Free Trade Area of the
Americas (FTAA) could have tremendous economic, social, and
political benefits. However, we are at a crossroads for trade
between North, Central, and South America. Now is the time when
we need to examine problems with other trade policies in the
region, and that is why I am here today.
As I mentioned, I support free trade. I also support fair
trade. As the Subcommittee considers the issue of trade in the
Americas, and specifically the FTAA, it should review the
impact of a trade agreement already on the books--the Andean
Trade Preference Act. The ATPA has given one-sided trade
benefits to several South American countries and has caused
considerable hardship to at least one domestic American
industry: cut flowers. The ATPA simply provides Colombian
flower growers an unnecessary edge in a market they already
dominate to the detriment of domestic flowers growers. The
International Trade Commission acknowledged in 1995 and 1996
that the ATPA has had a greater impact on the U.S. fresh cut
flower industry than any other market examined.
Since enactment in 1991, the Andean Trade Preference Act
(ATPA) has provided duty-free access to the U.S. market for
flower exporters in four Latin American countries: Colombia,
Bolivia, Ecuador, and Peru. For seven years it has allowed
flower growers in these four countries to avoid tariffs
normally imposed on their product, tariffs ranging from 3.6% to
7.4%.
The purpose of this preferential treatment was intended to
encourage Andean countries to develop legal alternatives to
drug crop cultivation and production. However, coca eradication
efforts to date in Colombia have been less than anticipated.
This policy has failed. For the third consecutive year Colombia
has failed in its efforts to be fully certified or reduce the
production of illegal drugs. In order to maintain an open
dialogue the Administration recently made the determination to
put forward a national interest waiver with respect to
Colombia. The results in Colombia are particularly
disheartening, given that eradication is generally a bilateral
effort in which the United States supplies the funding, fuel,
and herbicides with the host government providing the
personnel.
Cultivation of coca, the raw material used to make cocaine,
has dropped significantly in all of the Andean region except
Colombia. The Colombian coca crop expanded more than 30% from
1996 to 1997, from almost 51,000 hectares to over 67,000
hectares. Colombia now has the distinction of producing 80% of
world's cocaine and over 70% of the cut-flower imports into the
United States.
The latter has resulted in a steady weakening of the
American flower industry. Since the enactment of ATPA, the
number of American chrysanthemum growers has fallen by 25%, the
number of carnation growers has fallen as by much as one-third
and the remaining major commercial types have fallen in the
double-figure range as well.
Last session, Congressman Tom Campbell and I introduced
legislation, which has now garnered the support of 42
cosponsors, to repeal the preferential tariff treatment
provided by the ATPA. H.R. 54 would restore tariff levels to
the pre-ATPA levels of 3.6% to 7.4%. This will help to level
the playing field that our growers are currently forced to
compete on. Colombia growers will still have many advantages
over their American counterparts. This legislation would end an
ineffective drug control policy and restore a level playing
field for the American cut-flower industry.
An additional concern that was not addressed is of an
environmental and health nature. Imported flowers have a large
advantage over domestic producers because they can use a much
broader range of chemicals than those that are allowed in the
United States, yet still compete in the same markets. In other
countries flower growers have no rules, no registration
requirements, and no enforcements on the chemicals they use.
When flowers arrive from other nations there is little or
no screening for pesticide residue. Out of sight means out of
mind. This unchecked practice on imports could have significant
implications for our planet. By not imposing the same chemical
restrictions on imports, the United States is making domestic
flower producers non-competitive, allowing global pollution,
and possibly endangering public health and safety.
The following is just a partial list of chemicals used by
foreign growers that are unavailable to domestic growers:
Pyramore, Afugan, Nomolt, Nack, Methanil, Lanate, Oxanil,
Vidate, DDDP, Actellic, Qinalphos, Applaud, Azodrin, Kartap,
Hostathion, Sulprofos, Curacron, Carzol, Plictran, Bendiocarb.
There are many other chemicals with no scrutiny, no
restrictions, no enforcement, and no residue testing. Imported
growers could even use DDT and get away with it. With the
upcoming implementation of the Food Quality Protection Act
(FQPA) the inequity will grow even more extreme.
In closing, the American flower growers are in a unique
situation. They are the economic poster child for a failed
trade policy and the sacrificial lamb in a failed foreign
policy war to end drug trafficking.
Chairman Crane. Thank you, Sam. And I was going to say we
have a stacked deck up here, but I see there are some that are
not from California. [Laughter.]
And I would like to yield first to our distinguished
Ranking Minority Member, Mr. Matsui.
Mr. Farr. All the flower growers in Florida are affected by
this policy. [Laughter.]
Mr. Matsui. I want to thank the Chairman for yielding. Sam,
do we have any statistics? I was just talking to staff, and I
want to refresh my memory. In 1991 when this agreement was
reached by the administration, the idea was to reduce the
acreage of drugs and increase the acreage of flowers, and over
time it was supposed to reduce significantly the drug
production. It may be difficult to get statistics on illegal
activities from Colombia, but do we have statistics in that
particular area?
Mr. Farr. Yes, we do.
Mr. Matsui. Can you recite them, if you have them?
Mr. Farr. The reason for this trade pact, remember, the
underlying reason was to support drug eradication by moving
from an elicit crop to a legal crop, and allowing the legal
crop to come in. Drug cultivation in Colombia has grown by 55
percent since 1991. The amount of coca that escapes eradication
has grown by 35 percent since the ATPA became law in 1991. So,
we're missing on both sides. They are not eradicating the crop
internally, and the number of hectares in production has grown
by 55 percent--doubled.
Mr. Matsui. I understand that our domestic industries have
initiated some antidumping actions. And, of course, they
haven't been successful. And I don't know if that's necessarily
the appropriate approach because I think the original purpose
was to trade off one type of production for another. And if
it's not working, we obviously need to reexamine that policy,
and it would be my hope that we do that, put a little
pressure----
Mr. Farr. We have done antidumping suits, and, as you know,
they're very expensive. They're essentially very costly to a
small business industry that we have of flower growers. We have
won those suits but that doesn't really give you much remedy.
The other problem we're going to be facing soon is this country
has dealt very stiff tolerance levels for herbicides and
pesticides that are on imported fruits and vegetables. And we
do a lot of testing of that because we don't allow those
commodities to come into the United States in violation of our
excepted tolerance levels. We don't have any kind of testing
for flowers, and they'd use some of the stuff that we outlaw in
this country.
Mr. Matsui. I think your comments are well taken, and
certainly I'd like to work with the Chair in order to see if
any further action should and can be taken, and I appreciate
this.
Mr. Farr. I appreciate this Subcommittee's tough situation.
A lot of people come here and sort of do this, you know,
protectionism. I don't think it's protectionism. This is where
we made some policy on the assumptions. And that's why I wish
Tom Campbell were here, because he's very good--he was here and
voted for that bill. And he voted at the time, and he's changed
his position on it, because he thinks the intent of that bill
has been totally thwarted.
Mr. Matsui. Let me say this, I agree with you that this
isn't protectionism you're seeking. What I'm suggesting is that
if we made this original decision on foreign policy--for a
foreign policy reason, and that foreign policy isn't working,
then we have to reexamine this. So, I thank the Chairman. I
thank you for your testimony.
Mr. Farr. Thank you.
Chairman Crane. Mr. Thomas.
Mr. Thomas. Very briefly, Sam, the fact that you're back in
front of us again, I think, underscores the naivety that we
have in terms of economics and dealing with our Western
Hemisphere. I know it's important to you. I know it's important
to a couple of congressional districts, cut flowers. Obviously,
we come from a State in which specialty agriculture is affected
in a number of different ways. This, and I don't mean to
belittle it, pales in relationship to some of the other
specialty crops in other parts of the world; almonds, for
example, with the Europeans, raisins, as well as cut flowers.
The point I'm trying to make is that if you're still a
victim of someone thinking that by knocking down a tariff on
cut flowers, we could stem the cocaine trade to the United
States, we're pretty naive. In the way in which we're trying to
build a foreign policy, and a trade package, your leaving off
the discussion on South American, Central American, Latin
American trade. I do want to put it in perspective. It's
important to you, and therefore, it should be focused on. But
when we're looking at the larger trade practices, what has
occurred to you has more often than not been passed off as our
policy, which is unfortunate. And that we ought to look at a
far more sensible, comprehensive program than to pick and
choose these kinds of areas to punish or reward. Because I
think at this date, we should have learned that when we try to
mess with fundamental economic relationships as a punishment or
a reward, after you've done it for some really good reason,
several years later no one can remember why it was that we did
it.
So you've been helpful in reminding us of why we did it,
and more importantly, why we shouldn't do this sort of thing
again. My hope is that you won't appear before us again,
because we will have solved your problem in the larger solution
of a rational policy within the hemisphere.
Thank you very much.
Mr. Farr. Thank you, and you remember that with the
commodities that you're interested in, there are other
criteria, there's truth in labeling.
Mr. Thomas. Surely.
Mr. Farr. We don't label flowers, where they come from.
There are tolerance levels which we test for on edible
commodities. There's no testing on flowers. So this is a
specialty crop that has been given this incredible special
privilege. If you just made sense, and said well, let's charge
a tariff on these flowers, and let's earmark that money to turn
around and use it for drug eradication. At least it would go
back to Colombia, or assistance to Colombia. But here they've
got both. They're getting the flowers in, putting our guys out
of business----
Mr. Thomas. Yes.
Mr. Farr [continuing]. And then we turn around and buy them
helicopters.
Mr. Thomas. But I would tell the gentleman that his
solution is a compounding of the problem if we were to run the
tariff, and then give it back. The solution is in the larger
context, and your continuing to remind us of mistakes that
we've made in the past hopefully will speed up the eradication
of this and other attempts to link policy with trade.
Thank you.
Chairman Crane. Mr. Camp. Mr. Ramstad. Mr. McDermott. Well,
if not, we thank you again, Sam. And the comments that were
made by Mr. Matsui and Mr. Thomas, I think, hit responsive
chords with Members of the Subcommittee. And the question I was
just putting to Mr. Matsui is, How, when its food products are
coming in here, we're so paranoid about the use of chemicals in
raising food crops that can be injurious upon consumption, and
yet we don't apply the same standards with other products? You
have a list on the back of your last page of testimony that's
illustrative of this. We hope we can address that.
Mr. Farr. Thank you very much, Mr. Chairman. I appreciate
the patience of the Subcommittee, and for my Florida
colleagues, who receive most of the business from the imports,
their flower growers are in support of this bill.
Chairman Crane. Very good. Thank you, Sam.
I want to now warmly welcome our new Deputy U.S. Trade
Representative, Richard Fisher, to the Subcommittee for the
first time. On behalf of my colleagues, we are impressed with
your background and appreciate your willingness to serve in
this important capacity as USTR.
You are joining the U.S. negotiating team at a critical
time for the FTAA negotiations. The recent trade ministerial
meeting in San Jose set the stage for an official launch of the
negotiations on April 18 in Santiago, Chile, where President
Clinton will join 33 Western Hemisphere heads of state.
I cannot overstate my frustration and disappointment that
the President will attend this summit without the authority
that his counterparts have to negotiate trade agreements. All
Americans need to consider the costs involved in having our
head of state participate in an important international meeting
without the fundamental tools he needs to strike the best deal
possible for U.S. interests. There is no doubt the recent delay
in passing fast track trade negotiating authority lessens the
strength of U.S. leadership in the FTAA process. It opens doors
for other countries to exert additional influence in these
historic negotiations.
In order to recover from the setback we suffered, it's
essential that the USTR get back in the game with an ambitious
trade agenda that refuses to abdicate the traditional U.S. role
of world leader. While the recently announced Transatlantic
Initiative with Europe has interesting possibilities, I must
confess I'm struck with how the United States is beginning to
fall into a reactive posture. We are positioning ourselves so
that we are only able to respond to trade agendas developed in
Brussels, or in the case of the FTAA, in Brazil. This is not
the role we have played historically in trade negotiations, and
it's not a role with which any of us, Republicans or Democrats,
should be comfortable.
Sadly, there is the danger that the agenda of our MERCOSUR
trading partners to go slow in the FTAA talks in order to
consolidate their own regional trade organization, may win the
day in Santiago.
I urge you, Mr. Fisher, to do everything possible to ensure
that the FTAA talks are launched with enough momentum to
achieve real tangible trade liberalization by the turn of the
century. In my view, this should include an airtight stand-
still commitment not to increase levels of trade protection in
the region. I also challenge you to bring back an accord from
Santiago that will pave the way for concrete progress in the
areas of transparency, harmonization of standards, and tariff
reductions before the year 2000.
It's clear to me that interim agreements are necessary to
maintain momentum in the FTAA process. Absent an ambitious
agenda, I'm afraid that the interests of the private sector in
the FTAA negotiations will fade, making it much more difficult
to garner the votes necessary to pass fast track.
I look forward, Mr. Ambassador, to hearing your plans for
the FTAA summit, and to the testimony of the private sector
witnesses on the two panels that will follow.
And now I'd like to yield to our distinguished Ranking
Minority Member of the Trade Subcommittee, Mr. Matsui.
Mr. Matsui. Mr. Chairman, I happen to agree with everything
you're saying and as a result of that, I'll just submit my
statement for the record.
Thank you.
[The prepared statement follows:]
[GRAPHIC] [TIFF OMITTED] T6186.004
[GRAPHIC] [TIFF OMITTED] T6186.005
Chairman Crane. Thank you. You may proceed, Mr. Secretary.
STATEMENT OF HON. RICHARD W. FISHER, DEPUTY U.S. TRADE
REPRESENTATIVE, OFFICE OF U.S. TRADE REPRESENTATIVE
Mr. Fisher. Thank you, Mr. Chairman. Mr. Chairman, Members
of this Subcommittee, I'm honored today to discuss the progress
with you that we have made toward constructing a Free Trade
Area of the Americas.
As you mentioned, this is my first appearance before this
Subcommittee as Deputy U.S. Trade Representative. I want to
tell you at the outset here that I consider it a privilege to
be here before you, and I greatly appreciate this invitation to
discuss this important initiative with you.
Chairman Crane. Well, we recognize, Mr. Ambassador, that
you may be appearing here for the first time, but you have
strong, powerful input from back home.
Mr. Fisher. Well, thank you, Congressman, I appreciate
that. [Laughter.]
Chairman Crane. For those of you that aren't aware, his
better half is the daughter of Jim Collins, a former colleague
from Dallas that we served with for a number of years.
Mr. Fisher. You're right, ``better half'' by more than
half. [Laughter.]
We'll see how much I learned, Congressman.
As you know, Mr. Chairman, this administration, the Clinton
administration, is committed to opening up markets in the
Western Hemisphere, and our objective is to create a free trade
area that stretches from Nova Scotia to Tierra del Fuego. And
our aim is to raise the standard of living and improve the
working conditions of all the people of our hemisphere.
I think it's important to take note that the Western
Hemisphere is now the largest destination for U.S. exports of
goods. Over 40 percent of total U.S. merchandise exports went
to this region in 1997. U.S. exports to the region grew three
times faster last year than exports to the rest of the world.
And these export increases in 1997 accounted for two-thirds of
the export growth of the United States worldwide. This warrants
repeating, Mr. Chairman. U.S. exports to our Western Hemisphere
partners grew by $42 billion last year. That accounted for 63
percent of U.S. export growth worldwide.
United States exports to Latin America, Mexico, and the
Caribbean in the second half of 1997 exceeded our exports to
the European Union countries. And Mexico has now surpassed
Japan to become our second largest export market, behind
Canada, which is our largest market to the north, as you well
know.
These impressive trade statistics are driven by a dramatic
reorientation of trade policy in Latin America. In some
instances, the changes in policy that have occurred in the
southern half of the hemisphere, I believe, are as
revolutionary as those which have occurred in Eastern and
Central Europe at the beginning of this decade.
As democracy has spread through the Americas, so has a
growing confidence in marketplace economics. Market-driven
policies, open trade, greater transparency, as you referred to
earlier, in rulemaking and regulation, increased privatization,
sound fiscal and monetary policies, and efforts by the private
sector to increase competitiveness have led to faster economic
growth, lower inflation, and expanded opportunities.
This administration believes it is in the interest of the
United States to maintain this momentum toward economic
prosperity in Latin America, and we believe that the FTAA is an
essential and vital tool for doing so.
Since the Miami Summit of the Americas 3 years ago, trade
ministers of the 34 countries of the hemisphere have been hard
at work laying the groundwork for the FTAA, or ALCA, as it is
known in its Spanish acronym.
This work of building a foundation for the FTAA reached its
culmination a week and a half ago in San Jose, Costa Rica. In
San Jose, the ministers, the trade ministers of the 34
countries involved, unanimously approved a structure and a plan
to have their heads of state initiate negotiation of the FTAA
during the upcoming summit meeting in Santiago, Chile, on April
18 and 19. They provided recommendations on the initial
structure of the FTAA, its objectives, its principles, and the
venues for negotiations.
It was agreed that the United States will provide the venue
for negotiating groups and the administrative secretariat of
the FTAA for the first 3 years in Miami, Florida. There will be
nine initial negotiating groups. These groups will cover market
access, investment services, government procurement, dispute
settlement, agriculture, intellectual property rights,
competition policy, and subsidies antidumping and
countervailing duties. Each of these nine groups will be
chaired by a different country, and they will rotate the
chairmanship of these groups every 18 months. The United
States, by the way, initially will chair the government
procurement group.
The negotiating group structure, incidentally, Mr.
Chairman, is flexible so that it can be modified as required to
ensure continued progress in the negotiations. The overall
leadership for the FTAA was also established in San Jose with
Canada in the chair for the first 18-month period, and the
United States cochairing with Brazil, the final 2 years of the
negotiations.
The Chairman will head the ministerial meetings, in what is
known as the Trade Negotiating Committee, which is comprised of
34 vice ministers of trade, including the witness sitting
before you, who will have the responsibility for oversight of
the nine negotiating groups I referred to earlier. Thus, the
negotiating groups will report to the vice ministers of the
Trade Negotiating Committee who will, in turn, report to their
ministers.
It was decided in San Jose that, subject to approval by the
heads of state in Santiago, the Trade Negotiating Committee--
this group of vice ministers--will begin its work by June 30,
1998. And the negotiating groups, the nine groups that I
mentioned, will meet by no later than September 30 of this
year.
There are other aspects of the San Jose declaration that I
think are important and I'd like to bring to your attention
here. The first is an establishment of a Committee on Civil
Society. One of the greatest threats to hemispheric trade
integration is not the difficulty of the negotiations per se,
but the apprehension of our respective civil societies--that is
our nongovernmental private sectors--about the negotiating
process. And, thus, for the first time in any large trade
negotiation, we have created a Committee reporting directly to
the ministers to receive input from business, labor, and
environmental groups, academics, consumer, and other noncentral
government interests.
The second aspect I'd like to bring to your attention is
the establishment of a Committee on Electronic Commerce. This
Committee will be composed not just of government officials,
but also of private sector experts, to develop the rules of
electronic commerce in the hemisphere. I hasten to add, Mr.
Chairman, that the electronic medium is not a new subject for
the FTAA, and we have throughout this process used the
Internet. We even have a home page, www.ac-la-ftaa.org, which
includes all the products of the FTAA working groups, in all
four languages of the hemisphere, so it will be transparent to
the various cultures of our hemisphere.
In addition to securing transparency for the negotiations,
another key objective, which we achieved in San Jose, is that
the FTAA would not simply add yet another set of rules for
business to contend with. We reached consensus that the
bilateral and the subregional agreements, such as MERCOSUR, and
the Andean Community Pact, can coexist with the FTAA only to
the extent that the rights and obligations under those
agreements are not covered by, or go beyond those, of the FTAA.
We agreed that the FTAA should improve upon WTO rules and
disciplines, and in this way, we seek to ensure that we will
reach a final comprehensive deal that breaks down the most
serious trade barriers in the regions, and does not merely
reiterate the accomplishments obtained at the end of the
Uruguay round.
Let me summarize, Mr. Chairman, the most important
objectives for the United States in the FTAA. They are as
follows: To progressively eliminate tariffs, which I wish to
remind you, are four times higher in the hemisphere than they
are here in the United States; to progressively eliminate
nontariff barriers, as well as other measures with equivalent
effects which restrict trade; to bring under great discipline
trade distorting practices for agricultural products, including
those that have effects equivalent to agricultural export
subsidies; to promote customs mechanisms and measures that
ensure operations are conducted with transparency, efficiency,
integrity, and accountability; to develop an efficient and
transparent system of rules of origin, including nomenclature
and certificates of origin; to eliminate and prevent
unnecessary technical barriers to trade; to liberalize trade in
services; to ensure adequate and effective protection of
intellectual property rights; to guarantee that the benefits of
the FTAA liberalization process are not undermined by
anticompetitive business practices; to establish a fair and
transparent legal framework for investment and related flows;
to make our trade liberalization and environmental policies
mutually supportive; and to further secure the observation and
promotion of workers' rights by renewing the FTAA countries'
commitments to the observance of internationally recognized
core labor standards.
Mr. Chairman, let me conclude by saying that achieving a
successful FTAA is very much in the interest of the United
States. As you know, and you have been a champion of this
cause, trade drives this economy. There is no greater trading
nation than the United States of America. Thirty-eight percent
of our GDP growth in the last 5 years has come from exports.
Trade was a source of a significant portion of the 14 million
jobs that our economy has created in the last 5 years.
Today, we have the strongest economy in the world, and the
best balanced economy in the world. As you know, it's the best
balanced in decades. We're enjoying growth without inflation,
we have the lowest unemployment we've had in 30 years, and yet,
even in these prosperous times, Mr. Chairman and Members of the
Subcommittee, the people of America have one overriding
concern, which is their financial security.
Yesterday, Mr. Chairman, I received from the Investment Co.
Institute data that show that 65 million Americans, 65 million
Americans, have now tied their financial security to their
ownership of America's companies through their equity mutual
fund investments. These investors are blue collar workers,
they're farmers, they're white collar computer experts. They're
women, as well as men, and they are of all races and creeds.
These are your constituents, and the constituents of this
Congress. The growth and security of employer-sponsored
retirement funds, Individual Retirement Accounts, 401(k)
accounts, and all the other mutual fund holdings of some 37
million American households, over 65 million individuals depend
on the growth of earnings of U.S. companies competing in the
global marketplace. To generate these earnings, companies have
to grow. In order to grow, they need to expand their
businesses, and expand their sales. And that requires expanding
markets, expanding the volume of exports of goods and services,
to maintain and increase the prosperity and financial
securities of our citizens.
Latin America is the premier growth area in the world
today, and it is important that we continue to open up markets
to U.S. goods and services in our own hemisphere. As our
economy grows, as our neighbor's economies grow, the expansion
of trade on both sides will help to perpetuate the growing
prosperity that benefits all of our peoples.
To this end, we believe the FTAA is an important
undertaking worthy of your congressional support.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. Richard W. Fisher, Deputy U.S. Trade Representative,
Office of the U.S. Trade Representative
Thank you, Mr. Chairman and Members of the Committee. It is
a great honor for me to be here to share with you the progress
that we have made in constructing the Free Trade Area of the
Americas (FTAA) and to discuss reasons that it makes so much
sense for us to negotiate the FTAA.
Free Trade Area of the Americas
When President Clinton and his counterparts in the 33
democratic countries in the Hemisphere met just a little over
three years ago in Miami, they recognized that the prosperity
of the 750 million people in our hemisphere depends on
continued growth in trade among us. They also understood that
trade would expand only if we continue to build upon the market
opening measures that already were being undertaken in the
Western Hemisphere. They agreed, therefore, to move forward
from the Uruguay Round and to go beyond the existing bilateral
and sub-regional free trade agreements. They committed our
countries to a revolutionary vision of open markets across the
continents of North and South America--creating a free trade
area that would raise our standards of living, improve the
working conditions of our peoples and better protect the
environment in the Americas.
The Dynamism of the Western Hemisphere
The Miami vision of an entire hemisphere moving
cooperatively toward greater prosperity is being realized. The
Western Hemisphere has been a truly dynamic region over the
last three years. It has become the largest regional
destination for U.S. exports of goods--over 40 percent of total
U.S. merchandise exports went to the region in 1997.
U.S. exports to the region grew 17.4 percent last year,
compared to 5.65 percent growth to the rest of the world. These
export increases accounted for two-thirds of U.S. export growth
worldwide in 1997. This warrants repeating, Mr. Chairman: U.S.
exports increased by $42 billion to our trading partners in the
Western Hemisphere, and accounted for 63 percent of U.S. export
growth world-wide last year. U.S. exports to Latin America
(including Mexico) and the Caribbean in the second half of 1997
exceeded our exports to the European Union. And Mexico
surpassed Japan to become our second largest export market.
One of the principal reasons that we are experiencing this
expansion of trade with Latin America is their dramatic
reorientation in trade policy. In some instances the changes in
policy are as revolutionary as those which occurred in Eastern
and Central Europe at the beginning of this decade.
Even as countries in our region have been tested by
economic and political pressures and even as countries in other
regions have experienced serious economic setbacks, the overall
course in the Western Hemisphere has been one of faster
economic growth, lower inflation, expanded opportunities, and
growing confidence in facing the global marketplace. A major
reason for this positive record has been our countries'
steadfast and cooperative efforts, striving for more open
trade, greater transparency in economic regulations, increased
privatization, sound macroeconomic policies, and efforts by the
private sector to increase its competitiveness. It is important
to continue the forward momentum that has distinguished this
Hemisphere. There is a consensus among the 34 countries that
the FTAA is an essential ingredient in maintaining that
momentum.
Americans' Stake in Trade Expansion
Even with this positive outlook in the Americas, however,
there continues to be apprehension among our peoples about the
road forward, and there is a lack of clarity about the benefits
that will result from the monumental undertaking that was
envisioned by President Clinton and the other 33 leaders in
Miami. It's ironic because our economy today is one of the most
prosperous in decades. Unemployment has fallen to the lowest
levels in nearly 25 years. Our economy created over 14 million
jobs in the last five years, over 1.7 million alone in the past
six months. And yet our citizens as ``Free Trade.'' The idea of
``opening other markets'' is too nebulous. To simply say that
tariffs are four times higher in the rest of the Americas
compared to the United States does not somehow resonate. The
essential question is: what does this all mean to your
constituents? How do we make clear that international trade has
played an enormous role in our economic expansion? We know that
economists tell us thirty-eight percent of our GDP growth in
the last five years has come from exports. If we had given up
on trade five years ago, how much of that thirty-eight percent
would we have given up? How many of these 14 million jobs would
we have failed to create? When times are good, these questions
seem too academic.
Yet, even in these prosperous times, the people of America
have one overriding concern: their financial security.
Yesterday, Mr. Chairman, I received from the Investment Company
Institute data that shows that 65 million Americans have now
tied their financial security to their ownership of America's
companies through equity mutual fund investments. These
investors are blue-collar workers and farmers as well as white-
collar computer experts. They are women as well as men, and
people of all races. These are your constituents. The growth
and security of employer-sponsored retirement funds, Individual
Retirement Accounts, 401K accounts, and the other mutual fund
holdings of some 37 million American households all depend upon
the growth of earnings of U.S. companies competing in the
global marketplace. To generate those earnings, companies have
to grow. In order to grow, they need to expand their businesses
and increase their sales. And that requires expanding markets
and expanding the volume of exports of goods and services into
the future to maintain and increase the prosperity we know
today.
Latin America is the premier growth area in the world
today. It is important that we continue to open up markets to
U.S. goods and services in our own Hemisphere. As our economy
grows and as our neighbors' economies grow, the expansion of
trade on both sides will help to perpetuate the growing
prosperity that benefits all our peoples. The greatest threat
to this progress comes from a loss of public confidence in
trade liberalization and market opening negotiations. We must
reconcile public expectations with the economic necessity of
moving forward.
The decisions taken at the San Jose Trade Ministerial just
a week and a half ago bode well for continued progress. The 34
countries in the Western Hemisphere have built the foundation
of this ambitious undertaking called the Free Trade Area of the
Americas during the course of the last three years. The
governments have completed the preparatory work that is needed
in advance of any negotiation, namely, developing information
on each other's international trade regulations and practices;
identifying the range of interests among the 34 participants;
and developing a sense of common purpose about the construction
of the FTAA. The Ministers refined that work to ensure that, by
their meeting earlier this month, they would be in a position
to recommend the initiation of those negotiations by the
Leaders at the upcoming Summit of the Americas in Santiago,
Chile, in April. A Free Trade Area of the Americas among the 34
Western Hemisphere countries was unthinkable even a mere ten
years ago. But we and the other 33 countries have kept faith
with the vision of Miami and now are ready to move into the
negotiating phase of the FTAA.
Initiation of Negotiations
In keeping with the cooperative effort of the last three
years, the 34 Ministers responsible for Trade in the Hemisphere
met a week and a half ago in Costa Rica to formulate the
initial framework for the FTAA negotiations. The Ministers
unanimously recommend that the Leaders initiate negotiations of
the FTAA during the Summit meeting in Santiago. They provided
recommendations on the initial structure, objectives,
principles, and venues of the negotiations. This unanimous
decision is as important as the Leaders' mandate three years
ago to begin this undertaking. For the 34 Leaders to get
together again within a few short years and have a unanimous
plan presented to them, with not only a structure, but
leadership shared among countries from all regions in the
Hemisphere is a phenomenal achievement.
The United States achieved its key objectives at that
meeting: ensuring a comprehensive and successful launch of
substantive negotiations could be made at the Santiago Summit,
making important progress on labor and environmental issues
within the FTAA, and playing a central leadership role in the
FTAA. As a result of the San Jose Ministerial, there will be a
credible negotiation launched by the Leaders in Santiago on
April 18-19.
The San Jose Declaration is comparable to the 1986 Punta
del Este Declaration that initiated the Uruguay Round
negotiations. The United States will provide the venue for the
negotiating groups and the administrative secretariat
supporting those meetings for the first three years in Miami. A
structure with leadership determined through end of
negotiations in 2005 was established, with the United States
serving as one of the co-chairs during the endgame of the
negotiations. Canada, our neighbor, will be the Chair of the
overall process for the first 18 months. The Chairman of the
overall FTAA process will head both the Ministerial and the
Trade Negotiations Committee (TNC), which will provide the
overall direction and management to the negotiations. The
Ministers, confident that their Leaders will approve the
negotiating plan forthwith at their Summit meeting, set the
date for the TNC's first meeting for no later than June 30,
1998. The TNC will be comprised of the 34 Vice Ministers for
Trade.
The Ministers decided to start with nine negotiating
groups, which cover all the areas identified by the Leaders at
their Miami meeting in 1994, thus beginning negotiations
simultaneously in all these substantive areas. They also
recognized that this structure will be changed over time; they
indicated that the negotiating structure would be flexible so
that it could be modified as required to ensure continued
positive progress in the negotiations. Again, we were able to
reach consensus on setting a date for the initial meetings of
the Negotiating Groups--no later than September 30, 1998.
We also were able to achieve the establishment of a
Committee on Electronic Commerce, comprised of both government
and private sector experts, to make recommendations on how to
increase and broaden the benefits to be derived from the
electronic marketplace. For the first time in the FTAA process,
we have a created a joint government-industry group. This is in
keeping with one of President Clinton's main principles in this
area, having the private sector lead in developing the rules of
global electronic commerce. This expert committee will look at
the range of issues in this area and then report back to
Ministers with recommendations on the approach that should be
taken.
Of course, the electronic medium is not a new subject for
the FTAA. Throughout the preparatory stage of the FTAA, we have
used the Internet to provide greater transparency to the
process. The FTAA Homepage (www.alca-ftaa.org) includes all of
the final products of the FTAA Working Groups--in all four
official languages of the hemisphere.
One of the greatest threats to hemispheric integration is
not the difficulty of the negotiations but the apprehension of
our respective civil societies about the negotiating process.
The 34 Ministers were highly cognizant of this fact at the
meeting last week. Thus, for the first time in any large trade
negotiation, we have created a Committee on Civil Society. This
is a major step forward in the FTAA process. The Committee will
receive input at the hemispheric level directly from business
and labor and environmental groups, and academic, consumer, and
other nongovernmental interests. The Committee will analyze
that advice, and then provide recommendations directly to the
Ministers. We expect the organizational details of this
committee to be worked out at the first meeting of the TNC this
June. Establishing such a committee ensures that all
stakeholders will have direct access to the FTAA process, with
Ministerial consideration of their views. There is now a
recognition in the Hemisphere that there has to be a process
related to labor and environmental issues that ensures
transparency in the FTAA negotiations and that allows for the
views of all members of civil society to be considered in those
negotiations.
Principles and Objectives of the Negotiations
In addition to transparency during the negotiations,
another key objective which we achieved is that the FTAA would
not simply add yet another set of rules for business to contend
with. We reached consensus that the bilateral and sub-regional
agreements (such as MERCOSUR and the Andean Community) can
coexist with the FTAA only to the extent that the rights and
obligations under those agreements are not covered by or go
beyond those of the FTAA. The FTAA seeks to provide a single
set of rules throughout the hemisphere.
In addition, we agreed that the FTAA should improve upon
the WTO rules and disciplines, wherever possible and
appropriate. In this way, we will ensure that we reach a final
comprehensive deal that breaks down the most serious trade
barriers in the region and does not merely reiterate the
accomplishments attained at the end of the Uruguay Round. We
aim for the FTAA Agreement to be a balanced, comprehensive,
state-of-the-art Agreement. The outcome of the negotiations
will be a ``single undertaking'' in the sense that signatories
to the final FTAA Agreement will have to accept all parts of it
and cannot pick and choose among the obligations to which they
will adhere.
Among the most important objectives from the standpoint of
the United States are:
To progressively eliminate tariffs, which are four
times higher in the Hemisphere than those of the U.S.
To progressively eliminate non-tariff barriers, as
well as other measures with equivalent effects, which restrict
trade.
To bring under greater discipline trade-distorting
practices for agricultural products, including those that have
effects equivalent to agricultural export subsidies.
To promote customs mechanisms and measures that
ensure operations are conducted with transparency, efficiency,
integrity, and accountability.
To develop an efficient and transparent system of
rules of origin, including nomenclature and certificates of
origin.
To eliminate and prevent unnecessary technical
barriers to trade.
To liberalize trade in services to achieve a
hemispheric free trade area under conditions of certainty and
transparency.
To ensure adequate and effective protection of
intellectual property rights, taking into account changes in
technology.
To guarantee that the benefits of the FTAA
liberalization process are not undermined by anti-competitive
business practices.
To establish a fair and transparent legal
framework for investment and related flows.
To make our trade liberalization and environmental
policies mutually supportive.
To further secure the observance and promotion of
worker rights, renewing the FTAA countries' commitments to the
observance of internationally recognized core labor standards.
Santiago Summit
There is within Latin America a golden opportunity to build
upon this progress and to make clear that the entire hemisphere
is committed to free and open markets. The Santiago Summit is a
perfect forum for doing so.
The Leaders will give impulse to the negotiations, which
will conclude by December 31, 2004, with concrete progress by
the end of the century. We expect them to approve the San Jose
negotiating plan, which includes a mandate that the Negotiating
Groups achieve considerable progress by the year 2000,
including agreeing on measures for adoption before the end of
the century.
Conclusion
It is with great determination, optimism and excitement
that we and our 33 trading partners in this Hemisphere have
recommended the commencement of negotiations on the Free Trade
Area of the Americas at the Santiago Summit this April 18-19.
We have come a long way together. Taken as a whole, the
progress toward the FTAA is dramatic and significant. Small
countries, large countries, island countries, countries of
varied languages and backgrounds have come together to work
toward an agreement that will ultimately bring the benefits of
trade to all the people of the Hemisphere. We have learned more
about each other--our economies, our aspirations, our fears,
and, most important, our mutual commitment to improving the
lives of our citizens. This commitment is what brought the
Leaders of the Hemisphere to Miami in December 1994. It is the
reason that they will announce the initiation of the
negotiations in Santiago in two and a half weeks, and it is
what will bring us to completion of the negotiations by 2005.
We certainly are grateful to you, Mr. Chairman, and to the
members of this sub-committee for the support that you have
given us during this process. We look forward to consulting
closely and frequently with you and your colleagues in the
Congress as we move forward with the FTAA. Once again, I
appreciate this opportunity to report to you on the progress
that we have made to date and on the steps that we plan to take
in the immediate future.
Thank you, Mr. Chairman. I am willing to answer any
question you or the distinguished members on this Committee may
have of me with regard to the FTAA.
Chairman Crane. Thank you, Mr. Ambassador, and I want to
congratulate you on a good meeting in San Jose. My
understanding is that we can continue to have talks absent fast
track renewal, and I'm curious though as to how much of the
FTAA you believe can get done without fast track?
Mr. Fisher. Well, Mr. Chairman, first, we deeply appreciate
your support on fast track. As you know, the President is a
believer in fast track. He has asked for fast track. We will
continue to pursue fast track.
The reality is that the Tokyo round and the Uruguay rounds
were launched, that is, the negotiations began, without a
similar fast track authority. And we believe it is in our
interest to proceed with the launching of the FTAA discussion
of these negotiations. Obviously, we would like to have that
fast track authority. Not having it does not prevent us from
initiating these negotiations. It's my personal hope that, by
putting together a very good trade agreement, it'll enhance our
ability to secure a fast track. But the point is, in summary,
that we can begin the process, as we did twice before, with the
Tokyo round and with the Uruguay round, to lay the foundation
for this architecture and begin putting it in place without
this authority. That having been said, we will continue to
pursue this authority.
Chairman Crane. Well, the President certainly made a firm
commitment in his State of the Union Message to fast track
renewal, but since that time, there's been basically silence
from the administration. And I'm not saying that you hear a lot
of clamor here, although behind the scenes we're still talking
about it, and conspiring full time to figure out how we pick up
that necessary handful of additional votes that we need.
And I still think it's doable. I think we could get fast
track renewed this year, but we need a good working
relationship with you folks in the administration to come up
with innovative, creative ideas. Of course, our distinguished
minority here has been firmly committed to it, including Mr.
McDermott. And so we will continue to conspire, but we would
like to talk to you more about involvement from the executive
branch.
What can we do between now and 2005 in the negotiations
that will sustain interest and momentum in achieving our long-
term goals?
Mr. Fisher. Well, first of all, we can, and we will, work
on business facilitation measures, concrete aspects that are
visible, such as, customs procedures. There's nothing that
prevents us, under the FTAA, from bringing these to fruition
before the year 2005. One of the directives that the ministers
have asked for, from the heads of state in Santiago, is that we
make concrete progress before the year 2000. And I think it's a
matter of staging the negotiations, activating the Trade
Negotiating Committee that I mentioned before, the group of
vice ministers, engaging the ministers, and making sure that
they relay that information back to you, and back to our
citizens in our country, and the other countries of the
hemisphere. And that we aggressively pursue this matter.
And I think the aspect of transparency, that you mentioned
at the outset, is very important here. We have to engage our
country. I happen to believe, as I mentioned to you in my oral
statement, that increasingly there is an interest of every
size, shape, race, creed of American, in this whole process of
how do our companies do abroad. They now have direct ownership
claims. We have atomized capitalism in this country to a degree
that has never been attempted in the history of the world. And
I think by getting this message across, by making it clear that
all of us, whether we are blue collar workers or white collars
or whatever, have an interest in seeing America and American
companies prosper, that we will engage their interest. And I
will leave no stone unturned, Mr. Chairman, to get that done.
Chairman Crane. Mr. Matsui.
Mr. Matsui. Thank you, Mr. Chairman. I would only like to
reiterate what you said in your opening comments about Mr.
Fisher. I appreciate the fact that he's here working for the
administration now.
And also I was a friend of Representative Jim Collins when
he was in the House. I was on the Energy and Commerce Committee
at that time. We served together. He was much more senior than
I. It's interesting because somebody who was generationally
different than me, and obviously the geographic issue, Texas
and California, and from different parties. He was a wonderful
person and certainly somebody we fondly miss, and I just want
to mention that to you, and obviously convey that to your wife
as well.
Mr. Crane talked about fast track. It seems to me, and
obviously you're involved in these negotiations, that
eventually the negotiations will reach an impasse because the
countries that might be interested in working with us,
negotiating with us, will finally come to the realization at
some time that they can't show their whole card, or even get
close to their whole card.
And Mr. Crane and I, and Chairman Archer, and others have
been talking over the last couple of years about if we don't
get it this year, we may not get it until beyond the year 2000,
2001, and, of course, by that time, much will have been done,
and much will have been lost, I should say, in terms of the
Free Trade Areas of the Americas.
When do you think these negotiations will reach a point
where, just in terms of a timeline, that fast track becomes
rather critical? Maybe you can't even say it, because
obviously, it may stop tomorrow, but given the fact that
Brazil, for its own reasons, will be somewhat reluctant to move
forward. I think 5 years ago, we might have had an opportunity,
but today it may be more difficult because they are obviously
the big counterweight in MERCOSUR at this time.
What's your thoughts on all this? I think it's good to be
optimistic, but eventually we're going to reach a point where
optimism may not be enough.
And one of my concerns has been, and continues to be, that
the defeat of fast track last year will go almost unnoticed and
no one will be held responsible nor accountable for it because
the impact on the U.S. economy will be slow and incremental,
almost imperceptible, and it won't be for 3 years, or 4 years,
or 5 years down the road when all of sudden it will be felt,
and at that time we'll blame it on something else. And I think
we need to keep a focus on it. And I don't think we should be
reluctant to talk about it in terms of what this impact will be
doing in the next 3, 4 years, into the 21st century on the U.S.
economy.
Mr. Fisher. Well, as you know, Congressman, with your
support and encouragement, we at USTR have not been reluctant
to talk about this matter, and we will continue to pursue it
vigorously.
You ask a very tough question, which is, at what point does
this have to kick into the process? Again, at my level, we will
start our meetings this June. The nine negotiating groups, I
mentioned, will have to pull themselves together at our
direction before the end of September. We have laid a great
deal of groundwork just in the working groups that went into
the San Jose ministerial.
But this is, when you think about it, a very revolutionary
concept. When I was a graduate student--I met Jim Collins
daughter at Oxford University 25 years ago--26 years ago, to
even think about a trade agreement with Latin America, it was
unthinkable. We were dealing with cold war paradigms. We had
terrible leadership in that region of the world. We were not
interested. We never saw it as the great market that it is
today.
And so I'm reluctant to, as you say, be over optimistic. I
want to be realistic about this. It will take us a couple of
years to put this thing together and have it to a point where I
think we will feel comfortable with the overall package. But I,
personally, would like to get fast track secured as soon as
possible, and we look forward to consulting with you on this
matter. We defer to your views here. You have been a leader on
this front. But I'm hesitant to pin down a specific date,
Congressman, because I'm just not comfortable in doing so.
Obviously, again, as you know better than I, the fast track
process really deals with how we vote up or down a trade
agreement. Our job, until we can secure fast track, is to get
the best trade agreement possible.
Mr. Matsui. Yes, I think it's much more difficult given
MERCOSUR because, for those that know this, it's obviously
information that is redundant, but, for those who don't, any
agreement we reach with the MERCOSUR countries will have to be
with each of the countries individually. They all have to sign
off, and it just makes it more and more difficult as MERCOSUR
becomes stronger and stronger. And, you know, here we're losing
an opportunity of 800 million people in terms of a free trade
region which obviously would be one of the largest trade zones
in the world.
Mr. Fisher. It's interesting to look at the statistics. The
combined current purchasing power of Brazil and Argentina
together is equal to that of the current purchasing power of
all of China.
Mr. Matsui. That's right.
Mr. Fisher. If you take the population and multiply it by
the current income, and we do, and have argued, feel at a
competitive disadvantage vis-a-vis MERCOSUR because we have not
been able to reach agreement, and use a fast track authority to
negotiate with them.
Now, there is an interesting dynamic here, which is, we
will cochair with Brazil the end of this negotiation, and I
welcome that because it engages them at a level which I think
will, obviously, help us determine the terms for the finality
of this product. And I think that dynamic is something I hope
to discuss with you over time, but I think it adds an
interesting perspective to this overall discussion. They can't
hide from us by being a cochairperson with us.
Mr. Matsui. If I could just make one other observation.
What I'm also hearing is that the lack of fast track and the
inability to have this free trade agreement with the MERCOSUR
countries may result in more United States companies going
offshore--perhaps into Latin America--because you get lower
tariffs by having your production company in these countries.
So this really may be working against organized labor, and more
importantly, against those that oppose fast track because they
claim that it may lose jobs.
In conclusion, let me ask you a little bit about the
Committee on Civil Society because, obviously, that's kind of a
counterweight to what held up, at least among some members, the
fast track issue in terms of labor and the environment. How
seriously are the Latin countries taking this? I hope they do
take this seriously because this may be one way, if we can show
outside of the trade sanctions area, of getting labor and the
environment on the table, perhaps we could make some progress
here.
Mr. Fisher. Well, this is an initiative that we insisted
upon, and was agreed to by the other 33 countries of the
hemisphere. The purpose of the Subcommittee is to provide input
at the ministerial level. Now this Subcommittee will pick its
own chair at the right juncture. We assume that'll be done at
the next meeting. And the purpose of it is to make sure that
these views are heard.
We have learned from our experience with other negotiations
that if we don't bring people along and, as Congressman Crane
said, ``make it more transparent up front,'' it makes it more
difficult. We respect the views of labor, and the environmental
groups, as well as consumers, and local governments, and
others. I think the onus is on us to make this thing work. But
I was very pleased to see the Latinos, as well as our Canadian
partners, sign off on this. And our intention, having insisted
upon, having negotiated for it, is to make it a working
vehicle.
And I appreciate very much your comments, Congressman
Matsui, because I think this is an important part of the
process. As I said in my oral statement, and in my written
statement, this has never been done before in a large trade
negotiation. But it's there, and we will make it work.
Mr. Matsui. Thank you, appreciate it.
Mr. Fisher. Thank you, sir.
Chairman Crane. Thank you.
Mr. Thomas.
Mr. Thomas. Thank you very much, Mr. Chairman. Ambassador,
welcome.
Mr. Fisher. Thank you.
Mr. Thomas. One of the things I think a number of us have
enjoyed about working with U.S. Trade Representative,
regardless of which party controls the White House, is that
this has been one organization that's played down on politics
and focused on policy. The thing I liked about Jim Collins, in
the time I worked with him, was that he was one of those people
who was really smart, but had a lot of common sense to go with
it. And neither one got out ahead of the other.
I cannot tell you how disappointed a number of us are about
the failed opportunity on fast track. To argue that we didn't
have it at the Tokyo round and we didn't have it at the Uruguay
round, so, gee, it's OK now. There's supposed to be a learning
curve in this business, and we're at a significant disadvantage
going down to South America with the group of folks that we're
going to have to deal with, principally Brazil and Argentina,
thinking that we can get them to agree to any kind of a
structure to which we cannot commit, but to assume we can be
expected to deliver what it is that we negotiate.
So I understand your attempt and need to put a positive
face on this, but I think we need to be pretty realistic. The
administration failed miserably in its timing. Had they brought
fast track in April, rather than October, we had an excellent
chance to pass it. I don't know who was focusing on it or why
they ordered it in the direction that they did. It is something
that happened, we missed the opportunity. And I have an
extremely difficult time seeing how to do it now, although,
obviously, we'll support you in any way possible so that we can
move forward with the kind of leverage necessary to negotiate
with a couple of key folk, which, obviously, are critical to
putting South America together.
But I have a question for you so I better understand what
you meant by your statement on page 5, in which you said that
you reached consensus--I don't know whether that was through a
vote or nod of heads or agreement--that the bilateral and
subregional agreements--and obviously MERCOSUR is the one that
I'm looking at, principally the Brazilians and the Argentines--
can coexist with the Free Trade of the Americas free trade
zone, only to the extent that the rights and obligations under
those agreements are not covered by or go beyond those of the
FTAA.
I guess, conceptually, I have a difficult time
understanding that we're dealing with a customs union versus a
free trade area. What is there that is outside laying the one
on top of the other, that would be outside the free trade or
not covered by the free trade? Do you have any specific
examples to illustrate how this is going to work?
Mr. Fisher. The general point is that we want to improve
upon existing regional arrangements, and obviously----
Mr. Thomas. No, no. But that isn't what it says here. It's
not ``improve upon.'' It said these agreements, the customs
union and MERCOSUR can coexist only to the extent that the
rights and obligations under those agreements are not covered
by or go beyond the FTAA, not that we're going to improve upon
them.
Mr. Fisher. MERCOSUR has a common external tariff. We seek
to eliminate that common external tariff. There's an example of
improving upon and going beyond MERCOSUR.
Mr. Thomas. And then I would come back to the fact that
you're going to ask them to give up the common tariff without
an understanding that whatever the agreement is would not be
subject to the amendment process in the U.S. Congress because
we don't have fast track. And if your argument is that by
putting the agreement together we'll have a greater chance of
passing fast track I guess is to miss the fight we had over
fast track, which was less the historic economic union
structure and more the environmental and labor agreements.
And, if you're going to bring back to the Congress a
package which includes very tough environmental and labor
agreements, you're going to minimize your chances of getting
fast track to put into place that kind of an agreement.
And that's what's so frustrating to me about not getting
the order correct, and that is, fast track out front. That's a
very great concern of mine, and I hope we deal with the policy
more and less than the politics. To the degree the policy is
right, the politics will take care of themselves. If we try to
put too much of the politics in, we're simply not going to get
the policy.
One last question: Can we put together a viable program,
including the Caribbean, without Cuba?
Mr. Fisher. Cuba is not part of the process now and will
not be until it's a democratic country.
Mr. Thomas. That wasn't my question. I'll try it again. Can
we put together a reasonable Caribbean package, including
Central and South America, without Cuba?
Mr. Fisher. Within the process of FTAA, Yes, we can.
Mr. Thomas. OK.
Mr. Fisher. Congressman, if I may, you made some awfully
good points there. I agree with you fully. I arrived here,
actually, I was sworn in December 18. I'm an aggressive
advocate of fast track; I want to work with you and your
colleagues in my capacity at my level to achieve that goal. I
want to be realistic, I'm not totally naive in terms of the
expectation that we could secure FTAA without it, and I want
it, and my administration wants it, and we're eager to work
with you on that front.
Mr. Thomas. I guess, just finally, to express my real
frustration that trying to deliver a product today in an
environment that's significantly different than the Tokyo round
and the Uruguay round world that we're dealing in--and those
are not examples that I think are very useful on how we can get
fast track corrected. It was a timing problem; the window was
missed.
And we'll do everything we can to assist you but you've got
to appreciate how frustrating not going in April versus October
was.
Mr. Fisher. Sir, may I make one other comment on another
point you made which is this Committee on Civil Society. It's
not a negotiating group, this is a group that is to receive
input and help the transparency of the process. I want to make
that clear.
Mr. Thomas. I understand, but people will make linkages
whether you like or not.
Mr. Fisher. Well, we look forward to working with you to
make this work, sir.
Mr. Thomas. I'm here to help.
Mr. Fisher. Thank you. [Laughter.]
Chairman Crane. Mr. Camp. Mr. Ramstad.
Mr. Ramstad. Thank you, Mr. Chairman. I too, Mr.
Ambassador, want to congratulate you on your appointment, and
welcome you to the Subcommittee, and certainly, like the
Chairman and others who have spoken, I appreciate your
aggressive advocacy on behalf of fast track and look forward to
working with you. And I certainly join in the comments of the
Chairman and Mr. Matsui and Mr. Thomas with respect to fast
track and the importance of that. And I like the way you
redefined that in the terms that you did because everyone wins
with fast track, and we have to do a better job of educating
not only the Congress but the American people, as well.
Let me, if I may, turn your attention to a matter that
concerns the agricultural community in my home State, and I'm
sure in other places, as well. This concerns a number of
agricultural leaders in Minnesota, including one who's here
today, probably the foremost leader in agriculture in our
State, Al Christopherson, who is president of the Minnesota
Farm Bureau and is testifying on behalf of the American Farm
Bureau Federation.
These people raise concerns about a separate negotiating
group on agriculture. Mr. Christopherson is on the next panel,
and hopefully you'll stay to hear his testimony, but in his
prepared testimony he states that, ``Agriculture would be
handicapped in later negotiations as we have already reduced
our barriers and our market is open.'' He's also concerned like
others that separating the group will tie U.S. agriculture to
the agricultural negotiations under the WTO, and slow down the
pace for improving access in this important area.
I certainly share these concerns, and I have two questions.
First of all, Is it true that the United States has already
agreed with the Brazil request for a separate agriculture
negotiating group? And, second, What would the reasons be for
separating out agriculture if this is factually true?
Mr. Fisher. Well, there is a working group, a negotiating
group, on agriculture. It's one of the nine groups that I
mentioned under the FTAA process.
The purpose of that group, again, we--as you state--we are
a very open market, we have a productive agriculture sector.
From our standpoint, we want to open up those markets to the
south, in particular, and we want to reduce all the barriers,
tariff and nontariff barriers in the region.
There's no conspiracy with Brazil on this. This was a
negotiation that we had in San Jose, and this is one of the
nine working groups that has come out of the process. It
recognizes that agriculture, Congressman, is a critical portion
of the whole trade agreement. And our purpose and our interest
in securing an agriculture working group is to make sure we
have a group that will contemplate how we need freer trade in
agriculture in the hemisphere.
Again, this reference to a Brazilian preagreement, I'm not
aware of.
Mr. Ramstad. But doesn't this put USA interests at a
competitive disadvantage? Our barriers, as I said before, have
already been knocked down for the most part. Our market is
open. Aren't you concerned that this will hurt our agriculture
community?
Mr. Fisher. I'm always concerned about our agriculture
community. Again, the purpose of our wanting this particular
negotiating group is to achieve what we seek to achieve for all
other goods and services in the hemisphere. That is, knocking
down the tariff barriers that we see; knocking down technical
restrictions; making more transparent the whole process,
scientific and phytosanitary impediments that might exist
throughout the hemisphere; making a more transparent process.
I think, and I believe firmly, that U.S. agriculture can
compete very effectively in these markets if we remove these
barriers to our sales in the region. I don't believe it will
put us at a disadvantage, and we will strive mightily to make
sure it does not put us at a disadvantage.
Mr. Ramstad. In your judgment, then----
Mr. Fisher. It's pretty tough to compete with U.S.
agriculture.
Mr. Ramstad. Well----
Mr. Fisher. And we want to secure additional markets for
our agricultural products.
Mr. Ramstad. Yes, I'll put up our farmers against farmers
any where in the world, as long as one hand isn't tied behind
their back. And I am concerned that separating the group will
tie U.S. agriculture to the negotiations under the WTO, and as
I said before, slow the pace for improving access in this area.
I trust that with that caveat, you'll proceed and you'll keep
that in mind.
Mr. Fisher. May I just mention one other thing,
Congressman?
Mr. Ramstad. Please.
Mr. Fisher. About 2 weeks before San Jose, we received from
USDA a message encouraging us to advocate for a separate
agriculture group. And, again, having run the traps on this, we
know that there is concern; we're well aware of that. But, to
summarize, the purpose of this exercise is to make for a Free
Trade Area of the Americas in every sector, including
agriculture. And if we're able to achieve that, which we seek
to do, I think it will be good for U.S. agriculture.
Mr. Ramstad. Thank you, Mr. Chairman, Mr. Ambassador.
Chairman Crane. Mr. McDermott.
Mr. McDermott. Thank you, Mr. Chairman. Welcome.
Mr. Fisher. Thank you.
Mr. McDermott. When I went down to South America with the
President on his trade mission, and I sat at the state dinner
in Brazil, there were people at the table, and they all said,
We hope you fail on fast track. [Laughter.]
It was pretty obvious where they were coming from and one
of the things, as I sit and listen to this is, I am trying to
put together in my own mind what all the interlocking pieces of
this trade in the Americas is all about. And I'd like to hear
you talk a little bit about how NAFTA and CBI and Cuba all
interlock at the negotiating table.
You've got everybody at the table, some people have got
some agreements. We're down there trying now to put one
together with Chile. The President is going down shortly, and
there's a whole bunch of moving pieces--then you have this
other exercise that you're involved in which almost looks like
it involves the entire region, that you've already got pieces
put together. And I'm sort of interested to hear how you think
that's all going to get worked out.
Mr. Fisher. Well, I'm glad you're not asking me about
bananas, Congressman. [Laughter.]
That's a separate----
Mr. McDermott. I don't want to get specific yet.
Mr. Fisher. It's a difficult subject.
Well, first of all, we have learned from our own
relationship with our two other trading partners within the
NAFTA. United States merchandise exports to Mexico in 1997
increased by 26 percent, actually, to be specific, 25.8
percent. We're selling $71.4 billion in exports to Mexico now.
We trade $1 billion a day across the Canadian border, two ways.
And, by the way, if you take the exports and imports from
Mexico, it's $1 billion every 2 days.
And it's a bit of an esoteric discussion, but I could make
a strong argument for the fact that without NAFTA, the last
Mexican financial crisis would have been much more difficult
and perhaps even fatal to that economy.
So, we know from experience, and we know there are critics
of NAFTA, but we know from experience that knocking down trade
barriers is good, leads to more exports, and helps create jobs.
And, obviously, we seek to extend that throughout the
hemisphere. There are these subregional groupings. There is
MERCOSUR, which Congressman Crane and Congressman Matsui had
referred to. There's a Caribbean CARICOM group. There is the
Andean Pact, and so on.
I think the broader purpose of this exercise is to make
sure that those groups don't become disruptive in their own
little units, in and of themselves. In essence we create one
large organic mechanism that accomplishes the objective of free
trade, reduces barriers to the inner sales of goods and
services throughout the hemisphere.
And, again, as was discussed earlier with Congressman
Thomas, the purpose of the FTAA is to go beyond what they have
been able to achieve in each one of their regional subgroupings
with an end goal of integrating the entire hemisphere.
It's important to note that if we don't do that, we could
be sort of cherrypicked, as it were, by the Europeans, which
Congressman Matsui referred to earlier. The European Union is
in the process of discussing integration with MERCOSUR. They
have recently reached agreement with Mexico, and you have all
the subefforts that I think could put and do put our United
States exporters at a disadvantage.
So, to tie it all together, leaving Cuba out of the
equation, the purpose of the exercise is to, again, integrate
these efforts into one large trading market, in the most
dynamic and readily growing trade grouping of countries in the
world.
It's not any more complicated than that, it's just
difficult to accomplish. But that's the purpose of the
exercise.
Mr. McDermott. Let me just go back to the Cuba issue
because I think there's already a case which points to one of
the problems. You read in the newspapers that Nelson Mandela
says that he doesn't like the trade bill that we put together
for Africa. But it turns out that if you look a little more
closely at what the problem is, it has to do with an American
company that bought a South African company that had a contract
with Cuba, which they then upon buying this South African
company suddenly found out they couldn't fulfill that contract
with Cuba because of Helms-Burton. So, Mr. Mandela says: Ah,
you see there, look at that, this Africa trade bill is a bad
idea, not making the distinction between Helms-Burton.
But the Helms-Burton law is sitting there, right in the
middle of the table, and any of these countries that have
anything to do with Cuba, one way or another, are, it seems to
me, going to sort of put that card up on the table and say,
Hey, what about this? How do you deal with that sort of sitting
there in the middle of the table? Or is it such a small item,
it's like in the Middle East negotiations, it's what we'll do
with Jerusalem when we get to the end. Is that the view of the
administration?
Mr. Fisher. No, I haven't thought it through to the degree
that you have asked me. Clearly, countries that we currently
deal with within our trading relationships, have different
levels of relationship with Cuba.
Mexico, for example, which has been a difficult and sore
subject with our Mexican southern neighbors. We still have a
trade agreement with Mexico; we sell a lot of goods to Mexico
as I mentioned earlier.
Cuba will not be part of the FTAA process under its current
regime. The one thing that I want to make sure of is that we
don't have an FTAA with two countries absent, Cuba and the
United States. That would be a rather awkward and, I think,
embarrassing situation, and it wouldn't be good for America.
Congressman, I will give that matter some thought and get
back to you on it. I don't believe it presents a problem
presently, but, to be honest with you, I haven't thought it
through to the degree that I think would give you a
satisfactory answer.
Mr. McDermott. Thank you. Thanks, Mr. Chairman.
Chairman Crane. Thank you, again, for your testimony, Mr.
Ambassador, and again, congratulations on your new position
with the office of the USTR, and we all look forward to working
closely with you. And with you in your current position, we're
confident that we will make steady, ongoing progress toward our
mutually desired objectives of hemispheric free trade.
Mr. Fisher. Thank you very much, Mr. Chairman.
Chairman Crane. Thank you.
I would now like to welcome our first panel which is
comprised of Hon. William Pryce, former Ambassador to Honduras,
currently vice president of Washington operations for the
Council of the Americas. Al Christopherson, president of the
Minnesota Farm Bureau, who is testifying on behalf of the
American Farm Bureau Federation. And Robert Vastine, president
of the Coalition of Service Industries. And we'll begin with
Mr. Pryce, and I would like to remind all of our witnesses here
today to try and keep your oral testimony to 5 minutes with the
assurance that your printed statements will be made a part of
the permanent record. All right, we will proceed with you, Mr.
Ambassador, and if you could try and keep your oral testimony
to 5 or less, all printed statements will be part of the
permanent record. And the little light here: green light means
go, the yellow light means get ready, the red light means stop,
within some reasonable range. Fire away.
STATEMENT OF HON. WILLIAM T. PRYCE, VICE PRESIDENT, WASHINGTON
OPERATIONS, COUNCIL OF THE AMERICAS; AND FORMER AMBASSADOR TO
HONDURAS
Mr. Pryce. Good afternoon Mr. Chairman, Members of the
Subcommittee. I'm Bill Pryce, vice president of the Council of
the Americas, and I appreciate the opportunity to testify
before you.
The Council of the Americas is a business organization
dedicated to promoting regional economic integration, free
trade, open markets and investment, and the rule of the law
throughout the Western Hemisphere. The Council supports these
policies in the belief that they provide the most effective
means of achieving the economic growth and prosperity on which
the business interests of its members depend on, and on which
the United States depends.
Mr. Chairman, the FTAA represents a potential of 800
million people to whom we can sell our goods and services. Our
members look eagerly to Latin America and the Caribbean because
of the enormous markets offered by the nations in this area.
U.S. trade within the region is already growing faster than
in any other part of the world. Total United States exports to
the world increased just over 10 percent in 1997, but exports
to Latin America and the Caribbean increased 23 percent in this
same timeframe. In fact, 40 percent of our exports now go to
the region.
Latin America is one of the fastest growing regions in the
world today and almost every government in the region has
embarked on an economic program to encourage investment from
abroad so the infrastructure needed to bring products to
markets more efficiently can be built, so that services which
bring down the cost of business are available, and so that
formerly State-controlled industries can renew their capital
base and modernize their production capacities in order to
offer goods to consumers at less cost.
This economic strategy has involved the privatization of
oil and gas industries, telecommunications, railroads, ports,
and numerous other industries. In these privatization processes
that are open to foreign participation, U.S. companies ought to
have the potential to be the primary suppliers. U.S. industries
have been and should be well placed to succeed in a competitive
environment offered by the emerging markets of the Western
Hemisphere.
However, countries like Canada are actually gaining an edge
as they negotiate preferential trade agreements with the
countries in the region and we in the United States continue to
debate the benefits of free trade.
Two weeks ago I was in San Jose, Costa Rica, where over
1,300 business representatives from throughout the hemisphere
gathered for the Fourth Business Forum and crafted
recommendations regarding the FTAA framework, and these were
submitted to the trade ministers. Mr. Chairman, the council is
very pleased with many of the results of the Business Forum and
the trade ministerial.
For example, having the FTAA secretariat in Miami through
February 2001, and having the United States cochair the talks
from November 2002 until the end of regulations, are positive
achievements, both from the negotiating perspective and from
the greater visibility that will be afforded to the FTAA
process here in the United States.
Although there is a hemispheric interest in creating a Free
Trade Areas in the Americas, it's clear that not all the
countries agree on the timing and structure of this area. There
are two significant items where there's no consensus. First,
the U.S. business community and U.S. Government had sought a
commitment that the FTAA nations would negotiate several
interim agreements by the year 2000 in order to achieve the
concrete progress referred to in the Miami declaration.
However, fearing that the United States would push its agenda
items and then abandon the negotiating process, some countries
judge interim agreements incompatible with the single
undertaking and argued against the interim agreements.
Therefore, the Trade Negotiating Committee has now been tasked
to meet in June and define business facilitation measures. It's
a much less ambitious goal to be achieved by the year 2000.
Second, there was no agreement that would commit counties
not to impose any new trade restrictions during the course of
the negotiations. The Business Forum reported to the trade
ministers that no consensus was reached regarding the timing of
the standstill agreement, but the trade ministers refused to
take an outright commitment not to impose new trade barriers
during the negotiations.
The trade ministers stated in their final declaration that
they'll continue to avoid to the greatest extent possible the
adoption of policies that adversely affect trade in the
hemisphere. That's not really progress.
I mention these areas of disagreement to illustrate some of
the challenges that our negotiators will face and to stress the
importance of making sure our negotiators are able to establish
a strong bargaining position which will enable them to push
other hemispheric negotiators for trade liberalization. And
right now, the government has to put the best face on it, but
we're hurting without fast track. Although it does not directly
hinder the launching of the FTAA negotiations, the lack of fast
track negotiating authority did negatively affect the Business
Forum and the Trade Ministerial.
Those countries seeking to slow progress and refrain from
early progress pointed to the United States as ambivalent and
noncommittal on trade, and they were able to compete with the
United States for leadership of the process. Mr. Chairman, the
Council of the Americas and its members recognize your
exceptional record on fast track, and the distinguished Ranking
Member, Mr. Matsui, and all the Subcommittee, but we want to
stress again, for the record, how important this authority is
for our President. Our neighbors should view the United States
as a country willing and eager to trade.
In conclusion, I would like to mention the North American
Free Trade Agreement. The latest figures confirm even more
strongly than before that this trade agreement has been
beneficial for the United States. In 1997, among NAFTA
partners, the trade among NAFTA partners increased $55 billion
to reach almost $500 billion. Moreover, since NAFTA's
implementation, United States exports to Mexico have grown 69
percent, and United States exports to Canada have grown 51
percent.
To sum up, as we look to the Second Summit of the Americas
next month in Santiago, Chile, the Council of the Americas
believes that the lack of a fast track is having a serious
negative impact on the negotiations. Trade will not be as
preeminent an issue as it would have been if we had this tool
which is essential, absolutely essential, for tariff cutting
negotiation.
The administration is already making the best of a bad
situation by downplaying the role of trade at the summit. We
see a direct link between this circumstance and the lack of
fast track and the ground lost by the President's lacking the
ability to negotiate freely. As I stated earlier, not having
fast track at this point does not prohibit the start of the
negotiations, but it does give the perception that we're not
serious about hemispheric free trade.
The Council of the Americas, Mr. Chairman, will continue
its efforts to educate the American people about the broad
benefits of free trade, and we pledge our support to you, Mr.
Chairman, and all the Members of the Subcommittee, in your
continuing efforts to inform your colleagues and your
constituents about the advantages of free trade of the
Americas.
Thank you.
[The prepared statement follows:]
Statement of Hon. William T. Pryce, Vice President, Washington
Operations, Council of the Americas; and Former Ambassador to Honduras
Good afternoon, Mr. Chairman and Members of the Committee.
I am Bill Pryce, Vice President of the Council of the Americas
in charge of our Washington operations. The Council of the
Americas appreciates the opportunity to testify before you
today regarding the Free Trade Area of the Americas (FTAA) and
how the United States stands to benefit from hemispheric trade
liberalization.
The Council of the Americas is a business organization
dedicated to promoting regional economic integration, free
trade, open markets and investment, and the rule of law
throughout the Western Hemisphere.
The Council supports these policies in the belief that they
provide the most effective means of achieving the economic
growth and prosperity on which the business interests of its
members depend--and on which the United States depends.
Mr. Chairman, the FTAA presents a potential market of 800
million people to whom we can sell our goods and services. Our
members look eagerly to Latin America and the Caribbean because
of the enormous markets offered by the nations of this area.
U.S. trade with the region is already growing faster than with
any other part of the world. The numbers for 1997 show a
continued expansion of exports to the region. Total U.S.
exports to the world increased just over 10 percent in 1997,
but exports to Latin America and the Caribbean increased 23
percent for this same timeframe. In fact, 40 percent of our
exports now go to the region.
Latin America is one of the fastest growing regions in the
world today. Almost every government in the region has embarked
on an economic program to encourage investment from abroad so
that the infrastructure needed to bring products to markets
more efficiently can be built, so that services which bring
down the cost of business are available, and so that formerly
state-controlled industries can renew their capital base and
modernize their production capacities in order to offer goods
to consumers at less cost. This economic strategy has involved
privatization of oil and gas industries, telecommunications,
railroads, ports and numerous other industries. These
privatization processes that are open to foreign participation
encourage investment, as well as the sale of materials,
equipment and high technology, for which U.S. companies ought
to have the potential to be primary suppliers.
Given the historic political and economic ties between the
United States and our neighbors to the south, U.S. industries
have been, and should be, well placed to succeed in the
competitive environment offered by the emerging markets of the
Western Hemisphere. However, countries like Canada are actually
gaining an edge as they negotiate preferential trade agreements
with countries in the region, and we in the United States
continue to debate the benefits of free trade.
Two weeks ago, I was in San Jose, Costa Rica, where over
1,300 business representatives from throughout the hemisphere
gathered for the Fourth Americas Business Forum. The U.S.
delegation numbered over 260 people. The multinational business
leaders crafted recommendations regarding the FTAA framework
which were submitted to the trade ministers.
Mr. Chairman, the Council was very pleased with many of the
results of both the Business Forum and the Trade Ministerial.
For example, having the FTAA Secretariat in Miami through
February 2001, and having the United States co-chair talks from
November 2002 until the end of negotiations are positive
achievements both from a negotiating perspective and from the
greater visibility that will be afforded the FTAA process here
in the United States.
Although there is hemispheric interest in creating a Free
Trade Area of the Americas, it is clear that all the countries
do not agree on the timing and structure of this free trade
area. There were disagreements among both the trade ministers
and the hemisphere's business community. There are two
significant items on which there was no consensus. First, the
U.S. business community and U.S. government negotiators had
sought a commitment that FTAA nations would negotiate several
interim agreements by 2000 in order to achieve the ``concrete
progress'' referred to in the Miami Summit declaration.
However, fearing the United States would push its agenda items
and then abandon the negotiating process, some countries judged
interim pacts ``incompatible'' with a single undertaking and
argued against interim agreements by the year 2000. Therefore,
the Trade Negotiating Committee has now been tasked to meet in
June and define business facilitation measures--a much less
ambitious goal--to be achieved by 2000.
Second, there was not agreement that would commit countries
not to impose any new trade restrictions during the course of
the negotiations, referred to as a ``standstill agreement''.
The Business Forum reported to the trade ministers that no
consensus was reached regarding when the standstill clause
should be applied. Likewise, the trade ministers refused to
make an outright commitment not to impose new trade barriers
during the negotiations. The trade ministers stated in their
final declaration that they ``will continue to avoid to the
greatest extent possible the adoption of policies that
adversely affect trade in the hemisphere.'' This is not
progress.
I mention these areas of disagreement to illustrate some of
the challenges our negotiators will face and to stress the
importance of making sure our negotiators are able to establish
a strong bargaining position, which will enable them to push
other hemispheric negotiators for trade liberalization that
favors U.S. interests. However, the U.S. government can only
lead successfully in this process if it is given the tools
necessary to bargain with strength.
Although it does not directly hinder the launching of FTAA
negotiations, the lack of fast track negotiating authority did
negatively impact the Business Forum and Trade Ministerial.
Those countries seeking to slow the process and refrain from
early progress pointed to the United States as ambivalent and
noncommittal on trade and were able to compete with the United
States for leadership of the process. Mr. Chairman, the Council
of the Americas and its members recognize your exceptional
leadership on fast track, but, for the record, we want to
stress again how important this authority is for our president.
Our neighbors in the hemisphere should view the United States
as a country willing and eager to trade. That would accelerate
the FTAA process and open up these markets to U.S. products and
services.
In conclusion, I would like to mention briefly the North
American Free Trade Agreement. The latest figures confirm even
more strongly than before that this trade agreement has been
beneficial for the United States. In 1997, trade among NAFTA
partners increased $55 billion to reach approximately $500
billion. Moreover, since NAFTA's implementation, U.S. exports
to Mexico have grown 69 percent and U.S. exports to Canada have
grown 51 percent.
To sum up, as we look to the Second Summit of the Americas
next month in Santiago, Chile, the Council of the Americas
believes the lack of fast track is having a serious negative
impact on the negotiations. Trade will not be as preeminent an
issue as it would have been if we had this tool which is
essential for tariff cutting negotiations. The administration
is already making the best of a bad situation by down playing
the role of trade at the Summit. We see a direct link of this
circumstance to the lack of fast track and the ground lost by
the President's lacking the ability to negotiate freely. As I
stated earlier, not having fast track at this point does not
prohibit the start of FTAA negotiations, but it does give the
perception that we are not serious about hemispheric free
trade. The Council of the Americas will continue its efforts to
educate the American people about the broad benefits of freer
trade and pledge our support to you, Mr. Chairman, in your
continuing efforts to inform your colleagues and your
constituents about the advantages of a Free Trade Area of the
Americas. Thank you very much.
Chairman Crane. Thank you.
Mr. Christopherson.
STATEMENT OF AL CHRISTOPHERSON, PRESIDENT, MINNESOTA FARM
BUREAU FEDERATION; ON BEHALF OF AMERICAN FARM BUREAU FEDERATION
Mr. Christopherson. Thank you, Mr. Chairman and Members of
the Subcommittee.
Chairman Crane. Wait 1 minute, is it Christopher or
Christopherson?
Mr. Christopherson. Christopherson.
Chairman Crane. Right, I just noticed they took the ``son''
off of your little plaque. [Laughter.]
They said they ran out of space.
All right, I just wanted to make sure I had it right.
Mr. Christopherson. I recognize it's long. I was in eighth
grade before I learned to spell it. [Laughter.]
Thank you, Mr. Chairman and Members of the Subcommittee. On
behalf of the American Farm Bureau Federation and the 4.8
million member families in the 50 States and Puerto Rico, I
thank you for the opportunity to share with you our concerns on
the Free Trade Area of the Americas. This is a very timely and
obviously a very important issue. I, too, participated in the
Fourth Business Forum of the Americas that preceded the FTAA
ministerial meetings in Costa Rica 2 weeks ago, and I will
focus my comments on that experience.
The need to expand our access into the Latin American
market cannot be overstated especially now as we in agriculture
continue to see reduced sales in Asia. Logistically, Latin
America is a region that we should have been focusing on long
before the FTAA negotiations began. The Asian crisis makes
these markets more important and emphasizes how our
negotiators' hands are tied without fast track negotiating
authority.
The International Monetary Fund obligations must be met to
allow IMF to work with the Asian countries to stabilize their
markets. We urge Congress to move quickly to fund the IMF and
to provide the administration fast track negotiating authority.
It was apparent that our trading partners, at least in the
business sector, are leery of moving forward unless the United
States has that negotiating authority.
The U.S. Government officials indicated before the meetings
that governments would take directions from the Business Forum
in what measures to implement. This process is to be highly
commended, but we believe it can only work if our negotiators
work with us before and throughout the process.
Although USDA's negotiators briefed the agricultural groups
in Costa Rica just prior to the Business Forum, there was an
apparent lack of industry-government interaction before the
meetings. The United States position should have been
determined with industry before going to Costa Rica.
There was heated debate in the market access working group
about creating a separate negotiating group on agriculture. The
Farm Bureau and other U.S. groups urge against a separate
agricultural negotiating group at this time. We remain
concerned that as a separate agriculture negotiating group, we
may be handicapped in later negotiations as we've already
reduced our barriers, as has been stated earlier, and our
market is open. We need other sectors at the same table.
The ministers established nine separate issue areas for
negotiation, as stated by Mr. Fisher. Agriculture is one of
these. It was determined that the objectives of the negotiating
group on market access shall apply to trade and agricultural
products. Agricultural issues on rules of origin, customs
procedures, and technical barriers to trade will also be
addressed in the market access group. We are certainly hopeful
that the administration will be able to provide the resources
to fully participate in both of these negotiating groups on
agricultural issues.
There is also concern that as a separate group, there will
be a tendency to have the negotiations move at a parallel speed
with the upcoming World Trade Organization negotiations
scheduled to begin in 1999. This, we feel, could slow down the
pace of improving our access into this important region. The
FTAA negotiations hold promise for moving the entire hemisphere
forward in global trade. Although USDA's recently released
outlook report on the FTAA does not indicate a big increase in
sales to this region, we view the FTAA as an important link in
opening new markets.
For 1998, agricultural exports to the world are projected
to reach $56 billion. This figure will be down $1.3 billion
from last year due primarily to the slowdown in Asia. Still,
agricultural exports will end this year 27.6 percent higher
than just 4 years ago. Since the United States produces more
commodities than we can consume, international trade is a
necessity of economic life for farmers and ranchers.
On a more personal note, of the exported commodities
produced in the Midwest, approximately 50 percent go into the
Southeast Asian market. Consequently, I, as a corn, soybean,
and hog farmer in Minnesota have an interest in the Asian
crisis in particular, but world trade in general. Increased
access into world markets affects the color of the ink on my
bottom line.
The Farm Bureau continues to support fast track trade
negotiating authority for the President that will address
binding agreements to resolve sanitary and phytosanitary issues
on the basis of sound, scientific principles in accordance with
the Uruguay Round Agreement on agriculture.
Tariff equalization and increasing market access by
requiring U.S. trading partners to eliminate tariff barriers
within specific timeframes, and changes in international
agreements, and U.S. law and practices that would facilitate
and shorten dispute resolution procedures and processes.
While exports continue to rise, producers are concerned by
potential impacts of the implementation of the Food Quality
Protection Act by the EPA, a shortage of labor created by new
immigration law and restrictions stemming from President
Clinton's new food safety initiative designed to regulate
microbiological hazards. Therefore, we urge that the U.S.
Congress advocate effective trade policies that will expand
U.S. exports to the rest of the world. Such policies will
include funding the IMF, passage of fast track authority, and
the signing of an FTAA that works for all industries.
Thank you very much.
[The prepared statement follows:]
Statement of Al Christopherson, President, Minnesota Farm Bureau
Federation; on Behalf of American Farm Bureau Federation
Mr. Chairman, members of the subcommittee, on behalf of the
American Farm Bureau Federation and the 4.8 million member
families in the 50 states and Puerto Rico, I thank you for the
opportunity to share with you our concerns on the Free Trade
Agreement of the Americas (FTAA). This is a very timely and
important issue.
I participated in the IV Business Forum of the Americas
that preceeded the FTAA ministerial meetings in Costa Rica two
weeks ago and will focus my comments on that experience. The
importance of the FTAA and the outcome of the negotiations to
agriculture was underscored by the size of the U.S. agriculture
delegation in Costa Rica. Farm Bureau's seven representatives
were joined by representatives from feed grains, dairy, sugar
and fresh fruit and vegetable organizations.
The first meeting of Ministers in 1994 set in motion the
concept of the Business Forum. This was designed to be a
parallel process by which the private sector, the ultimate
protagonist in any flow of trade and investment, could debate
its concerns and provide guidance to government counterparts
who would be negotiating the agreement that traders will
eventually have to abide by. We believe that this process,
which includes industry, could and should be one of the most
important steps in formulating any agreement. Governments
should recognize that industry knows what will and will not
work when it comes to the daily business of moving goods and
services. The business forum presented 10 sets of
recommendations to the ministers derived from 10 working
groups. These working groups parallel the issue areas that
shaped the substance of the work of the trade negotiators.
The need to expand our access into the Latin American
market cannot be overstated especially now as we in agriculture
continue to see reduced sales in Asia. The Asian fiscal crisis
highlights just how critical it is that we have a working
global trading system. I believe that industry must be a full
partner in the process of creating a viable trading system.
The U.S. government officials indicated before the meetings
that governments would take direction from the business forum
on which measures to implement. This process is to be highly
commended, but we believe that it can only work if our
negotiators work with us before and throughout the process.
USDA's negotiator met with the agriculture groups in Costa
Rica just prior to the business forum. However, there was a
glaring lack of industry--overnment interaction prior to the
meetings when the U.S. position should have been determined.
During the debriefing session between all U.S. industry groups
and U.S. officials it became apparent that not only had there
been a lack of prior consultation with agriculture but that
other industry sectors were not briefed prior to going to Costa
Rica.
There was heated debate in the Market Access working group
about creating a separate negotiating group on agriculture.
Farm Bureau and other U.S. groups argued against a separate
agriculture negotiating group at this time. We remain concerned
that as a separate group we maybe handicapped in later
negotiations as we have already reduced our barriers and our
market is open. We need the other sectors at the same table.
There is also concern that as a separate group there will
be a tendency to have the negotiations move at a parallel speed
with the upcoming World Trade Organization negotiations
scheduled to begin in 1999. This could slow down the pace of
improving our access into this important region.
Brazil wanted a separate agriculture negotiating group and
told us that the United States had agreed to this at an earlier
meeting in Miami. If this is actually the case, USDA's
negotiators did not know this decision had been made. The
decision certainly had not been shared with the industry.
The ministers established nine separate issue areas for
negotiations. Agriculture is one of these. It was determined
that the objectives of the negotiating group on Market Access
shall apply to trade in agricultural products. Agricultural
issues on rules of origin, customs procedures and technical
barriers to trade will also be addressed in the Market Access
group. We are hopeful that the administration will be able to
provide the resources to fully participate in both of these
negotiating groups on agricultural issues.
The FTAA negotiations hold promise for moving the entire
hemisphere forward in global trade. Although USDA's recently
released outlook report on the FTAA does not indicate big
increases in sales to this region, we view the FTAA as an
important link in opening markets. A copy of the USDA report is
included with my testimony as is the Ministerial Declaration of
San Jose from the March 19 meeting.
Following are some of the reasons Farm Bureau is committed
to moving forward in an open global economy:
Higher living standards throughout the world
depend upon mutually beneficial trade among nations. As such,
we urge that trade and other economic policies be developed
that promote rather than retard the growth in world trade and
the Free Trade Area of the Americas process can be an important
and positive step in this direction.
For 1998, agricultural exports to the world are
projected to reach $56 billion. This figure will be down $1.3
billion from last year, due primarily to the slowdown in Asia.
This slowdown will be felt mainly in bulk commodities and
especially in exports of corn. All other agricultural
commodities will see either flat or slightly higher exports for
the year.
Still, agricultural exports will end this year
27.6 percent higher than just four years ago. Since the United
States produces more commodities than we can consume,
international trade is a necessity of economic life for farmers
and ranchers.
Table I includes the details concerning U.S. agricultural
trade for the past five years.
TABLE 1.--U.S. Agricultural Trade
Billions of $, Fiscal Years
----------------------------------------------------------------------------------------------------------------
Item 1994 1995 1996 1997 1998
----------------------------------------------------------------------------------------------------------------
Exports................................................ 43.4 54.6 59.8 57.3 56.0
Imports................................................ 26.6 29.9 32.6 35.8 38.0
Trade Balance.......................................... 17.3 24.7 37.2 21.5 18.0
----------------------------------------------------------------------------------------------------------------
Source: USDA, February 23, 1998
The United States continues to run a trade surplus with the
rest of the world in agricultural commodities.
There are many goods that we buy from such areas as Mexico,
Central America and South America that are very difficult to
produce in the continental United States. Without trade with
Latin America, it would be very difficult for U.S. consumers to
purchase a cup of coffee or a cup of cocoa. Rubber tires on our
automobiles would be in shorter supply, as well as tires for
our tractors and combines. Supermarkets would have bananas in
short supply as well.
Conversely, Latin America is an excellent market for our
bulk agricultural goods, including wheat, coarse grains (corn),
soybeans and soybean meal, and cotton.
If we define Latin America as Mexico, Central America, and
South America, their trade with the United States since 1995 is
impressive. Table II highlights both imports and exports
between the U.S. and the Americas.
TABLE II--Trade with the Americas
Billion of $, Fiscal Years
------------------------------------------------------------------------
1995 1996 1997 1998
------------------------------------------------------------------------
U.S. Ag Expots to Latin America..... 8.2 9.9 10.0 11.1
U.S. Ag Imports from Latin America.. 10.2 10.9 11.0 12.7
Excluding Mexico--U.A. Ag Exports... 4.5 4.9 4.9 5.3
Excluding Mexico--U.S. Ag Imports... 6.5 7.2 8.0 8.5
------------------------------------------------------------------------
Source: USDA, December 1997
Over this four-year period, U.S. exports to Latin America
increased by 35 percent, while imports to the U.S. rose by 24
percent. Trade to this region represents today about 20 percent
of all U.S. agricultural exports. Excluding Mexico, U.S. ag
exports to the rest of Latin America were still up by 18
percent and represented about 10 percent of all our ag exports.
Trade has been a two-way street with Latin America and
should continue to be so. The signing of an FTAA will ensure
that trade will continue with the least amount of barriers.
It was apparent that our trading partners, at least in the
business sector, are leery of moving forward unless the United
States has fast track negotiating authority.
Farm Bureau continues to support fast track trade
negotiating authority for the president of the United States
that will address: binding agreements to resolve sanitary and
phytosanitary issues on the basis of sound scientific
principles in accordance with the Uruguay Round Agreement on
agriculture; tariff equalization and increasing market access
by requiring U.S. trading partners to eliminate tariff barriers
within specified time frames; and changes in international
agreements and U.S. law and practices that would facilitate and
shorten dispute resolution procedures and processes.
Farm Bureau would encourage the signing of an FTAA that
would be consistent with these principles. We will work closely
with U.S. international trade negotiators in all negotiations
on trade and maritime agreements to see that all U.S.
agricultural producers are treated fairly. We will support the
use of qualified trade negotiators. We will seek representation
at all negotiations that involve government export policies and
maritime agreements in an effort to assure farmers unfettered
access to world markets. We urge continued use of private
commodity and policy advisory groups for input into
international trade negotiations.
Passage of the North American Free Trade Agreement (NAFTA)
was the starting point for greater and better trade relations
with Canada, Mexico and other Latin American countries. Efforts
should be made to build upon the principals in NAFTA to further
enhance our trade relationships with these countries and
enhance cooperative efforts on other important issues through
the FTAA.
Long-term agricultural exports continue to rise. According
to USDA's Foreign Agricultural Service rising incomes in many
countries, tariff reductions around the world resulting from
the Uruguay Round Agreement, and ongoing Market Access Program
activities have continued to propel demand for U.S. ag products
and diversified the number of large export markets, including
Latin America.
While exports continue to rise, producers are concerned by
potential impacts of the implementation of the Food Quality
Protection Act by the EPA, a shortage of labor created by the
new immigration law and restrictions stemming from President
Clinton's new food safety initiative designed to regulate
microbiological hazards.
This is a very critical time for U.S. agriculture and the
American economy as a whole. Agriculture is expecting to lose
as much as eight percent of its export market in Southeast Asia
due to the fiscal crisis. We are disadvantaged in Latin
America, our closest potential outlet, because the
administration does not have the authority to negotiate new
market access using fast-track authority and FTAA completion is
not scheduled until 2005. Last week, the Senate Budget
Committee moved to take away all of our funds to create markets
by eliminating all funding for the USDA Market Access Program.
Coupled with this, we have closed important markets with
unilateral sanctions because we object to other countries'
policies.
We urge that the U.S. Congress advocate effective trade
policies that will expand U.S. exports to the rest of the
world. Such policies should include funding the IMF, passage of
fast track authority and the signing of an FTAA that works for
all industries.
Thank you.
[The official Committee record contains additional material
here.]
Chairman Crane. Thank you.
Mr. Vastine.
STATEMENT OF ROBERT VASTINE, PRESIDENT, COALITION OF SERVICE
INDUSTRIES
Mr. Vastine. Thank you, very much.
Chairman Crane. Let me mention one thing to you. The bells
have just gone off and we will recess subject to call of the
Chair. And my understanding is we will have two votes and then
a third one, so I think it will probably be close to 4:30
before we get back. Mr. Vastine, you proceed, and you guys
monitor, will you, the time on the clock.
Thank you.
Mr. Vastine. Now I'm really under the clock. Thank you very
much, Mr. Chairman. I have a very simple message on behalf of
the Coalition of Service Industries: The service sector is
ready for the FTAA negotiations to start.
We have developed specific lists of business facilitation
measures. We have developed specific lists of barriers that
will require legislative implementation as pursuant to
negotiations. We've essentially given blueprints to our
negotiators, the technical specifications, if you will, to
guide them in undertaking negotiations. Moreover, the
businessmen of the hemisphere have organized to provide
political business support for the negotiations. I believe, in
this, we're well in advance of any other sector.
We came to this through a 10-month process of work with
other service organizations in the hemisphere, beginning in
Belo Horizonte last May in Brazil, where we passed in the work
services workshop a work services declaration that was quite
advanced. It called for the immediate beginning of the
negotiations, it called for comprehensive negotiations, and it
said they should be WTO-plus negotiations.
With our negotiators, we then organized a major conference
of service industry representatives from across the hemisphere
in Santiago in October last year. We took an extremely
important step and we got beyond the generalities in the
services. We divided the service sector into seven subsectors:
telecommunications, information technology, financial services,
professional services, express cargo, construction and
engineering, and tourism. And in each of these sectors,
businessmen met from those sectors, and came forward with a
published list of barriers to service trade in those specific
seven sectors.
Virtually 200 people from the hemisphere, businessmen from
the hemisphere, participated in that, and we discussed those
actually with the negotiators in the Free Trade Area of the
Americas services working group. We actually met with
government negotiators at that time in Santiago.
In San Jose we took the process a step further. We used the
same sectoral format of seven subsectors to reinforce the
Santiago conclusions and to add a list of new barriers that
could be removed to achieve business facilitation. For purposes
of supporting this entire negotiation, we have joined with
businessmen from throughout the hemisphere in creating the
Services Businesses Network of the Hemisphere, which is, in
Spanish, ``RedServ,'' in English, ``ServNet.''
Secretary Daily inaugurated this at San Jose, Minister
Salazar of Costa Rica and Mr. Valdez of Chile were there as
well to provide support.
In essence, we have concentrated in the service sector on
getting into the nitty-gritty, on defining for negotiators what
exactly the barriers are that need to be removed. These are
long lists of barriers, and they're not organized by priority,
so we need to do that part of it. But at least when the
political will to begin this negotiation in earnest is there,
the service sector from the hemisphere is ready to begin.
I'd like to associate myself, as well, though, with the
comments of my colleague Ambassador Pryce, and with you, Mr.
Chairman, and with you, Mr. Thomas, and with Mr. Matsui. Fast
track is really essential. It's a great pity that we couldn't
have had that ready in time for these negotiations to begin
and, Mr. Chairman, I very much hope that your feeling of
optimism about possibly enacting it this year could come to
pass.
We are also very grateful, I must say, to our negotiators
because we have developed an extremely good relationship with
Peter Alguire who heads the USTR effort at the working level
and to others, Peter Collins in the services area, and also
with our colleagues in the Commerce Department. They've worked
very, very closely with the service sector. We have extremely
good relationships with them.
Finally, Mr. Chairman, I'd like to associate myself and our
association with your comments about the NTMP, the New
Transatlantic Market Place, and the relative importance of that
vis-a-vis the FTAA, at the outset, at your opening remarks. I
think we share your view that the EU is now driving the
international economic agenda, that we are in the process that,
at least in the services, the transatlantic marketplace does
not hold very much progress, really--promise, really. Nothing
in comparison to what the FTAA could hold were it to be
seriously prosecuted. So we support very much--the service
sector supports very much the opening of markets to the south.
Many of our companies are very committed to those markets for
the long term, wish to exploit them, and wish to bring a very
successful conclusion to these negotiations.
Thank you.
[The prepared statement follows:]
Statement of Robert Vastine, President, Coalition of Service Industries
It is a pleasure to contribute the views of the Coalition
of Service Industries (CSI) to this useful hearing on the Free
Trade Area of the Americas (FTAA). CSI was founded in 1982 for
the precise purpose of ensuring that liberalization of trade in
services was made a major focus of international trade
negotiations. It represents US companies in global financial,
telecommunications, professional, transportation, and
information technology services, among others. The service
sector racked up a trade surplus of almost $86 billion last
year, while over the first eight months of 1997 services
exports reached $166.5 billion. To give you an idea of the pace
of growth of services exports, and its potential for US
business and US jobs, the services surplus in 1985 was only
$300 million.
Services Trade in the Western Hemisphere
Trade in services within the Western Hemisphere is rapidly
expanding. Between 1985 and 1995 hemispheric total trade in
services grew by 247%. During this same period, total trade in
services rose 247% in North America (excluding Mexico), 277% in
Latin America, and 194% in the Caribbean.
US-Latin America trade in services has also been growing.
From 1993 to 1996, US services exports to Latin America
increased 21% while US services imports from that region rose
31%. During this same period, the average annual rate of US
services exports to Latin America grew at 7%, while US services
imports expanded at a rate of 10%.
Despite this strong growth, the full potential of services
trade in the Western Hemisphere is unrealized due to existing
trade barriers. Generally, the most significant barriers faced
by services suppliers in Latin America are barriers to
establishment, and national treatment, though the 1997 World
Trade Organization (WTO) agreements on financial services and
basic telecommunications should bring improvements.
Existing Western Hemisphere Trade Agreements and the FTAA
There are a number of agreements among countries of the
Western Hemisphere that provide some degree of liberalization
of trade in services. According to the Trade Unit of the
Organization of American States (OAS), a total of sixteen
agreements contain provisions regarding trade in specific
sectors.
Of these regional and bi-lateral agreements, only five,
namely NAFTA, the Group of Three, and the bi-lateral agreements
between Mexico and Bolivia, Mexico and Costa Rica, and Canada
and Chile, have substantial provisions affecting virtually all
services sectors. The other major existing regional trade and
integration agreements including the Central American Common
Market, CARICOM, MERCOSUR, the Andean Group, and the bi-lateral
agreement between Bolivia and Chile, among others do not
contemplate rules and disciplines for trade in services, or
have not yet finished elaborating these.
In general, the regional agreements signed in the Western
Hemisphere comply with WTO's General Agreement on Trade in
Services (GATS). They provide new and more advanced elements
that were not covered under the multilateral GATS framework.
The FTAA is an opportunity to go beyond regional trade
agreements, and GATS commitments, and create one general
framework for trade in services in the region.
Progress in the Service Sector
The service sector is well advanced in seeking
liberalization of services trade in the Western Hemisphere,
much more than any other sector.
For the last year, CSI has worked hard to build consensus
among its peers in Latin America and Canada on how the
liberalization of services trade within the FTAA should take
place.
The Coalition of Service Industries approach to FTAA is
based on several strategies.
One of these strategies was the creation of an alliance
with the Santiago Chamber of Commerce in Chile, the Unin de
Entidades de Servicios of Argentina, and the Federacin de
Servicios de Sao Paulo in Brazil. This alliance has given us a
hemispheric perspective on our role within the FTAA process,
and helped us to understand how we, representing the US
services private sector, can help it move forward.
The second strategy was to create and organize the First
Services Business Forum of the Americas in Santiago, Chile last
October. There, for the first time, the services private sector
met with government negotiators, and provided them with
concrete and specific liberalization recommendations. At this
Santiago Services Forum, we divided the service sector in seven
sub-sectors: telecommunications, information technology and
electronic commerce, financial services, professional services,
express cargo integrated transportation services, construction
and engineering, and tourism.
The third strategy was to launch the Services Business
Network of the Americas, ``RedServ'' (or in English,
``ServNet''), a network we helped to create to achieve our
Hemisphere liberalization goals (see attachment A). ``RedServ''
was formally launched by Secretary of Commerce William Daley
last week at the San Jose Forum, along with Jose Manuel
Salazar, Trade Minister of Costa Rica, and Juan Gabriel Valdes,
Trade Vice-Minister of Chile. ``RedServ'' is a permanent
network whose main purpose is to provide continuing private
sector support for liberalization of services trade in the
region.
These three strategies originated at the Third Business
Forum of the Americas last May in Belo Horizonte, Brazil. At
Belo Horizonte, representatives of financial,
telecommunications, information technology, and other service
sector companies, from a majority of countries of the Western
Hemisphere, agreed in a joint declaration (see attachment B)
``to start the negotiation process of the Free Trade Area of
the Americas as soon as possible...'' It stated that the
negotiations ``should cover all services...,'' that it ``should
be consistent with, and move beyond, the General Agreement on
Trade in Services.''
This services declaration was considered one of the most
progressive of any of the business sector resolutions to result
from the III Business Forum of the Americas. Not surprisingly,
the private sector is leading governments in spurring the
negotiations process.
At the next major event, the First Services Business Forum
of the Americas in Santiago, Chile on October 6-7 last year, we
laid the strongest foundations, so far, for the liberalization
of trade in services in the region.
Organized by the Santiago Chamber of Commerce, this forum
of service industry leaders from the Americas recommended (see
attachment C) that governments eliminate trade barriers in the
seven specific sectors mentioned above.
The more than 200 business leaders who participated during
the Santiago Services Business Forum formulated precise
recommendations facilitating future negotiations for the
liberalization of services trade in the hemisphere, and
discussed them in the presence of the FTAA Working Group on
Services.
In the sectors discussed business leaders agreed on
applying the principles of national treatment, non-
discrimination, reciprocity, transparency, elimination of
double taxation and of double benefits (social security, health
care, etc.), freedom of mobility of personnel, and freedom of
establishment or non-establishment. The elimination of
unnecessary customs procedures, nuisance tariffs, non-tariff
barriers and taxes was also requested. Requests were made for
the harmonization of professional certification requirements,
and facilitation of work visas.
FTAA San Jose Business Forum Advances on Services
At the Fourth Business Forum of the Americas last week in
San Jose, Costa Rica, CSI helped make progress together with
businesses of the Western Hemisphere towards the liberalization
of trade in services in the future Free Trade Area of the
Americas (FTAA).
Again, the seven Services Workshops identified specific
trade barriers for elimination. I would like to point out some
of the more important conclusions that were agreed to by
businesses of the hemisphere at the Services Workshop at the
San Jose Business Forum (see attachment D).
In Professional Services: governments should grant national
treatment to foreign professionals, adopt international
accounting standards, revoke existing laws or rules regarding
quotas for professionals within services firms, and eliminate
all types of subsidies, exceptions, special conditions or
exemptions that cause distortions in the professional services
market.
In Information Technology and Electronic Commerce:
governments should avoid the creation of monopolistic
concessions, avoid restrictions imposed on the free flow of
information through electronic networks, and avoid the adoption
of legislation or regulations for privacy protection that would
create unnecessary barriers to commerce.
In Telecommunications: governments should base competition
and tariffs on cost, eliminate cross-subsidies, facilitate the
readjustment of telephone rates, separate regulators from
services operators, establish autonomous regulatory
authorities, agree on procedures to grant licenses (permits,
registrations or notifications), adopt rules to allow multiple
competitors, guarantee right of way to all operators, provide a
legal framework to promote financing of alternative national
networks, liberalize telecommunications services by the year
2005, and request that those countries that have not signed the
WTO agreement on Basic Telecommunication services, do so.
In Financial Services: governments should liberalize
capital accounts immediately and completely, eliminate currency
exchange controls, eliminate restrictions on foreign
investment, promote the delivery of ample financial
information, facilitate registration processes for foreign
mutual funds; and with respect to the insurance sector, provide
national treatment and freedom of establishment, and promote a
greater degree of liberalization in rendering cross-border
insurance services, while protecting consumer rights.
In Construction and Engineering: governments should grant
uniform national treatment to foreign providers of engineering
and construction services, and grant business and work travel
visas allowing for free movement of professionals, goods, and
services.
In Tourism: governments should not tax travel services;
eliminate requirements for visas and burdensome customs
procedures; and make hotel classification self-regulatory.
In Express Cargo Transportation: governments should abolish
discriminatory measures, including application of postal rates
and taxes to subsidize government agencies; and all 16 FTAA
participating countries who signed the Cancun, Mexico, Charter
of Commitments (signed June, 1996) relating to customs
procedures should implement it before June 1999.
I would like to take a moment to highlight the achievements
of the Express Cargo Transportation sector, where businesses
agreed on some of the most concrete business facilitation
measures that can and should be implemented right away by
governments. The Air Courier Conference of America (ACCA),
together with other representatives of the sector, have
achieved a consensus in their recommendations that should serve
as a model to be followed by members of the private sector and
by governments to further the pace of trade liberalization in
the hemisphere.
The service sector, as you have seen, has been able to
achieve region-wide consensus on many aspects of liberalization
of trade in services. The private sector has essentially given
government negotiators the blueprints in the form of specific
requests for liberalization. These are elaborated in the
Santiago Recommendations from the First Services Business
Forum, and in the San Jose Recommendations produced at the
Services Workshop of the Fourth Business Forum.
Despite all these efforts we still have a long way to go
before we can achieve transparent, non-discriminatory, open
trade in services in the Western Hemisphere. At the moment,
there are two things we must focus on. First, we must achieve
concrete progress, in the form of business facilitation
measures by the year 2000, without losing sight of our larger
liberalization goals by the year 2005. And second, we must
obtain fast-track legislation authority for the President in
the very near future, so that we can maintain the momentum on
the FTAA. Without these, the private sector will have little
incentive to focus its time and resources on the FTAA process.
Thank you, Mr. Chairman, for giving the Coalition of
Service Industries this opportunity to express its views.
Chairman Crane. Thank you very much. And we are now going
to recess until, as I project, roughly 4:30. If anyone has time
constraints, that's certainly understandable. Please let the
staff here know about it if any of you can't wait until then.
Otherwise, we'll get into the questioning process and our next
panel at that time.
Thank you.
[Recess.]
Chairman Crane. Folks, we will reconvene the Subcommittee.
Mr. Matsui and I are both here, and we don't know entirely
what the schedule is going to be like. I think we've got a
little time off now, though.
And I want to again express appreciation to you and
apologies for these interruptions, but we don't control that.
So if it were just a Committee meeting, then you would have
been in and out of here with dispatch.
Ambassador Pryce, the United States, in my estimation,
needs to achieve interim agreements before the year 2005 to try
to maintain interest in the FTAA process. What types of early
agreements do you think might be doable?
Mr. Pryce. Right now, Mr. Chairman, without fast track,
it's going to be very difficult to do anything, very frankly,
but one of the things, we might get something on customs
facilitation. We might get something on intellectual property.
We might get something on government procurement. But people
who are go-slow people on trade don't want any of these
agreements. We got a lot of things in San Jose, but early
agreement is one of the things we were not able to get
agreement on. Those are the kinds of things we might get, but
we won't get it without fast track.
Chairman Crane. Chile, intelligently, went ahead and
negotiated a free trade agreement with Canada and with Mexico,
so we're the only ones that are left out at this point. I'm
concerned about whether there might be a proliferation of this
kind of activity not only with our two North American free
trading partners, Canada and Mexico, but other Latin American
countries going forward with those kinds of separate
negotiations and just leaving us out of the process. Do you
think there's a bona fide fear of that?
Mr. Pryce. Yes, sir, I do. I think we've seen that--we've
already been hurt by the Chile-Canada agreement, and we can
expect to be hurt in other agreements. We're missing a good
opportunity. I think the Canadians and the Mexicans would have
been happy to go forward with us, but they weren't willing to
sit around and wait while we went nowhere. It's a clear and
present danger which will not diminish.
Chairman Crane. Mr. Christopherson, what are the most
significant barriers to increased agriculture exports to Latin
America, in your estimation? Incidentally--oh, we'll notify Mr.
Ramstad that that plaque is incorrect. [Laughter.]
Mr. Christopherson. If you would repeat your question
again, I could try to address your----
Chairman Crane. Yes. What are the most significant barriers
to increased agriculture exports to Latin America, in your
estimation?
Mr. Christopherson. Certainly, I think the fact that we
don't have the agreement; that's certainly part of it. I
suppose some of the other items that make trade agreements a
little more difficult is the amount of trading commodities
which are similar to what we have. The more similar the
product, the more difficult it is to reach trade agreements, in
other words, between two countries. If you had countries that
are producing the same items, obviously, there's protectionist
or at least the feeling that you need to protect your own
industry.
But certainly the fact that we have not been a part of the
trade agreements, I can only reiterate what the gentleman to my
left said: We're losing out on them. Certainly, I, being part
of the northern tier of States in the United States, very close
to Canada, I'm very well aware of what Canada is doing, and I
certainly don't blame them, but I'm somewhat jealous of what
they have been able to do with some of those Latin American
countries.
Chairman Crane. Absolutely.
And Mr. Vastine, what business facilitation measures are
the top priorities of the services industry?
Mr. Vastine. Well, it's very difficult to speak for the
service industry as a whole because every sector has its
different priorities. I would say that, one, in a couple of
different areas--for example, in professional services, if we
could grant national treatment to foreign professionals, in
some fashion arrive at arrangements, so that U.S. accountants,
lawyers, and so forth, engineers, and other professional
practitioners could practice their business in Latin America
free, that would be certainly to our national advantage.
In the area of express cargo transportation, the
harmonization of customs treatments, so that packages or
letters being sent by Fed Ex, or whatever, can pass quickly
through tariff barriers--through customs barriers. In all
countries there ought to be harmonization of that.
In telecommunications, well, it's a long-term goal. It's
not exactly business facilitation, but the essential
requirement is to begin to base competition on cost of
telecommunication services as opposed to inflated cost to
reflect other societal needs.
So, Mr. Chairman, it's a complicated answer. It varies from
sector to sector. I've summarized in my statement some of the
precise areas in which we'd like to see progress made.
Chairman Crane. Mr. Matsui.
Mr. Matsui. Thank you, Mr. Chairman.
I just want to make a general observation and get a comment
from all three of you. It seems to me that all hearings lead to
fast track. [Laughter.]
About 1 month ago, the Chair called a hearing on the
agricultural services in trade, and it came down again to fast
track, and certainly this one is as well.
It seems to me that you really can't go much further than
you've gone. I've been particularly alarmed with what you said,
Ambassador Pryce, in terms of the inability of the United
States to offer to the negotiating countries interim
agreements; in other words, kind of lock folks in on an interim
basis as we proceed; and second, not to take any hostile
actions in terms of increasing tariffs during this negotiating
period. It seems to me at least those two should have been
accepted by all the negotiating countries, and the fact that
they're not would indicate many of the countries don't take
this particularly seriously. Certainly, we have to. Obviously,
Ambassador Fisher must maintain a very positive outlook on
this. He has no reason not to, and he certainly must. But the
fact is that we are somewhat constrained at this time.
One of our problems--I think two of our problems, and this
is nothing you can really do anything about, but maybe you can
think about it and try to work on this, because I think we do
have a window, if not this year, early next year; then we lose
it probably until 2001. And we keep throwing this date further
and further back--1999, in the spring of 1999--who knows when
it might be.
But I think, first of all, we need to begin to speak out
when the opponents of NAFTA take NAFTA on. Right now I think
the average citizen who is just aware of NAFTA thinks it was
bad because of all the negative comments made, going
unrebutted, essentially, and I take blame for that as well. We
passed NAFTA, and all of a sudden now we're under something
else, and the opponents are still fighting NAFTA.
And the second area is that we really need to communicate
the importance of fast track, and I think your testimonies and
the testimony that will come in the next panel, Ambassador
Fisher's comments and observations, all this will move in that
direction.
On the floor, as we were waiting for that second vote, I
mentioned to one Member who is opposed to fast track--I said,
we're just hearing some rather significant testimony of the
impact of the lack of fast track on our Latin America
opportunities, the fact that Europeans are moving in, and I
don't know if that would change his vote, but at least it
sensitized him a little bit that this isn't just a theoretical
debate about labor and the environment.
Somehow over the next few months, if many of you in your
associations and with your groups can begin to find ways to
communicate this to the Members, perhaps in Members' home
districts, I think it's critical if we have any desire at all
to move this legislation.
I know last December and January and early February, the
administration did make another quiet push for this. Obviously,
they didn't want to be too public about it because they were
talking to individual Members, Members that were opposed to
fast track, and again, they hit a brick wall. It's just very
difficult. Somehow we need to change this discussion somehow,
change the kind of synergy of this debate. And what that is, I
couldn't tell you. I'm kind of at a loss myself. But perhaps
you may want to comment on that or make an observation.
Ambassador Pryce.
Mr. Pryce. Yes, sir. I think that a very good case in
point, one of the things that we've sort of had some inward
thoughts with our members and within the Council of the
Americas is that we didn't really do as good a job as we might
have in terms of education in the districts throughout the
country. I mean, we did, I think, pretty well here, but there
needs to be more support and we need to work more on that, and
we're planning to do that.
On the NAFTA, the Council is updating State studies that we
did to show that not only was NAFTA good the first 3 years,
we've commissioned a new study that shows even better results
the fourth year. There's nothing to be ashamed of there.
There are some people, frankly, within the administration
who have said, Let's not talk about it. You can't not talk
about it. It's the best free trade agreement we've had lately,
and so we'll plan to do that.
Also, if I could say, sir, if there's a window next year, I
think the administration needs to lead and say, OK, this is
what we're going to try to do, and do that fairly early on, so
that business can do their part to help educate the public.
Mr. Matsui. Anyone else want to comment?
Mr. Christopherson. Just a short comment: I guess I share
that opinion. We in our organization and other farm groups
spent a lot of time waiting in the wings, waiting for another
opportunity, and we recognize that the administration probably
would have to take a lead on it, and we were waiting for early
this year, and it never really came forward. We were somewhat
frustrated by the fact that we lost it last year, and we've
spent a lot of time second guessing what went wrong, but the
long and the short of it was that education was part of it.
Then certainly we probably didn't enter into the foray quite
early enough--just a number of things that you can spend time
second guessing about.
Mr. Vastine. Mr. Matsui, I agree with my colleagues.
There's no substitute for the private sector developing support
at the grassroots, but neither, as the history of U.S. trade
policy shows, is there any support, is there any substitute
from strong Presidential leadership. In the end, public opinion
is going to be swayed, I think, by leadership from the top on
this issue, and that is really essential.
Mr. Matsui. If I can just conclude, I think the President
really did do a very good job on trying to move this. I think
one of the problems--looking back on this now, I think all of
us are doing this apology at what really happened, this may
have been lost in the spring of 1997. It may have been too late
by then.
I remember some of the opponents coming by my district
office and in Washington, visiting with me, saying that this is
our number 1 issue. It may have been something where we may not
have been able to mount any kind of a challenge in terms of
picking up additional votes. I just don't know, but it just
seems to me that we need now to move forward and see what we
can possibly do. I do know you all are working at that
grassroots level, which is so critical. I think we need to
reexamine our whole strategy. Instead of assuming that Members
are going to do the right thing in this area, we have to assume
that they're probably not, and we have to start all over again
and redebate the whole issue of comparative advantage and the
benefits of trade, unfortunately.
Thank you for your testimony. I appreciate it.
Thank you.
Chairman Crane. Mr. Ramstad.
Mr. Ramstad. Thank you, Mr. Chairman.
Gentlemen, I, too, want to thank you for your strong
advocacy on behalf of fast track. All of us have to work harder
and do a better job, and we do need that strong Presidential
leadership. I hope at the right time--and I hope that time is
sooner rather than later--we'll move forward and get it passed.
Mr. Christopherson, I just want to focus my line of
questioning, directed to Ambassador Fisher today and applying
to your testimony as well--about a separate negotiating group
on agriculture. I'm concerned about tying the FTAA to the WTO
negotiations on agriculture. I'm just wondering if you could
expand upon your concerns and elaborate a little bit.
Mr. Christopherson. I think our biggest concern is the
timing of it. As I indicated, we're concerned about the Asian
crisis, economic crisis, and we had kind of hoped that we might
have something that would fill in part of that void that we're
seeing as a reduction in market sales to that part by the
inclusion of trade agreements, and so forth, with Latin
America. So that's probably our biggest concern, and then the
other concern is, as we had stated, that we really don't have
as much to trade, bargain with, from agriculture as what we
would like to have maybe, and so therefore, we feel that we're
at a disadvantage when we're standing there alone as a group,
as opposed to being part of the total U.S. business sector.
Mr. Ramstad. Please, Ambassador.
Mr. Pryce. Congressman Ramstad, I'd like to add a little
bit from a different perspective. I'm not sure what went on in
the negotiating groups with the ministers after the business
forum met, but in bold terms, on that question of a separate
agricultural group, from the private industry side of view, we
got beat. There was the resilience in the Argentines, who
obviously had wanted a separate group, and certainly our
private enterprise agricultural people and we as Council of the
Americas were trying to help not have it separated. We felt
that we were better off without it, and we didn't have the
horses. Not having fast track was a psychological part of not
having the horses.
Mr. Ramstad. Yes, that was going to be my next question,
Mr. Ambassador: What was the impact, if any, of not having fast
track? And you've answered it.
Let me ask you also, any of you on the panel, how do you
think the lack of fast track will affect the FTAA negotiations
overall?
Mr. Pryce. I think it is going to affect them seriously. It
won't make it impossible, but it will make it very difficult.
Someone asked earlier, when do you need fast track? And I
understand Ambassador Fisher didn't answer. I wouldn't have
answered in his case, either. He can't answer, because we have
to tell everybody we don't need it, and we have to remind
everybody that, even though we don't have it, we represent
close to 80 percent of the GNP of the hemisphere, and even if
we have one hand tied, even if we're disadvantaged, we still
are a tremendous market. But when it gets down to actual
negotiations, nobody's going to negotiate with us, if we don't
have fast track. Chile wouldn't do it; no country will do it.
When you get down to actual tariff cutting. We can try to do
business facilitation; we can try to do a common customs
agreement, but the actual lowering of tariffs, nobody's going
to do it, if we don't have fast track.
Mr. Christopherson. If I can add just a little bit from
agriculture's perspective, I'm not sure what kind of a signal
it sends, but here we are, the biggest agricultural producer in
the world, and yet we can't get our act together to trade with
potential markets. I'm not sure what that says, but it doesn't
make sense to me. So that frustrates us.
Mr. Ramstad. Thank you again. Oh, excuse me.
Mr. Vastine. Well, I think we can obsess about the absence
of fast track. It's very important and it does color the
atmosphere, but, on the other hand, we have no choice but to
begin these negotiations and do the best we can, and make
progress in areas where progress is possible. So I would hope
that we would not focus on the hole, but focus on the donut.
Mr. Ramstad. Certainly. And certainly nobody's obsessing,
at least in a clinical sense, on the absence of fast track,
albeit everyone recognizes its importance. I hope we do as you
suggest, but at the same time try to push the ball forward with
respect to getting fast track done.
Thank you, Mr. Chairman.
Chairman Crane. Well, I want to thank this panel. Again, we
apologize for the interruption, but, as I noted, we cannot
totally control all those things.
With that, we will now invite our final panel, and we will
hear from George Scalise, president of the Semiconductor
Industry Association; James Clawson, president and chief
executive officer of JBC International; John J. Audley, program
coordinator for trade and the environment at the National
Wildlife Federation; and Dennis Thies, executive vice president
and chief financial officer for Southdown Inc., and vice
chairman for the Southern Tier Cement Committee.
And we'll begin with Mr. Scalise, who will make his opening
statement.
STATEMENT OF GEORGE SCALISE, PRESIDENT, SEMICONDUCTOR
INDUSTRY ASSOCIATION, SAN JOSE, CALIFORNIA
Mr. Scalise. Thank you, Mr. Chairman.
First of all, I would like to express our appreciation to
you for having us here today to talk about the Free Trade Area
of the Americas, and to point out again that we at SIA are a
big supporter of fast track. We hope we can get fast track
moving again, and we'll do what we can to help.
Let me just tell you a little bit about the semiconductor
industry. It employs about 260,000 people here in the United
States. It's also the enabling technology for the electronics
world that we know today, particularly the information
technology that we all hear about so much--an industry which
employs about 4.2 million Americans.
A recently released study on the economics of the industry
shows that the semiconductor industry is now the largest
manufacturing industry in terms of added value in the United
States. We have gone from 17th to 1st in about the last 7 or 8
years. We now contribute 20 percent more to the U.S. economy
than the next leading manufacturing industry. The average wage
in the industry is approximately $55,000, nearly twice the
average of private industry overall. The industry continues to
grow at about 17 percent compounded, and we now enjoy over 50
percent of the worldwide market.
Another important factor regarding the semiconductor
industry is that its prices decline every year and have since
the outset of the industry. As a result, the price of computers
has been driven down to a point where a desktop computer, a
laptop, is available to virtually anyone in this country today,
and hopefully, around the world before too long.
According to the Economic Report to the President, without
the faster-than-average recent rate of decline of computer
prices, overall inflation in the country would have risen
steadily since 1994. So, I think one of the major contributors
to controlling inflation has been the semiconductor industry
and its technology and innovation.
Roughly one-half of the industry's revenues come from
outside the United States, and we have always been in support
of the elimination of tariffs. We began by urging the
elimination of United States tariffs back in 1985, and at that
stage we encouraged Japan and Canada to go along with us. They
did. That was certainly a major step forward. In 1993 Mexico
also agreed to eliminate their tariffs as part of the NAFTA. In
1994 the Uruguay round resulted in a commitment by South Korea
to eliminate their tariffs as well. Overall, we're making
progress on the elimination of tariffs, which we think is
critical.
In 1997 the USTR concluded the Information Technology
Agreement, which eliminates tariffs on semiconductors and other
information technology products in over 40 countries by the
year 2000. This was a very successful agreement because the ITA
member countries account for over 92 percent of the world
information technology trade. Yet, the IT Agreement has one
major weakness--only two countries in Latin America have
joined, Costa Rica and Panama. Thus, elimination of Latin
American tariffs on semiconductors remains important,
unfinished business for United States trade policy.
Currently, tariffs on semiconductors in key Latin American
markets, such as Brazil and Argentina, remain very high.
They're bound at about 35 percent. Now these high tariffs are a
significant barrier to our exports, which is important, but
they're also, perhaps even more important, an inhibitor to the
development of the electronics industry in Latin America. We
think this is a major consideration for Latin American
countries to take into account during the FTAA negotiations.
Elimination of Latin American tariffs on semiconductors
would help the Latin American countries develop competitive
high-tech industries. The benefits of eliminating tariffs can
be illustrated by comparing what has taken place in Latin
America to that in some of the Asian countries--Singapore,
Taiwan, and others. These Asian countries have eliminated their
tariffs and have seen an explosion in their growth in the
electronics world, while the Latin American countries have
lagged far, far behind.
Expanding the ITA to include these Latin American countries
would be the quickest way to accomplish this important reform.
The FTAA provides another effective mechanism for reducing
Latin American tariffs. While the FTAA is not scheduled to be
concluded until 2005, the recent ministerial declaration in
Costa Rica calls for concrete progress by the year 2000.
One important way to demonstrate concrete progress would be
for the countries of Latin America to join the ITA now and
agree to eliminate their information technology tariffs by the
year 2000, as the other ITA member countries have done. We
believe that the United States should make near-term Latin
American participation in the ITA a key element of its overall
negotiating strategy for the FTAA.
In addition, as the FTAA negotiations go forward, we urge
you to press for strong provisions concerning the protection of
intellectual property rights, removal of barriers to foreign
direct investment, and maintenance of strong and effective
antidumping remedies.
Mr. Chairman, the SIA believes that the FTAA holds much
promise for promoting the continued growth of U.S. high-tech
exports. Expansion of the ITA to include Latin American
countries is one important way to achieve concrete progress in
these negotiations by the year 2000.
Thank you.
[The prepared statement follows:]
Statement of George Scalise, President, Semiconductor Industry
Association, San Jose, California
I appreciate this opportunity to appear before the
Subcommittee on Trade of the Committee on Ways and Means to
present the views of the Semiconductor Industry Association
(SIA) on the Free Trade Area of the Americas.
Before discussing the SIA's position on this important
issue, I would like to take a minute to give some background on
the U.S. semiconductor industry.
The U.S. Semiconductor Industry
Semiconductors are an increasingly pervasive aspect of
everyday life, enabling the creation of the information
superhighway and the functioning of everything from automobiles
to modern defense systems. A recently released economic study
found that the semiconductor industry is now America's largest
manufacturing industry in terms of value-added--contributing 20
percent more to the U.S. economy than the next leading
industry. The average wage in the semiconductor industry is
approximately $55,000, nearly twice the average of private
industry overall. Furthermore, semiconductor price declines
drive computer price declines. According to the Economic Report
of the President, without the faster than average recent rate
of decline of computer prices, overall inflation would have
risen steadily since early 1994.
U.S. semiconductor makers employ about 260,000 people
nationwide, and the presence of the industry is widespread--35
states have direct semiconductor industry employment.
Semiconductor products are the enabling technology behind the
U.S. electronics industry, which provides employment for 4.2
million Americans, in all 50 states.
U.S. semiconductor producers are highly committed to
maintaining their lead in both semiconductor manufacturing and
technology. The U.S. semiconductor industry devotes on average
20 percent of its revenues to capital spending and another 11
percent to research and development--among the highest of any
U.S. industry.
While investing heavily in the industry's future
competitiveness and technological capabilities, SIA members
also have actively sought open markets around the world.
Because the semiconductor industry is so global in nature--
roughly half of the U.S. industry's revenues are derived from
overseas sales--the SIA has been dedicated since its inception
to promoting free trade and opening world markets.
Elimination of Semiconductor Tariffs
SIA has long advocated the elimination of tariffs on
semiconductors and related products. At SIA's request, the
United States, Canada, and Japan eliminated duties on
semiconductors and computer parts in 1985 without waiting for
the conclusion of the Uruguay Round negotiations. SIA supported
the elimination of tariffs in its home market because it
believes that the U.S. semiconductor industry's health depends
on the health of its customers in the electronics and
information industries, and that its customers can produce the
best products if they do not have the costs and administrative
burdens associated with import tariffs.
In 1993, as part of the North American Free Trade Agreement
(NAFTA), Mexico agreed to immediate elimination of its tariffs
on semiconductors.
In 1994, the Uruguay Round negotiations resulted in a
commitment by the Republic of Korea to eliminate its
semiconductor tariffs, as well as a commitment to reduce
semiconductor duties in the European Union. In 1995, at the
request of the European semiconductor industry, the European
Union further reduced its semiconductor duties from as much as
14 percent to a high of 7 percent.
In 1997, the United States and 40 other countries concluded
the Information Technology Agreement (ITA), which will
eliminate tariffs on semiconductors and other information
technology products in these countries by the year 2000. The
ITA, which was negotiated under the auspices of the WTO,
represents a landmark achievement in the development of global
free trade. It has dramatically sped-up the process of
eliminating tariffs on information technology products by
scheduling complete elimination for about 92 percent of world
information technology trade by 2000 and establishing
procedures for eliminating tariffs on additional products.
Despite its tremendous accomplishments, the ITA has one
major weakness--only two countries in Latin America have signed
onto this important agreement: Panama and Costa Rica. Thus,
elimination of Latin American tariffs on semiconductors remains
an important item of unfinished business for U.S. trade policy.
Semiconductor Tariffs in Latin America
Currently, tariffs on semiconductors in such key markets as
Brazil, Argentina, and Venezuela, remain very high--with bound
rates generally around 35 percent. Such high tariffs pose a
significant barrier to U.S. semiconductor exports and also
inhibit the development of information technology industries in
these countries.
Elimination of these tariffs will spur development of
competitive electronics industries in Latin America, as it has
in other nations. It will allow U.S. producers to sell advanced
semiconductors to their Latin American customers at the lowest
possible price, thereby both increasing U.S. exports and
strengthening developing Latin American electronics industries.
The benefit to Latin American countries of semiconductor
tariff elimination is aptly illustrated by comparing developing
countries that have pursued a high tariff strategy with those
that have pursued a low tariff strategy for electronics.
Looking around the world, those developing areas with low or no
duties on electronics components and systems over the past two
decades (Hong Kong, Taiwan, Singapore) have been successful in
developing strong, vibrant economies with dynamic information
technology industries. Meanwhile, those developing areas with
high duties (Latin America, India) have not been successful in
developing their domestic electronics industries. A special
case was Korea, which built a narrow semiconductor industry in
spite of its 8 percent duty. Korea's growth was largely based
on exports of a single commodity product, not in supplying the
broad range of products to its domestic electronic systems
producers. It however has recognized that a zero tariff
environment will best foster its future growth, and has also
signed onto the ITA. Moreover, Korea agreed to accelerate the
phase-out of its semiconductor tariffs so that those duties
would be fully eliminated by 1999.
India has implicitly recognized the importance of open
markets to the development of a competitive information
technology industry and the failure of its earlier highly
protectionist policies by signing onto the ITA.
Unfortunately, Brazil to date continues to protect its
information technology sector, even though that approach has
not worked, and has left Brazil uncompetitive in world
information technology markets. As reported in the Wall Street
Journal, the negative effects of the Brazilian model have been
recognized even by some of its own industry executives:
``We made PCs before the Taiwanese and the Koreans,'' says
Touma Elias, President of Microtec [a Sao Paolo microcomputer
company]. ``But instead of being a $1 billion company, like
[Taiwan's] Acer or [the U.S.'s] AST or Dell, we're a $35
million one hoping to be a $100 million one. Why? Because our
market wasn't open, which made components more expensive.\1\
---------------------------------------------------------------------------
\1\ Thomas Kamm, ``Brazil Set to Life Electronics Import Ban:
Nationalsit Laws Backfire on Computer Industry,'' Wall Street Journal
(August 8, 1991).
---------------------------------------------------------------------------
Elimination of Latin American tariffs in semiconductors and
other electronics goods would go a long way assisting the
countries of Latin America in developing their own competitive
industries. Joining the ITA would be the quickest way to
accomplish this important reform.
The Free Trade Area of the Americas
The FTAA provides another effective mechanism for reducing
Latin American tariffs. While scheduled to be concluded no
later than 2005, the FTAA calls for, among other things, the
progressive elimination of tariffs and concrete progress toward
achieving the agreement's objectives by 2000.
The SIA believes that one important way to demonstrate
``concrete progress'' in the information technology sector is
for the countries of Latin America to join the ITA now, and
agree to eliminate their information technology tariffs by
2000. Joining the ITA would not only allow the countries of
Latin America to demonstrate their commitment to the FTAA
process and enjoy the benefits of free trade more quickly, but
would also demonstrate how the FTAA can support the WTO system,
ensuring that regional trade liberalization would not proceed
at the expense of cooperation with the broader world trading
system. In fact, the business forum that preceded the most
recent FTAA Ministerial meeting in San Jose, Costa Rica,
explicitly endorsed immediate adoption of the ITA by Latin
American countries. In addition, APEC's adoption of the ITA
provides a precedent for immediate adoption of the ITA as a
means to build momentum for a larger free trade region.
The SIA believes that the United States should make near-
term Latin American participation in the ITA a key element of
its overall negotiating strategy for the FTAA. In addition, as
the FTAA negotiations go forward, we urge that the United
States press for strong provisions in the FTAA on protection of
intellectual property rights, removal of barriers to foreign
direct investment (including forced technology transfer
requirements) and maintenance of strong and effective
antidumping remedies.
Electronic Commerce
Recently the hemispheric trade ministers met in San Jose,
Costa Rica to agree on the principles and objectives that will
guide the negotiations for the FTAA. The SIA is pleased that in
their Ministerial Declaration, the trade ministers expressed
interest in increasing and broadening the benefits to be
derived from electronic commerce and called for a public-
private working group to review proposals in this regard.
The SIA believes that the guarantee of tariff-free and tax-
free trade over the Internet is essential to realizing the
benefits of the electronic market and the information society.
We urge the Congress and the Administration to continue to
press both in the FTAA and in the WTO for agreements to ensure
that the Internet remains free of barriers to trade, including
both tariffs and other taxes on electronic commerce.
Fast Track
In addition, I would like to emphasize in the context of
the FTAA that the SIA strongly believes that fast track
negotiating authority is crucial to reducing trade barriers
that impede the development and growth of high-value-added U.S.
industries such as the semiconductor industry. In addition to
reducing tariffs around the world, U.S. trade policy must
continue to be focused on eliminating non-tariff barriers. Fast
track legislation is essential to U.S. efforts to reduce
complex non-tariff barriers that remain as significant
obstacles to our exports in many countries around the world. We
therefore urge the Congress to enact fast track legislation at
the earliest possible opportunity.
Conclusion
The SIA believes that the FTAA holds much promise for
promoting the continued growth of the U.S. high technology
sector. Expansion of the ITA is one important way to achieve
concrete progress in the FTAA objectives by 2000 as envisioned
in the recent FTAA Ministerial Declaration.
I would be happy to answer any questions. Thank you.
Chairman Crane. Thank you.
Mr. Clawson.
STATEMENT OF JAMES B. CLAWSON, CHIEF EXECUTIVE OFFICER, JBC
INTERNATIONAL; ON BEHALF OF INDUSTRY FUNCTIONAL ADVISORY
COMMITTEE ON CUSTOMS, AND JOINT INDUSTRY GROUP
Mr. Clawson. Thank you, Mr. Chairman, Mr. Matsui, Mr. Neal.
It's a pleasure to be here again before this Subcommittee. You
have my written remarks. I would like to just take a few
moments to talk to the Subcommittee.
Particularly, I want to thank you, and all of you, for
being the champions of expanded trade and for what you're
doing. I particularly want to thank you from my perspective, as
you can see from my written testimony, about the customs
issues, for the interest you have shown over the years, and
particularly now, on these very technical issues that, as many
people say, your eyes glaze over and people wonder about rules
of origin and how we do them, and the like. And that's really
why I'm here today.
When we start talking about free trade, and we go about the
importance of reducing the tariffs in all of these countries,
my message to the Subcommittee, and I guess for the record, is
that that is only the tip of the iceberg. What is really
critical here for the businessman, and what we are finding, is
to look at all of those backroom requirements and all of the
issues with regard to clearance of the goods. You'll see in my
written testimony that a number of years ago, not too long ago,
the United Nations did a study that somewhere between 15 and 17
percent of the cost of goods traded today are related to the
documentation requirements. That's an enormous cost. And of
those, somewhere between 4 and 8 percent are related
specifically to the customs clearance requirements.
We have, particularly in Latin America, still enormous
problems with getting clearance through customs, the delays.
We're living in an environment with just-in-time inventories,
with supply chain management, with cycle times that are
critical to us to get our goods into those countries and to our
plants and to the consumers. I think it's really important that
we have these customs administrations in these countries being
ready for the next century and what is required of them.
Now what does that mean? I have in my testimony a list of a
number of things we don't really need fast track authority to
accomplish. By the way, I associate myself with everybody;
we're very much in favor of it, and we need it, and there's no
question that we do, to negotiate these things. But there's an
awful lot that can be done, and you've heard it already
mentioned, short of having fast track to do it.
And some of those are to encourage these countries to adopt
fully the harmonized system, to use the GATT value, to the use
the ATA carnet system, which allows for the import and export
of samples, and things for professional goods, and the like; to
use the World Trade Organization's free shipment inspection
agreement, the various other agreements that are available to
them.
For example, Chile had a new Director General of Customs,
and in 3 years has really modernized. It has automated. It's
done wonderful things. They have not adopted, though, the
valuations system for the appraisement of goods. The reason is
that they don't have people who can manage it. They don't know
how to do it. Because, up until recently, the Central Bank set
all prices for imports. So they didn't have to do appraisement
of goods. So now he's looking at the reason he can't do it. He
says, I don't have anybody here that knows how to do
appraisement of goods.
So one of the things that we're looking at through the WTO,
and I think through the United States, and this Subcommittee
could be helpful in your oversight, particularly of the trade
agencies, is we need to provide some technical assistance and
training to these folks in Latin America. I don't mean in a
condescending way or a Big Brother way at all. What I'm talking
about is there are a lot of things they just don't know how to
do, and if we take a very constructive approach and do it in a
partnership approach with them, there are some things that we
can help them with, and they want it, and they want to do that.
So we do have working groups. It is one of the nine
negotiating areas of the FTAA. We've had folks in the most
recent business forum in San Jose. Customs is a major issue.
Customs facilitation is going very well in the APEC forum,
where we don't have fast track. We believe that the customs
facilitation issues can do very well immediately in the FTA
process, if the countries and the United States, showing
leadership, will just step up and go about getting it done. We
encourage this Subcommittee and all of those who are associated
with it in hearings today all around to take that approach, of
being constructive about it, to understand the importance of
these issues with regard to the classification of the goods,
the appraisal of those goods, and getting them cleared quickly
through customs.
And I must admit that the difficulties of corruption and
the integrity issues we have to address, we have to deal with
this in our view. If you do things electronically, you can
remove a lot of the risks that are associated with people
contact where people can't accept bribes. If you do clearance
and do the payments electronically, and you don't have to
accept the cash at the border, you remove a lot of those kinds
of risks.
So there are a number of very positive things that can
occur here, and I'm appreciative of being able to come here and
share this with you. We hope that we will continue to work with
you in the Subcommittee's efforts with regard to customs here
and in foreign countries.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of James B. Clawson, Chief Executive Officer, JBC
International; on Behalf of Industry Functional Advisory Committee on
Customs, and Joint Industry Group
It is a pleasure to be here today and to have the
opportunity to testify before the Subcommittee on Trade of the
Committee on Ways and Means on the Free Trade Area of the
Americas (FTAA). As Chairman of the Industry Functional
Advisory Committee that reports to Commerce Department and the
Trade Representative and as Secretariat to the Joint Industry
Group, I have concerned myself with international custom issues
on behalf of U.S. companies exporting to foreign markets.
Handled correctly, the FTAA is an excellent opportunity for the
United States to fix many of the customs barrier problems
facing U.S. exporters.
At the 1994 Summit of the Americas, the concluding
declaration identified 11 major areas that would be covered in
the negotiations that are to be completed by 2005. In the
subsequent years, at ministerial meetings, these areas have
been further developed into negotiating methodologies. Today, I
would like to talk about 3 of these 11 areas: Customs, Rules of
Origin, and Standards.
Customs
The goal of the FTAA is to improve trade--the engine of
economic growth. To achieve this goal, the FTAA needs to
harmonize and standardize customs procedures among the 34
countries. After all, customs regulations and procedures are
one of the most significant non-tariff barriers to global
commerce. A 1994 United Nations survey provided revealing data
on the documentation costs of international merchandise
transactions. The study found that between 15% to 17% of the
cost of goods sold in an international transaction is related
to the required documentation. Of that amount, 4% to 8% is due
to Customs documentation alone. It was estimated that a ship
transporting goods also carries 500 lbs of paper documentation
that accompanies those goods.
For the FTAA, the U.S. should encourage all countries to
adopt the 60 World Customs Organization/International Chamber
of Commerce Customs Guidelines for an efficient customs
service.
At a minimum, the U.S. should require as part of any
agreement that member countries adopt, implement and enforce
the following international conventions and agreements:
The Harmonized Commodity Description and Coding
System (HS)
The WTO/GATT Value Agreement
The Kyoto Convention (when revisions are competed
next year)
The ATA Carnet Convention
The WTO Pre-shipment Inspection Agreement
The WTO Rules of Origin Agreement
In addition, attention should be given in the agreement to
customs automation. The FTAA will benefit by countries adopting
existing automation systems such as UN/EDIFACT. The UN/EDIFACT
provides for one electronic communication highway for automated
systems. This means reduced transaction duplication and
transaction costs to global business. A common data directory
also needs to be adopted. A common data directory would satisfy
the standard data requirements of a majority of international
trade transactions. The U.S. is working on just such a system
now called the International Trade Data System. With its G-7
partners, the U.S. hopes to develop a limited list of data
elements required for the international transaction.
Customs procedures also apply to business professionals and
their movement within the FTAA region. The FTAA must work to
simplify customs clearance for professionals and their tools so
those business professionals can move throughout the region
without long delays.
Rules of Origin
The lack of consistency among the 34 FTAA countries' rules
of origin is a major obstacle to global commerce. The San Jose
Ministerial Declaration states that for rules of origin, the
goal is to develop efficient and transparent rules of origin,
including nomenclature and certificates of origin, in order to
facilitate the exchange of goods, without creating unnecessary
obstacles to trade. This goal needs to be fully implemented.
The FTAA can move rapidly toward this goal through the adoption
of the WTO Rules of Origin as a basis for the development of
the preferential rules.
Standards & Non-tariff barriers
The third area of concern that has significant customs
clearance implications is standards. These often become non-
tariff barriers and cannot go overlooked in the FTAA. Product
standards need to be harmonized or mutually recognized
throughout the FTAA. NAFTA is already working on harmonization
and mutual recognition of product labeling and certification
standards. This effort should be expanded in the FTAA. In the
absence of harmonized or mutually recognized standards,
companies wishing to expand internationally are challenged to
understand those multiple standards and make separate
production runs to meet those different standards.
For the large, multinational companies, the issue of
standards is troublesome, but it does not impede them from
international trade. For the small and medium-sized businesses,
such barriers can prohibit entry into the market. Small and
medium-sized businesses do not have the resources to maintain
multiple inventories or the money to find individuals who can
interpret the regulations for them. As a result, these
companies are unable to grow.
Conformity assessment bodies, another aspect of standards,
are the entities that certify a product as being in compliance
with the regulations governing a product's safety, performance,
and compliance with standards. Companies depend on conformity
assessment bodies to ensure their product is fit for sale.
Today, the FTAA does not have mutual recognition of conformity
assessment bodies. As a result, companies are forced to have
their products tested for every country in which they want to
sell the goods. Establishing mutual recognition of conformity
assessment bodies would permit goods to be tested in one
country and their approval would then be accepted in any of the
34 FTAA countries. Not only will this save both time and money;
it also facilitates global commerce.
Conclusion
I thank the members for their time and remain confident
that the areas of customs, rules of origin, and standards will
be well served by the FTAA negotiations' process.
Chairman Crane. Thank you, Mr. Clawson.
Mr. Audley.
STATEMENT OF JOHN J. AUDLEY, PROGRAM COORDINATOR FOR TRADE AND
THE ENVIRONMENT, NATIONAL WILDLIFE FEDERATION
Mr. Audley. Thank you, Mr. Chairman.
At the 1994 Miami Summit, the elected heads of state and
government linked the advancement of human prosperity to three
fundamental principles: a healthy environment, economic
development, and representative democracy. To quote the
Declaration, ``Social progress and economic prosperity can be
sustained only if our people live in a healthy environment and
our ecosystems and natural resources are managed carefully and
responsibly. We will advance our social well-being and economic
prosperity in ways that are fully cognizant of our impact on
the environment.''
The Declaration links concretely economic development and
hemispheric integration to three important environmental goals:
sustainable energy development and use, conservation, and
sustainable use of biodiversity, and a partnership for
pollution prevention.
Nongovernmental organizations took seriously the Miami
Declaration's call to link hemispheric integration to the
principles of democracy, sustainable development, and trade
liberalization. We attended the business forums and trade
ministerial meetings. We responded with concrete
recommendations to issues raised during the preliminary
negotiations, and we worked to build our own community's
capacity to engage as effective participants in trade
negotiations.
We now have a blueprint for formal negotiations agreed to
by our trade ministers at the IV trade ministerial meeting.
The San Jose Declaration makes two important statements on
environment and trade. The trade ministers reiterated the
commitment they made in Miami to negotiate the FTAA, taking
into consideration the broad social and economic agenda
contained in the Miami Declaration. This is largely a
rhetorical statement, one that could be significant, if it was
supported by a plan of action. Unfortunately, from our
perspective, the ministers' commitment to include only those
trade and environment issues agreed to at the WTO's Committee
on Trade and Environment, and their desire to create a dispute
mechanism and processes similar to that used by the WTO
seriously weakens this commitment. Given its poor performance
on trade and environmental policy over the past few years, NGOs
are not supportive of regulating environmental issues solely to
the WTO.
Perhaps more importantly, the ministers have not yet agreed
on the terms of the second important statement made on the
environment in San Jose; namely, the shape and procedures of
what I now understand to be called the Civil Society Committee,
which is charged with addressing issues raised by labor,
environment, businesspeople, and academics.
We ask Members of Congress to work with the administration
and nongovernmental organizations to develop a plan of action
for this Committee, one that promotes green competition by
leveling the playingfield for businesses in compliance with
environmental law. As a starting point, a plan of action should
reiterate the general objectives for environment and trade
stipulated in the Miami Declaration.
We believe the terms of reference for both the Committee on
Civil Society and the Trade Negotiating Committee should
encourage FTA negotiations to place environmental policies on
par with trade liberalization in such a way that would
reinforce the Miami Declaration's commitments to advance and
implement sustainable development.
Congress should urge agreement on a work plan for the
Committee that ensures the following substantive issues are
addressed within the framework of negotiations: How do we
promote energy efficiency among nations of all the hemisphere
and address the intersection between trade liberalization and
climate change? How do we integrate strategies for the
conservation and sustainable use of biodiversity into economic
development activities? How do we explore the creation of
appropriate parallel institutions, as was done during the NAFTA
negotiations? How do we safeguard national laws designed to
reward producers who operate in compliance with national
environmental laws? How do we safeguard against competition
that unnecessarily pollutes the environment and destroys
natural resources? And how do we agree to the terms of and
scope of an environmental impact assessment?
If properly constructed, we believe that the Committee
should work closely with the Trade Negotiating Committee to
identify the intersection between core negotiating issues and
those raised by members of Civil Society. We also believe that
resources should be dedicated by the OAS and ECLAC to build the
capacity of our Latin America colleagues to engage in the
policy dialogs that will take place in the committees created
by the FTAA.
The financial resources should be provided to build the
capacity for these Latin American colleagues to engage in
public discussions in their countries on the objectives and
progress of negotiations. Resources should be available to
enable members of Civil Society to meet regularly with
Committee members and share their views in open sessions.
Finally, we also outline in our testimony specific
recommendations for the creation of an information
clearinghouse. Electronic and hard-copy access to information
is fundamental to what we desire to be effective and
constructive input into the negotiations.
In conclusion, let me say that I appreciate the difficult
nature of the challenge that we place before this Subcommittee
today. Responding to the nexus between sustainable development
and trade liberalization is a difficult, but important task.
The National Wildlife Federation believes that U.S.
leadership is essential if our Nation is to realize this goal.
We offer NAFTA as evidence of the ability of the United States
to take first steps toward sustainable environmentally
sensitive trade. We fully respect this Subcommittee that when
the administration and Members of Congress are united in their
commitment to environment and trade, as in NAFTA, negotiating
parties took seriously our concerns for labor and environment,
and we passed an agreement that many members of the
environmental community could accept.
Thanks.
[The prepared statement and attachments follow:]
Statement of John J. Audley, Program Coordinator for Trade and the
Environment, National Wildlife Federation
Hello, my name is John Audley, and I am the Program
Coordinator for the National Wildlife Federation's Trade and
Environment Program. I am here on behalf of NWF Vice President
for Federal and International Affairs Stephen J. Shimberg, who
was called out of town unexpectedly and cannot testify.
For nearly ten years the National Wildlife Federation has
been actively involved in trade policy negotiation and
implementation. Our more than four million members and
supporters believe strongly that, when properly balanced, trade
and investment agreements are important tools for improving the
quality of life for people around the world. Our comments today
are grounded in the lessons taught us by the NAFTA and WTO
experience, and by our active participation in the ``Free Trade
Area of the Americas'' (FTAA) process.
As the United States and other countries prepare to enter
into formal FTAA negotiations, NGOs throughout the hemisphere
will urge their governments to negotiate trade rules that
promote a just and equitable hemispheric integration process
that improves the quality of life, reduces poverty,
acknowledges the intrinsic value of nature, and promotes
sustainable development for all people and nations without
exception. We believe that U.S. leadership is critical to the
successful realization of these goals, a challenge which we
believe is inexorably tied to the successful outcome of the
negotiations themselves. Unfortunately, the vast majority of
government officials and members of the business community
strongly resist our participation, a situation we believe
threatens public support for the FTAA itself.
My testimony will proceed as follows. I will first review
the commitment made at the 1994 Miami Summit to address
environmental issues within the context of hemispheric
integration. Next I will describe the NGO response to the Miami
Declaration. Third, I will comment on the performance of
governments relative to the broad commitment to link
environment to trade negotiations. Finally, I will describe the
environmental provisions of the San Jose Trade Ministerial
Declaration, and conclude with specific recommendations to
Congress and the Administration as they plan the U.S.
negotiating strategy within the framework agreed to in San
Jose.
I. Elected Heads of State Link Sustainable Development to Economic
Prosperity
At the 1994 Miami Summit of the Americas, the elected heads
of State and Government of the Americas linked the advancement
of human prosperity to three fundamental principles. In the
section entitled ``Partnership for Development and Prosperity:
Democracy, Free Trade and Sustainable Development in the
Americas,'' government officials made clear that these three
principles must be respected if people are to enjoy the
benefits promised by hemispheric integration. To quote the
Miami Declaration,
Social progress and economic prosperity can be sustained
only if our people live in a healthy environment and our
ecosystems and natural resources are managed carefully and
responsibly.... We will advance our social well-being and
economic prosperity in ways that are fully cognizant of our
impact on the environment.
The Summit's Plan of Action calls upon governments to take
concrete steps to realize social progress, economic prosperity,
and a healthy environment. The following action statements
taken from the Miami Summit Plan of Action are especially
important to us:
Cooperate fully in the development of sustainable
energy development and use, including the promotion of
efficient and non-polluting energy technologies, and the
identification for priority financing and development of at
least one economically viable project in non-conventional
renewable energy, energy efficiency, and clean conventional
energy;
Integrate strategies for the conservation and
sustainable use of bio-diversity into economic development
activities; and
Form a Partnership for Pollution Prevention.
Participating governments also recognized the importance of
numerous international environmental agreements, including a
commitment to support the Central American Alliance for
Sustainable Development, Agenda 21, and the Global Conference
on the Sustainable Development of Small Island States.
In addition to the commitment to balance trade with
ecological priorities, throughout the Miami Declaration
governments express their belief that a key element in the
overall plan for hemispheric integration is the strengthening
of democracies. To quote from the Miami Declaration,
. . . representative democracy is indispensable for the
stability, peace and development of the region. It is the sole
political system which guarantees respect for human rights and
the rule of law; it safeguards cultural diversity, pluralism,
respect for the rights of minorities, and peace within and
among nations.
Because expanding the level of public participation in
government activities is central to the goal of hemispheric
integration, specific plans of action were developed by the
Parties to strengthen the dialogue among social groups and
invigorate society and community participation in governance.
We believe strongly that democratic governance and the rule of
law are essential components of national and international
efforts to protect the environment, and we applaud our
governments' commitment to these principles.
II. Citizens Respond to Government's Call to Link Environment to Trade
Non-governmental organizations (NGOs) around the hemisphere
responded positively to the Miami Declaration's commitment to
link comprehensively sustainable development with efforts to
strengthen democracies and advance human prosperity. Despite
strong opposition from many quarters in business and in
government, NGOs participated in the business-oriented ``pre-
ministerial meetings'' called Business Forums, and took part in
Forum-sponsored workshops and panels on sustainable development
and economic integration. NGOs prepared for the trade
ministerial meetings by developing concrete recommendations on
the scope and nature of the preliminary negotiations. In
February, 1997 U.S. NGOs presented the Clinton Administration
with a list of objectives for trade negotiations. We testified
before this Committee three times last year to explain our
objectives for trade and the environment, and to show that,
when our concerns are integrated fully into negotiations,
environmental groups can and will be active supporters of trade
negotiating authority. We have also strengthened relationships
with Latin American NGOs by sharing the trade and environment
lessons taught by NAFTA, and by sharing our technical knowledge
of trade rules and institutions. NGOs around the hemisphere now
play a more direct and active role in trade deliberations with
their own governments.
Our effort to promote responsible, constructive input into
negotiations has begun to bear fruit. Over the past four months
our community prepared two letters for the trade vice-ministers
that offer concrete recommendations for public participation in
negotiations. As ministers discussed establishing a ``study
group'' for the environment, we commented on the various plans
under consideration. And during the San Jose meeting, we worked
with twenty-five NGOs from around the hemisphere to propose an
action plan and formal mechanisms designed to integrate the
principles of sustainable development into formal negotiations.
A copy of each of these documents is appended to this
testimony.
In short, NGOs took seriously the Miami Declaration's call
to linked hemispheric integration to the principles of
democracy, sustainable development, and free trade. We embraced
fully the promise that, when economic integration was based
upon the principles of sustainable development, it strengthened
democracies, enhanced national capacities to set and implement
effective environmental policies, and respected the individual
rights of people throughout the hemisphere. We will continue to
organize ourselves to play a responsible role in the
development of new trade and investment agreements.
Unfortunately, most members of the business and governmental
communities have not been enthusiastic about our involvement.
III. Weak Response to NGO Input by Most Government and Business
Officials
While NGOs have worked hard to offer negotiators concrete
recommendations, most government officials and business
executives have turned a deaf ear to our proposals. For
example, NGO participation in the Denver and Cartagena
Ministerial Meetings did not result in the adoption by the
Parties of any concrete steps to ensure that the preliminary
trade negotiations would include concern for clean energy or
protecting bio-diversity. The initial work program and working
group framework adopted during the Denver meeting made no
mention of the important role for the environment and
sustainability as articulated by the heads of state in Miami.
And when NGOs expressed their concern over the lack of
environmental provisions as a component of the preliminary
negotiations at the Third Ministerial Meeting, the trade
ministers responded by relegating all discussion of the
environment to the World Trade Organization's Committee on
Trade and the Environment.
Most members of the business community were no more
supportive than governments for our efforts to participate
responsibly in negotiations. In the Cartagena report to the
trade ministers, business leaders stated that, ``. . .
environmental policy-setting can be a barrier to economic
development and international trade.'' But they failed to
recognize not only that this is rarely true in practice, but
also that good environmental laws well enforced help to level
the competitive playing field and reward businesses for
operating responsibly. At the 1997 Belo Horizonte meeting, the
Business Forum discussed the creation of a government working
group on sustainable development, but its report emphasized the
need to avoid adopting environmental laws that might restrict
trade. Business officials meeting with U.S. government
officials immediately following the San Jose Business Forum
last month reacted bitterly to the presence of a small number
of NGOs who attended some of the workshops. And while some
members of the business community expressed support privately,
not a single business person in that room publicly defended
NGOs when one speaker argued that ``NGOs have no place in trade
negotiations.'' In fact, until officials from the government of
Costa Rica intervened, the organizers of the San Jose Business
Forum refused to create a workshop or a panel to discuss the
environment in trade.
Back in the United States, the reaction of some Members of
Congress to NGO involvement in trade has not been much better.
In a speech he gave to elected officials from the Mercosur
countries, Arizona Congressman Jim Kolbe demonized environment
and labor groups, arguing that our irresponsible behavior
caused fast track's defeat in Congress last year. He argued
strongly against the inclusion of environment in trade
negotiations, purportedly based on a threat of revamping
environmental laws within the framework of trade negotiations.
To be quite honest, I do not understand this kind of
response from business and government. NAFTA's implementing
legislation did not change a single environmental law in any of
the three participating countries. To make this statement to
Mercosur officials sets up a false conflict and misrepresents
environmentalists' intentions for the FTAA negotiations. More
broadly, we consider the governments' decision to relegate to
the WTO environmental matters that belong in the FTAA
negotiations to be a serious flaw in logic. By considering only
those environment and trade decisions developed by the WTO,
FTAA governments are asking NGOs to place our faith solely in a
Committee whose performance has been so disappointing even WTO
Director General Renato Ruggiero acknowledged its failure in
recent speeches and meetings with NGOs.
Perhaps more importantly, removing the environment from the
FTAA negotiations seriously jeopardizes the negotiators'
ability to meet the commitments made to the people of the
Western Hemisphere by our heads of state in Miami. It threatens
the long term success of the integration process because
legitimate voices are not heard. And if fast track's failure
last fall and that of the Multilateral Agreement on Investment
(MAI) this year, along with the problems facing re-funding of
the International Monetary Fund (IMF) don't convince members of
Congresses here and elsewhere that NGOs are involved and care
about international trade and investment agreements and
institutions, then I suggest that elected officials are not
listening.
NGOs are prepared to articulate a positive message on
environment in trade. We will support trade and investment
agreements that take into consideration our objectives, and we
will actively oppose those which do not. Opposition to the
inclusion of specific goals for the environment in trade
negotiations, and exclusion of NGOs as participants in
negotiations, place us all on a path to greater conflict and
disagreement.
IV. The Road Ahead
I conclude my presentation by reviewing the San Jose Trade
Ministerial Declaration, and by offering the Committee some
specific questions to ask of the Administration as they begin
deliberations within the negotiating framework established at
San Jose.
Trade ministers meeting in San Jose agreed to an initial
structure for negotiations, leaving the form flexible enough to
respond to unforseen needs or changes in negotiating agenda.
First the ministers agreed to meet every eighteen months, and
agreed to the negotiating locations through the year 2004. Nine
negotiating groups, their chairs and vice-chairs, were
selected. Canada was selected to be the Chair of the Trade
Negotiating Committee (TNC) through the end of 1999, to be
followed by Argentina (Nov. 1, 1999-April 30, 2001), Ecuador
(May 1, 2001-Oct. 31, 2002), and finally, the negotiations will
be co-chaired by the United States and Brazil (Nov. 1, 2002-
Dec. 31, 2004). The Trade Negotiating Committee (TNC) will have
the responsibility for guiding the work of the negotiating
groups and of deciding on the overall architecture of the
agreement and institutional issues. The TNC will identify and
develop appropriate procedures to ensure timely and effective
coordination between negotiating groups on interrelated issues.
The San Jose Declaration makes two important statements on
environment in trade, statements to which we now turn our
attention. In the introduction, the trade ministers reiterated
the commitment they made in Miami to negotiate the FTAA taking
into consideration ``. . . the broad social and economic agenda
contained in the Miami Declaration . . . '' This is largely a
rhetorical statement, one that can be significant if it is
supported by a plan of action. Unfortunately the commitment to
environment in trade is weakened by the ministers' commitment
to the WTO Singapore declaration which identifies the WTO's CTE
as the arena for full discussion of the trade and environment
nexus, and by their desire to create a dispute mechanism and
process similar to that used at the WTO. However, the ministers
have not yet agreed on the shape and procedures of the
Committee of Government Representatives (CGR) charged with
addressing issues raised by labor, environment, businesspeople
and academics. It is with this thought in mind that we urge
members of Congress to endorse these recommendations:
1. Substantive Issues
We ask members of Congress to work with the Administration
to develop a plan of action for the CGR that promotes green
competition by leveling the playing field for businesses in
compliance with environmental laws. As a starting point, the
plan of action should reiterate the general objectives for
environment in trade agreed to by the heads of state in Miami.
FTAA negotiations should be dedicated to placing environmental
policies on par with trade liberalization. If this objective
shapes the work of the negotiating groups and the CGR, it
reinforces the commitment made by the heads of state to advance
and implement sustainable development.
More specifically, Congress should urge agreement on a work
plan for the CGR that:
Promotes energy efficiency among all the nations
of the hemisphere, and addresses the intersection between trade
liberalization and climate change;
Integrates strategies for the conservation and
sustainable use of bio-diversity into economic development
activities;
Explores the creation of appropriate ``parallel
institutions,'' as was done in the NAFTA;
Safeguards national laws designed to reward
producers operating in compliance with national environmental
laws;
Agrees to the terms of and scope of environmental
impact assessments; and
Safeguards against competition that pollutes the
environment or destroys natural resources.
If properly constructed and effectively used, the CGR
should work closely with the TNC to identify the intersection
between the core negotiating issues and those issues raised by
members of civil society.
2. Resources for Latin American Participation
One of the most important issues facing Latin American NGOs
is that of resource access to enable citizens to participate
effectively in negotiations. We believe that resources should
be dedicated by the Organization of American States (OAS) and
by the United Nations Economic Commission for Latin America and
the Caribbean (ECLAC) to build the capacity of NGOs to engage
in the policy dialogue that will take place in the CGR and TNC.
Financial resources should be provided to build national
capacity for NGOs to engage in public discussions in their
countries on the objectives and progress of negotiations, and
should be available to enable members of civil society to meet
regularly with the Committee members and share their views in
open sessions. We understand that the OAS has already prepared
a budget of $2.8 million for all trade related projects in
1998; we feel that an equivalent budgetary effort must be
developed to enable civil society to engage fully in the
negotiations.
3. Access to Information
A final important obstacle to informed and productive
participation is the lack of information; interested citizens
around the hemisphere simply lack access to information
detailing the negotiating timetable, objectives, and
participants. In the February 8, 1998 letter from NGOs to the
trade vice-ministers, we outlined specific recommendations for
the creation of an information clearinghouse (see appendix
documents). Electronic and hard-copy access to the information
considered by the Committee, as well as the issues under
consideration by the negotiating groups, is essential. We urge
Congress to tell the President that information access is
critical to successful participation in the Committee, and to
achieving the Miami objective of strengthening democracy
through expanded public participation in government business.
In conclusion let me say that I appreciate the difficult
nature of the challenge we place before this committee today.
Responding to the nexus between sustainable development and
trade liberalization is a difficult but an important task.
National Wildlife Federation believes that U.S. leadership is
essential if our nation is to realize this goal. We offer NAFTA
as evidence of the United State's ability to forge a path
toward sustainable trade. When the Administration and Members
of Congress were united in their commitment to environment in
trade during the NAFTA negotiations, negotiating parties took
seriously our national commitment not to advance trade
agreements until environment and labor issues were also
resolved.
* Centro de Derecho Ambiental y de los Recursos Naturales * Centro
Mexicano de Derecho Ambiental * Comite Nacional Pro Defensa de la Fauna
y Flora * Centro de Derecho Ambiental de Honduras * Fundacion AMBIO *
Fundacion Ambiente y Recursos Naturales * FLACSO * Instituto de Derecho
Ambiental y Desarrollo Sustenable * National Audubon Society * Natural
Resources Defense Council * National Wildlife Federation * Universidad
Autonoma Metropolitana * Sociedad Conservacionista Audubon de Venezuela
*
October 27, 1997
Mr. Carlos Murillo
President of the Preparatory Committee
Pro-Tempore Presidency
Free Trade Area of the Americas Office
Ministry of Foreign Trade
P.O. Box 96-2050
San Jose, Costa Rica
To the Honorable President of the Preparatory Committe of the Free
Trade Area of the Americas Office:
As you prepare to discuss the appropriate role in the Free Trade
Agreement of the Americas negotiations (FTAA) for private parties, we
urge you to legitimize and institutionalize participation and input
from a broad spectrum of civil society sectors.
Under the Joint Declaration from the Third Ministerial Meeting at
Belo Horizonte, Brasil, May 16, 1997 all signatory countries stated
that they ``... consider[ed] the inputs from stakeholders of ... civil
societies to be important to ... deliberations ... and ... encourage[d]
all countries to take them into account through mechanisms of dialogue
and consultation.'' We understand that a private-sector business forum
has been institutionalized and held in conjunction with each FTAA
ministerial. We also understand that business sector's recommendations
have been reviewed and analyzed by the Working Groups. We believe that
recommendations by the business sector are an important contribution to
trade deliberations; however, they represent only one view from
stakeholders of civil society.
Public participation in trade policy deliberations needs to be
balanced to achieve the stated goals of the Joint Declaration. First,
the inclusion of representatives from a diverse cross-section of civil
society sectors, such as the environmental sector, will help ensure
that negotiators take into consideration the broader views of civil
society. Broader public participation in the trade policy dialogue will
ensure involvement from those directly affected by economic
integration. Second, formal dialogue and consultation with a broad
selection from civil society will help to ensure that ``[f]ree trade
and economic integration ... [raise] ... standards of living, improving
the working conditions of people in the Americas and better protecting
the environment.'' \1\ Third, public participation in trade
deliberations is also crucial to advancing the signatory countries'
``... commitment to transparency in the FTAA process.'' \2\ Finally,
public participation is a fundamental element of democratic practice
and the cornerstone of effective decision making process. ``[A]
vigorous democracy requires broad public participation in public
issues.'' \3\
---------------------------------------------------------------------------
\1\ Summit of the Americas, Declaration of Principles, subtitle
``To Promote Prosperity through Economic Integration and Free Trade,''
(1994, page 2).
\2\ Joint Declaration from the Third Ministerial Meeting at Belo
Horizonte, Brasil, (May 16, 1997, paragraph 14).
\3\ Plan of Action, Declaration of the Summit of the Americas,
subtitle ``Invigorating Society/Community Participation,'' (1994, page
4).
---------------------------------------------------------------------------
As you work toward the completion of the March 1998 Declaration of
San Jose, we urge you to incorporate the language of the Declaration of
Principles, Summit of the Americas of 1994 \4\ to include ``...the
right of all citizens to participate...'' in the decision-making
processes surrounding FTAA negotiations by creating an effective avenue
for public dialogue and input. Integration should guarantee adequate
mechanisms for participation and interaction with negotiators,
including the resources necessary to provide all members of civil
society routine access to working group meetings and negotiating
sessions. Participation by the environmental sector should not depend
solely on further developments at the WTO.
---------------------------------------------------------------------------
\4\ Declaration of Principles, Summit of the Americas, (Santa Cruz
de la Sierra, Bolivia, 1996, paragraph 8).
---------------------------------------------------------------------------
Economic development and environmental protection are two sides of
the same coin and cannot be separated. We stand ready to work with you
to develop and advance a coherent Western Hemispheric agenda for
sustainable development.
Thank you for your attention to this important matter.
Respectfully submitted,
Gustavo Alanis Ortega
Centro Mexicano de Derecho Ambiental
(Mexico)
Luis Castelli
Fundacion Ambiente y Recursos Naturales
(Argentina)
John J. Audley
National Wildlife Federation
(U.S.A.)
On behalf of the following:
FLACSO (Argentina), Comite Nacional Pro Defensa de la Fauna y Flora
(Chile), Centro de Derecho Ambiental y de los Recursos Naturales (Costa
Rica), Instituto de Derecho Ambiental y Desarrollo Sustenable
(Guatemala), Centro de Derecho Ambiental de Honduras (Honduras),
Universidad Autonoma Metropolitana (Mexico), National Audubon Society
(U.S.A.), Sociedad Conservacionista Audubon de Venezuela (Venezuela),
Natural Resources Defense Council (U.S.A.), Fundacion AMBIO (Costa
Rica)
* Centro de Derecho Ambiental y de los Recursos Naturales *Centro
Latino Americano de Ecologia Social * Centro Mexicano de Derecho
Ambiental * Comite Nacional Pro Defensa de la Fauna y Flora * Centro de
Derecho Ambiental de Honduras * Fundacion Ambiente y Recursos Naturales
* Fundacion AMBIO * Fundacion Salvadorena para el Desarrollo Economico
y Social * National Audubon Society * National Wildlife Federation *
PRONATURA, Mexico * PRONATURA, Republica Dominicana * Rainforest
Alliance * Red Mexicana de Accion Frente al Libre Comercio * Patricia
Gay, Environmental Consultant * Marie-Claire Segger, Trade Rules and
Sustainability in the Americas Project * Mindahi Crescencio, Plural
Group of Indigenous Peoples * Paulo Guilherme Ribiero, Universidade de
Brasilia *
February 8, 1998
Pro-Tempore Presidency
FTAA Office
Ministry of Foreign Trade
P.O. Box 96-2050
San Jose, Costa Rica
To the Honorable Vice Ministers of Trade attending the Third FTAA
Vice Ministerial Meeting:
When government officials meet this February in San Jose, Costa
Rica for the Third Free Trade Area for the Americas (FTAA) Vice-
Ministerial meeting, we again urge you to take concrete steps to
legitimize input and participation in trade negotiations from a broad
spectrum of civil society. Public participation in trade and investment
negotiations holds the key to successful completion of the proposed
FTAA negotiations.
Since the First FTAA Trade Ministerial in 1995, negotiators have
used the Business Forum proceedings to work directly with business
community members on issues directly related to the scope and nature of
trade negotiations. Some of the individual ``working groups'' have even
developed more formal consultancy processes with the business sector,
such as the meeting between the Services Working Group and the business
community held on October 7, 1997 in Santiago, Chile. Unfortunately,
similar opportunities to meet with negotiators do not exist for other
sectors of civil society.
We believe that public participation should be integral to any
trade or investment negotiations. Such a linkage confirms the
relationship between open markets and democratic principles, and
provides citizens with the information they need to make sound and
informed choices about policies that affect their future. But despite
the fact that clear mandates which strongly support the full
integration of civil society in the decision-making process, including
policies and programs design, implementation and evaluation, exist in
the Miami and Bolivia Summit Plans of Action, and in the Belo Horizonte
Trade Ministerial Declaration, no such steps have yet been taken. The
time has come to follow up on those commitments and make public
participation a cornerstone of the FTAA process. We therefore urge the
negotiators to adopt and implement the following recommendations as
part of the Declaration of San Jose:
Place Public Participation on a Par With Overall Trade Negotiation
Objectives
A general objective on public participation sends a strong
signal to participating countries and to business interests
that democratic decision making is integral to good trade and
investment policy.
Provide a Specific Work Plan Designed to Overcome the Obstacles that
Restrict Citizen Participation
While members of the business community enjoy the financial
resources, technical skills, and personal and professional
relationships required to engage government officials in useful
policy dialogue, citizen groups--especially those working in
emerging economy nations--do not possess such resources. To
overcome these obstacles to effective participation, we suggest
the following specific work plan:
1. Establish an Information Clearing House
One of the biggest obstacles to participation is the lack
of information; interested citizens around the hemisphere
simply lack access to information detailing negotiating
timetable, objectives, and participants. Because most citizens
group now have access to information available through the
Internet, posting documents on a website or maintaining a
communications ``list-serve'' are an inexpensive means of
overcoming most information obstacles. A list-serve would also
keep citizens abreast of upcoming meetings, workshops, and
conferences, and encourage dialogue among stakeholders.
The current official FTAA website provides useful
information such as a chronology of the FTAA process; the
official documents from the Ministerial meetings; information
on the twelve Hemispheric Working Groups and access to some of
the official documents prepared for the Working Groups. But,
for citizens to be fully informed, information that states the
different countries positions towards specific concerns on the
trade agenda; the minutes of the past Vice Ministerial
meetings; the agenda and issues of discussion for the future
Vice Ministerial meetings, the future Ministerial meeting, and
the Hemispheric Working Group meetings; as well as, points of
contact; links to related home pages; and access to position
papers presented during negotiations, will better help
understand the process itself, the challenges and promote
public access. Because of the diversity of languages spoken in
the Hemisphere, we applaud and continue to encourage the
current effort in providing this information in English,
Spanish, French, and Portuguese.
We recommend you review both the websites and list-serves
maintained by the North American Commission on Environmental
Cooperation (CEC), and the North American Development Bank and
Border Environmental Cooperation Commission (NADBank/BECC), for
two examples of how to establish and maintain two important
vehicles for citizen outreach and communication. We also
recommend that you establish a single official FTAA website,
and avoid rotating responsibility for maintaining it between
ministerial meeting hosts. The United Nations Economic
Commission for Latin America and the Caribbean (ECLAC) or the
Organization of American States (OAS) would be good candidates
for such an important and permanent role in trade and
investment negotiations.
2. Establish National Advisory Committees
Another obstacle blocking citizen participation in
negotiations is the lack of formal access. National Advisory
Committees, consisting of members of government and civil
society, would be responsible for developing concrete
negotiating recommendations, and responses to the
recommendations offered by other countries. Committee
appointments should be made in a transparent manner, with the
objective of ensuring broad representation of citizen groups
and community perspectives.
3. Promote Research, Training, and Capacity Building
A third obstacle to effective citizen participation is the
lack of popular understanding of the implications of expanded
trade. The OAS recently allocated approximately $2.8 million
for all trade-related projects in 1998, a portion of which is
dedicated to government training programs. Equivalent budgetary
efforts must be included into the Inter-American Strategy for
Participation (ISP) of the OAS, regarding technical assistance
and training addressed to civil society. Better understanding
of the issues affecting citizens lives caused by economic
integration will ultimately produce better policies that
advance a sustainable development strategy for the Hemisphere.
Workshops and forums should also combine participation of
environmental agency representatives to discuss trade issues as
a way to establish communication between government agencies.
4. Fund Civil Society Participation in Trade and Investment
Negotiations
The final major obstacle blocking citizen's participation
in trade and investment negotiations is money; attending
negotiating sessions, meeting with other stakeholders, and
preparing useful position papers and analyses require resources
most emerging economy NGOs do not have. By providing
participation funds to NGOs, multinational institutions such as
the Inter American Development Bank (IDB) and the Organization
for the American States (OAS), could play an important role
ensuring that trade liberalization benefit the largest number
of people possible.
Important steps need to be taken under the FTAA
negotiations to expand the level of information dissemination
and guarantee transparency. The objective recommendations would
help to establish a minimum mechanism necessary to make public
participation a reality under the FTAA process. We urge you to
act now, and help citizens prepare to take part fully in
potentially the most significant political events affecting
their lives today.
Respectfully submitted,
Franklin Paniagua & Lic. Lizbeth
Espinoza
Centro de Derecho Ambiental y de los
Recursos Naturales
(Costa Rica)
Roxana Salazar
Executive Director
Fundacion AMBIO
(Costa Rica)
Eduardo Gudynas
Centro Latino Americano de Ecologia Social
(Uruguay)
Daniel Sabsay
Executive Director
Fundacion Ambiente y Recursos Naturales
(Argentina)
Gustavo Alanis
President
Centro Mexicano de Derecho Ambiental
(Mexico)
Eduardo Nunez
Executive Director
Fundacion Salvadorena para el Desarrollo
Economico y Social
(El Salvador)
Miguel Stutzin
Comite Nacional Pro Defensa de la Fauna y
Flora
(Chile)
Kathleen Rodgers
National Audubon Society
(USA)
Lic. Mario Gerardo Galindo
President
Centro de Derecho Ambiental de Honduras
(Honduras)
John Audley
Trade and Environment Program
Coordinator
National Wildlife Federation
(USA)
Paulo Guilherme Ribiero Meireles
Universidade de Brasilia and Project Researcher
Trade Rules and Sustainability in the Americas Project
Hans Herrmann
General Director
PRONATURA Nacional, Mexico
(Mexico)
Rene Ledezma
PRONATURA, Rep. Dominicana
Executive Director
(Republica Dominicana)
Chris Willie
Co-Director, Latin American Office
Rainforest Alliance
(Costa Rica)
Alejandro Villamar
Red Mexicana de Accion Frente al Libre
Comercio (Mexico)
Patricia Gay
Environmental and Development Policy
Consultant
Latin America & the Caribbean
Marie-Claire Segger
Project Coordinator
Trade Rules and Sustainability in the Americas Project
Mindahi Crescencio Bastida
Plural Group of Indigenous People and Project Researcher
Trade Rules and Sustainability in the Americas Project
cc:
Argentina, Secretario de Relaciones Econmicas Internacionales,
Jorge Cambell
Argentina, Canciller de Relaciones Exteriores, Guido Ditera
Barbados, Embajador, Courteney Blackman
Barbados, Minister of International Trade and Bussines, Phillip
Goddesrd
Belize, Ambassador, James F. Murphy
Bolivia, Ministro de Comercio Exterior e Inversiones, Jorge
Crespo
Bolivia, Vice Ministro de Comercio Exterior e Inversiones,
Amparo Vilivian
Bolivia, Commercial Attache, Carlos Ibarguen
Bolivia, Marcos Alanda Navas
Brazil, Embajador, Jose Botafogo Goncales
Brazil, Second Secretary, Norberto Moretti
Canada, Assistant Deputy Minister, International Business and
Comunications,
Kathryn E. Mccallion
Canada, Third Secretary (Commercial), Allison Saunders
Chile, Director General de Relaciones Econmicas Internacionales
y Coordinacin del
Departamento ALCA, Juan Gabriel Valdez
Chile, Segundo Secretario, Mauricio Hurtado
Chile, Departamento ALCA Amrica del Norte, Alicia Frohmann
Chile, Economic Counselor, Mario Matuz
Chile, Directora de la Division de Medio Ambiente y Desarrollo,
TC Helga Hoffmann
Colombia, Vice Ministro de Comercio Exterior, Magdalena Pardo
Colombia, Asesor Especial del Ministro de Comercio Exterior,
Felipe Jaramillo
Costa Rica, Vice Ministro de Comercio Exterior, Carlos Murillo
Costa Rica, Minister Counselor of Enviroment and Tourism, Oscar
Acua
Costa Rica, Minister Counselor of Trade, Carlos Silva
Costa Rica, Encargada de la Cumbre de las Americas, Ethel
Melania Abarca
Amador
Ecuador, Vice Ministro de Comercio Exterior, Carlos Bano Mera
Ecuador, Segundo Secretario, Diego Ramrez
El Salvador, Embajador, Rene Leon
El Salvador, Counselor for Economic Affairs, Werner Romero
Grenada, Ambassador, Denis Antoine
Guatemala, Vice Ministro de Comercio Exterior, Eduardo Sperisen
Guatemala, Commercial Attache, Leonel Maza
Guyana, Permanent Secretary, Neville Potaram
Guyana, Second Secretary, Taveta Haniff
Hait1, Minister Counselor, Harold Joseph
Honduras, Vice Ministro de Comercio Exterior, Sergio Nuez
Honduras, Third Secretary, Yolanda Membreo Jamaica, Pamela
Hamilton
Jamaica, Coordinadora Cumbre de las Amricas, Ellen Bogle
Mexico, Subsecretario de Negociaciones Internacionales, Jaime
Zabludovsky
Mexico, Director of Free Trade, Luis de La Calle
Mexico, Director de Comercio y Medio Ambiente, Gov MX M.en
C.Luis F.
Guadarrama
Nicaragua, Vice Ministro de Economa y Desarrollo, Azucena
Castillo
Nicaragua, Economic and Trade Counselor, Jorge Wong-Valle
Nicaragua, Jefe del Departamento de la Cumbre de las Americas,
Patricia Jarqun
Barjm
Panama, Vice Ministro de Comercio e Industria, Jose Andres
Troyano
Panama, Commercial Attache, Angela Velasquez
Paraguay, Vice Ministro de Relaciones Exteriores, Leyla Rachid
Lichi
Paraguay, Counselor, Ricardo Caballero
Peru, Vice Ministro de Turismo, Integracin y Negociaciones
Comerciales
Internacionales, Diego Calmet
Peru, Commercial Counselor, Eduardo Rivoldi
St. Kitts & Nevis, Permanent Secretary of Trade, Horatio
Verfellief
St. Kitts & Nevis, Minister Deputy Chief of Mission, Ken Jules
St. Lucia, Permanent Secretary, Earl Huntley
St. Lucia, Charge D'Affaires, Juliette Mallet
St. Vincent & Grenadines, Ambassador, Kingsley Layne
Surinam, Counselor, Rudy Alihusain
The Bahamas, Ambassador, Sir Arlington Butler
The Dominican Republic, Vice Ministro, Marcelo Puello
The Dominican Republic, Minister Counselor, Roberto Despradel
Trinidad & Tobago, Permanent Secretary, Winston Connell
Trinidad & Tobago, Counselor, Carl Francis
United States of America, Associate US Trade Representative for
the Western Hemisphere, Peter Allgeier
United States of America, Director for The Free Trade Area of
the Americas,
Karen Lezney
United States of America, Deputy Assistant, Gov US Samuel E.
Bryan
United States of America, Ambassador, Senir Coordinator, Summit
of the Americas, Director, Inter-American Economic Affairs, Gov
US Ricahrd C. Brown
Uruguay, Vice Ministro de Relaciones Exteriores, Carlos Prez
del Castillo
Uruguay, Commercial Attache, Ricardo Duarte
Uruguay, Gustavo Alvarez Goyoaga
Venezuela, Director General Sectorial de Comercio Exterior,
Jose Antonio Martnez
Venezuela, Economic and Petrolum Affairs, Manuel Iribarre
National Wildlife Federation
Office of Federal and International Affairs
1400 16th Street, NW, Suite 501
Washington, D.C. 20036
Mr. Peter Allgeier
Associate US Trade Representative for the Western Hemisphere
US Trade Representative
Washington, D.C. 20508
Fax #: 202 3954579
Dear Mr. Allgeier:
As you prepare to discuss with your counterparts next week the
structure for the Free Trade Area of the Americas negotiations, and
particularly the establishment of a Study Group on Trade and the
Environment, you have asked for our reactions to a couple of recent
conceptual proposals for inching toward a discussion on trade and the
environment.
I. National Mechanisms for Public Participation.
A proposal to have the US and Mercosur jointly to develop a set of
national consultative fora, which would probably rely on the Mercosur
model for discussion processes, could have some useful potential.
Nevertheless, recognizing that we do not have enough information to
make concrete recommendations, we want to flag some potential pitfalls
in such an approach. We have consulted with our counterparts in
Mercosur countries and they have indicated several important
limitations of the existing Consultative Fora for Economic and Social
issues that should be remedied if you pursue this model:
1). They do not feed into the Mercosur process. We believe it is
important that if similar fora are created between the US and Mercosur
they should develop clear mechanisms that enable them to feed their
recommendations throughout the FTAA framework. Developing national
consultative mechanisms are just one of a series of steps that need to
be taken to encourage citizen participation. We recommend that you look
at the letter we sent you on February 10, 1998 for other concrete
recommendations.
2).The Mercosur fora do not involve environmental NGO's, only
business and labor. Of course we assume that your proposal would ensure
environmental NGO participation.
3). The Mercosur groups are for consultation only and do not have
an advisory role. There are presently many different fora that hold
dialogues on trade and the environment, so we would not want this to be
just another one. It would be very important to ensure that
participating environmental NGO's can play an appropriate role in trade
negotiations. You probably are aware that many NGO's need financial
support to access documents and attend meetings. Such fora will need to
mechanism to address this.
The proposal you are considering, to have a similar fora for the US
and Mercosur, could be a step in the right direction to start a
dialogue. But, as you know, we will continue to encourage you to make
sure similar steps are taken within the FTAA framework itself.
Others have suggested the OAS as a potential forum. But, we as well
as other NGO's in Latin America are concerned that this would be an
inadequate solution. At this time the OAS has a limited capacity to
encourage citizen participation in trade negotiations, and even less to
strengthen the trade and environment nexus. Nevertheless, encouraging
this institution to develop a training and capacity-building project on
trade and environment issues around the hemisphere could help produce a
more positive atmosphere to advance a trade and environment agenda
within the framework of the FTAA.
Encouraging regular meetings between the trade and environment
ministers from the region would help build national and regional
strategies to advance a sustainable development agenda for the Western
Hemisphere. As we have found in our discussions with government
officials in Latin America, most of the fear of the trade and the
environment agenda is based on misunderstanding, which such meetings
could begin to alleviate. But as we must continue to reiterate, making
sure that a clear mechanism is devised which allows this process to
feed into the FTAA negotiations would be of utmost importance.
The Central American countries, motivated by the Central American
Commission for Environment & Development (CCAD) and the Permanent
Secretary for the Central American Economic Integration Agreement
(SIECA), have already taken this step, and have crafted a Declaration
signed by both the Trade and Environment Ministers of each country
geared towards incorporating the environmental dimension into trade
liberalization and economic development in Central America. A copy of
the first draft is attached to this document, but we understand there
is a more recent version. A person to contact on this issue is Mr.
Marco Gonzalez and Jorge Cabrera from the CCAD, tel.502 3605426; fax:
502 3343876.
As we have said, any of these alternative fora for a trade and
environment dialogue should be encouraged, but should not preclude the
establishment of the Study Group or a formal working group within the
context of the FTAA.
II. Study Group on Trade and the Environment.
Please remember that we applaud and continue to encourage your
effort to keep environment in the trade dialogue. Nonetheless, it is
probably obvious to you that a Study Group, at least the little we so
far understand about it, would not meet our definition of fully
integrating environmental priorities in trade negotiations. Nor does it
reflect the agenda for trade negotiations articulated by President
Clinton in his November 1997 ``Statement of Executive Initiatives''.
Therefore, although we fully understand the difficulties you have
encountered in promoting a more straightforward negotiation on trade
and the environment, we hope you will understand, in turn, that we
would not be in a position to publicly support this concept, since we
cannot see at this time how it would advance our goals.
On that basis, we offer the following observations:
a) There is a need to articulate stronger terms of reference.
1). As you know, we believe this Study Group could play a key role
in defining the relationship between the Western Hemisphere trading
system and the environment, but only if it feeds into the negotiating
framework of the FTAA, including all the relevant negotiating groups. A
balance needs to be struck between ``centralizing'' the trade and
environment discussion in a Study Group on Trade and the Environment
and promoting the integration of environmental concerns into all
aspects of the negotiating groups. While a dialogue on trade and the
environment issues requires a focal point to ensure that they are
advanced continuously, this will only work if trade and environment
becomes an integral part of the agenda of all parts of the FTAA
negotiating framework. We appreciate your efforts to secure a foothold
for this dialogue, but we must continue to push for full integration.
2). The terms of reference should include the concrete steps for
citizen participation and information dissemination that we listed in
the letter we sent you dated February 10, 1998.
3). We are prepared to accept the need for the Study Group to begin
in an oblique manner, with an evaluation of the linkages between trade
and the environment contained in existing regional agreements (i.e.,
Mercosur, Andean Pact). This would certainly be an improvement over the
Belo Horizonte agreement, which maintained that the issue of the
environment and its relation to trade would only be kept under
consideration ``...in light of further developments in the work of the
WTO Committee on Trade and the Environment'' (Declaration of Belo
Horizonte, paragraph 15.). That formulation would severely limit the
possibilities of developing national and regional strategies to deal
with the topic, and it would also reduce any possibility of dealing
with each country's specific environmental peculiarities. Of course,
the Belo Horizonte formulation would also limit citizen participation,
contrary to what is encouraged under Agenda 21, the Summit of the
Americas Declaration and the Declaration of Santa Cruz de la Sierra.
4). The terms of reference should include developing a real agenda
for trade and the environment. For example, one topic could be
developing a set of environmental indicators that would be comparable
to economic indicators for the hemisphere.
5). The Study Group on Trade and the Environment should aim to
develop concrete steps to enhance the capacity of national governments
to have a constructive domestic dialogue and to create their own
programs on trade and environment. It should also foster a working
relationship between trade and environment ministers, as well as among
their own relevant national agencies.
Nevertheless, please keep in mind that we await a Study Group that
grapples with real trade and environment issues of this hemisphere, and
that is linked to the negotiations. We urge you to work toward this in
future steps.
b) As you know, we have the long term goal of linking the
development of appropriate parallel institutions, dedicated to
balancing trade and environment priorities, to the trade negotiations
themselves. We are unclear how the Study Group might advance this goal;
but perhaps this can be built into the formulation of that entity.
c) A clear commitment to make the Study Group on Trade and the
Environment a reality should also include a budget proposal to realize
its stated objectives.
III. We continue to encourage you to ensure that the following
objective and principle are part of the framework of the Declaration of
San Jose:
A general objective which places Trade Liberalization and
Environmental Policies on a par as mutually supportive. This will
reinforce the commitments made at the United Nations Conference on
Environment and Development (Agenda 21) held in Rio de Janeiro in 1992;
at the Summit of the Americas held in Miami in 1994; and those made at
the Summit of the Americas in Santa Cruz de la Sierra, Bolivia in 1996.
Trade agreements our nation enters from now on should be engines for
sustainable development.
Procedural transparency in trade institutions and
participation in the negotiations constitute fundamental principles for
the way the negotiations will be led. Increased transparency and scope
for participation play a key role in the attainment of basic goals of
trade policy, such as ensuring that trade contributes to
sustainability. The ``right to know'' and the ``right of all citizens
to participate'' are fundamental elements of democratic practice and
the cornerstone of effective decision making process.
We again strongly encourage you to promote a stronger trade and
environment agenda for the Western Hemisphere and to ensure effective
steps will be taken so that a Free Trade Area of the Americas Agreement
not be reached at the cost of environmental harm.
Thank you for your attention to this important matter.
Respectfully yours,
Barbara Bramble
Senior Director International Affairs
National Wildlife Federation
Declaration by Non-Governmental Organizations of the Hemisphere on the
Occasion of the IV Ministerial of the Free Trade Area of the Americas
We, the undersigned representatives of civil society
organizations from countries throughout the hemisphere,
gathered here today, March 18, 1998, in San Jos, Costa Rica:
Recognize that our governments are concluding their
preliminary discussions on hemispheric economic integration
here at the Fourth Trade Ministerial of the Americas, and are
about to launch formal negotiations for a Free Trade Area of
the Americas (FTAA) at the Second Summit of the Americas in
Santiago, Chile;
Support a just and equitable hemispheric integration
process that improves the quality of life, reduces poverty,
acknowledges the intrinsic value of nature and promotes
sustainable development for all people and nations without
exception;
Recognize that our governments have committed to the
principles of sustainable development, including environmental
protection, poverty alleviation and democratization, as
established at the Miami Summit of 1994 and reaffirmed in Santa
Cruz, Bolivia in 1996;
Recognize that trade agreements, when properly structured,
can be consistent with the principles of sustainable
development;
Are concerned that economic integration has advanced
without effectively integrating environmental, labor, social,
cultural and political components which are indispensible to
achieving sustainable development;
Recognize that fair competition cannot be based on spurious
competition that does not take into account environmental and
social costs and recognize that there are transition costs
associated with economic integration that must be taken into
consideration.
Therefore, we call on our governments to establish an
action plan and formal mechanisms to integrate the principles
of sustainable development, including a formal negotiating
group on trade, environment and sustainable development with
equal status to other negotiating groups established in the
FTAA process. Moreover, the protection and enhancement of
environmental quality must become part of the negotiating
objectives of all FTAA negotiating groups.
Public Participation
Public participation is fundamental to the sustainable
development of the Hemisphere, and as such must be placed on
the same level as the other negotiation objectives. To that
end, in the design of the FTAA we call on governments to:
1. Strengthen the participation of civil society in
judicial and administrative proceedings within a domestic
environmental law framework and in the formation, negotiation,
and implementation of trade and investment policies and
agreements.
2. Provide timely access to information, relating to trade
policy as well as trade agreement and integration processes.
3. Establish formal processes to permit and encourage
timely contributions of a broad spectrum of civil society in
the development of the FTAA. This must include the right to
make verbal and written submissions and attend national and
hemispheric meetings involving policy deliberations.
4. Implement dispute settlement mechanisms and other
proceedings that allow for public participation.
5. Provide access to adequate financial resources to
achieve the the above goals.
6. Make available Inter-American integration process-
related documents to the public at the same time as they are
circulated to governments to ensure timely and meaningful
participation of the public in policy deliberations; these
should be at no cost and in a variety of forms, including
printed and electronic formats, and should also include the
creation of a Data Center, at no cost.
7. Establish National Advisory Committees, with
governmental and non-governmental representatives, that, among
other objectives, should promote cross-sectoral dialogues and
that are responsible for developing concrete recommendations
for negotiations, and responses to recommendations offered by
other countries.
8. Promote research, training and capacity building in the
area of sustainable development.
9. Finance the participation of civil society in the trade
and investment negotiations.
Trade, Investment, and Sustainable Development
We further call on governments to:
1. Implement national and regional measures to ensure that
economic integration in the Western Hemisphere promotes
conservation of cultural and biological diversity and
ecosystems in the hemisphere.
2. Ensure that the Negotiating Group on Intellectual
Property Rights provides guarantees that rights, access and
benefits are shared in an equitable manner.
3. Ensure that research on environmental, social and other
effects of trade and investment is undertaken and that the
results are distributed in a timely and effective manner to all
interested parties.
4. Implement and enforce regulations and policies that
ensure environmental protection, including cooperation to
ensure the upward harmonization of standards.
5. Implement and enforce regulations and policies that
ensure equitable distribution of benefits from trade and
investment.
6. Reduce and eliminate unsustainable patterns of
consumption and production within and among countries,
recognizing the strains placed on the environment by the
disproportionate consumption of resources by many
industrialized countries.
7. Remove subsidies that encourage the unsustainable use of
natural resources, as well as ensure the internalization of
environmental externalities and promote incentives for
sustainable production and consumption, including the
development of national environmental accounting systems.
8. Ensure that Multilateral Environmental Agreements (MEAs)
and their dispute resolution mechanisms have at least equal
status to trade agreements in the conduct of international
trade and in dispute resolution. Environmental disputes arising
out of trade agreements should be resolved in multilateral
negotiations.
Environmental Standards and Trade
As part of the FTAA negotiations we call on governments to:
1. Incorporate the precautionary principle, as well as the
principles of environmental prevention and legal and financial
responsibility of polluters for damages to the environment.
2. Create and strengthen administrative and judicial
mechanisms for implementing environmental laws and policies, as
well as mechanisms to denounce cases where national and
international environmental norms are not applied.
3. Harmonize minimum standards, consistent with each
ecosystem, that assure the protection of human health and
environmental integrity. At the same time, include financial
and cooperative mechanisms to ensure the transfer and creation
of appropriate technologies, including endogenous technologies,
essential for the implementation and sustained improvement of
environmental standards.
4. Establish mechanisms to periodically update and improve
environmental standards with the participation of all
interested parties (NGOs, business, labor, academics, etc.).
5. Ensure that nations, in their regulatory capacity,
maintain the ability to set higher environmental standards.
6. As agreed to in the 1994 Miami Summit of the Americas,
establish mechanisms for intergovernmental cooperation for the
exchange of information, training, technology transfer and
policy formulation; as well as the creation of green markets.
Institutions that participated in the drafting of this
document: IBDPA (Brasil), Canadian Institue for Environmental
Law and Policy (Canada), Red Nacional de Accion Ecologica y
Corporacion Participa (Chile), Fundacion Natura (Colombia),
CEDARENA (Costa Rica), PRONATURA (Rep. Dominicana), Centro
Ecuatoriano de Derecho Ambiental, CLD, Fundacion Natura y
Fundacion Futuro Latinoamericano (Ecuador), IDEADS (Guatemala),
CEMDA y Red Mexicana Accion Frente al Libre Comercio (Mexico),
Fundacion M. Bertoni (Paraguay), Fundacion ECOS y CLAES
(Uruguay), National Audubon Society, National Wildlife
Federation, Environmental Law Institute y Center for
International Environmental Law (Estados Unidos), International
Institute for Sustainable Development (Suiza).
Chairman Crane. Thank you, folks.
Again, we're going to be interrupted here, but, Mr. Thies,
I think we have enough time to hear your testimony, and then we
will run over to the floor, and I would estimate we should be
back here by 5:30.
Mr. Thies.
STATEMENT OF DENNIS M. THIES, EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, SOUTHDOWN, INC., HOUSTON, TEXAS; ON
BEHALF OF SOUTHERN TIER CEMENT COMMITTEE
Mr. Thies. Thank you, Mr. Chairman. I'm executive vice
president and chief financial officer of Southdown, Inc.,
headquartered in Houston, Texas. Southdown is the largest
domestically owned cement producer in the United States. I am
testifying on behalf of the Southern Tier Cement Committee, a
coalition of 26 U.S. cement producers operating 74 production
facilities across the United States.
During 1990 and 1991, the U.S. cement industry obtained
favorable rulings from the Department of Commerce and the
International Trade Commission that dumped imports flooding
into the United States market from Mexico, Japan, and Venezuela
caused material injury to domestic cement producers. The
Commerce Department imposed antidumping orders on imports from
Mexico and Japan and entered a suspension agreement regarding
imports from Venezuela.
As a result of the application of U.S. antidumping laws,
domestic cement producers became profitable again and have made
significant investments during the nineties to modernize
facilities and to expand production capacity. Thus, left alone,
the free market, absent unfairly priced imports, has encouraged
additional investment in cement capacity and increased U.S.
jobs.
The Cement Committee supports free trade, provided that the
conditions of fair trade are maintained. With respect to the
negotiations for the FTAA, I want to raise two concerns.
First, the Cement Committee strongly opposes any weakening
of U.S. antidumping laws during the FTAA process. Several
countries have advocated eliminating the use of antidumping
laws in the Western Hemisphere when free trade is established.
This is a proposition that the United States must reject at the
outset. The antidumping laws represent one of the few remaining
measures, consistent with U.S. obligations under the World
Trade Organization, for remedying injury to U.S. industries
caused by unfairly traded imports. Congress should urge the
administration to vigorously oppose any effort to weaken the
ability of U.S. industries to respond to unfair trade practices
under U.S. antidumping laws.
Second, the cement industry strongly opposes the extension
of the chapter 19 binational panel dispute settlement system
under NAFTA to additional countries under the FTAA. During the
final stages of negotiations of the Canada-United States free
trade agreement, the United States agreed to a temporary
dispute settlement system that authorizes ad hoc, five-member
panels of United States and foreign nationals to substitute for
United States courts in reviewing the consistency of United
States antidumping determinations with United States law. This
temporary agreement with Canada was extended to Mexico and made
permanent under NAFTA.
Chapter 19 has caused unnecessary dispute resolution
delays. The pool of panelists that have the necessary expertise
and don't have a conflict of interest is small in Mexico and
Canada, and would be negligible in most Latin American
countries.
In the cases involving the U.S. cement industry, for
example, NAFTA panels under chapter 19 have been suspended and
otherwise delayed for 7 months because of the difficulty in
finding qualified panelists from Mexico that don't have
conflicts based on an association with CEMEX, the monopoly
Mexican cement producer. According to GAO statistics, NAFTA
panel cases have taken up to almost 2 years to complete.
Similar delays are expected when sunset reviews of 23
transition orders against Canada and Mexico all reach NAFTA
panels at about the same time.
Since its inception, the chapter 19 dispute settlement
system has raised serious constitutional concerns. The system
precludes judicial review by article III courts, contravenes
the appointments clause of the Constitution, and raises other
due process concerns. These concerns have never been tested in
the courts.
The application of the binational panel system has also led
to erroneous results. The system requires individuals from
diverse legal cultures to interpret and apply concepts from
legal systems with which they lack any experience. As a result,
Congress has been forced to correct interpretations of U.S.
law, notably in the swine and lumber cases.
Finally, chapter 19 risks inconsistent results in
multicountry cases involving the same product. For example, if
the system is extended under FTAA in an antidumping case
involving imports from Chile, Mexico, and Japan, a United
States-Chile panel, a United States-Mexico panel, and the U.S.
Court of International Trade could issue three differing
decisions interpreting the same provision of United States law.
Accordingly, Congress should take this opportunity to
prevent the problems generated under NAFTA from being extended
to the FTAA and should deny the administration the flexibility
to cut any last-minute deals that weaken U.S. antidumping laws
or that divest U.S. courts of their constitutional jurisdiction
to decide matters of U.S. law.
Thank you.
[The prepared statement and attachments follow:]
Statement of Dennis M. Thies, Executive Vice President and Chief
Financial Officer, Southdown, Inc., Houston, Texas; on Behalf of
Southern Tier Cement Committee
My name is Dennis M. Thies. I am Executive Vice President
and Chief Financial Officer for Southdown, Inc., headquartered
in Houston, Texas. Southdown is the largest domestically-owned
cement producer in the United States. I am testifying on behalf
of the Southern Tier Cement Committee (the ``Cement
Committee''), a coalition of 26 U.S. cement producers. The
Cement Committee represents approximately 65 percent of U.S.
production capacity and 75 percent of capacity located in the
southern tier states extending from California to Florida. A
list of the members of the Cement Committee, together with the
locations of their headquarters offices and their 74 production
plants, is attached to this statement.
Introduction
The Cement Committee respectfully provides comments on two
aspects of the negotiations for the Free Trade Area of the
Americas ``FTAA.'' First, the Cement Committee strongly opposes
any weakening of U.S. antidumping or other unfair trade laws
during the FTAA or any other free trade negotiations. Second,
the Cement Committee strongly opposes the extension of the
Chapter 19 binational dispute settlement system under the North
American Free Trade Agreement (``NAFTA'') to additional
countries under the FTAA or future free trade agreements.
In preparatory negotiations for the FTAA, several countries
have advocated eliminating the use of antidumping laws in the
Western Hemisphere when free trade is established. These
countries have introduced a dangerous proposition into the FTAA
negotiations--a proposition that the United States must reject
from the outset. The antidumping laws represent one of the few
remaining measures consistent with U.S. obligations under the
World Trade Organization (``WTO'') for remedying injury to U.S.
industries caused by unfairly traded imports. The existence of
``free trade'' in the Western Hemisphere will not remove the
incentives for foreign producers to dump in the United States
and will not remove the non-tariff barriers preventing U.S.
producers from responding in kind. Congress should urge the
Administration to oppose vigorously any effort to weaken the
ability of U.S. industries to respond to unfair trade practices
under U.S. antidumping and other unfair trade laws. If foreign
producers do not dump or do not injure U.S. industries, U.S.
unfair trade laws will not effect them. If they do, even with
an FTAA, U.S. industry needs a remedy.
During the final stages of negotiations of the Canada-U.S.
Free Trade Agreement (``CFTA'') and the NAFTA, the United
States agreed to a dispute settlement system that authorizes ad
hoc five-member panels of U.S. and foreign nationals to
substitute for U.S. constitutional courts in reviewing the
consistency of U.S. antidumping and countervailing duty
determinations with U.S. law. This dispute settlement system,
now provided under Chapter 19 of NAFTA, is unnecessary, raises
serious constitutional and national sovereignty concerns, has
led to erroneous results, and has proven unworkable. The
multitude of problems experienced under Chapter 19 will be
exacerbated if such a system is extended to additional
countries under the FTAA. Although the Cement Committee
strongly supports the elimination or substantial revision of
Chapter 19 of NAFTA, it is especially concerned that the
problems associated with the system are not extended under the
FTAA. Congress should take this opportunity to prevent the
problems generated under NAFTA from being extended to the FTAA
and should deny the Administration the flexibility to cut any
last minute deals that divest U.S. courts of their
constitutional jurisdiction to decide matters of U.S. law. A
more detailed discussion of this issue was provided by a broad
and diverse coalition of 30 companies and industry groups in a
written statement filed with the Office of the U.S. Trade
Representative on April 23, 1997. A copy of this statement will
be submitted under separate cover for the Subcommittee's
review.
II. Dumped Imports From Mexico, Japan, and Venezuela Caused Serious
Injury to the U.S. Cement Industry in the 1980s
The U.S. antidumping laws provided the U.S. cement industry
with an effective remedy in response to injurious dumping
during the 1980s by Mexico, Japan, and Venezuela. During the
1983-89 expansion of construction activity in the United
States, dumped cement imports flooded the U.S. market and
suppressed prices. Average import prices for cement declined
from $45.13 per ton in 1981 to $34.42 per ton in 1989, a 24
percent decline. This rapid decline in import prices drove down
the U.S. price for cement.
The sharp increase in unfairly priced imports in the 1980s
removed U.S. producers' normal investment incentives and led to
a net disinvestment in cement assets during a period of sharply
increasing demand. Domestic production capacity declined 10
percent between 1980 and 1990, even though demand for cement
increased 40 percent. In addition, employment in the industry
declined 19 percent between 1986 and 1989. Due to the market
distortion of unfairly priced imports, cement prices in the
United States did not increase to signal the need for
investment in additional capacity. Meanwhile, foreign producers
in Mexico, Japan, and Venezuela maximized their returns by
exporting their excess capacity to the United States at dumped
prices.
III. The Application of U.S. Antidumping Laws Has Stimulated
Substantial New Investment and Job Creation
During 1990-91, the U.S. cement industry obtained favorable
rulings from the U.S. Department of Commerce and the U.S.
International Trade Commission that dumped cement imports were
materially injuring and threatening additional material injury
to U.S. cement producers. The dumping margins averaged in
excess of 50 percent. That is, the exporters' prices in their
home market were over 50 percent higher than their export
prices to the United States.
During the expansion phase of the construction cycle that
began in 1993, the U.S. market has been able to function
without the distortion of unfairly priced imports. As economic
theory would predict, during the 1990s, U.S. cement producers
have experienced increasing capacity utilization, which has led
to higher cement prices. The higher prices have induced capital
investment and job creation in the industry. As shown in the
second attachment to this statement, the U.S. cement industry
has made significant investments in the 1990s to modernize
facilities and to expand production capacity. According to the
Portland Cement Association, new cement plants and plant
modernizations announced in 1996 will increase U.S. cement
production capacity by over 9 million tons per year. Thus, left
alone, the free market--absent unfairly priced imports--has
resulted in additional and planned cement capacity to support
future construction activity and additional U.S. jobs.
IV. The United States Should Maintain its Ability To Enforce Vigorously
its Unfair Trade Laws
During meetings in preparation for the initiation of the
formal FTAA negotiations, several countries advocated
eliminating the use of antidumping laws. In a Draft FTAA
Ministerial Declaration, the parties included the following
provision as a negotiating objective in the area of Subsidies,
Antidumping and Countervailing Duties:
Assess the feasibility of eliminating the use of
antidumping measures within the Hemisphere once free trade has
been achieved.
Although this language was rejected in the final
Ministerial Declaration of San Jose, the Cement Committee is
concerned that the United States will not vigorously oppose
such a position as the negotiations progress.
An agreement providing for ``free trade'' in the Western
Hemisphere is meaningless without the discipline of antidumping
laws to remedy discriminatory pricing that is injurious to
domestic industries. As the NAFTA demonstrates, free trade has
not reduced the instances where home market conditions in
Mexico or Canada, such as excess capacity, non-tariff barriers,
anticompetitive activities, or subsidized production, have
created economic incentives for Mexican and Canadian producers
to dump into the United States, with the resultant injury,
declines in investment, and job losses to U.S. industries. For
example, during administrative reviews of the antidumping order
on cement from Mexico, the Commerce Department has found that
the monopoly Mexican cement producer, CEMEX, is still dumping
into the United States at margins ranging from 36 to 109
percent. Thus, the only remedy for U.S. producers and the only
potential disincentive for foreign producers is the application
or threatened application of U.S. antidumping laws.
Advocates for eliminating the use of antidumping laws in
free trade areas contend that the situation between countries
would be no different than exists between the states of the
United States. In other words, if producers in State A sell at
dumped prices in State B, the producers in State B will simply
sell in State A at similarly low prices to gain market share
from producers in State A. In trade between countries, however,
the absence of tariffs normally does not provide the
opportunity to respond in the same manner to dumping, given the
existence of significant non-tariff barriers. For example, the
absence or ineffective enforcement of antitrust laws in other
countries denies U.S. producers the necessary access to foreign
markets to respond to discriminatory pricing, subsidies, or
other anticompetitive practices.
During the FTAA negotiations, the ability of the U.S.
cement industry, and other U.S. industries, to defend against
unfair trade practices should not be sacrificed. The General
Agreement on Tariffs and Trade 1994 specifically provides that
``dumping . . . is to be condemned if it causes or threatens
material injury to an established industry.'' The WTO
Antidumping Agreement provides specific international
obligations regarding the application of antidumping measures,
and the WTO Dispute Settlement Understanding provides a binding
forum for enforcing these obligations. The United States should
not concede its right to apply antidumping measures consistent
with its international obligations. The United States should
vigorously oppose any attempt to undermine the application and
enforcement of U.S. antidumping laws during the FTAA
negotiations.
V. The United States Should Oppose the Extension of the NAFTA
Binational Panel Dispute Settlement System to Additional Countries
Under the FTAA
A. The Original Conditions For Congressional Approval Of The Binational
Panel System As A Temporary Compromise With Canada Have Been Violated
In the final stages of the negotiations of the CFTA, the parties
agreed to implement a binational panel dispute settlement system for
the review of domestic antidumping and countervailing duty
determinations. The system was established as a temporary compromise in
the wake of disagreements between Canada and the United States
regarding the extent to which substantive antidumping and
countervailing duty provisions should be included in the agreement.
The binational panel dispute settlement system under the CFTA
provided that ad hoc five-member binational panels substitute for U.S.
constitutional courts in reviewing the consistency of antidumping and
countervailing duty determinations with national law. The panels did
not rule on whether these domestic agency decisions are consistent with
the international obligations under the CFTA; they solely interpret and
apply domestic law of the United States or Canada. Thus, this system
represented the only international dispute settlement system that
reviews and interprets the domestic law of signatory countries.
During the Congressional debate over the CFTA, the system was
extremely controversial. At the time, officials from the U.S.
Department of Justice advised that the system would be unconstitutional
if panel decisions were implemented automatically, as is now the case.
Several Members of Congress also expressed serious reservations about
the constitutionality and workability of the system. Ultimately, the
system was accepted based on executive branch commitments to Congress
that (1) panels reviewing U.S. agency determinations would be bound by
U.S. law and its governing standard of review, (2) there would be
strict and fully enforced conflict-of-interest rules, and (3) the
system would be in place only a short time and only with Canada. These
commitments have not been satisfied.
In the final stages of NAFTA negotiations and despite assurances to
the contrary, the binational panel dispute settlement system was
extended to Mexico under Chapter 19 of NAFTA. Although negotiators of
the original CFTA system stated that it was only workable with Canada
because of the similarity between the U.S. and Canadian legal systems,
Chapter 19 now provides for binational panel review by Mexican
nationals who are not trained in the U.S. legal tradition, including
the proper application of the standard of review under U.S. law. Thus,
in violation of the commitments made at its inception, the system was
made permanent and extended to a country with different legal
traditions.
The nature and experience of binational panels also demonstrates
that conflict-of-interest rules have been ignored. Chapter 19 panels
are composed of private individuals, each with his or her own clients
and interests, empowered to interpret provisions of U.S. law, direct
the actions of U.S. government officials, and dictate the outcome of
U.S. cases involving billions of dollars in trade. In addition, the
panelists often review decisions of the agencies where they may have
ongoing cases. The most notable example of problems relating to
conflicts is the Canadian softwood lumber case where two of the three
Canadian panelists and their law firms had previously represented
Canadian lumber interests. The Canadian government and the panelists
did not disclose all of these conflicts prior to the Canadian majority
rendering an adverse decision against the U.S. industry. Thus, the
final commitment regarding enforcement of conflict-of-interest rules
has also been violated.
B. The Chapter 19 System Raises Serious Concerns Regarding Its
Constitutionality And Workability
Over the past 10 years, disputes under the Chapter 19 system (and
its CFTA predecessor) have demonstrated that the system has
constitutional flaws and is otherwise unworkable, especially when it is
extended to additional countries. First, since its inception, the
Chapter 19 dispute settlement system has raised serious constitutional
concerns. The system precludes judicial review by Article III courts,
contravenes the Appointments Clause of the Constitution, and raises
other due process concerns. These concerns have never been tested in
court, and the most recent constitutional challenge to Chapter 19 was
dismissed based on the plaintiff's lack of standing.
Second, the application of the binational panel system has led to
erroneous results. The system requires individuals from diverse legal
cultures to interpret and apply concepts from legal systems with which
they lack any experience. As a result, Congress has been forced to
correct clearly erroneous interpretations of U.S. law, notably in the
swine and lumber cases. In fact, in the NAFTA Extraordinary Challenge
Committee review of the softwood lumber panel decision, former Federal
Appeals Court Judge (and former Ambassador) Malcolm Wilkey commented
that the underlying panel decision ``may violate more principles of
appellate review of agency action than any opinion by a reviewing body
which I have ever read.''
Third, Chapter 19 risks inconsistent results in multi-country cases
involving the same product. For example, if the system is extended
under the FTAA, in an antidumping case involving imports from Chile,
Mexico, and Japan, a U.S.-Chile panel, a U.S.-Mexico panel, and the
U.S. Court of International Trade could issue inconsistent decisions
interpreting the same provision of U.S. law.
Fourth, Chapter 19 delays justice. The ad hoc panelists selected in
each country are often trade lawyers that have other cases pending
before the agency being reviewed. The pool of panelists that possess
the necessary expertise and lack any conflict of interest is small in
Mexico and Canada and is negligible in most Latin American countries.
For a case involving a large, integrated domestic company in a Latin
American country, virtually all qualified panelists in that country
will be conflicted based on some association with the company. Several
panel proceedings under NAFTA have faced extraordinary delays because
of the absence of qualified panelists without actual or apparent
conflicts. In the cases involving the U.S. cement industry, for
example, NAFTA panels under Chapter 19 have been suspended and
otherwise delayed for months because of the difficulty in finding
qualified panelists that did not have conflicts based on an association
with CEMEX, the monopoly Mexican cement producer. According to GAO
statistics, NAFTA panel cases have taken up to 654 days to complete.
Additional delays are expected when sunset reviews of 23 ``transition
orders'' against Canada and Mexico reach NAFTA panels at about the same
time.
C. Chapter 19 Is Unnecessary
The Chapter 19 system's intrusion into U.S. sovereignty is now
unnecessary because the WTO provides substantive international
disciplines applicable to dumping and subsidies and provides for
binding dispute settlement to enforce such international disciplines.
The WTO Antidumping Agreement includes detailed procedural and
substantive provisions for the application of antidumping remedies, and
the WTO Dispute Settlement Understanding now makes these obligations
effectively binding on Members.
In addition, Chile, Canada, and Mexico have demonstrated that
Chapter 19 is not important in future trade agreements. These countries
have not extended the Chapter 19 system in their recent bilateral trade
agreements. The failure to include such a system in these agreements
indicates that any demands for such a system under the FTAA is simply a
method for extracting additional concessions from the United States
without justification.
D. Leading Members Of Congress Have Expressed Opposition To The
Extension of Chapter 19 In Future Trade Negotiations
On December 1, 1997, fourteen Senators sent a letter to U.S. Trade
Representative Charlene Barshefsky stating, inter alia, that given the
intended temporary nature of Chapter 19 and the great problems it has
engendered, we believe that this fundamentally flawed system should not
be extended in future trade agreements to any other country. No trade
agreement, particularly one considered on a ``fast track,'' should
divest U.S. courts of their constitutional jurisdiction to decide
matters of U.S. law.
In late 1997, Senator Charles Grassley (R-IA) and Senator Larry
Craig (R-ID) also filed amendments to the Senate fast track legislation
to prevent the ceding of U.S. courts' jurisdiction in future trade
agreements under fast track procedures.
IV. Conclusion
The Cement Committee urges the Subcommittee to monitor the
progress of negotiations to ensure that the Administration does
not make any concessions that will weaken U.S. antidumping
laws. The experience of the domestic cement industry
demonstrates that dumping may continue despite the existence of
``free trade.'' Congress should ensure that U.S. industry and
its workers have a remedy available to combat injurious dumping
from all foreign countries, consistent with its WTO rights and
obligations.
Joseph W. Dorn
Michael P. Mabile
Stephen J. Orava
King & Spalding
1730 Pennsylvania Avenue, N.W.
Washington, DC 20006
(202) 737-0500
Counsel for the Southern Tier
Cement Committee
Gene E. Godley
Marc C. Hebert
Bracewell & Patterson, L.L.P.
2000 K Street, N.W.
Washington, DC 20006
(202) 828-5800
Counsel for Southdown, Inc.
The Southern Tier Cement Committee
------------------------------------------------------------------------
Company/Headquarters Plant Locations
------------------------------------------------------------------------
Alamo Cement Company, San Antonio, TX..... San Antonio, TX
Arizona Portland Cement Co., Glendora, CA. Rillito, AZ
Ash Grove Cement Company, Overland Park, Chanute, KS
KS. Durkee, OR
Foreman, AR
Inkom, ID Nephi, UT
Louisville, NE
Clancy, MT
Seattle, WA Blue Circle
Blue Circle, Marietta,.................... Atlanta, GA
Harleyville, SC
Sparrows Point, MD Calera,
AL
Ravena, NY
Tulsa, OK Calaveras Cement
Co.
Calaveras Cement Co., Concord, CA......... Redding, CA
Monolith, CA
California Portland Cement Co., Glendora, Colton, CA
CA. Mojave, CA
Centex Construction Products, Inc., LaSalle, IL
Dallas, TX. Laramie, WY
Fernley, NV
Florida Crushed Stone Co., Leesburg, FL... Brooksville, FL
Florida Rock Industries Inc., Gainesville, FL
Jacksonville, FL.
Giant Cement Company, Summerville, SC..... Harleyville, SC
Kaiser Cement Corp., Pleasanton, CA....... Cupertino, CA
Lafarge Corporation, Reston, VA........... Alpena, MI
Davenport, IA
Fredonia, KS
Grand Chain, IL
Independence, MO Paulding,
OH
Tampa, FL
Palmetto, FL
Whitehall, PA Lehigh
Portland Cement Company
Lehigh Portland Cement Company, Allentown, Gary, IN
PA. Leeds, AL
Mason City, IA
Mitchell, IN
Union Bridge, MD
Waco, TX
York, PA
Lone Star Industries, Stamford, CT........ Cape Girardeau, MO
Greencastle, IN
Sweetwater, TX
Oglesby, IL
Pryor, OK
Medusa Corporation, Cleveland, OH......... Charlevoix, MI
Clinchfield, GA
Demopolis, AL
Wampum, PA
National Cement Co. of Alabama, Inc., Ragland, AL
Birmingham, AL.
National Cement Co. of California, Inc., Lebec, CA
Encino, CA.
North Texas Cement Company, Dallas, TX.... Midlothian, TX
Phoenix Cement Company, Phoenix, AZ....... Clarkdale, AZ
RC Cement Co., Inc., Bethlehem, PA........ Stockertown, PA
Chattanooga, TN
Festus, MO
Independence, KS RMC
RMC, Pleasanton, CA....................... Davenport, CA
Southdown, Inc, Houston, TX............... Louisville, KY
1Pittsburgh, PA
Fairborn, OH
Brooksville, FL
Knoxville, TN
Lyons, CO
Odessa, TX
Victorville, CA
Tarmac America, Inc., Medley, FL.......... Medley, FL TXI Corporation
TXI Corporation, Dallas, TX............... New Braunfels, TX
Midlothian, TX
Riverside, CA
Oro Grande, CA
Texas-Lehigh Cement Company, Buda, TX..... Buda, TX
------------------------------------------------------------------------
Recent Investments To Expand Capacity In The U.S. Cement Industry
------------------------------------------------------------------------
Company Investment Project
------------------------------------------------------------------------
Ash Grove................................. Increasing capacity of
Leamington, UT plant from
650,000 to 825,000 tons.
Increasing capacity of
Durkee, OR plant from
500,000 to 985,000 tons
(est. $85 million).
Blue Circle America....................... Installing new finish mill
to increase cement grinding
capacity at Roberta, AL
plant ($22.5 million).
Capitol Aggregates........................ Installing new finish mill
to increase cement grinding
capacity at San Antonio, TX
plant.
Florida Crushed Stone..................... Building second kiln at its
Brooksville, FL plant to
double clinker capacity
(est. $60 million).
Florida Rock Industries................... Building 750,000 ton plant
near Gainesville, FL (est.
$100 million).
Holnam.................................... Doubling capacity of its
Devil's Slide, UT plant to
700,000 tons by replacing
the existing wet kiln with
a dry kiln (est. $75
million). Adding 950,000
tons of capacity in
Midlothian, TX plant.
Modernizing and upgrading
clinker coolers in
Theodore, AL, and Santee,
S.C. plants. Replacing raw
mill separator with high-
efficiency separator at
Theodore, AL plant.
Lafarge................................... Investing $135 million in a
new facility at an existing
cement plant site near
Kansas City, MO, increasing
capacity by 400,000 tons
annually. Modernizing
heating and cooling
processes in Davenport, IA
and Fredonia, KS plants to
increase production and
reduce fuel consumption.
Investing $9.7 million in
modernization of Paulding,
OH plant.
Lehigh Portland Cement.................... Modernizing and expanding
project at the Union
Bridge, MD cement plant,
increasing capacity from
1.0 to 1.5 million tons
($180 million). Upgrading
kiln preheater and clinker
cooling systems at Leeds,
AL plant. Upgrading Macon
City, IA plant to increase
capacity.
Lone Star Industries...................... Investing $15.5 million in a
new finish mill and storage
facilities at Greencastle,
IN plant, increasing cement
capacity by 11 percent.
North Texas Cement........................ Building 1.0 million ton
plant.
Roanoke Cement............................ Investing $37 million to
modernize Roanoke, VA
cement plant, expanding
capacity from 1.0 to 1.2
million tons.
Southdown................................. Investing $48 million in
expansion and modernization
of Fairborn, OH cement
plant, increasing cement
capacity by 120,000 tons
per year. Increasing cement
capacity of Victorville, CA
plant by 300,000 tons per
year.
Southdown & Lone Star Industries.......... Investing $50 million in
expansion of jointly-owned
Louisville, KY cement
plant, increasing cement
capacity from 875,000 to
1.4 million tons per year.
------------------------------------------------------------------------
Statement of Chapter 19 Coalition (AK Steel Co., American Beekeepers
Association, American Honey Producers Association, American Textile
Manufacturers Institute, AMT--The Association for Manufacturing
Technology, Bethlehem Steel Corp., California Forestry Association,
Coalition for Fair Atlantic Salmon Trade, Coalition for Fair Lumber
Imports, Cold-Finished Steel Bar Institute, Copper and Brass
Fabricators Council, Ferroalloy Association, Footwear Industries of
America, Fresh Garlic Producers Association, Independent Forest
Products Association, Inland Steel Industries, Inc., Intermountain
Forest Industries Association, Leather Industries of America, LTV Steel
Co., Municipal Castings Fair Trade Council,National Steel Corp.,
National Association of Wheat Growers, Northeastern Lumber
Manufacturers Association, Southeastern Lumber Manufacturers
Association, Southern Tier Cement Committee, USX Corp., Valmont
Industries, Western Wood Products Association
The NAFTA Chapter 19 Binational Panel Dispute Settlement System
Introduction
Chapter 19 of the North American Free Trade Agreement
(``NAFTA'') extended to Mexico the novel and unprecedented
system for resolving antidumping duty (``AD'') and
countervailing duty (``CVD'') appeals that was introduced by
the U.S.-Canada Free Trade Agreement (``CFTA'') in 1989. Under
this system, AD and CVD determinations made by NAFTA-countries'
government agencies are appealable to ad hoc panels of private
individuals from both countries affected, rather than impartial
courts. The international panels do not interpret agreed NAFTA
AD or CVD rules; rather, they review agency determinations
solely for consistency with national law.
This system departs radically from traditional
international dispute settlement principles whereby
international bodies resolve disputes over the interpretation
of internationally agreed texts. Unlike any other international
dispute mechanism in which the United States participates, the
Chapter 19 system entails direct interpretation of U.S. law and
implementation under national law of decisions rendered by non-
judges and indeed by non-citizens. In practice, this system has
led to the implementation of decisions that contravene U.S.
laws.
The Chapter 19 system should be reformed or eliminated from
the NAFTA. It certainly should not be extended to additional
U.S. trade agreements. Indeed, doing so would compound its
problems. Language should be included in fast-track legislation
to prevent this from occurring. (Proposed legislative text is
attached to this statement.) Statutory containment of Chapter
19 would not only prevent the compounding of a major policy
mistake but also improve the prospects for fast track
negotiating authority and expanded free trade.
II. Summary
Established as an interim measure only for U.S.-Canada
trade, the Chapter 19 system is fundamentally flawed and
undemocratic. It places far-reaching decision-making power in
the hands of private individuals who do not have judicial
experience and who are not accountable for their performance.
Under this system, international panels--with foreign nationals
frequently in the majority--are allowed to interpret and
implement U.S. law, and their decisions have the force of law.
Constitutional safeguards to assure judicial impartiality are
lost when such panels replace U.S. courts. Justice Department
officials warned Congress in 1988 that, for this very reason,
the proposed system was unconstitutional.
In addition, the system's ad hoc and fragmented nature
dooms it to failure as a replacement for domestic courts.
Especially if the system were extended to additional countries,
industries attempting to exercise their rights against unfair
trade from different points of origin would end up facing a
multiplicity of panel and court proceedings likely to yield
divergent rulings on identical issues. Neither industry nor the
government agencies involved could afford to prosecute so many
litigations. The result would be incoherent bodies of law, an
unpredictable environment for litigants and businesses, and
even the possibility of most-favored-nation problems resulting
from unequal application of AD and CVD laws. In short, the
system would become unworkable (and congressionally-mandated
U.S. trade remedies unusable).
The Chapter 19 system has already failed in some of its
most critical disputes. As Congress has noted, panels reviewing
U.S. Government determinations have repeatedly disregarded the
requirement that they behave like a U.S. court and apply U.S.
law, and they have impaired implementation of U.S. trade
remedies. Panel decisions have created an environment in which
U.S. industry can have little faith in U.S. trade remedy
policies as applied to imports from Canada and Mexico, much
less to imports from an even broader array of countries.
The Chapter 19 system need not, and should not, be extended
to other countries since the WTO dispute settlement system
satisfies U.S. importers' and exporters' need for international
dispute resolution. Unlike the Chapter 19 system, the WTO
system is based on traditional international dispute settlement
principles, i.e., international bodies interpreting
international rules. The unprecedented impairment of sovereign
legal functions entailed by Chapter 19--with foreign nationals
interpreting and implementing domestic law--is unworkable in
the United States and, in the long term, in any other country.
Congress should direct the Administration to negotiate the
reform or elimination of Chapter 19 from the NAFTA. In
addition, any legislation renewing fast-track procedures should
expressly prohibit agreements that extend the Chapter 19 system
to trade with additional countries and make negotiating
authority and fast track procedures inapplicable to
implementation bills for such agreements.
Precluding extension of Chapter 19 is needed to limit the
deterioration of U.S. trade remedies and the administration of
justice. In addition, doing so would enhance prospects for fast
track and expanded free trade by removing a widespread concern
about them. Consequently, containment of Chapter 19 would lead
to broader support for fast track negotiating authority and
expanding free trade.
III. Background on the Chapter 19 System
A primary Canadian goal in negotiating the CFTA was
exempting Canadian exports from the United States' AD and CVD
laws. The United States maintained a contrary and more cautious
position: the agreement should establish disciplines on unfair
trade practices rather than permitting them to go unsanctioned.
U.S. and Canadian officials reached a compromise on this
issue as the negotiations drew to a close in the Fall of 1988.
The CFTA provided that after the agreement came into effect the
United States and Canada would pursue negotiations on subsidy
disciplines and a ``substitute system'' of AD and CVD rules.
CFTA at Art. 1907. Pending achievement of the ``substitute
system,'' and for a maximum of seven years, the countries would
operate under the Chapter 19 system of AD/CVD review by panels.
Id. at Art. 1906.
Chapter 19 was revolutionary and extremely controversial.
First, judicial review of disputes involving customs duties by
impartial courts created under Article III of the Constitution
has a long history in the United States.\1\ Replacing impartial
courts with binational panels raised the specter of unfair
decisions and the circumvention of U.S. law.
---------------------------------------------------------------------------
\1\ Reported cases include, for example, United States v. Tappan,
24 U.S. (11 Wheat.) 418 (1826) and Elliot v. Swartwout, 35 U.S. (10
Pet.) 137 (1836).
---------------------------------------------------------------------------
Second, during Congress's consideration of the CFTA, U.S.
Justice Department officials advised that the system would be
unconstitutional if panel decisions were implemented
automatically, as is now the case. United States-Canada Free
Trade Agreement: Hearings Before the Senate Judiciary
Committee, 100th Cong. 76-87 (1988) (``Senate Judiciary Comm.
Hearing''). Several Members of Congress expressed serious
reservations about the constitutionality and workability of
Chapter 19, including Senators Grassley and Heflin. See id. at
89-98; S. Rep. No. 100-509, at 70-71 (1988).
The Chapter 19 system was ultimately accepted as part of
the CFTA based on executive branch commitments to Congress
that: 1) panels reviewing U.S. agency determinations would be
bound by U.S. law and its governing standard of review, just as
the U.S. Court of International Trade is so bound; 2) there
would be strict and fully enforced conflict-of-interest rules;
and
3) the system would be in place only a short while and only
with Canada. According to one of the primary U.S. negotiators
on this issue, the system could only work for Canada. It was:
not, and [was] not intended to be, a model for future
agreements between the United States and its other trading
partners. Its workability stems from the similarity in the U.S.
and Canadian legal systems. With that shared legal tradition as
a basis, the panel procedure is simply an interim solution to a
complex issue in an historic agreement with our largest trading
partner.
United States-Canada Free Trade Agreement: Hearings Before the
House Judiciary Committee, 100th Cong. 73 (1988) (Testimony of
M. Jean Anderson).
Although the Chapter 19 system was accepted, negotiations
with Canada to create disciplines on unfair trade practices,
including subsidies, failed. Nonetheless, with little
additional discussion, and contrary to executive branch
commitments to industry, the system was made a permanent part
of the NAFTA in 1994.
IV. Chapter 19's Design Is Flawed in Several Respects and Has Serious
Constitutional Problems
Under the Chapter 19 system, panels are formed on a case-
by-case basis to review the consistency with national law of AD
and CVD determinations issued, in the United States, by the
Commerce Department (``DOC'') and the U.S. International Trade
Commission (``ITC''). The panels contain five members--three
from one country involved in the case and two from the other--
who are private-sector trade experts, usually lawyers.\2\
---------------------------------------------------------------------------
\2\ Each country involved in the dispute appoints two panelists.
NAFTA Chapt. 19, Annex 1901.2. The two countries are then to agree on a
fifth panelist. Id. If they are unable to agree, the two countries
decide by lot which country will select the fifth panelist. Id.
---------------------------------------------------------------------------
The System is Undemocratic and Unaccountable
On its face, the system is, at minimum, anomalous. A group
of private individuals, each with his or her own clients and
interests, is empowered to direct the actions of government
officials and dictate the outcome of cases involving billions
of dollars in trade. These panelists do not have judicial
training. Nor are they insulated, as judges must be, from
outside pressures and conflicts. Once a case is over, the
panelists simply return to their occupations--many of them
practicing before the very agencies whose decisions they
recently were reviewing. They are not accountable in any way
for their decisions as panelists.
This process is contrary to traditional principles of
representative governance. Indeed, as indicated above, Justice
Department officials advised Congress that the Chapter 19
system contravenes a constitutional provision intended to
establish accountability among U.S. decision-makers (the
``Appointments Clause'').\3\ Congress cannot ``sanction'' or
``correct'' erroneous decisions because the ``judges'' are not
part of a standing judiciary.
---------------------------------------------------------------------------
\3\ U.S. Const. art. II, 2, cl. 2. Ironically, the Appointments
Clause emerged, in part, from the Founders' experience with the British
colonial government's selection of Royal officials, a preponderance of
which were customs officials. The Founders included as a grievance in
the Declaration of Independence that the King ``has erected a multitude
of New Offices, and sent hither swarms of Officers to harass our
People, and eat out their substance.'' The reference is to customs
officials. Barrow, Trade and Empire 256 (1967).
The constitutionality of the Chapter 19 system has been discussed
in numerous articles. See, e.g., Barbara Bucholtz, Sawing Off the Third
Branch: Precluding Judicial Review of Anti-Dumping and Countervailing
Duty Assessments Under Free Trade Agreements, 19 Md. J. Int'l L. &
Trade 175 (1995); Alan B. Morrison, Appointments Clause Problems in the
Dispute Resolution Provisions of the United States-Canada Free Trade
Agreement, 49 Wash. & Lee L. Rev. 1299 (1992).
---------------------------------------------------------------------------
The System Violates Principles of Impartial Judicial Review
Article III of the Constitution establishes safeguards to
assure an impartial federal judiciary, e.g., life appointment
and freedom from salary diminution. As noted above, review of
trade cases by Article III judges has a long tradition in the
United States, and dispensing with Article III protections for
reviews of AD/CVD determinations is unwarranted. In fact, and
as further explained below, conflicts of interest on the part
of panelists were a major problem in the Chapter 19 review
involving Canadian softwood lumber. Even holding constitutional
infirmities aside, the conflict-of-interest prone Chapter 19
setup creates a serious perception problem damaging to the
credibility of the international trading system.
The System's Premise is False and Objectionable
The Chapter 19 system is premised on the outrageous
assumption that domestic courts are incapable of resolving
these cases in a fair and impartial manner. There is no
evidence to support this proposition. In any event, this type
of extraordinary device is not viewed as necessary in other
litigation contexts in which foreign interests frequently
participate, such as appeals of agency determinations in the
communications arena. There is no basis to single-out trade
remedies as requiring this mechanism.
The System's Ad Hoc, Fragmented Nature Renders it Unworkable
The Chapter 19 system contemplates that a separate panel
proceeding is to resolve each AD/CVD appeal on a country-
bycountry basis. In practice, this cannot work, especially if
Chapter 19 is extended to many different countries. An industry
seeking a remedy against unfair trade from several countries--
as is often the case--would end up facing proceedings before
panels for each of the countries from which unfairly traded
merchandise is imported and, potentially, another proceeding at
the Court of International Trade. The resulting decisions could
relate literally to identical issues.
Neither the affected industry nor the U.S. agencies
involved could afford to engage in this multiplicity of
litigations.\4\ Even if this were manageable procedurally, the
panels would inevitably come to different interpretations of
U.S. law on the same underlying facts and issues. Such an
atomized judicial mechanism cannot retain (and indeed has never
gained) credibility. The inevitable result is an unworkable
system, leading to the effective neutralization of U.S. trade
laws.
---------------------------------------------------------------------------
\4\ Indeed, a recent Canadian survey indicated that a Chapter 19
appeal can cost $100,000 to 150,000, while an appeal to a federal court
costs only $25,000 to 40,000 to litigate. See Laura Eggerston, ``Costs
Deter NAFTA Dispute Settlements,'' The Globe and Mail, Mar. 20, 1997,
at B-9.
---------------------------------------------------------------------------
V. In Practice, Chapter 19 Has Resulted in Bad Decisions With Out
Remedy
Before it came into effect, Senator Grassley expressed deep
concern about the novel experiment in replacing the U.S.
judiciary with panels and whether it could, in practice, earn
the respect of private parties. Senate Judiciary Comm. Hearing
at 89-90, 94, 96. Unfortunately, Senator Grassley's concerns
have been vindicated. Based on the panels' track record,
private parties cannot have faith that the trade laws will be
administered fairly or correctly as regards imports from Canada
and Mexico.
Were they to adhere to the standard of review mandated by
the NAFTA and U.S. law, panels would reach exactly the same
results as the Court of International Trade and be very
deferential to DOC and ITC trade determinations. In particular,
they would sustain the agency's findings unless they have no
``reasonable'' factual basis or are grounded on a legal
interpretation that is ``effectively precluded by the
statute.'' PPG Indus., Inc. v. United States, 928 F.2d 1568,
1573 (Fed. Cir. 1991).
As recognized by Congress, the reality has often been to
the contrary.\5\ Panel decisions involving Canadian pork and
swine imports were so flawed that the U.S. Government sought
review by appellate Chapter 19 panels (``extraordinary
challenge committees'' or ``ECCs''). The swine ECC virtually
conceded that the lower panel erred but declined to take
corrective action. Live Swine from Canada, No. ECC-93-1904-01-
USA, slip op. at 6 (Apr. 8, 1993) (``the Committee felt the
Panel may have erred'').
---------------------------------------------------------------------------
\5\ See North American Free Trade Agreement Implementation Act,
Joint Senate Report, S. Rep. No. 103-189, at 42 (1993) (``[t]he
Committee believes . . . that CFTA binational panels have, in several
instances, failed to apply the appropriate standard of review. . .
.''); see also North American Free Trade Agreement Implementation Act,
House Ways & Means Committee Report, H.R. Rep. No. 103-361, at 75
(1993).
---------------------------------------------------------------------------
The Chapter 19 system also failed conspicuously in the last
case involving subsidized Canadian softwood lumber, where:
Both the lower panel decision and the ECC decision were
decided by bare majorities divided by nationality. Certain
Softwood Lumber Products from Canada, No. USA-92-1902-190401,
slip op. (Dec. 17, 1993); Certain Softwood Lumber Products from
Canada, No. ECC-1904-01-USA, slip op. at 37 (Aug. 3, 1994)
(``Lumber ECC'').
Two of the three Canadian members of the lower panel and
their law firms had previously represented Canadian lumber
interests and governments but did not disclose all of their
conflicts. See Lumber ECC at 71-86, Annex 1 (Wilkey opinion).
The panels disregarded extensive case law and explicit
Congressional committee reports which specified the proper
interpretation of the CVD law on litigated issues. See Brief of
the United States, No. ECC-1904-01-USA, at 69, 79-80 (May 3,
1994).
An ECC member expressly chose to ignore the review standard
for panels that is established by the NAFTA and the applicable
U.S. statute. See Lumber ECC at 28 (Hart opinion) (indicating
that panels need not apply the review standard of the Court of
International Trade).
The dissenter in the lumber ECC decision was former Federal
Appeals Court Judge (and former Ambassador) Malcolm Wilkey.
According to Judge Wilkey, the underlying panel majority
opinion ``may violate more principles of appellate review of
agency action than any opinion by a reviewing body which I have
ever read.'' Lumber ECC at 37 (Wilkey opinion). Moreover, Judge
Wilkey concluded that the lumber case violated all of the
safeguards on which Congress based its conclusion that the
Chapter 19 system is consistent with constitutional due process
protections. Id. at 69-71, citing H.R. Rep. No. 100-816, Pt. 4,
at 5 (1988).
VI. Recently Concluded Trade Agreements Demonstrate That Chapter 19 Is
Unnecessary
The infirmities in Chapter 19's design and its failures in
practice demonstrate that the U.S. Government should not extend
the Chapter 19 system to other countries. Even setting aside
these problems with Chapter 19, however, it should not be part
of future U.S. free trade relationships because it is not
needed.
First, the new WTO system fulfills any legitimate need for
international AD/CVD dispute settlement. Unlike the Chapter 19
system, WTO dispute settlement operates under standard
principles of international dispute settlement: WTO panels
resolve disputes over the meaning of the WTO agreements,
deciding whether the importing country has complied with its
international obligations. This process, coupled with access to
domestic courts, should satisfy any concerns about securing
unbiased review of AD/CVD determinations. There is simply no
need for the intrusive system under which panels hand down
controlling dictates on the application of domestic U.S. law.
Even if Chapter 19's theoretical benefit to U.S. exporters
showed real signs of materializing, that benefit would be
vastly outweighed by the systemic problems described above and
the undermining of U.S. trade remedy policies that would
inevitably result. Moreover, the benefit to U.S. exporters
would be marginal indeed since, with respect to ensuring that
foreign governments' AD/CVD determinations comply with national
law, the WTO agreements include provisions on effective
judicial review. These provisions present an opportunity to
achieve by more legitimate means the goals Chapter 19 was
allegedly designed to promote.
Finally, our current NAFTA partners and prospective new
partner have indicated that Chapter 19 is unnecessary in future
trade agreements. Mexico omitted Chapter 19 from trade
agreements with several Latin American countries. Canada and
Chile omitted the system from the trade agreement that they
signed late last year as a precursor to NAFTA expansion,
choosing expressly to rely instead on WTO dispute
settlement.\6\ Furthermore, the Association of American
Chambers of Commerce in Latin America, citing many of the
concerns identified in this statement, has warned that at least
U.S. business interests in Chile are likely to oppose inclusion
of Chapter 19 in any agreement with that country.\7\
---------------------------------------------------------------------------
\6\ Canada and Chile did not alter their CVD policies, but did
reportedly agree to phase out AD remedies for bilateral trade.
Weakening AD policies is not an option for the United States given the
many U.S. industries that have suffered grievous injury--sometimes
elimination--at the hands of dumped merchandise. In any case, the
Canada-Chile agreement demonstrates that Chapter 19 is unnecessary in
any new agreements.
\7\ Letter from Vincent M. McCord, Vice President of the
Association of American Chambers of Commerce in Latin America and
Executive Vice President of the American Chamber of Commerce in Chile,
to Donna R. Koehnke, Secretary of the International Trade Commission
(July 19, 1995).
---------------------------------------------------------------------------
Given these developments, there is no credible argument
that Chapter 19 is needed to secure expanded free trade.
Indeed, as discussed below, efforts to extend Chapter 19 are
impeding the cause of expanded free trade.
VII. Statutory Containment of Chapter 19 Is Needed
Since Chapter 19 is harmful and unnecessary, measures are
needed, at minimum, to ensure that it is not extended to
additional trading partners. The most straightforward means of
enacting such measures would be through the fast-track bill
itself. The statute should direct the executive branch not to
further alienate federal jurisdiction and authority to decide
cases under U.S. law through international agreements and
should withhold trade agreements negotiating authority and
fast-track procedures from any such agreements.
Ensuring that the problem of Chapter 19 will not be
compounded through the trade agreements program will
significantly benefit the prospects for fast track and expanded
free trade. It will remove impediments (e.g., concerns about
diminished sovereignty, constitutional problems) for those
inclined to be supportive. At the same time, it is highly
unlikely that any Member of Congress or any constituency will
withhold his or her support from fast track, an expanded NAFTA
or the FTAA if Chapter 19 is excluded from the resulting
agreements.
VIII. Conclusion
The U.S. Government should negotiate elimination of the
Chapter 19 dispute settlement system as it exists with Canada
and Mexico; under no circumstances should it be extended to new
participants under the NAFTA or the FTAA. Congress should:
ensure that fast-track legislation prevents extension of
Chapter 19 to additional countries;
hold hearings on the Chapter 19 system to investigate
(1) whether the system is unconstitutional; (2) whether the
system is necessary in light of WTO rules and the WTO dispute
settlement system; (3) the suitability of the system as a
permanent replacement for judicial review of trade cases; and
(4) the past administration of the system; and
direct the Administration to negotiate the elimination or
reform of the Chapter 19 system from the NAFTA.
Draft Section of Fast Track Bill
1. Notwithstanding any other provision of law, the U.S.
Government shall not enter into any treaty or other
international agreement that, in whole or in part, would have
the purpose or effect of transferring any jurisdiction or
authority to decide cases under U.S. law away from the federal
judiciary.
2. The trade agreements negotiating authority of------
[formerly Sec. 1102 of the 1988 Act] shall not apply to the
negotiation of any trade agreement that would have the purpose
or effect of transferring any jurisdiction or authority to
decide cases under U.S. law away from the federal judiciary,
and the procedures of Section 151 of the Trade Act of 1974
[fast track], or any similar successor provisions, shall not
apply to implementing legislation submitted with respect to any
such trade agreement.
Chairman Crane. Thank you.
Mr. Neal.
Mr. Neal. A quick question for Mr. Clawson.
Mr. Clawson. Surely, I'd be happy to answer.
Mr. Neal. Tell me about drug trafficking.
Mr. Clawson. Surely. A terrible problem--we know that it
is, and Customs--in fact, our view is, particularly on the
commercial side, if we can do some of the things we talked
about here in terms of making the commercial clearance
facilitated, that will free up inspectors to do a better job of
looking for drugs and contraband, instead of spending time
ruffling through papers and saying if the things are in the
right order. Because it is a terrible problem; there is no
question.
Mr. Neal. In your humble opinion, could the Mexicans be
doing more, much more--
Mr. Clawson. Yes, much more. Absolutely, there's no
question. They could do a lot more. In fact, there's no
question that there's a lot more that they can do, both as a
government and I think some of the businesses, the Mexican
businesses, in helping in a partnership to try to deal with
this problem.
Mr. Neal. Has the Mexican Government slipped backward, in
your opinion?
Mr. Clawson. No, I don't think they've slipped backward.
They haven't made enough progress, though.
Mr. Neal. Thank you, Mr. Chairman.
Chairman Crane. Mr. Matsui.
Mr. Matsui. Mr. Chairman, I'm not going to ask a question.
I know we're going to relieve all of you of the pain of having
to stay around. I think the Chairman plans to make an
announcement right after this. But I want to thank all four of
you.
I'd like to follow up with Mr. Audley sometime, because I
appreciated some of your comments, and I kind of want to get a
little bit more into that with you, because there may be some
opportunities. But, again, I would prefer to do that at some
later date. I don't want to create confusion----
Mr. Audley. I'd be happy to do so. Thanks.
Mr. Matsui. Thank you. We thank all of you as well.
Chairman Crane. Again, I thank you for your testimony, and
that will conclude this session. The record will remain open
until April 13, and that concludes the meeting.
[Whereupon, at 5:15 p.m., the hearing was adjourned,
subject to the call of the Chair.]
[Submissions for the record follow:]
Statement of Air Courier Conference of America, Falls Church, Virginia
This statement is submitted for the printed record by the
Air Courier Conference of America (ACCA) in conjunction with
the March 31, 1998 hearing by the Subcommittee on Trade of the
Committee on Ways and Means regarding the Free Trade Area of
the Americas (FTAA). ACCA is the trade association representing
the express consignment industry. Our members include large
firms with global delivery networks, such as DHL, Federal
Express, TNT and United Parcel Service, as well as smaller
businesses with strong regional delivery networks, such as
Global Mail, Midnite Express and Quick International.
The express transportation industry specializes in fast,
reliable transportation services for documents, packages and
freight; our operations encompass a variety of express delivery
services. Because express companies provide integrated, door-
to-door delivery, we are affected by all governmental policies
that apply to the distribution chain, and liberalization of
international trade for the express transportation sector
necessarily involves addressing trade restrictions and trade
distortive measures that affect any element of distribution,
including air and ground transportation, air auxiliary
services, warehousing, customs brokerage, electronic commerce,
telecommunications, and freight forwarding.
A major hallmark of the express transportation service
sector is the support of time-definite, or just-in-time (JIT),
shipment of goods and services. Government measures that impede
this expedited flow of goods severely limit the economic growth
in key high-tech industries, such as computers and electronics.
Although the JIT concept is not new, the emergence of the
express transportation industry has revolutionized the way
companies do business worldwide and has given a broad-based
application to the concept. Producers using supplies from
overseas no longer need to maintain costly inventories, nor do
business persons need to wait extended periods of time for
important documents. Waste due to obsolescence and seasonality
is almost entirely eliminated. In addition, consumers now have
the option of receiving international shipments on an expedited
basis.
The express transportation industry plays a key role in
FTAA economies. The U.S. sector reports revenues of over $50
billion and employs more than 400,000 workers. The industry has
averaged 20 percent annual growth for the past two decades. As
the industry is labor-and capital-intensive, its expansion
creates more jobs and investment in all countries serviced by
the sector. The industry's explosive growth is reflected in the
rapid expansion of international air express shipments, which
have doubled since 1993 and now average 1.2 million shipments
per day.
The express transportation industry is essential to the
future growth of the Western Hemisphere's trade and commerce,
as more and more of the region's trade is centered on the type
of high-value goods that are carried by this industry, such as
electronics, computers and computer parts, software, optics,
precision equipment, medicine, medical supplies,
pharmaceuticals, aircraft and auto parts, avionics, fashions
and high-value perishables. In addition, the industry
encourages small and medium-sized businesses to grow by
enabling them to participate in international trade. The
express transportation sector, with its integrated services
that provide door-to-door delivery, frees small businesses from
the burdensome and costly tasks of arranging for the
transportation of their goods through a myriad of unrelated and
often uncommunicating parties.
In an effort to enhance our ability to operate throughout
the Western Hemisphere, the express sector has participated
actively in the FTAA process. We were present at the III
Americas Business Forum held in Belo Horizonte, Brazil on May
12-13, 1997 which, among other things, called for FTAA
negotiations to include all service industries and to allow for
sectoral agreements. We also participated in the meeting held
in October, 1997 by the FTAA Working Group on Services in
Santiago, Chile. This was the first official joint meeting
between the private sector and an FTAA working group, and was a
direct outgrowth of the directive in the Summit of the Americas
Action Plan calling for a partnership between government and
the private sector.
The joint meeting explored the FTAA objectives of seven
specific service sectors, including express integrated
transportation. The sectoral commission for our industry
developed detailed recommendations which reflect a strong
consensus among industry members throughout the hemisphere
regarding our objectives for the FTAA negotiations, including:
the express integrated transportation service
sector should be the subject of sectoral negotiations in the
FTAA process;
Customs procedures for express services should be
streamlined and applied on a non-discriminatory basis;
the services working group should create a liaison
with the Customs working group regarding the simplification of
customs procedures;
the FTAA services agreement should contain the
following disciplines with respect to postal services and the
express integrated transportation sector: elimination of price
regulation, discriminatory taxes and fees, abusive monopoly
practices, cross subsidization and preferential customs
agreements; binding of government postal services to the same
measures applied to the private sector; and requiring
government postal authorities to maintain separate fiscal
organizations with respect to revenue from postal business and
revenue from express services;
the FTAA services agreement should contain
disciplines on postal services to eliminate unfair trade
practices and trade distortion resulting from the use of
exclusive service providers;
the FTAA should contain disciplines to eliminate
discriminatory treatment with respect to ground transportation
regulations and the express integrated transportation sector,
particularly regulation of: vehicle weight and size, use of
highways and roads, documentation, type of goods that may be
shipped, parking, operating hours, and price regulation; and
that FTAA countries should strive to achieve upwards
harmonization with respect to these areas;
the FTAA should contain a mechanism for the
effective protection and enforcement of intellectual property
rights in services, particularly service marks;
the FTAA services agreement should apply the same
rights and obligations contained in the WTO Agreement on
Subsidies and Countervailing Measures;
the FTAA services agreement should contain a
national treatment provision as well as transparency and most-
favored-nation obligations; and
the FTAA services negotiations should be conducted
on a ``negative list'' basis.
Our sector was able to build on this hemispheric-wide
consensus at the Americas Business Forum in Costa Rica by
targeting as a business facilitation measure implementation of
the so-called Cancun Accord by June, 1999. The Accord, which is
a comprehensive statement of obligations applying to both
customs authorities and private operators with respect to
express procedures, resulted from a meeting in June, 1996 in
Cancun, Mexico of the Customs Directors and private sector
representatives of 16 FTAA countries. Among other things, the
agreement addresses the type of merchandise that may be
transported by express service, the modalities of
transportation that may be used for express service,
obligations incumbent upon express service providers, and
customs procedures for clearing and entering express shipments.
Immediate implementation of the Cancun Accord would be an
initial step towards the ultimate goal of trade liberalization
for the express sector as outlined in the above measures.
The effectiveness of the Cancun Accord has been limited by
the fact that very few of the signatories have implemented it.
This, along with the fact that all 16 FTAA countries present at
Cancun signed the accord, makes immediate implementation of the
Cancun Accord as a business facilitation measure a logical
action for FTAA trade ministers and one that would have
immediate benefits for the hemisphere.
In Costa Rica, the express integrated transportation sector
also called for implementation within one year of any future
agreements on customs reforms for our sector. We also endorsed
adoption by FTAA countries of the express customs guidelines
approved by the World Customs Organization and the express
customs guidelines of the International Chamber of Commerce.
At the Fourth Americas Business Forum, our working group
also called on FTAA members to eliminate anti-competitive
measures and practices by postal and customs authorities in the
area of express integrated transportation services and
international deliveries of goods and services. The working
group also called on FTAA members to abolish discriminatory
measures, including application of postal rates and taxes to
subsidize government agencies. We recommended that the laws,
regulations and government practices related to these measures
and practices be amended by January 1, 1999 to provide for the
elimination of these policies by January 1, 2000.
As noted in the November, 1997 issue of The Economist,
``the vast expansion in international trade owes much to a
revolution in the business of moving freight.'' If implemented,
the steps outlined above would significantly enhance our
industry's ability to operate throughout the Western
Hemisphere. More important, they would facilitate the free
movement of goods and services across FTAA borders, which is
critical to realizing the benefits of liberalized trade. It
simply makes no sense to reduce certain barriers to trade
throughout the hemisphere but to continue to maintain archaic
customs, postal and other policies that obstruct the efficient
distribution of goods and services. Dismantling these barriers
will remain ACCA's principal focus throughout the FTAA process,
and, in this effort, we will seek to build on the groundwork
laid at Belo Horizonte, Santiago and San Jose.
Statement of American Electronics Association
Introduction
As the millennium comes to a close, international trade and
investment have become increasingly important components of
global integration and prosperity. Indeed, in this century
alone, the evolution in developed and developing economies from
isolationist policies which proved to intensify economic
inefficiencies to free trade regimes has prolonged profound
periods of economic expansion and opportunity.
The Americas Work Group of American Electronics Association
(AEA) welcomes the opportunity to submit its views on the
negotiation of the Free Trade Area of the Americas (FTAA)
before the House Ways and Means Subcommittee on Trade.
AEA represents more than 3,000 member companies across the
broad spectrum of electronics and information businesses--from
semiconductors and software to computers and telecommunication
systems. As the largest high-tech trade association in the
U.S., AEA represents American high-tech companies nationally
through 17 council offices and globally through offices in
Brussels, Tokyo, and Beijing.
Challenges to Negotiation
Despite the lack of Fast Track, the Administration can
begin negotiations of the FTAA, but cannot commit to any
provisions requiring a change to U.S. law. Unfortunately, this
limitation caters to the ``go-slow'' approach of many South
American economies looking to protect their domestic industries
as long as possible. Even without Fast Track, AEA urges the
Congress to support the Administration's efforts to continue
momentum of the United States' international trade agenda by
pursuing an aggressive, comprehensive FTAA. Further, AEA
supports the identification and implementation of interim
agreements in order to stimulate and drive trade liberalization
Hemisphere-wide. Finally, whenever possible, the Trade
Ministers should strive to exceed the trade and investment
disciplines reached in other trade fora.
Trade and Investment
Trade and investment between the U.S. and Latin America has
increased substantially in recent years. Between 1990-1996,
U.S. electronics exports to Latin America tripled from $3
billion in 1990 to over $9 billion in 1996, according to the
recently-released AEA report CyberNation. During the same
period, U.S. imports of electronics products from Latin America
doubled, from $242 million in 1990 to $506 million in 1996.
Key Issues
In order to further the growth of trade and investment in
high-tech products and services between the U.S. and Latin
America, a few key areas must be examined and addressed. The
main issues critical to the growth of the information
technology (IT) industry in the 34 member economies of the FTAA
are:
I. Market Access
II. Government Procurement
III. Investment
IV. Standards, Testing and Conformity Assessment
V. Intellectual Property
VI. Services
VII. Private Sector Participation
I. Market Access
Objective
Elimination of tariffs and non-tariff measures on
electronics products within the Hemisphere.
Principles
The elimination of duties, import charges and non-tariff
barriers accelerate the introduction of IT products to the
market, and as a result, increases customer choice, allows the
supplier to reduce costs to the customer and expedites the
introduction of products to the market. The guiding principles
behind the reduction of tariffs are:
the reduction and timely elimination to tariff and
non-tariff barriers, resulting in lower costs and greater
benefit to the consumers of IT products; and
the promotion of transparency of applicable rules
and regulations, with the opportunity for comment by all
interested parties.
Agenda for Progress
The FTAA countries are encouraged to identify the non-
tariff measures and business facilitation issues to improve
Hemisphere-wide market access, including the acceptance by all
countries of the ATA Carnet for temporary duty-free importation
of products. AEA further recommends that the 34 economies of
the FTAA eliminate duties on IT products consistent with the
terms of the North American Free Trade Agreement (NAFTA), the
GATT ``zero-for-zero'' package for medical devices and
semiconductor fabrication equipment, and the Information
Technology Agreement (ITA). While Panama and Costa Rica have
joined the ITA, those countries which do not yet adhere to the
Agreement should immediately do so and consider involvement in
the second-phase of the ITA which is projected to expand
product coverage and address non-tariff measures.
II. Government Procurement
Objective
Promote a Hemisphere-wide government procurement agreement
based on transparent and competitive government procurement practices.
Principles
Government procurement practices should be non-discriminatory
throughout the Hemisphere, transparent in their administration and free
from corrupt practices. In addition, AEA recommends that the Trade
Ministers consider the following guidelines for procurement
transparency:
Adequate Notice: Timely notification of opportunities is
essential to unbiased and open procurement. Bidders must be given
adequate time to evaluate projects and prepare bids. In large or
complex contracts, pre-qualification of bidders is advisable.
Neutral Standards: Bid specifications should be stated in
terms of internationally recognized standards, wherever possible.
Performance standards should be used to ensure that equivalent products
are treated equally.
Objective Criteria: Bidding documents should specify the
relevant factors in addition to price to be considered in bid
evaluation, and the formula by which they will be applied. All bidders
should be able to determine whether the objective criteria have been
followed in the final award.
Public Bid Opening: To ensure accountability in the
application of these procedures, bids should be opened in public, in
the presence of all bidders.
Award of Contract: Contracts should be awarded to the
lowest compliant bidder on the basis of objective criteria.
Intellectual Property (IP): The rights of the seller in
its technical data and its patents and copyrights need to be considered
and respected in the process of government procurement if the process
is to be considered fair and open. Failure to address the legitimate
concerns of the IP holders is a significant deterrent to open
procurement and it grieves the purchasing government by culling
participants who own the best technology. Even where development is
funded as part of the procurement, there are mutual benefits to be
gained by permitting the contractor to own and use the funded
technology, and the opportunity to own and use the funded technology is
an attractant to the best-qualified participants.
Dispute Settlement: Contracting agencies should provide
unsuccessful bidders access to independent review of compliance with
the bid process in accordance with the aforementioned principles,
including adequate remedies for non-compliance.
Agenda for Progress
AEA supports a Hemispheric government procurement agreement based
on the guidelines detailed above. Once the procurement transparency
agreement is in place, AEA recommends that all Hemispheric economies
develop and subscribe to an agreement for non-discrimination in public
procurement based on the principles of the WTO Government Procurement
Code.
AEA notes that the Organization for American States (OAS) has
recognized that corruption of public officials is a problem in
government procurement which frequently denies both companies and
domestic consumers the full benefits of international competition,
particularly in the development of national infrastructures. The OAS
anti-bribery convention is an important new international agreement
aimed at reducing this problem; however, only a few member countries,
have ratified the Convention. Given the relationship between questions
of bribery and the procurement process, AEA suggests that all OAS
members complete the ratification process as soon as possible. In
addition, AEA encourages all Western Hemisphere governments to review
the international anti-bribery convention concluded by the OECD, with a
view to subscribing to this Agreement as well.
III. Investment
Objective
Ensure an open and competitive investment environment,
prohibit performance requirements, and divorce investment
determinations from procurement decisions through an intra-Hemisphere
investment agreement.
Principles
AEA believes intra-Hemispheric investment flows should be supported
by principles of:
non-discrimination,
MFN,
national treatment,
fair and equitable treatment, and
impartial and fair dispute settlement.
Agenda for Progress
AEA recommends a Hemispheric investment agreement, based on the
above principles, which includes investor-state arbitration for dealing
with disputes between private parties and States and among private
parties, in addition to State-to-State dispute settlement. AEA suggests
that a Hemispheric investment agreement draw upon the principles of the
Multilateral Agreement on Investment (MAI) under the auspices of the
OECD, while remaining consistent with the WTO Agreement on Trade-
Related Investment Measures (TRIMs).
IV. Standards, Testing and Conformity Assessment
Objective
Promote regulatory structures that reference:
1) internationally-accepted standards or suite of standards;
2) one test or suite of tests to meet those standards;
3) acceptance of a supplier's test results or a third-party's; and
4) acceptance of supplier's declaration of conformity or third-
party certification.
Principles
Standards, certification and regulatory policy often create
unintended barriers to trade. Accordingly, the principle ``One
Standard--One Test, Supplier's Declaration of Conformity'' should guide
the negotiators in their discussion on standards, testing and
certification issues as a regulatory reform model that goes beyond the
initial model calling for the mutual recognition of test results and
certification regimes.
Agenda for Progress
Internationally-accepted standards (de facto or created by
international standards bodies), based on performance criteria, should
be adopted whenever possible. Specifically, with regard to the
telecommunications and medical device sectors in conformity assessment,
there should be the intra-Hemisphere mutual recognition of test
results, provided by suppliers or third-party labs, and of type-
approval, allowing for manufacturers' self-declaration of conformity.
An intermediate goal in the telecommunications sector should be to
continue development of the Yellow Book on equipment certification
processes and to provide educational seminars on the benefit of Mutual
Recognition Agreements (as planned under CITEL--the Inter-American
Telecommunications Committee). An intermediate goal in the medical
device sector should be to implement common registration and Good
Manufacturing Practices (GMP) requirements, moving toward harmonization
and recognition of certificates generated overseas (e.g., FDA
certificate of free sale or EU certificate of conformity) in lieu of
local testing. An immediate goal for computers should be the
establishment of a Hemisphere-wide pilot program to investigate and
test the implementation of the principle ``One Standard--One Test,
Supplier's Declaration of Conformity.''
In addition, AEA recommends the reduction of product marking
requirements to a single global system for demonstrating conformity.
V. Intellectual Property
Objective
Extend and enforce a strong intellectual property rights
(IPR) protection regime throughout the Hemisphere.
Principles
A balance must be struck between satisfying the interests of
numerous parties: right holders, manufacturers, distributors, consumers
and network operators. It is essential that industry and government
cooperate to protect intellectual property rights. Producers rely on
legal protection of their products and activities. Therefore, as the
market develops and as cross-border product and information flow
increase,
a harmonized, secure and stable legal regime is necessary
both internationally and within the Hemisphere.
Agenda for Progress
AEA urges the implementation of the WTO Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPs), and suggests the
development of a Hemispheric Agreement which goes beyond the TRIPs
measures.
AEA urges the member countries of the WTO to promptly pass
legislation providing IP protection for computer and telecommunications
products including software and electronic information products under
both copyright laws and patent laws. The copyright laws should
specifically provide that computer programs and computerized databases
are literary works, within the meaning of the Berne Convention, and
that every kind of information processing product be protected under
the patent laws, even when such products comprise software components.
The problem with the patent laws of many Latin American countries is
that they expressly exclude ``computer programs'' from patentability.
This exclusion is often interpreted to mean that products having a
principal function implemented with software are not patentable. Thus,
the ``computer program'' exclusion has the effect of excluding a large
class of computer-related technologies from protection under the
national patent laws. This is in contravention of the provision in Art.
27 of TRIPS which provides that patents shall be available in all
fields of technology. Further, AEA urges all countries to adopt the
World Intellectual Property Organization (WIPO) Treaties of December
1996 on Copyrights and Performances and Phonograms. AEA also recommends
the international protection of databases (again, under WIPO auspices).
With respect to telecommunications equipment, many of the product
features are embedded in software; therefore, IP exists past layer-one
of system software and should be equally protected Hemisphere-wide.
VI. Services
Objective
Promote the unfettered growth of electronic commerce,
support the liberalization of telecommunications infrastructure and
encourage pro-competitive policies Hemisphere-wide.
Principles
The principles encouraged to promote business facilitation efforts
are based on industry leadership, predictability, consistency and
fairness.
In order for countries to maintain and improve their competitive
position in the services sector, they must hasten deregulation and
privatization efforts in telecommunications and aggressively promote
competition in the industry.
In the area of electronic commerce, the following principles should
guide the Ministers:
Electronic Commerce should be market-driven: Increased
innovation, expanded participation, broader services and lower prices
result in a commercial environment where market forces prevail.
Electronic Commerce should remain unfettered by undue
government intervention and/or regulation: Governments have a
responsibility to understand the unique nature of the Internet as an
electronic medium and should refrain from any undue regulation. The
successful Internet economy will have a significant multiplier effect
on economic development, job growth and competitiveness.
Electronic Commerce should feature protection of the
security and of the integrity of data: Rapidly expanding markets for
information technology demand the privacy and integrity of data be
secured through encryption technology. These global market
opportunities will not be realized if encryption technology cannot be
used, imported and exported freely to protect information exchanged
over public and corporate global networks. AEA supports efforts to
reach these objectives within the Hemisphere and at the international-
level using the OECD Cryptography Guidelines.
Electronic Commerce should allow the global free flow of
data: Data protection standards should not be utilized to erect new
trade barriers which could frustrate the development of electronic
commerce. AEA is supportive of industry-developed answers to issues of
privacy and market-driven solutions to insure customer satisfaction
regarding how private data is handled.
Electronic Commerce should be tax-neutral: The electronic
commerce environment must not be subject to a more onerous tax regime
than traditional forms of commerce. It is crucial that any minimal
regulatory approach be globally-harmonized and technology-neutral.
Agenda for Progress
All countries should, at minimum, adopt the Reference Paper, with
the ultimate objective to ratify and implement the WTO Agreement on
Basic Telecommunications. Those countries that have not done so, should
make market-opening commitments in basic telecommunications and remove
foreign ownership restrictions on telecommunications operators.
In the area of electronic commerce, countries should respect the
OECD Cryptography Guidelines, as well as those Governing the Protection
of Privacy and Transborder Flows of Personal Data. Further, Ministers
are urged to abide by the principles outlined in the U.S. ``Framework
for Electronic Commerce.''
VII. Private Sector Participation
Objective
Create a sectoral work group to address issues specific to
the high-technology industry.
Principles
Since U.S. and Latin American businesses are the practitioners of
international commerce, industry leaders have the unique ability to
recognize the practical impacts of trade policy and therefore, should
be consulted in the policy-making process.
Meaningful discussion among business serves as a basis for
understanding within industry itself with regard to identifying common
objectives and addressing barriers to trade and investment in the
Hemisphere.
If commonalties can be found and transmitted in a coherent,
consistent manner to the Ministers, this exercise could provide
valuable information in the decision-making process.
Agenda for Progress
Create a regular, predictable framework for business leaders from
the high-technology industry of the Hemisphere to meet, discuss and
present unified recommendations to the Ministers of the FTAA. AEA
proposes that the private sector be consulted before and/or after
negotiating group sessions as well as at Ministerial meetings. The
regularity of bi-annual Ministerial meetings affords an opportune time
to consult with industry. Every effort should be made to incorporate
private sector consultations into these meetings.
Conclusion
The negotiation of the FTAA presents many opportunities to
companies and workers in the Western Hemisphere. With the
dynamic and rapid growth of information technology in the
region, it is critical for the U.S. to lead and engage our
Hemispheric trading partners into an arrangement beneficial to
all. AEA looks forward to working with the Congress and the
Administration to ensure that the efforts to construct a
comprehensive and meaningful FTAA are successful.
Statement of Carolyn Cheney, Washington Representative, Sugar Cane
Growers Cooperative of Florida; and Chairman, American Sugar Alliance
Thank you for the opportunity to submit testimony for this
important hearing. I am Carolyn Cheney, Washington
Representative for the Sugar Cane Growers Cooperative of
Florida. I also serve as chairman of the American Sugar
Alliance, of which my cooperative is a member. The ASA is a
national coalition of growers, processors, and refiners of
sugarbeets, sugarcane, and corn for sweetener.
I am proud to present the views not only of the Sugar Cane
Growers Cooperative of Florida, but also of the American Sugar
Alliance.
Summary
The U.S. sugar industry has long endorsed the goal of
global free trade because we are efficient by world standards
and would welcome the opportunity to compete on a genuine level
playing field. Until we achieve that free trade goal, however,
we must retain at least the minimal, transitional sugar policy
now in place to prevent foreign subsidized, dump market sugar
from unfairly displacing efficient American producers. This
policy was substantially modified by Congress in the 1996 Farm
Bill, but remains highly beneficial to American taxpayers and
consumers.
Despite its free trade goal, however, the sugar industry
has some serious concerns about the structure of future
multilateral or regional trade agreements.
Multilaterally, we are concerned that, while U.S.
agriculture unilaterally far surpassed its Uruguay Round
commitments through huge government cutbacks in the 1996 Farm
Bill, many foreign countries have yet to even minimally comply
with their Uruguay Round commitments.
Regionally, we are facing serious problems with both Canada
and Mexico. Canada is exploiting a loophole to circumvent the
U.S. tariff-rate quota for sugar and threaten the no-cost
operation of U.S. sugar policy. Mexico, four years after the
NAFTA went into effect, is calling into question the validity
of special sugar provisions to which it agreed before the NAFTA
was voted upon and approved.
American sugar farmers want free trade. But we have trouble
moving further in that direction when past free trade
agreements are being ignored, or circumvented, by our trading
partners, to the possible detriment of our farmers.
I would like to provide some background on the United
States' role and standing in the world sugar economy and on
U.S. sugar policy's effect on American consumers and taxpayers
and discuss the U.S. sugar industry's trade policy goal,
concerns, and recommendations, with special focus on the
proposed Free Trade Area of the Americas (FTAA).
Background on U.S. Sugar Industry, Policy
Size and Competitiveness. Sugar is grown and processed in
17 states and 420,000 American jobs, in 40 states, are
dependent, directly or indirectly, on the production of sugar
and corn sweeteners. The United States is the world's fourth
largest sugar producer, trailing only Brazil, India, and China.
The European Union (EU), taken collectively, is by far the
world's largest producing region. It benefits from massive
production and export subsidy programs.
Despite some of the world's highest government-imposed
costs for labor and environmental protections, U.S. sugar
producers are among the world's most efficient. According to a
study released in 1997 by LMC International, of Oxford,
England, American sugar producers rank 19th lowest in cost
among 96 producing countries, most of which are developing
countries. According to LMC, fully two-thirds of the world's
sugar is produced at a higher cost per pound than in the United
States.
Because of our efficiency, American sugar farmers would
welcome the opportunity to compete against foreign farmers on a
level playing field, free of government subsidies.
Unfortunately, the extreme distortion of the world sugar
market makes any such free trade competition impossible today.
World Dump Market. More than 100 countries produce sugar
and the governments of all these countries intervene in their
sugar markets in some way. The most egregious, and most trade
distorting, example is the EU. The Europeans are higher cost
sugar producers than we are but they enjoy price supports that
are 40% higher--high enough to generate huge surpluses that are
dumped on the world sugar market, for whatever price they will
bring, through an elaborate system of export subsidies.
World trade in sugar has always been riddled with unfair
trading practices. These practices have led to the distortion
in the so-called ``world market'' for sugar. These distortions
have led to a disconnect between the cost of production and
prices on the world sugar market, more aptly called a ``dump
market.'' Indeed, for the period of 1984/85 through 1994/95,
the most recent period for which cost of production data are
available, the world dump market price averaged just a little
more than 9 cents per pound raw value, barely half the world
average production cost of production of over 18 cents. (See
chart, Attachment A.)
Furthermore, its dump nature makes sugar the world's most
volatile commodity market. Just in the past two decades, world
sugar prices have soared above 60 cents per pound and plummeted
below 3 cents per pound. Because it is a relatively thinly
traded market, small shifts in supply or demand can cause huge
changes in price.
As long as foreign subsidies drive prices on the world
market well below the global cost of production, the United
States must retain some border control. This is our only
response to the foreign predatory pricing practices that
threaten the more efficient American sugar farmers.
The reformed sugar policy of the 1996 Farm Bill does retain
the Secretary of Agriculture's ability to limit imports, and
also provides a price support mechanism, though only when
imports exceed 1.5 million short tons. We are currently only
240,000 tons above that critical trigger level.
Sugar Reforms. The 1996 Farm Bill drastically changed U.S.
sugar policy, as it did other commodity programs. All American
farmers, including sugar farmers, now face a less certain
future, with less government intervention, higher risk, and the
prospect of lower prices.
There were six major reforms to U.S. sugar policy in the
1996 Farm Bill:
1. Marketing allotments eliminated. With no production
controls, we now have a domestic free market for sugar. Less
efficient producers are more likely to go out of business; more
efficient producers are free to expand. Just last month the
only sugarbeet processing company in Texas announced it is
closing, ending sugarbeet production in that state, because of
low returns.
2. Guaranteed minimum price eliminated. Sugar is the only
program crop that has lost the guarantee of non-recourse loans
and a minimum grower price. Sugar producers will have access to
non-recourse loans only when imports exceed 1.5 million short
tons.
3. Minimum imports effectively raised. Under the Uruguay
Round of the GATT, the U.S. was required to import no less than
1.256 million tons of sugar per year. The non-recourse loan
trigger of 1.5 million tons effectively raises our import
minimum to that level, a unilateral increase of 20%.
4. Marketing tax raised. The special marketing assessment,
or tax, sugar producers must pay to the government on every
pound of sugar was raised by 25%, to 1.375% of the loan rate on
every pound produced. This added burden on sugar farmers will
generate about $40 million per year for the U.S. Treasury, with
all this money earmarked for federal budget deficit reduction.
5. Forfeiture penalty initiated. To discourage forfeiture
of loans to the government when non-recourse loans are in
effect, and to raise even more money for the U.S. Treasury, a
1-cent per pound forfeiture penalty was initiated.
6. Commitment to further reductions. A provision called
``GATT Plus'' requires that the U.S. will reduce its sugar
supports further if, and when, foreign countries surpass their
Uruguay Round commitments, as the U.S. has done.
Effect on Consumers. American consumers and food and candy
manufacturers benefit from high-quality, dependable, reasonably
priced supply of sugar. Consumer prices in the United States
are fully 32% below the developed-country average, according to
a world survey by LMC International. Compared with consumers
worldwide, and taking varying income levels into account, LMC
found that in terms of minutes worked to purchase one pound of
sugar, American consumers are the second lowest in the world,
trailing only the tiny country of Singapore. (See charts,
Attachments B and C.)
Consumer Cost Myths. The food manufacturer critics of U.S.
sugar policy repeatedly point to a severely flawed 1993 General
Accounting Office study that estimated a consumer cost of U.S.
sugar policy at $1.4 billion per year. Experts at the U.S.
Department of Agriculture have twice vilified this flawed
report, as have noted academicians. More recently critics are
citing a Public Voice ``update,'' which mimicked the faulty
methodology of the GAO report and dropped this supposed cost to
$1.2 billion.
Both of these absurd studies assumed that: 1) All U.S.
sugar needs could be supplied from the world dump market at a
price well below the world average cost of production; 2) We
could fulfill our needs from this thinly traded, highly
volatile world market without that price increasing at all; and
3) Every penny of the food manufacturers' and retailers'
savings from the lower dump market sugar prices would be passed
along to consumers.
For reasons I have already outlined, it is clear that if
the United States destroyed its sugar industry and shifted all
its demand for sugar to the thinly traded world dump market--
which would increase demand on that market by about 50%--the
price would skyrocket, as it has in the past with far smaller
surges in offtake.
To address the third and most outrageous of these
assumptions, one need only examine price behavior of the past
year, or the past decade. History shows absolutely no
passthrough.
No Passthrough to Consumers. Since Farm Bill reforms went
into effect in October 1996, both raw cane and wholesale
refined beet sugar prices to producers have dropped
dramatically, wholesale refined prices by a whopping 12%. But
at the retail level, not even the price of sugar on the grocery
shelf has dropped at all. And prices for sweetened products,
such as candy, cereal, ice cream, cakes, and cookies have all
risen by 1-5%. Looking back to price changes since 1990, the
story remains the same: producer prices down, but consumer
prices for sugar and products up. (See charts, Attachments D
and E.)
Effect on Taxpayers. Not only has U.S. sugar policy been
run at no cost to the government since 1985, but since 1991 it
has been a revenue raiser. The marketing assessment burden on
sugar farmers will generate an estimated $288 million for
federal budget deficit reduction over the seven years of the
1996 Farm Bill.
U.S. Sugar Industry's Free Trade Goal
Because of our competitiveness, with costs of production
well below the world average, the U.S. sugar industry supports
the goal of genuine, global free trade in sugar. We cannot
compete with foreign governments, but we are perfectly willing
to compete with foreign farmers in a truly free trade
environment.
We were the first U.S. commodity group to endorse the goal
of completely eliminating government barriers to trade at the
outset of the Uruguay Round, in 1986. We understand we are the
first group to endorse this same goal prior to the start of the
1999 multilateral trade round. We described our goals and
concerns to the Administration in a letter last May to Trade
Representative Barshefsky and Agriculture Secretary Glickman. A
copy of that letter is attached to this testimony (Attachment
F).
The U.S. sugar industry does not endorse the notion of free
trade at any cost. The movement toward free trade must be made
deliberately and rationally, to ensure fairness and to ensure
that those of us who have a global comparative advantage in
sugar production are not disadvantaged by allowing distortions,
exemptions, or delays for our foreign competitors.
Sugar and the Uruguay Round
Little Effect on World Sugar Policies. More than 100
countries produce sugar and all have some forms of government
intervention. Unfortunately, these policies were not
significantly changed in the Uruguay Round Agreement (URA) of
the GATT.
The agreement failed to reduce the European
Union's lavish price support level and requires only a tiny
potential drop in their massive export subsidies.
Developing countries, which dominate world sugar
trade, have little or no labor and environmental standards for
sugar farmers, have no minimum import access requirements, and
often have high import tariffs. Nonetheless, developing
countries were put on a much slower track for reductions, or
were exempted altogether.
Important players such as China and the former
Soviet republics are not GATT members, and need to do nothing.
State trading enterprises (STE's) that are
prevalent in sugar-producing countries were ignored.
Furthermore, many countries have not yet even complied with
their URA commitments. U.S. Sugar Surpasses URA Requirements.
The United States is one of only about 25 countries that
guarantees a portion of its sugar market to foreign producers
and it has far surpassed is URA commitment on import access.
The URA required a minimum access of 3-5% of domestic
consumption. The United States accepted a sugar-import minimum
that amounts to about 12% of consumption. In practice, U.S.
imports the past two years have averaged 24%--double the
promise we made in the GATT, and about six times the global
GATT minimum.
All this sugar imported from 41 countries under the tariff-
rate quota enters the United States at the U.S. price, and not
at the world dump price. Virtually all this sugar enters duty
free. Just five countries (Argentina, Australia, Brazil, Gabon,
and Taiwan) that lack Generalized System of Preferences (GSP)
status pay a duty, and that is quite small, about 0.6 cents per
pound.
The United States calculated its above-quota tariff rate in
the manner dictated by the URA. These tariff levels are totally
GATT consistent, and are dropping by 15%, as we promised they
would in the Uruguay Round.
Sugar and the NAFTA
Canada. Sugar trade between the United States and Canada,
which imports about 90% of its sugar needs, was essentially
excluded from the NAFTA. U.S.-Canadian sugar trade is governed
mainly by the U.S.-Canada Free Trade Agreement and by the WTO.
Currently, Canada is threatening the integrity of U.S.
sugar policy by circumventing the quota with a new product
referred to in the trade as ``stuffed molasses''--a high-sugar
product not currently included in U.S. sugar TRQ
classifications. USDA has estimated imports of this product
could add 125,000 tons of non-quota sugar to the U.S. market
this year. That amount could grow if this loophole is not
closed.
Mexico. Mexico had been a net importer of sugar for a
number of years prior to the inception of the NAFTA.
Nonetheless, the NAFTA provided Mexico with more than three
times its traditional access to the U.S. sugar market during
the first six years, 35 times its traditional access in years
7-14, and virtually unlimited access thereafter. The NAFTA
sugar provisions are summarized on the attached table
(Attachment G).
These provisions were negotiated by the U.S. and Mexican
governments and contained in a side letter signed by Cabinet
officials of both governments before the U.S. Congress took
action on the NAFTA in November 1993. Nonetheless, Mexico is
now undermining the integrity of the NAFTA by claiming the
sugar side letter is somehow invalid.
Concerns Regarding the FTAA
Consistent with our desire for genuine, global free trade
in sugar, the U.S. sugar industry supports the goal of free
trade for the Americas. Because of the uniqueness of sugar,
particularly in terms of the highly distorted world market for
sugar, a number of concerns must be taken into account as the
FTAA is negotiated.
Compliance with Past Agreements. While the United States
has far surpassed its Uruguay Round commitments, many other
countries have yet to even minimally comply. Numerous examples
exist where export subsidies, internal supports, and import
tariffs for many crops are not in compliance with WTO
commitments.
Despite the generous additional access to the U.S. market
Mexico receives, Mexico is casting doubts on the validity of
the NAFTA sugar provisions to which it agreed in 1993. Now,
four years after the agreement's inception, Mexico has filed
for a dispute panel resolution. Furthermore, counter to both
WTO and NAFTA rules, Mexico has imposed extremely high duties
on imports of U.S. corn sweeteners. The United States has been
forced to seek redress through both WTO and NAFTA channels.
Unfortunately, foreign countries' failure to comply
undermines the credibility of past agreements and jeopardizes
the public's ability to support the negotiation of new ones.
Foreign countries must be brought into full compliance with
past agreements before the United States considers additional
concessions in new agreements.
Minimum Access Commitment. In the Uruguay Round, the United
States agreed it would import no less than 1.26 million short
tons of sugar per year. In the NAFTA, the United States agreed
it would import up to 275,000 tons (250,000 metric) of sugar
from Mexico during transition years 7-14. The U.S.
Administration has committed that the additional Mexican
imports would count toward fulfillment of the URA import
minimum.
We are concerned about how any additional access granted
under the FTAA would be reconciled relative to our WTO minimum
import commitment, and we are concerned about the possible
effect on non-FTAA quotaholding countries that have come to
rely, economically, on access to the preferentially priced U.S.
sugar market.
Widely Varying Levels of Support. Unilateral reforms to
U.S. agriculture policy in the 1996 Farm Bill far exceeded U.S.
commitments made the year before in the Uruguay Round.
Furthermore, developing countries, which dominate world
agricultural trade and particularly sugar trade, were subject
to a slower pace of reductions, if any.
As a result, the United States is way out in front of the
rest of the world in removing its government from agriculture
and has placed its farmers in a domestic free market situation.
This gap makes American farmers uniquely vulnerable to
continued subsidies by foreign competitors.
In sugar, two examples come to mind: 1) The EU sugar
support price is approximately 40% higher than the stand-by
U.S. support price. The Uruguay Round's formula-driven
percentage reductions in support levels do not reduce the gap
between the EU and the U.S. at all. 2) Actual U.S. sugar
imports the past two years have been nearly double the 1.26-
million-ton minimum import commitment the U.S. made in the
Uruguay Round and about six times the URA global minimum.
It is key that American farmers not be penalized for
attempting to lead the rest of the world toward free
agricultural trade. American farmers must be given credit for
the reforms they have endured.
Labor and Environmental Standards. The gap in government
standards--and resulting producer costs--between developed and
developing countries is well documented and immense. In sugar,
the gap is particularly pronounced because, while the EU and
the U.S. are major players, production and exports are highly
dominated by developing countries, especially in the cane
sector. The contrast is pronounced in the potential FTAA, in
which the United States is the only major developed-country
sugar producer.
American sugar producers comply with the world's highest
standards for environmental protection--at a price. For
example, the Everglades Forever Act (EFA) mandates that Florida
farmers pay at least $232 million in taxes for Everglades
preservation activities--on top of the many costs borne by
farmers to monitor and clean water leaving farm areas. In
Hawaii, extremely high environmental compliance costs have been
a factor in driving two-thirds of the state's sugar growers out
of business in the past 10 years. In many developing countries,
by contrast, sugar mills face no restrictions, or no
enforcement of restrictions, on the quality of water or air
emissions.
American sugar farmers are proud to raise sugar with the
highest possible regard for workers and the environment. But we
should not be penalized in multilateral or regional trade
negotiations for providing these costly protections. And
foreign countries that do not provide such protections should
not be rewarded.
If we are attempting to globalize or regionalize our
economy, we should do the same with our food safety and worker
and environmental protection responsibilities.
State Trading Enterprises (STE's). STE's are quasi-
governmental, or government-tolerated organizations that
support domestic producers through a variety of monopolistic
buyer or seller arrangements, marketing quotas, dual-pricing
arrangements, and other strategies. These practices were
ignored in the Uruguay Round, but are, unfortunately, common in
the world sugar industry. Major producers such as Australia,
Brazil, China, Cuba, and India have sugar STE's, but were not
required to make any changes in the Uruguay Round.
In addition to Brazil, other FTAA countries allow practices
similar to those characteristic of STE's. We are studying the
sugar trading systems in these countries, and will share our
findings with Congress and the Administration. These, and
other, foreign trade-distorting practices will have to be taken
into account as the FTAA is negotiated.
Recommendations for the FTAA Negotiations
To address these concerns, we have several recommendations
for U.S. FTAA negotiators.
1. The United States should not reduce its government
programs any further until other countries have complied with
their Uruguay Round commitments and have reduced their programs
to our level. Nor should the United States agree to expanding
the NAFTA to the rest of the hemisphere until Mexico complies
with the NAFTA.
2. The wide gap in labor and environmental standards
between developed and developing countries must be taken into
account in the FTAA, and addressed in a manner that ensures
foreign standards rise to U.S. levels, rather than providing an
advantage to developing countries with despicable labor and
environmental standards.
3. Because of the uniqueness of the world sugar market and
the huge differences between the nature of the U.S. sugar
economy and those of developing nations that dominate the
potential FTAA, sugar should receive special consideration, as
it did in the NAFTA.
Conclusion
In conclusion, Mr. Chairman, thank you for convening this
timely and important hearing. U.S. agriculture is extremely
vulnerable as we approach new multilateral and regional trade
negotiations. If we negotiate carefully and rationally,
however, there is enormous potential for responsible American
sugar producers to compete and prosper in a genuine free trade
environment, free from the need for government intervention. We
are anxious to work with you to resolve problems with past
agreements, and then move ahead to forge, and enforce, new
ones. Thank you for the opportunity to submit our views.
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Statement of Dr. Steven Cord, Research Director, Center for the Study
of Economics, Columbia, Maryland
Let us start by agreeing that free trade between nations is
a good idea; then why not free trade within a nation. A tariff
is a tax on imports, but if it's no good then aren't all taxes
no good?
If we do away with taxes on producers (e.g., workers and
businesses), how will government subsist? Easy--by taxing
locations, many of which are quite valuable and are not
produced by human labor. The value of these locations is
exactly expressed by the value of land, which can be assessed
with a high degree of accuracy. Land values are right now
widely taxed and 16 U.S. cities are taxing land more than
buildings and with uniformly good results.
Imagine if we had real free trade within our country--if
land values were more fully taxed in place of taxes on workers
and businesses. Wouldn't production be spurred and wouldn't
land have to be more efficiently used?
Can the federal government do this? Yes! This organization
has done extensive research to find out how and invites
inquiries.
Client listing: The Center for the Study of Economics is a
non-profit organization supported by two private foundation
grants, and contributions and bequests from about 500 members
across the country, but we are testifying on our own behalf.
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Statement of Chemical Manufacturers Association, Arlington, Virginia
The U.S. chemical industry is a leader in free trade and
U.S. exports. The chemical industry is America's largest
exporter, and in 1997, accounted for over $69 billion in U.S.
exports. For the same year, U.S. imports of chemicals and
allied products were $50 billion, for a U.S. trade surplus in
the sector of over $19 billion. Cumulatively, the industry's
trade surplus in the chemicals sector over the last 10 years
amounts to $172 billion.
The negotiations to create the Free Trade Area of the
Americas (FTAA) are of critical importance for the future of
our industry. U.S. companies have long been the preferred
suppliers in Latin American markets, but this situation is
rapidly changing, as the MERCOSUR member countries of Brazil,
Argentina, Uruguay and Paraguay move to negotiate agreements
with the European Union, and strengthen linkages with other
trading partners in South America. The Free Trade Area of the
Americas would be a powerful means to retain America's ability
to be the pre-eminent supplier to the Hemisphere. Considering
just the markets of Central and South America, these countries
provide the U.S. chemical industry with market potential of 400
million persons and combined Gross Domestic Products of $2.7
trillion. The U.S. chemical industry is very much a global
industry. Our exports to Europe are strong, yet the European
market is mature. The emerging markets in Asia and Latin
America will be our fastest growing export markets, and with
the current financial crisis still burdening many of the
markets in Asia, Latin America becomes an even more significant
destination for America's chemical exports.
The Chemical Manufacturers Association supports the goal of
negotiating the FTAA by 2005. We believe this goal is realistic
and achievable. Although we recognize that the 34 economies
participating in the FTAA are diverse as to size, economic
strength, and overall competitiveness, we are firmly convinced
that the key to continued prosperity is trade without barriers,
subsidies and other unfair practices. Eliminating impediments
to market access for goods and services fosters economic growth
which, in turn, will raise standards of living in the region,
and will improve working conditions for people throughout the
Americas.
Key aspects of the FTAA of importance to the U.S. chemical
industry include:
Consistency with the WTO. The U.S. chemical industry
supports the principle that the FTAA should be consistent with
all aspects of the WTO. At the same time, the FTAA should seek
to improve upon WTO disciplines and agree to implement trade-
liberalizing rules that go beyond the basic WTO requirements.
Tariffs and non-tariff barriers. Free trade is good for
U.S. chemicals exports. In NAFTA, for example, Canada is our
single largest market for U.S. chemicals, accounting for 19
percent of the industry's total exports. Under NAFTA, U.S.
exports of chemicals and allied products to Canada more than
trebled from 1989-1997, rising from $4.3 billion to $13.1
billion. Export growth to Mexico has been nearly as rapid
rising in 1997 to $6.3 billion, just short of triple the 1989
total of $2.2 billion.
Rules of origin. These need to be clear and easy for the
industry to understand. At the same time, the rules must ensure
that the benefits of the FTAA accrue to producers within the
Hemisphere.
Intellectual Property Rights. The FTAA should aim to create
strong rules for the protection of intellectual property rights
in the Hemisphere. Enacting TRIPs-consistent laws and
regulations throughout the Hemisphere by 2000, for example,
would be a desirable step and could certainly be considered
``concrete progress.''
Standards and Conformance Testing. Chemical products are
often highly regulated and subject to numerous standards and
certification requirements. Harmonization of product standards
and testing requirements throughout the Hemisphere is critical
to ensure safe handling and at the same time avoid increasing
compliance costs and creating new barriers to trade.
Environment and Labor. Although CMA supports individual
country efforts on environmental and labor initiatives,
governments should not be compelled to adopt policies through
the inclusion of unrelated or inappropriate measures in trade
agreements. For example, the Chemical Manufacturers Association
is concerned over the U.S. government's promotion of
environmental elements in the Multilateral Agreement on
Investment (MAI) now under negotiation in the Organization of
Economic Cooperation and Development (OECD). In the MAI, the
U.S. is proposing to single out the chemical industry in an
agreement with broad implications for U.S. business. If
adopted, CMA believes this proposal will unfairly stigmatize
chemical industry investments, as well as possibly infringe on
MAI member states' authority in the area of environmental
protection. In short, environment and labor issues should not
be a required element in a trade agreement.
Role of the business community. We support a regular and
formal role for the participation of the business community in
the formation of the FTAA, and beyond. The agreement may be
among governments, but businesses are the drivers for a strong
economy. Industry should be able to provide views to the
negotiators, and to the officials of the 34 participating
governments in an organized fashion. The Administration's
proposal for a Committee on Civil Society, while interesting,
does not appear to adequately fulfill this need.
Finally, the members of the Chemical Manufacturers
Association strongly support the renewal of the President's
fast-track negotiating authority. We view such authority as
critical to the ability of the United States to demonstrate
leadership on international trade questions. In the context of
the FTAA, it is evident that renewed fast-track authority is
needed as soon as possible in order to infuse real momentum
into the Hemispheric negotiations.
Statement of Rufus E. Jarman, Jr., President, and Patrick C. Reed,
Chairman, International Trade Committee, Customs and International
Trade Bar Association, New York, New York
Any New Trade Agreements Should Not Include Binational Panel Dispute
Resolution
The Customs and International Trade Bar Association
(``CITBA'') is pleased to submit this statement for the record
in connection with the above captioned hearing. CITBA is a
national Bar Association comprised of attorneys who practice
customs and international trade law. All active members are
members of the Bar of the United States Court of International
Trade. CITBA has no political or ideological affiliations or
motivations. CITBA's members represent every manner of party
from individuals to multi-national corporations both domestic
and foreign.
CITBA has continuously, and strongly, opposed the
institution of binational panel review of disputes arising
under the antidumping and countervailing duty laws since such
procedures were first seriously suggested in connection with
the negotiation of the U.S./Canada Free Trade Agreement
(``CFTA'') in 1987. CITBA's opposition to these procedures is
based both on policy grounds and on legal/constitutional
grounds.
I. Chapter 19 Binational Panel Review is Bad Policy. Even
if there were no legal objections, there exist no rational
policy objectives served by the present binational panel
review, much less extension of such procedures to any proposed
agreement on a free-trade area of the Americas or otherwise. To
the contrary, for a number of reasons, the binational panel
review system represents extremely bad public policy with great
potential for mischief, particularly to the extent that it
might be extended beyond its present limited existence in
NAFTA.
The binational panel review system was never the result of
any coherent and cohesive policy objective. Rather, it was
strictly the result of political compromise resulting in a
system which was probably worse than that desired by either the
Canadian or United States negotiators. This was clearly
reviewed by Hon. Gregory W. Carman, Chief Judge of the United
States Court of International Trade at an address delivered to
CITBA at its annual dinner on April 16, 1997.\1\
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\1\ The excerpts contained herein are taken from the version of
Judge Carman's speech as published at Volume XXVII, Stetson Law Review
643. A similar version also appears at 21 Fordham Int'l. L.J. 1 (1997).
---------------------------------------------------------------------------
Not surprisingly, each side [Canada and the United States]
had different objectives it hoped to accomplish in the
negotiations. In an article published in the Spring 1995 issue
of Law and Policy in International Business, Charles Gastle and
Jean-G. Castel, two Canadian lawyers, discussed the ``awkward
compromise'' that brought about the CFTA/NAFTA mechanism for
settling disputes. They state:
The Canadian goal had been to eliminate existing
antidumping and countervailing duty rates [in the United
States] and to negotiate a new set of laws modeled on
competition law principles with a binational tribunal to
enforce them. This goal proved elusive because U.S. trade
officials wanted strict limits placed upon what they considered
to be trade distorting practices through Canada's improper use
of subsidies.
While the Canadians sought to exempt or ameliorate the
effect of the United States' dumping and countervailing duty
laws on its products, there was strong opposition in Congress
to weakening these laws.
To resolve the conflict resulting from these polarizing
points, the parties agreed not to change United States or
Canadian countervailing or dumping laws, and substituted
binational panels for judicial review. While the CFTA's
adoption of the binational panel dispute resolution system was
designed only as an interim measure, this compromise was
materially significant in securing approval of the treaty in
both countries. (Footnotes omitted.)
What else but political compromise could explain the
creation of a system the purpose of which is to apply U.S. law,
but which usurps specialized constitutional courts established
for that purpose in order to substitute non-judicial ``experts
for tenured judges?''
When the binational panel system was first adopted, it was
expressly understood that the system was to be temporary and
was not to be continued or expanded into other contexts. Again,
this aspect was succinctly reviewed by Judge Carman as follows:
The United States and Canada agreed to suspend CFTA upon
NAFTA's entry into force on January 1, 1994. nevertheless,
Chapter Nineteen of NAFTA substantially replicates the
binational panel mechanism. NAFTA, however, ... contains no
language indicating the panel process is intended to be
temporary, as was expressly stated in the CFTA.
One problem which is virtually unavoidable in the
binational panel review system is that it is virtually
impossible to select panels composed of individuals who do not
at least have the appearance of lacking impartiality as a
result of their professional activities. Many panelists are
lawyers who, of necessity, have represented companies or
governments on one side or the other, sometimes in industries
closely associated with those involved in the dispute. Indeed,
the panel mechanism unavoidably involves the built-in dilemma
that in order to find competent and qualified individuals who
understand the subject matter sufficiently well to serve as
panelists, it is necessary to select persons with specific
experience representing participants in other disputes. This,
of course, is one of the very reasons for lifetime tenure and
an independent judiciary. Many CITBA members refuse, on
principle, to participate in panel proceedings as this would
be, they believe, incompatible with their roles as advocates in
their day-to-day activities in the international trade areas.
II. The Binational Panel Procedure is Unconstitutional.
Whether or not the binational panel procedure represents
acceptable policy, CITBA is of the strong opinion that the
procedure is impermissible under basic constitutional
principles. CITBA's basic position was set out in an amicus
curiae brief filed in 1997 in American Coalition for
Competitive Trade v. United States, No. 97-1036 (D.C.) Cir.
filed Jan. 16, 1997. This case was dismissed on the basis of
lack of standing by the plaintiff. No court has ever addressed
the fundamental constitutional issues involved. CITBA's
position is summarized below.
A. Elimination of Article III Judicial Review Of Antidumping
Duty And Countervailing Duty Determinations Is
Unconstitutional.
1. Antidumping And Countervailing Duty Determinations
Result In The Assessment of Federal Taxes. The U.S. antidumping
and countervailing duty statutes are intended to remedy injury
to U.S. industry caused by imports which are sold at less than
their normal value (``dumped'') or which have been subsidized.
The statutory remedy consists in imposing a special import
duty, payable to the United States, on the dumped or subsidized
imported merchandise. See 19 U.S.C. 1671 et seq. (codifying
Tariff Act of 1930, 701 et seq., as amended).
Thus, in assessing whether the system of binational panel
review in antidumping and countervailing duty matters under
NAFTA is constitutional, it is important to understand that the
underlying administrative decisions result in the assessment of
import duties, a form of federal taxation. The system of
binational panel review means that the government can assess
taxes without having the lawfulness of its tax-assessment
decisions judicially reviewed by an Article III court.
Responsibility for reviewing the lawfulness of tax assessments
is assigned to panels of five private individuals, of whom two
or three are not U.S. citizens.
CITBA maintains that the system of binational panel review
is unconstitutional because, contrary to the requirements of
Article III, it precludes Article III judicial review in cases
contesting the government's assessment of antidumping and
countervailing duties.
2. The Drafting History Of The Constitution Shows That The
Federal Judicial Power Was Intended To Apply To Federal Customs
Cases. One of the main purposes of the Constitution was to
provide the Federal Government with the authority to raise
revenue through import duties (see U.S. Constitution, Article
I, Section 8). The drafters also intended to create federal
courts, which had not existed under the Articles of
Confederation.
At the constitutional convention, each of the major initial
plans provided that federal courts be established to hear the
customs cases that would arise under the new federal taxation
power. Thus, for example, the ``Virginia Plan,'' proposed by
Governor Randolph of Virginia, provided:
9. Resd. that a National Judiciary be established to
consist of one or more supreme tribunals, and of inferior
tribunals to be chosen by the National Legislature ... that the
jurisdiction of the inferior tribunals shall be to hear and
determine in the first instance, and of the supreme tribunal to
hear and determine in the dernier resort, all ... cases ...
which respect the collection of the National Revenue ....
Farrand, I Records of the Federal Convention of 1787 21-22 (New
Haven, 1911, 1936, 1986) (``Records''). Competing plans
submitted by New Jersey, Hamilton, and Pinckney also each
provided for similar new federal judicial review over tax
matters. See id. at 136, 223-224, 230, 232, 237, 243, 244, 293
& 305. As the convention granted more powers to Congress, the
functions of the federal courts encompassed more subjects, and
the judicial power that we know today in Article III became
more generalized. Thus, as James Wilson stated in reference to
Congress's control over duties and trade, ``the Judicial should
be commensurate to the legislative and executive authority.''
Id. at 237, n.18; see also George Washington's letter of
transmittal at II Records 666.
The foregoing drafting history of the Constitution
establishes that the Article III judicial power was intended
specifically to extend to cases involving import duties. The
system of binational panel review improperly withdraws cases of
this kind from Article III courts.
3. Case Law Does Not Support The Constitutionality Of
Binational panel Review. The seminal case on whether it is
constitutional to preclude Article III judicial review in
customs duty cases is Cary v. Curtis, 44 U.S. (3 How.) 236
(1846). In that four-to-three decision, \2\ the Court
interpreted a statute (Act of March 3, 1839, ch. 82, 2, 5 Stat.
339, 348-49) so as to extinguish use of the common law action
in assumpsit for obtaining judicial review of customs duty
assessments and, instead, to vest authority to resolve customs
disputes in the Secretary of the Treasury. The Court further
ruled that the statute as interpreted was constitutional.
However, within 36 days after the Court's decision, Congress
amended the 1839 statute to overrule the Court's interpretation
and restore the right to obtain judicial review in federal
court by action in assumpsit to determine the legality of
customs duty assessments. (Act of February 26, 1845, ch. 22, 5
Stat. 727.)
---------------------------------------------------------------------------
\2\ Justices Story and McLean filed written dissents, but scholarly
research has revealed that Justice Wayne dissented without opinion. See
Roger W. Kirst, Administrative Penalties and the Civil Jury: The
Supreme Court's Assault on the Seventh Amendment, 126 U. Pa. L. Rev.
1281, 1334 n.258 (1978) (citing the minutes of the Supreme Court).
---------------------------------------------------------------------------
Cary v. Curtis has been miscited for the proposition that
claims for refunds of customs duties ``ha[ve] at times been
confided to the Secretary of the Treasury, with no recourse to
judicial proceedings.'' Ex parte Bakelite Corp., 279 U.S. 438,
458 (1929). On the contrary, in a passage from Cary v. Curtis
that often seems to have been overlooked, the Court majority
emphasized that it did not intend to condone the
constitutionality of eliminating Article III judicial review
entirely in import duty cases. The Court noted the argument
that, under the statute as interpreted by the Court, ``the
party is debarred from all access to the courts of justice, and
left entirely at the mercy of an executive officer ....'' 44
U.S. (3 How.) at 250. The Court rejected the premise of the
argument: ``[n]either have Congress nor this court furnished
the slightest ground for the above assertion'' that judicial
review was precluded. Id. Rather, the Court felt that other
procedures for obtaining review besides an action in assumpsit
remained available. Id. (suggesting ``by replevin, or in an
action of detinue, or perhaps by an action of trover ....'').
In fact, although the common law action in assumpsit was
often used in customs litigation before Cary v. Curtis, it was
not only the procedure available at the time. As the Court
accurately stated, judicial review in nineteenth century
customs cases was sometimes obtained by other common law forms
of action, such as the writ of trover, e.g., Tracy v.
Swartwout, 35 U.S. (10 Pet.) 80 (1836), or the writ of
trespass, Sands v. Knox, 7 U.S. (3 Cranch) 499 (1806)
(reviewing decision of New York courts in action in trespass).
And judicial review was also sometimes obtained by the
importer's refusing to pay the duties demanded by the
government or to pay the customs bond given to secure the duty.
This refusal forced the government to sue to obtain payment on
the bond or to hold the importer personally liable for the
duty. E.g., United States v. Kid, 8 U.S. (4 Cranch) 1 (1807)
(action on customs bond); Meredith v. United States, 38 U.S.
(13 Pet.) 486 (1839) (holding that customs duty is personal
obligation of importer).
Thus, as the Supreme Court later noted, Cary v. Curtis
``specifically declined to rule whether all right of action
might be taken away from a protestant, even going so far as to
suggest several judicial remedies that might have been
available.'' Glidden Co. v. Zdanok, 370 U.S. 530, 549 n.21
(1962) (citing 44 U.S. (3 How.) at 250). This ruling in Glidden
criticized the miscitation of Cary v. Curtis noted above in Ex
parte Bakelite Corp., and the plurality opinion in Glidden
expressly overruled Bakelite.
B. The System of Binational Panel Review Violates the
Appointments Clause.
CITBA maintains that the system of binational panel review
in antidumping and countervailing duty matters under Chapter
Nineteen of NAFTA is unconstitutional because it violates the
Appointments Clause in Article II, Section 2 of the
Constitution. Members of binational panels are officers of the
United States under Buckley v. Valeo, 424 U.S. 1, 126 (1976)
and, therefore, they are required to be appointed in accordance
with the Appointments Clause.
Customs jurisprudence does not support the
constitutionality of the method for appointing binational
panelists under Chapter Nineteen. In Auffmordt v. Hedden, 137
U.S. 310 (1890), the Supreme Court ruled on the
constitutionality of the system of ``merchant appraisers''
used, prior to 1890, to review certain administrative decisions
on the appraised value of imported goods under the customs
laws.
Under the customs laws before 1890, if an importer was
dissatisfied with the customs appraiser's determination of the
appraised value of imported goods, the dissatisfied importer
could request a reappraisement by giving notice to the local
Collector of Customs, the senior customs official at reach port
of entry. See Auffmordt v. Hedden, 137 U.S. at 312 (citing Rev.
Stat. 2930). The reappraisement was conducted by two persons: a
government official known as a General Appraiser, and a
``discreet and experienced merchant, ... [a] citizen[] of the
United States, ... familiar with the value and character of the
goods in question ....'' who was selected by the Collector of
Customs. Id. The General Appraiser and the merchant appraiser
would ``examine and appraise'' the imported goods, and if they
disagreed, the Collector would decide between them. Under the
statute, the ``appraisement thus determined [was] final, and
[was] deemed to be the true value'' of the goods. Id.
(Alternatively, if a General Appraiser was not available, the
Collector selected two merchant appraisers to conduct the
reappraisement. Id.)
In Auffmordt v. Hedden, the importer contended that the
reappraisement procedure violated the Appointments Clause
because the merchant appraiser was an ``inferior officer'' of
the United States who could only be appointed by the President,
a court, or the head of a department, and not by the local
Collector of Customs. The Supreme Court ruled that the merchant
appraiser was not an ``inferior officer' within the meaning of
the Appointments Clause and, therefore, was not required to be
appointed in accordance with its provisions. 137 U.S. at 326-
27. The Court explained that the merchant appraiser was ``an
expert, selected as such.'' Id. at 327. He was ``an executive
assistant, an expert assistant to aid in ascertaining the value
of the goods, ... and selected for his special knowledge in
regard to the character and value of the particular goods in
question.'' Id. His ``position [was] without tenure, duration,
continuing emolument, or continuing duties, and he acts only
occasionally and temporarily.'' Id.
The nineteenth century merchant appraiser is materially
different from the members of binational panels under NAFTA.
Therefore, the Supreme Court's holding in Auffmordt that a
merchant appraiser is not an ``officer'' of the United States
should not be extended to binational panelists. First, the
merchant appraisers made fact-finding decisions based on their
expertise on particular imported goods. In contrast, binational
panelists perform a judicial-type function by adjudicating
questions of law based on an underlying administrative record.
Second, unlike binational panelists whose decisions are not
subject to judicial review at all, the reappraisement decisions
in nineteenth century customs law were subject to judicial
review in federal court for errors of law, jurisdiction, and
procedure. See, e.g., Stairs v. Peaslee, 59 U.S. (18 How.) 521
(1855) (reappraisement judicially reviewed on issue of
statutory interpretation); Greely v. Thompson, 51 U.S. (10
How.) 225 (1850) (reappraisement judicially reviewed on issues
of procedural irregularity and statutory interpretation). But
cf. Hilton v. Merritt, 110 U.S. 97, 106 (1884) (reappraisement
is final and not subject to judicial review on factual
determination of value; ``the valuation made by the customs
officers [is] not open to question in an action at law as long
as the officers acted without fraud and within the power
conferred on them by the statute.''). Moreover, so long as the
reappraisement was conducted by a General Appraiser and a
merchant appraiser (as in Auffmordt), the decision by the
merchant appraiser had no effect unless one of the relevant
government officials (either the General Appraiser or the
Collector) agreed with the merchant appraiser.
Accordingly, the members of binational panels exert
materially more authority pursuant to the laws of the United
States than nineteenth century merchant appraisers. This makes
the binational panelists ``officers'' or ``inferior officers''
of the United States within the meaning of the Appointments
Clause.
III. Conclusion. The United States has a well functioning
system of qualified constitutional courts to apply United
States law in antidumping and countervailing duty disputes.
Replacing these courts with binational panel review is bad
policy and of dubious constitutional validity. Thus, binational
panel procedures should not be extended under any new trade
agreements.
Respectfully submitted,
Customs and International Trade Bar Association
By Rufus E. Jarman, Jr., President
Statement of Dresser-Rand Co., Corning, New York
I. Introduction
These comments are submitted on behalf of the Dresser-Rand
Company pursuant to the Honorable Philip M. Crane's March 17,
1998, announcement of a public hearing on the Free Trade Area
of the Americas (FTAA). Dresser-Rand is a leading global
supplier of centrifugal and reciprocating compressors, gas
expanders, gas and steam turbines, and related equipment. The
Dresser-Rand Company is a partnership between Dresser
Industries, Inc. of Dallas, Texas and Ingersoll-Rand Co. of
Woodcliff Lake, New Jersey. Dresser-Rand combines the
facilities and expertise of these two companies, along with
that of Worthington Steam Turbine Division, Turbodyne, and
Terry Corporation, in the design, manufacture, sale, and
servicing of turbines, compressors, and other equipment.
Dresser-Rand's headquarters are located at 1 Baron Steubon
Place, Corning, New York 14830 (tel. (607) 937-6441)\1\ These
comments address the specific objectives for the FTAA
negotiations that are likely to benefit Dresser-Rand and the
domestic turbo-compressor and steam turbine industry.
---------------------------------------------------------------------------
\1\ The primary manufacturing facilities for turbines and
compressors are located in the state of New York (Olean, Painted Post,
Wellsville) with additional facilities in Broken Arrow, Oklahoma.
Electronic control systems for these products are manufactured by
Dresser-Rand in Houston, Texas. The company manufactures electric
motors for use in turbo-compressor trains and generators for turbine-
generators in Minneapolis, Minnesota. Dresser-Rand's international
operations include compressor and turbine manufacturing facilities in
LeHavre, France; Kongsberg, Norway; and Oberhaussen, Germany.
---------------------------------------------------------------------------
II. Market Access: The United States Should Negotiate Reciprocal Tariff
Rates for Turbo-Compressor and Steam Turbine Products Traded Within the
Americas
Dresser-Rand markets and exports turbo-compressor systems,
compressors, steam turbines, and allied products throughout the
Americas and the world. Exports accounted for over half of
company sales over the past several years. To date, Dresser-
Rand systems are installed and operating in Argentina, Aruba,
Brazil, Canada, Chile, Colombia, Mexico, Trinidad and Tobago,
and Venezuela. This year, Brazil and Venezuela have been
particularly active potential export markets. As shown by
Attachment 1, however, the tariff rate differential between
Brazilian and U.S. tariffs, for example, is substantial. Duties
imposed on U.S. imports in 1997 ranged from 0.7% to 7.0%. By
comparison, Brazil imposed duties from 5% to 20%.
In terms of overall trade, Brazil has traditionally been
the United States' largest trading partner of the South
American countries.\2\ Brazil's trade reform since 1990 is
expected to increase opportunities for U.S. exporters.\3\ In
recent years, Dresser-Rand has booked major system contracts
for installation in Brazil. Indeed, with the current financial
crisis in Asia, Brazil and other South American countries are
vital markets for Dresser-Rand's exports. But, current
Brazilian tariffs on turbo-compressor and steam turbine
products, represent a significant trade barrier.
---------------------------------------------------------------------------
\2\ USTR, Future Free Trade Area Negotiations: Report on
Significant Market Opening 6 (May 1, 1997).
\3\ Id.
---------------------------------------------------------------------------
The United States, Mexico and Canada negotiated zero-for-
zero tariff concessions under the North American Free Trade
Agreement (NAFTA), with respect to imports of turbo-compressors
and steam turbines. Certain compressor parts are subject to
duties when imported from another NAFTA country into Mexico,
until 2003. The United States unilaterally provides duty-free
access to imports from FTAA countries under the Generalized
System of Preference Program, the Caribbean Basin Economic
Recovery Act, and the Andean Trade Preference Act. With the
exception of NAFTA, however, duty-free access to the U.S.
market under these programs, and reciprocal duty-free
treatment, is not guaranteed or permanent. Therefore, in the
context of the market access negotiations, the United States
should negotiate to obtain reciprocal tariff treatment with all
FTAA countries so that duties on U.S. exports of turbo-
compressor and steam turbine products are at the same levels as
duties on U.S. imports from FTAA countries.
In the global market for turbo-compressors, steam turbines,
and allied equipment, competition is fierce and the price is
critical. Contractors building large-scale chemical or petro-
chemical plants or refineries will typically award the contract
to the lowest-price qualified bidder. Jobs are bid by
manufacturers invited from around the world. Because of the
open U.S. market, the dependence on exports, and the fierce
competition among global manufacturers, U.S. producers are
sensitive to even small changes in price. The U.S. turbo-
compressor industry in 1997 obtained relief under the
antidumping law with respect to certain imported turbo-
compressor systems from Japan. A predicate for such relief was
the finding of the International Trade Commission that dumped
imports materially injured the U.S. industry.\4\ And, the
Commission found that ``the record demonstrates the importance
of price in most purchasing decision once a technical fit is
established.'' \5\
---------------------------------------------------------------------------
\4\ Engineered Process Gas Turbo-Compressor Systems from Japan,
Inv. No. 731-TA-748 (Final), USITC Pub. 3042 (June 1997).
\5\ Id. at 25.
---------------------------------------------------------------------------
More recently, workers in Dresser-Rand's manufacturing
facilities, engaged in the production of reciprocating
compressors, qualified for adjustment assistance as a result of
the adverse effects of ``increased imports.'' \6\ Increased
market access and export opportunities within the FTAA region
offer the potential to reverse such setbacks.
---------------------------------------------------------------------------
\6\ Dresser-Rand Company, Painted Post and Corning, New York;
Amended Certification Regarding Eligibility to Apply for Worker
Adjustment Assistance, 63 Fed. Reg. 17,893 (April 10, 1998); see also
63 Fed. Reg. 8211 (February 18, 1998).
---------------------------------------------------------------------------
Negotiation of duty-free or reciprocal access is
particularly important in view of the various negotiations
between the European Union and countries within the Americas.
There are only a few turbo-compressor manufacturers in the
world, and several of our largest competitors are located in
Europe. The remaining manufacturers are in Japan. To the extent
that these multi-national producers obtain more favorable
tariff treatment, U.S. exports are at an unwarranted
competitive disadvantage.
III. Competition Policy: The United States Should Negotiate Competition
Rules That Define Actionable Anti-Competitive Practices and Procedures
Among the negotiating objectives identified by the San Jose
Ministerial Declaration of March 19, 1998, were the following
objectives with respect to competition policy: (1) to advance
towards the establishment of juridical and institutional
coverage at the national, sub-regional or regional level, that
proscribes the carrying out of anti-competitive business
practices, and (2) to develop mechanisms that facilitate and
promote the development of competition policy and guarantee the
enforcement of regulations on free competition among and within
countries of the Hemisphere. In general, the negotiations aim
to guarantee that the benefits of the FTAA liberalization
process will not be undermined by anti-competitive business
practices.
Prior to establishing these negotiating objectives, the
FTAA Working Group on Competition Policy received an inventory
of the various national laws governing competition in the 34
countries expected to participate in FTAA negotiations.
According to an August 30, 1997, report, only 12 countries have
legislation and institutions governing competition policy while
another 8 countries are in the process of drafting
legislation.\7\ A review of existing legislation in the 12 FTAA
countries reveals that a significant number of those countries
agree with the United States that, inter alia, abuse of
dominant positions (or monopolies), predatory pricing, and
tying arrangements should be considered anti-competitive
practices.
---------------------------------------------------------------------------
\7\ OAS, Inventory of Domestic Laws and Regulations Relating to
Competition Policy in the Western Hemisphere (Final Version), SG/TU/
WG.COMPOL/DOC.1/97/Rev.5/Corr. 1, at i (August 30, 1997).
---------------------------------------------------------------------------
Many of the FTAA countries have also participated in
regional trade and integration arrangements that include
provisions governing competition policy: (1) North American
Free Trade Agreement, (2) the U.S.-Canada Agreement Regarding
the Application of Their Competition and Deceptive Marketing
Practices laws; (3) the Canada-Chile Free Trade Agreement; (4)
the Group-of-Three Treaty Between Mexico, Colombia, and
Venezuela; (5) the Andean Group; and (6) the Protocol for the
Defense of Competition of Mercosur.\8\ Only two of the six
agreements, however, provide substantive standards that define
anti-competitive practices: (1) the Decision 285 of the Andean
Group; and (2) the Protocol for the Defense of Competition of
Mercosur. For example, both Decision 285 and the Mercosur
Protocol consider abuses of a dominant position to be anti-
competitive.\9\
---------------------------------------------------------------------------
\8\ See OAS, Inventory of the Competition Policy Agreements,
Treaties and Other Arrangements Existing in the Western Hemisphere
(Preliminary Report), SG/TU/WG.COMPOL.DOC.3/96/Rev.4, at Summary (Aug.
30, 1997).
\9\ OAS, Inventory of the Competition Policy Agreements, Treaties
and Other Arrangements Existing in the Western Hemisphere (Preliminary
Report), SG/TU/WG.COMPOL.DOC.3/96/Rev.4, at Summary, 38, 48-49 (Aug.
30, 1997). The Mercosur Protocol also includes among its anti-
competitive practices the following forms of conduct:
to procure or contribute to the adoption of uniform business
practices or concerted action by competitors
to limit or prevent access of new enterprises to the market
to subordinate the sale of one good to the purchase of another good
or to the use of a service, or to subordinate the supply of a service
to the use of another or to the purchase of a good
to sell merchandise, for reasons unfounded on business practices,
at prices below the cost price
Id.
According to the WTO's review of competition laws, most
countries with competition laws consider the following types of
conduct to be anti-competitive: horizontal agreements, mergers,
vertical market restraints, and abuse of a dominant
position.\10\ Included in the definition of ``abuse of a
dominant position'' or ``monopolization'' are the following
types of conduct: (1) exclusive dealing, (2) market foreclosure
through vertical integration, (3) tied selling, (4) the control
of scarce facilities and vital inputs or distribution channels,
(5) price and non-price predation, (6) price discrimination,
(7) exclusionary contractual arrangements, (8) charging higher
than competitive prices, or (9) imposition of other
``exploitative'' abuses.\11\
---------------------------------------------------------------------------
\10\ WTO, Trade and Competition Policy, 1 Annual Report 1997 30,
40-42.
\11\ Id. at 42.
---------------------------------------------------------------------------
Given the global nature of the market, the small number of
world-wide manufacturers and the importance of low prices in
securing contracts, much of the competition in the market takes
place outside the jurisdiction of the country of exportation.
Many of the countries in which turbo-compressors are installed
have no local manufacturers. Hence, there is no local interest
in enforcement of competition policy norms. Given that existing
regional trade and integration arrangements covering
competition policy do not provide a comprehensive definition of
anti-competitive practices, the United States should take a
leading role in drafting a definition of anti-competitive
practices to cover all FTAA countries. The Dresser-Rand Company
supports the Business Forum of the Americas' suggestion that
negotiations focus on the development of general principles
prohibiting abuse of a dominant position and practices
restraining competition (vertical as well as horizontal).\12\
At the very least, negotiators should strive to define anti-
competitive practices and to work toward the establishment of
principles to cover competition policy within the region.
---------------------------------------------------------------------------
\12\ Business Forum of the Americas, Workshop IX: Competition
Policy, Subsidies, Antidumping, Countervailing Duties and Safeguards
(San Jose, Costa Rica, March 16-18, 1998).
---------------------------------------------------------------------------
IV. Subsidies, Antidumping and Countervailing Duties: The FTAA Should
Provide Separate Remedies for Dumping and Anti-Competitive Activity and
Should Strengthen Third-Country Dumping Provisions
In the Ministerial Declaration of San Jose of March 19,
1998, the trade ministers specifically agreed to permit the
relevant negotiating groups to study issues relating to the
interaction between trade and competition policy, including
antidumping measures. The purpose of such study is to identify
any areas that may merit merged negotiation or consideration.
It has been suggested that the FTAA's efforts should include
harmonization of competition laws and adoption of a harmonized
competition policy that would replace antidumping laws.\13\ In
the international community, there is a perception by some that
competition laws can address the pricing practices which are
specifically addressed by the antidumping law.\14\ This view,
however, is incorrect.
---------------------------------------------------------------------------
\13\ See, e.g., Brazil: Report on Developments and Enforcement of
Competition Policy and Laws 1994-96, in OAS, Report on Developments and
Enforcement of Competition Policy and Laws in the Western Hemisphere
(Preliminary Report), SG/TU/WG.COMPOL/97/DOC.4/Rev.1, at 25, 38 (Sept.
2, 1997).
\14\ See WTO, Trade and Competition Policy, 1 Annual Report 1997 at
68.
---------------------------------------------------------------------------
The fundamental purposes of competition and antidumping
laws differ. Both in United States law and in the WTO
Antidumping Agreement, a limited remedy import duties-is
provided to redress price discrimination that results in
material injury (or threatens such injury) to a domestic
industry. The goal of competition law is to preserve
competition, principally for the benefit of consumers, but also
for the benefit of competitors. The different requirements and
relief available under competition laws and antidumping laws do
not necessarily address the same practices or concerns. For
example, although some have argued that predatory pricing is
covered under competition law, a remedy is particularly elusive
under the standards applied in U.S. precedents.\15\
---------------------------------------------------------------------------
\15\ See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509
U.S. 209 (1993). Commentators and the Supreme Court have warned that
successful predatory pricing claims are uncommon. See S.W. Waller,
International Trade and U.S. Antitrust Law at 2-18-23 (1997);
Matsushita Elec. Indus. Co. v. Zenith Radio, 106 S. Ct. 1348, 1357
(1986); R.A. Givens, Antitrust: An Economic Approach 3.04 (1997)
(``predatory pricing is one of the most common complaints made by
competitors but one of the least likely to succeed'').
---------------------------------------------------------------------------
Depending on the facts, the collection of antidumping
duties on imports, in the context of an administrative
proceeding, may be preferable or more appropriate than cease-
and-desist orders, injunctions, fines, damages, or criminal
penalties available under competition law. Because the
antidumping laws afford limited relief in the case of a
specific type of pricing practice, without regard to intent, a
comparable remedy is not available under competition laws as
they now exist in the United States. Both types of remedies
have been separately established by law in the United States
for over seventy-seven years. For these reasons, the United
States should argue against replacing or merging antidumping
law and competition policy.
Separately, Article 14 of the Agreement on Implementation
of Article VI of the General Agreement on Tariffs and Trade
1994 permits countries to address third-country dumping
complaints. Third-country dumping occurs when an industry
producing an exported product in one country is being injured
by imports from another country to the same ultimate market.
Article 14 permits the exporting country to petition the
importing country for relief. However, the procedure for
obtaining relief under the WTO Agreement is not automatic or
readily available. After Dresser-Rand's experience as a
petitioner in an antidumping case involving turbo compressors
from Japan in 1997, \16\ Dresser-Rand remains concerned that
discriminatory pricing will affect competition in the FTAA in
the absence of strong rules against third-country dumping. In
order to protect our domestic industry's interests in obtaining
a expeditious and fair review of all third country dumping
petitions, the United States should ensure that the FTAA
strengthens third country dumping provisions in the Hemisphere.
Petitioners should have access to relief whether or not there
is a local producer. Moreover, the rules should provide for
automatic initiation of an investigation upon request of a
complaining country that has adjudged the petition to state a
prima facie case.
---------------------------------------------------------------------------
\16\ Engineered Process Gas Turbo-Compressor Systems, Whether
Assembled or Unassembled, and Whether Complete or Incomplete, from
Japan, 62 Fed. Reg. 24,394 (Dep't Comm. 1997) (Final LTFV Deter.).
---------------------------------------------------------------------------
V. Conclusion
In the FTAA market access negotiations, the United States
should negotiate for reciprocal tariff treatment for turbo-
compressors, steam turbines and allied products. In the
competition policy negotiations, the United States should
negotiate competition rules that provide a comprehensive
definition of anticompetitive practices based on existing
definitions in most countries with competition laws. Finally,
in the subsidies, antidumping, and countervailing duty
negotiations, the United States should ensure that the FTAA
provides separate remedies for dumping and anti-competitive
activities as well as strengthens third country dumping
provisions in the hemisphere.
1998 BRAZILIAN IMPORT DUTIES ON TURBO-COMPRESSORS AND STEAM TURBINES
------------------------------------------------------------------------
HS Description Duty
------------------------------------------------------------------------
8406.81............................... Turbines, over 40 MW.... 5%
8406.82............................... Turbines, not over 40 MW 20%
8406.90............................... Parts (of turbines)..... 20%
....................................
as compressors, other than air:
------------------------------------------------------------------------
8414.80.31............................ Piston type............. 20%
8414.80.32............................ Screw type.............. 20%
8414.80.33............................ Centrifugal............. 5%
8414.80.39............................ Other................... 20%
....................................
parts of compressors:
------------------------------------------------------------------------
8414.90.31............................ Pistons................. 20%
8414.90.32............................ Piston rings............ 20%
8414.90.33............................ Cylinder blocks, 20%
cylinder heads, sumps
and housings.
8414.90.34............................ Valves.................. 20%
8414.90.39............................ Other................... 20%
8419.................................. Machinery, plant or
laboratory equipment,
whether or not
electrically heated,
for the treatment of
materials by a process
involving a change in
temperature such as
heating, cooking,
roasting, distilling,
rectifying,
sterilizing,
pasteurizing, steaming,
drying, evaporating,
vaporizing, condensing
or cooling, other than
machinery or plant of a
kind used for domestic
purposes; instantaneous
or storage water
heaters, non-electric:.
8419.60.00............................ Machinery for liquifying 20%
air or other gases.
....................................
other machinery, plant and equipment:
------------------------------------------------------------------------
8419.89.99............................ Other................... 5%
8419.90.90............................ Other (parts)........... 20%
------------------------------------------------------------------------
Source: U.S. Department of Commerce.
1998 U.S. IMPORT DUTIES ON TURBO-COMPRESSORS AND STEAM TURBINES
------------------------------------------------------------------------
HS Description Duty
------------------------------------------------------------------------
8406.81.10........................... Steam turbines, over 40 7.0%
MW.
8406.82.10........................... Steam turbines, not over 7.0%
40 MW.
8406.90.20........................... Parts (of steam 7.0%
turbines).
8406.90.30........................... Parts (of steam 7.0%
turbines).
8406.90.40........................... Parts (of steam 7.0%
turbines).
8406.90.45........................... Parts (of steam 7.0%
turbines).
...................................
as compressors, other than air:
------------------------------------------------------------------------
8414.30.80........................... Compressors for 0.7%
refrigerating ammonia.
8414.80.20........................... Other gas compressors... 0.7%
...................................
Parts of compressors:
------------------------------------------------------------------------
8414.90.30........................... Parts of compressors for 0.7%
refrigerating ammonia.
8414.90.40........................... Parts of other gas 0.7%
compressors.
8419.60.50........................... Machinery for liquifying 0.8%
air or other gases.
...................................
Other machinery, plant and equipment:
------------------------------------------------------------------------
8419.89.90........................... Other machinery for a 4.2%
process involving
temperature change.
8419.91.90........................... Parts of items under 4.0%
subheadings 8419.81 or
8419.89.
------------------------------------------------------------------------
Source: Harmonized Tariff Schedules of the United States (1998).
Statement of Floral Trade Council, Haslett, Michigan
I. Introduction
These comments are submitted on behalf of the Floral Trade
Council, pursuant to the Honorable Philip M. Crane's March 17,
1998, announcement of a public hearing on the Free Trade Area
of the Americas (FTAA). The Floral Trade Council is a U.S.
trade association the majority of whose members are domestic
producers or wholesalers of fresh cut flowers in the United
States and is located at 1152 Haslett Road, Haslett, Michigan
48840 (telephone 517-339-9765). These comments address the
specific objectives for the FTAA negotiations that would
benefit the U.S. fresh cut flower industry.
II. Existing Trade Relationship With FTAA Countries
Among the 34 FTAA countries are some of the largest flower
producing and exporting countries in the world. The following
twenty FTAA countries exported fresh cut flowers to the United
States during the 1990's: Argentina, Bolivia, Brazil, Canada,
Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El
Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Mexico,
Panama, Peru, St. Vincent and the Grenadines, Trinidad and
Tobago, and Venezuela. Of those countries, the major flower
producing countries have historically been Colombia, Ecuador,
Guatemala, Mexico, Costa Rica, and Canada. No other country,
however, has had the impact that Colombia has had on the
domestic fresh cut flower market.
The domestic market for fresh cut flowers has been besieged
with imports from Colombia over the last five years. Since
1991, Colombia's imports of the major cut flower categories
have almost doubled for most categories:
Table 1.--Columbian imports
(F.A.S. value U.S.$)
----------------------------------------------------------------------------------------------------------------
% Change % Colombia
Flower Type 1991 1997 from 1991 of Total
to 1997 in 1997
----------------------------------------------------------------------------------------------------------------
other roses............................................. 65,808,342 132,076,796 101 64
sweetheart roses........................................ 1,734,753 169,613 -90 12
pompom.................................................. 40,438,520 60,262,390 49 90
chrysanthemums..........................................
standard................................................ 8,277,383 9,402,155 14 87
chrysanthemums..........................................
standard carnations..................................... 47,707,635 73,754,726 55 93
miniature carnations.................................... 20,212,738 35,858,959 77 95
other cut flowers....................................... 18,615,100 48,051,143 158 28
----------------------------------------------------------------------------------------------------------------
Source: TIOS as compiled from U.S. Dept. Commerce, Bureau of the Census tapes which may differ from adjusted
annualized data.
As a result, the U.S. fresh cut flower industry has lost
growers at alarming rates in each of the major cut flower
categories. The total number of fresh cut flower growers (in
the 36 states surveyed) plummeted from 1548 in 1992 to 1216 in
1996: a decline of 21 percent:
Table 2.--Domestic Grower Loss
(number of growers)
------------------------------------------------------------------------
Flower 1992 1995 1996
------------------------------------------------------------------------
other roses............................... 224 179 165
sweetheart roses.......................... 133 97 90
pompom chrysanthemums..................... 172 135 116
standard chrysanthemums................... 152 116 112
standard carnations....................... 139 93 80
miniature carnations...................... 123 100 78
other cut flowers......................... 605 596 575
Total................................. 1548 1316 1216
------------------------------------------------------------------------
Source: USDA, Floricultural Crops Summary at 18-32 (1993), at 14-28
(1995), at 14-28 (1997).
Flower-producing FTAA countries have duty-free access to
the U.S. market under the Generalized System of Preference
Program, the Caribbean Basin Economic Recovery Act, and the
Andean Trade Preference Act in addition to the North American
Free Trade Agreement (NAFTA). With the exception of NAFTA,
duty-free access to the U.S. market under these programs,
however, is not necessarily permanent. One of the causes of the
dramatic increase in imports in the 1990's, however, was the
enactment of the Andean Trade Preference Act (ATPA) which
eliminated all duties on fresh cut flowers from Colombia,
Ecuador, Bolivia, and Peru. Since its enactment in 1991, the
chief beneficiary of the ATPA has been Colombian flower
growers.\1\
---------------------------------------------------------------------------
\1\ Andean Trade Preference Act: Fourth Report 1996, Inv. No. 332-
352, USITC Pub. 3058, at xvi (Sept. 1997).
---------------------------------------------------------------------------
The removal of duties on fresh cut flowers under the NAFTA,
ATPA, and the Generalized System of Preferences Program has
also undermined the effectiveness of the antidumping and/or
countervailing duty orders on certain fresh cut flowers from
Colombia, Mexico, Ecuador, Chile, and Peru.\2\ The mere
existence of those orders, however, is a testament to the
strong interest FTAA flower producers have in capturing the
U.S. fresh cut flower market. Indeed, even with MFN duties in
place, prior to passage of the ATPA, imports from Colombia
steadily increased for well over ten years. In part, the
relentless surge in imports reflects dumping; in part, however,
off-shore producers enjoy cost advantageous bought about by the
lack of protection for workers and the environment that inheres
in existing standards for pesticide and fungicide use.
---------------------------------------------------------------------------
\2\ Certain Fresh Cut Flowers from Colombia, 52 Fed. Reg. 6842
(Dep't Comm. 1987) (Final LTFV Deter.); Certain Fresh Cut Flowers from
Mexico, 52 Fed. Reg. 6361 (Dep't Comm. 1987) (Final LTFV Deter.);
Certain Fresh Cut Flowers from Ecuador, 52 Fed. Reg. 2128 (Dep't Comm.
1987) (Final LTFV Deter.); Standard Carnations from Chile, 52 Fed. Reg.
3313 (Dep't Comm. 1987) (Final CVD Deter.); Standard Carnations from
Chile, 52 Fed. Reg. 8939 (Dep't Comm. 1987) (AD Order); Certain Fresh
Cut Flowers from Peru, 52 Fed. Reg. 13,491 (Dep't Comm. 1987) (CVD
Order).
---------------------------------------------------------------------------
III. The United States Should Seek Harmonization of Pesticide and
Fungicide Use for Flower Production and Routine Screening for Pesticide
Residues on Imports
At the April 1998, Summit of the Americas, Heads of State
and Government are expected to initiate negotiations of the
FTAA.\3\ According to the Miami Declaration of Principles and
Plan of Action, the 34 countries agreed to focus on improving
the working conditions of all people in the Americas and better
protecting the environment.\4\ The Plan of Action specifically
calls on the various governments to address issues such as the
environmental impact of pesticides and fungicides, as well as
their misuse. Specifically, the governments pledged to:
---------------------------------------------------------------------------
\3\ Ministerial Declaration of San Jose, Summit of the Americas
Fourth Trade Ministerial Meeting, at para. 8 (San Jose, Costa Rica,
March 19, 1998).
\4\ Id.; Summit of the Americas, Declaration of Principles.
---------------------------------------------------------------------------
strengthen and build technical and institutional
capacity to address environmental priorities such as
pesticides.
strengthen national environmental protection
frameworks and mechanisms for implementation and enforcement.
undertake national consultations to identify
priorities for possible international collaboration.
convene a meeting of technical experts, designed
by each interested country, to develop a framework for
cooperative partnership, building on existing institutions and
networks to identify priority projects which initially will
focus on, inter alia, the health and environmental problems
associated with the misuse of pesticides.
develop compatible environmental laws and
regulations, at high levels of environmental protection, and
promote the implementation of international environmental
agreements.
In the March 19, 1998, Ministerial Declaration, the trade
ministers committed to identify trade-distorting practices for
agricultural products to bring them under greater discipline.
Consistent with these objectives, therefore, the U.S.
government should propose in the context of the market access
negotiations that countries harmonize their pesticide standards
for flower production, as well as the standards applied to
screen fresh cut flowers for pesticide residues.\5\
---------------------------------------------------------------------------
\5\ Fresh cut flowers are classified under Harmonized Tariff
Schedules of the United States Number 0603.10.
---------------------------------------------------------------------------
Disparate use of pesticides in the production of fresh cut
flowers affects the relative costs of production for U.S. and
Colombian growers and distorts trade flows. California growers
are subject to the most restrictive environmental regulations
in the country and, therefore, have the highest pesticide use-
related costs.\6\ California growers are permitted to use only
about of the number of approved pesticides for use elsewhere in
the United States. Yet, these growers account for the major
proportion of U.S. fresh cut flower production. Obviously,
then, the use of harmful pesticides is not a requirement for
growing or marketing fresh cut flowers.
---------------------------------------------------------------------------
\6\ California Cut Flower Commission Statement to Subcommittee on
Trade, Impact of NAFTA on U.S. and California Cut Flower and Foliage
Industry 2 (April 5, 1993).
---------------------------------------------------------------------------
Nevertheless, reducing the dependence on pesticides and
fungicides has its costs. Costs associated with the use of
pesticides in the United States account for approximately 6 to
8 percent of total production costs, including costs of
materials, licensing, training, regulatory compliance measures,
labor, and record-keeping. Hence, the additional costs of
pesticide use to the U.S. grower are significant. U.S. growers
are also restricted from entering greenhouses for a specific
period of time during and after fumigation.\7\ The immediate
result is lost production.
---------------------------------------------------------------------------
\7\ See Pesticide Worker Protection Standard; Administrative
Exception for Cut-Rose Hand Harvesting, 62 Fed. Reg. 51,994 (EPA 1997)
(Admin. Exception Decision).
---------------------------------------------------------------------------
Colombian flower growers' use of more effective, yet
extremely toxic, pesticides reduces Colombian costs of
production and enhances their export potential. Not only are
Colombian flowers less susceptible to disease or damage, but
application of powerful pesticides reduces the incidence of
pest infestation on exported flowers. Upon importation, there
is no routine screening of dangerous pesticide residues. The
following list includes some of the pesticides available for
fresh cut flower production in Colombia but not in the United
States:
A List of Pesticides Available for Colombian, but not U.S., Flower
Production
1. Actellic
2. Afugan
3. Applaud
4. Azodrin
5. Bendiocarb
6. Carzol
7. Curacron
8. DDDP
9. Fonofos
10. Hostathion
11. Kartap
12. Methanil or Lanate
13. Nack
14. Nomolt
15. Oxanil
16. Plictran
17. Pyramore
18. Qinalphos
19. Sulprufus
20. Vidate
As recently as July 1994, a Financial Times article
reported that a fifth of the pesticides used in Colombian
flower production are banned or not registered in the United
States and Europe because of their toxicity.\8\ In recent
years, there have been widespread reports that Colombian flower
producers misuse pesticides and have endangered workers'
rights, in some cases causing death and disfigurement:
---------------------------------------------------------------------------
\8\ Maitland, Colombia ``misusing pesticides'', Fin. Times, July
13, 1994, at 4.
---------------------------------------------------------------------------
On February 14, 1995, an ``American Journal''
television broadcast reported instances of worker illness
caused by pesticide use in Colombian greenhouses, including the
death of one woman sprayed directly with pesticides.
On July 12, 1994, Christian Aid, a U.K. aid
agency, reported use of pesticides banned in the United States
and Europe as well as instances of adult Colombian greenhouse
workers stricken with paralysis causing death. Pregnant women
working in greenhouses have given birth to children with
bronchial illness.
On June 1, 1993, the International Labor Rights
Education and Research Fund (ILRERF) asserted that the
Colombian flower industry is the ``setting for gross and
criminal mismanagement of toxic chemicals in the workplace.''
Greenhouse workers have been forced to work while pesticides
are sprayed and training in pesticide application or protective
measures was nonexistent. Workers have suffered from diseases,
headaches, nausea, and have given birth to children with an
abnormally high number of stillbirths and severe birth defects.
Pesticides used include some banned by Colombian law. In 1993,
USTR rejected ILRERF claims because the Colombian government
was taking some measures to improve enforcement of existing
laws. The GSP Subcommittee, however, expected that any
necessary enforcement measures would be taken. See GSP
Subcommittee Decision (002-CP-93) at 5, 7 (Nov. 1993). As shown
above, however, the pesticide application practices of
Colombian flower growers continued.
On October 12, 1992, a ``National Public Radio''
report cited use of pesticides banned in the United States and
instances of pesticides spraying while workers were in
Colombian greenhouses, pesticide hoses spraying workers in the
face, hands turning black from immersion into bags of
chemicals, and chronic illness.
In this manner, Colombian producers spread their costs over
increased production due, in part, to more effective pesticides
as well as inadequate worker safety controls. Not only does
misuse of pesticides endanger workers, but it can also endanger
the environment by contaminating the water table.\9\
---------------------------------------------------------------------------
\9\ See Morning Edition, National Public Radio (Oct. 12, 1992);
Kendall, Financial Problems Take the Bloom off a Colombian Success
Story, Fin. Times 28 (9/14/93) (``The heavy use of pesticides--required
if flowers are to meet most import standards--has caused health and
environmental problems.'').
---------------------------------------------------------------------------
The United States should address these trade distorting
practices in the context of the FTAA market access
negotiations. The United States should demand harmonized
pesticide use for flower production and routine screening for
dangerous pesticide residues on imports. Not only would such
safeguards benefit the domestic industry and workers, but, more
importantly, these measures would safeguard consumers and the
environment. Given that the Californian growers have continued
to operate even under the most severe restrictions, there is no
legitimate argument that the costs of safety are too great.
In his testimony before the House Committee on Ways and
Means, Subcommittee on Trade, Congressman Sam Farr protested
the inequitable treatment of imported and domestic fresh cut
flowers as a result of the lack of control or enforcement with
respect to chemical use and residues present on imported
flowers. As noted above, the stated pledge of the Summit of the
Americas was to strengthen environmental protection, explicitly
with respect to pesticide use. In concert with this goal, the
United States should seek harmonization of pesticide and
fungicide use and residue screening to enforce the harmonized
rules.
IV. Conclusion
The U.S. market is a highly desirable destination for
exported fresh cut flowers from FTAA flower-producing
countries. The ability of major flower producing FTAA countries
to use pesticides and fungicides that are more effective, yet
more toxic, than U.S. growers places U.S. growers at an
unwarranted disadvantage in U.S. and export markets. The
consequent misuse of those dangerous chemicals has also
jeopardized worker safety and the environment. Therefore, the
United States should address these trade distorting practices
in the context of the FTAA market access negotiations.
Specifically, the United States should seek harmonized
pesticide and fungicide use for flower production and routine
screening for dangerous pesticide residues on imports. Because
there are no significant export markets, and because U.S.
growers must in any event comply with adequate safety
standards, Under no circumstances should the United States
accept partial tariff reductions or exempt any FTAA country
from harmonized standards and adequate clearance procedures.
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Statement of Michael J. Stuart, Executive Vice President, Florida Fruit
& Vegetable Association, Orlando, Florida
The following comments on the outlook for negotiations
aimed at achieving a Free Trade Area of the Americas (FTAA) are
submitted on behalf of the Florida Fruit & Vegetable
Association (FFVA). FFVA is an organization comprised of
growers of vegetables, citrus, sugarcane, tropical fruit and
other agricultural commodities in Florida. Florida's unique
geographical location in the United States affords growers an
opportunity to provide American consumers and export markets
with fruits, vegetables and seasonal crops during the months of
the year when other domestic producers cannot grow and harvest
these crops. Historically, competition for Florida's fruit and
vegetable industry in the U.S. marketplace has come from
Mexico, other areas that have farmland suitable for winter
production in the northern hemisphere, and from Latin America.
In export markets, Florida's crops compete against low-cost,
often subsidized producers from Latin America, Europe, and
elsewhere.
Under recent trade agreements, Florida's fruit and
vegetable specialty crops have lost, rather than gained,
competitive ground. With competition from Mexico increasing
under the North American Free Trade Agreement (NAFTA), many of
Florida's producers have been forced to curtail their
operations; others have been closed down altogether. Special
provisions negotiated in both NAFTA and the Uruguay Round
Agreement that were intended to protect Florida agriculture and
offer expanded export opportunities have not had their intended
effect.
Like NAFTA, the FTAA promises to create more domestic
competitive pressures than export opportunities for Florida
fruit and vegetable producers. As discussed in more detail
below, before an FTAA agreement can be struck, Congress and the
Administration must first seek to correct the inadequacies of
prior agreements through Legislative and Executive Branch
action, as well as through the relevant regional and
multilateral working groups that are already established, so
that growers of Florida specialty crops do not continue to have
their interests negotiated from a position of weakness.
I. Florida's Specialty Fruit And Vegetable Industries Have Not Fared
Well In The Post-NAFTA, Post-Uruguay Round Period.
A. In The U.S. Market, Florida's Industries Have Faced Increased
Competition From Their Principal Competitor, Mexico.
Since the NAFTA Agreement took effect, Florida's fruit and
vegetable industries have experienced a substantial increase in
competitive pressure from Mexican imports. Statistical data show that
in many specialty crops, Florida growers have lost significant domestic
sales to Mexico. NAFTA has contributed to this increased competition in
two ways: first, by reducing U.S. tariffs, making low-priced Mexican
imports even more price competitive; and, second, by spurring
investment in Mexico's agricultural industries from non-traditional
sources. Increased investment in the export-oriented agricultural
sectors in Mexico has dramatically advanced Mexico's technology,
increased Mexico's production in those sectors, and reduced the per-
unit costs of those commodities. Those advantages, combined with the
cost advantages Mexican industries derived from the devaluation of the
peso in 1994, have materially enhanced the competitive position of
Mexican agricultural exports in the U.S. marketplace. The result has
been steady increases since 1994 of Mexican fruits and vegetables into
the United States to the detriment of Florida producers.
This trend has been most dramatic in the Florida tomato sector.
Since the 1992-93 season (the last complete season prior to NAFTA's
implementation), Florida's tomato acreage, shipments, crop value, and
market share all have declined. In the 1992-93 season, Florida enjoyed
a 56.4 percent market share. In the most recent full season for which
statistics are available, market share had declined to 35.1 percent.
Meanwhile, Mexico's share of the U.S. market has increased from 28
percent in 1992-93 to 49.5 percent in 1995-96.\1\ Mexico's sales of
tomatoes below fair market value during that period had a serious
impact on Florida's position in the marketplace.
---------------------------------------------------------------------------
\1\ Competitive Growing Season Shipments, Annual Change and U.S.
Market Share, Florida Department of Agriculture and Consumer Services,
November 5, 1996.
---------------------------------------------------------------------------
The increase in Mexican exports of tomatoes to the United States at
predatory prices prompted the filing of an antidumping petition by the
domestic tomato industry in March, 1996. The Department of Commerce's
investigation found sales at below fair value during the period of
investigation and established preliminary dumping margins at a weighted
average of 17.56 percent, with individual exporter rates as high as 188
percent.\2\ A suspension agreement establishing a floor price for
Mexican tomatoes was reached between the Department of Commerce and the
Mexican industry in October, 1996, and is currently in place.
---------------------------------------------------------------------------
\2\ Notice of Preliminary Determination of Sales at Less Than Fair
Value and Postponement of Final Determination: Fresh Tomatoes From
Mexico, Federal Register, Department of Commerce, November 1, 1996.
---------------------------------------------------------------------------
Other Florida commodities have suffered similar pressures. Mexican
shipments of bell peppers, cucumbers, squash, eggplant, beans and sweet
corn increased substantially during the period, particularly in the
1995-96 season.\3\
---------------------------------------------------------------------------
\3\ Competitive Growing Season Shipments, Annual Change and U.S.
Market Share, Florida Department of Agriculture and Consumer Services,
November 5, 1996.
---------------------------------------------------------------------------
Florida's import-sensitive fruit and vegetable industries are
concerned that a free trade agreement with other countries of this
Hemisphere, many of which are highly competitive in specialty fruits
and vegetables, will only compound the pressures precipitated by NAFTA,
further eroding the economic stability of the Florida industry.
B. In Export Markets, Florida's Specialty Crops Have Also Lost Ground,
In Part Because The Uruguay Round Did Not Achieve The Market Access
Gains For Florida That Were Promised By That Round.
The Uruguay Round was widely billed as a major win for U.S.
agriculture. U.S. growers and industries, because of their superior
quality and technical advances, were expected to benefit more than most
foreign producers from increased global market access. For Florida, the
global market access gains have been minimal, offering little
offsetting relief against increased competition in the U.S. domestic
market from Mexico and elsewhere.
In many markets, tariffication of non-tariff barriers on several
fruit and vegetable crops resulting from the Uruguay Round has
increased, not decreased, border protections. Increased border
restrictions combined with onerous, non-transparent procedures adopted
to administer the new tariff rate quotas in Europe and elsewhere have
meant that old market access barriers have been replaced by new, often
less transparent ones.
II. The Inadequacies Of NAFTA And The Uruguay Round Agreement Have Left
Florida Growers Skeptical About A Hemispheric-Wide Free Trade
Agreement.
During the negotiations leading up to NAFTA and the Uruguay
Round Agreement, Florida fruit and vegetable growers sought
special accommodation in three areas to protect the import-
sensitivity of their crops. One area related to tariff
treatment. The second related to safeguard measures designed to
provide temporary relief to injured import-sensitive U.S.
industries. The third area related to the adoption of a strong
sanitary and phytosanitary agreement that would eliminate the
use of unfounded sanitary and phytosanitary restrictions as
market access barriers. For the most part, FFVA's requests were
inadequately addressed. Florida's growers are more vulnerable
today to import increases and export competition than they were
before those agreements were reached. Some of the defects
contributing to these pressures, particularly those found in
U.S. import relief laws, should be addressed and corrected
prior to negotiating a new, more expansive free trade area in
the Western Hemisphere.
A. Tariff Phase-Out Periods Have Generally Not Provided A
Sufficient Transition Period For Florida Agriculture.
In NAFTA, despite the extreme import-sensitivity of Florida
fruit and vegetable products, most of those sectors did not
receive the maximum tariff phase-out period of 15 years
provided for under the NAFTA Agreement. Of Florida's major
fruit and vegetable commodities, only frozen concentrated
orange juice and, for part of the year, cucumbers received that
treatment, with most of the other products falling into the 5-
or 10-year phase-out category.
Although the tariff-phase out periods have offered some
protection in limited areas, Mexican exports to the U.S. market
in many Florida product areas have enjoyed immediate and
substantial increases as U.S. tariffs have been reduced. Even
in product areas for which U.S. tariffs are being eliminated
over ten years, such as fresh tomatoes, peppers and cucumbers,
Mexico has already been able to increase imports and improve
its competitive position in the U.S. marketplace. This is due
not only to insufficient transition periods, but also to
currency devaluation, which was not taken into account in
structuring the NAFTA ``protections.''
Because many South American countries covered by the FTAA
are also major competitive producers of fruits and vegetables,
including citrus products, FFVA is equally concerned about
tariff elimination and import penetration in the case of a
Hemispheric free trade area.
B. The Special Safeguard Provisions Included In Both The NAFTA
And Uruguay Round Have Not Worked For Florida's Growers.
To offset the effects of tariff reductions that were
expected to result in increased U.S. imports, both the NAFTA
and Uruguay Round agreements promised to provide safeguard
provisions that would deliver temporary relief to injured,
import-sensitive U.S. industries. These measures have failed to
function as intended for Florida's producers.
The fruit and vegetable industries in Florida and elsewhere
in the United States argued strongly during the negotiation
phase of both the NAFTA and Uruguay Round that an effective
price-based safeguard be provided for sensitive, perishable
crops. The safeguard contained in the NAFTA is a volume-based
tariff-rate-quota mechanism that restores the original tariff
on a limited number of products if certain volume targets are
reached. The mechanism has been entirely ineffective as a
safeguard. Tariffs are restored only when the volume targets
are reached--usually very late in the tariff rate period. By
that time, the increased volume in the market has already
depressed prices and injured domestic growers. The Uruguay
Round Agriculture Agreement contained a price-based mechanism,
but only for those products that had non-tariff border measures
(quotas, etc.) in place prior to the implementation date of the
agreement. No U.S. fruit or vegetable had such measures in
place, so safeguard relief does not apply in these sectors. It
does apply, however, to certain of our fruit and vegetable
producing competitors, particularly in the European Union.
Both the NAFTA and the Uruguay Round agreements also
contemplated that existing trade remedies such as Section 201/
202 of the Trade Act of 1974 would provide temporary adjustment
relief to industries seriously injured by increased imports
caused by the reduction and/or elimination of trade barriers.
The NAFTA implementing legislation reinforced this by requiring
the International Trade Commission (ITC) to monitor the impact
of trade in the domestic tomato and bell pepper industries for
15 years after enactment. These monitoring and safeguard
mechanisms were supposed to expedite the filing of an import
relief action should any U.S. industry find itself in jeopardy.
In application, however, Section 201/202 and the monitoring
provision have failed to provide relief for the Florida
industry, largely because the law does not adjust for the
unique seasonal and perishable nature of fresh fruit and
vegetable production. As a result, it has been impossible for
the ITC to find serious injury on seasonal industries.
Florida's vegetable industry has twice made extremely expensive
attempts at seeking relief under these provisions with no
success. The Clinton Administration is on record supporting
amendments to Section 201/202 that would address the
inadequacies. We urge this Subcommittee to support such changes
in the law before further Hemispheric access to the U.S. market
is allowed.
Even in the area of antidumping remedies, which have been
used to assist the Florida tomato industry, Chile and other
countries in the Hemisphere are now seeking to eliminate that
remedy in favor of a more general competition policy. This
provides all the more reason why FFVA is concerned about future
FTAA negotiations.
C. Neither NAFTA Nor The Uruguay Round Has Created Sufficient
Disciplines Governing Sanitary And Phytosanitary Restrictions.
In addition to the inadequacies of the safeguard
mechanisms, the sanitary and phytosanitary provisions (SPS) of
the NAFTA and the World Trade Organization (WTO) have not lived
up to expectations. SPS obstacles are now the non-tariff
barrier of choice of many countries.
Progress on many plant quarantine issues, such as Florida
citrus access to Mexico and access for Florida citrus to Chile
and Argentina, has been excruciatingly slow since the enactment
of both the NAFTA and Uruguay Round agreements. In many cases,
countries have simply had no incentive to move quickly to
resolve these problems. It remains highly uncertain whether the
WTO's SPS Agreement will help in the resolution of such
disputes. The EU has made clear, for example, that it will
maintain its beef hormone ban despite a WTO ruling against it.
Hence, before pushing forward with yet another trade agreement,
which would be patterned largely after NAFTA and Uruguay Round
SPS disciplines, the United States must make sure that existing
agreements on the issue of how better to clarify and enforce
the principles of ``sufficient scientific evidence,'' ``risk
assessment,'' and other related benchmarks actually work.
III. Existing Trade Agreements, On Which the FTAA Is To Be Based, Do
Not Establish Adequate Disciplines For Settling Commercial Disputes.
NAFTA failed to establish a system for the prompt and
effective resolution of private commercial disputes in
agricultural trade, opting instead to create a joint
government/private sector advisory committee to develop
recommendations on this matter. The continuing absence of such
a system has become another problem for Florida producers, who
need a viable commercial dispute settlement mechanism to handle
the unique marketing characteristics of perishable crops. The
Perishable Agricultural Commodities Act (PACA) in the United
States provides such a system for the domestic industry and for
international traders who market their products in the United
States, but no such system is in place for U.S. exports
marketed in other Western Hemispheric countries. Before another
trade agreement is forged, FFVA recommends that the
implementation of the voluntary dispute settlement process
recommended by the NAFTA Advisory Group be closely monitored to
determine if it functions as envisioned.
IV. NAFTA Has Not Adequately Harmonized Disparities in Pesticide
Regulations.
In the Canada/U.S. Free Trade Agreement (CUSTA), the two
countries agreed to seek the harmonization of pesticide
regulations in order to reduce non-tariff trade barriers. That
led to the creation of a bilateral pesticide working group,
which was expanded to include Mexico following the passage of
the NAFTA. Although some progress has been made in identifying
issues to be resolved in this area, significant differences in
the pesticide regulatory framework remain between the three
countries. These differences have adverse competitive and trade
implications for Florida's producers. Here as well, before new
agreements are created that will only compound the pressures
created by existing regulatory inconsistencies, substantially
more should be done by the NAFTA working group to harmonize
disparities and inequities with those countries for which
agreements have already been reached.
V. Conclusion
In short, many of the future FTAA countries in the
Hemisphere pose competitive threats to the Florida industry
similar to those already experienced with Mexico under NAFTA.
Brazil, Argentina, and Chile are highly competitive producers
of fruits and vegetables and enjoy competitive advantages over
their counterparts in the United States. Those advantages
include significantly less restrictive and less costly labor
and environmental requirements.
Before an FTAA is reached that would only aggravate the
pressures, inequities, and remedial defects created by NAFTA
and the Uruguay Round, FFVA growers ask that the concerns
identified above first be corrected by internal U.S. actions,
or through the review mechanisms of NAFTA and the Uruguay
Round, so that Florida's import-sensitive fruit and vegetable
producers do not continue to lose competitive ground as a
result of Hemispheric initiatives.
International Trademark Association
1990 M Street, N.W., Suite 340
Washington, D.C. 20035
April 14, 1998
The Honorable Philip M. Crane
Chairman, Subcommittee on Trade
Committee on Ways and Means
1102 Longworth House Office Building
Washington, D.C. 20515
Dear Mr. Chairman:
The International Trademark Association (INTA) is pleased to submit
the following comments for the record of your March 31, 1998 hearing on
the status and outlook for negotiations aimed at achieving a Free Trade
Area of the Americas (FTAA).
INTA is a 119-year-old, worldwide membership organization with over
3,400 members in 120 countries. We represent trademark owners, as well
as those who serve trademark owners. INTA's members, which cross all
industry lines and include both manufacturers and retailers, are united
in our goals of supporting the essential role trademarks play in
promoting effective commerce, protecting the interests of consumers,
and encouraging free and fair competition.
FTAA negotiations in the intellectual property area continue to
proceed at a painfully slow pace. In fact, there has been little, if
any, progress since the Subcommittee's last hearing in July. Despite
this slow beginning, INTA believes the FTAA process is an important
vehicle to move recalcitrant nations more quickly towards compliance
with the Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS) and other ``TRIPS-Plus'' goals. That is why it is
critical for the FTAA intellectual property discussions to be
accelerated--both to ensure TRIPS compliance by the year 2000 and to
stimulate consideration of ways in which the nations of the Western
Hemisphere can go beyond the minimum requirements of TRIPS.
The Role of Trademarks in Trade
Trademark rights are an essential element of trade and
development. INTA believes that trademarks in the Western
Hemisphere must be viewed in terms of:
protecting the public;
protecting the valuable rights of owners; and
developing the political, legal and administrative
infrastructure appropriate to each nation of the region that
will encourage investment and trade.
INTA recognizes that the nations of the Western Hemisphere
are developing at different rates and in different ways. We
nevertheless believe that all FTAA nations must meet certain
minimum standards of trademark protection. This is essential to
secure the rights of trademark owners, to avoid public
confusion and deception about the products being purchased, and
to enhance trade and investment in the nations of Latin
America.
Existing Protections of Intellectual Property Rights
The greatest impediment to trade and investment in a number
of Latin American countries is their inadequate protection and
enforcement of intellectual property rights (IPR). Companies--
particularly pharmaceuticals, telecommunications, electronics
and other technology-based companies--will continue their
reluctance to provide their latest and best efforts to the
Latin American market unless the IPR regimes in those nations
are significantly and dramatically improved, both prior to and
as a result of the FTAA. Thus, inadequate IPR protection not
only deters domestic incentives to develop new technology and
create products and services, but will also result in a loss of
access to foreign know-how and capital.
At the ever-increasing rate at which investment capital
flows from place-to-place, the nations of Latin America cannot
afford to wait until the year 2000 or thereafter to begin fully
integrating into the established norms of intellectual property
protection, as set out in the TRIPS agreement under the World
Trade Organization (WTO). If the Latin American nations do not
act effectively and soon to fully protect intellectual
property, the current growth they are experiencing will slow,
and the knowledge-based businesses which are the future of the
developing nations will pass them by.
Trademark Issues In the FTAA Process
INTA recognizes the significant changes that have occurred
in the political, social and economic landscape of Latin
America in the last decade. Democratic institutions have
continued to grow in virtually every nation. Both promise and
challenge are presented by these changes. We are, therefore,
enthusiastic about the opportunities that the FTAA offers for
strengthening the protection of trademark rights in the Western
Hemisphere.
From the perspective of trademarks, INTA has identified the
following specific issues as the most important as the FTAA
negotiations proceed:
1. Protection of ``Well-Known'' Marks: Many companies in a
variety of industries face enormous problems in stemming the
rising tide of piracy and counterfeiting throughout Central and
South America. The problem is especially severe for the owners
of ``well-known'' marks (those that are most distinctive,
enjoying widespread consumer recognition and the goodwill
created by the associated product or service), particularly
those that may not have been registered in a Latin America
country before they were pirated.
Countries that are members of the Paris Convention should
implement Article 6bis, which provides that the Member Nations
protect well-known marks. Moreover, these countries should
begin to move towards the broader protection afforded to well-
known marks by Article 16(2) and (3) of the TRIPS Agreement.
Effective implementation of Article 6bis should be a condition
placed on FTAA membership.
2. Effective Enforcement: A corollary to the protection of
well-known marks is timely and effective enforcement of
trademark rights. Even the most well-crafted treaties and laws
are of little value if trademark owners cannot obtain prompt
action by customs authorities, the courts and other agencies of
Latin American governments. Many nations have no effective
border enforcement. Also exacerbating enforcement efforts is
the extreme inefficiency of many courts in processing even the
most blatant cases of counterfeiting. In many instances, the
courts have permitted the illegal activity to continue or
resume pending trial (which may be three to six years after the
action is filed). Effective preliminary relief, in the form of
injunctions and seizure orders, is necessary for all nations of
the Americas if intellectual property rights are to be
adequately enforced.
3. Barriers To The Full Use Of Trademark Rights: Certain
Latin American countries have erected barriers to the full use
and enjoyment of trademark rights. For example, some countries
require mandatory recordal of trademark license contracts
which, in turn, disclose to the public highly confidential
business information between a trademark owner and its
licensee. Even worse in some nations, if a U.S. trademark owner
fails to record its license, the trademark registration will be
canceled, thus exposing valuable trademark rights to be
misappropriated by trademark pirates. INTA takes the position
that trademark license recordal should be voluntary, not
mandatory, and that this principle should be part of any FTAA
intellectual property agreement. Further, the FTAA negotiating
process should result in an end to these and other
inappropriate barriers to the full use and protection of
trademark rights.
4. Implementation of GATT-TRIPS And Other Trademark
Agreements: The FTAA process should emphasize full and timely
implementation of GATT-TRIPS. Also important is the adoption of
the Trademark Law Treaty, which is intended to reduce the
burden of disparate and seemingly endless requirements and
formalities to authenticate filings and perfect trademark
rights in most Latin American countries.
Similarly, adoption of the Madrid Protocol--an
international agreement which will greatly enhance timely,
efficient and cost-effective international registration of
trademark rights--should be a centerpiece of the FTAA process.
There has been some discussion within the FTAA working groups
of a ``trademark application mailbox'' and other means for
facilitating trademark registration within the Western
Hemisphere. While such discussions help to focus attention on
the benefits of easy registration across national
jurisdictions, the Madrid Protocol's registration system, which
is administered by the World Intellectual Property
Organization, already exists. Accordingly, the Madrid Protocol
should be an essential building block for IPR infrastructure
improvements in the hemisphere and thus is essential to the
success of the FTAA initiative.
Conclusion
INTA fully supports the FTAA process. To facilitate the
improved protection of trademarks in Latin American countries,
we have developed Model Trademark Law Guidelines that
incorporate TRIPS-compliant provisions. We are willing to
provide these guidelines to any nation of the hemisphere and
work with the executive, legislative, judicial and
administrative branches of the governments of these nations to
assist them in adopting and implementing TRIPS-compliant laws
and regulations.
In addition, INTA continues to work with the U.S.
government and other interested groups, to explore possible
funding sources to help countries develop the infrastructure to
implement effective IPR protection regimes. Our goal is to
eventually work with the governments of interested countries to
develop grant and loan packages that will build the legal
frameworks and institutions necessary to enforce their IPR
protection laws.
Thank you for your consideration of INTA's comments. INTA
would be pleased to provide this Subcommittee with any
additional information you would find helpful. We look forward
to working with you in the months ahead as the FTAA negotiating
process continues.
Sincerely,
David C. Stimson
President
Statement of Dr. Richard L. Bernal, * Ambassador, Government of Jamaica
[By Permission of the Chairman]
Thank you for providing me an opportunity to submit
testimony on the participation of the smaller economies in the
Free Trade Area of the Americas (FTAA).
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* Ambassador of Jamaica to the US, Permanent Representative to the
OAS and Chairman of the FTAA Working Group on Small Economies.
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Introduction
The world is involved in a profound process of
globalization that is both requiring and creating multi-
country, transnational economic spaces. At the same time that
there is expansion to larger units in the global economy there
is the complementary and simultaneous contradictory process of
political fragmentation, resulting in smaller states. The
number of countries/states has increased significantly in
recent decades in particular there has been a proliferation of
small countries/states. At the time of the First World War
there were 62 independent countries. By 1946 there were 74
countries but this has grown to 193 at the present time. Most
of these are small states. Indeed 87 countries have a
population of less than 5 million, 58 have fewer than 2.5
million people and 35 with less than 500,000 people.
The majority of countries are small countries and therefore
this issue is one which must be addressed both at the political
and economic levels. It is a particularly important in
international groupings that include both large and small
states. For example, the Commonwealth maintains a Ministerial
Group on Small States. In their most recent report they
emphasized ``the need for the international community to
recognize the multidimensional nature of the vulnerability of
small states'' and called for ``action to ensure that small
states fully shared in the benefits from globalisation,
regionalism and international trading arrangements, and were
not marginalized.''
The majority of countries in the Western Hemisphere are
small countries/economies, hence their participation in the
FTAA is an issue which must be examined and accommodated in any
hemispheric wide political organization or economic integration
arrangements. The issue of the integration of small economies
into the Free Trade Area of the Americas (FTAA) is a complex
one which must be addressed if all countries in the Hemisphere
are to participate in the FTAA in a way which is beneficial to
themselves and to the process as a whole.
This statement examines this issue and makes
recommendations on what constitutes a small economy and what
measures should be included in the FTAA, to address the
disparity in size between participating countries and
adequately take account of the characteristics of small
economies. Part I examines the question of what is a small
economy and discusses the implications of small size for
economic growth and participation in trade arrangements with
larger economies. Part II makes recommendations on how the
interests and concerns of small economies can be incorporated
into the design of the FTAA.
Part I
A. Defining a Small Economy
There is no single definition of small economy, indeed, any
definition in quantitative terms would be unscientific as size
is a relative concept. The question of defining a small economy
is not a new one, and definitions have varied widely. A small
economy is conceptualized as an economy that is a ``price-
taker'' in the world market/international trade, i.e. it cannot
influence world prices for goods, services and assets. This is
too vague and all encompassing because in some situations, even
the largest, most developed economies are price-takers.
Definitions based on quantitative criteria vary considerably,
as they employ different criteria and exhibit a significant
arbitrariness in the selection of cut-off points. Kuznets and
Streeten used population as the criterion, selecting an upper
limit of 10 million, while Chenery and Syrquin used 5 million.
A recent ECLAC study chose Gross National Product of less than
$15 billion. Demas opted for a population of 5 million or less,
and less than 20,000 square miles of usable land. The extent of
the arbitrariness can be reduced by examining a distribution of
economies based on a particular quantitative measure and
identifying a cluster at the ``small'' end of the spectrum.
Another problem is that the definition of small economy/state
may have to be revised over time, if GDP or population are
employed as measures. For example, the Commonwealth Secretariat
in 1985 used the cut off point of 1 million but by 1997 had
revised the upper limit to 1.5 million.
Various international organizations classify countries into
categories according to selected indicators for operational and
analytical purposes. The classifications used by international
organizations mainly relate to per capita income levels,
indicators of development status, and some selected concept of
``size.'' While the main classification criterion used by
institutions such as the International Monetary Fund, the World
Bank, and the United Nations for establishing country
categories is that of per capita income levels, these
institutions also classify countries by aggregate income
levels, by the type of goods exported (e.g. fuels, non-fuel
primary products, manufactures or services) and by fiscal
structure. The World Bank also groups economies with
populations fewer than one million in a separate table of the
World Development Report. Along with basic economic indicators,
particularly per capita income, the United Nations categorizes
countries according to an additional human development
indicator. The U.N. ``human development index'' (HDI) combines
various economic and social indicators in order to achieve a
more comprehensive measure of development.
Under the GATT system and now under the World Trade
Organization (WTO), the principle of ``self-selection'' is
applied, i.e. members themselves choose their development
status. However, in their publications the WTO follows the UN
country classification and for budget purposes also makes use
of the income criterion adopted by the World Bank. Under the
WTO classification, countries with less than US $1,000 of
income per capita may consider themselves as falling in the
``least developed'' category in terms of the obligations and
disciplines set out in the Uruguay Round Agreement.
B. Indicators of Economic Size
The definition of the concept of ``small'' in relation to
economic size, is usually based on one or more of the following
criteria; population, land area, Gross Domestic Product are
commonly used. These indicators relate to the measurement of
the magnitude of an economy, in terms of its fundamental
resources: human, land, and capital.
1. Population.--The most commonly-used indicator is the
size of a country's population. More than three quarters of the
people in the Western Hemisphere live in five countries. Nine
countries account for nearly ninety percent of the Hemisphere's
population. The largest economy in terms of population is over
6,000 times more populous than the smallest. Of the countries
with less than 1.5 percent of the Hemisphere's population, 15
are the islands of the Caribbean and the Central American
countries. Four South American countries--Uruguay, Paraguay,
Bolivia and Ecuador--also fall into this category. These South
American countries are those which are considered relatively
less-developed within their respective subregional integration
schemes (Mercosur and the Andean Group). Thus, the countries
which are shown here to be small in population terms correlate
with those countries which are generally considered to be the
smaller countries of the Western Hemisphere.
2. Land Area.--The second commonly used indicator is the
size of a country's territory. Land mass may be used as a proxy
for both the amount and diversity of natural resources. The
five largest countries comprise over 82 percent of the
territory of the Hemisphere, and the ten largest countries
cover over 95 percent of the land of the Western Hemisphere.
The largest country of the Hemisphere, Canada, is over 30,000
times as large as the aggregate land mass of the fifteen
smallest. With the exception of Bolivia, which is the eighth
largest country in terms of land size, the smallest countries
are the same as those ranked smallest according to population:
the countries of the Caribbean and Central America and the
ALADI members which are considered relatively less developed.
3. Gross Domestic Product (GDP).--A third indicator of
economic size, the level of Gross Domestic Product (GDP),
measures the aggregate wealth or aggregate output produced in
an economy. GDP measures the magnitude of a country's domestic
market, thereby offering some indications as to the possible
limitations to specialization of production and exploitation of
economies of scale. The data used here is the level of GDP
normalized for exchange rate fluctuations. GDP figures are
expressed in 1990 US dollars.
The two largest countries comprise 85 percent of the
Hemisphere's GDP; the five largest countries make up 96 percent
of the Hemisphere's GDP and 99 percent of the Western
Hemisphere's GDP is generated in nine countries. The largest
economy, which is ten times larger than the second largest
economy, is over 850 times larger than an aggregate of the ten
smallest countries' GDP. Not surprisingly, countries that are
small in terms of population and land size also tend to be
small in terms of GDP. Thus, the same Caribbean and Central
American countries, as well as the four smaller South American
countries have the lowest gross domestic product.
C. Characteristics of Small Economies
Small economies have certain characteristics such a high
degree of openness, limited diversity in economic activity,
export-concentration on one to three products, significant
dependency on trade-taxes and small size of firms.
1. High Degree of Openness.all economies are characterized
by a degree of openness, i.e. external transactions are large
in relation to total economic activity. Smaller economies tend
to rely heavily on external trade as a means of overcoming
their inherent scale limitations, i.e., a narrow range of
resources and an inability to support certain types of
production given the small scale of the market. Economic
openness is measured by imports and exports of goods and
services as a percentage of Gross Domestic Product (X+M/GDP).
This measure indicates the proportion of the economy which is
involved in external trade.
Three of the largest countries in land area, the U.S.,
Argentina and Brazil, exhibit the lowest reliance on external
trade and the least openness, less than 5 percent trade/GDP.
Canada, which is the largest territorial entity, the second
largest in GDP terms and in the top six in terms of population
is the eighteenth most reliant on external trade. Chile, also
not among the smallest in the previous three categories, is a
very open economy with a 57 percent trade/GDP ratio. Haiti,
which is among the smallest in the other three categories, has
low dependence on trade because of poverty. Two other
countries, Uruguay and Guatemala, which are relatively small in
terms of the size indicators, exhibit a relatively low
dependence on trade. Otherwise, there appears to be a nearly
perfect correlation between countries of the Caribbean and
Central America and a high openness to trade. Twelve countries
have trade dependency ratios of over 100 percent, ten from the
Caribbean.
2. Limited Diversity and Export Concentration.--This
limitation in the range of economic activity is mirrored in the
concentration on a one to three exports. Accompanying this
characteristic is the relatively high reliance on primary
commodities in the economy. Most of the economies which exhibit
the characteristics of small economies are relatively
undiversified in terms of their exports, and exports are
concentrated on one or two products for over one quarter of
their total exports. In extreme cases, one primary product
export accounts for over 50% of exports, e.g. bananas in
Dominica, St. Vincent, and St. Lucia.
3. Dependence on Trade Taxes.--Smaller economies, which a
lack economic diversity, tend to have a high dependence on
trade taxes as a percent of government revenue. Larger
economies measured by population size rely more heavily on
forms of tax such as income tax rather than trade taxes such as
customs duties, and this pattern is not related to income
levels. Those countries which are small in population, land,
and GDP terms, and which depend heavily on external trade, also
rely heavily on external trade taxes for government revenue.
There is a relatively strong correspondence between the
countries which could be considered small and a high reliance
on revenues from import duties. All of the Central American and
Caribbean countries, with the exception of Barbados, El
Salvador, St. Vincent, Trinidad and Tobago and Panama, obtain
more than 20 percent of their government revenues from trade
taxes. Trade taxes account for more than one half of government
revenue in St. Lucia, Belize and the Bahamas and over one-third
of government revenue in Guatemala and the Dominican Republic.
. Small Size of Firms.--It is not countries that trade, it
is firms which conduct international trade, including a
substantial amount which is intra-firm transfers. Nationally
owned firms from small countries are small by global standards
and by comparison with firms in large economies and
multinational corporations owned and/or based in large
countries. Except for a few sectors where economies of scale
are not a significant factor, size of firm makes a significant
difference in the ability of firms to survive and compete in
the global marketplace. Small firms are at a disadvantage
because they cannot realize economies of scale, are not
attractive business partners and cannot spend significant funds
on marketing, market intelligence and research and development.
This is reflected in an examination of the huge difference
between the top 20 Companies in the United States and those in
the English-speaking Caribbean. Wal-Mart stores, the largest
employer in the United States has a staff complement of 675,000
compared to the Caribbean's top employer, Lascelles Demercado
(Jamaica) which employs 6,800. Total sales of General Motors is
328 times larger than that of Neal & Massey (Trinidad &
Tobago). The seven largest US companies each have sales revenue
which is larger than the combined GDP of the 21 Caribbean and
Central American countries.
D. Size and Development
A direct relationship cannot be established between size
and development. More specifically, small economies exhibit a
range of development levels, from relatively poor to highly
developed, using GDP per capita and the United Nations' human
development index as an indicator of level of development.
Similarly, there is no direct correspondence between small
economies and level
1. GDP per Capita.--The most widely used indicator of or
proxy for development is the GDP per capita, which converts the
aggregate level of output into the monetary wealth per
individual. When ranked by the level of Gross Domestic Product
per capita, there is no direct correlation between GDP per
capita and indicators of economic size. Some of the countries
which are small in terms of population, land and level of
aggregate national product rank highly when ordered according
to the level of GDP per person. The ten countries with the
highest per capita GDP include five of the islands of the
Caribbean, while two countries, Colombia and Peru, which are
relatively large in other indicators rank relatively low on
this list. Per capita GDP in the Bahamas (0.16% of Brazil's
land area) is three times larger than GDP per capita in Brazil.
2. Index of Human Development.--Along with basic economic
indicators, the United Nations Development Programme (UNDP)
categorizes countries according to an additional human
development indicator--a basket measure of wealth, education
and health. The Human Development Index (HDI) measures the
average achievements in a country in three basic dimensions of
human development--life expectancy, educational attainment and
literacy, and real GDP per capita. Several of the countries
considered small in population, land, and aggregate GDP terms
are highly ranked in their level of education, health and
standard of living, while some of the larger countries occupy
lower rankings in terms of this indicator. Among the 15 lowest-
ranked countries, 12 would be considered small according to
population and size criteria.
3. Implications of Small Size.--There is no direct
correspondence between size and the level of development
attained by a country and no correlation between size of
economy and growth rates. This fact is often used as a basis
for the erroneous proposition that size has no significant
impact on growth or development. Srinivasan argues that many of
the problems which small economies are ``alleged to confront
are either not unique to them or can be adequately addressed
through suitable policy measures.'' However, more penetrating
analyses have revealed that size is an additional dimension to
economic growth and development which give these processes a
qualitatively different character, indeed, some have argued
that small size is an additional constraint on growth.
The implications of small size for growth and the capacity
to adjust to economic change include the following:
1. Small economies have severe constraints on their
material and labor inputs both in amount and variety, because
of their limited land area and small populations. These
constraints prevent the attainment of economies of scale for a
wide range of products and lead to high unit costs of
production. Small economies tend to have a narrower range of
domestic and export production because of the small size of the
market and the limited range of resources. Small market size
also tends to cause high costs because there is often a lack of
competition, in fact, in many instances the market can only
support a single producer i.e., monopoly.
2. There is a high degree of openness, i.e. trade/GDP ratio
is high. Several important consequences follow from such a high
degree of openness to trade. These include (a) The overall
domestic price level is dominated by movements in the price of
imports. The prices of non-traded goods also tend to adjust
rapidly through the impact of foreign prices on wage and other
cost movements. (b) Exchange rate changes tend to produce
immediate effects, similar to those of foreign price changes,
on domestic prices.
3. The high degree of openness and the concentration in a
few export products, particularly some primary products and
agricultural commodities, whose prices are subject to
fluctuations in world markets, makes small economies vulnerable
to external economic events and exposes small economies to real
shocks of an intensity unparalleled in larger countries. This
concentration of export production exposes small economies to
real shocks of an intensity unparalleled in larger countries.
Economic vulnerability can be a feature of an economy of any
size and level of development, but is compounded by size,
proneness to natural disasters, and remoteness and insularity.
Briguglio in a recent study constructed a ``vulnerability
index'' encompassing all three aspects. His calculations reveal
that there is a direct relationship between vulnerability and
size, with the smallest countries being the most vulnerable.
Canada, Brazil, Argentina and the United States have
vulnerability indices of 0.2 or less, while Caribbean and
Central American economies exceed 0.4. The 10 smallest
economies range from 0.595 for Barbados to 0.843 for Antigua
4. Trade theory as explained in textbooks assumes that
international trade takes place between countries in an
environment of perfect competition and trade occurs because of
differences in comparative advantage which in turn derive from
differences in resource endowment or technology. All firms are
price-takers i.e. each firm is too small to influence price in
the world market, therefore, international trade is due to
differences between countries but size of country does not
matter. By taking account of economies of scale i.e. increasing
returns to scale, size of country and size of firm become
important considerations. When there are economies of scale,
large firms have an advantage over small firms, resulting in
imperfect markets, including oligopoly and even monopoly market
situations.
Small firms in small economies, especially small developing
economies are at a major disadvantage. These firms cannot
attain either internal economies of scale i.e. where unit cost
is influenced by size of firm or external economies of scale,
i.e. where unit cost depends on the size of the industry, but
not necessarily the size of any one firm. Small size of
economy, and thereby small size of industries, including export
sectors is unlikely to foster the competitive dynamic necessary
for firms in small economies to achieve competitive advantage.
This is more likely where the economy is large enough to
sustain ``clusters'' of industries connected through vertical
and horizontal relationships. Krugman and Obsfeld warn that
``trade in the presence of external economies may not be
beneficial to all countries,'' and ``it is possible that trade
based on external economies may actually leave a country worse
off than it would have been in the absence of trade.''
Small firms in small, developing countries have severe
difficulties in attaining ``economies of scope'' i.e. economies
obtained by a firm uses its existing resources, skills and
technologies to create new products and/or services for export.
Exposure to global competition requires small firms to invest
heavily just to survive in their national market, and more so
in order to export. Larger firms are better able to generate
new products and sources from existing organization and
networks. Very large firms such as multinational corporations
(MNCs) operate internationally in ways very different from
small firms. Most of the trade of MNCs is intra-firm trade,
rather than traditional ``arm's length'' international trade
conducted by smaller firms. It is estimated that intra-firm
trade accounts for 50 percent of the trade of the United
States, and is also significant in developing countries.
5. Small economies pay higher transportation costs because
of the relatively small volume of cargo, small cargo units and
the need for bulk breaking. Small economies pay an average of
10% of the value of merchandise exports as freight costs
compared to a world average of 4.5% and 8.3% for developing
countries.
6. The public sector in small economies account for a
larger share of GDP, which reflects a certain indivisibility of
public administration structures and functions e.g. every
country no matter how small has a prime minister, parliament,
police force, etc. The growth of the public sector has been due
in part to an enhanced role for public sector investment in the
economy, which has however been associated with reduced growth.
7. Small economies have traditionally experienced export
instability because they depend on a few primary product
exports. It could be argued that many small economies have
reduced the export instability associated with dependence on
primary product exports by shifting to services, in particular,
tourism and financial services, e.g. the Bahamas and Barbados.
However, some studies have indicated that the change in the
composition of exports toward a dominance of services has been
accompanied by higher instability in export earnings. e.g. in
Jamaica.
8. The process of adjustment in small economies is more
difficult, larger relative to GDP and of necessity slower,
because of the undiversified economic structure.
Part II
A. The Issue of Small Economies in the FTAA
The Summit of the Americas Declaration of Principles, which
launched the Free Trade Area of the Americas (FTAA) process, recognized
that the formation of a free trade area among thirty-four countries
would be a complex and unprecedented undertaking, ``particularly in
view of the wide differences in the levels of development and size of
the economies existing in our Hemisphere.'' Recognizing the need to
address this issue in the design of the FTAA, the heads of state/
government committed the participating countries to ``facilitate the
integration of the smaller economies and increase their level of
development.''
Subsequent Ministerial Declarations have noted the necessity of
facilitating the integration and the importance of increasing the
opportunities for the smaller economies to participate fully in the
FTAA in a manner which promotes their growth. This reflects an extended
debate regarding the characteristics of small economies and factors
affecting their participation in the FTAA. For the Working Group on
Smaller Economies, whose principal mandate is to ``identify and assess
the factors affecting the participation of smaller economies in the
FTAA and the expansion of trade and investment stimulated therefrom''
this is a core issue.
One of the issues, which proved difficult to decide, was the
definition of a ``small economy.'' This is not surprising, as within
the extensive literature and among the international organizations that
categorize economies using various economic indicators, the definition
of what constitutes a ``small'' economy is one which has not been
empirically determined in a universally accepted manner, and it is
widely accepted that no single indicator can fully describe a country's
size. This dilemma was recognized by heads of state and government when
they referred to the concerns of ``smaller economies'' rather than
``small economies.''
The FTAA Working Group on Smaller Economies held eight meetings
since it was first convened in Kingston, Jamaica in August, 1995. The
activities of the Working Group were supported by the technical
expertise of the Organization of American States, the Inter-American
Development Bank, the United Nations Economic Commission for Latin
America and the Caribbean, the World Bank and the Sistema Economico
Latinamericano. The discussions in the Working Group also benefited
from submissions by the governments of Caricom and Central America as
well as from a study by a group of independent experts. The Working
Group completed its deliberations in September, 1997 having executed
its work programme, which consisted of:
1. Preparation of a bibliography of existing studies on smaller
economies.
2. Examination of the current treatment of smaller economies in
integration systems: (a) a survey of existing international, regional,
and sub-regional agreements and arrangements to assess their treatment
of smaller economies, e.g. transitional measures; (b) a comparative
compendium of the treatment of smaller economies in such agreements and
arrangements.
3. Identification of the characteristics of smaller economies that
could affect their effective participation in the Free Trade Area of
the Americas (FTAA).
4. Evaluation of the effect of size of economy on trade
liberalization and economic growth.
5. Identification of the specific problems faced by smaller
economies that might affect their integration into the FTAA, e.g.
technical barriers to trade, lack of transparency, inadequate human and
financial resources, lack of physical infrastructure and transport,
fiscal dependence of smaller economies on tariff revenues, external
debt, participation of small and medium enterprises.
6. Examination of opportunities to facilitate integration of the
smaller economies and to increase their level of development: (a) The
internal adjustments that smaller economies might undertake to prepare
for full participation in a hemispheric free trade area; (b) Identify
the mechanisms/measures that might be considered to facilitate the
participation of smaller economies in the process of integration, e.g.,
the pace of the process.
7. Evaluation of the technical assistance requirements of smaller
economies to: (a) Facilitate their participation in the FTAA process;
(b) Ensure their integration in the FTAA.
8. Examination of the need for and feasibility of a regional
integration fund.
B. Ensuring Effective Participation of Small Economies in the
Negotiation Process
As stated in the Summit of the Americas Declaration of
Principles, and reiterated in the Denver Ministerial Joint
Declaration, one of the main objectives of the FTAA
negotiations should be ``to provide opportunities to facilitate
the integration of the smaller economies and to increase their
level of development.'' This mandate reflects insistence of the
Caribbean and Central American governments that small economies
do not suffer adverse consequences from participation along
with larger, in some cases more developed economies in the
FTAA. In order to ensure that this issue was kept under review
and recommendations made, the Working Group on Smaller
Economies was established.
The concerns of the small economies must be kept under
continuous review during the negotiating stage of the FTAA,
because small economies constitute the majority of the FTAA
participants and small economies are a particular genre of
national economy. Given the uniqueness of the subject matter,
it does not seem appropriate for the Working Group on Smaller
Economies to transform itself into a negotiating group during
this negotiation phase of the FTAA process. However, there is a
need to devise an appropriate mechanism that will periodically
review and assess the negotiation process from the standpoint
of the smaller economies. This could be achieved by:
1. Placing the issue of small economies permanently on the
agenda of the body which will have the main responsibility with
regard to the negotiating process.
2. Establishing a consultative or advisory committee of
smaller economies with formal lines of reporting within the
negotiation process.
(a) Whose functions would be to:
(i) follow the FTAA process, keeping under review the
concerns and interests of the small economies;
(ii) bring to the attention of the supervisory body of the
negotiations, issues of concern to the smaller economies and
proposals to address these issues;
(iii) provide a forum for small economies to discuss the
negotiations as a whole.
(b) The rationale for the consultative/advisory committee
is to:
(i) ensure a forum, which can permit (as far as possible) a
common position of this constituency. This would simplify and
make more expeditious the negotiations since it could reduce
the number of negotiating positions and perspectives.
(ii) many small countries cannot afford to attend all the
meetings given the duration of the negotiation (possibly even
beyond the projected deadline of 2005), the number of meetings
and multiple locations of meetings. The consultative/advisory
committee is very likely to be the principal institutional
forum in which many of the smallest countries will participate.
This of course is not a precedent, e.g. the procedure was
employed by the African countries during the Uruguay Round
negotiation. This approach proved to be both cost-saving and
successful for this group of countries as well as contributing
to the overall negotiation process.
Meetings of the consultative/advisory group would be
convened at specific intervals, to evaluate the progress within
the FTAA process with regard to the smaller economies. For
example, periodic reviews could be held to assess the work done
to take into account the needs and interests of the smaller
economies and to make recommendations where and when necessary.
3. Ensuring that adequate technical assistance is provided
to smaller economies to strengthen their participation in the
negotiations and to increase their capability to implement the
objectives and disciplines of the FTAA. Smaller economies
should make their needs known and identify the specific areas
in which they will require technical assistance. The FTAA
process should include a mechanism or mechanisms on which the
smaller economies will be able to rely for the provision of
such technical assistance. Such technical assistance could be
made available from multilateral institutions and bilaterally.
4. Agreeing on the general principles which will guide the
negotiations in all areas under consideration in the FTAA,
these tenets must include the following:(a) participation in
the negotiation must be open to all countries that are
participating in the Summit of the Americas process; (b)
negotiations will be transparent; (c) decision-making will be
on a consensus basis; (d) the outcome of the negotiations will
constitute a comprehensive, single undertaking which embodies
the rights and obligations mutually agreed upon; (e) results of
the negotiations will be consistent with the WTO; (f) countries
may participate individually or as groups, whether as members
of sub-regional trade agreements, e.g. MERCOSUR or by
commonality of interests, e.g. small economies; (g) negotiators
will take into account, in their deliberations, the needs and
circumstances of the smaller economies.
C. Recommendations for Integrating Small Economies into the
FTAA
Every effort should be made to ensure that the FTAA is
truly hemispheric; including all countries whatever the size of
their economy. In order to integrate small economies the
following measures are recommended:
1. Smaller economies should have the scope to negotiate as
a group, if they so desire, as this would allow them to pool
scarce human and material resources.
2. Smaller economies, in particular, should consider early
implementation, to the extent possible, of internal adjustments
such as stable macroeconomic policies and measures to promote a
business climate that encourages local and foreign investment.
3. In the negotiating stage of the FTAA, the smaller
economies may require additional assistance with respect to the
issues under negotiation.
4. Smaller economies should examine their special
vulnerabilities and needs, with a view to formulating specific
requests for technical assistance.
5. The proposals for the negotiations and construction of
the FTAA should recognize the vital importance of technical
assistance and technical cooperation, depending on the
country's requirements, for full and effective integration of
smaller economies into the FTAA. This would include measures
to: (a) develop appropriate legislation; (b) strengthen
national institutions/agencies; (c) conduct public workshops on
key issues in the WTO and related international organizations,
and possibly the FTAA.
6. The needs of smaller economies, both in terms of
technical assistance and in measures to facilitate their
implementation of an FTAA, should form part of the work program
of each negotiating group that will ultimately be established.
7. Negotiations and other consultations should be organized
in a manner which economizes on human and financial resources.
8. Measures that may be accorded or negotiated to
facilitate the participation of the smaller economies in the
FTAA process, should be transparent, simple and easily
applicable, yet should recognize the degree of heterogeneity
among them.
9. All countries will share the FTAA's rights and
obligations. In order to provide opportunities to facilitate
the integration of the smaller economies into the FTAA, during
the negotiations various measures could be included, on a case
by case basis, such as: Technical assistance in specific areas
such as intellectual property and technical standards; rules of
origin and customs documentation which should be as simple,
clear and transparent as possible for all FTAA countries;
longer periods for implementing obligations; possibility of
implementation at the regional or subregional level to save on
scarce human/financial resources, e.g. technical standards
bodies.
10. In the design of the FTAA, efforts should be made to
reduce the transitional costs and minimize internal dislocation
in the smaller economies. Smaller countries should be expected
to implement all the provisions contained in the FTAA. However,
suitable transitional arrangements (in the form of longer
periods for the implementation of general rules and disciplines
applicable to all) must be designed for those smaller economies
which are not yet ready for immediate and full assumption of
FTAA provisions, having not yet attained the level of
development or level of liberalisation commensurate with the
far-reaching obligations that are likely to be part of the
FTAA. This asymmetrically-phased assumption of universally
applicable obligations and disciplines is compatible with the
evolving environment in which trade relations between larger
and more developed countries and smaller developing nations has
been taking place, both at the multilateral level (as was the
case in the Uruguay Round), and in the context of regional and
subregional trade arrangements in the Western Hemisphere. It is
not desirable to apply ``special and differential treatment''
to all countries across all sectors and products. All economies
will need differentiated treatment on some products and in
regard to some sectors. The application of this principle will
provide the flexibility necessary to accommodate the concerns
of smaller economies.
D. Preparation by Small Economies for the FTAA
Smaller economies should not simply view the FTAA in
isolation, but as part of their global strategic repositioning
plans. The objective is repositioning a country in the global
economy by proactive strategic adjustment in anticipation of,
and in response to, global changes in demand and technology.
Such plans must be designed to consolidate and improve existing
production lines while reorienting the economy toward new types
of economic activity aligned to global trends. Among other
things, this includes producing what is demanded globally;
pursuing structural transformation to achieve economic
diversification; revitalizing traditional exports (i.e. looking
downstream in traditional commodity production), and
modernizing international marketing techniques to keep abreast
of world demand. Smaller economies must undertake global
strategic repositioning in response to developments such as
globalization. This, in addition to helping them to avoid
becoming marginalised from the world economy, will allow them
to prepare themselves for the FTAA, to better participate in
the FTAA, and to benefit from the FTAA. FTAA participation, in
turn can act as a catalyst for the adoption of global strategic
repositioning policies by smaller states.
Conclusions
The issue of integrating small economies into the FTAA must
be addressed, if not there will not be a genuine FTAA. Small
economies make up the majority (25 by some estimates) of the
countries in the Hemisphere, hence their absence would make it
impossible to have a seamless hemispheric economic space. There
is no single, universally accepted method for classifying
economies as small or large. Different methods yield different
definitions of what is a small economy. Some indices suggest
that certain countries within the Western Hemisphere most often
exhibit the characteristics usually associated with being
small. These are the countries of the Caribbean and Central
America. It is therefore suggested that when dealing with this
issue, the smaller economies be thought of as the countries in
the Caribbean and Central America as well as those other
countries that consider themselves small and expressly declare
their status as such. In permitting self-selection, the FTAA
would be following an approach applied in the GATT and now the
WTO, whereby members select their own development status.
Special measures will have to be included in the design of the
FTAA to accommodate small economies and allow their
participation to be beneficial to themselves and the process of
free trade as a whole. The necessity for these measures arises
from the characteristics of small economies and their
implications from the growth and development of this type of
economy. Certain principles, as well as technical assistance
will ensure meaningful participation by small economies in the
negotiation process. The FTAA must include appropriate
treatment of small economies based on the principle of
``differentiated treatment.'' This will permit a process of
asymmetrically-phased assumption of disciplines in which small
economies must have longer adjustment periods. Meanwhile, given
the high degree of openness, undiversified structure and export
concentration, small economies must immediately commence a
preparatory process of strategic global repositioning.
National Association of Manufacturers
Introduction
The National Association of Manufacturers (NAM) supports
the goal of attaining a Free Trade Agreement of the Americas
(FTAA), as first set forth at the Miami Summit of the Americas
in January 1995.
At the Miami Summit of the Americas, it was not only agreed
to target the conclusion of negotiations for 2005, but the 34
participating countries also collectively agreed ``to make
concrete progress towards the attainment of [a Free Trade
Agreement of the Americas] by the end of this century.'' In
order to maintain the momentum of long-term negotiations and to
achieve interim concrete results, the notion of attaining an
FTAA ``early harvest'' has been discussed.
The NAM supports the concept of an early harvest, as set
forth below. Moreover, NAM strongly recommends that the
Ministers at the March 1998 San Jose Ministerial formally agree
to pursue an early harvest strategy and that they make the
issues listed below part of the formal FTAA early harvest
agenda.
Early Harvest Generally
``Business facilitation issues'' have been a central theme
of early harvest discussions. These proposals are considered
realistic and achievable as they do not require formal
negotiation or legislation, but instead lend themselves to
voluntary adoption unilaterally or collectively by businesses
and governments alike. Even if negotiations or legislation are
required, these issues are generally not considered
controversial and thus implementation should not be hindered.
In fact, their implementation is key to the facilitation of
international business transactions and the NAM urges that they
be pursued with vigor. NAM-supported business facilitation
issues are detailed below.
An early harvest strategy should definitely focus on more
than just business facilitation, however. For example, to
advance concrete and integrated economic development in the
region, transparent investment rules, regulations and practices
are a must. Latin America should not be painted with the
``Asian flu'' brush, but must demonstrate discipline and
transparency in this area to assure its trading partners of
liquidity, stability and predictability.
In order to anchor actual trade negotiations, a formal
Standstill Agreement should be reached immediately to ensure
there is no backsliding as formal negotiations begin in
earnest. In addition, de minimis duties (2 percent or lower)
could be eliminated as a show of good faith. Finally,
hemispheric adoption of multilaterally agreed zero-for-zero
commitments, as well as a balanced and early duty reduction and
elimination package, would be instrumental in shoring up FTAA
progress. (See further details below.)
As transparency is one of the most important issues for
trading partners, one goal might be to agree to hemispheric
adoption of an FTAA provision mandating transparency in all
participating countries' administrative and regulatory
procedures (e.g., something striving to encompass such core
principles as those embodied in, for example, the US
Administrative Procedures Act).
Another early harvest item might include a hemispheric
agreement regarding public procurement that incorporates the
core elements of the WTO Government Procurement Agreement and
the NAFTA Chapter 10 government procurement provisions.
Adoption of the Reference Paper on basic Telecommunications
would be another important step towards early liberalization in
the hemisphere. Finally, recognition and ratification of the
OAS convention, and adoption of the OECD convention (following
the example set by Argentina, Brazil and Chile) on anti-bribery
would be a key hemispheric early harvest item.
A defined and useful role for the Private Sector should be
set forth as soon as possible. The business sector obviously
has the hands-on experience of hemispheric transactions and has
much to contribute to the process. Furthermore, formal and
productive hemispherically-integrated discussion and submission
of business proposals will not only strengthen the content of
any final FTAA agreement, but produces its own early harvest of
closer hemispheric business ties.
Business Facilitation Issues
The following is a non-exclusive list of business
facilitation issues that US manufacturers would like to see
pursued in an FTAA early harvest:
*Distribution of Information: NAM supports the compilation
and publication of as much information as possible to enhance
the ability to conduct free and fair hemispheric transactions.
That information should be made available through a myriad of
mediums, including an FTAA homepage. The information should be
as comprehensive as possible and up-dated regularly to make it
useful. Information to be disseminated should include:
data regarding hemispheric trade flows, foreign
direct investment flows, tariffs (for individual countries and
for hemispheric regional blocs), non-tariff barriers, subsidies
and national payment instruments for commercial transaction;
guidelines for customs procedures;
an inventory of hemispheric laws and regulations
regarding competition;
an inventory of regulations and a list of agencies
responsible for public sector procurement, and a list of goods
and services frequently purchased by governments;
an inventory of hemispheric consumer-based market-
research, and market-needs analysis for goods and services;
an inventory of regulations and a list of agencies
responsible for administering dumping and countervailing laws
and regulations;
an inventory of regulations and a list of agencies
responsible for intellectual property rights;
an inventory of regulations pertaining to, and a
list of agencies responsible for, electronic commerce;
an inventory of regulations and a list of agencies
responsible for industrial standards and sanitary and
phytosanitary regulations;
an inventory of regulations and a list of agencies
responsible for foreign direct investment;
an inventory of corporate tax policies, updated
regularly to reflect any changes made thereto;
an inventory of regulations and a list of agencies
responsible for environmental policies, updated regularly to
reflect any changes made thereto;
a progress report on WTO rules compliance by the
34 participating countries within the hemisphere;
a continually updated inventory of infrastructure
projects and invitations to international tenders;
official written comments on the progress,
including recommendations and conclusions of, the governmental
Hemispheric Working Groups (HWGs), as they proceed with formal
negotiations, and in response to proposals of the Business
Forum of the Americas; and
the effective date and details for operation of
any business facilitation measures generally agreed to.
*Education: US manufacturers support the promotion of a
symposium on business facilitation with international
organizations (including the UN), governments (including
customs agencies) and the private sector to update the
participants on developments and present suggestions on
business facilitation, and to promote increased cooperation
between sister agencies such as customs and standards
certification entities.
*Customs Procedures: NAM supports a harmonized, efficient,
hemispheric customs system. To that end, NAM supports early
hemispheric agreement on the following:
collective adoption of the WCO Harmonized System;
collective adoption of internationally accepted
customs forms and procedures;
agreement to harmonize and simplify customs
procedures on the basis of the Kyoto convention;
collective adherence to the UN Electronic Data
Exchange System (EDE) that includes the exchange of structured
message EDIFACT/UN;
collective adoption of an advanced classification
ruling system providing certainty regarding classification
information prior to importation;
collective adoption of customs rules and
procedures to speed processing and effectively facilitate
voluntary compliance, including electronic filing and pre-
shipment clearance;
the establishment of simplified customs procedures
for low-cost shipments;
collective adoption of simplified customs
procedures, including the ATA CarnetConvention, for temporary
duty-free importation of products;
adoption of the principles of the WTO Intellectual
Property Agreement (TRIPS) to implement border enforcement of
standard procedures for administering intellectual property
rights;
agreement to implement the Agreement on
Interpretation of Article VII (Customs Valuation) of GATT 1994
to prevent against the burgeoning of differing import-price
determining regimes;
collective agreement to facilitate the creation
and use of free trade zones and bonded warehouses; and
collective adoption of a clear appeals provision
to provide a means for business to challenge Customs decisions
which they feel are erroneous or inequitable;
*Public Procurement: Government procurement practices
throughout the hemisphere should be non-discriminatory,
transparent in their administration, and free from corrupt
practices. To that end, the NAM strongly urges:
adequate notice for evaluating projects and
preparing bids, and in large or complex contracts, pre-
qualification of bidders;
the use of neutral or internationally recognized
standards wherever possible, and the use of performance
standards to ensure that equivalent products are treated
equally;
that objective criteria should be specified, as
should be the formula by which they will be applied, which
formula should be ascertainably followed in the selection
process;
that bids should be opened in public, in the
presence of all bidders;
that contracts should be awarded to the lowest
compliant bidder on the basis of objective criteria, or in
appropriate sectors (e.g., control processes, measurement and
medical equipment), on the basis of a ``best overall value''
approach anchored by transparent criteria and evaluation
procedures;
that contracting agencies should provide
unsuccessful bidders access to independent review of the bid
process and its compliance with these principles, including
adequate remedies for non-compliance by such agencies with such
principles; and
that the rights of the seller in its technical
data and patents are considered and respected as is necessary
in any fair and open government procurement process.
*Standards, Testing and Conformity Assessment: NAM
supports:
where applicable or appropriate (e.g., the
computer industry), promoting regulatory structures which
reference: internationally-accepted standards or suite of
standards; one test or suite of tests to meet those standards;
acceptance of a supplier's or third-party's test results; and
acceptance of a supplier's declaration of conformity, without
precluding the supplier from choosing the third-party
certification route;
the adoption of international standards, where
they exist, or standards widely accepted within an industry;
pursuit of sector-specific hemispheric Mutual
Recognition Agreements (e.g., telecommunications), not as an
end in themselves, but as an interim step towards regional
harmonization;
basing all standards on sound scientific research
and evidence;
the establishment of a hemispheric central
registry to which existing, proposed, and newly created
standards would be notified; and
the reduction of product marking/labeling
requirements to a single hemispheric system for demonstrating
conformity.
*Services: NAM supports the following:
collective adoption of international accounting
standards for use in the preparation of financial statements;
improved hemispheric securities market clearance
and settlement procedures;
streamlined procedures for the unrestricted
provision of financial information, particularly on a cross-
border basis;
streamlined procedures for the approval of
foreign mutual fund investment;
eliminating economic means tests and publishing
clear, transparent rules for the establishment of financial
entities;
increasing the number and types of financial
services that can be provided or consumed on a cross-border
basis; and
open participation in distribution services within
and between countries.
*Other: NAM supports early hemispheric agreement on the
following:
simplification of visa issuing procedures for
business travelers, including not requiring visas for short
visits;
the expedition of immigration procedures for
business visitors;
hemispheric participation in institutions such as
ISO, Codex Alimentarius and the Pacific Economic Consultation
Council (PECC);
the adoption of ``Principles for International
Contracts'' developed by the International Institute for the
Unification of Private Legislation (UNIDROIT);
the adoption of informal mechanisms to mediate and
arbitrate trade disputes;
requesting the Inter-American Development Bank
(IDB) to prepare a ``White Book'' showing the deficiencies of
existing hemispheric infrastructure, including regional
transportation difficulties and energy integration issues,
outlining the investment needed to solve them, and listing the
agencies responsible for project management and construction;
and
strengthening institutional consultation
mechanisms between the HWGs and Ministerials and the private
sector, by channeling information through a formal organization
such as the BNHI.
Additional Details for Early Harvest Issues
*Investment: It is critical that Western Hemispheric
investment regimes be non-discriminatory and transparent.
Financing strategies must be based upon sound investment
criteria. To avoid unfair competition in the attraction of
international direct investment, there should be hemispheric
agreement to only use incentives accepted by the WTO. Finally,
intra-hemispheric investment flows should be supported by
principles of MFN, national treatment, fair and equitable
treatment and impartial and fair dispute settlement.
*Tariff and Non-Tariff Measures: As was suggested in the
Business Forum recommendations from Belo Horizonte, a
hemispheric Standstill Agreement, covering both tariff and non-
tariff measures, should be reached as soon as possible.
Additionally, NAM urges early commitment to duty elimination
through the adoption of GATT ``zero-for-zero'' packages
(currently in effect for medical devices and semiconductor
fabrication equipment). Such agreement could be part of a
larger balanced duty reduction or elimination package comprised
of the following type of concessions: undertakings to consider
reducing high tariffs to levels which do not exceed a maximum
duty rate or to levels to at least allow a minimal amount of
trade to flow; elimination of ``nuisance duties'' (de minimis
duties of 2 percent or below); and hemispheric adoption of
multilaterally agreed zero-for-zero commitments. An early
package could tackle tariffs in each of the three categories,
and seek to achieve hemispheric results modeled after
agreements such as the ITA.
Such an early package could be agreed to on a non-
contractual basis, providing that the country be bound only in
the final FTAA package. The major contributions of countries
such as the United States and Canada would be in the
elimination of nuisance duties. The major contributions of
countries such as Brazil would be in reducing some of their
high duties. If actual implementation was prevented by the free
rider problem associated with MFN requirements, it could be
agreed early on that such reductions would be implemented as
soon as the FTAA went into effect or as soon as third countries
agreed to pay for their implementation.
*Role of the Private Sector: Establishing the role of the
private sector should be done as soon as possible. It is
important to define specific mechanisms for full private sector
participation that provide a regular, predictable and useful
framework for input. While it is recognized that formal trade
negotiations are conducted on a government-to-government basis,
parallel business community input will enhance both the content
and the implementation of an FTAA.
To that end, at the national level, the NAM endorses
regular and continuous briefings for the business community on
the status of FTAA negotiations, and recommends that the views
of all private sector advisors, official and otherwise, be
taken into consideration. At the hemispheric level, the NAM
endorses the continuation of the Business Forum of the
Americas, understanding that it may have to be modified to
reflect that the FTAA process is entering the formal
negotiating stage. NAM would be interested in seeing procedures
for formal government responses to consensus forum
recommendations, perhaps through set briefings from, or
meetings with, Chairpeople of the HWGs, and at intervals of
less than 12 months.
Conclusion
The NAM supports the launching of formal hemispheric trade
negotiations at the Second Summit of the Americas to be held in
Chile in April 1998. It is hoped that such negotiations will
based upon WTO disciplines and agreements as the floor for
further progress.
The NAM strongly supports the concept of an FTAA early
harvest to move the region concretely and progressively towards
the goal of hemispheric trade integration. To that end, NAM
urges the Ministers to explicitly direct the Vice Ministers to
define and pursue an early harvest agenda by mid-1998, with
first concrete results to be achieved by 2000 at the latest.
Should early harvest issues be achievable before and after the
year 2000, NAM supports a ``rolling harvest'' scenario as well.
It is hoped that all 34 participant countries will be
diligent and creative in pursuing business facilitation and
other easily achievable early harvest items. Hemispheric
private sector participation is crucial to this goal, and the
NAM stands ready to assist in the endeavor.
This paper was prepared by Dianne Sullivan, director of
international trade policy, of the NAM's Economic Policy
Department, in close coordination with the NAM's member
companies and the following associations: American Electronics
Association, American Forest and Paper Association, American
Iron and Steel Institute, Chemical Manufacturers Association,
Coalition of Service Industries, Distilled Spirits Council of
the United States, Grocery Manufacturers Association,
Information Technology Industry Council, JBC International,
Motor and Equipment Manufacturers Association, National
Electrical Manufacturers Association, Telecommunications
Industry Association, Transparency International USA, and the
United States Council for International Business.
This paper was also prepared closely in conjunction with
the North-South Center of the University of Miami and its
Adjunct Senior Research Associate, Stephen Lande.
Statement of Rubber and Plastic Footwear Manufacturers Association
On July 14, 1997, the Rubber and Plastic Footwear
Manufacturers Association (RPFMA), the spokesman for
manufacturers of most of the rubber-soled, fabric-upper
footwear, waterproof footwear and slippers made in this country
submitted a Statement to the Trade Subcommittee in connection
with the hearing the Subcommittee was then conducting on
negotiations for a free trade area in the Americas. The
concerns we expressed in that Statement remain valid today and
this submission, responding to the Subcommittee's request for
testimony on ``the anticipated impact of expanding trade in the
hemisphere on United States'... industries....'', is
essentially the same as our Statement of July 14, 1997.
Rubber footwear is a labor-intensive, import-sensitive
industry: Labor constitutes more than 40 percent of total cost,
and imports of fabric-upper footwear and of slippers take in
excess of 80 percent of the U.S. market and imports of
waterproof footwear in excess of 40 percent. These imports come
from countries where wages are from one-fifteenth to one-
twentieth of the level in the domestic industry.
In December 1997, the United States Department of Commerce
issued a report on trends and trade issues affecting the
domestic rubber footwear industry. In its overview of that
report the Department stated ``[b]oth rubber-canvas and rubber
protective footwear are standardized products that are produced
using mature, labor-intensive technologies commonly available
throughout the world. Capital requirements are low and
production requires no unusual skills or education. These
economic characteristics make it difficult for U.S. producers
to compete with producers in lower-wage countries.''
A free trade agreement with Latin America is unlikely to
enhance export opportunities for the products of this domestic
industry because of the difficulty of competing anywhere in the
world with such low-wage producers as China, Indonesia,
Malaysia, and now Vietnam. On the other hand, the elimination
of duties on imports of rubber footwear and slippers from Latin
America would cause havoc to what is left of this domestic
industry, particularly since countries like Chile, Brazil and
Argentina already have a significant number of rubber footwear
and slipper plants. Duties on fabric-upper footwear with rubber
soles average in excess of forty percent and duties on
protective footwear and slippers are, for most products,
thirty-seven and half percent. The elimination of these duties
would have a more serious impact than in the case of the
elimination of virtually any other duty.
In the early 1970s, there were some 26,000 production
employees making rubber and plastic footwear and 10,000 making
slippers in the U.S. By the end of 1996, these figures had
shrunk to 4,500 and 2,100 respectively. This downsizing is
attributable to the growth of the industry abroad.
The dozen or so rubber footwear and slipper companies left
in this country represent survival of the fittest. These
companies believe that they can continue to survive if there is
no further erosion in the present levels of their tariff
protection. Although they have already found it necessary to do
a significant amount of importing in order to remain
competitive, a majority of their production still occurs in
this country.
A dramatic example of the effect on this industry of duty-
free trade is what has happened in the Caribbean. Until 1990,
rubber footwear was excepted from duty-free treatment under the
Caribbean Basin Initiative. The 1990 amendment to the CBI
eliminated the exemption for footwear when that footwear is
made with American components. As a result of that elimination
of duties, rubber footwear imports from the Caribbean rose from
200,000 pairs in 1990 to in excess of 12 million pairs in 1996.
Accordingly, any agreement for a free trade area in the
Americas should provide for an exception for the very few
domestic industries, such as rubber footwear and slippers,
whose continued survival would be endangered by the elimination
of duties. Surely it was a recognition of the need for such
limited exceptions which accounted for the language of
paragraph eight in article XXIV of the GATT which defines a
free trade agreement as one where ``the duties and other
restrictive regulation of commerce ... are eliminated in
substantially all the trade between the constituent territories
or products originating in such territories'' (emphasis added).
The benefits which accrue from a free trade agreement would not
be diminished by protecting the minuscule fraction of one
percent of the country's trade represented by rubber footwear
and slippers.
RPFMA urges the Trade Subcommittee, in its report on the
current hearings, to adopt a view that the negotiation for a
free trade area in the Americas should have as its objective
the elimination of substantially all duties and that exceptions
may be made in those extraordinary situations where the
survival of domestic industries are at stake.
Appendix I. Rubber and Plastic Footwear Manufacturers Association
American Steel Toe
P.O. Box 959
S. Lynnfield, MA 01940-0959
Converse, Inc.
One Fordham Road
North Reading, MA 01864
(with a plant in North Carolina)
Draper Knitting Co.
28 Draper Lane
Canton, MA 02021
Genfoot
673 Industrial Park Road
Littleton, NH 03561
S. Goldberg and Co.
20 East Broadway
Hackensack, NJ 07601-6892
Hudson Machinery Worldwide
P.O. Box 831
Haverhill, MA 01831
Kaufman Footwear
Batavia, NY
LaCrosse Footwear, Inc.
P.O. Box 1328
LaCrosse, WI 54602
(with plants also in New Hampshire and Oregon)
Frank C. Meyer Co.
585 South Union Street
Lawrence, MA 01843
New Balance Athletic Shoe, Inc.
38 Everett Street
Allston MA 02134-1933
(with plants also in Maine)
Norcross Safety Products
1136 2nd Street
P.O. Box 7208
Rock Island, IL 61204-7208
Spartech Franklin
113 Passaic Avenue
Kearney, NJ 07032
Tingley Rubber Corporation
200 South Avenue
P.O. Box 100
S. Planfield, NJ 07080
Statement of U.S. Express Integrated Transportation Services Sector
I. Introduction
This statement is submitted on behalf of the following
companies who are members of the U.S. express integrated
transportation services sector (``ExITS'').
Airborne Freight Corporation
Burlington Air Express, Inc.
DHL Worldwide Express
Emery Worldwide Express
Federal Express Corporation (FedEx)
TNT Express Worldwide
United Parcel Service (UPS)
These companies comprise a large majority of the U.S.
express integrated transportation services sector, representing
more than ninety percent (90%) of the value of trade provided
by the U.S. companies making up this industry. In addition,
this statement is submitted on behalf of the Air Courier
Conference of America and the Cargo Airlines Association, two
related U.S. trade associations.
II. Summary
The U.S. ExITS sector has been actively involved in the
FTAA process and its experiences to date have been positive.
Through the Americas Business Forum process, and the Joint
Meeting of the FTAA Working Group on Services and Private
Sector (Santiago Chile, Oct. 1998), the U.S. ExITS sector has
been instrumental in the development of a series of sector
specific recommendations for consideration in the FTAA process.
If adopted, those recommendations would result in meaningful
trade liberalization for the sector, and a quantifiable
positive economic benefit to the U.S. companies of the ExITS
sector.
One recommendation of the ExITS sector represents an area
where early concrete progress may be had. At the IV Americas
Business Forum held at Costa Rica in conjunction with the
fourth FTAA Ministerial Meeting, industry representatives from
throughout the Western Hemisphere (including MERCOSUR)
recommended by unanimous consent that the FTAA countries adopt
and fully implement by June 1999 the so-called Cancun Accords.
The Cancun Accords is a document that sets forth a
comprehensive model of customs related procedures for express
integrated transportation services. Customs officials, and
industry representatives, from 16 Latin American countries
signed the Cancun Accords. The Cancun Accords precisely
represent the type of business facilitation measures that upon
early adoption in the FTAA process would expand trade, promote
economic prosperity throughout the hemisphere, and facilitate
across the board trade in goods and services. The U.S. ExITS
sector is eager to work with Congress, the U.S. Administration,
and governments and industry throughout the Western Hemisphere
towards the early adoption of the Cancun Accords.
The U.S. ExITS sector recognizes that USTR representatives,
in particular those involved in the FTAA and trade in services,
have been particularly instrumental in creating opportunities
for private sector input.
III. Purpose of Submission
In its March 17, 1998, notice, the Subcommittee announced a
hearing ``on the status and outlook for negotiations aimed at
achieving a Free Trade Area of the Americas (FTAA).'' The
Subcommittee noted that it was interested in examining the
``progress in the FTAA negotiations and how these talks affect
the national economic and security interest of the United
States,'' as well as the ``anticipated impact of expanding
trade in the hemisphere on United States workers, industries,
and other affected parties.''
The U.S. ExITS sector has been actively involved in the
FTAA process, including in several of the Americas Business
Forum meetings that have convened in conjunction with FTAA
Trade Ministerial Meetings. Given its interest and active
involvement, the U.S. ExITS sector appreciates the opportunity
to submit this statement to address the issues identified by
the Subcommittee, and to provide the Subcommittee its views
concerning its experience and vantage point as both a
participant in, and potential beneficiary of, the FTAA process.
IV. Overview of U.S. ExITS Sector
The U.S. express integrated transportation services sector
is made up of companies that provide express integrated
transportation services (``ExITS''), that is, the provision of
fast, efficient, and reliable pick-up, transport, and delivery
of a wide variety of goods of all sizes, shapes, and weight.
The distinguishing characteristic of the service provided by
the sector is the just-in-time shipment of goods and services.
The ``just-in-time'' concept not only implicates the timely
delivery of goods to production facilities, it also encompasses
the ``time-definite'' needs of the customer--either the
shipper, the recipient, or both. Every day in the United States
and around the world, consumers determine for a variety of
reasons to pay a premium for either shipping or receiving goods
or services on a just-in-time basis. U.S. ExITS companies
transport and deliver on a time sensitive basis such items as
business, commercial, educational and official documents;
packages; finished goods; parts and components necessary for
the manufacture of industrial goods; raw materials; high-value
items; perishable goods; and emergency supplies and medical
equipment.
The U.S. ExITS sector is a key contributor to the economic
prosperity of the United States. The ExITS sector employs more
than 400,000 people and has a combined annual revenue of more
than $45 billion. One of the U.S. ExITS companies is the fifth
largest private employer in the United States. The ExITS
companies operate more than 1,000 aircraft and 184,000 vehicles
in providing express integrated transportation services. On a
daily basis, they deliver more than 4.1 million packages by air
to more than 211 countries. The U.S. ExITS sector also
significantly contributes to the economies of other countries.
The two largest ExITS companies employ more than 50,000 people
outside the United States.
The ExITS sector involves more than just simple ``courier''
or freight services. What distinguishes the service provided by
ExITS companies from that of regular freight companies is that
the ExITS sector offers door-to-door, integrated, time-
sensitive shipment of goods and services. To provide this
service, ExITS companies handle all aspects involved in the
express shipment, including pick-up of the item, ground and air
transport, delivery, warehousing, distribution, customs
brokerage and customs clearance, and the completion of all
types of required administrative and customs procedures. With
the increase in the ``just-in-time'' method of manufacturing,
the services provided by ExITS companies will become even more
essential in the future. As discussed below, the service
provided by the ExITS sector is both essential and necessary to
the conduct of international trade and commerce.
V. The Benefits of Trade Liberalization Under an FTAA
The services provided by the express integrated
transportation services sector are a key facilitator to
international trade. The world trading community is
increasingly bound together by international aviation. On a
value basis, thirty seven percent (37%) of the goods and cargo
in world trade are transported by means of air express. If bulk
commodities such as oil and agricultural products are excluded
from this calculation, nearly fifty percent (50%) of all global
trade (by value) is transported by air. It is expected that the
importance of air cargo transport will increase in the future.
Industry analysts have estimated that the growth rate for air
cargo (measured in revenue ton miles) will exceed the growth
rate of world passenger traffic (measured in revenue passenger
miles) over the next twenty years.
As the world advances into the twenty-first century, more
and more of world trade will be represented by the kind of
goods transported by the ExITS companies, high-value items such
as electronic goods, computers and computer parts, optics,
precision equipment, medicine and medical supplies,
pharmaceuticals and chemicals, aircraft and auto parts,
avionics, fashions, high-value agricultural and perishable
goods, and intellectual property. Thus, the services provided
by the ExITS sector are vital to trade liberalization and trade
expansion in the Western Hemisphere and throughout the world,
and will be increasingly essential to the future growth of
international trade and commerce.
Unfortunately, the ability of the ExITS sector to provide
efficient and reliable service is impeded and adversely
affected by a large number of governmental measures applied to
services other than so-called ``courier'' services. In order to
provide its service, the ExITS sector performs a large number
and variety of services, such as, air and ground
transportation, air auxiliary services, distribution,
warehousing, customs brokerage, telecommunications, and freight
forwarding. Thus, effective trade liberalization for the sector
necessarily involves the reduction or elimination of all trade
restrictions and trade-distorting measures applied to various
services performed by the ExITS sector in providing express
integrated transportation services.
Under the FTAA process, the removal of trade barriers and
other impediments to the efficient operation of ExITS services
will stimulate trade expansion and have a dynamic effect on
other international business sectors in the Western Hemisphere.
Meaningful trade liberalization in the ExITS sector will act as
a catalyst in encouraging small and medium-sized businesses to
grow through expanded exports by freeing them from the burdens
associated with otherwise arranging for the transport and
delivery of their goods in international trade.
In addition, U.S. ExITS companies doing business in Central
and South American countries expand the economies of those
countries through the local sourcing of goods and services,
e.g., fuel, equipment, telecommunications, and technical labor.
Hence, the express integrated transportation service sector is
important because it does more than just facilitate trade, it
also acts as an expander and promoter of international trade.
Consequently, the elimination and reduction of trade
impediments and other measures restricting the services
provided by the ExITS sector should be a primary objective in
the FTAA process.
VI. Major Goals for ExITS Sector in an FTAA
As noted in detail below, the U.S. ExITS companies have
been actively involved in the FTAA process. The U.S. ExITS
sector has advanced the following major objectives and
principles.
A. All pertinent services should be included in negotiations in
the express integrated transportation services sector.
The FTAA negotiations should address all measures which
affect and encumber trade in express integrated transportation
services. As noted above, in order to provide their service,
ExITS companies must undertake activity in a number of service
sectors and sub-sectors. Hence, meaningful trade liberalization
cannot be achieved only by addressing, for example, ``courier''
services. Instead, trade restrictions applied in all services
performed in the provision of express integrated transportation
services must be addressed in order to achieve meaningful trade
liberalization for the ExITS sector. For this reason, all
pertinent services should be included in negotiations in the
ExITS sector.
B. The FTAA process should conduct sector specific examinations
in the context of negotiations on services.
As noted above, as a facilitator and promoter of
international trade, the ExITS sector plays a key role in trade
expansion in the Western Hemisphere. As the ExITS sector must
perform a wide variety of services in order to provide express
integrated transportation services, the trade restrictions
encountered by the sector represent governmental measures
applied in an equally broad segment of service sectors and sub-
sectors. As in other service sectors, e.g., financial services
and telecommunications, the governmental measures that restrict
trade in express integrated transportation services are of such
a diverse and complex nature that meaningful trade
liberalization will occur only to the extent that sector
specific rules and principles are developed for the ExITS
sector. This means that the sector must receive sector specific
treatment/examination during the negotiations.
A sector specific approach for the ExITS sector would
accord with the structure of the FTAA negotiations agreed to at
the most recent FTAA Trade Ministerial Meeting, held in San
Jose, Costa Rica in March 1998. In the Joint Declaration issued
at that meeting, the Trade Ministers established nine
negotiating groups, including one for services, and stated that
each of the negotiating groups may establish ad hoc working
groups with respect to issues that it determines are deserving
of focused consideration. The express integrated transportation
services sector merits, and should be accorded, such
concentrated treatment within the services negotiating group.
Specifically, Congress should require as a U.S. negotiating
objective that the U.S. Administration ensure negotiations for
the ExITS sector be undertaken on a sector specific basis.
C. The FTAA process should immediately address certain business
facilitation measures.
The trade ministers of the 34 countries engaged in the FTAA
process have recognized that certain business facilitation
measures that enhance trade may, and should, be agreed to and
implemented in advance of the conclusion of the FTAA process.
At the third FTAA Trade Ministerial Meeting, held in May
1997 at Belo Horizonte, Brazil, the trade ministers directed
their vice-ministers to ``review the reports of the [FTAA]
Working Groups and approve as appropriate their recommendations
on work programs, areas for immediate action and business
facilitation measures.'' Joint Declaration (May 16, 1997) at
para. 7 (emphasis added).
In their Joint Declaration issued at the fourth FTAA Trade
Ministerial Meeting, the trade ministers declared that the FTAA
process, which envisions the conclusion of negotiations by the
year 2005, should achieve concrete progress by the year 2000,
especially in the area of business facilitation measures. The
Joint Declaration of the San Jose Ministerial (at para. 18)
states:
We reaffirm our commitment to make concrete progress by the
year 2000. We direct the negotiating groups to achieve
considerable progress by that year. We instruct the TNC [Trade
Negotiations Committee] to agree on specific business
facilitation measures to be adopted before the end of the
century, taking into account the substantive work that has
already emanated from the FTAA process.
In the field of international trade, ``business
facilitation'' is similar to ``trade facilitation,'' which has
been defined as the systematic rationalization of procedures,
information flows, and documentation to facilitate
international trade. In concept, ``business facilitation''
measures include trade facilitation measures, but also cover a
broader field of measures. Thus, business facilitation measures
would not focus merely on trade in goods alone, but would
include any measure that facilitates international transactions
and the cross-border movement of goods and services.
One obvious application of a business facilitation measure
that would expedite the import, export, and trade of goods and
services would be the simplification and harmonization of
customs procedures and other measures that regulate
transportation procedures. For the ExITS sector in particular,
such business facilitation measures would represent a means for
effecting immediate trade liberalization. The implementation of
relevant business facilitation measures, such as the Cancun
Accords described below, which expedite the clearance of
express shipments would represent meaningful trade
liberalization for the ExITS sector.
1. Cancun Accords.--In October 1997, following the Belo
Horizonte Summit of the Americas Trade Ministerial Meeting, the
FTAA Working Group on Services and the private business sector
held a joint meeting in Santiago, Chile. At that meeting, a
sectoral commission focused on the ExITS sector issued specific
recommendations to the FTAA Working Group on Services, which
included the following recommendations regarding customs
procedures:
Customs procedures for express integrated transportation
services should be elaborated in the FTAA process based on the
International Customs Guidelines of the International Chamber
of Commerce, the Customs Guide of the World Customs
Organization, the Columbus Accords, the Cancun Accords, and the
Kyoto Convention.
The U.S. ExITS sector believes that the relevant customs
provisions contained in the referenced guidelines and
arrangements, in particular the Cancun Accords, constitute
business facilitation measures relevant to the FTAA process.
The Cancun Accords is a document that resulted from a meeting
of Customs Directors and private sector representatives of 16
Latin American countries held in June 1996 at Cancun, Mexico.
At that meeting, the customs officials from the 16 Latin
American countries signed a Memorandum of Obligation on Latin
American Customs Procedures for International Express Service
Companies, which is known as the ``Cancun Accords.'' The Cancun
Accords is a comprehensive regulation of ``the work of express
service companies.'' It addresses, inter alia, the type of
merchandise that may be transported by express services, the
modalities of transport used, the formalities to be complied
with, authorization to operate as an express service company,
and the customs procedures required to enter express service
shipments.
Given that the Cancun Accords were agreed to and adopted by
private sector representatives and customs officials of a
majority of the Latin American countries, the U.S. ExITS sector
strongly urges that the Cancun Accords be adopted and
implemented by the FTAA countries at the outset of the FTAA
negotiations as business facilitation measures manifesting
concrete progress in trade liberalization within the FTAA
process.
D. Prior work of the ExITS sector in the FTAA process.
The establishment of an FTAA would result in the world's
largest free trade area. Given the FTAA's huge scope and
potential implications for trade, the leaders of the Western
Hemisphere have foreseen from the very beginning of the FTAA
process the need to fashion a partnership with the private
sector in order to achieve a meaningful and beneficial result.
Consequently, the trade ministers of the 34 nations
participating in the FTAA process have expressly solicited and
welcomed the participation of the private business sector.
At the First Summit of the Americas held in Miami, Florida
in December of 1994, the leaders of 34 Western Hemisphere
nations issued a declaration of principles and objectives that
included the establishment of a free trade area by the year
2005. In an action plan accompanying the declaration, the
leaders stated that they would ``strive to maximize market
openness'' and ``strive for balanced and comprehensive
agreements,'' including agreements that addressed ``tariffs and
non-tariff barriers affecting trade in goods and services.'' In
addition, the leaders noted that while the ``primary
responsibility for implementing'' the Action Plan would fall to
the governments, they also declared that it was their intention
that ``some of these initiatives be carried out in partnerships
between the public and private sector.''
Subsequently, at each of the four FTAA Trade Ministerial
meetings which have been held so far since 1994, the trade
ministers have endorsed the participation of the private sector
in the FTAA process. At the First Trade Ministerial, held at
Denver, Colorado, in June 1995, the trade ministers announced
that they would establish a Working Group on Services at the
second ministerial meeting and welcomed the participation of
the private sector:
We are committed to transparency in the FTAA process. As
economic integration in the Hemisphere proceeds, we welcome the
contribution of the private sector ....'' \1\
---------------------------------------------------------------------------
\1\ Summit of the Americas, First Trade Ministerial Meeting,
Denver, Colorado, Joint Declaration (June 30, 1995) at para. 11
(emphasis added).
---------------------------------------------------------------------------
At the Second Trade Ministerial Meeting, convened at
Cartagena, Colombia, in March 1996, the trade ministers
reiterated the importance of the private sector's input in the
FTAA process:
We recognize the importance of the role of the private
sector and its participation in the FTAA process. We have also
agreed on the importance of Governments consulting their
private sectors in preparation for the Trade Ministerial
Meeting to be held in 1997. We reaffirm our commitment to
transparency in the FTAA process.\2\
---------------------------------------------------------------------------
\2\ Summit of the Americas, Second Trade Ministerial Meeting,
Cartagena, Colombia, Joint Declaration (March 21, 1996) at para. 15
(emphasis added).
---------------------------------------------------------------------------
Similarly, at the Third Trade Ministerial Meeting in May
1997, at Belo Horizonte, Brazil, the trade ministers again
recognized the importance of the private sector's
participation, noting that:
We received with interest the contributions for the Third
Business Forum of the Americas relating to the preparatory
process for the FTAA negotiations, which we consider may be
relevant to our future deliberations. We acknowledge and
appreciate the importance of the private sector's role and its
participation in the FTAA process.\3\
---------------------------------------------------------------------------
\3\ Summit of the Americas, Third Trade Ministerial Meeting, Belo
Horizonte, Brazil, Joint Declaration (May 16, 1997) at para. 14
(emphasis added).
---------------------------------------------------------------------------
Most recently, at the Fourth Trade Ministerial, held at San
Jose, Costa Rica in March 1998, the trade ministers again
declared that the private sector has played, and should
continue to play, a valuable role in assisting development of
an FTAA:
We recognize and welcome the interests and concerns that
different sectors of society have expressed in relation to the
FTAA. Business and other sectors of production, labor,
environmental and academic groups have been particularly active
in this matter. We encourage these and other sectors of civil
societies to present their views on trade matters in a
constructive manner. ...
In this regard, we value the contributions made by the
business sector through the Business Fora of the Americas of
Denver, Cartagena, Belo Horizonte and San Jose.\4\
---------------------------------------------------------------------------
\4\ Summit of the Americas, Fourth Trade Ministerial Meeting, San
Jose, Costa Rica, Joint Declaration (March 19, 1998) at para. 17
(emphasis added).
---------------------------------------------------------------------------
As shown, the trade ministers engaged in the FTAA process
have repeatedly recognized that the private sector plays an
integral role in trade liberalization in the Western
Hemisphere, and have thus welcomed and encouraged the input and
participation of the private business sector in the development
of an FTAA.
The U.S. ExITS sector, among others, has taken up this
invitation and has worked to assist the FTAA process make
measurable advances by addressing pertinent issues, including
sector-specific issues, approaches to the negotiations, trade
principles and obligations, and the structure of the free trade
agreement. The following describes the progress of the ExITS
sector in the FTAA process.
1. Santiago, Chile.--In October 1997, following the Belo
Horizonte Trade Ministerial meeting, the FTAA Working Group on
Services and the private business sector held a joint meeting
in Santiago, Chile. This meeting was significant for two
reasons. First, it was the first official joint meeting between
the private sector and an FTAA Working Group. Second, the joint
meeting involved examinations of seven specific service
sectors, including the express integrated transportation
services sector.
At the Santiago meeting, sector-specific commissions were
established for the seven sectors examined. The Sectoral
Commission for the ExITS sector developed detailed sector-
specific recommendations which were then presented to the FTAA
Working Group on Services. The ExITS Sectoral Commission was
composed of representatives of companies and regional and
national trade associations of the ExITS sector and, as such,
reflected the interests of the ExITS sector throughout the
Americas. The following are excerpts from the Preamble to, and
a summary of, the recommendations developed by the ExITS
Sectoral Commission at the Santiago joint meeting:
Preamble
The express integrated transportation service sector more
than facilitates trade: it expands and promotes both trade in
goods and trade in services. The hallmark of the service
provided by the sector is the just-in-time shipment of goods
and services. . . . Government regulations that impede the
just-in-time nature of the service effectively prevent the
provision of the service.''
Due to the door-to-door and integrated nature of this
sector, a large number of service sectors are involved in the
supply of just-in-time shipments, including air and ground
transportation, air auxiliary services, distribution,
warehousing, Customs brokerage, telecommunications, and freight
forwarding. . . . [L]iberalization of international trade in
the express integrated transportation sector necessarily
involves addressing the issues of trade restrictions and trade
distortive measures that are applied in all pertinent service
sectors.'' \5\
---------------------------------------------------------------------------
\5\ First Services Business Forum of the Americas, Sectoral
Commissions Recommendations to the FTAA Services Working Group,
Santiago, Chile (Oct. 1997) at 15.
---------------------------------------------------------------------------
Recommendations
1. the sector should be defined as the ``Express Integrated
Transportation Service Sector,'' not as ``courier services'';
2. the FTAA negotiations should be conducted on a negative
list approach;
3. the FTAA services agreement should contain a national
treatment provision as well as transparency and most-favored-
nation obligations, which specifically address services;
4. Customs procedures for express integrated transportation
services should be elaborated in the FTAA process based on the
International Customs Guidelines of the International Chamber
of Commerce, the Customs Guide of the World Customs
Organization, the Columbus Accords, the Cancun Accords, and the
Kyoto Convention;
5. the Services Working Group should create a liaison with
the Working Group on Customs in the elaboration of customs
procedures;
6. the FTAA Services Agreement should contain the following
disciplines with respect to postal services and the ExITS
sector: elimination of price regulation, discriminatory taxes
and fees, abusive monopoly practices, cross subsidization, and
preferential customs agreements, binding of government postal
services to the same measures applied to the private sector;
and requiring government postal authorities to maintain
separate fiscal organizations with respect to revenue from
postal business and revenue from express transport services;
7. the FTAA Services Agreement should apply the same rights
and obligations contained in the WTO Agreement on Subsidies and
Countervailing Measures;
8. the FTAA should contain disciplines on postal services
to eliminate unfair trade practices and trade distortion
resulting from the use of exclusive service providers;
9. the FTAA should contain disciplines to eliminate
discriminatory treatment with respect to ground transportation
regulations and the ExITS sector, in particular, regulation of:
vehicle weight and size, number of shipments, shipment weight
and size, use of highways and roads, documentation, type of
goods that may be shipped, parking, operating hours, and price
regulation; and that FTAA countries should strive to achieve
harmonization with respect to these areas;
10. the FTAA should contain a mechanism for the effective
protection and enforcement of intellectual property rights in
services, in particular, service marks;
11. the express integrated transportation service sector
should be the subject of sectoral negotiations in the FTAA
process.\6\
---------------------------------------------------------------------------
\6\ Id. at 16-17.
---------------------------------------------------------------------------
12. San Jose, Costa Rica.--The Fourth Americas Business
Forum was held in March 1998 at San Jose, Costa Rica, in
conjunction with the Fourth FTAA Trade Ministerial meeting. As
in prior Forums, workshops were for various trade areas,
including international trade in services. The services
workshop was divided into seven service sector workshops, one
of which was devoted exclusively to express integrated
transportation services. Representatives from the ExITS sector
from throughout the Western Hemisphere met and developed the
following recommendations.
Express Integrated Transportation Services
On the basis of the work undertaken by this sector in the
FTAA process, including at the III Americas Business Forum,
Belo Horizonte, Brazil, and the Joint Meeting of the FTAA
Working group on Services and the Private Sector, Santiago,
Chile, the representatives of the express integrated
transportation service sector at the IV Americas Business Forum
recommend the following:
Recommendations: Business Facilitation Measures
1. As there exists an accord on customs procedures for this
sector signed by all 16 of the FTAA countries present at
Cancun, Mexico, in June 1996, it is strongly urged that the
Cancun Accords be implemented by the FTAA countries prior to
June 1999, and that future revisions to the Cancun Accords be
incorporated within one year from the date of revision, and
that the express clearance guidelines of the WCO (World Customs
Organization) and the international customs guidelines of the
ICC (International Chamber of Commerce) be implemented on a
scheduled basis.
General Recommendations
2. The members of the FTAA should eliminate anti-
competitive measures applicable to the international
transportation and delivery of goods and services, including
anti-competitive practices by customs and postal authorities,
and eliminate taxes and fees used to subsidize government owned
or operated services. Specifically, it is recommended that the
laws, regulations, and governmental practices related to the
aforementioned measures and practices be amended prior to
January 1, 1999, to ensure the elimination of such measures and
practices by January 1, 2000.
VII. The U.S. Should Adopt As a FTAA Negotiating Objective That
Negotiations for the ExITS Sector Be Undertaken on a Sector-Specific
Approach
In the case of previous multilateral trade negotiations in
which the United States has participated, such as NAFTA and the
GATT Uruguay Round, Congress has in the course of granting
fast-track authority to the President outlined and issued
specific negotiating objectives and principles to guide the
trade negotiations. Congress should follow this practice with
respect to the FTAA and require that the Administration pursue
as a U.S. negotiating objective that a sector-specific approach
be undertaken with respect to the ExITS sector.
VIII. Conclusion
The U.S. ExITS sector has been actively involved in the
FTAA process and its experiences to date have been positive,
including in the development of business facilitation measures
which represent an area where early concrete progress may be
established in the FTAA process.
The U.S. ExITS sector appreciates the opportunity to
present this statement of its views and recommendations to the
Subcommittee on Trade with respect to the progress and
potential impact of the FTAA negotiating process.
Respectfully submitted, By:
Airborne Freight Corporation
Burlington Air Express, Inc.
DHL Worldwide Express
Emery Worldwide Express
Federal Express Corporation (FedEx)
TNT Express Worldwide
United Parcel Service (UPS)
Air Courier Conference of America
Cargo Airlines Association
Statement U.S. Integrated Carbon Steel Producers
This statement sets out the views of five major integrated
U.S. producers of carbon steel products--Bethlehem Steel Corp.,
U.S. Steel Group a Unit of USX Corp., LTV Steel Co., Inland
Steel Industries, Inc., and National Steel Corp.--on the
ongoing negotiations aimed at achieving a Free Trade Area of
the Americas. We commend the Subcommittee for holding this
hearing and appreciate the opportunity to express our views.
We support the concept of free trade in the hemisphere, so
long as the proper safeguards, trade remedies, and dispute
procedures are included to ensure that U.S. industries have
both effective access to the markets in the hemisphere and
recourse in the event of unfair trade practices.
Many different aspects of the FTAA will affect trade in
steel, as well as downstream products such as automobiles and
oilfield equipment. This submission addresses only those FTAA
issues that we consider most significant. If these issues are
properly handled during the negotiations and at the
implementation stage, we believe that the resulting FTAA will
be one our industry can support.
Antidumping and Countervailing Duties
An acceptable FTAA must not create new restrictions on the
use of WTO-authorized trade remedies. There is no reason why a
regional free trade agreement, such as the FTAA, should contain
``GATT-plus'' rules on AD and CVD. In fact, there are sound
policy reasons why the negotiation of such rules should not
even be attempted. These remedies are inherently multilateral
in their application, and applying different standards to
different exporting countries (e.g., special rules for FTAA
partners) would not only lead to massive confusion, but also
undermine the enforcement of the laws. For example, authorities
performing an injury analysis could be inappropriately
precluded from cumulating imports from different exporting
countries if a free trade agreement provided special injury
standards for some of those countries.
Furthermore, the multilateral rules regarding AD/CVD were
just recently renegotiated, and a new institutional structure
was established within the WTO for ongoing review of AD/CVD
measures and policies. These new arrangements must be given a
chance to work. In the future, it may be appropriate to
consider new proposals relating to AD/CVD rules, but only on a
multilateral, rather than regional, basis.
``Convicted'' dumpers and subsidizers of steel in the
Western Hemisphere include Brazil, Argentina, Venezuela, and
Trinidad and Tobago, as well as our NAFTA partners Canada and
Mexico. As shown by experience under the CFTA and NAFTA, a
``free trade'' agreement will not by itself eliminate the
underlying causes of all this unfair trade. Unfortunately, as
discussed below, the U.S. has given other FTAA governments
reasons to believe it is willing to negotiate over antidumping
rules on a regional basis. This would make it impossible for
domestic industry to support an FTAA.
Finally, the United States should learn from past mistakes
and block any adoption or extension of NAFTA Chapter 19-type
dispute settlement procedures. Just as there is no need for
GATT-plus substantive rules in a free trade area on AD/CVD, so
there is no need for GATT-plus dispute settlement procedures on
AD/CVD--especially when those procedures are used, as in the
case of Chapter 19, only to decide questions of national rather
than international law, which are more appropriately
adjudicated by national courts. In practice, the Chapter 19
mechanism has failed its most important tests, and the problems
that have surfaced--panelist bias, improper refusal to apply
national law, failure to implement, inconsistent decisions,
etc.--will only increase if additional countries are brought
into this deeply flawed system.
Competition Policy
The FTAA parties should strive to make affirmative progress
to curb private trade restrictions that distort trade in
industrial goods like steel. Private restraints are a
significant source of trade problems in the steel sector, and
in other sectors as well. Accordingly, we recommend that
measures be adopted in the FTAA to identify, and provide
recourse to those industries harmed by, such restrictions.
Given the significance of private restraints outside this
hemisphere that have caused steel trade problems, the precedent
established by such provisions would be beneficial.
However, FTAA competition policy discussions must focus on
trade restraints resulting from private conduct, and not on
public measures taken by governments that may affect
competition within their markets. It is particularly important
that competition policy be kept separate from antidumping, as
the issues raised in each sphere are fundamentally separate.
Unfortunately, recent developments apparently are inconsistent
with the Administration's commitment to prevent trade-and-
competition discussions from becoming a forum for attacks on
antidumping.\1\ The starkest example appears in the March 1998
FTAA Ministerial declaration, in which Ministers agreed ``to
give the mandate to the relevant negotiating groups to study
issues relating to: the interaction between trade and
competition policy, including antidumping measures . . . .''
---------------------------------------------------------------------------
\1\ Regarding the WTO trade and competition program, USTR Charlene
Barshefsky has stated:
[T]his is not an appropriate forum in which to discuss the
legitimacy or application of WTO-sanctioned trade remedies, such as
antidumping. . . . [W]e will block any attempt to use this as a vehicle
to renegotiate or weaken the WTO's rules against dumping.
---------------------------------------------------------------------------
Written Response to Questions from Senator Rockefeller: WTO
Trade and Competition Policy Working Party (Feb. 1997).
Unfortunately, it puts the United States in an
unnecessarily difficult position from the outset of the FTAA
negotiations, and it creates an inaccurate expectation on the
part of FTAA participants that the United States will entertain
proposals to subject antidumping rules to antitrust standards
which were designed to address altogether different problems.
Antidumping is not a competition policy issue. The
Administration should reaffirm this and should refuse to
countenance any further misuse of international competition
policy discussions.
Subsidies
The FTAA countries should consider strict new hemispheric
disciplines on subsidies. While national CVD remedies should,
as discussed above, remain in place, the FTAA partners should
seek to add new international disciplines as well. As a general
matter, FTAA members should eliminate existing, and commit not
to institute any new, subsidy programs. Any sectoral
derogations from this principle should be narrowly confined,
and should certainly not include steel manufacturing. The
United States does not subsidize its manufacturers, and other
countries participating in the FTAA should agree not to do so
either.
Rules of Origin
Finally, we recommend that the FTAA not undermine the
special rules adopted under the NAFTA for automobiles. These
rules require that a significant amount of the value of an
automobile be attributable to components originating in North
America in order for the automobile to qualify for duty-free
treatment under the NAFTA. The rules therefore encourage the
use of North American-made components, including U.S.
manufactured automotive steel products. These rules, which help
to ensure that the free trade area benefits its participating
members, should not be undermined as the free trade area
expands.
Conclusion
Carbon steel producers welcome the Subcommittee's active
oversight of what promises to be one of the most significant
U.S. trade policy initiatives over the next several years. As
stated above, we support the concept of free trade in the
hemisphere, so long as the proper safeguards, trade remedies,
and dispute procedures are included to ensure that U.S.
industries have both effective access to the markets in the
hemisphere and recourse in the event of unfair trade practices.
West Indies Rum and Spirits Producers Association
I. Rum Exports Are Critically Important to the Caribbean
Rum is a product of special importance for many Caribbean
Basin Initiative (``CBI'') countries. Rum has been produced in
the Caribbean for centuries, providing important contributions
to local economies as well as to the culture and folklore of
the region. Under the CBI, Caribbean rum producers have
increased their U.S. market penetration, earning much-needed
foreign currency and creating new jobs for the region. In no
small part, this success reflects substantial Caribbean
investments which were made in reliance on the CBI tariff
structure--and with a long-term perspective, given the time
required to establish such beverages in the U.S. market. The
U.S. International Trade Commission (``ITC'') has identified
rum as one of the products benefiting most from duty-free
treatment under the CBI, although some CBI suppliers have only
recently established a foothold in the large U.S. rum market. A
very substantial percentage of CBI rum imports are in the low-
valued segment of the market.
II. U.S. Trade Policy Has Long Recognized the Unique Status and Special
Needs of the Caribbean Rum Industry
Since 1984, the United States has enjoyed a special
relationship under the CBI with the Caribbean and the small
countries of Central America. This relationship has served
important U.S. foreign policy interests while providing
valuable trade preferences to the CBI nations.
The initial decision to include rum in the CBI was not an
easy or automatic one. The sensitivities of producers in the
U.S. territories (Puerto Rico and the U.S. Virgin Islands
(``USVI'')) led not only to a restructuring of the excise tax
arrangement between the territories and the U.S. Government (as
discussed below), but also to a request for annual rum market
monitoring by the ITC \1\ coupled with a grant of authority to
the President to re-impose controls on CBI rum if necessary.\2\
In actuality, Caribbean suppliers have utilized CBI duty-free
status to gain a foothold in the U.S. market without generating
any disruptive import surges or negative consequences for the
economies of Puerto Rico or the USVI.
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\1\ The Senate Finance Committee requested annual monitoring under
section 332(b) of the Tariff Act of 1930. On January 13, 1984, the ITC
instituted investigation No. 332-175, Rum: Annual Report on Selected
Economic Indicators. This investigation terminated in 1995 at the
request of the Senate Finance Committee.
\2\ Section 214(c) of the Caribbean Basin Economic Recovery Act
provides that ``[i]f the sum of the amounts of taxes covered into the
treasuries of Puerto Rico or the United States Virgin Islands . . . is
reduced below the amount that would have been covered over if the
imported rum had been produced in Puerto Rico or the United States
Virgin Islands, then the President shall consider compensation measures
and, in this regard, may withdraw the duty-free treatment on rum
provided by this title.''
[GRAPHIC] [TIFF OMITTED] T6186.006
In the 14 years since that initial CBI debate, Congress and
the Executive Branch have continued to recognize the unique
role that rum plays in the legal, economic and political
relationship between the United States and the Caribbean. On
several occasions, they have acted to protect Caribbean rum
producers from competitive harm. In 1987 and 1990, for example,
the Administration rejected petitions submitted under the
Generalized System of Preferences for duty-free entry of rum
originating in non-Caribbean countries.
Similarly, in 1991, rum was specifically excluded from the
list of eligible articles under the Andean Trade Preferences
Act, which contemplated duty-free access to the U.S. market for
a number of other products originating in Bolivia, Ecuador,
Colombia and Peru. This outcome reflected the considered
judgment of both Houses of Congress as well as the
Administration. In explaining the exclusion of rum, the House
Committee on Ways and Means stated:
The Committee added rum to the list of articles that would
be ineligible for duty-free treatment under the Act in order to
preserve the benefits that the Congress has provided to Puerto
Rico, the Virgin Islands, and the Caribbean Basin countries.
Rum is a product which the ITC has identified as benefiting
most from duty-free treatment under the CBI. . . . Andean rum
producers have significant natural resources and cost
advantages over their Caribbean and U.S. Territorial
counterparts as well as large excess production capacity. H.R.
Rep. No. 102-337 at 15 (1991) (emphasis added). The concern
over ``cost advantages'' and ``excess production capacity'' in
the case of the Andean countries is heightened several fold
when one looks at some of the other, much larger South American
countries such as Brazil and Venezuela.
This concern over rum also extended into the North American
Free Trade Agreement (``NAFTA''), where rum was one of products
designated by the U.S. Government for an extended duty
phaseout.
More recently, the unique concerns and vulnerabilities of
the Caribbean rum industry were recognized in a U.S.-EU tariff
agreement executed in connection with the December 1996 WTO
Ministerial in Singapore. The agreement initially contemplated
would have quickly eliminated both territories' tariffs on all
white spirits. However, after focusing on the negative
implications for the Caribbean of such a drastic change,
negotiators fashioned a tariff phaseout package that more
appropriately balanced trade liberalization with regional and
developmental concerns. Specifically, a pricing mechanism was
developed that preserves MFN tariffs on (and thus the duty
preference for Caribbean suppliers of) inexpensive bulk and
bottled rum. This price mechanism limits displacement of
Caribbean exports, which continue to enjoy duty-free access to
both markets (under CBI in the United States and under LOME in
Europe).
III. U.S. Rum Trade Is Also Critically Important to the U.S.
Territories in the Caribbean
The governments of Puerto Rico and the USVI are dependent
upon the continuing health and vigor of their rum industries
for their financial self-sufficiency. Congress has provided
that federal excise taxes collected on rum manufactured in
Puerto Rico or the USVI shall be returned to the treasury of
the appropriate territory. This special treatment was
reinforced and expanded as part of the 1983 CBI legislation
when Congress provided that rum excise taxes would be covered
over to Puerto Rico and the USVI whether the rum was produced
in the territories or imported (e.g., from CBI beneficiary
countries.) This modification illustrates the history of
sensitivity in U.S. tax and trade policy where rum is
concerned, and the need for a careful approach that balances
multiple policy goals.
Today, the excise tax cover-over accounts for nearly 10% of
the total budget of the USVI government (about $44 million
annually) and nearly 7% of the total budget of Puerto Rico
(about $220 million annually). But the impact of these funds is
not limited to the actual dollars transferred. Particularly in
the USVI, cover-over revenues have been pledged as security for
much larger amounts of public borrowing, so that they
indirectly finance a variety of construction projects including
schools, health care facilities, airports and much of the
island's capital infrastructure.\3\ The number of direct jobs
generated by these capital expenditures runs into the
thousands--far outpacing the number of jobs in the rum
industry, which is itself one of the largest export industries
in the territories. As such, the rum industry remains one of
the most important sources of revenue for the governments of
the USVI and Puerto Rico.
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\3\ Estimates of the public debt secured by cover-over revenues as
high as $300 million in the USVI alone.
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IV. Hemispheric Trade Discussions Should Not Be An Occasion to
Eliminate What Has Been So Painstakingly Accomplished--Deference to the
Traditions and Economic Importance of Caribbean Rum
The Singapore tariff package containing the price mechanism
for rum is the result of intensive diplomatic negotiations and
represents a balanced accommodation which should be preserved.
This balance--between the goal of trade liberalization and the
equally important goal of developing and sustaining unique
regional industries, such as the Caribbean rum industry--should
not be lightly abandoned in FTAA discussions or new WTO
discussions.
Yet, this balance will be destroyed if rum does not receive
careful treatment in the FTAA. South American producers enjoy
tremendous cost and competitive advantages--including plentiful
raw material supplies and low energy prices--over their
counterparts in the Caribbean. In fact, if one excludes the
NAFTA countries (Mexico, Canada and the United States), the
hemisphere's 11 largest economies in terms of gross domestic
product are South American countries, led by Brazil, while the
smallest are all Caribbean island nations. The combined gross
domestic product of the large South American countries exceeds
that of even the largest CBI countries by a factor of more than
47 to 1.
[GRAPHIC] [TIFF OMITTED] T6186.007
As a result, South American producers will quickly
overwhelm Caribbean producers of low-valued rum if the existing
U.S. tariffs on such rum are eliminated under the FTAA. The
U.S. duty has been critical to the continued viability of
producers of low-valued rum in CBI beneficiary countries and in
the USVI in particular. Because low-valued rum generally lacks
name brand identification and a well-developed distribution
network, it must compete almost exclusively on the basis of
price. In this segment of the rum market, pennies can literally
make or break a sale. If displaced by South American rum
producers, Caribbean producers will lose their foothold in the
U.S. market, and important aspects of Caribbean economic
stability will be jeopardized. The following chart demonstrates
the impact on the U.S. rum market of the potential diversion of
just 2% of current Brazilian production into the U.S. market.
[GRAPHIC] [TIFF OMITTED] T6186.008
For CBI rum producers, such a blow would be particularly
difficult as it would coincide with potential disruptions in
the EU, where the current LOME arrangement, which provides the
Caribbean its duty-free status, is set to expire on January 1,
2000. One lesson of the Singapore tariff negotiation and other
recent events is that U.S. and EU authorities must take care to
coordinate their approach to all trade initiatives affecting
such sensitive Caribbean products as rum--ensuring policy
coordination even though the United States is not a formal
participant in LOME discussions nor the EU in FTAA discussions.
For the Caribbean governments, any developments relating to
rum will naturally be seen in the context of other recent U.S.
trade policy actions widely believed to undermine the special
U.S.-Caribbean relationship that has developed over many years.
In particular, U.S. credibility in the region is suffering from
the failure to extend NAFTA-like trade benefits to the
Caribbean, and from the recently concluded WTO dispute
settlement case against a European Union banana import regime
benefiting Caribbean banana production. In light of these
recent developments, it is especially important that the United
States approach the FTAA/rum issue with great sensitivity. In
addition, there has always been a strong bond between the
allure of the Caribbean as a tourist attraction and the cachet
of its rum industry. Tourism remains the most critical of
Caribbean industries both for jobs and currency, and, in many
ways, the vitality of these two industries will always be
intertwined.
Finally, for the U.S. territories, and especially the USVI,
an increase in U.S. imports of low-end rum would have a
profound negative impact. The USVI relies on cover over of
federal excise taxes on low value rum for a significant portion
of its annual budget. To the extent that USVI shipments are
replaced by imports, the net cover-over payment to the USVI
will be sharply reduced since the USVI gets only a small share
of the cover-over on non-USVI rum. Removal of the price
mechanism would create severe budget problems for the USVI.
V. Conclusion--The Existing U.S. Tariff Structure for Rum Should Be
Preserved
The United States has long recognized the unique status and
economic importance of Caribbean rum exports. U.S. trade policy
toward the Caribbean generally reflects the need to balance
trade liberalization goals with other legitimate regional,
political and developmental goals. Rum is a particularly
deserving candidate for application of that enlightened policy.
The recent Singapore tariff package was a watershed event,
when officials of all concerned governments focused closely on
the issue and fashioned a creative and balanced solution. That
solution--a pricing mechanism that preserves the Caribbean duty
preference at the low-priced end of the market while phasing
out tariffs in the higher-priced market segment--allows both
large and small producers in all producing regions to benefit.
It should not be undermined in the context of FTAA discussions.
Furthermore, the commercial value of this negotiated agreement
should be protected, through indexing, from eroding over time
as a result of inflation.
While standing by the Singapore price mechanism and the
important principle it represents, the United States can
continue to phase out its tariffs on high-priced rum from all
sources, both within and outside the Western Hemisphere, as
called for in the Singapore agreement. This approach is
consistent with WTO rules, since a free trade agreement that
leaves tariffs in place on low-priced rum can still qualify
under the GATT Art. XXIV test for liberalizing ``substantially
all'' trade. Meanwhile, preserving the rum duty structure will
maintain continuity with current U.S. trade policy and will
avoid delivering yet another economic blow to the fragile
economies of the Caribbean.
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